Option Investor
Newsletter

Daily Newsletter, Wednesday, 06/07/2000

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The Option Investor Newsletter               Wednesday  06-07-2000
Copyright 2000, All rights reserved.                       1 of 1
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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       6-07-2000           High     Low     Volume Advance Decline
DOW    10812.90 +  77.30 10848.40 10695.20   846,093k 1,603  1,300
Nasdaq  3839.26 +  82.89  3839.37  3725.87 1,430,754k 2,296  1,697
S&P-100  791.13 +   7.74   794.13   780.94    Totals  3,899  2,997
S&P-500 1471.36 +  13.52  1474.64  1455.06            56.5%  43.5%
$RUT     516.54 +   4.89   516.54   507.91
$TRAN   2797.35 +  30.81  2797.95  2762.27
VIX       25.19 +   0.05    26.42    24.84
Put/Call Ratio       .44
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A Battle With Boredom Ends As Markets Rally

Investors were taking a Wait-and-See approach this morning to
two key news items: MSFT and the PPI.  The former is a surprise
no longer as Judge Thomas Penfield Jackson announced his decision
on whether to break up the company shortly after the close today.
It was originally scheduled for 3pm EST, or an hour before the
close, but, wisely, they moved it to a half an hour after the
close as not to affect trading.  This is what traders were
waiting on all day today, creating lots of time for option
traders to put a MSFT straddle together.  Come on, admit it.
You thought about it, didn't you?  If only MSFT moved like it
did in the old days, is what I was thinking.  So I remained a
spectator for this decision.

Well, the decision was announced and MSFT was jumping around
like a jackrabbit in after-hours trading.  The Judge elected
to order the break up of Microsoft into two companies.  One
segment will run the operating systems business while the other
is to handle the software and Internet business.  Jackson said
that the US Department of Justice would have 60 days to respond
to Microsoft's plan, and that Microsoft would receive another
30 days to file a rebuttal to the Justice Department response.
Bill Gates responded in a taped statement that this is a new
beginning to this case as they enter the appeal stage.  It was
already widely assumed that not only would they appeal, but
also have a better chance of winning in appellate court.  MSFT
was halted at the time of the decision, but opened soon after
and traded as high as $72.

Otherwise the market remained very dull and range-bound for
most of the morning as traders wait ahead of the PPI report due
out Friday morning.  Although, the action we have seen so far
this week has been healthy.  It is normal consolidation after
a strong move last week.  The fact that we haven't seen a big
sell-off just confirms the bullish trends.  I had to close
out my QQQ puts this morning for a small gain, realizing the
market just wasn't acting like it wanted to sell-off.  It's
a good thing too since the DJIA took off just after 2pm EST
when Goldman came out with bullish comments on IBM.  Laura
Conigliaro, Goldman Sachs analyst, met with IBM today and
she commented that unit server growth was picking up, which
will help IBM meet top-line estimates.  She also commented on
strong services booking projections.  Before the announcement,
IBM was sitting around $112, but quickly found its way above
$120 on the news.  As a Dow Industrials component, the DJIA
caught fire as well.  Note the point of the IBM announcement
in the chart below.  The DJIA finished up 77 to 10,812 on
volume of 850 million shares.




Not only the DJIA rallied on the IBM news as buyers quickly
returned to the tech sector.  I think we were all waiting
around for the past couple days in search of entry points and
this finally put the buyers back to work.  The Nasdaq shot
forward after lingering around the unchanged mark all day.
Look at some of the tech winners today...JNPR +23.31, VRSN
+19.75, BRCD +10.75, YHOO +9.44, CHKP +15.06 and AETH +13.44.
This all combined to help lift the COMPX by 82.63 to 3839.
Yep, back above 3800 on a closing basis after slipping below
that level yesterday.  The trend still looks good and the
VIX is intact at 25.18.  Nothing like a good, middle-of-the-
road Volatility Index to maintain a stock-pickers market,
instead of a momentum frenzy.  The volume was fairly light
at the Nasdaq though with 1.4 billion shares traded.




For the second day in a row, Fed governor Robert Parry was
pounding the newswire and going on record to say that the Fed
may not be done raising rates yet.  He said the next few weeks
economic data may not be enough to convince the Fed that the
economy is slowing down.  Whether or not they decide to raise
rates, the Fed governors are doing their best to talk down the
markets, just like Jim stated in the Wrap from yesterday.  It's
standard procedure for the Fed to do a little jawing instead
of having to hike rates just to stop the stock market's advance.
So watch out why the Feds are on the warpath against the markets,
but remember, this is their best tool to corral the stock prices
and is typically used when they know they shouldn't raise rates.

In other news, Intel fell from the open on Wednesday based on a
downgrade from ABN Ambro analyst David Wu from Buy to Outperform.
This comes just one day after he upgraded INTC's competitor
Altera.  The move was based on uneasiness over Intel's Pentium IV
(also known as the Williamette) being able to move into the PC
segment.  Mr. Wu was quoted as saying, "The failure of RDRAM
to achieve more than a high-end niche product to date and the
looming shortage in SDRAM beginning in the second half of
calendar 2000 lasting through at least 2001, present Intel with
a challenge for positioning Willamette competitively in mid
CY2001."  This dropped the stock down, but it looks more like
an entry point for the split run, rather than an end of the
trend.  INTC finished at $128.94, down $0.63.

After the bell yesterday, IMNX received an expanded FDA approval
for use of its flagship drug, Enbrel.  It is already used to treat
patients with moderately to severely active rheumatoid arthritis.
The expanded approval will now allow IMNX to market this drug for
early stage treatment of the disease.  IMNX expects sales of
Enbrel to jump 10% in its second fiscal quarter.  Last year sales
of the drug totaled $367 mln.  Paine Webber analyst, Elise Wang,
predicts that sales will increase year-over-year from $650 mln
this year, $864 mln next year and $975 mln in 2002.  According to
an Immunex spokesman, currently 300,000 patients use Enbrel and
this expanded approval opens up treatment to an additional
700,000 qualified patients.  Investors applauded the news as IMNX
gapped up today on the open, posting a 12% gain, up $3.91 to
$36.25.

Even though Intel was downgraded today, the Semiconductor sector
did receive some good news.  Lehman Brothers foresee capital
spending on semiconductors in the year 2000 to exceed 1999's by
over 50%.  Furthermore, the brokerage firm said that given this
outlook, semiconductor stocks look very attractive at current
valuations.  They also expect this spending cycle to continue
through 2002, possibly 2003.  The semiconductor sector has emerged
as a market leader during the past two months of decline.  On
Lehman's list of companies poised to have high earnings growth
are: AMAT(+4.25), KLAC(+2.81), and TER(+2.94).  SG Cowen also
sees chip demand to be strong in the 3rd quarter and reiterated
its support for KLAC and TER as Strong Buys.

The laggard today for the semiconductors was AMCC.  The company
announced that sales to one of its larger customers, Nortel
Networks(NT), would be lower than expected for the current
quarter.  NT accounted for 43% of AMCC's revenues in the previous
quarter.  Yet, CFO William Bendush reassured that AMCC is on
track for this quarter's estimates and that non-Nortel sales
would make up for the shortfall.  SG Cowen came to the company's
defense, stating that revenues will continue to grow sequentially
for both Nortel and non-Nortel sales.  Regardless, AMCC shares
were punished in the trading session, falling $10.19 to $96.63.

So I expect more of the PPI waiting game tomorrow.  Investors
are taking this Wait-and-See attitude in hopes that even more
benign inflation data will surely halt the Fed.  The interesting
thing to watch is tomorrow afternoon to see if the markets start
moving.  We have seen the markets move in the direction the
outcome of the PPI report in the hours leading up to Thursday's
close.  Will it jump the gun once again?  If so, resistance
should be solid on the Nasdaq at 4000.  A positive report could
put it at that level on the open Friday.  A less than favorable
report may land the Nasdaq back to 3600, which technicians
would say has to happen anyway to close the gap up from last
Friday.  Ample support should be found there.

Although I wouldn't mind seeing a retreat to open some new
positions, I have to side with the Bulls here.  The recent money
inflows are just too much.  This cash has to be put to work
somewhere and it has been building up for eight weeks.  I still
think the summer rally is for real, especially when you factor
in earnings which will begin in a month.  During the last few
weeks, I viewed a minor market retreat as a bear trap, but am
now looking at it as a time to buy.  Watch the VIX and plan
your trades ahead of time.

Ryan Nelson
Asst. Editor



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

More Of The Same, Right?
By Eric Utley

The wait and see action by traders may approach an end in the
coming days.  The jury is out!  Judge Thomas Penfield Jackson
confirmed what Wall Street had been expecting late Wednesday.
I'm sure you've already read the story or heard the headlines
blasting from CNBC, so I'll spare you with the details.  However,
the significance of the announcement from Jackson is that
investors can put their worst fears behind them, and move on!
Once the trading halt was lifted Wednesday evening, investors
scrambled to accumulate shares in after hours trading, figuring
the worst is behind Mr. Softee, and the company might actually
prevail on appeal.  Noting the action in Linux based companies,
namely CORL, RHAT, and LNUX, you'd think that bullishness has
returned to the software giant.  But not so fast.  Rick Sherlund,
Goldman Sachs analyst and the guy who knows the most about MSFT
next to Gates, said that while MSFT probably won't move much
lower from here, he doesn't see much upside in the stock until
the whole mess is resolved.  However, therein lies the beauty of
Jackson's announcement Wednesday, and that is MSFT probably won't
fall much lower from its current levels.  Once the largest
company in terms of market capitalization, MSFT has been a huge
drag on both the DOW and the NASDAQ.  If Sherlund is correct in
saying MSFT's stock has stabilized at its current levels, maybe
the summer rally can officially begin.

Before that happens though, the market needs to get past Friday's
PPI report.  If the wholesale inflation gauge cooperates, we
might be on our way to a rally into July earnings.  Of course,
it remains to be seen what the number actually is.  If the Fed
smells even a hint of inflation, we could face yet another round
of interest rate hikes.  Noting Governor Parry's comments again
Wednesday, he makes it sound as if Greenspan and company have
Their fingers on the trigger and ready to fire.  Whether this is
The beginning of the summer rally, to be quite honest, I don't
know. I do, however, think that trading will be a little more
exciting in the coming days and we may get a clearer picture of
future prices.  Be on your toes!

Keep those requests coming!  If you have a stock that you would
like me to review, whether it's a winner or loser, send your
request to Contact Support.  Please put the
symbol in he subject line of the e-mail.

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

Rambus - RMBS

I have been a member of your community since last 3 years.  I
read you newsletter weekly...gives me a lot of guidance.

The issue I have here is different one.  I am long 640 calls on
RMBS - AUG and NOV strikes so I have enough time but the stock
seems to be stuck in a trading range.  I have been noticing that
it has lately been breaking out of that range and also the MACD
indicators are probably going up today.

Can you please advise me your take on technical outlook
especially looking at a 6 month chart.  Thanks. - Sunil

Thank you for your loyalty Sunil, I enjoy hearing from our
devoted, long-time readers.  Unfortunately, I cannot comment on
specific strategies nor positions.  I can, however, give you a
technical outlook for RMBS and discuss a few fundamental factors
that may affect the stock price going forward.  For our readers
who don't know, RMBS operates in the cyclical semiconductor
business and develops chip-to-chip interface technologies used in
a wide range of computer, consumer and communications systems.
The stock took a hit Tuesday when Intel, a chief RMBS customer,
delayed shipments of its new Timna chipset which calls for Rambus
dynamic random-access memory (RDRAM).  Due to the short supply of
RDRAM, Intel has been forced to use an alternative technology.
While demand is currently high for RDRAM, RMBS has the luxury of
charging high prices for its technology.  Analysts agree that
RMBS will have to lower its prices to compete with a new
technology known as DDR, developed by AMD among others.  The
company is expected to grow at a healthy rate over the next five
years, but with a forward-looking P/E of roughly 350 and a PEG of
3.6, it's an expensive stock and very volatile.

The stock is far from its 52-week high of $471, traced last
spring after the infamous short-squeeze.  The technical outlook
for RMBS improved last Friday when the stock broke away from its
string of lower highs.  I think it is critical for RMBS to trade
above its support level if the stock is going to move
substantially higher.  RMBS will split its shares 4-for-1 on June
15th.  The split may act as a catalyst and move RMBS away from
its trading range.  The solid bounce from support last week was
strong enough to push the stock through resistance.  As you well
know, OIN added RMBS to the call list about a week ago after it
rallied off its support level.  The chart looks good as it is,
but would look better if RMBS cleared a few of its resistance
levels.




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

Powerwave Technologies - PWAV

Could you review PWAV?  Thanks. - MM

Powerwave is an exciting tech company that makes radio frequency
(RF) amplifiers for use in wireless applications.  The company
is doing very well with the explosive growth in the building of
wireless communications systems.  PWAV recently signed a five
year deal with Motorola to supply RF amplifiers.  The company has
substantially surpassed earnings estimates over its last five
quarters.  And this upcoming quarter should be no different
noting the continual upward revisions of estimates by analysts.
Profits are expected to grow over 30% for the next five years and
the company's balance sheet is very strong.  PWAV has virtually
zero debt and a nice cash position of around $84 mln.  The
company's strong fundamentals have helped the stock hold onto
much of its gains from earlier in the year.

PWAV traced an all-time high in late April of $74, in the face of
the bear market I might add.  For the past month, the stock has
been consolidating its gains.  PWAV has attempted to retest its
52-week high on two separate occasions during that time.  Most
recently, last Monday PWAV ran to $70 before fading back to
support at $60.  There are two trading ranges that I can see on
the chart.  One between $60 - $74 and the other between $40 - 60.
If the stock holds above $60, which it has so far this week, we
might see a retest of its high in the coming days.  However, if
support at $60 fails, the stock could fall back into its range
between $40 - 60.  A breakout above $74 combined with healthy
volume might be a good place to look for an entry for a new long
position.




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

Akamai Technologies - AKAM

- Peter

AKAM is in the business of making the Internet a bigger, better,
and faster place.  They provide Web sites with content services
and protection against crashes.  The stock is a long way from its
lofty high around $345.  The dot com rally turned into a dot com
disaster for many of the leading Internet stocks, AKAM included.
However, there does appear to be a light at the end of bear
market tunnel for some of the Net stocks.  Many analysts see a
wave of consolidation sweeping through the Internet sector,
especially in the e-commerce services sector in which AKAM
operates.  Consolidation would create synergies which in turn
could reduce costs and ultimately lead to higher profits, which
Wall Street so desperately wants from the Internet group.  Also
worth mentioning, the influential Morgan Stanley Internet
analyst, Mary Meeker did her part last Friday by telling clients
that the worst was over in the Web stocks, and to expect a rally
into the fall.  Additionally, a lesser known brokerage house
initiated coverage on AKAM Wednesday with a Buy rating.  So Wall
Street is starting to warm up to the Net sector again.

While the Street has turned bullish on the sector once again,
AKAM has a long ways to go before reaching its old highs.  I
don't think it is very likely for AKAM to reach its previous
highs, at least not this year.  But the technical picture is
improving, and the stock may have some upside in the near-term.
For the past month-and-a-half, AKAM has been basing after its
steep sell-off.  The formation on the chart below is beginning
to look like a cup-with-handle.  The volume patterns have been
indicative of that very formation.  Note the climax of selling
when the stock hit bottom in mid-April, volume then tapered off
as the stock found support, and trading once again picked up as
the stock began to rally.  If support around $80 holds, (the gap
from last Friday) we may see the handle portion formed, whereupon
you might look for a breakout above $110.





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

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.



***********
OPTIONS 101
***********

Analysts
By David Popper

In my next life, I want to be an analyst.  When you are an
analyst, you get paid for giving vague advice before a market
event.  The advice is vague enough so that absolutely no one
can trade on it.  It is also vague enough so that you may claim
victory no matter which way the market turns.  Analysts, however,
become remarkably precise after the fact.  They analyze what had
already happened as if the market's direction was obvious before
the event.  In short, analysts are paid for adding to the
confusion.  If they were attorneys or physicians, their advice
would often generate claims for malpractice - especially that
analyst who gave QCOM a $1,000 pre-split price target.

Million of Americans turn to market analysts for guidance.  In
March, the guidance was don't worry about the pull back, do not
sell and instead buy the dips.  Investors who followed that
advice have paid the price.  The wonderful "buying opportunities"
have turned out to be fool's gold.  In March, the NASDAQ fell on
heavy volume several times.  Selling on heavy volume indicates
institutional selling, yet many analysts kept claiming that a
"buying opportunity" might exist.

How does an investor know what advice is sound and what is
not?  The best course of action is not to listen to opinions,
but to listen to the markets.  Follow the charts of major
averages (Dow, NASDAQ, S&P) and leading stocks (CSCO, EMC, SUNW
and ORCL, etc.).  When the averages and leading stocks show
selling on higher volume over several days, then it is time to
begin to back off margin and move into cash.  When your stocks
hit the predetermined sell points, it is time to sell.  Those
who followed this advice in March would still have most of their
portfolio intact.

Unless you have the time to follow the markets hour by hour, do
not try to guess bottom.  Wait for a "follow-through day" to
confirm a new market rally.  In other words, wait for a market
bottom to be defined by a bounce on heavy volume which lasts at
least two to three days.  If you are a position trader, as
opposed to a day trader, do not back up the truck until the
bottom is well defined.

In April and May, we have had several failed rallies.  The
telling sign was a lack of volume.  Be willing to miss out on
picking an ultimate bottom while waiting for the market itself
to send out an all clear signal.  You may miss the gains of a
potential snap back, but when you do buy, you will have a much
better sense of the real market bottom.

Think about it a moment.  The last time the market hit a bottom
was on October 18, 1999.  If you waited for definite confirmation
and did not trade until November 1, you would still have massive
gains with a lot less risk.  The bargain hunters who purchased in
September and early October were annihilated.  Many did not have
the cash when the real rally started.  Yes, you will miss the
first bounce, but you will have a much more reliable entry point.

The bottom line is that the NASDAQ remains in a downtrend.  This
downtrend will continue until institutions begin buying.  If the
institutions begin to buy in earnest, the volume will surge along
with the averages.  If the rally has legs, money will initially
flow to the leading stocks.  The charts of the averages and
leading stocks should demonstrate break outs on heavy volume.  In
other words, the market will tell you when it is time to enter.
Until the market tells you, by showing successive days of gains
on higher volume that it is safe to jump in, any entry point is
high risk and more akin to gambling than trading.

Contact Support



******************
OPTION CLUB UPDATE
******************

Update from Salt Lake City

DATE: THURSDAY, JUNE 8, 2000
TIME: 6:30 PM TO 8:30 PM
AGENDA: CANDLESTICK CHARTING
LOCATION: SANDY EXTENSION -- UNIVERSITY OF UTAH
          9875 SOUTH 240 WEST,  ROOM #127

If you are a TC2000 user,  please e-mail me if you can help me
set up a scan for a 13 week high and go back 5 days.  I already
e-mailed TC2000 and received a reply but am not sure it is
working correctly the way I set up the scan.   Also, I need
some help at the meeting to adjust settings on TC2000 for
charts I'm using.

At our last meeting Mike Lundquist, Optioninvestor research
analyst, gave us "A Strategy for Success".  It was well worth
our time as Mike presented some great information on how to
identify and play fear, greed and uncertainly in this market.
One of the things that he suggested was that we learn to read
candlestick charts.  Consequently I'm putting together a
presentation on this technique.  Please let me know if you are
interested in sharing your knowledge on this subject.  I have
a great CD that shows the different patterns.  If you have a
trade that you played based on candlestick technique, please
bring info and share with us.  One member suggested that we
spend some time each meeting sharing our plays.  A great idea.
I'm not sure if we will have time for many this time as the
candlestick charting info will take about 1:30 but let's plan
on that for future meetings.

DIRECTIONS:  Go to Yahoo, Maps, enter address in "Map a new
address", then Get Map.  From State St. turn West on West Sego
Lily Drive (10000 South).  Then North or RH on 240 West.  There
are 2 large parking lots for the Sandy city complex on the East
side of the road.  Then you will see the Univeristy building.
Parking to the South, North and East.   Room is in middle of
building so any lot or door is fine.

Hope to see you Thursday June 8th at 6:30 PM.   Our July 13th
meeting will be scheduled for the downtown  area.  Once you
become familiar with the campus it is quite easy to find the
meeting room.   I NEED AN AGENDA & SPEAKER FOR THE JULY MEETING!
If you have any ideas for an agenda or want to do a presentation,
please let me know.  I could really use some help in this area.
I volunteered to organize the meetings and keep our list current,
but our group was formed to learn from one another and the idea
is for us all to participate in this process.  I'm open for
suggestions and would love to share some of the responsibility
of organizing the meetings.  My thanks to the many people who
have already helped or done a presentation.

P.S.  If you are coming from the West side, you can get under
I-15 at 100th South.  The interchange at 90th is closed
completely.

Carol Mortensen
SLC Organizer




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

GLW - Corning Inc. $211.25 -6.00 (+2.38 this week)

Corning provides communications technology at light speed.  The
materials pioneer is one of the world's top makers of fiber-optic
cable, which it invented more than 20 years ago.  Corning's
Telecom unit (about 50% of sales) makes optical fiber and cable
and photonic components.  The company's Advanced Materials unit
makes industrial and scientific products, including semiconductor
materials.  Its Information Display segment makes glass products
for TVs, VCRs, and flat-panel displays.  The company operates 40
plants in 10 countries.

Most Recent Write-Up

Despite the market meltdown beginning in early March, GLW has
held its ground.  The stock is trading near its all-time high of
$226.44, revealing investors' insatiable appetite for companies
operating in the fiber optic arena.  With expanding profits,
investors have been rewarded with GLW.  And with the announcement
Tuesday, GLW's bottom-line may grow even more.  The company said
Tuesday that Marconi Communications, a supplier to 80% of the
world's telecom organizations, will use GLW's PurePath technology
in Marconi's next generation systems.  The announcement helped
GLW to buck the tech weakness Tuesday.  Also, the highly
anticipated SuperComm 2000 conference commenced Tuesday.  GLW is
a headline presenter at the gathering of leading-edge telecom
companies where investors await good news.  With the resurgence
of the tech sector last week, GLW broke out from a two month
trading range between $160 - 200.  After gapping above the $200
level last Friday, the stock hasn't looked back.  Volume has
steadily increased over the past five trading days as GLW has
rallied.  Despite the deteriorating conditions in the tech sector
Tuesday, GLW managed to hold onto much of its early day gains.
The stock did run into resistance at $220 as the day wore on.  In
the coming days, look for a bold move above $220 combined with
healthy volume for an entry point, if GLW can clear that level we
could see a retest of its 52-week high.  If, however, the
weakness in the broad market brings GLW down, the stock has minor
support at $215 and major support at $210.  These are the levels
we will be watching tomorrow for a chance to jump aboard.

Comments

Within the first hour, GLW gravitated to support around $210
where it traded near throughout the day.  It was a day of
consolidation for GLW which bodes well for this play.  We
could see a rally in the market tomorrow, given that the PPI
will be released on Friday and we typically rally the day
before.  If we see a pullback in GLW, support under $210 can
be found at $200.  A bounce from there could provide a good
entry.  On the upside, the stock will bump into resistance at
$220.  If we shoot right out of the gates tomorrow, look to
jump on board after amateur hour.  Remember support and
resistance levels when entering and exiting.

***June contracts expire in 1 week***

BUY CALL JUN-200*GRJ-FT OI=1539 at $15.38 SL=12.00
BUY CALL JUN-210 GRJ-FB OI= 801 at $ 9.13 SL= 6.75
BUY CALL JUN-220 GRJ-FD OI=1067 at $ 4.88 SL= 3.25
BUY CALL JUL-220 GRJ-GD OI= 606 at $16.50 SL=12.75
BUY CALL AUG-230 GRJ-HF OI= 312 at $18.75 SL=14.50

Picked on June 6th at   $217.25    P/E = 113
Change since picked       -6.00    52-week high=$226.44
Analysts Ratings      8-5-0-0-0    52-week low =$ 54.56
Last earnings 04/00   est= 0.55    actual= 0.64
Next earnings 07-24   est= 0.67    versus= 0.49
Average Daily Volume = 2.97 mln
/charts/charts.asp?symbol=GLW



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Waiting For The Hammer To Drop

The market drifted higher today in a quiet session as investors
awaited a decision on Microsoft's antitrust case.  U.S. District
Judge Thomas Penfield is expected to issue his ruling on whether
to split the computer software company into separate businesses
after the close of trading today.  In early April, Jackson held
that the software giant engaged in anti-competitive conduct in
violation of federal laws.  Now the Justice Department wants
Microsoft divided into two companies, one to market and produce
Windows, and the other to handle applications software and the
Internet "Explorer."  Microsoft's lawyers have said they would
appeal any order to break-up the company and in a recent filing,
they asked Jackson to include previously suggested language that
would give a divided Microsoft more freedom to negotiate with
software developers and computer makers.  Bases on comments from
government officials, it appears there is little chance they will
give Microsoft additional freedom in licensing and marketing its
products.  After all, that's what got them into trouble in the
first place.


Summary of Previous Picks:

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

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

NVDA    JUN   100    96.13  122.00   $3.87   7.7% Splits 6/27
BRL     JUN    50    48.38   56.81   $1.62   6.4% Toppy
ARBA    JUN    55    51.63   80.75   $3.37   5.4% Ahh...rebound
NVDA    JUN    90    85.50  122.00   $4.50   5.3% Splits 6/27
NEWP    JUN    37    34.81   74.00   $1.78   5.2% Adj 3-1 Split
RFMD    JUN    90    87.62  130.19   $2.38   5.2%
LLTC    JUN    55    53.56   61.69   $1.44   5.1% Consolidating
RFMD    JUN    95    90.50  130.19   $4.50   5.0%

Naked Puts:

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

BRL     JUN    50    48.44   56.81   $1.56  15.4% Toppy
RFMD    JUN    85    83.25  130.19   $1.75  14.0%
LLTC    JUN    55    53.50   61.69   $1.50  13.5% Consolidating
ARBA    JUN    50    48.00   80.75   $2.00  10.6%
NEWP    JUN    32    30.66   74.00   $1.00   9.5% Adj 3-1 Split
PLCM    JUN    65    64.12  100.06   $0.88   9.5%
NVDA    JUN    85    83.81  122.00   $1.19   9.4% Splits 6/27
NVDA    JUN    80    77.87  122.00   $2.13   8.9% Splits 6/27
RFMD    JUN    85    82.94  130.19   $2.06   8.3%
SDLI    JUN   140   136.75  258.06   $3.25   7.3%
YHOO    JUN   115   112.75  144.50   $2.25   6.6% Finally, relief!
SDLI    JUN   165   163.44  258.06   $1.56   6.3%
AFFX    JUN   105   102.94  166.75   $2.06   6.1% Breathing room
CHKP    JUN   150   148.87  221.00   $1.13   5.5%


Naked Calls:

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

JNPR    JUN   270   272.13  224.69   $2.13   6.1% Splits 6/16


New Candidates:

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

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

BULLISH PLAYS - Covered Calls & Naked Puts

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

ABSC - Aurora Biosciences  $70.88  *** New Deal! ***

Aurora Biosciences develops and designs proprietary drug
discovery systems and technologies to accelerate and enhance
discovery of new medicines by the biopharmaceutical and
pharmaceutical industries.  They are developing a proprietary
biology and high technology platform comprised of a portfolio of
proprietary functional genomics technologies, and a highly
automated ultra-high throughput screening system(UHTSS), known as
the UHTSS Platform.

Aurora shares rallied last week after the company announced a new
drug discovery collaboration with the Cystic Fibrosis Foundation.
The foundation will fund the agreement through technology access
fees, and Aurora said it expects committed funding and project
progress payments to total about $30 million over the course of
the collaboration.  Aurora and the foundation also agreed to a
revenue-sharing arrangement for drugs resulting from the program.
The partners said they expect to develop clinical candidates for
the treatment of cystic fibrosis and the pact includes development
of an assay for the CF transmembrane conductance regulator, a new
protein that is defective in cystic fibrosis patients.

Following the news, analysts at UBS Warburg initiated coverage of
the company with a "buy" rating and a $70 price target based on a
a smoothing out in Aurora's revenue stream as service charges and
licensing fees become a larger percentage of revenues relative to
large-scale instrument placements.

ABSC - Aurora Biosciences  $70.88

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

Sell Call JUL 55   UDA GK  86       20.13    50.75     5.8% ***

Sell Put  JUL 45   UDA SI  10        1.56    43.44     6.9% ***
Sell Put  JUL 50   UDA SJ  20        2.63    47.37    10.8%
Sell Put  JUL 55   UDA SK  0         4.25    50.75    15.9%

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

*****

BRCD - Brocade Communications  $149.63

Brocade Communications Systems is a provider of Fibre Channel
switching solutions for Storage Area Networks (SANs), which apply
the benefits of a networked approach to the connection of
computer storage systems and servers.  Their family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements, improve the performance
between their servers and storage systems and increase the size
and scope of their SAN, while concurrently allowing them to
operate data intensive applications.  They sell their SAN
switching solutions through leading storage systems and server
original equipment manufacturers and through system integrators.

There have been a number of favorable announcements since the
downgrade back in May took BRCD on a big slide.  New products and
agreements and a bullish outlook from another industry analyst.
Fundamentally, the company is on track but our position is based
on the positive technical outlook.  The stock has climbed steadily
from a recent low, moving to a new, 3-month high and the current
rally shows little signs of weakening.

BRCD - Brocade Communications  $149.63

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

Sell Put  JUL 100  UBF ST  663       2.25    97.75 4.8%
Sell Put  JUL 105  UBF SA  199       3.25   101.75 6.8% ***
Sell Put  JUL 110  UBZ SB  90        4.00   106.00 8.2%

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

*****

ELON - Echelon  $74.44  *** Momentum Play! ***

Echelon Corporation develops, markets and supports a family of
hardware and software products and services that enables original
equipment manufacturers and systems integrators to design and
implement open, interoperable, distributed control networks.
Control networks are an alternative to the traditional approach
of centralized control.  They offer lower cost of installation
and maintenance, and the ability to implement multi-vendor
systems, thereby increasing competition while providing expanded
features, flexibility and functionality.  They offer a set of
over 80 products and services under the LonWorks brand name.

The Controls and Automation industry is HOT and investors can't
get enough of this unique company.  The growth in wireless is
also helping the rally as mainstream America gets ready to run
their homes and business not only with Internet links but also
with cellular phones.  Echelon's partners have been building
this new technology into their products for many years and now
they are ready for the mass market.  As these new products
become available to the general public, demand should increase
exponentially.

We like the technicals for Echelon but based on the recent BIG
rally, we favor a conservative entry into this momentum-based
speculative position.

ELON - Echelon  $74.44

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

Sell Call JUL 60   EUL GL  92       19.75    54.69     6.7% ***
Sell Call JUL 65   EUL GM  466      16.75    57.69     8.8%

Sell Put  JUL 45   EUL SI  105       1.31    43.69     5.6%
Sell Put  JUL 50   EUL SJ  124       2.25    47.75     9.1% ***
Sell Put  JUL 55   EUL SK  16        3.63    51.37    13.6%
Sell Put  JUL 60   EUL SL  89        5.25    54.75    17.6%

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

*****

HGSI - Human Genome Sciences  $116.13  *** Bio-tech Binge! ***

Human Genome Sciences researches and develops novel compounds for
treating and diagnosing human diseases based on the discovery and
understanding of the medical usefulness of genes.  They have used
automated, high speed technology to discover the sequences of
chemicals in genes and generate a large collection of partial
human gene sequences.  They possess one of the largest databases
of the genes of humans and microbes, and have used this database
to create a broad assortment of product opportunities.  They now
primarily focus on the research and development of proteins for
the treatment of human disease.

Bio-techs are on the move and news that gene-researcher PE Corp
Celera Genomics (CRA) has reached another milestone in the race
to map the human gene gave a boost to a number of companies
involved in gene research.  Last week's announcement involved
technology in mapping more than a billion base pairs of the
compounds that link up to make the DNA of a mouse.  Now the race
to explore the discovery is underway and the companies at the
leading-edge of the technology will dominate the industry.  The
company also received a boost this week from a brokerage upgrade.
Merrill Lynch Analyst Todd Nelson raised his long-term rating on
the stock to "buy" from "accumulate."  Nelson said the current
fundamentals underlying the company's prospects are increasingly
positive and over the next twelve months, they expect significant
news flow related to the company's development pipeline and new
potential collaborations.

HGSI - Human Genome Sciences  $116.13

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

Sell Call JUL 90   HHA GR  600      32.75    83.38     5.5% ***
Sell Call JUL 92.5 HHA GZ  3        31.00    85.13     6.0%

Sell Put  JUL 75   HHA SO  186       2.38    72.62     6.4% ***
Sell Put  JUL 77.5 HHA SW  60        2.88    74.62     7.6%
Sell Put  JUL 80   HHA SP  453       3.38    76.62     8.8%
Sell Put  JUL 82.5 HHA SX  21        3.88    78.62     9.9%
Sell Put  JUL 85   HHA SQ  137       4.50    80.50    11.2%

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

*****

MLNM - Millennium Pharmaceuticals  $115.50

Millennium Pharmaceuticals is engaged in the development of
breakthrough drugs, or therapeutics, and predictive medicine
products using an integrated approach that the company calls
"gene to patient."  Millennium has established numerous strategic
alliances with major pharmaceutical and biotechnology companies
to discover, develop, and commercialize a range of therapeutic
and predictive medicine products.  The company has three fields
of major emphasis: cancer, metabolic diseases (and obesity) and
inflammation.  Millennium also has significant programs in
infectious diseases, cardiovascular diseases and diseases of the
central nervous system.  They seeks to discover disease-related
genes, produce validated drug targets and drug leads, and develop
new, proprietary drugs to treat major human illnesses.

Millennium is one of the big winners in the volatile technology
group and among institutional Bio-tech investors, it is also one
of the top holdings.  This year alone, the stock has gained almost
100% in value, even with the recent massive sell-off.  The current
technical outlook is favorable and our conservative position
offers a way to participate in the issue with relatively low risk.

MLNM - Millennium Pharmaceuticals  $115.50

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

Sell Put  JUL 80   QMR SP  13        2.19    77.81     6.0% ***
Sell Put  JUL 85   QMR SQ  2         3.13    81.87     8.2%
Sell Put  JUL 90   QMR SR  25        4.50    85.50    11.3%

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

*****

RBAK - Redback Networks  $117.31  *** Internet Software ***

Redback Networks is a provider of advanced networking systems
that enable carriers, cable operators and service providers to
rapidly deploy high-speed access to the Internet and corporate
networks.  Their Subscriber Management System (SMS) connects and
manages large numbers of subscribers using any of the major high
speed access technologies including digital subscriber line,
cable and wireless.  Redback sells its products through a direct
sales force, resellers and distribution partners.

Redback became the latest equipment company to enter the network
industry's metropolitan sector, announcing new plans to begin
shipping technology acquired from its subsidiary, Siara Systems.
Redback is hoping to utilize its network expertise in from high
speed, broadband connection equipment and subscriber management
systems in the metropolitan networks for residential customers.
Siara makes technology that ties older metro networks to Internet
services, speeding the plentiful fiber-optic connections in most
major cities.  Analysts say the market for new, metropolitan area
networking equipment could reach $5 billion in the next few years
and Redback intends to be part of that growth.

RBAK - Redback Networks  $117.31

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

Sell Put  JUL 75   BUK SO  54        2.00    73.00     5.4%
Sell Put  JUL 77.5 BUK SW  4         2.38    75.12     6.4% ***
Sell Put  JUL 80   BUK SP  240       2.81    77.19     7.4%
Sell Put  JUL 82.5 BUK SX  0         3.38    79.12     8.7%
Sell Put  JUL 85   BUK SQ  35        4.00    81.00    10.1%

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

*****

SDLI - SDL Inc.  $258.06  *** On The Move! ***

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

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

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

Analysts agree with the company's positive future and investors
have pushed the issue up $80 in just two weeks.  Our cost basis
allows a conservative position in an industry-leading company
with a bullish technical outlook.

SDLI - SDL Inc.  $258.06

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

Sell Call JUL 210  QZL GB  120      64.25   193.81     5.8% ***
Sell Call JUL 215  QZL GC  203      60.88   197.18     6.2%

Sell Put  JUN 195  QZL RS  169       1.06   193.94     6.8% *** JUNE
Sell Put  JUN 200  QZL RT  1400      1.13   198.87     7.2%     JUNE
Sell Put  JUL 170  YAL SN  91        5.13   164.87     6.2% ***
Sell Put  JUL 175  YAL SO  28        6.13   168.87     7.3%
Sell Put  JUL 180  QZL SP  129       6.88   173.12     8.1%

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



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

Quick and Dirty, Nice and Easy
By S.P. Brown

If you're like me and are a proponent of the KISS principal
(keep it simple, stupid), valuing options can be a head-
scratching, migraine-inducing exercise.  Let's face it, the
Black-Scholes pricing model can be an arduous calculation,
particularly if done by hand.  For the majority of folks, it's
best left to a Black-Scholes calculator.

However, many option investors don't have access to a Black-
Scholes calculator, which makes valuing options all that more
frustrating.

There's no need to fret, though.  For those traders lacking
this tool, there's the single-period binomial model.  And
unlike Black-Scholes, the binomial model involves only a few
algebraic machinations that are simple enough for a first-year
algebra student to execute (if I can do it, you can do it).

Like Black-Scholes, the binomial model is predicated on first
determining the value of a call in a riskless hedge scenario,
which is a relatively easy task.

To do so, we'll first need to set some limiting parameters,
such as stock price, exercise price on the underlying call
option, time until the call expires, the risk-free rate (T-
bill rate) and a range of possible prices for the stock over
the time frame the call is "alive."

For example, let's say ABC Corp. is trading at $24 a share.
We want to value a call option on ABC with a strike price of
20, an expiration of three months and a range of possible
returns over the three months of plus or minus $6 (here, you
can use standard deviation or beta to arrive at a range
estimate).  The T-bill rate is 5 percent.

Now, let's determine the hedge ratio on a fully hedged
position consisting of one share of ABC stock, plus a certain
number of options on ABC that will produce the same wealth
position at the end of the period, regardless if ABC's stock
is trading at $30 or $18.

To do this, we'll take the ending high stock price, $30, add
the ending high intrinsic options price, in this case $10 (the
intrinsic value of option is the high stock price minus the
strike price).  Then we'll set these variables equal to the
ending low stock price plus the ending low options price.
This would be $20 plus zero (there is no ending value on the
low-end option).  Here's how the equation looks.

30 + 10X = 18 + 0X

Obviously, we need to solve for X.

12 = -10X

Now, divide both sides by 12, and X, which is the hedge ratio,
becomes -1.2.  This means that 1.2 call options must be sold
short against each share of ABC stock in order to produce a
perfect hedge.

The next step is to hedge the ending wealth value to its
present value using the risk-free rate as the discount rate.
Here, we can use either the high or the low ending stock price
possibility and its corresponding call option price, since
they lead to identical answers.  For our example, we'll use
the high ending stock price.

We'll take the ending stock price minus the ending option
price times the number of options shorted.   Then, we'll
divide that figure by 1 plus the T-bill rate raised to the
value of the time period (in this case, three months, or a
quarter of a year).  Here's the equation in numerical form.

Present value of ending wealth = $30 - $10(1.2) / (1.05)^.25
                               =       $18      /  1.0123
                         =       $17.78

Finally, we can determine the value of the call option based
upon the current price of the stock.  This is done by setting
the present value of the ending wealth equal to the current
price of ABC stock minus the number of calls shorted
multiplied by c (call option).

 $17.78  =  $24 - 1.2(c)
-$ 6.22  =  -1.2(c)

Once negative $6.22 is divided by negative 1.2, we find the
value of our ABC call option to be $5.18.

But here's the cool part.  Once we know the call option price,
the put option price can be inferred using put-call parity,
which is also based on a riskless hedge.  In other words,
owning one share of stock, plus a put on one share and being
short a call on one share (with the strike prices and
expiration dates of both options being equal) will guarantee
an ending wealth value at the expiration date of the options
equal to the strike price of the options, plus any dividends
earned on the stock during the time the options are active.

Here's the put-call parity equation.

Stock price + put option - call option = [strike price / (1 +
the T-bill rate) to the raised to the time until expiration] +
[dividends during the period / (1 + the T-bill rate) raised to
the time until expiration].

In less convoluted terms,

S + p - c = K/(1 + r)^t + D/(1 + r)^t

To simplify matters, we'll assume ABC doesn't pay any
dividends.  So, our put-call parity equation becomes,

$24 + p - $5.18 = $20/(1 + .05)^.25
$18.82  + p     = $19.76

Based on this equation, we find the put option in our example
to be worth $0.94 ($19.76 - $18.82).

A nifty feature of the put-call parity equation is that once
any three of the four variables are known (assuming no
dividends), the value of the unknown variable can easily be
determined.

Moreover, a trader can see first-hand how the Greek letters of
option valuing (delta, gamma, vega, rho and theta) change in
response to changes in the variables of the binomial and put-
call parity models.  In other words, by changing either the
stock price, price range, time until expiration or risk-free
rate, a trader can see the magnitude of these changes on the
call and put option prices.

The primary difference between the binomial model and the
Black-Scholes model is that the binomial model is a discrete
function, meaning the model must be broken into discrete
blocks of time while the Black-Scholes model is a continuous
function.  Therefore, theoretically, Black-Scholes is the
better model.

Then again, security valuation has never been an exact
science.  Sometimes all a trader needs is a good "close
enough" approximation to successfully execute a trade.

Contact Support



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DISCLAIMER
***********

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
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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
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The newsletter staff makes every effort to provide timely
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delivery times due to factors beyond our control.

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