The Option Investor Newsletter Wednesday 10-03-2001 Copyright 2001, All rights reserved. 1 of 1 Redistribution in any form strictly prohibited. To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/9207_1.asp Posted online for subscribers at http://www.OptionInvestor.com ******************************************************************* MARKET WRAP (view in courier font for table alignment) ******************************************************************* 10-03-2001 High Low Volume Advance/Decline DJIA 9123.78 +173.19 9148.35 8860.84 1.53 bln 1493/1648 NASDAQ 1580.81 + 88.48 1595.48 1473.22 1.73 bln 1380/2243 S&P 100 550.60 + 11.03 552.51 533.64 Totals 2873/3891 S&P 500 1072.28 + 20.95 1075.38 1041.48 RUS 2000 413.22 + 11.43 413.85 399.64 DJ TRANS 2222.86 + 52.42 2232.20 2166.20 VIX 33.13 - 0.92 35.00 32.46 VXN 62.17 - 1.67 64.84 60.85 TRIN 0.61 Put/Call 0.47 ******************************************************************* Silly Snakes, Brassy Bulls, And A Heap of Homeruns Tech was due for a big day. And like Barry Bonds, the Nasdaq stepped up to the plate and hit the long ball Wednesday. In retrospect, the nearly 6 percent gain in the Composite (COMPX) wasn't that out of whack. After all, that was an awful chunky pitch that Chambers & Co. lobbed over the Nasdaq's home plate Wednesday afternoon. Despite earnings warnings from Prozac maker Eli Lilly (NYSE:LLY) and beat down networker Nortel (NYSE:NT), the broader market was off to a bullish start Wednesday morning. That's because the National Association of Purchasing Management said its service-related index rose during the month of September. While some economists questioned the accuracy of the report in light of the September 11 attacks, the market received the favorable economic news rather well. In addition to the positive NAPM report, President Bush reassured business leaders Wednesday morning that the government is taking measures to boost the sagging U.S. economy, which includes a $60 to $75 billion fiscal stimulus package. But the news that really got things rolling higher Wednesday were the remarks made by Cisco Systems' (NASDAQ:CSCO) CEO, John Chambers, at a Goldman Sachs conference. Regarding fiscal first-quarter estimates, Chambers said, "I am very comfortable with the consensus estimates." Bears have been betting heavily that Cisco and many of its networking cohorts would fall short of estimates this quarter and be forced to, once again, guide estimates lower. Indeed, that's what Nortel did Tuesday night and what Corning (NYSE:GLW) did after the bell Wednesday. Apparently Cisco is taking so much market share from its beleaguered competitors that its business remains stable. But the operative idea is 'stable.' Chambers didn't say business was getting better. Nevertheless, stability was good for a 21 percent gain in shares of Cisco Wednesday, which goes to show just how many traders were betting on the company warning. Being the big cap that it is, Cisco helped to carry the Nasdaq-100 (NDX.X) to a 7.76 percent gain. It's interesting to note that the NDX - the 100 largest stocks on the Nasdaq market - out performed the COMPX by nearly 2 percent, which reveals that a lot of Wednesday's buying was focused on big caps. It could be argued that of the three (INDU, SPX, NDX) major market averages, the NDX is still the most oversold. In all reality, the Dow Jones Industrial Average (INDU) and S&P 500 (SPX.X) have been rallying for about the last eight trading sessions, while the NDX bounced above its relative low. In the words of Jeff Bailey, the INDU and SPX are the "head of the snake," while the NDX is the "tail of the snake." In this trader's words, the INDU and SPX are leading indexes, while the NDX is a lagging index. That being the case, the NDX has some more catching up to do to the upside, which could mean that tech has further upside from current levels, while INDU and S&P issues pause or pullback. But for tech to have further upside, the NDX needs to clear resistance at 1270. Not by coincidence, the 19.1 percent retracement level of the NDX's descent since mid-May lies at the 1270 level. And it's this trader's opinion that the NDX's intraday high of 1267.51 was no coincidence either. Like the NDX, the SPX has resistance nearby. For its part, the SPX is about 10 points away from its 38.2 percent retracement level around the 1083 area, plus or minus 5 points. (This particular retracement bracket, in my opinion, is quite accurate. The SPX has followed this bracket closely, noting the triple bottom at the 1170 (61.8 percent) level and various support and resistance observations.) Unlike the NDX, the SPX's Stochastics reading on a daily timeframe is well into bought territory, which reinforces the fact that the SPX has been advancing for about the last eight days. Again, the SPX and INDU have out performed to the upside recently, which is why we call them the "head of the snake." The technical setup of the INDU is very similar to that of the SPX. The chart below is displayed with a retracement bracket similar to the ones we're using for the NDX and SPX. We're simply anchoring at the mid-May high and at the relative low traced a few weeks back. For its part, the INDU is about 200 points away from its 38.2 percent level at 9308. And like the SPX, the INDU's Stochastics reading is well into overbought territory. With the SPX and INDU in overbought territory by way of Stochastics and approaching resistance, it's hard to argue a strong case for chasing stocks higher in those indexes. In fact, banks and healthcare under performed the SPX and INDU Wednesday and those two groups were the driving forces behind the advance over the last eight days. The softness in banks and healthcare may have been an indication that the INDU and SPX are about to pullback. On the other hand, Stochastics is an oscillator and both the SPX and INDU are trending higher. Furthermore, bullish percent for both the SPX and INDU are on bull alert, which is a cautiously bullish stance. With as oversold as tech shares are and the NDX not yet overbought insofar as Stochastics is concerned on a daily timeframe, there's a better argument for being bullish on tech issues. The one problem with being overtly bullish on tech issues is the massive amount of "homeruns" hit on Wednesday. By that I mean stocks were up 20, 30, some even 40 percent. Just take a look at the Nasdaq-100 components such as QLogic (NASDAQ:QLGC), which was up 32 percent Wednesday! That's a whole year worth of gains in the underlying in just one day! In addition to the fact that the market was up so much Wednesday, there's reason to be cautious ahead of economic data set for release Thursday and Friday morning. Jobless claims are expected to be reported at 472,000 Thursday and the unemployment rate is expected to be reported at 5 percent Friday. Negative surprises in either of those reports could bring a harsh dose of reality back to the market following Wednesday's massive short-covering rally in tech. Eric Utley Option Investor ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES * EASY screens for covered calls, spreads, and straddles * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. No Hidden Fees. * ZERO minimum deposit required to open an account Visit: http://www.optionsxpress.com/marketing.asp?source=optinv1 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *********** OPTIONS 101 *********** Fine Points of the LEAP Puts Strategy by Mark Phillips Last week, we finally kicked off our discussion of LEAP Puts by defining some basic parameters that need to be satisfied and then examining a historical chart of General Electric (NYSE:GE) to demonstrate what we should be looking for in terms of entry points. To recap, here are the basic features I want to see in a long-term put candidate. 1. Earnings declining on a quarter-over-quarter basis, particularly in a deteriorating business climate. One example might be a company that is losing market share and suffering margin compression due to competition in a shrinking market. PC box makers like Hewlett-Packard (NYSE:HWP) and Compaq (NYSE:CPQ) certainly come to mind as satisfying this first requirement. 2. Excessive valuation relative to either the rest of the market or other companies in the same sector. Just having a high P/E ratio isn't enough here, as we also want to see it as unjustified based on the company's recent earnings and revenue growth. A P/E ratio that is justified when the company is growing revenue and profits by 40% quarter-over-quarter will be utterly ridiculous if the growth slows to 20%. 3. Of course we also need a stock price that hasn't already been hammered into the dirt. No doubt, shares of Nortel (NYSE:NT) are in trouble according to the first two criteria, but at $5, the stock just doesn't have enough downside to get our attention. With those guidelines, I went on a quest for possible candidates. Given the degree to which our precious markets have been beaten down over the past 9 months, you would expect to find slim pickings according to those 3 criteria, but I neglected to add the most obvious one -- the stock has to have LEAPS available. With a field of thousands of optionable stocks, and only about 300 with LEAPS available, you can see that the field of candidates is much narrower than we would like. But I did find some attractive candidates that, although they are not providing good entries at this point in time, I expect they will in the weeks ahead. In no particular order of preference, here are the 5 possible candidates I was able to locate. 1. AMGN - P/E=54, Rev. Growth=8%, Earn Growth=7%, Price=$59 2. TMPW - P/E=43, Rev. Growth=10%, Earn Growth=30%, Price=$27 4. EBAY - P/E=157, Rev. Growth=84%, Earn Growth=100%, Price=$51 5. DIS - P/E=97, Rev. Growth=-1%, Earn Growth=0%, Price=$19 6. KO - P/E=35, Rev. Growth=-3%, Earn Growth=20%, Price=$46 Like I said above, slim pickings! High P/E ratios combined with slow to non-existent growth is the kind of thing that gets my attention and motivates me to dive into the charts looking for possible entry points. Now is definitely not the time to be adding new long-term bearish positions on these stocks, but that time may come soon. Let's dive into one of these charts and see what we can find in terms of possible opportunities. It may seem that EBAY doesn't really belong in this list due to the fact that earnings and revenue are still growing at a respectable clip. While that much is true, I still have a hard time swallowing a P/E ratio north of 150, especially in the current market environment. Like the other candidates I listed, it isn't ready for us yet. But it could be soon. Let's use AMGN for the purposes of discussion, as it presents the kind of picture we're looking for. If I'm looking for a bearish long-term trade, AMGN is delivering many of the components I like. A high P/E ratio coupled with a slow growth rate tell me that the stock is vulnerable, and the fact that it is trading in the $50-65 range says there is plenty of downside available. All I have to do is pick the right entry point. Clearly, from the weekly chart, that is not right now, but the stock bears watching. Let the weekly Stochastics bottom in oversold and recover back into the overbought zone. Judging by the past 3 cycles, this overbought condition should coincide with price rolling over near the descending trendline, likely in the neighborhood of $65. When the stochastics on the weekly chart reach overbought again, we'll want to drill down to the daily chart and look for stochastics to roll over from overbought in that timeframe to initiate the position. As you can see, this is simply the inverse of the entry setup we look for in our LEAP Call strategy, and all of the rules that we have developed for that strategy apply equally well here. Stop losses are essential, and it is much easier to manage risk when we pick a good entry point. To round out this discussion, I think a few words about exit strategy are in order. Assuming we get the entry we are looking for and are not stopped out of the play, the logical exit point will come when the weekly stochastics once again bottoms in the oversold region. This should correspond to a price in the mid-$50s, but it might make sense at that point to simply tighten our stop. Afterall, our long-term focus is that we expect the stock to break the $54 support level, and we would like to be on board when that occurs. Unfortunately, we don't have any candidates that we can consider for pending entries, which makes our discussion more hypothetical than I would like. The other candidates I listed above are far from being entry candidates in the near-term as well, largely due to the sharp market decline over the past month. But I am still of the opinion that we could see some attractive long-term bearish trades setting up in the weeks ahead. I'll keep an eye on these 5 stocks and we can revisit the possibility of entering new trades when they get closer to providing us with the type of setup we are looking for. In the meantime, I'm always open to suggestions. If you have some other candidates that you think might provide good opportunities, based on the criteria I've outlined here, send them along. Making the search for attractive plays more interactive will likely be educational and profitable for all. When I return from my honeymoon later this month, I'll finish off the topic of using LEAP Puts, but in a bullish manner. One of my long-time readers, Tony B. was kind enough to bring the idea to my attention in response to my request for reader input on the topic of whether it made sense to incorporate LEAP Puts into our strategies here. He chimed in with his opinion that we may be a bit too late to the game with LEAP Puts, but followed up with this insightful comment that I share with you just as I received it. "However, before turning your back on LEAP Puts, why not look at LEAP Put Credit Spreads?? I've been trading these for some time now and have done very well with them. Often I leg into the Spread. Open the short leg when the stochastic on a weekly and daily chart are bottomed. Look for the daily stochastics to cross over and start up. After the stock has moved up (stochastic half-way up) I enter the long side. When stochastics peak and start to roll over, I buy to close the short and hold the long for the ride down. As for candidates for this play, I've been using your list on Call LEAPS since I prefer selling as opposed to buying." Does that concept sound intriguing to any of you? It did to me too! Thanks for sharing with all of us Tony. For those that are interested, tune in for our visit on October 24th, and we'll delve into all the nitty-gritty details in our quest to add one more powerful tool to our arsenal. Until then, stick to your trading plan. The erratic markets of last month are starting to calm down, but that doesn't mean that the danger is gone. I still believe that the eventual bottom lies ahead of us and likely at levels we have not yet seen. Remember, patience is a virtue AND a trading skill! Best Wishes for a profitable month! Mark Phillips Contact Support ***************** STOP-LOSS UPDATES ***************** ATK - call Adjust from $82 up to $83 ENZN - call Adjust from $50 up to $54 MTG - call Adjust from $62 up to $63.50 CMCSK - call Adjust from $34.50 up to $35.50 ORCL - call Adjust from $11.75 up to $12.25 GE - call Adjust from $36 up to $36.50 BAC - call Adjust from $57.50 up to $58.50 PPG - call Adjust from $43.60 up to $45.00 ************* DROPPED CALLS ************* No Dropped Calls for Wednesday. ************ DROPPED PUTS ************ BBY $48.80 +3.70 (+3.35) BBY was bolstered by the strength in the S&P Wednesday and positive analyst comments about the broader retail sector. The stock's 200-dma currently sits at the $50.54 level, which may serve as a rollover point if BBY follows through into Thursday's session. SV $21.26 +1.35 (+1.76) SV charged higher Wednesday on what appeared to be a combination of short covering and broad market strength. The stock edged past our stop at the $21 level and didn't give back much of its gains near the end of the session. We're dropping coverage in light of the stop violation and traders with open positions should turn to any weakness early Thursday for a chance to cut losses. EBAY $49.95 +2.46 (+4.20) EBAY's short-term base lifted the stock as high as its 200-dma around $51 today. The stock is getting overbought, but the violation of its stop at $49 has forced us to drop coverage today. Bearish traders could look to establish new positions on any future rollovers at the 200-dma, but we're dropping coverage for the time being. MVSN $33.06 +5.30 (+4.65) MVSN rallied nearly 20 percent today. It's quite possible that the stock was being sold short yesterday, noting its poor performance. The stock decidedly closed above our protective stop, which hopefully got traders out of their positions in time before MVSN went on to advance above the $33 level. Traders with open positions should look for any pullback Thursday or Friday to cut losses. ************************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 ************************************************************** ********************** PLAY OF THE DAY - CALL ********************** MO - Phillip Morris $49.45 +0.05 (+1.16 this 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. Most Recent Update MO is working exceptionally well for us so far this week. But, that shouldn't be too unexpected. After all, the highly expected 50 basis point reduction in interest rates makes MO's big dividend yield all the more attractive. As for the stock itself, MO is inching towards a breakout above the $50 level. But, MO will most likely need the support of the Dow to successfully breakout above $50. With that being the case, bullish traders should confirm direction in the Dow if new positions are to be taken on advance above $50. On the other hand, perhaps the best strategy with MO is to be in plays ahead of any forthcoming breakout. For readers who like that idea, new entries on pullbacks from current levels is the "better" strategy. In executing new trades on a pullback, support appears to be around the $48 to $48.50 area, so bullish traders might look for bids to materialize in that general location. We're ratcheting our stop up to the $48 level. Comments MO may be setting up for another big day Thursday. The stock lagged the Dow Wednesday, which may have been a product of rotation out of defensive issues. The stock made a run on the $50 level, but missed it by just $0.04. Look for a breakout Thursday if the buyers move back into defensive issues. BUY CALL OCT-45*MO-JI OI=39472 at $4.80 SL=3.75 BUY CALL OCT-50 MO-JJ OI=23125 at $0.90 SL=0.25 BUY CALL DEC-45 MO-LI OI= 2616 at $5.90 SL=4.75 BUY CALL DEC-50 MO-LJ OI=19626 at $2.55 SL=1.75 Average Daily Volume = 5.89 mln ***************************************** BIG CAP COVERED CALLS & NAKED PUT SECTION ***************************************** Relief Rally Underway! By Ray Cummins The bulls regained control of the market today amid optimism the government will do all it can to keep the economy healthy. The broad recovery in equities was due primarily to reports that the White House and Congress are finalizing a package to inject $60 billion to $75 billion of additional stimulus into the economy. President Bush told business leaders in New York that the federal government stands ready to boost the economy following the recent tragedies and Treasury Secretary Paul O'Neill notified the Senate Finance Committee that their package must work to address three priorities: helping those most affected by the terrorist attacks, restoring consumer demand, and supporting business investment. The bullish comments came just one day after the Federal Reserve slashes interest rates by 50 basis points and analysts jumped on the "buy it now" bandwagon with a slew of upgrades on downtrodden blue-chip companies. Among the Dow's biggest winners were Boeing (NYSE:BA), Caterpillar (NYSE:CAT), Home Depot (NYSE:HD), Honeywell (NYSE:HON), Kodak (NYSE:EK), and United Technologies (NYSE:UTX). In the technology segment, semiconductor and computer hardware issues led the advance with news from Cisco Systems (NASDAQ:CSCO) adding to the optimistic attitude. The networking giant said it is comfortable with its fiscal-first quarter earnings estimates and upbeat statements from Cisco's CEO John Chambers at a Goldman Sachs conference incited a bull stampede in the networking sector. Communications-chip stocks also moved sharply higher in sympathy with Cisco's sanguine outlook and software issues remained near the top of the leader-board for a second consecutive session with Siebel Systems (NASDAQ:SEBL) and Oracle (NASDAQ:ORCL) guiding the trend. Priceline (NASDAQ:PCLN) was a top performer among Internet issues, climbing almost 15% after informing investors late Tuesday that it now expects to generate sales of $300 million versus the previously projected $280 million as travel activity rebounds. In the broader market, shares of airline companies recovered for the fourth straight session and financials moved higher after analysts at Merrill Lynch noted, "Value buyers, with patience, could reap good investment returns in the group over the coming year." Among other S&P 500 sectors, insurance, utility, transportation, retail and biotechnology issues moved higher while gold, drug, and paper stocks generally retreated. Summary of Previous Candidates (as of 10/02/01): Covered Calls: (Margin not used in calculations) Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield GILD OCT 55 47.65 56.62 2.35 6.3% ACDO OCT 45 33.21 36.33 3.12 11.9% Accredo Health (NASDAQ:ACDO) closed at a recent low Tuesday and the issue is at a "key" moment. A move below near-term technical support at $34 would be a potential early-exit signal. Naked Puts: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield IMCL OCT 40 39.30 59.84 0.70 5.9% ACDO OCT 30 29.65 36.33 0.35 4.8% ATK OCT 70 69.25 85.00 0.75 4.6% GILD OCT 45 44.55 56.62 0.45 4.4% LLL OCT 70 69.10 89.38 0.90 5.6% Naked Calls: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield ABK OCT 55 55.75 54.21 0.75 5.9% Ambak (NYSE:ABK) has enjoyed a significant rebound since we initiated this bearish play and traders must be careful to protect against further upside activity as the broad market recovers. With solid overhead supply near $60, a possible adjustment would be to roll to a NOV-$60 Call (short) for a small credit, if the issue continues to rally through the sold strike at $55. Sell Strangles: Stock Strike Strike Cost Current Gain Potential Symbol Month Price Basis Price (Loss) Mon. Yield IVGN OCT 50-P 49.20 67.27 0.80 7.0% IVGN OCT 70-C 70.85 67.27 (1.10) 6.9% Closed Positions: Invitrogen (NASDAQ:IVGN) finished near $69 on Monday after a series of bullish sessions and the change in character was sufficient to warrant an early exit in the bearish position. With an overall credit of $1.80 in the original play, a small loss (or break-even) exit should have been easily achieved. Credit Spreads: Stock Pick Last Position Credit C/B G/L Status IBM 91.30 93.77 OCT105C/100C 0.70 100.70 0.70 Open JEC 64.63 63.00 OCT50P/55P 0.70 54.30 0.70 Open NOC 97.00 105.20 OCT85P/90P 1.00 89.00 1.00 Open PGR 119.01 137.45 OCT135C/130C 0.65 130.65 (1.85) Closed SBC 47.44 47.00 OCT40P/45P 0.60 44.40 0.60 Open SZA 63.00 62.22 OCT55P/60P 0.85 59.15 0.85 Open VZ 53.90 55.70 OCT45P/50P 0.70 49.30 0.70 Open Closed Positions: Shares of PGR continued to move higher last week (a day after we placed the issue on our exit/adjustment watch-list) amid a robust recovery in the Property and Casualty Insurance group. Analysts say the bullish outlook among investors is due to the assumption that PGR is a leader in a sector that now has fewer competitors and they will be able to charge higher prices for their products. Regardless of the reason, the issue moved through our sold strike last Thursday and a closing transaction (simultaneous orders with no legging) was initiated near the end of the session for a debit of $2.50. Of course, the upward trend has been so strong that a roll-out would have yielded a much smaller loss (possibly a gain) but we will record the actual cost to exit the position with no adjustments. Last week's forced exit from Affiliated Computer (NYSE:ACS) will likely qualify as the Murphy's Law "Play of the Month" for October as the issue has rebounded on new strength in the software segment and appears to be comfortably above the sold strike in our bullish spread. New Candidates: This following group of plays is simply a list of candidates to supplement your search for profitable trading positions. As with any investment, you must decide if the selections meet your criteria for potential plays. Only you can know what strategies are suitable for your skill level, risk-reward tolerance and portfolio outlook. In addition, we recommend that you avoid any strategy or technique in which you are not completely comfortable with the potential loss, the necessary adjustments and the common entry-exit strategies. (We monitor the positions marked with ***). *************** BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations *************** ADRX - Andrx $75.07 *** On The Move! *** Andrx (NASDAQ:ADRX) formulates and commercializes controlled release oral pharmaceuticals using its proprietary drug delivery technologies. Andrx markets and sells Cartia XT and Diltia XT, its generic or bioequivalent versions of Cardizem CD and Dilacor XR. Andrx uses its proprietary drug delivery technologies and formulation skills to develop bioequivalent versions of selected controlled-release brand name pharmaceuticals; and brand name controlled-release formulations of existing immediate-release or controlled-release drugs. Andrx is also developing bioequivalent versions of specialty or niche pharmaceutical products. Through its distribution operations, Andrx primarily sells bioequivalent drugs manufactured by third parties primarily to independent pharmacies, pharmacy chains which do not maintain warehousing facilities, pharmacy buying groups and physicians' offices. The big news for specialty pharmaceuticals firm Andrx is that the company will replace Excite@Home (NASDAQ:ATHM), which filed for bankruptcy protection last Friday, on the NASDAQ 100 index. The NASDAQ 100 is an index of the largest non-financial stocks in the NASDAQ Composite, weighted according to market cap. The inclusion of ADRX in the index means the company is considered to be one of the leaders in the drug and biotechnology sector. According to analyst Jerry Treppal of Banc of America Securities, Andrx has stable products and a "very bright future," especially if it succeeds in getting approval for a generic version of the ulcer drug Prilosec. Treppal, who has a "buy" rating and a $92 price target on Andrx, believes the company will get approval early next year to start selling the drug and the expectation of that event should provide a catalyst to move the issue higher in the coming months. ADRX - Andrx $75.07 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 65 QAX VM 2,569 0.55 64.45 4.8% *** SELL PUT OCT 70 QAX VN 179 1.30 68.70 8.9% SELL PUT OCT 75 QAX VO 264 3.30 71.70 17.8% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=ADRX *************** ADVP - AdvancePCS $73.60 *** Bracing For A Rally? *** AdvancePCS (NASDAQ:ADVP) is a provider of health improvement services in the United States. As a pharmacy benefit management company (PBM) AdvancePCS currently serves more than 75 million health plan members and manages $20 billion in prescription drug spending on an annualized basis on behalf of the company's health plan sponsors. In addition, the company offers a range of other health improvement products and services, such as prescription discount cards for the uninsured and under-insured, Web-based programs, ongoing disease management, clinical research trials and outcomes studies. The Company generates revenues by providing its health improvement services to two primary customer groups: health plan sponsors and pharmaceutical manufacturers. ADVP made the news today in a Wall Street Journal editorial about finding companies with good value in today's economy. Analysts at Merrill Lynch were part of the article's focus because they are utilizing some unique methods to evaluate stocks, including screening the market for companies with the most stable earnings growth in the past five years and the highest return on equity; which looks at trailing net income as a percentage of book value. Analysts believe companies that achieve high marks based on this criteria can grow by using their own resources and AdvancePCS was one of the two issues that qualified in that regard. In addition, AdvancePCS recently approved a 2-for-1 stock split in the form of a dividend. Upon approval, shareholders of record as of 10/23/01 will receive one additional share of common stock for every one share held on that date. The new shares will be distributed on or after 11/30/01 and the transaction will increase the amount of common stock outstanding to 91.8 million shares. ADVP - AdvancePCS $73.60 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 65 QVD VM 83 0.65 64.35 5.4% *** SELL PUT OCT 70 QVD VN 70 0.70 68.30 11.0% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=ADVP *************** ENZN - Enzon $57.98 *** New Product On The Market! *** Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops and commercializes enhanced therapeutics for life-threatening diseases through the application of its two proprietary platform technologies: polyethylene glycol (PEG) and single-chain antibody (SCA). The company applies its PEG technology to improve the delivery, safety and efficacy of proteins and small molecules with known therapeutic efficacy. The company also applies its single-chain antibody technology to discover and produce unique antibody-like molecules that offer the therapeutic benefits of monoclonal antibodies, while addressing some of their limitations. Enzon reported today that Schering-Plough Corporation (NYSE:SGP) has announced the United States launch of a combination therapy using PEG-INTRON Powder for Injection and REBETOL Capsules for treating chronic hepatitis C. PEG-INTRON is a longer-acting form of INTRON A (interferon alfa-2b, recombinant), an injection that uses proprietary technology developed by Enzon, and under the company's licensing agreement with Schering-Plough, Enzon is entitled to royalties on worldwide sales of PEG-INTRON. It is predicted that direct U.S. medical costs to treat HCV-related disease will exceed $13 billion for the years 2010 through 2019 and analysts believe the company's ability to benefit from this and other products is still not fully reflected in the issue's current share value. ENZN - Enzon $57.98 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 50 QYZ VJ 51 0.60 49.40 6.8% *** SELL PUT OCT 55 QYZ VK 125 1.80 53.20 14.6% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=ENZN *************** HB - Hillenbrand Industries $56.72 *** Solid Earnings! *** Hillenbrand Industries (NYSE:HB) is a diversified, public holding company and the owner of 100% of the capital stock of its three operating companies serving the funeral services and healthcare industries. The company's Health Care Group consists of Hill-Rom Company, a manufacturer of equipment for the healthcare market and provider of wound care and pulmonary/trauma management services. Hillenbrand's Funeral Services Group consists of Batesville Casket company, a manufacturer of caskets and many other products for the funeral industry, and Forethought Financial Services, a provider of funeral-planning financial products. Hillenbrand shares rallied this week after the company reported outstanding quarterly earnings. The company announced yesterday that net income for the fiscal 2001 third quarter was $41 million, or $0.65 per share, up 21% from net income of $34 million earned in the year-ago quarter. Earnings per share rose 23% during the quarter while revenue rose 4% to $514 million. Cash flow from operating activities in the quarter was an amazing $114 million, up 159% from last year, and the results were due to strong demand in both their capital sales and therapy product lines. The CEO said the company will continue a determined drive to lower costs, improve asset utilization and find innovative pathways to achieve profitable growth, and that's exactly what investors want to hear in these troubled times. The stock is poised to move higher in the coming sessions and traders who believe the issue is destined for a continued rally can profit from additional bullish movement with this position. HB - Hillenbrand Industries $56.72 PLAY (moderately aggressive - bullish/credit spread): BUY PUT OCT-50 HB-VJ OI=41 A=$0.35 SELL PUT OCT-55 HB-VK OI=3 B=$1.15 INITIAL NET CREDIT TARGET=$0.85-$0.95 PROFIT(max)=20% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=HB *************** MRX - Medicis Pharmaceutical $55.73 *** Rally Mode! *** Medicis Pharmaceutical (NYSE:MRX) is a specialty pharmaceutical company and an independent pharmaceutical company in the United States focusing primarily on the treatment of dermatological conditions. The company offers prescription products and an over-the-counter product line. Medicis develops and markets products for major segments within dermatology, including acne, rosacea, antifungals, eczema, hyperpigmentation, pediculosis (head lice), psoriasis, seborrheic dermatitis and cosmesis (improvement in the texture and appearance of skin). Medicis' products include the prescription brands Dynacin (minocycline HCl), Triza (benzoyl peroxide), Loprox (ciclopirox), Lustra and Lustra-AF (hydroquinone), Ovide (malathion), Plexion (sodium sulfacetamide), Lidex (fluocinonide), Synalar (fluocinolone acetonide), Topicort (desoximetasone), and Buphenyl (sodium phenylbutyrate), a prescription product indicated in the treatment of Urea Cycle Disorder. Medicis also markets the OTC brand Esoterica. There is little news to explain the recent rally in MRX shares but some traders suggest it is related in part to the company's decision to acquire Ascent Pediatrics, a pharmaceutical company focused on the marketing and sale of prescription products to pediatricians. Medicis and Ascent announced they have entered into a merger agreement to broaden the business development and research and development opportunities for the parent company. Ascent's portfolio of specialty pharmaceutical pediatric products currently includes a popular oral liquid steroid for children with asthma and other respiratory inflammatory conditions, an antibiotic oral solution for children with ear infections, and an over-the-counter saline nasal mist, as well as other projects that are under development. In addition to the acquired brands, Medicis believes the pediatric market represents an opportunity for several of its current dermatological products and the merger provides the company with the critical mass to assist with its entrance into the category of pediatrics. We simply favor the recent technical trends and these positions offer a great way to speculate on the future movement of the issue in a conservative manner. MRX - Medicis Pharmaceutical $55.73 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 50 MRX VJ 117 0.75 49.25 7.8% *** SELL PUT OCT 55 MRX VK 33 2.20 52.80 16.6% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=MRX *************** NNS - Newport News Shipbuilding $68.15 *** Defense Sector! *** Newport News Shipbuilding (NYSE:NNS) is a non-government-owned shipyard in the United States. Its primary business is the design, construction, repair, maintenance, overhaul and refueling of nuclear powered aircraft carriers and submarines for the United States Navy. Newport's operating segments include three areas involving United States Naval and commercial ships: Construction, Fleet Services and Engineering. The Defense sector is in "rally mode" and this company is one of the leaders in the industry. In addition, the ongoing competition between Northrop Grumman (NYSE:NOC) and General Dynamics (NYSE:GD) to buy the outstanding shares of Newport News Shipbuilding common stock will likely keep the price stable for the next few weeks. Both defense firms are trying to purchase NNS and the U.S. Defense Department hopes to make a recommendation to the Justice Department this week on the $2.1 billion fight between two giants. General Dynamics' all-cash offer is for $2.1 billion and the assumption of about $500 million in debt while Northrop's bid is $67.50 a share for all the outstanding Newport News stock. The Pentagon is trying to decide whether either or both might stifle competition and hurt the defense industry but regardless of the outcome, the share value of NNS should remain above $65 until the October expiration. NNS - Newport News Shipbuilding $68.15 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 65 NNS VM 10,350 0.80 64.20 5.8% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=NNS *************** PRX - Pharmaceutical Resources $37.19 *** Generic Drugs! *** Pharmaceutical Resources (NYSE:PRX) is a holding company that, through its subsidiaries, develops, manufactures and distributes a line of generic drugs in the United States. Pharmaceutical Resources operates primarily through its wholly owned subsidiary, Par Pharmaceutical, a manufacturer and distributor of generic drugs. The company's product line consists of both prescription and over-the-counter generic drugs. Par markets approximately 58 products, representing various dosage strengths for 22 drugs that are manufactured by PRI, and approximately 45 additional products, representing various dosage strengths for 23 major drugs that are manufactured for it by other companies. Products are marketed principally in solid oral dosage form, consisting of tablets, caplets and two-piece hard-shell capsules. The company also distributes one product in the semi-solid form of a cream. PRX was in the news today but not on its own merits. The company was listed as one of the primary reasons why drug-maker Eli Lilly & Company (NYSE:LLY) will not meet previous quarterly earnings forecasts of between $0.63 and $0.67 per share. A sharp decline in sales of the antidepressant Prozac is behind the shortfall and the reason is that competing generic products from companies like Pharmaceutical Resources have stolen market share from Prozac since its patent expired in early August. This is great news for PRX and the scenario will likely be repeated with other products in the coming months. Investors who agree with a bullish outlook for the company can used these positions to establish a low risk cost basis in the underlying issue. PRX - Pharmaceutical Resources $37.19 PLAY (buy stock and sell covered call; or sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL CALL OCT 35 PRX JG 608 3.40 33.79 6.4% - or - SELL PUT OCT 35 PRX VG 1,020 1.20 33.80 15.5% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=PRX *************** VRSN - VeriSign $46.17 *** Software Sector Surge! *** VeriSign (NASDAQ:VRSN) is a provider of infrastructure services to Website owners, enterprises, e-commerce service providers and individuals. The company is organized into two customer-focused lines of business. The Mass Markets group focuses on delivering all of its products and services to smaller enterprises, as well as to consumers that wish to establish a presence on the Web. The Enterprise and Service Provider Division focuses on delivering all of its products and services to larger enterprises and service providers around the world that want to establish and deliver a range of secure Internet-based services to their customers in both business-to-consumer and business-to-business environments. Despite the recent slump in technology share values, Verisign is one of the top companies in the Internet Software group and among many institutional investors, it is also a core holding. From a technical viewpoint, the software segment is one of the strongest sectors and the issue appears to have successfully completed a near-term consolidation. We expect the share value of VRSN to benefit significantly from the current recovery rally and our target position offers an excellent reward potential at the risk of owning this industry-leading issue at a favorable cost basis. VRSN - VeriSign $46.17 PLAY (sell naked put): Action Month & Option Open Closing Cost Target Req'd Strike Symbol Int. Price Basis Mon. Yield SELL PUT OCT 35 QVR VG 5,119 0.30 34.70 5.6% *** SELL PUT OCT 40 QVR VH 3,983 0.95 39.05 12.8% SELL PUT OCT 45 QVR VI 1,021 2.60 42.40 23.4% http://www.OptionInvestor.com/charts/oct01/charts.asp?symbol=VRSN *************** SEE DISCLAIMER ***************************** ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************* FREE TRIAL READERS ******************* If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. 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