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---------------------- Forwarded by Mark - ECT Legal Taylor/HOU/ECT on
01/27/99 04:20 PM --------------------------- Enron Capital & Trade Resources Corp. From: xtrials@optioninvestor.com (Option Investor Newsletter Trials) 01/26/99 09:50 PM Please respond to xtrials@optioninvestor.com To: Option Investor Newsletter Trials <xtrials@optioninvestor.com< cc: (bcc: Mark - ECT Legal Taylor/HOU/ECT) Subject: Tuesday Option Investor Newsletter 2 of 2 The Option Investor Newsletter Tuesday 1-26-99 Copyright 1998, All rights reserved. Redistribution in any form strictly prohibited. PICK NEWS - CALLS (continued) ******************************************************* MSFT $171.56 +9.69 (+15.31) Wow!! It doesn't get much better than this. MSFT announced their 2:1 stock split (effective 3/26) prior to yesterday's market open and immediately gapped-up at the opening. Those of you still in the play going into last weekend were richly rewarded Monday Morning. Everyone wants to own MSFT and nobody wants to sell. This sentiment on 2 times normal volume produced a textbook run-up -- as if "astrodollar" earnings aren't enough. Price targets are now at $200. Of note, MSFT announced they would phase in Alta-Vista, Compaq's to- be-spun-off-in-an-IPO search engine, and ease out Inktomi. Use stops to protect your profits. With so much money on the table, we suggest waiting for a pullback before starting a new play. As always, confirm market direction first. DH $60.88 +0.63 (+0.94) As we said Sunday, not a fast mover, but a steady gainer. 1189 institutions own 89.5% of the 395 million shares in float leaving about 40 million shares in daily float to trade. On average volume of 2 million shares, DH traded within $1.50 range both days this week, sheltering investors from a tumultuous market. Look for the rise to continue, market permitting. Slow news week so far; nothing to move the price. Just hare-speed momentum. Dayton Hudson is the parent company of Target Stores VIA.B $81.88 -1.13 (-0.68) Profit taking has caused a slight dip in Viacom. But, it has been so small that it actually can be interpreted as a positive sign for the stock. VIA.B seems to undergo an occasional consolidation. Then it goes on its merry way. As always, wait for the signal to turn green before hitting the gas. Blockbuster Inc., a subsidiary of Viacom, teamed up with Warner Home Video in a revenue sharing agreement. As a result, Blockbuster will be able to rent more new releases and other videos to its customers. Chyron Corporation will deliver Liberty NT software to an affiliate of Paramount which is partially owned by Viacom. The new system will allow access to paint and animation capabilities on the Windows NT platform. WAG $59.50 +1.13 (+1.06) On Tuesday, Walgreen's flexed its muscles in a display strength and closed at it's high for the day. Its only resistance is at it's all time high set back in December at $60.44. With its 2:1 stock split scheduled for Feb. 12th, it appears WAG is getting in shape to make a nice run. LXK $108.00 +3.88 (+8.75) Well, we have good news and bad news on LXK this week. Let's start with the bad news. LXK did not announce a stock split with earnings. Their annual shareholder meeting isn't until April, so a stock split announcement would have to come on an arbitrary day. We noticed that companies, like Microsoft, have held off a few days before announcing their splits. This might be a ploy to take the price high on the earnings announcement and then take it higher with the split announcement. The good news is that LXK announced earnings of $1.16 a share. This was $.05 above consensus estimates. The company also stated there is a high demand for printer components. LXK is in blue-sky territory as it has broken through any prior resistance. VOD $193.50 +2.88 (+5.12) VOD has come back to life the last two trading days with gains of $2.88 and $2.24. There isn't any recent news on VOD, but there is one very positive technical aspect. The last three trading days have seen VOD close right at the high of the day. This shows a very bullish tendency as the bulls seem to be winning the battle on a daily basis. XIRC $42.31 +.38 (+.31) XIRC seems to have entered a consolidation phase. The volatility was pretty high before earnings, but the daily range has decreased substantially the last three trading days. We still feel this stock is a good purchase. Watch for a strong up-move on good volume. XIRC's 52-week high is at $44.50. A move through this level should provide a nice rally. XIRC did announce today that they will provide wireless data support for Siemans handsets. SNC $39.50 +.56 (+1.75) SNC continued to rise today, albeit at a smaller pace. No news on SNC, but earnings are around the 10th of February and SNC has historically had nice earnings surprises. There isn't much of a chance of an upgrade for this stock, being that the five analysts that follow it all rank it a strong buy. We guess there could be a new analyst recommendation. We could see a continued run into earnings. SNC's 52-week high is $54.18. XLNX $82.56 +5.44 (+4.37) XLNX did the job on Tuesday with over a 6% gain. XLNX has done what a lot of stocks do after announcing great earnings and a stock split and that is to consolidate briefly and then continue up. XLNX dropped on Monday, but came back with a vengeance on Tuesday. XLNX's resistance is at its 52-week high of $87.63. Pullbacks would be good buying opportunities. MU $71.88 +2.88 (+1.38) Micron showed some weakness on Monday in a mixed semi-conductor market. It was off $1.50 even as a few of the other chip stocks moved up in sympathy with LSI Logic. LSI had received an upgrade from hold to strong buy. Today, however, MU was up $2.88 in a generally strong semi- conductor sector. Any upgrades and strong earnings from other stocks in the sector, as well as from the hardware stocks, should help MU. Like Dell, it reports later in the earnings season, so an earnings run would start a little later. Earnings in February. NOKA $145.38 +1.38 (+.82) After hitting $155.38 on Wednesday, Jan. 20th, Nokia has gapped down at the open each of the last four trading days. It has also CLOSED well above its opening price the last few days, and today it managed to close $1.38 above yesterday's close. This company is located in Finland and trades in Europe while we sleep. The Europeans seem to be sending the stock lower while the Americans are sending it back up each day on the NYSE. Only two days left for an earnings run--earnings are due out before the bell on Friday. We believe that there is a good possibility of a split announcement with earnings. If you don't want to risk holding over earnings, be sure to sell your options before the close on Thursday. You can pick them up again if a split is announced. That is the conservative way to make this play. If you hold over, you risk a loss of capital, should Nokia disappoint. For those of you with high risk tolerance, please note that Nokia jumped $9 the day it announced it's last split. It then ran up another $34 before the split. PICK NEWS - PUTS ******************************************************* AMR - $55.88 .25 (.63) Stock up fractionally after selling off nore than $15 since the first of the year. Airlines still under pressure. AVP - $36.44 1.13 (-1.12) Stock sold off $1.13 on a day the broader market gained over 120 points. Stock trading under 50-day moving average and soon to re-test key $35 support. AVT - $44.94 1.38 (.62) Stock recovering some after $15 sell-off since the first of the year. Stock still trading below declining 50-day moving average. Tighten protective stop loss - $48. BAC - $64.94 .25 (.12) The financial sector still under pressure because of Brazil. Stock still off -.12 despite strong broad market rally Monday and Tuesday (1/25 & 1/26). Recommend staying with position while BAC stays below $65. BDX - $36.25 .56 (2.50) Stock recovered nearly $3.00 since Friday's (1/22) precipitous sell-off. Stock still trading below 50-day moving average. Tighten protective stop loss - $38. BKB - $36.75 -.38 (-.88) Stock leaking below its declining 50-day moving average despite Tuesdays (1/26) broad market rally. CPB - $44.13 1.44 (-.18) Stock gave up $1.44 on a day the DOW gain more than 120 points on Tuesday (1/26). Stock still under pressure with considerable overhead at $49 and now trading under $45. DD - $53.88 .88 (.43) Stock gave up what it gain on Monday (1/25). Stock still below declining moving averages and trading just below near-term support level of $54. Tighten protective sell stop to $56.25. HSY - $61.50 .00 (1.50) Profit taking Monday (1/25) but still trading under declining 50-day moving average. Tighten protective stop to $62.25 MRK - $144.00 6.50 (5.00) Drug sector up strong following favorable earnings reports and Warner-Lamberts announcement of its acquisition of Agouron (AGPH). Stock now trading at its 50-day moving average. Tighten protective sell stop at $145.25. PG - $85.56 1.94 (.25) Stock recovered nearly $2.00 but still trading below 50-day moving average. PHSYB - $69.31 -.56 (1.19) Stock recovered nearly $2.00 on Monday (1/25) but sold off fractionally during Tuesdays broad market rally. Still trading below 50-day moving average. WLA - $69.13 1.63 (1.19). Stock moved higher from Friday's close (1/22) Drug sector up strong following favorable earnings reports and Warner-Lamberts announcement of its acquisition of Agouron (AGPH). Recommend still holding while WLA trades below $70. Tighten protective stop to $72.25. ****************** NEW CALL PLAYS ****************** ANF - Abercrombie & Fitch $73.94 +2.06 (+4.19 for the week) Abercrombie & Fitch sells men's and women's casual clothes and accessories in over 170 stores across America. Their comfortable styles of jeans and crews are especially popular with teens and college students. Check out this Volkswagen hip-hop retailer the next time you are strolling through the mall. Abercrombie has established a nice upward trend since its lows in October. It has been virtually unstoppable with only two minor bouts of profit taking along the way. In intraday trading on Tuesday, ANF set another all-time high at the $75 level. Look for ANF to continue its steady trend into blue skies. There hasn't been a lot of news as of late for Abercrombie. But, back on Jan 8th, an article in Reuters commented that since American Eagle Outfitters had posted nice sales figures, it was safe to assume that Abercrombie could do the same. BUY CALL FEB-70*ANF-BN OI=177 at $6.75 SL=5.25 BUY CALL FEB-75 ANF-BO OI=151 at $3.63 SL=1.75 BUY CALL MAR-70 ANF-CN OI= 71 at $8.50 SL=6.50 No volume in MAR-75s. Picked on January 26th at $73.94 PE= 49 Change since picked +$ 0.00 52 week low =$28.87 Analysts Ratings 10-3-1-0-0 52 week high=$75.00 Last earnings 00/00 est n/a actual n/a Next earnings 02/17 est 0.92 versus n/a Chart = http://quote.yahoo.com/q?s=anf&;d=3m ************************************************************* SEPR - Sepracor Inc. $104.25 +2.50 (+4.75 for the week) Sepracor Inc. is a company that researches, develops, and sells chemicals that are new, patented forms of existing pharmaceutical and biopharmaceutical compounds. These products are made to reduce the side effects and increase the safety of drugs already on the market today. They are used to treat several conditions that include asthma, allergies, pain, and insomnia. As an example, SEPR developed Allegra as an alternative to Seldane which lost FDA approval in 1997. Sepracor Inc. has a stellar graph. The company has been on an uptrend since it was at the $40 level back in June and in intraday trading Tuesday, SEPR set another all time high at $105.50. Last Friday, Jan. 22nd, BancBoston Robertson Stephens initiated coverage of this steady stock with a "long-term attractive rating." They projected a 12-month price target of $112. They seem to favor this company which has two approved drugs and six drugs in late phase clinical development. Look for SEPR to continue its upward trek if current market conditions remain steady. No new news. BUY CALL FEB-100*ERQ-BT OI=347 at $ 8.50 SL= 6.50 BUY CALL FEB-105 ERQ-BA OI= 66 at $ 5.25 SL= 3.75 BUY CALL APR-100 ERQ-DT OI=128 at $13.63 SL=11.25 Picked on January 26th at $104.25 PE= n/a Change since picked +$ 0.00 52 week low =$ 33.00 Analysts Ratings 5-2-2-0-0 52 week high=$105.50 Last earnings 00/00 est n/a actual n/a Next earnings 02/19 est 1.25 versus n/a Chart = http://quote.yahoo.com/q?s=sepr&;d=3m ************************************************************* WMT - Wal-Mart $83.56 +1.56 (+1.56) The king of retailers is back! Wal-Mart is the leading discount retailer in the world, with a presence in all 50 states, as well as Canada, Mexico, Asia, Latin America, and Europe. In addition to discount department stores, it operates the #2 grocery chain, behind Kroger's, and Sam's clubs, which is the #2 warehouse chain. This retail giant's market capitalization is $182.3 billion. We covered Wal-Mart recently, but dropped it when the stock began pulling back. It appears to be moving out of a consolidation phase and has been trending up for a week, with only one slightly down day in that period. Wal-Mart had a strong holiday season. It continues to grow at home and also abroad, partly through acquisitions. It is now growing its profits faster than its sales once again. As an option play, WMT is a steady mover. While it lacks the fast moves of the technology and Internet stocks, it is a safer play, and has the added advantage of being a split candidate. The stock last split in February 1993. Its last three splits occurred when WMT traded in the mid-60s. Earnings are due out in February. BUY CALL FEB-80*WMT-BP OI=1871 at $5.63 SL=3.75 BUY CALL FEB-85 WMT-BQ OI=3953 at $2.81 SL=1.25 BUY CALL MAR-80 WMT-CP OI=2638 at $7.25 SL=5.50 BUY CALL MAR-85 WMT-CQ OI=3343 at $4.50 SL=2.75 BUY CALL JUN 85 WMT-FQ OI=1268 at $7.75 SL=6.00 Picked on Jan 17th at $83.56 P/E=44 Change since picked: $0.00 52 week low= 38.13 Analysts' ratings 7-11-4-0-0 53 week high=85.06 Last earnings 10/98 est n/a actual .45 surprise +5% Next earnings 02-24 est .66 versus n/a Chart = http://quote.yahoo.com/q?s=WMT&;d=3m ****************** NEW PUT PLAYS ****************** No new PUT plays today. ***************************************************** COMBINATION PLAYS - Split-O-Rama ***************************************************** Monday, January 25 U.S. blue-chip stocks ended higher Monday after a volatile day of trading amid a slew of mixed earnings results from multi-national companies. The DJIA closed unofficially up 82 points at 9203.32. The Dow shed 57 points early in the day but recovered as several big-name companies including AT&T and 3M reported earnings. The high-flying Nasdaq Index gained 30 points to 2369.11 primarily on the shoulders of Microsoft shares after the company declared a 2:1 stock split. A report that analysts expect IBM to announce a stock split after its board meets Tuesday helped Big-Blue reverse a $6 loss from early in the day and close slightly higher at $180.93. Despite big gains in the Dow and the Nasdaq Composite, breadth on both the New York Stock Exchange and the Nasdaq was negative as decliners outpaced advancers on both exchanges. Most of the Sunday plays were available near the recommended entry points. MRK opened the day around $137 and traded slightly higher just before 10 AM. The first prices listed for the FEB160C/155C bear-call spread were around $0.75 credit. EMC was also slow to start trading and opened slightly higher near $100. Our put-credit spread; FEB75P/80P did not have any volume but the bid/ask quotes were within $0.12 of our target entry of $0.50. SKYT was a pair of plays; the calendar spread, JUN25C/FEB25C was easily opened for $2.38 debit. The best we saw on the ITM debit spread, FEB22C/25C was $2.00 (higher than our target) and that was a little slim on the ROI potential so we decided to pass. PLCM fell hard in a post earnings dip but that just brought the sold position nearer to ATM and a higher time component. We decided to take advantage of the lower entry price; $0.87 for the MAR25C/FEB25C time spread, and hope the stock finishes around $25 in four weeks. NRC was very interesting as the option quotes opened near the previous closing prices but soon moved apart in the spread (MAR50C/FEB50C) even though the stock price remained quiet and the volume was fairly docile. Our initial price was $1.12. CNTO, the butterfly spread, moved lower most of the day reducing our initial entry to $0.87 for the FEB35C/40C/45C position. Remember, there is a method of legging out of a butterfly spread that is acceptable. If the stock price moves significantly, early in the life of the spread, the BULL spread portion or the BEAR spread portion can be closed-out near their maximum profit potentials. The spreader may want to take advantage of this situation in order to profit more if the stock reverses direction and comes back into the profit range. By increasing his risk slightly, he may be able to improve his position significantly by converting the butterfly spread to a vertical spread. Although the chances of such a trend reversal cannot be considered great, it does not cost the trader much to restructure himself into a position with a much broader maximum profit. That's our plan, we'll see what happens... In other portfolio activities; PCS just keeps climbing like there is no gravity and we just wonder where it will end. If any of you are exercised early on the short side of the spread, let us know. SRCM is a source of pain as the stock price has fallen sharply without any change in the buying pressure. We decided to pull the plug and prevent any losses. The JAN17P was closed at $1.25 and we would expect to sell the JAN15P at a minimum of $0.50 for a break-even exit. The initial target will be $1.00 until the stock reverses (upward) again. Tuesday, January 26 On Tuesday, U.S. stocks rallied in afternoon trading to close near session highs. Solid earnings reports, stock splits, and big tech deals all boosted the market. The DJIA closed unofficially up 115 points at 9318.40. The Nasdaq index of technology issues finished up almost 65 points at 2433.46, surpassing a record high close of 2415.49 set on January 20th. Big gains in shares of IBM, Xerox, Microsoft and Yahoo accounted for much of the positive movement. On Tuesday, our big movers were AOL, CPQ, LVLT and SUNW. AOL was the only issue we acted on, closing half of our debit position at $2.25 for a $0.75 profit. On the LVLT debit spread, we expect to close at about a $6.50 credit for a $2.00 profit. SRCM continued downward but did not reach our target exit for the FEB15P. Watch for signs of a turn-around as the buying pressure is still very healthy on this stock. PCS just keeps climbing, about 6 days in a row. MRK had a surprise rebound today, climbing $6 on a positive earnings announcement. More to discuss on Thursday... ****************************************************************** - NEW PLAYS - Today we will focus on some of the common stocks in the blue-chip technology group. We rarely play these issues because the main section of the newsletter covers these stocks in-depth and we like to bring you a wide array of candidates. These companies are in the news everyday and the earnings/split-mania is just too much to pass up...Good Luck! ****************************************************************** MSFT - Microsoft $171.56 *** Disparity? *** Microsoft Corp. develops, manufactures, licenses and supports a range of software products, including scalable operating systems, server applications, business and productivity applications, software development tools and Internet software and technologies. Microsoft rules! With a market value that far outstrips its sales, Microsoft is the world's #1 software company. Softwares include Windows, Excel, MS Word, PowerPoint, and Encarta. The Microsoft Network provides online content, and its Internet Explorer is still battling Netscape Navigator for market share. With NBC, the company operates cable news channel MSNBC. They also provide email with "Hotmail" and many other services. Everybody is making deals with MSFT. To make AltaVista a premier destination site on the Web, Compaq announced a partnership with Microsoft in which AltaVista will offer a e-mail service based on Microsoft's Hotmail service. In addition, AltaVista and Microsoft agreed to make AltaVista's Web search the primary search vehicle for the Microsoft Network Internet site. The big news (of course) was the blow-out earnings and the 2:1 stock-split. On Monday, Microsoft said its stock split would increase its shares outstanding to 5 billion and make its stock more affordable. The split will take effect on 3/12/98 if it is approved by shareholders. We expect MSFT will consolidate somewhat after the news wears off but there is no doubt it will return to the headlines shortly thereafter. Sell the time premium now before it evaporates in this small disparity play. PLAY (conservative): BUY PUT MAR-155 OI=686 A=$4.00 SELL PUT MAR-160 OI=3842 B=$5.38 NET CREDIT TARGET=$1.50 ROI=42% (2 months) Chart = http://quote.yahoo.com/q?s=MSFT&;d=3m ****************************************************************** DELL - Dell Computer $88.50 *** Almost Free Money *** Dell Computer is one of the world's top PC makers and the world's #1 direct-sale computer vendor. The company sells hardware and markets third-party software and peripherals. Products include notebooks, PCs, and network servers. Dell also markets a variety of peripherals and software for other manufacturers. More than 90% of its systems are sold to businesses and government entities. The company continues to expand services such as its Web site, which is expected to process half of it's transactions by the year 2000. Dell recently announced that they have secured a share of the #1 position in the worldwide personal workstation market. They also continue as the number one vendor for customer satisfaction and their scores are significantly higher than most competitors in price/performance, overall reliability, repair and delivery time. Dell will post earnings sometime in mid-February and we expect the stock to make the traditional run to the actual announcement. In addition to buying calls, you might elect to make this play with current portfolio collateral. This is a low return spread based on another small disparity but the worst that could happen is you choose to own DELL at $69.19. PLAY (very conservative): BUY PUT MAR-65 DLQ-OM OI=766 A=$1.19 SELL PUT MAR-70 DLQ-ON OI=2341 B=$1.81 NET CREDIT TARGET=$0.81 ROI=19% Chart = http://quote.yahoo.com/q?s=DELL&;d=3m ****************************************************************** XRX - Xerox Corp. $116.31 *** Split Play *** Xerox engages in worldwide development, marketing, manufacturing, financing and servicing of document processing products. This week, Xerox delivered another record quarter, reflecting strong double-digit earnings growth consistent with company objectives, even though pre-currency revenue growth was clearly affected by some weaker economies. Their fourth quarter diluted earnings per share increased 16% to $1.69 and income increased 17% to $615 million, primarily as a result of outstanding growth in digital product revenues, improved operating margins and ongoing benefits from the worldwide restructuring program. Xerox also announced an 11% increase in the quarterly cash dividend on the company's common stock and a two-for-one stock split. The stock split will be effective for shareholders of record on 2/4/99 and distributed on 2/23/98. The quarterly dividend will increase 11% to 20 cents on a post-split basis, payable on 4/1/98 to shareholders of record on March 5. Today's gap-up and the split date make perfect timing for a one month spread. Plan to close the play near the February strike date on the pre-split run. BUY CALL MAR-120 XRX-CD OI=40 A=$7.12 SELL CALL FEB-120 XRX-BD OI=1487 B=$3.75 NET DEBIT TARGET=$3.12 TARGET ROI=25% Chart = http://quote.yahoo.com/q?s=XRX&;d=3m ****************************************************************** IBM - Intl. Business Machines $185.50 *** Split Play *** International Business Machines is the world's top provider of computer hardware and it is #2 in software. The company makes a broad range of computers, including PCs, mainframes, and network servers. The company also makes software and peripherals, and has an ever-expanding service arm. IBM owns software pioneer Lotus Development, maker of the Lotus Notes messaging system. Almost 60% of the company's sales are to foreign customers and IBM continues to revamp its image, with a focus on Internet business. As expected, IBM declared a two-for-one stock split, just one day after software rival Microsoft did the same. IBM posted fourth quarter earnings last week that exceeded street expectations but saw its shares fall after failing to announce a split. Today, the stock rebounded on the renewed interest. The new shares should be distributed on or about May 26 to shareholders of record on May 10. The IBM board also set a regular quarterly dividend of $0.22 per share, payable March 10 to stockholders of record on Feb. 10. Although the current technical (and earnings) outlook is somewhat lackluster, we believe Big-Blue will rise to the occasion and easily hold $185 on the strike date in March. PLAY (conservative/debit spread): BUY CALL MAR-175 IBM-CO OI=513 A=$19.25 SELL CALL MAR-185 IBM-CQ OI=649 B=$13.00 NET DEBIT TARGET=$6.00 ROI(max)=66% B/E=$181.00 Chart = http://quote.yahoo.com/q?s=IBM&;d=3m ****************************************************************** 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 $10 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 "subscribe@optioninvestor.com" 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 ************************************************************* This newsletter is a publication dedicated to the education of options traders. The newsletter 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 newsletter 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 accuracy or completeness. The newsletter staff makes every effort to provide timely information to its subscribers but cannot guarantee specific delivery times due to factors beyond our control.
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