Option Investor

Daily Newsletter, Thursday, 04/12/2001

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The Option Investor Newsletter                 Thursday 04-12-2001
Copyright 2001, All rights reserved.                        1 of 5
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        WE 4-12           WE 4-6           WE 3-30          WE 3-23
DOW    10126.94 +335.85  9791.09 - 87.69  9878.78 +374.00  -318.63
Nasdaq  1961.43 +241.07  1720.36 -119.90  1840.26 - 88.42  + 37.77
S&P-100  607.77 + 30.42   577.35 - 28.23   605.58 + 24.87  -  7.28
S&P-500 1182.57 + 54.14  1128.43 - 53.74  1182.17 + 42.34  - 10.70
W5000  10852.65 +534.25 10318.40 -327.45 10645.85 +170.55  - 84.07
RUT      455.02 + 20.36   434.66 - 15.87   450.53 +  7.26  +  1.47
TRAN    2766.59 + 79.56  2687.03 - 84.33  2771.36 +126.02  + 13.97
VIX       30.28 -  6.48    36.76 +  2.94    33.82 -  1.09  -   .38
Put/Call    .91              .76              .52

Where Did All The Bears Go?
By Jim Brown

Did I go to sleep last week and forget to wake up? Am I still
dreaming? If I am don't wake me up because this is the best dream
I have had in a long time. The rest were all crash nightmares!
The low last Wednesday on the Nasdaq was 1619 and we have since
closed up fours days in a row for the first time since last
September and posted a +342 point gain! That is a +21% bounce
off the low. The Dow rambled for a nice gain even after WMT
warned that earnings would be a challenge. GE helped fuel the
gains by posting earnings inline with expectations and dismissing
fears that the biggest company in America might be in trouble.

What a news day! There were economic reports, missed earnings,
earnings beaten and good news breaking out all over. There were
so many analysts saying the bottom had passed that I started
looking for an oxygen mask for the thin air ahead. GE for
instance said they would never miss estimates and the giant
was running well despite the economy. Can't get much more
bullish than that.

Internet companies were still riding the YHOO and AMZN waves.
Fiber optic and networking companies were soaring despite warnings
about future quarters. Chips were still exploding on news of
slowing sales and plant closings. We have officially entered
the Twilight Zone.

Helping the blowout was news that NT inventory had decreased
from 12-18 weeks to only 6 weeks supply. Was that a buying
spurt or a write off? We may never know but the fiber/networkers
all soared on the news. Maybe the worst is over was the hue and
cry from traders and investors alike. The keyword there is of
course "maybe."

Notable earnings events on Thursday included Juniper Networks.
They announced earnings up +12% sequentially but +420% year
over year results. They hit estimates of $.25 per share and
investors celebrated by buying. More likely shorts again ran
for cover since the stock has almost doubled since the low
of $28.60 a week ago. JNPR said later that they had little or
no visibility going forward. Buyers ignored that comment.

Rambus also announced earnings but missed estimates by three
cents and warned that profits could be down by -20% going
forward do to slowing chip and computer sales. Their RDRAM
chips were increasing but volume in the older and more common
chips was weak. Legal expenses increased over ten fold with
the patent suit from Germany's Infineon Technologies. RMBS
lost about -$1.50 in after hours.

Handspring announced much stronger revenues than analysts
expected and hit proforma estimates of a six cent loss. They
affirmed estimates for the next quarter but said earnings
would come in at the lower end of the range. Hand lost a
little ground in after hours.

DCLK also announced earnings that were better than expected
but then lowered its guidance going forward. YHOO, who
announced yesterday gained +1.10 on the day but traded
down in after hours on the DCLK news. AMZN continued to
trade up even in after hours after announcing a deal with
Borders to take over a co-branded website and provide the
back end operations for Borders. Scratch one more competitor.

Other results included PWAV which reported a -30% drop in
first-quarter revenues based on "unprecedented and broadly
based" slowdowns in the telecom sector. The -$.15 loss was
much lower than the -$.06 analysts expected. ELNT also met
lowered expectations but warned that it would miss next
quarter. ADI warned that next quarter they would miss
estimates due to cancelled orders and a lack of orders.

The good news came from DNA which posted a +21% gain in
first quarter earnings. They announced a +$.17 gain which
was inline with estimates and were confident going forward.
IDPH also jumped on the news because they both are working
on some of the same projects.

Economic reports were dire today with the jobless claims at
392,000 the highest since 1996 and at the same per household
rate as the 1990-1991 recession. The PPI actually dropped
slightly more than expected at -0.1% but was almost completely
due to energy prices. No inflation is evident in these numbers.
Chain store sales posted only a +1.7% increase and Retail Sales
dropped by -2% which was more than expected. Consumer Confidence
came in at 87.8 which was the lowest since 1973. What does all
this mean? It means the pressure is back on the Fed to lower
rates at the next meeting on May 15th. Don't expect any cut
before then based on Poole's statement that the May meeting
would be the right timing.

The earnings warnings are about over with 831 companies
already pre-announcing. Of those 69% warned that they would
miss estimates. To put this in perspective this time last
year only 151 companies had pre-announced. Of the companies
that have already announced earnings 63% beat estimates and
only 6% have missed estimates. Before you start drawing
comparisons remember that 573 of the 831 companies pre-
announcing warned that earnings would be lower and this is
the bar by which the 6% have failed. That means they missed
their already lowered numbers for the most part.

While I am really glad to see stocks going up on bad news
we all need to remember that this was only the tip of the
iceberg this week. Next week is the main event and if we can
hold the momentum we have a chance. The Nasdaq has moved
up on only moderate volume to only -20 points under serious
resistance and the Dow is still -170 points under the same.
There is a rough week ahead and cautious investors are wondering
if they missed the train. There will always be another day
and my benchmark for getting back into the Nasdaq is still
a close over 2000 on heavy volume. Every major crash occurs
when everyone is the most bullish and the bullish sentiment
is certainly running rampant. I would be very careful about
chasing stocks next week. Do you want to buy CIEN when it
is up +80% in four days or JNPR at almost +100%? Let your
conscience be your guide and scale into positions if you
must play. Tuesday would be my pivot day. If Tuesday is
up then maybe the rally has legs. If not then you may get
another buying opportunity.

Trade smart, enter passively, exit aggressively!

Jim Brown

No change on the seminar stock after a gap up day and a
gap down day. Still waiting for a trend before reinstating
the play.

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Can't Keep A Good Bull Down
By Austin Passamonte

Bearish news is having little effect on jubilant traders who've
decided it's time to buy. Daily session reversals are no longer
an exception but the norm. Best way to make money these days?
Wait for morning action to stop near 10:30am EST and take the
opposite direction. While we do not recommend that as an entry
technique, it would have performed admirably well this week.

This rally like so many others we've seen is based less on solid
fundamentals than pure exhaustion of selling. Of course now we
hear all kinds of reason WHY everyone should buy, but these
things existed last week as well. A simple shift in sentiment has
money flowing upstream instead of down.

And that can be expected to prevail unless/until the next market
catalyst occurs to thwart current belief. That could be days or
weeks away, depending on interpretation. Will a big miss by MSFT,
IBM, SUNW or a host of others be shrugged off or strongly reacted
to? Only time will tell.

Next week ahead has numerous heavy-weights stepping up to the
conference call and filling us in on business past and more
importantly ahead. Those few who have so far reported have not
had any clear guidance going forward. Jonathan Joseph merely said
the chip sector is in the basement and the SOX could go down to
400 or up to 700+ from here. Load up the IRAs, everyone!

It is not our job nor intent to steer market direction any more
than we can figure out emotional extremes. Doing our best to
decipher clues on which way is next seems to be challenge enough.
If it's safe to play the upside, let's do so. If the bear market
is about to see another leg down, let's be cognizant of that.

Momentum is clearly to the upside and rightly so. Markets dove
far & fast with little relief along the way. They have since
rebounded at almost the same speed. Next up are the following
heavy points of resistance:

Dow: 10,300
Comp: 2,100
SPX:  1225
OEX:   630
SOX:   650

The way things are going we might see these numbers before noon
on Monday. The real test of where bulls & bears prevail may be at
these levels above. They consist of major moving averages,
Fibanocci values and previous points of congestion. Market closes
above these levels would clear the paths for sustained moves well
above and failure below could solidify range-bound action.

Reports this afternoon from Bob Pisani of CNBC's NYSE watch that
hedge funds were covering shorts in the CME S&P 500 futures arena
may be valid, but daily charts show that volume and open interest
were both rising late this week. That indicates activity picked
up and more open interest means more shorts were opened with the
CME taking the opposite side of these trades, hence rising open
interest on higher volume. The next COT report will show what
commercials were doing as of Tuesday 4/10 close and it will be
interesting to see if they continued to cover shorts during the
rally (bullish) or scaled into more shorts on the way up
(bearish). Right now, SP01M charts are hinting it was the latter
into Thursday's close.

We also have some proprietary software and signals unavailable to
the public which indicate broad indexes (other than techs) are at
bearish reversal extremes. The past four times such signals have
aligned (stochastic, ADX and others) in the manner they are in
right now were the last four dramatic declines.

If that weren't enough, Russ Moore (assistant editor for IS)
notes that the VIX, OEX, SPX and INDU are aligned near bearish
reversal zones according to Williams %R values. The past few
times we've seen these readings were the past few significant

Our outlook from here? Cautiously bullish. Price action is now
heading straight up while thwarting all efforts to repress. That
in itself is evidence enough until proven otherwise. Let us go on
record to state that we would PREFER a vigorous bull market to
trend years on end with one weekly pullback to let us in.
However, signs all around us mandate we keep one eye on the
downside in this bear market until overwhelming hooves trample it
to death.

Next week is the heaviest of all earnings season and expiration
week to boot. Near-death options will soar to obscene multiples
and turn to instant dust in both directions as wild action is
sure to unfold. Do your very best to own many of the former and
few of the latter as it occurs!


Thursday 04/12 close: 30.28

Thursday 04/12 close: 66.23

30-yr Bonds
Thursday 04/12 close: 5.61%

Support/Resistance Indicator
The Index Support/Resistance(S/R)Ratio is a formula used to
gauge possible support or resistance based on open-interest
disparity. Ratio listed is percentage of calls to puts or
puts to calls respectively.

Support is factored from dividing puts by calls at strike
levels beneath index closing price. Resistance is factored
from dividing calls by puts at strike levels above current
closing price. A reading above 10.00 is considered viable
resistance or support respectively within that general strike
price range.

  (Open Interest)       Calls        Puts          Ratio
S&P 100 Index (OEX)
645 - 630               10,649        5,465        18.94
625 - 610               32,736        1,830        17.89

OEX close: 608.25

605 - 590               14,466       10,647          .74
585 - 570                6,441       14,290         2.22

Maximum calls: 625/21,271
Maximum puts : 520/10,503

Moving Averages
 10 DMA  585
 20 DMA  585
 50 DMA  630
200 DMA  722

NASDAQ 100 Index (NDX/QQQ)
 52 - 50               103,521         5,465        18.94
 49 - 47               189,392        22,885         8.28
 46 - 44               211,182        67,575         3.13

QQQ(NDX)close: 42.80

 41 - 39                277,622       132,442           .48
 38 - 36                 75,871       112,174          1.48
 35 - 33                 34,139       108,974          3.19

Maximum calls: 40/161,436
Maximum puts : 43/73,401

Moving Averages
 10 DMA 37
 20 DMA 39
 50 DMA 47
200 DMA 72

S&P 500 (SPX)
1250                   18,041        16,860          1.07
1225                    7,335         8,157           .90
1200                   11,042        14,109           .78

SPX close: 1183.50

1175                    9,793         6,832           .70
1150                   16,928        20,853          1.23
1125                    5,963        13,274          2.23

Maximum calls: 1275/22,728
Maximum puts : 1150/20,853

Moving Averages
 10 DMA 1145
 20 DMA 1146
 50 DMA 1223
200 DMA 1363


CBOT Commitment Of Traders Report: Friday 04/06
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.

Small specs are the general trading public with commercials being
financial institutions. Commercials are historically on the
correct side of future trend changes while small specs are not.
Extreme divergence between each signals a possible market turn in
favor of the commercial trader's direction.

                    Small Specs               Commercials
S&P 500         (Current)  (Previous)    (Current)  (Previous)
Open Interest
Net Value        +55279     +64946        -56907     -65571

Total Open
Interest %      (+25.70%)  (+30.79%)     (-8.05%)   (-9.15%)
                net-long   net-long      net-short  net-short

DJIA futures
Open Interest
Net Value         -2607      -3269         +4835      +3299

Total Open
interest %      (-13.39%)  (-24.49%)     (+19.06%)  (+14.22%)
                net-short  net-short     net-long   net-long

Open Interest
Net Value          +2827      +431         -7344      -4461

Total Open
Interest %      (+11.07%)  (+2.03%)       (-9.63%)   (-5.89%)
                net-long   net-long       net-short  net-short

What COT Data Tells Us
Indices: Commercials have reduced their S&P short positions by
one percent while increasing their NASDAQ 100 shorts by 4
percent. Commercials have also added to their net-long positions
on the DJIA.

Data compiled as of Tuesday 04/03 by the CFTC

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Seas of Green
By Eric Utley

The market traded rather well going into the holiday weekend.
Witnessing the rampant green on my screen throughout the week,
I'm left asking the question: Is it over now?

The tax-related selling I mentioned last weekend has come to an
end, and I believe that could lead to further upside in the
coming week.  Furthermore, I'll be looking for bullish, or at
least, moderately positive guidance from corporate America to
provide the additional catalyst this tape needs to lift.

We'll be entering the heart of first-quarter earnings season
in the coming weeks, which should prove very, very telling for
the remainder of the year in terms of price action in the
broader market.

In the meantime, last week's green has me feeling fairly good
about the current state of the market.  I believe that the
rally we witnessed could surprise many participants with its
duration and magnitude.  In short, I believe it has legs.  Call
me an optimist, but it's my belief.

To all my readers, have a great extended weekend and try to
focus on the things that are more important in life than the
market (read: fly fishing).

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.


Coca-Cola - KO

In looking at KO - I regret that I didn't short KO a while back
but currently looking at it as a short if it closes below $44.
Is next support around 20?  Or is this one of those strong
stocks that is likely to hold at 44?  PE still 50. - Thanks, PK

Thank you for the request, PK.

Coca-Cola (NYSE:KO) has had problems for quite some time, which
is clearly evident on its chart.  The company has implemented
several restructuring plans in an attempt to boost its
bottom-line and justify its relatively lofty multiple of 50 times
trailing earnings, as you alluded to, PK.

Most recently, the company formed a joint effort with Proctor &
Gamble (NYSE:PG).  The two companies announced on February 21st
that they had formed a stand-alone company to market and
distribute drinks, juices and snack foods.

However, that very same day, Coke had its estimates lowered by
both Goldman Sachs (NYSE:GS) and Sanford Bernstein.  The
lowered estimates back in February proved to be leading
indicator, as Coca-Cola Enterprises (NYSE:CCE) - the bottler -
warned of lower growth in late March due to the global
economic slowdown.  Coca-Cola Enterprises accounts for roughly
75 percent of can and bottle soft drink sales of Coca-Cola.

Shares of Coca-Cola dipped below your action point at $44 last
week, PK, but have since rebounded along with the Dow Jones
Industrial Average (INDU).  Judging by the weekly chart below,
there appears to be a point of support at $42.25, but below
that level, it's a clear shot down to $40.

On the monthly chart below, which dates back over a decade,
reveals that shares of Coca-Cola had a significant pivot point
around the $40 level in 1996.  Below that level, however,
exists little support until the $20 level.  In my very humble
opinion, I don't think Coke trades down to $20 in the near
future.  I think there exist better opportunities in the
market, both on the long and short side than selling Coke with
a downside target of $20.


KLA-Tencor - KLAC

Please advise your views on KLAC.  [Specifically] the support
and the resistance values.  When should one understand that the
stock has commenced the upward trend? - Thanks, Sunil

Thanks for the regular request, Sunil!

KLA-Tencor (NASDAQ:KLAC) was one of the chip companies that
received an upgrade from Salomon Smith Barney analyst, Jonathan
Joseph on Wednesday.  Investors obviously received the upgrade
well as measured by the price action in KLAC, in conjunction
with strong volume.

Last Friday, KLAC advanced above its 200 day moving average (dma),
which is a technical level that many institutions follow, and
often begin buying stocks once they move back above that key
level.  Having said that, Sunil, the immediate support level I
would look to is the 200-dma, which currently resides at $42.28.

The daily chart below also reveals near-term support levels at
$40, and again around the $35 area.  As for resistance, I'd
place the most significant hurdle between the $46 and $48 range.

The longer-term chart (weekly) for KLAC reveals a cup-with-
handle basing pattern.  And so you know, I'd place the value
area of the handle around the $40 area.  Judging by the weekly
chart below, I think the best way to look for the beginning of
an ascending trend is to watch for a breakout above the $48
level on daily volume of 15 million shares, or more.  Thereafter,
hello $60!  From where I sit, it's a matter of time before
KLAC breaks out.  Be patient!


Texas Instruments - TXN

I like to accumulate TXN for the long-term.  Where do you see
solid support for [this] stock? - Thanks, Anne

Thanks for the question, Anne.

Texas Instruments (NYSE:TXN) was another recipient of the
Jonathan Joseph upgrade last week.  Prior to the upgrade last
Wednesday, I was actually looking at a short position in TI
as the stock continued to work lower.  Fortunately, I never
got short the stock.

In all honesty, Anne, I think it would be more prudent to
focus on a chip stock with a better chart.  Although TI
rebounded late last week, it remains close to its 52-week
low, which suggests to me that the stock is a laggard in
the group for the time being.  And I know you suggested
accumulating shares of TI for the long-term, but the whole
point of entering into the market is to make money.  It's
my belief that money can be made a little easier in other
stocks in the chip group away from TI.  But, that's just my

Now, let me address your question concerning TI's support
and resistance levels.  The stock gapped higher from the $30
level following the Solly upgrade Wednesday morning.  I think
the gap gets filled, which will put the stock back down to
the $30 level.  That area might be a good level to start
looking for entries.  You might consider a protective stop
below the stock's relative lows.

As for resistance, I see trouble near the $37 level, and again
at $40.  However, because of TI's technical weakness, I think
it would be more prudent to accumulate the stock on pullbacks
as opposed to chasing the stock near resistance.  But, that's
just another one of my opinions.



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.


For the week of April 16th, 2001

SEMI Book-to-Bill Ratio   Mar  Forecast:    NA   Previous:  0.77

CPI                       Mar  Forecast:  0.20%  Previous:  0.30%
Core CPI                  Mar  Forecast:  0.20%  Previous:  0.30%
Housing Starts            Mar  Forecast: 1.630M  Previous: 1.647M
Building Permits          Mar  Forecast:    NA   Previous: 1.670M
Industrial Production     Mar  Forecast:  0.00%  Previous: -0.60%
Capacity Utilization      Mar  Forecast: 79.20%  Previous: 79.40%
Consumer Confidence       Apr  Forecast:    NA   Previous: 117.0

Trade Balance             Feb  Forecast:-$32.9B  Previous:-$33.3B
Leading Indicators        Mar  Forecast: -0.30%  Previous: -0.20%
Durable Goods             Mar  Forecast:    NA   Previous:  -0.2%
Oil & Gas Inventories  20-Mar  Forecast:    NA   Previous:    NA
Existing Home Sales       Mar  Forecast:    NA   Previous:  5.18M
New Home Sales            Mar  Forecast:    NA   Previous:911,000

Initial Claims         14-Apr  Forecast:    NA   Previous:   392K
Philadelphia Fed          Apr  Forecast:   -20   Previous: -23.5
Treasury Budget           Mar  Forecast: -38.3B  Previous:-$35.4B
Employment Cost Index      Q1  Forecast:    NA   Previous:   0.8%
Help Wanted Index         Mar  Forecast:    NA   Previous:    71
Online Help Wanted Index  Apr  Forecast:    NA   Previous: 112.5

GDP                        Q1  Forecast:    NA   Previous:   1.0%
ECRI Wkly Leading Idx. 20-Apr  Forecast:    NA   Previous:    NA

Week of April 23th
Apr 24  Consumer Confidence
Apr 25  Durable Orders
Apr 25  Existing Home Sales
Apr 25  New Home Sales
Apr 26  Initial Claims
Apr 26  Employment Cost Index
Apr 26  Help-Wanted Index
Apr 27  GDP-Adv.
Apr 27  Chain Deflator-Adv.
Apr 27  Mich Sentiment-Rev.

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The Option Investor Newsletter                 Thursday 04-12-2001
Thursday                                                    2 of 5

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It Sure Feels Good To Breathe Again
By Renee White

Finally, we can exhale. In my 20 plus years in the market, I have
never held my breathe so long as I have since September. Earlier
this month, for the first time ever, I was wishing I was older in
order to evaluate the fear in the markets during the early
1970's, with now. I began to question if the recent gasp during
the last two weeks, was deserved or merely another over-reaction.
I found myself re-evaluating daily.

During times of utmost fear, one hopes for national stability, so
business cycle visibility can be evaluated with clarity.
Obviously, the China crises turned that cloudy visibility into
mud. The markets hate uncertainty. It was natural for them to
remain soft not knowing how well our new administration would
handle their first national crises. A few weeks back, I wrote
that I was starting to fell better about the visibility in the
distance, yet it was still too early to call. Then the China
event came. Like a puppy lying right on top of your newspaper
while you're trying to read, visibility completely disappeared.

The last 10 days have been the most interesting. The level of
fear, panic and feeling of uncertainty seemed to perpetuate
disproportionately with reason. Sure, consumer confidence has
weakened along with a few other economic numbers, but this is to
be expected. In fact many of these numbers have not bottomed-out
yet, and will continue to worsen for the next several months.
The public's level of concern will increase as our comfort level
as a trader increases. These two masses do not move at the same
rate during transition and periods of economic contraction.
During bullish times, both masses move together with upward
sentiment. During bearish times, the public tends to stay bullish
far longer than they should. I've read that it can take the public
1-year to feel the effects of a bear market. Unfortunately, some
think like the public but trade like a trader. They buy the dips
all the way down, expecting a continuation of bullish times, while
slowly wiping-out their account as the bear market eats their new
purchases like lunch. When the upturn does start, they finally
have stopped buying, and stay out when they should be in.

I think we have just turned an important corner. The markets took
comfort with the release of our servicemen, giving us (the
trader), an ability to breathe with comfort. The general public
though, will become more hesitant to spend money in the near term
as lagging economic indicators continue to hit the economy with
bad news. Traders though, should follow the leading economic
indicators, and begin hunting for bargains while these indicators
push the markets higher. It will be many months before both
leading and lagging economic indicators move in tandem. In fact,
it may not be until first quarter 2002. Most traders have heard
many times that the market moves ahead of the economy. My point
is this: follow the trend with the trading world and don't let
the confusion of conflicting non-trading information confuse the
big picture.

A tradable rally appears to be underway. That does not mean we
are clear for the next bull-run. I have been studying many tech
mutual funds this week and noticed an interesting pattern,
repeated in different funds. Many daily and weekly charts were
showing entry points in the last few days. The last time both
time periods gave the same signal, was back in September when
they both screamed, "Sell". As a disclosure, I will admit that
my experience in mutual funds is minimal, preferring instead my
own management of particular stocks. Regardless, these charts look
ripe for improvement and the only way that can happen is if stocks
start moving higher. If the economy does continue to show signs
of improvement with the leading indicators, those fund managers
will be buying their favorite stocks at much improved prices.

It is very possible that major selling by the mutual funds is
over. Few fund managers were prepared for the damage that
occurred in the first quarter of 2001, especially since Yr2000
was the worst year most managers had ever seen. With the 1st
quarter damage behind them, I suspect all panic and tax-loss
selling is over. At least the charts give me that impression. If
this is true, we may once again start to see buy programs kick in,
on pullbacks in the market.

One can rationalize that the securities they decided to hold, are
underwater. Instead of waiting for them to recover to their
previous 52 week highs, in order to improve fund performance
going forward their options are: buying more of their current
holdings to lower their basis, adding new positions which may
grow faster, and selling those equities expected to be dead money,
which has probably already occurred. If allowed by the fund, some
can use options to bolster returns. However, tech funds are still
tech funds. They cannot diversify into healthcare, gold, energy
or retail, if it's against the fund's objectives.  If I am right,
these tech funds will now move with the value of the market,
instead of downward selling pressure from funds unloading large

Researching the intricacies of mutual funds has proven far more
time consuming than expected. It is clear that timing equity
trading is different than timing entry for mutual funds. Fund
managers do not have the luxury of popping in and out of the
biggest mover on a technical whim, like equity traders. In fact,
I would still trade equities with caution. A healthy rally may
truly be underway, but it is important to keep stops tight, and
put greed aside. It feels like a recovery rally, but it could
still be just another fake-out.

In my opinion, this rally will stop the bleeding and start wound
healing. I think we have bottomed-out in tech, at least for a
while. Never before have I felt the negativism and fear that I
have recently witnessed in the markets. I've received more "end
of the world" emails and newsletter solicitation offers in the
mail in the last 3 weeks, than at any period in my life. It was
so negative that my contrarian alerts were sounded. I couldn't
even read them without them making me mad. I re-evaluated our
economy and continued to belief that these were opportunist
trying to milk the average person for money due to panic & fear.
Don't buy in to the snake-oil salesmen. Levelheaded market
watchers rarely send notices with big letters, bold print, and
dripping in fear.

In lieu of the recent pressure of the Nasdaq, I am changing my
opinion from six weeks ago, and will not be playing the bearish
plays I expected for earnings. I am not necessarily bullish, but
I think a tradable exhaustive relief rally is where the profit
is. Based on my mutual fund thoughts above, I don't expect to see
a new low in Nasdaq in the near-term. I think this period will give
us a nice window to see who surges out of the gate the fastest.
These will be the players to keep your eyes on. Buy a weekly paper
and circle those with huge weekly volume and advancements. Those
who have follow-thru for more than one week will be your keepers,
and they should repeat that pattern after this rally fades, sells
off, and bounces. In addition, take note of any companies with
upward earning's revisions going forward.

It's homework time. The recent panic is now officially over.


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Traders Corner #2

Notes From The Field
By Austin Passamonte

Without question I've learned more from my peers in the trenches
while contributing to OI and IS than they've ever learned from me.
Let me share the following with you that I received as four
detailed emails from a fellow trader who has researched some
methods long & hard that merit my attention and possibly yours.

Reprinted with permission from the author with editing for brevity
of length only:

Dear Austin,
I would first like to thank OptionInvestor and IndexSkybox to
teach us "newbies" methodical, logical approaches to trading
options. I have learned an immense amount from you and the other

Hardest part really is the emotional...I seem to have a knack for
finding the right plays but so often "push" entries because I am
itching to be in a play.

A classic article of Jim Brown's said, "Entry Point, Entry Point,
Entry Point" makes all the difference between a successful and
losing trade. Knowing that even veteran traders fight the same
emotional battles and make costly mistakes keeps me from
abandoning hope. I know I can do it and do it well. I just need to
make rules second nature and know that when (not if!) I
occasionally break one, the fact that I played by the rules on the
majority of my trades allows me to get myself back on track and
notch one more learning experience on my belt.

I've always been a person who wants to completely understand what
I'm doing. As a business owner for more than twenty years I've
had bottom-line responsibility for figuring out "how and why" of
everything. So I took your article back in July about "Let's
Perfect a Trading Model":


As a challenge to understand what you were teaching and see what I
could add to further fine-tune my abilities. I made changes to
MACD and Stochastic settings that seem to help identify intraday

MACD I set to 4,10,6 (exponential) and stochastics to 8,3,2
(exponential). I also use three Moving Averages: 2 day, 5 day
(both exponential) and 50 day (simple). I found most sustained and
strongest moves occur when:

A) 2 day MA crosses 5 day MA, more divergence and more vertical
   cross-over is better.

B) A move is more likely to have staying power if cross-over
   happens at the same time the MACD is turning positive.

C) The final caveat is that most upward moves are the strongest
   when 15 minute chart has the cross-over at the same time,
   also with positive MACD.

Some stocks "must have" both happen simultaneously, others do well
as the 15 minute crossovers follow immediately. If 30 minute
charts have crossovers with 5 and 15 minute a really strong move
is afoot!

Another thing I observe (although more a "sometimes" indicator) is
the 50 period MA on a 5 minute chart. Ideally it will be turning
up at the same time, again giving more strength to the move.

This appears to be a lagging indicator more as a bonus with these.
And no just touching - you must wait for the actual crossover
(I've been burned when jumping the gun!).

I use IQ Charts that do not give a 10 minute option, therefore the
reason for 5 and 15 minutes. This method seems to allow for
"taking a chunk of the middle"; we often have to see the move
happening before the signals. More often than not it identifies
strong moves versus short-lived pops. Nothing is perfect and I
have seen it fail, but rarely and usually when the market overall
takes a quick dive).

Interestingly my IQ Charts only allow one to designate the %K and
%D so to clarify, my settings are 8 for %K and 3 for %D. When I
can specify a period it is 4. If you look at the OEX starting with
3/22 you'll see where it crossed over at the beginning of a very
nice run.

And thanks again to you and your peers, I am beginning to get more
comfortable with playing Puts as well. I'm just reversing my
indicators...as a matter of fact I was just thinking this
afternoon as I drove home that since prices fall so much faster
that I really should be watching more for downside indicators, but
old habits are difficult sometimes.

(Follow-up email)

I wanted to follow-up on the 2/5 Day MA method I wrote to you
about a few days ago. I've had more time to observe another
indicator in live action and am more comfortable sharing my
observations about it.

Using these indicators I was able to buy Puts just as the market
started to fall the other day and made 100%. Then near another
close, interpretation of my indicators made me think the market
would turn positive and bought Calls, making another 100% the next

I'm becoming very comfortable with how well these indicators
signal change. I've "paper traded" them for quite a while and
looked backward at big moves up and down to see if they held up,
and have made some good money using them in live action as well.

I'm documenting the indicators using upward trends, just reverse
everything for downward action using 15-minute charts for
confirming downward signals. Downward moves happen so much faster
than upward moves we only need to see crossover on the 15 minute.
My experience is one can ride out fluctuations until crossover on
the 15 minute chart, preventing whipsaws out on short down moves.

In crazy markets like these we *must* have simultaneous crossover
on at least the 5 minute and 15 minute charts, and MACD must
always agree at the time of the crossover. More vertical a
crossover and divergence is better.

Horizontal crossovers with little divergence are suspect. If 30
minute chart crosses over at the same time it signifies a stronger
move and even stronger move if 60 minute joins in. Look out if the
daily happens to crossover, too!

It appears to work with your chosen settings for MACD but mine
(4,10,6 exponential) seem to fine-tune a little. The other
indicator I really like for additional confirmation when
crossovers happen is Wilder's RSI (8 period, average 2,
exponential) on top of my MACD chart (I am using TC2000 but assume
Q-Charts can do this also).

This one I pay strict attention to on the 60 minute chart (well,
occasionally the 30-minute, but it's riskier). When Wilder's RSI
crosses over into positive MACD territory it's another sign of
definite strength building in the move. It must actually cross
over and stronger MACD is better. I've seen what appear to be
imminent crossovers get turned away just as it touches the line so
it MUST be an actual crossover.

Lastly, if you look at my indicators on weekly charts they still
aren't ready to make any of the crossovers, and looking back at
past up and down moves they seem to track well with my indicators
on a weekly chart too.

Hopefully I'm not coming across as a "know-it-all!" I just feel I
have found some helpful indicators that so far seem to hold up
well in identifying moves early.

Thanks again for all of your efforts...I love the new IndexSkybox
instant messaging addition! And I must tell you I am so much more
comfortable now that I have moved to trading the indexes. Now I
feel like I can more consistently ride the trends and yet spend a
lot less time searching for that one "right stock."

Best regards, Mary Sanders

On a personal note I am EXTREMELY proud of the work you have
done on your own to optimize this trading approach. We know very
well the massive time, effort and money this takes. On behalf of
all readers at OptionInvestor and IndexSkybox I want thank you for
taking the time to share these valued methods with us. You are a
perfect example of the shared teamwork between real traders that
makes these newsletters special and unique within our industry!

Happiest of Passover & Easter holidays and Best Trading Wishes,



Call Play of the Day:

WCOM - Worldcom Inc. $19.06 (+0.50 this week)

See details in sector list

Put Play of the Day:

BEAS - BEA Systems, Inc. $33.27 (+4.90 last week)

See details in sector list

Tired of waiting on trades to execute?
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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



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.


No dropped calls tonight.


TLAB $34.50 (+0.75) After violating our $34 stop, we are dropping
coverage on our put play in TLAB.  While the stock continues to
display weakness relative to its sector, as measured by AMEX's
Networking Index (NWX), and TLAB made a new 52-week intraday
low, it could only be a matter of time before it heads up like a
lead balloon in an up elevator if the NWX continues to move
higher.  With resistance looming overhead at $35 and from the
10-dma near $36, look to exit remaining positions on any


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

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.

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.


RIMM - Research in Motion Ltd. $28.27 (+7.45 last week)

Research In Motion is a designer, manufacturer and marketer of
innovative wireless solutions for the mobile communications
market.  The Company's products include two-way Inter@ctive
pagers, wireless personal computer card adapters, software
connectivity tools, and embedded wireless radios.

The maker of the BlackBerry pager, which lets people send and
receive e-mails, stunned the Street with an exceptional
earnings' report, beating consensus estimates by a whopping 43%
on April 11th!  RIMM reported $0.10 versus the estimated
consensus of $0.07; and in addition, the company more than
tripled its earnings of $0.03 from the same quarter a year ago.
Some analysts are however, raising concerns about the company's
large gains being derived more from investment income in
comparison to actual profit margins.  RIMM noted that fiscal 4Q
profit from operations more than doubled to $8.3 mln from $3.2
mln in the year-earlier period with $11.2 mln in investment
income up from $3 mln.  Analysts may be spinning the numbers,
but the bottom-line was simple, investors were ecstatic.  The
stock opened strong this morning, fortifying $24 and the
corresponding 5-dma as a prevailing support level.  On the day,
RIMM bolted through $26 and made its second venturesome charge
at the 30-dma resistance, currently trailing $29.  A high-volume
break of this overhead obstacle gives traders the green light to
jump into the momentum.  Keep in mind, the telecom sector as a
whole is a mixed bag.  RIMM is rolling forward on its own
impressive earnings' results; therefore, it's especially
important to confirm stock direction and market sentiment.  The
successful test of $26 intraday prompts us to use this level as
a definitive barometer, going forward.  If the share price
CLOSES below this level next week, we'll drop coverage on RIMM
citing impending weakness.  In this particular case, we're
choosing to err more on the side of caution!

BUY CALL MAY-25*RUL-EE OI=21974 at $6.20 SL=4.00
BUY CALL MAY-30 RUL-EF OI= 1295 at $3.70 SL=2.00
BUY CALL MAY-35 RUL-EG OI=  807 at $2.05 SL=1.00
BUY CALL JUN-30 RUL-FF OI= 1094 at $4.70 SL=2.75
BUY CALL JUN-35 RUL-FG OI=  268 at $3.10 SL=1.50


MYGN - Myriad Genetics Inc. $45.50 (+12.38 last week)

Myriad Genetics is engaged in the discovery and sequencing of
genes related to major common diseases, including cancer,
cardiovascular disease, and central nervous systems disorders.
MYGN operates a genetic predisposition testing lab and develops
products to prevent or treat the diseases associated with these
genes.  The Company licenses non-exclusive access to its ProNet
technology to pharmaceutical companies for use in identifying
novel proteins and their bio-chemical pathways which may lead to
the development of new therapeutic procedures.

The synergies of a recovering marketplace, a stunning biotech
breakout, and the recent announcement of a $185 joint venture
between Myriad Genetics, Oracle, and Hitachi to map human
proteins all acted as dynamic catalysts, which launched MYGN out
of its depressed state.  Coming off $30 lows following the April
4th announcement, MYGN made a steadfast climb through its
respective resistance levels.  Today's clean break through $43
and $45 was however, the most significant.  It indicated that
MYGN has the potential to challenge the 50-dma upper resistance
line, at the critical $49 and $50 level.  If MYGN can close the
gap, it's very likely a snowballing effect would occur in an
advancing NASDAQ; and thus, create grand opportunities to lock
in big gains.  We're looking for the Biotech Index (BTK.X) to
target the 525 level and for MYGN to bounce upward from its
current level - the optimum-trading scenario.  On the day, MYGN
saw a $6.25, or 16% gain; and as such, the large ramp upwards
could portend some profit taking next week.  Some traders might
be willing to begin positions amid the deep pullbacks to $40,
which is bolstered by the 5-dma, but that's much riskier.  With
that said, consider the value of patience.  It may be wiser to
wait for the big breakout.  We're initiating a protective stop
at $42, the previous resistance, and will exit if the share
price CLOSES above that mark.

BUY CALL MAY-40 ESQ-EH OI=2011 at $9.50 SL=6.50
BUY CALL MAY-45*ESQ-EI OI=  26 at $6.80 SL=5.00
BUY CALL MAY-50 ESQ-EJ OI=  32 at $4.60 SL=2.75
BUY CALL MAY-55 ESQ-EK OI=  36 at $3.20 SL=1.50


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Anything else is too slow!



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The Option Investor Newsletter                 Thursday 04-12-2001
Thursda                                                     3 of 5

To view this email newsletter in HTML format with embedded
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Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



CPN - Calpine Corporation $51.25 (+5.00 last week)

Based in San Jose, Calif., Calpine Corporation is dedicated to
providing customers with reliable and competitively priced
electricity.  Calpine is focused on clean, efficient, natural
gas fired generation and is the world's largest producer of
renewable geothermal energy.  Calpine has launched the largest
power development program in North America.  To date, the
company has approximately 31,200 megawatts of base load capacity
and 6,500 megawatts of peaking capacity in operation, under
construction, and in announced development in 28 states and

After exhibiting extreme volatility over the last two weeks,
primarily attributed to the bankruptcy filing by Pacific Gas
and Electric's utility subsidiary, CPN basically traded flat
on Thursday, just under the 10-dma of $51.16.  This is
a good sign, as the stock needed to consolidate its 12% gains
since dropping to $45 on April 6th, and support is very strong
at the $50 level.  CPN has now formed a very tight neutral
wedge from the 52-week high of $58.02 on March 30th, and last
week's low of $45, which will most likely break out to the
upside in anticipation of the company's scheduled earnings
report on April 26th.  However, after a week of rallies, the
overall indexes may very well give back some of the gains
next week.  CPN has dipped below its 50 and 200-dmas only
once in the last six months, and the management's upwardly
revised guidance for the first quarter and year may whet
traders' appetites in anticipation of a better-than-expected
earnings report.  Consider taking positions at the current
level, as long as the broad indexes and utility sector (UTY.X)
are strong.  Alternatively, a more conservative strategy would
be to wait for a breakout above $52 with heavy volume, above
which resistance is light until $55. CPN and AES are both
scheduled to report earnings on April 26th.  However, next week,
DUK and DYN are scheduled to report on April 17th, and the
market's reaction to these earnings should rub off on CPN.  We
will close positions if CPN closes below $49, so set this as
your stop level.

BUY CALL APR-45 CPN-DI OI=3375 at $7.20 SL=5.00
BUY CALL MAY-45 CPN-EI OI= 186 at $8.60 SL=6.00
BUY CALL MAY-50*CPN-EJ OI= 889 at $5.50 SL=3.50
BUY CALL MAY-55 CPN-EK OI=1214 at $3.10 SL=1.50


VRTX - Vertex Pharmaceuticals Inc. $43.61 (+7.80 last week)

Vertex Pharmaceuticals discovers, develops and markets small
molecule drugs that address unmet medical needs. Vertex has nine
drug candidates in clinical development to treat viral diseases,
inflammation, cancer, autoimmune diseases and neurological
disorders. Vertex has created its pipeline using a proprietary,
information-intensive approach to drug design that integrates
multiple technologies - biology, chemistry, biophysics, and
computer-based modeling - aimed at increasing the speed and
success rate of drug discovery.

A dynamic breakout through the 500 level in the Biotech Index
(BTK.X) led VRTX through its own $41 resistance.  Volume was
light as we headed into the holiday weekend, but nevertheless
the buyers bid VRTX up $4.09, or 10.4% on the close.  Going into
next week, the 50-dma ($45.01) ceiling, which correlates to our
$45 target, is the next line of opposition to overcome.  Another
powerful run would certainly be welcome for those traders who
like to buy into strength, but if there's some profit taking,
look for other turning points to begin new plays.  Pullbacks to
the 5-dma at the $40 support level provide enterprising entry
points if the market internals, combined with sector and stock
direction, herald that the bulls are in charge.  If you're a bit
more cautious, but still tempted to take an early entry into
potential momentum waves, you might target shoot near the $42
level during an upbeat trading session.  Keep in mind, this is
purely a technical play spurred on by overall sector strength;
although we mustn't discount the possibility of stock-specific
momentum in the coming weeks.  Vertex Pharmaceuticals is
expected to deliver a solid earnings report on April 24th,
BEFORE the market opens.  In response to Thursday's pre-holiday
breakout, we've upped our CLOSING stop to $40 to safeguard

BUY CALL MAY-35 VQR-EG OI=404 at $10.80 SL=8.25
BUY CALL MAY-40*VQR-EH OI= 43 at $ 7.50 SL=5.25
BUY CALL MAY-45 VQR-EI OI= 69 at $ 4.90 SL=3.00
BUY CALL MAY-50 VQR-EJ OI= 70 at $ 3.00 SL=1.50


EQT - Equitable Resources, Inc. $74.91 (+2.46 last week)

Equitable Resources is an integrated energy company with emphasis
on Appalachian area natural-gas supply, natural-gas transmission
and distribution, and leading-edge energy-management services.
Equitable Resources, its divisions and its subsidiaries, offer
natural gas products and energy services to wholesale and retail
customers through three business segments: Equitable Utilities,
Equitable Production and NORESCO.  NORESCO provides
energy-management services for projects across the United States
and in selected international markets.  The division focuses on
energy infrastructure, performance contracting, and power quality
related projects.

It appears that no news is good news for EQT.  Even with the lack
of announcements from the company this week, the stock has
ventured deeper into blue-sky territory.  What's more, it's stock
has outperformed those of its sector, and for good reason.  In a
economy which has seen businesses cautious about their earnings
outlook going forward, traders have found EQT's optimistic
stance, backed by a long line of stellar earnings reports to be
an attractive alternative to questionable business models and
inventory-plagued firms.  Not to say that EQT is old slow and
steady, as it posted an increase in EPS of over 70 percent in its
last earnings report.  Strength in management has played a key
role in the company's success, with increases in production and
efficiencies in operation helping EQT to capitalize on an
environment of rising energy prices.  Fundamental strength is
corroborated by technical strength, as the chart is a classic
lower left to upper right ascending pattern.  Connecting the
highs and lows since March reveals an upward slowing regression
channel.  The sideways movement of the past few trading sessions
has created more upside room for EQT.  A break above its all-time
high of $75.63 with conviction would allow conservative traders
to take a position, provided that industry peers DVN and SRE
confirm upward movement.  For entries on intra-day pullbacks,
higher risk players may look for support from the 5-dma near $74,
$73.50 and our closing stop price of $73.

***April contracts expire next week***

BUY CALL APR-70 EQT-DN OI=159 at $ 5.40 SL=3.50  Higher Risk!
BUY CALL APR-75 EQT-DO OI=100 at $ 1.30 SL=0.75  Higher Risk!
BUY CALL MAY-70*EQT-EN OI=  4 at $ 6.90 SL=5.00
BUY CALL MAY-75 EQT-EO OI=103 at $ 3.80 SL=2.50


MRK - Merck & Co. $79.50 (+3.08 last week)

Merck is a global pharmaceutical company, which specializes in
the development of human and animal health products.  They are
the #1 industry leader in the US and #2 worldwide.  Some of its
more prominent drugs include Zocor and Meycaor (cholesterol
drugs), Pepcid (an anti-ulcerant), top-selling hypertension
drugs, Vasotec and Prinivil, and more recently the AIDS
medication, Crixivan.  The drug maker also provides
pharmaceutical benefit services through Merck-Medco Managed Care
which it sells to corporations, labor unions, and insurance

The Drug sector has certainly been doing its part in helping the
NYSE to rally.  So it's no surprise that shares of pharmaceutical
giant Merck have performed well.  Since hitting a low of $66 in
middle-to-late March, the stock has bounced strongly in a
v-bottom fashion.  The settlement of a major lawsuit with the
government of Brazil was a catalyst for the rebound, as was news
that in Phase III clinical trials, it was demonstrated that MRK's
drug for osteoarthritis and acute pain, Vioxx, was superior to
Celecoxib in relieving osteoarthritis pain.  This was followed by
an announcement that MRK had received a letter of approval from
the FDA that would allow the company to revise its labeling for
Vioxx, in light of recent studies.  While Merck is not expected
to report earnings until April 24th, keep in mind that rival LLY
is reporting on Monday, April 16th, followed by PFE on April
17th.  Depending on how its sector rivals perform, this could
affect trading in MRK as it heads into its own reporting period.
The stock broke above its 200-dma (at $78.87) today and with that
moving average support can be found at that point along with the
5-dma at $77.89, the 50-dma at $76.26 and the 10-dma at $76.93.
Aggressive traders may target these levels, but make sure that
MRK closes above our stop price, now at $78.  For more
conservative traders, a bullish surge above $80 on volume could
provide for an entry on strength.  In both cases, keep an eye on
Merrill Lynch's Pharmaceutical HOLDR (PPH) to gauge sector

***April contracts expire next week***

BUY CALL APR-75 MRK-DO OI= 9060 at $5.20 SL=3.00  Higher Risk!
BUY CALL APR-80 MRK-DP OI=11909 at $1.60 SL=0.75  Higher Risk!
BUY CALL MAY-75*MRK-EO OI= 2293 at $6.70 SL=3.00
BUY CALL MAY-80 MRK-EP OI= 4047 at $3.40 SL=1.75


WCOM - Worldcom Inc. $19.06 (+0.50 this week)

Worldcom is a preeminent telecommunications company for the
digital generation, operating in more than 65 countries with
2000 revenues of approximately $40 billion.  Worldcom provides
the innovative technology and services which are the
foundation for the twenty first century.

Since WCOM's CEO Bernie Ebbers reaffirmed the company's guidance
for the quarter, WCOM has developed a strong upward trading
channel, which it should be able to glide through easily on
the way to its earnings scheduled for April 24th.  The telecom
sector outpaced the broad market indexes this week, propelled
by the anticipation of a recuperation in earnings growth for
the second half of 2001, and predictions of a possibility of
a reopening of the capital markets and credit markets later
in the year.  After making a series of higher lows last week
at $17.50, $18, and $19, WCOM should be able to make a break
above $20 next week, which would be a good entry point.
The next resistance levels are $20.50, and $21.50, which might
be obstacles on the way to the 200-dma of $24.92.  However,
if strength in the telecom sector continues next week, we may
very well see WCOM make a run for $25.  Next week BLS will report
earnings on April 19th, and the following week the majority of
telecoms will be reporting.  On April 23rd, SBC will report,
and on April 24th, WCOM will be joined by Q, T, and VZ.  You will
want to be out of the play before WCOM reports earnings.  Pay
attention to the market's reaction to BLS's earnings as you
scale into positions this week, and remember to assess the
reactions of others in the sector for weakness or strength.  We
are keeping stops at $19, so close positions if WCOM closes
below this level.

***April options expire next week***

BUY CALL APR-15 JQD-DC OI= 9542 at $4.80 SL=3.00  Higher Risk!
BUY CALL APR-20 LDQ-DD OI=47298 at $0.60 SL=0.00  Higher Risk!
BUY CALL MAY-15*LDQ-EE OI= 7430 at $5.20 SL=3.00
BUY CALL MAY-20 LDQ-EE OI= 2455 at $1.65 SL=0.75


AEP - American Electric Power $47.99 (+0.54 this week)

American Electric Power is a multinational energy company
based in Columbus Ohio.  AEP owns and operates more than 38,000
megawatts of energy, making it one of America's largest
generators of electricity.  The company is also a leading
wholesale energy marketer and trader, ranking second in the U.S
in electricity volume.  AEP provides retail electricity to more
than 9 million customers worldwide, and has more than $55
billion in assets, primarily in the U.S, with holdings in select
international markets.

AEP has now formed a very tight bullish wedge, with a series of
higher lows at $41, $46, and the 10-dma of $47.63.  While AEP
moved above strong resistance at $48.75 this week to reach a
52-week high at $49.50, the momentum was not sufficient to
carry AEP past the $50 level.  During trading this week, AEP
refused to drop below strong support at $47.50, which bodes well
for the stock going forward.  It is possible that AEP may be
able to break out above $49.50, with some help from strength
in the power producer sector.  According to Thomson First Call,
the estimates for the S&P 500 earnings call for a drop by 8%,
but the estimates for the utility sector should rise by 11%.
Several analysts upgraded first quarter earnings expectations
for the sector, due to a widespread energy shortage, as well as
unusually cold weather.  Two other energy companies, DUK and
DYN, are scheduled to report earnings on April 17th, and AEP
may be affected by the market's reaction to these earnings.  AEP
will report on April 24th, so traders have all of next week to
continue this play.  Consider taking positions on a move above
$48 with strong volume, if others in the sector are rallying.
Conservative traders might want to wait for a break above $49.50
with strong volume.  We are keeping stops at $47, so close the
position if AEP closes below this level.

***April options expire next week***

BUY CALL APR-45 AEP-DI OI=203 at $3.20 SL=1.75  Higher Risk!
BUY CALL MAY-45*AEP-EI OI=836 at $3.70 SL=2.50
BUY CALL MAY-50 AEP-EJ OI=475 at $0.85 SL=0.50


AGIL - Agile Software $15.08 (+1.95 last week)

Agile Software develops and markets collaborative manufacturing
commerce solutions that speed the build and buy process across
the virtual manufacturing network.  Agile Anywhere (formerly
Agile Workplace) is a Web-based, collaborative software suite
that helps global companies and their partners add, update, and
manage product content throughout the manufacturing supply
chain. AGIL primarily targets computer, electronics, and medical
equipment markets.  Major clients include Gateway, Lucent, Texas
Instruments, and Solectron.

Technology stocks had their best week since Labor Day, gaining
ground every day and propelling the NASDAQ to its highest close
since late March.  While the lion's share of the gains seems to
have gone to Semiconductor stocks, the Software index (GSO.X)
was no slouch either, as it gained more than 16% this week.  If
you're impressed with that, you'll be downright stunned with
the performance of our AGIL play, as it tacked on more gains
this week, bringing it up to close above $15 for the first time
in nearly a month.  On a percentage basis, the recent move is
huge, as the stock is up more than 65% from its intraday low on
April 3rd.  The technical indicators are pointing to more upside
as well, but the bears could be lurking just around the corner.
Resistance is looming at $16 and then $17.50, reinforced by the
upper Bollinger band at $16.21.  With daily Stochastics entering
the overbought zone, we need to be alert for profit taking that
could materialize at any time.  Earnings on AGIL don't come
around until the end of May, so we won't have that
catalyst/obstacle to deal with in the near term.  Conservative
traders will want to see the bulls prove their stamina by
driving the price through $16 before taking a position.  More
aggressive traders can consider target shooting the intraday
dips as AGIL continues to trace higher highs and higher lows.
We have upped our closing stop to $14.25, which was intraday
support on Thursday.  A bounce near this level looks attractive
for new entries.

***April contracts expire next week***

BUY CALL APR-15   AUG-DC OI= 269 at $1.35 SL=0.50  Higher Risk!
BUY CALL MAY-15  *AUG-EC OI=2180 at $2.10 SL=1.00
BUY CALL MAY-17.5 AUG-EW OI= 306 at $1.40 SL=0.75
BUY CALL JUL-15   AUG-GC OI= 243 at $3.70 SL=2.25


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The Option Investor Newsletter                 Thursday 04-12-2001
Thursday                                                    4 of 5

To view this email newsletter in HTML format with embedded
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BEAS - BEA Systems, Inc. $33.27 (+4.90 last week)

As a provider of e-commerce infrastructure software, BEAS helps
companies of all sizes extend investments in existing computer
systems and provide the foundation for running a successful
integrated e-business.  The company's products have been adopted
in a wide variety of industries, including commercial and
investment banking, securities trading, telecommunications,
airlines, retail, manufacturing and government.  BEAS' products
serve as a platform or integration tool for applications such as
billing, customer service, electronic funds transfers, ATM
networks, Internet sales, supply chain management, and hotel,
airline and rental car reservations.

A rallying NASDAQ has helped Tech stocks to move higher recently.
With that, the B2B space has also advanced, though not to the
extent of other sectors.  Despite the low prices of B2B stocks
relative to earlier and much steeper levels, valuation remains a
concern on the minds of investors and analysts alike.  BEAS was
downgraded today by Salomon Smith Barney an Outperform to a Buy
rating, on the heels of a cut yesterday by Prudential Securities,
from a Strong Buy to a Hold rating.  With a limited upside price
target of $41, Prudential cited BEAS' high P/E ratio, the slowing
economy, aggressive pricing on the part of competitors and
potential acquisitions leading to integration risks as reasons to
for the downgrade.  While there is some time before BEAS'
earnings, please note that the stock may be affected by upcoming
reports from industry peers.  Of note, PPRO is set to report on
April 16th, ITWO and SEBL provide a one-two punch on April 18th,
ARBA on April 20th and BVSN on April 24th.  Having failed to
rally above the 50-dma, now near $39, aggressive traders may
target further unsuccessful attempts, leading to a rollover, with
resistance at $33.50, $35 and our closing stop price of $36.  For
the more risk averse, wait for the stock to drop below the 5-dma
(at $31.75) on strong selling volume, before making a play.  Wait
for confirmation by following Merrill Lynch's B2B HOLDR (BBH)
before taking a position.

***April contracts expire next week***

BUY PUT APR-35 BUC-PG OI=4878 at $3.70 SL=2.00  Higher Risk!
BUY PUT MAY-35*BUC-QG OI=1536 at $6.50 SL=0.75
BUY PUT MAY-30 BUC-QF OI=2469 at $3.90 SL=0.75


NVLS - Novellus Systems, Inc. $48.23 (+10.98 last week)

Novellus Systems, Inc. is a manufacturer of chemical vapor
deposition (CVD), physical vapor deposition (PVD) and copper
electrofill systems.  As circuit geometries shrink in size, the
deposition equipment manufactured by Novellus becomes an
increasingly important technology for manufacturing advanced
semiconductor devices.  Novellus products provide solutions to
both the productivity and quality problems facing the worldwide
semiconductor manufacturing industry today.  They have developed
concepts that have improved the quality of deposited films while
increasing system throughput and continuously reducing costs of

It has been said that where the Chip stocks go, the NASDAQ
follows.  So it is with good reason that the Tech sector has
rallied, thanks to strength in the Semiconductors, as measured by
the Philadelphia Semiconductor Index (SOX).  Chip equipment-maker
NVLS has moved higher on sector sympathy this week, but despite
the prevailing optimism, there are reasons both fundamental and
technical to think that it may head lower.  Fundamentally, little
has changed this week in the Chip sector.  Book-to-bill ratios
are still falling and inventory is still building up.  If
anything, the fundamentals have deteriorated, as MOT recently
warned, and LRCX missed estimates in their earnings report,
citing an "unprecedented contraction" in new orders.  In spite of
this, famed Salomon Smith Barney Semiconductor analyst Jonathan
Joseph upgraded the sector yesterday from a Neutral to Outperform
rating.  His reasoning was based on anecdotal reports that order
and shipment data is so bad that it couldn't possibly be worse.
As NVLS heads into earnings on April 23rd, please note that the
stock may be affected by reports from Intel on April 17th and AMD
on April 18th.  Having failed numerous times to break through
formidable resistance at $50, we are placing our closing stop at
this point.  Failed rallies above this level, along with $49, may
allow aggressive traders to jump in, but confirm with volume.
For an entry on weakness, wait for selling volume to take NVLS
below $46.50 before making a play, but confirm direction with
movement in rival AMAT.

***April contracts expire next week***

BUY PUT APR-50 NLQ-PJ OI=529 at $3.50 SL=1.75  Higher Risk!
BUY PUT MAY-50*NLQ-QJ OI= 69 at $6.20 SL=0.75
BUY PUT MAY-45 NLQ-QI OI= 99 at $3.90 SL=0.75



AMGN - Amgen $54.14 (-0.66 last week)

Amgen is a global biotechnology company that discovers, develops
manufactures, and markets human therapeutics based on advances
in cellular and molecular biology.  The company manufactures and
markets four human therapeutic products, Epogen, Neupogen,
Infergen, and Stemgen.  Amgen uses wholesale distributors of
pharmaceutical products as the principal means of distributing
the company's products to hospitals, pharmacies and clinics.

Considering the broad based rally in the major indexes, AMGN
should have been able to stage a more impressive gain.  BTK.X
surged 34% on Thursday, almost reaching the 50-dma of 526,
propelled by good earnings and a buy recommendation on BGEN.
However, AMGN was unable to stay above the 10-dma of $55, which
is not a bullish signal for next week.  However, considering the
bullish sentiment which is starting to develop in the biotech
sector, traders should be careful with AMGN.  An aggressive put
player could take a position on a roll over from $54.50,
preferably if the BTK.X and the Nasdaq are experiencing profit
taking.  Alternatively, a move below support at $52 with heavy
volume would be a more conservative entry point, and could lead
to a break below strong support at $50.  AMGN is scheduled to
report earnings on April 26th after the close.  However, this
week, two key bellwether biotech stocks report earnings on
Thursday, DNA after the close, and GENZ before the open.  If
one or both of these companies has disappointing results,
this could be the catalyst needed for AMGN to drop below critical
support at $50, which would be a lower risk put entry.  We
are keeping stops at $55, so close positions if AMGN closes
below this price.

***April contracts expire next week***

BUY PUT APR-60 YAA-PL OI=6789 at $6.40 SL=4.50  Higher Risk!
BUY PUT APR-55 YAA-PK OI=5684 at $2.75 SL=1.50  Higher Risk!
BUY PUT MAY-60 YAA-QL OI=1631 at $8.40 SL=6.00
BUY PUT MAY-55*YAA-QK OI=1751 at $5.50 SL=3.50


MBI - MBIA, Inc. $74.99 (-0.11 last week)

Not necessarily a household name, MBI is engaged in providing
financial guarantee insurance, investment management and
financial services to public finance clients and financial
institutions on a global basis.  The company's subsidiary,
MBIA Insurance, provides financial guarantees for municipal
bonds, asset-backed and mortgage-backed securities and
investor-owned utility bonds.  The company also provides
investment management products and financial services through
a group of subsidiary companies.  These services include cash
management, municipal investment agreements and discretionary
asset management.

Well, what's it going to be?  More selling, or is MBI actually
putting in a bottom?  Recall that we initiated our put play
earlier this week, as the company is likely to be one of
several casualties of the PG&E (PCG) bankruptcy due to the
unresolved power crisis in California.  With direct exposure
to the PG&E (PCG) bankruptcy of approximately $590 million,
it's no wonder that Morgan Stanley decided to downgrade the
stock to Neutral Monday afternoon.  After plunging sharply in
the wake of the PCG bankruptcy announcement, MBI shares have
been in a tight consolidation pattern over the past 2 days,
making entry points a snap.  Enter the play on weakness as
the bears push the price below $74, or wait for a rollover
near the $76 intraday resistance level before initiating new
positions.  Volume has dropped back to the daily average, and
it is hard to gauge how much more the stock could fall based
strictly on the oscillators.  This play is likely to be
predicated on perception of how the legal wrangling in
California is going to play out.  Keep an eye on news related
to the PCG  bankruptcy, as it is likely to be the dominant
factor in the coming week.  Earnings will certainly be a
factor, but MBI doesn't report its results until the first
week of May, making it unimportant for now.

***April contracts expire next week***

BUY PUT APR-75 MBI-PO OI= 92 at $2.35 SL=1.25  Higher Risk!
BUY PUT MAY-75*MBI-QO OI=461 at $5.00 SL=3.00
BUY PUT MAY-70 MBI-QN OI=376 at $3.00 SL=1.50
BUY PUT MAY-65 MBI-QM OI=924 at $1.70 SL=0.75


UNH - UnitedHealth Group $58.43 (-0.51 last week)

Providing a broad range of resources to help people improve
their health through all stages of life, UNH forms and operates
markets for the exchange of health and well being services.
The company's Health Care Services segment consists of the
UnitedHealthcare and Ovations businesses.  UnitedHealthcare
coordinates network-based health services on behalf of local
employers and consumers in six broad regional U.S. markets.
Ovations is a business dedicated to advancing the health and
well-being goals of Americans over the age of 50.  Additionally,
the company's Ingenix business operates in the field of health
care data and information, analysis and application.

While it certainly isn't tearing down the charts, UNH continues
to walk its way gradually lower, in accordance with the
historical pattern that has been put in place over the past
3 months.  After running into resistance near $61, the bears
once again took control and are trying to squeeze the enthusiasm
out of the bulls.  But the bulls have been holding their ground
since the Aetna (AET) earnings warning on Tuesday.  The
investor indecision is clearly visible in the daily charts, with
resistance now sitting at $59 (also the site of our stop), and
the lows getting higher.  Something has to give soon, and if we
use the historical pattern as our guide, it looks like it will
break to the downside.  Both the S&P Health Care index (HCX.X)
and the Healthcare Payor index are struggling to stay in their
weak upward trends, but are looking like they may be in danger
of breaking down.  Weakness in the broader sector will spell
problems for UNH, and gains for put buyers.  Aggressive traders
can still target intraday rallies near the $59 level, as the
buyers run out of steam and the stock heads lower again.  More
conservative entries will materialize as the stock falls through
support, now sitting near $56.50, near the lows from the large
AET-related drop on Tuesday.  The only other item to note is
earnings.  Although we are now entering the heart of earnings
season, UNH doesn't report until April 27th, making it a
negligible factor in the near term.

***April contracts expire next week***

BUY PUT APR-60 UNH-PL OI=2104 at $2.75 SL=1.50  Higher Risk!
BUY PUT MAY-60*UNH-QL OI= 898 at $4.20 SL=2.50
BUY PUT MAY-55 UNH-QK OI=1445 at $2.00 SL=1.00
BUY PUT MAY-50 UNH-QJ OI=1562 at $0.80 SL=0.00


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Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



Tax Season Buying or Vacationing Bears?
By Mark Phillips
Contact Support

The first week of the April earnings season drew to a close
without any serious damage, and the bulls emerged with the upper
hand as we head into the holiday weekend.  While things look
positive on the surface, I just can't shake the feeling that
there are some serious monsters lurking under the bed.  Maybe
the bears just left early for the holiday weekend?

The DJIA is keeping its head above the 10,000 level but has some
serious resistance to contend with now at 10,300.  The S&P500 is
likewise reaching some formidable resistance near 1185 and the
NASDAQ has yet to demonstrate the buying conviction needed to
crest resistance in the 1975-2000 area.  With daily Stochastics
entering the overbought zone on all of the above-mentioned
indices, I would be very cautious about chasing any of our
current plays (Portfolio or Watch List) higher at this point.

Don't get me wrong, I found the bullish action this past week to
be very encouraging and I like the way our current portfolio is
shaping up, with every play showing solid gains since their
respective entry prices.  The problem as I see it is that
nothing fundamental has changed to allow the markets to continue
their recent advance.

Look at the Semiconductor index (SOX.X).  In just the past 3
sessions, this index has rallied 25%, right to the 10-week
descending trendline.  There are still some serious problems in
this sector, and the economy has yet to show that it has found a
bottom.  While I want to believe the bulls are back in town,
technically the SOX (and the rest of the market) looks primed
for a reversal and I think the bears are salivating at the prime
rib feast they are about to enjoy.

The VIX relaxed significantly this past week, ending at 30.28,
just above the upper Bollinger band and primed for another run
upwards, similar to what we saw in late 1998.  As I mentioned
last week, this looks eerily similar to the late 1998 pattern,
just prior to when the VIX soared above 60, in the final
smash-down market bottom.

One theory that surfaced this past week about the market's rally
is that the shorts were covering their positions to pay their
tax bills, which are due on April 15th.  It is a 180-degree
reversal from the bulls selling long positions a year ago to
cover their own tax bills, but one that could have some merit.
Let's face it.  The big profits over the past year came on the
short side, and those with the foresight to play the trend the
market gave them will be writing some fat checks to Uncle Sam.
Only time will tell, but with the sharp recovery over the past
several sessions, and the Commercials still holding large
net-short positions, I think the prudent approach is to wait
for the next pullback before initiating new long-term positions.

So while the market action of the past 2 weeks is very
encouraging to me (giving the appearance of the bottom being
put in place), we are unlikely to rocket straight back to the
highs seen a little over a year ago, and still expected by
famous market bulls like Abbey Joseph Cohen.  There will be more
selling (profit-taking at a bare minimum), and the severity of
this selling will go a long ways towards telling us whether or
not we have seen the bottom in this bear market.

We aren't going to miss the next bull market by exercising some
patience and discipline and waiting for the entry points we want
to materialize.  Until we can get a little better visibility
(which is likely to appear in the next couple weeks as we slog
through earnings season), I am going to err on the side of
caution, and refrain from even adding any new plays to the Watch
List.  We've been running pretty hard getting the new format
laid out, and it appears to be working out nicely.  Let's step
back, take a breath and allow things to stabilize a bit before
plunging ahead with a new list of plays.

A refreshing change this week is the fact that there are no
casualties from either our Portfolio or Watch List, reflecting
the relative strength in the markets this week as compared to
recent history.  Our old playlist is now down to a paltry two
plays, Dell Computer (NASDAQ:DELL) and Calpine (NYSE:CPN), and
they are both actually looking pretty healthy.

Due to the wild and wooly trading in the Technology sector over
the past couple weeks, we missed out on possible entry points on
several of our Watch List plays, namely DELL, Texas Instruments
(NYSE:TXN) and NASDAQ-100 (AMEX:QQQ).  Rather than chasing the
plays higher, we have taken advantage of the new information (in
the form of another week's trading history) to reset several of
our entry triggers.  They are still all sitting near major
support levels, reflecting our anticipation that we will see
more selling on the NASDAQ before the recovery gets moving in

A major component of the new LEAPS Portfolio is actively managed
positions along with Stop levels, and after the strong moves on
several of our plays, we have ratcheted up several of our Stops.
Genzyme General (NASDAQ:GENZ) has moved up to $80, Washington
Mutual (NYSE:WM) to $48, Wal-Mart Stores (NYSE:WMT) to $45, and
Goldman Sachs (NYSE:GS) to $82.  All of these are now placed at
support levels that managed to withstand the bears' most recent
assault, and we expect them to hold over the long term.
Relative to short-term trades, these are very loose stops, but
we can afford a bit more generosity given the timeframe we work
under here in the LEAPS Portfolio.  A violation of one of our
stops will be an indication of a serious technical violation and
should signal our exit before things really get ugly.

Take advantage of the long weekend to spend time reflecting on
why we spend so much time on our investments - family and free
time.  The markets will be there on Monday, ready and waiting.
These holidays are there for a reason, to give us a chance to
step back and reflect on what is truly important.

Have a happy and safe Easter Holiday.

Mark Phillips
Contact Support

Current Playlist (Old Format)


DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $10.50   100.00%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $10.40    84.72%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $18.30    74.29%
                 JAN-2003 $ 40  OLB-AH   $15.38   $22.90    48.94%

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  WUT-AG  $ 3.50  $ 3.60     2.86%  $ 28
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.40     4.92%  $ 28
GENZ   03/23/01  '02 $ 85  YGZ-AO  $24.50  $36.70    49.80%  $ 80
                 '03 $ 90  OZG-AR  $27.75  $38.70    39.46%  $ 80
SWS    03/22/01  '02 $ 18  YWF-AT  $ 4.10  $ 4.10     0.00%  $ 15
                 '03 $ 20  VWZ-AD  $ 5.00  $ 5.10     2.00%  $ 15
WM     03/22/01  '02 $ 50  WWI-AJ  $ 6.00  $ 9.80    63.33%  $ 48
                 '03 $ 50  VWI-AJ  $ 9.20  $12.90    40.22%  $ 48
WMT    03/23/01  '02 $ 50  WWT-AJ  $ 7.00  $ 8.40    20.00%  $ 45
                 '03 $ 50  VWT-AJ  $11.00  $12.60    14.55%  $ 45
JWN    03/30/01  '02 $ 20  WNZ-AD  $ 1.65  $ 1.80     9.09%  $ 14
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.40     3.03%  $ 14
GS     04/05/01  '02 $ 90  WSD-AR  $14.00  $20.80    48.57%  $ 82
                 '03 $ 90  VSD-AR  $20.50  $28.90    40.98%  $ 82
MU     04/05/01  '02 $ 40  WGY-AH  $10.60  $15.80    49.06%  $ 33
                 '03 $ 40  VGY-AH  $14.80  $21.00    41.89%  $ 33
NSM    04/05/01  '02 $ 25  WUN-AE  $ 5.50  $ 8.20    49.09%  $ 20
                 '03 $ 30  VSN-AF  $ 7.20  $ 9.80    36.11%  $ 20
NOK    04/06/01  '02 $ 25  WIK-AE  $ 4.70  $ 7.30    55.32%  $ 20
                 '03 $ 25  VOK-AE  $ 7.00  $ 9.80    40.00%  $ 20
FON    04/09/01  '02 $ 25  WO -AE  $ 2.80  $ 3.80    35.71%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 5.80    31.82%  $ 19

LEAPS Watchlist

Current Possibles


DELL   03/18/01  $23-24        JAN-2002 $ 25  WDQ-AE
                               JAN-2003 $ 25  VDL-AE
CPN    03/18/01  $46-47        JAN-2002 $ 45  YLN-AI
                               JAN-2003 $ 50  OLB-AJ
GE     03/25/01  $41-42        JAN-2002 $ 40  WGE-AH
                               JAN-2003 $ 40  VGE-AH
QQQ    03/25/01  $36-37        JAN-2002 $ 40  WD -AN
                               JAN-2003 $ 45  VZQ-AS
TXN    03/25/01  $29-30        JAN-2002 $ 35  WTN-AG
                               JAN-2003 $ 35  VXT-AG

New Portfolio Plays

FON - Sprint Corp. $21.43

Well, it looks like we got into this one just in time.  Given
the quiet, but positive trading range on Monday, we went ahead
and added FON to the portfolio, and by Tuesday, we were sitting
on a nicely profitable play.  The strength in the Technology
sector lifted all the players in the Telecom sector, even good
old AT&T.  Optimistic bulls bid stocks in the sector cautiously
higher, and like we mentioned last week, the Telecom service
providers inched higher from their apparent bottom.  We don't
expect it to be a high-speed recovery, but there is plenty of
time for our 2003 LEAPS to appreciate over the next 18 months,
and it won't take a huge move to generate those triple-digit
gains we like so much.  Don't let those gains get away from you
though.  Use stops to protect your capital; ours are originally
set at $19.

BUY LEAP JAN-2002 $25.00 WO -AE $2.80
BUY LEAP JAN-2003 $25.00 VN -AE $4.40

New Watchlist Plays




Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



Please read our disclaimer at:


For more information on advertising in OptionInvestor Newsletter,
or any Premier Investor Network newsletter please contact:

Contact Support

The Option Investor Newsletter                 Thursday 04-12-2001
Thursday                                                    5 of 5

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Option Pricing: No Substitute For Knowledge!
By Mark Wnetrzak

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?
A 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

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.

The successful option trader must be able to identify potentially
profitable strategies given the current market conditions and
before a position's value can be correctly assessed, the basic
components of theoretical option pricing must be fully understood.
Next week, we will continue our review of this complex subject.

Good Luck!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

IMNY   11.63  11.45   APR  10.00  2.31  *$  0.68  10.6%
ELNK   10.38  11.77   APR  10.00  1.38  *$  1.00   9.7%
IGEN   13.31  19.60   APR  10.00  4.25  *$  0.94   9.0%
ACPW   20.31  20.41   APR  17.50  3.75  *$  0.94   8.2%
UTHR   16.94  14.90   APR  15.00  3.25   $  1.21   7.7%
LTBG   11.44  10.05   APR  10.00  1.94  *$  0.50   7.6%
CTLM   24.44  37.15   APR  20.00  5.38  *$  0.94   7.1%
MTSN   14.00  16.26   APR  12.50  2.44  *$  0.94   7.1%
LTXX   18.06  24.09   APR  17.50  1.31  *$  0.75   6.5%
VPHM   32.50  37.50   APR  30.00  3.75  *$  1.25   6.3%
BRKS   43.47  50.00   APR  40.00  5.63  *$  2.16   6.2%
EBAY   36.19  41.63   APR  30.00  7.38  *$  1.19   6.0%
TIBX    8.97  11.14   APR   7.50  1.75  *$  0.28   5.6%
ADBE   28.63  41.06   APR  25.00  5.13  *$  1.50   5.5%
SHFL   21.25  24.31   APR  20.00  2.44  *$  1.19   5.5%
NRG    30.84  32.25   APR  30.00  2.60  *$  1.76   5.4%
LTXX   19.00  24.09   APR  17.50  2.31  *$  0.81   5.3%
IGEN   15.19  19.60   APR  12.50  3.25  *$  0.56   5.1%
TVLY   17.81  21.63   APR  15.00  3.25  *$  0.44   4.4%
AAPL   20.59  22.42   APR  17.50  3.60  *$  0.51   4.3%
SHFL   20.94  24.31   APR  17.50  4.38  *$  0.94   4.1%
PCS    21.60  23.56   APR  17.50  4.50  *$  0.40   3.4%
ATVI   24.63  22.90   APR  22.50  3.13  *$  1.00   3.4%
CPRT   21.81  22.40   APR  20.00  2.63  *$  0.82   3.1%
CLPA    6.22   4.10   APR   5.00  2.06   $ -0.06   0.0%
HPOW    8.00   6.80   APR   7.50  1.13   $ -0.07   0.0%

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


Time to evaluate your long-term outlook on any issues that may
not get called away and act appropriately.  Many of the issues
below have rebounded with the current Market strength (Murphy's
Law) and may offer a second chance to exit.  Next week should
be interesting, to say the least; mind your discipline!

Positions Closed:

Seitel (NYSE:SEI), Semtech (NASDAQ:SMTC), Veeco Instruments
(NASDAQ:VECO), Integrated Circuit System (NASDAQ:ICST), Bed
Bath & Beyond (NASDAQ:BBBY), Methode Electronics (NASDAQ:METHA),
Signalsoft (NASDAQ:SGSF), and Galileo International (NYSE:GLC).


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AHAA   21.21  MAY 17.50   GAK EW  4.80 83    16.41   35    5.8%
EMIS   18.20  MAY 15.00   MTQ EC  4.10 78    14.10   35    5.5%
EXFO   31.95  MAY 25.00   FQO EE  8.60 33    23.35   35    6.1%
JBL    26.00  MAY 22.50   JBL EX  5.00 1355  21.00   35    6.2%
SBYN   13.75  MAY 10.00   QYS EB  4.40 55     9.35   35    6.0%
ZIGO   24.74  MAY 17.50   UZY EW  8.20 5     16.54   35    5.0%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

JBL    26.00  MAY 22.50   JBL EX  5.00 1355  21.00   35    6.2%
EXFO   31.95  MAY 25.00   FQO EE  8.60 33    23.35   35    6.1%
SBYN   13.75  MAY 10.00   QYS EB  4.40 55     9.35   35    6.0%
AHAA   21.21  MAY 17.50   GAK EW  4.80 83    16.41   35    5.8%
EMIS   18.20  MAY 15.00   MTQ EC  4.10 78    14.10   35    5.5%
ZIGO   24.74  MAY 17.50   UZY EW  8.20 5     16.54   35    5.0%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

AHAA - Alpha Industries  $21.21  *** Earnings Priced-In? ***

Alpha Industries (NASDAQ:AHAA) designs and manufactures RFICs for
wireless handsets, wireless base stations, and several broadband
end markets (cable, fiber optic, fixed wireless).  The company's
technologies enable RF functions, such as tuning, switching, and
amplification and its primary product offerings include switches,
power amplifiers, discrete semiconductors, and ceramic products.
In early March, Alpha cut its 4th-quarter projections, citing the
downturn in the economy and continued softness in the wireless
handset and infrastructure markets.  Technically, it appears the
"bad" news is already "priced-in" and investors are starting to
return to the semiconductor sector.  Friedman, Billings, Ramsey &
Co. recently strengthened its research coverage on this sector
and started coverage on AHAA.  We favor a conservative entry point
from which to speculate on the bullish momentum as investors focus
on the future.

MAY 17.50 GAK EW LB=4.80 OI=83 CB=16.41 DE=35 TY=5.8%

EMIS - Emisphere Technologies  $18.20  *** New Discoveries! ***

Emisphere (NASDAQ:EMIS) is a biopharmaceutical company pioneering
the oral delivery of otherwise injectable drugs.  By applying its
unique carrier technology, Emisphere has taken a unique leadership
position in solving the oral delivery of proteins, peptides and
other macromolecules produced by pharmaceutical and biotechnology
companies.  Three Emisphere formulations are currently in human
clinical trials being conducted by Emisphere and its partners and
the company has recently commenced human clinical testing in the
United States of oral heparin tablets utilizing a new delivery
agent.  The heparin solution remains an important portion of the
company's overall product strategy for their family of heparins
since it will be an alternative for the elderly population, who
may be unable to swallow a tablet.  Technically, EMIS is moving
resolutely out of a short-term base and there will be little or
no resistance to its upward movement until the $20-$25 range.
Thorough due-diligence is a prerequisite is this position!

MAY 15.00 MTQ EC LB=4.10 OI=78 CB=14.10 DE=35 TY=5.5%

EXFO - Electro Optical Engineering  $31.95  *** A Big Day! ***

Electro Optical Eng. (NASDAQ:EXFO) is a designer, manufacturer
and marketer of fiber-optic test, measurement and monitoring
instruments for the telecommunications industry.  Last quarter's
earnings were excellent with sales of $64 million, up from $29
million the previous period.  Net income totaled $7.5 million,
compared to $3.7 million and the increase in revenues reflected
new demand for the company's industrial and scientific products.
EXFO has enjoyed an increase in forecast earnings with analysts
raising their future profit estimates for the coming year.  At
the same time, the issue has been the target of "short-sellers"
and the current rally may be due to the effect of "covered"
positions.  Traders who believe the rally has upside potential
can speculate on that outcome with this conservative position.

MAY 25.00 FQO EE LB=8.60 OI=33 CB=23.35 DE=35 TY=6.1%

JBL - Jabil Circuit  $26.00  *** Own This One! ***

Jabil Circuit (NASDAQ:JBL) is an electronic manufacturing services
provider for global electronics companies in the communications,
personal computer, peripheral, consumer and automotive markets.
JBL offers circuit design, board design from schematic, prototype
assembly, volume board assembly, system assembly, repair and also
warranty services from facilities in the North America, Europe,
Asia and Latin America.  In March, JBL reported record results for
the second quarter of its fiscal 2001 with net income increasing
22% to $41 million and earnings per share increasing 17% to $0.21,
when compared to the second quarter of fiscal 2000.  Analysts at
Prudential Securities continue to be positive in the long-term on
Jabil, saying the company is among the best-positioned issues in
the electronic manufacturing services segment.  Traders who agree
with that outlook can establish a conservative cost basis in the
stock with this "in-the-money" position.

MAY 22.50 JBL EX LB=5.00 OI=1355 CB=21.00 DE=35 TY=6.2%

SBYN - SeeBeyond  $13.75  *** Cheap Speculation! ***

SeeBeyond (NASDAQ:SBYN) enables the seamless flow of information
within and among enterprises in real time.  The SeeBeyond eBI
Suite offers a rapidly deployable and infinitely scalable
infrastructure for application integration, B2B connectivity
and business processes optimization.  SeeBeyond continues to
expand its operations with several new partnerships and is
growing its customer base in the Asia Pacific region.  Several
recent new alliances and contracts, including a 4-year deal
with GM should bode well for future earnings and has sparked
trader interest.  A short-term, as well as a longer-term double
bottom formation is evident and this position offers a favorable
entry point for those investors who are bullish on SeeBeyond's
future.  Earnings are due Monday, April 23.

MAY 10.00 QYS EB LB=4.40 OI=55 CB=9.35 DE=35 TY=6.0%

ZIGO - Zygo  $24.74  *** On The Rebound! ***

Zygo Corporation (NASDAQ:ZIGO) is an emerging supplier of optical
components and modules for the telecommunications market and a
leading designer, developer, and manufacturer of optics and other
on-line yield enhancement solutions for the semiconductor and
industrial manufacturing markets.  Last week, analysts at Lehman
Brothers upgraded Zygo to a "strong buy" rating with a 12-month
target of $30.  The brokerage said Zygo's focus on next generation
optical components has enabled it to do well even in the weak
climate for current generation devices.  Bears Stearns also has an
optimistic outlook for the company and based on the bullish chart
indications, investors apparently agree.

MAY 17.50 UZY EW LB=8.20 OI=5 CB=16.54 DE=35 TY=5.0%


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Trading Strategies: In-the-Money Naked Puts
By Robert John Ogilvie

Today's strategy discussion ties into two of my previous articles,
"Margin Monster and Return of the Margin Monster."  I know what
you are thinking, pretty corny titles. If you haven't already
read them, read them so you have a better understanding of the
cost to do these trades. I believe that investors should have a
complete knowledge of the requirements to initiate a trade before
embellishing on the juicy profit potential. That would be
misleading. It would be like telling your kids that you are going
to Disney World and ending up at the dentist (sorry dentists

In-the-Money Naked Puts

Before pursuing any strategy in options trading, investors should
review the Characteristics and Risks of Standardized Options.

A short put position is uncovered if the writer is not short stock
or long another put at the same or higher strike price. Why do we
want to sell naked (uncovered) puts? Some traders do this in order
to bring in premium in order to lower the cost basis on a stock
they don't mind buying at the strike price. Some do it to bring in
the premium expecting it to expire out of the money worthless. So
more aggressive bullish traders sell in the money puts (price of
stock currently lower than the put's strike price) to get a higher
delta and thus more movement in option premium relative to the
underlying security. The other reason is to collect the excess
time premium that evaporates as the option approaches expiration.

The mechanics of selling a put in the money include being suitable
financially as well as having a speculative investment objective.
Securities that have a high amount of implied volatility are
preferable in order to receive sufficient time premium. This is
generally a bullish strategy. But it may also be utilized on a
security that is consolidating. This is a strategy that may be
used on stocks, indexes and index holder trusts (i.e. QQQ). Our
search has found us a candidate that is pretty volatile and is
currently consolidating. XYZ is currently trading at 32.50. The
May 40 Puts are bidding $9.50. There is about $7.50 in intrinsic
value and $2 of time premium. In a perfect world, XYZ would go up
above 40 by the May expiration cycle and the put would expire
unassigned. Although this might happen, another way to profit from
this trade is to let XYZ trade sideways or advance slightly, thus
taking advantage of the higher delta, and close out the position
for a slight profit. Theoretically, assuming the option has a
delta of 60 (option moves $0.60 to the XYZ's $1), and XYZ moves
up $2, the option contract would cost approximately $1.20 less,
or $8.30. As time passes so does the premium. Assuming XYZ stays
at about $32.50, the $2 time premium will erode. However, if this
is truly a volatile stock, it is unlikely that it will stay
relatively stable. Hopefully, the stock will move up as well as
the time premium erodes making it cheaper to buy the put to close
the position. If you are assigned before expiration, the cost
basis for the stock will be about $30.50. So if the stock is above
the cost basis, you are profitable.

For the above example, let's assume we are writing 10 contracts
of the May '01 40 puts on an $32.5 stock. The premium is $9.50.
First multiply the stock price ($32.50) by 1000 (10 contracts X
100 shares per contract) and then by 20% to get $6,500 ($32.50 X
1000 X 0.20 = 6,500).  Then add the premium received of $9,500
($9.50 X 10 contracts X 100 shares per contract). The current
total is $16,000 (6,500 + 9,500). Then subtract the amount the
stock is out of the money, which is $0. The initial cost to do
this trade is $16,000. The cash required is $6,500 because the
premium will full fill the rest of the obligation. I figure the
return on the trade on the cash required at the time the trade is
closed. For instance, if XYZ advances to $36 and the 40 put may
be bought to close at $7.50, the trade makes about $2.00. The
margin requirement at 36 is $14,700. The cash required increases
to $7,200 (20% of $36,000). Therefore, $2,000 divided by $7,200 =
27.8%. Not bad!

Let me give you all a few hints to look for when initiating a
trade like this. Learn the calculations for margin requirements
and know the cost to start the trade as well as the costs to
maintain it. Various brokerages have different requirements
(especially for those stocks on the high-risk list). If the cost
to initiate or maintain the trade is greater than buying the
underlying security on margin, then you may want to rethink the
strike price and the trade altogether. Have a stop loss plan.
Use a broker that understands what you are doing and can help
guide you and double check your reasoning. If the stock price
is above your cost basis but still in the money, and you are
approaching expiration, referring to the bid/ask spread calculate
whether you are more profitable if assigned than buying the put
to close. The higher the delta value is the better option/stock
movement relation. However, the higher the delta is, the lower
the time premium. Finally, refer to OptionInvestor.com's list
of plays (both Calls and Naked Puts) for candidates.

This is a risky strategy. As previously addressed, you have the
risk of early assignment. Other risks include the security's
price declining and risk of losing all of your investment. Some
additional risks are increased margin requirements and
opportunity costs. I am a full service broker and Registered
Options Principle and available for questions regarding this
and many other strategies.

Robert John Ogilvie
Toll Free 877-925-0880

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness
of any charts, formulas, and/or research opinions presented herein.
This article is intended solely for educational purposes. Nothing
herein should be construed as an offer or solicitation to buy or
sell any securities. Cutter and Company is a Member of the NASD,
MSRB, and SIPC. Please read the OptionInvestor.com's Disclaimer.

The following group of issues is a list of candidates for this
strategy.  Only you can know what techniques and positions are
suitable for your experience level, risk-reward tolerance and
portfolio outlook and as with any investment, you must decide
if the selections meet your criteria for potential plays.  They
will not be included in the weekly portfolio summary.

Stock  Last  Call Strike Option  Last  Open  Cost   Margin Req.
Symbol Price Mon. Price  Symbol  Bid   Int.  Basis  per contract

DELL   27.92  MAY  30    DLQ QF  3.40  11461 26.60    898.40
BRCM   35.38  MAY  45    RCQ QI 10.90  959   34.10   1797.60
MU     46.41  MAY  55     MU QK 10.30  96    44.70   1958.20
IBM    96.20  MAY 110    IBM QB 15.10  213   94.90   3434.00
ORCL   15.82  MAY  20    ORQ QD  4.40  363   15.60    756.40
ORCL   15.82  MAY 17.5   ORQ QW  2.40  2314  15.10    556.40
EMC    31.26  MAY  40    EMC QH  9.10  497   30.90   1535.20


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

UTCI    9.25   9.40   APR   7.50  0.25  *$  0.25  24.7%
SBYN   12.75  13.75   APR  10.00  0.50  *$  0.50  23.7%
APHT   20.50  16.30   APR  15.00  0.56  *$  0.56  17.4%
ACPW   19.13  20.41   APR  15.00  0.31  *$  0.31  16.3%
PRGN   21.53  22.32   APR  15.00  0.31  *$  0.31  14.6%
NVDA   62.69  70.25   APR  45.00  0.81  *$  0.81  13.2%
CA     28.20  29.82   APR  22.50  0.35  *$  0.35  12.7%
MCDTA  24.31  21.01   APR  17.50  0.56  *$  0.56  11.2%
EBAY   35.50  41.63   APR  25.00  0.38  *$  0.38  11.0%
AAPL   19.63  22.42   APR  15.00  0.50  *$  0.50   9.8%
ASMI   17.69  19.33   APR  15.00  0.31  *$  0.31   9.6%
AAPL   23.00  22.42   APR  17.50  0.44  *$  0.44   9.5%
HOTT   28.00  27.73   APR  22.50  0.38  *$  0.38   9.1%
BBY    47.49  49.10   APR  40.00  0.50  *$  0.50   9.0%
THQI   33.88  38.29   APR  30.00  1.38  *$  1.38   9.0%
IGEN   18.94  19.60   APR  15.00  0.25  *$  0.25   9.0%
SCIO   19.38  22.40   APR  15.00  0.44  *$  0.44   8.9%
SCIO   23.00  22.40   APR  17.50  0.25  *$  0.25   7.5%
GLC    23.44  21.55   APR  20.00  0.55  *$  0.55   7.4%
MTON   27.25  33.06   APR  20.00  0.50  *$  0.50   7.3%
ESCM   21.75  27.05   APR  17.50  0.38  *$  0.38   6.8%
AMD    29.44  24.85   APR  22.50  0.35  *$  0.35   6.1%
OLOG   25.00  24.82   APR  22.50  0.56  *$  0.56   6.0%
ANF    32.30  31.93   APR  25.00  0.55  *$  0.55   5.7%
VTS    36.98  33.56   APR  30.00  0.62  *$  0.62   5.3%
MTON   31.69  33.06   APR  22.50  0.31  *$  0.31   5.1%
ADVP   49.94  54.68   APR  40.00  0.75  *$  0.75   5.0%
OATS    9.25   7.06   APR   7.50  0.44   $  0.00   0.0%
DDS    20.30  16.98   APR  17.50  0.40   $ -0.12   0.0%

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


Next week the April series expires and earnings reports start
to really roll in.  Definitely time to evaluate your outlook
on any issues that may get "put" to you and use the current
broad-market strength to exit those you don't want to own.

Positions Closed:

Cirrus Logic (NASDAQ:CRUS), Trico Marine (NASDAQ:TMAR), Lam
Research (NASDAQ:LRCX), and Boston Scientific (NYSE:BSX).


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACPW   20.41  APR 17.50   ACQ PW  0.40 474   17.10    7   30.7%
EBAY   41.63  MAY 30.00   QXB QF  1.10 1815  28.90   35   10.1%
EXFO   31.95  MAY 17.50   FQO QW  0.45 75    17.05   35    5.7%
PSFT   29.10  APR 25.00   PQO PE  0.50 992   24.50    7   27.0%
RFMD   17.85  MAY 12.50   RFZ QR  0.45 871   12.05   35    9.7%
SCI    22.99  MAY 17.50   SCI QW  0.45 81    17.05   35    7.7%
VSEA   39.35  MAY 30.00   UES QF  0.70 42    29.30   35    7.1%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACPW   20.41  APR 17.50   ACQ PW  0.40 474   17.10    7   30.7%
PSFT   29.10  APR 25.00   PQO PE  0.50 992   24.50    7   27.0%
EBAY   41.63  MAY 30.00   QXB QF  1.10 1815  28.90   35   10.1%
RFMD   17.85  MAY 12.50   RFZ QR  0.45 871   12.05   35    9.7%
SCI    22.99  MAY 17.50   SCI QW  0.45 81    17.05   35    7.7%
VSEA   39.35  MAY 30.00   UES QF  0.70 42    29.30   35    7.1%
EXFO   31.95  MAY 17.50   FQO QW  0.45 75    17.05   35    5.7%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

ACPW - Active Power  $20.41  *** Earnings Play! ***

Active Power (NASDAQ:ACPW) designs, manufactures and sells power
quality products that provide the consistent, reliable electric
power required by today's digital economy.  They are the first
company to commercialize a flywheel energy storage system that
provides a highly reliable, low-cost and non-toxic replacement
for lead-acid batteries used in conventional power quality
installations.  In January, Active Power reported revenues for
the 4th-quarter that totaled $2.7 million, up 468% from the same
period last year and 99% sequentially.  Active Power's CEO
stated that market demand for their battery-free power quality
solutions remains strong and is very optimistic about their near
and long term growth prospects.  In March, Lehman Brothers
started coverage on Active Power with a "strong buy" rating and
a price target of $31.  The company is due to announce earnings
next week and traders who want to speculate on the outcome of
the report can use this conservative position.

APR 17.50 ACQ PW LB=0.40 OI=474 CB=17.10 DE=7 TY=30.7%

EBAY - eBay  $41.63  *** On The Move! ***

eBay (NASDAQ:EBAY) has developed a Web-based community in which
buyers and sellers are brought together in an auction format to
buy and sell items such as antiques, coins, collectibles, stamps,
computers, memorabilia, and toys.  eBay enables trade on a local,
national and international basis with local sites in 60 markets
in the U.S. and country-specific sites in the United Kingdom,
Canada, Germany, Austria, France, Italy, Japan, Australia, and
Korea.  The company recently announced it will open trading Web
sites for Ireland, New Zealand and Switzerland.  eBay's revenue
nearly doubled last year and analysts expect above a 50% annual
growth rate for the next 4 years.  In early April, eBay shares
moved higher after a Deutsche Bank Alex. Brown analyst said he
expects the online auction service to beat his first-quarter
estimates and bullish outlooks from Yahoo! and Amazon.com have
bolstered that optimistic attitude.  Technically, eBay appears
to have made a successful test of its December low and the cost
basis in this position is near the bottom of the recent trading

MAY 30.00 QXB QF LB=1.10 OI=1815 CB=28.90 DE=35 TY=10.1%

EXFO - Electro Optical Engineering  $31.95  *** A Big Day! ***

Electro Optical Eng. (NASDAQ:EXFO) is a designer, manufacturer
and marketer of fiber-optic test, measurement and monitoring
instruments for the telecommunications industry.  Last quarter's
earnings were excellent with sales of $64 million, up from $29
million the previous period.  Net income totaled $7.5 million,
compared to $3.7 million and the increase in revenues reflected
new demand for the company's industrial and scientific products.
EXFO has enjoyed an increase in forecast earnings with analysts
raising their future profit estimates for the coming year.  At
the same time, the issue has been the target of "short-sellers"
and the current rally may be due to the effect of "covered"
positions.  Traders who believe the rally has upside potential
can speculate on that outcome with this conservative position.

MAY 17.50 FQO QW LB=0.45 OI=75 CB=17.05 DE=35 TY=5.7%

PSFT - Peoplesoft  $29.10  *** Earning Rally? ***

Peoplesoft (NASDAQ:PSFT) designs, develops, markets and supports
a family of enterprise application software products for use
throughout large and medium sized organizations, including
corporations, higher education institutions, and government
agencies.  Shares of PSFT have moved higher in recent sessions
and traders are speculating that the company's upcoming earnings
announcement is the reason for the renewed interest in the issue.
Technically, in the short term (1 week speculation), the stock
has excellent upside potential, having rebounded above its 30-dma
amid reduced selling pressure, and a cost basis below $25 appears
to be favorable price at which to own the issue.

APR 25.00 PQO PE LB=0.50 OI=992 CB=24.50 DE=7 TY=27.0%

RFMD - RF Micro Devices  $17.85  *** Can't Catch This One! ***

RF Micro Devices (NASDAQ:RFMD) designs, develops, and markets
proprietary radio frequency integrated circuits 'RFICs' for
wireless communications applications.  The company's products
are used in cellular and PCs, cordless telephony, wireless LANs,
local loop, industrial radios, security and remote reading.
Shares of RFMD surged today, thanks to stronger-than-expected
new business with its largest customer.  Officials also reiterated
guidance they previously gave analysts, saying the company would
see 20% sequential growth in its fiscal 2002 first-quarter from
an expected $55 million in fourth-quarter revenues.  The company
will report fourth-quarter results on 4/17 and traders who believe
the announcement will be favorable can profit from that outcome
with this conservative position.

MAY 12.50 RFZ QR LB=0.45 OI=871 CB=12.05 DE=35 TY=9.7%

SCI - SCI Systems  $22.99   *** On The Rebound! ***

SCI Systems (NYSE:SCI) designs, manufactures, markets, sells,
and services electronic products for the telecommunication,
computer, aerospace, defense, medical, and entertainment
industries, as well as the U.S. Government.  SCI is the world's
second-largest maker of electronic computers with nearly a third
of sales going to Hewlett-Packard and as long as HWP continues to
purchase its products, SCI will be successful in the hardware
sector.  The company's earnings are due near the end of April and
since most of the bad news appears to be "priced-in," there is
little downside risk in owning the stock at a cost basis near $17.

MAY 17.50 SCI QW LB=0.45 OI=81 CB=17.05 DE=35 TY=7.7%

VSEA - Varian Semiconductor  $39.35  *** Break-out! ***

Varian Semiconductor (NASDAQ:VSEA) is a leading producer of ion
implantation equipment used in the fabrication of integrated
circuits.  The company operates globally, designing, manufacturing,
marketing and servicing semiconductor processing equipment and it
is also a leading supplier of ion implantation systems.  Varian
recently announced that the company was awarded a new patent for
ion implant architecture incorporating unique and powerful ion
acceleration and analysis technology.  The invention and patent
allows Varian to improve the yield of semiconductor devices by
delivering an ion beam of exceptional species and energy purity.
That is probably not the reason that the stock broke above its
recent trading range today, but it does lend additional credence
to the company's leading position in the industry.  Traders who
want to own this unique issue can target a discounted cost basis
with this conservative position.

MAY 30.00 UES QF LB=0.70 OI=42 CB=29.30 DE=35 TY=7.1%


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Indeed, It Will Be A "Good" Friday!

Thursday, April 12

Technology stocks rallied again today, pushing the NASDAQ higher
for the fourth consecutive session.  The Dow Industrials also
rebounded, rising on new strength in financial and biotechnology
issues.  The NASDAQ closed up 62 points at 1,961 while the Dow
finished 113 points higher at 10,126.  The S&P 500 index was 17
points higher at 1,183.  Volume on the Big Board was a light 1.08
billion shares with advances beating declines by about 2-to-1.
NASDAQ volume hit just 1.87 billion shares with winners beating
losers 2-to-1.  In the bond market, the yield on the U.S. 30-year
Treasury fell to 5.59%.

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

Granite    (NYSE:GVA)   APR35C/APR35P   $1.75   debit   straddle
Intl. Bus. (NYSE:IBM)   APR85P/APR90P   $0.75   credit  bull-put
Intl. Bus. (NYSE:IBM)   M100C/APR105C   $4.25   debit   diagonal
Wellpoint  (NYSE:WLP)   APR105C/A100C   $0.00   credit  bear-call

The volatile market activity provided some great opportunities
to participate in our new combination positions.  Unfortunately,
the slump in Wellpoint shares prevented a favorable entry in the
bearish spread.

Questions & comments on spreads/combos to Contact Support

                 - STRATEGIES & PLAY SELECTION -

Readers often ask for more information on spreads and combination
positions and since today's publishing deadline limits the time
available for new candidates, this is an excellent opportunity to
publish one of the recent E-mail replies regarding this unique
section of the Option Investor Newsletter.

Hello Ray,

I have been considering Spread trading for the past few months,
since I do not have the time to monitor the market throughout the
day and my preference is to participate in strategies with good
reward potential and limited risk. I am relatively inexperienced
with options, but have learned a number of skills and techniques
from the various writers of the OIN, including your articles.
Before I begin trading the "plays" offered in the Spreads/Combos
portfolio, could you provide some additional information about
the way you select candidates and manage the positions in this
section.  Any additional help and suggestions would be greatly

Thank You


Regarding Spreads and Combinations: Strategy and Play Selection

The Spreads/Combos section is produced for a target audience:
novice traders that need simple strategies.  To generate the
majority of plays, I search through lists of candidates and
evaluate the positions and their potential returns based on the
technical outlook of the underlying issue, its sector and the
overall market.  If I feel the chart fits the strategy and there
is an acceptable risk/reward ratio, the position is placed on a
list of final candidates.  After I have all of the possible plays
for a specific day, I simply choose those which, in my opinion,
appear most favorable.  On some days, I also list positions on
candidates (or sectors/groups) that readers have requested or
submitted, so they can see what type of play a more experienced
trader might utilize, based on their outlook for the underlying
issue, industry or market segment.  These plays are always listed
with the heading "Reader's Request" to differentiate between my
picks and those generated by subscribers.

To be successful with this section, remember that it is written
for relatively new traders (about 80% of our readership), many of
which place their combination orders as a "spread."  That's why I
always list a suggested "net-credit" or "net-debit" target to help
them open the play.  This is a recommended entry point; simply my
opinion of what a trader might use as an initial "limit" for the
spread order, and it should be a reasonable price to initiate the
play even with small changes in the stock and option quotes.  The
target is always less than the straight BID/ASK numbers (we don't
pay "market" for spread orders) and generally, you can expect to
shave a minimum of $0.10-$0.20 off the BID/ASK price when opening
or closing even the smallest spread order.  The margin can be more
or less, depending on the price of the options, whether they are
ITM or OTM, the time value remaining, the volatility of the stock
etc.  I simply try to give the novice trader an idea of the value
of the position because the option prices are always different the
next morning.  Of course, you may need to adjust this target based
on the activity of the underlying issue, the trading volume of its
options or the Implied Volatility of the series being traded.  In
closing the plays, I generally suggest a target return of 10-20%
per month on most of the basic spread strategies and that is how
the "target profit" or "return on investment" numbers are derived.
I try to construct positions to reflect that goal, but not every
play is a winner so the main objective is to limit losses and
close failed positions before they become very costly, preserving
capital for the next success.

I follow the portfolio "real-time" with Interquote and paste all
the quotes into an archive for each position at regular intervals
throughout the day.  I trade the "paper" portfolio just as one
would trade their regular portfolio and record the target entry
prices for each position (the suggested NET CREDIT or NET DEBIT
numbers) whenever they are achieved or fall within a small margin.
That margin is generally $0.10-$0.20 for spreads under $3-$4 and
slightly more for higher priced positions.  Occasionally, I will
allow additional latitude on unique plays if it's realistic that
the target could have been attained and I have a good knowledge
of the market-maker that handles that issue or can document other
trades in that series at that price.  I usually don't "leg" into
combination plays as far as the newsletter portfolio is concerned
(unless specifically stated) but I try to utilize the volatility
at the open and close of the session to improve our entry prices.
Some of our plays are priced better than the initial "target" and
others are worse.  I don't just take the best price of day; I try
to trade as someone would in their own portfolio.  In addition,
I have the benefit of real-time and historical option quotes and
one of the leading market-makers in the industry (to help price
the positions without actually trading them).  In most cases, the
published prices are a fairly accurate record of the potential
entry opportunities and keep in mind, I rarely show positions as
"not-traded" even though I personally would have avoided them,
based on new information that became available after the play was
initially offered.

New traders occasionally comment that they were unable to achieve
the entry targets, even when trades were posted at those prices.
As with most experienced traders, I have the benefit of a floor
specialist working on my behalf to get the best entries.  You
will rarely get filled in these spreads at the target with deep
discount brokerages unless the options actually trade at those
prices.  The potential for success with an online broker such as
Preferred Trade (which has direct access to the exchange but does
not allow simultaneous orders for multiple positions) is based
strictly on your own skills and the market's volatility.  Many of
our advanced readers use the section as a candidate list and they
trade their own positions at different entry and exit prices.  I
correspond with some of them daily (lots of candidates that way!)
and they are quick to report when a price has been posted in error
or could not have been achieved.  Some of them open and close new
positions using the method I previously referred to: "legging" in
or out-of a spread.  Basically, you just try to utilize the daily
movement of the underlying stock to your advantage, buying a long
position when it is cheaper and selling a short position when it
is more expensive.  This tactic becomes easier when you are more
familiar with the daily stock, sector, and market trends and use
the appropriate trading tools.

Daily Summary (Portfolio Activity):

I try to monitor the plays in the Spreads/Combos portfolio on a
regular basis and as time permits, I will make suggestions as to
when they might be closed or adjusted.  However, my primary job is
to provide candidates for your careful scrutiny and to identify
positions that have a favorable risk/reward outlook.  In the end,
the determination to trade is solely yours.  I will also try to
identify those occasions when a play offers a favorable early-exit
profit, or when I notice an issue has reversed direction and may
require closure or adjustment of the associated position.  Keep in
mind that I generally have over 100 positions in four sections to
track on a daily basis and I may not always observe the crucial
turning point or change in character of a specific issue.  The
portfolio narrative is a service I provide to help novice traders
understand how various spreads might be opened and closed but in
most cases, actions taken based on the commentary would be far too
late to be effective.  In no way is it offered as a substitute for
personal trade management nor does it replace your duty to monitor
the positions in your portfolio.  In years past, we published a
monthly summary of combination positions, and it was a reasonable
representation of the plays provided during the month.  However,
because there are so many ways in which each play can be opened,
closed and adjusted, the summary eventually became a journal of my
personal management of the positions and it was obvious that it
might not be completely representative of the manner in which the
average trader would react.  So, now I keep an ongoing Excel-based
summary for daily play tracking and a monthly summary in narrative
form, which is included at the end of the expiration period.

Position Management:

One of the questions I receive frequently concerns the correct
timing of early exits and adjustments for spread positions.  While
there is no perfect answer (or solution) to this dilemma, one of
the most practical closing strategies is based on the target ROI
(return on investment) for the position.  For example, if a play
originates with a 15% monthly return target and a slightly smaller
but reasonable profit becomes available at an earlier date (based
on a lower yield and shorter time period), the position is indeed
a candidate for early closure.  Of course, most positions that
meet that criteria will appear to be so successful they can't
possibly lose at expiration.  This aspect, along with commission
considerations and the effects of human nature, which urges you
to simply hold the play and hope for maximum profit, will prevent
most traders from closing the play early.  As you know, even when
the issue moves in the predicted direction, the position is always
at risk from a variety of changes in the market.  These effects
are reduced with hedged positions but the end result can still be
unfavorable.  There are a number of examples in past portfolio
plays including some of which might have been our most profitable
positions, except that they were closed in the interest of sound
money management.  As far how to place STOPS and closing orders;
some traders suggest closing a position when it meets a specific
price while others use technical analysis to determine the correct
placement of potential exit orders.  The limited-risk techniques
discussed in the Spreads/Combos section are not without their
disadvantages and obviously, the more advanced strategies are not
immune to the market's corrections.  Spreads and combinations, as
well as all option trading techniques, need to have some type of
exit point in case the market/stock/sector turns in the opposite
direction from that which is expected and position management is
an important part of being a successful trader.  In addition, the
success of a limited risk strategy such as OTM credit spreads is
keeping losses to a minimum.  There are never any big winners to
offset the big losers, so there simply can't be any big losers.
Obviously, a gapping issue will occasionally wipe out a portion of
previous gains and there is nothing you can do about it.  But, at
the same time, you must manage the remaining positions effectively
or there will be no profits to offset the rare catastrophic losers.

Additional Information:

As far as spread strategies, I have written a number of narratives
for the techniques used in the section and those are still listed
in the web-site archives (Options 101 etc).  Of course, there are
also a plethora of great articles by other OIN writers, covering
just about every imaginable option trading strategy commonly used
by retail investors.  Unfortunately, there is no way to produce a
list of specific guidelines or step-by-step techniques on entering
and exiting combination plays.  The methods I use are much the same
as those that Jim and other writers discuss in the daily strategy
narratives and each is based on simple, proven money-management
techniques; the most important of which is "keep the losses small!"
The older articles in Options 101 (by broker Robert Ogilvie) cover
the basic spread strategies and their possible outcomes (good and
bad) and many of Jim's recent trading lessons describe the use of
position trading adjustments (rolling into spreads for example) to
minimize losses in straight option positions such as buying calls.
The most important entry/exit information for spreads comes from
the knowledge of option pricing, time-value erosion, volatility
and probability.  Those subjects have been covered at length in
various educational series on the web-site.

Contrary to what you might believe, there are no simple and easy
answers.  Option trading is not free money in any way; lots of
hard work and research, and success comes only after failure and
experience.  The key is to find something you do well and stick
to it.  Don't use complex strategies just because they are unique
or intriguing.  Often the best course of action is the simplest.
The key to remember is most sections of the newsletter are really
just a list of candidates to significantly limit your search for
profitable trading positions.  You still have to decide what you
are looking for, and if the positions meet your personal criteria
for potential plays.  Only you can know what type of strategies
are suitable for your portfolio outlook, skill level, and risk

Books and Online Material:

Here are my suggestions for the best books on the subject of
spreads and combination strategies that profit from option
pricing disparities.  The rules haven't changed in years and the
bibles remain the same: "Options as a Strategic Investment" by
Larry McMillan and "Option Pricing and Volatility" by Sheldon
Natenburg, both available in the OIN bookstore.  The CBOE also
has some great articles on basic combination strategies in their
educational section (www.cboe.com) and the basic descriptions and
profit graphs are available from Optionmax (www.optionmax.com).
In addition, the options page at e-analytics (www.e-analytics.com)
has some excellent summaries of popular combination strategies.

I hope this has helped you understand the difficulties associated
with producing the "Spreads/Combos" and maybe you will eventually
benefit from some of the plays offered in that section.  Remember,
they are really just candidates and should only be considered with
respect to your personal risk/reward attitude and trading style.

Good Luck!

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



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