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Strategies & Market Trends : Technical analysis for shorts & longs -- Ignore unavailable to you. Want to Upgrade?

To: j g cordes who wrote (36696)	4/8/2002 10:37:30 PM
From: Lachesis Atropos	Respond to of 67972

Jim re " last May was a depression rally off early Apr". I remember you saying something about selling AMCC calls last year for a song. History is playing a role in my reasoning. However if you would care for some original, eccentric and convoluted reasoning to justify my position, here is my take on evaluating options. Take for example AVNX. AVNX is at .20 for a call contract. This roughly equates to a probability of 20% like this. Buyers have a 20% chance AVNX will close above 5 at expiration. Call writers have an 80% probability that AVNX will close below 5 at expiration. Not too good if you are a buyer of calls! So let’s take a closer look. AVNX is joined at the hip with JNPR AMCC and JDSU. 86% of the time JNPR, AMCC or JDSU, up or down tick so does AVNX. AVNX has the same potential to bounce in the same direction and just as high as JNPR AMCC or JDSU. Look at this comparison chart: bigcharts.marketwatch.com From the chart AVNX has a potential of jumping twice as high as JNPR AMCC or JDSU. Let’s compare the option of buying JNPR at 15.00 in July. There is no June Option so we will use July as a rough proxy. For JNPR at 15.00 in July I would pay $1.15. Which translates to a 115% probability that JNPR will bounce above 15 before option expiration. (By the way this is an expensive premium to pay in comparison to AVNX). To continue with my convoluted logic, if investors are speculating that JNPR will pop so will ANVX. From my above assertion, AVXN follows JNPR 86% of the time. In addition AVNX has greater inherent volatility -- if AVNX moves up it will be a greater percentage move than JNPR -- it will be a roman candle -- rocketing up. Market conditions, IBM bad earnings failed to move the NASDAQ down today. We are close to a bottom. Talking heads on CNBC mentioned that NT and JDSU are starting to buy from suppliers due to depleted inventories. I believe that earnings conference calls are going to put a positive spin on things. The worst CEOs will say is that they see revenues picking up around next quarter. RBAK reports Wednesday, JNPR reports Thursday. If the sector doesn't sell off, I am in for the ride. Bottom line for me is that risk reward is better for AVNX. The potential of a small loss out weights the value of a big gain. Sector can sell off versus a bounce before June expiration -- I am gambling on a bounce before June expiration. Lawrence