The Option Investor Newsletter Sunday 01-27-2002 Copyright 2001, All rights reserved. 1 of 5 Redistribution in any form strictly prohibited. Entire newsletter best viewed in COURIER 10 font for alignment Posted online for subscribers at http://www.OptionInvestor.com http://www.OptionInvestor.com/indexes/emailversion.asp ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 1-25 WE 1-18 WE 1-11 WE 1-4 DOW 9840.08 + 68.23 9771.85 -215.68 9987.53 -272.21 +122.75 Nasdaq 1937.70 + 7.36 1930.34 - 92.12 2022.46 - 36.92 + 72.12 S&P-100 575.14 - .10 575.24 - 8.96 584.20 - 14.41 + 6.86 S&P-500 1133.28 + 5.70 1127.58 - 18.02 1145.60 - 26.91 + 11.49 W5000 10576.52 + 67.16 10509.36 -188.86 10698.22 -234.10 +113.75 RUT 479.35 + 4.98 474.37 - 15.57 489.94 - 9.36 + 5.68 TRAN 2779.92 +112.67 2667.25 - 39.52 2706.77 -123.43 +187.15 VIX 21.93 - 2.41 24.34 + .36 23.98 + 1.96 - .31 VXN 45.67 - 3.22 48.89 + .52 48.37 + 1.51 + .92 TRIN .82 1.13 1.44 .94 TICK +885 +522 +290 +996 Put/Call .68 .85 .68 .67 ****************************************************************** Running in Quicksand? by Jim Brown The market action on Friday was like a marathon runner nearing the end of the race and being forced to run through knee deep mud. Every step was still forward but each was becoming slower and harder to make. The energy required to simply maintain the day's gains was growing as the close neared. Fortunately time expired before the Dow fell back into negative territory and the week went into the books as a win. A slim win for the Dow with only a +68 point gain for the week but much better than the +7 point gain for the Nasdaq. The tech sector was under pressure from the opening bell but managed to pull into positive territory for a short while after lunch. Traders began taking money off the table as the afternoon progressed but the selling was orderly and on low volume. The tech pressure came from the JDSU earnings warning. The comments about the possibility the current quarter would not be the bottom weighed heavily. Nobody wants to consider that there could be another dip in our future. JDSU gapped down and closed at a four month low near $7.00. Corning joined the party and closed at a three month low of $8.10. After a two day rally the software sector gave up some gains after PeopleSoft warned that they saw no recovery in the first half and only a modest recovery in the second half. PSFT lost -2.50 on the day after being down -$5 at one time. PSFT also was a target of "accounting practices" rumors. They announced they would buy an affiliate, MMTM, for $90 million. With this affiliate they had sheltered more than $230 million of expenses since 1998. Their auditor is.......Arthur Anderson. The PSFT CEO said the criticism was unfair. "Just because a person with a drivers license robbed a bank it is no reason to take away everyone's drivers license" said Craig Conway. Somehow, Craig, I don't think it is quite the same thing but we will give you the benefit of the doubt. Oracle, which had been trading right at resistance of $17.25 nosed down as well. RSAS added to the software dip with a loss of -4.78 or -28% after announcing that the SEC was investigating some accounting practices and trading in their stock. Evidently they offered to sell some stock to an investment bank and then guarantee the value of that stock with puts. Sounds like a viable plan to me but the SEC wants a better explanation. Maybe there was insider info involved that knew the stock was going to fall. Microsoft rounded out the software dip as it neared a breakdown of support at $63.50. Surprisingly the semiconductor sector saw its rally extend to three days with a +12 point gain in the SOX. The 7% gain in chip orders in December is providing some underlying strength even though many of the individual stocks are still showing weakness. The leaders were the equipment manufacturers like AMAT, KLAC, NVLS, DPMI and ALTR. PMCS beat estimates by a penny and Goldman Sachs raised it to the "recommended list" from "market outperform." The biotech sector resumed its slide with IMCL still under pressure. Many biotechs are at support levels but those levels appear to be in danger. ICOS, CIMA and ADRX would be good examples of a possible support failure ahead. Compaq raised its estimates to revenue of $34 billion for 2002 but only expects a +2% rise in that revenue. The CEO said he felt the fundamentals were in place for substantial rebound in the second half but it still remains to be seen if it will come to pass. Dell jumped +1.13 on the news and CPQ remained flat. GTW fell -1.14 to $5.22 after several brokers downgraded the stock due to this weeks earnings announcement. The Enron scandal took another dreadful turn on Friday as past vice chairman Cliff Baxter committed suicide rather than be forced to testify against his friends according to his suicide note. He was one of the seven insiders who sold millions of shares of stock while the company was imploding. He sold $35 million and resigned as vice chairman in May. He was one of the reported "good guys" who questioned the accounting practices of the company. Some of the midday Dow bounce was due to a rumor making the rounds that President Bush would introduce legislation to limit liability from asbestos claims in his State of the Union Speech on Tuesday. Numerous companies have suffered over the last several weeks from implied liabilities. Among them were DOW, HAL, GP, USG and VIA. Many others have been seeing selling "just in case" and have pressured the manufacturing sector. Ford took center stage with a huge preferred convertible security offering which hit $5 billion. Ford announced the pricing of the offering and the dividend. The securities will pay an annual dividend of 6.50% or $3.25 for each share and will be paid quarterly beginning in April-2002. Each preferred security is convertible into 2.8249 shares of Ford common stock at any time. This equates as $41.25 at today's share price of $14.61. Ford raised the amount of the offering from $3 billion to $5 billion and lowered the dividend amount after rumors surfaced that they received over $25 billion in bids. This is the largest offering on record and surpasses Tyco's $3.45 billion offer in Nov-2000. The wireless sector is looking more like a tired game of pong. The daily ups and downs are almost becoming comical. Nokia turned in a decent performance earlier in the week but lost ground on Friday after Ericsson posted a larger than expected loss. ERICY also said they expect to lose twice as much in the 1Q as analysts had expected. They also expect a "possible" recovery in late 2002 but feel that demand for the year will be flat to down. I guess that is why ERICY is trading for $4 and NOK for $23. Nokia's outlook was much brighter even though they expected the 1Q to be down. Next week brings us more earnings and numerous economic events. The State of the Union Speech on Tuesday is not normally a market mover but Bush may be looking for a new platform for economic issues now that the terrorist war is dropping from the news. Analysts will be looking for things like asbestos liability limitation and assurances we are not going to declare war on IRAQ or IRAN. The markets are likely to be cautious before the speech unless there is a leak of economic incentives before then. The FOMC meeting begins on Tuesday and is a two day event but the outcome is far from known. Will he or won't he cut again. Greenspan appears pretty certain that the recession is about over but then again just a week ago there were "significant risks." Now which is it? Does he go with the "fundamentals in place for a rebound" and "pressures on the economy diminishing" which he parroted this week or does he convince the board members that an insurance cut is still necessary? Remember he has alluded to another possible dip in our future if demand does not pick up. We are still working off inventory but without orders the economy will stay flat. Cut or not, it will be the guidance given after the meeting that reflects the feelings of the entire committee and not just their chairman. The markets will be cautious ahead of the announcement on Wednesday as well. The economic reporting schedule is also huge with the biggest events being the first look at 4Q GDP on Wednesday, Employment Cost Index, Personal Income/Spending and PMI on Thursday. The week ends with Nonfarm Payrolls on Friday. If ever there was a week with a minefield of events, this is it. The Dow finished the week exactly under overhead resistance at 9850 after rebounding +156 points from the Wednesday lows. The Nasdaq also closed under resistance again at 1950 and only +57 points above the weeks lows. The S&P failed again to break the 1140 barrier and showed smaller gains for the week than the Dow or Nasdaq with only a +5 point gain. Clearly we rebounded out of the oversold conditions of Tuesday/Wednesday and then ran out of steam once the oversold conditions eased. There are still dozens of major earnings announcements next week but none have the power, in my opinion, to move the markets up in a big way. American Express, DOW, DIS, UAL, AT&T an AOL all announce with AOL being about the only one which could provide an upward bump. The expectations for AOL are so low that any positive news could provide the spark but probably it would be contained within the Internet sector. Of the several hundred stocks that announce most are symbols you have never heard of. Over 53% of the S&P-500 have already announced with 54% beating estimates and over 27% missing estimates. This is better than the 4Q-2000 when 46% beat and 51% missed estimates. Still there is no joy in Mudville as the mighty techs have all struck out. All failed to promise a return to the glory days and some even suggested a possible return to bad times. Not much for investors to use for emotional support. The long-term vision is still the same, recovery in the second half. It is just that investors were hoping for a positive surprise and a quicker, faster, stronger, better, put your adjective here, rebound. That means we have come too far, too fast and will likely move sideways for some time until more recovery signs are seen. Depending on the political verbiage next week we could break out of this stalemate to the upside or to the downside! We need to be ready for both alternatives. On Thursday I raised my exit levels to 9750/1925 and those levels still stand. The Nasdaq dipped to 1923 on the opening tick on Friday and then rallied to close only +12 points above that low at the close. The Dow missed 9750 by only five points before struggling ahead. Both of these indexes are very weak. To reiterate, next week has numerous events, which could cause a market drop and very few which could cause a serious rally. Be very careful about maintaining your stops and remain long over 9750/1925 and stay flat or short below those levels. Enter Very Passively, Exit Aggressively! Jim Brown Editor@OptionInvestor.com Tried our Market Monitor yet? http://www.OptionInvestor.com/itrader/marketbuzz/ ******************** INDEX TRADER SUMMARY ******************** Pinned Again Austin Passamonte It's still the same old, same old: I scan a few dozen indexes and sector charts looking for directional plays and find little evidence of any. What moved one direction the previous week reversed course the following, and that pattern has not been broken for many months. (Weekly/Daily Charts: SPX) The SPX has bounced between its 1120 and 1170 zone from Halloween to what will likely be Groundhog's Day. A meager fifty-index point range that has held for three straight months and counting. So much for directional action the past 1/4 of a year! Weekly chart stochastic values tell us the prevailing trend in price strength is weak to bearish. Daily chart signals are rising in bullish fashion as price action trudges sideways to a bit higher. What do they each predict? Sideways to choppy markets until both align in unison once again, from which time the next swift & powerful move (of whatever distance) will begin. (Weekly/Daily Charts: SOX) The same picture exists for SOX, which continues to whipsaw each way in no directional fashion. Fearless forecast: some brokerage house will upgrade the chip sector while another downgrades it this week ahead. And possibly more than once! This happens week after week for months on end now... any wonder why it cannot commit to a trend? Might not be able to trend for awhile as three key levels of resistance lie just overhead. I love the SMH as a day-trading or swing trade vehicle (closely follows the SOX) for the enhanced volatility over QQQs, but that one could get a bit choppy for now. (Weekly Charts: VIX/SPX) Best evidence I can find for any directional forecast is the VIX. Floor traders at the CBOE were amazed on Friday at how fast the volatility measure collapsed on a tad of bullish action. The QQV has now reached its all-time historical low (one year's history) as well. Trust me, the big boys watching this event do not see that as a harbinger of any new bull market beginning right here! Wanna know why? Just take a gander yourself at how many times the VIX has broken below 22.00 these past two years. I see at least ten occasions myself. How many of those marked bottoms in the market? I see zero times that happened. On the other hand, how many times did the drop below 22.00 mark near-term tops in the market? I see every time without exception for two years straight where the VIX near 22.00 was a market top. Any guess on whether we're near a current bottom or top? Keep an eye on the imploding VIX as call buyers and put sellers gain confidence and lean to the bullish side of that boat. Times of great market complacency are vulnerable to catalysts that elevate fear and cause price action to fall or plunge. What's on our menu next? Why, the FOMC event this week! Could get interesting after that. Conclusion This year's theme could be realistic accounting practices demanded by the public. Enron's dirty, filthy story hasn't even begun to fully unravel yet and a guy with $35 million in the bank is ending his life. Think there's more on this to go? What happens when sordid details get ironed out and hammered in the press? Think the masses may look around at anything else that quacks like a duck? One fine, feathered friend of vaguely similar ilk right now is TYC and they have some serious fiscal explaining to do. Last week I made a comment that the share prices would see $20 level if they de-list from the S&P 500, which is highly possible. In tonight's Traders Corner we'll use that as one example to study price targets when buying the right option for each circumstance. We might expect the upcoming earning reports this year to be scrutinized like most traders in today's game have never seen. Watch for the previous pro-forma bunk that momentum players formerly rode to the moon now being sold off hard instead. There is a level of fear in the air right now about what Fortune 500 Company might be next now that the recent #7 in size has turned to dust. Summation We'd have no trouble scalping shares or stocks for a few points here & there right now, but buy & hold option trades are a challenge. Picking the few specific stocks on the move while getting out fast is key. Faster still with modest gains for index option traders. Trying to beat theta decay and bid/ask spreads holding most positions open is an effort in futility, and a falling VIX further erodes extrinsic value as well. That will eventually change when the VIX begins soaring on directional market movement again, but I doubt that will be welcome news for call buyers then. I would not personally read too much in the recent bounce off support. The entire financial world was broadcasting those levels as something special and indeed they were. But long-term chart signals tell me the picture is mixed. Countless false rallies where people expected "The Market" knew what it was doing have slain hopeful bulls for two years now. In that same stretch of time we've seen near-term market tops ten out of ten times when the VIX moves below its 22.00, and see for yourself where it rests tonight. As noted in these pages archived for posterity sake, volatility around current price magnets is expected. Trying to trade the noise in between or avoid that and catch any directional break from there will be challenged until we clear the Fed's official news, whereupon markets may begin their next course of action. Until then I'd expect knee-jerk markets going nowhere fast of great importance. Keep an eye on the VIX. The biggest players in our profession most certainly are! Best Trading Wishes, austinp@OptionInvestor.com ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** Editor's Plays ************** Earnings Opportunities, Enron Casualties, Asbestos Speculation When earnings events come they sometimes provide great play opportunities and sometimes great losses. When expectations are so high it is not hard to disappoint and gap down after the event. Conversely when expectations are very low it is sometimes easy to get a reversal bounce as shorts are forced to cover on good news. AOL is one of those depressed companies. While they have the possibility of surprising either way it appears that many investors are counting on riding the biggest Internet stock of all right into single digits. Considering the clout of AOL and the new deals the Time Warner connection has provided them, it is entirely possible there is a positive surprise in their future. Isn't investing fun. Everybody gets to have their own opinion and be proven wrong 50% of the time! My suggestion on AOL is the Feb-$27.50 straddle. The stock is resting exactly on the strike price and the options are cheap at $1.25 each. For $2.50 you can have a three-week play for either direction. It is entirely conceivable we could get a dip with earnings and then a rally once the bad news, if any, is out. This is a high-risk play and should the stock hold at $27.50 both options could expire nearly worthless. I would bet you $2.50 that this would not be the case but then anything is possible. ******************* Will Enron ever die? The ramifications apparently will not. Every day it appears that investment bank JP Morgan was more involved in Enron than was first thought. With each news revelation the liability to Enron grows. They are rumors of partnerships in forming offshore corporations to hide balance sheet problems and funnel trading profits. They obviously knew more about the financials of Enron than anyone else since they represented them in mergers and acquisitions. If it is ever found to have had knowledge and either profited from it or covered it up their fate is sealed. It will be $20 in a heartbeat. This is a highly speculative play that could provide huge rewards if something breaks or a total loss if JP Morgan takes the offensive and rallies back over $35. Buyer beware! I would buy the March-$35 put option for $1.85, which gives us almost two months to wait for any lurid details to be exposed. ****************** Asbestos Exposure Liability Limits? W.R.Grace and Company is a global chemical manufacturer. They have 61 subsidiaries and were trading over $80 in 1998 when the current asbestos problem flared into existence. They have a potential liability of $700 million, according to Grace. They net about $50 million profit each quarter on operating income of $500 million in sales. (Round numbers only) To combat the flurry of asbestos lawsuits they filed bankruptcy in April of 2001. The bankruptcy had nothing to do with their ongoing profitable chemicals business and was purely related to the lawsuits. By filing they were able to consolidate all the cases and insure survivability of the company. They have about $250 million in cash and equivalents as well as a $250 million line of post bankruptcy credit from Bank of America of which they have only used $50 million. While they are in bankruptcy there is almost no reason to expect them to not continue as a company once the asbestos cases are concluded. Should Bush introduce legislation limiting liability for asbestos claims this could potentially be a windfall not only for Grace but all companies with this problem. 40% of the Dow components are rumored to be asbestos impaired. There are no options on W.R. Grace (GRA) but at $2.40 this is another potential play like PVN which I have written about before. There is no expiration on stock and this company is not going away. There is always the potential in a bankruptcy for equity holders (stockholders) to be eliminated but I don't think this will happen on Grace due to their global reach and ongoing business. (Still just an opinion) They announce earnings on Tuesday the 29th. For the most current financial information: http://biz.yahoo.com/e/011114/gra.html This is a high-risk play. Buyer beware! ****************** These are all high-risk plays so be sure to only use HIGH RISK capital to play them. Good Luck Jim **************** MARKET SENTIMENT **************** Volatility By Eric Utley Options market participants are growing increasingly comfortable. This could be an ominous sign for stocks. When viewed contrarily, the complacency of the crowd suggests trouble on the horizon. In what form will that trouble come? Only time can tell. Not often does the CBOE Market Volatility Index ($VIX) trade below 20. It appears as if it's headed to that level after last week's breakdown. As my good friend, Austin Passamonte, has pointed out in the past, the $VIX below 20 is a gift for long-term put buyers/shorts. Another volatility measure, not regularly published in this column, is the QQQ Volatility Index (QQV.X). The index, like the name suggests, measures the implied volatility in the Cubes, or QQQs -- the Nasdaq-100 ($NDX) tracking stock. Granted, the QQV.X is only one year old, but it hit its all-time low last Friday at 36.81. They are selling premium in the QQQs with little to no fear. Historically, low levels of fear have lead to periods of weakness in stocks. Review a chart of the $VIX over the weekend and compare its lows with relative highs in the S&P 100 ($OEX). The correlation is uncanny. Aside from the sentiment implications, the low levels of the market's volatility measures are brining downs option premiums. That's a good thing for buyers of options because it decreases the extrinsic value of contracts and makes them more responsive to movement in the underlying. Whether or not the $VIX is portending weakness in stocks remains to be seen. Nevertheless, it's a good time to use the leverage of options in your market options with the contracts currently on discount. ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 9840 Moving Averages: (Simple) 10-dma: 9822 50-dma: 9941 200-dma: 10107 S&P 500 ($SPX) 52-week High: 1383 52-week Low : 945 Current : 1133 Moving Averages: (Simple) 10-dma: 1134 50-dma: 1144 200-dma: 1167 Nasdaq-100 ($NDX) 52-week High: 2771 52-week Low : 1089 Current : 1609 Moving Averages: (Simple) 10-dma: 1573 50-dma: 1609 200-dma: 1614 Defense Sector ($DFI) The $DFI continue rallying in last Friday's session, making it one of the better performing sectors for the week. The index gained 2.37 percent in last Friday's session. The bullishness in the group stems from solid earnings reports from the industry and anticipation of increased government spending. President Bush said last week that he would ask Congress for another $48 billion to be allocated to defense spending. The detail of the President's proposal will be released on February 4. 52-week High: 570 52-week Low : 497 Current : 552 Moving Averages: (Simple) 10-dma: 521 50-dma: 524 200-dma: N/A Gold and Silver Sector ($XAU) The $XAU tacked on 3.21 percent in last Friday's session for the day's top spot among sector movers. The move in gold in conjunction with selling in bonds reveals that the market is expecting inflation to emerge in the next six to nine months. Is inflation a bad thing? Not necessarily, because with inflation generally comes economic growth. 52-week High: 67 52-week Low : 46 Current : 59 Moving Averages: (Simple) 10-dma: 59 50-dma: 55 200-dma: 55 Software Sector ($GSO) The $GSO was the worst performing sector in last Friday's session with its 2.14 percent drop. The myriad earnings disappointments late last week from the software group pressured the index. The $GSO is not in danger of breaking down below support. Near term support exists at 180. Still, the sector should be monitored in relation to the rest of tech next week. 52-week High: 341 52-week Low : 112 Current : 189 Moving Averages: (Simple) 10-dma: 190 50-dma: 182 200-dma: 185 ----------------------------------------------------------------- Market Volatility The recent two week consolidation in the VIX resulted in a breakdown late last week. It seems that any signs of strength in stocks is met with increasing amounts of complacency. This is a trend to continue monitoring as the VIX approaches 20. The VXN broke down in similar fashion to the trading in the VIX. The VXN touched 45 last Friday, revealing more complacency among options market participants in the Nasdaq-100. CBOE Market Volatility Index (VIX) - 21.95 -0.82 Nasdaq-100 Volatility Index (VXN) - 45.64 -1.73 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.68 584,427 399,223 Equity Only 0.61 533,328 323,871 OEX 0.75 8,067 6,081 QQQ 1.86 24,119 44,832 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 53 + 0 Bull Alert NASDAQ-100 42 + 0 Bear Confirmed DOW 60 + 0 Bull Correction S&P 500 63 + 1 Bull Correction S&P 100 65 + 2 Bull Correction 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 0.96 10-Day Arms Index 1.30 21-Day Arms Index 1.26 55-Day Arms Index 1.13 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. ----------------------------------------------------------------- Market Internals Advancers Decliners NYSE 1606 1497 NASDAQ 1650 1892 New Highs New Lows NYSE 117 24 NASDAQ 92 31 Volume (in millions) NYSE 1,338 NASDAQ 1,634 ----------------------------------------------------------------- Commitments Of Traders Report: 01/22/02 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 their longs and subtracted from their shorts for a decline of about 6,000 contracts in their net bearish position. Meanwhile, small traders grew less bullish by reducing their net position by more than 9,000 contracts. Commercials Long Short Net % Of OI 01/08/02 333,742 398,286 (64,544) (8.8%) 01/15/02 340,005 397,024 (57,019) (7.7%) 01/22/02 342,841 394,041 (51,200) (6.9%) 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 01/08/02 130,335 60,780 69,555 36.4% 01/15/02 129,987 64,311 65,676 33.8% 01/22/02 125,451 65,423 60,028 31.4% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 91,122 - 3/06/01 NASDAQ-100 The commercial interests' net bearish position modestly grew in the last week. The group shed more longs than shorts. Small traders grew more bullish by adding to their longs and reducing their short position. Commercials Long Short Net % of OI 01/08/02 30,786 38,913 (8,127) (11.7%) 01/15/02 32,068 34,859 (2,791) ( 4.2%) 01/22/02 30,671 34,103 (3,432) ( 5.3%) Most bearish reading of the year: (15,521) - 3/13/01 Most bullish reading of the year: 7,774 - 12/21/01 Small Traders Long Short Net % of OI 01/08/02 10,073 6,404 3,669 22.3% 01/15/02 10,230 9,782 448 2.2% 01/22/02 11,885 8,787 3,098 15.0% Most bearish reading of the year: (9,877) - 12/21/01 Most bullish reading of the year: 8,460 - 3/13/01 DOW JONES INDUSTRIAL Commercial increased both long and short positions last week. The result was a net increase in the group's bullish position. Small traders reduced their net bearish position by about 200 contracts. Commercials Long Short Net % of OI 01/08/02 15,921 7,981 7,940 33.2% 01/15/02 15,866 9,175 6,691 26.7% 01/22/02 18,152 11,013 7,139 24.5% 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 01/08/02 4,380 9,188 (4,808) (35.4%) 01/15/02 4,979 8,747 (3,768) (27.5%) 01/22/02 5,424 8,969 (3,545) (24.6%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** *************** ASK THE ANALYST *************** A New Market Perspective By Eric Utley I write at length about referencing sectors when operating in the market. Using sectors, when trading stocks, helps save time and give a more efficient view of a particular industry group. Plus, individual stocks can be referenced against their sectors to reveal things like relative strength, out- and under-performance. I've found a new way that readers can use the sector approach when operating in the market. Standard & Poor's divides the market into ten industry groups: Energy Materials Industrials Consumer Discretionary Consumer Staples Health Care Financials Information Technology Telecom Services Utilities Standard & Poor's has assigned each of its 500 components in the Big Index to its appropriate industry group. The following page divides the S&P 500 ($SPX) into its ten industry groups; you can click on the number in the COMPANIES column to find a list of the stocks in each group: http://www.spglobaldata.com/spgi/spgi6.wsx/sectors?sp500 In addition to dividing the market into its sectors, Standard & Poor's provides performance and market cap information. Moreover, the firm provides the weighting of each industry group in the S&P 500. I find the following table especially valuable when monitoring the rotation to and from different sectors. http://www.spglobaldata.com/spgi/spgi6.wsx/analysis?sp500 There's a lot to be gleaned from the ebbing and flowing of the industry group weightings in the S&P 500. For instance, an increase in weighting in the Industrials relative to Information Technology would reveal out performance on the part of the former group, obviously. You could infer that Industrials are more closely tied to the business cycle and of course are the enterprises that spend capital on information technology. Therefore, an increase in the Industrials could reveal an early turn in the business cycle, which would eventually lead to increased capital expenditures, benefiting the Information Technology group. The possibilities are innumerable. When measuring risk versus reward in the ten S&P industry groups, the folks at www.StockCharts.com have done traders a big favor by listing the bullish percent charts of each of the groups. The following list displays all of the bullish percent charts offered by the Web site. Within the list, you'll find all ten S&P industry groups: http://stockcharts.com/webcgi/wb.exe?SymSearch.web+bullish%20percent Again with the bullish percent charts, there are a lot of possibilities for inference and application. With some time, you can discern which sectors of the market hold the most risk to the downside, which are the most oversold, or which are about to shift from bearish to bullish, among many other possibilities. 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 ---------------------------- S&P 500 - ($SPX) SPX is down more than 20%. Is it a bear market? Will it perform similarly as NDX, hanging around -20% then go -40%? Any long-term technical guidance on SPX? What is the most important rule trading in bear market? - Thanks, George Nice timing, George. Good question. There are many ways of defining a bear market, some use the 20 percent rule. Is the $SPX still mired in bear country? Let's take a look. The $SPX peaked in March of 2000, just above the 1550 level. Through last Friday, the $SPX is about 27 percent off of its all-time high. By the 20 percent rule, the $SPX is still in bear market territory. In August of 2000, the $SPX attempted to revisit its all-time high but could only advance as far as 1530. Since hitting 1530, the $SPX has only generated ONE buy signal on the point and figure chart below. That buy signal came last May. (Note that I've used a 25 point box on the $SPX point and figure chart. The 25 point box gives me a longer-term view of the index, discounting the noise at the same time. The 50 point box is too big and the 10 point box is, in my opinion, too small for a longer-term view. I like the "fit" of the 25 point box.) SPX - PF The $SPX hasn't yet broken above its bearish resistance line, which was formed in August of 2000 at the 1530 level. It has tested it twice, most recently last May. Coincidentally, the $SPX generated its only buy signal in more than 18 months last May, when it broke above a double-top at 1175 and proceeded to trade up to its bearish resistance line at 1300. After reversing from 1300, the $SPX went into a nosedive into the 09/11 event. It has since reversed, but still hasn't generated a buy signal. That would only come on an advance past 1325 given the current set-up. A reversal from the current column of Xs into a new column of Os would come on a print at 1100. The 25 point box point and figure chart isn't conducive to trading, maybe not even an intermediate-term view. It's best used for the long-term view. To get a better feel of the intermediate-term and maybe where the $SPX is headed over the longer-term, I'm using the daily chart. Normally one would use a weekly chart to get a long-term view of an asset. In this case, I think the longer-term view provided by the point and figure chart juxtaposed with a bit of a short-term view by the daily chart makes for an intelligent combination. The reason I like the daily chart currently is because I can relate levels of retracement on the daily chart very closely with the point and figure chart. For my anchor points in the $SPX's retracement bracket, I've used the high in the column which generated the most recent buy signal -- last May -- at 1315, and the low in the column that generated the most recent sell signal -- last September -- down around 941. The bracket looks like this: SPX - Daily I also like the way that the $SPX has been adhering to its retracement levels, which in my opinion makes this a very useful bracket. The $SPX's recent highs stopped at the 61.8 percent level up around 1173, while the lows have been defined by the 50 percent retracement level around 1128. A break in either direction should lead to the next level of risk in the retracement bracket. Interestingly enough, the 38.2 percent level -- the next level of risk to the downside -- is close to where a 3-box reversal would take place on the point and figure chart above at 1100. The point and figure chart and retracement work I've done won't tell you where the $SPX is heading next. But the tools, when combined, give you a very good idea of the current supply/demand dynamic, as well as risk versus reward at various levels. For instance, bullish positions, FOR A TRADE, make the most sense to me in the $SPX because the index is at support at the 50 percent retracement level. If you're wrong, a tight stop limits risk. An intelligent directional bias, in my opinion, comes not from price action alone, but from a combination of fundamental and technical factors. The point and figure chart and retracement bracket help a trader to test her or his thesis against the market and to know when she or he is wrong. ---------------------------- Mandalay Resort Group - (NYSE:MBG) I have been following this stock for a couple of years and I think I have a feel for its current rhythm. It is approaching its 52-week high and volume [Thursday was] well above average. From its history it looks like it is in for a reversal and drop to 23 or less in the next 4 weeks. Do you think this is valid short term put opportunity for the MBGNY FEB 27.5 option? - Best regard, Bob MBG - Weekly Thanks for the question, Bob. I can't give advice on specific trades. I don't have any insight into Mandalay's business, but I sure do like their place on the Strip. I like the concept of your observation and thesis. Risk is pretty easy to manage right here and now in Mandalay. From where I sit, you're risking about $1 to $1.50 to the upside, while the downside could be more. I think targeting $23 to the downside in the space of a month is aggressive. That's not to say it won't or can't happen. It's just aggressive. The stock's current bullish price objective sits overhead at $30.50. If the stock breaks out above its historical high at $28, then look for it to meet its bullish price objective. ---------------------------- Triquint Semi - (NASDAQ:TQNT) Could you take a look at this old favorite? Are we at a double-bottom or is it just fizzling out? - Thank you, Jim And thank you, Jim. Here are a few of Triquint's major customers and a comment or two for each: Ericsson (NASDAQ:ERICY) - Ericsson reported a wider-than- expected loss last Friday morning for its fourth-quarter. The company's guidance was abysmal. Motorola (NYSE:MOT) - Motorola recently surprised analysts when it said that it could earn as much as 15 cents per share for fiscal 2002, much higher than the previously expected 4 cent profit. However, the company plans to make its money through cost cutting as revenues continue declining. Nokia (NYSE:NOK) - Of the big handset makers, Nokia's recent guidance was the most positive as was the company's financial performance during the fourth-quarter. But a lot of its strength came from taking market share from Ericsson and Motorola, and not organic growth in its markets. Lucent (NYSE:LU) - Lucent: Need I say more? In all seriousness, the company recently opined that it had turned the corner and predicted a strong rebound this year. Analysts question the company's optimistic projections, something the company has grown famous for in a bad way. Nortel (NYSE:NT) - Nortel recently said that its first-quarter sales would decline. No bottom in sight. Alcatel (NYSE:ALA) - Alcatel is Europe's Lucent. Here are a few of Triquint's competitors and a comment for each: Applied Micro (NASDAQ:AMCC) - During the company's conference call recently, Applied Micro's CEO said, "Our end markets remained sluggish [during the fourth-quarter] and customers continue to work through excess inventory." The company forecast as much as a 25 percent sequential drop in first-quarter sales. Conexant (NASDAQ:CNXT) - Conexant said that it expected its revenues to modestly rise in the current quarter, thanks to growth in its wireless chip business. RF Micro (NASDAQ:RFMD) - RF Micro recently guided lower for its first-quarter for both EPS and revenues. Vitesse (NASDAQ:VTSS) - Vitesse's Chief, Lou Tomasetta, guided, "We still have a long way to go both to reach break even and to get to the levels that we think the market will get back to over the next one to two years." The question you have to ask yourself if you're looking to play the stock based upon its double-bottom is: Is all of the bad news already priced in? Also, can it get worse? It's very important to remember that the market is a forward looking mechanism. It's not concerned with the past so much as the future. For that reason, I like the idea behind playing the double-bottom in Triquint, especially after observing the reaction to Qualcomm's (NASDAQ:QCOM) miss last week. The market seemed to have discounted Qualcomm's negative news, on which the stock rallied on the revelation of the bad news. Still, going long on TQNT is a most aggressive position given the state of its business. Triquint could display a similar pattern when it reports on February 7, at which time I don't think it will say anything good. But that might not matter if the bad news is already priced in. The put/call ratio is a little better than 1.0 in front month "around" the money contracts. Slightly bearish are the options market participants currently. TQNT - Weekly ---------------------------- 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 ************* ----------------------------------------------------------------- Major Earnings This Week... ----------------------------------------------------------------- Symbol Company Date Comment EPS Est LNT Alliant Energy Mon, Jan 28 -----N/A----- 0.65 AXP American Express Mon, Jan 28 -----N/A----- 0.22 ARMHY ARM Holdings plc (ADR) Mon, Jan 28 Before the Bell 0.04 ASCL Ascential Sftwr Corp Mon, Jan 28 After the Bell -0.06 BEC Beckman Coulter Mon, Jan 28 Before the Bell 0.75 CX Cemex, S.A. de C.V. Mon, Jan 28 -----N/A----- 0.77 CHRT Chartered Semi Manu Mon, Jan 28 After the Bell -0.95 CNF CNF Transportation Mon, Jan 28 After the Bell -0.10 CGNX Cognex Mon, Jan 28 After the Bell -0.03 CSGS CSG Systems Inter Mon, Jan 28 -----N/A----- 0.51 EXPE Expedia Mon, Jan 28 After the Bell 0.10 FCNCA First Citizens BancSh Mon, Jan 28 -----N/A----- N/A HIG Hartford Finan Serv Mon, Jan 28 After the Bell 1.03 ROOM Hotel Reserv Network Mon, Jan 28 Before the Bell 0.17 IFF Int Flavor & Fragrance Mon, Jan 28 Before the Bell 0.30 MCRL Micrel Semiconductor Mon, Jan 28 After the Bell -0.02 NNDS NDS Group plc Mon, Jan 28 Before the Bell N/A NXTL Nextel Communications Mon, Jan 28 -----N/A----- -0.45 NXTP Nextel Partners Mon, Jan 28 Before the Bell -0.31 BOH Pacific Century Finan Mon, Jan 28 Before the Bell 0.35 PNW Pinnacle West Mon, Jan 28 Before the Bell 0.60 DGX Quest Diagnostics Mon, Jan 28 After the Bell 0.48 SAFC SAFECO Mon, Jan 28 -----N/A----- 0.10 SPP Sappi Ltd ADS Mon, Jan 28 -----N/A----- 0.12 SYK Stryker Mon, Jan 28 After the Bell 0.40 TXN Texas Instruments Mon, Jan 28 After the Bell -0.09 TMCS TcktMstr Online-CitySe Mon, Jan 28 After the Bell 0.04 TUP Tupperware Mon, Jan 28 After the Bell 0.65 TSN Tyson Foods Mon, Jan 28 Before the Bell 0.35 UTSI UTStarcom Mon, Jan 28 After the Bell 0.22 XRX Xerox Mon, Jan 28 Before the Bell -0.01 ABGX Abgenix Tue, Jan 29 After the Bell -0.21 AFCI Advanced Fibre Comm Tue, Jan 29 After the Bell 0.06 ADVP AdvancePCS Tue, Jan 29 After the Bell 0.31 AXE Anixter International Tue, Jan 29 -----N/A----- 0.19 AGY Argosy Gaming Tue, Jan 29 -----N/A----- 0.67 AWE AT&T Wireless Services Tue, Jan 29 Before the Bell -0.06 SAN Banco Santiago Tue, Jan 29 -----N/A----- 0.43 BRL Barr Laboratories Tue, Jan 29 Before the Bell 1.32 BDK Black & Decker Tue, Jan 29 Before the Bell 0.72 BOW Bowater Tue, Jan 29 Before the Bell -0.72 BC Brunswick Tue, Jan 29 -----N/A----- -0.03 BOBJ Bus Obj SA Sp (ADR) Tue, Jan 29 After the Bell 0.19 BCR C.R. Bard Tue, Jan 29 After the Bell 0.74 CPT Camden Property Trust Tue, Jan 29 After the Bell 0.95 CVX ChevronTexaco Corp. Tue, Jan 29 Before the Bell 0.90 CNET CNET Networks Tue, Jan 29 After the Bell -0.12 CGI Commerce Group Tue, Jan 29 After the Bell 0.74 CEG Constellation Enrg Grp Tue, Jan 29 After the Bell 0.45 EXC Exelon Corporation Tue, Jan 29 Before the Bell 0.88 FIC Fair Isaac &Co Tue, Jan 29 After the Bell 0.52 G Gillette Tue, Jan 29 During the Market 0.32 GR Goodrich Corporation Tue, Jan 29 Before the Bell 0.68 GDT Guidant Tue, Jan 29 After the Bell 0.47 HLT Hilton Hotels Corp Tue, Jan 29 Before the Bell 0.00 HON Honeywell Tue, Jan 29 -----N/A----- 0.55 ICOS ICOS Tue, Jan 29 After the Bell -0.56 IDPH Idec Pharmaceuticals Tue, Jan 29 After the Bell 0.16 ITW Illinois Tool Works Tue, Jan 29 Before the Bell 0.64 ISIL Intersil Tue, Jan 29 After the Bell 0.11 K Kellogg Tue, Jan 29 Before the Bell 0.30 KFT Kraft Foods Inc. Tue, Jan 29 -----N/A----- 0.32 LGTO Legato Systems Tue, Jan 29 Before the Bell -0.05 LVLT Level 3 Communications Tue, Jan 29 Before the Bell -1.68 MXO Maxtor Tue, Jan 29 After the Bell -0.21 MHP McGraw-Hill Tue, Jan 29 Before the Bell 0.54 MDP Meredith Tue, Jan 29 Before the Bell 0.15 NEU Neuberger Berman Tue, Jan 29 Before the Bell 0.43 NBL Noble Affiliates Tue, Jan 29 -----N/A----- -0.15 NBP Northern Border Part Tue, Jan 29 After the Bell 0.56 OGE OGE Energy Tue, Jan 29 Before the Bell 0.07 ORI Old Republic Inter Tue, Jan 29 Before the Bell 0.71 OMG OM Group Incorporated Tue, Jan 29 -----N/A----- 0.81 OI Owens Illinois Tue, Jan 29 After the Bell 0.18 PPE Park Place Enter Tue, Jan 29 Before the Bell -0.05 PTNR Partner Communications Tue, Jan 29 Before the Bell -0.07 PBI Pitney Bowes Tue, Jan 29 Before the Bell 0.57 PCL Plum Creek Timber Tue, Jan 29 After the Bell 0.23 PII Polaris Industries Tue, Jan 29 Before the Bell 1.31 PHM Pulte Homes Inc. Tue, Jan 29 Before the Bell 1.88 QSFT Quest Software Tue, Jan 29 After the Bell 0.03 Q Qwest Communications Tue, Jan 29 Before the Bell -0.06 RNWK RealNetworks Tue, Jan 29 After the Bell 0.01 RHA Rhodia ADS Tue, Jan 29 Before the Bell N/A RCL Royal Caribbean Tue, Jan 29 During the Market-0.22 SVM ServiceMaster Tue, Jan 29 -----N/A----- 0.10 SKFR SKF AB ADR Tue, Jan 29 Before the Bell N/A SSCC Smurfit-Stone Contanr Tue, Jan 29 Before the Bell 0.07 SNA Snap-On Tue, Jan 29 Before the Bell 0.51 STTS ST Assembly Test Serv Tue, Jan 29 After the Bell -0.32 TKLC Tekelec Tue, Jan 29 After the Bell 0.07 TDS Telephone Data Tue, Jan 29 Before the Bell 0.51 KO The Coca-Cola Company Tue, Jan 29 Before the Bell 0.37 THOR Thoratec Lab Tue, Jan 29 Before the Bell 0.09 TRP TransCan Pipelns Ltd. Tue, Jan 29 -----N/A----- 0.22 USM U.S. Cellular Tue, Jan 29 Before the Bell 0.41 UPS United Parcel Service Tue, Jan 29 Before the Bell 0.50 UCL Unocal Tue, Jan 29 Before the Bell 0.24 USAI USA Networks Tue, Jan 29 Before the Bell -0.19 VLO Valero Energy Tue, Jan 29 Before the Bell 0.59 VRTS Veritas Software Tue, Jan 29 After the Bell 0.13 WDR Waddell&Reed Financial Tue, Jan 29 Before the Bell 0.30 WMB Williams Companies Tue, Jan 29 Before the Bell 0.39 WPS WPS Resources Tue, Jan 29 -----N/A----- 0.41 ABY Abitibi-Consolidated Wed, Jan 30 Before the Bell N/A AFFX Affymetrix Wed, Jan 30 After the Bell -0.05 ADS Alliance Data Sys Corp Wed, Jan 30 After the Bell 0.12 AMKR Amkor Technology Wed, Jan 30 After the Bell -0.59 AOL AOL Time Warner Wed, Jan 30 Before the Bell 0.33 T AT&T Wed, Jan 30 Before the Bell 0.04 ACAI Atlantic Cst Air Hldgs Wed, Jan 30 -----N/A----- 0.19 BBV Bc Blb Vzcya Ar, (BBVA)Wed, Jan 30 -----N/A----- N/A CELG Celgene Wed, Jan 30 Before the Bell 0.12 CHIR Chiron Wed, Jan 30 After the Bell 0.26 CAM Cooper Cameron Wed, Jan 30 Before the Bell 0.52 DRE Duke Realty Corp Wed, Jan 30 -----N/A----- 0.65 ERTS Electronic Arts Wed, Jan 30 After the Bell 0.89 ENB Enbridge Wed, Jan 30 -----N/A----- N/A EPD Enterprise Products Wed, Jan 30 Before the Bell 0.60 EOG EOG Resources Wed, Jan 30 Before the Bell -0.01 EL Estee Lauder Wed, Jan 30 Before the Bell 0.35 FE FirstEnergy Wed, Jan 30 -----N/A----- 0.67 GBL Gabelli Asset Manag Wed, Jan 30 -----N/A----- 0.50 GLK Great Lakes Chemical Wed, Jan 30 After the Bell -0.18 HAR Harman Inter Ind Wed, Jan 30 -----N/A----- 0.51 HHS Harte-Hanks Wed, Jan 30 -----N/A----- 0.31 KMT Kennametal Wed, Jan 30 Before the Bell 0.33 LEG Leggett & Platt Wed, Jan 30 After the Bell 0.18 LIN Linens `n Things Wed, Jan 30 Before the Bell 0.75 MAN Manpower Wed, Jan 30 Before the Bell 0.33 MIR Mirant Corporation Wed, Jan 30 After the Bell 0.27 NOC Northrop Grumman Wed, Jan 30 Before the Bell 1.13 NCX Nova Chemical Wed, Jan 30 Before the Bell -1.06 NRG NRG Energy Wed, Jan 30 Before the Bell 0.24 BTU Peabody Energy Corp. Wed, Jan 30 -----N/A----- 0.06 PPDI Pharma Product Develop Wed, Jan 30 -----N/A----- 0.24 PD Phelps Dodge Wed, Jan 30 Before the Bell -1.30 MO Philip Morris Wed, Jan 30 -----N/A----- 0.99 PPL PPL Corporation Wed, Jan 30 -----N/A----- 0.82 RBK Reebok International Wed, Jan 30 Before the Bell 0.05 DNY RR Donnelley & Sons Wed, Jan 30 -----N/A----- 0.46 SON Sonoco Products Wed, Jan 30 Before the Bell 0.40 STJ St. Jude Medical Wed, Jan 30 Before the Bell 0.59 SV Stilwell Financial Wed, Jan 30 -----N/A----- 0.35 SEO STORA ENSO CORP Wed, Jan 30 Before the Bell N/A SUS Storage USA Wed, Jan 30 After the Bell 0.93 MNI The McClatchy Company Wed, Jan 30 Before the Bell 0.46 NYT The NY Times Company Wed, Jan 30 Before the Bell 0.50 PZB The Pittston Company Wed, Jan 30 -----N/A----- 0.18 TDW Tidewater Wed, Jan 30 Before the Bell 0.52 TOM Tommy Hilfiger Wed, Jan 30 Before the Bell 0.39 VAR Varian Medical Wed, Jan 30 After the Bell 0.17 WGL WGL Holdings Inc Wed, Jan 30 After the Bell 0.73 XEL Xcel Energy Wed, Jan 30 Before the Bell 0.44 SE 7-Eleven Thu, Jan 31 Before the Bell 0.13 AFL AFLAC Thu, Jan 31 After the Bell 0.34 AKS AK Steel Holding Thu, Jan 31 Before the Bell -0.22 ALA Alcatel Thu, Jan 31 Before the Bell -0.35 AYE Allegheny Energy Thu, Jan 31 After the Bell 0.40 AC Alliance Capital Man Thu, Jan 31 -----N/A----- 0.64 APCC American Power Conver Thu, Jan 31 After the Bell 0.18 APC Anadarko Petroleum Thu, Jan 31 Before the Bell 0.25 APA Apache Thu, Jan 31 Before the Bell 0.53 BSB Banco Santander-Chile Thu, Jan 31 After the Bell 0.32 BRW Broadwing Comm Thu, Jan 31 -----N/A----- -0.29 CPN Calpine Thu, Jan 31 Before the Bell 0.35 CAJ Canon Thu, Jan 31 -----N/A----- N/A CECO Career Education Thu, Jan 31 After the Bell 0.39 CLS Celestica Thu, Jan 31 After the Bell 0.29 COLM Columbia Sportswear Thu, Jan 31 After the Bell 0.48 CTC Comp Telecom Chle S.A. Thu, Jan 31 -----N/A----- N/A CSC Computer Sciences Corp Thu, Jan 31 After the Bell 0.50 CIV Conectiv Incorporated Thu, Jan 31 -----N/A----- 0.09 DAL Delta Air Lines Thu, Jan 31 Before the Bell -3.89 DLX Deluxe Thu, Jan 31 Before the Bell 0.70 DOL Dole Food Thu, Jan 31 Before the Bell 0.04 DTC Domtar Thu, Jan 31 -----N/A----- N/A DOW Dow Chemical Thu, Jan 31 Before the Bell 0.05 DQE DQE Thu, Jan 31 After the Bell 0.33 EMN Eastman Chemical Thu, Jan 31 After the Bell -0.16 EP El Paso Corp. Thu, Jan 31 Before the Bell N/A ETR Entergy Thu, Jan 31 -----N/A----- 0.15 EPC Epcos Thu, Jan 31 Before the Bell N/A FMC FMC Thu, Jan 31 After the Bell 0.71 GILD Gilead Sciences Thu, Jan 31 After the Bell -0.29 HSC Harsco Corporation Thu, Jan 31 Before the Bell 0.61 IGL IMC Global Thu, Jan 31 Before the Bell -0.12 NSIT Insight Enterprises Thu, Jan 31 After the Bell 0.20 KCIN KPMG Consulting Thu, Jan 31 After the Bell 0.12 LYO Lyondell Chemical Thu, Jan 31 Before the Bell -0.52 MAT Mattel Thu, Jan 31 Before the Bell 0.34 MEG Media General Thu, Jan 31 -----N/A----- 0.25 MGG MGM Mirage Thu, Jan 31 Before the Bell 0.08 NIPNY NEC (ADR) Thu, Jan 31 -----N/A----- N/A NWL Newell Rubbermaid Thu, Jan 31 Before the Bell 0.38 NE Noble Drilling Thu, Jan 31 -----N/A----- 0.47 NUE Nucor Thu, Jan 31 Before the Bell 0.17 PTEN Patterson-UTI Enrg Inc Thu, Jan 31 Before the Bell 0.20 PY Pechiney Thu, Jan 31 Before the Bell 0.17 PIO Pioneer Corporation Thu, Jan 31 -----N/A----- N/A PG Procter & Gamble Comp Thu, Jan 31 Before the Bell 1.02 RSG Republic Services Thu, Jan 31 Before the Bell 0.29 RTP Rio Tinto PLC Thu, Jan 31 Before the Bell 2.33 SPI Scottish Power Thu, Jan 31 -----N/A----- N/A SEIC SEI Investments Thu, Jan 31 -----N/A----- 0.29 SII Smith International Thu, Jan 31 Before the Bell 0.76 SUG Southern Union Thu, Jan 31 Before the Bell 0.40 SFG StanCorp Financial GrP Thu, Jan 31 Before the Bell 0.90 HOT Starwood Hotel&Resorts Thu, Jan 31 Before the Bell -0.03 TXU TXU Corp. Thu, Jan 31 Before the Bell 0.66 USTR United Stationers Thu, Jan 31 After the Bell 0.60 VZ Verizon Communications Thu, Jan 31 Before the Bell 0.77 WPL W.P. Stwrt & Co., Ltd. Thu, Jan 31 -----N/A----- 0.37 WFT Weatherford Thu, Jan 31 Before the Bell 0.43 HCR HCR Manor Care Fri, Feb 01 Before the Bell 0.31 IDA Idacorp Holding Fri, Feb 01 -----N/A----- 0.54 LANC Lancaster Fri, Feb 01 -----N/A----- 0.79 LEA Lear Fri, Feb 01 Before the Bell 1.02 VRC Varco Fri, Feb 01 Before the Bell 0.24 ================================================================= Upcoming Stock Splits This Week... Symbol Company Name Ratio Payable Executable XRAY Dentsply Intl. 3:2 01/31 02/01 SYMC Symantec 1:2 01/31 02/01 FRED Freds Inc 3:2 02/01 02/04 HOTT Hot Topic, Inc. 3:2 02/05 02/06 SONC Sonic Corp 3:2 02/08 02/11 ================================================================= Economic Reports Investors face the last week of January with another wave of earnings reports. We have listed some of the larger companies that will be announcing this week. In addition to earnings, Wall Street will also be listening to the FOMC during its 2-da meeting on Tues/Wednesday and analysts will be looking hard at the ECI report on Thursday morning. ================================================================= Monday, 01/28/02 New Home Sales (DM) Dec Forecast: 923K Previous: 934K Tuesday, 01/29/02 Durable Orders (BB) Dec Forecast: 1.0% Previous: -4.8% Consumer Confidence (DM) Jan Forecast: 95.0 Previous: 93.7 FOMC Meeting (2-Day) (DM) Wednesday, 01/30/02 GDP-Adv. (BB) Q4 Forecast: -1.1% Previous: -1.3% Chain Deflator-Adv. (BB) Q4 Forecast: 1.9% Previous: 2.3% FOMC Meeting (2-Day) (DM) Thursday, 01/31/02 Initial Claims (BB) 01/26 Forecast: N/A Previous: 376K Employment Cost Index (BB)Q4 Forecast: 1.0% Previous: 1.0% Personal Income (BB) Dec Forecast: 0.2% Previous: -0.1% Personal Spending (BB) Dec Forecast: -0.2% Previous: -0.7% Chicago PMI (DM) Jan Forecast: 45.0 Previous: 41.5 Help Wanted Index (DM) Dec Forecast: N/A Previous: 45 FOMC Minutes (AB) 12/11 Friday, 02/01/02 Nonfarm Payrolls (BB) Jan Forecast: -60K Previous: -124K Unemployment Rate (BB) Jan Forecast: 5.9% Previous: 5.8% Hourly Earnings (BB) Jan Forecast: 0.2% Previous: 0.5% Average Workweek (BB) Jan Forecast: 34.2 Previous: 34.2 Mich Sent-Prel (DM) Jan Forecast: 94.2 Previous: 94.2 Construction Spending(DM)Dec Forecast: 0.2% Previous: 0.8% ISM Index (DM) Jan Forecast: 49.5 Previous: 48.2 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * FREE REAL-TIME quotes and custom option chains * $1.50 Per Contract (10+ contracts) or $14.95 Minimum. 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The Option Investor Newsletter Sunday 01-27-2002 Sunday 2 of 5 ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********************** INDEX TRADER GAMEPLANS ********************** IS Swing Trade Model: Saturday 1/26/2002 Silver Platter Setup? News & Notes: ------------ Small Range Days to finish the week left little for anyone but intraday scalpers to successfully play. It seems like forever ago since markets were moving in dramatic, directional fashion and it could be a tad until we see that again. However, on a short-term basis it appears we might have a profitable opportunity ahead. Featured Markets: ---------------- [60/30-Min Chart: OEX] In spite of our temperamental chart service (which is customary on weekends) we do see clearly defined, coiled wedges in all feature symbols. If the OEX breaks above 576 it could retest 587 while a break below 573.50 could see 563 from there. Why? The wedge spans roughly 10+ index points, so a break at either blue trendline should run 10 index points in that direction from there. [60/30-Min Chart: SPX] A bit less defined than the OEX, which is always more deliberate. This 15-index point wedge will break near 1135 and should run to 1150 or 1120 from there. Long at 1137, short at 1133 and hold stops at the opposite side's entry from there. [60/30-Min Chart: QQQ] Our naughty charts refused to paint the QQQ at all, so here's the underlying NDX chart. Same wedge, play the breaks. 39 long, 38 short. Summation: --------- With weekly charts bearish and daily chart bullish as depicted in tonight's Index Wrap, I would pay more attention to entry points on the break of these patterns either way for the next high-odds play than anything else. Do not be surprised if a sudden move runs strong in a direction and reverses sharply the other way within that session. We have mixed charts that warn of volatile action ahead. Both call and put play triggers are listed tonight for Monday's action with very defined wedges that suggest a break with power is near. However, that is a short-term prognosis only and range bound action is our forecast until the next FOMC meeting clears later this week. I would not fall in love with either direction right now and caution you from doing that as well! Trade Management: ---------------- Option traders may choose listed In-The-Money (ITM) or Out-The- Money (OTM) contracts by personal preference. They are selected based on volume, open interest and "Delta" values in that order. Our preference is usually OTM contracts except for the last few days of expiration when ATM or ITM contracts are preferred. Entry triggers are points where plays are tracked when price action breaks above for calls or below for puts. Stops are the exact opposite of that. Sell targets are points to exit based on index levels or %gain on option contract price as noted. *No entry targets listed mean the models are idle at that time. New Play Targets: ---------------- QQQ DJX Feb Calls: 39 (QQQ-BM) Feb Calls: 99 (DJV-BA) Long: BREAK ABOVE 39.00 Long: BREAK ABOVE 9,900 Dow Stop: Break Below 38.00 Stop: Break Below 9,800 Dow Feb Puts: 38 (QQQ-NL) Feb Puts: 98 (DJV-NT) Long: BREAK BELOW 38.00 Long: BREAK BELOW 9,900 Dow Stop: Break Above 39.00 Stop: Break Above 9,900 Dow ===== OEX SPX Feb Calls: 580 (OEY-BP) Feb Calls: 1150 (SPT-BJ) Long: BREAK ABOVE 576.00 Long: BREAK ABOVE 1137.00 Stop: Break Below 573.50 Stop: Break Below 1133.00 Feb Puts: 570 (OEB-NN) Feb Puts: 1125 (SPT-NE) Long: BREAK BELOW 573.50 Long: BREAK BELOW 1133.00 Stop: Break Above 576.00 Stop: Break Above 1137.00 Open Plays: ---------- None IS Position Trade Model: Saturday 1/26/2002 Sideways Still News & Notes: ------------ Major indexes refuse to begin any directional trend and continue their range bound ways. This merely results in time (theta) decay for the buy & hold trader, a losing proposition right now. Featured Plays: -------------- None Summation: --------- Our DJX put play tracked hit its advanced stop-loss mark on Friday. Other stops have been elevated and may exit soon. Time decay continues to erode as market action has gone nowhere at all since our entry points a few weeks ago. No conditions exist for new buy & hold trade entries at this time. Trade Management: ---------------- Option traders may choose listed In-The-Money (ITM) or Out-The- Money (OTM) contracts by personal preference. They are selected based on volume, open interest and "Delta" values in that order. Position Trade model usually tracks OTM contracts with several weeks of time premium left until expiration for buy & hold plays. Entry triggers are points where plays are tracked when price action breaks above for calls or below for puts. Stops are the exact opposite of that. Sell targets are points to exit based on index levels or %gain on option contract price as noted. *No entry targets listed mean the models are idle at that time. New Play Targets: ---------------- None Open Plays: ---------- DJX Feb Puts: OTM 98 (DJV-NT) Long: 2.00 Stop: 1.50 [hit] Result: -25% on cost SPX Feb Puts: OTM 1125 (SPT-NE) Long: 24.60 Stop: 15.00* RTH Feb Puts: ITM 41 (RTH-NR) Long: 1.60 Stop: 1.00* XLI Feb Puts: ITM 28 (XLI-NB) Long: 1.00 Stop: 1.00 Sector Share Trade Model: Saturday 1/26/2002 Rising In Agony News & Notes: ------------ Markets continue to struggle their way higher on the bounce from recent support last week. A few shorts were exited for slight gains or entry par while others entered on Friday. Featured Plays: -------------- None Summation: --------- Market continue their sideways chop and remain a short-term trader's game. We have zero problem taking dozens of plays for one-point gains or exits at par but that's not the intent of this approach. We continue seeking trends to enter & hold, but right now that just doesn't exist. Trade Management: ---------------- Entry triggers are points where plays are tracked when price action breaks above for calls or below for puts. Stops are the exact opposite of that. Sell targets are points to exit based on index levels or %gain on share price as noted. No entry targets listed mean the model is idle at that time. * Asterisk means stop-loss level changed since prior posting New Play Targets: ---------------- 1/24 XLF Financial SPDR Short: BREAK BELOW 26.00 Stop: Break Above 28.00 IYG Dow Jones Financial Short: BREAK BELOW 91.50 Stop: Break Above 93.00 FFF Fortune 500 Short: BREAK BELOW 80.00 Stop: Break Above 82.00 RKH Regional Bank HOLDR Short: BREAK BELOW 115.00 Stop: Break Above 118.00 Open Short Plays: ---------- 01/02 XLI Short: BREAK BELOW 27.70 Stop: Break Above 26.00 [hit 26.32] Result: +0.68 01/14 DIA Dow Industrial Diamond Short: BREAK BELOW 99.00 Stop: Break Above 97.50 [hit] Result: +1.5 HHH Internet HOLDR Short: BREAK BELOW 34.00 Stop: Break Above 33.00 * 01/15 XLV U.S. Consumer SPDR Short: BREAK BELOW 27.00 Stop: Break Above 27.00 [hit] Result: PAR 01/25 IYF Dow Jones U.S. Financial Short: BREAK BELOW 80.00 Stop: Break Above 83.00 IYR Dow Jones Real Estate Short: BREAK BELOW 79.75 Stop: Break Above 82.00 *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Tue Wed Thr Week MRVL 44.96 1.08 -0.68 1.01 2.51 Still trend higher... PVN 4.14 -0.64 0.14 0.10 -0.20 Hold over earnings TGH 73.50 0.01 0.05 0.52 2.09 B-I-G brekout Friday LPNT 37.24 0.48 0.55 1.20 2.47 No complaints in LPNT LLL 96.70 -1.67 0.58 3.84 3.15 Defensive momentum PNC 62.00 -0.13 0.32 1.18 0.74 Watch the 200-dma LTR 61.52 0.52 -0.04 0.07 1.37 Breakout last Friday! MMM 111.23 -0.38 1.04 2.00 4.43 Testing the 200-dma DPMI 48.71 -1.64 2.58 0.47 2.45 New, above resistance PUTS ADRX 61.07 -0.47 1.59 1.17 0.11 Waiting on breakdown THQI 44.73 -0.73 -0.22 2.65 -0.34 Rolled over at $45 IVGN 57.89 0.00 3.29 -0.25 1.63 Another lower high SMTC 33.61 -1.70 0.57 0.62 -0.40 Dropped, not moving SGR 20.46 -0.81 0.59 1.35 0.84 Dropped, not acting NTIQ 28.73 -0.35 -1.36 -2.61 -2.58 Short covering Friday GNSS 56.17 -8.48 0.98 -3.32 -10.01 Watch the $52.80 site CCMP 63.40 -3.50 3.06 -5.84 -9.43 New, break at 200-dma MRCY 33.50 -0.21 0.18 -0.04 -1.58 New, bearish wedge CIMA 27.85 -0.38 0.43 -0.24 -0.70 New, bearish momentum ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* DPMI – DuPont Photomasks $48.71 (+2.45 last week) See details in play list Put Play of the Day: ******************** CCMP - Cabot Microelectronics $63.40 (-9.43 last week) See details in play list ************************** 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 ^^^^^ SMTC $33.61 (-0.40) When we added SMTC to the put list last week, the stock had been falling sharply for more than 2 weeks and had just plunged through its 200-dma. But the past 3 days have seen the price stabilize and the buying volume has been strong, possibly due to the positive earnings reports from Wireless leaders like NOK and QCOM. It looks like the downward momentum is gone and we'll take this opportunity to close the play before the reversal gets moving. PUTS ^^^^ SGR $20.46 (+0.84) SGR isn't performing as expected after its breakdown below the $20 level early last week. The stock rebounded with the broader energy sector last Thursday and continued higher into Friday's session, although it rolled over later in the day. Instead of waiting around for weakness to emerge, we're dropping coverage this weekend. Traders with open positions can look to any weakness early next week to exit plays. *********** 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. ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** 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 01-27-2002 Sunday 3 of 5 ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************** NEW CALL PLAYS ************** DPMI – DuPont Photomasks $48.71 (+2.45 last week) DuPont Photomasks manufactures photoblanks and photomasks for the Semiconductor industry. Photomasks are high-purity quartz or glass plates containing precise, microscopic images of integrated circuits that are used as masters (similar to negatives in a photographic process) to optically transfer the image of circuit patterns onto semiconductor wafers during the fabrication process. Photomasks are made from photoblanks, which are highly polished quartz or glass plates coated with ultra-thin layers of chrome and photoresists. The film is typically precision-coated with an anti-reflective layer to improve optical performance characteristics. There are many levels to the Semiconductor food chain, and the standard chip equipment stocks may not be the best way to game a recovery in chip stocks. DPMI makes the stuff that chip companies need to implement new designs, without requiring the purchase of new capital equipment. Maybe that is why the stock has been outperforming the standard chip equipment makers like AMAT and KLAC in recent weeks. That's right, relative strength strikes again. DPMI's chart is actually a thing of beauty, as the stock broke out above the $45 resistance level earlier this month and tagged a high near $52.50 before succumbing to profit taking. The real beauty was in the bounce though, as DPMI found eager buyers at the $45 level, confirming that old resistance has now become support. This support level is confirmed by the 3-month ascending trendline (now right at $45). Earnings were nonexistent in the company's most recent quarter (which they reported last Wednesday), but at least the company didn't lose money. And a dismal forecast for the next quarter only served to whet investors' appetite for the stock as they have bid it higher by more than 9% since the report. Target dips to support at $47 or even lower in the $45.50-46.00 area for initiating new positions. Alternatively, a continued rally above the $49 level can be used to enter the play, but only if buying volume strengthens from the anemic levels seen on Friday. Look for bullish confirmation from the SOX index, which coincidentally began to recover off its lows Wednesday morning as well. Set stops at $44, just below Wednesday's lows. BUY CALL FEB-45 DUD-BI OI=399 at $4.70 SL=2.75 BUY CALL FEB-50*DUD-BJ OI= 22 at $1.70 SL=0.75 BUY CALL MAR-50 DUD-CJ OI=140 at $3.00 SL=1.50 BUY CALL MAR-55 DUD-CK OI= 3 at $1.40 SL=0.75 Average Daily Volume = 273 K ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ****************** CURRENT CALL PLAYS ****************** MRVL - Marvell Tech $44.96 (+2.51 last week) Marvell Technology Group designs, develops, and markets integrated circuits utilizing proprietary communications mixed signal and digital signal processing technology for communications-related markets. The company's products provide the critical interface between analog signals and the digital information used in computing and communications systems and enables its customers to store and transmit digital information reliably and at high speeds. The trend continues in MRVL. The stock added $2.51 in last week's trading, or about 6%. In comparison, the Philadelphia Semiconductor Sector Index (SOX.X) added about 13 points, or about 2.5%. Most of the SOX.X's gains came in last Friday's session, when the index tacked on 12 points or about 2%. The positive trading in the SOX.X last Friday may have helped MRVL to trade higher in the session by more than $1. The news front remains curiously quiet in MRVL as the stock continues higher. That's all right with us as long as the stock continues trading higher. With its advance last Friday, MRVL punched above the $45 level. Those with entries taken at much lower levels can look to take gains on any strength above the $45 level early next week. As long as the trend remains intact and daily volume continues to remain robust we're comfortable continuing to look for new entries in MRVL along its trend. Instead of chasing the stock higher on a move to a relative high and watching it pullback, we're more comfortable entering new bullish positions on a profit taking pullback to support. The stock's 10-dma current sits underneath at the $41.93 level. It has provided support in the recent past and may continue to do so in the future. Traders can look for a relatively light volume intraday pullback to the 10-dma to find new entries. Watch the SOX.X for strength before entering on any forthcoming dip. BUY CALL FEB-42 UVM-BR OI= 431 at $5.00 SL=3.25 BUY CALL FEB-45*UVM-BI OI= 921 at $3.60 SL=2.50 BUY CALL FEB-47 UVM-BS OI= 663 at $2.25 SL=1.00 BUY CALL MAY-45 UVM-EI OI=1801 at $7.50 SL=5.25 Average Daily Volume = 2.65 mln LLL - L-3 Communications $96.70 (+3.15 last week) L-3 Communications Holdings, Inc., including its wholly owned subsidiary L-3 Communications Corp., is a merchant supplier of sophisticated secure communication systems and specialized communication products. Its customers include the United States Department of Defense (DoD), certain United States government intelligence agencies, major aerospace and defense contractors, foreign governments and commercial customers. The Company has two business segments, Secure Communication Systems and Specialized Communication Products. The positive sentiment continues building in the defense industry thanks to earnings reports and the government. Alliant Tech (ATK) reported a very bullish earnings number late last week. The diversified defense contractor reported strong results for its quarter and raised guidance for the coming quarters. The earnings reports from the defense sector continue to be nothing but bullish. Last Thursday, President Bush proposed an additional $48 billion in spending on defense products and services. The details of the proposal are expected to be released on February 4. The defense sector could continue rallying into the announcement. The Defense Sector Index (DFI.X) rallied by more than 6.5% in last week's trading. That strength carried LLL higher by more than $3. In last Friday's session, the stock traded as high as $97.20 before pulling back. Its all-time high rests just above at the $98.07 level. A big breakout is possible and could be playable depending upon your risk tolerance. But those who entered on the stock's weakness early last week might look to book gains on strength up to the high. A pullback into the $92 to $94 range might offer a better entry on weakness in terms of risk and reward. BUY CALL FEB- 90 LLL-BR OI=714 at $7.70 SL=5.75 BUY CALL FEB- 95*LLL-BS OI=350 at $4.20 SL=2.75 BUY CALL FEB-100 LLL-BT OI=564 at $1.50 SL=0.50 BUY CALL APR- 95 LLL-DS OI=602 at $7.90 SL=5.50 Average Daily Volume = 651 K PNC - PNC Financial Services $62.00 (+0.74 last week) PNC Financial Services Group, Inc. is a bank holding company and a financial holding company. The Company is a diversified financial services company operating community banking, corporate banking, real estate finance, asset-based lending, wealth management, asset management and global fund services businesses. The Company provides certain products and services nationally and others in PNC's primary geographic markets in Pennsylvania, New Jersey, Delaware, Ohio and Kentucky. The Company also provides certain products and services internationally. PNC pulled back in last Friday's session on weakness in the Bank Sector Index (BKX.X). The BKX.X finished only fractionally lower in last Friday's session, but its weakness most likely induced short-term profit taking in shares of PNC. The big development last week was obviously the breakout above the 200-dma. The stock fell back below that level in last Friday's session. The 200-dma currently sits just overhead current levels at the $62.16 level. It should continue to be a site of battle between the bulls and bears. PNC's CEO is expected to present at an investor conference next Wednesday, starting at 3:45 p.m. EST. If he delivers bullish comments, we could see a late-day rally in the stock that could carry over into Thursday's session. Be aware of the conference Wednesday afternoon because it could impact trading in our play. If PNC continues pulling back into next week's trading, look for the stock to find support near its ascending 10-dma, which currently resides at the $60.99 level. A rebound from there is playable as a new entry point. Look for volume to decline on further price weakness as a sign that the pullback is profit taking related. Also, keep in mind that the Fed will announce its decision on interest rates next week, which could impact our PNC. Keep an eye on the BKX.X for insight into the market's reaction to the Fed's announcement. BUY CALL FEB-60*PNC-BL OI=1053 at $2.85 SL=1.50 BUY CALL FEB-65 PNC-BM OI=1754 at $0.55 SL=0.00 Aggressive! BUY CALL MAY-60 PNC-EL OI= 422 at $4.60 SL=3.25 BUY CALL MAY-65 PNC-EM OI= 826 at $1.80 SL=1.00 Average Daily Volume = 998 K MMM - MN Mining & Manufacturing $111.23 (+4.43 last week) Minnesota Mining & Manufacturing (3M), an integrated enterprise, is engaged in the research, manufacturing and marketing of products related to its technology in coating and bonding for coated abrasives. Characterized by substantial inter-company cooperation, 3M's business has developed upon the research and technology of its original product, coating and bonding. MMM spiked higher in last Friday's session, but pulled back from its highs that were set just above the stock's 200-dma. Talk surfaced late last week that President Bush would address the asbestos fears in his State of the Union speech next week. Some speculated that the President would talk about certain litigation liability limitations in the asbestos cases. White House officials did not say whether the President would address asbestos concerns. Nevertheless, the mere mention of relief from the litigation was enough to spur a rally across the industrial concerns that have been knocked down in recent weeks over asbestos concerns. MMM continued to rebound on relatively strong volume. The stock peaked above its 200-dma in last Friday's session, but then pulled back later in the day. Traders in positions already should continue monitoring MMM's price action around its 200-dma. A solid breakout could have the stock poised to trade up to the $115 area. Those waiting for a pullback can look for market related weakness to pressure MMM back down to the $108 to $110 area. Watch for a bounce and monitor the $INDU for market confirmation. BUY CALL FEB-105 MMM-BA OI= 890 at $7.90 SL=6.75 BUY CALL FEB-110*MMM-BB OI=1393 at $4.10 SL=2.75 BUY CALL FEB-115 MMM-BC OI=2165 at $1.45 SL=0.75 BUY CALL MAR-110 MMM-CB OI= 204 at $5.70 SL=4.25 Average Daily Volume = 1.85 mln LPNT – LifePoint Hospitals $37.24 (+2.47 last week) LifePoint Hospitals operates 21 acute care hospitals in growing non-urban communities in Alabama, Florida, Kansas, Kentucky, Tennessee, Utah and Wyoming. The hospitals usually provide commonly available medical and surgical services, as well as diagnostic, emergency and outpatient services. The company also makes available a variety of management services to its facilities including information systems, leasing contracts, accounting, financial and clinical systems, as well as internal auditing and resource management. LPNT has continued to benefit from the bullish action in the Health Care index (HMO.X) over the past week. As the HMO index has inched closer to the $480 resistance level, LPNT has worked its way through the $37 resistance level, which is also the site of the 200-dma. While volume hasn't been anything spectacular, it is hard to argue with the fact that the stock has been walking higher on a daily basis since rebounding from the $30 level earlier this month. Taking a quick look at the PnF chart, shows a triple top breakout with the stock's move through the $35 level, with a tentative price target of $52. But the bearish resistance line at $38 (also the site of historical resistance) is going to make the bulls work for additional gains. That makes buying the dips the best approach to initiating new positions. That's what we got on Friday, as LPNT dipped back to the $36 level, from which it quickly rebounded. Watch the stock's behavior as the HMO index reaches its resistance level. Profit taking near that level will likely set up a solid entry for the next leg higher, while a strong move through resistance will provide a fresh entry opportunity for momentum players. Stops should currently be set at $35. Keep an eye on the calendar, as LPNT announces earnings on February 4th, and we'll be closing the play before that event. BUY CALL FEB-35*PUN-BG OI=295 at $3.00 SL=1.50 BUY CALL FEB-40 PUN-BH OI=161 at $0.60 SL=0.00 BUY CALL MAR-35 PUN-CG OI= 0 at $3.50 SL=1.75 BUY CALL MAR-40 PUN-CH OI= 36 at $1.00 SL=0.50 BUY CALL MAY-40 PUN-EH OI= 10 at $2.65 SL=1.25 Average Daily Volume = 606 K LTR – Loews Corp. $61.52 (+1.37 last week) Loews Corporation is a holding company with subsidiaries engaged in property, casualty and life insurance (CNA Financial Corporation); the production and sale of cigarettes (Lorillard, Inc.); the operation of hotels (Loews Hotels Holding Corporation); the operation of offshore oil and gas drilling rigs (Diamond Offshore Drilling), and the distribution and sale of watches and clocks (Bulova Corporation). Proving once again that dips are buyable, shares of LTR finally pushed through the $61 resistance level on Friday, and they did so with the support of strong buying volume. The benefit of hindsight shows that the 10-dma (currently $59.74) is continuing to provide support as the stock continues to work higher. The company has a pretty diversified income stream, but it’s a safe bet that the incentive for the stock to continue its rally is the recent strength in Transportation stocks. Afterall, if travel is picking up, that is going to be good for two areas of LTR's business, Energy and Hotels. Adding more to the bullish bias for the stock is the fact that the company plans to raise $1 billion by issuing tracking stock for its Lorillard Tobacco unit next Friday. Anticipation of that event should keep the bulls buying, and we're more than willing to ride that upward trend as long as it continues. Target new entries on dips near the $60 level or on a breakout above Friday's high ($62.25). Keep in mind that the company announces earnings next Thursday before the opening bell, and we'll want to have any open positions closed by then. We're raising our stop to $59 this weekend. BUY CALL FEB-60*LTR-BL OI= 646 at $2.70 SL=1.25 BUY CALL FEB-65 LTR-BM OI= 29 at $0.50 SL=0.00 BUY CALL MAR-60 LTR-CL OI=3530 at $3.50 SL=1.75 BUY CALL MAR-65 LTR-CM OI= 342 at $1.15 SL=0.50 Average Daily Volume = 613 K PVN – Providian Financial $4.34 (-0.20 last week) As one of the top ten US credit card companies, PVN issues mainly secured credit cards to more than 12 million customers, many of whom have spotty credit histories. The company also offers standard and premium crecit cards to those with better credit. In addition to credit card products, the company also offers a suite of loan products and membership services. Soliciting new customers via direct mail, phone calls, and online advertising, PVN has more than $27 billion in assets under management and over 14 million customers. While PVN got off to a rocky start last week y dropping back to the $3.80 level before stabilizing and entering into another upward trend. The big question is whether the bulls have the conviction to push through the $4.40 resistance level, and more importantly the highs from a couple weeks ago near $4.85. Recall that our premise for the play is that investors have over-reacted to potential credit problems. After stabilizing near $2 late last year, the stock has been gradually working higher and we're looking for a move up to the bottom of the October gap near $6.70. It looks like investors are going to wait for the company's earnings report before being willing to push the stock higher, so we're going to break one of our cardinal rules and hold over earnings on this one. When (if) PVN reveals that its financial condition is better than expected on Thursday after the close, it could result in a nice pop higher. Take advantage of intraday dips near the $4.00 level to initiate new positions or else wait for PVN to move back above the $4.60 level on strong volume before playing. Given the relatively slow movement of the stock, consider using March or June contracts to protect against the effects of time decay. BUY CALL FEB-5 PVN-BA OI= 7783 at $0.25 SL=0.00 BUY CALL MAR-5*PVN-CA OI=10265 at $0.60 SL=0.00 BUY CALL JUN-5 PVN-FA OI= 4920 at $1.15 SL=0.50 BUY CALL JUN-7 PVN-FU OI= 1082 at $0.55 SL=0.00 Average Daily Volume = 6.93 mln TGH – Trigon Healthcare $73.50 (+2.09 last week) Based in Virginia, TGH is a managed healthcare company, serving over two million members primarily through statewide and regional provider networks. The company divides its business into four segments, which include health insurance, government programs, investments and all other. The health insurance segment provides a comprehensive spectrum of managed care products primarily through three network systems with a range of utilization and cost-containment controls. The government is TGH's largest customer, as the company services the Federal Employee Program. The 'all other' category includes disease management programs, third-party administration for medical and workers compensation, and health promotions. It took several attempts for the bulls to get it right, but on Friday they finally finished pushing TGH through the $72 resistance level, helped in part by the fact that the Health Care index (HMO.X) continued its rally, closing in on the $480 resistance level. Buying volume has been rather strong over the past 2 days, confirming that the Wednesday bounce at the $70 support level was no fluke but a great entry point into the play. The PnF chart has a strong buy signal that forecasts an eventual price target well above current levels, and even the highs from late 2000. Focusing on the price chart, we should see some mild resistance near $74.50, intensifying as the stock gets closer to the $80 level. Underlying this play is the strength in the HMO index and anticipation of the stock continuing to run as its earnings date (February 8th) approaches. Any profit taking that hits the Health Care sector is likely to provide us with another high odds entry point, as TGH dips and bounces near the $71.50 level. If the HMO index powers through the $480 level next week though, TGH should follow through as well, giving momentum players just what they're looking for -- another tradable breakout as TGH pushes through Friday's high. BUY CALL FEB-70 TGH-BN OI=241 at $4.70 SL=2.75 BUY CALL FEB-75*TGH-BO OI= 37 at $1.80 SL=1.00 BUY CALL MAR-75 TGH-CO OI= 7 at $2.95 SL=1.50 BUY CALL APR-75 TGH-DO OI=234 at $3.80 SL=2.00 Average Daily Volume = 182 K ************* NEW PUT PLAYS ************* CCMP - Cabot Microelectronics $63.40 (-9.43 last week) Cabot Microelectronics Corporation is a supplier of high performance polishing slurries used in the manufacture of the most advanced integrated circuit (IC) devices, within a process called chemical mechanical planarization. The Company supplies slurries to IC device manufacturers worldwide. Most of the Company's CMP slurries are used to polish insulating layers and the tungsten plugs that go through the insulating layers and connect the multiple wiring layers of IC devices. A disturbing pattern of breakdowns is showing up in several semiconductor stocks. This despite seemingly positive earnings reports. CCMP reported its fiscal first quarter numbers last Thursday. The company reported revenues of $51 million, which was down from its sales of $69 million in the year ago period. The company's profit was $9 million for the quarter, lower from the $14.4 million profit in the year ago period. The $9 million profit amounted to 37 cents per share, which was one penny short of the analysts' consensus estimate. The disappointment from CCMP resulted in a steep drop in the stock, which saw it break below the 200-dma for the first time since last October. The stock's lofty valuation demands perfection from the company in terms of financial performance. CCMP currently trades with a multiple of 57. The company wasn't perfect in its last quarter judging by the earnings miss. As a result, there may be a multiple compression dynamic at work in this stock over the short-term as the stock reflects the worse than expected fundamentals. Traders looking for the selling momentum to continue can look for weakness to persist into next week's trading. Consider entries at current levels on weakness in the Semiconductor Sector Index (SOX.X). Or look for a breakdown below last Friday's intraday low at $61.75 on heavy down volume. Those who prefer entering near resistance can wait for a rally and rollover from the 200-dma at $66.01. Our coverage stop is in place at $67. BUY PUT FEB-65 UKR-NM OI=332 at $5.00 SL=3.50 BUY PUT FEB-60*UKR-NL OI=541 at $2.75 SL=1.50 Average Daily Volume = 1.17 mln MRCY - Mercury Computer Systems $33.50 (-1.58 last week) Mercury Computer Systems, Inc. designs, manufactures and markets high performance, real-time digital signal and image processing computer systems that transform sensor generated data into information that can be displayed as images for human interpretation or subjected to additional computer analysis. The Company's products are divided into two categories: Hardware Products and Software Products. IBM's disappointing earnings report has plagued the computer services sector. Sentiment is growing bearish in the group. MRCY's price action over the last two months confirms as much. The company reported earnings recently that were less than desirable. For its most recent completed quarter the company saw its profits drop by 46%. The company blamed its shortfall on its defense business. It makes hardware and software to help soldiers with visibility in the battlefield. The company blaming its shortfall on its defense business is contradictory to the current state of the defense industry, which is booming with business. Investors didn't approve of the explanation last week as MRCY dropped more than 4% in last Friday's trading. There's a descending wedge forming in this stock, which is revealed by its trend of relatively lower highs combined with the floor at the $33 level. A big breakdown appears to be on the horizon. Traders who like entering on momentum can look for a high volume spike below the $33 level early next week. Those who prefer entering on a rollover can look for weakness to emerge up around the $35 level, or near the 10-dma at $34.66. Our stop is initially in place at the $36 level. BUY PUT FEB-35*QYR-NG OI= 82 at $3.10 SL=1.75 BUY PUT FEB-30 QYR-NF OI=371 at $1.00 SL=0.50 Average Daily Volume = 385 K CIMA – Cima Laboratories $27.85 (-0.70 last week) Cima Labs develops and manufactures pharmaceutical products based on its proprietary OraSolv and DuraSolv fast-dissolve technologies. The company manufactures five pharmaceutical brands utilizing these technologies, three prescription and two over-the-counter. The products include Triaminic Softchews for Novartis; Tempra FirsTabs for a Canadian affiliate of Bristol-Myers Squibb; Zomig-ZMT for AstraZenica; Remeron SolTab for Organon, and NuLev for Schwarz Pharma. In addition to its established technologies, CIMA is developing transmucosal drug delivery technologies, which will allow for drug delivery under the tongue, or between the cheek and gum. No rest for the wicked seems to be the theme in the Biotech sector (BTK.X), as the IMCL FDA rejection is having repercussions throughout the group. There are other problems as well, but those at IMCL (along with the collateral damage it is causing at BMY) seem to be the attention-grabbers. CIMA has been stuck in a trading range since the big gap down in early November, and we've been waiting patiently to see which way it would head when it left the range. Judging by the continued deterioration and drop below the lower edge of its recent range near $28.50 last week, down is the answer. The PnF chart concurs, by registering another double-bottom breakdown last week. Even with a slight mid-week improvement in the BTK, allowing it to close well off its weekly lows, CIMA continued to deteriorate and barely closed off its lows for the week. Relative weakness strikes again. With CIMA trading at new 18-month lows, we need to go back quite a ways to find support. While there is some support near $27, it really doesn't look decent until $23 and then $20. That gives us plenty of room to profit in the process as the stock continues to deteriorate. While we can target a failed rally near the $30-31 resistance level, recent price action suggests we won't be so lucky. More realistic entry targets will be a failed rally near $29 (the site of the 10-dma) or a drop below the $27 level. Set stops initially at $31. BUY PUT FEB-30*UVK-NF OI=96 at $3.50 SL=2.75 BUY PUT FEB-25 UVK-NE OI=38 at $0.90 SL=1.00 Average Daily Volume = 603 K ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. 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The Option Investor Newsletter Sunday 01-27-2002 Sunday 4 of 5 ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***************** CURRENT PUT PLAYS ***************** ADRX - Andrx $61.07 (+0.11 last week) Andrx formulates and commercializes controlled-release oral pharmaceuticals using its proprietary drug delivery technologies. Andrx markets and sells Catria XT and Dilitia XT, its generic or bioequivalent versions of Cardizem CD and Dilacor XR. Like clockwork, ADRX rolled over in last Friday's session after rallying in the previous two days of trading. The stock's rollover last Thursday at the $64 level proved once again that entering stocks near resistance for put plays is a good way to trade. The Biotechnology Sector (BTK.X) pulled back in last Friday's session which may have been the cause for ADRX's weakness despite the company's good news. ADRX said last Friday that it had received final marketing approval for its generic form of Glucophage. The drug is aimed to compete with Bristol Myers' (BMY) treatment for glycemia. The news may have already been factored into the stock, making last Friday's announcement a non-event. Our play is going to remain tied to the trading in the broader biotech sector. For that reason, traders should continue to monitor the BTK.X closely into next weeks trading. Further weakness in the BTK.X could finally pressure ADRX below its support at the $60 level. Traders should look for a high volume breakdown below $60 in conjunction with weakness in the BTK.X. Otherwise, future rollovers from the $65 level can serve as entries into new put plays with a tight stop just above the 200-dma currently at $65.72 BUY PUT FEB-65 QAX-NM OI=2323 at $5.40 SL=3.50 BUY PUT FEB-60*QAX-NL OI=1808 at $2.80 SL=1.25 Average Daily Volume = 1.54 mln GNSS – Genesis Microchip $56.17 (-10.01 last week) Genesis Microchip designs, develops and markets integrated circuits that receive and process digital video and graphic images. Its integrated circuits are typically located inside a display device and process images for viewing on that display. The company also supplies reference boards and designs that incorporate its proprietary integrated circuits. GNSS is focused on developing and marketing image-processing solutions and targets the flat-panel computer monitor and other potential mass markets. The past 2 weeks have been pretty painful for GNSS investors, as the stock continues to fall back from its all time highs earlier in the month. While one of 2001's best performing stocks, it isn't off to a very good start in 2002, as investors are trying to lock in their gains before the stock falls any further. Both Wednesday and Friday saw the stock bounce strongly off its lows near $52.50, which should come as no surprise, as the 38% retracement of the stock's rally between September and January rests at $52.48. With the sell signal on the PnF chart currently forecasting a bearish price target of $37, we have plenty of room to play to the downside so long as supply remains in control of price action. Now that the initial large drop is out of the way, GNSS may consolidate a bit before the next leg down. Use failed intraday rallies near the $60 resistance level to initiate new positions, or else wait for a drop below the $52.50 level on continued heavy volume. Beware if volume begins to dry up, as that could be an early sign that the rush for the exits has begun to dissipate. Keep stops in place at $61. BUY PUT FEB-60 QFE-NL OI= 892 at $6.70 SL=4.75 BUY PUT FEB-55*QFE-NK OI= 971 at $3.90 SL=2.50 BUY PUT FEB-50 QFE-NJ OI=1397 at $2.00 SL=1.00 Average Daily Volume = 2.74 mln IVGN – Invitrogen Corporation $57.89 (+1.63 last week) IVGN develops, manufactures and markets more than 10,000 products for the life sciences markets. The company's products are principally research tools in reagent and kit form, biochemicals and media, which the company sells to corporate academic and government entities. IVGN focuses its business on two principal segments, Molecular Biology and Cell Culture Products. The company markets a broad portfolio of products that are designed to enable rapid, efficient cloning of DNA fragments and eliminate certain time-consuming steps in genetic research. Just when it looked like the Biotech sector (BTK.X) was ready for another breakdown, buying interest propped it back up on Wednesday, sending our IVGN play soaring right to the $60 level where we set our stop. It was with some trepidation that we kept the play alive Wednesday night, but the trading throughout the remainder of the week proved the prudence of keeping it alive. In hindsight, the $60 level (also the site of the 20-dma) provided resistance to turn back another rally attempt. With resistance holding firm, we now know that we can continue to use failed rallies to the 20-dma (now at $59.67) to initiate new positions. Otherwise, we'll want to wait for IVGN to violate the $55 level before playing. While we'll still want to keep an eye on the market's reception to anything said at the USB Piper Jaffray Healthcare Conference on Tuesday, we've gotten a reprieve on earnings. Initially scheduled for next Thursday, they have been changed to the end of February, giving us far more time to play. We'll want to continue monitoring the BTK index for confirmation of our bearish stance on IVGN. If the BTK rallies back through the $550 level, it's a good bet that IVGN will break out of its downtrend. The more likely scenario of the BTK breaking below $500 should have IVGN breaking recent support and testing the $50 level. Keep stops in place at $60. BUY PUT FEB-60 IUV-NL OI=438 at $3.90 SL=2.50 BUY PUT FEB-55*IUV-NK OI=251 at $1.55 SL=0.75 BUY PUT FEB-50 IUV-NJ OI=164 at $0.65 SL=0.00 Average Daily Volume = 1.24 mln NTIQ – NetIQ Corporation $30.47 (-2.58 last week) Operating in the e-Business marketplace, NTIQ is a provider of eBusiness infrastructure management software that enables organizations to optimized the performance and availability of Windows 2000 and Windows NT-based systems and applications. Its AppManager suite detects and identifies bottlenecks, lags in e-mail response time, and other network problems; the software then makes the necessary corrections and issues the appropriate reports. NTIQ's customers include AT&T, Dell Computer, Charles Schwab, General Electric, Pfizer, and Microsoft. How about that? When we added NTIQ on Thursday, we were looking for an oversold bounce to set up new entries, but little did we know that we'd get that bounce right at the beginning of the day on Friday. The opening dip to $27 was met by eager buyers who steadily pushed the stock higher throughout the day. Closing near the high of the day, and above the 200-dma ($20.37) shows us a pretty solid bounce occurred. The fact that buying volume was increasing into the closing bell is not a good sign for the health of our play. But based on the vertical count on the PnF chart, NTIQ still appears destined to test and possibly violate its September lows near $19. So we'll wait and see what materializes on Monday. Target a rollover in the vicinity of $31 (also the site of the 38% retracement level) for initiating new positions. If the Software index continues the rollover that began on Friday, that should create downward pressure on NTIQ, initiating the next leg of this downward move. BUY PUT FEB-35 CQT-NG OI= 85 at $5.40 SL=3.50 BUY PUT FEB-30*CQT-NF OI=162 at $2.40 SL=1.25 BUY PUT FEB-25 CQT-NE OI=129 at $0.65 SL=0.00 Average Daily Volume = 1.32 mln THQI – THQ Inc. $42.69 (-0.34 last week) THQ Incorporated is a developer, publisher and distributor of interactive entertainment software for hardware platforms in the home video game market. The company publishes titles for Sony's Playstation 2, Nintendo 64, Nintendo Game Boy Color and personal computers in most interactive software genres, including children's, action, adventure, driving, fighting, puzzle, role playing, simulation, sports and strategy. Its customers include Wal-Mart, Toys "R" Us, Electronics Boutique, Target, Kmart Stores, Best Buy, as well as other national and regional retailers, discount store chains and specialty retailers. It was a busy news week for THQI, announcing a series of new games available for a variety of different platforms, but it didn't seem to matter to investors. The real problem here is not the quality of the products, but whether anyone is going to buy them now that the busy holiday season is over and done with. The stock declined to the $42-43 support level over a week ago and since then the bears have been grinding away at it, selling into each and every rally attempt. The best bullish attempt came on Thursday, with THQI actually pushing through the 10-dma ($44) and closing near the high of the day. But the $45 resistance held and that rally turned out to be another great entry point for the bears, as they knocked the stock back for a 4.5% loss on Friday. So here we are back at support, but daily Stochastics have recovered back to the middle of their range. The oversold condition that existed just over a week ago has been relieved, giving us some room to run to the downside. Failed rallies near $45 can still be used for new entry points, as can a drop below the $41 level, which has been providing support for the past week. Keep stops at $46. BUY PUT FEB-45*QHI-NI OI=421 at $4.30 SL=2.75 BUY PUT MAR-40 QHI-NH OI=355 at $1.80 SL=1.00 Average Daily Volume = 1.52 mln ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ***** LEAPS ***** More Range-Bound Action Ahead? By Mark Phillips Contact Support Judging by the recent market action, I think that is a distinct possibility. Here's the situation. We rallied strongly off the September lows on expectations of economic recovery in the first half of 2002. Now that most of the big earnings reports for this quarter are out, two things are apparent; the recovery is more likely to appear towards the latter half of the year and it won't be a robust recovery. That reality is largely to blame for the weakness in recent weeks, but we can also see that there is not a rush for the exits either. Investors believe the worst is behind for the economy and most are willing to hold onto their positions in the perpetual hope of recovery. So we don't have enough earnings improvement to motivate the bulls, but the tentative signs of improvement are keeping the bears at bay as well. Investor fear continues to abate, reflecting the belief that the worst is behind us. This is borne out in the various volatility indices, with the VIX currently meandering around the 23 level, and the VXN (Nasdaq Volatility index) flirting with the 45 level, its lowest point since last July. Both of these indicators are reflecting investor complacency, which normally precedes a market decline. I tend to not pay as much attention to the VXN due to its limited 1-year history. But looking at the VIX tells me that there needs to be less fear (lower VIX) before we see a high odds bearish setup for the broad market. Bear in mind that the VIX could trend sideways without a pronounced move to either extreme (20-21 or 30+) for weeks and months while the broad markets churn in the current range. Speaking of that range, the Dow seems to be building support near 9700, while there is substantial overhead resistance near 10,200. The NASDAQ Composite is similarly bracketed by resistance near 2100 and support at 1850. Those ranges will need to be broken to give us a strong directional bias, and in the meantime, we are relegated to either playing the range, or trying to initiate new positions in anticipation of the eventual breakout move. Another way to state it is that we need to be very careful in picking our plays. Rangebound markets are tough to play long-term directional plays in, so expect the Portfolio to remain fairly light until higher odds market conditions begin to appear. Despite the rangebound action in the broader markets, there are certain pockets of strength and weakness that we can exploit for singles and doubles, while waiting for the next high-odds high potential return opportunity to surface. Along those lines we have a new Portfolio call play, Nokia (NYSE:NOK) this week and a new Watch List put play, Eastman Kodak (NYSE:EK) this week. NOK finally satisfied our entry criteria ahead of its earnings report (which was fortunately well received by the market), while EK is a purely fundamental play on the company's deteriorating position in its primary markets. We got an encouraging sign from EMC Corp. (NYSE:EMC) this week, as it reversed its recent decline on the heels of its upbeat earnings report. That saved the stock from the drop list, as it was closing in on the $13.50 level. Recall that we are maintaining the conservative stop on EMC until it manages to break free of resistance near $18. I noted in the Market Monitor last week the poor behavior of the Broker/Dealer index (XBD.X) and the detrimental effect it is having on our Goldman Sachs (NYSE:GS) Watch List play. I really didn't like Thursday's breakdown below the 200-dma, and although Friday's rebound was encouraging, I am not convinced. We initially added GS to the Watch List on the expectation that it would continue its bullish run. Given the weakness over the past few week, I don't think that is a realistic expectation. I'm looking for the next bullish move on the daily chart to produce a lower high, so you'll notice that we've placed GS on hold. I want to see how the price holds up as the weekly Stochastics returns to oversold. Who knows, we may be moving that target down into the $80 range...now that would be a nice entry, don't you think? In the time since we added Johnson & Johnson (NYSE:JNJ) to the Watch List, the ascending trendline and 200-dma have risen substantially. Since these are still our expected optimal entry points, the entry target has been modified accordingly. And we're still holding our breath on General Electric (NYSE:GE). While it hasn't dropped down to give us an entry, neither has it run away from us as the stock continues to churn sideways. Remember that we're waiting for the weekly Stochastics to bottom near oversold in conjunction with the price target to give us a solid entry point. Broadcom (NASDAQ:BRCM) is another Watch List play that has stubbornly refused to give us a decent entry, but storm clouds are brewing for near-term bulls on this one. The weekly chart Stochastics are rolling down from near overbought territory and are now presenting us with bearish divergence. While we may not be fortunate enough to get our entry point in the $31-32 range, we should be able to get a better feel for a probable target as the weekly Stochastics get closer to oversold. As I mentioned last weekend, my intention is to keep you apprised of any developments or thoughts I have regarding the LEAPS Portfolio/Watch List through the Market Monitor. Last week didn't go quite how I planned, due to a myriad of technical difficulties beyond my control. Things should start to smooth out in the weeks ahead. Thanks for your patience. One final note on the Watch List pertains to our Philip Morris (NYSE:MO) play. We're looking for the stock to get up near $50, with the weekly Stochastics starting to roll. Well the price is almost there (as I mentioned in the Market Monitor on Thursday), but we're still waiting for the Stochastics to catch up. Stay tuned, because we're getting close on this one. Remember, range bound markets make long-term directional plays very difficult. That just underscores the importance of laying out the game plan in advance, and only trading when the market delivers the entry point you are waiting for. Patience and discipline are the pillars of success right now. Have a great week! Mark Phillips mphillips@OptionInvestor.com LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: EMC 01/02/02 '03 $12.5 VUE-AV $ 4.90 $ 6.40 +30.61% $13.50 '04 $12.5 LUE-AV $ 6.10 $ 7.90 +29.51% $13.50 NOK 01/22/02 '03 $ 25 VOK-AE $ 3.00 $ 4.40 +46.67% $19.50 '04 $ 25 LOK-AE $ 4.80 $ 6.40 +33.33% $19.50 Puts: JNY 01/09/02 '03 $ 35 OOR-MG $ 6.70 $ 6.40 - 4.48% $35 '04 $ 30 KKZ-MF $ 5.60 $ 5.70 + 1.79% $35 GM 01/10/02 '03 $ 50 VGN-MJ $ 6.50 $ 7.00 + 7.69% $53.50 '04 $ 50 LGM-MJ $ 8.40 $ 9.20 + 9.52% $53.50 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 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 JNJ 12/09/01 $56, $54 JAN-2003 $ 55 VJN-AK CC JAN-2003 $ 50 VYN-AJ JAN-2004 $ 55 LJN-AK CC JAN-2004 $ 50 LJN-AJ GS 01/06/02 HOLD JAN-2003 $ 90 VSD-AR CC JAN-2003 $ 85 VSD-AQ JAN-2004 $ 90 KGS-AR CC JAN-2004 $ 80 KGS-AP PUTS: MO 12/09/01 $50 JAN-2003 $ 50 VPM-MJ JAN-2004 $ 50 LMO-MJ EK 01/27/02 $30-31 JAN-2003 $ 30 VEK-MF JAN-2004 $ 30 LEK-MF New Portfolio Plays NOK - Nokia $21.15 **Call Play** As the markets took off from their September lows, NOK looked like a good candidate for recovery and proved that by running right up to resistance near $26. Unfortunately, each pullback stopped short of reaching our entry target before running a bit higher. The weakness over the past month finally dropped shares of the wireless handset maker right into our revised target zone of $20-21 on Tuesday before recovering to close just above $21. Given the rising volume going into the closing bell, it looked like a reasonable entry point even with earnings only 2 days away, so we took the bait. It is interesting to note that the stock found support near $21, the site of significant support in the first half of last year and the site of the 38% retracement of the price rise between the September lows and the early January highs. NOK released earnings 3 cents ahead of analyst estimates, but more importantly spoke of increasing their market share and forecast global handset sales in the 420-440 million range for 2002. While the company admitted that the next quarter will be a bit on the weak side, the bullish longer-term forecast put investors in a buying mood, quickly driving the stock higher and giving our position a bit of breathing room. Given NOK's impressive strength relative to other stocks in the Wireless sector and its solid earnings report, it is clear that if you have to own only one stock in the Wireless arena, NOK is the one. While the weekly Stochastics has reached oversold, it has not yet flattened out, so we may be a bit early to the party. We're protecting ourselves with a rather tight stop at $19.50, just below the 50% retracement level. Once NOK works through the overhead supply (resistance) in the $26-27 area, it looks like it has a good shot at moving up near $35 over the medium term. Use renewed dips into the $20-21 area to initiate new positions if you missed the opportunity last week. BUY LEAP JAN-2003 $25.00 VOK-AE $3.00 BUY LEAP JAN-2004 $25.00 LOK-AE $4.80 New Watchlist Plays EK - Eastman Kodak $28.56 **Put Play** Here's a weakling that we can pick on, even though the technicals on the chart aren't lined up favorably right now. This is a pure play on fundamentals, which are continuing to decline. EK has been in a steady dive for the past 3 1/2 years due to the fact that it is losing market share to the likes of Agfa and Fuji in the film business. And the company's digital processing initiative has been a clear disappointment, as EK is unable to mount a serious challenge to other players on the field like Hewlett Packard and Sony. The chart has been punctuated by a series of sharp declines, which are then followed by anemic recoveries before the next decline arrives to hammer the stock down to new multi-year lows. Last week, EK hit new 10-year lows and the rebound off those lows in the wake of the company's earnings report looks like nothing more than another setup for puts. In an economic downturn, bankruptcies are rampant, as evidenced by the recent elimination of Polaroid. EK may not be next, but it is on my watch list. The company is still paying more than a 6% dividend while continuing to lose money. How long can they continue that practice before having to cut their dividend? The critical issue here is "burn rate", the bane of numerous now-defunct dot.coms. Removal or reduction of that fat dividend will not be greeted kindly by investors, and we could see EK trading much lower in the wake of that sort of news. The weekly Stochastics has only made it into overbought territory 4 times (out of 14 attempts) in the past 2 years, so odds favor another short-cycle reversal before the Stochastics reach overbought. So we're going to modify our entry strategy here slightly. Note that on each rebound over the past couple years, the stock seems to find resistance at a level that acted as support on the last cycle. So that means we want to look for EK to run out of buying interest and roll over again near the $31 level. Let the current rebound run its course and then target a rollover in price from the $30-31 area. A bonus would be to have the weekly Stochastics closer to overbought territory, but I wouldn't consider it a necessity. The daily chart may be our best indication of when to take a position. After entry, we'll be placing a nice tight stop at $32.50. BUY LEAP JAN-2003 $30.00 VEK-MF BUY LEAP JAN-2004 $30.00 LEK-MF Drops None ************** TRADERS CORNER ************** The Right Option In The Right Time Austin Passamonte We left off last weekend's "how-to" visit talking about using 100% risk capital to buy options instead of stops. We brushed past that idea to kick around just which option contracts may offer the best balance of risk/return for any given trade. That leaves us here taking it to the next level or as Emeril is wont to say, we'll "kick it up a notch" in here. No question that moving markets yield the best returns when we buy option contracts somewhat OTM and in turn sell them when they reach ATM or slightly ITM. That places the Greek values of Delta and Gamma strongly on our side. But how does a trader determine which strike and or month to play? Is it all just random dart throwing, or is there a method to the madness? Actually, a little of both. Professional traders use a number of tools to target shoot their markets and we'll look at a few simple ones right now. But first, have you often noticed how certain strike levels in an option chain are clustered with higher volume and/or open interest than others? This is true for both near expiration and distant month contracts, now isn't it? No coincidence there, for sure. Option volume and open interest naturally clusters at certain strikes and continues to do so in the future based on past & current underlying action. When stocks like MSFT or CSCO get pinned near a certain level of resistance, numerous shareholders write covered calls. When these stocks reach support, numerous players write naked puts just below while trying to buy the stock cheaper if it breaks to those levels. Other traders make note of these price magnet levels and play them on speculation. If the stock looks to bounce from support, call options are bought to catch the rise. Where? Usually at the strikes where volume and open interest recently were. When the stocks look to falter near resistance, put options are bought to catch the drop. Where? Again, at the same strike levels where activity recently was. This creates a traffic jam of ITM, ATM and OTM contracts at these certain levels. Traders then project that range-bound price action into the future and play within these same measures as time wears on. That works fine in a sideways market, but what about times where underlying action trends sharply up or down? (Weekly Chart: WWCA) For nearly a year, this wireless stock formed a long-term wedge in the weekly chart that any who looked would see. The width of that pattern's extreme end happened to be $25 in value. All the price consolidation inside was supply changing hands within that range. Once the pattern broke up or down, it projects a price target of $25 extended in the direction from that break. Make sense? In other words, the clear break lower from $40 range indicated an eventual price target objective of $15 ahead. But when? One indication we could use is the time length this consolidation took to begin and end. Roughly one year's time from August 2000 to August 2001 from what I can see. That projects an ultimate target of $15 in the same length of time ahead, or August 2002. We have a price target objective and rough guess for when it will be reached. How to play it from here? (WWCA Feb 2002 30-Strike Put) If playing this move in August of 2001, we could go out one year ahead and play the 20 or 25 put. They could be had for almost nothing, and if the target was reached should yield +1,000% return on cost. That would be the most aggressive scenario. Another idea would be to split the difference and play two strikes out instead. Maybe the stock would fall from $40 to $30 or lower in half that time instead. Six month's of time value left would be Feb 2002 option contracts. Why not try the Feb 30 puts and see if they double or better soon? Prices on the Feb 30 put (not shown) at the break were near 2.00 "ask" when the stock broke $40, and rose to 4.00 within one month. From there they soared to nearly +800% gain in value as the stock met its bearish price objective in less than half the time we figured it would. We had a price target and estimated time to reach there. Were they perfect? No, but at least it's a start. Once the price objective is met we should consider closing the play or at very least using extremely tight stops to lock in almost all gains right now. This one worked better than might have been expected, so time to search for more just like it! (Monthly Chart: TYC) Tyco's problems are well documented all over the news. A stop near the $40 level was to be expected: no clairvoyance here. Look at the previous touches on this very long-term view in a monthly chart for the hapless stock. We see three prior stops right here for monthly lows in 2001, a natural price magnet for sure. Now what? Well, if fundamental news doesn't improve we could see further downside action. Where? The noted Fib retracements drawn inside. When? Just count the candles between measures for a guess. This stock tends to make $15 to $20 price moves in a month when things are flying. The past three months form a very clear and bearish "Evening Star" reversal pattern, with the long red candle engulfing the long white candles from Oct/Nov. Stochastic values are also about to make a bearish reversal touch or kiss as well. How to play it? Possibly with put options three months out at the first level below. For example only, the TYC April 35 put (TYC-PG) is trading at 1.20 "ask" right now. If TYC holds above that level until Friday April 19th the contract expires worthless. But if it breaks below there first, profits accrue. A trip to $27.50 is physically possible, especially is the four-way split results in delisting from the S&P 500 as several readers who hold the stock asked me about. I don't know what will happen or if it will get there, but those April 35 puts would have pure intrinsic value of $850 each plus any extrinsic time and volatility value as well. Current news conditions and chart study measurement tells us this is possible. Using recent price action on a monthly range tells us that a -$18 price move is possible from today because it has done close to that roughly seven months in the past thirteen (count the candles). Add it all up: we have a MONTHLY chart with stochastic values just now turning bearish. Candlestick pattern of a clearly bearish reversal nature. Fundamental news that's bad overall. Defined measures of downside targets. An example of put option trade that risks $120 to possibly yield $800+. A 50% probability price action can reach our target in a one-month range because it's down so one month out of every two for a year. This is the process we use each time a trade is factored. Percent of probability on direction, how far and when. Then determine the amount of capital we wish to risk and buy all of the option contracts it will afford and not one more. Use that position as the stoploss and let time take over. Do this while winning more often than not, catch a few big percentage gains and let the Law of Large Numbers meet Father Time. (Weekly Chart: MSFT) Last example. MSFT has traded a $7 price range for three months. weekly charts look poised in bearish fashion for lower prices ahead. Where? When? The $59 area for MSFT represents a 50% retracement of Recent lows to highs. We see price action on average takes three weeks to jump between these Fib levels (count candles) when price action is on the move. For a trade down to the $59 level, do we need nine months of time premium in a put option? I'd say no based on the evidence reflected in this chart. Two months out into March series should be plenty of time to catch any drop to $59. That would leave the OTM March 60 put near par and the ITM March 65 almost doubled based on current option pricing should market action stop there. A further descent to $54 would have both put plays winning big, especially the 60 put on capital returned. These examples are not my "hot plays" for anyone to rush out and buy from here. These are merely examples of the process I use to try and guess which strikes and months have the best chance of giving optimum risk/return. Sure beats scanning the option chain and picking something at random! Rules of thumb: base equity option gains on intrinsic value only, and buy a little extra time for upside plays than downside. As a rule, price action will fall much faster than it goes up. That was suspended in 1999 but such market aberrations will not return in this decade for us to contend with. Happy target shooting! Hope This Helps, austinp@OptionInvestor.com ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ********** 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 01-27-2002 Sunday 5 of 5 ************************Advertisement************************* GREAT TECHNOLOGY, LOW RATES AT OPTIONSXPRESS * EASY screens for spreads, collars, covered calls or butterflies! * 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 Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor010 Note: Options involve risk. Risk disclosure: http://www.optionsxpress.com/welcome_risk_index.htm ************************************************************** ************* COVERED CALLS ************* Trading Basics: More Q&A with the Covered-Calls Editor by Mark Wnetrzak This week's discussion concerns some of the most common questions received from new readers of this section. Attn: OIN CCs Editor Hello Mark, I have enjoyed much success with your section since becoming a subscriber and I generally agree with most of your picks. But, a few of the stocks you selected in recent weeks finished the January expiration period below the sold strike and did not get called-away. Do you have any suggestions for this situation? Also, I have used your "in-the-money" strategy with some of my long-term portfolio issues and a number of stocks (mostly health-care) have moved above the sold strike price, putting my short positions at risk of assignment. Would you please list some possible remedies to help me get out of this predicament. DL Regarding "Covered-Call" Position Management: If a stock from one of our current covered-call positions is not "called-away" at expiration, its technical character has likely changed, and the new outlook for the issue must be evaluated. If, after careful review of the recent chart patterns (and any other issues affecting the company or its sector/industry group), your outlook for the issue is neutral to bullish, you can simply sell a new call for the next month (or a longer time frame), lowering your cost basis and establishing a higher profit potential. Of course, you can also sell the stock, taking the current loss (or profit, when it's available) and move on to a new issue. Another possibility would be to roll out, to a future expiration, and down, to a lower strike (a defensive strategy), if the option premiums and the possibility of a future recovery justify holding the issue. In most cases, if your outlook is even slightly bearish, exiting the position now (selling the stock) is usually is best answer. Anytime you enter into a transaction, you should know exactly what your break-even (cost basis) point is, and as the stock starts to move down to that break-even point, get ready for "action." Some traders may allow the stock to move to a specific point below their "break-even" before they repurchase the calls and sell out, or they initiate the closing trade when they can close the calls for $0.25 or less, whichever comes first. Others will use technical signals to identify an unemotional exit point, such as a decline below a long-term moving average (150- or 200-dma) and will hold onto the stock, selling new calls each month as long as the technical trend isn't violated. Each particular situation is obviously different, but in general, most traders don't like to lose more than about 5% overall on an individual position. Unfortunately, there are times that we lose 30% or more, but since we are diversified with other stocks, this doesn't bring down our whole portfolio. In addition, there are a few covered-call repair strategies (call-debit spread combo, for example) one can implement, and they are described in detail in McMillan's book, "Options: As a Strategic Investment." Our basic strategy on covered-calls is designed to lock in profits whenever possible, and keep inevitable losses to a minimum. There are many unexpected things that can occur, such as profit warnings, lawsuits, negative industry sentiment, etc., that can crash a stock suddenly in a single day. These situations cannot be avoided and there are no easy solutions as to what inventors should do. Once again, it all depends on the individual situation, and one of your best defenses against a portfolio loss is diversity. Remember, the stocks you buy must represent companies of different types and in different industries. While this sounds obvious, many investors ignore this simple principle, and consequently, they get hammered when their prized stock or preferred industry falls "out of favor." Regarding Positions that are "in-the-money" at Expiration: Unfortunately, there are no magic answers to this common problem. You have several possible alternatives, but none of them are very popular. You can do nothing, accept the assignment, and collect the initial profit. You can also choose to close the sold option. Obviously the call is trading near parity, so you simply evaluate the cost of additional commissions versus an increased annualized return. And finally, you may choose to roll the position up to a higher strike price and/or forward to a future expiration. If the stock is fairly volatile, a "net credit" order should be used in closing the covered-write to ensure a proper exit. In that case, you would place an order to sell the stock and buy (to close) the call for a net-credit value that is reasonably close to parity. Remember, when you roll up (buy back your current call and sell a higher strike), the profit potential is increased, but you give up downside protection. The downside "break-even" point will be raised by the amount of debit required to roll up (the cost of the call closed minus the premium of the new position). Adding money to a position (such as when rolling to a higher strike) is often considered to be an unfavorable transaction (as it puts additional capital at risk), thus it may be better to roll to a more distant expiration as it reduces the debit required and the overall cost basis. It is usually not advisable to roll up if a 10% correction in the stock price cannot be withstood and the percentage may be even higher in volatile issues. In all cases, you must evaluate the risk-reward ratio for each adjustment scenario and make a decision that fits your trading plan (and your outlook for the underlying issue). Trade Wisely! 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 CLRS 5.60 5.40 FEB 5.00 0.95 *$ 0.35 8.2% PCLN 5.52 5.80 FEB 5.00 0.85 *$ 0.33 7.7% PLUG 10.58 9.96 FEB 10.00 1.40 $ 0.78 7.4% MONE 14.01 15.76 FEB 12.50 2.25 *$ 0.74 6.8% UCOMA 5.50 4.78 FEB 5.00 1.00 $ 0.28 6.8% RBAK 6.20 5.04 FEB 5.00 1.55 *$ 0.35 6.5% MONE 14.83 15.76 FEB 12.50 3.20 *$ 0.87 6.5% ELON 16.73 19.50 FEB 15.00 2.40 *$ 0.67 5.1% RSTN 20.55 18.05 FEB 17.50 3.90 *$ 0.85 4.4% SCMR 5.85 4.93 FEB 5.00 1.20 $ 0.28 4.4% PWAV 18.15 19.07 FEB 15.00 3.70 *$ 0.55 4.1% ADIC 18.32 17.31 FEB 17.50 1.70 $ 0.69 3.6% EPNY 10.97 9.86 FEB 10.00 1.50 $ 0.39 3.6% ADCT 5.38 4.77 FEB 5.00 0.75 $ 0.14 2.2% RNWK 8.13 6.95 FEB 7.50 1.30 $ 0.12 1.5% ACRI 13.11 10.71 FEB 12.50 1.60 $ -0.80 0.0% *$ = Stock price is above the sold striking price. Comments: The major averages continue to mark time as investors weigh the signs of an economic recovery against the results of quarterly earnings reports. Echelon (NASDAQ: ELON), which posted excellent earnings this week, continues to rally strongly. Perhaps a bit of "call-selling" remorse? Acacia Research (NASDAQ:ACRI) has weakened and may test the December low near $10. Any rally, as the stock is currently oversold, may offer a reasonable exit or chance to adjust the position (rolling forward). Several other issues remain on the "watch" list as the stocks test near-term support areas or trend-lines. 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 14.44 FEB 12.50 ZQN BQ 2.25 16350 12.19 21 3.7% BDAL 15.81 FEB 15.00 DUY BC 1.60 33 14.21 21 8.1% ELON 19.50 FEB 17.50 EUL BW 2.50 821 17.00 21 4.3% PLCE 32.00 FEB 30.00 TUY BF 2.90 820 29.10 21 4.5% RATL 23.92 FEB 22.50 RAQ BR 2.35 1264 21.57 21 6.2% TSTN 5.19 FEB 5.00 TUW BA 0.55 26 4.64 21 11.2% WEBM 24.20 FEB 20.00 UUW BD 4.80 200 19.40 21 4.5% Sequenced by Target Yield (monthly basis) ***** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield TSTN 5.19 FEB 5.00 TUW BA 0.55 26 4.64 21 11.2% BDAL 15.81 FEB 15.00 DUY BC 1.60 33 14.21 21 8.1% RATL 23.92 FEB 22.50 RAQ BR 2.35 1264 21.57 21 6.2% PLCE 32.00 FEB 30.00 TUY BF 2.90 820 29.10 21 4.5% WEBM 24.20 FEB 20.00 UUW BD 4.80 200 19.40 21 4.5% ELON 19.50 FEB 17.50 EUL BW 2.50 821 17.00 21 4.3% AMZN 14.44 FEB 12.50 ZQN BQ 2.25 16350 12.19 21 3.7% 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 $14.44 *** The Company Earns A Profit! *** 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, etc. The company's Amazon Marketplace, Auctions and zShops services, allows any business or individual to sell virtually anything to nearly 30 million cumulative customers, and with Amazon.com Payments, sellers can accept credit card transactions. The company also operates four internationally focused Websites: www.amazon.co.uk, www.amazon.de, www.amazon.fr and www.amazon.co.jp. AMZN also operates the Internet Movie Database (www.imdb.com), a thorough source of information on movies and entertainment titles, and cast and crewmembers. Amazon.com rallied strongly this week after posting its first ever net profit following strong holiday sales. The company also soared after Moody's Investors Service raised Amazon.com's ratings which reflect improved operating measures and a sharply lower cash drain from operations. This position offer a conservative entry point with a cost basis near support. FEB 12.50 ZQN BQ LB=2.25 OI=16350 CB=12.19 DE=21 TY=3.7% ***** BDAL - Bruker Daltonics $15.81 *** Trading Range *** Bruker Daltonics (NASDAQ:BDAL) is a developer and provider of life science tools using mass spectrometry. The company bases its life science solutions on four core mass spectrometry tech- nology platforms: matrix-assisted laser desorption ionization time-of-flight mass spectrometry; electrospray ionization time- of-flight mass spectrometry; Fourier transform mass spectrometry; and ion trap mass spectrometry. BDAL's life science customer base is composed primarily of end users and includes pharma- ceutical, biotechnology, proteomics, agricultural biotechnology, molecular diagnostics and fine chemical companies, as well as commercial labs, university labs, medical schools and other not- for-profit research institutes and government labs. In early January, the company reported that its new order booking were up over 25% for the quarter and year. For the year 2002, Bruker Daltonics expects revenue growth in the range of 22% to 27%, and earnings growth in the range of 40% to 60%. The stock has been trading in a range near $15 for over a year as it forms a Stage I base. Reasonable speculation for those investors who retain a bullish outlook on the company. FEB 15.00 DUY BC LB=1.60 OI=33 CB=14.21 DE=21 TY=8.1% ***** ELON - Echelon $19.50 *** Excellent Earnings! *** Echelon (NASDAQ:ELON) develops, markets and supports products and services that allow everyday devices, such as light switches, washing machines, conveyor belts, thermostats, door locks, motion sensors, air conditioners, pumps and valves, to be made "smart" and to communicate with one another and across the Internet. The company's products and services are based on its LonWorks tech- nology. Echelon's products and services may be used across many industries to network together devices in homes, buildings, fact- ories and transportation systems. Echelon offers a comprehensive set of over 90 products and services marketed under the LonWorks brand name. Echelon has rallied strongly after reporting a sixth consecutive profitable quarter on January 17. Revenues for the quarter ended December 31, 2001 were $32.1 million, an increase of 147% over revenues of $13.0 million for the same period in 2000. Net income for the quarter ended December 31, 2001 was $5.2 million. Echelon has now broken-out above a four-month base on very heavy volume, which suggests further upside potential. We simply favor an entry point closer to support. FEB 17.50 EUL BW LB=2.50 OI=821 CB=17.00 DE=21 TY=4.3% ***** PLCE - The Children's Place $32.00 *** On The Move! *** The Children's Place Retail Stores (NASDAQ:PLCE) is a specialty retailer of apparel and accessories for children from newborn to 12 years of age. The company designs, sources and markets its products under "The Children's Place" brand name for sale only in its stores and on its Website. As of April 1, 2001, PLCE operated 431 stores in 43 states, located primarily in regional shopping malls. Its stores are concentrated in regional malls, with the exception of 31 outlet stores and 45 street and strip- center stores. On January 10, The Children's Place reported record sales of $98.8 million for the five-week period ended January 5, 2002; a 13% increase over December 2000. The company's CEO still maintained their 4th-quarter guidance of $0.60 per share, but commented "this target now appears to be rather conservative." Friday's rally on heavy volume above the early January high is encouraging and this position offers a reasonable entry point from which to speculate on the future. FEB 30.00 TUY BF LB=2.90 OI=820 CB=29.10 DE=21 TY=4.5% ***** RATL - Rational Software $23.92 *** Rally Mode! *** Rational Software (NASDAQ:RATL) is a provider of integrated solutions that automate the software development process. The company serves customers in 3 principal categories: business applications; infrastructure; and embedded systems and devices. Business applications customers include organizations that are building B2B and/or B2C software. Infrastructure customers include communications as well as OS and "middleware" software vendors. Embedded systems and devices customers are building devices with embedded software that provide connectivity to the Internet and other specialized networks. Rational Software continues to move higher after reporting 3rd-quarter earnings in line with estimates and guiding that its business had stabilized. Credit Suisse First Boston has raised its 12-month price target to $30 from $18 and its full year 2002 earnings estimates to $0.27 a share on revenues of $686 million. Traders can speculate on the near-term performance of the issue with this conservative position. FEB 22.50 RAQ BR LB=2.35 OI=1264 CB=21.57 DE=21 TY=6.2% ***** TSTN - Turnstone Systems $5.19 *** Cheap Speculation *** Turnstone Systems (NASDAQ:TSTN) is a provider of products that are designed to enable local exchange carriers to rapidly deploy and efficiently maintain DSL services. The Copper CrossConnect CX100, the company's flagship product, enables local exchange carriers to deploy high-speed digital services on existing copper telephone lines. The company's Smart Splitter SX500 platform enables complete loop management, deploying residential DSL and voice services over the same copper line, and for line sharing arrangements where different carriers share the same copper line. Shares of Turnstone Systems surged this week after the company reported 4th-quarter results that beat Wall Street expectations and Deutsche Bank Alex. Brown upgraded the company to "buy." Favorable speculation for those investors who remain bullish on the long-term prospects of Turnstone Systems. FEB 5.00 TUW BA LB=0.55 OI=26 CB=4.64 DE=21 TY=11.2% ***** WEBM - webMethods $24.20 *** Hot Sector *** webMethods (NASDAQ:WEBM) is a provider of infrastructure software and services for comprehensive end-to-end integration solutions that enable its customers to achieve comprehensive automation of business processes by integrating their systems in real-time. Its customers use its software, webMethods Enterprise, webMethods B2B, and webMethods Mainframe Integration Server, to integrate business processes among different systems within their enterprise and to work more closely with their customers, suppliers and other business partners through the real-time exchange of information and transactions. webMethods reported a smaller operating loss than expected and saw a pickup in customer spending during the 3rd-quarter. Investors and analysts were pleased and rallied the stock to a new 4-month high on heavy volume. Our outlook is also bullish due to the recent technical strength, and this position offers a low risk cost basis in the issue. FEB 20.00 UUW BD LB=4.80 OI=200 CB=19.40 DE=21 TY=4.5% ***** ***************** 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 5.04 FEB 5.00 BUK BA 0.55 2282 4.49 21 16.5% UAL 15.15 FEB 15.00 UAL BC 1.15 4283 14.00 21 10.3% NMSS 5.87 FEB 5.00 YHG BA 1.15 249 4.72 21 8.6% ITWO 7.98 FEB 7.50 JQ BU 0.85 10136 7.13 21 7.5% NOVT 11.23 FEB 10.00 QOH BB 1.60 146 9.63 21 5.6% PMCS 24.15 FEB 22.50 SQL BX 2.45 8466 21.70 21 5.3% HAL 14.34 FEB 12.50 HAL BT 2.25 37325 12.09 21 4.9% GSPN 16.80 FEB 15.00 GLQ BC 2.25 1672 14.55 21 4.5% VSEA 38.11 FEB 35.00 UES BG 4.10 390 34.01 21 4.2% ***************** NAKED PUT SECTION ***************** Success Basics: A Review of Trends and Cycles By Ray Cummins One of our new readers asked us to comment on the various types of market analysis and suggest the best method for evaluating stocks in the current uncertain environment. Since last September, the market has enjoyed an unprecedented recovery amid growing hopes for a rebound in the U.S. economy. Despite the dour outlook for corporate profits and even with the tragic events of 9/11, share values have rebounded on optimism the recent correction will be over by mid-2002. Unfortunately, the rally stalled this month on renewed concerns the current earnings reporting season will offer a dismal outlook for the coming year. The bearish activity came as a complete surprise to a number of well known analysts who believed the projected V-shaped recovery would establish a firm upward bias in the wake of the holiday buying spree. Now that the trend has reversed, many experts are reviewing the latest economic data to determine if the lagged effects of monetary and fiscal policy measures enacted in 2001 will indeed provide a boost to the stock market in the first second half of 2002. Determining the most likely outcome is a very difficult task and although analysts continue to regard the events of the past with considerable respect, rarely are they able to utilize this data to accurately predict what will happen in the future. In most cases, they use one or another of the more common methods of financial analysis. The first approach is backward-looking; it constitutes chart reading (technical analysis) or the study of an issue's historic price behavior. Unfortunately, past performance of the economy, the stock market, or an individual issue is no guarantee of future activity. In addition, while trading on this type of information (momentum-based) may appear easier and more profitable in the near term, it is very difficult for investors to achieve consistent returns in this manner. The reason these short-term trends are so difficult to profit from is that chart formations rarely evolve in a completely predictable (manageable) pattern; with a steady rise to the top, where there's an extended plateau that provides ample opportunity to assess the situation and take profits before starting the trip back down. Instead, stock charts often resemble the contour of a mountainous region, with staggering peaks and precipitous gorges, and ranges that rise sharply towards the tallest crest, each getting higher than the last until reaching the summit. Traders that have recently participated in the stock market know that in real life, the trip down from the summit is always scarier (and more abrupt) than the climb. Another approach involves forward-looking analysis. This method is based on the economy and fundamental issues. It anticipates interest rate changes and other business and political conditions that might impact future earnings or the public's attitude toward the stock market. Investors who use this method should remember that market cycles usually precede economic cycles. The various facets of our economy, including the virtually limitless range of elements that determine the financial health of the nation as a whole are anticipated by the investing public and this sentiment is exhibited by the emotion of the market. A common example is when stock prices move higher in expectation of rising profits and down in anticipation of greater losses; an occurrence we all have witnessed in recent quarters. In addition, the stock market can be substantially affected by other circumstances, even those that appear to have little outcome with regard to financial instruments. Any study of a detailed timeline that compares historical events with the movement of the major equity indices will demonstrate how war, recession, or a presidential election can influence the stock market. The economy and the stock market both move in identifiable cycles. To be successful, you must be able to identify the current phase of activity and act appropriately. Many investors try to utilize various types of analysis to spot the top and bottom of each cycle but the truth is, nobody can do this on a regular basis. The key to consistent profits is to have an accurate perception of the market's overall character and construct a diverse portfolio with a suitable risk-reward outlook that uses the proper strategies to profit from the current trend. 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 MIMS 20.63 20.25 FEB 17.50 0.70 *$ 0.70 10.5% IONA 24.25 21.57 FEB 17.50 0.50 *$ 0.50 10.2% CRUS 19.15 19.35 FEB 15.00 0.45 *$ 0.45 9.1% SPCT 15.10 15.55 FEB 12.50 0.30 *$ 0.30 8.7% FNSR 14.19 12.83 FEB 10.00 0.30 *$ 0.30 8.3% TMCS 19.78 21.50 FEB 17.50 0.40 *$ 0.40 7.2% SFA 26.70 25.12 FEB 22.50 0.45 *$ 0.45 7.1% ICST 25.69 24.95 FEB 20.00 0.45 *$ 0.45 7.0% CMNT 23.75 22.01 FEB 20.00 0.50 *$ 0.50 7.0% TMCS 19.95 21.50 FEB 17.50 0.45 *$ 0.45 6.5% JDAS 28.10 27.64 FEB 22.50 0.35 *$ 0.35 6.3% PPD 23.21 21.95 FEB 17.50 0.35 *$ 0.35 6.1% MEDC 23.34 22.95 FEB 17.50 0.35 *$ 0.35 6.1% MEDC 25.76 22.95 FEB 20.00 0.30 *$ 0.30 6.0% MROI 29.20 27.85 FEB 25.00 0.40 *$ 0.40 5.5% LIN 27.64 28.74 FEB 25.00 0.45 *$ 0.45 5.5% *$ = Stock price is above the sold striking price. Comments: Med-Design (NASDAQ:MEDC) slumped Friday in its first bout of profit-taking since the recent rally to a 5-month high. The near-term buying support is at $20 and a close below that price range will be a potential "early-exit" signal in the position. Computer Network Technology (NASDAQ:CMNT) is at a "key" moment and a move below the 30-dma (near $21) would indicate further downside potential. Iona Technologies (NASDAQ:IONA) was the big surprise this week as the stock price slumped on news of a 5.5 million share offering. On Wednesday, Iona reported a return to profit in the fourth quarter of 2001 on revenues of $45.5 million, up 11% from the third quarter and well ahead of consensus estimates. But, the company also said it had filed a registration statement for a $5.5 million offering of its American Depositary Shares with the SEC. Analysts agreed that the quarterly numbers were favorable and that the stock price was being affected by the dilution of the company's outstanding shares. Since the issue is still above the sold strike in the position, it may be prudent to close the play and wait until the future plans of the company are outlined more clearly. 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 DRIV 21.33 FEB 17.50 DQI NW 0.55 212 16.95 21 15.2% FCN 26.85 FEB 23.38 FIM NV 0.35 4 23.03 21 6.7% IRF 39.19 FEB 35.00 IRF NG 0.50 444 34.50 21 6.0% JBHT 28.10 FEB 25.00 JHQ NE 0.40 93 24.60 21 6.8% MERQ 37.51 FEB 30.00 RQB NF 0.35 5093 29.65 21 6.5% PCX 28.30 FEB 25.00 PCX NE 0.75 25 24.25 21 12.4% SEBL 37.20 FEB 30.00 SGQ NF 0.30 6251 29.70 21 5.4% TMCS 21.50 FEB 20.00 QMF ND 0.60 24 19.40 21 11.3% Sequenced by Target Yield (monthly basis) ****** Stock Last Call Strike Option Last Open Cost Days Target Symbol Price Mon. Price Symbol Bid Int. Basis Exp. Yield DRIV 21.33 FEB 17.50 DQI NW 0.55 212 16.95 21 15.2% PCX 28.30 FEB 25.00 PCX NE 0.75 25 24.25 21 12.4% TMCS 21.50 FEB 20.00 QMF ND 0.60 24 19.40 21 11.3% JBHT 28.10 FEB 25.00 JHQ NE 0.40 93 24.60 21 6.8% FCN 26.85 FEB 23.38 FIM NV 0.35 4 23.03 21 6.7% MERQ 37.51 FEB 30.00 RQB NF 0.35 5093 29.65 21 6.5% IRF 39.19 FEB 35.00 IRF NG 0.50 444 34.50 21 6.0% SEBL 37.20 FEB 30.00 SGQ NF 0.30 6251 29.70 21 5.4% 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). ***** DRIV - Digital River $21.33 *** Earnings/Acquisition Rally? *** Digital River (NASDAQ:DRIV) is a provider of unique e-commerce outsourcing solutions. As an application service provider, the company enables clients to access its proprietary e-commerce system over the Internet. Digital River has developed a distinct technology platform that allows it to provide a large suite of e-commerce services, including Internet commerce development and web-site hosting, transaction processing fraud screening, digital delivery, integration to physical fulfillment and customer service. The company also provides analytical marketing and merchandising services to assist clients in increasing Web page view traffic to, and sales through, their Web commerce systems. Shares of Digital River have moved higher in recent sessions ahead of the company's quarterly earnings report. In addition, Beyond.com, which sells e-commerce software to online merchants and the U.S. government, has filed for Chapter 11 bankruptcy and agreed to sell its assets and client contracts to Digital River. Speculative traders can attempt to profit from that event and a favorable earnings report with this conservative position. FEB 17.50 DQI NW LB=0.55 OI=212 CB=16.95 DE=21 TY=15.2% ***** FCN - FTI Consulting $26.85 *** Post-Split Rally! *** FTI Consulting (NYSE:FTN) is a multi-disciplined consulting firm with practices in financial restructuring, litigation consulting and engineering and scientific investigation. FTI's Consulting division serves financially distressed companies and financial institutions that are involved in ongoing litigation or regulatory, bankruptcy or other proceedings. FTI's Litigation Consulting division advises clients in all phases of litigation, including discovery, jury selection, trial preparation and the actual trial. The company's Applied Sciences division offers forensic engineering and scientific investigation services; accident reconstruction, fire investigation and product failure analysis. FCN's shares were recently split 3-for-2 and now its seems as if investors can't get enough of the stock. The bullish activity has pushed the issue up and out of the previous trading range near $22 and that will be the new support area in the near-term. Investors can establish a low risk basis in the stock with this position. FEB 23.38 FIM NV LB=0.35 OI=4 CB=23.03 DE=21 TY=6.7% ***** IRF - International Rectifier $39.19 *** Favorable Outlook! *** International Rectifier (NYSE:IRF) is a designer, manufacturer and marketer of power semiconductors, and a worldwide supplier of metal oxide semiconductor field effect transistors (MOSFET), a type of power semiconductor. The company's products are used in a range of end markets, including communications, consumer electronics, information technology, automotive, industrial and government/space. The company's products are divided among three product categories: integrated circuits and advanced circuit devices, power systems and power components. International Rectifier reported earnings last week and although the numbers weren't overly impressive, analysts were impressed by the outlook. Revenues from proprietary products rose sequentially by 5% and distributor orders grew sequentially by 12%, the strongest growth in three quarters. In addition, the CEO said that despite the worst downturn in semiconductor history, the execution of their business model has made the company even more profitable. That's a very positive trait in the current economic environment and traders who want to speculate on IRF's optimistic future can do so in a conservative manner with this position. FEB 35.00 IRF NG LB=0.50 OI=444 CB=34.50 DE=21 TY=6.0% ***** JBHT - J.B. Hunt Transport $28.10 *** Hot Sector! *** J.B. Hunt Transport Services (NASDAQ:JBHT), together with its many subsidiaries, is a diversified transportation services company that directly manages or provides tailored, technology-driven solutions to Fortune 500 companies. J.B. Hunt directly transports full-load containerizable freight throughout the continental United States and portions of Canada and Mexico. JBHT has four primary segments, consisting of dry-van truck only, intermodal, dedicated contract services and logistics business segments. The company also has a venture agreement with Transportacion Maritima Mexicana, a diverse transportation company in Mexico as well as interests in a commonly owned logistics business, Transplace.com LLC. The freight-hauling segment of the transportation sector is in "rally mode" amid hopes that the economic rebound is underway. Analysts say companies in this industry are an "early cycle" group and are reacting as you would expect in the current transition from economic recession to potential economic growth. Investors who wouldn't mind owning JBHT can speculate on its near-term movement with this position. FEB 25.00 JHQ NE LB=0.40 OI=93 CB=24.60 DE=21 TY=6.8% ***** MERQ - Mercury Interactive $37.51 *** Positive Earnings! *** Mercury Interactive (NASDAQ:MERQ) is a provider of integrated performance management solutions that enable businesses to test and monitor their Web-based applications. Its software products and hosted services help Global 2000 companies enhance the user experience by improving the performance, availability, reliability and scalability of their Web-based applications. Its many hosted services provide its customers with a cost-effective solution that quickly meets business needs without dedicating significant time and internal resources. Its integrated performance management solutions enable customers to more quickly identify and correct problems before users experience them. The company also provides outsourced load testing and Web performance monitoring services that complement its software products. Shares of Israeli software provider Mercury Interactive rebounded last week after the company reported solid quarterly results and issued a positive outlook for the current quarter and year. The bullish activity put the issue back in a favorable trend and it appears there is additional upside potential in the near-term. FEB 30.00 RQB NF LB=0.35 OI=5093 CB=29.65 DE=21 TY=6.5% ***** PCX - Pan Canadian Energy $28.30 *** Up, Up and Away! *** PanCanadian Energy (NYSE:PCX) is a premier North American energy company active in the exploration, development, production and marketing of natural gas, crude oil and natural gas liquids. The company's core areas include land in Western Canada and the United States, the East Coast of Canada, the Gulf of Mexico, and the U.K. These core areas are complemented by additional international exploration programs. PanCanadian Energy recently announced it has significantly increased its estimate of recoverable reserves on its Buzzard oil discovery in the United Kingdom Central North Sea, after drilling two additional appraisal wells on the structure. However, the reason for the rally is that PanCanadian and Alberta Energy are in talks aimed at a $20-billion merger that would create Canada's largest energy company. Analysts said the merger would potentially make the combined company a big enough player to grab the attention of U.S. investors, providing them with the higher market valuations that have long eluded Canadian companies. Traders can speculate on the outcome of the merger rumors in a conservative manner with this position. FEB 25.00 PCX NE LB=0.75 OI=25 CB=24.25 DE=21 TY=12.4% ***** SEBL - Siebel Systems $37.20 *** Software Giant! *** Siebel Systems (NASDAQ:SEBL) is a provider of unique eBusiness applications software. Siebel Business Applications comprise a family of Web-based applications software designed to meet the sales, marketing and customer service information requirements of even the largest multinational organizations. The company's eBusiness Applications enable organizations to sell to, market to, and service customers across multiple channels, including the Web, call centers, field, resellers, retail and other dealer networks. By employing comprehensive eBusiness applications to better manage their customer relationships, Siebel's customers achieve high levels of customer satisfaction and continue to be competitive in their markets. Siebel Systems reported last week that fourth-quarter earnings nearly doubled from third-quarter levels as the company's posted revenues that outpaced both the previous period and analyst estimates. CEO Tom Siebel said he was optimistic about the coming year, as his company is looking "pretty healthy" now. Investors must agree with the outlook as the issue traded at a new 6-month high after the announcement. FEB 30.00 SGQ NF LB=0.30 OI=6251 CB=29.70 DE=21 TY=5.4% ***** TMCS - Ticketmaster $21.50 *** The Rally Continues! *** Ticketmaster (NASDAQ:TMCS) is engaged in two business segments: ticketing, which includes both online and offline ticketing and camping reservations operations, and city guides and classifieds, which includes all of Ticketmaster's other online properties. Within its ticketing segment, Ticketmaster provides automated ticketing services worldwide, with over 6,200 domestic and foreign clients, including many entertainment facilities, promoters and professional sports franchises. Ticketmaster Group and its major operating subsidiaries, Ticketmaster Corporation and Ticketmaster LLC were organized for the purpose of developing "stand-alone" automated ticketing systems for sale to individual facilities. Ticketmaster is also a local web portal and electronic commerce company that provides in-depth local content and services online. Shares of TMCS traded at a 16-month high earlier this month and the recent technical indications suggest the rally has additional upside potential. Investors who wouldn't mind owning the issue can speculate on future bullish activity with this conservative position. FEB 20.00 QMF ND LB=0.60 OI=24 CB=19.40 DE=21 TY=11.3% ***** ***************** 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 UAL 15.15 FEB 12.50 UAL NV 0.45 2126 12.05 21 16.9% GSPN 16.80 FEB 15.00 GLQ NC 0.50 1725 14.50 21 13.4% PLMD 20.49 FEB 17.50 PM NW 0.45 249 17.05 21 11.5% SWFT 24.46 FEB 22.50 SDU NX 0.60 23 21.90 21 10.3% BEAS 20.26 FEB 17.50 BUC NW 0.40 4512 17.10 21 10.1% QSFT 25.52 FEB 22.50 QUD NX 0.50 39 22.00 21 9.4% PMCS 24.15 FEB 20.00 SQL ND 0.35 22240 19.65 21 8.7% RATL 23.92 FEB 20.00 RAQ ND 0.35 1933 19.65 21 8.5% MATK 27.30 FEB 22.50 KQT NX 0.35 10 22.15 21 7.8% ATVI 26.60 FEB 23.38 AKV NY 0.35 87 23.03 21 6.5% SEE DISCLAIMER IN SECTION ONE ***************************************************** SPREADS/STRADDLES/COMBOS ************************ Industrial Stocks Lead The Way! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, January 25 Blue-chip shares rallied again today as investors rotated to cyclical and defense companies in hopes they will weather the current earnings reporting season. The Dow added 44 points to finish at 9,840 on strength in Honeywell (NYSE:HON), Walt Disney (NYSE:DIS), International Paper (NYSE:IP), Coca-Cola (NYSE:KO), DuPont (NYSE:DD), Caterpillar (NYSE:CAT), and General Electric (NYSE:GE). Despite the upside bias among industrial issues, the technology index was plagued selling pressure in software and networking shares. The NASDAQ Composite finished the session 4 points lower at 1,937. The broad-market Standard & Poor's 500 Index ended almost unchanged as buyers pursued oil, oil service, defense, transportation, paper, brokerage and gold issues while avoiding biotechnology, retail and drug issues. Trading volume totaled 1.33 billion on the NYSE and 1.65 billion on the NASDAQ. Market breadth was mixed, with advancers outpacing decliners 16 to 15 on the NYSE and 19 to 16 on the technology exchange. The slump in bond prices continued as a consensus emerged that there will be no rate cut when the Fed meets to decide monetary policy next week. The 10-year Treasury note ended 14/32 lower at 5.06% while the 30-year government bond erased 10/32 to yield 5.46%. On the fund flow front, Trim Tabs estimated that all equity funds had outflows of $2.6 billion over the four business days ending 11/23/02, compared with inflows of $3.2 billion in the prior week. Portfolio Activity We received a number of comments this week and although most were positive in regard to the thorough explanation of debit-straddles, a few were less favorable in response to the lack of new plays. Of course, the idea behind taking the time to explain how to look for and identify potentially profitable straddles was to educate the readers so they would be able to make better decisions when it comes to evaluating the myriad of candidates in the current market environment. Indeed the conditions were (and are) appropriate for option "buying" strategies and our recent selections in the delta- neutral category have been very active. Unfortunately, we needed just one more day in the January expiration period as the plays in Broadcom (NASDAQ) and the NASDAQ-100 Trust (NASDAQ:QQQ) easily exceeded all volatility expectations during Tuesday's technology sell-off. The downside activity also favored our new straddles in Juniper (NASDAQ:JNPR) and Jabil (NYSE:JBL) as both issues moved to within a few cents of their respective break-even points. At the same time, each issue presented a common dilemma (one that I spoke of last week) for straddle traders. That is, whether to "ride the trend" to the break-even point or trade against the straddle. In the best possible scenario, the value of one option would easily exceed the overall debit in the original position. However, that was not the case in either of these issues; they both fell short by $0.20-$0.30. Of course, an astute closing trade in the bearish portion of each straddle would have allowed a profitable outcome in both plays (with the call being sold as the stock rebounded) but the timing involved in that type of approach is difficult for new traders. Those who remained in the original positions have a reasonable potential for profit but the premium in the options is eroding at an exponential rate and the probability of further downside movement may be lower now that both stocks have become slightly oversold. As with any investment, the key to long-term success with debit straddles is to establish the loss-limits before initiating the position. If you are going to use trading stops for an "early exit" strategy, most professional traders suggest that you should risk no more than 60% of the straddle price. For example, if you pay $10 for a straddle, the overall credit for the position could decline $6, to a price of $4 before the trading stops would be hit. The use of a percentage loss-limit is designed to keep a trader from staying in the play too long, especially in those cases when the stock price is near the strike price, where premium decay can erode the initial investment to almost nothing. The effects of time-value erosion are also more pronounced in the last few days of the option's life, so you should probably consider some type of exit strategy if the issue hasn't moved much by the last week before expiration. Traders who buy straddles that initially have three to five months of life will be able to hold them until they have about one month remaining before being "stopped-out" with this approach and unless you are very adept with the speculative version of this strategy, that's probably the best time frame to use in conservative portfolios. Despite the volatile movement in the broader markets, there has been little notable activity in the Spreads portfolio. The LEAPS with Covered-Calls position (JAN03-$65C/FEB02-$70C) in Microsoft (NASDAQ:MSFT) is our only long-term play and the calendar spread (AUG-$7C/MAY-$7C) in Clarus (NASDAQ:CLRS) is the sole time-selling spread in the portfolio. Among the original "Reader's Request" positions (on January Effect issues), there are only a few stocks that have upside potential in the near-term and only two issues; I2 technologies (NASDAQ:ITWO) and Advanced Digital (NASDAQ:ADIC) have experienced bullish activity during the last few sessions. One position in which we are cautiously optimistic is the collar in Sandisk (NASDAQ:SNDK). Our cost basis (in April) is near $17 and the issue may be heading back to that price range after the recent earnings report. SNDK shares rallied 20% last week in the wake of the company's comments that it is "cautiously optimistic about increased sales and improving product margins in subsequent quarters in 2002." The first test of resistance is near $16.50, but a move through that area should provide enough momentum for a climb to the $18 range. There may also be hope for the bullish position in Goodyear Tire & Rubber (NYSE:GT) as the issue is once again in an up-trend. The underlying strength of the rally will be apparent when the share value approaches the recent (DEC-JAN) highs near $25 but fortunately, our long option (APR-$30C) does not expire for three months. In the credit spreads group, Biogen (NASDAQ:BGEN) slid to a new low this week after the company said fourth-quarter net income fell 18% because of a charge related to patent litigation. The issue is now at a "key" moment and should be monitored closely in the coming sessions for signs of additional bearish activity. A move through the recent support area near $52 would suggest further downside potential. Abgenix (NASDAQ:ABGX) is still in a downtrend and with Friday's close at a 3-month low, it may be necessary for traders who made a bullish adjustment to continue with the "roll-down" strategy into March. A transition to the MAR-$22.50 put (short) on any near-term rally should provide a small credit in the overall position. This approach definitely has a downside, especially if more unexpected news occurs, but eventually the stock should stop falling and the last set of written options will expire worthless. Remember, there are two requirements for success in this "rescue" strategy. The first prerequisite is the underlying issue's price must eventually rebound and the second condition is that the trader have enough portfolio collateral to stay with the strategy even if the stock declines further. Also, in any situation where an attempt to recover a losing play is made, you must be prepared for further draw-downs and have thorough knowledge of the repair strategy. Good Luck! Questions & comments on spreads/combos to Contact Support ****************************************************************** - STRADDLES AND STRANGLES - A number of subscribers said they wanted more straddle positions so I have included a variety of potential candidates with diverse characteristics from which you may choose the most appropriate selection, based on your personal trading style and portfolio outlook. The current market conditions and option prices favor this technique and all of these issues have relatively inexpensive option premiums, a history of adequate price movement and at least some potential for volatility in the stock or its industry. In each case, you must decide if the position meets your individual risk-reward criteria. If you are not familiar with this strategy, review the most recent article on the subject here: http://members.OptionInvestor.com/combos/012002_1.asp ****************************************************************** BEAS - BEA Systems $20.26 *** Earnings Play! *** BEA Systems (NYSE:BEAS) is a e-business infrastructure software company. Customers use BEA products as a deployment platform for Internet-based applications including custom-built and packaged applications, and as a means for robust enterprise application integration among mainframe, client/server and Internet-based applications. In addition, BEA provides Enterprise Java Bean- based components that perform functions such as personalization, shopping cart, order tracking, inventory and pricing that are used in developing custom applications. The company's products have been adopted in a wide variety of industries, including commercial and investment banking, securities trading, insurance, telecommunications, services, airlines, package delivery, software, retail, manufacturing, government, healthcare, communications and utilities. BEAS shares have been very active lately in conjunction with the deluge of earnings reports in the software sector. The company's quarterly announcement is due February 21, thus traders who want to speculate on that event should probably use the March options. There is also a favorable short-term position, utilizing February $20.00 options. That straddle should cost approximately $2.75 to initiate. PLAY (conservative - neutral/debit straddle): BUY CALL MAR-20 BUC-CD OI=5267 A=$2.35 BUY PUT MAR-20 BUC-OD OI=1298 A=$2.15 INITIAL NET DEBIT TARGET=$4.30-$4.40 TARGET PROFIT=25%-50% ****************************************************************** JPM - J. P. Morgan Chase $34.99 *** Probability Play! *** J. P. Morgan Chase (NYSE:JPM) is a global financial services firm with operations in over 60 countries. The company's primary bank subsidiaries are The Chase Manhattan Bank, Morgan Guaranty Trust Company and Chase Manhattan Bank USA, National Association. Its principal non-bank subsidiaries are investment bank subsidiaries; Chase Securities (CSI) and J.P. Morgan Securities (JPMSI). The bank and non-bank subsidiaries of J.P. Morgan operate nationally, as well as through overseas representative offices, branches and subsidiaries, and affiliated banks. J.P. Morgan activities are internally organized into five business franchises (Investment Bank, Investment Management/Private Banking, Treasury/Securities Services, JPMorgan Partners and Retail & Middle Market Financial Services). Last year, the company merged its two lead banks, The Chase Manhattan Bank and the Morgan Guaranty Trust Company of New York. The name of the merged bank is J.P. Morgan Chase Bank. J.P. Morgan Chase has not performed well in recent weeks, and the primary reason is a combination of factors. The downtrend began in earnest just prior to the company's quarterly earnings report, in which JPM posted an unexpected loss on costs associated with Enron and Argentina. They also said the prospect for 2002 is not "rosy" and the announcement prompted Standard & Poor's to lower its outlook on the banking and investment company to "negative," saying further disappointing performance from the banking giant is possible. Then K-mart announced its bankruptcy and the fact that J.P. Morgan Chase was among the company's biggest lenders did not help the situation. On Friday, the issue closed below the bottom of a recent range, and there is a high probability of continued volatility in the issue. Traders may also consider a speculative (short-term) position utilizing February options. That straddle should cost approximately $2.60 to initiate. PLAY (conservative - neutral/debit straddle): BUY CALL MAR-35 JPM-CG OI=4483 A=$1.95 BUY PUT MAR-35 JPM-OG OI=20743 A=$1.85 INITIAL NET DEBIT TARGET=$3.60-$3.70 TARGET PROFIT=25%-50% ****************************************************************** A - Agilent Technologies $29.06 *** Earnings Play! *** Agilent Technologies (NYSE:A) is a diversified technology company that provides enabling solutions to high growth markets within the telecom, electronics, healthcare and life sciences industries. Agilent provides test instruments, standard and customized test, measurement and monitoring instruments and systems for the design, manufacture and support of electronics and communications devices and also software for the design of high-frequency electronic and communications devices. Agilent markets fiber optic communications devices and assemblies, integrated circuits (ICs) for wireless applications, application-specific integrated circuits, as well as optoelectronics and image sensors. Agilent also provides patient monitoring, ultrasound imaging, cardiology products and systems and related services and supplies. n addition, Agilent provides analytical instruments, systems and services for chromatography, spectroscopy and bio-instrumentation. Agilent's quarterly earnings are due February 19, and based on favorable option pricing and its recent volatility, the issue provides a good candidate for an "event-driven" debit straddle. Agilent's options are undervalued and the stock has the potential to move (high or low) enough to make the straddle profitable. In addition, the issue has a history of multiple movements through a sufficient range in the required amount of time to justify the overall risk-reward of the position. PLAY (conservative - neutral/debit straddle): BUY CALL MAR-30 A-CF OI=293 A=$1.50 BUY PUT MAR-30 A-OF OI=2 A=$2.50 INITIAL NET DEBIT TARGET=$3.75-$3.85 TARGET PROFIT=25% Note: The Delta or "hedge ratio" in the position suggests that we should buy 3 calls for every 2 puts (3:2 ratio) to maintain a neutral outlook. However, any upward movement in the issue on Monday should allow both sides of the position to be purchased at similar prices. ****************************************************************** SGP - Schering-Plough $32.91 *** Key Moment? *** Schering-Plough (NYSE:SGP), a global research-based pharmaceutical company, and its many subsidiaries are engaged in the discovery, development, manufacturing and sale of pharmaceutical products. Although discovery and development efforts target the field of human health, application in the field of animal health can result from these efforts. Schering-Plough operates primarily in the prescription pharmaceutical marketplace. But, where appropriate, the company has sought regulatory approval to switch prescription products to over-the-counter (OTC) status as a means of extending a product's life cycle. In this way, the OTC marketplace is yet another means of maximizing returns on the company's investments in discovery and development. Shares of SGP slumped to long-term lows Friday after the company said its fourth-quarter earnings plunged 75% due to a one-time, $500 million charge for legal fees associated with manufacturing problems at plants in New Jersey and Puerto Rico. The maker of the popular allergy antihistamine Claritin reported net earnings of only $143 million, or 10 cents per share, compared with $571 million, or 39 cents per share, for the quarter a year ago. The news was seen as very unfavorable by investors and they drove the company's share value down to the lowest levels of the previous two years. The only recent test of the current price range came in September of last year and based on the trading activity near that date, the issue should be volatile in the coming weeks. A speculative (short-term) position utilizing February options is also available. That straddle should cost $1.60-$1.65 to open. PLAY (conservative - neutral/debit straddle): BUY CALL MAR-32.50 SGP-CZ OI=2 A=$1.55 BUY PUT MAR-32.50 SGP-OZ OI=722 A=$1.15 INITIAL NET DEBIT TARGET=$2.55-$2.60 TARGET PROFIT=25%-50% ****************************************************************** INTV - InterVoice-Brite $9.56 *** Speculation Only! *** InterVoice-Brite (NASDAQ:INTV) is a technology leader in speech enabled interactive information systems and enhanced services systems for network service providers and a unique communications and e-business application service provider (ASP). The company participates in global markets including: the interactive voice response (IVR) market in which it provides automated customer service and self-help solutions to enterprises and institutions, and the enhanced telecommunications services market in which it provides value-added solutions to network service providers. The company also sells systems solutions in both markets and, as a complement to its system sales, can provide its products and services to its customers on an outsourcing basis through its ASP. This position emerged in scan for low-cost speculative straddles and it will provide a good introduction for traders who want to participate in this strategy but don't want to risk much money. Of course, the potential for profit is not very large but the recent share price volatility suggests the position has a higher than average probability of a successful outcome. The daily movement should also present some opportunities to reduce the initial debit in the position. Traders who decide to hold the straddle until expiration should consider exercising the ITM (in-the-money) option if it will provide a better exit credit, due to the larger bid/ask spreads in the options. PLAY (very speculative - neutral/debit straddle): BUY CALL FEB-10 VQN-BB OI=372 A=$0.45 BUY PUT FEB-10 VQN-NB OI=30 A=$0.80 INITIAL NET DEBIT TARGET=$1.00-$1.15 TARGET PROFIT=20%-25% Note: The Delta or "hedge ratio" in the position suggests that we should buy 2 calls for every 1 put (2:1 ratio) to maintain a neutral outlook. However, any upward movement in the issue on Monday should allow both sides of the position to be purchased at similar prices. ****************************************************************** - SPREADS/COMBOS - ****************************************************************** UAL - UAL Corporation $15.15 *** Bottom Fishing! *** UAL Corporation (NYSE:UAL) is a holding company whose principal subsidiary is United Air Lines, Inc., a wholly owned subsidiary. United is a commercial air transportation company, engaged in the transportation of persons, property and mail in the United States and abroad. During 2000, United carried, on average, more than 231,000 passengers per day and flew more than 126 billion revenue passenger miles, providing passenger service in 28 countries. United's network, supplemented with strategic airline alliances, provides comprehensive transportation service within its North America segment and to international destinations within its Pacific, Atlantic and Latin America segments. United accounted for virtually all of the company' s revenues in 2000. Readers have asked for some new candidates for the strategy of Covered-calls on LEAPS and since the airline stocks have started to establish a base after last year's precipitous sell-off, we decided to examine a few of the companies in that industry group for potential calendar spreads. The outcome was in favorable as we have discovered an acceptable entry opportunity at the $17.50 strike price in UAL, just above the most recent resistance area in the issue's technical pattern. Traders that participate in conservative, long-term positions should consider this play if they have a neutral to bullish outlook for UAL and the airline sector in the coming year. Strategy Description Covered-call writing is a stock-option trading strategy that many traders use when they are trying to establish a conservative risk- return profile, while maintaining meaningful profit potential, in 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); a position that consists of the sale of one call and the simultaneous purchase of another call, both on the same underlying stock, with the same strike price, but with one option near-term and the other option further out. The theory behind calendar-spread profits is based on a neutral-outlook philosophy in which time erodes the value of the near-term option at a faster rate than the far-term option. Using LEAPS in a calendar spread can make the strategy even more productive because the premium in extremely long-term options is less affected by time-value erosion and any near-term volatility in the underlying issue can increase the price of the sold (short) options. Readers can learn more about the strategy in Jim's new book, Winning Option Strategies, available on the OIN website at: https://secure.sungrp.com/02book_info.asp?book=1 PLAY (conservative - bullish/LEAPS and Covered-Calls): BUY CALL JAN03-17.50 VUA-AW OI=4923 A=$3.40 SELL CALL FEB02-17.50 UAL-BW OI=2352 B=$0.35 INITIAL DEBIT TARGET=$2.90-3.00 TARGET PROFIT=100% (11 months) ****************************************************************** PVN - Providian $4.34 *** Cheap Speculation! *** Providian Financial Corporation (NYSE:PVN) provides credit card loans, cardholder service products and deposit products. The company operates through the following businesses: Integrated Card, Global E-Commerce, International and First Select. The Integrated Card business offers credit card loans generated primarily through Visa and MasterCard credit cards. The Global E-Commerce business consists of www.aria.com, which allows consumers to apply and receive a credit/loan decision online; www.providian.com, which offers certificates of deposit and money market accounts; and www.getsmart.com, an online marketplace that pairs individual consumers seeking a specific product, such as a credit card, home loan or auto loan, with lenders offering those products. The International business offers credit cards as well as cardholder service products and retail deposits in the United Kingdom and Argentine. The First Select business purchases and services distressed credit card assets from other issuers. Here's a great speculation play, based on the current price or trading range of the underlying issue and its recent technical history or trend. With the well-established basing pattern in the issue, the risk-reward outlook in this position is very favorable and an acceptable profit could be achieved far in advance of the options' expiration. Current news and market sentiment will have an effect on PVN so review the company's outlook thoroughly and make your own decision about the future outcome of the position. PLAY (speculative - bullish/debit spread): BUY CALL JUN-5.00 PVN-FA OI=4920 A=$1.10 SELL CALL JUN-7.50 PVN-FU OI=1082 B=$0.45 INITIAL NET DEBIT TARGET=$0.50-$0.55 PROFIT(max)=400% ****************************************************************** ************************Advertisement************************* BARRON'S SAYS OPTIONSXPRESS HAS "a lot of bang for the buck" * IRA Accounts Available * 8 different FREE options pricing, strategy, and charting tools * Real-Time Buying Power, Account Balances or Cancels * EASY screens for spreads, collars, covered calls or butterflies! Go to http://www.optionsxpress.com/marketing.asp?source=oinvestor013 Note: Options involve risk. 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