The Option Investor Newsletter Sunday 02-18-2001 Copyright 2001, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/021801_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET STATS FOR LAST WEEK AND PRIOR WEEKS ****************************************************************** WE 2-16 WE 2-9 WE 2-2 WE 1-26 DOW 10799.82 + 18.37 10781.45 - 99.10 10864.10 +204.12 + 72.39 Nasdaq 2425.38 - 45.59 2470.97 - 91.09 2660.50 -120.80 + 10.92 S&P-100 675.42 - 6.93 682.35 - 11.97 705.48 - 3.58 + 3.83 S&P-500 1301.53 - 13.23 1314.76 - 17.77 1349.47 - 5.48 + 12.40 W5000 12029.60 - 94.71 12124.31 -169.65 12450.10 - 77.20 +143.40 RUT 499.28 + 2.23 497.05 - 5.84 501.50 + 2.82 + 10.59 TRAN 2994.78 - 18.64 3013.42 - 11.82 3092.76 +136.57 + 2.90 VIX 25.08 - .07 25.15 + 1.06 24.75 - .39 - 1.15 Put/Call .89 .73 .60 .59 ****************************************************************** Was that a dead stop at 2400 again? By Jim Brown What a difference a day makes! From apparent rampant buying on Thursday to obvious rampant selling on Friday. The bipolar Nasdaq screeched to a stop right on major support at 2400 again. The good news of course is the volume on each day. On Thursday the volume was a strong 2.1 billion but Friday the volume was only 1.8 billion on a down day. Did we get capitulation and a successful retest of support at 2400? Was the downdraft simply a reaction to Nortel and traders going flat before the weekend or are we looking at another leg down next week. Stay tuned! What a confusing day for traders! The Nyse:NT and Nyse:SGP warnings the night before and a massive miss in the economic reports. Traders already on the run from the severity of the NT warning were blindsided by a PPI report that came in much higher than expected. At +1.1% the PPI posted the largest gain since September of 1990 when we were last in a recession. The estimates were only +0.3%. The core rate estimated to be +0.1% also posted the biggest gain since 1998 at +0.7%. All of a sudden the fear of inflation has surged back into the forefront of investor sentiment. Many analysts brushed off the report as a fluke brought on by higher energy prices and companies raising prices to offset slowing sales. The flaw in this theory is the tendency of manufacturers to lower prices in times of soft demand to induce buyers off the sidelines instead of raising prices when buyers are watching costs closely. Still the warning light is back on and now all eyes are focused on the CPI report next Wednesday. A tame CPI will ease the tensions slow heart rates among bond traders again. Other economic reports included a drop in Industrial Production by -0.3% for the fourth monthly drop in a row. The -0.3% was slightly stronger than the -0.5% in December which could mean the pace of the decline is slowing. The estimates were for an unchanged report but analysts feel the cold December and warm January skewed the figures. Capacity utilization fell to 80.2% and is now nearly 200 basis points below its 1967-1999 average. The reduced utilization should actually be helping reduce inflation as supply bottlenecks have gone away. Housing starts soared to 1.65 million which was the strongest month since last April. This was due to the warmer weather and the falling interest rates. This is a positive signal because of the impact on the broader economy. It also shows consumer confidence may have bottomed even in the light of continued job cuts. This could work against us as the Fed could see this as evidence of a rebound. One of the most damaging indicators is consumer confidence which fell to 87.8 in February from 94.7 in January. This is the lowest point since 1993. Greenspan specifically singled out consumer confidence in his recent testimony and reasoning for the recent rate cuts. Historically downturns tend to feed on themselves as falling confidence turns into a death spiral unless some outside influence stops it. Aggressive Fed rate cuts function as an antibiotic to the confidence plague. By cutting rates aggressively consumers relax with confidence that uncle Greenspan will save them again. The Fed fund futures predicting a -50 basis point cut in March jumped from a 35% chance to a 70% chance after the economic reports on Friday. NT was dropped for a huge loss with a -$10 drop to $20 on a volume of over 120 million shares and a loss of $30 billion in total market cap. One third of the company's value just evaporated overnight. The dire outlook for NT rippled through the fiber/networking sectors. Corning, Nyse:GLW, dropped -9 or -21% to $32.88 and Nasdaq:JDSU dropped -9 or -21% to $35.88. Nasdaq:JNPR dropped -12 or -13% to $80. Nasdaq:CIEN, which just announced earnings and guided analysts higher, was also dropped for a -$6 or -7% loss to $82. The tremendous Ciena news had provided the huge rally on Thursday and CIEN had jumped from Wednesday's low of $69 to Thursday's high of $94. The pull back to $82 at the close is a clear entry point on very light profit taking in my opinion. (I own it) For those of us who were looking for a fast mover with excellent earnings and prospects, this was a gift. When the market rallies this stock will be a favorite. CSCO also fell on the NT news back to its 52-week low of $28 which has been a base since Feb-9th. Nasdaq:DELL held up rather well considering the lack of guidance going forward and lost only -1.50. Nyse:HWP also did well only losing -2.85 after warning about future growth. Nasdaq:SUNW suffered as much as Dell and HWP as analysts downgraded estimates for SUNW after the negative forecasts. SUNW will host its quarterly update meeting on Thursday and the stock is likely to drift lower as investors fear the same kind of warning from them. It is clear now that the bump on Thursday was short covering after the CIEN earnings surprise. There was no follow through and there was no bad news bounce like we saw with AMAT earlier in the week. This does not mean I am negative on the markets. At least I wasn't negative on Friday night. News was out on Saturday that CSCO CEO John Chambers is on the talk circuit again stirring up trouble. In Stockholm Sweden Chambers said "It makes no difference what the Federal Reserve or the latest statistics say. What we see now is absolutely NOT a soft landing. Ask anyone in American manufacturing industry and they will say we are in a recession. If the situation does not change before the half year stage there is a risk of a domino effect whereby the rest of the world will be imminently affected." Add that statement to the NT/DELL/HWP warning from last week and we have some really negative sentiment. According to First Call there have been 294 warnings for the next quarter compared to only 37 for this time last year. The outlook as reported by the financial world is bleak. Now here is where I wonder about reality versus hype. Several economic indicators are already showing a bounce. The Weekly Leading Index (WLI), which was developed by Greenspan's former economics teacher, Geoffrey More, is sending recovery signals. This indicator which dates back to the late 1980s gives a real time snapshot of the economy, not what happened a month ago. It has correctly highlighted the turning points since forecasting the 1990 recession in real time. It is now up four weeks in a row and at 124.0 actually higher than the peak in the economy in June 2000. My point here is companies are making increasingly bearish statements while the actual indicators are already showing new life. Is it possible that we are seeing executives taking the opportunity to talk down future earnings and lowering the bar they have to reach for several future quarters? Am I smoking something funny here or is it really possible that leading indicators and leading companies are moving in different directions? At $28 how much does CSCO and Chambers have to lose? The bad news is priced in and the stock is not likely to drop much more. Does this mean Chambers can take a free shot at trying to get Greenspan to lower rates again and also make earnings targets easier to hit? I would probably do it. He has nothing to lose and everything to gain. Next week we have two big Dow components, Nyse:HD and Nyse:WMT announcing earnings. Home Depot is already expected to post terrible results and the bad news is already priced in the stock. However Home Depot is seen as a leading indicator for the health of the building industry and guidance will be critical. Wal-Mart however could be a major event. Seen as a major indicator of the health of the retail sector WMT could impact the markets recovery views going forward. If they meet estimates and more importantly margins then we could see another sigh of relief. If margins dropped materially due to dumping of retail merchandise in the holiday quarter then their guidance will be critical. If they have a positive outlook then maybe we have seen the bottom of the economy. They already have said that higher energy prices have impacted customer counts to the downside and with energy prices falling investors could be expecting a better forecast. Are you confused yet? Don't worry, one of our best contrarian indicators just changed direction. Barton Biggs, or "Always Wrong Biggs" with MSDW, changed from a rare bullish stance to bearish again on Friday. After predicting a strong rally several weeks ago that never appeared he is now calling for new lows on the Nasdaq, Dow and S&P before moving up again. Must be a rally ahead! In real life however there is no clear indicator. According to market forecast expert, Dick Arms, the Nasdaq is the most oversold it has been since the October 1998 crash. Using the indicator he developed, the Arms Index (TRIN), and various moving averages for that indicator he is predicting at least a short term 1-2 week rally and a good possibility of a longer term rally of several months. Dick was on CNBC Friday saying we are at or very near a bottom. The Premier Investor Network, which OIN is a part, was joined by Dick Arms and his new website just last week. (ArmsInsider.com) We welcome him to the network! Dick will also be teaching at the April Trading Expo in Denver. Back to next week, I agree with the extreme oversold context. I went long on Friday afternoon based on the dead stop at 2400 again. After the John Chambers comments on Saturday I wish now that I had entered the weekend flat. I think the reason we did not see a bigger bounce at the close on Friday was the bombing of IRAQ and traders deciding that the unknown was more dangerous than missing a gap open on Monday. Little did they know that it was not Saddam Hussein we should have feared but John Chambers. There is still no catalyst to make buyers return to the market. The CPI on Wednesday could help if it comes in at a much lower level than the PPI but I think the WMT/HD earnings will cause a bigger reaction. We are in that trading limbo area again. At 2400 we should be bouncing. The keyword there is "should." If buyers are still on strike then we could see the Nasdaq drift even lower based on the Chambers comments. How low? 2300 has strong support and 2251 was the intraday low back on Jan-3rd. Either of those levels are so close that we are at the bottom for all practical purposes. Can you buy lower than our 2425 close on Friday? There is a good possibility after the Chambers comments but I just don't think it will be much lower. While there is no catalyst on the earnings/economic front to cause buyers to return, the lure of a sub 2400 Nasdaq is a siren call to bargain hunters. The biggest problem I see is not when we bounce from here but how long will the bounce last. We are back in that pattern of bear traps and until traders quit selling the bounces we are doomed to keep repeating the pattern. That is also our clue for a trading plan. Aggressive traders should buy any rebound and look to close those positions on any weakness 24-48hrs later. For conservative traders I am going to lower my 2700 entry point. Resistance is now at 2550-2600 so a rally over 2600 ON STRONG VOLUME would be a buy signal. I recognize that there is a lot of room between 2425 and 2600 and conservative investors will be frustrated watching stocks rally several dollars before reaching that area. The same thing happened this week. We saw the Nasdaq rally from 2400 to 2600 on the CIEN news and several readers emailed me with complaints that they had missed the boat and 2700 was too high. Don't look now but we are at 2400 again. 2700 was picked for a reason and I picked it when we were in the 2500-2600 range. Resistance at that point was 2650-2700 and until resistance is broken why do you want to take a long position? Aggressive traders can play with these 200 points swings but they must always be aware that the trend was still down. Until that trend changes those with a more conservative risk profile will do better to wait for that resistance to be broken. Once broken it becomes support and provides a base for future moves. For longer term investors, waiting costs nothing. Buying too soon can be expensive. Those high profile stocks you may have bought when you thought the market was running away from you this week are as much as $15-$20 cheaper now. (BRCM, JNPR, JDSU) Still, I know how human emotions work and these are only suggestions not commandments. I bought the dip but my risk profile may be different than yours. Whatever your profile, conservative or aggressive, we are at key support levels with major support at 2251 and 2300. The last bounce from 2251 on Jan-3rd was +700 points. Will it happen again? Nobody knows for sure but with the Fed on our side there will be plenty of traders betting on it! Dick Arms and I are betting on it too! Trade smart, 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! Current speakers include: Tom DeMark, author of "Day Trading Options", "Science of Technical Analysis" and "New Market Timing Techniques" and manager of a $4 billion hedge fund. John Najarian, "Doctor J" as he is known on the CBOE Mark Leibovit, Chief Market Strategist of VRTrader.com Richard Arms, inventor of the TRIN, or Arms Index, Equivolume charting and author of "Trading Without Fear." Mark Skousen, Editor of Forecasts and Strategies for over 20 years. Steve Nison, the worlds foremost expert on Candlestick charting. Author of "Japanese Candlestick Charting Techniques" and "Beyond Candlesticks." Jim Crimmins, President of TradersAccounting.com 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. 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 ************************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=1642 ************************************************************** ************** EDITOR'S PLAYS ************** Play updates! In my last column here I picked AMCC as a put candidate at $65.75. This chart below was what it looked like then. It had broken the existing up trend line that had held for two months and looked like it was about to retest the old lows. As you can see by the second chart the Feb-$60 put I had picked at $2.69 was very profitable. It traded over $16 all last week. I think we are looking at a very good entry point for a call play or a naked put. The MACD and STO are both looking up and the retest of the November low is complete. It has traded in the $45 area for over a week and failed to dip any farther. I would play the Mar-$45 call @ $4.88 or the Mar-$80 put at $36. Your choice! ************** CSCO - $35 Straddle The $35 CSCO straddle was profitable due to CSCO missing earnings. It dropped to support at $28 and the put side of the play rose to $7.25 for a better than $2 profit. The call side dropped to worthless the morning after the announcement and never recovered but we knew going in that one side would die. ******************* QQQ - Straddle The QQQ straddle was not as profitable as the CSCO trade. The Qs did not move as far and the premiums were higher. Still it would have been easy to capture a $1-$1.50 because the put option traded between $6-$7.50 several times. ******************* NEW PLAYS ******************* CIEN - $85 call As the strongest competitor in the optical networking sector and obviously taking business away from Nortel, CIEN, with their strong earnings makes them a likely target for money flowing into the tech sector. The pull back on Friday provided an entry point into the play. Support is at $80 and we should set our stops at about $78. The three day dip below $80 was on the JDSU warning and not likely to happen again. (I own this one) ************ MUSE - $70 call MUSE is simply a momentum play. It pulled back to long term support on profit taking and appeared to gain new life almost immediately. I would play either calls or naked puts and set my stops about $58. (I own this one) **************** QQQ - Calls This is a pure speculation play based on the Nasdaq dead stop on 2400. If the Nasdaq rallies then we could hit $60-$62 easily and a double on the call. (I own this) **************** My market view when I started these plays was for a bounce next week. That was before the Chambers remarks on Saturday. I am still looking for a bounce only it may be from a slightly lower number. Good Luck! Jim Brown *************************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=1628 ************************************************************ **************** MARKET SENTIMENT **************** The Tenth Dog Died By Austin Passamonte The 2001 Trader's Almanac reports that the last nine Fridays prior to President's Day were all negative sessions. Make that ten of ten, and thank you Jeff Bailey for pointing this out to us in your invaluable Intraday Alerts. There was little hope for a positive market open and any smattering of such was dashed when the PPI came out stronger than expected. Those who feel the possibility of inflation is dead can't rest easy just yet. While M-3 (money supply) has been flowing forth like hot springs in February, consumer spending is not. Money circulation makes the economy go round and right now that wheel is flat. Stagflation anyone? Our little flare up near Iraq did nothing to help any rally attempts with threat of precious crude oil being jeopardized or at the very least inconvenienced. Oil interest groups are clamoring for drilling rights in every nature sanctuary that still exists. Would alternative energy sources be a bad idea instead of or in addition to? We've seen, read and heard all the fundamentals - let's list where technical study measures all news, rumors and events currently known to mankind: SPX: Found closing support at 1301, site of a few recent open/close sessions as well. Plenty of overhead resistance to fight through once again, but all D/60/30 minute chart-signal oscillators are buried in oversold and a bounce is immediately due. (Near-term Bullish) Dow: Bounced clean off its 50-DMA and came to rest right on the 20-DMA and ascending trendline from mid-December lows. A break and close below today's session lows near 10,720 would not be good for bulls. Daily chart stochastic signals are still in mid- decline but 60/30 minute signals are emerging from oversold. (Benign) NDX: All signals buried in oversold. Next piece of resistance is 2335 or 100+ points above at the 10-DMA. "Spinning Top" doji candle on the daily chart is a bullish reversal signal down here as well. (Near-Term Bullish) OEX: Next overhead resistance 688 - 691 area. All chart signals buried in oversold as well. (Near-Term Bullish) COMPX: 2,530 area might be formidable resistance. It combines 62% Fibanocci Retracement with long-term descending trendline dating from September 4th. Could easily rally 100 points, but struggle to close beyond that. (Near-Term Bullish) Our overall sentiment is bullish for at least the next session or two. Thickets of overhead congestion have layered above and will offer the usual struggles to break. We know how market action goes: work hard to post gains and erase it all in one or two sessions flat. We remain in a trader's market and expect to be there for some time in the future. Buy & hold isn't working but nimble day- trading is. Buying dips near support for small profits and selling rallies for bigger gain is still in vogue. Buying extra time premium on calls does not help right now; it is a bull trap. June call options purchased mid-session yesterday are worth too little today by percentage of loss. Better to play cheap options at careful entries for quick gains at this time. Bad idea? We know a large number of index option swing traders who bought QQQ Feb 60 puts for 0.90 and OEX 680 puts for 0.95 Thursday at 2:00pm EST. They sold these plays for 4.00 on the QQQ and 5.50 on the OEX before 9:40am on Friday. Two hours ten minutes actual market time. Unusual? Rather. Lucky? Not even close... chart signals clearly predicted a decline all the way, though not nearly to that extent. Similar trades for fast doubles took place all week Sitting in cash, biding time before buying the recent excessive dip and then selling the next failed rally beyond may be the best approach to high-odds profit the markets have to offer us right now. Rest assured, we cannot name our price from them; the markets always dictate to us. Trade the daily trend with care! ****** VIX Friday 02/16 close: 25.08 VXN Friday 02/16 close: 64.41 30-yr Bonds Friday 02/16 close: 5.46% Support/Resistance Indicator The Index Support/Resistance(S/R)Ratio is a formula used to gauge possible support or resistance based on open-interest disparity. Ratio listed is percentage of calls to puts or puts to calls respectively. Support is factored from dividing puts by calls at strike levels beneath index closing price. Resistance is factored from dividing calls by puts at strike levels above current closing price. Friday (02/16/2001) (Open Interest) Calls Puts Ratio S&P 100 Index (OEX) Resistance: 715 - 700 5,813 2,440 2.38 695 - 680 2,859 3,647 .78 OEX close: 675.35 Support: 670 - 655 76 3,379 44.46 650 - 630 13 7,764 597.23 Maximum calls: 700/4,387 Maximum puts : 640/5,627 Moving Averages 10 DMA 691 20 DMA 701 50 DMA 698 200 DMA 753 NASDAQ 100 Index (NDX/QQQ) Resistance: 64 - 62 39,658 8,247 4.81 61 - 59 43,696 26,491 1.65 58 - 56 29,658 26,858 1.10 QQQ(NDX)close: 55.13 Support: 54 - 52 2,210 11,879 5.38 51 - 49 3,770 19,630 5.21 48 - 46 107 3,997 37.36 Maximum calls: 70/29,945 Maximum puts : 60/18,883 Moving Averages 10 DMA 58 20 DMA 61 50 DMA 62 200 DMA 81 S&P 500 (SPX) Resistance: 1375 7,480 9,954 .75 1350 45,000 40,903 1.10 1325 38,620 44,758 .86 SPX close: 1301.55 Support: 1275 3,493 16,063 4.60 1250 2,986 11,325 3.79 1225 123 11,837 96.24 Maximum calls: 1350/45,000 Maximum puts : 1350/40,903 Moving Averages 10 DMA 1328 20 DMA 1344 50 DMA 1333 200 DMA 1410 ***** CBOT Commitment Of Traders Report: Friday 02/16 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 -2625 -2903 -4782 -4001 Total Open interest % (-24.98%) (-29.87%) (-18.90%) (-16.84%) net-short net-short net-short net-short NASDAQ 100 Open Interest Net Value +4104 +3292 -8143 -6615 Total Open Interest % (+18.73%) (+20.96%) (-12.85%) (-10.93%) net-long net-long net-short net-short S&P 500 Open Interest Net Value +73789 +74142 -92910 -94766 Total Open Interest % (+40.21%) (+41.81%) (-12.12%) (-12.52%) net-long net-long net-short net-short What COT Data Tells Us ********************** Indices: Overall, positions of both the Small specs and Commercials have not varied significantly from last week, as Commercials continue to hold large net-short positions on the S&P 500, DJIA, and NASDAQ 100 while the Small specs are on the long side in the S&P 500 and NASDAQ 100. 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 02/13 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/021801_1.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=1650 ************************************************************** *************** ASK THE ANALYST *************** Behind The Curve By Eric Utley Fundamentals are precipitously deteriorating in technology. Just ask Nortel (NYSE:NT). The maker of networking equipment revealed Thursday evening that it would fall well short of previously lowered estimates. Nortel was expected to earn about 16 cents per share for the current quarter, but revised those estimates lower to expect a loss of 4 cents from operations. That was a HUGE revision lower. In addition, the firm said it would cut what amounted to 10,000 jobs. There are two significant takeaways from this Nortel warning. The first was the severity, and the second was the timeliness. It seems awful early into the quarter for the company to be warning. Along with the bust in the tech business, we saw the University of Michigan Consumer Sentiment Index plunge to 87.8 last week. While I normally don't like to report in this column, the two aforementioned events were fairly disturbing last week, and indicated, to me, that the Federal Reserve is behind the curve. While the 100 basis point cut in rates thus far in 2001 has helped, it's not been enough. Having said that, I wouldn't be surprised to see the Fed cut rates before the end of March. While I'm only speculating, it's something to think about. Send your opinions of this column along with stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Sector Components You have in the past provided excellent advice to my various questions on various stocks. Now I request you to name 10 best companies over the wide spectrum of stocks from Dow and Nasdaq. I am asking for the companies which according to you have good standing and ideal ones to follow on one's watchlist. Please also advise to which sectors these companies belong which will make possible investing with some knowledge and knowing some background of the company. I look forward to your advice. - Thanks and Regards, Sunil Sunil, I think you've touched upon something important with your request. While I'm not smart enough to pick the "10 best companies" across the broad market, I can, however, provide my readers with a breakdown of several key industry groups and the leading stocks within the sectors. Last week, I tried to make it clear that I attempt to discern the direction in the market/sector/stock before entering a trade. And by knowing of a handful of leading stocks in each industry group, I can get a better grasp on which sectors capital is flowing in and out of. Additionally, as I've become familiar with a handful of stocks in select sectors, I've observed nuances and unique trading patterns in each of the stocks I religiously follow. For example, certain stocks tend to lead their sectors, while others lag when their sectors are moving. By knowing how certain stocks "behave" in relation to their sectors, I've been able to make some good money in trades I might have otherwise missed. However, I'm not going to tell my readers how the stocks I follow "behave" for fear of establishing a potentially detrimental bias towards a certain stock. Knowing how a stock trades in relation to its sector can only come from experience! But, I would like to reinforce that by understanding how a certain stock trades in relation to its sector can often times lead to very profitable trades. The list below will provide a couple of stocks in several of the bigger sectors of the market. There are obviously many more industry groups and sub-sectors in the market than I've listed below, but the following group of stocks represents a decent representation of the market. Biotechnology: Amgen (AMGN) Biogen (BGEN) Genzyme General (GENZ) IDEC Pharmaceuticals (IDPH) Millennium Pharmaceuticals (MLNM) Networking/Optical: Nortel (NT) CIENA (CIEN) Corning (GLW) Cisco Systems (CSCO) Juniper Networks (JNPR) Semiconductor: Micron (MU) Intel (INTC) Xilinx (XLNX) Broadcom (BRCM) PMC Sierra (PMCS) KLA - Tencor (KLAC) Texas Instruments (TXN) Applied Materials (AMAT) Energy - Oil: Chevron (CHV) Slumberger (SLB) Haliburton (HAL) Exxon Mobil (XOM) Pharmaceuticals: Merck (MRK) Pfizer (PFE) Schering Plough (SGP) Johnson & Johnson (JNJ) Banks: Citigroup (C) Bank One (ONE) J.P. Morgan (JPM) Wells Fargo (WFC) Bank of America (BAC) Brokers: Schwab (SCH) Goldman Sachs (GS) Merrill Lynch (MER) Lehman Brothers (LEH) Retail: Gap (GPS) Target (TGT) Costco (COST) Wal Mart (WMT) Home Depot (HD) American Eagle Outfitters (AEOS) ---------------------------- CIEN Day Trade I received several requests over the past two weeks for setting up potential trades in my column. I've decided against putting up trades in my column because my risk profile and trading strategy varies too much, and I don't want to be a possible detriment to my readers. I also had several requests from my readers to put up past trades from the previous week that I had made. And I've decided to do that exact thing in an attempt to add more value. Before I reveal how I traded CIENA (NASDAQ:CIEN) last week, I want to point out something I found rather amusing. About two months ago, Nortel (NYSE:NT) put out a report that detailed how the company was stealing market share from CIENA in European and North American markets. In short, Nortel was trying to talk down CIENA. However, as we discovered Thursday, CIENA beat its estimates and actually raised guidance, while later in the day Nortel warned in a huge way. My point is not to blast Nortel, because I'm sure some of my readers own the stock and its blowup was a very, very bad thing. But, the Nortel report two months ago, which attempted to downplay CIENA, proved to be no more than noise, which is a variable that traders and investors are often confronted with when making decisions with their money. In short, let the market dictate! I put on two trades in CIENA last Wednesday, ahead of the company's earnings announcement Thursday morning. Both trades were bullish in nature - I bought front-month calls. The Nasdaq was weak following the Applied Materials (NASDAQ:AMAT) earnings report the prior evening. And although I preach to confirm market/sector/stock direction before entering a trade, I noticed that CIENA was acting very well and didn't want to go lower. It may sound contradictory, but one's trading strategy has to be as dynamic as the market, or else many opportunities slip by. Additionally, because I was day trading front-month calls during expiration week, the calls in CIENA were very, very cheap. I only paid $350 per contract with a 40 delta - the risk was pretty small. The trading behavior in CIENA Wednesday morning was very indicative of higher prices. The stock opened the morning with an open test drive. That is, it rallied right from the opening, and then pulled back to test the conviction of the sellers. As it turned out, the sellers were not strong enough to push CIENA below the $69 level - a level where I was looking to buy puts. CIENA bounced around $69 and began to lift as buyers stepped into the broader tech sector, which I had noticed by monitoring the SOX.X and the NWX.X. I bought calls right when CIENA lifted above the $72 level, which appeared to be a somewhat significant resistance level. It never looked back and proceeded to advance up to almost $75. As it became apparent that CIEN was pulling back from the $75 level, I blasted the calls for a nice and quick profit. As trading wore on through midday, it looked as if CIENA was setting up for a classic double distribution day. That is, the stock was bought in the morning, spent the afternoon consolidating, and would rally into the close of trading. The second trade I put on was rather easy, as I simply waited for CIENA to breakout from its midday consolidation, and above its day high at $74.88. As soon as CIENA broke above $75, I made my second purchase of FEB 75 calls, and then watched the stock go higher into the final hour of trading. I blasted my second position as the stock churned around the $76.50 level. While making only $1.50 on the underlying may sound trivial, by leveraging the trade with options one can make A LOT of money from these small types of trades. ---------------------------- Broadcom - BRCM I wanted to say your top-down article last week was great and I gleaned some great information to help in setting up plays. Last week you reported on a possible reverse head and shoulders pattern forming on BRCM chart. Could you follow up and confirm that it is still intact or has it been violated and we should stay away. Thank you and good trading. - Sincerely, Scott Scott, I greatly appreciate your kind comments. It is true that I had suggested shares of Broadcom (NASDAQ:BRCM) were setting up to form an inverse head-and-shoulders about two weeks ago. If the pattern were to be completed, the stock needed to bounce somewhere around the $85 level in order to trace the right shoulder. Here's the chart I published two weeks ago: As you probably saw two weeks ago, Scott, shares of Broadcom fell right through the $85 level without much hesitation. I'd say that the head-and-shoulders bottom has failed and I would now avoid the stock from the long side. Maybe Broadcom can be traded on a quick move back above the $80 level for a quick pop, but I'd be careful. There's nothing wrong with Broadcom the company, I think they'll do very well over the next several years. However, Broadcom the stock may have some trouble in the short-term given its technical weakness and the troubles in tech. ---------------------------- Cisco Systems - CSCO Is now a good time to buy CSCO? Very good question! I consulted my esteemed colleague, Jeff Bailey, for a bearish price objective on Cisco Systems (NASDAQ:CSCO). Jeff is a top dog with point and figure charts, which measure supply and demand in stocks. He informed me that the recent bearish price objective in shares of Cisco was $28, which is the level that the stock bounced off of last week. Whether that level is the bottom for Cisco remains to be seen. Judging by historical valuations, Cisco could shed another $5, or so. As hard as it may be to believe, Cisco is still relatively expensive when considering its historical valuations, as measured by price to sales and price to earnings. The bottom-line in the tech sector is that fundamentals are still deteriorating. Within Cisco's realm of business, we've heard that PMC Sierra (NASDAQ:PMCS) is having problems and the aforementioned Nortel is clearly facing severe problems, along with the lowly Lucent (NYSE:LU). And Cisco itself missed estimates. So, one could buy Cisco at current levels with the understanding that business in the Networking sector has not yet up-ticked in an attempt to get ahead of the curve when fundamentals begin to improve. However, the risk in doing so is that you might have to suffer some pain in the near-term or wait a long time for fundamentals to improve and see the stock advance. The best strategy in Cisco right now, and the broader tech sector, is to wait for fundamentals to improve, which could take some time. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of February 19, 2001 Monday ====== None Scheduled Tuesday ======= Kansas City Fed Survey Q1 Forecast: NA Previous: 1.0 Wednesday ========= CPI Jan Forecast: 0.30% Previous: 0.20% Core CPI Jan Forecast: 0.20% Previous: 0.10% Trade Balance Dec Forecast:-$32.4B Previous: -$33.0B Treasury Budget Jan Forecast: $73.0B Previous: $62.2B Oil & Gas Inventory 16-Feb Forecast: NA Previous: 289.0MB International Trade Dec Forecast: $32.0B Previous: $32.7B Thursday ======== Initial Claims 17-Feb Forecast: 345K Previous: 352K Leading Indicators Jan Forecast: 0.40% Previous: -0.60% Help-Wanted Index Jan Forecast: NA Previous: 79 SEMI Book-to-Bill Ratio Jan Forecast: NA Previous: 1.03 Online Help Wanted Idx Feb Forecast: NA Previous: 112.2 Friday ====== ECRI Weekly Index 16-Feb Forecast: NA Previous: -1.7% Week of February 26th ==================== Feb 26 Existing Home Sales Feb 27 Durable Orders Feb 27 Consumer Confidence Feb 27 New Home Sales Feb 28 GDP-Prel. Feb 28 Chain Deflator-Prel. Feb 28 Chicago PMI Mar 01 Auto Sales Mar 01 Truck Sales Mar 01 Initial Claims Mar 01 Personal Income Mar 01 PCE Mar 01 Construction Spending Mar 01 NAPM Index Mar 02 Mich Sentiment- Final *************************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=1635 ************************************************************ 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. 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The Option Investor Newsletter Sunday 02-18-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/021801_2.asp ************** TRADERS CORNER ************** Ashes To Ashes, Dust To Dust By Renee White Have you ever had the feeling you don't know where to hide? If anyone has previously been an active trader, under similar conditions that include: air strikes in the middle east, an energy crisis, potential economic stagflation, a major stock market correction that sells-off after a 100 basis point rate cut within one month, would you please step forward? As if on cue, historically, the first year of a new presidency has never been market friendly. So, you think it can't get any worse. I hope you're right. I'm beginning to think I liked it better when news programs were less efficient with their news. More and more things seem to keep coming out from left field. Could it be at these times, when it's hard to see through the fog, that it's time to step up to the plate? That’s probably true if you are a long-term investor, freely accepting near-term risks. As traders, though, short-term plays will probably stay our best bet until consistent and discernable economic data shows up. Unfortunately, travel and outside business kept me away from the markets, forcing me to take profits early, exiting all plays a week or more ago. Right trades. Right bias. But premature exits proved painful in missed profits. Last spring, I grew careless, leaving town with open profitable positions on the table. I don't do that anymore. So, I exit with discipline and take profits. Except now I get whacked because the market went the way I expected, while my premature exits shaved off 550% of potential profits! I had some winning entries in January buying puts at clean resistance levels on several plays including entering Juniper February 125 puts (NASDAQ:JNPR) with JNPR at $134, and Lucent February 17.5 (NYSE:LU) at $22, among others. I exited way too early on JNPR, on a fake-out day when it dipped and bounced back. It closed Friday at $80, a potential 300% option profit. And darn LU, well, I just got tired of staring at a basket of February 17.5 puts bought at 75 cents each. They barely moved in either direction for what seemed like eternity, until I couldn't stand it any longer and exited last week with only a eighth profit on each contract. Of course, the next morning after exiting, bad news surfaced and those puts saw $5.00 each these last few days, a 567% in lost painful potential profits from exiting early! Executing the trade well is all that matters in the long run. It was reported several times today that we have heard from 294 companies warning this quarter, compared to 37 companies this time last year. That's enough to put a chill up one's spine. When I heard that even Tootsie Roll Industries, Inc.(NYSE:TR) had missed their only posted earnings estimate by 4 cents (32 versus 36 cents per share), I knew we were in for continued economic problems. I mean, who would quit buying their favorite candies (Junior Mints, Tootsie Rolls, and Mason Dots) just because consumer sentiment had soured? I would think that fear and anxiety would cause people to chew faster and more instead. To be fair, their fourth quarter net income did rise 3.7 percent on 14 percent sales growth. Having come from $37.81 a share on 12/19/00 to $51.93 on 1/19/01, traders of this sweet company have been rewarded. They posted a net income of $15.5 million compared to $15 million last year. It closed the week at $49.68. I mentioned this to get you thinking. As option traders, we are so demanding of volatility, hoping for premium inflation so we can exit profitably. Our precious Techs have been slaughtered, and everyday more blood is drained from the group. If a company is not directly hit, either its supplier or customer probably has or will be. The chain reaction leaves few untouched. Because of this, I have a hard time thinking that a fast sharp rally will appear and sustain itself for the year. I expect the near future to be met with increased uncertainty, confusion and bad news. Techs are bruised and need time to heal internally and on down the chain. Damage of this type, spread amongst most business sectors, never mends itself over night. As traders, we may need to adjust our expectations for a while longer. Recovery will come and we all know technology tends to lead. It is the non-techs, though, that may be safer for the near term through May. If the Dow(INDU) stays above water and doesn't decide to fall off the cliff with NASDAQ, then perhaps plays like Tootsie Roll and other consumer staples aren’t so comical after all. Certainly, they don't rally 10-20 points on a good day but they also don't sell-off that much either. During uncertainty, companies that move in smaller increments may feel safer to many traders. Here is Tootsie, who this week missed by 4 cents and they still closed the week only 2 cents below its recent 52 week high. The real eye-opener is that they are still holding on to a 31.4% rally in the last 2 months! A 4-cent miss by a tech would not act the same. To me, that is something to think about. Trying to project when a recovery in technology will be sustainable is hard for everyone. In January, I decided that during the late February softness, I would begin taking positions in Leaps for my IRA. Now though, I am having a change of heart with that call. In the last 2 weeks, I have noticed that I am mentally scrutinizing my 2002 Leaps, and I believe my gut is telling me to exit on a rally before time decay proves costly during a prolonged choppy market. Therefore, I will exit those and hold off buying other Leaps until I see signs of life honestly returning. Is this fear before capitulation, or a protective trading bias that is surfacing? I'm not sure, but I surely don’t see signs of a tech turnaround yet. I know that I can always add to positions later, and buy another year out once the fog begins to clear. When recovery begins, time will once again be on my side. I don't know anyone expecting a good April earnings period this year, and then there is May, one of the worst trading months of the year. July is also looking bad on the earnings front, which is on top of a typically slow summer period anyway. Need I really mention October? So why risk buying Leaps now with huge overhead resistance and a choppy environment? It is important to realize that when companies start fretting that recovery by 3rd quarter is starting to feel speculative, the sentiment alone can kill your portfolio. There is a diamond in the rough though. It will be found months in the future unexpectedly when everyone is still expecting bad news and blowout numbers suddenly appear. Question is, which quarter will that be and in which year? Until that is known, taking profits quickly, trading support and resistance levels and not being too eager to bet on a sustained reversal are probably the safest bets. These past 6 months have been a great time for traders to practice their bearish strategies. Don't lose this opportunity to develop strong trading skills in this area. I have collected a batch of companies that I will trade in both directions come April earnings season. Most likely, my bigger plays will be with a bearish bias, although I may participate with non-tech plays on the bullish side. I always plan ahead for earnings. Start listening and searching now for some sleepy non-tech winners to position into, in a month. We'll discuss some of these in future articles. For the time being, stay alert and cautious, while waiting for the next big surprise to come out of left field. Remember, when techs are looking like dust in an ashtray, your favorite brand of candy may do more than just soothe your sweet tooth. ************************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=1643 ************************************************************** *********** OPTIONS 101 *********** Money Management By Lynda Schuepp I'd like to thank the readers for the feedback last week. It is difficult to gauge my writing to the "average" reader. One reader wrote, "Congratulations on what I consider an excellent article on the butterfly spread. I'm sure I have read articles on this and other spreads many times on OI but they just seemed too complicated..." Another reader wrote that my descriptions were so difficult to understand that they were thinking of canceling OIN. This tells me we have a very wide range of reader experience, which makes my job quite difficult. It's like sticking your head in the oven and your feet in a bucket of ice water and concluding that you are comfortable "on average." From the extremes in the comments, I am going to try to write a very basic article one week and a more advanced article the next week. Trouble is you're going to have to read the article to determine which one it is. Who knows you might pick up something, even if it is basic and you also might pick up something if it is more complicated. Now that we've cleared the decks, onto the topic - money management. This is a subject that should be near and dear to your hearts if you've been trading for the last year. Last week I touched on the subject with regard to risk versus reward, and this week I'd like to share some additional ideas that could help your decision-making going forward. Many of us, myself included, look at a chart and want to jump in, not really knowing our risk to reward, as discussed last week. However, I'd like to share a new twist that might prevent you from getting into more risky trades. First, you need to determine an average amount you are willing to risk with each trade. William O'Neil of Investor's Business Daily recommends no more than 8% per trade, which is a good place to start. Let's assume you are starting with $40,000 to trade with - then no trade should exceed $3200. This allows you to have about 12 positions at any one time, although, I for one have a hard time managing that many. Next, you need to go back and look at the last 10 trades. Add up the total profit and divide by the number of trades, that will give you your average profit per trade. Now go back to the last 10 trades and do the same with your losses. Finally, divide your average profit by your average loss. Hopefully, this number will be greater than 1 (which means you made money). If not, then you need to seriously evaluate those last 10 trades and change the way you are trading. Are your stops tight enough and do you let your profits run, or do you let your losses run and sell too soon on the profit side after having a string of losses? Go back and study each chart and your point of entry, was it a good place to enter, what were the signals, did you know when earnings were due, or did you enter after a CEO lunch on CNBC? You will learn a lot about yourself if you go back and really spend some time on each trade. Let's create a reasonable scenario of a profitable trader: 10 trades with 4 winners, and 6 losers. You probably will be winning less times but with bigger wins and losing more times with a smaller amount of money with each loss. Trade 1 +6400 Trade 2 -3000 Trade 3 -2400 Trade 4 -4000 Trade 5 +9600 Trade 6 -3800 Trade 7 +3200 Trade 8 -2000 Trade 9 -1600 Trade 10 +3200 In this scenario, there were 4 profitable trades with profits totaling $22,400, for an average win of $5600 per trade on an investment of $3,200 per trade and 6 losing trades with losses totaling $16,800 for an average of $2,800 per loss. The average win was $5600 was calculated by dividing the total win money by 4 and the total losses by 6. This is a reasonable scenario for a short-term trader. Next, we calculate our risk to reward history, average win, divided by average loss which in this scenario would be $5,600 by $2,800 or 2 to 1. To interpret how to use this information, you simply need to find trades that have the potential to deliver 2 times the win versus the potential loss, which would be your stop. Some traders simply blindly put on stops and say, if I lose $1000 on the trade, I’m out. Stops should be well thought out and should have some strong technical basis such as below strong support, break of an upward trendline or cross of some moving average or a Fibonacci retracement (topic of a later article). The projection of how high the stock can go should also be based on technical analysis such as a previous area of resistance, an earlier gap, a nice round number like 100 or some other such trigger. Now let's look at a stock and see whether a particular trade that we would like to make, fits our profile. Daily chart of ADM up to February 14th: Looking at the chart above with only a couple of signals that can be used to enter trades, ADM closed below the 5 and 10-day moving averages and there is a divergence between the moving average oscillator and prices. Let's say we wanted to short here at $15.13, we could either short the stock or buy March puts with a strike price of 15, allocating no more than $3200 in the trade as outlined above. Now let's calculate whether this trade fits the profile we defined above. My stop would be placed at the high of February 8th ($16) and my target would be the low of January 22nd ($13.38). Let's assume we shorted the stock (because I don't have option prices going back to create the scenario), the risk would be 7/8 of a point if the stock reversed and I got stopped out at $16. My potential reward would be reached if the stock continued down to test the previous low at $13.88, which would be $1.75 gain. Reward to risk is 2 to 1, which meets the criteria. This looks like it would make a nice trade with minimal risk. Do 10 of these, win on 4 and lose on 6 with similar profiles and you consistently make money. Don't be afraid to walk away from a trade that doesn't fit your criteria, no matter how good you "think" it might be. Traders who have been around for a long time will all tell you the say thing, money management is key to longevity in the market. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* IBM - Intl Business Machines Corp $115.00 (+3.00 last week) See details in sector list Put Play of the Day: ******************** NETE - Netegrity, Inc. $57.00 (+1.69 last week) See details in sector list *************************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=1629 ************************************************************ ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No dropped calls this weekend PUTS GLW $33.00 (-7.96) We're taking our profits! GLW gave us a grand run down to $33, lining many traders' pockets with wads of cash. At this point in the play, however, we believe it's time to pack up and find other lucrative opportunities. It's not wise to be greedy. Therefore, we're exiting on a profitable note this weekend. The sharp 21.5%, or $9.00 decline in Friday's session may very well attract some buyers next week. If by chance you have any open positions, keep the stops tight and sell into any weakness. FCEL $58.69 (-0.81) Receiving a shot of energy from the NASDAQ rally on Thursday, FCEL rose sharply before running into resistance at the converged 10-dma and 30-dma, and falling back at the close. The drop brought our play just fractionally below our stop, so it started out Friday's session on probation. Although it turned out to be a negative day, the sellers just couldn't make any headway against the $58 support level that has been in place for the past week. On a day where the NASDAQ posted another triple-digit loss, FCEL should have shown more weakness, and this is a good indication that the decline has just about played itself out. Use any weakness on Tuesday to get a better exit, but don't open any new positions, as we feel it is better to move on than force a bad play. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** LH - Laboratory Corp. of America $145.25 (+10.75 last week) Laboratory Corporation of America Holdings (LabCorp) is the #2 clinical laboratory service in the world, behind Quest Diagnostics. LH performs 2000 types of tests for more than 100,000 clients, including health care providers, pharmaceutical firms, physicians, government agencies and employers. With 25 major laboratories and some 1200 service sites nationwide, the company emphasizes specialty and niche testing such as allergy tests, HIV tests, blood analyses, and substance abuse screenings. In its post-New Year slide, LH gave up a cool 33% of its market capitalization as money flowed back into technology during the month of January. Realization that tech was still in trouble shifted the tides once again, and investors have been gradually coming back to LH, as they recall the stock's stellar performance throughout the majority of 2000. To what do we owe the stock's revival while the economy is still in trouble? Recall that LH is the #2 clinical laboratory service in the world. Do you think that people stop going to the doctor and having tests performed, just because the economy is soft? Me neither, and that goes a long ways towards explaining why the stock is once again posting higher highs and higher lows. And if you need another catalyst for our new play, look no further than the company's recently released earnings. LH gave investors a wonderful Valentine's Day present, reporting earnings $0.08 ahead of consensus estimates and yet another quarter of accelerating revenue growth. Investors seemed to like the company's statement, "Gains were again made in all segments of our business". When was the last time we heard that from a company with a PE north of 50? Technically, LH may have a bit of a struggle in the near term though, with the upper Bollinger band looming just overhead at $146.86. Daily stochastics are approaching the overbought region, and finishing their journey is likely to take the price right into the upper band, causing it to expand upwards. But in the process, the stretching of the band is likely to produce some profit taking in the near term. Consider new entries either on a bounce from intraday support at $141 or $144, so long as it is accompanied by solid volume. More conservative traders will want to wait for a move through the $146 resistance level, but be on the lookout for profit taking as the stock approaches that upper Bollinger band. Place stops at $140, right at the ascending trendline. BUY CALL MAR-140 LH-CH OI=522 at $13.20 SL=10.00 BUY CALL MAR-145*LH-CI OI= 15 at $10.50 SL= 7.50 BUY CALL MAR-150 LH-CJ OI= 35 at $ 8.20 SL= 5.75 BUY CALL MAY-150 LH-EJ OI= 23 at $17.10 SL=12.25 BUY CALL MAY-155 LH-EK OI=102 at $15.10 SL=11.00 SELL PUT MAR-140 LH-OF OI=505 at $ 6.90 SL=10.00 (See risks of selling puts in play legend) http://www.premierinvestor.com/oi/profile.asp?ticker=LH MUSE - Micromuse $64.06 (+0.00 last week) Micromuse, Inc. is the leading provider of realtime fault management and service assurance software. Micromuse was recently named on of the Top 25 Best Performers in the Wall Street Journal's Shareholder Scoreboard, and was recognized in the Forbes 500, Business Week's InfoTech 100, and Barron's 500. Micromuse customers include AT&T, BT, Cable & Wireless, Cellular One, Charles Schwab, Deutsche Telecom, Global Crossing, MCI Worldcom, and a number of financial investment concerns. Headquarters are in San Francisco, California. If a technology stock can close higher on a day like Friday, think what it might do if the Nasdaq rallies. While other techs stocks emerged bloody and battered from Friday's carnage, MUSE emerged undaunted and poised to continue its ascent from a strong pattern of higher lows which began in November. This trend is not surprising, considering that it seems MUSE has released nothing but good news in the last several weeks. On January 18, MUSE reported earnings of ten cents per share, which was 25% higher than the consensus of analyst expectations. Revenues increased 123% from the year ago quarter, and management did not reduce guidance going forward. Since then, several Wall Street firms have issued positive reports. WR Hambrecht itiated coverage with a buy rating and a 12 month price target of $90, stating that MUSE stands to benefit from the possible shifting of IT dollars from expensive hardware upgrades to the less expensive software solutions offered by MUSE. Since capital spending on new carrier equipment has slowed dramatically, and is expected to slow further this quarter, MUSE may be positioned to profit as companies use their software to squeeze additional utility from existing hardware infrastructure. In addition, MUSE is benefiting from the shift of investors interest to small and mid cap technology and software stocks. MUSE is just a few points under its 200 dma of $65.68, and its 50 dma of $67.15. A move above the 200 dma on strong volume could be an excellent entry point for call players, if it is accompanied by strength in the software sector. Watch others like RATL and SEBL for an indication of sector strength, and set stops at $58. BUY CALL MAR-60 UZQ-CL OI= 54 at $10.75 SL= 8.25 BUY CALL MAR-65*UZQ-CM OI= 45 at $ 8.38 SL= 5.75 BUY CALL APR-60 UZQ-DL OI=253 at $14.63 SL=11.00 BUY CALL APR-65 UZQ-DM OI=624 at $11.88 SL= 9.00 http://www.premierinvestor.com/oi/profile.asp?ticker=MUSE CIEN - Ciena Corp $82.63 (+2.75 last week) CIENA Corporation's market-leading optical networking systems form the core for the new era of networks and services worldwide. CIENA's LightWork architecture enables next- generation optical services to transmit signals simultaneously over the same circuit. This multiplexing system changes the fundamental economics of service-provider networks by simplifying the network and reducing the cost to operate it. About 45% of sales comes from outside the US markets. Jim's commentary in Thursday's newsletter with respect to CIEN's stellar earnings' report sets the groundwork for our play. Shunning the slowdown on the optical networking highway, CIEN dazzled the Street and ignited a market eruption; thus, validating itself as a market mover. The company beat estimates by $0.03 with a 500% increase in revenue over the same period last year. In particular, Ciena's raised its guidance for the next quarter by over +10%, and by a dime, $0.66 to $0.76 for the full year. Essentially they achieved the most important feat - they heightened investors' confidence. This fact became apparent in Friday's trading session. The broad markets were chaotic as the result of stronger-than-expected PPI and traders once again sought shelter from the uncertainty. But despite the aversion to many technology stocks, CIEN was a beacon of light. The share price found stability in the higher trading ranges of $82-$84 and is now poised to take off again. Although we can't make any guarantees, we have confidence that CIEN can pilot its way back through the $90 level in a cooperating market environment. CIEN can be a volatile mover, which in one sense adds risk to the play, but on the flip side, the volatility offers a wider range of entry choices and the opportunity to target shoot. As it is, the 5-dma (which is just a fraction above our $78 stop) traces an aggressive line to take positions during a deep pullback, while the 10-dma ($80.33) provides a more conservative approach on intraday dips. Still, it may be best to buy into the momentum as CIEN breaks to the upside; although be aware of the psychologically governing century mark. Consider locking in gains early to protect profits and capital. BUY CALL MAR-80 UEE-CP OI=2422 at $12.13 SL=9.00 BUY CALL MAR-85*UEE-CQ OI=6434 at $ 7.88 SL=5.75 BUY CALL MAR-90 UEE-CR OI=2044 at $ 5.88 SL=4.00 BUY CALL APR-85 UEE-DQ OI= 700 at $12.13 SL=9.00 BUY CALL APR-90 UEE-DR OI= 672 at $ 9.75 SL=6.75 http://www.premierinvestor.com/oi/profile.asp?symbol=CIEN IBM - Intl Business Machines Corp $115.00 (+3.00 last week) IBM develops, manufactures, and sells advanced technology processing products. They are the world's top provider of computer hardware including PCs, mainframes, and network servers. IBM is also an industry leader in software and peripherals, second only to Microsoft. The company owns software pioneer Lotus development, maker of Lotus Notes. Big Blue exemplifies the meaning of technological diversification. Not only is IBM an industry leader in both the software and hardware sectors, but also, the company forges influential alliances and establishes standards effecting other aspects of leading-edge technology. IBM's respectable and lofty position within its industry manifests itself in the marketplace. We're expecting IBM to usher in the rally and lead the charge when the bulls regain control of the technology stocks. Therefore, look for a major breakout to occur during a NASDAQ rally. An upside move through the immediate resistance at $118 and the $120 level would signal traders to take call positions either by buying into the strength at hand or target shooting for lower entries near the support levels. Last week, a nice show of support developed at $114 and $115. You might consider using that as a base going forward; especially considering the strength of that price level in the face of strong PPI numbers on Friday. We currently have a stop loss set just under the 10-dma ($114.50), at $113, and will exit if IBM fails to rise to the occasion. Recently, there's been a slew of earnings' reports burning ears on the Street, with some of the big boys like Ciena (CIEN) effectively rocking the market, but IBM's numbers shouldn't come into play over the near-term. The company isn't scheduled to announce until mid-April. BUY CALL MAR-110 IBM-CB OI= 3848 at $8.40 SL=6.00 BUY CALL MAR-115*IBM-CC OI= 4152 at $5.20 SL=3.25 BUY CALL MAR-120 IBM-CD OI= 8739 at $2.95 SL=1.50 BUY CALL APR-115 IBM-DC OI=10454 at $8.40 SL=6.00 BUY CALL APR-120 IBM-EC OI=10780 at $6.00 SL=4.00 http://www.premierinvestor.com/oi/profile.asp?ticker=IBM **************************** NEW LOW VOLATILITY CALL PLAY **************************** CPN - Calpine Corporation $47.24 (-0.28 last week) Calpine is an innovative, fully integrated power company. They are committed to providing their customers with low-cost and reliable electricity. They also provide thermal energy for industrial customers, such as Sunsweet Growers and Phillips Petroleum Company. Their entrepreneurial staff of energy professionals is experienced in every aspect of power generation. From engineering, construction and fuel supply through financing, operations and power marketing, they strive to add value at every phase, while lowering costs. Calpine is focused on two key technologies: combined-cycle natural gas-fired and geothermal power generation. California's power crisis has served as fuel for shares of energy generators such as CPN to rally recently. Bouncing off support at $29 in early January, CPN has been steadily advancing, so much so that the stock is now above all its major moving averages. The company has been in expansion mode, having just received approval to build power plants in Florida as well as Wisconsin. What's more, CPN is looking beyond US borders for long-term growth prospects. After breaking recently taking out resistance at $43, CPN spent this past week basing in a narrow range with support around $44-45 and resistance at the $48-49 area. A break above $48 on volume would be a bullish sign, setting the stock to take out $49 and then the psychological $50 level. If such a move does indeed come to pass, with sector sisters AES and ALS also rallying, this could be an opportunity for conservative traders to take a position. Support can be found below at $47, the 5-dma at $46.25, the 10-dma at $44.60, $44 and our stop price at $42.50. Aggressive traders may target pullbacks to these levels, but make sure the buyers return in force before jumping in. BUY CALL MAR-45 CPN-CI OI=3983 at $4.50 SL=2.75 BUY CALL MAR-50*CPN-CJ OI=3580 at $2.00 SL=1.00 BUY CALL MAR-55 CPN-CK OI= 202 at $0.80 SL=0.00 High Risk! BUY CALL APR-50 CPN-DJ OI=1630 at $3.70 SL=2.00 BUY CALL APR-55 CPN-DK OI= 762 at $1.85 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=CPN WPI - Watson Pharmaceuticals $57.00 (+4.35 last week) Watson Pharmaceuticals develops, manufactures and markets a comprehensive array of branded and off-patent pharmaceutical products. The Company's continuing proprietary pharmaceutical strategy is to grow by identifying products within specific therapeutic areas which provide attractive opportunities for long-term growth and by making the investments necessary to capitalize on these opportunities. Watson markets its proprietary products through four divisions: Dermatological, Women's Health, Neuro-Psychiatric and Primary Care. Each of the Company's divisions focuses on offering products to statisfy the needs of physicians who specialize in the diagnosis and treatment of different medical conditions. A bullish conference call on Friday provided the lift needed for the stock to break out of a three-week base on volume. After trading in a narrow range, with support below at $52 and resistance overhead at $55.50 on declining volume for quite some time now, WPI took off on Friday trading, jumping up $3.90 or 7.34 percent on over 1.3 times the ADV. This came on the heels of an earnings report the previous day in which the company posted lower operating profits. It is interesting to note that Friday's rally came after the company's conference call began. It appears that investors liked what was said, which was that WPI expected earnings to grow 91 percent in 2001 over 2000. With that the institutions came out and reiterated their Buy recommendations on the stock. Bounces off support at $56, $55.50 and our stop price of $55 could allow aggressive traders to take a position, but as always, confirm bounces with volume. If the buyers continue to assert themselves on Tuesday, conservative traders may find current levels to be an attractive entry point. While WPI has been outperforming its sector, ideally we would like to see Merrill Lynch's Pharmaceutical HOLDR (PPH) move higher, giving the stock an more hospitable environment in which to flourish. BUY CALL MAR-55*WPI-CK OI= 613 at $4.90 SL=3.00 BUY CALL MAR-60 WPI-CL OI= 72 at $2.45 SL=1.25 BUY CALL MAY-55 WPI-EK OI=2558 at $7.50 SL=5.25 BUY CALL MAY-60 WPI-EL OI= 558 at $4.80 SL=3.00 BUY CALL MAY-65 WPI-EM OI= 297 at $3.10 SL=1.50 http://www.premierinvestor.com/oi/profile.asp?ticker=WPI WAG - Walgreen Company $43.69 (+2.27 last week) Founded in 1901, Walgreens is a national retail pharmacy chain and considered the leader in innovative drugstore retailing. Walgreens pioneered many store features over the last two decades that are becoming standards in the industry. Every corner of Walgreens strategy is focused on convenience. Twenty-four-hour stores, touch-tone prescription refills, flu shots and childhood immunizations, osteoporosis screening, cash machines, phone cards, clerk-served cosmetics and photo departments, rebate booklets, week-long ad prices, all are designed to give customers back that most precious commodity: time. It just goes to show that sometimes, the best offense really is a good defense. Faced with an uncertain economy, traders are bidding up any pockets of certainly they can find. When it comes to matters of health, consumer confidence is nothing short of complete. After all, a person doesn't cut back on prescriptions because of macroeconomic concerns. After basing for the past couple of weeks, shares of WAG on Friday vaulted above formidable resistance at the $42 level to end the day up 2.56 percent on 1.24 times the ADV. This breakout suggests that the stock may challenge its all-time high of $45.75. But first it must make it above resistance at $44. A cross over this level on volume would give the green light for conservative traders to make a play, provided that industry peers CVS and RAD confirm upward momentum. Support can be found in increments of $0.50 at $43.50, $43 and our stop price of $42.50, reinforced by the 5-dma just below at $42.44. Higher risk players may target these levels, confirming bounces with volume. BUY CALL MAR-40*WAG-CH OI= 344 at $4.40 SL=2.75 BUY CALL MAR-45 WAG-CV OI=1715 at $1.20 SL=0.50 BUY CALL APR-45 WAG-DI OI=2545 at $2.15 SL=1.00 http://www.premierinvestor.com/oi/profile.asp?ticker=WAG *************************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=1636 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 02-18-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/021801_3.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=1644 ************************************************************** ****************** CURRENT CALL PLAYS ****************** AES - AES Corporation $57.98 (-1.60 last week) AES is an independent power producer headquartered in Arlington Virginia. The company's generating assets include interests in one hundred and thirty four facilities totaling over 53 gigawatts of capacity. AES's electrical distribution network has over 920,000 km of conductor and associated rights of way and sells over 126,000 gigawatt hours per year to over 17 million end-use customers. In addition, through its various retail electricity supply businesses, the company sells electricity to over 154,000 end-use customers. Broad based weakness in the technology sector combined with AES’s underlying technical strength stimulated a rally in AES on Friday, and the stock burst through the converged 5 and 10 dmas of $57.50 in a surge of momentum at the open. While the major market indexes sold off, AES spent the rest of Friday consolidating, stuck at the $58 level. Excellent news released toward the end of the day may very well be the catalyst AES needs to power through the next resistance level at $60. President Bush issued an order on Friday to "expedite federal permit reviews and decision procedures" in a memo to Cabinet officials with jurisdiction over energy related matters. This follows a similar order by Governor Gray Davis of California as part of an ongoing effort to provide energy to California through new power plants. There are 15 plants currently under review, and AES is among the companies trying to obtain permits to build plants in California. For the last three weeks, AES has been stuck in a tight trading range between strong support at $55 and heavy resistance at $60. The stock is now positioned well to break out to the upside, market conditions permitting. Conservative traders may want to wait until such a breakout occurs before taking positions. Aggressive traders can take positions at current levels, or at a pullback to $57.50. Monitor other independent power producers like CPN for sector strength, and set stops at $56. BUY CALL MAR-55 AES-CK OI= 175 at $5.20 SL=3.00 BUY CALL MAR-60*AES-CL OI=1390 at $2.45 SL=1.25 BUY CALL MAY-55 AES-EK OI= 87 at $8.10 SL=5.75 BUY CALL MAY-60 AES-EL OI= 467 at $4.67 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=AES FDC - First Data Corporation $63.95 (+3.65 last week) First Data is the remarkably efficient, often invisible engine powering today's global shift to a cashless economy. They process and safeguard every type of electronic payment method: credit, debit and stored-value cards, electronic checks and cash. They also provide Electronic Funds Transfers to 75 percent of the world and provide card issuer services for 1,400 financial institutions and 396 million consumers worldwide. And, through their visionary Internet Commerce Group, they are developing advanced services and solutions that help financial institutions, merchants, business and consumers access the power and possibilities of the Internet. Analyst interest this week in FDC has translated into investor excitement, as this stock continues to flex its muscles in the face of an uncertain market environment. First to initiate coverage for the week was Jolson MP, who started the stock with a Long-Term Buy rating. Next up was Lehman Brothers, who did one better with a Buy rating and a price target of $75, nothing that FDC was undervalued relative to its competitors. It seems that value has become quite sexy lately, and Lehman's comments were akin to a gift-wrapped package from Victoria's Secret, allowing the stock to take out formidable resistance at $61.50 on heavy volume to make a new all-time high. An Accumulate rating, courtesy of AG Edwards, resulted in some profit-taking in the middle of the week, but the pause only served to refresh the stock, as FDC ended the week on a high note, closing out on Friday with a gain of $1.05 or 1.67 percent on 120% of ADV in contrast to a sinking market. Already a successful play, we are inching up our stop price, from $61 to $62 to further protect our gains. If the buyers pick up where they left off on Tuesday, allowing FDC to take out its intra-day high of $64.10 with conviction, this would allow for an entry on strength. Higher risk players may look for support at $63, $62.50, $62 and $61.50 for potential entry points. In both cases, confirm upward momentum with corresponding movement in peers FISV and PAYX. BUY CALL MAR-60 FDC-CL OI=1024 at $5.20 SL=3.25 BUY CALL MAR-65*FDC-CM OI= 714 at $2.00 SL=1.00 BUY CALL MAY-60 FDC-EL OI=2745 at $7.50 SL=5.25 BUY CALL MAY-65 FDC-EM OI= 207 at $4.60 SL=2.75 BUY CALL MAY-70 FDC-EN OI= 76 at $2.45 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=FDC SDS - SunGard Data Systems Inc. $57.26 (+2.27 last week) SunGard is a global leader in integrated IT solutions and eProcessing for financial services. SunGard is also the pioneer and a leading provider of high-availability infrastructure for business continuity. With annual revenues in excess of $1 billion, SunGard serves more than 10,000 clients in over 50 countries, including 47 of the world's 50 largest financial services institutions. Wherever financial assets are managed, traded, processed or accounted for, SunGard offers an integrated solution. SunGard provides a wide range of modular, best-of-breed financial software solutions that are integrated using standard message protocols and SunGard integration technologies to form highly scalable, web-enabled enterprise solutions. Only a week old, our call play in SDS has already paid off nicely. A number of announcements of major new customer wins helped to keep shareholders happy. Finance company Cessna licensed SDS' BancWare system to manage interest rate risk and to accurately project cash flow data to aid in strategic planning. Pension giant TIAA-CREF also hopped on board the bandwagon, as the company scrapped its proprietary system in favor of SDS' Invest One web-ready accounting system. Canadian broker Canada-iNvest Direct has adopted SDS' BrokerWare platform to power its online trading system. Deals like these will most certainly add to SDS' bottom line. Technically, the stock has been well behaved. After breaking out strongly on Monday, shares of SDS have since been in digestion mode, moving sideways with support at $55 and resistance at $58.50 on declining volume. This range-bound trading is giving the 10-dma (at $54.30) the time needed to catch up with the stock price. What we would like to see at this point is the 10-dma continue to move higher to provide a launching point for another leg up for SDS. In the meantime, higher risk players looking to get in early may target dips to support from the 5-dma near $57, $56.50 and $55, but make sure the stock closes above our stop price, now at $56. Risk-averse traders need only wait for the return of buying pressure, allowing SDS to spike bullishly above $58.50 to take a position. But just to be safe, make sure rivals EDS and KEA are also showing strength. BUY CALL MAR-45 SDS-CI OI= 0 at $12.90 SL=9.75 Wait for OI! BUY CALL MAR-50 SDS-CJ OI= 88 at $ 8.00 SL=5.75 BUY CALL MAR-55*SDS-CK OI=1424 at $ 4.00 SL=2.50 BUY CALL APR-50 SDS-DJ OI= 964 at $ 9.00 SL=6.25 BUY CALL APR-55 SDS-DK OI= 804 at $ 5.20 SL=3.25 http://www.premierinvestor.net/oi/profile.asp?ticker=SDS MLTX - Multex.com, Inc. $19.88 (+1.00 last week) Operating in the Financial Information Services industry, Multex.com provides investment information and technology solutions to over 500 information and distribution partners, including Yahoo!, Quicken.com, AOL, and CBS MarketWatch. The company's products include MultexNET (an online source of real-time investment research and financial information), MultexEXPRESS (the Web-development, site hosting, and ASP business), BuzzPower (a collaborative commerce, messaging and e-community solution). Rounding out MLTX's offerings is Multex Investor properties (Multex Investor, Market Guide and Sage Online - providers of qualified retail and high net worth individual leads for the brokerage, banking and institutional clients). Although not directly related to any of the high-profile confessors Thursday night, MLTX couldn't dodge the selling pressure in the Technology sector that came about as a result of the earnings warnings from NT, DELL and HWP. The NASDAQ had its one-day rally cut short, and was pulled back underwater for another losing week. Given that dismal performance when the Tech index is flirting with 52-week lows, it was encouraging to see that MLTX kept its head above water for the week, eking out a $1 gain, and staying above our $19 stop. A glance at the daily chart will show a nice progression of white candles that brought the stock right up to the upper Bollinger band before it got clocked by selling on Friday, producing a big ugly red candle. Technical traders should have been looking for this, and adjusted their stops accordingly. With the strong statistical evidence that penetrations of the Bollinger bands are normally followed by a pullback in the near future, and then Stochastics in overbought, alarm bells should have been going off left and right. Now that we have gotten the requisite pullback, we need to decide if it is a short-term event or an end to the upward trend. The volume picture is actually encouraging, as the heavy volume that we saw as the stock advanced earlier in the week was not present during the pullback. Instead of trading in the neighborhood of 4-6 times the ADV, MLTX only say about 50% more shares than the daily average trade hands on Friday. Prudent investors will wait for the market to give us our answer. If the bulls can regain the upper hand and bring about a solid (read volume) bounce above the $19 level, that will make for a good aggressive entry point. On the other hand, more conservative traders will want to wait for the stock to reverse and clear $21 (the bottom of Thursday's gap up) before stepping into new positions. BUY PUT MAR-17.5 UXM-CW OI= 53 at $3.63 SL=2.00 BUY PUT MAR-20 *UXM-CD OI=122 at $2.06 SL=1.00 BUY PUT MAR-22.5 UXM-CX OI= 36 at $1.13 SL=0.50 BUY PUT MAY-20 UXM-ED OI=646 at $3.63 SL=2.00 BUY PUT MAY-22.5 UXM-EX OI=124 at $2.69 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=MLTX IFIN - Investors Financial Services Corp $82.00 (-5.00 last week) Investors Financial Services Corp. provides asset administration services for the financial services industry through its wholly- owned subsidiary, Investors Bank and Trust Company. The company provides global custody, multicurrency accounting, institutional transfer agency, performance measurement, foreign exchange, securities lending, mutual fund administration and investment advisory services to financial asset managers, including mutual fund complexes, investment advisors, banks, and insurance companies. Offices are located in the United States, Canada, Cayman Islands, and Ireland. After rallying to $87 on Monday, IFIN experienced a sharp drop on Tuesday, and spent the rest of the week in a tight range between $81 and $84.69. IFIN has formed a new upward trading channel since breaking above its 50 dma of $76.89 on January 24, and is now at the lower end of the channel. If the pattern continues, IFIN should be able to break above strong resistance at $86 to possibly challenge the $90 level. Volume has been significantly higher on the up days, and a solid earnings report, combined with a market rotation into small cap value stocks should bode well for IFIN going forward. Shares of IFIN have demonstrated excellent strength for the last twelve months, considering the overall bear market environment. In fact, IFIN is one of the few stocks which has remained above its 200 dma for the last twelve months, and dipped only briefly below the 50 dma once in January before recovering. Furthermore, continued consolidation in the financial services industry may stimulate additional interest in IFIN. Traders can take positions on a move above the 10 dma of $82.65, or the 5 dma of $83.77 on strong volume. Conservative traders might want to wait for a break above heavy resistance at $86. Monitor the financial services sector, particularly the investment management sector, and set stops at $80. BUY CALL MAR-80*FLQ-CP OI=10 at $ 8.00 SL=5.75 BUY CALL MAR-85 FLQ-CQ OI=88 at $ 5.63 SL=3.50 BUY CALL APR-80 FLQ-DP OI= 0 at $11.00 SL=8.25 Wait for OI! BUY CALL APR-85 FLQ-DQ OI= 5 at $ 8.50 SL=6.00 http://www.premierinvestor.net/oi/profile.asp?ticker=IFIN AEOS - American Eagle Outfitters $58.69 (+3.44 last week) American Eagle Outfitters is a specialty retailer of collegiate- style casual apparel, accessories and footwear aimed at men and women ages 16 to 34. The company's fashion line of relaxed clothing bears the American Eagle Outfitters and AE brand name and are sold exclusively in their mall-based stores. They currently operate over 550 stores in 47 states and Washington, DC. AEOS' resilience and strength during the market's sluggish period combined with its bullish spike through the $60 resistance on Thursday prompted our coverage of this retail stock. Near-term support is currently firming at the $58 level, which is bolstered by the trailing 5 and 10 DMAs at $57.93 and $56.89, respectively. This base line provides a nice launching pad for entries into this play. We're anticipating a big breakout in an advancing marketplace. Thursday's 10% bounce, which accompanied the NASDAQ rally, indicates we could be right on the money; particularly with the company's earnings also approaching in just a few short weeks. American Eagle Outfitters is scheduled to announce its 4Q earnings on March 15th, BEFORE the opening bell. If there's doubt, simply keep your coins in the piggy bank and wait for AEOS to make another high-volume charge. A clean break through the 52-week high, at $60.06, may attract additional technical and momentum traders; thus a snowballing effect. Reasonable entries might also be found on pullbacks near the stock's $58 support level, if a positive bias continues to exist across the retail sector. Keep an eye on Walmart (WMT), the kingpin of all major retailers. Walmart is reporting earnings this Tuesday morning and the results could spark a flurry of activity within the sector. More specifically, The Gap (GPS) and Abercrombie & Fitch (ABF) are direct competitors to AEOS. Be patient and pick your entries carefully. Until we see the anticipated breakout become a reality, we're keeping a protective stop at the $54 mark to safeguard our capital. BUY CALL MAR-55 AQU-BK OI= 187 at $8.00 SL=5.75 BUY CALL MAR-60*AQU-BL OI= 440 at $5.00 SL=3.00 BUY CALL MAR-65 AQU-BM OI=1219 at $2.69 SL=1.50 BUY CALL MAY-60 AQU-EL OI= 565 at $8.38 SL=6.00 BUY CALL MAY-65 AQU-EM OI= 979 at $6.13 SL=4.00 http://www.premierinvestor.net/oi/profile.asp?ticker=AEOS *************************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=1630 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 02-18-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/021801_4.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=1645 ************************************************************** ************* NEW PUT PLAYS ************* NOK - Nokia $26.50 (-1.78 last week) Nokia is the world leader in mobile communications. Backed by its experience, innovation, user-friendliness and secure solutions, the company has become the leading supplier of mobile phones, and a leading supplier of mobile, fixed and IP networks. By adding mobility to the internet, Nokia creates new opportunities for companies, and further enriches the daily lives of people. NOK's shares have been suffering since the first week in January, when the stock fell below its then-converged 200 and 50 dmas of $43.44. While the Federal Reserve's initial rate cut on January 3 gave a boost to many technology companies, NOK's shares showed no positive response to the cuts, and continued their gradual descent. After reporting in-line earnings with reduced expectations for 2001 on January 30, NOK has formed a downward channel with a series of roll overs from lower highs. The real catalyst for heavy selling may have been the warning from NT which occurred on February 15. While NT reduced estimates for their revenues going forward among each segment of its business, the wireless segment may be among the hardest hit. NT's management stated that that recovery in the wireless segment is anticipated to be pushed out to Q1:02 from Q4:01. While analysts deluged NT with downgrades, NOK suffered along side, as CIBC and Gerard Klauer Mattison cut earnings expectations and ratings for NOK. GKM analyst Charles DiSanza stated that NOK's rivals ERICY and MOT may very well dump handsets on the market, which could erode NOK's market share further. The near term horizon looks very bleak for NOK, as the stock is now poised one quarter point above the 52-week low of $26.25, and big institutional sell orders took place on Friday afternoon. Aggressive traders could take positions on a roll over from the 5 dma of $28, if accompanied by weakness in the wireless equipment sector. Otherwise, a break below $25.25 on strong volume could lead NOK to a new 52-week low. Watch others like ERICY and MOT for sector weakness, and set stops at $29. BUY PUT MAR-30*NAY-OF OI=8508 at $4.30 SL=2.75 BUY PUT MAR-25 NAY-OE OI=1228 at $1.25 SL=0.75 http://www.premierinvestor.net/oi/profile.asp?ticker=NOK BBOX - Black Box Corp $51.88 (-6.63 last week) Black Box Corporation provides technical network services and related products to businesses across the globe via its catalog and Web site. The company's technical support services include a 24-hour phone support line and on-site design, installation, and maintenance. Customers outside of North America account for about a third of sales. This reseller of its own branded networking products and services are effectively driven by the telecommunications market. Some say its ever-expanding on-site network services, augmented by numerous acquisitions, could be the company's eventual downfall; others remain diehard loyalists. Tucker Anthony Sutro Capital Markets, for instance, continues to post Strong Buy recommendations on BBOX and recently issued a $95 price target. But take a look at a daily chart. It becomes quite evident that the stock can't walk the talk. After a promising New Year recovery, BBOX once again exploded and fell from grace. A gradual, but steady, decline ensued in conjunction with the NASDAQ's own muddied downturn. However, this week was a critical turning point for the share price. Questions of the company's "real" value and future outlook resurfaced. There's much to say about the power of the pen (or keyboard for that matter!). Traders blind-sided BBOX and took it down to the mat with a $7.75, or 13.1% blow on Tuesday. The price level came back up to $56 and $57 during Thursday's rally, but soon lost consciousness again. The feeble open, at $49.50, pretty much set the pace for Friday's trading; although volume was at almost double the ADV. The active trading hints that sellers could take BBOX lower next week. There's light support at $45, with a better foundation at the $40 level. We currently have a stop in place at $55, which correlates with the 50-dma ($55.93) ceiling. This measurement device might also serve as an entry gauge for the more aggressive types, if the market offers the means for BBOX to cycle upward and then rollover on volume. Otherwise, look for intraday surges to provide entries near $52 and $53 or buy into the weakness as BBOX challenges the $50 support. BUY PUT MAR-55*QBX-OK OI=80 at $6.88 SL=5.00 BUY PUT MAR-50 QBX-OJ OI=55 at $4.25 SL=2.50 BUY PUT MAR-45 QBX-OI OI=20 at $2.44 SL=1.25 http://premierinvestor.net/oi/profile.asp?ticker=BBOX ***************** CURRENT PUT PLAYS ***************** ABGX - Abgenix $33.69 (-1.87 last week) Abgenix is a biopharmaceutical company focused on the development and commercialization of fully human monoclonal antibody therapies for a variety of diseases. The company's antibody technology platform, which includes XenoMouse (TM) technology enables the rapid generation and selection of high affinity, fully human antibody product candidates to essentially any disease target appropriate for antibody therapy. Abgenix leverages its leadership position in human antibody technology by building a large and diversified product portfolio through the establishment of licensing arrangements with multiple pharmaceutical, biotechnology and genomics companies and through the development of its own internal proprietary products. Now positioned firmly below its 200 dma of $60.34 and its 50 dma of $47.46, ABGX spent this week rolling over to a pattern of failed rallies from lower highs. Until the biotech sector can rally above its own major moving averages, ABGX may continue to sell off. With earnings over, and little news released in the last week, there is no momentum to rally the shares of ABGX, and plenty of selling among nervous investors. New competition from Cambridge Antibody Technology has taken some attention away from ABGX and its primary rival in the field of antibody research, MEDX, as the UK's CAT plans to list its shares on the Nasdaq by the end of next month. Viewed on a weekly chart, ABGX is now in a long term bearish wedge pattern with support just under the current level at $33.44, and stronger support at $30, which was tested this week. If $30 fails, there is little support left until the $20 level is reached. ABGX is now poised to roll over from the current level, which would be an excellent put entry points, if BTK.X continues to demonstrate weakness. More conservative traders might want to wait for a break under $30 with strong volume, which could lead the stock to a new 52-week low. Pay close attention to BTK.X, as the index is under the 50 dma of 611.08, and is rolling over. Watch MEDX, as well, as it tends to trade in a very similar pattern to ABGX. Move stops to $36. BUY PUT MAR-35*AZG-OG OI=39 at $4.75 SL=3.00 BUY PUT MAR-30 AZG-OF OI=31 at $2.44 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=ABGX BRCD - Brocade Communications $53.25 (-20.88 last week) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. The NT earnings warning Thursday night after the close, was almost surely to blame for the carnage in the Technology market on Friday, with the damage in the Networking and Telecom stocks extending even to the vaunted Storage sector. The bears were not picky, scoring direct hits on EMC, EMLX, NTAP, and our play BRCD. Having recently had its wings clipped from north of $100 just 3 short weeks ago, this once high-flying stock is still suffering from the after-effects of the devastating warning from EMLX a week ago. While the bulls are trying to hold the line near current levels, there is little to motivate buyers at this time, except for BRCD's earnings announcement, which is set for next Wednesday, after the close. This clearly puts a short fuse on our play, as we want to have all positions closed before the company releases its numbers. To protect against a possible rally into the numbers, we have set a tight stop at $56, and aggressive traders can use any downward bounce from this level (also the top of the gap down on Friday) as a trigger for initiating new positions. More conservative traders will want to wait for strong selling volume to persist and push BRCD below the $52 level before jumping into the play. Keep an eye on the overall Networking sector (NWX.X) so as to gauge investor sentiment before playing; as long as the sector continues to weaken, BRCD will likely deteriorate as well. BUY PUT MAR-55*UBZ-OK OI=1240 at $8.38 SL=6.00 BUY PUT MAR-50 UBF-OJ OI= 883 at $5.88 SL=3.75 BUY PUT MAR-45 UBF-OI OI= 776 at $4.00 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=BRCD NETE - Netegrity, Inc. $57.00 (+1.69 last week) Netegrity is a provider of software and services that manage and control user access to Web-based e-commerce applications. The company's SiteMinder product is part of the software infrastructure that is used to build and manage an e-commerce Web site, commonly known as a portal. SiteMinder manages the complex process of identifying users and assigning entitlements to each, which determines what information that user can see and what transactions the user can perform on that Web site. After the series of earnings warnings and negative news items issued after the close on Thursday, it was a foregone conclusion that the NASDAQ would gap down at the open on Friday, and pretty close to a sure thing that our new play, NETE, would follow suit. Sure enough, NETE gapped lower by more than $4, and after an anemic recovery attempt throughout the morning, it succumbed to the bears and headed lower, tagging $53 at the low of the day. Then, like Don Quixote tilting at windmills, the bulls came rushing back in the final 30 minutes, driving the stock up by more than 5% on rapidly increasing volume. With no apparent news to drive the stock higher, this looks like a clear beneficiary of options expiration, an effect that will be gone when the opening bell rings on Tuesday. The months-long descending trendline is sitting right at $60 (also the location of our new stop), and barring a miracle of Greenspanian proportions, this level should contain any attempted rallies next week, now that the upward (?) catalyst of earnings season is effectively behind us. Conservative investors will want to see NETE drop through the 200-dma (currently $53.63) before taking a position for the next leg down, and preferably on increasing volume. A more aggressive approach will be to enter on any failed rally near the $60 level, so as to catch a few more dollars worth of the move. Keep an eye on the Internet index (INX.X), as weakness in that area of the market will likely spill over into shares of NETE, while a surprise rally could have an unexpected positive effect. BUY PUT MAR-60*UPN-OL OI=103 at $8.25 SL=5.25 BUY PUT MAR-55 UPN-OK OI= 64 at $6.13 SL=4.00 BUY PUT MAR-50 UPN-OJ OI=292 at $3.63 SL=2.00 http://www.premierinvestor.net/oi/profile.asp?ticker=NETE STT - State Street Corp. $104.90 (-3.10 last week) State Street is a bank holding company and is one of the world's leading specialists in serving institutional investors. The company provides a full range of products and services for portfolios of investment assets. Customers include mutual funds and other collective investment funds, corporate and public pension funds, corporations, unions and non-profit organizations both in and outside of the United States. Market up or market down, it doesn't seem to matter to STT shareholders. While it certainly isn't as exciting as watching the Networking stocks soar and then crater on consecutive days, the consistent movement on our play is making money. After closing below the $110 resistance level on February 6th, has been gradually walking lower. Once the $105 support level gives way, it looks like a quick trip to $100 (and possibly lower) will be in the cards. Of course, we have the pesky technical indicators to deal with, and in this case, it is the daily Stochastics that are threatening to gum up the works. The fast line has bottomed out in the oversold region, and is threatening to turn up through the slow line. Should it do so before the stock falls below $98, it will paint a clear picture of bullish divergence and it will very quickly be the end of our play. Until then, we will continue to ride the downward trendline, which currently sits at $107, just below our $108 stop. The 5-dma ($106.21) and the 10-dma ($107.81) are also exerting downward pressure, and the bulls are going to have to mount an all out assault to clear these impediments. Given the current tone of the markets, that doesn't seem like a high probability event, but we must still play with caution. Entering new positions on a failed rally near resistance ($107-108) seems the best course of action at this point, and if confirmed by weakness in the Brokerage index (XBD.X), then so much the better. BUY PUT MAR-105*STT-OA OI= 55 at $5.60 SL=3.50 BUY PUT MAR-100 STT-OT OI= 71 at $3.70 SL=2.25 BUY PUT MAR- 95 STT-OS OI=190 at $2.50 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=STT ******************************** WEEKLY UPDATES FOR VARIETY PLAYS ******************************** LONG-TERM: GE $47.00 -0.98 (+1.34 last week) GE last week began making an ever so slight climb from the $45 level. Since the beginning of the year, the stock has be putting in a series of higher lows, albeit in a tight range. Last week's high was $48.10 and GE encountered resistance at the 50-dma, which remains overhead at $47.92. This will definitely pose as resistance, yet a break above and GE could begin to attract new buyers. GE traded to lows of $45.50 last week and would be a good support level from which to gain entry. The stop remains at $45. BUY CALL MAR-45 GE-CI OI=15739 at $3.20 SL=1.75 BUY CALL JUN-50*GE-FJ OI=15569 at $2.95 SL=1.50 BUY CALL SEP-50 GE-IJ OI= 6574 at $4.60 SL=2.75 http://www.premierinvestor.net/oi/profile.asp?ticker=GE LOW VOLATILITY: USB $29.43 -0.02 (-0.59 last week) Monday's move to an intraday high of $30.75 was an attempt to spring from the wedge at $30. Profit taking held the stock down throughout the week, possibly over concerns of future interest rates and the economic environment. The stock started its minor slide on Tuesday after USB and Firstar, FSR, approved the planned purchase of USB by FSR. The deal is expected to close February 27th. During this trading, USB touched $29.08, just above our stop at $29. This is about where the uptrending 50-dma now resides, $28.96, and reasonable support can be expected. Bounces from this level should provide good entry points. Watch trading in FSR since it is the acquiring firm. BUY CALL MAR-25 USB-CE OI=3438 at $4.70 SL=3.00 BUY CALL MAR-30*USB-CF OI= 914 at $1.15 SL=0.50 http://www.premierinvestor.net/oi/profile.asp?ticker=USB CTX $44.50 +0.31 (+2.31 last week) The 10-dma proved to be good support for CTX on Monday as the stock launched, preparing for a break above $44. After Tuesday's breakout on this Low Volatility call play, CTX settled into a tight range between $44 and $45, consolidating its recent gains. With the 10-dma at $43.83 and trending higher, it may provide the necessary support to surge CTX toward $46. Given this week's move, we upped our stop to $43. BUY CALL MAR-40 CTX-CH OI= 6 at $5.80 SL=4.00 BUY CALL MAR-45*CTX-CI OI= 57 at $2.60 SL=1.25 BUY CALL APR-45 CTX-DI OI=321 at $4.20 SL=2.50 http://www.premierinvestor.net/oi/profile.asp?ticker=CTX DYN $51.50 -0.51 (-1.65 last week) After a pullback on Monday, DYN traded in a tight range from $50.50 to $52. Friday's move above $52 was short-lived as sellers showed up at $53 and remained throughout the day. The stock slipped below $52. Bounces from the current levels would provide entry, yet be cognizant of the challenges at $53. The stop remains at $50. BUY CALL MAR-50*DYN-CJ OI= 333 at $4.80 SL=3.00 BUY CALL MAR-55 DYN-CK OI=1635 at $2.45 SL=1.25 http://www.premierinvestor.net/oi/profile.asp?ticker=DYN MO $46.53 +0.54 (-1.47 last week) A rocky start for old MO last week as the stock pulled back to consolidate. The long-term uptrend is strong and certainly intact for MO. Buyers showed up at $45.50 and the stock should be preparing for another run at $48, current overhead resistance. To play this Low Volatility call, look for bounces from intraday support at $46, or a sustained move through $47 to gain entry. The 10-dma is just above Friday's close at $46.77. The stop remains at $45. Also, notice the huge open interest on the March 50 calls, indicating numerous bets on the stock making it to $50. This will further solidify resistance at this level. Yet, a move through $50 could bring about strong upside momentum as positions are readjusted. BUY CALL MAR-45*MO-CI OI= 9983 at $2.95 SL=1.50 BUY CALL MAR-50 MO-CJ OI=12239 at $0.75 SL=0.00 High Risk! http://www.premierinvestor.net/oi/profile.asp?ticker=MO WM $50.54 -0.06 (-0.46 last week) After consolidating last week and pulling back to the $50 level, WM may be readying itself to take the next leg up in its long-term uptrend. Support at $50 looks to be holding well, shored up by the 50-dma slightly below at $49.74. The $50 level is also our stop for the play. Look for any high volume bounces from current levels to enter. A move through $51 with buying conviction will likely take WM to challenge resistance at $52.50. If the buyers show up again, a break through $53 would carry the stock to challenge its all-time highs near $56. Goldman Sachs initiated coverage of WM on Friday with a Market Outperform rating. BUY CALL MAR-45 WM-CI OI= 2 at $6.30 SL=4.50 BUY CALL MAR-50*WM-CJ OI= 898 at $2.50 SL=1.25 BUY CALL MAR-55 WM-CK OI=1150 at $0.60 SL=0.00 http://www.premierinvestor.net/oi/profile.asp?ticker=WM *************************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=1631 ************************************************************ ***** LEAPS ***** NT Dashes Bullish Dreams...Again! By Mark Phillips Contact Support Just when I think things can't get any worse, that's when they usually do. Remember the disappointing earnings report from NT back in October? Coming in just shy of revenue growth expectations, the stock got whacked for a 28% one-day loss, which began a slow downward trend that looked like it would stop and reverse from the $30 support level. More important than the damage to the share price of NT was the carnage this inflicted on sentiment in the Optical Networking sector. High-flying stocks were taken out and shot enmasse with JNPR losing more than 50% of its value in the succeeding month due to the valuation compression that was taking place in the Networking sector. Even the continuing rapid revenue and earnings growth of the company was insufficient to support the stock price as it deteriorated throughout the end of the year. Which brings us up to last week, when NT let the other shoe drop, indicating that instead of a gain of $0.16, the company would post a loss of $0.04. That's right, a loss! And to make matters worse, they were gloomy about their prospects right into the 4th quarter due to the Telecom slowdown. That's just downright unpleasant, but maybe it is one of the last major market-sinking announcements before health begins to return to the Technology sector. Hey, I can dream, can't I? Seriously though, the damage in the NASDAQ from the NT warning, coming less than a week after the shockingly grim revelations from EMLX, had surprisingly little effect. Sure, the NASDAQ gave up -127 points on the day, but this just brought it back to where it ended the day on Wednesday. So, how about the Networking index (NWX.X)? Now there the picture gets somewhat uglier. Friday's selling action took the index sharply lower to set a new 52-week low of $605.11, where it may be about to find solid support between $585-600. The Networkers were one of the last sectors to come crashing down as the NASDAQ came off of its euphoric high. The big question is whether there is another bomb lurking out there in Tech-land or if we are now just waiting for Greenspan to give us the green light with another 50 basis point rate cut - preferably ahead of the March Fed meeting. I wish I had an answer for you, but based on the continued bearish tilt of Commercial traders across all the major indices, I would bet on more broad-based weakness before we see the beginning of an invest-able rally. Lest you think I only look at the Technology sector, let's take a few minutes to talk about the "old economy" index, the DJIA. Although still flirting with the 11,000 resistance level, we are witnessing the build out of another cycle in the developing bullish wedge. The bears tried to sell it off through the ascending trendline (now at 10,800) on Friday, but buyers were waiting, and this helped the index to recover back above the trendline by the close, but just barely. Next week will be critical as the NASDAQ will likely face a test of its lows, while the DJIA will either rally through the 11,000 level or fall below the ascending trendline. A successful test of NASDAQ support will likely produce attractive entry points on many of our Technology-related plays, while a break below the January lows will be a clear sign to move to the sidelines until a clear bottom forms. You will notice that we are starting to add more plays that are outside of the Technology sector. Whether because their underlying sector is strong or we expect them to benefit from the easing interest rate environment, these plays are definitely worth your attention. They won't be rocket-ships to the moon, but the risk is lower, as the options are amazingly inexpensive. This week's new play has 2003 LEAPS for the incredible bargain of $4.10. It almost seems a waste of space to even mention the VIX, as it continues to meander in the middle of its range, closing out the week at 25.08. Hopefully, with options expiration behind us again, we will see some significant movement again, taking us into either the buy zone (mid-30's) or sell zone (20 or below), depending on market action. Despite the uncertain broader markets, there are plays to be found that can produce solid returns. A good example is our energy play on CPN. Although only a month old, the play is up sharply at a time that the overall markets are continuing to languish. Our two newest plays, CLX and JWN hold the promise of solid returns in the near-term as well, but we need to observe proper entry techniques as always. No matter what plays you decide on, make sure to think out your entry strategy before hand and don't deviate from it based on emotions when the markets are open. If you are like me, you will make far more rational decisions about plays and entry points while the markets are closed. Happy Hunting! Current Plays SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT RETURN EMC 11/07/99 JAN-2002 $ 45 WUE-AI $ 9.50 $18.70 96.84% 09/17/00 JAN-2003 $100 VUE-AT $32.75 $13.10 -60.00% CSCO 11/14/99 JAN-2002 $ 45 WIV-AI $11.00 $ 2.19 -80.11% 11/26/00 JAN-2003 $ 60 VYC-AL $16.63 $ 2.88 -82.71% NT 11/28/99 JAN-2002 $37.5 WNT-AU $15.13 $ 1.55 -89.76% 09/10/00 JAN-2003 $ 75 ODT-AO $27.50 $ 0.85 -96.91% AOL 03/12/00 JAN-2002 $ 65 WAN-AM $18.63 $ 4.00 -78.53% 08/13/00 JAN-2003 $ 55 VAN-AK $17.50 $11.60 -33.71% AXP 03/12/00 JAN-2002 $46.6 WXP-AQ $ 9.33 $ 9.10 - 2.47% WM 03/19/00 JAN-2002 $ 30 WWI-AF $ 5.38 $22.30 314.50% 10/22/00 JAN-2003 $ 45 VWI-AI $ 7.88 $14.00 77.78% C 06/18/00 JAN-2002 $48.8 YSV-AW $10.31 $11.90 15.42% 10/01/00 JAN-2003 $ 60 VRN-AL $12.25 $10.30 -15.92% GENZ 07/16/00 JAN-2002 $ 70 YGZ-AN $17.13 $28.25 64.92% JAN-2003 $ 70 OZG-AN $23.13 $36.88 59.42% QCOM 09/17/00 JAN-2002 $ 70 WBI-AN $22.50 $27.50 22.22% JAN-2003 $ 70 VLM-AN $29.63 $35.88 21.08% BGEN 11/05/00 JAN-2002 $ 70 WGN-AN $17.25 $18.88 9.42% JAN-2003 $ 70 VNG-AN $25.00 $27.13 8.50% MU 11/26/00 JAN-2002 $ 45 WGY-AI $13.13 $11.90 - 9.33% JAN-2003 $ 45 VGY-AI $17.25 $17.40 0.87% A 12/03/00 JAN-2002 $ 55 YA -AK $16.88 $12.70 -24.74% JAN-2003 $ 60 OAE-AL $19.88 $16.20 -18.49% QQQ 12/10/00 JAN-2002 $ 70 WNQ-AR $15.13 $ 5.50 -63.65% JAN-2003 $ 75 VZQ-AW $19.25 $ 8.80 -54.29% WMT 12/24/00 JAN-2002 $ 55 WWT-AK $ 9.63 $ 8.30 -13.77% JAN-2003 $ 55 VWT-AK $14.00 $12.70 - 9.29% DELL 01/07/01 JAN-2002 $ 20 WDQ-AD $ 5.25 $ 7.50 42.86% JAN-2003 $ 25 VDL-AE $ 5.63 $ 7.50 33.21% WCOM 01/14/01 JAN-2002 $ 25 WQM-AE $ 5.00 $ 1.63 -67.50% JAN-2003 $ 25 VQM-AE $ 7.38 $ 3.25 -55.93% CPN 01/21/01 JAN-2002 $ 40 YLN-AH $10.50 $15.60 48.57% JAN-2003 $ 40 OLB-AH $15.38 $20.50 33.33% CLX 02/11/01 JAN-2002 $ 40 WUT-AH $ 5.20 $ 5.30 1.92% JAN-2003 $ 40 VUT-AH $ 8.10 $ 7.90 - 2.47% JWN 02/18/01 JAN-2002 $22.5 WNZ-AX $ 3.30 $ 3.30 0.00% JAN-2003 $ 25 VNZ-AE $ 4.10 $ 4.10 0.00% Spotlight Play QQQ - NASDAQ-100 Trust $55.13 It seems like the NASDAQ has been caught in an endless downtrend, but truth be told, it really only commenced in early September. Since then, the bulls have been repeatedly humiliated every time they have stepped in to buy while there is more bad news waiting for the market to digest. Last Friday there was the EMLX earnings warning, and we closed out this week with a triple threat from NT, DELL and HWP. The warnings from EMLX and NT have had the most severe effect, and the nagging question now is whether or not there is still more bad news out there for the Technology index to absorb. With weakness being felt in virtually every area of the NASDAQ 100, we have seen a decline to the highs of early 1999, but the low on the QQQ of $52.06 may be an invitation to the bears to make one more great downward push towards the 1999 lows near $48.50. Technically the QQQ looks very close to a solid bottom with the daily Stochastics attempting to break out of oversold territory, accompanied by similar behavior in the hourly timeframe. Looking at the weekly chart, we see the Stochastics just about to drop back into the oversold zone. When we start to see signs of health in the economy (likely with more help from Mr. Greenspan), we could just be fortunate enough to have the convergence of weekly, daily, and hourly stochastics turning up and giving us the green light. Of course, that would be the ideal situation, and for now we have to play the market we are given. Consider new entries on any solid bounce above the January lows, but don't jump the gun. If the $52 level can't hold, then the most prudent course of action will be to stand aside. BUY LEAP JAN-2002 $60.00 WD -AH at $ 9.00 BUY LEAP JAN-2003 $60.00 VZQ-AH at $14.30 New Plays JWN - Nordstrom, Inc. $20.51 What's this? A retailer (and a high-end one, at that) on the LEAPS playlist in the middle of an economic downturn? Well, lest you think I have completely taken leave of my senses, I'll point you towards the daily chart, which is looking downright attractive. As of January, 2000, the company operated 77 large specialty stores in more than 20 states, and that doesn't include the 37 Nordstrom Rack outlet stores. Specializing in the retail distribution of apparel, shoes and accessories for men, women, and children, JWN has made the move into the new millennium with its new subsidiary, Nordstrom.com. This arm of the company is being used to promote the rapid expansion of its Internet commerce and catalog business. Since bottoming near $14 in the middle of October, JWN has been posting a series of higher lows and higher highs, and on Thursday/Friday the stock broke through and held above the 200-dma ($19.52) for the first time since last March. We need to be cautious at this point though. With the sharp rally over the past week, JWN kissed the upper Bollinger band on Friday and pulled back, confirming that the $21 resistance level is still intact. With earnings set to be released on February 22nd after the close, there is likely to be some more upside ahead of the numbers, but quite possibly some weakness afterwards. So given the way JWN has been trading over the past few months, it looks like the best entry point will be to wait for the post-earnings weakness to give us a bounce at either the 200-dma or the ascending trendline ($18.50) before taking a position. BUY LEAP JAN-2002 $22.50 WNZ-AX at $3.30 BUY LEAP JAN-2003 $25.00 VNZ-AE at $4.10 Drops NT $20.00 The other shoe hit the floor with a thud on Thursday night, and NT got slammed as a result of their own dismal earnings warning for the remainder of the year. Revising estimates for the current quarter from earnings of $0.16 per share to a loss of -$0.04, was far more severe than investors were expecting, and they knocked the Networking stock back for a nearly $10 loss on Friday. We had placed NT on probation recently pending its ability to hold above the critical $30 support level and disciplined traders should have been out of any remaining positions when the stock closed fractionally below this level on Tuesday. While the downside appears limited from where the stock closed out the week, given the severity of the warning, it seems unlikely that NT will mount anything approaching a decent recovery until they get their financial house in order. ************************Advertisement************************* Get 10 FREE Issues of Investor's Business Daily. No obligation. Nothing to cancel. http://www.sungrp.com/tracking.asp?campaignid=1608 ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
The Option Investor Newsletter Sunday 02-18-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/021801_5.asp ************* COVERED CALLS ************* Trading the Trend: A Beginners Approach By Mark Wnetrzak There is one easy way to consistently profit from trading; form the correct outlook for the future movement of the market and position yourself to benefit from that activity. In fact, that is the premise of the technical trader; that past price behavior can be used to forecast future trends, thus providing a means to profit from a successful forecast. There are a number of advantages to this type of approach but most importantly, it eliminates the need to understand the infinite components of fundamental valuation that market analysts find so intriguing. In addition, trading strategies based on historical price analysis provide precise entry and exit signals, a benefit to investors who participate in short-term strategies. Technical analysis makes three basic assumptions. First, simple market data such as price and volume can indicate the true value of a specific security or financial instrument. Second, prices historically exhibit trends or patterns and third, history eventually repeats itself. These assumptions can be combined with the study of price and volume to provide traders the basic information they need to initiate profitable trading strategies. The technical indicators that identify buy or sell signals are contained in various chart formations and patterns. Of course, the goal of any trader is to profit from their predictions and most experts suggest that the best place to begin is with proven practices such as evaluating an issue's price history or trend. The most common technical patterns are the trend and trading range. Trends are categorized as "uptrends" or "downtrends" while trading ranges are defined by support and resistance levels. It is important for an investor to be able to identify these trends or trading ranges and recognize the historical chart patterns that signal major turning points or reversals. Since two points define a line, the basic requirement for all trend-lines is that there be at least two points connected, but most analysts require a minimum of three points to confirm and justify a primary trend. After the trend-line is established, its character can be determined and the boundaries of the recent price activity can be used to establish the simplest form of buy and sell signals. The second general classification of prices is the trading range. It is defined as a series of prices that move between a clearly established high and low value. The upper boundary is known as "resistance" while the lower is termed "support." A resistance level is established when there are more investors who are willing to sell (supply) rather than buy (demand) at a specific price, because they believe the security is overvalued at that level. A support level will occur when investors feel the stock is cheap or undervalued at a given price and they can't afford not to own it. Trading ranges can also occur as part of an uptrend or downtrend. These patterns are often called "continuations" since the general direction of the prices is not changed. Another type of trading range can exist as part of a transition, or "reversal" from an uptrend to a downtrend. A daily price range with a high that is above the previous day's high and a low that is below the previous day's low is a good example of this type of indication. It would be nice if all of the changing trends were illustrated by sharp, well-defined signals but stocks rarely behave in such a benevolent manner. Next week, we will discuss some of the most common patterns used to forecast changes in the trend (or character) of an issue. Good Luck! SUMMARY OF PREVIOUS PICKS ***** NOTE: Using Margin doubles the listed Monthly Return! Stock Price Last Call Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return SFAM 8.63 8.06 FEB 7.50 1.88 *$ 0.75 16.1% ONNN 8.00 7.00 FEB 7.50 1.56 $ 0.56 12.6% ANTC 11.25 10.19 FEB 10.00 2.25 *$ 1.00 9.9% XLA 8.38 6.59 FEB 5.00 3.88 *$ 0.50 9.9% CLRS 7.88 7.88 FEB 5.00 3.25 *$ 0.37 8.7% RDRT 7.56 8.75 FEB 5.00 2.88 *$ 0.32 7.4% HOTT 22.13 25.31 FEB 17.50 5.88 *$ 1.25 6.9% ESCM 16.00 16.84 FEB 15.00 1.44 *$ 0.44 6.6% VPHM 22.13 22.13 FEB 17.50 5.38 *$ 0.75 6.5% ELON 24.44 20.50 FEB 20.00 5.00 *$ 0.56 6.3% SCON 7.13 7.94 FEB 5.00 2.44 *$ 0.31 5.9% ASTSF 16.31 15.81 FEB 12.50 4.38 *$ 0.57 5.2% CPST 34.19 26.81 FEB 25.00 10.50 *$ 1.31 4.9% MCCC 20.00 18.50 FEB 17.50 3.25 *$ 0.75 4.9% ISLD 6.13 4.25 FEB 5.00 1.50 $ -0.38 0.0% ENTU 20.31 11.00 FEB 15.00 6.00 $ -3.31 0.0% FNSR 36.38 20.00 FEB 30.00 7.50 $ -8.88 0.0% NERX 10.06 8.88 MAR 7.50 3.62 *$ 1.06 11.9% NXCD 11.38 9.81 MAR 10.00 2.31 $ 0.74 5.9% URBN 10.44 12.06 MAR 10.00 1.06 *$ 0.62 5.7% LGTO 17.88 15.50 MAR 15.00 3.88 *$ 1.00 5.2% PRGN 28.63 29.00 MAR 25.00 5.00 *$ 1.37 5.0% ROAD 25.06 25.06 MAR 25.00 1.25 *$ 1.19 4.3% CSTR 16.75 18.13 MAR 15.00 2.44 *$ 0.69 4.2% ATRX 23.00 22.25 MAR 20.00 4.00 *$ 1.00 3.8% WGR 28.00 27.27 MAR 25.00 4.00 *$ 1.00 3.6% CSTR 17.06 18.13 MAR 15.00 2.75 *$ 0.69 3.5% MNTR 23.56 23.75 MAR 22.50 1.88 *$ 0.82 3.3% SGI 5.00 4.60 MAR 5.00 0.40 $ 0.00 0.0% *$ = Stock price is above the sold striking price. Comments: Friday's activity was not a good way to end the expiration period. Now we must regroup and evaluate the long-term potential of any issues remaining in the portfolio. On Semiconductor (NASDAQ:ONNN) looks weak near-term, though rolling down to a March $5 call will provide a new cost basis around $4.19. There is a good chance you will own Antec (NASDAQ:ANTC) stock on Tuesday. A new test of the December low could be forthcoming though a March $7.50 call would provide a cost basis near $6. Closing the play in Capstone Turbine (NASDAQ:CPST) mid-week would have been a stress reliever, although the issue did manage to stay above the sold strike. Digital Island (NASDAQ:ISLD) is nearing a key moment as it tests the December lows. The March $5 call offers little protection, however the May $5 call would provide a new cost basis near $3.69. Entrust Technologies' (NASDAQ: ENTU) CEO resigned this week, rarely a good sign in the near-term. The technicals have weakened and a decline below the December low would be quite bearish. Finisar (NASDAQ:FNSR) just couldn't wait until next week to announce its agreement with ONI Systems. Obviously, investors were not thrilled. Keep an eye on Nextcard (NASDAQ:NXCD) as it moves toward its 50 dma - the next technical support area is near $8. Legato Systems (NASDAQ:LGTO) is at a key moment - evaluate your long-term outlook. We will see how bullish Silicon Graphics (NYSE:SGI) really is by how far it descends into its support area. Positions Closed: Bookham Tech (NASDAQ:BKHM), At Home Corp. (NASDAQ:ATHM), GenRad (NYSE:GEN), Progenics Pharmaceuticals (NASDAQ:PGNX) NEW PICKS ********* Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return ANSR 8.09 MAR 7.50 QRA CU 1.44 3808 6.65 28 13.9% ACPW 20.38 MAR 17.50 ACQ CW 4.38 0 16.00 28 10.2% ACLS 11.13 MAR 10.00 ULS CB 1.88 2100 9.25 28 8.8% ESCM 16.84 MAR 15.00 QFC CC 2.88 36 13.96 28 8.1% GLGC 23.94 MAR 20.00 CYV CD 4.88 3 19.06 28 5.4% AMSY 22.88 MAR 20.00 YAQ CD 3.63 0 19.25 28 4.2% UTEK 38.00 MAR 35.00 UQT CG 4.25 120 33.75 28 4.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** ACLS - Axcelis Technologies $11.13 *** Favorable Ruling? *** Axcelis Technologies (NASDAQ:ACLS) provides innovative, high- productivity manufacturing solutions for the semiconductor industry. The company is dedicated to the design and manufacture of high current, medium current and high energy ion implantation equipment; rapid thermal processing systems; photostabilization and photoresist stripping equipment. Axcelis beat estimates in January, announcing record net sales and earnings for its Fourth quarter. Net sales were $189.0 million, up 45% from last year and net income was $30.2 million, an increase of 239%. The company did caution about the future and semiconductor equipment capital spending. Most recently, the United States Patent and Trademark Office again rejected a challenge by Applied Materials (NASDAQ:AMAT) on Axcelis' patent for the use of radio frequency linear accelerator technology in high energy ion implantation. The technicals remain favorable and Axcelis offers a reasonable entry point for speculation in the chip sector. MAR 10.00 ULS CB LB=1.88 OI=2100 CB=9.25 DE=28 MR=8.8% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ACLS ***** ACPW - Active Power $20.38 *** Unique Energy Storage! *** Active Power (NASDAQ:ACPW) designs, manufactures and sells power quality products that provide the consistent, reliable electric power required by today's digital economy. They are the first company to commercialize a flywheel energy storage system that provides a highly reliable, low-cost and non-toxic replacement for lead-acid batteries used in conventional power quality installations. In January, Active Power reported that revenues for the 4th-quarter totaled $2.7 million, up 468% from the same period last year and a 99% sequentially. Active Power's CEO stated that market demand for their battery-free power quality solutions remains strong and is very optimistic about their near and long term growth prospects. A favorable cost basis from which to speculate on the future success of Active Power. MAR 17.50 ACQ CW LB=4.38 OI=0 CB=16.00 DE=28 MR=10.2% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ACPW ***** AMSY - American Management Systems $22.88 *** Bottom Fishing! *** AMS (NASDAQ:AMSY) is an international business and information technology consulting firm, one of the 20 largest such firms worldwide. AMS is the premier provider of next generation enterprise business and technology solutions that dramatically improve business performance and create value for clients. The company met expectations this week, reporting 4th-quarter earnings of $16.6 million on revenues of $327.4 million. AMS continues to restructure and consolidate as it strives to position itself for future growth and increased profitability. We favor the strong support area near our cost basis as AMS enters a Stage I base. A reasonable entry point for ownership of this issue. MAR 20.00 YAQ CD LB=3.63 OI=0 CB=19.25 DE=28 MR=4.2% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=AMSY ***** ANSR - Answerthink $8.09 *** Earnings were the Answer! *** Answerthink (NASDAQ:ANSR) is a leading provider of technology- enabled business transformation solutions. The Company brings together multi-disciplinary expertise in benchmarking and research, business transformation, interactive marketing, business applications and technology integration to serve the needs of Global 2000 clients. Investors were pleased when Answerthink reported earnings after the close on Tuesday. The company reported net revenues of $311.1 million, up 19% from last year and net income of $7.9 million, or $0.18 per diluted share, up from $1.1 million, or $0.03 per diluted share, in 1999. ANSR has reduced its exposure to dot-com projects, emerging as one of the most comprehensive and profitable consulting and systems integration providers. The move above the January high is encouraging and the improving technicals bode well for future upside activity. MAR 7.50 QRA CU LB=1.44 OI=3808 CB=6.65 DE=28 MR=13.9% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ANSR ***** ESCM - ESC Medical Systems $16.84 *** Growing Bigger! *** ESC Medical Systems (NASDAQ:ESCM) develops, manufactures and markets medical devices utilizing state-of-the-art proprietary intense pulsed light source and laser technology. Its systems are used in a variety of aesthetic, surgical and medical applications, including the non-invasive treatment of veins and other benign vascular lesions, pigmented lesions, hair removal and skin rejuvenation, as well as ENT, OB/GYN and neurosurgery. No warning here! In early January, ESC Medical announced that it expects to meet estimates with 4th-quarter revenues of approximately $46 million, which would be a 15% increase over the same quarter last year. The stock rallied strongly on the news and moved above the December high, ending ESCM's downtrend. The latest rally was sparked by speculation that ESC Medical agreed to acquire the laser division of Coherent (NASDAQ:COHR), which would make ESCM among the world's largest companies in the medical laser industry, more than doubling the company's revenues. A reasonable cost basis for those who wish to speculate on the potential of this unique company. MAR 15.00 QFC CC LB=2.88 OI=36 CB=13.96 DE=28 MR=8.1% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=ESCM ***** GLGC - Gene Logic $23.94 *** Stage I Base *** Gene Logic (NASDAQ:GLGC) provides products and services in the areas of gene expression information, data management and bio-informatic software, and pharma-cogenomics. These products and services are all designed to improve the efficiency and effectiveness of the drug discovery and development process. They may also be applied to research and development in other sectors, such as diagnostics, animal health, and agriculture. The company's information products combine software tools with large-scale gene expression information, which specifies the degree to which genes are active in a broad range of normal, diseased, and treated conditions. This combination enables scientists to produce new biological knowledge by integrating this proprietary expression information with a growing array of biological information available on the Internet. Gene Logic has moved back into its trading range from $20 to $26 and it continues to forge a Stage I base. Earnings are due Tuesday. MAR 20.00 CYV CD LB=4.88 OI=3 CB=19.06 DE=28 MR=5.4% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=GLGC ***** UTEK - Ultratech Stepper $38.00 *** Stepping Up! *** Ultratech Stepper (NASDAQ:UTEK) designs, manufactures and markets photolithography equipment used worldwide in the fabrication of integrated circuits, microsystems devices and thin film heads for disk drives. The company produces products that are designed to substantially reduce the cost of ownership for manufacturers in the electronics industry. Ultratech pleased investors in January, reporting 4th-quarter net sales of $41.0 million compared to $27.6 million last year. Ultratech's net income was $5.5 million or $0.25 per share (diluted) compared to a net loss of $999,000 or $0.05 per share for the same quarter last year. Strong bookings generated a book to bill ratio significantly greater than 1:1 for the quarter. Best of all, they didn't warn about 2001 and the strong Stage II climb is showing no weakness even in the face of a broad market consolidation. MAR 35.00 UQT CG LB=4.25 OI=120 CB=33.75 DE=28 MR=4.0% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=UTEK ***** ***************** SUPPLEMENTAL COVERED CALLS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ***** Stock Last Call Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return CVD 15.15 MAR 15.00 CVD CC 1.25 95 13.90 28 8.6% TOPP 10.13 MAR 10.00 TOQ CB 0.69 501 9.44 28 6.4% MLTX 19.88 MAR 17.50 UXM CW 3.25 53 16.63 28 5.7% MSCC 50.00 MAR 35.00 QMS CG 16.75 100 33.25 28 5.7% VECO 49.44 MAR 40.00 QVC CH 11.38 8 38.06 28 5.5% IWOV 27.00 MAR 20.00 IUW CD 7.88 701 19.12 28 5.0% CTXS 32.13 MAR 27.50 XSQ CY 5.50 239 26.63 28 3.5% ************************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=1646 ************************************************************** *********************** CONSERVATIVE NAKED PUTS *********************** Put-Selling Strategies: Comments and questions from our readers By Ray Cummins One of our subscribers asked about the "Supplemental Picks" and why they are not included in the regular group of listed plays. With regard to this new addition to the section, the disclaimer offers a general explanation: "The following group of issues is a list of additional candidates to supplement your search for profitable trading positions." For one reason or another, they simply did not make our final list, which is usually limited to 7 candidates. However, the process of choosing the "published" plays is highly subjective and quite often there are additional issues that warrant individual consideration. That is why we now include some of the stocks that just missed our final cut (for various reasons), so that our readers can decide if they meet their personal criteria for favorable plays. Our primary task is to provide a list of potentially profitable positions, greatly reducing the initial research for candidates in this strategy. At the same time, we expect our subscribers to decide which plays meet their risk/reward profile and hopefully, with examination and analysis far beyond that which we can provide in the few hours between Friday's market close and the publishing deadline, they will select only those positions that are winners. One of our new readers asked how they should approach the section and the different selections. Should they attempt to participate in all of the picks or focus on one or two issues with a larger position. The first requirement, before initiating any new play, is comprehensive due diligence. There are a number of factors to consider with the most important being the overall condition of the market and the sector or industry in which the target issue resides. Traders should also clearly understand the risk/reward ratio of this particular strategy and use the technique only when it conforms to their portfolio outlook and personal trading style. As far as entering the positions, our prices are based on Friday's closing quotes, so they may not be the same on Monday, or later in the week. Each individual trader must decide which candidates meet their criteria for acceptable profit potential and downside risk, and enter those positions at the appropriate cost basis. Most of our readers use a "limit" order to guarantee a fill only when the position is available at a certain price. After the position is open, money management becomes the key factor to success. Since this is a limited profit strategy, no one can afford to have many losers and that's why it is so important to monitor the plays on a daily basis and exit those issues that experience a significant change in character. Our final reader's question concerns the most difficult decision that traders face; when to exit a position. The one outstanding principle that novice investors fail to adhere to is the need to outline a basic exit strategy, before initiating any position, to eliminate emotional decisions. This plan must be simple enough to recall and implement while monitoring a portfolio of plays in a volatile market. In addition, these early-exit rules should apply across a range of situations and be designed to compensate for one's weaknesses and inadequacies. To be effective in the long term, they must be formulated to help maintain discipline on a general basis and at the same time, offer a timely memory aid for difficult situations. Utilizing this type of system addresses a number of problems, but the most significant obstacle it eliminates is the need for "judgment under fire." In short, a sound exit strategy will help you avoid exposing your portfolio to excessive losses and that's important because the science of successful trading is far less dependent on making profits, but rather on avoiding undue outflows. In fact, the need to limit draw-downs and prevent failed plays from significantly eroding capital should be a dominant theme in any trader's approach to the market. Further, not only must losses be limited, but all positions must be reviewed regularly to ensure that the total portfolio risk is kept to a practical minimum. Good Luck! *** WARNING *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS PICKS ***** Stock Price Last Put Strike Price Profit Monthly Symbol Picked Price Month Sold Picked /Loss Return MLI 26.88 28.73 FEB 25.00 0.65 *$ 0.65 14.8% ARTG 34.50 36.69 FEB 25.00 0.69 *$ 0.69 13.2% EXPE 16.25 16.88 FEB 12.50 0.31 *$ 0.31 12.6% FIBR 26.38 17.88 FEB 17.50 0.69 *$ 0.69 12.6% CHIR 45.06 45.19 FEB 42.50 0.44 *$ 0.44 12.0% SPCT 21.94 18.63 FEB 17.50 0.38 *$ 0.38 11.5% CBT 33.18 38.20 FEB 30.00 0.55 *$ 0.55 11.2% RATL 47.88 43.94 FEB 35.00 1.25 *$ 1.25 10.3% TVLY 20.69 28.00 FEB 15.00 0.38 *$ 0.38 9.1% SMTC 27.75 30.56 FEB 17.50 0.63 *$ 0.63 9.1% GMST 52.69 45.63 FEB 35.00 1.19 *$ 1.19 9.1% PLUG 19.94 19.69 FEB 12.50 0.44 *$ 0.44 8.9% GLGC 23.88 23.94 FEB 17.50 0.31 *$ 0.31 8.8% TER 39.56 39.00 FEB 32.50 0.56 *$ 0.56 8.7% ISSI 17.75 20.00 FEB 12.50 0.38 *$ 0.38 8.7% PRIA 30.19 25.94 FEB 22.50 0.38 *$ 0.38 8.6% PPRO 22.31 15.13 FEB 12.50 0.38 *$ 0.38 8.5% AVCI 37.13 20.63 FEB 20.00 0.69 *$ 0.69 7.6% BMCS 32.13 30.13 FEB 22.50 0.44 *$ 0.44 7.0% EXFO 50.44 35.44 FEB 30.00 0.69 *$ 0.69 7.0% VECO 57.50 49.44 FEB 30.00 0.56 *$ 0.56 6.7% MU 46.44 42.55 FEB 35.00 0.56 *$ 0.56 6.2% BRIO 13.38 13.69 MAR 10.00 0.63 *$ 0.63 16.5% TSN 13.55 12.89 MAR 12.50 0.65 *$ 0.65 11.3% MDR 15.29 15.80 MAR 12.50 0.60 *$ 0.60 11.1% TPTH 12.75 10.25 MAR 10.00 0.44 *$ 0.44 10.7% TSO 13.32 14.35 MAR 12.50 0.40 *$ 0.40 7.1% ABMD 25.44 26.81 MAR 15.00 0.50 *$ 0.50 6.5% NAUT 19.19 18.38 MAR 17.50 0.56 *$ 0.56 6.2% SPCT 24.75 18.63 MAR 17.50 0.44 *$ 0.44 5.9% RBK 31.20 30.31 MAR 25.00 0.45 *$ 0.45 5.8% OII 22.00 22.50 MAR 20.00 0.45 *$ 0.45 5.4% AL 38.25 37.92 MAR 35.00 0.60 *$ 0.60 4.1% *$ = Stock price is above the sold striking price. Comments: A nice relief rally by Mueller Industries (NYSE:MLI) provided a little breathing room! Did you close PurchasePro.Com (NASDAQ: PPRO) early or stress it out to expiration? Yes, Avici Systems (NASDAQ:AVCI) had us worried too! Nice reversal (engulfing pattern) in Nautica Enterprises (NASDAQ: NAUT) on Monday, and a break-even exit is available. The failed rallies in Brio Technology (NASDAQ:BRIO) and Tyson Foods (TSN) could portend a change in character - monitor closely. Tripath Imaging (NASDAQ:TPTH) is testing support - a key moment. What's up with Friday's drop in Spectrian (NASDAQ:SPCT)? Oh, that's right...Nortel (NYSE:NT), they did it to just about everyone. Positions Closed: Metromedia Fiber (NASDAQ:MFNX), Jni Corp. (NASDAQ:JNIC) NEW PICKS ********* Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return HOMS 36.63 MAR 30.00 HMU OF 1.13 30 28.87 28 13.4% MDR 15.80 MAR 12.50 MDR OV 0.40 1100 12.10 28 12.2% KSWS 31.50 MAR 30.00 SWU OF 1.38 0 28.62 28 12.0% UIS 18.91 MAR 17.50 UIS OW 0.65 1015 16.85 28 10.4% SGR 52.04 MAR 45.00 SGR OI 1.30 3 43.70 28 9.4% APWR 42.50 MAR 30.00 PUW OF 0.69 122 29.31 28 8.2% OII 22.50 MAR 20.00 OII OD 0.40 0 19.60 28 6.3% BPOP 27.38 MAR 25.00 BQW OE 0.50 0 24.50 28 6.0% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, MR-Monthly Return. ***** APWR - Astropower $42.50 *** Alternative Power! *** AstroPower (NASDAQ:APWR) develops, manufactures and markets a range of solar electric power products for the global marketplace. The company currently sells five classes of products: solar cells, modules, panels, systems and solar electricity. The company's products are used to generate electricity for users not connected to the utility grid. These applications include electrification of rural homes and villages, and power supply for equipment in the communications and transportation industries. AstroPower's products are also used by customers already connected to the utility grid as a clean, renewable source of alternative or supplemental electricity. Additionally, the company recently expanded a joint venture agreement with GPU International to generate wholesale solar electric power. APWR appears to be bracing for a rally and as long as the company's earnings are satisfactory, the share value will easily remain above our cost basis. MAR 30.00 PUW OF LB=0.69 OI=122 CB=29.31 DE=28 MR=8.2% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=APWR ***** BPOP - Popular $27.38 *** Technicals Only! *** Popular (NASDAQ:BPOP) is a diversified, publicly owned bank holding company. The company is one of the largest financial institutions in Puerto Rico, with consolidated assets of over $25 billion, total deposits of approximately $14 billion and stockholders' equity approaching $2 billion. The company offers a full range of financial services through offices in Puerto Rico, the U.S. and British Virgin Islands, New York, Illinois, New Jersey, Florida, California and Texas. Popular is also the principal shareholder of Banco Fiduciario in the Dominican Republic. The company is engaged in mortgage and consumer finance, lease financing, investment banking/broker activities, retail financial services and ATM processing with its non-banking subsidiaries in Puerto Rico, the United States and Costa Rica. BPOP appear to be fairly stable above $25 and traders who want a hedge in the finance sector may find this position favorable. MAR 25.00 BQW OE LB=0.50 OI=0 CB=24.50 DE=28 MR=6.0% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=BPOP ***** HOMS - Homsetore.com $36.63 *** Change in Character? *** Homestore.com (NASDAQ:HOMS) operates web-sites consisting of REALTOR.com, Homestore.com, HomeBuilder.com, SpringStreet.com, Remodel.com and Homefair.com, which are destinations on the Internet for home and real estate-related information and advertising products and services. The company's family of web-sites also offers a wide variety of housing information, products, services and tools. Federal antitrust regulators have decided not to oppose HOMS' purchase of Internet real estate portal move.com from franchising giant Cendant (NYSE:CD), which will create the nation's largest Web-based real estate service. Investors cheered the news, driving the share value to recent highs on excellent volume. The question is, "How will the stock perform after the excitement fades?" MAR 30.00 HMU OF LB=1.13 OI=30 CB=28.87 DE=28 MR=13.4% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=HOMS ***** KSWS - K-Swiss $31.50 *** Momentum Play! *** K-Swiss (NASDAQ:KSWS) designs, develops and markets an array of athletic footwear for performance sports use, fitness activities and casual wear. The company's original leather tennis shoe, the K-Swiss "Classic," has evolved from a high-performance shoe into a casual lifestyle shoe. It has remained relatively unchanged from its original design and continues to account for a major portion of the company's sales. The company sells its products in the U.S. through independent sales representatives, primarily to specialty athletic footwear stores, pro shops, sports equipment stores, department stores and to a number of foreign distributors. This stock has rallied on strength in the apparel group and we are going to participate in the bullish activity with a short Put. If the upside movement continues, we may close the position early to lock-in a favorable profit. MAR 30.00 SWU OF LB=1.38 OI=0 CB=28.62 DE=28 MR=12.0% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=KSWS ***** MDR - McDermott Intl. $15.80 *** Oil Service Hedge *** McDermott International (NYSE:MDR) operates in four business segments: Marine Construction, Power Generation, Government Operations and Industrial Operations. Marine Construction provides services to customers in the offshore oil and gas exploration and production and hydrocarbon processing and to other marine construction companies. Power Generation provides services, equipment and systems to generate steam and electric power at energy facilities worldwide. Government Operations is the sole supplier of nuclear fuel assemblies and major nuclear reactor components to the U.S. Navy for the Reactors Program. The Industrial Operations segment provides unique services to customers in a wide range of industries. MDR's earnings are expected next week and since most company's in the group are experiencing outstanding profits, the report should be favorable. MAR 12.50 MDR OV LB=0.40 OI=1100 CB=12.10 DE=28 MR=12.2% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=MDR ***** OII - Oceaneering International $22.50 *** Solid Earnings! *** Oceaneering International (NYSE:OII) is an applied technology company that provides a range of integrated technical services and hardware to customers operating in marine, space and other harsh environments. The company concentrates on the development and marketing of underwater services and products requiring the use of advanced deepwater technology and most of its services are provided to the oil and gas industry. These products and services include drilling support, sub-sea construction, design, lease and operation of production systems, facilities maintenance and repair, specialty sub-sea hardware and specialized onshore and offshore engineering and inspection. Oil service shares are performing well and this issue vaulted to new highs in anticipation of its earnings report. The announcement was favorable and based on the post-earnings buying activity, the stock should continue higher in the coming weeks. MAR 20.00 OII OD LB=0.40 OI=0 CB=19.60 DE=28 MR=6.3% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=OII ***** SGR - Shaw Group $52.04 *** New High! *** The Shaw Group (NYSE:SGR) is a vertically integrated provider of complete piping systems and comprehensive engineering, procurement and construction services. The company operates primarily in the United States, the Far East/Pacific Rim, Europe, South America and the Middle East for customers in the power generation, process (petrochemical, chemical and refining) and other industries and the environmental and infrastructure sector. The company offers comprehensive design and engineering services, piping system fabrication, construction and maintenance services, manufacturing and sale of specialty pipe-fittings and design and fabrication of pipe support systems. SGR is a solid company in a favorable sector and the move to an all-time high is a bullish indication. However, traders should wait for a brief pullback in the issue before initiating a position. MAR 45.00 SGR OI LB=1.30 OI=3 CB=43.70 DE=28 MR=9.4% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=SGR ***** UIS - Unisys $18.91 *** Speculation Only! *** Unisys (NYSE:UIS) is a global information services and technology company. The company provides services, systems and solutions, and its Unisys e-@ction Solutions, that help customers apply information technology to seize the opportunities and overcome the challenges of the internet economy. Unisys has two business segments: Services and Technology. The company's Services segment integrates and delivers solutions and network infrastructure to a wide range of business and government entities to transform their organizations to the Internet economy. In its Technology segment, the company develops servers and related products, which operate in high-volume, mission-critical environments. Unisys has been the subject of takeover rumors in recent weeks and traders who want to speculate on a potential merger or buyout can do so in a conservative manner with this position. MAR 17.50 UIS OW LB=0.65 OI=1015 CB=16.85 DE=28 MR=10.4% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=UIS ***** ***************** SUPPLEMENTAL NAKED PUTS ***************** The following group of issues is a list of additional candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies and positions are suitable for your experience level, risk-reward tolerance and portfolio outlook. They will not be included in the weekly portfolio summary. Sequenced by Return ****** Stock Last Put Strike Option Last Open Cost Days to Monthly Symbol Price Month Price Symbol Bid Intr Basis Expiry Return IWOV 27.00 MAR 17.50 IUW OW 0.75 84 16.75 28 13.2% ABMD 26.81 MAR 20.00 IBU OD 0.69 173 19.31 28 12.4% ILUM 27.00 MAR 22.50 ILU OX 0.81 0 21.69 28 12.4% PRGN 29.00 MAR 22.50 GQP OX 0.62 91 21.88 28 10.5% VECO 49.44 MAR 35.00 QVC OG 0.81 600 34.19 28 8.2% AMAT 48.22 MAR 40.00 ANQ OH 0.88 4018 39.12 28 8.0% DS 36.75 MAR 30.00 DS OF 0.55 162 29.45 28 7.0% YUM 37.00 MAR 35.00 YUM OG 0.80 266 34.20 28 6.4% *************************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=1632 ************************************************************ ************************ SPREADS/STRADDLES/COMBOS ************************ Another Day In Paradise... Technology stocks plunged today, sending the broader market lower amid concerns of declining profits in the computer industry. Friday, February 16 Technology stocks plunged today, sending the broader market lower amid concerns of declining profits in the computer industry. A stronger-than-expected producer price index also weighed heavily on investors, and the negative sentiment helped drive the NASDAQ down 127 points to 2,425. The Dow was not far behind, losing 91 points to close at 10,799. The S&P 500 index finished 25 points lower at 1,301. In the bond market, the 30-year Treasury rose 18/32, pushing its yield down to 5.45%. Thursday's new plays (positions/opening prices/strategy): Amer. Home (NYSE:AHP) MAR70C/MAR65C $0.55 credit bear-call Johnson & J. (NYSE:JNJ) MAR105C/M100C $0.60 credit bear-call Eli Lilly (NYSE:LLY) MAR85C/MAR65P $0.10 debit synthetic Answerthink (NASDAQ:ANSR) JUN10C/FEB10C $1.50 debit calendar Today's broad market sell-off did not help our opening prices in the bearish combination positions. While American Home Products and Johnson & Johnson offered reasonable entry opportunities, the synthetic position in Eli Lilly was not available at a credit, due to the downward movement in the stock. Hopefully, there will be a better opportunity in the coming sessions. The brief pullback in Answerthink shares was favorable for both of the suggested plays and we will track the bullish calendar spread based on an initial debit of $1.50. Portfolio Activity: A barrage of bad news from bellwether technology issues combined with an unexpected surge in the PPI was simply too much for the market to bear today. Nortel (NYSE:NT) shocked investors with a forecast that first quarter revenues will be much lower than it projected less than a month ago. Lucent (NYSE:LU), which remains in turmoil amid a regulatory probe into accounting practices said it is having trouble raising the $6 billion debt payment it needs by next week and is considering the sale of its fiber-cable unit to foot the bill. Dell Computer (NASDAQ:DELL) reported quarterly earnings that missed downward-revised analysts' projections by a penny and said that first-quarter profits will be at least $0.02 below consensus estimates. In the conference call, Michael Dell added to investor's concerns by avoiding questions regarding the long-term revenue growth for the company. The final nail in the coffin was Hewlett-Packard (NYSE:HWP), which posted earnings that met lowered first-quarter expectations but said it doesn't expect to return to double-digit revenue growth this year. The dearth of corporate profits was exacerbated by unfavorable economic data as the Producer Price Index rose an unexpected 1.1%, confounding predictions for a 0.2% gain. The core gauge jumped 0.7%, which exceeded expectations and a few analysts cautioned that the PPI, as well as other recent signs of a stronger economy, may prompt the Fed to reduce the size of future interest rate cuts. Overall, it was simply a terrible day in the market and select defensive sectors such as oil, gold, and some tobacco issues were the only groups that moved higher. Despite the poor performance of the major indices, the Spreads Portfolio ended the expiration period on an upbeat note with a number of profitable positions in various market segments. As usual, the top strategy for the month of February was the Credit Spread and we enjoyed a perfect record in that category. Of the 14 positions expiring today, Atlantic Coast Air (NASDAQ:ACAI) and Advanced Energy (NASDAQ:AEIS) offered the highest returns, both with a 25% monthly profit. Other successful positions in that section included Cabot Micro (NASDAQ:CCMP), Forest Labs (NYSE:FRX), Digex (NASDAQ:DIGX), HSBC Holdings (NYSE:HBC), Union Carbide (NYSE:UK), Varian (NASDAQ:VARI), Weatherford (NYSE:WFT) and Qualcomm (NASDAQ:QCOM), which was a recovery from last month. Our Murphy's Law plays; Lennar (NYSE:LEN) and Molex (NASDAQ:MOLX), which we closed early in the interest of sound money management, also finished at maximum profit. Among Debit Spreads and Collars, Adelphia Business Systems (NASDAQ:ABIZ), Speedfam (NASDAQ:SFAM), and Portal Software (NASDAQ:PRSF) offered favorable profits. In the Diagonal Spread section, only two positions; Pactiv (NYSE:PTV) and Boston Scientific (NYSE:BSX) remained open after the January option expiration and both were profitable. The Calendar Spread section did not have any plays expiring this month, but positions in Atrix (NASDAQ:ATRX), Alza (NYSE:AZA) and Navistar (NYSE:NAV) offered early-exit profits. The Synthetic Position has become a very popular strategy among readers of the Spreads/Combos section and this month provided some excellent opportunities for traders using that technique. Conseco (NYSE:CNC), Bell Microproducts (NASDAQ:BELM), Landry's Seafood (NYSE:LNY), Household International (NYSE:HI), Timken (NYSE:TKR) and NS Group (NYSE:NSS) were the top performers in the group and other potentially profitable plays were available in AES Corp. (NYSE:AES), Steven Madden (NASDAQ:SHOO), and Davox (NASDAQ:DAVX). The "Delta-neutral" category was less productive this month, due to a range-bound market and the relative decline in options premiums. Cytec (NASDAQ:CYT), Southwest Securities (NYSE:SWS), Unumprovident (NYSE:UNM) and Equity Resident Property (NYSE:EQR) achieved the target returns while Lyondell Chemical (NYSE:LYO), British Telecommunications (NYSE:BTY), and Triad Hospitals (NASDAQ:TRIH) also offered profitable opportunities. The solitary Credit Strangle was Newport (NASDAQ:NEWP) and that position finished at maximum profit. The Reader's Request plays ended with mixed results but a standout performance was seen in the AOL Time Warner straddle (NYSE:AOL) and we congratulate the subscriber who contributed that candidate. In the LEAPS with Covered-calls category, Microsoft (NASDAQ:MSFT) and AT&T (NYSE:T) achieved profitability during the month and now we will focus on Motorola (NYSE:MOT) and Hewlett Packard (NYSE:HWP). Questions and comments concerning any active positions can be submitted to: Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** INTC - Intel $34.38 *** Reader's Request! *** Intel (NASDAQ:INTC), the world's largest semiconductor producer supplies the computing and communications industries with chips, boards, systems and software that are integral in computers, servers and networking and communications products. Intel's many products include microprocessors, chipsets, flash memory, unique networking and communications products, embedded processors and microcontrollers, and digital imaging and other PC-peripheral products. Intel's component-level products consist of integrated circuits used to process information. Intel markets its products to original equipment manufacturers, PC and computing appliance users, industrial and communications equipment manufacturers, and businesses, schools and state and local governments. Intel also provides a data center to businesses needing e-Commerce services. One of our readers suggested that we offer another conservative play in the technology group for traders who sell Covered-calls on LEAPS. Intel is very popular issue in this segment and with the recent buying surge in semiconductor shares, the near-term options have favorable premiums. In addition, Intel is planning to launch a $300 million Pentium. 4 processor worldwide marketing campaign next week and that may bring additional interest to the front-month positions. Technically, the issue is building a new base near $30 and the potential for upside activity appears to be limited by resistance near the sold strike, a perfect condition for this time-selling strategy. Traders who favor the long-term outlook for Intel can benefit from a slow and steady return to past valuations with this conservative calendar spread. PLAY (conservative - bullish/calendar spread): BUY CALL JAN02-40 WNL-AH OI=57227 A=$5.25 SELL CALL MAR01-40 INQ-CH OI=36628 B=$0.38 INITIAL NET DEBIT TARGET=$4.62-$4.75 TARGET ROI=100% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=INTC ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and the recent technical history or trend. The probability of profit from these positions is also higher than other plays in the same strategy based on disparities in option pricing. Current news and market sentiment will have an effect on these issues. Review each play individually and make your own decision about the future outcome of the position. ****************************************************************** PKI - PerkinElmer $87.88 *** Rolling Over? *** PerkinElmer (NYSE:PKI) is a worldwide technology company which provides products and systems to the telecom, medical, drug, chemical, semiconductor and photographic markets. Their Life Sciences unit provides chemical reagents, sample handling and measuring instruments, and computer software to bio-screening and population screening laboratories. Their Optoelectronics unit produces optoelectronic products, including high volume and high performance specialty lighting sources, detectors, optical fiber communications components, and imaging devices. The company's Instruments unit produces sophisticated analytical instruments and imaging detection systems. The Fluid Sciences unit produces static and dynamic seals, sealing systems, solenoid valves, and bellows devices. Fundamentally, PerkinElmer is performing very well, considering the recent slowdown in the U.S. economy. At the same time, the technical outlook is less than outstanding, and with the new resistance area forming near $95, this position offers favorable speculation for traders who are bearish on the issue. We will target a higher premium in the play initially, to allow for an oversold bounce from Friday's broad market sell-off. After the play is open, we will monitor the stock for a move through the supply area at $97, to signal a potential exit or adjustment. PLAY (conservative - bearish/credit spread): BUY CALL MAR-105 PKI-CA OI=47 A=$1.25 SELL CALL MAR-100 PKI-CT OI=1197 B=$1.95 INITIAL NET CREDIT TARGET=$0.90-$1.00 ROI(max)=23% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=PKI ****************************************************************** - CREDIT STRANGLES - ****************************************************************** QCOM - QUALCOMM $80.63 *** Big Premiums! *** QUALCOMM (NASDAQ:QCOM) is engaged in developing and delivering digital wireless communications products and services based on the company's CDMA digital technology. The company's business areas include integrated CDMA chipsets and system software; technology licensing; Eudora email software for Windows and Macintosh computing platforms; satellite-based systems including portions of the Globalstar system and wireless fleet management systems, OmniTRACS and OmniExpress. QUALCOMM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by standards-setting bodies worldwide. QUALCOMM has licensed its essential CDMA patent portfolio to a number of telecom-equipment manufacturers worldwide. Traders have been asking for more premium-selling positions, so we decided to look for a popular issue with inflated option prices and a reasonably stable trading pattern. Qualcomm fits the bill perfectly and since we wouldn't mind having the stock in our long term portfolio, we will sell OTM options for credit and use the earned income to lower our cost basis in the issue; in the event of assignment. If the price of the issue rallies above the recent resistance area near $90 on heavy volume, we will simply buy the stock to cover our sold options. PLAY (conservative - neutral/credit strangle): SELL CALL MAR-100 AAF-CT OI=8647 B=$1.00 SELL PUT MAR-60 AAO-OL OI=523 B=$0.81 INITIAL NET CREDIT TARGET=$2.00 ROI(max)=11% UPSIDE B/E=$102.00 DOWNSIDE B/E=$58.00 http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=QCOM ****************************************************************** MANU - Manugistics $48.13 *** Trading Range? *** Manugistics (NASDAQ:MANU) is a global provider of intelligent supply chain optimization solutions for enterprises and evolving eBusiness trading networks. Its solutions, which include client assessment, software, consulting services for implementation and solution support, can be easily optimized to the supply chain requirements of companies. The company's solutions provide its clients with the business intelligence to participate in various forms of trading relationships, from traditional linear supply chains to eBusiness trading networks. MANU's newest generation of proven solutions help enable businesses to work in concert with their trading partners via the Internet, expanding their supply chains to eBusiness trading networks. The solutions assist customers in anticipating trading requirements in both fixed and dynamic environments to anticipate and meet the needs of customers, thereby maximizing client satisfaction. Manugustics is another popular stock with robust option premiums and a relatively steady share value. The company is expected to report earnings on 3/15/01, a day before the March options expire. If you plan to remain in the position through the announcement, the outcome may be less certain, but it wouldn't be unacceptable to own the issue at a deeply discounted price. In the interim, the option premiums will be decaying and you can choose to exit when the play offers a reasonable return on investment. If the issue moves beyond the recent trading range ($40-$55) in the next few sessions, consider closing or offsetting the at-risk position to avoid a potential loss. PLAY (moderately aggressive - neutral/credit strangle): SELL CALL MAR-60.00 ZUQ-CL OI=1153 B=$1.50 SELL PUT MAR-35.00 ZUQ-OG OI=105 B=$1.25 INITIAL NET CREDIT TARGET=$2.88-$3.00 ROI(max)=20% UPSIDE B/E=$62.88 DOWNSIDE B/E=$32.12 http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=MANU ****************************************************************** PLMD - PolyMedica $35.19 *** Probability Play! *** PolyMedica (NASDAQ:PLMD) is a nationwide provider of consumer specialty medical products and services. The company is best known through its Liberty brand name and it serves primarily the senior chronic disease marketplace. PolyMedica also focuses on Compliance Management using its unique Technology Platform to help seniors manage their disease more effectively. Liberty pioneered National Direct to Consumer Advertising to seniors with chronic diseases. PolyMedica is a good candidate for a premium-selling position because it has relatively well-defined support and resistance areas ($25-$55) and no apparent news that will substantially change its character prior to the March options expiration. The company announced favorable earnings in January and now the issue appears to be comfortable near the middle of our profit envelope. In this case, we will use the recent volatility and the inflated option prices to open a neutral play with a favorable premium. The probability of the share value reaching our sold strikes is rather low, but there is always the possibility of a significant change in the technical outlook, so monitor the position on a regular basis. PLAY (conservative - neutral/credit strangle): SELL CALL MAR-50.00 PM-CJ OI=81 B=$0.68 SELL PUT MAR-22.50 PM-OX OI=100 B=$0.43 INITIAL NET CREDIT TARGET=$1.12-$1.25 ROI(max)=13% UPSIDE B/E=$51.12 DOWNSIDE B/E=$21.38 http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=PLMD *************************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=1637 ************************************************************ ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html
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