The Option Investor Newsletter Sunday 09-23-2001 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/0923_1.asp Entire newsletter best viewed in COURIER 10 font for alignment ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 9-21 WE 9-14 WE 9-7 WE 8-31 DOW 8235.81 -1369.7 9605.51 - .34 9605.85 -343.90 -473.42 Nasdaq 1423.19 -272.18 1695.37 + 7.67 1687.70 -117.73 -111.37 S&P-100 491.70 - 66.88 558.58 + 4.69 553.89 - 23.51 - 29.31 S&P-500 965.80 -126.74 1092.54 + 6.76 1085.78 - 47.80 - 51.35 W5000 8900.45 -1203.9 10104.44 + 37.95 10066.49 -448.60 -433.32 RUT 378.89 - 61.84 440.73 - 4.46 445.19 - 23.37 - 12.25 TRAN 2054.84 -621.65 2676.49 - 36.65 2713.14 -100.27 - 40.98 VIX 48.27 + 13.67 34.60 + .24 34.36 + 6.51 + 5.56 VXN 77.73 + 13.89 63.84 - 1.61 65.45 + 12.59 + 5.16 TRIN .60 .68 1.25 .71 TICK +21 +100 -113 -74 Put/Call 1.27
The Option Investor Newsletter Sunday 09-23-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0923_2.asp ************************Advertisement************************* ENTER THE DRAGON With an optionsXpress account, you have access to our easy-to-use, online analysis tools, like our new Option Dragon! The Dragon can scan the market in real time for a top 50 ranking of matching stocks and their options based upon various criteria, like stock or option volume, P/E, volatility, open interest, etc. Find out more at http://www.optionsxpress.com/marketing.asp?source=optinv2 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* GE - General Electric $31.30 (-8.05 last week) See details in sector list Put Play of the Day: ******************** BBY - Best Buy $43.40 (-10.65 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 ^^^^^ QQQ $28.19 (-5.91) Our QQQ play came to an end last Friday as the contract took out its lows set during the prior sessions. The game of picking bottoms is difficult, but should only be pursued with stringent risk management. Hopefully traders took the appropriate steps to manage risk in this play. Those with open positions should look to any strength early next week as a possible exit point. AMGN $56.02 (-8.11) The biotech sector succumbed to heavy selling last Friday, which was most unfortunate for our AMGN play after it rebounded last Thursday. Nevertheless, we're dropping the play this weekend. Traders should look for a bounce from the $55.25 level early next week if the stock continues falling. Conversely, to the upside, resistance is around the $58.25 level. BGEN $53.30 (-7.01) Bullish Biotech investors tried valiantly to buck the sharp downward all week, but in the end the bears won out. The Biotech index (BTK.X) fell again on Friday, coming to rest just above the April lows, and that dragged our BGEN play sharply lower. Despite sharp rally after the negative open, BGEN succumbed to the bears, falling all afternoon and giving up all it's intraday gains. Given the poor performance and a violation of our $55 stop, there's no way to rationalize keeping the play active. Use any rally next week as an opportunity to exit open positions at a better price. FDX $34.45 (-5.53 last week) There's no question it was a rough week and FDX fell sharply with the rest of the Transportation sector early in the week. Given the fact that the company very quickly got back to normal operations and Energy prices were expected to fall, it looked like a solid bullish play. Unfortunately, it never really got moving and fell below our stop on Friday. We're dropping the play this weekend, as the daily highs have continued to fall, possibly pointing to a new breakdown next week. PUTS ^^^^ P $54.17 (-4.39) We initially added P as a play on decreasing energy costs and reduced demand for that energy. With profits likely to be squeezed, it seemed like a no-brainer. But the market had other things in mind. Even though crude oil prices continue to fall, the Oil Services sector seems to be finding support near current levels and P staged a pretty solid gain on Friday. Our $56 stop is still in place, but we're going to take a pre-emptive exit due to the strength of Friday's gains. *********** 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 ************** SYMC - Symantec $36.96 (-4.54 last week) Symantec Corp. provides a broad range of content and network security solutions to individuals and enterprises. The Company is a provider of virus protection, firewall, virtual private network (VPN), vulnerability management, intrusion detection, remote management technologies and security services to consumers and enterprises around the world. The Nimba virus is wreaking havoc on networks across the world. It's been overshadowed, and rightfully so, by the terrorist events in the United States. But the virus is a threat in its own right and is sparking demand for software from the likes of Symantec. For its parts, SYMC appeared to trace somewhat of a short-term bottom late last week, which may portend further upside in the stock once the selling pressure across the broader markets subsides. The stock charged higher going into the weekend last Friday, on only faces some minor challenges above current levels. The stock has slight, short-term resistance around the $37.50 area, but beyond that it has a relatively clear path to $40. The favorable technical set-up combined with the demand for the company's product makes SYMC an enticing play at current levels. Any strength in the GSO.X earlier next week in conjunction with a firming of the Nasdaq should allow SYMC to work higher. In that event, bullish traders can use a solid advance through the aforementioned resistance area to take new entries in this play. If the stock does pullback, however, look for a bounce from the $36 level. Our stop is initially set at the $34 level. BUY CALL OCT-35*SYQ-JG OI= 86 at $4.40 SL=3.00 BUY CALL OCT-40 SYQ-JH OI=343 at $2.45 SL=1.25 BUY CALL JAN-35 SYQ-AG OI= 2 at $7.50 SL=5.25 BUY CALL JAN-40 SYQ-AH OI= 66 at $5.40 SL=3.75 Average Daily Volume = 2.02 mln RTN - Raytheon $34.04 (+9.19 last week) Raytheon Company is in the business of defense electronics, including missiles; radar; sensors and electro-optics; intelligence, surveillance and reconnaissance; command, control, communication and information systems; naval systems; air traffic control systems; aircraft integration systems; and technical services. Raytheon's commercial electronics businesses leverage defense technologies in commercial market. Raytheon's products are in high demand. And for good reason. The market is betting that Raytheon is going to see a surge in new orders for its defense-related products as the United States Defense Department ramps capital expenditures. The stock's price action seems to confirm those leanings. Like many defense sector stocks last week, RTN gapped enormously higher Monday morning, but pulled back throughout the week. While others in the group retraced about half of their first day moves and remained near the lower-end of last week's ranges, RTN rallied higher into the close Friday, which reinforced the bullish outlook of this company. Bullish traders looking for new plays in the defense sector can consider taking call positions in RTN at current levels, around the $34 area. Those momentum traders seeking further confirmation of upside can use a solid advance above the $35 level to take new entries into this play. The stock spiked up to that level late last Friday, and it may serve as short-term resistance going forward. Above that level, the stock's high last Monday was right at the $36 level. Again, bullish trades will want to be cognizant of that level in terms of resistance before entering new plays. Below current levels, the stock should see support around $33, which may also provide an entry point on any forthcoming weakness. Stops are initially in place at the $32 level. BUY CALL OCT-30*RTN-JF OI= 475 at $4.80 SL=3.00 BUY CALL OCT-35 RTN-JG OI= 136 at $1.65 SL=0.75 BUY CALL NOV-30 RTN-KF OI=2304 at $5.50 SL=3.25 BUY CALL NOV-35 RTN-KG OI=1471 at $2.60 SL=1.75 Average Daily Volume = 1.68 mln GE - General Electric $31.30 (-8.05 last week) As one of the largest and most diversified industrial companies in the world, GE's products include major appliances, lighting products, industrial automation equipment, medical diagnostic equipment, electrical distribution and control equipment and power generation and delivery products. Additionally, GE provides commercial and military aircraft jet engines, locomotives and nuclear power support services. Through the National Broadcasting Company (NBC), GE delivers network television services, operates television stations and provides cable, Internet and multimedia programming and distribution services. It was a heck of a week and there were few stocks that managed to survive without some serious collateral damage. GE saw it's share price cut by more than 20%, hitting a low of $28.50 Friday morning. But buyers snapped up the stock right from the open, helping the industrial giant to recover back over the $31 level. Driven by scared investors running for the exits, GE had its worst week ever. So why is it on the call list? Consistency. The company confirmed Friday morning that they would continue to deliver double-digit revenue growth from their diversified operations. This is a play on a broad market recovery as GE moves in tandem with the DJIA. It was encouraging to see Friday's rebound come on such heavy volume, and we're betting this was a solid reversal. Accordingly, we'll target fresh intraday dips near the $30-31 level and hold on for the rebound. Resistance is looming overhead near $32.50, followed by $36. Traders waiting for strength before entering will want to target a high-volume move above $32.50. We are setting our stop at $28, just below Friday's intraday low. BUY CALL OCT-30*GE-JF OI= 2204 at $3.10 SL=1.50 BUY CALL OCT-32 GE-JZ OI= 5968 at $1.75 SL=1.00 BUY CALL OCT-35 GE-JG OI=10856 at $0.85 SL=0.00 BUY CALL DEC-30 GE-LF OI= 2230 at $4.10 SL=2.50 BUY CALL DEC-32 GE-LZ OI= 338 at $2.80 SL=1.50 BUY CALL DEC-35 GE-LG OI= 1959 at $1.75 SL=1.00 SELL PUT OCT-30 GE-VF OI= 3500 at $1.50 SL=3.00 (See risks of selling puts in play legend) Average Daily Volume = 19.5 mln NOK - Nokia Corporation $15.65 (+1.90 last week) Nokia is a mobile phone manufacturer and a supplier of mobile, fixed and Internet protocol (IP) networks and related services. The company has two primary business groups, Nokia Networks and Nokia Mobile Phones. Nokia Networks is a supplier of mobile, broadband, IP network infrastructure and related services. It also develops mobile Internet applications and solutions for operators and Internet service providers. Nokia Mobile Phones is the world's leading mobile phone manufacturer, having won the war of attrition against rivals Motorola and Ericsson. Information and intelligence will be the most valuable weapons in the war on terrorism, and the use of cell phones on September 11th demonstrated just how useful these wireless communications devices can be. In fact, recent events are forcing analysts to re-examine their assumptions about total market penetration that they can ultimately expect, as consumers that never considered owning a wireless phone are now viewing them as essential personal security devices. That realization hit the markets early on Monday, helping NOK (the dominant player in the wireless handset game) to continue its rebound off it's recent lows near $12.75. While the broad markets spent all week in free fall, NOK tacked on a respectable 10%...and on heavy volume. We're looking for the trend to continue, especially if the broad markets can shake off their fascination with the law of gravity. Monday's gap still needs to be filled and then we should see the stock take a run at resistance, first at $17-18, and then $20-21. We're initially placing our stop at $13, just in case the bulls lose their way. BUY CALL OCT-15*NOK-JC OI= 8445 at $2.25 SL=1.00 BUY CALL OCT-17 NOK-JW OI=34528 at $1.10 SL=0.50 BUY CALL JAN-15 NOK-AC OI=25254 at $3.30 SL=1.50 BUY CALL JAN-17 NOK-AW OI=10885 at $2.10 SL=1.00 BUY CALL JAN-20 NAY-AD OI=46472 at $1.45 SL=0.75 SELL PUT OCT-12.5 NOK-VV OI= 6469 at $0.40 SL=1.00 (See risks of selling puts in play legend) Average Daily Volume = 12.3 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 09-23-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0923_3.asp ************************Advertisement************************* ENTER THE DRAGON With an optionsXpress account, you have access to our easy-to-use, online analysis tools, like our new Option Dragon! The Dragon can scan the market in real time for a top 50 ranking of matching stocks and their options based upon various criteria, like stock or option volume, P/E, volatility, open interest, etc. Find out more at http://www.optionsxpress.com/marketing.asp?source=optinv2 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** ATK - Alliant Techsystems $80.61 (+15.32 last week) Alliant Techsystems conducts business through three industry segments: Aerospace, Conventional Munitions and Defense Systems. Within these segments, Alliant has four business lanes: Propulsion and Composites, each of which falls within the company's Aerospace segment; Conventional Munitions, which corresponds to the Company's Conventional Munitions segment; and Precision Capabilities, which corresponds to the company's Defense Systems segment. ATK traded as high as $85 early Friday morning, which most certainly should've allowed those traders who entered on the dip down at the $75 level to book some gains. After all, $10 is a meaty move in just two days. It seems that market participants in the underlying were thinking along those lines anyway. ATK's intraday pullback down to the $78 level last Friday could've again offered favorable entry points. With as much as the stock is up last week, it only makes sense to look for pullbacks when searching for entry points. That way, bullish traders can measure and manage risk much more effectively rather than trying to chase the stock higher. Stops are easy to quantify near support levels, rather than trying to guess where to manage risk after the stock has already made a run higher. On that note, we'll be looking for future pullbacks to gain entry into this play. The $78 level may continue to produce bids, and if it does, bullish traders can use bounces from there to enter new call positions. Over the short-term, we'll reference the $85 level as resistance, thus an exit point. BUY CALL OCT-75 ATK-JO OI= 0 at $9.10 SL=7.50 Wait for OI!! BUY CALL OCT-80*ATK-JP OI= 28 at $6.00 SL=4.75 BUY CALL OCT-85 ATK-JQ OI= 68 at $4.00 SL=3.00 BUY CALL NOV-80 ATK-KP OI=1104 at $7.70 SL=6.00 BUY CALL NOV-85 ATK-KQ OI=1000 at $5.30 SL=4.00 Average Daily Volume = 152 K MO - Phillip Morris $46.68 (-1.47 last week) Phillip Morris is a holding company whose principal wholly owned subsidiaries, Phillip Morris Inc., Phillip Morris International, Kraft Foods, and Miller Brewing Company, are engaged in the manufacture and sale of various consumer products. MO succumbed to further market-related selling early last Friday, but was able to rebound into the close. We say 'market-related' because there aren't too many fundamental reasons to be selling MO at its current levels. To revisit, its businesses are relatively immune from the ebbs and flows of the economy, the government, for the most part, is of its back, and the stock yields an enticingly high dividend. Those three factors are all reasons to be buying the stock at current levels. Its weakness, on the other hand, could've stemmed from margin call selling, insurance companies raising cash if they held MO, or a variety of other broader market forces. As such, we expect MO to snapback once the Dow does the same thing. In fact, we expect MO to lead any forthcoming rebound. That said, bullish traders who are keen on timing the Dow can employ momentum based strategies when trading MO. In other words, if you're good at timing market direction, consider using a breakout in MO above its resistance levels for an entry point. For resistance, MO could face some congestion at the $47 level as that is the site of its former support we touched upon late last week. Beyond that level, there exists some general congestion between the $48 and $49 levels. But if we were to see a substantial recovery rally in the coming weeks, MO could very well make its way above the $50 level. BUY CALL OCT-45*MO-JI OI=37420 at $3.00 SL=2.00 BUY CALL OCT-50 MO-JJ OI=18483 at $0.80 SL=0.25 BUY CALL DEC-45 MO-LI OI= 2469 at $4.30 SL=3.00 BUY CALL DEC-50 MO-LJ OI=17191 at $1.95 SL=1.00 Average Daily Volume = 5.89 mln CMVT - Comverse Technology $25.08 (+3.08 last week) Comverse Technology designs, develops, manufactures, markets and supports computer and telecommunications systems and software for multimedia communications and information processing applications. For the most part, CMVT held up pretty well last Friday in light of the weakness across the broader markets. That price action reinforced our stance on CMVT's relative strength. However, the stock once again ran into resistance at the $26.50 level, which is roughly the site of its 200 PERIOD moving average on the 60 MINUTE chart. For whatever reason, market participants are using that level as a reference point when giving some supply to the stock. Going forward, it's going to take a solid rebound in the Nasdaq to carry CMVT higher. In addition, we need to see confirming direction in the Networking Sector (NWX.X). If we see both the Nasdaq and the NWX advancing in conjunction with a rally attempt in CMVT, then bullish traders could use a breakout above the $26.50 level as a momentum-based entry point. Otherwise, entries around current levels, namely, $25, can be approached if CMVT continues to hold. Further weakness could see the stock down around the $24 are, which would also allow for a low risk/potentially high reward entry point. It would be low risk because stops can be set relatively tight down around the $24 area. BUY CALL OCT-25 CQV-JE OI= 832 at $2.75 SL=1.25 BUY CALL OCT-30 CQV-JF OI=1755 at $1.05 SL=0.50 BUY CALL JAN-25 CQV-AE OI= 882 at $4.90 SL=3.00 BUY CALL JAN-30 CQV-AF OI=3264 at $3.00 SL=1.50 Average Daily Volume = 6.07 mln ORCL - Oracle Corporation $10.76 (-0.70 last week) According to the company's ads, "Software powers the Internet". ORCL is a supplier of software for information management, servicing two broad product categories - systems software and business applications software. Systems software is a complete Internet platform to develop and deploy applications for computing on the Internet and corporate Intranets. Business applications software automates the performance of specific business data processing functions for customer relationship management (CRM), supply chain management, financial management, procurement, project management, and human resources management. The historic market decline continued on Friday, driving ORCL just below our $10.25 stop at the open, but strong buying volume quickly lifted the stock back over the $10.60 level. The stock was clearly subject to the whims of the broad markets all day, and after the opening volatility, settled into a narrow 30-cent range, with the top near $11.10. While it was encouraging to see the stock recover off its lows, there just wasn't any buying follow-through. So that leaves us waiting for developments next week to stimulate trading action. Our plan is the same; consider new positions on a volume-backed rebound above our stop, or else wait for that buying volume to propel ORCL through near-term resistance at $11.50. The Software index (GSO.X) has continued to decline all week, and if bargain hunters show up there, ORCL could see a beneficial effect. Keep in mind that there is likely to be some significant resistance at $12 and then again at $14. BUY CALL OCT-10*ORQ-JB OI= 3646 at $1.60 SL=0.75 BUY CALL OCT-12 ORQ-JV OI=14260 at $0.55 SL=0.00 BUY CALL DEC-10 ORQ-LB OI= 1185 at $2.20 SL=1.00 BUY CALL DEC-12 ORQ-LV OI= 6573 at $1.15 SL=0.40 BUY CALL DEC-15 ORQ-LC OI= 9489 at $0.60 SL=0.00 SELL PUT OCT-10 ORQ-VB OI= 5855 at $0.70 SL=1.50 (See risks of selling puts in play legend) Average Daily Volume = 36.8 mln PPDI - Pharmaceutical Product Dev. $25.62 (+2.51 last week) PPDI and its subsidiaries provide a broad range of research, development and consulting services in two segments, development and discovery sciences. In the development segment, the company provides worldwide clinical research and development of pharmaceutical products, medical devices and analytical laboratory services. The discovery sciences division pursues target identification and validation, compound creation, screening and compound selection. PPDI provides services under contract to clients in the pharmaceutical, general chemical, agrochemical, biotechnology and other industries. In light of the wild gyrations in the broader market, trading in shares of PPDI was rather calm, with the stock trading within a $2 range all day, and posting a small fractional loss at the close. That keeps our play looking like a good bullish candidate, owing to the impressive relative strength. No doubt a big part of that strength stems from the company raising its Q3 earnings guidance Wednesday night, an uncommon event in the current economic climate. While volume fell back significantly from Thursday's heavy action, we still saw 70% more shares trade hands than the daily average. With Stochastics on the rise, it looks like there is still some room to run. We're still looking at intraday dips in the $23-24 area as attractive entries, although more cautious traders will want to see PPDI clear the $26 resistance level before taking a position. Needless to say, volume is going to be the key. We're keeping our stop in place at $22. BUY CALL OCT-25*PJQ-JE OI=160 at $2.90 SL=1.50 BUY CALL OCT-27 PJQ-JY OI=309 at $1.70 SL=1.00 BUY CALL OCT-30 PJQ-JF OI=761 at $0.95 SL=0.50 BUY CALL JAN-25 PJQ-AE OI= 7 at $4.90 SL=3.00 BUY CALL JAN-30 PJQ-AF OI=464 at $2.90 SL=1.50 BUY CALL JAN-35 PJQ-AG OI= 92 at $1.60 SL=0.75 SELL PUT OCT-22 PJQ-VX OI=150 at $1.20 SL=2.50 (See risks of selling puts in play legend) Average Daily Volume = 729 K ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. 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 09-23-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0923_4.asp ************************Advertisement************************* ENTER THE DRAGON With an optionsXpress account, you have access to our easy-to-use, online analysis tools, like our new Option Dragon! The Dragon can scan the market in real time for a top 50 ranking of matching stocks and their options based upon various criteria, like stock or option volume, P/E, volatility, open interest, etc. Find out more at http://www.optionsxpress.com/marketing.asp?source=optinv2 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* NEW PUT PLAYS ************* BBY - Best Buy $43.40 (-10.65 last week) Best Buy Company, Inc. is a specialty retailer of consumer electronics, home office equipment, entertainment software and appliances. The Company operates retail stores and commercial Websites under the brand names Best Buy (BestBuy.com), Media Play (MediaPlay.com), On Cue (OnCue.com), Sam Goody (SamGoody.com), Suncoast (Suncoast.com) and Magnolia Hi-Fi (MagnoliaHiFi.com). Best Buy stores account for 68% of the Company's total retail square footage. We completed a few checks of local malls last week. And our findings were most disconcerting. Relatively empty parking lots, an obvious lack of patrons, and few cash registers ringing all pointed to one thing: No consumers. The sad fact is that the attacks on America have shunned consumers from spending. The price action in major retailers last week revealed that much. And BBY is no exception. Its high ticket electronic items have seen a huge slump in demand in the week following the terrorist attacks, and we see that trend continuing over the short-term. The stock traced yet another relatively low last Friday, and appears to be headed to the $35 to $30 area. Bearish traders, who prefer entering plays with the trend, can look to take new put positions early next week on further weakness below current levels. Just make sure to confirm weakness in the SPX.X and the RLX.X before pursuing a momentum strategy. BBY could rebound next week if the shorts decide to cover, so we're going to start with a loose stop up at $49. If the stock does rebound, start looking for rollover entries around the $45 to $46 range. BUY PUT OCT-45*BBY-VI OI=3010 at $5.40 SL=3.00 BUY PUT OCT-42 BBY-VV OI= 371 at $4.10 SL=2.75 Average Daily Volume = 2.62 mln SV - Stillwell Financial $18.98 (-6.89 last week) Stilwell Financial Inc. is a diversified, global financial services company with operations through its subsidiaries and affiliates in North America, Europe and Asia. Stilwell's subsidiaries and affiliates are engaged in a variety of asset management and related financial services to registered investment companies, retail investors, institutions and individuals. The primary entities comprising Stilwell, as of December 31, 2000, were Janus Capital Corporation, an approximate 82.5%-owned subsidiary; Stilwell Management, Inc. Mutual funds are seeing massive redemptions as investor flee the risks associated with equities. Granted, bond funds have seen large inflows. But unfortunately, Janus isn't known as a bond shop. Its specialty is, or perhaps was, high growth equities. And high growth equities are among the least favorite of the individual investor. Janus is of course a subsidiary of Stilwell, and its stock is reflecting the pessimism surrounding the asset management business. Janus funds were struggling before the terrorist attacks, but the sell-off across the market last week only added to the poor performance of their funds. That will only add for investors' distaste of aggressive growth funds, and should continue to pressure shares of the parent, Stillwell. SV broke below the psychologically significant $20 last Friday and traced a most bearish candlestick pattern on its daily chart. The reversal last Friday portends further downside over the short-term, and bearish traders looking to enter new put plays can use a breakdown below SV's intraday low last Friday at the $18.70 level as an entry point. A gap filling rally back up to the $20.75 level would also provide a solid entry should SV rebound. Our stop is initially in place just above that gap at the $21.00 level. BUY PUT OCT-22 SV-VX OI=506 at $4.00 SL=3.00 BUY PUT OCT-20*SV-VD OI= 10 at $2.10 SL=1.25 Average Daily Volume = 948 K EBAY - eBay, Inc. $43.79 (-10.78 last week) After developing a Web-based community in which buyers and sellers are brought together in an efficient format, EBAY has emerged as the dominant online auction site. The eBay dynamic pricing format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. Items listed on eBay include collectibles, automobiles, art objects, jewelry, consumer electronics and a host of practical and miscellaneous items. Although based in the United States, through its subsidiaries, EBAY also operates trading platforms in Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. As the last of the surviving Internet stocks that hasn't been reduced to a mere shadow of its former self, EBAY sports something that is getting the bears' attention. A PE ratio of 145! That's right, a triple-digit PE ratio. One-by-one, all of yesteryear's high-flying Tech stocks have had their wings clipped. Now it's EBAY's turn and from the looks of things the party already started without us. We've attempted to game this stock to the downside a couple times recently, but every time we do, those stubborn bulls refuse to go along. Well, after the drubbing they took last week, and with numerous support (well, previous support) levels now looming overhead, it looks like the momentum has shifted in favor of the bears. Now that the 200-dma (currently $50.30) has been broken, we've got a formidable resistance level to give us a ceiling for the stock. EBAY is oversold along with the rest of the market and screaming for a bounce. When it comes, we'll be looking for a fresh Put entry as the stock rolls over, so long as it comes below the $50 level (the site of our stop). A weaker rebound may run into resistance near the $47 resistance level and that would likewise provide for an attractive entry. Now that we've got some downward momentum working for us, EBAY seems likely to revisit its April lows near $30, and we want a piece of that action. BUY PUT OCT-45*QXB-VI OI=3900 at $5.60 SL=3.50 BUY PUT OCT-40 QXB-VH OI=2544 at $3.30 SL=1.75 Average Daily Volume = 6.06 mln ***************** CURRENT PUT PLAYS ***************** NVLS - Novellus Systems $28.55 (-9.28 last week) Novellus manufactures, markets and services advanced systems used to deposit think conductive and insulating films on semiconductor devices, as well as equipment for preparing the device surface for these deposition processes. NVLS appeared to have completed somewhat of a short-term bottom last Friday, even though the Philadelphia Semiconductor Index (SOX.X) continued lower. We don't want to alarm bears with that suggestion. Rather, bearish traders with open positions in NVLS should be on alert for possible upside from current levels. Unless we see a rollover early next week in this play, those traders with open positions should be thinking about ways to lock in some of the gains we captured last week. That could take the form of setting tight stops to the upside, or even taking positions in the underlying, on a ratio basis, against the puts open. Either way, traders should be thinking about risk management at current levels. If the stock does rebound early next week, it could set up another favorable entry opportunity as NVLS approaches resistance. In terms of resistance, however, there are not a lot of levels to reference. Our first thought is that the $30 level could lure the shorts back into this stock. It proved to be resistance last week, and could do the same next week. Above that, NVLS' day high last Wednesday was around the $32 level, which is the site of our lowered stop. That level could prove formidable should $30 be broken above. To better time new entries, traders should keep tabs on the SOX for sector confirmation. BUY PUT OCT-30*NLQ-VF OI=556 at $4.20 SL=2.75 BUY PUT OCT-25 NLQ-VE OI=286 at $1.85 SL=1.00 Average Daily Volume = 6.52 mln PMCS - PMC-Sierra $14.96 (-9.78 last week) PMC-Sierra designs, develops, markets and supports high performance semiconductor networking solutions. The company's products are used in high speed transmission and networking systems, which are being use to restructure the global telecommunications and data communications infrastructure. When we suggested last week that PMCS would go the way of its fallen brethren in the Networking sector we didn't expect it to happen so quickly. But last Friday's massive sell-off took PMCS down to the mid-teens. Now, bearish traders with open positions have some decisions to make. Obviously PMCS' drop Friday could've allowed traders to book some handsome profits into the weakness. And that's what we'd prefer traders to do when exiting plays. Namely, exit for profit into weakness instead of being stopped out to the upside on any short covering rally. The question at this juncture is whether or not PMCS is going to work towards the $10 level, adding to the profits of those with open positions. We don't like being greedy, so at the very least we'd suggest that traders use any further weakness below current levels to take some money off the table. But, that much is up to each individual reader. For entering new plays, we'd actually like to see PMCS rebound, thus entering at higher levels. Although the stock could continue lower, the risk in entering new positions at current levels is difficult to quantify, let alone manage. That said, a rebound up around $17 to $18 would offer a much better entry in terms of risk management. We've lowered our stop down to the $17 level. BUY PUT OCT-17 SQL-VW OI=168 at $4.10 SL=2.75 BUY PUT OCT-15*SQL-VD OI=233 at $2.55 SL=1.75 Average Daily Volume = 8.53 mln CHKP - Check Point Software $24.12 (-8.87 last week) Check Point Software is the worldwide leader in securing the Internet. The company's Secure Virtual Network (SVN) architecture provides the infrastructure that enables secure and reliable Internet communications. We're facing a dilemma in the CHKP play that is similar to other put plays on the Option Investor put list. The stock is extremely oversold, so it's difficult determining risk in entering new plays at current levels. Of course, its further weakness last Friday should've given those with open positions plenty of opportunities to take some profits. We tend to think that the stock has further downside from current levels, but exactly how much is hard to determine in the current economic and market uncertain environment. The $24 level held pretty well last Friday, which may have been a site where shorts were taking in some of their bearish bets. That said, if the $24 level gives way early next week, we could see CHKP ultimately make its way down to the psychologically significant $20 level. In the meantime, we'd feel more comfortable entering new positions on a rebound back up to a meaningful resistance level, such as $26 or higher around $28. For OI's part, we've lowered our stop on this play down to the $29 level, but individual traders should consider a tighter stop, depending on risk tolerance and unique entry points. BUY PUT OCT-25*KEQ-VE OI=5779 at $3.90 SL=2.50 BUY PUT OCT-22 KEQ-VX OI=2321 at $2.60 SL=1.50 Average Daily Volume = 10.5 mln HDI - Harley Davidson $38.71 (-5.47 last week) Harley-Davidson, Inc. conducts business in two segments: Motorcycles and Related Products and Financial Services. The Motorcycles and Related Products segment includes the group of companies doing business as Harley-Davidson Motor Company, which are subsidiaries of H-D Michigan, Inc., and Buell Motorcycle Company. The Motorcycles segment designs, manufactures and sells primarily heavyweight touring, custom and performance motorcycles as well as a complete line of motorcycle parts, accessories and general merchandise. The Financial Services segment consists of the Company's wholly owned subsidiary, Harley-Davidson Financial Services, Inc. (HDFS). Harley traded as low as $32 Friday morning! That was almost $7 away from where the stock closed. Although its rebound from its opening gap lower, hopefully bearish traders with open positions had the opportunity to take profits into that overwhelming weakness. Sell limit, anyone? In all seriousness, HDI's reassuring comments Friday morning, which sparked the rebound, should be taken with a grain of salt. It's tough to imagine that HDI won't be impacted by a drop in consumer spending. After all, its bikes were selling at a decreasing pace before the attacks! But, HDI's comments Friday morning, and the ensuing price action in the stock, may have been a good thing as far as we're concerned. The stock is now setting up for future entry points from the short side, and a rollover near the $40 level early next week would offer a favorable entry point. Our stop resides at that level for good reason, and bearish traders who take entries at that level can use an ultra tight stop to manage risk in new put entries. Beyond $40, the stock should face congestion up around $41.50. BUY PUT OCT-40*HDI-UJ OI= 201 at $3.90 SL=2.75 BUY PUT OCT-35 HDI-UI OI=6854 at $1.70 SL=1.00 Average Daily Volume = 1.49 mln CHV - Chevron $84.01 (-7.69 last week) Chevron manages its investments in, and provides administrative, financial and management support to, United States and foreign subsidiaries and affiliates that engage in fully integrated petroleum operations, chemicals operations, coal mining and energy services. Of course we were happy to see CHV dip down to the $81 level last Friday morning. Hopefully, that dip allowed traders to book some chunky gains in this play because there were a few signs in the energy market last Friday that were a cause for concern, at least for us leaning bearish. Although the Oil Index (OIX.X), of which CHV is a member, finished decidedly lower, the Oil Service Index (OSX.X) finished strongly. In fact, the OSX looks like it's putting in a short-term bottom. We're not sure what the catalyst is behind this move. But isn't that always the case? The bids in the OSX could've been short covering, but they also could've been foreshadowing a military strike in the oil rich middle east. It's difficult to intelligently speculate on the outcome at this point, but we wanted to pass along our observations nonetheless. CHV will likely lag any rebound in energy due to its integrated nature. The simple fact remains that demand is on the down low for energy. Nevertheless, bearish traders should be ratcheting down stops in open positions. We'd like to see a rollover from current levels early next week, which would allow for new positions to be taken, but pay attention to that stochastics reading on the daily chart! BUY PUT OCT-90*CHV-VR OI= 973 at $7.10 SL=5.00 BUY PUT OCT-85 CHV-VQ OI=1292 at $3.80 SL=2.75 Average Daily Volume = 2.38 mln CTX - Centex $30.08 (-8.26 last week) Centex is a multi-industry company that operates in six principal business segments. Conventional Homes, Investment Real Estate, Financial Services, Construction Products, Contracting and Construction Services, and Centex HomeTeam Services. Our Centex add Thursday and its subsequent rebound Friday is a pertinent study of the risks of entering oversold short plays. But that's why we initiated coverage with a liberal stop. We strongly believe that the housing market has further downside. Anything consumer related, unfortunately, appears susceptible to further downside from current levels. In the meantime, we could see further upside in this play as the shorts cover and the stock's oversold condition is worked off. But to be perfectly honest, that would be alright with us. If CTX works higher from current levels, that would only allow us to gain better put entries at higher prices and with "easier" risk management procedures. Looking higher, resistance could form around the $31.50 level first, possibly a little higher around $32. Above that, we're likely to see sellers emerge around the $34 level. Granted, $4 from current levels is a LARGE move, but it could set up a very nice put entry, so we'll take it if it comes our way. BUY PUT SEP-35 CTX-VG OI=4027 at $6.50 SL=5.00 BUY PUT SEP-30*CTX-VF OI= 67 at $3.20 SL=1.75 Average Daily Volume = 795 K ENE - Enron $28.30 (-4.46 last week) Originally only an energy company, in recent years ENE has moved into the communications market as well. Through its subsidiaries, the company is primarily engaged in the transportation of natural gas through pipelines throughout the United States, and the generation, transmission and distribution of electricity to markets I the northwestern United States. ENE also markets natural gas, electricity and other commodities and finance services worldwide. Most recently, the company has moved into the Communication business, developing an intelligent network platform to provide bandwidth management services and deliver high bandwidth applications. Despite our premise that Energy stocks would be squeezed by declining prices and reduced demand, we've seen the Oil Services sector (OSX.X) and the Natural Gas index (XNG.X) firm over the past few days. That's not the kind of market action we're looking for in our quest to ride ENE lower. While it hasn't started what we could call a rebound, the stock has definitely found some support near $26. Of course, it did the same thing a week ago near $30, posted two modest green candles and then promptly turned around and smashed through support. Well, we're looking for a repeat performance. ENE has been in an ever-tightening downward spiral for months now, and managed to find some support at $25.50 last week. We're looking for the $30 level to turn back the bulls, so we've set our stop at $30.25 and are looking for any rollover below that level to trigger new entries into the play. Then we'll ride the next leg down, as we expect to see a test of the $20-21 support level in the near future. That will be a good level to harvest some profits. BUY PUT OCT-30*ENE-VF OI=15678 at $3.80 SL=2.25 BUY PUT OCT-27 ENE-VY OI= 5524 at $2.35 SL=1.25 BUY PUT OCT-25 ENE-VE OI= 4252 at $1.40 SL=0.75 Average Daily Volume = 4.67 mln PHA - Pharmacia $38.35 (-1.80 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. Much like the broad markets, PHA gapped significantly lower ($36.96) Friday morning and then recovered sharply. Agile traders took the opportunity to harvest some gains on the opening dip and spike in volatility, putting them in a position to watch for a fresh entry point. Drug stocks as measured by the Pharmaceutical index (DRG.X) didn't fare nearly as well, and we'd look for the sector weakness to continue dragging PHA lower in the week ahead. With solid resistance at $40, we're shifting our stop down to that level, and will look for fresh entries on a failed rally that runs out of steam in the $39-40 area. Otherwise, target a drop under $37 for fresh positions. So long as the DRG remains weak and selling volume is strong, PHA should have a hard time managing anything approaching a sustained rally. BUY PUT OCT-40*PHA-VH OI=2173 at $3.10 SL=1.50 BUY PUT OCT-35 PHA-VG OI=2761 at $0.95 SL=0.50 Average Daily Volume = 4.63 mln SEBL - Siebel Systems $13.33 (-6.25 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. Another stellar Put play, SEBL is the stock that just can't shake its fascination with the law of gravity. Of course, it doesn't help that the Software sector (GSO.X) is in a never-ending descent as well. Friday's weakness dropped both the GSO index and SEBL to new yearly lows, but our play is starting to show some signs of life. Increasing buying volume as we headed into the close for a potentially news-filled weekend has me a little nervous. We've managed to enjoy quite a ride from SEBL since we picked it near $22, and now that we've tightened our stop to $14, we're guaranteed to harvest a sizable gain. Any failed rally attempt below that level could be used for a fresh entry for a decline into the $9 area, but now is the time to be careful. The market is just looking for an excuse to rally, and if it does, SEBL will likely go along for the ride. If the selling does continue next week, consider taking profits near the $12 or even $9 support levels. BUY PUT OCT-15*SGQ-VC OI=1074 at $3.10 SL=1.50 BUY PUT OCT-12 SGQ-VV OI=1138 at $1.60 SL=0.75 Average Daily Volume = 13.4 mln ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***** LEAPS ***** Capitulation? Not Yet, But We're Getting Close! By Mark Phillips Contact Support For those that caught my mid-week update, you know I was questioning the validity of the late-day bounce on Wednesday, as I felt it didn't have enough "oomph" to be called a reversal. Sure enough, Thursday morning proved that it had only been short-covering as we saw the indices wilt throughout the day, with the S&P500 (SPX.X) coming to rest below 1000 for the first time since late 1998. In a rare deviation from my normally strict discipline, I'm going to keep Philip Morris (NYSE:MO) alive in the Portfolio, even though it violated our $47 stop. I was really impressed with its strength on Friday afternoon, and I think this is a clear case of setting the stop too tight. So I'm lowering the stop slightly to $46, and we'll stick with it at that level. On Wednesday I discussed the drops of both Walt Disney (NYSE:DIS) and Global Marine (NYSE:GLM) and tonight I'm adding Clorox (NYSE:CLX) to the list. That leaves us with 2 itty-bitty plays in the Portfolio, and one of them is new this week. It's hard to pinpoint decent long trades that don't get wiped out when the broad markets are in free fall, so it should come as no surprise that our Portfolio is so thin. But this too shall change. With extreme oversold conditions and the VIX charging as high as 57.31 level Friday morning, we are getting very close to the next reversal, in my opinion. How long it will last is anyone's guess, but you can bet we'll be playing it here in the LEAPS column and following our positions up with tight stops. If you remember from my Wednesday update, I'm looking for the SPX to test the 900-950 level before we get a good tradable rally. I've copied my monthly SPX chart below, along with my Wednesday comments for those of you that missed it the first time around. The SPX dropped right to the 944 level on Friday morning before the short-covering bounce. Whether we'll continue that rebound on Monday is anyone's guess and depends heavily on what news breaks between now and the next opening bell. But we've now reached the upper level of what I consider to be a key technical level. Heaven help us if the bears manage to push the SPX below 900, as that could open the door to a lot more pain, with 800 being the next level of potential support. Whether that is THE BOTTOM is anyone's guess. I won't even insult your intelligence by trying to answer that question from here. Simply put, nobody knows...and anyone who tells you differently is either a complete fool or a liar. Either way, you don't want to listen to them. I've said it before -- when you see signs of economic improvement in your own neighborhood, then you'll know that we've reached the bottom. Until then, it is only a guessing game, as the Fed and our government race the now-full-blown recession, still trying to head it off at the pass. Before the devastating events of September 11th, the water was still murky, but now it is crystal clear and there is an ugly monster lurking just under the surface. You know the one I'm talking about...earnings warnings. What was going to be another negative quarter is likely to be filled with dire predictions now, following the collapse of the Travel and Leisure industries, and Retail and Housing are not far behind. This bear market is 18 months old now and from the looks of the last week's trading activity, he's just starting to hit his stride. Playing the long side has been a risky game lately (that is if you can find a bullish chart to trade) and stop losses are the only thing that can keep you out of the poor house, even when you pick the right plays. In contrast to the nearly-empty Portfolio, the Watch List is getting pretty full, as we endeavor to line up high-odds plays with reasonable entry targets prior to the next rally. Note that several of our Watch List stocks are currently trading right in the middle of our targets, just begging us to jump into them. But that's not going to happen until we see signs of strength and solid buying volume to propel them above these ranges. And gaps don't count! As I've pointed out here in the past, we don't want to chase gaps, as these always need to be filled. When the price comes back to fill the gap, that's when we want to strike. General Dynamics (NYSE:GD) is a good example of this, in my opinion. Gapping sharply higher on Monday morning, we didn't get anywhere near our previously issued entry target, and we have yet to have seen a decent entry. I fully expect the emotionally charged markets to allow GD to fall back a bit and give us a solid entry near $75-76...possibly on the next cycle of the daily Stochastics. So what if I'm wrong, and the stock continues up from here? We don't enter the play and miss out on some profits. But I think that is far preferable to rushing our entry and then having the position move against us. Remember, discipline is the skill that will keep you alive as a trader over the long run. There's a gap to fill on the daily chart of our newest Watch List play as well, and I fully expect Nokia (NYSE:NOK) to fill that gap before it really gets moving significantly higher. Remember, patience is a virtue, not a weakness. I really wanted to cover LEAP Puts in my Wednesday column before now, but external events have conspired to take precedence over the past 2 weeks. Barring another unforeseen disaster, we should be on schedule to cover that topic starting on Wednesday. Then, when the next rally attempt fails, we'll be ready with a longer-term down-side strategy. I actually have a hypothesis on how the next bottoming process will play out, but unfortunately I don't have the time or space to cover it this weekend. So, I'll devote my Monday article to explaining what I'll be looking for in terms of chart formations to convince me we have a high-odds bullish trading opportunity. Needless to say, I don't expect it to materialize on Monday, and realistically it should take a couple weeks to set up after the first apparent bottom. Of course I could be full of beans, and I'll rely on you, my loyal readers, to point that out if need be. But here's the tip of the iceberg...Have you noticed that the last several major lows in the market have been accompanied by TWIN PEAKS in the VIX? Well, Friday's spike above 57 in the VIX certainly qualifies as a peak. Will we get another one to go along with it? I think so. Take a look back through your charts of the VIX and the S&P500 (SPX.X) this weekend and see if you don't see what I do. Then we can compare notes on Monday. In closing, I want to say a heartfelt thank you to all who wrote with encouraging comments about the mid-week update. All the kind words are greatly appreciated, and I'm sorry I don't have the time to respond to each of you personally. I will endeavor to provide mid-week commentary and Portfolio updates as time permits and market conditions warrant. And of course, questions and comments are always welcome. Best Wishes for a safe and profitable week! Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP MO 07/30/01 '03 $ 45 VPM-AI $ 6.10 $ 7.20 18.03% $ 46 PCS 09/17/01 '03 $ 25 VVH-AE $ 5.00 $ 5.30 6.00% $21.50 '04 $ 25 LVH-AE $ 7.10 $ 7.50 5.63% $21.50 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CPN 07/08/01 $22-23 JAN-2003 $ 25 OLB-AE CC JAN-2003 $ 25 OLB-AE JAN-2004 $ 30 LZC-AF CC JAN-2004 $ 30 LZC-AF ENE 07/29/01 $24 JAN-2003 $ 25 VEN-AE CC JAN-2003 $ 20 OFE-AD JAN-2004 $ 25 LYN-AE CC JAN-2004 $ 20 LYN-AD LLY 08/05/01 $73-74 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 $32-33 JAN-2003 $ 40 VGE-AH CC JAN-2003 $ 30 VGE-AF JAN-2004 $ 40 LGR-AH CC JAN-2004 $ 30 LGR-AF GD 09/16/01 $75-76 JAN-2003 $ 75 VJH-AO CC JAN-2003 $ 65 VJH-AM JAN-2004 $ 80 KJD-AP CC JAN-2004 $ 70 KJD-AN TYC 09/16/01 $40-42 JAN-2003 $ 45 VYL-AI CC JAN-2003 $ 40 VYL-AH JAN-2004 $ 50 LPA-AJ CC JAN-2004 $ 40 LPA-AH NOK 09/23/01 $13-14 JAN-2003 $ 15 VOK-AC CC JAN-2003 $12.5 VOK-AV JAN-2004 $ 15 LOK-AC CC JAN-2004 $ 10 LOK-AB New Portfolio Plays PCS - Sprint PCS $23.20 It is hard to find a stock in any sector that has held up better than PCS recently. Even with the worsening recession and the devastating effects of last week's tragedy, PCS has held support near $22 and has spent the past 4 trading days recovering from 6-month ascending trendline. That's right...the stock is still posting higher lows in the face of economic and political uncertainty. Ironically, last week's tragedy has many consumers that didn't think about it before, considering the need to have a cell phone. Stocks throughout the Wireless sector have been showing signs of strength all week, but none have shown the resilience or consistent buying volume of PCS. We've been watching the stock for some time now, as the weekly Stochastics oscillator has been trying to enter a new uptrend. And with the strong surge seen on the daily chart this week, it looks like the move may be underway. With the stock's refusal to sell off with the broad markets on Monday, we took our position, and from the action over the past 2 days, it looks like it was a good move. Particularly encouraging is the strong buying volume (more than double the ADV) seen on Wednesday as PCS powered through its 20-dma (currently $24). As good as things look right now, we must keep in mind that the markets are still very unsettled and we must protect our position with a tight stop. We are initially placing it at $21.50, just below the stock's recent lows and the ascending trendline. Those that are looking to initiate a new position will want to look for an intraday dip into the $23-24 range that is met by solid buying support. The stock appears positioned to challenge its recent highs at $26, and then $27. If the bulls can clear those levels, we could see PCS charge into the $30-32 range in the months ahead. BUY LEAP JAN-2003 $25.00 VVH-AE $5.00 BUY LEAP JAN-2004 $25.00 LVH-AE $7.10 New Watchlist Plays NOK - Nokia Corporation $15.65 There's no doubt that analysts are re-evaluating their projections for the wireless handset industry in the wake of the recent terrorist attacks in New York and our nation's capital. Suddenly it looks like these devices could see much deeper penetration into the fabric of our society after we saw how they can be used to contact loved ones or even thwart the terrorists. NOK has emerged from the handset war as the 800-lb gorilla and is likely to profit handsomely from the next wave of new purchases and upgrades. While the company lost a bit of market share to competitors Motorola and Ericsson recently, it is clear that those companies gained share by cannibalizing their own profits. NOK definitely has the best chart of the three too, indicating that the market sees the company as the de-facto leader in this market. The stock has endured a long and painful slide over the past year, but all the charts are pointing to an impending recovery, especially now that the fundamentals may be improving. Monthly and weekly Stochastics are struggling to turn up after the recent strong showing on the daily chart. The daily is just starting to weaken, and we want to catch the next dip for new positions. The gap from Monday was almost filled this morning, and we will be looking for another dip into the $13-14 range followed by enthusiastic buyers to trigger our entry into the play. After entry, we'll set a tight stop at $12, and hold for the (hopefully) long recovery. BUY LEAP JAN-2003 $15.00 VOK-AC BUY LEAP JAN-2003 $12.50 VOK-AV For Covered Call BUY LEAP JAN-2004 $15.00 LOK-AC BUY LEAP JAN-2004 $10.00 LOK-AB For Covered Call Drops CLX $37.70 It took awhile to get moving, but our CLX play actually performed rather well, especially over the past couple months. And while the rest of the market has been in free fall in recent days, the stock has only begun to show signs of weakness. That's the mark of a good defensive play. Wednesday's weakness dropped the stock right to our $38 stop, and it looked like it might hold...that is until Thursday's sharp decline in the markets. We had a tight stop precisely because we didn't want to give back our gains, and the stop did just what it was supposed to do; get us out with a gain. While there may be more upside in the stock over the months ahead, with the daily and weekly Stochastics rolling over and the stock unable to penetrate formidable resistance near $40, I think the prudent move is to take the money and run. DIS $18.50 The events of the past 9 days have had a devastating effect on consumer confidence and their willingness to spend money on entertainment. DIS has taken a major hit, and in Wednesday's trading, the stock fell below $17 for the first time since early 1995. While we could set a stop below the day's lows and wait for the recovery, I think the stock will be hard pressed to stage much of a recovery in the next several months. One particular development that really has me concerned is the way the company went about its share-repurchase program. DIS sold $1 billion of bonds to raise cash so that they could buy 50 million shares of their own stock when Sid Bass had to sell 135 million shares to satisfy a $2 billion margin call. That just doesn't seem too smart to me, and it will clearly have a depressive effect on the stock as the company struggles to recover from the inevitable drop in revenue. I feel more comfortable taking the loss and finding a more attractive play in the days and weeks ahead. Use any strength in the days ahead to exit open positions, but not to initiate new plays. GLM $13.20 Contrary to what we would typically expect with increased tensions in the Middle East, Crude Oil and stocks in the Oil sector have come under strong selling pressure in recent days. Anticipation that OPEC will continue to keep supplies flowing, while domestic demand for the black gold will fall sharply has the entire sector feeling the attack of the bear. Our $14 stop finally got smashed on Wednesday, and while we are tempted to hang on for a sustained bounce, we will stick with our discipline and exit the play tonight. The fundamental picture has clearly made a turn for the worse, and appears unlikely to reverse any time soon. ************************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 09-23-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/0923_5.asp ************************Advertisement************************* ENTER THE DRAGON With an optionsXpress account, you have access to our easy-to-use, online analysis tools, like our new Option Dragon! The Dragon can scan the market in real time for a top 50 ranking of matching stocks and their options based upon various criteria, like stock or option volume, P/E, volatility, open interest, etc. Find out more at http://www.optionsxpress.com/marketing.asp?source=optinv2 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* COVERED CALLS ************* Covered-Calls: Adjustment Strategies By Mark Wnetrzak This week, we will review the proper management of covered-call positions. As you know, writing a covered call consists of the sale of a call while simultaneously owning the underlying stock. An investor would write calls against the stock that he owns to increase income and decrease the volatility of his portfolio by lowering the overall cost basis in the issue. Unfortunately, the downside margin provided in this strategy is not always sufficient to offset the capital losses endured in a significant market downturn and that is why it is so important to understand the common adjustment techniques associated with this type of investing. When the share price falls below the sold strike, an investor has several choices. Since the covered-write strategy provides a limited profit potential, it is imperative that action is taken to limit losses. Otherwise, one losing position could negate several winning positions. The simplest form of follow-up action to a decline in the value of the underlying issue is to close out the position (buy back the calls and sell the stock). This exit strategy can be triggered by a percentage decline in the share value of the underlying issue or a move below a pre-determined technical support level. Rolling down is a technique often used to avoid potential loss and reduce one's cost basis in the underlying issue. Generally, an investor buys back the original call (presumably at a profit as the underlying stock has declined), and then sells a new call with a lower striking price. The idea is to provide more downside protection against a further drop in the stock price and yet offer the potential for additional income if the share value stabilizes. Though rolling down generally reduces the maximum profit potential of the covered write, obtaining additional downside protection is often the more pressing concern. The use of a more distant expiration month should also be considered when rolling down and aggressive investors may want to adjust only part of the covered call position to allow for increased profit potential. In all of these situations, one generally has a bearish outlook for the underlying issue and doesn't believe current prices will hold. The problem is that by using a longer-term call, one is reducing his profit potential for a longer period of time. Again, that could be of secondary concern. A combination of the two; rolling down half the current position near term and the other half to a longer-term call allows an investor to obtain maximum protection on at least part of his investment and still retain reasonable upside potential. In extreme cases, rolling down can only provide a locked-in loss. Although it is not a pleasant experience, it may be beneficial to make the adjustment to protect as much of the stock price decline as possible. Using near-term calls allows an investor to attempt to recover the available premium in the sold call, in the least amount of time. The bearish strategy is difficult to implement successfully, but as the overall cost basis in the position is reduced each month, an astute investor may eventually achieve a profitable outcome. The key is to evaluate the risk-reward outlook of all the possible scenarios and construct a position that fits your trading plan and your future outlook for the underlying issue. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** There is no need to dwell on the breakdown that occurred in the Markets this week and reigned havoc across the boards. Traders interested in capital preservation should have exited short-term positions on Monday, and definitely by Tuesday when a snap-back rally failed to appear. With all the uncertainty surrounding the horrendous attack on America, even positions that might have finished positively were candidates for an early exit. Traders who did not exit this week now have a tougher decision to make as they carefully evaluate their outlook for each individual issue, its sector or industry, and the overall market. They must decide whether to ride out the storm and the ramifications of a jittery market, exit for a loss, or adjust their positions as they deem appropriate. Hopefully, this week's educational discussion in the above narrative will be of some assistance in that task. NEW CANDIDATES ********* Why provide new plays in the current environment? Well, because it's our job! Besides, option premiums have now inflated which will offer reasonable speculation plays as well as low-risk entry opportunities for long-term portfolio candidates. Remember, the decision to enter a play and the responsibility to monitor, and possibly adjust the position rests squarely on your shoulders. Sequenced by Company ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield BLDP 18.55 OCT 15.00 DUJ JC 4.30 314 14.25 28 5.7% BSX 18.50 OCT 17.50 BSX JW 1.75 1001 16.75 28 4.9% GNSS 28.34 OCT 22.50 QFE JX 7.30 0 21.04 28 7.5% IMNX 17.59 OCT 15.00 IUU JC 3.20 948 14.39 28 4.6% PDG 13.32 OCT 12.50 PDG JV 1.35 1907 11.97 28 4.8% TQNT 18.08 OCT 15.00 TQN JC 3.90 79 14.18 28 6.3% WEBX 21.60 OCT 17.50 UWB JW 4.80 22 16.80 28 4.5% 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 GNSS 28.34 OCT 22.50 QFE JX 7.30 0 21.04 28 7.5% TQNT 18.08 OCT 15.00 TQN JC 3.90 79 14.18 28 6.3% BLDP 18.55 OCT 15.00 DUJ JC 4.30 314 14.25 28 5.7% BSX 18.50 OCT 17.50 BSX JW 1.75 1001 16.75 28 4.9% PDG 13.32 OCT 12.50 PDG JV 1.35 1907 11.97 28 4.8% IMNX 17.59 OCT 15.00 IUU JC 3.20 948 14.39 28 4.6% WEBX 21.60 OCT 17.50 UWB JW 4.80 22 16.80 28 4.5% 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). ***** BLDP - Ballard Power Systems $18.55 *** Change of Character *** Ballard Power Systems (NASDAQ:BLDP) develops and commercializes proton exchange membrane (PEM) fuel cells and fuel cell systems. A PEM fuel cell is an environmentally clean power generator, which combines hydrogen fuel with oxygen, without combustion, to produce electricity, with pure water and heat as the only byproducts. It is an electrochemical device that produces electricity efficiently, and continuously, as long as fuel is supplied. Along with its alliance partners, BLDP is developing PEM fuel cell and PEM fuel cell system products for applications in the transportation, stationary power and portable markets. The fuel cell industry is gaining attention amid worry over energy sources in light of the recent attack and California's decision to look at the technology as a way to help meet its power needs. The technical indications in BLDP suggest a change in character as a move towards accumulation is indicated. A reasonable entry point in a speculative issue. OCT 15.00 DUJ JC LB=4.30 OI=314 CB=14.25 DE=28 TY=5.7% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BLDP ***** BSX - Boston Scientific $18.50 *** Favorable Ruling *** Boston Scientific (NYSE:BSX) is a worldwide developer, manufacturer and marketer of less-invasive medical devices. Their products are used in a broad range of interventional medical specialties such as pulmonary medicine, interventional radiology, oncology, urology, vascular surgery, etc. Boston Scientific's products are generally inserted into the human body through natural openings or small incisions in the skin, and can be guided to most areas of the anatomy to diagnose and treat a wide range of medical problems. This week, a federal court in California ruled that medical device maker Medtronic (NYSE:MDT) must cease U.S. sales of perfusion rapid-exchange balloon catheters and stent delivery systems. The ruling upholds a July 18 decision by an arbitration panel awarding Boston Scientific $169 million in damages, as well as costs and attorneys' fees arising from Medtronic's use of the systems. We simply favor the current bullish momentum and the technical support near our cost basis. OCT 17.50 BSX JW LB=1.75 OI=1001 CB=16.75 DE=28 TY=4.9% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BSX ***** GNSS - Genesis Microchip $28.34 *** Raising the Ante *** Genesis Microchip (NASDAQ:GNSS) designs, develops and markets integrated circuits that receive and process digital video and graphic images. Its integrated circuits are typically located inside a display device and process images for viewing on that display. The company also supplies reference boards and designs that incorporate its proprietary integrated circuits. Genesis is focused on developing and marketing image-processing solutions and targets the flat-panel computer monitor and other potential mass markets. Genesis appears ready to resume it up-trend (Market permitting) after the company raised its revenue estimates for the 2nd-quarter, ending Sept. 30, 2001 to approximately $30 million; due to significant design wins in previous quarters which resulted in strong product shipments. We simply favor the rally back above the 150-dma on extremely heavy volume -- which suggests new trend. OCT 22.50 QFE JX LB=7.30 OI=0 CB=21.04 DE=28 TY=7.5% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=GNSS ***** IMNX - Immunex $17.59 *** Low Risk Entry Point! *** Immunex (NASDAQ:IMNX) is a biopharmaceutical company dedicated to developing immune system science to protect human health. Applying its scientific expertise in the fields of immunology, cytokine biology, vascular biology, antibody-based therapeutics and small molecule research, the company works to discover new targets and new therapeutics for treating rheumatoid arthritis, asthma and other inflammatory diseases, as well as cancer and cardiovascular diseases. Immunex's product revenues come from products in two major therapeutic classes, anti-inflammatory and specialty therapeutics, principally oncology and multiple sclerosis. Last Monday, Immunex stated it would receive a speedy review of the firm's request to widen the approved use of its Enbrel arthritis drug to include patients with psoriatic arthritis. Additionally, it was announced that Immunex will replace Tosco (NYSE:TOS) in the S&P 500 Index. IMNX continues to forge a Stage I base and this position offers a favorable entry point from which to speculate on the company's future. OCT 15.00 IUU JC LB=3.20 OI=948 CB=14.39 DE=28 TY=4.6% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IMNX ***** PDG - Placer Dome $13.32 *** Gold Sector Hedge *** Placer Dome (NYSE:PDG) is principally engaged in the exploration for, and the acquisition, development and operation of gold mineral properties, although significant quantities of silver and copper are also produced. The company's share of gold production in 1999 was derived from mines in Canada (25%), the U.S. (37%), Australia (16%), Papua New Guinea (17%), South Africa (4%) and Chile (1%). After the recent attack on the World Trade Center, investors have moved to gold as a safe haven during the ensuing Market turmoil. With a pending U.S. retaliation, gold and gold stocks should continue to offer value in these uncertain times as reflected by the bullish breakouts in many of the gold stocks. We favor the safety of gold stocks but prefer an entry point closer to support from which to speculate on the future of the issue. OCT 12.50 PDG JV LB=1.35 OI=1907 CB=11.97 DE=28 TY=4.8% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PDG ***** TQNT - TriQuint Semiconductor $18.08 *** Upping Estimates *** TriQuint Semiconductor (NASDAQ:TQNT) develops, manufactures and markets high-performance integrated circuits for communications markets. The company's integrated circuits are incorporated into a variety of products, including cellular phones and pagers, fiber-optic telecommunications equipment, satellite communications systems, high-performance data networking products and aerospace applications. The Company uses its proprietary gallium arsenide technology to enable its products to overcome the performance barriers of silicon devices. In early September, TQNT reaffirmed that it expected to earn 3 cents a share in the 3rd-quarter, before merger costs, with revenues seen stabilized at $80 million. This week, during a monthly business update, TriQuint CEO Steven Sharp confirmed previous revenue estimates but raised earnings estimates to 4 cents a share. This increase was due to better- than-expected cost savings, as well as some other factors, which helped raise margins. We simply favor the technical support near our cost basis as TriQuint continues to build a Stage I base. OCT 15.00 TQN JC LB=3.90 OI=79 CB=14.18 DE=28 TY=6.3% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=TQNT ***** WEBX - WebEx Communications $21.60 *** Video Conferencing *** WebEx Communications (NASDAQ:WEBX) develops and markets services that allow end users to conduct meetings and share software applications, documents, presentations and other content on the Internet using a standard Web browser. WEBX's architecture consists of WebEx Interactive Services, WebEx Interactive Platform and WebEx Interactive Network. Video and audio conferencing stocks have gained attention as air travel came to a halt after the terrorist attack on America. Some companies have reported service usage increased up to 50% as well as a significant rise in new customers. CSFB and Jefferies & Co have issued "buy" recommendation on WebEX as speculators look to the future of business communication. This position offers an entry point with a cost basis near a key support area and the current bullish move above the mid-August high suggests a bias towards higher prices in the near future. OCT 17.50 UWB JW LB=4.80 OI=22 CB=16.80 DE=28 TY=4.5% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=WEBX ***** ***************** 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 INTV 10.01 OCT 10.00 VQN JB 0.90 1922 9.11 28 10.6% PLCM 27.37 OCT 25.00 QHD JE 3.80 1228 23.57 28 6.6% JBL 16.15 OCT 12.50 JBL JV 4.30 0 11.85 28 6.0% VRSN 38.30 OCT 30.00 QVR JF 9.70 72 28.60 28 5.3% TDY 16.05 OCT 15.00 TDY JC 1.70 270 14.35 28 4.9% TTN 17.51 OCT 15.00 TTN JC 3.10 77 14.41 28 4.4% ***************** NAKED PUT SECTION ***************** Trading Strategies: Position Management By Ray Cummins With the recent sell-off in the equity markets, the number of requests for portfolio management techniques has increased substantially. This week's discussion focuses on the most common adjustment strategy for a sold (short) put when the underlying issue has experienced a severe decline. There are two basic strategies that traders use to profit from the sale of naked puts. The first technique involves writing "at-the-money" puts to take advantage of a bullish movement in the underlying stock for large, short-term profits. The less aggressive method involves writing "out-of-the-money" puts, hoping that the sold position will expire worthless. Either technique can be used to take a position in a specific issue but in most cases, our approach to naked put writing is applied as a "deep-out-of-the-money" strategy in which the trader uses the collateral value of his portfolio to return a consistent, limited profit. The strategy of selling "out-of-the-money" naked puts on bullish issues is a relatively conservative technique but occasionally, you will be faced with a position that is "in-the-money" as the expiration date approaches. One of the most common methods for preventing a potential loss in this situation is the "roll-out" and it is used when the underlying issue falls to (or below) the strike price of the sold option. Remember, selling a Put obligates the writer to purchase the underlying issue at the sold strike price. If the stock remains above the sold strike, the writer retains the premium for the sold option. However, if the stock price falls, the writer may need to roll out and forward in his position, to avoid potential assignment of the stock. He can repurchase the puts that were sold initially and sell new longer-term options. Generally, the new options are written at the next lower strike price, or in greater quantity so as to generate a credit. In this simple recovery method, no debits are incurred but a realized loss is taken in the short term. If the stock price continues to decline, the process is repeated. Eventually, the issue stock should stop falling and the last set of written options will expire worthless. At that time, the traders' overall profit will consist of the sum of all the previous credits. There are two requirements for success in this strategy. The first prerequisite is that the underlying stock must eventually rebound and the second condition is that the trader have enough portfolio collateral to stay with the strategy even if the issue falls significantly. A large stock portfolio is best for this type of trading because the collateral required for naked option writing may be in the form of cash or securities. There are no margin interest charges and the positions in the portfolio are unaffected unless there is a need for additional funds to close the play prematurely. This simple exit strategy offers a high degree of (eventual) success although in some cases, there may be an accumulation of losses before a profit is achieved. 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 ***** All of the bullish plays for the month of September were closed last Monday in the interest of capital preservation. Because of the uncertainty surrounding the Market's initial reaction to the terrorist activity, even those positions that might have finished positive became potential candidates for an early exit. Traders who decided to remain in any of the current portfolio positions should carefully evaluate their outlook for each individual issue, its sector or industry, and the overall market before deciding on the appropriate recovery strategy to pursue in the future. This week's educational discussions may be of some assistance in that task as they will focus on the most common methods for recovering losses in a covered-call or naked-put position. 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 AEM 11.18 OCT 10.00 AEM VB 0.35 145 9.65 28 10.4% AH 20.00 OCT 17.50 AH VW 0.30 90 17.20 28 5.6% FTO 15.32 OCT 12.50 FTO VV 0.35 15 12.15 28 10.4% IMCL 53.30 OCT 40.00 QCI VH 0.60 202 39.40 28 5.8% KNDL 19.65 OCT 17.50 KQR VW 0.40 0 17.10 28 7.1% PLCM 27.37 OCT 20.00 QHD VD 0.40 115 19.60 28 7.4% RTN 34.04 OCT 30.00 RTN VF 0.65 588 29.35 28 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 AEM 11.18 OCT 10.00 AEM VB 0.35 145 9.65 28 10.4% FTO 15.32 OCT 12.50 FTO VV 0.35 15 12.15 28 10.4% PLCM 27.37 OCT 20.00 QHD VD 0.40 115 19.60 28 7.4% KNDL 19.65 OCT 17.50 KQR VW 0.40 0 17.10 28 7.1% RTN 34.04 OCT 30.00 RTN VF 0.65 588 29.35 28 6.9% IMCL 53.30 OCT 40.00 QCI VH 0.60 202 39.40 28 5.8% AH 20.00 OCT 17.50 AH VW 0.30 90 17.20 28 5.6% 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). ***** AEM - Agnico-Eagle Mines $11.18 *** Precious Metals Rally! *** Agnico-Eagle Mines Limited (NYSE:AEM) is an established Canadian gold producer with operations located principally in northwestern Quebec and exploration and development activities in Quebec, Ontario and Nevada. The company's operating history includes 25 years of continuous gold production primarily from underground operations. In 1999, the company produced approximately 90,000 ounces of gold and since its formation in 1972, the company has produced approximately 2.6 million ounces of gold. AEM shares hit a new high on Thursday as gold futures rallied in the wake of the sell-off in the equity markets. The issue will continue to perform well as long as there is concern about the economy and traders can establish a conservative cost basis in the stock with this position. OCT 10.00 AEM VB LB=0.35 OI=145 CB=9.65 DE=28 TY=10.4% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=AEM ***** AH - Armor Holdings $20.00 *** A Premium On Security *** Armor Holdings (NYSE:AH) is a manufacturer of security products for law enforcement personnel around the world through its Armor Holdings Products division. The company is also a global provider of security risk management service to multi-national corporations and governmental agencies through its ArmorGroup Services division. Armor Holdings Products Division offerings include: ballistic resistant vests and tactical armor, hard armor, police batons, forensic, fingerprint/evidence collection equipment, less-lethal munitions, holsters and duty gear, and anti-riot products, among others. ArmorGroup Services provides security planning and risk management, humanitarian support, de-mining, and mine awareness training, electronic security systems, forensic, consulting and training services, as well as property asset protection, business intelligence and investigative services. The increased threat of terrorism has put a premium on business and personal security and investors who think the trend will continue can profit from the success of that market segment with this conservative play. OCT 17.50 AH VW LB=0.30 OI=90 CB=17.20 DE=28 TY=5.6% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=AH ***** FTO - Frontier Oil $15.32 *** A Demand For Oil *** Frontier Oil (NYSE:FTO) is an independent energy company engaged in crude oil refining and the wholesale marketing of refined petroleum products. The company operates refineries in Cheyenne, Wyoming and in El Dorado, Kansas with a total crude oil capacity of over 150,000 barrels per day. Both refineries are complex and can process heavier, less expensive types of crude oil and still produce a high percentage of gasoline, diesel fuel and other high margin refined products. The company focuses its marketing efforts in the Rocky Mountain region and the Plains States. The demand is strong for refined oil products and Frontier Oil recently announced that it now expects to earn at least $1.25 per share for the third quarter, up from the previous estimate of at least $0.85 per share and more than triple their third quarter 2000 earnings. Analysts are bullish on the company and Friedman Billings upgraded the issue Wednesday, based on the revised earnings outlook. OCT 12.50 FTO VV LB=0.35 OI=15 CB=12.15 DE=28 TY=10.4% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=FTO ***** IMCL - ImClone $53.30 *** New Alliance With BMY! *** ImClone Systems (NASADAQ:IMCL) is a biopharmaceutical company that is developing a portfolio of targeted biologic treatments designed to address the medical needs of patients with a variety of cancers. The company focuses on three strategies for treating cancer, growth factor blockers, cancer vaccines and angio-genesis inhibitors. The company's lead product candidate, IMC-C225, is a unique therapeutic monoclonal antibody that inhibits stimulation of a receptor for growth factors upon which certain solid tumors depend in order to grow. Shares of IMCL were up significantly last week on news of a new alliance with Bristol-Myers Squibb (NYSE:BMY) in which the two companies will co-develop a cancer treatment based on IMC-C225 in Canada, Japan and the United States. The issue has since retreated and this position offers a conservative entry point in the company for investors who favor the outlook for its products. OCT 40.00 QCI VH LB=0.60 OI=202 CB=39.40 DE=28 TY=5.8% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=IMCL ***** KNDL - Kendle International $19.65 *** Speculation Only! *** Kendle International (NASDAQ:KNDL) is a unique contract research organization that provides a broad range of Phase I through IV clinical research and drug development services to the growing pharmaceutical and biotechnology industries. The company augments the research and development activities of pharmaceutical and biotechnology companies by offering value-added clinical research services and proprietary information technology designed to reduce drug development time and expense. The company is organized into two segments for financial reporting purposes. Their contract research services group conducts clinical trial management, data management, statistical analysis, medical writing and regulatory consulting and representation. The medical communications group, Health Care Communications, provides organizational, management and publication services to a range of professional associations and pharmaceutical companies. Kendle offers a unique service in a niche industry and the company has a number of revenue sources to provide steady income. In addition, the issue rebounded nicely off of a recent support area near $18 and appears ready to test near-term resistance at $21. Watch for a failure at that price range, which would be a potential "early exit" signal in this speculative position. OCT 17.50 KQR VW LB=0.40 OI=0 CB=17.10 DE=28 TY=7.1% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=KNDL ***** PLCM - Polycom $27.37 *** PictureTel Merger Approved! *** Polycom (NASDAQ:PLCM) develops, builds and sells communications equipment that enables enterprise users to access broadband network services and leverage increased bandwidth to conveniently conduct voice, video and data communications. Their NetEngine family of network access products enables enterprises to more easily and cost-effectively utilize broadband communications services. In addition, its enterprise communications products enable businesses and other organizations to utilize bandwidth intensive voice and video applications to effectively communicate with employees, customers and partners. Shares of PictureTel (NASDAQ:PCTL) and Polycom rallied last week after the companies said they had received an early antitrust clearance from U.S. authorities, giving them a green light to merge. Analysts see the union as beneficial to both companies and investors who want to own the new combined entity can use this play to establish a conservative cost basis in the issue. OCT 20.00 QHD VD LB=0.40 OI=115 CB=19.60 DE=28 TY=7.4% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=PLCM ***** RTN - Raytheon $34.04 *** Defense Sector Rally! *** Raytheon (NYSE:RTN) is in the business of defense electronics, including missiles; radar; sensors and electro-optics; unique intelligence, surveillance and reconnaissance; command, control, communication and information systems; naval systems; air traffic control systems; aircraft integration systems; and other technical services. Raytheon's commercial electronics businesses leverage defense technologies in commercial markets. Raytheon Aircraft is a provider of business and special mission aircraft and delivers a broad line of jet, turboprop, and piston-powered airplanes to corporate and government customers worldwide. Defense issues have soared during the past week as the threat of war increased and the nation geared-up for a battle with terrorism. Stocks in the group are expected to perform well in the coming weeks amid an increase in defense spending and SG Cowen recently upgraded its investment rating on Raytheon to a "trading buy" due to the bullish outlook. OCT 30.00 RTN VF LB=0.65 OI=588 CB=29.35 DE=28 TY=6.9% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=RTN ***** ***************** 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 PSFT 20.24 OCT 15.00 PQO VC 1.00 977 14.00 28 21.5% TFS 15.56 OCT 12.50 TFS VV 0.55 35 11.95 28 16.1% BRCM 23.98 OCT 15.00 RCQ VC 0.60 322 14.40 28 12.1% TDY 16.05 OCT 15.00 TDY VC 0.65 646 14.35 28 11.7% EPIQ 21.97 OCT 17.50 FQU VW 0.45 0 17.05 28 10.1% ABI 22.60 OCT 17.50 ABI VW 0.35 20 17.15 28 7.8% LMT 42.20 OCT 40.00 LMT VH 1.10 580 38.90 28 7.6% NEM 22.27 OCT 20.00 NEM VD 0.50 525 19.50 28 7.6% SEE DISCLAIMER IN SECTION ONE ***************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Terrible Way To End The Week! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, September 21 The major equity averages moved lower again today as investors dumped stocks amid anxiety of a recession in the U.S. economy. Analysts say the market, which was in a slump before the recent terrorist attack, will likely get worse before it improves and the negative effect on America's wealth will be felt for years. Blue-chips suffered the largest drop since the Depression of the 1930s, falling 1370 points in just one week as Americans worried about massive layoffs and the long-term effects of terrorism on our flagging financial system. The NASDAQ lost a staggering 16% as investors fled technology stocks in an emotional exodus that far exceeded the most optimistic expectations of market bears. The broader S&P 500 index tumbled 11% as traders focused on the inevitable decline in productivity and the outlook for corporate earnings. Last month, America's economic growth was the slowest in eight years with the gross domestic product (GDP), a measure of total economic output, up just 0.2%. Experts say the second quarter GDP will eventually be revised to negative and consumer confidence, which has been steadfast even as businesses suffered from the downturn, sank in September to the lowest levels of the past year. The belated policy of the Federal Reserve (to lower interest rates) has yet to have a material affect on the economy and some analysts believe that when conditions finally begin to improve, the growth rate will be modest because the slowdown is the result of decreased spending, which does not respond quickly to a reduction in borrowing costs. Based on the on the growing list of problems facing the economy, the best we can hope for is a slow-but-steady recovery beginning in the latter part of 2002 and until the public gets back into a "buying" frame of mind, there is little chance for a rebound in the stock market. Portfolio Activity: Despite the recent precipitous decline in equity values, there have been numerous opportunities for profitable option plays and the Spreads/Combos portfolio provided some great candidates during the month of September. The Straddles section offered the most lucrative positions and all but one issue in the group generated favorable returns. Among the winners in that category were Amdocs (NYSE:DOX), Jacobs Engineering (NYSE:JEC), Protein Design Labs (NASDAQ:PDLI), Photon Dynamics (NASDAQ:PHTN), Serena Software (NASDAQ:SRNA) and Teradyne (NYSE:TER). While strategies based on volatility produced the largest profits, the bearish combination positions were the most successful portfolio on a percentage basis with spreads in Best Buy (NYSE:BBY), Electronic Data Services (NYSE:EDS), Shire Pharmaceuticals (NASDAQ:SHPGY), Stericycle (NASDAQ:SRCL) and Whirlpool (NYSE:WHR) expiring at maximum profit. Unfortunately, the downward market movement virtually guaranteed the majority of bullish selections would finish negative and Amerisource-Bergen (NYSE:ABC) and Southwest Securities (NYSE:SWS) were the only positions in the group that provided profitable opportunities. Looking forward, the rise in Implied Volatility in equity options is one of the few favorable consequences of the recent sell-off and we hope the activity will eventually result in additional premium-selling opportunities. With that outlook in mind, our first two combination candidates are speculative calendar spreads with low initial cost and high potential profit. Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** ASFC - Astoria Financial $54.60 *** Disparity Play! *** Astoria Financial Corporation (NASDAQ:ASFC) is a unitary savings and loan association holding company for Astoria Federal Savings and Loan Association (Astoria Federal). The company's primary business is the operation of its wholly owned subsidiary, Astoria Federal. In addition to directing, planning and coordinating the business activities of Astoria Federal, the company also invests in U.S. Government and federal agency securities, mortgage-backed securities and other securities. Astoria shares have been quite volatile in recent sessions and despite a valiant effort to recover from the downward pressure among broader-market issues, the stock has fallen substantially over the past three days with Friday's close ending squarely in the middle of an old trading range. There is little indication that a bullish trend will resume anytime in the near future and with favorable disparities in the front-month premiums, this position offers a great speculation play for traders who are bearish on the issue. Strategy Description: The basic premise in a calendar spread is simple; time erodes the value of the near-term option at a faster rate than it will the far-term option. It is generally best to establish this type of spread at least 2 - 3 months before the long option expires, capitalizing on the ability to sell another option against the longer-term position. That is the basic idea in this spread play; selling time value in the options when they are overpriced (high implied volatility) and buying it back (if necessary) when they return to intrinsic value. Ideally, the trader would like to have the stock finish just above the sold strike when the near-term option expires. If the short options are "in-the-money" at expiration, he will have to buy them back to preserve the long-term position. PLAY (conservative - bearish/calendar spread): BUY PUT JAN-50 AQR-MJ OI=5 A=$2.55 SELL PUT OCT-50 AQR-VJ OI=150 B=$1.15 INITIAL NET DEBIT TARGET=$1.25-$1.30 TARGET PROFIT=25-40% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=ASFC ****************************************************************** DRXR - Drexler Technology $13.35 *** Border Patrol! *** Drexler Technology Corporation (NASDAQ:DRXR) develops, produces and markets optical data storage products and systems featuring LaserCard optical memory cards and chip-ready Smart/Optical cards. Drexler-made LaserCard optical memory cards are used for "digital governance" applications such as immigration services, visas, cargo manifests, motor vehicles, import-duty collection, standard pay-per-use systems, and ID/access; and for healthcare and other digital read/write wallet-card applications. The recent terrorist attacks have put the U.S. on alert at its many borders and Drexler's unique product line stands to benefit from the increased demand for personal identification services. In fact the company announced last week that they received a $5 million order for LaserCard. Triple-Image identification cards for an ongoing U.S. border-crossing ID card program. The highly secure optical memory cards are slated for use as U.S. Department of State and is part of an $81 million government procurement program for the Immigration and Naturalization Service. With the receipt of this order, the company expects record shipments of more than 5 million optical cards for fiscal year 2002 and investors are obviously excited about the news. Traders who believe the upward momentum will continue can profit from that activity with this time-selling strategy. PLAY (speculative - bullish/calendar spread): BUY CALL JAN-15.00 RXQ-AC OI=40 A=$1.50 SELL CALL OCT-15.00 RXQ-JC OI=273 B=$0.40 INITIAL NET DEBIT TARGET=$1.00 TARGET PROFIT=50% Note: A bullish (speculative) type of calendar spread is when the underlying issue is some distance below the strike price of the options. This play is low risk with a small initial investment and large potential profits. Two favorable outcomes can occur: the stock rallies in the short-term and the position is closed for a profit as time value erosion in the short option produces a net gain or; the underlying stock consolidates, allowing the sold option to expire and then eventually rallies above the long option strike price. http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=DRXR ****************************************************************** AT - Alltel $55.25 *** Technicals Only! *** Alltel Corporation (NYSE:AT) is a customer-focused information technology company that provides common wire-line and wireless communications and information services. The company operates in two principal areas, communications and information services. The company's communications operations consist of its wireless, wire-line (local and long-distance) and emerging businesses segments. Emerging businesses are the company's key new product offerings, and include the company's long-distance, competitive local exchange carrier (CLEC), Internet access, and personal communication system and network management operations. Alltel also owns subsidiaries that provide unique wide-area paging and information processing management services, and other advanced application software along with telecommunications products. A subsidiary publishes telephone directories for affiliates and other independent telephone companies. This position emerged in a scan for bearish technical patterns with speculative options activity. In this case, the premiums for the (Call) options are slightly inflated and the potential for a successful (technical) recovery is significantly affected by the resistance below the sold (Call) strike price; a perfect condition for a bearish credit spread. PLAY (conservative - bearish/credit spread): BUY CALL OCT-65 AT-JM OI=656 A=$0.40 SELL CALL OCT-60 AT-JL OI=956 B=$0.90 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=AT ****************************************************************** - STRADDLES AND STRANGLES - ****************************************************************** BA - Boeing $30.10 *** Cheap Options! *** The Boeing Company (NYSE:BA), 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 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. Boeing's Space and Communications segment is involved in the research, development, production, modification and support of space systems, missile defense systems, satellites and satellite-launching vehicles, rocket engines and information and battle management systems. With the recent volatility in the equity markets, there are very few straddle candidates however, this issue meets our criteria for a favorable position; cheap option premiums, a history of adequate price movement and future events or activities that may generate volatility in the issue or its industry. This selection process provides the best combination of low risk and potentially high reward. As with any recommendation, it must be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. PLAY (conservative - neutral/debit straddle): BUY CALL JAN-30 BA-AF OI=551 A=$3.90 BUY PUT JAN-30 BA-MF OI=4119 A=$3.70 INITIAL NET DEBIT TARGET=$7.30-$7.50 TARGET PROFIT=25-40% http://www.OptionInvestor.com/charts/sep01/charts.asp?symbol=BA ******************************************************************
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