The Option Investor Newsletter Wednesday 06-27-2001 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/246810_1.asp Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** 06-27-2001 High Low Volume Advance/Decline DJIA 10434.84 - 37.64 10531.19 10408.00 1.14 bln 1811/1271 NASDAQ 2074.74 + 10.12 2084.41 2048.88 1.69 bln 2085/1635 S&P 100 626.69 - 2.85 631.33 624.62 totals 3896/2906 S&P 500 1211.07 - 5.69 1219.92 1207.29 57.3%/42.7% RUS 2000 495.58 + 4.76 496.23 490.50 DJ TRANS 2699.47 + 53.16 2699.66 2644.46 VIX 23.57 + 0.22 25.10 23.39 Put/Call Ratio 0.54 ****************************************************************** Split Decision The market's reception of the Fed's decision to cut interest rates by 25 basis points Wednesday left more questions than answers. The indecisive nature of Wednesday's bifurcated price action lends credence to further range bound trading, and may very well serve as a proxy for this summer's price action. To the chagrin of many, the Federal Reserve decided to lower its target for the federal funds rate by 25 basis points to 3.75 percent. In conjunction with its decision on rates, the Fed released the following: "The patterns evident in recent months - declining profitability and business capital spending, weak expansion of consumption, and slowing growth abroad - continue to weigh on the economy. The associated easing of pressures on labor and product markets are expected to keep inflation contained...The Committee continues to believe that against the background of its long-run goals of price stability and sustainable economic growth and of the information currently available, the risks are weighed mainly toward conditions that may generate economic weakness in the foreseeable future." From where I sit, the Fed's guidance suggests continued cuts in interest rates, especially after the recent pullback in the price of energy and the ensuing positive impact that has on inflation. Still, I think it's rather clear that the Fed is still on "our" team, but whether or not that's enough to advance the market is the variable I cannot quantify. My sense is that the short-term price action of the market will lean more towards the corporate profit front which, unfortunately, continues to show signs of deterioration. Vitesse Semiconductor (NASDAQ:VTSS) issued a profit warning Tuesday night that guided to expect an operating loss for its fiscal third quarter. Vitesse's warning was eerily similar to what Applied Micro (NASDAQ:AMCC) reported Monday evening. In fact, in Monday's Market Wrap I highlighted a list of companies that were likely to warn within the tech/telecom space, which included Vitesse. The reason I bring this up is because many other market participants were expecting the same thing, which is why shares of Vitesse didn't get blown-up in the wake of the warning. Not so positive was the market's reception to Redback Network's (NASDAQ:RBAK) profit warning after the bell Wednesday. Without going into detail, Redback issued an awful warning and its shares shed nearly $2 after hours. In the reversal of fortunes story of the week, I'd like to point out that less than a month ago, in this very column, I wrote about the guidance delivered by Xilinx (NASDAQ:XLNX) that, at the time, suggested increased visibility and improved inventory levels. So, Xilinx's warning Tuesday night reveals just how quickly business conditions are deteriorating in certain segments of tech. Meanwhile, Xilinx's chief competitor, Altera (NASDAQ:ALTR), reaffirmed its previously lowered guidance after the bell Wednesday, which sent its shares nearly $2 higher in the after hours session. So, let's get this straight: business has grown worse for Xilinx but has stabilized for Altera, in just the last three weeks? I think the dynamic between these two companies is a microcosm for how difficult it is to trade in the telecom-related technology sector of the market. Caveat Venditor and Emptor! Despite Xilinx's and Vitesse's earnings warnings Tuesday night, and the Fed's supposedly "disappointing" 25 basis point rate cut, the Nasdaq Composite (COMPX) finished slightly higher Wednesday. But, more importantly perhaps, is the fact that the COMPX managed to finally clear and close above the 2060 resistance level Tuesday and settled above that level again Wednesday. Although the COMPX stalled around the 2075 level Wednesday, which is an area of light resistance, I still think it has a good chance of working its way up to 2100, or higher, during this advance. Of course, a major earnings warning from the likes of Microsoft (NASDAQ:MSFT), Intel (NASDAQ:INTC) or Qualcomm (NASDAQ:QCOM) would thwart any rally attempt from current levels. The Nasdaq market is still relatively oversold. Furthermore, the big caps such as Microsoft, Qualcomm and Oracle (NASDAQ:ORCL) have been trading relatively well in the short-term. In contrast, however, is the still relatively overbought condition of the Dow Jones Industrial Average (INDU), as measured by the index's bullish percent reading. Although the Dow has found support around the 10,400 level in recent sessions, my sense is that the risks of further downside exist. In terms of resistance, as expected, the Dow is now having trouble getting back above the 10,500 level. In terms of overbought versus oversold, the S&P 500 (SPX.X) lies at mid-field. That is, the risks are equally weighted towards either an advance or decline from current levels. Of interest, though, is the S&P's propensity to continue to attract buyers around the 1210 level, plus or minus 5 points. The sellers lack the strength to take the S&P below that level, which is a most positive development for the broader market. But, we'll want to cast an eye towards the psychologically and technically significant 1200 level in the short-term. A break below that level may negate any further rally attempt in any of the major market averages. While the S&P's and Dow's losses were to be expected in the wake of the Fed's decision to cut by 25 basis points, the Nasdaq's positive finish, albeit moderate, surprised many market participants. Its out performance Wednesday may lend to the Nasdaq continuing to advance in the short-term. Nevertheless, it's very difficult to draw too many conclusions from the finishes in the major market averages following the Fed's announcement. That's why I suggested in the introduction of the column that this summer may be one of range bound trading. At least in the Fed's estimation, the economy isn't bad enough to warrant a 50 basis point cut, instead opting for the 25 point reduction delivered Wednesday afternoon. The Fed has done - and is doing all - it can to stimulate the economy and the market with its benign monetary policy. But the fact remains that corporate America is still paying for the greed that was so rampant over the past three years. Unfortunately, so is the market. Mark Andreessen, who was the whiz-kid behind and co-founder of Netscape prior to its acquisition by America Online (NYSE:AOL) and currently runs LoudCloud (NASDAQ:LDCL), appeared on CNBC late Wednesday evening and touched upon something I'd like to pass along. Andreessen elaborated on how technological booms are initially received with much excess, go through a correctional period, followed by the true realization of the productivity gains from that technology. We're going through the correctional period now, and I unequivocally agree with Andreessen's remarks in that the long-term benefits of the Internet have yet to be fully realized and will positively impact each of our lives over the coming decade. In the meantime, however, we must go through this nasty correctional period which is synonymous with the bottoming process. In Monday's Market Wrap, I touched upon a theme that may work as we progress through this bottoming process. That is, buying relatively strong stocks near meaningful support levels and selling as they approach resistance. And vice-versa for shorting stocks. While some of our recent plays have been successful in attempting to game breakouts and breakdowns, such as MVSN and HGSI, respectively, we have had much success with entering strong stocks near support and weak stocks near resistance, such as QCOM and NETE, respectively. While the current market is one of difficulty, we shall persevere and survive for the easy days that lie ahead. On a final note, I think it would be prudent to address the market phenomenon known as end-of-quarter window dressing. The event, in essence, is an attempt by hedge funds and other money managers to "dress" their portfolios with the quarter's best performing stocks. That way, they don't have to explain to their clients why they held losers such as Lucent (NYSE:LU) when they send out their quarterly performance reports and portfolio holdings. The result is that some of the quarter's best performing stocks are artificially taken higher into the last day of the quarter, which is this Friday. Judging by the price action in some of the quarter's best performing stocks this week, I'd guess that most of the window dressing has already taken place. But for those who want to monitor this phenomenon first hand, here's a random list of some of the best performing stocks of the quarter: PCLN, EXPE, WEBX, FFIV, KOSP, QLGC, QSFT and TARO. Questions are welcome: firstname.lastname@example.org Eric Utley Editor ************************************************** Conservative Covered Call/Naked Put Online Seminar ************************************************** Professional seminar from the comfort of home! Ray Cummings and Mark Wnetrzak have been contributing to the Option Investor Newsletter for years. With one of the most consistent track records month after month the covered calls and naked puts section of the newsletter make profiting in the stock market a lot less challenging than it used to be. Plus, their expertise in spreads and combination plays make them both popular columnists on the OptionInvestor website. The seminar starts at 9:00 p.m. EST tonight! Follow this link to sign up: http://www.premierinvestorseminars.com/onlineseminars/tbaraymark2.asp **************** MARKET SENTIMENT **************** Time to Rotate By Jeffrey Canavan The money that has found its way into the markets continues to rotate from sector to sector, so where is it finding its way this week? After being beaten up for two weeks, the Airline Index is getting a little relief rally. It's probably the result of short covering, and not outright buying, but nevertheless it was today's best performing sector, up 2.46%. Last week's winners of the dead cat bounce award were networking and disk drives. Disk drives are trying to turn the bounce into a rally, up 1.01% today, but look to have met short-term resistance. Networking's bounce was brief, and has had trouble getting resistance at 345. The weekly and daily charts still look grim, thus our ranking of bearish. Stuck in the middle are biotechnology, semiconductor, software, and internet stocks. They are holding up better than most sectors, but it's hard to call their weekly or daily charts bullish. Biotechnology looks to be the strongest candidate, and is starting to approach oversold territory. A break of support at 570 changes the picture dramatically. Bullish sectors are hard to come by. Pharmaceuticals looked good until Merck warned, but could be due for a relief rally after losing 5.7% over the past 5 days. The banking sector continues to be one of the only sectors above its 50 and 200-day moving average, and worthy of a bullish trend rating. *************************Sector Watch**************************** Weekly Daily Overbought Support Resistance Trend Trend Oversold DJIA Bearish Bearish Oversold 10,400 10,800 NASD Bearish Neutral Overbought 2,000 2,100 S&P 500 Bearish Bearish Neutral 1,200 1,250 Rus 2000 Neutral Neutral Oversold 480 500 Semis Neutral Neutral Neutral 545 625 Biotech Neutral Neutral Oversold 550 630 Internet Neutral Neutral Overbought 160 186 Networking Bearish Bearish Neutral 314 345 Software Neutral Neutral Neutral 200 230 Banking Bullish Bullish Overbought 670 640 Retail Bearish Bearish Oversold 840 880 Drugs Bearish Bearish Oversold 385 400 Percent Change Last 5 Days Last 10 Days Last 30 Days DJIA (1.5%) (5.0%) (5.9%) NASD 2.1% (2.2%) (0.5%) S&P 500 (1.0%) (2.5%) (3.1%) Rus 2000 (0.6%) (1.9%) 1.2% Semis 1.9% (6.7%) (1.3%) Biotech (4.7%) (1.9%) 10.6% Internet 3.1% (8.8%) (6.3%) Networking 3.5% (13.8%) (24.5%) Software (0.7%) (0.2%) 3.3% Banking 0.3% 0.7% 3.3% Retail (4.3%) (4.7%) (4.8%) Drugs (5.7%) (4.0%) (2.5%) ***************************************************************** ************* NEW CALL PLAY ************* No new call plays tonight ************* NEW PUT PLAYS ************* No new put plays tonight ***************** STOP-LOSS UPDATES ***************** CEPH - call Adjust from $65 up to $66 CHKP - call Adjust from $47 up to $48 MVSN - call Adjust from $55 up to $57 OPWV - call Adjust from $25 up to $26 QCOM - call Adjust from $49 up to $52 RATL - call Adjust from $24 up to $25 ENZN - put Adjust from $63 down to $60 HGSI - put Adjust from $61 down to $60 ************* DROPPED CALLS ************* AHC $81.49 -2.24 (-2.11) The American Petroleum Institute reported that gasoline inventories rose by 3.3 million barrels during the week ended June 22nd. The news induced selling across the broader energy sector which dragged shares of AHC lower. Although the stock didn't close below our stop at $81, we're dropping coverage on the play tonight. Use any relief rally early Thursday to exit any open positions. ************ DROPPED PUTS ************ No dropped puts tonight ********************** PLAY OF THE DAY - CALL ********************** MVSN - Macrovision Corp. $62.96 +3.56 (+4.41 this week) Helping to keep intellectual property rights intact, MVSN designs, develops and licenses copy protection and rights management technologies. Integral to the entertainment industry, the company provides copy protection for major Hollywood studios, independent video producers, PC games, digital set-top box manufacturers and digital pay-per-view (PPV) network operators. In addition to helping content owners protect content such as videocassette, DVD and PPV movies, and PC games, MVSN also provides the ability to electronically market that content in a secure manner. Most Recent Write-Up While it didn't bolt right out of the gate this morning, MVSN actually had a pretty decent first day on the playlist, considering the wild gyrations of the broader markets ahead of the FOMC meeting. After the opening dip, the stock recovered nicely to spend most of the day consolidating above the $59 level, likely gathering its strength to push higher after the Fed announcement tomorrow afternoon. Recall from last night's writeup that we have some serious resistance between $61-62, reinforced by the stock's 38% retracement of the stock's decline since Labor Day last year. While dips in the $58 range are definitely buyable, the higher odds play right now is to jump on board after the bulls power MVSN through the $62 resistance level on strong volume. Recall that the initial breakout on the Point and Figure chart occurred as the stock cleared $58, the bullish pattern will be strengthened considerably once price moves decisively through $62, completing another bullish breakout pattern. Comments MVSN broke above its 200-dma, currently at $60.48, during Wednesday's session and never looked back. The stock worked higher into the close of trading and may very well continue along its path higher Thursday. Look for an advance above the $64 level if the Nasdaq is working higher or considering entering on a pullback near support at $60. BUY CALL JUL-60 MVU-GL OI=1079 at $6.20 SL=4.00 BUY CALL JUL-65*MVU-GM OI= 191 at $3.40 SL=1.75 BUY CALL JUL-70 MVU-GN OI= 650 at $1.30 SL=0.75 BUY CALL AUG-65 MVU-HM OI= 51 at $5.90 SL=4.00 BUY CALL AUG-70 MVU-HN OI= 3 at $3.90 SL=2.50 Average Daily Volume = 738 K http://www.OptionInvestor.com/charts/chart.asp?symbol=MVSN ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** A Quarter Point Reduction And The Market Reacts Indecisively! By Ray Cummins The stock market reacted in a typical, volatile fashion today after the Fed opted to lower short-term rates by 25 basis points. The outcome of the meeting was somewhat disappointing as many analysts had been expecting a 50-basis-point cut, but the FOMC committee assuaged concerns by suggesting that future reductions will be made when and if they are necessary. Trading Strategies One of the most popular plays in last week's BIG-CAP section was the bearish credit spread in IBM. Since there were a number of questions on the position, we have decide to publish a brief description of the strategy. Here is the original play (offered on 6/20/01): IBM - International Business 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% Credit Spreads Overview: A credit spread is a directional options strategy that allows traders to have time decay work in their favor while maintaining a manageable level of risk. To initiate a credit spread, a trader would simultaneously write one option and buy another option that expires at the same time but with a strike price further from the price of the underlying stock. The written option is closer to the money than the purchased option, and therefore has a higher premium. The trader will receive a net credit in his account, hence the name "credit" spread. The primary objective is for both options to expire worthless, which allows the original credit to become a profit. Normally, a credit-spread trader utilizes front- month options, as the time decay evaporates most rapidly in the final few weeks ahead of expiration. The exponential time erosion benefits credit spreads, assuming there is no change in the other variables that affect option pricing. Call-Credit Spreads: The call-credit (or bear-call) spread involves the purchase of one call (higher strike) and the sale of a lower strike price call. This spread produces a credit and that amount is the maximum profit in the play. The spread achieves maximum profit when the underlying security closes below the lower strike price call and the objective is for both options to expire worthless. The risk/reward calculations are... Maximum profit = the net credit received Maximum risk (or collateral) = the difference between the strike prices - the net credit received. Break even point = the price of the sold strike price + the net credit. Closing-Adjusting Credit Spreads: There are three basic methods to exit or cover a losing call-credit spread and the choices range from "legging-out," to rolling into a long-term spread, to buying the underlying issue. First, you can simply close the position at a debit and register the loss. There is another simple technique; covering the short option with stock as it moves through the sold strike. This is a common method for buying into an issue that has turned bullish, but you must also be prepared to unload the stock in the event of a retreat. Another popular option is to "roll-out" of the spread for profit (or at least break-even). To roll-out of a call-credit spread, place an order to repurchase the short option anytime the stocks trades, and preferably closes, above technical resistance or an established trend-line (moving average) on heavy volume. Of course, there are other, more precise signals that can be used but the technique is based on the probability that after a major reversal or change in character occurs, the stock will generally continue to move in that direction. After the sold (short) position is repurchased, wait for the stock to lose momentum and sell the long position to close the entire play. It can be a very difficult technique to perform when emotion enters the formula, however it works well once you become experienced at it. The key to success is using the method at known support levels or after obvious reversal signals, otherwise you are simply speculating about the stock's next move. The great thing about spreads; once you understand them, you can turn many losing plays into winning ones with the effective use of STOPS and by rolling out-of and in-to new positions when the stock moves against you. When you do lose, at least you have reduced your losses by leveraging against another position. In all cases where an attempt to recover a losing position is made, you must be prepared for further draw-downs and have thorough knowledge of the strategy. As with any technique, it must also be evaluated for portfolio suitability and reviewed with regard to your basic approach and trading style. Good Luck! Summary of Previous Candidates: 23 days until July Expiration! Covered Calls: (Margin not used in calculations) Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield None Naked Puts: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield HON JUL 33 31.50 37.30 $1.00 8.7% Merger Mania EBAY JUL 55 53.90 68.60 $1.10 7.4% PDLI JUL 65 64.00 80.49 $1.00 5.6% ADVS JUL 55 53.80 64.00 $1.20 5.3% HGSI JUL 60 58.20 56.00 -$2.20 0.0% * MANU JUL 30 29.25 24.81 -$4.44 0.0% * * HGSI: There was no 150-dma bounce and with the move lower it is time to go. * MANU: The earnings warning really hurt and we will move our hard-earned money elsewhere. Sell Strangles: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield MU JUL 33 31.75 39.74 $0.75 6.9% MU JUL 50 50.70 39.74 $0.70 6.5% Naked Calls: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield FCEL JUL 43 43.30 23.30 $0.80 8.8% Adj 2-1 split ENZN JUL 75 75.80 55.90 $0.80 6.2% DIGL JUL 60 60.65 32.44 $0.65 5.9% Credit Spreads: Stock Pick Last Position Credit C/B G/L Status LNCR $32.70 $31.41 JUL25p/27.5p $0.30 $27.20 $0.30 Open * THC $48.50 $50.90 JUL40p/45P $0.60 $44.40 $0.60 Open JPM $46.84 $44.02 JUL55c/50c $0.75 $50.75 $0.75 Open RJR $56.46 $55.08 JUL65c/60c $0.65 $60.65 $0.65 Open TM $66.50 $69.69 JUL75c/70c $0.65 $70.65 $0.65 ALERT! ELN $65.00 $59.03 JUL55p/60p $0.65 $59.35 $0.65 ALERT! * GE $50.77 $48.26 JUL45p/47.5p $0.45 $47.05 $0.45 ALERT! * LNCR $33.38 $31.41 JUL27.5p/30p $0.38 $29.62 $0.38 Open * RETK $42.70 $40.90 JUL30p/35p $0.60 $34.40 $0.60 Open IBM $113.09 $113.52 JUL130c/125c $0.70 $125.70 $0.70 Open * LNCR: Adjusted for a 2-1 split. * ELN: We will use a violation of the 30-dma as an exit signal. * GE: At its 150-dma - looking ominous, a move lower and we're gone, merger or no merger with HON. Debit Straddles: Stock Position Debit Target Value Status IDPH JUL70c/70p $11.00 $13.75 $9.55 Open The IDPH debit straddle traded at a high of $10.55 just before the Fed made its historic decision. With 23 days left until expiration, it's time to consider exiting the position as time is our enemy. Aggressive traders may have taken the put credit (above $9.00) as IDPH neared its 50-dma and are now sitting on the (almost free) calls to sell on any bounce. 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 *************** CEPH - Cephalon $70.11 *** New Trading Range! *** Cephalon (NASDAQ:CEPH) is a worldwide biopharmaceutical company focused on the discovery, development and marketing of products to treat sleep disorders, neurological disorders, cancer and pain. In the United States, Cephalon markets three products, Provigil Tablets for treating excessive daytime sleepiness associated with narcolepsy, Actiq for the management of cancer pain in opioid tolerant patients, and Gabitril for the treatment of partial seizures associated with epilepsy. In the United Kingdom, the company markets Provigil and five other products, including Tegretol, a treatment for epilepsy and Ritalin, a treatment for attention deficit hyperactivity disorder. The company also markets products in France, Germany, Austria and Switzerland. Cephalon has moved above its recent trading range from $40-$60 and appears ready to break-out into "Blue-Sky" territory (make a new all-time high). We favor the support area near the DEC-JAN highs as a conservative entry range and the bullish technical indications suggest further upside potential is forthcoming. The current trend has an upside bias and we offer the target position as a low risk entry point, based on the positive outlook. CEPH - Cephalon $70.11 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 60 CQE SL 335 0.80 59.20 5.6% *** Sell Put JUL 65 CQE SM 765 1.70 63.30 9.1% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=CEPH ***** LXK - Lexmark International $62.33 *** On The Rebound! *** Lexmark International (NASDAQ:LXK) is a developer, manufacturer and supplier of printing solutions, including laser and inkjet printers, associated supplies and services for offices and homes. Lexmark develops and owns most of the technology for its laser and color inkjet printers and associated supplies, and that differentiates them from a number of its major competitors, including Hewlett Packard, which purchases its laser engines and cartridges from a third party. Lexmark also sells dot matrix printers for printing single and multi-part forms by business users. In addition, Lexmark develops, manufactures and markets a broad line of other office imaging products, which include supplies for select IBM branded printers, after-market supplies for original equipment manufacturer products, and typewriters and typewriter supplies that are sold under the IBM trademark. Lexmark shares have been "on the rebound" in recent sessions as investors look for the few remaining issues in the technology industry that will outperform the broader market. Analysts say the company has solid earnings growth because of the steady and highly profitable revenue stream from its range of replacement toners and cartridges. From a fundamental viewpoint, Lexmark is performing very well, having delivered a 40% average annualized return over the past five years and the company is expecting 15% annual growth in earnings over the next five years. As for its printer manufacturing business, Lexmark is currently the second largest maker of laser and inkjet printers with over 15% of the market, up from just 6% in 1997, and their share of the combined inkjet and laser printer market has been increasing steadily. Investors also have a positive outlook for the company and a test of the yearly highs near $70 will likely occur in the next few weeks. Traders can speculate on the outcome of that event with these bullish positions. LXK - Lexmark International $62.33 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 55 LXK SK 1714 0.80 54.20 5.7% *** Sell Put JUL 60 LXK SL 2236 1.95 58.05 10.5% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=LXK ***** MEDI - MedImmune $45.17 *** Drug Development! *** MedImmune (NASDAQ:MEDI) is a biotechnology company with a number of products on the market and a diverse portfolio of products in development. MedImmune is focused on using advances in immunology and other biological sciences to develop important new products that address unmet medical needs in areas of infectious disease and immune regulation. They also focus on oncology through a wholly owned subsidiary, MedImmune Oncology. The company launched Synagis in the United States for preventing respiratory syncytial virus in high-risk pediatric patients. The company also markets CytoGam and RespiGam, and has several product candidates undergoing clinical trials. Through MedImmune Oncology's sales and marketing group, the company also markets Ethyol and NeuTrexin. MedImmune is a solid company in the biotechnology group and with the relatively stable trading pattern, it is also a great issue from a technical viewpoint. The company is one of our favorites for long-term stock portfolios and the speculation over product developments in the drug sector has helped the issue return to a bullish trend during the past few weeks. The fundamental outlook for the company is good as revenues are expected to increase in the coming year and MedImmune should enjoy higher share values in the near future. MEDI - Medimmune $45.17 PLAY (conservative - bullish/credit spread): BUY PUT JUL-35 MEQ-SG OI=1142 A=$0.35 SELL PUT JUL-40 MEQ-SH OI=1880 B=$0.80 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MEDI ***** MVSN - Macrovision $62.96 ** Technical Break-Out? *** Macrovision (NASDAQ:MVSN) develops and markets a broad array of rights management and copy protection technologies. Macrovision offers video copy protection technologies that address the video content protection needs of motion picture studios and other content owners, program distributors, and cable and satellite PPV system operators. The company provides ELM and ELD solutions to a range of software vendors, including application developers, major systems suppliers and embedded software vendors. Macrovision also supplies software asset management technologies to enable end user organizations to manage internal application usage. The company offers CD-ROM copy protection and rights management technologies to a variety of software publishers in the PC games, home education, information publishing, and desktop applications software markets. The short-term outlook for Macrovision is exceptionally bullish as the stock has now moved above a recent consolidation area as well as its 150-dma. A test towards $70 should be forthcoming while a move back below the technical support at $57 is unlikely. Our conservative position offers a method to participate in the future movement of the issue with low risk and a favorable reward. MVSN - Macrovision $62.96 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 55 MVU SK 368 0.85 54.15 6.2% *** Sell Put JUL 60 MVU SL 118 2.15 57.85 11.7% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=MVSN ***** TARO - Taro Pharmaceutical $85.12 *** To The Moon! *** Taro Pharmaceutical Industries (NASDAQ:TARO) commenced 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 company 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. Shares of Taro Pharmaceutical Industries have continued to rally, despite the slump in broader market stocks, due to some favorable announcements concerning their many drug products. In early June, the stock price renewed its bullish trend after the company said the U.S. Food and Drug Administration had approved its anti-fungal skin cream. Taro says its Clotrimazole/Betamethasone Dipropionate cream can now be used to treat a wide variety of skin diseases and conditions. The FDA approval of the skin drug is the second Taro has received in recent months from the U.S. regulatory body and in April, the company announced the FDA had approved the firm's 200 milligram generic version of a drug for life-threatening irregular heartbeats. Both of these new product approvals will benefit the company's bottom line and analysts expect Taro's profits to double this year. Based on the outstanding performance of TARO's share value, investors favor the future outlook for the company. TARO - Taro Pharmaceutical $85.12 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield Sell Put JUL 70 QTT SN 189 1.00 69.00 6.6% *** Sell Put JUL 75 QTT SO 405 1.70 73.30 8.8% Sell Put JUL 80 QTT SP 99 3.00 77.00 12.4% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=TARO *************** BEARISH PLAYS - Naked Calls & Combinations *************** APC - Anadarko $55.39 *** Oil Sector Slump! *** Anadarko Petroleum (NYSE:APC) is an independent oil and gas exploration and production company, with over two billion barrels of oil equivalent of proved reserves. The company's major areas of operations are in the United States, in Texas, Louisiana, the mid-continent and Rocky Mountain regions, Alaska and also in the shallow and deep waters of the Gulf of Mexico, as well as Canada, Algeria, Guatemala, Venezuela and other international areas. Exploration activity is underway in Tunisia, West Africa, the former Soviet Republic of Georgia, Australia and also the North Atlantic Margin. The company owns and operates gas-gathering systems in its core producing areas. In addition, the company engages in the minerals business through non-operated venture and royalty arrangements in several coal, industrial minerals and trona (natural soda ash) mines. Oil stocks have slumped in recent sessions in tandem with the falling price of crude and today the energy markets ended sharply lower following this week's unfavorable API inventory data. The American Petroleum Institute reported that current gasoline inventories climbed by even more than the upper end of forecasts and large declines in unleaded gas futures pulled crude and the other fuel products lower during the day. The current trend in the Independent Oil and Gas group is very negative and this position offers a way to profit from future bearish activity in the issue. APC - Anadarko $55.39 PLAY (conservative - bearish/credit spread): BUY CALL JUL-65 APC-GM OI=2358 A=$0.35 SELL CALL JUL-60 APC-GL OI=4717 B=$0.80 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=APC *************** HMC - Honda Motors $85.58 *** Calling The Top! *** Honda Motor (NYSE:HMC) is a leading manufacturer of automobiles and the largest manufacturer of motorcycles in the world. The company is recognized internationally for its expertise and leadership in developing and manufacturing a wide variety of products, ranging from small general-purpose engines to specialty sports cars that incorporate Honda's highly efficient internal combustion engine technology. By following a corporate policy that emphasizes originality, innovation and efficiency in every facet of the company's operations, from product development and manufacturing to marketing, Honda strives to attain its goal of satisfying its customers. Through a worldwide commitment to advancing this goal, Honda and its many partners who share in this commitment have succeeded in creating a global network comprising 119 production facilities in 33 countries that supply Honda products to most industrialized countries in the world. Honda Motors suffered on Wednesday after news that Japan's major car exporters to China will cancel their China-bound domestic output next month on the back of recent tariffs introduced by China on Japanese-made cars. The move came as HMC was making a bid for a new high and the failure of the recent rally to close above the May high could be signaling a new downtrend. The sharp drop Wednesday on heavy volume has broken through the 30-dma and now creates a short-term bearish outlook. The historic resistance at $90, along with the current breakdown in prices, suggests it's unlikely HMC will threaten this short-term bearish position. HMC - Honda Motors $85.58 PLAY (moderately aggressive - bearish/credit spread): BUY CALL JUL-95 HMC-GS OI=58 A=$0.45 SELL CALL JUL-90 HMC-GR OI=139 B=$1.25 INITIAL NET CREDIT TARGET=$0.90-$1.00 PROFIT(max)=21% http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=HMC ******************* 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. 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