The Option Investor Newsletter Sunday 06-10-2001 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/1077_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 6-08 WE 6-01 WE 5-18 WE 5-11 DOW 10977.00 - 13.41 10990.41 + 78.47 11005.37 -296.37 +480.43 Nasdaq 2215.10 + 65.66 2149.44 + 38.95 2251.03 + 52.15 + 91.45 S&P-100 651.92 + 2.31 649.61 + 3.38 658.29 - 10.09 + 22.95 S&P-500 1264.96 + 4.28 1260.67 + 4.85 1277.89 - 14.07 + 46.29 W5000 11736.70 + 65.13 11671.40 + 61.20 11849.89 - 73.63 +432.18 RUT 511.64 + 9.92 501.72 + 5.22 508.62 + 2.34 + 18.92 TRAN 2882.09 - 4.96 2887.05 - 58.85 2929.20 - 49.75 + 99.39 VIX 21.41 - 2.55 23.96 - 2.00 23.15 - 1.11 - 3.22 Put/Call .54 .53 .62 .47 ****************************************************************** Jinxed By Juniper Following Intel's (NASDAQ:INTC) guidance late Thursday, the tech bulls were poised to carry the Nasdaq higher into the weekend. But that was before the bomb Juniper Networks (NASDAQ:JNPR) dropped Friday morning. The networking equipment maker issued a terrible warning. Juniper officials guided revenues for the second quarter down to a range of $200 - $210 million, while previous guidance had called for between $300 - $330 million. What's more, officials lowered earnings estimates to a range of 8 to 9 cents, while First Call previously had earnings per share (EPS) estimates pegged at 24 cents. In conjunction with its lowered guidance, Juniper issued comments that read like a very familiar book: "Challenging service provider and global carrier business...capacity absorption cycle." In short, business is bad for the networking equipment makers. Something that struck me as rather peculiar about the Juniper warning is that its company officials denied that their shortfall had anything to do with losing market share to Cisco Systems (NASDAQ:CSCO). Interestingly, I've read A LOT of research reports recently that suggested that Cisco is gaining market share from Juniper in the core router market, and winning many contracts in the OC-192 space - a high-end, optical router technology. If Cisco is, in fact, taking market share from Juniper, and in light of the demise of other competitors such as Nortel Networks (NYSE:NT) and Lucent (NYSE:LU), shares of Cisco may be an interesting investment idea currently despite the terrible telecom environment. To digress, the Juniper warning did snuff all of the excitement over Intel's (NASDAQ:INTC) guidance Thursday evening. It's simply amazing how quickly market psychology can shift in the current environment. One day, warnings are shrugged off like that of Broadcom's (NASDAQ:BRCM), in favor of comments about a possible stabilization in the second-half of the year. The next day, stocks get blown up on a warning ala Juniper. Neither the Nasdaq Composite (COMPX) nor the Philadelphia Semiconductor Index (SOX.X) were able to breakout above their respective resistance levels that we've been monitoring this week. On the part of the SOX, it never got the chance Friday to break above the 700 level. And the COMPX wasn't able to fully reject its bearish head-and-shoulders (H&S) top. Last Tuesday, I suggested that the neckline of the COMPX's H&S was horizontal at the 2100 level. I was wrong. I think the H&S appears more like an ascending pattern now, with the neckline currently around the 2100 support level that we've been monitoring. While the current position of the neckline coincidentally coincides with our initial level, viewing the H&S as an ascending pattern does lower the bearish price objective of the pattern. On Tuesday, I calculated the bearish price objective to be around 1870. But the ascending neckline lowers that level by about 50 points to 1825. The ONLY reason I'm going to great lengths to dissect the COMPX's H&S is because I know for a fact that many, many market participants are monitoring the very same levels we are. And for some uncanny reason, these technical patterns of price (H&S) tend to become a self-fulfilling prophecy, so I want my readers to be informed. Nevertheless, I think it's prudent to suggest that 2100 marks the proverbial line in the sand for the COMPX and should be monitored closely going into next week's trading, although it's still another 115 points lower. Should the COMPX decidedly break below that level next week, the path of least resistance may shift back to the downside. Conversely, if the H&S it to be rejected next week, we need to see the COMPX advance above its relative highs Thursday around 2265. If the COMPX can advance to the 2280 - 2300 range, perhaps we could quit worrying about its H&S. The Juniper warning is likely to carry over the weekend as traders worry about who's next to warn. Of the company's that haven't pre-announced yet, those most likely to warn include Dell Computer (NASDAQ:DELL), JDS Uniphase (NASDAQ:JDSU) and Motorola (NYSE:MOT), according to analysts. Of course, market psychology could quickly shift again next week if we hear continued remarks about a rebound or, at the very least, a stabilization in the second-half of the year. But the concern over tech fundamentals may lead to a rotation back into other sectors, such as finance, energy, cyclical and retail, among others. A rotation back into those sectors would carry the Dow Jones Industrial Average (INDU) higher. The Dow settled below the 11,000 level Friday for the first time in about a week. Part of the Dow's weakness may have stemmed from the computer glitch on the New York Stock Exchange (NYSE). Around 10:00 a.m. EST, a computer problem caused trading in about 1700 stocks to halt. Most trading resumed about one-and-a-half hours later, but several issues, such as IBM (NYSE:IBM) remained halted for the majority of the day. When trading did finally resume, it seemed like any bids that were in the Dow earlier dried up, as the remaining bulls called it an early weekend. They say, "Never sell a dull market," but participants didn't heed that advice and took the Dow lower as soon as the NYSE re-opened. That event, ironically, may have foreshadowed continued weakness in the Dow next week if the thesis of rotation into non-tech names doesn't hold. Furthermore, there's the distinct possibility that warnings from non-tech firms will surface next week, which could damage the Dow. Although the it's difficult to give much credence to such a light volume day (723 million on the NYSE), the Dow's settlement below 11,000 is a bit disconcerting. My causes for concern in the market currently are twofold: The first being the ominous price action (Dow below 11,000 and COMPX H&S). The second, is the continued deterioration in fundamentals, especially in the tech sector. But the third variable, which in all honesty I can't gauge, is psychology, which recently has proven more powerful than price and fundamentals. In the tech sector, there appears to be a growing tendency to buy the dips. As my colleague, Matt Russ, opined before he departed the OI team, "Buying dips is back in style, baby!" Over the past several weeks, each pullback in the Nasdaq has been met with buying. And if this pattern holds, we could see buyers emerge around the middle of next week, depending upon the news on the corporate profit front. In addition, the economic front is full next week, as opposed to the last week's lack of data. The first big release next week is May's retail sales report, due Wednesday morning, before the market open. The consensus is expecting a pretty bleak report, with sales expected to rise only 0.2 percent. Thursday, the Commerce Department will report April inventories in conjunction with the release of the producer price index (PPI), released by the Labor Department. And Friday will bring production numbers along with the consumer price index (CPI). Keep in mind that we're about two weeks away from the Federal Reserve's next meeting. That event could begin to buoy the market as participants keep their faith and dollars invested with Greenspan. If you haven't already, you can still sign up for my online seminar for Sunday, June 10th at 8:00 p.m. EST. Just follow the link below and I hope to see ya' there! ***Editor's Note Jim will be back next week to deliver his excellent insights. Eric Utley Editor www.OptionInvestor.com ================================================================== Advanced Chart Reading with Retracements Online Interactive Seminar This Sunday ================================================================== Eric Utley, Contributing Editor for OptionInvestor and IntradayTrader, will be presenting a two hour interactive online seminar at 8:00 p.m. EST, on Sunday June 10th. Eric will teach attendees how to use Fibonacci retracement brackets to better manage risk and increase profits. The seminar will benefit both investors and traders and Eric will incorporate current examples in his presentation, along with requests from attendees. Click here for more information: http://www.premierinvestorseminars.com/onlineseminars/eric061001.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-10 Advanced Chart Reading & Retracements - Eric Utley Sun Jun-10 Basic Technical Analysis - Austin Passamonte 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 - Eric Utley Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins 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 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 **************** Clustered By Austin Passamonte That may aptly describe this week's market action and the charts we're about to look at. Writers who usually scribe this column have all caught summer fever so you're stuck with me & my cluttered graphics once more. Just like M&M candies, everything is color coded so let's see if Fibanocci values, moving averages, trend lines and chart patterns have anything to tell us about these crazy markets and future direction: (Daily chart: ) First up, a snapshot of the SPX. We see the big index has spent four straight sessions riding down its long-term descending trendline from January's high. Prices broke below this mark early on Friday but recovered into the close. Three of the past sessions 62% retracement from recent highs to lows held support but closed below on Friday. Very interesting. Actual price level values in the data box are skewed but the color code allows us to identify various moving average values. Note the 50-DMA (blue) quickly rising towards 50% Fib retracement in the low 1230's area, a level that may be the next stop on a further decline. Lastly, we have a clear Head & Shoulders bearish reversal pattern denoted by green lettering and fuchsia trendline that every technician in the entire free world is now watching. More than a few stop orders would be triggered each direction on a break below the neckline near the 1250 area. (Daily chart: QQQ) The NDX/QQQ market has been fairly quiet lately considering it is a mere fraction of its historical self. See where 38% retrace of recent lows to highs and 10 & 20 DMAs convergence have held support the last four sessions? A break below there finds next level of support at the 50-DMA near 44.70 area which happens to be the neckline zone of this bearish head & shoulders pattern. (Daily chart: Dow) The Dow closed below its 10 & 20 DMAs for the first time in five sessions and lost its grip on the venerable 11,000 level. Next stop if things head south would logically be 10,800 area at 75% retrace (light gray line) and finally 10,650 zone where 50 & 200 DMAs now converge. Just below that rests the 62% retrace so a few different strong arms hold a safety net below. And we may soon see them called upon for help. (Daily chart: OEX) The smaller S&P looks just like big brother at top. Price action is wedged between 62% retrace of resistance and long-term descending trendline for support, a measure that broke on Friday but closed precisely at the mark. A good guess would be that the OEX tests 640 area soon, the 50% retracement level and neckline zone of its head & shoulders pattern as well. We did spot that right away, didn't we? Shoulders are both near 660 area which of course is the 62% Fib retrace zone. (Daily chart: SOX) The SOX has been stepped on by its 200 DMA to halt a three session advance. Tough to grade this one, although several measures of support lie just below near the 635 - 640 area. (Daily chart: BTK) Biotechs find support and resistance pinching in and may be stuck for a bit before a significant break either way. The trend is decidedly up and looks to continue unless otherwise thwarted. Most of the retracement brackets and trendlines above were drawn weeks ago without being touched since. And some curmudgeons still cling to the mantra that technical analysis holds no merit. May we ask what does? Analyst "expert" opinions, fundamental research and news releases to guide us safely forward? Please! Oscillators, Etc. For those of us who follow the study, stochastic action across all weekly charts is currently within overbought extremes and the Dow, OEX and SPX posted bearish reversals after this week. Daily chart stochastic values are rolling over in bearish fashion as well to warn of further price decay from here. Index option put/call ratios are high. While equity option ratios are considered a contrarian indicator index options are more of a leading indicator. Used primarily by institutions, a major shift in sentiment often precludes the next market move. A reading of 2.26 index put to call options on Friday (88,792 puts to 39,215 calls) suggests smarter money is lining up for the downside. VIX, VXN and QQV readings continue to trade in the lower end of their spectrum even after a weak session like today. That in itself is not a bullish sign as traders remain complacent in spite of faltering market action, or at least behavior that is less than strong. Bottom Line? From a technical standpoint it is pretty tough to key on any real evidence that the broad markets can base from here and rally into the summer in a sustained move. More volatility is expected going forward into next week, a triple-witch expiration event. The historical bias is bullish from Monday through Friday but the following Monday historically sees a decline from there. Will the next six-plus sessions pay attention to history and probability? Only time will tell. These are some of the chart tools an average person like myself can & should use to gauge near and mid-term market direction with better than 50% odds of probability to occur. If we can learn to tilt the odds of probability slightly in our favor and use proper account management techniques to save us when we're wrong, all of us can prosper over time. Trade The Right Direction With Care! === VIX Friday 06/08 close: 21.41 VXN Thursday 06/07 close: 52.79 30-yr Bonds Thursday 06/07 close: 5.67% Total Put/Call Ratio: .72 Equity Option Put/Call Ratio: .57 Index Option Put/Call Ratio: 2.26 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 33.60 Current close: 47.35 Volume/Open Interest Maximum calls: 50/99,264 Maximum puts : 45/79,278 Moving Averages 10 DMA 47 20 DMA 47 50 DMA 44 200 DMA 63 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 548.16 Current close: 651.92 Volume/Open Interest Maximum calls: 660/5,550 Maximum puts : 640/4,502 Moving Averages 10 DMA 654 20 DMA 657 50 DMA 634 200 DMA 693 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 1081.19 Current close: 1264.96 Volume / Open Interest Maximum calls: 1250/42,400 Maximum puts : 1250/46,019 Moving Averages 10 DMA 1270 20 DMA 1273 50 DMA 1229 200 DMA 1323 === DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 9,047.56 Current close: 10,977.00 Volume / Open Interest Maximum Calls: 100/51,291 Maximum Puts 100/73,247 Moving Averages: 10 DMA 11,034 20 DMA 11,064 50 DMA 10,633 200 DMA 10,642 === CBOT Commitment Of Traders Report: Friday 06/08 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) Net Position +77,601 +70242 -77,490 -68,496 Total Open Interest % (+33.61%) (+33.61%) (-10.71 (-9.48%) net-long net-long net-short net-short Small Specs Commercials DJIA futures Net Position -4251 -4226 +5829 +5812 Total Open interest % (+35.39) (-30.65%) (+14.71) (+16.24%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 UNAVAILABLE UNTIL 6/12 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: Almost no perceptible change across the all-important S&P and thinly-traded Dow futures markets. Current data is unretrievable for the ND01 contracts until Tuesday 6/12 but we can assume it is relatively unchanged based on the first two markets, being the thinnest volume and least-traded contract of these three. Gold: Commercials backed off their five-year historical short and may be poised to begin accumulating again soon. 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 6/05: 42,314 contracts net-short These recent moves are volatile in an otherwise quiet market. Many felt that the latest move was merely a technical short-squeeze and retail rally, while the real move in gold could begin this summer if the economy remains weak and inflation pressures build. Data compiled as of Tuesday 06/05 by the CFTC. ************** MARKET POSTURE ************** Please visit this link for Market Posture: http://www.OptionInvestor.com/marketposture/061001_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 *************** Penalty Box By Eric Utley I think Juniper (NASDAQ:JNPR) is going to spend some time in the box this weekend with the Avs' enforcer Rob Blake. The penalty: holding...the Nasdaq back. It's a big weekend here in Denver and we're all cheerin' hard for Ray Borque, baby! Don't forget to sign up for my online seminar Sunday night at 8:00 p.m EST. There's still a few slots available. See ya' then! http://www.premierinvestorseminars.com/onlineseminars/eric061001.asp Send your stock requests to Contact Support. Please put the symbol of your requests in the subject line of the e-mail. ---------------------------- NVDIA - NVDA Can you please comment on NVDA and its future. - Thanks, Sunil Thanks again, Sunil. I haven't checked, but I think shares of NVIDIA (NASDAQ:NVDA) have to be one of the best performing within the Nasdaq-100 this year. Of course, the stock was only recently added to that index. Nevertheless, the stock's performance has been most inspiring. The company makes graphics processing chips for desktop applications as well as video games. Earnings estimates have been steady, if not increasing in some instances, which is a rarity among tech companies currently. Concerning the video game market I will opine that the fact Microsoft (NASDAQ:MSFT) is entering that space says a lot in my estimation. Insofar as NVIDIA's technicals are concerned, the stock recently ramped up to the $100 level, which can be a very psychological price magnet. If the stock's pullback from Friday carries over into next week's trading, it will have traced a double-top at the $100 level, which may present some trouble in the near-term. Conversely, if NVIDIA solidly breaks out above that level, I'd expect it to trade up to $110 or $120 in the short-term. As Jesse Livermore once observed, once psychological levels such as $100 are cleared, stocks tend to keep moving beyond those points. ---------------------------- Office Depot - ODP Office Depot has risen during the past year and is viewed as a good turn around candidate by some. I bought some leaps recently and the price deteriorated substantially during the past month since I bought. Would you comment on it from a technical perspective? - Thanks, Larry Thanks for the question, Larry. Before I get to your request, Larry, I thought I'd point out that the deterioration in your leaps is most likely a function of the decline in the Volatility Index (VIX.X), which has been getting whacked during the past month. Less fear in the market translates into lower premiums for options contracts, which is obviously an adverse development for those long volatility. Shares of Office Depot (NYSE:ODP) have indeed had a nice run since late 2000, when the stock bounced off the $6 level, en route to tracing a double bottom. The stock traded as high as $10.65 in late April before pulling back during the month of May. It makes sense that the stock would pullback after having a nice run over the previous five months. However, I did discover some serious resistance on Office Depot's point & figure chart. The stock faces some major supply at its descending trend line currently at the $11.50 level. It will be a real challenge to get through that level, but if it does, the stock could see its bullish price objective of $18.50 over the intermediate- or longer-terms. That bullish price objective, by the way, was generated when Office Depot advanced from $6.50 up to $10.00 earlier this year. The $11.50 level on the point & figure chart coincides with some serious resistance on the daily chart, which is not a coincidence. Judging by the retracement levels of Office Depot's advance, it should begin to find support right around its current levels, maybe falling as low as $8.25. But if the stock falls below that level, I'd start to think that something was wrong. ---------------------------- Taro Pharmaceutical Industries - TARO I've been rubbing my eyes and checking and double checking. Is TARO's chart for real? Look at their progress! Could you try and give some insight on a good entry point, beside about on year ago. - Thanks, Bert I've got to say, Bert, that's one helluva of trend in shares of Taro Pharma (NASDAQ:TARO). Thanks for the great request! Your request is a difficult one, Bert. Picking an entry point for a stock with a trend such as Taro's is increasingly difficult because it makes measuring and managing risk all the more difficult. So, let's make a few observations. The first thing that stuck out to me on Taro's daily chart is the fact that its trend has accelerated to the upside, in near parabolic fashion. For one, I don't like to see a stock's trend accelerate much past a 45 degree angle. And the blue trend line below roughly represents a 45 degree angle as far as Taro's trend is concerned. Since its last bounce off that line, Taro's trend has most certainly accelerated. Risk becomes increasingly difficult to quantify at this point in the trend. One might look to Taro's moving averages for possible entry points on a pullback. Perhaps the 40-dma, where there is some consistency of buying on pullbacks to that level. Another tool you might use, Bert, is a retracement bracket. On the chart below, I've laid a retracement over Taro's recent bounce off of its ascending trend line, using the $43 level as an anchor point. This is a fairly aggressive retracement, however, and should be used in conjunction with a shorter time frame. We can also turn to the point & figure charts for some more help. The chart looks like a stair-step pattern higher, and there's not a real obvious level of demand. But, a level that is likely to attract buyers again is around the $63 - $64 range, which coincides nicely with the retracement level on the chart above. ---------------------------- 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 11th, 2001 Monday ====== None Scheduled Tuesday ======= None Scheduled Wednesday ========= Export Prices ex-ag May Forecast: NA Previous: 0.0% Import Prices ex-oil May Forecast: NA Previous: -0.5% Retail Sales May Forecast: 0.3% Previous: 1.1% Retail Sales ex-auto May Forecast: 0.4% Previous: 0.8% Thursday ======== Initial Claims 6/9 Forecast: 425K Previous: 432K PPI May Forecast: 0.3% Previous: 0.3% Core PPI May Forecast: 0.2% Previous: 0.2% Business Investories Apr Forecast: -0.1% Previous: -0.3% Friday ====== CPI May Forecast: 0.4% Previous: 0.3% Core CPI May Forecast: 0.2% Previous: 0.2% Industrial Prod. May Forecast: -0.3% Previous: -0.3% Capacity Utilization May Forecast: 78.0% Previous: 78.5% Mich Sentiment-prel Jun Forecast: NA Previous: 92.0% Week of June 18th ================= Jun 19 Housing Starts Jun 19 Building Permits Jun 20 Leading Indicators Jun 20 Treasury Budget Jun 21 Initial Claims Jun 21 Trade Balance Jun 21 Current Account Jun 21 Philadelphia Fed *************************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=2205 ************************************************************ FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** 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 06-10-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1077_2.asp *********** OPTIONS 101 *********** Naked Calls for the Chicken-Hearted By Buzz Lynn When we visited last week we talked about bullish put credit spreads as a way to sell naked puts with a security blanket. This week, we will visit its twin, but mirror-image sibling, the bearish call credit spread. Remember the premise last week on making put credit spreads work. We sell a put and want time decay to work on the other guy. Ideally, the option expires worthless to the buyer right into our account as the underlying directional bias is up (bullish) or at least stays even. If we are wrong, our security blanket comes in the form of a lower strike long put to hedge the short higher strike put. While it is still possible to lose money on the position, the potential loss is known before we enter the position, and we are generally protected from wiping out the account on unforeseen negative events. See last week's article at: http://members.OptionInvestor.com/options101/060301_1.asp A bear call credit spread is the same; only we are looking for bearish price action of the underlying stock to help make the time decay work in our favor. In expectation of a downward move, we sell a call for a premium and let time decay go to work on the buyer. Just in case we are wrong and prices unexpectedly rise, we will protect ourselves by simultaneously purchasing a higher priced strike call for less money. Even after the long purchase, we are left with a net credit in the account and we know our maximum loss in the worst-case melt-up. Ideally the position expires worthless and we keep the premium for having taken the risk. The strategy is to sell calls at the high. Let us use SMH, or the Semiconductor HOLDR as an example. Generally speaking, SMH and the SOX have similar chart patterns, even though their components are strikingly different. But in the world of indexes, semiconductors are semiconductors no matter how you slice them. If we look at a SOX chart, we will see two occasions in the last three months where the index went to roughly 700 and rolled over. Corresponding numbers for the SMH would be about $54. So figuring that SMH should roll over at about $54. that might make further weakness a high probability outcome. If we believe $54 is a top, we would sell ATM ($55 in this case) calls. Since there is not much time premium left in the JUN strikes, we will move out to JUL strikes and sell the JUL-55 call for a current bid of $2. But to hedge our position, we would simultaneously buy the JUL-60 call for $0.85 just in case we are wrong and SMH becomes the next rocket ship to the moon. After all, who wants to sell naked JUL-55 calls and have to cover at $75 on a monster gap up? Not me! Ice cubes would sooner form in the Sahara, but that is why we hedge. After all, an enterprising desert-dweller could have discovered electric generators and compact freezers today with plans to roll out ice-cubes tomorrow. Again that is why we hedge - to quantify and minimize risks of unexpected turn of events. Anyway, the upshot is a net credit of $1.15 per share ($2 - $0.85) immediately in the account. You can increase the credit slightly if you are adroit at legging in or squeezing the market maker for a few extra nickels by splitting the bid and ask on each leg of the position. Realistically, this could be increased to $1.35 to $1.40 by performing the latter. But let us stick with conservative numbers. The bottom line is that we stand to keep the whole $1.15 upon expiration in the best-case scenario. The worst case is that we lose $3.85. How did we come up with that? Follow along. On expiration, we have three possible outcomes. First, SMH is less than $55 and we keep the whole $1.15 - the most probable if history is to repeat itself and we are correct in our judgment of the price about to fall. Second, SMH can close between our strike prices of $55 and $60. At $55.50, we are "forced" to buy at $55.50 and sell at $55 for a $0.50 loss. However, we have taken in a credit already for $1.15, which still leaves us with a $0.65 profit even if we get "called out"! The math, if SMH closed exactly at $56.15, would put us at break even. . .buy at $56.15, sell at $55 for $1.15 loss, but with an initial credit of $1.15, we are at break even. Since we run out of credits at $1.15, every cent above $56.15 results in a corresponding penny loss to the account. Say that SMH closes at $58. We are "forced" to buy at $58, sell at $55 for a $3 loss. Offsetting with the $1.15 credit puts our actual loss to the account at $1.85. (In reality, our broker will do all the math and we will not generally be forced to buy shares and resell them for a loss - the difference just disappears from the account. But check with your broker for details as each can vary). Third, and this is how we come up with the maximum loss of $3.85, say SMH closed at $62.50. Are we forced to buy at $62.50 and sell at $55 for a $7.50 gross loss, but a net loss of $6.35 considering our initial $1.15 credit? No way. Because we hedged and bought the $60 strike call, we have the right to buy SMH at $60! We do not have to pay $62.50. Thus, we buy at $60, sell at $55, credit $1.15, and we have a maximum loss of $3.85. Even if SMH goes to $100 overnight, our hedge is in the right to buy SMH at $60 and minimize our loss at $3.85. While losing $3.85 is no fun, it sure beats losing more, and allows us to keep heart palpitations to a minimum even though the trade has gone a zillion dollars in the other direction. Preferably, we close the trade for less than maximum loss if it goes against us by buying back the short and selling back the long calls. I set an arbitrary number to exit when the underlying hits my breakeven - $56.15 in the above example. At that point, I will be pretty sure the trade is going against me and exit for a smaller than maximum loss. But we all get to choose based on our own risk profiles. Now that we have gone through this process, this is not a no-brainer recommendation to put on this trade first thing Monday. In my opinion, this trade does not offer enough credit reward to justify the downside risk. I like at least $1.75 - ideally $2.50 - for every $5 in strike difference. That means I can gain $2.50 or lose $2.50. My chance of gain is about 67% based on the Black Shoals pricing model. How does that work? Please do not e-mail me for an explanation. I have no idea, but I know it works. You can type Black-Scholes into any search engine and come up with more than you could ever want to know on the subject. The point is that the more credit you can get, the more you minimize the potential loss by default. There you have it! A great way to take advantage of time decay in your favor rather than let it fritter away while playing a directional move or running in place. For those who want to sell short with a safety net, here is another arrow for your quiver. Now, you too can get the time decay of naked calls and keep your heart rate low in the process! ************** TRADERS CORNER ************** Fuel Cells: The Promise of Power By Derek Baltimore Living through California's power crisis last year was a challenging and humbling experience for those on the West Coast. With summer heating up and air conditioners starting blow, the worst may be yet to come. Considering the climate in the Golden State, the drain on power supplies and production capacity will be tested again as the mercury rises in the coming months. Despite today's age of technological advancements, the fact that we are still vulnerable to power outages and dependent on poorly managed, deregulated and inefficient power grids boggles the mind. The situation begs the question, is there another way? Is there a reliable, efficient and clean alternative to the power grid system that is in place today? There are some fuel cell companies out there that would answer, "yes", to that question. Fuel cell technology has been around since the 60s, but has only recently made advancements that produce affordable and commercially viable products. So what is a fuel cell? A fuel cell is a device that converts the energy of a fuel (hydrogen, natural gas, methanol, gasoline, etc.) and an oxidant (air or oxygen) into useable electricity. Fuel cell construction generally consists of a fuel electrode (anode) and an oxidant electrode (cathode) separated by an ion conducting membrane. How does a fuel cell work? When hydrogen gas is introduced into the system, the catalyst surface of the membrane splits hydrogen gas molecules into protons and electrons. The protons pass through the membrane to react with oxygen in the air (forming water). The energy is then created when the membrane blocks the electrons and forces them to travel around it, which creates a source of DC electricity. A fuel cell stack is comprised of numerous individual cells stacked together to provide the required power. With no moving parts and little noise, the result is an efficient and ideal source of power. And unlike nuclear or fossil fuel power, the only by products are heat and water, making fuel cells environmentally friendly. If fuel cells can successfully tap into the $200 billion dollar a year U.S. electricity market, substantial new technologies and products could emerge from just a small slice of the pie. Savvy investors have been hovering around fuel cell stocks for some time. Besides a spike in the sector late last year, as well as a nice bump recently upon the revealing of President Bush's energy plan, investors have yet to see substantial trading gains. With 90+ degree days now upon us, and the focus on California's energy crisis again in the forefront, now may be the right time to take advantage of these companies. We want to review a few names that could prove rewarding for traders with slightly longer trade horizons (1-3 months). While these stocks are cheap by no fundamental measure, just like the biotech group, their vow of change could easily drive prices substantially higher in the coming months. Capstone (Nasdaq: CPST) is one of the leaders in fuel cell technology. Their flagship product, the Capstone MicroTurbine power generation system, is about the size of a refrigerator and generates enough power (30 kilowatts) to power a small business. Chart of CPST (Daily) Capstone was recently downgraded by Merrill Lynch and removed from its techfolio, and the firm's opinion is reflected in the current stock price. The decline since the downgrade occurred (6/4) has been muted, due to the severity of the pull back from highs set 5/29. Despite the 20+% retracement in June, the trend line from April is still intact so long as the stock does not close below the $29.50 level. Also of note for traders bullish on the sector is the declining volume trend seen in the pullback. Since setting an intraday high of $38.25 on 5/29, CPST has only surpassed its 30-day average volume trend in one trading day (6/4). The stock garnered plenty of press when the power crisis hit California in the early January, and was the focus of attention as natural gas and oil prices peaked last fall. Shares are now hovering at the 50-day moving average having tested the $20 lows set in December last year. Holding support of the April trendline will give institutional traders reason to add to their positions in this company, and despite a weak-looking short-term chart, the stock should have legs as the dog days of summer linger. The first ever fuel cell system to power a home was introduced by Plug Power (Nasdaq: PLUG) earlier this year. The residential unit, called HomeGen 7000, generates 7 kilowatts, and is referred to as a mini home power plant. The Homegen 7000 is about the size of a central air conditioning system and is similarly installed just outside the home. Although this product hasn't hit the consumer market (expected by mid 2002), Plug Power has formed an alliance with GE Microgen. This joint venture called GE Fuel Cell Systems LLC, is building a network of qualified regional distributors to market, install and service the HomeGen 7000. With backing from GE, PLUG should gain traction quickly in a residential market yet to be dominated by a major player. Shares of PLUG have plunged from $150 a year ago to near $30.00 today, however like CPST, this could be an amazing buying opportunity for investors who believe this technology will be embraced by eager energy consumers. Chart of Plug (Daily) Based on the chart above, we can see that the downgrade of CPST, coupled with overall weakness in the group since the end of May has pressured shares. Note the nice rounded saucer bottom on the daily chart, and the ascending volume trend seen in the May bull-run. With a market cap of just over $1 billion, this stock will fall under the radar for institutional players, with the exception of those of the small-cap variety. With no earnings projected in the near future, a trade in PLUG is an idea based purely on promise and momentum, with a boatload of volatility thrown in for good measure. Long-term players, however, should feel confident that PLUG is one of the leaders in the sector and backed by an industrial giant. Because of the fabulous run in May, these two names in the alternative energy group have seen their share prices decline. Depending on your time horizon and risk profile, one could argue that entry prices near current levels could prove extremely rewarding to those willing to buy the promise their products deliver. These companies represent a definitive solution to a real problem hitting the consumer's pocketbook in the new millennium. As the summer approaches and air conditioners begin to hum, investors should once again flock to the alternative energy group. Those willing to look past the dismal headlines in many of the semiconductor and networking stocks can put together a portfolio of companies on the cutting edge of energy technology, that should reap substantial rewards down the road. Option Investor Traders Corner contributed by www.stockbottom.com *************************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: ********************* CEFT - Concord EFS Inc $52.61 (+2.11 last week) See details in sector list Put Play of the Day: ******************** RIMM - Research in Motion $32.82 (-2.87 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 AMGN $67.45 (-1.13) Biotech stocks generally were lower Friday, with some of the sector's leading companies trading down. AMGN, GENZ, BGEN and HGSI all demonstrated weakness. The failure of the Biotech Index to hold its relative support near the 650 level further emphasizes the deteriorating sentiment amongst the related issues. It's likely the biotechs could be due for a pullback over the near-term in light of the strong gains in recent weeks. Therefore, notwithstanding the fractional close above our $67 stop, we're dropping cover this weekend. CELG $32.85 (+2.11) Biotechnology stocks fell for the third straight session Friday. The pullback across the sector was measured by the Biotech Index (BTK.X), which saw its level drop to 637. In despite of the CELG's close above our $32 protective stop, the overall weakness now portends we exit the play on a profitable note. CELG posted strong gains in its recent climb from the lower $20 range, offering lucrative opportunities for option traders. PUTS No dropped puts this weekend *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** PIXR - Pixar Inc $44.70 (+2.90 last week) Pixar Animation Studios is a digital animation studio with the capabilities to create animated feature films and related products. The Company's objective is to create, develop and produce computer-animated feature films that appeal to audiences of all ages. The Company created and produced its first three films, Toy Story, A Bug's Life and Toy Story 2, which were marketed and distributed by The Walt Disney Company. Pixar's "animated" earnings results on May 10th exhilarated shareholders and analysts alike. The profit margin was lower with $8.3 mln versus $26.4 mln in the same period last year; however, it was the stunning $0.16 p/s earnings and a raised outlook that sent shares reeling. Analysts were only expecting a mere profit of $0.12 p/s for the 2Q. Keep in mind that same quarter last year, Pixar's "Toy Story" was still in theaters and raking in the dough. The latest March quarter was instead fueled by video sales of its productions, pay-per-view revenue from "A Bug's Life", and various ancillary royalties from Pixar's films. The following day PIXR soared over 9%, bursting through the $37 bondage level. Prudential Securities was there with a Strong Buy recommendation, too. Recent media surrounding the company's highly-anticipated Walt Disney Pictures release of Pixar's "Monsters, Inc" is played into the stock's current momentum run through the $42 level. The film is a comedy with an all-star voice cast set in the world of things that go bump in the night and will be released nationwide on November 2nd, 2001. More specifically, it's the sector strength that is driving the share price to new all-time highs. Related issues like FOX, ATVI, and MVSN are also faring quite well. The bigger fish such as VIA.B and MGN aren't making significant gains, but are holding their respective support levels under the current market conditions. You might consider jumping into a run as PIXR clears the $45 obstacle in an advancing market. Intraday volume over 200 K signals buyers are present, but be prepared with stop losses. We've set a tight stop at $42 and will exit if PIXR fails keep a position above this mark on a close. BUY CALL JUL-35 PQJ-GG OI=212 at $9.80 SL=7.00 BUY CALL JUL-40 PQJ-GH OI=212 at $5.30 SL=3.25 BUY CALL JUL-45*PQJ-GI OI=110 at $2.10 SL=1.00 Average Daily Volume = 212 K http://www.premierinvestor.com/oi/profile.asp?ticker=PIXR MUSE - Micromuse $45.09 (+6.68 last week) Making software that monitors and manages the elements of an information technology infrastructure, MUSE sells its products directly and through distribution partners such as Cisco Systems. Its Netcool suite collects and consolidates network data and events. Netcool includes a desktop tool that customizes network information and allows operators to automatically resolve service problems with reporting in multiple formats such as 3-D charts and spreadsheets. Major customers include AOL, Cellular One, and Charles Schwab. To view the company's press releases and earnings report, an investor would be hard-pressed to determine that MUSE is operating in a contracting economy. Revenue growth remains on track north of 100%, while earnings continue to increase, and it seems nearly every press release contains a reference to a new product, application for an existing product or adoption of its Netcool suite by another customer. Investors have continued to reward this type of performance, with shares commanding a hefty 200+ PE ratio. After finding bottom in early April near $23, MUSE has been posting a series of higher lows while running into stubborn resistance near $50-51. If that sounds like a bullish wedge to you, congratulations! The ascending trendline is currently resting at $41, a convenient location to place our stop. Even with the rest of the Tech sector under pressure on Friday, MUSE managed to post a gain, albeit on rather light volume. Target pullbacks to support near $43, or our $41 stop for new aggressive entries. Alternatively, wait for a solid push through the $47 level before taking a position. Keep a sharp eye out as MUSE approaches the $51 level; there are likely to be eager bears lying in wait. BUY CALL JUL-45 QVM-GI OI=506 at $6.20 SL=4.25 BUY CALL JUL-50*QVM-GJ OI=446 at $4.00 SL=2.50 BUY CALL JUL-55 QVM-GK OI=205 at $2.65 SL=1.25 BUY CALL OCT-50 QVM-JJ OI=778 at $8.30 SL=6.00 BUY CALL OCT-55 QVM-JK OI=234 at $6.80 SL=4.75 BUY CALL OCT-60 UZQ-JL OI=411 at $5.20 SL=3.25 SELL PUT JUL-40 QVM-SH OI=210 at $3.30 SL=5.25 (See risks of selling puts in play legend) Average Daily Volume = 4.08 mln http://www.premierinvestor.com/oi/profile.asp?ticker=MUSE *************************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 06-10-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1077_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 ****************** NOVN - Noven Pharmaceuticals Inc $35.64 (+3.58 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. Unlike the strong pullback in May, which stymied NOVN's advances, the stock is currently demonstrating a much greater level of endurance. As the NASDAQ tested its relative support (2200) and the broader sector experienced three consecutive sessions of downside trading last week, NOVN held its higher price levels. The $35 and $35.50 support, well above our $33.50 closing stop, kept the share price afloat amid the market adversity. Please however, proceed with caution. The Biotech Index (BTK.X) broke 650 and is teetering at the 637 level. It'd be much to our advantage to see the BTK.X rally in an advancing marketplace; although the sector may indeed be due for a healthy pullback over the short-term. Therefore at this point in the play, NOVN must buck the trend and push the upper limits on its merits alone. A conservative approach dictates waiting for the big breakout through $37 before adding new positions. BUY CALL JUL-30 NPQ-GF OI= 63 at $7.30 SL=5.25 BUY CALL JUL-35*NPQ-GG OI= 644 at $4.00 SL=2.50 BUY CALL JUL-40 NPQ-GH OI=1956 at $2.05 SL=1.00 Average Daily Volume = 459 K http://www.premierinvestor.net/oi/profile.asp?ticker=NOVN CEFT - Concord EFS Inc $52.61 (+2.11 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. Three times was a charm last week! That is, three new 52-week highs! CEFT made a bold move through the $51 resistance late in Thursday session and confirmed its bullish disposition above the $52 level on Friday. As a result of the renewed interest in CEFT, we raised our closing stop to $50 to protect against profit mongers taking cash off the table. The outlook is promising going forward as the share price treads into higher territory. Sector mates FDC and PAYX may offer some guidance as you plan your entries/exits, but nevertheless, consider taking profits as CEFT approaches the intermediate term near $55 and $56. A pullback to the previous resistance ($51) might offer the aggressive types a lower entry into a subsequent upswing, but make sure there's a solid bounce before jumping into that riskier scenario. Another dramatic spike in volume (like the one we saw on Thursday) coupled with more good news would certainly be welcome. On Thursday, the company had announced that Citizens Financial Group, a $30.9 bln financial services company, signed a long-term contract for its processing services. The record to beat stands at $53.08, Friday's intraday peak. BUY CALL JUL-45 EQF-GI OI= 51 at $8.50 SL=6.00 BUY CALL JUL-50*EQF-GJ OI=192 at $4.50 SL=2.75 BUY CALL JUL-55 EQF-GK OI=618 at $1.85 SL=0.75 Average Daily Volume = 3.81 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CEFT PSFT - PeopleSoft Inc $44.98 (+3.06 last week) PeopleSoft provides a family of enterprise application software products for use throughout large and medium-sized organizations. Its enterprise resource planning (ERP) software addresses such tasks as accounting, manufacturing, and supply chain management; but its services such as consulting and maintenance accounts for more than 65% of sales. PeopleSoft currently ranks as the #3 seller of applications that tie together customers' global back-office operations, following Sap and Oracle, respectively. As a result of its acquisition of The Vantive Corporation, PeopleSoft claims a distant second spot in the fast-growing customer relationship management (CRM) software sector dominated by Siebel Systems (SEBL). A list of distinguished speakers and a dynamic presentation of its Web-based CRM software at the PeopleSoft Leadership Summit in Las Vegas last week sent shares of PSFT rocketing through the formidable resistance at $45. Now that the first line is cracked, PSFT is free to challenge the 52-week high of $53.87. The unveiling of its Internet sales and customer service offering, which it expects to ship to customers at the end of June, also resulted JP Morgan raised its price target for PSFT to $48 from $37. In a research note, they commented that "though Siebel Systems has a commanding lead (in the CRM market) that doesn't look threatened, PeopleSoft can now be much more aggressive in its installed base and cross-sell more". Earlier in the week, Goldman Sach analyst Steven Kaly reiterated the stock's position on its Recommend List, too. The outlook appears solid going forward with this play; not only on the basis of the stock's own credibility, but also across the sector. This week, PSFT's rival, Sapphire (SAP), is kicking off its own analysts show on Tuesday. The German software giant intends to tout initiatives centered on high-profile software segments such as marketplaces, corporate portals, customer relationship management and supply-chain automation. A bullish reception should have a positive impact on shares of PSFT, ORCL and SEBL. As we prepare to play PSFT, let's look for $45 to serve as a firm launching pad for its future advances. Don't misunderstand, an entry at the lower levels, say near our $42 closing stop, is always an option for the enterprising traders who are looking to play the current spread. On the upside, the psychological $50 level may pose a threat, but it's the 52-week high ($53.87) that'll be the real challenge over the short-term. Exit aggressively. BUY CALL JUL-40 PQO-GH OI=4484 at $7.90 SL=5.75 BUY CALL JUL-45*PQO-GI OI=1611 at $4.80 SL=3.00 BUY CALL JUL-50 PQO-GJ OI=2627 at $2.70 SL=1.25 Average Daily Volume = 6.65 mln http://www.premierinvestor.net/oi/profile.asp?ticker=PSFT BRCD - Brocade Communications $45.09 (+6.29 last week) Brocade Communications is a provider of Fibre Channel switching solutions for Storage Area Networks (SANs), which apply the benefits of a networked approach to the connection of computer storage systems and servers. The company's family of SilkWorm switches enables companies to cost-effectively manage growth in their storage capacity requirements and improve the performance between their servers and storage systems. This provides the ability of increasing the size and scope of a company's SAN, while allowing them to operate data-intensive applications, such as data backup and restore, and disaster recovery on the SAN. Despite the JNPR-induced weakness on Friday, BRCD had a pretty decent week, tacking on a respectable 16% gain. While volume is still waffling below the ADV, it is encouraging to see higher volume on the rally days than on those days where the stock is giving back a little ground. Since Memorial day, BRCD has established a new, if tenuous uptrend line, which currently rests just above our $42 stop. Investors desperately want to believe that the worst is behind for Storage stocks (as well as the overall Technology sector) and ignored a good bit of bad news sprinkled throughout the week (mainly in the Semiconductor sector), to push our play as high as the $48 resistance level before pulling back on Friday. With the price currently above the 30-dma ($44.00) and the 10-dma ($41.98), both of which have offered support in the past few days, BRCD looks like it is headed higher. Even the daily Stochastics is cooperating, halfway between its extremes, but still pointing towards the sky. Aggressive entries still await on a bounce from the ascending trendline, or possibly from intraday support at $44. More conservative traders will let BRCD prove itself by surging through the $48 level before taking the plunge. Either way, keep a sharp eye out for profit taking as our play approaches the $51-52 level, and then again near $54. BUY CALL JUL-45*UBF-GI OI=10645 at $5.70 SL=3.75 BUY CALL JUL-50 UBF-GJ OI= 2600 at $3.90 SL=2.50 BUY CALL JUL-55 UBZ-GK OI= 4803 at $2.45 SL=1.25 BUY CALL OCT-50 UBF-JJ OI= 1457 at $7.80 SL=5.50 BUY CALL OCT-55 UBZ-JK OI= 210 at $6.30 SL=4.25 SELL PUT JUL-40 UBF-SH OI= 1214 at $2.95 SL=5.00 (See risks of selling puts in play legend) Average Daily Volume = 14.4 mln http://www.premierinvestor.net/oi/profile.asp?ticker=BRCD CB - Chubb Corporation $76.38 (+2.03 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. Once again finding support at its 10-week ascending trendline (also the site of the 30-dma), the Insurance index (IUX.X) managed to eke out a slight gain for the week as the bulls struggle to decisively gain the upper hand. In order to really pull it off, they'll have to put together a solid rally through the $778-780 level. Despite a lack of support from the broader sector, CB managed to work its way right up to the $76.50 resistance level, begging for an excuse to break out. We've still got the makings of a bullish wedge, with the daily lows still conforming to the uptrend line that has been in place since early May. This pattern has grown so tight, that it should resolve itself in the next couple days, likely in favor of the bulls. The only unknown is whether the IUX, and to a lesser degree the broad market, will be able to return to rally mode next week. we've got the 10-dma ($75.48) crossing up through the 200-dma ($75.27), and either of these moving averages could act as support on an intraday pullback. Aggressive traders will want to target new entries on a bounce at either of these levels or a strong bounce from our $74 stop level. Barring this pullback, look to enter the play as CB rallies through its recent intraday highs near $77.50. BUY CALL JUL-75*CB-GO OI=577 at $3.40 SL=1.75 BUY CALL JUL-80 CB-GP OI=321 at $1.25 SL=0.50 BUY CALL JUL-75 CB-JO OI=452 at $6.00 SL=4.00 BUY CALL JUL-80 CB-JP OI=145 at $3.30 SL=1.75 SELL PUT JUL-75 CB-SO OI= 38 at $2.00 SL=3.75 (See risks of selling puts in play legend) Average Daily Volume = 1.02 mln http://www.premierinvestor.net/oi/profile.asp?ticker=CB IMCL - Imclone Systems $53.30 (+0.21 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. With the Biotechnology index (BTK.X) weakening over the past few days, IMCL was bound to suffer a bout of profit taking, and broad-based market weakness was all the excuse traders needed on Friday. IMCL had been rallying consistently ever since breaking above the $50 level a little over a week ago, so a little pullback was to be expected. Unfortunately, the BTK index fell back below the critical $640 level at the close and IMCL got knocked back for a 5% loss. The only saving grace was the fact that volume remained below the ADV. With our $52 stop just a short hop from Friday's close, our play could be in serious jeopardy, particularly if the BTK fails to regain its footing (and the $640 level) on Monday. The 10-dma (currently $51.97) provided support on the last pullback in late May, and we are hoping it will do so again. Consider new positions on a bounce between $52-53, but only if buying volume is robust and the BTK is moving in the positive direction. Otherwise, wait for the bulls to clearly regain control and push IMCL through the recent highs near $56 before playing. BUY CALL JUL-50 QCI-GJ OI=1457 at $6.90 SL=5.00 BUY CALL JUL-55*QCI-GK OI=1118 at $4.30 SL=2.75 BUY CALL JUL-60 QCI-GL OI=2942 at $2.50 SL=1.25 BUY CALL AUG-55 QCI-HK OI= 800 at $6.00 SL=4.00 BUY CALL AUG-60 QCI-HL OI=1067 at $4.00 SL=2.50 BUY CALL AUG-65 QCI-HM OI=1581 at $2.60 SL=1.25 SELL PUT JUN-50 QCI-SJ OI= 216 at $3.20 SL=5.25 (See risks of selling puts in play legend) Average Daily Volume = 1.49 mln http://www.premierinvestor.net/oi/profile.asp?ticker=IMCL PDLI - Protein Design Labs $84.69 (+6.44 last week) Pursuing the prevention and treatment of disease through the development of humanized monoclonal antibodies, PDLI has fundamental patents that cover many such antibodies. Eleven companies have licenses under these patents for humanized antibodies that they have developed. PDLI has licensed certain rights to its first humanized antibody product, Zenapax, to Hoffman-La Roche and its affiliates, which market Zenapax for the prevention of kidney transplant rejection. In addition to testing Zenapax for the treatment of autoimmune disease, the company has several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, asthma and cancer. All things considered, things looked pretty good on Friday for our PDLI play. With a surprise 90 minute trading halt on the NYSE and a shocking earnings warning from JNPR, the Technology sector never really got out of reverse. The bearish sentiment continued to weigh on the Biotech index (BTK.X), and this filtered down to PDLI. Although the stock fell to $83.45 before finding buying support, it was encouraging to see there wasn't a rush for the exits with volume coming in at only about two-thirds of the ADV. The final hour recovery managed to boost PDLI above the $84 stop level, keeping our play alive to fight another day. It didn't really make for a good aggressive entry point though, as there was just no conviction (read:volume) on a summer Friday. The real technical damage took place on the BTK, with this index falling below the $640 support level at the close, and potentially negating the breakout through this level earlier in the week. So while we can still consider new entries on a bounce near the $84 level, we really only want to do so if the BTK can recover its footing and buying volume in PDLI looks solid. The more conservative approach might make the most sense for now, waiting for the bulls to once again crest the $86 level before playing. The next obstacle after that will be the formidable $91 resistance level, also the site of the 50% retracement of the loss that began in early November of last year. BUY CALL JUL- 85*RPV-GQ OI=178 at $ 9.20 SL=6.25 BUY CALL JUL- 90 RPV-GR OI=190 at $ 7.00 SL=4.00 BUY CALL JUL- 95 RPV-GS OI=402 at $ 5.10 SL=3.00 BUY CALL AUG- 90 RPV-HR OI=355 at $10.00 SL=7.00 BUY CALL AUG- 95 RPV-HS OI=794 at $ 8.40 SL=6.00 BUY CALL AUG-100 RPV-HT OI=652 at $ 6.70 SL=4.75 SELL PUT JUL-75 RPV-SP OI= 23 at $ 5.90 SL=8.50 (See risks of selling puts in play legend) Average Daily Volume = 1.76 mln http://www.premierinvestor.net/oi/profile.asp?ticker=PDLI QCOM - Qualcomm, Inc. $61.24 (-0.35 last week) Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Isn't that the way it always works? Just when it looks like an old favorite is poised to get moving higher, along comes a negative bit of news to keep it under pressure. In this case, the culprit was JNPR, issuing a depressingly honest earnings warning and virtually all stocks related to the communication sector came under selling pressure. Our CDMA hero, QCOM, wasn't immune from the abuse and gave up nearly $4 by the closing bell, erasing all its progress throughout the rest of the week. It was almost as though investors forgot about all the positive developments on the CDMA front in recent weeks and decided to head for the hills. The volume was thankfully light, coming in at a mere third of the ADV, and making a case for the bulls to once again charge to the rescue on Monday. Before you run out to scoop up all the calls you can afford though, take a moment to notice that the stock is now perilously close to our $60 stop. While aggressive traders can target shoot new entries on a dip near this level, they will only want to do so if the dip is met with eager buyers who are willing to push through strong volume. The daily Stochastics oscillator rolled over with the big red candle posted on Friday, and it appears the most prudent course of action will be to wait for the buyers to push through the $65 resistance level before taking a position. BUY CALL JUL-60*AAO-GL OI= 6722 at $6.80 SL=4.75 BUY CALL JUL-65 AAO-GM OI= 6773 at $4.30 SL=2.75 BUY CALL JUL-70 AAF-GN OI=13032 at $2.55 SL=1.25 BUY CALL OCT-65 AAO-JM OI= 3799 at $9.30 SL=6.50 BUY CALL OCT-70 AAO-JN OI=12068 at $7.30 SL=5.25 BUY CALL OCT-75 AAF-JO OI= 4709 at $5.30 SL=3.25 SELL PUT JUL-60 AAO-SL OI= 7535 at $4.80 SL=6.75 (See risks of selling puts in play legend) Average Daily Volume = 16.2 mln http://www.premierinvestor.net/oi/profile.asp?ticker=QCOM SEBL - Siebel Systems $48.61 (+2.73 last week) Siebel Systems is a provider of eBusiness applications. The company's products enable organizations to sell to, market to, and service their customers across multiple channels, including the Web, call centers, resellers, retail, and dealer networks. SEBL's eBusiness applications are available in industry-specific versions designed for the pharmaceutical, healthcare, telecommunications, insurance, energy, apparel, automotive, and finance markets. Through SEBL's applications, companies can create a single source of customer information that sales, service, and marketing professionals can use to tailor product and service offerings to meet each of their customer's unique needs. A low volume pullback is just what aggressive players were looking for to afford them entry into our SEBL play. Sure enough, that's what they got, as the market reacted negatively to the devastating earnings warning from JNPR Friday morning. The $52 level served as resistance and our play pulled back on anemic volume to logical support near $48, right on the 10-dma (currently $48.25). SEBL continues to attract investors due to its consistently accurate guidance in an environment filled with corporate CEOs who cannot reliably forecast their business in either the short or long term. The reward for this consistency is seen in the daily chart, which boasts a series of higher lows over the past 2 months. While there could be a bit more weakness early next week, look for SEBL to find solid support near the converging 10-dma and the 30-dma ($47.47). If those two fail, we have the 38% retracement level of the January-March decline resting at $46 and likely to provide significant support. Consider new entries on a bounce from any of these levels, but wait for buying volume to appear before taking the plunge. More conservative entries will be found as SEBL rallies through the $52 resistance level and the bulls set their sights on $55, a likely point for the bears to try to regain control. BUY CALL JUL-45 SGW-GI OI= 457 at $7.70 SL=5.50 BUY CALL JUL-50*SGW-GJ OI=1492 at $4.90 SL=3.00 BUY CALL JUL-55 SGW-GK OI=3137 at $2.95 SL=1.50 BUY CALL AUG-50 SGW-HJ OI=8504 at $6.10 SL=4.00 BUY CALL AUG-55 SGW-HK OI=8817 at $4.10 SL=2.50 BUY CALL AUG-60 SGW-HL OI=6061 at $2.70 SL=1.25 SELL PUT JUL-45 SGW-SI OI=1478 at $3.50 SL=5.50 (See risks of selling puts in play legend) Average Daily Volume = 18.4 mln http://www.premierinvestor.net/oi/profile.asp?ticker=SEBL VRSN - VeriSign, Inc. $55.66 (-0.58 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. Just when it looked like the bulls were going to finally push VRSN through the $59 resistance level, along comes JNPR with a devastating earnings warning, keeping the NASDAQ underwater all day on Friday. The net result of the week's trading was that our play managed to vacillate between $54-59 on relatively light volume. The bulls wanted to rally the stock, but every time they got started down that road, along came another tech company with an earnings confession. All told, the technology sector (and our play to boot) held up rather well on Friday, especially when you consider the uncertainty created by the unexpected trading halt on the NYSE. Friday's selling snatched back the lion's share of Thursday's gains, placing the Internet security firm's share price just below both the 10-dma ($56.79) and the 30-dma ($56.96). This could be throwing a wet blanket on the daily Stochastics oscillator's attempt to break out of oversold territory, and further weakness next week could be enough to break our stop, currently resting at $53. There was strong buying interest near the $54 level all week and the 38% retracement of the gains posted since early April rests at $52.30. Aggressive traders can consider new positions on a dip and bounce near either of these levels, but only if followed by strong buying volume. The more prudent approach right now appears to be waiting for the buyers to firmly gain control and push the stock above $59 before taking a position. BUY CALL JUL-55*QVR-GK OI= 202 at $6.60 SL=4.50 BUY CALL JUL-60 QVR-GL OI=1773 at $4.40 SL=2.75 BUY CALL JUL-65 QVR-GM OI= 268 at $2.85 SL=1.50 BUY CALL SEP-60 QVR-IL OI=1470 at $8.00 SL=5.75 BUY CALL SEP-65 QVR-IM OI= 707 at $6.30 SL=4.25 BUY CALL SEP-70 XVR-IN OI= 341 at $4.90 SL=3.00 SELL PUT JUL-50 QVR-SJ OI= 158 at $3.20 SL=5.25 (See risks of selling puts in play legend) Average Daily Volume = 8.81 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=2207 ************************************************************ ********** 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 06-10-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1077_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 ************* RIMM - Research in Motion $32.82 (-2.87 last week) Research in Motion designs, builds and markets wireless solutions for the mobile communications market. Through development and integration of hardware, software and services, RIMM provides solutions for seamless access to time-sensitive information including e-mail, messaging, Internet and Intranet-based applications. RIMM's portfolio of products includes the RIM Wireless Handheld product line, the BlackBerry wireless email solution, wireless personal computer card adapters, embedded radio modems and software development tools. The company's technology also enables a broad array of third party developers and manufacturers in North America and around the world to enhance their products and services with wireless connectivity. With its always-on Blackberry wireless email solution, RIMM may be at the cutting edge of where the next generation of personal communication devices is headed, but in the here-and-now, the stock is having problems. After once again failing to crest the $40 resistance level last week, damaging rumors surfaced, stating that its sales to AOL were in jeopardy due a recent price hike. Showing the unsettled nature of the Technology market, investors fled the stock, delivering a more than $5 intraday loss on more than double the ADV. Although the rumors were refuted on Thursday, the mild recovery was completely swamped on Friday as RIMM once again gave up nearly 9%, this time in response to the brutally honest warning from JNPR. Up until Friday, RIMM had been gradually working higher in a bullish wedge, but by the time the week drew to a close, the stock was solidly below the ascending trendline (currently $34), and the daily Stochastics are now pointing south. Intraday resistance should turn back any intraday rallies at either the $35, $36 or $37, providing for aggressive entry points. Conservative players can enter the play as RIMM continues to decline below the $32 level. Place stops at $37. BUY PUT JUL-35*RUL-SG OI= 170 at $5.80 SL=3.75 BUY PUT JUL-30 RUL-SF OI=1170 at $3.30 SL=1.75 BUY PUT JUL-25 RUL-SE OI= 269 at $1.50 SL=0.75 Average Daily Volume = 4.44 mln http://www.premierinvestor.com/oi/profile.asp?ticker=RIMM TLAB - Tellabs Inc $30.92 (-4.04 last week) Tellabs designs, manufactures, markets and services optical networking, next-generation switching and broadband access solutions. Its TITAN cross-connect system, which helps connect incoming and outgoing digital and fiber-optic lines, accounts for more than 60% of sales. Tellabs makes the CABLESPAN universal telephony distribution system, which lets cable systems transmit voice, video, and data. Tellabs also offers the MartisDXX access and transport network system, and the FOCUS system, which lets carriers build fiber-optic backbone networks. The Company also provides professional services that support its solutions. It hasn't been a bed of roses for the networking stocks of late and it doesn't look like it's time to pop the champagne anytime soon. In particular, the reduced spending by the telecoms and the minefield of earnings' woes continue to pound the daylights out of companies like TLAB, GLW, NTAP, and FNSR. Although TLAB is diversified with its broad range of services, it's not immune to the sector sentiment. Just take a look at a one-year chart of the Networking Index (NWX.X)! The NWX.X was trading above 1000 in October, falling to the wayside of 800 by December and plummeting sub-600 in February. Getting a beating behind the woodshed is an understatement! This month the NWX.X is hovering between 420 and 440. Another break of 420 invites traders to play the downside of TLAB as it sinks lower with the broader sector. Ultimately, a slide through Friday's new 52-week low in accord with a descending sector and market signals momentum players to jump on this put play. To protect against a short- term rally, we've set a closing stop at the $34 level. BUY PUT JUL-40 TEQ-SH OI=3305 at $9.60 SL=6.50 BUY PUT JUL-35 TEQ-SG OI=2015 at $5.50 SL=3.50 BUY PUT JUL-30*TEQ-SF OI= 880 at $2.40 SL=1.25 Average Daily Volume = 7.16 mln http://www.premierinvestor.com/oi/profile.asp?ticker=TLAB ***************** CURRENT PUT PLAYS ***************** ELNT - Elantec Semiconductor $31.00 (-2.00 last week) Elantec is engaged in the design, manufacturing and marketing of high performance analog integrated circuits, primarily for the video, optical storage, and DSL markets. The company offers approximately 150 products such as amplifiers, drivers, faders, transceivers and multiplexers, most of which are available in multiple packaging configurations. ELNT targets high growth commercial markets in which advances in digital technology are driving increasing demand for high speed, high precision and low power consumption analog circuits. There sure was a lot of news from the Semiconductor sector this past week. From BRCM to INTC, bearish news was repeatedly interpreted with a bullish bias, helping our ELNT to regain some lost ground by late Thursday. Before the opening bell rang on Friday though, JNPR was throwing cold water on the partiers with a dismal earnings warning and our play spent all day in the red, dropping back to the $31 level at the close. The Semiconductor index (SOX.X) helped with the downward move, as it reversed from the $700 resistance level. While it was nice to see the bears back in control (at least in our play), it is hard to put too much stock in the days action, as it came on a paltry 171,000 shares, not even 20% of the ADV. This puts us right back where we were when we began coverage of ELNT earlier in the week, looking for a drop below the $30 (actually $30.50) support level. If the bears can ramp up the selling volume and push below this level, it should make for a nice conservative entry. Otherwise, we'll need to keep our eyes peeled for another failed rally below our $33 stop level. Continue to monitor the SOX index, as weakness there is likely to pave the way for a technical breakdown in shares of ELNT as they head down towards the $25 level. BUY PUT JUL-30*UET-SF OI=5 at $3.20 SL=1.50 BUY PUT JUL-25 UET-SE OI=0 at $1.25 SL=0.50 Wait for OI!! Average Daily Volume = 976 K http://www.premierinvestor.com/oi/profile.asp?ticker=ELNT NEWP - Newport Corp. $32.13 (+0.05 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. Well, How do you like that? After gradually working it's way higher throughout the week, NEWP bumped into the $34 resistance level late Thursday afternoon, providing aggressive traders with the entry point they so patiently waited for. Of course, INTC's well-received mid-quarter update may have been cause for a bit of heartburn. That is until JNPR dashed all bullish hopes Friday morning before the open with their dismal earnings warning, firmly pushing the Networking index (NWX.X) into a downtrend for the entire day. NEWP ended the day with a more than 5% loss, once again coming to rest on the $32 support level and reinvigorating the bears. Although encouraging (at least for those of us in puts), the selling volume was nothing to write home about, barely reaching a third of the ADV. All things considered, the damage could (and likely should) have been worse, and therein lies the rub. NEWP is looking like it may be running out of downside pressure, and we need to be on the lookout for a bullish reversal next week. As the old adage states, "Never short a dull market" and looking at the daily chart for NEWP, there is no arguing that it is dull. While we can still target aggressive entries on failed rallies in the $34-35 range, the more prudent course of action may be to wait for the $32 support level or even $30 to fall victim to a bearish selling party. Keep stops set at $35 and watch the NWX for guidance. BUY PUT JUL-35*NZZ-SG OI= 169 at $6.10 SL=4.00 BUY PUT JUL-30 NZZ-SF OI= 195 at $3.50 SL=1.75 BUY PUT JUL-25 NZZ-SE OI= 261 at $1.70 SL=0.75 Average Daily Volume = 3.57 mln http://www.premierinvestor.com/oi/profile.asp?ticker=NEWP EPG - El Paso Natural Gas Co $57.00 (-2.85 last week) El Paso Natural Gas, formerly El Paso Energy Corp, is a global energy company originally founded in 1928 in El Paso, Texas. For many years, the Company served as a regional pipeline company conducting business mainly in the western United States. In the past five years however, it now has operations that span the wholesale energy value chain, from natural gas production and extraction to power generation. The Company's growth during this period was accomplished through a series of strategic acquisitions, transactions, and internal growth initiatives. We initiated coverage Thursday evening on EPG on the basis of its weakening state amid the pullback in energy issues. Major refiners like CHV, TX and ENE are all effectively getting cut back to their lower support level, but EPG's inclination towards further declines provides the potential for gains. The stock's violation of the historical $57 support and its continued trading under the 10-dma line demonstrate its technical weakness. The pattern of lower-lows and lower-highs suggests EPG could move lower; however, it appears the $56 level may be firming. Let's be patient for a high-volume (2+ mln intraday) decline through Thursday $55.82 before initiating new plays. There's always an entry from the upper resistance at $57; although if EPG fails to break the bottom support your profit potential is slim. A bullish close above the 10-dma, at the $59 mark, and we'll exit the play. BUY PUT JUL-60*EPG-SL OI=6754 at $4.50 SL=2.75 BUY PUT JUL-55 EPG-SK OI=1089 at $2.00 SL=1.00 BUY PUT JUL-50 EPG-SJ OI= 351 at $0.70 SL=0.00 Average Daily Volume = 2.75 mln http://www.premierinvestor.com/oi/profile.asp?ticker=EPG AIG - American Intl Group Inc $80.76 (+0.67 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 Insurance Index (IUX.X) measured the sector's recent popularity amongst investors as it rose to levels topping 770. The widening oscillations at this higher support were a pertinent factor that prompted us to add AIG to our call list last weekend. The company's announcement earlier in May of its $23 bln stock acquisition of the #3 US life insurer, American General Corp, and a downgrade by Prudential also tested the stock's price level. So far, the $80 support is buoying AIG as the IUX.X bobs at the 765 level. AIG remains on our put list in hopes $80 will tumble when the inevitable coil springs. In the event of its breakdown, it's not unthinkable for AIG to return to March/April lows near $75. The 52-week record low isn't that far away at $72.64. Under the current conditions, look to take the path of least resistance. An entry amid a high-volume decline through $80 in contrast to taking an entry on a rollover poses less risk. Continue to monitor SPC, CB and PGR and the IUX.X for evidence of a sector-wide breakdown. We've revised our closing stop to $82 from $83. BUY PUT JUL-85 AIG-SQ OI= 13 at $4.90 SL=3.00 BUY PUT JUL-80*AIG-SP OI=478 at $1.95 SL=1.00 BUY PUT JUL-75 AIG-SO OI=179 at $0.80 SL=0.00 Average Daily Volume = 4.99 mln http://www.premierinvestor.com/oi/profile.asp?ticker=AIG NETE - Netegrity Inc $37.73 (+4.00 last week) Netegrity is a provider of software and services that manage and control user access to Web-based e-commerce applications. The company's SiteMinder product is a directory-enabled secure user management system, which is used to build and manage what is commonly known as a portal. Netegrity also offers professional services that support its software product offerings. On news that Netegrity was placed in the leadership position for the second year in a row by Gartner, one of the most respected authorities in the access management space, shares of NETE surged last Tuesday. The 21% spike on 1.7 times the normal volume propelled NETE off its $31 low to the upper ranges of $38 and $39. Our initial objective was to ride the decline on the backfill after NETE went topside of $43 and $45, completing the head-and-shoulders formation. This scenario presented the ideal entry in terms of risk and reward; but as can typically be the case, the best laid plans don't always come to fruition in the order we expect. On Friday, a strong wave of selling in early trading took NETE from $39.76 to 35.26; but unfortunately, the bullish cavalry returned it to the $37 level. Although the rollover was at the $40 level versus the upper resistance of $43, it presented a viable and tradable opportunity. Aggressive traders might find these intraday fluctuations profitable next week, too. If you're more interested in buying into definitive weakness look for a breakdown of the $35 level, locking in gains as NETE approaches last Monday's $31 bottom. A bearish market coupled with declines in other software issues like AGIL, ADBE, BEAS, and CHKP invites calamity and should create some downside action for NETE. Be prepared for OI to drop coverage if NETE closes above the $44 level. BUY PUT JUL-45 UPN-SI OI= 6 at $9.90 SL=7.00 BUY PUT JUL-40*UPN-SH OI= 0 at $6.40 SL=4.50 Wait for OI!! BUY PUT JUL-35 UPN-SG OI=11 at $3.70 SL=2.00 Average Daily Volume = 1.41 mln http://www.premierinvestor.com/oi/profile.asp?ticker=NETE ************************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 ***** Make Way For The 2004 LEAPS! By Mark Phillips Contact Support That's right, they are starting to appear. Those stocks that are on Cycle 1 have had their 2004 LEAPS released, and taking positions with these options gives us fully 31 months to be right! If you aren't familiar with the process by which new LEAPS are issued, please follow the link below to my article from last year, "The New 2003 LEAPS". <http://members.OptionInvestor.com/archive/leaps/053100_1.asp> While a little bit dated, the essential facts remain the same as they were a year ago. While we are on the subject of housekeeping, let's cover the essential changes to our play lists for the week before we delve into the more intriguing aspects of where we are going. Genzyme Corp. (NASDAQ:GENZ) delivered its 2-for-1 split, which means that the LEAPS in our portfolio changed their symbols and our cost basis changed. Additionally, it is looking like the Biotechs may be getting a bit top-heavy after their recent advance, so we are really tightening up our stop on the play. We want to make sure we preserve our profits in the event of a downturn in the sector. A drop below the recent breakout near $54 could portend a more substantial drop, and we would prefer to lock in our profits in that case. It seems we just can't quite get it right on Verisign (NASDAQ:VRSN) and Siebel Systems (NASDAQ:SEBL), with the respective stock prices dancing just out of reach of our entry targets before beginning their next leg upwards. Although we could be falling into the trap of chasing these stocks higher, I think we can inch those targets up just a bit without unduly increasing our risk. Following its own bearish news a couple weeks ago, EMC Corp. (NYSE:EMC) has fallen back into the $30-35 range once again, so we'll take advantage of the weakness by reducing our entry target. See the Watch List for the revisions. One other issue that deserves some attention is the action of some of our laggard plays. Due to the dramatic decline in the VIX over the past couple months, we've seen option premiums decline significantly, even though the stocks have been moving up. We dropped Wal-Mart (NYSE:WMT) this weekend, and although the stock advanced significantly from where we initiated the play, volatility collapse negated all of those gains. A similar problem is plaguing Clorox (NYSE:CLX), which is up significantly since early March, but the LEAP premiums are stuck in neutral. There are 3 other plays that just don't seem to have any life in them. Sprint Corp. (NYSE:FON), Nordstrom (NYSE:JWN) and Nextel Communications (NASDAQ:NXTL) can't seem to find any buyers to push their shares higher, while at the same time, decreasing volatility is reducing the premiums. We are keeping our stops in place at current levels, but would recommend using rallies to exit open positions. It doesn't appear that these stocks are finding any buying interest even when the markets are in rally mode, and we will be better served by redeploying our cash in more lively plays. Judging by the email I received last week, it seems I struck a positive chord with my attempt to clarify our Entry strategy. Thanks to all of you that wrote to me, voicing your approval. It seems there are still a couple points that need clarification, however. So let's take the remainder of our time here together to finalize that discussion so that next week we can focus on exit strategy. While I utilized hourly charts for demonstration purposes, entries are always taken based on a closing basis on the daily charts, at least as far as the LEAPS Portfolio is concerned. Hourly charts are great for fine-tuning that entry, and vigilant traders can improve their entry point by taking action mid-day when it is clear that the stock in question is solidly in rally mode and has handily cleared our entry target price. The chart below shows the action in BRCM last week, which provided our entry. Although we took the entry provided on Tuesday, an even stronger setup materialized on Thursday due to the more favorable volume picture. So where are we and what do we expect going forward? That's a real good question. The markets seem to be digesting a lot of bad news without succumbing to a big selloff. And we are likely to see more bad news as earnings warnings are likely to increase in frequency over the next couple weeks. The fact that investors continue to hit the buy button is a good sign, possibly signaling that we don't need to retest the April lows. I see signs of strength on numerous individual equity charts, but the charts of the major indices have bearish chart patterns scattered throughout. Additionally, it seems that critical support levels are holding up nicely 10,800 on the DJIA, 2100 on the COMPX and 1250 on the S&P500. Simply put, we have mixed signals and that is no great surprise, as history would seem to indicate range-bound trading during the summer months. The one factor that keeps me cautious is that pesky VIX. Have you noticed that it is now down at 21.41? That is awful close to the sub-20 level and indicates there isn't much fear in the market. That is just the sort of setup that whets the appetite of the hungry bear. We all know that the VIX can very easily stay under 20 for weeks and months at a time, so we are taking advantage of near-term weakness in quality stocks to establish positions for the recovery that is bound to occur, whether this summer, late fall, or early next year. In short, I expect more near-term weakness, which should be followed by a significant recovery as it becomes clear that the economy is on the mend. Well I'm out of time again, but I think we are making great strides towards having a LEAPS section that will benefit all involved. As always, don't hesitate to write with any questions that arise. Next week, we'll take on the issue of exit points and that should leave us ready to tackle the markets together for the remainder of the year. Take your entries when they are offered, but don't force plays or chase stocks higher. Patience is still a virtue and one that is likely to be handsomely rewarded in the months ahead. 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 $ 3.80 8.57% $ 33 '03 $ 35 VUT-AG $ 6.10 $ 6.50 6.56% $ 33 GENZ 03/23/01 '02 $42.5 GZQ-AV $12.50 $17.50 40.00% $ 54 '03 $ 45 OZG-AI $13.88 $21.30 53.46% $ 54 SWS 03/22/01 '02 $ 18 YWF-AT $ 4.10 $ 5.40 31.71% $ 20 '03 $ 20 VWZ-AD $ 5.00 $ 6.40 28.00% $ 20 WM 03/22/01 '02 $33.8 BWT-AY $ 4.00 $ 5.30 32.50% $ 32 '03 $33.8 OBN-AY $ 6.13 $ 7.70 25.61% $ 32 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 $16.80 20.00% $ 91 '03 $ 90 VSD-AR $20.50 $25.90 26.34% $ 91 FON 04/09/01 '02 $ 25 WO -AE $ 2.80 $ 1.45 -48.21% $ 19 '03 $ 25 VN -AE $ 4.40 $ 3.40 -22.73% $ 19 DELL 04/27/01 '02 $ 25 WDQ-AE $ 6.20 $ 4.90 -20.97% $ 23 '03 $ 25 VDL-AE $ 9.00 $ 8.00 -11.11% $ 23 ADBE 05/16/01 '02 $ 40 AEQ-AH $11.00 $10.00 - 9.09% $ 37 '03 $ 40 VAE-AH $14.60 $15.80 8.22% $ 37 AOL 05/16/01 '02 $ 55 AOO-AJ $ 9.60 $ 8.10 -15.63% $ 48 '03 $ 55 VAN-AJ $14.60 $12.60 -13.70% $ 48 NXTL 05/25/01 '02 $ 20 WFU-AD $ 3.40 $ 2.25 -33.82% $ 15 '03 $ 20 VFU-AD $ 5.80 $ 4.40 -24.14% $ 15 LRCX 06/01/01 '02 $ 30 WMJ-AF $ 6.60 $ 8.40 27.27% $ 25 '03 $ 30 VPC-AF $10.30 $12.60 22.33% $ 25 QCOM 06/01/01 '02 $ 65 AAO-AM $13.00 $12.60 - 3.08% $ 55 '03 $ 70 VLM-AN $18.70 $18.70 0.00% $ 55 BRCD 06/05/01 '02 $ 45 UBF-AI $10.70 $12.40 15.89% $ 35 '03 $ 45 OMW-AI $18.40 $19.30 4.89% $ 35 BRCM 06/05/01 '02 $ 40 WGJ-AH $ 9.70 $ 9.40 - 3.09% $ 30 '03 $ 40 OGJ-AH $14.00 $15.20 8.57% $ 30 TXN 06/07/01 '02 $ 40 TXN-AH $ 6.30 $ 5.90 - 6.35% $ 30 '03 $ 40 VXT-AH $10.90 $10.20 - 6.42% $ 30 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 EMC 04/22/01 $31-32 JAN-2002 $ 45 EMC-AI JAN-2003 $ 45 VUE-AI SEBL 04/22/01 $43-44 JAN-2002 $ 45 YDS-AI JAN-2003 $ 45 OIE-AI VRSN 04/29/01 $53-54 JAN-2002 $ 50 YXO-AJ JAN-2003 $ 55 OVX-AL CPN 06/10/01 $43-44 JAN-2002 $ 45 CPN-AI JAN-2003 $ 50 OLB-AJ JAN-2004 $ 50 LZC-AJ New Portfolio Plays BRCD - Brocade Communications $43.49 After dipping into the mid-$30s following the Memorial day weekend, BRCD found the support of buyers who appeared just as the daily Stochastics dipped into oversold territory. The low point of that decline coincided nicely with the 50% retracement of the gains posted since the April lows. While there are still going to be shocking earnings warnings in the Technology sector such as that received from JNPR on Friday, investors are voting with their wallets that the worst may be behind, at least for leading stocks such as BRCD. Tuesday saw a stellar day for our play, as BRCD began the day just below $40 and rallied strongly throughout the day, satisfying our entry target by closing solidly above the $41 level. As we head into the heart of earnings warning season, we want to give our new play some wiggle room, so we are starting out with our stop at $35. Any repeated bounces near our original entry target should provide attractive entry opportunities for those that missed their chance last week. BUY LEAP JAN-2002 $45.00 UBF-AI $10.70 BUY LEAP JAN-2003 $45.00 OMW-AI $18.40 BRCM - Broadcom Corp. $37.56 Earnings warnings were flying fast and furious in the Semiconductor sector last week, and BRCM took the opportunity to issue their own warning on Thursday. Stating that sales continue to be weak and that they would fall short of earnings estimates for the second quarter, the company also gave investors a glimmer of hope with the statement that revenue would bottom out in the second quarter and then begin to improve. While hardly a glowing report, it was enough to keep the buyers showing up, handing the stock a nearly $5 gain on the day. Fortunately, we were already in the play due to the solid rally on Tuesday that pushed BRCM right through our entry target at $36. We could be early to this party, especially with earnings warning season upon us, but with the Semiconductor index (SOX.X) rallying sharply for most of the week despite all the poor news, we are willing to place our bet and hold on for the much-anticipated recovery. We don't want to get whipsawed out of our position on mild near-term weakness, so we are starting out with a wide stop, clear down at $30. If you missed the entry last week, look for a dip near the $36 level to provide entry, but make sure the bounce is fueled by solid volume and the SOX continues its winning ways. BUY LEAP JAN-2002 $40.00 WGJ-AH $ 9.70 BUY LEAP JAN-2003 $40.00 OGJ-AH $14.00 TXN - Texas Instruments $39.39 Believe it or not, we got our entry on another of our Semiconductor plays, despite the warnings that were being issued in the sector last week. Leading up to INTC's mid-quarter update Thursday night, TXN had a stellar day, gaining more than 10% on strong volume. Unfortunately that was our entry day as the stock plowed right through our $36-37 entry target, forcing us to take our position at the high of the day. As expected, the stock fell back somewhat on Friday following a dismal earnings warning from JNPR. While the worst isn't over yet, repeated comments from other Semiconductor companies is still pointing towards hope for a 2nd half recovery. Analysts continue to be divided, providing further proof that nobody REALLY knows what the future holds. But we set our desired entry point, and it was satisfied. Barring any blowout negative news, the series of recent interest rate cuts should help to get the tech sector firing on all cylinders again TXN will be one of those in the Semiconductor area leading the recovery. Until we see more positive movement, we want to give TXN some room to move, so we are starting out with our stop at the $30 level. BUY LEAP JAN-2002 $40.00 TXN-AH $ 6.30 BUY LEAP JAN-2003 $40.00 VXT-AH $10.90 New Watchlist Plays CPN - Calpine Corp. $45.80 It was only a couple weeks ago that we removed CPN from our Watch List due to concerns about valuation and a possible steep decline in price. Sure enough, sellers appeared in force, driving the stock down as low as $42 last week before the stock appeared to hit bottom. The fundamental catalyst for the drop was likely fears that the Federal government would step in to implement rate caps to alleviate the high power costs in the state of California. Investors seem to have decided that event is unlikely and began to bid the stock higher, even on Friday when the broader market was in decline. The fact remains that natural gas prices are high, likely to remain so, and that this fuel is the preferred one for power generation due to environmental concerns. Add to that the fact that CPN has impressive resources in terms of generation facilities, natural gas reserves, and pipelines and transmission systems for delivering natural gas and electricity to its customers, and you can see that the company is well positioned to remain quite profitable, especially as we head into the peak demand summer months. On Friday, CPN crested its 200-dma ($45.48), albeit on rather mild volume. We are looking for one more mild pullback before the stock really gets moving. Target entries on a bounce from the $43-44 area, and once filled, place a tight stop at$42. BUY LEAP JAN-2002 $45.00 CPN-AI BUY LEAP JAN-2003 $50.00 OLB-AJ BUY LEAP JAN-2004 $50.00 LZC-AJ Drops WMT $50.99 Even though the Retail index (RLX.X) found support and began to recover on Monday, WMT continued to deteriorate throughout the week. With a close under our $51 stop on Monday, we have no choice but to drop the play. WMT is a perfect example of the negative effect both time decay and a drop in volatility can have, even on LEAPS. Note in the Track Record file that even though the stock moved up more than $3 while we were in the play, the '02 LEAP lost 7% and the '03 LEAP barely managed to hold at even. '02 LEAPS are now starting to see more a more significant effect from the passage of time, and for WMT, this effect was exacerbated by declining volatility with the VIX falling from 35 to 21 during the life of the play. *************************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 06-10-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1077_5.asp ************* COVERED CALLS ************* Option Trading Basics: Q&A with the Covered-calls Editor By Mark Wnetrzak Today's question concerns our approach to the strategy of writing covered-calls and the general guidelines for using this section. Dear OIN, I learned of your service through John Dessauer's Investor's World. I am interested in writing covered-calls. My problem in writing covered-calls has been research and finding the correct company. Can your service help me to accomplish this? In general, what kind of percent of profit do you shoot for. Also, I have a margin account with Charles Schwab. Do you recommend using margin money on short plays? KJ My response: In this section, we use a two-pronged approach to find a variety of covered-call candidates to supplement your search for profitable trading positions: technical scans and option scans. I personally scan through hundreds of charts each week looking for technically strong stocks with favorable option premiums. I then sort through several "over-priced" option lists, looking for stocks with favor- able technicals. The strategy we use in selecting these positions is based on a conservative covered-write using the "total return" concept that Lawrence McMillan adeptly describes in his original book, "Options: As a Strategic Investment." With this conservative approach, an investor considers the covered write as a single entity and is not interested so much in stock ownership or bullish movement, but in obtaining a consistent (monthly) return on investment. Based on this approach, our target is generally in the range of 3%-6% per month (6%-12% on margin), and in all but a few cases, the stock is called away or sold after one strike period. Of course, it is still good advice not to purchase an issue you wouldn't mind owning, as there is always that possibility with a covered-write. We favor a short-term approach, which isn't predicated on forecasting a stock's (or the market's) directional movement. Still, whether the covered write strategy is applied short-term or longer term, it requires a neutral to slightly bullish outlook on the underlying equity and the overall market. Obviously, covered-calls do hedge against downside movement, but they are not a remedy for protracted bearish activity. We simply prefer the higher probability of making a consistent (low) return. Some investors prefer to strive for higher potential returns with an aggressive outlook, writing "out-of-the-money" calls on stocks in their portfolios. These (OTM) positions offer greater rewards but also have less downside protection. The maximum potential profit of an OTM position, while greater than that of an "in-the-money" (ITM) position, will always require an increase in price by the underlying stock. Thus, by utilizing an OTM option, the success of the overall position depends more on the movement of the stock price and less on the benefits of writing the call. Since the premium generated from the sale of the call is much smaller, the overall position will be more susceptible to loss if the stock's price declines. ITM plays are plainly more conservative, offering less risk but also smaller reward potential. Though our strategy is less aggressive, there is risk of loss in all trading. Our primary goal in this section is to provide positions that make acceptable returns while still receiving an above-average amount of downside protection. If you decide to use OTM calls, concentrate on the "return not called." This is the return on investment that one would achieve even if the stock price were unchanged when the sold option expires. You can compare potential plays more fairly using this approach since no assumption is made about the price movement in the underlying issue. The approach you take depends on your personal preference and risk-reward tolerance. Some investors split the difference, preferring to write a combination of both OTM and ITM calls. As far as fundamental research, we are only able to do a cursory search of the latest news. As with all recommendations, it remains your responsibility to perform due diligence and thoroughly research any issue you are interested in. Regarding the use of margin: it is an effective tool that increases leverage but it also has drawbacks. The key is to manage your portfolio capital efficiently but without undue downside risk. Regards, Mark W. OIN 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 GENE 13.44 15.03 JUN 12.50 1.75 *$ 0.81 15.1% NPIX 10.00 12.70 JUN 10.00 1.15 *$ 1.15 11.3% CYGN 7.79 9.38 JUN 7.50 0.75 *$ 0.46 9.9% OSUR 10.24 11.21 JUN 10.00 1.00 *$ 0.76 8.9% VOXX 10.09 10.45 JUN 10.00 0.95 *$ 0.86 8.2% OPTV 13.87 15.02 JUN 12.50 1.80 *$ 0.43 7.7% STOR 19.27 18.59 JUN 15.00 5.40 *$ 1.13 7.1% APHT 20.00 21.59 JUN 17.50 3.50 *$ 1.00 6.6% SPWX 15.70 14.10 JUN 12.50 3.90 *$ 0.70 6.4% FNSR 20.98 15.10 JUN 15.00 7.00 *$ 1.02 6.3% ABMD 25.60 23.75 JUN 22.50 4.00 *$ 0.90 6.3% ALXN 26.02 22.52 JUN 22.50 4.40 *$ 0.88 6.2% MCDTA 31.95 29.75 JUN 25.00 7.90 *$ 0.95 6.0% CELG 22.99 32.85 JUN 20.00 4.00 *$ 1.01 5.8% STLW 13.01 11.58 JUN 10.00 3.50 *$ 0.49 5.6% WEBX 16.20 16.80 JUN 12.50 4.30 *$ 0.60 5.5% NUAN 16.50 17.21 JUN 12.50 4.30 *$ 0.30 5.3% SBYN 15.28 16.05 JUN 12.50 3.20 *$ 0.42 5.3% MEDX 26.30 29.85 JUN 22.50 4.80 *$ 1.00 5.1% PGNX 20.16 19.26 JUN 17.50 3.20 *$ 0.54 4.8% NEM 20.98 21.42 JUN 20.00 2.00 *$ 1.02 4.7% AFCI 17.70 20.72 JUN 15.00 3.40 *$ 0.70 4.3% HPOW 13.74 11.93 JUN 12.50 1.65 $ -0.16 0.0% BTX 8.50 7.85 JUL 7.50 1.90 *$ 0.90 8.5% ROS 5.49 5.46 JUL 5.00 1.05 *$ 0.56 7.8% MCAF 11.90 14.56 JUL 10.00 2.70 *$ 0.80 5.4% MRVC 12.35 9.93 JUL 10.00 3.20 $ 0.78 4.7% *$ = Stock price is above the sold striking price. Comments: One week to go (June expiration) and Juniper (NASDAQ:JNPR) had to ruin Intel's (NASDAQ:INTC) party. Time to re-evaluate your positions during this time of Market weakness. Storagenetworks (NASDAQ:STOR) could be a candidate for an early exit if it falls below its 50 dma on a closing basis. The technicals have weak- ened and the next support area is around $12.50. Finisar (NASDAQ: FNSR) continues to weaken though this week's rally provided a reasonable exit. The short-term double-top looks ominous. Time to bid Alexion Pharmaceuticals (NASDAQ:ALXN) adieu? The company reported rather discouraging early results of its Phase I study on its psoriasis treatment. A test of the April low appears likely. H Power (NASDAQ:HPOW) looks a bit worrisome - consider an early exit on further weakness. Many of the stocks in the summary appear to be entering consolidation phases or are failing to move above their May highs. Time to monitor your positions closely as they test support and defend your capital as need be. Positions Closed: Aremissoft (NASDAQ:AREM) ****************************************************************** - UPCOMING SEMINAR - ****************************************************************** On June 27, Mark Wnetrzak (Covered-calls) and Ray Cummins (Naked Puts) will be conducting an instructional seminar for new traders who are interested in the fundamentals of their approach to these conservative strategies. The general topics of discussion will be: - How to earn monthly income through stock ownership - How to reduce the effects of downside market moves - How to purchase new portfolio stocks at a discount You can take the seminar without leaving the comfort of your home or office. It is interactive and you can ask questions after the presentation. You do not need any special software to attend the presentation but you must have a 56K Internet connection or faster for best results and a separate phone to listen to the audio portion. If you are interested in this seminar, please click here for more information: http://www.premierinvestorseminars.com/seminarcalendar.asp ************** 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 AMLN 14.42 JUL 12.50 AQM GV 3.00 973 11.42 42 6.8% GNSL 5.40 JUL 5.00 UNU GA 0.90 305 4.50 42 8.0% LEXG 11.66 JUL 10.00 EIU GB 2.45 70 9.21 42 6.2% MCAF 14.56 JUL 12.50 CFU GV 2.90 38 11.66 42 5.2% OCPI 14.86 JUL 12.50 UHY GV 3.30 21 11.56 42 5.9% TIVO 8.40 JUL 7.50 TUK GU 1.55 132 6.85 42 6.9% VLNC 9.06 JUL 7.50 VHQ GU 2.15 49 6.91 42 6.2% 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 GNSL 5.40 JUL 5.00 UNU GA 0.90 305 4.50 42 8.0% TIVO 8.40 JUL 7.50 TUK GU 1.55 132 6.85 42 6.9% AMLN 14.42 JUL 12.50 AQM GV 3.00 973 11.42 42 6.8% LEXG 11.66 JUL 10.00 EIU GB 2.45 70 9.21 42 6.2% VLNC 9.06 JUL 7.50 VHQ GU 2.15 49 6.91 42 6.2% OCPI 14.86 JUL 12.50 UHY GV 3.30 21 11.56 42 5.9% MCAF 14.56 JUL 12.50 CFU GV 2.90 38 11.66 42 5.2% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** AMLN - Amylin Pharmaceuticals $14.42 *** Drug Speculation! *** Amylin Pharmaceuticals (NASDAQ:AMLN) is engaged in the discovery and development of potential drug candidates for the treatment of metabolic disorders. The company pioneered research of a hormone called amylin and is also developing Symlin, a synthetic analog of the human hormone amylin for the treatment of people with diabetes who use insulin. The company's second drug candidate, synthetic exendin-4, which is a naturally occurring peptide derived from the salivary secretions of the Gila monster is now in Phase II studies. The company is also evaluating another drug in for potential use in the treatment of metabolic disorders relating to cardiovascular disease. Amylin shares have rallied on expectation of positive information from recent clinical tests. Amylin also announced that its wholly owned subsidiary, Amylin Europe, Ltd has submitted Marketing Authorization Applications for SYMLIN(TM) (pramlintide acetate) to the European Agency for the Evaluation of Medicinal Products (EMEA) under the centralized European Community procedure for the authorization of medicinal products. Investors appear to favor the news and the relatively stable support area near $10 provides a reasonable risk-reward outlook in this position. JUL 12.50 AQM GV LB=3.00 OI=973 CB=11.42 DE=42 TY=6.8% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=AMLN ***** GNSL - Genomic Solutions $5.40 *** Cheap Speculation! *** Genomic Solutions (NASDAQ:GNSL) designs, develops, manufactures, markets and sells instruments, software, consumables and services used to determine the activity level of genes and to isolate, identify and characterize proteins. The company's products and systems enable researchers to perform complex, high volume experi- ments at a lower cost and in less time than traditional techniques. As a result, Genomic Solutions products and systems facilitate more rapid and less expensive drug discovery. GNSL recently announced that components of its GeneTAC(TM) Biochip System have been pur- chased by a prestigious research organization in India, through Genomic Solutions' distribution partner, PerkinElmer Life Sciences. In any case, there is no recent news to explain the high volume surge on Friday. The move above the May high is bullish and this play offers a reasonable entry point for small-cap speculators. JUL 5.00 UNU GA LB=0.90 OI=305 CB=4.50 DE=42 TY=8.0% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=GNSL ***** LEXG - Lexicon Genetics $11.66 *** Gene Speculation *** Lexicon Genetics (NASDAQ:LEXG) is a drug discovery company of the post-genome era, using gene knockout technology to define the functions of genes for the discovery of pharmaceutical products. Lexicon is using this technology to fuel drug discovery programs in cancer, cardiovascular disease, immune disorders, neurological disease, diabetes and obesity. Lexicon has established drug discovery alliances and functional genomics collaborations with leading pharmaceutical and biotechnology companies, research institutes and academic institutions throughout the world to commercialize its technology and further develop its discoveries. A team of scientists at the University of Massachusetts Medical School working in collaboration with scientists at LEXG, have reported discovering the function of a gene called Ini-1, a new tumor suppressor gene related to head and neck cancer. These type of discoveries are fueling investor interest in the genomic industry and the future drugs it may offer. This play offers a reasonable cost basis from which to speculate on the company's next discovery. JUL 10.00 EIU GB LB=2.45 OI=70 CB=9.21 DE=42 TY=6.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=LEXG ***** MCAF - McAfee.com $14.56 *** 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 have exploded over the last few weeks 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 is still going strong and the stock has firmly moved above its 150-dma with no near-term resistance until the $18 range. We still favor a conservative entry point closer to technical support. JUL 12.50 CFU GV LB=2.90 OI=38 CB=11.66 DE=42 TY=5.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MCAF ***** OCPI - Optical Comm. Products $14.86 *** Technicals Only *** Optical Communication Products (NASDAQ:OCPI) designs, manufactures and sells a comprehensive line of high-performance, highly reliable fiber optic subsystems and modules for metropolitan area networks and high-speed premises networks. OCP's subsystems and modules include optical transmitters, receivers, transceivers and trans- ponders that convert electronic signals into optical signals and back to electronic signals, enabling high-speed communication of voice and data traffic over public and private fiber optic networks. The last news on OCP was on May 25, when the company's three top executives announced they each plan to sell about 10 percent of their individual holdings. The stock dipped a few days later only to rally on high volume and make a new near-term high. We simply favor the bullish reaction to the news and the technical support area near the sold strike price. JUL 12.50 UHY GV LB=3.30 OI=21 CB=11.56 DE=42 TY=5.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=OCPI ***** TIVO - Tivo $8.40 *** On The Rebound! *** TiVo (NASDAQ:TIVO) is a creator of personal television. The TiVo Service lets consumers take control of their television viewing by allowing them to watch what they want, when they want it. As part of TiVo's easy-to-use service and unique technology, viewers can time-shift their favorite television shows and create a custom television line-up for viewing at anytime. With TiVo's Thumbs Up, Thumbs Down buttons, viewers can teach TiVo what shows they like and dislike. Using these preferences, TiVo automatically records programs the viewer may want to see. TiVo also enables consumers to pause, rewind, instant replay and playback in slow motion any live television broadcast. TiVo has also developed a technology that serves as a platform for new and interactive entertainment content and services. Interactive TV is becoming a popular mode of entertainment and investors are moving back into the group in anticipation of future upside activity. TIVO shares have moved up in response to the renewed interest and our cost basis offers a reasonable entry point in the issue. JUL 7.50 TUK GU LB=1.55 OI=132 CB=6.85 DE=42 TY=6.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=TIVO ***** VLNC - Valence $9.06 *** Earnings Rally? *** Valence Technology designs, develops, manufactures and markets rechargeable lithium polymer batteries for portable communication devices, also known as mobile communication products, including notebook computers, personal digital assistants or PDAs, handheld personal computers, or HPCs, and cellular telephones. The company received its first purchase order for commercial grade lithium polymer batteries in 1999 and currently has purchase orders for almost $20 million of batteries. Valence will report quarterly earnings on Monday, June 11, and traders are betting the outcome will be favorable. Our conservative position offers some downside protection in the event of any post-earnings consolidation. JUL 7.50 VHQ GU LB=2.15 OI=49 CB=6.91 DE=42 TY=6.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=VLNC ************************************ 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 LYNX 8.19 JUL 7.50 ULX GU 1.55 36 6.64 42 9.4% FIBR 15.00 JUL 12.50 QFW GV 3.60 360 11.40 42 7.0% OPTV 15.02 JUL 12.50 OUZ GV 3.60 22 11.42 42 6.8% ACTN 22.50 JUL 22.50 QNC GX 1.90 65 20.60 42 6.7% NTIQ 29.80 JUL 25.00 CQT GE 6.60 588 23.20 42 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 SECTION ***************** Trading 101: A Strategy for Long-term Success By Ray Cummins When it comes to constructing a profitable arsenal of trading techniques, no single method or procedure will work for every market participant. Each trader has his (or her) own needs and requirements. Issues and concerns that may be important to one person can be of very little significance for another. The only principle that applies to everyone is that traders must identify their strengths and limitations and structure their approach to the market accordingly. One of the initial stages in creating a successful trading plan is assessing your financial situation. The easiest way to begin this process is to define your objectives and constraints. That means establishing a target portfolio return and risk tolerance level. Time is an important factor in this regard as it can be both ally and enemy. With short-term strategies, it is more difficult to recover from substantial losses but the returns are generally higher. Positions with a longer-term outlook have a greater chance for success, however they usually produce lower relative profits. In addition, the longer the time horizon, the more risk the entire portfolio can tolerate as there is ample opportunity to recover from unexpected losses. Regardless of the methods you choose, an acceptable risk-reward profile should be established before any strategy is initiated. The overall level of downside potential must be proportionate to the size of the portfolio and its primary purpose. The fundamental question is, "How much do you expect to earn on a monthly (percentage) basis and is your trading capital sufficient to absorb the occasional draw-downs necessary to yield that amount?" By combining your profit objective with the appropriate risk tolerance, a set of primary guidelines can be established for your trading system. In order to determine the appropriate trading strategy, you must identify the potential for profit with each individual technique. In most cases, it is relatively easy to estimate the returns you can expect from a particular approach through the use of trading models and historical results. You can also examine the returns from similar techniques and calculate the maximum profit and the break-even points for a specific position with scenario analysis. A number of inexpensive software products are available for this type of research and there are also some (free) web-based models that provide basic option pricing and volatility analysis. These tools can help you determine an expected overall return for your portfolio, based on how much capital you devote to each position. Of course, the amount of risk exposure you are willing to endure should play an important role when you select specific strategies for your option trading arsenal. There is a definite trade-off between risk and reward and most people do best with techniques that are low cost and offer a reasonable probability of a high (potential) reward. That reason is, one winning play can offset a number of losing positions. In contrast, low risk strategies are often limited profit as well, and although the probability of loss is remote, the amount of downside potential is too great to warrant the risk. The process of developing a profitable approach to trading in the market is dynamic and constantly changing. For that reason, the the final step in the procedure can also be the most difficult. This phase involves measuring and comparing the success of your trading tactics to other popular systems and current benchmarks. If the results are favorable, only small alterations are needed to maintain the integrity of the system and adapt it to current conditions. However, if your current strategies are not yielding the returns necessary to achieve portfolio targets, you may need to conduct additional analysis and make some adjustments to bring the system up to a minimal level of performance. If a thorough overhaul of the process fails to yield noticeable improvements, it may be time to consider another approach altogether. 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 14.42 JUN 10.00 0.60 *$ 0.60 22.3% FIBR 13.33 15.00 JUN 10.00 0.35 *$ 0.35 17.6% GENE 13.60 15.03 JUN 10.00 0.35 *$ 0.35 17.3% IDCC 13.99 14.33 JUN 12.50 0.35 *$ 0.35 17.0% PRST 12.97 14.95 JUN 12.50 0.40 *$ 0.40 17.0% EXEL 15.97 17.04 JUN 12.50 0.70 *$ 0.70 15.6% DTHK 8.74 7.90 JUN 7.50 0.25 *$ 0.25 15.1% AMZN 16.95 15.70 JUN 12.50 0.25 *$ 0.25 14.9% MCAF 12.02 14.56 JUN 10.00 0.30 *$ 0.30 14.8% VIGN 10.02 9.42 JUN 7.50 0.30 *$ 0.30 14.2% SEAC 20.37 21.89 JUN 17.50 0.50 *$ 0.50 13.2% SBSE 23.79 20.05 JUN 20.00 0.65 *$ 0.65 11.1% PLUG 32.78 28.14 JUN 25.00 0.35 *$ 0.35 11.0% STOR 21.93 18.59 JUN 15.00 0.45 *$ 0.45 10.1% ILUM 32.01 31.08 JUN 25.00 0.65 *$ 0.65 10.0% NMTC 22.22 23.16 JUN 17.50 0.45 *$ 0.45 10.0% SMTC 31.70 31.81 JUN 25.00 0.60 *$ 0.60 9.4% NFLD 13.50 13.59 JUN 10.00 0.30 *$ 0.30 8.7% AVCI 13.59 9.24 JUN 7.50 0.30 *$ 0.30 8.6% TSAI 12.03 12.85 JUN 10.00 0.30 *$ 0.30 8.5% PLUG 35.40 28.14 JUN 25.00 0.40 *$ 0.40 8.1% GLGC 21.05 26.05 JUN 17.50 0.50 *$ 0.50 7.8% APCC 16.83 15.87 JUN 15.00 0.45 *$ 0.45 7.3% PDG 11.05 10.99 JUN 10.00 0.30 *$ 0.30 7.1% GNSS 20.45 33.49 JUN 15.00 0.35 *$ 0.35 6.9% OO 26.00 21.80 JUN 22.50 0.35 $ -0.35 0.0% MRVC 10.50 9.93 JUL 7.50 0.35 *$ 0.35 8.9% DMRC 18.06 19.36 JUL 15.00 0.65 *$ 0.65 8.4% AVGN 21.25 21.25 JUL 15.00 0.45 *$ 0.45 5.9% *$ = Stock price is above the sold striking price. Comments: One week to go for the June expiration and all is not well - at least that is what Juniper (NASDAQ:JNPR) said. Time to evaluate your outlook on any issues you may end up owning next Saturday. The rally this week in Sbs Technologies (NASDAQ:SBSE) and Semtech (NASDAQ:SMTC) offered reasonable exits; we will show the positions closed. Oakley's (NYSE:OO) decline this week is worrisome and we will use any future rally to exit the position. Many of the above issues are testing their support areas and should be monitored closely. As the broader market weakens, a more defensive posture may prevent a raid on one's capital. Positions Closed: Sawtek (NASDAQ:SAWS) ****************************************************************** - UPCOMING SEMINAR - ****************************************************************** On June 27, Mark Wnetrzak (Covered-calls) and Ray Cummins (Naked Puts) will be conducting an instructional seminar for new traders who are interested in the fundamentals of their approach to these conservative strategies. The general topics of discussion will be: - How to earn monthly income through stock ownership - How to reduce the effects of downside market moves - How to purchase new portfolio stocks at a discount You can take the seminar without leaving the comfort of your home or office. It is interactive and you can ask questions after the presentation. You do not need any special software to attend the presentation but you must have a 56K Internet connection or faster for best results and a separate phone to listen to the audio portion. If you are interested in this seminar, please click here for more information: http://www.premierinvestorseminars.com/seminarcalendar.asp ****************************************************************** 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 ACTN 22.50 JUL 20.00 QNC SD 0.95 0 19.05 42 9.2% GNSS 33.49 JUL 25.00 QFE SE 0.60 213 24.40 42 6.0% ICIX 17.71 JUL 15.00 QIX SC 0.60 140 14.40 42 8.7% MDCC 22.61 JUL 17.50 MCQ SW 0.80 10 16.70 42 10.9% PXLW 30.66 JUL 22.50 PUO SX 0.65 178 21.85 42 6.9% SCIO 27.03 JUL 20.00 UIO SD 0.60 622 19.40 42 7.2% UIS 12.94 JUL 12.50 UIS SV 0.65 3593 11.85 42 8.7% 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 MDCC 22.61 JUL 17.50 MCQ SW 0.80 10 16.70 42 10.9% ACTN 22.50 JUL 20.00 QNC SD 0.95 0 19.05 42 9.2% ICIX 17.71 JUL 15.00 QIX SC 0.60 140 14.40 42 8.7% UIS 12.94 JUL 12.50 UIS SV 0.65 3593 11.85 42 8.7% SCIO 27.03 JUL 20.00 UIO SD 0.60 622 19.40 42 7.2% PXLW 30.66 JUL 22.50 PUO SX 0.65 178 21.85 42 6.9% GNSS 33.49 JUL 25.00 QFE SE 0.60 213 24.40 42 6.0% 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). ***** ACTN - Action Performance $22.50 *** Motor-sports Mania! *** Action Performance Companies (NASDAQ:ACTN) designs and markets licensed motor-sports products, including die-cast scaled replicas of motor-sports vehicles, apparel and souvenirs. The company also develops promotional programs for sponsors of motor-sports that feature the company's die-cast replicas or other products that are intended to increase brand awareness of the products or services of the corporate sponsors. The company markets its products to specialty retailers throughout the world, directly or through its wholesale and dealer distributor network, to a range of racing enthusiasts through its Racing Collectables Club of America, and through mobile track-side souvenir stores and promotional programs for corporate sponsors. ACTN is "on the move" and investors who want a piece of the "action" can establish a discounted cost basis in the issue with this position. JUL 20.00 QNC SD LB=0.95 OI=0 CB=19.05 DE=42 TY=9.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=ACTN ***** GNSS - Genesis Microchip $33.49 *** Chip Sector Favorite! *** Genesis Microchip (NASDAQ:GNSS) designs, develops and markets integrated circuits that manipulate and process digital video and graphic images. The company also supplies reference boards and designs that incorporate its proprietary integrated circuits. The company is focused on developing and marketing image processing solutions and is currently targeting the flat panel monitor market. In addition to product sales, the company derives revenues from providing design services which help its customers to develop products that include its chips in their designs or to accelerate the development of its products to meet customer demand. In May, Genesis posted fourth quarter earnings that topped expectations, and forecast current quarter revenue would grow to $20 million, above the analysts' consensus estimates for the upcoming period. Investors have moved back into the issue since the announcement and with the recent focus on LCD and flat-panel technology, GNSS is once again a favorable stock in the semiconductor sector. JUL 25.00 QFE SE LB=0.60 OI=213 CB=24.40 DE=42 TY=6.0% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=GNSS ***** ICIX - Intermedia Communications $17.71 *** Upcoming Merger *** Intermedia Communications (NASDAQ:ICIX) operates in two business segments, the Integrated Communications Services segment and its Digex segment. The Integrated Communications Services segment provides integrated data and voice communications services, including enterprise data solutions (frame relay and Asynchronous Transfer Mode (ATM)), Internet connectivity, private line data, local and long distance and systems integration services to many business and government customers throughout the United States. Digex provides managed Website and application hosting services to businesses operating mission-critical, multi-functional Websites. WorldCom (NASDAQ:WCOM) is in the process of acquiring Intermedia Communications and the company's shareholders are expected to vote on the transaction later this month. If approved, the transaction should close by July 1, 2001 and this position offers a favorable way to speculate on that outcome. JUL 15.00 QIX SC LB=0.60 OI=140 CB=14.40 DE=42 TY=8.7% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=ICIX ***** MDCC - Molecular Devices $22.61 *** Bottom Fishing! *** Molecular Devices (NASDAQ:MDCC) is a developer of high-performance bioanalytical measurement systems that accelerate and improve drug discovery and other life sciences research. The company's systems enable pharmaceutical and biotechnology firms to leverage advances in genomics and combinatorial chemistry by facilitating the high throughput and cost effective identification and evaluation of drug candidates. The company's systems are fundamental tools for drug discovery and life sciences research, and its MAXline series of microplate readers and its FLIPR Cell Analysis systems are market share leaders in their respective markets. MDCC shares tumbled in April after the company announced flat operating income and said customers may have delayed orders for its lab equipment due to economic conditions. Analysts were quick to downgrade the shares, but the outlook isn't that bad and with the stock price at a more reasonable level, this position offers an acceptable cost basis from which to speculate on the company's future. JUL 17.50 MCQ SW LB=0.80 OI=10 CB=16.70 DE=42 TY=10.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MDCC ***** PXLW - Pixelworks $30.66 *** Entry Point? *** Pixelworks (NASDAQ:PXLW) designs and develops "system-on-a-chip" solutions that enable the visual display of broadband content through a wide variety of electronic devices. Broadband content includes a combination of video and data delivered to users at high speeds. Enhancing access to broadband information has typically been associated with increasing bandwidth over the "last mile." The company is focused on the "last meter," where the information is processed and displayed. In the last meter, there is an increasing requirement to process large amounts of data delivered using a multitude of broadcast and Web protocols. The company's system-on-a-chip solutions open up the last meter by interpreting and optimizing video, computer graphics, and Web information for display on a wide variety of devices. Drew Peck of SG Cowen Securities says the best stocks in the semiconductor industry are those that possess "intellectual property" that is end-product specific. Pixelworks is one of those companies and with the increasing demand for flat panel displays, their shares may become very popular in the future. JUL 22.50 PUO SX LB=0.65 OI=178 CB=21.85 DE=42 TY=6.9% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PXLW ***** SCIO - Scios $27.03 *** New Drug Approval? *** Scios (NASDAQ:SCIO) is a biopharmaceutical company engaged in the discovery, development, and commercialization of novel human therapeutics based upon its capabilities in both protein- based and small-molecule drug discovery and development. The company focuses its proprietary research and development efforts primarily in the areas of cardiorenal and inflammatory disorders, and Alzheimer's disease. The company has research and development collaborations with Chiron Corporation, DuPont Pharmaceuticals Company, Eli Lilly, GenVec, Kaken Pharmaceutical and Novo Nordisk A/S. Scios also operates a Psychiatric Sales and Marketing Division, which provides operating cash that funds the other activities of the company, principally research and development efforts. Investors continue to believe that Scios' experimental drug Natrecor will become by mid-summer, the first new treatment in more than a decade for acute congestive heart failure. Based on last week's bullish indications, short-term traders are also optimistic on this outcome and we will attempt to profit from the upside activity with this position. JUL 20.00 UIO SD LB=0.60 OI=622 CB=19.40 DE=42 TY=7.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=SCIO ***** UIS - Unisys $12.94 *** More Bottom Fishing! *** Unisys (NYSE:UIS) is a leading, worldwide information services and technology company. Unisys provides services, systems and solutions (its Unisys e-@ction Solutions) that help customers apply information technology to seize the current opportunities and overcome the challenges of the internet economy. Unisys provides its services and technology to commercial businesses and governments throughout most of the world. Unisys has two business segments, Services and Technology. There is little to report on UIS beyond their recent venture with United Airlines and Roadway in a new transportation company. Integres Global is a joint effort by the three companies to capture a share of the lucrative cargo market, which is currently fragmented among various freight forwarders. The renewed interest in the issue may be the reason for the recent bullish activity and we think the risk-reward outlook in this position is favorable. JUL 12.50 UIS SV LB=0.65 OI=3593 CB=11.85 DE=42 TY=8.7% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=UIS ***** ********************************* 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 NUAN 17.21 JUL 12.50 DUN SV 0.65 120 11.85 42 11.5% NMTC 23.16 JUL 17.50 QEK SW 0.70 14 16.80 42 9.5% MU 43.32 JUL 35.00 MU SG 0.95 11398 34.05 42 6.9% NTIQ 29.80 JUL 20.00 CQT SD 0.60 738 19.40 42 6.6% LTXX 31.38 JUL 25.00 UXT SE 0.60 23 24.40 42 6.3% SEE DISCLAIMER IN SECTION ONE ***************************** ************************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 ************************ Friday, June 8 U.S. stocks ended lower today after a lackluster session that saw trading on the NYSE stopped for over an hour due to problems in the exchange's new computer software. A slew of profit warnings weighed on both technology and industrial issues, dragging all the major indices into the red. The NASDAQ closed down 48 points at 2,215 and the Dow was 113 points lower at 10,977. The S&P 500 index dropped 12 points to 1,264. Trading volume on the NYSE was a light 723 million shares, with declines outpacing advances 17 to 12. Activity on the NASDAQ was subdued with just 1.4 billion shares exchanged. Technology losers topped winners 21 to 15. In the U.S. bond market, the 30-year Treasury fell 7/32, pushing its yield up to 5.74%. Thursday's new plays (positions/opening prices/strategy): Accredo Health (NASDAQ:ACDO) JUL25P/30P $0.55 credit bull-put General Motors (NYSE:GM) JUL50P/55P $0.50 credit bull-put eBay Inc. (NASDAQ:EBAY) JUL85C/45P $1.50 credit strangle All of our new combination positions were available at acceptable opening prices. Market Activity: Today's session started poorly and never recovered as stocks were dragged lower by profit warnings from 3com Corp. (NASDAQ:COMS) and Juniper Networks (NASDAQ:JNPR) and traders became disgruntled over problems with the electronic data system at the New York Stock Exchange. A glitch in the software brought trading to a halt for over an hour on the floor of the NYSE and concerns over the correct pricing of stocks continued to affect a number of Big Board issues until early afternoon. The clearing delays did little to assuage nervous investors who were already looking for an exit from many of the popular technology stocks. A slump in the networking group started the decline after Juniper revised its quarterly estimates, saying it now expects pro forma earnings of only $0.09 per share. Analysts expected the company to earn $0.24 per share. Meanwhile, 3Com said fourth-quarter revenues will fall short of expectations and gross margins will be negative due to inventory problems and restructuring charges. Handspring (NASDAQ:HAND) and Transwitch (NASDAQ:TXCC) also lowered their quarterly profit forecasts and continued worries over increasing weakness in Asia and Europe were simply too much for the technology index to overcome. The NASDAQ 100 had only 9 bullish issues during the downbeat session. On the Dow, all but five stocks declined and Honeywell (NYSE:HON) was the biggest loser, falling to $46 on anxiety over the EUC's approval of their merger with General Electric (NYSE:GE). News reports suggested that a meeting between GE chairman Jack Welch and the European Competition Commissioner on the proposed buyout of Honeywell International has been delayed. DuPont (NYSE:DD) was in the headlines after announcing it will definitely sell its pharmaceuticals business to Bristol-Myers Squibb (NYSE:BMY) for $7.8 billion in cash, freeing up money to repay debt, invest in new opportunities and repurchase its own stock. In the broader market, precious metals, waste management, construction, retail, textile manufacturing and utilities were the only sectors that experienced buying pressure. Portfolio Activity: There was little bullish activity in the Spreads portfolio today as stocks moved lower in almost every major industry group. In the technology sectors, computer hardware, networking, Internet and wireless telecom issues were among the worst performers and and in the industrial segments, banks and transportation stocks continued their recent slump. Although the selling pressure was relatively widespread, only a few of the issues in the Spreads section experienced significant movement and there were no major adjustments made in the portfolio plays. Our new position in Willamette (NYSE:WLL) was in the news after the company said the shareholders vote on rival groups of directors was too close to call, but their hostile suitor, Weyerhauser claimed victory for its effort to empanel its slate on the Willamette board. The news boosted speculation about the success of Weyerhauser's bid to take over its Northwest rival and its ability to bring WLL officials back to the bargaining table. Willamette has opposed Weyerhaeuser's offer of $50 a share, calling the price too low to deserve serious consideration. Weyerhaeuser representatives said that based on the number of proxies the company submitted for Thursday's vote, "It appears that its three nominees to the board were elected to replace three Willamette directors up for re-election." In contrast, Willamette officials said preliminary tallies were too close to call and the final vote total won't be known for two to three weeks. Apparently, Weyerhaeuser would be willing to increase its $50 per share offer if Willamette would agree to further negotiations, but analysts and investors don't think the recently declared victory will bring Willamette to the table in the near future. The whole scene is similar to daytime soap-opera and because there is no consensus on the outcome, the share value of WLL is likely to remain near $50 for the next few weeks. Since our position is short at that strike, any delays are favorable and it will be interesting to see how this unique situation is finally resolved. Questions & comments on spreads/combos to Contact Support ****************************************************************** - UPCOMING SEMINAR - ****************************************************************** On June 18, I will be conducting an instructional seminar for new traders who are interested in the fundamentals of "time-selling" strategies. The general topics of discussion will be: - Increasing portfolio returns with long-term options (LEAPS) - Reducing the cost of these options with covered-calls - Learning to sell time (and potential) for a profit You can take the seminar without leaving the comfort of your home or office. It is interactive and you can ask questions after the presentation. You do not need any special software to attend the presentation but you must have a 56K Internet connection or faster for best results and a separate phone to listen to the audio portion. If you are interested in this seminar, please click here for more information: http://www.premierinvestorseminars.com/seminarcalendar.asp ****************************************************************** - STRADDLEMANIA - With option volatility at historically low levels and only one week remaining until the June expiration, it's a great time to participate in (debit) straddle strategies. Rather than provide extensive research on a few positions, we have decided to offer a selection of potentially favorable candidates, based solely on analysis of historical option pricing and technical indications. We tried this approach last month and received some encouraging comments concerning the larger assortment of candidates. All of these stocks have statistically undervalued options as well as the potential to move high or low enough to make the straddles profitable. In addition, most of the underlying issues have a history of multiple movements through a sufficient range in the required amount of time to justify the overall risk-reward of the position. As with any recommendation, each play should be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. Also, current news and market sentiment will have an effect on these positions so analyze each play individually and make your own decision about its future outcome. These issues will not be included in the monthly portfolio. ****************************************************************** JBL - Jabil Circuit $30.51 *** Earnings Play! *** Jabil Circuit (NASDAQ:JBL) is a leading provider of electronic manufacturing services. The company designs and manufactures electronic circuit board assemblies and systems for original equipment manufacturers (OEMs) in the communications, computer peripherals and personal computer, automotive and consumer products industries. The company serves its OEM customers with dedicated work cell business units that combine high volume, highly automated continuous flow manufacturing with advanced electronic design and design for manufacturability technologies. Its work cell business units are capable of providing integrated design and engineering services, component selection, sourcing and procurement, automated assembly, design and implementation of product testing, parallel global production, systems assembly and direct order fulfillment, repair and warranty services. The company's earnings are due June 19. PLAY (speculative - neutral/debit straddle): BUY CALL JUN-30 JBL-FF OI=3757 A=$1.55 BUY PUT JUN-30 JBL-RF OI=7471 A=$1.05 INITIAL NET DEBIT TARGET=$2.40-$2.50 TARGET PROFIT=35% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=JBIL ****************************************************************** BRCD - Brocade Communications $45.90 *** Big Mover! *** Brocade Communications Systems (NASDAQ:BRCD) is a provider of storage area networking infrastructure solutions. The Brocade family of hardware and software products provides the networking foundation for storage area networks, which bring a networking model to storage environments. Using Brocade's Fibre Channel fabric switches and software, customers can connect servers with external storage devices through a SAN, creating a reliable and scalable environment for data-intensive storage applications. Brocade products are sold through original equipment partners, system integrators and resellers. PLAY (speculative - neutral/debit straddle): BUY CALL JUN-45 UBF-FI OI=5480 A=$2.20 BUY PUT JUN-45 UBF-RI OI=3714 A=$2.15 INITIAL NET DEBIT TARGET=$4.25 TARGET PROFIT=35% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=BRCD ****************************************************************** CKFR - CheckFree $34.35 *** Lots Of Room Below! *** CheckFree (NASDAQ:CKFR) is a major provider of electronic billing and payment services. The company operates its business through three independent, inter-related divisions: Electronic Commerce, Investment Services, and Software. CheckFree's E-Commerce business provides services that allow consumers to receive electronic bills through the Internet; pay any bill, electronic or paper to anyone; and perform customary transactions, including balance inquiries, transfers between accounts and on-line statement reconciliations. The Investment Services business offers portfolio accounting and performance measurement services to investment advisors, brokerage firms, banks and insurance companies and also financial planning application software to financial planners. The Software segment provides electronic commerce and financial applications software and services for businesses and financial institutions. PLAY (speculative - neutral/debit straddle): BUY CALL JUN-35 FCQ-FG OI=20 A=$1.20 BUY PUT JUN-35 FCQ-RG OI=97 A=$1.65 INITIAL NET DEBIT TARGET=$2.75 TARGET PROFIT=25% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=CKFR ****************************************************************** BMC - BMC Software $27.53 *** Rolling Stock! *** BMC Software (NYSE:BMC) is an independent systems software vendor, delivering comprehensive systems management solutions. BMC is a provider of software solutions that enhance the availability, performance and recoverability of its customers' business-critical applications to help them better manage their businesses. The company's portfolio of systems management solutions allows its customers to manage the various components and technologies within their information technology systems from end-to-end, from legacy databases and applications on large mainframes to customer-facing Web portals and exchanges. BMC's products empower its customers in this global economic environment where speed, time-to-value and value over time are critical. Their solutions are offered in five broad categories: Patrol, Enterprise Data Availability, Service Management, Incontrol and Recovery and Storage Management. PLAY (speculative - neutral/debit straddle): BUY CALL JUN-27.50 BMC-FY OI=90 A=$1.00 BUY PUT JUN-27.50 BMC-RY OI=0 A=$1.10 INITIAL NET DEBIT TARGET=$1.95-$2.00 TARGET PROFIT=20% Note: Traders who are concerned about the low Open Interest in the Put options might consider a ratio of (3) JUN-$25 Puts for every JUN-$27.50 Call as an alternative. http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=BMC ****************************************************************** TARO - Taro Pharmaceutical $70.43 *** Speculators Only! *** Taro Pharmaceutical Industries (NASDAQ:TARO) began operations as a manufacturer of solid dosage form products, but an agreement with American Home Products in 1954 allowed the company to expand operations to include sterile products. The xompany entered the steroid market following an agreement with the Schering in 1955. In 1957, an agreement with Endo Laboratories provided Taro with products such as Percodan and Coumadin, which Taro continues to manufacture and sell in Israel today. PLAY (very speculative - neutral/debit straddle): BUY CALL JUN-70 QTT-FN OI=204 A=$3.60 BUY PUT JUN-70 QTT-RN OI=46 A=$3.20 INITIAL NET DEBIT TARGET=$6.50 TARGET PROFIT=??? http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=TARO ****************************************************************** MRK - Merck $74.22 *** Low Risk - Low Reward! *** Merck (NYSE:MRK) is a research-driven pharmaceutical company that discovers, develops, manufactures and markets a broad range of human and animal health products, directly and through its joint ventures, and provides pharmaceutical benefit services through Merck-Medco Managed Care (Merck-Medco). The company's operations are principally managed on a products and services basis and are comprised of two reportable segments, Merck Pharmaceutical, which includes products marketed either directly or through other joint ventures, and Merck-Medco. Merck Pharmaceutical products consist of therapeutic agents, sold by prescription, for the treatment of human disorders. Merck-Medco revenues come from the filling and management of prescriptions and health management programs. PLAY (conservative - neutral/debit straddle): BUY CALL JUN-75 MRK-FO OI=3673 A=$0.80 BUY PUT JUN-75 MRK-RO OI=3022 A=$1.55 INITIAL NET DEBIT TARGET=$2.25 TARGET PROFIT=20% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MRK ****************************************************************** KOSP - KOS Pharmaceuticals $35.60 *** Ultra-rally Mode! *** KOS Pharmaceuticals (NASDAQ:KOSP) is a fully integrated specialty pharmaceutical company engaged in the development of proprietary prescription products for the treatment of chronic cardiovascular and respiratory diseases. KOSP manufactures its lead product, Niaspan, and markets such products directly through its specialty sales force. Additionally, the company markets two complementary anti-hypertensive products, Mavik and Tarka, through a unique co-promotion alliance with Knoll Pharmaceutical Company. The company's cardiovascular products under development consist of controlled-release, once-a-day, oral dosage formulations. The company's respiratory products under development consist of aerosolized inhalation formulations to be used primarily with the company's proprietary inhalation devices. PLAY (speculative - neutral/debit straddle): BUY CALL JUN-35 KQW-FG OI=200 A=$2.00 BUY PUT JUN-35 KQW-RG OI=40 A=$1.45 INITIAL NET DEBIT TARGET=$3.25-$3.30 TARGET PROFIT=35% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=KOSP *************************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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