The Option Investor Newsletter Sunday 04-21-2002 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 ****************************************************************** MARKET WRAP (view in courier font for table alignment) ****************************************************************** WE 4-19 WE 4-12 WE 4-5 WE 3-29 DOW 10257.11 + 66.29 10190.82 - 80.82 10271.64 -132.30 - 23.73 Nasdaq 1796.83 + 40.64 1756.19 - 13.84 1770.03 - 75.32 - 6.04 S&P-100 559.79 + 6.05 553.74 - 10.28 564.02 - 13.85 - 2.22 S&P-500 1125.17 + 14.16 1111.01 - 11.72 1122.73 - 24.66 - 1.31 W5000 10635.05 +129.08 10505.97 - 45.46 10551.43 -224.31 - 1.12 RUT 517.40 + 1.94 515.46 + 17.70 497.76 - 8.70 + 4.07 TRAN 2796.87 - 78.16 2875.03 + 96.62 2778.41 -139.55 + 40.69 VIX 20.30 - 1.79 22.09 + .96 21.13 + 1.81 - 0.30 VXN 39.35 - 3.46 42.81 + 1.96 40.85 + 4.57 - 1.28 TRIN 1.18 1.03 1.67 0.84 TICK -492 +460 +341 +793 Put/Call .79 .99 .78 .79 ****************************************************************** The String is Broken! by Jim Brown After a string of five weeks of losses the Dow and Nasdaq finally posted a small gain. It was nothing to write home about with only a +66 point gain for the Dow and +40 for the Nasdaq but traders were eager to take what they could get. After a week of earnings with headliners missing estimates, a flood of warnings, fears of another terrorist plane crash and a new threat at home, any positive gain is a surprise. One of the biggest surprises of the week was the Microsoft results. Officially the company missed estimates by two cents and then warned for next quarter and the year. Traders however looked the other way and ignored the bad news and powered the stock to a gain on Friday. This brings to mind the story of a college girl coming home on vacation and when asked about her grades related the following. I have some bad news. I got a D in English and Math and a B in PhysEd, and I am pregnant. After the mother is picked up off the floor and revived the daughter tells her she was just kidding about the pregnant. In relief the mother says "that's great, a B in PhysEd! and she completely ignores the two Ds. This is how traders reacted to the fact that Microsoft earnings were not as bad as first thought. When the announcement included two special items around fifteen cents each analysts recoiled in horror that maybe Microsoft really missed earnings by seventeen cents and not just two. Surprise, just kidding about the charges, it is only a two cent miss and oh by the way, we are warning but its no big deal. Great, said the relieved analysts, lets buy Microsoft tomorrow! Merrill Lynch led the group and upgraded MSFT as a better value at the current price. Remember the telecom rally from Tuesday? You can forget it again. Friday reality returned to the sector with a flurry of news events. Qwest started the decline with profit warnings for the year which echoed statements from BellSouth and SBC Communications. Qwest said it was going to seek a buyer for some of its assets in an effort to trim expenses and raise cash. After the bell on Friday Worldcom cut its full year 2002 earnings and revenue guidance, which dropped WCOM stock to less than $5 in after hours. All the telecom companies made remarks similar to the Nortel CEO on Thursday who said he expected continued weaker spending in the sector for 2002. Needless to say all the related companies like NT, LU, CSCO, JNPR and the communication chip companies finished lower. Cautious comments came from many sectors this week despite 58% of the companies already reporting announcing results that beat the street. The problem is still the lowered estimates they beat. Some analysts point to this as a sign of promise but they are struggling to paddle up stream. The freight companies, notably the package shipping group, has been seen as a leading indicator of economic growth. This week the UPS CFO said they saw "no significant evidence of an economic recovery." The Consolidated Freightways (CNF) CEO said the "business upturn remained weak." Are investors fooling themselves that a recovery is underway because the alternative is too frightening? Whatever the reason the markets appeared amazingly resilient last week. After less than stellar guidance from many companies and warnings from many others the indexes finished with a gain. This came after a fear of another terrorist attack was news on Thursday with the plane crash in Milan. A -150 point Dow drop was quickly erased with the index closing within 15 points of zero. This was a significant event. It means there are buyers in the crowd and those buyers were quick to pick up shares others were dumping. The lack of a drop on the Microsoft warning shows that there are tech buyers at this level. While there are buyers lurking below the bid there are no buyers willing to push stocks higher. Volume remains very weak and we are moving into the season where it will get even weaker. Nervous but resilient? How much longer will the resilience last? First Call is becoming more vocal about their doubts regarding tech companies hitting the current +140% increase in profits for the third quarter. Granted comparisons to 2001-Q3 should not be hard to beat but +140% improvement? As analysts come to grips with the fact that the economy may not be recovering as fast as they wish then estimates will start dropping rapidly. Doubtless there are many analysts scratching their heads and sharpening their pencils after this weeks earnings reports. The shrinking estimates will likely begin next week and as estimates drop so may stock prices. Little was said about the jump in initial jobless claims over the last two weeks to the highest levels of the year. Analysts claim the numbers are not relative since it contains previous filers whose claims expired and are now allowed to file again for extended benefits. Still the continuing claims rose again to 3,839,000 which indicates continued weakening unemployment. I don't need Federal numbers to drive home the unemployment problem. I ran an ad in the local paper for a web developer last week and got over 200 resumes. Two years ago I was lucky to get ten for the same ad. After speaking to many of the applicants several admitted to sending out thousands of resumes around the country over the last several months with only a random call or a thank you for your submission letter. Several applicants, with 7-10 years of developer experience, had taken jobs as waiters and laborers just to make ends meet. Others, which were still employed said their companies were planning more cut backs before summer. I am sure Denver is not alone in this problem and when you multiply it nationwide you can see that the tech sector is having the same problem as telecom. This brings us back to the markets. We all know that the markets are discounters of current and future events and investors typically focus six months in advance. That six month focus is expecting a +140% increase in profits for tech stocks. It is becoming increasingly apparent that this may not happen. As it sinks into investor consciousness there may be a tendency to lower those bids or withdraw them completely. The S&P is struggling to break resistance at 1130. To its credit it is holding its ground and fighting a valiant fight. The bounce off 1100 last week was very strong but it came to a screeching halt at the 1130 level. If you remember what powered that bounce it was short covering in chips and telecoms. The semiconductor index rolled over right at 615 resistance and we all know what happened to telecoms this week. Neither sector is likely to provide any help next week. That puts us back to square one for next week. All the averages are struggling under resistance. Dow 10300, Nasdaq 1800 and S&P 1130. Without some strong positive news we appear stuck in this trading range. The news for this earnings cycle is already priced into the markets and has been unable to power us above resistance. We are five days into the April-15th to May-15th period which historically produces sell offs 80% of the time. The VIX closed at 20 on Friday but the put/call ratio and the TRIN suggest it will fall farther before it stops. My entry points for long plays continue to be 10350, 1850, 1130. You may notice I adjusted the Nasdaq number back to 1850 to bring it more inline with the other two indexes. My entry points for going short are Dow 10,000, Nasdaq 1725 and S&P 1100. If the markets are going to continue to trade in a range between those levels then attempting to make profitable trades will be very difficult for most investors. You are left buying bounces from the low side and selling into rallies on the top. It is easily done only if you are an active trader and comfortable with the risk. Despite the gain for the week the markets are still in a downtrend. One positive week out of six does not change the trend it only equalizes the oversold pressure. Over half of the Dow has already announced and most of the remainder will announce next week. We can expect more of what we got this week, mixed results with cautious guidance. Nearly half of the S&P have already announced with another 25% due next week. After that the earnings news will dwindle and we will begin our drift into the summer doldrums. This is the period when we need to be especially careful about trying to force trades. Be very patient and wait for the entry points above. Enter Very Passively, Exit Aggressively! Jim Brown Editor ******************** INDEX TRADER SUMMARY ******************** TECH WRECK by Leigh Stevens My old PaineWebber index buddy Art Cashin, who used to call me for the (S&P) program numbers, talked on CNBC on Friday about the love/hate affair that money mangers have with tech stocks. I thought he summed it well: On the one hand the big managers have no other place to put all their dollars to work, unless they invest in techs. Yet, potential buyers are intimidated by the still-high valuations - Cisco is not cheap. Holders of the stocks don't really want to sell around current levels, as they also have limited alternatives to putting their cash to work. They can't buy all small and mid cap stocks - otherwise they would be BIG caps. It’s a bit of bind that leads to the blind leading the blind. Tech sectors go up one day and the fund lemmings follow each other in. The next day, the sector tanks on news or other views and the same folks pull their bids or they stampede out. The resulting roller coaster ride is most real to individuals trying to trade this market, especially using index options. We feel like the mouse trying to stay out of the way of the elephants. The Dow again -- can you believe it! -- ended the week about where it began. Hey, the roller coaster comes back to the same starting point. We will soon be out of earnings season -- its like having the hurricane season end in Florida. You can get back to normal weather and not have the risk of being blown away. The market is so unchanged, as the roller coaster always comes back to the same starting point that my projected trading ranges look much the same. There are pivot points that are key mid-point levels worth repeating. The concept of a pivot point being, a sort of key mid-point level for the expected range of an index or stock -- above the level, look for further upside, below it, the item is subject to downswings when it comes up against the pivotal level. So, above the pivot, this level tends to act as support, below it, as resistance. I've found year in and year out, that the best gauge of the pivot point for trading the indexes is the 21-day day moving average. Index "pivot" points: SPX: 1130 OEX: 566 DJX: 103.0 COMP: 1800 NDX: 1405 QQQ: 35 I continue to note that the advance-decline figures are improving weekly, along with the increasing numbers of stocks going to new 52-week highs. Small and mid cap stocks continue on a roll along with health care, home builders, oil services, key financials like some banks (e.g., JP Morgan Chase) and some insurance stocks, forest and paper products -- all those new houses use a lot of timber! I favor the call or long side on pullbacks in the indexes as it continues to look like a mildly bullish posture offers the higher potential here. Market rallies are not falling apart quite like they were. There is still a lot of rotation, but money is coming into the market from the sidelines on balance. Refine a view of the shorter-term support and resistance areas and trade entry by studying the well-ordered price channels that hourly trading is tracing out over past days and weeks - very convenient. There aren’t many edges in this market and this is one of them. Look for hourly oversold readings when they line up with prices being at support; or, overbought levels that coincide with resistance areas on the hourly charts. THE CHART PARADE - TECHNICAL GLICHES - Per my apologies on Friday's Market Monitor, the CHART illustrations in my Thursday night (4/18) Option Investor, Index Trader and Sector Trader pieces, with one exception, ALL had the wrong charts. The exception was the S&P 500 chart - first one - in the Option Investor wrap up (titled: "WHIPPY") which was the right one. All charts are now correct. It was a technical glitch but we have corrected the problem. S&P 500 (SPX): Except for the one hourly spike down, the index is hugging the top end of the channel -- what was resistance has become support. This suggests that some uptrend momentum (MO) is developing. 1110 looks like good support and is the area to buy calls. A sharp break of 1110 or a close under this area suggests that the SPX is vulnerable to a further drop back to the 1100 area. 1130 is the profit objective on calls unless there is good-sized move through this pivot point coupled with the ability to hold this area on subsequent pullbacks. S&P 100 (OEX) hourly chart: Same strategy as the S&P 500, OEX's big brother, only the levels are different. 562-564 appears as the key resistance area currently in the hourly charts. The pivot point is 566. If OEX makes it above 566, upside potential is to 570. 550-551 looks like buying territory for calls, especially if the low end of the stochastic is seen, suggesting that OEX is in an oversold area also. A move to much under 550 is a bearish break of support and puts the index back into its bearish downtrend channel Dow (DJX) chart: I'm a call buyer at 100.5-101, turning to put purchases in the 103 area, keeping in mind the pivotal importance of 103. Nasdaq Composite (COMP): Most bullish of the Nasdaq stocks, showing the better picture that has developed in many of the smaller to mid-sized companies. 1815 to 1830 is the resistance zone. 1750 is support and a move to here would fill in the upside price gap. Nasdaq 100 (NDX): Bear strategies to play the downside appear opportune in the 1420-1425 zone. Buying opportunities begin at 1360 and extend down to 1345. The key in this zone is when the hourly stochastic gets down to its low end and then starts to turn up. We can't refine a buying strategy so well within this area without seeing where the stochastic is if and when NDX gets into this area. But, the stochastic is approaching an oversold reading, so 1360 area looks pretty opportune. A right click on the stochastic indicator once applied to a chart, in Q-charts if you use it, will allow setting the Length to 21 for hourly work. QQQ: 33 is a main support area, with 34 as a near term area to watch for this. Trade much under 33.5-34 starts to put the Q's back into the bearish downtrend channel so beware. Trade in the 35.50 area looks like the place to turn bearish, especially with an overbought high reading on the stochastic. However, keep in mind the pivot point -- above 36 QQQ is breaking out to the upside and can run a bit, especially if not too overbought. Of course, overbought AND oversold readings and upside or downside crossovers of the stochastic lines should not be taken as automatic buy or sell points of action. The indexes can and do get overbought and oversold for periods of time without price reversals occurring. However, in this trading range market the appropriate oscillators work quite well as adjuncts to trading strategy. Long/Call Positions: Long QQQ at 34.30 Stop: 32.50. Objective: 38.00 Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** Editor's Plays ************** Capturing News Events The flurry of telecom news on Friday suggests that there are more problems ahead for the sector. Several of the components still have value although that value is declining daily. We are going to try and capture some of that decline with a couple of put plays. With the summer period likely to be lackluster for earnings improvements these two companies could decline significantly. ****************** New Plays SBC Communications - Put SBC hit a new multiyear low not seen since 1997 and could continue to drift lower over the summer. The May $30 put is very cheap at $.30 but there may not be time to fully capture the value of the drop. I would recommend the July-$30 put at $.85 and hope for a drop to $25 in SBC stock. *************** Bellsouth - Put Bellsouth also hit a new four year low and faces the same fate as SBC. I would suggest the July $30 put at $1.30 and hope for a drop to the $25 range. I know everybody thinks this is not probable but look at a chart on AT&T. Would you have expected in April 2000 for T to ever trade under $15? **************** Qualcomm - put The back to back warnings from SBC, BLS, WCOM, NOK and ERICY have taken the bloom off the QCOM story. The bounce off $34 last week quickly faded and the stock has resumed its downward trend. As a major Nasdaq component any drop in the Nasdaq will weigh on QCOM as well. I like the July $35 put at $3.00. We have plenty of time and should the $34 support level fail we could see plenty of institutional selling. ****************** Remember, these are all high risk plays and should only be made with 100% risk capital. Good Luck Jim Brown (GO PVN!) **************** MARKET SENTIMENT **************** Not So Great Expectations By Eric Utley The market's four-week slide preceding last week's earnings reports makes a lot sense now. Especially logical was the retreat in the tech sector. Let's recall some recent reports, and think big picture here. First, IBM (NYSE:IBM), arguably the best bellwether for assessing information technology spending, reported the worst drop in earnings in nearly a decade. Then Nokia (NYSE:NOK) said that it would sell a lot fewer cell phones this year than previously expected. After the confusion settled, Microsoft (NASDAQ:MSFT) reduced expectations for this year. What's especially disconcerting about Nokia and Softee is that the two are the gorillas in their respective spaces. Some, myself included, have argued that the big dogs in each space were worth a bullish look. But that's been a very wrong stance to take. What's really telling of IT spending is the plethora of warnings from enterprise software vendors, such as Oracle (NASDAQ:ORCL), Siebel (NASDAQ:SEBL), and Veritas (NASDAQ:VRTS). These are the companies that should benefit first from a pickup in IT spending due to the way corporate managers budget for the year, and the nature of the products sold by these vendors. The three aforementioned vendors, among many others, have not seen a pickup. Tom Siebel, chief of the company that bears his name, said that last quarter was the worst in his company's history. If these biggest, best-run companies are having such a difficult time, what lies ahead for the peripheral players, the companies with weak management, and dwindling cash reserves? Judging by the outlooks offered by some of IT's sharpest, the rebound in spending isn't even close. Never mind the magnitude of any forthcoming rebound, it's not even here yet. That doesn't bode well for the lesser competitors. Not well at all. Starting in the first week of March, the Nasdaq-100 (NDX.X) did a pretty good job of discounting the terrible first quarter earnings reports. From here, if things worsen on the fundamental front, you can bet that the supposed double bottom in the NDX will be broken. In the meantime, the NDX Bullish Percent ($BPNDX) is in bull confirmed status. As such, the greatest risk is to the upside. In other words, bears are nervous, while bulls are more confident. If the IT climate worsens, we'll see the $BPNDX reverse into bull correction, and most likely into bear confirmed. Until that happens, however, tech bears should be cautious about the upside potential. If you're bearish, and would rather shun the risk associated with tech stocks currently, you're better off turning to the NYSE names that have a lot more downside risk. The S&P-100 (OEX.X) names, minus technology, would be a good place to search out downside bets. At 66 percent, there's plenty of downside risk left in the NYSE big caps. Finally, Friday's sector scorecard was so representative of this year it was just amazing. The best performing sector was the HMO (HMO.X), the relatively obscure group of stocks that is starting to attract a lot of attention. Diametrically opposed to health care sits telecom. And it's no surprise that Friday's worst performing sector was the North American Telecom Index (XTC.X). ----------------------------------------------------------------- Market Averages DJIA ($INDU) 52-week High: 11350 52-week Low : 8062 Current : 10257 Moving Averages: (Simple) 10-dma: 10228 50-dma: 10254 200-dma: 9946 S&P 500 ($SPX) 52-week High: 1316 52-week Low : 945 Current : 1125 Moving Averages: (Simple) 10-dma: 1119 50-dma: 1129 200-dma: 1133 Nasdaq-100 ($NDX) 52-week High: 2071 52-week Low : 1089 Current : 1507 Moving Averages: (Simple) 10-dma: 1373 50-dma: 1435 200-dma: 1507 HMO ($HMO) No stranger here. The HMO earned the day's best performing sector spot in last Friday's session. The index finished 2.86 percent higher for the day, and has now gone into a parabolic rise. The quality and ubiquity of earnings is the driving force here. Friday's sector leaders included Pacificare (NASDAQ:PHSY), which blew up by 21 percent, Tenet Healthcare (NYSE:THC), Oxford (NYSE:OHP), Wellpoint (NYSE:WLP), and Humana (NYSE:HUM). 52-week High: 587 52-week Low : 366 Current : 586 Moving Averages: (Simple) 10-dma: 545 50-dma: 503 200-dma: 445 Telecom ($XTC) No stranger here. The XTC resumed its role of goat Friday, winning the worst performing sector of the day spot. The XTC shed 2.83 percent on another calamity at Qwest (NYSE:Q), the Denver telco that is having, shall we call them, difficulties. The news didn't get any better after the bell Friday, when Worldcom (NASDAQ:WCOM) warned. Come on, Bernie, on a Friday night? Really, show some class. Leading to the downside included shares of the aforementioned two, as well as MCI Worldcom (NASDAQ:MCIT), Nextel (NASDAQ:NXTL), Bellsouth (NYSE:BLS), and SBC (NYSE:SBC). 52-week High: 1028 52-week Low : 534 Current : 580 Moving Averages: (Simple) 10-dma: 576 50-dma: 631 200-dma: 788 ----------------------------------------------------------------- Market Volatility The VIX fell back to the 20 level in Friday's session, losing nearly 6 percent for the day. The VXN finished fractionally lower despite the weakness in the Nasdaq-100 (NDX.X). CBOE Market Volatility Index (VIX) - 20.00 -1.24 Nasdaq-100 Volatility Index (VXN) - 39.28 -0.06 ----------------------------------------------------------------- Put/Call Ratio Call Volume Put Volume Total 0.79 765,446 607,823 Equity Only 0.66 694,446 458,104 OEX 1.12 26,554 29,628 QQQ 0.60 22,150 13,342 ----------------------------------------------------------------- Bullish Percent Data Current Change Status NYSE 66 + 0 Bull Confirmed NASDAQ-100 45 + 0 Bull Confirmed DOW 57 + 0 Bear Alert S&P 500 71 + 0 Bull Confirmed S&P 100 66 + 0 Bear Alert 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 0.95 10-Day Arms Index 1.28 21-Day Arms Index 1.31 55-Day Arms Index 1.21 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 1728 1373 NASDAQ 1671 1834 New Highs New Lows NYSE 179 19 NASDAQ 213 32 Volume (in millions) NYSE 1,190 NASDAQ 1,512 ----------------------------------------------------------------- Commitments Of Traders Report: 04/16/02 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 The spread between S&P commercials and small traders narrowed during the most recent reporting period. Commercials added a few more longs than shorts, resulting in a small reduction in the group's net bearish position. Meanwhile, small traders added quite a few short positions, coming off of the group's yearly high in bullishness. Commercials Long Short Net % Of OI 04/02/02 313,294 406,337 (93,403) (13.0%) 04/09/02 320,101 411,075 (90,974) (12.4%) 04/16/02 322,578 411,245 (88,667) (12.1%) 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 04/02/02 149,449 43,139 106,310 55.2% 04/09/02 151,237 47,678 103,559 52.1% 04/16/02 150,529 50,424 100,105 49.8% Most bearish reading of the year: 36,513 - 5/01/01 Most bullish reading of the year: 107,702 - 3/26/02 NASDAQ-100 Nasdaq commercials grew less bearish during the most recent reporting period. The group added a number of long positions, while maintaining last week's short position. Net, however, the group is still bearish. Small traders went in the opposite direction by adding more shorts than longs, for a decrease in the group's net bullish position. Commercials Long Short Net % of OI 04/02/02 26,211 31,840 (5,629) (9.7%) 04/09/02 28,985 35,221 (6,236) (9.7%) 04/16/02 32,024 35,723 (3,699) (5.5%) 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 04/02/02 10,615 7,769 2,846 15.5% 04/09/02 11,640 8,353 3,287 16.4% 04/16/02 12,458 10,572 1,878 8.2% 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 Dow commercials grew less bullish during the most recent reporting period by reducing their number of longs and increasing their number of shorts. The group's net bullish position dropped by about 1,100 contracts. Small traders added slightly more longs than shorts for a reduction in the group's net bearish position. Commercials Long Short Net % of OI 04/02/02 18,717 12,549 6,168 19.7% 04/09/02 19,393 13,445 5,948 16.7% 04/16/02 19,080 14,267 4,813 14.4% 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 04/02/02 5,192 9,007 (3,815) (26.9%) 04/09/02 5,459 9,340 (3,881) (26.2%) 04/16/02 5,644 9,448 (3,804) (25.2%) Most bearish reading of the year: (8,777) - 10/12/01 Most bullish reading of the year: 1,909 - 1/16/01 ----------------------------------------------------------------- ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** *************** ASK THE ANALYST *************** Au By Eric Utley It sits between platinum and mercury. It sports the atomic number 79. It's gold. And, baby, they're buying it. Gold is obviously used in jewelry; its aesthetic appeal stems from its easiness on the eyes. The metal is also used in electronics applications, because it's one heck of a conductor. Some even use gold as an investment vehicle. A full two-thirds of the world's supply comes from South Africa. In the U.S., 66 percent of supply comes from two states: South Dakota and Nevada. Romantics, like my good friend Austin Passamonte, pan for the metal in mountain streams. The efficacy of panning for gold depends on the density of the metal; it's much more dense than the "other" material found at the bottom of a river, so the gold settles at the bottom of the pan. Other professionals seek out prized nuggets with metal detectors. While most commercial concerns extract gold from ores through a variety of chemical processes. 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 ---------------------------- Gold and Silver (XAU.X) A prize fighter in the corner is told hit where it hurts, silver and gold - U2 What does the recent rise in gold -- both the metal and equities -- say about the state of the U.S. economy? Through this weekend, the XAU is higher by about 30 percent year to date. The metal, meanwhile, is back above $300 per ounce, higher by about 8 percent year to day. Historically, gold has been used as a hedge against inflation, a defensive place to park money in times of uncertainty. Can we therefore conclude that the market is uncertain about something, judging by the recent rise in gold? I think yes. But pinpointing exactly what the market is uncertain about is difficult. There's geopolitical risk in the forms of the Middle East conflict, future terrorist attacks, even turmoil in Latin America. But there may be more of an economic twist to the gold story. My reasoning stems from the recent weakness in the dollar. It hit a multi month lower versus most majors last week. For the purpose of this discussion, I will use the U.S. Dollar Index (DX02M) to illustrate the weakness. Money, so they say is the root of all evil today - Roger Waters U.S. Dollar Index Bears have been calling for a decline in the dollar for years. But it really hasn't lost much ground versus the euro and yen, for example, until recently. The recent slide has been attributed to a loss of confidence in the U.S. economy. What's interesting with the decline is its timing, on the eve of a supposed economic recovery. If the U.S. economy -- the cornerstone for the global economy -- is on the mend, why then are investors selling dollar-denominated assets? A falling dollar would result in inflation, and inevitably higher interest rates. Obviously those two are not what the U.S. economy needs at this point in the business cycle, when the recovery is still very fragile. The rise in gold and fall in the dollar is not an atypical divergence. Instead, the opposite moves serve as confirmation of what the market is revealing about the future of the U.S. economy. The moves, right now, are revealing that things could get worse before they get better. Investors can protect themselves from such a development by going along with the predominant trend in gold, which is obviously upward. The XAU last week traced another multi year high at a retracement level that I've been using for several months now. The current risk level may not be the best way to get into the move. A better entry would come down around the 67 level in the XAU. The Trend Is Your Friend Options on the XAU are pretty liquid. Spreads aren't too bad in the contracts around the money, and open interest is pretty good. Of course using the equities outright can be another way to position. Barrick Gold (NYSE:ABX) Newmont Mining (NYSE:NEM) Anglogold (NYSE:AU) Freeport Mcmoran (NYSE:FCX) Gold Fields (NASDAQ:GOLD) Harmony Gold (NASDAQ:HGMCY) Meridian Gold (NYSE:MDG) Placer Dome (NYSE:PDG) Apex Silver Mining (AMEX:SIL) Though there's been a big move already in the XAU, there's plenty of upside if, indeed, the economy takes a turn for the worst. Some gold bugs are calling for prices to top $1000 per ounce in the next two or three years, which I think is a little extreme. But another couple of hundred dollars per ounce is not out of the question. ---------------------------- 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 AGN Allergan Mon, Apr 22 Before the Bell 0.44 ALTR Altera Corporation Mon, Apr 22 After the Bell 0.04 AEE Ameren Mon, Apr 22 -----N/A----- 0.47 AME AMETEK Mon, Apr 22 After the Bell 0.59 ACI Arch Coal Mon, Apr 22 Before the Bell -0.10 ASTSF ASE Test Limited Mon, Apr 22 After the Bell -0.18 ASMI ASM International N.V. Mon, Apr 22 During the Market-0.13 AV Avaya Mon, Apr 22 After the Bell -0.08 BPC Banco Comerc Portugue Mon, Apr 22 After the Bell N/A BWA BorgWarner, Inc. Mon, Apr 22 -----N/A----- 1.11 BPO Brookfield Properties Mon, Apr 22 -----N/A----- 0.53 BG Bunge Limited Mon, Apr 22 Before the Bell 0.20 CNI Canadian National Rlwy Mon, Apr 22 After the Bell 0.71 CECO Career Education Mon, Apr 22 After the Bell 0.21 CX Cemex, S.A. de C.V. Mon, Apr 22 -----N/A----- 0.62 CF Charter One Financial Mon, Apr 22 Before the Bell 0.62 GLW Corning Mon, Apr 22 After the Bell -0.13 COX Cox Communication Mon, Apr 22 Before the Bell -0.19 CSX CSX Mon, Apr 22 Before the Bell 0.30 DNB D&B Mon, Apr 22 After the Bell 0.45 DHI D.R. Horton Mon, Apr 22 Before the Bell 0.52 ELNK EarthLink, Inc. Mon, Apr 22 After the Bell -0.11 EDS Electronic Data Sys Mon, Apr 22 After the Bell 0.71 ERICY Ericsson LM Telephone Mon, Apr 22 Before the Bell -0.04 RE Everest Reinsurance Mon, Apr 22 After the Bell 1.34 ESA Extended Stay America Mon, Apr 22 After the Bell 0.08 FCNCA First Citi BancShares Mon, Apr 22 -----N/A----- N/A FISV Fiserv Mon, Apr 22 After the Bell 0.32 HHS Harte-Hanks Mon, Apr 22 After the Bell 0.31 HIG Hartford Finan Service Mon, Apr 22 After the Bell 1.11 HAS Hasbro Mon, Apr 22 Before the Bell -0.10 HCA HCA Inc. Mon, Apr 22 Before the Bell 0.72 IMNX Immunex Mon, Apr 22 -----N/A----- 0.05 ICBC Independence Com Bank Mon, Apr 22 After the Bell 0.50 KEM Kemet Mon, Apr 22 After the Bell 0.01 LH Laboratory Corp. Mon, Apr 22 After the Bell 0.92 LEA Lear Mon, Apr 22 Before the Bell 0.60 LEE Lee Enterprises Mon, Apr 22 -----N/A----- 0.30 LXK Lexmark International Mon, Apr 22 Before the Bell 0.48 LPNT LifePoint Hospitals Mon, Apr 22 After the Bell 0.31 LNCR Lincare Holdings Mon, Apr 22 After the Bell 0.39 LZ Lubrizol Mon, Apr 22 -----N/A----- 0.45 LU Lucent Technologies Mon, Apr 22 -----N/A----- -0.17 MHP McGraw-Hill Mon, Apr 22 Before the Bell 0.13 MWV MeadWestvaco Mon, Apr 22 Before the Bell -0.17 MEOH Methanex Mon, Apr 22 -----N/A----- -0.13 MCRL Micrel Semiconductor Mon, Apr 22 After the Bell -0.02 MMM Minnesota Mine & Manu Mon, Apr 22 Before the Bell 1.19 NBTY NBTY Mon, Apr 22 -----N/A----- 0.28 NBL Noble Affiliates Mon, Apr 22 -----N/A----- -0.29 BOH Pacific Century Fin Mon, Apr 22 Before the Bell 0.39 PPE Park Place Entertain Mon, Apr 22 Before the Bell 0.09 PX Praxair Incorporated Mon, Apr 22 Before the Bell 0.74 RYN Rayonier Mon, Apr 22 After the Bell 0.26 RNR RenaissanceRe Holdings Mon, Apr 22 After the Bell 2.70 SAFC SAFECO Mon, Apr 22 Before the Bell 0.36 SCVa Scania AB ADR A Mon, Apr 22 -----N/A----- N/A SXT Sensient Tech Corp Mon, Apr 22 Before the Bell 0.32 SLAB Silicon Laboratories Mon, Apr 22 After the Bell 0.01 SLG SL Green Realty Mon, Apr 22 After the Bell 0.78 PCU Southern Peru Cop Corp Mon, Apr 22 -----N/A----- 0.14 STM STMicroelectronics Mon, Apr 22 After the Bell 0.04 TPP Teppco Mon, Apr 22 Before the Bell 0.49 TUP Tupperware Mon, Apr 22 After the Bell 0.28 UDR United Dominion Realty Mon, Apr 22 After the Bell 0.40 VOLVY Volvo AB Mon, Apr 22 -----N/A----- N/A VMC Vulcan Materials Mon, Apr 22 -----N/A----- 0.06 WRE WA Rl Este Invst Trst Mon, Apr 22 After the Bell 0.49 WPPGY WPP Group PLC Mon, Apr 22 Before the Bell N/A SE 7-Eleven Tue, Apr 23 Before the Bell 0.00 ABGX Abgenix Tue, Apr 23 After the Bell -0.32 ACS Affiliated Comp Srv Tue, Apr 23 -----N/A----- 0.46 AFL AFLAC Tue, Apr 23 -----N/A----- 0.35 AGRa Agere Systems Tue, Apr 23 Before the Bell -0.16 APD Air Products & Chem Tue, Apr 23 Before the Bell 0.54 AKZOY Akzo Nobel ADR Tue, Apr 23 -----N/A----- N/A ALD Allied Capital Tue, Apr 23 Before the Bell 0.55 AMZN Amazon.com Tue, Apr 23 After the Bell -0.09 DOX Amdocs Limited Tue, Apr 23 After the Bell 0.37 AMX America Movil, S.A. Tue, Apr 23 After the Bell 0.13 AMTD Ameritrade Holding Tue, Apr 23 Before the Bell 0.02 AHS AMN Healthcare Service Tue, Apr 23 After the Bell 0.21 AXE Anixter International Tue, Apr 23 -----N/A----- 0.21 AMCC Aplied Micro Circ Corp Tue, Apr 23 After the Bell -0.06 ADM Arch Dniels Mdlnd Comp Tue, Apr 23 Before the Bell 0.18 AGY Argosy Gaming Tue, Apr 23 Before the Bell 0.82 AWE AT&T Wireless Services Tue, Apr 23 Before the Bell -0.03 AN AutoNation Tue, Apr 23 Before the Bell 0.21 AVY Avery Dennison Tue, Apr 23 During the Market 0.64 AVT Avnet Tue, Apr 23 -----N/A----- -0.01 BHI Baker Hughes Tue, Apr 23 Before the Bell 0.21 BIO Bio-Rad Laboratories A Tue, Apr 23 After the Bell 0.55 EAT Brinker International Tue, Apr 23 Before the Bell 0.40 BNI Brlington Nrth Snta Fe Tue, Apr 23 Before the Bell 0.46 CACI CACI International Tue, Apr 23 Before the Bell 0.33 CBM Cambrex Tue, Apr 23 After the Bell 0.52 CAH Cardinal Health Tue, Apr 23 -----N/A----- 0.70 CDX Catellus Development Tue, Apr 23 After the Bell N/A CTX Centex Corporation Tue, Apr 23 Before the Bell 1.80 CEY Certegy Tue, Apr 23 Before the Bell 0.22 GIB CGI Group Tue, Apr 23 Before the Bell N/A CHKP Check Point Sftwr Tech Tue, Apr 23 After the Bell 0.24 CKFR CheckFree Tue, Apr 23 After the Bell 0.02 CHH Choice Hotels Intl Tue, Apr 23 Before the Bell 0.18 COH Coach Tue, Apr 23 Before the Bell 0.28 CGNX Cognex Tue, Apr 23 -----N/A----- -0.06 CBE Cooper Industries Tue, Apr 23 Before the Bell 0.52 CCR Countrywide Credit Ind Tue, Apr 23 Before the Bell 1.30 CYMI Cymer Tue, Apr 23 After the Bell -0.02 DASTY Dassault Systemes SA Tue, Apr 23 -----N/A----- 0.22 DT Deutsche Telekom Tue, Apr 23 Before the Bell N/A DP Diagnostic Products Tue, Apr 23 Before the Bell 0.35 DBD Diebold Tue, Apr 23 Before the Bell 0.37 DPL DPL Tue, Apr 23 After the Bell 0.45 DD DuPont Tue, Apr 23 Before the Bell 0.56 ECL Ecolab Tue, Apr 23 Before the Bell 0.36 EW Edwards Lifesciences Tue, Apr 23 After the Bell 0.32 EXC Exelon Corporation Tue, Apr 23 -----N/A----- 0.91 EXPE Expedia Tue, Apr 23 After the Bell 0.26 XOM Exxon Mobil Corp Tue, Apr 23 -----N/A----- 0.39 FIC Fair Isaac &Co Tue, Apr 23 After the Bell 0.58 FCS Fairchild Semi Intl Tue, Apr 23 After the Bell -0.03 FEIC FEI Company Tue, Apr 23 -----N/A----- 0.21 FOE Ferro Tue, Apr 23 Before the Bell 0.20 FLS Flowserve Tue, Apr 23 Before the Bell 0.28 FTI Fmc Technologies, Inc. Tue, Apr 23 After the Bell 0.07 FRX Forest Laboratories Tue, Apr 23 Before the Bell 0.48 FRE Freddie Mac Tue, Apr 23 -----N/A----- 1.19 GMT GATX Tue, Apr 23 -----N/A----- 0.32 G Gillette Tue, Apr 23 During the Market 0.19 DA Groupe Danone Tue, Apr 23 During the Market N/A HSC Harsco Corporation Tue, Apr 23 Before the Bell 0.37 HCP Health Care Property Tue, Apr 23 Before the Bell 0.77 HMA Health Man Asoc, Inc Tue, Apr 23 Before the Bell 0.27 HLT Hilton Hotels Corp Tue, Apr 23 Before the Bell 0.05 HLYW Hollywood Enter Tue, Apr 23 Before the Bell 0.29 ROOM Htl Reservations Ntwrk Tue, Apr 23 Before the Bell 0.24 HUBb Hubbell Tue, Apr 23 During the Market 0.32 ICOS ICOS Tue, Apr 23 After the Bell -0.61 IMN Imation Tue, Apr 23 Before the Bell N/A IMO Imperial Oil Limited Tue, Apr 23 -----N/A----- N/A IFX Infineon Tech AG Tue, Apr 23 Before the Bell N/A IDTI Integrated Device Tech Tue, Apr 23 After the Bell -0.07 IGT Intl Gaming Tech Tue, Apr 23 -----N/A----- 0.79 IPCR IPC Holdings Tue, Apr 23 After the Bell 0.87 KELYA Kelly Services Tue, Apr 23 Before the Bell -0.02 KMB Kimberly Clark Tue, Apr 23 Before the Bell 0.83 LLL L-3 Comm Hldgs Tue, Apr 23 Before the Bell 0.69 LSCC Lattice Semiconductor Tue, Apr 23 Before the Bell 0.04 LVLT Level 3 Communications Tue, Apr 23 Before the Bell -1.14 LRY Liberty Property Trust Tue, Apr 23 -----N/A----- 0.84 LNC Lincoln National Tue, Apr 23 Before the Bell 0.93 LMT Lockheed Martin Tue, Apr 23 -----N/A----- 0.47 MRO Marathon Oil Corp. Tue, Apr 23 Before the Bell 0.19 MXO Maxtor Tue, Apr 23 After the Bell -0.17 MDU MDU Resources Tue, Apr 23 Before the Bell 0.26 MEDQ Medquist Tue, Apr 23 Before the Bell 0.32 MGM Metro-Goldwyn-Mayer Tue, Apr 23 Before the Bell -0.36 MON Monsanto Co. Tue, Apr 23 Before the Bell 0.31 NSCN Netscreen Tech Inc. Tue, Apr 23 After the Bell 0.01 NEU Neuberger Berman Tue, Apr 23 Before the Bell 0.48 NI NiSource Tue, Apr 23 Before the Bell 0.92 NU Northeast Utilities Tue, Apr 23 Before the Bell 0.27 NRG NRG Energy Tue, Apr 23 -----N/A----- -0.14 ORLY O`Reilly Automotive Tue, Apr 23 After the Bell 0.31 OI Owens Illinois Tue, Apr 23 After the Bell 0.40 PEP Pepsico Tue, Apr 23 Before the Bell 0.37 PCZ Petro-Canada Tue, Apr 23 -----N/A----- N/A PHA Pharmacia Corporation Tue, Apr 23 Before the Bell 0.37 PNW Pinnacle West Tue, Apr 23 -----N/A----- 0.63 PDG Placer Dome Tue, Apr 23 After the Bell 0.09 PNM PNM Resources Tue, Apr 23 After the Bell 0.65 PPP Pogo Producing Tue, Apr 23 -----N/A----- 0.09 PHM Pulte Homes Inc. Tue, Apr 23 Before the Bell 0.92 QLTI QLT Tue, Apr 23 After the Bell 0.07 RSH Radio Shack Corp Tue, Apr 23 Before the Bell 0.29 RGIS Regis Corporation Tue, Apr 23 Before the Bell 0.38 RGS RGS Energy Group Tue, Apr 23 -----N/A----- N/A ROK Rockwell Automation Tue, Apr 23 Before the Bell 0.18 STOSY Santos ADR Tue, Apr 23 -----N/A----- N/A SRE Sempra Energy Tue, Apr 23 Before the Bell 0.65 SRA Serono S.A. Tue, Apr 23 Before the Bell 0.11 SIAL Sigma-Aldrich Tue, Apr 23 After the Bell 0.55 SSCC Smurfit-Stone Contain Tue, Apr 23 Before the Bell 0.05 SNA Snap-On Tue, Apr 23 Before the Bell 0.44 SNRA Sonera Group plc Tue, Apr 23 Before the Bell N/A SAH Sonic Automotive Tue, Apr 23 Before the Bell 0.46 SPW SPX Tue, Apr 23 Before the Bell 1.61 SEO STORA ENSO CORP Tue, Apr 23 Before the Bell N/A STK Storage Technology Tue, Apr 23 After the Bell 0.02 SWMAY Swedish Match Tue, Apr 23 Before the Bell N/A TECUA Tecumseh Products Tue, Apr 23 -----N/A----- 0.55 TMCS Ticketmaster Tue, Apr 23 After the Bell 0.11 TRI Triad Hospitals Tue, Apr 23 After the Bell 0.39 USTR United Stationers Tue, Apr 23 After the Bell 0.73 VSEA Varian Semiconductor Tue, Apr 23 After the Bell -0.34 VZ Verizon Communications Tue, Apr 23 Before the Bell 0.72 VFC VF Tue, Apr 23 -----N/A----- 0.57 WDR Waddell&Reed Financial Tue, Apr 23 Before the Bell 0.34 WAT Waters Corporation Tue, Apr 23 Before the Bell 0.28 WFT Weatherford Tue, Apr 23 After the Bell 0.36 WSTC West Corporation Tue, Apr 23 After the Bell 0.32 WWY Wm. Wrigley Jr. Tue, Apr 23 -----N/A----- 0.40 WPS WPS Resources Tue, Apr 23 -----N/A----- 0.91 XMSR XM Satelite Rdio Hldgs Tue, Apr 23 Before the Bell -1.58 YRK York International Tue, Apr 23 After the Bell 0.17 ABB ABB Ltd. Wed, Apr 24 -----N/A----- N/A ABY Abitibi-Consolidated Wed, Apr 24 -----N/A----- N/A ADO Adecco SA Wed, Apr 24 -----N/A----- N/A ASX Adv Semi Engineering Wed, Apr 24 Before the Bell -0.01 AMG Affiliated Manag Grp Wed, Apr 24 Before the Bell 1.07 AFFX Affymetrix Wed, Apr 24 After the Bell -0.02 ALFA Alfa Wed, Apr 24 Before the Bell 0.42 AHC Amerada Hess Wed, Apr 24 -----N/A----- 1.11 AEP American Elctric Power Wed, Apr 24 Before the Bell 0.59 AVZ AMVESCAP PLC Wed, Apr 24 Before the Bell 0.27 BUD Anheuser-Busch Wed, Apr 24 -----N/A----- 0.49 AOL AOL Time Warner Wed, Apr 24 After the Bell 0.14 APPB Applebee`s Intl Wed, Apr 24 After the Bell 0.51 T AT&T Wed, Apr 24 Before the Bell 0.04 ACAI Atl Cst Arlnes Holding Wed, Apr 24 -----N/A----- 0.31 ACLS Axcelis Technologies Wed, Apr 24 After the Bell -0.21 BARZ BARRA Wed, Apr 24 Before the Bell 0.50 BCE BCE Wed, Apr 24 Before the Bell 0.23 BZH Beazer Homes USA Wed, Apr 24 After the Bell 2.26 BDX Becton Dickinson Wed, Apr 24 After the Bell 0.50 BLC Belo Wed, Apr 24 Before the Bell 0.10 BGEN Biogen Wed, Apr 24 Before the Bell 0.47 BJS BJ Services Wed, Apr 24 Before the Bell 0.24 BBI Blockbuster Wed, Apr 24 Before the Bell 0.28 BPL Buckeye Partners Wed, Apr 24 -----N/A----- 0.65 CBT Cabot Wed, Apr 24 After the Bell 0.39 CHIR Chiron Wed, Apr 24 After the Bell 0.22 CTXS Citrix Systems Wed, Apr 24 After the Bell 0.15 CYH Commun Health Systms Wed, Apr 24 After the Bell 0.24 CVG Convergys Corporation Wed, Apr 24 -----N/A----- 0.35 CVD Covance Wed, Apr 24 After the Bell 0.18 CFR Cullen/Frost Bankers Wed, Apr 24 Before the Bell 0.51 CYTC CYTYC Wed, Apr 24 After the Bell 0.14 DRYR Dreyer`s Grand Ice Crm Wed, Apr 24 Before the Bell 0.05 DST DST Systems Wed, Apr 24 After the Bell 0.45 DTE DTE Energy Wed, Apr 24 Before the Bell 1.13 DRE Duke Realty Corp Wed, Apr 24 -----N/A----- 0.65 ESS Essex Property Trust Wed, Apr 24 After the Bell 1.11 FII Federated Investors B Wed, Apr 24 During the Market 0.44 FR Frst Ind Realty Trust Wed, Apr 24 After the Bell 0.91 FE FirstEnergy Wed, Apr 24 -----N/A----- 0.40 FLA Florida East Coast Wed, Apr 24 Before the Bell N/A FBN Furniture Brands Intl Wed, Apr 24 After the Bell 0.52 GBL Gabelli Asset Manag Wed, Apr 24 -----N/A----- 0.51 IT Gartner Wed, Apr 24 Before the Bell 0.05 GETY Getty Images Wed, Apr 24 -----N/A----- 0.04 GSK GlaxoSmithKline Wed, Apr 24 Before the Bell 0.53 GR Goodrich Corporation Wed, Apr 24 Before the Bell 0.66 GT Goodyear Tire & Rubber Wed, Apr 24 Before the Bell -0.32 GXP Great Plains Energy Wed, Apr 24 After the Bell N/A TV Grupo Televisa, S.A. Wed, Apr 24 After the Bell N/A HAR Harman Intl Ind Wed, Apr 24 -----N/A----- 0.40 HP Helmerich & Payne Wed, Apr 24 -----N/A----- 0.22 NDE IndyMac Bancorp Inc. Wed, Apr 24 Before the Bell 0.58 ICST Integrated Circuit Sys Wed, Apr 24 -----N/A----- 0.16 ISIL Intersil Wed, Apr 24 After the Bell 0.13 ITT ITT Industries Wed, Apr 24 -----N/A----- 0.72 KEA Keane Wed, Apr 24 Before the Bell 0.09 KMG Kerr-McGee Wed, Apr 24 -----N/A----- 0.12 KRI Knight-Ridder Wed, Apr 24 Before the Bell 0.59 LSI LSI Logic Wed, Apr 24 After the Bell -0.14 LUX Luxottica Group Wed, Apr 24 -----N/A----- N/A MACR Macromedia Wed, Apr 24 After the Bell -0.14 MANH Manhattan Associates Wed, Apr 24 After the Bell 0.18 MTD Mettler Toledo Intl Wed, Apr 24 After the Bell 0.41 MTGNY Modern Times Group Wed, Apr 24 Before the Bell N/A MCO Moody`s Wed, Apr 24 Before the Bell 0.35 MCL Moore Corporation Wed, Apr 24 After the Bell 0.09 MUR Murphy Oil Wed, Apr 24 After the Bell 0.03 NE Noble Drilling Wed, Apr 24 -----N/A----- 0.39 NRD NORANDA INC Wed, Apr 24 Before the Bell N/A NSC Norfolk Southern Wed, Apr 24 -----N/A----- 0.23 NCX Nova Chemical Wed, Apr 24 Before the Bell -0.87 NST NSTAR Wed, Apr 24 -----N/A----- 0.66 PTEN Patterson-UTI Energy Wed, Apr 24 Before the Bell 0.05 PAS PepsiAmericas Wed, Apr 24 Before the Bell 0.15 PD Phelps Dodge Wed, Apr 24 Before the Bell -0.98 PXD Pioneer Natural Resrc Wed, Apr 24 Before the Bell 0.03 PMI PMI Group Wed, Apr 24 -----N/A----- 1.85 POT Potash Corp of Saskatc Wed, Apr 24 -----N/A----- 0.26 PPL PPL Corporation Wed, Apr 24 Before the Bell 1.09 PGN Progress Energy Wed, Apr 24 Before the Bell 0.76 PRHC Province Healthcare Wed, Apr 24 After the Bell 0.35 PTZ Pulitzer Inc. Wed, Apr 24 Before the Bell 0.33 QCOM Qualcomm Wed, Apr 24 After the Bell 0.20 RDN Radian Group Wed, Apr 24 After the Bell 1.05 REY Reynolds&Reynolds Wed, Apr 24 During the Market 0.37 RCL Royal Caribbean Wed, Apr 24 Before the Bell 0.26 R Ryder System Wed, Apr 24 -----N/A----- 0.18 RYL Ryland Group Wed, Apr 24 Before the Bell 1.16 SANYY Sanyo Electric Wed, Apr 24 -----N/A----- N/A SLE Sara Lee Wed, Apr 24 Before the Bell 0.31 SAY Satyam Comp Serv Lim Wed, Apr 24 -----N/A----- 0.15 SEE Sealed Air Wed, Apr 24 Before the Bell 0.54 SVM ServiceMaster Wed, Apr 24 -----N/A----- 0.10 JOE St. Joe Company Wed, Apr 24 Before the Bell N/A SWK Stanley Works Wed, Apr 24 Before the Bell 0.56 SUN Sunoco Wed, Apr 24 Before the Bell -1.37 SYMC Symantec Wed, Apr 24 After the Bell 0.35 SYY Sysco Wed, Apr 24 Before the Bell 0.23 TLTOB Tele2 AB Wed, Apr 24 -----N/A----- N/A TMO Thermo Electron Wed, Apr 24 After the Bell 0.19 URI United Rentals Wed, Apr 24 -----N/A----- 0.08 USAI USA Networks Wed, Apr 24 Before the Bell 0.02 VVC Vectren Wed, Apr 24 Before the Bell 0.73 VRTX Vertex Pharmaceuticals Wed, Apr 24 After the Bell -0.28 WY Weyerhaeuser Wed, Apr 24 Before the Bell 0.16 WYE Wyeth Wed, Apr 24 Before the Bell 0.65 XEL Xcel Energy Wed, Apr 24 -----N/A----- 0.33 XRX Xerox Wed, Apr 24 Before the Bell -0.01 YCC Yankee Candle Wed, Apr 24 -----N/A----- 0.12 TW 21st Century Insurance Thu, Apr 25 -----N/A----- 0.10 ADPT Adaptec Thu, Apr 25 -----N/A----- 0.08 RKY Adolph Coors Thu, Apr 25 -----N/A----- 0.48 ATE Advantest Corp Thu, Apr 25 Before the Bell N/A AES AES Corporation Thu, Apr 25 Before the Bell 0.26 AET Aetna Thu, Apr 25 Before the Bell 0.03 AG AGCO Thu, Apr 25 -----N/A----- 0.10 ATG AGL Resources Thu, Apr 25 -----N/A----- 0.87 ACV Alberto-Culver Thu, Apr 25 During the Market 0.54 ALA Alcatel Thu, Apr 25 Before the Bell -0.24 ALE Allete Thu, Apr 25 Before the Bell 0.50 AT Alltel Corporation Thu, Apr 25 Before the Bell 0.77 AIG American Intl Group Thu, Apr 25 -----N/A----- 0.81 ABC AmerisourceBergen Thu, Apr 25 Before the Bell 0.75 AMGN Amgen Thu, Apr 25 -----N/A----- 0.32 APC Anadarko Petroleum Thu, Apr 25 Before the Bell 0.39 APA Apache Thu, Apr 25 Before the Bell 0.48 ABI Applied Biosystems Thu, Apr 25 Before the Bell 0.22 ARW Arrow Electronics Thu, Apr 25 -----N/A----- 0.00 AZN AstraZeneca PLC Thu, Apr 25 -----N/A----- 0.47 ANZ Australia&New Zelnd Thu, Apr 25 After the Bell N/A BLL Ball Thu, Apr 25 Before the Bell 0.45 BCH Banco de Chile Thu, Apr 25 -----N/A----- 0.29 SAN Banco Santiago Thu, Apr 25 -----N/A----- 0.49 BOL Bausch & Lomb Thu, Apr 25 Before the Bell 0.21 BMS Bemis Thu, Apr 25 Before the Bell 0.65 BVF Biovail Corporation Thu, Apr 25 Before the Bell 0.30 BDK Black & Decker Thu, Apr 25 Before the Bell 0.33 BMY Bristol-Myers Squibb Thu, Apr 25 Before the Bell 0.43 BC Brunswick Thu, Apr 25 Before the Bell 0.10 CCMP Cabot Microelectronics Thu, Apr 25 Before the Bell 0.35 CP Canadian Pacific Rlwy Thu, Apr 25 After the Bell 0.25 CWG CanWest Global Comm Thu, Apr 25 -----N/A----- N/A CRA Celera Genomics Thu, Apr 25 Before the Bell -0.49 CELG Celgene Thu, Apr 25 Before the Bell -0.01 CTL CenturyTelephone Entpr Thu, Apr 25 Before the Bell 0.48 CVX ChevronTexaco Corp. Thu, Apr 25 Before the Bell 0.70 CINF Cincinnati Financial Thu, Apr 25 Before the Bell 0.40 CIN Cinergy Thu, Apr 25 -----N/A----- 0.59 CNH CNH Global N.V. Thu, Apr 25 -----N/A----- -0.25 KOF Coca-Cola FEMSA, S.A. Thu, Apr 25 Before the Bell 0.36 COLM Columbia Sportswear Thu, Apr 25 After the Bell 0.17 CTC Comp de Telecom Chile Thu, Apr 25 After the Bell 0.05 COC Conoco Thu, Apr 25 Before the Bell 0.20 CNX CONSOL Energy Thu, Apr 25 Before the Bell 0.09 COCO Corinthian Colleges Thu, Apr 25 Before the Bell 0.42 CUM Cummins Inc. Thu, Apr 25 -----N/A----- -0.79 DLTR Dollar Tree Stores Thu, Apr 25 After the Bell 0.13 DOW Dow Chemical Thu, Apr 25 Before the Bell 0.09 EMN Eastman Chemical Thu, Apr 25 After the Bell 0.33 EK Eastman Kodak Thu, Apr 25 Before the Bell 0.10 EEP Enbridge Energy Part Thu, Apr 25 After the Bell 0.34 ECA EnCana Corporation Thu, Apr 25 -----N/A----- 0.29 ELE Endesa, S.A. Thu, Apr 25 Before the Bell N/A ENDP Endo Pharm Hldngs Inc. Thu, Apr 25 Before the Bell -0.02 ENR Energizer Holdings Thu, Apr 25 Before the Bell 0.09 ETR Entergy Thu, Apr 25 -----N/A----- 0.75 ENZN Enzon Thu, Apr 25 After the Bell 0.26 EXLT EXULT Thu, Apr 25 After the Bell -0.07 FMX FEMSA Thu, Apr 25 -----N/A----- 0.66 FNF Fidelity National Fin Thu, Apr 25 Before the Bell 0.92 FAF First American Fin Thu, Apr 25 Before the Bell 0.55 FLEX Flextronics Thu, Apr 25 -----N/A----- 0.12 BEN Franklin Resources Thu, Apr 25 After the Bell 0.47 GLK Great Lakes Chemical Thu, Apr 25 After the Bell 0.00 HR Healthcare Realty Trst Thu, Apr 25 After the Bell 0.67 IDA Idacorp Holding Thu, Apr 25 Before the Bell 0.65 IKN Ikon Office Solutions Thu, Apr 25 Before the Bell 0.20 IGL IMC Global Thu, Apr 25 Before the Bell 0.03 IM Ingram Micro Thu, Apr 25 -----N/A----- 0.06 IDCO Interactive Data Corp Thu, Apr 25 -----N/A----- 0.18 IFF Intl Flvrs & Frgrnces Thu, Apr 25 Before the Bell 0.44 IRF International Rect Thu, Apr 25 After the Bell 0.19 IVGN Invitrogen Thu, Apr 25 After the Bell 0.41 SFI iStar Financial Inc. Thu, Apr 25 -----N/A----- N/A JDSU JDS Uniphase Thu, Apr 25 After the Bell -0.02 JBLU Jetblue Airways Corp Thu, Apr 25 Before the Bell N/A K Kellogg Thu, Apr 25 Before the Bell 0.35 KEG Key Energy Services Thu, Apr 25 Before the Bell 0.01 KSE KeySpan Corporation Thu, Apr 25 Before the Bell 1.50 LPX Louisiana-Pacific Thu, Apr 25 Before the Bell -0.03 LYO Lyondell Chemical Thu, Apr 25 Before the Bell -0.35 MLM Martin Marietta Mat Thu, Apr 25 -----N/A----- -0.18 MEDI MedImmune Thu, Apr 25 Before the Bell 0.29 MENT Mentor Graphics Thu, Apr 25 After the Bell 0.09 MCHP Microchip Technology Thu, Apr 25 After the Bell 0.19 NFG National Fuel Gas Thu, Apr 25 After the Bell 0.70 NHP Nationwide Health Prop Thu, Apr 25 Before the Bell 0.49 NIPNY NEC (ADR) Thu, Apr 25 -----N/A----- N/A NFX Newfield Exploration Thu, Apr 25 Before the Bell 0.36 OXY Occidental Petroleum Thu, Apr 25 Before the Bell 0.19 OEI Ocean Energy Thu, Apr 25 Before the Bell 0.09 ORI Old Republic Int Thu, Apr 25 -----N/A----- 0.72 IX Orix Thu, Apr 25 Before the Bell N/A OVER Overture Services, Inc Thu, Apr 25 After the Bell 0.33 POC P & O Princess Cruises Thu, Apr 25 -----N/A----- 0.06 PTV Pactiv Thu, Apr 25 After the Bell 0.23 PSFT PeopleSoft Thu, Apr 25 -----N/A----- 0.14 PKI PerkinElmer Thu, Apr 25 Before the Bell 0.00 P Phillips Petroleum Thu, Apr 25 During the Market-0.04 POM Potomac Electric Thu, Apr 25 After the Bell 0.34 PDE Pride International Thu, Apr 25 After the Bell -0.01 PL Protective Life Thu, Apr 25 -----N/A----- 0.60 DSS Quantum-DLT & Storage Thu, Apr 25 After the Bell -0.07 IQW Quebecor World Thu, Apr 25 -----N/A----- 0.26 RDA Reader`s Digest Asoc Thu, Apr 25 Before the Bell 0.16 O Realty Income Corp Thu, Apr 25 -----N/A----- 0.68 RBK Reebok International Thu, Apr 25 Before the Bell 0.56 RGA Reinsurance Grp of Am Thu, Apr 25 After the Bell 0.64 RESP Respironics Thu, Apr 25 -----N/A----- 0.36 RAD Rite Aid Corporation Thu, Apr 25 -----N/A----- -0.11 SCG SCANA Thu, Apr 25 Before the Bell 0.73 SMG Scotts Thu, Apr 25 Before the Bell 1.71 SCRI SICOR Thu, Apr 25 Before the Bell 0.17 SI Siemens Thu, Apr 25 Before the Bell N/A SNE Sony Thu, Apr 25 Before the Bell N/A SPC St. Paul Companies Thu, Apr 25 Before the Bell 0.76 SFG StanCorp Financial Grp Thu, Apr 25 Before the Bell 0.94 SBUX Starbucks Thu, Apr 25 After the Bell 0.10 HOT Starwood Hotels&Resrt Thu, Apr 25 Before the Bell 0.05 STE Steris Thu, Apr 25 Before the Bell 0.23 SV Stilwell Financial Thu, Apr 25 -----N/A----- 0.42 SU Suncor Energy Thu, Apr 25 -----N/A----- N/A SLVN Sylvan Learning Syst Thu, Apr 25 Before the Bell 0.13 TTEC TeleTech Holdings Thu, Apr 25 After the Bell 0.09 PZB The Pittston Company Thu, Apr 25 -----N/A----- 0.19 TDW Tidewater Thu, Apr 25 Before the Bell 0.47 TTN Titan Thu, Apr 25 After the Bell 0.10 TRH Transatlantic Hldngs Thu, Apr 25 Before the Bell 1.04 TXU TXU Corp. Thu, Apr 25 Before the Bell 1.01 TYC Tyco International Thu, Apr 25 Before the Bell 0.63 UL Unilever PLC Thu, Apr 25 Before the Bell N/A UNP Union Pacific Thu, Apr 25 Before the Bell 0.83 UCL Unocal Thu, Apr 25 Before the Bell 0.15 UPM UPM-Kymmene Group Thu, Apr 25 Before the Bell N/A VCI Valassis Thu, Apr 25 Before the Bell 0.61 VAR Varian Medical Thu, Apr 25 After the Bell 0.31 VARI Varian, Inc. Thu, Apr 25 Before the Bell 0.34 VRSN VeriSign Thu, Apr 25 After the Bell 0.20 VIAb Viacom Thu, Apr 25 Before the Bell 0.16 VVI Viad Thu, Apr 25 Before the Bell 0.19 DIS Walt Disney Thu, Apr 25 After the Bell 0.10 WLP WellPoint Health Net Thu, Apr 25 Before the Bell 0.94 WDC Western Digital Thu, Apr 25 After the Bell 0.08 WMB Williams Companies Thu, Apr 25 Before the Bell 0.41 WIN Winn-Dixie Stores Thu, Apr 25 After the Bell 0.28 WCOM WrldCm Inc.-WrldCm Grp Thu, Apr 25 -----N/A----- 0.17 XTO XTO Energy Thu, Apr 25 Before the Bell 0.41 ZMH Zimmer Inc. Thu, Apr 25 Before the Bell 0.25 BNN Brascan Corporation Fri, Apr 26 -----N/A----- N/A CAJ Canon Fri, Apr 26 Before the Bell N/A CFB Commercial Federal Fri, Apr 26 Before the Bell 0.59 BVN Comp Minas Buenavent Fri, Apr 26 -----N/A----- 0.37 CEG Cnstelation Enrgy Grp Fri, Apr 26 Before the Bell 0.46 EAS Energy East Fri, Apr 26 After the Bell 0.89 HIT Hitachi Limited Fri, Apr 26 -----N/A----- N/A HMC Honda Motor Fri, Apr 26 Before the Bell N/A KIM Kimco Realty Fri, Apr 26 Before the Bell 0.75 MC Matsushita Electric Fri, Apr 26 Before the Bell N/A MIR Mirant Corporation Fri, Apr 26 During the Market 0.30 NOI National-Oilwell Fri, Apr 26 Before the Bell 0.28 PGL Peoples Energy Fri, Apr 26 Before the Bell 1.50 PIO Pioneer Corporation Fri, Apr 26 -----N/A----- N/A TCP Tele Celar Particip Fri, Apr 26 After the Bell -0.31 TRP TransCanada Pipelines Fri, Apr 26 -----N/A----- 0.24 TRN Trinity Industries Fri, Apr 26 After the Bell -0.20 UN Unilever N.V. Fri, Apr 26 -----N/A----- N/A VAL Valspar Fri, Apr 26 -----N/A----- 0.63 VRC Varco Fri, Apr 26 Before the Bell 0.22 WCI Wci Communities, Inc. Fri, Apr 26 -----N/A----- 0.41 ================================================================= Upcoming Stock Splits This Week & Next... Symbol Company Name Ratio Payable Executable FSBK First South Bancorp 3:2 04/19 04/22 PGR Progressive 3:1 04/19 04/22 ONFC Oneida Financial 3:2 04/23 04/24 DF Dean Foods 2:1 04/23 04/24 APOL Apollo Group 3:2 04/24 04/25 UOPX University of Phoenix 4:3 04/24 04/25 DCOM Dime Community Bank 3:2 04/24 04/25 MTH Meritage Corp 2:1 04/25 04/26 PRHC Province Healthcare 3:2 04/29 04/30 CUB Cubic Corp 3:1 04/29 04/30 OPTN Option Care 5:4 04/30 05/01 PFCB P.F. Changs 2:1 04/30 05/01 DRI Darden Restaurants 3:2 05/01 05/02 ABM ABM Industries 2:1 05/03 05/06 ================================================================= Economic Reports Wall Street moves full swing into the second big week of earnings and they will continue to steal the spotlight from the economic reports. However, analysts will probably be watching the Wednesday home sales #s and the Fed's Beige Book report, plus the Employment Cost index on Thursday. ================================================================= Monday, 04/22/02 None Tuesday, 04/23/02 None Wednesday, 04/24/02 Durable Orders (BB) Mar Forecast: 0.5% Previous: 1.8% New Home Sales (DM) Mar Forecast: 880K Previous: 875K Fed’s Beige Book (AB) Thursday, 04/25/02 Initial Claims (BB) 04/20 Forecast: 425K Previous: 445K Employment Cost Index(BB) Q1 Forecast: 0.9% Previous: 0.9% Help Wanted Index (DM) Mar Forecast: N/A Previous: 51 Existing Home Sales (DM) Mar Forecast: 5.60M Previous: 5.88M Friday, 04/26/02 GDP-Adv. (BB) Q1 Forecast: 5.0% Previous: 1.7% Chain Deflator-Adv. (BB) Q1 Forecast: 1.5% Previous: -0.1% Mich Sentiment-Rev. (DM) Apr Forecast: 95.0 Previous: 94.4 Definitions: DM= During the Market BB= Before the Bell AB= After the Bell NA= Not Available ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** FREE TRIAL READERS ****************** If you like the results you have been receiving we would welcome you as a permanent subscriber. The monthly subscription price is 39.95. The quarterly price is 99.95 which is $20 off the monthly rate. We would like to have you as a subscriber. You may subscribe at any time but your subscription will not start until your free trial is over. To subscribe you may go to our website at www.OptionInvestor.com and click on "subscribe" to use our secure credit card server or you may simply send an email to Contact Support with your credit card information,(number, exp date, name) or you may call us at 303-797-0200 and give us the information over the phone. You may also fax the information to: 303-797-1333 ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-21-2002 Sunday 2 of 5 To view this email newsletter in HTML format with embedded charts and graphs, click here: http://www.OptionInvestor.com/htmlemail/a21z_2.asp ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********************** INDEX TRADER GAMEPLANS ********************** THE SECTOR BEAT - 4/21 by Leigh Stevens ONE TO WATCH -- The Pharmaceutical sector index ($DRG.X) appears to be at the low end of a trading range and some of the stocks in this sector may be nearing a bottom. One that is interesting which I studied based on a Subscriber suggestion is Merck & Co. (MRK), which has call options that could be played and are relatively cheap. On a weekly closing basis, Merck has completed a 50% retracement of its big multiyear run up into its late-2000 top. The fact that MRK is also a Dow stock would tend to generate more buying interest if it begins to reverse to the upside. This stock is on my watch list for a specific call recommendation later this week after further study. Based on the Point & Figure chart Merck appears to have completed a possible double bottom. A move above $62, or to above resistance implied by the P&F down trendline, would be a bullish break out and suggest upside follow through and momentum. NEW TRADE PLAYS and GUIDELINES: NONE RECENT TRADE REITERATION - I suggested on the Thursday Sector Trader purchase of the Gold and silver Index ($XAU.X) puts based on the top pattern that is forming. On the weekly chart, XAU has completed a 62% retracement of the last big decline in the precious metals index. Retracements of this amount have a significant tendency to coincide with price and trend reversals, once completed. XAU daily chart: XAU Weekly chart: LONG/CALL TRADES, PREVIOUSLY RECOMMENDED: >> XAU (PHLX Gold & Silver Index) Reiterated purchase of the May 65 puts for Friday 4/19 Trade was from 1.20 to .65 STOP: Exit puts if XAU moves to new closing high above 72.33 Objective: XAU to 60.50, where it has support This trade is based on the above chart pattern that appears as a possible top. Moreover, on the weekly chart, XAU has completed a 62% retracement of the last big decline, which is a supporting factor to the possible top pattern that is being seen on the daily chart. >> Internet Sector index ($INX.X) - 4/17 Sector Trader suggestion: OPTION play: $INX sector stock, JNPR (Juniper Networks) Buying the May 15 Call (JUX EC) at 4/18 opening was suggested. 4/18 open: .35; JNPR objective: to $18 >> Telecom ($XTC.X) index - 4/15 Sector Trader suggestion: OPTION play: Sector stock, Level 3 Communications (LVLT)- 1)June 5 Call (HGY FA) suggested: 4/16 open: .60 2)LVLT outright purchase, with stock under $5, also suggested: 4/6 open: 4.16; Objective on LVLT stock: to 5.5/6. >> Semiconductor Index ($SOX.X) - 4/15 Sector Trader suggestion: Most active OTM May 650 calls (SOW EJ): 4/16 opening: 14.30 NOTE: May 650 call closed at 4.60 on 4/12. Individual Semiconductor stocks were a better play >> Cyclical sector ($CYC.X) - 4/15 Sector Trader suggestion: 1.) iShares Cyclical Trust (IYC) - 4/16 open: 56.95 Objective: new high above 63.00 2.) OPTION play: CYC Sector stock, - Alcoa (AA) May 40 calls (AA EH) - 4/16 open: .60 >> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion: OPTION PLAY: XAL sector stock Southwest Airlines (LUV) Sept. 20 (LUV ID) call suggested - 4/16 open: 1.25 OBJECTIVE: $22 near-term in the stock; $24, longer-term. >> Utilities Index - Holders trust shares (AMEX: UTH) Long at 95.25 Stop: 91.00; Longer-term objective: 105 OPEN SHORTS/PUT PLAYS: >> RTH (AMEX: Retail sector trust stock) SHORT at 99.00 Objective: 90; Stop: 102 4/17 NOTE: This HOLDR still looks like it is forming a top >> XAU (PHLX Gold & Silver Index) Bought May 65 puts at 1.80; also, recommended May 60 Puts STOP: Exit puts if XAU moves to new closing high above 72.33 Objective: XAU to 60.50, where it has support LIQUIDATIONS: Short IYE (US Energy Index iShares) at 49.70 Stopped out at 50.00, for a .30 loss before commission NOTE: RISK to REWARD guidelines - Determining an objective is important, even if it is a moving target, as this is the reward potential. Determining reward potential is critical to establishing whether a stop that makes “sense” (e.g., a sell stop that was placed under a key support level) would, if triggered, result in a dollar loss that is in proportion to profit potential; e.g., 1/3 of it. (On occasion, when the purchase price of call or put is equal to 1/3 or less of the estimated reward potential, there may not be a specific exit suggestion, as the cost of the option is equal to the amount that is being risked.) Leigh Stevens Chief Market Strategist lstevens@OptionInvestor.com *********************************************************** DAILY RESULTS *********************************************************** Please view this in COURIER 10 font for alignment ************************************************* CALLS Mon Tue Wed Thu Week AZO 75.34 0.74 1.10 1.24 2.09 4.41 Pause at $75 TKTX 40.88 -1.92 1.31 -1.50 2.17 -0.48 Ready to break RYL 99.50 -0.95 -1.25 -0.35 -1.50 -2.30 Ready to fly PNRA 66.74 -0.87 1.23 -2.06 0.66 -1.87 Break above 70 GENZ 40.88 1.22 0.86 -2.24 -0.13 -1.22 Dropped, BTK TMX 38.90 0.62 1.31 0.44 -0.55 0.92 Entry point AET 44.42 -0.25 0.69 0.56 0.58 2.87 Running higher LH 100.60 1.20 0.23 0.67 1.75 4.35 Good bye $100 HI 62.44 -0.62 2.04 1.18 0.50 4.34 New, big buyers ACDO 62.78 -0.56 1.80 -1.50 2.16 3.78 New, group PUTS WPI 24.60 -0.03 0.55 -0.27 0.40 0.45 Dropped, slow OVER 24.00 0.40 0.18 -0.40 0.28 0.50 Next leg lower JDEC 12.26 -1.70 -0.42 -0.50 0.29 -2.08 Rolling at 200 MU 29.50 -0.36 1.41 0.13 -1.24 0.44 Lousy chips IGT 53.75 1.45 -2.50 -0.20 -1.65 -3.15 Ticking lower MXIM 54.92 0.72 2.12 0.13 -1.10 -0.97 10-dma support VRSN 24.84 0.58 0.55 -0.34 -1.27 0.50 Trending down EBAY 54.39 1.19 0.79 -1.15 -1.89 0.31 Entry point NVDA 36.91 1.48 1.66 0.47 -0.67 -0.23 New, reversal BGEN 43.49 1.06 -1.24 -0.73 0.50 -1.83 New, 3 yr low ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ******************** THE PLAYS OF THE DAY ******************** Call Play of the Day: ********************* ACDO – Accredo Health, Inc. $62.78 (+3.78 last week) See details in play list Put Play of the Day: ******************** NVDA – NVIDIA Corporation $36.92 (+0.24 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 ^^^^^ GENZ $40.88 (-1.22) Following the surprise earnings release last week, we were impressed with the stock's ability to hold the $40.50 support level, so we bent our normal rules and gave the stock a second chance. But Friday's action was not encouraging with the sharp selloff from the $42.50 level. With price weakness in the stock, daily Stochastics in full bearish roll and the BTK index looking weak, we're going to pull in our horns on this one. Use any rebound from support next week to exit open positions, not to initiate new ones. PUTS ^^^^ WPI $24.60 (+0.45) Despite the fact that WPI is weak relative to its sector, we have simply lost patience with the stock and its refusal to break down. It has now spent the past 2 weeks stuck between $24-25 and rather than continue to wait for it to get moving, we're going to remove it from our radar screen this weekend. There are better opportunities out there and that's where we want to focus our attention. *********** 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************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-21-2002 Sunday 3 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************** NEW CALL PLAYS ************** HI - Household Int'l $62.44 (+4.34 last week) Household International, Inc. is principally a non-operating holding company. Household's subsidiaries primarily provide middle-market consumers with several types of loan products in the United States, the United Kingdom and Canada. The Company offers real estate secured loans, auto finance loans, MasterCard and Visa credit cards, private-label credit cards, tax refund anticipation loans, retail installment sales finance loans and other types of unsecured loans, as well as credit and specialty insurance. Credit concerns have seemed to ease in recent months. The prospects for a rebounding economy cleaning up the financial system has helped some of the beaten down consumer finance stocks. Last year's recession increased the risk of debt defaults by consumers, which in turn pressured the lenders in the group. HI was one such stock that was especially hard hit. Shorts were pressing these stocks lower, but those bearish traders have recently covered their positions as the outlook for HI has improved. So much so, in fact, that the bulls are warming up to the prospects for this company going forward. That much was reflected recently when the stock cruised past its 200-dma early in the week. Institutions are coming into the stock with volume, driving price higher in the process. We're looking for that institutional accumulation to continue over the short term. The breakout above the $62 level last Friday should bring more big buyers into this stock early next week. Look for a momentum based move to carry HI above its Friday high at the $62.56 level. Confirm the move with volume and sector reference. Use a pullback to the $60 range to enter on weakness. Our stop is initially in place at the $59.40 level. BUY CALL MAY-60*HI-EL OI=2832 at $3.60 SL=2.00 BUY CALL MAY-65 HI-EM OI= 864 at $0.90 SL=0.50 BUY CALL JUL-60 HI-GL OI=1925 at $5.20 SL=3.25 BUY CALL JUL-65 HI-GM OI=2348 at $2.45 SL=1.25 Average Daily Volume = 1.75 mln ACDO - Accredo Health, Inc. $62.78 (+3.78 last week) Accredo Health provides specialized contract pharmacy services on behalf of biopharmaceutical manufacturers to patients with chronic diseases. The company's services help simplify the difficult and often challenging medication process for patients with a chronic disease and help ensure that patients receive and take their medication as prescribed. ACDO's services benefit the manufacturers by accelerating patient acceptance of new drugs, facilitating patient compliance with the prescribed treatment and capturing valuable clinical information about a new drug's effectiveness. The seemingly unstoppable advance of the Health Care index (HMO.X) has been incredible and there is no sector of the market that has performed better, especially in the past 2 weeks. After clearing the $540 resistance level, the HMO index rocketed higher last week on the heels of more strong earnings reports, closing at new all-time highs on Friday. Most stocks in the sector have already broken out on heavy volume and we're looking for ACDO to repeat that pattern as it approaches the release of earnings on April 29th. Given the huge move in the HMO index last week, we would expect to see some profit taking in the group next week, and that should give us an attractive entry in ACDO. But with the stock's breakout on Friday above the $62 resistance level, it might just continue to run. Target new positions on a pullback near the $62 level or even the $60 support level, also the site of the recent ascending trendline. Alternatively, entries on a rally through $63.25 (the high on Friday) will work for momentum traders. We are initially placing our stop at $58, which provided the launch point for last week's rally. BUY CALL MAY-60 DZU-EL OI=539 at $4.90 SL=3.00 BUY CALL MAY-65*DZU-EM OI=251 at $2.10 SL=1.00 BUY CALL AUG-65 DZU-HM OI=589 at $5.80 SL=4.00 BUY CALL AUG-70 DZU-HN OI= 10 at $3.70 SL=2.25 Average Daily Volume = 662 K ************************Advertisement************************* "If you haven't traded options online - you haven't really traded options," claims author Larry Spears in his new compact guide book: "7 Steps to Success - Trading Options Online". Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ****************** CURRENT CALL PLAYS ****************** TKTX - Transkaryotic Therapies $40.88 (-0.48 last week) Transkaryotic Therapies, Inc. is a biopharmaceutical company developing protein- and cell-based therapeutics for the treatment of a wide range of human diseases. Based on three proprietary development platforms: Gene-Activated proteins, Niche Protein products, and Gene Therapy, the Company is building a broad and renewable product pipeline. First things first. TKTX announced last Friday that it would report its fiscal first quarter financial results on Thursday, May 2, after the close of trading. The company is expected to record a loss of 54 cents per share, on revenues of $5.5 million. The expected loss is about 20 cents better than the loss during the quarter in the year ago period. Now, back to the price action. TKTX came oh so very close to breaking out in last Friday's session when it tested short term resistance up around the $41.60 level. The stock's intraday high for the day was $41.64. The Biotechnology Sector Index (BTK.X) prevented the stock from breaking out, as the BTK traded poorly relative the broader market all day. All we need is for the BTK.X to get its legs, which in turn should allow TKTX to breakout above its short term resistance. We like the gain in relative strength of TKTX, and we equally like the fact that the stock didn't give back all of Thursday's rally during Friday's session. Last week's back and forth pattern saw the stock rally one day, then give it all back in the next trading session. We like that TKTX didn't give it all back Friday. That hopefully portends a breakout into next week's session, but we need that BTK to get moving higher. Look for a resumption of the upward trend in the BTK, then look for a breakout in TKTX. Traders can use the $42 level to define a breakout. Otherwise, if the stock pulls back again, look for another bounce from the 50-dma at the $39.76 level. BUY CALL MAY-40 UFT-EH OI= 8 at $3.60 SL=2.25 BUY CALL MAY-45*UFT-EI OI= 19 at $1.40 SL=1.00 BUY CALL JUL-40 UFT-GH OI=122 at $5.60 SL=4.00 BUY CALL JUL-45 UFT-GI OI=325 at $3.50 SL=2.25 Average Daily Volume = 436 K PNRA - Panera Bread Company $66.74 (-1.87 this week) Panera Bread Company, through its wholly owned subsidiary Panera, LLC, operates bakery-cafes under the names Panera Bread and Saint Louis Bread Company. As of December 29, 2001, the Company had 100 Company-operated bakery-cafes (including two specialty bakery- cafes), ten bakery-cafes operated as a joint venture through a 90%-owned indirect subsidiary (for a total of 110 Company-owned bakery-cafes) and 259 franchise-operated bakery-cafes (including one specialty bakery-cafe). PNRA pulled back in today's session after the rebound from yesterday. The stock traded up to the $68.20 level in the early going, but then rolled over throughout the day. Volume was very low in trading, revealing a lack of convition on the part of traders and investors. What Friday's pullback did do though was to help remove some of the oversold natue of the stock. Since trading up to just below the $70 level a week ago, PNRA spent the last several sessions churning just below the $70 level on declining volume. This type of consolidation on lower trading activity is healthy, and should eventually lead to another breakout above short term highs. Traders looking to get new entries into this play can look for intraday pullbacks to support between the $65 and $66 levels. Just make sure to wait for a bounce before pulling the trigger. Also, we'd like to see the broader market gain some traction to help this play along. Although PNRA has moved counter to the trend in the market this year, we still would like to have the help of broader buying to push this one higher. Momentum traders who would rather wait for a clear sign of strength to emerge can sit on the sidelines for a breakout above the $70 resistance level. Such a move should bring in another round of short covering and lead to an explosive rally. BUY CALL MAY-65 UPA-EM OI=224 at $4.40 SL=2.75 BUY CALL MAY-70*UPA-EN OI=504 at $2.05 SL=1.00 BUY CALL AUG-70 UPA-HN OI= 73 at $5.20 SL=3.00 BUY CALL AUG-75 UPA-HO OI= 8 at $3.40 SL=2.00 Average Daily Volume = 410 K LH - Laboratory Corp. $100.60 (+4.35 last week) Laboratory Corporation of America Holdings (LCAH) is an independent clinical laboratory company. Through a national network of laboratories, LCAH offers more than 4,000 different clinical laboratory tests, which are used by the medical profession in routine testing, patient diagnosis, and in the monitoring and treatment of disease. Since its founding in 1971, the Company has grown into a network of 24 primary testing facilities and approximately 1,200 service sites consisting of branches, patient service centers and STAT laboratories, serving clients in 50 states. That was quick! The $100 level came to LH in last Friday's session as the stock continued higher on strength in the broader health care sector. The Morgan Stanley Healthcare Provider Index (RXH.X), as noted by Jeff Bailey in the Market Monitor Friday, exploded to a multi year high. For the week, the index gained more than 4.5 percent, boosting the momentum in LH. With the stock piercing the $100 level last week, we expect a small pullback to consolidate the recent gains. A move back down to the 10-dma near the $97 level would be very nice indeed, but we may not get it if the momentum types pile into this stock next week. The momentum crowd likes high priced stocks because they can move quickly in absolute dollar terms, so it's very likely that we see a continuation of trend into next week's trading. LH is trading an an all time high, so we don't have anything from historical trading to reference for potential resistance levels. Instead we're better off using psychological levels to determine potential exit points. The first level to look for a possible exit is at the $105 mark. Above there, we'll reference the $110 level as a potential resistance level. If we do get a further upside move early next week, then we can start to look for the $100 level to offer support on the way back down. Bounces from there could be used as entry points on intraday pullbacks. BUY CALL MAY- 90 LH-ER OI= 186 at $11.70 SL=8.75 BUY CALL MAY- 95*LH-ES OI=1556 at $ 7.50 SL=5.50 BUY CALL MAY-100 LH-ET OI= 393 at $ 4.20 SL=2.25 BUY CALL AUG-100 LH-HT OI= 311 at $ 7.50 SL=5.75 Average Daily Volume = 627 K AET - Aetna $44.42 (+2.87 last week) Aetna Inc., incorporated in December 1982, is a health benefits company whose business operations are conducted in the Health Care, Group Insurance and Large Case Pensions segments. On December 13, 2000, the Company was spun off, with the remaining entity merged into a subsidiary of ING Groep N.V. The Health Care segment consists of health and dental benefit products including health maintenance organization, point-of-service, preferred provider organization and indemnity products, and group insurance products including life, disability and long term care insurance products. The bull market is alive and well. Not exactly. If you define the market by the major market averages such as the S&P 500, or Dow Jones Industrial Average (INDU), you're probably still in the bear camp. But if you define the market using the health care sector, then you're probably more bullish than ever. The Health Maintenance Organization Index (HMO.X) blew up last week, culminating with a near parabolic move in the latter part of last week's trading. The index traded towards the 600 level in last Friday's session. The bullishness in the HMO.X spread into AET, as the stock continued along its momentum run. We're playing this stock ahead of its earnings report next Thursday, looking for the trend to continue into the official announcement. Bullish traders looking to get in ahead of the earnings run can hope for an intraday pullback to support for a favorable entry point. Traders can dial down to a short time frame chart to get a better feel of the ascending trend line that has been in place since earlier this year. Using that trend line as a reference point, traders can look to gain entries on intraday pullbacks to between the $43.75 to $44 level. If the broader group pulls back on profit taking, AET could fall as low as the $41.75 to $42 support area, where bulls can look to get aggressive with new call positions. BUY CALL MAY-40*AET-EH OI=2723 at $5.20 SL=3.75 BUY CALL MAY-45 AET-EI OI= 667 at $1.70 SL=1.00 BUY CALL JUL-40 AET-GH OI=3728 at $6.10 SL=4.75 BUY CALL JUL-45 AET-GI OI= 60 at $2.80 SL=1.75 Average Daily Volume = 857 K TMX - Telefonos De Mexico $38.90 (+0.92 last week) Teléfonos de México, S.A. de C.V. and its subsidiaries (TELMEX) provide telecommunications services. TELMEX obtains its revenues primarily from telecommunications services, including domestic and international long-distance and local telephone services, data transmission and Internet services as well as the interconnection of domestic long-distance operators', cellular telephone companies' and local service operators' networks with the TELMEX local network. The North American Telecom Index (XTC.X) took a turn for the worse late last week after more bearish news came out from some of the bigger names in the group. Qwest Communications was one such company that guided lower and announced more job cuts. That news weighed on the telecom group to the tune of more than 3 percent in Friday's session. The sector weakness in turn weighed on TMX, which fell back down to its converged 10 and 50 day moving averages. Those two levels finished Friday right around the $38.90, which is where the stock finished trading. As perverse as it may sound, we actually liked the pullback in TMX late last week in conjunction with its sector. The stock remains one of the strongest in the group, and the recent pullback served to remove some of the short term downside risk in the stock. All we need is for the next round of short covering to come into the telecom sector to get TMX moving back towards its yearly highs. Taking entries near the $39 level in next week's trading would allow traders to take positions with limited downside risk and favorable upside risk. Tight stops can be used on bounces from the $39 level. While the upside over the next three or four weeks could be up around the $42 to $43 level. BUY CALL MAY-35 TMX-EG OI=3725 at $4.20 SL=3.00 BUY CALL MAY-37*TMX-EU OI= 383 at $2.15 SL=1.00 BUY CALL AUG-37 TMX-HU OI= 617 at $3.30 SL=1.25 BUY CALL AUG-40 TMX-HH OI=5722 at $1.95 SL=0.50 Average Daily Volume = 1.75 mln AZO - AutoZone, Inc. $74.58 (+4.41 last week) AutoZone is a retailer of automotive parts and accessories, primarily focusing on do-it-yourself customers. Each of its more than 2900 stores in 42 states and Mexico carries an extensive product line for cars, vans and light trucks, including new and re-manufactured automotive hard parts, maintenance items and accessories. Approximately half of its domestic stores also have a commercial sales program, which provides commercial credit and prompt delivery of parts and other products to local repair garages, dealers and service stations. Following AZO's mid-week breakout over the $72 resistance level (triple-top), a bit of consolidation on expiration Friday was to be expected. In fact, it should come as no surprise that the stock closed just below $75 due to the normal funny business that can occur around expiration events. Note that Friday's candle gives us an inside day on AZO, so we'll want to watch the levels associated with Thursday's range next week. Thursday's low was $73.50 and the high was $76.00. Whichever way AZO breaks out of this consolidation pattern will likely be the way to play. Aggressive traders can still look to initiate new positions on a bounce from above the $73.50 level, or else target a breakout over $76. Volume will be key on a breakout move, so make sure it is strong again before playing. Likewise, if buying a bounce from support, we will want to see the decline preceding the bounce come on comparatively light volume. Due to the inside day setup, we are moving our stop up to $73.25, just below Thursday's low. BUY CALL MAY-70 AZO-EN OI= 313 at $5.90 SL=4.00 BUY CALL MAY-75*AZO-EO OI= 422 at $2.55 SL=1.25 BUY CALL JUN-75 AZO-FO OI=1329 at $4.00 SL=2.50 BUY CALL JUN-80 AZO-FP OI=1264 at $1.90 SL=1.00 Average Daily Volume = 984 K RYL - The Ryland Group $99.50 (-2.30 last week) The Ryland Group is a homebuilder and mortgage-finance company that has built more than 175,000 homes. Additionally, the Ryland Mortgage Company (RMC) has provided mortgage financing and related services for more than 155,000 homebuyers. Currently, Ryland homes are available in more than 260 communities in 21 markets across the United States. As the consolidation in shares of RYL continues, the $97 level keeps attracting buyers, who are looking for the stock to lead the Home Construction sector ($DJUSHB) higher. Rebounding from support on Thursday afternoon, the stock gave us a brief dip near that level again Friday morning before going on to post a solid gain by the closing bell. It is interesting to note that the stock closed just below the $100 level on expiration Friday. That's not likely to be a coincidence, now is it? We're still waiting for the DJUSHB index to push back through resistance ($363), but given the strength in RYL, it looks like that could come early next week. We want to keep using the consolidation range to establish new positions, either on a renewed bounce from support, or a breakout over resistance. Near resistance is $100, but a true breakout will occur on a trade above the recent highs at $102.25. We're leaving our stop in place at $96.75. Make a note of the fact that the company is set to release Q1 earnings on Wednesday after the close, and we'll want to have all positions closed by that time. BUY CALL MAY-100*RYL-ET OI= 77 at $4.10 SL=2.50 BUY CALL MAY-105 RYL-EA OI= 64 at $2.10 SL=1.00 BUY CALL MAY-100 RYL-GT OI= 59 at $8.40 SL=6.00 BUY CALL MAY-105 RYL-GA OI= 11 at $6.10 SL=4.00 Average Daily Volume = 564 K ************* NEW PUT PLAYS ************* BGEN - Biogen, Inc. $43.50 (-1.82 last week) Biogen is a biopharmaceutical company primarily engaged in the business of developing, manufacturing and marketing drugs for human healthcare. BGEN currently derives revenues from sales of its Avonex product for the treatment of relapsing forms of multiple sclerosis and from royalties on worldwide sales by the company's licensees of a number of other patented products. Other products include certain forms of alpha interferon, hepatitis B vaccines and hepatitis B diagnostic test kits. In order to maintain its leadership role in the industry, BGEN continues to have an active research and development program. Since rolling over from the $540 level late last month, the Biotechnology index (BTK.X) has been showing a lot of internal weakness as the impact of the FDA's more restrictive drug approval policy hits home with investors. It seems the list of Biotech companies with recent drug or earnings disappointments is growing by the day, and we see the BTK index beginning another bearish rollover, this time from the $495 area. Showing up on the new 52-week low list again on Friday, BGEN broke below the $44 support level and looks like it could fall significantly further once it prints $43. That will give us another double-bottom breakdown on the PnF chart and set the stage for the next leg down. Note that the current bearish price target is $40 and a drop near that level would not be out of the question ahead of the company's earnings report, due out Wednesday morning before the opening bell. Given the short amount of time to play ahead of the earnings report, we should emphasize that it is only for those that have the freedom to watch intraday market action. BGEN has been repeatedly pushed lower by its descending trendline (now at $45.50) over the past month and given that this is also the site of recent intraday resistance, a failed rally near this level would make for a very nice entry point. Alternatively, targeting a breakdown below the $43 level will work for momentum traders. We are initiating coverage with our stop set at $47. BUY PUT MAY-45*BGQ-QI OI=3379 at $3.30 SL=1.75 BUY PUT MAY-40 BGQ-QH OI=2465 at $1.15 SL=0.50 Average Daily Volume = 3.24 mln NVDA - NVIDIA Corporation $36.92 (+0.24 last week) NVIDIA Corporation designs, develops and markets 3D graphics processors, graphics processing units and related software that set the standard for performance, quality and features for every type of desktop personal computer user. Used in a wide variety of application including games, the Internet and industrial design, the company's products were the first to incorporate a 128-bit multi-texturing graphics architecture. This design approach delivers to users a highly immersive, interactive 3D experience with compelling visual quality and stunning effects at real-time frame rates. NVDA sells its products to major PC manufacturers such as Compaq, Dell, Gateway, Hewlett-Packard and IBM. If every cloud has a silver lining, does that mean that every silver lining comes with a cloud? MSFT's earnings report Thursday night prompted a flurry of discussion as investors and analysts alike strove to determine whether or not the report was better or worse than estimates. While that argument appears to have been resolved in favor of the bulls, the one gloomy note pertained to the company's Xbox sales. MSFT lowered its expected shipments of the gaming console from 4.5-6.0 mln units to the 3.5-4.0 mln range. This was largely seen as a concession that the console is struggling in the face of cheaper and more-established competition. NVDA makes the graphics chips for the Xbox, and was hit hard on Friday for an almost 7% loss. The rollover from the $40 resistance level marks just the latest price rejection from the steeply descending trendline that began with the top in early March. The sharp drop on Friday dragged the daily Stochastics into a premature bearish rollover and next week should see the $36 support level tested and more than likely, broken. We want to use a failed intraday rally near resistance, first at $38.50 and then near $40, for initiating new positions. That is, unless the bears take control first thing on Monday, and in that case, we'll want to initiate new positions on a volume-backed drop below $35.50. Keep a sharp eye on the Semiconductor index (SOX.X), which is sitting right on the $580 support level. If that level gives way and NVDA's $34 support level (bottom of the early October gap) fails to hold, then it's a pretty good bet that NVDA will soon be challenging its September lows near $23. Set stops initially at $40.50. BUY PUT MAY-40 RVU-QH OI=2570 at $5.10 SL=3.00 BUY PUT MAY-35*RVU-QG OI=2662 at $2.55 SL=1.25 Average Daily Volume = 10.9 mln ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. 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The Option Investor Newsletter Sunday 04-21-2002 Sunday 4 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***************** CURRENT PUT PLAYS ***************** OVER - Overture Services $24.00 (+0.50 last week) Overture Services, Inc. is engaged in the provision of pay-for performance search services on the Internet. Overture operates an online marketplace that introduces consumers and businesses that search the Internet to advertisers that provide products, services and information. Advertisers participating in the Company's marketplace include retail merchants, wholesale and service businesses and manufacturers. OVER's sideways trading continued into last Friday's session. The stock's increasingly narrow range portends a breakout in one direction or another next week. The intraday highs and lows from day to day last week tightened, revealing indecision on the part of traders and investors. The lack of commitment from either side revealed a situation in which market participants are on hold before putting more capital to work. From a sector standpoint, OVER didn't respond to the movement in its group last week. The Internet Index (INX.X) staged a good rebound from last week's relative low, but pulled back in Thursday's and Friday's sessions. However, the INX.X did trace an inside day in Friday's session, so traders will want to keep an eye on the movement of the sector early next week. A move in the INX.X above the 107.40 level would be a breakout to the upside, while a decline below the 103.54 level would be a breakdown to the downside. Movement in the INX.X may be the catalyst to get OVER moving in either direction. In looking for new entry points, traders can use intraday rollovers from the 10-dma, now just above the $25 level. The 10-dma continued falling in Friday's session, so the pressure from that moving average may lead to a breakdown next week. Trend traders can continue looking for a breakdown below the $23 level on heavy volume. BUY PUT MAY-25*GUO-QE OI= 999 at $4.00 SL=2.25 BUY PUT MAY-22 GUO-QX OI=1424 at $2.60 SL=1.75 Average Daily Volume = 1.25 mln JDEC - J.D. Edwards & Company $12.26 (-2.08 last week) J.D. Edwards is a provider of agile, collaborative solutions for the connected economy. The Company delivers integrated, collaborative software for supply chain management (planning and execution) procurement and customer relationship management, in addition to workforce management and other functional support. Its enterprise software is designed to help organizations manage and execute internal business functions, such as manufacturing, finance, distribution/logistics and other core operational processes. JDEC continued consolidating its recent sell-off in last Friday's session. Volume was a little more active during Friday's session than what we observed in Thursday's, but that increased activity may have been associated with options expiration. The positive development in last Friday's session is that we saw the sellers return at the 200-dma. That moving average now stands at the $12.43 mark and is beginning to rollover. JDEC's inability to get back above its 200-dma may be the catalyst to inspire further institutional selling in the stock, which should lead to another breakdown after last week's consolidation. Traders looking to play it tight can watch for rollovers from the 200-dma early next week, using stops just above that level. One point to reference for a tight stop is last Friday's intraday high at the $12.50 level. A move above $12.50 could take JDEC back up to the $13 mark, however, but that level may be another good point to look for a rollover after an intraday short covering rally. Our coverage stop remains relatively tight just above the $13 mark at $13.05. To the downside, a breakdown below the relative low at the $11.50 level can be used as an entry point, but only if the broader Software Sector (GSO.X) is weakening. The GSO.X traded well last Friday because of the boost from Microsoft, but it's still relatively weak versus the rest of the mark. A return of the descending trend in the GSO.X should be enough to breakdown JDEC in next week's trading. BUY PUT MAY-15 QJD-QC OI=131 at $3.20 SL=1.75 BUY PUT MAY-12*QJD-QV OI=670 at $1.50 SL=0.75 Average Daily Volume = 1.30 mln MU - Micron $29.50 (+0.44 last week) Micron Technology, Inc. and its subsidiaries are principally engaged in the design, development, manufacturing and marketing of semiconductor memory products. The Company offers products that include dynamic random access memory, synchronous dynamic random access memory, double data rate dynamic access memory, legacy dynamic random access memory products, static random access memory products and Flash products. The nonsense coming from Wall Street last Friday, following Microsoft's earnings miss, resulted in MU finding a bid late in the week. The stock gapped higher in last Friday's session, but that was about the only action for the day. The stock traded in an incredibly tight trading range for the day. Its day high was traced at the $30.20 level, while the day low was set at the $29.46 level. Needless to say, MU traced an inside day in last Friday's session. The tepid trading could lead to a big move in next week's trading, especially if the Semiconductor Sector Index (SOX.X) continues losing ground. The SOX.X traded poorly in last Friday's session, and that doesn't bode well for MU. Traders looking to gain new entries in this play should be thankful for last Friday's pop. Intraday rollovers in Monday's session just below the $30.50 level can be used to get into new put positions. Play such an entry with a tight stop, as a move above that level would signal a breakout to the upside from last Friday's inside day. Momentum fans can continue waiting for a breakdown below the $28 level. A breakdown to the downside of last Friday's inside day on a decline below the $28.60 level could portend an ultimate breakdown below the $28 level, and possibly offer traders an early entry into that move. BUY PUT MAY-32 MU-QS OI= 6659 at $4.10 SL=2.00 BUY PUT MAY-30*MU-QF OI=10216 at $2.55 SL=1.25 Average Daily Volume = 8.07 mln EBAY – eBay, Inc. $54.39 (+0.31 last week) After developing a Web-based community in which buyers and sellers are brought together in an efficient format, EBAY has emerged as the dominant online auction site. The eBay dynamic pricing format permits sellers to list items for sale, buyers to bid on items of interest and all eBay users to browse through listed items. Items listed on eBay include collectibles, automobiles, art objects, jewelry, consumer electronics and a host of practical and miscellaneous items. Although based in the United States, through its subsidiaries, EBAY also operates trading platforms in Germany, the United Kingdom, Australia, Japan, Canada, France, Austria, Italy and South Korea. When we added EBAY to the put list Thursday night following the company's earnings release, we were hoping for a rebound to give us a solid entry into the play and Friday's price action gave us just that. After the early weakness drove the stock down to test the $52 support level, solid buying interest came in, driving EBAY as high as $55 before it began to weaken in the final half hour of trading. That weakness could be an early entry signal, but prudent traders are waiting until next week to take a position. Resistance is solid at the $55 level, also the site of the declining 20-dma (currently $54.95). Firmer resistance resides at $56, the highs from earlier in the month, along with the 50% retracement of the fall rally. Despite the fact that buying volume was heavy on Friday, the daily Stochastics are in full bearish roll. Look to initiate new positions on a rollover from one of the resistance levels listed above, placing a nice tight stop at $56. A push through that level would indicate that the bulls are serious and we don't want to get caught in a stampede. Alternatively, look for a drop back through the $54 support level before initiating new positions. The critical support level remains at $51-52, and a print of $50 will likely have fresh selling coming into the stock. BUY PUT MAY-55 QXB-QK OI=4512 at $3.30 SL=1.75 BUY PUT MAY-50*QXB-QJ OI=3798 at $1.50 SL=0.75 BUY PUT MAY-45 QXB-QI OI=2103 at $0.60 SL=0.25 Average Daily Volume = 5.49 mln IGT – International Game Tech. $53.75 (-3.15 last week) IGT is a manufacturer of computerized casino gaming products and an operator of proprietary gaming systems. The company serves the casino gaming industry in the United States as well as manufacturing gaming products in the United Kingdom and through a third party manufacturer in Japan. IGT provides gaming products in every significant legalized gaming jurisdiction in the world. Still grinding lower, shares of IGT have yet to stage anything approaching a sustained rebound, even though the stock is sitting right on solid support at $53-54. This is also the location of the 50% retracement ($53.82) of the fall rally, so it is no great surprise to see some consolidation in this area. IGT has been pressured by its descending trendline (currently $56.25) over the past 6 weeks and will likely continue in this trend, with the recent breakdown under the 200-dma (now up at $58.06). It is hard to believe that IGT was one of the strongest stocks over the past year, given its recent weakness, but we'll take it. Note that the stock's strength relative to the Dow Jones Casinos index ($DJUSCA) broke to a new 52-week low on Friday and looks to have a lot more downside to come. The best entries will come on a failed rally near the descending trendline, but we may have to settle for an entry near $55, where the stock has been finding intraday resistance over the past 2 days. If you're looking to play the breakdown, you'll want to wait for the $53 support level to give way first. Selling volume has been heavy since IGT broke its 200-dma, and momentum traders will want to see continued heavy volume if they're going to consider new entries as IGT pushes to new recent lows. We're keeping our stop at $57. BUY PUT MAY-55*IGT-QK OI=586 at $3.40 SL=1.75 BUY PUT MAY-50 IGT-QJ OI=275 at $1.40 SL=0.75 Average Daily Volume = 1.17 mln MXIM – Maxim Integrated Products $54.92 (+0.97 last week) MXIM designs, develops, manufactures and markets a broad range of linear and mixed-signal integrated circuits, commonly referred to as analog circuits. The company also provides a range of high-frequency design processes and capabilities that can be used in custom design. MXIM's objective is to develop and market both proprietary and industry-standard analog integrated circuits that meet the increasingly stringent quality standards demanded by customers. It looks like we caught MXIM right at its inflection point last week at the $58 level. Since then the stock has been pressured lower by weakness in the overall Semiconductor sector (SOX.X). Speaking of the SOX, it is interesting to note that it is once again resting on the descending trendline ($581) that it broke above earlier in the week on the positive earnings news from select Chip companies. This will be a key level for the SOX and it will likely be challenged early next week depending on how the next batch of Chip earnings come out. Monday afternoon, we have SLAB and STM, with LSCC and FCS on Tuesday. Note that the big names in the space have already reported, so the impact of those left to report may be less significant. So watch the action on the SOX for an indication of how to play MXIM. A breakdown will likely have the stock pushing below the $54.50 support level (the bottom of Tuesday's gap). Following its rollover from $58, MXIM has now filled that gap and with strength in the SOX, we could make an argument for another bounce, if it weren't for the solid rollover in the daily Stochastics that portends more price weakness. Look to initiate new positions on a failed rally near the $56 level or possibly as high as $57 (the current level of the descending trendline). Otherwise, consider new positions on a drop below support at $54.65. Lower stops to $57. BUY PUT MAY-55*XIQ-QK OI=3980 at $3.80 SL=2.25 BUY PUT MAY-50 XIQ-QJ OI=6933 at $1.90 SL=1.00 Average Daily Volume = 5.57 mln VRSN – VeriSign, Inc. $24.53 (-0.79 last week) VeriSign is the leading provider of Internet trust services and digital certificate solutions needed by Web sites, enterprises and individuals in order to conduct secure electronic commerce and communications over IP networks. VRSN has used its secure online infrastructure to issue over 100,000 of its Website digital certificates and over 3.5 million of its digital certificates for individuals. The company also offers the VeriSign Onsite service, which allows an organization to leverage the company's trusted service infrastructure to develop and deploy customized digital certificate services for use by an organization's employees, customers and business partners. To date, over 300 enterprises have subscribed to the OnSite service and VRSN has strategic relationships with industry leaders including Cisco, Microsoft ,RSA, Security Dynamics, and VISA. Continuing its persistent grind lower, VRSN can't seem to get out of its own way. The descending trendline that has been pressuring the stock since last May is showing no sign of letting up. In fact, the original trendline is being replaced by one with an even steeper slope, currently resting at $28. VRSN's price action has been so weak that it couldn't even get close to that level on its latest failed rally attempt, topping out at $27.40 last week before turning tail and heading south again. Daily Stochastics are once again in full bearish roll and it looks like the bears are intent on testing the $22-23 support level over the near term. The stock has been tracing out a potential Head & Shoulders pattern within the overall downtrend over the past 3 months and a break of the $22 level would complete that pattern in favor of the bears. The intraday rollover near the $25 level on Friday provided acceptable entries, although we would prefer to see a failed rally near the $25.50-26.00 area, so that we can better control risk. At any rate, use a failed rally below resistance to initiate new positions. Keep in mind that VRSN is set to report earnings next Thursday after the close, and we'll want to have all positions closed by that time. Lower stops to $27.50. BUY PUT MAY-25*QVR-QE OI= 883 at $2.65 SL=1.25 BUY PUT MAY-22 QVR-QX OI=2979 at $1.35 SL=0.75 Average Daily Volume = 8.39 mln ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ***** LEAPS ***** Earnings Excitement! By Mark Phillips mphillips@OptionInvestor.com The issue of earnings, both how the estimates are derived and then how to determine the quality of earnings remains an issue of confusion. Not only individual investors, but Wall Street professionals are often stymied by corporate earnings statements and this fact is borne out by the wild gyrations in the price of MSFT following its earnings report Thursday night. Initially deemed to be negative, the after-hours session on Thursday saw Mr. Softee trading down as low as $52. But that situation was promptly reversed by the opening bell on Friday, with MSFT reclaiming the $57 level as support and advancing throughout the day on heavy volume - that is until the news came out about the "credible threats" to banks in the Northeast. You see, it turns out that what was initially deemed to be a miss on the earnings front was actually an upside surprise. I'm not a forensic accountant, so I don't even pretend to be able to interpret the frequently perplexing earnings reports issued by corporate America. But I think MSFT provides a powerful example of the problems that exist in the way that earnings are currently reported. I applaud any effort to clear up this muddy water and it appears that the process is underway. Investors are demanding it. All right, I'll get off my soapbox now. For a week filled with earnings and some significant intraday volatility, the markets sure didn't go very far. Take a look at the results below and you can see what I mean: Index Close 4/12 Close 4/19 Change DOW 10190 10257 +67 S&P 500 1111 1125 +14 Nasdaq-100 1351 1385 +34 Slight gains across the board, but certainly not impressive. The only progress that was made in this continued rangebound action is that each of the indices moved from the lower bound of the month-long descending channels, to the upper edge. So while the weekly trend was slightly positive, the prevailing trend is still down, and this is borne out additionally by the weekly Stochastics on all three indices, which are still in bearish decline. I think I'll refrain from growing any horns for awhile longer. Despite all the confusion, I like the chart of MSFT so much, I bought the company. (Apologies to the late Victor Kiam, who used that ad slogan after he bought Remington.) In all seriousness, I actually thought about buying some MSFT LEAPS Friday morning following the positive price action. I restrained the urge, but have added the stock to the Watch List this weekend and just might go fishing for a position next week. So let's take a quick look through the Portfolio and Watch List and update each of the plays. Portfolio: JNJ - Still looking strong in the wake of the company's earnings report on Monday and with the PnF chart still giving us the thumbs up (bullish target of $83), buying the dips continues to look attractive for new entries. Moderate support at $62.75-63.50, with $62 shaping up as strong support. LUV - Investors got quite a scare on Thursday with the plane crash in Milan. But once it was labeled a tragic accident rather than an act of terror, the Airline stocks recovered back near unchanged by Friday's close. While a bit below our entry from last week, traders that took advantage of this week's dip nabbed a solid entry with good risk/reward. EK - Well, we never said this one was going to be exciting. After failing again at the $34.50 resistance level (also 200-dma) on Monday, EK has been slowly drifting back to the $33 support level. What I really want to see to give me confidence in this play is for that gap from 2 weeks ago to get filled. Then we can honestly say that the downward trend has re-asserted itself. Watch List: DYN - Still waiting for that entry point near $27, but the chart pattern is starting to look encouraging. While the weekly Stochastics has been heading back towards oversold territory, the daily chart has been building a slightly descending wedge on light volume, which ought to give us a bullish breakout over the next couple weeks. Continue to monitor the $27 support level, as I would expect any bullish move to commence with a successful test of that level. PG - The sharp plunge in the DJIA on Thursday had it looking like the stock might give us a dip and bounce near the mid-line of the ascending channel, but not quite. As quick as it dropped, the stock reversed back upwards, only trading down to just below $88 in the process. That attractive entry will come, but it isn't here yet. Perhaps the action surrounding the company's earnings report on April 30th will provide us with a solid entry. Continue to look for a rebound from the $86-87 area in conjunction with the daily Stochastics emerging from oversold territory. But watch out for the weekly Stochs. This longer-term oscillator has been tracing out a series of higher lows while price has been tracking along in the ascending channel. If this pattern is broken before we get a solid entry, then all bets are off and we'll be standing aside, pending a rebound from the lower edge of the channel, currently near $82. MDT - What can I say? Too stingy on the entry point earlier in the month and it appears the stock has gotten started without us. Last week saw MDT push through the $46.50 resistance level and it is now testing $48. With daily Stochastics now in overbought, we want to target the next pullback into oversold, which should coincide with a bounce near the $45-46 area. We have altered the entry target and recommended strikes accordingly. WMT - The ascending channel is now toast, with the lower channel line now acting as resistance. We need to wait for the weekly Stochastics to drop into oversold territory again before contemplating new entries now. I think that will likely occur near the $54-55 area, but I'm leaving WMT on HOLD this weekend, as we certainly won't get that entry setup next week. I'll continue to reassess entry strategy on a weekly basis. For those wondering why I've left the play on the Watch List, my primary motivation is for a solid play in the Retail sector when the economy shows definitive signs of bottoming. WMT is still the dominant player in this area. BRCM - Well earnings didn't provide the catalyst (either to the upside or downside) that we might have expected, and I'm really not sure what to expect over the near term. Leaving the play on HOLD seems the best course of action as we slog through the remainder of the earnings season. But I'm going to go against my better judgment and return the play to active status with an entry target at the $34-35 level. The bottom of last Monday's gap is at $34.78 and a dip and bounce from that level with daily Stochastics turning up would provide a solid entry point, given that the weekly Stochastics are just starting their return back towards overbought territory. KBH - Last on the list, our pending put play on this (the only one with LEAPS available) Home Construction stock remains on hold this weekend. The Home Construction index ($DJUSHB) remains mired in a tight 2-week consolidation pattern and at the same time, our play is wandering between $45-47 on rather tepid volume. I feel the upside is rather limited from this point on, now that KBH has achieved its vertical count of $47, but that doesn't mean a decline is imminent. I want to see some price weakness drag the weekly Stochastics into bearish decline before contemplating new positions. Fundamentally, I still really like the downside for the stock, as I think the current housing bubble is due to pop eventually. The big question is when. That does it for the listed plays this week. If it sounds like I am cautious about initiating new positions, you're right. I consider this to be a very tenuous market, susceptible to significant declines on the slightest whim. Proof of that came on Thursday when investors feared the plane crash in Milan might be a terrorist act. The bounce back was encouraging, but the decline should provide a stark reminder of what can happen when the market makers pull their bids for stocks. The thing that I still find rather unsettling about this market is the abject lack of fear. Looking at the tepid gains for the broad market averages, doesn't it seem strange that the VIX closed right on 20.00 again on Friday? That's nearly a 10% drop in the VIX while the OEX crept higher by a mere 6 points or 1.1%. I know the percentages don't normally track, but with the broad markets caught in a descending primary trend, it just doesn't make sense for the VIX to continue heading lower. Unless of course, investors have factored in the 'reality' that the worst is behind for the economy and business as a whole. Look out below if they are wrong, as proof of further weakness could see a retest of the September lows in short order. Please make sure that your investments are balanced to take that possibility into account! At the bare minimum, take some preventive action to keep from suffering a major loss. I recently wrote an Options 101 piece on the Collaring strategy for applying the concept of insurance to profitable long positions. If you missed it the first time around, I strongly recommend that you read it (click here) and put the strategy to good use. See you Monday! Mark LEAPS Portfolio Current Open Plays SYMBOL OPENED LEAPS SYMBOL ENTRY CURRENT CHANGE STOP Calls: JNJ 03/05/02 '03 $ 60 VJN-AL $ 5.90 $ 7.70 +30.51% $61 '04 $ 60 LJN-AL $ 9.20 $11.30 +22.83% $61 LUV 04/12/02 '03 $ 20 VUV-AD $ 2.10 $ 1.90 - 9.52% $17.25 '04 $ 20 LOV-AD $ 3.90 $ 3.70 - 5.13% $17.25 Puts: EK 04/12/02 '03 $ 30 VEK-MF $ 2.70 $ 2.70 + 0.00% $36 '04 $ 30 LEK-MF $ 3.90 $ 4.20 + 7.14% $36 LEAPS Watchlist Current Possibles SYMBOL SINCE TARGET PRICE TARGETED LEAP SYMBOL CALLS: BRCM 10/28/01 $34-35 JAN-2003 $ 40 OGJ-AH CC JAN-2003 $ 35 OGJ-AG JAN-2004 $ 40 LGJ-AH CC JAN-2004 $ 35 LGJ-AG MDT 03/10/02 $45-46 JAN-2003 $ 50 VKD-AJ CC JAN-2003 $ 45 VKD-AI JAN-2004 $ 50 LKD-AJ CC JAN-2004 $ 45 LKD-AI DYN 03/17/02 $27 JAN-2003 $ 30 ONO-AF CC JAN-2003 $ 25 ONO-AE JAN-2004 $ 30 KYK-AF CC JAN-2004 $ 25 KYK-AE PG 03/31/02 $86-87 JAN-2003 $ 90 VPG-AR CC JAN-2003 $ 85 VPG-AQ JAN-2004 $ 90 LPR-AR CC JAN-2004 $ 85 LPR-AQ WMT 03/31/02 HOLD JAN-2003 $ 65 VWT-AM CC JAN-2003 $ 60 VWT-AL JAN-2004 $ 65 LWT-AM CC JAN-2004 $ 60 LWT-AL MSFT 04/21/02 JAN-2003 $ 60 VMF-AL CC JAN-2003 $ 55 VMF-AK JAN-2004 $ 60 LMF-AL CC JAN-2004 $ 55 LMF-AK PUTS: KBH 03/31/02 HOLD JAN-2003 $ 45 OHK-MI JAN-2004 $ 45 KXC-MI New Portfolio Plays None New Watchlist Plays MSFT - Microsoft Corp. $57.20 **Call Play** Whether MSFT's earnings report was positive or negative last week, it seems clear to me from the huge volume that propped the stock up on Friday that there is some serious money that is willing to support the stock just below $55. I don't often delve very deep into fundamental analysis, as deep study in this area tends to put me to sleep. But I do recognize it as a necessary analysis step. What I see on the fundamental front is that in a weak economy, MSFT's business hasn't shrunk very much and I would expect it to expand significantly if the fabled economic recovery ever arrives. But I'm a technician at heart, as I really believe that the charts (and associated indicators) tell us everything we need to know about a given stock. And I like what I see in the MSFT chart. While the daily (and shorter) timeframes are looking a bit weak right now, that weekly chart is screaming at me to buy right now. Since its highs near $120 in late 1999, MSFT has fallen into a broad consolidation pattern over the past 28 months, and what grabs my attention is the fact that last week's lows marked the third higher low on the weekly chart. Weekly Stochastics are just emerging from oversold, and we have bullish Stochastics divergence (lower price low, but higher Stochastic low) between the February lows and the lows of the past couple weeks. This stock looks like it is ready to rally, but the PnF chart has not yet borne this out. Before it is back on a buy signal, we'll need to see price hit the $59 level to give us the next double-top breakout. Traders that want to see confirmation of that event before playing will want to see a print of $59 and then a pullback and bounce in the $55-56 area. I like the risk/reward scenario provided by the ascending trendline, currently resting at $52.50. Our initial entry target is set at $55-56, with our initial stop set at $52. As a side note, I would look for MSFT's ascent up the chart to be a gradual one, in 2 steps forward, 1 step back fashion. For that reason, I think it would make a good candidate for players that are interested in selling covered calls against the long LEAP. BUY LEAP JAN-2003 $60 VMF-AL BUY LEAP JAN-2003 $55 VMF-AK For Covered Call BUY LEAP JAN-2004 $60 LMF-AL BUY LEAP JAN-2004 $55 LMF-AK For Covered Call Drops None ************** TRADERS CORNER ************** Full Bag Of Clubs Austin Passamonte Watching pro golfers playing thru their season from spring to fall, it amazes me how adaptable they are to ever-changing conditions. Each golf bag the caddies drag behind them are stuffed full of a vast tool array and legal limit of clubs, plus or minus one more [grin]. Pro golfers are prepared for whatever the future holds for them. Long courses with wide fairways and straight lies are one scenario. Short courses with challenging angles and obstructions are another. Fast greens that are rock hard or slow greens baby soft, sometimes to the point of soggy will come their way as well. Seldom if ever are all fifteen of the club selection they tote used on any given weekend, but over the course of a year and several years we can bet the varied tool kit is invaluable. Such is the case for option traders. Plenty of people got rich in 1998 and 1999 buying calls while the same or others got rich in 2002 and 2001 playing puts. Of the two periods mentioned, years 2000 and 2001 offered far greater potential for profit as irrational markets collapsed far more quickly than they rose. But most traders back then had never played a short course with tight turns: they only knew of long, wide fairways where the driving was easy. Miss a shot back then and call players could simply whack it with a big iron and get right back in the game. The late 1990s were a course for hitting drivers and wedges. When 2000 and 2001 came along, we were playing shorter courses with much tougher lies. Bias bulls who brought their big driver and one-iron to the game got slaughtered when playing calls that sailed deep into the woods. Those who hit some plays with 3 irons and 5 woods managed to rack up some exceptionally nice scores playing courses that ate up those bias bulls. Not enough clubs in the bag saw them miss the cut if not drop out of our circuit all together. You may ask what all this drivel of golf analogy has to do with making money next week and beyond. Simple answer is the game has changed. One day this week I was busy trying to scalp a few points off the market when CNBC reflected back one year on what the markets did that day. My head snapped around when they noted the Nasda1 was up +148 points and the S&P 500 up +46 points FOR THE DAY! Here I am trying to scrape together +10 index points profit last week when a year ago the total range was many times that. Do you recall the last time NDX had a +100 index point move? Not too many of them lately, is there. How many SPX sessions break a 40- point intraday range? Count them on one hand this year so far. Is it a revelation to any of us that what worked before does not work right now? It really shouldn’t be. Back in the years of wide range swings and volatility it was somewhat easy to make money, I mean big money trading index options intraday or day to day all the time. That does not work right now and has not worked to a consistent basis for months. Will short-term trading index options return to glory in days ahead? I for one sure hope so, but we are not enjoying those conditions right now. What is our reaction to that reality? Do we continue to buy calls & puts on every market move and hang on while they go up in value a little or down a lot? I suggest we must temper our expectations from what used to exist before to what exists these past few months instead. Option trading existed before the bubble began and will exist long after the bubble finishes deflating, which hasn’t ended yet. But successful option trading will always be in a state of flux as to the approach and expectations that are realistic at any given time. Years ago I could take a small account balance and jack it up several hundred percent on expiration week alone. That has not been possible lately. A few big moves may flash here & there, but the consistency of daily profits to the extent of what we saw before does not exist right now. The good news is we still have ample opportunity for gain. Jeff and Eric continue to demonstrate that in Market Monitor each week. We’ve seen these guys pick winning trade after winning trade, just not on a wild intraday basis. Some of them hit nice gains in a day or two while other plays take a week or three for maturation. That is more the reality of current option trading that exists and we must either accept as visible fact or fritter option trading accounts away to zilch in denial. Right or right? (Weekly/Daily Charts: SOX) These days we focus on weekly/daily charts a lot more to gauge directional bias because moves are slower than before. This template shows how the SOX/SMH offered an excellent short entry two days ago and frankly still appears young in the downside move tonight. We should be eyeing that 540 to 525 area as a very viable target ahead, and SOX or SMH puts played from here must be given more time to work than the old days. With that in mind, we must have enough time premium to avoid rapid decay or offset time decay with bear-put debit spreads. We must play smaller percentage of capital risked because of sideways chop and volatile days threatening our stops on a moment’s notice. The game has changed, so we must change accordingly. (Weekly/Daily Charts: OIH) Oil Services HOLDRs have formed a very clear roll from 64 to 70 range the past several weeks. Indications are that it may roll right back down in predictable fashion to support real soon. While most tech addicts are wondering if has-beens like SUNW and WCOM are good buys down here (they aren’t) savvy traders can be playing markets on the move with 65-strike puts and 70-strike calls each time this puppy rolls until that ceases to work. With a six-point range and this near a pivot, we can use a 2.00 point stop on either side of the channel for a 3/1 reward-risk setup. (Weekly/Daily Charts: XAL) Dow Transport index has rallied strong since September lows mostly on the back of Airline Index. This market is now poised for a directional decision soon. Caught in a wedge from 2001 range, the apex is nearly reached and will break soon. Nearing support and stochastics in bearish mode, we could play the DTX put options right now while anticipating a break lower. We could wait until the break is confirmed, or we could wait for the bounce from support or below and back into these patterns for new call plays. The point is we must expand our time and preferred market horizons out to encompass today’s market conditions. Watching every little blip on dead techs destined for bankruptcy is not a good use of our capital, unless we are shorting them to zero. Meanwhile we have healthcare, defense and other issues like MO and KO posting new highs every other day on incredible runs. We’re still playing golf, but the course is much different today than yesteryear. Fairways are tight with sharp dog-leg turns. Water & woods lay hazardously all around. Greens are dry, fast and unforgiving. There is still money to be made in this game, but a big driver and low iron will not get it done. Seven irons and lob wedges are the clubs of choice right now, and putting for dough on those smaller, methodical gains are the only way up our leader board this year. Respect the conditions you are playing in or spend all your time chasing lost balls in the woods, one or the other! Best Trading Wishes, Austin Passamonte ************************Advertisement************************* Tired of waiting on trades to execute? Does your broker offer Stop Losses on Options? Trade instantly with Stop Losses at PreferredTrade Inc. Stop Losses based on the option price or the stock price. Move your trading into the next millennium with PreferredTrade. Anything else is too slow! http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ********** DISCLAIMER ********** Please read our disclaimer at: http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html ************************************************************** ADVERTISING INFORMATION For more information on advertising in OptionInvestor Newsletter, or any Premier Investor Network newsletter please contact: Contact Support
The Option Investor Newsletter Sunday 04-21-2002 Sunday 5 of 5 ************************Advertisement************************* If you trade options online, then you need an online broker that: offers true direct access to each option exchange offers stop and stop loss online option orders offers contingent option orders based on the price of the option or stock offers online spread order entry for net debit or credit offers fast option executions PreferredTrade offers these online option trading features and more; call 1-888-889-9178 or click for more information. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************* COVERED CALLS ************* Position Selection: A Simple Approach To Technical Analysis By Mark Wnetrzak One of the most common questions we receive from new readers concerns the type of analysis we use to select the plays for this section. Attn: Mark (Covered-calls Editor), I'm new to the OIN (through the Premier Investor Network trial) but I have noticed that you seem to have a very simple approach to evaluating stocks. Based on statements from recent portfolio summary commentaries: "Many of the above issues have begun a consolidation phase but remain within their respective trading ranges"..."signaling a reversal with Friday's rally"..."appears to have made a successful test of support" -- your method of technical analysis is far less complex than most I've seen. Could you please explain some of the fundamental things you look for in stock charts and how they are used to help you determine when to buy a particular stock. Thank You HU Concerning Fundamental Charting Techniques: Technical analysis is usually defined as the use of market data including price, volume and buying pressure along with charts and computer programs to forecast price trends of stocks, bonds, commodities and market indexes. A technician understands basic fundamental valuation but focuses instead on the historical behavior of the market, industry groups and individual stocks. The goal is to use their price movements, trends, and patterns to predict future direction and changes in character. Technical analysis makes three basic assumptions. First, that market related data such as price, volume and buying pressure will indicate the true value of a given security or financial instrument. Second, that market prices historically exhibit trends or patterns and third, that history eventually repeats itself. These assumptions can be combined with the study of price and volume charts to provide investors the information they need to formulate profitable trading strategies because the technical indicators that lead to buy or sell signals are contained in various chart formations and patterns. The most common chart patterns or indicators are the "trend" and "trading range." Trends are categorized as up-trends or downtrends while trading ranges are defined by support and resistance levels. It is important for an investor to be able to identify these trends or trading ranges and recognize the historical chart patterns that signal major turning points or reversals. The first step in pattern analysis is to draw the trend-lines. Since two points define a line, the basic requirement for all trend-lines is that there be at least two points connected but most analysts require a minimum of three points to confirm and justify the trend. After the trend-line is established, its character can be determined. Up-trends are evidenced by a series of trading sessions with successively higher highs and higher lows while downtrends are just the opposite; a series of trading sessions which exhibit lower highs and lower lows. For many traders, a trend-line is the primary technical indicator used to identify buy and sell signals. Another general classification of price patterns is the trading range. A trading range occurs when the price of the instrument remains between a clearly established high and low value. The upper boundary is known as resistance while the lower is termed support. A resistance level is established when there are more investors who are willing to sell, rather than buy, at a given price because they believe the security is overvalued at that level. A support level will occur when investors feel the stock is cheap or undervalued at a given price and they can't afford not to own it. From a technician's point of view, a support area is where it is most advantageous to initiate a new long position. A logical exit signal is near by (a violation of the support area) and the position has room to run (to resistance). Trading ranges can also occur as part of an up-trend or downtrend. These patterns are often called "continuations" since the general direction of the overall trend is not changed. Another type of buying signal can occur in the transition or "reversal" from a downtrend to an up-trend. A key reversal occurs when the daily price range has a high that is above the previous day's high and a low that is below the previous day's low. It is often referred to as an "outside trading-range" day (engulfing candlestick) and most traders agree that this "short-term" pattern (a close above previous day's final price) is a bullish signal. If the key reversal occurs near a bottom in the long-term price cycle, a trend reversal is likely in progress and the opportunity can be used to initiate long stock positions with relatively low downside risk. Trade Patiently! 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 MERX 17.66 18.42 APR 17.50 1.00 *$ 0.84 11.0% ENDO 17.98 17.50 APR 17.50 1.25 $ 0.77 10.0% ELON 18.00 17.55 APR 17.50 1.45 *$ 0.95 8.3% PRCS 5.43 5.41 APR 5.00 0.85 *$ 0.42 8.0% CTLM 12.96 13.86 APR 12.50 1.20 *$ 0.74 6.8% MANU 19.42 17.91 APR 17.50 3.40 *$ 1.48 6.7% NXTP 6.05 5.59 APR 5.00 1.50 *$ 0.45 6.1% SMMX 20.65 21.62 APR 20.00 1.45 *$ 0.80 6.0% SIPX 11.15 10.50 APR 10.00 1.90 *$ 0.75 5.9% PDE 15.46 17.77 APR 15.00 0.85 *$ 0.39 5.8% RSTO 12.69 11.19 APR 10.00 3.30 *$ 0.61 5.6% OVTI 11.03 12.66 APR 10.00 1.40 *$ 0.37 5.6% SCIO 31.36 32.40 APR 30.00 2.80 *$ 1.44 5.5% EMKR 9.15 9.69 APR 7.50 2.00 *$ 0.35 5.3% PVN 5.71 8.28 APR 5.00 1.05 *$ 0.34 5.3% ENTG 15.01 15.83 APR 15.00 0.70 *$ 0.69 5.2% CANI 8.61 10.00 APR 7.50 1.45 *$ 0.34 5.2% ASMI 26.11 26.58 APR 25.00 1.95 *$ 0.84 5.0% SYXI 11.26 11.58 APR 10.00 1.85 *$ 0.59 4.5% ENDO 18.40 17.50 APR 17.50 1.75 $ 0.85 4.4% ATVI 32.30 31.45 APR 30.00 4.00 *$ 1.70 4.4% AEIS 32.59 36.71 APR 30.00 4.00 *$ 1.41 4.3% HOFF 11.38 10.21 APR 10.00 1.75 *$ 0.37 4.2% REV 5.70 4.90 APR 5.00 1.00 $ 0.20 3.7% GSPN 14.09 12.20 APR 12.50 2.20 $ 0.31 2.3% TMCS 29.58 26.97 APR 27.50 2.85 $ 0.24 1.3% TERN 8.48 6.55 APR 7.50 1.35 $ -0.58 0.0% BSML 5.37 5.20 MAY 5.00 0.90 *$ 0.53 7.4% NPRO 8.85 8.20 MAY 7.50 1.90 *$ 0.55 6.9% PRCS 5.39 5.41 MAY 5.00 0.80 *$ 0.41 6.5% NFLD 8.19 8.67 MAY 7.50 1.30 *$ 0.61 6.4% PDLI 17.37 19.72 MAY 15.00 3.20 *$ 0.83 5.1% PLUG 10.26 10.83 MAY 10.00 0.80 *$ 0.54 5.0% PWAV 14.24 14.42 MAY 12.50 2.40 *$ 0.66 4.8% CYGN 5.79 5.60 MAY 5.00 1.05 *$ 0.26 4.8% IMCO 15.99 15.25 MAY 15.00 1.75 *$ 0.76 4.6% CCK 8.85 10.50 MAY 7.50 1.80 *$ 0.45 4.6% EMKR 9.10 9.69 MAY 7.50 2.05 *$ 0.45 4.6% IDCC 10.99 12.61 MAY 10.00 1.45 *$ 0.46 4.2% *$ = Stock price is above the sold striking price. Comments: Hmmm, the Russell-2000 is flirting with last year's highs at the expense of the DOW, NASDAQ, and SP-500. Will the small-caps be able to lead higher or will they be pulled down by the weight of the big-caps? The roller-coaster ride continues. It is time to re-evaluate any April issues you may own on Monday (by not closing the position on Friday). Generally, you can expect to retain the stock as long as it closes less than a $0.25 above the sold call. Remember, if you don't want to own the stock after expiration, closing the position before the end of trading on Friday is the only way to guarantee you won't own the stock. Echelon (NASDAQ: ELON) and Horizon Offshore (NASDAQ:HOFF) are examples of a couple of stocks that probably won't be called away. Buying back the calls at parity and selling the stock (on Friday) might have been a prudent move. It's all about risk-reward tolerance - the cost of extra commissions verses safety. Positions Closed: Gemstar-TV Guide (NASDAQ:GMST), Integrated Circuit (NASDAQ:ICST), Zomax (NASDAQ:ZOMX), J.D. Edwards (NASDAQ:JDEC). 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 ACRT 19.90 MAY 17.50 QAC EW 3.10 155 16.80 28 4.5% AMLN 10.71 MAY 10.00 AQM EB 1.15 305 9.56 28 5.0% QUIK 5.03 MAY 5.00 QIL EA 0.30 10 4.73 28 6.2% SAPE 5.40 MAY 5.00 QPE EA 0.65 40 4.75 28 5.7% TUNE 15.21 MAY 12.50 TUF EV 3.40 425 11.81 28 6.3% WGRD 5.89 MAY 5.00 RUH EA 1.20 100 4.69 28 7.2% ZIXI 6.08 MAY 5.00 HQU EA 1.35 669 4.73 28 6.2% 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 WGRD 5.89 MAY 5.00 RUH EA 1.20 100 4.69 28 7.2% TUNE 15.21 MAY 12.50 TUF EV 3.40 425 11.81 28 6.3% QUIK 5.03 MAY 5.00 QIL EA 0.30 10 4.73 28 6.2% ZIXI 6.08 MAY 5.00 HQU EA 1.35 669 4.73 28 6.2% SAPE 5.40 MAY 5.00 QPE EA 0.65 40 4.75 28 5.7% AMLN 10.71 MAY 10.00 AQM EB 1.15 305 9.56 28 5.0% ACRT 19.90 MAY 17.50 QAC EW 3.10 155 16.80 28 4.5% Company Descriptions LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even point, DE-Days to Expiry, TY-Target Yield (monthly basis). ***** ACRT - Actrade $19.90 *** On The Move *** Actrade Financial Technologies (NASDAQ:ACRT) is a provider of electronic payment technologies that deliver financial solutions for commercial trade. The company's leading product is the Electronic Trade Acceptance Draft (E-TAD) Program. E-TAD tech- nology provides online credit, payment, settlement and integration solutions. Through E-TAD, buyers can pay for purchases with terms up to six months, while suppliers receive immediate payment. E-TAD facilitates commercial trade by providing a secure, streamlined payment solution for both offline and online purchases. ACRT's International Merchandise Trade division represents various manu- facturers by buying and re-selling their products in international markets through the application of specialized trade finance tech- niques. A week ago, Actrade said Georgia Federal Court granted a $4.6 million judgment, plus interest, attorneys' fees and expenses, in favor of the company. Maybe a delayed reaction explains this week's rally on little news? Investors appear to be expecting good news on April 30, when Actrade reports earnings We simply favor the support area near our cost basis. MAY 17.50 QAC EW LB=3.10 OI=155 CB=16.80 DE=28 TY=4.5% ***** AMLN - Amylin Pharmaceuticals $10.71 *** Drug Speculation *** Amylin Pharmaceuticals (NASDAQ:AMLN) is engaged in the discovery, development and commercialization of potential drug candidates for the treatment of diabetes and other metabolic disorders. The company's lead drug candidate, SYMLIN(TM) (pramlintide acetate), is targeted as a treatment for people with diabetes who use insulin. Amylin has also submitted Marketing Authorization Applications for SYMLIN in Europe and is working with the EMEA and Swiss Regulatory Authorities in their review. The company's second diabetes drug candidate, AC2993, is targeted for the treatment of type 2 diabetes and is currently in Phase 3 develop- ment. A long-acting release formulation of AC2993, or AC2993 LAR, is in Phase 1 development. The company's third drug candidate, AC3056, is currently in Phase 1 evaluation as a potential treat- ment for metabolic disorders relating to cardiovascular disease. The stock continues to "step up" and this position offers a favorable entry point from which to speculate on the company's drug pipe-line. MAY 10.00 AQM EB LB=1.15 OI=305 CB=9.56 DE=28 TY=5.0% ***** QUIK - QuickLogic $5.03 *** Bottom Fishing: Part I *** QuickLogic (NASDAQ:QUIK) develops, markets and supports advanced field programmable gate array and embedded standard product (ESP) semiconductors and the software tools that enable design engineers to use the company's products. QuickLogic introduced ESPs, a new class of semiconductor devices, in 1998, to address the design community's demand for a solution that bridges the gap between existing application-specific IC options and the goal of system- on-a-chip. The company's ESP devices provide engineers with high- performance of standard products, combined with the flexibility of programmable logic. QuickLogic received a couple upgrades last month and the current bullish signals suggest investors are anticipating good news next week (earnings are due April 24). This position offers a reasonable entry point in a Stage I stock and target shooting a lower "net-debit" can increase the potential yield. MAY 5.00 QIL EA LB=0.30 OI=10 CB=4.73 DE=28 TY=6.2% ***** SAPE - Sapient $5.40 *** Bottom Fishing: Part II *** Sapient (NASDAQ:SAPE) is a business and technology consultancy that helps large clients achieve explicit business outcomes through the rapid application and support of advanced information technology (IT), primarily on a fixed-price basis. The company's global presence enables it to understand and address the business issues that its clients are facing in both local and global con- texts. The company's global distributed delivery model, which is primarily operated through its office in New Delhi, allows it to provide solutions at a lower cost and the ability to work 24 hours each day across all time zones. What's up with Friday's rally? A buy-out? Or merger? No news but the heavy volume suggests some- body knows something. Target shooting a lower cost basis could increase the potential yield on this speculative position. MAY 5.00 QPE EA LB=0.65 OI=40 CB=4.75 DE=28 TY=5.7% ***** TUNE - Microtune $15.21 *** Bracing For A Rally? *** Microtune (NASDAQ:TUNE) is a silicon and systems company that designs, manufactures and markets radio frequency (RF)-based solutions for the global broadband communications, automotive electronics and wireless connectivity markets. The company's products, which include tuners, amplifiers, transceivers and short-range wireless radio and base-band processors, offer critical, enabling building block functions. When integrated into the company's customers' commercial or consumer equipment, they permit the transmission and reception of radio signals that embed video, audio, data and/or voice. The company's products can be classified into two groups, ICs and manufacturing-ready, system-level solutions, called Modules or MicroModules. With earnings due on Monday, we simply favor the bullish technical indications and our conservative position offers a method to participate in the future movement of the issue with relatively low risk. MAY 12.50 TUF EV LB=3.40 OI=425 CB=11.81 DE=28 TY=6.3% ***** WGRD - WatchGuard $5.89 *** Bottom Fishing: Part III *** WatchGuard Technologies (NASDAQ:WGRD) is a provider of Internet security solutions designed to protect enterprises that use the Internet for electronic commerce and secure communications. The company's products and services are used worldwide, which include firewalls for access control, virtual private networks (VPNs) for secure communications and the ServerLock products for server content and application security. WGRD's core market includes small to mid-sized enterprises; large Internet-distributed enter- prises (IDEs) with ultra-high-speed connections, supporting VPNs between the IDEs and their geographically dispersed branch offices and telecommuters; small and home offices with broadband connect- ions; and telecommuters. WatchGuard is another speculative position that offers a cost basis below historical support. With earnings due April 25, traders can target-shoot a favorable net debit from which to speculate on the company's future. MAY 5.00 RUH EA LB=1.20 OI=100 CB=4.69 DE=28 TY=7.2% ***** ZIXI - ZixIt $6.08 *** Bottom Fishing: One Last Time! *** ZixIt (NASDAQ:ZIXI) is a global provider of secure content delivery and management (CDM) solutions and services that enable enterprises to enhance their current e-mail networks and enterprise applications to securely send and receive electronic communications. ZixIt applies its technology and managed, subscription-based services to enable global enter- prises to securely distribute electronic content with business partners, customers and internal employees. During 1998, ZixIt sold all of its previous operating businesses and, since January 1999, the company has been developing and marketing products and services that bring privacy, security and convenience to Internet communications. Ok, I'm done. One more company with earnings due this week that offers a favorable entry point. Targeting a lower net-debit will increase the potential yield and move the cost basis further below near-term support. MAY 5.00 HQU EA LB=1.35 OI=669 CB=4.73 DE=28 TY=6.2% ***** ***************** 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 URBN 30.30 MAY 30.00 URQ EF 2.05 178 28.25 28 6.7% IDTI 32.00 MAY 30.00 ITQ EF 3.60 1235 28.40 28 6.1% PDLI 19.72 MAY 17.50 PQI EW 3.10 4347 16.62 28 5.8% HLIT 11.32 MAY 10.00 LOQ EB 1.80 431 9.52 28 5.5% ISLE 20.50 MAY 20.00 QEP ED 1.40 131 19.10 28 5.1% MKSI 35.70 MAY 35.00 QQB EG 2.25 27 33.45 28 5.0% ADRX 43.52 MAY 35.00 QAX EG 9.90 234 33.62 28 4.5% ***************** NAKED PUT SECTION ***************** Options 101: Q&A Regarding Strategy Selection By Ray Cummins One of our new readers asked about the technique of selling puts to funds the purchase of calls on bullish issues. Dear Ray, I am relatively new to options trading and although I have read many of the popular books, I am still learning about some of the different strategies used in your newsletter. I noticed on one of the message boards a comment about buying out-of-the-money calls with money generated through the sale of out-of-the-money puts on the same stock. I am aware of your naked-puts section (and I understand that approach) but how does the "buying calls" part fit in? If the stock price rises, are you profiting from the call or the put or both? I guess a second question would be: How does this type of play end? Thanks for your prompt reply, RF Regarding the purchase of calls and the sale of puts on one issue: The method you described is a variation of a "synthetic position" that uses "out-of-the-money" options to construct a speculative- outlook play with lower probability of profit and reduced risk. The premium from the sold put is used to pay for the long call. It is a conservative position, based on the OTM put. If the stock goes up, the value of the call rises while the price of the put declines. When a sufficient upward move (in a timely manner) occurs, the call can be sold and the put repurchased (or allowed to expire worthless) to produce a net gain. Occasionally, these plays achieve profits in a few days. At other times, they are held closer to expiration for a small return and sometimes, they achieve no profit. The key is the put must expire (worthless) or the position may endure a loss. Of course, you may also choose to let a (ITM) put be assigned and take possession of the issue for a long-term portfolio holding or future combination plays such as writing covered-calls. The great feature of options is they can be used in a number of ingenious ways to create the most appropriate position for the current market outlook and your personal risk-reward attitude. The right combination of puts and calls can produce an effective position with results that are similar to being long on the stock, with less expense, and portfolio collateral can be used to finance the entire transaction. This approach also has the potential for unlimited gain, thus providing an opportunity (one you don't have with naked-puts alone) to overcome a number of losing plays. For most investors, the ability to profit from a stock's movement at a fraction of the cost of owning the issue is the primary reason for utilizing options. The bullish, limited-risk approach falls into two primary categories: option buying and (covered) option selling, and the most common method of option trading among retail participants has always been the purchase of calls. That technique can be very profitable but it requires an initial capital outlay and in the case of in- or at-the-money options, leaves the trader exposed to a large amount of downside risk. In addition, traders who purchase options during a strong directional movement in the underlying will be forced to pay higher premiums, greatly reducing the probability of profit. Those who realize the unique difficulty associated with this type of approach are forced to remain on the sidelines until they discover an alternative method. Fortunately, there are numerous combination strategies that can help limit the overall cost of the trade while simultaneously benefiting from inflated option premiums and the synthetic position fulfills that objective very well. 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 JDAS 31.88 35.29 APR 30.00 0.95 *$ 0.95 11.6% MATK 31.69 30.51 APR 30.00 0.50 *$ 0.50 9.5% IDTI 33.24 32.00 APR 30.00 0.70 *$ 0.70 9.4% PDE 15.90 17.77 APR 15.00 0.35 *$ 0.35 8.7% MSO 19.97 18.56 APR 17.50 0.60 *$ 0.60 8.5% NOVN 22.39 21.05 APR 20.00 0.70 *$ 0.70 8.4% MANH 35.29 39.55 APR 30.00 0.35 *$ 0.35 8.3% TER 39.43 35.58 APR 35.00 0.65 *$ 0.65 7.9% DCN 19.10 20.74 APR 15.00 0.55 *$ 0.55 7.8% FTI 19.93 20.76 APR 17.50 0.30 *$ 0.30 7.4% ENDO 19.71 17.50 APR 17.50 0.30 $ 0.30 7.3% SYXI 12.05 11.58 APR 10.00 0.25 *$ 0.25 7.2% PLMD 22.83 42.30 APR 17.50 0.50 *$ 0.50 7.1% TER 39.20 35.58 APR 32.50 0.95 *$ 0.95 6.9% OSIS 25.20 23.61 APR 20.00 0.25 *$ 0.25 6.8% ATVI 28.58 31.45 APR 25.00 0.25 *$ 0.25 6.7% MLNM 25.12 22.35 APR 20.00 0.40 *$ 0.40 6.4% TXN 34.09 33.30 APR 30.00 0.75 *$ 0.75 6.3% IDTI 35.99 32.00 APR 27.50 0.65 *$ 0.65 6.0% LRCX 28.88 28.08 APR 25.00 0.65 *$ 0.65 5.7% MLNM 23.66 22.35 APR 17.50 0.40 *$ 0.40 5.6% MRVL 41.38 41.14 APR 30.00 0.70 *$ 0.70 5.6% PLMD 25.95 42.30 APR 20.00 0.35 *$ 0.35 5.5% SNDK 21.10 20.01 APR 17.50 0.25 *$ 0.25 5.3% MRVL 38.60 41.14 APR 27.50 0.50 *$ 0.50 5.3% SKX 19.20 21.79 APR 17.50 0.30 *$ 0.30 5.2% VARI 35.40 34.81 APR 30.00 0.55 *$ 0.55 5.1% VARI 36.78 34.81 APR 35.00 0.40 $ 0.21 3.4% ACN 29.89 24.48 APR 25.00 0.85 $ 0.33 3.0% AVCT 26.79 24.50 APR 25.00 0.50 $ 0.00 0.0% CBST 20.63 16.75 APR 17.50 0.55 $ -0.20 0.0% WFR 8.60 8.55 MAY 7.50 0.30 *$ 0.30 9.9% OATS 10.63 10.50 MAY 10.00 0.45 *$ 0.45 9.6% ADPT 14.57 14.68 MAY 12.50 0.40 *$ 0.40 8.4% IMCO 14.22 15.25 MAY 12.50 0.50 *$ 0.50 8.1% SNDK 20.37 20.01 MAY 17.50 0.65 *$ 0.65 7.9% ENER 24.24 24.45 MAY 22.50 0.75 *$ 0.75 7.5% EAGL 17.00 18.25 MAY 15.00 0.45 *$ 0.45 7.4% VECO 33.97 33.99 MAY 30.00 1.00 *$ 1.00 6.8% RMCI 25.45 24.20 MAY 20.00 0.40 *$ 0.40 6.3% TOL 27.58 27.29 MAY 25.00 0.65 *$ 0.65 6.2% MARY 21.50 23.20 MAY 17.50 0.40 *$ 0.40 5.8% LNCR 31.28 32.60 MAY 30.00 0.80 *$ 0.80 5.8% VECO 35.97 33.99 MAY 30.00 0.45 *$ 0.45 4.4% *$ = Stock price is above the sold striking price. Comments: Despite the recent broad-market slump, the April expiration period provided some very profitable opportunities for put writers. Our portfolio also enjoyed relatively favorable results and with equity values beginning to stabilize, the profit potential for the month of May should be excellent. Issues on the watch-list include Veeco (NASDAQ:VECO) and Right Management Consultants (NASDAQ:RMCI) and both plays are candidates for exit or adjustment on any close below their respective technical support levels at $29 and $22. Positions Closed: Gemstar (NASDAQ:GMST), Aspen Technologies (NASDAQ:AZPN), Alexion Pharmaceuticals (NASDAQ:ALXN), Micron (NYSE:MU), Genta (NASDAQ:GNTA), FreeMarkets (NASDAQ:FMKT), and Documentum (NASDAQ:DCTM). 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 AEIS 36.71 MAY 30.00 OEQ QF 0.40 10 29.60 28 5.2% CTLM 13.86 MAY 12.50 UUM QV 0.45 0 12.05 28 10.5% IDTI 32.00 MAY 25.00 ITQ QE 0.40 231 24.60 28 6.4% ISLE 20.50 MAY 17.50 QEP QW 0.30 41 17.20 28 5.9% JDAS 35.29 MAY 30.00 QAH QF 0.45 20 29.55 28 5.3% PHSY 26.01 MAY 20.00 HYQ QD 0.40 855 19.60 28 7.8% TTWO 26.53 MAY 22.50 TUO QX 0.55 90 21.95 28 8.4% VIRL 17.81 MAY 15.00 UVB QC 0.50 100 14.50 28 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 VIRL 17.81 MAY 15.00 UVB QC 0.50 100 14.50 28 11.3% CTLM 13.86 MAY 12.50 UUM QV 0.45 0 12.05 28 10.5% TTWO 26.53 MAY 22.50 TUO QX 0.55 90 21.95 28 8.4% PHSY 26.01 MAY 20.00 HYQ QD 0.40 855 19.60 28 7.8% IDTI 32.00 MAY 25.00 ITQ QE 0.40 231 24.60 28 6.4% ISLE 20.50 MAY 17.50 QEP QW 0.30 41 17.20 28 5.9% JDAS 35.29 MAY 30.00 QAH QF 0.45 20 29.55 28 5.3% AEIS 36.71 MAY 30.00 OEQ QF 0.40 10 29.60 28 5.2% 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). ***** AEIS - Advanced Energy Industries $36.71 *** Entry Point! *** Advanced Energy Industries (NASDAQ:AEIS) designs, manufactures and supports a group of key subsystems for vacuum process systems. Their product offerings are classified as direct current, radio frequency, flow and temperature control products, as well as ion and plasma sources and IKOR products that empower next-generation microprocessors and ASICs. These unique products are used in plasma-based thin-film processing equipment that is essential to the manufacture of semiconductors; compact disks, DVDs and other digital storage media; flat-panel computer and television screens; coatings for architectural glass and optics; and a power supply for advanced technology computer workstations. AEIS reported acceptable earnings for the quarter with a 26% sequential revenue increase over the previous period, suggesting that their industry is in the early stages of recovery. Another positive indication for the company is the current backlog of orders and traders who want to own the issue at a discounted price should consider this position. MAY 30.00 OEQ QF LB=0.40 OI=10 CB=29.60 DE=28 TY=5.2% ***** CTLM - Centillium $13.86 *** Earnings Play! *** Centillium Communications (NASDAQ:CTLM) delivers products that enable broadband communications to the home and business. The company provides broadband equipment vendors with system-level products for the DSL market, and is leveraging its technology and expertise to develop products for complementary markets that share common technologies and customers. The company also makes products for the Voice-over-Packet market and networks. The quarterly earnings season is coming to an end and Centillium is one of the companies that has yet to announce its results. Some analysts believe they will comfortably meet expectations and based on the recent technical indications, investors appear to agree with that outlook. Traders can speculate on the upcoming report with this conservative position. MAY 12.50 UUM QV LB=0.45 OI=0 CB=12.05 DE=28 TY=10.5% ***** IDTI - Integrated Device Tech. $32.00 *** More Earnings! *** Integrated Device Technology (NASDAQ:IDTI) designs, develops, manufactures and markets a broad range of high-performance semiconductor products. Applications for the company's products include: data networking and telecommunications equipment, such as routers, hubs, switches, cellular base stations and other devices; storage area networks; other networked peripherals and servers; and personal computers. IDT fabricates substantially all of its semiconductor wafers using advanced (CMOS) process technology in the company's own fabrication facilities. The company assembles or packages the majority of its products in facilities that it owns in Malaysia and the Philippines, where it also conducts product test operations. Options premiums in Integrated Device Technology are slightly higher than normal, due to company's impending earnings announcement. IDTI expects fourth quarter revenue to be "flat to slightly up" and analysts at CIBC World Markets support that outlook, having recently issued and an upgrade on the stock. This position offers a favorable cost basis for investors who wouldn't mind owning a leading company in the semiconductor group. MAY 25.00 ITQ QE LB=0.40 OI=231 CB=24.60 DE=28 TY=6.4% ***** ISLE - Isle of Capri Casinos $20.50 *** Hot Sector! *** Isle of Capri Casinos (NASDAQ:ISLE) is a developer, owner and operator of branded gaming and related lodging and entertainment facilities. The company owns and operates 12 gaming facilities located in Lake Charles and Bossier City, Louisiana; Biloxi, Vicksburg, Tunica, Natchez and Lula, Mississippi; Bettendorf, Marquette, and Davenport, Iowa; Kansas City, Missouri; and Las Vegas, Nevada. The company also owns an interest in casino and hotel facility in Black Hawk, Colorado. The facilities in Lake Charles, Bossier City, Biloxi, Vicksburg, Tunica, Natchez, Lula, Kansas City, Marquette, Bettendorf and Black Hawk operate under the name "Isle of Capri" and feature the tropical island theme. The gaming facility in Davenport, Iowa operates under the name "Rhythm City." The gaming facility in Las Vegas, Nevada operates under the "Lady Luck" name. In addition, the company owns and operates a pari-mutuel harness racing facility in Pompano Beach, Florida. The Resorts and Casinos sector is "hot" and the chart for ISLE suggests the bullish trend will continue. Traders who want a low risk basis in the issue should consider this play. MAY 17.50 QEP QW LB=0.30 OI=41 CB=17.20 DE=28 TY=5.9% ***** JDAS - JDA Software Group $35.29 *** All-Time High? *** With more than 4,300 retail, manufacturing and wholesale clients in 60 countries, JDA Software Group (NASDAQ:JDAS) is the global leader in providing integrated software and professional services for the retail demand chain. By exploiting its market position and financial strength, JDA commits significant its resources to advancing JDA Portfolio, its suite of merchandising, POS, analytic and collaborative solutions that improve revenues, efficiency and customer focus. JDA is headquartered in Scottsdale, Arizona and employs more than 1,400 associates operating from 36 offices in major cities throughout North America, South America, Europe, Asia and Australia. Shares of JDAS spiked again last week ahead of the company's quarterly earnings and the question now is, "Will the results justify the recent rally?" The technical pattern suggests there is buying support near our cost basis, thus this play offers favorable risk versus reward for traders who are bullish on the issue. MAY 30.00 QAH QF LB=0.45 OI=20 CB=29.55 DE=28 TY=5.3% ***** PHSY - PacifiCare Health Systems $26.01 *** Big News! *** PacifiCare Health Systems (NASDAQ:PHSY) is a healthcare services company with operations in managed care products for employer groups and Medicare beneficiaries in the U.S. and Guam, serving approximately four million members. The company operates health maintenance organizations (HMOs) and offers HMO-related products and services. The company's commercial and Medicare programs are designed to deliver quality healthcare and customer service to members, cost effectively. The company also offers a variety of specialty HMO managed care, and HMO-related products and services that employers can purchase to supplement their basic commercial plans or as stand-alone products. The company's other specialty products include pharmacy benefit management, behavioral health services, life/health insurance, and dental and vision services. Insider buying has been increasing among the health insurers and analysts say its a good sign because it means management thinks the industry is recovering. Shares of PHSY certainly reflect that optimism as the company's stock price is up over 40% in the last week. Traders can speculate on the future success of one of the most popular companies in the Healthcare industry with this position. MAY 20.00 HYQ QD LB=0.40 OI=855 CB=19.60 DE=28 TY=7.8% ***** TTWO - Take-Two Int. Software $26.53 *** Rally Underway! *** Take-Two Interactive Software (NASDAQ:TTWO) is an integrated developer, marketer, distributor and publisher of interactive entertainment software games and accessories for the personal computer, PlayStation, PlayStation2, Nintendo Game Boy Color, Nintendo GameCube, Nintendo Game Boy Advance and the Xbox. The company publishes and develops products through various wholly owned subsidiaries including Rockstar Games, Rockstar Studios, Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star and under the Take-Two brand name. The company maintains sales and marketing offices in Cincinnati, New York, Toronto, London, Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland. Take Two's game sales jumped 79% in the first quarter while net income quadrupled to $34 million, but an investigation by the SEC has overshadowed the company's recent success. Apparently, investors have decided the probe involving revenue recognition in prior periods will not affect the future because the issue is in "rally mode." This position offers a conservative method to profit from the current upside activity. MAY 22.50 TUO QX LB=0.55 OI=90 CB=21.95 DE=28 TY=8.4% ***** VIRL - Virage Logic $17.81 *** Solid Earnings! *** Virage Logic (NASDAQW:VIRL) provides embedded memory in the form of semiconductor intellectual property for "systems-on-a-chip" integrated circuits that power Internet and various high-speed communications, computer and consumer products, such as cellular and digital phones, pagers, digital cameras, DVD players, modems and switches. The company's semiconductor intellectual property consists of embedded memories; compilers that allow designers to configure the company's memories into different sizes and shapes on a single chip; memory test processor and fuse box components for embedded test and repair of defective cells; and software development tools that can be used to build memory compilers. The company also provides custom memory design services. Virage recently reported that second-quarter net earnings increased, with revenues rising 10% on net income of $1.2 million, up from $968,000 in the same quarter last year. Virage also said it expects revenues to continue rising in the third quarter and this position allows traders to speculate conservatively on continued bullish activity in the issue. MAY 15.00 UVB QC LB=0.50 OI=100 CB=14.50 DE=28 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 PMCS 18.05 MAY 15.00 SQL QC 0.60 1406 14.40 28 13.7% WEBX 18.44 MAY 15.00 UWB QC 0.45 69 14.55 28 11.1% SLAB 35.88 MAY 30.00 QFJ QF 0.90 469 29.10 28 10.4% OATS 10.50 MAY 10.00 QOQ QB 0.35 20 9.65 28 9.4% VTS 18.50 MAY 17.50 VTS QW 0.55 1332 16.95 28 8.6% PLUG 10.83 MAY 10.00 PQL QB 0.30 145 9.70 28 8.6% GSF 32.55 MAY 30.00 GSF QF 0.75 886 29.25 28 7.3% ADRX 43.52 MAY 30.00 QAX QF 0.60 123 29.40 28 7.0% PLXS 25.85 MAY 22.50 QUA QT 0.45 400 22.05 28 6.6% SEE DISCLAIMER IN SECTION ONE ***************************** ************************ SPREADS/STRADDLES/COMBOS ************************ A Market Without Direction! By Ray Cummins ****************************************************************** - MARKET RECAP - ****************************************************************** Friday, April 19 Stocks ended mixed today with industrial issues leading the Dow higher while the NASDAQ consolidated on weakness in networking and semiconductor shares. The Dow Jones Industrial Average gained 51 points to finish at 10,257 despite a mixed bag of earnings reports and warnings of a possible terrorist threat against U.S. financial institutions. The blue-chip leaders were Disney (NYSE:DIS), American Express (NYSE:AXP), International Paper (NYSE:IP), United Technologies (NYSE:UTX) and Hewlett-Packard (NYSE:HPW). The NASDAQ Composite Index slid 5 points to 1,796 even as technology bellwethers Sun Microsystems (NASDAQ:SUNW) and Microsoft (NASDAQ:MSFT) notched solid gains. Sun Microsystems was also the most actively traded issue on the technology exchange, rallying over 7% after posting a narrower-than-expected loss and announcing it expects to return to profitability in the June quarter. The broader market S&P 500 Index ended almost unchanged, furthering the argument that stock prices are stuck in a range with little overall direction. One analyst noted that investors still harbor an array of concerns that could limit any market gains and that outlook was evident on the Big Board, where market breadth was barely positive on light volume of only 1.19 billion shares. Volume was slightly higher on the technology exchange, where 1.64 billion shares were traded with a bias towards declining issues. In the bond market, the 10-year Treasury note ended the session almost where it started, up less than 1/16 point while its yield slid to 5.20%. The long bond (30-year) was more active, climbing just over 1/8 point to yield 5.69%. Last week's new plays (positions/opening prices/strategy): Applied Mat. (NSDQ:AMAT) MAY40P/MAY42P $0.30 credit bull-put Eli Lilly (NYSE:LLY) MAY85C/MAY80C $0.60 credit bear-call Oil Hldrs (AMEX:OIH) MAY75C/MAY70C $0.90 credit bear-call Edison (NSDQ:EDSN) SEP15C/MAY15C $1.00 debit calendar Metris (NYSE:MXT) MAY17P/APR17P $0.70 debit calendar Trimeris (NSDQ:TRMS) OCT45C/MAY45C $3.00 debit calendar Advanta (NSD:ADVNB) JUL12C/MAY12P $2.10 debit straddle Quest (NSDQ:DGX) APR85C/APR85C $2.30 debit straddle Excel (NSDQ:XLTC) APR22C/APR22P $1.40 debit straddle The Spreads-Combos portfolio enjoyed a number of new winners this week as the volatility in stock prices continued. Debit straddles in Quest Diagnostics and Excel Technology achieved excellent gains on quarterly earnings announcements and the unexpected news in Trimeris provided a short-term gain in the bullish calendar spread. The share value of Trimeris, a small biotechnology company, soared on stellar results from pivotal tests on an experimental AIDS drug which could help patients who are resistant to currently available treatments. Our bullish position traded at a credit of $3.50 for a brief period after the news, offering a 15% profit in less than one week. At the same time, the bearish outlook play in Metris experienced some hardship when the underlying issue plunged more than 25% in the wake of its quarterly earnings announcement. Our forecast for a declining share value was right on target but there was no reason to believe the stock price would tank after Metris met consensus estimates. Another surprise occurred in the credit spread on the Oil Services Holdrs play as President Hugo Chavez was returned to power in Venezuela on Sunday night, thus limiting the possibility of a hike in the country's oil output. The news was a catalyst for upside activity in crude prices prior to the start of equity trading on Monday and analysts quickly jumped on the "bullish" bandwagon. Traders who initiated the spread on the "gap-open" reversal were rewarded with a higher-than-expected credit, but the downward trend was no longer an ally in the play. Now the issue is testing resistance at $70 and any move above the current range (on heavy volume) should signal an early exit or adjustment in the position. Portfolio Activity: The April options expiration generated relatively little activity for positions in this section but the few remaining short-term plays benefited from this week's bullish activity. The bullish synthetic position in St. Jude Medical (NYSE:STJ) was rescued as the company's shares jumped to a new "all-time" high on Friday. The overall profit in the play as only $0.50 but considering the unfavorable activity last week, that was a very favorable outcome. A similar scenario occurred in XM Satellite Radio (NASDAQ:XMSR), which rallied to the sold (put) strike in our synthetic position, thus eliminating the requirement to purchase the stock or close a losing play. One position that needed the bullish activity was our credit spread in Advent Software (NASDAQ:ADVS) and as noted last week, our goal was to "use any upward bias to exit or adjust the position." Fortunately, the stock rebounded above $58 Tuesday, offering a great opportunity to exit the position. The debit-straddles portion of the Combos portfolio has been very successful over the past few months and this week, the positive results continued as J.P. Morgan Chase (NYSE:JPM) and Scientific Atlanta (NYSE:SFA) were added to the "profitable" list. Shares of SFA hit a recent high near $25 Friday, offering a $4.75 credit on $2.30 invested in only 10 trading days. The upward activity in JPM yielded a smaller straddle credit, however it was entirely in the bullish portion of the play and there is definitely future upside potential in that issue. Our index-based positions on the Mini-NDX (CBOE:MNX), the NASDAQ 100 Trust (AMEX:QQQ) and the S&P 100 Index (CBOE:OEX) were also profitable and we were pleased to receive some positive comments on the broader-market strategies. Among this month's winning positions, notable performances were seen in Providian Financial (NYSE:PVN), Sandisk (NASDAQ:SNDK), Fomento Economico (NYSE:FMX), Veeco instruments (NASDAQ:VECO), Tidewater (NYSE:TDW), Networks Associates (NYSE:NET) and Reliant Resources (NYSE:RRI). Questions & comments on spreads/combos to Contact Support ****************************************************************** - NEW PLAYS - ****************************************************************** AXP - American Express $43.43 *** Reader's Request! *** American Express Company (NYSE:AXP) is engaged primarily in the business of providing travel-related services, financial advisory services and international banking services throughout the world. The company provides charge and credit cards, traveler's checks and services, financial planning, investment products, insurance and international banking. The American Express Travel Related Services Company provides a global card network, issuing and processing services, the American Express Card, the Optima Card, a number of co-brand Cards, other consumer and corporate lending and banking products, a network of automated teller machines, the American Express Travelers Check, stored value products, business expense management products and services, corporate and consumer travel products and services, accounting and business consulting services, magazine publishing, merchant transaction processing and point of sale and back office products and services. One of our readers asked for some long-term calendar spread candidates in the financial services sector, based on the recent bullish activity in the group. From a fundamental viewpoint, American Express is one of the faster recovering companies in the industry and its quarterly earnings report reflects that position. American Express announced last week that profits for the first quarter rose 15%, driven by cost-cutting measures and sound asset management. The company's earnings were at the high end of expectations and based on the solid capital levels, AXP expects to begin repurchasing their common stock at the end of the second quarter. The technical indications suggest the stock has future upside potential and reasonable buying support near $40. However, the overhead supply at $45 will likely limit AXP's near-term gains and that provides us with an excellent opportunity to initiate a bullish "premium-selling" position. PLAY (conservative - bullish/calendar spread): BUY CALL JAN03-45 VAX-AI OI=6136 A=$4.10 SELL CALL MAY02-45 AXP-EI OI=1375 B=$0.75 INITIAL NET DEBIT TARGET=$3.15-$3.20 TARGET PROFIT=75-90% ****************************************************************** AMAT - Applied Materials $26.48 ** Chip-Equipment Bellwether ** Applied Materials (NASDAQ:AMAT) develops, manufactures, sells and services semiconductor wafer fabrication equipment and related spare parts for the worldwide semiconductor industry. Customers for these products include wafer manufacturers and semiconductor integrated circuit manufacturers. Many of AMAT's products are single-wafer systems designed with two or more process chambers attached to a base platform. The platform feeds a wafer to each chamber, allowing the simultaneous processing of several wafers to enable high manufacturing productivity and precise control of the process. Applied manufactures systems that perform: chemical vapor deposition, physical vapor deposition, electroplating, ion implantation, etch, rapid thermal processing, chemical mechanical polishing, metrology and wafer/reticle inspection. Applied sells most of its single-wafer, multi-chamber systems based on four main platforms: the Centura, the Endura, the Endura SL and the Producer. For those of you who are interested in selling time-premium on a technology issue, Applied Materials is an excellent candidate. AMAT is one of the bellwethers in the semiconductor-equipment group and the company recently completed its third stock split in five years. The intermediate-term (bullish) trend remains intact and there is buying support at $23 and $25. At the same time, the resistance near $28 should limit any near-term gains, providing a great opportunity to initiate a long-term calendar spread. PLAY (very conservative - bullish/calendar spread): BUY CALL JAN03-30 VPJ-AF OI=26770 A=$3.40 SELL CALL MAY02-30 ANQ-EF OI=12555 B=$0.35 INITIAL NET DEBIT TARGET=$2.85-$2.90 TARGET PROFIT=100% ****************************************************************** CAM - Cooper Cameron $55.20 *** Oil Service Sector *** Cooper Cameron (NYSE:CAM) is an international manufacturer and provider of pressure control systems, equipment and services, including valves, wellheads, controls, chokes, assembled systems and blowout preventers for oil and gas drilling and production used in onshore, offshore and subsea applications. Cooper is also a manufacturer of integral engine-compressors, reciprocating compressors, turbochargers and centrifugal air compressors. The company's operations are organized into four separate business segments, Cameron, Cooper Cameron Valves, Cooper Energy Services and Cooper Turbocompressor, each of which is also a division. The Oil Service sector has performed well in recent sessions and with the flurry of broker upgrades in the group, as well as the unexpected decline in crude supplies, the bullish activity will likely continue in the near-term. In addition, Cooper Cameron is set to report earnings on April 30, so there may be a slight upward bias in the stock as most companies in the segment have exceeded consensus profit estimates in their quarterly results. Traders who believe that CAM will post favorable numbers in the upcoming announcement can speculate on that outcome with this conservative position. PLAY (conservative - bullish/credit spread): BUY PUT MAY-45 CAM-QI OI=426 A=$0.25 SELL PUT MAY-50 CAM-QJ OI=77 B=$0.75 INITIAL NET CREDIT TARGET=$0.55-$0.60 PROFIT(max)=12% ****************************************************************** MCHP - Microchip Technology $46.14 *** Earnings Speculation! *** Microchip Technology (NASDAQ:MCHP) develops and manufactures specialized semiconductor products used by its customers for a wide variety of embedded control applications. The company's product portfolio comprises field-programmable RISC-based microcontrollers that serve eight- and 16-bit embedded control applications and a broad spectrum of high-performance linear and mixed-signal, power management and thermal management devices. The company also offers complementary microperipheral products, including interface devices, serial EEPROMS and its patented KEELOQ security devices. The company markets its products to automotive, communications, computing, consumer and industrial control companies. Their systems are ISO 9001 (1994 version) and QS9000 (1998 version) certified. Microchip Technology is scheduled to report quarterly earnings this week and although the recent price activity suggests the results will be favorable, there is enough doubt among traders to generate some excess premium in the (OTM) put options. Our opinion is that the numbers will be acceptable and in addition, the upcoming 3-for-2 stock split (record date 4/22) should be a catalyst for future upside activity. Traders can profit from that outcome with this position. PLAY (conservative - bullish/credit spread): BUY PUT MAY-35 QMT-QG OI=266 A=$0.20 SELL PUT MAY-40 QMT-QH OI=320 B=$0.65 INITIAL NET CREDIT TARGET=$0.55-0.60 PROFIT(max)=12% ****************************************************************** ADRX - Andrx Corporation $43.52 *** Speculation Only! *** Andrx Corporation (NASDAQ:ADRX) commercializes controlled-release oral pharmaceuticals using proprietary drug delivery technologies. The company has nine proprietary controlled-release drug delivery technologies that are patented for certain applications or for which it has filed for patent protection for certain applications. Andrx uses its proprietary delivery technologies and formulation skills to develop bio-equivalent versions of selected controlled release brand name pharmaceuticals, and other controlled release formulations of existing immediate-release or controlled-release drugs. The company is also developing bio-equivalent versions of specialty, niche and immediate-release pharmaceutical products. Shares of Andrx began a long-awaited recovery last week as news of AstraZeneca's (NYSE:AZN) setbacks in their battle to fend off copycat versions of the best-selling ulcer pill Prilosec spread among traders. Some analysts suggested the activity reflects a shift in favor of generic drug companies in the fight over the $6-billion-a-year market for the popular product. Andrx has been battling AstraZeneca in court since last December over the right to sell a generic form of the medicine and experts believe that a possible launch of the generic version may occur as soon as the third quarter of this year. Apparently investors agree with that optimistic outlook as they have been steadily moving back into ADRX over the past week. Those who believe the recovery will continue in the near-term can attempt to profit from that outcome with this position. PLAY (very speculative - bullish/synthetic position): BUY CALL MAY-55 QAX-EK OI=972 A=$1.40 SELL PUT MAY-30 QAX-QG OI=1193 B=$1.30 INITIAL NET CREDIT TARGET=$0.10-$0.25 TARGET PROFIT=$0.75-$1.00 Note: Using options, the position is similar to being long the stock. The collateral requirement for the sold (short) put is approximately $1,000 per contract. ****************************************************************** - STRADDLES AND STRANGLES - All of these issues meet our fundamental criteria for favorable straddles; cheap option premiums, a history of adequate price movement and the potential for volatility in the stock or its industry. This selection process provides the best combination of low risk and potentially high reward however, as with any positions, they must be evaluated for portfolio suitability and reviewed with regard to your strategic approach and trading style. ****************************************************************** BMC - BMC Software $15.47 *** Earnings Speculation! ** BMC Software (NYSE:BMC) is a independent systems software vendor delivering comprehensive enterprise management. The company is focused on Assuring Business Availability by providing software solutions that enhance the overall availability, performance and recoverability of customers' business-critical applications to help them better manage their businesses. Their portfolio of systems management solutions allows its customers to manage the various components and technologies within their information technology (IT) systems from end to end, from legacy databases and applications on large mainframes to customer-facing Web portals and exchanges. The company's quarterly earnings are due on 5/6/02. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-15 BMC-EC OI=238 A=$1.30 BUY PUT MAY-15 BMC-QC OI=597 A=$0.90 INITIAL NET DEBIT TARGET=$2.00 TARGET PROFIT=20-25% ****************************************************************** EMLX - Emulex $30.20 *** Probability Play! *** Emulex Corporation (NASDAQ:EMLX) is a designer, developer and supplier of a broad line of storage networking host bus adapters, application-specific computer chips and software products that provide connectivity solutions for storage area networks, network attached storage and redundant array of independent disks storage. The company's products are based on internally developed ASIC, firmware and software technology, and offer support for a wide variety of SAN protocols, configurations, system interfaces and operating systems. Emulex's architecture offers customers a stable applications program interface that has been preserved across multiple generations of adapters, and to which many of the original equipment manufacturers have customized software for mission-critical server and storage system applications. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-30 UMQ-EF OI=1703 A=$2.65 BUY PUT MAY-30 UMQ-QF OI=636 A=$2.60 INITIAL NET DEBIT TARGET=$5.00 TARGET PROFIT=15-25% ****************************************************************** VRTS - Veritas Software $30.62 *** Probability Play! *** Veritas Software (NASDAQ:VRTS) is a supplier of data availability software products. Its products are designed to enable continuous productivity for computing environments ranging from the desktop computer to the large enterprise data center, including storage area networks. Veritas offers a wide range of data availability software products to manage the growth of available data and the increasing complexity and size of networked environments that its customers face. Its unique products allow businesses to improve the management of their data, to protect data and to increase the availability of their data. Veritas also develops products for operating systems, including versions of UNIX, Windows NT and Linux. Its software solutions are used by customers across a broad spectrum of industries, including many global corporations and e-commerce businesses. The company also provides a range of services to assist its customers in planning and implementing their data availability solutions. PLAY (speculative - neutral/debit straddle): BUY CALL MAY-30 VIV-EF OI=2327 A=$2.90 BUY PUT MAY-30 VIV-QF OI=18063 A=$2.25 INITIAL NET DEBIT TARGET=$5.00 TARGET PROFIT=15-25% ****************************************************************** ************************Advertisement************************* ”If you haven’t traded options online – you haven’t really traded options,” claims author Larry Spears in his new compact guide book: “7 Steps to Success – Trading Options Online”. Order today and save 25% (only $15) by clicking on PreferredTrade and clicking on the link to the book on its home page. http://www.PreferredTrade.com/CF/Home.CFM?ID=OIN ************************************************************** ************ MARKET WATCH ************ Two Big Board favorites debut this weekend, one bullish and the other bearish. Plus, several candidates inch closer to action levels. To Read The Rest of The OptionInvestor.com Market Watch Click Here http://members.OptionInvestor.com/watchlist/042102.asp ************** MARKET POSTURE ************** Tight trading Friday resulted in no movement in posture. No levels were broken, but some sectors are approaching actionable points. To Read The Rest of The OptionInvestor.com Market Posture Click Here http://www.OptionInvestor.com/marketposture/042102_1.asp ********** 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
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