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Another Day of Gains!

The major equity averages advanced Monday amid reports of some new mergers and optimism about future economic growth. A number of potential acquisitions made the headlines including deals in the energy, financial and utility sectors. In addition, investors continued to show confidence in the Fed's plan to manage inflation while keeping the economy in a healthy expansion cycle. The Dow Jones industrial average added 38 points to 10,384, while the NASDAQ gained 12 points to 1,979 and the broader S&P 500 index climbed 7 points to 1,178.

There was little noteworthy activity in the MCM Portfolio however it was comforting to see the majority of bullish issues move higher during the day. At the same time, the upside activity all but eliminated any entry opportunity in the new Legg Mason (NYSE:LM) spread. A 5-contract position was apparently crossed at $0.60 in early trading, but there were no pull-backs - beyond a brief retreat near 10:15 AM - to allow additional (simultaneous) fills at the suggested price. Of course, there may be a few readers "legging" into the play so we will monitor the time and sales data for another day before posting the position in the summary.

Considering the widespread gains in share values, it was somewhat surprising that Infospace (NASDAQ:INSP) failed to participate in the "bargain hunting" among technology investors. In fact, the issue has drifted steadily lower since last Wednesday, firmly opposing the trend during the past two sessions. With this activity in mind, and considering the dwindling time value in the options, we suggest that any readers remaining in the bullish spread close (buy back/purchase) the short MAY-$40 puts to prevent an unexpected assignment of the stock. A net-debit order of $5.00-$5.10 can be used to exit both sides of the spread or you can attempt to utilize the small (daily) gyrations in the stock to reduce the cost of closing the position through individual orders. Those with a bearish outlook for INSP may choose to hold the long MAY-$35 puts until expiration to profit from future downside activity. Of course, there is additional risk involved with this strategy and because an official recommendation in this regard could result in further draw-downs, we simply can't pursue that approach. Instead, we will post the maximum potential loss in the portfolio summary and expect to overcome this setback with profits from new plays.

MCM Staff

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