Option Investor

Daily Newsletter, Wednesday, 05/31/2000

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The Option Investor Newsletter                Wednesday  5-31-2000
Copyright 2000, All rights reserved.
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
       5-31-2000           High     Low     Volume Advance Decline
DOW    10522.30 -   4.80 10599.40 10490.80   955,780k 1,722  1,263
Nasdaq  3400.91 -  58.57  3501.51  3399.62 1,526,723k 1,952  2,092
S&P-100  761.55 +   0.13   769.49   757.92    Totals  3,674  3,355
S&P-500 1420.60 -   1.85  1434.49  1415.50            52.3%  47.7%
$RUT     476.18 -   0.52   481.63   476.18
$TRAN   2709.99 -  31.71  2749.78  2709.99
VIX       26.57 +   0.04    27.17    26.15
Put/Call Ratio       .49

Technicals, Not Talk, Tell The Story

Talk, talk, talk, talk.  That's all we hear all day long on CNBC.
Is it a "Summer Rally" or "Summer Doldrums"?  Or is it April
showers brings May flowers?  As the talking heads continue to do
what they do best, we try to see how many stupid catch phrases
they spew out.  Well, now that May has come and gone, we can look
back and say that the markets weren't too rosy for the month.
In assessing the markets over that time, some cry bear and others
just cry.  The hype has driven many mad and the truth is that
no one has really shed any light.  So the only thing left to due
is look at the technicals.  They provide the true story behind
all of the trading and allow you to draw your own conclusions.

After yesterday's overly impressive rally in which the NASDAQ
had its biggest percentage gain ever, I thought for sure that it
would sell-off today.  As much as I wanted to believe that most
of the sellers had already been shaken out, the trend has shown
us that where there are buyers, there are sellers.  Not to take
anything away from the rally, but as Jim mentioned in his wrap
yesterday, the key question is can it hold?  Investors and market
watchers were eagerly watching today's trading for a sign of
follow-through.  Obviously, we would have liked to have seen
increasing volume and a strong advance through 3500.  Yet, after
just touching that level an hour and a half into the session, the
NASDAQ rolled over and traded in a narrow range, only to give up
in the final hour.  We had our chance today to breakout of this
downtrending channel, but not enough money was convinced to make
this the day.

This trend is nothing to balk at.  It is a controlling trend that
has frightened quite a few people.  Noting the regression channel
that the NASDAQ has been trading in since last testing the 4000
level, you can see the resistance and support levels clearly.
Today, the sellers lined up at 3500 and proved that it was
formidable resistance.  It looked as if the NASDAQ could have
gone either way into the close, but it just didn't feel right.
Another dip toward the middle of the range may be in the future,
and we will once again be watching for volume to return with the
buyers.  Without it, breaking this trend may be more difficult
than these summer optimists think.

I know, I know.  I said it.  Volume.  It was once again at the
center of discussion today, yet with a little bit of a twist.
For the past month, everyone on the Street was calling for a
return of the extraordinary volume that we were seeing in the
first quarter of the year.  Finally, one of those talking heads
popped up on the TV and said something that actually made sense.
The analyst commented that we very well may not see those volume
days of old as they were an aberration.  In comparison to last
year's volume at this time, we actually are having heavier days.
The NASDAQ traded 1.5 bln shares and the NYSE exchanged 955 mln.
Considering that we are headed into the summer when we perennially
have lighter volume, days like these aren't too terrible.  But,
I still believe that heavier than normal days will be essential in
breaking out of the downtrend.

Initially, the semiconductor sector continued its strong gains
on more analyst actions.  After yesterday's upbeat outlook for
SDLI, the semis appeared to have reasserted themselves as leaders
in this teetering market.  Today, Morgan Stanley Dean Witter had
positive comments for LSI Logic(LSI).  They reiterated their
Strong Buy and $100 price target for the stock, citing "very
strong" business conditions going forward.  LSI managed to hang
on to some of its gains, closing up $2.63 to $52.63.  Yet, that
good news for the sector wasn't enough and the Semiconductor
Index(SOX.X) finished in the red by 1.2%.

QCOM was the real disappoint today for the NASDAQ.  Does anyone
remember the $1000 price target issued late last year on QCOM?
How can we forget.  Well, QCOM fell even further away from that
goal today as shares slid on fresh news out of China.  According
to analysts, there are now increasing doubts that a deal with
China's second-largest telephone carrier will bear fruit in the
near-term.  China Unicom, the state-owned No. 2 telephone carrier,
said on Tuesday it would not adopt Qualcomm's current-generation
code division multiple access(CDMA) wireless telephone standards.
Their approximately seven million subscribers use an alternative
standard called GSM, the analysts said.  Traders did not like this
news one bit and shares of QCOM fell by $10 to $66.38.

Another NASDAQ general in the news was the mighty MSFT.  As the
software giant was trying to dodge the government's stones, their
attorneys were preparing to file their final brief Wednesday
afternoon, thus clearing the way for a remedy ruling.  Don't be
surprised to hear that U.S. District Court Judge Thomas Penfield
Jackson will likely order a breakup of the software titan.  This
is just another step in the ongoing saga which will probably end
up as an appeal in the Supreme Court anyway.  Nevertheless, it
will be all over the newswires once again.  MSFT closed at $62.94,
down $0.44.

I don't want to neglect the DJIA, which has also felt the pain
of MSFT.  The tale of the chart tells us that the DJIA flat-lined
after touching just below its resistance at 10600.  Its intraday
high was 10599.43.  Compared to the NASDAQ, the DJIA doesn't look
as bad with a less dramatic downtrend.  Jim's DJIA chart from
yesterday illustrated how the Dow 30 has some headroom up to
10700, where the downtrend line currently lies.  Looking at the
60-minute chart below, you can see that resistance is fairly light
between 10600 and 10800.  If it can move through the trendline
resistance at 10700, 10800 isn't much of a problem.  The 100-dma
for the DJIA sits at 10735.

If a company in the process of improving margins is your kind of
investment, then DJIA component Hewlett-Packard may be worth a
look.  Today, CEO Carly Fiorina met with analysts, painting an
upbeat picture of growing margins in the PC business and
sustainable top line growth.  She also said Amazon has become
one of their top five customers.  This is due to a new deal to
supply 90% of the infrastructure for the online retailer.  Hewlett
also talked about expanding their reach in the storage sector and
becoming a more formidable foe to EMC.  So HWP went up, right?
Ehh, wrong.  HWP slid by $4.31 to $120.19, though mostly in
sympathy to the NASDAQ decline.

During the past two days, the DJIA has received help from the
brokerage stocks and retail leaders.  As Fed-watchers begin to
see some slowing from the previous rate hikes, optimism that
tightening monetary policy may be drawing to a close has increased.
Adding to yesterday's gains, the following brokerage stocks had
strong days:  MWD (+4.94), MER (+4.00), AXP (+3.38), C (+1.88),
and GS (+1.56).  Other DJIA standouts include WMT (+4.25) and
HD (+1.75).

Evidence of a possible slowing in the economy came in the form of
New Home Sales, which were 909,000 versus an expectation of 940K.
That is a 6% decline.  Good news for those interest rate sensitive
stocks.  Also rallying on this news was the bond market as the
10-year note rose $0.72 to yield 6.28%.  Due out tomorrow is the
Chicago Purchasing Managers' Report which is forecast at 55.5%-
with 50% representing the breakeven line between an expanding and
contracting manufacturing sector.  The big numbers that everyone
is anticipating are on Friday.  Non-farm Payrolls are expected to
be 375,000 with an Unemployment Rate of 3.9%.  Those two economic
reports will be essential in defining the next direction of our
drifting markets.

Keep your eyes on the markets' reaction to these economic numbers.
They will make or break investor spirit this week.  In a market
that is looking for a reason to buy, any further indication that
the Fed's previous rate hikes are slowing this freight train
economy may spark the buying we need to break this downtrend.
When trading, stay with issues or indices with which you are
comfortable and don't risk what you're not willing to lose.
Good luck and when in doubt, stay out.

Matt Russ
Research Analyst


Motorola and Flextronics in Outsourcing Pact
By Matt Paolucci

The world's No. 2 wireless communications provider, Motorola
Inc. (MOT), and Singapore-based contract manufacturer
Flextronics International Ltd. (FLEX) on Wednesday announced a
5-year global strategic alliance worth an estimated $30

Under the terms of the agreement, Flextronics will supply and
manufacture certain parts and units included in Motorola's
wireless phones, two-way pagers, wireless infrastructure
products and other devices.

The deal with Flextronics is the largest outsourcing agreement
between a name-brand electronics company and a contract
manufacturer. The companies expect FLEX to make more than $10
billion worth of parts and equipment for Motorola by 2005.

The alliance is certainly a big deal for Flextronics. The
Company's total revenue for fiscal 1999 was just $1.81
billion, ending March 31. The Company's market cap is roughly
$6.65 billion.

Motorola will also purchase a 5 percent stake in Flextronics
for an initial payment of $100 million. The equity instrument
is convertible over time into 11 million shares, worth roughly
$550 million, based on yesterday's closing price.

The deal is the latest in the recent trend of broad
outsourcing pacts by electronics makers with smaller firms
like Flextronics, Jabil Circuits (JBL) and Celestica (CLS).

In March, Canadian telecommunications-equipment maker Nortel
Networks Corp. (NT) agreed to sell four factories to Solectron
and agreed to buy roughly $10 billion of products from
Solectron over four years.

The alliance should allow Motorola to better anticipate its
customers needs and speed the time to market for its products

Motorola's Communications Enterprise (CE) unit will be the
main beneficiary of the deal with Flextronics. Among the FLEX
will provide to Motorola include finished assemblies,
plastics, PCB's (printed circuit boards), backplanes,
enclosures and engineering services.

Motorola has been making strides in its efforts to reduce
costs. MOT's manufacturing and other costs of sales stood at
59.9 percent last year (excluding one-time items), down from
61.8 percent in 1998, but up from 58.6 percent in 1997. With
its increasing focus on low-margin PCS (personal
communications) devices, production costs were expected to
rise this year.  Today's deal with FLEX should reverse MOT's
increasing costs trend, and subsequently boost the
communication giant's profitability.

Motorola will turn over roughly 15 percent of the
manufacturing duties in its Communications Enterprise (CE)
unit to Flextronics.

Gray Benoist, a Motorola vice president, said the Schaumburg,
Ill., electronics concern will continue to do most of its
manufacturing itself, but said Motorola will assign an
increasing share of its growth to contract manufacturers.
Internal manufacturing will continue to grow, he said, but
"the outsourcing piece grows faster."

Flextronics provides manufacturing services for original
equipment manufacturers (OEMs) such as Cisco Systems (CSCO),
Lucent Technologies (LU), and International Business Machines

Revenue for the contract electronics-manufacturing industry
reached approximately $75 billion last year, and is expected
to grow 25 percent this year, according to research firm
Technology Forecasters Inc.

"We are extremely pleased that this alliance calls for the use
of virtually all of Flextronics' capabilities," said Michael
Marks, Chairman and CEO of Flextronics International. "Both
companies have agreed to develop our businesses together in a
substantial way, from e-commerce connections to global supply
of a wide range of services, while sharing some financial
costs and gains."

Motorola didn't give any guidance in its release as to how
much it expects to save or shave off margins with the deal.

Volume in the June 90, 95, 100, 105, and 110 calls on Motorola
was very active, as well as the June 55, 60, and 65 calls in


Get used to it!
By Eric Utley

At least that's what the market pundits are saying about the
bleak volume.  And although the NASDAQ finished Tuesday with its
biggest percentage gain in history (7.9%), many market "experts"
dismissed the rally due to the light volume it came with.  While
at the same time, other market "experts" explain that the heavy
trading we saw earlier in the year was an anomaly, and that the
current level of trading activity is back to normal.  So who do
we believe?  I'll tell you this much, yesterday's rally came at
an interesting time, at least to me.  If you recall my column
last Wednesday, I talked about how to spot a market bottom, and
the need for a follow-through day after the initial rally.  Well,
the initial rally was last Wednesday and Tuesday we got our
follow-through day.  I'm not claiming victory here, or suggesting
that I picked the bottom, I'm just trying to examine the facts
in an objective way.  And the facts are:  NASDAQ volume increased
36% from the previous day, trading on the NYSE was also higher,
and the three major indices (NYSE, S&P, NASDAQ) all surged three
days after the initial rally last Wednesday.

Now I know that Friday's trading was muted because of the holiday
weekend which takes away from the huge increase in volume
Tuesday.  And, the NASDAQ has had two failed follow-through days
so far this year (March 21st and April 25th).  Nonetheless,
Tuesday's rally marked a follow-through day.  And it begs the
question: Will the third time be a charm?  A few things that we
need to watch for in the coming days is first, for the market
leaders to emerge, and charge higher.  We need the generals such
as CSCO, INTC, AMAT, and DELL to stare the bear in the face and
run it over.  Secondly, we need to get the Fed off our backs.
And with the non-farm payrolls and the unemployment rate numbers
coming out Friday, Mr. Greenspan & Co. might start easing off.
So watch closely in the coming days to see if this rally is for
real, or simply another bear trap.  Who knows, the third time
might be the charm.

I owe our readers an apology once again.  I just couldn't resist
a three-day weekend of fly fishing over the holiday.  Sorry for
not writing my usual Sunday column, but I'm back for more so send
your requests to asktheanalyst@OptionInvestor.com.  Please put
the stock symbol in the subject line of the e-mail.


Advanced Micro Devices - AMD

AMD has beat the bears.  Please review this stock. - Ron & Pam

Stocks that have bucked the bear market...how about Advanced
Micro Devices. - Joe & Diane

The preceding comments are just two of the many requests I have
received to review AMD.  Due to the popular demand, I'm more
than happy to review the stock.  From a long-term perspective,
the story at AMD is getting better and better.  Last week,
Gateway (AMD's largest customer for its Athlon processor) said it
would double its use of AMD chips.  Gateway has been having
supply problems with Intel (AMD's chief competitor) since January
of this year.  After the Gateway announcement last week, a
spokesman for AMD said the company expects other big-name PC
makers to follow Gateway's lead.  Furthermore, the spokesman said
that AMD expects to ship more than 10 mln Athlon units in the
second half of this year, up from 3 mln in the first half of
2000!  Wall Street expects AMD to grow earnings by about 20%
annually over the next five years, while the average in the
semiconductor sector is about 31%.  However, analysts have been
known to underestimate AMD, being that the company has absolutely
blown away earnings estimates in its last two quarters.  If AMD
continues to execute, and steals market share from Intel, the
stock is worth considering for a long-term investment.

Now for you traders out there, AMD might have some profit
potential in the near-term.  The company is slated to report
earnings around July 10th.  And with two blow-out quarters behind
it, investors may soon warm-up to the stock in hopes of an
earnings run.  The influential semiconductor analyst, Dan Niles,
said Tuesday that he expects AMD to beat its estimates.  Niles
went on to say that he has a very positive outlook on AMD and
rated the stock an Outperform.  From a technical perspective,
AMD is positioned well for an earnings run.  The stock has been
consolidating its gains over the past month, and could be
building a base for lift-off.  But a word of caution, this is a
fickle market, everything needs to be just right if the stock is
going to sail into earnings.  Any bad news out of the chip
sector could send AMD off course.


Chubb - CB

Chubb keeps on keeping on during the recent corrections - what
do you think? - Jim

Despite falling short of earnings estimates in late April, CB
has steadily climbed higher.  Executives from CB attributed
part of the decline in earnings to severe weather damages that
increased claims from homeowners.  The company said the losses
were unusually high, and told analysts that it was a one-time
event, and to expect improved profitability going forward.  And
the analysts rejoiced at the bullish guidance, a day after the
earnings shortfall AG Edwards upgraded CB to an Accumulate.
Like you pointed out Jim, while the broader market has languished
since early March, CB keeps on going.  Wall Street has warmed up
to the once beleaguered insurance sector, and analysts continue
to remain bullish on stocks such as CB.  They point to the
positive change in the property casualty business, and that
prices are finally rising after slumping for four years.  And
with the rising premiums, analysts are looking for earnings to
follow.  Insurance sector analyst John Manley recently said that
although CB has moved higher recently, it is down versus the
broader market for the last several years and still holds profit
potential.  Additionally, Prudential Securities recently
reiterated its Accumulate rating on CB and set a price target of
$82, citing that fundamentals are clearly improving within the
sector.  With a reasonable valuation, strong Wall Street support,
and steady earnings growth, the future looks bright for CB.

I don't want to rain on the parade of the analysts' praise for
CB, but I do see some risk in the near-term.  Meteorologists are
forecasting one of the worst hurricane seasons on record.  Now
that may sound a little crazy, but weather caused CB to fall
short of earnings once before.  Now who knows if the weather
people are correct, predicting the movement of the stock market
is easier than forecasting long-term weather patterns.  But if
the meteorologists are correct, CB could face an increased amount
of claims, which could result in reduced earnings.  But until the
next Hurricane Irene wreaks havoc, CB may see blue skies for a


Sanmina - SANM

Please provide me with your analysis of the SANM chart.  It is
being added to the S&P 500 to replace WLA after the PFE/WLA
merger.  Thanks. - Kenny

To be quite honest Kenny, I didn't know much about SANM before
your request.  So if you don't mind, I'm going to provide a
brief background on the company.  SANM is an electronics contract
manufacturing services company.  SANM provides services to
original equipment manufacturers in the communications,
industrial and medical instrumentation sectors of the electronics
industry.  SANM is expected to complete its proposed merger with
Hadco later this month.  The acquisition will add to SANM's
boutique of electronic offerings and create a force to be
reckoned with within the sector.  SANM got a nice lift Wednesday
after the company said it had received FTC approval for the
merger.  Investors are optimistic about the merger and the
synergies it will create.

Insofar as SANM being added to the S&P 500, I don't think that
should be the sole reason for buying the stock since that event
has already been factored into the stock price.  Playing stocks
that are added to the S&P 500 is a little tricky and carries some
risk that is hard to minimize since index fund buyers are
somewhat unpredictable.  However, there are a few bullish items
for SANM going forward.  The company is steadily growing earnings
and selling at a reasonable valuation.  And with the floodgates
recently opened to the Chinese marketplace, SANM stands to
reap huge rewards.  In fact, analysts expect SANM to announce
expansion agreements into China and Europe within the next 60
days, which could lead to big profits down the road.  It has
been a bumpy ride on the chart for the last two months, but it
appears that SANM is emerging from congestion.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


The New 2003 LEAPs
By Mark Phillips

There has been a fair amount of confusion lately about 2 issues
related to LEAPS.  The first is when and how 2001 LEAPS will be
converted to regular Call options, and the second issue concerns
the date when 2003 LEAPS will be issued.  I've been confounded
along with many of you, as the CBOE has changed its process this
year due, to the volume of options that are now traded.

If you are like me, you are scratching your head and asking
what this 'conversion' is and what it means to a LEAP trader.
Fortunately the answer is fairly simple.  All 2001 LEAPS symbols
begin with the letter 'Z' and all 2002 LEAPS begin with the
letter 'W'.  Since the CBOE only carries LEAPS for 2 years at a
time, before the 2003 LEAPS (which will begin with the letter
'V') can be issued, the 2001 LEAPS must be converted to regular
cycle Call options expiring in January of 2001.  This conversion
refers to the simple process of changing the symbol from a LEAP
symbol to a regular Call option symbol.

In the case of AOL, the 2001 $60 LEAP (ZKS-AL) changed to a
January 2001 $60 Call (AOO-AL) on May 15th.  There is no change
in the way the option trades when it is converted, except that
it is now referred to as a Call (with a different symbol),
rather than a LEAP.  There is no change to the 2002 LEAPS at
this time except that they now become the front-year LEAPS.
Next year at this time, the 2002 LEAPS will undergo a similar
conversion process as the 2004 LEAPS become available.

According to information on the CBOE site, LEAPS expiration
(conversion to regular Call Options) occurs in 3 cycles.  "All
new January equity LEAPS are initially listed on the first
business day (usually a Monday) following the expiration in
either May, June, or July each year.  The month that the LEAP
is initially listed in is dependent upon the quarterly cycle
of the option.  Cycle 1 options January expiring LEAPS are
listed after the expiration in May, cycle 2 after the
expiration in June, and cycle 3 after the expiration in July."

The first step in determining when the conversion will take
place is to find out what cycle the LEAP trades in.  All equity
(stock) LEAPS trade with expiration in January, and I mistakenly
assumed (from the information listed above) that this meant all
equity LEAPS traded on cycle 1.

On Tuesday, I spoke with Investor Services at the CBOE and got
a clarification of the actual process.  The CBOE provides a
comprehensive list of all tradable LEAPS at
table (labeled 'Cyc') indicates the cycle on which the LEAP
in question trades.

The actual conversion process has historically happened all
at once.  This means that on the first business day after May
expiration (for cycle 1 options), the front-year LEAPS (2001
in this case) were converted to regular Call options and the
next LEAPS series (2003 in this case) was issued.  Due to the
large volume of options that now trade on the CBOE, the process
has been staggered.  Front-year (cycle 1) LEAPS now undergo
their conversion on the Monday preceding the May expiration
(May 15th in this case), and the next LEAP series is issued on
the second Monday (actually Tuesday this year) following the
May expiration, which is May 30th this year.

Are you confused yet?  Let's see if I can clear it up a little.
All of the LEAPS in our Current Play list trade on cycle 1
except for those on cycle 2 (HD, NSM, and VSTR) and those on
cycle 3 (CMGI, CY, JDSU, NT, and XLNX).  Cycle 1 2001 LEAPS
converted to regular Call options on May 15th, and the 2003
LEAPS began trading yesterday, May 30th.  For cycle 2, the
2001 LEAPS will change to regular Call options on June 12th,
and the 2003 LEAPS will begin trading on June 26th.  For
cycle 3, the 2001 LEAPS will convert to regular Call options
on July 17th and the 2003 LEAPS will begin trading on July

Look for 2003 LEAPS to begin appearing in our play write-ups
as they become available.  Happy trading!


OEX Debit Spreads: Let's Play!
By Austin Passamonte

Well, time for rubber to meet the road!  Shall we determine
what to do next?

It's now within two weeks of June option expiration.  We'd
like to pick some plays that have an even chance of becoming
profitable by or before then.  A spread-trading budget we're
comfortable with losing entirely has been set.  Let's assume
that happens to be $1500.  It's time to target our trades.

The first thing we do is examine the marketplace top down.
We study candlestick charts or whatever our favorites are
for possible clues.  Technical indicators are added and
examined as well.  Looking at weekly and daily charts is vital.
These are trades that may take 10 sessions to complete, making
10 minute tickers useless.

We study OIN tools and columns as well.  What do analysts
and editors portray?  Charts with trend lines that others
draw greatly interest me.  Not that I'm lazy, but points of
support and resistance are somewhat subjective and I prefer to
see different views than mine.

Market Posture and Market Sentiment by Pinnacle Advisors is
very helpful indeed.  Of great importance is the Pinnacle
Index in their "Sentiment" column.  This is a measure of open
interest on nearby OEX option contracts that give an idea of
trader's sentiment.  Currently we see underlying support that's
incredibly strong below the 710 index level.  Overhead
resistance is quite light all the way to 800.  Is this a
surprise?  Certainly not...seems everyone expects a crash.
They may very well get one but the OEX should have firm support
near 700, and a surprise rally could ratchet up the charts
with minimal resistance.  Important factors to keep in mind.

Next, what has been the OEX average range over the past few
trading sessions?  Since May expiration on 19th, it has moved
from 764 to 724, or a 40-point range to date.  I feel that if
it moved 40 points in the last two weeks, it can surely move 40
more in either direction from its current level with two
weeks to go.  That would be down to 696 or up to 776.  It's not
an exact science but I haven't guessed wrong for the two-week
range prior to expiration since last November.  Of course now
that I've said that you can be sure I'll miss it this month!
Contrarian alert!

Lastly, what are the fundamentals and news telling us?  Does
an upside or downside move look more likely?  Remember that
technical analysis indicates what the market wants to do but
fundamental news can change all that on a dime.  It's important
to consider both.

Based upon what I see, technical data on the charts seems
negative.  At the very least, I see little bullishness on the
horizon.  Market sentiment is negative in the media and on the
Street with everyone expecting the worst.

On the flip side, contrarian posture would be bullish.  Heavy
underlying OEX option support below 710 with almost no overhead
resistance gives strength to their argument.  What do you

Considering there is little news or catalysts to drive the
market higher and the charts show nothing to dispute that, let's
enter some put spreads.  Play the downside, the way the deck
seems stacked.  Remember, the trend is our friend.

If we want spreads priced within our 3.50 premium level, they
will be +/-20 points OTM either way.  For example, I wrote
this prior to market's open on 5/30.  The OEX index currently
rests at 736.  If we want to play the downside of this market,
the June 720/710 spread sells at 2.88.  Our June 720 long option
is 16 points OTM and 18.88 from par.

However, call side spreads are pricey.  A June 750/760 call
spread sells for 4.50.  Again, our long June 750 call option
rests 14 points OTM, but the spread premium is much greater.  We
would have to go all the way to a June 760/770 call spread to
meet our price of 3.00 ask.  No thanks...27 points from par is too
great for us today.  We'll wait until further time decay before
buying call spreads, and the market must seem poised for a rally

Our budget is $1500 and we're two weeks from expiration.  I'm
not ready to mortgage the farm just yet.  While the downside
is attractive I'm a bit scared of that light overhead resistance.
The non-farm payroll report on Friday could spark a preemptive
rally.  Also, the markets have sold off with little relief thus
far.  If I had to commit 100% either way at gunpoint, I'd choose
the downside and pray, but we're not under that kind of pressure
today, now are we?

Let's take 40% of that $1500 budget ($600) and buy two put
spreads at our price limit or better.  We see that the June 720/710
put spread closed Friday at 2.88.  At the price we can buy two of
them with our $600 capital.  If futures are pointing down, let's
enter a buy-limit order for two spreads at 2.75 or less.  Futures
indicating a rally?  Enter a buy-limit at 3.00 or less.

This leads us to the next topic of entering spreads.  When it
comes to OEX debit spreads, I cannot think of a single scenario
where legging-in beats buying a spread to open.  Selling the first
put short is not within the realm of most trader's account
clearance.  Buying an option and waiting for it to become
profitable before selling the next one could work to create a
"free trade," but why not simply take the profit instead?  Also,
what happens if the long option doesn't become profitable and
loses money?  If you're smart it will be stopped for a small
loss but isn't that exactly what we're trying to avoid?  In any
situation for OEX debit spreads, wait for your targeted premium
price and buy the spread to open.

I don't know about other brokers and have no intention of
finding out, but I have a margin account with Mr. Stock as
advertised within OIN.  They allow the simplicity and convenience
of entering spreads, straddles and covered writes online as a
single transaction.  This makes it incredibly easy to buy and
sell spreads, let me tell you.  It's also why I'm able to snapshot
buy/sell prices without effort at any given time as well.

I couldn't be much happier trading spreads with anyone else.
As a matter of fact, ease of spread-trading entry and execution
is the primary reason I chose Mr. Stock from the list in George
Fontanills' book "Trading Options Online," which can be found in
the OIN Bookstore.

OK--we guessed a market direction, decided how much money to
spend and selected a play that fits our plan.  Now what?  Well,
we wait for execution!  If the OEX rallies wildly and leaves our
put spread in the dust, the remaining $900 from our original $1500
should be used on some call spreads for sure.  If the market
plummets and we enter the profit zone, take your winnings as seen

These two spreads have a combined maximum potential of $2000
profit, or 330 percent.  That doesn't mean we should hold them
until then.  With two weeks to expiration, I like to set a
sell-limit price of 100% profit on my spreads until the Monday
before expiration.  In other words, if we bought these spreads
for 3, let's sell them for 6.25 to double our money after
commissions.  That way we'll have roughly $2100 to use for more
spreads, or $600 to keep heading into the final week of current
option's lifespan.

Too much can happen in more than five trading sessions for
me to pass up solid gains beforehand.  If you're able to set
stops on spreads with your broker, I would place a stop at the
entry price of 3 once the position hits an ask price of 4.50
or greater.  Trail it up.  Mr. Stock usually doesn't allow stops
on spreads, so this isn't a tactic I can use.  I surely would if
possible.  Again, I'm willing to let the position die with 100%
loss if I'm wrong, but I hate to have that happen once it has
become profitable.

Alas, my allotted space is pushed to the limit once again.
Don't I always do that?  Next week we'll cover the final
pieces to the plan:  straddling the OEX with put AND call
spreads that give us very high odds of profiting overall.

Contact Support


The Hardest Lessons
By David Popper

"The hardest lessons to learn are the ones that I already know,"
said author, Pat Morley.  Pat has authored a book called "The Man
in the Mirror" which basically discusses men at the midpoint of
their lives.  Pat notes that there comes a time when men realize
that they have spent the first forty or fifty years of their lives
in a mad search for success, only to discover, to their surprise,
that wealth and success are not nearly as satisfying as they had
envisioned.  Pat also mentions that we already know,
intellectually, the answers to some of life's great questions.
It is just that we do not live in light of the answers.  We really
do not believe in our hearts the truth that we have in our heads.

So too in the market, if a trader has years of experience, or
has done any reading whatsoever, he/she understands much of the
truth in trading.  For those who cannot watch the computer on an
every day basis and who have an intermediate time horizon, it
makes the most sense to purchase leading stocks in leading
industries when the general market is acting correctly.

Typically, during a bear market, the market will stage several
rally attempts.  If the rally attempts are on light volume, the
rallies typically fail.  We have seen several of these recently.
Often traders try to recoup some of their losses and guess
incorrectly that a market reached a bottom, only to suffer further
losses. (It may be okay to attempt to guess if you are using only
a very small portion of capital).

When a market finally reaches a bottom, it is not possible to know
it exactly at the time that the bottom is formed.  Typically, you
have to wait for a follow-through day.  Follow-through days for
the intermediate trader are defined as a rise of more than one
percent on the major averages (Nasdaq, Dow, etc.) on higher volume.
Waiting for a follow-through day makes sense.  During a bear
market, institutional investors are either selling(high volume to
the downside) or simply not buying(light volume).  A follow-through
day indicates that institutions are beginning to buy.  Several
follow-through days(averages moving up on higher volume) indicate
that institutions are buying in earnest.  A market will not go up
for long without institutional support.  Typically, in a new bull
market, the money will rush to some fresh new names and also to
the institutional "must owns" such as EMC, SUNW, CSCO, ORCL, JDSU,

During a bear market, it pays to do your homework so that ou are
able to get into the best stocks once the general market averages
begin to act right.  One way to be prepared is to begin looking at
the charts of your potential stocks.  Which ones appear to have
been rolling over and turning lower?  Which ones look like they
have found support and are ready to move higher?  Which ones are
breaking out to new highs?  Can you see profitable resistance and
support levels?

Once you have identified a short list of stocks that you think
have a good probability of moving higher, make a plan.  At what
price do you wish to purchase a stock?  Where will you set your
stops?  How do you plan to trade the stock if it moves higher?
How big will your position be?  If the stock moves lower, where
will you choose to sell the stock to minimize your loss?  Having
a predetermined plan that you stick to can make all of the

Again, intellectually, we all know this information.  The
question is, what is our reaction when in the trenches?  Do
we allow the emotions of hope, fear, and greed to cloud our
judgment?  Do we really believe in our plan?  Do we stick
with our plan? Do we really have to suffer another loss to
learn the lessons that we already know?

Contact Support


TRW - TRW Inc. $48.50 +0.44 (+0.50 this week)

TRW is an international company that serves the automotive,
space and defense, and computer industries.  The company serves
the auto market (which accounts for 70% of sales) with airbags,
antilock brake and traction-control systems, seat belt systems,
and steering and suspension systems.  TRW's space and defense
products include spacecraft and satellite technology, defense
communications equipment, and high-energy lasers.  The company
also provides computer systems to government and private-sector
clients through its information technology unit.

Most Recent Write-Up

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.


Thank you Soloman Smith Barney for this entry point.  SSB came
out today and reiterated their stance on TRW.  They issued a
$60 price target and claimed TRW as a "hidden value".  Ok, fair
enough, but many "hidden values" are left to wallow in obscurity
until investors return.  With that said, we view today's move
as an entry point.  You can see from an intraday chart how
quickly it rolled over and resumed its trend.  Resistance is
at today's high around $51.50, with support at $47.50.  Check
market sentiment tomorrow for signs of continuing market
weakness and enter accordingly.

BUY PUT JUN-55*TRW-RK OI=201 at $6.50 SL=5.00
BUY PUT JUN-50 TRW-RJ OI=136 at $3.00 SL=1.50

Average Daily Volume = 587 K


Slowing economy renews optimism in the Market...

Equities recovered this week as investors began to speculate that
the Fed is nearing the end of its interest-rate increases.  The
nervousness over monetary policy will continue to affect stocks
but the market overcame early weakness today after new economic
data offered signs that the economy is no longer growing at the
recent rapid pace.  Analysts said the most significant report
came from the Purchasing Management Association of Chicago.  The
group's index of area business activity moved lower this month
and the data is considered an accurate forerunner of the national
purchasing managers' report, due out on Thursday.  The Commerce
Department reported that new homes sales tumbled in April, with
the index reflecting the largest decline since last September.
In addition, the Index of Leading Economic Indicators, a group
of forward-pointing economic statistics designed to forecast the
direction of the economy, declined by 0.1% in April.  Of course
the question is whether these new reports, combined with last
week's declines in existing home sales and consumer confidence,
will be enough to convince the FOMC that their efforts to subdue
inflation are succeeding.  The answer may come on Friday, after
the government's employment report for the month of May.  That
data will indicate if the continued low jobless rate is forcing
companies to boost wages and benefits to retain workers.  If the
news is benign, it may be the last piece of evidence necessary to
show the Fed that the expansion in the economy is slowing to an
acceptable pace.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

NEWP    JUN   110   104.44  170.56   $5.56   5.4% Splits 6/1
NVDA    JUN    90    85.50  114.13   $4.50   5.3% Splits 6/27
RFMD    JUN    95    90.50  105.00   $4.50   5.0%
ARBA    JUN    55    51.63   52.13   $0.50   0.8% Time to exit?

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

ARBA    JUN    50    48.00   52.13   $2.00  10.6%
NEWP    JUN    95    92.00  170.56   $3.00   9.5% Splits 6/1
NVDA    JUN    80    77.87  114.13   $2.13   8.9% Splits 6/27
RFMD    JUN    85    82.94  105.00   $2.06   8.3%
SDLI    JUN   140   136.75  226.56   $3.25   7.3%
AFFX    JUN   105   102.94  118.75   $2.06   6.1% Watch closely!
YHOO    JUN   115   112.75  113.06   $0.31   0.9% Own it or exit?

Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

JNPR    JUN   270   272.13  175.19   $2.13   6.1% Splits 6/16

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

BULLISH PLAYS - Covered Calls & Naked Puts

BRL - Barr Laboratories  $53.88  *** Split Rally? ***

Barr Laboratories is a pharmaceutical company engaged in the
development, manufacture and marketing of generic and proprietary
prescription pharmaceuticals.  They currently market 70 generic
and proprietary products, representing various dosage strengths
and product forms of 32 drugs.  Their product line is
concentrated primarily on six core therapeutic categories:
oncology, female healthcare, cardiovascular, anti-infectives,
pain management and psychotherapeutics.

Barr's first quarter total revenues increased approximately 11%
over the first quarter of last year, primarily due to increased
product sales.  Today, Barr announced its board had approved
a three-for-two stock split, the third time in four years the
company has split its stock.  It closed up $2 at $53.88, a new
52-week high, on five times normal volume.

The recent breakout through a technical resistance near $45-$47
suggests this stock is poised for a higher trading range.  In
the short-term, the issue is slightly overbought and since we
expect a brief consolidation, plan to "target shoot" the entry
at a slightly lower cost basis.

BRL - Barr Laboratories  $53.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUN 50   BRL FJ  561       5.50    48.38     6.4% ***

Sell Put  JUN 50   BRL RJ  3         1.56    48.44    15.4% ***

Chart =
CHKP - Check Point Software  $187.88  *** Which Way Now? ***

Check Point Software Technologies is the worldwide leader in
securing the Internet.  Their 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
solutions from nearly 250 leading industry partners, including
IBM, Compaq, Nokia, and many others.

Check Point is a leader in the Internet Security Industry.  In
early May, the company announced that Software Business magazine
has awarded Check Point the "Best Partnering Alliance" across
the entire software industry for its Open Platform for Security
(OPSEC) Alliance.  It also received the Network Computing 2000
Well-Connected Award in the category of Best Firewall for its
VPN-1/FireWall-1.  Recognized for its intuitive interface, high
performance, highest level of security, extensive logging and
reporting and enterprise wide policy management capabilities,
VPN-1/FireWall-1 also provides the security foundation for Check
Point's VPN-1 product family.

CHKP has moved into a relatively stable range near $165-$170 and
our position offers an excellent reward potential at the risk of
owning this industry-leading issue at a favorable cost basis.

CHKP - Check Point Software  $187.88

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUN 150  YKE RJ  120       1.13   148.87     5.5% ***
Sell Put  JUN 155  YKE RK  38        1.75   153.25     7.6%
Sell Put  JUN 160  YKE RL  94        2.38   157.62     9.1%
Sell Put  JUN 165  YKE RM  83        3.50   161.50    11.9%

Chart =
LLTC - Linear Technology  $59.06  *** Trading Range ***

Linear Technology designs, manufactures, and markets a broad line
of standard high performance linear integrated circuits.
Applications for their products include telecommunications,
cellular telephones, networking products and satellite systems,
notebook and desktop computers, computer peripherals, industrial
instrumentation, and factory automation.  Their principal product
categories include amplifiers; high-speed amplifiers; voltage
regulators; voltage references; interface; and linear circuits.

Linear Technology is one of the premier companies in the high
profile chip industry and analysts are bullish on its long-term
outlook.  The recent trading range near $50 defines this issue as
a relatively safe entry into the volatile semiconductor sector.
Our position offers a low risk cost basis with a reasonable
expectation of profit.

LLTC - Linear Technology  $59.06

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUN 55   LLQ FK  2339      5.50    53.56     5.1% ***

Sell Put  JUN 55   LLQ RK  157       1.50    53.50    13.5% ***

Chart =
NVDA - Nvidia  $114.13  *** Split Rally? ***

NVIDIA designs, develops and markets 3D graphics processors,
graphics processing units and related software that set the
standard for performance, quality and features for every type of
desktop personal computer user, from high-end machines to low
cost PCs.  Their 3D graphics processors are used in a wide
variety of applications including games, the Internet and
industrial design.  The NVIDIA TNT2, TNT2 M64 and Vanta graphics
processors deliver high performance 3D and 2D graphics at a
reasonable cost, making them the graphics hardware of choice for
a wide range of applications for consumer and commercial use.

Nvidia continues to increase market share in the fast growing
industry of computer graphics and their earnings are reflecting
that growth.  In early May, Nvidia announced record revenues and
earnings for the first quarter of fiscal 2001.  Nvidia's revenues
increased 109% to $148.5 million, and earnings were $0.47 per
share, well above the same quarter results last year of $0.18 per
share.  At the same time, Nvidia approved a 2-for-1 stock split
for late June and was promptly upgraded by several analysts after
the bullish news.  The world's leading supplier of performance 3D
graphics processors also recently announced that the GeForce
family of GPUs dominated two of the industry's most recognized
benchmark reviews, Mercury Research's quarterly report and PC
World's Top 10 Graphics Boards for Gamers.

NVDA - Nvidia  $114.13

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUN 100  UVA FT  223      18.00    96.13     7.7% ***

Sell Put  JUN 85   UVA RQ  169       1.19    83.81     9.4% ***
Sell Put  JUN 90   UVA RR  40        1.88    88.12    14.5%
Sell Put  JUN 95   UVA RS  45        3.00    92.00    19.3%
Sell Put  JUN 100  UVA RT  80        4.25    95.75    22.6%

Chart =
PLCM - Polycom  $84.06  *** On The Rebound! ***

Polycom develops, manufactures and markets a full range of high
quality, media-rich communication tools and network solutions.
The company's broadband communication solutions enable business
users to immediately realize the benefits of video, voice and
data over rapidly growing converged networks.  Polycom's video
conferencing and voice conferencing product provider, and has
entered the DSL access market, particularly in the area of
integrated voice appliances and broadband access devices.

Polycom recently announced the introduction of ViaVideo, the
first desktop video communications appliance that integrates a
multimedia processor and camera for two-way video, voice and data
transmission in a single device.  The portable unit plugs into a
desktop personal computer or laptop computer via the USB port
and requires a simple software install to begin communications.
ViaVideo's full-screen, full-motion images transmit at 30 frames
per second, and an integrated microphone features breakthrough
acoustic technology for crystal-clear voice quality with echo
cancellation.  Polycom's proven expertise in video conferencing,
particularly over IP networks, make video communication a viable
tool for businesses of all sizes and that's the wave of the future!

PLCM - Polycom  $84.06

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUN 65   QHD RM  6         0.88    64.12     9.5% ***
Sell Put  JUN 70   QHD RN  1         1.75    68.25    15.6%

Chart =
RFMD - RF Micro Devices  $105.00  *** Growing To Meet Demand! ***

RF Micro Devices designs, develops, manufactures and markets
proprietary radio frequency integrated circuits, or RFICs, for
wireless communications applications such as cellular and
personal communication services, cordless telephony, wireless
local area networks, wireless local loop, industrial radios,
wireless security and remote meter reading.  They offer a broad
array of products, including amplifiers, mixers, single chip
transmitters, receivers and transceivers, which represent a
substantial majority of the RFICs required in wireless subscriber
equipment.  As of March 1999, they marketed 158 products, with 50
more in various stages of development.

RF Micro Devices is poised for growth and to meet the demand for
their products, the company recently opened a new engineering
design center.  Located in Chandler, Arizona, the new facility
is staffed with design engineers developing state-of-the-art power
amplifiers, circuitry and other products used in cellular and PCS
telephones.  The additional design capacity is critical for the
company to serve their growing customer base and it allows them to
leverage premier design talent from around the country.

The company also recently announced the establishment of its first
local European sales and support center.  The office houses a new
support staff of sales representatives and design engineers to
develop the communications market in that region.  The company
believes that the U.K. offers a tremendous growth potential in the
consumer wireless arena, especially in the area of GSM handset
design and development.

The issue is technically sound and analysts are bullish on RFMD's
fundamental outlook.  CSFB, First Union, U.S. Bancorp Piper, and
Paine Webber all have aggressive "buy" ratings on the company and
it appears that investors agree with their outlook.

RFMD - RF Micro Devices  $105.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call JUN 90   RFZ FR  89       17.38    87.62     5.2% ***

Sell Put  JUN 80   RFZ RP  156       0.81    79.19     7.1%
Sell Put  JUN 85   RFZ RQ  156       1.75    83.25    14.0% ***
Sell Put  JUN 90   RFZ RR  117       2.50    87.50    16.1%

Chart =
SDLI - SDL Inc.  $226.56  *** New Contract! ***

SDL, Inc. is a provider of solutions for optical communications
and related markets.  Their products power the transmission of
data, voice, and Internet information over fiber optic networks
to meet the needs of telecommunication, dense wavelength division
multiplexing (DWDM), cable television and metro communications
applications.  Their solutions enable customers to meet the need
for increasing bandwidth by expanding their fiber optic networks
more quickly and efficiently than by using conventional
electronic and optical technologies.  Its revenue comes from two
principal markets: fiber optic communications and industrial
laser products.

Tuesday's announcement that JDS Uniphase has extended a contract
with SDLI lifted the company's share value significantly.  JDS
Uniphase and SDL said the contract extension through 2001 more
than doubles the base quantities called for in the previous
contract.  Under the terms of the deal, SDL supplies pump lasers
to JDS Uniphase for JDS Uniphase's fiber amplifiers, which are
used in operation of high-speed telecommunications networks.

SDLI also recently announced it would acquire Photonic Integration
Research for $1.8 billion in cash and stock.  SDL plans to use a
silicon chip made by Photonic that allows more information to be
channeled through a single fiber.  The unique device would replace
several components inside SDL's products and allow SDL to produce
cheaper, more reliable and better-performing network systems.  The
move is viewed as a strategic acquisition in a rapidly growing
market and very complimentary to their present business.  Photonic
will add to SDL's earnings immediately and based on their quarterly
revenue of $20 million, it will account for over 20% of sales and
profits in the combined company.

Analysts agree with the company's positive future and investors
have pushed the issue up $60 in just one week.  Our cost basis
allows a conservative position in an industry-leading company
with a bullish technical outlook.

SDLI - SDL Inc.  $226.56

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  JUN 160  YAL RL  243       1.25   158.75     5.1%
Sell Put  JUN 165  YAL RM  69        1.56   163.44     6.3% ***
Sell Put  JUN 170  YAL RN  269       2.06   167.94     8.3%
Sell Put  JUN 175  YAL RO  160       3.00   172.00    11.8%

Chart =

BEARISH PLAYS - None this week

Tired of waiting on trades to execute?
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Anything else is too slow!



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This newsletter is a publication dedicated to the education
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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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