The Option Investor Newsletter Wednesday 02-28-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/022801_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 02-28-2001 High Low Volume Advance/Decline DJIA 10495.30 -141.60 10684.80 10423.50 1.18 bln 1392/1660 NASDAQ 2151.83 - 55.99 2238.06 2127.50 2.08 bln 1425/2292 S&P 100 640.71 - 10.26 653.96 635.04 totals 2817/3952 S&P 500 1239.94 - 18.00 1263.47 1229.65 41.6%/58.4% RUS 2000 474.37 - 4.38 479.58 471.28 DJ TRANS 2925.04 - 45.97 2969.04 2913.95 VIX 31.00 + 1.97 32.43 28.64 Put/Call Ratio 0.81 ****************************************************************** Shake Down On Wall Like the 7.0 earthquake hitting Seattle, Greenspan rocked the market. In a big disappointment to the market, the Fed Chairman's much awaited testimony provided little relief to a market that began to fade yesterday as the 2 o'clock hour came and went. Investors were looking for signs of an inter meeting cut, as predicted by Wayne Angell of Bear Stearns, but instead were greeted with a calm and eerily confident Fed head. While Greenspan noted that he was concerned with the dropping level of consumer confidence, the rapid slowing of the economy seen in December was less evident in January and February. The market's response was at first muted to his comments, but as the Q and A progressed, it became clear that the Fed was going to wait on the sidelines until the regularly scheduled meeting. The result was a continued unwinding of blue chips, especially in the technology sector as many stocks hit fresh 52-week lows. The financial sector was also hit hard, as the play on falling interest rates boosting interest rate sensitive stocks reversed. In the end, the Dow finished off 141 points, or 1.33% to end at 10495, with cyclicals, interest rate sensitive banks and brokers falling sharply. Safe haven stocks were unable to lift the index into positive territory with just slightly higher moves in the drugs, beverages and house ware sectors. The S&P, closing at a 52-week low, dropped 1.4% under performing the small cap Russell 2000 which only fell 1% on the day. The Nasdaq, which is now at 2-year lows finished with a loss of over 55 points, recovering only slightly from the lows on the day to finish at 2151, a drop of 2.54%. 15% of the stocks in the Nasdaq 100 are now trading at 52-week lows. Among the carnage in the index, big cap leaders such as Oracle fell over 10.4 percent and JDSU fell over 4%. Volume was brisk, but not overwhelming considering that Greenspan was hitting the tape today with the NYSE printing over 1 billion trades, and the Nasdaq logging in volume at 1.85 billion. Market breadth was deadly negative with losers overwhelming winners by a margin of 17 to 13 on the NYSE and over 2 to 1 on the Nasdaq. The market continues to trade with the complete absence of any leadership. The biotech index, chock full of companies with little earnings and high multiples, however, was able to pop over the unchanged line in the afternoon despite the sell off in the Nasdaq to record a 9-point gain. The index still failed to breach the 610 level, which was again tested in the morning. MLNM trading as high as $37 in the early morning finished the day with only a 0.75 point gain to close at $33.75. The SOX.X, under pressure for the last three sessions, was slammed again for almost 5%. Led by a warning from Altera on Tuesday, the company guided revenues expectations to $294 million vs. $368 million in fourth quarter. As early as mid-January, despite heckling from Dan Niles at Lehman, Altera was expecting first quarter revenue to decline by only 5% to $350 million. In the communications chip sector, once highflying stocks such as BRCM and AMCC again hit 52-week lows. DSL chip supplier, GSPN, lost almost 19% or 4.5 points to close at $20.00. Treasury rose only slightly as the stock market began to sink deeper into the red as a flight to quality found a home in the bond market. The 10-year Treasury note moved up an 1/8 to yield a 4.935%, while the longer end of the curve lost just 6/32's to yield 5.365%. Fourth quarter GDP was revised lower to 1.1 percent from the previously reported 1.4 percent gain. The February Chicago Purchasing Managers Index rose to 43.2 percent in February from a previous reading of 40.2 percent. The market took the reading less then rate cut friendly as the report foreshadowed a possible up-tick in the more closely watched National Purchase Managers report due out Thursday. In the currency markets, the dollar/yen picked up 1.3% to 117.44 while the euro/dollar rate rose .4 percent to .9215. The Bank of Japan, in attempt to slow the free fall in its equity markets once again lower its discount rate by 10 bps to .25 percent, after a rate cut just 19 days ago. The ARM's index registered a reading over 2.0 today as the selling accelerated following Greenspan's testimony. Closing with a reading of over 1.5 an increase of .4 from yesterday's closing level, the index is suggesting the market is still in dramatically oversold territory. In after hour's news, 3COM warned for Q3 seeing revenues coming in below estimate of negative 14 cents a share. Economic conditions were sited as well as the continued slowdown in the telecom sector, which is reducing demand for products across a number of the company's business segments. PC maker Gateway also warned for Q1, which was little surprise to investors cutting earnings to about breakeven from current estimates of 17 cents. As the market continues to slice through support levels, investor sentiment continues to weaken in the market. The market has yet to experience much of a whoosh higher as few signs of catalyst appear to be seen on the horizon. There is an obvious disconnection between what corporations and the market feel about the future direction of the economy and how Greenspan is interpreting the latest data. The bears are in complete control as the market sink lower and will probably use any relief rally as an opportunity to set new shorts. With the March 20th meeting approaching, the window for an inter-meeting cut is closing fast, and with it, the only near term relief for a market sinking lower. Despite the bargain looking levels of many of the blue chip technology leaders, attempts at stepping in front of a runaway train south seem foolish at this point. Continue to trade lightly as the market is clearly oversold on the downside. Remember, however, that you putting on a trade to simply have one on usually ends with a loser. Gregory J. Casals Staff Writer ************************************ 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************************* What will your strategy be for 2001? The VRTrader.com Annual Forecast Model Your road map to the 2001 market! Forecast is prepared by Mark Leibovit, the #1 market timer in the nation. Mark is Chief Market Strategist for VRTrader.com, a Premier Investor Network website, a technical consultant and former 'Elf' on Louis Rukeyser's Wall Street Week for 7 years. His Annual Forecast Model has been subscribed to by Wall Street's most elite. Mark is presently ranked #1 timer in the nation by TIMER DIGEST and #2 on AmericasBestTimers.com. Order your today! click here: http://www.sungrp.com/tracking.asp?campaignid=1732 ************************************************************** ************* NEW CALL PLAY ************* LOW VOLATILITY: DORL - Doral Financial Corp. - $28.56 +0.56 (+1.69 this week) Doral Financial Corporation is a financial holding company that, together with its wholly-owned subsidiaries, is engaged in mortgage banking, banking, investment banking, and broker dealer activities. It is primarily engaged in a wide range of mortgage banking activities, including the origination, purchase, sale and servicing of mortgage loans on single family residences. The company is the leading originator of mortgage loans on single family homes in Puerto Rico. Doral reported excellent year end earnings on January 17. For the fiscal year 2000, total interest income rose 54% to $325 million. Net income rose 24% to $77.9 million. This prompted an upgrade from a buy to a strong buy by UBS Warburg on February 7. DORL's chart shows an enticingly smooth upward trend, which faltered only briefly with the overall market weakness over the last several months. DORL crossed its then converged 50 and 200 dma last September, and has since then stayed solidly above both major averages as investors became increasingly attracted to the stock's attractive valuations and strength in its sector. Pullbacks occurred during the severe selloffs in December, and more recently in February, and were excellent buying opportunities. Despite today's overall weak market, DORL managed to sustain a small gain. At this point, market conditions permitting, DORL may just be able to power through resistance at the 52-week high of $29, to reach a possible new all time high since going public in 1997. Traders could take positions at current levels, or at a pullback to support at $28. A break above $29 with heavy volume might be a more conservative entry point. Watch other stocks in the consumer finance sector, as well as savings and loan institutions like GPT and DME for an indication of sector strength, and set stops at $27. BUY CALL MAR-25*QDL-CE OI=166 at $3.75 SL=1.75 BUY CALL MAR-30 QDL-CF OI= 43 at $0.56 SL=0.00 www.premierinvestor.com/oi/profile.asp?ticker=DORL ************ NEW PUT PLAY ************ EBAY - eBay Inc $38.31 -3.81 (-6.13 this week) eBay is the world's largest online trading community. Founded in September 1995, eBay is a powerful marketplace for the sale of goods and services by a passionate community of individuals and small businesses. The sellers pay a fee to have their items placed on the company's Web site and the buyers get to browse and make bids on the merchandise. If an item sells, eBay charges the seller a percentage of the closing price. The company's rivals in the auctioning arena are Yahoo! and Amazon.com. As one of the few profitable dotcoms in the Internet space, e-auction leader eBay finds itself in a fairly unique position. This has allowed the company's stock price to fare somewhat better than industry peers such as AMZN and PCLN in the recent Tech downturn. However, its triple-digit price/earnings ratio has made the stock a visible target for bears while keeping away the value players and bargain hunters. Analysts have been mixed in rating the company. While Prudential Securities and WR Hambrecht have blessed EBAY with a Strong Buy, CS First Boston and US Bancorp Piper Jaffray recently cut estimates on earnings going forward. EBAY has been on the acquisition trail as of late, buying up European online-auctioneer iBazar, and is now looking to enter the Asian market. While the fundamentals have been generally positive, technically, the stock has hit a wall. A failed attempt to break above the 200-dma (now at $52.50) in mid-February has since led to a retreat on increasing volume. Today's drop of over 9 percent on 125% of ADV put the stock below both its 100 and 50-dma (at $44.91 and $42.60 respectively). Failed rallies above these two major moving averages could allow higher risk players to take a position, provided that volume confirms the rollover. The 5 and 10-dma (at $46.61 and $48.61) should also provide formidable resistance. Just make sure EBAY continues to close below our stop price of $42. A plunge through support at $37 on heavy selling pressure could allow the more risk averse to enter on weakness. Track sentiment in the Internet sector using Merrill Lynch's Internet HOLDR (HHH). BUY PUT MAR-40*QXB-OH OI=2579 at $4.38 SL=2.75 BUY PUT MAR-35 QXB-OG OI= 908 at $2.31 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=EBAY AMCC - Applied Micro Circuits $26.75 -3.56 (-10.31 this week) Fulfilling the need for speed, AMCC is a global provider of high-performance, high-bandwidth integrated circuits used to control the high-speed flow of transmissions through fiber-optic telephone networks. Communications products, used in LANs and WANs, account for 55% of the company's sales. The company's chips are also used in automated test equipment, high-speed computing, HDTV, and military applications. The company which is growing through acquisitions, has a top-flite client list, including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent. Apparently ignoring comments from the company's CFO a week ago that AMCC is on track to meet its growth targets despite the Telecom slowdown, investors have continued to sell the stock down to new yearly lows. In fact, the downtrend that began towards the end of January is showing no signs of letting up as the Communication sector finds itself firmly in the bears' grasp. Even though the stock is down nearly 70% in the past month, bearish comments about the entire sector from Goldman Sachs yesterday just heaped more misery on the bulls as they watched all their precious Technology stocks suffer another day of pain. Of course Alan Greenspan didn't help the situation today when he refused to be bullied into an interim interest rate cut, and the broader markets declined steadily throughout the day. Underscoring the stock's weakness is the fact that the bulls couldn't even stage a meaningful relief rally today despite its deeply oversold condition. As one of the few remaining stocks with a triple-digit PE ratio, AMCC was ripe for the picking and with its PE still north of 100, it could have more room to fall as investors' irrational exuberance has been replaced by panic. Despite the fact that the daily Stochastics is buried deep in oversold territory, the selling volume was heavy today, coming in 50% above the ADV. The only possible support for the bulls to focus on is at $25.50, the lows seen last January. Conservative investors can use a violation of this level as their trigger to initiate new positions, as the bears take aim on support in the $21-22 area, followed by the lower Bollinger band (currently at $20.46). More aggressive traders will want to look for an oversold bounce to provide a better entry point and can consider new positions on a failed rally that rolls over before taking out our stop at $31. Gauge sentiment in the sector by watching the Networking index (NWX.X). As long as it remains weak, AMCC will have a hard time staging any kind of sustainable rally. BUY PUT MAR-30*AEX-OF OI=917 at $5.50 SL=3.50 BUY PUT MAR-25 AEX-OE OI=304 at $2.56 SL=1.25 http://www.premierinvestor.com/oi/profile.asp?ticker=AMCC ***************** STOP-LOSS UPDATES ***************** PSS - call play Adjust from $73 up to $74.50 BOL - call play Adjust from $50 up to $51 LH - call play Adjust from $154 up to $155 ADI - put play Adjust from $43 down to $40 ************* DROPPED CALLS ************* MER $59.90 -2.80 (-3.1) MER offered only a short lived bullish opportunity on Tuesday morning, with a move to $65. Unfortunately, bulls got bad news this morning when former Fed governor Wayne Angell retracted his forecast of an intra meeting rate cut during Chairman Greenspan's testimony before Congress. Since Mr. Greenspan did not give a clear indication of near term policy moves (i.e. a rate cut this week) the brokerage index sold off on the disappointment. While an intermeeting rate cut may still happen, MER closed below our stop level of $60, and we are thus dropping it tonight. BRCD $38.81 -4.69 (-6.88) It appears that negative sentiment in the Storage sector continues to weigh on shares of BRCD. When we started this play, we outlined a number of ways to enter this play. Bounces off support have been lacking in buying conviction and the stock failed to bullishly surpass its 10-dma (now at $47.16) for a conservative entry point. Today the Storage Area Networker fell almost 11 percent on 1.35 times the ADV in sympathy with the NASDAQ. With our entry objectives unmet and BRCD closing below our stop price of $42, we are dropping coverage and no longer recommend attempting to take a position. CIEN $67.19 -2.56 (-7.31) Alan Greenspan let some more air out of the broader markets today, as he failed to provide the much-ballyhooed interim rate cut, and our CIEN play was once again unable to fight the trend. Heading lower shortly after the open, the stock didn't see any support from buyers until it touched the $65 level, its lowest point since January 3rd. Although buyers attempted to rally the stock in the afternoon, there was no follow through and CIEN fell back at the close to end the day solidly below our $69 stop. We never got an entry into the play after adding it on Monday, and with its recent deterioration, it is time to remove it from the playlist. ************ DROPPED PUTS ************ No dropped puts tonight. ************** TRADERS CORNER ************** Trading Ciena By Mary Redmond Ciena (NASDAQ:CIEN) can be a fun stock to trade because it moves quickly and responds well to most technical indicators. In addition, Ciena has a high level of liquidity, which is conducive to rapid execution. However, it can be a highly tricky stock to trade in this market environment, particularly because the Networking Index(NWX.X) and many of Ciena's peers in the field of optical networking have been suffering. While the stock has been bucking the trend of the overall index since reporting excellent earnings and upwardly revised expectations, it is important to trade Ciena using as many technical tools as possible. Over the last week, there have been several opportunities to trade Ciena on both the long and short side. It is important to use the movement of the major market indexes, the bond market, the VXN and VIX as well as the stock's individual trading pattern and short term technical indicators. Last week, Thursday and Friday were critical days when the VIX and VXN hit short-term spikes out of their daily trading ranges. In addition, the selling culminated with very heavy volume, and a rumor of an intermeeting Fed rate cut sparked a short lived rally. For the last five days, Ciena has traded in a range from strong support at the $66.50 level to short-term resistance at the $77.50 level. The better you know the trading pattern of a stock, the more likely you are to be successful. For example, when the Nasdaq dropped from 2350 to below 2200 last week, Ciena's lowest price was $65.75, from which it strongly rebounded. Conversely, the stock has had serious difficulty penetrating the $78 level over the last several weeks. The moves in between these two levels have been highly profitable however. It is one of the few stocks which usually rallies when the Nasdaq rallies, as its earnings and outlook were higher-than-expected. Last week, the Dow and Nasdaq sold off heavily on February 21st, and reached a low point on the 22nd in the morning. This was indicated by the sharp spike of the VXN and VIX out of their Bollinger bands, and coincided with a good entry point for Ciena, which offered a daily profit of nearly 6 points. You could also see that the NWX.X started to move upward as the market indexes moved up. However, under the circumstances, prudent traders could have closed the position as the VXN and VIX moved back into their normal trading ranges. On Friday of last week, we had an abnormal situation with heavy selling in the morning, followed by a sharp rebound when the rumor of an intermeeting rate cut circulated. Ciena languished around $70 for most of the morning, and aggressive traders could have bought here as the VXN spiked out of its daily trading range. More conservative traders might have wanted to wait for the VIX to spike up to a high of 35, which coincided with the rumor of a rate cut. This week was very risky for traders, as the rate cut rumors had the potential to move the markets sharply down if this cut did not materialize. On Monday, Ciena demonstrated that it had the desire to rally, but lacked the strength to clear $78, even when both the Dow and Nasdaq rallied. In addition, on Monday afternoon the VIX and VXN sent warning signals, with sharp moves to the downside of their trading ranges. The bond market also sent traders warning signs, as the 30-year bond yield(TYX.X) moved down sharply, indicating that money was flowing to the safety of bonds. Wednesday gave the opportunities for traders to profit from some short-term moves in Ciena as well as the Nasdaq, as there were indications that the markets were heavily oversold during and after Chairman Greenspan's testimony before the Congress. While the day started on a somewhat positive note in the markets, selling occurred during the testimony. It is generally a good idea to wait until the market starts to digest testimony from the Fed Chairman before taking risky positions. The markets may have started to realize that his testimony was more positive than perhaps previously believed, and buyers started to enter. (After all, we couldn't expect him to just say, "I'm going to go home after lunch and cut rates today"). When the TYX.X showed positive movement, in combination with a highly oversold market, the odds favored a rally, albeit a small one. It is interesting to note that one of the points mentioned by the Fed Chairman is the fact that individual investors have not been depositing money to equity funds as much as they have in the past, but have instead been favoring money market funds and other safe vehicles. This may be responsible for some of the reported numbers of increases in the money supply. In addition, the risk averse behavior currently exhibited by banks and lending institutions is not conducive to a healthy economy. It seems highly likely that the Federal Reserve will take further action to help stimulate lending practices by banks and other creditors, particularly in the high yield debt market. It looks like traders may have to be nimble and quick to take profits in these market conditions, as there is little liquidity to move the markets. Equity fund flows are anemic compared to previous periods, and technology funds have been suffering from redemption. However, we might want to consider something. Last year around this time, everyone seemed to be saying "This time it's different. The market will go up indefinitely because we are in a new paradigm of growth and productivity." Now the attitude seems to be, "This time it's different. The market will go down and not come back up again." Does either extreme sound right? *************************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=1748 ************************************************************ ********************* PLAY OF THE DAY - PUT ********************* ADBE - Adobe Systems $29.06 -1.44 (-3.56 this week) A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. Most Recent Write-Up Aggressive traders that were quick on the trigger, got a great entry into our ADBE play at the open yesterday. The stock gapped up to $33.50 and then promptly rolled over and began its slow descent again. Market weakness again today just confirmed that the bears are still in control, and ADBE went along for the ride, closing very near its lows from last week. The battle lines have been drawn near the $30 level and this is likely where we will see if there is enough selling volume to drag the stock to new lows. Last week's intraday low was $28.44, and if the Fed fails to prop up the equity markets, this looks like a strong possibility given today's market weakness. We have moved our stop down to $32, and aggressive traders can consider new positions on any failed rally near this level. Otherwise, look for the conservative approach to get you safely into the play, initiating new positions on a volume-backed move below $28.50. Comments Despite the late session buying spike, ADBE has violated the key level of $30. Much of the buying that went on in the market into today's close appeared to be short covering. We believe that the shorts will reassert themselves now that ADBE under $30 is setting off alerts. Look for entry into this put on any rollovers from $30, which should provide resistance. A break below $28 with strong selling volume would also warrant entry. Today's low was $26.50, so watch that level to see if buyers support it again on a retest. NASDAQ sentiment will set the tone for this play. BUY PUT MAR-35 AEQ-OG OI=1891 at $6.88 SL=5.25 BUY PUT MAR-30*AEQ-OF OI=1960 at $3.38 SL=1.75 BUY PUT MAR-25 AEQ-OE OI= 622 at $1.19 SL=0.50 http://www.premierinvestor.com/oi/profile.asp?ticker=ADBE ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Greenspan speaks, Seattle rocks, and stocks all fall down... Stocks tumbled today after comments from Federal Reserve Chairman Alan Greenspan dimmed investor's hopes for an interim reduction in interest rates. The Fed Chief said the U.S. economy appears to be slowing sharply, but he left open the question of whether the FOMC might lower rates again before its next scheduled meeting in March. The Fed has reduced rates a total of 100 basis points so far this year and rumors that Greenspan had recently revised his speech for the Congressional testimony had raised speculation of another rate cut between the regularly scheduled meetings. Traders expressed their disappointment in the news, driving the broad market S&P 500 index to lows not seen in two years. The decline also marked a 20% drop from the index's all-time highs achieved less than a year ago; a move widely seen as an indication of a true "bear market." The Dow's endured inordinate selling pressure in a number of bellwether companies including: J.P. Morgan Chase (NYSE:JPM), General Electric (NYSE:GE), Honeywell (NYSE:HON), American Express (NYSE:AXP), Home Depot (NYSE:HD), United Technologies (NYSE:UTX) and also Citigroup (NYSE:C). The technology-dominated NASDAQ had to contend with big losses in the semiconductor and Internet segments while networking and computer shares also experienced severe declines. Inside the broader market, financial, retail and select gold issues sold off while scant buying surfaced in major drug, biotechnology and paper stocks. Summary of Previous Picks: Covered Calls: (Margin would double the listed Monthly Return) Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return INTU MAR 35 33.25 41.13 $1.75 7.0% ERTS MAR 45 42.88 50.00 $2.12 5.0% CCMP MAR 70 67.19 60.56 -$6.63 0.0% Closed Naked Puts: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return INTU MAR 30 29.38 41.13 $0.62 10.0% NVDA MAR 40 39.25 44.69 $0.75 8.3% Key moment BRKS MAR 30 29.31 34.50 $0.69 8.3% 50 dma test ERTS MAR 40 39.12 50.00 $0.88 8.0% CCMP MAR 60 58.87 60.56 $1.13 7.7% Close? AEOS MAR 30 29.29 34.81 $0.71 6.9% Adj 3-2 split SEIC MAR 75 73.94 85.44 $1.06 5.3% splits 2-1 3/1 Positions closed: DIGL Sell Strangles: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return CERN MAR 45 44.19 51.19 $0.81 8.9% testing support CERN MAR 65 66.19 51.19 $1.19 10.5% MUSE MAR 40 38.94 41.06 $1.06 7.8% ready to cover? MUSE MAR 95 96.06 41.06 $1.06 7.8% Naked Calls: Stock Strike Strike Cost Current Profit Monthly Symbol Month Price Basis Price (Loss) Return BEAS MAR 80 80.94 38.38 $0.94 8.3% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status NBR $62.30 $56.70 MAR50p/55p $0.60 $54.40 $0.60 Alert NOC $94.82 $93.95 MAR85p/90p $0.75 $89.25 $0.75 Open WPI $55.98 $55.50 MAR45p/50p $0.60 $49.40 $0.60 Open Debit Straddles: Stock Pick Last Position Debit G/L Status ASFC $55.91 $54.69 MAR55c/55p $4.38 $-2.00 Closed? FAST $57.69 $60.00 MAR60c/60p $5.50 $-1.25 Open? SDS $59.03 $55.20 MAR60c/60p $4.75 $ 1.25 Closed 2/22 SDS reached the profit target in just one day; a $1.25 return on $4.75 invested. The position traded as high as $7.00 overall. The "rolling stock" position in FAST reached the downside break- even on Friday (2/23) as the stock fell to $55.31. Now the issue is moving to a test of the upper range limits and any failure at $62 will be a signal to exit the call option. A target of $3 for the MAR-$60 call would bring the maximum value of both options to $8; a 45% return for those who traded the cycle. ASFC slumped to a support area near $52 on Friday (2/23) and the value of the bearish portion of the straddle climbed to $3. A timely exit of the Put would have made the overall position profitable. However, the combined straddle value has since reached the cut-loss point of $2.62 (60%) and traders who have not exited the play should consider that alternative to preserve capital. New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations *************** HGSI - Human Genome Sciences $54.94 *** New Discovery! *** Human Genome Sciences (NASDAQ:HGSI) researches and develops novel compounds for treating and diagnosing human diseases based on the discovery and understanding of the medical usefulness of genes. The company has used automated, high-speed technology to discover the sequences of chemicals in genes and generate a collection of partial human gene sequences. The company possesses one of the largest databases of the genes of humans and microbes, and it has created a broad base of products based on its genomic database. GlaxoSmithKline recently announced it has begun human trials of a new compound that may reduce risk in atherosclerotic plaque and cardiovascular disease using a unique drug target derived from its collaboration with HGSI. Human Genome will benefit from milestone payments related to its clinical progress and if the product is commercialized, the company will receive substantial royalties. In addition, U.S. regulators announced they have granted exclusive marketing rights to the drug company for one of its human trial immunodeficiency products; BLyS, allowing the company to apply for research funding, tax credits for certain research expenses and a waiver from the FDA's application user fee. Investors cheered the news and HGSI continued to rally today, even as the broader market moved lower. The current technical outlook is excellent and our target position offers an excellent reward potential at the risk of owning this issue at a favorable cost basis. HGSI - Human Genome Sciences $54.94 PLAY (sell naked put): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAR 40 HHA OH 428 0.44 39.56 7.3% *** Sell Put MAR 45 HHA OI 237 1.19 43.81 17.1% Sell Put MAR 50 HHA OJ 1153 2.63 47.37 25.4% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=HGSI ****** IVGN - Invitrogen $75.00 *** Biotech Bubble? *** Invitrogen (NASDAQ:IVGN) develops and markets research tools in kit form and provides other research products and services to corporate, academic and government entities. The company's research kits simplify and improve gene cloning, gene expression and gene analysis techniques as well as other molecular biology activities. These techniques and activities are used to study how cells are regulated by genetic material, known as functional genomics, and to search for drugs that can treat diseases. The company currently offers approximately 700 gene-identification, cloning, expression and analysis services. Since the merger with Life Technologies and Dexter Corporation, Invitrogen announced that it intends to reorganize the company into two primary lines of business, a Molecular Biology division and a Cell Culture division. Invitrogen announced solid earnings today, reporting that fourth quarter results beat the consensus analyst expectations. The company posted income of $18 million, or $0.35 per share, versus $4.7 million, or $0.19 a year earlier. Wall Street analysts, on average, expected $0.32 a share and revenues were the reason for the disparity as the company achieved a record $143 million, well above the $23 million in the year-ago period. Investors reacted favorably to the news and the issue continues to trade above its 150 dma, establishing a strong support area near $70. Traders who are bullish on the issue can speculate on its future movement with this conservative position. IVGN - Invitrogen $75.00 PLAY (aggressive - bullish/credit spread): BUY PUT MAR-65 IUV-OM OI=147 A=0.69 SELL PUT MAR-70 IUV-ON OI=131 B=1.19 INITIAL NET CREDIT TARGET=$0.62-$0.75 ROI(max)=12% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=IVGN ****** UHS - Universal Health Services $89.75 *** On The Rebound? *** Universal Health Services (NYSE:UNH) owns and operates acute care hospitals, behavioral health centers, ambulatory surgery centers, radiation oncology centers and women's centers. UNH operates 47 hospitals, consisting of 21 acute care hospitals, 23 behavioral health centers, and two women's centers in the US and Puerto Rico. The company, as part of its Ambulatory Treatment Centers Division, owns outright, or in partnership with physicians, and operates or manages 23 surgery and radiation oncology centers located in 12 states and the District of Columbia. Services provided by the company's hospitals include general surgery, internal medicine, obstetrics, emergency room care, radiology, oncology, diagnostic care, coronary care, pediatric services and behavioral health services. UHS shares rallied again today, along with other issues in the Health Services sector after the company was rated a "new buy" by analysts at Robertson Stephens. The upgrade comes on the heels of bullish industry comments by Lehman Brothers, which is optimistic that the sector is in the early stages of multi-year growth cycle that may potentially benefit from a slowing economy. Analyst Adam Feinstein noted that UHS has savvy managers and is known for buying assets when they are out of favor. He also said that the company has continually surprised on the upside (in its quarterly earnings reports) and the trend is likely to continue. Today, the positive outlook on Universal Health improved with the recent volume supported rally off support at $82. A near-term test of resistance near $95 is likely, which if successful would complete the bullish case by taking out the early February high. UHS - Universal Health Services $89.75 PLAY (sell covered call or naked put): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAR 85 UHS CQ 375 6.60 83.15 4.2% *** Sell Put MAR 80 UHS OP 11 0.85 79.15 6.0% *** Sell Put MAR 85 UHS OQ 412 1.75 83.25 10.1% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=UHS *************** Neutral Plays - Straddles & Strangles *************** CEPH - Cephalon $55.06 *** Speculation Only! *** Cephalon (NASDAQ:CEPH) markets Provogil (modafinil) tablets for treating excessive daytime sleepiness associated with narcolepsy. The company has completed studies using Provogil in patients suffering from fatigue associated with multiple sclerosis, and excessive daytime sleepiness due to obstructive sleep apnea, as well as a study to demonstrate improvement in performance and alertness in a simulated shift-work environment. The company has initiated a study to investigate Provogil's use in treating attention deficit hyperactivity disorder in adults and a second study in obstructive sleep apnea. In addition to its clinical program focused on Provogil, the company has other significant research programs that seek to discover and develop treatments for neurological and oncological disorders. Their subsidiary, Anesta Corporation, develops and commercializes products for the management of cancer pain and other therapeutic applications. Cephalon is a great candidate for a premium-selling position because it has relatively well-defined support and resistance areas ($45-$62) and no apparent news that will substantially change its character prior to the March options expiration. The company announced favorable earnings earlier this month and now the issue appears to be comfortable near the middle of our profit envelope. Using an "out-of-the-money" Credit Strangle, aggressive traders who participate in this type of option trading can speculate on the future volatility of CEPH with a favorable risk/reward outlook. CEPH - Cephalon $55.06 PLAY (very aggressive - neutral/credit strangle): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAR 50 CQE OJ 111 1.44 48.56 14.9% *** Sell Call MAR 60 CQE CL 1612 1.75 61.75 17.7% *** http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CEPH ****** PLMD - PolyMedica $38.75 *** 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. This play is based on the current price of the underlying stock and its recent technical history. The pattern of consolidation started late last year and the issue has spent very little time outside the target profit range. The probability of profit in this position is higher than other plays in the same strategy based on inflated option premiums. In addition, the prospect of the share value reaching our sold strikes is rather low, but there is always the possibility of a break-out from the recent trading range, so monitor the position for changes in technical character. PLMD - PolyMedica $38.75 PLAY (aggressive - neutral/credit strangle): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Put MAR 30 PM OF 5208 0.75 29.25 16.8% *** Sell Call MAR 50 PM CJ 192 0.69 50.69 15.5% *** - or - Sell Put MAR 35 PM OG 518 2.38 32.62 32.0% Sell Call MAR 45 PM CI 94 1.63 46.63 28.5% http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=PLMD *************** BEARISH PLAYS - Naked Calls *************** CIEN - Ciena $67.19 *** Testing The Lows! *** Ciena (NASDAQ:CIEN) is engaged in providing unique products for the intelligent optical networking equipment market. The company offers a comprehensive portfolio of products for communications service providers worldwide. Ciena's many customers include long distance carriers, competitive local exchange carriers, Internet service providers and wholesale carriers. Ciena offers optical transport and intelligent optical switching systems that enable service providers to provision, manage and deliver high-bandwidth services to their customers. While we believe that Ciena is one of the top companies in its industry, its share value may not be able to oppose the near-term selling pressure that will likely occur if the technology group continues to slump. CIEN's recent downward movement has been on increasing volume and today a short-term support level near $70 was violated. Now that range, along with the February high near $88 becomes resistance and it appears the share value has little chance of reaching our target position in two weeks. Consider covering the sold (short) position on any future rally above $90, accompanied by strong volume; a very unlikely occurrence. CIEN - Ciena $67.19 PLAY (aggressive - sell naked call): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAR 90 UEE CR 3847 0.94 90.94 12.4% Sell Call MAR 95 UEE CS 2082 0.63 95.63 8.5% Sell Call MAR 100 UEE CT 9330 0.44 100.44 6.0% *** http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CIEN ****** CMVT - Comverse Technology 74.94 *** Technical Collapse! *** Comverse Technology (NASDAQ:CMVT) designs, develops, markets and supports computer and telecommunications products and software for a wide range of multimedia communications and information processing applications. The company's products are used in a number of applications by wireless and wireline telephone network operators, government agencies, call centers, financial institutions, and public and commercial organizations worldwide. The company provides enhanced services platform products, digital monitoring and recording systems for call centers, customer relationship management applications, public networks and government agencies, network signaling software for wireless, wireline and Internet communication services known as signalware, and other telecommunications hardware and software products and services. We favor this issue for a bearish-outlook position because the bottom of the previous trading range defines a clear resistance area near our target strike price. In addition, the company's quarterly earnings announcement is not expected until early March and with most of the sector leaders reporting mediocre results, it is unlikely that speculation of a positive report will significantly alter the current trend. However, if the price of the stock rebounds through the recent resistance area near $95 on a heavy-volume rally, we will close the play at a small loss or buy the stock to cover our sold options. CMVT - Comverse Technology 74.94 PLAY (aggressive - sell naked call): Action Month & Option Open Closing Cost Monthly Req'd Strike Symbol Interest Price Basis Return Sell Call MAR 100 CQZ CT 701 1.44 101.44 16.7% Sell Call MAR 105 CQZ CA 569 1.06 106.06 12.6% Sell Call MAR 110 CQZ CB 580 0.56 110.56 6.8% *** http://www.OptionInvestor.com/charts/feb01/charts.asp?symbol=CMVT ************************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=1762 ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. 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