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Daily Newsletter, Sunday, 06/04/2000

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The Option Investor Newsletter                   Sunday  6-4-2000
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******************************************************************
MARKET STATS FOR LAST WEEK AND PRIOR WEEKS
******************************************************************
         WE 6-2          WE 5-26         WE 5-19         WE 5-12
DOW    10794.76 +495.52 10299.24 -327.61 10626.85 + 17.41  + 31.51
Nasdaq  3813.38 +608.27  3205.11 -185.29  3390.40 -138.65  -287.75
S&P-100  792.69 + 56.61   736.08 - 16.87   752.95 -  8.72  -  8.12
S&P-500 1477.26 + 99.24  1378.02 - 28.93  1406.95 - 14.01  - 11.67
RUT      513.03 + 55.66   457.37 - 22.33   479.70 - 11.24  - 21.90
TRAN    2829.36 +141.81  2687.55 - 54.45  2742.00 -132.02  -  2.09
VIX       24.11 -  3.38    27.49 -  1.28    28.77 -  1.23  -  0.44
Put/Call    .41              .65              .89              .53
******************************************************************

Buyers beat back bears as battle turns, Fed under attack!

Yeee Haaa! Rally mode! Market bulls pulled a rabbit out of their
hat Friday morning with a weaker than expected jobs report. The
market, already up strong for the week, roared out of the gate and
never looked back. Volume increased again with the NASDAQ posting
a robust 1.9 bln shares and the NYSE 1.1 bln shares. The anemic
jobs report came in with only 231,000 new jobs and a spike in the
unemployment rate back up to 4.1%. This was exactly what traders
were looking for, an excuse to discount the Fed and justify a
"no hike" outlook going forward. The markets celebrated with a
strong finish to the short week's rally.







The rally produced a strong finish to the best week ever for the
NASDAQ with a +19% gain of over +600 points. The Dow turned in a
similar performance on the back of HWP with a +495 point gain for
the week. Every major sector participated except for Oil, Drugs
and defensive stocks. Those sectors were hot when techs were out
of favor last week but all gave back some of their gains on Friday.

The average hourly wage increased only +.1%, a much lower rate than
the expected +.4%. Many analysts were so surprised with the report
that there was a large amount of unrest. Many pointed to research
on previous May reports that seemed to indicate that May reports
were typically flukes. Many have been first reported abnormally
low only to be revised upward the following month. The challenge
appears to be the rotation of the work force as summer schedules
arrive and schools go into recess. This abnormal "estimate" of
job growth is then corrected in July with the June report. Still
investors did not care and took the number at face value.

The next series of reports that could fuel the fire or derail
the rally will start with the productivity report on Tuesday
followed by Import/Export prices on Thursday. These are small
change compared with the PPI on Friday and CPI the following
Tuesday. The lightweights at the beginning of the week could give
us a couple days more extension on the current rally before the
obligatory pull back in front of the PPI. Over 70% of analysts
now expect the Fed to take a pass on another rate increase at
the June 28th meeting after the recent indications of a slowing
economy. The debate of will they or won't they is heating up.
There are analysts now that point to the rash of negative
economic news as indications of an impending crash landing for
the economy from an over aggressive Fed rate hike policy. The
fear for the Fed is that they go one hike too far and send the
economy into recession instead of steady growth. The only thing
we need to worry about is stronger economic signals that would
put the Fed back into the drivers seat. Once it appears the
economy is truly moderating then the stock market should be
be back on track. The Fed will slip back into the shadows and
the next thing we hear from them is a rate cut. Now that would
be a market mover.

The rally this week has been spectacular. Almost every high
profile stock has seen strong double digit gains. Too far,
too fast? +608 points is a big move for any week but with the
NASDAQ beaten down so far we may have room left. The NASDAQ
closed at 3813 on Friday. Thirteen points above my arbitrary
3800 level for confirmation that the rally was for real. This
is a good news, bad news story. Yes, it closed over 3800 but
barely and on a huge spike. I would really liked to have seen
it get there a little more slowly with a sustainable pace.
The rocket ride from the 3042 low last week of almost +800
points has me concerned. Nothing goes up or down in a straight
line. Markets and stocks cycle every 3-5 days. We had one
minor down day last week but it was after a +200 point gain.
At this point most traders are concerned that the good economic
news will continue to power the market next week until it is
over extended and subject to a sharp sell off. Clearly the
pressure needs to be relieved and hopefully it will happen
Monday or Tuesday. The tighter the rubber band is stretched
the faster and farther the drop will be when it finally comes.
A small pull back Mon/Tue would allow the pressure to ease
and provide another entry point for those still on the sidelines.

Microsoft Windows NT, Made in Canada? Don't laugh! This story
was floated on Friday and the networks ate it up. In a story
attributed to Michael Murphy by some, it was rumored that
Microsoft might move from Seattle to Vancouver, just across
the border, and escape from the current breakup battle.
While Canadian authorities were glowing and promised to do
everything but sacrifice virgins to get Microsoft to seriously
consider a move, it will not happen. Microsoft would still
have to answer to the Justice Dept as long as it did business
in the U.S. What it could do is cost the U.S. billions of
dollars in lost tax revenue by making such a move. While
taxes are technically higher in Canada, it is a given based
on the smiles of authorities that they would cut a very good
deal to get Microsoft to move a little further north.
Many think the story was simply another shot across the bow
by Microsoft in the constant posturing of the current players.
How strong would the government press its case if it stood
to lose hundreds of billions of dollars over the next two
decades in taxes and wages? Who knows but I would not put
it past Bill Gates and company to float this trial balloon
to make them think twice before the case closes. Kind of
like calling a timeout just before a winning field goal
attempt to give the kicker more time to be nervous.

With no real market moving news or events other than above
I won't ramble on trying to interpret things that are not
there. This is black and white. The market is up because
the economy is slowing. Economy slowing equals no more rate
hikes. No more hikes equals stable markets. The only topic
of discussion is what day next week will the euphoria wear
off? The answer nobody knows but the sooner the better. The
markets should move up from here into July earnings but we
need to consolidate first. Consolidate is a nice word for
down, choppy, sideways and backwards but in no particular
order. Consolidate means most stocks will pull back, lose
ground or drop in price. This means your call options will
go down in price. (I am being specific because many readers
accuse me of not telling them exactly what is going to happen.)
If I say consolidate for several days they think it means
that their stocks will just go up slower while stocks that
others own go down. This is the selective reading disease.

Here is the point. I think the NASDAQ has come too far too
fast and needs to backup about -200 points before going
forward again. We debated here at the office Friday afternoon
about selling our calls and buying puts at the close. Some
bought puts, some held their calls hoping for a bump on
Monday morning to sell into. The consensus was unanimous
that there would be a pull back next week. The division
was when it would occur. We even considered dropping some
of the big movers from the pick list to prevent people
from buying at the top.

Take SDLI, up +100 points from last week. Should you buy
now? Heck no! Is it still a good stock? You bet! But it
needs to drop 20-30 points to provide a new entry point.
We left it in because we think it will continue up after
any correction. Multiply this problem across all the picks.
They are up huge for the week. Should you buy more on Monday?
NO! We need to wait for a pull back. Should you sell on
Monday morning? NO, not if you can set stops. If you have
stop loss capability we suggest setting stops where you
would like to get out assuming the stock dropped $10. If
your call is $20 in the money then a $10 drop would take
about $8 off the option price. Do you want to risk that
amount? If you set your stops tight and the stock pulled
back then you would be taken out at the top and you could
get back in when the market/stock started back up again.
By setting stops instead of outright selling you can get
the benefit of any continued rally on Monday. Just keep
moving your stop up until the stock/market pulls back.

Just remember before you get back in that not all stocks
may go back up after a pull back. The rising tide of
euphoria this week floated almost all stocks as traders
threw money at anything. After a market pull back traders
will not be so eager to just throw money at any stock.
Many stocks will plateau or start drifting downward again
while others will continue to run. The farther the market
goes the fewer stocks will participate. The first rally
from last week was very broad. Each market up cycle from
this point forward will involve fewer stocks as each
stock slows when it nears where investors feel they are
fairly valued. Last week, all stocks were beaten up equally.
Next week many investors will rethink the ones that set
new highs or were up $30-$40-$50 in only five days.

In April many investors gave back their profits from
January and February because they kept hoping the rally
would come back. They just KNEW that their stock would
turn around the next day. Instead they bled to death
and suffered serious losses. Don't give back your gains
from last week. Take a profit. Even if the market continues
up selected stocks will start falling back. Get out when
it starts. Don't bleed to death again. When you decide
to get back in, be selective. Invest in stocks that have
not had the huge gains. These are the ones other investors
will be searching out. Plan your trades with the idea
that July and August will be bad months. Typically, the
summer months are the worst months of the year beginning
the second week of July. One only needs to look at these
charts from the last two years to see about a -15% drop
each year.







The VIX dropped to 24.16 on Friday and the put/call ratio
to .41, still not in the danger zones but real close. Be
very careful next week. Enjoy the rally but be ever
vigilant for the next market change. With the piles of cash
on the sidelines we expect any pull back to be brief. AMG
Data said that fund inflows were actually positive last
week with +$7.8 bln moving into equity funds. This stopped
a multi week pattern of outflows from stock funds.
With the NASDAQ soaring almost 800 points in one week you
can bet the money inflows for this week will be huge. This
influx of cash is sure to be put to work immediately.
Mary Meeker called the bottom for Internet stocks last
week and she was only one of dozens of analysts who think
the worst is over. This positive press could create a real
June rally. Now if only we can get a pull back Mon/Tue to
give everyone still on the sidelines a comfort factor about
not buying at the top!

Because we have so many new readers I am going to update
the series of ten educational articles from last fall
and reprint them again. I am starting next Sunday with
Entry Point, Entry Point, Entry Point. Look for it in the
Options 101 section of the website.

Trade smart, sell too soon.

Jim Brown
Editor


Disclosure:
My current long positions:  NOK, VOD, MSFT, VIGN, YHOO



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

Okay, exhale!  That is the way I felt on Friday as VIGN gained
+7.44 to $37.50 and a $10 gain for the week. Fortunately there
was good news for VIGN on Friday and that news brought me back
to almost even. Whew! I had bought the June-25 calls for $4.25
and they closed on Friday at $11.38. I could get out now but
with the market likely to move higher I am thinking about
selling 60 of the June-$45 calls if they get to $3.00. This
would give me a nice profit on the 3000 shares of stock and the
30 contracts of calls I own plus take me out of the stock at
$45 if it closes above that price. I can't say I would be
disappointed! (See last weeks articles for play history)





**********

YHOO - Calls - Earnings Run Play




Last week I said I was going to buy calls on Tuesday on YHOO
for the normal earnings run into July. The gap up on Tuesday
kept me from buying but the drop back down on Wednesday gave
me another chance. I tagged the July-100 calls for $21.38.
Historically you should close any long positions on YHOO
about 7-10 days before earnings. With July 4th complicating
the picture I would suggest closing about Wednesday the week
before.


***********

SDLI, PMCS, CIEN Naked puts.

After being emotionally removed from the market with the DNA
and VIGN problems the prior week, I was not emotionally ready
to jump back in with both feet on Tuesday. The gap open kept
me out since I thought there was a chance the NASDAQ would
roll over the next day. When it did not roll far I nibbled
with some naked puts on CIEN, SDLI, PMCS. All three gapped
up on Friday and I closed the positions. I was still worried
that the market might roll over at the close. It obviously
did not happen but I got out with a nice profit on each
anyway and I can't complain. Well, maybe just a little.
I wish I had jumped in with both feet! It would have been
a huge payday!


***********

With the NASDAQ over extended in my mind I am going to wait
for a pull back before initiating any new plays. As soon
as I see it starting to roll over I am going to sell June
calls against my VOD, NOK leaps. There is a telecom
conference next week and I am hoping for another bump
on these two stocks. Both are up strong and premiums are
high. Hopefully I can sell the calls as they roll over
for a rest.








I am still naked on the MSFT leaps until we see what the
impact of the court decision is next week. I don't want to
sell calls against them until there is a trend after the
decision.





Good Luck

Jim



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

Cell Phones Power Up Chip Sales
By Cindy Christ

Worldwide sales of semiconductors reached an all-time high in
April, fueled by a global explosion in demand for mobile
phones and healthy sales of personal computers.

The Semiconductor Industry Association reported Friday that
semiconductors sales hit a record high of $15.2 billion in
April, up 36 percent from $11.2 billion a year ago.

"April sales show continued industry growth and are surpassing
our expectations for 2000," said George Scalise, SIA
president, in a statement.

The SIA said demand for flash memory chips, which increased a
whopping 193 percent, showed the strongest gains driven by a
surge in wireless communications and consumer electronics.

Semiconductor sales also are being boosted by the Internet and
e-commerce revolution. According to the Boston Consulting
Group, business-to-business e-commerce will increase from $92
billion in 1998 to nearly $2 trillion by 2003.

Among regions, Asia Pacific and Japan represented the fastest
growing market for semiconductors, supported by the
telecommunications build-out in China. The industry expanded
46 percent in Asia Pacific and 41.1 percent in Japan over last
year. The Americas market was up 25.7 percent, and Europe's
sales grew 33.6 percent.

Shares in semiconductor companies moved up across the board on
the industry's upbeat outlook with the Philadelphia
Semiconductor Index (SOX) registering an 8.5 percent gain at
1157.75.

Shares in RF Micro Devices (RFMD), which makes chips used in
cell phones, soared $15.88, or 14.3 percent, to $127.25.

Texas Instruments (TXN), the world's No. 1 supplier of digital
signal processor chips used to power mobile phones, catapulted
$7.56, or 9.7 percent, to $85.69.

PMC Sierra (PMCS), whose products are used in high-speed
telecommunications and networking systems, surged $18.25, or
10.7 percent, to $188.25.

Chip equipment makers also benefited. Teradyne (TER) jumped
$9.06, or 10 percent, to $99.62. Applied Materials (AMAT)
gained $5.81, or 6.6 percent, to $93.56. KLA Tencor (KLAC)
climbed $6.62, or 12.1 percent, to $61.50.

Shares in Micron Technology (MU), which designs and
manufactures semiconductor memory products and personal
computer PC systems, shot up $4.50, or 6.1 percent, to $78,
a new 52-week high.

Intel (INTC), the world's top chipmaker, moved up $4.50, or
3.5 percent, to $134.19. National Semiconductor (NSM) ran up
$6.25, or 10.6 percent, to $65.38.

Options volume on mobile handset makers also was jumping, with
the June 55 calls in Nokia (NOK) and June 20 calls in rival
Ericsson (ERICY) among the most actives at midday.

The June 70 puts for DSP chip maker Texas Instruments and June
50 calls for National Semiconductor (NSM) made the most active
list as well.



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

What a week!
By Eric Utley

It's nice to see some green arrows on the quote sheet again.
After last Tuesday's follow-through day the bull came charging
back with a vengeance.  Before I go on, I'd like to pay an
accolade to Jim for suggesting in his market wrap column last
weekend that the week following the Memorial Day holiday has
historically been a very good time for Wall Street.  What a call!
Have you heard from Robert Schiller lately?  You probably
remember the briefly famous economist appearing on CNBC, CNNfn,
and the Today Show warning the public of the perils that lie
ahead for investors.  As he finally got his bear market that he
had been predicting since DOW 6000.  The doomsayers such as
Schiller and Barton Biggs disappeared from the spotlight last
week amid the resurgence of the bull.  Now don't get me wrong, I
read Schiller's book, titled Irrational Exuberance.  I found the
book quite interesting and thought he made several valid
arguments.  But once again, the market has proved more
omniscient than any one person's opinion.

Last Wednesday I suggested that two things needed to take place
for a new bull market to emerge and have staying power.  First,
the Fed had to back-off!  With the tame jobs report Friday,
hopefully Mr. Greenspan is content with the slowing economy and
eases off his interest-rate rising binge.  And second, I said we
needed to see leading stocks emerge from their basing prices and
trace new highs.  We need look no further than the OIN call list
to see two of the many tech stocks moving higher.  About a week
ago, SDLI told analysts that the company expected to beat
earnings estimates for its second quarter by 24%.  The company
went on to forecast a sequential rise in revenues by about 140%
and revised its operating profits upward as well.  The stock is
up 55% over the past five trading days.  MU is another play on
the OIN call list that broke away from congestion last week on
the heels of upbeat comments from analysts and a positive
outlook for the DRAM market.  Going forward, those are the types
of events to watch for.  Namely, leading stocks breaking out from
congestion on healthy volume, because of fundamental changes in
their respective businesses.  Now we're not completely out of the
woods yet, we've had two strong back-to-back rallies without a
hint of profit taking.  We'll see if this rally is for real next
week when the PPI is reported.  But with the NASDAQ moving back
above its 200-dma last Friday, on a 21% increase in volume no
less, things are looking much brighter this summer.

I chose a couple of interesting stocks to review this weekend.
One winner and two...well you'll see below.  If you have a stock
that you would like me to review please send your request to
Contact Support.  Please put the symbol in the
subject line of the e-mail.

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

Power-One - PWER

I hope that you are doing good with TRMB.  It has been up nearly
6 - 7 points since you covered in OIN.  I've another one for
you and its chart too looks appealing.  Please review PWER.
Thanks a lot. - Vishal

Vishal, unfortunately I didn't buy TRMB, I wish I had.  If I
had a "Stockpicker of the Year" award to give out to one of our
OIN readers it would probably go to you Vishal.  You've managed
to deliver yet another bear market defying tech stock with PWER.
Like the name suggests, Power-One designs and manufactures
power supplies designed to meet the needs of subsystems and
components within electronic equipment.  The company has an
all-star list of customers.  PWER's customers include: CSCO,
NT, TER, LU, NN, ALA, HWP, and ERICY.  As business booms in
their respective sectors PWER stands to benefit.

In keeping with our discussion of picking winning stocks, I'll
examine why PWER was able to beat the bear and move onto new
highs.  Our current market wants fundamentals in a stock and that
means earnings, earnings, earnings!  PWER has beat estimates in
its last four quarters and that trend might continue considering
the numerous upward revisions by analysts over the past month.
The company is expected to grow its bottom-line by an amazing 42%
annually over the next five years.  What's more, the stock is
still pretty cheap.  Don't let the trailing PE of 144, which
accounts the last four quarters of profits, fool you.  Instead,
take a look at PWER's price-to-earnings-growth (PEG).  The PEG
takes the stock's current market price divided by the company's
future earnings growth rate.  Essentially, it's a measurement of
how much you have to pay for PWER's earnings growth.  A ratio
below 1.0 is considered cheap; PWER's 2000 PEG is 0.48!  Get
this, the S&P 500's PEG is 1.89.

A quick glance at the chart reveals why PWER has the highest
relative strength rating in its sector.  The stock has used its
20-dma for support during its massive run.  I'd like to point out
two items on the chart.  First, notice the hammer formed back in
mid-April, that was a bullish indicator since the bulls were
stronger than the bears on that particular day.  Secondly, volume
has steadily increased over the past two months while the stock
has rallied.  Unfortunately, options are not yet available on
PWER.




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

Biogen - BGEN

BGEN seems to be in a trading range between 50-60.  I have a
feeling this will eventually breakout to the high side.  BGEN
has the lowest PE in the biotech sector.  The whole sector looks
to be trying to break north.  My question is whether or not to
sell covered calls June 55 or 60 when BGEN approaches resistance
at 58 or to just sit tight and wait for the trend to develop?
Thanks. - Bill

While I can't be specific on how to play the stock Bill, I'd be
more than happy to review it for you.  The AMEX Biotech Index
($BTK) is up around 33% for the year, yet BGEN is not too far
from its 52-week low of $48.50.  Behind BGEN's demise was the
sell-off in the biotech sector, but more specifically, the
company was punished for missing first quarter earnings in early
April.  BGEN reported a 77 cent per share profit, but excluding
a one-time gain, the company fell two cents short of analysts'
43 cent estimate.  BGEN blamed the earnings shortfall on seasonal
weakness in sales of Avonex, its chief product.  Avonex, which
is used by patients to fight multiple sclerosis, has a 60% market
share, and analysts expect sales to grow by 30% this year.
Although analysts expected weakness in sales for the first
quarter, investors were scared away from the stock after the
earnings shortfall.  Since then, BGEN has been stuck in the
range that you mentioned Bill.

Fundamentally, BGEN is pretty much the same company it was when
it was trading near its high around $120, it's just a lot cheaper
now.  And it appears that Wall Street is warming up to the stock
once again.  Last week, Robertson Stephens raised its rating to a
Buy from Accumulate and increased its 2001 EPS estimates to $1.97
from $1.94.  Analysts expect Avonex sales to meet second quarter
estimates.  While BGEN's pipeline is considered thin, analysts
pointed out that the company is on track for FDA approval for
Amevive and Angiomax.  The two new drugs are expected to
significantly add to BGEN's royalty payments.  The biotech sector
holds great promise for main street and Wall Street and BGEN is
considered a bellwether within the group.  If the company gets
approval for its new drugs and continues to develop its pipeline
the stock price could expand.  Especially considering its
relatively low multiple like you pointed out Bill.

The chart for BGEN is not a pretty picture.  But the technicals
are improving.  The stock gapped higher Friday morning and
attempted to break-away from congestion.  The thing that concerns
me is the lack of interest in the stock.  I normally like to see
a breakout confirmed with at least 1.5 times the stock's ADV.
There's not much resistance immediately above, so the stock could
move fast if the buyers return in a convincing way.  The improved
outlook provided by Robertson Stephens last week might be the
catalyst to lift BGEN from congestion.  However, if the breakout
fails the stock will probably fall back into its trading range.




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

Qualcomm - QCOM

Tell me, oh wise one, what might the future hold.  Seriously,
this stock has to be a bargain @ < $70.  What are your thoughts?
- Jon

Believe me Jon, I've a long ways to go before becoming a "wise
one".  I reviewed QCOM a while ago, but I thought it would be
pertinent to take a look at the company again in light of the
recent developments.  What does the future hold for QCOM?  To be
quite honest, it doesn't look very good for the endeared QCOM.
The biggest factor weighing on shares of QCOM right now is the
ongoing debate over whether QCOM's code division multiple access
(CDMA) technology will be used in China.  With the free trade
agreement passed allowing China into the WTO investors cheered
the idea of telecom equipment makers entering into one of the
world's biggest markets.  But then came the announcement last
Wednesday that China Unicom (China's #2 phone carrier) would not
adopt QCOM's CDMA wireless standards.  Instead, China Unicom
will continue to use the competing Global Standard for Mobile
Communications (GSM).  The GSM system currently accounts for 55%
of market share throughout the world.  Analysts argue that it
makes little sense for China Unicom to build networks using the
current CDMA technology.  Instead, they suggest that Unicom
should wait for the next generation of CDMA technology to be
developed.

The story became more interesting last Thursday when the China
Daily newspaper cited a spokesman at China Unicom as saying the
plans to build a CDMA network were "still on track".  The
statement was contradictory from what company officials had said
earlier in the week.  Wall Street is mixed over the future of
QCOM.  AG Edwards upgraded the stock last week to a Buy rating
from Accumulate.  But, Chase H&Q telecom analyst, Edwin Snyder
said he expects QCOM to extend its decline into the "next quarter
or two".  Snyder went on to say that besides the uncertainty
about the China situation, QCOM is hurting in domestic areas,
including concerns over retired employees pension plans.  The
stock has shed 55% in the last two months and is trading at
levels not seen since last November.  If the rumors of China
Unicom adopting QCOM's CDMA technology come to fruition, the
stock could easily regain its lost ground.  But rumors are
usually just that, and carry a great deal of risk.




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

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



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

As of Market Close - Friday, June 2, 2000

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

DOW Industrials   10,200  11,400  10,794    Neutral   5.05
SPX S&P 500        1,350   1,500   1,477    Neutral   5.30
OEX S&P 100          725     800     793    Neutral   5.30
RUT Russell 2000     450     550     513    Neutral   5.05
NDX NASD 100       3,000   4,000   3,756    Neutral   5.30
MSH High Tech        800   1,000   1,012    BULLISH   6.02  **

XCI Hardware       1,250   1,600   1,484    Neutral   5.30
CWX Software       1,050   1,300   1,312    BULLISH   6.02  **
SOX Semiconductor    850   1,200   1,158    Neutral   5.30
NWX Networking       900   1,100   1,134    BULLISH   6.02  **
INX Internet         500     800     633    Neutral   5.30

BIX Banking          530     600     643    BULLISH   6.01
XBD Brokerage        400     500     495    Neutral   5.05
IUX Insurance        540     620     654    BULLISH   5.16

RLX Retail           850   1,000     915    Neutral   6.02  **
DRG Drug             355     400     376    Neutral   4.28
HCX Healthcare       710     800     764    Neutral   4.28
XAL Airline          140     155     165    BULLISH   5.25
OIX Oil & Gas        265     300     303    BULLISH   5.11

Posture Alert
Tame inflation numbers sent investors into a buying spree this
past week, as the Dow gained +4.9% while the NASDAQ added a
stunning +19%. Sectors leading the way Friday include Internet
(+11.21%), Brokerage (+8.73%), and Semiconductors (+8.48%). With
this most recent action, we have upped Retail to Neutral from
Bearish. We have also upped Software, Networking, and the Morgan
Stanley High Tech to Bullish from Neutral.



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

Cautiously Optimistic!

Buyers came out in force this past week, as tame inflation
numbers sent the broad market indexes up with a fervor. The
NASDAQ, which posted its best week ever (both percentage and
point wise), shot up 608 points for a +19% gain! The DOW also had
a good week, as it posted a +4.8% gain. Volume was impressive as
well, as the NASDAQ traded close to 2 billion Friday, while the
NYSE managed 1.1 billion shares.

The speed at which market sentiment now shifts is truly amazing.
Just take a look at the bond market. Last week, everyone was on
Fed Watch, speculating how high rates were going. If you listened
to the talking heads on CNBC, you would have believed that rates
were going higher for the rest of the year. However, after this
past weeks economic indicators, the consensus now believes that
after this next rate hike, no more will follow. All one had to do
was watch the Banking Index to get some clues. In our Market
Posture section, we upgraded the BIX early last week. As you can
see, it has performed quite well since then. But more
importantly, is the fact that this index has been climbing higher
even in the face of adversity (Greenspan) and before Friday's
employment data. For those trend followers, what the Banking
Index was indicating based on its actions, was that higher rates
were soon coming to an end. It works both ways though, as this
sector got brutalized before the onslaught of numerous rate
hikes. But now, it is indicating that the rate hikes will soon
be done with, and that, is what the street is rejoicing now.

Back on February 27, Pinnacle highlighted several sectors that
were primed for a reversal. The 3 were Banking, Airlines, and
Insurance. The sentiment on those sectors couldn't have been
worse. But reversals are powerful, and the returns on those three
indexes since we highlighted them are +36%, +41%, and +41%.
Pretty good returns given this market environment.

http://members.OptionInvestor.com/archive/marketsentiment/022700_1.asp

Finally, with this past week's big performance and change in
sentiment on interest rates: Has a lot of the upside been taken
out of this market in the near term? If the next couple of
economic indicators show a slowing economy, will this propel the
NASDAQ up another 19% and the 30-yr Treasury down to 5.5%? Will
the bulls be willing to buy some stocks that are now up 25% in
one week? These are the questions that are on our minds.

Pinnacle has highlighted the NASDAQ short interest, and stated
numerous times that if we get any good news we will witness a
major run as the shorts get squeezed. This has now happened. Now
to answer the questions above, we do think that a lot of the
upside has been taken out in the short term. We may see some
continued pressure to the upside as more shorts throw in the
towel, but based upon the Pinnacle Index for the OEX, we may be
nearing the top of the trading range in the near term. We are a
few weeks away before the Fed meeting as well as the start of the
negative prerelease season. So given the swift and dramatic move
in this market, we are cautiously optimistic! Have a good week!


BULLISH Signs:

Interest Rates (5.935):
With the long bond breaking below the crucial 6% benchmark, fears
of higher rates may finally be subsiding.

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. With the
tame inflation numbers posted this past week, it was quite
evident that a major short squeeze was occurring.


Volatility Index (24.11):
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. It appears that the VIX is heading back to the
trading range of old, after spending numerous weeks in uncharted
waters.


Mixed Signs:

Slowing Economy:
If the economy is truly slowing down, we will start feeling the
effects once corporate earnings report over the next couple of
quarters.


BEARISH Signs:

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.


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

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                        (6/2)        (6/6)       (6/8)
*****************************************************************
Overhead Resistance (805-825)    24.20
Overhead Resistance (775-800)     5.74

OEX Close                       792.69

Underlying Support  (745-770)     1.28
Underlying Support  (715-740)     3.47


What the Pinnacle Index is telling us:
Overhead resistance is strong, indicating that the OEX will have
a tough time clearing this level.


Put/Call Ratio
*****************************************************************
                                Friday      Tues       Thurs
Strike/Contracts                (6/2)      (6/6)      (6/8)
*****************************************************************


CBOE Total P/C Ratio             .41
CBOE Equity P/C Ratio            .32
OEX P/C Ratio                   1.18


Peak Open Interest (OEX)
*****************************************************************
                     Friday          Tues            Thurs
Strike/Contracts     (6/2)          (6/6)            (6/8)
*****************************************************************

Puts                740  / 8,382
Calls               800  / 6,553
Put/Call Ratio        1.29



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

June 2, 2000                            24.11



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

For the week of June 5, 2000

Monday

NAPM Services            May    Forecast:   63.0   Previous:   65.0

Tuesday

Productivity - Rev.      Q1     Forecast:   2.4%   Previous:   2.4%
Wholesale Inventories    Apr    Forecast:   0.4%   Previous:   0.7%

Wednesday

Consumer Credit          Apr    Forecast:  $7.5B   Previous:  $9.1B

Thursday

Initial Claims           06/03  Forecast:  280 K   Previous:  286 K
Export Prices ex-ag.     May    Forecast:    N/A   Previous:  -0.2%
Import Prices ex-oil     May    Forecast:    N/A   Previous:   0.1%

Friday

PPI                      May    Forecast:   0.2%   Previous:  -0.3%
Core PPI                 May    Forecast:   0.1%   Previous:   0.1%

Week of June 12th

06/13 Retail Sales
06/13 Retail Sales ex-auto
06/14 CPI
06/14 Core CPI
06/14 Business Inventories
06/14 Fed Beige Book
06/15 Initial Claims
06/15 Industrial Production
06/15 Capacity Utilization
06/15 Philadelphia Fed
06/16 Housing Starts
06/16 Building Permits
06/16 Michigan Sentiment



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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                     Sunday 6-4-2000
Sunday                                                      2 of 5


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

Assessing Volume In A Volatile Market
By Mary Redmond

Once again this week, we witnessed the pattern of increasing
volume on the up days and decreasing volume on the down days.
The issue of whether or not we need to see the same type of
volume we saw during the rallies of previous months has been
raised.  Some analysts have suggested that volume of 2 bln
shares or more on the NASDAQ might have been an aberration.
Those same analysts believe volume of approximately 1.5 bln
shares may be enough to sustain a strong rally.

A comparison of the NASDAQ volume figures over the past five
months illustrates the trend.  In the month of January, volume
on the NASDAQ was reported at 34.8 bln shares.  February's
volume was slightly higher at 35.2 bln shares.  Volume in March
was the heaviest with 43.7 bln shares.  In April, volume came in
at 35.6 bln shares.  May trading ended Wednesday with monthly
volume of 30.7 bln shares.

Using an average of 20 trading days per month, this works out
to an approximate average daily volume of 1.74 bln shares in
January and February, 2.1 bln shares in March, 1.78 bln shares
in April, and 1.5 bln in May.  Perhaps more important than the
daily volume is the comparison of up days to down days.  If the
pattern shows that the up days in the market have stronger volume
than the down days, it can indicate that buyers are increasing
and sellers are decreasing.

Another factor is worth considering.  The Investment Company
Institute reported that approximately $33.7 bln in net new cash
went into equity mutual funds in April.  Approximately 14.5% of
the cash deposited in April was kept in money market funds.  This
net new cash was less than the inflows reported in January and
February.  However, the NASD has reported that block trade
activity on the NASDAQ between January 2000 and April 2000 was
approximately 21% of the total volume, about 375 mln shares on a
good day.

Last January, 346,627 block trades were reported on the NASDAQ,
an average of 17,331 per day.  In February, 367,798 block trades
were reported, around 18,389 block trades per day.  March had
435,078 block trades, or approximately 21,700 per day.  In April,
377,448 block trades took place, about 18,875 per day.

If you compare the number of daily block trades during these
months to the past two weeks, you'll see that they are very
similar.  As I see this, the remaining NASDAQ volume probably
was retail customers who lost money and got out.  It appears
that institutions were strong buyers this week.  On Tuesday,
May 30th, there were 11,093 block trades reported on the NASDAQ.
Wednesday, May 31st had 16,578 block trades and 19,351 on
Thursday, June 1st.

AMG Data Services reported that $7.5 bln went into the equity
funds for the week ending May 31st, with over 50% of the money
going into growth funds.  This number very well may have been
higher if we didn't have a holiday on Monday.  Retail money
market funds experienced an outflow of approximately $3.7 bln,
yet there is still over $1.67 trln in money market funds.  For
the month of May, the total cash flow to equity funds was in the
range of $9.5 bln, approximately one third of the levels seen in
the previous months this year.

If you are like most people, then you put a significant
percentage of your retirement savings in the stock market.  We
have found over time that this is the best way to earn compound
interest.  However, the volatility in today's market is
unprecedented, and wild price swings in certain stocks are
almost inevitable.  Some people may not feel completely
comfortable putting all their money in the market these days,
especially after experiencing dramatic losses in the last
couple of months.

In certain cases, options may be able to provide a degree of
protection from losses on some stocks.  If you purchase a put
option when you purchase a stock, then you have protection
against loss for a period of time.  The problem is that most
volatile stocks usually have expensive put options, which will
increase the cost of your stock purchase.

One possible solution is to look for a stock which pays a high
dividend and use the dividend to pay for the put.  The risk in
this case could be if the company is forced to cut the dividend
for any reason.  Usually stocks will not pay enough of a dividend
to cover the full price of a long term put, but sometimes they
can cover a significant percentage.  For example, a couple of
weeks ago I bought Greenpoint Bank which pays a dividend of $1
per share.  At the time, the Jan 20 put was trading at $1, so the
put would be paid for if I held the stock long enough to collect
the dividend.

Another possible solution might be to look at the stocks you are
interested in and see if they have convertible preferred stock
which pays a high dividend.  Or convertible bonds which pay
interest.  You can then use the dividend or interest to help
cover the price of the put.  Standard and Poors has a book of
convertible preferred stocks, and you would be surprised how many
high tech stocks issue them.  Sometimes you can use a dividend
in combination with a deep out-of-the-money call to cover the
cost of a put.

Contact Support


*****

Put Calendar Spreads Revisited
By Lynda Schuepp

First of all I need to apologize for the error in calculating
the return on the Put Calendar Spread that I wrote about last
Sunday.  It was really encouraging to get all of your emails
pointing it out to me.  Really, I'm serious.  First, that means
that you truly are reading my articles and second, you are not
accepting what the writers say at face value and that is precisely
what smart traders would do.  There are many writers and many
strategies, but when it all comes down to it, you have to make
your own decisions.  Our goal is to open your minds.  With that
said I am going to correct AND elaborate the strategy presented
last Sunday.  By the way, it still is a really neat play, as
you will soon find out.

I suggest you re-read my article first but to recap, I presented
a strategy that I learned about at our Options Club meeting.
I have not done the strategy myself and would never do a new
strategy until I had paper traded it first, which I always
recommend for readers to do.  The strategy consisted of selling
a nearer-term put and buying a longer term put with the same
strike price, very deep in the money, choosing a strike at a
previous resistance level.  The example I gave was JDSU using
the Jan'01 and Jan'02 puts with a strike price of 120. JDSU
was trading at 80-1/2.   In this example you would buy the
Jan 02 puts and sell the Jan 01 puts.  The Jan'02 put was
priced at 57-5/8 and the Jan'01 put was priced at 48-1/2.  The
net cost of putting on this spread would be 9-1/8.

The cost of the spread is your maximum risk.  Many of you
questioned why would the maximum risk be the cost of the spread.
In a worst-case scenario, you wake up tomorrow and JDSU is
trading at 1000 (remember that analyst's projection).  The
value of a 120 put might have some time value but in reality
a 120 put would be worthless if JDSU were trading at 1000.  You
couldn't sell or unwind your spread so you would lose your entire
investment of 9-1/8.

Ideally, you want the stock to run up to the strike by the near
term expiration, in this case Jan'01.   Most people don't like
to trade spreads of long-term options because they think they
have to wait around for 6 months but that is not the case.  While
waiting may prove to provide the maximum dollar return I, for
one, am happy to get 50% of the projected return in 1 or 2 months
and move on.

Speaking of maximum return, this is where I blew it.  So let's
make our projections and refigure this.  If JDSU gets to 120 by
Jan'01 the value of the Jan'01 120 put would expire worthless.
The value of our long leg, the Jan'02 120 put would now be an
"at the money" put with 1 year left to expiration.  We would
sell that leg but what would the value be?  We can conservatively
guesstimate by looking at the current Jan'01 at-the-money put
and see what it is currently trading at.  The current at-the-money
put at the time I wrote last Sunday's article was the Jan'01 80
put, which was selling at 20-1/8.  So the net return would be
20-1/8 less 9-1/8 (cost of the spread) or 11 points profit, a
mere 120% return.

Now lets review this trade, one week later for all you impatient
traders who thought they'd have to wait 7 months to make a profit.
Lets look at the prices of the legs as of Friday's close this
week and see what the spread is currently worth if we wanted to
close it out.

The Jan'01 put was priced at 33-3/8 and the Jan'02 was priced
at 46-3/8.  The value of the spread is now 13.  Remember we
bought the spread for 9-1/8, so we are already up almost 4,
which is about a 40% return in one week!  How do you like this
strategy now?

Now if you really want to tweak this strategy, here's another
twist.  This is for all you graduate students of options.
Suppose the spread does not move like JDSU did this past week,
but just plugs along merrily up to or near the 120 strike by
expiration in Jan'01.  If you believe the stock has further to
go to the upside, you could then write a nearer term put very
deep in the money.  So in the case of JDSU, if it were at 120
by Jan'01 instead of selling the Jan'02 put you would hold it
and write a 1 or 2 month put with a strike of 130 or 140.  Because
the time decay of the nearer month erodes disproportionately to
the leap, the value of the near term put would deflate faster
than the leap.  Then at the next expiration of the near term
option you would have the option of doing it again or selling
the Jan'02 put and closing out the trade.  By this time however,
time decay would be accelerating quite a bit on the Jan'02, so
you probably would want to close out the spread.  Now how's that
for something to think about this week.

Remember, look for those fallen angels-good quality stocks that
have gotten hammered.  If the current rally fails you will still
have lots of time to be right by trading leaps.  Bear markets
are short lived, and this may be the shortest one on record yet.

I have to sign off now, as I am 100 words over my limit.  Hope
you find this strategy useful.  Experiment, paper trade it,
because it really works.

Contact Support


*****

Staging an Index
By Molly Evans

Back in March when the markets were coming down like a ton
of bricks, I reported one play that had saved my sanity and
probably one of my accounts.  I had a healthy stake in
Citigroup puts.  In the ensuing weeks, the bear claws
continued to scratch me, so be as it may, human nature
encourages us to stay cozy with what we know and has
treated us well.  It's not good practice to be too cozy
with anything in the market, as you well know.  This mouse
tried to go back for her cheese in the Citigroup trap but
met little satisfaction or satiety.  It seems that someone
forgot to tell Citigroup that we had a bear market raging
around it.  What a resilient one!  I didn't lose money, I
just didn't make any.  It just didn't make sense to me that
in this interest rate and Fed board obsessed market that the
financials were doing so well.  Honestly, I made good effort
to short these guys to no avail.  American Express clawed
me pretty good in fact.  It just didn't make sense so I had
to ask someone in the know.

Let this be testimony to the power and utility of the
internet.  Quite by accident, I found Derek Baltimore of
Pinnacle Portfolio Advisors in Denver, who was kind enough
to give me an online lesson in banking and financial
companies.  My question to him was, "I'd like to know how
rising interest rates affect companies like American Express,
Fannie Mae, Citigroup, JP Morgan etc. Do they get hurt
because costs are higher for them or do they help them
because they can charge higher on credit cards and home
loans etc?  I always thought that the financials got hit
when the rates rose but if you look at the stock prices of
Citigroup and AXP - they're strong!"

In a couple of emails, I had a much better understanding of
the macro picture.  As Derek explained, "In theory, rising
interest rates allow credit card companies and banks to
charge more interest to clients. However, since banks are
also forced to pay higher interest rates to borrowers
(liabilities, i.e. customers), their spread (difference
between what it cost them to borrow and the rate at which
they can lend) is narrowed.  Sixteen months ago, banks could
pay 175 basis points less than they currently have to pay for
short-term money, i.e. Fed Funds.  So, they could pay client
(savings acct) 3.50% (or usually less) for their money, and
lend it out to a (for instance) mortgage borrower for say,
8.0%, a spread of 4.50% (275 basis points).  Now, they have
to pay the same client (saver) 1.75% more for the use of their
money, (now 5.0%) and the exact same mortgage has only
increased about .80% to 8.80% so their spread has narrowed to
3.80%. In addition, in a rising interest rate environment,
consumers tend to slow their borrowing due to the higher cost
of money---so banks not only have less spread in their product,
but are faced with lower demand. To quell this slow down in
demand, banks will tend to be more competitive, i.e. even
further reduce their normal spread. While this may seem
a small amount, when you calculate the 70 basis points
difference on a 1 Billion dollar mortgage portfolio, you get
a $7,000,000 difference in income.  In addition, a rising
interest rate environment hurts a financial institution's
capital position as the value of their investment portfolio
decreases due to higher interest rates. (Fixed rate bonds
decrease in value as rates go higher --as new investors chase
the higher yielding bonds)."

"So Mr. Baltimore," I asked, "Why are the financials holding
up so well in this market in the face of rising interest
rates?"

"The response of the stocks you refer to is hard to predict.
Most of these companies are selling at very low multiples,
and with the crumbling of the Glass-Stegal Act in 1999 which
allowed banks, brokerages, and insurance companies to all
co-exist together under one roof; these financial powerhouses
no longer SOLEY rely on interest income for their profits.
Much more of their income (more and more each year) comes
from non-interest items.  For instance, Capital Markets
underwriting, insurance premiums, commissions from brokerage
transactions, etc.  Your example of Citigroup is a perfect
example.  They now own Soloman-Smith Barney (Brokerage),
Travelers (Insurance), as well as their banking and own
Capital Markets operations (Citibank Securities)."

Aahh!  I get it now.  I know I wasn't the only one that
didn't know how all this related.  CNBC kept asking the
question and noting with interest how the financials were
holding up so well when the broader markets were flailing.
Yet, something kept nagging at me about all of this.  Back
in March, at the OIN meeting, Austin Tanner presented what
I thought was the most valuable portion of the entire
conference.  In discussing various sectors, we looked at
charts of the "stages" each was in at the present time.
I distinctly recalled that banking and financials were in
"Breakdown!"  I had to pull up my OIN disk that we were
presented upon exiting the seminar.  There it was, AXP was
the charted example and the banking index was clearly in the
breakdown stage.

You don't have to do the work of looking at each sector to
go finding which stage it's in.  That information is readily
found on the OIN site in an easy to read format.  Under the
Market Posture heading, Pinnacle Capital Advisors has
designed a powerful tool to inform traders when they might
initiate new positions in sectors with momentum in their
favor.  As it says in the explanation, "OptionInvestor.com
is the only website that states and regularly updates its
market posture across industry sectors. Investors who
reference this section first before planning their trades
will gain a decided advantage. The time horizon of our stated
market posture is generally 2-3 weeks and is based upon a
number of fundamental, technical and sentiment indicators."
Don't skip this section of the newsletter or site folks.
It's gold.

Looking at it today, I see that Banking (BIX) has turned
bullish on June 1.  You have to understand how they arrive
at this.  It's not just pulled out of the air since they
saw that a bunch of bank stocks went up in the past week.
As with everything, you have to look at the chart.  This is
a daily chart of the one of the banking indexes.




There are more but the one that Pinnacle looks at is the
BIX or the S & P's banking index.  To classify as "Breakdown"
stage, a stock or in this case index must: 1) violate a
long-term moving average (200 day) 2) are usually high P/E
stocks with faltering earnings growth 3) show lower highs,
lower lows and 4) the moving average turns downward above
the price.  The breakdown stage is the last of 4 stages
before a new cycle starts all over again.  Stage 1 is
Bottom Consolidation, Stage 2 is Breakout, Stage 3 is
Top Consolidation and Stage 4 is Breakdown.  What this
means, is that the BIX went through both stages 4 and 1
and is now at stage 2 or Breakout.  This is an interesting
topic so we'll discuss it further in the coming weeks.

Hope you all did well this week and continue to do so!

Contact Support




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

Index      Last    Week
Dow     10794.76  495.52
NASDAQ   3813.38  608.27
$OEX      792.69   56.61
$SPX     1477.26   99.24
$RUT      513.03   55.66
$TRAN    2829.36  141.81
$VIX       24.11   -3.38

Calls              Week

CHKP      233.69   71.19  Does this remind you of March or what?
SDLI      260.38   62.63  Only a plus $60 gain!!!
RMBS      217.38   54.38  In the middle of a stellar split run
RBAK      112.56   40.50  A nearly 50% move this week
AMCC      128.81   39.13  Semiconductors back in the spotlight
CIEN      138.31   38.63  A solid entry at $100 led us to profits
ITWO      129.13   33.63  It's good to be B2B again
SCMR      110.00   33.50  Networkers on fire, but use caution
TQNT      114.38   31.22  A familiar name back from the dead
EXDS       87.13   25.13  A fantastic recovery to say the least
PDLI      125.13   25.06  Showing intensifying momentum
YHOO      134.50   22.44  Is the earnings run officially underway?
ADI        89.00   21.06  Turbo-charged to new highs on Friday
MERQ       92.44   20.56  Teetering at a breakout over resistance
SEPR      108.81   17.63  Back above water over $100 support
MU         79.25   13.88  Another new high during the earnings run
CPN       111.31   10.31  Splitting 2:1 this Thursday
PGR        93.13    0.63  Off to a rough start, but holding support

Puts

BUD        72.69   -8.63  In need of profit-taking after long run
MRK        68.94   -5.63  The entire sector is under pressure
CL         54.50   -1.25  Cyclicals are falling back out of favor
CAH        63.56   -1.19  Forgotten as money runs to techs
TRW        50.69    2.69  Dropped, the trend found an end
EXTR       56.56   12.50  Dropped, gapped up on Friday
DCLK       54.50   13.38  Dropped, the NASDAQ was too strong


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

Calls

PDLI - Protein Design Labs
MERQ - Mercury Interactive

Puts

CAH - Cardinal Health
BUD - Anheuser Busch


***************************
PICKS WE DROPPED THIS WEEK
***************************

Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


CALLS

No dropped calls today.

PUTS

DCLK $54.50 (+13.38) DCLK went sailing higher Friday, following
the Internet sector into the stratosphere.  The stock received
yet another upgrade Friday, this time coming from AG Edwards, who
raised their rating on DCLK from Accumulate to Buy.  The stock
gapped nearly $4 higher after the morning upgrade, then came the
midday call from Mary Meeker.  The influential Morgan Stanley
Internet analyst said Friday afternoon that the worst was over in
the Net sector.  Meeker's comments sent Web stocks into orbit.
DCLK faces uncertainty as the Senate hearings on Internet privacy
continue, but we don't want to stand in the way of this newly
discovered momentum in the Net sector.

EXTR $56.56 (+12.50) The broad technology rally late last week
was too much for the bears, and even beaten down issues like
EXTR participated.  The stock paused at the 10-dma on Thursday,
but Friday's good employment numbers propelled it strongly
upward at the open on Friday, along with the bulk of Networking
stocks.  Gaining over $7 on very strong volume, EXTR broke above
the descending trendline, which began in late March.  After
pushing above resistance at $55, our play held its gains all day
and was moving higher again towards the end of the session.  It
looks like the bad news has been played out and investors are
focusing once again on the positive.  We will take our cue from
them, and move on to other plays.

TRW $50.69 (+2.69) There was just too much positive economic
data last week for TRW to continue downhill.  Finding support
early in the week near $48, the stock was buoyed by strong moves
across all the major indices.  The economic data last week all
pointed to a slowing economy, giving investors hope that the
interest rate hikes are having their desired effect and that
the Fed may be nearing the end of this series of increases.
Even news of declining auto sales (70% of revenues come from
this sector) couldn't dampen enthusiasm for shares of TRW, as
the issue pushed through the 10-dma ($50.38) on Friday.
Resistance did finally appear at the 200-dma ($50.94), but
after the pullback TRW headed higher for the balance of the
day.  With the technical picture changing so dramatically, we
say goodbye to our play this weekend.


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

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

Symbol - Stock          Splits/Date
NXTL - Nextel Comm      2:1 06-06-00 ex-date 06-07
FKL  - Franklin Capital 3:2 06-07-00 ex-date 06-08
CPN  - Calpine Corp.    2:1 06-08-00 ex-date 06-09
CAKE - Cheesecake Fact. 3:2 06-08-00 ex-date 06-09
VSH  - Vishay Intertech 3:2 06-09-00 ex-date 06-12
LMGA - Liberty Media Grp2:1 06-09-00 ex-date 06-12
CMB  - Chase Manhattan  3:2 06-09-00 ex-date 06-12
ANEN - Anaren Micro     3:2 06-09-00 ex-date 06-12
AA   - Alcoa            2:1 06-09-00 ex-date 06-12
HC   _ Hanover Comp.    2:1 06-13-00 ex-date 06-14
RHI  - Robert Halg Intl 2:1 06-12-00 ex-date 06-13
RMBS - Rambus           4:1 06-14-00 ex-date 06-15
HSP  - Hispanic Broad.  2:1 06-15-00 ex-date 06-16
CKH  - Seacor Smit Inc. 3:2 06-15-00 ex-date 06-16
IFIN - Investors Fin.   2:1 06-15-00 ex-date 06-16
CYBE - CyberOptics      3:2 06-15-00 ex-date 06-16
MXT  - Metris Companies 3:2 06-15-00 ex-date 06-16
JNPR - Juniper Networks 2:1 06-15-00 ex-date 06-16
IPAR - Inter Parfums    3:2 06-15-00 ex-date 06-16
NXLK - Nextlink         2:1 06-15-00 ex-date 06-16
CHP  - C&D Technologies 2:1 06-16-00 ex-date 06-19
DLTR - Dollar Tree      3:2 06-19-00 ex-date 06-20
RHB  - RehabCare Grp.   2:1 06-19-00 ex-date 06-20
MTZ  - MasTec Inc.      3:2 06-19-00 ex-date 06-20
SEIC - SEI Investments  3:1 06-19-00 ex-date 06-20
POOL - SCP Pool Corp.   3:2 06-19-00 ex-date 06-20
MEAD - Meade Inst.      2:1 06-19-00 ex-date 06-20
EXDS - Exodus Comm      2:1 06-20-00 ex-date 06-21
AAPL - Apple Computer   2:1 06-20-00 ex-date 06-21
KG   - King Pharma.     3:2 06-21-00 ex-date 06-22
CDWC - CDW Computer     2:1 06-21-00 ex-date 06-22
NVDA - NVIDIA Corp.     2:1 06-26-00 ex-date 06-27
MRCL - Micrel Inc.      2:1 06-27-00 ex-date 06-28
BRL  - Barr Lab.        3:2 06-28-00 ex-date 06-29
AMFC - AMB Financial    3:2 06-30-00 ex-date 07-03
TQNT - TriQuint Semi.   2:1 07-11-00 ex-date 07-12
IWOV - Interwoven       2:1 07-13-00 ex-date 07-14
XETA - Xeta Corp        2:1 07-17-00 ex-date 07-18
TBL  - Timberland Comp. 2:1 07-17-00 ex-date 07-18
TIF  - Tiffany and Co.  2:1 07-20-00 ex-date 07-21
INTC - Intel Corp.      2:1 07-28-00 ex-date 07-31
AIG  - American Intl.   3:2 07-28-00 ex-date 07-31
POS  - Catalina Mktg.   3:1 08-17-00 ex-date 08-18

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



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

Call Play of the Day:
**********************

CPN - Calpine Corp $111.31 (+10.31)

See details in sector list

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


Put Play of the Day:
********************

MRK - Merck & Co $68.94 (-5.63)

See details in sector list

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



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

SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

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

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.



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

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

SCMR - Sycamore Networks $110.00 (+33.50)(-4.44)

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

Walking the tight rope without a safety net - that's what trading
SCMR is like these days.  You just can't find a hotter sector
than optical networking.  With the huge gains on the NASDAQ last
week, it's no surprise that SCMR, the emerging king of pure play
optical networking gained 44% in price.  While Friday saw lots of
short covering, at over twice the ADV, the action was more than
just covering.  Institutions not wanting to miss the train's
departure were piling on in droves.  Need evidence?  Look no
further than 63 block trades.  SCMR is fundamentally on fire.
Technically, it's on fire too, but watch for flameout despite the
incredible strength.  Here's why.  SCMR broke through strong
resistance of $94 in a "gap up" opening at $97 followed by a
buying frenzy.  The island created will likely be tested when the
panic buying halts.  Not only that, but mild resistance is
encountered at $113 with a strong resistance hurdle at $120.
Blend in a lopsided favoring of open interest in JUN-120 calls(1088)
over JUN-120 puts(40), and you have a recipe for major pullback.
Also, with the 5-dma back at $90.88 and the 10-dma way back at
$83.64, there is a lot of technical room to fall, and other than
panic buying, there is not much reason for SCMR to move up in the
very short run.  We're not saying it will reach down to that
level.  But having come so far so fast, count on some give back.
That said, it might behoove you to move your stops up to Friday's
intraday support levels of $108, or even $105 if you have enough
profit to allow for some jiggle room.  Otherwise, we'd be looking
for a pullback to $100, $97, or even $94 to make an entry.  It's
been fun and looks like there could be more fun, but common sense
says it can't go up forever.  Open new plays with caution.

It's not all fear and quivering.  This week, the SuperComm
conference in Atlanta will host what seems like every major
telecommunications company in the world, with the hot optical
networking gear sector taking center stage.  An SG Cowen analyst
has SCMR slated to have a big presence at the show, along with
LU, NT and CIEN.  Look for positive news to lend support on any
pullback.

***June contracts expire in 2 weeks***

BUY CALL JUN-100*QSM-FT OI=1573 at $14.13 SL=10.50
BUY CALL JUN-110 QSM-FB OI= 272 at $ 8.50 SL= 6.00
BUY CALL JUN-120 QSM-FD OI=1088 at $ 4.00 SL= 2.50
BUY CALL JUL-110 QSM-GB OI=  36 at $15.13 SL=11.00
BUY CALL SEP-120 QSM-ID OI= 197 at $16.25 SL=11.50

SELL PUT JUN-100 QSM-RT OI=263 at $ 3.25 SL= 5.25
(See risks of selling puts in play legend)

Picked on May 28th at   $76.50     P/E = 93
Change since picked     +33.50     52-week high=$199.50
Analysts Ratings     8-3-0-0-0     52-week low =$ 47.25
Last earnings 05/00  est= 0.02     actual= 0.05 surprise = 150%
Next earnings 08-17  est= 0.06     versus= N/A
Average Daily Volume = 3.7 mln
/charts/charts.asp?symbol=SCMR


RBAK - Redback Networks $112.56 (+40.50)(+9.13)

Founded in 1996 and headquartered in Sunnyvale, Calif., Redback
Networks is a leading provider of advanced networking solutions
that enable carriers, cable operators, and service providers to
rapidly deploy broadband access and services.  The company's
market-leading Subscriber Management Systems (SMSs) connect and
manage large numbers of subscribers using any of the major
broadband access technologies such as Digital Subscriber Line
(DSL), cable, and wireless.  To deliver integrated transport
solutions for metropolitan optical networks, Redback's SmartEdge
multi-service platforms leverage powerful advances in
application-specific integrated circuit (ASIC), IP, and optical
technology.  With this product portfolio, Redback Networks is the
first equipment supplier focused exclusively on developing
integrated solutions for the New Access Network.

You thought SCMR was hot, take a look at RBAK - up 56% for the
week.  Wholly bandwidth blowout, Batman!  The next big thing in
optical networking is metro-DWDM (dense wavelength division
multiplexing, meaning the stuffing of many light signals into a
single fiber).  RBAK is as hot as it gets with DWDM, unless you
are the proud owner of last week's hot IPO, ONIS (up 288% on its
Thursday debut).  How'd it happen?  According to Red Herring,
"Redback has shown early success in integrating Siara, the
company it got last year for $4.3 billion.  This week, Redback
announced a metropolitan-area networking product, the SmartEdge
800, that is based on application-specific integrated circuits
(ASICs) engineered by Siara.  The product appears to have legs,
and has made Redback one of the new favorites on Wall Street."  A
Brean Murray analyst continues to rate it as a Buy, saying, "It
has as much upside as Juniper at half the valuation."  How about
the technicals?  RBAK is really strong there too.  Friday's
volume of 5 mln shares was almost twice the ADV, which had RBAK
breaking clean over its $100 firm resistance in a "gap up"
opening at nearly $107.  That's an island that will likely be
retested soon when the panic buying stops.  Like SCMR, RBAK has
come a long way fast.  So you might want to tighten up your stops
to Friday's opening price at $107 or intraday support of $110 if
you don't have much wiggle room.  Either way, protect your
profits.  The next major historical support is at $92, then $88.
For the gunslinger types, there is historical resistance at $108
from January, which could act as fresh support.  But it isn't
ironclad.  If it holds up well there, you can consider taking a
new position following a bounce as long as volume remains intact.
However, with the 5-dma at $90.25 and the 10-dma way back at
$77.86, RBAK is in thin air and is in danger of asphyxiation, or
a big pullback.  There is nothing to support it here.
Nonetheless, a possible oxygen source this week could be the
SuperComm conference in Atlanta, which could keep the whole
sector flying high.  Exercise caution in opening new plays.

Want more good news?  A Lehman Bothers analyst, Steve Levy, has
upped his Redback revenue forecasts as a result of the
development of the new Siara product line.  He sees it
contributing $15 mln in revenues to the second half of 2000,
as well as $120 mln to the 2001 forecast.  He expects $190.9 mln
of total revenue in 2000 and $440.2 mln in 2001, with earnings
per share of $0.46 predicted for 2001.  He has reiterated a Buy
rating with a $160 price target for year-end.  In a related issue,
RBAK announced an alliance with IBM to have IBM manufacture it
copper-interconnect ASICs chips for use in the new metro-DWDM
SmartEdge equipment.

***June contracts expire in 2 weeks***

BUY CALL JUN-100 BUK-FT OI= 353 at $17.88 SL=13.00
BUY CALL JUN-110*BUK-FB OI=1038 at $12.00 SL= 9.00
BUY CALL JUN-120 BKK-FD OI=  62 at $ 7.38 SL= 5.00
BUY CALL JUL-110 BUK-GB OI=  84 at $20.13 SL=14.50
BUY CALL OCT-120 BKK-JD OI= 311 at $28.00 SL=19.00

SELL PUT JUN-110 BUK-RT OI=   4 at $ 4.00 SL= 6.00
(See risks of selling puts in play legend)

Picked on May 18th at   $72.06     P/E = N/A
Change since picked     +40.50     52-week high=$198.50
Analysts Ratings     9-3-1-0-0     52-week low =$ 20.00
Last earnings 04/00  est= 0.03     actual= 0.05 surprise = 33%
Next earnings 07-12  est=-0.06     versus=-0.05
Average Daily Volume = 2.7 mln
/charts/charts.asp?symbol=RBAK


********************************
CALLS CONTINUED IN SECTION THREE
********************************


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****************************
SEE DISCLAIMER IN SECTION ONE
The Option Investor Newsletter                     Sunday 6-4-2000
Sunday                                                      3 of 5


***************
CALLS CONTINUED
***************

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

CIEN - Ciena Corp $138.31 (+38.63)(-16.81)

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

The telecom sector was on fire Friday!  The tame jobless report
Friday signaled the economy is slowing which in turn should lead
to fewer interest-rate increases.  And that would be a welcome
sign to the fast-growing, cash-intensive telecom companies like
CIEN.  While the long-term outlook in the telecom sector clearly
favors the fiber optics area, the SuperComm 2000 conference might
provide fireworks in the sector in the near-term.  CIEN will
showcase its two latest product offerings at the three-day
seminar that begins Tuesday.  CIEN will demonstrate its
Intelligent Optical Internet architecture that the company uses
to turn networking intelligence into new optical services.
Patrick Nettles, CEO of CIEN, said, "This will be the first time
that all the different network systems are available for true
dynamic delivery of new optical services.  At SuperComm, CIENA
will demonstrate how to achieve next-generation service delivery
today."  Investors bid shares of telecom equipment-makers higher
in part from anticipation of the upcoming conference.  And
analysts expect good news from CIEN next Tuesday as we'll expand
upon further below.  On the heels of the positive economic data
released Friday morning, CIEN gapped over $9 higher on impressive
volume to boot.  The stock still faces congestion above its
current levels at $140 and again at $145.  The wide intra-day
price swings have provided good entry points recently, so continue
to use the volatility to look for entry.  Consider your risk
levels and shoot for entry points as CIEN clears its resistance
levels.  Consider a bounce from support at $135 as an entry if
the profit takers come out of hiding Monday.  If the stock
stumbles make sure momentum resumes before entering the play.

Optical networking companies will take center stage next week at
the Annual SuperComm conference in Atlanta.  Jim Kedersha, SG
Cowen's telecom analyst, said CIEN is expected to display its
switching technology at the gathering.  A spokesman for CIEN
added that the company will be making some announcements but he
wasn't specific about what they might be.

***June contracts expire in 2 weeks***

BUY CALL JUN-135 UEE-FG OI= 527 at $12.00 SL= 9.00
BUY CALL JUN-140*UEE-FH OI=1371 at $ 9.75 SL= 6.50
BUY CALL JUN-145 UEE-FI OI= 633 at $ 7.63 SL= 5.25
BUY CALL JUL-140 UEE-GH OI= 376 at $18.88 SL=13.50
BUY CALL OCT-145 UEE-JI OI= 705 at $29.25 SL=20.00

Picked on May 25th at   $104.50    P/E = 586
Change since picked      +33.81    52-week high=$189.00
Analysts Ratings     11-8-1-0-0    52-week low =$ 26.81
Last earnings 04/00   est= 0.10    actual= 0.12
Next earnings 08-17   est= 0.16    versus= 0.01
Average Daily Volume = 6.45 mln
/charts/charts.asp?symbol=CIEN


ADI - Analog Devices $89.00 (+21.06)

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.

This turbo-charged racer is breaking the record books quicker
than anticipated!  The friendly economic news on Friday flagged
the buyers and ADI shattered its all-time high as it came off
the line.  The 52-record now stands at $95.31.  Volume was
almost double the ADV throughout the session.  And in spite of
some mild profit taking mid-afternoon, ADI finished in a lead
position closing above Thursday's daily highs.  ADI started its
strong momentum run this week after bursting through a tough
resistance level at $70.  The broad market rally and its favored
sector initially propelled ADI from the depths of $61 last seen
on May 24th.  However, welcoming product releases and an
upcoming showcase conference is also generating some excitement.
Earlier in the play there was concern as to whether ADI could
maintain a share price above $70, but now the level to watch is
in the proximity of the 5-dma ($78.39).  If there's a pullback,
then $80 should be the cut-off for support.  Anything lower than
that is a sign of trouble.  Granted ADI has seen huge advances
in recent trading, but the past two sessions indicate a near-
term support should easily evolve around $83-$85, or higher.

The semiconductor industry saw worldwide sales shoot up 36% to a
record $15.2 bln in April fueled by revenues from chips used to
power cell phones.  As many analysts have predicted, the sales
are easily beating year 2000 expectations.

***June contracts expire in 2 weeks***

BUY CALL JUN-80 AKI-FP OI=1056 at $11.13 SL=8.75
BUY CALL JUN-85*AKI-FQ OI= 603 at $ 7.50 SL=5.75
BUY CALL JUN-90 AKI-FR OI= 634 at $ 4.63 SL=2.75
BUY CALL JUL-85 AKI-GQ OI= 312 at $12.00 SL=9.50
BUY CALL JUL-90 AKI-GR OI=  69 at $ 9.50 SL=7.00
BUY CALL JUL-95 AKI-GS OI=  68 at $ 7.50 SL=5.75

Picked on May 30th at    $75.00    P/E = 97
Change since picked      +14.00    52-week high=$94.69
Analysts Ratings     11-8-0-0-0    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 = 2.57 mln
/charts/charts.asp?symbol=ADI


MU - Micron Technology Inc $79.25 (+14.63)

Micron is one of the world's leading makers of semi-conductor
memory components.  They design, manufacture, and market a
variety of complex circuit boards, memory modules, system level
assemblies, and PCs.  Although approximately two-thirds of its
sales revenues come directly from the dynamic random-access
memory (DRAM) components and other related chips.  To keep
competitors Hyundai and Samsung on their toes, Micron is
developing embedded memory for the digital video market.  Texas
Instruments and Intel both have interests Micron.

Here's another exalted semiconductor to add to the call list.
MU was already a favorite among investors and analysts, but now
it's demonstrating just how likeable it can be through this
week's swift advancements.  On Tuesday, the influential
semiconductor analyst, Dan Niles, now of Lehman Brothers put the
#1 DRAM maker on top of his recommendation list.  In a research
note, he stated that "Micron currently is approaching 25% market
share and can earn nearly five times as much money at the peak
of this cycle, leading to a stock price that could be four to
five times higher as well".  MU was then bestowed with a new Buy
rating and $100 price target.  Other analysts are speculating
that increasing PC demand is effectively driving up prices for
processors and memory chips.  But let's get a bigger picture.
The latest round of tame inflation data is obviously a pertinent
factor in MU's rise to new heights.  MU is a leader in the
industry and is therefore responding to the tech rally.  Of
course, the icing on the cake is the analysts' positive
comments.  For example, MU saw impressive gains in Friday's
session, bulls-eyeing a new all-time ($81.88) at the open.  This
was a nice encore to Thursday's record of $74.  However,
investors started jumping on the bandwagon and backing up the
trucks for shares of MU earlier in the week.  Call options also
saw a sharp increase in activity.  Trading volume is also solid
with levels reaching nearly twice the ADV.  Keep in mind MU is
in new territory and recently experienced tremendous gains so
be patient for an entry.  It's possible MU could bounce from here
and shoot up some more ahead of its upcoming earnings.  However,
if it does, keep trailing stops in place to protect against
profit taking.  More conservatively, shorter-term support may
develop lower in the $71 to $74 range.  Besides, the current
momentum driving this play is Micron's 3Q earnings release,
scheduled for the week of June 19th, after the bell.  It'd be
quite a profitable play if the prevailing enthusiasm can carry
it forward into an earnings' run.

Besides Dan Niles comments this week, Salomon Smith Barney's
Jonathan Joseph upped his rating on MU to a Buy from an Outperform
and matched Dan Nile's price target of $100 on Friday.  He cited
rising spot prices and tightening market conditions.  Joe Osha of
Merrill Lynch also expects MU to reach $100 in the next year,
upping his target from $75.  In addition, he came forward with
new price objectives for 2000 EPS of $1.99 and $3.05 for 2001.
Within the industry, the World Semiconductor Trade Statistics
group reported that it calculates global chip sales to increase
31% to $195 bln this year.  They expect the growth to continue
through 2003 as sales of mobile phones and Internet-related
networking equipment lead the demand for computer chips.

***June contracts expire in 2 weeks***

BUY CALL JUN-70 MU -FN OI=4347 at $10.25 SL=7.75
BUY CALL JUN-75*MUY-FO OI=2071 at $ 6.63 SL=4.75
BUY CALL JUN-80 MUY-FP OI=3721 at $ 4.25 SL=2.50
BUY CALL JUN-85 MUY-FQ OI=2242 at $ 2.50 SL=1.25
BUY CALL JUL-80 MUY-GP OI= 880 at $ 8.88 SL=6.75
BUY CALL JUL-85 MUY-GQ OI=1083 at $ 7.00 SL=5.25

Picked on June 1st at    $74.00    P/E = 99
Change since picked       +5.25    52-week high=$81.88
Analysts Ratings     10-5-5-1-0    52-week low =$18.25
Last earnings 03/00   est= 0.81    actual= 0.58
Next earnings 06-20   est= 0.31    versus=-0.05
Average Daily Volume = 6.06 mln
/charts/charts.asp?symbol=MU


AMCC - Applied Micro Circuits Corp. $128.81 (+39.13)(-11.94)

Fulfilling the need for speed, AMCC is a global provider of
high-performance, high-bandwidth integrated circuits used to
control the high-speed flow of transmissions through fiber-optic
telephone networks.  Communications products, used in LANs and
WANs, account for 55% of the company's sales.  The company's
chips are also used in automated test equipment, high-speed
computing, HDTV, and military applications.  The company, which
is growing through acquisitions, has a top-flight client list,
including Nortel, Raytheon, Alcatel, Cisco, 3Com and Lucent.

Now that is the kind of week that reminds me of the market last
December.  It took until Thursday to do it, but AMCC broke out
of its descending wedge in style.  Thursday's $10.75 gain paled
in comparison to Friday's $18+ jump, which was aided by a weak
employment report.  The tame jobs report added to optimism that
the Fed may be reaching the end of its current rate hike cycle,
and this was all it took for investors to rush back into the
NASDAQ with abandon.  Semiconductors, Internets, and Networking
all reaped the rewards and AMCC was leading the charge.  The
strong move on Friday pushed our play through the last of its
moving averages (the 50-day at $112.63) and resistance at $115.
Now, it is close to the next resistance level near $132.  Volume
was strong again on Friday and the late day jump also came on
increasing volume.  Now that we got the breakout we were waiting
for, a 40% jump in less than a week, we think AMCC will need to
consolidate its gains before heading higher.  Look for a pullback
to support near $117 to provide a more attractive entry, but
confirm that the bounce comes on increasing volume.  If you have
open positions, tighten up those stop losses - the name of the
game is profit, and you don't want to give it back if the market
decides to take a breather.

News has been sparse over the past couple weeks, but that
doesn't seem to matter.  With demand remaining strong for
semiconductors and networking equipment, AMCC should continue
to lead the markets higher.

***June contracts expire in 2 weeks***

BUY CALL JUN-125*AZV-FE OI=286 at $11.88 SL= 9.00
BUY CALL JUN-130 AZV-FF OI=364 at $ 9.38 SL= 6.50
BUY CALL JUN-135 AZV-FG OI=106 at $ 7.38 SL= 5.25
BUY CALL JUL-130 AZV-GF OI= 58 at $21.75 SL=16.25
BUY CALL AUG-135 AZV-HG OI=309 at $25.75 SL=19.25

SELL PUT JUN-115 AZV-RC OI= 63 at $ 4.13 SL= 6.25
(See risks of selling puts in play legend)

Picked on May 28th at    $89.69     P/E = 274
Change since picked      +39.13     52-week high=$158.88
Analysts Ratings     11-3-0-0-0     52-week low =$ 14.81
Last earnings 04/00   est= 0.14     actual= 0.16
Next earnings 07-19   est= 0.17     versus= 0.06
Average Daily Volume = 4.11 mln
/charts/charts.asp?symbol=AMCC


TQNT - Triquint Semiconductor $114.38 (+31.22)(-0.59)

A leading global supplier of a broad range of high performance
integrated circuits, TQNT offers standard and customer specific
products as well as foundry services.  The company uses gallium
arsenide (GaAs) instead of silicon as the substrate (base) for
its analog, digital, and mixed-signal integrated circuits (ICs).
GaAs ICs operate at greater speeds than silicon chips, or at
the same speeds with less power consumption, making them ideal
for all sorts of gadgets, such as cell phones, pagers,
fiber-optic and satellite telecom equipment, and data
networking devices.  Playing with the big boys, its clientele
includes Nortel, Alcatel, Ericsson, Lucent, and Raytheon.

The budding Semiconductor breakout that we highlighted last
weekend has come into full bloom.  Most of the stocks in this
sector had been coiling like springs in their descending wedge
patterns, and their breakout helped fuel some impressive gains
on the NASDAQ last week.  TQNT was one of the first to break
out, and after the strong move on Tuesday, the stock had cleared
all of its moving averages.  Wednesday saw a test of support
near $90, before the stock really got moving.  Adding $10 on
Thursday and duplicating the feat on Friday, TQNT launched into
the ozone (relatively speaking), and it is now more than $15 above
its 5-dma ($98.63).  TQNT is now cleanly above resistance at $110,
with the next hurdle at $118-120.  Given the strong gains last
week, we are concerned that the stock will have to consolidate a
bit before heading higher.  Nothing moves in a straight line, so
tighten up those stops, so you can keep all those juicy profits.
The Semiconductor sector will likely continue to be strong, so
look to initiate new positions on an intraday bounce from support
at $110 or $105.  If we see broad market weakness, we could even
get a test of the $100 level.  Use volume as your guide and wait
for it to confirm any move higher before playing.  The market
recovery is still tenuous, and it won't pay to start grasping at
falling knives.

On May 25th, Dain Rauscher Wessels upgraded TQNT from Buy to
Strong Buy, and this was likely part of the fuel that got this
rocket launched.  Add to that the company's pending 2-for-1 split
(set for July 11th), and we have a play that could still see some
impressive gains.

***June contracts expire in 2 weeks***

BUY CALL JUN-110*TNN-FB OI=210 at $ 9.63 SL= 6.75
BUY CALL JUN-115 TNN-FC OI=255 at $ 7.25 SL= 5.00
BUY CALL JUL-110 TNN-GB OI=215 at $16.75 SL=12.00
BUY CALL AUG-115 TNN-HC OI= 92 at $18.88 SL=13.75
BUY CALL AUG-120 TNN-HD OI=278 at $16.75 SL=12.00

SELL PUT JUN-105 TNN-RA OI= 24 at $ 3.38 SL=5.50
(See risks of selling puts in play legend)

Picked on May 28th at    $83.16     P/E = 133
Change since picked      +31.22     52-week high=$135.50
Analysts Ratings      7-2-4-0-0     52-week low =$ 12.75
Last earnings 04/00   est= 0.19     actual= 0.25
Next earnings 07-19   est= 0.27     versus= 0.13
Average Daily Volume = 1.65 mln
/charts/charts.asp?symbol=TQNT


RMBS - Rambus Inc. $217.38 (+54.38)(-10.75)

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

By now you know the buying that began late Thursday afternoon
carried over into Friday, as Rambus and others opened sharply
higher on the better-than-expected economic data.  Up until
this week, it appeared that investors were really just testing
the waters in RMBS, with most bounces finding sellers ready and
waiting to push the stock back down.  The 33% move this week
came on better volume and it is beginning to look like folks
were serious about owning shares of the tech company.  While
there was little in the way of company news, chip related issues
seemed to be a favorite as investors began to dump money back
into the markets.  Most of the momentum seen this week was
probably in sympathy with either the sector or the broader
markets.  However, our play does have something a little special
up its sleeve.  If you'll remember, RMBS will split 4-for-1 on
June 15, which could keep this one on traders' radar screens in
the coming days.  Obviously, the chip company can't make the trip
up the chart on its own.  If investors return next week prepared
to take some money off the table, then more than likely RMBS will
follow along.  To give you an idea of just how impressive last
week's move was, the 5 and 10-dma are sitting back at $188.43
and $175.96 respectively.  That's one reason why we would look for
a bit of profit taking early in the week.  Our play did close well
above its 100-dma at $201.74.  A pullback next week to either its
50-dma at $212.65 or more likely, the $200 area of support could
provide a good starting point for new plays.  If you have open
positions in this play, move your stops up to protect profits.
If investors return next week in the buying mood, feel free to
join in, however, keep your stops in place.  Some investors are
sitting on positions entered on May 24th when RMBS bounced off
$144.  A profit of better than $73 in 10 days may be too much for
some folks to resist.

RMBS got a shot in the arm earlier this week when it announced
that Vitesse Semiconductor Corporation had licensed the Direct
Rambus ASIC Ceall(RAC) for use in its network ICs.  The network
ICs are targeted at high performance communications systems such
as optical switches and routers which require extremely high
bandwidth solutions.

***June contracts expire in 2 weeks***

BUY CALL JUN-210*BYQ-FB OI= 648 at $24.75 SL=18.00
BUY CALL JUN-220 BYQ-FD OI=1017 at $21.00 SL=15.00
BUY CALL JUN-230 BYQ-FF OI= 502 at $16.88 SL=12.25
BUY CALL AUG-200 BYQ-HT OI= 417 at $50.00 SL=36.25
BUY CALL AUG-220 BYQ-HD OI= 146 at $41.63 SL=30.00

SELL PUT JUN-220 BYQ-RD OI= 418 at $21.00 SL=29.00
(See risks of selling puts in play legend)

Picked on May 28th at   $163.00    PE = N/A
Change since picked      +54.38    52 week high=$471.00
Analysts Ratings      1-1-2-0-0    52 week low =$ 58.50
Last earnings 04/00   est= 0.14    actual= 0.15
Next earnings 07-12   est= 0.16    versus= 0.08
Average daily volume = 3.94 mln
/charts/charts.asp?symbol=RMBS


SDLI - Spectra Diode Laboratories Inc. $260.38 (+62.63)(P2W+23.75)

SDL's products power the transmission of data, voice and
Internet information over fiber optic networks to meet the needs
of telecommunications, DWDM, cable television and satellite
communications applications.  They enable customers to meet the
bandwidth needs of increasing Internet, data, video and voice
traffic by expanding their fiber optic communications networks
more quickly and efficiently than would be possible using
conventional electronic and optical technologies.  SDL's optical
products also serve a variety of non- communications applications,
including materials processing and printing.

How do you trade a play that makes another new high in the first
thirty minutes of the day and then trends sideways to lower for
most the rest of the session?  Very Carefully.  If you were among
those fortunate enough to enter our play some time during the
first three days of the week, give yourself a pat on the back.
If you have been with us since we added SDL to our list and had
the patience and staying power to ride this one up, then we
applaud your efforts.  If you'll remember SDLI pre-announced
that second-quarter results would be about 24% higher than
analysts estimates late last month.  That seemed to set the
wheels in motion a better than $100 move in the price of its
stock since May 25th.  Throw in an improved sentiment in the
broad market and a few upgrades and we have a play that's added
about 32% in the last week.  Now back to our first question.  We
mentioned that SDLI should be traded very carefully.  We are by
no means giving up on this winner.  On the contrary, we believe
this one could be just getting warmed up.  However, a pullback
could certainly provide a better entry for new plays.  SDLI is
getting a bit overcooked.  We would also note that as our play
continued it's ascent to new highs this week, the volume did
decline a little each day.  This is not a negative, but does
suggest a period of consolidation or back filling ahead.  What
do we do if traders come back with buy orders in hand on Monday?
Depending on you trading style and risk profile, we would not be
afraid to enter new plays, just be prepared to protect new
positions, in case investors decide its time for a trip to the
bank.  Intraday support now shows up at $255, $240 and back at
the 5-dma at $231.25.  While we are not necessarily expecting a
pullback to the $220 to $230 area, the distance between the close
Friday and the moving averages shows how strong this week's
activity in SDLI really was.

Analysts did their part to provide support this week with five
different firms either reiterating Buy or Strong Buy ratings or
initiating coverage on the company.  We could expect more in the
coming days as SDL has already topped many of the analysts price
targets of between $230 to $250 per share.  Price targets this
week from those mentioned above came in near $325.  The company
conducted their annual shareholders meeting on May 18th.  On the
agenda was a vote to increase the number of authorized shares
from 140 million to 280 million.  With earnings about six weeks
away, we would keep our eye on SDLI a split announcement.

***June contracts expire in 2 weeks***

BUY CALL JUN-250*QJV-FJ OI=1473 at $26.88 SL=19.50
BUY CALL JUN-260 QJV-FL OI=  36 at $22.00 SL=16.00
BUY CALL JUN-270 QJV-FN OI= 116 at $17.25 SL=12.50
BUY CALL JUL-250 QJV-GJ OI= 346 at $46.50 SL=34.00
BUY CALL SEP-250 QJV-IJ OI= 451 at $65.00 SL=48.00

SELL PUT JUN-240 QJV-RH OI= 258 at $11.00 SL=15.00
(See risks of selling puts in play legend)

Picked on May 21st at   $196.00    PE = 519
Change since picked      +64.38    52 week high=$270.19
Analysts Ratings     14-8-0-0-0    52 week low =$ 21.63
Last earnings 04/00   est= 0.16    actual= 0.22
Next earnings 07-19   est= 0.26    versus= 0.09
Average daily volume = 3.31 mln
/charts/charts.asp?symbol=SDLI


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

ITWO - I2 Technologies $129.13 (+33.63)(-2.75)

I2's RHYTHM supply chain management software helps manufacturers
plan and schedule production and related operations such as raw
materials procurement and product delivery.  Companies that use
RHYTHM include:  3M, Dell, Ford, and Motorola.  Maintenance,
training, and other services account for more than a third of
sales.  I2 is using acquisitions of complementary technologies
and companies to position itself as a leader in the market for
Internet-based production process applications.

After Friday's impressive showing B-2-B is back!  The rally in
the B-2-B sector was ignited on the heels of the Lehman Brothers
Industrial eMarketplace conference held late Thursday.  B-2-B
executives gathered in New York City to present to analysts and
discuss the future of their business.  While analysts agree the
days of excessive exuberance are over in the sector, they still
have a bullish outlook for the B-2-Bs and see the recent shakeout
as a long-term positive.  Jeff Bodenstab, Vice President of ITWO,
told analysts that the company has expanded into e-business and
is now able to provide all the necessary management functions,
including marketplaces, for Internet commerce.  Friday's
explosive rally exposes the quiet accumulation of leading B-2-B
stocks we have seen over the past two weeks.  Investors have
been easing back into the companies that are building Internet
platforms.  The software companies that provide integrated
business-to-business services and e-commerce solutions have come
back into fashion on Wall Street.  But this time around is a
little different.  Investors are selectively buying B-2-B stocks
of companies with proven business models and increasing revenues
like ITWO.  Friday's rally sent ITWO sailing past resistance at
$120, subsequently breaking away from its congestion.  The stock
will face resistance at $133.50, its near-term high traced a
month ago.  The stock finished Friday near its day high, consider
an entry at current levels if the buyers show up Monday morning.
If you're looking to minimize directional risk, you might wait for
ITWO to clear $133.50 before entering the play.  If the sellers
spoil Monday, look for ITWO to find support at $123.50 and
consider entry if the stock bounces from that level.

And thank you Mary Meeker!  The prominent Morgan Stanley Internet
analyst reinforced the fact that Wall Street has rediscovered its
bullish view of the Net sector.  Meeker told clients that she
expects Web stocks to rally into the end of the year.  The entire
Internet sector tacked on additional gains after Meeker's midday
call.

***June contracts expire in 2 weeks***

BUY CALL JUN-125*QYJ-FE OI=624 at $12.38 SL= 9.25
BUY CALL JUN-130 QYJ-FF OI=450 at $ 9.75 SL= 6.75
BUY CALL JUN-135 QYJ-FG OI=430 at $ 7.50 SL= 5.25
BUY CALL JUL-130 QYJ-GF OI= 63 at $20.75 SL=14.75
BUY CALL AUG-135 QYI-HG OI= 47 at $24.25 SL=17.50

Picked on May 27th at    $95.50    P/E = 429
Change since picked      +33.63    52-week high=$223.50
Analysts Ratings     8-17-2-0-0    52-week low =$ 13.06
Last earnings 03/00   est= 0.05    actual= 0.07
Next earnings 07-20   est= 0.08    versus= 0.05
Average Daily Volume = 4.05 mln
/charts/charts.asp?symbol=ITWO


EXDS - Exodus Communications $87.13 (+25.13)(-9.19)

Exodus provides Internet system and network management solutions
for enterprises with mission-critical Internet operations. They
have pioneered the Internet Data Center (IDC) market and is one
of the leading providers of Internet server hosting to the
growing number of companies using the Internet.  At present,
Exodus also has twenty Internet Data Centers where clients store
their servers in secure vaults.  Clients include CBS Sports,
eBay, Lycos, Yahoo!, MSNBC, and Hewlett-Packard.

A fantastic recovery to say the least!  First through $70, then
$80, and a flash above $90 on Friday to top it all off.  Where
as before EXDS wouldn't even bounce on any market strength, it's
now making up for lost time.  The strong demand for integrated
Internet services coupled with a return to the techs provided
this recovering stock with an added boost amid the rallying
conditions.  The robust volume and positive analyst comments
also ignited the enthusiasm.  On Thursday, Prabhas Panigrahi
of Dresdner Kleinwort Benson Securities began new coverage with
a Buy rating and also issued a 12-month price target of $120.
In addition, Rick Juarez of Robertson Stephens noted that
companies like Exodus, who provide bundling and integration
solutions, aren't seeing pricing pressures for their services.
Be aware that earnings aren't until next month so EXDS will need
to maintain this dynamism based purely on sector and market
strength.  On Friday, EXDS exhibited it could hold $86 and $87
intraday, however, the first level of support is lower at $78 and
$80.  Below that are the 5 and 10 DMA lines, at $73.36 and 68.75
respectively.  At the current level, EXDS may need to consolidate
a bit before challenging the psychological opposition at $100, so
be prepared for a pullback.  In other words, while the momentum
is clearly intact, be careful about taking new positions and
protect the huge gains.

Exodus added two more customers to its already impressive
clientele list this week.  Vigil Technologies announced it
selected Exodus Communications to provide Internet hosting and
management for e-Sense(TM), Vigil's online intelligence
solution.  And later in the week, WorldSite.WS, better known as
"The Alternative to .com", announced that it was contracting with
Exodus Communication for Web connectivity, maintenance and
availability in preparation for its expected explosive growth.

***June contracts expire in 2 weeks***

BUY CALL JUN-80*DUB-FP OI=3656 at $11.13 SL=8.25
BUY CALL JUN-85 DUB-FQ OI=2309 at $ 7.88 SL=5.50
BUY CALL JUN-90 DUB-FR OI=1943 at $ 5.38 SL=3.50
BUY CALL JUL-90 DUB-GR OI= 466 at $13.13 SL=9.75
BUY CALL JUL-95 DUB-GS OI= 215 at $11.25 SL=8.50

Picked on May 28th at     $62.00    P/E = N/A
Change since picked       +25.13    52-week high=$179.63
Analysts Ratings     22-10-0-0-0    52-week low =$ 16.72
Last earnings 03/00   est= -0.26    actual= -0.23
Next earnings 07-21   est= -0.24    versus= -0.14
Average Daily Volume =  7.63 mln
/charts/charts.asp?symbol=EXDS


YHOO - Yahoo! Inc. $134.50 (+22.44)(-8.25)

Yahoo! Inc. is a global Internet communications, commerce and
media company that offers a comprehensive branded network of
services to more than 145 million individuals each month
worldwide. As the first online navigational guide to the Web,
www.yahoo.com is the leading guide in terms of traffic,
advertising, household and business user reach, and is one of
the most recognized brands associated with the Internet. The
company also provides online business services designed to
enhance the Web presence of Yahoo!'s clients, including audio
and video streaming, store hosting and management, and Web
site tools and services. The company's global Web network
includes 22 local World properties outside the United States.

On Thursday, we said that for Yahoo! to stay in favor, it would
need to move through that day's high with conviction.  Ok, so
it did that at the opening bell on Friday and never looked
back.  Unless you had open positions going into Friday,
chances are you missed the better part of the 12% move.  We
certainly aren't complaining, but here's the scenario we see
setting up.  Our play gained about 20% for the week.  Traders
have had numerous chances to enter new plays and participate
in the run up.  However, as Jim mentioned in the market wrap,
we've seen the major indices go from oversold to overbought in
a matter of a few days.  The dilemma now facing traders is
how much follow-through buying will come early next week.  As
with many of the tech stocks, YHOO gapped up at the open on
Friday.  For you technical types, you know what they say about
gaps in a chart, they will usually get filled.  If the bullish
sentiment continues on Monday, we would look for opportunities to
enter new plays.  However, we would definitely be prepared to
protect new positions, in case the bears come knocking at the
door once again.  While we do believe sentiment is changing for
the better, many investors have been on the wrong side of trades
for the last couple of months and may pull the trigger to lock
in profits, earlier than they used to.  If we could write the
script, we'd prefer to see a pullback to support near $128, or
worst case near $120 and have the bulls come running to the
rescue to begin the next leg up.  Merrill Lynch Internet analyst
Henry Blodget, said Friday, "the Internet stocks could be in for
a rough summer, though established companies like YHOO and AOL
will be good investments."  Yahoo! closed just about right on its
200-dma at $134.65.  A strong move through its May high at $139.25
accompanied by strong volume and our play could mount an assault
on the next major level of resistance at 160.00.   However, as you
know, nothing goes straight up, so pick your entry points carefully.

Henry Blodget went on to say "this year has been brutal...only
the strong will survive."  He continued saying, "Internet stocks
have performed abysmally and could go lower if investor sentiment
remains negative."  YHOO gained momentum after another noted
analyst said on Friday that the Internet stocks have been oversold,
representing a time to buy YHOO and other quality companies.

***June contracts expire in 2 weeks***

BUY CALL JUN-125 YMM-FE OI=2872 at $13.25 SL=10.25
BUY CALL JUN-130*YMM-FF OI=5022 at $10.00 SL= 7.00
BUY CALL JUN-135 YMM-FG OI=4918 at $ 7.50 SL= 5.25
BUY CALL JUL-135 YMM-GG OI=3872 at $15.88 SL=11.38
BUY CALL OCT-145 YMM-JI OI=1031 at $21.50 SL=15.50

SELL PUT JUL-125 YMM-SE OI=6439 at $10.00 SL=13.25
(See risks of selling puts in play legend)

Picked on May 28th at   $112.06    PE = 620
Change since picked      +22.44    52 week high=$250.06
Analysts Ratings    16-13-3-0-0    52 week low =$ 55.00
Last earnings 04/00   est= 0.09    actual= 0.10
Next earnings 07-11   est= 0.10    versus= 0.05
Average daily volume = 10.2 mln
/charts/charts.asp?symbol=YHOO


MERQ - Mercury Interactive Corp $92.44 (+20.56)

Mercury Interactive is the exterminator of the software
industry.  The company offers a comprehensive line of automated
testing tools that address the full range of quality needs for
testing complex applications throughout the business enterprise.
Essentially the tools help companies build better applications,
from Internet/e-business transaction systems to informational
Web sites.  All of its research and development is conducted in
Israel, however the company is based in California.

As competition continues to grow online, Mercury Interactive
knows the price for not keeping your Web site up to speed can be
a company's demise.  And from a financial perspective, the
company is doing fairly well.  1Q earnings were solid at $0.11
p/s versus $0.06 same quarter last year and revenues were up 61%
from $37.6 mln to $60.4 mln.  New products have also hit the
market this year.  Most notably was the LoadRunner Active Test,
which is capable of testing a Website's entire infrastructure
with a 24-hour turnaround time.  Then on May 30th, the new
LoadRunner 6.5 with TurboLoad was unveiled.  This tool can
generate more virtual users from a single user server than any
other "stress test" in the marketplace.  The following day the
company launched the Topaz 2.0, the latest version of its web
application performance management system, which can correlate
end-users' performance issues to the source of the problem.
Obviously, MERQ has a vital role in the world of technology.
Therefore it's understandable why investors would want put their
money into this crucial player, especially now that the NASDAQ
is rocking.  What we've got is a buyer's spree in our midst and
volume indicates that MERQ is on the shopping list.  The $20.56,
or 28.6%, advance this week perhaps puts it into a better
perspective that MERQ is experiencing a dynamic uptrend.
Currently, the share price is teetering above previous resistance
at $90, a level not conquered in April and May.  So the more
cautious may want to stay on the sidelines until MERQ blazes a
trail through this level.  If you're a bit more enterprising, then
dips to near-term support at $84 and $85, just above the 5-dma at
$82.93.  MERQ showed intraday strength on Friday higher at $88 and
$89 which could prove to be profitable, yet more aggressive entry.
The latter is assuming MERQ stays on a tear and doesn't consolidate
at a lower support level.

Recently on May 24th, Mercury Interactive held its Annual
Meeting of Shareholders and voted to increase the authorized
shares to 240 mln from 120 mln.  The stock just split in
February of this year, yet MERQ is again a potential split
candidate.  Some would say MERQ is a hopeful as long as it
trades consistently above $85, while others say $120 is a more
realistic estimate.  Nonetheless, MERQ is now trading within the
range so we'll keep our ears tuned in for an announcement.

***June contracts expire in 2 weeks***

BUY CALL JUN- 85 RQB-FQ OI=444 at $11.13 SL=8.25
BUY CALL JUN- 90*RQB-FR OI=338 at $ 8.00 SL=5.75
BUY CALL JUN- 95 RQB-FS OI=344 at $ 5.50 SL=3.50
BUY CALL JUN-100 RQB-FT OI=161 at $ 3.75 SL=2.00
BUY CALL JUL- 95 RBF-GS OI=167 at $11.25 SL=8.25
BUY CALL JUL-100 RBF-GT OI=238 at $ 9.00 SL=6.25

Picked on June 4th at    $92.44    P/E = 213
Change since picked       +0.00    52-week high=$134.50
Analysts Ratings      9-2-1-0-0    52-week low =$ 16.50
Last earnings 03/00   est= 0.10    actual= 0.11
Next earnings 07-17   est= 0.12    versus= 0.09
Average Daily Volume = 1.60 mln
/charts/charts.asp?symbol=MERQ


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

CHKP - Check Point Software $233.69 (+71.19)(+1.13)

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

Well, CHKP has at least partially passed the test we mentioned on
Thursday, and it did so quite convincingly.  If you'll remember,
we wanted to see its ability to break above the 200 level,
which was the top of the recent trading range.  We also wanted it
to stay there.  Although our play was gaining momentum in the last
hour of trading on Friday, the real test could come next week.
CHKP and others moved higher on better-than-expected economic data
on Friday, and could continue with more reports scheduled this
coming week.  However, a quick check with our calculator shows
a jump of more than 43% in the past four sessions.  We are
by no means trying to place a cloud over such an outstanding
play.  What we are trying to point out is if you stayed on the
sidelines for some reason, you may have another chance to
participate if investors decide to pull some money off the table.
Friday's 18.8% jump up the chart came on better volume than
we've seen in the last six weeks or so, which indicates this
bounce may be one we can hang our hat on.  With the 5 and 10-dma
back below $200, chances are pretty good we could see some profit
taking or at least a consolidation in coming days.  We not are
suggesting you ignore further moves higher.  However, keep in
mind that at some point greed will set in and traders will want to
bank some profits.  As for a pullback, there are four levels we
would keep our eye on.  Intraday charts show support near $228,
$218 and Friday's low at $207.  The biggie like we mentioned
earlier is the $200 area.  Late last month, Check Point was listed
as one of the top 100 Internet stocks to own for long-term
investors.  Most analysts following the company have it rated a
Strong Buy or at least a Buy.  Yet on Friday, F. Drake Johnstone
at Davenport & Co. saw fit to downgrade CHKP from a Buy to an
Accumulate.  For now, it will stay on our or list as stock with
great potential.

On Tuesday, CHKP announced it had recently been awarded the
"Best Partnering Alliance" across the entire software industry
for its Open Platform for Security (OPSEC) Alliance.  The
company's OPSEC Alliance comprises almost 250 partners, including
such vendors as IBM, NOK, ORCL, ARPT, BMCS and FTE.

***June contracts expire in 2 weeks***

BUY CALL JUN-210 YKE-FB OI=271 at $29.38 SL=21.50
BUY CALL JUN-220*YKE-FU OI=145 at $22.63 SL=16.50
BUY CALL JUL-220 YKE-GU OI=197 at $38.50 SL=28.00
BUY CALL JUL-230 YKE-GV OI=276 at $33.63 SL=24.50
BUY CALL OCT-250 YKE-JJ OI=569 at $46.88 SL=34.00

SELL PUT JUL-200 YKE-ST OI= 90 at $15.75 SL=21.50
(See risks of selling puts in play legend)

Picked on May 25th at   $160.25    PE = 200
Change since picked      +73.44    52 week high=$295.00
Analysts Ratings     12-3-0-0-0    52 week low =$ 21.34
Last earnings 04/00   est= 0.35    actual= 0.40
Next earnings 07-12   est= 0.42    versus= 0.26
Average daily volume = 1.76 mln
/charts/charts.asp?symbol=CHKP


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

SEPR - Sepracor Inc $108.81 (+17.63)(-8.56)(-2.50)(-1.00)(+11.25)

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

Volume finally returned to SEPR as traders exchanged over double
the stock's ADV Friday en route to an 8.5% gain.  Drug stocks
suffered Friday as traders moved capital into the promising
biotech sector.  The AMEX Biotech Index ($BTK) gained an
impressive 8.3%.  SEPR received praise from a prominent money
manager Friday, which added fuel to its upward momentum.  In an
interview Friday, Richard Steinberg offered his recommendation to
buy SEPR at its current levels.  Steinberg pointed out that SEPR
has patents on isomers for 48 of the world's best selling drugs.
Steinberg went on to explain that because the company doesn't
have to prove clinical efficacy for its drugs since they're
improving existing products their cost of marketing is much lower
than a typical biotech company.  Several institutions followed
Steinberg's lead Friday as several large block trades crossed the
tape early in the morning as SEPR screamed higher.  We are
entering into the fifth week of playing SEPR, and over that time
we have seen the stock trace several interesting chart patterns.
Most recently, the stock emerged from its head-and-shoulders
bottom last week.  Now, with Friday's rally, the stock is
positioned to breakout from a three-month consolidation.  SEPR
managed to retest its near-term high of $110.75 Friday by
reaching an intra-day high of $112.  With Friday's explosive
volume combined with the strong rally, we might see SEPR extend
its gains early next week.  Watch for the heavy trading to
continue and look for SEPR to breakout above resistance at
$110.75.  If the profit takers show up Monday consider a bounce
from support at $103 for a possible entry into the play.

The Annual PaineWebber Life Sciences Conference gets under way
in New York City this upcoming Tuesday.  SEPR is scheduled to
present to analysts at the meeting.  If management delivers a
bullish message to Wall Street we might get a little help from
the analysts which would aid SEPR in a breakout attempt.

***June contracts expire in 2 weeks***

BUY CALL JUN-105*ERU-FA OI=336 at $ 9.63 SL= 6.50
BUY CALL JUN-110 ERU-FB OI=240 at $ 7.00 SL= 5.00
BUY CALL JUN-115 ERU-FC OI=323 at $ 4.88 SL= 3.00
BUY CALL JUL-110 ERU-GB OI=156 at $13.25 SL=10.00
BUY CALL OCT-115 ERU-JC OI= 26 at $21.13 SL=15.00

Picked on May 7th  at    $103.25    P/E = N/A
Change since picked        +5.56    52-week high=$126.81
Analysts Ratings       5-4-2-0-0    52-week low =$ 27.50
Last earnings 03/00   est= -0.96    actual= -0.76
Next earnings 07-24   est= -0.55    versus= -0.56
Average Daily Volume =  1.09 mln
/charts/charts.asp?symbol=SEPR


PDLI - Protein Design Labs $125.13 (+25.07)

Protein Design Labs develops human and humanized monoclonal
antibodies to prevent and treat diseases.  The FDA approved the
company's first humanized antibody product, Zenapax
(daclizumab), for the prevention of kidney transplant rejection
and there are seven other antibodies in the developmental
pipeline.  Global patents have been issued for the PDLI's
humanization technology and currently they have business
agreements with Eli Lilly and Genentech.

PDLI's chart paints a rosy picture of its resurrection and
clearly reveals the intensifying momentum.  The money flowing
back into the biotechs drove the share price up 25.1%, or $25.07
in just four trading days.  By Wednesday PDLI cleared the
technical hurdles and was trading above the converged 5, 10, &
30-dmas, all of which are in the vicinity of $110 to $113.  Mid-
week, Andrew Milne at Dain Rauscher Wessels began coverage with
a Neutral rating, but it wasn't until Friday that PDLI really
reached for the stars.  However, the impressive 12-point gain
was  not backed by strong volume.  Historically, that's not too
unusual for this stock.  In general, PLDI rises on low to
moderate volume and descends quickly when volume peaks above
the ADV.  All in all, let's not pull the wool down over our
eyes.  This is purely a momentum play.  Earnings aren't until
early August so we've got to pay close attention to market
sentiment and the stock's daily nuances.  Near-term support is
firm at $110 and $115, but let's look for $120 to develop as a
launching point to confirm the trend.  Overhead the first line
of resistance is at $135, which isn't too far away, but the real
test will be for PDLI to breakout above $140.

But what's this - possibly a hidden treasure?  On June 15th,
shareholders will vote on a proposal to increase the number of
authorized shares from 40 million to 90 million at the company's
Annual Meeting of Shareholders.  An approval would clear the way
for the BOD to announce a stock split in the near future.  While
there aren't any guarantees, PDLI looks like a good candidate at
the $150 price level.

***June contracts expire in 2 weeks***

BUY CALL JUN-120*PQI-FU OI=515 at $16.13 SL=11.50
BUY CALL JUN-125 PQI-FV OI= 29 at $13.50 SL=10.00
BUY CALL JUN-130 PQI-FW OI= 33 at $11.25 SL= 8.50
BUY CALL JUL-125 PQI-GV OI=  0 at $23.75 SL=18.50
BUY CALL JUL-130 PQI-GW OI=260 at $15.00 SL=11.00

Picked on June 4th at   $125.13    P/E = N/A
Change since picked       +0.00    52-week high=$338.00
Analysts Ratings      2-2-3-0-0    52-week low =$ 18.25
Last earnings 03/00   est=-0.04     actual= 0.04
Next earnings 08-04   est= 0.19     versus=-0.14
Average Daily Volume = 1.41 mln
/charts/charts.asp?symbol=PDLI


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



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


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

The Option Investor Newsletter                     Sunday 6-4-2000
Sunday                                                      4 of 5


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

****
MISC
****

CPN - Calpine Corp $111.31 (+10.31)

Calpine is an independent power producer.  The company is the
world's top geothermal operator, and it owns the largest
producing geothermal resource, The Geysers, in northern
California.  Calpine has a net generating capacity of about 900
MW from geothermal plants, the company has additional capacity
through its gas-fired plants.  The company has 238 bln cubic
feet of proved reserves, of which 90% are natural gas.

Investors fled the utilities sector Friday, chasing shares of
tech stocks higher.  However, CPN held its ground and even
managed to tack on a modest gain, displaying its amazing relative
strength.  Like we mentioned in Thursday's write-up, CPN is not
your typical utility stock.  The stock trades at a relatively
high multiple of 57, but then again, growth doesn't come cheap.
And, the stock is a darling on Wall Street.  Over 500
institutions own the stock, representing nearly 95% of the
ownership in CPN.  While the long-term fundamentals are in place
for CPN, we'll turn our attention to the near-term, and the
upcoming 2-for-1 stock split.  The last time the company split
its shares was back in October of 1999.  The stock made a nice
run into the split, and we're looking for history to repeat
itself.  The payable date for the split is scheduled for this
Thursday.  While we would have like to seen heavier volume during
Friday's trading ahead of the split, we'll take the gain
nonetheless.  After clearing yet another resistance level during
Friday's rally, CPN is in a good technical position for a run.
The stock has one more near-term resistance level at $113.81 to
clear before moving substantially higher.  In light of CPN's
impressive showing Friday, despite the relative weakness in the
utilities sector, we'll want to watch the stock closely Monday
morning to see if the buyers continue accumulating.  Watch for a
bold move above resistance at $113.81 and confirm a breakout with
healthy volume.  However, if the selling in the utilities sector
catches up with CPN, look for the stock to find support at the
$110 level and watch for a bounce.

In the news recently, CPN said it plans to build and operate a
540-megawatt(MW) natural gas-fired electric generating plant in
Ohio.  The company said the plant will be capable of generating
over 700 MW of electricity during periods of high demand (1 MW
is enough to power about 500 homes).  Morgan Stanley upped the
stock to a Strong Buy from a Neutral after the announcement.

***June contracts expire in 2 weeks***

BUY CALL JUN-105*CPN-FA OI= 65 at $ 9.00 SL= 6.25
BUY CALL JUN-110 CPN-FB OI=123 at $ 6.00 SL= 4.00
BUY CALL JUN-115 CPN-FC OI= 65 at $ 3.63 SL= 1.75
BUY CALL JUL-110 CPN-GB OI= 98 at $ 9.50 SL= 6.50
BUY CALL OCT-115 CPN-JC OI= 16 at $15.13 SL=11.00

Picked on June 1st at  $109.06    P/E = 57
Change since picked      +2.25    52-week high=$123.00
Analysts Ratings     6-4-1-0-0    52-week low =$ 24.56
Last earnings 03/00  est= 0.28    actual= 0.27
Next earnings 07-31  est= 0.42    versus= 0.33
Average Daily Volume  =  888 K
/charts/charts.asp?symbol=CPN


PGR - Progressive Corp. $93.13 (+0.63)

Traditionally a leader in non-standard, high-risk personal auto
insurance, PGR has moved into standard-risk and preferred auto
insurance, as well as other personal use vehicle coverage, such
as motorcycles and recreational vehicles.  The company's
property-casualty insurance products protect its customers
against collision and physical damage to their vehicles and
liability to others for personal injury or property damage.

Thanks to a timely downgrade, PGR gave us another nice entry
point on Friday.  Credit Suisse First Boston downgraded shares
of the insurance company from Strong Buy to Buy, and the price
quickly dropped back to test the $91 support level.  Buyers
were waiting with cash in hand and spent the afternoon bidding
the price back up.  While the stock lost $4.56 on the day, it
was encouraging to see the strong recovery off the lows, which
was accompanied by increasing volume.  Friday's weak employment
report strengthened the belief that the Fed's string of
interest rate hikes is starting to have their desired effect
and the economy is slowing.  This increases optimism that we
may be nearing the end of tightening monetary policy, and
financial stocks are one of the key beneficiaries.  Insurance
stocks had a rough time moving higher on Friday, but as the
economy slows and the markets recover, PGR should float higher
with the rising tide.  Consider new entries on renewed bounces
near support, but make sure that volume is confirming the move.
Resistance still sits near $98, so tighten up your stops as PGR
approaches this level.  Once the stock clears $105, the move
could get another boost as investors work to fill the gap left
last September.

Building out its online presence, on May 26th, PGR introduced
the first-ever online insurance program for boats and personal
watercraft.  Adding to their online image, last Tuesday the
company was granted a license to display the BetterWeb Seal on
its website.  This informs consumers that the site complies
with the BetterWeb disclosure standards for sales terms,
privacy, and security policies.  On May 16th, PGR received an
upgrade from Market Perform to Outperform by Goldman Sachs.

***June contracts expire in 2 weeks***

BUY CALL JUN- 90*PGR-FR OI=184 at $6.25 SL=4.25
BUY CALL JUN- 95 PGR-FS OI= 50 at $3.75 SL=2.25
BUY CALL JUN-100 PGR-FT OI= 50 at $2.00 SL=1.00
BUY CALL JUL- 95 PGR-GS OI= 19 at $7.88 SL=5.75
BUY CALL JUL-100 PGR-GT OI= 37 at $5.75 SL=3.75

Picked on June 1st at  $97.69     P/E = 51
Change since picked     -4.56     52-week high=$152.13
Analysts Ratings   3-3-16-0-0     52-week low =$ 45.00
Last earnings 04/00 est= 0.14     actual=-0.50
Next earnings 07-18 est= 0.42     versus= 1.32
Average Daily Volume =  675 K
/charts/charts.asp?symbol=PGR


*****
LEAPS
*****

By Mark Phillips
Contact Support

If it looks like a rally, and acts like a rally, it must be a
rally, right?  The NASDAQ had an incredible week, tacking on
over 600 points and clearing resistance at 3800 on Friday.  The
VIX confirmed the change of direction as it fell below 25 for
the first time since early April, ending the week at 24.16.  All
of the old favorites participated, as we saw strong gains in
Semiconductors, Networking, Internets, Financials and Biotechs.
So why the dramatic recovery?  Simply put, it's the economy.
Housing starts, automotive sales, and retail sales all showed
signs of slowing and the frosting on the cake was the weak
Employment Report on Friday.  We finally saw unemployment rise,
and new job creation was anemic, to say the least.  So should
you back up the truck on Monday and buy all the LEAPS your
account can hold?  I wouldn't, and here is my thinking.  With
the huge gains from last week, a pullback has got to be just
around the corner.  We've been talking for months about the
importance of good entry points and using strong gains as an
opportunity to take profits on the winners.  The past 2 weeks
have provided some incredible entry points on virtually every
play in the LEAPS portfolio.  Most of these plays are up huge
from where they were only a week ago.  JDSU is up 37%, XLNX
gained 33%, TXN added 28%, and VSTR tacked on 33%; all in the
last week.  Prudent investors will take advantage of the
opportunity to lock in profits by closing out some winning
positions or at least moving their stops up.  That way, when
the inevitable profit taking occurs, you have cash in your
account and can take advantage of the next set of entry points.
LEAPS allow you to buy more time, mitigating the need to be
right on timing your plays, but that doesn't mean that you have
to use all the time you bought.  It looks like the much-
anticipated Summer rally has arrived, but we are unlikely to
take a vertical ride back to 5000 on the NASDAQ.  Much of the
euphoria that accompanied our first trip to that level has
dissipated, and the recovery will likely be more orderly.  This
means gains, and then consolidations, providing vigilant LEAPS
investors with repeated opportunities to profit.  Pick your
entry points wisely and then wait for them to come to you.



Current Plays

SYMBOL  SINCE     LEAPS         SYMBOL   PICKED   CURRENT  RETURN

EMC    11/07/99  JAN-2001 $ 80  EMB-AP   $15.38   $57.50   273.86%
                 JAN-2002 $ 90  WUE-AR   $19.00   $62.63   229.63%
IBM    11/07/99  JAN-2001 $100  IBM-AT   $13.63   $20.50    50.40%
                 JAN-2002 $110  WIB-AB   $16.50   $26.50    60.60%
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $28.75   200.73%
                 JAN-2002 $ 45  WIV-AI   $11.00   $31.38   185.27%
NT     11/28/99  JAN-2001 $37.5 ZOO-AU   $11.13   $24.63   121.29%
                 JAN-2002 $37.5 WNT-AU   $15.13   $32.13   112.36%
TXN    12/12/99  JAN-2001 $ 55  TNZ-AK   $11.13   $36.50   227.94%
                 JAN-2002 $ 60  WGZ-AL   $14.25   $40.63   185.12%
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $22.50    27.62%
                 JAN-2002 $ 90  WJX-AR   $22.00   $29.88    35.82%
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $19.00   108.11%
                 JAN-2002 $ 40  WSY-AH   $12.63   $24.63    95.01%
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 8.50    72.06%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $10.88    61.19%
NSM    02/27/00  JAN-2001 $ 70  ZUN-AN   $18.50   $16.00   - 8.11%
                 JAN-2002 $ 70  WUN-AN   $24.25   $26.88    10.85%
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $ 9.63   -31.21%
                 JAN-2002 $ 65  WAN-AM   $18.63   $15.38   -17.44%
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $16.88   132.83%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $19.38   107.72%
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $ 9.00    80.00%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 8.63    60.41%
QCOM   03/26/00  JAN-2001 $150  AUA-AJ   $39.25   $ 4.75   -87.90%
                 JAN-2002 $160  XQO-AL   $52.88   $13.00   -75.42%
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $33.38    90.74%
                 JAN-2002 $ 70  WVV-AN   $26.00   $43.63    67.81%
CMGI   04/16/00  JAN-2001 $ 50  ZB -AJ   $21.50   $21.25   - 1.16%
                 JAN-2002 $ 55  WCK-AK   $27.75   $29.50     6.31%
JDSU   04/16/00  JAN-2001 $ 80  XJU-AP   $27.50   $45.38    65.02%
                 JAN-2002 $ 80  YJU-AP   $39.63   $60.75    53.29%
VSTR   04/16/00  JAN-2001 $ 90  ZTB-AR   $23.88   $59.25   148.12%
                 JAN-2002 $ 90  WWP-AR   $35.00   $75.13   114.66%
YHOO   4/30/00   JAN-2001 $140  YMM-AH   $32.13   $30.75   - 4.30%
                 JAN-2002 $140  WYZ-AH   $46.38   $48.75     5.11%
MOT    5/14/00   JAN-2001 $33.3 MOT-AY   $ 6.58   $ 9.00    36.78%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $12.75    33.65%
NOK    5/21/00   JAN-2001 $ 50  NZY-AJ   $10.25   $15.50    51.22%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $22.50    30.43%
HD     5/28/00   JAN-2001 $ 50  ZHD-AJ   $ 6.25   $10.25    64.00%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $16.00    40.60%
XLNX   5/28/00   JAN-2001 $ 70  ZIZ-AN   $14.63   $28.63    95.69%
                 JAN-2002 $ 70  WXJ-AN   $23.38   $39.38    68.43%

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

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

Leap of the Week

CMGI - CMGI Inc. $58.50

After being taken out to the woodshed and beaten with the rest
of the Internets, CMGI is beginning to recover.  Tagging a low
of $43 a week ago, the Internet incubator firm has started
moving nicely higher, gaining over 30% last week.  Signs of a
slowing economy is lending support to the theory that the Fed
may be almost done with its latest series of interest rate
hikes.  Money is flowing back into the NASDAQ, and the Internets
were one of the big winners last week (along with Networking and
Semiconductors).  There was even a technology IPO (ONIS) that
managed a triple-digit gain on its first day of trading.  Seems
like old times, doesn't it?  Friday's strong gains pushed CMGI
through the $55 level, which had looked like it might create
some overhead resistance.  Volume and price increased right up
to the close, making our play look strong going forward.  But
let's step back a minute.  The NASDAQ was up over 600 points
last week, and CMGI was up over 30%.  After such a strong run,
a pullback seems likely.  Hopefully the gyrations of the past
few months have gotten your attention and you can see the
rewards of waiting for the right entry point.  Look to initiate
open positions on a pullback to $55 or even $50.  Let the market
tell you where it is ready to bounce and then jump in when the
move is confirmed by increased buying volume.

BUY LEAP JAN-2001 $60.00 ZB -AL at $17.25
BUY LEAP JAN-2002 $60.00 WCK-AL at $28.00

New Plays

None

Drops

None


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

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

****

CL - Colgate Palmolive $54.50 (-1.25)

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.

CL benefited from the broad market rally Friday.  But it could
get a lot more interesting for shareholders of CL in the coming
weeks.  The story is a bit complicated and this is how it goes.
Gillette (G) is trying to streamline its operations and get rid
of its weakest business lines.  G is reportedly in talks to sell
its stationery products business to Newell (NWL).  Salomon Smith
Barney came out with a research note Friday stating that the deal
makes G look much more attractive to CL as a possible buyout.
Salomon analysts noted that CL has a ton of cash on hand and that
the company has made few acquisitions in the last three years.
Consequently, analysts expect the two stocks to be active in the
near future.  The merger rumors could have a positive or negative
impact on our play, depending upon how traders view the deal.
We'll see in the coming days how investors' perception of a
possible merger affects the stock.  Additionally, with the
resurgence in the tech sector we could start to see some money
leave the consumer staples sector.  The rally in stocks such as
CL, that began in early March, may be nearing its end as
technology stocks continue to build momentum and draw money from
the defensive sectors.  Although CL rallied Friday, the stock is
still trading below its descending 10-dma.  If CL continues to
edge higher, watch for a bump against resistance at the 10-day
(currently at $55.25) for a possible entry point.  A conservative
trader might wait for the stock to fall below support at $54
before considering entry into the play.  While its still early,
watch for the merger talks to develop and pay close attention to
how traders react to any news concerning a buyout offer from CL.

***June contracts expire in 2 weeks***

BUY PUT JUN-60*CL-RL OI=  61 at $5.75 SL=3.75
BUY PUT JUN-55 CL-RK OI=1865 at $2.19 SL=1.00

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


MRK - Merck & Co $68.94 (-5.63)

Merck & Co., Inc. is a global, research-driven pharmaceutical
company that discovers, develops, manufactures and markets a
broad range of human and animal health products, directly and
through its joint ventures, and provides pharmaceutical benefit
services through Merck-Medco Managed Care.  Merck's cholesterol
drugs Zocar and Mevacor, and its hypertension drugs Vasotec and
Prinivil are their top sellers.   They main competition comes
from Aventis, Bristol-Myers-Squibb and Novartis.

Our play in Merck kicked off with a drop of just under 5% on
Friday.  On a day when the major indices were making gains of
6% or so, MRK and the drug sector was seeing selling like it had
not experienced in quite some time.  What's the reason for the
change?  Several things.  First we are seeing a change in investor
sentiment.  The drug companies are typically known as safe haven
in rough times, primarily due to their steady earnings potential.
In the last couple of months, MRK has climbed about 44% from its
low near $52.  As one analyst put it, the market is now moving
from a defensive posture to a very aggressive investing posture.
With money going into the tech sector, it has to come from
somewhere.  It will either be "new" money coming into the market
or current investors selling what they own now.  It is probably a
combination of both.  Other analysts point to the upcoming
Presidential elections as a contributing factor to the weakness
seen in MRK and the drug stocks.  Apparently, some investors are
concerned with future plans for Medicare and the drug companies
should a Democrat be elected.  We are in no way endorsing or
agreeing with the above scenario, simply reporting what is being
said in the press.  The third item we mentioned on Thursday was
the class action suit brought against BMY.  Again, MRK is in no
way involved in the suit, but investors sometimes become skittish
towards the whole sector when class action lawsuits make the
headlines.  So how do we nurture this new play?  Technically, Merck
is just coming off an overbought condition, with most indicators
pointing further south.  A look at the intraday charts shows our
play could be due for a bit of a bounce.  Support for Merck is
found near $66.50 with its 50 and 100-dma sitting at $68.49 and
$67.63.  Resistance shows up at $71, $72 and $73.50.  The recent
selling has come with strong volume indicating this could become
the current trend for a while.  We would look for bounces up to
resistance as a chance to enter new plays or add to existing
positions.

***June contracts expire in 2 weeks***

BUY PUT JUN-75 MRK-RO OI=1017 at $6.13 SL=4.00
BUY PUT JUN-70 MRK-RN OI=5031 at $2.31 SL=1.25
BUY PUT JUL-70*MRK-SN OI=8719 at $3.88 SL=2.38

Average daily volume = 6.24 mln
/charts/charts.asp?symbol=MRK


CAH - Cardinal Health $63.56 (-1.19)

Cardinal Health is the second largest US wholesaler of
pharmaceuticals, surgical and hospital supplies.  The healthcare
service provider offers these products and services to
independent and chain drugstores, hospitals, alternate care
centers, and the pharmacy departments of supermarkets throughout
the United States.  The company also offers support services
including computerized order entry and confirmation systems.
Through its subsidiary, Pyxis Corporation, CAH develops,
manufactures, leases, sells and services systems that automate
the distribution, management, and control of medications and
supplies in healthcare facilities.

The techs are back and everybody knows what that means.  Money
that had been parked in "safer" stocks, like pharmaceuticals
and cyclicals, is moving back into the NASDAQ.  With the strong
showing on the tech-heavy index late last week, the momentum of
many safety plays began to wane.  After moving up more than $20
since mid-April, CAH ran out of buyers and rolled over at the
$67 resistance level.  Given the strength across all the major
indices, it was clear where the money was coming out of.
Pharmaceuticals bore the brunt of the selling, and on heavy
volume too.  Big losers on Friday included MRK, WLA, LLY, and
of course our play CAH.  The decline began early and continued
right into the close, putting in a loss of over $3 on 30%
greater volume than the daily average.  Support at $64 failed
to hold, which opens the door for a retest of the $60 level,
last seen on May 19th.  A good sign for continued weakness will
be a failure to move back up through the $64 level.  Better
entries may be had if CAH tries to rally back to resistance at
$64, or even $67, but given the deteriorating picture for the
sector, we may have to content ourselves with entering as the
stock continues down below $63, which is the next level of
support.

***June contracts expire in 2 weeks***

BUY PUT JUN-70*CAH-RN OI=205 at $7.00 SL=5.00
BUY PUT JUN-65 CAH-RM OI=  0 at $3.25 SL=1.50  Wait for OI!

Average Daily Volume = 1.23 mln
/charts/charts.asp?symbol=CAH


BUD - Anheuser-Busch Co. $72.69 (-8.63)

Anheuser-Busch Companies, Inc.'s operations and resources are
focused on beer, adventure park entertainment and packaging.
Anheuser-Busch subsidiaries include the world's largest brewing
organization, Anheuser-Busch, Inc., the brewer of some 30 beer
brands, including Budweiser and Bud Light, the world's largest
selling beers.  Other subsidiaries include one of the nation's
largest theme park operators and one of the country's largest
manufacturers of aluminum beverage containers.  Other interests
range from real estate development to creative services.

This BUD may or may not be for you.  It certainly wasn't the
company of choice on Wall Street this past week.  The company
said earlier this year that the outlook for 2000 was the best
it's been in over a decade.  That may be true as earnings have not
only been on track, but have come in ahead of analysts' estimates.
The current shift in investor sentiment seems to be taking its
toll on BUD and many of the consumer related issues.  Whether it
will last is anyone's guess, but for now investors are dumping
BUD and putting their money to work elsewhere.  When investors
left for the holiday weekend last week, BUD was making a run at
its 52-week high of $84, set last September.  Traders returned
this week with one thing in mind, SELL.  At this time, 18 of the
20 brokers following the company have it rated either a Buy or
Strong Buy.  The most recent comments came a week ago Thursday.
David A. Goldman, at Sun Trust Equitable Securities, initiated
coverage with a Buy rating and a price target of $85.  The
point here is that a company can have all the Strong Buy ratings
in the book, but if your industry has fallen out of favor due to
a shift in broad market sentiment, it will do little to bring
buyers to the table.  BUD didn't get much help from a report
issued yesterday concerning an S&P scorecard.  BUD topped the
list as the Worst Performing stock for the week.  Not exactly
a list most companies are trying to get in on.  The apparent
swing in the psychology of the markets was evident on Friday as
BUD fell about 6.5%, with just under 3 mln shares changing hands.
The last time BUD saw that kind of volume was in the middle of
March, as came off its lows of the year.  Technically, BUD is a
bit oversold on an intraday chart, which could indicate a small
bounce soon.  Resistance is seen at $74 and near $77.50.  Support
could come into play between $69 and its 200-dma at $70.28.  A
bounce early in the week followed by further weakness could provide
a good entry for our new play.

***June contracts expire in 2 weeks***

BUY PUT JUN-75*BUD-RO OI=415 at $3.38 SL=1.75
BUY PUT JUL-80 BUD-SP OI=108 at $8.38 SL=6.00
BUY PUT JUL-75 BUD-SO OI=180 at $4.75 SL=3.00

Average daily volume = 1.50 mln
/charts/charts.asp?symbol=BUD



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

The Option Investor Newsletter                     Sunday 6-4-2000
Sunday                                                      5 of 5

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

Success Basics: Investor or Trader?

A well-known stock market expert once said, "There may be as many
different investment goals as there are investors."  Indeed that
is a true statement and determining how best to profit from the
market is one of the most difficult obstacles that inexperienced
investors must overcome.  Our recent article on the pitfalls of
the "buy and hold" concept discussed many of the problems with
long-term portfolio positions.  However, there is merit to this
type of investing when it is incorporated into a balanced approach
to financial security and it is still the most successful theory
today in all financial markets.

Most experts say that a combination of investments will provide
the best balance of risk and reward in a long-term portfolio.
A diverse group of long-term issues is a good foundation for
any novice investor and a qualifying retirement account can help
defer taxes.  Those who need current income can choose from a
vast number of dividend paying securities, many of which also
have an excellent record of share price growth.  Investors who
choose to avoid certain types of business activity (based on
ethical or financial principles) can still find many value-based
stocks that meet their investment objectives.  Those who wish to
achieve the same performance as an individual industry or sector
can purchase mutual funds and other financial instruments that
mirror specific groups of stocks.  More aggressive traders can
apply value-investing principles to blue chip companies; buying
stocks that are undervalued and selling those that are overvalued.
As a portfolio matures, investors can also diversify into bonds
or treasury instruments to benefit from market and interest rates
fluctuations.

While strategy is important, it is also imperative to approach
investment activities with the right attitude and expectations.
Trying to achieve too much from a portfolio can put the account
in the red quickly (greed can lead to terrible decisions), and
accepting returns that barely surpass current inflation rates
will prevent a portfolio from growing.  "Buy and hold" has worked
very well throughout the last quarter of the century but it is
still important to be proactive with your core holdings.  While
most investors who make the effort to learn about the stock
market are not satisfied to achieve the same return as the Dow or
the S&P 500, others will actively seek mediocrity.  Just look at
the number of index funds that are sold to investors who then are
relegated to losing what the market loses and gaining no more
than the market gains.  Today's modern trading forums provide a
vast number of profit opportunities and there are numerous stock
and options strategies for the average investor.  The key to
success is to follow a carefully planned approach with precision
and discipline.

So how do you determine a reasonable expectation?  Most investors
who participate in historically profitable strategies will easily
average 15%-20% return on an annual basis.  In the long-term, 10%
a year is the typical return for broad market stocks in general.
In comparison to a rigid investing plan, the Dow's performance is
just what it's described as; Average, and yet Warren Buffett made
his fortune (Berkshire Hathaway is worth over a billion dollars),
by focusing on a mere 15% annual return on assets.  His primary
goal however, was to maintain a substantial margin of safety in
all of the portfolio's holdings.  From a long-term viewpoint,
that approach is valid even today as the recent activity suggests
the protracted "bull" market may finally be coming to an end.

Benjamin Graham has long been the master for investors who
ascribe to the "buy and hold" mentality but Charles Dow may have
said it best, "The man who is prudent and careful in carrying on
a store, factory or real estate business seems to think that
totally different methods should be employed in dealing with
stocks.  Of course nothing could be further from the truth."

Good Luck!



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

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

PSSI    9.50   9.59   JUN   7.50  2.63  *$  0.63  10.0%
FHS    11.38  12.31   JUN  10.00  2.13  *$  0.75   8.8%
CYBS   14.94  16.94   JUN  12.50  3.00  *$  0.56   6.8%
EGOV   15.44  20.69   JUN  12.50  3.50  *$  0.56   6.8%
CENT   11.81  11.63   JUN  10.00  2.50  *$  0.69   6.4%
SMRT    8.53   7.88   JUN   7.50  1.50  *$  0.47   5.8%
WGR    22.50  21.94   JUN  20.00  3.25  *$  0.75   5.6%
CWST   12.63  13.06   JUN  10.00  3.00  *$  0.37   5.6%
CAIR   22.88  24.00   JUN  17.50  6.38  *$  1.00   5.3%
BEAM   12.44  18.56   JUN  10.00  3.00  *$  0.56   5.2%
ANET   12.94  13.56   JUN  12.50  1.13  *$  0.69   5.1%
AAS    22.00  25.25   JUN  20.00  2.88  *$  0.88   5.0%
WGR    21.00  21.94   JUN  17.50  4.13  *$  0.63   4.1%
LPNT   20.63  19.88   JUN  17.50  3.75  *$  0.62   4.0%
PXD    14.06  14.31   JUN  12.50  1.88  *$  0.32   3.8%
ADAC   17.38  20.31   JUN  15.00  2.75  *$  0.37   3.7%
CCCG   13.50   9.59   JUN  10.00  4.00   $  0.09   1.0% No Lower
DRIV   18.81  13.88   JUN  15.00  4.75   $ -0.18   0.0% Closing

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

Comments:

Pss World Medical (PSSI) has recovered from last Friday's low.
Act Networks (ANET) is rallying in conjunction with Clarent (CLRN)
and has moved up steadily from Friday's low.  Digital River (DRIV)
offered a break-even exit this week and therefore we will show
the position closed.  Rolling down to the July $12.50 strike was
another alternative for those investors with a long term outlook.
Ccc Information (CCCG) dropped on Wednesday and is threatening the
April low as well as long-term technical support.  The action is
very bearish in light of the recent market-wide rally and CCCG is
probably a candidate for early exit if it moves any lower.

Positions Closed:

Boise Cascade (BCC) - Paper Sector downgrade.



NEW PICKS
*********


Sequenced by Company
*****

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

HSIC   18.25  JUN  17.50  HQE FW  1.31  138  16.94   14     7.2%
ITXC   40.06  JUN  35.00  UXI FG  6.75  146  33.31   14    11.0%
MENT   18.31  JUN  17.50  MGQ FW  1.25  272  17.06   14     5.6%
NERX   14.75  JUN  12.50  XUO FV  2.69  9    12.06   14     7.9%
STAA   13.50  JUN  12.50  SQT FV  1.38  183  12.12   14     6.8%

ALSC   26.88  JUL  22.50  ASU GX  5.88  207  21.00   49     4.4%
MED     9.44  JUL   7.50  MED GU  2.69  0     6.75   49     6.9%

Sequenced by Return
*****

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

ITXC   40.06  JUN  35.00  UXI FG  6.75  146  33.31   14    11.0%
NERX   14.75  JUN  12.50  XUO FV  2.69  9    12.06   14     7.9%
HSIC   18.25  JUN  17.50  HQE FW  1.31  138  16.94   14     7.2%
STAA   13.50  JUN  12.50  SQT FV  1.38  183  12.12   14     6.8%
MENT   18.31  JUN  17.50  MGQ FW  1.25  272  17.06   14     5.6%

MED     9.44  JUL   7.50  MED GU  2.69  0     6.75   49     6.9%
ALSC   26.88  JUL  22.50  ASU GX  5.88  207  21.00   49     4.4%


Company Descriptions

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

*****
HSIC - Henry Schein  $18.25  *** Digital Dentistry ***

Henry Schein is a distributor of healthcare products and services to
office-based healthcare practitioners in North America and Europe.
They sell products and services to over 400,000 customers, primarily
dental practices and dental laboratories, as well as physician
practices, veterinary clinics and institutions.  After reporting
favorable earnings at the beginning of May, showing revenue growth
and an increase in operating cash flow, Henry Schein announced the
acquisition of California-based Integra Medical at the end of May.
Integra Medical is reported to be the number one rated manufacturer
of digital imaging software and technology products for dentists.
The acquisition should enhance Henry Schein's position in digital
dentistry.  Investors appear to agree with the move as the current
rally has good volume support.  We favor a cost basis near support
on this two-week play, that has a long-term bullish outlook.

JUN 17.50 HQE FW LB=1.31 OI=138 CB=16.94 DE=14 MR=7.2%

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

*****

ITXC - Itxc Corporation  $40.06  *** Time To Rally? ***

ITXC is a service provider for voice on the Internet.  ITXC
WWeXchange Service provides phone-to-phone wholesale call
completion for carriers and resellers and has been chosen by ten
of the top 12 United States facilities-based carriers, leading
European competitive carriers and PTTs worldwide to complete
their customers' calls. ITXC webtalkNOW! Service enables portals,
ISPs and communications Websites to offer PC-to-phone calling to
their customers under their own brands. Intel recently announced
it is licensing its Internet telephony software technology to ITXC.
The technology improves the quality of voice communication when
making calls from PC to phone, and the deal allows ITXC to
incorporate the software into its webtalkNOW! ServiceSM.  ITXC
offers the service to Web portal and Internet telephony device
customers, who can easily integrate it into their existing Web
pages and other applications.  These companies can then offer
Web-to-phone capabilities right from a user's browser.  With the
close above the May high, ITXC appears to be completing a short
term bottom.  A favorable play on a technically bullish issue.

JUN 35.00 UXI FG LB=6.75 OI=146 CB=33.31 DE=14 MR=11.0%

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

*****

MENT - Mentor Graphics  $18.31  *** New Multiyear High! ***

Mentor Graphics is a world leader in electronic hardware and
software design solutions, providing products and consulting
services for the world's largest electronics and semiconductor
companies.  Mentor Graphics is one of the few companies whose
stock rallied after reporting favorable earnings May 1.  Mentor
Graphics beat the street by almost double with strong revenue,
gross margin, and a record level of backlog.  The company
continues to forge new contracts, partnerships, and acquisitions
and recently regained the number one position in the printed
circuit board design market.  What better way to welcome a
downgrade (from Market Outperform to Market Perform) by Goldman
Sachs than close at a new multi-year high.  MENT did not weaken
after-hours and the February high should provide new technical
support.  A short-term play with a favorable long-term outlook.

JUN 17.50 MGQ FW LB=1.25 OI=272 CB=17.06 DE=14 MR=5.6%

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

*****

NERX - NeoRx  $14.75  *** Drug Speculation ***

NeoRx develops innovative therapeutic biopharmaceuticals
primarily for the treatment of cardiovascular and inflammatory
diseases, as well as cancer.  Their scientists have developed
expertise and technologies that permit radiation, and other
toxins, to be targeted preferentially to tumor cells.  The
stock exploded in March when a peer-reviewed manuscript in the
Proceedings of the National Academy of Sciences, reported that
a single dose of NeoRx's proprietary Pretarget® technology cured
established human lung (10/10 animals), colon (10/10 animals)
and breast cancers (8/10 animals) implanted in mice.  NeoRx has
also started clinical trials for Skeletal Targeted Radiotherapy.
In May, Stephens Inc. and Adams Harkness initiated coverage with
a "buy" and a "strong buy" rating, respectively.  We simply favor
the technical stage I base.  Although this is a short-term play,
due diligence is required.

JUN 12.50 XUO FV LB=2.69 OI=9 CB=12.06 DE=14 MR=7.9%

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

*****

STAA - STAAR Surgical  $13.50  *** Wanted, a New CEO? ***

STAAR Surgical is a developer, manufacturer and distributor of
products used by eye care professionals to improve or correct
vision in patients suffering from cataracts, glaucoma and
refractive conditions.  Among their main products are their
Implantable Contact Lenses and Toric Intraocular Lens, for use in
correcting conditions such as myopia, hyperopia and astigmatism;
and the Wave Phacoemulsification Machine, used for restoring
vision adversely affected by cataracts.  STAAR Surgical's Board
of Directors removed John R. Wolf from his positions as Chairman,
President and Chief Executive Officer, naming the COO, William C.
Huddleston as President and CEO in the interim.  This appears to
have been forthcoming as the stock actually rallied after the
announcement.  The message boards continue to speculate on
a possible buyout or merger.  A two-week play for speculators!

JUN 12.50 SQT FV LB=1.38 OI=183 CB=12.12 DE=14 MR=6.8%

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

**********
July Plays
**********

ALSC - Alliance Semiconductor $26.88 *** Sector heating up? ***

Alliance Semiconductor develops and markets high performance
memory and memory intensive logic products to the personal
computer, networking, telecommunications and instrumentation
industries.   They are actively pursuing a variety of initiatives
to create a range of embedded-memory products that combine logic
and memory on a single chip.  Alliance Semiconductor recently
announced its intention to enter the networking semiconductor
market.  Alliance has rallied from its April low on favorable
earnings showing strong revenue and income.  Several upgrades
and Strong Buy recommendations have helped push Alliance to a
new multi-year high.  The heavy volume is bullish and the high
option premiums offer a conservative entry point in a bullish
issue.

JUL 22.50 ASU GX LB=5.88 OI=207 CB=21.00 DE=49 MR=4.4%

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

*****

MED - e-MedSoft.com  $9.44  *** Stage I base ***

e-MedSoft has developed the first subscription-based healthcare
management system available for delivery through the Internet.
Users of the software are charged a small up-front installation
fee, and an ongoing subscription fee based on transaction volume.
The medical software is a complete healthcare management system.
e-MedSoft also operates the e-Net Technology group of companies,
which includes e-Net Systems Ltd. (formerly Relay Business Sys.),
IFA Systems, and e-Net Software.  The group focuses on removing
the complexity of Web-enabling business processes by providing a
complete range of Internet Managed Services and Information Tech
solutions, and by utilizing strategic partners Sun Microsystems,
Oracle Corporation and Cisco Systems Ltd.  e-MedSoft has lots of
news out on new contracts, exhibits, acquisitions, and patents,
as it forms a stage I base.  The heavy volume during rallies is
bullish, and the technicals suggest an upward resolution of the
recent consolidation phase.

JUL 7.50 MED GU LB=2.69 OI=0 CB=6.75 DE=49 MR=6.9%

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



*************************
NAKED PUT PERCENTAGE LIST
*************************

By Ryan Nelson


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

AMCC   128.81   120   AZV-RD   6.00   3220   19%     110
AMD     89.56    85   AMD-RQ   3.00   2239   13%      85
BLDP    81.25    80   DFQ-RP   2.94   2031   14%      75
BRCD   134.00   120   UBZ-RD   3.38   3350   10%     120
CHKP   233.69   220   YKE-RU   7.38   5842   13%     220
CIEN   138.31   130   UEE-RF   5.38   3458   16%     130
CMTN    88.94    85   KUA-RQ   4.25   2224   19%      85
EXDS    87.13   170   DUB-RP   3.13   2178   14%      80
GLW    208.88   200   GRJ-RT   5.13   5222   10%     200
ITWO   129.13   120   QYJ-RD   5.13   3228   16%     120
JNPR   214.50   210   JUY-RB  10.63   5363   20%     205
KLAC    61.50    60   KCQ-RK   3.25   1538   21%      55
MLNM   105.88   100   QMR-RT   4.63   2647   17%     100
PDLI   125.13   120   PQI-RU   8.75   3128   28%     115
PEB     64.44    60   PEB-RL   2.13   1611   13%      60
PHCM    87.00    80   UGE-RP   2.94   2175   14%      80
PMCS   188.25   170   SZI-RN   4.88   4706   10%     170
RBAK   112.56   110   BUK-RB   7.88   2814   28%     100
RMBS   217.38   210   BYQ-RB  16.00   5435   29%     210
SCMR   110.00   100   QSM-RT   3.75   2750   14%     102
SDLI   260.38   240   QJV-RH  11.00   6510   17%     240
SEBL   138.94   130   SGW-RF   3.50   3474   10%     130
SNDK    72.94    70   SWQ-RN   3.50   1824   19%      65
SSTI   101.88   100   SSU-RT   6.00   2547   24%     100
TQNT   114.38   110   TNN-RB   5.25   2860   18%     100
VRTS   134.50   125   VUQ-RE   3.63   3363   11%     128
VRTX    83.00    75   VQR-RO   2.13   2075   10%      80
YHOO    134.5   125   YMM-RE   3.63   3363   11%     120


VRTX




AGGRESSIVE   SELL PUT JUN-75 VQR-RO at $ 2.13 = 10%
MODERATE     SELL PUT JUL-80 VQR-SP at $12.38 = 60%
CONSERVATIVE SELL PUT JUL-75 VQR-SO at $ 9.50 = 46%


GLW




AGGRESSIVE   SELL PUT JUN-210 GRJ-RB at $9.50 = 18%
MODERATE     SELL PUT JUN-200 GRJ-RT at $5.13 = 10%
CONSERVATIVE SELL PUT JUN-195 GRJ-RS at $3.63 =  7%


JNPR




AGGRESSIVE   SELL PUT JUN-220 JUY-RD at $15.75 = 29%
MODERATE     SELL PUT JUN-210 JUY-RB at $10.63 = 20%
CONSERVATIVE SELL PUT JUN-200 JUY-RT at $ 6.75 = 13%



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

Option Pricing: Fundamentals Are Important!


Option pricing is a complex and often misunderstood subject that
usually requires a great deal of study to understand completely.
The trader who perseveres will find there is a simple logic to
most of the concepts.  These knowledgeable traders earn the right
to have less money at risk and greater potential for profits.  As
one becomes familiar with the components of pricing theory, he
can he begin to formulate potentially profitable strategies.

One of the primary considerations for most traders is risk versus
reward.  In the derivatives market, buyers of options have limited
risk and unlimited reward while sellers of options have limited
reward and unlimited risk.  With this single perspective in mind,
it's obvious why most retail traders simply 'buy' options.  Most
investors would never consider a position with unlimited risk and
yet few understand that almost any trade that isn't fully hedged
entails enormous speculation.  A violent adverse move, which does
not allow time for adjustments, can quickly reduce any position
to a fraction of its initial value.  With this in mind, it's hard
to understand why traders would take outright long or short
positions under any circumstances.  The only possible explanation
is they believe the probability of catastrophic loss is very small
and the potential for profit is worth the risk.

The most important issue successful option traders understand is
that risk/reward characteristics of a position are not the only
considerations.  Equally important is the probability of profit or
loss.  When one evaluates a prospective position, the likelihood
of each possible outcome must be factored into the assessment.  Is
the reward, even a limited one, sufficient to offset the risk?
An successful trader will always seek to improve the risk/reward
characteristics of his position by looking for the trade with the
greatest possible margin for error.  In order to achieve this goal,
a trader must be able to accurately assess an option's value.  One
of the most important components of option pricing is the concept
of time decay.

Time value and time decay are actually two of the easiest aspects
of option pricing to understand.  The time value of any option can
be simply understood as everything but the intrinsic value.  Time
costs money and more time equals more money.  The amount of time
value in an option's price decays each day it is in existence.
The closer the option gets to expiration, the faster it decays.
In a strictly mathematical sense, time value decays at its square
root and this rate of decay is known as Theta.

Time is a commodity and there is one very important concept that
merchants of time (option writers) must understand; the laws of
option pricing dictate time value is highest in the at-the-money
(ATM) option.  Time value decreases as the strike prices move in
and/or out of the money (ITM or OTM).  Strike prices that are deep
in and/or out of the money have the lowest time value of all
options.

Option buyers (as well as sellers) need to have a firm grasp of
pricing theory.  Remember, the main attraction of options to most
traders is they provide the buyer with leverage; one can realize
a large percentage gain with only a modest change in the stock
price.  The concept of delta proves that OTM calls offer greater
reward potential if the stock moves substantially while ITM calls
will perform better if the stock only moves moderately.  Choosing
the correct time frame of a position requires another difficult
decision because the time closest to expiration costs the most
and yet the less time remaining in the option, the greater the
movement.  With options, more time does cost more money, but the
cheapest way to avoid time decay is to buy the most available.

All of these variables must be clearly understood for a trader to
profit on a consistent basis.  One of the best ways to understand
the geometric value of time is to study LEAPS.  LEAPS are simply
long-term options with expiration dates that are months or even
years in the future.  Time decay occurs very slowly for LEAPS, so
buying LEAPS is an effective way to benefit from a stock's price
movement without incurring the risk associated with an outright
stock purchase.  One of the easiest (and most popular) strategies
associated with LEAPS is the covered call (calendar spread) with
the LEAP position. But, that's another subject...

Good Luck!


                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


SUMMARY OF PREVIOUS PICKS
*****

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

ADAC   17.38  20.31   JUN  15.00  0.56  *$  0.56  15.8%
ADVP   16.75  18.88   JUN  12.50  0.38  *$  0.38  14.8%
MSM    22.06  23.00   JUN  17.50  0.50  *$  0.50  14.7%
BBSW   17.00  28.63   JUN  12.50  0.38  *$  0.38  14.6%
ADEX   19.56  16.31   JUN  15.00  0.69  *$  0.69  13.0%
TMAR    9.25  10.50   JUN   7.50  0.25  *$  0.25  12.3%
MATK   18.88  18.75   JUN  15.00  0.31  *$  0.31  11.0%
YRK    25.94  28.44   JUN  22.50  0.56  *$  0.56  10.8%
UNM    20.19  23.94   JUN  17.50  0.56  *$  0.56  10.2%
ADVP   17.13  18.88   JUN  12.50  0.31  *$  0.31   9.0%
GZMO   17.19  12.63   JUN  10.00  0.31  *$  0.31   9.0%
CLPA   29.38  21.50   JUN  15.00  0.63  *$  0.63   8.4%
WLV    16.94  17.06   JUN  15.00  0.50  *$  0.50   8.1%
CLPA   27.19  21.50   JUN  15.00  0.44  *$  0.44   8.1%
NGH    20.88  21.25   JUN  17.50  0.38  *$  0.38   7.7%
VRTL   17.00  14.75   JUN  10.00  0.31  *$  0.31   7.3%
NGH    21.19  21.25   JUN  17.50  0.25  *$  0.25   7.2%
ALL    26.75  27.94   JUN  22.50  0.44  *$  0.44   6.9%
XTO    17.69  20.88   JUN  15.00  0.38  *$  0.38   6.9%
VRC    20.81  21.75   JUN  17.50  0.38  *$  0.38   6.1% New ticker
TRMB   36.00  45.00   JUN  25.00  0.44  *$  0.44   5.0%

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

Comments:

Ade Corp. (ADEX), Genzyme Molecular (GZMO), and Vertel (VRTL) all
made successful tests of their recent lows.  They are not out of
the woods yet, but a successful outcome appears probable.  Cell
Pathway's (CLPA) tape has become bearish with the drop below the
150 dma and the position should be watched closely.  The rebound
on Friday should help with some follow-through next week.  TBI or
Tuboscope, completed its merger with Varco International, taking
the new name and now trading under the new symbol; VRC.


NEW PICKS
*********

Sequenced by Company
*****

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

ADAC   20.31  JUN  17.50  QAB RW  0.44  0    17.06   14    16.6%
BBSW   28.63  JUN  22.50  UUO RX  0.63  41   21.87   14    21.5%
BFO    65.13  JUN  55.00  BFO RK  1.00  2289 54.00   14    12.8%
ITXC   40.06  JUN  30.00  UXI RF  0.69  126  29.31   14    17.2%
MED     9.44  JUN   7.50  MED RU  0.38  103   7.12   14    36.4%
MRVC   35.56  JUN  25.00  VQX RE  0.50  170  24.50   14    14.3%
FSII   16.00  JUL  12.50  FQH SV  0.50  0    12.00   49     8.4%

Sequenced by Return
******

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

MED     9.44  JUN   7.50  MED RU  0.38  103   7.12   14    36.4%
BBSW   28.63  JUN  22.50  UUO RX  0.63  41   21.87   14    21.5%
ITXC   40.06  JUN  30.00  UXI RF  0.69  126  29.31   14    17.2%
ADAC   20.31  JUN  17.50  QAB RW  0.44  0    17.06   14    16.6%
MRVC   35.56  JUN  25.00  VQX RE  0.50  170  24.50   14    14.3%
BFO    65.13  JUN  55.00  BFO RK  1.00  2289 54.00   14    12.8%

FSII   16.00  JUL  12.50  FQH SV  0.50  0    12.00   49     8.4%


Company Descriptions

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

*****
ADAC - ADAC Laboratories  $20.31  *** Entry Point! ***

ADAC Laboratories is the world market-share leader in nuclear
medicine and radiation therapy planning systems, and a technology
leader in providing clinical workflow solutions, management
information and knowledge systems to healthcare organizations in
North America.  Lots of news on ADAC Labs: earnings improvement,
new contracts, products, and the company has received the first
order for its nuclear medicine camera.  Cedars-Sinai Center in
Los Angeles will purchase the Skylight system as well as a C-PET
positron emission tomography system and three Forte gamma cameras.
Technically, the stock has climbed steadily from last year's low,
recently moving to a new 52 week high.  The outlook continues to
improve and strengthen and this new position offers reasonable
speculation on a bullish stock.

JUN 17.50 QAB RW LB=0.44 OI=0 CB=17.06 DE=14 MR=16.6%

Chart =
 /charts/charts.asp?symbol=ADAC
*****
BBSW - Broadbase Software  $28.63  *** On The Move! ***

Broadbase Software is a leading provider of customer-focused
analytic and marketing automation applications that analyze
customer data from multiple touch points, and utilize that
information to execute marketing campaigns, improve online
merchandising and content, increase site stickiness and
personalize all customer interactions.  Broadbase applications
are designed for rapid time to value and they can be installed
quickly.  The company provides e-commerce infrastructure to
customers such as ADP, BEA Systems, Cisco, Fidelity Investments,
Hewlett-Packard, Kodak, LoanCity.com, Mercata.com, The Sharper
Image and United Airlines.  Broadbase also has a major global
presence with locations around the world.  This unique software
company recently announced more than 30 new global customers, a
number of strategic resale contracts, and they are planning a
significant International expansion.  The issue is beginning to
rally and $22 is a favorable cost basis for a two-week position.

JUN 22.50 UUO RX LB=0.63 OI=41 CB=21.87 DE=14 MR=21.5%

Chart =
 /charts/charts.asp?symbol=BBSW
*****
BFO - Bestfoods  $65.13  *** Unilever Buy-out! ***

Bestfoods is among the largest U.S. consumer food companies with
operations in more than 60 countries of North America, Europe,
Latin America, Asia, the Middle East, and Africa and products
sold in about 110 countries.  Bestfoods markets various leading
food brands, and operates over 115 plants around the world
through retail outlets and its foodservice business.  Of course
they are known for their Mayonnaise but Bestfoods is also the
largest fresh premium baker in the United States.  The world's
second largest consumer products group, Unilever is trying to get
Bestfoods officials to negotiate a deal and on Friday a WSJ news
report suggested that Unilever had quietly raised its bid for BFO
to $70 a share, or nearly $20 billion.  That compares with their
earlier offer of $66, which Bestfoods management has rejected as
financially inadequate.  The downside risk for this position is
relatively small as there is little chance the issue will trade
much below its current price in the next two weeks.

JUN 55.00 BFO RK LB=1.00 OI=2289 CB=54.00 DE=14 MR=12.8%

Chart =
 /charts/charts.asp?symbol=BFO
*****
ITXC - Itxc Corporation  $40.06  *** Time To Rally? ***

ITXC is a service provider for voice on the Internet.  ITXC
WWeXchange Service provides phone-to-phone wholesale call
completion for carriers and resellers and has been chosen by ten
of the top 12 United States facilities-based carriers, leading
European competitive carriers and PTTs worldwide to complete
their customers' calls. ITXC webtalkNOW! Service enables portals,
ISPs and communications Websites to offer PC-to-phone calling to
their customers under their own brands. Intel recently announced
it is licensing its Internet telephony software technology to ITXC.
The technology improves the quality of voice communication when
making calls from PC to phone, and the deal allows ITXC to
incorporate the software into its webtalkNOW! ServiceSM.  ITXC
offers the service to Web portal and Internet telephony device
customers, who can easily integrate it into their existing Web
pages and other applications.  These companies can then offer
Web-to-phone capabilities right from a user's browser.  With the
close above the May high, ITXC appears to be completing a short
term bottom.  We favor the support above the sold strike at $30.

JUN 30.00 UXI RF LB=0.69 OI=126 CB=29.31 DE=14 MR=17.2%

Chart =
 /charts/charts.asp?symbol=ITXC
*****
MED - e-MedSoft.com  $9.44  *** Stage I base ***

e-MedSoft has developed the first subscription-based healthcare
management system available for delivery through the Internet.
Users of the software are charged a small up-front installation
fee, and an ongoing subscription fee based on transaction volume.
The medical software is a complete healthcare management system.
e-MedSoft also operates the e-Net Technology group of companies,
which includes e-Net Systems Ltd. (formerly Relay Business Sys.),
IFA Systems, and e-Net Software.  The group focuses on removing
the complexity of Web-enabling business processes by providing a
complete range of Internet Managed Services and Information Tech
solutions, and by utilizing strategic partners Sun Microsystems,
Oracle Corporation and Cisco Systems Ltd.  e-MedSoft has lots of
news out on new contracts, exhibits, acquisitions, and patents,
as it forms a stage I base.  The heavy volume during rallies is
bullish, and the technicals suggest an upward resolution of the
recent consolidation phase.

JUN 7.50 MED RU LB=0.38 OI=103 CB=7.12 DE=14 MR=36.4%

Chart =
 /charts/charts.asp?symbol=MED
*****
MRVC - MRV Communications  $35.56  *** On The Rebound! ***

MRV Communications is a world-class leader in optical components
and network infrastructure systems.  The company has leveraged
its early leadership in fiber optic transmission into a well-
focused range of solutions, integrating switching, routing,
access servers and optical transmission systems.  Over the past
2 years, MRV adopted a business model of creating and managing
several start-up companies as well as forming independent business
units such as Luminent and iTouch.  MRVC recently announced the
acquisition of Switzerland-based CES.  CES manufactures solutions
for real-time data acquisition systems.  Applications of this
technology by CES have included ATM network controllers, nuclear
and particle physics and aeronautical flight test equipment.  They
have applied the same principles to achieve packet-by-packet
processing of IP-based transactions in wireless broadband networks.
This technology enhances service providers' ability to quickly and
profitably market and bill new value-added services.  A new company,
iTouch Communications, is being formed to combine the complementary
strengths of MRV's routing, WAN and IP expertise with that of CES's,
to allow for faster development of more feature-rich, high-speed
data acquisition and management systems.  The bullish activity after
the recent 2-for-1 split suggests the issue is poised for further
upside movement.

JUN 25.00 VQX RE LB=0.50 OI=170 CB=24.50 DE=14 MR=14.3%

Chart =
 /charts/charts.asp?symbol=MRVC
*****     *****
- July Plays -
*****     *****
FSII - FSI International  $16.00  *** Own This One! ***

FSI International is a leading global supplier of processing
equipment used in key areas of the production of microelectronics.
FSII develops, manufactures, markets and supports products used
in the technology of micro-lithography, surface conditioning and
spin-on dielectrics.   FSI recently announced that it has received
orders totaling $8 million for its POLARIS 2500 Microlithography
Clusters from two major thin film head manufacturers.  The systems
will perform DUV processing used in next-generation thin film head
technology.  The company's ability to support varied processing
requirements of thin film head customers continues to give them
leadership in their industry niche.  Our outlook is bullish, based
on sound company fundamentals and the recent change in technical
character.

JUL 12.50 FQH SV LB=0.50 OI=0 CB=12.00 DE=49 MR=8.4%

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



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

A Great Way To End The Week!

******************************************************************
- MARKET RECAP -
******************************************************************
Friday, June 2

The market roared today after a tame employment report boosted
investor confidence that inflation is under control.  A slowing
economy may keep the Fed from raising rates later this month.
The Dow closed up 142 points at 10,794 and the Nasdaq rose 230
points to 3813.  The S&P 500 Index added 28 points to 1477.
Volume on the NYSE hit reached 1.18 billion shares with advances
beating declines more than 2-to-1.  Trading volume on the Nasdaq
was heavy at 1.9 billion shares, with advances ahead of declines
3-to-1.  In the bond market, the 30-year Treasury moved up 1/32
pushing its yield down to 5.94%.


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

Xilinx     XLNX   JUN65P/JUN70P   $0.00   credit   bull-put
Hadco      HDC    JUN80P/JUN85P   $0.00   credit   bull-put
Hyperion   HYSL   JUL30CC/25NP    $25.62  debit    CC/NP Combo

Our new plays offered little chance for favorable entries with
the broad market rally.  Both Hadco and Xylinx gapped higher at
the market open and neither position traded near our target
credit.  Hyperion moved in a relatively small range during the
morning session and when the stock fell below $33, there was a
brief opportunity to enter the bullish combination.


Portfolio plays:

Stocks rallied across the board amid optimism that growth in
the economy may be slowing.  Investors applauded the benign
employment data and went on a buying spree in anticipation of a
strong summer rally.  Technology stocks posted impressive gains
with Internet, chip and biotech shares sharply higher.  Cyclical
and Finance companies also participated in the upside activity
and our recent credit spread candidate, J.P. Morgan (JPM) led
the group of interest-rate-sensitive issues.  Our short position
at $140 is in jeopardy but first the issue must successfully
overcome resistance near that price.  A close above that range
on increasing volume will suggest a change in character and the
resulting trend should provide an opportunity for a relatively
easy "roll-out."  Money flowed out of defensive stocks like Oil
and Major Drugs, into more aggressive sectors.  One of our new
long-term stocks, Johnson & Johnson (JNJ) led the losers on the
Dow, falling over $3 to $84.50.  Those of you concerned with the
possibility of a slump in this group should remain at or below
the $85 strike through next month's expiration period.  Another
sad performance was turned in by Boston Scientific (BSX).  The
stock turned downward on Thursday after the company agreed to
buy assets pertaining to the field of embolic protection devices
(for use in procedures that treat blocked blood vessels) from
privately held EMBOL-X.  Today's morning slump confirmed the new
trend and we were forced to exit the play at a small loss.  The
short option at $30 is open but there is little chance the issue
will rise to that price anytime soon.

The majority of our Oil Industry positions are profitable but
there was a big change in the outlook for that group.  While
most of the plays are expected to remain positive until the
June expiration, there is one position that may need attention.
Falcon Drilling (FLC) moved from a $0.50 profit in the morning
session to a small loss at the end of the day.  A timely (and
successful) exit would have been during the initial stages of
this week's rally but those of you that held along with us would
probably be happy just to finish with a break-even cost basis.

Oddly enough, two stocks in the Drug industry, MedImmune (MEDI)
and Sepracor (SEPR) led our portfolio.  Sepracor is one of our
long-term positions and the issue has far exceeded our initial
expectations.  In just a two months the stock has climbed $25
and our Covered-calls with LEAPS spread is trading at maximum
profit.  Our new position in MedImmune is a Credit-Strangle and
as we commented in the original narrative, the current outlook
is bullish.  However, if the issue climbs too far we will have
to cover the short options (at $190).  A successful move above
the current technical resistance near that price will be the key
indication of a new trading range.  Another issue with the same
outlook is Benchmark Electronics (BHE).  Today the stock enjoyed
an incredible recovery rally and with our short position at $40,
the issue warrants attention.  Once again, a close above the
recent resistance near that price (on increasing volume) should
signal a change in character.  We will plan to roll-out of the
bearish credit spread if that movement eventually occurs.

Now for the good news!  There were some incredible rallies in
the portfolio today.  Ciena (CIEN) and Scm Microsystems (SCMM)
both had big gains amid strength in technology group but the
big surprise was Covad Communications (COVD).  This volatile
issue jumped $5 to close near $30 on no news and the potential
for a continued upside move is excellent.  A number of other
hi-tech portfolio issues participated in the bullish activity
including Andrew (ANDW), Cabletron (CS) and Network Associates
(NETA).  Our recent picks in the small-cap finance group have
been outstanding.  Golden State Bank (GSB) and U.S. Bancorp (USB)
both returned favorable profits in under one week and all of the
other positions are performing very well.  Spreads in Allstate
(ALL), Bank One (ONE), Keycorp (KEY) and Summit Bancorp (SUB)
are all in-the-money.  Our plays in the Media - Communications
sector, AM/FM (AFM) and Clear Channel (CCU) remain profitable and
one of our older debit straddles has reached the break-even point.
Liposome (LIPO) which became a play on Elan (ELN) as the company
completed its acquisition of all of Liposome's outstanding shares
in a tax-free, stock-for-stock transaction.  The position was
somewhat difficult to track as Liposome stockholders agreed to
receive 0.3850 of an Elan ADS plus one contingent value right for
each share of Liposome common stock.  Based on the recent movement
in ELN, it appears that the position would have achieved at least
a neutral cost basis.

Questions & comments on spreads/combos to Contact Support

******************************************************************
                         - NEW PLAYS -
******************************************************************

GSPN - Globespan  $104.62  *** On The Move! ***

GlobeSpan is a worldwide developer of advanced digital subscriber
line (DSL) integrated circuits, which enable high-speed data
transmission over the existing network of copper telephone wires
known as the local loop. The Company's products, when deployed
with copper telephone wires, enable data transmission at rates
over 100 times faster than today's commonly deployed modem
technologies, which transmit data at 56 kilobits per second.  The
company sells its integrated circuits as chip sets to a number of
major manufacturers of DSL equipment for incorporation into
products that are sold to telecommunications service providers
and end users.  Globespan's products target the rapidly growing
market for high-speed data transmission applications such as
Internet access, telecommuting and networking between branch
offices.

The company's core engineering team includes individuals who
were early developers of DSL technology at AT&T Bell Labs, in
addition to experts in VLSI design, communications algorithms,
IP routing and switching, ATM protocols and Voice over DSL
system software.  These core competencies enable GlobeSpan to
deliver complete DSL system integrated circuits and offer a
broad suite of standard based integrated DSL chipset solutions
for ADSL, SDSL, SHDSL, HDSL, and HDSL2 applications utilizing
DMT, 2B1Q, PAM and CAP line codes.  To date, the company has
shipped millions of DSL chipsets representing a considerable
share of this emerging market.

DSL is HOT and Globespan has been on the move since a slew of
broker upgrades earlier this month.  Globespan was reiterated a
"buy" by analyst Charles F Boucher at Bear, Stearns & Co and the
12-month target price was raised to $140 per share.  The opinion
was backed by Robertson Stephens and Thomas Weisel Partners.  It
appears that investors agree!


PLAY (conservative - bullish/debit spread):

BUY  CALL  JUN-80  GHY-FP  OI=32   A=$27.12
SELL CALL  JUN-90  GHY-FR  OI=237  B=$18.62
INITIAL NET DEBIT TARGET=$8.25  ROI(max)=20% B/E=$88.25

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

*****

PWJ - Paine Webber Group  $49.19  *** A New 52-Week High! ***

Paine Webber Group along with its operating subsidiaries, is a
full-service securities and commodities firm.  PWJ offers a wide
variety of products and services, consisting of those of a full
service broker-dealer, primarily to a domestic market, through
its two operating segments: Individual and Institutional.  The
Individual segment offers brokerage services and products, asset
management and investment advisory and portfolio management
products and services, and execution and clearing services for
transactions originated by individual investors.  Paine Webber's
Institutional segment principally includes a number of capital
markets products and services such as securities dealer
activities and investment banking.

The Financial Services group has recovered substantially in the
past week and on Friday, shares in Paine Webber spiked to a new
52-week high.  The stock is poised to move into a higher trading
range and investors are participating in the rally with options.
A small disparity in Implied Volatility in call options will
allow us to speculate on the outcome of the current trend with a
favorable debit spread position.

This play is based on recent increased activity in the stock and
underlying options.  The position offers favorable risk/reward
potential but it should be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.


PLAY (conservative - bullish/debit spread):

BUY  CALL  JUL-40  PWJ-GH  OI=468   A=$10.12
SELL CALL  JUL-45  PWJ-GI  OI=2066  B=$5.88
INITIAL NET DEBIT TARGET=$4.00  ROI(max)=25% B/E=$44.00

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

*****

CDNW - Cdnow  $4.88  *** Cheap Speculation! ***

CDnow, Inc. is a leading retailer of CDs and other music-related
products through its online retail store.  Since its launch in
1994, CDnow has grown rapidly and their online store offers broad
selection, information, easy-to-use navigation and search
capabilities, a high level of customer service, competitive
pricing and personalized merchandising.  Customers may choose
from thousands of CDs and other merchandise.  The CDNW store also
assists music buyers with approximately 430,000 music samples and
160,000 product notes, reviews, editorials and related articles,
including reviews and articles from Rolling Stone, MTV/VH1, CMJ
and CDnow's editorial staff.  CDnow also offers more than 325,000
CDs, 40,000 movies, and 10,000 music videos.  Additional products
include T-shirts, DADS and CD-ROMS.

CDNW jumped over $2 Friday after officials at the company said it
expected to announce a deal with a merger partner or investor this
month.  CDNW has compiled a short list of prospective investors
and merger partners from more than two dozen companies that have
expressed interest in buying their future.  CDNow said in March
that it was seeking a merger partner or investor.  That month the
company said it might not have enough cash to make it through the
year, and set up a cost-cutting plan to trim operating expenses by
more than $12 million a quarter.  Now they are ready to sell and
in a statement on Friday, the CEO said he expected to announce a
deal with a merger partner by June 30.  Let's hope that is the
eventual outcome!


PLAY (speculative - bullish/debit spread):

BUY  CALL  JUL-5.00  NWQ-GA  OI=124  A=$1.38
SELL CALL  JUL-7.50  NWQ-GU  OI=0    B=$0.56
INITIAL NET DEBIT TARGET=$0.68-$0.75  ROI(max)=233%  B/E=$5.75

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

******************************************************************
     - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current 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.
******************************************************************

NOVT - Novoste  $38.50  *** Trading Range! ***

Novoste has developed the Beta-Cath System, a hand-held device
designed to deliver beta, or low penetration, radiation to the
site of a treated blockage in a coronary artery to decrease the
likelihood of restenosis.  Restenosis, the renarrowing of a
previously treated artery, and also is the major limitation of
percutaneous transluminal coronary angioplasty, a procedure used
by interventional cardiologists to open blocked coronary arteries.
Novoste is currently conducting pivotal clinical trials of the
Beta-Cath System and assuming positive results, expects to receive
an initial pre-market approval application with the FDA in the
near future.

This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, the premiums for
the (OTM) call options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.


PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-50  QOH-FJ  OI=18  A=$0.43
SELL CALL  JUN-45  QOH-FI  OI=49  B=$0.81
INITIAL NET CREDIT TARGET=$0.50  ROI(max)=11% B/E=$45.50

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

******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************

WLP - Wellpoint Health  $74.88  *** Consolidation Period ***

WellPoint Health Networks is a managed health care company.  WLP
offers network-based managed care products, including preferred
provider organizations (PPOs), health maintenance organizations
(HMOs) and point-of-service (POS) and other hybrid and indemnity
plans to the large and small employer, individual and senior
markets.  The company markets its products in California under
the name Blue Cross of California and under the name UNICARE in
the rest of the United States.  In addition, Wellpoint offers
managed care services for self-funded employers, including
underwriting, actuarial services, network access, medical cost
management and claims processing.  The company also provides a
broad array of specialty and other products and services,
including pharmacy products, dental plans, life insurance,
mental health plans, utilization management, disability plans,
long-term care insurance and workers' compensation managed care
services.

The majority of Health and Drug companies have managed to avoid
the sell-off earlier this year and the health services group is
performing very well.  We favor this company for a bullish play
and have decided to sell premium for credit and use the earned
income to offset any losses on the downside, in the event we
accept assignment of the issue.  If the share value moves
through the resistance area near $78, we will simply buy the
stock to cover our sold options.


PLAY (aggressive - neutral/credit strangle):

SELL CALL  JUN-80  WLP-FP  OI=96  B=$1.31
SELL PUT   JUN-70  WLP-RN  OI=0   B=$1.12
INITIAL NET CREDIT TARGET=$2.50  ROI(max)=10%
UPSIDE B/E=$82.50  DOWNSIDE B/E=$67.50

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



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