The Option Investor Newsletter Tuesday 01-30-2001 Copyright 2001, All rights reserved. 1 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/013001_1.asp Posted online for subscribers at http://www.OptionInvestor.com ************************************************************ MARKET WRAP (view in courier font for table alignment) ************************************************************ 01-30-2001 High Low Volume Advance/Decline DJIA 10881.20 +179.00 10900.80 10683.00 1.14 bln 1865/1238 NASDAQ 2838.35 + 0.01 2861.71 2817.13 2.07 bln 2162/1638 S&P 100 718.46 + 6.91 719.74 708.76 totals 4027/2876 S&P 500 1373.73 + 9.55 1375.68 1356.20 58.3%/41.7% RUS 2000 511.66 + 3.75 511.67 506.82 DJ TRANS 3058.78 + 57.45 3062.01 2997.41 VIX 25.20 + 0.27 26.22 24.82 Put/Call Ratio 0.64 ************************************************************* Greenspanticipation? If you were watching the Dow today you would have thought the Fed meeting was yesterday. With a high of exactly 10900 and a gain of +198 the Dow, you would have thought traders were celebrating a -.75% rate cut. The euphoria was due to comments from several Fed watchers that the Fed could actually cut rates more than the expected 50 basis points. Unfortunately the excitement has not rubbed off on the Nasdaq. After trading in a very tight 45 point range the Nasdaq finally closed positive, okay only a +.01 but it counts. The Dow was up strongly but volume was mediocre at only 1.1 billion. The Nasdaq did manage to trade over two billion shares without going anywhere. This no loss profit taking is boring but much better than the alternative. The Dow was boosted by NYSE:PG which beat estimates by a penny and AT&T closed at a three month high. Only five Dow stocks lost ground and those included NYSE:BA -.31, Nasdaq:INTC -.06, Nyse:MCD -.70, Nasdaq:MSFT -1.13 and Nyse:WMT -.43. The biggest gainers were Nyse:MMM +4.11, PG +4.25 and Nyse:DD +2.25. The excitement was of course based on expectation of a strong rate cut on Wednesday. While most traders feel the worst earnings are behind us there were several bombs after the close. Nasdaq:AMZN announced their earnings which were in line with the already reduced expectations but then warned that revenue would be down not only for next quarter but for the year. Amazon is also closing two of their new distribution centers and laying off 1300 employees. They still are projecting the fourth quarter of 2001 as their first profitable quarter but analysts are skeptical. Projecting ultimate profitability to be only in the range of 10% of revenue it may cause investors to rethink AMZN as a buy and hold. There are so many other great stocks that are growing +50% to +100% per year and are making huge profits. Why would you want to own a ten percent gainer? Nasdaq:ADBE warned after the bell that conditions in the last month had deteriorated drastically and economic weakness was impacting all product segments. They had previously said business was strong but that appears to have changed. ADBE lost -$10 in after hours. NYSE:NOK was the last of the three largest cell phone handset manufacturers to lower projections going forward. Nokia had been viewed as the bright spot in the business but the warnings this morning knocked over -$3 off the price before bargain hunters stepped in. Down only -1.71 at the close to $35.26, analysts were calling this a buying opportunity for long term investors. The damage is done and the downside is limited to around $30. That may be but $30 is better than $35 in my book. Sales growth of 35% is still projected by Nokia. Another after the bell warning came from Nasdaq:AMAT which had just broken out today to a three month high of $53.94. We even looked at it as a play tonight but with the SOX.X up +37% for the year we felt any post Fed depression could cause a chip sector drop and profit taking in AMAT. After closing at 52.44 AMAT traded as low as 47.19 in after hours but rallied to $51 later in the session. NYSE:SCH, Schwab asked employees who do not have customer contact to start taking off on Fridays. When first announced SCH took a big drop when it was misreported as all employees. When questioned Schwab said online trading was slowing and commission revenue was dropping. This cost cutting measure was voluntary and needed. NYSE:CCU also warned that earnings would be about -$.12 less than analysts estimates of $.63 for this quarter. Contrary to what you have been reading not everything was negative. There were some positive surprises with Nasdaq:AFCI beating the street by eight cents, Nasdaq:PSFT beat by four cents and Nyse:HAL by two cents. It is all up to the Fed! That was the hue and cry all day long with analysts pondering and forecasting everything from no cut to cutting a full point. Take my word for it, neither of those extremes will apply. We are pretty well locked into a 50 basis point cut. Greenspan has gone on record saying the economy is threatening to fall into a recession without an immediate jump start by the Fed. A -.25% cut would be seen as too little too late. A giant rate cut of 75 points or more would cause a knee jerk reaction to "what does the Fed know that we don't." The markets would likely tank while all the chicken littles ran in circles claiming the sky was falling. So, ignoring either end of the spectrum we are expecting a 50 basis point cut. The bad news, it is already priced into the market. After the Dow gains today it is definitely priced into the Dow. At 10900 it is bumping against upper resistance and due for profit taking. The huge gains since the Jan 3rd surprise rate cut have yet to be digested. Since the Jan lows the SOX is up +37%, BTK +27%, IIX +22%, NWX +23%, and XTC +32% for example. I am not going to dwell anymore on all the Fed pros and cons since you have heard them for several weeks now. The possibility of a sell the news event probably doubled with the big Dow gain today. However, it has been quite some time since we have had a full 1.00% rate cut in a single month. 1982 was the last time. This is the wild card. Stocks go up when the Fed cuts rates aggressively and 1.00% in a single month definitely qualifies. They just don't have to go up the same day. I would be very careful about buying any huge spike after the announcement and would look for a buying opportunity a day or two later. If we get another big move in the morning, buying puts on the announcement could be a good plan. Enter passively, exit aggressively! Jim Brown Editor ************************************ 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 TradersAccounting.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=1484 ************************************************************** **************** MARKET SENTIMENT **************** Full Basis-Point Cut By Austin Passamonte You've heard it here first: It's possible Greenspan and co. might just go a wee bit further than 50-basis cut tomorrow. Fed-Fund futures hint at a slight chance of an additional 25-basis point cut between now and the March 20th meeting. CNBC first mentioned this around 8:30am EST today and only several dozen times after that. Could it be any correlation to the Dow blowing up on its cyclical backs late in the afternoon? Market Sentiment wields its share of index-moving power as well. Shucks, if spreading rumor is all it takes to push the pile, we say the FOMC will announce a full-point cut tomorrow! Now if all of our loyal followers (both of you) just spread the word, no telling where the Nasdaq 100 will go from here! In all seriousness and strictly personal opinion, we happen to feel that CNBC did its viewers a great disservice today. Every anchor with no exception mentioned the possibility of a .75-point cut tomorrow afternoon. Of course these statements were followed by caveats and disclaimers but by then the seed of hope had long since been planted in retail trader's minds. The market expects .50-basis cut and has in all probability priced that in. Any chance we have to support current levels and rally from here is founded on realized expectation. CNBC on its own raised the bar of expectation and likewise odds to disappoint as well. If any of today's Dow activity was reflected by these lofty hopes, what happens when a generous and almost unheard of a second monthly .50-basis is realized instead? Breakout above 11,000 for the Dow? 3,000+ for Nasdaq? Spreading these rumors assured market bulls cannot win. Say we get our almost certain .50-point cut tomorrow. What then? Well, another leg up may be in the offing for the Dow and perhaps Nasdaq heading in. Some of that assuredly in hope of .75-point cut also sure to be trumpeted again. A .50-point cut will disappoint and .75 that would have pleasantly surprised is now somewhat hoped for and/or expected instead. How can bulls win? A 1.00-basis cut? At 2:15pm rumor becomes news and 105 minutes of trading remains until the bell afterwards. Shall we weigh the evidence? First of all, Nasdaq markets cannot even mount much of a rally in anticipation of any cut and that's before AMAT and ARBA warned. What will drive them higher after beyond? Earnings (or lack thereof) season winds to a close soon as well. Will that propel markets up? What do index charts prove usually happens right after earnings season ends? Daily-chart stochastic signals are now at or buried in oversold extreme zones. They could remain pinned up there for some time as price levels rocket to the moon but relief must occur before long. A pullback is inevitable, just a matter of when and how far. The VIX and VXN haven't bottomed yet but are trading near bearish reversal levels. A break of 22.00 by the VIX would be a clear warning that things are getting toppy. Front-month Eurodollar futures contract posted all-time contract highs today and gold prices were up sharply as well. These are defensive moves in what should be an offensive time. Big money is at record level shorts over in the CME as chronicled this weekend. The fact that they are even more bearish than before the first rate-cut and knowledge of this one ahead shows how they feel about our future direction ahead. Try as we might, we cannot think of one compelling reason for market levels to move far higher and stay there. Our great preference would be for all markets to gently pullback every Monday morning about 10:00am EST to let us enter call plays and then rally straight up until Friday noon. Then we could sell for 500% gains and begin the long & arduous weekend ahead. Repeat steps one and two the following week and there ever aft. Would that arrangement suit you? We could sell Thursdays at noon for 400% gains instead and take 3 1/2 days off. Take your pick and we'll do our best to make it happen. Heaven knows CNBC is trying to as well. **** VIX Tuesday 01/30 close: 24.99 VXN Tuesday 01/30 close: 62.50 30-yr Bonds Tuesday 01/30 close: 5.61% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. Tuesday (01/30/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 755 - 740 6,768 282 24.00 735 - 720 7,608 1,314 5.79 OEX close: 718.46 Support: 715 - 700 8,112 7,577 .93 695 - 680 3,521 6,970 1.98 Maximum calls: 740/3,290 Maximum puts : 650/4,731 Moving Averages 10 DMA 708 20 DMA 697 50 DMA 701 200 DMA 758 NASDAQ 100 Index (NDX/QQQ) Resistance: 76 - 74 19,116 3,203 5.97 73 - 71 26,365 1,377 19.15 70 - 68 76,897 8,270 9.30 QQQ(NDX)close: 66.75 Support: 65 - 63 46,222 46,576 1.01 62 - 60 25,801 58,116 2.25 59 - 57 11,353 11,581 1.02 Maximum calls: 70/57,995 Maximum puts : 60/44,368 Moving Averages 10 DMA 66 20 DMA 62 50 DMA 64 200 DMA 83 S&P 500 (SPX) Resistance: 1450 9,355 310 30.18 1425 18,111 4,735 3.82 1400 15,576 1,806 8.62 SPX close: 1373.73 Support: 1350 13,519 9,984 .74 1325 11,816 12,800 1.08 1300 3,264 12,973 3.97 Maximum calls: 1425/18,111 Maximum puts : 1300/12,973 Moving Averages 10 DMA 1353 20 DMA 1334 50 DMA 1334 200 DMA 1417 ***** CBOT Commitment Of Traders Report: Friday 01/26 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials DJIA futures (Current) (Previous) (Current) (Previous) Open Interest Net Value +426 +1909 -7528 -8322 Total Open interest % (+5.66%) (+20.07%) (-30.35%) (-34.26%) net-long net-long net-short net-short NASDAQ 100 Open Interest Net Value +1262 +1131 -4061 -4045 Total Open Interest % (+8.36%) (+6.51%) (-5.90%) (-6.39%) net-long net-long net-short net-short S&P 500 Open Interest Net Value +69952 +69254 -91053 -89836 Total Open Interest % (+37.54%) (+37.35%) (-12.11%) (-11.84%) net-long net-long net-short net-short What COT Data Tells Us ********************** Indices: The disparity between Commercials and Small Specs remains intact on the S&P 500. Small Specs have reduced their net-long positions on the DJIA while Commercials are showing a modest reduction in DJIA net-short positions Interest Rates: Commercials are moderately short T-Bond and T-Note futures. (mildly Bearish) Currencies: Commercials continue to build heavily short Euro futures while small specs build net long. Small specs are betting on interest rate reduction while commercials remain skeptical. (Bearish) Energies: Commercials are net-long crude & oil products at one year extremes. These producers are hedgers and almost always take the opposite side of expected market action to lock-in production prices. They expect lower prices from here (Bearish) Metals: Commercials are moving to net-long in Gold, Silver and Copper from short positions. This has happened quickly and they expect higher precious metals soon. (Bullish) COT/CRB: This commodity index measures the entire spectrum of commodities in overall bullish or bearish outlook. It is now at a one-year high for commercial bullishness, meaning the outlook for commodities is long-term positive while equities as a mirror are considered long-term negative. Data compiled as of Tuesday 01/23 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/013001_1.asp *********** OPTIONS 101 *********** Welcome To The Real World By David Popper Machines hate me. One summer between my sophomore and junior years in college, I worked in the machine room at Florida Power and Light. My job was to assist in the running of the bill stuffing machine. The bill stuffing machine was a long machine that resembled an assembly line. The bills and any inserts were pulled down by suction cups, merged at the end and inserted into envelopes. Anyway, that was the plan. The suction cups had to be adjusted constantly. Something always went wrong. The supervisor was named Fred. Fred had been supervisor of the machine room for 20 years. He was not fond of summer interns. On the day that I arrived he said "welcome to the real world college boy." He gave me a brief 5 minute orientation and then put me on the most complicated machine in the place explaining that college boys should be smart enough to figure it out. As I said, machines do not like me. Naturally, the machine broke down in every conceivable fashion--and often. Each time it broke, Fred would swoop down, fix the machine and say, "welcome to the real world, college boy." I followed procedures exactly and it still broke down. Here came Fred barreling down the hall to fix the machine and get another crack at me. After I explained that I followed all procedures exactly, Fred unknowingly said something profound. He said, "sometimes even when you do everything right, the machine will still break down. Welcome to the real world." This bears repeating. Sometimes when you do everything right, things still do not work out. Welcome to the real world. Welcome to the stock market. In the market, it is not a question of if things break down, it is a question of when and a question of what you are going to do about it when the breakdown occurs. The whole reason newsletters exist is to help predict the market as it exists today and make recommendations as to how to proceed. You can conduct some of analysis yourself. First, understand that there are 3 types of risks to owning any stock. These risks are: 1. Market Risk 2. Sector Risk 3. Stock Risk By analyzing the above, you can improve your odds of success. Below I will briefly discuss each risk. 1. Market Risk. It is generally known that most stocks follow the general trend of the market. There are many ways to discern the general market direction. Some talk about news driven events and technical charts of the general averages. Others discuss support and resistance levels of general averages, the volatility index, the positions of the commercial traders (who are usually correct), and other general items. These items are all important. Probably the most important item is market liquidity. The Fed controls market liquidity. The maxim "don't fight the Fed" is historically correct. Now the bond market is anticipating at least another 100 to 150 basis points in rate cuts this year. This causes the smart money to anticipate better earnings in the second half of this year. This is why stocks like Intel (NASDAQ: INTC) are rising in spite of being in the middle of a slowing business cycle. The prospect of rate cuts changes the sentiment in the market and will cause support for the market. Once this bottom is established, fund managers, who are underexposed to the tech sectors, will be compelled to enter the fray or risk falling behind their competition. This is how rallies are born. In short, the general market is looking good, even if short term profit taking emerges from time to time. 2. Sector Risk. Typically stocks perform similarly to other stocks in its sector. You will often hear people explaining that one stock may be up or down because it is trading in sympathy a related stock. This is normal. This is not to say that superior stocks in a sector will not outperform sector laggards. It simply means that momentum in a sector will affect a stock's performance. One way this information is helpful is to notice which sectors have performed the best after a serious market decline. 3. Stock Risk. As mentioned before, in each sector there will be stars and there will be laggards. In my opinion, it is safer to trade the most established stocks in the sector. Some people call these stocks the "gorillas" of the sector. Even gorillas can suffer a bad event and suffer a severe drop. Therefore, if you are to trade individual stocks, it is good to be aware of its quarterly reporting date, analyst meetings, participation in conferences, and dates of stock splits. These events can infuse momentum into a stock. Understanding these concepts and trading accordingly can certainly increase your odds of success, but it doesn't guarantee success. Sometimes even when you do everything right it can still come out wrong. Welcome to the real world. Next time, let's talk about what to do when things go wrong. ************** TRADERS CORNER ************** Ultra-Deep ITM Covered Call Play: How'd It Turn Out? By Scott Martindale Deep in-the-money (ITM) covered calls have been discussed lately in this newsletter as a relatively safe play in an uncertain environment. This has led me to my subject for today, which is to do a post-mortem on the ultra-deep ITM play I wrote about last August (and which intrigued many readers). To review, I used the up-and-coming powerhouse Juniper Networks (NASDAQ:JNPR) as an example. Here is what I wrote: "Today [Aug 29th, 2000], JNPR closed around $195. You could sell the Jan 97.5 calls for $102.38. If you buy 1000 shares of the stock on 50% margin, you put up $97,500, but when you sell the Jan 97.5 calls you take in $102,375, for a net CREDIT to your account of $4,875. Of course, if you use up that increased buying power, you'll pay margin interest of about $3,250 for five months. So when you're called out in January at 97.5, you'll lose $97,500 on the stock sale on top of paying the $3,250 margin interest, but you've taken in $102,375 in call premium for a small net gain of $1,625, but your rate of return is infinite and you've increased your buying power from $195,000 to $204,750." "But some readers wondered about selling other calls, such as Jan 70's, or even 2003 LEAPS for bigger premiums. Regarding the 2003 LEAPS, no LEAPS are offered on JNPR. Be even if they were, I couldn't imagine tying myself to a trade like this that long. I'd be fairly comfortable betting on this company to stay above $97.50 over the next five months, but not clear 'til 2003 -- who knows what could happen?" [Indeed!] "Regarding the Jan 70's, if your intention is only to build your buying power with a margin loan at 8% interest and you don't care about making any money on this play itself, then even deeper ITM might be a good route. You could sell 10 Jan 70 calls for $127.63 and have an extra $30,125 in your account (extra $60,250 buying power), but end up losing $625 upon expiration. With so much extra cash, you could choose to employ only part of the extra margin and leave yourself a cushion. If you sell the Jan 80's, you'll nearly break even upon January expiration, but you've increased your available cash by $20,625. The Jan 97.5's in the example give the most profit while still increasing buying power. Another strategy is to sell deep ITM calls on only a portion of your shares - say, enough to cancel out the margin loan - and then sell more calls at a higher strike after the stock rises." "Of course, the deeper ITM's have the advantage of giving you more breathing room for a major stock correction, along with a greater increase in buying power. But remember, you will still get a margin call if you use up all your buying power, the stock drops, and your account equity is below the maintenance level!" Okay, now let's take a look at what actually happened. Unless you have been living in a cave, you know that the market took a serious drop and we had a genuine scare over the five-month term of this play. In fact, JNPR dropped as low as $89.63 on Dec 21st before closing on Jan 19th expiration at about $134. Someone in this play may have chosen to close it out as it dropped below various support points, particularly when it passed through $100. But those who wrote the Jan 70 or Jan 80 call still had some breathing room even after such a catastrophic drop. However, margin maintenance is another story. If you were aggressive and used up your buying power, either you closed out those other plays or you had a margin call. To simplify the analysis, let's say you used up all your buying power for straight options purchases (puts and calls) for which you get no equity credit in your margin account. Assuming a 35% margin maintenance level, you would have had to pony up funds once the stock dropped below $166. Of course, you could do that by closing options positions or by sending in cash. Closing the JNPR covered call play would have meant buying back the sold calls and then selling the shares. Despite the scare, the New Year brought a good recovery that saw JNPR close on Jan expiration at $134 -- significantly less than the $195 price at which we started this play back in August but still well above any of the sold strikes I discussed. That's the beauty of this strategy. The stock can sell off in an almost unimaginable way, and yet the call is still assigned. Of course, because the stock dropped below the full margin maintenance limit of $166, you would have needed to manage the account to make sure that you were using only the current level of available buying power. Now that the tech sector has corrected a bit, I feel stronger about this as a viable strategy. I would consider buying a favorite stock on the start of a recovery from technical weakness, and sell the ultra-deep ITM covered call a bit later into strength. On another subject, what can we expect from tomorrow's market as we anxiously await the latest decree from Lord Greenspan? Even if we get 50 basis points, there may be some short-term weakness. So for me, I'm taking a cautious approach into the announcement, closing out some bullish plays in a wait-and-see mode, but keeping others. I finally got that pop from Portal Software (NASDAQ:PRSF) that I've been looking for ever since I took the loss on my shares at the end of the year and bought Feb 10 calls. Today the stock hit a double from the $7.25 price at which I bought calls for $1.00, so I went ahead and closed them at $4.75. [If only they would all work like that.] I think there will be more good news as well as volatility in PRSF going forward, so I'll be looking for other entry points for calls. No matter which way the market goes tomorrow afternoon, increased market volatility is likely. Today, the VIX closed around 25, which is about mid-range. My point is that option prices might be more reasonably priced before the Fed announcement than they will be later in the week. But which direction to buy? Maybe straddles and strangles are the way to go. I'll be looking at QQQ and OEX strangles tomorrow morning. *************************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=1474 ************************************************************ PICKS WE DROPPED **************** When we drop a pick it doesn't mean we are recommending a sell on that play. Many dropped picks go on to be very profitable. We drop a pick because something happened to change its profile. News, price, direction, etc. We drop it because we don't want anyone else starting a new play at that time. We have hundreds of new readers with each issue who are unfamiliar with the previous history for that pick and we want them to look at any current pick as a valid play. CALLS: ***** ENE $78.50 -2.27 (-1.50) The unexpected drop in natural gas prices has dampened our play on Enron, as the stock lost significant strength on heavy selling Tuesday. While the stock may be a good long term investment, it could suffer additional weakness in the short term. In addition, the market did not react well to the news that Enron is issuing a $1.5 billion convertible debt offering. So, as a precautionary measure, we are dropping ENE tonight. AFFX $67.94 -4.94 (-2.56) The biotech index sold off today on profit taking as money rotated into Dow stocks. It is unclear whether this is the start of a lasting rotation out of this sector, or a one day phenomenon. However, AFFX closed below our stop price of $68, and as a result we are dropping it tonight. BRCD $98.50 -6.44 (+9.88) Goldman Sachs analyst, Laura Conigliaro stepped up to the microphone to end our BRCD play today. Stating that the company was not likely to deliver the same upside surprises seen in the past was not what investors wanted to hear. The response was swift, with our play taking more than a 10% haircut on the news, helped along by several block trades shortly after the Goldman call. Although the stock firmed in the afternoon, such a sharp move, which also gapped right through our stop, is not conducive to profitable call plays. We'll take our lumps on this one and move to the sidelines. INCY $28.31 -1.56 (-2.31) Biotechs have begun weakening ahead of the FOMC meeting, and are at a critical juncture. If the current support on the BTK.X at 640 can't hold, things could get ugly in the sector in a hurry. Although this issue isn't resolved yet, our play on INCY is definitely over. After breaking out over the 7-month descending trendline late last week, the bulls ran out of steam, and it looks like breaking below our $29 stop late today is just the bears' opening volley. Stochastics are rolling over, and the chart is looking weak, so it is time to leave this laggard behind and search out healthier plays. ITWO $55.56 -2.00 (-1.69) Ahead of the FOMC meeting, traders have stepped aside and with that, volume has been light. On Monday, ITWO traded in a tight range, closing up fractionally on half the ADV. This minor advance came despite fellow B2B company Ariba acquiring AGIL, a move that could put the two giants in direct competition. The stock has been met with resistance at the 5-dma ($57.37) and with today's close, down ITWO has also fallen below 10-dma ($55.83) support. With that, the stock now teeters perilously just above our stop price of $55. With added risk in the competitive landscape and a violation of its recent uptrend, we are dropping coverage of this play. PUTS: ***** IDTI $48.19 +2.38 (+1.38) Friday's opening dip in shares of IDTI seems to have been the bottom for the stock in the near term. The negative sentiment from the PMCS' earnings release and conference call dissipated amazingly quickly, and IDTI has marched higher this week. Although it couldn't hold onto all its gains, the stock managed to break through our $49 stop earlier today, and closed with a 5% gain. Improving sentiment seems to be foreshadowing a continued upward move, so it is time for us to bid farewell to IDTI. Take advantage of any weakness tomorrow to get out of any open positions at a better level. ************************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=1491 ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to "Contact Support" with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Tuesday 01-30-2001 Copyright 2001, All rights reserved. 2 of 2 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/013001_2.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=1485 ************************************************************** ******************** PLAY UPDATES - CALLS ******************** RATL $54.88 -0.13 (+4.95) What a breakout! Rational burst out of its bullish wedge pattern on Monday morning with a clean move above $52.50. From there it was smooth sailing up to $55, at which point profit taking ensued. On Tuesday Rational pulled back to support at $53 before consolidating at $54.50 for the afternoon. Strength in the mid cap index (MDY) helped as old resistance became new support. Depending on the Nasdaq's reaction to the FOMC meeting, Rational may very well clear heavy resistance at $55, which could potentially position the stock to sail all the way up to $60. A pullback to support at $53 could be an entry point, as well as a break above $55. Watch the software index for signs of strength before initiating positions, and keep stops at $50. EMC $78.75 -1.14 (-0.31) Like so many other stocks in the Technology sector, EMC seems to be taking a wait-and-see attitude ahead of tomorrow's interest rate decision from the Fed. The bulls have been battling with the bears at the 200-dma (currently $80.09) for over a week, and positive reception of the Fed's interest rate decision tomorrow could be just the catalyst needed to tip the balance in favor of the bulls. With a solid earnings report in their hip pocket, and pronouncements of continuing strong demand-driven growth, the company certainly looks appealing to investors right now. The battle at the $80 level will be pivotal in the near term. If the bulls can push decisively through that level and crest $81, that looks like a great time for conservative investors to initiate new positions. More aggressive traders may want to target shoot intraday dips to achieve a better entry point. Just make sure the bounce occurs above our $75 stop and confirm positive movement on the NASDAQ before playing. If the Technology sector can't rally after the interest rate announcement, EMC will likely have a hard time continuing to move higher. FLEX $39.81 +0.00 (+0.81) The bulls are holding their ground ahead of the Fed's interest rate decision tomorrow, and FLEX is looking strong. Positive reception of the expected 50 basis point interest rate reduction could easily push the stock through its $40 resistance level, giving conservative traders a nice entry point. Although there may be buying ahead of the news, prudent investors will want to wait until after Uncle Alan speaks to gauge how the news is received by the markets. A reactionary dip near the $36-37 level could give more aggressive traders a better entry point, but they will want to make sure they don't catch a falling knife. Once it is clear that the buyers are showing up in volume, feel free to initiate new positions on the upward bounce. Keep in mind that our stop is still in place at $36, and a drop through this level will spell the end of our play. Other contract manufacturers like CLS and JBL are likewise attempting to break above resistance, so monitor these stocks as well to confirm positive sentiment in the sector. GS $118.63 +2.71 (+3.93) Like Technology stocks, the Financials seem to be in a holding pattern ahead of the FOMC meeting. Although it seems a foregone conclusion that we'll get a 0.50% rate cut, what is far less certain is how investors will react to it. Will they cheer and bid stocks higher, or will they sell the news? This uncertainty can be clearly seen in our GS play as the stock has yet to muster enough strength to break above the $120 resistance level. The latest pullback may give the bulls the springboard they need to finally crest this level and charge to new highs. Even during the recent weakness, the ascending trendline (now at $115) has continued to provide support, and barring a major selloff after the FOMC meeting, should continue to do so. Consider intraday pullbacks to this level (also the site of our raised stop) to be an attractive entry point, but don't fight the broader market. If Financials sell off after the announcement, then that will be your clue to stand aside from the play. If the reception is positive however, a break above $120 will be a good time for conservative investors to open new positions, as it will be a confirmation that the bulls are in control. MSFT $63.38 -1.13 (-0.62) The strength in the NASDAQ and continued interest in tech stocks kept MSFT on track this week. MSFT traded confidently above $63 and $64 on respectable volume; firming the near-term support as we move forward with this play. A nice pop to $64.75 today also edge the near-term resistance higher; although the 200-dma ($65.75) continues to suppress a big breakout. A pullback to the 10-dma level, near our $61 stop, offers a nice entry in an advancing market if you can handle a bit more risk. In the news on Monday, Microsoft filed final appeal papers in its antitrust case saying its practices were lawful and the trial court judge was biased and his order to split the company in two unjustified. Bill Gates commented that Microsoft is " very optimistic this controversy will be resolved by a ruling of this appeals court" and should be closed within a few months. Pacific Crest also initiated a Buy recommendation on MSFT, but offered no further comments. JPM $55.98 +0.86 (+1.79) Positive breadth and an expected 50- point basis cut from the Fed tomorrow keep most stocks on the plus side this week; although the somber forecast from Cisco Systems was a dark cloud amid the sunny marketplace. JPM investors were bullish and continued to bid up the share price. Near-term support effectively rose from the respectable $52 level to $55 and $55.50 giving further evidence that the steady momentum can successfully penetrate the overhead resistance at $59.19. We've raised our stop to $54 from $53 in an effort to trace the 10-dma line, which is currently serving as bottom support on the climb. It came across the wire today, that Automaker DaimlerChrysler hired Deutsche Bank AG and JP Morgan Chase to advise them on ways of heading off a possible takeover bid. BGEN $66.63 -2.06 (+0.50) We mentioned in Sunday's write-up that BGEN looked ready to make a move out of its range. On Monday, the stock broke through, gaining $2.56 or 3.88 percent to close above resistance at $68. However, the light volume, about 70 percent of ADV, had us questioning the validity of the rally. With that in mind, we adjusted our stop price from $64 up to $65. Today, BGEN gave back most of yesterday's gains, retreating 3 percent on less than 85% of ADV, as all eyes are on the Fed tomorrow. It appears that the stock has broken out of its old range only to find a new, higher range, with support below at $65.50 and resistance overhead, just above the $69 level. A bounce off support could allow for an aggressive entry but keep in mind our stop price just below. For an entry on strength, look BGEN to break back above its 5-dma at $66.85 before taking a position, correlating entries with Merrill Lynch's Biotech HOLDR (BBH). COHR $52.13 +2.13 (-0.13) A tentative day for most fiber optic stocks translated into a day of sideways movement for shares of COHR on Monday. With no material news to move the sector one way or the other, traders stepped onto the sidelines in anticipation of results from Wednesday's impending FOMC meeting. For the day, COHR retreated $2.25 or 4.31 percent on average volume, closing right on the psychological $50 level. Today the stock gained back 4.25 percent on almost 140% of ADV, a sign of latent strength that could assert itself in the near future. With its uptrend still firmly intact, pullbacks to the 5-dma at $51.36 could allow aggressive traders to make a play. There is also support at the 10-dma and our stop price of $48. For an entry on strength, look for COHR to break above strong resistance at $54 on volume before jumping in, confirming upward momentum with a rallying NASDAQ. From there, the stock would be poised to challenge formidable overhead resistance from the 200-dma at $55. FDRY $22.25 +0.63 (+0.00) Comments yesterday from Cisco CEO John Chambers had an effect on the entire Networking sector. Saying that meeting estimates for the upcoming quarter would be "challenging", shares of FDRY in sympathy slipped $1.25 or 5.46 percent. The good news is, volume on the pullback was low, only 83% of ADV, suggesting the shaking out of some weak heads. Today the stock reclaimed 2.89 percent on 84% of ADV, a good sign considering the low trading volume on the market today. With firm moving average support below from the 5 and 10-dma at $21.93 and $20.26 respectively, aggressive traders may target these levels for an entry, confirming bounces with volume and keeping in mind our stop price at $20. If the buyers return in force, carrying FDRY above its recent high of $23.25, this would allow conservative traders to take a position, provided that the AMEX Networking Index (NWX) is also moving higher. MERQ $95.75 -1.25 (+0.81) Shares of MERQ got a little boost in Monday's trading post-Superbowl, as it advanced $2.06 of a little over 2 percent on news that it was monitor web site performance for some high profile dotcoms who were fortunate enough to afford ad time at the event, giving the company some much needed visibility. However, volume was light ahead of the Fed, less than 70 percent. Today, some minor profit taking resulted in MERQ giving back 1.29% of yesterday's gains on low volume. At this point, there is moving average support from the 5 and 10-dma at $94.58 and $92.61 and horizontal support at $95, $93 and our stop price of $90. Aggressive traders may look for entries if MERQ approaches these support levels but make sure the stock closes above our stop price. If a post-Fed rally ensures tomorrow, lifting MERQ past the psychological $100 on volume, this could be the signal for conservative traders to enter. Just make sure that rivals BMCS and RATL are also showing strength. QCOM $85.69 -1.13 (+4.69) Building on last week's gains, QCOM came storming out of the gates on Monday trading as it powered through its 50-dma, closing up $5.81 or over 7 percent on stronger than average volume, no simple feat considering the low volume in NASDAQ trading. The stock was likely helped by positive comments from JP Morgan H and Q, who re-iterated their Long Term Buy rating. Today, on news from wireless handset maker Nokia that the company was lowering its outlook going forward resulted in an inside day of trading for QCOM. Despite backing off 1.3%, selling volume was light and support from the 50-dma at $82.66 was firm. Another test of this level could allow higher risk players to make a play but confirm with volume. There is also support at $85, the 5-dma near $80 and the 10-dma near $77. Just make sure our stop price of $76 continues to hold. A safer play would be to wait for QCOM to take out formidable resistance at $87 with conviction before pulling the trigger, but only if the NASDAQ is also moving in the same direction. PPRO $27.45 +1.86 (+1.95) Yesterday we added PPRO on our call play list based on strong moving average support, positive analyst coverage and high relative strength in comparison to the market. The stock rallied $3.81 or almost 15 percent on over 150% of ADV on Monday, thanks to bullish comments from Lehman Brothers and a Strong Buy rating. Today, shares of PPRO gave back 6.34 percent on a round of pre-Fed profit taking, but the down volume was less than yesterday's up volume. If the stock tests support at $27, the 5-dma at $26.61, and our stop price of $25, this could give aggressive traders an entry, provided that bounces are backed by volume. A pullback to $24, where the 10-dma currently resides, is also a possible high-risk entry but only if PPRO moves back above our stop price before the market close. If the buyers return, taking the stock back above the $28 level, this could allow more cautious traders to take a position, but only if Merrill Lynch's B2B HOLDR (BHH) confirm that the entire sector is moving definitively higher. RIMM $70.44 -4.06 (+0.13) A string of good news from the company, a more hospitable environment of lower interest rates and break through its 50-dma landed RIMM on our call play list yesterday, as it gained $2.94 or over 4 percent. However, in the light trading environment so far this week, the stock pulled back today, giving up 5.45 percent on 77% of ADV, despite a co-marketing deal with wireless software maker AvantGo and coverage initiated by JP Morgan H and Q with a Long Term Buy rating. Closing below the 5-dma at $70.57 and the 50-dma at $72.55, if buying volume returns, allowing RIMM to rally back above moving average resistance, this would allow traders to make an entry on strength. The stock may also make a temporary retreat and test its 10-dma at $66. A pullback to this level would be a highly aggressive play and we would only recommend doing so if RIMM ends the day back above our stop price of $68. Support at $70 and $66 offer addition aggressive, yet less risky entries. Correlate entries with trading in competitors HAND and PALM. RMBS $51.88 +1.00 (+2.75) Trading volume so far this week for shares of RMBS has been anemic. This is no surprise considering that many traders have stepped onto the sidelines in anticipation for tomorrow's FOMC results. Despite the low volume, direction for the stock price has been positive. On Monday RMBS advanced $1.75 or 3.56 percent on less than 40% of ADV. Today the stock added another 1.97 percent on slightly increased volume, 48% of ADV. Ending Tuesday trading with a doji candlestick formation, the uncertainty ahead of the Fed is almost palpable. Successful tests of moving average support from the 5 and 10-dma at $51.15 and $49.21 along with horizontal support at $50 and our stop price of $48 could allow for aggressive entries if bounces are on volume. A break through minor resistance at $52 could mean a quick trip back up to test more formidable resistance at $54, allowing for two potential entry points for the more risk averse. To further minimize risk, confirm sector sympathy with the Philadelphia Semiconductor Index when making a play. UBS $175.15 +2.51 (+2.70) Slow and steady continues to be the name of the game when trading UBS. There is a reason why the option prices on such a high-dollar stock are so low, because light volume trading in a narrow range has dramatically deflated volatility, which makes for a more attractive and leveraged play. It appears now that the stock may be getting ready to move strongly higher. Today shares of UBS gained 1.45% on 37% of ADV. For those who have been following this call play, this is actually quite an exciting day. With support from a converged 5 and 10-dma just above the $173.25 level, a pullback here as well as to support at $175 could offer traders one last chance to enter this one on a dip. At this point UBS looks poised to take out strong overhead resistance at $176. A break above this level could lead to a strong move up, with traders of this play benefiting from an increased stock price as well as inflating premiums. Look to more heavily-traded rivals BSC, LEH, MWD for guidance in stock price movement when considering a play. ******************* PLAY UPDATES - PUTS ******************* SPW $106.79 -2.23 (-2.21) On Monday, SPW announced that they plan to raise $400 million through an offering of 20 year liquid yield note options. SPW gapped down over 4 points on this news Monday morning, and closed below the gap price, which is a bearish signal. On Tuesday, SPW rolled over from $107.5 three times before closing down. This is a very weak stock, and it is highly likely to break below the next support level at $106, to $104, and then major support at $101. Monday's sell off occurred on nearly double the average daily volume, and Tuesday's occurred on nearly four times the daily volume. A good entry level could be a failed attempt to rally above $106.50. More conservative put players might want to wait for a fall below support at $104, which could lead SPW to its next support level at $101. Watch the capital goods sector for an indication of sector strength, and move stops down to $109. NKE $53.02 +0.35 (-0.13) Nike's five day chart pattern consists of a series of sharp and spiky rollovers from $54.44 and $53. Today, a strong market did little to change Nike's pattern, as the stock rolled over from $54.44 in the morning, and could not stage a rally past $53 in the afternoon. News released from Reuters 3000 data that Nike is overvalued compared to competitor Adidas may have stimulated selling, however, the primary reason for the weakness is most probably news that Nike's next quarter earnings will probably be flat from the year ago quarter. Traders can take positions on a roll over from $53, or at a break below strong support at $51.77. More conservative put players might want to wait for a break below the 50 dma of $50.55. Set stops at $54. ADBE $52.75 -1.25 (-5.31) Off to a good start in today's session, ADBE gave us a nice conservative entry, as the stock fell below $53 this afternoon. While it actually traded a little lower this morning during amateur hour, prudent investors waited for the rollover this afternoon. If not for a late day buying spurt, the stock would have closed very near the days' low. Those that bought the stock late in the day are likely already experiencing buyers' remorse though. ADBE gave a fresh pot of honey to the bears after the closing bell, issuing an intra-quarter update on business in its first quarter. The company stated that it is experiencing a slowdown (where have we heard that before?) in some geographic market areas, primarily the United States. If that sounds bad to you, then you aren't alone. Apparently investors decided they didn't like the sound of it either and they sold the stock vigorously in the extended session, dropping the stock near the $42-43 level before buyers began to emerge. Normally we are suspicious of after-hours trading, but ADBE has already traded more than 1.1 million shares since the regular close, so it looks like an ugly open (at least for the bulls) tomorrow. Until we see how the stock trades tomorrow, we are keeping our stop in place at $58. If you are already in the play, you may want to consider locking in some profits on the opening dip, especially if buyers start to emerge and drive shares higher. Any rollover from the initial bounce tomorrow looks good for new entries, but make sure that the selling volume is driving the price lower before playing. WFII $37.81 -1.19 (-0.19) Investors continued to shun WFII in spite of the glowing sentiment shining on the marketplace. The negative technicals also provide evidence of further declines. This week the overhead resistance was effectively lowered from the $40 level to $38. Accordingly, this downward pressure narrowed the stock's primary trading range because as of now, WFII continues to teeter on the $37 support. Although WFII is failing to breakdown below this level, it still remains below the 5, 10 & 50 DMAs, which is a bearish indication. However a slide under the 30-DMA, currently at $36.97, would of course provides better confirmation. Our protective stop remains above at $41 to allow some room for more aggressive rollover opportunities. In other words, if traders step in to take WFII upwards and WFII falls victim to a bull trap at $40- $41, then we have a prime opportunity to profit from a high- volume decline. If this type of scenario transpires, consider taking profits as WFII approaches the immediate support at $37. A convincing break through the underlying support at $35 would be a signal for the more conservative traders to consider taking put positions. In light of the bull market conditions, it's a very good idea to keep stops tight. PWER $44.88 +0.20 (-0.13) Shares of PWER haven't been showing much spark lately as so far this week, it has been trading in a tight range, moving sideways with a complete lack of conviction. On Monday the stock edged lower, falling fractionally on 80 percent of ADV. Today was more of the same sideways action, as the stock gained fractionally on half the ADV. With little news to move the company's stock, sector sympathy and the stock's own technicals will likely play an increased role in how PWER moves. Resistance from the 5 and 10-dma, converged at the $45.80 level, should be formidable but just above, the 50-dma at $47.67 should also exert significant downward pressure on the stock. We are moving our stop price down from $50 to $48. Failed rallies above these levels could give aggressive traders an early entry. A break below the $44 level on volume would allow the less aggressive an entry on weakness. In either case, make sure that sector sympathy is on your side by keeping a close watch on rivals BLDP and FCEL. *************************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=1475 ************************************************************ ************** NEW CALL PLAYS ************** AGGRESSIVE: NITE - Knight Trading Group Inc. $24.31 +1.63 (+3.06 this week) Knight Trading Group is the leading market maker in equity securities listed on the Nasdaq, the OTCBB of the NASD, and the over-the-counter market for New York Stock Exchange (NYSE) and American Stock Exchange (AMEX) listed securities. Knight is also a leading market maker in options on individual equities, equity indexes and fixed income instruments in the U.S and Europe. The firm also maintains an asset management business for institutional investors and high net worth individuals through its Deephaven Capital Management subsidiary. Nite hit a 52-week low of $13.25 on January 3, and has made a dramatic recovery since the Fed's first rate cut. Nite reported quarterly earnings which were lower than the year ago quarter, but slightly higher than the consensus expectations on January 19. Nite's poor performance during the fourth quarter of 2000 was attributed to low volume on the Nasdaq, as investors sought the safety of defensive stocks during the worst year in history for the Nasdaq composite. However, despite a weak quarter, Nite managed to post a year over year increase in net income of 23%, and revenues of 40%. Investors are now ignoring yesterday's bad news, and focusing on Nite's bright future. As the leading Nasdaq market maker in over 7500 stocks, Nite's fortunes are tied to the trading volume on the exchanges. While two billion share days on the Nasdaq were almost unheard of eighteen months ago, they are the norm right now, and, with most analysts expecting a strong recovery in the broad markets with the Fed in an easing mode, Nite is poised to profit beautifully. In particular, strength in the brokerage stocks, as well as the ability of the Nasdaq to hold above key support levels in the face of this week's earnings warnings has helped Nite to maintain a smooth upward channel. After breaking through the 50 dma of $21.06 last week, Nite has made a clean break above prior resistance at the 5 dma of $22.50, and $24. Tuesday's volume of almost double the average daily volume indicates strong buying. Traders can take positions at current levels, or at a pullback to support at $23.69. Ideally, we are looking for a break above the 200 dma of $27, and conservative traders may want to wait for this. Watch the broker dealer sector as well as the investment management sector for strength, and set stops at $21. BUY CALL FEB-22.5 QTN-BX OI=2102 at $2.88 SL=1.50 BUY CALL FEB-25 *QTN-BE OI=2862 at $1.50 SL=0.75 BUY CALL MAR-22.5 QTN-CX OI= 656 at $3.88 SL=2.50 BUY CALL MAR-25 QTN-CE OI= 881 at $2.69 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=NITE CIEN - CIENA Corporation $98.00 +3.88 (+7.44 this week) Helping to satisfy our insatiable demand for bandwidth, CIEN makes dense-wavelength division multiplexing (DWDM) systems for use with long-distance fiber-optic communications networks. CIEN offers optical transport, intelligent switching and multi- service delivery systems that enable service providers to deliver and manage high-bandwidth services to their customers. The company's MultiWave DWDM systems allow optical fiber to carry up to 40 times more data and voice information without requiring more lines. CIEN's customers include long-distance carrier, competitive local exchange carriers (CLECs), Internet service providers and wholesale carriers. The Networking sector has digested an amazing amount of bad news in the past week, with negative comments coming out from the likes of GLW and PMCS last week, and even CSCO yesterday. Despite this rash of bad news, CIEN continues to fight off the bears and head higher. The PMCS-related selloff seemed to run out of steam near $82 right at the open last Friday, and CIEN began an immediate recovery, climbing back over the 200-dma (then at $87.13), then the 50-dma (then $90), and finally clearing the descending trendline today near $94. Of course, positive analyst comments never heard, and that is just what our play got when Gruntal & Company initiated coverage of the stock today with an Outperform rating. While volume has been light in recent days, we would attribute that to anticipation of the Fed's interest rate decision due out tomorrow. As long as investors greet the decision with open arms, CEIN looks poised to continue its rally, with its first test of major resistance at $103-105. If the bulls are truly back in charge, the trendline should now begin to act as support, and we would look at any bounce near that level as a good aggressive entry point. Even more aggressive would be a bounce from the 50-dma, but we need to wait for the bounce, and strong confirming volume before playing. Alternatively, you might choose to wait for a decisive move over $105 before jumping into the play. Additional confirmation for new entries can be found by monitoring the Networking Index (NWX.X). If it breaks down, it will make it that much harder for CIEN, but if it pushes above its 50-dma (now at 824) and then resistance near 865, then the CIEN bulls are likely to keep charging forward. BUY CALL FEB- 95 UEE-BS OI=1617 at $10.63 SL=7.75 BUY CALL FEB-100*UEE-BT OI=3510 at $ 8.13 SL=5.75 BUY CALL FEB-105 UEE-BA OI=1487 at $ 6.13 SL=4.00 BUY CALL APR-100 UEE-CT OI= 238 at $13.00 SL=9.75 BUY CALL APR-105 UEE-CA OI= 84 at $10.88 SL=8.00 BUY CALL APR-110 UEE-CB OI= 377 at $ 9.13 SL=6.25 SELL PUT FEB- 85 UEE-NQ OI=1515 at $ 3.38 SL=5.25 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=CIEN MUSE - Micromuse Inc $83.97 -2.78 (+5.91 this week) Founded as a network management solutions reseller, Micromuse today is a leading provider of real-time fault and service- level management software. Its Netcool suite helps telecommunications and Internet service providers ensure the uptime of network-based customer services and applications. The company's software is used in the OSS and NOC centers of many of the world's leading service providers such as AOL, Cellular One, and Charles Schwab. Does a fast moving and volatile Internet piqued your trading interest? MUSE is a stellar performer in the NASDAQ; especially during strong technology rallies. The stock split 2:1 twice in 2000 and has seen almost 53% gains over the past year! And at the moment, MUSE is on the rise again. Two weeks ago on January 18th, Micromuse reported 1Q earnings that beat expectations by 25% citing strong Internet-related sales. Pro forma earnings came in at $0.10 p/s blowing away the consensus estimate of $0.08. The following day, the analysts couldn't say enough good things about the company. Three influential firms: Bear Stearns, Janney Montgomery Scott and First Albany came forward and reiterated Buy recommendations. The combination of solid 1Q earnings, positive analysts' comments and a dynamic marketplace, MUSE rose to the occasion and shattered stifling resistance of the 200-dma line ($68.03). After it cleared that suppressive obstacle and broke out, the momentum powered MUSE through $80 and closed the gap it fell victim to in November 2000. Today's spike to $88.75 offers further evidence that the momentum is continuing to maintain its vitality and can effectively challenge $90 over the near-term. In consideration of this Internet's volatile trading nature, we've set our protective stop at $73 to allow for wide swings in price. If you haven't gotten the hint yet, MUSE is a very HIGH-RISK play and not for everyone's portfolio. Entries into subsequent momentum might be found near the 5-dma ($80.97) if your style is to buy into high- volume strength at the higher trading levels. For those looking to enter on deep dips intraday or outright pullbacks, consider entries near the trailing 10-dma ($76.69). BUY CALL FEB-75 UZQ-BO OI=452 at $13.63 SL=10.25 BUY CALL FEB-80 UZQ-BP OI=395 at $10.38 SL= 7.25 BUY CALL FEB-85*UZQ-BQ OI=157 at $ 7.25 SL= 5.00 BUY CALL MAR-80 UZQ-CP OI= 25 at $15.50 SL=11.25 BUY CALL MAR-85 UZQ-CQ OI= 1 at $13.13 SL= 9.75 BUY CALL MAR-90 UZQ-CR OI= 20 at $10.63 SL= 7.50 http://www.premierinvestor.com/oi/profile.asp?ticker=MUSE CTXS - Citrix Systems, Inc. $36.63 +2.50 (+2.75 this week) Founded in 1989, Citrix Systems is a global leader in application server software and services that offer "Digital Independence," the ability to run any application on any device over any connection, wireless to Web, so that now, everything can compute. Citrix technology enables organizations to provide access to server-based applications from a wide variety of client devices and platforms. Since these applications are installed, updated and maintained on central servers instead of each client, the cost and complexity of administration are significantly reduced. As the fortunes of Citrix Systems are intimately connected with that of Microsoft's, it's no surprise that shares of CTXS have been strong lately, on the heels of renewed investor interest in Gates and Co. Reporting earnings two weeks ago, the company beat the Street by a penny but raised their guidance going forward, due to corporations ramping up their adoption of the Windows 2000 platform. As a result, Lehman Brothers re-iterated their Strong Buy rating on the stock, raising their price target to $40 and calling the stock undervalued. As well, UBS Warburg upgraded CTXS from a Buy to a Strong Buy rating. Since then, the stock has rallied well above all its major moving averages in an upward-trending regression channel. After spending last week in consolidation mode, the stock broke out today closing up 7.33 percent on almost 160% of ADV. This move is especially significant considering the uncertainty and light volume on the NASDAQ today. At this point, look for bounces off support at $36, $35, the 5-dma at $34.50 and the 10-dma near $34 as potential aggressive entry points. We are placing a protective stop at $32. A close below this level would be our signal to exit this play. If buying volume remains strong tomorrow, carrying CTXS above today's high of $37.18, this could be a signal for conservative traders to jump in for a possible quick move up to $40. Use Merrill Lynch's Software HOLDR (SWH) as a benchmark in measuring sector sentiment. BUY CALL FEB-30 XSQ-BF OI=1576 at $7.25 SL=5.00 BUY CALL FEB-35*XSQ-BG OI=3572 at $3.25 SL=1.50 BUY CALL FEB-40 XSQ-BH OI=4832 at $1.06 SL=0.00 BUY CALL MAR-35 XSQ-CG OI=3277 at $4.75 SL=3.00 BUY CALL MAR-40 XSQ-CH OI=2759 at $2.50 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=CTXS ************* NEW PUT PLAYS ************* AGGRESSIVE: MEDI - MedImmune Inc. $41.56 -2.88 (-2.44 this week) MedImmune is a biotechnology company that currently has six products on the market and a portfolio of diverse products in the pipeline. They develop and market products that address medical needs in areas such as infectious diseases, transplantation medicine, autoimmune diseases and cancer. Currently, their leading drugs Synagis, RespiGam, and CytoGam are sold primarily in the US. A significant breakdown in share price after the company announced very respectable earnings last Thursday, January 25th piqued our interest in MEDI. The stock's price collapse was quite conspicuous; especially in light of the vigorous growth within the biotech niche of late. For instance, take a look at charts of the company's rivals such as Biogen (BGEN), Millennium Pharmaceuticals (MLNM) or Human Genome (HGSI) for visual confirmation of MEDI divergence from the sector's strong uptrend. Even a Buy reiteration and $75 price target from Dain Rauscher Wessels couldn't launch MEDI back through its previous support at the $45 level. And it's no laughing matter when a stock slides under a relatively firm level of bottom support on 1.4 to 1.9 times the ADV! The developing trend line is currently finding the $41 mark a point of contention on the descent, so the more risk-adverse should look for a convincing breakdown below that level before beginning new plays. If you're interested in trading a spread, you might consider looking for an aggressive entry following a heavy-volume rollover from the 5- or 10-dma line at $44.05 and $45.55, respectively; then lock in gains as MEDI approaches $41 on the decline to reduce the risk of getting caught in a technical bounce. A bullish close above $45 and we'll quickly exit the play and move on to other lucrative trading opportunities. Remember, time is money! BUY PUT FEB-50 MEQ-NJ OI=134 at $9.25 SL=6.25 BUY PUT FEB-45*MEQ-NI OI=357 at $5.13 SL=3.00 BUY PUT FEB-40 MEQ-NH OI=406 at $2.25 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=MEDI ******************************************** Do you like OptionInvestor? Then vote for us as a favorite site: http://www.investorlinks.com/vote.html Thanks for your support! ******************************************** ********************** PLAY OF THE DAY - CALL ********************** BGEN - Biogen, Inc. $66.63 -2.06 (+0.50 this week) Biogen, Inc., winner of the 1998 U.S. National Medal of Technology, is a biopharmaceutical company principally engaged in discovering and developing drugs for human healthcare through genetic engineering. Headquartered in Cambridge, MA, the Company's revenues are generated from worldwide sales of Avonex for treatment of relapsing forms of multiple sclerosis, and from the worldwide sales by licensees of a number of products, including alpha interferon and hepatitis B vaccines and diagnostic products. Biogen's research and development activities are focused on novel products for multiple sclerosis, inflammatory, respiratory, kidney and cardiovascular diseases and in developmental biology and gene therapy. Most Recent Write-Up We mentioned in Sunday's write-up that BGEN looked ready to make a move out of its range. On Monday, the stock broke through, gaining $2.56 or 3.88 percent to close above resistance at $68. However, the light volume, about 70 percent of ADV, had us questioning the validity of the rally. With that in mind, we adjusted our stop price from $64 up to $65. Today, BGEN gave back most of yesterday's gains, retreating 3 percent on less than 85% of ADV, as all eyes are on the Fed tomorrow. It appears that the stock has broken out of its old range only to find a new, higher range, with support below at $65.50 and resistance overhead, just above the $69 level. A bounce off support could allow for an aggressive entry but keep in mind our stop price just below. For an entry on strength, look BGEN to break back above its 5-dma at $66.85 before taking a position, correlating entries with Merrill Lynch's Biotech HOLDR(BBH). Comments With the Fed decision on interest rates at center stage tomorrow, uncertainty will likely surround tech and financial stocks which have both run-up nicely. Because of this run-up into what is expected to be a 50-basis point rate cut, we are likely to see a brief "sell the news." BGEN is a play on the rotation that has been occurring rather quickly these days. Sell the financials and techs, and buy the pharmas and biotechs. Look for entry on any pullbacks to $65.50 or $64.50 accompanied by a bounce. Buyers have been supporting these levels the past three sessions. A break above $69 would also attract some buyers. $70 will be the magic number for resistance. BUY CALL FEB-60 BGQ-BL OI=2032 at $7.88 SL=6.25 BUY CALL FEB-65*BGQ-BM OI=2495 at $4.13 SL=2.50 BUY CALL FEB-70 BGQ-BN OI=2329 at $1.75 SL=1.00 BUY CALL MAR-65 BGQ-CM OI= 169 at $6.50 SL=4.75 BUY CALL MAR-70 BGQ-CN OI= 511 at $4.00 SL=2.50 http://www.premierinvestor.com/oi/profile.asp?ticker=BGEN ************************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=1492 ************************************************************** ************************ COMBOS/SPREADS/STRADDLES ************************ Old Economy Issues Lead The Way! Blue-chip stocks posted big gains today as investors speculated on the outcome of the Federal Reserve meeting. Monday, January 29 Stocks edged higher today as investors speculated on the outcome of the upcoming Federal Reserve meeting. The NASDAQ finished up 57 points at 2,838 and the Dow ended up 42 points at 10,702. The S&P 500 index was up 9 points at 1,364. Trading volume on the NYSE was thin at 1.03 billion shares, with winners beating losers 1,974 to 1,175. Activity on the NASDAQ was also light at 1.95 billion, with advances beating declines 2,326 to 1,572. In the bond market, the 30-year Treasury fell 25/32, pushing its yield up to 5.69%. Sunday's new plays (positions/opening prices/strategy): AES Corp. (NYSE:AES) FEB65C/F50P $0.25 debit synthetic North Fork (NYSE:NFB) MAR25C/M25P $2.10 debit straddle Tri-Cont. (NYSE:TY) MAR22C/M22P $1.20 debit straddle Digene (NASDAQ:DIGE) FEB50C/F45C $0.50 credit bear-call Varian (NASDAQ:VARI) FEB30P/F35P $0.81 credit bull-put Atrix (NASDAQ:ATRX) MAY25C/F25C $2.50 debit calendar Most of our new plays provided favorable entry prices in today's session. Although the AES position was not offered at our target credit, we noticed a few traders buying call options to speculate on the outcome of the earnings report and potential plant opening in California. We did not achieve the suggested debit in the TY straddle but because there were two new positions opened by OIN traders, we will track the play at the higher cost basis. Our initial target exit is $1.50 credit. Portfolio Plays: Technology stocks led the market higher today as traders ignored profit warnings and focused instead on the upcoming meeting of the Federal Reserve. Internet and telecom shares rallied while semiconductor and computer stocks recovered from early losses to close with small gains. On the Dow, Hewlett-Packard (NYSE:HWP) jumped almost 10% after saying it plans to eliminate 1,770 jobs as the company implements an overhaul of its marketing and sales operations. The slowing economy also prompted massive layoffs at Daimler Chrysler (NYSE:DCX), which announced it is reducing its work force by 20%. Xerox (NYSE:XRX) offered a similar outlook, saying it will slash thousands of jobs in the first quarter and more positions later in the year. Even with the bad news, most investors continue to look past the short-term difficulties amid optimism that future interest rate cuts will revive the economy. As the broader market segments moved higher late in the session, all major groups participated in the rally with transportation, retail and financial stocks leading the way. Our portfolio saw a number of favorable moves in both technology and industrial issues. Qualcomm (NASDAQ:QCOM) was the big-cap winner, up almost $6 to $86 on continued momentum from its recent bullish earnings report. Portal Software (NASDAQ:PRSF) was the leader in lower priced stocks, rising $2.50 to $13 and our bullish collar is at maximum profit. Avant! (NASDAQ:AVNT) enjoyed a surprise upside move, up $2 to $25 and traders who entered the synthetic position were offered an early-exit profit of $0.88. That's a favorable closing return considering the mediocre performance of the stock over the past few sessions. Household International (NYSE:HI) continued to rally, ending $1.60 higher at $59.10 and our target profit (near $1.75) has been achieved. Another industrial issue, NS group (NYSE:NSS) rose $0.70 to $10.95 and the overall credit for the synthetic position moved above our exit target to $1.70. On the downside, Lennar (NYSE:LEN) corporation's recent technical recovery has failed near $38 and with the short-term (30) Moving Average rolling over, we are going to start looking for an early exit opportunity in the bullish credit spread. Tuesday, January 30 Blue-chip stocks posted big gains today as investors speculated on the outcome of the Federal Reserve meeting. The Dow ended up 179 points at 10,881 while the NASDAQ remained almost unchanged at 2,838. The S&P 500 index was up 9 points at 1,373. Trading volume on the NYSE reached 1.14 billion shares, with advancing issues outpacing declining issues 1,874 to 1,238. Activity on the NASDAQ was average with 2 billion shares traded. Technology advances beat declines 2,161 to 1,648. In the bond market, the 30-year Treasury rose 1 14/32, pushing its yield down to 5.59%. Portfolio Plays: Industrial stocks rallied today, driving the Dow Average to a triple-digit gain on strength in the consumer products segment. The most vigorous upside activity was seen in shares of Procter & Gamble (NYSE:PG) after the conglomerate posted a second quarter profit of $0.93 per share in its fourth quarter, a penny ahead of the consensus number. PG also said it expects earnings growth for the third quarter to be in line with analysts' estimates. Among the Dow's other bullish movers were AT&T (NYSE:T), Eastman Kodak (NYSE:EK), General Electric (NYSE:GE), and J.P. Morgan (NYSE:JPM). At the same time, the NASDAQ spent most of the session near the day's previous close, unable to make much headway with investors unwilling to open new positions ahead of the FOMC meeting. The semiconductor group provided the best performance while Internet and computer hardware issues generally retreated. In the broader market, paper, gold, chemical and oil service issues thrived while financial, biotechnology and utility stocks consolidated overall. Despite the slump in technology shares, our portfolio experienced a number of winners in the group. AT&T (NYSE:T) rebounded $1.30. after announcing a loss of $1.7 billion this quarter, most of it attributed to problems with Excite@Home (NASDAQ:ATHM). Experts say the decision by the nation's largest long-distance provider to become a cable and wireless company, is the main cause of its decline in share value. Regardless of its past problems, today's recovery to $25 puts the stock at a perfect price for our LEAPS with Covered-calls position. Other NASDAQ issues that enjoyed bullish activity included International Rectifier (NASDAQ:IRF), Molex (NASDAQ:MOLX), Portal Software (NASDAQ:PRSF), Ericsson (NASDAQ:ERICY), Speedfam (NASDAQ:SFAM), and Varian (NASDAQ:VARI). Among industrial shares, Atlantic Airlines (NYSE:ACAI) and HSBC Corporation (NYSE:HBC) moved lower against the overall trend and we will watch these issues closely in the coming sessions. Aflac (NYSE:AFL) also slumped after reporting fourth quarter earnings that were merely in line with consensus estimates and that bodes well for our bearish credit spread. Another position in that category, Union Carbide (NYSE:UK) continued to rally even as the company reported fourth quarter results that fell sharply from a year ago because of high raw material and energy costs. Our sold strike at $55 may eventually be tested but for now the issue has not demonstrated any ability to trade above that price. Our new synthetic position in AES Corporation (NYSE:AES) was active today after the company provided an earnings estimate for fiscal 2001 that wasn't in line with what analysts have been expecting. In the international power company's fourth quarter earnings report, AES announced that although next year's earnings will be slightly below the consensus expectation of $1.91, they project earnings to grow at an average rate of 25% to 30% over the next five years. There were no traders in our speculative position after the news. On another subject, our remaining (February) debit straddles are beginning to feel the effects of eroding time value and those of you who have yet to close profitable positions should do so in a timely manner, before they expire. In addition, many of the less productive plays are approaching our standard cut-loss point; a closing value of 50% or less, and those positions should also be considered candidates for early exit. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** FRX - Forest Laboratories $65.75 *** New Alzheimer Drug? *** Forest Laboratories (NYSE:FRX) develops, manufactures and sells both branded and generic forms of ethical drug products that require a physician's prescription, as well as non-prescription pharmaceutical products sold over the counter. Forest's most important United States products consist of branded ethical drug specialties marketed directly, or detailed, to physicians by the company's Forest Pharmaceuticals, Forest Therapeutics and Forest Specialty Sales sales forces. Their products include Celexa, Forest's SSRI for the treatment of depression; the respiratory products Aerobid, Aerochamber and Tessalon; Tiazac, a once-daily diltiazem for the treatment of hypertension and angina; Infasurf, a lung surfactant for the treatment and prevention of respiratory distress syndrome in premature infants, and Cervidil, used for the initiation or continuation of cervical ripening. Shares in Forest Laboratories rallied today after the drug-maker said it would begin Phase III studies of an experimental treatment for Alzheimer's disease earlier than expected, and seek marketing approval for the drug by the end of the year. Forest Labs said it decided to conduct new studies of its Alzheimer's drug, Memantine, after a meeting with officials of the U.S. FDA to review results of studies among patients with moderately severe to severe forms of the degenerative neurological disease. The company also gave updates on two other medicines in development, including positive news about its hypertension drug Tiazac. The new product has won a patent that may help it resist generic rivals. Forest's Tiazac is a blood-pressure treatment licensed from Toronto-based drug maker Biovail and that company won a new patent on the medicine, which has been listed in the FDA's "Orange Book." When a patent for a currently marketed drug lands in the Orange Book, the FDA typically refuses to approve knockoff versions of the medicine for up to 30 months, thus any generic equivalents to Tiazac are likely to be significantly delayed in reaching the market. Today's news was favorable and buyers moved back into the stock, driving it up and out of a recent consolidation area. Now the issue is poised for future gains and we will speculate on that movement with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT FEB-57.50 FRX-NP OI=45 A=$0.70 SELL PUT FEB-60.00 FRX-NL OI=245 B=$1.00 INITIAL NET CREDIT TARGET=$0.40-$0.50 ROI(max)=19% B/E=$59.60 /charts/jan01/charts.asp?symbol=FRX ****************************************************************** - STRADDLES & STRANGLES - ****************************************************************** JP - Jefferson Pilot $67.50 *** Earnings Play! *** Jefferson-Pilot (NYSE:JP) is a holding company engaged in the business of writing life and accident and disability insurance policies; writing annuity policies and selling other investment products; operating radio and television facilities; and also producing sports programming. The company's main subsidiaries, which are wholly-owned are: Jefferson-Pilot Life Insurance (JP Life), Jefferson Pilot Financial Insurance (JPFIC), Jefferson Pilot Life America Insurance (JPLA), Alexander Hamilton Life Insurance Company of America (AH Life), Guarantee Life Insurance (GLIC), Jefferson Pilot Securities Corporation, a full service NASD registered broker, and Jefferson-Pilot Communications (JPCC). This issue meets our criteria for a speculative debit-strangle; cheap options, a history of adequate price movement and future events or activities (FOMC meeting and quarterly earnings) that may generate volatility in the stock or its sector. This simple selection process provides the foremost combination of low risk and potentially high reward. As with any strategy, it should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (very speculative - neutral/debit strangle): BUY CALL FEB-70 JP-BN OI=40 A=$0.55 BUY PUT FEB-65 JP-NM OI=39 A=$0.70 INITIAL NET DEBIT TARGET=$1.05-$1.15 TARGET ROI=20% /charts/jan01/charts.asp?symbol=JP ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1465 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.
Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.
To ensure you continue to receive email from Option Investor please add "firstname.lastname@example.org"
Option Investor Inc