Option Investor

Daily Newsletter, Thursday, 05/11/2000

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The Option Investor Newsletter             Thursday 5-11-2000
Copyright 2000, All rights reserved.                   1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       5-11-2000           High     Low     Volume Advance Decline
DOW    10546.00 + 178.20 10575.10 10369.30   957,085k 1,999    933
Nasdaq 3,499.58 + 114.85  3502.53  3384.73 1,369,729k 2,522  1,481
S&P-100  754.74 +  14.83   756.03   742.33    Totals  4,521  2,414
S&P-500 1407.81 +  24.76  1410.26  1386.88            65.2%  34.8%
$RUT     489.39 +  15.11   489.39   474.28
$TRAN   2901.39 +  38.22  2912.99  2862.69
VIX       31.25 -   2.05    32.86    30.92
Put/Call Ratio       .72

Looks like a rally, is it a rally?

After what seems like weeks of falling Nasdaq prices, (actually
only three days), the Nasdaq finally managed to mount a charge
that looks fairly good. But first a little humble pie. Chomp,
chomp, chomp. That was me eating my words from Tuesday when I
said I did not expect any more serious drops before the Fed
meeting. Actually, I would like to thank IBM, INTC, MOT and
CSCO for their part in providing an absolute incredible entry
point on Wednesday. Of course it was not actually the companies
that turned my prediction to toast, it was the analysts that
follow them. When IBM and MOT were downgraded before the open
on Wednesday and Intel admitted it would spend hundreds of
millions of dollars recalling over one milliom faulty
motherboards, there was no doubt about what would happen when
trading actually began. IBM was down -$9, MOT -$17, INTC -$10
and CSCO -$4 on post earnings depression. The problems for these
four major tech leaders just added to the Barrons initiated
downdraft. Fortunately after analysts had time to look at the
real facts these companies mounted strong rebounds today.
MOT +4.75, IBM +1.44 but up +$5 intraday, INTC +$9.50 and CSCO
+1.75. With strong earnings by AMAT last night the market was
ready to rock and roll at the open this morning. After a brief
"sell at the open and hold your breath" period the outcome was
never in doubt.

Money started coming in off the sidelines as traders began
taking positions ahead of the PPI report on Friday. The last
several months traders have moved to the sidelines in the
week ahead of the PPI only to sneak back in the day before
in anticipation of a relief rally on the announcement. This
week was no different and with some analysts looking for a
lighter than expected PPI the rush back into Wednesday's
oversold market was made on better volume than we have seen

Adding to the desire to get back into the market was the Retail
Sales Report this morning. The numbers for April came in at
a less than expected -.2%. This sparked a faint hope that the
Fed either may not raise +.50% next Tuesday or they may not
need to raise again by the June meeting. Economists pointed
to the drop in sales and the rise in mortgage interest as
indicators that the economy is slowing. Fixed rate mortgage
interest is at a five year high and adjustable ARM rates are
at a nine year high. This is slowly impacting home sales but
has not yet become the major deterrent the Fed would like.

The only major earnings news today was of course Dell which
announced $.17 after the close and beat estimates by a
penny. There was a brief flurry of excitement when the number
was first released at $.19 but that included $.02 of investment
income. The stock traded up +$3 in after hours on a volume
of two million shares before the number was qualified back
to the $.17 operating results. Dell only increased revenue
by +31% and not anywhere close to the +55% posted by CSCO.
Dell did say PC growth was on track and Windows2000 was
heating up as businesses began upgrading after the Y2K hold.

The level of pessimism in the markets prior to today was
intense and may have finally provided the retest we needed
to rally again. The Nasdaq came within 140 points of the April
17th low and the Dow came with 100 points. Close enough for
me! The volume was better but still anemic at 1.3 bln for the
Nasdaq and 957 mln for the NYSE. Money is still waiting on
the sidelines for the Tuesday Fed meeting and the PPI Friday
morning. If the PPI comes in reasonable or even lower than
expected we should get some major movement off the sidelines.

The .50% hike is already priced in and there are just enough
skeptics still saying .25% to cause uncertainty. Either way
it will just be a relief to get it over with. Most analysts
are hoping for the .50% at this point to keep this same
"paralysis of analysis" from simply shifting to the June FOMC
meeting. They feel a .25% hike now will only slow down the
process and drag the uncertainty out several more months.
Of course that would be okay with the Fed. Slow the markets,
keep them guessing, stop any July earnings run in its tracks
and make us enter the summer doldrums with a weaker market.
Of course this is also an election year. If you were Greenspan
which direction would you take. A quick .50% hike and have
the markets roar off again creating more wealth effect or
the slow and steady, painful but careful .25% hike and have
the markets in turmoil for another month. See my point?

I made an investment today that I think everyone should
look at as well. DLJ joined the ranks of analysts that after
reviewing the MSFT case felt that MSFT will win the case on
appeal. They feel the stock is oversold and there is no bad
news left. DLJ put a twelve-month price target on MSFT of
$140. Microsoft is currently trading for $67 and only $2
off the low set in April on the last negative news. If MSFT
wins on appeal the stock will rocket. If MSFT and the DOJ
settle between now and then the stock will rocket. If years
from now MSFT is actually broken up analysts feel the halves
will be greater than the whole. There is no downside from
here in my opinion. In order to be insulated from the day
to day news hype I bought the Jan-2002-65 leaps for $18.75.
Anything over $85 18 months from now is profit. In reality
I would be surprised if MSFT was not much higher than that
after reaching a settlement of some kind. I plan to sell
calls against my leaps and have them paid for within six
months. That would make anything over $65 profit. Just my
opinion but with Internet companies without earnings going
for big bucks the MSFT cash machine that generates billions
in profits will attract investors back by the millions once
there is a hint of settlement.

I commented on Tuesday that I bought the dip with half of
my capital and planned to spend the other half on Wednesday
if the market rallied. Thank you IBM, INTC, MOT, CSCO! That
was even better than a rally confirmation. I backed up the
truck as you will see from the disclosure list below. One
strange thing however. I have told many seminar attendees
before that I have never been put stock from my deep in the
money naked put strategy. I can't say that any more. I sold
the Jun-$150 RBAK naked put yesterday for $91.88 with RBAK
at $59 and rebounding just before the close. It fell back
a little at the close to $57.75. When I logged on this morning
somebody had put me 10 contracts of RBAK at $150. It opened
at almost $63 and I sold it after the open for slightly over
$60 and a $2000 profit. I only relate this because readers
always ask me why this does not happen all the time. It does
not happen because there is normally time value associated
with the option and nobody wants to give up the time value.
This is the only time this has ever happened but shows that
you must be ready and able to have stock put to you at any
time when using this strategy. Proper use of stop losses
will prevent this 99.99% of the time.

I did have a reader who got burned on EXDS recently. He
sold the April $105 puts. The stock price at the close on
expiration day was $107.50 and it appeared they had expired
worthless. However EXDS announced earnings after the close
and the stock dropped -$17 in after hours trading. On Monday
he found the stock put to him at $105 with an opening value
of $87. This is a prime example of why you should never let
any option expire worthless. If it goes worthless before
expiration buy it back for an eighth or sixteenth and save
yourself the unexpected. I can't tell you how many times
worthless options miraculously regained value at the worst
possible moment. It never happens if you are long the options
only when you are short. Save yourself the heartbreak and
the money by spending a few cents for insurance.

We are going to be in Las Vegas next week for the Money Show
and look forward to seeing many of you there again. It is
being held at the Paris/Ballys hotel complex Tue/Wed/Thr.
Stop by and say hi!

If the PPI is lower than expected on Friday, fasten your
seatbelt because it could be a brand new ride!

Trade smart and don't buy too soon.

Jim Brown

Current long positions include:


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Enel and Echelon Agree to Network 27 Million Homes
By Matt Paolucci

Shares of Echelon Corp. (ELON), the leading networker of
household devices, soared after signing a memorandum of
understanding with Enel SpA (EN), the largest traded electric
utility worldwide, under which Enel will integrate Echelon's
LonWorks system into its digital meter project.

Enel will provide its electricity digital meters and a
complete home networking infrastructure to over 27 million
Italian households over a three-year period. The giant Italian
utility will also purchase 3 million shares of newly issued
Echelon common stock.

LonWorks networks, developed by Echelon, uses devices called
nodes, which communicate with each other using a common
protocol. Each node in the network contains embedded
intelligence that implements the protocol and performs control

These nodes performs simple tasks and can be used as proximity
sensors, switches, motion detectors, relays, motor drives, and
instruments on the network. As a whole, the network is able to
perform complex control applications, such as running a
manufacturing line or automating a building.

Upon the signing of a definitive agreement, Enel would provide
complete end-to-end home networking infrastructure for the
homes, enabling communication over the existing power lines,
data transmission, software, as well as communication to
indoor devices.

"This is a very important event for Echelon and for the entire
LonWorks industry," said M. Kenneth Oshman, Echelon's
chairman, CEO, and president. "Our agreement with Enel will
provide the largest network infrastructure in the world for
networking everyday devices, in every home and building in
Italy that has an electric meter."

Enel and Echelon are actually negotiating two definitive
agreements, one agreement for Enel's purchase of three million
shares of Echelon's common stock, and a separate agreement
relating to the products and services used in Enel's Contatore
Elettronico system.

The companies expect to reach a definitive agreement in June
and to begin installing systems in the first quarter of 2001.

"We are planning to add intelligence to the power grid. It is
an important strategic initiative for Enel," said Franco Tato,
CEO of Enel. "The LonWorks platform will allow us to both
improve the quality of our service and to lower our costs."

The initial set of planned services includes remote meter
reading, demand side management, and remote customer

Even though the parties have not yet entered into a definitive
agreement, it is anticipated that more than $300 million of
Echelon products will be used in the Enel's system over the
three-year deployment period.

Shares of ELON closed up $9.50 at $40.50, while EN moved up
$0.38 to $41.75.


As of Market Close - Thursday, May 11, 2000

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

DOW Industrials   10,000  11,400  10,545    Neutral   5.05
SPX S&P 500        1,400   1,500   1,408    Neutral   5.05
OEX S&P 100          750     800     755    Neutral   5.05
RUT Russell 2000     450     550     490    Neutral   5.05
NDX NASD 100       3,200   4,000   3,382    Neutral   5.05
MSH High Tech        860   1,000     878    Neutral   5.05

XCI Hardware       1,360   1,600   1,369    Neutral   5.05
CWX Software       1,100   1,300   1,170    Neutral   5.05
SOX Semiconductor    960   1,200     966    Neutral   5.05
NWX Networking       900   1,100     987    Neutral   5.05
INX Internet         550     800     570    Neutral   5.05

BIX Banking          530     600     547    Neutral   5.11  **
XBD Brokerage        400     500     447    Neutral   5.05
IUX Insurance        540     620     603    Neutral   3.16

RLX Retail           900   1,000     910    Neutral   5.11  **
DRG Drug             355     400     378    Neutral   4.28
HCX Healthcare       710     800     770    Neutral   4.28
XAL Airline          140     155     153    Neutral   3.10
OIX Oil & Gas        265     300     305    BULLISH   5.11  **

Posture Alert
The tail is definitely wagging the dog, as every economic
indicator now moves the equity market dramatically up or down.
Today's positive surge was with the help from slower Retail Sales;
however, tomorrow brings us the Producer Price Index, which can
easily shake things up. Leading sectors today include
Semiconductors (+6.25%), Software (+4.90%), and the Morgan Stanley
High Tech (+4.80%). With this most recent action, we have upped
Oil & Gas to Bullish from Neutral, as well as the Retail and
Banking sectors (from Bearish to Neutral).


Thursday, May 11, 2000

The Sooner the Better!

Economic data continues to dominate this marketplace, as today's
Retail Sales numbers came in favor of the bulls. This figure
helped spark a nice broad market rally, which made up for many of
the loses from yesterdays trading. However, with the Producer
Price Index due out tomorrow and then the Consumer Price Index as
well as the Fed meeting next week, we could still be in some
rough waters.

Corporate earnings continue to be stellar, as Dell, Cisco and
Applied Materials all came out with good numbers. So far, these
excellent earnings haven't helped push the market to any
significant level, let alone their own stock prices. However,
when a significant rally does come, look for the big boys to lead
the way.

Currently, the sentiment on interest rates dictates that we will
see a 50-basis point rate hike next week. The statistics are
predicating that a 50-basis point hike has a 90% chance of
occurring, so anything less will be a positive. Now we do have
the PPI tomorrow, which technically, can only help the bulls'
camp. If the PPI comes in negative, we already have that priced
into this upcoming rate hike; however, if it comes in better-
than-expected, a rally may ensue as traders speculate about a
lower rate hike. Regardless, there has been too much attention to
this Fed Meeting, so the sooner it is over, the better for


Corporate Earnings:
Major corporate earnings continue to come out strong and ahead of
analyst expectations. Walmart and Cisco Systems are the latest
bellwethers to beat expectations.

Short Interest (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:

Volatility Index (31.25):
Up until recently, the VIX has proved that the low 30's are an
excellent buying opportunity, and the low 20's continue to be a
great selling opportunity. However, new highs (41.53) were just
recently reached, so we may be at the beginnings of a new trading


Interest Rates (6.147):
With the long bond breaking significant support levels, new highs
may be attempted in the near future.

Liquidity 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.

IPO Dilution:
With so many IPO's hitting the market, there seems to be dilution
occurring where shares of finally freed up to sell by insiders.
$58.6 billion of stock was freed up for trading in March, $67.3
billion this month, and $118.3 billion in May. This is too much
stock for the system to handle.

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.

Investor Expectations:
More and more investors are now expecting high double-digit
growth if not triple-digit expansion in their portfolios. This
extreme positive sentiment could help fuel a future sell-off in
technology shares.


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        5.54        6.10
Overhead Resistance (775-800)     1.53        1.88        2.02

OEX Close                       767.79      757.82      754.74

Underlying Support  (745-770)     2.10        2.23        1.60
Underlying Support  (715-740)    10.54       12.81        7.95

What the Pinnacle Index is telling us:
Based on the above statistics, direct overhead resistance and
direct underlying support both remain light, while OTM support
and resistance levels are extremely strong.

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

CBOE Total P/C Ratio             .53        .50        .68
CBOE Equity P/C Ratio            .46        .42        .55
OEX P/C Ratio                   1.25       1.07       1.30

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

Puts                660 / 5,521   710 / 5,506     700 /  7,363
Calls               800 / 5,916   800 / 5,440     800 / 11,345
Put/Call Ratio        0.93           1.01             0.65

Market Volatility Index (VIX)
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 11, 2000                            31.25


Using Support and Resistance Levels Profitably
By Renee White

If you are determined to play in this market of uncertainty and
stagnation, make sure you have a very good understanding of how
to interpret support and resistance levels.  Having a clear
signal of where buyers may show up, or when sellers may choose
to take profits, will help you tremendously with your short-term
trading decisions.

With low volume and a narrow trading range, I have been able to
scalp profits consistently by carefully paying attention to these
S&R levels.  Profits came easier a few months back. The bullish
sentiment made option traders become complacent, choosing to hold
their options instead of taking frequent profits because the
equity went up 3 days, down 1, or up 5 days, down 1 day.  Yep,
those were the good-ol-days.  I hope they return soon.
Mistakenly, the self defeating thinking became, "I have a winner.
Why sell?  It will cost more if I try to buy it back."  On rare
occasion, they are right.  The majority of the time though they
tricked themselves into holding too long, past the point of peak
profit taking and sometimes a loss from an opening gap down.  We
have all done it.  It is part of the game.  Experienced traders
really know better, but it still happens.

I wonder, how many of you have noticed a difference in your
trading skills from the adjustments you have made during this
melancholic market?  My distrust for the markets lately has
actually helped my trading improve.  I have primarily played QQQ
(Nasdaq 100 index) and an occasional equity play.  With the
markets whipsawing up & down every other day, if the index goes
against me, I just hold for two days.  All I am looking for is a
few points here and there;  on most days, only 1-2 points.  I'm
taking larger positions on 1-3 equities at a time.  My profit
expectations are minimal and I want to exit most at the end of
day.  This has worked better than I ever expected.  In fact, when
we do return to our familiar bull market attitude, I am confident
that these changes will incredibly improve my overall returns.
The key to this turnaround has been using support and resistance
levels on a shorter time frame than before.  Now I draw intra-day
lines on both the composite and the equity I trade.

Every morning, I turn on CNBC, then my chart screen.  I listen to
clues on where the market will open.  Are the futures up or down?
Will it be a strong open or mixed?  Next, I go to my Nasdaq
Composite 5 min screen and I draw a thin red line to show the
its high for yesterday (yesterday's resistance level) and
another line to show yesterday's close.  These lines will move
with my charts, regardless if I change to 1 min, 5 min, or any
other time period.  The significance of these two lines is the
bullish sentiment that follows taking out yesterday's high, or at
least our bullish desire to close higher than yesterday's close.

I also draw a "thick" red line, showing yesterday's low
(yesterday's support level) as a warning sign to me and a
potential stop-loss exit point.  It's a bad sign if it drifts this
low, indicating a time to exit because sellers will start showing

Once the markets open, I draw a turquoise line to show where
the open was.  This moving line clues me all day, evaluating
how close we are to yesterday's levels.  With these initial
4 lines, I have the beginnings of my support and resistance
levels for the day, until today's levels establish themselves.

Learning to read the market is very important to the overall
trading success.   So too is the ability to observe intricate
patterns that the market gives us.  For instance, if the futures
are up strongly (and fair value is up), we will usually see a gap
UP, on the open.  The majority of time, this opening gap
immediately starts fading away slowly drifting lower and lower
right after the open.  Many a beginner has been treated with
this poisoned candy, tempted to enter right at the open when
prices were at their highest.  The thing to watch though is where
the reversal comes.  Once the sell-off stops, the buy orders
begin and typically send the index back up.  It is at this lower
reversal point, I draw my first "thin" purple line:  a signal to
myself of today's first support level.  It is important to know
where this line is in relation to yesterday's hi, lo, and open
because this information affects my trading decisions all day.
Also, I know that during the day, if we violate that line lower,
potential sellers will most likely show up and we will be heading
south.  Our next support would be yesterday's resistance level.
Not a good sign.

But, if the buyers come in on that reversal up, the next thing to
look for is how high the index will go before it stalls and rolls
over again.  Will this roll over be higher than the opening
turquoise line?  If so, that's good. Buyers are around and jumping
on board.  Or will it not quite get back up to where we opened the
session, before heading south again.  That's bad, a sign of a bad
opening.  Either way, I place another purple line at this high
reversal to indicate today's resistance level because sellers will
be taking profits near that range again so I want to remember it.

All day long, the market cycles and creates patterns to be
plotted.  I do not touch yesterday's lines but during the day,
I do adjust today's support and resistance levels.  If we bounce
off the same support level several times, then a thicker line is
drawn and purple becomes a red line.  The same is true if we sell
off at a particular resistance level several times within the day,
that line becomes thick.  Those changes signal breakout or
breakdown points for me, when I would expect volume to pick up
for either buyers or sellers.

By paying attention to these simple support and resistance levels,
your short term trading profits should significantly improve.  If
the highs continue higher and you keep raising your resistance
line, then entering on a bottom reversal isn't so scary.  Also,
there is a sense of pleasure that comes when you take profits at
a resistance point you anticipated, then watch the index rollover
as you thought.  My support lines are red for a reason, a clue for
an exit.  By the way, I mark my entry with a green line (the color
of money), and I put a thicker green line at my potential
limit-sell profit goal.  This also affects my intra-day trading
decisions, as I notice how far away my entry and exit points
become from today's support and resistance levels.

Keep in mind, intra-day trading with options is difficult because
of the slippage affects of the spread, and the time decay of
holding over in a choppy market.  Regardless, if I am scalping
option profits or profits from the underlying equity, becoming
hypersensitive to these S & R levels has greatly improved my
trading techniques.  I doubt I will ever buy and hold an option
for days on end again.

Contact Support


Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10545.97   25.77  -66.88 -168.97  178.19  -31.89
Nasdaq  3499.58 -147.44  -84.37 -200.28  114.85 -317.24
$OEX     754.74   -6.20   -5.77  -17.91   14.83  -15.05
$SPX    1407.81   -8.46  -12.03  -29.09   24.76  -24.82
$RUT     489.39  -12.76   -9.22  -16.58   15.11  -23.45
$TRAN   2901.39   59.76  -31.71  -40.99   38.22   25.28
$VIX      31.25    0.73    0.59    1.59   -2.05    0.86

Calls               Mon     Tue     Wed     Thu    Week

CDWC     118.75   -2.00    3.18   -0.81    8.75    9.13  New
BSX       25.25    0.82    0.94   -1.63   -1.44   -1.31  Profits?
WLA      116.19    2.84   -1.53   -1.69   -2.25   -2.63  Merger vote
SEPR     100.13    1.19    2.31   -9.25    2.63   -3.13  Bold move
MSFT      67.88   -1.32   -2.00   -1.62    1.69   -3.25  New
FLEX      51.13   -2.06   -1.81   -4.32    4.81   -3.38  New
AMD       87.75   -3.38   -5.75   -3.50    7.81   -4.81  Rising up
QCOM      99.31   -6.75    2.00   -7.56    2.00   -4.81  Dropped
BVSN      43.31   -3.31   -1.19   -3.63    1.81   -6.31  Golf club
JDSU      86.50   -5.43   -2.57   -5.62    6.31   -7.31  New
HIFN      34.38   -3.50   -3.50   -2.25    0.50   -8.75  Dropped
MERQ      76.00   -3.88   -3.19   -6.00    4.06   -9.00  Traveling
ADBE     108.38  -10.31    2.94   -6.13    2.19  -11.31  Dropped
AMCC      98.81  -11.69   -6.25   -9.12   12.19  -14.88  New
MEDI     154.69  -12.00    2.31   -8.19    2.31  -15.56  Consolidate
EPNY      72.56   -1.75   -2.88   -6.50   -5.69  -16.81  Dropped
KANA      38.25   -2.66   -6.31   -7.13   -1.00  -17.09  Scoop??
ABGX      93.47   -5.88   -9.50   -9.00    4.97  -19.41  Vigil time
AFFX     133.25   -7.94   -8.63  -11.44    5.19  -22.81  Resist@138


FDRY      66.75   -5.63   -0.63  -11.06   -6.06  -23.38  New
EBAY     117.75   -5.50   -7.31  -10.19    6.75  -16.25  Drowning
CMRC      45.47   -4.82   -3.31   -1.81   -0.47  -10.41  Gapped down
SBL       43.38   -1.75   -3.81   -2.56    1.75   -6.38  Supp @ $40
SNE      217.44   -2.25   -5.94   -2.13    6.19   -4.13  Dropped
GCI       60.81   -0.50   -1.00    1.13    0.44    0.06  More to go
CTXS      47.75    0.56   -2.88    1.94    4.75    4.38  Dropped

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


ADBE $108.38 +2.19 (-11.31) The ascending channel that ADBE has
traded in for the past two months was finally broken Thursday.
The stock failed to make a higher low in Thursday's trading.
ADBE dipped below its support line at $105 during an early
morning sell-off.  Volume surged in the first hour of trading
as ADBE shed nearly $10.  The software sector showed substantial
gains across the board Thursday.  The positive guidance from
CA sent a rising tide through the sector sending ORCL, VRTS,
and BMCS into rally mode.  Because of the early morning
liquidation, and relative weakness, it's time to leave ADBE.

QCOM $99.31 +2.00 (-10.44) There was a rumor going around today
the BancAmerica Securities would be coming out with bearish
comments, but so far it's just a rumor.  Thestreet.com even noted
that CNBC bulled the issue thereby derailing the rumor.  Even so,
QCOM has dropped below its historical support level of $100, and
yesterday closed just over $97, also its 200-dma.  This could
very well be a bottom and we believe there to be strong support
at the $95 to $100 level, especially since $96 was tested again
today followed by a small bounce.  That said, the sour mood in
front of the FOMC meeting puts QCOM in dangerous water.  It's
either going to bounce hard with a full-fledged market recovery
(unlikely), bounce soft with a few point intraday gain (maybe a
good exit point), flat-line, or fall more.  The first scenario is
a really big "if" and not enough to make us like it as a call
play going forward.  To that end we are dropping QCOM tonight.

EPNY $72.56 -5.69 (-16.81) Looks like our caution on Tuesday was
well founded.  EPNY never got a bounce from $85, or even $80
support for that matter.  10-dma at $81.93...nobody cared.
That's why we often note to wait for the bounce backed by volume
before taking a position.  EPNY saw $66.50 before it ever found
any support, and that's not going to cut it on the call play
list.  As a presenter at the H&Q tech conference today in San
Francisco, you can see a flattening of the descent on an intraday
chart during the CEO's presentation.  Once finished, EPNY resumed
its downward course.  No news in particular - just an overall
demand by investors that companies figure out how to make money
fast.  On that score, EPNY has some work to do before getting
back in good graces with the investing community.  Accordingly,
we're dropping it tonight.

HIFN $34.38 +0.50 (-8.75) How many different ways can we say
"buyer's strike" without it getting boring?  HIFN is being
impacted by aggressive indifference, continuing to fall a
little bit every day, as volume drops further and further,
(posting less than 40% of the ADV today).  Support appears to
be firming near current levels, but it was rather discouraging
to see HIFN fail to participate in the rally on the NASDAQ
today.  If strength in the broad markets can't attract buyers
to our play, it seems we would be prudent to move on.


CTXS $47.75 +4.75 (+4.38) The Chase H&Q Technology Conference
proved to be detrimental to our put play.  Senior Analyst,
Christopher Galvin said he continues to recommend CTXS as a Buy.
Galvin pointed out that CTXS will reap rewards from the Windows
2000 release.  The talking heads at the conference provided the
catalyst to turn CTXS around.  The stock dipped below $40 for a
moment Wednesday, then rebounded into the close.  The momentum
carried over into Thursday's trading as CTXS gapped higher and
rose steadily throughout the day on heavy volume.  In light of
the renewed interest in CTXS, it's time to step aside.  But we
enjoyed the play while it lasted.

SNE $217.44 +6.19 (-4.13) After the long painful slide, SNE was
due for a relief bounce eventually, but rather than a pause,
this looks like a potential bottom.  Although volume is still
weak (near 75% of the ADV), SNE is seeing volume increase as
the price rises.  The bounce from $210, a major support level,
makes it look like this may be as far as our play is willing
to go.  Possibly adding to the change in sentiment was the
company's announcement of the U.S. and European market launch
dates for the PlayStation2.  Whatever the cause, we don't want
to fight the tape and are dropping SNE tonight.

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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
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The Option Investor Newsletter             Thursday 5-11-2000
Copyright 2000, All rights reserved.                   2 of 2
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MERQ $76.00 +4.06 (-9.00) MERQ has traveled an interesting path
since Tuesday.  Early Wednesday afternoon, our software company
found something that had eluded many of the companies on Wall
Street for most of the week.  Buyers.  After falling $17.50 for
the week, a few brave souls ventured into the market, nibbling
at shares of MERQ.  Today the buying continued as the MERQ and
the broad market reacted favorably to economic data released
this morning.  While today's 5.5% gain is certainly better than
a loss, we would keep your stops close if you re-entered
somewhere along the lines.  Technically we are sitting in no-mans
land, as the high of the day and the close, edged up against the
100-dma at $76.44.  Intraday indicators closed pointing north,
which is encouraging.  The next levels of resistance show up near
$78 and again at $82, with support near $72.  Remember we have
three more sessions, with important economic data and a Fed
meeting ahead.  Again we are by not trying to scare anyone out
of the play, just be prepared to take profits if necessary.

BSX $25.25 -1.44 (-1.25) The profit takers we had warned of last
Tuesday came out of hiding in the past two days.  BSX also had to
cope with an all around nasty market Wednesday.  It appears the
selling in the past two days is nothing more than profit taking.
After rallying over 50% from early March, traders decided to lock
in their gains.  Although BSX fell through its support level of
$26 Thursday, the stock remains in a solid up-trend.  The recent
sell-off may prove to be a good entry into the play.  We'll want
to watch BSX closely Friday to see if the stock rebounds from its
current levels.  Support at $24 needs to hold if BSX is going to
remain in its up-trend.  If the selling continues Friday morning,
look for BSX to bounce from $24 for a possible entry point.  But,
if buyers step back in, and lift BSX higher, watch for a strong
move above new resistance at $26 for an additional entry point.
Confirm a move above resistance with heavy volume.

SEPR $100.13 +2.63 (-3.13) SEPR weakened Wednesday and followed
the broader market lower.  The selling came on relatively light
volume, suggesting that profit takers were swayed by the weak
market conditions.  Although SEPR fell through the ever-important
$100 support level Wednesday, the near-term upward trend-line
remains intact.  In fact, SEPR managed to edge back above the
century mark in Thursday's trading.  The stock received a boost
Thursday from positive comments coming from analysts at the
Deutsche Bank Alex Brown Healthcare Conference.  Analysts
reiterated SEPR as a Strong Buy and said the company is on track
with the development of several new products.  With SEPR moving
back above $100, we're looking for momentum to build in the
stock.  From here, watch for a bold move higher from current
levels.  If you're looking to exercise caution in this market,
wait for SEPR to clear the $105 level before entering the play.

BVSN $43.19 +1.81 (-6.44) Whew!  $40 support held up yesterday
and provided a nice entry, but only if you got out around $45
after the open this morning.  The weak market is keeping many
issues on a downhill course - BVSN too.  Volume has popped up
to match the ADV over the last two days telling us there may
have been some selling taking place.  With price drops, there
certainly have been no buyers.  Be careful going forward.
Today's gain was probably just a function of an advancing NASDAQ
market and doesn't confirm that BVSN will make an advance from
here.  While support is quite solid at $40, today's chart action
shows a golf club formation (we just made that up) with a low
open at $42.56, a big rise to $48.13, fall to $42, and close
$1.31 over the open.  In layman's terms, that means investors
were willing to carry it to $48, but there was no strength to
hold it there.  $48 may become near-term resistance.  It bares
repeating - take a position only after you see a BOUNCE off
support with the rest of the market moving in your favor.  $40
is our number, but move on if it drops below that.

AMD $87.25 +7.31 (-5.00) Yesterday MOT and INTC troubles caused
a chain reaction in the sector, which led AMD down $4.31 on
strong volume.  But today AMD staged its own comeback from the
recent sell-off.  It rose from the trenches of bottom support
at $80 and tacked on a premium 9.1%.  This recovery propped the
stock back up onto the intersecting 5-dma ($86.29) and 10-dma
($87.46).  Entries off the higher level of support at $84 and
$85 were available; although with such uncertainty in the
markets, it's a better plan to wait for a breakout off the
current price level.  Overhead opposition is at last Friday's
all-time high of $93, so be prepared for resistance once AMD
moves through $91 and $92.  Economic data and the Fed meeting
on Tuesday will obviously have great effect on how AMD performs
in the coming days.  However with a strong demand for
semiconductors worldwide and the Semiconductor Sector ($SOX)
leading the market, look for AMD to move higher on momentum.

KANA $38.25 -1.00 (-14.44) Ok here's the scoop.  KANA didn't
provide us with a definitive upward bounce on Wednesday.
Instead the stock slid back to old resistance at $38-$40 and
appears to have entered into a consolidation phase.  There
wasn't any bad news or other earth-shattering event to have
caused the pullback.  However one unnerving aspect was the
stronger volume on the descent.  On Wednesday this could be
attributed to profit taking during the NASDAQ sell-off, but
no matter, let's keep a tight leash on KANA for the time being.
Look for positive moves through the $45 mark and the now
converged 5, 10, & 30 DMAs for confirmation of its recovery
momentum.  In the news today, Kana Communications announced a
co-marketing and e-media product integration with Witness
Systems, a provider of recording and analysis software.

ABGX $93.47 +4.97 (-19.41) After the downdraft on Monday and
Tuesday, we patiently watched ABGX.  The stock isn't off our
probation list yet, however it's showing strength at this near-
term support level.  Since this play is based on pure momentum,
ABGX needs a shot of adrenaline.  It could draw intensity from
the Biotech sector or even from a show of better technicals.
A break through the 10-dma (currently at $97.79) followed by
another move above previous resistance at $100 would be just
fine.  For now, keep a vigil and watch for positive signs before
opening new plays.  The pop-up on a spike of volume during the
last minutes of today's session was the first inclination that
ABGX may be poised to run again.

WLA $116.19 -2.25 (-6.06) The drug sector wasn't operating up to
par the last couple of days and neither was WLA.  After setting
an all-time high at $126.25 on Tuesday, WLA swung back down to
firm support.  Was it simple profit-taking or market pressure?
Likely the downdraft was a combination of both.  But still the
good news is potential entry points off this level.  A solid
bounce followed by a definitive move through $120 would be
considered a bullish sign.  Look for the volume to back the
climb before jumping into the play.  Keep in mind too, the
jittery market could take another turn for the worse following
the PPI data out tomorrow.  WLA's shareholders' meeting to vote
on the merger acquisition by Pfizer (PFE) is also scheduled for
tomorrow.  Approval is expected and it'd be unfortunate if this
favorable event is overshadowed.

AFFX $133.25 +5.19 (-22.81) Hanging on by its fingernails to the
fledgling recovery, AFFX is following the example of the Biotech
industry as a whole.  After moving above the 30-dma ($127.75) on
May 1st, AFFX is finding support here.  On the upper side, the
stock is finding resistance at the 200-dma ($142.25), and the
lack of volume is keeping the trading range tight.  We hate to
sound like a broken record, but in the absence of increasing
volume, AFFX will have a hard time making a significant move
in either direction.  Traders are waiting for news on interest
rates, and a bullish PPI tomorrow could be just the catalyst
to get some buyers into the market ahead of the FOMC meeting
next Tuesday.  Aggressive investors can consider new entries
as AFFX confirms support near the 30-dma with the return of
buyers.  Otherwise wait for buyers to push the price through
near term resistance near $138 or at the 200-dma.

MEDI $154.69 +2.31 (-15.56) Confirming that it is tough for a
stock to move up in the absence of strong volume, MEDI is
continuing to consolidate above the tenuous $150 support level.
The light volume is continuing to keep this Biotech stock from
breaking out as investors wait for direction from the Fed.  The
5, 10, and 30 day moving averages are converging near $158 as
investors wait, wait,...and wait.  Volume is barely topping 40%
of the ADV and until the interest rate waiting game is over next
Tuesday, MEDI will likely continue to be rangebound.  In light
of the bad news coming from Entremed today it was encouraging to
see other stocks in the Biotech sector like MEDI post gains.  A
bounce near $150 or $145, confirmed by increasing volume is
buyable, but don't try to catch the falling knife until it sticks.
More conservative investors will wait for MEDI to move through
resistance at $160, indicating that the stock may run into the
shareholder meeting (remember the pending 3-for-1 split) on May


GCI $60.81 +0.44 (+0.06) The few buyers that emerged the past two
days is not a bad thing for our play.  Gannett really was due for
a bounce.  Actually the bounce could continue a bit further and
not hurt our feelings at all.  Today's move up ran out of gas
near the $62 area.  Technically a move to $64 followed by more
selling would suit us just fine.  Could our put play have hit a
near-term bottom and be turning around?  Possibly, but the major
indices gained 2%-3% today, while GCI could only manage to finish
with a 0.79% gain.  The volume on Wednesday was solid with over
1.4 million shares traded.  The lack of strong follow-through
buying today, with only 625K changing hands doesn't bode well for
folks expecting a move higher.  Long-term GCI may be a real gem
at these levels, as analysts at CIBC World Markets initiated
coverage of Gannett with a Buy rating this morning.  GCI appears
to have more room to move south, but for now most indications
are that it's simply catching its breath.

SBL $43.00 +1.38 (-6.75) Sometimes a rising market lifts the
sinking stocks.  After briefly dipping below support at $40 on
Wednesday, traders decided a relief rally was in order for SBL.
The stock was carried higher by a broad rally in the electronic
manufacturer sector.  SBL may have also benefited from traders'
anticipation of the company's presentation at the Chase H&Q Tech
Conference.  SBL presented to analysts at 7:30 PM EST.  If
traders view the comments from SBL positively, the stock may
extend its gains into Friday's trading.  If that happens, watch
for SBL to run into resistance at $45.  Watch for the selling to
return if SBL is unable to breakthrough resistance.  On the flip
slide, if the sellers step in early Friday morning, wait for SBL
to fall through its major support level of $40.  The stock has
very little support below $40, look for heavy volume as
confirmation that the sellers have returned.

EBAY $117.75 +6.75 (-16.25) Sucking canal water with the best of
them yesterday, EBAY gave up $10 on volume exceeding the ADV by
15%.  Today's $7+ recovery came on less volume of 89% of the ADV.
Sellers still appear in control, making today's gain a possible
put buying opportunity, given today's weak market recovery.  $120
support has been cleanly violated and has proven to be resistance
over the last two days.  Consider taking a position on any bounce
down from $120 (historical) or $122.49 (5-dma).  Otherwise,
you'll need to confirm a drop under $110 (yesterday's intraday
support) before opening a new position.  As a technical play only
at this point, we need to keep our ears and eyes open for news
items that could affect EBAY - analyst meetings, comments,
upgrades, CEO interviews - that sort of thing.  Otherwise, as
long as the market cooperates, EBAY has the technical potential
to move to $80 before finding support again.  Earnings are in

CMRC $45.47 -0.47 (-10.41) Weak relative strength is continuing
to make CMRC an unattractive stock.  Gapping lower with the
rest of the tech sector yesterday, the price dropped below $42
before finding any buying relief.  Recovering late in the day
yesterday, CMRC provided an attractive entry this morning with
a surge above $48.  Volume continued to be strong as shares of
the B2B company declined all day.  The downward pressure is
being maintained by the 5-dma ($49.25), as investors dump stocks
that are not participating in any rally (no matter how slight)
in the broad markets.  Volume picked up late in the day as
resistance firmed near $46.  The one point of concern is that
volume picked up on the two mini-rallies up to resistance, so
CMRC could be firming near $45.  Consider new entries as CMRC
rolls over at resistance and then ride the next wave down.


FLEX - Flextronics International $51.13 +4.81 (-3.50 this week)

Flextronics is one of the world's leading providers of contract
electronics manufacturing services.  The company offers design,
manufacturing, and distribution services for electronics makers
in such industries as networking, telecommunications, computers,
consumer electronics, and medical instrumentation.  Customers
include Philips, Ericsson, and Cisco.  Customers outside Asia
account for almost 80% of sales.  FLEX's recent acquisition of
rival The DII Group made it the world's #4 contract manufacturer.

We're looking for the recent rebound to flex its muscles.  After
selling-off sharply in the past two weeks, FLEX found a bottom
Wednesday, and rebounded smartly Thursday.  The quick reversal
stems from a broad rally in the tech sector and an analyst
upgrade Wednesday.  Raymond James upgraded FLEX from a Buy rating
to a Strong Buy.  The upgrade comes from analysts' beliefs that
the long-term prospects for FLEX remain positive and concerns
over component shortages are behind.  Analysts feel that FLEX
will benefit from the unprecedented growth of the Internet.
FLEX is positioned to benefit from the increasing demand for
the hardware that runs the Web.  Also worth noting, part of the
recent decline can be attributed to shortages in electronic
components.  But, analysts believe that those worries have been
fully factored into the stock price, and that business remains
booming for FLEX.  We're looking for the recent rebound in FLEX
to extend its gains as renewed interest in the stock builds.
Look for an entry near current levels if Thursday's momentum
carries FLEX past resistance at $52.  If the stock stumbles
Friday morning, watch for a bounce off support at $50.  Volume
has been an accurate indicator of FLEX's movement lately,
confirm any move higher with above average trading activity.

FLEX has been on the acquisition trail this year.  The company
has acquired the operations of Palo Alto Products and The DII
Group, and a manufacturing plant in Denmark.  FLEX's continued
growth by acquisition is helping the company expand into new
markets and increase profitability.

***May contracts expire next Friday***

BUY CALL MAY-45 QFL-EI OI= 271 at $6.88 SL=5.00
BUY CALL MAY-50 QFL-EJ OI= 293 at $3.38 SL=1.75
BUY CALL MAY-55 QFL-EK OI= 959 at $1.50 SL=0.75
BUY CALL JUN-50*QFL-FJ OI= 955 at $6.00 SL=4.00
BUY CALL JUN-55 QFL-FK OI=2053 at $3.75 SL=2.00

Picked on May 11th at    $51.13    P/E = 49
Change since picked       +0.00    52-week high=$79.75
Analysts Ratings     14-5-1-0-0    52-week low =$21.25
Last earnings 04/00   est= 0.29    actual= 0.30
Next earnings 07-17   est= 0.34    versus= 0.17
Average Daily Volume = 2.76 mln

AMCC - Applied Micro Circuits $98.81 +12.19 (-14.88 this week)

AMCC is a global provider of high-performance, high bandwidth
silicon connectivity solutions for the telecommunications,
data communications, and military markets.  Their products
are designed to respond to the growing demand for high-speed
networking applications for established WAN standards and
Automated Testing Equipment.  The company, which began
operations in 1979, is extending its reach through acquisitions.
Its blue-chip clientele includes Nortel, Raytheon, 3Com,
Alcatel, Cisco, and Lucent.

Intel, the mother of all chipmakers, may have rocked the NASDAQ
today with news it'll be launching an Internet media services
business, but AMCC surpassed its lead for total points gained.
Coming off lows near $85, AMCC demonstrated just how spunky it
could get in a rallying market.  The stock advanced $12.19, or
14.1% on better-than-average volume.  The Philadelphia
Semiconductor Index ($SOX) jumped up 6.3% too, which is always a
nice touch.  Pay attention to how this index moves in the near-
term as it'll give an inkling of AMCC's overall strength in the
market.  You should be thinking...one day doesn't make a trend so
why is AMCC on the OIN call list?  Simply put, we're adding AMCC
on the probability it'll shoot up with a sustained rally.  Since
it's also a fast mover there's lots of potential for tremendous
profit.  Now hold up!  This play is HIGH-RISK and certainly not
for everyone.  Sure big movers are moneymakers as long as they
move in the direction your betting!  You've got to be prepared
for a reversal if the market turns.  Today the soft Retail Sales
fueled the rally and all went well.  If the economic data
continues to establish a "buyable" market and the Feds don't do
anything too outlandish, then AMCC could power-up in a hurry.
But remember, firm support is down near $85 so there's plenty of
room to tumble.  Now let's take a look at a chart with a daily
5-dma line.  You can visually confirm this indicator has served
as a formidable line of resistance whenever AMCC attempts a
rally.  Therefore, a move through the 5-dma, currently at
$99.35, would provide reasonable confirmation that AMCC can
make a charge towards a full-recovery.

On Monday the company announced the addition of a new product
to its complete line of AMCC Solutions for DWDM Optical Switch
Interface Applications.  The S2080 is the industry's first
super high-speed Silicon Germanium (SiGe) 34 x 34 differential
crosspoint switch with full broadcast switching capability.
Earlier in April, Robertson Stephens reiterated a Strong Buy
rating and CSFB raised its price target to $200 from $150.
Both analysts cited the solid earnings report delivered on
April 19th in which AMCC came in at $0.16 p/s beating the
consensus estimate by $0.02.

BUY CALL JUN- 90*AEX-FR OI= 45 at $21.00 SL=15.25
BUY CALL JUN- 95 AEX-FS OI= 43 at $18.63 SL=13.50
BUY CALL JUN-100 AEX-FT OI= 84 at $16.38 SL=11.75
BUY CALL JUN-105 AEX-FA OI= 44 at $14.13 SL=10.50
BUY CALL JUN-110 AEX-FB OI=226 at $12.00 SL= 9.00

Picked on May 11th at    $98.81    P/E = 230
Change since picked       +0.00    52-week high=$158.88
Analysts Ratings     10-4-0-0-0    52-week low =$ 12.19
Last earnings 03/00   est= 0.14    actual= 0.16
Next earnings 07-15   est= 0.17    versus= 0.06
Average Daily Volume = 3.53 mln

CDWC - CDW Computer Centers $118.75 +8.75 (+9.13 this week)

Providing customized computing solutions to its customers, CDWC
is a direct marketer of over 80,000 computer products, including
hardware, software, peripherals, networking/communication and
accessories.  The company provides a nearly endless list of
products, from companies such as Apple, Canon, Epson,
Hewlett-Packard, IBM, Microsoft, Adobe, Cisco, and 3Com.
Using catalogs, telesales, and the Internet, the company has
over 630,000 customers and receives most of its business

An anomaly in the pattern seen in the tech sector for the past
5 months, CDWC really didn't start to take off until the NASDAQ
began to weaken in early March.  Moving strongly until early
April, the company saw its share price decline until hitting
bottom on April 14th at $64.  Since then it has been on a tear,
nearly doubling in price in the past month.  So what is driving
CDWC, you ask?  Look no further than the bottom line, as
detailed in the company's April 24th press release.  Posting
its 27th consecutive quarter of sequential sales growth, with
60% growth in net sales, a 155% increase in Internet sales, and
a 79% increase in net income is the kind of news that is music
to investors' ears.  With the strong growth, the company is
expanding its management team and investors are taking notice.
Since the above-mentioned press release, CDWC has many days of
strong gains with volume frequently exceeding double the ADV.
Even with the weakness in the NASDAQ, the share price has not
closed below the 10-dma since April 17th.  After consolidating
its most recent gains for the first half of the week, CDWC gave
investors one last entry point this morning as it dipped to
$103 and then took off on strong volume for the remainder of
the day.  Closing at the high of the day, CDWC tagged a new
52-week high, and if the momentum continues, consider opening
new positions as buyers push through the $120 level.
Alternatively, look for an intraday pullback to near-term
support ($114, $112, and then $110), and then jump on board
as the price heads north again.  Keep an eye on the volume; if
it starts to weaken, a slowing of the upward momentum will
likely not be far behind.

Adding to the good news is the Annual Shareholder Meeting on
May 24th.  There will be a vote to increase the number of
outstanding shares, and this could very likely be followed by
a split announcement.  CDWC is historically a split candidate
above $80, and the strong move over the past few weeks puts
the stock deep into this territory.

***May contracts expire next Friday***

BUY CALL MAY-110 DWQ-EB OI=62 at $10.88 SL= 8.00
BUY CALL JUN-110 DWQ-FB OI= 1 at $15.88 SL=11.50 low OI
BUY CALL JUN-115*DWQ-FC OI=28 at $13.13 SL= 9.75

SELL PUT JUN-105 DWQ-RA OI=10 at $ 6.50 SL= 9.50
(See risks of selling puts in play legend)

Picked on May 11th at $118.75     P/E = 43
Change since picked     +0.00     52-week high=$118.75
Analysts Ratings    4-2-0-0-0     52-week low =$ 35.25
Last earnings 04/00 est= 0.64     actual= 0.79
Next earnings 07-24 est= 0.76     versus= 0.51
Average Daily Volume =  313 K

MSFT - Microsoft $67.88 +1.69 (-3.25 this week)

If you are reading this newsletter, you know Microsoft.  Founded
in 1976, MSFT is the world's largest software company.  Their
software products include the Windows operating system, Internet
Explorer and the MS Office suite of solutions, including Word,
Excel, PowerPoint, Access, and Outlook, not to mention Encarta
and Money.  They also run online services and e-commerce portal,
MSN, WebTV, and have substantial holdings in other technology
companies, including Vignette, Phone.com, Infospace, Expedia,
and yes, even 5% of AT&T.  They aren't just for your PC anymore.

Bucking gale force winds for the last six months courtesy of an
antitrust suit brought on by the Justice Department (egged on by
CEO's from SUNW, ORCL, and AOL), MSFT's value has been cut nearly
45% since reaching a high of $120 in December, 1999.  Right or
wrong, the judge presiding over the case found MSFT to be a
monopoly related mostly to issues surrounding its practice of
tying the browser to the operating system.  The government
submitted its remedy of splitting MSFT into two companies to the
court for consideration, while MSFT filed its proposed remedy
of decoupling the browser from the operating system.  At issue
really is whether or not MSFT will be broken up by the court - an
undertaking that MSFT says will never happen.  With the appeals
process taking as long as it does, and the possibility of this
landing in the Supreme Court following multiple appeals, this
thing will be tied up for years.  In the meantime, MSFT is free
to go about its business and continue earning its 40% margins on
software products while providing a return on equity of 31%.  So
why buy it?  No matter what the outcome of the anti-trust case,
MSFT has a better than 50/50 chance of winning on appeal, which
has investors collectively breathing a sigh of relief.  Technical
support too is proving to be rock solid at $65.  Volumes are
declining as the price has stabilized.  Once we clear the PPI
tomorrow and the FOMC meeting next week, MSFT could be off to the
races with its first test of resistance at $70, then $75.  The
point is we think sentiment is shifting as many investors think
the worst is over.  Assuming the market cooperates, feel free to
take a position at these levels.

Don't just take our word for it.  ING Barings reiterated their
Strong Buy rating and price target of $135.  Furthermore, Madison
Securities reiterated their Buy rating and price target of $90
and cites that due to tremendous amount of negative news which
has been factored into stock price, the stock represents an
attractive buying opportunity for investors per comment from

***May contracts expire next Friday***

BUY CALL MAY-60*MSQ-EL OI= 3944 at $8.25 SL=5.50
BUY CALL MAY-65 MSQ-EM OI= 8116 at $3.75 SL=2.00
BUY CALL MAY-70 MSQ-EN OI=33128 at $1.00 SL=0.00 High Risk!
BUY CALL JUN-65 MSQ-FM OI= 3317 at $5.88 SL=3.75
BUY CALL JUN-70 MSQ-FN OI= 8044 at $3.13 SL=1.50

SELL PUT MAY-65 MSQ-QM OI=12081 at $0.69 SL=1.50
(See risks of selling puts in play legend)

Picked on May 11th at    $67.88    P/E = 40
Change since picked       +0.00    52-week high=$119.94
Analysts Ratings      5-3-0-0-0    52-week low =$ 65.00
Last earnings 04/00   est= 0.41    actual= 0.43
Next earnings 07-19   est= 0.41    versus= 0.40
Average Daily Volume = 40.8 mln

JDSU - JDS Uniphase $86.50 +6.31 (-7.31 this week)

JDS Uniphase is a high technology company that designs, develops,
manufactures and distributes a comprehensive range of products
for the growing fiberoptic communications market.  These products
are deployed by system manufacturers worldwide to develop
advanced optical networks for the telecommunications and cable
television industries.  Their products include semiconductor
lasers, high-speed external modulators, transmitters, amplifiers,
couplers, multiplexers, circulators, tunable filters, optical
switches and isolators for fiberoptic applications.  The company
also supplies its OEM customers with test instruments for both
system production applications and network installation.

The world's largest supplier of parts for fiber-optic equipment
in phone networks is back on our list.  It just goes to show you,
can't keep a good company down.  JDSU has provided us with many
opportunities in the past and we expect more of the same this
go around.  To start with, a look at the chart shows just how
strong the support at the $80 area is.  On four different
occasions in the last month, $80 has been the point where buyers
and sellers have agreed to disagree.  Oh yes, the company has
definitely penetrated that mark, but on a closing basis has
provided great support.  With the decline in tech issues this
week, JDSU once again visited $80, and again found buyers waiting
in the wings.  Need further proof of the strength?  On Wednesday
strong volume of 22.7 million shares were traded JDSU headed
south.  $79.25 was all the further the bulls would let the fiber-
optic equipment company fall.  Today Hasan Imam at DLJ initiated
coverage of JDSU with a New Buy rating.  His 12-month price target
came in at $120.  JDSU has a large number of analysts that follow
the company, most of which have them rated as a Strong Buy or
Buy.  While that alone won't keep the stock afloat, it does
suggest that the company is on track to meet their projections
and at the current levels could be considered an attractive
buying opportunity, long or short-term.  The analysts seem to
believe JDSU will emerge in the top three merchant vendors for
optical components and modules, in a market that will grow to
over $57 billion by 2005.  For now we would consider any
further strength in JDSU as an opportunity to enter this new play.
With the uncertainty in the broad market, conservative traders
may prefer to wait until the FED is out of the way.  As we've
said, the $80 area should provide great support we see selling

On Monday JDSU said it had bought Fujian Casix Laser Inc.  This
is their first venture into China.  They did not disclose the
terms of the deal, but said it intends to use the company's
research and development talents in the area of fiber-optic
components and optics for telecom networks.

***May contracts expire next Friday***

BUY CALL MAY-80 XXZ-EP OI=1916 at $ 8.50 SL= 6.00
BUY CALL MAY-85*XXZ-EQ OI=1930 at $ 5.63 SL= 3.50
BUY CALL JUN-80 XXZ-FP OI=3131 at $14.00 SL=10.50
BUY CALL JUN-85 XXZ-FQ OI=2437 at $11.13 SL= 8.25
BUY CALL JUN-90 XXZ-FR OI=2637 at $ 9.13 SL= 6.25

SELL PUT MAY-85 XXZ-QQ OI=7591 at $ 1.38 SL=2.63
(See risks of selling puts in play legend)

Picked on May 11th at    $86.50    PE = N/A
Change since picked       +0.00    52 week high=$153.42
Analysts Ratings    19-14-2-0-0    52 week low =$ 15.20
Last earnings 04/00   est= 0.10    actual= 0.11
Next earnings 07-25   est= 0.12    versus= 0.06
Average daily volume = 16.3 mln


FDRY - Foundry Networks Inc. $66.75 -6.06 (-23.38 this week)

Foundry Networks Inc. is a leader in high performance end-to-end
switching and routing solutions including Internet routers, Layer
3 switches and Layer 4-7 Internet Traffic Management switches.
Foundry products are installed in the some of the world's largest
ISPs including AOL, EarthLink, AT&T WorldNet, MSN, and Cable and
Wireless.  Their products are also installed in large enterprise,
entertainment, pharmaceutical and manufacturing companies as well
as search engines, e-commerce sites, universities and government

Broken support or is their more to the story?  That's what
investors that owned shares of Foundry Networks were undoubtedly
saying as the switching and routing company lost better than 8%
in today's trading.  Actually the last two months have been
tough for shareholders of company's stock.  There's been no
company specific news to drive the price lower, but the lack
of buyers has dropped the price to a level not seen since last
October.  ArrowPoint Communications a competitor in the industry
joined forces with CSCO and has managed to get a boost today,
while ATON, FFIV, joined Foundry in making their way lower, on
a day there was a bit of renewed optimism in the overall market.
FDRY did break the $70 level that had provided decent support
in late April.  AS FDRY crossed the $70 mark today the volume
picked up, which is not a good sign, for those looking for a
quick turnaround.  Over 2.3 million shares were traded, nearly
nearly twice the norm, which is also not a plus for the bulls.
Some investors point the CSCO acquisition of ArrowPoint as the
reason for the weakness in FDRY, while others suggest it was
the company's most recent Quarterly report hitting the Internet
that caused traders to shy away.  For traders that really
follow the company that information has been in the market since
mid-April.  It could be the technical picture or just a lack of
interested buyers, but whatever the reason its not a pretty
picture.  There is little support for FDRY until the $58 area,
with resistance at $68 and $72.  The 26% decline so far this
week has left the 10-dma in its tracks back at $84.70.  If we
do see a bounce in FDRY, confirm further weakness with volume
prior to entering a new play.

BUY PUT MAY-75*OUJ-QO OI=200 at $ 9.88 SL=7.25
BUY PUT MAY-70 OUJ-QN OI= 99 at $ 6.50 SL=4.50
BUY PUT JUN-75 OUJ-RO OI= 18 at $12.63 SL=9.75

Average daily volume = 1.36 mln


FLEX - Flextronics International $51.13 +4.81 (-3.50 this week)

Flextronics is one of the world's leading providers of contract
electronics manufacturing services.  The company offers design,
manufacturing, and distribution services for electronics makers
in such industries as networking, telecommunications, computers,
consumer electronics, and medical instrumentation.  Customers
include Philips, Ericsson, and Cisco.  Customers outside Asia
account for almost 80% of sales.  FLEX's recent acquisition of
rival The DII Group made it the world's #4 contract manufacturer.

We're looking for the recent rebound to flex its muscles.  After
selling-off sharply in the past two weeks, FLEX found a bottom
Wednesday, and rebounded smartly Thursday.  The quick reversal
stems from a broad rally in the tech sector and an analyst
upgrade Wednesday.  Raymond James upgraded FLEX from a Buy rating
to a Strong Buy.  The upgrade comes from analysts' beliefs that
the long-term prospects for FLEX remain positive and concerns
over component shortages are behind.  Analysts feel that FLEX
will benefit from the unprecedented growth of the Internet.
FLEX is positioned to benefit from the increasing demand for
the hardware that runs the Web.  Also worth noting, part of the
recent decline can be attributed to shortages in electronic
components.  But, analysts believe that those worries have been
fully factored into the stock price, and that business remains
booming for FLEX.  We're looking for the recent rebound in FLEX
to extend its gains as renewed interest in the stock builds.
Look for an entry near current levels if Thursday's momentum
carries FLEX past resistance at $52.  If the stock stumbles
Friday morning, watch for a bounce off support at $50.  Volume
has been an accurate indicator of FLEX's movement lately,
confirm any move higher with above average trading activity.

FLEX has been on the acquisition trail this year.  The company
has acquired the operations of Palo Alto Products and The DII
Group, and a manufacturing plant in Denmark.  FLEX's continued
growth by acquisition is helping the company expand into new
markets and increase profitability.

***May contracts expire next Friday***

BUY CALL MAY-45 QFL-EI OI= 271 at $6.88 SL=5.00
BUY CALL MAY-50 QFL-EJ OI= 293 at $3.38 SL=1.75
BUY CALL MAY-55 QFL-EK OI= 959 at $1.50 SL=0.75
BUY CALL JUN-50*QFL-FJ OI= 955 at $6.00 SL=4.00
BUY CALL JUN-55 QFL-FK OI=2053 at $3.75 SL=2.00

Picked on May 11th at    $51.13    P/E = 49
Change since picked       +0.00    52-week high=$79.75
Analysts Ratings     14-5-1-0-0    52-week low =$21.25
Last earnings 04/00   est= 0.29    actual= 0.30
Next earnings 07-17   est= 0.34    versus= 0.17
Average Daily Volume = 2.76 mln


A Successful Test Of The April Lows?

Wednesday, May 10

The markets fell precipitously today as investors dumped stocks
amid concerns about rising interest rates and lofty valuations in
the tech sector.  The Nasdaq Composite Index fell 200 points to
3,385 while the Dow Industrials tumbled 168 points to 10,367.
The S&P 500 Index fell 29 points to 1383.  Volume on the Nasdaq
remained fairly light with 1.57 billion shares changing hands.
Declines swamped advances by more than 3-to-1.  Trading volume on
the NYSE was relatively low with 979 million shares exchanged.
Declines beat advances by more than 2-to-1.  In the bond market,
prices rose for the second straight day, assisted by the decline
in stocks.  The U.S. 30-year Treasury was last up 24/32, bid at
101 7/32, pushing its yield down to 6.15%.

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

Excite@home    ATHM   JUN15C/JUN17C   $1.75   debit   bull-call
Falcon Drill.  FLC    JUN17C/JUN22C   $3.62   debit   bull-call
Boston Sci.    BSX    JAN22C/JUN30C   $6.88   debit   LEAPS/CC's

All three of our plays benefited from the broad decline in stocks
during today's session.  Unfortunately, a technical market bottom
has yet to be found and thus each of these issues may continue to
move lower in the short-term.

Portfolio plays:

Stocks fell across the board in a volatile session Wednesday as
investors continued to worry about Friday's economic data and next
week's FOMC meeting.  The Nasdaq endured the brunt of the selling
with today's drop bringing the index's weekly loss to 431 points.
The composite index is now approaching its April low and there is
no longer a belief that technology stocks are immune to rising
inflation and interest rates.  The weakness spread to other groups
with automotive, drug, finance and transportation issues included
in the sell-off.  In the broader market; beverage, healthcare, and
retail issues advanced while semiconductor, networking and telecom
equipment stocks moved lower.  Based on the recent trend, traders
are shifting money into defensive stocks, those that are likely to
perform better in a period of rising interest rates.  With May to
October a historically weaker period for the market, the question
now is how far the Nasdaq will have to fall before buyers return
for bargain-priced technology issues.

Cisco Systems (CSCO) was a big loser on the Nasdaq, even though
the company reported profits which beat the consensus estimates.
Motorola (MOT) dropped $17 after Salomon Smith Barney downgraded
the wireless phone maker and slashed the company's price target,
triggering a sell-off in worldwide telecom equipment companies.
Intel (INTC) also fell significantly after saying it would have
to replace defective motherboards.  Applied Materials (AMAT) slid
to $84 ahead of its earnings and then continued another $7 lower
in after-hours trading even as the company reported profits of
$0.55 per share, meeting consensus estimates.  Our position was
on the brink of the exit stops during the day's trading and with
Cisco's demise there is only a small chance of a post-earnings
recovery.  For those of you that chose to close the play, a $2.25
debit was available; a $1.25 loss.  Holding the long (put) option
through the earnings announcement is another possible strategy but
we will simply wait for the reaction in tomorrow's market before
making a final decision.

With the recent technical reversal in the semiconductor sector,
Mattson Technology (MTSN) became a target for judicious money
management.  The issue had previously traded above the recent
support area at $43 but today's early slide sent the stock into
a bearish trend.  There were a number of opportunities to close
the position, either simultaneously or with individual trades.
Based on the stock's decisive decline through the support level,
we decided to let the short option remain open, maximizing the
credit for the long position ($4).  If there is any indication of
a bullish recovery, we will simply purchase a long-term option,
converting the original spread into a time-selling strategy.
Another position that may have signaled an early exit was SCM
Microsystems (SCMM).  The issue dropped $4 during the morning
session and with the technology group in danger of a significant
sell-off, accepting the closing debit of $1.50 may have been the
prudent move.  Of course SCMM is simply one of a number of stocks
that are trading on the edge of technical failure.  Once again,
tomorrow's trend will likely determine their fate.

Our bearish position in Temple Inland (TIN) finally demonstrated
the signals we spoke of last week; a close above the resistance
at $52 on increasing volume.  The move came after International
Paper Company (IP) and its Finnish rival, UPM-Kymmene, raised
their offers for control of Champion International (CHA).  With
the new acquisition interest in that sector, many of the lesser
known issues are starting to rally.  The current closing debit is
$1.00, a $0.25 loss, but you can also attempt to profit from the
new trend by legging out of the position in two separate trades.
Of course the other solution is to wait for expiration, trading
only if the issue makes a significant attempt at the sold strike
of $55.

Thursday, May 11

The stock market staged a broad-based rally today as new economic
data eased investor's recent interest rate fears.  The Dow rallied
178 points to close at 10,545 while the Nasdaq Composite advanced
114 points to end at 3,499.  The S&P 500 Index and the Russell
2000 Index of small-cap stocks also participated in the rally.
Trading volume was very light with 954 million shares traded on
the NYSE and 1.37 billion shares exchanged on the Nasdaq.  Market
breadth improved with advances beating declines 19 to 10 on the
NYSE and 25 to 15 on the Nasdaq.  Bond prices ended mixed, erasing
the brunt of their earlier losses with the 30-year bond down 1/32
to yield 6.15%.

Portfolio plays:

The majority of stocks in our portfolio moved higher today after
a report of the slowdown in retail sales comforted worried traders.
Both the Dow and the Nasdaq made significant recoveries and the
broader stock indicators were also higher.  The bullish economic
data was welcome news and the announcement that retail sales fell
0.2% sent a wave of optimism through the market.  Of course many
analysts were quick to point out that additional factors may have
biased the report but the decline raised hopes that recent interest
rate increases are slowing the economy.  Unfortunately, the FOMC
is still expected to raise the federal funds rate by at least 50
basis points at their meeting on Tuesday.

Bargain prices in the technology group helped the Nasdaq recover
from recent lows as the majority of these companies have been sold
to yearly lows in the past few weeks.  Our primary concern for the
session was Applied Materials.  After the close Wednesday, AMAT
reported operating earnings of $0.55 a share, in line with most
analyst's estimates but the stock fell considerably in after-hours
trading.  This morning the sell-off continued but eventually the
stock rallied with the market.  Now the question is whether it can
hold above our sold strike at $80 until expiration.  We will watch
this one closely!  SCM Microsystems (SCMM) also came roaring back
but with the recent volatility, the recovery may be short-lived.
The closing debit is now slightly higher than we would normally
accept but the market has experienced some extreme gyrations in
the last few days and with any luck the FOMC's announcement next
week will generate a small relief rally.

One of the most surprising issues in our portfolio was Dean Foods
(DF).  Our new calendar spread has performed exactly as expected
and the position is trading at a $0.50 profit in just one week.
That's a 28% return, well above our target and the long position
has an August expiration date.  Some of you may choose to close
the spread for the current credit but there is an opportunity for
additional (time-selling) premium at the $30 strike in June.  Of
course you must evaluate the technical outlook for the issue and
the market before adjusting the position.  Computer Associates
(CA) provided another unexpected move with a $7 rally to close at
$51.50.  The jump came after the company said its fourth-quarter
results would be in line with Wall Street expectations, seeking
to dispel fears that a previously announced delay in its reports
signaled accounting issues.  Computer Associates also said that
in response to investor and analyst requests, it would report its
fourth quarter and fiscal year-end results after the market closes
on Monday, May 15.  The consensus for the fourth quarter is for
the company to report earnings of $1.13 per share, compared with
$0.90 per share in the year-ago period.  This announcement will
certainly affect our bullish position and with a cost basis near
$48, we may attempt to exit the play prior to the report date.

Questions & comments on spreads/combos to Click here to email Ray Cummins
                         - NEW PLAYS -
TX - Texaco  $55.00  *** New Options Activity ***

Texaco is engaged in the worldwide exploration for and production,
transportation, refining and marketing of crude oil, natural gas
liquids, natural gas and petroleum products, power generation and
gasification.  The company's worldwide operations encompass three
main businesses: Exploration and Production; Refining, Marketing
and Distribution; and Global Gas and Power (marketing of natural
gas and natural gas products).

A number of leading energy companies rallied today as crude oil
prices approached $30 a barrel on expectations of strong summer
demand.  The bullish outlook moved through the entire sector with
all major energy indices posting significant gains.  The rise in
these groups comes after a long-awaited period in which soaring
crude oil and natural gas prices have made for handsome earnings
but have done little to bring the industry leaders back to their
historical share values.

Now it appears that a fundamental change is underway and energy
stocks have been on an upswing in anticipation that business will
flourish in the high-demand summer months.  Texaco has been the
focus of increased option trading interest and implied volatility
moved higher today as the share value rallied.  There were both
large institutional buyers and retail participants.  The activity
left us with some favorable positions and in this case, we are
going to begin with a short-term bullish outlook and hope for a
small consolidation prior to next week's expiration, when we will
roll forward to June positions.

This position is based on recent increased activity in the stock
and underlying options.  The position offers favorable risk/reward
potential for those who are bullish on the issue but as with any
speculative play, it should be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  OCT-40  TX-JH  OI=119   A=$16.38
SELL CALL  MAY-55  TX-EK  OI=2051  B=$1.50

Chart =


APA - Apache Corporation  $57.69  *** New All-Time High! ***

Apache Corporation explores for, develops and produces natural
gas, crude oil and natural gas liquids.  Apache's average daily
production in 1998 was 75,000 barrels of oil and natural gas
liquids and 590 million cubic feet of natural gas.  The company's
exploration and production interests are focused on the Gulf of
Mexico, the Anadarko Basin, the Permian Basin, the Gulf Coast and
the Western Sedimentary Basin of Canada in North America.  Apache
also has exploration and production interests offshore Western
Australia and in Egypt, and exploration interests in Poland and
offshore The People's Republic of China.  Apache holds interests
in many of its U.S., Canadian and international properties through
operating subsidiaries such as Apache Canada, DEKEnergy Company,
Apache Energy Limited, Apache International and Apache Overseas.

Rising oil prices are benefiting several energy stocks today and
the rally in the industry helped APA achieve a new, all-time high
during the bullish session.  Crude oil is up near $30 a barrel on
the New York Mercantile, continuing an upward trend that has
gained new momentum over the past few weeks.  The effects of this
trend are evident in the price performance of this stock and its
industry group and we think the trend will continue into the
Summer months.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-45  APA-RI  OI=17   A=$0.43
SELL PUT  JUN-50  APA-RJ  OI=124  B=$1.00
INITIAL NET CREDIT TARGET=$0.62-$0.68  ROI(max)=14% B/E=$49.38

Chart =


ADEX - Ade Corporation  $18.69  *** Short-term Play! ***

ADEX designs, manufactures, markets and services metrology and
inspection systems for the semiconductor wafer manufacturing
industry.  The Company is also a supplier of metrology systems
to the semiconductor device, data storage and optics industries.
Its systems analyze and report product quality at manufacturing
process steps, sort wafers and disks and provide manufacturers
with quality certification data.  Semiconductor wafer and device
and data storage manufacturers use its systems to improve yield
and capital productivity.  Ade's products have evolved from
single instruments used in off-line engineering analysis to
multi-function systems for automated in-line monitoring of
process-induced defects throughout the wafer/disk manufacturing
processes.  Its systems are designed to deliver the throughput,
reliability and information and analysis necessary to meet the
demands of increasingly complex and time-sensitive manufacturing

"Out with the old and in with the new" defines the recent activity
at the company's headquarters.  On May 1, Ade officials announced
that Daniel F. Harrington resigned as vice president, treasurer
and chief financial officer of the company to accept a position
with a privately held technology firm.  The news appears to be a
positive move for the company as the share value has rebounded in
recent sessions.  Ade has initiated an aggressive search for a new
chief financial officer who will help them capitalize on future
growth opportunities and it appears that investors agree with the

We simply favor the change in character and the current technical
trend.  If you also believe the issue will continue to rise during
the next week, this play offers an excellent risk/reward outlook.

PLAY (aggressive - bullish/debit spread):

BUY  CALL  MAY-15.00  QDE-EC  OI=0   A=$4.25
SELL CALL  MAY-17.50  QDE-EW  OI=12  B=$2.12
INITIAL NET DEBIT TARGET=$2.00  ROI(max)=25% B/E=$17.00

Chart =

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