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Daily Newsletter, Tuesday, 05/30/2000

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The Option Investor Newsletter                Tuesday 5-30-2000
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)
******************************************************************
       5-30-2000           High     Low     Volume Advance Decline
DOW    10527.10 + 227.90 10528.10 10302.30   842,043k 2,019    919
Nasdaq  3459.48 + 254.37  3460.24  3286.54 1,457,529k 2,724  1,303
S&P-100  761.42 +  25.34   761.42   739.53    Totals  4,743  2,222
S&P-500 1422.45 +  44.43  1422.45  1382.65            68.1%  31.9%
$RUT     476.70 +  19.33   476.70   457.37
$TRAN   2741.70 +  54.15  2742.60  2687.25
VIX       26.53 -   0.96    28.07    26.38
Put/Call Ratio       .43
******************************************************************

Is is real or is it Memorex?

Most of the younger investors today are too young to understand
the headline above so a more appropriate title might be, "Is it
a real rally or an incredible bear trap?" The analogy is the same.
Either option could easily be true or false. Only one is real!
The "summer rally", (don't hold your breath), as they are calling
it came right on schedule according to media pundits. Whose
schedule? My email is full of gloom and doom articles from readers
over the weekend showing the bull to be dead and disaster ahead.
If the world of market timers was predicting disaster last week
then who was forecasting a summer rally to start today?
Nobody I know!








To me the term summer rally means a protracted time of rising
markets occurring during the summer. It does not mean a one-day
oversold bounce the day after Memorial Day. Don't get me wrong,
I would love to think this was the start of a multiday rally.
Even the term sounds foreign, "multiday." It seems like forever
since we had positive gains on the Nasdaq for multiple days.
We should have had a bounce today. The constant selling pressure
from the last two weeks, with only a couple of up days, had
put the Nasdaq into a strongly oversold position and the bounce
was due.

Even the stronger than expected Consumer Confidence Report this
morning had no impact on the already strong futures. Traders
who left early last week for the holiday came back with a desire
to trade and the Nasdaq gapped open +100 points and never looked
back. The key here of course, is can it hold.

One of the positive news events moving the market today was the
initiation of coverage on INTC by Dan Niles. Dan moved from Bank
Boston, Robertson Stevens to Lehman Brothers and his closely
followed semiconductor recommendations were transferred as well.
The semiconductor sector soared with RMBS adding +25, INTC +8,
AMD +11, MU +4, XLNX +8, TQNT +13, PMCS +21, AMCC +13, BRCM +13.
Absolutely incredible!

Brokerage stocks rallied after Goldman Sachs analyst Richard
Strauss upgraded the sector. MER +3, LEH +4, were the leaders.
Citing evidence of slowing due to Fed hikes he said these
stocks typically bottom one month before the market and he
thought the Fed was almost done with rate increases. The
slow down in big ticket items and autos is a result of the
hikes and with each hike requiring 6-12 months to be felt,
the six hikes since last summer still have 6-9 months to
work their way through the system. The Fed has not raised
rates seven times since 1994. Many analysts are now expecting
only a +.25% hike on June-28th and they expect that to be
the last hike. Lets hope they are right. With consumer spending
at the lowest rate since last July the ripple down into reduced
sales, layoffs, reduced productivity and finally higher wage
costs as a result will impact stock prices as well.

We are moving into the earnings warning period where Fed
watchers will be looking for further evidence of rate hike
impact. If the rate hikes are working then this warning
season will be rocky as companies began disclosing profit
problems. Several major warnings could trip this rally up
really fast. Defensive stocks circled the wagons today but
they still gave up some of their gains from last week.

New Home Sales will be announced tomorrow and the estimates
are for a drop of -3.2%. If this comes in much stronger
then the fear of the Fed could start creeping back into
the market. The big reports are the NAPM on Thursday and
the Non-farm payrolls on Friday. This could cause stagnation
as cautious traders move back to the sidelines before the
report.

Many analysts are chalking up much of today's rally to short
covering. With pessimism strong last week many speculators
had gotten short with the idea that the Dow would break
10300 to the downside. The rally today was on very weak
volume of only 1.4 bln on the Nasdaq and only 842 mln on
the NYSE. Advance/decliners were positive 2:1 but without
any real volume there is much skepticism about the record
gain. Today was the largest percentage gain ever at +7.35%
and only below the previous record point gain of +254.41
by -.04 at 254.37.  Clearly a strong gain even if the volume
was weak. Futures for tomorrow have traded on both sides
of positive but traders are hopeful for a continued rally.
The S&P posted its seventh largest gain at +44.40.

If investors decided it was for real there is plenty of
cash on the sidelines. Mary is reporting in her article
tonoght that there is $1.68 trillion in cash which could
be put to work if the owners felt positive about the
markets. I think it is going to take more than one day
of strong gains to convince them. After two months of
twice as many down days as up days the multiple bear
trap rallies have bitten the hands that feed the market.
The pace of funds returning to the markets is likely to
start out as a trickle until after the Payroll Report
on Friday. Once investors feel confident there are no
surprises there and feel like the Fed is about done then
cash will appear by the billions to power the bull again.

Before you start feeling too optimistic I should warn you
that there are some long term trends which are still unbroken.
The Dow is still down trending as well as the Nasdaq. The
channel on the Nasdaq is showing a top at about 3500 which
is only 41 points from the close. Technicians will be watching
the open closely tomorrow. One analyst told me that to
confirm the reversal he wanted to see an open above today's
close and a close above today's close. We could trade down
intraday but the open and close had to be higher to confirm.
The upside on the Dow could come anywhere between now,
10527, and 10700. A close over 11000 would be first
confirmation of a breakout and a close 11400 would be
very strong.

In reality, this had better be the real thing. Another
breakdown after today would be met with a really pessimistic
outlook for the rest of the summer. There are only so
many times that trader optimism can be dashed without
making cynics of us all. Remember we never retested the
lows from last week and with earnings warnings and the
Fed ahead the markets have a huge wall of worry to climb.
On the positive side many big caps appeared to have put
in a bottom. GE and CSCO for instance are uptrending
again.

Trade the winners, avoid the losers, watch for a roll over
on the $SPX or the $NDX. The S&P-500 ($SPX) has strong
resistance at 1460 and the Nasdaq-100 ($NDX) has resistance
at 3466. Be prepared to close long positions if either has
trouble breaking those levels.

The Houston 2 day, Technical Analysis, Stock and Option
seminar is this week (thr/fri) and we still have seats
available.  We guarantee you will not be disappointed. The
class size is only 20 so you will get plenty of individual
attention from Chris Verhaegh and the staff. At less than the
cost of a bad trade you can learn how to analyze stocks and
trade options like the pros. Don't wait, do it now.
http://www.OptionInvestor.com/seminar/seminar.asp

Good luck and sell too soon.

Jim Brown
Editor


Current long positions include:

NOK, VOD, VIGN, MSFT, MLNM

Yep! In meetings today, missed the open and decided to
wait to see if it held. Cussed myself all afternoon.



**************
SEMINAR UPDATE
**************

A PHD Course For Traders
By Austin Passamonte

It was mid-February here in western New York and the weather
was awful, maybe even worse than that. Wendy had seen enough
cold & snow for awhile and approached me about an impromptu
trip to someplace warm (read that as hot). After pondering
this for a bit I told her that although it sounded good, I
didn't want to take time away from trading and was still a bit
burnt out from extensive travel I did in Canada last year.
With disappointment on her part, the subject was dropped.

Not even two weeks later I spotted the chance to grab a last-
minute seat at an upcoming investment seminar.  Without a
moment's hesitation I whipped out the credit card and loaded
up on a dose of higher education. By the time I booked airfare
from Rochester, NY to Denver and garnered the very last room
available in the conference center my card was saddled almost
$4500. Then I informed Wendy.

"You're going where for what?" she replied. "I thought you
didn't want to go anywhere or do anything...just sit in that
office & trade!" "Well, that's true Wen" I responded, "except
this is an education I cannot afford to miss. With the profits
gleaned from what I intend to learn there, you can book that
2 week trip to Hawaii we've been pondering for next February."
Tall words on my part, but fancy footwork was in order to
sooth the savage spouse. Oh, she groused to family & friends
how a week in the sand & surf with her was spurned for days
spent in frigid Denver with complete strangers. Still, she
completely understood the my reasoning although the promise
of Hawaii certainly tipped the scale for her blessings!

Understand that I've traded futures and stocks for years and
was having solid success in the option's arena as well. To be
honest, I considered myself a bit more knowledgeable than the
average Joe. I expected to learn a bunch but wasn't prepared
for the magnitude of reality.

To say I learned a few things is a gross understatement. My
new level of understanding and advanced tactics learned would
have taken me several years of daily trial & error to figure
out. I don't mind the trial part of that; it's the error bit
that scares me. Each bad trade is a lesson learned but at
what price? How many of these lessons can any of us afford
before the learning curve becomes straight?

Those few days of intensive lessons sent me light-years ahead
in my career. I was able to parlay a combination of things
learned in class to a paid trip to Hawaii and much more.
What price can be placed on a lifetime of application of
tactics learned today? How much is the sum total of missed
gains that could accrue through trading methods learned now
instead of later(if ever)? I wonder.

Which leads me to the point. No doubt you have noticed the
invitation to attend one of these trading seminars listed
here. I'd like to share with you my unsolicited opinion of
what it has to offer you.

I believe that a course similar to the one I attended has
something to teach 99% of the traders out there. I don't
care how many year's experience or millions in profits racked
up, most every trader alive will walk away having garnered
their money's worth and then some.

As a matter of fact, I shared breakfasts and lunches with
tables of different attendees every day. A few of them were
actually brokers and high-dollar guys with eight-figure
accounts. Every single one of those successful types were
absolutely gushing over how much they gleaned from this event.
If it meant that much to them, how important was it for me
to be present?

There is only so much detail a book or videotape can cover
concerning market basics. My bookshelves sag beneath a good
number of volumes yet countless points were covered at this
event contained in none of them. Little things like splitting
bids, order execution and numerous other tidbits were brought
up many times off the cuff. Paying strict attention to details
and taking copious quantities of notes isn't a maybe. it is a
must!

Many large cities are on the seminar event's tour. If you live
within reasonable range of one and are even half-serious about
being the best trader you possibly can, I strongly encourage
you to attend. It is impossible to know what you do not know
and you will never reach your maximum without learning the
tactics and tools taught there. Maybe you feel you know all of
them now, maybe you don't. How long will it take you to discover
them on your own, and at what price from drawdowns or profits
missed will that be?

I can honestly attest that many of the lessons learned there
have helped me greatly to survive and even prosper during the
latest market challenges. Perhaps you have done well too, but
how much better might that have been with a few more tools
under your belt?

It never ceases to amaze me how some people are willing and
even anxious to spend a mass fortune and several years of their
life to attend college, yet turn down the opportunity for a
condensed course that may offer far greater monetary returns.

Does that describe you? Do you feel that years in college are
of value but a three day seminar is not or do you take
advantage of every chance for education to better yourself and
your skills? I have a feeling if you hold the latter opinion
your future account balance may serve as living proof to the
phrase of "information is golden".

Fill your mind with knowledge and it shall fill your purse
beyond overflowing with coins!



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

Let Summer Begin!

Memorial Day turned out to be relief, as investors didn't have to
worry about their stock portfolios for at least one more day.
However, there must have been some really good barbecues across
the country, as investors lined up for a technology stock
smorgasbord Tuesday. The main dish over the weekend must have
been crème-de-bear, as investors sent the NASDAQ up 7.94% for a
new percentage-gain record. This move eclipsed even the 7.3% gain
on Oct. 21, 1987, when the market rebounded from Black Monday!
Volume was not as great as many would have liked, as the NASDAQ
traded just over 1.46 billion while the Dow was just short of 900
million. Regardless, this was a good way to let summer begin!

One major positive in today's action was that the generals led
the way. Leadership has been extremely poor recently, but today's
move was extremely impressive. Leaders such as Intel (+8), Oracle
(+7), Sun Microsystems (+6 ¾), and Applied Materials (+10 5/8),
all had stellar days on decent volume. We witnessed a nice
reversal in Qualcomm (+10), and were impressed by the moves of
Ciena (+21), SDLI (+24), and PMC Sierra (+21) as well. What this
points to again is the fact that the bears are quick to run and
hide, and the bulls (who have been accumulating cash on the
sidelines) are getting ready to pull the trigger. With short
interest nearing record levels as well as the increase in money
market reserves, a squeeze could easily propel this market
significantly higher. However, the recent trend in this market is
to sell into any strength, and we would imagine that some traders
did just that today. Many will be watching tomorrow's action with
close scrutiny, as a follow through will be pertinent before buy
decisions are executed. If we can show strength tomorrow, this
will be a week to remember. If not, it is just another day within
a very volatile year.


BULLISH Signs:

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 (26.53):
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
numbers.


BEARISH Signs:

Interest Rates (6.086):
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:
$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                        (5/26)      (5/30)       (6/1)
*****************************************************************

Overhead Resistance (775-800)     4.26        5.25
Overhead Resistance (745-770)     1.20        1.29

OEX Close                       736.08      761.42

Underlying Support  (715-740)     2.85        2.97
Underlying Support  (680-710)    22.80       24.78

What the Pinnacle Index is telling us:
OTM overhead resistance is strong, indicating that the OEX has a
good chance of failing at that level. Both underlying support
levels continue to gather strength, which may indicate that we
have reached a bottom. However, the OEX put/call ratio was 0.60
today, indicating the bulls were on a buying spree. This further
supports the fact that the OEX may stall at the OTM resistance
level.


Put/Call Ratio
*****************************************************************
                                Friday      Tues       Thurs
Strike/Contracts                (5/26)      (5/30)     (6/1)
*****************************************************************


CBOE Total P/C Ratio             .65        .43
CBOE Equity P/C Ratio            .61        .36
OEX P/C Ratio                   1.20        .60


Peak Open Interest (OEX)
*****************************************************************
                     Friday          Tues            Thurs
Strike/Contracts     (5/26)         (5/30)           (6/1)
*****************************************************************

Puts                740 / 7,555    740 / 7,788
Calls               800 / 6,388    800 / 6,680
Put/Call Ratio        1.20           1.17



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

May 30, 2000                            26.53



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

As of Market Close - Tuesday, May 30, 2000

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

DOW Industrials   10,200  11,400  10,527    Neutral   5.05
SPX S&P 500        1,350   1,500   1,422    Neutral   5.30 **
OEX S&P 100          725     800     761    Neutral   5.30 **
RUT Russell 2000     450     550     477    Neutral   5.05
NDX NASD 100       3,000   4,000   3,414    Neutral   5.30 **
MSH High Tech        800   1,000     922    Neutral   5.30 **

XCI Hardware       1,250   1,600   1,388    Neutral   5.30 **
CWX Software       1,050   1,300   1,209    Neutral   5.30 **
SOX Semiconductor    850   1,200   1,010    Neutral   5.30 **
NWX Networking       900   1,100   1,041    Neutral   5.05
INX Internet         500     800     558    Neutral   5.30 **

BIX Banking          530     600     594    Neutral   5.11
XBD Brokerage        400     500     428    Neutral   5.05
IUX Insurance        540     620     636    BULLISH   5.16

RLX Retail           900   1,000     846    BEARISH   5.23
DRG Drug             355     400     390    Neutral   4.28
HCX Healthcare       710     800     793    Neutral   4.28
XAL Airline          140     155     158    BULLISH   5.25
OIX Oil & Gas        265     300     306    BULLISH   5.11

Posture Alert
The NASDAQ was hitting on all cylinders today, as the index set a
record for largest percentage gain with a 7.94% advance. This move
eclipsed even the 7.3% gain on Oct. 21, 1987, when the market
rebounded from Black Monday! Leading the way today was
Semiconductors (+11.07%), Software (+10.76%), and the NASDAQ 100
(+10.08%). With this most recent surge, we have upgraded (S&P 100,
S&P 500, NASDAQ 100, Morgan Stanley High Tech, Hardware,
Software, Semiconductors, and Internet) to Neutral from Bearish.



***********
IN THE NEWS
***********

High Oil Prices Won't Last
By  S.P. Brown

A lot of folks were bummed this holiday weekend because of high
gasoline prices.  Getting to the beach or to the mountains
hasn't been this costly in years.  In fact, in most of the
country, low-octane petrol was trading for about $1.50 a
gallon, a 50 percent premium over what it was trading for this
time last year.

The high cost of getting there and back has many Americans
pointing an accusatory finger at the OPEC cartel, and with good
reason.  The OPEC nations have done a good job of manipulating
supplies to raise oil prices to over $30 a barrel.

No need to worry, though, the artificially high price won't
stick.  It can't.  In order to maintain a targeted price,
industry output must be held below the competitive price level.
However, when this happens, price exceeds marginal costs, which
means any given firm can increase its profits by selling a few
more items at a slightly lower price.

Of course, this increased output will tend to lower the price
and to reduce industry-wide profits.  Therefore, a member of a
cartel who cheats by increasing output beyond his allotted
share will reap all of the benefits from his action while
bearing only some of the costs.  In other words, the cheater
gets all the additional revenue from the increment to output,
whereas everybody shares the losses due to the fall in prices.

For a cartel to succeed, it needs an enforcement mechanism.
That is, it needs a way to monitor members' actions and a way
to punish those who cheat.

However, even though it lacks an enforcement mechanism with any
teeth, OPEC is often cited as an example of a successful cartel

The organization first flexed its price-setting muscles in the
early 1970s during the Arab-Israeli War.  Back then, the seven
Arab members of OPEC announced a cutback in production and the
first of a series of price increases that brought the world
market price from less than $3 to more than $12 a barrel.

At least part of the short-run success of OPEC back then could
be attributed to the role played by it most powerful member,
Saudi Arabia.  During the 1970s, Saudi Arabia, with one-third
of the cartel's productive reserves, allowed other members to
sell as much oil as they could produce at the going cartel
price while it reduced its own production to prevent a surplus.

This type of self-sacrifice could only go on for so long.  By
the early 1980s, the Saudis turned up the spigots and oil
prices dropped precipitously to $12 a barrel by 1986.

Still, does that mean OPEC could very well keep the price of
oil at $30 a barrel for years to come?

Don't count on it, at least not in this environment.  OPEC
members' propensity to cheat coupled with Federal Reserve
Chairman Greenspan's master plan to stall the economy could
easily pull the price of oil back below the $20 by the end of
the year, which is something to consider for those investors
who are planning on the price of Texas tea to hover around $30
a barrel market for an extended period of time.



*************
READERS WRITE
*************

Entry/exits on covered-calls with LEAPS

DEAR OIN;

Ok, I buy the leap when it is below intrinsic value and sell
the near term call when it has excessive time value in its
price.  Got it!  Now, please explain in english how a poor tyro
like myself goes about finding out what leaps are below intrinsic
value, and what near term calls have excessive time value!

Thanks

-------

Concerning Option Pricing and Fair Value:

The most important factors in option trading are market movement,
option volatility, and time decay. The knowledge of these concepts
is paramount to profitable trading and without a suitable basis,
you will likely enter the market at a theoretical disadvantage.
The first requirement is familiarity with option pricing. We have
the ability to measure the value of an option through mathematical
evaluation and if you aren't prone to formulas, pricing models
will help you determine the fair market value of an option. Many
of the established tools for pricing options are free and they
should be used before opening any position. In volatile issues,
the emotional optimism of traders can cause prices to vary widely
from their true worth. Without a realistic estimate of the value
of an option, you will often pay an excessive amount for the
rights inherent in the contract.  Remember, in the majority of
investment techniques, the end result is a product of what you
know, and how well you act upon it.

There are option volatility calculators at various sites on the
Internet.  One of the most popular (free) tools is at:

http://www.cboe.com/tools/optcalcu.htm

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 combinations
and spreads and the appropriate entry/exit/adjustment strategies.

Good Luck!



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

Is It Over Yet?
By Mary Redmond

If you look at the block transaction summary for last week, you
can see an interesting pattern.  On Monday, May 22 and Tuesday,
May 23 the markets were relatively slow.  On May 22, the
NYSE reported a total of 19,363 block transactions, with 4947
up ticks and 4519 down ticks.  (The rest of the blocks did not
have an up tick or a down tick.)  The NASDAQ reported 15,920
block trades with 5143 up ticks and 6100 down ticks.  Tuesday,
May 23 was a similar day with 19,371 block trades on the NYSE,
with 4741 up ticks and 4378 down ticks.  The NASDAQ reported
14,020 block trades with 4711 up ticks and 4677 down ticks.
Both of these days were down days in the market on both the Dow
and the NASDAQ, with relatively light volume.

Wednesday, May 24 was an optimistic day with high volume and a
strong percentage gain on both exchanges.  The NYSE had 26,477
block trades with 6587 up ticks and 5905 down ticks, and the
NASDAQ had 22,856 block trades with 7154 up ticks and 8928 down
ticks.  The Dow and the NASDAQ both gained over 100 points.

Thursday and Friday of last week were both relatively slow days
with light volume.  On Thursday 22,762 block trades were
reported on the NYSE and 17,589 block trades were reported on
the NASDAQ.  On Friday 15,722 block trades were reported on the
NYSE and 10,747 block trades were reported on the NASDAQ.  The
upticks and downticks on both days were nearly even, and both
indexes were down on both days.

The pattern you can discern from the block trades is that a
slight increase in the number of block trades can have an
enormous impact on stock prices.  This may be indicative of an
oversold market.  The old saying is, never short a dull market
because any good news or positive momentum can have a huge
impact.  In addition, last week Wednesday was an up day with
strong volume, and the rest were down days with weak volume.
The number of block trades was approximately 35% higher on the
NYSE on the up day, and approximately 56% higher on the NASDAQ.
This can be indicative that there aren't many sellers left and
that if institutional buyers come in, the market can run way up
in a short period of time.

If you look on the Investment Company Institute's web site, you
can see the amount of money which went into money market funds
last week.  Last week showed the largest weekly redemption of
equity mutual funds in a long time, and a lot of that money was
was deposited to money market funds.  The nation's retail money
market funds increased by $3.53 billion while the institutional
money market funds decreased by $4.93 billion.

There is no shortage of cash on the sidelines.  The ICI reported
that there is $1.68 trillion in cash in money market funds.  This
is an astonishing $1,680 billion dollars.  All we need is to have
a mere $20 or $30 billion a month go into the stock market and we
could see a huge percentage gain.

Although we did see a weekly redemption of equity funds last week
we have not seen a monthly redemption so far this year.  The
only month in the last nine years which showed a net redemption
was August of 1998.  That was a scary market to a lot of people
because the market had gone up from 1995 to 1998 without a major
correction.  In a few months, the Dow had dropped from over 9000
to under 7500, and the NASDAQ had dropped from 2000 to a low of
1500.

The situation is different now as it is different every time we
have a market correction.  However, I think it is likely that the
market is going to continue to astonish people in the rapidity of
movement and unprecedented volatility.  This is probably due to
the speed of transmission of information and the massive amounts
of money which enter and leave the market daily.  A lot of people
are flabbergasted at the monthly price movements we have seen,
and how quickly the high flyers corrected.

We know that sometimes you can use certain options strategies
to help offset some of the risks of buying stocks in this very
volatile market.  The simplest example of this is probably to
buy the stock and buy a put option on the same stock.  This way
if the stock crashes you can sell at the strike price of the
put and perhaps lose less money than you would have lost without
the put.  The problem is that put options can be expensive which
increases the cash outlay for the stock.  Some people write a
covered call and use the proceeds to help pay for a put.  This
can be a good strategy as long as you don't use a call and put
with the same strike price because this will net little profit.

If you look at a stock which has moved up over a few days or a
week sometimes you can write a call with a high strike price and
buy a put with a low strike price.  An example of this is a
trade I did Friday:  Buy 100 State Street at 113.8125, write a
July 120 STT call at 7.5 and buy a July 110 STT put at 8.125.
If you would like to own it for the long term, for example in an
IRA account, but you want to minimize your risk, this can be a
possible strategy.  In this particular example, the written call
pays for all except .625 of the put price.  If you are called away,
the profit (minus transaction fees) would be 120 - 114.43.  If the
stock drops catastrophically, you can exercise the put and sell
the stock for 110, a loss of 4.43 points.  This would be a minor
loss compared to the losses some people have experienced over the
last two months.

Contact Support


******

OEX Debit Spreads: Details, Details
By Austin Passamonte

As they say, the devil's in the details.  Let's dissect
one of my favorite strategies that's just about ready
to come into its own.

First of all, OEX index options are cash-settled American
style.  This means that upon expiration the value of your
position will either be worthless or settled in cash.  You
will not be assigned X number of S&P 100 futures contracts
as you might be assigned stocks when short those type of
securities.  This is good news.  Win or lose you will be
credited or debited cash only.

American-style means the options can be exercised at any
time during their lifespan.  European style options may only
be exercised at expiration.  Just like options on stocks,
OEX short options have the possibility of being exercised or
assigned in cash at any time.  This means if you were to write
a credit spread on the OEX and it moved against you, even for
a brief time, you stand the risk of having that short option
assigned to you.  The option you are long will be offset by
your broker, limiting your loss to the spread's maximum
downside.

Even though the risk is defined, I prefer to eliminate the
possibility of losing a position before I'm prepared to.
Therefore, I only write credit spreads on the SPX which is
European settled but that's another topic we'll save for the
future.

So, debit spreads only for the OEX, now what?

To begin with, I only look at spreads within the final
two weeks before expiration.  Time decay for OTM option
contracts withers and shrinks the extrinsic premiums in
our favor.

For example, if you would have bought the June 720/710 put
debit spread on Monday, May 22nd, it would have cost you 3.67
while the OEX index closed at 753.  As of market's open today,
the same June 720/710 put spread sold for 3 or less even as the
underlying index was now trading near 736.  Had you bought that
spread one week earlier the index would now be 17 points lower
but your put spread worth LESS than what you paid for it!  Timing
is everything, for sure.

I refuse to pay more than 3.50 to purchase a debit spread with
10 point profit potential.  That means looking for spread
premiums between 1.50 and 3.50 that have a reasonable chance of
the long option being in-the-money by or before expiration.
The conventional way to do this would be running probability
equations based on historical and implied volatility.  That
isn't what I do, although I'd encourage you to pursue this if
you choose.

I maintain a daily trade journal which records the price
levels and true ranges of the Dow, NASDAQ, S&P 500, OEX
and QQQ.  Based upon recent price behavior, technical
analysis, fundamental news events and "gut instinct," I
attempt to forecast which direction and how far the markets
may move.  Tall order, isn't it?  Thankfully I give myself
a week or two leeway for such to happen.

The other part of spread trading for me is that the entire
position must either become profitable or expire worthless.
At the entry point, time value has eroded deeply and when the
index moves against me, the spread quickly decays to nothing.
This means I only risk as much capital as I'm willing to lose
entirely.

I arrive at that sum by deciding how much I'd be willing to
risk on a stop if I took a directional play buying calls or
puts.  When following Skybox methodology, I commonly give up
$250 to $300 drawdown per option to non-performing trades.

Think about it.  We take a directional trade, our stop is hit
and the loss is limited and small.  However, that money is now
lost to us forever.  For gosh sakes, I love taking small losses
instead of holding on for big ones!  Yet, if we use the exact
same amount that would've been jeopardized on a stop to now
buy debit spreads, it is a no-lose scenario.

Let's say you would have bought five OEX options in either
direction today.  You had better be protecting with stops, and
that amount might be up to $300 with slippage.  If the index
moves in your favor, profits will grow.  If it moves against you
and the stop is hit, you are out of the trade with a $1500 loss.
Even if the market later reverses and moves in your favor, you're
now on the sidelines wishing you were in.

What if you took that $1500 you're willing to lose on a stop and
use most to all of that for OEX debit spreads in the same
direction?  If you wait until the last two weeks of option
life or less, they can be bought cheaply enough to offer a 3/1
or even 5/1 profit-loss leverage.

Using the June 720/710 put example, if you bought five spreads
on 5/30 for asking price of 3, you spent the same $1500 that
would have been lost on a stop out in a put play if the OEX
rallied.  However, you will stay alive in this trade for two
more weeks.  Would you agree that a lot can happen to the
markets in two weeks lately?

If the index never trades into 720 or less, you lose the entire
$1500 just like you would on a stop out.  But, if the market
dives below 720 anytime before June 16th expiration, your spreads
have value.  Should the OEX move deeply or close anywhere below
the 710 level each spread will be worth up to $1,000.  That is
an impressive return on the $1500 capital used for this play
that would have otherwise been earmarked for total loss on a
plain put purchase instead.  Can you see the staying power and
leverage that debit spreads offer us now that they are
affordable?

I will buy debit spreads up to the day before expiration,
adjusting only for price and likelihood of profit potential.
Again, I never pay more than 3.50 per spread because I want to
preserve my 3/1 or greater profit leverage.  This ensures that
I can use the same strategy each month and win at least one
out of every three months to be profitable at year's end.  I
usually buy spreads at 2.00 to 2.50 premium for a 10 point
profit potential.  They can be commonly found during expiration
week for those contracts.

Common reasoning states we have one in three odds of
winning these trades.  The index can either move against us,
stay flat/fail to reach our profit point, or move into the
profit.  Basic one out of three odds.  Reality is we can
increase our chances greatly by forecasting the general market
direction.  The closer we are to expiration, the better that
guess might be.  Yet, with a shorter time frame comes a smaller
margin for error.

Tomorrow, we will cap this subject off by discussing how to
select the right play, the manner in which to enter the trade
and what to do next.  We'll talk about brokerage features,
premium prices, market guessing via information supplied
within OIN and how to handle the massive windfalls if we're
right!

Have fun and we'll see you then.



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

Index      Last     Tue    Week
Dow    10527.13  227.89  227.89
Nasdaq  3459.48  254.37  254.37
$OEX     761.42   25.34   25.34
$SPX    1422.45   44.43   44.43
$RUT     476.70   19.33   19.33
$TRAN   2741.70   54.15   54.15
$VIX      26.53   -0.96   -0.96

Calls               Tue    Week

CHKP     188.75   26.25   26.25  "Best Partnering Alliance" award
RMBS     188.25   25.25   25.25  Straight into orbit!
SDLI     221.88   24.13   24.13  If you stuck around on Friday.
CIEN     121.50   21.81   21.81  Bullishness came to fruition
TQNT      96.94   13.78   13.78  Breakout alert!!
SCMR      90.00   13.50   13.50  Unless you are a brave soul.
AMCC     103.13   13.44   13.44  Semi sector moved this higher
ITWO     105.94   10.44   10.44  Smooth sailing above $108
RBAK      82.31   10.25   10.25  Never got a pullback
ADI       75.00    7.06    7.06  New, strength all the way to close
EXDS      67.88    5.88    5.88  Technical breakout welcome
YHOO     117.00    4.94    4.94  On fire hitting $120 midday
SEPR      94.25    3.06    3.06  Needs to hurdle resistance $96
DNA      104.50    1.88    1.88  Arms crossed, feet tapping
ABT       41.00   -0.56   -0.56  Dropped, one-two punch

Puts

CL        54.13   -1.63   -1.63  New, old economy put
TRW       48.06    0.06    0.06  Rally?  What rally?
ICIX      25.94    1.00    1.00  Red alert for a reversal
NTOP      28.00    1.50    1.50  Dropped, earnings tomorrow
HLIT      41.00    3.00    3.00  Walking on the tightrope
PCLN      39.25    3.13    3.13  Lack of volume could mean rollover
DCLK      44.56    3.44    3.44  Problems mount with a downgrade
ANAD      31.63    3.81    3.81  Dropped, detrimental rally
EXTR      48.13    4.06    4.06  Signs of life creeping back
FDRY      61.00    6.00    6.00  Dropped, all good things end
INCY      57.13    8.06    8.06  Dropped, time to go


PICKS WE 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.


CALLS:
*****

ABT $41.13 -0.56 (-0.56) The one-two punch at the $44 resistance
level last Wednesday foreshadowed today's knockout in the call
ring.  ABT failed to bounce off the ropes at the 5 and 10 DMAs
Instead it cowered under the technicals.  Our optimism faded
when this momentum play didn't move in a positive, clear-cut
direction amid the rallying markets.  This isn't the behavior of
a winner!  Consequently ABT made early retirement tonight.  It's
possible the resurfaced news concerning the company's trouble
with the FDA about its failure to comply with manufacturing
standards for medical tests over a six-year history was a
crucial factor in today's session.  The banned test kits
represented $250 mln, or 8% a year in total sales.


PUTS:
*****

ANAD $31.63 +3.81 (+3.81) The broad tech rally, particularly in
the chip sector, proved to be detrimental to our put play.  The
bullish news reported by SDLI last Friday carried over the long
weekend and into Tuesday's trading, sending the entire semi
sector into rally mode.  Investors forgot about their bearish
ways from last week and turned extremely bullish on the whole
group.  ANAD's rally came on convincing volume as traders
exchanged nearly three times the stock's ADV, en route to an
impressive 13% gain.  If you still have profits in the play,
it's time to lock them in and sell too soon!

FDRY $61.00 +6.00 (+6.00) It is said that all good things must
come to an end.  That's the case with this play.  As we said
this weekend, you had to wonder just how low FDRY could go. It
looks like at least for now we have our answer.  Foundry gained
just over 10% today.  The volume behind the move was better than
we've seen lately.  Has this one turned the corner?  We can't
say for sure, but it would appear as though a short-term bottom
has been put in.  There was no news from the company, but the
sentiment towards FDRY and the broad markets may be changing.
This is a stock that declined over 75% in the past couple of
months, which seems to have found some new found enthusiasm.
Since being added to our list of puts, FDRY has treated us
very well, but for now its time to move on.

INCY $57.13 +8.06 (+8.06) "Unless, the rest of the sector takes
off on Tuesday, don't bet on INCY getting much over $50."
Remember that from Sunday?  WRONG!!  The whole sector took off
and never looked back, while INCY opened at $50 and moved up to
$52.  There was no rollover, which demonstrated that INCY was
going to move with the rest of the sector.  Darn it!  Not only
did it move with the sector, it blew clean through $52 resistance
in the last hour, blasting up to $57 in the final five minutes
of trading.  While there may be some early morning profit taking
tomorrow, thus lowering the price, consider using any pullback
to make an exit if you haven't already done so.  It's trading
moments like these that make stop orders absolutely necessary.

NTOP $28.00 +1.50 (+1.50) After the market tomorrow, Net2Phone
is reporting 1Q earnings.  Therefore consider closing out any
open positions just in case this event causes an upsurge off
these bargain-basement prices.  Plus take a look at today's
activity.  NTOP closed smack on its resistance level and to
top it off, this was a mere quarter fraction away from the
intraday high.  Generally speaking this type of behavior is
considered rather bullish.  Therefore we've got two good reasons
to move on to other put plays.  The earnings' release is
tomorrow and there's a strong possibility that NTOP may be
finding this current level above the 5-dma ($26.43) just too
comfortable.  The big issue about new telecom taxes isn't
likely to go away too soon though.  NTOP, along with Vocal-
Tech Communications (VOCL), I-Link (ILNK), and Firetalk
Communications (http://www.firetalk.com ) are sponsoring an
Internet Freedom Rally - Free Concert on the Capitol Building
Steps In Washington, DC on June 11th to draw attention to its
plight.



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DISCLAIMER
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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
investor in making an informed decision regarding trading in
options. It is possible at this or some subsequent date, the
editor and staff of The Option Investor Newsletter may own,
buy or sell securities presented. All investors should consult
a qualified professional before trading in any security. The
information provided has been obtained from sources deemed
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely
information to its subscribers but cannot guarantee specific
delivery times due to factors beyond our control.


The Option Investor Newsletter             Thursday 5-30-2000
Copyright 2000, All rights reserved.                   2 of 2
Redistribution in any form strictly prohibited.

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********************
PLAY UPDATES - CALLS
********************

AMCC $103.13 +13.44 (+13.44) Leading the market higher today,
Semiconductor stocks had their best day since April 17th.  AMCC
wasn't to be left out and managed to tack on an impressive
$13.44.  Even in light of the light volume on the major
exchanges, AMCC managed to trade slightly more than its ADV.
The strong move today takes the stock above the $100-102
resistance level and right up to the upper edge of the
descending wedge we talked about on the weekend.  If the
recovery is for real, we should see a strong breakout through
the next level of resistance at $108, which would also
represent a breakout from the wedge pattern mentioned above.
The late day action was very encouraging as volume ramped up
right into the close, and if the market and sector strength
continues for more than a day, AMCC could be in for a nice
run.  Consider new entries on a volume-backed bounce from the
$100 level as a good opportunity to enter on strength.  More
attractive entry points could present themselves in the form
of an intraday dip to the $94 level.  This Semiconductor stock 
will have wide daily swings, so evaluate your risk profile 
accordingly before playing.

TQNT $96.94 +13.78 (+13.78) Breakout alert!  Last weekend, we
indicated that many Semiconductor stocks looked like they were
getting ready to break out of their descending wedge patterns.
TQNT did so in a big way today, tacking on almost $14, and
spending the entire day above the upper edge of its wedge.  The
fly in the ointment though is still volume.  For such a strong
gain, it was disappointing to see less than average volume, and
we are concerned about a pullback if there is no follow through
tomorrow.  Conversely, the intraday volume picture is much
rosier, as volume strengthened continuously throughout the
afternoon, indicating strong buying interest.  The late-day
strength pushed the issue through near-term resistance at $95,
and aggressive investors may want to jump in if TQNT can use
this level as support tomorrow.  Consider a bounce at intraday
support ($90) or stronger support ($85, then $80) as an
opportunity to enter the play at a better price, but keep your
eye on the volume.  It will be key to the strength and longevity
of any move; ignore it at your own peril.

ITWO $105.94 +10.44 (+10.44) ITWO extended its gains from last
Friday by gapping higher by $5 Tuesday morning.  And the momentum
built throughout the day as ITWO cruised past its various
resistance levels.  Traders were encouraged to buy ITWO from John
Hancock Technology fund manager, Marc Klee.  In an interview
during the Monday holiday, Klee said that he likes ITWO more than
its B-2-B brethren, CMRC and ARBA.  Klee also noted that ITWO's
$1 bln in revenues presents more upside potential in the stock
than downside risk.  The bullish comments combined with a broad
rally in the software sector boosted ITWO into rally mode.  From
here, ITWO doesn't have much resistance above, but some minor
congestion at $108.  We might see smooth sailing to $120 if ITWO
can clear that last hurdle.  Consider an entry at current levels
if you can take on more risk, otherwise, wait for a bold move
above $108.  Watch direction in the sector with stocks like ORCL,
VRTS, and CMRC to confirm that the rally is here to stay.

CIEN $121.50 +21.81 (+21.81) Our bullishness in CIEN came to
fruition Tuesday.  The strong technical base formed last week
combined with the bullish outlook for business in China provided
enough catalyst for the stock to clear congestion and rally
sharply higher.  Several financial journals published bullish
articles over the weekend about the prospects for tech companies
in China.  IDC, a tech research firm, issued a report stating
that China currently has 3.2 mln Internet users, and analysts
expect that number to grow to 25 mln by 2003!  Analysts believe
that the potential for communications infrastructure companies,
such as CIEN, is huge.  Those bullish reports helped CIEN to
breakout from its basing price and close Tuesday's session near
its day high.  The rally in the stock came on impressive volume
as traders exchanged nearly 10 mln shares.  Feel free to enter
the play at current levels if the momentum carries over into
Wednesday's trading.  But make sure to set your trailing stops
after entering the play, after Tuesday's run-up, CIEN doesn't
have much support below.

SEPR $94.25 +3.06 (+3.06) The momentum returned to the Biotech
sector Tuesday.  The AMEX Biotech Index ($BTK) rose 8.3% on the
back of the broad market rally.  And SEPR's momentum may build
as traders gear up for the Investors Boston Biotechnology Stocks
Forum, beginning Monday, June 5th.  SEPR is scheduled to be a
keynote presenter at the gathering.  Additionally, analysts from
Boston-based SG Cowen & Co will offer insight into the latest
trends and developments in the biotech arena.  Despite the broad
rally in the Biotech sector Tuesday, SEPR was unable to breakout
from its bottom head-and-shoulders basing pattern.  The stock did
gap higher by $2.50 Tuesday morning, but fell short of hurdling
resistance at $96.  In the coming days, watch closely for SEPR 
to break away from congestion, and to boldly move above $96.  A 
move above that level might precede an extended rally for SEPR.  
Make sure to confirm a breakout with heavy volume!

SDLI $221.88 +24.13 (+24.13) If you stuck around Friday and
opened a position in SDLI then after today you deserve a pat on
the back.  SDLI soared today adding over 10% to its pre-holiday
close.  While the broader market saw the volume remain a bit
light, investors traded over 9.0 million shares of SDLI.  Our
play got a boost after announcing it had extended its contract
with JDS Uniphase.  Under the deal the two will continue to swap
optical networking gear.  SDL will provide grating-stabilized
980 mm pump lasers to JDSU for its erbium doped fiber amplifiers.
The analysts were busy today as well.  Analysts at Credit Suisse
First Boston reiterated their Buy rating, while the folks at 
DLJ maintained their Buy rating, but upped their earnings
estimates and price target from $210 to $250 per share.  Max
Schuetz at Thomas Weisel partners raised his rating of SDL 
from a Buy To a Strong Buy.  So where do we go from here?  Most
indications point higher.  Today's gap higher could see some
back-filling to support near the $200 area.  Intraday support
shows up near $213 as well.  A bounce off either, as long as it's
accompanied by good volume could provide an attractive entry
for our play.

RMBS $188.25 +25.25 (+25.25) Well this one didn't bounce off
support at $160, it flat went into orbit.  Today's 15.5% gain
came on the heels of an upgrade of many of the stocks in the
chip sector by an influential analyst at Lehman Brothers.  No
company specific news to speak of, just the upgrades and an
improved investor sentiment as traders returned to Wall Street.
We certainly don't want to dismiss today's move, although would
point out the volume was somewhat lighter than we would like to
have seen.  Keep in mind however, RMBS could continue to climb
the ladder with or without volume.  The last thirty minutes 
today, RMBS had more buyers step up to the plate, driving the 
price to $188.50.  Closing near its high of the day is a definite 
plus.  If we see profit taking on Wednesday, a pullback to the 
$180 or $175 area followed by a bounce could provide a good 
entry for new plays.
       
CHKP $188.75 +26.25 (+26.25) Ok, so we are back at the top of the
trading range we mentioned this weekend.  While we believed CHKP
would move higher, we honestly didn't expect it to occur in just
one day.  As with many of the Nasdaq stocks, CHKP finished the
session going out near its high of the day.  Granted one day
does not make a trend, but this could be the beginning of
breakout to levels not seen since March.  The volume today was
better than average with 1.9 million shares changing hands,
which would certainly suggest continued momentum to the upside.
Technically support is now found near $175, which happens to
coincide with its 100-dma.  After today's 16% move traders may
choose to put some money in the bank, so bounces of intraday
support could prove to be a good entry point for new positions.
Although not a market moving press release, CHKP did announce
today that Software Business magazine has awarded the company
the "Best Partnering Alliance" across the entire software
industry for its Open Platform for Security Alliance. 

YHOO $117.00 +4.94 (+4.94) Our play took off like it was on
fire hitting $120 by midday.  It looked as though our sleeping
giant had begun to wake up.  While we won't throw rocks at a 
gain of better than 4%, we would like to have seen more follow-
through at the end of the day.  Early in the afternoon, YHOO
began to drift sideways to lower, as the Nasdaq continued to
gain momentum.  This is not necessarily a negative, as continued
strength in the tech area could bring buyers back to some of the
more solid Internet issues.  On a more positive note, our new 
play did move through and hold the $116 area of support mentioned
in this weekend's write-up.  The volume was a bit light as well,
however the recent market environment may have many traders 
feeling "snake-bit".  Investors may require more "proof" that
the bullish sentiment seen today is for real before they lay
anymore money on the line.  There are actually several minor
areas of support between $112 and $116.  A bounce off those
levels could be a good entry point for those that didn't enter
today.  In the news, Yahoo! signed a content services agreement 
with Scholastic Inc., which will provide appropriate news and 
entertainment stories for children.  

SCMR $90.00 +13.50 (+13.50) Unless you are a brave soul, you 
never got a buying opportunity since it opened at $81.  Once it 
cleared $84 and showed increasing volume two hours before the 
close, aggressive traders might have wanted to take a position.  
If they did, they've been rewarded so far.  The powerful move at 
day's end was backed by strong unrelenting volume, putting 
today's total volume at 21% over the ADV.  It also moved SCMR 
much more quickly to that $90 level of resistance from which we 
would look for a breakout of the ascending wedge.  If today is 
any indication, we'd SCMR to break through tomorrow.  Careful 
though.  Such a big move in one day is susceptible to profit 
taking and could easily send shares back to congestion in the $88 
area or even down to previous support in the $83 range.  
Conservative traders may consider buying the breakout over $90, 
however, we suggest waiting for a pullback to your favorite level 
of support before getting in.

RBAK $82.31 +10.25 (+10.25) Just like SCMR, this networking 
equipment company got traction right from the start this morning 
never giving us a pullback in which to make an entry.  After a 
stretch to $81 in the first hour and a half of trading, intraday 
support came at $79 with congestion around $80 for most of the 
day.  $80 is a level of previous long-term resistance that became 
pivotal in today's trading.  Will it or won't it hold?  If the 
afternoon held any clues, it was that RBAK steadily powered up, 
effectively clearing resistance and telegraphing to us that $80 
might become support once again.  While RBAK looks technically 
positive on the chart, it may yet see a pullback given that the 
huge one-day point gain.  Keep your stops in place if you jumped 
in today.  Otherwise, we think a dip to $78 might make a good 
entry.  Just make sure you see a good bounce first.  If there 
is no bounce, start looking back to $73 or find another trade.

DNA $104.50 +1.88 (+1.88) Just like you might do when cross with 
your kids for failing to pick up their room, we're standing 
around with our arms crossed and collective feet tapping the 
floor.  Despite it gaining a shade under $2, we're slightly 
disappointed with DNA's performance today give the rally in the 
market and the biotech sector.  Lack of volume (only 76% of the 
ADV) confirms the lack of interest that helps explain today's 
direction-less trading.  If it weren't for the last 15 minutes of 
trading, DNA would have suffered a loss.  Supposing that tomorrow 
will be a follow through of today's rally, buying at the current 
level or even at $100 support might make a good entry.  However, 
if today's rally was just a dead cat bounce and DNA drops under 
$97 with a failed rally tomorrow, consider passing up DNA.  A 
return of money to the sector would be a welcome sign too.

EXDS $67.88 +5.88 (+5.88) The pessimists say the volume wasn't 
there to back the rally.  Well let's take this disposition 
closer to home.  Yes it's a fact, Exodus's trading volume wasn't 
quite up to par (ADV = 7.63 mln) today.  However it was 
respectable enough at 4.9 mln shares exchanging hands to 
indicate there may be more to come.  EXDS opened above the 5-dma 
runway and took flight advancing the share price 9.5%.  Its 
strong momentum importantly pushed it through the $69 mark and 
the 10-dma (now at $68.49).  Over the past couple weeks, the 
latter indicator acted as a resistance top on the downtrend. 
EXDS was added as a momentum/recovery play over the weekend.  
We're looking for it to spike up after tumbling to what we 
consider a bottom.  Last Wednesday EXDS slid to a bargain 
hunter's dream price of $52.50 and so, our bets are on a 
recovery.  Accordingly this technical breakout is certainly 
a welcome factor.  Some enterprising traders may have begun 
opening positions today, however the more cautious should wait 
for definitive moves through $70 on more robust volume.  In 
the news today, Vigil Technologies announced it selected 
Exodus Communications to provide Internet hosting and management 
for e-Sense(TM), Vigil's online intelligence solution.


*******************
PLAY UPDATES - PUTS
*******************

EXTR $48.13 +4.06 (+4.06) Signs of life finally began to creep
into EXTR towards the end of the today's session.  The broad
market strength gave the stock a bump at the open, and after
meandering around the $46.50 level for most of the day, buyers
began to get the upper hand and EXTR moved up into the close
on increasing volume.  The late-day gain pushed the share price
above the 5-dma ($46.75) for the first time since may 17th.
The recent weakness has been driven by investor disappointment
with the company's recent quarterly report, which cautioned
about "rapid erosion of average selling prices" which will
inevitably affect gross margins.  Near term resistance is found
at $50, and if buyers cannot push through this level, consider
entering new positions as the stock rolls over.  The low from
last Friday ($42.50) is very close to the all time low of
$37.13, and today's move may indicate support forming near
this level.

TRW $48.06 +0.06 (+0.06) Rally?  What rally?  The resurgence
in the broad markets today left TRW out in the cold.  Trading
in a range of less than $1, the stock was unable to take
advantage of any of the upward momentum found throughout the
market as investors came back from the holiday weekend in a
buying mood.  Although nearly the average number of shares
traded hands, buyers and sellers battled to a virtual
standstill, and this likely portends more weakness if today's
market strength is short lived.  Resting on support at $48,
TRW is still well below the 5-dma (up at $50.13), and its
inability to move higher today is a good sign for our play.
If this support level fails to hold, consider opening new
positions for a ride down to the next support level between
$41-42.  Intraday resistance near $48.50 today was as much
of a bounce as the stock could manage.  Catching a rebound to
the 5-dma could provide a better entry as TRW rolls over, but
in light of today's lack of interest, we may not get that
lucky.  Remember that volume is the key - use it to confirm
the strength of any move before playing.

DCLK $44.56 +3.44 (+3.44) DCLK's problems mounted Tuesday as
Wit Soundview downgraded the stock from a Buy to a Hold.  DCLK
not only faces litigation over privacy issues on the Internet,
but analysts see a continued decline in advertising spending on
the Web.  Citing the weakness seen in April spending continued
into May.  Analysts said that advertising had been strong in the
past year due to the dot.com blossom, but spending has slowed in
the last two months.  If that weren't enough, B of A Securities
lowered their revenue estimates for DCLK, citing the weakness at
the low-end of the online advertising market.  The slew of bad
news pushed DCLK briefly below support at $40 Tuesday.  But the
broad tech rally proved to be too tempting for traders as they
bid DCLK higher.  However, Tuesday's rally might be a good entry
in light of the bearish outlook for DCLK.  Wait for DCLK to bump
against resistance at $45, and turn south.  Look for an entry 
as sellers return to the stock and downward momentum drags the 
stock below $43.

ICIX $25.94 +1.00 (+1.00) Well the market sentiment was 
impressive across the board, but ICIX didn't follow the lead. 
Besides which ICIX didn't even raise it's eyes to take a gander 
at the 10-dma ($29.89) overhead.  Remember a move towards this 
technical line should put you on red alert for a reversal!  At 
this point though, the 5-dma ($26.81) is developing as a more 
pronounced measurement device for entry/exit.  Be prudent in 
your strategy.  A strong enough tech rally could easily bring 
more buyers off the sidelines and upset this stock's downtrend.    

HLIT $41.00 +3.00 (+3.00) Ok now we're walking the tightrope and 
there's no safety net.  So what's a put trader to do amid strong 
rallying conditions?  In this case, if you have open positions 
use the 10-dma as an ABSOLUTE "time to get out!" stop.  The 
$3.00, or 7.8% advance in robust trading today left HLIT closer 
to the 5-dma ($39.08), which is reasonably a good sign.  However 
before opening new plays, HLIT must slide back under this mark 
to demonstrate it can indeed return to the downward course.  The 
good news, from a technical viewpoint, is that the current level 
may be evolving as a line of resistance.  Still don't be fooled 
and end up caught in a strong updraft. 

PCLN $39.25 +3.13 (+3.13) If today's rally wasn't a headfake, a 
move back over $40 might end this play.  However, we suspect 
given the lack of market volume accompanying today's market gain, 
we could see a rollover...in which case, PCLN's finish today 
could make for a good entry price tomorrow.  Over the past four 
trading days, $40 has proven to be good resistance.  However, if 
the market continues to rally, PCLN will get dragged upward with 
it (though kicking and screaming).  The long term potential of 
this put play is still great given what we think is PCLN's flawed 
business model.  That said, today's late afternoon move over 
opening resistance at $38 conveys that there may be some strength 
in PCLN tomorrow.  It will then be important to keep your stops 
set so you don't give back any profits in this (so far) great 
play.  If you are a bit more conservative, you may want to wait 
for a drop under $37.25 (5-dma) or even $36 (recent historical 
support) before taking a position.  While a Trademark 
infringement lawsuit filed against them today stemming from 
unauthorized use of the "Name your own price" slogan may not look 
good, it's unlikely to affect the play.  Keep your stops set and 
let PCLN come to you before making your entry.



**************
NEW CALL PLAYS 
**************

ADI - Analog Devices $75.00 +7.06 (+7.06 for the week)

ADI is a semiconductor company.  They design, manufacture, and 
market analog and digital integrated circuits (ICs) including 
digital signal processors.  Most of the company's components 
are used by original equipment manufacturers (OEMs) and include 
such clients as 3Com, Hewlett-Packard, and Electrolux.  Analog 
Devices has operations in the US, the Philippines, Taiwan, 
and Ireland.

ADI is back on the starting line and revved up to take the fast-
track!  The DOW topped 227 pts by the finish and the tech-laden 
Nasdaq pushed higher at 254 points.  And there was ADI, gunning 
her accelerator to keep a lead position amongst the chip stocks.  
After beating the consensus estimate by a landslide on May 17th 
by coming in at $0.32 versus the expected $0.28, ADI's share 
price struggled.  The following day it did pinnacle at $75.31 
although this was likely the result of two upgrades.  Chase H&Q 
boosted ADI to a Strong Buy from Buy and Adams Harkness upped 
its rating to a Trading Buy from Accumulate.  But even so, ADI 
was to see an intraday low of $61 by May 24th before perking up 
today.  As was the case in earlier attempts to rally, ADI kept 
bumping into fierce opposition near $70.  But today was clearly 
a different scenario.  After a strong start, ADI made its way 
down the track at $72 and then sprinted forward at top speed for 
a winning close on its daily high.  Why the sudden upsurge?  
Well as stated earlier, the broad market rally and favored 
sector today were pertinent factors.  Plus ADI was in the 
news announcing various product enhancement, which is always 
welcoming to investors.  Technically too, the breakout above the 
50-dma ($71.41) is promising; although it's important that ADI 
maintain a strong stance above this line in the near-term.  Take 
a look at a two-month chart and you can visually confirm its 
importance.  A slide back under could signal a head-fake.  
Nevertheless, we have confidence ADI is poised for a strong 
momentum run in a cooperating market.  The ultimate choice is 
yours, but in consideration of the caution many traders are 
taking before opening call positions, wait for positive bounces 
off this level before starting new plays.   

Analog Devices announced today the release of a new product, the 
OP7x7.  It's the first family of high-voltage, bipolar-precision 
amplifiers and is ideally suited for an ever-widening variety 
of low-voltage equipment.  The company also unveiled two new 
broadband CATV line drivers which promises a low-cost solution 
for reverse-path data transmission in interactive digital cable 
terminals.  And finally, ADI released the AD8343, a monolithic, 
double-balanced, active device that provides wide bandwidth 
on all ports that delivers the industry's lowest level of 
distortion up to 2.5 GHz.  But wait, there was more to add to 
its cache of news.  Analog Devices came forward with another 
leading industry solution, the ADSP-21ESP202, a programmable 
full-duplex speech processing solution on a single chip.

BUY CALL JUN-70 AKI-FN OI=2993 at $7.00 SL=5.25
BUY CALL JUN-75*AKI-FO OI=1123 at $4.50 SL=2.75
BUY CALL JUN-80 AKI-FP OI= 836 at $2.56 SL=1.25
BUY CALL JUL-75 AKI-GO OI=  14 at $8.25 SL=6.25
BUY CALL JUL-80 AKI-GP OI= 122 at $6.25 SL=4.50

Picked on May 30th at    $75.00    P/E = 82
Change since picked       +0.00    52-week high=$94.69
Analysts Ratings     11-8-1-0-0    52-week low =$19.09
Last earnings 03/00   est= 0.28    actual= 0.32
Next earnings 08-16   est= 0.37    versus= 0.15
Average Daily Volume = 2.52 mln
/charts/charts.asp?symbol=ADI



*************
NEW PUT PLAYS 
*************

CL - Colgate Palmolive $54.13 -1.63 (-1.63 this week)

Colgate-Palmolive is the #1 seller of toothpaste and a world
leader in oral care products.  Colgate is also a major supplier
of personal care products (baby care, deodorants, shampoos, and
soaps).  Its Palmolive is a leading dishwashing soap brand
worldwide.  In household cleaning products (bleaches, laundry
products, and soaps), Colgate is a top producer of bleach and
liquid surface cleaners (including Ajax).  Foreign sales account
for about 80% of Colgate's total revenues.

Read the last line of CL's company description one more time.
That's right, foreign sales account for 80% of the company's
sales.  The strong dollar and the weak euro are slicing into
CL's revenues.  With interest rates steadily climbing, economists
expect the dollar to strengthen.  Which bodes poorly for any
company that does a substantial portion of business outside the
US.  We need look no further than the multinational Gillette (G),
who last week said that because of the weakening euro the company
lowered revenue estimates.  Not only does CL face macro-economic
difficulties abroad, the company has to contend with stiff
competition back home.  Procter & Gamble (PG) is taking CL head-
on in the cutthroat toothpaste market.  PG had lost market share
with its Crest brand to CL, but the company plans to release an
improved version that it hopes will convince consumers to switch
from CL's brand.  Also, analysts point out that although CL has
managed consistent earnings growth, the company achieved it
through the less lustrous practice of cost-cutting, and not
revenue growth.  Additionally, analysts feel that with a multiple
of 36 times earnings CL is fairly valued considering its 13%
growth rate.  And with the threats of a weakening euro and
intense competition from PG, CL's 13% earnings growth may be in
trouble.  G's announcement last week added fuel to CL's downward
momentum, culminating with a failure of support at $55 during
Tuesday's trading.  The chart reveals that CL has support levels
just below at $52.50 and again at $50.  Watch for the selling to
continue in the coming days, and target shoot for entry points as
CL falls through its various support levels.

BUY PUT JUN-60*CL-RL OI=160 at $6.25 SL=4.50
BUY PUT JUN-55 CL-RK OI=950 at $2.50 SL=1.25 

Average Daily Volume = 2.23 mln
/charts/charts.asp?symbol=CL



**********************
PLAY OF THE DAY - CALL
**********************

DNA - Genentech $104.38 +1.75 (+1.75 this week)

Headquartered in South San Francisco, Genentech, Inc., is a 
leading biotechnology company that discovers, develops, 
manufactures and markets human pharmaceuticals to treat life-
threatening medical conditions such as heart attack, stroke, and 
breast cancer.  Genentech markets seven products directly in the 
United States. They also manufacture and market seven protein-
based pharmaceuticals, and licenses several others to other 
companies.  They are the Big Kahuna of the biotech industry.
 
Most Recent Write-Up

Just like you might do when cross with your kids for failing to
pick up their room, we're standing around with our arms crossed
and collective feet tapping the floor.  Despite it gaining a
shade under $2, we're slightly disappointed with DNA's 
performance today give the rally in the market and the biotech
sector.  Lack of volume (only 76% of the ADV) confirms the lack
of interest that helps explain today's directionless trading.  If
it weren't for the last 15 minutes of trading, DNA would have
suffered a loss.  Supposing that tomorrow will be a follow 
through of today's rally, buying at the current level or even at
$100 support might make a good entry.  However, if today's rally
was just a dead cat bounce and DNA drops under $97 with a failed
rally tomorrow, consider passing up DNA.  A return of money to 
the sector would be a welcome sign too.

Comments

Today was quite impressive as money flowed back into the tech 
sector and the NASDAQ.  Many stocks posted double-digit 
percentage gains.  DNA managed to hold throughout the day and 
spiked up in the final moments of trading for a modest gain.  
With so many stocks with large gains, a rotation into some that
were left behind today may be next.  DNA may be one of these.  
Look for intraday resistance at $105.  A move through that level
with volume would be a confirmation of strength.  Entry can also
be made on intraday dips.  Watch the NASDAQ for direction 
tomorrow.

BUY CALL JUN- 95 DNA-FS OI=  12 at $13.38 SL=10.75
BUY CALL JUN-100*DNA-FT OI=1176 at $ 9.88 SL= 7.50
BUY CALL JUN-105 DNA-FA OI=  53 at $ 7.38 SL= 5.50
BUY CALL JUL-105 DNA-GA OI= 791 at $11.75 SL= 9.25
BUY CALL SEP-110 DNA-IB OI= 427 at $15.38 SL=12.00

SELL PUT JUN- 95 DNA-RS OI= 246 at $ 3.38 SL= 5.50
(See risks of selling puts in play legend)

Picked on May 28th at  $102.63     P/E = N/A
Change since picked      +1.75     52-week high=$245.00
Analysts Ratings     4-6-3-0-0     52-week low =$ 58.25
Last earnings 04/00  est=-0.04     actual= 0.04  
Next earnings 07-12  est= 0.29     versus= 0.28
Average Daily Volume = 1.2 mln
/charts/charts.asp?symbol=DNA



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

Memorial Holiday Produces Positive Results!

Tuesday, May 30
 
The market rallied today on strength in technology issues and
speculation in the telecom industry.  The Dow surged 227 points
to 10,527 and the Nasdaq soared 254 points to 3459.  The S&P 500
Index rose 44 points to 1422.  Volume on the NYSE was relatively
light at 841 million shares, while trade on the Nasdaq was solid
at 1.45 billion shares.  Treasury markets gave back some ground
with the 30-year bond slipping 16/32 to yield 6.09%.


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

J.P. Morgan     JPM   JUN145C/140C   $0.50   credit   bear-call
Temple Inland   TIN   JUN60C/55C     $0.62   credit   bear-call
BenchMark       BHE   JUN45C/50C     $0.56   credit   bear-call
Aetna           AET   JAN65C/JUN65C  $7.12   debit    calendar
MedImmune       MEDI  JAN190C/110P   $2.25   credit   strangle

The majority of our new positions offered favorable entries during
the session.  Aetna was the only issue that failed to provide the
target debit on a simultaneous order basis.  Although the stock
fell to a low of $62.38 in afternoon trading, the observed debit
did not move below $7.12.  We will monitor the position during the
next few days for a better entry opportunity.


Portfolio plays:

The market soared today as bargain-hunting investors returned from
the holiday weekend with an optimistic outlook.  Technology stocks
led the gains but industrial issues and broad market indicators
were also positive.  Today's surge in equities came despite a new
economic report that suggested the Federal Reserve's interest rate
hikes have failed to deter consumer sentiment.  Confidence in the
economy sharply in May, approaching an all-time high set earlier
in the year.  Traders chose to ignore the bullish data and look
ahead to additional reports due out later this week.  On Thursday,
the National Association of Purchasing Management will issue data
on activity in the industrial economy and the U.S. Labor Department
will issue its May employment report the following day.

Industry leaders came back in force today with high-profile stocks
leading the way.  Companies that have been under selling pressure
in recent weeks rebounded in force.  Ciena (CIEN) was our portfolio
leader, up $22 to close near a recent high at $121 after announcing
plans to manufacture optical components in a massive plant north of
Boston.  The plant will be Cisco's largest facility and is expected
to be up and running by year-end.  The move represents a strategic
shift for Cisco, a company that has boasted about its ability to
outsource its manufacturing needs, rather than build the technology
required to offer leading-edge products.  Cisco has become a Wall
Street favorite based on a mastery of the networking domain.  The
company's routers, the electronic traffic boxes that connect one 
computer system to another, have become the heart of the Internet.
But analysts have found fault in Cisco's future, notably a glaring
weakness in optical-networking equipment at a time when networking
companies are developing equipment to transition from electronics
to optics.  It remains to be seen whether Cisco can make the move
before it's too late.

The telecommunications sector received a lift today.  News that
France Telecom is buying Britain's Orange from Vodafone Air Touch
for $37 billion in cash and stock boosted the group.  The buyout
helped Vodafone Air Touch (VOD) climb $4.25 to $46.25 and raised
speculation that more global mergers will follow in the telecom
industry.  Our long-term position in VOD is near maximum profit
(with the stock at $45) and we expect the issue to stabilize in
that range.  A number of telecom stocks made surprising moves.
Andrew (ANDW) rallied $2.62 to end near $35 and a new all-time
high while Covad Communications (COVD) recovered $2.75 to close
at $26.  The bullish diagonal spread in Andrew is trading near
maximum profit and Covad is now exhibiting signs of a potential
rally.  Other small-cap technology issues that participated in
the upside activity included Boston Scientific (BSX), Cabletron
(CS), Excite@Home (ATHM), and Network Associates (NETA).

Questions & comments on spreads/combos to Click here to email Ray Cummins
******************************************************************
                       - READERS REQUEST -

Today we received two new requests; one for a spread play in Adac
Labs (ADAC) and another for bullish positions on small-cap issues
in the Financial Services Group.  These plays are based on the
current price or trading range of the underlying issue and the
recent technical history or trend.  News and market sentiment will
have an effect on these issues.  Review each play individually and
make your own decision about the future outcome of the position.
******************************************************************
ADAC - ADAC Laboratories  $18.25  *** A New Trading Range? ***

ADAC Laboratories designs, develops, manufactures, and services
medical imaging equipment and radiation therapy planning and
healthcare information software systems used in hospitals and
clinics worldwide.  ADAC is the world market-share leader in
nuclear medicine and radiation therapy planning systems, and a
dominant technology provider for clinical workflow solutions,
management information and knowledge systems to healthcare
organizations in North America.  Their Medical Systems business
designs and develops nuclear medicine cameras and computers
capable of performing single photon and tomography imaging.  Its
Radiation Therapy Products business unit designs and supports
turnkey radiation therapy planning systems that assist hospital
radiation oncology departments and cancer treatment centers in
planning patient treatments.  The Health Care Information unit
develops, markets and supports integrated solutions consisting
of computer equipment and software applications that offer
healthcare providers the necessary tools to process and archive
patient and clinical information.

There have been a number of favorable announcements for ADAC;
improving earnings, contract agreements, new products, and an
upgrade from Warburg Dillon Reed.  Fundamentally, the company
is on track but our position is based on a bullish technical
outlook.  The stock has climbed steadily from last year's low,
recently moving to a new, 52-week high and the current rally
shows little signs of weakening.  This spread provides a large
return potential at relatively low cost.


PLAY (aggressive - bullish/diagonal spread):

BUY  CALL  AUG-17.50  OI=69  A=$3.38
SELL CALL  JUL-20.00  OI=30  B=$1.81
INITIAL NET DEBIT TARGET=$1.38  INITIAL TARGET ROI=81%

Chart =
/charts/charts.asp?symbol=ADAC
******************************************************************
GSB - Golden State Bancorp  $17.62  *** LEAPS/CC's ***

Golden State Bancorp is a holding company whose only significant
asset is its ownership of all of the common stock of Golden State
Holdings, which owns all of the common stock of California Federal
Bank, a Federal Savings Bank. Golden State provides diversified
financial services to consumers and small businesses in California
and Nevada.  The company's principal business includes operating
retail branches that provide deposit products such as demand,
transaction and savings accounts, and investment products such as
mutual funds, annuities and insurance.  In addition, GSB engages
in mortgage banking activities; originating and purchasing unit
residential loans for sale to various investors in the secondary
market or for retention in its own portfolio, and servicing loans
for itself and others.  To a lesser extent, the company originates
and/or purchases commercial real estate, commercial and consumer
loans for investment.

The recent rally in Bank and Savings and Loans stocks has been
driven in large part by money pulled from the technology industry.
Investors are interested in companies that have earnings and book
value and with speculation that the Fed may be nearing the end of
this year's rate increases, there is hope for a recovery in the
group.  If and when the "inflation-fighting" hikes are over, the
financial sector should rebound and this low risk position is one
way to speculate on that outcome.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  JAN01-20  GSB-AD  OI=10    A=$2.06
SELL CALL  JUL00-20  GSB-GD  OI=1044  B=$0.38
MAXIMUM INITIAL NET DEBIT=$1.50  TARGET ROI=50%

Chart =
/charts/charts.asp?symbol=GSB
******************************************************************
KEY - KeyCorp  $21.00  *** On The Rebound! ***

KeyCorp is an integrated multi-line financial services company
with consolidated total assets near $100 billion.  KeyCorp's
subsidiaries provide a wide range of investment management,
retail and commercial banking, consumer finance and investment
banking products and services to corporate, individual and
institutional clients through four lines of business: Key Retail
Banking, Key Specialty Finance, Key Corporate Capital and Key
Capital Partners.  These services are provided across much of
the country through banking subsidiaries operating almost 1000
full-service branches.

The technical outlook for this position is also favorable but
there is a bit of a twist.  Firstar (FSTR) could be preparing a
takeover of a large Midwestern rival, a deal that would make the
Milwaukee-based institution one of the nation's 10 largest banks
and end the acquisitions drought that has plagued the financial
sector for over a year.  Firstar's acquisition targets include
KeyCorp and if that speculation ends in the near-term future,
this play may become less favorable.

 
PLAY (aggressive - bullish/diagonal spread):

BUY  CALL  SEP-20.00  KEY-ID  OI=1593  A=$2.68
SELL CALL  JUL-22.50  KEY-GX  OI=12    B=$0.75
INITIAL NET DEBIT TARGET=$1.75-$1.81  INITIAL TARGET ROI=42%

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



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************
See Disclaimer in section one
************

DISCLAIMER

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

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