Option Investor
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Daily Newsletter, Sunday, 05/07/2000

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The Option Investor Newsletter             Sunday  5-07-2000  
Copyright 2000, All rights reserved.                  1 of 5
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******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
        WE 5-5            WE 4-28          WE 4-20          WE 4-14
 DOW    10577.86 -156.05 10733.91 -110.14 10844.05 +538.28 - 805.71
 Nasdaq  3816.82 - 43.84  3860.66 +216.78  3643.88 +322.59 -1125.16
 S&P-100  769.79 - 11.63   781.42 +  4.30   777.12 + 45.18 -  89.58
 S&P-500 1432.63 - 19.80  1452.43 + 17.89  1434.54 + 77.23 - 159.04
 RUT      512.84 +  6.59   506.25 + 24.41   481.84 + 28.12 -  89.27
 TRAN    2876.11 + 26.10  2850.01 + 16.76  2833.25 +106.21 - 100.68
 VIX       30.42 +  1.64    28.78 +   .37    28.41 - 10.92 +  12.39
 Put/Call    .53              .51              .75              .94
******************************************************************

Wimpy, wimpy, wimpy!

Don't look now but that rally on Friday really did not happen. 
Well, almost. Would it count if one team only used their third
string players while their superstars were lounging in the stands
sipping brews and laughing at their efforts? If you have ever 
played team sports then you know the victory would be real but
it would not count in your mind. If you could not play the first
string even a win against the bench team would be hollow.
This was a hollow win on Friday. The volume on both the NYSE
and the Nasdaq was the lowest of the year. Many traders never
showed and of those there many left early. The NYSE only managed
a wimpy 800 mln shares. No home runs, no doubles, no triples.
The Nasdaq closed out the lightest day this year with only 1.19
bln shares. The Nasdaq closing total of +96.58 was very deceptive.
If you take away the first hour and last hour the Nasdaq traded
in a very narrow 30 point range all day. Don't get me wrong, I
would much rather start next week with a close over 3800 at our
backs but the numbers clearly don't illustrate the action today.


 


 

The much dreaded non-farm payrolls report came out Friday morning
stronger than expected but NOT as strong as some feared. With
new jobs clocking in at +340,000, 30K over official estimates of
310,000, there was almost a sigh of relief. The unemployment rate
finally broke the 4% barrier clocking in at 3.9% and a 30 year
low. But the main component of the report that is most watched
was the increase in the average hourly wage. That number showed
a +0.4% gain and was in line with estimates. Kind of a good news,
bad news report. The markets opened down on the headline news
but quickly recovered and in the case of the Nasdaq soared +120
points in the next 45 min only to hit a ceiling after the initial
relief buying passed. The gains were broad but not spectacular.
Of the 100 stocks I watch only five had double digit gains and
very few had gains over +3.00. Most of the big gains came in the
last 30 min of trading as traders speculated on the direction 
for next week.

The bad news for the day continues to be the Fed. Just like a
recurring bad dream that will not go away and one you will have
to live with for at least six more market commentaries prior to
the event, the strong jobs data almost guarantees aggressive
action. The Fed Funds Futures which have been right 30 of the
last 31 meetings has now escalated from a 66% chance on Thursday
to an 80% chance the Fed will raise +.50%. The good news is the
market has already discounted this hike and is now just waiting
to exhale. 

Fund managers, fresh from a week of net redemptions, are waiting
patiently before moving back into the market. Even though the
Fed move is crystal clear to most there is always the fear
of the unexpected. Could the Fed see something we can't? Will
the PPI on Friday show blowout inflation? Will the CPI on 
FOMC Tuesday show inflation rampant in the consumer sector?
Everybody expects some inflation creep but is it worth possible
multi million dollar losses if they are wrong? What if the Fed
does the unthinkable and raises +.75% or even +1.00% to shock
the market and take control of the future? While nobody expects
this, stranger things have happened. So the funds sit and wait.
This is historically a weak period anyway and with no buyers
in sight there is a good chance of a better entry point next
week. The earnings cycle is over. The last few majors to 
announce are CSCO and Dell next week. Then all eyes will start
focusing on the next cycle in July. But until then we have to 
first get out of this cycle alive. 

CSCO is expected to beat estimates but many analysts are now
expressing concern about Dell. With the PC sector soft for
the first quarter some feel Dell may only post in line with
estimates but some are expressing quietly that Dell may miss
and telegraph another round of sector weakness. With earnings
over the final group of earnings traders will sit back and
plan their strategy for the next cycle which could include 
cooling off on the sidelines until after the Fed meeting.

So what should we as the elite of the investing public do
next week? It is all a matter of time frame. If you are day
trading then you are likely to have a very tough week. If you
are investing then get ready to rumble. What am I talking
about? This is simple in my book. If you expect the markets
to rally after the Fed meeting and at least trend upward
into the July earnings cycle then next week will provide a
great entry point for that run. It makes no difference if
the Nasdaq is up 200 points or down 200 points before the
meeting, it is still lower than we expect it to be by July
1st. In order to capitalize on this cycle you only need to 
buy longer term options like July/Aug/Sept and wait for the
storm to pass. Is this heresy? Buy and hold from Jim? It
depends on your outlook. If you are a trader then trade away
but be prepared to roll with the punches until after the Fed
meeting. For those who cannot remain tied to a PC during
the trading day, the week ahead will provide you with that
perfect entry point (we hope) for the next earnings run.
The week before every Fed meeting in recent history was flat
to down with a relief rally following the meeting even when
they raised rates. Can you say "buying opportunity"?

Sure there may be more down days and I am not saying that
there may not be some nail biters ahead but the market is
showing us a bottom in my opinion. If you buy enough time
to get you past the rest of the May weakness then you could
be rewarded handsomely. The challenge of course is the Fed
and the market in general. The correction we saw in the
Internet stocks and the biotechs could just as easily return
and stocks do not always go back to their previous highs.
One only needs to look at MSTR, CMDX/VNTR, ETYS, ACOM to
prove this point. As I always tell my seminar students, 
"buy all the time you want, just don't use it." Buying time
will give you that false sense of security and lull you to
sleep. If the stock you pick next week for a July earnings 
run drops below your predetermined stop loss point then by 
all means close the position. You can always buy it back if 
it rebounds but sometimes you may never get a second
chance to sell those options at the current price. Ask
any one who ever had an option expire worthless. They did
not plan it that way and they always thought it would come
back. One of our recent seminar students has a huge position 
in the Jan-$125 MSFT leaps. He paid $25 and now they are 
worth $2. I have not talked to him personally this week but 
I am sure he is now a strong believer in stop losses. Up
until recently he was also a strong believer that MSFT would
always come back. After having made millions in MSFT over
the last few years he stands to give it all back because
times change, stocks change and "past performance is no
guarantee of future results." But of course it only happens
to the other guy.

Back to the topic, I personally believe the market, that
is the Nasdaq, will rally after the Fed meeting. While
it will not go straight up it should rally into the July
earnings. Normally this rally does not start until late
May or early June but after the beating we have taken I 
don't believe there is much downside. Sure we could still
see another retest of the recent lows but with every higher
low that possibility diminishes. The low volume that the
talking heads on CNBC are so quick to point out as the
beginning of the summer doldrums is not in my opinion
summer doldrums. It is simply Fed dread and will go away
after the meeting. Sure we may not have the 2.8 bln share
days from the last real rally but it should be over 2 bln
again. Returning volume and a close over 4000 should be
your sign to open long call positions. We have had two 
closes over 3800 and four higher lows. Support is building.
I looked at several hundred charts on Nasdaq stocks Friday
and better than 80% of them had a two or three level stair
step up trend showing progressively higher support. As
stocks go, so goes the market. I repeat, this does not mean
we can't fall back on bad news. Bad news could rock the
market back to 3600 without much effort. Getting below 3600
would require some really bad news and a total buyers strike.

So here is the game plan. You have two choices. One, wait
patiently until after the Fed meeting and for a confirming
close over 4000 with higher volume. I can hear it now, that
may never happen, I could be waiting weeks. DUH! If the
Nasdaq does not close over 4000 that means it is either
flat or down. Neither are great long call climates. Obviously
this is the safer more conservative strategy. We let the 
market tell us when to play. It may be next week or even
next month but I think the idea is to trade only when
profitable not just trade to be trading. Choice two, for
the more risk averse, wait for intraweek dips in the stocks
you like and take a position before the Fed meeting. More
risk is involved and there is always the possibility of
being stopped out several times between now and 4000. Of
course there is also the possibility of being $10-$20 in
the money if stocks keep edging up. In reality you already 
know what you are going to do. You bias was already
decided before you started reading this article. This bias
is what will decide if you are going to make or lose money
next week. With this attitude you have a 50% chance of
being right. 50/50, red or green, odd or even, black or
white. Sounds like table games in Vegas. 

If you watched a shooter throwing dice for several minutes
the odds of getting a seven out of the 36 possible 
combinations of numbers will be 1 in 6. Would you buy
call options with a 1 in 6 chance of success? If a voice
from heaven told you that when the next seven was rolled
it would be followed by a streak of ten sevens in a row.
Would you bet on the next roll or wait for the next seven?
You would wait, saving your money for the streak. If you
lost your money before the streak you would not be able 
to profit from it when it happened. Would your bet be larger
after the first seven, second, third, etc? Once you had
confirmation that the promised streak was really happening
would you be more profitable? Your risk/reward ratio would
be skewed heavily in your favor after you got confirmation.

In order for the Nasdaq to "streak" back to 5000 it has to
pass 4000 first. Can it wander around aimlessly under 4000
for the next week or so before the Fed meeting? Sure. Will
you make that much more money if you buy now instead of
waiting for a close over 4000? I doubt it.

I am not trying to scare you into staying out of the market
until after the Fed meeting. I am not saying you should 
not take part in any rally. All I am trying to say is this.
There are two more big economic reports between now and
the rate hike. The markets may react negatively to either
or both. The talking heads on TV will probably say Fed, rate
hike and aggressive in the same sentence next week more 
times than there were shares traded on the NYSE Friday. 
Even though I am bullish about the market possibilities 
after the meeting I am cautious about the market before 
the meeting. I want to "hedge" my bets and conserve my cash 
until I have confirmation that the trend is really up. Black 
and white. I may cheat, just like many of you will cheat, 
but if I do it will be with the full realization of the risk 
I am taking. I will do it with only a small portion of my 
cash and only with stop losses. I suggest you do the same.

I am happy to announce today a new project for OptionInvestor.
Our regional seminar series where we bring the education to
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below. These are two and three day seminars which focus on
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Trade smart, don't buy too soon.

Jim Brown
Editor


Disclosure:
My current long positions:  NTAP, RAMP


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***********
JIM'S PLAYS
***********

After the market gapped open on Monday I was rethinking my
cash position but I had reasoned it out that nothing real
was likely to happen before the Fed meeting. When Tuesday
failed to confirm the rally and started to roll over I 
breathed a sigh of relief. Wednesday I was out of town 
and watching from a distance as the Nasdaq dropped -190
intraday. This just confirmed my decision to stay mostly
in cash. I did research stocks on Thursday night in hopes
that the jobs report would be a blowout and we would get
a real retest on Friday morning. The wimpy number and the
more than wimpy dip at the open confirmed my bullish 
opinion on the Nasdaq but was not deep enough and not
on enough volume to get me off the sidelines. Most of
the stocks I was watching only dropped a dollar or two
and then only rose a like amount. No conviction at all!
So I still only have the two positions in NTAP and RAMP
and at 9:35 Monday I will only have NTAP.


Current plays:

NTAP - Stock, $75 May Covered Calls
 

When NTAP started falling on Monday I sold the May-$75 calls
for $6.00. I own this stock from two weeks ago at $47. I was
out of town on Wednesday or I probably would have bought my
calls back when they were trading for $2.00. A strong case for
a limit order at a cheap price just in case lightning strikes.
Again, hindsight is 20:20. The plan is still to be called out
on the 19th and go on to some other play. If called I will have
the $3.25 from the April expired calls, $6.00 from the May and
the $28 from the stock appreciation for a total of $37.25. I
will take that for a busted April covered call play any day!


RAMP - May-$20 Calls

 

Several message boards had speculated that CSCO or LU would
buy RAMP in the next two weeks. After CSCO announced they
were buying ArrowPoint on Friday the stock gapped down at
the open. This leaves Lucent and a weak rumor. If no news
by the open on Monday I will close the position and take 
the loss. It was strictly a rumor play and high risk.  


My prospect list on any big dips next week looks like this:

AFFX, EMLX, AMCC, ABGX, TIBX, RMBS, BRCM, TERN, SDLI, AETH
PMCS, SCMR, JNPR, CIEN, HGSI, PDLI, KANK, BVSN, BEAS, CMTN

With two weeks left on May options I may try to sneak
in some naked puts on PMCS, AMCC, SDLI, JNPR, RMBS and
some calls on KANA, EMLX, BVSN, BEAS, CMTN.  The rest
are targets of opportunity and will be evaluated as they
develop but only with an eye on the coming Fed meeting. 


Good Luck

Jim



************************
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**********
STOCK NEWS
**********

Cisco Buys Arrowpoint For $6 Billion
By Matt Paolucci

Cisco Systems Inc. (CSCO) agreed Friday to acquire recently
public ArrowPoint Communications Inc. (ARPT) for about $5.7
billion.

Terms of the deal call for Cisco to exchange 2.1218 shares of
its common stock for all outstanding shares of ArrowPoint.
With shares of both companies trading higher after the news,
it's looking more like a $6 billion deal.

Acton, Mass-based ArrowPoint had counted Cisco among its
competitors, along with Alteon WebSystems (ATON), F5 Networks
(FFIV) and Foundry Networks (FDRY).

ArrowPoint's products enable ISPs, Web hosting companies and
other customers to create faster, more reliable content
delivery. The Company's technology will also strengthen
Cisco's presence in emerging markets, which include ASPs
(Application Service Provider) and AIPs (Application
Infrastructure Provider).

Cisco's chief financial officer said the deal with ArrowPoint
will have no impact on fiscal 2000 results, and will add
slightly to earnings in calendar year 2001, which ends in
July.

Cisco officials said the market for content switching looks to
be even stronger than industry forecasts, which see the market
growing from $500 million now, to $2 billion in 2003.

ArrowPoint's software and hardware-based architecture enable
it to support content-aware features such as URL- and cookie-
based switching. These features allow ArrowPoint to direct
traffic based on information such as the content being
requested and the frequency of the request.

The acquisition will be accounted for as a pooling of
interests, and is expected to close in the fourth quarter of
Cisco's fiscal year 2000.

In the last 12 months, Cisco has acquired 20 companies. In the
upcoming 12 months, Cisco said it would acquire another 20 to
25 companies. In the last five years, the networking colossus
has pocketed some 50 companies.

Many of CSCO's acquisition targets have been nimble, fast-
growing startups, companies with the potential to out-innovate
Cisco or at least steal employees. One of the biggest
challenges now facing Cisco is the ability to attract and keep
its existing staff.

And while trying to integrate the plethora of companies Cisco
has ingested thus far, it must remain vigilant against
existing competitors as well as upcoming network newbies such
as Juniper Networks (JNPR), Sycamore Networks (SCMR), and
Foundry Networks (FDRY).

Some analysts say Cisco has overpaid for its recent
acquisitions. Then again, when you generate in excess of $400
million in cash per month, maybe money isn't an issue.

It will be interesting to see if Cisco can keep up its
acquisition-juggling act. So far the Company seems to have
executed without mistake. But for those investors who want to
make sure the Company is playing by the book, all will be told
when the router and networking behemoth announces its third
quarter earnings next Tuesday. Estimates are for 13 cents per
share.

The boards of both companies have approved the deal with
ArrowPoint, which is expected to close by the end of Cisco's
fiscal fourth quarter, ending July.



***************
ASK THE ANALYST
***************

What Was That?
By Eric Utley

The jobless rate comes in lower than expected and the market
rallies?  The reason the market rallied is that traders got a
dose of certainty about the future action of the Federal Reserve.
Several of you sent in your opinions about the market last week
and the common theme was uncertainty, you were correct!  With
some of the ambiguity removed from Friday, maybe we'll see some
discernible direction in the market.  There are several events
I'll be watching closely next week.  The Annual H & Q Summit will
commence early next week.  The gathering gives tech companies the
opportunity to present to Wall Street and guide analysts about
their future prospects.  Good news from the conference could
prompt analysts to raise price targets, initiate buy ratings,
and speak positive comments about the companies.  Any of the
aforementioned actions would be good for the market, specifically
the tech sector.  I'll also be watching the earnings reports from
two NASDAQ heavyweights.  CSCO will report early in the week and
DELL is scheduled to announce earnings on Thursday.  Analysts
expect both companies to meet estimates.  A surprise by either
of the two would help at this point.  We'll delve more into CSCO
below.

You've probably heard Jim mention the name Ralph Bloch a few
times.  Mr. Bloch is one of the most distinguished technical
analysts on Wall Street.  He has been extremely accurate lately,
calling the market tops and bottoms to the day.  In an interview
on CNBC late Friday, Bloch said something that bothered me.  He
said that he expects the market to churn sideways for 3, maybe 6
months.  What troubled me is that he thinks the "new" investors
will be "washed" out.  He went on to say that the high
expectations currently engraved in investors' heads is unhealthy
for the long-term.  Now, I'm not attacking Ralph, I actually
agree with his thesis, in that investors have been excessively
exuberant.  His comments did cause me to pause, and rethink my
trading strategy.  And I remembered there is no free lunch in
this world, especially on Wall Street.

I'm receiving many great e-mails from all of you, I wish I had
more time and space to analyze more of your requests.  I really
appreciate the positive feedback and enjoy corresponding with 
our readers.  Pleas keep sending your requests to me at
asktheanalyst@OptionInvestor.com.  Put the symbol in the 
subject line of the e-mail.

----------------------------

Red Hat - RHAT

Would you please comment on both Red Hat and Covad
Communications.  Both (especially RHAT) have been brutalized like
the rest of the NASDAQ.  Where do you see them going?  Thanks. -
Ernie

Brutalized is a good adjective to describe the recent action in
the once beloved Linux stocks.  RHAT has been punished by
concerns over the company's financial viability.  The popularity
of the Linux Operating System has risen among Web site developers
and corporate IT managers.  But the financial success of RHAT
remains the variable.  Essentially, RHAT is a services company,
rather than a software maker.  Since the Linux OS is available
for free, RHAT derives most of its revenues from servicing the
product.  Analysts feel that the upside revenue potential for
RHAT's business model is limited.  Linux was once thought to
challenge Windows in the desktop arena, but it looks like the
software will be no more than a niche technology for servers.

Turning to the chart, RHAT appears to have stabilized and
settled into a trading range.  But there are a few things that
still concern me.  First of all, the stock is hovering above its
52-week low of $20.  That low was traced back in August on the
day of the IPO.  That level is crucial support for RHAT to hold,
below $20 is no man's land for tech stocks.  Secondly, notice
all the 6 mln share days in the past three months, most recently
on May 1st.  That tells me there are still plenty of sellers 
around to push RHAT lower.


 

----------------------------

SDL Incorporated - SDLI

I have been trading this stock between $140 and $200.  I like
to own this stock for long-term, but I have to sell before it
drops 20 points.

You've gotta love the fiber optic stocks.  But you could probably
do without the wide intra-day swings of 20 points or more.  The
volatility is good for traders but unhealthy for long-term
investors.  SDLI has one of the highest EPS and relative strength
rankings in its industry.  If you don't mind the volatility, it's
probably a pretty good stock to hold for the next 3 - 4 years.
SDLI competitor JDSU announced earnings in late April.  The
company told analysts to expect 75% growth in the coming year.
If you're looking for growth, and don't mind paying a high price,
you'll find it in the in the fiber optic area, and SDLI is worth
considering.

In the near-term, there are several events that could carry SDLI
higher.  The company will hold its Annual Shareholder Meeting on
May 18th.  Investors are expected to approve a proposal to double
the number of authorized shares.  If the market stabilizes,
executives may announce a stock split.  The last time SDLI split 
was back in December of 1999 when the stock was trading at $174.  
Also worth noting, rumors have been circulating trading desks that
consolidation is coming to the optical networking sector.  Though
just rumors, the talk could carry SDLI higher.

SDLI formed a solid double-bottom in April and has rallied on 
healthy volume since.  The stock is trending upwards forming a 
bullish wedge pattern.  SDLI needs to clear resistance at $200 
before retesting its highs from early March.  The announcement of 
a stock split could be just the catalyst to lift the stock above 
resistance.  I'd like to point out the natural reaction that 
occurred last week.  This is normal for a stock that has rallied 
so swiftly.  Notice the low volume during the decline, indicating 
profit takers were locking in their gains.  The pullback is usually 
a good entry point if the stock remains in an up-trend.


 

----------------------------

Cisco Systems - CSCO

Please give me your opinion about CSCO as a leap purchase.  I know 
OI has it on the list, but is it sill a good option now?  If so at
what entry point?  Thanks. - HD

The ever endeared CSCO.  Money managers across the country pledge
allegiance to CEO John Chambers and his networking mammoth.  One of
the four horsemen of the NASDAQ, CSCO epitomizes our great bull run.
We've had CSCO as a leap play since November 14th of 1999.  Since
that time, our play has returned over 250%!  The relative strength of
CSCO is simply amazing.  For example, last Friday CSCO said they
would acquire ArrowPoint (ARPT) for $6.1 bln.  If CSCO were an
average tech stock, arbitrageurs would have stepped in and sold the
stock lower.  Instead, traders applauded the acquisition and bought
CSCO higher.

On a more somber note, not even CSCO's relative strength could 
combat the massive selling seen during April.  The massive 
distribution stems from hedge funds dumping tech stocks and 
raising cash.  Another drag on CSCO has been the persistent 
rumor circulating that the company will miss earnings estimates 
when they report next week.  But analysts have come to the CSCO's 
defense and insist the company will meet estimates.  The stock 
has formed an interesting chart pattern over the past month.  
Technicians often refer to the pattern as a "coiled spring".  
As you can see on the chart, CSCO has developed a tight price 
pattern on declining volume.  The psychology behind this pattern 
is that traders step aside, and wait for an important event to 
move the stock one way or the other.  Once the stock breaks from 
congestion, it usually continues to move in the direction of the 
breakout.  This pattern can be useful for long-term investors to 
find an entry point, ideal for LEAP investors.  A good place to 
look for an entry point would be a strong move above $72 on 
healthy volume.


 

----------------------------

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.



**************
MARKET POSTURE
**************

As of Market Close - Friday, May 5, 2000

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert
****************************************************************

DOW Industrials   10,000  11,400  10,577    Neutral   5.05  *
SPX S&P 500        1,400   1,500   1,433    Neutral   5.05  *
OEX S&P 100          750     800     769    Neutral   5.05  *
RUT Russell 2000     450     550     513    Neutral   5.05  *
NDX NASD 100       3,500   4,000   3,688    Neutral   5.05  *
MSH High Tech        900   1,000     944    Neutral   5.05  *

XCI Hardware       1,400   1,600   1,483    Neutral   5.05  *
CWX Software       1,150   1,300   1,217    Neutral   5.05  *
SOX Semiconductor  1,000   1,200   1,105    Neutral   5.05  *
NWX Networking       900   1,100   1,058    Neutral   5.05  *
INX Internet         600     800     608    Neutral   5.05  *

BIX Banking          530     600     527    BEARISH   5.04 
XBD Brokerage        400     500     457    Neutral   5.05  *
IUX Insurance        540     620     587    Neutral   3.16

RLX Retail           900   1,000     868    BEARISH   5.04 
DRG Drug             355     400     382    Neutral   4.28
HCX Healthcare       710     800     780    Neutral   4.28
XAL Airline          140     155     148    Neutral   3.10
OIX Oil & Gas        280     300     293    Neutral   3.16

Posture Alert
Broad market indices reversed course Friday following the release 
of May's employment report.  Several industry sectors recorded 
key bottom reversal signals.  As such, we have shifted our market 
posture to Neutral from Bearish across many sectors including 
SPX, OEX, Technology and brokerage.  Also, please make a note 
that we have adjusted many of our Bullish and Bearish benchmark 
levels.


****************
MARKET SENTIMENT
****************

Thursday, May 4, 2000

Market Posture Alert - Shift from Bearish to Neutral


Pinnacle Capital Advisors has shifted its market posture to 
Neutral from Bearish across several  broad market indices and 
industry sectors including SPX, OEX, Technology and brokerage.  
Broad market indices reversed course Friday (5/5) following the 
release of May's employment report.  Several industry sectors 
recorded key bottom reversal signals.  Also, please make a note 
that we have adjusted many of our Bullish and Bearish benchmark 
levels.  Investors can view our market posture by clicking the 
Market Posture link on OI.com's website.
 
Among the key indicators we observed was the collapse of the VIX 
(from 35.43 to 30.39) signaling that fear that had been building 
prior to the release of May's employment report may have finally 
evaporated.

Next, Friday's market rally, although on light volume, has 
created several Bullish wedge formation across many key industry 
sectors including technology. 

We are still not out of the woods with the FED meeting ahead of 
us, but it appears that we have recorded a meaningful bottom from 
an technican's point of view.  Therefore, we have updated our 
market posture accordingly. 


 


Market Stages

Next, in our series of market and stock stages, see if you can 
tell the difference between the following charts - Hardware (XCI) 
and Banking.

If you recall from Thursday's news letter (5/4), there are four 
key market and/or stock stages as outlined below:

Stage 1 - Bottom Consolidation
Stage 2 - Breakout
Stage 3 - Top Consolidation 
Stage 4 - Breakdown

Viewing a three-year chart of the two indices reveals that 
Hardware sector has enjoyed a nice run and is still trading above 
its UPWARD sloping 200dma.  As such we characterize the Hardware 
sector as a "breakout" / Stage 2 sector.  Conversely, the Banking 
(BIX) index has been trading BELOW its DECLINING 200dma.  We 
therefore, characterized the Banking sector as a "breakdown" / 
Stage 4 sector.  

Take a moment over the weekend and graph each of the following 
industry sectors using OptionInvestor.com's interactive Chart tool 
on the website.  See if you can correctly identify what market 
stage each sector is current trading within.

Broad Market / Sector Indices

DOW Industrials   
SPX S&P 500
OEX S&P 100          
RUT Russell 2000    
NDX NASD 100       
MSH High Tech       

XCI Hardware           Breakout     Stage 2      
CWX Software       
SOX Semiconductor 
NWX Networking       
INX Internet        

BIX Banking            Breakdown     Stage 4  
XBD Brokerage       
IUX Insurance        

RLX Retail          
DRG Drug            
HCX Healthcare      
XAL Airline          
OIX Oil & Gas        


Use the following criteria:
Time Frame: Time / 3 years; Frequency / Dail 
Indicators: Moving Averages: SMA = 200; Lower Indicator= Momentum
Chart Style: Price Display = Mountain


 


 



BULLISH Signs:

Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of
analyst expectations. General Electric is the latest bellwether
to give positive comments regarding earnings.

Volatility Index (30.39):
The VIX continues to prove that the low 30's are an excellent
buying opportunity, and the low 20's continue to be a great
selling opportunity. The VIX collapsed from 35.43 to 30.39 following 
Friday's release of May's employment report.

Short Iterest (NYSE):
Short interest on the NYSE fell 1.33% to 4,055,931,190 shares on
April 14; however, this is still a high level and from a
contrarian viewpoint, would be considered bullish.


Mixed Signs:



BEARISH Signs:

Interest Rates (6.192):
Don't look now, but the 30-year Treasury bond Index has moved 
higher and closed above the key 6% level again.  Higher interest 
rates generally are not good for the equity markets.

Crunch:
With the fear of inflation, and the most likely scenario of
several more rate hikes, liquidity in the marketplace will become
a more significant issue and put more pressure on equities.

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing
to transportation will be affected by higher costs. These higher
costs will be felt 1-2 quarters out, and could put pressure on
profit margins.


*****************************************************************

The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.


Pinnacle Index
*****************************************************************
OEX                              Friday       Tues        Thurs
Benchmark                        (5/5)       (5/9)       (5/11)
*****************************************************************

Overhead Resistance (805-830)     5.40
Overhead Resistance (775-800)     1.53

OEX Close                       767.79

Underlying Support  (745-770)     2.10
Underlying Support  (715-740)    10.54

What the Pinnacle Index is telling us:
Direct overhead resistance is light while underlying support 
under the 740 level is strong. 


Put/Call Ratio
*****************************************************************
                                Friday      Tues       Thurs
Strike/Contracts                (5/5)      (5/9)      (5/11)
*****************************************************************


CBOE Total P/C Ratio             .53
CBOE Equity P/C Ratio            .46
OEX P/C Ratio                   1.25


Peak Open Interest (OEX)
*****************************************************************
                     Friday          Tues            Thurs
Strike/Contracts     (5/5)          (5/9)            (5/11)
*****************************************************************

Puts                750 /  5,998    
Calls               800 / 12,108
Put/Call Ratio        .49



Market Volatility Index (VIX)
*****************************************************************
                    Major
Date                Turning Point       VIX
*****************************************************************
October 97          Bottom              54.60
July 20, 1998       Top                 16.88
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15
May 14, 1999        Top                 25.01
July 16, 1999       Top                 18.13
August  5, 1999     Bottom              32.12
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09
April 14, 2000      Bottom              39.33
May 4, 2000         Bottom              35.43



*************
COMING EVENTS
*************

For the week of May 8, 2000


Monday

None Scheduled

Tuesday

Wholesale Inventories    Apr    Forecast:  0.6%    Previous:  0.7%

Wednesday

None Scheduled

Thursday

Retail Sales             Apr    Forecast:  0.5%    Previous:  0.2%
Retail Sales ex-auto     Apr    Forecast:  0.5%    Previous:  0.9%
Initial Claims           05/06  Forecast:  285K    Precious:  303K
Export Prices ex-ag.     Apr    Forecast:   N/A    Previous:  0.4%
Export Prices ex-oil     Apr    Forecast:   N/A    Previous:  0.2%

Friday

PPI                      Apr    Forecast: -0.3%    Previous:  1.0%
Core PPI                 Apr    Forecast:  0.1%    Previous:  0.1%
Business Inventories     Mar    Forecast:  0.3%    Previous:  0.5%
Michigan Sentiment       May    Forecast: 108.5    Previous: 109.2 


Week of May 15th

05/15 Industrial Production
05/15 Capacity Utilization 
05/16 CPI
05/16 Core CPI
05/16 Housing Starts 
05/16 Building Permits 
05/16 FOMC Meeting
05/18 Initial Claims
05/18 Philadelphia Fed
05/18 Treasury Budget
05/18 FOMC Minutes
05/19 Trade Balance



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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.

The Option Investor Newsletter                     5-07-2000  
Sunday                                                2 of 5


*************
WOMAN'S WORLD
*************

Volume confirms the trend
By Mary Redmond

We know that it is important to pay attention to trading 
volume on individual stocks and the indexes to confirm that
a true breakout may be occuring.  On Monday through Thursday
of this week it was suggested that the weakness in the 
Nasdaq may have been attributed to lack of buyers and lack
of sellers.  How can we tell?  Low volume as compared with
previous periods of strong rallies. 

Actually, if you look at a chart of the Nasdaq with volume 
over the last six months you can see that it has really only
been since November that we started to have daily average  
volume of over a billion shares.  Last summer through October 
the Nasdaq was averaging only about one billion shares per day.
This was considered average volume. 

In November of last year, the cash flows to mutual funds
doubled from the level of September, with aggressive growth
funds taking in over $8.4 billion.  This is when the Nasdaq
volume really started to accelerate.  If you look at a chart
you can see that the Nasdaq started trading about 1.25 to
1.5 billion shares per day.

In December of last year, aggressive growth funds took in 
about $11.5 billion in cash, and the Nasdaq volume was in
the range of 1.25 to 1.5 billion shares per day.

In January of 2000, fund inflows were an incredible $39.98
billion, with almost all of the money going into growth,
technology and aggressive growth funds.  Also, in February
the flows to technology funds were close to $10 billion.  
The share volume during January and February on the Nasdaq
was an average of well over 1.5 billion shares per day.

During March and April the share volume remained high, and 
during a couple of the selloffs in April the volume spiked 
to well over 2 billion shares.  It seems that toward the
end of April and the first week in May the Nasdaq volume 
has been dwindling down.  This might be indicative that
there aren't that many sellers left, and that buyers are
waiting on the sidelines.

What are we looking for?  The last six month period has 
shown us that we really want to see volume of over 1.5
billion shares a day and closer to 2 billion to confirm 
a strong Nasdaq rally.  This has usually correlated with
period in which the flows to aggressive growth funds were
well over $2 billion per week.  Studies of the liquidity
trends have shown that we really need a strong cash inflow
to help support this market.

There is no shortage of cash out there.  Right now there
is close to 1.7 trillion in cash in money market funds.
In addition, flows to equity funds during April averaged
around 5 to 10 billion weekly, and alot of that money
hasn't been spent yet.  In fact, some market analysts have
estimated that there is more cash on the sidelines now
than at any other time in the last two years next to 
August of 1998.

According to both trimtabs.com and AMG Data Services for the
week ending May 3 there was a net outflow of cash from US
equity funds in the range of approximately .5 to .7 billion.
However, a closer look at the numbers reveals that this 
might not be as alarming as it seems.  According to AMG,
large cap growth funds received approximately 1.2 billion 
in cash flows.  The primary outflow was from international
equity funds, or US funds which invest in international
stocks.  This is not surprising considering the deterioration
of the Euro.  The fund flows seem indicative that buyers
and fund investors are sitting on cash waiting.  Remember,
in the last nine years, there was only one month in which
equity funds showed a net outflow of cash, and that was
August of 1998.  One week doesn't really indicate a trend
of investing patterns is changing.

All I have been doing this week is buying some two year 
leaps on stocks I think will do well.  You can make money
in an up market or a down market, but a flat or sideways
market is a real killer in terms of option deterioration.
It eats away at time value until there is nothing left.
Hopefully the Nasdaq will close over 4000 soon. 

In addition to the Fed's rate increase, we also have to
consider the Treasury's ongoing program of buying back
government bonds.  Although most market analysts expect
a 50 basis point increase in the Fed Funds rate in May,
we don't know exactly how much the bond buy backs will
lower long term rates and what effect this will have on 
the market.  

Contact Support


*****

When the Moon is in the Seventh House and Jupiter Aligns With
Mars
By Lynda Schuepp

This week we had historical alignment of the planets; maybe that 
explains what's going on in the market.  The talking heads tell 
us there is no volume, that's bearish, but my understanding is 
that for every buyer there's a seller.  So, if there are no 
buyers than there are no sellers.  If there are no sellers, 
doesn't that tell us that the bears are retreating?  I guess it 
depends on your perspective.  As I wrote last week, I am working 
on an article, and hopefully a book, on the psychology of trading 
and how men and women approach the market.  However, because of 
the odd alignment of planets this week I didn't get many war 
stories and the ones I did get were mostly from the guys. In 
order to understand the differences in emotional trading between 
the sexes I need responses from you gals.  So I will have to 
table this article for probably a few weeks, but a number of you 
have encouraged me to write about it, so I think there is a 
genuine interest out there.  So for this week I plan to address 
the main questions that were emailed to me regarding my trading 
of the OEX.  

The question I was asked most often was in a nutshell, "what do 
you use for trigger points to enter and exit?"  My short answer 
is: Japanese candlestick patterns, MACD, stochastics, Tick 
readings, Vix levels, advance/decline line, bid direction, 
volume in the market and last but not least the famous "Lynda 
gut feeling" indicator.  Now, for the long answer.

It seems that everyone is looking for the silver bullet: a 
fail-safe, no-lose system that doesn't require any work.  Sorry 
to disappoint you, ladies and gentlemen, but I don't have it.   
Just when I think I've got it down pat, the market throws me a 
new curve to incorporate into my own system of hard knocks.  Your 
emails this week made me really think about my signals and try to 
determine, if I really could modify my trading style and get more 
mechanical.  If I could, I know I could make more money.  Look at 
the Skybox; it is a purely mechanical trading system that really 
works.  I was asked by many of you, "Do you use Skybox, and if 
not, why not?"  My answer is yes, AND no (for all you Libra's).  
I am an aggressive trader ("A"-type personality) so, a system 
that doesn't trade actively does not suit my personality.  I know
I could probably make more money initiating fewer trades and 
making more money on them would be a better game plan, but it 
doesn't suit me.  It's like putting a square-peg in a round hole.   
I think that is the lesson everyone has to learn on their own.  
That's why OIN is great, there is something for everyone but 
remember it is just a tool--you still need to do most of the work 
yourself.  

Now let's look at some charts and I will show you some of the 
things I am looking at when I am trading.  I will use the OEX 
because it's my favorite.  By the way, did you know that 60% of 
the gain is considered long-term capital gain?  That can really 
add up and increase your returns if you're in a hefty tax bracket.  

Step 1:  Step back and smell the roses or fertilizer, whichever 
the case may be.  By that I mean, look at a longer-term view and 
then come in closer and closer.  For me, a long-term view is 6 to 
12 months, looking at a weekly chart.  You need to determine the 
overall trend so see which indicators you need to place more 
emphasis on.  I find stochastics can give you an earlier signal 
but you can also get a lot of false alarms.  For the longer term 
trader you could get some nice moves and with proper money 
management, and stops you could do nicely.  See the chart below.


 

Step 2:  Come in for a closer look.  Next we'll look at a daily 
chart and see if the up-trend is still in place and look at moving 
averages.  As you can see in the chart below, the 200-day moving 
average provides very strong support.  While overall, the OEX is 
still trending up, it is extremely volatile which leads me to my 
favorite-- intra-day and swing trading.  See chart below:


 

Step 3: Time for the magnifying glass.  This is not recommended 
for the faint of heart.  Here's where it's hard to deny we are not 
in a bearish market.  When you apply a regression analysis to the 
60-minute chart, you will see we have been in a decline since 
March 24th!  This view might change whether you play calls or 
puts depending on your time horizon.  See chart below:


 

Step 4:  Time for the Microscope.  From the 10-minute chart below, 
you can see there was a lot of movement intra-day.  Out of the 
eleven different positions I took this week only one was in calls.  
That's because my overall short-term feeling is negative as 
evidenced in the 60-minute chart.  I held puts over the close, 
although I am more neutral than anything.  This is where the 
psychology stuff kicks in.  I didn't want to sell at the close 
because I would have taken a loss and my winning streak for the 
week was nine out of eleven!  Call me an idiot if I'm wrong or 
call me brilliant if I'm right on Monday.


 
 
I convinced myself that the lack of volume with this rally was 
justification for further selling.  Time will tell.  Check the 
chart and come to your own conclusions.

Contact Support


*****

Understanding Your Trade Is A Critical Part Of The Strategy 
By Renee White

First, an interesting chart came up when an astute reader 
questioned an equity I had listed in my recent article on Leaps 
I wanted to buy.  It seems there was bad press affecting one of 
the positions listed.  In review, it became apparent that I had 
mistakenly listed NOVL, instead of the intended NVLS.   These 
are completely different companies.  Novellus Systems (NVLS) 
manufactures, markets & services systems within the 
semiconductor equipment industry, an area that I am 
particularly interested in playing this year.  It is found in 
the Semiconductor Industry of the Technology Sector.  Novell, 
Inc. (NOVL) provides network, internet directory software & 
services making networks more manageable and secure.  It is in 
the Computer Networks Industry of the Technology Sector.  Thank 
you Jeffrey, for bringing this to my attention.  

Also, had I not looked at both charts, I would not have noticed 
that NOVL had a very nasty week.  At first glance, it sure looks 
oversold badly right now.  I have not read the news reports 
leading up to this sell-off and as I write this, my Qcharts 
aren't working so detailed chart information is hard to evaluate.  
But, it appears NOVL reached a 52 week low on Wednesday, with a 
huge gap down on the open.  I'm going to watch this one for a 
possible wild cat play due to its oversold chart.  Friday it 
traded in a narrow range, losing 1/8 on higher than average 
volume.  Although I did not initially intend it to be a Leap 
play, on review of the premiums, the January '02 plays look 
awfully cheap.  Also, it might make a good combination strategy 
play.  A little homework and watching could make this a potential 
play for me soon.

This leads me to comment about Covered Calls.  Several readers 
have asked through the months, for clarification on Covered 
Calls.  It is true that Covered Calls are considered less risky 
than straight calls or puts.  With directional option plays, your 
total risk is the amount of money you spent buying the option.  
You can't loose more than the amount you paid for either the 
"call" or the "put".  Covered Calls are considered less risky 
because you already own the equity and thus, you are "covered".  
When you write a call against equity that you own, you receive 
the call premium as cash.  You just sold someone else the right 
to buy your equity at the strike price of their call, for which 
you received premium, IF the stock goes UP through the strike 
price.

All of us like to receive money.  No doubt about that.  But 
before you start trying new strategies, it is important that 
you understand the worse case scenario of each, not just the part 
that benefits you.  Covered Calls are frequently tooted as a 
first time option trade for beginners because it is a covered 
position with limited downside.  Without going into the covered 
aspects of calendar spreads, I think it is important that new 
traders think through their short-term worse case scenarios using 
Covered Calls.  Covered Calls are a great way to add cash flow to 
your account.  Just make sure you understand what you are doing. 

When I first started trading options, I was green, naive and 
had dollar signs in my eyes (sound familiar?).  I had a small 
portfolio of stocks I had been buying, many I had owned for 
several years.  These stocks, I intended to hold for many years, 
oil & gas, pharmaceuticals, early technology. Having just 
attended my first seminar, I had been taught that I could hardly 
loose with Covered Calls.  Since the markets had been in a 
similar tumultuous time, choppy due to interest rate increases, 
I naturally thought I had found a gold mine.  Immediately I 
compounded out the premiums I might be receiving against my 
shares every month.  I estimated the year, month, day, and of 
course the hour, of my impending retirement from middle class 
America.  Salivating with thoughts of easy wealth, I wrote 
Covered Calls against every company I proudly owned, in addition 
to buying more shares on any that were not in round lots of 100 
shares. 

I know I was an idiot.  All I thought about were the premiums 
I would be receiving.  I never considered anything else.  Being 
the idiot that I was, I was just doing what I was told and never 
even thought about questioning any part of the strategy, much 
less my own homework.  Heck, I couldn't question the strategy 
because I didn't understand enough to even ask a question.  
I had just been to my first conference, so my excitement to 
play was high.  Exposing my backside to you, should give plenty 
the confidence of knowing that dumb mistakes or not, we can all 
grow and learn. 

Anyway, after filling out my holdings to 100 shs round lots, I 
wrote slightly OTM Covered Calls and received nice premiums into 
my account.  Then I went fishing and ignored them completely.  
(I thought that was all I needed to do.)  My plan was to write 
more calls against the shares each month, after option expiration 
Friday.

But to my surprise, on option expiration, every one of my stock 
shares vanished from my account.  They were called away by the 
buyer of the contracts I had written.  This was horrible because 
I had no desire to sell those shares, especially during a 
temporary weak market on strong companies I had owned for years.  
Focusing only on the premiums and feeling I HAD TO PLAY, I wrote 
only slightly OTM calls on good companies that were at support, 
not giving them enough room to bounce up off of support levels 
without me being called out.  I had written them in a down week, 
on a big down day.  That was dumb.  I had not thought through the 
play. 

Also, it never dawned on me that I could have bought the calls 
back any time before the close of expiration day, if I did not 
want to lose my shares.  That was even dumber.  When I looked 
back, the tiny premium I had received on some (because they 
had such low volatility) was just not worth the risk I took 
of being called out on these good companies.  Sure I got cashed 
out on the shares, but my rewards would have been much higher 
by holding the companies as intended.  In my situation, I did 
not want to sell the shares so my mistake was not realizing that 
I could really lose them.  If you own shares you do not want to 
lose, be careful picking narrow OTM strike prices that could 
become ITM on a bouncing rally by expiration, or at least be 
prepared to buy the calls back, if you become at risk.

An alternative thought are those who buy the equities for the 
sole purpose to write Covered Calls against them, expecting to 
be called out.  They do not want to own the shares beyond 
expiration.  Be aware that these stocks could drop further, below 
their breakeven point.  With the help of a weak overall market, 
they could be depressed for some time.  Naturally the options 
would expire worthless and the call buyer would not call them 
away.  The downside risk to you the writer, is that you may 
become married to shares of a company you did not intend or want 
to own, tying up precious money that could be used elsewhere, 
while waiting for the price to go back up to your breakeven.  
You could sell the shares for a loss to free up money for better 
plays or you could continue to write calls against these shares 
with premiums that may be less than exciting due to falling out 
of favor. 

The point is that people can use the same option strategy for 
different reasons.  Depending on your motive, the risk and 
rewards may be different for different people depending on their 
goal.  Make sure you understand not only the strategy, no matter 
how simple it may sound, and how the risk & rewards will affect 
your decision.

This will be my last routine Sunday Article. It's time for a 
summer break.  Please follow me for my continued Tuesday and 
Thursday reports.

Contact Support



***************
TRADERS CORNER
***************

How Many Should I Buy?
By Austin Passamonte

Math is an exact science. It does not lie. I'm not talking
about theories, formulas or quantum physics murky enough to
leave Steven Hawking scratching his head in puzzlement. I
mean simple stuff like 50%, 1+1=2, 2x2=4. Can we agree that 
whatever the end result is must clearly be correct? Considering
it's the standard unit of comparison our banks and the IRS
hold us to, I suppose we have little choice but to comply.

I'd like to share two money-management strategies with a
couple of caveats first. Number one, I'm no math wizard or
genius of any kind ("hey Wendy, can you come here for a minute
and tell these nice people I'm no genius. Oh...you think
they figured that out for themselves by now? Never mind then, 
thanks for the input")I know results of these equations because
I ran them many times myself with calculator, pencil and paper.
I don't always understand why some things work, all I know is
what the results are at the end. 

You do not want to apply any of these tactics with your hard
earned money UNTIL you test them exhaustively for yourself. I
can tell you this; some results may keep you from sleeping 
all night, for sure!

Number two, these strategies are only proven on quantifiable
systems that have a solid history of blended average returns.
They are designed to work on systematic, non-random games like
blackjack. I'm serious! Did you think blackjack was a random
game? Me too until I read a book about the science and
methodology many years ago. Needless to say I never made a 
living (or even tried) counting cards, but the one cash-
management system learned was worth the price of that whatever
that book's entire print-run cost was to me. I'd like to share
it with you for free, how's that?

Before we begin, let me finish the above thought. These strategies
are designed to work where a consistent pattern of repeat 
performance exists. Personally, I doubt they will work on random 
trading like buying calls on stock A, LEAPS on stock B and selling
puts on C. It could even accelerate losses by a wide margin.
However, they are tailor-made for trading certain repetitive
markets like the OEX Skybox, pivot-point trading index options 
or other markets that can be played in both directions. The money 
strategies will also work to a degree with specific methods such
as splits and earning runs when market conditions aren't tilted
like they have been recently. 

Enough of the disclaimers, let's dig in!

First we need to pick a sample market. Of course I'll choose the
OEX, and we'll use Skybox recent history for our standard example.
Select a dollar amount you want to trade the OEX with. I feel
it has to be $10,000 or more. Remember, we are just pretending
here but in real life you would choose the amount of money you
dare employ for one type of market play. Oh, and one more 
thing. Let's pretend commissions don't exist to simplify our
math. Do keep in mind that they are very real indeed. 

Here we go, time to trade. $10,000 in our account and we're
ready to work the OEX. We know there are times when the market 
chops around both sides of a benchmark and we end up holding a 
call and a put position (long strangle) on either side. Therefore,
we can never use more than 50% of our available balance on any 
one play. But that's precisely how much we will use every time, 
50% of our current account balance to buy all the options it
can afford or get filled on. Fair enough? This leaves at least 
50% balance to take the other side of a trade in the event we 
need to initiate a long strangle.

An example would be as follows: the OEX rests at 756 after the 
close. Our instructions are to buy May 750 calls @ 14.5 if the 
752 trigger is hit, so we can afford to buy three of them with our
$5,000 balance. $5,000 divided by $1450 = 3.44 options or three 
whole options with money left over. That gets swept to the side 
for now. There is $4350 in play. The stops are set and we await 
execution.

If the 748 trigger is also hit, we use the remaining $5,000 to buy 
three puts. We do not use the entire $5650 balance to buy more than
three options if it could, because we do not want imbalance on the
straddle. One leg of a straddle will lose for certain, so we don't
risk more money on the losing side to draw down our profits. The 
greed in me points out there is a 50/50 chance the second leg
with more options (when affordable) might win and really offset
the opposing loss, but that's not how the system is best worked
over the long haul. 

At times when the remaining balance is drawn down after one 
straddle leg has been stopped, we may have to place that same
trade again if the market returns to our trigger. Should there 
be too little money to buy the same number of contracts our live 
leg still has, we're forced to settle for what we can get and
go on from there. 

For the sake of this discussion we'll say only the calls 
were bought, the market bounced off support and rallied to our 
close of $2250 per option target. We bought three options for a
total of $4350 and sold them for $6750. We now have $6750 from
the winning trade plus the $5650 parked for a cash balance of
$12,400. Not bad. What now? Why, we wait for the next play and use
50% of the new total to purchase all the options we can afford.

Shall we take one more trade? OK, the market stalls at the next 
benchmark up (758) and we buy May 750 puts for 14. If our account 
balance now stands at $12,400 how much do we use? That's right, 
$6200 which is 50% of the new total. That will buy us 4.428 options,
so we get filled on four 750 puts if our Skybox criteria is met.
Again, we're on a roll and the market eventually tanks. Those 
options are sold @ $2250 each or a total of $9000. We used $5600
of our balance to buy and our account held the difference. $6800
added to $9,000 gives us a total closed out balance of $15,800 
after two wins. All in a day's work, albeit a busy one.

Isn't it fun to take two nice winners like that? The flip side is
you handle losers exactly the same way. When trades stop out
on you, recalculate the new remaining balance and use 50% of that
for the next play. After every single closed trade, you simply use
50% of the new adjusted balance to buy as many options as it will
afford. This varies depending on account growth or drawdown and
the price of options being traded at the time.

Keep in mind when we began with $10,000, up to half of it was 
put in play but only +/- $900 was actually at risk because of our
stop loss order placed immediately upon execution. If three options
get stopped out a -3 each, we have $9100 left to split in half and
head back to the trenches with. Therefore, we only risk 10% total
on that play. If this is too much for you, feel free to buy two or
even one OEX option instead of three.

As you can see, pyramiding this bankroll on consecutive winning
trades can drive your account to incredible heights. But that's not 
the power of it... the beauty is in the way it handles drawdowns. You
see, this system is built to take a large string of small losers 
before hitting a small string of big winners. Sort of like 
playing blackjack and the OEX Skybox. 

Now try it for yourself with a few fun and simple scenarios. Go 
into this year's history of the Skybox and use our money
system from the first trade until the last one listed and see
where historical results end up. Remember, past results
may not equal future gains, etc. etc. but this is just a fun 
exercise demonstrating the power of multiplication. I won't tell
you what the results are, see for yourself. Hopefully you're less 
impressed with the winners as you are in the way it saves you from
ever wiping out. By scaling your trades up or down using 50% of 
your last balance to purchase options that vary widely in price, 
you are always working your cash inventory to its utmost leverage. 

Worst case scenario? Find the biggest string of losing trades 
the Skybox recorded to date and start from there. How did it
handle that period of drawdowns and where have you ended up 
since? Heck add two, three or four more losses onto that and
see what happens to your account. Get tough with it, double the
worst historical results so far this year. Where are you now?

Next time we'll share another multiplier that when used in a one-
directional market can even outperform this one. See you then!

Trade the right direction with the proper amount of capital.


*****

Anatomy of a Call Trade
By Janar Wasito

Here is a step-by-step procedure for making a profitable trade on 
a new call choice--QCOM.  I cruised through the web site tonight,
quickly.  I read the market wrap, market sentiment, and other 
sections.  I thought the most useful thing for a beginning trader 
is a detailed description of what to look for to enter a single,
specific call trade.

1.  Read the Site.  Ryan is saying that investors are still playing 
it safe.  The sellers and buyers are on strike.  We bounced off of 
4000 on the upside today.  Going into the Market Sentiment section, 
we see that the Pinnacle Index is telling us that resistance is 
light above and below.  It's a listless market.  Might be more on 
the downside, to set up a range bound market ahead of the Fed in 
two weeks.  Here's a contrarian indicator I love--in the Market 
Posture section, the indicators are all pegged to the left on the 
major indexes and the technology sectors. That tells me that it 
has to swing to the middle soon, if even for a few days.

2.  Select your Trade.  I know QCOM.  This always helps a bit if 
you are trading the option on it.  So, I go to the QCOM write up. 
I am looking for one thing--an entry point.  $108.  Got it.  Rumor 
of NOK acquiring QCOM.  Ah, yeah?  And if so, so what?  I just 
want to make a quick play for 25%.  I know the companies, love 'em, 
own LEAPs on them.  But this is about a trade.

3.  Select your Contract.  May 110 Call.  AAFEB.  Load it into a 
quote sheet in Qcharts.  Load QCOM into another quote sheet.  Set 
an alert at $110 and $108.

Now, the call contract has 2.5 weeks of life in it.  The stock is
trading at $113, so the intrinsic value of the contract is a little 
over $3, but the contract is trading at $9.  This is a ticking time 
bomb.  As soon as you take possession of it, your goal is to toss 
it to someone else for more than you bought it.  66% of the value 
of the contract is based on time and volatility premium, and you 
have a little over 12 trading days until all that time value
disappears.  No matter, we're option trading fools.

4.  Decide how much you are going to risk.  As a beginning option
trader, we have placed $15,000 into a Preferred Trade Account, 
which represents 15% of our assets.  The rest are in safe 
investments, like KOOP and TSCM (just kidding).  So, using our 
risk management rule of thumb, we are going to put 20% of our 
option trading money into the trade.  The contract is trading at
$950, but it should come down if QCOM goes down to $108 from $113. 
We decide to trade 3 contracts.

5.  Entering the Trade.  Key indicators to open the trade: QCOM at 
108; signs of a short term bottom; VIX spikes and heads back down;
volume in a buying surge on the NASDAQ; positive movement in
related stocks like NOK.  Right click on the option symbol, set 
the trade up in Preferred, enter 3 contracts, hit the lowest ask 
in your time & sales screen.

6.  Exiting the Trade.  We get filled at $6.50 on 3 contracts. 
$1950 is our value at risk on the trade.  $6.50 + 25% = $8.125. 
Set a limit sell at $8.125.  Set a mental stop loss at -25%.  I, 
personally, would rather have a limit sell in place above the 
current spot price of the option, IF I have used good discipline 
in entering a trade.  Intraday spikes will take you out of the 
trade, often in a hour or two.  Set a drop dead time limit too. 
Friday.  Over a weekend, a call with 2.5 weeks of life in it will 
drop like a rock.  I know, I sell them, and I love it.  But that 
is another story.  If your contract is just hovering at $7.875, 
take a profit, and look for another trade in the Sunday 
newsletter.

Good job.  Your $15,000 is now $15,300.  You just traded a stock 
that George Soros dumped like hot potatoes.  Hey Druck, Pow!

*****

Calendar Spread Transition
By Janar Wasito

It's halfway through the monthly options cycle, so it's time for 
a calendar spread update.  In triathlons(which I sorely need to 
get ready for again), one of the crucial parts of the race is the
transition from the swim to the bike, then from the bike to the 
swim.  In my Calendar Spread Strategy, I am getting ready for a 
monthly transition, which experience tells me is crucial to 
realizing a steady stream of profits.

I am getting ready for the transition to the June Cycle now that 
there are two weeks left in the May cycle.  My LEAPs have moved up 
20% in value since the start of the May cycle.  None of my short 
calls are in-the-money, but two of my positions are causing me some 
concern about the short calls going ITM.  At the same time that
the LEAPs have moved up in value, each of the short call positions 
are profitable.  On average, I have realized 33% of the value of 
the short calls because of time decay.  The next two weeks are 
when time decay really picks up. 

At the same time, the "curve" drops off so that it is really not 
worth it to milk the short plays until the bitter end.  Most of 
the fat has dropped off the bone in the ribs I am roasting.  
Therefore, I am getting ready to take the Mays off the grill 
(already bought back 2 of the 12 positions for 80% + profit), and 
toss the June rack of short calls on the time-decay-omatic-roaster.

Each month, I take the same spreadsheet, imbedded with the live 
quotes from Qlink, and update it for the following month.  I go 
through the next month series options and determine which ones to 
sell, update the links and formulas, etc, etc.  I treat selling 
calls as my business--the LEAPs are my plants, property and 
equipment; the short calls are the product that I sell.

This transition could be tricky.  As I see it the key date is 
May 16 and the Fed decision.  I see a range bound market 
continuing until then, though I see a slight chance of a major 
downward break in the NASDAQ next week because of the low volume
consolidation which looks a lot like mid-Sept '98.  I am going to 
shoot for any weakness late next week and/or May 15 & 16 to buy 
back my short calls.  If we get a relief rally after FOMC, I am 
going to be looking for major moves up to sell calls 20% OTM.  I 
think that there is the possibility of a move up after FOMC, a 
relief rally once a 50 basis point hike is a known and past event.

The strategy is working.  Since March 20, the NASDAQ is down 21% 
and my LEAP portfolio is down 1%.  When I add in the cash flow 
from short calls for May, I am up 6%.  Again, the goal of the 
strategy is to systematically pull ahead of the NAS by 11% a 
month, and this appears to be working.

Contact Support


*****

Quit Whining and Pull in Some Money
By Molly Evans

Yes, we all agree that we liked the October 99 - March 2000 
market a whole lot better than this tangled, schizophrenic
ball of string we've been playing with recently.  All the 
message board participants give their versions, "We're in a 
bear market.  No, we're in a sideways market.  No, this is 
still a bull market with a compensatory pause."  Whatever.  
Will we get the 50 basis point hike?  Will there be more in 
store?  How will this affect the market?  If we get the bigger 
hike, does that mean the markets tank or will we get a relief 
rally?  Enough already.  Quit the whining.  We won't really know 
how it will all play out until we see it in the rear view mirror 
of hindsight.  

I'm going to go out on a limb here and say that in my humble 
estimation, we're in that sideways market.  My book sources tell 
me that this occurs 70- 80% of the time so I feel pretty safe in
asserting that.  Generally people make money in up or down markets.
However, for now, we seem to be stuck in that gray zone where
we've got the lack of buying power to convince the powers that be
that we're starting a new uptrend.  Tell me you don't wake up each
day and say, "Is today the day it all falls out of the bottom and
we hit 2800?"  See, you wonder but you can't convince yourself that
it will happen so you sit there doing nothing or trade intraday
ranges to scalp a few points.  That's not fun as we know it.  That's 
work.  That's risk.  We like it none!  We've got to come up with 
a better plan for times like these.  It's been said here before but
it's worth repeating.  You CAN make money in sideways markets.

Janar has mentioned calendar spreads numerous times but judging 
from a few of my emails from subscribers there's room to go another 
round on this topic.  A few of my friends had this very discussion
the other day so I'm going to present their scenario for you to 
follow:

Say I own a SUNW 2001 strike 60 LEAP.  I bought it for $25 when 
SUNW was $73.  I essentially paid $13.00 of intrinsic value and 
$12 of time value.  Now, I want to sell a call on this holding.
SUNW is now at $90.50 so I want to sell a June $100 as I want 
some positive money into the account but don't really wish to 
have my shares called away.  I realize the risk is there if SUNW 
gets to the strike plus the cost of the option that I've sold.  
The June 100 is bid at $3 5/8.  I sell that and $362.50 is 
credited to my account.  I'm the seller of the option, the time 
value erosion works in my favor.  I've also lowered my own cost 
basis of my leap to $68 3/8 as it was $72 (strike plus TV).  Now, 
say that SUNW goes down in a heap with the rest of the market one 
day.  Do I think that SUNW will recover so quickly and be worth 
$103.625 by June OE?  If so, I'd buy to close my call position for 
less than I sold it.  Let's say the market goes up 200 points 
on big volume starting Monday and never looks back.  SUNW goes to 
$110 by June OE.  I will have to exercize my leap to be able to 
deliver the shares if I'm called out.  If the leap were exercised, 
I'd incur the costs of doing that but will receive $100 share and 
pocket the $18 or so profit ($60 per share to buy the stock, plus 
$25 paid for the LEAP minus the premium I took in = $81.38) 
but be able to make a new play.  On the other hand, I could buy 
to close that call and would just turn around and sell a 
further out strike and add the difference of the call purchase 
and the subsequent new sale to the cost basis of the leap.  
Another less obvious advantage to rolling it out like this is that 
by retaining the LEAP for 366 days, it qualifies for LT capital 
gains rather than ST capital gains.  That's a major consideration 
to those in those higher tax brackets.  If SUNW is still under 
$103 by June OE, that call is worthless and I take my boys out to 
McDonald's and buy them another Playstation game because they're so 
good.  Not!  This is essentially the same as covered calls on stock 
that is owned.  Of course there are better plays out there than the 
SUNW hedge as there's not a lot of volatility priced into the SUWN 
calls.  If you have LEAPS or long stock sitting there idling in 
your port, put them to work.  You're lowering your cost basis, 
reducing your net exposure and risk.  

On a different note, I just have to share with you something one 
of my crazy friends sent to me.  I don't know who to credit but 
they've obviously got a great sense of humor . . . or pain maybe.  
Do you think my buddy meant anything personal by sending me this?
HMMMM.   


 

See anyone you know?

Good luck to you all and let's go make some money!  

Contact Support





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****************************
SEE DISCLAIMER IN SECTION ONE



The Option Investor Newsletter                     5-07-2000  
Sunday                                                3 of 5



*************
DAILY RESULTS
*************

Index      Last    Week
Dow     10577.86 -155.42
Nasdaq   3816.82  -43.80
$OEX      769.79    9.94
$SPX     1432.63   17.98
$RUT      512.84    6.60
$TRAN    2876.11    9.95
$VIX       30.39    1.53

Calls              Week

EPNY       89.38   23.31  Clear winner in this sideways market
ABGX      112.88   23.31  New, breakout over $100 last week
AFFX      156.06   21.00  Leading the Biotech recovery
EMLX       62.50   17.13  Great example of price gap methodology
KANA       55.34   12.78  Sizzling stock graced w/ 2 upgrades
SEPR      103.25   11.25  New, just what the market ordered
MEDI      170.25   10.31  New, looks to be on the road to recovery
HIFN       43.13    9.19  New, $40 resistance turns into support
SCMR       86.00    7.50  Undervalued??  Thanks J.P. Morgan
BVSN       49.63    5.69  New, a slew of upgrades & good technicals
AMD        92.25    5.44  The sky is the limit for AMD!
BRCM      177.81    5.44  Historical support at $165
SFE        44.25    2.13  Dropped, earnings on Wednesday 5/10
NOC        72.75    1.88  Dropped, it's time for us to fly
ARBA       76.00    1.81  Dropped, throwing in the towel
QCOM      109.75    1.31  Lehman reiterates price target of $180
ADBE      119.69   -1.25  Leading the charge in the software sector
TER       108.63   -1.38  Sector upgrades should give a boost
NTAP       69.88   -4.06  Earnings on May 18th
MERQ       85.00   -5.00  Took off like a rocket on Friday...
CMGI       65.25   -6.00  Dropped, refused to participate upward
TIBX       82.13   -6.94  Dropped, loved it while it lasted
JNPR      193.38  -19.31  Shares authorized to effect 2:1 split
RMBS      207.63  -22.38  Hanging tough after a bumpy week

Puts

CTXS       43.38  -17.69  Continues to slide south on higher vol
SNE       221.56   -4.08  Well, the glory days are over...for now
BOBJ       93.88   -4.00  Dropped, BOBJ will be missed
GCI        60.75   -3.13  New, pullback turned into all-out selling
LOW        47.81   -1.69  Looking for a bottom and still falling


STOCKS ADDED TO THE PICK LIST
*****************************

Calls

ABGX - Abgenix Inc
BVSN - Broadvision
SEPR - Sepracor
HIFN - Hi/fn Inc
MEDI - Medimmune

Puts

GCI  - Gannett Co 


***************************
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

NOC $72.75 (+1.88) In an attempt to capitalize on NOC's extensive
logistics experience, the company announced Friday the formation
of a new Logistics Systems and Materials Division.  The new
division will combine existing resources with new ones to provide
support for defense and commercial business opportunities.  The
announcement of the new division had no effect on traders last
Friday.  We saw some buying late Thursday afternoon, and we were
expecting investors to continue accumulating the stock into the
weekend.  But the buyers never showed up.  Instead, a wave of
selling overcame shares of NOC Friday morning, and the stock sank
to $72.25 in the first hour of trading.  In light of NOC's
weakness during Friday's broad market rally, it's time for us to
fly.

ARBA $76.00 (+1.81) With a huge yawn we are throwing in the
towel on this play.  Spending most of the week in a narrow
trading range is bad enough, but as the NASDAQ rallied towards
the end of the week, ARBA continued to drift aimlessly.  Volume
was near the ADV on Friday, but the $2 sell-off at the end of the
day on increasing volume does not bode well for the week ahead.
The final straw was the fact that ARBA closed below the
ascending trendline which had acted as support since mid-April.
The breakout may still materialize next week, but in light of
the poor performance this week, we'll fold our tent and move on
in search of more robust plays.

CMGI $65.25 (-6.00) As the NASDAQ appeared to regain its feet
late in the week, CMGI refused to participate.  Although Friday
did see a positive close, the stock is having a hard time
penetrating the $65-66 resistance level.  Like much of the rest
of the market CMGI is suffering from anemic volume, and the lack
of buyers makes it difficult to stay excited about the prospects
going forward.  Support is still holding in the low $60's, but
the stock needs to move if we are going to make money.  Right
now CMGI is not giving any indications that it is ready to move,
so we will drop it in favor of other stocks that are taking
advantage of the nascent NASDAQ recovery.

TIBX $82.13 (-6.93) We loved this play while it lasted (+$21), 
but now it's over.  TIBX not only failed to gain ground on Friday 
while the rest of the NASDAQ gained roughly 90 points, it lost 
over $6 in the process.  We can forgive a bit of profit taking, 
but it appears that TIBX may want to consolidate around $80 
before taking off again.  Descending weak volume with support at 
$80 confirms this.  While there aren't many sellers around, there 
aren't many buyers either.  Don't get us wrong.  We still like 
TIBX, and it may yet see a sympathy move into CSCO's earnings and 
a nice bounce off $80.  We just don't want to wait around for it 
to make up its mind.

SFE $44.25 (+2.25) SFE made a nice run for it, at the opening
bell on Friday hitting $46 in the first 90 minutes of the day.
The lack of buyers or lack of interest in general is not the
reason we are dropping SFE this weekend.  They are scheduled to
report earnings before the open on Wednesday.  For those wanting
to hang on for another day or two, SFE did pull back to an
intraday support level near $43.50 late Friday.  A bounce off
that area, especially if it's supported by any new buyers could
provide a last minute run into earnings.  SFE had a bit of a
rough week but did give us a couple of good entry points for a
short-term trades.  The long-term potential for this company
appears to be excellent, but for now its time to close open
positions and move on. 


PUTS

BOBJ $93.88 (-5.00) BOBJ rewarded us right off the bat on 
Wednesday with a swift descent to $88.88 from an early morning 
high of $97.  The next day traders were afforded plays amid 
intraday volatility from spikes peaking at $97.50 before BOBJ 
traded tightly around $93.50.  This was encouraging, but on 
Friday we were looking for this technical play to at least offer 
us tradable spreads, if not a decisive plunge below the 30-dma 
line.  Recall from the initial write-up on Tuesday, this level 
at the 30-dma ($93.49) was historically consequential.  Instead 
we saw BOBJ trade in a narrow channel giving hint it may be 
finding contentment at the current level.  This inclination 
towards complacency gives us reason to drop BOBJ and move on to 
greener pastures.  



STOCK SPLIT CANDIDATES 
***********************

Stocks we are playing that are on a Split Run

RMBS - Rambus
MEDI - Medimmune
JNPR - Juniper Networks


Current Split Candidates

AMD  - Advanced Micro Devices
ADBE - Adobe Inc
BRCM - Broadcom
ABGX - Abgenix Inc
AFFX - Affymetrix Inc
SEPR - Sepracor


STOCKS WITH UPCOMING SPLITS 
****************************

We don't list all splits available, only those we 
feel may have play possibilities. 

Symbol - Stock          Splits/Date  
NT   - Nortel           2:1 05-08-00 ex-date 05-09
CYSV - Cysive Inc       2:1 05-08-00 ex-date 05-09
ZOMX - Zomax Inc        2:1 05-08-00 ex-date 05-09
BALT - Baltimore Tech   5:1 05-10-00 ex-date 05-11
AXP  - American Exprs   3:1 05-10-00 ex-date 05-11
TFS  - Three Five Sys.  3:2 05-12-00 ex-date 05-15
SYK  - Stryker Corp     2:1 05-12-00 ex-date 05-15
ALKS - Alkermes         2:1 05-12-00 ex-date 05-15
PWAV - Powerwave Tech   3:1 05-15-00 ex-date 05-16
AMK  - Am Tech Ceramics 2:1 05-15-00 ex-date 05-16 
SIVB - Silicon Valley   2:1 05-15-00 ex-date 05-16
CMOS - Credence Systems 2:1 05-17-00 ex-date 05-18
ACLNF- A.C.L.N. Ltd     5:4 05-18-00 ex-date 05-19
RI   - Ruby Tuesday     2:1 05-19-00 ex-date 05-22
SNE  - Sony Corp        2:1 05-19-00 ex-date 05-22
CXR  - Cox Radio        3:1 05-19-00 ex-date 05-22
SBSI - Southside Banc.  2:1 05-19-00 ex-date 05-22
DG   - Dollar General   5:4 05-22-00 ex-date 05-23   
PAYX - Paychex          3:2 05-22-00 ex-date 05-23
PCCC - PC Connection    3:2 05-23-00 ex-date 05-24
EBAY - eBay Inc         2:1 05-24-00 ex-date 05-25
MSA  - Mine Safety App. 3:1 05-24-00 ex-date 05-25
AEG  - AEGON N.V.       2:1 05-30-00 ex-date 05-31
SCH  - Charles Schwab   3:2 05-30-00 ex-date 05-31
IBI  - Intimate Brands  2:1 05-30-00 ex-date 05-31
LTD  - The Limited      2:1 05-30-00 ex-date 05-31
AVX  - AVX Corp         2:1 06-01-00 ex-date 06-02
AES  - AES Corp         2:1 06-01-00 ex-date 06-02
MOT  - Motorola         3:1 06-01-00 ex-date 06-02
EMC  - EMC Corp         2:1 06-02-00 ex-date 06-05
KPN  - KPN Telecom      2:1 06-02-00 ex-date 06-05
MEDI - Medimmune        3:1 06-02-00 ex-date 06-05
NXTL - Nextel Comm      2:1 06-06-00 ex-date 06-07
FKL  - Franklin Capital 3:2 06-07-00 ex-date 06-08
LMGA - Liberty Media Grp2:1 06-09-00 ex-date 06-12
CMB  - Chase Manhattan  3:2 06-09-00 ex-date 06-12 
ANEN - Anaren Micro     3:2 06-09-00 ex-date 06-12
AA   - Alcoa            2:1 06-09-00 ex-date 06-12
RHI  - Robert Halg Intl 2:1 06-12-00 ex-date 06-13
RMBS - Rambus           4:1 06-14-00 ex-date 06-15
JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16
NXLK - Nextlink         2:1 06-15-00 ex-date 06-16
MEAD - Meade Inst.      2:1 06-19-00 ex-date 06-20
EXDS - Exodus Comm      2:1 06-20-00 ex-date 06-21
AAPL - Apple Computer   2:1 06-20-00 ex-date 06-21
XETA - Xeta Corp        2:1 07-17-00 ex-date 07-18
POS  - Catalina Mktg.   3:1 08-17-00 ex-date 08-18

For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter
page.


********************
THE PLAYS OF THE DAY 
********************

With all the great plays each week we can never decide
on just one so take your pick. 


Call plays of the day:
**********************

SCMR - Sycamore Networks $86.00 (+7.50)

See details in sector list

Chart = /charts/charts.asp?symbol=SCMR

****

ADBE - Adobe Systems $119.69 (-1.25)

See details in sector list

Chart = /charts/charts.asp?symbol=ADBE


Put play of the day:
********************

CTXS - Citrix Systems $43.38 (-17.69)

See details in sector list

Chart = /charts/charts.asp?symbol=CTXS



*************
DEFINITIONS
*************

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
MTD = Move to double - amount stock must move to double option price
                         in one week. ONE WEEK MOVE ONLY !

Numbers within ( ) are the amount of change for the week.
Numbers within ( ) may be designated with PxW, like P3W, prior 3
weeks

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.



**********
CALL PLAYS
**********

********
HARDWARE
********

NTAP - Network Appliance Inc. $69.88 (-4.06)(+17.06)

Network Appliance, a veteran in network file serving and caching,
has been providing data access solutions since 1992, and is a
member of both the S&P 500 and NASDAQ 100 index.  Corporations
and ISPs, including Lycos, Yahoo!, Citicorp Securities, Siemens,
Lockheed, Cisco, Motorola, and Texas Instruments have deployed
NetApp solutions.  NetApp Internet caching solutions, NetCache
appliances and file servers deliver fast, simple, reliable
and cost-effective access to network-stored data and enable
simultaneous shared file services for UNIX, Windows NT and the
World Wide Web.

All things considered, the results this week could have been 
worse.  NTAP lost about 5.5% in the last five days, but did
show pretty good resiliency after testing the $62 level on
Wednesday.  The lack of participation seems to have caused
many investors to take a wait and see attitude towards NTAP
and the broad markets.  Whether they are waiting for the Fed
or waiting for the volume to pick up, the fact is, the buyers
are simply not ready to jump back in just yet.  The positive
point here is there aren't many sellers either.  Another plus
backing our play is that NTAP is scheduled to report earnings May
18th after the close.  Although stocks making a strong run into
earnings have been few and far between this go around, NTAP
certainly could be one of the few.  Remember this is a stock
that lost over 67% of its market cap recently, and has only
repaired a small portion the damage.  So with investors on
hold how do we approach this play?  We are still looking at the
$65 area to provide support with the next level seen at $62.
Technically most studies point north and we would certainly
view moves higher as a chance to buy calls.  We would also be
prepared to sell to soon, if a move up the chart is not
accompanied by better volume.  The lack of conviction has
provided traders with some decent day-trading opportunities,
but we will need to see more players in the game to establish
a clear trend.  We are not suggesting or promoting a day-trading
approach to NTAP, but until the sentiment in the market changes,
we must play the cards we are dealt.

It was a rather slow week on the news front, however last Monday
NTAP did introduce a new low end product, the NetCache C1100,
a thin specialized server built around an Intel Chip.  On 
Wednesday, they announced that Concentric Network Corporation(CNCX)
a provider of Internet business solutions has reaffirmed NTAP
as its strategic provider of data storage.  Concentric has relied
on Network Appliance as its vendor of choice for four years. 

***May contracts expire in 2 weeks***

BUY CALL MAY-60 NUL-EL OI= 634 at $12.25 SL=9.25
BUY CALL MAY-65*NUL-EM OI= 791 at $ 8.63 SL=6.00
BUY CALL MAY-70 NUL-EN OI=1278 at $ 5.88 SL=4.00
BUY CALL MAY-75 NUL-EO OI=1156 at $ 3.63 SL=1.75
BUY CALL JUN-70 NUL-FN OI= 744 at $10.00 SL=7.00
BUY CALL JUN-75 NUL-FO OI= 748 at $ 7.88 SL=5.75

SELL PUT MAY-70 NUL-QN OI= 438 at $ 5.13 SL=7.25
(See risks of selling puts in play legend)

Picked on Apr 30th at    $73.94    PE = 393
Change since picked       -4.06    52 week high=$124.00
Analysts Ratings     11-5-1-0-0    52 week low =$  9.84
Last earnings 02/00   est= 0.11    actual= 0.11 
Next earnings 05-18   est= 0.06    versus= 0.03
Average daily volume = 4.57 mln
/charts/charts.asp?symbol=NTAP


HIFN - hi/fn Inc. $43.13 (+9.19)

Designing, developing and marketing a variety of products for
networking and storage applications, HIFN has a resume full of
technical jargon.  The company's multi-protocol, packet-
processor products perform the computation-intensive tasks of
compression, encryption/compression and public key cryptography,
providing its customers with high-performance, interoperable
implementations of a wide variety of industry-standard
networking and storage protocols.  Simply put, HIFN's products
allow network equipment vendors to add bandwidth enhancement
and security capabilities to their products.

After falling out of bed with the rest of the NASDAQ in early
March, shares of HIFN were looking like they might find support
near $40.  That was before the company announced earnings
though.  Posting no profits vs. an estimate of $0.20 per share
sent the bulls running for cover and the stock fell all the way
to the high $20's before the carnage ended.  Recovering for the
past week and a half, the HIFN chart is showing the beginnings
of a nice higher highs and higher lows pattern.  Finally back
above the 10-dma ($35.19), the stock has impressed us with the
strength of the move through the $40 level.  This could have
been formidable resistance, but the intraday chart on Friday
leads us to believe it may provide support going forward.
Adding to the rosy picture is volume, which has been steadily
increasing for the past 3 days as HIFN moves off of its most
recent low.  Friday actually saw over 600 K shares trade hands,
and this was in the midst of extremely light volume in the broad
markets.  Given that the earnings estimates for the next quarter
are right in line with those from last quarter, we think that
the numbers may have been an aberration.  At any rate, they are
already factored into the stock price and investors are stepping
forward to vote with their wallets.  Look for new entries if the
stock pulls back and bounces between $38-40, and keep your eye
on the volume.  If it continues to be strong, it is a good
indication that the recovery will continue.

HIFN continues to build alliances, the latest of which was
announced last Monday.  The company has announced
interoperability between SSH Communications Security's IPSec
(Internet Protocol Security) toolkits and HIFN's high-speed
encryption processors.  This will allow OEMs to achieve higher
levels of performance and take their IPSec-based new products
to market faster.

***May contracts expire in 2 weeks***

BUY CALL MAY-40*HXQ-EY OI=255 at $6.13 SL=4.00
BUY CALL MAY-45 HXQ-EZ OI=191 at $3.50 SL=1.75
BUY CALL MAY-50 HXQ-EJ OI=102 at $2.00 SL=1.00
BUY CALL JUN-45 HXQ-FZ OI= 49 at $7.00 SL=5.00
BUY CALL JUN-50 HXQ-FJ OI= 23 at $5.13 SL=3.00

Picked on May 7th at    $43.13     P/E = 45
Change since picked      +0.00     52-week high=$151.75
Analysts Ratings     0-2-3-0-0     52-week low =$ 28.00
Last earnings 04/00  est= 0.20     actual= 0.00
Next earnings 07-18  est= 0.21     versus= 0.35
Average Daily Volume =   496 K
/charts/charts.asp?symbol=HIFN


*************
SEMICONDUCTOR
*************

AMD - Advanced Micro Devices $92.25 (+4.75)(+9.13)(+12.38)

Advanced Micro Devices is a leading semiconductor manufacture.  
They ranked #2 in the microprocessor market, standing only 
behind Intel (INTC).  Their integrated circuits are primarily 
used for computers, telecommunications equipment, and data and 
networking devices.  The company has operations in the US, 
Germany, and throughout Asia.  Over 50% of its sales are outside 
the US.

The sky is the limit for AMD!  It rocketed to new highs three 
times this week.  And what a great entry point off key support 
at $85.88 on Wednesday.  The following trading sessions gave way 
to AMD taking flight and shooting through resistance at $92.  
Apparently the traders didn't care that Josephtal & Co 
downgraded the stock from a Buy to a Hold on Thursday.  By 
Friday, AMD rallied with the markets and set the latest 52-week 
record at $93.  From a technical perspective, firmer support 
lies at $86 and $84, although a more short-term measurement is 
at the 5-dma ($89.53).  Resistance is now at its all-time high, 
and then of course we face the psychological $100 level.  And be 
aware of the inescapable consolidation that every stock 
experiences at some time when planning your strategy.  Although 
the professionals and individual investors still appear to be 
very hot for this issue.  Look for AMD to continue powering 
higher on sheer momentum as the Semiconductor Sector ($SOX) 
leads the market.  Entries can be found by target shooting on 
dips based on your individual risk levels.  

When to comes to rivaling Intel in the PC microprocessor market, 
AMD is a serious contender.  But its market share for servers 
and workstations is practically nonexistent.  In an effort to 
change that, AMD teamed up with privately held, HotRail, to 
produce a chipset product that would allow AMD's chips to work 
in groups of four or more.  Unfortunately, HotRail announced this 
week that it's changing its focus to the more lucrative 
networking and communication chips.  As a result, AMD's long-
range plans were abruptly put on hold.

***May contracts expire in 2 weeks***

BUY CALL MAY- 85 AMD-EQ OI=2676 at $10.38 SL=7.50
BUY CALL MAY- 90 AMD-ER OI=9423 at $ 7.38 SL=5.25
BUY CALL MAY- 95 AMD-ES*OI=1492 at $ 4.75 SL=2.75
BUY CALL JUN- 95 AMD-FS OI= 447 at $ 9.75 SL=6.75
BUY CALL JUN-100 AMD-FT OI= 978 at $ 7.75 SL=5.50

Picked on April 21st at  $78.38    P/E = 65
Change since picked      +13.87    52-week high=$93.00
Analysts Ratings      7-9-6-0-0    52-week low =$15.63
Last earnings 03/00   est= 0.46    actual= 1.15
Next earnings 07-14   est= 1.09    versus=-1.10
Average Daily Volume = 5.24 mln
/charts/charts.asp?symbol=AMD


TER - Teradyne Inc. $108.63 (-1.38) (+8.56)

Teradyne is one of the world's top makers of automated test
equipment for electronics and telecommunications.  Teradyne
systems are used by manufacturers to analyze the performance of
semiconductors, circuit boards, and software, and by
telecommunications companies to test subscriber lines and
equipment.  Teradyne also makes backplanes, assemblies that
house circuit boards and connect their electrical impulses with
other elements in a system.  The company has operations in
Ireland, Japan, and the US, and gets almost half of its sales
from international business.

The chip equipment stocks showed strong gains Friday as the
SOX edged 1.6% higher.  The chip stocks can thank Merrill Lynch
for part of Friday's gains.  The Wall Street bull reiterated its
strong buy rating on Cypress Semi (CY).  TER received an
additional boost Friday stemming from traders' optimistic
anticipation of several upcoming events.  It's pretty much a
forgone conclusion that AMAT will surpass Wall Street estimates
when the chip equipment giant reports earnings next week.  Ahead
of the announcement, SG Cowen reiterated its strong buy rating
on AMAT.  Also, executives from TER are scheduled to present at
the 28th Annual H&Q Summit next week.  The conference is a tech
mecca, where companies guide Wall Street on future prospects.
The combination of AMAT's earnings report along with the tech
conference may lead to exciting trading next week.  With the
unexpected positive response to the economic data Friday, TER
easily cleared resistance at $105 and sailed higher into the
weekend.  The stock will have to take-out minor resistance at
$110 before retesting its 52-week high reached early last week.
You might look for a move above $110 for an entry point.  If
your looking to minimize risk, wait for a move above $115 on
heavy volume before entering the play.

TER will hold its Annual Shareholders Meeting on May 25th.
Investors are expected to approve a proposal to increase the
number of authorized shares from 250 mln to 1 bln.  The last
time TER split their shares was back in July of 1999 when the
stock was trading at $74.

***May contracts expire in 2 weeks***

BUY CALL MAY-105 TER-EA OI= 738 at $10.13 SL=7.00
BUY CALL MAY-110*TER-EB OI= 562 at $ 7.13 SL=5.00
BUY CALL MAY-115 TER-EC OI=1216 at $ 5.38 SL=3.50
BUY CALL JUN-115 TER-FC OI=  46 at $11.63 SL=8.75

SELL PUT MAY- 95 TER-QS OI= 22 at $ 7.00 SL=10.00
(See risks of selling puts in play legend)

Picked on Apr 25th at   $103.38    P/E = 59
Change since picked       +5.25    52-week high=$115.44
Analysts Ratings      9-9-0-0-0    52-week low =$ 21.81
Last earnings 03/00    est=0.51    actual=0.60
Next earnings 07-20    est=0.65    versus=0.20
Average Daily Volume = 1.97 mln
/charts/charts.asp?symbol=TER


BRCM - Broadcom, Inc. $177.81 (+5.44)(+19.88)(+30.25)

Broadcom Corporation is a provider of highly integrated, silicon 
solutions that enable broadband digital transmission of voice, 
data and video content to and throughout the home and within the 
business enterprise.  In other words, they make communications 
chips with integrated software.  Broadcom's products enable the 
high-speed transmission of voice, data and video content over 
existing communications infrastructures, most of which were not 
originally intended for digital transmission.  Broadcom designs, 
develops and supplies integrated circuits for some of the most 
significant broadband communications markets, including the 
markets for cable set-top boxes, cable modems, high-speed office 
networks, home networking, digital subscriber line, direct 
satellite broadcast and terrestrial digital broadcast.

Last week's Hardware Heaven conference sponsored by Merrill Lynch 
brought BRCM good news.  It should come as no surprise that 
Merrill is high on the stock.  Here's how briefing.com 
characterized their statements: "bookings during April haven't 
slowed at all, and [Merrill] believes that [BRCM's] 15% 
sequential revenue growth forecast is easily achievable."  It 
didn't hurt either that their CEO unveiled a new 2-way 
communications chip for set-top boxes, (which would presumably 
allow phone conversations as well as interactive TV), and a new 
10-gigabit optical transceiver chip.  Technically, BRCM finds 
support at about $165 on a historical basis.  However, the 10-dma 
is providing intraday support, currently at $168.88.  BRCM even 
closed above its 5-dma of $176.88 on Friday.  But don't look for 
that to provide much support forward - Friday was a slow day for 
BRCM and the market, making it susceptible to big swings with 
little trade sizes.  Not only that, but $180 is proving to be 
tough resistance to break through.  The descending volume last 
week won't help BRCM anytime soon either.  We really need to see 
volume take hold on a move over $180 in order to take a position.  
Otherwise, you may want to consider target shooting at $165 to 
$168, depending on your risk profile.  Just be sure to look for 
the bounce and to confirm market direction before playing.  While 
BRCM is a split candidate again, we may not see the announcement 
of such until the next earnings report in July.

No news this week except the Merrill Lynch conference mentioned 
above.

***May contracts expire in 2 weeks***

BUY CALL MAY-170 RDU-EN OI=1010 at $16.13 SL=11.50
BUY CALL MAY-175*RDU-EO OI=1544 at $13.25 SL=10.00
BUY CALL MAY-180 RDU-EP OI=1034 at $10.50 SL= 7.75
BUY CALL JUN-175 RDU-FO OI=  36 at $24.25 SL=16.50
BUY CALL JUN-180 RDU-FP OI= 279 at $22.00 SL=14.50

SELL PUT MAY-165 RDU-QM OI= 620 at $ 5.25 SL=7.50
(See risks of selling puts in play legend)

Picked on Apr 18th at   $152.50     P/E = 395
Change since picked      +25.31     52-week high=$253.00
Analysts Ratings     7-15-1-0-0     52-week low =$ 29.00
Last earnings 04/00   est= 0.16     actual= 0.17 surprise=6% 
Next earnings 07-18   est= 0.17     versus= 0.09
Average Daily Volume =  4.2 mln
/charts/charts.asp?symbol=BRCM


RMBS - Rambus Inc. $207.63 (-22.38)(+62.50)(+11.25)

Rambus Inc. develops and licenses high bandwidth chip connection 
technologies to enhance the performance of computers, consumer 
electronics and communications products.  Current Rambus-based
computers supported by Intel chipsets include Dell, Compaq,
Hewlett-Packard, and IBM PCs and workstations.  Sony's
PlayStation(r) video game system uses Rambus memory. Providers
of Rambus-based integrated circuits include the world's leading
DRAM, ASIC and PC controller manufacturers. Currently, eight of
the world's top-10 semiconductor companies license Rambus
technology.

It is said that we are a product of our environment.  The same
could be said for stocks.  That would seem to be the case for
our play in RMBS.  After the bounce late Wednesday afternoon
from $185, RMBS has spent the better part of the past two 
sessions edging higher, but drifting for the most part in
a narrow $10 range.  Although the volume was better mid-week
buying interest slowed to a crawl on Friday.  Many traders appear
to be taking a break from buying or selling, attempting to rest
up from some of the recent volatility.  Some analysts suggest
the margin calls that hit traders last month as the primary
reason for buyers shying away from the markets, while others
point the finger at the Fed.  Truth is, probably both scenario's
warrant some merit.  Friday, after a stutter step lower at the
opening bell, RMBS did manage to bounce back up and trade between
$205 and $213 for the rest of the day.  Although the volume 
wasn't that bad on Friday, with 3.1 million shares traded, we are
somewhat concerned that there wasn't better follow-through from
the bounce mid-week.  With a lack of conviction and the Fed cloud
hanging over the markets, perhaps we should be grateful RMBS 
hasn't continued south.  We don't have earnings to help move
our play, but with the upcoming special board meeting scheduled
for May 23rd, we could begin to see some excitement generated 
for the stock.  Shareholders are being asked to approve an 
increase in the number of authorized shares, which if approved,
will result in a 4-for-1 split of the company's stock.  The
technical picture has changed very little and bounces off the
$200 or $185 level could still be considered an attractive entry
point.  If trading is choppy this week, be prepared to pull some
profits off the table in profitable positions.

There was little in the way of company specific news this week for
Rambus.  The buzz for those in the industry still seems to be
centered around whether RMBS technology will be adopted as the 
industry standard.  Morton Topfer, a director at Dell, spoke at
an investor meeting this week sponsored by Merrill Lynch.  Topfer
said the company isn't having trouble getting chips and other
components for its PC's.  He also said Rambus's memory-chip
technology won't become the standard until prices drop.

***May contracts expire in 2 weeks***

BUY CALL MAY-200 BYQ-ET OI= 620 at $24.00 SL=18.50
BUY CALL MAY-210*BYQ-EB OI= 386 at $19.00 SL=13.75
BUY CALL MAY-220 BYQ-ED OI= 584 at $15.00 SL=11.00
BUY CALL MAY-230 BYQ-EF OI=1083 at $11.50 SL= 8.50
BUY CALL JUN-200 BYQ-FT OI= 137 at $41.00 SL=29.75

SELL PUT MAY-190 BYQ-QR OI= 161 at $10.00 SL=13.25
(See risks of selling puts in play legend)

Picked on Apr 23rd at   $167.50    PE = N/A
Change since picked      +40.13    52 week high=$471.00
Analysts Ratings      1-1-2-0-0    52 week low =$ 51.50
Last earnings 04/00   est= 0.14    actual= 0.15 
Next earnings 07-12   est= 0.16    versus= 0.08
Average daily volume = 3.56 mln
/charts/charts.asp?symbol=RMBS


********
INTERNET
********

EPNY - E.piphany Inc. $89.38 (+23.31)

E.piphany, Inc. is a provider of web-based software solutions 
that enable companies to get, keep and grow customer 
relationships.  The E.piphany E.4 system is an integrated suite 
of software solutions that allow businesses to collect, analyze 
and act on customer data from existing software systems as well 
as third-party data providers. Business users throughout the 
company have the ability to continuously identify and 
differentiate customers, then customize and personalize products, 
services and interactions based on customers' wants and needs. 
E.piphany, Inc. is headquartered in San Mateo, California.

We noted Thursday that this CRM (customer relationship 
management) software maker has moved up $21 since Monday's open 
while the rest of the NASDAQ market has shed 210 points.  The 
sector is hot.  Unfortunately, EPNY stopped dead in its tracks 
and gave up a small piece of ground ($1.63) on Friday while the 
rest of the market moved ahead.  That's OK.  Don't read too much 
into it as it happened on volume just 83% of the ADV.  EPNY has 
been a clear winner in this sideways market, especially since 
hitting a recent bottom at $43 on April 17th, when it beat the 
Street's earnings estimate by 38%.  Revenues were up over 61% 
sequentially and over 660% from last year.  HWP, CSCO, and EK all 
use its products.  Technically, EPNY had been really strong and 
held its 5-dma (slightly under on Friday, but close enough to 
count), currently $89.61, while other tech stocks got killed.  
While there is still relative strength, we expected a better 
performance on Friday.  The good news is that an ascending wedge 
pattern has formed over the last four weeks indicating a possible 
breakout with upper resistance around $100.  Support can be found 
on the severe low end at $45, then $65, then more recently at $80 
(prior resistance), followed by intraday support at $85 and $87.  
EPNY is however extremely volatile and can have $20 price swings, 
even in the current flat market with low volumes.  If you are not 
well-seasoned in this kind of environment, you may want to pass 
the trade up in favor of something more stabile.  THE SPREADS ARE 
HUGE, GENERALLY $2-$3, which will kill you unless there is a 
"more huge" price move.  That means the stock needs to move $5 or 
$6 just for you to break even from the spread on an ATM strike.  
Only swelling volume is going to make that possible.  Again, 
experts only.  For a more conservative play in the same sector 
(still volatile), check out BVSN.

Still no news.  The company web site hasn't even posted an 
article since April 17th earnings.  Next earnings are in July.

***May contracts expire in 2 weeks***

BUY CALL MAY- 85 PEY-EQ OI= 31 at $11.88 SL= 8.75
BUY CALL MAY- 90 PEY-ER OI=128 at $ 9.25 SL= 6.50
BUY CALL MAY- 95*PEY-ES OI=154 at $ 7.25 SL= 5.00
BUY CALL JUN- 95 PEY-FS OI=  1 at $13.13 SL=10.00 Low OI!
BUY CALL JUN-100 UEP-FU OI= 57 at $10.75 SL= 8.00

SELL PUT MAY- 70 PEY-QN OI= 11 at $ 1.00 SL= 2.00 Low OI!
(See risks of selling puts in play legend)

Picked on May 2nd at   $ 90.94     P/E = N/A
Change since picked      -1.56     52-week high=$324.88
Analysts Ratings     3-4-0-0-0     52-week low =$ 38.00
Last earnings 04/00  est=-0.22     actual=-0.16 surprise=38% 
Next earnings 07-17  est=-0.16     versus= N/A
Average Daily Volume  =  585 K
/charts/charts.asp?symbol=EPNY


MERQ - Mercury Interactive Corp. $85.00 (-5.00)(+17.63)(P2W-14.19)

Mercury Interactive Corp. is the leading provider of Web
performance management solutions that help e-businesses deliver
a positive user experience.  Mercury Interactive solutions enable
its customers to turn Web application performance, scalability
and user experience into competitive advantage. The company's
performance management products and hosted services are open and
integrated to best test and monitor business-critical Web
applications.  Mercury Interactive is headquartered in Sunnyvale,
California and has more than 40 offices worldwide.

Well, MERQ certainly took off like a rocket Friday morning.  Just
when it appeared as though our play may go into orbit, it ran out
of gas, as traders took their money and went home, exiting early
for the weekend.  In less than 90 minutes traders drove the price
of MERQ shares to $88.  For the final five hours of the day most
of the action took place in a narrow range between $84.50 and
$86.50.  Just how slow was the trading Friday in MERQ?  Volume
for the day was about 75% of the norm with 1.2 million shares
traded.  Of the 1.2 million changing hands about half of that
occurred in the first hour and a half of the session.  What we're
getting at is there does seem to be buyer interest in MERQ, but
the empathy or fear in the broad market is keeping our current
favorite from gaining much momentum.  MERQ did drop about $1.50
in the final 15 minutes of trading on Friday, with a fair amount
of sellers.  However, it really appeared to be day-traders exiting
positions going into the weekend.  Our take on MERQ?  After a
test of $77.63 on Wednesday, the software company, is making
higher highs, higher lows, and two consecutive higher closes,
which is plus.  The way the $80 area provided support on several
occasions Thursday is good sign for our play.  The 10-dma at
$81.84 did its job of finding a few buyers on Friday as well.  We
definitely aren't out of the woods yet, as a move through this
week's high at $94.50 with solid volume, may be necessary to
confirm the strength of the new trend.  Next week could continue
to be a bit tricky.  We would look to enter on further moves
higher, but would be somewhat suspicious if the volume doesn't
pick up.  Intraday charts show support at $85, $83 and $80.

Goldman Sachs was more friendly to MERQ, than others this week.
Citing the company has the unique ability to offer a full range
of products aimed at eBusiness application testing and 
performance monitoring, the brokerage firm added MERQ to its
Recommended List, with a target price of $110.  We would also
keep in mind the possible split announcement later this month,
as the annual stockholders meeting is scheduled for May 24th,
with a request to increase the authorized shares to 240 mln.
on the agenda.

***May contracts expire in 2 weeks***

BUY CALL MAY-75 RQB-EO OI=412 at $12.50 SL= 9.50
BUY CALL MAY-80*RQB-EP OI=459 at $ 9.25 SL= 6.50
BUY CALL MAY-85 RQB-EQ OI=215 at $ 6.13 SL= 4.00
BUY CALL MAY-90 RQB-ER OI=356 at $ 4.38 SL= 2.75
BUY CALL JUL-90 RQB-GR OI=376 at $12.63 SL= 9.50

SELL PUT MAY-85 RQB-QQ OI= 63 at $ 7.38 SL=10.00
(See risks of selling puts in play legend)

Picked on Apr 16th at    $58.75    PE = 195
Change since picked      +26.25    52 week high=$134.50
Analysts Ratings      8-3-1-0-0    52 week low =$ 12.25
Last earnings 04/00   est= 0.11    actual= 0.10 
Next earnings 07-13   est= 0.12    versus= 0.09
Average daily volume = 1.58 mln
/charts/charts.asp?symbol=MERQ


BVSN - Broadvision Inc. $49.63 (+5.69)

Headquartered in Redwood City, California, BroadVision, Inc. is 
the self-proclaimed leader in personalized e-business 
applications.  That means they are in the customer relationship 
management (CRM) software business.  BroadVision's comprehensive 
suite of integrated applications is built for delivery via the 
Web and wireless devices.  Companies using BroadVision's 
applications get to market quickly, launching innovative e-
commerce, self-service and enterprise information sites.  These 
sites enable personalized interactions and transactions with 
customers, partners, suppliers and employees.  BroadVision One-
To-One (TM) applications power business-to-consumer and business-
to-business sites for many of the world's top companies in the 
financial services, telecommunications, electronics, 
manufacturing, retail and travel industries.  BroadVision 
applications are available in more than 120 countries worldwide. 

Seeking a good play in the hot customer relations management 
(CRM) sector?  On Tuesday, Goldman Sachs said that it has 
upgraded BroadVision Inc. to its U.S. Recommended for Purchase 
list from its Market Outperform rating.  Not to be outdone, CS 
First Boston upgraded the issue to a Strong Buy from Buy with a 
price target of $70.  According to briefing.com, recent 
implementation of tiered partner program (Jan'00) is driving 
enhanced revenue visibility for BVSN as Tier 1 partners are 
dedicating set minimums for license revenue in CY '00 (some in 
excess of $25 mln).  CSFB believes the stage is set (with minor 
bumps in the road) for BVSN to emerge as one of the top guns in 
the e-commerce platform industry.  Despite flagging volume for 
the overall market, BVSN's volume has remained at least 30% over 
the ADV for most of last week, telling us that there is 
substantial buying interest.  You may have noted that BVSN has 
already made a nearly 100% gain off its low of $25 set in the 
mid-April selloff.  Technically, MACD has turned up again, while 
the stochastic too has made an about face and headed north.  Good 
support over the last week is $42.50, which had moved to $48 by 
the end of the week.  The higher lows are an indication of a 
pending breakout.  We love to see that since it is one of the 
strongest signals of investor interest.  Careful, resistance is 
at $50.  For the conservative, you may want to see a move over 
$50 backed by continued strong volume.  Otherwise, consider 
target shooting at $45 or $48.50 depending on your risk profile. 

In the news, BVSN shares began trading in Belgium last week, 
which will give the stock more international visibility.  It was 
also announced that idmarket.com (www.idmarket.com), the 
business-to-business marketplace for the packaging and product 
identification industries, has launched its electronic exchange 
using BroadVision, according to Bloomberg News.

***May contracts expire in 2 weeks***

BUY CALL MAY-45*BDV-EI OI=2568 at $6.50 SL=4.50
BUY CALL MAY-50 BZV-EJ OI=4983 at $3.75 SL=2.00
BUY CALL MAY-55 BZV-EK OI=2275 at $2.13 SL=1.00
BUY CALL JUN-50 BZV-FJ OI=1965 at $7.50 SL=5.25
BUY CALL JUN-55 BZV-FK OI= 744 at $6.00 SL=4.00

SELL PUT MAY-45 BDV-QI OI= 842 at $1.69 SL=3.50
(See risks of selling puts in play legend)

Picked on May 2nd at   $ 49.63     P/E = N/A
Change since picked      +0.00     52-week high=$93.25
Analysts Ratings    7-13-1-0-0     52-week low =$ 4.44
Last earnings 04/00  est= 0.02     actual= 0.04 surprise=100% 
Next earnings 07-26  est= 0.02     versus= 0.01
Average Daily Volume = 8.0 mln
/charts/charts.asp?symbol=BVSN


*********
SOFTWARE
*********

ADBE - Adobe Systems $119.69 (-1.25)(+8.31)(+14.81)(-27.19)

Adobe Systems is a leader in desktop publishing software, the
company's Acrobat Reader is popping up all over the Internet as
users clamor to display portable document format (PDF) documents
on the Web.  Three of Adobe's products, Photoshop, Illustrator,
and Page Maker generate about 60% of its sales.  The company also
markets print technology to OEMs and has stakes in a string of
technology firms whose products complement its own offerings.
Adobe is hoping a restructuring effort and the introduction of
its InDesign publishing package will spur sales and accelerate
its product growth track record.

We love ADBE, unlike that nasty e-mail virus.  ADBE led the
charge in the software sector Friday, gaining over 5%.  Stocks
such as VRTS, ORCL, and even Big Softee earned solid gains in
end of week trading.  After discounting the employment number
Friday morning, traders decided to snap up quality techs stocks
trading at favorable prices.  With a forward-looking P/E of 50
and an earnings growth rate of 30%, ADBE seems more than
favorable.  With the massive amount of cash sitting in money
managers' pockets, institutions are beginning to accumulate the
tech leaders like ADBE.  While the recent trading volume in ADBE
isn't necessarily conducive of a typical accumulation phase, the
stock's relative strength paints a different picture.  In the
three weeks we've played ADBE, we've pounded the table about how
the stock has managed to remain in its ascending channel while
other leading techs have stumbled.  Last Wednesday, ADBE traced
a higher low at $104, and quickly recovered $15 in the following
two days.  We're looking for ADBE to continue its ascent, and
break-through overhead resistance.  Watch for a bold move above
$120 on strong volume for a possible entry point.

ADBE announced late last week that they would be an official
sponsor of the One Show Festival.  The gathering is the most
prestigious awards show for media professionals and students.
The program will give ADBE an opportunity to showcase its
Photoshop and Illustrator applications.

***May contracts expire in 2 weeks***

BUY CALL MAY-115*AXX-EC OI=2090 at $11.25 SL=8.25
BUY CALL MAY-120 AXX-ED OI= 548 at $ 8.75 SL=6.00
BUY CALL MAY-125 AXX-EE OI= 346 at $ 6.63 SL=4.50
BUY CALL JUN-125 AXX-FE OI= 100 at $13.00 SL=9.75

SELL PUT MAY-110 AXX-QB OI= 648 at $ 4.13 SL=6.00
(See risks of selling puts in play legend)

Picked on Apr 11th at   $119.50    P/E = 58
Change since picked       +0.19    52-week high=$125.00
Analysts Ratings      4-7-3-0-0    52-week low =$ 27.50
Last earnings 02/00    est=0.43    actual=0.47
Next earnings 06-15    est=0.47    versus=0.35
Average Daily Volume = 2.41 mln
/charts/charts.asp?symbol=ADBE


*******
TELECOM
*******

QCOM - Qualcomm Inc. $109.75 (+1.31)

Ever heard of CDMA technology?  QUALCOMM Incorporated is a 
leading developer and supplier of digital wireless communications 
products and services and is the innovator of CDMA, a technology 
that has become the world standard for the wireless 
communications industry.  Just as Microsoft gets paid almost 
every time a PC is sold, QCOM gets paid the same way every time a 
Sprint PCS or GTE phone is sold in the U.S.  The rest of the 
world adds more.  China is likely to adopt the standard soon too, 
which will open up CDMA's potential to 1 bln people.  

What rumor?  It's like the rumor that circulated among traders 
last Tuesday that NOK would make a buyout offer for QCOM never 
happened.  In fact, the rumors currently appear to be false.  
Nonetheless, that didn't stop QCOM from moving up nearly 10% this 
week despite a NASDAQ market that came up short.  No matter, 
briefing.com reports that Lehman Brothers reiterated their Buy 
rating and price target of $180 based on growing confidence in 
the near-term & longer-term outlook.  Lehman cited strengthening 
momentum in the CDMA chipset business.  Technically, $105 is 
providing excellent historical and intraday support.  In fact, 
despite NASDAQ turmoil, QCOM stayed above $104.75 all week.  
Tapering volume though (just 48% of the ADV on Friday) is telling 
us that selling has run its course and that QCOM may consolidate 
here until after the FOMC meeting on May 16th.  To us, that looks 
like a great point to target shoot.  If you really want to get 
aggressive, try $100, but the chances of getting filled there are 
much slimmer.  The worst case scenario is to aim at the 200-dma 
(currently $95.23), a technical level from which QCOM has ALWAYS 
bounced.  Resistance?  Plenty of room to run up to $120.  QCOM 
will need a spark though to get the volume moving for the next 
leg up.  Let volume be your guide.

News is contained above.

***May contracts expire in 2 weeks***

BUY CALL MAY-105*AAF-EA OI=7323 at $ 9.25 SL=6.50
BUY CALL MAY-110 AAF-EB OI=9704 at $ 6.75 SL=4.75
BUY CALL MAY-115 AAF-EC OI=7609 at $ 4.75 SL=3.00
BUY CALL JUN-110 AAF-FB OI=1574 at $12.00 SL=9.00
BUY CALL JUN-115 AAF-FC OI=2217 at $ 9.75 SL=6.75

SELL PUT MAY-105 AAF-QA OI=5374 at $ 4 13 SL=2.50
(See risks of selling puts in play legend)

Picked on May 2nd at    $113.69     P/E =141
Change since picked       -3.94     52-week high=$200.00
Analysts Ratings      8-6-4-0-0     52-week low =$ 21.50
Last earnings 04/00   est= 0.24     actual= 0.26 surprise=8% 
Next earnings 07-18   est= 0.27     versus= 0.19
Average Daily Volume = 16.4 mln
/charts/charts.asp?symbol=QCOM


KANA - Kana Communications $55.34 (+12.78)(+2.56)

Kana Communications is a leading provider of comprehensive 
online customer communications solutions for marketing, sales 
and service. These mission critical applications support 
multiple channels of online contact including inbound and 
outbound e-mail, web based customer self-service, web forms, 
real-time messaging and voice over the Internet.  The company 
offers a comprehensive suite of online customer communication 
products for managing the entire customer lifecycle.

This sizzling infrastructure stock was graced with two upgrades 
this week.  Goldman Sachs upgraded KANA from a Market Outperform 
to the Recommended List on Tuesday which drove the share price 
upwards 6.5%.  Then on Thursday, Chase H&Q upped their rating to 
a Strong Buy from Buy which again gave the stock a nice boost.  
Despite a set-back on Wednesday and others in the sector like 
EXDS, ISLD and AKAM consolidating, KANA continues to inch higher 
and higher.  Another bullish sign is that the stock's pattern of 
higher-lows continues to demonstrate its recovery potential. 
Looking at the stock's technicals, short-term support is at $48 
and $50 in-line with the 5-dma ($49.06).  Solid bounces off this 
level in provide great entry points. The breakout above $55 on 
almost triple the volume Friday validated this play's momentum 
is intact.

This week Kana Communications announced it's providing 
Firstdoor.com, an emerging human resources and benefits center, 
with the technology needed to develop a B2B online source. 

***May contracts expire in 2 weeks***

BUY CALL MAY-50*URW-EJ OI=731 at $7.50 SL=5.25
BUY CALL MAY-55 URW-EK OI=234 at $5.25 SL=3.25
BUY CALL MAY-60 URW-EL OI=281 at $3.38 SL=1.75
BUY CALL JUN-55 URW-FK OI=122 at $9.50 SL=6.50
BUY CALL JUN-60 URW-FL OI= 97 at $7.38 SL=5.00
BUY CALL JUN-65 URW-FM OI=183 at $6.00 SL=4.00

Picked on April 30th at  $42.56    P/E = N/A
Change since picked      +12.78    52-week high=$175.50
Analysts Ratings      5-2-0-0-0    52-week low =$ 22.78
Last earnings 03/00   est=-0.23    actual=-0.19
Next earnings 07-26   est=-0.23    versus= N/A
Average Daily Volume = 1.09 mln
/charts/charts.asp?symbol=KANA


*********************************
CALLS - CONTINUED IN SECTION FOUR
*********************************



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*******************************
SEE DISCLAIMER IN SECTION ONE




The Option Investor Newsletter                     5-07-2000  
Sunday                                                4 of 5


*****************
CALLS - CONTINUED
*****************

*******
BIOTECH
*******

AFFX - Affymetrix Inc. $156.06 (+21.00)

AFFX has established itself as a worldwide leader in the 
field of DNA chip technology.  The Company has developed and 
intends to establish its GeneChip system as the platform of 
choice for acquiring, analyzing and managing complex genetic 
information in order to improve the diagnosis, monitoring and 
treatment of disease.  The Company's GeneChip system consists 
of disposable DNA probe arrays containing gene sequences on a 
chip, certain reagents for use with probe arrays, a scanner 
and other instruments to process the probe arrays, and software 
to analyze and manage genetic information from the probe 
arrays.  The company sells its products to Drug and Biotech 
companies involved in gene research.

The free-fall in the Biotech sector, which began in early March
finally reached bottom in mid-April, and stocks like AFFX are
leading the recovery.  Providing the products and information
needed by companies involved in genetic research, AFFX is well
positioned to profit from the growth in the sector, much like
companies like CSCO and EMC are profiting from the growth of
the Internet.  The past 3 weeks have seen a nice recovery as
shares of the company have been posting higher highs and higher
lows.  The light volume is still an area of concern, but is
likely due to the buyers strike in the broad markets.  With
AFFX still trading more than 50% off its highs of 2 months ago,
there is plenty of upside potential.  The stock has moved
solidly through resistance in the low $130's (which should now
provide solid support) and is now above the 200-dma (currently
$140.88).  With the gains on Friday, AFFX has now broken
through resistance at $152, and if buyers start showing up,
the gains could be impressive.  The next level of resistance
is near $158 and pushing through this level would be a good
trigger for entering on strength.  With the current unsettled
state of the broad markets, we could see a pullback next week.
A bounce near the 200-dma would make for an attractive entry
point as well.

GeneLogic Inc., a leading provider of genomic information,
announced last Monday that they will exercise an option in their
GeneChip agreement with AFFX to include access to custom
GeneChip probe arrays.  GeneLogic will provide proprietary
information from its internal sequence database to AFFX so that
the company can design and manufacture a series of custom
arrays.  These custom arrays will allow AFFX to expand their
current 60,000 human gene set, which consists of current
sequences emerging from the Human Genome Project.

***May contracts expire in 2 weeks***

BUY CALL MAY-150*FIQ-EZ OI=938 at $17.63 SL=12.75
BUY CALL MAY-160 FUE-ES OI=156 at $13.00 SL= 9.75
BUY CALL MAY-170 FUE-ET OI=212 at $ 9.63 SL= 6.75
BUY CALL JUN-150 FIQ-FZ OI= 44 at $29.50 SL=22.00

SELL PUT MAY-135 FIQ-QG OI= 15 at $ 4.88 SL= 7.00
(See risks of selling puts in play legend)

Picked on May 4th at    $150.09     P/E = N/A
Change since picked       +5.97     52-week high=$327.00
Analysts Ratings      2-6-2-0-0     52-week low =$ 32.50
Last earnings 04/00   est=-0.26     actual=-0.14
Next earnings 07-20   est=-0.12     versus=-0.32
Average Daily Volume = 1.08 mln
/charts/charts.asp?symbol=AFFX


SEPR - Sepracor Inc. $103.25 (+11.25)

Sepracor develops and commercializes new, patented forms of
existing pharmaceuticals by purging them of nonessential
molecules.  The company's products can reduce side effects,
provide new uses, and improve safety, performance, and dosage.
Sepracor focuses its efforts on gastroenterology, neurology,
psychiatry, respiratory care, and urology.  The company is also
developing its own new drugs to treat infectious diseases and
conditions of the central nervous system.

Feeling ill from the recent ups and downs in the market?  Perhaps
a dose of SEPR is just what the market ordered.  SEPR improves
existing, widely prescribed drugs, increasing efficacy and
reducing side effects.  SEPR works with the biggest names in the
industry such as Schering-Plough, Lilly, and Johnson & Johnson.
SEPR has been instrumental in improving some of the most popular
medications on the market right now.  Allegra, Claritin, and
Prozac are all beneficiaries of SEPR's technology.  SEPR is also
developing and marketing its own line of drugs through an
internal development program.  The program is expected to add to
SEPR's earnings stream, taking the company to profitability.
Since falling from its high of $126 in early March, SEPR bounced
and regained nearly 75% of its lost value.  We're looking for the
renewed momentum to carry SEPR higher, especially since the stock
just crossed the psychologically important $100 level.  SEPR
edged above resistance of $103 on Friday.  From here, the stock
won't face heavy congestion until $114.  Watch for a bounce off
support at $100 or wait for a strong move above current levels
as a confirmation that momentum is alive and well for SEPR.  A
rally on above-average volume would provide an additional
verifier.

Deutsche Bank Alex Brown will hold their Healthcare 2000
Conference next week.  The gathering is the premier event for
healthcare companies to present to Wall Street.  SEPR will be a
headline presenter at this year's conference.  Positive guidance
from the company could lead to analyst upgrades.

***May contracts expire in 2 weeks***

BUY CALL MAY-100 ERU-ET OI=418 at $ 9.00 SL=6.25
BUY CALL MAY-105*ERU-EA OI=375 at $ 7.00 SL=5.00
BUY CALL MAY-110 ERU-EB OI=149 at $ 5.00 SL=3.00
BUY CALL JUN-105 ERU-FA OI= 34 at $13.13 SL=9.75

SELL PUT MAY- 95 ERU-QS OI= 13 at $ 3.88 SL=6.00
(See risks of selling puts in play legend)

Picked on May 7th  at   $103.25    P/E = N/A
Change since picked        0.00    52-week high=$126.81
Analysts Ratings      5-4-2-0-0    52-week low =$ 27.50
Last earnings 03/00   est=-0.96    actual=-0.76
Next earnings 07-24   est=-0.55    versus=-0.56
Average Daily Volume = 1.09 mln
/charts/charts.asp?symbol=SEPR


MEDI - MedImmune Inc. $170.25 (+10.31)

MedImmune is a biotech company focused on developing and 
marketing products that address medical needs in areas such 
as infectious disease, autoimmune disorders, cancer, and 
transplantation medicine.  The company has six products on 
the market and a diverse product development portfolio.  The 
products currently on the market include Synagis, CytoGam, 
RespiGam, Ethyol, Neutrexin, and Hexalen.

Faring better than the rest of the Biotech sector during the
March panic, MEDI looks like it is really on the road to
recovery.  After falling all the way to the 200-dma (near $132),
the stock halted its decline and after posting strong earnings
on April 19th, began to recover.  On the back of a 46% year-over-
year revenue increase, the company's net profits jumped by 126%
in the same period.  Combining sales far in excess of
projections with increasing gross margins, the company looks to
be in a healthy growth phase and this always appeals to
investors.  After the last bounce at the 200-dma a little over
a week ago, the stock has moved strongly, adding $39 and slicing
through every moving average, including the 50-dma ($169.25).
The strong move last week pushed MEDI through the resistance
zone between $160-165, and this area should provide support
going forward.  If the buying interest continues next week, the
next level of resistance will be near $180, followed by $190.
The stock has moved over $20 in the past 2 days, and volume is
still on the light side, so a pullback to test support would not
be out of the question.  Consider entries if the bounce is
confirmed by good buying volume, and stand aside if $160 fails
to hold as support.

As an added incentive on the play, MEDI announced in February
a 3-for-1 stock split payable on May 18th.  The split is
contingent on the shareholder approval, which should be
forthcoming at the Annual Shareholder Meeting on May 18th.

***May contracts expire in 2 weeks***

BUY CALL MAY-170 MEU-EN OI= 304 at $12.00 SL= 9.00
BUY CALL MAY-175 MEU-EO OI= 388 at $ 9.63 SL= 6.75
BUY CALL MAY-180*MEU-EP OI=1137 at $ 7.50 SL= 5.25
BUY CALL JUN-175 MEU-FO OI= 263 at $19.00 SL=13.75
BUY CALL JUN-180 MEU-FP OI= 143 at $17.50 SL=12.75

SELL PUT MAY-150 MEQ-QJ OI= 339 at $ 3.13 SL= 5.00
(See risks of selling puts in play legend)

Picked on May 7th at    $170.25     P/E = 119
Change since picked       +0.00     52-week high=$228.75
Analysts Ratings     12-1-0-0-0     52-week low =$ 53.13
Last earnings 04/00   est= 0.75     actual= 0.80
Next earnings 07-19   est=-0.07     versus=-0.19
Average Daily Volume = 1.61 mln
/charts/charts.asp?symbol=MEDI


ABGX - Abgenix Inc $112.88 (+23.31)

Abgenix is a biopharmaceutical company that develops antibody 
therapeutics for transplant-related conditions, inflammatory and 
autoimmune disorders, cancer, and cardiovascular disease.  It 
uses its own technology, called XenoMouse (use of genetically 
engineered mice), which it bought from Japan Tobacco.  The 
parent company, Cell Genesys, spun off Abgenix in 1996 and 
retains nearly a 15% stake.

The Biotech slump, which began in early March, left ABGX 
struggling to keep its share price above $60 by the time all was 
said done in mid-April.  Despite a bright spot in trading where 
ABGX pinnacled at $109.75 on April 7th, which paralleled the 
company's 2:1 split, the stock quickly returned to its bottom.  
Over the past few weeks ABGX developed a pattern of higher-lows 
and made valiant attempts to break out of its trading range,   
but continually hit a wall of resistance at $100.  However, the 
building momentum of the Biotech sector changed all that this 
week.  On Thursday, ABGX moved through $100 on moderate volume 
and confidently held the higher share prices.  We need to see 
ABGX hold this level going forward with support establishing 
itself at $100-$105, or better.  It'd be nice to see an increase 
in trading volume too, but considering the light volume in the 
broad markets this would be icing on the cake.  Entries into 
this momentum play can be considered on intraday dips or during 
a reasonable pullback to support.  A more cautious approach 
would be to wait for ABGX to confirm its upward trend over the 
next few sessions.  

On Tuesday, Abgenix announced it signed an agreement with 
Genzyme Transgenics Corporation (GZTC).  For an undisclosed 
amount, GZTC will produce ABGX's fully human monoclonal 
antibody, ABX-IL8, through the development of transgenic goats 
that express the antibody in their milk.  ABX-IL8 is currently 
in Phase II clinical trials for psoriasis.  This is the kind of 
news that can drive a stock higher over the short-term.  Also 
this week, Abgenix held its Annual Shareholders' Meeting.  The 
BoD asked for an increase in the number of authorized shares 
from 50 mln to 100 mln.  Perhaps there'll be another stock split 
this year!

***May contracts expire in 2 weeks***

Note: Currently there are no June contracts above a $100 strike 

BUY CALL MAY-105 AXY-EA OI= 43 at $14.38 SL=10.50
BUY CALL MAY-110*AXY-EB OI=107 at $11.00 SL=11.00
BUY CALL MAY-115 AXY-EC OI= 16 at $ 8.75 SL= 6.00
BUY CALL MAY-120 AXY-ED OI= 27 at $ 6.75 SL= 4.50
BUY CALL JUN- 95 AZG-FS OI=  0 at $21.88 SL=17.00
BUY CALL JUN-100 AXY-FT OI=  3 at $19.50 SL=14.00

Picked on May 7th at   $112.88    P/E = N/A
Change since picked      +0.00    52-week high=$206.50
Analysts Ratings     2-0-0-0-0    52-week low =$  6.56
Last earnings 03/00  est=-0.11    actual=-0.09
Next earnings 07-27  est=-0.09    versus=-0.12
Average Daily Volume =   763 K
/charts/charts.asp?symbol=ABGX


**********
NETWORKING
**********

EMLX - Emulex Corporation $62.50 (+17.13)

Emulex designs three types of network connectivity products:
network access servers, printer servers, and high-speed fibre
channel products.  Its LightPulse fibre channel adapters and
hubs provide high-performance interfaces for computer networks.
EMLX's network access servers enable remote access to WANs, and
its printer servers connect directly to LANs, enhancing network
performance.  EMLX sells its products mainly to equipment
manufacturers and distributors.  IBM and Compaq account for 19%
and 14% of sales, respectively.

Accomplished author and successful trader, Jake Bernstein, once
said, "Of all the systems I've researched, traded with, and
developed, my favorite ones are those which use price gaps as a
methodology for entering trades."  Bernstein went on to explain
that when a stock gaps down, then rebounds and begins to fill
its gap, it presents an ideal time to go long.  After opening
sharply lower April 14th, EMLX has rebounded smartly in the past
three weeks, and now trades at a pivotal point.  Now, our play
doesn't hinge solely upon the gap, EMLX has the highest EPS
ranking in its sector and a very respectable relative strength
ranking to boot.  Also, EMLX rebounded on healthy volume while
trading activity in the overall market has been bleak.  Focusing
on volume, the light trading Friday reveals why EMLX struggled
during the tech rally.  It appears profit takers locked in their
recent gains ahead of the weekend.  The most obvious entry point
would be a move above $66 on heavy volume.  If you can handle
more risk, you might look for a bounce from current levels.
Pick your entry point carefully, if profit takers continue their
selling ways, EMLX won't find major support until the $55 range.

EMLX is scheduled to present at two upcoming technology events.
Next week EMLX will attend the NetWorld+Interop conference in
Las Vegas.  Two weeks later, EMLX will appear at the Applied
Computing Conference in Santa Clara, California. 

***May contracts expire in 2 weeks***

BUY CALL MAY-60*UMQ-EL OI=834 at $7.00 SL=5.00
BUY CALL MAY-65 UMQ-EM OI=444 at $5.00 SL=3.00
BUY CALL MAY-70 UMQ-EN OI=352 at $3.25 SL=1.75
BUY CALL JUN-70 UMQ-FN OI= 74 at $9.00 SL=6.25

Picked on May 4th at     $62.63    P/E = 82
Change since picked       -0.13    52-week high=$225.50
Analysts Ratings      2-4-1-0-0    52-week low =$ 11.13
Last earnings 03/00    est=0.18    actual=0.20
Next earnings 08-07    est=0.20    versus=0.10
Average Daily Volume = 2.69 mln
/charts/charts.asp?symbol=EMLX


SCMR - Sycamore Networks $86.00 (+7.50)(+13.94)(+13.56)(-64.50)

A growing thorn in Cisco's side (but still small by comparison), 
Sycamore Networks develops and markets intelligent optical 
networking products that transport voice and data traffic over 
wavelengths of light.  The Company combines significant 
experience in data networking with expertise in optics to develop 
intelligent optical networking solutions for network service 
providers.  Sycamore's products are based on a common software 
foundation, enabling concentration on the delivery of services 
and end-to-end optical networking.  Sycamore's products and 
product plans include optical transport, access and switching 
systems and end-to-end optical network management solutions.  

SCMR experienced a breakout this week over previous resistance of 
$78, while re-testing an important support at $73 in the process.  
This came on the previous Friday's heels of news that a J.P. 
Morgan Securities Inc. analyst said customer spending remains on 
target and the stock is undervalued.  Whoa, undervalued?  Perhaps 
since SCMR's is often referred to as "the next CSCO" in 
networking circles, and its price has been cut by 60% from its 
$200 high in late March.  SCMR now appears ready to move up 
another level and CSCO's earnings on May 9th could be the 
catalyst.  Optical networking is hot, and nowhere is there better 
evidence than in JDSU, GLW, and NT's earnings releases in 
previous weeks.  After CSCO, SCMR reports earnings on May 18th, 
as does CIEN, which could give SCMR an added sympathy boost.  
Technically, $75 remains good support for aggressive target 
shooting, while $90 remains overhead resistance.  Intraday, the 
10-dma currently at $75.05 provides an added measure of safety.
In fact, Friday CSMR closed above its 5-dma of $82.74, which may
also provide mild support going forward if the market cooperates.  
Want to play it a little bit safer?  Closing level support 
(former resistance too) is $78 and could make the best target (in 
our opinion) at which to shoot.  Pick one according to your level 
of risk tolerance.  Just make sure you see a bounce no matter 
where you get in.

News?  Pretty thin this week.  However, CS First Boston did reiterate 
a Buy rating, but mentioned no price target.

***May contracts expire in 2 weeks***

BUY CALL MAY-80*SMZ-EP OI=605 at $10.50 SL= 7.50
BUY CALL MAY-85 QSM-EQ OI=318 at $ 8.00 SL= 5.75
BUY CALL MAY-90 QSM-ER OI=897 at $ 6.13 SL= 4.00
BUY CALL JUN-85 QSM-FQ OI=215 at $14.38 SL=10.75
BUY CALL JUN-90 QSM-FR OI=615 at $12.38 SL= 9.25

SELL PUT MAY-70 SMZ-QN OI=225 at $ 1.69 SL= 3.50
(See risks of selling puts in play legend)

Picked on Apr 16th at    $51.00     P/E = N/A
Change since picked      +35.00     52-week high=$199.50
Analysts Ratings      5-3-0-0-0     52-week low =$ 48.94
Last earnings 02/00   est= 0.00     actual= 0.01  
Next earnings 05-18   est= 0.01     versus= N/A
Average Daily Volume =  2.9 mln
/charts/charts.asp?symbol=SCMR


JNPR - Juniper Networks Inc $193.38 (-19.31)(+26.56)

Juniper Networks develops and provides next-generation Internet 
infrastructure systems that are designed to meet the 
scalability, performance, density, and compatibility 
requirements of IP networking systems.  The company's M40 and 
M20 Internet backbone router use JUNOS network traffic 
management software, ASICs.  Its clients include some of the 
world's leading service providers such as Ericsson and 
MCIWorldcom. 

JNPR gave us a thrilling roller coaster ride this week!  We saw 
a perilous pullback to the depths of old support at $180.  The 
question to sell or to buy more was in our minds.  As we 
contemplated our strategy and closely watched for JNPR to snap 
back, two things happened.  First, the broad markets rallied and 
then good news hit the press on Friday.  Shareholders approved 
the increase in authorized shares from 200 mln to 1 bln to 
effect the 2:1 stock split announced on April 13th.  The stock 
is now expected to go ex-dividend next month on June 16th.  JNPR 
popped $10.38, or 5.7% in Friday's trading.  However, the stock 
is below the converging 5 and 10 DMAs at $197.63 and $197.24, 
respectively.  A move through these technicals and a breakout 
above previous resistance at $200 would give us better 
confirmation.  The good news about the upcoming split should 
generate excitement in the near-term and give JNPR's momentum a 
shot of adrenaline.  But be aware that the Fed meeting is 
quickly approaching and interest rate fears are imminent. 

In the news, Juniper announced it's setting up a $23 mln 
charitable fund to benefit education, emergency relief, and 
other deserving causes through employee stock donations and the 
company's own holdings.

***May contracts expire in 2 weeks***

BUY CALL MAY-190 JUX-ER OI= 197 at $18.63 SL=13.50
BUY CALL MAY-195 JUX-ES OI= 560 at $16.38 SL=11.75
BUY CALL MAY-200*JUY-ET OI=1060 at $14.00 SL=10.50
BUY CALL MAY-210 JUY-EB OI= 824 at $10.13 SL= 7.00
BUY CALL JUN-200 JUY-FT OI= 313 at $24.13 SL=18.75
BUY CALL JUN-210 JUY-FB OI=  65 at $20.38 SL=14.75

Picked on April 27th at  $208.94    P/E = N/A
Change since picked       -15.56    52-week high=$312.94
Analysts Ratings      10-4-0-0-0    52-week low =$ 30.04
Last earnings 12/99    est= 0.03    actual= 0.06
Next earnings 07-13    est= 0.06    versus=-0.03
Average Daily Volume =  3.37 mln
/charts/charts.asp?symbol=JNPR


*****
LEAPS
*****

By Mark Phillips
Contact Support

Is it for real this time?  I would like to believe that we are
ready for a real recovery in the markets, but the low volume
continues to make me nervous.  The buyer's strike is keeping
volume at levels we haven't seen since late last year, and the
result is that every move up is regarded with suspicion.  Many
investors got badly burned in the past 2 months and they are
likely sitting out, crying about their losses and waiting for
their wounds to heal.  The good news is that the current market
environment is acting to bring the volatility back down to
earth, hopefully meaning we won't see those wild swings in price
again in the near future.  We got another spike in the VIX this
past week, as it moved as high as 36.38 when the ECI report came
out on Thursday.  Fortunately, Friday saw a bit of relief, and
the VIX dropped to close the week at 30.42, right near the upper
end of the "normal" range we have become accustomed to.  Looking
at the charts of many of our plays such as CSCO, QCOM, JDSU, and
EMC, it looks like the recovery may be for real.  The lows are
moving progressively higher, as there are fewer and fewer
sellers at these levels.  A market like this can be a boon
to LEAPS investors as the premiums do not see-saw as much as
short term options.  This gives us the ability to find the entry
points we want, so don't get over-anxious.  Pick your plays
and your entry points and wait for them to come to you.


Current Plays

SYMBOL  SINCE     LEAPS         SYMBOL   PICKED   CURRENT  RETURN

EMC    11/07/99  JAN-2001 $ 80  ZOH-AP   $15.38   $66.13   329.97%
                 JAN-2002 $ 90  WUE-AR   $19.00   $68.50   260.53%
IBM    11/07/99  JAN-2001 $100  ZIB-AT   $13.63   $21.38    56.86%
                 JAN-2002 $110  WIB-AB   $16.50   $27.00    63.64%
CSCO   11/14/99  JAN-2001 $ 40  ZCY-AH   $ 9.56   $32.50   239.96%
                 JAN-2002 $ 45  WIV-AI   $11.00   $34.63   214.82%
GE     11/21/99  JAN-2001 $150  ZGR-AU   $16.25   $26.75    64.62%
                 JAN-2002 $150  WGE-AU   $25.50   $39.13    53.45%
NT     11/28/99  JAN-2001 $ 75  ZOO-AO   $22.25   $45.25   103.37%
                 JAN-2002 $ 75  WNT-AO   $30.25   $57.00    88.43%
VOD    12/05/99  JAN-2001 $ 50  ZAT-AJ   $10.75   $ 6.75   -37.21%
                 JAN-2002 $ 50  WHV-AJ   $15.00   $11.00   -28.57%
TXN    12/12/99  JAN-2001 $110  ZTN-AB   $22.25   $58.13   161.26%
                 JAN-2002 $120  WGZ-AD   $28.50   $69.75   144.74%
NXTL   12/19/99  JAN-2001 $ 90  ZFU-AR   $23.50   $40.38    71.83%
                 JAN-2002 $100  WFU-AT   $27.25   $45.38    66.53%
SUNW   12/19/99  JAN-2001 $ 80  ZJX-AP   $17.63   $25.25    43.22%
                 JAN-2002 $ 90  WJX-AR   $22.00   $32.25    46.59%
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $25.13   175.25%
                 JAN-2002 $ 40  WSY-AH   $12.63   $30.88   144.50%
ERICY  01/30/00  JAN-2001 $ 65  ZYD-AM   $19.75   $32.00    62.03%
                 JAN-2002 $ 65  WRY-AM   $27.00   $41.13    52.33%
NSM    02/27/00  JAN-2001 $ 70  ZUN-AN   $18.50   $14.00   -24.32%
                 JAN-2002 $ 70  WUN-AN   $24.25   $22.75   - 6.19%
AOL    03/12/00  JAN-2001 $ 60  ZKS-AL   $14.00   $10.50   -25.00%
                 JAN-2002 $ 65  WAN-AM   $18.63   $16.00   -14.12%
AXP    03/12/00  JAN-2001 $130  ZXP-AF   $21.75   $31.25    43.68%
                 JAN-2002 $140  WXP-AH   $28.00   $40.75    45.54%
WM     03/19/00  JAN-2001 $ 25  ZWI-AE   $ 5.00   $ 4.38   -12.40%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 4.75   -11.71%
QCOM   03/26/00  JAN-2001 $150  YQO-AJ   $39.25   $16.75   -57.32%
                 JAN-2002 $160  XQO-AL   $52.88   $27.88   -47.28%
AMD    04/16/00  JAN-2001 $ 70  ZVV-AN   $17.50   $35.88   105.03%
                 JAN-2002 $ 70  WVV-AN   $26.00   $45.63    75.50%
CMGI   04/16/00  JAN-2001 $ 50  ZB -AJ   $21.50   $27.25    26.74%
                 JAN-2002 $ 55  WCK-AK   $27.75   $33.88    22.09%
JDSU   04/16/00  JAN-2001 $ 80  XJU-AP   $27.50   $34.75    26.36%
                 JAN-2002 $ 80  YJU-AP   $39.63   $48.63    22.71%
VSTR   04/16/00  JAN-2001 $ 90  ZTB-AR   $23.88   $47.50    98.91%
                 JAN-2002 $ 90  WWP-AR   $35.00   $56.38    61.09%
YHOO   4/30/00   JAN-2001 $140  ZYM-AH   $32.13   $28.25   -12.07%
                 JAN-2002 $140  WYZ-AH   $46.38   $43.63   - 5.93%


        
To review the play description on any of our current plays, 
go to the LEAPS section for the date the play was added.

Option Selection: Notice that many of our LEAP plays have moved
considerably since initially being picked.  The listed options
may therefore be deep in the money and very expensive.  When 
entering a new position, look to buy LEAPS according to your 
suitability level, but note that we typically initiate strikes 
that are slightly out of the money from the stock's current 
price.

Leap of the Week

NXTL - Nextel Communications $119.75

Wireless is heating up again and NXTL looks poised to reap the
rewards.  After falling from its lofty heights with the rest of
the tech sector for most of the past 6 weeks, NXTL found solid
support at the 200-dma (currently at $98.31), and looks like it
may be ready to pick up the pace.  Helped along by improving
sentiment in the Wireless sector, and the well received AT&T
Wireless IPO, NXTL is doing some of the work itself.  Reporting
earnings at the end of April that just barely beat the estimates
is not necessarily cause for celebration, especially when still
showing a loss.  But it is a good thing when the loss is only
half of what was reported in the year-ago period.  NXTL is
currently sitting just below its 100-dma ($121.25), and this
level may present some resistance going forward.  Above that,
$125 and $130 are waiting to give our play a hard time.  Target
shooting intraday dips may give your best entry, especially
if any market weakness forces a test of support at either $116
or $112.

BUY LEAP JAN-2001 $120.00 ZFG-AD at $30.50
BUY LEAP JAN-2002 $130.00 YFG-AF at $39.88


New Plays

None

Drops

None


*****

Who Wants To Get Paid to Buy LEAPS?
By Mark Phillips

In a bull market like we have seen over the past few years, it
seemed like you could just buy Call options and watch your
account grow month after month.  In case you haven't noticed,
the market has changed significantly and if you are still
playing by the old rules, it is unlikely that you will be
playing for very long.

Money can still be made in this market, but it requires a
change of strategy.  As has been written many times in recent
issues of the newsletter, this is not the type of market to
learn how to trade options.  It will be frustrating and
expensive.  Trading short-term options in this market is
challenging for experienced traders and downright dangerous
for those just learning their first few option strategies.  A
safer way to profitably trade options in a turbulent market
like we have now is to extend the time horizon from short-term
to long-term.  Buying more time costs more up front, but allows
you more time to be right.

Designed for option traders wanting a longer time frame, LEAPS
provide the ability to take advantage of the great entry points
provided by this turbulent market, while avoiding the rapid
time decay of short term options.  In my last article I covered
some of the details of how to handle money management on LEAPS,
but deliberately left the issue of Covered Calls for a separate
article.

The term "Covered Call" normally refers to writing calls against
a long stock position, but since a LEAP can be used as a
substitute for the stock, the term "Covered Call" is still
appropriate.  The big difference between writing Covered Calls
against stock vs. LEAPS is that with LEAPS you do not want to
have the short-term option exercised.  In other words, you don't
want to get called out of the LEAP you just bought.  This would
result in having to liquidate your long LEAP position, and you
would throw away all the extra time value acquired by purchasing
the LEAP.  There are several different Covered Calls approaches
that can be employed, but the one we will cover here (and my
personal favorite) involves writing front month calls against
the LEAP with the goal of having them expire worthless.

The first part of the strategy involves purchasing the LEAP at a
good entry point (sounds easy, huh?).  Although LEAPS give you
the ability to profit without having the perfect entry point,
exercising the discipline necessary to achieve a good entry
point will obviously improve the profitability of the position.
Since we have covered entry points on LEAPS before, we don't
want to spend a lot of time on them.  Simply put, we want to
purchase the LEAP when the stock bounces from a major support
level.  Once the LEAP has been purchased, we need to decide if
we will employ a buy-and-hold approach or if we want to more
actively manage the position by writing covered calls.

Covered Calls on LEAPS is the type of strategy that needs to be
legged into - specifically, the front month call is sold against
the LEAP when the underlying stock moves up to resistance and
rolls over.  Since you want the call that you sell to expire
worthless, you want to sell a strike above the resistance level
that you think will hold.  The best way to describe the dynamics
of this strategy is by example; so let me describe one of my
recent trades.

I have been watching QCOM for quite some time and when the
turmoil in the markets pushed the price below $100, followed by
a strong bounce in the low $90's, I pulled the trigger and
purchased the JAN 2001 110 LEAP for $21.25.  This completed the
first half of the position and I began watching for the stock
to move up to a definable resistance level.  Although $110
looked like it might provide what I was looking for, I wasn't
quite convinced as $120 looked like stronger resistance.
Exercising a little extra patience ended up being rewarding as
the rumor-motivated spike in price on Tuesday afternoon gave me
the opportunity I wanted.  As the move up lost momentum, I sold
the May 125 Call for $4.38.


 

This completes the position and in a more stable market, all I
would have to do is wait for the sold option to expire worthless
and then start looking for an opportunity to sell the June call
against my LEAP.  However, with the dynamics of this market I
have 2 other possibilities to consider.  First and foremost is
risk management - if the stock turns higher and trades through
my defined resistance level ($120), I will cover the short call
by buying it back.  As soon as I received the confirmation of
the sale of the May call, I placed an order to buy the option
back if the stock were to trade above $120.50 (slightly above
the highest trade seen before the price rolled over).

The second possibility to consider is that the stock price could
drop significantly, providing an opportunity to buy back the
short call for a fraction of the premium received from the
original sale.  If the premium of the sold call drops by 70-80%,
I will consider buying the option back.  This locks in profits
on the sold call, eliminates the risk of a subsequent strong
move up in the stock and reduces the cost basis of the LEAP.

As the weakness on the NASDAQ on Wednesday seemed to bottom, the
premium on the May call had dropped to $2.25; the option had
dropped by nearly 50%, but not enough to justify closing the
short position.  If the premium drops below $1.38, my criteria
is satisfied and I will buy the May option back.  This will free
up my LEAP, allowing it to be used as security to write another
front-month option should the stock move back up to resistance.

The Covered Call strategy can be viewed as a risk reduction
strategy in a sideways to down market, as it produces profit
from the position on a regular basis, even if the LEAP is
dropping in value.  The real power of this strategy becomes
apparent when some simple math is applied; selling short-term
calls on a monthly basis can reduce the cost basis to zero in
a relatively short period of time.

Coming back to the QCOM position, if I sell one front month
option per month with an average net credit of $4, the LEAP
becomes free in a little over 5 months.  Remember, my net cost
for the LEAP was $21.25, and $4x5 = $20.  Five months takes me
out through the September expiration cycle, and when I sell the
October Call, my cost basis for the LEAP moves into the credit
column.  So by the time October rolls around, (anybody remember
what has been happening to tech stocks for the last several
Octobers?), I'll have a JAN 110 option on QCOM with a net cost
of zero.

Math wasn't my strongest subject in college, but with a net cost
of zero, my calculator tells me that any residual value on the
LEAP translates to an infinite return on investment.  Either
that is a great return, or maybe I should consider a new line
of work; I hear they need creative minds to calculate the
latest estimates for the Federal Budget Surplus.

Contact Support



*********
PUT PLAYS
*********

Put plays can be very profitable but have a larger risk than call 
plays. When a stock is falling the entire investment community 
(except the shorts) is hoping it will reverse and start back up. 
The company management is also doing everything they can to shore 
up their stock price. The company issues press releases, brokers 
talk it up, analysts try to put a positive spin on everything. 
Then of course there is the death knell, the "buy recommendation" 
simply because the price has dropped to some level that analysts 
feel attractive again. Buyers who like the stock wait until it 
appears a bottom has been reached and then jump on it in a feeding 
frenzy. They may already have a large position and are averaging 
down. Many factors can stop a free falling stock in mid drop.

****

CTXS - Citrix Systems $43.38 (-17.69)

Citrix Systems helps juice up Windows-based computer networks.
The company's WinFrame and MetaFrame software products enable
networked computers such as Macintoshes, UNIX machines, and pre-
Windows PCs to run Windows-based applications from a central
server.  Customers outside the US account for about a third
of sales.  Co-founder and chairman Edward Iacobucci led the
IBM-Microsoft engineering team that created the OS/2 operating
system back in the mid-1980s.  Microsoft accounts for about 15%
of the company's sales and owns about 6% of CTXS.

The CTXS slide began in late March when fears of a Microsoft
break-up flooded the market.  The antitrust debacle has had a
widespread, detrimental effect on many of MSFT's key business
partners.  Stocks such as EXDS, CAIS, and CTXS have drastically
fallen from their Spring highs.  While most tech stocks have
rebounded, or at least stabilized, CTXS has continued sliding
southward.  After Friday's showing, it appears the selling of
CTXS has not yet subsided.  The massive institutional liquidation
seems to be in full swing.  While the volume has been sick in the
broader market, CTXS continues to slide on higher than average
trading.  Friday's weakness places CTXS just above its trading
range low of $42.31, traced earlier in the week.  That level will
provide minor support before CTXS will retest its lows from last
Winter.  The $40 level is seen as a critical support level for
CTXS, both psychologically and technically.   In fact, a
prominent money manager said in an interview late Friday that
CTXS remains a buy unless the stock falls below $40.  From here,
an aggressive trader might look for an entry if CTXS falls below
$42.  If you're looking to minimize directional risk, wait for
the stock to fall below key support at $40.  As always, confirm
any move lower with heavy volume.

Another factor putting pressure on CTXS is the recent issue of a
large number of convertible securities.  The holders of the
convertibles have engaged in an arbitrage strategy, shorting the
stock.  Essentially, the arbitrageurs are attempting to scalp
the spread between the stock and convertibles.

***May contracts expire in 2 weeks***

BUY PUT MAY-45 XSQ-QI OI=1233 at $4.88 SL=3.00
BUY PUT MAY-40*XSQ-QH OI= 148 at $2.25 SL=1.25
BUY PUT MAY-35 XSQ-QG OI=   0 at $1.06 SL=0.00

Average Daily Volume = 4.53 mln
/charts/charts.asp?symbol=CTXS


SNE - Sony Corporation $221.56 (-4.06)

If you like to be entertained, Sony has your fix.  Its
PlayStation home video game system alone accounts for about
11% of the electronics and entertainment giant's worldwide
sales.  As the #2 consumer electronics firm, SNE makes a host
of products including cameras, DVD players, MiniDisc and Walkman
stereo systems, computers, TVs, and VCRs.  Rounding out the
company's assets are Columbia TriStar and record labels Columbia
and Epic.

It wasn't that long ago that we were playing SNE on its strong
run up above $300 per share.  Well, the glory days are over...at
least for now.  The company has seriously dropped the ball and
investors are not in a forgiving mood, especially in this
uncertain market.  So what's the problem, you ask?  Starting
with a less than stellar release of the Playstation2 at the
beginning of March, rife with technical glitches and unhappy
customers, the problems only got worse as earnings season
arrived.  Reporting in late April, SNE didn't give us the usual
happy song and dance about a rosy future.  Profits for the
latest fiscal year fell 32%, led lower by a 43% decline in
operating profits for the company's cash cow, the game unit.
This drop was primarily due to startup and launch costs of the
new Playstation2, but investors don't seem to be in a forgiving
mood lately.  The other shoe hit the floor when company
officials stated that they expect higher sales revenues in the
year ahead, but are expecting a drop in net profit.  Huh, how
does that work?  Added to all of that is the fact that the yen
has been strong over the past year, impacting the company's
profitability outside of the Japanese market.  With all of
these negatives, SNE looks like a candidate for further losses
in the near-term.  The tech sector is recovering, but the stock
of the consumer electronics giant is continuing to deteriorate.
Volume continues to be weak, although the small gain on Friday
did come on above average volume.  We do want to exercise
caution going forward.  SNE is more than 30% off its highs from
a couple months ago and has come down to major support between
$215-217.  Conservative traders will want to wait for the bears
to scare away the bulls and push the price below this level
before initiating new positions.  The stock is finding
resistance at its descending trendline though, and more
aggressive traders can consider jumping on board as the price
rolls over near current levels.

***May contracts expire in 2 weeks***

BUY PUT MAY-230 SMW-QF OI= 84 at $14.25 SL=10.50
BUY PUT MAY-220 SMW-QD OI=103 at $ 8.38 SL= 6.00
BUY PUT MAY-210 SMW-QB*OI=118 at $ 4.38 SL= 2.50

Average Daily Volume = 396 K
/charts/charts.asp?symbol=SNE


LOW - Lowe's Companies Inc. $47.81 (-1.69)(-5.81)

Lowe's Companies is the world's second largest home improvement
retailer, serves more than four million do-it-yourself retail
and commercial business customers weekly through more than 580
stores in 39 states. Headquartered in Wilkesboro, N.C., Lowe's
is the 18th largest retailer in the U.S. as well as the 40th
largest retailer worldwide. The 54-year-old company employs more
than 98,000 people.

As we mentioned Thursday, Lowe's is trading "like" a stock that's
trying to find a bottom.  After Wednesday's broad downgrade of 
the whole retail sector by analysts at Goldman Sachs, LOW has 
traded for the most part between $47 and $48.  The buying strike
mentioned this week could be a double-edged sword.  Investors
aren't buying and really aren't selling.  They are either on 
hold or afraid to make much of a move in any direction.  The
question that comes to mind for our play is whether or not the
current levels seen in LOW will be the bottom.  At this point
we don't believe that's the case.  First, we have yet to see any
kind of exhaustion selling where the volume picks up on a sharp
decline and buyers step up to the plate.  That may or may not
happen, but if it did, it would suggest the low had been put in.
The second item of note is we are beginning to see what could be 
a descending triangle formation appear in the chart, which again
suggests a period of consolidation, before another move south.
On the other side of the coin, technically Lowe's has hit the 
oversold area of several indicators and could be due for a
bit of a bounce.  However, with little reason to mortgage the
farm and buy, we would look for any bounces to be met by folks
ready to sell near the $52-$54 area once again.  The hardware
retailer is due to report quarterly results on May 15th, which
could revive interest in the company, but in the current market
environment, an earnings run is unlikely.  LOW did find at least
one friendly face in the crowd on Friday.  Analyst Aram Rubinson
at Paine Webber reiterated a Buy rating, with a twelve-month
price target of $85.  Long term he may be right but for now,
with little reason to buy Lowe's stock at this time, we continue
to suggest buying puts on either bounces up to resistance or
further weakness.

***May contracts expire in 2 weeks***

BUY PUT MAY-60 LOW-QL OI= 86 at $13.25 SL=10.00
BUY PUT MAY-55 LOW-QK*OI=683 at $ 7.63 SL= 5.25
BUY PUT MAY-50 LOW-QJ OI=718 at $ 3.38 SL= 1.75

Average daily volume = 2.01 mln
/charts/charts.asp?symbol=LOW


GCI - Gannett Co. $60.75 (-3.13)

Gannett is an international news and information company that
publishes 74 daily newspapers in the USA, including USA TODAY,
the nation's largest-selling daily newspaper. The company also
owns a variety of non-daily publications and USA WEEKEND, a
weekly newspaper magazine.  Newsquest plc, a wholly owned Gannett
subsidiary acquired in mid-1999, is one of the largest regional
newspaper publishers in England with a portfolio of more than 180
titles.  Gannett also operates 22 television stations and is an
Internet leader with sites sponsored by most of its TV stations
and newspapers including USA TODAY.com, one of the most popular
news sites on the web.

What began as pullback in early April has turned into all-out
selling.  The reasons for the weakness in shares of GCI could
be attributed to several reasons.  First, we all know the
broad market psychology has been tough for the last month or so.
After reporting respectable quarterly results in early April,
analysts at Deutsche Banc Alex Brown downgraded the publisher
from a Strong Buy to a Buy, which may have started the ball 
rolling.  A few days later, a former editor sued Gannet over 
a series of articles which ran in the Cincinnati Enquirer,
claiming the company made him the scapegoat in the debacle with
Chiquita Brands International.  The suit probably is not a big
deal in the overall scope of things at Gannett, but investors
typically don't like legal problems.  What else could happen?
Well on Tuesday the company's CEO, John Curley, surprised
shareholders at the company's annual meeting, announcing he
was leaving the company as the chief executive, effective next
month.  Curely said he would remain as chairman until he retires
next year.  Gannett is known for the most part as being one of the
best-run publishers in the country, so shareholders should notice
little difference, according to Michael Beebe of Goldman Sachs.
That may be true, however, Wall Street is not any more fond of
surprises than they are of legal problems.  How do we approach
our new play?  GCI closed near its low of the day, suggesting 
there may be more selling pressure ahead.  In late February the
$61-$62 area provided support for GCI.  Friday's move down came
on better than average volume, again suggesting a continuation
of the current trend.  The next area of support is not found
until $55 and again at $50, a level not seen since October 1998.
Bounces up to between $62 and $64 followed by weakness should
also be viewed as a chance to join in on our new play. 

***May contracts expire in 2 weeks***

BUY PUT MAY-70 GCI-SN OI= 4 at $9.00 SL=6.25
BUY PUT MAY-65*GCI-SM OI=33 at $5.25 SL=3.25
BUY PUT MAY-60 GCI-SL OI= 6 at $2.63 SL=1.25 

Average daily volume = 878 K
/charts/charts.asp?symbol=GCI



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*****************************
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*****************************

The Option Investor Newsletter                     5-07-2000  
Sunday                                                5 of 5

*************
COVERED CALLS
*************

Charting: The study of historical pricing...

Our new series on technical analysis with Candlestick Charting
has generated some interesting comments from the readership.
One of the most common questions we receive is, "Why do we focus
so heavily on the issue's price history as opposed to company's
fundamental valuation?"

First, it's important to understand the difference between the
two approaches.  Fundamental analysis deals with factors that
affect the earnings potential and market value of a corporation,
whereas technical analysis is concerned primarily with price and
trading history (trend and character) of the company's shares.
Technicians welcome the idea that revenues and profitability
ultimately determine the value of a company, but they also accept
the concept that price, at any one point in time, represents an
accurate consensus of share value to all market participants.
In today's markets, a significant portion of daily trading is
conducted by technical traders and that fact makes understanding
the technical character of an issue as important as knowing the
outlook for revenues and earnings.

The premise of the technical trader is that past price behavior
can be used to forecast future trends.  There are many advantages
to this style of trading.  At the lowest level, it eliminates the
necessity to understand the infinite components of fundamental
valuation that analysts find so intriguing.  In addition, trading
strategies based on technical analysis generally provide more
precise entry and exit signals, a benefit to investors who
participate in short-term techniques.  The methods of chart study
vary from the simplistic approach; trend-lines and moving averages
to elaborate and complex programs such as the Elliot Wave Theory.
Of course, the goal of any trading system is to increase the odds
of success and most analysts suggest the best place to begin is
with well-known practices such as evaluating price/trend/volume,
that have stood the test of time.

Price charts are the basis for the oldest form of market analysis.
A chart is simply a picture of price history.  As market opinions
change, so do the prices of the underlying instruments.  Charts
are constructed in various time-frames and are of many different
types, but the key is that as more prices are plotted, historical
patterns and formations evolve.  This concept allows a technician
to forecast how the current market will perform based on how it
reacted to similar conditions in the past.  There are also methods
that attempt to identify price formations within seemingly random
movements.  Some technical studies, such as seasonal or cyclical
analysis, believe prices tend to follow a predetermined pattern.
Technicians that subscribe to the Elliott Wave Theory believe that
collective trading behavior is predictable enough to project waves
of price movement.  Proponents of cyclical analysis suggest there
there is a regularity in the way specific instruments perform at
certain times in the calendar year.

In most cases, drawing a chart is relatively simple, but reading
and understanding one is often considered an art.  As is the case
with fundamental analysis, there are many interpretations to the
formations of a chart, a fact that ensures the markets will remain
fluid and dynamic.  Fortunately, the study of Candlestick Charting
offers a method in which most traders can easily discern price
tendencies or patterns that would be difficult or impossible to
identify by more conventional means.  That's the primary reason
we are devoting a number of educational narratives to the subject
and next week, the series will continue with an introduction to
"Reversal Patterns."

Good Luck!


SUMMARY OF PREVIOUS PICKS
*****
NOTE: Using Margin doubles the listed Monthly Return! 

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

SPGLA   7.81   7.81   MAY   7.50  1.19  *$  0.88  14.4%
CEGE   18.69  21.50   MAY  15.00  4.50  *$  0.81   8.3%
ANET   12.38  13.75   MAY  10.00  2.88  *$  0.50   7.6%
SPLH   12.06  13.13   MAY  10.00  2.69  *$  0.63   7.3%
MATK   15.50  15.00   MAY  12.50  4.13  *$  1.13   7.2%
PSIX   23.19  22.50   MAY  15.00  8.88  *$  0.69   7.0%
WWFE   15.63  17.63   MAY  12.50  3.88  *$  0.75   6.9%
MXTR   11.94  11.31   MAY  10.00  2.38  *$  0.44   6.7%
ALSC   20.38  19.06   MAY  17.50  3.63  *$  0.75   6.5%
UGLY    7.50   8.09   MAY   7.50  0.50  *$  0.50   6.2%
BBBY   39.06  35.31   MAY  32.50  8.25  *$  1.69   6.0%
ANET   10.56  13.75   MAY   7.50  3.63  *$  0.57   6.0%
PSSI    9.13   9.56   MAY   7.50  2.19  *$  0.56   5.8%
IM     18.88  19.00   MAY  17.50  2.25  *$  0.87   5.7%
MATK   16.63  15.00   MAY  12.50  4.75  *$  0.62   5.7%
BWEB   23.44  21.94   MAY  15.00  9.00  *$  0.56   5.6%
APC    35.81  47.00   MAY  35.00  2.88  *$  2.07   5.5%
LPNT   16.38  18.00   MAY  15.00  2.25  *$  0.87   5.4%
NUHC   22.13  19.06   MAY  17.50  6.00  *$  1.37   5.3%
CAR    20.81  22.50   MAY  20.00  1.94  *$  1.13   5.2%
PIR    10.50  10.50   MAY  10.00  1.00  *$  0.50   4.6%
MRL    26.88  27.00   MAY  25.00  3.25  *$  1.37   4.2%
ACF    17.63  17.88   MAY  15.00  3.13  *$  0.50   3.7%
BSX    21.75  26.56   MAY  20.00  2.50  *$  0.75   3.4%
DGX    44.50  59.63   MAY  40.00  6.00  *$  1.50   3.4%

*$ = Stock price is above the sold striking price.

Comments:

We had the bullish move pegged on Rexall Sundown (RXSD) but the
acquisition by Royal Numico was announced before Monday's open
and thus nullified any chance of entering the position.  With
luck, Marine Drilling (MRL) and Nu Horizons (NUHC) might just
make it to the May expiration.

Positions Closed: 

Cole National (CNJ). 


NEW PICKS
*********


Sequenced by Company
*****

Stock  Last  Call  Strike Option  Last Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid  Intr Basis Expiry  Return

CEGE   21.50  MAY  17.50  UCG EW  4.63 150  16.88   14     8.0%
GENE   20.13  MAY  15.00  GUG EC  5.63 275  14.51   14     7.4%
PETC   13.31  MAY  12.50  QPT EV  1.44 733  11.87   14    11.5%
PLCE   21.00  MAY  17.50  TUY EW  4.13 140  16.88   14     8.0%
NCNT   17.00  MAY  12.50  ULY EV  5.13 15   11.87   14    11.5%
WGR    18.75  MAY  17.50  WGR EW  1.88 0    16.87   14     8.1%
WLV    16.06  MAY  15.00  WLV EC  1.50 5    14.56   14     6.6%

Sequenced by Return 
*****

Stock  Last  Call  Strike Option  Last Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid  Intr Basis Expiry  Return

PETC   13.31  MAY  12.50  QPT EV  1.44 733  11.87   14    11.5%
NCNT   17.00  MAY  12.50  ULY EV  5.13 15   11.87   14    11.5%
WGR    18.75  MAY  17.50  WGR EW  1.88 0    16.87   14     8.1%
CEGE   21.50  MAY  17.50  UCG EW  4.63 150  16.88   14     8.0%
PLCE   21.00  MAY  17.50  TUY EW  4.13 140  16.88   14     8.0%
GENE   20.13  MAY  15.00  GUG EC  5.63 275  14.51   14     7.4%
WLV    16.06  MAY  15.00  WLV EC  1.50 5    14.56   14     6.6%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, MR-Monthly Return.

*****
CEGE - Cell Genesys $21.50  *** Technicals Only! ***

Cell Genesys is focused on the development and commercialization 
of cancer vaccines and gene therapies to treat cancer and other 
major, life-threatening diseases.  The company is conducting two
multicenter Phase II human clinical trials for its GVAX® cancer 
vaccine in prostate cancer and a multicenter Phase I/II trial of
GVAX® vaccine in lung cancer.  Preclinical stage programs include
gene therapy for hemophilia, cancer, cardiovascular disorders and
Parkinson's disease.  Cell Genesys' assets outside gene therapy 
include its approximately 12% ownership of Abgenix, Inc. and the
company's licensing program in gene activation technology.  Cell 
Genesys has moved into a Stage I base after correcting from its 
(and the biotech sector's) meteoric rise in February.  The current
technicals suggest a lateral to bullish future.

MAY 17.50 UCG EW LB=4.63 OI=150 CB=16.88 DE=14 MR=8.0%

Chart =
 /charts/charts.asp?symbol=CEGE

*****

GENE - Genome Therapeutics  $20.13  *** Technicals - Part II ***

Genome Therapeutics is a leader in the commercialization of
genomics-based drug discovery.  The company's gene discovery
strategy is to identify and characterize human genes associated
with major diseases and elucidate microbial genes as novel drug
targets against many serious infectious organisms.  Together with
its strategic partners, including Schering-Plough, AstraZeneca,
Wyeth-Ayerst and bioMerieux, Genome Therapeutics is using genomic
information to develop a new generation of pharmaceutical, vaccine
and diagnostic products.  Genome Therapeutics is on the verge of
making money, a rarity these days, though it did take a hit with
the Biotech sector when the commercial patents appeared to be
threatened.  Genome has entered a Stage I base and recently moved
above its 13 dma.  Reasonable speculation on a recovering sector
and Genome's technicals suggest a potentially bullish movement is
forthcoming.

MAY 15.00 GUG EC LB=5.63 OI=275 CB=14.51 DE=14 MR=7.4%

Chart =
 /charts/charts.asp?symbol=GENE

*****

PETC - Petco Animal Supplies $13.31  *** Buyout Rumors? ***

Petco Animal Supplies is a specialty retailer of premium pet 
food and supplies.  Petco operates more than 500 specialty food
and supply stores in 39 states and District of Columbia.  Petco
offers a category-dominant national chain of community pet food
and supplies superstores.  Petco reported favorable earnings last 
quarter showing continued strong comparable store sales growth
and gross profit margin improvement.  The company continues to 
expand and recently celebrated opening its 500th store.  There 
was no news to explain Friday's break-out but the message boards
have a few people mentioning a buyout.  The heavy volume Friday
suggests there may be something to the rumors.  Speculators only!

MAY 12.50 QPT EV LB=1.44 OI=733 CB=11.87 DE=14 MR=11.5%

Chart =
 /charts/charts.asp?symbol=PETC

*****

PLCE - Children's Place  $21.00  *** Sales Are Up! ***

The Children's Place Retail Stores is a leading specialty retailer
of high quality, value-priced apparel and accessories for children,
newborn to age twelve.  PLCE designs, contracts to manufacture and
sells its products under the "The Children's Place" brand name. 
As of April 29, 2000, the company operated 335 stores in 40 states
and also sells its merchandise through its web site.  PLCE just 
announced a 40% increase in sales this quarter as it opened 43
new stores and moved into the West Coast market.  The stock has
been in a Stage II climb since February and recently moved up
after coverage was initiated by CFSB with a "buy" recommendation.
We favor a conservative cost basis as the issue nears technical
resistance.

MAY 17.50 TUY EW LB=4.13 OI=140 CB=16.88 DE=14 MR=8.0%

Chart =
 /charts/charts.asp?symbol=PLCE
*****
NCNT - Netcentives $17.00  *** Some New Friends! ***

Netcentives is a leading developer of e-marketing infrastructure 
software and services.  Netcentives powers multiple corporate and
commerce loyalty networks, including AOL AAdvantage, BlueLoot, the
ClickRewards(TM) Shopping Network, GO Awards and Lycos Rewards. 
Netcentives reported a 180% increase in revenues this quarter as
the company experienced customer expansion and completed three 
acquisitions this year.  On Friday, Netcentives rose 19% on news
that they had signed AOL, American Express, Citigroup, and CMGI
as customers.  Reportedly, each company purchased a 5% stake in
Netcentives.  A speculative issue that offers a favorable cost
basis, taking advantage of a short term rally.

MAY 12.50 ULY EV LB=5.13 OI=15 CB=11.87 DE=14 MR=11.5%

Chart =
 /charts/charts.asp?symbol=NCNT

*****

WGR - Western Gas Resources $18.75  *** It's a Natural Gas ***

Western Gas Resources is an independent gas gatherer and processor,
producer, transporter and energy marketer providing a full range of
services to its customers from the wellhead to the sales delivery 
point.  The Company designs, constructs, owns and operates natural
gas gathering, processing and treating facilities in the major gas
producing basins of the United States.   The company is in position
to reap a rich bounty as the fundamentals for natural gas prices 
strengthen.  Western Gas has resumed its uptrend after consolidating
during recent market weakness.  We favor a conservative cost basis
though Friday's move suggests a new 52-week high is in the company's
near-term future.

MAY 17.50 WGR EW LB=1.88 OI=0 CB=16.87 DE=14 MR=8.1%

Chart =
 /charts/charts.asp?symbol=WGR

*****

WLV - Wolverine Tube $16.06  *** They Beat the Street! ***

Wolverine is a leading North American manufacturer and distributor
of copper and copper alloy tube.  Wolverine believes that it offers
the broadest product line of any North American tube manufacturer 
and focuses on custom-engineered, high value-added tubular and 
fabricated products, which enhance performance and energy efficiency
in many applications.  The company also manufactures and distributes 
copper and copper alloy rod, bar and strip products.  Wolverine Tube
beat the street by $0.04 this quarter due primarily to strong demand
for its industrial tube and cost reduction programs.  The stock 
moved off its March low shortly after announcing new technical tube
products: Turbo-CSL(TM) and Turbo-CLF(TM).  Wolverine has moved
above the November - January consolidation area which should now
provide support.  A short-term play with a favorable cost basis.

MAY 15.00 WLV EC LB=1.50 OI=5 CB=14.56 DE=14 MR=6.6%

Chart =
 /charts/charts.asp?symbol=WLV



******************
BIG CAP NAKED PUTS
******************

By Matt Russ

Stock   Stock  Strike Option   Option Margin Percent Support
Symbol  Price  Price  Symbol   Price  At 25% Return  Level  

ADBE   119.50   110   AXX-QB    4.00   2988    13%    110
AETH   167.63   145   HEX-QI    6.50   4191    16%    140
AFFX   156.06   140   FIQ-QH    6.38   3902    16%    130
ALTR    99.50    95   LTQ-QS    3.38   2488    14%     90
BRCM   178.25   170   RDU-QN    7.00   4456    16%    165
CHKP   187.00   175   YKE-QO    8.63   4675    18%    170
CIEN   137.25   130   UEE-QF    6.63   3431    19%    120
CMOS   148.69   140   CYS-QH    7.63   3717    21%    130
CMTN    91.81    85   KUA-QQ    3.25   2295    14%     85
DITC    98.94    90   DUI-QR    5.00   2474    20%     90
DNA    123.94   120   DNA-QD    5.50   3099    18%    115
DTPI    83.63    80   DUP-QP    4.13   2091    20%     75
ETEK   194.00   185   FNY-QQ    6.63   4850    14%    180
GLW    189.13   190   GRJ-QR    8.75   4728    19%    180
HGSI    94.31    85   HHA-QQ    4.13   2358    18%     78
ISSX    87.81    80   ISU-QP    5.63   2195    26%     80
ITWO   116.50   105   QYJ-QA    4.63   2913    16%    105
LHSP   107.94   100   XQL-QT    3.38   2699    13%     98
MEDI   170.25   160   MEQ-QL    6.13   4256    14%    150
MLNM    88.13    80   QMR-QP    3.63   2203    16%     75
NSOL   148.94   135   JNV-QG    5.25   3724    14%    130
NVDA    92.13    85   UVA-QQ    4.25   2303    18%     80
PDLI   129.25   110   PQI-QB    4.88   3231    15%    100
PMCS   180.00   170   SZI-QN    7.63   4500    17%    160
PWAV   195.00   180   AHV-QP    9.75   4875    20%    180
QLGC    99.94    90   QLC-QR    3.63   2499    15%     90
SCMR    86.00    80   SMZ-QP    4.50   2150    21%     74
SDLI   184.75   170   YAL-QN    7.00   4619    15%    170
SEBL   133.44   125   SGW-EQ    4.75   3336    14%    120
SEPR   103.25    95   ERU-QS    4.75   2581    18%     90
STM    204.50   195   SDM-QS    7.50   5113    15%    180
SWCM    85.25    75   UGM-QO    4.50   2131    21%     80
TQNT   104.50    95   TNN-QS    4.75   2613    18%     95
VRSN   138.75   130   XVR-QF    6.38   3469    18%    120

SEPR


 

AGGRESSIVE   SELL PUT MAY-100 ERU-QT at $7.00 = 27%    
MODERATE     SELL PUT MAY- 95 ERU-QS at $4.75 = 18%
CONSERVATIVE SELL PUT MAY- 90 ERU-QS at $2.44 = 10%

SCMR


 

AGGRESSIVE   SELL PUT MAY-85 QSM-QQ at $6.88 = 32%    
MODERATE     SELL PUT MAY-80 SMZ-QP at $4.50 = 21%
CONSERVATIVE SELL PUT MAY-75 SMZ-QO at $2.81 = 13%

QLGC


 

AGGRESSIVE   SELL PUT MAY-95 QLC-QS at $5.63 = 23%    
MODERATE     SELL PUT MAY-90 QLC-QR at $3.63 = 15%
CONSERVATIVE SELL PUT MAY-85 QLC-QQ at $2.25 =  9%


DISCLAIMER:  Before entering any of the positions listed above, 
you need to understand your risk tolerance.  Selling puts can 
be a High-Risk endeavor depending on the strike you choose to 
sell.  For a greater return, you run a higher risk of being 
exercised.  Therefore, please consider other strikes than the 
ones listed below if you aren't comfortable with the one we 
choose.  We are gearing these towards higher-risk players.  In 
any case, you can always select a lower strike with a lower 
return if it better meets your suitability.



***********************
CONSERVATIVE NAKED PUTS
***********************

Successful Trading: Another look at Risk versus Reward...

Risk, by definition, is the possibility of loss.  Potential gains
and positive returns are the reward for accepting risk.  In short,
the goal of every trader is to minimize the likelihood of monetary
loss while attaining acceptable profits in a consistent manner.
Unfortunately, the overwhelming desire to achieve success in the
market is often a considerable distraction in the evaluation of
risk.

Before you can evaluate risk versus reward in financial positions,
the potential for loss must be determined.  The first step is to
calculate the overall probability of success by obtaining as much
information as possible on the position, its merits and drawbacks.
Obviously, the more knowledge you have regarding the underlying
market and the specific strategy being used along with the manner
in which it is executed, the better your assessment of the odds
will be.  The end result is a more accurate judgment and when it
becomes apparent that the probabilities are unfavorable, you must
merely avoid the trade.  There may be times when the position can
not be adequately appraised and for that reason, the risks will be
exponentially higher without a comparable rate of return.  In fact,
the concept of disguising high risk while promoting extravagant
rewards is the basis for most games of chance.  That in turn, is
the primary reason why novice investors are unable to correctly
assess the fundamental potential of any position.  In most cases,
they simply fail to separate the analysis of risk from the allure
of reward.

The majority of poor trading decisions could be avoided if
investors evaluated risks separately from returns.  Inexperienced
traders believe that when the possibility of losses is greater,
the position should offer a higher return.  With this attitude,
they attempt to justify the risks of unfavorable positions.  It
is very important to understand that if the odds are not in your
favor, the trade should be avoided regardless of the size of the
initial investment or the potential winnings.  The reason is very
basic; risk is an obligation you accept and return is the profit
you hope to achieve.  The two concepts are separate and absolute.
Return is defined by the components of the position, not by the
potential for loss.  Obviously, the probability of success does
not change based on a higher return.  Once again, if the odds are
unfavorable, the potential value of the position is probably not
worth the risk, regardless of the returns or the initial cost of
participation.  

Evaluating risk versus reward requires a different approach when
the trade is purely speculation.  Many investors have difficulty
making that distinction in the analysis of aggressive positions.
One common method of speculation used by experienced traders is to
participate in as many favorable positions as possible, increasing
the probability of a successful outcome.  Of course, the potential
returns should be capable of covering all of the combined losses
with an additional margin for profit.  For most novice investors,
a speculative posture appears to be the quickest way to increase
portfolio value.  Unfortunately, it is also a common avenue to
financial ruin.  With that consequence in mind, new traders should
generally avoid the lottery approach until they have developed a
solid understanding of the methods that are used to profit in that
style of investing.  The advantage of participating in the options
market is that it is not necessary to accept high risks in order
to achieve favorable profits.  In fact, many strategies allow you
to attain high returns without the potential for comparable losses.

The difficulty in accurately evaluating risk versus reward is a
problem that all traders must overcome to be successful.  It is
also one of the most common concepts that novice investors fail to
understand when they begin to participate in the options market.
The key to consistent profits is to identify the potential losses
inherent in a position (before you accept it) and never let greed
become a substitute for the courage to take risks.

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 PICKS 
*****

Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

ACF    17.63  17.88   MAY  15.00  0.75  *$  0.75  15.8%
TSEM   22.06  20.25   MAY  15.00  0.50  *$  0.50  14.7%
CCCG   13.88  12.75   MAY  10.00  0.31  *$  0.31  14.5%
DRTE   22.88  24.44   MAY  17.50  0.50  *$  0.50  14.3%
ANLY    9.81  10.50   MAY   7.50  0.38  *$  0.38  14.1%
PPDI   15.56  17.25   MAY  12.50  0.56  *$  0.56  13.1%
RAMP   20.00  19.88   MAY  15.00  0.38  *$  0.38  12.6%
OCR    14.31  15.81   MAY  12.50  0.50  *$  0.50  12.3%
EXCA   35.50  35.00   MAY  25.00  0.63  *$  0.63  11.8%
LPNT   16.38  18.00   MAY  15.00  0.81  *$  0.81  11.8%
LYNX   20.88  29.25   MAY  12.50  0.50  *$  0.50  11.6%
PAIR   21.69  26.25   MAY  17.50  0.50  *$  0.50  10.9%
ELNT   40.50  42.38   MAY  32.50  0.63  *$  0.63  10.3%
KR     19.06  19.56   MAY  17.50  0.75  *$  0.75   9.6%
NTPA   41.75  40.75   MAY  30.00  0.56  *$  0.56   9.1%
RDC    26.69  29.50   MAY  22.50  0.63  *$  0.63   7.7%
CQ     19.75  25.38   MAY  15.00  0.38  *$  0.38   7.6%
SUPX   30.06  31.81   MAY  17.50  0.69  *$  0.69   7.5%
TOS    32.06  31.38   MAY  30.00  0.75  *$  0.75   7.1%
CYBX   23.81  19.88   MAY  17.50  0.50  *$  0.50   6.9%
VTS    28.06  24.25   MAY  20.00  0.56  *$  0.56   6.6%
BBBY   39.06  35.31   MAY  27.50  0.50  *$  0.50   6.5%
VANS   17.06  14.88   MAY  15.00  0.56   $  0.44   6.0%
AFWY   20.06  17.19   MAY  17.50  0.38   $  0.07   1.0%

*$ = Stock price is above the sold striking price.

Comments:

Tosco (TOS) is testing its 30 dma and Cyberonics (CYBX) is
testing its 150 dma.  Watch them closely!  VANS needs to close
above last week's high as the technicals have weakened.  You
may consider an early exit.  American Freightways' (AFWY)
technicals have remained bullish during a recent consolidation
phase and thus a successful test of its 50 dma should propel the
stock price back above the sold strike.

Positions Closed: 

Jakks Pacific (JAKK).


NEW PICKS
*********

Sequenced by Company
*****

Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

BBSW   16.94  MAY  12.50  UUO QV  0.31  40   12.19   14    18.3%
CENT   11.50  MAY  10.00  EQH QB  0.50  1611  9.50   14    30.2%
CLPA   34.00  MAY  22.50  QJC QX  0.31  347  22.19   14     9.5%
HYSL   29.13  MAY  22.50  WQE QX  0.44  75   22.06   14    15.3%
TBI    19.00  MAY  17.50  TBI QW  0.44  5    17.06   14    14.6%
VRTL   19.13  MAY  12.50  TUJ QV  0.44  99   12.06   14    22.3%
         
OCR    15.81  JUN  12.50  OCR RV  0.31  140  12.19   42     6.5%

Sequenced by Return  
******

Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

CENT   11.50  MAY  10.00  EQH QB  0.50  1611  9.50   14    30.2%
VRTL   19.13  MAY  12.50  TUJ QV  0.44  99   12.06   14    22.3%
BBSW   16.94  MAY  12.50  UUO QV  0.31  40   12.19   14    18.3%
HYSL   29.13  MAY  22.50  WQE QX  0.44  75   22.06   14    15.3%
TBI    19.00  MAY  17.50  TBI QW  0.44  5    17.06   14    14.6%
CLPA   34.00  MAY  22.50  QJC QX  0.31  347  22.19   14     9.5%
         
OCR    15.81  JUN  12.50  OCR RV  0.31  140  12.19   42     6.5%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, MR-Monthly Return.

*****
BBSW - Broadbase Software  $16.94  *** Bottom Fishing! ***

Broadbase Software is a leading provider of customer-focused
analytic and marketing automation applications that analyze
customer data from multiple touch points, and utilize that
information to execute marketing campaigns, improve online
merchandising and content, increase site stickiness and
personalize all customer interactions.  Broadbase applications
are designed for rapid time to value and they can be installed
quickly.  The company provides e-commerce infrastructure to
customers such as ADP, BEA Systems, Cisco, Fidelity Investments,
Hewlett-Packard, Kodak, LoanCity.com, Mercata.com, The Sharper
Image and United Airlines.  Broadbase also has a major global
presence with locations around the world.  This unique software
company recently announced more than 30 new global customers, a
number of strategic resale contracts, and they are planning a
significant International expansion.

MAY 12.50 UUO QV LB=0.31 OI=40 CB=12.19 DE=14 MR=18.3%

Chart =
 /charts/charts.asp?symbol=BBSW

*****

CENT - Central Garden & Pet Company  $11.50  *** Spin-Off! ***

Central Garden & Pet Company offers a broad array of proprietary
branded lawn and garden and pet supply products; Pennington, Four
Paws, Zodiac, Kaytee, Nylabone, and Grant's.  Central also is the
leading national distributor of lawn and garden and pet supply
products.  Central's operations are grouped into three business
segments: the lawn and garden branded products business, the
distribution business, and the pet branded products business.
Recent solid earnings with improving revenues due to some new
acquisitions and an upcoming spin-off of Central's distribution
business to shareholders make this a unique speculation play.

MAY 10.00 EQH QB LB=0.50 OI=1611 CB=9.50 DE=14 MR=30.2%

Chart =
 /charts/charts.asp?symbol=CENT

*****

CLPA - Cell Pathways  $34.00  *** Drug Sector ***

Cell Pathways Holdings is a pharmaceutical company focused on
the research, development and commercialization of products to
prevent cancer and to treat cancer.  CPI's technology may also
prove to have applicability beyond the field of cancer.  The
company's technology is based upon its discovery of a novel
mechanism which may eventually be targeted to induce selective
apoptosis, or programmed cell death, in cancerous cells without
affecting normal cells.  CLPA has also created a new class of
selective apoptotic anti-neoplastic drugs and has synthesized
over 500 new chemical compounds in this new class.  CLPA has
a number of products in the pipeline and the sector appears to
be recovering from the recent slump.  As with any speculative
issue, due diligence is a mandatory requirement before opening
this position.

MAY 22.50 QJC QX LB=0.31 OI=347 CB=22.19 DE=14 MR=9.5%

Chart =
 /charts/charts.asp?symbol=CLPA

*****

HYSL - Hyperion Solutions  $29.13  *** Entry Point! ***

Hyperion Solutions Corporation develops, markets and supports
enterprise analytic application software that helps companies
better understand, optimize and operate their businesses.  The
company's products integrate with, extend and enhance transaction
processing applications, enterprise resource planning and customer
relationship management packaged applications, and data warehouses.
Hyperion delivers client/server and other web-based products for a
broad range of analytic applications including budgeting and
planning, financial consolidation and reporting, activity-based
management, performance management, campaign management analysis,
promotional analysis, forecasting, demand planning, e-business
analysis and other industry-specific solutions.  Hyperion recently
reported record revenues along with bullish forecasts that include
a number of high-yield strategies, new products, and an expanded
partnership network.  Our cost basis appears to offer a relatively
conservative entry point and a favorable price for the issue.

MAY 22.50 WQE QX LB=0.44 OI=75 CB=22.06 DE=14 MR=15.3%

Chart =
 /charts/charts.asp?symbol=HYSL

*****

TBI - Tuboscope  $19.00  *** Oil Sector ***

Tuboscope is the world's leading supplier of oilfield internal
tubular coating and tubular inspection services; oilfield solids
control equipment and services; and coiled tubing and pressure
control equipment to the petroleum industry.  Additionally, the
company provides in-service inspection of pipelines; constructs
high pressure fiberglass tubulars; leases/sells advanced in-line
inspection equipment to makers of oil country tubular goods; and
provides quality assurance and inspection services to a diverse
range of industries.  In mid-April, Tuboscope reported excellent
earnings with solid revenues and a bullish forecast.  The company
is also beginning to experience an increase in demand for coiled
tubing capital equipment, a bonus for future earnings.  The chart
is favorable and the cost basis appears to be a good entry point
for those who want to own the issue.

MAY 17.50 TBI QW LB=0.44 OI=5 CB=17.06 DE=14 MR=14.6%

Chart =
 /charts/charts.asp?symbol=TBI

*****

VRTL - Vertel  $19.13  *** On The Move! ***

Vertel is a provider of telecommunications network management
software and solutions.  The company offers multiple software
technologies supporting network management for operations support
systems.  Vertel's solutions are deployed worldwide by service
providers, network operators, telecom equipment manufacturers,
independent software vendors and systems integrators.  Vertel
delivers turnkey management applications that fit individual
customer requirements and provides professional services that
include system analysis and design, source code portation and
interface, custom application development, conformance and
certification testing and technical support services.  Vertel's
solutions also support seamless network operation and management
over diverse transmission media and protocols.  The stock moved
up last week on rumors that the company is likely to win orders
from Ericsson and Nortel Networks.  We favor a simple speculation
play on the potential trend reversal.

MAY 12.50 TUJ QV LB=0.44 OI=99 CB=12.06 DE=14 MR=22.3%

Chart =
 /charts/charts.asp?symbol=VRTL

*****
Long-Term Play
*****

OCR - Omnicare  $15.81  *** Own This One! ***

Omnicare is a provider of pharmacy services to long-term care
institutions such as skilled nursing facilities, assisted living
communities and other institutional health care facilities.  Their
Pharmacy Services segment provides distribution of pharmaceuticals,
related pharmacy consulting, data management services and medical
supplies to long-term care facilities.  Omnicare's CRO Services
segment provides comprehensive product development services
globally to client companies in the pharmaceutical, biotechnology,
medical devices and diagnostics industries.  In this position, we
favor the fundamental outlook of the company and the technical
character of the underlying issue.  However, because of the June
expiration, we are going to "target shoot" the entry price with an
opening bid of $0.50, providing an initial cost basis of $12.00.

JUN 12.50 OCR RV LB=0.31 OI=140 CB=12.19 DE=42 MR=6.5%

Chart =
 /charts/charts.asp?symbol=OCR



************************
SPREADS/STRADDLES/COMBOS
************************

A Great Way To End The Week!

Friday, May 5

Equity markets enjoyed impressive gains today as traders ignored
the robust employment report along with the potential for higher
interest rates.  The Dow closed up 165 points at 10,577 and the
Nasdaq Composite ended 96 points higher at 3816.  The S&P 500
Index finished the day up 23 points at 1432.  Volume on the NYSE
was a light 802 million shares with advances beating declines
1,672 to 1,242.  Volume on the Nasdaq was very thin with just
1.15 billion shares exchanged.  Advances beat declines 2,264 to
1,681.  The long bond fell 12/32, bid at 100 26/32, where it
yielded 6.18%.


Thursday's new plays (positions/opening prices/strategy):

Cabletron    CS     JAN15C/MAY25C   $9.25   debit   LEAPS/CC's
Dean Foods   DF     AUG30C/MAY30C   $1.75   debit   calendar
Abgenix      ABGX   MAY145C/MAY80P  $2.12   credit  strangle

Today's rally did little to help our new positions.  None of the
plays offered entries at the suggested targets and the prices we
observed were available for only a brief period.
 

Portfolio plays:

Industrial stocks rebounded from a recent slump Friday despite
the bullish jobs report and a belief that the Federal Reserve
will raise rates by half a percentage point at the May 16 FOMC
meeting.  Analysts offered various explanations for the rally
but the common belief is that the market simply anticipated the
news earlier in the week and began adjusting to the possibility
of higher than expected rates after last Friday's employment cost
index and strong GDP data.  Traders were concerned that volume
remained extremely light with many participants unwilling to
commit large sums of capital in an environment of rising rates
and analysts still see the economic outlook as unfavorable to
stocks based on labor shortages and wage inflation pressures.
Today's outcome was positive for the Nasdaq with stocks moving
higher in all groups.  Biotech stocks were particularly strong
and technology bellwethers again led the rally.  In the broad
market, air freight, semiconductor and networking issues edged
upwards while healthcare, gold mining, and defense issues were
mostly lower.

Our portfolio enjoyed a number of winners during the session and
today's leader was in the semiconductor sector.  Cypress (CY)
rallied almost $6 to lead the entire group of Spreads/Combos
issues and the stock is now trading over $10 about the maximum
profit range.  Other leaders in the technology industry included
Adobe Systems (ADBE), up $5.75 to $120 and Teradyne (TER) which
rose $3 to a recent high near $108.  Our major drug positions
continued to perform well with Warner Lambert (WLA) climbing $5
to $122 and Sepracor (SEPR) eclipsing a recent resistance area
with a close near $103.  Johnson & Johnson (JNJ) also continued
higher and the stock is within $1 of our target price ($85) for
the month of May.  The majority of mid-cap issues performed well
during the bullish activity and the leaders in that group were
Unocal (UCL), up $2 to $35 and Computer Associates (CA) with a
$2 move to $53.  Andrew Corporation (ANDW), Medtronics (MDT),
and Magna International (MGA) also participated in the rally.

Questions & comments on spreads/combos to Click here to email Ray Cummins
******************************************************************
                         - NEW PLAYS -

With two weeks until expiration, and almost as if on cue, the
requests for credit spreads have begun to increase in number.
Here are a few candidates that may be favorable, based on your
strategic approach, trading style and risk/reward outlook.

******************************************************************
SCMM - Scm Microsystems  $94.50  *** On The Rebound? ***

SCM Microsystems designs, develops and sells hardware used to
control access to computers, networks and digital television
broadcasts, to conduct secure electronic commerce, and to
exchange information from devices such as digital cameras and
audio recorders.  Their target customers are manufacturers in
the computer, telecom and digital television industries.  SCM
Microsystems provides OEMs with key standards-compliant enabling
hardware, firmware and software products, technologies used in
smart card and other token-based network security systems, and
conditional access to DVB content and services.  Through the use
of its extensible core technologies, SCM is able to offer many
products that address the specific needs of diverse market
applications such as enterprise data security, electronic
commerce and DVB conditional access.

SCM has a number of new products in the pipeline, all designed
to enhance their ability to deploy a broad range of new digital
applications, from pay-TV to satellite Internet multicasting to
secure e-commerce to digital copyright protection.  These new
technologies are the driving force in the growth of their target
markets: Digital TV, Broadband Access, PC & Network Security and
Digital Media Transfer.  SCM's recent achievements include an
interoperability milestone with their OpenCable PC receiver for
the U.S. cable TV market.  This system is being developed with
Microsoft and demonstrates the ability to receive and descramble
signals from the world's major conditional access providers.
They have also announced a pact with Nokia to develop a broadband
PC receiver to enable the delivery of secure applications and
services over the terrestrial digital TV network, including
regional push Internet  services and secure local intranets.

Obviously the company is headed in the right direction as far as
new technology.  The question is whether or not their share value
can follow through with the recent recovery.  There are a number
of favorable technical indications and the most recent support
level is near our cost basis.


PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-75  SIU-QO  OI=48  A=$0.93
SELL PUT  MAY-80  SIU-QP  OI=11  B=$1.56
INITIAL NET CREDIT TARGET=$0.68-0.75  ROI(max)=17% B/E=$79.25

Chart =
/charts/charts.asp?symbol=SCMM

*****

SII - Smith International  $83.69  *** Oil Sector Hedge ***

Smith International is a worldwide supplier of premium products
and services to the oil and gas exploration and production
industry, the petrochemical industry, and other industrial
markets.  Smith provides a comprehensive line of highly advanced
products and engineering services; drilling and completion fluid
systems, solids-control equipment, waste-management services,
three-cone and diamond drill bits, fishing services, drilling
tools, under-reamers, casing exit and multilateral systems,
packers and liner hangers.  The company also offers supply-chain
management solutions through an extensive network providing pipe,
valves, fittings, mill, safety and other maintenance products.
Their operations are classified into two segments: The Oilfield
Products and Services Group and the Distribution Group.

Oil service stocks have been on the move in recent weeks and most
industry analysts believe the trend will continue.  According to a
research report released last month, the Services Group is in the
early stages of an up-cycle that should be both longer and more
stable than the 1995 to 1997 rally, in terms of earnings and share
value performance.  Based on the current earnings and forecasts
for the sector, that outlook appears to be correct.  In this case,
the technical character of the issue also supports the fundamental
optimism and it appears there is little to hold the share value
down in the short-term.

  
PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-70  SII-QN  OI=64    A=$0.50
SELL PUT  MAY-75  SII-QO  OI=1500  B=$1.06
INITIAL NET CREDIT TARGET=$0.62-$0.68  ROI(max)=14% B/E=$74.38

Chart =
/charts/charts.asp?symbol=SII

*****

AMAT  - Applied Materials  $101.88  *** Reader's Request ***

Applied Materials develops, manufactures, markets and services
semiconductor wafer fabrication equipment and related spare parts
for the worldwide semiconductor industry.  Customers for these
products include semiconductor wafer manufacturers and other
semiconductor integrated circuit manufacturers that either use
the ICs they manufacture in their own products or sell them to
similar companies.  These ICs are the key components in most
advanced electronic products such as computers, telecom devices,
automotive engine management systems and electronic games.  The
company recently completed the acquisition of Etec Systems, a
manufacturer of mask pattern generation solutions for the
semiconductor and electronics industry.

This company has been one of the favorite OIN positions over the
last few months and this week I received a request for a bullish
combination play on the issue.  Of course the options have been
quite active with the anticipation of the upcoming earnings report.
Applied Materials is expected to report second-quarter earnings
of $0.55 a share when it releases results on May 10, 2000, but
rumors suggest the actual report will be better than expected.
With the popularity of the issue and its options, there are very
few large disparities to take advantage of with spread trading.
Those of you with a very conservative, bullish outlook could
participate in this deep-out-of-the-money credit spread with
little probability of loss.  Fortunately, the daily movement in
the underlying issue should allow us to improve the initial
credit in this position.


PLAY (very conservative - bullish/credit spread):

BUY  PUT  MAY-70  ANC-QN  OI=2274  A=$0.56
SELL PUT  MAY-80  ANC-QP  OI=4729  B=$1.31
INITIAL NET CREDIT TARGET=$0.88-$1.00  ROI(max)=10% B/E=$79.12

Chart =
/charts/charts.asp?symbol=AMAT

*****

ANTC - Antec Corporation  $51.19  *** A $60 Ceiling! ***

Antec is a developer, manufacturer and supplier of optical and
radio frequency transmission equipment for the construction,
rebuilding and maintenance of broadband communications systems.
Antec supplies equipment and services for these systems primarily
to broadband communication providers and is a one-stop provider
of substantially all of the equipment necessary for hybrid fiber
coax (HFC) networks between the head-end and the home.  Antec has
developed a full line of technologically advanced fiber optic
products to capitalize on current and future upgrades of HFC cable
systems capable of providing state-of-the-art video, voice and
data services.  The company has offices around the globe.

There is not much to get excited about in the recent history of
this issue but a review of the technical background suggests the
stock has a firm resistance level at $60.  Since October 1999, the
issue has made three separate attempts at a new high, all of which
resulted in failed rallies.  Now the stock is making another try
and we are going to speculate on the outcome with a conservative,
out-of-the-money credit spread.
   

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-65  AQC-EM  OI=283  A=$0.56
SELL CALL  MAY-60  AQC-EL  OI=397  B=$1.25
INITIAL NET CREDIT TARGET=$0.75-0.81  ROI(max)=17%  B/E=$60.75

Chart =
/charts/charts.asp?symbol=ANTC

*****

BFO - Best Foods  $63.75  *** Takeover Play ***

Bestfoods is among the largest U.S. consumer food companies with
operations in more than 60 countries of North America, Europe,
Latin America, Asia, the Middle East, and Africa and products
sold in about 110 countries.  Bestfoods markets various leading
food brands, and operates over 115 plants around the world
through retail outlets and its foodservice business.  Their
products include Knorr soups, sauces, bouillons and related
products; Hellman's and Best Foods dressings; Mazola corn and
canola oils; Skippy peanut butter; Entenmann's sweet baked
goods; Thomas' English muffins; Oroweat, Arnold, and Freihofer's
breads; Mueller pasta products; Maizena corn starches; Boboli
Italian pizza crusts; Alsa desserts; Pfanni potato products;
and Pot Noodle instant hot snacks.  Of course they are known for
their Mayonnaise but Bestfoods is also the largest fresh premium
baker in the United States.

Bestfoods is currently the merger target of Anglo-Dutch Unilever
(ULVR) and the offering is a cash bid of $66.  There is also
renewed interest in the company from Heinz (HNZ), the famous
maker of ketchup from Pittsburgh.  That company is urging BFO to
consent to a friendly merger valuing the Hellmann's mayonnaise
and Knorr soups group at up to $72 a share.  A number of analysts
suggest that Bestfoods investors would prefer cash rather than a
revival of the Heinz-Bestfoods deal which ended last September.
The continuation of Unilever-Bestfoods talks are likely to hinge
on price, with analysts seeing Unilever able to afford up to $70
a share.  Currently, Bestfoods is expected to explore all of its
options before agreeing to any deal and based on that outlook,
we are going to offer another speculative credit-strangle.  The
profit range for this position is relatively large and there is
little chance the issue will trade far from its current price
in the next two weeks.
 
PLAY (speculative - neutral/credit strangle):

SELL CALL  MAY-65  BFO-EM  OI=1076  B=$1.68
SELL PUT   MAY-60  BFO-QL  OI=769   B=$1.31
INITIAL NET CREDIT TARGET=$3.12-$3.25  ROI(max)=11%
UPSIDE B/E=$68.12 DOWNSIDE B/E=56.88

Chart =
/charts/charts.asp?symbol=BFO



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*****************************
SEE DISCLAIMER IN SECTION ONE
*****************************

DISCLAIMER

Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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Option Investor Inc
PO Box 630350
Littleton, CO 80163

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