The Option Investor Newsletter Sunday 11-18-2001 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/1545_1.asp Entire newsletter best viewed in COURIER 10 font for alignment Posted online for subscribers at http://www.OptionInvestor.com ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 11-16 WE 11-11 WE 11-02 WE 10-26 DOW 9866.99 +258.99 9608.00 +284.46 9323.54 -221.63 +341.06 Nasdaq 1898.58 + 70.10 1828.48 + 82.75 1745.73 - 23.23 + 97.65 S&P-100 588.07 + 10.08 577.99 + 18.00 559.99 - 7.99 + 14.18 S&P-500 1138.65 + 18.34 1120.31 + 33.11 1087.20 - 17.41 + 31.13 W5000 10486.67 +189.46 10297.21 +280.40 10016.81 -168.72 +290.64 RUT 451.31 + 13.21 438.10 + 5.03 433.07 - 5.58 + 12.95 TRAN 2497.37 +176.68 2320.69 + 74.03 2246.66 - .92 + 73.30 VIX 27.17 - 1.59 28.76 - 3.64 32.40 + 1.87 - 5.31 VXN 55.04 - 3.55 58.59 - 2.60 61.19 + 4.28 - 12.37 TRIN 0.99 0.90 0.92 0.87 TICK +750 +784 +701 +828 Put/Call .50 .74 .70 .53 ****************************************************************** Surprising Strength For Overbought Markets! by Jim Brown The expected Friday sell off on profit taking came right on schedule but was met at the close by ready buyers. After sprinting to resistance at 9900 at the open, the Dow fell back to 9792 and a -80 point loss before end of day buying almost brought it back to positive territory. The Nasdaq was a carbon copy except the morning high was the second day in a row that the index posted a lower high which could indicate weaker internals and the beginning of a declining trend. The markets traded on economic enthusiasm at the open after the CPI came in weaker than expected and continuing show that inflation is nonexistent. The main factor continues to be cheaper energy prices being passed through to consumer prices. Industrial Production fell again in October for the thirteenth straight month and to the lowest level since the great depression. Capacity Utilization fell to 74.8%, which is the lowest level since 1983. Low capacity eliminates supply bottlenecks and has virtually eliminated inflationary pressure from the economy. Growth continues to remain negative and could be a warning that the 4Q GDP will show a deeper recession Probably the best news for a sleepy Friday was a comment from Continental Airlines that holiday travel was stronger than expected. This along with cheaper oil powered the airline stocks to highs for the week. This was even more remarkable due to the American Airlines crash on Monday and the news that American was going to cancel a couple dozen airplane orders in light of the decreased passenger traffic. About the only period of serious weakness on Friday was when the Atlanta airport was closed due to a security breech. Bids were cancelled as the markets hit their lows but they quickly returned when the all clear signal was given. The Taliban and Al Queda suffered several new blows including the loss of Osama's right hand man. Mullah Omar reportedly offered to turn over Kandahar if he could get safe passage out of the area. Things are not going well for the Taliban as it appears they have collapsed as a government and a fighting force. Coalition special forces are acting with impunity within the country and most feel it is only a matter of days before all the likely suspects are killed or captured. The continuing good news from Afghanistan continued to support a market that is clearly overbought. Friday was options expiration day and while cruising through my watch list it was evident in the stock prices. There were many stocks that had good runs recently that were "pinging" at a major strike price. This means the stock will run up to exactly the strike price or a few cents under the strike and fail to break it. The market makers and hedge funds hold the price down so that the covered calls written at that strike price expire worthless. They do this by outright shorting or by sacrificing a portion of their holdings to protect the rest. If a fund had five million shares of XYZ stock purchased at $7-$10 and wrote $20 calls after it passed say $17 they would be at risk for losing their stock if the stock closed over $20. Many funds use options to increase returns and it is not unusual for them to get caught close to a strike price in expiration week. By selling stock as the price threatens to go over the strike price it pressures the stock and many times holds the prices under the strike. By sacrificing a few thousand they save the majority of their position. Market makers also hedge the positions they take during the month by buying/selling options and many times they would rather those options expire worthless instead of expire in the money. These market makers work on 10-20 times the margin that regular traders enjoy and they use this leverage to prevent breakouts if it would hurt them financially. Without the options expiring on Friday I doubt we would have had any volume at all. It was very anemic with only 1.3 billion on the NYSE and 1.7 on the Nasdaq. While the market momentum appeared to be slowing near the end of the week the underlying strength is still there. I was worried that a pull back could occur on Friday and carry over into Monday. Instead the finish on Friday was bullish and even though we did not close in positive territory there was decent strength coming back from the dip. The Dell earnings hit only Dell and not the markets. Despite the AMAT caution many chips continued upward. When I was going through my watch list on Wed/Thr there were many stocks rolling over at resistance which gave me a reason for caution. When going over the same watch list on Friday night many of those same stocks were back up at resistance and threatening to breakout. Many smaller stocks were accelerating while blue chips were showing minor weakness from profit taking. Bonds continued to sell off as asset allocations shift back to stocks. If you have been reading my comments for the last three weeks you would know that I have been bullish and telling you to go long even when everyone else was calling for another major sell off. There has been a gain of over 800 points on the Dow and over 200 points on the Nasdaq in that time. Thursday I said don't buy the dip on Friday because I was afraid it could be the beginning of a multi-day profit taking sell off. As I sat and watched the market move towards the close on Friday, with almost everyone now bullish, I was pondering the coming week. The VIX and the VXN closed at new three months lows and the advancers beat decliners on a down day. Bullishness is rampant going into a normally bullish week but the put/call ratio is very bearish. What we have is a very confused market. The long term investor is looking at ten rate cuts and expecting a roaring economy next year. The bond markets are now looking at the December Fed meeting and factoring OUT another rate cut. The home mortgage rates spiked this week in reaction to the ten year bond yields. Inventory levels are rising again and tech giants are dodging comments about a 2Q recovery. What do you think will happen if the Fed does not cut again and changes their bias to neutral on Dec-11th? Even though the markets know the change will eventually come nobody wants to think it will be in December. That is only three weeks away. So now investors are about to be confused as well. Investors are finally turning bullish just as the market is showing signs of topping. The economic recovery hopes have dimmed significantly in the last two days but investors have not caught on yet. The week before and after Thanksgiving is normally bullish. Does that mean we buy with reckless abandon just because the period is normally bullish? I hope not. I saw a lot of bullishness in my charts this weekend but my subconscious still says be careful. We have bounced off overhead resistance for three days now and it will take more than wishful thinking to get through it. I just don't think the minor selling we saw on Friday was enough to compensate for the three weeks of gains. There is profit taking in our future and it will not be pretty. It could come any day next week and the longer it takes the more severe it will be. Support levels are still 9750 on the Dow, which is only -110 points away. The Nasdaq could easily drop to 1868 but that is only a good days move from Friday's close at 1898. The S&P is more critical to the continued rally than either the Dow or Nasdaq and it looks weak. Support on the S&P is 1130 which barely held on Friday with a drop back to 1129.92 but the rebound was not as convincing. Real support is 1115 which is a good two day drop away. As I close this article I am struggling. I went back and reviewed charts again and MANY look like pending breakouts. BUT, most big drops are after the most bullish days. I could easily see a huge relief rally on Monday if nothing negative happens over the weekend. I could also see those pending breakouts roll over instead as the negative economic news starts to weigh on the markets again. Most investors are relieved to hear that airline load factors are up and the retail holiday may be better than expected but that is already factored into the markets. Investors are also bullish because gas is so cheap but that condition can change overnight. The last +1800 points from the September lows has been easy money. The next 600 points on the Dow will have to be fought for on a day by day basis. We no longer have the September panic drop into severely oversold conditions to power us. We are now largely overbought and the fight is in front of us. Valuation downgrades are becoming an everyday occurrence. Cisco for example on Friday. The bottom line for me this weekend is still the same as Thursday, caution. I don't want everyone to sit on the sidelines should the market rally against reason. (now there is a thought, when has the market ever been reasonable?) I also do not want readers to venture blissfully into next week expecting a turkey rally. Farm turkeys eat really well for several weeks before thanksgiving then their world comes to an end. We have eaten very well in the market for the last three weeks. Let's just be on the lookout for the guy with an ax this week. Keep those stops close. One more thought, I said don't buy the dip on Friday. I am changing that to buy any "rebound" from the support levels I stated above. Let's see if we can tempt fate and buy one more dip before we start worrying about December earnings warnings. Yes, it is almost that time again! Enter passively, exit aggressively! Jim Brown Editor@OptionInvestor.com ************************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 ************************************************************** ************** Editor's Plays ************** MSFT, PVN, Top 20 Last week I recapped the Microsoft play and suggested closing the play at $68-$69 because of resistance in that level. The high on Wednesday was $68.34 and you should have triggered a sell when you saw it roll over. The call was trading at $14.20 at that time. Not a bad profit on a $4.10 starting price. Providian Financial I caught a world of grief on my PVN play from last week. The company is a sub prime lender offering credit cards to people with less than stellar credit. Last Sunday the stock was at $3.04 and I said that for the price of an option you could own stock in a company that traded for $60 last July. Nobody complained when AG Edwards upgraded them on Tuesday and the stock rose almost 33% to $3.95 from $3.00. The bad news and the complaints came on Wednesday night when Providian withdrew guidance and announced restructuring plans. The stock dropped back to $3.00 again. I got a ton of email complaining about the downgrade and the drop in price. Guys, when I wrote the article the stock was trending up from a low of $2.05 and appeared to have started a positive trend. The company is in trouble. That is why it is $3.00. If it was turning in double digit earnings it would be $60 again. The point I was trying to make was that at $3, the price of an option, you could own stock in a company with $32 billion in high interest loans that would either recover or be taken out by somebody else. We always urge readers to do their own analysis on the companies we highlight before making any investment decisions. Secondly, any option investment or high risk stock in the case of PVN should only be done with risk capital and only capital you can afford to lose. I personally think PVN will recover but that is no guarantee. It is an opinion! It is intended as a starting point for your own research. Top 20 List (way more this week!) The following list is stocks that appeared as I was doing my research for the weekend articles. I make no representations for any individual stock but each has a trend which I would not hesitate to play. Please do your own research before going long on any of these stocks. I have not checked for earnings dates or any news relating to any of these stocks. I found a lot of stocks this week that were at resistance and would suggest opening positions ONLY after they pass the resistance level I have noted. Use that same level as a stop loss should they roll over. PMCS buy now SRCL buy now NOK buy now AMCC buy over $16.00 BSX buy over $24.75 CIEN buy over $20.00 CUM buy over $36.00 DPH buy over $13.50 EMMS buy over $17.00 EMN buy over $38.25 ETS buy over $11.00 EXTR buy over $17.50 FNSR buy over $13.25 FON buy over $22.00 KTC buy over $33.00 ADVS buy over $46.00 AFFX buy over $35.00 APD buy over $45.00 CLS buy over $41.50 CREE buy over $25.00 CSX buy over $37.00 DOV buy over $38.50 ETN buy over $70.00 JNPR buy over $26.00 KLAC buy over $50.00 LZB buy over $21.00 MGAM buy over $30.00 NXTL buy over $11.00 PG buy over $79.00 PHG buy over $30.00 SI buy over $60.00 SNA buy over $31.00 STM buy over $35.00 TSM buy over $17.50 SFA buy over $27.50 ITWO buy over $7.50 BVSN buy over $3.50 CMGI buy over $2.75 These are just food for thought and not expected to be guaranteed winners. Good Luck **************** MARKET SENTIMENT **************** On The Run By Eric Utley Like the Taliban, the bears are running for cover. Will the bulls push ahead next week? It sure feels that way. The Thanksgiving Holiday week has historically been bullish for stocks. And despite the slightly negative close in the major averages last Friday, the internals of the market remained solidly bullish. The new high/new low index stayed positive and advancers outpaced decliners, again. Wow! What's up, err, down with bonds. Treasuries were whacked last week to the tune of a 13 percent rally in the benchmark 10-year (TNX.X) yield. Money fled the Treasury market last week at its fastest rate in a long, long time. Where did it go? Some of it moved into corporate bonds noting the narrowing spread between corporates and treasuries. Some of it may have moved into high yield debt instruments, also known as junk bonds. And some of that money may be earmarked for stocks. But the averages are still overbought in the short-term. Why do we care whether a market is overbought or oversold? An overbought market reveals that the majority of buyers have already bought. Who's left to carry stocks higher? Shorts can carry stocks higher in an overbought market. And those late to the game, fearful of missing the next leg higher, can carry stocks higher in an overbought market. An overbought market, therefore, can always grow increasingly overbought. Anybody who was in the game in 1995 should remember that the S&P 500 (SPX.X) stayed overbought for the whole year. It could happen again. However, some backing and filling in the averages would be a healthy development. ----------------------------------------------------------------- Market Volatility VIX 27.17 VXN 55.04 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.50 1,317,788 664,860 Equity Only 0.42 1,223,867 513,848 OEX 1.24 37,023 45,787 QQQ 0.70 66,116 46,138 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 34 + 0 Bull Alert NASDAQ-100 75 + 1 Bull Confirmed DOW 63 + 3 Bull Confirmed S&P 500 59 + 2 Bull Confirmed S&P 100 59 + 4 Bull Confirmed Bullish percent measures the number of stocks in an index currently trading on a buy signal on their point and figure chart. Readings above 70 are considered overbought, and readings below 30 are considered oversold. Bull Confirmed - Aggressively long Bull Alert - Cautiously long Bull Correction - Pause or pullback in upward trend Bear Alert - Take defensive action if long Bear Confirmed - High risk if long, good conditions for shorting Bear Correction - Pause or rebound in downtrend ----------------------------------------------------------------- 5-Day Arms Index 0.88 10-Day Arms Index 0.93 21-Day Arms Index 1.12 55-Day Arms Index 1.12 Extreme readings above 1.5 are bullish, and readings below .85 are bearish. These signals don't occur often and tend be early, but when the do, they can signal significant market turning points. ----------------------------------------------------------------- Advancers Decliners NYSE 1681 1429 NASDAQ 1955 1636 New Highs New Lows NYSE 71 24 NASDAQ 60 32 Volume (in millions) NYSE 1,347 NASDAQ 1,692 ----------------------------------------------------------------- Commitments Of Traders Report: 11/13/01 Weekly COT report discloses positions held by small specs and commercial traders of index futures contracts at the Chicago Mercantile Exchange and Chicago Board of Trade. COT data can be found at www.cftc.gov. Small specs are the general trading public with commercials being financial institutions. Commercials are historically on the correct side of future trend changes while small specs tend to be wrong. S&P 500 Commercial traders added to long and short positions last week with a slight bias to bearish positions. Small traders did the same. Commercials Long Short Net % Of OI 10/30/01 377,468 413,729 (36,261) (4.6%) 11/06/01 376,807 416,063 (39,256) (5.0%) 11/13/01 381,539 421,284 (39,745) (5.7%) Most bearish reading of the year: (111,956) - 3/6/01 Most bullish reading of the year: ( 36,481) - 10/16/01 Small Traders Long Short Net % of OI 10/30/01 123,546 71,225 52,321 26.9% 11/06/01 132,106 81,208 50,898 23.9% 11/13/01 136,047 87,645 48,402 22.0% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 Commercial interests dropped a few long positions and added more short positions for a bearish gain in their net position. Small traders went the opposite direction by adding to longs and shedding short positions for a net bullish gain. Commercials Long Short Net % of OI 10/30/01 32,055 45,574 (13,519) (17.4%) 11/06/01 39,410 47,890 ( 8,480) ( 9.7%) 11/13/01 38,751 49,257 (10,506) (12.0%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: (1,825) - 1/02/01 Small Traders Long Short Net % of OI 10/30/01 12,725 6,475 6,250 32.5% 11/06/01 11,406 8,143 3,263 16.7% 11/13/01 11,568 6,505 5,063 28.0% Most bearish reading of the year: (1,028) - 1/02/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercial traders shed a few more longs than shorts last week, which lowered the net bullish position from the previous week's reading. However, the % of OI net long grew. Small traders added to long positions and lightened short positions. The small traders remain decidedly bearish on the Dow. Commercials Long Short Net % of OI 10/30/01 25,872 12,556 13,316 34.7% 11/06/01 25,977 11,951 14,026 37.0% 11/13/01 24,145 10,204 13,941 40.6% Most bearish reading of the year: (8,322) - 1/16/01 Most bullish reading of the year: 15,135 - 10/16/01 Small Traders Long Short Net % of OI 10/30/01 4,261 11,220 (6,959) (45.0%) 11/06/01 3,569 12,281 (8,712) (55.0%) 11/13/01 4,094 12,121 (8,027) (50.0%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************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 ************************************************************** *************** ASK THE ANALYST *************** Enough Already By Eric Utley I'm upset with the Philadelphia (PHLX) and American (AMEX) Stock Exchanges. They both created new sector indices. I have enough on my plate. Aren't the 30 sectors I follow daily enough? What the... The AMEX and PHLX recently released their own defense industry indices. The AMEX's trades under the symbol DFI.X and the PHLX's trades under DFX.X. Isn't it interesting that the two released a defense sector index now? The new defense sector indices will help traders to better gauge stocks in the group, such as OI's current NOC put play. For that reason I thought it might be beneficial to pass along the components of each: AMEX Defense Index (DFI.X) Components - ATK BA DRS EASI EDO FLIR GD LLL LMT NNS NOC RTN SSSS TTN UIC PHLX Defense Index (DFX.X) Components - ATK BA DRS EDO ERJ EASI ESL GY GD GE ITT LLL LMT NNS NOC RTN TDY UTX There's overlap in the two and no need to follow both. I'm choosing to track the AMEX's DFI.X because I've never been to Philadelphia. Either one will work. In addition to its defense index, the PHLX also launched its very own Fiber Optics Sector Index (FOP.X). From the PHLX Web site: In the not too distant past, the thought of sending data and voice traffic as signals of light over fiber optic cables was the domain of science fiction and fantasy. Today, optical networking is the technology of choice for long distance communications. In the not too distant past, the thought of unlimited growth and productivity gains through investment in information technology and through harnessing the power of Internet was the domain of science fiction and fantasy. It still is. Nevertheless, the PHLX's FOP.X is yet another tool to add to the mix. The sector was one of the best performing last week. Come on baby light my fiber. PHLX Fiber Optics Index (FOP.X) Components - ALA AMCC CDT CIEN CSCO GLW EXFO FNSR HLIT JDSU JNPR LU NEWP NT ONIS PMCS Q SFA TLAB TCM The point and figure charts that appear in this column were created using www.StockCharts.com. Please send your questions and suggestions to: Contact Support ---------------------------- Washington Mutual (NYSE:WM) I have not read your Ask the Analyst column for a while, but nevertheless thought I will put this query to you. Washington Mutual - last year when the Tech stocks were crashing, WM was a star performer in the Leaps article that Mark [Phillips] writes. WM had an alarming drop recently - at which time I bought the stock at $28.65. It has recovered somewhat, but am looking for your valued opinion on the stock, both short and longer term. It is riding up in the Stochastics and MACD while volume is back to normal. I wonder whether you could also do a P&F chart analysis on it to assess future levels. - Many thanks, Kevin Intelligent question, Kevin. Thoughtful and well done. Passing on my column, however, is uncool. What was happening with interest rates last year when tech was crashing? Take a look at the chart of the 10-year Note (TNX.X). Rates peaked in early 2000, slid lower through all of 2000, and finally hit what looked like a bottom two weeks ago. Meanwhile, Wamu traded in the opposite direction. The stock hit a bottom in early 2000 when rates peaked and proceeded to rally through all of 2000 while rates were falling. Wamu is levered to interest rates for obvious reasons: the company is the nation's largest savings and loan (S&L). The stock's big rally last year was a precursor to the Fed's benign monetary policy this year. If you take a look at the company's most recent income statement you'll find a 76 percent increase in net interest income over last year, which was directly linked with lower rates. The time to buy Wamu is six to nine months ahead of a benign monetary cycle. The stock moves in cycles closely tied to interest rates. Therefore, if you're going to buy the stock you want to do it near the peak in rates, not near the trough. We're near or at the trough right now. In fact, I wouldn't be surprised if the Fed raises rates in Q3 of next year. Wamu is not the stock to own ahead of an increase in rates. I've heard the bullish argument for stocks like Wamu currently. Its low valuation, high dividend yield, and stock buyback program make it a buy candidate. That may be so, but you don't buy S&Ls near the trough of a benign monetary policy, it's just that simple. What follows a bottom in rates? The hawk. In addition to its traditional banking business lines, Wamu has a big presence in the mortgage business. The Treasury's recent withdrawl of the long bond (TYX.X) may partially explain the recent sell-off in WM. The company is an adjustable rate mortgage lender, which puts it at risk in the event of re-financings at lower rates or for the potential for customers to search out better deals at lenders of fixed rates. The cessation of 30-year bond issuance whacked mortgage rates and spurred a new wave of re-fis, potentially hurting Wamu's mortgage business. The stock may be buoyed by the market over the short- and intermediate-terms. An economic recovery tends to lift all boats as credit quality improves, balance sheets are re-liquefied, and defaults dissipate. But at this point in the businesses cycle, it's better to play that dynamic through a larger, more diversified financial, something like Citi (NYSE:C) or Bank of America (NYSE:BAC), and not an S&L such as Wamu. Over the short- and intermediate-term, Wamu may catch a bid. But over the longer-term (12-18 months), I think there are better ways to play the economic recovery. Let's see if the charts agree with me. Prior to October 17, Wamu hadn't give a sell signal on its point & figure chart in over 18 months! 18 months!! In other words, Wamu had been on a buy signal for the last year- and-a-half. Until mid-October that is. What happened on October 17? The stock took out its previous column of 'Os' by declining below $33. That move generated the first sell signal in 18 months. Obviously something changed on October 17. Along with the sell signal, the column of 'Os' generated a bearish price objective of $14. The sell signal is the overriding theme on Wamu's point and figure chart. But, I also think that the stock has been under distribution since early August. The lower highs into October hint of institutional selling and the big column of 'Os' from $38 to $27, which generated the sell signal, is a classic sign of a long liquidation. The weekly chart of WM below reveals a significant change in trend. Again, it looks like a long liquidation to me. I've laid a retracement bracket over the stock's two year advance to get a better handle on risk levels. I liked the fit to the $40 level because that level appeared significant on the point and figure chart above. For whatever reason, WM couldn't get back above $40 in September and October. Note that the lower end of the bracket is a familiar number...maybe the bottom of the cycle? I can't emphasize enough how important it is to monitor interest rates when trading the S&Ls. To take it a step further, I've included a chart of the 10-year, which is a security that can be used to monitor rates. Notice the correlation between yield and Wamu's highs and lows. What happened to WM when yields bottomed in late 1998/early 1999? ---------------------------- Genesis Microchip (NASDAQ:GNSS) Recently I read an article about GNSS, Genesis Microchip. It makes chips for the flat panel screens, which my son said he is going to get for his computer in college. Do you see any stock or option opportunities with this stock? - Thanks, Mr. G This little sucker looks hot - any thoughts? Looks like a great stock in the LCD area. - Thanks, Ed Thanks for the questions, Ed and Mr. G. Flat panel displays are at the high-end of the computer monitor spectrum. They're expensive but prices have come down considerably this year to adjust for the oversupply and lack of demand. The price reductions this year have spurred end demand. Prices have been cut so much that the manufactures of flat panel displays are currently selling at or below cost. However, the pick-up in demand for flat panel displays has been of benefit to the makers of the components that go into the monitors, such as Genesis. The flat panel displays are primarily used by business and organizations such as medical facilities and the military. But the demand from consumers is on the rise. I'm not sure if the Windows XP release will spur demand for flat panel displays, but it's something to consider. GNSS has been one of the best performing stocks in the market year-to-date; it's up more than 300 percent through Friday. But in the last three weeks the stock has given up a significant amount of strength relative to the market and its sector, the Semiconductor Sector (SOX.X). Last Friday GNSS sold-off by 10 percent, while the SOX finished fractionally lower. There were reports of insider selling in October which may have been the catalyst behind the blow-off. The stock staged a similar sell-off on November 8, which looked like a distribution day to me. The two big sell-off days would have me cautious on entering bullish positions at current levels. There's no denying that GNSS is a strong stock and its business may continue improving, but I don't like the recent loss of strength. I wouldn't necessarily look to short a stock like GNSS for the simple fact that it's been one of the strongest this year. But I don't want to step into a retracement early. I would feel much better about buying the stock at a meaningful support level, waiting for consolidation and retracing of recent gains. Enter the point and figure chart. GNSS fell below all of its meaningful short-term support levels last Friday. I don't see the next level meaningful support until the bullish support line, which currently sits at $34. That'd be the place to look for the stock to rebound from or begin a new base. Why? Because I can set a stop at $31 or $33. Risk is then measured and easily managed. It's a long way down from current levels. However, I'd rather have the stock come to me than try to recklessly pick a bottom. ---------------------------- DISCLAIMER: This column is an information service only. The information provided herein is not to be construed as an offer to buy or sell securities of any kind. The Ask the Analyst picks are not to be considered a recommendation of any stock or option but an information resource to aid the investor in making an informed decision regarding trading in options. It is possible at this or some subsequent date, the editor and staff of The Option Investor Newsletter may own, buy or sell securities presented. All investors should consult a qualified professional before trading in any security. The information provided has been obtained from sources deemed reliable, but is not guaranteed as to its accuracy. ************* COMING EVENTS ************* =============================================================== Economic Reports The earnings announcements are really starting to taper off as we move into the Thanksgiving holiday week. The markets will be closed on Thursday in observance of the national holiday and only open half a day on Friday. The main economic report to watch is the Michigan Sentiment report on Wednesday. =============================================================== Monday, 11/19/01 Housing Starts Oct Forecast: 1.515M Previous: 1.574M Building Permits Oct Forecast: 1.490M Previous: 1.524M Tuesday, 11/20/01 Trade Balance Sep Forecast:-$26.0B Previous:-$27.1B Leading Indicators Oct Forecast: 0.0% Previous: -0.5% Wednesday, 11/21/01 Initial Claims 11/17 Forecast: N/A Previous: 444K Mich Sentiment-Rev. Nov Forecast: 83.5 Previous: 83.5 Treasury Budget Oct Forecast: -$8.7B Previous:-$11.3B Thursday, 11/22/01 None -- Markets closed for Holiday -- Friday, 11/23/01 None -- Markets open half a day -- ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 11-18-2001 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1545_2.asp ************************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 ************************************************************** *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue Wed Thu Week SPW 114.14 0.18 2.93 4.69 0.27 9.10 Moving higher SUNW 13.39 -0.19 0.40 0.13 0.27 0.47 Dropped PMCS 23.24 1.05 1.53 0.19 -0.29 3.72 Breakout FFIV 21.51 1.23 1.59 1.13 -1.87 2.32 Dropped PDLI 35.94 0.27 3.12 -0.79 0.18 2.22 Still holding BRCM 45.81 0.71 1.15 -0.21 -1.02 2.08 Strong semi IBM 114.50 0.78 1.84 -2.35 -0.30 0.42 Entry point BAC 62.54 -0.03 0.44 0.04 -0.21 -0.51 Dropped AOL 36.90 0.67 1.57 0.25 -0.77 -0.20 Entry point GE 40.85 -0.98 1.13 0.32 0.55 0.44 Dropped QLGC 46.66 1.01 1.08 -0.79 0.51 0.66 Dropped MSFT 65.75 0.58 2.11 -1.87 -0.01 0.54 Profit taking CMVT 23.92 0.14 2.15 1.28 -0.81 2.80 Watch NWX.X CHKP 39.36 2.55 3.39 -1.15 -0.49 3.40 Rebound ahead NOK 24.99 0.32 1.00 1.12 -0.27 2.93 New, 200-dma CREE 25.25 0.14 0.33 0.83 1.60 4.10 New, hybrid FNSR 12.59 0.27 0.71 0.04 0.84 2.51 New, optical QCOM 60.08 0.81 1.33 0.51 0.80 4.66 New, wireless JNPR 25.60 0.55 -0.11 1.38 -0.12 2.16 New, networker PUTS BRL 65.19 0.66 -5.82 1.57 0.94 -2.46 Ready to roll NOC 91.50 -1.04 -4.17 -0.88 -2.49 -0.89 Relief rally MXIM 54.10 1.70 2.24 -0.87 -0.18 2.23 Weak chip KKD 40.50 0.83 1.72 2.07 -1.09 5.13 New, catalyst? WEBX 26.43 -0.43 -2.57 0.26 -3.21 -7.67 New, obsolete ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* QCOM - Qualcomm, Inc. $60.08 (+4.66 last week) See details in sector list Put Play of the Day: ******************** KKD - Krispy Kreme $40.50 (+5.13 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 ^^^^^ SUNW $13.39 (+0.47) SUNW's trading range has become tedious. Time is of the essence to options traders. And SUNW's sideways trading is costing precious theta. The stock could very well work higher next week if the Nasdaq continues advancing. But instead of risking more time value, waiting for the move, we're dropping coverage this weekend. FFIV $21.51 (+2.32) FFIV attempted to rebound Friday but encountered selling pressure on the rally attempt. Its failure to move higher late Friday is a cause for concern. Look for strength early next week to exit positions. BAC $62.54 (-0.51) After rising steadily since the September lows, the Banking index (BKX.X) has apparently run out of eager buyers and on Friday began to roll over from the $850 resistance level. We've been playing the upward trend in shares of BAC, and after more than a week of struggling with the $64 resistance level, it looks like the bulls have lost their resolve. While our $62 stop is still in place, the stock is not looking very healthy. We'll take this opportunity to exit the play before the bears start getting bold. Take profits near current levels and look to initiate new positions in the next leadership group as the markets continue to work higher. GE $40.85 (+0.44) Shares of GE helped to lead the DJIA through numerous levels of resistance over recent weeks, but it looks like the stock is getting tired. After moving as high as $41.60 last week, it looks like resistance is going to win this battle. Rather than wait for the bears to trigger our stop, we'll harvest our gains near current levels and look for stronger plays. QLGC $46.66 (+0.66) Storage stocks have had a nice run in recent weeks, and QLGC has been one of the strongest performers, nearly tripling from the September lows. But the past week has shown the bulls losing their enthusiasm for the stock as it has failed several times to clear resistance in the $49-50 area. Friday's weakness has QLGC threatening to break its ascending trendline, and it looks like it is time to go. We're content to take the gains accrued so far and move on. Use any strength next week to exit the play at a better level. PUTS ^^^^ No Dropped Puts for the weekend. *********** DEFINITIONS *********** SL = Suggested stop loss. Sell if bid breaks this price. OI = Open Interest - the number of open contracts outstanding. ITM = In the money ATM = At the money OTM = Out of the money ADV = Average Daily Volume The options with a "*" by the strike price are our choices from the group. If the stock moves as expected we feel they have the best chance to substantially increase or double in price with the best risk/reward ratio compared to the other options for the same stock. You must determine if they fit your risk profile for time and price. Analysts ratings: 1-2-3-4-5 Analysts who follow each stock rate it and these rating are accumulated and displayed as follows; Position 1 = number of analysts recommending "strong buy" Position 2 = number of analysts recommending "moderate buy" Position 3 = number of analysts recommending "hold" or "neutral" Position 4 = number of analysts recommending "moderate sell" Position 5 = number of analysts recommending "strong sell" Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys", 1 "hold" recommendation. RISKS of SELLING PUTS: The risk of selling naked puts is always the possibility of a catastrophic event that drops the stock below the strike price and could result in the stock being PUT to you. Always protect yourself with a "buy to cover" limit order to take you out before this can happen. ************** NEW CALL PLAYS ************** NOK - Nokia $24.99 (+2.93 last week) Nokia is a mobile phone manufacturer and a supplier of mobile, fixed, and Internet protocol (IP) networks and related services, as well as multimedia terminals. Nokia has two business groups, Nokia Networks and Nokia Mobile Phones, and also includes the Nokia Ventures Organization and the Nokia Research Center. The wireless business is rebounding. Demand for mobile phones and associated products is returning. The recent price action of the service providers and handset manufacturers confirms the preceding assertions. Nokia is one of the stronger in the group, both in fundamentals and price. The company has been taking market share from its weaker competitors such as ERICY. And its shares have been reflecting the renewed optimism for the company. Early last week, NOK broke above its 200-dma. The stock had not traded above its 200-dma in the last eleven months prior to last week's advance. In addition, the stock moved into its gap, which was created in early June when the company warned. The gap left empty space up to the $28.71 level. In other words, NOK doesn't have any resistance above current levels until $28.71. That doesn't mean the stock will work straight higher. What it does mean is that there is less overhead supply immediately above current levels. Bullish traders can look for an advance from current levels early next week for an entry point. Monitor the Nasdaq as well as the Wireless Services Index (YLS.X). Strength in both of the aforementioned indexes would confirm entries into strength early next week. A pullback down to the 200-dma could offer an entry on weakness. The 200-dma currently sits at $23.50 and is reinforced by the 10-dma at $23.20. Our stop is initially in place at $22.50. BUY CALL DEC-22 NAY-LX OI=19468 at $3.50 SL=2.50 BUY CALL DEC-25*NAY-LE OI=12774 at $1.70 SL=1.00 BUY CALL DEC-27 NAY-LY OI= 4684 at $0.85 SL=0.25 BUY CALL JAN-25 NAY-AE OI=19479 at $2.50 SL=1.50 BUY CALL JAN-27 NAY-AY OI= 5550 at $1.45 SL=0.75 Average Daily Volume = 13.7 mln CREE - Cree $25.25 (+4.10 last week) Cree develops and manufactures compound semiconductor materials and electronic devices made from commercialized silicon carbide and gallium nitride. The company operates in two business segments: the Cree segment, which consists of its semiconductor products; and the UltraRF segment, which consists of radio frequency (RF) transistors and amplifiers on a silicon platform. A combination of catalysts is carrying this chip higher. The record auto sales in October helped. Cree manufactures light emitting diodes (LEDs): the miniature lights used in dashboards and consumer electronics. In addition to the increased demand for its LEDs, Cree may be seeing an up-tick in orders for its radio frequency (RF) circuits, which are used by handset manufacturers. Shares of the stock have recently been reflecting an upturn in the company's two business segments. The stock exploded from its consolidation beneath the 200-dma last week. Its breakout above $22 last Wednesday followed through in a big way in Thursday and Friday's sessions. The stock now faces mild congestion between the $25 and $27 range. A brief pullback from current levels may be in order, which could bring CREE back down to the $24 level. A bounce from $24 would provide a solid entry into this solid semi. If the stock continues pushing higher, look for a breakout above $27 on relatively heavier volume. Our stop is set at $22. BUY CALL DEC-22 CVO-LX OI= 689 at $4.10 SL=2.75 BUY CALL DEC-25*CQR-LE OI=3074 at $2.45 SL=1.75 BUY CALL DEC-30 CQR-LF OI= 387 at $0.80 SL=0.25 BUY CALL JAN-25 CQR-AE OI=1143 at $3.40 SL=2.25 BUY CALL JAN-30 CQR-AF OI=1657 at $1.60 SL=1.00 Average Daily Volume = 1.47 mln FNSR - Finisar $12.59 (+2.51 last week) Finisar is a provider of fiber optic subsystems and network test and monitoring systems that enable high speed data communications over local area networks, storage area networks, and metropolitan access networks. The company is focused on the application of digital fiber optics to provide a broad line of high performance, reliable, value-added optical subsystems for data networking and storage equipment manufacturers. Do optical stocks see the light at the end of tunnel? It would appear that way judging by the recent rebound in the group. Heavy hitters such as CIEN, JDSU, PMCS, and JNPR have all recently rallied despite the flow of negative news from the sector. Perhaps the worst is over for the group and demand is about to return. One of the smaller players in the field, FNSR has been on a tear. The stock is up by more than 200% from its September lows. It traded up to the 200-dma last Friday at $13 and change, but could continue working higher over the short term if the optical group continues advancing. Traders can look for a breakout above the 200-dma early next week and confirm a rally attempt with an advance past the $13.50 level. Beyond $13.50, FNSR doesn't have any resistance until the $16. A more than $2 move in such a low priced stock can translate into a solid gain in an option. A pullback down to the $11 level and subsequent bounce would offer an entry on weakness. Watch others in the group such as the aforementioned leaders. Our coverage stop is in place at $10.50. BUY CALL DEC-10 FQY-LB OI=1550 at $3.30 SL=2.25 BUY CALL DEC-12*FQY-LV OI=6137 at $1.55 SL=0.75 BUY CALL DEC-15 FQY-LC OI= 735 at $0.80 SL=0.25 BUY CALL MAR-12 FQY-CV OI= 246 at $3.00 SL=2.00 BUY CALL MAR-15 FQY-CC OI= 576 at $2.00 SL=1.25 Average Daily Volume = 4.42 mln QCOM - Qualcomm, Inc. $60.08 (+4.66 this week) Based on its proprietary CDMA technology, QCOM is engaged in developing and delivering digital wireless communications services. The company's business areas include integrated CDMA chipsets and system software and technology licensing. QCOM owns patents that are essential to all of the CDMA wireless telecommunications standards that have been adopted or proposed for adoption by the worldwide standards-setting bodies. Currently, QCOM has licensed its CDMA patent portfolio to more than 80 telecommunications equipment manufacturers around the world. Wireless stocks were among the first to recover in the wake of the September attacks, although shares of QCOM experienced a bit of a delay. The stock dipped in early October as low as $38 before finding solid buying and it has been a steady rise ever since. The bulls thought they might be in trouble on the heels of the companies earnings report, which definitely could have been better. But buyers swooped in to snatch up the shares at a bargain and the rally just keeps on going. Drawing an ascending trendline (which currently rests at $55), shows that the stock hasn't violated it since it began in the second week of October, and it currently rests right between the 10-dma ($56.55) and the 20-dma ($54.13) both of which are in a steady ascent. The real important development though is the fact that on Friday QCOM pushed through the 11-month descending trendline and the 200-dma, both of which are just below $59. Target fresh entries on mild support near $59 or firmer support near $56.50. We are initiating the play with a fairly wide stop at $54, just below the 20-dma. BUY CALL DEC-60*AAO-LL OI=24014 at $4.10 SL=2.50 BUY CALL DEC-65 AAO-LM OI= 8366 at $1.95 SL=1.00 BUY CALL JAN-60 AAO-AL OI=14412 at $6.10 SL=4.00 BUY CALL JAN-62 AAO-AZ OI= 5357 at $5.00 SL=3.00 BUY CALL JAN-65 AAO-AM OI=17774 at $3.80 SL=2.25 Average Daily Volume = 17.0 mln JNPR - Juniper Networks $25.60 (+2.16 last week) As a provider of Internet infrastructure solutions, JNPR serves Internet service providers and other telecommunications service providers, helping them to meet the demands resulting from the rapid growth of the Internet. The company delivers next generation Internet backbone routers that are specifically designed for service provider networks. JNPR's flagship product is the M40 Internet backbone router, which complements the recently-introduced M20, which is a router built specifically for emerging service providers. The routers provided by the company combine the features of the JUNOS Internet Software, high performance ASIC-based packet forwarding technology and Internet-optimized architecture into a purpose-built solution for service providers. After digesting CSCO's earnings report a couple weeks ago, the Networking sector (NWX.X) has gotten its second wind. First clearing the $310 resistance level, now the NWX is really running into the $344 resistance level on Friday and still looking strong. Although a mere shadow of its former self, JNPR has shown some impressive strength over the past month, rising nearly 200% from its early-October lows, and it looks like it has further to run. The rally over the past 2 weeks has been a bit more sedate than what took place during the month of October, and that just might mean that it is sustainable. Up until the past couple days, volume has remained very strong, and we'll need to see a return of heavy buying volume if JNPR is going to break out over the resistance that begins at $28 and culminates near $31.50. Looking at an intraday chart demonstrates that buyers are appearing at ever higher levels, with the $24.50 resistance level now effectively acting as support. Consider new entries on a bounce from this level or intraday support at $23 and $22. We are initially placing our stop at $21 and will be looking to lock in profits near the $31 level. It goes without saying that we'll need to monitor the NWX for signs of continued sector strength. BUY CALL DEC-22 JUX-LX OI= 1593 at $4.90 SL=3.00 BUY CALL DEC-25*JUX-LE OI=12953 at $3.40 SL=1.75 BUY CALL DEC-30 JUX-LF OI= 7054 at $1.45 SL=0.75 BUY CALL JAN-25 JUX-AE OI= 5566 at $4.50 SL=2.75 BUY CALL JAN-30 JUX-AF OI= 6411 at $2.60 SL=1.25 Average Daily Volume = 21.5 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 11-18-2001 Sunday 3 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1545_3.asp ************************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 ************************************************************** ****************** CURRENT CALL PLAYS ****************** PMCS - PMC-Sierra $23.24 (+3.72 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, where are being used to restructure the global telecommunications and data communications infrastructure. PMCS broke to a new relative high last Friday. The Networking Sector (NWX.X) continued to advance but the Semiconductor Sector (SOX.X) pulled back. Since PMCS is a hybrid of both a semi and networker, its advance last Friday was most impressive in terms of relative strength. The stock doesn't have resistance immediately above current levels. The next hurdle lies at the $25 level. Should the NWX.X and SOX.X continue higher next week, PMCS should work its way up to $25. Traders who took entries around $21 could look to book gains on a move up to $25. Those looking for new entries can consider taking positions on further strength from current levels with the understanding that risk is increasing to the downside at this point in the trend. A pullback on relatively lighter volume to the $22.50 level, or lower at $21.75, may offer a more favorable entry into new call trades. One of PMCS' competitors in AMCC traded exceptionally well last Friday. Traders operating in PMCS might do well to keep an eye on AMCC to confirm the price action of the former. BUY CALL DEC-20 SQL-LD OI=2713 at $4.90 SL=3.75 BUY CALL DEC-22 SQL-LX OI=1803 at $3.50 SL=2.25 BUY CALL DEC-25*SQL-LE OI=1663 at $2.35 SL=1.50 BUY CALL JAN-22 SQL-AX OI= 512 at $4.40 SL=3.25 BUY CALL DEC-25 SQL-AE OI=1238 at $3.35 SL=1.50 Average Daily Volume = 10.1 mln SPW - SPX Corp. $115.35 (+9.10 last week) SPX Corp is a global provider of technical products and systems, industrial products and services, service solutions and vehicle components Its products include storage area network, fire detection and building life-safety products, television and radio broadcast antennas and towers, transformers, substations and industrial mixers and valves. Solid! SPW continues to work higher without interruption. Yes the stock is overbought and for that reason traders with open positions might consider taking gains off the table. Plus, the stock hit our bullish price objective of $115 last Friday. That doesn't mean it won't work higher. But those who've captured $5, maybe $10, in the play recently should use money management and take gains. With that said, the stock may continue advancing to the $120 level. But, it's difficult justifying entering new call plays after the stock's recent run and its overbought nature. We've been writing in recent updates that we'd like to see a pullback to support before entering new positions. Although we have not yet witnessed the pullback, we still would prefer taking new plays on a pullback. The reasoning behind waiting for a pullback is for some of the downside risk to be removed from the play. With SPW's recent run, it's incredibly difficult to gauge and manage risk. Those with open plays can simply trail stops higher. But those looking for new entries might have a hard time discerning where exactly risk lies to the downside. We feel that a pullback down to the $110 to $112 area would offer a more favorable entry point whereby risk could be managed more easily; for example, an entry at $110 could be accompanied with a stop at $109 or $108. In the meantime, those with open positions should either look to exit on further strength or at least tighten stops. BUY CALL DEC-110 SPW-LB OI= 445 at $ 5.80 SL= 4.25 BUY CALL DEC-115*SPW-LC OI= 0 at $ 6.90 SL= 5.25 Wait for OI!! BUY CALL DEC-120 SPW-LD OI=1055 at $ 4.70 SL= 3.00 BUY CALL MAR-115 SPW-CC OI= 210 at $13.10 SL=10.00 BUY CALL MAR-120 SPW-CD OI= 605 at $10.30 SL= 8.50 Average Daily Volume = 410 K PDLI - Protein Design Labs $35.94 (+2.22 last week) Protein Design Labs is engaged in the development of humanized monoclonal antibodies for the prevention and treatment of disease. The company has licensed certain rights to its first humanized antibody product, Zenapaz, to Hoffman-La Rouche and its affiliates Roche, which markets Zenapaz for the prevention of kidney transplant rejection. PDLI's price action tracked the AMEX Biotechnology Sector (BTK.X) very closely late last week. Both PDLI and BTK.X coiled. For its part, PDLI traced two consecutive inside days last Thursday and Friday. In other words, PDLI's price is tightening. The price action portends a big move in one direction or another. Whichever direction PDLI breaks will depend upon the action of the BTK.X. Continue to monitor the sector closely when following this play. A strong advance in the BTK.X should allow PDLI to breakout above its resistance range between $37 and $37.50. A solid advance above that resistance area should signal that PDLI is taking the high road and could be used as an entry point. Volume should also increase on such a rally attempt. Increased volume on a move above $37.50 would help to confirm a forthcoming breakout. Those who prefer to get in before a breakout can target entries near support, which currently sits between $35.50 and $35.75. Tight stops should accompany entries from support. Also, because PDLI's recent price action portends a big move in one direction or another, traders might consider this stock as a potential straddle/strangle candidate. Should the stock breakout from its range, it could advance up to the low $40s, while a breakdown should pressure PDLI down to the low $30s. BUY CALL DEC-30 PQI-LF OI= 121 at $7.40 SL=6.00 BUY CALL DEC-35*PQI-LG OI=1180 at $4.10 SL=3.00 BUY CALL DEC-40 RPV-LH OI= 628 at $2.05 SL=1.25 BUY CALL FEB-35 PQI-BG OI=1526 at $6.20 SL=5.00 BUY CALL FEB-40 RPV-BH OI= 578 at $4.30 SL=3.00 Average Daily Volume = 2.17 mln MSFT - Microsoft $65.75 (+0.54 last week) Although best known for its ubiquitous Windows PC operating system, MSFT develops, manufactures, licenses and supports a wide range of software products for a multitude of computing devices. The company's software products include scalable operating systems for servers, PCs and intelligent devices, server applications for client/server environments and software development tools. The MSFT's online efforts include the MSN network of Internet products and services and alliances with companies involved with broadband access and various forms of digital interactivity. While it appears the rally in Software stocks was begun on news of the MSFT settlement with the Department of Justice, the positive benefit of that piece of news has now run its course. The latest bit of excitement for MSFT is the release of the software giant's game system, the X-Box. Whether sales of this latest gadget will juice the company's bottom line remains to be seen, but the action in the stock hasn't been impressive over the past few days. Looks like investors are taking profits from the stock's stellar run over the past 6-weeks and it is up to us to determine if we are going to get another entry point, or if the ride is over. The ascending trendline at $64.50 is still intact and that will be our decision point. We're moving our stop up to that level and will consider fresh entries on a bounce above there. If it fails as support, we'll take our gains and move on to the next play. By the same token, resistance is pretty firm in the $68-69 area and a return to that area would have prudent investors locking in their profits. Keep an eye on the broader Software sector (GSO.X) for early signs of strength/weakness as well. BUY CALL DEC-65*MSQ-LM OI=22890 at $3.50 SL=1.75 BUY CALL DEC-70 MSQ-LN OI=42447 at $1.15 SL=0.50 BUY CALL JAN-65 MSQ-AM OI=64214 at $4.80 SL=3.00 BUY CALL JAN-70 MSQ-AN OI=81276 at $2.50 SL=1.25 Average Daily Volume = 36.2 mln AOL - AOL-Time Warner $36.90 (-0.20 last week) AOL-Time Warner is an integrated, Internet-powered media and communications company. The company was formed when America Online and Time Warner merged in January, 2001. The company's America Online branch consists of interactive services, Web brands, Internet technologies and electronic commerce. The Time Warner division contributes cable television systems, filmed entertainment and television production. Additionally the joint company is involved in cable and broadcast television networks, recorded music, music publishing and magazine and book publishing. Media stocks have lost some of their upward momentum from a week ago, and we've seen shares of AOL come back from the $39 level. This looks like another attractive entry point in the making, as the stock pulled back to just above the supportive 10-dma ($36.38) on Friday before recovering modestly into the close. This weekend hosts the opening of the Harry Potter movie across the country, and many investors will be watching how it is received. Positive box-office results could be just what is needed to reinvigorate the bulls and prompt another run at the $40 resistance level, also the site of the 38% retracement from the May highs to September lows. Of course, it doesn't hurt that the Internet index (INX.X) continues to move to new post-attack highs, clearing the $130 level last week. The underlying buying interest can be seen in the option trade, as call volume surged over the last week, indicating that there is strong expectation that shares will continue to rise. Unfortunately, we have daily Stochastics rolling south after the last few days of weakness, so we'll need the bulls to step up to the plate soon. Our stop is currently at $35.25, and we would consider new entries on a solid bounce above that level, ideally near the $36 intraday support level. BUY CALL DEC-35 AOE-LG OI=28230 at $3.50 SL=1.75 BUY CALL DEC-37*AOE-LU OI=10608 at $2.05 SL=1.00 BUY CALL DEC-40 AOE-LH OI=22432 at $1.05 SL=0.50 BUY CALL JAN-37 AOE-LU OI=22404 at $2.90 SL=1.50 BUY CALL JAN-40 AOE-LH OI=52823 at $1.75 SL=1.00 BUY CALL JAN-42 AOE-LV OI=18966 at $1.00 SL=0.50 Average Daily Volume = 18.9 mln BRCM - Broadcom Corporation $45.81 (+2.08 last week) Sitting in the sweet spot between the Broadband and Semiconductor sectors, BRCM is a provider of highly integrated silicon solutions that enable broadband digital transmission of voice, video and data to and throughout the home and within the business enterprise. These integrated circuits permit the cost-effective delivery of high-speed, high-bandwidth networking using existing communications infrastructures that were not originally designed for the transmission of broadband digital content. Using proprietary technologies, the company designs, develops and supplies integrated circuits for several markets including digital cable set top boxes, cable modems, high-speed office networks, home networking, and digital subscriber lines. Supported by solid rallies in both the Semiconductor sector (SOX.X) and the Networking sector (NWX.X), BRCM has had quite a run since the early October lows. The stock has recovered all the ground lost since the September attacks, and then some. In fact, the bulls are nearing major resistance in the $47-48 area, and it is taking some time for them to work through all of the overhead supply from the 3 failed breakouts above this level in May and August. Despite the fact that buying interest has been weakening over the past few days, BRCM s still well above its ascending trendline ($40.50), also the site of the 200-dma. Even the supportive 10-dma ($43.33) hasn't been seriously challenged since early Monday morning. BRCM has been building solid support near $44 all week and then took off again Friday afternoon, once again nearing the $46 level. As long as the SOX can continue working higher, BRCM looks poised to break out in the near future. Target fresh entries from the $44 level or for the really adventurous dip-buyers, a bounce near the $41 level, also the site of our stop. BUY CALL DEC-45*RCQ-LI OI= 3507 at $5.20 SL=3.00 BUY CALL DEC-50 RCQ-LJ OI=13187 at $3.20 SL=1.50 BUY CALL JAN-45 RCQ-AI OI= 4195 at $6.90 SL=5.00 BUY CALL JAN-50 RCQ-AJ OI= 1812 at $5.00 SL=3.00 BUY CALL JAN-55 RDZ-AK OI= 2454 at $3.20 SL=1.50 Average Daily Volume = 13.3 mln CHKP Check Point Software $39.36 (+3.40 last week) Check Point provides Internet security. The company provides secure enterprise networking solutions that enable customers to implement centralized policy-based management with enterprise- wide distributed deployment. Simply put, CHKP has benefited from rising demand for its virtual private networks software which lets remote workers, business allies and customers securely access corporate computer networks. Like the Energizer Bunny, the Software sector (GSO.X) just keeps on going. There is no doubt that it is looking a bit tired, but that is to be expected after rising 46% from the September lows. Our CHKP play is doing even better, handily outdistancing the GSO with a 120% rise from its post-attack low, as of Wednesday's high of $43. That move took CHKP just a shade below the 38% retracement of the April highs to September lows, and the current pullback could be setting the stage for another run at that level. We need to be careful with daily Stochastics rolling over from overbought, but it is encouraging to see the light selling volume over the past 2 days. So long as the GSO can keep from going into a selloff, CHKP should give us an attractive entry point near current levels. A dip to the $38 level would be nice as that would complete the task of filling the gap left at the open on Tuesday. Keep stops in place at $37, which is just below the 10-dma ($37.29). A close below that level would mean the bulls are losing their grip on the current rally. BUY CALL DEC-35 KEQ-LG OI=2893 at $6.30 SL=4.25 BUY CALL DEC-40*KEQ-LH OI=6194 at $3.30 SL=1.75 BUY CALL DEC-45 KEQ-LI OI=2467 at $1.60 SL=0.75 BUY CALL JAN-40 KEQ-AH OI=6706 at $5.20 SL=3.25 BUY CALL JAN-45 KEQ-AI OI=4117 at $3.00 SL=1.50 Average Daily Volume = 9.58 mln CMVT - Comverse Technology $23.92 (+2.80 last week) Comverse is the world leader in multimedia telecommunications applications. Through its Comverse Network Systems division, the company markets its Access NP and TRILOGUE INfinity Enhanced Services Platforms, which enable wireless, wireline, and internet companies to offer enhanced telecommunications services to business and residential customers. Among these services are voice and fax messaging, call answering, and web information services. Comverse also offers Intelligent Peripheral/Service Node, supporting next-generation personal communication services such as pre-paid wireless, mobile number portability, call screening, and mobile attendant functions. Sectors are breaking out all over the place and the next addition to the list may be the North American Telecommunications index (XTC.X), which moved right up to the $850 resistance level on Friday. This capped off an impressive week-long rally from the $780 level. CMVT has benefited from (or contributed to, depending on your perspective) this rally, rising from $19 to as high as $26.25 Wednesday morning. Since then, the stock has been consolidating its gains between $23-24, filling the Wednesday gap and preparing for the next leg of the rally. While the resilience of the bulls during this profit-taking phase has been impressive, we would really like to see a dip near the $22 level (the site of both the 10-dma ($22.03) and ascending trendline ($22.30)) before initiating new positions. Of course, the way this market has been acting, it wouldn't be out of the question to see the stock continue upwards without dipping that far. Aggressive traders might want to consider dipping their toes into the water near the $23 level, so long as buying support remains strong. Keep stops in place at $21, and watch for the XTC index to break out over support, confirming this bull still has some room to run. BUY CALL DEC-22*CQV-LX OI=1766 at $3.50 SL=1.75 BUY CALL DEC-25 CQV-LE OI= 771 at $2.20 SL=1.00 BUY CALL JAN-22 CQV-AX OI=2203 at $4.30 SL=2.75 BUY CALL JAN-25 CQV-AE OI=4733 at $3.10 SL=1.50 BUY CALL JAN-30 CQV-AF OI=2998 at $1.65 SL=0.75 Average Daily Volume = 6.10 mln IBM - Int'l Business Machines $114.50 (+0.42 last week) International Business Machines uses advanced information technology to provide customer solutions. The company provides value to its customers through a variety of solutions including technologies, systems, products, services, software and financing. IBM's three hardware product segments are comprised of Technology, Personal Systems and Enterprise Systems. Other major operations consist of a Global Services segment, a Software segment, a Global Financing segment and an Enterprise Investments segment. Despite the fact that it is looking a bit tired, IBM just keeps refusing to succumb to selling pressure. After succeeding in pushing the stock through the $111-112 resistance level a couple weeks ago, the bulls are tenaciously defending the stock every time sellers appear. Even in the wake of DELL's less than stellar earnings report, we only saw a dip to the $112.50 level on Friday. All that did was provide another bullish entry point and excuse for buyers to drive the price up into the close. As IBM danced around the $114 level all week, there were plenty of entry and exit points for short term traders who were able to trade the intraday charts. So long as support holds, we'd consider bounces above our $112 stop to be attractive for fresh entries, while weakness near the $118 resistance level will be a good trigger for taking profits. Eventually this range will break, but until then, it should provide traders with some consistent profits. BUY CALL DEC-110 IBM-LB OI= 8955 at $7.00 SL=5.00 BUY CALL DEC-115*IBM-LC OI= 7401 at $4.00 SL=2.50 BUY CALL DEC-120 IBM-LD OI=11477 at $2.05 SL=1.00 BUY CALL JAN-115 IBM-AC OI=18674 at $6.40 SL=4.50 BUY CALL JAN-120 IBM-AD OI=37472 at $4.00 SL=2.50 Average Daily Volume = 8.86 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 11-18-2001 Sunday 4 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1545_4.asp ************************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 ************************************************************** ************* NEW PUT PLAYS ************* KKD - Krispy Kreme $40.50 (+5.13 last week) Kripy Kreme is a branded specialty retailer of premium quality doughnuts. Krispy Kreme is a vertically integrated company structured to support and profit from the high volume production and sale of high quality doughnut products. Was it already baked into the cake? Actually, the doughnut? KKD reported third-quarter earnings last week that exceeded expectations. The company also raised guidance for its fiscal fourth-quarter and year. The question then becomes whether or not the good news had already been discounted into the stock ahead of the report. KKD rallied into its earnings report last week, which may have been a precursor to the good news. With the news out, the stock may not have anything to carry it higher over the short term. In addition, KKD is trading near the historical highs. Plus, the daily oscillators are in oversold territory and began to roll last Friday. The risks are weighted to the downside currently and we want to be there if KKD slides lower. Look for weakness early next week with a slide back below the $40 level. Short-term support could be provided by the $38.50 level. Rollovers around the $41 level have been working recently. Our stop is initially in place at $42.25. BUY PUT DEC-40*KKD-XH OI= 960 at $2.95 SL=1.75 BUY PUT DEC-35 KKD-XG OI=1498 at $1.20 SL=0.50 Average Daily Volume = 814 K WEBX - WebEx $26.43 (-7.67 last week) WebEx 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. Business travelers are once again taking to the air. They're staying in hotels, too. Bookings for flights and rooms rebounded in recent weeks, which revealed that businesses people are once again traveling. The rebound in business travel is hurting the demand for remote meeting services, such as the product that WEBX promotes. The stock has been on the slide for more than a week and looks to be headed lower over the short term. WEBX staged a sharp rally in the wake of the terrorist attacks as businesses scrambled to hold meetings via the Internet. But with renewed confidence in air travel, WEBX's product may fall back into a niche instead of a widely used tool of businesses. Bearish traders can look for a breakdown below the $25 level early next week for an entry point. Watch for volume to increase on any decline below $25. A relief rally could take WEBX back up to $30 where traders can look for a rollover. Stops are in place at $30.50 BUY PUT DEC-30 UWB-XF OI= 667 at $5.60 SL=4.00 BUY PUT DEC-25*UWB-XE OI=1446 at $2.75 SL=1.75 Average Daily Volume = 1.46 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 ************************************************************** ***************** CURRENT PUT PLAYS ***************** BRL - Barr Labs $65.19 (-2.46 last week) Barr Labs is a pharmaceutical company engaged in the development, manufacture, and marketing of generic and proprietary prescription pharmaceuticals. The company was formed in October 2001 as the result of a merger between a subsidiary of Barr Labs and Duramed Pharmaceuticals. BRL didn't follow-through to the upside last Friday. Its fractional positive close could've been a product of two factors: Strength in Drugs (DRG.X) and options expiration. Do you find it interesting that BRL closed right on the $65 level last Friday? Isn't that level a strike price? Anyway, the stock's failure to move higher has us thinking one thing: rollover. Weakness in the DRG.X early next week should pressure BRL lower. The stock appears to be running out of steam after the company raised its guidance last Wednesday, which caused the big pop higher. With momentum abating, bearish traders might target an entry near the $66 to $66.50 range early next week. Those looking for more confirmation of weakness might wait for the DRG.X to breakdown and look for BRL to decline below the $64 level on active volume. BUY PUT DEC-65*BRL-XM OI=611 at $4.80 SL=3.50 BUY PUT DEC-60 BRL-XL OI=609 at $2.65 SL=1.50 Average Daily Volume = 1.3 mln NOC - Northrup Gruman $91.50 (-0.89 last week) Northrop Gruman is a global aerospace and defense company. The company provides technologically advanced products, services and solutions in defense and commercial electronics, systems integration, information technology and non-nuclear shipbuilding and systems. The bounce in the defense sector was due. It came last Friday. Whether or not it was a one day relief rally remains to be seen. The broad sector rebound in defense issues carried NOC higher. The stock closed at its high for the day, which is discouraging going into next week's trading. Volume was extremely heavy in NOC Friday, which was a product of the company's offering. NOC announced Friday morning that it would offer 8 million shares of common at $88.50 and 6 million shares of a senior equity holding. NOC's strength could've been in part from the offering, but the majority of the rally was due to the bounce in the broader defense sector. With as oversold as NOC is, it may rally for a few more days before pulling back. But a rally up to resistance would offer bearish traders a chance to enter put positions at a favorable level. However, a further rally would be detrimental to those holding put plays. Make sure to have the appropriate risk management measures in place. As for a possible rollover level, look for resistance to form near the $95 level, or potentially higher at $97. Continue to monitor others in the group, such as ATK, GD, RTN, LLL, BA, and LMT, to gain better insight into the defense sector's direction. BUY PUT DEC-95*NOC-XS OI=239 at $5.70 SL=4.00 BUY PUT DEC-90 NOC-XR OI=857 at $3.00 SL=2.00 Average Daily Volume = 1.19 mln MXIM - Maxim Integrated Products $54.10 (+2.23 last week) MXIM designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. MXIM's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. The Semiconductor sector (SOX.X) rallied hard from the October lows right up to major resistance near $550 last week. The big question is whether that bull still has any grass in the tank. If you think the answer is 'no', then MXIM just might be your sort of play. After a rally from $32 to $57 as of Wednesday morning, MXIM is due to take a break and all we have to do is wait for confirmation that the SOX is weakening and we'll be in the play. The stock has been riding an ascending trendline (currently $52.75) over the past 6 weeks and if it breaks below that level (especially on strong volume) with the SOX weakening, that would make for a great bearish entry. And the position will just pick up speed to the downside after falling below the $51 support level. Alternatively, failed intraday rallies near the $57 resistance level could also make for attractive entry points, as long as the SOX can't clear the $550 level. Once MXIM breaks down, it won't find major support until the $46-47 area, and that will be a great spot to harvest some profits. Stops are set at $59. BUY PUT DEC-55*XIQ-XK OI=1072 at $4.80 SL=3.00 BUY PUT DEC-50 XIQ-XJ OI= 628 at $2.65 SL=1.25 BUY PUT DEC-45 XIQ-XI OI=2049 at $1.35 SL=0.75 Average Daily Volume = 5.80 mln ***** LEAPS ***** Bullish Scent Is In The Air By Mark Phillips Contact Support There is no question that the bulls have been in control for the past couple months, driving the markets well off their September lows, and quite frankly much higher than I expected would be possible in such a short span of time. The dramatic progress on the war front along with positively-received economic reports are two of the dominant bullish factors. And that has left an unmistakable bullish scent in the air. I have drawn retracement brackets on all the major indices, starting with the May highs and ending at the September lows, and the results are impressive and interesting. All three indices have reached or exceeded their 50% retracement levels, bringing up the question of how much more upside there can be without some serious profit taking. I've listed the current value and important retracement levels for each of the big three indices for reference below. Index Current 38% 50% 62% Dow Industrials 9867 9420 9787 10153 S&P 500 1138 1097 1138 1178 NASDAQ Composite 1898 1746 1855 1963 Pardon my skepticism, but I think the scent is starting to change. The bulls have spent the past 6 weeks gorging themselves on stocks and we all know what comes next...and that scent is not nearly as pleasant. As I discussed on Wednesday, long-term charts do not yet indicate that the bear market is done chewing up bullish investors. All of the recent bullish action seems to be based on expectations of tangible economic improvement by the middle of next year. Could it happen? I suppose so, but I am still unconvinced. Two of the economic reports out this week were taken as positive, but under the headline numbers are lurking some potential problems. First we had Retail Sales jumping more than 7% for the month of October, but most of that gain came from autos, thanks to the industry's free financing program. It looked good for one month, but isn't that just front-loading expenditures that would have happened anyways? What do you think the numbers will look like over the next several months? I'm betting they are going to dry up. And how about the Employment report that showed Initial Claims dropping by 8000 over the prior month. That's fine, but continuing claims rose to an 18-year high of more than 3.8 million! Where's the beef? Fewer new jobless claims, but those on the unemployment rolls are not finding new jobs very quickly. And did you notice the fresh round of layoffs in the Brokerage industry? Goldman Sachs, Merrill Lynch and Salomon Smith Barney are among those that are cutting large portions of their staffs in the Investment Banking arena. Is that a sign of pending economic recovery? Not in my book. Did you notice that Industrial Production fell again in October, and is now in the longest sustained downturn since the Great Depression? So the markets are rising (and sharply too!) in anticipation of an improving economy, but the evidence isn't there yet. I lost count of how many times I heard speculation over the past 2 weeks that this is the birth of the next bull market. Could the markets continue to rise from current levels? Sure, but I am still leaning towards one more sizable pullback. That doesn't mean it will happen next week, but it can't be far off. I'm a technician first and fundamental analyst second, so I prefer to rely on the charts. And of the 500+ charts I looked at on Friday, nearly all of them have daily and weekly Stochastics oscillators topped out in overbought territory. While they can remain overbought for quite some time as the markets work higher, this is definitely NOT the environment in which to initiate new long-term bullish positions. Accordingly, you can see that we didn't feature any new plays this week. While I have lots of candidates that I want to consider, I sure don't want to try it until we see some profit taking from current levels. Which brings me back to the retracement levels listed above. With all the major indices trading near their 50% retracements, I think we have two possibilities to consider: either we work higher until finding heavy resistance near the 61% retracement level or we fail to hold above the 50% level and head back towards the 38% level. In either case, as long-term investors, we want to see how the markets hold up in the face of profit taking when it occurs before we start initiating new bullish positions. Given the constructive rally over the past 2 months, with the VIX falling back into its historic range between 20-30 (27.17 on Friday) and the sharp rebound in bond yields, I think it is entirely possible that we have seen THE BOTTOM in the markets. However, equities have risen too far, too fast to consider new long positions near current levels. Our job now is to create a Watch List of stocks that should both provide us with attractive entries in the months ahead as the economic picture becomes clearer and produce handsome upside profits as the markets continue to undo the damage done over the past 20 months. The selloff that followed the events of September 11th attacks stopped us out of several good plays and sadly had me erring on the side of excess caution since then. The result is that we missed out on some stellar gains over the past couple months. But here's the important point. If (and it's still a big 'IF') this is the beginning of a new bull market, there will still be many opportunities (at much better entry points) to get aboard. For now I'm more than happy to see the recent improvements that will pave the way for solid bullish gains as we move back into an economic expansion. Due to the recent positive market action, I have made several changes to the Watch List entry targets. Tyco International (NYSE:TYC) has had an incredible run, and is now once again nearing major resistance near $59. The good news is that much of the overhead supply has now been absorbed, and I no longer expect to see the stock trade under the $50 level. We've seen impressive strength in shares of Broadcom (NASDAQ:BRCM), Nokia (NYSE:NOK) and EMC Corp. (NYSE:EMC) in recent weeks, which has prompted me to raise the targets on all these plays. There is one play that I'm having second thoughts on though. This week I looked at the Point and Figure (PnF) chart on Merck (NYSE:MRK) and noticed that it is still caught under a persistent bearish resistance line. While entries near the $60-61 level might prove to be profitable, I have decided to put that play on hold until I see some constructive movement above that resistance line. While we're on the subject of PnF charts, I need to say a few words about our eBay (NASDAQ:EBAY) Put play. We took a position last week and I set the stop at $62. Unfortunately, I neglected to look at the PnF chart before setting that stop. After reviewing the chart this past week, I've decided that the $64 level is more appropriate for managing risk as well as keeping us in the play as long as is practical. As a matter of fact, the run up to the $62 level last week could have made for an attractive entry point in the play. So let's summarize. We've had an impressive rally, and it may not be over yet. But we need to see some profit taking before stocks will be able to advance much further. That profit taking will help to build the base from which the new bull market can be born, provided that the next set of lows are solidly above the September lows. When that correction occurs, we'll look to initiate new positions on several new plays (some of which are on the Watch List and several of which aren't yet there) based on bounces from solid support levels that correspond to oversold weekly charts. It takes patience, but it is my firm belief that that patience will be richly rewarded over the next year if the economy truly begins to recover. Take advantage of the holiday-shortened week and enjoy some time away from the markets. I for one am looking forward to some additional time with my family. Mark Phillips Contact Support LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: LLY 10/17/01 '03 $ 75 VIL-AO $10.80 $13.00 20.37% $ 74 '04 $ 80 LZE-AP $12.20 $14.80 21.31% $ 74 CPN 10/25/01 '03 $ 25 OLB-AE $ 6.00 $ 7.80 30.00% $ 21 '04 $ 30 LZC-AF $ 6.50 $ 8.20 26.15% $ 21 Puts: AIG 11/07/01 '03 $ 80 VAF-MP $ 8.40 $ 8.60 2.38% $86.50 '04 $ 80 LAJ-MP $10.60 $10.90 2.83% $86.50 EBAY 11/08/01 '03 $ 50 OIY-MJ $12.50 $11.10 -11.20% $64 '04 $ 50 KAF-MJ $16.20 $14.70 - 9.26% $64 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: GE 08/12/01 $36 JAN-2003 $ 40 VGE-AH CC JAN-2003 $ 30 VGE-AF JAN-2004 $ 40 LGR-AH CC JAN-2004 $ 30 LGR-AF TYC 09/16/01 $50 JAN-2003 $ 55 VYL-AK CC JAN-2003 $ 50 VYL-AJ JAN-2004 $ 60 LPA-AL CC JAN-2004 $ 50 LPA-AJ NOK 09/23/01 $20-21 JAN-2003 $ 25 VOK-AE CC JAN-2003 $ 20 VOK-AD JAN-2004 $ 25 LOK-AE CC JAN-2004 $ 20 LOK-AD BRCM 10/28/01 $31-32 JAN-2003 $ 35 OGJ-AG CC JAN-2003 $ 30 OGJ-AF JAN-2004 $ 35 LGJ-AG CC JAN-2004 $ 30 LGJ-AF EMC 11/04/01 $12-13 JAN-2003 $12.5 VUE-AV CC JAN-2003 $ 10 VUE-AB JAN-2004 $12.5 LUE-AV CC JAN-2004 $ 10 LUE-AB MRK 11/11/01 HOLD JAN-2003 $ 65 VMK-AM CC JAN-2003 $ 60 VMK-AL JAN-2004 $ 70 LMK-AN CC JAN-2004 $ 60 LMK-AL PUTS: None New Portfolio Plays None New Watchlist Plays None Drops None ************************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 11-18-2001 Sunday 5 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/1545_5.asp ************************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 ************************************************************** ************* COVERED CALLS ************* Trading 101: Covered-Calls On LEAPS By Mark Wnetrzak With the recent recovery in the stock market, we have received a number of new requests for information about writing covered calls on LEAPS. Today's narrative provides an explanation of the basic concepts and techniques that will help you profit from this conservative, long-term strategy. LEAPS can be an ideal investment tool for the option trader who expects future growth in an underlying stock but does not want to make the substantial capital outlay required for entering an outright position in the issue. With expiration dates months or years in the future, time decay occurs very slowly for LEAPS so they are much less affected by premium erosion; the fundamental drawback to option ownership. This unique quality allows these instruments to offer an effective way to benefit from a stock's appreciation without incurring the higher costs associated with the actual purchase of shares. Buying LEAPS is considered an excellent strategy for conservative investors that finds the happy medium between aggressive, short-term option trading and simply buying the underlying issue. Covered-call writing is a stock-option trading strategy that many traders use when they are looking for a conservative risk/return profile, while maintaining a meaningful profit potential in either neutral to bullish market environments. An investor will usually write a covered call to generate income, collecting a premium for the sale of an option against a particular stock in his portfolio. This strategy can also be used with LEAPS, but it differs because it does not involve direct ownership of shares of the underlying stock; LEAPS are substituted for the long position. The technique is similar to a calendar spread (or time spread). The strategy generally consists of the sale of one call and the simultaneous purchase of another call, both on the identical underlying stock, with the same strike price but one option near-term and the other option further out. The theory behind calendar-spread profits is based on a neutral philosophy in which time erodes the value of the near-term option at a faster rate than the far-term option. The most common type of time spread is bullish, where the price of the underlying issue is some distance below the strike price of the options. This position is somewhat speculative with low initial cost 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 stock consolidates, allowing the sold option to expire and then it eventually rallies above the long option's strike price. Covered-calls with LEAPS positions can be constructed for any market outlook or bias on both volatile and stagnant positions. The strategy is best initiated when the front-month options are trading at a premium with respect to longer-term volatility. Most investors prefer to establish these positions at least 3-6 months before the LEAPS expire, capitalizing on the ability to sell a number of short-term options. This is an added benefit that comes from writing calls against the long position on a regular basis; lowering the overall cost of the LEAPS as each short-term option expires. The basic concept in this type of spread is selling time value in the call options when they are overpriced (high implied volatility) and buying it back, if necessary, when the options return to intrinsic value. Ideally, the trader would like to have the stock finish just below the sold strike when the near-term option expires. However, when the short-term position is in-the-money on the last day of the strike period, you must buy it back so that you don't have to exercise the LEAPS to cover your obligation; that would defeat the purpose of the strategy. Then, at the beginning of each strike period, you sell the next month's call to further reduce the cost basis of the LEAPS. Larry McMillan's book, "Options as a Strategic Investment" has some excellent information on calendar spreads and other time selling strategies. It is available in the OIN bookstore. Good Luck! SUMMARY OF PREVIOUS CANDIDATES ***** Note: Margin not used in calculations. Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield AVNT 11.30 10.48 NOV 10.00 2.30 *$ 1.00 16.1% GSPN 11.04 12.47 NOV 10.00 1.85 *$ 0.81 12.8% INFA 7.99 11.79 NOV 7.50 1.20 *$ 0.71 11.4% RETK 21.89 28.80 NOV 20.00 2.70 *$ 0.81 9.2% AMLN 8.59 8.77 NOV 7.50 1.65 *$ 0.56 7.0% ARXX 14.61 17.01 NOV 12.50 2.50 *$ 0.39 7.0% ISSX 19.01 30.09 NOV 15.00 5.10 *$ 1.09 6.8% ANAD 16.95 18.80 NOV 15.00 2.40 *$ 0.45 6.7% KROL 13.75 14.40 NOV 12.50 2.10 *$ 0.85 6.3% LWIN 16.33 19.03 NOV 15.00 1.95 *$ 0.62 6.2% TERN 9.22 13.19 NOV 7.50 2.10 *$ 0.38 5.8% PCYC 23.15 22.52 NOV 20.00 3.90 *$ 0.75 5.6% IMDC 21.30 23.67 NOV 20.00 1.80 *$ 0.50 5.6% NMTC 25.44 25.08 NOV 22.50 3.50 *$ 0.56 5.5% FFIV 15.43 21.51 NOV 12.50 3.50 *$ 0.57 5.2% ALTR 22.65 25.05 NOV 20.00 3.10 *$ 0.45 5.0% BRCD 25.36 29.47 NOV 17.50 8.80 *$ 0.94 4.9% CIEN 17.13 19.42 NOV 12.50 5.30 *$ 0.67 4.9% CELG 33.44 35.91 NOV 30.00 4.40 *$ 0.96 4.8% ISSX 25.16 30.09 NOV 20.00 6.00 *$ 0.84 4.8% AFCI 21.98 20.60 NOV 17.50 5.20 *$ 0.72 4.7% OVER 19.19 24.24 NOV 15.00 4.80 *$ 0.61 4.6% BRCD 24.69 29.47 NOV 17.50 7.90 *$ 0.71 4.6% MCAF 21.35 26.52 NOV 17.50 4.70 *$ 0.85 4.4% GNTA 14.40 16.55 NOV 12.50 2.25 *$ 0.35 4.2% MEDC 21.20 16.05 NOV 17.50 4.20 $ -0.95 0.0% TELM 6.20 5.65 DEC 5.00 1.80 *$ 0.60 9.9% VTSS 11.61 13.45 DEC 10.00 2.45 *$ 0.84 6.6% GMST 22.70 25.54 DEC 20.00 4.30 *$ 1.60 6.3% RMBS 8.88 9.56 DEC 7.50 1.95 *$ 0.57 6.0% GNTA 16.75 16.55 DEC 15.00 2.85 *$ 1.10 5.7% SURE 12.20 9.75 DEC 10.00 3.10 $ 0.65 5.2% MCDT 18.80 21.10 DEC 15.00 4.80 *$ 1.00 5.2% *$ = Stock price is above the sold striking price. Comments: Our conservative portfolio did quite well during the month of November as the overall bullish momentum did not wane. Only one position was a disappointment and there was no news on why Med-Design (NASDAQ:MEDC) dropped so drastically on Friday. The horrid action suggests a quick exit to limit losses may be prudent. Trimble Navigation (NASDAQ:TRMB), which was closed last week, did manage to sneak into positive territory. The move should have offered a favorable second-chance exit or a reasonable new cost basis after rolling forward and/or down. As for December, the technical signals in Tellium (NASDAQ:TELM) are a bit worrisome even though on Thursday, Tellium's manage- ment signed new agreements to extend the lock-up period for their shares. We will keep a close watch on the issue as it moves towards support. SureBeam (NASDAQ:SURE) is also on this week's watch-list as the pullback towards support appears a bit excessive. All we are hoping for is a lateral consolidation. Positions Closed: Trimble Navigation (NASDAQ:TRMB) 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 AMZN 8.95 DEC 7.50 ZQN LP 1.90 5984 7.05 35 5.5% CRXA 14.74 DEC 12.50 CVQ LV 2.90 25 11.84 35 4.8% EXFO 14.18 DEC 12.50 FQO LV 2.55 23 11.63 35 6.5% JDSU 11.60 DEC 10.00 UQD LB 2.20 25969 9.40 35 5.5% NTPA 5.68 DEC 5.00 NQD LA 1.10 5064 4.58 35 8.0% PXLW 14.95 DEC 12.50 PUO LV 3.30 279 11.65 35 6.3% QSFT 22.64 DEC 20.00 QUD LD 4.10 109 18.54 35 6.8% Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield NTPA 5.68 DEC 5.00 NQD LA 1.10 5064 4.58 35 8.0% QSFT 22.64 DEC 20.00 QUD LD 4.10 109 18.54 35 6.8% EXFO 14.18 DEC 12.50 FQO LV 2.55 23 11.63 35 6.5% PXLW 14.95 DEC 12.50 PUO LV 3.30 279 11.65 35 6.3% AMZN 8.95 DEC 7.50 ZQN LP 1.90 5984 7.05 35 5.5% JDSU 11.60 DEC 10.00 UQD LB 2.20 25969 9.40 35 5.5% CRXA 14.74 DEC 12.50 CVQ LV 2.90 25 11.84 35 4.8% 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). ***** AMZN - Amazon.com $8.95 *** Shopping For A Bargain *** Amazon.com (NASDAQ:AMZN) is a Website where customers can find and discover anything they may want to buy online. The company lists millions of unique items in categories such as books, music, DVDs, videos, consumer electronics, toys, camera and photo items, software, computer and video games, tools and hardware, lawn and patio items, kitchen products, and wireless products. Through its Amazon Marketplace, Auctions and zShops services, any business or individual can sell virtually anything to the company's approximately 30 million cumulative customers. The company also operates four internationally focused Websites. Analysts believe business for online retailers is picking up following the Sept. 11 attacks. The positive retail data this week helped Amazon's shares rally on heavy volume as investors speculate on consumer demand in the holiday season. For those who agree with a bullish outlook, this position offers a great cost basis near technical support. DEC 7.50 ZQN LP LB=1.90 OI=5984 CB=7.05 DE=35 TY=5.5% ***** CRXA - Corixa $14.74 *** New Member: NASDAQ Biotech Index *** Corixa (NASDAQ:CRXA) is a developer of immunotherapies with a commitment to treating and preventing autoimmune diseases, cancer and infectious diseases by understanding and directing the immune system. The company has a broad range of technology platforms, which enable both integrated vaccine product design and the use of its separate proprietary technologies (antigens, monoclonal antibodies, adjuvants, antigen delivery technology and tumor activated peptide, or TAP, pro-drug technology) on a stand-alone, POWERED BY CORIXA basis. Corixa is awaiting word from the FDA regarding its application for Bexxar, an experi- mental lymphoma drug, but has not been scheduled for the FDA's December agenda. On Monday, November 19, Corixa, will be added to the NASDAQ Biotechnology Index, which should help buoy the current bullish momentum. Reasonable speculation with little chance of adverse news prior to the December expiration. DEC 12.50 CVQ LV LB=2.90 OI=25 CB=11.84 DE=35 TY=4.8% ***** EXFO - Electro-Optical Engineering $14.18 *** Bottom-Fishing *** Electro-Optical Engineering (NASDAQ:EXFO) designs, manufactures and markets fiber-optic test, measurement and monitoring equipment and instruments for the telecommunications industry. The company's Portable and Monitoring Division provides solutions primarily to telecommunications carriers, cable television companies, public utilities, and private network operators, as well as third-party installers and equipment rental companies. The Industrial and Scientific Division designs an extensive line of high performance instruments for manufacturers of optical components, optical modules and optical networking systems, as well as for research and development markets. EXFO recently acquired Avantas Networks which should help the company gain a highly experienced research and development team to penetrate the critical protocol-layer testing market and double its addressable market size. We simply favor the bullish change in character as EXFO forges a Stage I base. DEC 12.50 FQO LV LB=2.55 OI=23 CB=11.63 DE=35 TY=6.5% ***** JDSU - JDS Uniphase $11.60 *** Technicals Only! *** JDS Uniphase (NASDAQ:JDSU) designs, develops, manufactures and distributes fiber optic components, modules and subsystems for the fiber optic communications industry. Their products are deployed in advanced optical communications networks for the telecommunications and cable television industries. The company has two principal operating segments through which it develops and manufactures its telecommunications products: Amplification and Transmission; and Wavelength Division Multiplexing (WDM), Switching and Thin Film Filters. Investor are starting to speculate that the telecommunications sector is finally forming a bottom. Over the last 6 months, JDS Uniphase has been forging a "saucer bottom" and has recently moved above the October highs. With room to rally and support near the cost basis, investors can conservatively speculate on the company's future with this position. DEC 10.00 UQD LB LB=2.20 OI=25969 CB=9.40 DE=35 TY=5.5% ***** NTPA - Netopia $5.68 *** Bracing For A Rally? *** Netopia (NASDAQ:NTPA) develops, markets, and supports broadband Internet equipment and e-commerce Web platforms for small and medium-size businesses. The company's platforms are designed to enable carriers and service providers to create and offer value- added, bundled service offerings for their business customers. These bundled service offerings often include digital subscriber line service bundled with back-up, bonding, virtual private networking, and Website and e-store hosting. Exactly what did Alan Lefkof, Netopia's President and CEO, and Bill Baker, Netopia's Senior Vice President and CFO, say at the UBS Warburg Global Telecom Conference on November 13? If you want to listen, go to www.netopia.com and click on the Conference Highlights link. Or maybe it was a delayed post-earnings rally? We like the rally back above NTPA's 150-dma, which suggests further upside movement in the future. DEC 5.00 NQD LA LB=1.10 OI=5064 CB=4.58 DE=35 TY=8.0% ***** PXLW - Pixelworks $14.95 *** A Double-Bottom (Twice!) *** Pixelworks (NASDAQ:PXLW) is a designer, developer and marketer of semiconductors and software for the advanced display industry. The company develops products that integrate a microprocessor, memory and image processing circuits that function as a computer on a single chip, or system-on-a-chip. Pixelworks develops its products for the most technically demanding advanced display devices; multimedia projectors, multimedia flat panel monitors, and high-definition televisions. In October, Pixelworks reported record 3rd-quarter revenue of $24.1 million, an increase of 58% over last year, and record pro forma net income of $3.9 million. Investors are beginning to concentrate on the future and have reacted favorable to Pixelworks' presentation at the Deutsche Banc Alex. Brown 2001 Technology Conference. We simply favor the formation of a short-term (and long-term) "double-bottom" pattern and the current bullish momentum in the sector. DEC 12.50 PUO LV LB=3.30 OI=279 CB=11.65 DE=35 TY=6.3% ***** QSFT - Quest Software $22.64 *** Software Sector *** Quest Software (NASDAQ:QSFT) provides application and database management software solutions that enhance its customers' return on their information technology (IT) investments. Each product family consists of an integrated suite of software tools that enable IT organizations to manage and administer packaged and internally developed business applications and the databases on which they run. The types of applications Quest supports with its products include financial reporting systems, enterprise resource planning systems, customer relationship management systems, B2B e-commerce systems, human resources systems, supply chain management systems and corporate messaging systems. Quest's 3rd-quarter suffered from the compound effects of slow IT spending and the disruption caused by the Sept. 11 attack. Quest appears to be positioned competitively for an economic recovery and should benefit from their product cycle over the next several quarters. The support area near $17.50 (the October high) makes this a favorable speculation play for investors who are neutral to bullish on the sector. DEC 20.00 QUD LD LB=4.10 OI=109 CB=18.54 DE=35 TY=6.8% ***** ***************** 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 RBAK 5.30 DEC 5.00 BUK LA 0.95 1000 4.35 35 13.0% SONS 5.74 DEC 5.00 UJS LA 1.35 4212 4.39 35 12.1% PMCS 23.27 DEC 20.00 SQL LD 4.80 2713 18.47 35 7.2% AVNX 8.73 DEC 7.50 GUH LU 1.80 614 6.93 35 7.1% TVLY 17.95 DEC 15.00 QUT LC 3.90 43 14.05 35 5.9% GMST 25.54 DEC 22.50 QLF LX 4.40 732 21.14 35 5.6% MANU 12.60 DEC 10.00 ZUQ LB 3.20 6103 9.40 35 5.5% OPWV 12.09 DEC 10.00 UGE LB 2.65 6113 9.44 35 5.2% ***************** NAKED PUT SECTION ***************** Stock Buying Basics: Timing The Entry By Ray Cummins Determining when to enter the market is one of the most difficult tasks that new investors encounter in their quest for success. A thorough grasp of technical analysis is only one aspect of the knowledge and skill required to prevail in the current volatile environment. For any trader, the end objective is profit and the most effective method to achieving this result is to form a view that eventually proves to be accurate. At the same time, one must also be positioned to obtain the greatest return from the correct forecast of future market trends. That step requires a complete mastery of trading techniques and the ability to correctly apply a specific strategy to any particular situation. With this simple approach, the route to consistent profits is simply a matter of identifying the trend and using a proven trading system to exploit each position for maximum potential. Before an investor can successfully initiate a position, there are a number of factors to consider. The most important being the overall condition of the market and the economy in general. What types of indications are bonds, basic commodities and currencies offering in relation to the outlook for equities? Is the stock market rebounding due to lower interest rates and when will the Federal Reserve's prolonged battle against recession expend its maximum effect? Will the recent influence of the weakening dollar significantly reduce profits in the leading American corporations over the long-term and more importantly, will their bottom-line growth be restored in the course of renewed demand and economic expansion? Finally, is all the available information reflected in the current share values or is the market's recovery simply due to the public's present interpretation of the most popular news items. As you can see, a successful investor must possess a comprehensive understanding of market fundamentals to interpret and act upon the numerous statistical releases and ongoing analysis of financial trends. Technical and sentimental analyses are also very effective means to determine the future direction of the market. The key is to identify situations in which the "trend is (really) your friend" and conversely, when it is more appropriate to have a contrarian approach. Some questions that should be answered include: Is the market currently in a strong trend and if so, how far can it go? Has the ideal opportunity already passed or is it viable to enter a new position at this time? In short, how many traders have the same outlook and have they previously acted on that assessment or is there additional potential for favorable activity in the issue? A common a rule of thumb is that when all the retail participants finally begin to support the movement, it is generally a good time to think about exiting the position. One concept that cannot be overlooked is the value of historical indicators. Professional traders pay serious attention to them and they have too great an impact on equity markets to be disregarded. All investors should understand at least the basic chart patterns, such as support and resistance and simple moving averages. Complex indicators such as Stochastics and Moving Average Convergence/Divergence (MACD) can be used, as a trader gains experience, to help identify overbought and oversold situations. In addition, information sources need to be studied as part of the process of market awareness. Analysis from well known gurus, screening services, charting products and statistics and other related data can provide valuable assistance. Stocks and their respective industries, and the overall condition of the market are so intertwined that in most cases, the need to remain in tune with current attitudes is paramount to success. Determining the future direction of the market is only the first step in profiting from a particular position. Investors need to consider a variety of issues that will affect the strategy used to achieve the highest return from an accurate forecast of market trends. First, what is the time frame of the expected movement and is it critical to enter the trade at specific point or can the position be initiated gradually as the activity progresses? What constitutes the ideal "buy" or "sell" signal and is there a chance the indications will be incorrect? What is the likely size of the movement, and is the market expected to gap or move slowly in the predicted direction? Is there any limitation to the magnitude of the movement (resistance/support) and are there any upcoming events or circumstances that might cause a reversal in the market? If the position is based on technical analysis, where should the stop-loss orders and profit targets be placed? Will it be practical to exit the trade incrementally, achieving some profit from future favorable movement, or will quick actions and minimal exposure be more successful overall? Finally, how convinced are you that the outlook for the position is correct and that the risk is worth the potential reward? Good Luck! *** WARNING!!! *** Occasionally a company will experience catastrophic news causing a severe drop in the stock price. This may cause a devastatingly large loss which may wipe out all of your smaller gains. There is one very important rule; Don't sell naked puts on stocks that you don't want to own! It is also important that you consider using trading STOPS on naked option positions to help limit losses when the stock price drops. Many professional traders suggest closing the position when the stock price falls below the sold strike or using a buy-to-close STOP at a price that is no more than twice the original premium from the sold option. SUMMARY OF PREVIOUS CANDIDATES ***** Stock Price Last Call Strike Price Gain Potential Symbol Picked Price Month Sold Picked /Loss Mon. Yield PWAV 15.52 17.96 NOV 12.50 0.40 *$ 0.40 24.2% MRVL 27.73 32.80 NOV 22.50 0.45 *$ 0.45 15.5% KLIC 17.34 17.30 NOV 15.00 0.35 *$ 0.35 15.4% GNSS 47.85 43.69 NOV 40.00 0.80 *$ 0.80 14.4% CNXT 10.15 13.84 NOV 7.50 0.35 *$ 0.35 12.8% TTN 27.00 23.03 NOV 22.50 0.60 *$ 0.60 12.6% SURE 13.25 9.75 NOV 7.50 0.25 *$ 0.25 12.5% FFIV 16.55 21.51 NOV 12.50 0.30 *$ 0.30 12.0% SMTC 41.69 38.40 NOV 35.00 0.55 *$ 0.55 11.3% GNSS 39.18 43.69 NOV 30.00 0.90 *$ 0.90 11.2% OVER 25.50 24.24 NOV 20.00 0.40 *$ 0.40 10.5% JNPR 23.66 25.60 NOV 15.00 0.50 *$ 0.50 10.4% PWAV 16.20 17.96 NOV 12.50 0.25 *$ 0.25 10.4% AFFX 30.04 33.80 NOV 25.00 0.35 *$ 0.35 10.4% SMTC 40.21 38.40 NOV 32.50 0.60 *$ 0.60 9.7% EMLX 24.65 26.58 NOV 15.00 0.45 *$ 0.45 9.1% CELG 34.58 35.91 NOV 30.00 0.40 *$ 0.40 9.0% SAGI 21.65 23.90 NOV 17.50 0.40 *$ 0.40 8.8% NETA 18.38 21.90 NOV 15.00 0.45 *$ 0.45 8.8% RFMD 24.30 27.02 NOV 15.00 0.55 *$ 0.55 8.8% IMMU 16.30 20.71 NOV 12.50 0.35 *$ 0.35 8.4% CMNT 15.25 18.80 NOV 12.50 0.35 *$ 0.35 8.2% AFFX 31.70 33.80 NOV 25.00 0.35 *$ 0.35 7.6% BRCM 31.80 45.81 NOV 20.00 0.60 *$ 0.60 7.5% QLGC 37.06 46.66 NOV 22.50 0.65 *$ 0.65 7.0% STE 23.24 22.65 NOV 20.00 0.30 *$ 0.30 6.8% WEBX 29.77 26.43 NOV 20.00 0.35 *$ 0.35 6.0% QLGC 38.50 46.66 NOV 22.50 0.45 *$ 0.45 6.0% VRTS 29.08 38.90 NOV 17.50 0.30 *$ 0.30 5.3% NTAP 16.51 15.95 DEC 12.50 0.65 *$ 0.65 11.9% IMNY 7.24 7.35 DEC 5.00 0.25 *$ 0.25 10.7% MANU 10.66 12.60 DEC 7.50 0.35 *$ 0.35 10.2% SLAB 28.26 28.62 DEC 22.50 0.85 *$ 0.85 9.5% CNXT 13.37 13.84 DEC 10.00 0.30 *$ 0.30 7.3% MACR 22.08 21.98 DEC 17.50 0.45 *$ 0.45 6.7% MCSI 24.00 22.40 DEC 20.00 0.50 *$ 0.50 5.9% *$ = Stock price is above the sold striking price. Comments: The month of November offered some great opportunities for option traders and the Naked-Puts portfolio benefited from the recent bullish activity, finishing with an outstanding 100% success-rate. Even the position that was closed early QLT Inc. (NASDAQ:QLTI) ended the expiration period positive and the outlook for December is cautiously optimistic. The only issue on our watch-list is Mcsi Inc. (NASDAQ:MCSI) and if MCSI's share value closes below the near-term technical support at $22, we will consider an early-exit in the play. Positions Closed: QLT Inc. (NASDAQ:QLTI) 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 CREE 25.25 DEC 20.00 CVO XD 0.45 333 19.55 35 7.1% LVLT 6.82 DEC 5.00 HGY XA 0.30 3667 4.70 35 15.7% MCDT 21.10 DEC 15.00 DXZ XC 0.50 81 14.50 35 9.2% PMCS 23.27 DEC 15.00 SQL XC 0.45 3015 14.55 35 7.7% SRNA 22.90 DEC 17.50 NHU XW 0.50 77 17.00 35 8.6% TERN 13.19 DEC 10.00 TUN XB 0.30 280 9.70 35 8.9% WGRD 11.92 DEC 10.00 RUH XB 0.60 0 9.40 35 15.1% 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 LVLT 6.82 DEC 5.00 HGY XA 0.30 3667 4.70 35 15.7% WGRD 11.92 DEC 10.00 RUH XB 0.60 0 9.40 35 15.1% MCDT 21.10 DEC 15.00 DXZ XC 0.50 81 14.50 35 9.2% TERN 13.19 DEC 10.00 TUN XB 0.30 280 9.70 35 8.9% SRNA 22.90 DEC 17.50 NHU XW 0.50 77 17.00 35 8.6% PMCS 23.27 DEC 15.00 SQL XC 0.45 3015 14.55 35 7.7% CREE 25.25 DEC 20.00 CVO XD 0.45 333 19.55 35 7.1% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** CREE - Cree Inc. $25.25 *** Chip Sector Leader! *** Cree (NASDAQ:CREE) develops and makes compound semiconductor materials and electronic devices made from commercialize silicon carbide (SiC) and gallium nitride (GaN). The company operates its business in two segments: the Cree segment, which consists of its SiC based products; and the UltraRF segment, which consists of radio frequency (RF) transistors and amplifiers on a silicon platform. The company's customers include Siemens AG, Sumitomo Corporation and Spectrian. In mid-October, Cree posted favorable earnings, exceeding consensus EPS expectations for the quarter on gross margins that increased to 46%. The CEO says they intend to continue to leverage their strong financial position by investing in development activities designed to drive both their operating performance and new product pipeline. The outlook is optimistic and traders have supported the issue since the report. Our play offers a profit even with a consolidation from the recent rally. DEC 20.00 CVO XD LB=0.45 OI=333 CB=19.55 DE=35 TY=7.1% ***** LVLT - Level Three $6.82 *** Speculation Only! *** Level 3 Communications (NASDAQ:LVLT) and its subsidiaries provide a broad range of integrated communications services, and engage in communications, information services and coal mining. Level Three is a facilities-based provider, a provider that owns or leases a substantial portion of the plant, property and equipment necessary to provide its services. The company has also created, by constructing its own assets, and through a combination of new purchases and leasing of facilities, the Level Three Network; an international, facilities-based communications system to provide services that employ and leverage rapidly improving underlying optical and Internet Protocol technologies. Shares of Level 3 rallied in early November after the company announced it signed an agreement to provide network services to AT&T Wireless. LVLT said it would provide AT&T Wireless with dedicated amounts of bandwidth to transport voice and data for their next-generation wireless network. Investors are generally bullish on the outlook for the company and analysts agree that a "fundamental" bottom is in place for the Wireless Telecom sector. Traders can speculate on that viewpoint with this low cost position. DEC 5.00 HGY XA LB=0.30 OI=3667 CB=4.70 DE=35 TY=15.7% ***** MCDT - McDATA $21.10 *** Data Storage/Networking Rally! *** McDATA (NASDAQ:MCDT) is the worldwide leader in open storage networking solutions and provides highly available, scalable and centrally managed storage area networks (SANs) that address enterprise-wide storage problems. McDATA's core-to-edge enter- prise SAN solutions improve the reliability and availability of data to simplify SAN management and reduce the total cost of ownership. McDATA distributes its products through its OEMs, network of resellers and Elite Solution Partners. Earlier this month, Deutsche Banc Alex. Brown launched coverage of the Storage Networking sector, which includes McDATA, saying that the right companies will have a competitive advantage and command "premium" returns in the future. Robertson Stephens backed that bullish opinion this week when analyst Dane Lewis initiated coverage on company with comments that the company is "positioned for growth driven by the expanding fire channel storage switching market." Our position offers a discounted cost basis in the issue. DEC 15.00 DXZ XC LB=0.50 OI=81 CB=14.50 DE=35 TY=9.2% ***** PMCS - PMCS Sierra $23.27 *** Own This One! *** PMC-Sierra (NASDAQ:PMCS) designs, develops, markets and supports high-performance semiconductor networking solutions. PMC-Sierra's products are utilized in high-speed transmission and networking systems, which are being used to restructure the global telecom and data communications infrastructure. The company's strategy is to provide its customers with networking semiconductor solutions that address a broad range of products and applications. PMCS develops Internet Protocol (IP), ATM, SONET/SDH, T1/E1, T3/E3, Packet-over-SONET, Voice-over-Packet, wireless infrastructure, MIPS microprocessor, and Gigabit Ethernet solutions for wide area network (WAN), and Internet networking equipment. Traders are always asking for picks in the semiconductor segment and one of our favorite companies is PMC-Sierra. This position establishes a favorable entry point in a long-term portfolio holding. DEC 15.00 SQL XC LB=0.45 OI=3015 CB=14.55 DE=35 TY=7.7% ***** SRNA - Serena Software $22.90 *** On The Move! *** Serena Software (NASDAQ:SRNA) is a provider of unique e-business infrastructure software change management (SCM) solutions. The company's products and services are used to manage and control software change for organizations whose business operations are dependent on managing information technology. Serena develops, markets and supports a full suite of mainframe SCM products for managing and controlling change during the software application life cycle. Serena's product offerings support the standard IBM mainframe platforms and in addition, the company develops, sells, and supports an SCM product suite for the distributed systems environment to support Microsoft Windows 95/98/NT, UNIX, LINUX and HP e-3000 platforms. Shares of SRNA rallied this week after the company reported financial results that came in $0.02 above Wall Street's lowered consensus, and reiterated prior guidance for the fourth quarter. Prudential Securities promptly issued a "buy" rating on the stock and raised its 12-month price target to $26. This position offers a conservative way to profit from future bullish activity. DEC 17.50 NHU XW LB=0.50 OI=77 CB=17.00 DE=35 TY=8.6% ***** TERN - Terayon Communication $13.19 *** Analyst Upgrade! *** Terayon Communication Systems (NASDAQ:TERN) develops, markets and sells broadband access systems that enable cable operators, telco carriers and other providers of broadband services to effectively deploy reliable voice, video and data services over cable, copper wire (DSL) and satellite networks. The company sells broadband access products through a direct sales force worldwide, and also distributes its products via resellers and systems integrators. Its major cable customers include Adelphia Communications, Cox Communications, Rogers Cable TV, and Shaw Communications. Some of its major telco customers include ILEC's (incumbent local exchange carriers) in the United States, including Southwestern Bell, Bell South, Qwest Communications and Verizon, and CLEC's (competitive local exchange carriers), including NUBOX, Matanuska Telephone Association (in Alaska) and Encore Communications. Terayon was the beneficiary of a recent upgrade from W.R. Hambrecht and now the issue has rallied above an old trading range and up to a new yearly high near $13. The support area near $10 makes this a favorable speculation play for investors who are bullish on the Telecom Systems group. DEC 10.00 TUN XB LB=0.30 OI=280 CB=9.70 DE=35 TY=8.9% ***** WGRD - Watchguard Technologies $11.92 *** Hot Sector! *** WatchGuard Technologies (NASDAQ:WGRD) is a provider of Internet security solutions designed to protect enterprises that use the Internet for electronic commerce and secure communications. The company products and services are used by thousands of large and small businesses worldwide who need firewalls for access control, virtual private networks (VPNs) for secure communications and ServerLock products for server content and application security. The company's core market includes small to mid-sized enterprises; large Internet-distributed enterprises with high-speed connections supporting VPNs for their geographically dispersed offices as well as telecommuters. Internet/Intranet Security stocks are "hot" and WGRD is one the leaders in this unique sector. Bullish investors have pushed the issue significantly higher in recent sessions and the robust volume suggests a test of the 9-month highs near $13 is not far away. DEC 10.00 RUH XB LB=0.60 OI=0 CB=9.40 DE=35 TY=15.1% ***** ***************** 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 INVN 14.83 DEC 10.00 FQQ XB 0.95 164 9.05 35 21.1% TVLY 17.95 DEC 12.50 QUT XV 0.50 33 12.00 35 10.6% JDEC 11.25 DEC 10.00 QJD XB 0.45 170 9.55 35 10.6% GMST 25.54 DEC 20.00 QLF XD 0.65 3252 19.35 35 9.8% PLMD 20.44 DEC 15.00 PM XC 0.50 2036 14.50 35 9.5% PLXT 12.55 DEC 10.00 PIU XB 0.30 0 9.70 35 9.3% MRVL 32.80 DEC 25.00 UVM XE 0.75 48 24.25 35 8.9% YHOO 15.47 DEC 12.50 YHZ XV 0.35 15018 12.15 35 8.5% DFXI 26.01 DEC 20.00 DQF XD 0.55 176 19.45 35 8.3% SMTC 38.40 DEC 27.50 QTU XS 0.50 156 27.00 35 5.3% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, November 16 The major U.S. equity averages took a breather today, ending the session almost unchanged after nearly a week of bullish activity. The Dow, which was on a three-day winning streak, backpedaled 5 points to 9,866 amid a sell-off in financial issues. Citigroup (NYSE:C), American Express (NYSE:AXP) and J.P. Morgan (NYSE:JPM) were among the hardest hit while Walt Disney (NYSE:DIS), Boeing (NYSE:BA), Caterpillar (NYSE:CAT), Eastman Kodak (NYSED:EK) and Honeywell (NYSE:HON) kept the losses on the blue-chip average to a minimum. The NASDAQ composite fared slightly better, falling only 2 points to 1,898 on weakness in semiconductor and hardware issues. The broader-market S&P 500 Index finished down 3 points at 1138.65 after a poor performance by banking and retail stocks. Trading volume came in at 1.34 million on the Big Board and 1.72 billion on the NASDAQ. Market breadth was positive, with winners outpacing losers 17 to 14 on the NYSE and 20 to 16 on the NASDAQ. Government bond prices continued to fall after a week of severe declines with the 10-year Treasury note off 27/32 to yield 4.85% and the 30-year long bond closing 31/32 lower at a yield of 5.28%. Last week's new plays (positions/opening prices/strategy): Leap Wireless (NSDQ:LWIN) DEC20C/DEC15P $0.10 debit synthetic Level Three (NSDQ:LVLT) JAN5C/JAN5P $0.00 credit synthetic Mercury Int. (NSDQ:MERQ) NOV30C/NOV30P $2.35 debit straddle Potash (NYSE:POT) DEC65C/DEC55P $2.85 credit strangle Hillenbrand (NYSE:HB) DEC60C/DEC55C $0.65 credit bear-call Kimberly Cl. (NYSE:KMB) DEC65C/DEC60C $0.60 credit bear-call The recent bullish activity produced two new winners this week as the synthetic positions in Leap Wireless (NASDAQ:LWIN) and Level 3 Communications (NASDAQ:LVLT) achieved their profit targets. The LWIN play yielded a $0.90 gain while the LVLT position offered a $2.00 profit, both in only a few days. The bearish credit spreads in Hillenbrand Industries (NYSE:HB) and Kimberly-Clark (NYSE:KMB) are off to a good start and the neutral credit strangle in Potash (NYSE:POT) was available at an acceptable credit. The only play that didn't perform as expected was the speculative debit straddle in Mercury Interactive (NASDAQ:MERQ). MERQ traded in a volatile manner on Monday, moving through a $3 range, however the activity became more subdued as the week went by and we decided to exit the play on Thursday for a small loss. Portfolio Activity: The Spreads/Combos portfolio offered some outstanding candidates this month and the November expiration period ended with a large number of profitable selections. Among the various categories, the debit-straddle portfolio and the bullish synthetic plays were the most productive. In addition, all of the positions in the credit-spreads section were profitable and there were some great opportunities in the calendar-spreads group for traders who use time-selling strategies. The Covered-calls with LEAPS position in Microsoft (NASDAQ:MSFT) was a success and both of the premium plays in the credit-strangles section expired at maximum profit. This week's big winner was the delta-neutral position in Abiomed (NASDAQ:ABMD) as the issue plummeted on unfavorable news about the company's replacement heart product. The straddle yielded up to a 90% gain in less than two weeks, easily exceeding the performance of the recent position in Juniper Networks (NASDAQ:JNPR). Storage Technologies (NYSE:STK) was not as volatile as we expected but the rally on Thursday provided an acceptable (loss-limiting) exit for traders who participated in the speculative position. The calendar spread in Intuit (NASDAQ:INTU) was on our watch-list this week and the much-anticipated quarterly earnings report did produce a small increase in the issue's volatility. As noted in the initial play narrative, our plan was to make an adjustment prior to the announcement. The logical choice was a transition to the DEC-$45 calls (in the short options) for a credit of $1.75 to $2.00, reducing the cost of the JAN-$45 calls to $1.00 to $1.25. However, Intuit did not cooperate with our plan as the company reported earnings that were less than outstanding. The issue was promptly sold-off, down to a level not seen since late October and it may be some time before the stock can recover from the bearish activity. Traders who initiated the bullish long-term spread in Microsoft (NASDAQ:MSFT) were blessed with any easy adjustment for the month of December. The short calls in the original position; JAN03-$65C/NOV-$65C, were $0.75 "in-the-money" at the close and a transition to the DEC-$70 calls yielded a credit of $0.25-$0.30. The issue that has us completely baffled is Technitrol (NYSE:TNL) and our bullish time-selling spread has yet to produce a profit as the stock cannot break above the recent trading-range top at $27. Fortunately, Wednesday's spike offered an acceptable closing credit for the long option (JAN-$30C) and unless future rallies are supported by an increase in volume, that will probably be the best opportunity we get to exit the play. Questions & comments on spreads/combos to Contact Support ****************************************************************** - SPECULATION PLAYS - One of our new subscribers offered some positive comments on the recent "cheap speculation" positions and asked if we would list more conservative candidates in that category. Here are two new selections for investors that favor low cost spreads with large potential returns. These "bottom-fishing" plays may benefit from the January Effect; a seasonal trend in which small-cap stocks outperform their larger-cap brethren during the first few months of the year. The historically strong performance of lower-priced issues in January, February and March is well known and easily proven but there is no guarantee these stocks will duplicate that activity, so review each position individually and make your own decision about the future outcome of the plays. ****************************************************************** RBAK - Redback Networks $5.30 *** The Road To Recovery! *** Redback Networks (NASDA:RBAK) is a provider of unique networking systems that enable broadband service providers to rapidly deploy high-speed access to the Internet and corporate networks. The company's primary product lines, which consist of the Subscriber Management System, the SmartEdge, and the Service Management product families, combine the best features of current networking hardware and software. Together, these unique product families are designed to enable its customers to create end-to-end regional and national networks that support broadband access technologies, as well as the services that these high-speed connections support. The Networking sector has performed very well over the past few weeks and some of the darlings of the group are finally starting to rebound from the excessive selling pressure. Redback Networks is one of these issues and analysts say the company's new router, which was unveiled recently, is generating most of the excitement. The dismal economic environment will likely prevent the issue from returning to double-digits anytime soon but the long-term outlook is positive and traders who believe the company's share value is destined for higher prices in the future can profit from upside movement with this low cost combination position. PLAY (conservative - bullish/debit spread): BUY CALL APR-5.00 BUK-DA OI=348 A=$1.95 SELL CALL APR-7.50 BUK-DU OI=418 B=$1.05 INITIAL NET DEBIT TARGET=$0.85-$0.90 PROFIT(max)=$1.60% ****************************************************************** SONS - Sonus Networks $5.74 *** More Networking! *** Sonus Networks (NASDAQ:SONS) is a worldwide provider of voice infrastructure products for the new public network. Their unique products are carrier-class switching equipment and software that enable voice services to be delivered over packet-based networks. Packet-based networks, which transport traffic in small bundles, or packets, are designed to offer a more flexible, cost-effective and efficient means for providing communications services than circuit-based networks designed for telephone calls. Their target customers include new and established communications providers, such as common long distance carriers, competitive local exchange carriers (CLECs), Internet service providers, cable operators, international telephone companies and carriers that also provide services to other carriers. Stocks in this unique "niche" industry have become the target of bargain-hunting investors and analysts believe it may be time to consider a position in Sonus. Over the past few weeks, the issue has received favorable coverage from three different firms and investors appear to agree with the bullish assessment as the stock has moved up over 25% in the last four sessions. Technically, the issue appears to be establishing a relatively solid base near $4 and we expect its share value to benefit significantly from the next technology rally. Traders who participate in conservative combination plays should consider this bullish debit spread. PLAY (conservative - bullish/debit spread): BUY CALL APR-5.00 UJS-DA OI=1360 A=$2.30 SELL CALL APR-7.50 UJS-DU OI=254 B=$1.35 INITIAL NET DEBIT TARGET=$0.85-$0.95 PROFIT(max)=$1.55 ****************************************************************** - CREDIT SPREADS - This strategy has become the most requested technique among our readership and with one full month remaining until the December expiration, we decided it would be an excellent time to list a selection of new candidates. While all of these plays offer an acceptable risk/reward ratio, they should also be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** DOX - Amdocs Limited $33.31 *** On The Move! *** Amdocs Limited (NYSE:DOX) is a provider of software products and services to major communications companies in North America, Europe and the rest of the world. The company's Business Support Systems products consist of many families of customized software products and services designed to meet the critical business needs of specific communications market sectors. The company provides primarily Customer Care, Billing and Order Management Systems for communications and IP service providers. Its systems support a wide range of communications services including wireline/wireless, broadband, electronic and mobile commerce and Internet services. The company also supports companies that offer multiple service packages. In addition, Amdocs provides a full range of Directory Sales and Publishing Systems to publishers of both traditional printed yellow page and white page directories and electronic Internet directories. Shares of Amdocs rallied last week after analyst Ed Brown made positive comments about the company on Wall Street Week and Prudential issued a "buy" rating on the issue. The news helped propel the stock up and out of a two month-long basing pattern near $30. Based on the heavy buying pressure, the issue is now poised for future gains and conservative traders can profit from further upside movement in the issue with this bullish position. PLAY (conservative - bullish/credit spread): BUY PUT DEC-25 DOX-XE OI=511 A=$0.35 SELL PUT DEC-30 DOX-XF OI=61 B=$1.05 INITIAL NET CREDIT TARGET=$0.75-$0.80 PROFIT(max)=17% ****************************************************************** AVP - Avon Products $48.05 *** Technicals Only! *** Avon Products (NYSE:AVP) is a global manufacturer and marketer of beauty and related products, including cosmetics, fragrance and toiletries, Beauty Plus, which consists of jewelry, watches and accessories, and apparel, and Beyond Beauty, which consists of gift and decorative, home entertainment and health and also nutrition products. Avon's business is focused primarily on direct selling, which is conducted in North and South America, the Pacific and Europe. The company now has operations in 52 countries outside the United States and its products are also distributed in 86 other countries, for coverage in 139 markets. Avon has entered 26 new markets since 1990, including Russia and China, as well as nations throughout Central Europe, and is evaluating several other markets in Eastern Europe and the Pacific region. From a technical viewpoint, the outlook for Avon is neutral to bullish as the stock remains above its long-term (100 and 150) daily moving average. The current trading channel depicts a range from $45.50 to $49.50 and AVP has rarely violated its 50-dma during the past few months. The issue is currently in a slightly upward trend, comfortably above its 30-dma, and the chart indications suggest that Avon may be bracing to test the September high. PLAY (very conservative - bullish/credit spread): BUY PUT DEC-40 AVP-XH OI=20 A=$0.20 SELL PUT DEC-45 AVP-XI OI=280 B=$0.70 INITIAL NET CREDIT TARGET=$0.55-$0.65 PROFIT(max)=12% ****************************************************************** UNH - United Health Group $65.44 *** Rolling Over? *** UnitedHealth Group (NYSE:UNH) forms and operates markets for the exchange of health and well being services. The company's Health Care Services segment consists of UnitedHealthcare and Ovations and UnitedHealthcare also coordinates network-based health and well being services on behalf of local employers and consumers nationwide. Ovations is a business dedicated to advancing the health and well being goals of Americans age 50 and older. The company also has other businesses including Uniprise, Specialized Care Services and Ingenix. The Uniprise business is devoted to serving the needs of large organizations. The Specialized Care Services business is an expanding portfolio of health and well being companies, each serving a specialized market need with a blend of benefits, provider networks, services and resources. The Ingenix business is engaged in the field of health care data and information, research, analysis and application. UnitedHealth Group is currently experiencing a technical bounce off its 150-dma but since the indications remain bearish, the move may simply be providing a "second-chance" entry point for short-sellers. The stock has formed an extended Stage III top and in the near term, the emergence of a "head-n-shoulders" pattern is a strong possibility. The heavy overhead resistance at $69 makes it improbable that the stock price will be able to rally above our sold (short) option in the coming month. PLAY (conservative - bearish/credit spread): BUY CALL DEC-75 UHB-LO OI=729 A=$0.25 SELL CALL DEC-70 UHB-LN OI=2854 B=$0.75 INITIAL NET CREDIT TARGET=$0.55-$0.65 PROFIT(max)=12% ****************************************************************** ************************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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