The Option Investor Newsletter Sunday 05-20-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/052001_2.asp ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* XOM - Exxon Mobil Corporation $90.20 (+2.56 last week) See details in sector list Put Play of the Day: ******************** JNPR - Juniper Networks $54.81 (-0.55 last week) See details in sector list ************************** 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 TGT $37.80 (-1.90) After moving to $39.75 on Monday, and $40.43 on Tuesday, TGT spent the rest of the week trapped between its 50-dma of $36.90 and its 10-dma of $38.73. In addition, TGT is scheduled to report earnings on Tuesday before the market opens. Due to the apparent lack of momentum, and the necessity of exiting the play prior to earnings, we are dropping TGT this weekend. JNY $45.69 (+0.74) After reaching a new all time high at $46.65 on Wednesday, JNY has been trapped between $45 and $46.50 for the last two days. We may need to see a real breakout in RLX.X before the retail stocks regain momentum. While JNY is still technically strong, we are taking our profits and dropping it as a play this weekend. PUTS No dropped puts this weekend *********** 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 ************** VIGN - Vignette Corporation $10.02 (+1.91 last week) VIGN provides Internet Relationship Management (IRM) software products and services, a category of enterprise solutions designed to enable businesses to build sustainable online customer relationships, increase returns on internet-related investments and capitalize on internet business opportunities. VIGN's clients come from diverse sectors and include financial services, health, education and government, media, retail, technology and telecommunications. It has been a long time since VIGN graced the list of call plays and rightly so. Along with the rest of the Internet sector, the stock has been in a flat-line consolidation pattern since mid-January. Far removed from the glory days of 2000, when the stock commanded a price of almost $100 (split-adjusted), there were those who wondered whether VIGN would ever rise from the nearly-dead. All the stock needed was a catalyst, and it arrived late last week in the form of SG Cowen's 4th Annual Internet/E-Commerce Retreat in Pebble Beach. That will be followed Monday through Wednesday next week by VIGN's Village 2001 conference, where the company will be showcasing its capabilities to customers. Whether or not these conferences have anything to do with the breakout, you can't argue with the chart. The stock broke out above the $9 resistance level, and on huge volume, nearly 5 times the ADV on Friday. That's pretty impressive for a company that is still losing money. Clearly, this is an aggressive play, but we have structured it to provide an attractive risk/reward ratio. Placing our stop at the $9 level, which should now provide support, limits our risk, and it looks like the stock could easily run to $15 if bulls remain in control. Target new entries on a bounce above $9 or as VIGN powers through near-term resistance at $11. BUY CALL JUN- 7.5 VUO-FU OI=2148 at $3.10 SL=1.50 BUY CALL JUN-10 *VUO-FB OI=3242 at $1.50 SL=0.75 BUY CALL JUN-12.5 VUO-FV OI=1252 at $0.80 SL=0.00 BUY CALL SEP-10 VUO-IB OI=1129 at $2.80 SL=1.50 BUY CALL SEP-12.5 VUO-IV OI= 473 at $1.90 SL=1.00 SELL PUT JUN- 7.5 VUO-RU OI= 479 at $0.50 SL=1.25 (See risks of selling puts in play legend) Average Daily Volume = 4.12 mln http://www.premierinvestor.net/oi/profile.asp?ticker=VIGN VRTS - VERITAS Software $73.81 (+10.91 last week) VERITAS Software is the industry's leading enterprise-class application storage management software provider. They furnish storage management software for protection against data loss and file corruption, efficient file processing and networks back up. VERITAS has made its name by partnering with such technological heavyweights as Hewlett-Packard, Microsoft, and Sun Microsystems, all of which have licensed and embedded VERITAS products in their operating systems. Wednesday's market saw investors padding their portfolios with biotechnology and software shares as Wall Street bulls bet the Feds interest-rate cuts would give the nation's economy a shot of adrenaline. VERITAS, which had been hit hard by slowing sales growth, climbed through its near-term DMAs on the winds of the rallying broader market and positive sector sentiment. A good earnings' release and 2001 forecast by competitor, BEA Systems (BEAS) on Wednesday, also added to traders' enthusiasm for software issues. VRTS gains continued into Thursday's session, but hit a snag at the $72.50 resistance, a relative high established earlier in the month. The cavalry charged in early Friday morning. State Street's James Weiss noted that VERITAS should see increasing demand as Internet transactions rise; and UBS Warburg also reaffirmed the company's competitive position. VRTS rocketed $4.61, or 6.7% on respectable volume to tally a week's gain of over 17%! The technical breakout incited by powerful momentum sets VRTS up for a sensational run in an advancing marketplace. Besides the stock's own direction, you may want to pay attention to Goldman Sach's Software Index (GS0.X). The index is currently hovering at a critical level (229). A dynamic break through 230 and charge for the ultimate resistance at 240 would provide supplementary confirmation. We have our CLOSING stop set at the short-term support level of $70. While it's true that OI will drop coverage if VRTS can't maintain a position above this mark on a close, intraday pullbacks to this level might find aggressive traders target shooting for lower entries. A bold move through $74 and $75 (after amateur hour!) signals momentum traders to jump on VRTS and ride the wave. Expect some opposition as the bulls attempt to take VRTS through the $80 level. BUY CALL JUN-70*VIV-FN OI=1291 at $8.50 SL=6.00 BUY CALL JUN-75 VUQ-FY OI=1021 at $5.80 SL=4.00 BUY CALL JUN-80 VUQ-FZ OI=1084 at $3.80 SL=2.25 BUY CALL JUN-85 VUQ-FU OI= 998 at $2.30 SL=1.00 Aggressive! Average Daily Volume = 16.4 mln http://www.premierinvestor.net/oi/profile.asp?ticker=VRTS QLGC - QLogic Corporation $54.12 (+10.01 last week) QLogic Corporation is the leading manufacturer of fibre channel bus adaptors. The company is also a designer and supplier of semiconductor and board level input/output (I/O) components They've been designing and marketing SCSI-based (small computer system interface) products for over 12 years and sells its products to server, workstation, and date peripheral makers. Blue-chip clients include Compaq, Dell, Hitachi, IBM, and Quantum Corporation. A well-received earnings report and positive analyst coverage are just two of the reasons that have contributed to the continued buying momentum in QLGC. Since its lows in early April, the stock has tripled in value, with help from improved sentiment in the Chip sector. The company reported its earnings for the fourth quarter on Tuesday, matching Street estimates and growing net income by 55 percent year-over-year. On the issue of visibility, while the company said that information from major customers did not provide a clear picture, they expect a rebound in sales for the September quarter. On Wednesday, the stock was upgraded by Banc of America Securities from a Market Perform to a Buy rating. Add to that highly bullish coverage of QLGC from IDC, noting that the company was in the forefront of a fast-growing industry worth $1 billion, and that was more than enough to bring out the buyers on mass. A strong surge past Friday's intra-day high of $54.54 could be a good entry point for conservative traders. Looking ahead, the $60 level could be a difficult one to surpass, but a strong performance from the Philidelphia Semiconductor Index (SOX) could be enough to inspire the stock to greater heights. For the more aggressive, bounces off support at $53.50, $51.50, $50 and our closing stop price of $49 may provide potential entry points, but confirm with volume. BUY CALL JUN-50 QLC-FJ OI= 655 at $7.80 SL=5.75 BUY CALL JUN-55*QLC-FK OI= 590 at $5.00 SL=3.00 BUY CALL JUN-60 QLC-FL OI= 558 at $3.00 SL=1.50 BUY CALL JUL-55 QLC-GK OI=1362 at $8.20 SL=5.75 BUY CALL JUL-60 QLC-GL OI= 786 at $6.20 SL=4.25 SELL PUT JUN-45 QLC-RI OI= 455 at $1.95 SL=3.50 (See risks of selling puts in play legend) Average Daily Volume = 5.73 mln http://www.premierinvestor.net/oi/profile.asp?ticker=QLGC ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-20-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/052001_3.asp ****************** CURRENT CALL PLAYS ****************** BA - The Boeing Company $68.35 (+2.35 last week) The Boeing Company, an aerospace company, operates, together with its subsidiaries, in three principal segments: Commercial Airlines Operations, Military Aircraft and Missiles, and Space and Communications. Commercial Airplanes Operations is involved in the development, production and marketing of commercial jet aircraft. The segment also provides related support services, principally to the commercial airline industry worldwide. The Military Aircraft and Missiles segment is involved in the research, development, production, modification and support of military aircraft, including fighter, transport and attack aircraft; helicopters; and missiles. The Space and Communications segment is involved in the research, development, production, modification and support of space systems, missile defense systems, satellites and satellite-launching vehicles, rocket engines and information and battle management systems. Boeing is currently positioned advantageously from both a technical and fundamental perspective. Projections for increased spending on defense equipment have reawakened investor interest in this cyclical bellwether. Secretary of Defense Donald Rumsfeld has made proposals to Congress, which may result in billions of dollar in orders for Boeing and its competitors on programs like the National Missile Defense, F-22, V-22 Osprey, and the Joint Strike Fighter. Boeing's company management has recently reaffirmed its earnings guidance for the coming year, and has stated that they do not see a slowdown in orders resulting from the weakened financial results at some airlines. Furthermore, BA has announced many significant new contracts over the last several weeks, spurring rumors that earnings might very well come in at the high end of estimates. After establishing a strong upward channel in the beginning of April, BA surged to a high of $69.85 on Thursday, before pulling back to strong support at $68. BA's 52-week high and all time high of $70.98, established in December, will likely provide resistance going forward. If this level is successfully penetrated, BA could be ready to really spread its wings and soar, market conditions permitting. Traders could take positions at the $68 support level, if the Dow and other defense stocks like LMT are rallying. A more aggressive trader might want to aim for the next support level at $67. We are moving closing stops to $66, so be prepared to end the position upon a close below this price. BUY CALL JUN-60 BA-FL OI= 343 at $8.90 SL=6.25 BUY CALL JUN-65*BA-FM OI=1774 at $4.60 SL=2.75 BUY CALL AUG-65 BA-HM OI=4515 at $6.90 SL=5.00 BUY CALL AUG-70 BA-HN OI=4413 at $4.00 SL=2.50 Average Daily Volume = 2.80 mln http://www.premierinvestor.net/oi/profile.asp?ticker=BA MO - Philip Morris Companies Inc. $52.37 (+1.07 last week) With 2000 underlying operating revenues of $80.3 billion, ($88.3 billion assuming Philip Morris owned Nabisco for all of 2000) the Philip Morris family of companies is the world's largest producer and marketer of consumer packaged goods. Philip Morris Companies Inc. has five principal operating companies : Kraft Foods Inc., Miller Brewing Company, Philip Morris International Inc., Philip Morris Incorporated, and Philip Morris Capital Corporation. It appears that MO might be ready to start sprinting toward the Kraft IPO debut after basing between $50 and $52 through most of the month of May. The tobacco stock’s luck seems to have taken a turn for the better, and several analysts have stated that tobacco regulation may be a non issue this year. Some bills have been introduced which would give the FDA the authority to regulate tobacco, but they would need the approval of the administration, which is not expected. In addition, the DOJ's case against the industry may not continue, as the budget lacks sufficient funding necessary for the case to continue. Furthermore, the tobacco industry currently has a 7 to 0 winning track record for law suits brought this year. Fundamentally, most analysts feel that the majority of the tobacco companies are strong, with MO leading the pack (no pun intended) On April 17th, MO reported earnings of 95 cents per share, a penny ahead of the consensus estimates, and stated that they are keeping guidance in the 9 to 11% growth range for the coming year. The Kraft IPO is expected to unlock underlying value, as the company's other holdings have been valued in the range of $47 per share. As June approaches, the IPO will start receiving publicity, which is likely to boost the shares of MO going forward. A good entry point continues to be the converged 5-dma and 10-dma of $51.50, which we may see again next week, if we take another dip. A break above the 52-week high of $53.80 with heavy volume could easily propel MO to $55, and possibly its next major resistance level at $60. Continue to monitor others in the industry like RJR and UST and set closing stops at $51. BUY CALL JUN-47.5 MO-FW OI= 8237 at $5.30 SL=3.50 BUY CALL JUN-50 *MO-FJ OI=26314 at $3.50 SL=1.75 BUY CALL JUN-55 MO-FK OI=18176 at $0.90 SL=0.25 BUY CALL SEP-47.5 MO-IW OI= 1706 at $7.30 SL=5.00 BUY CALL SEP-50 MO-IJ OI= 9559 at $5.60 SL=3.50 BUY CALL SEP-55 MO-IK OI=13432 at $3.20 SL=1.50 Average Daily Volume = 7.46 mln http://www.premierinvestor.net/oi/profile.asp?ticker=MO GE - General Electric $52.99 (+3.98 last week) GE is one of the largest and most diversified industrial corporations in the world. GE’s products include major appliances, lighting products, industrial automation products, medical diagnostic imaging products, motors, electrical distribution equipment, locomotives, power generation and delivery products, nuclear power support services and fuel assembly, commercial and military aircraft jet engines, and engineered materials. Through the National Broadcasting Company, Inc., GE delivers network broadcasting services, operates stations and provides cable, internet and multimedia programming and distribution services. GE Capital provides a broad array of financial services. After breaking out above its 200-dma of $50.43 on Wednesday with strong volume, GE offered traders a buying opportunity at $52 on Friday. The bullish surge near the close on Friday looks particularly encouraging, and suggests that institutions may be starting to enter this diversified stalwart. It is hard not to like GE in this market, as the Dow industrial and cyclical stocks seem to be leading the buying trend, and GE offers a combination of almost unparalleled growth and stability. What's more, several of GE's subsidiaries are benefiting directly from the current trend of lower interest rates and an anticipation of increased spending on power plants and defense systems. As one of the leading producers of jet aircraft engines, GE is well positioned along with defense stocks like Boeing to benefit from expected increases in defense spending. In addition, the dire shortage of power in certain areas has increased investors' awareness of the need for additional power plants, and GE's power generation division was one of their fastest growing divisions during the first fiscal quarter. Now that the U.S Department of Justice has given the green light to GE's Honeywell merger, GE may be prepared to rally to its 52-week high of $60. However, traders should remember that GE is a huge company, and that it takes a lot of volume to move this supertanker one or two points. Traders can consider taking positions upon another pullback to $52, if the overall indexes and CYC.X are strong. Consolidation at the $53 level is likely, and could present additional entry levels. If GE can clear $55, particularly with strong volume, resistance is light until $60. We are moving closing stops to $51, to protect profits. BUY CALL JUN-50*GE-FJ OI=46685 at $3.80 SL=2.50 BUY CALL JUN-55 GE-FK OI=66092 at $1.05 SL=0.25 BUY CALL SEP-50 GE-IJ OI=24145 at $6.00 SL=4.00 BUY CALL SEP-55 GE-IK OI=19764 at $3.30 SL=1.75 Average Daily Volume = 22.2 mln http://www.premierinvestor.net/oi/profile.asp?ticker=GE GDW - Golden West Financial Corporation $62.73 (+0.98 last week) Headquartered in Oakland, California, Golden West Financial Corporation is a savings and loan holding company with assets of $57 billion as of March 31, 2001. Currently operating 423 savings and lending offices under the World name, the company has one of the largest thrift branch systems in the country. Golden West's stock is listed on the Pacific and New York Stock exchanges under the symbol GDW. Since the beginning of May, GDW has formed an excellent pattern of higher lows at $59, $60.50, and $62, and is encountering strong resistance at $65. While GDW dipped to the converged 50-dma and 10-dma of $60.90 on Tuesday before the Federal Reserve’s decision was announced, the stock surged with the overall indexes afterward, and established a new support level at the 5-dma of $62. This level turned out to be an excellent entry point on Thursday and Friday, as each dip was met with a surge of buying. On April 18, GDW reported a whopping 41% increase in net earnings from the year ago period, with a 27% increase in overall assets. The continuation of consolidation in the financial services sector, and the expectation of even higher earnings among savings and loan institutions resulting from lower interest rates bodes well for GDW going forward. This week, Citibank announced a $12 billion takeover of Grupo Financiero Banamex-Accival, Mexico’s second largest bank. In addition, the bidding war for Wachovia has been attracting attention to the S & Ls, which many analysts feel are ripe for the picking. Traders can continue to use the $62 level as an entry point, if others in the sector like GPT and ASFC are strong. More conservative traders might want to wait for a breakout above resistance at $65 with heavy volume before stepping in. We are keeping closing stops at $61.75. BUY CALL JUN-60*GDW-FL OI=164 at $4.20 SL=2.00 BUY CALL AUG-55 GDW-HK OI= 29 at $9.50 SL=6.50 BUY CALL AUG-60 GDW-HL OI= 7 at $6.10 SL=4.00 Average Daily Volume = 710 K http://www.premierinvestor.net/oi/profile.asp?ticker=GDW ADBE - Adobe Systems $42.51 (+2.65 last 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. Software stocks consolidated their gains on Friday as traders finished squaring their positions ahead of the weekend. The Software index (GSO.X) is facing resistance at $236, but if the bulls are still in control next week, the move through this level could come quickly. ADBE actually held up rather well, consolidating for much of the day just above the $42 level (the site of the 30-dma), and never once dipped as low as the $41 support level. As would be expected ahead of the weekend, volume was downright anemic, running only 40% of the ADV. Buyers will have to take another run at the $44 resistance level, but if they are able to break through, it will provide an attractive opportunity for conservative traders to initiate new positions. Until then, continue to use intraday dips above our $41 stop to gain entry into the play. ADBE announces earnings on June 14th, but that event is far enough away that it is unlikely to have an effect in the near term. For now, ADBE will be subject to the whims of the broader technology market and the GSO.X specifically. With the daily Stochastics oscillator in ascent mode, increasing volume and a positive NASDAQ could be all ADBE needs to continue its climb. BUY CALL JUN-40*AEQ-FH OI= 592 at $5.10 SL=3.00 BUY CALL JUN-45 AEQ-FI OI=1148 at $2.50 SL=1.25 BUY CALL JUN-50 AEQ-FJ OI=1196 at $1.05 SL=0.00 BUY CALL JUL-45 AEQ-GI OI=1658 at $4.40 SL=2.75 BUY CALL JUL-50 AEQ-GJ OI=1504 at $2.85 SL=1.50 SELL PUT JUN-40 AEQ-RH OI= 549 at $2.20 SL=3.75 (See risks of selling puts in play legend) Average Daily Volume = 5.41 mln http://www.premierinvestor.net/oi/profile.asp?ticker=ADBE MER - Merrill Lynch & Co. $66.65 (+1.66 last week) With its bull icon prominently displayed, many investors view Merrill Lynch as the leader of herd. The diversified Financial powerhouse provides investment, financing, advisory, insurance and related products and services on a global basis to both individuals and institutions. Its Corporate and Institutional Client Group offers investment banking, brokerage and clearing services to corporate and government clients. MER has been slow to move into the online world, entering the online trading ring in 1999. Hanging on by the thinnest of threads, MER stopped its slide right at our $66 stop before spending all day Friday gradually creeping higher. Recall that the stock had been on the cusp of a breakout above the $70 resistance level Thursday afternoon, before news broke that the company was issuing $750 million of 30-year zero-coupon convertible senior bonds. Fear of dilution hit the stock in the after-hours session and continued into Friday's trading session, especially after the size of the debt offering was increased to a cool $2 billion. By the time the closing bell rang on Friday, 13 million shares had traded hands (more than double the ADV) and investors seemed to have decided the news wasn't so bad Afterall. This gives us a more attractive entry point for the week ahead, although the stock will have to fight its way through the $67 and $68 resistance levels before setting its sights on $70 again. Aggressive traders can still step into the play near current levels (or on a dip and bounce back at $66), but make sure that buying volume comes back strong. Remember, that is the location of our stop and if MER closes below that level, the play will only be a bad memory. More conservative entries will come as buyers push the stock through its first resistance test at $67. Continued positive movement in the Securities Broker/Dealer index (XBD.X) should provide a springboard for MER to continue higher. BUY CALL JUN-65*MER-FM OI= 4964 at $4.20 SL=2.50 BUY CALL JUN-70 MER-FN OI=16851 at $1.70 SL=0.75 BUY CALL JUL-70 MER-GN OI=23015 at $3.40 SL=1.75 BUY CALL JUL-75 JMR-GO OI= 7366 at $1.75 SL=0.75 BUY CALL OCT-70 MER-JN OI= 4220 at $6.00 SL=4.00 SELL PUT JUN-65 MER-RM OI= 2354 at $2.35 SL=3.75 (See risks of selling puts in play legend) Average Daily Volume = 5.99 mln http://www.premierinvestor.net/oi/profile.asp?ticker=MER Q - Qwest Communications $38.60 (+1.18 last week) As a broadband Internet communications company, Qwest provides advanced communications services, data, multimedia and Internet-based services on a global basis. Additionally, the company provides wireless services, local telecommunications and related services in a 14-state local service area. Q primarily serves large and mid-size business and government customers on a national and global basis, while residential and small business customers account for most of the company's revenues in the local service area. The company also provides network transport services nationally, on a wholesale basis to telecommunications companies and Internet service providers. Off to a slow start last week, Q's chart is finally making good on its promise to march towards the $40-41 resistance zone. After confirming support at the 50-dma (currently $36.41) on both Wednesday and Thursday, buyers decided it was safe to wade back into the pool and managed to keep the stock rising right into Friday's closing bell. Possibly helping the stock to enter ascent mode in the middle of the week was the new Strong Buy rating from Pacific Crest Securities. There is mild resistance near current levels that Q will have to clear before taking aim on the more formidable obstacles at both $40 and $42. Clearing the $40 level will be particularly important because that is where the nearly 15-month descending trendline rests. If the bulls can prevail at this level (with the help of a positive NASDAQ) next week, it will break the stock out of its prevailing bearish trend, and that ought to bring more cash off the sidelines. We are raising our stop to $37, and any intraday bounces near that level look attractive for the aggressive types. More conservative traders will want to key on the $40 level, and add new long positions as Q breaks through. The North American Telecommunications index (XTC.X) broke through its own 10-month descending trendline on Friday near $985. Look for an extension of this breakout to confirm strength in Q. BUY CALL JUN-37.5*Q-FU OI=2709 at $2.85 SL=1.25 BUY CALL JUN-40 Q-FH OI=1305 at $1.45 SL=0.50 BUY CALL JUL-40 Q-GH OI=5510 at $2.85 SL=1.25 BUY CALL JUL-42.5 Q-GV OI=3694 at $1.85 SL=1.00 SELL PUT JUN-35 Q-RG OI= 765 at $0.85 SL=1.50 (See risks of selling puts in play legend) Average Daily Volume = 5.85 mln http://www.premierinvestor.net/oi/profile.asp?ticker=Q XOM - Exxon Mobil Corporation $90.20 (+2.56 last week) Exxon Mobil is the world's largest integrated oil company. Incorporated in 1882, the company is engaged in oil and gas exploration, global production and marketing; electric power generation; and the mining and sale of coal, copper and other minerals. Exxon Mobil operates more than 40,000 service stations in 118 countries under the Exxon, Esso, and Mobil brands, 16,000 of which are in the US. Their fiercest global rival is Royal Dutch Petroleum. In the grandest scheme in over 25 years, Saudi Arabia opened its kingdom to eight major energy companies on Friday. In the race for a stake in its multi-billion dollar gas development venture, Exxon Mobil, BP, and Royal Dutch/Shell landed leading positions in three projects. The monumental initiative coupled with strong sentiment from investors that the Feds are focused on future growth sent shares of energy-related issues higher on Friday. On the day, XOM tacked on $1.47 with leading rivals Chevron (CHV), Royal Dutch (RD), and Philips Petroleum (P) also making substantial gains. The formidable resistance at $90 still however, poses an obstacle going into next week. On the bright side, Friday's fractional peaks suggests XOM is poised to spring forward. But nevertheless, we'd like to see XOM make a clean break of the $90 resistance and the trailing 5 & 10 DMAs before getting too excited. Please don't misunderstand, OI is bullish on the energy sector; we're simply suggesting waiting for the technical breakthrough if your approach is more conservative. We're leaving our $87 CLOSING stop in place to allow for XOM to operate over the near-term and provide enterprising traders with a playing field. BUY CALL JUN-85 XOM-FQ OI= 612 at $6.10 SL=4.00 BUY CALL JUN-90*XOM-FR OI= 3487 at $2.65 SL=1.25 BUY CALL JUN-95 XOM-FS OI= 6558 at $0.75 SL=0.00 BUY CALL JUL-90 XOM-GR OI=17906 at $3.90 SL=2.50 BUY CALL JUL-95 XOM-GS OI=10851 at $1.75 SL=0.75 Average Daily Volume = 5.88 mln http://www.premierinvestor.net/oi/profile.asp?ticker=XOM HAL - Halliburton Hldg Co $47.81 (+6.02 last week) Halliburton is the world's #1 provider of oil field services; essentially providing services and equipment to customers for the exploration, development and production of oil and gas. They operate in 120 countries and serve independent, integrated and national oil companies. The company's second business segment, Halliburton Engineering and Construction Group, builds energy-related and civil facilities for industrial customers and government entities worldwide. The strength in the energy services sector is evidenced by HAL's better-than-average volume levels, which bolstered a 14.4% gain for the issue this week. In addition to the positive sentiment within the industry and rallying market conditions, the company's 2001 Shareholder's Meeting and 2Q Dividend launched on Tuesday. HAL rocketed through the $44 resistance with a 3.2% gain, on the day. Ironically, the exceptional gains followed a downgrade by DB Alex Brown analyst A. Sanger, who cut the rating on the oilfield services giant to buy from strong buy, but offered no explanation. The minor infraction couldn't hold back HAL or its follow competitors Schlumberger (SLB), Baker Hughes (BHI), and Cooper Cameron (CAM) from continuing their charge. HAL closed the historical gap and shattered the opposition at the $46 level by Thursday. With room to run, look for an intraday pullback to the 5-dma ($45.97), or more conservatively from Friday's near-term support at $47, to provide a viable entry into this play. The $50 mark might pose a threat to future upside gains, so consider taking profits as HAL approaches that questionable level. In an effort to safeguard our existing profits and reduce risk, we've raised our protective stop to $46 from $45. OI will exit the play if HAL fails to close above that revised level on a session's close. BUY CALL JUN-40 HAL-FH OI=2472 at $8.40 SL=6.00 BUY CALL JUN-45*HAL-FI OI=3837 at $4.10 SL=2.50 BUY CALL JUN-50 HAL-FJ OI=2259 at $1.15 SL=0.25 BUY CALL JUL-45 HAL-GI OI=6370 at $5.10 SL=3.00 BUY CALL JUL-50 HAL-GJ OI=4519 at $2.40 SL=1.25 Average Daily Volume = 2.96 mln http://www.premierinvestor.net/oi/profile.asp?ticker=HAL BAC - Bank of America Corp. $57.00 (+3.48 last week) Providing a diversified range of banking and certain non-banking financial products and services, BAC's operations consist of Consumer Banking, Commercial Banking, Global Corporate and Investment Banking, and Principal Investing and Asset Management. Consumer Banking targets individuals and small businesses, while Commercial Banking targets businesses with annual revenues up to $500 million. Global Corporate and Investment Banking provides investment banking, trade finance, treasury management, leasing and financial advisory services. Principal Investing includes direct equity investments in businesses and general partnership funds. Never did the Wall Street mantra "Don't fight the Fed" ring so true as in the case of the Financial sector. Since speculation of rate cuts late last year, Bank stocks have for the most part trended higher. As lower interest rates have a direct and positive impact on their earnings prospects, stock prices have moved higher in reaction to the improving fundamental environment. With that said, BAC has outperformed its sector peers. In a week of dueling analysts, brokerage house Raymond James on Tuesday came out to say that they did not expect the stock to rally on news of this week's rate cut. However, AG Edwards raised their 12-month price target from $57 to $67 on Thursday, stating that BAC currently trades at a discount to its competitors. Connecting the highs and lows since mid-February reveals an upward trending regression channel, with a span of roughly 8 points from top to bottom. After bouncing off its 50-dma (currently sitting at $53.82) less than two weeks ago, the stock has moved strongly higher on increasing volume. Moving average support from the 5 and 10-dma can be found at $55.92 and $55.62. Aggressive traders may also note horizontal support at $56.50, $56 and $55.50. Formidable resistance may be encountered at $57.50. A break through this level would allow conservative traders to enter on strength. Just be aware that from this point on, there could be a number of resistance levels to contend with, at $57.62, $59 and $60. But a rallying S&P Bank Index (BIX) could help BAC surpass these levels. Please note that we are moving our closing stop price up from $55 to $55.50. BUY CALL JUN-50 BAC-FJ OI= 7055 at $7.30 SL=5.25 BUY CALL JUN-55*BAC-FK OI= 2453 at $3.10 SL=1.50 BUY CALL JUN-60 BAC-FL OI= 7458 at $0.70 SL=0.00 BUY CALL AUG-55 BAC-HK OI=10983 at $4.90 SL=3.00 BUY CALL AUG-60 BAC-HL OI=15291 at $2.40 SL=1.25 Average Daily Volume = 6.04 mln http://www.premierinvestor.net/oi/profile.asp?ticker=BAC CAT - Caterpillar Inc $55.25 (+2.05 last week) Caterpillar is a Fortune 50 industrial company and the world's leading manufacturer of construction and mining equipment, diesel and natural gas engines, and industrial gas turbines. Caterpillar also offers innovative financing options through its Financial Products Division. Caterpillar is dedicated to both sustaining and improving the quality of life. The company is guided by its Code of Worldwide Business Conduct in meeting or exceeding local environmental regulations, developing solutions to customers' environmental challenges, in advocating free trade and in taking the lead in the business community on important issues. The friendly Fed action so far this year is just one of the many factors helping shares of leading earth-moving equipment maker Caterpillar to trend steadily higher. Historically, deep cyclical stocks have benefited greatly from an environment of lower interest rates. So far, traders and shareholders alike are exhibiting confidence in this belief. Optimism over CAT’s revenues going forward is also helping to drive up the stock price. Last week, Finning International, a seller of Caterpillar products, posted a stellar earnings report in which the company cited that new equipment sales numbers were especially robust. This was seen as good news for CAT, resulting in sustained investor interest. What's more, the stock has rallied in spite of bad news on Tuesday, when competitor Deere came out with a disappointing earnings report. Analysts from Bear Sterns and UBS Warburg defended CAT, saying that Deere's problems were company-specific and citing that there was not as much product overlap between the two companies as same may think. Closing above the $55 mark this week was a bullish sign for the stock, as this was considered to be a key resistance level. Aggressive players looking for an entry may target moving average support from the 5 and 10-dma, at $54.47 and $53.43 respectively. Additionally, support may also be found at $55, $54.50 and $54. Just be aware that we have placed our closing stop price at $53.75. A bullish surge above $56.50 may allow more cautious traders to take a position. Track sector sentiment by following movements in rivals DE and DOV. BUY CALL JUN-50 CAT-FJ OI= 498 at $6.10 SL=4.00 BUY CALL JUN-55*CAT-FK OI=3153 at $2.50 SL=1.25 BUY CALL JUN-60 CAT-FL OI= 718 at $0.85 SL=0.00 BUY CALL AUG-55 CAT-HK OI=2758 at $4.20 SL=2.75 BUY CALL AUG-60 CAT-HL OI= 762 at $2.30 SL=1.25 Average Daily Volume = 2.14 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CAT EBAY - eBay Inc $62.64 (+9.39 last 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. By now, even the most casual of web surfers are familiar with EBAY. But the company is not just about Beanie Babies or other niche collectables anymore. Strategic alliances and acquisitions have allowed the company to move into new markets such high-end art, expensive luxury goods and even automobiles. While traders for the most part have made a mass exodus from shares of any company with a dot-com attached to its name, EBAY's stock has fared much better than that of its peers, as measured by Merrill Lynch's Internet HOLDR (HHH). But the company is more than just an electronic auctioneer. While that business model has proven itself to be one that can generate positive cash flow, EBAY has another trick up its sleeve. Its subsidiary site Half.com is another example of the company taking advantage of the frictionless business model concept. For many retailers both electronic and traditional, the cost of holding inventory is high. But by connecting buyers and sellers electronically and collecting an intermediary transaction fee, EBAY is not exposed to inventory risk, which has sunk many a retailer both great and small. The stock has rallied strongly this week, taking out formidable resistance at $60. At this point, EBAY could be looking to challenge the $70 level. Continued buying pressure leading to a break through resistance at $63 with conviction could be the signal for conservative traders to jump in. For entries on pullbacks, aggressive players may target bounces off support at $62, $60, and our closing stop price of $59.50. BUY CALL JUN-60*QXB-FL OI=1400 at $6.50 SL=4.50 BUY CALL JUN-65 QXB-FM OI= 737 at $3.80 SL=2.50 BUY CALL JUN-70 QXB-FN OI= 811 at $2.10 SL=1.00 BUY CALL JUL-60 QXB-GL OI=5981 at $9.20 SL=6.25 BUY CALL JUL-65 QXB-GM OI=4687 at $6.70 SL=4.75 SELL PUT JUN-55 QXB-RK OI=1006 at $1.80 SL=3.50 (See risks of selling puts in play legend) Average Daily Volume = 5.81 mln http://www.premierinvestor.net/oi/profile.asp?ticker=EBAY ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-20-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/052001_4.asp ************* NEW PUT PLAYS ************* No new puts this weekend ***************** CURRENT PUT PLAYS ***************** ENE - Enron $54.90 (-3.30 last week) Originally only an energy company, in recent years ENE has moved into the communications market as well. Through its subsidiaries, the company is primarily engaged in the transportation of natural gas through pipelines throughout the United States, and the generation, transmission and distribution of electricity to markets I the northwestern United States. ENE also markets natural gas, electricity and other commodities and finance services worldwide. Most recently, the company has moved into the Communication business, developing an intelligent network platform to provide bandwidth management services and deliver high bandwidth applications. Finally pausing to catch their breath near the $52 support level late on Thursday, the ENE sellers let the bulls have their way for much of the day on Friday. While volume was still huge coming in 150% above the ADV again, the advance was unable to crest the $55 level, prior support, before the closing bell rang. The conflict in India seems to have lost its lustre for traders, as they are now focused on the big Saudi gas deals announced on Friday. While Royal Dutch Shell and ExxonMobil were the big winners, ENE grabbed a small piece of the multi-billion dollar gas development initiative, prompting buyers to return. This could be setting us up for another attractive entry point, but we don't want to plunge in blindly. If the bears are still in control, they should be able to turn back the bulls at the $55 level, so we have lowered our stop to that point. As long as it remains intact, aggressive traders can consider new positions as ENE rolls over near this level, especially if volume remains robust. The more conservative approach will be to wait for shares to fall back through the $53 support level before taking a position, keeping a watchful eye on $52 which provided support on Thursday. BUY PUT JUN-60 ENE-RL OI=2950 at $6.00 SL=4.00 BUY PUT JUN-55*ENE-RK OI=3898 at $2.75 SL=1.50 BUY PUT JUN-50 ENE-RJ OI=2353 at $1.00 SL=0.00 Average Daily Volume = 3.85 mln http://www.premierinvestor.net/oi/profile.asp?ticker=ENE JNPR - Juniper Networks $54.81 (-0.55 last week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. JNPR's flagship product is the M40 Internet backbone router, which complements the recently-introduced M20, which is a router built specifically for emerging service providers. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. After being stopped cold on Thursday in the wake of JNPR's pre-warning warning, the Networking bulls tried to stage a recovery on Friday, but lack of volume kept them corralled until the closing bell. JNPR attracted a fair amount of buying interest at the open, but it had faded to a trickle by the end of amateur hour. After that, it was a boring see-saw day with the stock trading in a narrow range between $54-55, making it hard to ascertain a tangible advantage by either the buyers or sellers. While market-wide light volume was certainly a contributor to the anemic trading in JNPR, it looks like the bears are still in control. A failure to break through the $55 level, or the 10-dma ($55.43) on Monday could provide for an aggressive entry point, although those with a little more patience may get a chance to enter the play on a failed rally near our stop, now sitting at $57. Should the bears return with a vengeance Monday morning, conservative players are likely to get the first shot at new positions as JNPR drops first through the $54 level and then the more solid $52 support. Below that, support will be resting at $50, and buyers will likely be lining up to support the stock near that level. Keep an eye on the Networking index (NWX.X), as further weakness there will continue to exert downward pressure on JNPR. BUY PUT JUN-55*JUX-RK OI= 6902 at $5.60 SL=3.50 BUY PUT JUN-50 JUX-RJ OI=10003 at $3.50 SL=1.75 BUY PUT JUN-45 JUX-RI OI= 2804 at $2.15 SL=1.00 Average Daily Volume = 29.3 mln http://www.premierinvestor.net/oi/profile.asp?ticker=JNPR CIEN - Ciena Corporation $57.35 (-1.38 last week) Helping to satisfy the insatiable demand for bandwidth, Ciena makes dense-wavelength division multiplexing (DWDM) systems for use with long-distance fiber-optic communications networks. CIEN offers optical transport, intelligent switching and multi- service delivery systems that enable service providers to deliver and manage high-bandwidth services to their customers. The company's MultiWave DWDM systems allow optical fiber to carry up to 40 times more data and voice information without requiring more lines. CIEN's customers include long-distance carrier, competitive local exchange carriers (CLECs), Internet service providers and wholesale carriers. While the stock is down slightly from the previous week's close, it's been a volatile week for CIEN, as the stock traded in a fairly wide range. Results for the second quarter was foremost on the minds of traders, as the company reported second quarter earnings on Thursday before the market open. Beating Street estimates by a penny, the company posted revenue numbers that more than doubled year-over-year. The focus however, was on the conference call, as shareholders wanted to know what the outlook was from top management going forward. Although CIEN did not lower its guidance going forward, comments from the CEO spoke of an uncertain environment. Add to that continued weakness in capital spending on the part of Telecoms and the possibility of a price war in an effort to compete with young and hungry upstarts such as Corvis, and it's little wonder that the stock fell on the news. In looking at CIEN's chart, the stock has been making a series of higher lows and lower highs, culminating in a neutral wedge formation. Stochastics have crossed over bearishly and have already begun to roll over, suggesting that a break to the downside could happen in the near term. A break below $56 on volume may be the signal for conservative traders to jump in, but make sure that the AMEX Networking Index (NWX) confirms bearish sentiment. For entries on failed rallies, higher risk players may find resistance from the 5-dma at $57.67, $58, the 10-dma at $58.20, and our closing stop price of $60. BUY PUT JUN-60*EUQ-RL OI=3467 at $6.90 SL=5.00 BUY PUT JUN-55 EUQ-RK OI=2237 at $4.10 SL=2.50 Average Daily Volume = 27.7 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CIEN ***** LEAPS ***** The Fed Delivers And Bulls Rejoice! By Mark Phillips Contact Support With little fanfare, Alan Greenspan gave investors everything they could have asked for on Tuesday. A 50 basis point interest rate reduction and soothing words indicating he would still vigorously attack any signs of increasing economic weakness. He even told us that the inflation monster seemed to be staying put, under the bed. Traders were so stunned, they didn't know what to do, selling the initial euphoric rally before going home Tuesday night. After a good night's sleep, they returned full of vim and vigor, bidding the Industrials sharply higher and dragging the NASDAQ reluctantly higher. Speaking of inflation indicators, have you noticed the action in Gold stocks lately? In the past 7 weeks, the Gold and Silver index (XAU.X) has surged an amazing 40%! Usually these kinds of moves accompany rising fears about inflation. Has the pattern changed, or is the inflation monster starting to poke his nose out from under the bed. Keep an eye on those pesky energy prices, because whether they show up in official measures of inflation, you can rest assured that they will raise the prices of everything we buy. I may just be spitting in the wind here, but I just call them the way I see them. Be careful. After the DJIA shattered the 11,000 level and the S&P500 battled its way through the stubborn 1272 level on Wednesday, I've needed record doses of caffeine, just to keep my eyes open the past two days. While all the major indices have managed to creep higher, it certainly didn't involve a solid trending move. So here we sit with the DJIA at 11,300, the S&P500 at 1292, and the NASDAQ Composite resting just below the 2200 resistance level. Lest we forget, the VIX made a deliberate move lower this week, closing below 25 (actually 24.26) for the first time since mid-February. While I must admit surprise at not seeing it spike above 30 for one more buying binge, it is somewhat comforting to think that our old friend is returning to familiar ground where it can meander in its old range between 20-30 to its heart's content, while we once again profit from trending markets. Hey, I can dream can't I? While there are likely to be a few more monsters under the bed (read: negative earnings surprises), Uncle Alan has given us a heck of a vaccine with his record-setting pace of interest rate reduction. Add to that the spiking of the M2 money supply, and it is no wonder bulls are giddy. Like the old saying goes, "Don't fight the Fed." While I am going with the flow, and nibbling on new long-term positions, I am oh-so-hesitant to chase these markets higher. But a quick look at the adjusted entry targets on many of our Watch List plays shows that is exactly what I am doing, although in a somewhat timid fashion. Sure we managed to grab a couple entry points for new Portfolio plays this week on Adobe Systems (NASDAQ:ADBE) and AOL-Time Warner (N"YSE:AOL), there are many more plays that just keep moving away from us. We are now entering the summer doldrums, where the markets historically trade flat-to-down until Labor Day, but that historical pattern pre-supposes that we have been moving up in recent months. Could it be that the pattern will be different this year? Maybe, but let's just say that I remain unconvinced. Let's spend a few minutes talking about entry strategy, to clarify what I am trying to accomplish here. I have started out with very aggressive entry targets, in the event of a significant pullback. As we have progressed through recent weeks, a few of our plays have been kind enough to afford us entry, but most have continued higher without us. What's a cautious bull to do? Move those entry points up to the next support level, now that the stock has proven that it doesn't want to come down to the last one. Remember two things about our entry targets. These are targets where we want to see the stock find support and bounce. Falling straight through does not an entry point make. That is called "Catching a falling knife", and trust me, it can be a rather unpleasant experience. Secondly, those of you that are experienced technicians may look at the charts, and decide that the defined entry targets are too aggressive or too conservative for your purposes and decide to take entries at different levels. If you feel comfortable doing that, then congratulations! That means you are learning to fish, a far more powerful position to be in than always relying blindly on me to dish out the fish (recommended entry points). We really have a lot of developments to cover this week, and I am rapidly running out of space, so let's get to it. First, you will notice that many of the symbols in both the Portfolio and Watch List have been changed this week. Welcome to the beginning of the process where the 2004 LEAPS will begin to appear. Without belaboring the process (you can read about that from the link at the bottom of the Strategy section), all Cycle 1 2002 LEAPS ceased to be considered LEAPS this past week, as they now have less than 8 months to expiration. New symbols have been assigned for all of these LEAPS, and are reflected in the Portfolio and Watch List. Now before you get too excited, there aren't any 2004 LEAPS released yet, as it is a staggered process. We may start to see them next week, although it may take the CBOE an extra week to actually get them released. The other symbol change this past week has to do with Washington Mutual (NYSE:WM). The 3-2 split took place last week and new symbols were released that reflect the change in cost basis. I likewise adjusted the stop down on this play to be consistent with where it was placed prior to the split. The only other stop that moved this week was the one on the Goldman Sachs (NYSE:GS) play. The stock has been marching upwards posting higher lows, and the new stop is just below the most recent low. While it is tempting to tighten the stops more aggressively to insure a profit, you can see how well that worked on our drop this week. National Semiconductor (NYSE:NSM) fell victim to an excessively tight stop loss early last week, and becomes the second play closed out since we launched the new format. Changes to entry targets are a bit more prevalent. Due to the impressive strength in the broader markets, most of our Watch List plays are demonstrating far more strength than I previously expected. But I don't want to get caught trying too hard to chase the plays higher. So every one of the plays on the Watch List has had their entry target raised to what I think will be the most logical support level on a mild pullback. Once again, I've run out of time and space. Pick your entry points carefully and take the ones that come to you. We don't need to be in a hurry here, because if the bull is returning, I'm sure he'll be kind enough to pause once in awhile to allow us to step onboard. Have a safe a profitable week! Mark Phillips Contact Support Current Playlist (Old Format) SYMBOL SINCE LEAPS SYMBOL PICKED CURRENT CHANGE CPN 01/21/01 JAN-2002 $ 40 YLN-AH $10.50 $19.20 82.86% JAN-2003 $ 40 OLB-AH $15.38 $24.20 57.40% LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '02 $ 35 CLX-AG $ 3.50 $ 3.90 11.43% $ 30 '03 $ 35 VUT-AG $ 6.10 $ 6.60 8.20% $ 30 GENZ 03/23/01 '02 $ 85 GZQ-AQ $24.50 $32.70 33.47% $ 99 '03 $ 90 OZG-AR $27.75 $40.40 45.59% $ 99 SWS 03/22/01 '02 $ 18 YWF-AT $ 4.10 $ 6.20 51.22% $ 20 '03 $ 20 VWZ-AD $ 5.00 $ 7.00 40.00% $ 20 WM 03/22/01 '02 $33.8 BWT-AY $ 4.00 $ 6.10 52.50% $ 32 '03 $33.8 OBN-AY $ 6.13 $ 8.40 37.03% $ 32 WMT 03/23/01 '02 $ 50 WWT-AJ $ 7.00 $ 7.70 10.00% $ 51 '03 $ 50 VWT-AJ $11.00 $12.30 11.82% $ 51 JWN 03/30/01 '02 $ 20 JWN-AD $ 1.65 $ 2.15 30.30% $17.50 '03 $ 20 VNZ-AD $ 3.30 $ 3.80 15.15% $17.50 GS 04/05/01 '02 $ 90 GS -AR $14.00 $19.70 40.71% $ 91 '03 $ 90 VSD-AR $20.50 $28.40 38.54% $ 91 MU 04/05/01 '02 $ 40 MU -AH $10.60 $ 9.90 - 6.60% $ 38 '03 $ 40 VGY-AH $14.80 $15.20 2.70% $ 38 NOK 04/06/01 '02 $ 25 WIK-AE $ 4.70 $11.50 144.68% $ 29 '03 $ 25 VOK-AE $ 7.00 $14.00 100.00% $ 29 FON 04/09/01 '02 $ 25 WO -AE $ 2.80 $ 2.40 -14.29% $ 19 '03 $ 25 VN -AE $ 4.40 $ 4.50 2.27% $ 19 QQQ 04/25/01 '02 $ 40 WD -AN $11.10 $12.40 11.71% $ 41 '03 $ 45 VZQ-AS $12.30 $13.50 9.75% $ 41 DELL 04/27/01 '02 $ 25 WDQ-AE $ 6.20 $ 5.10 -17.74% $ 23 '03 $ 25 VDL-AE $ 9.00 $ 7.80 -13.33% $ 23 ADBE 05/16/01 '02 $ 40 AEQ-AH $11.00 $11.70 6.36% $ 37 '03 $ 40 VAE-AH $14.60 $16.80 15.07% $ 37 AOL 05/16/01 '02 $ 55 AOO-AJ $ 9.60 $10.30 7.29% $ 48 '03 $ 55 VAN-AJ $14.60 $15.70 7.53% $ 48 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CPN 03/18/01 $50-51 JAN-2002 $ 55 CPN-AK JAN-2003 $ 55 OLB-AK GE 03/25/01 $50-51 JAN-2002 $ 53 WGE-AX JAN-2003 $ 55 VGE-AK TXN 03/25/01 $36-37 JAN-2002 $ 40 TXN-AH JAN-2003 $ 40 VXT-AH EMC 04/22/01 $39-40 JAN-2002 $ 45 EMC-AI JAN-2003 $ 45 VUE-AI SEBL 04/22/01 $41-42 JAN-2002 $ 45 YDS-AI JAN-2003 $ 45 OIE-AI VRSN 04/29/01 $50-51 JAN-2002 $ 50 YXO-AJ JAN-2003 $ 55 OVX-AL LRCX 04/29/01 $27-28 JAN-2002 $ 30 WMJ-AF JAN-2003 $ 30 VPC-AF BRCD 05/13/01 $40-41 JAN-2002 $ 45 UBF-AI JAN-2003 $ 45 OMW-AI NXTL 05/13/01 $17 JAN-2002 $ 20 WFU-AD JAN-2003 $ 20 VFU-AD QCOM 05/20/01 $60-61 JAN-2002 $ 65 AAO-AH JAN-2003 $ 70 VLM-AN New Portfolio Plays ADBE - Adobe Systems $41.09 The opening weakness on Wednesday was just the gift we were waiting for. After dipping as low as $37.75, ADBE soared higher throughout the day, clearing the $41 resistance level by the close. While the stock didn't quite make it all the way to $37 before the bulls started buying with both hands, the combination of the solid volume and broad market strength was enough to convince me to take the entry. Those of you that grabbed the opportunity should be happy with your entry this weekend, as the stock is still sitting higher this weekend. If the bulls come back rested after the weekend, I expect them to take aim on the next levels of resistance, first at $44, and then at $48. A renewed bounce from the $41 level looks attractive for entries if you missed your opportunity last week. Initial stops are resting at $37, as the $37 support level should keep the bears in check in the event of any significant profit taking. BUY LEAP JAN-2002 $40.00 AEQ-AH $11.00 BUY LEAP JAN-2003 $40.00 VAE-AH $14.60 AOL - AOL-Time Warner, Inc. $53.04 Since AOL cleared that pesky $50 resistance level earlier this month, we have been waiting (none too patiently, I might add) for a slight pullback to allow us a high-odds entry into the play. The opening weakness on Wednesday looked like just the ticket, as the stock headed down at the open, along with the rest of the broader market. It didn't take long for the bulls to awaken from their slumber, and remember that Greenspan had just given them another 50 basis point interest rate cut. AOL launched higher throughout the day, and we consider the bounce at $50.17 to be a gift. As one of the victors in the battle for dominance in the Internet war, AOL should move nicely higher throughout the year as the Technology sector recovers. Initially, we are placing our stop at $47 to prevent a premature exit, in the event of some profit taking in the weeks ahead. If you are still looking to gain entry into the play, look for an intraday dip to the $51-52 level, followed by a solid bounce. BUY LEAP JAN-2002 $55.00 AOO-AJ $ 9.60 BUY LEAP JAN-2003 $55.00 VAN-AJ $14.60 New Watchlist Plays QCOM - Qualcomm, Inc. $65.37 It sure has been a rough ride for QCOM investors. Just when they thought it was safe to venture back into the stock late last year, conditions once again deteriorated in the economy, sending the stock back into its $50-60 range. This time though, the pain got even worse, as the stock traded as low as $43, an 18-month low. Conditions have improved dramatically in the past 6 weeks, with the market recovering from its lows and QCOM clawing its way back above resistance between $60-62. The big (and long-overdue) news that helped the stock get over this hump last week was that China Unicom handed out $1.46 billion in equipment contracts based on QCOM's CDMA technology. Since QCOM owns the patents, it really doesn’t matter who got the actual contracts. This really gets the ball rolling towards China's rollout of CDMA. The surge higher last week brought the stock right up to the $66 resistance level, and there are lots of bruised bulls that will be looking to get whole again as the stock struggles through resistance staged overhead, first at $70, and then $75. Rather than chase the stock higher, we want to wait for a slight pullback before initiating our position. Target dips in the $61-62 area, and then set stops at $55, just below the most recent consolidation zone. BUY LEAP JAN-2002 $65.00 AAO-AH BUY LEAP JAN-2003 $70.00 VLM-AN Drops NSM $23.73 In my haste to lock in profits as Technology stocks recovered from their April lows, it appears that I went too far with NSM. Monday's close at $23.73 was just a fraction below our $24 stop loss, leaving us no choice but to exit the play. And of course the stock quickly recovered, which would have kept the play profitable. Despite my frustration, a quick look at the daily chart confirms that exiting the play was the right thing to do. After typing up cash for better than a month, NSM has really gone nowhere. Better to take the small loss and re-deploy our cash in a better performing play. For final results, refer to the Track Record section of the website. ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 05-20-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/052001_5.asp ************* COVERED CALLS ************* Stock Buying Basics: Stages and Entry Points By Mark Wnetrzak One of the most common questions we receive concerns the methods used to select the candidates for this section. The manner in which we evaluate issues for potential Covered-call positions is much the same as most market professionals: technical analysis. Technical analysis is a method of stock market research using indicators, charts, and computer programs to track price trends of stocks, bonds, commodities, and market indexes. A technician understands the fundamental values of securities but focuses on the historical behavior of the market, industry groups or sectors, and individual stocks. The goal is to use their price movements, trends and chart patterns to predict future direction and changes in character. Most of this analysis is based on the fact that the values of stocks reflect what people think they are worth, not what they are really worth. Technical indicators are also used to generate buy or sell signals when specific parameters are met and stage analysis can be helpful in initiating new positions. The four basic stages of a stock-movement cycle are described at length in "Secrets for Profiting in Bull and Bear Markets," by Stan Weinstein. Here is a brief description of the first two categories and a simple explanation of how they can help identify favorable issues, as well as some hints for timing the entry transactions. Stage I is the basing stage that can last for months or sometimes years. The condition is usually defined by little or no vertical activity with a long-term moving average that is basically flat. A common axiom suggests that, "the longer the base, the stronger the case" and issues with this type of pattern have relatively low capital risk as there is little downside potential remaining. Stage II is when the issue begins to exhibit signs of a new upward trend. The stock price closes above a long-term moving average (150-200 dma) with the average turning up, and that is the ideal time to enter a bullish play. Investors should look for the next resistance level to identify the potential profit target or range of movement. You should focus on stocks that have "room to run," picking only those issues that are in stage II climbs and buying on pullbacks to technical support (trend-lines, moving averages, previous resistance, etc.). Some hints... 1. Stage II is the "ideal" time to enter for a bullish play. For trend trading, pick stocks that are in stage II rallies and buy on the pullbacks to technical support or major trend-lines. 2. Look for volume -- this is vital! Most big movers climb on substantially larger volume than that which occurs at any time during the basing stage. 3. Look for strong Relative Strength. When a stock breaks out of a base, the relative strength should cross up above the zero line into positive territory. The higher the climb to cross above the zero line, the more upside potential in the movement. 4. Look for the "Runner's Crouch" pattern before the stock breaks out of a long-term base. In many cases, stocks will go through a short period of "building steam." It's usually a small dip to gather strength for the upward push above the moving average. Once the stock crosses above the top of the base (resistance) it should also continue through the moving average. 5. As the rally begins in earnest, the long-term moving average should start to turn upward and after the stock corrects back to a technical support area, the next run-up, which must be supported by heavier-than-average volume, should continue until a new (near-term) high is achieved. It is important for new traders to become familiar with the common methods used to determine the overall movement of the market and apply this knowledge as a practical element of a proven trading strategy. After you are comfortable with the popular indicators, combine them with proven timing strategies and practice using the various systems until your "paper" portfolio is profitable on a regular basis. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield LMNE 5.22 6.03 MAY 5.00 1.30 *$ 1.08 29.9% MFNX 5.25 5.47 MAY 5.00 0.95 *$ 0.70 17.7% MRVC 8.80 11.71 MAY 7.50 2.15 *$ 0.85 13.9% STOR 15.40 21.93 MAY 12.50 3.40 *$ 0.50 9.1% BORL 7.99 10.04 MAY 7.50 1.05 *$ 0.56 8.8% ASTE 16.05 18.05 MAY 15.00 2.10 *$ 1.05 8.2% SRNA 18.81 26.90 MAY 15.00 4.50 *$ 0.69 7.0% NFLD 11.55 14.99 MAY 10.00 1.85 *$ 0.30 6.7% JBL 26.00 33.00 MAY 22.50 5.00 *$ 1.50 6.2% EXAR 30.15 29.90 MAY 25.00 6.50 *$ 1.35 6.2% ITWO 23.85 23.96 MAY 20.00 4.40 *$ 0.55 6.1% EXFO 31.95 33.34 MAY 25.00 8.60 *$ 1.65 6.1% SBYN 13.75 13.10 MAY 10.00 4.40 *$ 0.65 6.0% TWAV 17.70 17.99 MAY 15.00 3.10 *$ 0.40 6.0% AHAA 21.21 27.99 MAY 17.50 4.80 *$ 1.09 5.8% MU 44.07 40.09 MAY 37.50 8.00 *$ 1.43 5.7% EMIS 18.20 16.02 MAY 15.00 4.10 *$ 0.90 5.5% FDRY 13.35 19.18 MAY 10.00 3.70 *$ 0.35 5.3% ILUM 29.13 32.01 MAY 25.00 5.00 *$ 0.87 5.2% ISIL 31.74 34.14 MAY 25.00 7.60 *$ 0.86 5.2% SMTC 31.67 31.70 MAY 27.50 4.80 *$ 0.63 5.1% ZIGO 24.74 36.60 MAY 17.50 8.20 *$ 0.96 5.0% PVTL 24.13 22.95 MAY 20.00 4.80 *$ 0.67 5.0% ULCM 28.00 27.24 MAY 22.50 6.00 *$ 0.50 4.9% NXCD 11.35 9.05 MAY 10.00 1.85 $ -0.45 0.0% PIOS 13.37 11.33 MAY 12.50 1.25 $ -0.79 0.0% ENMD 20.26 14.56 MAY 17.50 3.70 $ -2.00 0.0% NPIX 10.00 12.95 JUN 10.00 1.15 *$ 1.15 11.3% VOXX 10.09 10.25 JUN 10.00 0.95 *$ 0.86 8.2% STOR 19.27 21.93 JUN 15.00 5.40 *$ 1.13 7.1% FNSR 20.98 21.45 JUN 15.00 7.00 *$ 1.02 6.3% NEM 20.98 24.00 JUN 20.00 2.00 *$ 1.02 4.7% AFCI 17.70 21.89 JUN 15.00 3.40 *$ 0.70 4.3% AREM 18.81 11.98 JUN 15.00 4.60 $ -2.23 0.0% *$ = Stock price is above the sold striking price. Comments: Everything is great when the FED is helping the markets, well, almost everything. Pioneer Standard (NASDAQ:PIOS) continues to act horrid and the deteriorating technicals suggest exiting this week may have been wise. Nextcard (NASDAQ:NXCD) is still holding at a key moment and may offer a favorable exit next week for anyone who is still holding the issue. Selling June $10 calls or rolling-down to July $7.50 calls are also viable options to lower your cost basis in Nextcard. Disappointing news last weekend from EntreMed (NASDAQ:ENMD) at a national cancer conference in San Francisco has changed the short-term outlook on the issue. Time to cut your losses or is your long-term outlook unchanged? AremisSoft (NASDAQ:AREM) just had to wait until Tuesday to disclose "alleged" problems with the value of its contract with the Bulgarian National Heath Insurance Fund. We want no part of Tuesday's bearish reversal and will show the position closed. How many times is there only "one" termite in the foundation woodwork or "one" cockroach in the kitchen? NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield APHT 20.00 JUN 17.50 HQY FW 3.50 103 16.50 28 6.6% CELG 22.99 JUN 20.00 LQH FD 4.00 199 18.99 28 5.8% MEDX 26.30 JUN 22.50 MZU FU 4.80 160 21.50 28 5.1% OSUR 10.24 JUN 10.00 QTP FB 1.00 108 9.24 28 8.9% SPWX 15.70 JUN 12.50 USP FV 3.90 332 11.80 28 6.4% STLW 13.01 JUN 10.00 SZQ FB 3.50 1146 9.51 28 5.6% WEBX 16.20 JUN 12.50 UWB FV 4.30 398 11.90 28 5.5% Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield OSUR 10.24 JUN 10.00 QTP FB 1.00 108 9.24 28 8.9% APHT 20.00 JUN 17.50 HQY FW 3.50 103 16.50 28 6.6% SPWX 15.70 JUN 12.50 USP FV 3.90 332 11.80 28 6.4% CELG 22.99 JUN 20.00 LQH FD 4.00 199 18.99 28 5.8% STLW 13.01 JUN 10.00 SZQ FB 3.50 1146 9.51 28 5.6% WEBX 16.20 JUN 12.50 UWB FV 4.30 398 11.90 28 5.5% MEDX 26.30 JUN 22.50 MZU FU 4.80 160 21.50 28 5.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** APHT - Aphton $20.00 *** Favorable Results! *** Aphton (NASDAQ:APHT) is a biopharmaceutical company developing products using its innovative vaccine-like technology for neutralizing hormones that participate in gastrointestinal system and reproductive system cancer and non-cancer diseases; and the prevention of pregnancy. Aphton has strategic alliances with Aventis Pasteur (NYSE:AVE), GlaxoSmithKline (NYSE:GSK), Schering Plough Animal Health (NYSE:SGP), and the World Health Organization (WHO). Last week, analyst Patrick T Mooney at Janney Montgomery Scott LLC, started coverage on Aphton with a "buy" rating and a 12-month target price of $44. This week, investigators presented highlights from several clinical trials and studies with Aphton's anti-gastrin 17 immunogen, at the American Society of Oncology symposium in San Francisco. We simply favor the short-term "head-n-shoulders" bottom formation that may be resolved with a move above the January high. JUN 17.50 HQY FW LB=3.50 OI=103 CB=16.50 DE=28 TY=6.6% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=APHT ***** CELG - Celgene $22.99 *** New Drug Speculation *** Celgene (NASDAQ:CELG) headquartered in Warren, New Jersey, is an independent biopharmaceutical company engaged in the discovery, development and commercialization of small molecule drugs for cancer and immunological diseases. This week, Celgene announced that is has signed an agreement with Pharmacia (NYSE:PHA) to conduct a collaborative study of THALOMID. (thalidomide) in combination with CAMPTOSAR. (irinotecan) and 5-fluorouracil and leucovorin (5-FU/LV). The initial objective of this new trial will be to examine the potential of THALOMID, CAMPTOSAR and 5-FU/LV for the treatment of previously untreated metastatic colorectal cancer. Celgene also reported favorable results of its ongoing Phase II study of the use of THALOMID monotherapy for patients with metastatic renal cell carcinoma. Celgene will host its first annual Analyst and Investor Day on June 7, where THALOMID and the entire Celgene product pipeline will be more fully discussed. The technicals continue to improve as CELG forges a Stage I base. The increasing volume supporting the rallies and recent move above the April high is bullish. JUN 20.00 LQH FD LB=4.00 OI=199 CB=18.99 DE=28 TY=5.8% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=CELG ***** MEDX - Medarex $26.30 *** More Drug Speculation *** Medarex (NASDAQ:MEDX) is a biopharmaceutical company developing monoclonal antibody-based therapeutics to fight cancer and other life-threatening and debilitating diseases. Medarex has assembled a broad platform of patented technologies for antibody discovery and development. The company creates and develops fully human antibodies for itself and others, offering a full range of anti- body related capabilities, including pre-clinical and clinical development supported by cGMP manufacturing services. Medarex reported 1st-quarter results last week, with revenues and interest income totaling $15.7 million and net income of $3.3 million, or $0.04 per share. The company continues to initiate and expand collaborations with pharmaceutical and biotechnology companies, most recently with NovImmune SA for the development of fully human therapeutic antibodies. Medarex has broken its recent downtrend from last November has begun to form a Stage I base. A reasonable cost basis from which to speculate on the company's future. JUN 22.50 MZU FU LB=4.80 OI=160 CB=21.50 DE=28 TY=5.1% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=MEDX ***** OSUR - OraSure Technologies $10.24 *** Earnings Rally *** OraSure Technologies (NASDAQ:OSUR) develops, manufactures and markets medical devices and diagnostic products for use by public and private-sector clients, clinical laboratories, physicians' offices and workplace testing. OraSure Technologies is the leading supplier of oral fluid collection devices and assays to the life insurance industry and public health markets for the detection of antibodies to HIV. In addition, the company supplies oral fluid testing solutions for screening drug abuse. OraSure has rallied after reporting earnings at the end of April. The company reported a net loss of $0.03 per share which includes a non-recurring manufacturing restructuring charge, and revenues of $7.4 million, up 12%. The company is targeting revenue growth of 50% for 2001 to approximately $43 million as OraQuick, Intercept, and UPlink revenues ramp up throughout the year, and expects to achieve profitability in the second half of 2001 and for the year as a whole. We simply favor the bullish move above the January high on heavy volume which completes a "double-bottom" formation. JUN 10.00 QTP FB LB=1.00 OI=108 CB=9.24 DE=28 TY=8.9% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=OSUR ***** SPWX - SpeechWorks $15.70 *** Bottom Fishing *** SpeechWorks International (NASDAQ:SPWX) is a provider of software products and professional services that enable enterprises, communications carriers and voice portals to offer automated, speech-activated services over any telephone. The Company offers two speech recognition solutions for telephone applications, the SpeechWorks 6.5 platform and the SpeechSite package. The Company offers two text-to-speech products, Speechify and SpeechWorks ETI- Eloquence. SpeechWorks also offers a speaker verification solution, called SpeechSecure, which authenticates callers by their unique voiceprint. SpeechWorks reported earnings in April, posting a first quarter loss though revenues more than doubled. The company did warn of a weaker 2nd-quarter, citing the usual economic uncertainty. The stock appears to be forming a Stage I base and this play offers a conservative entry point for bottom-fishing investors. JUN 12.50 USP FV LB=3.90 OI=332 CB=11.80 DE=28 TY=6.4% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SPWX ***** STLW - Stratos Lightwave $13.01 *** Change of Character? *** Stratos Lightwave (NASDAQ:STLW) develops, manufactures and sells optical subsystems and components for high data rate networking, data storage, and telecommunications applications. The company also designs, manufactures, and sells a full line of optical components and cable assemblies for use in network applications. STLW was recently named to Deloitte & Touche's prestigious "Fast 50" Program for Greater Chicagoland. Last week Stratos Lightwave reaffirmed that net sales for the fiscal 4th-quarter ending April 30, 2001 will be in the range of $25-$30 million. The company also believes its net sales for the next quarter will not suffer and expects an increase of approximately 20% for the year 2002. We like the heavy-volume rally over the last few days which has moved the stock above its March and April highs. A reasonable return with a cost basis at technical support. JUN 10.00 SZQ FB LB=3.50 OI=1146 CB=9.51 DE=28 TY=5.6% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=STLW ***** WEBX - WebEx Communications $16.20 *** Fed Rally! *** WebEx Communications (NASDAQ:WEBX) is the leader in Internet infrastructure for real-time business communications. WebEx provides Web-based carrier-class communication services using its multimedia switching platform deployed over a global network. WebEx's services enable end-users to share presentations, documents, applications, voice, and video spontaneously in a seamless environment. In April, WebEx reported record 1st-quarter results with revenues up 568% from last year, and 32% sequentially. WebEx exceeded analysts' expectations for the third consecutive quarter as their strong growth has continued with record bookings. The stock has continued to rally on strong volume since Tuesday's rate cut and is poised to move through its 150 dma. JUN 12.50 UWB FV LB=4.30 OI=398 CB=11.90 DE=28 TY=5.5% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=WEBX ***** ***************** SUPPLEMENTAL COVERED CALL CANDIDATES ***************** 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 Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield VIGN 10.02 JUN 10.00 VUO FB 1.20 3242 8.82 28 14.5% AVCI 12.79 JUN 10.00 QYV FB 3.50 212 9.29 28 8.3% ABMD 22.90 JUN 20.00 IBU FD 4.20 467 18.70 28 7.6% INRS 40.01 JUN 35.00 URU FG 6.70 29 33.31 28 5.5% ARTC 23.20 JUN 20.00 ARU FD 4.10 129 19.10 28 5.1% *********************** CONSERVATIVE NAKED PUTS *********************** Option Trading Basics: Strategy Selection By Ray Cummins One of our readers asked us to list our favorite option trading strategies. Unfortunately, there are many different types of investors and no single approach to the market can work for all of them. Suitability; matching an investors risk/reward attitude and financial condition with the appropriate trading technique, is the key to determining which strategy may be best for any one individual. There are aggressive trading methods such as outright Put or Call buying and high potential spreads or combinations. There are also conservative techniques such as selling covered-calls on stocks and LEAPS. Another category involves the delta-neutral approach; straddles, ratio spreads and butterflies. Regardless of the way you choose to participate in the market, every strategy has risk and it is impossible to classify any specific technique as the absolute "best" one. However, it is important to understand the mechanics of any strategy you are using and try to construct a portfolio based on the correct balance of risk and reward, and also with regard to your experience level and trading style. The average investor will normally do well with a position that has limited risk and the potential for large profits because one successful trade can easily overcome a series of limited losses. However, a relatively new trader would not profit consistently as an outright buyer of options. For him, other strategies such as time-selling plays (calendar spreads) and debit straddles would be far more appropriate. Conservative stock-option combinations such covered-writes and bullish collars with moderate profit potential and reduced risk would also be appealing. An aggressive investor who is willing to take larger risks for the opportunity of making greater profits might buy and sell equity-index options. Some traders simply want low maintenance plays with the chance to make reasonable profits without risking excessive amounts of capital. Low-risk "in-the-money" debit spreads would probably appeal to this group. The wealthy investor may be attracted to methods that offer the opportunity to make money against portfolio collateral. Writing naked options and "out-of-the money" credit spreads may solve his needs. The most important thing to remember is the investment objectives are more crucial than the merits of the technique itself. If the strategy is not suitable for the investor, then it should not be used, no matter how attractive it appears. 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 CANDIDATES ***** Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield AVCI 14.98 12.79 MAY 10.00 0.30 *$ 0.30 19.8% AHAA 27.20 27.99 MAY 22.50 0.50 *$ 0.50 16.3% SRA 23.60 24.50 MAY 20.00 0.45 *$ 0.45 15.5% PPD 17.25 14.49 MAY 10.00 0.50 *$ 0.50 13.8% UCOMA 15.39 15.08 MAY 10.00 0.30 *$ 0.30 12.9% CTLM 32.73 31.80 MAY 25.00 0.40 *$ 0.40 12.5% ISIL 33.10 34.14 MAY 25.00 0.40 *$ 0.40 12.4% FNSR 16.00 21.45 MAY 10.00 0.40 *$ 0.40 12.1% SNWL 16.60 18.81 MAY 12.50 0.40 *$ 0.40 11.7% MCDT 25.99 36.69 MAY 17.50 0.45 *$ 0.45 11.5% MANU 34.40 37.02 MAY 22.50 0.75 *$ 0.75 10.7% NTAP 23.55 22.94 MAY 15.00 0.50 *$ 0.50 10.4% PSFT 35.87 42.89 MAY 27.50 0.55 *$ 0.55 10.3% EBAY 41.63 62.64 MAY 30.00 1.10 *$ 1.10 10.1% RFMD 17.85 34.03 MAY 12.50 0.45 *$ 0.45 9.7% EMLX 34.96 43.53 MAY 22.50 0.50 *$ 0.50 9.7% SEBL 45.70 49.21 MAY 32.50 0.65 *$ 0.65 9.6% AMD 30.00 32.49 MAY 22.50 0.35 *$ 0.35 8.0% SCI 22.99 26.55 MAY 17.50 0.45 *$ 0.45 7.7% VSEA 39.35 44.91 MAY 30.00 0.70 *$ 0.70 7.1% BRCD 36.78 45.91 MAY 22.50 0.50 *$ 0.50 6.9% MUSE 48.83 46.45 MAY 25.00 0.65 *$ 0.65 6.8% EXFO 31.95 33.34 MAY 17.50 0.45 *$ 0.45 5.7% PPD 20.86 14.49 MAY 15.00 0.45 $ -0.06 0.0% EXEL 15.97 16.10 JUN 12.50 0.70 *$ 0.70 15.6% GLGC 21.05 25.16 JUN 17.50 0.50 *$ 0.50 7.8% NFLD 13.50 14.99 JUN 10.00 0.30 *$ 0.30 8.7% AVCI 13.59 12.79 JUN 7.50 0.30 *$ 0.30 8.6% TSAI 12.03 13.20 JUN 10.00 0.30 *$ 0.30 8.5% APCC 16.83 18.54 JUN 15.00 0.45 *$ 0.45 7.3% PDG 11.05 12.18 JUN 10.00 0.30 *$ 0.30 7.1% GNSS 20.45 26.67 JUN 15.00 0.35 *$ 0.35 6.9% *$ = Stock price is above the sold striking price. Comments: Pre-Paid Legal Services (NYSE:PPD) suffered this week after the SEC said its accounts failed to conform to generally accepted accounting principles, a position that could hurt its results. Time to take the small loss and move on. Gene Logic (NASDAQ:GLGC) gapped-up on Monday and never looked back - $0.50 was the highest bid I saw advertised on Monday and the summary above has been adjusted accordingly. Positions Closed: Goto.com (NASDAQ:GOTO) - of course, in accordance with Murphy's Law, it just had to rally this week. NEW CANDIDATES ********* Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield ILUM 32.01 JUN 25.00 ILU RE 0.65 4 24.35 28 10.0% NMTC 22.22 JUN 17.50 QEK RW 0.45 10 17.05 28 10.0% OO 26.00 JUN 22.50 OO RX 0.35 3 22.15 28 5.2% SAWS 30.60 JUN 25.00 QWS RE 0.80 387 24.20 28 11.7% SBSE 23.79 JUN 20.00 BQK RD 0.65 34 19.35 28 11.1% SMTC 31.70 JUN 25.00 QTU RE 0.60 170 24.40 28 9.4% STOR 21.93 JUN 15.00 OSU RC 0.45 193 14.55 28 10.1% VIGN 10.02 JUN 7.50 VUO RU 0.30 479 7.20 28 14.1% Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield VIGN 10.02 JUN 7.50 VUO RU 0.30 479 7.20 28 14.1% SAWS 30.60 JUN 25.00 QWS RE 0.80 387 24.20 28 11.7% SBSE 23.79 JUN 20.00 BQK RD 0.65 34 19.35 28 11.1% STOR 21.93 JUN 15.00 OSU RC 0.45 193 14.55 28 10.1% ILUM 32.01 JUN 25.00 ILU RE 0.65 4 24.35 28 10.0% NMTC 22.22 JUN 17.50 QEK RW 0.45 10 17.05 28 10.0% SMTC 31.70 JUN 25.00 QTU RE 0.60 170 24.40 28 9.4% OO 26.00 JUN 22.50 OO RX 0.35 3 22.15 28 5.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ILUM - Illuminet $32.01 *** Break-out? *** Illuminet (NASDAQ:ILUM) is a major provider of unique nationwide signaling and intelligent network services to the communications industry. Illuminet specializes in SS7 network services and intelligent network solutions for services. The company also provides prepaid wireless services, including real-time account management, through its subsidiary National Telemanagement, based in Dallas, TX. Illuminet beat expectations in late April, reporting revenues of $44.5 million and net income of $9 million or $0.27 per diluted share. Growth in the quarter was driven by increased demand for their core business of network services from a diverse base of established customers. This issue has been on our "watch-list" for a few weeks and Friday's bullish activity may be an early indication of future upside potential. JUN 25.00 ILU RE LB=0.65 OI=4 CB=24.35 DE=28 TY=10.0% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=ILUM ***** NMTC - Numerical Technologies $22.22 *** On The Move! *** Numerical Technologies (NASDAQ:NMTC) is a commercial provider of proprietary technologies and software products that enable the design and manufacture of subwavelength semiconductors. NMTC offers a comprehensive solution that enables the production of smaller, faster and cheaper chips using existing equipment. This solution enables its customers and industry partners to realize increased return-on-investment, and deliver new high-performance semiconductors more quickly. Their phase-shifting technology, combined with its proprietary optical proximity correction and process modeling technologies form the company's subwavelength solution. The company's subwavelength solution integrates these technologies into each key stage of semiconductor manufacturing to form an integrated design-to-silicon flow. NMTC is a unique company in a very competitive industry but Intel (NASDAQ:INTC) must believe in their products as they have invested heavily in licensing Numerical's technology. We simply favor the bullish chart indications and the potential for future gains. JUN 17.50 QEK RW LB=0.45 OI=10 CB=17.05 DE=28 TY=10.0% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=NMTC ***** OO - Oakley $26.00 *** Reaching New Highs! *** Oakley (NYSE:OO) is an innovation-driven designer, manufacturer and distributor of consumer products that include high-performance and prescription eyewear, goggles, athletic equipment, apparel, footwear, watches and accessories. Oakley is recognized by its consumers for combining superior optical technology in a distinct artistic style throughout their eyewear lines. Last week, Oakley announced it has filed a lawsuit against Nike (NYSE:NKE) in the U.S. District Court. The suit alleges that Nike's new "Max Lens" technology, featured throughout the Nike Eyewear product line, infringes on Oakley's recently issued fifth XYZ Optics patent. Oakley's newest claims are similar to those alleged in a few years ago in a pending suit and the outcome will likely be undecided for some time. Investors can use this (OTM) position to establish a favorable cost basis in the stock. Target a higher premium in the play initially, to allow for some consolidation in the issue. JUN 22.50 OO RX LB=0.35 OI=3 CB=22.15 DE=28 TY=5.2% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=OO ***** SAWS - Sawtek $30.60 *** TriQuint Merger *** Sawtek (NASDAQ:SAWS) designs, develops, manufactures and markets electronic signal-processing components based on surface acoustic wave technology, primarily for use in the wireless communications industry. Sawtek's primary products are custom-designed, high performance band-pass filters, resonators, oscillators and other subsystems. These products are used in base stations for digital wireless communications for Code Division Multiple Access, Global System for Mobile communications (GSM), and Third Generation (3G) applications; wireless phones for CDMA, Time Division Multiple Access; digital microwave radios; wireless LANs; broadband access systems, including Local Multipoint Distribution Service, and also Wireless Local Loop (WLL); defense and satellite systems; cable television equipment; equipment for Internet infrastructure; and global positioning systems. Sawtek is being acquired by TriQuint Semiconductor for $1.3 billion in stock in a move to offer lower costs and better integrated components for mobile phones. Sawtek owners will receive 1.15 shares of TriQuint common stock for each share of SAWS and traders who want to establish a position in the new company should consider this play. JUN 25.00 QWS RE LB=0.80 OI=387 CB=24.20 DE=28 TY=11.7% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SAWS ***** SBSE - SBS Technologies $23.79 *** A Big Day! *** SBS Technologies (NASDAQ:SBSE) is a designer and manufacturer of open-architecture, standard bus embedded computer components that system designers can easily utilize to create a custom solution specific to the user's unique application. SBS embedded computer components are used in OEM applications such as telecommunications base stations and routers, medical imaging machines, automation and control equipment, and aerospace devices. SBS' product lines include CPU (Pentium and PowerPC) boards, input/output modules, avionics modules and analyzers, computer connectivity products, expansion units, real-time networks, telemetry boards, DIN-rail embedded PCs, and industrial-grade computers. SBS Technologies rallied in April after reporting above-consensus earnings for its fiscal third quarter. Now the company has been added to the S&P 600 Small-Cap Index (after the close of trading on May 23) and institutional buying should support the issue for the next few weeks. JUN 20.00 BQK RD LB=0.65 OI=34 CB=19.35 DE=28 TY=11.1% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SBSE ***** SMTC - Semtech $31.70 *** Entry Point *** Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal semiconductors. Semtech designs, manufactures, and markets a range of products for commercial applications, the majority of which are sold to the communications, industrial and computer markets. On April 18, Semtech announced that it expects net sales for the this quarter to be approximately $60 million, up 5% from last year, but down 14% sequentially. Nothing like a FED rate cut (and another cut!) to make investors disregard the near term and concentrate on the future. Semtech is in a lateral consolidation but the recent improving technicals raise the probability of further upside movement and the company's upcoming earnings report may be a catalyst for bullish activity. This position offers a conservative entry point for investors who want to speculate on Semtech's future. JUN 25.00 QTU RE LB=0.60 OI=170 CB=24.40 DE=28 TY=9.4% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SMTC ***** STOR - StorageNetworks $21.93 *** Second Chance Entry! *** StorageNetworks (NASDAQ:STOR) is the world's leading provider of data storage management services, and an innovator of storage management software. Their technology, software and services enable enterprises to easily and cost-effectively store rapidly growing volumes of business-critical information. Shares of StorageNetworks have doubled in May after the company said Ford Motor Co. (NYSE:F) had signed up for two of its storage packages. Although industry customers are cutting costs and technology spending, StorageNetworks has said it can reduce storage costs for its clients by 25% to 30%. Analysts say the company's services also improve utilization and investors favor the recent bullish trend. We simply like the opportunity to own the unique issue at a discounted price. JUN 15.00 OSU RC LB=0.45 OI=193 CB=14.55 DE=28 TY=10.1% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=STOR ***** VIGN - Vignette $10.02 *** Hot Sector! *** Vignette (NASDAQ:VIGN) is a global provider of customer-driven Internet application software products and services. Their e-business solutions are designed to enable businesses to build successful and sustainable online businesses that are customer managed. The company's Internet applications and solutions allow businesses to create and manage Internet business channels that are designed to attract, engage and retain customers, partners and suppliers online. The company's products are supported by the Vignette Professional Services organization, which offers a broad range of services, including strategic planning, project management, account management, general implementation services and an extensive array of training offerings. Stocks in the Internet software and services segment are starting to recover from this year's precipitous declines and VIGN appears to be one of the stronger issues in the group. JUN 7.50 VUO RU LB=0.30 OI=479 CB=7.20 DE=28 TY=14.1% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=VIGN ***** ***************** SUPPLEMENTAL NAKED PUT CANDIDATES ***************** 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 Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield PWER 23.99 JUN 20.00 OGU RD 0.70 45 19.30 28 12.1% GNSS 26.67 JUN 22.50 QFE RX 0.75 124 21.75 28 11.2% DISH 35.55 JUN 30.00 UAB RF 0.75 2239 29.25 28 8.6% RIMM 36.12 JUN 25.00 RUL RE 0.55 4059 24.45 28 7.7% INRS 40.01 JUN 30.00 URU RF 0.55 14 29.45 28 7.0% MUSE 46.45 JUN 30.00 QVM RF 0.50 1952 29.50 28 5.5% ************** BROKERS CORNER ************** Selecting A Floor & Ceiling Using Short Strangles By Robert Ogilvie If you've read any of my previous articles, you'll have found I prefer to sell the premiums. Especially when the volatility is high. Historically speaking, the phrase "when the VIX (S&P 100 Volatility Index) is high it's time to buy, when the VIX is low it's time to go." The VXN (Vixen - Nasdaq 100 Volatility Index) and QQV (QQQ's Volatility Index) are a couple of newer tools are available to measure the market's fear factor. They are generally contrarian indicators that suggest that when the masses are overly bullish the markets are due to pullback and when overly bearish the markets are nearing a bounce. A strategy that takes advantage of selling premium at potential support/resistance points is referred to as a Short Strangle. A short strangle is defined as shorting a put and a call on the same underlying security but at different strike prices and/or expiration. It is similar to a Straddle except for the different strike prices. An example of a normal short strangle could be selling the ABC Index June 1600 Puts as well as selling the ABC Index June 2200 Calls. Note that both of these are naked options and require a margin account and naked option approval. Depending on the brokerage firm, broad-based indexes may require a lesser margin requirement. A broad-based index requires 15% of the current price plus the current premium less the amount out of the money or 10% of the current price plus the premium. Another example of a short strangle is a "Gut Strangle." Instead of selling out-of-the-money, both the call and the put are sold in the money. Let's assume you have determined that ABC index has support at 1600 and resistance at 2200. It is currently trading at 1912. The 1600 Call is trading at 322. The 2200 Put is trading at 285. The total credit is 607. However, the difference between the two is option strike prices is 600. If the index closes between the two strike prices, the gain is 7. Due to the inherent high delta's on the deep in the money options, one could trade the swings and buy the calls or puts to close if the opportunity arises. For instance, if the index drops, one may look for an opportunity to buy the call to close. One hurdle is the large spreads on index options as well as more volatile stocks. The tedious part of this strategy is determining the margin requirements. The initial margin requirement for the call is about $61,000 per contract. The put's requirement is about $57,000 per contract. A lot of the requirement is from the premium. Obviously, putting up this much money at risk for about $700 per contract isn't a good investment. That is where the swing trade comes into play. In my opinion, the best way to trade a gut strangle is by either swing trading the violent moves or leg into the position in attempt to obtain a greater initial credit. RISKY!! I prefer selling the options out of the money at the above levels. Instead, sell the 1600 Puts and sell the 2000 calls. For instance, the June 1600 puts are at 11 and the 2200 calls are at 14. The initial net credit is about $25. This method's credit is a lot better than the Gut's measly $7 credit. The initial margin requirement is less too. The call's margin is about $20,500 per contract and the put's margin requirement is about $20,200 per contract. If you have read my previous articles, Margin Monster and Return of the Margin Monster, you know that the margin requirement changes with the closing prices of the underlying security and the naked option. Another reason I prefer out of the money is that I can still trade the swings. However, not as easily due to a much lower delta. With most broad-based indexes, I don't have to worry about early assignment because they are European-style options (An option that can be exercised only during a specified period of time just prior to its expiration). Short Strangles can be a good tool if there is a defined support and resistance on a security. I prefer to sell one month out because it may add additional risk to the trade. It is difficult to determine the market's movement next week let alone in two or more months. To determine whether selling index or stock options, run the numbers to see which provides the best risk/reward scenario. Some stocks will produce higher credits. But finding the balance between the inherent risk associated with a highly volatile stock and the premium is important. Find your risk/reward tolerance to determine the level of volatility the security can have. Then sell at the support and resistance levels. The levels can be determined by using past prices and/or trend lines. Develop a plan and stick to it. Do not sell above the support and below the resistance because it provides a better credit. If it doesn't meet your goals, move onto another security. Note that when the volatility is higher, the premiums may be higher in relation. This may be a clue to timing as well as the bias on the market or index that the indicator is tracking. I am happy to discuss further details on this and other strategies. I want those of you interested to be fully informed before attempting any strategy. If you have any questions, comments or subject suggestions, please contact me toll free at 877-925-0880. I am a full service financial consultant and ROP with Cutter & Company. Robert John Ogilvie Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any representation as to the accuracy, reliability or completeness of any charts, formulas, and /or research opinions presented herein. This article is intended solely for educational purposes. Nothing herein should be construed as an offer or solicitation to buy or sell any securities. Cutter and Company is a Member of the NASD, MSRB, and SIPC. Please read the OptionInvestor.com's Disclaimer. ************************ SPREADS/STRADDLES/COMBOS ************************ A Great Way To End The Week! Friday, May 18 Industrial stocks ended higher today as investors ignored a slew of earnings warnings and chose instead to focus on the favorable outlook for interest rates. The Dow finished 53 points higher at 11,301 on strength in oil and cyclical shares. The NASDAQ closed up 5 points at 2,198, despite a mediocre revenue forecast from Dell Computer (NASDAQ:DELL). The S&P 500 index closed with a positive bias, up 3 points at 1,291. Trading volume on the Big Board reached 1.11 billion shares with advancing issues outpacing declining issues 8 to 7. Activity on the NASDAQ was relatively light with only 1.78 billion shares changing hands. Technology declines beat advances 19 to 18. In the bond market, the 30-year Treasury rose 1/32, pushing its yield down to 5.76%. The story of the day came in the precious metals group as the price of gold soared 5% to a 9-month high of $288 per ounce. Thursday's new plays (positions/opening prices/strategy): Sony (NYSE:SNE) JUL80C/JUL80P $9.80 debit straddle Union Pac. (NYSE:UNP) JUN60C/JUN60P $4.15 debit straddle Providian (NYSE:PVN) JUN65C/JUN45P $0.10 credit synthetic Just as we suspected, the opening prices in the SNE straddle were slightly lower than Thursday's closing quotes and the position was available at a small discount. The premiums in UNP options were also better than expected, provided a favorable entry opportunity in the conservative debit straddle. Providian dipped near midday and the target credit in the speculative synthetic position was easily achieved. Portfolio Plays: Indeed it was an impressive week for the stock market and the recent rally capped one of the best months in the history of the Spreads/Combos section. The credit spreads portfolio was again the most successful with profitable positions in Active Power (NASDAQ:ACPW), Dynegy (NYSE:DYN), Lehman Brothers (NYSE:LEH), Human Genome Sciences (NASDAQ:HGSI), Merrill Lynch (NYSE:MER), Minnesota Mining (NYSE:MMM), Lowe's (NYSE:LOW), Progressive (NYSE:PGR), PMC Sierra (NASDAQ:PMCS) and Providian (NYSE:PVN). Liz Claiborne (NYSE:LIZ), an adjustment from last month, expired profitably and Biochem Pharma (NASDAQ:BCHE) offered a very easy transition to a covered-call after the merger with Shire Pharma (NASDAQ:SHPGY) was approved. Total Fina Elf (NYSE:TOT) was the only position carried forward to June and the sold call at $80 is above the current price of the underlying issue. The calendar spread portfolio performed well with profitable opportunities in Cirrus (NASDAQ:CRUS), Earthlink (NASDAQ:ELNK), Sprint (NYSE:FON), Cisco Systems (NASDAQ:CSCO), Infospace (NASDAQ:INSP) and LSI Logic (NYSE:LSI). The speculative time-selling play in Visx (NYSE:EYE) offered a small gain, but the position has lots of time to profit before the (long) call options expire in September. The Reader's Request in Watson Pharmaceuticals (NYSE:WPI) was easily rolled to a bullish put-credit spread at $50 in June. One of the popular strategies for new option traders is Covered-calls on LEAPS and the market recovery produced some excellent opportunities in that category. Worldcom (NASDAQ:WCOM) and Nextel (NASDAQ:NXTL) were good candidates and both positions benefited from the time-value erosion in front-month option premiums. Among the older plays in the section, AT&T (NYSE:T) and Microsoft (NASDAQ:MSFT) performed perfectly with both issues finishing just below the sold (short) strikes. Hewlett-Packard (NYSE:HWP) and Intel (NASDAQ:INTC) also enjoyed significant recoveries, providing excellent opportunities to make adjustments in their respective spread positions. The delta-neutral section was an outstanding performer this month with productive selections in both conservative and aggressive strategies. The credit-strangles portfolio was 100% successful with Chiron (NASDAQ:CHIR), Lincare (NASDAQ:LNCR), Western Wireless (NASDAQ:WWCA), Veeco (NASDAQ:VECO) and Shire Pharma (NASDAQ:SHPGY) expiring at maximum profit. The big winner in the debit straddles category was Icos (NASDA:ICOS), which provided a gain of $7.50 on $4.60 invested in just a few sessions. Another notable short-term position was Norfolk Southern (NYSE:NSC) as today's rally pushed the overall credit in the speculative straddle to our 25% profit target in only one week. The remaining (JUN-$22.50) straddle also reached the break-even point during the session and we expect the bullish portion of the play to pay for the entire position over the next few days. The synthetic position has gained acceptance among our readers and this month's portfolio included profitable opportunities in Ariba (NASDAQ:ARBA), ADC Telecom (NASDAQ:ADCT), Scios (NASDAQ:SCIO) and Tollgrade (NASDAQ:TLGD). There were only two debit-spread candidates this month; Active Power (NASDAQ:ACPW) and Scios (NASDAQ:SCIO), and both issues finished well above the range of maximum profit. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SBGI - Sinclair Broadcast Group $9.00 *** Cheap Speculation! *** Sinclair Broadcast Group (NASDAQ:SBGI) one of the largest and most diversified television broadcasting companies, currently owns and operates, or programs, 62 television stations in 40 markets. SBGI's television group includes FOX, WB, ABC, CBS, NBC, and UPN affiliates and reaches approximately 25.0% of all U.S. television households. Half of Sinclair's station group has local news programming. Sinclair, through its wholly-owned subsidiary, Sinclair Ventures, owns equity interests in Internet related companies including G1440, an Internet development and integration company; and Synergy Brands Inc. Sinclair has a strategic alliance with Acrodyne Communications, a manufacturer of technically advanced television transmitters. One of our new readers suggested that we offer a conservative, low-cost time-selling play, so that he could learn how to trade this type of position with little downside risk. SBGI is a good candidate for that strategy as the issue has a bullish technical outlook and favorable disparities in the front-month options. In a calendar spread, time erodes the value of the near-term option at a faster rate than it will the far-term option, so we try to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the spreader would like to have the stock finish just below the sold strike when the near-term option expires. If the short options are "in-the-money" at expiration, he will have to buy them back to preserve the long-term position. PLAY (very conservative - bullish/calendar spread): BUY CALL SEP-10 JQO-IB OI=105 A=$1.00 SELL CALL JUN-10 JQO-FB OI=131 B=$0.25 INITIAL NET DEBIT TARGET=$0.65-$0.70 TARGET ROI=50% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SBGI ****************************************************************** ALXN - Alexion Pharmaceuticals $24.00 *** More Speculation! *** Alexion Pharmaceuticals (NASDAQ:ALXN) develops products for the treatment of heart disease, and inflammation, diseases of the immune system and cancer in humans. The company's lead product candidates are genetically altered antibodies that target specific diseases that arise when the human immune system induces undesired inflammation in the human body. The company's product candidates are designed to block components of the human immune system that cause inflammation while allowing beneficial components of the immune system to remain functional. Alexion's lead genetically altered antibody product candidates are designed to block the inflammatory effects of the components of the immune system known as "complement," and are 5G1.1-SC for the treatment of acute inflammation caused by the trauma of heart and lung bypass procedures during open heart surgery and 5G1.1 for the chronic treatment of rheumatoid arthritis, membranous nephritis and psoriasis, dermatomyositis and bullous pemphigoid. Alexion is an interesting issue, having dropped unmercifully from triple-digit valuations on concerns over mixed trial results with their lead products and the company's resistance to partnering with a major pharmaceutical developer. However, some proponents say the company is a solid "buy" as it trades at cash value with a market valuation of $369 million and a cash/investment balance of $369 million. Apparently, the company has a full pipeline of potentially promising products under development, including some treatments for rheumatoid arthritis, multiple sclerosis, and also xenotransplantation rejection. These drugs may eventually bolster the company's bottom line, but "short-sellers" have kept its share value in check for many months. Now it appears that the issue is establishing a technical base and traders who want to speculate on a future recovery in the stock price can do so with this bullish calendar spread. PLAY (very conservative - bullish/calendar spread): BUY CALL AUG-30 QXN-HF OI=24 A=$3.00 SELL CALL JUN-30 QXN-FF OI=228 B=$1.15 INITIAL NET DEBIT TARGET=$1.75 TARGET ROI=25% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=ALXN ****************************************************************** SGY - Stone Energy $55.26 *** Hot Sector! *** Stone Energy (NYSE:SGY) is an independent oil and gas corporation engaged in the acquisition, exploration, development and operation of oil and gas properties located onshore and in shallow waters offshore Louisiana. The company has been active in the Gulf Coast Basin since 1973 and has established extensive geophysical, technical and operational expertise in this area. Stocks in the oil sector have performed very well in recent weeks as the price of crude continues to rise along with fuel demand for energy production at electrical utilities. Although conservation is a key, according to President Bush, energy consumption is still on the rise and that means additional exploration for wells and more investment in manufacturing and refining. Stocks such as SGY will benefit from this activity in the near-term and traders who agree with a bullish outlook for the issue can profit from future upward movement with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT JUN-45 SGY-RI OI=128 A=$0.35 SELL PUT JUN-50 SGY-RJ OI=27 B=$0.75 INITIAL NET CREDIT TARGET=$0.50-$0.55 ROI(max)=11% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SGY ****************************************************************** - 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. ****************************************************************** OPMR - Optimal Robotics $29.90 *** Technicals Only! *** Optimal Robotics (NASDAQ:OPMR) provides self-checkout systems to retailers in the United States. The company's principal product is the U-Scan, an automated self-checkout system that enables shoppers to scan, bag and pay for their purchases with little or no assistance from store personnel. The system is equipped with a convenient, intuitive touch screen interface, and provides automated voice instructions that guide the shopper through the entire checkout process, from scanning the first item to removing the receipt after payment. The company's latest products, U-Scan Carousel and U-Scan Solo, have been designed to extend the retail applications of its U-Scan self-checkout technology. Much like the U-Scan Express, each of these applications enables customers to scan, bag and pay for their purchases with limited assistance from store personnel. This position was discovered with one of our primary scan/sort techniques; identifying potentially failed rallies on issues with bullish options activity. In this case, the premiums for the (OTM) call options are slightly inflated and the possibility of a successful (technical) recovery is significantly affected by the resistance at the sold strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL JUN-40 OQG-FH OI=600 A=$0.50 SELL CALL JUN-35 OQG-FG OI=96 B=$1.00 INITIAL NET CREDIT TARGET=$0.60-$0.65 ROI(max)=14% http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=OPMR ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** LLTC - Linear Technology $52.66 *** Trading Range? *** Linear Technology (NASDAQ:LLTC) designs, manufactures and markets a line of standard high performance linear integrated circuits. Applications for their many products include telecommunications, cellular telephones, networking products and satellite systems, notebook and desktop computers, computer peripherals, video and multimedia, industrial instrumentation, automotive electronics, factory automation, process control, and also military and space systems. The company emphasizes standard products to address larger markets and to reduce the risk of dependency upon a single customer's requirements. The company targets the high performance segment of the linear circuit market. We like this issue for a premium-selling position because it has a relatively well-defined trading range and no apparent news or events that will substantially change its character prior to the June options expiration. The company's earnings announcement was last month and our profit envelope is well outside the most recent trading range at $43-$54. Our plan is to sell the OTM options for credit and use the earned income to offset any potential losses on the downside. If the price of the stock continues to move through the resistance area near $64 in the coming weeks, we will exit the play at a small loss or buy the stock (or an offsetting position) to cover our sold options. PLAY (conservative - neutral/credit strangle): SELL CALL JUN-65 LLQ-FM OI=96 B=$0.60 SELL PUT JUN-40 LLQ-RH OI=676 B=$0.45 INITIAL NET CREDIT TARGET=$1.15-$1.20 ROI(max)=11% UPSIDE B/E=$66.15 DOWNSIDE B/E=$38.85 http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=LLTC ****************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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