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New Portfolio Position: MERQ "Bear-Call" Spread Projected Gain = $200

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MERQ - Mercury Interactive $42.88

Mercury Interactive (NASDAQ:MERQ) is a provider of software and services for business technology optimization. The company has introduced a variety of software and service products, including offerings in application delivery for testing software quality and performance in pre-production, application management for monitoring and managing application availability in production, and information technology governance for managing IT's portfolio of projects, processes, priorities and resources.

Mercury Interactive is certainly one of the leading companies in the software group, however that segment of the market has struggled in recent weeks and the disappointing forecast from IBM suggests a medicore outlook for the industry as a whole. In addition, the long-term price history of MERQ reflects a number of failed rallies near $50 and if chart patterns are a reliable indicator of future trends, even the most optimistic profit outlook will not be able to propel the issue above the sold (call) strike in the next month. The company's quarterly report is due on 4/20/05, so there should be enough volatility in the coming sessions to achieve the target credit.

Fundamentals Chart Earnings Dates Analyst Ratings

PLAY (conservative - bearish/credit spread):

BUY CALL MAY-55.00 RQB-EK OI=1421 ASK=$0.15
SELL CALL MAY-50.00 RQB-EJ OI=2970 BID=$0.50

INITIAL "NET-CREDIT" TARGET = $0.40-$0.50
POTENTIAL PROFIT (X 5 contracts @ $0.40) = $200
MARGIN REQUIREMENT (X 5 contracts) = $2300
RETURN ON INVESTMENT (max) = 8.6%
COST BASIS = $50.40

INITIAL EXIT STRATEGY:

Once the position is open, traders should place a (contingent) order to close the short ($50.00) call options if the stock moves above $48.25. A "net-debit" order of $0.85-$0.90 to close the spread may also be appropriate for some portfolios. Future adjustments to this loss-limit/exit point will be posted in the MCM Newsletter.

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