Option Investor

Daily Newsletter, Thursday, 05/25/2000

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The Option Investor Newsletter             Thursday 5-25-2000
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)
       5-25-2000           High     Low     Volume Advance Decline
DOW    10323.90 - 211.40 10558.60 10266.00   981,372k 1,261  1,607
Nasdaq  3205.35 -  65.26  3967.71  3196.36 1,562,481k 1,729  2,264
S&P-100  736.95 -  10.15   753.89   731.95    Totals  2,990  3,871
S&P-500 1381.52 -  17.53  1411.65  1373.93            43.6%  56.4%
$RUT     456.17 -   5.57   469.92   456.16
$TRAN   2717.77 - 111.30  2828.77  2715.68
VIX       28.00 +   0.13    29.12    26.57
Put/Call Ratio       .56

Brokers, retailers, airlines form partnership to sink market

After a strong start for the Nasdaq this morning, the analysts
ganged up on the three sectors above and the markets went down
for the count. The triple whammy turned into more than the
fragile Nasdaq rally could bear and although it was a valiant
struggle, the index gave up half of yesterday's gains at the close.



To begin, the pain we saw the backlash from the Costco earnings
shortfall yesterday. Costco posted lower than expected earnings
and warned that rising costs, partly from higher wages, would
slow profit growth in the current quarter. COST was hit with
a drop in their stock price from $42 to $26 but the damage did
not stop there. Other retailers also were hit by customers
returning their stock and this caused losses across the sector.
Best known stores like Walmart lost -1.88 and Federated lost
-1.81. Costco set a new 52 week closing low at $30.06.

The dogpile in the transportation sector came in the form of
multiple downgrades on the heels of the United/US Air deal.
Most analysts fear the combination of the two will cause ripples
in the highly competitive space and lead to more and higher 
offers for the remaining regional carriers. Also, there is a
rumor that American will make a higher offer for US Air and
spark a bidding war. The regionals all soared with speculation
yesterday and then gave back some gains today as cooler heads
prevailed. This caused the transports to drop -111.30.

The most damaging attack was on the brokerage sector. It started
with a Merrill Lynch analyst who made negative comments about
Goldman Sachs. The range of earnings estimates was $1.36 to $1.65
with the average of $1.47. The Merrill analyst was already the
lowest estimate at $1.36 and all he did was reiterate his number
and suggest that the other analysts rethink their numbers in
light of the much lower trading volume of late. Immediately
two other firms lowered their estimates to $1.30 and $1.33 and
expressed concerns about the entire sector. This was like
yelling fire in a crowded theater or sell in a weak market.
The Dow plunged to a session low of -260 and the farther the
Dow dropped the harder it was for the Nasdaq to stay positive.
The major brokerages all took losses with MER -5.81, LEH -5.19,
MWD -4.25, GS -7.

Also helping to drive down both the Dow and Nasdaq was MSFT.
One analyst announced that the possibility of a breakup of
Microsoft into three companies would actually make the company
less valuable instead of more valuable. This outlook was contrary
to most which expect a breakup, however unlikely, to release
hidden value to stockholders. The analyst felt that as separate
companies, the revenue stream would be much less dependable.
With major operating system releases only every 2-4 years the
huge influx of cash would be very sporadic. Same with the office
products. With Office 2000 the first major release since 1997 
the cash surge would not occur again for several more years.
An Internet browser company would have a tough time since the
trend has been free. Add these factors together and the analyst
felt the public would not want to pay much for revenue streams
that fluctuated over a 3-5 year cycle. Historically companies
with this type of cash flow carry low stock values. With the
judge currently on the MSFT warpath, it is becoming increasingly
more likely that MSFT will win on appeal since any observer
can see a clear bias by the judge. Still MSFT set another new
52 week low of 61.50 with a loss of -4.06.

The economic reports today were mixed with Existing Home Sales
posting a greater than expected -6.2% drop for April but a
revised March at a huge +9.2% gain. The revised GDP was 
unchanged at +5.4% even after several economists expressed
lower targets. These results had no impact on the market but
Friday we have another chance for disaster with the Personal
Income/Spending and Durable Goods Orders. These are not
normally market movers. The next big report will be the May
Non-farm Payroll Report next Friday. This will be the next
major inflation gauge before the June Fed meeting.

Until the brokerage downgrades this afternoon, the advancers were
actually beating decliners for a change. This was not much of
a life preserver on the sinking ship but it did give us cause
for hope for several hours. Still, the quick drop by the market
on a minor news event shows that there is no strength in the
market. While the day traders want to bid everything up each
morning in anticipation of a coming rally, the institutions
are still selling into rallies or simply standing on the 
sidelines. There are rumors of several funds with weak results
being deluged with redemption requests. The Cendant CEO was on
CNBC today and also said fund managers were apologizing to him
for selling his stock but blamed gross redemptions for the need
to lighten up in all areas. This is not a good sign.

The Memorial Day weekend ahead could cause Friday to be a 
rough day. The strong rebound rally Wednesday afternoon 
just ran out of steam and lacked any follow through. For
four days now the Nasdaq has stopped dead on upper resistance
at 3365 which means there are still sellers at that level.
The low of almost 3000 on Wednesday could be seen again if
there is no good news to power the market on Friday. With
a long weekend in front of us there will be a tug of war
between the traders who do not want to hold over the holiday
as summer begins and those who are looking for an entry point
for a possible rally next week. Either way the volume is
likely to be very low and part of the drop at the close today
was likely a sign of many traders leaving early. At this
point, I would like to see a sub 3000 intraday dip and rebound.
I think there is a psychological bottom at 3000 and even if
we eventually broke it I think it should provide another 
chance for a current rally. 

We are only five weeks away from YHOO earnings and the start 
of the July period. If there is going to be an earnings run then 
next week would be a good place to start. If you are waiting 
patiently for 3800 again I think I would take a portion of your 
risk capital and open a couple positions on any bounce from under 
3000. I would wait until the Nasdaq is over 3000 again before 
opening the positions. These would be speculative and should be 
exited on any drop under 3000 again. Who knows, we may not see 
3000 but if we do I think it would be worth the risk. You saw how
fast the leaders rocketed Wednesday afternoon when volume 
returned and I would expect the same on any sub-3000 bounce.
The Nasdaq big caps have given ground recently and some analysts 
are claiming this to be a sign of a possible rally soon. The Dow 
traded as low as 10266 today and came close to breaking down. It 
closed near the bottom range of support and teetering on the cliff. 
A break under 10250 could put us under 10000 real fast.

Good Luck

Don't buy too soon!

Jim Brown

Current long positions include: 



Thursday, May 25, 2000

The Shorts are Alive and Well!

Weakness in the Dow spilled over to the NASDAQ today, as both indexes 
were bruised by selling pressure. This lack of follow through from 
Wednesdays trading is giving many people the perception that we still 
have not found a bottom. Regardless, the turnaround witnessed Wednesday 
was proof that there is plenty of cash on the sidelines waiting to be 
used, should the opportunity arise. This fact will always keep the 
shorts on the defensive, and will make stocks rise dramatically in the 
event of a short squeeze. Now despite the fact that the Nasdaq is 
trading near its lowest level of the year, investors are betting 
heavily that there is more carnage to come. The level of short sales 
not yet closed out, known as short interest*, climbed 4.80% to 
2,780,161,105 shares. This bodes well for the bulls in the long haul, 
however, in the short term, with the low levels of volume, the bears 
will continue to control this market. Now below is a quick list of the 
most shorted securities for the NASDAQ. 

*One important gauge of sentiment is the level of short interest 
on the major exchanges. Investors who sell securities "short" 
borrow stock and  sell it, betting that the stock's price will 
decline and that they will be able to buy the shares back later 
at a lower price for return to the lender. Short interest 
reflects the number of shares that have yet to be repurchased to 
give back to lenders. In the past, stocks that have heavy short 
interest, when combined with some sort of positive news, has 
witnessed very quick and powerful up-moves. At times, short 
sellers are forced to cover, which only helps the buying 
pressure, and this is known as a "short squeeze."

Largest Short Positions  
Rank                  May. 15          Apr. 14           Change 
1  Cisco Sys        63,655,639       62,027,225         1,628,414  
2  Dell Computer    42,644,945       40,766,605         1,878,340  
3  Oracle           35,460,517       35,089,894           370,623  
4  Mcleodusa        35,100,321       31,548,093         3,552,228  
5  Microsoft        31,818,653       29,269,267         2,549,386  
6  E*trade Group    31,279,323       30,260,115         1,019,208  
7  Intel            29,227,510       28,503,478           724,032  
8  Yahoo            28,804,881       27,682,937         1,121,944  
9  JDS Uniphase     28,463,311       30,361,418        -1,898,107  
10 Global Crossing  28,169,059       28,946,563          -777,504  
11 Veritas Software 28,092,901       24,174,003         3,918,898  
12 Worldcom         27,878,269       30,017,217        -2,138,948  
13 Globalstar       27,709,114       25,714,478         1,994,636  
14 Amazon.Com       25,759,433       28,226,255        -2,466,822  
15 At Home          21,009,527       19,389,045         1,620,482  
16 Nextel Com       20,063,286       22,401,743        -2,338,457  
17 Ameritrade       18,966,839       18,841,422           125,417  
18 NTL              18,227,413       18,970,889          -743,476  
19 Read-Rite        17,695,722       18,265,059          -569,337  
20 Psinet           17,474,457       19,746,515        -2,272,058  
21 Ericsson         17,249,711       13,966,876         3,282,835  
22 Palm             17,182,481       11,872,767         5,309,714  
23 Internet Cap Grp 16,927,298       13,607,574         3,319,724  
24 CMGI             16,660,129       18,488,774        -1,828,645  
25 Metromedia Fiber 16,562,086       14,368,336         2,193,750  

Rank                  May. 15          Apr. 14           Change
1  Palm             17,182,481       11,872,767         5,309,714  
2  Veritas Software 28,092,901       24,174,003         3,918,898  
3  Interdigital Com  3,687,359                0         3,687,359  
4  Mcleodusa        35,100,321       31,548,093         3,552,228  
5  Novell            7,704,193        4,214,307         3,489,886  
6  Vignette          5,373,863        1,899,514         3,474,349  
7  Internet Cap Grp 16,927,298       13,607,574         3,319,724  
8  Ericsson         17,249,711       13,966,876         3,282,835  
9  360networks       2,921,354                0         2,921,354  
10 ADC Telecommun   12,703,252        9,907,969         2,795,283  
11 Conexant Systems 10,415,922        7,741,599         2,674,323  
12 Exodus Commun    10,017,392        7,437,231         2,580,161  

1  Paging Network    5,091,649        9,085,763        -3,994,114  
2  Lernout & Hauspie 5,028,862        8,922,836        -3,893,974  
3  Nextlink Comm    11,493,112       15,275,085        -3,781,973  
4  Harmonic          2,889,481        6,628,630        -3,739,149  
5  Broadvision       6,781,447       10,104,977        -3,323,530  
6  Alkermes          4,401,591        7,575,082        -3,173,491  
7  BanknorthGrpNew   1,179,301        4,307,174        -3,127,873  
8  Amazon.Com       25,759,433       28,226,255        -2,466,822  
9  Informix          4,563,142        6,980,728        -2,417,586  
10 Flextronics Intl  2,019,509        4,412,977        -2,393,468  
11 Nextel Com       20,063,286       22,401,743        -2,338,457  
12 Psinet           17,474,457       19,746,515        -2,272,058


NASDAQ Short Interest:
As of May 15, the level of short sales not yet closed out, known as 
short interest, climbed 4.80% to 2,780,161,105 shares. Should this 
market get any kind of propelling good news, we could see a severe and 
swift rally as shorts run to cover.

Mixed Signs:

Volatility Index (28.00):
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. The VIX recently broke the 52-week 
high, so patience is prudent until the VIX establishes a new 
trading range or gets back to the range.

Corporate Earnings:
Corporate earnings continue to be solid; however, there has been 
no upside as most equities have sold off even in the wake of good 


Interest Rates (6.097):
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 April, 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                        (5/19)      (5/23)       (5/25)

Overhead Resistance (775-800)     2.12        3.25         4.43
Overhead Resistance (745-770)     1.91        1.17         1.16

OEX Close                       752.95      732.55       736.95

Underlying Support  (715-740)     2.90        3.16         2.78
Underlying Support  (680-710)     n/a        22.70        23.56

What the Pinnacle Index is telling us:
Underlying support is starting to pick up more bears, indicating 
we could be close to a bottom. OTM underlying support is 
extremely strong, indicating many are betting on a market crash. 
Direct overhead is light, so if a rally were to occur, it would 
not be met with great resistance. 

Put/Call Ratio 
                                Friday      Tues       Thurs
Strike/Contracts                (5/19)      (5/23)     (5/25)

CBOE Total P/C Ratio             .89        .48        .56
CBOE Equity P/C Ratio            .81        .41        .49
OEX P/C Ratio                   1.64        .92        .96

Peak Open Interest (OEX)
                     Friday          Tues            Thurs
Strike/Contracts     (5/19)         (5/23)           (5/25)

Puts                740 / 6,368   740 / 7,532     740 / 7,606
Calls               800 / 4,692   800 / 6,084     800 / 6,045
Put/Call Ratio        1.36           1.24            1.26

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 25, 2000                            28.00


As of Market Close - Thursday, May 25, 2000 

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

DOW Industrials   10,000  11,400  10,324    Neutral   5.05
SPX S&P 500        1,400   1,500   1,382    BEARISH   5.23 
OEX S&P 100          750     800     737    BEARISH   5.23     
RUT Russell 2000     450     550     456    Neutral   5.05    
NDX NASD 100       3,200   4,000   3,099    BEARISH   5.23 
MSH High Tech        860   1,000     856    BEARISH   5.23 

XCI Hardware       1,360   1,600   1,299    BEARISH   5.19     
CWX Software       1,100   1,300   1,086    BEARISH   5.23 
SOX Semiconductor    960   1,200     902    BEARISH   5.19     
NWX Networking       900   1,100     941    Neutral   5.05
INX Internet         550     800     512    BEARISH   5.23 

BIX Banking          530     600     583    Neutral   5.11  
XBD Brokerage        400     500     414    Neutral   5.05    
IUX Insurance        540     620     632    BULLISH   5.16

RLX Retail           900   1,000     864    BEARISH   5.23    
DRG Drug             355     400     392    Neutral   4.28    
HCX Healthcare       710     800     798    Neutral   4.28    
XAL Airline          140     155     158    BULLISH   5.25 **
OIX Oil & Gas        265     300     303    BULLISH   5.11  
Posture Alert    
Thursday's market action was disappointing, as a lack of follow 
through from Wednesday's gain was what the bulls were looking for. 
Volume was decent, but will most likely tail off heading into the 
holiday weekend. Sectors leading today's downdraft were Internet 
(-4.44%), Airlines (-3.45%), and Brokerage (-3.59%). With this 
most recent action, we have upped the Airline sector to Bullish 
from Neutral.   


Tax Planning in May?
By S.P. Brown

It's never too early to start tax planning.  Why wait until the 
end of the year?  By then it's usually too late.   Let's face 
it, with the holiday's, December is probably the worst month to 
plan anything.  So, start looking at your tax liabilities now 
while your mind is still lucid. 

To get you started, here's a few strategies and pointers you 
may find useful.     

The first strategy is to reduce portfolio turnover.  If 
possible, try to keep it below 25 percent a year.  Once 
turnover breeches the 25 percent level, taxes really start to 
take a bite out of gains.  

For example, assuming a 20 percent capital gains tax rate and a 
10 percent annual return, a $10,000 porfolio will be worth 
$11,052 at the end of the year if no taxes are paid, meaning no 
turnover has taken place.  However, the same portfolio that has 
been churned a 100 percent during the year will be worth only 
$10,833 because of taxes.  

But if you can't hold still, a second strategy is to generate 
tax losses whenever possible and offset the losses by taking on 
an equal amount of capital gains.  However, there are a few 
common mistakes that need to be avoided here.  Don't wait until 
December to look for losses because the purpose of generating 
capital losses is so that it's possible to take capital gains 
on other stocks.  What's more, everyone and his mother is 
taking tax losses in December, so tax-loss candidates are apt 
to give you a little more loss than you had anticipated.  

Related to the capital gains tax loss strategy is the wash-sale 
rule.  If you have a stock that you like that you want to take 
a loss on, you have to wait 30 days after selling the stock 
before you can buy it back again.  This means that selling the 
stock and then buying it back at the lower cost within 30 days 
will void the loss.

Also, pay attention to the kind of capital gains you occur.  
Short-term capital gains are taxed at a higher rate than long-
term capital gains.  A good tax-planning strategy considers 
selling those securities that qualify for the better long-term 
rate first.  The tax laws require that short-term capital 
losses be used first to offset short-term capital gains, then 
long-term capital losses are used to offset long-term gains.  
Moreover, only $3,000 of net capital losses can be used to 
offset ordinary income per year, although excess losses can be 
carried forward to future years indefinitely.  

Another strategy is to invest or trade in a tax-deferred 
account, such as 401(K)s, whenever possible.  However, you must 
be sure you won't need the funds before your 59  years old 
because the tax penalty for early withdrawal will more than 
negate the advantages of tax-deferred growth.  

Derivatives can also be used to lighten the tax burden.  If a 
taxable investor owns a diversified portfolio with a low cost 
basis and fears that the market is going to undergo a 
significant decline, the tendency is to sell the stocks.  
However, this will often generate large capital gains. 

As an alternative, the investor can keep the portfolio intact 
and sell S&P 500 futures contracts or buy put options on the 
S&P 500.  If the market declines, a profit will be generated on 
the derivative investments that offsets the loss suffered in 
the value of the portfolio.  

Keep in mind, though, the portfolio won't be perfectly hedged 
because a tax will have to be paid on the gain generated by 
this derivative overlay strategy.  On the other hand, if the 
stock market continued to rise after the overlay strategy was 
put into place, a loss would be realized on the derivative 
investments that could be taken against other gains.    

Finally, keep good records.  When stocks are sold, the tax law 
permits capital gains to be calculated in either the specific 
lot, first-in, first-out and average cost methods.

The specific lot method permits the investor to identify the 
specific shares that are sold.  Thus, if an investor has many 
shares of the same stock at different periods of time, and some 
of the shares are sold, the investor can specify which shares 
were sold.  Obviously, it's best to identify the shares that 
were sold as those that were purchased at the highest price.

The first-in, first-out method means the first shares bought, 
are the first shares sold.  Under normal circumstances of a 
rising market, this will usually produce in the highest capital 
gains and highest tax.  This is also the default method if you 
didn't log your trades during the year.

The last method, average cost, can be used to determine the 
taxable capital gains when mutual funds are sold.  However, it 
can't be used for other investments.  This is because of the 
special record-keeping problems posed by reinvested dividends 
and capital gains.  

Start planning your tax strategy now while time is on your 
side, instead of waiting until the end of the year when its 
usually too late.


Questions about Covered-calls with LEAPS...

Hello OIN...

I need your help!  I read with great interest your article 
and example of applying "covered call" strategy to LEAPS.  I am 
very familiar with covered calls and need some clarification 
applying this to LEAPS.

I infer that the LEAPS effectively act as the underlying 
security (similar to the stock in a typical covered call)? I 
think of LEAP as buying discounted stock in this strategy.  As 
the stock price exceeds the strike price of the call, does the 
LEAPS get called away?
How does this differ from a spread?  My online broker (ETRADE) 
was confused about entering this order.  I assume I'd buy the LEAP 
(long) and write the front month calls (sell open) as in a typical 
covered call play? Perhaps we are just talking differences in 
nomenclature, i.e same strategy???

Thanks in advance



Concerning LEAPS with Covered-calls...

Most novice traders are unaware that one of the best and most 
popular strategies associated with LEAPS is the covered call 
(or calendar spread) with the LEAPS position.  Of course, a 
(call) calendar spread (time spread) consists of the sale of 
one call and the simultaneous purchase of a call of the same 
underlying security with the same (or higher/lower - a diagonal) 
price but with an expiration date further out.  Most traders 
try open a calendar spread when there is EXCESS time value in 
the sold call or a discounted price for the LEAPS.  That gives 
you a theoretical edge.  Of course there are potential adjustments 
after you open the initial LEAPS/covered-call play.  If the stock 
price rises and your short-term position is ITM on the last day 
of the strike, you need to buy it back so that you DON'T have 
to exercise the long-term position; that would defeat the whole 
purpose of the strategy.  The majority of new traders prefer to 
wait until the last day of the strike period to close out the 
SHORT position (if necessary).  Hopefully the stock won't climb 
too far above the sold strike because then you lose the edge in 
the play (because both positions go deeply ITM).  At least in 
that case, your LEAPS are going up in value also and on the last 
day, the short calls will shrink down to parity (intrinsic value) 
so you will likely be ahead in the play when you buy them back.  
Then you can look for a rally to sell the next months' calls.  
That's the whole strategy; selling the calls when they are 
overpriced and buying them back (if absolutely necessary) when 
they return to intrinsic value.  You may also have to "roll-up" 
or "roll-down" if the stock price moves very far away from your 
"sold " option to keep the play profitable.  Many traders also 
attempt to outguess the stock, buying-back the call at a different 
time (a dip or slump).  Obviously that's a personal decision and 
not really part of the basic strategy (a trading technique as 
opposed to spread technique).

For more information, read the appropriate chapters in McMillan's 
"Options as a Strategic Investment" and Natenburg's "Option 
Volatility and Pricing", these are two of the bibles of floor 
traders and they may shed some light on the subject of combination 
and spreads and the appropriate entry/exit/adjustment strategies.

Good Luck!


Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10323.92  -84.30 -120.28  113.08 -211.43 -302.93
Nasdaq  3205.35  -26.19 -199.66  106.06  -65.26 -185.05
$OEX     736.95   -4.91  -15.49   14.55  -10.15  -16.00
$SPX    1381.52   -6.23  -26.86   25.19  -17.53  -25.43
$RUT     456.17   -8.03  -12.66    2.73   -5.57  -23.53
$TRAN   2717.77  -21.84   34.11   74.80 -111.30  -24.23
$VIX      28.00    0.06    0.47   -1.43    0.13   -0.77

Calls               Mon     Tue     Wed     Thu    Week

CDWC     122.31    1.50   -6.38    7.75    4.44    7.31  Dropped
P         54.56    1.25   -0.31    0.38    0.06    1.38  Refueling
ANDW      34.06    0.00   -1.00   -1.06    3.25    1.19  Strength
UNH       76.56   -0.06   -0.88    2.44   -1.31    0.19  New heights
ALL       26.81    1.00    0.94    1.31   -3.19    0.06  Undeserved
PLXS      79.56   -1.00   -3.00   -4.00    7.06   -0.94  Volatility
CHKP     160.25    1.50   -8.38   -0.87    6.63   -1.13  New
ABT       42.75   -1.19    0.00    0.69   -0.69   -1.19  Tortoise
STT      109.38    2.87    3.25   -0.25   -9.63   -3.75  Dropped
SEPR      90.81   -6.63   -3.13   -2.50    3.31   -8.94  Late buying
CIEN     104.50   -8.63   -8.13   -2.06    6.81  -12.00  New
RMBS     153.75   -2.88  -20.25   17.75  -14.63  -20.00  Dropped
SDLI     168.00   -4.00  -21.75    5.06   -7.31  -28.00  Big moves


ANAD      27.13   -6.50   -9.06   -1.81    0.25  -17.13  Losing ways
OPTV      36.50   -3.34   -3.50   -4.72   -3.75  -15.31  Dark abyss
FDRY      54.50   -5.81   -0.81    0.63   -5.00  -11.00  In the mud
INCY      47.13   -3.63   -4.13   -1.00   -1.88  -10.63  Raisin
EXTR      42.88    3.50   -7.00   -1.25   -5.75  -10.50  New
PCLN      36.25   -0.31   -3.94   -4.00   -0.25   -8.50  Falling
HLIT      39.75   -2.19   -4.94   -1.38    2.13   -6.38  Full-alert
NTOP      27.06   -3.88   -1.19   -1.56    2.56   -4.06  Earn. 5/31
ICIX      27.88   -1.07   -1.63   -1.06    0.75   -3.00  Flat today
AZPN      19.63   -1.00   -1.25    0.25   -0.75   -2.75  Sliding
NTLI      58.50    3.63   -5.38    2.38    3.13    3.75  Acquirer?

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.


CDWC $122.31 +4.44 (+7.31) Just as expected, shareholders
approved a share increase at yesterday's Annual Meeting.  They
were rewarded with a 2-for-1 split announcement, with a payable
date of June 21.  The continuing NASDAQ weakness yesterday
provided a very nice last-minute entry point as the price
firmed near $103.  Volume came back, driving the tech sector
higher and CDWC reaped the reward, tacking on over $14 in the
last 2.5 hours of trading.  After the split announcement, the
stock got one final surge in today's trading, tagging $127.50
before succumbing to a weakening market late this afternoon.
With the good news out, and market weakness continuing, CDWC
will likely have a hard time moving higher.  We'll step aside
until the picture improves.

STT $109.38 -9.63 (-3.75) Our play in STT ended abruptly Thursday.
The decline came on a combination of two negative forces.  First,
after rallying over 30% in less than a month, traders decided to
take profits in STT.  Secondly, the losses were extended due to
concerns over STT's high multiple.  Despite the positive analyst
remarks last week, traders began to question the sector's recent 
move.  The heavy profit taking early Thursday morning caused
STT to gap down by $2.  And the stock kept falling, right through
its 10-dma.  The decline Thursday came on relatively heavy volume
suggesting the "Big Boys" were leaving STT.  We don't want to
stand in the way of institutional selling to get run over.

RMBS $153.75 -14.630 (-20.00) Well, it is time to drop this one.
It's been a volatile ride for traders that entered this play.
The move the past two days from $144 to $180 provided some
traders with a good buying opportunity, while for others it may
have brought some much needed disaster relief.  We held onto
RMBS thinking the approval to increase the number of authorized
shares and the upcoming 4-for-1 split may have brought buyers
to the table.  Today's 8% decline came with the volume picking
up as the price moved further south, suggesting there's more 
ahead.  RMBS has provided many profitable opportunities in the
past, and will do the same in the future, however for now it's
time to look elsewhere.  


Still no dropped puts.


UNH $76.56 -1.31 (-0.19) With all the premium ingredients, which 
included intraday upswings in the market, a sustaining sector, 
and excellent volume at more than double the ADV, UNH powered 
higher.  Yesterday it sparkled in the limelight with another 
all-time high at $79.25, easily beating last Thursday's record 
($77.50) during amateur hour.  Today UNH was a victim of some 
expected profit taking, but nevertheless it managed to institute 
a higher near-term support level at $76.50 right in-line with 
the 5-dma ($76.51).  There's no doubt the momentum is in tact 
as UNH clearly challenged overhead opposition as it flirted 
within fractions the $79 mark today.  At these new heights, of 
course we need to see conclusive bounces before opening more 
positions, so be patient for new entries.

ABT $42.75 -0.69 (+1.19) The tortoise may not be a show stopper, 
but without fail it covers ground.  This is the case with ABT.  
After clearing resistance of $42 on Tuesday, it edged higher in 
recent trading.  Unfortunately it found the next line of 
resistance at the $44 mark, but the volume continues to be 
robust.  This important variable gives us confidence that ABT 
will make its way towards the 52-week record at $48.50 in the 
short-term.  For the new readers, keep in mind ABT is purely a 
momentum play initiated by the healthy breakout of the drug 
stocks last week.  So keep an eye on the Amex Pharmaceutical 
Index ($DRG) and the overall market conditions.  Technically 
this is a favorable play with ABT now past the stubborn 
resistance at $40 and its continual moves above the trailing 5-
dma ($42.65).  Look for bounces off this line as entries on 
the climb.  If by chance there's some consolidation, be patient 
and wait for a clear-cut direction to develop.

PLXS $79.56 +7.06 (-0.94) PLXS has a middle name and it's 
Volatility!  What a nerve-wracking slide to $66.88 yesterday 
before the buyers threw some money towards this potential 
splitter.  Overall PLXS recovered nicely and is once again above 
firm support at $75 and $78.  If all goes well tomorrow, PLXS 
should spring forward from it current level, which by the way is 
tightly sandwiched between the 5-dma ($77.71) and the recently 
more aloof, 10-dma ($81.83).  A clean break above $80 would 
illicit a more inviting setting for technical traders to enter 
the scene and give the momentum another boost.  Be patient and 
wait for the potential breakout if you're not the risky type.  
In the news on Tuesday evening, Plexus announced it completed 
the $53.7 mln cash deal to acquire the turnkey electronic 
contract manufacturing operations of Elamax, SA de CV (ELAM) in 
Juarez, Mexico.  According to John Nussbaum, President and COO, 
this addition "should strengthen our relationships with new and 
potential customers, and establish a strategically important 
low-cost manufacturing solution outside of the United States".

ALL $26.81 -3.19 (+0.06) Insurance stocks have been one of the
few safe havens in this turbulent market over the past month.
The move began picking up steam early in the week and after
six positive days, the sector was due for a bit of a correction.
What happened to them today seemed a bit undeserved, but was
likely due to continuing negative sentiment with respect to
interest rates.  On 40% greater volume than the ADV, ALL pulled
back to support near $27 before recovering a bit in the last
hour of trading.  Negative sentiment about brokerage stocks
seemed to leak into anything related to the Financials and ALL
couldn't get out of the way.  Fortunately, support held and,
provided the buying interest returns, the current level looks
like a good entry point.  More conservative investors may want
to wait for the stock to push through near-term resistance 
at $28; if volume confirms the move, take advantage of the
strength and jump aboard.

ANDW $34.06 +3.25 (+1.19) Looking for strength capable of
weathering this persistent market weakness?  Look no further
than ANDW.  The stock confirmed long-term support near $30 on
Monday and then again yesterday.  The brief rally on the NASDAQ
lifted ANDW up to resistance and the stock managed to ignore
the late-day market weakness.  Closing near the high of the day
on nearly double the average daily volume is music to our ears.
Today's strong move puts ANDW above its 10-dma ($32.13) and we
expect the run to continue.  Near-term resistance between $34-35
is the next obstacle to overcome and then we'll be in clearer
territory.  Continuing market weakness could reward us with
another attractive entry point.  Look for a bounce at support
between $30-32 and then feel free to jump in as buying volume
picks up again.  If buyers can push ANDW through resistance,
buying on strength is a viable entry strategy as well.

SEPR $90.81 +3.31 (-8.94) Although we didn't get a split
announcement from the Annual Shareholder Meeting Wednesday,
SEPR showed impressive relative strength in Thursday's session.
The AMEX Biotech Index ($BTK) lost nearly 2%, but SEPR held
steady.  The stock is now trading back above its major support
level of $90, and could bounce from here.  We'll want to watch
the action in SEPR closely Friday morning.  We saw a massive wave
of volume cross the tape in the final hour of trading Thursday.
Although trading was relatively light for most of the day, the
heavy buying late Thursday caught our eye.  Watch for a bounce
from current levels Friday morning, although we're heading into
a holiday weekend, pay close attention to the volume to confirm
buying interest has returned to SEPR.  If SEPR's strong showing
Thursday carries over into Friday's trading, you might consider
waiting for the stock to clear resistance at $97 before entering
the play.  A move above that level might signal a return of
momentum, as there's not much resistance above $97.

SDLI $168.00 -7.31 (-28.00) All things considered we really are
pleased with the rebound yesterday.  The move was definitely
impressive, while the action today wasn't that bad.  We aren't
trying to justify the decline today, however with the weakness
in the Dow, the fact that the Nasdaq and SDLI held up as well 
as they did is encouraging.  SDLI did dip back below its 100-dma
but the selling seen today really didn't come until the final
hour of trading, as traders prepared to leave for a long 
holiday weekend.  That said, we obviously would have been more
comfortable with a strong follow-through today, but we must
play the hand we are dealt.  SDLI did get a boost before the 
bell from Deutsche Banc Alex Brown.  Analysts there initiated
coverage of the company with a Strong Buy rating.  SDLI closed
near its low of the day, which is not a good sign, however many
view whatever happens tomorrow as a "non-event", going into the
weekend.  For traders that entered yesterday and didn't take 
some money off the table, support is once again found at $164
and near $155.    

P $54.56 +0.06 (+1.38) The consolidation the past two days is
really a plus for our new play, considering the weakness seen
in the broad markets today.  The bounce off $54 late today
provided traders with a good entry point, with the volume picking
up as well.  Very little in the way of news this week.  On
Wednesday afternoon Brazil's National Petroleum Agency listed
Phillips in a group of companies that were approved to compete
for the second auction of oil exploration licenses slated for
next month.  The companies will compete for 23 blocks in an oil
licensing round aimed at stepping up activity in one of the
world's most promising regions.  One thing to remember when
considering a new play in this petroleum company, it obviously
doesn't move with the speed and volatility of the tech stocks.
Gunslingers may choose to alter the size of their positions to
achieve desired results.  With the holiday weekend approaching,
traders looking to enter this play may want to wait for the
new week, or to scale into new positions.

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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
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The Option Investor Newsletter             Thursday 5-25-2000
Copyright 2000, All rights reserved.                   2 of 2
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NTOP $27.06 +2.56 (-4.06) Yesterday NTOP dived deeper into the 
dark abyss.  It came up for air at $22.50 just shy of the next 
support level at $20.  The volume was again only moderate, but 
the downward progression affirmed that this technical play is 
treading along the proper course.  And to top it off, the NASDAQ 
was experiencing a sort of relief rally.  Yes it's true, NTOP 
rode the market wave up a couple dollars today, but it wasn't 
backed by any show in trading activity.  In fact, volume was 
only 60% of the norm; thus indicating buyers weren't lined up to 
add NTOP to their portfolios.  $28 is still proving to a mark of 
intraday resistance, which is notably under the 10-dma ($32.56) 
at this time.  Currently NTOP is sitting on the descending 5-dma 
($27.20), so look for it to move lower off this technical 
indicator and head back towards the $20 level.  You'll want to 
mark your calendar too.  Net2Phone is confirmed to report 1Q 
earnings next Wednesday, May 31st after the market.  

ICIX $27.88 +0.75 (-3.00) This new put play performed quite well 
despite the NASDAQ's inevitable relief rally.  There was enough 
lingering fear and apprehension to keep buyers away from this 
telecom stock.  Think about it.  Telecoms are the base clients 
of many of these high-flying tech stocks, many of which are way 
below "bargain prices".  So on one hand there's the likelihood 
of a further decline in share price as the economic picture dims 
or, on the other, a chance of a buyer's spree.  But at the moment 
the bears are winning the battles in the telecom arena.  Our 
first objective for ICIX was for it to stay under the 10-dma 
(currently at $31.63) and slip under the $25 level on 
respectable volume.  It did just that in yesterday's session.  
ICIX moved towards its all-time low of $18.13 and tagged $23.88 
before rising late afternoon.  And in addition, it stayed a 
significant distance away from the 10-dma line and established 
a lower intraday resistance level by today.  Look now for 
subsequent lower moves off short-term resistance at $28.63 
and the 5-dma at $28.78.  A few more negative market sessions 
would certainly put a shine on this play. 

HLIT $39.75 +2.13 (-6.38) In the past two trading sessions, 
volume was at more than double the ADV!  There's obviously a 
tug-of-war going on between buyers and sellers so let's keep our 
radar on full-alert.  There's no company-specific news to effect 
the trading; therefore it's probably more a result of the low 
share price and the NASDAQ's attempts to make some ground.  One 
positive attribute for this put play was HLIT's move through 
Tuesday's intraday low ($38.75).  The stock sunk to $35 
yesterday and even today, it hit $38.38 before making a feeble 
charge for $40.  That also brings up another technical note.  
HLIT's overhead resistance is establishing itself lower and 
lower as time passes.  If you look at a chart with a 5-dma 
line you can see how this indicator is mapping out the pattern 
and acting as a barrier.  In consideration of the market 
uncertainty, it's still prudent to wait for HLIT to make 
another definitive lower before adding more positions. 

AZPN $19.63 -0.75 (-2.75) After a valiant attempt to break out
of its downtrend, AZPN got put back in its place today.  Lifted
by the surge on the NASDAQ this morning, the light volume
couldn't sustain the move, and weakness returned.  Drifting
lower for much of the day, the final blow came in the final 15
minutes.  On a surge of selling volume (over 10% of the ADV),
AZPN quickly lost $1.44 to close at $19.63.  This puts the stock
at its lowest price since November of last year, and very close
to the $18 support level.  The stock is now down over 60% from
its February highs, and is still showing no sign of strength.
Volume remains near the daily average, and is keeping the stock
sliding downhill in deference to the law of gravity.  Resistance
is consistently being found at the 5-dma (currently at $20.75),
and good entries can be had as the stock fails to break through
this level and rolls over.  Keep an eye on the volume though; as
we approach support at $18, declining volume will be an early
indication that the selling is drying up.

INCY $47.1350.00 -4.13 (-10.63) This once juicy grape looks more 
like a raisin every day.  You'd think Merrill's issuance of a NT 
Accumulate/LT Buy would have caused INCY to buck the downward 
trend.  While INCY did rally as high as $53.88 in the NASDAQ 
euphoria yesterday afternoon and this morning, the contrast is 
that INCY's intraday highs are getting lower while NASDAQ's 
intraday highs remain flat.  That tells us there is relative 
weakness compared to the rest of the already weak market.  In 
short, Merrill's initiation of coverage did nothing for the 
stock.  It looks like we can continue to count on resistance at 
$53 - a bounce south from there might make a good entry.  The 
other entry to consider is by waiting for INCY to break support 
at $43.  Once it does that convincingly (a.k.a. with volume), the 
next stop would be around $36.  In this market, that's a real 
possibility.  Just be sure to keep your stops in place in case 
the recovery is for real next time.  Otherwise, this has been an 
excellent play so far.

PCLN $36.25 -0.25 (-8.50) Unless you are William Shattner, who 
presumably makes a comfortable living as Chief Huckster for PCLN, 
or Bob Barker of "The Price is Right" fame, the price of PCLN is 
generally wrong...unless you're in a put play!  It's amazing to 
us how the President and COO, Dan Schulman can get on CNBC to 
talk about a "great business model" that is NOT in the best 
interest of consumers.  In the long run, hoping your potential 
customers guess too high on the ticket price (rent a car, hotel, 
groceries, gas, whatever) while you pocket the difference isn't 
going to work as consumers demand even more competitive pricing.  
PCLN isn't profitable by long shot even now.  For those reasons, 
we think the current model is unsustainable and the price should 
continue to decline.  How far?  Tough to say.  However, PCLN has 
violated all support by descending below its last support at $45 
to its lowest closing price ever at $36.25.  Mild intraday 
support can now be found at $33.  While we think the price will 
have every opportunity to decline going forward, it can still 
temporarily rally with the general market - keep your stops 
close.  You may want to wait for a bounce south of intraday 
resistance at $40 to $41 before taking a new position.  You can 
try to get in on a high volume decline under $33, but we'd rather 
wait for failure at resistance.

OPTV $36.50 -3.75 (-15.31) Despite the broad tech sector rally
Wednesday, OPTV continued to fall into the abyss, tracing new
52-week lows along the way.  The stock hit bottom at $36.25
Wednesday, but managed to erase some of its gains as the broader
market lifted OPTV from the mire.  But the rally ended early
Thursday morning as OPTV headed back down.  Traders closed OPTV
right at its day low of $36.50, just shy of its newly minted
52-week low.  OPTV announced Thursday that it had joined the
three-way venture with MOT and ACTV to expand the reach of
Interactive Digital TV.  The worldwide venture is expected to
bring benefits to highly targeted TV viewers and target
advertising to consumers.  Despite the positive development for
the company, OPTV sold-off, revealing the relative weakness in
the stock.  Watch the stock closely Friday morning for signs 
of continued weakness.  Look for an entry if OPTV falls past
$36.25, signaling that the stock is headed to new lows.

NTLI $58.50 +3.13 (+3.75) Rumors continue to fly that NTLI is
on the acquisition trail.  Investors are becoming confused as to
what strategy the company pursuing.  Recently, it was speculated
that NTLI would bid for Freeserve (FREE), the U.K. Internet
service provider.  Investors are concerned NTLI would have to pay
an estimated 4 bln pounds for FREE, about $5.9 bln.  What's more,
last week NTLI told analysts that the company wants to enter the
wireless arena.  The problem NTLI faces is that the markets it
wants to enter are competitive and expensive.  Although NTLI did
rally along with the market Wednesday, and hold on to some of its
gains Thursday, the uncertainty surrounding the company could
lead to further selling.  The stock bounced off support at $60
for much of Thursday, but fell below that level in the last
half-hour of trading.  An aggressive trader might look for a
quick entry at current levels.  While a conservative trader
might wait for NTLI to fall through support at $55 before
entering the play.
ANAD $27.13 +0.25 (-17.13) ANAD continued its losing ways
Wednesday, finally finding support at $25.13.  We suggested that
the stock might enjoy a brief relief rally, and it did.  After
bottoming Wednesday, ANAD rallied into Thursday's session,
trading above $30 for most of the day.  But once the broader
market turned south, ANAD followed.  Sellers returned late
Thursday, closing the stock near its day low.  The short-lived
rally came on the heels of two events.  First, SMDI made its
debut Thursday, the company designs RF components.  The stock
rose 25% in its IPO, sending a positive message through the
sector.  Also, DB Alex Brown made positive comments about the
sector that may have added a little lift to ANAD.  But the good
news soon dissipated and ANAD erased much of its earlier gains.
From here, consider entry at current levels for a quick play.
Or, wait for ANAD to fall through support at $25, a failure of
support would signal that the stock has further downside.

FDRY $54.50 -5.00 (-11.00) Yesterday and early this morning it
appeared as though our play in FDRY may have come to an end.
However, the bears once again took the bulls by the horns and
pulled FDRY back down in the mud.  The move up came on decent
volume, and appeared as though, investors had found some reason 
to be optimistic.  As we've said in previous updates, most bounces
since early April have been met by sellers trying to recoup their
their loses.  The bounce today produced the same results, as the
company ran into resistance near $62.75.  Traders drove the price
back down to $53, and closed in the lower end of the range, which
indicates there certainly could be more selling ahead.  Yesterday
FDRY announced the availability of its version 7.0 IronWare
Internet routing software, which contains security enhancements.
The press release did little to help prop up the price of the
company's stock for more than a day.  Foundry is still oversold,
and could attract buyers back to the market.  However at this
point any bounces would probably be viewed as simply technical
in nature.  Further weakness, would again have to be viewed as
an opportunity to buy puts.


CIEN - Ciena Corp $104.50 +6.81 (-12.00 this week)

Ciena makes multiplexing systems that increase the capacity of
long-distance fiber-optic telecommunications networks.  The
company's systems transmit signals simultaneously over the same
circuit.  Customers such as Sprint, Bell Atlantic, and MCI
Worldcom, use its lines for long-distance optical transport and
for shorter distances.  The company is expanding its product and
geographic breadth as it transforms itself from niche market
specialist to optical networking supplier.

CIEN's products span the globe to connect the world.  And now,
you can consider China dialed in.  The House voted to approve
normalized trading relations with China Thursday.  While most
Americans are split on the issue, (Our OIN reader poll revealed
51% approve and 48% oppose the move) it is expected to benefit
telecom equipment makers.  China is rapidly expanding its
telecommunications systems and is expected to spend heavily on
new equipment to upgrade its networks.  China is seen as a
premier market for the telecoms, and CIEN will benefit by
supplying networking equipment to build wireless and wireline
networks.  CIEN has emerged as one of the leaders in the optical
networking sector.  Earlier in the week, Morgan Stanley set a
price target of $200 for the stock.  In their report, analysts
told clients that CIEN is a top-tier play in the fiber-optic
arena.  Despite the praise from analysts, CIEN has fallen
sharply recently.  The stock was trading in the $150 range just
last week, but has since fallen along with the rest of the tech
sector.  However, with the stock falling so swiftly recently,
there is very little resistance preventing CIEN from moving
higher.  After bouncing from a low of $90 Wednesday, CIEN has
since rebounded sharply higher.  And with the exciting
developments in China, the stock could further rally.  CIEN will
face minor resistance at $110, but after that we could see
smooth sailing.  However, CIEN is a volatile stock, so watch the
action closely Friday to determine direction.  If CIEN does
sell-off, watch for momentum to resume after a bounce from
support at $100.  But, if CIEN extends its gains into Friday,
consider an entry as the stock clears congestion at $110.

Also worth noting, shareholders approved an increase of
authorized shares at CIEN's Annual Meeting in March.  Although
many companies have delayed stock splits due to the market
environment, a declaration by the Board would certainly help 
our cause.  If the market stabilizes a bit we could get an
announcement in the coming weeks.

BUY CALL JUN-100*EUQ-FT OI= 773 at $14.00 SL=10.50 
BUY CALL JUN-105 EUQ-FA OI= 385 at $11.50 SL= 8.50
BUY CALL JUN-110 EUQ-FB OI= 650 at $ 9.38 SL= 6.50
BUY CALL JUL-110 EUQ-GB OI=2673 at $16.13 SL=11.50

Picked on May 25th at   $104.50    P/E = 575
Change since picked       +0.00    52-week high=$189.00
Analysts Ratings     11-8-1-0-0    52-week low =$ 26.81
Last earnings 04/00   est= 0.10    actual= 0.12
Next earnings 08-17   est= 0.16    versus= 0.01
Average Daily Volume = 6.45 mln

CHKP - Check Point Software $160.25 +6.63 (-1.13 this week)

Check Point Software Technologies is a worldwide leader in
securing the Internet.  The company's Secure Virtual Network
(SVN) architecture provides the infrastructure that enables
secure and reliable Internet communications.  SVN secures
business-to-business(B2B) communications between networks,
systems, applications and users across the Internet, Intranets
and extranets.  Check Point's Open Platform for Security (OPSEC)
provides the framework for integration and interoperability
with "best-of-breed" solutions from over 200 leading industry

A look the chart definitely shows a stock stuck in a trading
range.  When comparing the chart with that of the Dow and
the Nasdaq ours doesn't look so bad.  Actually CHKP has held
its own pretty well, since mid April.  The recent attack of
the "Love Bug" and others seems to help keep Check Point in
the "limelight" to some extent.  Check Point recently received
the Network Computing 2000 Well-Connected Award, in the category
of Best Firewall.  Part of what drew our attention to CHKP
is just how well the stock has managed to hold up the last 
couple of months.  CHKP has formed a wedge pattern with the 
$145 area providing a good base on several different occasions.
Although it can't go it alone, all this one needs a little 
encouragement and it could be on its way.  The company's numbers
were good the last quarter, and the analysts that follow CHKP
have it heavily rated as a Strong Buy.  This morning MER
Telecommunications Solutions announced it had joined Checkpoint 
Software's Open Platform Security alliance.  This latest
alliance is not a make or break deal, but for those that follow
the company, just another in a long list of new business for
the company.  How do we play CHKP.  Heading into the weekend,
we would be some what cautious, however would not be afraid
to buy calls if given the chance to do so.  Check Point has
support at $160, $154 and as mentioned near $144.  A breakout
over the $168 area and CHKP could be on its way. 

The last major alliance with Check Point came from Ramp
Networks(RAMP) middle of April.  With the Internet security 
becoming a huge issue, we would look for more in the coming

BUY CALL JUN-155*YKE-FK OI=402 at $16.50 SL=12.00
BUY CALL JUN-160 YKE-FL OI= 85 at $14.25 SL=10.25
BUY CALL JUN-165 YKE-FM OI= 77 at $11.63 SL= 8.50
BUY CALL JUN-170 YKE-FN OI=173 at $ 9.63 SL= 6.50
BUY CALL JUL-170 YKE-GN OI=112 at $21.25 SL=15.50

SELL PUT JUN-160 YKE-RL OI= 89 at $12.75 SL=17.75
(See risks of selling puts in play legend)

Picked on May 25th at   $160.25    PE = 135
Change since picked       +0.00    52 week high=$295.00
Analysts Ratings     12-3-0-0-0    52 week low =$ 20.72
Last earnings 04/00   est= 0.35    actual= 0.40 
Next earnings 07-12   est= 0.42    versus= 0.26
Average daily volume = 1.65 mln


EXTR - Extreme Networks $42.88 -5.75 (-10.50 this week)

Extreme Networks is engaged in the design, development,
manufacture and sale of high performance networking products
based on Gigabit Ethernet technology.  The company's next-
generation (Layer 3) switches transmit more information faster,
and enable enterprises such as network service providers and
content providers to migrate from older networks to current
technologies.  The company's Summit and BlackDiamond switches
share a common hardware, software, and management architecture
that facilitates a relatively short product design and
development cycle, reducing the time-to-market for new products
and features.  

Posting its 4th consecutive quarter of stronger earnings should
be helping EXTR to move higher, but the real scoop is found in 
the revenue numbers.  Revenue growth has slowed each quarter, 
and then last week, the company committed the cardinal sin for 
a high-valuation tech stock.  In their May 16th quarterly report, 
the company said, "We expect to experience rapid erosion of 
average selling prices of our products due to a number of 
factors, including competitive pricing pressures, promotional 
pricing and rapid technological change."  The report goes on 
to state that this will affect gross margins.  This is not the 
kind of news investors want to hear, especially on a company 
with a P/E ratio over 100.  The selloff in the NASDAQ that 
commenced in early March had already taken its toll, dropping 
the price from a high of $121.38 to a low of $50.75.  With the 
release of the negative forward-looking comments listed
above, bearish sentiment returned and EXTR has been subjected
to continued abuse over the past six sessions.  The 5-dma
(currently $50.31) is creating downward pressure and the stock
is now solidly below what had been good support at $50-51.  Not
only is today's close the lowest price since last June, but it
is not far above the 52-week low at $37.13.  Volume is sitting
north of the ADV and as long as sellers remain in control, a
run at new yearly lows looks likely.  Failed rallies near
resistance will present the best entry points; climb aboard
and enjoy the ride as selling volume picks up.

BUY PUT JUN-50*EUT-RJ OI=254 at $9.88 SL=7.00
BUY PUT JUN-45 EUT-RI OI= 70 at $6.38 SL=4.25

Average Daily Volume = 1.59 mln


AZPN - Aspen Technology $19.63 -0.75 (-2.75 this week)

Aspen Technology builds computer systems that assist process
manufacturers in designing and automating their plant
operations.  Among the companies using AZPN's software are
Chevron, Dow Chemical, and Proctor & Gamble.  Not only does
the company's software find more efficient methods of
production and management, but it also lets manufacturers
explore "what if" scenarios without reassembling their
facility.  Receiving nearly 60% of its revenues from
consulting and other services, AZPN has operations in more
than 20 countries and more than half of all sales come from
outside the U.S.
Most Recent Write-Up

After a valiant attempt to break out of its downtrend, AZPN was
put back in its place today.  Lifted by the surge on the NASDAQ 
this morning, the light volume couldn't sustain the move, and 
weakness returned.  Drifting lower for much of the day, the final 
blow came in the final 15 minutes.  On a surge of selling volume 
(over 10% of the ADV), AZPN quickly lost $1.44 to close at $19.63.
This puts the stock at its lowest price since November of last 
year, and very close to the $18 support level.  The stock is now 
down over 60% from its February highs, and is still showing no 
sign of strength.  Volume remains near the daily average, and is
keeping the stock sliding downhill in deference to the law of 
gravity.  Resistance is consistently being found at the 5-dma 
(currently at $20.75), and good entries can be had as the stock 
fails to break through this level and rolls over.  Keep an eye on 
the volume though; as we approach support at $18, declining volume 
will be an early indication that the selling is drying up.


The NASDAQ broke down in the last hour and a half.  Along with it
came most tech stocks, including AZPN.  The $20 level represented
a base on Tuesday and Wednesday, but today's close breached that.
Look for market direction tomorrow from the NASDAQ and enter on
intraday spikes up.  Remember, with a three-day holiday weekend 
coming up, don't expect a lot of buying.  Note key technical 
levels mentioned above.

BUY PUT JUN-25*ZQP-RE OI=80 at $6.00 SL=6.00 
BUY PUT JUN-20 ZQP-RD OI= 5 at $2.69 SL=3.00

Average Daily Volume = 294 K


A One-Day Wonder!

Wednesday, May 24

The markets rallied today as investors returned to scene of the
recent battlefield where the Nasdaq was pummeled to a new yearly
low.  The Dow Jones Industrial Average rebounded 113 points to
10,535 and the Nasdaq Composite bounced back 106 points to 3270.
The S&P 500 Index recovered 25 points to close at 1399.  Volumes
were the heaviest this month with 1.14 billion shares exchanged
on the Big Board.  Breadth was relatively neutral with declines
and advances almost even.  Volume on the Nasdaq climbed to 2.08
billion shares but declines outpaced advances 2,493 to 1,620.
Treasury prices weakened a little as stocks improved.  The U.S.
30-year bond fell 14/32 to 100 21/32, lifting its yield to 6.19%.

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

Best Foods     BFO   JUN50P/JUN55P   $0.75   credit   bull-put
Southdown      SDW   JUN50P/JUN55P   $0.50   credit   bull-put
U.S. Bancorp   USB   DEC20C/JUN27C   $5.88   debit    diagonal

The volatile market provided favorable entry opportunities for
each of our new positions.  The U.S. Bancorp diagonal spread
opened at a slightly lower than expected debit and the Southdown
credit spread was based on a (9 contract) trade observed during
the session.

Portfolio plays:

All of the major indices finished the session positive today in
a dramatic rally that marked the end of a week-long slump.  The
Nasdaq's turnaround was surprising after the index reached a new
low for year in the morning session.  Trading volume increased
during the recovery leading a number of analysts to suggest the
move was a reliable technical rebound.  Internet shares led the
way with online auctioneer eBay (EBAY) rallying $14 and software
provider Inktomi (INKT) up almost $10 at $111.  Intel (INTC) was
a top performer among both market gauges while Minnesota Mining &
Manufacturing (MMM) and Johnson & Johnson (JNJ) bolstered the Dow.
In the broad market, weakness in retail stocks offset gains in
airline issues.  Costco Wholesale (COST), the #1 U.S. wholesaler
missed analyst's estimates and forecast lower future earnings but
the friendly skies were active following news of a mega-merger in
the industry.  United Airlines (UAL) agreed to acquire US Airways
Group (U) for $4.3 billion, or $60 per share in cash.  Among the
popular sectors; computer, networking, agricultural products and
biotechnology issues gained ground while investment banking and
industrial power producer issues consolidated.
Our portfolio enjoyed gains in a number of slumping issues and
the majority of positions benefited from the bullish session.
Johnson & Johnson  (JNJ) was a big mover in the Major Drug group,
up almost $3 to a recent high near $90.  Our long-term position
is at maximum profit with the stock in this price range.  Finance
and Insurance stocks also participated in the rally.  Allstate was
the top performer in that sector rising $1.31 to $30.  The issue
is almost $8 above our break-even price.  Bank One (ONE), Mattel,
(MAT), Nabisco (NGH), National Service (NSI), and Summit Bancorp,
(SUB) also moved higher during the day.  In the technology group,
Covad Communications (COVD) recovered some of its recent losses.
The share value rose $1.68 to close just below $25.  Excite@home
(ATHM) was also on the move, rebounding off technical support to
close at $19.

Sunday's new diagonal spread candidate, Pep Boys (PBY) traded in
a wide range during the session.  The volatile activity provided
a previously unavailable entry at the suggested target debit of
$2.12.  It appears that we should revise our optimistic outlook on
SCM Microsystems (SCMM).  The issue showed little upside potential
today and did not participate in the technical recovery rally.  In
fact, the issue actually closed down another $4.  Looking back, we
should have made an adjustment during Tuesday's session when the
issue broke below a recent trading range.  Regrettably, we cannot
track every issue as well as we should and thus excessive losses
occasionally occur when they might normally have been prevented.
To reduce the closing debit, we are going to buy-back the short
option first and hope for a continued downward trend.  When the
issue begins to recover, we will sell the long option to end the
play.  Our current debit is $10.38 and the initial target will be
a break-even exit.

Thursday, May 25

The market retreated today with the Dow leading the way amid a
sell-off in financial issues.  The industrial average tumbled 211
points to close at 10,323 while the Nasdaq Composite dropped 65
points to end at 3205.  The S&P 500 Index fell 17 points to 1381.
Breadth ended in negative territory on the Big Board as declines
led advances 1,602 to 1,273 on volume of 979 million shares.  The
Nasdaq was only slightly better in breadth with volume reaching
1.57 billion shares.  Bond prices soared as funds departed the
equity market.  The 30-year bond strengthened 1-5/32, with the
yield down to 6.11%.

Portfolio plays:

The market retreated today after the small recovery in technology
stocks resulted in a sell-off in the industrial groups.  During the
morning session, hi-tech companies rebounded as investors rotated
into issues that have tumbled in the past few weeks.  The recovery
was short lived however, as interest rate worries overcame the new
optimistic outlook.  The market was negatively affected by today's
Commerce Department report that the economy grew vigorously at an
annual rate of 5.4% during the first quarter.  Analysts were also
concerned with the results of an inflation gauge tied to the gross
domestic product, which rose at an annual rate of 3.1% in the first
quarter.  Most experts anticipated a slightly larger increase but
the news did little to help slumping equities.  Now the consensus
expectation is a period of choppy trading with no clear leadership
from any one sector.

Our portfolio actually performed quite well considering the bearish
activity.  Ciena (CIEN) and Ditech (DITC) led the technology group
with substantial rallies.  Both issues ended almost $7 higher with
bargain-hunting retail investors supporting the recovery.  Sepracor
(SEPR) led the Major Drug sector, up $3.31 on strength in a small
group of biotechnology stocks.  Media companies also recovered from
the recent drought.  Clear Channel (CCU) rose $1.88 to $72.75 and
AM-FM (AFM) ended $1.75 higher at 66.50.  Our selection in the this
pair was the more-conservative spread in AFM (JUN-$55P/$60P) but it
appears both positions have a favorable probability of a profitable
outcome.  The big mover in the small-cap category was Andrew (ANDW).
The stock rallied over $3, continuing last week's bullish break-out
and moving to within a few cents of a new all-time high.  Vodaphone
(VOD) was also on the move, rising $1.62 in the fourth consecutive
day of gains.  The stock is trading at $41.40 and our long-term
position achieves maximum profit at $45.  Boston Scientific (BSX)
deserves honorable mention.  After suffering through two weeks of
selling, the issue rebounded today after the company announced that
it has received U.S. Food and Drug Administration (FDA) approval to
market the NIROYAL Advance Coronary Monorail Stent System.  Today's
approval paves the way for global acceptance of BSX's gold-coated
technologies and other competitive products, specifically the
NIROYAL Elite stent system.

We had an unfortunate surprise in one of our new calendar spread
positions.  National Service Industries (NSI) announced that it
expects diluted earnings per share for the third quarter to be
lower than anticipated.  EPS is expected to be $0.50 to $0.55 in
the third quarter compared to $0.75 for the same period last year.
This revised forecast is primarily due to lower-than-anticipated
operating profits in the company's lighting equipment segment.
The envelope segment is also contributing to this shortfall.  Our
initial reaction was to close the long position for a small loss
and wait for the expiration of the (short) $25 call.  The company
plans to report quarterly results on June 27, after this month's
expiration.  There is little chance the issue will regain it's
previous momentum in the short-term.

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

This week I received two new requests for conservative positions
utilizing time-selling strategies.  The simplest way to profit
from the erosion of time is a horizontal (calendar) spread.  The
basic premise in a horizontal spread is simple; time erodes the
value of the near-term option at a faster rate than it will the
far-term option.  In most cases, it is best to establish this
type of spread at least 2 - 3 months before the long position
expires, capitalizing on the ability to sell another option
against the longer-term position.  With an extended time frame,
the probability of a successful outcome increases substantially.
CPB - Campbell's Soup  $31.00  *** Mmmm, Mmmm, Good! ***

Campbell Soup Company together with its consolidated subsidiaries
is a global manufacturer and marketer of high quality, branded
convenience food products. Campbell's operates in three business
segments: Soup and Sauces, Biscuits and Confectionery, and Away
From Home.  The Soup and Sauces segment includes the worldwide
soup businesses, Prego spaghetti sauce, Franco-American pastas
and gravies, Pace Mexican foods, Swanson broths, Home Pride
sauces in the United Kingdom and the V8 and V8 Splash beverage
business.  The Biscuits and Confectionery segment includes the
Pepperidge Farm, Godiva and Arnotts Limited businesses.  The
Away From Home segment represents products, including Campbell's
soups, Pace Tabletop picante and Campbell's Specialty Kitchens
entrees, that are distributed to the food service and home meal
replacement markets.

The recent activity in the Food & Beverage Group has created new
interest in a number of well-known issues.  The option premiums
and the recent technical history are favorable for a neutral to
slightly bullish time-selling position.  With current resistance
near $33, a break-out appears unlikely but in the event it occurs,
the indications will be obvious and there should be little
difficulty in making the adjustment to a bullish position.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  AUG-32.50  CPB-HZ  OI=1027  A=$2.00
SELL CALL  JUN-32.50  CPB-FZ  OI=651   B=$0.88

Chart =
BEAM - Summit Technology  $12.44  *** New FDA Approval! ***

Summit Technology is engaged in the business of vision correction,
and in the selling of contact lenses and related products.  BEAM
is a leading developer, manufacturer and marketer of ophthalmic
laser systems and related products designed to correct common
vision disorders such as nearsightedness, farsightedness and
astigmatism.  In the vision correction segment, the company
develops, manufactures, sells and services ophthalmic laser
systems, or Excimer Systems, and related products designed to
correct common refractive vision disorders with a procedure
known as Laser Vision Correction.  BEAM also services laser
systems and related products to correct vision disorders and
collects per procedure license fees from users of its systems.
Through Lens Express, the company fulfills new orders of
contact lenses and reorders of contact lenses, and is engaged
in program sales, sales of eye care solutions, lens case sales,
sunglass sales, membership and vitamin sales.  Autonomous, a
wholly owned subsidiary, is engaged in the development of
next-generation excimer laser instruments for laser refractive

The company has enjoyed a number of positive announcements in
the past week and yesterday the issue rallied to a recent high
after receiving approval to market the LADARVision system in
the European Economic Area.  The EEA is formed by a group of
fifteen Member States and encompasses much of the Western
portion of the continent.  The approval will help the company
establish a strong international presence and is the first
step to implementing their European marketing strategy.  This
announcement follows the recent news of the U.S. Food and Drug
Administration permitting BEAM to market its CustomCornea
Measurement Device in the United States.  The CustomCornea
Measurement Device is designed to measure, record, analyze and
display visual aberrations in a patient's eye.

Traders applauded the news and implied volatility in options
remained high as the stock rallied Wednesday.  The volume in
call options has also increased and the small disparity in
front-month premium will allow us to speculate on the future
of the issue with a favorable, long-term position.  Last year's
consolidation area near $15-$17 should provide ample resistance
for a position adjustment in the event of a short-term rally.

PLAY (aggressive - bullish/calendar spread):

BUY  CALL  SEP-15  BAQ-IC  OI=2358  A=$2.62
SELL CALL  JUN-15  BAQ-FC  OI=5703  B=$0.68

Chart =

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