The Option Investor Newsletter Sunday 09-02-2001 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/3178_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 8-31 WE 8-24 WE 8-17 WE 8-10 DOW 9949.75 -473.42 10423.17 +182.39 10240.78 -175.47 - 96.53 Nasdaq 1805.43 -111.37 1916.80 + 49.79 1867.01 - 89.24 -109.86 S&P-100 577.40 - 29.31 606.71 + 12.84 593.87 - 17.54 - 12.24 S&P-500 1133.58 - 51.35 1184.93 + 22.96 1161.97 - 28.19 - 24.19 W5000 10515.09 -433.32 10948.41 +188.32 10760.09 -234.36 -248.49 RUT 468.56 - 12.25 480.81 + 5.16 475.65 + .13 - 11.63 TRAN 2813.41 - 40.98 2854.39 + 29.74 2824.65 - 36.12 - 53.25 VIX 27.85 + 5.56 22.29 - 4.45 26.74 + 3.93 + .42 VXN 52.86 + 5.16 47.70 - 4.32 52.02 + 3.50 48.52 TRIN .71 .70 2.67 1.03 TICK -74 351 201 Put/Call .82 .56 1.07 .72 ****************************************************************** Summer Rally is Officially Dead! Is The Labor Day Rally Next? by Jim Brown The summer rally theory is officially dead at least for this year. The next major urban legend to enter the spotlight is the Labor Day rally and measured by Friday's results it is off to a bad start! While the stock traders almanac shows that historically the first three trading days of September are typically bullish it does not take into account current conditions. Apparently the markets were not impressed by past history in 2000 because the results were far from exciting. On Sept 1st, 2000 the Nasdaq touched 4259 as the high and then sold off to 3054 only 30 days later. The Dow hit a high of 11401 on Sept 6th, 2000 and then dropped -1745 points to the October lows on 10/18. So, is the Labor Day picnic this year going to be hosted by the bulls or the bears? As relief rallies go, Friday was a two on a scale of 10. I got the feeling that we were saved by the bell not a minute too soon as bulls and bears alike went flat over the weekend. The Dow soared at the open on better than expected economic news to 10036 and traders were ready to pop the Labor Day bubbly only to watch those gains fade again to close just under 9950. This was the second time in two days that the Dow closed under that psychologically important level. The Nasdaq also rallied at the open but then traded sideways to down the rest of the day. Short covering was not as heavy as expected with stocks like SUNW only adding $.38 on one third of Thursday's volume. If shorts decided to hold over the weekend then the odds of a market rebound next week just got slimmer. The Nasdaq and Dow posted the worst August since the Asian crisis in 1998. This was the third worst August for the Nasdaq in its 30 year history. August has gone into the history books as the worst month of the year for the last ten years. September holds that record however if you include the last 30 years. Not an exciting possibility for the market going forward if the market fails to rally off good economic news in a period that is historically bullish, Labor Day. The good economic news came in the form of a better than expected Factory Orders report. They posted a miniscule +0.1% gain but much better than the -0.3% loss that was expected. The inventory to shipment ratio did fall to 1.38 from 1.40. Negative internals included a drop in semiconductor orders of -26.1%. Consumer goods including household appliances and autos posted increases. The Chicago PMI index increased to 43.5 in August which was up from last months 38 but extending the decline to eleven straight months. This shows that manufacturing is still contracting and there is no sign of a recovery at the basic level. While the number improved slightly the backlog of orders remained weak. The headline numbers spurred the markets at the open but any loud noise could have spiked the markets from their oversold conditions. The earnings news and the anticipation of the September warnings period has caused buyers to become catatonic and it may take a flood of positive news before buyers actually believe it. There is considerable reason to be worried about next weeks reports. The NAPM is due on Tuesday along with Construction Spending. Productivity on Wednesday and Wholesale Inventories and Jobs Report on Friday. A drop in spending, increase in inventories or a serious change in the employment numbers along with the expected flurry of early warnings could shock the markets back to the April lows. The U.S. economy may be on life support and maintaining a pulse as evidenced by the +0.2% GDP number but the global economy is still falling. Japan's Nikkei 225 index fell another -225 points on Friday to 10713, a number not seen since August of 1984 when our Dow was only 1200. Japan is the second largest world economy and analysts say a sub 10,000 Nikkei will seriously cripple an already sick banking system. Remember the Asian crisis of 1998? Get ready for 2002 if something does not happen quickly. Japan may be the most visible but there are problems in most European and Asian markets as well. The ECB cut rates for only the second time this year with a statement that the severity of the U.S. problems caught them by surprise. Congratulations, they caught the Fed by surprise as well! The Fed chairman himself opened the Jackson Hole conference on Friday and in his speech he expressed concern over the net worth of the U.S. consumer. He said the capital gains from their homes was continuing to fund spending and holding the economy just above recession. He did express concern that the average household net worth had soared in the last ten years and fueled the rapid growth but that same net worth had "retraced some of its earlier gains." In English it means most households are now on the verge of broke after losing all of their money in the Nasdaq bubble. They are having to sell their homes to pay off bills and taxes incurred when the markets were hot. Yes, there is cash to be spent when homes are sold but I don't think distressed selling is the way to support the economy. He danced around the subject as always and said the Fed was developing some new indicators for future policy changes. In English, they got caught raising interest rates aggressively while the economy was going through cardiac arrest from an overdose of irrational exuberance. All of this points to a Fed that will cut rates again on October 2nd but nobody will care. After seven rate cuts the markets are still tanking and showing a growing resistance to the rate cut antibiotic. Several noted analysts have suggested in public recently that Greenspan may have passed his prime and new blood may be needed to inspire confidence in investors that the Fed is in control. The positive ending for the markets on Friday came on very weak volume. The NYSE only managed 900 million and the Nasdaq 1.2 billion. Advancers only barely beat decliners and the amount of the average advance was only a few cents. Definitely not a buying frenzy. When deciding what the markets will do next week you have to think about the psychology of fund managers and institutional traders when they come back from their holiday. What has changed to make them want to buy? There was no capitulation sell off this week. Despite the three days of triple digit drops on the Dow it was on only moderate volume. Earnings have not improved overnight. Warnings still continue daily and the biggest warning from Friday night was of all things a chip stock. LRCX warned that it was cutting another 10% of its workforce and implementing company-wide shutdown days along with voluntary pay cuts. LRCX makes equipment for chipmakers and they said the slowdown in orders was continuing. So much for chips leading any recovery next week. Intel will also keep the lid on any chip rally with its version of the SUNW business update on Thursday. They will tell analysts how business is progressing and tout new products. They could take this opportunity to warn as SUNW did and set the tone for September at an early date. Hitachi announced another 15000 layoffs this week due to slowing global demand and Intel could be facing the same order pressures. For next week traders should be very careful. Even on good years September tends to favor sellers after the first couple of days. There has been no capitulation on the down side and we are still quite a ways from touching the April lows. There is a growing group of analysts that think those lows will not hold due to the worsening global economic environment. Not a pleasant thought! Still as option traders we should "trade what we see, not what we believe." Just because we believe the market is oversold and the mythical Labor Day rally is about to break out all over, we should still only place those trades when we see it come to pass. Many traders from the last three years are employees again because they just "knew" the market was going to bounce soon. Many retirees are rejoining the workforce because the "market always goes up". As investors we need to trade the trend or not trade at all. Literally billions have been lost over the last three months because of the old adage, "don't fight the Fed." Whenever the Fed cuts rates the market goes up, or so the saying goes. You probably remember the various charts that analysts used on stock TV several months ago to illustrate the gains after specific numbers of rate cuts. Have you seen any recently? The point I am trying to make here is that market history is just that, market history. The market is alive and well and deciding its own direction on a daily basis as news and events by the thousands color investor decisions. Opinions are as numerous as analysts and change with the wind. My opinion is September will be difficult. We are at the point economically where ANY further negative news will send the remaining stock traders running into bonds. Sorry, that is already happening! Any further negative news will push the Fed's economic plan over the cliff and all the kings men will not be able to put it back together again. The fate of the U.S. economy may not even be in our own hands. If Japan continues to spiral down into economic oblivion the whirlpool will take many others with it including the U.S. As bear markets go this one has already overstayed its welcome. Since the market top in March of 2000 we have seen 17 months of drops which included dozens of bear trap rallies. What has changed in the last week that will cause September to perform different than August? What will make it break the 30 year pattern as the worst month of the year? in my opinion, nothing! You hear all the bullish analysts saying this year is different. The sell off has already run its course and we have no where to go but up. They say this is not a normal year and the bargains will lure buyers out early in anticipation of the 4Q rally. Some are actually putting their money where their mouth is. Commercial traders are actually net long and approaching the most bullish numbers of the year. This may be contrary to current market direction but shows they are "buying stocks when nobody else wants them", another market adage. This is a positive sign but when added to the other indicators it means less. The VIX is holding just below 28 and the put/call ratio is only .82. The TRIN fell from very oversold at 2.28 on Thursday back down to a normal reading at .71. These are not rally numbers but they also are not pointing to a major drop on Tuesday. The answer to this puzzle is likely a continued down trending market until some real evidence of a recovery appears. This means we need to trade the trend or wait patiently for the trend to change. We loaded the play list this weekend with puts after watching the market rebound fail on Friday. Hopefully history will repeat and we will get some follow through to the upside on Tuesday and give us some good entry points for those puts. Trade the trend or don't trade at all! Remember these charts from last Sunday? I was making a point that the VIX was indicating a possible sell off in the making for the Dow. History is a good teacher is we choose to learn. The Dow dropped -473 points for the week. 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 ************** Put Players Paradise The markets failed to hold their gains on Friday and shorts did not cover. This scenario sets up the possibility that we could see a weak follow through on Tuesday/Wednesday, if at all, and then more selling. The correct way to play this is to target some weak stocks and buy puts on any strength in anticipation of a roll over. The following list is some stocks I scanned which could be potential put candidates. This is not a recommendation but simply some stocks that could continue to fall if the market continues down. TSG - Sabre Holdings HCR - Manor Care PHA - Pharmacia SBC - SBC Communications HWP - Hewlett Packard CPQ - Compaq BA - Boeing JPM - JP Morgan MMM - 3M GD - General Dynamics VRTS - Veritas MOLX - Molex QLGC - QLogic Corp ARNA - Arena Pharm SEBL - Siebel Systems CERN - Cerner Corp I chose these three as good possibilities. Please look for a market bounce to enter these plays. The market is still oversold and we could see some follow through on Tuesday before we start down again. GD - General Dynamics The September put at only $.80 would make a good lottery play but chances are only 50/50 that it will appreciate before the Sept expiration. The October put has time to use any Sept drop or the always exciting October period for profit. At $1.65 there is not much risk and plenty of opportunity for reward. Support is at $75 which is sure to be tested and any break of support could be a home run. ************ CERN - Cerner Corp Cerner appears due for a bounce back to $50 which would provide a great entry point for the Oct $45 put at less than the current $2.25 price. Support is at $40 and the July spike still needs to be refilled. When the markets drop again the higher dollar stocks will suffer the most and a stock like CERN with low volume could drop quickly if one or two big sellers decided to leave. ************ TSG - Sabre Holdings Group Sabre is a software and technology company that deals with airline bookings. With travel in a downward spiral the commissions and software sales are likely to be falling as well. Support is at $38 which makes the $40 put the best play. Again, I like the October which gives it plenty of time to test that support. ************ Trade the trend or do not trade at all! That would be my admonition for this week. Use any strength to enter the put plays instead of just buying on a whim. 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 **************** Good Riddance August has historically been a bad month for Dow and S&P 500, and this year was no different. The Dow closed 5.45% lower than it started the month, and the S&P 500 fell 6.41%. The Nasdaq lost 10.94%. At least we finished the month on a slightly positive note. Stocks were able to stop a four-day slide thanks to a Chicago Purchasing Managers Index that came in better than expected. 38.0 was the consensus estimate, but the number came in at a surprising 43.5. A reading below 50 means that manufacturing is contracting, but at least August was an improvement. Factory orders rose 0.1%, which helped to minimize the damage of a worse than expected University of Michigan Consumer Sentiment. Dow and Nasdaq-100 Daily Charts At one point on Friday the Dow had managed to climb back above 10,000, but once the economic report euphoria wore off, there just wasn't enough buyers around to keep it there. 9,970 and 10,000 remain points of resistance for the Dow. The Nasdaq-100 Tracking Stock gained 1.27%, and actually managed to climb back above last week's low. IF the Nasdaq-100 can continue to rally, perhaps at test of 40 could happen next week. Holding above $36.50 wouldn't be bad either. So now we have August out of the way. No more talk of summer doldrums, vacations, and light volume. It's time to get back to business. What might September hold? Wall Street will start September with $6 billion less to work with as equity mutual funds had yet another week of net withdrawals. Most of those withdrawals stemmed from investor fears about the economic and corporate outlook. With warning season shifting into high gear, Investors will have plenty to worry about. Barring a string of positive surprised, rallies still look to be better suited for shorting. Speaking of rallies, September usually opens up strong as traders come back rested from a long weekend. That's the highlight of the month, since statistically September is the worst month for the Dow and S&P 500. ----------------------------------------------------------------- Market Volatility VIX 28.05 VXN 52.86 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total .82 *Data not available ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 34 - Bear Confirmed NASDAQ-100 24 - Bear Confirmed DOW 30 -6 Bear Confirmed S&P 500 46 -2 Bull Correction S&P 100 36 -2 Bear Confirmed 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 1.52 10-Day Arms Index 1.28 21-Day Arms Index 1.45 55-Day Arms Index 1.27 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 1691 1368 NASDAQ 1982 1561 New Highs New Lows NYSE 105 53 NASDAQ 35 96 Volume (in millions) NYSE 918 NASDAQ 1,228 ----------------------------------------------------------------- Advisory Sentiment Bullish Bearish Correction Net Change 46.9% 30.2% 22.9% 16.7% -3.2% 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: 08/28/01 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 Commercial traders increased their net bearish by 6.9%. This isn't a drastic move, but (79,126) is the most bearish commercial traders have been since 3/13/01. Commercials Long Short Net % Of OI 8/14/01 337,327 411,504 (74,177) ( 9.91%) 8/21/01 342,332 416,372 (74,040) ( 9.76%) 8/28/01 342,742 421,868 (79,126) (10.35%) 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 8/14/01 130,432 55,750 74,682 40.11% 8/21/01 134,280 58,785 75,495 39.10% 8/28/01 141,046 58,001 83,045 41.72% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercial traders didn't add any long positions, but did dump a few short positions, so the net bearish position improved slightly. Commercials Long Short Net % of OI 8/14/01 29,909 37,822 ( 7,913) (11.68%) 8/21/01 30,348 38,964 ( 8,616) (12.43%) 8/28/01 29,255 36,551 ( 7,296) (11.09%) 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 8/14/01 11,165 9,508 1,657 8.02% 8/21/01 10,499 7,576 2,923 16.17% 8/28/01 11,131 9,694 1,437 6.90% 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 Last week commercials came close to the most bullish reading of the year, but have pulled back this week. Commercials Long Short Net % of OI 8/14/01 21,652 15,856 5,796 15.5% 8/21/01 22,710 14,625 8,085 21.7% 8/28/01 22,141 14,959 7,182 19.4% 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 8/14/01 4,441 8,528 (4,087) (31.51%) 8/21/01 5,059 10,410 (5,351) (34.59%) 8/28/01 5,240 9,835 (4,595) (30.48%) 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 *************** Die Kontrartheorie By Eric Utley I stopped by the mall last week to pick up a few necessary items ahead of the holiday weekend. By the way, it was about as crowded with people as the North Pole. Anyway, I ran into a couple of interesting characters when I entered Banana Republic (NYSE:GPS). Much to my surprise, Faust and Mephistopheles were meandering through men's wear. So, I thought it wouldn't hurt to get their respective opinions of the market. I walked up to Mephisto and firmly asked, "Hey, Mac, what say you?" Mephisto replied, "All is still downright bad, I find. Man in his wretched days makes me lament him; I am myself reluctant to torment him." He then strolled towards the dressing room with a lot of denim slung over his shoulder. "What's with that guy?," turning to Faust, "What about you, good doctor, how do you size up the current state of affairs?" Faust checked to see if his partner was behind the dressing room door then said, "To the abyss, by greed and frenzy headlong pressed." "Look, Faust, I appreciate the terms of your 'agreement' with the big guy, but is that really what you think? I mean, things are bad and getting worse; people are losing their jobs, 401(K) accounts have been whacked, and retirements postponed." Through a grin, Faust chuckled, "To the abyss." "I know you're not a vestal one, Faust, but easy on the doom speak. Say, didn't you once suggest that having an opinion in the minority is better than agreeing with the majority?" As if I was implying some sort of superiority on his part, Faust smiled with arrogance, "Yes." "Faust, would you not consider the crowd fearful?," I asked. Again, he smiled, "Yes. The crowd..." But before he could finish, Mephisto charged out of the dressing room sporting a nice pair of boot-cut jeans. After taking several turns in front of the mirror while demanding our attention, Mephisto opined, "Sell rallies." I then asked, "Would the two of you consider yourselves smart money?" Without turning his focus from the mirror, Mephisto replied, "No, just smart." Please send your questions and suggestions to: Contact Support ---------------------------- Veritas Software - VRTS Is this a good time to take a position in VRTS? Do you see more downside? - Thanks, Krishna Thanks for the question, Krishna. Veritas (NASDAQ:VRTS) started under performing the broader software sector back when it was trading around $39. The stock continues to trade rather poorly relative to its sector and indeed the broader tech sector. Furthermore, the software sector itself, as measured by the GSO.X, is under performing tech in general. I think that Veritas' underperformance versus the broader software space stems from its association with the data storage business. Both Emc and Sun Micro are getting hammered, and both are large customers of Veritas'. So if those two are having difficulty, I can't imagine that it will be too much longer before Veritas says some bad things about its business. The point & figure chart below clearly displays that demand for Veritas has been measurably overwhelmed by supply recently. At this stage in the dynamic, it's not even a contest! The stock only recently went on a buy signal for the first time since the high $60's, but that buy signal proved to be a bull trap. The stock subsequently broke down below a triple bottom last week and looks terrible. To be perfectly clear, Krishna, I do not think that it's a good time to take a long position in Veritas. It just doesn't make sense to buy a weak stock in a weak group. If you're going to be bullish, think strength in both sector and stock. ---------------------------- Krispy Kreme - KKD Can you please advise on the future prospects of this stock? Jim had once admired this company and their product some time back. Look forward to your comments. Do you think this stock is a good buy now? - Thanks, Sunil I always look forward your comments, too, Sunil. Fortunately, I have a high metabolism, which helps to mask the large quantities of Krispy Kreme (NYSE:KKD) doughnuts that I consume. In my very humble opinion, I think that there's going to be an inflection point with Krispy Kreme that causes a sharp sell-off in the stock. These food fads never end well; I'm reminded of Snapple. I don't think Krispy Kreme is there yet, but traders should be on the lookout for that turning point. Currently, the stock isn't giving much indication of which direction it wants to take. It's been quite volatile, and hinting of indecision. After its big run-up early this summer, however, the predominant trend has been lower. There's something rather interesting on the point & figure chart below. KKD hasn't tested its bullish support line, which currently lies at the $27 box. However, a test of that line would result in a sell signal at the $27 box. But with that support line yet to be tested, I'd be hesitant to short KKD on a print at $27. That's because stocks, more often than not, bounce from their bullish support lines on the first test as Jeffrey Canavan often reminds me. But it would be awful tempting to lean on the stock if it subsequently broke its bullish support line and printed $26. ---------------------------- 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 ************* Recession or not, few investors will quarrel that the economy will be slow to recover. Next week is shortened but the economic reports coming out could pack a punch. ============== Event Calendar ============== For the week of September 03, 2001 Monday ====== Labor Day - Market Closed Tuesday ======= Auto Sales Aug Forecast: 6.2M Previous: 6.1M Truck Sales Aug Forecast: 7.1M Previous: 7.3M Construction Spending Jul Forecast: 0.0% Previous: -0.7% NAPM Index Aug Forecast: 43.2% Previous: 43.6% Wednesday ========= Productivity-Rev. Q2 Forecast: 2.0% Previous: 2.5% Thursday ======== Initial Claims 09/01 Forecast: 395K Previous: 399K NAPM Services Aug Forecast: 49.1% Previous: 48.9% Friday ====== Nonfarm Payrolls Aug Forecast: -50K Previous: -42K Unemployment Rate Aug Forecast: 4.6% Previous: 4.5% Hourly Earnings Aug Forecast: 0.3% Previous: 0.3% Average Workweek Aug Forecast: 34.2 Previous: 34.2 Wholesale Inventories Jul Forecast: -0.2% Previous: -0.2% Week of September 10 =========================== Sep 10 Consumer Credit Sep 12 Current Account Sep 13 Initial Claims Sep 13 Export Prices ex-ag Sep 13 Import Prices ex-oil Sep 14 PPI Sep 14 Core PPI Sep 14 CPI Sep 14 Core CPI Sep 14 Retail Sales Sep 14 Retail Sales ex-auto Sep 14 Industrial Production Sep 14 Capacity Utilization Sep 14 Mich Sentiment-Prel ************************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. 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The Option Investor Newsletter Sunday 09-02-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/3178_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 ************** Extreme Trading By Robert J. Ogilvie Calendar Spreads are a form of combination that consist of a long-term option and a short-term option. Most traders use them to take advantage of leverage versus owning the underlying security. The most common form is to buy a longer-term call (long position) and sell a shorter-term call (short position) at the same or higher strike price. Why would anyone buy a call in these conditions? Well, the overall trend may be down, but there are still buying opportunities. "Buy when they’re cryin’ sell when they’re yellin’." It is as if because the old leaders of just 18 months ago are in severe downtrends that there aren’t any other companies that are posting growing EPS quarter after quarter. There are just fewer to choose from and finding them is a little harder than just throwing a dart at the IBD or punching any combination of four letters on the keyboard. The one thing I know is that there are some great buys that we won’t know until after they have moved up and the economy has gotten better. My harsh response to the doubters on the street on “when is the market/economy going to bottom” is we’ll know after the fact. We are looking for strong companies that are consistently growing their revenue and earnings and also look like they will continue to do so. The market has a way of camouflaging good opportunities when the economy is slow. We want to use our infrared scope to locate the hot spots. I like using the IBD’s daily graphs to narrow the list down to a few candidates (you can also use the actual paper). This is done fast by only looking a companies with EPS and Relative Strength Ratings above 80 and Accumulation/Distribution of B or higher. The stock has to have average daily volume greater than 200,000 shares and trade options. The options filter really narrows it down. Assume we narrowed the thousands of stocks down to a manageable list of 15. Now check the news for pending earnings or other viable information that could affect the stock (i.e. mergers, splits, pre announcements, shareholder meetings, etc.). Check the daily chart to determine the price in relation to the 50 DMA 200 DMA. The 50 DMA is a good level to monitor on candidates as well as stocks you own because many funds use a break of this level as a sell signal. Then determine where the price is in relation to the 10 and 40 DMA. I prefer to buy stocks above their 40 DMA because a break of the 40 DMA is sometimes an early indication that the 50 DMA will be broken. I would rather be early than late. If I am looking to buy a call option or stock, I want to have an uptrending or at least consolidating stock. Buying above the 40 DMA confirms some strength. The next scan is to determine the stock’s price in relation to the Bollinger Bands. If I want to buy low, I will look to enter the long-term call at the lower band. As the recent sections on Bollinger Bands suggest, the angle of the band can help determine the degree to the conviction of the stock’s change in direction. A flat or uptrending lower band is preferable when buying a long-term call. The next scan is to determine if the Stochastics are also indicating if oversold extremes have been reached. Therefore, we want to try to buy above the 40 DMA with the price nearing the lower band without piercing and the stochastics at oversold levels. Assuming we bought at the right time and the stock actually went up a little, we can look to sell the short-term call. This is actually more aggressive, but we can always sell at the same time the long-term call is bought. The reason is because the stock has is at oversold levels and can move up. If the stock moves up, the premium received may pale in comparison to the premium to buy if the stock breaks the strike price level. Another reason it may be more aggressive is that at lower levels, we generally sell the option strike that is closer to the current strike price. If we wait until the stock moves up a little, we may get more for the same call or we may be able to sell a higher strike price. Selling the next higher strike price when the stock reaches overbought levels decreases the chances in the near term that the strike’s price level will be exceeded. Note: chance decreased not assured. The most common form of a calendar spread is buying a long-term call and selling the same or higher strike price call with less time until expiration. Example: XYZ Currently $68 Buy XYZ JAN 2003 70 Call Sell XYZ OCT 2001 75 Call If the short call’s strike price is exceeded, note the time until expiration. It may not be necessary to close out he short call if the stock appears to be overbought and may be coming down soon enough yet without enough time to rebound again into the money. It can be complicated. Another strategy that may be implemented if sufficient time until expiration is to buy the short call to close if the stock price drops to oversold levels. This frees up the long position to either sell if support is broken or the stock price rebounds to overbought levels and a call can be sold again. Treating the long-term call like a stock is good. This means sell if the support level is broken, sell the position. Just because there is time left, don’t hold on hoping the stock bounce back. If you owned the stock, you would sell it and it has more time left than the option (except for bankruptcy or takeover). If the stock breaks the short strike’s price level and appears to have more room, buy the call to close. Either roll up to the next strike price or close out the entire position. I keep referring to stocks going up and breaking resistance. It is happening! The selection process I covered is just one of many scans that can find candidates. Some of the old leaders are still strong corporations and may be oversold. In conclusion, the common thing to think is that because the old leaders aren’t going straight up, there isn’t any money to be made. I think that is wrong. I say trade the extremes or sell deep in the money calls or sell out of the money puts or credit spreads. Buy (the longer-term call) low, sell (the shorter-term call) high. If there is any confusion, email me to clarify. 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 Cutter & Company, Inc. I am an Options Broker and ROP that trades for and educates investors on many strategies. Please contact me at Robert.Ogilvie@verizon.net if there are 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 the OptionInvestor.com’s Disclaimer: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html. ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* TSM - Taiwan Semiconductor $12.98 (+0.98 last week) See details in sector list Put Play of the Day: ******************** VZ - Verizon $50.00 (-2.11 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 ELNT $38.00 (-1.90) The relative strength we've been gaming in ELNT may have disappeared last Friday, noting the stock's weakness in light of the advance in the SOX. As such, we're dropping coverage this weekend. Any lift from current levels early next week, after the holiday, would offer traders with open positions a favorable exit point. PUTS EBAY $56.23 (-2.78) EBAY's follow-through into Friday's session last week gave us pause. The stock has been stair stepping higher in the last few sessions, which has us on alert. Instead of taking unnecessary risks, we're bailing early on the play and booking any gains that may have been earned during the duration of this play. IMPH $43.00 (-0.78) After delivering a solid gain as it fell through the $44 support level earlier in the week, IMPH has been acting bullish the past couple days. Support materialized just above $40 on Thursday, and despite an early dip Friday morning, IMPH moved right up to the $43 level at the close. With daily Stochastics having crossed solidly into bullish mode, it looks like it is time to get while the getting is good. *********** 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 ************** VOD - Vodafone $20.15 (+0.95 last week) Vodafone Group Plc is a wireless telecommunications company with worldwide operations through its subsidiary, joint venture and associated undertakings. Vodafone also has interests in wireless telecommunications businesses in the Middle East and Africa. The Company provides a full range of wireless telecommunications services, including cellular, personal communications services, paging and data communications. Vodafone has interests in 25 countries across five continents. Based on venture customers at March 31, 2000, Vodafone had more than 39.1 million customers, excluding paging customers, and served markets covering a total population of around 411.8 million people worldwide. The telecom stocks have been beaten and battered to a pulp. That includes those companies across the Atlantic. European shares have performed especially poorly because of the excessive debt levels that many of the companies are operating with. But select issues are showing signs of strength recently, which may signal a turning point in the group. Shares of Vodafone fall into that camp as the stock has been on the mend recently. Just last Friday, VOD closed back above the psychologically significant $20 level, which may by itself signal a rebound in the stock. There's only a bit of minor resistance above VOD's current levels at the $20.19 level - the site of a opening gap a few weeks back. Beyond that level, VOD could see smooth sailing up to the $22 level, market conditions permitting. If a full fledged rebound is in the works, VOD could make its way all the way back up to the $25 level over the next month or two. For pullbacks, look for support to materialize around the $19 level, where an entry may also be found on any future weakness. Our stop is at $18.50. BUY CALL SEP-17.5*VOD-IW OI= 335 at $3.00 SL=1.50 BUY CALL SEP-20.0 VOD-ID OI=5212 at $0.95 SL=0.00 BUY CALL OCT-20.0 VOD-JD OI=1034 at $1.70 SL=0.75 BUY CALL OCT-22.5 VOD-JX OI=1558 at $0.75 SL=0.00 Average Daily Volume = 5.64 mln TSM - Taiwan Semiconductor $12.98 (+0.98 last week) Taiwan Semiconductor Manufacturing Company Ltd. is a dedicated semiconductor foundry. As a foundry, the Company manufactures semiconductor designs using its advanced production processes for its customers based on their own or third parties' proprietary integrated circuit. The Company offers a comprehensive range of wafer-fabrication processes, including processes to manufacture CMOS logic, mixed-signal volatile and non-volatile memory BiCMOS chips. TSM has traced a peculiar pattern in price over the past two weeks. The stock has formed somewhat of a short term base and appears poised to breakout above its recent lid. That lid currently resides right around the $13 level - TSM's intraday high last Friday was as the $12.99 level. Moreover, the relative lows in the stock are getting higher and higher, evidenced by the dip buyers stepping up last week around the $12.50 level. At this point, a breakout could happen early next week if the Philadelphia Semiconductor Sector Index (SOX.X) follows through. Otherwise, any pullback from current levels may offer traders a chance to enter near support, that way being ahead of any future breakout attempt. If the stock's pattern of higher lows holds, the buyers should next step up to the plate around the $12.50 level, or possibly slightly higher around the $12.75 level. Initially, we're setting our stop at the $11.75 level, which is just below TSM's relative lows. That way, we can protect against any further deterioration in price. BUY CALL SEP-10.0*TSM-IB OI= 50 at $3.10 SL=1.50 BUY CALL SEP-12.5 TSM-IV OI=3198 at $1.15 SL=0.00 BUY CALL OCT-10.0 TSM-JB OI= 31 at $3.30 SL=1.50 BUY CALL OCT-12.5 TSM-JV OI= 563 at $1.55 SL=0.50 Average Daily Volume = 4.70 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 09-02-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/3178_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 ****************** CNXT - Conexant Systems $11.91 (+0.30 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. CNXT charged back Friday after the selling subsided across the broader market. As we've been detailing, any signs of strength in the Semiconductor Sector Index (SOX.X) has allowed CNXT to trade higher, which is exactly what happened again Friday. On a percentage basis, the stock actually had a great day Friday, which reinforces that there's a big buyer in this stock that's visible. The stock did trade right back up to the $12 level Friday, where it finally stopped advancing. Going into next week's trading, a solid breakout on high volume above that level would allow for traders to gain new call entries into this play. But those who attempt trading any breakout should only do so after confirming strength in the broader market and sector. In the case of CNXT, that means the Nasdaq Composite (COMPX) and SOX. If weakness does, however, resurface again next week, bullish traders may again turn to the $11 support level to gain favorable entries on weakness. In terms of exit points over the short-term, CNXT could make its up to the $13 level, which is only a $1 move from current levels. Therefore, the low dollar value of the stock necessitates trading higher delta option contracts. BUY CALL SEP- 7.5 QXN-IZ OI= 76 at $4.50 SL=2.75 BUY CALL SEP-10.0*QXN-IB OI=5468 at $2.15 SL=1.50 BUY CALL OCT-10.0 QXN-JB OI=8918 at $2.60 SL=1.75 BUY CALL OCT-12.5 QXN-JV OI=1978 at $1.15 SL=0.25 Average Daily Volume = 3.13 mln FFIV - F5 Networks $15.82 (-0.94 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. FFIV bolted higher last Friday, following through with its exceptional advance during the previous day's trading. Looking forward, bullish traders in this play need to see the Networking Sector Index (NWX.X) strengthen if FFIV is going to have any change of working substantially higher over the short-term. For its part, the Networking Sector continues hovering around the 280 level. In fact, it finished fractionally lower last Friday, which is a testament to its relative weakness. As such, bullish traders need to see somewhat of a lift in the group, and that means stocks such as CSCO, CIEN, JNPR, and others need to rebound. That will therefore allow FFIV to trade higher over the short-term. In terms of entry points, bullish traders who confirm strength in the NWX early next week can use an advance above $16 to gain new entries into call plays. Otherwise, a pullback down around the $15.25 level, or lower around $15 may offer solid entries. BUY CALL SEP-15.0*FLK-IC OI=440 at $1.75 SL=0.75 BUY CALL SEP-17.5 FLK-IW OI=368 at $0.85 SL=0.25 BUY CALL OCT-15.0 FLK-JC OI=324 at $2.70 SL=1.00 BUY CALL OCT-17.5 FLK-JW OI=216 at $1.50 SL=0.50 Average Daily Volume = 622 K STJ - St. Jude Medical $68.80 (-0.45 last week) St. Jude Medical, together with its subsidiaries, is engaged in the development, manufacturing and distribution of medical technology products for the cardiac rhythm management, cardiology and vascular access, and cardiac surgery markets. Shares of St. Jude pulled back on continued profit taking during Friday's session. The stock's weakness may have also been a product of rotation back into the offensive areas of the market, such as tech and finance. The nature of St. Jude's business is such that it's relatively immune from the broader economy and the ramifications of the slowdown. As such, the stock is defensive in nature and oftentimes pulls back when other sectors of the market are performing. That being said, the essence of this play is for those who prefer playing only calls. That way, if the market is tanking next week, STJ may actually pop higher out of capital rotation back into defensive sectors. In terms of execution, bullish traders can be looking for entries at current levels as STJ closed right on its ascending support line last Friday at the $68.75 level. It may very well ride its support line higher next week if the buyers return. And because the stock is so close to its long standing support line, bullish traders who enter at current levels can use relatively tight stops to mitigate risk. BUY CALL SEP-65*STJ-IM OI= 32 at $4.60 SL=3.50 BUY CALL SEP-70 STJ-IN OI=163 at $1.40 SL=1.00 BUY CALL OCT-70 STJ-JN OI=395 at $2.90 SL=2.00 BUY CALL OCT-75 STJ-JO OI=137 at $0.95 SL=0.50 Average Daily Volume = 622 K ADVP - AdvancePCS $74.96 (+4.72 last week) AdvancePCS is a provider of health improvement services in the United States. As a pharmacy benefit management company, AdvancePCS currently serves more than 75 million health plan members and manages more than $21 billion in prescription drug spending on an annualized basis on behalf of the company's health plan sponsors. After an early morning pullback last Friday, ADVP rebounded and finished the day on a solid note, despite the stock's drop of $1.16 for the day. At this point, ADVP has a solid, steady ascending trend that has been in place for about two weeks. That support level currently resides at the $74 level, which not by coincidence was the level from which ADVP bounced last Friday. Going forward, bullish traders can use any weakness down to that level to enter new call positions, market conditions permitting. Those who prefer the momentum type entry can shoot for a strong advance back above the $75 level early next week, confirming any such rally attempt with strength above the $76 level. Just keep in mind that the stock's relative and 52-week high lies just above the $76 level. And for that reason, entries on weakness may be the "better" course of action to take when attacking this play. Volume has been on a steady rise during the month of August while ADVP was trading higher. So it's important to confirm heavy volume on any higher prices from current levels as a sign that the buyers remain committed to this stock. BUY CALL SEP-70 QVD-IN OI=323 at $6.70 SL=5.50 BUY CALL SEP-75*QVD-IO OI=820 at $3.40 SL=2.50 BUY CALL SEP-80 QVD-IP OI=268 at $1.30 SL=0.25 BUY CALL OCT-75 QVD-JO OI= 11 at $5.60 SL=4.75 Average Daily Volume = 898 K DNA - Genentech $45.90 -2.05 (-0.60 last week) Genentech is a biotechnology company that uses human genetic information to discover, develop, manufacture and market human pharmaceuticals that address significant unmet medical needs. The company manufactures and markets nine protein-based pharmaceuticals and licenses several additional products to other companies. The AMEX Biotechnology Sector Index (BTK.X) pulled back in typical profit taking fashion last Friday. The good news is that the index stopped right at the 528 level, which is a significant support level for the index. But because of the wide sector weakness in the biotechs, perhaps rotation out of the sector, our new call play in DNA pulled back in concert with its sector. However, DNA's $2 dip put the biotech stalwart right back at its ascending support line we detailed in our initial write-up last Thursday. The ascending support line, depending upon your anchor point, currently lies around the $46 level. Although on the surface DNA's weakness may have been discouraging, its pullback down to its ascending support line may have offered dip buyers an excellent opportunity to get into this play with limited downside risk. From current levels, risk can be relatively easily managed with a tight stop just below the trend line. In addition, the BTK's support level below its current levels makes the task of managing risk all the easier. If DNA and the biotech sector do rebound early next week, we'll focus on the $48 level for a short-term exit point for entries at current levels. BUY CALL SEP-45*DNA-II OI=2110 at $2.65 SL=1.50 BUY CALL SEP-50 DNA-IJ OI=4290 at $0.65 SL=0.00 BUY CALL OCT-45 DNA-JI OI= 893 at $4.10 SL=3.75 BUY CALL OCT-50 DNA-JJ OI= 785 at $1.90 SL=0.50 Average Daily Volume = 2.33 mln BGEN - Biogen, Inc. $60.36 (-0.43 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. Falling with the broader markets, BGEN gave us a good entry mid-week as the stock bounced right on the ascending trendline near $58.50 and recovered back over the 200-dma (currently $60.16). Even the Biotechnology index (BTK.X) has been weakening the past few days, it is holding above the $530 support level. If the bulls can successfully defend this support level next week, it could give BGEN the shot of confidence it needs to push higher. The ascending trendline is now resting at $59.50, and there is some solid support between $58-59. Any low-volume dip near this area would provide for good entries, but only if the BTK can keep from breaking down. Waiting for the breakout over the $62 resistance level may be the more prudent entry strategy, as we wait for confirmation that buyers will return next week. Keep stops in place at $58. BUY CALL SEP-60*BGQ-IL OI=2167 at $2.70 SL=1.50 BUY CALL SEP-65 BGQ-IM OI=1157 at $0.75 SL=0.00 BUY CALL OCT-60 BGQ-JL OI=4620 at $4.40 SL=2.75 BUY CALL OCT-65 BGQ-JM OI=9330 at $2.15 SL=1.00 BUY CALL OCT-70 BGQ-JN OI=4730 at $1.00 SL=0.50 Average Daily Volume = 2.92 mln IBM - Int'l Business Machines $99.95 (-7.04 last week) IBM provides customer solutions through the use of advanced information technology. These solutions include technologies, systems, products, services, software and financing. For the 3 months ended 3/31/01, total revenues rose 9% to $21.04B. Net income applic. to Common rose 15% to$1.75B. Revenues reflect higher Global Services, Hardware, Personal and Printing Systems and Enterprise Systems revenues. Net income also reflects improved margins. Dismal news from SUNW on Wednesday had a depressing effect on shares of IBM, driving the stock below the critical $100 support level for part of the day on Thursday, before a slight rebound at the close. Friday's action wasn't much better, as the stock fell to close below $100. The criticality of this level can't be overstated. IBM needs to rally and hold above this level next week if we are going to have a decent play here. We have a tight stop in place at $97.75, which is just below support at $98. This is clearly an aggressive play where we are looking for IBM to lead any broad rebound in the markets. Aggressive traders can try to game a bounce from the $98 support level, but the better approach will be to wait for a volume backed move through $102, the first of several overhead resistance levels. Strong volume and strength in the broad markets will be necessary for our play to be successful. And remember, the rebound is likely to be short-lived, so we want to take profits when they are offered. BUY CALL SEP-100*IBM-IT OI=25452 at $3.60 SL=1.75 BUY CALL SEP-105 IBM-IA OI=11041 at $1.50 SL=0.75 BUY CALL OCT-100 IBM-JT OI= 8587 at $5.80 SL=4.00 BUY CALL OCT-105 IBM-JA OI= 6008 at $3.40 SL=1.75 BUY CALL OCT-110 IBM-JB OI=14461 at $1.75 SL=1.00 SELL PUT SEP- 95 IBM-US OI=19865 at $1.50 SL=3.00 (See risks of selling puts in play legend) Average Daily Volume = 6.89 mln < IWOV - Interwoven $8.15 (+0.17 last week) 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. Narrowly avoiding a breakdown earlier this week, IWOV bucked the market trend and bounced from the $7 support level mid-week and cautiously advanced into Friday's close. Will the relative strength last? Inquiring minds want to know. Volume hasn't been anything stellar the past 3 days, coming in around half the ADV, so the price advance could be subject to a bearish attack next week. But on the bullish side, it was nice to see the stock move through the 20-dma (currently $7.38) and keep most of its intraday gains on Friday. It all depends on the mood of investors when they return from their long weekend. As long as they don't come back with a severe hangover, IWOV should continue its gradual ascent, with the occasional rest stops for consolidation. We'll target renewed intraday dips into the $7.00-7.50 area for new entry points. Momentum players will be looking for IWOV to rally through $8.35 on increasing volume to trigger their entry into the play. BUY CALL SEP- 7.5*IUW-IU OI=1221 at $1.15 SL=0.50 BUY CALL SEP-10.0 IUW-IB OI= 574 at $0.35 SL=0.00 BUY CALL OCT- 7.5 IUW-JU OI= 179 at $1.70 SL=0.75 BUY CALL OCT-10.0 IUW-JB OI= 139 at $0.85 SL=0.25 Average Daily Volume = 3.28 mln LLTC - Linear Technology Corp. $41.08 (-1.35 last week) Linear Technology designs, manufactures, and markets a broad line of standard high performance linear integrated circuits. These circuits translate analog data (such as sound, pressure, temperature, and speed) into digital information that can be used by electronic devices, and to regulate and control power and voltage. The company's amplifiers, regulators, interface circuits, and other chips are used in a wide variety of products, including cellular phones, radar systems, satellites, computers, and factory automation systems. Primarily through its distributor network, LLTC sells its products to more than 15,000 manufacturers, with more than 50% of sales generated by non-US customers. Investors shrugged off the NVLS warning from Thursday night, and the broad markets all managed to close in the green. While there were no stellar gains to speak of, it was encouraging to see the Semiconductor sector (SOX.X) firm near the $550 level, helping our LLTC play to continue its rebound. Restating our comments from Thursday, we are looking for LLTC to lead any rebound in the chip sector due to their impressive relative strength this week, holding above the $39 support level. This is in contrast to many stocks in the sector that have recently fallen to fresh lows. With the general weakness in the markets, looking for a rebound is an aggressive strategy, and with it comes higher risk. Those that choose to play will want to harvest profits when they are offered. Ideally, we'll get another dip to the $39-40 level to provide an attractive entry point, as the first level of resistance will be encountered at the descending trendline ($42.50). Should a rally with legs materialize, a breakout over this trendline could also provide solid entries - but only if volume is strong. Stick to your stops...ours is at $38. BUY CALL SEP-40*LLQ-IH OI=1574 at $3.20 SL=1.50 BUY CALL SEP-45 LLQ-II OI= 985 at $1.15 SL=0.50 BUY CALL OCT-40 LLQ-JH OI= 126 at $4.80 SL=2.75 BUY CALL OCT-45 LLQ-JI OI= 186 at $2.65 SL=1.25 BUY CALL OCT-50 LLQ-JJ OI= 399 at $1.25 SL=0.50 Average Daily Volume = 4.40 mln UNH - UnitedHealth Group $68.06 (-0.5 last week) Providing a broad range of resources to help people improve their health through all stages of life, UNH forms and operates markets for the exchange of health and well being services. The company's Health Care Services segment consists of the UnitedHealthcare and Ovations businesses. UnitedHealthcare coordinates network-based health services on behalf of local employers and consumers in six broad regional U.S. markets. Ovations is a business dedicated to advancing the health and well-being goals of Americans over the age of 50. Additionally, the company's Ingenix business operates in the field of health care data and information, analysis and application. Can you say "Uh-Oh"? UNH gave us a scary dip on Friday morning, falling as low as $67.50 before buyers showed up to provide support. The relative strength we were seeing when we started the play is starting to weaken, and daily Stochastics are starting to roll over. While UNH did manage a bit of a rebound in the afternoon, it is perched precariously above $68. Volume has been heavy the past 2 days as the price has fallen, and that is never a good sign. Any resumption of the selling action will quickly drive it through our $67.75 stop, bringing the play to a premature end. The Healthcare index (HCX.X) suffered a serious breakdown last week, falling through its ascending trendline at $818. In order for UNH to return to its bullish behavior, we'll need to see the HCX stop falling and head north again. Consider new positions on a volume-backed bounce from $68, or else wait for the stock to power through the $70 resistance level. BUY CALL SEP-65*UHB-IM OI=2066 at $4.00 SL=2.50 BUY CALL SEP-70 UHB-IN OI=2475 at $1.05 SL=0.50 BUY CALL OCT-65 UHB-JM OI= 182 at $5.10 SL=3.00 BUY CALL OCT-70 UHB-JN OI= 78 at $2.30 SL=1.00 Average Daily Volume = 1.65 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 09-02-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/3178_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 ************* BA - Boeing $51.20 (-2.43 last week) The Boeing Company, an aerospace company, operates, together with its subsidiaries, in three principal segments: Commercial Airlines Operations, Military Aircraft and Missiles, and Space and Communications. Commercial Airplanes Operations is involved in the development, production and marketing of commercial jet aircraft. The segment also provides related support services, principally to the commercial airline industry worldwide. The Military Aircraft and Missiles segment is involved in the research, development, production, modification and support of military aircraft, including fighter, transport and attack aircraft; helicopters; and missiles. With the global economy slumping, Boeing's probably selling a lot less airplanes. The stock has been reflecting that much recently. What's even more interesting about the stock is that Boeing is the nation's largest exporter. And during the recent decline of the dollar, Boeing's stock price has sagged, at a time when other exporters' stocks got a nice boost from the weakening currency. That alone is reason enough to take a closer look at Boeing for a short candidate. Not only that, but the stock's technical picture is growing weaker and looks as if it wants to get worse. The stock has some support around the $50 level, which is a most psychological support level. But not even that may be enough to hold the stock up if the selling pressure persists. As such, bearish traders can look for a breakdown in BA below the $50 level early next week for an entry point into the play. Just make sure to confirm heavy volume with any further weakness in price as a sign that the longs are still liquidating and the shorts are still leaning. In terms of an entry near resistance, the 10-dma may be a good site to look for rollovers. The 10-day is currently located at $52. Our stop is just above that level at the $53.75 level. Bearish traders can keep tabs on the Dow when trading BA. BUY PUT SEP-50*BA-UJ OI=7632 at $1.10 SL=0.25 BUY PUT SEP-45 BA-UI OI= 312 at $0.25 SL=0.00 Average Daily Volume = 3.27 mln VZ - Verizon $50.00 (-2.11 last week) Verizon Communications Inc. provides communications services. The Company has four reportable segments, which it operates and manages as strategic business units and organizes by products and services. Domestic wireline communications services principally represent the Company's 16 operating telephone subsidiaries that provide local telephone services in over 30 states. Domestic wireless products and services include cellular, Personal Communications Services, paging services and equipment sales. Since tracing a double top around the $57 level in mid July, VZ has been descending at an increasing pace. The stock dropped below the $50 level for the first time since early April last week. That technical breakdown may very well portend further weakness in price over the coming weeks. The stock did, however, bounce from the $49.50 level in Thursday's and Friday's session last week, so bearish traders will want to keep an eye on that level, too. For sector confirmation, bearish traders can reference the Wireless Sector Index (YLS.X), which hasn't been up to par as of late. The index broke to a new 52-week low just last week and looks to be heading much lower. That pressure alone from the broader sector should keep shares of VZ under pressure and possibly push them lower. Bearish traders can take new entries at current levels early next week if the YLS continues dropping. Rollovers near resistance at the $52 level may also offer favorable entry points into this play. Just make sure to confirm any strength from current levels with weak volume as a sign that it's no more than short covering. Our stop is initially in place at the $52.45 level, which is just below the stock's 200 day moving average. BUY PUT SEP-50*VZ-UJ OI=4124 at $1.35 SL=0.75 BUY PUT SEP-45 VZ-UI OI= 749 at $0.35 SL=0.00 Average Daily Volume = 4.40 mln TSG - Sabre Holdings $42.18 (-2.78 last week) Sabre Holdings Corporation markets and distributes travel through its SABRE computer reservations system (the SABRE system). In addition, the Company provides outsourcing and software solutions to the travel and transportation industries. The SABRE system creates an electronic marketplace where travel providers display information about their products, and warehouse and manage inventory. Travel agents can choose interfaces that range from simple, text-based systems to feature-laden graphical systems. The Company also has an approximate 70% ownership interest in Travelocity.com Inc., a provider of online travel services to consumers. The weak domestic and foreign economies is causing consumers to travel less. Furthermore, the consumer is losing confidence as measured by the recent readings. And that much is not a good thing for Sabre Holdings, which specializes in travel services. The company's stock has been in a slump for some time now and really picked up steam to the downside last week. It looks to be heading lower over the short term and we're looking to game that speculation. Below current levels, the stock has minor support at the $40 level. But below $40, there's not much to hold TSG up. That's because the stock gapped on March 14 from the $37 level and has yet to fill that gap. If TSG falls below the $40 level, it could then easily make its way $3 lower over the short-term, making this play a good consideration. But before we worry about TSG below $40, we should address the stock at its current levels. Buyers showed up late last week at the $42 level. The stock didn't, however, bounce at all from that level, which may indicate that a rollover from current levels is in the cards. Bearish traders can look for weakness in the broader markets and consider entering new plays on weakness from current levels, confirming any such weakness with a decline below the $41.85 level. If the stock does rebound, look for a rollover around the $44 level. Our stop is in place initially at the $44.75 level. BUY PUT SEP-45*TSG-UI OI=53 at $3.50 SL=2.00 BUY PUT SEP-40 TSG-UH OI= 8 at $0.75 SL=0.25 Average Daily Volume = 716 K PHA - Pharmacia $39.60 (-2.21 last week) Pharmacia Corporation is a pharmaceutical company that operates in three segments: Prescription Pharmaceuticals, Agricultural Productivity, and Seeds and Genomics. The Prescription Pharmaceuticals segment involves the business and activities engaged in, supporting or related to the research, development, registration, manufacture and sale of prescription pharmaceutical products. The Agricultural Productivity segment consists of crop protection products, animal agriculture and the environmental technologies business lines. The drug sector is no longer a place of refuge, at least according to the price action in the DRG.X last week. Not even this defensive sector is immune from the bears in this market. PHA followed the path of the DRG last week, rolling over and picking up speed to the downside. Concerns over major drugs coming off patents have plagued the sector recently and looks to stay that way for some time to come, with generic makers taking market share from the big boys. The DRG is reflecting that much, with its string of five consecutive down days last week. The index doesn't have support until the 375 level, which gives it plenty of downside from current levels. PHA has fared far worse recently, as it has gone down for more than two straight weeks. That's right, the stock hasn't had a positive day in over two weeks! As such, this is clearly a momentum play at this point and only those with a strategy conducive to momentum should proceed. For execution, new put plays can be entered at current levels on further weakness in price and confirming weakness in the DRG. Our stop is initially in place at the $41.50 level, which did serve as some support during PHA's recent trip lower and should serve as resistance on any rebound higher. BUY PUT SEP-45 PHA-UI OI= 163 at $5.60 SL=3.75 BUY PUT SEP-40 PHA-UH OI=2168 at $1.50 SL=0.75 Average Daily Volume = 4.44 mln JPM - J.P. Morgan Chase $39.40 (-1.53 last week) JPMorgan Chase & Co. is a global financial services firm with operations in over 60 countries. The Company's principal bank subsidiaries are The Chase Manhattan Bank, Morgan Guaranty Trust Company and Chase Manhattan Bank USA, National Association. Its principal non-bank subsidiaries are its investment bank subsidiaries, Chase Securities Inc. (CSI) and J.P. Morgan Securities Inc. (JPMSI). The bank and non-bank subsidiaries of JPMorgan Chase operate nationally, as well as through overseas branches and subsidiaries, representative offices and affiliated banks. The recent price action across the financial sector of the market implies that the Federal Reserve is about done cutting rates in this cycle of monetary policy. That may spell trouble for the big money central banks. The smaller regional banks and thrifts have performed rather well over the last year in light of the Fed's interest rate cuts, but the bigger banks with overexposed loans and the risks of defaults have not done as well. And if the Fed is about done cutting rates, the banks are going to be left with a lot of debt still on the balance sheets, which is going to hamper earnings for some time to come. What's more, those banks that are heavily involved in the securities business, such as JPM, are especially exposed due to the decrease in demand for securities services such as underwriting and the decrease in trading activity due to the bear market. These aforementioned attributes of JPM make the stock a solid short at current levels, especially if the Fed's done cutting rates. Bearish traders can look for the BKX to break below 845 next week as a sign that JPM is heading lower, which may allow for new entries at current levels. Otherwise, wait for a breakdown below the $38 level. Our stop is initially in place at the $40.25 level. BUY PUT SEP-45 JPM-UI OI=13549 at $5.80 SL=3.75 BUY PUT SEP-40 JPM-UH OI=22946 at $1.55 SL=0.75 Average Daily Volume = 6.53 mln ***************** CURRENT PUT PLAYS ***************** CHKP - Check Point Software $31.99 (-1.89 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. Although CHKP finished modestly higher last Friday, the stock is still mired in a long standing descending trend. Furthermore, it continues to gyrate around the $32 level with little progress being made in either direction. It was surprising to see CHKP not trade higher last Friday when the GSTI Software Sector Index (GSO.X) had a decent day. That leads us to believe that CHKP has further downside, especially if the GSO and COMPX once again turn south next week. But if CHKP does advance next week, it may allow bearish traders the entry point they've been waiting for while on the sidelines. The stock has significant resistance at the $35 level, and a rollover from that site would offer a mighty fine entry point into new put positions. Then again, a breakdown below the $30.50 from current levels would offer bearish momentum traders an excellent opportunity to enter new put plays, especially if the stock consolidates further next week. The longer CHKP trades sideways, the better the entry point on a breakdown as the stock works off its oversold condition. BUY PUT SEP-35*KEQ-UG OI=3620 at $4.40 SL=2.55 BUY PUT SEP-30 KEQ-UF OI=4171 at $1.55 SL=0.75 Average Daily Volume = 10.5 mln GMST - Gemstar-TV Guide $29.66 (-3.25 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. GMST's rolling pattern of lower lows prevailed last week as the stock shed another $3 and change. Its dip down below the $28 level may have allowed for traders to book some tidy profits last week. However, its rally last Friday was in accordance with the advance in the broader market, specifically the Nasdaq Composite (COMPX). The pop higher felt more like short covering than anything, and may result in yet another rollover next week if the bears return from the beaches to sell stocks. In terms of rollover points, bearish traders can look for a light volume advance up to the $32 level and subsequent rollover as an ideal entry point. Above there, GMST could see sellers re-emerge at the $34 level. There's not much support beneath current levels to speak of, but bearish trades should keep an eye on the $28 level going forward. Below that, GMST shouldn't see much in the way of buying support until the $25 level, which in this case is both psychological and technical support for GMST. BUY PUT SEP-40 QLF-UH OI=1601 at $10.90 SL=7.75 BUY PUT SEP-35*QLF-UG OI=1913 at $ 6.30 SL=4.75 Average Daily Volume = 3.70 mln QCOM - Qualcomm, Inc. $58.85 (-7.26 last week) Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Even the reflexive market bounce on Friday couldn't help QCOM, as the stock posted another loss, even though it was a fractional one. The Wireless sector is still reeling from the latest round of negative new pronouncements focusing on the continued slowdown in the handset market. QCOM is once again below the $62 support level (also the site of the 50-dma), which should now transform back to resistance. Failed rallies near this level or even $63.50 (the level of our stop) will give us attractive entry points to the downside, as the bears set their sights on taking out support at $56 and then $52. A drop through Friday's intraday low near $58 will provide opportunities for momentum traders to step into the play, but only if volume remains robust. BUY PUT SEP-60*AAO-UL OI=11075 at $4.30 SL=2.75 BUY PUT SEP-55 AAO-UK OI= 7395 at $2.15 SL=1.00 Average Daily Volume = 11.3 mln QLGC - QLogic Corporation $30.01 (-4.31 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. We were expecting a bit of a bounce on Friday, and we got it. After trading as low as $28 on Thursday, QLGC rose above $31 Friday morning before erasing most of those gains by the close of another week. Underscoring the weakness of the "rally" on Friday was the fact that the stock couldn't even get near the 10-dma ($32.33), which has been providing resistance for the past 3 weeks, before the bears reasserted their control. Investors are waiting to see which way the broad markets move after the long weekend, and that direction is likely to give us the guidance we need in establishing new positions or closing open ones. New positions look attractive either on a rollover from the 10-dma or a strong drop through the $28 support level, as the bears set their sights on taking out the $25 support level. BUY PUT SEP-30*QLC-UF OI=10126 at $2.80 SL=1.50 BUY PUT SEP-25 QLC-UE OI= 999 at $0.95 SL=0.50 Average Daily Volume = 7.29 mln SEBL - Siebel Systems $21.60 (-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. Bearish traders loosened their grip on Software stocks a bit on Friday, and shares of SEBL posted a fractional gain, to the relief of the bulls. But don't go running out to buy the stock just yet. SEBL hit a new yearly low on Thursday and even after today's rise, the stock is still pinned under the $22 lows from earlier this month and the $23 lows from early April. That's some serious technical damage that was inflicted last week and it will take a lot of bullish enthusiasm to break above this new resistance. The 10-dma (currently $23.09) is continuing to cap any bullish intraday moves and provide fresh entry opportunities. While we can target fresh positions as the stock drops below $20.50, the more prudent approach will likely be to fade any weak rallies that stall near the 10-dma. BUY PUT SEP-22.5*SGQ-UX OI=7949 at $2.35 SL=1.25 BUY PUT SEP-20.0 SGQ-UD OI=2157 at $1.20 SL=0.75 Average Daily Volume = 14.6 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 ***** Vindication is a Mixed Blessing By Mark Phillips Contact Support As long-time readers know, I've been tilting further and further towards the bears camp these past few months, railing against the foolish and irresponsible comments from the "Wizards of Wall Street". Probably my favorite foil is Goldman Sachs' chief cheerleader, Abbey Joseph Cohen. It seems her forays into the limelight are becoming less frequent now that the great bull market is dead. In fact, the timing of her appearances can be useful for those of us with our eyes open. Don't get me wrong; I don't have anything special against old Abbey (at least no more so than any of these other self-proclaimed experts), its just that she demonstrates the most blind arrogance of all the analysts that parade across the screen of CNBC. Abbey, the Emperor of the great bull market had just had herself decked out for the great celebration as the markets rocketed to new highs, and stubbornly refused to accept that it wouldn't be coming along any time soon. Until just recently, she was calling for the DJIA to top 12,500 and the S&P 500 to clear 1550 by the end of this year. Maybe someone pointed out to her that the bull is dead, because she recently dropped that S&P target all the way to 1500. Wow! Fifty whole points...now with the 50 point drop in the index this week, we are only 367 points away from that target. A mere 32% in 4 months? No problem! That might have been possible back in the good old roaring 90's, but Ms. Cohen has got to wake up to the fact that the market conditions that made her look like a genius in years past had the same effect on all of us individual traders as well. Without that buoyant effect, she has been reduced in the eyes of the public to what she always was, a blindly optimistic fool... just like the rest of us. But somehow we are learning from the experience, while she refuses to come out and just admit she was wrong. Or maybe she figured out her bullish clothes don't really exist, and is afraid to face her public now that she knows they can see "The Emperor has no clothes". Ok, I'll get off my soapbox and get to the business at hand. As I have been expecting for some time now, as past commentaries will attest, the broad market indices all shattered recent support and we are quite likely to test the April lows as September earnings warning season approaches. Yep, it is here again! With conditions so weak, can we rename it to "Loss forecast season"? I think it might actually scare investors less when the warnings actually do come out. At any rate, we are at a critical juncture, with some important support levels now just memories. Remember NASDAQ 1900? It's resistance now. How about DOW 10,000? More resistance. And the real market, the S&P 500, has taken out numerous levels of support and is dangerously close to a test of the 1100 level. Fortunately the VIX finally started behaving in a rational manner again this week. Why? Because investors got scared. They should have been scared before, but the precipitous drop we saw this past week had the desired effect of driving the VIX back up to 28. Not yet in the buy range, but at least it is heading in the right direction. Falling market and rising VIX go hand in hand. It is nice to see that order has been restored. That's the good news. The bad news is that the LEAPS column operates best in a bullish market environment, and it doesn't take a rocket scientist to see that our Portfolio has been taking a beating lately. Sure we've had some winners, but we're having to work awfully hard for those. How bad is the damage, you ask? Just look at the Portfolio...only 4 plays left and the GLM and QQQ positions are frighteningly close to their stops. Any resumption of the downward trend next week and those two will be toast. I've had a few requests lately to provide candidates for LEAPS Puts in this column, and rather than dismiss it out of hand, I want to put it up to a vote of sorts. I'll tell you my thoughts on the topic and you can weigh in with your opinions. If there is enough interest and I can find some attractive candidates, we may be able to incorporate some plays to the downside just in case this decline becomes even more protracted. While LEAP Puts would have been a great idea a year ago (isn't hindsight great?), I'm not sure it is the best course of action right now. In order to profit from buying a long-term Put, we need the stock in question to continue heading down over the long term. Unfortunately, the stocks that I have looked at that I think should have trouble over the next several months to a year, just don't appear to have much further to fall. On the other hand, if the market turns, they could post some impressive gains. I don't expect any great bullish moves from the likes of GLW, JDSU, JNPR, YHOO, CIEN or any of the heroes of yesteryear to go up anytime soon. But how much more downside is there? Not enough for my money. We need fresh candidates that have had impressive runs to the upside and are either starting to enter a secular downturn or at least haven't yet fallen to the floor. The other problem we have to deal with is that we can only work with the list of about 300 stocks that have LEAPS available. The CBOE has a comprehensive list available for any of you that are interesting in doing some digging on your own. I look at the charts of most, if not all of those stocks every week searching for attractive candidates. What I see are stocks that are severely beaten down, and most are showing no signs of life. But I really don't see many that look like they could give us a profitable ride to the downside. Notable exceptions in the NASDAQ-100 are AMGN, BGEN, QCOM, ERTS, MSFT and GENZ. I looked at the charts, and I just don't see great potential for a protracted decline in any of the stocks. Perhaps there are others worth considering, or your thoughts will inspire me with some bright ideas. If you've got any thoughts on the subject, or possibly some LEAP Put candidates, drop me an email. Who knows, together we may stumble across something profitable in the journey. So how about the plays? Well, with 4 drops again this week, the Portfolio is getting pretty thin. And as I mentioned above, half of the current residents are close to being evicted. Only CLX and MO are looking healthy, and that could change by the open on Tuesday as well. As the markets approach their April lows, we may be setting up for a decent trading rally. But I'll believe it when I see it. For now, I'm not excited about adding new plays, hence the fact that there are no new entrants for the Watch List. I have lots of candidates, but I want to see how low they can go first. We did take a position in DIS this week and ENE is right in our target zone. But for the most part, I'm trying to stay on the sidelines. I really expect to see a retest of the April lows and will feel a lot more sure of new plays once we see how the market handles that challenge. In the meantime, take the entries that come to you, but don't get emotionally attached to the position. If a profit is offered, I would recommend you take it. Unless Abbey proclaims the death of the bull, that is. That might be the mother of all contrarian indicators, signaling to us that it is time to buy. Barring an unlikely event like that or Greenspan sending interest rates to zero over the long weekend, I think the smart place to be is on the sidelines. Let the risk-takers try to game the bottom in this market. I'd rather wait until the dust settles and we have some stable support under our feet before aggressively chasing new plays. Have a safe and enjoyable weekend and let's hope for a healthier market when we return. 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 MO 07/30/01 '03 $ 45 VPM-AI $ 6.10 $ 7.50 22.95% $ 43 GLM 08/15/01 '03 $ 20 OML-AD $ 3.30 $ 2.05 -37.88% $ 14 '04 $ 20 KLW-AD $ 4.70 $ 3.40 -27.66% $ 14 QQQ 08/22/01 '03 $ 40 VZQ-AN $ 7.00 $ 6.40 - 8.57% $ 36 '04 $ 40 LRI-AN $ 9.30 $ 9.00 - 3.23% $ 36 DIS 08/30/01 '03 $ 30 VDS-AF $ 2.05 $ 2.60 26.83% $22.50 '04 $ 30 LWD-AF $ 3.60 $ 4.20 16.67% $22.50 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 PCS 08/26/01 $21-22 JAN-2003 $ 25 VVH-AE CC JAN-2003 $ 20 VVH-AD JAN-2004 $ 25 LVH-AE JAN-2004 $ 20 LVH-AD New Portfolio Plays DIS - The Walt Disney Company $24.63 Helped along by the precipitous broad market decline this week, DIS fell right to our targeted entry on Thursday. While it wasn't a rapid rebound, there was no question that buyers were starting to nibble on the stock at the perceived bargain price. Even though the stock fell through the December and March lows before finding support (this is what we were looking for), it did bounce at the long-term ascending trendline that we mentioned in the original write up. This is what we are trying to target for new positions; weekly Stochastics beginning to recover from oversold, daily stochastics bottomed in oversold and turning up, while the stock is bouncing from major support. Friday saw a bit of buying come into the stock, driving it above $25 again. But I am inherently suspicious of this buying at the end of another big down week...it has the earmarks of short-covering again. Latecomers may want to look for another dip near our entry to initiate new positions next week, as we have stepped in for what we think should be a long, if somewhat sedate recovery. Just in case we jumped too soon, we are placing a tight stop at $22.50, right at the 1998 low. BUY LEAP JAN-2003 $30.00 VDS-AF $2.05 BUY LEAP JAN-2004 $30.00 LWD-AF $3.60 New Watchlist Plays None Drops ABX $16.46 Gold stocks started to lose their lustre a couple weeks ago, and with the gains built into our play, I tightened our stop to guarantee a positive conclusion to the play. Sure enough the stock continued its modest descent, and we got a favorable exit on Monday. Daily stochastics are almost oversold, but the weekly has now risen near overbought and is looking a bit top-heavy. Now is the time to step away from ABX and wait for that attractive trade setup before we take another hit-and-run approach at the precious metals sector. MRK $67.14 Things were a bit dicey the first week after we added MRK to the Portfolio, but the stock was kind enough to hold at support and give us a modest rise to the $70 resistance level before really beginning to lose altitude. The Pharmaceutical index (DRG.X) fell out of its ascending trend on Tuesday, and the downward pressure triggered our $68 stop on Wednesday. While it isn't a stellar gain, we'll take any positive conclusion to our plays as a huge success in this market. MRK will likely be back to the Watchlist in the future, but only after giving us another attractive risk/reward setup. ORCL $12.00 Whack! Ouch, that hurt! And that is precisely why we have to play with stops. We took our entry on ORCL last week with the volume-backed bounce at $14 and promptly got stopped out this Thursday as the stock fell through $13. In retrospect, we might have foregone the entry last week due to our expectation that the one-day rally had the looks of short-covering, and not buying. But we had no way to convey that to you mid-week and instead had to follow the gameplan we had laid out the week before. ORCL has now fallen to levels not seen since October 1999 and we're going to have to see some of the recent damage repaired before we venture into this pool again. VRSN $38.69 The last of my ill-conceived entries from the spring rally, VRSN is a perfect example of what happens when emotions invade your decision-making process. Our initial entry target was $42-44, and as we failed to get filled I gradually ratcheted up our entry target until we took an entry at $58! What was I thinking? That's right, just as I was starting to worry about never getting filled on the play, the market was figuring out it had run far enough. And VRSN began its long slow descent shortly thereafter. Hoping that support would hold and keep us in the play until the recovery got underway, I made the mistake of setting a loose stop to avoid a quick and early loss. The Great Humiliator strikes again! I have been properly chastised by the market for allowing my emotions to creep into this play, and in the process I think I have provided you with an ideal example of why we can't afford to chase stocks higher in the current market environment. ************************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 09-02-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/3178_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 ************* Stock Selection: Analysis Techniques By Mark Wnetrzak One of the most common questions we receive from new readers is, "Why do you focus primarily on technical analysis, as opposed to a fundamental evaluation of the candidates in the Covered-Call section?" There are three primary types of information that investors use to determine a bias or opinion on a specific stock. The first is "fundamental" analysis: income statements, balance sheets, and the future projections for revenues and earnings. The second is "sentiment" analysis (which is a form of technical analysis): investor expectations of the market and of individual stocks, news or upcoming events, and other potential activities such as mergers and stock splits. The final category is "technical" analysis or "charting." This method relies on the actual history of trading and price in a specific stock, commodity, or index. Most analysts believe that charts will reflect all of the known information and public opinion surrounding a particular stock or security. As market opinions change, so do the prices of the underlying instruments. When the prices are plotted, historical patterns and formations evolve. This concept allows a technician to forecast how the current market will perform, based on how it reacted to similar conditions in the past. There are also methods that attempt to identify price formations within seemingly random movements. Some technical studies, such as repetitive or rhythm analysis, believe prices tend to follow a predetermined pattern. Technicians that subscribe to the Elliott Wave Theory believe that collective trading behavior is predictable enough to project waves of price movement. Proponents of cyclical analysis suggest there is a regularity in the way specific instruments perform at certain times in the year. Charts are constructed in various time frames and different types of indicators are displayed on price histories. Moving averages, support/resistance lines, envelopes, Bollinger bands, and momentum curves are all common indicators. Price, time and volume are all inputs into these indicators. Price reflects the level of change in the attitude of investors. Time measures the cycle or period of change and volume (relative to its past history) measures the intensity of that change. Various systems have been developed to help investors form an opinion based on the chart patterns and predict future turning points, and direction in the underlying issue. Analysts begin by determining the strength and direction of a trend. The basis for future predictions is supported by the fact that once a trend is in motion, it will continue in that direction until a change in character occurs. Successful traders will study many different indicators from contrasting perspectives to help identify signals that forecast upcoming changes or trend reversals. In short-term option trading strategies, the most important factor in selecting profitable positions is the technical health of the underlying issue. To determine the future trend or character for any financial instrument, you must be able to identify the most common historical patterns and understand the implications of basic technical indicators. When you can do this accurately on a regular basis, the quality of your stock selections will improve substantially and that's the key to consistent profits for traders who participate in the Covered-Call strategy. 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 9.95 SEP 10.00 1.15 $ 0.90 8.6% GSPN 16.24 15.77 SEP 15.00 2.30 *$ 1.06 8.3% PRIA 17.89 18.02 SEP 17.50 1.55 *$ 1.16 7.7% CTIC 31.39 30.32 SEP 30.00 3.20 *$ 1.81 7.0% HLIT 16.04 15.00 SEP 15.00 2.20 $ 1.16 6.1% ISSI 15.00 15.13 SEP 15.00 1.25 *$ 1.25 5.6% FFIV 14.59 15.82 SEP 12.50 2.85 *$ 0.76 5.6% PMCS 34.40 30.75 SEP 30.00 6.50 *$ 2.10 5.5% SPCT 15.85 15.58 SEP 15.00 2.05 *$ 1.20 5.4% ARTC 31.67 29.90 SEP 30.00 3.50 $ 1.73 5.3% PHTN 39.97 35.96 SEP 35.00 7.70 *$ 2.73 5.3% CCUR 11.60 11.00 SEP 10.00 2.15 *$ 0.55 5.1% NETA 16.36 15.85 SEP 15.00 2.45 *$ 1.09 4.9% PHTN 38.34 35.96 SEP 32.50 7.50 *$ 1.66 4.7% NMTC 28.87 28.45 SEP 25.00 5.10 *$ 1.23 4.5% ANSR 9.01 9.09 SEP 7.50 1.80 *$ 0.29 4.4% NTIQ 36.40 32.20 SEP 30.00 8.10 *$ 1.70 4.4% WBSN 19.19 17.89 SEP 17.50 2.35 *$ 0.66 4.3% PTEC 15.05 13.95 SEP 15.00 1.20 $ 0.10 0.5% IGEN 32.28 27.97 SEP 30.00 4.50 $ 0.19 0.5% NTIQ 38.60 32.20 SEP 35.00 6.50 $ 0.10 0.2% DAVX 10.26 9.46 SEP 10.00 0.75 $ -0.05 0.0% VICL 12.96 11.60 SEP 12.50 1.05 $ -0.31 0.0% APCS 18.36 15.73 SEP 17.50 2.00 $ -0.63 0.0% IART 31.30 27.01 SEP 30.00 2.80 $ -1.49 0.0% *$ = Stock price is above the sold striking price. Comments: Crash! That sound was the broader Markets breaking through their support areas. They may slide further though they are within the proximity of the April lows. A final washout on high volume to set the bottom? Next week should be interesting! Netiq Corp. (NASDAQ:NTIQ) has now violated its 30- and 50-dmas. Time to exit or roll-down? Monitor Photon Dynamics (NASDAQ:PHTN) closely as the technicals continue to weaken. A test towards support at $32 may be forthcoming. Well, IGEN International (NASDAQ:IGEN) is testing its March - June trend-line; definitely a key moment! Alamosa Holdings (NASDAQ:APCS) continues to act worrisome as it again retests support. Keep a close watch on Network Associates (NASDAQ:NETA) as it again tries to overcome resistance at the May and July highs. Phoenix Technology (NASDAQ:PTEC) may test its April - July trend-line. Davox (NASDAQ:DAVX) is testing a key support area and could signal an exit soon. Vical (NASDAQ:VICL) has pulled back on declining volume - evaluate your long-term outlook. Very few stocks have been immune to the general Market malaise, including Integra LifeSciences (NASDAQ:IART). The stock has begun a consolidation phase and may be signaling a change-of- character by moving through its 30-dma. Exiting the position on further weakness may be prudent. Positions Closed: Seachange International (NASDAQ:SEAC) - a Murphy's Law Candidate? 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 BPUR 22.36 SEP 20.00 QPU ID 3.10 138 19.26 20 5.8% GERN 16.01 SEP 15.00 GQD IC 1.60 685 14.41 20 6.2% INTU 37.78 SEP 35.00 IQU IG 3.70 2504 34.08 20 4.1% LCBM 6.35 SEP 5.00 OLQ IA 1.75 95 4.60 20 13.2% PRGN 26.18 SEP 25.00 GQP IE 2.70 2746 23.48 20 9.8% R 22.59 SEP 22.50 R IX 0.65 93 21.94 20 3.9% SCTC 13.33 SEP 12.50 YQS IV 1.20 63 12.13 20 4.6% 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 LCBM 6.35 SEP 5.00 OLQ IA 1.75 95 4.60 20 13.2% PRGN 26.18 SEP 25.00 GQP IE 2.70 2746 23.48 20 9.8% GERN 16.01 SEP 15.00 GQD IC 1.60 685 14.41 20 6.2% BPUR 22.36 SEP 20.00 QPU ID 3.10 138 19.26 20 5.8% SCTC 13.33 SEP 12.50 YQS IV 1.20 63 12.13 20 4.6% INTU 37.78 SEP 35.00 IQU IG 3.70 2504 34.08 20 4.1% R 22.59 SEP 22.50 R IX 0.65 93 21.94 20 3.9% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** BPUR - Biopure $22.36 *** Blood Substitute *** Biopure (NASDAQ:BPUR) develops, manufactures and markets Oxygen Therapeutics. Its products are Hemopure, for human use, and Oxy- globin, for veterinary use. Biopure is developing Hemopure as an alternative to red blood cell transfusions as well as for use in the treatment of other critical care conditions. A Hemopure pivotal Phase III clinical trial in the U.S. has completed patient enrollment and follow-up. On Monday, Biopure released new results which the company said shows Hemopure is comparatively safe. Of course, there is some speculation on the safety of Biopure's blood substitute, which recently sent the shares into a tailspin. This position offers a reasonable cost basis for those investors wishing to add Biopure to their portfolio. Thoroughly researching this company is a prerequisite to opening any position. SEP 20.00 QPU ID LB=3.10 OI=138 CB=19.26 DE=20 TY=5.8% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BPUR ***** GERN - Geron $16.01 *** 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 recently 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 IC LB=1.60 OI=685 CB=14.41 DE=20 TY=6.2% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GERN ***** INTU - Intuit $37.78 *** Rally Mode! *** Intuit (NASDAQ:INTU) offers a variety of small business, tax preparation and personal finance software products and related products and services that enable people and small businesses to revolutionize how they manage their activities. The Company's products and services include QuickBooks, Quicken, Quicken TurboTax, ProSeries and Lacerte desktop software products, as well as an expanding array of Internet-based products and services, including QuickBooks Deluxe Payroll service, QuickBooks Internet Gateway services, the Site Builder website tool, Quicken TurboTax for the Web, Quicken.com, Quicken Loans and QuickenInsurance. Intuit reported earnings last week, posting a fiscal 4th-quarter pro-forma loss but also reaffirming guidance for fiscal 2002 and announcing a workforce reduction. Prudential Securities raised their rating on the issue to "buy" from "hold" with a new price target of $44. The stock has been forging a Stage I base for most of the year and has recently rallied back above its 150-dma - a bullish indication. SEP 35.00 IQU IG LB=3.70 OI=2504 CB=34.08 DE=20 TY=4.1% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=INTU ***** LCBM - LifeCore Biomedical $6.35 *** Cheap Speculation *** LifeCore Biomedical (NASDAQ:LCBM) develops, manufactures, and markets biomaterials and surgical devices through two divisions: the Hyaluronan Division and the Oral Restorative Division. The Hyaluronan Division principally is involved in the development and manufacture of products utilizing hyaluronan, a naturally occurring carbohydrate that moisturizes or lubricates the soft tissues of the body. The Oral Restorative Division markets a comprehensive line of titanium-based dental implants for replace- ment of lost or extracted teeth. LifeCore has a meeting with the Medical Devices Dispute Resolution Panel September 6, 2001 in Washington, D.C. That meeting will address scientific issues that are in dispute between Lifecore and the FDA in connection with Lifecore's pending PMA application, as amended, for its ferric hyaluronan product, GYNECARE INTERGEL(a) Adhesion Prevention Solution. This position offers a favorable cost basis from which to speculate on the outcome. The current bid on the call option is $1.55 but the spread is large and a cost basis of $4.60 or lower should be attainable - after your due diligence. SEP 5.00 OLQ IA LB=1.75 OI=95 CB=4.60 DE=20 TY=13.2% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=LCBM ***** PRGN - Peregrine Systems $26.18 *** Raising The Bar! *** Peregrine Systems (NASDAQ:PRGN) is a global provider of software and services that are designed to reduce the frictional cost of doing business for its client's organizations. The Company offers products and services to address three principal domains: infrastructure resource management, employee relationship management (or self-service) and e-commerce technologies and services. The Company offers software products, services and technologies that permit businesses to eliminate points of friction in their business processes and to improve their returns on capital and investment in their infrastructure assets and electronic business investments. The stock rallied this week after Peregrine forecast higher-than-expected revenues and earnings for fiscal 2003, resulting in three brokerages raising their earnings estimates for Peregrine. We simply favor the technical support area near our cost basis as Peregrine continues to show improving technical strength. SEP 25.00 GQP IE LB=2.70 OI=2746 CB=23.48 DE=20 TY=9.8% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PRGN ***** R - Ryder System $22.59 *** Upgrade Into Rally Mode! *** Ryder System (NYSE:R) operates in three business segments, Fleet Management Solutions, Supply Chain Solutions and Dedicated Contract Carriage. Fleet Management Solutions provides full-service leasing, commercial rental and programmed maintenance of trucks, tractors and trailers to customers, principally in the U.S., Canada and the United Kingdom. Supply Chain Solutions provides comprehensive supply chain consulting and lead logistics management solutions that support customers' entire supply chains, from in-bound raw materials through distribution of finished goods throughout North America, in Latin America, Europe and Asia. Dedicated Contract Carriage provides vehicles and drivers as part of a dedicated transportation solution, principally in North America. Ryder Systems exploded out of its short-term base in August after Morgan Stanley Dean Witter boosted its rating on the Miami-based trucking company. Analyst James Valentine upgraded the shares to "outperform" from "neutral," set a price target of $25 on the stock, and raised his earnings estimates for the company. We simply favor the technical strength of Ryder Systems, which suggests further upside potential. Can a "break-out" above the long-term base be far behind? SEP 22.50 R IX LB=0.65 OI=93 CB=21.94 DE=20 TY=3.9% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=R ***** SCTC - Systems & Computer Tech. $13.33 *** Record Sales! *** Systems & Computer Technology (NASDAQ:SCTC) provides technology and business solutions for higher education, utilities and process manufacturing. SCTC works collaboratively with its clients to deliver software and service solutions tailored to their needs. Industry expertise in each of the company's markets enables SCTC to maximize its clients' customer relationships and achieve significant, measurable improvements for their organizations. SCTC announced in July that it had achieved an all-time high in total revenue for the 3rd-quarter, which ended June 30, 2001. The education business unit had the highest 3rd-quarter ever in software sales and commissions, which included $2.7 million in shares of WebCT, earned by signing institutions with cumulative enrollments totaling one million students. We simply favor the bullish chart, especially with the current market conditions, as SCTC appears ready to break out of an ascending triangle. SEP 12.50 YQS IV LB=1.20 OI=63 CB=12.13 DE=20 TY=4.6% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SCTC ***** ***************** 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 CTIC 30.32 SEP 30.00 CUC IF 2.20 667 28.12 20 10.2% SANG 15.35 SEP 15.00 QDY IC 1.10 80 14.25 20 8.0% REGN 30.12 SEP 30.00 RQP IF 1.25 69 28.87 20 6.0% RFMD 25.46 SEP 22.50 RFZ IA 3.80 827 21.66 20 5.9% IM 15.00 SEP 15.00 IM IC 0.45 1148 14.55 20 4.7% NSM 33.05 SEP 30.00 NSM IF 3.80 1566 29.25 20 3.9% ***************** NAKED PUT SECTION ***************** Trading Basics: A Plan For Success! By Ray Cummins There are a number of fundamental guidelines that can help a new trader profit in the market. These rules, along with a system for money management and a proven trading strategy will provide any investor with the basis for consistent profits. The first rule is: Know the market, its condition and the future economic outlook. Use that knowledge to place trades that conform with the direction given by the fundamentals. The equity market anticipates the movement of the economy and shows us in advance what we can expect with regard to corporate health, unemployment, interest rates and other financial trends. Understand there is an economic reality to which the market will inevitably converge and it is far easier to profit from positions that are in harmony with that trend. Stay in touch with the "tone" of the public and learn to anticipate swings in investor sentiment. News and major events should evoke the proper response. For example, a strong market will shrug off bearish developments and respond vigorously to favorable conditions. When a specific sector or industry group encounters adverse circumstances, but does not decline in reaction to the occurrence, then it will likely outperform the majority of issues in that segment of the market. In addition, when reviewing specific companies, remember that fundamental analysis is the principle activity of brokerages and public investors and that is the most common manner in which the outlook for share values is reflected in financial reports and future performance forecasts. The second important axiom is: Trade the primary trend and focus on issues or groups that are performing the best in the current environment. There are many ways of expressing this idea but the simplest approach is "buy rising markets and sell falling markets." This theory seems paradoxical, because common sense would suggest that the best way to make money is to buy low and sell at higher prices. Of course, this is true from an abstract point of view but it has nothing to do with "trend" or "momentum" trading. In fact, buying a market that is in a downtrend is often the quickest way to lose money. While the issue may appear to be a bargain at the reduced levels, chances are it will likely become even cheaper. A well known trading adage suggests, "The best time to pick up a falling knife is after it has hit the floor!" One way to determine the primary trend is use a moving average. Obviously, there are many types of moving-average analyses, all of which are basically equivalent. Some traders monitor crossovers while others concentrate on the direction of the moving average, or the slope of its ascent or descent. After the major bias is established, use relative-strength analysis to identify the groups or sectors that are leading the movement. The relative-strength comparison helps determine which individual issues or industries are outperforming the broader market. The basic premise of this type of approach that you should buy only the strongest stocks in the top performing sectors and liberate your portfolio of the laggards. The most important guidance that new traders should adhere to is the need to outline an entry-exit strategy, before you initiate a position, to eliminate emotional decisions. Using predetermined targets for profit and loss addresses a number of points. First, it eliminates the need for judgment under fire. Second, it keeps you from selling too soon, depriving yourself of potential upside profits. Finally, an exit strategy will help you retain previous gains rather than exposing the position to a possible loss. Most techniques for limiting losses (and taking profits) are based on a prearranged goal, or a trailing stop, which is moved up as the issue advances. For example, traders commonly use a percentage trailing stop, such as 5% or 10% and in most cases, the trailing stop is placed a fixed distance below the highest price attained by the issue since the position was initiated. As the instrument moves higher, the stop is adjusted upwards to "lock-in" profits. Wise traders know it is prudent to initiate a stop-loss system (mental or mechanical) with any new position and those who comply with this principle are certain to improve their success in this vicious game that is the Stock Market. 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 22.28 SEP 15.00 0.80 *$ 0.80 11.8% MDCC 20.50 22.69 SEP 17.50 0.95 *$ 0.95 11.2% GERN 14.50 16.01 SEP 12.50 0.55 *$ 0.55 11.0% VPHM 35.59 31.05 SEP 30.00 0.95 *$ 0.95 10.7% CENT 8.98 9.14 SEP 7.50 0.35 *$ 0.35 10.3% GERN 17.40 16.01 SEP 15.00 0.45 *$ 0.45 9.8% PLXS 36.19 34.82 SEP 30.00 0.80 *$ 0.80 9.6% ALLY 18.23 19.71 SEP 15.00 0.50 *$ 0.50 9.5% Adj 2-1 split AFCI 25.75 24.25 SEP 22.50 0.90 *$ 0.90 8.2% LBRT 15.35 14.32 SEP 12.50 0.25 *$ 0.25 7.7% PPD 21.09 22.28 SEP 15.00 0.40 *$ 0.40 7.5% ISIL 39.20 37.53 SEP 30.00 0.90 *$ 0.90 7.5% SAGI 17.75 17.98 SEP 15.00 0.40 *$ 0.40 7.3% URBN 15.04 15.99 SEP 12.50 0.25 *$ 0.25 7.3% NEM 21.48 20.74 SEP 20.00 0.55 *$ 0.55 6.2% APCS 18.52 15.73 SEP 15.00 0.30 *$ 0.30 6.2% ILXO 29.15 29.95 SEP 25.00 0.45 *$ 0.45 6.1% PRGX 13.75 14.35 SEP 12.50 0.30 *$ 0.30 5.7% IMCL 44.89 51.40 SEP 30.00 0.70 *$ 0.70 5.2% AFCI 27.90 24.25 SEP 25.00 0.70 $ -0.05 0.0% *$ = Stock price is above the sold striking price. Comments: The recent bearish market activity has rekindled memories of the the "Crash of 87" and the month of August saw key market indexes precariously close to the two-year lows hit in April. The Dow Jones industrial average fell below the psychologically important 10,000 mark and the NASDAQ slid almost 11% during the past 30 days. The sell-off in the broader market was halted only by new economic reports that showed the recession-strapped manufacturing sector may be improving. Among technology issues, almost every industry group is suffering from a glut of inventory and a lack of demand for new products. In addition, the worldwide economic slowdown is just beginning to affect American companies and it's unlikely we will see a recovery in U.S. equity values until the global outlook improves. Our portfolio has held up fairly well considering the downward market trend and only a few issues are on the watch-list this week. Advanced Fibre Communications (NASDAQ:AFCI) has moved to the bottom of a month-long trading range and any further descent should signal an early exit in the (SEP-$25 Put) position. Alamosa Holdings (NASDAQ:APCS) is showing indications of a "failed" rally and it may be prudent to close the position now, while the loss is minimal. As we noted last week, "A move through $16 should be seen as a potential exit signal" and that unfortunate event occurred on Friday. Viropharma (NASDAQ:VPHM) is consolidating after recent gains and the support level near $29 will be the first test of its technical strength. Those of you in the Newmont Mining (NYSE:NEM) hedge play (Precious Metals Sector) may have noticed that December Gold was down again Friday amid profit-taking ahead of the Labor Day weekend. Stochastics and RSI are signaling that Gold futures will likely continue sideways into early September, with a slight bias to the downside. Of course, any recovery in the broader markets might also weigh on gold values so watch that one closely in the coming weeks. Positions Closed: Powerwave (NASDAQ:PWAV), which is currently positive. 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 CTXS 32.95 SEP 27.50 XSQ UY 0.35 5790 27.15 20 6.6% HDL 15.46 SEP 15.00 HDL UC 0.40 55 14.60 20 9.9% ILUM 33.20 SEP 30.00 ILU UF 0.60 7 29.40 20 8.5% KDE 28.00 SEP 25.00 KDE UE 0.50 156 24.50 20 8.7% LBRT 14.32 SEP 12.50 IEY UV 0.25 204 12.25 20 9.1% PPD 22.28 SEP 20.00 PPD UD 0.50 632 19.50 20 10.7% SPF 23.47 SEP 22.50 SPF UX 0.40 365 22.10 20 6.9% 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 PPD 22.28 SEP 20.00 PPD UD 0.50 632 19.50 20 10.7% HDL 15.46 SEP 15.00 HDL UC 0.40 55 14.60 20 9.9% LBRT 14.32 SEP 12.50 IEY UV 0.25 204 12.25 20 9.1% KDE 28.00 SEP 25.00 KDE UE 0.50 156 24.50 20 8.7% ILUM 33.20 SEP 30.00 ILU UF 0.60 7 29.40 20 8.5% SPF 23.47 SEP 22.50 SPF UX 0.40 365 22.10 20 6.9% CTXS 32.95 SEP 27.50 XSQ UY 0.35 5790 27.15 20 6.6% 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). ***** CTXS - Citrix Systems $32.95 *** Entry Point! *** Citrix Systems (NASDAQ:CTXS) develops, markets, sells and supports comprehensive application delivery and management software that enables the effective and efficient enterprise-wide deployment and management of applications, including those designed for Microsoft Windows operating systems and UNIX Operating Systems. Their products operate by executing the applications on a multi-user Windows NT, Windows 2000 or UNIX server and provide end users access to the server from a variety of client platforms through the company's ICA protocol. The company's primary market for its products and services is large and medium-sized enterprises that require the ability to securely deploy, manage and access business applications across the extended enterprise. Citrix also targets application service providers that need products and technologies to deliver the largest number of applications to the broadest array of computing devices with minimum bandwidth requirements. Citrix is one of the smaller companies in the software industry but they are succeeding in the tough economy with a unique, diverse product line. Traders who want to establish a discounted cost basis in the issue should consider this position. SEP 27.50 XSQ UY LB=0.35 OI=5790 CB=27.15 DE=20 TY=6.6% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=CTXS ***** HDL - Handleman $15.46 *** Own This One! *** Handleman (NYSE:HDL) is a holding company that conducts business through two subsidiaries: Handleman Entertainment Resources and North Coast Entertainment. H.E.R. is a category manager and distributor of prerecorded music to mass merchants in the United States, United Kingdom, Canada, Mexico and Brazil. H.E.R. manages a broad assortment of titles required to optimize sales in retail stores and provides direct-to-store shipments, marketing of the selections, in-store merchandising, and product exchange. NCE has three companies in its portfolio: Anchor Bay Entertainment, an independent home video label that markets a collection of titles ranging from horror to exercise to children's classics; Madacy Entertainment, an independent record label that markets music and video products with a catalog spanning all genres; and The Itsy Bitsy Entertainment Company, a provider of early childhood entertainment, both on and off the screen, to the youngest of children and their caregivers. Philip Handleman, who's late grandfather founded the Handleman Company, is on a mission to rejuvenate the slumping share value of HDL and investors appear to favor his new ideas. Consider this position for a long-term portfolio holding. SEP 15.00 HDL UC LB=0.40 OI=55 CB=14.60 DE=20 TY=9.9% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=HDL ***** ILUM - Illuminet Holdings $33.20 *** Break-Out! *** Illuminet Holdings (NASDAQ:ILUM) operates an unaffiliated Signaling System 7 network in the United States, and provides complementary intelligent network and SS7 services to telecommunications carriers. The majority of the company's products and services are directly related to its SS7 network, as either part of the connectivity, switching and transport function of the network or as intelligent network services. In addition, the company provides clearinghouse services and licenses specially designed software for measuring network usage. On July 19, the network services provider reported that second-quarter earnings more than doubled as core database and wireless roaming services business remained strong. Revenues rose 30% in the second quarter to $47 million up from $36 million a year ago. The company expects revenues to grow 23-25% year-over-year, with operating income margins of about 30% and they are comfortable with First Call's consensus estimate of $0.28 earnings per share in the third quarter. In addition, ILUM recently agreed to purchase BellSouth's International Wireless Services (BSI-WS) unit, which provides roaming services that connect wireless telephone carriers in 23 countries in the Americas and the Caribbean. The move to a recent high on heavy volume bodes well for the future share value of the issue. SEP 30.00 ILU UF LB=0.60 OI=7 CB=29.40 DE=20 TY=8.5% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ILUM ***** KDE - 4Kids Entertainment $28.00 *** On The Move! *** 4Kids Entertainment (NYSE:KDE) is a vertically integrated entertainment-based company. The company provides a comprehensive range of services including toy design and development, domestic and international merchandise licensing, media buying and planning, international and domestic television and movie distribution and television, music and film production. The company primarily operates through four wholly owned subsidiaries, Leisure Concepts, Leisure Concepts International, The Summit Media Group, and 4Kids Productions. The recent rally in KDE has been supported by robust trading volume and the issue appears poised to a achieve a new, 52-week high. Traders can profit from continued bullish activity with this conservative position. SEP 25.00 KDE UE LB=0.50 OI=156 CB=24.50 DE=20 TY=8.7% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=KDE ***** LBRT - Liberate $14.32 *** AT&T Deal! *** Liberate Technologies (NASDAQ:LBRT) is a global provider of a comprehensive software platform for delivering content, servies 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=204 CB=12.25 DE=20 TY=9.1% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=LBRT ***** PPD - Pre-Paid Legal $22.28 *** Next Leg Up! *** Pre-Paid Legal Services (NYSE:PPD) was one of the first companies in the United States organized solely to design, underwrite and market legal expense plans. The company's legal expense plans (referred to as Memberships) currently provide for a variety of legal services in a manner similar to medical reimbursement plans. Plan benefits are provided through a network of independent law firms, typically one firm per state or province. Members have direct, toll-free access to their Provider law firm rather than having to call for a referral. The company has over a million memberships in force with members in all 50 states, the District of Columbia and the Canadian provinces of Ontario and B.C. The ongoing saga surrounding PPD's accounting practices came to an end in early August when PPD announced it will not pursue further appeals with the SEC related to the company's accounting policies for commission advance receivables. PPD will amend its previously filed reports to reflect the SEC's decision and will immediately begin the process of selecting new auditors to monitor all future accounting. In addition, the company remains debt free, cash flow positive and serves a large, growing market with a unique product. PPD has climbed steadily higher in recent weeks and now the issue appears ready to test the yearly highs near $25. SEP 20.00 PPD UD LB=0.50 OI=632 CB=19.50 DE=20 TY=10.7% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PPD ***** SPF - Standard Pacific $23.47 *** Construction Sector! *** Standard Pacific (NYSE:SPF) is a geographically diversified builder of single-family homes targeted toward a broad range of move-up homebuyers. The company has operations throughout metropolitan areas in California, Texas, Arizona and Colorado and sells homes in Los Angeles, Orange, Riverside, San Bernardino, San Diego and Ventura Counties in Southern California, and the San Francisco Bay area in Northern California. In addition to its core homebuilding operations, Standard Pacific provides mortgage financing and title services to its homebuyers through its many subsidiaries and joint ventures. The Housing Construction sector is generally a favorable broad-market hedge and this position offers investors a reasonable cost basis in a long-term portfolio issue. SEP 22.50 SPF UX LB=0.40 OI=365 CB=22.10 DE=20 TY=6.9% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=SPF ***** ***************** 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 JBL 23.11 SEP 17.50 JBL UW 0.40 1177 17.10 20 12.1% FSII 15.76 SEP 15.00 FQH UC 0.45 0 14.55 20 11.4% NSM 33.05 SEP 30.00 NSM UF 0.70 1326 29.30 20 9.8% BCGI 17.05 SEP 15.00 QGB UC 0.30 16 14.70 20 9.0% MU 37.61 SEP 32.50 MU US 0.45 2077 32.05 20 6.6% MNTR 30.00 SEP 25.00 MNQ UE 0.25 0 24.75 20 5.2% ************************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 ************************ The Market Needs A Holiday! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, August 31 The recent slump in equity values ended today as U.S. stocks rebounded amid investor optimism over favorable manufacturing data. Factory orders rose 0.1% in July, topping expectations, and although trading volumes continued to be light, some traders were willing to make bullish bets ahead of the holiday weekend. The Dow Jones industrial average closed up 30 points at 9,949 and the NASDAQ Composite index was up 13 points at 1,805. The S&P 500 index was up almost 5 points to 1,133. Volume on the Big Board reached 907 million, with winners beating losers 16 to 13. NASDAQ volume was thin with 1.2 billion shares changing hands. Technology advances topped declines by almost 4-3. In the bond market, the 30-year Treasury rose 2/32, pushing its yield down to 5.37%. Last week's new plays (positions/opening prices/strategy): Fluor (NYSE:FLR) SEP35P/40P $0.65 credit bull-put Shire Ph. (NSDQ:SHPGY) SEP55C/50C $0.70 credit bear-call Stericycle (NSDQ:SRCL) SEP55C/50C $0.60 credit bear-call Teradyne (NYSE:TER) SEP35C/35P $4.00 debit straddle SouthWest (NYSE:SWS) OCT22C/20P $0.10 debit synthetic Our new group of credit spreads offered acceptable entry prices during the week and most of the underlying issues are performing as expected. Stericycle experienced a surprise rebound Friday on reports the company had raised its service prices and although the issue is still trading comfortably in a recent range, we will watch it closely for a move through resistance at $50-$51. The speculative straddle in Teradyne was easily opened at the target debit and on Thursday, the position offered a small overall credit ($0.50) as technology stocks slumped to recent lows. Southwest Securities enjoyed a nice rally through the early portion of the week but eventually consolidated amid the bearish market trend. The synthetic position traded at a $0.50 credit on Wednesday, as the issue climbed to a recent high near $22 and the bullish play is currently profitable. Portfolio Activity: The bearish positions in our portfolio performed very well this week as the market slumped to yearly lows. The top plays were Best Buy (NYSE:BBY) and Electronic Data Systems (NYSE:EDS) and both underlying issues are well below the sold (Call) strike prices. Among the bullish plays, Amerisource (NYSE:AAS) was in the news, announcing it has completed its merger with Bergen Brunswig (NYSE:BBC) to form a new company with $36 billion in revenues. AmerisourceBergen (NYSE:ABC) is the name of the new company and on Thursday, the stock began trading with the "ABC" symbol on the New York Stock Exchange. Under the terms of the merger agreement, each share of Bergen Brunswig common stock was converted into 0.37 of a share of AmerisourceBergen, which now has approximately 103 million shares outstanding. The company also joined the S&P 500 because of the merger. The Straddles section has not seen much activity recently and this week was no different as almost every issue moved in a relatively small range. Amdocs (NYSE:DOX) has achieved profitability but both Serena Software (NASDAQ:SRNA) and Jacobs Engineering (NYSE:JEC) have yet to hit the break-even points. These positions will begin to lose time value exponentially after the long holiday week-end so consider the risk-reward potential of remaining in those plays beyond the next few sessions. The bullish synthetic position in Phoenix Technologies (NASDAQ:PTEC) appears to have run out of gas near $15 but the issue should trade comfortably above the sold strike at $12.50, allowing the (short) option to expire without obligation. The adjusted position (SEP-$50 Put) in Genzyme (NASDAQ:GENZ) is still profitable and with the issue mired in a range near $55, there is little potential for loss prior to the September options' expiration. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** POSS - Possis Medical $14.61 *** Cheap Speculation! *** Possis Medical (NASDAQ:POSS) is a developer, manufacturer and marketer of medical devices. The company's products include the AngioJet Rheolytic Thrombectomy System, the Perma-Seal Graft, the Perma-Flow Coronary Bypass Graft, and the ePTFE Synthetic Vascular Graft. The company is now focused in the further development and marketing of the AngioJet system. The company markets this system to interventional cardiologists, interventional radiologists, vascular surgeons, and to physician specialty groups, including vascular, cardiovascular and thoracic surgeons in the U.S. and in other countries. This position is based on recent increased activity in the stock and its underlying options. POSS rallied almost 10% Friday and the current technical indications suggest there is additional upside potential. At the same time, historical resistance near $15 has affected the share value in the past and may again be a factor in the coming months. The issue is a great candidate for a bullish calendar spread with an excellent risk/reward outlook. However, the position should also be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - bullish/calendar spread): BUY CALL JAN-15.00 UPQ-AC OI=102 A=$1.90 SELL CALL SEP-15.00 UPQ-IC OI=250 B=$0.65 INITIAL NET DEBIT TARGET=$1.10-$1.20 TARGET PROFIT=50% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=POSS ****************************************************************** NSM - National Semiconductor $33.05 *** Reader's Request! *** National Semiconductor (NYSE:NSM) designs, develops, manufactures and markets a wide array of semiconductor products, including a broad line of analog, mixed-signal and other integrated circuits. The company is organized by various product line business units, which are grouped to form three organizational units: the Analog Group, the Information Appliance Group and the Network Products Group. The Analog Group develops and manufactures building block products, such as: high-performance operational amplifiers; power management circuits; data acquisition and interface circuits; and circuits targeted toward leading-edge monitor applications, such as ultra-thin flat-panel displays. The Information Appliance group delivers component and system solutions targeted heavily towards the emerging information appliance market. The Network Products Group offers a line of Ethernet products that address a range of applications. One of our readers suggested that we offer a bullish position in the semiconductor group, to take advantage of any oversold rally in technology issues. NSM is a good candidate in this respect, based on the current technical indications and with the company's upcoming earnings report (9/6/01), there is an additional catalyst for a potential rally. Target a smaller debit initially, to allow for the daily volatility in the issue. PLAY (conservative - bullish/synthetic position): BUY CALL SEP-35 NSM-IG OI=4084 A=$1.00 SELL PUT SEP-30 NSM-UF OI=1675 B=$0.70 INITIAL NET DEBIT TARGET=$0.10-$0.15 TARGET PROFIT=$0.50-$0.60 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $1,100 per contract. http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=NSM ****************************************************************** - TECHNICALS ONLY - These plays are based on the current price or trading range of the underlying issue and its recent technical history or trend. However, current news and market sentiment will have an effect on these issues, so review each play individually and make your own decision about the future outcome of the position. ****************************************************************** CTX - Centrex $43.80 *** Hot Sector! *** Centex Corporation (NYSE:CTX) is a multi-industry company with operates in six principal business segments. Conventional Homes operations involve the construction and sale of single-family homes, town homes and low-rise condominiums, and the purchase and development of land. Investment Real Estate involves the acquisition, development and sale of land, and the development of industrial, office, retail and mixed-use projects. Financial Services operations involve the financing of homes, home equity and sub-prime lending, and the sale of various types of insurance coverage. Construction Products involves cement production and distribution, and the production, distribution and sale of gypsum wallboard, readymix concrete, aggregates and recycled paperboard. Contracting and Construction Services involves the construction of buildings. Centex HomeTeam Services is involved in pest and termite control, lawn and landscape care, electronic security, alarm monitoring and homewiring services. Stocks in the Materials and Construction segment are currently in favor and this position in CTX is an excellent candidate for conservative spread traders. The company is one of the leaders in its industry and the technical indications suggest the issue is comfortable in a trading range near $40. In addition, the recent upside activity is in opposition to the broader market and will likely propel CTX to a test of the yearly highs. Those of you who like to participate in conservative combination plays should consider this bullish position. PLAY (conservative - bullish/credit spread): BUY PUT SEP-35 CTX-UG OI=20 A=$0.30 SELL PUT SEP-40 CTX-UH OI=515 B=$0.85 INITIAL NET CREDIT TARGET=$0.60-$0.65 PROFIT(max)=14% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=CTX ****************************************************************** WHR - Whirlpool $66.02 *** Failed Rally? *** Whirlpool Corporation (NYSE:WHR) is a worldwide manufacturer and marketer of major home appliances. The company manufactures in 13 countries under 11 major brand names, and markets products to distributors and retailers in more than 170 countries. Whirlpool manufactures and markets a full line of appliances and related products, primarily for home use. Whirlpool's principal products are home laundry appliances, home refrigerators and freezers, home cooking appliances, home dishwashers, and air-conditioning equipment, mixers and other small household appliances. They also produce hermetic compressors and plastic components, primarily for the home appliance and electronics industries. Stocks in the retail industry have begun to reflect signs of the slowing U.S. economy and companies that offer the "big-ticket" items such as major appliances will also suffer from the reduced consumer wealth in America. The recent slump in WHR may be due to that effect and with the well-established resistance near our sold strike price, this position offers an excellent risk/reward outlook for traders who are bearish on the underlying issue. PLAY (conservative - bearish/credit spread): BUY CALL SEP-75 WHR-IO OI=220 A=$0.25 SELL CALL SEP-70 WHR-IN OI=2201 B=$0.75 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=WHR ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** PDLI - Protein Design Labs $58.79 *** Probability Play! *** Protein Design Labs (NASDAQ:PDLI) is engaged in the development of humanized monoclonal antibodies for the prevention & treatment of disease. The company has licensed certain rights to its first humanized antibody product, Zenapax, to Hoffmann-La Roche and its affiliates (Roche), which markets Zenapax for the prevention of kidney transplant rejection. The company is also testing Zenapax for the treatment of autoimmune disease. In addition, PDLI has several other humanized antibodies in clinical development for autoimmune and inflammatory conditions, asthma and cancer. The company has fundamental patents in the United States, Europe and Japan, that cover many humanized antibodies. Eleven companies have licenses under these patents for humanized antibodies that they have developed. The company receives royalties on sales of the three humanized antibodies developed by other companies that are currently being marketed. Based on analysis of historical option pricing and technical background, this position meets the fundamental criteria for a profitable debit straddle. These positions are relatively easy to uncover and there are three rules for identifying favorable conditions for a straddle purchase. First, the trader should select options that are undervalued. Next, the underlying issue must have the potential to move (high or low) enough to make the straddle profitable. Finally, the underlying stock should have a history of multiple movements through a sufficient range in the required amount of time to justify the overall risk/reward of the position. Target a slightly smaller premium initially, to allow for smaller option premiums after the long holiday week-end. PLAY (conservative - neutral/debit straddle): BUY CALL SEP-60 PQI-IL OI=4554 A=$3.30 BUY PUT SEP-60 PQI-UL OI=562 A=$4.30 INITIAL NET DEBIT TARGET=$7.40-$7.50 TARGET PROFIT=15-20% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PDLI ************************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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