The Option Investor Newsletter Sunday 06-03-2001 Copyright 2001, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/5883_1.asp Entire newsletter best viewed in COURIER 10 font for alignment Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 6-01 WE 5-18 WE 5-11 WE 5-04 DOW 10990.41 + 78.47 11005.37 -296.37 11301.74 +480.43 -129.93 Nasdaq 2149.44 + 38.95 2251.03 + 52.15 2198.88 + 91.45 - 84.10 S&P-100 649.61 + 3.38 658.29 - 10.09 668.38 + 22.95 - 13.31 S&P-500 1260.67 + 4.85 1277.89 - 14.07 1291.96 + 46.29 - 20.94 W5000 11671.40 + 61.20 11849.89 - 73.63 11923.52 +432.18 -195.93 RUT 501.72 + 5.22 508.62 + 2.34 506.28 + 18.92 - 5.53 TRAN 2887.05 - 58.85 2929.20 - 49.75 2978.95 + 99.39 + 10.37 VIX 23.96 - 2.00 23.15 - 1.11 24.26 - 3.22 - .24 Put/Call .53 .62 .47 .63 ****************************************************************** Bovine / Ursa Battle Continues Directional markets are slightly less common lately than Ally McBeal making her third pass to an all-you-can-eat buffet. Of the two I'd say broad market action is far more erratic and slightly less rational than Fox TV's malnourished starlet. Bulls & Bears continue to jockey, wager and guess which way equities are destined next in seesaw fashion. Yes we saw several sessions sell off from last week into this as markets dove on bad news, but can you really keep up with market perception of news being bad or good? One session's negative economic reports is cause for concern that a recovery is further away than hoped, while the next interprets negative economic news as assurance of further rate cuts ahead. Which is it? Enough already: negative economic news is either good or bad. Pick a conviction and please convict to it! We must ask ourselves if "The Market" knows all and precludes near-term direction. Sometimes I think the market is clueless and hapless on where to go from here. Price action sure looks that way to me. If markets were predictive and all knowing, why have we endured so many extreme gap moves and short-squeeze rallies this year? On the subject of news, let's forego what took place on Friday concerning who announced what and all that. By now anyone who cares has read the news, seen the news and is quite likely tired of news. On a personal note I really don't care if analysts are upgrading or downgrading the chip sector last, which seems to happen both directions every week these days. I concern myself only with how the market behaves and what it hints of next. The rest I'll leave to fundamentalists! I had to do my weekly/daily chart work for the upcoming sessions ahead and figured it was just as easy to have you peek over my shoulder. Care to help me out? Let's go... (Weekly/Daily Charts: Dow) O.K. First up is the old index and it wants to blow away that 11,000 level no matter what. From here a strong catalyst is needed worse than a Mt. Everest climber needs air to do so. Both have tested high peaks numerous times and now remain in danger of sudden storms cropping up in the near future that may sweep them from their respective lofty peaks. The Dow's weekly chart (left) shows historical resistant strength of 11,000 and we now see long-term stochastic action topping out in overbought extremes. This is not my favorite setup from which to enter bullish plays with reckless abandon... as a matter of fact I'd be looking for those weekly stochastic values to cycle down near oversold extremes before betting long-term upside from here. Bearish plays may be high-odds in the offing. We also see what could very well be a double-top failure near the 11,400 level which is another less than bullish pattern. The daily chart (right) offers more upside hope. A steep bull flag channel has formed over the past eleven days as stochastic values cycled down near oversold levels now. Could continue down but a pop to the upside at any time is more likely now than it was back near 11,400 when everything was extended in overbought. (Weekly/Daily Charts: COMPX) The Nasdaq appears a bit mixed as well. Weekly chart at left shows rock-solid resistance at 2250, a point Jim has been speaking of as the line of declination for weeks now. Stochastic values are extended but could go higher as well. Daily chart at right shows stochastic values falling straight down in bearish fashion and a tiny little three-day bear flag is shaping up as well. That's a bit brief to make determinations from but it's all we've got to work with right now. We need to see if it continues to build from there and will play a break to the downside as bearish confirmation as well. (Weekly/Daily Charts: SPX) The SPX looks feeble at best. Weekly chart shows a seven-week Bear Pennant forming, stochastic values curling over in bearish fashion and bearish stochastic/price action divergence as well. Fair for us to say that isn't an overall bullish setup right now? The last three days have been forming a neutral wedge over in the daily chart at right. Again, too brief for conclusions but I'd be watching for a close below the projected formation as a sign of continued downside movement from there. Beware intrasession fakes breaking down and then recovering back within! (Weekly/Daily Charts: BTK) Biotechs look better than most for bullish speculators right now. "Biotech Investor" is an oxymoron, isn't it? Anyway, we gamblers love this sector and I'd look here for near-term strength in relation to the previous markets we viewed. Weekly chart has stochastic values still rising straight up in healthy fashion, albeit within overbought extreme. Still has room to run. The descending channel (Bull Flag formation) dating back to August 2000 for the first time since saw price action close above the upper confines if ever so slightly. Better than that, the daily chart at right shows stochastic values turning up and a clear Bullish Pennant broke out and confirmed strength on Friday. With a pattern low near 580 and high near 650, that gives us a 70-point upside target from the break to shoot for. A break at the 610 area plus 70 index points suggest the BTK could see 680 level before long. Up Or Down? So that's our view of the markets. Mixed to weak in the broad indexes while certain sectors show strength as usual. My best guess is we see choppy action (big surprise) with a downward bias through the summer. Pre-warn will challenge the bulls while June's upcoming FOMC will challenge the bears. Make no mistake: traders are now addicted to the "Greenspan Put" rate-cut injection and will inwardly or outwardly expect the same once more. That's how addiction goes in hand with denial: the time will come when no more cuts are in the offing. Companies must stand on their own PE's to attract actual buyers who intend to hold for awhile instead of shorts getting squeezed to cover who can't wait to dump unwanted issues instead. That's the type of "buying" we've had since January's first Greenspan surprise and it is not actual investing to base a new bull market from. We should expect strong volatility, mixed sessions and no clear trend from here for some time. Past the FOMC could see one sustained move in either direction. That's the best anyone can predict right now. Cheap & Priceless Education If it weren't for day-trading lately, Wendy would be buying far fewer shoes. Tough to buy & hold (or short & hold) anything without getting washed out at stops. Buy & hold is my favorite trading (allows for plenty of play time) while day trading is not but we must go where the money is. I'm looking forward to Sunday night's webcast seminar that will cover many of the fine points to day trading stocks, e-minis and options. There's still a bit of room in each session for any last-minute traders who'd like to join our interactive fun. Details are elsewhere in this newsletter. Out Of Retirement A few weeks ago I retired from writing at OI to focus on work over at IndexSkybox. Now I'm well rested and I miss you guys! Can I come back? Will you have me back? Hope so, because I'll see you again in Monday's Trader Corner. Last time I left off on the first article of a series that covers the basics of daily-chart investing using technical studies similar to the examples we perused above. If interested, you can find that in the OI Trader's Corner archives or use the hotlink below: http://members.OptionInvestor.com/archive/traderscorner/042601_1.asp Two more articles in IS built on from there and my next visit here will cover using weekly chart studies for buy & hold stocks and LEAPs as well. Anyone interested in catching up on the middle two articles are quite welcome to send a blank email to: firstname.lastname@example.org with "send OI articles" or something like that in the subject line. I'll forward articles #2 and #3 in the series in Wordpad format and we'll be all caught up and ready to go from here in one fell swoop. Fair enough? As always, I enjoyed my time spent here with you immensely. Look forward to our next visit and hope you have a prosperous week while playing the right direction! Best Trading Wishes, Austin Passamonte Contributing Editor www.OptionInvestor.com ************************************** Optimizing Your Day Trading Skills Online Interactive Seminar This Sunday ************************************** Austin Passamonte, Editor of IndexSkybox.com will present a two hour interactive online seminar on Sunday June-3rd. He will discuss getting into high-odds trades at the right time, getting out of successful AND unsuccessful trades. Also exit points for long term survival and success. He will teach how to learn without burning in the process, market timing, stock/index selection, indicators, account management and the tools needed to do it right. Click here for more information: http://www.premierinvestorseminars.com/onlineseminars/austin060201.asp **************************** June Online Seminar Calendar **************************** You can take the following seminars without leaving the comfort of your home or office. They are interactive and allow you to question the presenter during the presentation. You do not need any special software to take the seminar but you must have a 56K Internet connection or faster for best results and a separate phone for the audio portion. If you are interested in these seminars please click here for more information. http://www.premierinvestorseminars.com/seminarcalendar.asp Sun Jun-3 Optimize Your Daytrading Skills - Austin Passamonte Wed Jun-6 Introduction to Technical Analysis - Derek Baltimore Thr Jun-7 Using Volatility to Pick Stocks - John Seckinger Sun Jun-10 Advanced Chart Reading & Retracements - Eric Utley Sun Jun-10 Basic Technical Analysis - Austin Passamonte Mon Jun-11 Psychology of Trading as a Business - Matt Russ Tue Jun-12 Starting with Point & Figure Charts - Jeff Bailey Wed Jun-13 Ask the Analyst - Eric Utley Wed Jun-13 Basic Option Strategies - Jim Brown Thr Jun-14 Using Volatility to Pick Stocks - John Seckinger Thr Jun-14 Basic Candlesticks - Jon Farnlof Sun Jun-17 7 Steps to Play Picking - Matt Russ/Eric Utley Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins Tue Jun-19 Understanding Option Volatility - Matt Russ Tue Jun-19 Profiting From Failed Technical Patterns - John Seckinger Wed Jun-20 Chart Patterns, Flags, Pennants, Wedges - Derek Baltimore Wed Jun-20 Entry Point, Exit Point - Jim Brown Thr Jun-21 Day-Trading for People WIth Day Jobs - Jon Farnlof Sun Jun-24 Determining Support and Resistance - Derek Baltimore Sun Jun-24 Ask The Analyst - Eric Utley Mon Jun-25 Using Retracement Levels - Matt Russ Tue Jun-26 Assessing Risk with Point & Figure - Jeff Bailey Tue Jun-26 Charting, Stage Analysis - Mark Wnetrzak, Ray Cummins Wed Jun-27 Big Cap Strategies - Jim Brown Wed Jun-27 Conservative CC/NP - Mark Wnetrzak, Ray Cummins Click here for a detailed explanation of each: http://www.premierinvestorseminars.com/seminarcalendar.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2217 ************************************************************** **************** MARKET SENTIMENT **************** Market Sentiment By Russ Moore Investors closed out the shortened week on an upbeat thanks to a healthier than expected employment number. Pre-market futures were looking pretty ugly until a jobless rate of 4.4 percent was announced. In addition, non-farm payrolls lost only 19,000, far better than the 30,000 economists had been looking for. On the surface this data appears to indicate an improving economy. A peek behind the numbers shows a labor force shrinking by 485,000 people as many simply gave up looking for work. The other piece of data facing investors was the National Association of Purchasing Managers Index. Coming in at 42.1, down from April's 43.2, the number showed the manufacturing sector still in dire straits with no immediate signs of a turnaround forthcoming. The DOW struggled a little in the morning session while the NASDAQ moved along nicely. As the afternoon wore on the blue chip index caught fire as investors made the choice to focus on the first piece of data and ignore the other. In the end it was the DOW posting a 0.7 percent gain and the NASDAQ advancing by 1.8 percent. The NDX enjoyed a very nice move piling on 2.3 percent and closing nicely above the 1800 mark. Volume was definitely on the light side as the NYSE only managed to trade 983 million shares with NASDAQ hitting 1.48 billion. Market breadth was positive on both boards with the NYSE at 18/13 and the tech index at 22/16. Tech sectors were showing green with the chips especially strong as evidenced by the 3.15 percent gain on the SOX index. Biotech, gold, and drugs were among the other winners. The minus column featured utilities, natural gas, chemical, oil service and airline sectors. On your mark! Get set! GO! Yes folks, it's warnings season and that means plenty of volatility and, several key support levels about to face some stiff challenges. This is the period most dreaded by the bulls however, if the markets can hold near-term levels i.e. 10,800 on the DOW and 2,050 on the NASDAQ, renewed confidence would be gleaned and maybe, just maybe, we'd be in for a late summer or fall rally. Option Investor Market Sentiment provided by www.Indexskybox.com === VIX Friday 06/01 close: 23.96 VXN Friday 06/01 close: 57.19 30-yr Bonds Friday 06/01 close: 5.69% Total Put/Call Ratio: .53 Equity Option Put/Call Ratio: .47 Index Option Put/Call Ratio: 1.18 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 33.60 Current close: 46.05 Volume/Open Interest Maximum calls: 50/96,338 Maximum puts : 40/69,297 Moving Averages 10 DMA 47 20 DMA 47 50 DMA 44 200 DMA 64 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 548.16 Current close: 649.61 Volume/Open Interest Maximum calls: 680/8,019 Maximum puts : 530/9,582 Moving Averages 10 DMA 660 20 DMA 657 50 DMA 629 200 DMA 696 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 1081.19 Current close: 1260.67 Volume / Open Interest Maximum calls: 1250/43,274 Maximum puts : 1250/45,400 Moving Averages 10 DMA 1280 20 DMA 1271 50 DMA 1218 200 DMA 1328 === DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 9,047.56 Current close: 10,990.41 Volume / Open Interest Maximum Calls: 100/51,297 Maximum Puts 100/72,120 Moving Averages: 10 DMA 11,068 20 DMA 11,030 50 DMA 10,548 200 DMA 10,641 ***** CBOT Commitment Of Traders Report: Friday 06/01 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +70242 +63916 -68496 -70908 Total Open Interest % (+33.61%) (+31.81%) (-9.48%) (-10.01%) net-long net-long net-short net-short Small Specs Commercials DJIA futures Open Interest Net Value -4226 -7101 +5812 +8925 Total Open interest % (-30.65%) (-51.65%) (+16.24%) (+23.70%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 Open Interest Net Value +2912 +444 -11508 -9946 Total Open Interest % (+14.80%) (+2.24%) (-18.82%) (-14.87%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices:.Commercials reduced their net-short positions on the S&P 500 by half a percent while Small Specs added two percent to their net-longs. We are seeing increasing divergence on both the DJIA and NASDAQ 100 with Commercials reducing long positions on the DJIA and adding to their shorts on the NASDAQ 100. Small Specs cut back dramatically on the DJIA net short positions while adding to their net-longs on the tech index. Gold: Commercials are now at a five-year net short extreme, while small specs are opposed at a five-year net long extreme in full speculation. Commercials are end users of gold and are hedging current inventory purchased at lower prices. They seem to feel the risk/reward clearly lies to the downside in prices right now and made a dramatic move from accumulation to distribution in the past four weeks: 5/08: 17,247 contracts net-long 5/15: 13,915 contracts net-short 5/22: 65,250 contracts net-short 5/29: 68,443 contracts net-short Gold could rally considerably higher this year, but we expect at least one pullback from current levels based on the action above. Copper: Commercials have been building extreme net-long position in this industrial metal, a bullish sign for economic health. Eurodollars: Commercials are at a five-year extreme net-short on an interest rate play in reflection of lowered rates currently and ahead. Summation: Commercials are looking for lower interest rates, lower gold and higher copper prices based on their positions here. Of particular notice was the switch in gold from net short last week to net short this week, a warning sign that large users are now selling into the current retail rally. Data compiled as of Tuesday 05/29 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/060301_1.asp ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2224 ************************************************************** *************** ASK THE ANALYST *************** A Cup, Minus the Handle By Eric Utley I know that it's summer. After all, the rivers here in the Rocky Mountains are a flood with runoff and my allergies are wreaking havoc on my everyday life. But, in the spirit of the pursuit of excellence, I have to send my encouragement to the Colorado Avalanche. At the risk of upsetting Tony Soprano's crew and, more importantly, any readers who reside in New Jersey, my bet is on the Avs, baby! On a heavier note, I would like to send my best wishes to my ex-colleague, but still good friend, Matt Russ, who departed the Option Investor crew last week. If you're out there, Russmeister, I should tell ya' that Tony Clifton stopped by this weekend with two banjos, a big plate of sushi and one helluva cough. On a final note, readers of this column should be interested in checking out my online seminar next weekend. I will be presenting some advanced chart reading techniques that professionals (Read: Market Makers) use to better manage risk and, more importantly, increase profits. The platform that I'll be using to present the seminar is pretty interesting in and of itself, but I can assure you that the content of the presentation will be even better and my aim is to help readers make more money. If any of my readers are interested in attending, just follow the link below. And by the way, that picture is terrible. http://www.premierinvestorseminars.com/onlineseminars/eric061001.asp Any questions concerning the seminar can be sent to the e-mail address just below. Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- Alliance Gaming - ALLY Can you please give us your comments on ALLY? We received this as a tip from a friend when it was trading around $23. Point and Figure Chart showed it was on an ascending triple top break out alert. We also noted that it was in the IBD leisure group which was position 4 out of 197. However, we looked at the candlestick charts and also determined that MACD was rolling over (down) and the stock seemed to be going up on relatively lower volume. We thought that it would not go much higher. That was 6 points ago!! We have no position in it at this time. If you were looking at this chart now, what would you do? - Thanks, Gary & Liana Thanks for the thoughtful question, Gary and Liana. But I have to reiterate that I cannot give specific investment advice per your question: "What would you do." However, I'll give you my honest take on Alliance Gaming (NASDAQ:ALLY), which makes and sells computerized gambling machines and owns and operates two casinos. The gaming sector has been hitting on all cylinders recently, as noted by the fact that Investor's Business Daily (IBD) has the sector ranked high on its list. The companies that make the video gambling machines have been especially strong lately. Others in the group, similar to what Alliance does, include International Game Technology (NYSE:IGT), Shuffle Master (NASDAQ:SHFL) and Anchor Gaming (NASDAQ:SLOT). You'll note that shares of the three aforementioned companies are trading at or very near ALL-TIME highs, including our focus Alliance. At its current level, I think there are three ways to play Alliance. The first, and perhaps most tedious, strategy would be to wait for the stock to consolidate its recent gains. It looks like shares of Alliance have found a temporary ceiling at the $30 level, but I don't know how long they'll stay there. The stock briefly paused at the $20 and $25 levels before breaking out to higher prices, which was probably a function of the psychology of the market and its leanings towards comfortable numbers, such as $20, $25 and now $30. Of course, consolidation is a function of time, in addition to weeding out the weak longs in the stock before resuming its ascent. The second strategy, and possibly the most difficult in terms of individual psychology, would be to play Alliance on a pullback to a demand/support level. As you can see on the chart below, for quite some time, the 40-dma has attracted buyers, especially during the dip down to that level last week. Going forward, the $25 level, or thereabouts, should attract buyers if they're still interested in taking shares of Alliance higher. The third strategy, in which risk is the most difficult to manage, is to buy the stock at current levels and hope that the price and underlying business momentum continues to carry Alliance higher. It's very possible that after Alliance's snapback bounce off its 40-dma last week the stock breaks out above the $30 resistance level early next week. If one were to pursue the momentum-based strategy, and enter at current levels, I think it would be prudent to take profits if/when shares of Alliance hit roughly $38.50 - its bullish price objective according to point & figure, which was generated in late March. ---------------------------- Energy Conversion - ENER With the interest in alternative energy, what do you think of ENER as a medium/long-term investment? - Thanks, Dan Thanks for the pertinent question, Dan. I'll be honest, I didn't know much about Energy Conversion (NASDAQ:ENER) prior to your request, Dan. But I did make a few interesting observations during my research, which I think may be beneficial to my readers. The company is relatively small ($600 million market cap) and is as high-tech as an energy company can be. I've taken the following company description from Energy Conversion's Web site: The company has successfully developed a range of technologies - including both products and advanced manufacturing processes - primarily within the fields of energy and information processing. Commercialization of the company's proprietary technologies has proceeded through licensing agreements and the formation of several manufacturing joints ventures. From what I gathered, Energy Conversion is the proprietor of several technologies that, for example, increase the capacity of a battery, allow for safer storage of hydrogen and is involved in the further development of fuel cell technology. Of course the latter is a popular conversation piece amongst investors recently due to the energy crisis sweeping the United States. Energy Conversion owns the rights to several patents on its technologies and should receive large royalty payments if/when its technologies are commercially accepted. To a growing extent, its battery technology is gaining acceptance and the company stands to reap large revenues from that. My real concern with Energy Conversion and, indeed, those companies involved in alternative energy businesses, such as fuel cells, is that most of them have yet to turn a profit. For its part, Energy Conversion lost above $15 million from operations in the past year. And while the company has enough cash to sustain itself for quite some time, there's no hiding the fact that it's a money losing operation. But, like I wrote earlier, if Energy Conversion's technologies are increasingly adopted, the company will see its revenues rise and ultimately turn profitable. The key is to watch for the adoption of its technologies. (It wasn't too long ago that the market was infatuated with the new, new thing in the form of dot coms. And we all know how that story ended. Just be skeptical, that's all!) ---------------------------- HomeStore.com - HOMS Stock is heading down as expected. Where do you think would be support when one should plan to buy? - Thanks, Sunil As always, thanks for writing in, Sunil. Recent readers of this column probably have seen a review of HomeStore.com (NASDAQ:HOMS) once or twice. I'm beginning to think that Sunil is an expert on how to trade this stock and perhaps he can share his insights with the rest of us. In the meantime, Sunil, I see demand/support for HomeStore in the general $23 - $25 vicinity on the point $ figure chart. Perhaps that may be the area where the stock traces its next relative low, if its pattern of higher lows continues. In the event that HomeStore doesn't find support between $23 - $25, I think risk would be pretty easy to manage with a simple stop. Then again, the buyers did show up late last week, when HomeStore bounced from roughly $26. So, the stock could very well be defining a new distribution at current levels. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* For the week of June 4, 2001 Monday ====== Auto Sales May Forecast: 6.2M Previous: 6.4M Truck Sales May Forecast: 6.9M Previous: 6.0M Tuesday ======= Productivity-Rev Q1 Forecast: -0.7% Previous: -0.1% Factory Orders Apr Forecast: -2.7% Previous: 1.4% NAPM Services May Forecast: N/A Previous: 47.1% Wednesday ========= None Thursday ======== Initial Claims 6/2 Forecast: N/A Previous: 419K Wholesale Inventories Apr Forecast: N/A Previous: 0.1% Consumer Credit Apr Forecast: $8.6B Previous: $6.1B Friday ====== None Week of June 11th ================ Jun 13 Export Prices ex-ag Jun 13 Import Prices ex-oil Jun 13 Retail Sales Jun 13 Retail Sales ex-auto Jun 14 Initial Claims Jun 14 PPI Jun 14 Core PPI Jun 14 Business Inventories Jun 15 CPI Jun 15 Core CPI Jun 15 Industrial Production Jun 15 Capacity Utilization Jun 15 Mich Sentiment-Prel *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? 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The Option Investor Newsletter Sunday 06-03-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/5883_2.asp *********** OPTIONS 101 *********** Naked Puts With a Security Blanket By Buzz Lynn Afraid to sell naked puts out of fear of assignment of nearly worthless stock? I have a solution for you. It's called a bullish put credit spread and is a cousin to Jim's style of naked put trades, but does not require the potential capital outlay of stock purchases! Veteran OIN readers who have attended OIN seminars may recall my propensity to "get naked". Jim Brown does this too and I assure you it has nothing to do with a trader's dress code. It is a strategy of selling at-the-money (ATM) or slightly out-of-the- money (OTM) calls (Deep ITM for Jim - he trades delta. Be sure to catch his on-line seminar on this very topic. It is a winner.) when a stock has bottomed and likely to rise. Naked puts (and calls) are the closest thing to "free money from God" that I have found. But they carry a boatload of risk with the potential to submarine your account (and other assets too) if you aren't careful. Here's how a naked put works. We want theta or time decay and a rising stock price to work in our favor against the other guy. Ideally we are never put the stock and the option expires worthless to the buyer. We keep the premium for having taken the risk. The strategy is to sell puts at the low. For instance, say that JDS Uniphase (JDSU) is trading at $180 (remember March 2000?) and appears to be on its way to $200 by expiration day. I might have sold a $180 put (ATM) for $20 in anticipation of the price continuing up (based on candlesticks, oscillators, and Bollinger bands), which hopefully would expire worthless as JDSU traded for $210 on expiration day. Of course, as I would soon discover, I was ill-prepared for a meltdown at that time on my naked put positions. As prices of stocks began to tumble, I was in real danger of being forced to pay $180 for what is now a $20 stock (or less - remember I sold a put in what turned out to be a popped-bubble market, which allowed the holder to "put it too me" at the $180 strike price). It was either that or buy back (cover) the naked puts at a greater price for a huge loss on the position. There had to be a better way to accomplish the same thing with less risk - time decay on the other guy with quantifiable, and minimal loss of capital if everything went wrong. That's when I began to think the credit spread might be a great strategy. I don't know about you, but getting the benefit of time decay in my favor with only LIMITED DOWNSIDE RISK (!!) sounds like a no- brainer to me! A nice looking technical chart offering a high- odds entry is the key. Unlike a naked position, a credit spread isn't as dangerous or intimidating as you might think. While it too carries some downside risk, it is quantifiable and you always know your maximum loss before you enter the trade. And you can use a much less volatile equity - like an index equity - instead of a volatile tech stock to make steady returns. You don't need to be a high wire expert or gunslinger to make this work. It isn't quite a "set and forget" trade, but many readers will appreciate that using this strategy does not require intraday monitoring to yield success. It can be monitored and managed once a day after hours if you like. Here's how it works. Take for instance a biotech stock that has been bucking the trend as of late. Imclone (IMCL) finally broke out over its $50 resistance and did so on increased volume - a decent bullish sign. So with IMCL now at $53.09 and the new floor likely to be at $50, let us see how we can make some money on a credit spread. We expect that $50 is the bottom and that IMCL will rise from here, and we want to take advantage of that. (Again, this is an example only and is not a recommendation to back up the truck.) Just like a naked put, we SELL the JUN-50 Put for what seems like the meager sum of $1.55. But here's the twist. Just in case we are wrong, we simultaneously BUY a lower priced strike for protection - JUN45 Put for $0.50 - just in case the FDA proclaims IMCL's cure for cancer causes cancer in laboratory mice, thus sending the stock to $5 overnight with no chance for us to cover. The net result is a credit to our account for $1.05 instead of 1.55. But we have a security blanket in the form of a long put to counter our losing short put in case of catastrophe. That little insurance policy has cost us only $0.50, but has drastically limited the downside potential. If you can squeeze the price between the bid and ask for both sides of the position, the credit can become even greater. Just what is the downside potential? It will always be the difference in the strike prices minus the credit. In the case of IMCL, the difference in strikes is $50-$45, or $5. The credit is $1.05. The maximum loss is $3.95. Of course, all of this is per share. Per contract, that means a profit potential of $105 with a maximum loss of $395. $395 per contract also happens to be the margin requirement since it is the most you can lose. $105 return divided by $395 of margin sounds pretty good to me - that is 26.5% on your margin capital in just two weeks! You can do this spread for as many contracts as you like, as long there is an equal amount of both positions. That way your short position always stays hedged with your long position. Entering the trade is pretty simple. First, you must be approved for spread trading with your broker. Many on-line brokers actually let you enter the whole position from their interface so you do not have to leg in one position at a time. Unfortunately, Preferred does not have that capability (yet) so the order must be phoned in, and they will only accept orders of 10 contracts or more. Fortunately in this example, 10 contracts requires only $3950 in cash or marginable securities for the $1050 profit potential, a figure manageable for many accounts. You do not already have to be rich to pull this one off! The $1.05 credit is ours to keep if IMCL is above $50 on expiration day, June 15th. Breakeven occurs at $48.95. That occurs if we are put the shares at $50, but have the $1.05 credit against it for a cost of $48.95. Anything less than that at expiration, and the position goes in the red a penny for every cent under $48.95 all the way to maximum loss of $3.95 per share. Remember though, we were smart enough to have bought the $45 put that saves us from further loss even if the stock price goes to zero! That is our security blanket! Naturally, we ought to try to limit losses. Thus, it may be in our best interest to buy back the whole position for a cost of less than $3.95 if the trade gets too far away from us and reaches our threshold of financial pain. Each of us must make that determination for ourselves. Personally, unless there is a technical reason to stay in the play with the idea that it will soon be profitable again, my preference is to close the whole position when the stock price trades at less than my breakeven ($48.95 in this case). It is an arbitrary figure that I use to tell me the play has gone south beyond my expectation and that I should exit now to avoid maximum loss upon expiration. One other thing. While it does not always happen, if we let a position get too far away from us by hanging on too long, a position can cost more to close than the loss we would take on expiration. In that case, I will let the contracts expire for maximum loss. But if I do that, it will always be a painful reminder that I should have sold too soon. Don't let the trade get away from you like that. Back to the big picture. . .our intention here again is to have time decay work in our favor to narrow the spread to zero by expiration and the whole $1.05 will be ours! Ten contracts of this trade would ideally yield $1050 if held to expiration for maximum profit and we would only need to maintain $3950 of margin to do it. (Check with your broker as most require a minimum account size to employ this strategy - Preferred requires $10,000 in cash balance). Now can you see the profit potential? Again, the key is time decay working in your favor. But with a credit spread, your downside risk is limited and quantifiable. You'll sleep much better at night employing this strategy rather than "getting naked" and worrying about "accounting irregularities" on the company in which you shorted puts. Now you too can get naked with a security blanket! ************** TRADERS CORNER ************** Diagonal Spreads By Robert Ogilvie The definition of a diagonal spread is a combination of both price and time (calendar) spreads. A pure time/calendar spread consists of buying a longer-term option (long option) and also selling a short-term option (short option) with the same strike price. For example, buy 1 XYZ September 90 Call, Sell 1 XYZ June 90 Call or Buy 1 XYZ January 2000 90 Put, Sell 1 July 90 Put. As you can see, the strike price is the same while the expiration month is different. This is called a calendar or time spread. A price spread consists of buying an option at one strike price and also selling an option at another strike price. For instance, Buy 1 XYZ May 125 Call, Sell 1 XYZ May 130 Call (Bull Call Spread). Another example of a price spread would be Buy 1 XYZ June 150 Put, Sell 1 XYZ 145 June Put (Bear Put Spread). I hope that summary didn't confuse too many people. A diagonal spread consists of buying an option at a different strike price and expiration month than the option being sold (ie. Buy 1 XYZ August 100 Put, Sell 1 XYZ May 90 Put). Now that I laid down the basics, the diagonal spread that I am going to concentrate on is a Bullish Call Diagonal Spread. I covered this strategy briefly once in another article. However, I am going to cover the all the bases. As the above example shows, a diagonal spread can consist of either a call or a put. In addition, the option being sold can either be higher or lower than the option being bought. **Note: If the option sold against the bought (long) option is a call and is at a lower strike price and nearer term expiration, it is not covered and will require additional margin. Inversely, if the put option sold is at a higher strike price and nearer term than the long put, it too will require additional margin. All spreads must be executed in a margin account. For the purposes of this article, I am only going to cover the strategy of buying a longer-term call and selling a nearer term call at a higher strike price. I will give you the mechanics of the trade followed by an example of what you should look for when executing a trade like this and then discuss the options on closing out the position. First you need to know the mechanics of this strategy. We are looking for a debit that is preferably less than the price spread. For instance, a price spread of 10 points (Buy strike of 50 and sell strike of 60) you want a debit less than $10. I like this strategy because I found one main problem with a pure calendar spread. The problem occurs when I research and find a sensational stock and it goes up above the strike price I sold. The problem results from the deltas of the long and short approaching one another. When the delta of the short option approaches the long options, the value of that option is accelerating faster than the long term option. If both options are in the money when closing out the position, the credit may be less than the initial debit due to this phenomenon. One possible cure is to close out the short side when the stock reaches the level of the short strike price and sell the next higher strike in order to help cover the cost of buying back the option. Another alternative is to close out both legs if the short leg's delta approaches the delta of the long legs. The diagonal spread protects me from having to close out the option I sold because if the stock closes above the sold options strike, it will be assigned (the stock will be sold at the price of the sold options strike price). Then the lower strike option is exercised. I will make the difference between the two strikes (the price spread), less the initial debit. If the stock doesn't close above the option I sold (short), then I will sell the option for the next month and collect the premium for one more month, and so on until the stock closes in the money. Sometimes, if the stock advances in the money before expiration, one can close out the position for a greater credit than received if assigned at expiration. Why? Because the option you buy in the money at the lower strike price has a higher delta and therefore, accelerates faster than the sold option. Now comes the $64K question. "Instead of only buying the call, why did I sell a call against the one that I bought if I have to pay more for it when I close everything out? My answer is if you knew for sure that the stock was going up, you should have sold you house, car, dog, kids and loaded the boat with all you had. Just kidding! Simply, you never know how an option trade will pan out. That is why they call it speculation. This strategy allows a little room for error. A great feature of this strategy is the hedging capabilities. If you invest $8000 cash in a $40 stock, you can afford to buy 200 shares of said stock. If you sells 2 May 45 covered calls for $1.50 per contract, you will receive $300 initially. If the stock advances above $450, you will receive $45 per 200 share upon assignment of the May option at expiration. If this occurs, the maximum profit will be $1300. Now if you invest in 10 contracts of August 35 calls for $8 per contract, you will spend the same $8000. If you sells 10 contracts of the same May 45 calls for $1.50 per contract, you will receive an initial $1500. If the stock advances above $45 per share before expiration, you have an option to close out the entire position and still have a chance of making a profit (due to the deltas). The covered call doesn't have that luxury. Finally, if the stock closes above $45 on expiration of the May call, then the May 45 call will be assigned. This means 1000 shares of stock will be sold. You must cover the short stock by either buying the stock at the current market or exercising your August 35 call. If you exercise you will be buying the stock at $35 and selling at $45. That is a $10 difference multiplied by 1000 shares. Your total profit is the $10 difference less the initial debit of $6.50 ($8 - $1.50 = $6.50). Or $3.50 per contract ($10 - $6.50). That is a total gain of $3500. That is a little better than the assigned gain of $1300 from the covered call. Furthermore, you make an initial return and, if assigned or closed out previous to expiration, a closing return. The initial return, for instance, is achieved when you buy XYZ 60 call @ 11 and sell XYZ 70 call @ 3. This is a 27.2% initial return. The assigned return is 18.2% ($2 profit divided by $11). To further illustrate this strategy, we are going shopping today for the least expensive debit on XYZ. The debit is created when you pay more for the long-term option than you can sell the short-term option for. The January options have expired and February options still have four weeks of premium. XYZ has February, May & August expirations. XYZ is currently trading at 152. I want the option I am buying to be in the money and still not be over priced in relation to the short-term option. First, we will bargain hunt for the May 150 Calls. They are trading at $9 per contract. The February 155 Calls are trading at $4 per contract. This gives a debit of $5 and a price spread of 5. The February 160 Calls are trading at $2 per contract. This is good. It gives a debit of $7 and a price spread of 10. But before we do this trade, lets look at buying the May 145 Calls for 12 and Selling the February 155 Calls for 4. This is good too. It gives us an $8 debit and a price spread of 10. I realize I said that we want the least expensive spread. But the 145 - 155 spread is only $3 from being in the money while the 150 - 160 spread is $8 from being in the money. This is up to you!! In order to help you make the decision, look at the initial and potential closing returns as well as the likelihood of assignment in the near future. One final note is that it is not always necessary to find a trade with a debit less than the spread. There are a few more things to know about this strategy. One good thing is that the long-term option's cost basis is reduced. This allows room for the stock to fluctuate without having to be overly concerned. It is necessary to place stops on these strategies. One might place the stop at a percentage of the net debit. Remember that both sides must be closed out. Unless you are cleared for naked options, consider the cost of buying back the short leg of the spread when calculating your desired stop. One can only speculate on the price of the short leg when the stock drops to the stop loss point. One other strategy is buying back the short and then selling the same option if and when the stock advances to safer levels. If you entered the position due to technical reasons, then you should exit it if those reasons change. I cannot provide all the variables that can happen and their respective solutions. As with all strategies, there are various actions that may be done that I my not have considered. If you have any questions, please contact me. Access this hyper link to receive a copy of the Characteristics and Risks of Standardized Options: http://www.cboe.com/resources/odd/ 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 http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html. *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* AMGN - Amgen Inc $68.58 (+2.71 last week) See details in sector list Put Play of the Day: ******************** ISSX - Internet Security Systems $48.02 (-6.69 last week) See details in sector list ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2218 ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No dropped calls this weekend PUTS BMY $56.25 (+2.05) A healthy downtrend looked promising when we began coverage. It's unfortunate the downward trend got nipped in the bud at $51.93. Friday's sharp reversal in the healthcare sector effectively took us out of our play on BMY. A strong open set the stage for a bullish run. Our protective stop at $55 quickly became a dot in the rearview mirror. The gains were across the board with major drug companies like MRK and LLY leading the pack. *********** 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 ************** CELG - Celgene Corp $30.74 (+2.71 last week) Celgene Corporation is a biopharmaceutical company that develops and commercializes human pharmaceuticals and agrochemicals. The Company has developed and integrated a large set of proprietary target and drug discovery technologies to accelerate the application of genomics to the discovery of new classes of gene- regulating drugs. The Company's drug discovery and development programs are focused in several disease areas in which gene dysregulation plays a major role in the onset and progression of disease, including cancer and inflammatory diseases. Celgene's lead compound, THALOMID, is in clinical trials for the treatment of a variety of cancers and is being marketed for the treatment of ENL, a complication of leprosy. Celgene is also awaiting FDA approval for Attenade, a drug to treat attention deficit disorder. An admirable rebound in the Biotech Index (BTK.X) on May 17th accompanied Celgene's announcement that they plan to pursue a major trial to further evaluate THALOMID as a potential therapy for late stage renal cell carcinoman. The recent news released from the American Society of Clinical Oncology about novel treatments for cancer also helped boost the sentiment surrounding many of the biotech stocks. Investors lost no time. Shares of this potentially profitable company were sent into motion. A steady climb from the $20 level positioned CELG to challenge the tough line of resistance at $30. On Friday, CELG succeeded in breaking through the subservient trading realms on 1.5 times the ADV. It's likely the news that Celgene had begun clinical studies to determine if its THALOMID drug, when combined with Roche Holding AG's Xeloda, is effective in treating colorectal cancer generated additional excitement within the industry. In recent weeks the volume has been average to exceptional, so of course look for heavy trading to incite future gains. The next objective is to make an unbridled charge towards $40; although be prepared for some light resistance in the vicinity of $35. If the penchant for the sector remains intact, look for powerful momentum to keep the BTK.X topside of the climacteric 600 level. Trading of this magnitude gives players the green light to jump on CELG in an advancing market - assuming CELG is not bucking the trend! We're initiating a protective stop at $25 and will drop coverage if CELG cannot maintain a position above this mark on a CLOSE. ***June contracts expire in two weeks*** BUY CALL JUN-25 LQH-FE OI= 565 at $6.20 SL=4.25 BUY CALL JUN-30*LQH-FF OI= 681 at $2.40 SL=1.25 BUY CALL JUN-35 LQH-FG OI= 18 at $0.65 SL=0.00 BUY CALL JUL-30 LQH-GF OI=1154 at $3.90 SL=2.50 BUY CALL JUL-35 LQH-GG OI= 913 at $1.85 SL=0.75 Average Daily Volume = 2.16 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CELG VRSN - VeriSign, Inc. $56.24 (-6.23 last week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the company's trusted service infrastructure to develop and deploy customized digital certificate services for use by an organization's employees, customers and business partners. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. It's hard to argue with a technology company that is still growing revenues at a better than 500% annual clip while blasting through analyst expectations every quarter. While it is still an Internet company that has yet to turn a profit, the company's leading position in Internet security and Internet domain registrations are keeping it on a healthy growth path. Investors are apparently pleased with the company's performance too as they have pushed VRSN's price higher by more than 100% since the beginning of April. As the price continues to walk higher, supported by the ascending trendline, more investors come off the sidelines to fuel the next leg up. Most recently, VRSN shot up to the $68 resistance level and has spent the past 2 weeks consolidating its gains near the $55-56 level, right at the ascending 2-month trendline and the 30-dma ($55.40). Daily stochastics are still falling, so we could see a bit more weakness before VRSN reverses and heads higher again. Consider aggressive entries on a bounce from support at $53, or even our $51 stop level. VRSN has been struggling to clear the $58.50 resistance level over the past few days and more conservative traders may want to consider new entries as the stock crests this level or better yet resistance between $60-61. ***June contracts expire in two weeks*** BUY CALL JUN-55*QVR-FK OI= 885 at $4.50 SL=2.75 BUY CALL JUN-60 QVR-FL OI=2349 at $2.15 SL=1.00 BUY CALL JUN-65 QVR-FM OI=2143 at $0.95 SL=0.00 BUY CALL JUL-60 QVR-GL OI= 165 at $5.30 SL=3.25 BUY CALL JUL-65 QVR-GM OI= 132 at $3.50 SL=1.75 BUY CALL JUL-70 XVR-GN OI= 147 at $2.45 SL=1.25 SELL PUT JUN-55 QVR-RK OI=1123 at $3.10 SL=5.00 (See risks of selling puts in play legend) Average Daily Volume = 8.94 mln http://www.premierinvestor.net/oi/profile.asp?ticker=VRSN *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=2206 ************************************************************ ********** 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 06-03-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/5883_3.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ ****************** CURRENT CALL PLAYS ****************** AMGN - Amgen Inc $68.58 (+2.71 last week) Amgen, Inc. is a global biotechnology company that discovers, develops, manufactures and markets human therapeutics based on advances in cellular and molecular biology. The Company manufactures and markets four human therapeutic products, EPOGEN (Epoetin alfa), NEUPOGEN (Filgrastim), INFERGEN (Interferon alfacon-1) and STEMGEN (Ancestim). Amgen uses wholesale distributors of pharmaceutical products as the principal means of distributing the Company's products to clinics, hospitals and pharmacies. Being one of the largest and most profitable biotech companies in the industry, it's no wonder investors have been scooping up shares AMGN amid the bullish rotation back into the sector. The Biotechnology Index reversal out of its long-term downtrend demonstrated strength across the board in mid-May. The technical strength of BTK.X in recent sessions further exhibits a positive sentiment going into next week. And on Friday, the stock's 3.2% surge closed the gap on the historical resistance found in the proximity of $67.50. The breakout of the strong wedge formation, coupled with the established pattern of higher lows, suggests AMGN is at another fork in the road. Look for AMGN to make a bold move through $70 and challenge the price levels of last February. An entry on a pullback might find traders target shooting for positions at $66.50, near the supportive 10-dma line. Otherwise, buy into the momentum as AMGN shatters the $70 level and rivals like IMCL and DNA are making their own respective strides. It'll be important to see the BTK.X keep rallying above the important 600 level as well. Be prepared to exit the play if AMGN fails to close above $65. ***June contracts expire in two weeks*** BUY CALL JUN-60 YAA-FL OI= 4033 at $9.10 SL=6.25 BUY CALL JUN-65*YAA-FM OI= 8182 at $4.50 SL=2.75 BUY CALL JUN-70 YAA-FN OI= 9016 at $1.45 SL=0.75 BUY CALL JUL-65 YAA-GM OI=10197 at $6.60 SL=4.50 BUY CALL JUL-70 YAA-GN OI=13328 at $3.40 SL=1.75 Average Daily Volume = 10.4 mln http://www.premierinvestor.net/oi/profile.asp?ticker=AMGN ITG - ITG Inc $52.25 (-0.49 last week) ITG is headquartered in New York with offices in Boston, Los Angeles, Dublin, London, Melbourne, Sydney, Tel Aviv and Toronto. As the leading provider of technology-based equity trading services and transaction research to institutional investors and brokers, ITG generates superior trading results for its clients. ITG's services help clients to access liquidity, execute trades more efficiently and make better trading decisions. ITG's cutting-edge trading tools are easy to use and interface seamlessly with clients' workflow. As an electronic broker, ITG differentiates itself with institutional customers via front-end or desktop services that provide unique content and connectivity. In the electronic trading marketplace, through its POSIT system, ITG is the premier confidential stock- crossing system for the industry. A whirlwind of activities in recent months that included a respectable earnings' report, upgrades, industry-wide consolidation, and a well received IPO by Instinet manifested the bullish disposition currently effecting shares of this electronic broker. We initiated coverage on Thursday evening as ITG's close had positioned it just below the 50-dma of $50.60. We advised an aggressive entry on a break above this level on strong volume. The trading fairies saw that it came to fruition following Friday's amateur hour. The convincing break took shares of ITG right up to the 10-dma line, which unfortunately has served as a forerunner to the $55 stubborn resistance. It'll be important to continue monitoring others in the financial service industry like INET and IFIN to get the slant on the investment community; although it appears ITG may very well run its own course over the short-term. Keep closing stops set at $48. ***June contracts expire in two weeks*** BUY CALL JUN-50*ITG-FJ OI=437 at $3.90 SL=2.50 BUY CALL JUN-55 ITG-FK OI= 80 at $1.15 SL=0.00 BUY CALL JUL-50 ITG-GJ OI=526 at $5.60 SL=3.50 BUY CALL JUL-55 ITG-GK OI=146 at $3.20 SL=1.50 Average Daily Volume = 234 K http://www.premierinvestor.net/oi/profile.asp?ticker=ITG CEFT - Concord EFS Inc $50.50 (-0.10 last week) Concord is a vertically integrated electronic transaction processor. Primary activities include Payment Services, providing credit, debit, check authorization, and EBT processing services to supermarkets, gas stations, and other selected retail segments; and Network Services, providing gateway processing, ATM driving, and debit card processing to the financial services industry, plus coast-to-coast network access under the STARsm, MAC and Cash Station brands. From their early beginnings as a point of sale equipment manufacturer to our position today as the nation's leader in ATM driving, network access, and online debit transactions. The warm fuzzy feeling surrounding CEFT eased a bit last week as the share price consolidated at its 52-week highs. And no one should balk at that, CEFT's had a great run! Volume's remained robust throughout the consolidation period; and going forward, it's definitely a healthy sign that the buying lulled. It gives the upward dynamics a chance to replenish as well as demonstrate its ability to stay afloat of the psychological $50 level. At this point in the play, let's be patient for a run over the intermediate term before jumping into aggressive positions on pullbacks. If industry peers FDC and PAYX rally in an advancing marketplace, then you might want to jump into the sector momentum as CEFT surges above $51. This still poses risk, but at least you have the market and sector on your side. If you choose to implement this game plan, it may be wise to lock in gains as CEFT approaches $55. Keep closing stops in place at $49. ***June contracts expire in two weeks*** BUY CALL JUN-45*EQF-FI OI=10172 at $5.90 SL=4.00 BUY CALL JUN-50 EQF-FJ OI= 5120 at $1.90 SL=1.00 BUY CALL JUN-55 EQF-FK OI= 2221 at $0.35 SL=0.00 BUY CALL JUL-50 EQF-GJ OI= 187 at $3.40 SL=1.75 BUY CALL JUL-55 EQF-GK OI= 557 at $1.30 SL=0.50 SELL PUT JUN-50 EQF-RJ OI= 628 at $1.35 SL=2.00 (See risks of selling puts in play legend) Average Daily Volume = 3.83 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CEFT NOVN - Noven Pharmaceuticals Inc $32.06 (+0.11 last week) Noven Pharmaceuticals develops advanced transdermal and transmucosal drug delivery systems and technologies. Their principle products are for use in hormone replacement therapy. Noven's first commercial success was an estrogen patch for the treatment of menopausal symptoms marketed under the brand name Vivelle in the US and Canada. Noven holds over 20 additional US patents relating to its products and technologies. May was a fantastic month for Noven Pharmaceuticals! A solid earnings' report on May 1st chaperoned by a Strong Buy recommendation from the influential UBS Warburg launched NOVN out of the abyss. A well-received presentation at the UBS Warburg 5th Annual Global Specialty Pharmaceuticals Conference on May 21st then fueled NOVN's break through the $32 price level. It looked like NOVN was aiming for the stars, but the synergy of a stumbling NASDAQ and Biotech Index (BTK.X) was too much pressure. NOVN pulled back to its previous resistance at the $29, which offered aggressive traders the opportunity to begin new plays in an advancing market. There was also big news hitting the press to generate short-term excitement last week. Noven Pharmaceuticals announced last Wednesday that it was issued a US patent to the transdermal delivery of methylphenidate for the treatment of Attention Deficit Hyperactivity Disorder (ADHD). The proprietary technology for delivering a therapeutically effective dose of methylphenidate, the benchmark medication for ADHD via a transdermal patch is bottom-line, lucrative; especially considering that the patent is effective through the year 2018. Although NOVN is currently trading on respectable volume at the higher levels, we'd like to see a big breakout through $34 to confirm strength on the upside. Let's start the week with a $30 protective stop. If NOVN doesn't keep afloat of that level on a close, we'll exit the play. ***June contracts expire in two weeks*** BUY CALL JUN-25 NPQ-FE OI= 83 at $7.50 SL=5.25 BUY CALL JUN-30*NPQ-FF OI= 59 at $3.20 SL=1.50 BUY CALL JUN-35 NPQ-FG OI= 34 at $0.85 SL=0.00 BUY CALL JUL-30 NPQ-GF OI= 63 at $4.60 SL=2.75 BUY CALL JUL-35 NPQ-GG OI=126 at $2.25 SL=1.00 Average Daily Volume = 449 K http://www.premierinvestor.net/oi/profile.asp?ticker=NOVN CB - Chubb Corporation $74.35 (+1.13 last week) Chubb Corporation, incorporated in June 1967, is a holding company with subsidiaries principally engaged in the property and casualty insurance business. The Company presently underwrites most forms of property and casualty insurance. The Company's Property and Casualty Insurance Group writes non-participating policies. Several members of the Property and Casualty Insurance Group also write participating policies, particularly in the workers' compensation class of business, under which dividends are paid to the policyholders. Insurance stocks have been on the rise lately and CB has been leading the charge. Kicked off by a well-received earnings report in late April, shares of the company have been attracting a lot of buying interest, further fueled by positive analyst ratings from the likes of Merrill Lynch, Dresdner bank, and most recently Morgan Stanley raising their rating to Outperform. Morgan Stanley stated that they expect 2002 to be a banner year in terms of earnings and this helped to push the stock through the venerable 200-dma (currently $75.24) on Wednesday. Well, it had to happen eventually and on Thursday the profit takers showed up, dragging CB lower into the close on Friday. The $74 support level is still intact, but showing signs of wear after Friday's weakness. Aggressive traders can target a bounce near this level for new positions next week, but only if it is accompanied by solid buying volume. A close below our $74 stop will spell the end of the play, so keep that in mind before playing. The more conservative approach will be to wait for CB to once again clear the 200-dma and ideally the $76.50 level, which offered resistance last week. ***June contracts expire in two weeks*** BUY CALL JUN-70 CB-FN OI=167 at $4.80 SL=3.00 BUY CALL JUN-75*CB-FO OI=250 at $1.35 SL=0.50 BUY CALL JUL-75 CB-GO OI=541 at $2.60 SL=1.25 BUY CALL JUL-80 CB-GP OI=312 at $0.85 SL=0.00 SELL PUT JUN-75 CB-RO OI= 21 at $1.80 SL=3.50 (See risks of selling puts in play legend) Average Daily Volume = 1.02 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CB CD - Cendant Corporation $18.98 (+0.11 last week) Cendant is a diversified provider of business services, especially in the real estate and travel industry. Cendant's Real Estate Division is the leader in the world's largest industry, with affiliates responsible for more than one out of every four homes sold or purchased in the U.S., the leading relocation services company, and a leading home-related Internet portal. As one of the world's leading franchisers of mid-economy market lodging brands and a leading car rental company, and the world's largest timeshare exchange company, Cendant's Travel Division is one of the largest providers of travel services around the globe. Looking at a daily chart of CD, it would be hard to guess that the economy has been slowing. After putting in a triple-bottom near $9 at the end of last year, the stock has been in a nice upward trend, with the share price more than doubling in the past 5 months. Fueling this ascent is the most fundamental of catalysts, earnings. While much of the economy continues to slow and one company after another is slashing earnings estimates, CD is going the other way; beating analyst expectations and occasionally revising their earnings estimates upwards. Analysts are starting to warm up to the company too, as demonstrated by JP Morgan's recent coverage of the stock with a Buy rating and a $23 price target. The company appears to be returning to its growth-by-acquisition strategy, and has attracted investor attention with its proposed spinoff of Cendant Merchandising Services this fall. Adding the final touch to our play, the company's CEO confirmed his expectation that the CD will meet or exceed analyst expectations for the remainder of the year. The stock price has been steadily marching higher and has now reached the critical $19 resistance level, with solid support now resting at $18. Consider new positions either on a bounce from support, or at the ascending 10-dma ($18.75), or on a breakout above $19.25 on solid volume. Our stop is sitting at $18, as a drop below this level would be a disturbing technical development. ***June contracts expire in two weeks*** BUY CALL JUN-17.5*CD-FW OI= 3430 at $1.75 SL=0.75 BUY CALL JUN-20.0 CD-FD OI= 8124 at $0.35 SL=0.00 BUY CALL JUL-17.5 CD-GW OI= 239 at $2.20 SL=1.00 BUY CALL JUL-20.0 CD-GD OI= 1750 at $0.80 SL=0.00 BUY CALL AUG-20.0 CD-HD OI=18039 at $1.00 SL=0.00 SELL PUT JUN-20 CD-RD OI= 106 at $1.15 SL=2.00 (See risks of selling puts in play legend) Average Daily Volume = 7.51 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CD IMCL - Imclone Systems $53.09 (+3.03 last week) Engaged in the research and development of novel cancer treatments, IMCL focuses on growth factor inhibitors, therapeutic cancer vaccines and angiogenesis inhibitors. The company's lead product candidate, IMC-C225, is a therapeutic monoclonal antibody that inhibits stimulation of a receptor for growth factors upon which certain tumors depend. Phase I/II clinical trials have been promising. The lead candidate for angiogenesis inhibition, IMC-1C11 is an antibody that binds selectively and with high affinity to KDR, a principal Vascular Endothelial Growth Factor (VEGF) receptor, thus inhibiting angiogenesis. After the Biotechnology index (BTK.X) failed to hold above the $600 support level, it looked like our IMCL play might be destined for the drop list. But the bulls had different plans. Starting right from the open on Thursday, buyers lined up to propel the BTK higher. IMCL dipped briefly below our $47 stop on Thursday before reversing on a dime and heading sharply higher. Rumors surfaced on Thursday that the company was seeking a partner for drug development efforts stemming from its leading product candidate, IMC-C225. Speculation that Bristol Myers might be interested in IMCL, but as a buyout candidate really got the stock hopping on Friday. The stock gapped right through the $50 resistance level and ended the day with better than a $3 gain on volume nearly double the ADV. That's what we call a breakout, and IMCL is now in territory it hasn't visited since last November. With the breakout, we are moving our stop up to $50, and aggressive traders can consider new positions on any volume-backed bounce above this level, preferably at the $52.50 intraday support level. More conservative players will want to wait for IMCL to rally through the $54 resistance level before opening new positions. Make sure the BTK is still in rally mode, as our play may have some difficulty in continuing its ascent without the cooperation of its sector. ***June contracts expire in two weeks*** BUY CALL JUN-50 QCI-FJ OI=3397 at $4.70 SL=2.75 BUY CALL JUN-55*QCI-FK OI=1587 at $2.20 SL=1.00 BUY CALL JUN-60 QCI-FL OI= 20 at $0.85 SL=0.00 BUY CALL JUL-55 QCI-GK OI= 441 at $4.70 SL=2.75 BUY CALL JUL-60 QCI-GL OI= 557 at $2.90 SL=1.50 SELL PUT JUN-50 QCI-RJ OI= 425 at $1.40 SL=3.00 (See risks of selling puts in play legend) Average Daily Volume = 1.44 mln http://www.premierinvestor.net/oi/profile.asp?ticker=IMCL OAKT - Oak Technology $10.99 (-0.31 last week) Oak Technology designs, develops and markets high-performance integrated semiconductors, software and platform solutions to original equipment manufacturers (OEMs) that serve the optical storage, I-appliance and digital imaging equipment markets. The company's products consist primarily of integrated circuits and supporting software, all designed to store and distribute digital content, enabling its OEM customers to deliver cost-effective, powerful systems to home and enterprise end users. Aggressive traders are still waiting for OAKT to get moving, and if the last two days are any indication, they may be rewarded next week. Following the broader Technology market lower during the early part of the week, OAKT attracted buyers just above the $10 support level on Thursday. Despite light volume, the stock managed to advance back to the $11 level Friday afternoon. Resistance is resting just overhead at $11.50, and if the bulls can clear this hurdle, they'll be clear to attempt a breakout over $12.50. That will be the 'go' signal for initiating new positions, especially if volume picks up in the vicinity of the ADV. Clearly aiding OAKT in its advance over the past couple days has been the Semiconductor index (SOX.X), which has once again moved above the critical $600 level. Traders still seem to be betting on the Semiconductors to lead the market higher with the emergence of the second-half recovery, and who are we to argue? This is an aggressive play and we don't want to buy the dips. Wait for the volume-backed move through $12.50, accompanied by a continued advance on the SOX, and it looks like a OAKT could quickly advance to the 200-dma (currently $14.46), followed by resistance near $18. Remember that our stop is sitting at $9.50, and any close below that level will spell the end of our play. ***June contracts expire in two weeks*** BUY CALL JUN-10.0*KAU-FB OI=1190 at $1.40 SL=0.75 BUY CALL JUN-12.5 KAU-FV OI= 304 at $0.30 SL=0.00 BUY CALL JUL-10.0 KAU-GB OI=4837 at $1.80 SL=1.00 BUY CALL JUL-12.5 KAU-GV OI=1339 at $0.80 SL=0.00 BUY CALL OCT-12.5 KAU-JV OI= 327 at $1.60 SL=0.75 Average Daily Volume = 1.14 mln http://www.premierinvestor.net/oi/profile.asp?ticker=OAKT *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. 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The Option Investor Newsletter Sunday 06-03-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/5883_4.asp *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ ************* NEW PUT PLAYS ************* CREE - Cree Inc. $27.80 (-5.05 last week) Established to commercialize silicon carbide (SiC) semiconductor wafers and devices, CREE is the world leader in developing and manufacturing compound semiconductor materials and electronic devices made from SiC. SiC-based devices offer significant performance advantages over competing products made from silicon, gallium arsenide, sapphire and other materials. CREE uses its compound semiconductor technology to make enabling products such as blue and green light emitting diodes, or LEDs. Primary applications for these LEDs include backlighting for automotive dashboards and interior lighting, wireless handsets and indoor and outdoor full-color displays, such as video boards in arenas and stadiums. Proving that the law of gravity has not yet been repealed, bullish investors finally decided to take some profits off the table after propelling CREE from its April low near $12 to a high of more than $36. For those of you keeping score at home, that is almost a 200% rise. No wonder the stock came off its highs. The big question now is whether the profit taking will expand into heavy selling, but judging from the action on Friday, it doesn't look good for the bulls. Volume swelled to 25% above the ADV as the stock gradually crept lower, pressing against the $27 support level. If the bears can breach this level, they'll be setting their sights on lower levels of support at $25 and then $22, also the site of the 50-dma. While CREE has managed to keep its earnings relatively intact during the recent tech-wreck, speculation of a more protracted economic slowdown doesn't bode well for the company's flow of orders. The ongoing analyst battle over when the Semiconductor industry will truly rebound is likely to have a significant effect on CREE, and further weakness in the Semiconductor index (SOX.X) should seal the bulls' fate. Aggressive traders can target new positions on a rollover from intraday resistance at $29 or the level of our stop at $31. A more passive approach will be to enter the play as selling pressure breaches the $27 support level on increasing volume. ***June contracts expire in two weeks*** BUY PUT JUN-30*CQR-RF OI= 732 at $3.40 SL=1.75 BUY PUT JUN-25 CQR-RE OI=3338 at $1.00 SL=0.00 BUY PUT JUL-30 CQR-SF OI= 191 at $4.90 SL=3.00 BUY PUT JUL-25 CQR-SE OI=2335 at $2.25 SL=1.00 Average Daily Volume = 2.52 mln http://www.premierinvestor.com/oi/profile.asp?ticker=CREE AIG - American Intl Group Inc $80.09 (-2.22 last week) American Intl Group is a holding company that through its subsidiaries provides a variety of insurance and insurance- related activities in the US and overseas. AIG's primary activities include writing property, casualty, and life insurance, as well as providing a broad range of financial services and asset management. The majority of insurance stocks experienced great popularity lately, as is measured by the Insurance Index (IUX.X). However, the index's bullish support at 770 started to show signs of deterioration last week; and on Friday it closed at 758.18, just a few points from its intraday low. A teetering broader sector coupled with news of its $23 bln stock acquisition of the #3 US life insurer, American General Corp (AGC), sent shares of AIG into a downward spiral. Although it may be true that the largest acquisition ever to take place in the insurance industry will ultimately provide fantastic returns to investors, the bears are definitely in control at present. Conforming to the broader sector's pullback, AIG is currently at its own crux. If the $80 levels crumbles, then it wouldn't be unimaginable for the stock to see $75 and make a charge for the 52-week low, at $72.64. That scenario invites conservative players to jump on AIG and ride the decline to the vicinity of bottom support. On the other hand, you might target an entry on a rollover from our $83 closing stop, or even a bit higher depending on the market conditions; but be sure your portfolio can handle the added risk. Track sector movements by monitoring the IUX.X and individual stocks like CB, PGR, and SPC. A bullish close above $83 and we'll drop coverage that evening. ***June contracts expire in two weeks*** BUY PUT JUN-85 AIG-RQ OI=1800 at $5.10 SL=3.00 BUY PUT JUN-80*AIG-RP OI=1986 at $1.35 SL=0.75 BUY PUT JUN-75 AIG-RO OI=1386 at $0.30 SL=0.00 Average Daily Volume = 5.13 mln http://www.premierinvestor.com/oi/profile.asp?ticker=AIG ***************** CURRENT PUT PLAYS ***************** ISSX - Internet Security Systems $48.02 (-6.69 last week) Internet Security Systems is a global provider of security management solutions for protecting e-business. The company's Adaptive Security Management approach to information security protects distributed computing environments from attacks, misuse and security policy violations, while ensuring the confidentiality, privacy, integrity and availability of proprietary information. ISSX delivers an end-to-end security management solution through its SAFEsuite security management platform coupled with around-the-clock remote security monitoring through the company's managed security services offerings. If you like double-tops, you sure can't argue with the gem that ISSX offered us a little over a week ago when it failed to power through the $61 resistance level. Since then the price has been slashed by more than 20%, and is on the verge of breaking below the $46-47 support level. Internet security stocks actually had a nice run in April and May, but it is starting to look like it is time to pay the piper. ISSX currently has a PE ratio just fractionally below 100, and if they even make a hint of missing earnings in the current quarter, the abuse could be severe. The stock bottomed in early April near $20, and any bad news could be just the ticket to send it back down to test support near $37-38. All we need is for selling volume to pick up again, and we could see those recent gains evaporate quicker than a desert rainstorm in July. Although buyers showed up on both Thursday and Friday near the $46 support level, they seem to run out of conviction between $48-49, presenting us with an attractive put opportunity. With our stop still resting at $51, aggressive traders can consider new entries on a rollover below this level. More conservative entries will appear as ISSX drops through the $46 support level, preferably on increasing volume. ***June contracts expire in two weeks*** BUY PUT JUN-50*ISU-RJ OI= 76 at $5.00 SL=3.00 BUY PUT JUN-45 ISU-RI OI= 26 at $2.50 SL=1.25 BUY PUT JUL-45 ISU-SI OI=307 at $4.80 SL=3.00 BUY PUT JUL-40 ISU-SH OI=313 at $3.00 SL=1.50 Average Daily Volume = 1.80 mln http://www.premierinvestor.com/oi/profile.asp?ticker=ISSX JNPR - Juniper Networks $42.79 (-9.37 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. The aborted Lucent/Alcatel merger at the start of the week sat like a bad omen over the Networking sector, and it seems as though none of the major players in this arena escaped unscathed. JNPR started out by plunging through its long-term support at both $52 and then $50 before descending into a new trading range between $40-45. While the heavy volume that accompanied the drop early in the week has dissipated somewhat, the bulls certainly haven't been in a hurry to boost the stock above $45. Except for the gap-up open on Friday, the bears remained in control all week. The early April gap between $40-42 has now been filled, so we are now left to wait and see how determined the bears are to push the stock even lower. We are now entering earnings warnings season again, and there should be plenty of confessions lying in wait to push the Networking index (NWX.X) ever lower. Target shooting new entries on a failed rally from the $45 level (also the location of our stop) will provide for attractive entries next week. More cautious investors will want to wait for continued selling pressure to push JNPR below the $40 support level before initiating new positions. ***June contracts expire in two weeks*** BUY PUT JUN-45*JUX-RI OI=6961 at $4.80 SL=3.00 BUY PUT JUN-40 JUX-RH OI=4521 at $2.30 SL=1.25 BUY PUT JUL-45 JUX-SI OI=3023 at $7.20 SL=5.00 BUY PUT JUL-40 JUX-SH OI=7531 at $4.60 SL=2.75 BUY PUT JUL-35 JUX-SG OI=2819 at $2.75 SL=1.50 Average Daily Volume = 29.3 mln http://www.premierinvestor.com/oi/profile.asp?ticker=JNPR NEWP - Newport Corp. $32.08 (-6.68 last week) Newport is a global supplier of test, measurement and automation systems and subsystems that enable manufacturers of fiber-optic components, semiconductor capital equipment and aerospace products to automate manufacturing processes, enhance product performance and improve manufacturing yields. The key Fiber Optics and Photonics division offers a broad line of automated manufacturing systems that address a spectrum of applications in the fiber-optic component manufacturing process; from pre-test to assembly and packaging, to final device testing and burn-in. Just like the rest of the Networking sector, NEWP reacted badly to news that the merger between Alcatel and Lucent was a no-go. The entire Networking index (NWX.X) dropped sharply on the news, and NEWP hit a recent low on Wednesday of $30.80, its lowest close in 6 weeks. There was some mild buying interest on Thursday, but fears that the tech recovery might be further off than the second half kept the rally well contained. Investors that bought puts on the opening spike on Friday are smiling this weekend, and next week could be offering up more of the same as earnings warning season gets under way. Our stop is currently resting at $35, and any failed rally below this level will present attractive entry points. The more cautious approach will be to wait for increased selling pressure to push NEWP below the $30 support level before venturing into new positions. Despite daily stochastics deep in the oversold region, there is little reason to buy Networking stocks, and NEWP could very well be headed into another sustained decline as the summer doldrums approach. ***June contracts expire in two weeks*** BUY PUT JUN-35*NZZ-RG OI=1234 at $4.60 SL=2.75 BUY PUT JUN-30 NZZ-RF OI= 455 at $1.85 SL=1.00 BUY PUT JUN-25 NZZ-RE OI= 216 at $0.60 SL=0.00 BUY PUT JUL-30 NZZ-SF OI= 156 at $3.90 SL=2.50 BUY PUT JUL-25 NZZ-SE OI= 186 at $2.15 SL=1.00 Average Daily Volume = 3.75 mln http://www.premierinvestor.com/oi/profile.asp?ticker=NEWP PMCS - PMC-Sierra, Inc. $32.08 (-5.12 last week) PMCS designs, develops, markets and supports high-performance semiconductor networking solutions. The company's products are used in the high-speed transmission and networking systems, which are being used to restructure the global telecommunications and data communications infrastructure. Providing components for equipment based on Asynchronous Transfer Mode, Synchronized Optical Network, Synchronized Digital Hierarchy, High Speed Data Link Control, and Ethernet, the company sells its products to over 100 customers either directly or through its worldwide distribution channels. Amazingly, the only thing that seems to be propping up shares of PMCS is the recovery in Semiconductor stocks. Yep, you heard me right. The Semiconductor index (SOX.X) managed to crawl back over the $600 resistance level and the 50-dma (currently at $609.66) to repair a goodly portion of the damage that was done earlier in the week. Of course, PMCS operates in both the Semiconductor and Networking sectors, and the carnage visited on the Networking index (NWX.X) thanks to the blown Lucent/Alcatel merger was significant. Throw in bad news on the likes of SUNW and EMC and it is a wonder that the damage to technology stocks wasn't worse last week. Poor economic reports aren't helping the case either, but investors seem to be grasping at hopes of another interest rate cut when the Fed meets again in June. The reality is that there is precious little to drive PMCS upwards and with the beginning of another dismal earnings warning season upon us, lots of potential factors to drive the stock down. When both the SOX and NWX get moving down at the same time, our play ought to pick up speed as it heads for support at $27, followed by $24. Aggressive entries can be taken as PMCS rolls over near the $33 intraday resistance level or our stop at $35. More conservative traders will want to wait for the stock to fall through $30.50 before taking a position. ***June contracts expire in two weeks*** BUY PUT JUN-35*SQL-RG OI=8487 at $4.80 SL=3.00 BUY PUT JUN-30 SQL-RF OI=2981 at $1.95 SL=1.00 BUY PUT JUL-30 SQL-SF OI= 263 at $3.80 SL=2.25 BUY PUT JUL-25 SQL-SE OI= 282 at $1.90 SL=1.00 Average Daily Volume = 9.77 mln http://www.premierinvestor.com/oi/profile.asp?ticker=PMCS A - Agilent Technologies Inc $33.97 (-3.72 last week) Agilent is a globally diversified technology company that provides solutions to high growth markets within the communications, electronics, healthcare and life sciences industries. They're a leading maker of analysis equipment with over 50% of sales deriving from its Test and Measurement Unit. In its basic form, Agilent Technologies tests the Web's parts before they are put into action. Blue chip customers include AT&T, Cisco, and Pharmacia. A sharp drop alongside the NASDAQ on Wednesday took Agilent down to the mat. The critical breach and failure to resurface sets shares of A up for a technical breakdown over the near-term. The bulls made a valiant effort to push the price topside of $35 late afternoon Friday, but ultimately failed. The broad industry is mixed with related issues like FCEL, who announced a 2:1 stock split and solid earnings on Thursday, flying high and others such as JBL, CLS, and BLDP barely holding par. Therefore, it's imperative to pay careful attention to the stock's individual direction in accordance with market gyrations versus the sector's more specific rotations. You might target practical entries on the downside as shares of Agilent rollover from the current level and violate the $33 support. Better confirmation is a high-volume slide to the underside of $32 in a declining marketplace. The $30 level poses a threat, so be prepared for charging bulls. In other words, taking profits as the stock approaches this potential trap might be the best bet. Maintain a CLOSING stop at $35. ***June contracts expire in two weeks*** BUY PUT JUN-40 A-RH OI= 806 at $6.30 SL=4.50 BUY PUT JUN-35*A-RG OI=1356 at $2.10 SL=1.00 BUY PUT JUN-30 A-RF OI= 360 at $0.35 SL=0.00 Average Daily Volume = 2.43 mln http://www.premierinvestor.com/oi/profile.asp?ticker=A BLDP - Ballard Power Systems $54.56 (-3.94 last week) Ballard Power Systems, Inc. was founded in 1979 to conduct research and development in high-energy lithium batteries. In 1983, Ballard began developing proton exchange membrane (PEM) fuel cells. Today, these systems have evolved into pre-commercial prototypes proving the practicality of the Ballard fuel cell and fuel cells are widely viewed as viable alternatives to conventional technologies. Ballard's focus is now on working with its strategic partners to develop competitive products for mass markets by reducing cost and implementing high volume manufacturing processes. Before the dramatic change in Senate, Bush's energy plan sent the alternative energy companies soaring. In an effort to combat the energy shortages that have plagued various parts of the US, notably California, President Bush outlined a plan that detailed the use of alternative energy technologies. But unfortunately, the fanfare was short-lived. After jumping over 14% in one session on the news, BLDP succumbed to sideways trading and eventually violated the $56 relative support on Wednesday. The dashing slide to $50.60 reaped grand profits for those who bought into the downward momentum. Aggressive types may look for entry points on failed rally attempts at the overhead resistance primarily near $55 and the 10-dma line, but keep stops tight. On Thursday, industry rival FuelCell (FCEL) reported stellar earnings and announced a 2:1 stock split. FCEL tacked on $6.16, or 8.6% amid the excitement. Continue to track sector sentiment by following FCEL, PLUG, and HPOW. Our closing stop is currently set at $55. ***June contracts expire in two weeks*** BUY PUT JUN-55*DFQ-RK OI= 516 at $3.40 SL=1.50 BUY PUT JUN-50 DFQ-RJ OI=1379 at $1.35 SL=0.50 Average Daily Volume = 849 K http://www.premierinvestor.com/oi/profile.asp?ticker=BLDP MIR - Mirant Corp $38.10 (-2.85 last week) Mirant, incorporated in 1993, is a very competitive global energy company. They have an integrated business model with energy marketing and risk management experience associated with market price fluctuations. Mirant has extensive operations in North and South America, Europe, Asia, and the Caribbean developing, constructing and running power plants. They also sell wholesale electricity, natural gas, and other energy- related commodities. Energy issues are the talk of the town, the nation for that matter! From refineries to alternative energy sources, it's all a matter of who has the means to supply our country's epicure for unlimited power. Initially President Bush's energy plan bolstered shares of the energy and energy-related companies. But after the political merry-go-round and uncertainty that followed, many investors rotated their portfolios. Coming off recent highs of $47 amidst its earnings' release, MIR crashed "on the news". More specifically, MIR experienced a technical breakdown last Wednesday that rocked its foundation. A "no holds bar" slide through the 30-dma now sets MIR up for further devastation. A fractional break of the $38 support on Friday hints that the new bottom could also be letting go; however, be patient for the confirmation. If MIR tumbles through $37 and the correlating 50-dma, traders might consider buying into the weakness, targeting the $34 and $35 level. We've lowered our closing stop to $40 to safeguard existing profits. ***June contracts expire in two weeks*** BUY PUT JUN-45 MIR-RI OI=1601 at $7.20 SL=5.00 BUY PUT JUN-40*MIR-RH OI= 933 at $2.85 SL=1.25 BUY PUT JUN-35 MIR-RG OI= 428 at $0.70 SL=0.00 Average Daily Volume = 2.50 mln http://www.premierinvestor.com/oi/profile.asp?ticker=MIR ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2219 ************************************************************** ***** LEAPS ***** Let's Review Our Strategy By Mark Phillips Contact Support Although I thought I had covered our new strategy in sufficient detail in recent weeks, the volume of email I received this week told me I was wrong. Some of the inquiries undoubtedly came from new subscribers, but there were some from old hands as well. Rather than try to determine the root of the problem, I decided to devote my space to further education on entries and exits for LEAPS positions and how to utilize our two playlists. I hope you'll forgive me for taking the time to review, but I think it will do us all good to re-establish the baseline before we try to go forward. So long as I don't get too wordy here, I'll endeavor to wrap up with a little bit of commentary on the market and what I see as we head into the summer months. For starters, I have described the basic parameters of our strategy in the Strategy section. For those of you that have never been there, it can be accessed by clicking on the Strategy link at the top of the current week's LEAPS article on the website. Most of the pertinent details of how to use the LEAPS column are covered there and I won't duplicate them here. But the items that I think bear closer scrutiny are the entry and exit points and how to determine them from what is contained in the Watch List and Portfolio. Simply put, there are only two conditions that should prompt us to enter a new position from the Watch List: 1. The stock drops to our defined entry target and bounces on solid volume (the stronger the better). If support doesn't hold at this defined level, then we need to look for a new support level to hold, as buying after a violation of support is like trying to catch a falling knife...a good way to slice off some fingers, and a very unpleasant experience! Given a violated critical support level, we may opt to pull the play from the Watch List for poor performance. 2. If the stock drops through our entry target, then we need to wait for strength to return. A good measure of this strength is if the stock can rally through our previously defined entry target on solid volume. This tells us that the buyers are once again in control and that the bears couldn't halt the stock's advance when it reached the level of our target. Since a picture is worth a thousand words, I'll use a couple of charts to demonstrate what I am looking for in terms of entry points. First up is General Electric (NYSE:GE). Recall that after the breakout over the $50 level, we moved the entry target up to $50-51. So we now needed to wait for the stock to come back to that level and bounce higher. We finally got what was looking like an attractive pullback on May 25th, as we saw GE bounce into the close, ending just below $50. Then this past Tuesday, it gapped up and crashed right through $50 again, forcing us to wait a little longer. Now what we need is a strong-volume push through the $51 level (the upper edge of our target zone) before we can take our entry. So there's an example of an entry that failed to materialize, forcing us to wait a bit longer. Next, I'd like to look at a successful entry that cropped up on Friday. QCOM made its move from the Watch List on Friday as described in the entry writeup below, but let's take a look at the chart. While volume was less than stellar at the time, three bounces in as many days at the target zone gave me confidence to take a position anyways. To make the entry ideal, we would have seen the stock rallying into the close, with volume on the rise. Hopefully that helps to solidify the entry part of our strategy. The exit side still needs some work as demonstrated by the performance of the 3 plays that were dropped this week. We are still in a very unstable market, and until we see evidence that an upward trend is willing to form, we need to be more aggressive in harvesting profits. All three of the dropped plays had significant gains just a week or two ago. In trying to balance the merits of our long-term approach with not letting gains get away from us, we got caught right in the middle, being stopped out just before each of the plays reversed and headed higher. Particularly frustrating was the NOK play which recently had a gain of over 140%, but by the time our stop was triggered, those gains had been whittled to less than 50%. It's time to take a more aggressive approach to harvesting profits when they are made available. As trending markets once again return later on this year, we will consider modifying our approach once again to give our plays enough room to run so that they can accrue those triple-digit gains we all know and love. So here's the approach we will follow in the near term. As our plays begin to accrue significant gains, we will more aggressively tighten up our stops. That way, we should be taken out of the play with most of our gains intact, should an adverse price move develop. If we are taken out of the play on a short dip, and the long term trend still looks positive, then we could very well recycle that play right back onto the Watch List, so that we can watch for a fresh entry point. A prime candidate for this is the QQQ play. While we were stopped out this week, don't be surprised if it finds its way back onto the Watch List as early as next week. Feel free to modify your own entry and exit strategy as you see fit, but this is how we will manage our positions in the LEAPS column for the near future as we head into the summer doldrums. We didn't change any of our stops this week due to the fact that so many of our plays are near their stop levels. And most of the Watch List plays are now below our prescribed entry targets, so we need to see a subsequent rally to trigger our entries into those plays. Unfortunately, I have used up all the time and space I have available this week, so I'll have to forgo my usual market commentary this week. I hope you found this exercise useful and can apply it in fine-tuning your game plan for the months ahead. As you'll see from reading the Market Wrap and Market Sentiment sections this week, the markets are having a hard time deciding which way they want to go, so this is the perfect time for us to fine tune our strategy while the bulls and the bears duke it out for dominance. See you next week! Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '02 $ 35 CLX-AG $ 3.50 $ 4.20 5.70% $ 30 '03 $ 35 VUT-AG $ 6.10 $ 6.60 8.20% $ 30 GENZ 03/23/01 '02 $ 85 GZQ-AQ $24.50 $32.10 34.69% $ 99 '03 $ 90 OZG-AR $27.75 $41.20 48.47% $ 99 SWS 03/22/01 '02 $ 18 YWF-AT $ 4.10 $ 4.90 19.51% $ 20 '03 $ 20 VWZ-AD $ 5.00 $ 5.90 18.00% $ 20 WM 03/22/01 '02 $33.8 BWT-AY $ 4.00 $ 4.90 22.50% $ 32 '03 $33.8 OBN-AY $ 6.13 $ 7.30 19.09% $ 32 WMT 03/23/01 '02 $ 50 WWT-AJ $ 7.00 $ 7.20 2.86% $ 51 '03 $ 50 VWT-AJ $11.00 $12.00 9.09% $ 51 JWN 03/30/01 '02 $ 20 JWN-AD $ 1.65 $ 1.80 9.09% $17.50 '03 $ 20 VNZ-AD $ 3.30 $ 3.40 3.03% $17.50 GS 04/05/01 '02 $ 90 GS -AR $14.00 $17.40 24.29% $ 91 '03 $ 90 VSD-AR $20.50 $26.80 30.73% $ 91 FON 04/09/01 '02 $ 25 WO -AE $ 2.80 $ 1.45 -48.21% $ 19 '03 $ 25 VN -AE $ 4.40 $ 3.80 -13.64% $ 19 DELL 04/27/01 '02 $ 25 WDQ-AE $ 6.20 $ 4.40 -29.03% $ 23 '03 $ 25 VDL-AE $ 9.00 $ 7.30 -18.89% $ 23 ADBE 05/16/01 '02 $ 40 AEQ-AH $11.00 $ 9.20 -16.36% $ 37 '03 $ 40 VAE-AH $14.60 $15.00 2.74% $ 37 AOL 05/16/01 '02 $ 55 AOO-AJ $ 9.60 $ 8.90 - 7.29% $ 48 '03 $ 55 VAN-AJ $14.60 $13.90 - 4.79% $ 48 NXTL 05/25/01 '02 $ 20 WFU-AD $ 3.40 $ 2.75 -19.12% $ 15 '03 $ 20 VFU-AD $ 5.80 $ 5.10 -12.07% $ 15 LRCX 06/01/01 '02 $ 30 WMJ-AF $ 6.60 $ 6.60 0.00% $ 25 '03 $ 30 VPC-AF $10.30 $10.30 0.00% $ 25 QCOM 06/01/01 '02 $ 65 AAO-AM $13.00 $13.00 0.00% $ 55 '03 $ 70 VLM-AN $18.70 $18.70 0.00% $ 55 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL 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 BRCD 05/13/01 $40-41 JAN-2002 $ 45 UBF-AI JAN-2003 $ 45 OMW-AI BRCM 05/27/01 $35-36 JAN-2002 $ 40 WGJ-AH JAN-2003 $ 40 OGJ-AH New Portfolio Plays LRCX - Lam Research Corp. $28.45 Semiconductor stocks took a beating again early last week, as the Technology sector reeled from the pounding delivered by both SUNW and EMC. Buyers did emerge on Thursday, lifting LRCX off its lows and the Semiconductor index (SOX.X) managed to claw its way back over the $600 level by week's end. Miraculously NVLS provided a mid-quarter update on Thursday that was more positive than expected, helping Semiconductor equipment stocks to continue their rise on Friday. After bouncing from just above the $26 support level Thursday afternoon, steady buying gradually pushed LRCX through $27 and then $28, satisfying our entry criteria. Due to the ferocity of the debate over the near-term future of the Semiconductor sector, we are going to play this one with a fairly generous stop at $24, until we can see confirmation of the uptrend continuing. BUY LEAP JAN-2002 $30.00 WMJ-AF $ 6.60 BUY LEAP JAN-2003 $30.00 VPC-AF $10.30 QCOM - Qualcomm Inc. $61.59 When we initiated coverage of QCOM on the Watch List, it looked like we might be getting a little too greedy, asking for a dip near $61 before entering the play. But broad-based weakness in Technology stocks early in the week, piled on top of DB Alex Brown's bearish comments targeted at most Wireless stocks and QCOM in particular spooked investors into entering sell mode once again. The firm slashed earnings estimates for QCOM due to perceived weakness in the CDMA market, despite the recent China deal. Sure enough, QCOM declined throughout the week, and by Thursday afternoon it was testing support near $60. Friday was a bit of a quiet day with volume coming in at less than half the ADV, but we decided to take the bait and enter the play as QCOM rallied back through $61, the upper edge of our target zone. Support should hold near $60, but if it doesn't, look for further support at the 50-dma ($58.42), and then $56. We are starting the play with our stop resting at $56, a level that hasn't been violated since the Fed's mid-April interest rate cut. BUY LEAP JAN-2002 $65.00 AAO-AH $13.00 BUY LEAP JAN-2003 $70.00 VLM-AN $18.70 New Watchlist Plays None Drops MU $37.96 Pressured by deteriorating sentiment in the Semiconductor sector, MU has been posting lower highs and lower lows for the past month. Sure enough, the pressure was too much and the $39 support level finally gave way on Tuesday, yielding a close of $37.96 and violating our $38 stop. While MU will likely be a winning stock once its sector begins to show signs of improvement, it looks like we showed up to the party a bit early. We'll take our lumps and congratulate ourselves on limiting our losses through judicious use of our stop loss. We'll be back when conditions in the sector and on MU's chart are more favorable. NOK $28.51 The downward pressure exerted on technology stocks this week by the likes of SUNW and EMC was too much for the NOK bulls to withstand. After holding the line on Tuesday at the $30 level, they succumbed to the bears on Wednesday and let the price fall through our stop at $29. That's what our stop was designed for, and it took us out of the play with a nice gain since we initiated coverage in early April. NOK continues to distance itself from its competitors and we will keep an eye out for another attractive opportunity to play the stock again in the near future. QQQ $44.43 Downgrades of technology bellwethers SUNW and EMC got the QQQ off to a rocky start last week, and the bulls were unable to hold the line at support near $45, allowing the price to drop through our stop and end Wednesday's session at $44.43. Proving that Murphy is alive and well, the QQQ proceeded to firm up throughout the remainder of the week, ending just north of $46. Perhaps I was too eager to tighten up the stop on the play considering the long-term nature that LEAPS afford us, but nonetheless, we needed to obey our discipline and exit the play as our stop demanded. I still feel the QQQ will be an excellent way to game the recovery in tech stocks when it occurs for real later on this year. So I'll be looking for another opportunity to jump back on that horse and give it another ride. *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. 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The Option Investor Newsletter Sunday 06-03-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/5883_5.asp ************* COVERED CALLS ************* Market Mentality: Overcoming Your Psychological Barriers By Mark Wnetrzak A crucial factor in being a successful trader is to recognize and believe with your heart that trading is a game of probabilities. Sometimes you win and sometimes you lose and most of the time our decisions are based on emotional impulses that we try to justify with logic. When it comes to money and investing, humans are irrational. In fact, the notion of the irrational investor is the basis for many of the market strategies used by professionals. In trading more than any other vocation, we rely heavily on our instincts, either through unrealistic goals or expectations, based on our previous experiences. Rather than reasoning in the present, we often rely on acquired associations (past) or idealistic perceptions (future) to help make difficult judgments. One of the most troublesome skills a trader must develop is the ability to remain focused on the present, evaluating each position based on its current merits and assessing the trade as it unfolds. Before a trader can learn to make timely and effective adjustments, he must understand his personality and know his individual faults and limitations. The stock market has a unique way of reflecting the fundamental emotions and character of humans and in addition to offering great financial rewards, it can also help us to know ourselves better. Before entering a position, you must recognize the anxiety it might produce and be prepared to base your trading decisions on sound ideas rather than impulses or "gut" reactions. Taking the emotion out of trading can be very difficult, however it is achievable if you have the discipline to develop and follow a trading plan. Just as a business plan describes in detail the establishment and development of a potential venture, a trading plan outlines the proposed structure for participation in the financial markets. In most venues, there are two primary requirements of a trading plan: a method of price prediction which signals if and when to initiate a position and a money management system which prescribes the maximum amount of portfolio capital to risk on any one trade. Strategies that involve stocks or options must also specify when to take profits and cut losses, and include a means to correctly position trading stops. Since the optimal management of winning plays is the key to success in any probabilities-based strategy, special attention must be given to techniques that protect gains once they are achieved. While adhering to the parameters of the trading plan is paramount to consistent profits, the system must also remain flexible in the sense that it should be constantly evaluated so as to improve its overall performance. Some of the most common suggestions for developing a successful approach to the market include: 1) Develop a clear profile of your unique personality, emotional traits and personal limitations. Realize that success will come when you create a favorable balance between hard work, sound judgment and patience. Too many traders give up after a few losing plays, long before they have time to learn and absorb the various methods required for profitable trading. 2) Learn fundamental and technical analysis methods that will help you understand the trends and cycles of the stock market. Know your strategy, its advantages and weaknesses and only use techniques that fit your trading style and portfolio outlook. Also, if the strategy is not appropriate for your financial condition, it must be avoided, regardless of how attractive it appears. 3) Trade a fully diversified portfolio and do not devote more capital to a specific position than is warranted by the size of your portfolio. Trade liquid markets as those with less than adequate volume can create excessive slippage when entering and exiting positions. 4) Devise a personalized system that is appropriate solely to your specific situation. Paper trade to safely gain valuable experience and avoid the tendency to jump from one scheme to another, particularly following a losing period, without thoroughly testing the new plan before adopting it. Remember, in all cases, the key to success is to limit losses, exploit winning positions and maintain a conservative outlook with regard to portfolio risk. 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 NPIX 10.00 13.12 JUN 10.00 1.15 *$ 1.15 11.3% CYGN 7.79 8.53 JUN 7.50 0.75 *$ 0.46 9.9% OSUR 10.24 11.29 JUN 10.00 1.00 *$ 0.76 8.9% STOR 19.27 19.00 JUN 15.00 5.40 *$ 1.13 7.1% VOXX 10.09 9.84 JUN 10.00 0.95 $ 0.70 6.7% APHT 20.00 21.55 JUN 17.50 3.50 *$ 1.00 6.6% SPWX 15.70 13.50 JUN 12.50 3.90 *$ 0.70 6.4% FNSR 20.98 16.81 JUN 15.00 7.00 *$ 1.02 6.3% ABMD 25.60 25.40 JUN 22.50 4.00 *$ 0.90 6.3% ALXN 26.02 26.24 JUN 22.50 4.40 *$ 0.88 6.2% MCDTA 31.95 26.20 JUN 25.00 7.90 *$ 0.95 6.0% CELG 22.99 30.74 JUN 20.00 4.00 *$ 1.01 5.8% STLW 13.01 11.26 JUN 10.00 3.50 *$ 0.49 5.6% WEBX 16.20 16.45 JUN 12.50 4.30 *$ 0.60 5.5% SBYN 15.28 13.85 JUN 12.50 3.20 *$ 0.42 5.3% MEDX 26.30 27.84 JUN 22.50 4.80 *$ 1.00 5.1% PGNX 20.16 21.16 JUN 17.50 3.20 *$ 0.54 4.8% NEM 20.98 20.83 JUN 20.00 2.00 *$ 1.02 4.7% AFCI 17.70 18.89 JUN 15.00 3.40 *$ 0.70 4.3% MRVC 12.35 10.50 JUL 10.00 3.20 *$ 0.85 5.1% *$ = Stock price is above the sold striking price. Comments: Continue to monitor Audiovox (NASDAQ:VOXX) closely as it tests its 50 dma. The next support area is the April high around $8.50. Newmont Mining (NYSE:NEM) is still at a key moment and a move towards $19.00 seems probable with the failed rally in the price of Gold. SpeechWorks International (NASDAQ:SPWX) has moved back below its 50 dma - monitor the position closely. Finisar (NASDAQ:FNSR) met estimates but guided lower for the next fiscal year. The technicals have weakened with the stock moving down and testing the April high. Time to revise your long-term outlook? McData Class A (NASDAQ:MCDTA) is acting a bit worrisome and should be closely monitored as the stock is now at a key moment. What's up with WebEx Communications (NASDAQ:WEBX)? A rather drastic drop this week on no news? We still have a bit of downside protection but will judge the strength of the issue by how well it holds at support. Positions Closed: Aremissoft (NASDAQ:AREM) 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 BTX 8.50 JUL 7.50 BTX GU 1.90 30 6.60 49 8.5% GENE 13.44 JUN 12.50 GUG FV 1.75 245 11.69 14 15.1% HPOW 13.74 JUN 12.50 HQF FV 1.65 368 12.09 14 7.4% MCAF 11.90 JUL 10.00 CFU GB 2.70 72 9.20 49 5.4% NUAN 16.50 JUN 12.50 DUN FV 4.30 162 12.20 14 5.3% OPTV 13.87 JUN 12.50 OUZ FV 1.80 339 12.07 14 7.7% ROS 5.49 JUL 5.00 ROS GA 1.05 261 4.44 49 7.8% 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 GENE 13.44 JUN 12.50 GUG FV 1.75 245 11.69 14 15.1% BTX 8.50 JUL 7.50 BTX GU 1.90 30 6.60 49 8.5% ROS 5.49 JUL 5.00 ROS GA 1.05 261 4.44 49 7.8% OPTV 13.87 JUN 12.50 OUZ FV 1.80 339 12.07 14 7.7% HPOW 13.74 JUN 12.50 HQF FV 1.65 368 12.09 14 7.4% MCAF 11.90 JUL 10.00 CFU GB 2.70 72 9.20 49 5.4% NUAN 16.50 JUN 12.50 DUN FV 4.30 162 12.20 14 5.3% 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). ***** BTX - BioTime $8.50 *** Technicals Only *** BioTime (AMEX:BTX) is a development stage company engaged in the research and development of synthetic solutions that can be used as blood plasma volume expanders, blood replacement solutions during hypothermic surgery and organ preservation solutions. BioTime is also developing a specially formulated hypothermic blood substitute solution that would have a similar function and would be used for the replacement of very large volumes of a patient's blood during cardiac surgery, neurosurgery and other surgeries that involve lowering the patient's body temperature to hypothermic levels. The company recently entered into a license agreement with Horus, B.V., a subsidiary of Akzo Nobel, N.V., under which BioTime expects to receive up to $9.5 million of license fees for the right to manufacture and market Hextend (its lead product) overseas. Hextend(R), is a physiologically balanced blood plasma volume expander, for the treatment of hypovolemia. We simply favor the improving technicals and recent move above the 150 dma on high volume. JUL 7.50 BTX GU LB=1.90 OI=30 CB=6.60 DE=49 TY=8.5% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=BTX ***** GENE - Genome Therapeutics $13.44 *** What's Up? *** Genome Therapeutics (NASDAQ:GENE) is primarily engaged in the commercialization of genomics-based drug discovery. Through the identification of genes and the characterization of the function of those genes, GENE is seeking to accelerate the discovery and development of products to treat and diagnose several diseases. Shares of GENE rocketed after Ladenburg Thalmann raised its rating on the stock to a "strong buy" and gave it a 12-month price target of $84. Analysts said Genome Therapeutics was a leader in using pathogen genomes to find anti-infective drugs and they believe the company will discover several anti-infective agents with large potential markets. A reasonable short-term return for investors who also believe that GENE's R&D effort is greatly undervalued and want to speculate on the company's future. JUN 12.50 GUG FV LB=1.75 OI=245 CB=11.69 DE=14 TY=15.1% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=GENE ***** HPOW - H Power $13.74 *** Energerized Breakout! *** H Power (NASDAQ:HPOW) is a leading fuel cell development company and one of the first providers to complete a commercial sale of a proton-exchange membrane (PEM) fuel cell system. PEM fuel cells generate electricity efficiently and cleanly from the electro- chemical reaction of hydrogen and oxygen. H Power's fuel cells are designed to provide electricity for a wide range of stationary, portable and mobile applications including residential cogeneration products for rural, remote homes, and backup power units for mobile applications. Energy technology companies' shares soared two weeks ago when President Bush's energy proposals turned out to be more favorable than expected for fuel cells and micro-turbines. H Power broke out of 5-month Stage I base on high volume which suggests further upside potential. We simply favor the current bullish momentum in the industry and this short-term position that offers a reasonable cost basis in the issue. JUN 12.50 HQF FV LB=1.65 OI=368 CB=12.09 DE=14 TY=7.4% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=HPOW ***** MCAF - McAfee.com $11.90 *** It's A Deal! *** McAfee.com (NASDAQ:MCAF), a majority-owned subsidiary of Network Associates (NASDAQ:NETA), is a consumer security Application Service Provider (ASP). The company delivers software benefits through an Internet browser, virtually eliminating the need to install, configure and manage the technology on a local PC or network. McAfee.com hosts software application services on its vast technology infrastructure and provides these services to users online. McAfee.com has signed up more than 920,000 paid subscribers and regularly has more than 800,000 visitors each day. McAfee.com's shares exploded on Tuesday, May 22, after the company announced a strategic alliance with Microsoft (NASDAQ:MSFT). McAfee.com will supply security services for Microsoft's planned set of online services, called HailStorm. The high-volume breakout was impressive and now the stock has firmly moved above its 150-dma with no near-term resistance until the $18 range. However, we prefer an entry point closer to technical support. JUL 10.00 CFU GB LB=2.70 OI=72 CB=9.20 DE=49 TY=5.4% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MCAF ***** NUAN - Nuance $16.50 *** Stage I Speculation *** Nuance (NASDAQ:NUAN) is a leader in Voice Web software - speech recognition, voice authentication, text-to-speech and voice browsing products that make information, services, and the Internet accessible from any telephone. Every day, millions of people interact with Nuance systems at companies like BeVocal, Merrill Lynch, Nomura Securities, Sprint PCS and Tellme Networks. Nuance has been showing signs of strength after suffering from an earnings warning in April. The company recently unveiled a comprehensive set of design and production services aimed at helping businesses build world-class voice applications. The stock appears to be forming a Stage I base and the technicals suggest a bullish change of character for the near-term. JUN 12.50 DUN FV LB=4.30 OI=162 CB=12.20 DE=14 TY=5.3% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=NUAN ***** OPTV - OpenTV $13.87 *** Double The Growth, Double The Fun! *** OpenTV (NASDAQ:OPTV) is a leading interactive television and media solutions company. OpenTV builds a complete software and infrastructure platform that enables digital interactive television and brings on-demand content to other digital communications devices. OpenTV solutions are crafted to meet the needs of digital communications networks and include operating middleware, content applications and creation tools, professional services expertise, and strategic consulting. OpenTV rallied sharply last week when it announced that its software is now installed in 16 million digital set-top boxes worldwide, more than double the amount deployed a year earlier. The strong growth should continue as Philips Semiconductors plans to use OpenTV's software in their home-entertainment "Nexperia" line of products. Short-term speculation with a reasonable cost basis on a bullish stock. JUN 12.50 OUZ FV LB=1.80 OI=339 CB=12.07 DE=14 TY=7.7% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=OPTV ***** ROS - Rostelecom $5.49 *** Cheap Speculation! *** Rostelecom (NYSE:ROS) provides international and domestic long distance telecommunications services in Russia. Rostelecom also provides Internet access and multimedia communications, leases out digital channels and transmits a number of television and radio programs through its network to transmission facilities throughout Russia. Rostelecom supplies international tele- communications services between Russia and 295 countries around the world and has direct international communication lines with 89 operators from 72 countries, including 65 operators of digital fiber optic communications lines. No recent news but Rostelecom is rallying strongly and has now moved above the April high. The technical indications suggest further upside potential on this low-cost, speculative issue. JUL 5.00 ROS GA LB=1.05 OI=261 CB=4.44 DE=49 TY=7.8% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=ROS ***** ***************** 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 PCLN 5.29 JUL 5.00 PUZ GA 1.10 8364 4.19 49 12.0% DMRC 18.06 JUN 17.50 DQT FW 1.35 16 16.71 14 10.3% STLW 11.26 JUN 10.00 SZQ FB 1.65 1200 9.61 14 8.8% DTHK 8.22 JUL 7.50 DTU GU 1.50 2 6.72 49 7.2% SCMR 11.51 JUL 10.00 SMZ GB 2.50 318 9.01 49 6.8% AMLN 11.16 JUL 10.00 AQM GB 2.10 747 9.06 49 6.4% BIOM 7.63 JUL 7.50 BSU GU 0.75 26 6.88 49 5.6% *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.IndexSkybox.com ************************************************************ ************************* NAKED PUT PERCENTAGE LIST ************************* Market Mentality: Confidence is not a Virtue By Ray Cummins The majority of traders have an opinion about the condition of the stock market and the manner in which they can profit from its future movement. When asked about recent positions, most will reply with certainty that the strategies they use will result in a successful outcome. Unfortunately, a high degree of conviction can frequently lead to failure. The trouble begins soon after the initial trading decision has been made. As the new position matures, the reasons for the trade, whether accurate or timely, are often adjusted to support the original outlook. The facts just seem to fall into place. The market character; the earnings outlook; the potential for bullish announcements. All of the available supporting evidence is included in the rationalization. Whether relevant or not, a plethora of reasons to remain in the position are marshaled in defense of this decision. Its no different with analysts and financial gurus; those that attempt to forecast the market's future on a regular basis. Each and every one has a long list of justifications for the current trends or "why the market has declined" and "when the market will recover." Inflationary issues, economic conditions, developments in technology, and changes in the political arena are all given as common explanations for situations that have yet to be proven "predictable." The problems with attempting to explain the events of the past, or forecast the outcome of the future are numerous but the primary reason to avoid this trait is simple. Once we have entered a position with this attitude, we will continue to assemble and connect information in a manner which will support our original conclusion, rather than reflect the actual conditions of the market. The fact is, the majority of investors have trouble recognizing that all situations change and there is no perfect and complete method of knowing when, where, and how these developments will occur. In early stages of learning and throughout most of our adult lives, we are trained to make decisions in a positive and absolute manner. We are taught to endorse and defend our ideas with resolve. We strive to be correct! It is a conditioned response, and simply a matter of existence in today's society. Based on the customs of our culture, changes in opinion are often seen as a failure to arrive at the proper solution during the initial assessment. That is why it is so difficult to admit when we are wrong, to take the loss (even when it is small), and to reassess the position and correct our original observations. Human nature is the culprit here and until one can overcome the debilitating effects of pride and presumption, there is little hope for prosperity in the stock market. For most traders, profit comes from the successful participation in specific positions. As with any investment or speculative venture, the key is to remain alert for signs of changing trends in character or direction and respond promptly and decisively when and if such events occur. By using the appropriate money management techniques, you can safely earn consistent profits. The most important concept the novice player must understand is that trading options requires hard work and discipline. But, you can learn to be like the professionals, taking profits and losses one trade at a time with precise, long-term goals for your portfolio. 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 AMLN 10.85 11.16 JUN 10.00 0.60 *$ 0.60 22.3% FIBR 13.33 12.14 JUN 10.00 0.35 *$ 0.35 17.6% GENE 13.60 13.44 JUN 10.00 0.35 *$ 0.35 17.3% EXEL 15.97 15.00 JUN 12.50 0.70 *$ 0.70 15.6% DTHK 8.74 8.22 JUN 7.50 0.25 *$ 0.25 15.1% MCAF 12.02 11.90 JUN 10.00 0.30 *$ 0.30 14.8% VIGN 10.02 8.90 JUN 7.50 0.30 *$ 0.30 14.2% SEAC 20.37 19.08 JUN 17.50 0.50 *$ 0.50 13.2% STOR 21.93 19.00 JUN 15.00 0.45 *$ 0.45 10.1% ILUM 32.01 32.56 JUN 25.00 0.65 *$ 0.65 10.0% NMTC 22.22 20.23 JUN 17.50 0.45 *$ 0.45 10.0% SMTC 31.70 27.93 JUN 25.00 0.60 *$ 0.60 9.4% NFLD 13.50 16.80 JUN 10.00 0.30 *$ 0.30 8.7% AVCI 13.59 10.18 JUN 7.50 0.30 *$ 0.30 8.6% TSAI 12.03 12.01 JUN 10.00 0.30 *$ 0.30 8.5% PLUG 35.40 32.78 JUN 25.00 0.40 *$ 0.40 8.1% GLGC 21.05 22.55 JUN 17.50 0.50 *$ 0.50 7.8% APCC 16.83 16.97 JUN 15.00 0.45 *$ 0.45 7.3% PDG 11.05 10.94 JUN 10.00 0.30 *$ 0.30 7.1% GNSS 20.45 28.01 JUN 15.00 0.35 *$ 0.35 6.9% OO 26.00 24.41 JUN 22.50 0.35 *$ 0.35 5.2% SBSE 23.79 19.21 JUN 20.00 0.65 $ -0.14 0.0% *$ = Stock price is above the sold striking price. Comments: Sbs Technologies (NASDAQ:SBSE) continued to weaken this week and has now moved below its 150 dma. Time to use a rally for a quick and pain-free exit? Semtech (NASDAQ:SMTC) also appears like a candidate for a break-even exit as the technicals continue to look horrid. Keep a close watch on Numerical Technologies (NASDAQ:NMTC) as it has dropped below its 150 dma though support at $18 appears to be solid. Use consolidation phases to measure the bullish strength of issues you may want to own. Do they hold at the top of support areas (strong), dive towards the bottom (weak), or break through (yikes)? Positions Closed: Sawtek (NASDAQ:SAWS) 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 AMZN 16.95 JUN 12.50 ZQN RQ 0.25 6745 12.25 14 14.9% AVGN 21.25 JUL 15.00 GKU SC 0.45 55 14.55 49 5.9% DMRC 18.06 JUL 15.00 DQT SC 0.65 0 14.35 49 8.4% IDCC 13.99 JUN 12.50 DAQ RV 0.35 640 12.15 14 17.1% MRVC 10.50 JUL 7.50 VQX SU 0.35 451 7.15 49 8.9% PLUG 32.78 JUN 25.00 PQL RE 0.35 1090 24.65 14 11.0% PRST 12.97 JUN 12.50 PQK RV 0.40 28 12.10 14 17.0% 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 IDCC 13.99 JUN 12.50 DAQ RV 0.35 640 12.15 14 17.1% PRST 12.97 JUN 12.50 PQK RV 0.40 28 12.10 14 17.0% AMZN 16.95 JUN 12.50 ZQN RQ 0.25 6745 12.25 14 14.9% PLUG 32.78 JUN 25.00 PQL RE 0.35 1090 24.65 14 11.0% MRVC 10.50 JUL 7.50 VQX SU 0.35 451 7.15 49 8.9% DMRC 18.06 JUL 15.00 DQT SC 0.65 0 14.35 49 8.4% AVGN 21.25 JUL 15.00 GKU SC 0.45 55 14.55 49 5.9% 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). ***** AMZN - Amazon.com $16.95 *** Cheap Speculation! *** Amazon.com (NASDAQ:AMZN) is an online retailer that serves over 17 million customer accounts in over 150 countries. The company directly offers for sale millions of distinct items in categories such as books, music, DVDs, videos, toys, electronics, software, video games and home improvement products. Through its Internet offerings, the company has created Web-based marketplaces where buyers and sellers can enter into transactions with respect to a wide range of products. The company also has developed strategic commercial relationships with a number of selected e-commerce companies. Traders are speculating on the outcome of Amazon's upcoming annual meeting, which will occur on Tuesday June 5, 2001. As long as there are no major surprises, AMZN should have little difficulty remaining above the sold strike in this OTM position. JUN 12.50 ZQN RQ LB=0.25 OI=6745 CB=12.25 DE=14 TY=14.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=AMZN ***** AVGN - Avigen $21.25 *** New Drug Discoveries! *** Avigen (NASDAQ:AVGN) is a leader in the development of gene therapy products for the treatment of inherited diseases. The company is developing a broad-based proprietary gene delivery technology based on adeno-associated virus vector technology, known as AAV vectors, to deliver DNA into the cells of patients that are suffering from genetic diseases. AAV vectors are a relatively new system for gene therapy. The company believes that AAV vectors can be used to deliver genes for the treatment of hemophilia, Gaucher disease, Parkinson's disease and beta- thalassemia. Avigen is an innovative company with some unique products and investors who want a conservative position in the gene-therapy research segment should consider this candidate. Target a higher in this (July) position to increase the return on investment. JUL 15.00 GKU SC LB=0.45 OI=55 CB=14.55 DE=49 TY=5.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=AVGN ***** DMRC - Digimarc $18.06 *** Technicals Only! *** Digimarc (NASDAQ:DMRC) provides a patented digital watermarking technology that allows an invisible digital code to be embedded in the printed or digital versions of media content, such as commercial and consumer photographs, movies, music, magazine advertisements, catalogs, product packages, and other valuable documents, including financial instruments, passports and event tickets. The company's products are grouped along three primary lines of business: Secure Documents, Media Commerce and Digimarc MediaBridge. Each product line offers systems generally including embedder software, which is used to place Digimarc's watermarks into content, and reader technology, which is incorporated into digital devices to detect, read and respond to the embedded code. Digimarc has recently been the target of legal actions that many other companies have experienced since the downfall of IPO stocks with the broader market. These lawsuits focus on allegations of improper underwriting practices associated with the IPO and they have little do with the current outlook for the company. Traders who agree that DMRC has a unique product in a growing industry can establish a favorable cost basis in the issue with this conservative position. JUL 15.00 DQT SC LB=0.65 OI=0 CB=14.35 DE=49 TY=8.4% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=DMRC ***** IDCC - Interdigital Communications $13.99 *** Own This One! *** Interdigital Communications (NASDAQ:IDCC) specializes in the design and development of technology content and unique solutions for advanced digital wireless communications applications. Over the course of its nearly thirty-year history, the company has amassed a substantial and significant library of know-how and patents related to digital wireless technology. The company market its technologies and solutions capabilities primarily to telecommunications equipment producers and related suppliers for embedding into products targeted for the following applications: mobile phones, personal digital assistants, mobile computing devices, base stations and other infrastructure equipment, other terminal-end wireless devices. Long-term investors are betting that IDCC will eventually profit from an extensive portfolio of wireless patents and potential royalties due to current product litigation with Ericsson (NASDAQ:ERICY). With excellent support at our cost basis, this position has a favorable risk/reward outlook. JUN 12.50 DAQ RV LB=0.35 OI=640 CB=12.15 DE=14 TY=17.1% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=IDCC ***** MRVC - MRV Communications $10.50 *** Networking Sector *** MRV Communications (NASDAQ:MRVC) is in the business of creating and managing growth companies in optical technology and Internet infrastructure. MRV has created several start-up companies and formed independent business units in the optical technology and Internet infrastructure area. The company's primary operations include the design, manufacture and sale of two major groups of products: optical networking and internet infrastructure systems, primarily subscribers' management, Network Element Management, and physical layer, switching and routing management systems in fiber optic metropolitan networks; and fiber optic components for the transmission of voice, video and other data across enterprise, telecommunications and cable TV networks. After a stellar rally and a brief sell-off, MRV appears to have found new buying support. MRV is also a popular play among speculative traders and those of you who want to own a solid company in the networking sector can use this position to establish a favorable cost basis in the issue. JUL 7.50 VQX SU LB=0.35 OI=451 CB=7.15 DE=49 TY=8.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MRVC ***** PLUG - Plug Power $32.78 *** Still Flying High! *** Plug Power (NASDAQ:PLUG) is a designer and developer of on-site, energy generation systems utilizing proton exchange membrane fuel cells for stationary applications. The company's goal is to make reliable, efficient and safe fuel cell systems at affordable cost for mass-market consumption. Plug is now focusing its efforts on overall system design, component and subsystem integration, and also quality control processes. Plug Power's shares rallied last week after the firm agreed to sell 75 of its commercial fuel cell systems to an undisclosed public utility for $7 million. The deal includes installation, maintenance, training, engineering and also technical support, and its a great way for Plug Power to establish its products in the field. Despite the strong bullish momentum, the stock could experience a significant pull-back at any time. Target a higher premium in the position initially, to allow for the daily volatility in the issue. JUN 25.00 PQL RE LB=0.35 OI=1090 CB=24.65 DE=14 TY=11.0% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PLUG ***** PRST - Presstek $12.97 *** Manufacturing Sector *** Presstek (NASDAQ:PRST) is a manufacturer, developer and marketer of non-photographic, digital imaging and printing technologies for the printing and graphic arts industries. Presstek's products and applications incorporate its patented, proprietary Pearl and DI digital imaging technologies and utilize Pearl consumables for computer-to-plate (CTP) and direct-to-press applications. Their patented DI and Pearl thermal laser diode product family enables its customers to produce high-quality, color lithographic printed materials more quickly and cost effectively. The company has two operating segments, Digital Imaging and LaserTel. Subscribers are always asking for stable issues that can offset the unpredictable activity in most NASDAQ stocks and hedge their long-term portfolios. Presstek is a great candidate in that category and investors who agree with a bullish outlook for the issue should consider this position. Learn more about the company at its Annual Meeting of stockholders, which will be broadcast over the Internet on Tuesday, June 5 at 1:00 p.m. (http://www.videonewswire.com/PRESSTEK/060501) JUN 12.50 PQK RV LB=0.40 OI=28 CB=12.10 DE=14 TY=17.0% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PRST ***** ***************** 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 DTHK 8.22 JUN 7.50 DTU RU 0.25 20 7.25 14 19.3% AMLN 11.16 JUN 10.00 AQM RB 0.25 50 9.75 14 15.3% STOR 19.00 JUN 15.00 OSU RC 0.25 279 14.75 14 13.4% CRXA 18.32 JUL 15.00 CVQ SC 0.90 6 14.10 49 11.4% GLGC 22.55 JUN 20.00 CYV RD 0.35 47 19.65 14 11.1% RIMM 35.69 JUL 25.00 RUL SE 1.00 183 24.00 49 7.6% YHOO 19.46 JUL 15.00 YHZ SC 0.50 3186 14.50 49 7.1% ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.sungrp.com/tracking.asp?campaignid=2220 ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ Optimistic Buyers Ignore Dismal Capital Spending Data... Friday, June 1 U.S. equities continued to recover Friday as a late rally boosted the major averages to a positive finish, despite concerns over a pessimistic manufacturing report earlier in the day. The NASDAQ composite climbed 38 points to 2,149 and the Dow Jones industrial average advanced 78 points to 10,990. The S&P 500 index edged 5 points higher to 1,260. Trading volumes on both the NYSE and the NASDAQ were relatively light. Big Board volume reached 1 billion shares with advances outpacing declines 1,821 to 1,235. Activity on the NASDAQ was also sparse with 1.5 billion shares exchanged. Technology winners surpassed losers 2,168 to 1,598. In the bond market, the 30-year Treasury rose 18/32, pushing its yield down to 5.70% in the wake of weak manufacturing data. Thursday's new plays (positions/opening prices/strategy): A.G. Edwards (NYSE:AGE) AUG45C/JUN45C $1.45 debit calendar John Hancock (NYSE:JHF) SEP40C/JUN40C $2.15 debit calendar Costco (NASDAQ:COST) JUL42C/JUL35P $0.10 debit synthetic Although the AGE spread did not meet the target debit, both of the new "time-selling" plays were available at acceptable entry prices. Costco dipped briefly to a low near $37.50 at midday, but we did not get any quotes for that period, so the opening debit will be listed at the best observed price. Market Activity: Stocks moved higher today, in spite of new economic data that suggested the outlook for capital spending is mediocre at best. The Dow climbed above the 11,000 mark before retreating at the close and the NASDAQ finished near its session high of 2,157. Trading was mixed early in the day after the National Association of Purchasing Management said its index of economic activity fell to 42.1 in May from 43.2 in April. The May level was slightly below the 43.7 that economists had forecast. The NAPM said that three major components, employment, inventory, and price fell in May and it was also the 10th month that the main index remained below the 50.0 "boom-or-bust" level. A value above 50 indicates the manufacturing economy is generally expanding while a number below 50 signals it is generally contracting. Analysts said the purchasing managers' report was disappointing because it showed continued weakness in the manufacturing sector and the potential for a protracted downturn in technology spending. Surprisingly, one of the reasons for the bullish NASDAQ activity was a positive announcement from Novellus (NASDAQ:NVLS), which said it expects second-quarter earnings to be $0.40 a share, above the $0.39 that analysts are anticipating. Shares in the semiconductor industry edged higher on the news and Intel (NASDAQ:INTC) led the sector on hopes for a sharp recovery once the economy emerges from its current slump. Palm (NASDAQ:PALM) was an unexpected leader in the technology segment, closing up almost 10% after the hand-held device maker said it is starting to see signs of improvement in its business. Among the Dow's hi-tech components, International Business Machines (NYSE:IBM) and Microsoft (NASDAQ:MSFT) managed small gains while Hewlett-Packard (NYSE:HWP) finished relatively unchanged. Boeing (NYSE:BA) was a big gainer, climbing to $65 on news the aerospace giant and the Machinists' union in St. Louis reached a tentative contract agreement. General Motors (NYSE:GM) also rallied after saying its May U.S. vehicle sales jumped 0.6% compared with a year ago. The company also said it's comfortable with the current consensus earnings estimates. In the broader market, healthcare, real-estate, basic materials and industrial products stocks were popular while financial, conglomerate and utility issues generally retreated. Portfolio Plays: Today's bullish activity in the technology group boosted a number of portfolio positions and the dominant issues were in the chip sector. Intel (NASDAQ:INTC) and Novellus (NASDAQ:NVLS) paced the stocks in that group and there was also positive sentiment in the computer software sector. Microsoft (NASDAQ:MSFT) is our primary entry in that segment and since we hold both bullish and bearish positions, we would prefer that the issue simply trade in a small range. MSFT finished the day slightly higher but there was some interesting news after the closing bell. A new report suggested that discussions over whether America Online will be included in Microsoft's upcoming Windows XP operating system broke down today and recent negotiations, which had been ongoing since a contract between the two ended in January, were halted after the companies could not agree to new terms. A representative said Microsoft would still provide AOL with the technical information it uses to make the company's Internet software compatible with XP if users install it themselves but there were no plans to make additional concessions. Until MSFT's share value makes a decisive move in either direction, we will continue to project a neutral outlook for the issue. Among the S&P 500 groups, stocks in the finance sector continued to suffer from recent selling pressure but Providian (NYSE:PVN), Lehman Brothers (NYSE:LEH) and American Express (NYSE:AXP) moved in opposition to the general trend. The drug sector was led by Watson Pharmaceuticals (NYSE:WPI), which jumped over $3 to a new yearly high near $63 on news of apparent regulatory difficulties that rival Abbott Laboratories (NYSE:ABT) faces with its thyroid drug. The U.S. FDA has ruled that Abbott must seek approval to keep selling its thyroid drug Synthroid, because the product has a "history of problems." Another stock in the sector, Alexion Pharmaceuticals (NASDAQ:ALXN) has proved to be a great candidate for time-selling strategies as the issue has retained its recent volatility while trading in a relatively stable pattern. Our recent calendar spread is already profitable and there is still excellent upside potential in the position for traders that can effectively manage the underlying issue. National City (NYSE:NCC) is also performing well and now that the issue is encountering resistance near our sold strike at $30, we will monitor the play closely for potential adjustments. One other candidate in that category, Sinclair Broadcasting (NYSE:SBGI) dropped 5% Friday on no news and the first level of support is near $8. A move below that price range would signal a possible exit in the position. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** SCMR - Sycamore Networks $11.51 *** Reader's Request! *** Sycamore Networks (NASDAQ:SCMR) develops and sells software-based intelligent optical networking products that allow network service providers to quickly and cost-effectively provide bandwidth and create new high speed data services. The company's intelligent optical networking products are designed to allow network service providers to deploy, manage and optimize the performance of their fiber-optic systems. Sycamore's products are based on a common software architecture that it believes will accelerate its release of new products and enable the company's customers to upgrade with minimal network impact and operator training. The company has designed its family of products to the protect service providers' existing investment in fiber optic and transmission equipment and provide a migration path to the next generation optical public network infrastructure. A number of readers have asked for candidates to use with Jim's strategy of selling "deep-in-the-money" puts. Along with these requests, we have received a number of suggestions for possible plays and Sycamore was offered by two different subscribers. In light of the apparent optimism for the stock and the requests for guidance with regard to the correct option series to use, I have decided to include this play in this week's selection. Of course, this technique should only be used with stocks that have bullish potential, so if you don't believe SCMR can move higher in the coming months, please do not initiate this position. In addition, the specific option series I have listed are based on my personal preferences concerning intrinsic/time value, open-interest and the outlook for risk versus reward. Those of you who have questions about this unique strategy can learn more about the technique at: http://members.OptionInvestor.com/editorplays/042201_1.asp PLAY (speculative - covered-put combination): SELL PUT JAN03-40 ODO-MH OI=164 B=$28.70 BUY PUT SEP01-10 SMZ-UB OI=526 A=$1.80 INITIAL CREDIT TARGET=$27.25 MAXIMUM LOSS=$2.75 TARGET GAIN=?!? http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=SCMR ****************************************************************** KSS - Kohl's $60.96 *** Retail Sector Slump! *** Kohl's (NYSE:KSS) operates family oriented, specialty department stores primarily in the Midwest, Mid-Atlantic and Northeast areas of the United States that feature quality, branded merchandise priced to provide exceptional value to customers. The company's stores sell moderately priced apparel, shoes, accessories and home products targeted to middle-income customers shopping for their families and homes. Kohl's stores have fewer departments than traditional, full-line department stores but offer customers dominant assortments of merchandise displayed in a wide selection of styles, colors and sizes. Central to their pricing strategy and overall profitability is a culture focused on maintaining a low cost structure. Retail stocks have retreated in recent sessions as investors grow concerned their share values aren't warranted by companies' profit outlooks. Fears that stock prices have risen too far were also bolstered by reports indicating that May results are proving to be weaker than analysts had expected. Overall, stocks in the retail index, the market's key gauge with a basket of industry leaders, dropped 1.5% during the last week in May and shares of KSS have slumped in sympathy with the group. An analyst from Jeffries and Company did little to help matters, cutting his recommendation on the company's shares to "accumulate." Technically, the stock appears poised for a test of the May lows near $55 and traders who think the issue has little chance of finishing the expiration period above $65 can profit from that outcome with this bearish combination position. PLAY (conservative - bearish/credit spread): BUY CALL JUN-70 KSS-FN OI=624 A=$0.20 SELL CALL JUN-65 KSS-FM OI=4917 B=$0.70 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=KSS ****************************************************************** CHBS - Christopher & Banks $39.00 *** More Retail Woes! *** Christopher & Banks (NASDAQ:CHBS), formerly Braun's Fashions, is a Minneapolis-based regional retailer of women's specialty apparel which operates through its subsidiary, Braun's Fashions, Inc. In fiscal 2000, the company's lines of merchandise included four main categories: sportswear, sweaters, dresses and accessories. As of early this year, the company operated a chain of 274 stores in 27 states, primarily in the northern half of the United States. The company's stores are located primarily in regional shopping malls in mid-sized cities and suburban areas. Shares of CHBS dropped unexpectedly last week amid concerns that the company will fall short of double-digit estimates for sales growth in the month of May. Last month, the company's numbers were below the previous month's and officials blamed the weather for hurting their results. Chris Krueger, equity research analyst at Dougherty & Co., said the women's specialty apparel company is "up against a tough comparison with last year's same-store sales." John Zolidis, equity analyst at Sidoti & Co., estimates that CHBS will report only a 7% increase in May and he jokingly added that, "investors are concerned that poor weather will continue to hamper sales." Obviously, the issue is due for some profit taking, having risen in May to a 52-week high of $47.50, up from a 52-week low of $9.78 set one year ago. The sell-off on Thursday came on heavy volume, suggesting there is indeed potential for a failed rally. In this case, the premiums for the (OTM) call options are favorable and the potential for a successful (technical) recovery is 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-50 URH-FJ OI=5 A=$0.15 SELL CALL JUN-45 URH-FI OI=380 B=$0.60 INITIAL NET CREDIT TARGET=$0.50-$0.60 ROI(max)=11% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=CHBS ****************************************************************** SHPGY - Shire Pharma $51.71 *** Low-Risk Speculation! *** Shire Pharmaceuticals Group (NASDAQ:SHPGY) is an international specialty pharmaceutical company with a strategic focus on four therapeutic areas: central nervous system disorders, metabolic diseases, oncology and gastroenterology. The company operates and manages its business in the United States, Europe and the rest of the world. Within these geographical segments, revenues are derived from sales of products by the company's own sales and marketing operations, licensing and development fees and royalties. Shire Pharmaceuticals has its own direct marketing capability in the United States, Canada, the United Kingdom, the Republic of Ireland, France, Germany, Italy and Spain. Shire also participates in other pharmaceutical markets indirectly through distributors. Stocks in the drug-discovery industry have performed well over the past few sessions and the recently completed merger with Toronto-based BioChem Pharma (NASDAQ:BCHE) positions Shire as a leading company in the global specialty pharmaceutical industry. Prior to the merger, Shire posted solid first quarter results, with outstanding revenue growth of 31% and an increase of 50% in pre-tax income. The company also announced that following the approval of Reminyl earlier in the year, Shire was awaiting the upcoming U.S. launch of the product by Janssen Pharmaceutica and Ortho-McNeil Pharmaceutical. In addition, the first filing of Foznol in Europe was a very important milestone for the company and the new product should soon add to the revenues currently provided by prescription sales of Adderall, Agrylin, Carbatrol, Pentasa and ProAmatine. Based on the recent buying activity, SHPGY is poised for future upside movement and traders who want to speculate on that outcome with portfolio collateral can use this position. Target a lower premium (or even a small credit) in the play initially to allow for brief consolidation in the issue. PLAY (speculative - bullish/synthetic position): BUY CALL JUL-60 UGH-GL OI=209 A=$1.25 SELL PUT JUL-45 UGH-SI OI=4367 B=$0.95 INITIAL NET DEBIT TARGET=$0.10-$0.15 TARGET PROFIT=$0.75-$0.85 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $1,500 per contract. http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=SHPGY *************************ADVERTISEMENT********************* Why put all your risk into one stock when you can play the index instead? Learn how to invest in the OEX, QQQ, and SPX. Get intraday market updates, plays, education and daily commentaries by those who know. Sign up for a two week free trial and see for yourself at IndexSkybox.com: http://www.sungrp.com/tracking.asp?campaignid=2209 ************************************************************ ********** 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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