The Option Investor Newsletter Wednesday 06-20-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/062001_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 06-20-2001 High Low Volume Advance/Decline DJIA 10647.33 + 50.66 10702.07 10563.86 1.34 bln 1828/1269 NASDAQ 2031.24 + 38.58 2032.67 1973.70 1.53 bln 1927/1816 S&P 100 634.05 + 7.39 635.74 625.48 totals 3755/3085 S&P 500 1223.14 + 10.56 1225.61 1210.07 54.9%/45.1% RUS 2000 495.86 + 7.13 495.87 487.25 DJ TRANS 2665.30 + 4.72 2670.41 2634.39 VIX 23.86 - 1.06 25.28 23.70 Put/Call Ratio 0.56 ****************************************************************** How Do You Spell Relief? A rare catalyst surfaced Wednesday morning that inspired the broader market averages. The culprit: positive economic data. The Conference Board, which is a business and economic research organization, released its leading economic indicator index Wednesday morning. The Conference Board reported that its leading index increased by 0.5 percent, while economists had expected a rise of only 0.2 percent during the month of May. In all, there are ten components to the Conference Board's index of leading indicators, and six of those ten components rose during May. Without going into too much detail, the summation of the Conference Board's findings suggest that economic weakness may persist in the U.S. over the next few months, but the "U.S. economy may be poised for some recovery" in the second-half of 2001. The Conference Board's report adds a bit of credence to the thesis we set forth in Monday's Market Wrap. A hint of positive economic data is exactly what this market needs because a recovery in the economy will coincide with a recovery in corporate profits, which stocks should begin discounting if, in fact, the economy does begin to improve. I'll elaborate on this idea at the bottom of the column. But, in the meantime, let's focus on Wednesday's price action. The Nasdaq Composite (COMPX) bounced off our 1975 support for the second time in as many days Wednesday. Depending upon risk tolerance and trading style, this bounce may have offered entry points into relatively strong tech stocks. Although our 1975 support level held and the COMPX closed back above the psychologically significant 2000 level, there's some serious resistance just above current levels that we need to address. Tuesday's opening placed the COMPX right at our 2060 resistance level, from which it precipitously fell throughout the session. So, we'll want to keep a skeptical eye on 2060 if the COMPX advances up to that level during Thursday's session. Keep in mind that the COMPX's intraday highs for the past three sessions - prior to Wednesday's trading - were 2048, 2046 and 2057. In short, there's some significant resistance just above the COMPX's current level. Of course, if the COMPX can break above its short-term resistance at 2060, it should advance back up to the 2100 level. Insofar as support concerns the COMPX, we'll want to keep a close watch on our same levels: 2000 (psychological) and 1975 (technical). If the COMPX does break below 1975, traders will want to look to get short weak technology stocks (Read: Tech/Telecom Complex). If the COMPX does break below 1975, for whatever reason(s), I think there's a good chance it will work down to the 1900 area. Nasdaq traders might also want to keep an eye on the Nasdaq-100 (NDX.X). It, too, has some resistance just above its current level around the 1750 area, which was Tuesday's high. But, if the NDX advances above 1750, coinciding with the COMPX breaking above 2060, it would add validity to the latter advancing up to 2100. For the third time in four days, the Dow Jones Industrial Average (INDU) rebounded from the 10,565 area. This development is most encouraging, in that buyers are defending the Dow before it can test its significant technical and psychological support at 10,500. But more discouraging is the fact that the Dow can't get above the 10,700 level. In fact, the Dow has tested but failed to close above the 10,700 level in the last four trading sessions. A strong advance and subsequent settlement above the 10,700 level would offer traders the opportunity to get long relatively strong blue chip stocks. Not by coincidence, the S&P 500 (SPX.X) topped out at our 1225 resistance level Wednesday afternoon. The S&P is right on the verge of breaking out above 1225 and that development would certainly be a big positive for the broader market. Watch this index closely Thursday morning to decipher whether or not the Dow and Nasdaq have a chance to break above their respective resistance levels. And like the Dow and Nasdaq, the bears could NOT push the S&P 500 down below its significant support level at 1200 during the recent sessions. What this may lead to is a capitulation on the part of the shorts, who may throw in the towel and buyback their bearish bets over the coming sessions. The broader market averages, despite Wednesday's respite, are still oversold. Across the big three (COMPX, INDU and SPX) stochastics are just starting to turn higher, out of oversold readings. In addition, the Arms Index (TRIN) 10-day moving average is sticking around the 1.50 level, which is considered oversold and is generally indicative of a market rebound. As I opined in Monday's Market Wrap, however, the magnitude and duration of any rally from current levels are the variables that are rather difficult to quantify. Our support and resistance levels that we've been monitoring, especially in the Nasdaq, have proven VERY reliable so far this week. So I would continue to urge my readers to monitor the levels that I've set forth in this column as a general guide for measuring risk/reward. While the short-term favors an advance in the broader markets especially in light of the healthy volume that accompanied Wednesday's rally, the intermediate-term price action is becoming increasingly difficult to gauge, at least from where I sit. On one hand, the corporate profit front continues to show signs of deterioration. But on the other hand, according to the Conference Board's report Wednesday morning, there's still a chance that the U.S. economy rebounds in the second half of 2001. That leaves us stuck in between the walls of risk and reward, trying to balance the current corporate profit landscape with the potential for an economic rebound later this year. Speaking of balancing risk versus reward, some of you may have noticed that we introduced Jeff Bailey's Market Monitor to the Option Investor Web site. This is an invaluable service provided by one of the sharpest minds in this game we call trading. Jeff's observations in his Market Monitor will introduce timely, actionable ideas that will be of great benefit to OI readers. I highly suggest checking out the Web site throughout the day to get into the mind of Jeff Bailey. Questions and comments are welcome: eutley@OptionInvestor.com Eric Utley Editor www.OptionInvestor.com **************************** Upcoming Online Seminars **************************** 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. Thr Jun-21 Day-trading for people with day jobs - Jon Farnlof Sun Jun-24 Determining Support and Resistance - Derek Baltimore Tue Jun-26 Assessing Risk with Point and Figure - Jeff Bailey Click here for a detailed explanation of each: http://www.premierinvestorseminars.com/seminarcalendar.asp ************* NEW CALL PLAY ************* ADBE - Adobe Systems $45.30 +2.55 (+5.74 this week) A long-time leader in desktop publishing software, ADBE provides graphic design, publishing, and imaging software for Web and print production. Offering a line of application software products for creating, distributing, and managing information of all types, the company generates nearly 75% of sales through publishing software products such as Photoshop, Illustrator, and PageMaker. Its Acrobat Reader, which uses portable document format (PDF) is popping up all over the Internet, as businesses shift from print to digital communications. In addition, ADBE licenses its industry standard technologies to major hardware manufacturers, software developers, and service providers, as well as offering integrated software solutions to businesses of all sizes. One of many beneficiaries of ORCL's better that expected earnings report Monday night, ADBE actually took the ball and ran with it on Wednesday, vaulting through the $44 resistance level on strong volume. Thanks to bullish moves from several Software stocks, the GSTI Software index tacked on nearly 5% today, further distancing itself from the critical $200 support level. Given today's strong move, it appears that ADBE is going to take another run at the $48 price ceiling - perhaps the fourth time will be the charm. After beating earnings estimates by a nickel last Friday, shares of the software firm found support near $38.50, and solid buying volume helped to push it back above the stubborn $40 resistance level. That, along with positive comments from ORCL have energized the bulls, and with the Fed scheduled to give us another interest rate cut next Tuesday, it looks like ADBE could actually break out this time. Support should appear first at the convergence of the 10-dma ($41.57), 30-dma ($41.80) and the 50-dma ($42.33), all of which are back in ascent mode. We are placing our stop at $40, and aggressive traders can consider new positions on a dip and bounce from any of the above-mentioned moving averages or the $43 support level. More conservative entries can be taken as ADBE pushes through $46 on its way to testing the formidable $48 level. Make sure volume remains strong and the GSO index is moving up before taking a position. BUY CALL JUL-45*AEQ-GI OI=4492 at $3.40 SL=1.75 BUY CALL JUL-50 AEQ-GJ OI=2678 at $1.40 SL=0.75 BUY CALL AUG-45 AEQ-HI OI= 72 at $4.80 SL=3.00 BUY CALL AUG-50 AEQ-HJ OI= 235 at $2.75 SL=1.50 SELL PUT JUL-45 AEQ-SI OI=5698 at $2.65 SL=4.25 (See risks of selling puts in play legend) Average Daily Volume = 4.60 mln http://www.premierinvestor.com/oi/profile.asp?ticker=ADBE ************* NEW PUT PLAYS ************* No new put plays tonight ***************** STOP-LOSS UPDATES ***************** GE - call Adjust from $46 up to $48 RATL - call Adjust from $22 up to $23 ************* DROPPED CALLS ************* No dropped calls tonight ************ DROPPED PUTS ************ RIMM $27.54 +2.25 (+0.01) It was bound to happen eventually, and today was the day RIMM decided to bounce. It looked like our $27 stop was going to hold right up to the final 30 minutes of trading. The Technology rally picked up steam, buying volume increased and pushed RIMM higher into the close. While it would have been nice to play one more move to the downside, we'll just have to content ourselves with the gains accrued over the past week and a half. No matter how you slice it, RIMM goes into the winner's column. TLAB $16.04 -5.16 (-8.47) Bringing another put play to a very successful close, TLAB continued in free-fall mode all day giving up another 24% in the wake of continued bad news in the Telecom sector. Joining the bearish party by slashing its earnings and revenue outlook was all investors needed to dump the stock wholesale, pushing the volume up to nearly 5 times the ADV. With nearly a $15 drop since we picked TLAB, we think the prudent course of action is to lock in those gains and look for another winning play. **************** MARKET SENTIMENT **************** The Times They Are A-Changin' By Jeffrey Canavan Yesterday I thought that cautiously optimistic was a good way to describe the current market sentiment, but it might be time to remove the word cautious. By all rights the slew of earnings warnings we received should have sent the markets tumbling this morning, but after a brief sell off, stocks managed to stage a small rally. Sellers then tried to fight back and push the markets lower, but buyers were able to step in and save the day. The market sentiment must be improving, because the same type of news in February or March would have easily dropped the Nasdaq 50 points, and the VIX would have spiked up to 37. Instead the Nasdaq finished up 38 points, and the VIX fell another point to 23.86. I wouldn't exactly use the word bullish to describe the current situation, but you can start to see the buyers lining up on the sidelines waiting for something to give them a reason to buy. At the same time, only a fool would rush in right now and load up on networking or telecom stocks under current conditions. The line it is drawn The curse it is cast The slow one now Will later be fast As the present now Will later be past The order is rapidly fadin' And the first one now Will later be last For the times they are a-changin' - Apologies to Bob Dylan === VIX Wednesday 06/20 close: 23.66 VXN Wednesday 06/20 close: 54.52 30-yr Bonds Wednesday 06/20 close: 5.66 Total Put/Call Ratio: .60 Equity Option Put/Call Ratio: .51 Index Option Put/Call Ratio: 1.32 === NASDAQ 100 Index (NDX/QQQ) 52-Week High: 103.51 52-Week Low: 33.60 Current close: 42.77 Volume/Open Interest Maximum calls: 50/93,940 Maximum puts : 40/54,266 Moving Averages 10 DMA 44 20 DMA 45 50 DMA 45 200 DMA 61 === S&P 100 Index (OEX) 52-Week High: 834.93 52-Week Low: 548.16 Current close: 634.05 Volume/Open Interest Maximum calls: 650/4,891 Maximum puts : 600/6,346 Moving Averages 10 DMA 638 20 DMA 647 50 DMA 645 200 DMA 685 === S&P 500 (SPX) 52-Week High: 1530.01 52-Week Low: 1081.19 Current close: 1223.14 Volume / Open Interest Maximum calls: 1275/13,024 Maximum puts : 1200/24,791 Moving Averages 10 DMA 1237 20 DMA 1254 50 DMA 1245 200 DMA 1311 === DJIA (INDU) 52-Week High: 11,518.83 52-Week Low: 9,047.56 Current close: 10,647.33 Volume / Open Interest Maximum Calls: 114/ 6,915 Maximum Puts 108/17,707 Moving Averages: 10 DMA 10,801 20 DMA 10,918 50 DMA 10,815 200 DMA 10,624 ***** CBOT Commitment Of Traders Report: Friday 06/15 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts on the Chicago Board Of Trade. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs are not. Extreme divergence between each signals a possible market turn in favor of the commercial trader's direction. Small Specs Commercials S&P 500 (Current) (Previous) (Current) (Previous) Open Interest Net Value +67110 +77601 -70183 -77490 Total Open Interest % (+25.01%) (+33.61%) (-9.04%) (-10.71%) net-long net-long net-short net-short Small Specs Commercials DJIA futures Open Interest Net Value -4305 -4251 +6239 +5829 Total Open interest % (-28.76%) (-35.39%) (+14.44%) (+14.71%) net-short net-short net-long net-long Small Spec Commercials NASDAQ 100 Open Interest Net Value +2110 +1155 -10648 -11335 Total Open Interest % (+6.09%) (+5.43%) (-13.68%) (-18.42%) net-long net-long net-short net-short What COT Data Tells Us ---------------------- Indices: Commercials did lighten their net-short positions on the S&P but not by a notable amount. Gold: Commercials continued to lessen their net-short positions dropping 32,000 contracts since May 29. Inflation concerns may usher in a new wave of buyers and it looks like the Commercials are thinking along those lines. 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 6/12 36,544 contracts net-short Data compiled as of Tuesday 06/12 by the CFTC. ********************** PLAY OF THE DAY - CALL ********************** RATL - Rational Software $26.95 +1.80 (+2.96 this week) Rational Software provides a platform for software development that speeds time-to-market while improving software quality. This integrated full life-cycle solution combines software engineering best practices, market-leading tools, and professional services. Ninety of the Fortune 100 build software with the Rational solution. Most Recent Write-Up The software sector has been trading relatively well recently and may lead any rally attempt in the Nasdaq. That premise was given credence Tuesday, following Oracle's positive earnings report. The broader software sector, as measured by the Software Index (GSO.X), has, for the most part, been trading sideways for the past two months. The general price action in RATL has followed a similar pattern. However, both the GSO and RATL bounced off key support levels Monday. For its part, the GSO attracted buyers at the 200 level, while bulls charged into RATL at the $22.50 level. If RATL's pattern of relatively higher lows continues, the stock could very easily make its way up to the $28 level in the short-term. For this to happen, we'd like to see the GSO advance above the 215 level. If the GSO rallies above 215 early Wednesday, traders might consider entering RATL call plays at current levels and targeting the $29 level on the upside. Alternatively, for those with a little more patience, consider waiting for RATL to breakout above the $29 level, which is significant because of the supply on the point & figure chart at that level. Although $29 is still $4 away from its current level, we wanted to pick up coverage on RATL earlier in an attempt to better prepare for any breakout that might occur. Initially, we are setting stops at $22, which is just beneath RATL's rebound point Monday at $22.50 and should protect against any whipsaws. Comments The software sector powered higher Wednesday, carrying RATL along for the advance. Both RATL and the software sector (GSO.X) are close to breaking out in big ways. Watch for the GSO to advance above 225 early Thursday, which may allow for entries into RATL at its current level. The stock faces significant resistance at $29, so any advance above that level would offer a breakout entry point in the coming days. BUY CALL JUL-22.5 RAQ-GR OI= 204 at $5.90 SL=4.00 BUY CALL JUL-25.0*RAQ-GE OI=1172 at $4.10 SL=2.50 BUY CALL JUL-30.0 RAQ-GF OI=1606 at $1.80 SL=1.00 BUY CALL AUG-25.0 RAQ-HE OI= 52 at $5.10 SL=3.00 BUY CALL AUG-30.0 RAQ-HF OI= 134 at $2.75 SL=1.25 Average Daily Volume = 5.52 mln http://www.premierinvestor.com/oi/profile.asp?ticker=RATL ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** A Roller-Coaster Ride To Next Week's FED Meeting... By Ray Cummins The stock market rallied late in the session today as investors began to look for favorably priced issues in the wake of the recent sell-off. The Dow got off to a great start but erased a sizable gain by mid-morning as traders lost their enthusiasm amid the latest round of revenue warnings. Despite the positive data from the Index of Leading Economic Indicators, which rose at its fastest pace in 18 months, concerns over future corporate profits continued to weigh on investors and the major indices soon moved into the red. Shares of networking, semiconductor, telecom and hardware companies led the NASDAQ lower as news of additional shortfalls were made public. Tellabs (NASDAQ: TLAB) followed the trend in telecom equipment-makers by issuing a new profit warning and the continuous outflow of lower revenue forecasts by leading communications companies has done little to help the outlook for technology stocks. In the communications-chip segment, Goldman Sachs trimmed its earnings estimates on a number of companies to to reflect continued deterioration in demand and a belief that companies will experience another decline in sequential revenue in the third quarter. Analyst Nathaniel Cohn said in a research note that, "Inventory levels remain high, and the downturn will cut deeper and last longer than current estimates suggest." The outlook from Lehman Brothers' analyst Dan Niles was also negative as he lowered earnings-per-share estimates on both Advanced Micro Devices (NYSE:AMD) and Intel (NASDAQ:INTC), due to deterioration in demand for PCs, a more "brutal" processor pricing environment and a steeper fall in flash pricing. Niles said he also remains negative on personal computer companies and semiconductor issues and believes there is still downside risk to estimates and stock prices. The leader in electronics manufacturing services, Jabil Circuit (NYSE:JBL) continued to sag after posting a third-quarter profit of $0.16 a share, which matched analyst expectations. The company also warned that it now sees a profit from operations of $0.13 to $0.15 per share in its fourth quarter, well short of the consensus estimates of $0.19 a share. Analysts at Lehman Brothers were strangely optimistic about the report and issued some upbeat comments on the EMS industry. The brokerage indicated it believes business trends will improve greatly in 2002 and that JBL's shares appear attractive at current levels. On the Dow, shares of Philip Morris Companies (NYSE:MO), Caterpillar (NYSE:CAT) and General Electric (NYSE:GE) led the recovery while Boeing (NYSE:BA), Home Depot (NYSE:HD), United Technologies (NYSE:UTX), Minnesota Mining (NYSE:MMM) and Honeywell (NYSE:HON) limited its gains. MMM was the catalyst for downside movement among the conglomerates after ABN AMRO downgraded the company on valuation concerns and a lack of earnings momentum due to weakness in Europe and Asia. In the broader market, brokerage stocks were slightly higher amid news that Bear Stearns (NYSE:BSC) reported a profit of $1.18 a share in its second quarter, up 53% from last year's quarter. The numbers easily beat the consensus estimates of $1.09 per share and Bear Stearns attributed the positive results to a record quarter in its fixed-income division, which offset weakness in the equity and investment banking units. Among other S&P 500 sectors, utility, gold, airline and natural gas shares moved lower while new buying interest was seen in biotechnology, drug, financial, paper and chemical issues. Summary of Previous Candidates: NOTE: JUNE prices as of Friday's Expiration Covered Calls: (Margin not used in calculations) Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield IMCL JUN 40 37.85 47.68 $2.15 5.8% MSCC JUN 55 54.33 52.35 -$1.98 0.0% Naked Puts: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield RMD JUN 50 49.20 51.98 $0.80 9.0% KKD JUN 20 19.38 38.06 $0.62 8.9% Adj 2-1 split KKD JUN 25 24.53 38.06 $0.47 8.4% " KKD JUN 25 24.68 38.06 $0.32 8.2% " THQI JUN 40 39.25 54.93 $0.75 7.5% NVLS JUN 40 39.20 51.21 $0.80 7.1% IMCL JUN 35 34.35 47.68 $0.65 6.9% ENZN JUN 50 48.85 68.08 $1.15 6.8% FCEL JUN 60 59.05 64.08 $0.95 5.7% APWR JUN 35 34.30 43.86 $0.70 5.5% MSCC JUN 55 54.45 52.35 -$2.10 0.0% Hmmm?!? HON JUL 32.5 31.50 37.04 $1.00 8.7% Merger Mania HGSI JUL 60 58.20 65.50 $1.80 7.4% 150 dma bounce MANU JUL 30 29.25 38.17 $0.75 5.8% Looking strong ADVS JUL 55 53.80 66.25 $1.20 5.3% Next leg up? Positions Closed: ADVP and CMVT both won the Murphy's law contest for June as both actually ended positive, PDII. Sell Strangles: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield HGSI JUN 45 44.00 65.10 $1.00 7.6% HGSI JUN 80 81.30 65.10 $1.30 9.7% NVDA JUN 55 53.65 95.05 $1.35 7.4% NVDA JUN 115 116.25 95.05 $1.25 6.9% BGEN JUN 55 54.25 64.93 $0.75 7.2% BGEN JUN 65 65.65 64.93 $0.65 6.3% MU JUL 32.5 31.75 36.84 $0.75 6.9% Watch closely - MU JUL 50 50.70 36.84 $0.70 6.5% at Support! Naked Calls: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield CMVT JUN 70 70.65 59.93 $0.65 10.3% EXFO JUN 50 50.75 23.01 $0.75 10.2% CIEN JUN 70 70.40 40.14 $0.40 7.0% FCEL JUL 42.5 43.30 26.97 $0.80 8.8% Adj 2-1 split DIGL JUL 60 60.65 29.50 $0.65 5.9% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status BAC $58.61 $58.02 JUN50p/55p $0.65 $54.35 $0.65 Expired BRL $64.60 $71.40 JUN55p/60p $0.75 $59.25 $0.75 Expired FNM $79.81 $80.66 JUN70p/75p $0.50 $74.50 $0.50 Expired BBY $54.29 $56.74 JUN65c/60c $0.70 $60.70 $0.70 Expired LNCR $65.40 $66.76 JUL50p/55p $0.60 $54.40 $0.60 Open THC $48.50 $51.83 JUL40p/45P $0.60 $44.40 $0.60 Open JPM $46.84 $45.60 JUL55c/50c $0.75 $50.75 $0.75 Open RJR $56.46 $54.81 JUL65c/60c $0.65 $60.65 $0.65 Open TM $66.50 $68.95 JUL75c/70c $0.65 $70.65 $0.65 ALERT! Position Closed: LEH, MER (expired positive too, darn it!) Debit Straddles: Stock Position Debit Target Value Status NUE JUN50c/50p $3.90 $4.90 $4.90+ Closed - Target hit - 6/5 FLR JUN60c/60p $5.40 $6.48 $6.48+ Closed - Target hit - 6/6 IDPH JUL70c/70p $11.00 $13.75 $9.20 Open ****************************************************************** - 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: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations *************** EBAY - eBay $69.50 *** Pure Internet! *** eBay (NASDAQ:EBAY) is a dynamic pricing online trading platform located at www.ebay.com. eBay developed a Web-based community in which buyers and sellers are brought together in an efficient format to buy and sell items, such as collectibles, automobiles, high-end or premium art items, jewelry, consumer electronics and a host of practical and miscellaneous items. The eBay dynamic pricing (auction-style) format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. eBay's service is fully automated, topically arranged and easy to use. Through its wholly owned and partially owned subsidiaries and affiliates, the company operates trading platforms in the United States, Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. eBay expects to expand its online trading to include Spain, the Netherlands, Belgium, Portugal, Sweden and Brazil. EBAY has been one of the few issues to effectively weather the recent technology sell-off and it appears the stock is trying to bring the Internet group back into favor with investors. Shares of the auction giant rallied today on the heels of an upgrade from Merrill Lynch. The brokerage elevated EBAY's second quarter earnings estimates and said it saw room for more upside beyond official forecasts. Merrill's Internet analyst Henry Blodget said in a research report that, "overall, we are expecting another strong quarter" and he estimating EBAY will show second quarter revenues of $168 million, up about 10% from the first quarter. The company's CEO, Meg Whitman also recently said that Ebay hasn't seen any major effects on its business from the slowing economy and is nearly "recession proof." That is a very bullish statement, but apparently investors agree with the positive outlook and you can attempt to profit from future upside activity with these bullish positions. EBAY - eBay $69.50 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 55 QXB SK 3382 1.10 53.90 7.4% *** Sell Put JUL 60 QXB SL 3975 2.05 57.95 10.2% Sell Put JUL 65 QXB SM 2830 3.50 61.50 13.2% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=EBAY ***** ELN - Elan $65.00 *** On The Move! *** Elan Corporation (NYSE:ELN) is a worldwide pharmaceutical and biotechnology company focused mainly on the development and commercialization of products. Elan focuses on drug delivery systems and has expanded its therapeutic focus through the development and commercialization of new pharmaceutical products for the selected target markets of neurology, pain management and oncology. Elan currently conducts its operations through two primary business units: Elan Pharmaceuticals (EP) and Elan Pharmaceutical Technologies (EPT). EP is engaged primarily in the discovery, development and marketing of therapeutic products for neurological disorders and pain management, as well as new diagnostic services for neurological disorders. EP's principal research and development activities focus on Alzheimer's disease, acute pain management, epilepsy, multiple sclerosis, Parkinson's disease, dystonias and other neurological disorders. EPT is engaged in the development, licensing and marketing of drug delivery products and technologies. Drug stocks were "on the move" today and although there is not much news on the company, this issue was recently highlighted by The Street.com's Gary B. Smith in his technical analysis column. We agree with a bullish outlook for the stock and although it is certainly overbought in the near-term, a pullback would offer an excellent entry opportunity in the issue. Spread traders should target a higher credit initially, to allow for some consolidation in the issue. ELN - Elan $65.00 PLAY (conservative - bullish/credit spread): BUY PUT JUL-55 ELN-SK OI=1072 A=$0.30 SELL PUT JUL-60 ELN-SL OI=1180 B=$0.70 INITIAL NET CREDIT TARGET=$0.50-$0.65 PROFIT(max)=11% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=ELN ***** GE - General Electric $50.77 *** Honeywell Merger! *** General Electric (NYSE:GE) is one of the largest, diversified industrial corporations in the world. GE's products include major appliances; lighting products; industrial automation products; medical diagnostic imaging equipment; electric motors, electrical distribution and control equipment; locomotives; power generation and delivery products; nuclear power support services and fuel assemblies; commercial and military aircraft jet engines; and engineered materials. GE's services include product services; electrical product supplies; electrical apparatus installation, engineering, repair and rebuilding services; and computer-related information services. Through the National Broadcasting Company, GE delivers network services, operates television stations, and provides cable, Internet and multimedia programming and other distribution services. Through General Electric Capital Services, GE offers a broad array of financial and other services. The ongoing speculation over the potential Honeywell-General Electric merger was more subdued today after the European antitrust enforcers recommended to formally block GE's bid to acquire the popular conglomerate. In a draft decision prepared earlier this week, the European Commission's Merger Task Force deemed insufficient GE's latest proposals to secure antitrust approval and confirmed that the proposed $41 billion acquisition won't be allowed to go through in its current form. The draft decision means that the number of scenarios under which the deal could be approved is diminishing and also suggests the EUC is unlikely to change its mind about the merger. Under the terms of the agreement, GE and HON could mutually agree to terminate the pact with no penalty and since the two companies are on good terms, investors see that as the most likely outcome. Shares of GE have moved higher amid optimism over that outlook and traders who want to speculate on the continued recovery in the company's stock price should consider this position. GE - General Electric $50.77 PLAY (speculative - bullish/credit spread): BUY PUT JUL-45.00 GE-SI OI=7481 A=$0.40 SELL PUT JUL-47.50 GE-SW OI=16269 B=$0.75 INITIAL NET CREDIT TARGET=$0.40-$0.45 PROFIT(max)=19% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=GE ***** LNCR - Lincare Holdings $66.76 *** Split Rally Continues! *** Lincare Holdings (NASDAQ:LNCR) is one of the nation's largest providers of oxygen and other respiratory therapy services to patients in the home. The company's customers typically suffer from chronic obstructive pulmonary disease, such as emphysema, chronic bronchitis or asthma, and require supplemental oxygen or other respiratory therapy services in order to alleviate the symptoms and discomfort of respiratory dysfunction. Lincare currently serves over 225,000 customers in 42 states through 429 operating centers. Shares of Lincare have moved higher over the last two weeks as investors continue to buy into the issue prior to the record date for the company's upcoming stock split. Lincare's Board of Directors recently declared a two-for-one common stock split, payable on June 22, to shareholders of record on June 7, 2001. The stock split will be effected as a dividend distribution of one additional share of common stock for each share of common stock outstanding. John P. Byrnes, Lincare's Chief Executive said the split is intended to increase the trading volume and liquidity of LNCR common shares. He also noted that Lincare's long-term shareholders have enjoyed compounded annual rates of return in excess of 35% per year over their nine-year history as a public company and that favorable demographics along with a commitment to clinical excellence and high quality customer service will drive future growth in their core businesses. That's a very optimistic outlook and traders who want to profit from any additional upside activity in LNCR shares can do so in a conservative manner with this bullish combination. LNCR - Lincare Holdings $66.76 PLAY (conservative - bullish/credit spread): BUY PUT JUL-55 LQN-SK OI=64 A=$0.55 SELL PUT JUL-60 LQN-SL OI=431 B=$1.20 INITIAL NET CREDIT TARGET=$0.70-$0.75 PROFIT(max)=16% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=LNCR ***** PDLI - Protein Design Labs $85.70 ***A Big Day! *** Protein Design Labs (NASDAQ:PDLI) is engaged in the development of humanized monoclonal antibodies for both the prevention and treatment of disease. The company has licensed certain rights to its first humanized antibody product, Zenapax, to Hoffmann-La Roche and its affiliates (Roche), which markets Zenapax for the prevention of kidney transplant rejection. The company is also testing Zenapax for the treatment of autoimmune disease. In addition, the company has several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, asthma and cancer. The company has fundamental patents in the United States, Europe and Japan, that cover a number of humanized antibodies. Eleven companies have licenses under these patents for humanized antibodies that they have developed. The company also receives royalties on sales of the three humanized antibodies developed by other companies that are currently being marketed. PDLI was another big mover in the biotechnology group today and lacking any recent news on the company, the recent technical indications are likely a major reason for the bullish activity. PDLI continues to surge upward and has completed what appears to be a short-term "head-n-shoulders" bottom. The move above the 150-dma and JAN high is bullish, though the stock will need to work through resistance from $80 to $100. Watch for a move above the JUN high to confirm the bullish change of character and a break below the 150-dma to signal a potential failure. PDLI - Protein Design Labs $85.70 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 65 PQI SM 493 1.00 64.00 5.6% *** Sell Put JUL 70 PQI SN 1301 1.85 68.15 9.2% Sell Put JUL 75 RPV SO 533 3.00 72.00 11.4% Sell Put JUL 80 RPV SP 45 4.80 75.20 14.6% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PDLI ***** RETK - Retek $42.70 *** Technicals Only! *** Retek (NASDAQ:RETK) provides advanced application software to help retailers create, manage and fulfill consumer demand. The company's software solutions enable retailers to use the Internet to communicate and collaborate efficiently with their suppliers, distributors, wholesalers, logistics providers, transportation companies, consolidators and manufacturers. Advanced predictive capabilities provide accurate forecasts of consumer demand, and integration between planning and execution functions enables retailers to respond more rapidly to changes in either supply or demand. The company is primarily focused on retailers with sales of $500 million and above. Stocks in the application software group are performing well and RETK has some of the best technical indications in the sector. The issue continues to demonstrate exceptional strength while the broader market has corrected. The stock has broken out above the JAN and DEC highs on heavy volume (which now becomes support) and is working through the resistance area near the OCT high. The stock has not violated its 30-dma since the APR low and the bullish chart pattern suggests further upside potential. RETK - Retek $42.70 PLAY (conservative - bullish/credit spread): BUY PUT JUL-30 QRD-SF OI=244 A=$0.35 SELL PUT JUL-35 QRD-SG OI=152 B=$0.80 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=RETK *************** BEARISH PLAYS - Naked Calls & Combinations *************** ENZN - Enzon $61.20 *** Elevator Going Down! *** Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops and commercializes enhanced therapeutics for life-threatening diseases through the application of its two proprietary platform technologies: polyethylene glycol (PEG) and single-chain antibody (SCA). The company applies its PEG technology to improve the delivery, safety and efficacy of proteins and small molecules with known therapeutic efficacy. The company applies its single chain antibody technology to discover and produce antibody-like molecules that offer many of the therapeutic benefits of other monoclonal antibodies, while addressing some of their limitations. There is little recent news to explain the drop in ENZN's share value but some of the bearish activity may be due to the recent announcement that the company intends to make a private offering of $400 million of convertible subordinated notes due in 2008, with an option to issue an additional $60 million of notes. That will likely dilute the issue somewhat because at the option of the holder, the notes will be convertible into shares of ENZN common stock, under certain circumstances, at a share price to be determined in the future. Enzon said it aims to use the proceeds of the sale for general corporate purposes, including research and development and possible future acquisitions, but it appears that investors are not in favor of the company's plans. Traders who agree that the near-term outlook is very negative can profit from future downside movement with these bearish positions. ENZN - Enzon $61.20 PLAY (aggressive - sell naked call): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Call JUL 65 QYZ GM 327 3.30 68.30 14.0% Sell Call JUL 70 QYZ GN 667 1.80 71.80 10.4% Sell Call JUL 75 QYZ GO 2211 0.80 75.80 6.2% *** http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=ENZN ***** IBM - Intl. Bus. Machines $113.09 *** Rumors of a Warning! *** International Business Machines (NYSE:IBM) uses its advanced information technology to provide customer solutions. The company operates using several segments that create value by offering a variety of solutions, including, either singularly or in combination, technologies, systems, products, services, software and financing. Organizationally, the company's three hardware product segments are comprised of Technology, Personal Systems and Enterprise Systems. IBM's other major operations consist of a Global Services segment, a Software segment, a Global Financing segment and an Enterprise Investments segment. IBM has been a popular "rumor stock" on the trading floor during recent sessions and insiders say the company may announce a potential shortfall in earnings during the next few days. The speculation appears to have worried some investors as the issue was down today even as IBM reported that the European Commission cleared the acquisition of Informix's database business, which is expected to add to Old Blue's influence in the application software industry. Despite the bullish activity in the broader market, IBM finished the session on a bearish note and the drop was on heavy volume, suggesting that further selling may occur. With the recent resistance area near $120, this play offers a reasonable risk-reward outlook for traders who want to speculate on the future movement in IBM's share value. IBM - Intl. Bus. Machines $113.09 PLAY (conservative - bearish/credit spread): BUY CALL JUL-130 IBM-GF OI=17081 A=$0.65 SELL CALL JUL-125 IBM-GE OI=42277 B=$1.20 INITIAL NET CREDIT TARGET=$0.65-$0.70 PROFIT(max)=15% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=IBM ******************* 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. 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