The Option Investor Newsletter Sunday 08-26-2001 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/0826_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 8-24 WE 8-17 WE 8-10 WE 8-3 DOW 10423.17 +182.39 10240.78 -175.47 10416.25 - 96.53 + 96.11 Nasdaq 1916.80 + 49.79 1867.01 - 89.24 1956.47 -109.86 + 36.60 S&P-100 606.71 + 12.84 593.87 - 17.54 611.41 - 12.24 + 3.39 S&P-500 1184.93 + 22.96 1161.97 - 28.19 1190.16 - 24.19 + 8.42 W5000 10948.41 +188.32 10760.09 -234.36 10994.45 -248.49 + 76.94 RUT 480.81 + 5.16 475.65 + .13 475.52 - 11.63 + 2.13 TRAN 2854.39 + 29.74 2824.65 - 36.12 2860.77 - 53.25 + 4.14 VIX 22.29 - 4.45 26.74 + 3.93 22.81 + .42 - 2.34 VXN 47.70 - 4.32 52.02 + 3.50 48.52 TRIN .70 2.67 1.03 TICK 351 201 Put/Call .56 1.07 .72 .76 ****************************************************************** I Want To Believe, I Really Do! by Jim Brown Thank you Cisco for the early Christmas present! Let's just hope it does not turn into a Halloween scare instead. If you don't live in a cave you know that Cisco casually mentioned on Thursday night that their business was stabilizing and the shorts ran screaming for cover on Friday. The Dow managed a one day rally of +194 points and the Nasdaq soared +73 points for 4% one day gain. Did traders wake up on Friday in a time warp and relive a fall day from 1999? Not hardly. While stocks were gaining +10% to +15% for the day the moves were measured in cents and not dollars. CSCO, which inspired the monumental rally, gained a whopping +9% or $1.49. NT gained +6.31% or 42 cents. Sigh! The Cisco rally did power the networking sector as well as some semiconductor stocks off near 52-week lows but investors were not rushing back into the market. AMCC and PMCS were big gainers as traders hoped that a healthy Cisco would mean a resumption of orders to those companies. AMCC gained +11.49% or $1.55 and PMCS gained almost 9% for $2.79. Competitor JNPR barely budged off the bottom with a +1.08 gain. The Dow was bolstered by tech components MSFT, INTC, IBM and HWP as each rebounded on the Cisco news. More importantly the economic reports gave all but three of the other Dow components big gains as well. The New Home sales came in slightly higher than expected with a +4.9% gain while prices fell to $168,300. Time on the market fell and the Northeast region produced +18% growth over the June levels. No consumer worry in this sector! The growth in new home sales is now expected to hold up the GDP numbers which will be out next week. The jump in home sales show that the lower interest rates are having the desired impact on the economy. While new home sales are up the Weekly Leading Indicators showed that mortgage applications declined last week to the lowest level since May. Other factors weighed on the WLI as well and it fell for the fourth week in a row indicating that chances for a broad recovery by the end of the year are fading. The WLI tends to lead the business cycle in downturns by ten months and recoveries by three months. The index has been erratic over the last couple of months and recent strength has been fading. Durable goods did not demonstrate any new strength by falling -0.6% in July. The index was led by a downturn in semiconductors and computer equipment. The PC price war is in full swing with Compaq and Dell slugging it out in the retail sector. Compaq announced a sub $1000 laptop and Dell is hawking a $600 full strength desktop model. This war is depressing the retail stocks like Office Depot, Staples, CompUSA, etc. Shrinking prices mean shrinking margins. The fierce price war indicates that computers are not selling and manufacturers have to keep cutting to the bare bones to entice buyers to part with their money. Once they hit their base cost and cannot cut prices further the consumer may not find any reason to add another PC to their household. You can sell anything as long as you give it away but corporations know that you can't make payroll by losing money on every sale. Next week we will get to see if the gloom and doom from the Fed minutes are borne out in the GDP reports. GDP for the 2Q had been pegged at +0.7% and well below expectations. Recent developments may have sent that number much lower and should it drop into negative territory on Wednesday all the Cisco optimism Chambers can muster will have no impact on the markets. Investors and economists can fool themselves all they want until the GDP goes negative then all bets are off. Once true negative growth is official, all kinds of new problems will appear. The Consumer Confidence for August will be released on Tuesday and that is almost as critical as the GDP. If confidence begins to fall the Fed may need to fire off another cut to quickly and artificially shore up the consumer mindset and keep them spending. Analysts were quick to point out that the rally on Friday had no legs because there was still no volume. With the worst week in August still ahead of us there was no rush to buy from traders on the sidelines. There are more traders on the sidelines every day. According to TrimTabs.com stock funds had a negative outflow of -$3.5 billion for the week ended on Wednesday. This follows -$2.6 billion and -$2.5 billion weeks. Not a good sign for investors hoping the rally is here to stay. Starting Monday new rules go into effect on the NYSE for daytraders and on Sept 28th for NASD members. "Pattern" daytraders who use margin to buy stock currently only need $2000 in their account. When the rule change occurs they will be required to have $25,000 in their account. A "pattern" daytrader is one who makes four daytrades (open and closed the same day) a week. Daytrading volume has fallen about -30% since last year and some feel that many traders who would have qualified with accounts over $25K last year are now struggling below that number after being pounded by the bear market. Some say that taking those traders out of the market could knock another 10% to 15% of the volume out of the market and prevent them from powering any future rally. That may be an extreme position fostered by the highly vocal daytrading community. Actually there is a portion of the rule that works in the favor of investors that meet the $25K threshold. They get 4:1 margin on their accounts instead of the current 2:1. That means they can leverage $100,000 of stock on margin instead of the current $50,000. 86 million shares of CSCO changed hands and were it not for Friday both major indexes would have closed negative for the week. Even with the CSCO volume the Nasdaq only posted 1.4 billion shares, which is still good for an August Friday, but not strong. The NYSE only managed slightly over one billion. The internals were good but the trading pattern was a big spike up at the open and then another "capitulation" spike by shorts at the close. Why capitulation? On this chart of LBRT you can clearly see the extreme burst of volume at the open where surprised shorts raced to cover. Those that failed to cover in the morning sat through lunch in denial only to see another wave up start around 2:PM. Those still short finally bit the bullet and bought the close rather than be faced with another possible gap open on Monday morning. They capitulated and threw in the towel after an 18% gain in a $13 stock. The trading pattern is not normal "buying" even in a bull market. The same time frame for IDPH shows the exact same pattern for Friday and they are not a tech stock. Simply a broad market relief rally fueled by bullish sentiment on reactions to the Cisco statement. IDPH shows the same pattern for Thursday as well when the biotech sector was getting so much air time on stock TV. A $10 move (20%) in two days! Look for a new put play in today's newsletter. Where do we go from here? Most of Friday afternoon the markets held EXACTLY at resistance of 10400 and 1900. Literally only 2-3 points away for quite a while. Only the capitulation at the close powered them over those levels. 1935-1950 is strong resistance on the Nasdaq and the Dow has been topped out in the 10400-10450 range for all of August. The bulls have their work cut out for them next week and this is typically the worst week of August. Once through this week however the post Labor Day holiday week is normally bullish. Will traders anticipate that bullish week and put in a bottom here or will the month end portfolio shuffling prevent that? No one can tell. Institutional traders will wait until the following week to decide if the market is stable before committing funds. September brings earnings warning season again and then October and the tax selling. We have to remember the name of the game is capturing profits from stock movement not making the most trades. The VIX closed at a two month low of 22.21, a number not seen since July 5th, the day before the Dow started a -250 point drop. John Murphy said it very cautiously on Friday. "There is too much bullishness in the markets for this time of year". Of analysts surveyed, 47% are bullish and only 32% are bearish. Considering that Sept and Oct are still in front of us this is very unusual and not a likely base from which to rally. Remember the money flow out of the markets in the last three weeks, -$8.6 billion. This money is not going to just magically reappear just because Cisco says the networking business MAY be stabilizing. The markets were deeply oversold and shorted and begging for a relief bounce. We got it and my two cents says "continue to be patient" and even if we do not get a better entry point I doubt the markets will go much higher before Labor Day. (famous last words - right?) Definitely, enter passively, exit aggressively! Jim Brown Editor **************************Advertisement************************** MR. STOCK: Your Expert Guide to the Dynamic World of Options Trading Options aren't easy. We know. That's why, with over 20 years of trading experience, we've designed a website specifically for options traders. With fast executions, the ability to place complex orders online, and option trades starting at only $15.50, we have the tools you need to implement your strategies. To find out more or open an account, visit our site at www.mrstock.com. Click Here: http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1 ***************************************************************** ************** Editor's Plays ************** Bottom Fishing So many traders want to buy the dip that we really need to study some simple chart patterns and learn to recognize the right entry points. In today's market there is no right entry point and luck plays as much a part in our success as anything. However, I believe "luck" favors the well prepared and OptionInvestor helps you be prepared. In looking at my list of possibles this weekend I came up with a few stocks that looked good and had minimum risk. I am basing this strictly on the chart patterns and I am making no representations about the stocks themselves. Some of the possibles I have listed below for your review and the reasons I would consider buying them. Cypress Semiconductor - $23.90 Cypress is showing very strong relative strength to the rest of the semiconductor sector. It held $20 and traded in a very tight range while other chip stocks were crashing. The spike to $29 on the chip rally shows that the stock has the power to run when the sector turns positive yet hold its own during bad times. I think the risk in this stock is a fall back to $22 (or -$2). This is a very good risk in today's market. I would buy the Jan-$25 calls for $3.50 with a target of $35 on the stock as my trigger to sell. Second choice - If a 46% profit over 14 months or less will work for you then buy the stock and sell the Jan-2003 $30 leaps for $5.00. Your profit is the $5 premium + $6.10 in stock appreciation to $30 or $11.10. $11.10 / $23.90 = 46% and you can close the position for this profit whenever the stock hits $30. Are you really convinced? Remember the $35 sell target on my $25 calls in the first example? What if you bought the stock now and sold the Jan-2003 $35 calls for $3.50? If Cypress hits $35 your profit would be $11.10 appreciation plus $3.50 in premium or $14.60 or 61%. Now who ever said covered calls were not profitable? Of course the stock must reach $35 to make it happen. The risk on the covered leaps is that CY falls instead of rises. On the $30 leap you receive $5 in premium making your loss point on Cypress $18.90. Anything under $18.90 would be a loss, anything over that a profit. *********** Interwoven $7.98 Merrill Lynch upgraded Interwoven the morning after the final capitulation selling event. There was a final dip after three months of selling that took IWOV exactly back to retest the April 4th low and a perfect double bottom. IWOV is a software company that sells content management software for websites. The Oct $7.50 call is $1.70 and already $.48 in the money. This is strictly a technical play based on the double bottom and current strength. The risk in this play would be a fall back under $7.00 where I could close the play. You could buy the stock and sell the March $7.50 call for about $2.75 and about a 30% gain if the stock closed above $7.50. *********** Nextel $12.54 Nextel bounced off of $11.50 this week which was the April lows. This is a simple momentum play with a stop loss just below $11.50 for minimum risk. The Feb $15 call is $1.95 which could double in price if NXTL hits $15 well before January. An alternate play would be to sell the Jan $20 naked put for $7.50 and everything between Friday's price of $12.50 and the put strike of $20 would be pure profit. You would still need a stop to close the puts if NXTL fell below $11.50. ******** Elantec $39.90 Elantec looks strong and the call premiums show it. A Feb $40 call is $9.00. I would never pay that. I think the only way to play this is with a naked put. I would sell the Oct $50 for $10.60 or the Feb $45 for $10.40. If the stock hits $50 either put should go to zero and the risk as seen by the chart above appears minimal. Still, with naked puts you can expect to be put at any time regardless of where the stock price is currently. Still, this is my best bet for this week! ************ Probably a good week to be out of the market but we are getting very close to a strong buy. With companies starting to say positive things it will not be long before the bottom fishing begins for real. ************* Trade smart this week, not hard! Good Luck Jim Brown ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** **************** MARKET SENTIMENT **************** The House That Cisco Built Cisco got the party started, and surging new homes helped to keep it going. Durable goods tried to crash the party, but were turned back at the door. Stocks whooped it up into the wee hours of the afternoon, and actually managed to hold on to their gains. Nasdaq Composite Daily Chart That puts the Nasdaq back above the 61.8% retracement and the psychological 1,900 level. The big psychological test is 2,000, but before we get there the Nasdaq has some work to do. Monday's task is taking out prior support at 1,940. Climbing above 1974 might be too much to ask of Monday, so that will be Tuesday's job. By Wednesday the 50-day moving average and May downtrend will have to be dealt with. Dow Jones Industrial Daily Chart That Dow hasn't fallen quite as far, and has less work to do on the way up. Today the index took care of the May downtrend, but came up just shy of taking the 50-day moving average out of the picture. If the Dow can put two nice days together at the beginning of the week, perhaps it can make a run at 10,600. To do that it will have to fight trough the 200-day moving average, and 38.2% retracement. That's my best-case bullish scenario for the first part of next week. Monday has a chance for some follow through, since only existing home sales stands in its way. Tuesday gets a little trickier with consumer confidence numbers being released. Wednesday is a crapshoot, with personal consumption data being released, as well as revised second quarter GDP. Originally GDP came in at 0.7%, well below expectations, and estimates for revised GDP have been lowered to zero growth. Thursday and Friday don't look good, since they are the last two days of August. Over the past five years, the Dow has lost an average of 229.78 points the last two days of August. So there you have it. The markets rally in first half of the week and sell off in the later half, with Wednesday being the crucial day as resistance and economic data meet. It sounds simple enough, but the markets have been anything but simple lately. Throw in the fact volume could be lower than normal, even for summer, due to market participates taking vacation ahead of the Labor Day weekend, and it gets even trickier. ----------------------------------------------------------------- Market Volatility The VIX and VXN are starting to fall back down to those fearless levels where bulls get burnt. VIX 22.29 VXN 47.67 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .56 584,554 325,511 Equity Only .48 532,354 256,778 OEX .84 15,567 13,108 QQQ .82 42,410 34,779 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 34 - Bear Confirmed NASDAQ-100 24 - Bear Confirmed DOW 30 - Bear Confirmed S&P 500 48 - Bull Correction S&P 100 38 - Bull Correction Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 1.03 10-Day Arms Index 1.28 21-Day Arms Index 1.25 55-Day Arms Index 1.28 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when the do, they can signal significant market turning points. ----------------------------------------------------------------- Advancers Decliners NYSE 1940 1119 NASDAQ 2268 1340 New Highs New Lows NYSE 145 37 NASDAQ 63 88 Volume (in millions) NYSE 1,058 NASDAQ 1,492 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Change 49.0% 29.1% 21.9% 19.9% +0.9% A bearish reading of 25% to 30%, combined with a bullish reading greater than 55% is typically considered bearish by contrairians. A net percentage greater than 30% is also viewed as bearish. ----------------------------------------------------------------- Commitments Of Traders Report: 08/21/01 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. 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 tend to be wrong. S&P 500 Flat line. Commercials' net position hasn't budged in three weeks. Commercials Long Short Net % Of OI 8/07/01 331,881 406,210 (74,329) (10.07%) 8/14/01 337,327 411,504 (74,177) ( 9.91%) 8/21/01 342,332 416,372 (74,040) ( 9.76%) Most bearish reading of the year: (111,956) - 3/6/01 Most bullish reading of the year: ( 41,144) - 5/1/01 Small Traders Long Short Net % of OI 8/07/01 128,454 53,191 75,263 41.43% 8/14/01 130,432 55,750 74,682 40.11% 8/21/01 134,280 58,785 75,495 39.10% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercials have gotten slightly more bearish. It looks like a range is setting up between (8,000) and (10,000). See chart below. Commercials Long Short Net % of OI 8/07/01 28,867 38,956 (10,089) (14.88%) 8/14/01 29,909 37,822 ( 7,913) (11.68%) 8/21/01 30,348 38,964 ( 8,616) (12.43%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: (1,825) - 1/02/01 Small Traders Long Short Net % of OI 8/07/01 9,715 8,098 1,617 9.08% 8/14/01 11,165 9,508 1,657 8.02% 8/21/01 10,499 7,576 2,923 16.17% Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercials are closing in on their most bullish reading of the year, 8,925 set back on May 22nd. Commercials Long Short Net % of OI 8/07/01 18,644 13,733 4,911 15.2% 8/14/01 21,652 15,856 5,796 15.5% 8/21/01 22,710 14,625 8,085 21.7% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 8,925 - 5/22/01 Small Traders Long Short Net % of OI 8/07/01 4,841 9,909 (5,068) (34.36%) 8/14/01 4,441 8,528 (4,087) (31.51%) 8/21/01 5,059 10,410 (5,351) (34.59%) Most bearish reading of the year: (7,572) - 5/08/01 Most bullish reading of the year: 1,909 - 1/16/01 COT Commercial Net Position Charts *************** ASK THE ANALYST *************** Prescient Analysis By Eric Utley I phoned into the psychic hotline last week in search of a clue. Apparently I don't have one according to a not-so-favorite peer of mine. Anyway, I'd grown tired of reading the Tao Te Ching and figured a swami could help. After all, fortune tellers specialize in the areas of money, love, happiness, peace of mind, and success. And of course those things are of concern to me, so I dialed into the hotline. After my "personal psychic" assimilated and read my fortune, which was less-than-inspiring, I thought I'd get her take on the market. Our conversation took place Wednesday evening, and went something like this: "So, Sally the Swami, where's the easy trade tomorrow (Thursday)?," I asked. Sally replied in a condescending tone, "Eric, you know there's no such thing as the 'easy' trade, especially in this market. Don't be silly! Quite frankly, I'm a little disappointed in you. You call yourself a pro? Huh!?" "Easy, Sally, easy. I hear ya', it's just that I've got this funny feeling down in my gut that the move in the biotechs today has legs. I didn't tell you before you read my fortune, but I've been hand charting the Nasdaq-100 components for quite some time now. As you well know, the NDX includes quite a few biotechs, and..." Sally interrupted, "Wait, didn't I ask for you to be completely open and honest with me before I read your fortune?" She grew rude, "What the hell do you mean you've got a 'funny feeling' about the biotechs!?" I apologized, "Look, I'm sorry I didn't tell you about my hand charting. It's personal stuff, and I don't like to talk about it." I then opened to her and elaborated, "But ever since I started hand charting the 100 stocks in the NDX, I've 'sensed' moves beforehand. I mean, it's almost like I can predict the future movement in certain stock prices at certain times. To be quite honest, it's a little spooky." Sally questioned, "Sounds like blatant speculation to me, don't ya' think?" "You're right," I replied, "It's no more than speculation and that's why I usually don't act on the feelings. Like I told you before, I use a balanced approach of price action and a fundamental backdrop, and only then incorporate my hand charting findings." I then reiterated, "But I'm telling you, I 'sense' that the biotechs go higher from here and the BTK's move back above 500 today only reinforces my feeling." Sally's tone changed, "Well, you are a Capricorn and your associated planet is Saturn, which just happened to line up with Jupiter yesterday (Tuesday). And by the way, Jupiter signifies expansion of awareness." I snapped back, "Whatever. I just feel that the biotechs go much higher and soon, my charts are 'telling' me that much. You might do well to pick up some Biotech HOLDRs or a few lots of Amgen or Biogen for a trade into Friday. Anyway, maybe I'll phone in again next week, Sally, this has been a liberating conversation. Good bye." Please send your questions and suggestions to: Contact Support ---------------------------- Adobe Systems - ADBE Please advise support and resistance for Adobe. Is it correct to assume that the stock is on a rising trend now? - Thanks, Sunil Thanks for the question, Sunil. Before we get into the technicals of Adobe (NASDAQ:ADBE), let me offer a take on the software sector. The sector, as measured by the GSO.X, has traded incredibly poorly recently relative to the broader tech space. But Adobe, a component of the GSO, has traded "better" than its sector. Here's the current dynamic: Terrible sector, but Adobe is trading relatively "better." The following chart displays the GSO's relative strength versus the Nasdaq-100 (NDX.X). (This chart was created in QCharts using the following operative: GSO.X /NDX.X - you can compare any two securities and/or markets in QCharts by using that sequence of symbols.) There are a few things to note on this chart. First, the trend of the line simply indicates that the GSO has been falling faster than the NDX. Second, the GSO is currently trading as poorly as it was in April. In other words, the GSO is at relative strength lows. Contrasting the GSO's relative strength chart to its actual daily price action reveals an interesting divergence. That is, the GSO isn't trading at its April lows but its relative strength versus the NDX is. I'm not certain, but I wonder if this divergence is an indication of a capitulation of sorts, or a weeding out of the weak hands in the software sector? Moreover, I rolled a retracement bracket down on the GSO and discovered another very interesting development. The chart above displays the bracket I used and pins the 50 percent level right at 160. Not by coincidence, the GSO refused to trade below 160 last week. This retracement bracket combined with the GSO's relative strength readings make for some interesting speculation. Nevertheless, the GSO is trading poorly versus most of tech. And picking bottoms is a dangerous game! (I assume Sunil has a bullish stance on Adobe, judging by the nature of his question. I think that it's more prudent to search for bullish plays in sectors that are trading relatively better, such as the Semis or Biotechs. So, keep in mind that the GSO is under performing, and trading from the long side in a weak sector is more difficult.) Judging by Adobe's MACD, the stock is back in an advancing trend. The signal line and MACD crossed over last week, and the histogram up-ticked Wednesday, Thursday, and Friday. Overhead resistance is located at $37.50, followed by the stock's long standing descending trend line, which currently lies around $41. The $35 level could serve as support after Friday's finish, but if it doesn't hold, Adobe should continue to find support around the $32.75 level as it has done in the recent past. Below there, the $30 level could attract buyers. ---------------------------- QLogic - QLGC What is your opinion [on] Qlogic? When ever this stock goes down, it comes roaring back. Is it the best stock in storage industry? - Thanks, Jay Jay, thanks for the question and I think a concession is in order on my part, which was inspired by your question. Long-time readers of this column know that I was a champion of the storage sector earlier this year. I liked the group, especially certain well-run companies, for the seemingly endless demand for the storage of data. But like ALL of the other information technology businesses, data storage has been broken by the current economic downturn. I don't want to lose credibility with my readers - that's all I've got. But at the same time, I, as a trader, have to be adaptable. With that in mind, let's tackle QLogic (NASDAQ:QLGC). I don't know if QLogic is the best stock in the storage industry, but because you asked, Jay, I think we should compare QLogic to its sector. QLogic is at what appears to be a pivotal point. I pulled up a chart of its relative strength versus the Hardware Index (GHA.X) and found something interesting. (I chose the Hardware Index because QLogic caters to the data storage space, and it's a component. Others might argue that it trades more in synch with the Semiconductor Index (SOX.X), but I disagree.) The chart below compares the relative strength of QLogic versus the Hardware Index. As you can see, the stock is in the middle of its recent range and has traced a couple of three box reversals recently. Those recent reversals have given QLogic the potential to make a big move in one direction or another very soon. Like a standard point & figure chart, QLogic will give a buy or sell signal when a previous column of X's or O's is taken out, respectively. We can use this chart to discern at what exact price QLogic will begin to out perform or under perform the GHA, thereby determining the "best" time to buy the stock or short it. Here's the formula: Take the number at which QLogic would give a buy signal from the right column. At this point, QLGC will go on buy at 15.00. Then divide that number (15.00) by the divisor of the GHA, which is 100. (For a $5 stock, the divisor is 1, for a $50 stock, the divisor is 10, for a $100 stock, the divisor is 100, for a 1916.80 index, the divisor is 1000, et cetera.) After dividing the buy signal point (15.00) by our divisor of 100, we arrive at a multiplier of 0.15. We then multiply that ratio by the current price of the GHA, which is 257.08, to arrive at the price of QLogic when it will go on a buy signal, or: (15.00/100) * 257.08 = $38.562 To determine the price at which QLogic will go on a sell signal, we simply take the number from the right column of the chart where QLogic will generate a sell signal; in this case, the sell signal is at 12.50. (12.50/100) * 257.08 = $32.135 So now we have two pivot points for QLogic, a buy pivot point at $38.562 and a sell pivot point at $32.135. I think that a trader could implement a position using this strategy after confirming direction in the Hardware Index. In other words, if the GHA is advancing and QLGC prints $38.562 it could then be bought for a short-term trade. Or if the GHA is declining and QLGC prints $32.135 it could then be shorted. It's a momentum strategy, though, so take that much into account. If a trader were to implement this strategy, she/he could then use some retracement brackets to determine exit points should QLogic give either a buy or sell signal. I tinkered around with a few different anchor points and came up with some levels on the chart below. Note: The 50 percent retracement of the blue bracket lies right around our buy signal at $38.71. ---------------------------- 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. ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* COMING EVENTS ************* =============================================================== Economic Reports Existing home sales for July will kick off the shortened holiday week. Tuesday brings in the consumer confidence report for August, with expectations for higher figures from July, and Thursday hails in new numbers for personal income, spending, and jobless claims. Personal income figures are likely to be flat, with a slight increase in spending. =============================================================== Week of August 27, 2001: Monday, 08/27/01 Existing Home Sales Jul Forecast: 5.30M Previous: 5.33M Tuesday, 08/28/01 Consumer Confidence Aug Forecast: 117.5 Previous: 116.5 Wednesday, 08/29/01 GDP-Prel Q2 Forecast: 0.0% Previous: 0.7% Chain Deflator-Prel Q2 Forecast: 2.3% Previous: 2.3% Thursday, 08/30/01 Initial Claims 8/25 Forecast: 400K Previous: 393K Personal Income Jul Forecast: 0.3% Previous: 0.3% PCE Jul Forecast: 0.1% Previous: 0.4% Help-Wanted Index Jul Forecast: N/A Previous: 58 Friday, 08/31/01 Mich Sentiment-Rev Aug Forecast: 93.3 Previous: 93.5 Chicago PMI Aug Forecast: 40.5% Previous: 38.0% Factory Orders Jul Forecast: -0.5% Previous: -2.4% ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** 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 08-26-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0826_2.asp **************************Advertisement************************** MR. STOCK: Your Expert Guide to the Dynamic World of Options Trading Options aren't easy. We know. That's why, with over 20 years of trading experience, we've designed a website specifically for options traders. With fast executions, the ability to place complex orders online, and option trades starting at only $15.50, we have the tools you need to implement your strategies. To find out more or open an account, visit our site at www.mrstock.com. Click Here: http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1 ***************************************************************** ************** BROKERS CORNER ************** Credit Spreads in Any Market By Robert J. Ogilvie The most common use of credit spreads is the put credit spread. It is also known as a bull put spread. Most of us wouldn't even consider the concept of initiating anything with a bullish strategy. The reason to consider credit spreads is to offer an alternative to naked puts. Many investors selling naked puts really don't intend on buying the shares if assigned. Most are trying to take advantage of the margin leverage and the potentially high returns on the money held as collateral. The problem is that many overextend themselves and aren't prepared to cover the margin requirement if the security drops. Suppose we take the minimum account size for many firms of $25,000. If we sell 20 contracts of Sept 30 puts at $1.00/contract on a $35 security, the initial margin requirement is $9,000. For an explanation of naked put margin requirements, you can find my article Margin Monster in the Broker's Corner section of the website or email me for the articles. However, it will cost $60,000 or $30,000 cash and margin to buy if assigned. The initial return on the $9,000 is good at 22.2%. However, the return on the capital if assigned is 3.3%. There are many arguments on calculating returns. The best way is to take the account balance after closing out the position and divide it by the beginning amount. Then subtract 1. In the above example, if the put expires worthless, there will be an 8% return. When I mentioned that some investors overextend their account, I am referring to those traders that enter other positions in order to maximize the accounts potential. The problem is that the margin requirements increase as the stock drops. If the stock dropped to 30 and the premium increased to $3/contract, the margin requirement would be $18,000. This only leaves $7,000 cash for other positions. If we had another position that cost more than $7,000, we would get a margin call. So don't bite off more than you can chew. Only sell a number of contracts that you can afford to purchase the stock. In the above example, I would only suggest 10 contracts. That leaves room for more positions and greater flexibility. Now that the lecture is done, the benefit to credit put spreads is to take advantage of selling the premium without the risk of the margin requirement changing. A credit put spread is initiated by selling a higher strike price put (short put) and buying a lower strike price (long put). To figure the margin requirement on a credit spread take the difference between the two strike prices and multiply it by the number of contracts. Then multiply that number by 100. Credit spreads usually provide great returns on the money used for collateral. However, the maximum loss is the margin requirement less the premium. Example: Buy 20 Sept 55 Puts for $1.30 Sell 20 Sept 60 Puts for $2.60 Credit = $1.30 X 20 contracts = $2,600 Margin requirement = $10,000, or ($5 X 20 Contracts X 100 Shares/Contract) Minimum Cash Requirement $8,400 = $10,000 - $2,600. An example of entering this trade is as follows. Suppose we determine that XYZ is oversold and that it is about to start heading up. It is currently trading at $36 with previous support between 33.5 and $34. If I am aggressive and confident I will sell the 35 puts for $2.30/contract and buy the 30 puts for $0.80/contract. That is a $1.50 credit. If I am not as confident, I will sell the 30 puts for $0.75/contract and buy the 25 puts for $0.20/contract. The credit of $0.55 is far less than the $1.50 on the aggressive position. This is a good example of risk/reward. The aggressive scenario provides me with a favorable cost basis of $33.50 if assigned. If the stock dropped below the cost basis, I won't stay in this position. The only reasons to stay in the spread are because I FEAR I may lose money and my GREED doesn't want me to sell the position and miss out on the move back up I HOPE happens (a reference to Tues. Hope, Fear, & Greed article). Credit spreads are somewhat flexible. If the stock moves up, one option is to buy the short put to close and leave the long put open in case the stock drops back down. The problem with this is that many times, there isn't enough time left to take full advantage of the decline. One solution is to initiate a position with a few months until expiration. The opposite strategy, selling the long put to close at a profit if the underlying security declines, can be applied for those who are more aggressive and can afford to be naked on the short put. Entering a credit put spread can be done in various ways. Just as one might exit one side of the spread at a time, the same is also true for entering. This is called legging into the spread. Legging in is a very risky strategy that can be very costly. I normally leg in using the volume and price on the various exchanges. My trading platform allows me to have two separate orders prepared at the same time to take advantage of timing. Most brokers or traders don't have this function. Timing the price to enter is very important. I look for oversold conditions in the security with a move to the upside in the markets and the security as a confirmation. The strike price depends on where the next support level is in relation to the strike price and the security. Be prepared to lose your entire margin requirement. But don't let that happen. If the security doesn't perform to your expectations, don't let hope, fear, and greed determine the position's fate. Pride has no place in trading. Exit strategies to consider are the following: close at the break of the underlying security's next support level; close at the cost basis of the underlying security if assigned (short strike price less the net premium); close at the short strike price; close if the security advances upward and indicates overbought. Granted strategies like credit spreads, covered calls, and out of the money naked puts they are better suited for uptrending markets, they are also good in consolidating or declining markets. There is no reason to avoid trading entirely. In any market, trade cautiously and never blindly. As a full service options broker, I am happy to discuss your current holdings and possibly aid you in determining whether to sell or hold or reposition entirely in another strategy. Happy trading! Robert J. Ogilvie, ROP Robert.Ogilvie@verizon.net I am an Options Broker and ROP that trades for and educates investors on many strategies. Please contact me via email with any questions. Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any representation as to the accuracy, reliability or completeness of any charts, formulas, and /or research opinions presented herein. This article is intended solely for educational purposes. Nothing herein should be construed as an offer or solicitation to buy or sell any securities. Cutter and Company is a Member of the NASD, MSRB, and SIPC. Please read Option Investor's Disclaimer: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* ELNT - Elantec Semi $39.90 (+2.79 last week) See details in sector list Put Play of the Day: ******************** AIG - American International Grp. $77.20 (-2.01 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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************** PICKS WE DROPPED THIS WEEK ************************** Remember that historically, when we drop a pick it will go up 10 to 15% the very next week. It is part of Murphy's Law. Just because we drop a stock as a pick does not mean we are advocating a "sell" on any position you have. We are simply dropping our recommendation as a new play. Existing plays can and do continue on and are usually profitable. CALLS No Dropped Calls This Weekend PUTS PSFT $37.15 (+1.30) PSFT appears to be forming around its current levels and last Friday's short covering in the software sector certainly didn't further our bearish cause. The stock could rollover from current levels as it's having difficulty surpassing $38, but we're being cautious and choosing to drop coverage this weekend. GS $81.30 (+4.05) There appeared to be a large rotation into the brokers last Friday that caught us by surprise. GS was a recipient of the buying pressure as the stock easily advanced past our stop at the $80 level. As such, we're dropping coverage this weekend. CLS $41.48 (+2.01) On the heels of positive comments from CSCO, and good news from MSFT, the broad markets posted their best day in over a month and CLS went along for the ride. It's hard to say if the overall move has any staying power, but the fact that CLS advanced to close at its high of the day is not a good sign. Given the rally through the $40 level we'll pull in our claws and exit the play this weekend, rather than wait for the bulls to take our stop next week. LEH $68.35 (+4.35) There was no ambivalence in Friday's rally in shares of LEH, as the brokerage stock gained better than $4, vaulting through our $68 stop on heavy volume. This was in contrast to the broad market, which saw only mediocre volume, which adds significance to LEH's positive move. The sharp rebound from the $64 support level, coupled with our violated stop has us exiting LEH this weekend. VRTS $35.49 (+2.54) VRTS was due for an oversold bounce, after the recent decline, but the magnitude of the rebound was a bit more than we could tolerate. While volume was nothing spectacular, the stock managed to clear our $35 stop and close near the high of the day. Despite our expectations that next week could be another party for the bears, we have to abide by our stop, exiting VRTS 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 ************** FFIV - F5 Networks $16.76 (+2.17 last week) F5 Networks, Inc. is a provider of integrated Internet traffic and content management solutions designed to improve the availability and performance of mission-critical Internet-based servers and applications. The Company's products monitor and manage local and geographically dispersed servers and intelligently direct traffic to the server best able to handle a user's request. Its content management products enable network managers to increase access to content by capturing and storing it at points between production servers and end users and ensure that newly published or updated files and applications are replicated uniformly across all target servers. Cisco's comments last Thursday evening only added to FFIV's recent momentum. The stock has been on a steady rise for the past two weeks and looks to be headed higher over the short-term. FFIV is above most of its near-term, meaningful resistance levels and is poised to retest its recent relative high around the $19 level. But make no mistake about it, this is a momentum play so those traders who don't prefer this type of strategy should take note before considering entering new positions. However, for those who do like the momentum strategy, look for follow-through early next week. New positions can be taken on an advance above Friday's intraday high at $17.05, just make sure to confirm strong volume on any further strength from current levels. In addition to volume, confirm direction in the Network Sector Index (NWX.X) when pursuing the stock into strength. And as we previously stated, our short-term price target is around the $19 level. That's about $2 away from current levels, and should translate into a solid gain in FFIV's options should the target be reached. If profit taking becomes FFIV early next week, look for a bounce from support either at $16, or lower around the $15 level. We're initially setting stops at the $14.50 level. Finally, traders might do better to use higher delta contracts for this play, which should allow for easier risk management and more responsiveness should FFIV work in our favor. BUY CALL SEP-15.0*FLK-IC OI=403 at $2.90 SL=1.75 BUY CALL SEP-17.5 FLK-IW OI=248 at $1.40 SL=0.50 BUY CALL OCT-15.0 FLK-JC OI=307 at $3.50 SL=2.25 BUY CALL OCT-17.5 FLK-JW OI=216 at $2.20 SL=1.50 Average Daily Volume = 622 K IWOV - Interwoven $7.98 (+0.94) Interwoven, Inc. provides software products and services that help businesses and other organizations manage the content of their Websites. Interwoven operates in the Internet industry engaged in Web content management. The Company's flagship software product, TeamSite, is designed to help customers develop, maintain and extend large Websites that are essential to their businesses. Using TeamSite, the Company's customers can manage Web content, control the versions of their Websites, manage Website contribution and content approval processes, and develop e-business applications. The technical set-up in IWOV makes for a compelling bullish trade. Add the fact that the Software Sector is oversold and we have a potential solid play in the making. There's no denying that software issues have been heavily shorted recently and judging by last Friday's price action, the bears may have grown a bit greedy. The Software Sector Index (GSO.X) staged a big rebound, which allowed for IWOV to close above its 10-dma for the first time in about one month. Its 10-dma currently resides at $7.37. In addition to its settlement above the 10-day, IWOV is coming off a double bottom around the $6 level. Its most recent trip back down to that level may have been the retest and now the stock is ready to climb back towards the $10 level, which would make for a solid trade should it transpire. Along with the technical developments on IWOV's daily chart, breaking the stock down to a shorter time frame, such as 60- minute, reveals that a short-term base has been formed. A breakout above this base would occur if IWOV advances above the $8 level on heavy volume. Traders who enter on a breakout can confirm direction with an advance above the $8.36 level. Thereafter, resistance exists at the $9 level, and higher at our short-term price target at $10. For those who use an advance above the $8 level to enter new plays, make sure to confirm direction in the GSO when doing so. Initially, we're setting our stops at the $6.25 level, but traders should use their own best judgment when determining specific stop levels. BUY CALL SEP- 5.0 IUW-IA OI= 36 at $3.20 SL=2.25 BUY CALL SEP- 7.5*IUW-IU OI=960 at $1.20 SL=0.50 BUY CALL SEP-10.0 IUW-IB OI=574 at $0.50 SL=0.00 BUY CALL OCT- 7.5 IUW-JU OI= 57 at $1.70 SL=0.75 BUY CALL OCT-10.0 IUW-JB OI= 33 at $0.85 SL=0.25 Average Daily Volume = 3.33 mln NXTL - Nextel Communications $12.54 (-0.17 last week) Nextel Communications, Inc. provides a wide array of digital wireless communications services throughout the United States. The Company offers a differentiated, integrated package of digital wireless communications services under the Nextel brand, primarily to business users. The Company's digital mobile network utilizes a single transmission technology that was developed by Motorola, Inc., and is referred to as integrated Digital Enhanced Network (iDEN) technology. As of December 31, 2000, the Company had close to 6.7 million digital handsets in service in the United States. Analysts are predicting that the wireless segment of the telecom business will be the first to up-tick when the sector rebounds. Several stocks within the group are already showing signs of strength. That may morph into bids for shares of NXTL in the coming weeks. For its part, NXTL staged a solid rebound late last week, which may portend a reversal of trend in the coming sessions. The stock set a low at $11.18 in early April, and its recent weakness may very well have been the retest that technicians frequently call for. It NXTL's dip down to the $11.50 level last week was the retest of its bottom in early April, then the stock successfully traced a double-bottom, which is a technical price pattern that often portends future strength. The stock hovered around the $12.50 level late last Friday, which could be the beginning of a base that launches NXTL higher early next week. Bullish traders will want to see the $12.50 level hold in the coming sessions. If it does, supply will eventually subside and NXTL should move higher. In terms of execution, bullish traders can use an advance above last Friday's intraday highs at $12.69 to enter new call positions. Those who prefer entering on weakness can use a dip down to the $12 level. NXTL doesn't have much in the way of meaningful resistance until the $13.65 level, which is about $1 higher from current levels. Meanwhile, our stop resides at the $11.50 level, which gives a fairly equal reward to risk ratio over the short-term. For those with a longer timeframe, NXTL could make its way up to the $15 level over the intermediate-term, which gives the play a much better reward to risk ratio as it stands now. BUY CALL SEP- 7.5 QXN-IZ OI= 62 at $2.80 SL=1.75 BUY CALL SEP-10.5*QXN-IB OI=4903 at $1.00 SL=0.50 BUY CALL OCT-10.0 QXN-JB OI=8749 at $1.55 SL=0.75 BUY CALL OCT-12.5 QXN-JV OI=1116 at $0.70 SL=0.25 Average Daily Volume = 10.1 mln CY - Cypress Semiconductor $23.90 (+0.91 last week) Cypress designs, develops, manufactures and markets digital and mixed-signal integrated circuits for a wide range of markets, including telecommunications, computers, data communications, and instrumentation systems. For the 3 months ended 4/1/01, revenues declined 1% to $262.3M. Net income fell 80% to $10.5M. Results reflect lower sales from the wireless terminal and infrastructure divisions and non-recurring charges of $23M related to acquisitions. Stability in the semiconductor sector could be near on the horizon after last night's CSCO announcement. Today's solid move in CY shares has brought the stock back up beyond the 10 and 50 DMA's after two days of increasing upside volume and there is a good chance that today's close at short-term resistance could be followed on Monday by a push through the level. Consider that the slowdown in the chip sector was near its height in the latter half of last year, and you'll realize that a year over year earnings comparison could prove to be quite favorable. If volume returns on Monday and shorts continue to cover, CY could see a move through its 20 DMA at $25.02 and a further move to the next level of resistance just under $26.00. This is where we would choose to exit the trade if our focus was on the short-term. Longer term holders may see an opportunity for shares to move to $28.00, testing the nest level of resistance. Set your stop at $20.00 to avoid being stopped out on retracement. BUY CALL SEP-20 CY-ID OI=1530 at $4.40 SL=2.25 BUY CALL SEP-25*CY-IE OI=3313 at $1.00 SL=0.50 BUY CALL OCT-20 CY-JD OI= 2 at $4.80 SL=2.50 BUY CALL OCT-25 CY-JE OI= 436 at $1.90 SL=1.00 Average Daily Volume = 1.9 mln JBL - Jabil Circuits $24.86 (+2.06 last week) Jabil Circuit designs and manufactures electronic circuit board assemblies and systems for original equipment manufacturers in the communications, computer peripherals, personal computers, and consumer product industries. For the 6 months ended 2/01, revenues rose 53% to $2.34B. Net income rose 46% to $88.5M. Results reflect increased production of communication and personal computer products, partially offset by lower levels of capacity utilization. Shares of JBL look ripe for the picking. After testing support just above $22.00, the stock began a classic V bottom pattern that it has maintained all the way back up to the 10 DMA at $24.74. The encouraging aspect is that shares have performed well on down days in the sector this week and now rests just above the gap down that it experienced a week ago today. Filling this gap could be a positive sign and rebounding technical indicators point to additional upside. The next level of resistance rests at the 50 DMA of $27.51 and should shares test that level, it would represent a nearly +15% gain. It is at this level that we recommend short-term traders consider closing their position. Those with a longer-term focus have much more to consider. Additional resistance presents itself at the 100 DMA a dollar higher and still another arrives on the scene at about $29.50. We like the chances for JBL to test $30.00 and suggest that if you tend to hold for more than a few days, consider this level as your exit point. Set the stop loss at $21.00. BUY CALL SEP-20 JBL-ID OI= 957 at $5.70 SL=3.25 BUY CALL SEP-25*JBL-IE OI=1603 at $2.30 SL=1.25 BUY CALL OCT-20 JBL-JD OI= 0 at $6.50 SL=4.00 Wait for OI!! BUY CALL OCT-25 JBL-JE OI= 208 at $3.30 SL=1.50 Average Daily Volume = 2.2 million VRSN - VeriSign, Inc. $47.01 (+0.36 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. Who says the Internet is dead? Contrary to popular opinion, not all Net stocks are a bad idea, just the ones with a poor business plan, and no defined market dominating position. Neither of those describe VRSN, which is one of the leading companies providing security for the increasing number of accounts, files and transactions that exist in the Wild West we know as cyberspace. The past month has not been kind to VRSN shareholders as they have watched their stock once again decline into the low $40s. Fortunately for them, the stock began to firm in the $43 area and then launched higher on Friday thanks to the strength in the Technology market, due in large part to positive developments for both CSCO and MSFT. Daily Stochastics are emerging from oversold territory after Friday's $3 gain, but we're a little concerned about the volume, which only came in at about two-thirds of the ADV. Look for reinvigorated bulls to bid the stock through the $47.50 level (the site of the 50% retracement of the spring rally) on increasing volume to trigger momentum-based entries. Otherwise, look for a pullback to support in the $43-44 area to provide attractive entries. Set stops at $42. BUY CALL SEP-45 QVR-II OI=1649 at $5.00 SL=3.00 BUY CALL SEP-50*QVR-IJ OI=2034 at $2.45 SL=1.25 BUY CALL SEP-55 QVR-IK OI=1632 at $1.20 SL=0.75 BUY CALL NOV-45 QVR-JI OI= 278 at $7.10 SL=5.00 BUY CALL NOV-50 QVR-JJ OI= 121 at $4.60 SL=2.75 BUY CALL NOV-55 QVR-JK OI=1068 at $3.00 SL=1.50 SELL PUT SEP-45 QVR-UI OI=1456 at $2.90 SL=5.00 (See risks of selling puts in play legend) Average Daily Volume = 6.82 mln ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** 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 08-26-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0826_3.asp **************************Advertisement************************** MR. STOCK: Your Expert Guide to the Dynamic World of Options Trading Options aren't easy. We know. That's why, with over 20 years of trading experience, we've designed a website specifically for options traders. With fast executions, the ability to place complex orders online, and option trades starting at only $15.50, we have the tools you need to implement your strategies. To find out more or open an account, visit our site at www.mrstock.com. Click Here: http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1 ***************************************************************** ****************** CURRENT CALL PLAYS ****************** ELNT - Elantec Semi $39.90 (+2.79 last week) Elantec is a designer, manufacturer and marketer of high performance analog integrated circuits, which provide specific analog solutions to manufacturers in the high growth markets for video, optical storage, communications and power management products. ELNT's price action last Friday proved once again that a buyer is lurking in the stock. Each time the broader market and sector show any signs of strength, ELNT pops higher. The Semiconductor Sector (SOX.X) performed quite well Friday and that no doubt had a positive impact on ELNT. But we noticed some interesting price behavior at the $40 level last Friday. Each time ELNT traded up to that level, a seller knocked the stock back down, albeit only fractionally. With this new seller detected, ELNT appears to be at a crossroads of sorts. The stock has the potential to make a big move in the coming week, and we're leaning towards an upside move because of its recent trend. But for ELNT to breakout above $40, the seller at that level needs to be overwhelmed with demand. And that's only going to happen if the SOX and COMPX continue firming. If ELNT breaks out early next week, traders might wait for confirmation with an advance above roughly $40.75. If that sequence of events take place, we're likely to witness ELNT advance beyond its relative high around $41.50. In fact, a rally up to $47 is not out of the question. So the plan of attack is to enter on a volume-backed move above $40 to $40.75, in conjunction with an advancing SOX and COMPX. Otherwise, those traders who prefer entering on dips can wait for a light volume pullback down to support at $38, or lower around $36. BUY CALL SEP-35 UET-IG OI=235 at $6.90 SL=4.50 BUY CALL SEP-40*UET-IH OI= 80 at $3.50 SL=2.00 BUY CALL NOV-35 UET-KG OI=611 at $9.50 SL=6.75 BUY CALL NOV-40 UET-KH OI=355 at $6.70 SL=4.50 Average Daily Volume = 521 K PG - Procter & Gamble $77.00 (+2.25 last week) Procter & Gamble manufactures and markets a broad range of consumer products in many countries throughout the world. The company's products fall into five business segments: Fabric and Home Care, Paper, Beauty Care, Health Care, and Food and Beverage. PG has had some trouble with clearing the $77 level in the past, so traders with open positions and good gains in this play may be looking to take some profits off the table up here. It was a little discouraging not to see PG participate last Friday with the Dow Jones Industrial Average (INDU) and the S&P 500 (SPX.X) - both of which had great days. Perhaps PG's under performance is a prelude to profit taking next week. But we did notice that PG traded in a relative tight range last Friday, with a pattern of higher lows developing. Nevertheless, we need to see the stock resume its advancing trend early next week, otherwise a pullback seems inevitable. A trade up to the $78 level would signal that the buyers in the stock are willing to continue carrying it higher. But a pullback at this point wouldn't necessarily be a bad thing, so long as traders with open positions have the appropriate risk management measures in place. A pullback would, however, offer those not yet in the play a chance to gain a favorable entry point. From here, a light volume retreat down to the $76 level could offer an entry, while weakness down to the $75 level would do the same. Just make sure that the buyers step in to prop the stock up off of support before entering on weakness. BUY CALL SEP-70 PG-IN OI=1082 at $7.50 SL=5.00 BUY CALL SEP-75*PG-IO OI=5821 at $3.20 SL=2.00 BUY CALL OCT-70 PG-JN OI=8480 at $8.00 SL=5.25 BUY CALL OCT-75 PG-JO OI=9635 at $4.10 SL=2.50 Average Daily Volume = 2.82 mln NVDA - NVIDIA $85.28 (+1.54 last week) NVIDIA designs, develops and markets graphics processors and related software for personal computers and digital entertainment platforms. NVIDIA provides a "top-to-bottom" family of performance 3D graphics processors and graphics processing units that, in the company's opinion, has set the standard for performance, quality and features for a broad range of desktop PCs. NVDA popped right back up to the $87 level early Friday morning before pulling back throughout the remainder of the session. The stock's resurgence Friday was encouraging, and it was in accordance with the strength in the Semiconductor Sector (SOX.X). But we're beginning to notice that NVDA is tracing a set of lower highs and lower lows. It may very well turn out that NVDA's pop up to the $87 level Friday marked yet another relative high and the stock is ready to rollover. We lay this on the table only so that traders with open positions in the play use strict risk management strategies. On the other hand, an advance above the $87 level would break NVDS's string of lower highs, so it may be best to wait for a breakout above that level before entering any new positions on strength. The other strategy, of course, is to enter new call plays on weakness from current levels. Support currently lies at the $83.75 level, and lower around $82. Bullish traders can use a bounce from either level to gain entry into new plays; entering on weakness from current levels would allow for easier risk measurement and management. Continue monitoring the SOX when gaming this play, in addition to MSFT and its upcoming XBox release. BUY CALL SEP-80 RVU-IP OI=1428 at $ 8.90 SL=6.00 BUY CALL SEP-85*RVU-IQ OI=1912 at $ 5.70 SL=3.50 BUY CALL SEP-90 RVU-IR OI=2959 at $ 3.30 SL=1.75 BUY CALL DEC-90 RVU-LR OI= 337 at $12.30 SL=9.00 BUY CALL DEC-95 RVU-LS OI= 341 at $10.20 SL=7.50 Average Daily Volume = 4.60 mln CNXT - Conexant Systems $11.61 (+1.68 last week) Conexant provides semiconductor products and system solutions for a wide variety of communications electronics. Conexant delivers semiconductor integrated circuit products and system-level solutions for a broad range of communications applications. These products facilitate communications worldwide through wireline voice and data communications networks, cordless and cellular wireless telephony systems. WOW! CNXT's advance up to the $12 level came a little earlier than we had expected. The stock continues to out perform both the Nasdaq Composite (COMPX) and the Philly Semi Index (SOX.X) on up and down days. That being the case, the stock should continue to perform exceptionally well IF the SOX and COMPX rally into next week's trading. Bullish, momentum traders can use any future advance above the $12 level to gain new entry into call positions. But be warned that the stock's next major level of resistance lies at the $12.50 level, which doesn't give much room for mistakes from current levels. Therefore, we maintain that "better" entries will come on weakness from current levels. If the stock's pattern of higher lows is going to continue, buyers should emerge between $10 and $11 on any future weakness. A bounce in between that range could offer a favorable entry for new positions, as long as light volume accompanies any weakness. To switch gears, those traders who picked up some cheap calls last week should definitely be thinking about booking some gains around current levels; after all, the SEP 10's doubled last week. An advance up to $12.50 would offer a solid exit point early next week for those in at lower prices. For the longer term, above $12.50, there's not much congestion until the $14 level. So be patient for a good entry point, as CNXT could continue working for some time to come. Insofar as its options are concerned, we continue to prefer the higher delta contracts not only because they're more sensitive to the movement in the underlying, but because they're also still pretty cheap. BUY CALL SEP- 7.5 QXN-IZ OI= 66 at $4.30 SL=1.75 BUY CALL SEP-10.0*QXN-IB OI=6104 at $2.10 SL=0.50 BUY CALL OCT-10.0 QXN-JB OI=8929 at $2.55 SL=0.75 BUY CALL OCT-12.5 QXN-JV OI=1510 at $1.20 SL=0.25 Average Daily Volume = 3.13 mln BGEN - Biogen, Inc. $60.79 (+3.01 last week) Biogen is a biopharmaceutical company primarily engaged in the business of developing, manufacturing and marketing drugs for human healthcare. BGEN currently derives revenues from sales of its Avonex product for the treatment of relapsing forms of multiple sclerosis and from royalties on worldwide sales by the company's licensees of a number of other patented products. Other products include certain forms of alpha interferon, hepatitis B vaccines and hepatitis B diagnostic test kits. In order to maintain its leadership role in the industry, BGEN continues to have an active research and development program. After dipping to kiss the ascending trendline Wednesday morning, BGEN vaulted higher on the back of renewed strength in the Biotechnology index (BTK.X). While the bulls and bears fought to a stalemate on Thursday, the bulls finally chased off the bears and the stock charged through the 200-dma, resting just above the $60 support level (previous resistance). The BTK likewise scaled resistance near $542 and the real test will come next week when we see if the bulls can successfully defend their newfound support. Stochastics are now entering overbought territory, so the compulsion to take profits will start to become stronger in the days ahead. We're raising our stop to $58, and would use any intraday dip (especially on low volume) to initiate new positions as the stock bounces. A bounce from $60 would make us feel better though as it would start to build some confidence that it could act as support going forward. Keep an eye on the BTK index, as we'll likely need to see continued strength there, if BGEN is going to continue its winning ways. BUY CALL SEP-60*BGQ-IL OI=1975 at $3.30 SL=1.75 BUY CALL SEP-65 BGQ-IM OI=1014 at $1.15 SL=0.50 BUY CALL OCT-60 BGQ-JL OI=3556 at $4.80 SL=3.00 BUY CALL OCT-65 BGQ-JM OI=5284 at $2.60 SL=1.25 BUY CALL OCT-70 BGQ-JN OI=4449 at $1.35 SL=0.75 SELL PUT SEP-55 BGQ-UL OI= 376 at $2.20 SL=3.75 (See risks of selling puts in play legend) Average Daily Volume = 2.84 mln LH - Laboratory Corp. of America $84.85 (+3.20 last week) Laboratory Corporation of America Holdings (LabCorp) is the #2 clinical laboratory service in the world, behind Quest Diagnostics. LH performs 2000 types of tests for more than 100,000 clients, including health care providers, pharmaceutical firms, physicians, government agencies and employers. With 25 major laboratories and some 1200 service sites nationwide, the company emphasizes specialty and niche testing such as allergy tests, HIV tests, blood analyses, and substance abuse screenings. Predictable as the sunrise, LH just marched up the charts this week in defiance of the choppy market action. What really got our attention though was the push through the 20-dma (then at $83.63) on Thursday, followed by a move through the $84 resistance level and the 30-dma ($84.41) on Friday. Unfortunately, there is a chink in the armor, as volume fell off on Friday, only hitting about 60% of the ADV. Daily Stochastics are just entering overbought, and with volume weakening, we could see some profit taking in the days ahead. That should simply provide fresh entry opportunities, perhaps with a bounce from the $82 support level or our $81 stop. Strong buying volume that pushes LH higher from here can be used to initiate momentum-based positions on a volume-backed move through $87, but keep a tight reign on the play if profit takers appear. BUY CALL SEP-80 LH-IP OI=130 at $6.90 SL=4.00 BUY CALL SEP-85*LH-IQ OI=508 at $3.80 SL=2.25 BUY CALL SEP-90 LH-IR OI=563 at $1.80 SL=1.00 BUY CALL NOV-85 LH-KQ OI=115 at $7.50 SL=5.25 BUY CALL NOV-90 LH-KR OI=116 at $5.30 SL=3.25 BUY CALL NOV-95 LH-KS OI= 13 at $3.60 SL=1.75 SELL PUT SEP-80 LH-UP OI=743 at $1.50 SL=3.00 (See risks of selling puts in play legend) Average Daily Volume = 542 K ************************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. 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The Option Investor Newsletter Sunday 08-26-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0826_4.asp **************************Advertisement************************** MR. STOCK: Your Expert Guide to the Dynamic World of Options Trading Options aren't easy. We know. That's why, with over 20 years of trading experience, we've designed a website specifically for options traders. With fast executions, the ability to place complex orders online, and option trades starting at only $15.50, we have the tools you need to implement your strategies. To find out more or open an account, visit our site at www.mrstock.com. Click Here: http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1 ***************************************************************** ************* NEW PUT PLAYS ************* IMPH - IMPATH $43.78 (-2.23 last week) IMPATH Inc. focuses on the clinical application of advanced technologies in the community-based hospital environment to enable clinicians to make better treatment decisions for their cancer patients. The Company expanded its focus to harness the information it was generating from performing analyses on thousands of cancer specimens annually, and to broaden the value applications of that biological information. The Company has also completed multiple strategic acquisitions that have provided technologies; complementary cancer information including longitudinal treatment and outcomes data; pharmacoeconomic analytical capabilities, and a tissue and serology archive of well-characterized, fully documented cancer specimens. Just last week, IMPH graced the OI call list. So its segue to the put list this weekend is quick indeed. But we think it's for good reason. Late last week, specifically Thursday and Friday, the biotech sector staged a magnificent rally. The AMEX Biotechnology Sector Index (BTK.X) sharply advanced back above the 500 level and continued all the way up to 550 through Friday's session. Meanwhile, IMPH did nothing but go lower. The stock did try to participate with its brethren in the biotech sector, but each time it attempted to rally it was knocked down by overhead supply. Its drastic and blatant under performance late last week could very well portend measurable weakness early next week on any pullback in the biotech sector. Once the demand dries up from the broader sector, there won't be anything left to prop IMPH up and the stock should fall if the sellers return next week, who drove it lower late last week. In terms of entry points, a breakdown below the $43.50 level in conjunction with weakness in the broader biotech sector would allow for a solid momentum-based entry point into the play. In addition, rollovers in the vicinity of the $45 level should offer solid entry points. In both cases, make sure to confirm volume accordingly. Namely, look for heavy volume on any breakdown and weak volume on any rally attempt. We're initally placing stops at the $47 level. BUY PUT SEP-45*QPH-UI OI=64 at $3.40 SL=1.75 BUY PUT SEP-40 QPH-UH OI=49 at $1.15 SL=0.50 Average Daily Volume = 219 K IDPH - IDEC Pharmaceuticals $60.92 (+10.61) IDEC Pharmaceuticals Corporation is a biopharmaceutical company engaged primarily in the research, development and commercialization of targeted therapies for the treatment of cancer and autoimmune and inflammatory diseases. The company's first commercial product, Rituxan, and its most advanced product candidate, ZEVALIN (ibritumomab tiuxetan), are for use or intended for use in the treatment of certain B-cell non-Hodgkin's lymphomas (B-cell NHLs). B-cell NHLs currently afflict approximately 300,000 patients in the United States. Some may question our reasoning behind this play. But it's quite simple. We're speculating that IDPH is due for a pullback early next week. After all, the stock climbed over 20 percent in the space of one week. Although, we concede that this play is most aggressive, and only those traders with the risk tolerance for such a play should consider trading IDPH to the downside early next week. Nevertheless, the stock is well into overbought territory and due for a profit taking pullback, which could be substantial. The stock is approaching historical resistance around the $62 level, which may be the site that traders decide to take profits and IDPH rolls over. Going into next week's trading, if the stock follows through early in Monday's session, watch for resistance to materialize around the $62 level. Above that level, we've set our stop at $65. If the stock doesn't follow-through over the weekend, look for a quick drop back below the $60 level. If that occurs, confirm weakness with any decline below the $58 level. From there, IDPH should retest its former resistance, which now serves as support, around the $55 area - that will be our short-term downside price target if our speculation of a pullback is correct. Bearish speculators will want to pay special attention fo the Biotech Sector Index (BTK.X) before trading IDPH. The 550 level in the BTK has served as resistance in the past and it may do so again next week. BUY PUT SEP-60*IHD-UL OI= 26 at $3.80 SL=1.75 BUY PUT SEP-55 IDK-UK OI=404 at $1.90 SL=1.00 Average Daily Volume = 3.64 mln ***************** CURRENT PUT PLAYS ***************** CHKP - Check Point Software $33.88 (-2.29 last week) Check Point Software is the worldwide leader in securing the Internet. The company's Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. We knew it was bound to happen, and it did last Friday. After a stock stages such a significant decline, such as CHKP's over the last two weeks, it's bound to rebound for the simple sake of relief. Oftentimes too many shorts get into a stock and the result is short, sharp covering rallies. That's why we've been stressing to book gains in this play on the way down! Hopefully bearish traders with open positions heeded our suggestion and booked some profits before Friday's rebound. In any case, what's in the past stays in the past. Looking forward, it's possible that CHKP continues advancing into next week if enough shorts get scared out of their positions. However, there's some meaningful resistance just above at the $35 level, which actually may end up being a solid entry point for new put plays. What we'll be watching for is weakness in the Software Sector Index (GSO.X) in conjunction with CHKP stalling around the $35 level. Any subsequent rollover from that level should allow for new entries. Our stop remains in place at the $36 level, and allows for solid risk management should CHKP advance up to the $35 level then rollover. If CHKP doesn't make it up to the $35 level, a breakdown below the $33 support level would also allow for new directional entries, especially if the GSO and COMPX are pulling back. BUY PUT SEP-35*KEQ-UG OI=2421 at $3.70 SL=2.55 BUY PUT SEP-30 KEQ-UF OI=3350 at $1.45 SL=0.75 Average Daily Volume = 10.5 mln GMST - Gemstar-TV Guide $33.02 (-0.51 last week) Gemstar-TV Guide is a global media and technology company focused on developing, licensing and providing products and services that simplify and enhance consumer entertainment. Many of the company's products have a special emphasis on television oriented technologies and services, in particular, program guidance products including those marketed under the TV Guide name. The long anticipated short covering rally finally transpired in GMST last Friday. The stock advanced over 10 percent, far out pacing the gains in the broader market. That's part of the reason we know that GMST's advance was due to short covering. The other metric that lends to the idea that GMST's rally last Friday was a product of short covering was the weak volume on which the stock advanced. The stock traded about 3.3 million shares, compared with last Thursday's trading activity of 5.5 million shares. One might be able to intelligently speculate that there are still more sellers in GMST than there are buyers. For that reason, we're maintaining coverage on GMST over the weekend and looking for weakness to remerge early next week. Bearish traders looking for a rollover can turn to GMST's short-term descending trend line, which is currently reinforced by the 10-dma, which lies at $33.98. A rollover from that level should offer a solid entry point into new plays. If GMST doesn't continued advancing into next week's trading, then a breakdown below the $30 level would confirm that the sellers have returned en masse. Should GMST rollover next week and the sellers in fact regain control over the stock, our short- term price target to the downside is around the $25 level, which should offer a favorable exit point for those looking for new entries in addition to those with open positions. But if the stock shows any further signs of strength early next week, we'll drop coverage on the play. BUY PUT SEP-40 QLF-UH OI=1601 at $7.90 SL=5.75 BUY PUT SEP-35*QLF-UG OI=1916 at $4.20 SL=2.75 Average Daily Volume = 3.70 mln EBAY - eBay $59.01 (+0.01 last week) eBay is a United States dynamic pricing online trading platform. 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. EBAY's proving that it's not going to be an easy stock to play. Its gyrations are growing increasingly wild, and the volatility in the play is leading to whipsaws left and right. Because of its wild price action, EBAY demands precision from those who are attempting to trade the stock. And by precision, traders need to have a sound strategy in place and an ability to accurately measure and manage risk. With that said, perhaps the best way to manage risk in this stock is to enter new put plays close to meaningful resistance levels. That way, if EBAY rallies it's an quick stop loss to minimize losses. Last Friday's sharp rally may have set the stock up for another big leg lower and allow for traders to gain the precise entry points we alluded to. Significant resistance exists at the $60 level, which may offer a precise entry point. But if EBAY gets above that level, it may be able to advance all the way up to $62 before encountering congestion again. The $62 may also provide a solid entry point during any intraday rally attempt up to that level. When gaming the stock, make sure to check on the Internet Sector Index (INX.X). Although other stocks within the group continue to flounder, it should serve traders well to search out sector confirmation. Along with its sector, keep close tabs on the COMPX. BUY PUT SEP-60*QXB-UL OI=5289 at $4.30 SL=3.50 BUY PUT SEP-55 QXB-UK OI=3447 at $2.15 SL=1.25 Average Daily Volume = 5.70 mln AIG - American International Grp. $77.20 (-2.01 last week) Engaged in a broad range of insurance and insurance-related activities through its subsidiaries, AIG's primary focus is on its general and life insurance businesses. Additionally, the company is growing its presence in financial services and asset management. Other operations include auto insurance, mortgage guaranty, annuities, and aircraft leasing. With operations in 130 countries, AIG generates more than half of its revenues outside the United States. "I've fallen, and I can't get up." That ad slogan would seem a proper one for shares of AIG, which haven't seen a decent day since August 15th. The daily fast Stochastics are about the deepest in oversold that I've ever seen, currently resting at 0.81. That's buried deep, when you consider they can't go below zero! I'd be on the lookout for an oversold bounce, if I were you. There's no reason to panic just yet, but start thinking about taking some profits, especially if you've been in the play since the $81-82 level. The downside is likely limited to the $74-75 level, so decide how far you want to push it. The first danger sign (for bears) is the fact that the Insurance index (IUX.X) is starting to firm up near $715-720. Since AIG tracks the IUX very well, a strong sector move will almost certainly spill over and give AIG a bounce too. We're keeping our stop at $79, and a failed rally near that level is really the only situation that would have us contemplating new positions right now. BUY PUT SEP-80*AIG-UP OI= 6243 at $3.90 SL=2.50 BUY PUT SEP-75 AIG-UO OI=16488 at $1.30 SL=0.75 Average Daily Volume = 4.68 mln QLGC - QLogic Corporation $34.32 (-1.18 last week) Somebody has to make the equipment that lets your computer talk to all its peripheral equipment, and QLGC does it well. A leading designer and supplier of semiconductor and board-level input/output (I/O) management products, QLGC has been providing SCSI-based connectivity solutions to this market sector for over 12 years. QLGC's I/O products provide a high performance interface between computer systems and their attached data storage peripherals, such as hard disk and tape drives, removable disk drives and RAID (redundant array of independent disks) subsystems. The company is also the market share leader in Fibre Channel host bus adapters, a market segment that is receiving tremendous attention from investors. Helped along by positive comments from CSCO and positive news for MSFT, the Technology sector got its oversold bounce on Friday, propelling QCLC higher in the process. While volume was robust, at over 10 million shares, bullish traders should keep their horns tucked in a bit longer. The stock has some formidable resistance overhead, first near the 62% retracement of the spring gains ($35) and then historical resistance (prior support) just below $36. Should traders push the stock up to one of these levels before allowing it to roll over, it could provide attractive entries for hungry bears. And without the short-covering frenzy we saw on Friday, it's going to be difficult to propel the stock higher. Continued weakness could materialize just as easily, and a drop back under $33 could provide for fresh entries as well. The lows from last week mean that we will have another battle between the bulls and the bears near the $30 support level when we get there, so that might be a good time to consider locking in profits or at least tightening up your stop. For now, keep stops at $36. BUY PUT SEP-35*QLC-UG OI=1197 at $4.40 SL=2.75 BUY PUT SEP-30 QLC-UF OI=7546 at $2.20 SL=1.00 Average Daily Volume = 7.02 mln SEBL - Siebel Systems $23.53 (-1.93 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. Software stocks got an infusion of Bullish sentiment on Friday after positive news came out from MSFT, launching the Software index (GSO.X) off the $160 support level for more than a 6% gain on the day. SEBL was due for an oversold bounce, and that's exactly what it got. But the stock has got its work cut out for it if it is going to break out of its persistent months-long downtrend. Down again next week, seems the more likely course and we'll be lying in wait when buyers start to dry up. Intraday resistance at $24 could provide for fresh entries on a failed rally, but the better target would be a rollover from the $25-26 level, the site of stronger resistance. Now that the buying pressure has been relieved to some extent, SEBL should be free to drop back down in pursuit of new yearly lows. When it does, we'll get more entry opportunities on the downside as well. Target new positions on a drop below $22, and then keep an eye out for a weak bounce near the $20.50 support level. If the bulls can't rally SEBL from that level, at test of $19 would appear to be in order. BUY PUT SEP-25.0*SGQ-UE OI=6148 at $3.00 SL=1.50 BUY PUT SEP-22.5 SGQ-UX OI=3823 at $1.70 SL=0.75 BUY PUT SEP-20.0 SGQ-UD OI=1216 at $0.90 SL=0.00 Average Daily Volume = 14.4 mln ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***** LEAPS ***** Anybody Want to Step Up and Call That a Market Bottom? By Mark Phillips Contact Support I didn't think so. I can't restrain myself any longer and need to make a few comments about the market as a whole. And I think it makes good sense to focus some of my commentary there this week, due to the fact that our Portfolio took a position in the NASDAQ-100 Trust (AMEX:QQQ) on the mid-week weakness. Despite the fact that we saw a nice solid rally Friday morning, I really don't have a lot of confidence that this is anything more than a short-covering rally. So why did we enter the QQQ play, you ask? Discipline. We set the criteria for the play and when those criteria are satisfied, the LEAPS Portfolio has no choice but to take the position. Of course, we need to be just as disciplined on the exit side of the play as well. If we have done our due diligence and arrived at a logical conclusion (in the absence of the noise from CNBC), we should be able to apply those rational decisions and trade profitably, even in this trying market. That is a big part of what we have tried to accomplish with the LEAPS column, is give you a roadmap on the weekend. That way, you will know in advance of the following week's column what plays we will have taken a position in, and which ones are headed for the drop list. You should be able to look at the Portfolio and Watch List from last weekend and after spending 10 minutes scanning charts, see that we would drop International Business Machines (NYSE:IBM), Sprint Corp. (NYSE:FON) and Washington Mutual (NYSE:WM) based on our violated stops. Additionally, the observant reader could look at the Watch List and see that we would have taken a position in the QQQ on Wednesday and Oracle Corporation (NASDAQ:ORCL) on Friday. But I digress. Back to the markets. Remember all the chatter about the 1935 support level on the NASDAQ Composite (INDEX:COMPX)? Did you notice that even with a 4% rally on the heels of positive comments from Cisco Systems (NASDAQ:CSCO) Thursday night, that the COMPX still came to rest under that level? Volume was not particularly strong either, coming in at less than 1.5 billion shares. You know my biases regarding the NASDAQ, so let's see what happened on the Dow Jones Industrials (INDEX:INDU). Nearly a 200 point advance, and that just brings the "old-economy" index into the middle of its recent 10,200-10,600 range. Volume? Barely over a billion shares...not bad, but certainly not the beginning of a strong move, either. Underlying market sentiment is really the key to my skeptical attitude. I've been watching the Volatility Index more than usual lately, because it really isn't acting the way it should in a market that is getting ready to post a sustained advance. Up days in the market give us sharp drops in the VIX (indicating a sharp increase in call buying vs. put buying), while market declines give us reluctant, and small increases in the VIX. I see a market (take your pick) that is still in trouble, but there is no fear, as measured by the VIX. That is not the sort of condition that will lead to sustained rallies. Investor's Intelligence's most recent survey shows 47% of investors lined up in the Bullish camp, with only 32% feeling Bearish. No wall of worry for investors to climb there. Case in point, the VIX dropped precipitously on Friday, losing 10.5% and closing at 22.29, it's lowest level since July 3rd. I want to see the markets post a sustained advance, but I don't believe it will start from these conditions. Economic weakness hasn't magically vaporized with CSCO CEO John Chambers uttering the phrase "signs of stabilization", there is not nearly enough fear in the current market to support a real advance, and we are still in August...you know, the summer doldrums. Oh one other thing. An analyst on CNBC on Friday pointed out that the stocks seeing the most "buying" interest during the "rally" were those stocks that had the heaviest short interest. Hmmmmm...short-covering, anyone? Ok, I feel better, now! We got an early payoff for our more aggressive stop loss approach this week, as WM fell apart in the wake of the comments from the Federal Reserve that indicated we are nearing the end of the current interest rate cutting cycle. Due to our tight stop, we got taken out of the play on Monday, before WM proceeded to give up nearly 10% on the week. I was pleased to see our stop triggered on Monday, and positively overjoyed to see the carnage we avoided over the past few days. Our Portfolio exit came with an 89% profit, which would have been cut to just over 40% by Friday's close. What do you know? Money management does work. And I still think there are profits to be wrung out of WM, but we need to see if we can scoop up an attractive entry point in the weeks ahead, as sentiment in that sector runs its course to the downside. I'll keep my eye on it and let you know if things start to look attractive. Our tightened stops axed the FON and International IBM plays, both for a small loss, but I'm actually pleased that we can close the book on those plays. FON has been a serious disappointment, never really advancing into positive territory since we moved it into our Portfolio back in early April. In retrospect, we shouldn't have been chasing profits in the long-distance phone market. We're taking a different approach this week, with our new Watch List play on Sprint PCS Group (NYSE:PCS), targeting renewed growth in the Wireless sector. As we have continued to whittle down the Portfolio, it is interesting to note that aside from the new plays this week, there is only one Technology stock listed, and it is currently the worst performer of the bunch. See why we are trying to branch out into the Drugs, Consumer, Precious Metals, and Energy stocks? With the removal of WM from the Portfolio this weekend, Barrick Gold (NYSE:ABX) is currently the biggest winner on the list. That's right, a Gold stock! Hard to believe, isn't it. Note that we have tightened up the stop of the play to preserve our profits in the event of any serious profit taking. Philip Morris (NYSE:MO) is trying to break out here, so we have raised our stop to $43, our entry point into the play. While it won't guarantee a profit, it will certainly keep any loss small if the bears come back to town. And did you notice how Merck (NYSE:MRK) held above our $68 stop this week, even after the potentially devastating Vioxx news on Thursday? Investors seem to have shrugged that off and were buying MRK again on Friday. If they keep this up, we'll be raising that stop up over the $70 level next weekend. Finally, I have a couple quick items related to the Watch List. Just when it seemed a sure thing that we would get Calpine (NYSE:CPN) for an absolute steal, the company came out and made positive comments (which investors actually believed) regarding future expansion plans. The stock popped up sharply and spent the rest of the week in rally mode, much to my chagrin. The good news is that it looks like the $28-29 level will hold as support, so we have raised our entry target accordingly. Speaking of raising targets, I decided to nudge the one for Eli Lilly a bit higher. The Pharmaceutical index (DRG.X) is once again pressuring the $400 resistance level, and it is looking increasingly unlikely that LLY will satisfy our entry target in the near term. In fact, with weekly Stochastics nearing overbought territory, we may have to wait awhile. I've raised the entry target to $75-76, but I don't expect that we'll get an entry into the play until we see the weekly Stochastics retrace back into the oversold region. To recap, it was nice to see a solid positive day in the broad markets on Friday, but I remain unconvinced. You don't need to follow the exact game plan we use here in the LEAPS column, but hopefully you can see that you need a disciplined approach if you (and your trading account) are going to survive in these continually trying times. Stick to the plan, and have a great week! Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP CLX 03/13/01 '03 $ 35 VUT-AG $ 6.10 $ 7.30 19.67% $36.50 VRSN 06/12/01 '03 $ 60 OVX-AL $20.40 $13.90 -31.86% $ 42 MRK 07/09/01 '03 $ 70 VMK-AN $ 7.40 $ 9.10 22.97% $ 68 MO 07/30/01 '03 $ 45 VPM-AI $ 6.10 $ 7.50 22.95% $ 43 ABX 08/06/01 '03 $ 15 VBX-AC $ 2.75 $ 4.00 45.45% $16.50 '04 $ 15 LBX-AC $ 3.70 $ 5.00 35.14% $16.50 GLM 08/15/01 '03 $ 20 OML-AD $ 3.30 $ 2.90 -12.12% $ 14 '04 $ 20 KLW-AD $ 4.70 $ 4.00 -14.89% $ 14 ORCL 08/24/01 '03 $ 15 VOC-AC $ 4.60 $ 4.60 0.00% $ 13 '04 $ 15 LRO-AC $ 5.90 $ 5.90 0.00% $ 13 QQQ 08/22/01 '03 $ 40 VZQ-AN $ 7.00 $ 7.90 12.86% $ 36 '04 $ 40 LRI-AN $ 9.30 $10.60 13.98% $ 36 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CPN 07/08/01 $29-30 JAN-2003 $ 30 OLB-AF CC JAN-2003 $ 25 OLB-AE JAN-2004 $ 30 LZC-AF CC JAN-2004 $ 30 LZC-AF ENE 07/29/01 $34-35 JAN-2003 $ 35 VEN-AG CC JAN-2003 $ 35 VEN-AG JAN-2004 $ 40 LYN-AH CC JAN-2004 $ 30 LYN-AF LLY 08/05/01 $75-76 JAN-2003 $ 75 VIL-AO CC JAN-2003 $ 70 VIL-AN JAN-2004 $ 80 LZE-AP CC JAN-2004 $ 70 LZE-AN GE 08/12/01 $38-39 JAN-2003 $ 40 VGE-AH CC JAN-2003 $ 30 VGE-AF JAN-2004 $ 40 LGR-AH CC JAN-2004 $ 30 LGR-AF DIS 08/26/01 $24-24.50 JAN-2003 $ 30 VDS-AF CC JAN-2003 $ 25 VDS-AE JAN-2004 $ 30 LWD-AF CC JAN-2004 $ 25 LWD-AE PCS 08/26/01 $21-22 JAN-2003 $ 25 VVH-AE CC JAN-2003 $ 20 VVH-AD JAN-2004 $ 25 LVH-AE CC JAN-2004 $ 20 LVH-AD New Portfolio Plays ORCL - Oracle Corporation $15.19 The positive comments from CSCO after the close on Thursday was the primary catalyst to the rise in Technology stocks, and we need to see some serious volume and follow-through to convince us that there is any staying power. But ORCL gave us exactly the entry we were looking for. After closing on Thursday at $14.01, the stock advanced steadily throughout the day on Friday. Dipping as low as $14.11, ORCL managed to crest the $15 level and close just fractionally below the high of the day. We saw renewed life throughout the Software sector as well, with the GSO index vaulting higher from the $160 support level. I want to believe this is the bottom for the stock, with weekly Stochastics bottoming in oversold, but there is now some significant overhead resistance to battle through. First we have $16, then $17.25, before ORCL can start whittling away at the $18-20 level. We'll start with our stop at $13, just below the April lows, but we'll aggressively advance that stop as the stock advances. BUY LEAP JAN-2003 $15.00 VOC-AC $4.60 BUY LEAP JAN-2004 $15.00 LRO-AC $5.90 QQQ - NASDAQ-100 Trust $37.69 There's no doubt that we are trying to pick a bottom on the NASDAQ with our QQQ play, and with that type of trading approach comes inherently greater risk. The dip to 1817 on the NASDAQ Composite on Wednesday definitely had me nervous as the afternoon recovery gave me no choice but to take a position, based on our $37 entry target. It was encouraging to see the recovery from the lows, but Thursday's weakness had me chewing my fingernails down to the quick. Fortunately, CSCO rode in on its white horse Thursday night, giving a lift to the Technology sector and raising the QQQ above the $39 level. While I'm hoping that we have gotten a good long-term entry, I'll be keeping a sharp eye on the weekly Stochastics until it turns up out of oversold territory. So I like the entry we got, but I continue to be concerned about the weakness of the U.S. and global economies, not to mention the light volume in this brief recovery. Until we get SOLID signs of the techonomy bottoming, the NASDAQ will have a hard time staging a solid advance, which is why I view our QQQ play as speculative. Feel free to take entries on renewed dips to the $37 level, but keep a tight stop in place. For our Portfolio, it will start at $36. If the QQQ clears $41 next week, I would recommend cinching those stops up to $38 or even $40, to guarantee we don't lose money on a market pullback. BUY LEAP JAN-2003 $40.00 VZQ-AN $7.00 BUY LEAP JAN-2004 $40.00 LRI-AN $9.30 New Watchlist Plays DIS - The Walt Disney Company $26.65 In our continuing effort to fill the Watch List (and eventually the Portfolio) with a nicely diversified selection, DIS makes it onto the list. I have to admit to a bit of coercion on this one, as my fiancÚ is a HUGE Disney fan. While she hasn't been leaning on me to add it to the Watch List, she does frequently ask me how the stock is doing. So I've been watching the entertainment conglomerate a little more closely than I have in the past. What caught my attention was the VERY long-term chart, which shows a very mild upward trend created by the lows in October 1998 and October 1999. Due to the recent market weakness, the stock is approaching the level of this trend (support) line, which currently rests near $24.50. Weekly Stochastics are still heading south, so we aren't in a hurry here. But when both the daily and weekly stochastics begin to recover from oversold, we ought to see the stock rebound from the $24-24.50 level. We'll target new entries at that level in the weeks ahead. One interesting point about the 1998/1999 lows is the fact that there were several tests of support before the stock began to recover. That seems to indicate that we won't need to be in a hurry, as there will be ample opportunity to gain entry into the play before the recovery begins into the end of the year. BUY LEAP JAN-2003 $30.00 VDS-AF BUY LEAP JAN-2003 $25.00 VDS-AE For Covered Call BUY LEAP JAN-2004 $30.00 LWD-AF BUY LEAP JAN-2004 $25.00 LWD-AE For Covered Call PCS - Sprint PCS Group $24.84 It may seem strange to add PCS to the Watch List in the same week that we finally gave the laggard FON play the boot, but the similarity in the two companies' business ends with the name. FON is involved in the cutthroat long-distance business, while PCS is a leading Wireless Communication provider. While it is hard to quantify right now, it seems that a bottom is being put in place in the Wireless sector, and if that's true, then we can see the beginning effects of that in the weekly PCS chart. The stock has been posting higher lows since April and the ascending trendline is currently resting near $21. While the weekly Stochastics is still heading down, the recovery this week is helping it to slow its descent. As a matter of fact, it looks like it might fail to enter the oversold region on this cycle. The daily is nearing overbought territory, so we're going to look for an entry with the next drop into oversold in this timeframe. I would expect that to coincide with price dropping back into the $21-22 area and that will be our entry target. We can follow this with a fairly tight $20 stop, helping to keep our risk in the play well controlled. BUY LEAP JAN-2003 $25.00 VVH-AE BUY LEAP JAN-2003 $20.00 VVH-AD For Covered Call BUY LEAP JAN-2004 $25.00 LVH-AE BUY LEAP JAN-2004 $20.00 LVH-AD For Covered Call Drops WM $41.90 Now that is precisely what I've been worried about! With the Fed nearing the end of its interest rate cutting cycle, investors have jumped out of shares of the nation's leading thrifts, and WM plunged through several levels of support in the past couple days, coming to rest near the long-term ascending trendline on Friday. With our aggressively tightened stop, we were taken out of the play on Monday with an almost 90% gain on our LEAP. We'll keep an eye on WM for another play in the future, but for now we are happy to book the gain and move on. FON $22.16 Ever since we added it to the Portfolio in April, FON has been a laggard play, so I primarily tightened the stop in order to get us out of the play and allow us to focus on other candidates with better upside potential. Sure enough, the dip on Wednesday pushed FON below the $22.50 level and got us out of the play. The disappointment of this play has been the collapse in LEAPS premium since our entry as volatility has continued to decline. While LEAPS premiums are less susceptible to volatility levels, we can see the negative effect they can have when the underlying stock fails to advance appreciably. IBM $101.89 While the argument could be made that we got too aggressive with our stop on IBM, given the sharp rebound in the share price on Friday as the broad markets rallied on the MSFT and CSCO news, the picture looked decidedly bearish earlier in the week. After 7 weeks in the Portfolio, the stock had gone absolutely nowhere. Tuesday's close below our $102 stop forced us to close the play for a moderate loss, and while it was frustrating to watch the rebound proceed without us, following our discipline is the right thing to do. Given IBM's action in recent weeks, and the continuing economic weakness (despite Friday's strong housing report), there are better places for our money right now. ************************Advertisement************************* Tired of waiting on trades to execute? 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The Option Investor Newsletter Sunday 08-26-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0826_5.asp **************************Advertisement************************** MR. STOCK: Your Expert Guide to the Dynamic World of Options Trading Options aren't easy. We know. That's why, with over 20 years of trading experience, we've designed a website specifically for options traders. With fast executions, the ability to place complex orders online, and option trades starting at only $15.50, we have the tools you need to implement your strategies. To find out more or open an account, visit our site at www.mrstock.com. Click Here: http://mojofarm.mediaplex.com/ad/ck/565-1407-1875-1 ***************************************************************** ************* COVERED CALLS ************* Trading Terms: "Undeclared" Short-Selling By Mark Wnetrzak Most traders understand the basic characteristics of selling a stock "short" and the requirements for participating in that strategy but it is also important to be aware of a common tactic that has given short-sellers such a bad reputation. While the technique is often maligned, short-selling occupies a necessary place in the equity markets. The recent slump in technology shares and the incredible amount of short interest in stocks has presented us with a great opportunity to reprint this popular article. As you know, short-selling is simply an attempt to profit from a decline in the price of stock. An investor sells stock that is borrowed. If the stock falls below the original sale price, it is repurchased and returned to the broker as a replacement for the stock that was originally borrowed. The difference between the sale price and the purchase price is profit. Short-selling can be divided into two categories, declared and undeclared. Declared short-selling is a common trading strategy that is used in the market regularly by institutional investors, fund managers and professional speculators. Because the basis for short-selling is borrowed stock, declared short positions risk being squeezed. Recall that a short-seller usually provides 50% of the value of the stock in a margin account. If the share price increases, the short-seller will be forced to increase his margin collateral in order to maintain the short position. If the issue continues higher, the seller may elect to repurchase the stock instead of adding to his margin requirement. This contributes to the (natural) upward movement of the stock by increasing demand, thus driving the price higher. Undeclared short-selling is a destructive and unwelcome practice that leverages enormous negative pressure on a stock. The method consists of creating stock that doesn't exist to sell many times over. The stock isn't borrowed; it is actually fictitious stock that is sold short. This nonexistent stock increases a company's float and makes it very difficult for the stock price to increase in value. The shorts-sellers make a profit at great cost to the companies involved. The iniquitous technique adds massive costs to maintaining a market in a stock and it also reduces a company's business options. It can drive the price of a stock to artificial lows where eventual shareholder lawsuits can ruin the company's future. In the past, complaints to regulatory agencies haven't stopped the practice of undeclared short-selling but one way a company can protect their stock is to recommend that shareholders take physical delivery of the stock certificates. When delivery of an issue is demanded by a significant number of investors, the originators of non-existent stock can be legally "squeezed" and when the short-sellers don't have the stock to deliver, they are forced to buy it in the open market. In addition, stock owners should communicate any knowledge of this unwanted practice to the company's other shareholders because when this type of activity becomes public information, unscrupulous traders will ply their ruinous techniques elsewhere. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield CCRD 10.20 10.00 SEP 10.00 1.15 $ 0.95 9.1% HLIT 16.04 15.54 SEP 15.00 2.20 *$ 1.16 6.1% ARTC 31.67 30.28 SEP 30.00 3.50 *$ 1.83 5.6% ISSI 15.00 16.08 SEP 15.00 1.25 *$ 1.25 5.6% FFIV 14.59 16.76 SEP 12.50 2.85 *$ 0.76 5.6% NTIQ 38.60 35.39 SEP 35.00 6.50 *$ 2.90 5.6% PMCS 34.40 34.67 SEP 30.00 6.50 *$ 2.10 5.5% SPCT 15.85 16.10 SEP 15.00 2.05 *$ 1.20 5.4% CCUR 11.60 11.70 SEP 10.00 2.15 *$ 0.55 5.1% PHTN 39.97 34.86 SEP 35.00 7.70 $ 2.59 5.0% NETA 16.36 15.52 SEP 15.00 2.45 *$ 1.09 4.9% PHTN 38.34 34.86 SEP 32.50 7.50 *$ 1.66 4.7% NMTC 28.87 28.96 SEP 25.00 5.10 *$ 1.23 4.5% SEAC 23.55 22.55 SEP 20.00 4.70 *$ 1.15 4.4% NTIQ 36.40 35.39 SEP 30.00 8.10 *$ 1.70 4.4% DAVX 10.26 9.97 SEP 10.00 0.75 $ 0.46 4.2% PTEC 15.05 14.57 SEP 15.00 1.20 $ 0.72 3.8% IGEN 32.28 29.07 SEP 30.00 4.50 $ 1.29 3.4% APCS 18.36 16.69 SEP 17.50 2.00 $ 0.33 1.5% *$ = Stock price is above the sold striking price. Comments: Wasn't that great! With Friday's rally, the Markets are right back to where they were two weeks ago. At least for the DOW and S&P 500, as the tech-heavy NASDAQ didn't fare as well. A second chance to exit weaker than expected positions? We will show Seachange International (NASDAQ:SEAC) closed in the name of capital preservation as the technical bounce offered a very favorable exit. Harmonic (NASDAQ:HLIT) bounced off its 50-dma on heavy volume Friday and again confirmed the April - July trend-line. Netiq Corp. (NASDAQ:NTIQ) is testing both its 30- and 50-dmas and should be monitored closely. The failure to remain above its 150-dma is worrisome. Concurrent Computer (NASDAQ:CCUR) rallied nicely on Friday but the weekly chart is looking a bit troublesome (3 Hanging Man candlesticks in a row). Photon Dynamics (NASDAQ:PHTN) took a turn for the worse on Tuesday this week when it failed to take out the early August high (no news). Monitor the position closely as the stock is testing its 50-dma and the May high. IGEN International (NASDAQ:IGEN) is issuing mixed technical signals as the stock tests its 30-dma. A move towards $28 and the March - June trend-line appears likely. Alamosa Holdings (NASDAQ:APCS) is testing its 50-dma and a strong technical support area. The position should be monitored closely during this "key" moment. 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 ANSR 9.01 SEP 7.50 QRA IU 1.80 486 7.21 28 4.4% CTIC 31.39 SEP 30.00 CUC IF 3.20 691 28.19 28 7.0% GSPN 16.24 SEP 15.00 GLQ IC 2.30 2396 13.94 28 8.3% IART 31.30 SEP 30.00 UJI IF 2.80 106 28.50 28 5.7% PRIA 17.89 SEP 17.50 UXQ IW 1.55 204 16.34 28 7.7% VICL 12.96 SEP 12.50 VAQ IV 1.05 15 11.91 28 5.4% WBSN 19.19 SEP 17.50 DQH IW 2.35 5 16.84 28 4.3% 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 GSPN 16.24 SEP 15.00 GLQ IC 2.30 2396 13.94 28 8.3% PRIA 17.89 SEP 17.50 UXQ IW 1.55 204 16.34 28 7.7% CTIC 31.39 SEP 30.00 CUC IF 3.20 691 28.19 28 7.0% IART 31.30 SEP 30.00 UJI IF 2.80 106 28.50 28 5.7% VICL 12.96 SEP 12.50 VAQ IV 1.05 15 11.91 28 5.4% ANSR 9.01 SEP 7.50 QRA IU 1.80 486 7.21 28 4.4% WBSN 19.19 SEP 17.50 DQH IW 2.35 5 16.84 28 4.3% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ANSR - Answerthink $9.01 *** Technicals Only! *** Answerthink (NASDAQ:ANSR) is a leading provider of technology enabled business transformation solutions. The company brings together multi-disciplinary expertise in benchmarking and research, business transformation, interactive marketing, business applications and technology integration to serve the needs of Global 2000 clients. Answerthink's solutions span all functional areas of a company including finance, human resources, information technology, sales, marketing, customer service, and supply chain, as well as across a variety of industry sectors. Answerthink reported earnings in July that matched estimates. The CEO said that despite the weak economy Answerthink outperformed their peer group, increased their cash position and strengthened their balance sheet. We simply favor the bullish move above the neckline of a double-bottom formation, which suggests further upside potential. SEP 7.50 QRA IU LB=1.80 OI=486 CB=7.21 DE=28 TY=4.4% ***** CTIC - Cell Therapeutics $31.39 *** Bracing For A Rally! *** Cell Therapeutics (NASDAQ:CTIC) is a biopharmaceutical company committed to making cancer a treatable disease by discovering, developing and bringing to market innovative treatments for cancer. The company's lead product, called arsenic trioxide, or TRISENOX, received FDA approval in September 2000. TRISENOX is initially being marketed for patients with a type of blood cell cancer called Acute Promyelocytic Leukemia (APL), who have relapsed or failed available therapies. Recent research suggests that arsenic trioxide in combination with ascorbic acid may overcome or circum- vent the major resistance mechanisms found in multiple myeloma cells. CTIC reported earnings in July that showed 2nd quarter sales of Trisenox (arsenic trioxide) of $1.9 million. The stock has been consolidating for six months and the recent rally on high volume took out the July high. The bullish technicals suggest that CTIC is ready to challenge resistance near $35. SEP 30.00 CUC IF LB=3.20 OI=691 CB=28.19 DE=28 TY=7.0% ***** GSPN - GlobeSpan $16.24 *** Bottom Fishing! *** GlobeSpan (NASDAQ:GSPN) is a provider of integrated circuits, software and system designs for digital subscriber line (DSL) applications which enable high-speed data transmission over the existing copper telephone lines at rates over 100 times faster than today's 56 kilobit modem technologies. Both Cahners In-Stat and Dataquest have ranked GlobeSpan number one in DSL chipset shipments. GlobeSpan reported earnings at the end of July which showed that revenues fell 21% in the 2nd quarter because of order cancellations and, as a result, cut about 10% of its work force. Investors were hopeful after the company said it was comfortable with current Wall Street expectations for the next quarter. We simply favor the buying support near our cost basis for a speculative entry point in a Stage I stock. SEP 15.00 GLQ IC LB=2.30 OI=2396 CB=13.94 DE=28 TY=8.3% ***** IART - Integra LifeSciences $31.30 *** Rally Mode! *** Integra LifeSciences Holdings (NASDAQ:IART) develops, manufactures and markets medical devices, implants and biomaterials primarily used in the treatment of cranial and spinal disorders, soft tissue repair and orthopedics. Integra is a leader in applying the principles of biotechnology to medical devices that improve patients' quality of life. In early August, Integra reported record revenues and net income for the 2nd quarter, due primarily to strong growth in product sales. Earnings for the quarter were $0.10 per share, and revenue grew by 35% to $21.4 million. A recent public offering raised over $113 million which allowed the company to repay in full $7.9 million of bank loans and terminate its $4.0 million revolving credit facility with Fleet Capital Corporation. Technically, the stock is in a strong Stage II rally that is showing no signs of weakening. Watch for a violation of the 30-dma (near $27.00) to signal a possible change in the primary trend. SEP 30.00 UJI IF LB=2.80 OI=106 CB=28.50 DE=28 TY=5.7% ***** PRIA - PRI Automation $17.89 **** More Bottom Fishing! *** PRI Automation (NASDAQ:PRIA) is a global supplier of advanced factory automation systems, software, and services that optimize the productivity of semiconductor and precision electronics manufacturers as well as OEM process tool manufacturers. PRI is the only company to provide a tightly integrated and flexible hardware and software solution that optimizes the flow of products, data, materials and resources throughout the production chain. No news since July when PRIA reported earnings with net revenues of $75.2 million, down 15.4% for the 3rd quarter. The company continues to restructure and reduce costs and it has improved its cash position by $20 million from last quarter. PRIA continues to forge a Stage I base and this position offers a reasonable cost basis near technical support for those wishing to speculate on the company's future. SEP 17.50 UXQ IW LB=1.55 OI=204 CB=16.34 DE=28 TY=7.7% ***** VICL - Vical $12.96 *** New Drug Speculation *** Vical (NASDAQ:VICL), The Naked DNA Company(TM), is focused on the development of pharmaceutical product candidates based on its patented gene delivery technology. A number of therapeutic and vaccine product candidates are currently under development for the prevention or treatment of cancer, infectious diseases and metabolic disorders by Vical and its collaborative partners. Allovectin-7«, which uses a lipid-DNA complex to help the immune system recognize and attack cancer cells, is in Phase II and Phase III testing in certain patients with metastatic melanoma and in Phase II testing in patients with head and neck cancer. Leuvectin(TM), which uses a lipid-DNA complex to stimulate an immune response against cancer cells, is in Phase II testing in patients with prostate cancer. Vaxid, a naked DNA vaccine to prevent relapse of B-cell lymphoma, is in Phase I/II testing. Vical received some air-time last Saturday when the television show, "Healthy Solutions" did an overview of Allovectin-7«. We simply favor the recent bullish momentum in the stock which allows for a reasonable entry point from which to speculate on the company's future. SEP 12.50 VAQ IV LB=1.05 OI=15 CB=11.91 DE=28 TY=5.4% ***** WBSN - Websense $19.19 *** They Are Watching You! *** Websense (NASDAQ:WBSN) is the worldwide leader of employee Internet management (EIM) solutions. Websense Enterprise software enables businesses to manage how their employees use the Internet. This supports an organization's efforts to improve employee productivity, conserve network bandwidth and storage costs and mitigate legal liability. Websense is listed on the year 2000 Software 500 ranking and has been honored by the Deloitte & Touche "Technology Fast 50" program. Websense rallied off the July low after the company announced continued strong financial results for the quarter ended June 30, 2001, achieving $8.2 million in revenue, generating $5.1 million in positive cash flow and attaining profitability on a pro forma basis one quarter ahead of schedule. The stock appears to be forming a Head-n-Shoulders bottom with strong support near $16. A move above the June high on heavy volume would confirm the new bullish trend. SEP 17.50 DQH IW LB=2.35 OI=5 CB=16.84 DE=28 TY=4.3% ***** ***************** 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 AMCC 15.03 SEP 15.00 AEX IC 1.35 2880 13.68 28 10.5% MEDX 20.39 SEP 20.00 MZU ID 1.80 443 18.59 28 8.2% SCTC 12.67 SEP 12.50 YQS IV 1.00 48 11.67 28 7.7% CBST 41.67 SEP 40.00 UTU IH 3.40 1073 38.27 28 4.9% FNSR 11.73 SEP 10.00 FQY IB 2.15 1318 9.58 28 4.8% AVGN 14.93 SEP 12.50 GKU IV 2.90 28 12.03 28 4.2% GLW 15.68 SEP 15.00 GLW IC 1.20 7475 14.48 28 3.9% ***************** NAKED PUT SECTION ***************** Success Basics: Avoiding Information Overload by Ray Cummins Learning to trade profitably in the market is a great achievement but in truth, it involves no secrets. If you study the methods of the most well known financial experts, you will find a number of common characteristics. The first attribute is a fundamental knowledge of market economics and the basic concept of supply and demand. The second important trait is the use of a specific plan or trading methodology. Another worthwhile quality is patience, and the discipline to execute the trading plan without regard to emotion and other outside influences. The final trait centers on the ability to view the investment world in counterintuitive or contrarian ways. This capacity involves the need to be creative and oppose the current of popular opinion. In many ways, that is the essence of any successful position management strategy. One of the first concepts that novice traders must learn is to separate the company from its stock. Companies change relatively little on a fundamental basis in the short term, but their share values move substantially. The primary point to remember is that today's market price is not the company's value. Price is simply a reflection of the current state of the public's attitudes about a specific company. It is common knowledge that perceptions and expectations are often completely out of line with absolute valuations. Understanding the differences between value and the current market price is one of the initial steps to becoming an independent thinker. Another difficult influence to overcome is the vast amount of information that we are faced with in today's technologically advanced society. Investors have access to a wide selection of inexpensive market data; economic news, company announcements, real-time quotes and professional quality charting services. With the current revolution in communications, it is possible for a trader to receive this information at almost any location on the planet, with little or no delay. Financial news services featuring every conceivable expert and their opinions on the latest developments are also available around the clock. While the value of such immediate (and hardly intellectual) analysis is suspect, they continue to flood the airwaves with perpetual appraisals of every event. To maintain an appearance of wisdom, market "gurus" try to justify each individual price movement with logical reasoning. Unfortunately, these experts can be motivated by self-promotion and ego enhancement and thus the analysis often exceeds common rationale. In addition, the media is constantly searching for stories or angles that will increase their exposure and improve advertising ratings. This leads to a sophisticated and widely disseminated form of gossip that is not particularly helpful from an informational point of view. In simple terms, the investing public has extremely easy access to news and analyses that tend to arouse emotions and overcome one's intellect. Regrettably, this appetite for real-time data and market information becomes a kind of addiction on which our emotional subconscious thrives. As with any dependency, it takes a greater amount of participation to maintain the same level of excitement. The overdose may be in the form of new services or software and often, more expensive equipment. Regardless of the path to "information overload," the end result is generally the same; a tendency to indulge in excess trading with a minimum of actual research and planning. The outcome is similar to a drug addict's withdrawal symptoms but in this case, poor decisions simply lead to financial ruin as the market brutally assaults every hastily conceived position that you have initiated. The best way to avoid the effects of outside influences is to deliberately structure your trade selection process so that the critical decisions are made only when the markets are closed. The key is to set aside time for examination and analysis when external events will have less influence on your judgment. You should also use proven strategies and sound money management techniques to avoid situations that can be affected by external elements. A popular theory suggests that the average investor may very well try to be rational but his rationality tends to be hampered by emotional works and social influences. That's not something that you want working against you when it is time to make an important trading decision. 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 PPD 20.50 21.41 SEP 15.00 0.80 *$ 0.80 11.8% MDCC 20.50 22.34 SEP 17.50 0.95 *$ 0.95 11.2% GERN 14.50 17.40 SEP 12.50 0.55 *$ 0.55 11.0% CENT 8.98 9.34 SEP 7.50 0.35 *$ 0.35 10.3% ALLY 18.23 18.30 SEP 15.00 0.50 *$ 0.50 9.5% Adj 2-1 split AFCI 25.75 27.90 SEP 22.50 0.90 *$ 0.90 8.2% PPD 21.09 21.41 SEP 15.00 0.40 *$ 0.40 7.5% ISIL 39.20 41.35 SEP 30.00 0.90 *$ 0.90 7.5% SAGI 17.75 18.50 SEP 15.00 0.40 *$ 0.40 7.3% NEM 21.48 21.70 SEP 20.00 0.55 *$ 0.55 6.2% APCS 18.52 16.69 SEP 15.00 0.30 *$ 0.30 6.2% PRGX 13.75 15.09 SEP 12.50 0.30 *$ 0.30 5.7% IMCL 44.89 51.39 SEP 30.00 0.70 *$ 0.70 5.2% *$ = Stock price is above the sold striking price. Comments: Stocks rallied Friday in a rare and unexpected demonstration of bullish activity after Cisco Systems (NASDAQ:CSCO) said that its business outlook may be starting to stabilize. The buying spree spurred the most powerful technology rally since mid-July and a 200-point gain in the Dow Industrials. The broader market was also strong with analysts pointing to the favorable cumulative advance-decline line, which remains in an extended up-trend from November, 2000. The issues in our portfolio benefited from the renewed optimism and all of the current positions are positive. Even the recently closed play in Powerwave (NASDAQ:PWAV) has now recovered (Murphy's Law!) and there is only one stock on the watch-list. That issue is Alamosa Holdings (NASDAQ:APCS) and although we achieved a favorable cost basis in the stock, the bearish activity has threatened a key support area near $16. A move through that range should be seen as a potential exit signal and we will monitor the issue closely in the coming sessions. Positions Closed: Powerwave (NASDAQ:PWAV) 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 AFCI 27.90 SEP 25.00 AQF UE 0.70 1329 24.30 28 8.5% GERN 17.40 SEP 15.00 GQD UC 0.45 286 14.55 28 9.8% ILXO 29.15 SEP 25.00 IUE UE 0.45 0 24.55 28 6.1% LBRT 15.35 SEP 12.50 IEY UV 0.25 164 12.25 28 7.7% PLXS 36.19 SEP 30.00 QUA UF 0.80 48 29.20 28 9.6% URBN 15.04 SEP 12.50 URQ UV 0.25 130 12.25 28 7.3% VPHM 35.59 SEP 30.00 HPU UF 0.95 105 29.05 28 10.8% Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield VPHM 35.59 SEP 30.00 HPU UF 0.95 105 29.05 28 10.8% GERN 17.40 SEP 15.00 GQD UC 0.45 286 14.55 28 9.8% PLXS 36.19 SEP 30.00 QUA UF 0.80 48 29.20 28 9.6% AFCI 27.90 SEP 25.00 AQF UE 0.70 1329 24.30 28 8.5% LBRT 15.35 SEP 12.50 IEY UV 0.25 164 12.25 28 7.7% URBN 15.04 SEP 12.50 URQ UV 0.25 130 12.25 28 7.3% ILXO 29.15 SEP 25.00 IUE UE 0.45 0 24.55 28 6.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** AFCI - Advanced Fibre Communications $27.90 *** Entry Point! *** Advanced Fibre Communications (NASDAQ:AFCI) develops, manufactures and supports telecommunications access products and services that enable telecommunications companies and other service providers to connect their central office switches to end users for voice and high-speed data communications. The company's products include integrated multi-service access platforms, integrated access devices, network management systems, indoor and environmentally hardened outdoor cabinets for the portion of the telecommunications network between the service provider and their customers, often referred to as the "local loop," or "last mile." Advanced Fibre's stock rallied in July after the telecommunications systems maker reported strong second-quarter results and made positive comments about the future. Analysts at Lehman Brothers, U.S. Bancorp Piper Jaffray, WR Hambrecht, J.P. Morgan H&Q and Pacific Growth Equities increased future earnings estimates and several brokerages raised their price targets for AFCI's share value, based on the bullish outlook. We simply favor the opportunity to own the issue at a discounted cost basis. SEP 25.00 AQF UE LB=0.70 OI=1329 CB=24.30 DE=28 TY=8.5% ***** GERN - Geron $17.40 *** Stem Cell Research! *** Geron (NASDAQ:GERN) is a biopharmaceutical company focused on discovering, developing and commercializing therapeutic and diagnostic products for applications in oncology and regenerative medicine, and research tools for drug discovery. Geron's product development programs are based upon patented core technologies: telomerase, human embryonic stem cells and nuclear transfer. Stem cell research has been in the news lately and Geron is one of the companies involved in the reports. Geron financed much of the work of University of Wisconsin researcher James Thomson, who first isolated human embryonic stem cells, which many scientists believe can be used to cure Alzheimer's and Parkinson's disease, spinal cord injuries and other disorders. Geron has licensing rights to six types of cells that can be made from those original lines but there is a dispute over whether the company can add cell types to its license agreement. Geron's rights to six cell types is also important because President Bush has said federal funding will be permitted for research only on cell lines that are already in existence. Shares of the biotechnology company rallied last week amid optimism rivals will have to pay it a fee to develop certain cell types that could be used to treat a range of diseases. Research this one carefully before initiating any new positions! SEP 15.00 GQD UC LB=0.45 OI=286 CB=14.55 DE=28 TY=9.8% ***** ILXO - ILEX Oncology $29.15 *** On The Move! *** ILEX Oncology (NASDAQ:ILXO) is building an oncology-focused pharmaceutical company by assembling and developing a portfolio of novel treatments both for advanced-stage cancers and for early stage cancers and pre-malignant conditions. The company has a portfolio of eight anticancer product candidates in clinical development and several preclinical stage product candidates. In addition to its clinical development programs, ILEX is also conducting drug discovery research, translational research and pre-clinical studies in the fields of angiogenesis inhibition and targeted medicinal phosphonate chemistry, laying the initial groundwork for bringing other new proprietary product candidates into its pipeline. The company's leading product is Campath, which the U.S. FDA has cleared for marketing as a treatment for specific patients with B-cell chronic lymphocytic leukemia. The issue is performing well in a bearish market and traders who want to speculate on a biotechnology company should consider this position. SEP 25.00 IUE UE LB=0.45 OI=0 CB=24.55 DE=28 TY=6.1% ***** LBRT - Liberate $15.35 *** AT&T Deal! *** Liberate Technologies (NASDAQ:LBRT) is a global provider of a comprehensive software platform for delivering content, services and applications to a broad range of information appliances. Information appliances, which include television set-top boxes, game consoles and personal digital assistants, are devices that are enhanced by Internet capability. Network operators, such as telecommunications companies, cable and satellite television operators and Internet service providers, can use the company's server software to deliver Internet-enhanced services to numerous information appliances and millions of consumers. Information appliance manufacturers can use its client software to enable their products for Internet use. Liberate has signed an agreement to develop an interactive television delivery system with an AT&T cable subsidiary and investors believe it will be the key to their success in the near-term. The deal opens the door for Liberate to power as many as 6 million digital set-top boxes already in the market, including AT&T's 3 million digital cable subscribers, and it also marks an opportunity in a highly competitive market that is expected to rebound up after years of dismal consumer interest. SEP 12.50 IEY UV LB=0.25 OI=164 CB=12.25 DE=28 TY=7.7% ***** PLXS - Plexus $36.19 *** Positive Outlook! *** Plexus (NASDAQ:PLXS) provides product realization services to original equipment manufacturers in networking, data and tele- communications, medical, industrial, computer and transportation industries. The company provides advanced electronics design, manufacturing and testing services to its customers and focus on complex, high-end products. Plexus offers customers the ability to outsource all stages of product realization, including design and development, materials procurement and management, prototyping and product introduction, testing, manufacturing and after-market support. Plexus has performed better than most stocks in the Contract Manufacturing sector (since mid-June) and Friday's rally came after positive comments from Cisco Systems' chief executive, who suggested that equipment demand is in fact "leveling out" and should improve in the coming quarters. Traders who agree with a favorable outlook for the industry can establish an acceptable cost basis in PLXS with this position. SEP 30.00 QUA UF LB=0.80 OI=48 CB=29.20 DE=28 TY=9.6% ***** URBN - Urban Outfitters $15.04 *** Outstanding Earnings! *** Urban Outfitters (NASDAQ:URBN) operates two business segments, a lifestyle-oriented general merchandise-retailing segment and a wholesale apparel business. The retailing segment consists of retail stores and direct response, including a catalog and two web-sites. The two retail concepts are Urban Outfitters (Urban Retail) and Anthropologie, each of which sells a broad array of fashion apparel, accessories and home and gift merchandise. The company's wholesale business designs and markets young women's casual wear that it provides to their retail operations and also sells to approximately 1,300 better specialty retailers worldwide. In mid-August, retailer Urban Outfitters posted an 82% rise in quarterly income, topping analysts' estimates amid strong sales in women's apparel and accessories. The incredible results sent URBN's shares into "rally mode" and this position offers a low risk method to profit from the recent bullish activity. SEP 12.50 URQ UV LB=0.25 OI=130 CB=12.25 DE=28 TY=7.3% ***** VPHM - ViroPharma $35.59 *** A Cure For The Common Cold? *** ViroPharma (NASDAQ:VPHM) is a pharmaceutical company dedicated to the commercialization, development and discovery of new antiviral medicines. The company has focused its current product development and discovery activities on a number of ribonucleic acid, or RNA, virus diseases. These include viral respiratory infection (VRI), often referred to as the common cold; hepatitis C; and respiratory syncytial virus disease, or RSV disease. The company currently is developing its most advanced product candidate, Picovir (pleconaril), for the treatment of common diseases caused by picornaviruses. In pre-clinical studies, Picovir has demonstrated an ability to inhibit picornavirus replication in vitro by a novel, virus-specific mode of action. VPHM's shares surged last week as news about a new drugs' effectiveness in treating the common cold reached the public. The report noted that a recent study showed that patients exhibited a significantly reduced severity of cold symptoms within 12 to 24 hours after the first dose of Picovir, also known as Pleconaril, and the drug shortened the duration of colds by a day and a half. That's great news for all of us with runny noses and sore throats, but it may not be so good for Campbell's (NYSE:CPB) Chicken Soup. SEP 30.00 HPU UF LB=0.95 OI=105 CB=29.05 DE=28 TY=10.8% ***** ***************** 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 ELNT 39.90 SEP 35.00 UET UG 1.35 24 33.65 28 11.8% ISIL 41.35 SEP 35.00 UFH UG 0.95 317 34.05 28 9.3% MERX 26.12 SEP 22.50 KXQ UX 0.60 57 21.90 28 8.8% RCOT 18.75 SEP 17.50 ROQ UW 0.50 0 17.00 28 8.0% XLNX 40.13 SEP 35.00 XLQ UG 0.85 3131 34.15 28 7.8% SWS 20.91 SEP 20.00 SWS UD 0.50 30 19.50 28 6.8% 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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Great Way To End The Week! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, August 24 Investors moved back into stocks today after an optimistic report from Cisco Systems (NASDAQ:CSCO), which suggested that "business may be stabilizing" in the networking industry. The technology composite jumped 73 points to 1,916 with solid gains in computer hardware, software and semiconductor issues. The Dow industrial average rose almost 200 points to 10,423 amid strength in hi-tech bellwethers Microsoft (NASDAQ:MSFT), Hewlett-Packard (NYSE:HWP), Intel (NASDAQ:INTC) and International Business Machines (NYSE:IBM). The broader market S&P 500 index ended up 22 points at 1,184 with buying pressure seen in biotechnology, brokerage, retail, chemical and cyclical issues. Trading volume on the Big Board reached 1.04 billion shares with advances beating declines 19 to 11. Activity on the NASDAQ was a light 1.48 billion shares, with winners pacing losers 22 to 13. In the U.S. bond market, the 30-year Treasury fell 19/32, pushing its yield up to 5.45%. Last Week's new plays (positions/opening prices/strategy): Amerisource (NYSE:AAS) SEP50P/55P $0.60 credit bull-put Elec. Data (NYSE:EDS) SEP70C/65C $0.70 credit bear-call First Bank (NSDQ:FITB) SEP55P/60P $0.65 credit bull-put Freddie Mac (NYSE:FRE) SEP60P/65P $0.65 credit bull-put Serena (NSDQ:SRNA) SEP12C/12P $3.00 debit straddle All of the new positions offered favorable entry opportunities during the week. Unfortunately, the Reader's Request play in FRE turned south after the Federal Reserve cut interest rates by only one-quarter point and gave investors little hope the sluggish economy is rebounding. The abrupt change in character was a clear indication to exit (or adjust) the position and we took the easy way out, closing the bullish spread for an $0.80 debit. FITB also became suspect after falling below a recent support area on Thursday. A move through the 50-dma near $62 is an indication of potential "failed" rally and a close below the June-July lows would be the proverbial "nail in the coffin." Portfolio Activity: The market took an unexpected plunge on Tuesday after the Federal Reserve reduced interest rates by only 25 basis points and issued downbeat remarks about the state of the U.S. economy. The major averages had been trading cautiously higher ahead of the decision but reports that business profits and capitol spending continue to weaken while growth abroad is slowing left investors unsure about the near-term future of the stock market. Analysts also noted that there had been increasing talk recently of a 50 basis-point cut and the news was disappointing to traders who expected a more upbeat assessment of the economy. In addition, renewed concerns that the easing cycle may be coming to an end weighed heavily on interest-rate-sensitive issues and our recent bullish spread in Fannie Mae (NYSE:FNM) required timely action as the issue quickly reversed direction after the announcement. The closing debit was only $0.75; a $0.15 loss in the position. In the Straddles group, traders who took the early profit in the bearish portion of the Amdocs (NYSE:DOX) play now have a free $40-Call to exploit until the September options expiration. In other portfolio news, two of last month's positions enjoyed bullish activity with both plays achieving positive results. Isis Pharmaceuticals (NASDAQ:ISIP), a recent synthetic position, was a surprise winner following its announcement of a strategic alliance with Eli Lilly (NYSE:LLY). The stock jumped 50% to a high near $15 after Lilly committed more than $200 million in funding to Isis over a four-year period. The drug giant will make a $75 million investment in Isis through the purchase of stock, issue a $100 million loan and pay $25 million in up-front licensing fees. The rally provided a great closing credit for traders who had the patience to remain in the bullish play. Another portfolio position that slumped during expiration week was Medtronic (NYSE:MDT) and although we decided to exit the bullish credit-spread for a small loss, a number of readers rolled to the Sep-$40 Put for a small premium. The move appears to be a good decision as the issue recovered early in the week and is now trading above $45. ****************************************************************** - NEW PLAYS - ****************************************************************** FLR - Fluor $43.32 *** Hot Sector! *** Fluor (NYSE:FLR) is a holding company that provides services on a worldwide basis in the fields of engineering, procurement, construction, maintenance, operations, project management and business services. These services are grouped into three major operating segments. Fluor Daniel provides a range of design, engineering, procurement, construction and other services to clients in a broad range of industrial and geographic markets on a worldwide basis. Fluor Global Services include equipment sales, temporary technical and non-technical staffing, services to the United States government, and productivity consulting services and maintenance management, among others. Signature Services provides integrated business services and business infrastructure support in the areas of human resources, finance, accounting, safety, information technology, knowledge management and office support services. Stocks in the Materials and Construction group have performed very well over the last few weeks and analysts say Fluor is one of the leaders in the industry with a fundamentally sound balance sheet and a favorable outlook for earnings growth. In addition, the issue is demonstrating renewed technical strength as it recovers from a recent consolidation and the outlook is definitely bullish in the near-term. Traders who believe the upside activity will continue can profit from that outcome with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT SEP-35 FLR-UG OI=592 A=$0.35 SELL PUT SEP-40 FLR-UH OI=200 B=$0.95 INITIAL NET CREDIT TARGET=$0.65-$0.75 PROFIT(max)=14% ****************************************************************** SHPGY - Shire Pharma $46.05 *** An Old Favorite! *** Shire Pharmaceuticals Group PLC (NASDAQ:SHPGY) is a worldwide specialty pharmaceutical company with a strategic focus on four therapeutic areas: central nervous system disorders, metabolic diseases, oncology and gastroenterology. The company operates and manages its business in the United States, Europe and the rest of the world. Within these geographical segments, revenues are derived from sales of products by the company's own sales and marketing operations, licensing and development fees and royalties. Shire Pharmaceuticals has its own direct marketing capability in the United States, Canada, the United Kingdom, the Republic of Ireland, France, Germany, Italy and Spain. Shire also covers other pharmaceutical markets indirectly through distributors. Shire is an old favorite in the Spreads/Straddles section and we follow the issue on a regular basis for potential portfolio plays. Unfortunately, the stock has not been performing very well over the past few weeks and there is little indication that the trend will change in the near future. The technical outlook is bearish and traders who agree with that view can speculate on the movement of SHPGY with this conservative position. PLAY (conservative - bearish/credit spread): BUY CALL SEP-55 UGH-IK OI=98 A=$0.25 SELL CALL SEP-50 UGH-IJ OI=1853 B=$0.85 INITIAL NET CREDIT TARGET=$0.70-$0.75 PROFIT(max)=15% ****************************************************************** SRCL - Stericycle $45.62 *** Trading Range? *** Stericycle (NASDAQ:SRCL) is a regulated medical waste management company in North America, serving approximately 250,000 customers throughout the United States, Canada, Puerto Rico and Mexico. The company's network includes 33 treatment/collection centers and 99 additional transfer and collection sites. The company uses this network to provide a broad service offering, including medical waste collection, transportation, treatment and related consulting, training and education services and products. This position is based on the current price or trading range of the underlying issue and its recent technical history or trend. Stericycle appears to be forming a Stage III top as it is finding formidable resistance at $50. The decline below the July low is ominous and suggests a test of the 150-dma (near $43) will occur in the near future. The 50-dma (near $47) now becomes the first level of resistance, giving little chance of a move towards $50 and considering the heavy overhead supply at our sold strike, this position offers reasonable risk with an acceptable reward. PLAY (conservative - bearish/credit spread): BUY CALL SEP-55 URL-IJ OI=190 A=$0.45 SELL CALL SEP-50 URL-IK OI=73 B=$1.00 INITIAL NET CREDIT TARGET=$0.60-$0.70 PROFIT(max)=14% ****************************************************************** SWS - Southwest Securities $20.91 *** On The Rebound! *** Southwest Securities (NYSE:SWS) is a full-service securities and banking firm using technology to deliver a broad range of unique investment and related financial services to its clients, which include individual and institutional investors, broker/dealers, corporations, governmental entities and financial intermediaries. The company's Brokerage Group provides clearing services to 200 correspondent broker/dealers and over 500 independent contract brokers, as well as full-service and online discount brokerage services to individual investors. Its Asset Management Group offers investment management, advisory and trust services through three subsidiaries. Under the Banking Group, the company also offers full-service, traditional banking through First Savings Bank. We found this position while scanning for potential Covered-Call candidates and based on the recent activity, the issue appears poised for future gains. At the same time, the premium in the near-term calls is relatively low so we will attempt to profit from additional upside activity with a synthetic (long) position. This strategy is appropriate for a trader who is bullish on the underlying issue and has adequate portfolio collateral to cover the margin requirement of the sold (short) put. We will target a small credit (overall) in the play initially, to allow for a brief consolidation in the share value of SWS. PLAY (conservative - bullish/synthetic position): BUY CALL OCT-22.50 SWS-JX OI=6 A=$1.00 SELL PUT OCT-20.00 SWS-VD OI=0 B=$0.90 INITIAL NET TARGET=$0.10-$0.20 TARGET PROFIT=$0.60-$0.75 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $845 per contract. ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** TER - Teradyne $35.05 *** Big Mover! *** Teradyne (NYSE:TER) is a manufacturer of automatic test equipment and related software for the electronics and communications industries. Their products include systems to test and inspect semiconductors, circuit boards,; high-speed voice communication, analog and digital data and software. Teradyne is also a global manufacturer of back-planes and associated connectors used in electronic systems. One of our readers asked for some speculative straddles in the technology group and despite Friday's market volatility, there are a number of great candidates for neutral, option-buying strategies. Here is one possible play, based on analysis of historical option pricing and technical background. Recent news and market sentiment will have an effect on the issue so review the position thoroughly and make your own decision about its future outcome. Target a slightly lower (overall) debit in the play initially, to allow for some consolidation in the option premiums after the recent volatility. PLAY (speculative - neutral/debit straddle): BUY CALL SEP-35 TER-IG OI=111 A=$2.15 BUY PUT SEP-35 TER-UG OI=78 A=$2.10 INITIAL NET DEBIT TARGET=$4.00 TARGET PROFIT=15-25% ****************************************************************** ************************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.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
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