Option Investor

Daily Newsletter, Sunday, 04/29/2001

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The Option Investor Newsletter                   Sunday 04-29-2001
Copyright 2001, All rights reserved.                        1 of 5
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        WE 4-27          WE 4-20          WE 4-12           WE 4-6
DOW    10810.05 +230.20 10579.85 +452.91 10126.94 +335.85  - 87.69
Nasdaq  2075.68 - 87.73  2163.41 +201.98  1961.43 +241.07  -119.90
S&P-100  649.11 +  5.45   643.66 + 35.89   607.77 + 30.42  - 28.23
S&P-500 1253.05 - 10.07  1242.98 + 60.41  1182.57 + 54.14  - 53.74
W5000  11508.84 + 99.07 11409.77 +557.12 10852.65 +534.25  -327.45
RUT      483.97 + 17.26   466.71 + 11.69   455.02 + 20.36  - 15.87
TRAN    2862.37 +  1.07  2861.30 + 94.71  2766.59 + 79.56  - 84.33
VIX       27.77 -  1.24    29.01 -  1.27    30.28 -  6.48  +  2.94
Put/Call    .48              .91              .76

Looks Better and Better Every Day!
By Jim Brown

What a great week! It was not that the major indexes added hundreds
of points, it was the fact that they did not LOSE hundreds of points!
After soaring for huge gains the previous 10 days the Nasdaq, Dow
and the S&P pulled back only slightly, consolidated and for the DOW
and S&P closed at the high of the week. For me this was a tremendous
achievement. Unfortunately it all came on relatively low volume and
without any real conviction.

Friday morning opened with a huge upside surprise. The GDP report
showed an increase to +2.0% in the first quarter which was double
the expected +1.0% rate. While this does not bode well for future
Fed rate cuts it does appear the threat of a recession has been
overstated. Business spending was stronger than expected rising
+1.1% after falling the previous quarter. Consumer spending remained
solid with a +3.1% gain. Durable Goods jumped +11.9%. Inventories
fell by $7.1 billion indicating the backlog was decreasing rapidly.
So much good news you wonder what all the fear was about just weeks

Gosh, seems like it was just yesterday that Jobless Claims rose to
408,000 for the first time since October-1992 which was higher than
any time during the 1995-96 economic slowdown. Wait, that was
yesterday! Labor markets are clearly weakening and conditions are
expected to deteriorate further in the coming months. Many companies
are announcing layoffs and many more are increasing the number of
cuts from those previously announced. Sounds like the GDP report
and the Jobless Claims were for different countries!

The market cheered the Jobless Claims on Thursday as evidence the
Fed would cut rates again on May-15th and cheered again on Friday
on news the recession may be overstated. Come on guys, you can't
have it both ways. To be fair Greenspan may have influenced the
markets slightly on Friday with comments that productivity gains
are likely to continue in the work place because of increased
technological improvements. If productivity continues to increase
then profits will also increase. Thank you Alan for your market
moving remarks.

Traders will get another chance to find confirmation of their biases
next week with Personal Income/Spending and Chicago PMI on Monday,
Construction Spending on Tuesday, Factory Orders on Wednesday and
NAPM on Thursday. Of course the biggest report for the week will
be the Nonfarm Payrolls on Friday which will give us a much better
read on the job market.

One of the biggest drags on the Nasdaq Friday was Microsoft. Bridge
News reported that MSFT was going to delay their new Windows-XP
product until October instead of August. Microsoft issued a statement
that they were sticking to their "2nd half" release date and claimed
they had never suggested an August release. Some analysts said it
did not really matter to their earnings if they waited until Oct
but MSFT still dropped over -$2 on the news and -$4 off Thursday's
high of $71.

Who said there was no future for Lucent? The persistent rumor last
week was merger talks with Alcatel. Both companies denied the rumors
but LU has gained almost +4 (+56%) in the last four days. Alcatel
was also gaining ground indicating analysts think it may be a good
deal for both companies.

The Biotech Index was up strongly again with HGSI posting better
than expected earnings. Even AMGN, which warned about results going
forward was up +4 on Friday. The BTK.X has now posted three strong
day in a row at 545 and looks like it is poised to retest its recent
high of 561 next week.

The Internet is not dead as evidenced by earnings from Verisign
which blew out their quarter by almost doubling estimates with a
+.23 profit. They announced a stock buyback as well and the stock
rallied +5.68 or +12.28%. VRSN and EBAY have each found a niche
where nobody has even come close to competing with them. These
niche players may prove bullet proof for buy and hold investors.

The adage "Never Short a Dull Market" proved true this week. The
Dow was coasting until early afternoon on Wednesday when a computer
buy program was triggered and it never looked back. Shorts were
again caught off guard with the expectations that profit taking
would take us back down again. Once stocks started running again
there was persistent buying on Thursday and Friday. Have they given
up? I doubt it but they are definitely running scared. The Dow is
now less then 200 points from 11,000, a closing level not seen since
September. Now well over its 200 DMA of 10615 and gaining speed it
looks like it is ready to finally sprint through the 11000 barrier.
It has traded within 10 points of 11000 or higher 11 times in the
last six months without being able to close over that level. Will
the jinx stand one more time? Nobody knows but you can bet there
will be an army of shorts lined up at 11001 to bet on at least one
more failure. Great! Just what we need, one more short squeeze
before we hit a new high. (the power of positive thinking!)

With Friday's close the Dow has turned positive for the year by
+24 points. The S&P however has not been so lucky. Closing Friday
at 1253, it is still -13 points under serious resistance at 1266.
It has not been able to make it above this level since late February.
The current momentum looks good but almost every analyst questioned
is looking for the catalyst that will knock the legs out from under
this rally. (the proverbial wall of worry) While the volume was
terrible on Friday with only 1.7 bil on the Nasdaq and 1.1 bil on
the NYSE, the internals were good. Advances beat decliners by 2:1
across the board and up volume beat down volume 3:1. As I said
before, the major drag on the Nasdaq was MSFT, but WCOM and QCOM
also turned in negative days. The positive leaders were not very
encouraging with Dell +.68, CSCO +.39 and ORCL +.24. The Nasdaq
big cap winner was Intel with a +1.54 gain after they said they
were seeing a rebound in the PC sector. It appears traders were
torn by the drag on MSFT and the gain in the PC sector. Monday
will be another chapter when the MSFT story is old news. Do you
ever notice that bad news lasts a day and good news a week? Not
always but quite often.

The Nasdaq, which should be rising on any hope of a tech rebound,
simply did not rally while the Dow surged ahead. Granted it only
lost -87 points for the week but after a +32% gain the prior ten
days it is still remarkable that it held. Which way do we go now?
I think it is a pretty sure bet that the Dow will open up on Monday
unless we get some more negative news out of South America or Japan
or some country not even on the radar screen on Friday. The Fed
appears to be on our side since Greenspan had no negative comments
on Friday and shorts still appear to be on the run. The order on
close orders Friday were 99% weighted to the buy side with some
huge orders for GE and AT&T among others. Several stocks had well
over one million to buy at the close. This is very bullish since
it means they were willing to be long over the weekend and face
the Monday open with long positions. This should strike fear into
the hearts of traders currently short since it means a serious
change of sentiment in the market. Very few institutional investors
have wanted to be long anything over a weekend recently.

Earnings are now half over for this period and there have been no
real disasters. Everyone kept waiting for the nuclear blast from
a major company with near bankruptcy results. It never happened and
many companies managed to beat estimates. The GDP has given investors
new hope and the markets are rising when they are normally falling.
Investors normally checking out for the summer doldrums are now
trying to go long to avoid missing the boat. It must be driving
the bears crazy! I glanced at a couple hundred individual charts
and I was amazed at the last week. Stocks that had missed earnings
were moving up again. Stocks that met or beat estimates were setting
new relative highs. Many have broken through resistance over the
last ten days and did not slow. The rampant euphoria is almost too
good to be true. The VIX has fallen back to 27.77 and nearing a two
month low. Not in a danger zone yet but the collapsing volatility
is a sure sign everyone is lining up on the buy side of the boat.
The problem here of course is what happens when everybody stands
on the same side of a boat. It tends to roll over. (back to the
wall of worry) As long as the bears/shorts continue to sell into
every big gain we will be okay. Sounds crazy but true. As each
dip from a new relative high is met with buying the shorts that
created the dip are forced to buy back at higher and higher prices
and a real rally is born. Momentum creates volume and volume attracts
new buyers. Has anybody considered what would happen if the Fed
failed to cut rates just 12 sessions from now due to a stronger
than expected GDP? This meeting is shaping up to be a rally killer
if we don't get some new negative information to put the Fed at ease.
Everything is looking up for next week but remember the roadblock
at 11,000. Please, let there be an army of sellers in hiding and
an even bigger army of buyers waiting to ambush them on the dip!

Trade smart, enter passively, exit aggressively!

Jim Brown


Stop the Email Please!!!

I really hit a nerve with the Editors Plays article last Sunday.
I got hundreds of emails either in total amazement and thanking
me for the trades they put on this week OR calling me an absolute
idiot for suggesting something so ridiculous. You can refuse to
believe the strategy for any number of reasons but until you
actually try it, DON'T KNOCK IT!  I am going to answer some of
the emails here because most of the questions were basically the
same. I am also planning a two hour live online seminar in early
May to teach this strategy and show you how to profit from it.


I like your strategy of using Put Leaps to benefit from stock
price appreciation, but I have a question on selecting the strike
price. You used $60 on CSCO, but on the other four stocks you
used the highest strike price possible. I realize these
were just examples, but what is your criteria for selecting a
strike price? It would seem to me you would want to use the
highest possible strike price available. So if I'm missing
something here, I would very much appreciate your thoughts on
this subject. Thanks for all the education you've given us. Dick

Dick, you are right. In "THEORY" it would be best to use the
highest strike price available to achieve the largest amount of
cash deposited to your account. However, attempting that strategy
can result in your being put the very next day several times before
the play finally sticks. The reason for this is the market maker.
He is required to be the other side of the trade for up to ten
contracts. This provides a liquid market but also makes him an
involuntary participant. When you sell the put a large amount of
cash comes out of his account and directly into yours. If he is
paying attention he can quickly buy the stock at market and
exercise the put the same day you sell it to recover that cash.
If he is not paying attention or this is just one of thousands
of trades he does that day then it may go unnoticed and you become
open interest without a buyer taking the other side of the trade.
If you sell strikes that are not as far away from reality and
have significant open interest and volume then you are likely
to be lost in the crowd and the position will stick. If you are
the only open contracts in a +$300 strike then you are highly
visible and could be put the very same day.

There is nothing wrong with selling the puts until they stick.
Lets say you are selling BRCM puts. There are five exchanges that
trade BRCM options. If you are using a direct access broker like
Preferred Trade you can route your order to a specific exchange.
Lets say you sent it to the Pacific and got assigned the next day.
Immediately do it again and send it to the CBOE or the Philadelphia
or the AMEX or the ISE. One of them will let it go through without
exercising you. Lets say you want to sell 10 contracts, send 2 to
each exchange. If one market maker assigns you, sell two more until
they stick. Believe me, it is not as hard as it sounds and it is
worth the extra trouble.

Of course, it is much simpler to sell into a strike with volume
and open interest and get lost in the crowd. You will not receive
quite as much cash up front but you may not have to do it but once.


Dear Jim,

I have a question for you and I'll appreciate your help.

This refers to your last Sunday 4/22/01 Editor's Play strategy.  I
understand what you are trying to explain but it sounds too good to
be true.  Let me illustrate a transaction:

BRCM: $38.10

1- Buy BRCM Jan03 Strike:35 PUT @ $13.50 (ask)Total transaction cost
for 10 contracts is $13,500

2- Sell BRCM Jan03 Strike:320 PUT @ $281.30 (bid) Total transaction
for 10 contracts paid to my account is $281,300

Net credit to my account: $281,300 - $13,500= $267,800

Now If I get paid interest on the $267,800 at the rate you calculate,
I will get $24,551 in interest.  If my cost was $13,500 that means
that I will have a profit of $11,051 and that would be my worst case
scenario.  As you see this looks too good to be true.  I invest $13,500
and I could either make a maximum profit of $267,800 or $11,051 (82%
ROI).  Please let me know where's the catch.

The catch is simply you may be assigned at any time and you may have
to sell the puts several times during the term of the transaction.
This is not a bad thing.

Consider this, if you sell the $320 puts with BRCM at $40 you will
receive $280. (I am using round numbers) If BRCM drops to $35 and
you are assigned you give back the $280 plus $40 of your money. You
receive stock which you sell for only $35. You have a $5 paper loss
at this point. (I am not going to deal with the long put just yet)
If you immediately resell the $320 put with BRCM at $35 you will
receive $285 and you get your $5 right back. Nothing has changed.
You are still short the $320 put and the cash in your account is
still the same. You can be put the stock several times over the
term of the trade and as long as you immediately sell the stock
and resell the put your cash position and your profit/loss remains
unchanged. Even if BRCM declined to $5 before expiration and you
were put, you could still resell the $320 for $315 and recover the

Now the long put protection. If you are exercised and you resell
the stock/put again you do not need to use your long put. You only
want to use it if you decide to cancel the trade because things are
not looking up for BRCM. Lets say BRCM declined to $10 and you
maintained a short position all the way down. You can elect to
close both positions separately, IE, buy back the $320 short put
for the $30 loss and sell the long put for the $25 profit (less
the premium paid initially) or wait until you are put the stock
and then exercise your long put and assign the stock to someone
else for $35.

This may sound complicated but it really is not. If you understand
each half of the transaction separately then the combination is
also simple.


I asked my broker about your leaps, however, he said that your play
has to much exposure and could get put at any time regarding your
example of CSCO. I explained to him the coverage with the July 20
put, but he said that wouldn't help. Can you explain?
Thank you. Dave

Dave, you broker just does not want to deal with it. The CSCO
Jan-03 $60 Put Leaps had an open interest of 701 last Sunday.
As of this Sunday there was an open interest of 622. If there
is too much exposure and the play will not work, why is there
still over 600 open contracts? The Jan-03 $55 put has open
interest of 9455. Why are those contracts not closed? That is
$38 million in open premium on the $55 strike alone. Why are
they not closed? Do the market makers not need $38 million? No,
it is because they are required to make a market and if they
closed every open trade just because it was "inconvenient" then
they would be shut down.

Don't take my word for it. Sell the puts. See for yourself.


Very interesting article on leap-puts. What would be a margin
requirement to do the 10 contracts on CSCO. what is the downside
if stock goes down to $10. How much can one loose. Thanks. Nat

Nat, the margin requirement would be 20% of the underlying or
using CSCO at $15 = $300 per contract of $3000 for ten contracts.
If the stock goes to $10 "WITHOUT A PROTECTIVE LONG PUT" the
loss would be $5000. With a protective put as per the example
the maximum loss if CSCO went to zero would only be $3400. Would
you be willing to risk $3400 on CSCO to make $30,000 assuming
CSCO went back to $45?


I will announce the date and time of the online seminar I plan
to do on this in next Sunday's Editors Plays. If this idea
excites you, I suggest you set aside a couple hours and tune in!



Full Bull Ahead
By Austin Passamonte

Friday had all the makings of another failed rally. A euphoric pop
on the open marked an early high that could not be equaled on
numerous attempts to rally throughout the day. Buyers seemed to
throw up their hands and walk away near 2:30pm EST and it looked
like the big indexes might even dip into the red. But the final
hour saw buyers emerge from nowhere eager to hold long over the

When we say indexes rallied, we refer to the Dow and its strong
influence on the OEX & SPX. The NASDAQ still can't find any legs
and while retail traders fixated with faded four-symbol beauties
from yesteryear sit waiting for them to blossom, old economy and
Dow tech stocks continue to soar. Eventually the NASDAQ oyster
will hatch a pearl, just keep holding it between warm hooves and
wait. Meanwhile IBM, CAT and WMT are streaking up the charts.

Fundamentally Speaking
We have one question: if the GDP report for Q1 was truly that
spectacular, why did so many companies tank on their earnings
during this period of time? If Joe Public is still spending like a
drunken sailor at port, why are DRAM prices lower than a bushel of
feed corn? Heaven help us if the economy slows down the second
half of this year by comparison! Can't slow down because the Fed
says it won't? We'll revisit that when oil reaches $35 a barrel
and it costs more to fill our SUV fuel tanks than to pay our

Technically Speaking
But enough about economics that make sense while equity markets do
not. Let's try to figure out where we go from here until May 15th
FOMC meeting, our next landmark to reach by navigation.

Most indexes are in great shape or at least improving to the
bullish side. The Dow's close above 10,800 is significant for two
reasons. That was a major point of resistance for a long time
before, and it marks a higher high than the April 18th Fed
surprise close.

(Hourly Chart: Dow)

If a picture's worth 1,000 words then lets save ourselves some
time here. We see where the Dow made a very nice Bull Flag
formation on Wednesday that broke out to confirm and walked its
way up the ascending trendline dating back from April 3rd. Note
that the old index remains above both 50 and 200 period (hourly)
moving averages as well. Next stop: 10,900 area and then the
venerable 11,000 close above!

(Hourly Chart: Nasdaq Comp)

Weak sister. Still trading 100 index points below first overhead
resistance but seems about to hatch from its latest bull flag. Is
that last hour's candle the "egg tooth" cutting its way out? We'll
find out on Monday and if recent history repeats it could confirm
with a gap-up breakout in the process.

We'd strongly consider buying this market on a short-term basis IF
it breaks to the upside and holds above the 50-period moving
average (green). That could be the opening tick on Monday as well.

Break The Bank At Monday's Bell?
Maybe not. Those who tried that on Friday's ebullience ended up
sweating out the next six hours praying to get out near even,
which they barely did. Those who bought dips in the middle
pocketed some lunch money in the process.

If this rally sticks it will climb charts in continued staccato
fashion. One might consider dip-buying to be in fashion again.
With the next FOMC meeting a mere twelve trading sessions away and
no signs of market bombs in our path the coast seems clear for
heel-kicking bulls. Still, we must remain picky on our entries.

Big Dip Ahead?
It's almost unanimous on the Street that an ultimate bottom is now
safely in place. Market Sentiment will wait awhile on that one, as
we've heard the same thing about five times since April 2000 and
counting. There is plenty of calendar left to prove otherwise.

We can presume the S&P 500 commercial traders got blown out of
some shorts by uncle Al on April 18th but they remain just a hair
more short as of Tuesday 4:00pm April 24th than they did before
the explosion. We would have been really encouraged to see them
cover more but doubt still remains in their assessment. Contrary
to retail opinion, interest-rate cuts do not solve all market
woes. once again, if the economy is this strong and companies are
struggling to perform it suggests an over-supply problem, not an
economic one. More free money will not cure the ailment but
actually exacerbate it and big money may smell this fact.

Also, all daily chart stochastic signals and many point & figure
charts (courtesy of Jeff Bailey and Jeff Canavan) are now grossly
overbought. They can easily remain that way for weeks but when the
inevitable release happens to come it will be under that much
greater downside pressure.

Meanwhile, a run for the roses (or alfalfa) by giddy bulls into
May 15th is sure as sunrise. How we love predictable market
action! And to think it occurs on expiration Tuesday to boot. That
should setup one of our favorite scenarios: rally the "rumor" and
tank the news. Can't happen again? The public is not stupid enough
to fall for that again? Please. The public has been doing such
since first meeting under the buttonwood tree hundreds of years

Three week gameplan? Consider buying the dips right into the FOMC
meeting, whereupon long puts, bear-call credit spreads or long
straddles may be the next lead-pipe lock trade since we enjoyed
the last one six weeks before.

This marks the final edition of Market Sentiment in current
format. Significant changes are in store next week and all of them
are considerable upgrades. You will love the newer format, rest

With that said, this is my final submission for OI teammates and
let me thank you personally for enjoying our time together. It has
been great fun and I hope we learned some valuable lessons
together. My efforts will now be spent exclusively within
IndexSkybox, and I wish each & everyone the very best trading
wishes for the rest of your career!


Friday 04/27 close: 27.77

Friday 04/27 close: 71.30

30-yr Bonds
Friday 04/27 close: 5.80%

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)
685 - 670               14,003           90       155.59
665 - 650                5,175        1,285         4.03

OEX close: 649.10

645 - 630                6,630       13,311         2.01
625 - 610               12,927        5,269          .41

Maximum calls: 625/10,295
Maximum puts : 640/ 7,391

Moving Averages
 10 DMA  633
 20 DMA  609
 50 DMA  617
200 DMA  714

NASDAQ 100 Index (NDX/QQQ)
 54 - 52                24,749           917        26.99
 51 - 49                74,137        12,489         5.94
 48 - 46               108,873        50,477         2.16

QQQ(NDX)close: 45.15

 44 - 42                 62,745        44,213           .70
 41 - 39                 67,164       143,213          2.13
 38 - 36                 23,448        59,041          2.52

Maximum calls: 46/64,229
Maximum puts : 40/116,118

Moving Averages
 10 DMA 44
 20 DMA 41
 50 DMA 44
200 DMA 70

S&P 500 (SPX)
1325                   10,774           426         25.29
1300                   14,355         3,836          3.74
1275                   17,519         4,045          4.33

SPX close: 1253.07

1225                   13,152         5,771           .44
1200                   11,070        14,787          1.34
1175                   11,274        10,316           .92

Maximum calls: 1275/17,519
Maximum puts : 1200/14,787

Moving Averages
 10 DMA 1225
 20 DMA 1185
 50 DMA 1201
200 DMA 1351


CBOT Commitment Of Traders Report: Friday 04/27
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        +57298     +56586         -61741     -57843
Total Open
Interest %      (+26.22%)  (+26.57%)      (-8.52%)   (-8.08%)
                net-long   net-long       net-short  net-short

DJIA futures
Open Interest
Net Value         -3478      -3031          +5051      +6200
Total Open
interest %      (-25.97%)  (-20.21%)      (+16.58%)  (+20.88%)
                net-short  net-short      net-long   net-long

Open Interest
Net Value         +2520      +3168         -10299      -7462
Total Open
Interest %      (+11.28%)  (+12.12%)      (-16.11%)  (-10.48%)
                net-long   net-long       net-short  net-short

What COT Data Tells Us
Indices: Commercials are maintaining their net-short positions on
the S&P while increasing shorts on the NASDAQ 100.

Data compiled as of Tuesday 04/23 by the CFTC.


Please visit this link for Market Posture:



By Eric Utley

While last week's trading was rather difficult on those with
little patience (read: Eric), I have to admit that it was rather
impressive in the wake of the ramp following the Fed's
surprise rate cut.  Does it mean that a new bull market has

I don't think we're quite there yet, but certain sectors of the
market are displaying bullish characteristics, which may lead
to the rebirth of the beast.

In the meantime, my readers might want to monitor trading
closely Monday for signs of end-of-the-month window dressing.
Many money managers report their monthly performance and
holdings to their investors and oftentimes have the tendency
to ramp stocks higher near the end of the month in an attempt
to artificially boost performance.  Just a thought.

I hope you all have a great weekend, and for me and my cohort,
Matt Russ, it's off to the river.

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


Brocade Communications - BRCD

Short covering in BRCD [two weeks ago] has it with BIG gains.
However, could the short covering happen over 4 straight days -
look at the ADV of 17m versus the [last two weeks] of trading...
Can this rise be primarily short covering or are institutions
really buying the stock for the long run?  Thoughts? - Barry

This is my first question as a subscriber.  You folks do a
tremendous job of educating people, please keep it up.  Please
comment on the short and medium term outlook for JNPR and BRCD. -
Thanks, Arun

Thank you for the request, Barry.  I think you've touched upon
something important concerning shares of Brocade (NASDAQ:BRCD).

And thank you very much for the kind words, Arun.

Over a week ago, Brocade warned that its second-quarter earnings
would fall well short of already lowered estimates of 11 cents.
The company guided earnings down to the 5 to 6 cent range.
However, following its substantial warning, shares of Brocade
advanced modestly in the wake of a favorable forecast from data
storage giant, Emc (NYSE:EMC).  I think it would be prudent to
point out that Brocade is a major player in the data storage
sector as the company provides the foundation - both hardware
and software - for storage area network (SAN) solutions.

The reason shares of Brocade rallied following the earnings
warning was because Emc reported that it was beginning to see
an up-tick in demand.  That is, increased visibility into future
sales.  And I think that somewhat answers the question concerning
the medium-term outlook for Brocade.  If Emc is beginning to
see a pick-up in business, Brocade should soon begin seeing the
same.  As such, I would expect, over the medium-term, for
Brocade's business to begin to improve and its share price to
stabilize.  I think it may be a bit early to begin to accumulate
Brocade for investment purposes; however, I do think the company
and its stock will out perform over the long-term because of the
insatiable demand for data storage products and services.

Now let us address the short-term for shares of Brocade.  Although
the data storage sector may begin to stabilize in the wake of
Emc's comments, I still think that the short-term may be a bit
dicey as earnings within the group begin to stabilize.  To
directly answer your question, Barry, I think the recent ramp in
shares was a product of short covering, as measured by the volume
you mentioned along with the velocity in price.  I think there
was a tremendous amount of shorts in the stock who grew fearful
over the last two weeks following the Fed's surprise rate cut
and the comments from Emc.  That fear morphed into a buying
spree as the shorts scrambled to cover the stock.  However, I'm
sure there were some institutions accumulating some stock over
the past two weeks.  Unfortunately, I cannot quantify how much
of Brocade's recent price advance was a product of institutional
accumulation, as opposed to short covering.  But my feeling is
that much of Brocade's advance came on the heels of fear-induced
short covering.  And, short covering-related buying is NOT the
type of buying that will carry a stock higher for an extended
period of time.

So if my idea of short-covering carrying Brocade higher is
correct, I would expect the stock to pullback in the short-term
to consolidate some of its recent gains.  If Brocade does
pullback in the near future, traders might watch for an inverse
head-and-shoulders (H&S) to form on the daily chart.  Watch for
the right shoulder of the pattern to form near the $25 level,
which may offer bullish traders and even investors a favorable
entry into the stock, because risk will be fairly easy to
manage at that level.


Corvis - CORV

I have been watching Corvis Corporation (CORV) for some time,
and wonder what your opinion is.  It has come down from a high
of over 100 to $7 plus now and seems to move in tandem with the
Nasdaq.  I am wondering if buying options on this stock (which
are cheap) makes more sense, short-term, than buying QQQ calls,
or other high priced techs. - Laurie

Corvis (NASDAQ:CORV) is a smaller ($2.3 billion market cap)
player in the optical networking space.  The company's products
help carriers convert their long-haul networks to all-optical,
as opposed to the older, slower and more expensive legacy

Shares of Corvis have fallen far, far off of their highs as you
mentioned, Laurie.  The reason behind the steep sell-off in the
stock is because of the steep fall-off in capital spending by
the telecom carriers.  It doesn't appear that the cap-ex
spending has yet to pick-up, at least according to Salomon
Smith Barney analyst, Alex Henderson.  The analyst downgraded
shares of Corvis and CIENA (NASDAQ:CIEN), along with several
other optical companies last Friday.  Henderson's concerns
were over continued spending cuts by telecom carriers, such as
Verizon (NYSE:VX) and Sprint (NYSE:FON).

In light of the downgrade and continued weakness in price, I
don't think that purchasing short-term calls on Corvis is a
prudent strategy.  Shares of Corvis are a mere $1.40 off their
52-week low, which tells me the stock is trading relatively
poorly.  Furthermore, just because a stock is cheap in terms
of price doesn't mean it's a bargain.  Although the options on
Corvis are probably relatively cheap due to a lower carrying
cost, the stock is very, very technically weak and the
fundamentals of the company have yet to improve.


HomeStore.com - HOMS

I have seen HOMS in past steadily moving between 17 - 18 to
34 - 35 and then back to 17 - 18 levels.  Can you please study
the charts and advise if the stock could be on downward trend
now. - Thanks, Sunil

I recall that we reviewed HomeStore.com (NASDAQ:HOMS) for you
in late December, Sunil.  Here are a few items I wrote
back in December concerning HomeStore and a link to the full

I think HomeStore is a good example of why the Internet is such
a great medium.  Unlike many of the already failed Internet
businesses, I sincerely believe that HomeStore is providing a
quality and highly valuable service to consumers.  They have made
it mush easier to locate, finance, and purchase real estate to a
consumer's exact specifications.  HomeStore has integrated
virtually every aspect of purchasing real estate into one concise

If you're looking to get into HomeStore for the long-term, it
may be prudent to wait a quarter or two and see if the company
can establish earnings credibility.  If it does, I believe it to
be a long-term winner on the Web.


The point I tried to stress in that last paragraph was to wait
and see if HomeStore would continue to deliver in terms of
earnings.  And deliver they did last week.  Last Wednesday,
HomeStore recorded earnings of 4 cents per share, while consensus
estimates had the company pegged to breakeven.  Obviously, the
company surprised to the upside in a big way!  What's more,
HomeStore raised the bar for its second- and third-quarter
earnings; the company said it would earn 11 and 16 cents per
share while analysts had forecasted 10 and 15 cents per share for
the second- and third-quarters, respectively.

From a fundamental standpoint, I like the direction in which
HomeStore is heading.  While some might argue that its shares
are still fairly rich in terms of price-to-earnings, I would add
that with the expectations for 40 percent earnings growth over
the next several years, shares of HomeStore look attractive at
current levels for INVESTMENT purposes, especially if the
company continues to blow away estimates.  Furthermore, its
balance sheet remains in very healthy condition with some $300
million in cash and zero debt.

From a technical standpoint, however, shares of HomeStore don't
reflect my optimism over the company's exceptional earnings and
fundamentals.  I tend to think that the stock is still stuck
in a descending trend, Sunil.  Although, shares broke above the
intermediate-term descending trend line last week, which came
on increasing volume as a product of the company's earnings

I don't know if last week's break will continue to carry shares
of HomeStore higher.  It just doesn't quite yet feel like the
type of market that is favorable enough to buy breakouts in tech-
related  stocks.  I could be wrong, but I think if you're
looking to get long the stock, a pullback down to its ascending
support line might offer a favorable entry.  If the ascending
line I drew on the chart below holds, Sunil, I don't think
shares of HomeStore will make it back down to the $17 - 18
range you mentioned.


DST Systems - DST

Hi Eric, great column.  What do you make of charts and long
term growth potential of DST Systems, are they waning or ready
to roll on back up? - Thanks, Bruce

Thanks for the request, Bruce.

I think DST Systems (NYSE:DST) represents a stock unfairly
punished by the bear market.  And the reason I think that is
because the company continues to deliver in terms of earnings
and earnings growth.  In its last four or five quarters, DST
has managed to meet or exceed estimates, which proves to me
the company is financially and operationally strong.
Furthermore, I noticed that the future estimates, going out
a year or two, have not been reduced at all over the last six
months, which tells me that the analysts following the company
expect it to continue to out perform.

I suppose that the bears might set forth the valuation argument
as the reason for the steep pullback in shares of DST, but I
think the stock is fairly priced at current levels in light of
the company's expected future earnings growth rate of 20
percent.  Furthermore, I like the business lines of DST,
especially the financial services segment.  DST, along with
several other operations, provides information technology
services to financial institutions, such as mutual funds.  I
think this is a long-term growth area that will continue to
produce superior investment returns.

As for DST's technicals, I have to admit that the chart does
not look very good.  Ideally, what I'd like to see is the stock
consolidated between roughly the $45 and $50 level for maybe
a month or two, and see a subsequent breakout above that


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 30th, 2001

Personal Income           Mar  Forecast:  0.50%  Previous:  0.40%
PCE                       Mar  Forecast:  0.20%  Previous:  0.30%
Chicago PMI               Apr  Forecast:    40   Previous:    35
Agricultural Prices       Apr  Forecast:    NA   Previous:  4.00%

Auto Sales                Apr  Forecast:   6.5M  Previous:   6.4M
Truck Sales               Apr  Forecast:   7.5M  Previous:   7.7M
Construction Spending     Mar  Forecast:  0.30%  Previous:  0.60%
NAPM Index                Apr  Forecast:  43.3   Previous:  43.1

Factory Orders            Mar  Forecast:   0.6%  Previous: -0.40%
Beige Book                     Forecast:    NA   Previous:    NA
Oil & Gas Inventory    27-Mar  Forecast:    NA   Previous:311.9MB
Chicago Fed Idx           Mar  Forecast:    NA   Previous: -0.81%

Initial Claims         28-Apr  Forecast:    NA   Previous:    NA
NAPM Services             Apr  Forecast:    NA   Previous:  50.3
Vehicle Sales             Apr  Forecast:  14.0   Previous:  -0.4%

Nonfarm Payrolls          Apr  Forecast:    30K  Previous:   -86K
Unemployment Rate         Apr  Forecast:  4.40%  Previous:  4.30%
Hourly Earnings           Apr  Forecast:  0.30%  Previous:  0.40%
Average Workweek          Apr  Forecast:  34.2   Previous:  34.3
ECRI Future Inflation     Apr  Forecast:    NA   Previous: 111.0
ECRI Wkly Leading Idx  27-Apr  Forecast:    NA   Previous:  -5.1%

Week of May 7th
May 07  Consumer Credit
May 08  Productivity-Prel
May 08  Wholesale Inventories
May 10  Initial Claims
May 10  Export Prices ex-ag.
May 10  Import Prices ex-oil
May 11  PPI
May 11  Core PPI
May 11  Retail Sales
May 11  Retail Sales ex-auto


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The Option Investor Newsletter                   Sunday 04-29-2001
Sunday                                                      2 of 5

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Everybody Loves A Good Party!
By Renee White

We've been given a major adrenaline rush lately. Great party but
a party at a Bear's house is not comforting for long. I can't
help but wonder if it can continue. Have you ever gone to a party
and had so much fun, you didn't want to leave? The jokes and the
gaiety of the crowd were infectious and leaving was hard to do.
We’re there. If this is the Going-Away-Party for the Bears, it
should hold this week. If not, better leave early before the

In some ways, the market definitely looks to be on the mend.
Advancers beat decliners and the breadth of sectors performing
well has started to broaden out. In other ways, I'm not sure the
numbers are telling the full story this early in the game. At
the end of the first quarter, we had to look hard to find stocks
that ended the quarter up. Yet, three weeks later, many seem to
have forgotten that.

Since then, we have only seen improvement. On the surface, a
sigh of relief allows optimism to penetrate. Traders are like
junkies. Give us the wind to our backs, crossovers and up sloping
moving averages, high volume on up days, low volume on down days,
all sectors benefiting with advancers beating decliners day after
day, and we quickly forget how much money we've recently lost.
However, experience tells me we should be cautious here and not
let our enthusiasm blind us.

The question is: Whose party is this? Like many of you, I too hope
this is the formal Going-Away-Party for the Bears. That would just
make life so much easier. Unfortunately, my life has never been
that easy! Perhaps I am jaded. Or perhaps the contrarian in me
remembers the damage following the last surprise rate cut in
January. Those with faith ended up licking wounds. The reality
is: We are still in a bear market until it is known who stays
last at the party.

As a trader, I try to think through the immediate and obvious. If
my more distant evaluations match the immediate game plan, I feel
stronger about my decision. That explains my bullishness in 1999,
my bearishness in Spring 2000 and my bearish plays during the
January 2001 rally. I will admit that things are murkier now
than any of those times; this is consistent with transitional

After this healthy bounce, I find myself uneasy for several
reasons. I've learned to trust my gut, so I will not be jumping
into this market until I am either proved wrong, or a healthy
pullback occurs bouncing on a higher-low support level.

Why am I cautious? Why not? After the longest growth period in
history that crashed so rapidly, why would relief in two weeks
feel permanent? As if Year 2000 wasn't painful enough, Nasdaq went
on to lose 42.68% from Jan 24th, 2001 to April 4th, 2001 with only
a handful of advancers during that time...only a few weeks ago.

Trading euphoria is different than trading real advancement. In
the last few weeks, we have had a surprise Fed rate cut which
infused a sense of excitement, not to mention a massive rally.
Stock quickly ran up 20%, 25% and even 30%, slowing slightly to
gasp air. Then, came a better-than-expected GDP which clearly blew
away expectations, stopping any thoughts of profit taking from the
week before. The good news is that these events occurred during
earnings season and after the major warnings had been announced.

The bad news is that these events occurred toward the end of
earnings season, with no good news ahead of us to use as a carrot.
In fact, one needs to consider that our next rate cut, may only be
25 basis points. Will the markets cry like a baby for not getting
its routine 50 basis point candy again? With the markets
approaching the summer slowdown season, maintaining this recent
advance without a pullback is expecting a lot in my opinion.

Unfortunately, this is not what concerns me the most. As much as
I would like to say we are economically on the mend, I am actually
turning slightly more cautious on the economy than I have been
for the last six months. My concern revolves around energy and the
affects on companies with an already weakened bottom line. I'll
admit, I am out of my knowledge-comfort-zone trying to think this
through, but I can't ignore how the dots are starting to connect.

In my area of Texas, Reliant Energy will increase their rates by
30% in a few months. To me that is huge, especially since they
have been building out capacity for several years. California,
the second largest economy, will be hit much harder. If the
energy crises progresses to the severity we have been warned,
then as traders we must take into consideration what affects
they will have on recovery during a slowdown. These expenses
could have major effects on all businesses, not just tech. Could
energy prices push us into the recession we fear? At a minimum,
our economic recovery could certainly be delayed. Has anyone out
there ever lived through a Fed cutting by 50 basis points 4 times
in a row?

Not to mention that the wonderful GDP reading that the markets
surged on will most likely be revised downward twice in the next
two months. GDP revisions are common and can be as much as 2%.
Since the preliminary estimate of GDP growth was 2%, each
revision will take us closer to zero growth. If we're at zero
growth now, how will energy affect us in the next two quarters?
In addition, the next GDP is already a concern. A key ingredient,
consumer spending, is already starting out weaker this quarter.
Higher electric bills, higher gasoline and weaker spending can't
be good for businesses. Second and Third quarter earnings may
still be hazardous to our health as companies fight to raise
prices during a slowdown. Higher prices anyone? Inflationary

Still, the Fed is on our side and as the theory goes: Don't fight
the Fed. Lower interest rates help all businesses. If we are
lucky, we may just stay rangebound through the summer. Traders
can trade that. Good visibility reports by CEOs warning of an
upside surprise by July earnings would also strengthen support.

Falling interest rates directly affect businesses that revolve
around the lending and borrowing of money. These interest rate
sensitive stocks include: commercial lending institutions, banks,
savings & loans, homebuilders, mortgage financiers, insurance
companies, etc. Some stocks in these sectors have already had huge
run-ups since last spring in anticipation of rate cuts. Some have
pulled back nicely since January, ripe now for re-entry attempts.

Instead of partying with bears and waiting for the hang-over in
tech, I will be looking into these sectors which have reason to
grow in this economy at this time.



Spring Has Sprung
By Lynda Schuepp

The weather in New England has finally turned.  Haven't seen snow
in a week or two and the flowers are popping.  I think the market
is also starting to bloom.  A while ago I wrote about calendar
spreads.  A reader brought up some great questions about the
strategy, which needs clarifying.

Reader wrote:
"I was very interested by your strategy and I did do many
simulations on Jan2002 (sell QQQ puts) and Jan 2003 (buy QQQ
puts). I simulated the strategies on different volatility levels
(20, 30, 40, 50, 60). However, it remains very important to know
the margin requirements on the strategy; is it the spread only
to be paid or is there a margin on the sale of puts? Moreover,
in case we are exercised on Jan 2002 puts (for example in June.
2001) we need the cash to hold or we have to liquidate and lose
the opportunity to realize tremendous profits at the maturity of
the short leg; i.e. Jan. 2002. I would like to have your reply
on these issues."

The reader brings up some good questions that I didn't address,
namely exercise risk and margin. First as a review, a calendar
spread is a very easy, simple, non-stressful trade. Complete
details of this strategy can be found in a two part article I
wrote back inFebruary titled: "Calendar Spreads are a Nice Way
to Sleep at Night. "A calendar spread consists of a long option
with a longer expiration date and a short option with a closer
expiration date both with the same strike price and both are
calls or both are puts. The example I used was the 80 strike
on QQQ's, using Jan '02 and Jan '03 puts. I will continue to
use this example in this article.

The reader’s questions regard exercise risk and margin. Let's
first look at exercise/assignment risk. Before I really
understood the process of being assigned, this used to be my
biggest fear, getting the stock "put" to me. Let's examine the
process of exercising an option. First the person who bought the
put phones their broker and says that they want to exercise
their option. Why would they do this? Several reasons follow:

1.  They want to see what it's like (don't laugh)
2.  It was part of a hedging strategy that they are unwinding.
3.  It is part of an arbitrage scenario.

The first reason, believe it or not happens once in a while.
First "Jo Investor" calls his broker and says he wants to
exercise his put. The broker notifies the OCC (the options
clearing house for all stock options). The OCC gathers up all
exercise notices from all the other brokers in the country and
"randomly" assigns them to the brokerages that are short that
particular put. The brokerage then receives their notice from
the OCC and then they in turn "randomly" assign one of their
customers that are short that same put. Chances are you won't
be assigned unless you are the type that is prone to win the
lottery. Remember, first your brokerage firm has to be randomly
selected by the OCC and then you have to be randomly selected by
your brokerage firm. If there is plenty of open interest, then
your chances are slim to none. This brings up a good point that I
didn't go into before. Make sure there is plenty of open interest
in the leg you are going to short. If there is lots of open
interest your chances of being assigned are even less. If there
are only 100 contracts of open interest and there is no time
value left in the option, then your chances of getting assigned
are greater.

The second reason would be that someone needs to unwind a hedged
position. For instance, a mutual fund owns boat loads of the QQQ's
that they would like to sell but because they have so many shares
to sell it would cause the price to drop, so they would exercise
their put and get the full price of the strike they bought. This
is typically what happens on expiration day, which is why you
don't want to be short an option near expiration. Many
"in-the-money" options will be exercised because of this reason.

The third reason is a form of arbitrage, done by the "arb"
specialists or market makers, and it helps keep the market
honest. For instance, the Jan '02 80 put had a bid of $34.60
and an ask of $35.10 at the close. The stock closed at $45.15
so that the put has $34.85 ($80 strike -$45.15 stock price) of
intrinsic value and some minimal amount of time value. There were
no Jan' 02 80 options traded on Friday so the market maker can
be a tough guy and stand firm at the bid, which in this case is
$.25 undervalued ($34.85 of intrinsic value less the bid of
$34.60). An arbitrager can buy the stock at $45.15 (market on
close order) and exercise the put on the stock he just bought and
receive the full $34.85 through exercising the put. Because he
bought the stock and exercised the option the same day, no
additional funds are needed to purchase the stock. It sounds
like peanuts, but this is how these guys make a living.

Now you know why options are exercised, but let's see what actually
happens if you are the lucky one to get assigned. You wake up one
morning and look at your positions and find out you now have 1000
shares of QQQ in your account. Based on the close on Friday, that
would mean you'd have to buy the stock for 80, but you received
cash for the short call initially, so you would be out the
difference between the strike of 80 and what you sold the put for
originally. After you pick yourself back up off the floor, you
might start to panic because you are fully margined and you only
have $100 in your savings account. Stay calm, you have two choices
and neither of them will bust the bank. Remember, stocks have a
3 day cash settlement so you can wait the entire day before acting.

SCENARIO ONE: QQQ's are up in price from the close of previous day.
If so, you are in luck!

Step one: You would sell the QQQ's at a profit and because the sale
occurs the same day, no cash is needed.

Step two: Determine if the short put still has any time value.
If they do, you could then short the Jan '02 put again and sit back
and smile. If no time value is left in the Jan '02 put, then you
would sell the January '03 put that you are long. Because the
January '03 will always cost more than the January '02, it will
make up for the loss incurred in your short leg that was assigned.

SCENARIO TWO: QQQ's are down from the close of the previous day.
Bite the bullet, you would exercise your Jan '03 long put.  The
QQQ's you were just "put" are now being "put" to someone else by
the exercise of your put. Your loss in this case would be the
initial cost of the calendar spread which was $1400, which is
the maximum loss you can take. Remember, don't panic, you have
all day to watch the stock and see if goes up from the previous
day's close. This leads us to the reader's second question
regarding margin.

Margin on a calendar spread is zero. The amount of the debit
(the original cost of the spread) is taken from your cash account
initially, and there is no additional margin maintenance because
the most you can lose is the cost of the spread as explained above.
Remember the worst case is the stock is put to you, AND the stock
is down all day from the previous day. You then turn around and
exercise your long put and put it right back to the next "lucky"
winner and you’re out your original investment.

The lesson here is twofold: First, only sell options that have
time value and plenty of open interest. I like to sell long-term
out of the money options with at least $.75 of time value.
Secondly, never hold a short position close to expiration or the
"arbs" will get you!


Call Play of the Day:

C - Citigroup Inc. $50.91 (+1.49 last week)

See details in sector list

Put Play of the Day:

CIEN - Ciena Corp $50.29 (-16.80 last week)

See details in sector list


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 this weekend


HDI $46.65 (+1.90) Proof that chart patterns don't always pan
out, HDI extended Thursday's gains on Friday as the stock pushed
through the 7-month descending trendline to close near its high
of the day.  Our play rode along as the broader market continued
its advance, violating our stop early in the day and never
looking back.  Although the stock is currently sitting near the
$47 resistance level and could pull back from here, the bulls
seem to be in control.  With a violated stop and broken chart
pattern, we have no choice but to drop HDI this weekend.


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.


RE - Everest Reinsurance $63.99 (-1.93 last week)

Everest Re Group Ltd. is a Bermuda holding company that operates
through the following subsidiaries:  Everest Reinsurance company
provides reinsurance to property and casualty insurers both in
Bermuda and the international markets.  Everest National
Insurance company provides property and casualty insurance to
policy holders in the U.S.  Everest Indemnity Insurance Company
provides excess and surplus lines insurance in the U.S.
Southeastern Security Insurance Company provides personal lines
insurance in Georgia.  Everest Insurance company provides
property and casualty insurance to policy holders in Canada.
Mt. McKinley Insurance is a run off property and casualty
insurer domiciled in Delaware.

The insurance sector demonstrated impressive relative strength
last week, with a rally of over 5%, and a strong move above
IUX.X's 50 dma of 717.  IUX.X is now only 3 points below its
200 dma of 748.38, and if the bullish sentiment continues next
week, IUX.X should be able to clear this level.  Within the
casualty and property insurance sector, RE is almost perfectly
positioned to move up its symmetrical stair-step pattern to a
higher level next week.  RE is one of the few stocks which has
stayed firmly above its 200 dma for the last twelve months.  It is
also interesting to note that RE made a spiky dip below its 50 dma
three times since the end of January, and rebounded each time.
This week, RE made a fourth dip, and closed above the current
50 dma of $63.19 with a bullish candlestick pattern at the close.
Financial stocks are likely to rally strongly in anticipation
of the upcoming Federal Reserve meeting on May 15, which could
add additional momentum to this play.  Traders could take
positions at current levels, particularly if IUX.X has moved
above its 200 dma of 748.38, and others in the sector, like
PRG, BRK B and MTG are strong.  Another entry point could be
a move past $65 with strong volume, which would likely propel
RE to the next rung in its upward ladder around $66.50.  RE
reported earnings on April 23, so traders don't need to worry
about exiting before earnings.  We are setting stops at $62, so
be prepared to close the play if RE closes below this level.

BUY CALL MAY-60*RE-EL OI=182 at $5.10 SL=3.00
BUY CALL MAY-65 RE-EM OI=542 at $1.90 SL=1.00
BUY CALL JUN-60 RE-FL OI=  0 at $6.10 SL=4.00  Wait for OI!!
BUY CALL JUN-65 RE-FM OI=100 at $3.30 SL=1.50


AXP - American Express Company $43.74 (+2.24 last week)

In addition to being the #1 issuer of charge cards and
international banking services, this financial services giant is
the world's #1 travel agency.  They also publish magazines like
"Food & Wine" and "Travel & Leisure".  The company's operations
include Travel-Related Services, Financial Advisors, and Express
Bank.  American Express has also taken to the Internet with its
Membership Banking; plus, online mortgage and brokerage
services.  Warren Buffett's Berkshire Hathaway owns about 11% of
American Express.

The company's respectable earnings report last Monday, on April
23rd, stabilized the share price at the $42 level.  The
intersected 5, 10 & 50 DMA lines further bolstered the stock
while the markets operated precariously amid the economic
concerns; particularly after data revealed that Americans
seeking first-time unemployment benefits last week rose to its
highest level in more than five years.  A sharp reversal in
sentiment, however, sent AXP and other financials like JP Morgan
(JPM) and CitiGroup (C) through their relative resistance levels
in Thursday's session.  Growing optimism of a fifth rate cut
from the Feds at its next policy meeting on May 15th combined
with a rare positive outlook from telecom giant WorldCom (WCOM)
gave the Blue-chips stocks an infusion of hope.  The persistent
uncertainty about the technology sectors' earnings prospect
further lends to investors seeking shelter in the financial and
drug stocks. Now that you've read what sounds like a sales-
pitch, let's get down to the nitty-gritty of the play.  Stay
disciplined.  A conservative approach is to stay on the
sidelines while the trend firms upward.  A clean and decisive
move through the relative high at $43.90 would however, give the
green light to jump into the momentum.  Expect some mild
resistance as AXP approaches the $45 and $47 ranges; although
the real challenge lies ahead at $50, traced by the 200-DMA
($51.66).  The 5 & 10 DMA technicals bolster our $42 CLOSING
stop and coverage will be dropped if AXP cannot maintain its
position above this mark on a close.  If you look on the analyst
front, Robertson Stephens recently initiated a Long-Term
Attractive rating on AXP.

BUY CALL MAY-40 AXP-EH OI=7132 at $4.50 SL=2.75
BUY CALL MAY-45*AXP-EI OI=6508 at $1.25 SL=0.50
BUY CALL JUN-40 AXP-FH OI= 240 at $5.30 SL=3.25
BUY CALL JUN-45 AXP-FI OI= 810 at $2.20 SL=1.00



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The Option Investor Newsletter                   Sunday 04-29-2001
Sunday                                                      3 of 5

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WMT - Walmart $52.83 (+0.78 last week)

Walmart Stores Inc. operates more than 2,600 stores and 475
SAM's clubs in the United States.  Internationally, the company
operates more than 1000 units.  Walmart employs more than
962,000 associates in the U.S. and more than 282,000
internationally.  In 2000, the company raised and donated more
than $190 million for charitable organizations.

An enthusiastic market responded to the news which was released
this morning that the GDP grew by a higher than expected 2%, and
the retail sector was among the best performing of the market
sectors.  RLX.X burst out of the gate and moved up past
resistance at 880 to clear the 900 level by mid morning.  WMT
gapped open nearly a full point and moved to a high of $53.25
before pulling back.  WMT is scheduled to report earnings on
May 15 at 5:00 pm, and, if the broad market and retail sector
rally in anticipation of the upcoming Federal Reserve meeting,
WMT might be able to move above resistance at $54 to the next
major level of consolidation between $57 and $60.  Today’s
volume of 8 million shares was approximately 15% higher than
the average daily volume, and indicates that buyers are not
hesitating to take positions in this retail giant.  News which
was released this week regarding Walmart’s Mexican division,
Walmex may have helped to bolster investors’ confidence that
WMT is in a good position to meet or beat expectations.
Walmex posted a 21% increase in operating profits, and a 15%
increase in revenues for the first quarter, as strong sales
continued to defy a slowdown in consumer spending.  Traders
could take positions at current levels, or possibly at a
pullback to $52.50, particularly if RLX.X stays over 900.
Continue to monitor others in the sector like HD and S, and
set stops at $52.  We will close positions if WMT closes below
this level.

BUY CALL MAY-50*WMT-EJ OI= 9732 at $3.90 SL=2.50
BUY CALL MAY-55 WMT-EK OI=20395 at $1.15 SL=0.00
BUY CALL JUN-50 WMT-FJ OI= 5285 at $5.00 SL=3.00
BUY CALL JUN-55 WMT-FK OI=15697 at $2.25 SL=1.25


AEOS - American Eagle Outfitters, Inc. $37.04 (+0.38 last week)

American Eagle Outfitters, Inc. is a specialty retailer of casual
apparel, accessories and footwear for men and women between the
ages of 16 and 34.  The company designs, markets, and sells its
own brand of versatile, relaxed, timeless classics like jeans,
cargo and T-shirts, under the American Eagle Outfitters and
Bluenotes brands, providing high quality merchandise at affordable
prices.  The company currently owns 556 American Eagle Outfitters
stores in 47 states and the District of Columbia.

As the RLX.X soared Friday, AEOS went along for the ride, and
moved to a high of $37.62 before pulling back.  Traders who
bought the second dip at $36.55 were rewarded, as the stock
moved back up to $37 in the afternoon.  While AEOS has been
progressing nicely upward on a channel of higher lows which
began April 3rd, the stock is having difficulty penetrating
heavy resistance at $37.50.   However, traders need to consider
that AEOS has moved up nearly 30% from $27 on April 3rd, and
consolidation is almost inevitable.   After consolidating
between $36.50 and $38.50 last February, AEOS made a 52-week high
of $40.04 before pulling back.  If the broad market indexes
and the retail specialty apparel sector remain strong, it
is possible that AEOS may have enough momentum to clear
this level of convergence to move to $40.  If $40 can be
cleared, it is possible that we could be looking at a new
all time high for the stock.  AEOS has reported nothing but
good news in the last several weeks, including better than
expected March store sales of $101.7 million reported on April
11th.  Traders can take positions on a pullback to $36.50
as an aggressive move, but only if RLX.X is exhibiting
technical strength.  Alternatively, a strong move above $38
with heavy volume could be the conservative entry level we
are waiting for.  We are moving stops to $36, so close the
position if AEOS closes below this level.

BUY CALL MAY-35*AQU-EG OI=253 at $3.70 SL=1.75
BUY CALL MAY-40 HUJ-EH OI=761 at $1.40 SL=0.75
BUY CALL JUN-35 AQU-FG OI= 40 at $5.40 SL=3.50
BUY CALL JUN-40 AQU-FI OI= 33 at $3.00 SL=1.75


BRCM - Broadcom $37.40 (-1.29 last week)

Broadcom Incorporated is the leading provider of highly integrated
silicon solutions that enable broadband communication and
networking of voice, video and data services.  Using proprietary
technologies and advanced design methodologies, Broadcom designs
develops and supplies complete system on a chip solutions and
related applications for digital cable set top boxes and cable
modems, high speed local, metropolitan, and wide area and optical
networks, home networking, carrier access, residential broadband
gateways, satellite, dsl, and network processing.  Broadcom is
located in Irvine California.

After making a V-shaped bottom at the beginning of April, BRCM
has formed a pattern of lower highs which is similar to the
chart pattern of the SOX.X.  BRCM’s senior management is
scheduled to appear at several upcoming analyst presentations
in the next two weeks, and if the SOX.X can muster additional
momentum, these conferences could be the catalyst for BRCM
to clear its 50 dma of $39.84, which could be a major bullish
turning point.  On Monday at 1:30 pm, Broadcom’s CEO Dr.
Henry Nicholas will be presenting at the JP Morgan H & Q
Annual Technology Conference in San Francisco.  On Wednesday
May 2, Dr. Nicholas is scheduled to present at the Merrill
Lynch conference in NY, and on May 9, senior management will
present at the Solomon Smith Barney semiconductor conference
in Monterey California.  Wall Street generally loves bullish
comments made by company management at conferences, and
analysts frequently issue new ratings during these occasions.
However, we don’t know how analysts will react to any news
presented, so we must play Broadcom carefully going forward,
as the stock is likely to be highly volatile in the next two
weeks, particularly with the Federal Reserve meeting
approaching.  Broadcom demonstrated strong support at $36
on Friday, which could be a possible aggressive entry point.
As an alternative, look for a strong move and close above
$38.50 with volume of over 13 million shares to take a
more conservative position.  Monitor SOX.X at all times, and
set stops at $35.  We will close positions if BRCM closes
below this point.

BUY CALL MAY-35*RCQ-EG OI=10575 at $6.20 SL=4.00
BUY CALL MAY-40 RCQ-EH OI= 5935 at $3.60 SL=1.75
BUY CALL JUN-35 RCQ-FQ OI=  143 at $7.70 SL=5.25
BUY CALL JUN-40 RCQ-FH OI=  260 at $5.70 SL=3.50


AOL - AOL Time Warner Inc $49.99 (+1.30 last week)

AOL Time Warner is the result of a 2001 gargantuan merger that
married the world's largest online company with a media giant.
America Online brings its flagship online service, CompuServe,
Netscape, and several interactive online services whilst Time
Warner's contributions span films and TV, music, cable networks
and systems, publishing, and professional sports.  AOL Time
Warner's brands include Time Warner Cable, Warner Brothers,
Warner Music, HBO, Turner, America Online, CNN, New Line Cinema,
and Time Inc.

So close we can almost taste it!  We're looking, and patiently
waiting, for that visible breakout through the $50 resistance.
Currently, the 200-dma ($48.86) is towing the mark as shorter-
term support.  Volume remains healthy, but AOL needs to explode
upward and fast. Time is money.  AOL continues to lead the media
stocks sideways, and slightly higher, while the technology
market dallies in its limbo.  Specifically in the case of AOL,
the trading pipeline further narrowed itself last week.  The
previous near-term bottom at $47, which was in-line with the 10-
DMA, shifted higher.  On Thursday and Friday, the converged 5 &
200 DMAs at $48.77 and $48.86, respectively, bolstered the share
price.  The fractional cracks through the $50 obstacle lend to
the probability of a powerful run, but we'll need the
combination of sector and market strength to provide the
underlying momentum.  The coil is tightening.  If your risk
portfolio allows for some speculation, you might consider taking
positions near the $48 level.  Keep a close watch on other
related stocks like GMST, COX, UVN, V, and DIS to provide
additional insight before beginning plays.  Going forward, we're
maintaining our protective stop at $47 and will exit if AOL
closes below this mark.

BUY CALL MAY-45 AOE-EI OI=16045 at $6.00 SL=4.00
BUY CALL MAY-50*AOO-EJ OI=28460 at $2.50 SL=1.25
BUY CALL JUN-45 AOE-FI OI=  205 at $7.00 SL=5.00
BUY CALL JUN-50 AOO-FJ OI= 1723 at $3.80 SL=2.25
BUY CALL JUN-55 AOO-FK OI= 5736 at $1.60 SL=0.75  Aggressive!!


LLY - Eli Lilly $82.80 (+2.70 last week)

LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

It's so refreshing when a play does exactly what it is supposed
to.  We added LLY on Thursday as a channeling play in the
recovering Pharmaceutical sector.  While the broader
Pharmaceutical index (DRG.X) has been struggling to find its sea
legs again, LLY has been in a nice consistent uptrend for the
past 5 weeks.  Not only that, but when you slap a regression
channel on an intraday chart, you'll see the stock bouncing
cleanly between the upper and lower channel lines.  Friday's
action was a textbook example of this, as the stock fell early
to bounce several times at the $80 support level (the lower
channel line was resting at $79.50) before launching higher
right into the closing bell.  By the time the dust had settled,
LLY was resting at $82.71, a mere $0.25 below the upper channel
line.  Traders that managed to grab a piece of that action are
grinning broadly this weekend.  Not impressed with a $2.50 move?
Take a look at the option prices, and you will be.  The May 85
Call appreciated 75% between the low and high of the day, and
that is based on actual trades.  Entry points are everything!
Now we wait for our next entry point.  The DRG index is making a
strong case for the bulls as it has clawed its way back above
its 5-week ascending trendline, and this may be enough to help
LLY break out above its upper channel.  If we do get that sort
of breakout, consider new positions as the stock clears the
upper channel line (now at $83).  If our channeling pattern
remains intact though, look for new entries to materialize as
LLY retraces to the lower channel (currently $79.82) and
bounces.  Note that we are raising our stop to $80 this weekend,
as it looks like that level will hold firm.  If you're thinking
the lower channel entry point and stop loss are in conflict,
remember our stops are based on closing prices.  If we extend
our channel line out to the end of Monday's trading, we can see
it resting just above the $80 level.  Now isn't that convenient?
Keep an eye on the movement of the DRG.X as any sharp weakness
there will likely have a deleterious effect on LLY's share

BUY CALL MAY-80*LLY-EP OI=3511 at $4.20 SL=2.50
BUY CALL MAY-85 LLY-EQ OI=3619 at $1.75 SL=1.00
BUY CALL JUN-85 LLY-FQ OI= 604 at $3.40 SL=1.75
BUY CALL JUN-90 LLY-FR OI= 333 at $1.70 SL=0.75
BUY CALL JUL-85 LLY-GQ OI=2818 at $5.00 SL=3.00


AA - Alcoa, Inc. $41.99 (+1.64 last week)

Alcoa is a values-based world leader in aluminum and select
nonaluminum businesses.  Their global strategy is based on
profitable growth, operational excellence and market leadership.
Alcoa is active in mining, refining, smelting, fabricating, and
recycling.  Alcoa's aluminum products and components are used
worldwide in aircraft, automobiles, beverage cans, buildings,
chemicals, sports and recreation, and a wide variety of
industrial and consumer applications including Alcoa's own
consumer brands such as Alcoa wheels, Reynolds Wrap aluminum foil
and Baco household wraps.

A great week for the Old Economy translated into an up week for
shares of major aluminum producer Alcoa, as a rallying NYSE
helped to lift the stock into 52-week high territory.  It's a
case of strong fundamentals making themselves apparent
technically.  The environment of lowered interest rates is with
little doubt a favorable one for capital-intensive firms such as
AA.  In fact, the company recently began taking advantage of such
potentially opportune times, raising over $3 billion in cash.
Political factors are also playing in AA's favor, as the shutting
down of smelters due to the current ongoing power concern could
raise aluminum prices, thereby widening profit margins.  The
company also reported stellar earnings earlier this month,
beating Street estimates by two pennies and growing profits by 16
percent year-over-year, a testament to effective management and
cost-control.  This fundamental strength has not been lost on the
market, as AA has been moving in a higher in a beautiful up-trend
since late last year.  Now within striking distance of its
all-time high of $43.62, a break above overhead resistance at
$42.50 could allow conservative traders to make a play and put
the stock in a position to enter bullish uncharted ground.  More
aggressive traders looking to enter on a dip may find support at
$41.50, the 5 and 10-dma at $40.98 and $40.15, and our closing
support price of $40.  Confirm sector strength before making a
play by keeping an eye on industry peers AL and PY.

BUY CALL MAY-35 AA-EG OI= 699 at $7.10 SL=5.00
BUY CALL MAY-40*AA-EH OI=2947 at $2.90 SL=1.50
BUY CALL JUN-40 AA-FH OI= 161 at $3.90 SL=2.50
BUY CALL JUN-45 AA-FI OI= 238 at $1.50 SL=0.75


C - Citigroup Inc. $50.91 (+1.49 last week)

The creation of Citigroup brings together organizations that are
extraordinary in their individual capabilities and in the ways
they enhance and complement each other.  Together, they offer
customers a range of quality products and services unmatched in
the financial services industry.  Citigroup serves a broader
spectrum of customers, in more places and by more means of access
and delivery, than any other financial organization.  With all of
Citigroup’s divisions working together to provide their customers
with the best service and products, they are forming a model for
the industry's future.

When it comes to Financial issues, a little sector sympathy goes
a long way.  The recent surprise rate cut of 50 basis point from
the Fed has certainly helped, affecting banks stocks positively
in the way that news of lowered part costs would for computer
manufacturers.  It's all about the cost of doing business, and
with costs going down, profit margins widen and demand increases.
 Along with this, C has been bathing in the glow of its recent
earnings report, in which the company beat Street estimates by a
penny and posted what most analysts agreed were strong numbers
given the economic climate of the time.  To summarize the action
of this past week, the past five trading sessions could be
described simply as a period of consolidation between $48 and
$50, culminating in a potential breakout move.  While we would
have liked to see more volume on Friday's advance of 2.83 percent
on less than 80% of the average daily volume, the move did take
the stock above its 100-dma at $50.14.  With this level taken
out, the last moving average left to surpass is the 200-dma, now
at $51.56.  A break above this level with conviction would allow
conservative players to take a position, but make sure that
AMEX's Banking Index (BIX) confirms upward momentum.  To protect
our profits, we are moving our closing stop price up from $48 to
$49.  Pullbacks intra-day to support at the 100-dma, $50, the 5
and 10-dma (at $49.38 and $49.15) along with $49 may could allow
higher risk players to him in.

BUY CALL MAY-45 C-EI OI= 5799 at $6.50 SL=4.50
BUY CALL MAY-50*C-EJ OI=24024 at $2.40 SL=1.25
BUY CALL JUN-50 C-FJ OI=14946 at $3.40 SL=1.75
BUY CALL JUN-55 C-FK OI=18006 at $1.20 SL=0.75



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The Option Investor Newsletter                   Sunday 04-29-2001
Sunday                                                      4 of 5

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AMD - Advanced Micro Devices $30.00 (+1.00 last week)

Best known for their AMD-K6 microprocessors that compete against
the industry-leading Intel Pentium microprocessors in the
increasingly competitive personal computer (PC) market, AMD is
a diversified semiconductor manufacturer.  In addition, the
company produces a wide variety of industry-standard
digital-integrated circuits that are used in applications such
as telecommunications equipment, data and network communications
equipment, consumer electronics, and servers.  AMD also produces
Flash memory devices, embedded processors and networking

A solid earnings report on April 18th galvanized a series of
analysts to change their ratings on AMD, launching the stock
into its most recent uptrend.  Beginning with Salomon Smith
Barney (Outperform to Buy) and Prudential (Hold to Strong Buy)
on April 19th, and followed up last Wednesday with a new Buy
rating from Thomas Weisel, AMD is benefiting from the belief
that they are continuing to take market share from Intel.
Combine that with a sharp rise in the Semiconductor sector, and
you can see why the stock is up more than 50% in the past 3
weeks.  So what is AMD doing on the put list this weekend?  File
it under the category of "Too Far, Too Fast", and you can see
the stock is about to run into trouble.  First off, there is
some formidable resistance near $30, and the bulls will really
need to charge hard to break through this level.  With the
Semiconductor index (SOX.X) struggling with the 650 resistance
level, we think AMD is due for a retracement of its recent
gains.  The big earnings announcements are now over, leaving few
catalysts to boost stocks from here until the Fed pronounces
their next interest rate decision in mid-May.  With that in
mind, this is an aggressive play with a very tight stop,
intended to capture profits from any near-term weakness as AMD
retraces back into the $24-25 range.  Aggressive traders can
consider new positions near current levels, but need to observe
their stops.  We are placing ours at $30.50.  More conservative
players will want to see weakness develop before playing.  Use a
drop through the $28.50 intraday support level as your entry
trigger.  Use the performance of the SOX.X as a way to gauge the
strength or weakness of the overall sector.  If the broad sector
resumes its upward trend, that will be a strong hint to stand
aside, as AMD will likely not be far behind.

BUY PUT MAY-30*AMD-QF OI=  911 at $2.30 SL=1.25
BUY PUT MAY-25 AMD-QE OI=20704 at $0.70 SL=0.00  Aggressive!!


PDLI - Protein Design Labs Inc. $59.13 (+2.90 last week)

Protein Design Labs Inc. is a leader in the development of
humanized monoclonal antibodies for the prevention and treatment
of disease.  The company has licensed rights to its first
humanized antibody product, Zenapax, to Hoffman LaRoche, Inc.,
and its affiliates, which markets it in the U.S, Europe, and
other countries for the prevention of kidney transplant
rejection.  The company has announced seven other humanized
antibodies in clinical development for automimmune and
inflammatory conditions, transplantations, and cancer.

For shareholders of PDLI, it's been a roller-coaster ride this
week, as declines in the early going led to a bounce mid-week,
ending the past five sessions near where it began the previous
week.  The company is known for producing anti-kidney rejection
drug Zenapax, the first humanized antibody product.  As part of
the Genomics sector, traders are attracted to PDLI's price
movement.  The potentially wild swings in this stock makes this
an attractive play for seasoned options players.  A number of
factors could add to increased volatility in the coming days, as
the company reports earnings this coming week on May 2nd.  As per
our sell rules we will drop coverage of this play ahead of that
date but until then, there is enough time to potentially profit
from this situation. Friday's gain of 7.51 percent seemed to be
without conviction, as the stock advanced on less than 57 percent
of the average daily volume.  There could be good reason for this
however, as the 100-dma (currently sitting at $61.27) looms just
overhead.  This is a moving average that PDLI has been unable to
surpass since late last year.  Nonetheless, this is an aggressive
put play, since we are selling into the strength of PDLI.  We are
placing a protective stop at the $61 level.  A close above this
point could indicate to us that PDLI may move higher, leaving us
with little choice but to step aside.  A failed rally as the
stock approaches resistance at $60, $61 and the 100-dma may allow
aggressive traders to take a position.  For an entry on weakness,
wait for the stock to break below $57 on volume before jumping
in.  Even then, make sure that sector sentiment is on your side
by tracking AMEX's Biotech Index (BTK).

BUY PUT MAY-60*PQI-QL OI=324 at $7.20 SL=5.00
BUY PUT MAY-55 PQI-QK OI=156 at $4.60 SL=2.75


SGR - Shaw Group Inc. $57.50 (-2.46 last week)

The Shaw Group Inc. is the largest supplier of fabricated piping
systems and services in the world, with unparalleled experience
and expertise in the global power generation market.  Shaw
distinguishes itself by offering comprehensive solutions
consisting of integrated engineering and design, pipe
fabrication, construction and maintenance services and the
manufacture of specialty pipe fittings and supports to the power
generation, crude oil refining, chemical and petrochemical
processing and oil & gas exploration and production industries.

Having had a nice earnings run in the month of April, it appears
now that SGR is ready to take a breather.  Despite a strong rally
in three-letter Old Economy stocks this past week, shares of the
leading pipe supplier pulled back, displaying weakness relative
to market conditions.  It appears that the stellar earnings
report, in which the company grew sales by 95 percent
year-over-year and earnings by 68 percent, had already been
priced in by the time of the announcement.  Even with a backlog
of over $3 billion due to strong demand in the consumer power
market, traders were much more eager to sell than to buy.  From
trough to peak, SGR went from $45 in the beginning of April to a
high of $63, so profit taking on the part of nervous bulls is a
factor working in our favor.  Having failed to take out
resistance overhead at $63, the stochastics have already crossed
over bearishly and have started to move lower.  With the 5 and
10-dma converged around the $59.60 area, look for this level to
potentially act as formidable resistance, allowing higher-risk
players to take a position as the stock price approaches this
level.  Additional resistance can be found horizontally at $58.50
and our stop price of $59.  In making an aggressive play, make
sure that SGR continues to close below our stop, as a close above
this level would leave us with little choice but to drop the
play.  For the more risk averse, a bearish plunge below $57 with
conviction could be the signal to jump in, but only if sector
sisters MLI and KMT are also moving lower.

BUY CALL MAY-60*SGR-QL OI=742 at $5.30 SL=3.50
BUY CALL MAY-55 SGR-QK OI=271 at $2.70 SL=1.25



VRTS - Veritas Software Corp. $58.10 (-6.20 last week)

Veritas is an independent supplier of storage management
software.  The company's products help to improve the level of
centralization, control, automation, and manageability in
computing environments.  More specifically, the company's products
offer protection against data loss and file corruption, allow
rapid recovery after disk or computer failure, enable IT managers
to work efficiently with large numbers of files, and make it
possible to manage data distributed on large networks of computer
systems without harming productivity or interrupting users.

While VRTS rallied on Friday with the Nasdaq, the stock still
formed a pattern of lower highs this week at $65, $62.70 and
$59, and the bearish head and shoulders pattern formed in
April could result in a precipitous drop with another failed
rally.  JP Morgan released news that they had started coverage
of VRTS on Friday as a long term buy with a price target of $67,
and this may have helped to bolster the stock price.
Nonetheless, VRTS has rallied nearly 100% from its 52-week low
of $38.60 on April 4th, and additional profit taking is highly
likely.  VRSN is currently resting right on its 50-dma of $58,
and a failed rally from this point could present a possible
entry level.  Additionally, a break below $57 with heavy volume
could be a more conservative entry point, particularly if the
Nasdaq and GSO.X are falling.  Ideally, we would like to see
a strong break below $55, which could conceivably lead VRSN
to the next major support level at $50.  Monitor other software
stocks such as SEBL and MSFT, in addition to data storage
cohorts such as EMC and BRCD, and keep stops at $61.  Be
prepared to end the play if VRTS closes above $61.

BUY PUT MAY-60* VIV-QL OI=15258 at $7.30 SL=5.00
BUY PUT MAY-55 VIV-QK OI= 6074 at $4.80 SL=3.00


CIEN - Ciena Corp $50.29 (-16.80 last week)

CIENA Corporation's market-leading optical networking systems
form the core for the new era of networks and services
worldwide. Ciena's LightWork architecture enables next-
generation optical services to transmit signals simultaneously
over the same circuit.  This multiplexing system changes the
fundamental economics of service-provider networks by
simplifying the network and reducing the cost to operate it.
About 45% of sales come from outside the US markets.

What a difference a week can make when it comes to the price of
a tech stock.  On April 20th, CIEN peaked at $70.89 and the
outlook was very positive.  Investors had recently taken the
share price off its 52-week low ($33.50), giving it a shot of
adrenaline as the NASDAQ was resurrecting itself.  But as it's
been lately, the rallies are short-lived; the traders' worrisome
reactions to the economic data, analyst comments, and rumors
continue to send stocks into a flurry of volatile activity.
On news of numerous downgrades throughout the communications-
equipment sector, CIEN started its downward spiral.  On the
week, CIEN lost $16.80, or a whopping 25% and shattered the
first level of support at the $55 level.  The strong sell-off,
amid the NASDAQ's attempts to break to the upside of its
channel, indicates CIEN may not have seen its bottom yet.  Other
leaders in the industry like Corning (GLW), Nortel (NT), Cisco
(CSCO), and even Sycamore Networks (SCMR) are also falling to
the wayside of investors' interest.  GLW's woeful earnings' tale
and lowered expectations combined with NT's almost single-digit
status and CSCO's news that it will discontinue selling its most
expensive product due to weak sales certainly doesn’t offer the
incentive to go long.  If you're interested in jumping into the
negative momentum next week, look for heavy downside volume to
take CIEN through the 30-dma ($50.20).  An aggressive rollover
from the upper resistance at the 5 & 10 DMAs ($55.30, $57.36)
could also provide enterprising opportunities, but please
consider locking in gains as CIEN approaches the current
support instead of trying to get that home run.  We believe a
breakdown of the $50 level is critical to the play's overall
success; and therefore, have lowered our protective stop to
$52.  We will drop coverage if the share price violates this
mark on a CLOSE.  Ciena is schedule to report earnings on May
17th, before the opening bell.

BUY PUT MAY-55 EUQ-QK OI=5191 at $9.50 SL=6.50
BUY PUT MAY-50*EUQ-QJ OI=3409 at $6.70 SL=4.75
BUY PUT MAY-45 EUQ-QI OI=3937 at $4.60 SL=2.75
BUY PUT MAY-40 EUQ-QH OI=3911 at $3.00 SL=1.50


PMCS - PMC-Sierra, Inc. $37.95 (-6.86 last week)

PMCS designs, develops, markets and supports high-performance
semiconductor networking solutions.  The company's products are
used in the high-speed transmission and networking systems,
which are being used to restructure the global
telecommunications and data communications infrastructure.
Providing components for equipment based on Asynchronous
Transfer Mode, Synchronized Optical Network, Synchronized
Digital Hierarchy, High Speed Data Link Control, and Ethernet,
the company sells its products to over 100 customers either
directly or through its worldwide distribution channels.

Still suffering from the sector weakness and no visibility for
the rest of the year, PMCS just can't seem to do anything but
go down.  While the short-lived April rally gave new hope to
bulls, there is just no good news to keep the stock afloat.
Earnings are dismal, inventories are still high, and the
company doesn't know when things are going to improve.  Of
course, Joe Osha didn't help by downgrading the stock last
week along with AMCC who followed up with a dismal conference
call.  With that being said, it is interesting that the stock
seemed to find support last week near the $35 level, as its
daily highs continued to creep lower.  That sounds like a
bearish wedge, now doesn't it?  It looks like one too, with
the descending trendline now sitting near $38.50.  The broader
Networking and Semiconductor sectors haven't been helping
matters either, as they continue to give back their artificial
interest rate reduction induced gains.  Both the Networking
index (NWX.X) and the Semiconductor index (SOX.X) are showing
similar bearish wedges, and odds favor a break to the downside
in the next few sessions.  Aggressive traders will want to keep
an eye on the $39 level.  This is still the location of our
stop, and an intraday rollover near this level would provide an
attractive entry point.  Broad market strength on Monday should
provide those aggressive entries, while conservative traders
will get their chance to play as PMCS falls through the $35
support level.

BUY PUT MAY-40*SQL-QH OI=1133 at $5.90 SL=4.00
BUY PUT MAY-35 SQL-QG OI=2822 at $3.30 SL=1.75
BUY PUT MAY-30 SQL-QF OI=4470 at $1.65 SL=0.75


VTSS - Vitesse Semiconductor $30.95 (-5.75 last week)

Vitesse Semiconductor is a supplier of high-performance
integrated circuits targeted at systems manufacturers in the
communication and automatic test equipment (ATE) markets.  A
leading manufacturer of gallium arsenide (GaAs) integrated
circuits, a type of IC that performs at higher speeds than
silicon chips.  The company offers several products that address
the needs of high-performance communications systems at data
rates for the SONET, ATM, IP, Fibre Channel and Gigabit Ethernet
markets.  VTSS also provides gate arrays and custom products that
offer a combination of high complexity, low power dissipation and
high speed for the ATE market.

Bouncing strongly off the lows of early this month, Chip stocks
appear now to be taking a pause.  The Fed's surprise rate cut of
50 basis points helped to give Semiconductor issues a pop, as
such companies are usually capital-intensive, thereby benefiting
from lower interest rates.  Whether this move will sustain itself
at this point is the question.  While companies such as Intel
have provided bullish comments going forward, earnings reports
for the most part have been mixed in relation to analyst
estimates, due to a continued lack of visibility.  As well, most
companies reported that sales numbers were weak due to decreased
demand.  Which is why Merrill Lynch downgraded the Chip sector
this week, dropping VTSS from NT Accumulate to a NT Neutral
rating.  The problems leading to the decline of the Chip sector,
namely historically weak demand, have not changed, so it has been
argued that the recent rally could be optimism on the part of
hopeful bulls in looking for a bottom.  With that in mind, VTSS
has been the under-performer in its sector, especially
technically.  While many Semiconductor issues were able to make
it above their 50-dma, VTSS struggled with this moving average
($35.70).  A weak earnings report is one reason for this, as the
company managed to only meet Street estimates of 10 cents and
like most Chip stocks, cited weak revenue numbers as the main
culprit.  Now below its 5-dma ($31.56), failed rallies at this
level along with resistance at $32 and our closing stop price of
$33 may allow aggressive traders to take a position.  For the
risk averse, if VTSS is unable to hold its 10-dma at $30.88, this
could be a potential entry point, provided that the Philadelphia
Semiconductor Index (SOX) confirms sector weakness.

BUY PUT MAY-30*VQT-QF OI=1496 at $3.30 SL=1.75
BUY PUT MAY-25 VQT-QE OI= 580 at $1.40 SL=0.75



Buy Now!!  The Recession Is Over!
By Mark Phillips
Contact Support

Strange as it seems, that was the message being broadcast by
CNBC on Friday.  While they didn't quite state it that way, it
seemed every "expert" they spoke with was pointing at the
stronger than expected economic numbers and proclaiming that we
wouldn't have an official recession.  Excuse me??  What happened
to the string of "experts" that were claiming just a few short
weeks ago that there would NOT be a second half recovery for the

For the record, the official definition of a recession is 2
consecutive quarters of negative GDP growth.  The preliminary
first quarter GDP numbers came in at 2% on Friday, an increase
over the 1% figure posted for the fourth quarter of 2000,
leading some to claim that the economy has turned the corner and
the Fed has actually managed to engineer a soft landing.  While
that may in fact be true, color me unconvinced.  Needless to
say, I'll be carefully watching the string of economic reports
over the next 2 weeks for confirmation.  The anchor leg to the
economy is still the almighty consumer, who continues to buy big
ticket items like cars and houses, as demonstrated by the jump
in both auto sales and housing starts.  With unemployment on the
rise (due to the seemingly endless string of layoff
announcements), we could see renewed weakness in the months
ahead as the consumer becomes less willing to spend.

All right.  Enough about the economy, as we have plenty of other
developments to cover.  First up, the broader markets.  Largely
driven by the surprisingly upbeat economic reports covered
above, the broad markets recovered midweek and closed out the
week with a strong finish.  Old economy stocks led the charge
with the DJIA moving up to close above the 10,800 level.
Although it didn't manage to close positive for the week, the
NASDAQ did manage to hold above the 2000 level.  Buyers
continued to jockey for position, on expectations that the Fed
will continue to aggressively cut interest rates, further
fueling the market's advance.  The bears have been pretty quiet
lately...could it be they are busy preparing to spring another
trap on the bulls like they did in late January?

As I've been alluding to for a few weeks now, I think we've seen
the lows in the market, but I have this sneaking suspicion that
the bears are going to have one last hurrah before going back
into hibernation.  The VIX has been grabbing my attention lately
as well.  Notice that it has now dropped below 28 (27.77 as of
Friday's close) and is approaching the lower end of the range
(24-36) it has occupied for the past 6 months.  It's lower
Bollinger band has dropped off to 25.50, but I wouldn't rule out
one more excursion into the 35-40 range before settling back
into its historically normal range between 20-30.

On the news front we got a rare gift from Genzyme General
(NASDAQ:GENZ) last Wednesday, as the company announced a 2-for-1
stock split.  Investors cheered as the stock rallied all the way
to $110 on Friday before pulling back slightly to close out the
week at a new all time closing high of $107.51.  The stock has
been a stellar performer, consistently trending higher for the
past year, while the broader Biotech sector continues decline.
Amazing what can happen when you actually grow revenues with
real products and show a profit.

While on the topic of GENZ, I uncovered a mistake in the
portfolio this week.  When we opened the position, the 2002
strike we selected was $85 (symbol YGZ-AQ).  I guess my feeble
eyes aren't what they used to be, as I entered the symbol YGZ-AO
into the portfolio list.  The prices entered were already
correct, and the symbol has now been corrected.

I neglected to mention it last week, but we have another play
that blessed investors with a 2-for-1 split.  On April 17th,
Washington Mutual (NYSE:WM) announced the dividend which will be
payable on May 15th.  Keep an eye on the stock as the split date
approaches.  A rally prior to the event might provide a good
opportunity to lock in your profits and then look for another
opportunity to enter the play.

With the markets strong performance last week, our portfolio was
once again rewarded, prompting me to raise stops on GENZ,
Wal-Mart (NYSE:WMT), Nordstrom Inc. (NYSE:JWN), Goldman Sachs
(NYSE:GS) and Nokia (NYSE:NOK).  There is no sense letting those
profits melt away if the bears should happen to reappear.  See
the portfolio below for details.

Along a similar vein, while we got entry points on a couple of
our Watchlist plays, it looks like we need to ratchet entry
targets upwards on a General Electric (NYSE:GE) and Siebel
Systems (NASDAQ:SEBL), due to their strong earnings reports.
Check the Watchlist and make note of the changes to targeted
strikes as well.  With Dell Computer (NASDAQ:DELL) finally
giving us an entry point this week, the old playlist has now
been reduced to only Calpine (NYSE:CPN).  That means our
transition is now almost complete.  I have a couple more
enhancements to implement, but no time to cover them this week.
Full details in next week's issue, I promise.

So where do we go from here?  The markets made a convincing
case that they want to go higher, but my gut tells me we are
due for another pullback.  I wouldn't be in a hurry to jump into
new plays at this juncture unless they come back to our
predefined entry levels.  The broad market as well as many of
our plays have advanced considerably since the beginning of
April, and I don't think the bears are quite ready to go back
into hibernation.  We could continue up into the May FOMC
meeting in anticipation of more interest rate cuts, but that
isn't where I'd be putting my money.  Don't forget the market's
tendency to trade flat to down as the April earnings season
winds down.

Chasing stocks higher at this point could give you the dubious
distinction of buying near the highs.  Remember to stick to
your plan.

Mark Phillips
Contact Support

Current Playlist (Old Format)


DELL   01/07/01  JAN-2002 $ 20  WDQ-AD   $ 5.25   $ 8.90    69.52%
                 JAN-2003 $ 25  VDL-AE   $ 5.63   $ 9.00    59.86%
CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $20.30    93.33%
                 JAN-2003 $ 40  OLB-AH   $15.38   $24.90    61.95%

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  WUT-AG  $ 3.50  $ 3.30  - 5.71%  $ 28
                 '03 $ 35  VUT-AG  $ 6.10  $ 5.80  - 4.92%  $ 28
GENZ   03/23/01  '02 $ 85  YGZ-AQ  $24.50  $35.80   46.12%  $ 99
                 '03 $ 90  OZG-AR  $27.75  $43.60   57.12%  $ 99
SWS    03/22/01  '02 $ 18  YWF-AT  $ 4.10  $ 6.40   56.10%  $ 19
                 '03 $ 20  VWZ-AD  $ 5.00  $ 7.20   44.00%  $ 19
WM     03/22/01  '02 $ 50  WWI-AJ  $ 6.00  $ 6.90   15.00%  $ 48
                 '03 $ 50  VWI-AJ  $ 9.20  $10.40   13.04%  $ 48
WMT    03/23/01  '02 $ 50  WWT-AJ  $ 7.00  $ 9.30   32.86%  $ 49
                 '03 $ 50  VWT-AJ  $11.00  $14.00   27.27%  $ 49
JWN    03/30/01  '02 $ 20  WNZ-AD  $ 1.65  $ 2.45   48.48%  $ 16
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.80   15.15%  $ 16
GS     04/05/01  '02 $ 90  WSD-AR  $14.00  $18.60   32.86%  $ 87
                 '03 $ 90  VSD-AR  $20.50  $27.70   35.12%  $ 87
MU     04/05/01  '02 $ 40  WGY-AH  $10.60  $13.70   29.25%  $ 38
                 '03 $ 40  VGY-AH  $14.80  $19.40   31.08%  $ 38
NSM    04/05/01  '02 $ 25  WUN-AE  $ 5.50  $ 8.50   54.55%  $ 24
                 '03 $ 30  VSN-AF  $ 7.20  $10.50   45.83%  $ 24
NOK    04/06/01  '02 $ 25  WIK-AE  $ 4.70  $10.40  121.28%  $ 27
                 '03 $ 25  VOK-AE  $ 7.00  $12.60   80.00%  $ 27
FON    04/09/01  '02 $ 25  WO -AE  $ 2.80  $ 2.90    3.57%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 4.80    9.09%  $ 19
QQQ    04/25/01  '02 $ 40  WD -AN  $11.10  $11.10    0.00%  $ 39
                 '03 $ 45  VZQ-AS  $12.30  $12.30    0.00%  $ 39
DELL   04/27/01  '02 $ 25  WDQ-AE  $ 6.20  $ 6.20    0.00%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 9.00    0.00%  $ 23

LEAPS Watchlist

Current Possibles


CPN    03/18/01  $46-47        JAN-2002 $ 45  YLN-AI
                               JAN-2003 $ 50  OLB-AJ
GE     03/25/01  $45-46        JAN-2002 $ 50  WGE-AJ
                               JAN-2003 $ 50  VGE-AJ
TXN    03/25/01  $31-32        JAN-2002 $ 35  WTN-AG
                               JAN-2003 $ 35  VXT-AG
EMC    04/22/01  $35           JAN-2002 $ 40  WUE-AH
                               JAN-2003 $ 40  VUE-AH
SEBL   04/22/01  $38           JAN-2002 $ 40  YDS-AH
                               JAN-2003 $ 40  OIE-AH
VRSN   04/29/01  $42-44        JAN-2002 $ 50  YXO-AJ
                               JAN-2003 $ 50  OVX-AJ
LRCX   04/29/01  $25           JAN-2002 $ 30  WMJ-AF
                               JAN-2003 $ 30  VPC-AF

New Portfolio Plays

QQQ - Nasdaq-100 Trust $44.75

Defying the bears last week, the NASDAQ Composite managed to
hold above the critical 2000 support level and gradually creep
higher on Thursday and Friday.  While not a stellar performance,
it was good enough to give us our entry point on the QQQ on
Wednesday.  The midday bounce at $44 came on increasing volume,
as investors decided that the economy wasn't as bad off as they
originally thought.  The gap left from the Fed's surprise
interest rate cut is still sitting unfilled, and we would be
surprised if it isn't filled over the next couple weeks,
providing one more chance to get into the play at an attractive
level.  However, the market showed impressive resilience and who
are we to argue.  Unfortunately when I moved the entry target up
last week, I neglected to change the targeted 2002 strike from
$40 to $45.  Either one will work, but the $45 strike (symbol
WD-AS) is more consistent with our philosophy of buying LEAPS
slightly out of the money.  If you are still looking to enter
the play in the next couple weeks on any weakness, I would
target the $45 strike for both 2002 and 2003.  Our stop for the
play is initially set at $39.

BUY LEAP JAN-2002 $40.00 WD -AN $11.10
BUY LEAP JAN-2003 $45.00 VZQ-AS $12.30

DELL - Dell Computer $26.00

After soaring as high as $31 the day after Uncle Alan's surprise
rate cut, DELL was looking like it wasn't going to let us
onboard before trading even higher.  Proving the wisdom of our
entry strategy -- waiting to buy on the pullback -- DELL kindly
did just that on Friday morning, just kissing the $25 level
(also the site of the 50-dma) at the open before tenuously
recovering throughout the day.  Mirroring the NASDAQ, the stock
stutter-stepped its way higher throughout the day, and we
diligently took our entry.  Due to its dominant position in the
PC industry, DELL is well positioned to profit from the economic
recovery when it truly appears, and we will get a much better
idea of the health of the company when they report their
earnings on May 17th.  I made a strike selection error on this
play as well, neglecting to move the targeted strikes from $25
to $30.  We took our position in the $25 strikes for both 2002
and 2003, but would recommend the $30 strikes (symbols WDQ-AF
and VDL-AF respectively) for new positions.  We could see some
more weakness in the technology sector over the next week or
two, possibly providing a couple more entry opportunities near
the $25 level.  Given the still tenuous nature of the stock's
recovery, we are placing a tight stop at $23

BUY LEAP JAN-2002 $25.00 WDQ-AE $6.20
BUY LEAP JAN-2003 $25.00 VN -AE $9.00

New Watchlist Plays

VRSN - Verisign, Inc. $51.91

Continuing along its impressive growth path, VRSN stunned the
markets Thursday night with a stellar earnings report, beating
estimates by a dime.  That's a 76% upside surprise -- not too
shabby in light of the poor results from so many other
Internet-related companies.  The interesting thing is that the
estimates had been revised sharply downward not too long ago.
Did the company guide estimates downwards so that they could be
certain of an upside surprise?  Regardless of the answer to
that, the provider of Internet authentication and payment
security services had a glowing report in store for analysts,
complete with revenue growth north of 600% year-over year.
Thomas Weisel jumped in with an upgrade from Buy to Strong Buy
on Friday, helping the stock to tack on a 12% gain to round out
a turbulent week.  Needless to say, we don't want to jump in
while adrenaline is still pumping through the bulls' veins.
Rather, we will wait for weakness on the NASDAQ to drag the
stock back down to support in the $42-44 area before putting
our money at risk.  Clearly the company's business has remained
robust through the recent technology slowdown, and the stock
should be a stellar performer in the months ahead.

BUY LEAP JAN-2002 $50.00 YXO-AJ
BUY LEAP JAN-2003 $50.00 OVX-AJ

LRCX - Lam Research Corp.$29.03

As is the normal pattern towards the end of an economic
downturn, Chip stocks have been enjoying a bit of buying
interest over the past couple weeks.  While that is encouraging,
I'm not entirely convinced by the economic reports that came out
last week.  By Friday, the talking heads on CNBC were claiming
that with stronger than expected Durable Goods Orders, record
high Housing Starts and GDP growth back up at 2%, we are no
longer going to have a real recession.  Despite my skepticism,
the fact remains that Semiconductor Equipment Manufacturers like
LRCX will lead the way as the economy turns the corner.  In
fact, LRCX appears to have bottomed last December and since then
the stock has doubled in price.  Earnings came in a few pennies
shy of estimates 2 weeks ago, but investor have still been
gobbling up the stock.  It looks like there will be some
consolidation in the near term before the stock resumes its
upward trend, and we want to be lying in wait when the time is
right.  There is a fair amount of congestion between $23-27, so
we will place our entry target right in the middle.  Look for a
dip to the $25 level followed by bounce to get you into the play.

BUY LEAP JAN-2002 $30.00 YMJ-AF
BUY LEAP JAN-2003 $30.00 VPC-AF




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The Option Investor Newsletter                   Sunday 04-29-2001  
Sunday                                                      5 of 5

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Writing Covered-Calls: A Popular Technique
By Mark Wnetrzak

One of our readers inquired about the use of the covered-call
strategy by professional traders and fund managers.  Indeed,
buying stock and writing covered-calls is a well-known hedge
strategy among institutions and mutual fund managers suggest
that the risk/reward characteristics of this approach can often
be much better than owning the stock or speculating in options.

There are a number or reasons why professional option writers use
the covered-call strategy to achieve above-average returns.  The
motivation to sell call options comes from the fact that they are
generally overpriced.  Whether due to supply and demand factors or
simple speculation, it's common for traders to pay more for call
options than they are worth.  When options are expensive, option
writers benefit by receiving larger time values.  Even a relatively
small difference in premium can result in a 3% to 5% increase in
the annual returns from this strategy.

The basic techniques that fund managers use when implementing this
strategy can be beneficial to retail investors as well.  One of the
most common traits is selling short-term options to obtain higher
relative time values.  In most cases, longer-term series have much
less premium (proportionally) in the option price due to a smaller
demand from traders.  Fund and pension plan buyers generally select
high quality stocks and sell in-the-money options for increased
probability of assignment.  When compared to outright ownership,
this method is almost equal to "pre-selling" the issue at a profit.

In covered-write positions, the owner retains any dividends issued
on the stock before the option is exercised.  Profits from regular
dividends can increase the annual return of the position as much
as 5%.  For this reason, hedge-fund managers sell options on stocks
with moderate to large dividends.  In some instances, the early
exercise of options (dividend capturing) will prevent an investor
from receiving this added premium but the effect can be offset by
reinvesting the funds in another profitable position.

Professionals also use the popular "buy-write" method when placing
orders.  Designating the net cost of the combined position when the
order is placed eliminates price risk and affords the fund manager
with an opportunity to negotiate a favorable basis.  A block trader
will often agree to these terms in order to unload large amounts
of the stock with only a small premium concession from the current
market price.

Institutional traders generally utilize only the most successful
long-term strategies to guarantee a consistent rate of return.  Any
method that produces less than profitable results will inevitably
lower their supply of funds.  The covered-call strategy is commonly
used to generate moderate compound returns over a complete market
cycle while avoiding the potential of large portfolio losses.  It 
appears this may be the safest way to outperform all but the most 
aggressive techniques in the majority of market conditions.

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

LMNE    5.22   4.51   MAY   5.00  1.30   $  0.59  16.4%
MRVC    8.80   8.00   MAY   7.50  2.15  *$  0.85  13.9%
MFNX    5.25   4.75   MAY   5.00  0.95   $  0.45  11.4%
BORL    7.99   9.12   MAY   7.50  1.05  *$  0.56   8.8%
ASTE   16.05  19.00   MAY  15.00  2.10  *$  1.05   8.2%
JBL    26.00  28.06   MAY  22.50  5.00  *$  1.50   6.2%
EXAR   30.15  28.41   MAY  25.00  6.50  *$  1.35   6.2%
EXFO   31.95  33.05   MAY  25.00  8.60  *$  1.65   6.1%
SBYN   13.75  15.00   MAY  10.00  4.40  *$  0.65   6.0%
AHAA   21.21  24.36   MAY  17.50  4.80  *$  1.09   5.8%
EMIS   18.20  16.25   MAY  15.00  4.10  *$  0.90   5.5%
ZIGO   24.74  37.10   MAY  17.50  8.20  *$  0.96   5.0%
NXCD   11.35   9.40   MAY  10.00  1.85   $ -0.10   0.0%

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


Amazing, the Markets didn't collapse!  Is that signaling a change
of character?  Are we really putting in a bottom?  Time will tell.
Nextcard (NASDAQ:NXCD) suffered a post-earnings drop and is now at
a key moment.  A move towards the March low may be forthcoming.
Jabil Circuit (NYSE:JBL) appears to be headed for a test of support
near $26.  Astec Industries (NASDAQ:ASTE) is causing a bit of call-
buying regret -  I don't even want to talk about Zygo Corp. (NASDAQ:
ZIGO).  Make sure you really want to own Luminent (NASDAQ:LMNE), 
which just reported earnings, and Metromedia Fiber Network (NASDAQ:
MFNX), which delayed their earnings report until next week.


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

ENMD   20.26  MAY 17.50   QMA EW  3.70 730   16.56   21    8.2%
FDRY   13.35  MAY 10.00   OUJ EB  3.70 1080   9.65   21    5.3%
ILUM   29.13  MAY 25.00   ILU EE  5.00 71    24.13   21    5.2%
ISIL   31.74  MAY 25.00   UFH EE  7.60 478   24.14   21    5.2%
MU     44.07  MAY 37.50    MU ET  8.00 4134  36.07   21    5.7%
PVTL   24.13  MAY 20.00   QFK ED  4.80 3     19.33   21    5.0%
SRNA   18.81  MAY 15.00   NHU EC  4.50 203   14.31   21    7.0%

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

ENMD   20.26  MAY 17.50   QMA EW  3.70 730   16.56   21    8.2%
SRNA   18.81  MAY 15.00   NHU EC  4.50 203   14.31   21    7.0%
MU     44.07  MAY 37.50    MU ET  8.00 4134  36.07   21    5.7%
FDRY   13.35  MAY 10.00   OUJ EB  3.70 1080   9.65   21    5.3%
ILUM   29.13  MAY 25.00   ILU EE  5.00 71    24.13   21    5.2%
ISIL   31.74  MAY 25.00   UFH EE  7.60 478   24.14   21    5.2%
PVTL   24.13  MAY 20.00   QFK ED  4.80 3     19.33   21    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).

ENMD - EntreMed  $20.26  *** New Drug Speculation! ***

EntreMed (NASDAQ:ENMD), The Angiogenesis Company, is a clinical-
stage biopharmaceutical company emphasizing antiangiogenesis 
therapeutics that inhibit abnormal blood vessel growth associated
with a broad range of diseases such as cancer, blindness and 
atherosclerosis.  The company's strategy is to accelerate 
development of its core technologies through collaborations and
sponsored research programs with university medical departments, 
research companies and government laboratories.  ENMD's leading
drug candidate, Panzem(TM), is currently in Phase II clinical 
trials for prostate cancer and multiple myeloma.  Thursday, ENMD
announced the results of a joint effort by its scientists and 
scientists at the American Red Cross.  The study represents the 
first scientific journal publication by EntreMed scientists on 
Tissue Factor Pathway Inhibitor (TFPI), a naturally occurring
anticoagulant molecule.  Apparently, Investors were pleased as
the stock rallied strongly on Friday, supported by heavy volume.
A reasonable short-term entry point from which to speculate on
EntreMed's future.  Due diligence, as always, is mandatory!

MAY 17.50 QMA EW LB=3.70 OI=730 CB=16.56 DE=21 TY=8.2%

FDRY - Foundry Networks  $13.35  *** Bottom Fishing! ***

Foundry Networks (NASDAQ:FDRY) is a leader in high-performance, 
end-to-end switching and routing solutions, including Internet 
routers, Layer 3 switches and Layer 4-7 Internet traffic and
content management switches.  Foundry products are installed in
the world's largest ISPs, including AOL (NYSE:AOL), EarthLink 
(NASDAQ:ELNK), AT&T WorldNet, MSN and Cable & Wireless (NYSE:CWP).
Foundry Networks met reduced estimates this week, reporting net
revenue of $82.6 million and pro forma net income of $5.3 million,
or $0.04 per diluted share.  Company executives were cautiously 
optimistic about the future and said they expected sales to rise,
which produced an upgrade from Merrill Lynch.  Investors were
also pleased as the stock surged $3 from the Wednesday open.
This position offers a favorable cost basis for those investors
who believe in Foundry Networks' future. 

MAY 10.00 OUJ EB LB=3.70 OI=1080 CB=9.65 DE=21 TY=5.3%

ILUM - Illuminet  $29.13  *** Bracing for a Rally? ***

Illuminet (NASDAQ:ILUM) is a leading provider of advanced nation-
wide signaling and intelligent network services to the communi-
cations industry.  Illuminet specializes in SS7 network services
and intelligent network solutions for services.  The company also
provides prepaid wireless services, including real-time account 
management, through its subsidiary National Telemanagement Corp.,
based in Dallas, TX.  Illuminet beat expectations this week, 
reporting revenues of $44.5 million and net income of $9.0 
million or $0.27 per diluted share.  Growth in the quarter was 
driven by increased demand for the company's core business of 
network services from a diverse base of established customers.
It appears those investors who sold in early April were a bit
premature.  A conservative entry point on a stock that is moving
above its consolidation-area resistance.

MAY 25.00 ILU EE LB=5.00 OI=71 CB=24.13 DE=21 TY=5.2%

ISIL - Intersil  $31.74  *** Earnings Rally! ***

Intersil (NASDAQ:ISIL) is a leading supplier of semiconductors,
reference designs and software for wireless access and communi-
cations analog markets.  Intersil applies analog, mixed-signal 
and radio frequency (RF) expertise to the development of products
tailored for high-growth communications markets.  On Wednesday,
April 25, ISIL reported 1st-quarter net income of $8.1 million,
or $0.07 a share, beating the consensus estimate by 2 cents.  The
company reported 1st-quarter revenues of $127.8 million.  ISIL
did "warn" that revenue would be about 5% to 8% lower next quarter
with flat margins.  Investors pushed the stock over $6 higher and
the near-term negatives appear to be already "price-in."  We favor
the bullish breakout above the 150-dma on heavy volume, though we
prefer a cost basis closer to technical support.

MAY 25.00 UFH EE LB=7.60 OI=478 CB=24.14 DE=21 TY=5.2%

MU - Micron Technology  $44.07  *** Trading Range ***

Micron Technology (NYSE:MU) and its subsidiaries manufacture and
market DRAMs, very fast SRAMs, Flash Memory, other semiconductor
components, and memory modules.  In March, MU reported earnings
showing a net loss from continuing operations of $4.1 million, or
$0.01 per share, slightly exceeding estimates.  The company is
selling its PC unit, Micron Electronics (NASDAQ:MUEI) and is 
buying a Web-hosting company.  Recently, Salomon Smith Barney 
upgraded several chip stocks, including Micron, and said that
the chip sector can't get much worse.  Micron rallied strongly
on the news (and the surprise FED rate cut) and has moved into
a new trading range on improving technicals.  With the current
bullish momentum in the semiconductor sector, this position
offers a reasonable entry point as Micron continues to forge 
a Stage I base.

MAY 37.50 MU ET LB=8.00 OI=4134 CB=36.07 DE=21 TY=5.7%

PVTL - Pivotal  $24.13  *** Rally Mode ***

Pivotal (NASDAQ:PVTL) enables large and medium-sized businesses
worldwide to make, serve, and manage customers with superior speed
and efficiency by providing XML-based demand chain networks that
deliver personalized customer experiences across every touch point
in real-time.  Pivotal reported solid earnings on April 19, with
net revenues increasing 82% to $26.4 million in the 3rd-quarter.
Net income excluding amortization of goodwill was $405,000 or 2
cents per share.  The company shipped several new products as
well as developed several alliances with additional systems 
integrators, according to Pivotal's CEO.  The stock has rallied 
strongly as investors appear to be looking to the future.  A new 
customer relationship management distribution and services agree-
ment with China Hewlett-Packard could bode well for the future,
barring any more P3 - fighter entanglements.

MAY 20.00 QFK ED LB=4.80 OI=3 CB=19.33 DE=21 TY=5.0%

SRNA - Serena Software  $18.81 *** Technicals Only! ***

Serena Software (NASDAQ:SRNA) is an industry leading provider of
software infrastructure products and consulting best practices
that automate enterprise software and Web content changes.  SRNA's
eBusiness Infrastructure Change Management strategy manages the 
change process throughout the entire eBusiness lifecycle, across
multiple platforms -- from the mainframe to the Web.  Serena 
recently  announced an alliance with Compaq Computer (NYSE:CPQ),
to initiate joint marketing programs.  We simply favor the current
bullish trend as the stock has rallied above its 50 dma on heavy 
volume.  Excellent short-term speculation for those investors
who retain a bullish outlook on the company.

MAY 15.00 NHU EC LB=4.50 OI=203 CB=14.31 DE=21 TY=7.0%



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

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

MCDT   25.99  MAY 22.50   DXZ EX  4.80 451   21.19   21    9.0%
UCOMA  15.39  MAY 12.50   QUW EV  3.60 907   11.79   21    8.7%
EMLX   34.96  MAY 25.00   UMQ EE 11.00 574   23.96   21    6.3%
CBST   30.62  MAY 25.00   UTU EE  6.60 187   24.02   21    5.9%
QLGC   41.44  MAY 30.00   QLC EF 12.40 1242  29.04   21    4.8%
PFCB   38.09  MAY 35.00   HUO EG  4.10 533   33.99   21    4.3%


Success Basics: Trading Systems and Position Management
By Ray Cummins

The majority of professional market players use a trading system
to initiate their plays and exploit each individual position for
maximum return.  Actually, there are many common traits shared by
top traders but one concept that is prevalent among almost every
expert is discipline and that characteristic comes from utilizing
a sound methodology in each transaction.  In addition, a reliable
system will improve a trader's psychology and confidence and this
in turn will help him (or her) adhere to the original strategy,
virtually ensuring better results.

Regardless of the type of approach (mechanical or subjective) used
to participate in the market, the basic system should include a
method for determining an entry point and identifying target exit
points and those are the topics we will review in this article.

Entry Point:

A successful system must be able to recognize good opportunities
and help a trader initiate new positions in a timely manner.  The
entry point is generally determined by a set of precise rules or
calculations appropriate to the market and the strategy.  It is a
crucial part of any trading scheme and the most popular methods
for identifying profitable entry points are derived from chart
patterns and mechanical systems.  For example, a "buy" signal can
be based on a momentum indicator or a market condition, but it can
also be initiated at a specific price in a chart formation or by
a computer program designed specifically for identifying favorable
trading circumstances.  Today's sophisticated software can analyze
technical as well as market sentiment indicators and calculate the
conditions in the market which offer the best environment for a
particular strategy or technique.  Some traders use a combination
of more than one method such as a signal from a mechanical system
and confirmation from a current market condition or specific chart

Profit Target:

The first rule of profitable trading: Before entering any trade,
be sure to identify the initial exit points (based on loss limits
and profit targets) or implement an exit strategy that will close
the position if a predetermined set of criteria is achieved.

Most traders identify the upside exit through the use of a profit
target.  This target is generally determined with regard to risk
and reward; the amount of money a trader is willing to risk in
the position versus the expected profit.  This ratio will be based
on personal risk tolerance and psychological attitudes, as well as
portfolio requirements.  To correctly assess the profit potential
in an option position, you must understand pricing principles and
study the underlying issue's historical volatility, then set the
target appropriately.  Profit targets can also be based on price
patterns such as a trading range or with regard to a trend-line or
moving average.  Obviously, there will be exceptions to the rule
and unique situations that require special treatment but each of
these instances must be dealt with on an individual basis using
good judgment.

Loss Limit:

The unfortunate fact is, losses are an inherent part of trading in
any market or commodity.  Some positions will profit while others
will fail miserably and the key to success is managing the losers
for minimum effect.  That is why it is so important to diversify
(spreading the risk) and to use a stop-loss on every position.
There are two common types of stop-loss placement.  The first is
based on a monetary amount or a percentage of the overall position.
With this loss-limiting method, the total risk is a fixed amount
based on the initial cost of the trade.  The second type of stop
uses a technical exit point, derived from proven indicators (price,
momentum, sentiment) or specific chart patterns.  This method of
establishing a loss-limit can also be based on the volatility or
trading range of the underlying market.

Next week, we will continue this discussion of position management
and review some of the techniques that professional traders use to
maximize profits and limit losses.

Good Luck! 

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


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

PPD    17.25  20.86   MAY  10.00  0.50  *$  0.50  13.8%
FNSR   16.00  13.74   MAY  10.00  0.40  *$  0.40  12.1%
SNWL   16.60  15.93   MAY  12.50  0.40  *$  0.40  11.7%
MANU   34.40  31.71   MAY  22.50  0.75  *$  0.75  10.7%
NTAP   23.55  21.86   MAY  15.00  0.50  *$  0.50  10.4%
EBAY   41.63  46.87   MAY  30.00  1.10  *$  1.10  10.1%
RFMD   17.85  25.99   MAY  12.50  0.45  *$  0.45   9.7%
SCI    22.99  24.65   MAY  17.50  0.45  *$  0.45   7.7%
VSEA   39.35  42.39   MAY  30.00  0.70  *$  0.70   7.1%
BRCD   36.78  35.62   MAY  22.50  0.50  *$  0.50   6.9%
MUSE   48.83  43.90   MAY  25.00  0.65  *$  0.65   6.8%
EXFO   31.95  33.05   MAY  17.50  0.45  *$  0.45   5.7%

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


It's nice to see a rally continue after some profit-taking,
at least in the DOW, SP500, and Russell 2000.  Any weakness
in the markets should allow an investor to judge the strength
of the issues he or she may be interested in.  Does it violate
the current trend or moving average as it consolidates?  Does
it hold at proven support and is the overall outlook still 
intact?  Anyway, keep an eye on Sonicwall (NASDAQ:SNWL) as a 
few negative technical signals are now evident.  


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

AMD    30.00  MAY 22.50   AMD QX  0.35 3906  22.15   21    8.0%
EMLX   34.96  MAY 22.50   UML QX  0.50 574   22.00   21    9.7%
MCDT   25.99  MAY 17.50   DXZ QW  0.45 343   17.05   21   11.5%
PPD    20.86  MAY 15.00   PPD QC  0.45 5234  14.55   21   14.1%
PSFT   35.87  MAY 27.50   PQO QY  0.55 1406  26.95   21   10.3%
SEBL   45.70  MAY 32.50   SGQ QZ  0.65 550   31.85   21    9.6%
UCOMA  15.39  MAY 10.00   QUW QB  0.30 9028   9.70   21   12.9%

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

PPD    20.86  MAY 15.00   PPD QC  0.45 5234  14.55   21   14.1%
UCOMA  15.39  MAY 10.00   QUW QB  0.30 9028   9.70   21   12.9%
MCDT   25.99  MAY 17.50   DXZ QW  0.45 343   17.05   21   11.5%
PSFT   35.87  MAY 27.50   PQO QY  0.55 1406  26.95   21   10.3%
EMLX   34.96  MAY 22.50   UML QX  0.50 574   22.00   21    9.7%
SEBL   45.70  MAY 32.50   SGQ QZ  0.65 550   31.85   21    9.6%
AMD    30.00  MAY 22.50   AMD QX  0.35 3906  22.15   21    8.0%

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).

AMD - Advanced Micro Devices  $30.00  *** Intel Hedge? ***

Advanced Micro Devices (NYSE:AMD) is a semiconductor manufacturer
with manufacturing facilities in the United States, Europe and
Asia, and sales offices throughout the world.  AMD's products
include a wide variety of industry-standard digital-integrated
circuits used in many diverse product applications, such as
telecommunications equipment, data and network communications
equipment, consumer electronics, personal computers, workstations
and servers.  AMD is now seen as a viable competitor for Intel's
dominant market position in the semiconductor industry and the
company's recent earnings report suggests they are poised for
growth in the future.  Their quarterly numbers were solid, given
today's economic climate, and the company said it is comfortable
with current full-year earnings estimates.

MAY 22.50 AMD QX LB=0.35 OI=3906 CB=22.15 DE=21 TY=8.0%

EMLX - Emulex  $34.96  *** Data Storage Rally! ***

Emulex (NASDAQ:EMLX) is a designer, developer and supplier of a
broad line of Fibre Channel host adapters, hubs, application
specific computer chips, and software products that provide
connectivity solutions for Fibre Channel storage area networks,
network attached storage, and redundant array of independent
disks storage.  The company's products offer customers a unique
combination of critical reliability, scalability and performance,
and can be customized for mission-critical server and storage
system applications.  Shares of technology storage companies were
bullish this week, after industry leaders reported earnings that
met lowered expectations and hinted at a pick-up in demand for
their products.  Emulex's third-quarter results were in line with
revised forecasts as revenues surged 65% and order patterns have
now stabilized.  Salomon Smith Barney recently raised its rating
on the company and offered a price target of $40.

MAY 22.50 UML QX LB=0.50 OI=574 CB=22.00 DE=21 TY=9.7%

MCDT - McDATA  $25.99  *** Bracing For A Rally? ***

McDATA (NASDAQ:MCDT) is a provider of high availability storage
area network director switching devices that enable enterprises
to connect and centrally manage large numbers of storage and
networking devices.  McDATA designs, develops, manufactures and
sells switching devices that enable enterprise-wide storage area
networks.  The company's products enable business enterprises to
cost-effectively manage growth in storage capacity requirements,
improve the networking performance of their servers and storage
systems and scale the size and scope of their SAN or information
infrastructure while operating data-intensive applications on the
SAN.  MCDT has established an excellent short-term base and the
recent buying pressure near the top of the trading range is an
indication of upside potential.

MAY 17.50 DXZ QW LB=0.45 OI=343 CB=17.05 DE=21 TY=11.5%

PPD - Pre-Paid Legal Services  $20.86  *** Speculation Only! ***

Pre-Paid Legal Services (NASDAQ:PPD) was one of the first major
companies organized solely to design, underwrite and market legal
expense plans (Memberships).  The company's legal expense plans
currently provide for or reimburse a portion of the legal fees
associated with a variety of legal services in a manner similar
to medical reimbursement plans.  The company has offered legal
services under two Membership types: closed panel, which allows
members to access legal services through a network of independent
provider law firms under contract with the company and open panel,
which allows members to locate their own lawyer to provide legal
services available under the Membership.  PPD shares started to
rebound in early April after the company announced revised annual
earnings estimates that reflect accounting changes prompted by an
SEC inquiry.  Investors were happy with outcome of the quarterly
report and if the SEC investigation is resolved favorably, the
issue has little chance of retreating to our cost basis.

MAY 15.00 PPD QC LB=0.45 OI=5234 CB=14.55 DE=21 TY=14.1%

PSFT - Peoplesoft  $35.87  *** Solid Earnings! ***

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
following strong quarterly results and numerous upgrades from
financial analysts.  PSFT posted earnings that beat Wall Street
estimates and management reiterated its second-quarter and 2001
forecasts, despite the slowing economy.  Goldman Sachs said that
enterprise application companies are performing the best in the
sector and Peoplesoft is performing the best within that group.
Technically, the stock has near-term support at $29 and a cost
basis below $27 appears to be favorable price for the issue.

MAY 27.50 PQO QY LB=0.55 OI=1406 CB=26.95 DE=21 TY=10.3%

SEBL - Siebel Systems  $45.70  *** Strong Sector! ***

Siebel Systems (NASDAQ:SEBL) is a provider of unique eBusiness
applications.  Their eBusiness applications enable organizations
to sell to, market to, and service customers across multiple
channels, including the Web, call centers, resellers, retail,
and dealer networks.  They are available in industry-specific
versions which enable organizations to create a single source
of customer information that sales, service, and marketing
professionals can use to tailor product and service offerings 
to meet each of their customer's unique needs.  The Application
Software sector is performing well and companies in the group
have benefited from some recent bullish earnings announcements.
Now the question is whether the trend will continue and traders
who agree with a bullish outlook for SEBL can speculate on its
future movement with this conservative position.

MAY 32.50 SGQ QZ LB=0.65 OI=550 CB=31.85 DE=21 TY=9.6%

UCOMA - UnitedGlobalCom  $15.39  *** Merger Approval! ***

UnitedGlobalCom (NASDAQ:UCOMA) is a broadband communications
provider outside the United States.  UCOMA offers multi-channel
television services in 23 countries worldwide and telephone and
Internet/data services in a growing number of its international
markets.  The company's European operations are held through its
53%-owned subsidiary, United Pan-Europe Communications N.V.  The
company's Asia/Pacific operations are primarily held through its
75%-owned subsidiary, Austar United Communications, Limited.  The
company's Latin America operation is VTR Global Com S.A., Chile's
largest multi-channel television provider and a growing provider
of telephone services.  The European Commission recently approved
a plan for cable firm Liberty Media (NYSE:LMGa) to acquire joint
control of UnitedGlobalCom, parent of Dutch cable operator UPC,
and investors are apparently in favor of the merger.  Traders
can "target shoot" a higher premium in the play ($0.35-$0.40) to
establish a lower cost basis in the issue.

MAY 10.00 QUW QB LB=0.30 OI=9028 CB=9.70 DE=21 TY=12.9%



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

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

FLEX   27.56  MAY 20.00   QFL QD  0.50 2328  19.50   21   12.0%
CBST   30.62  MAY 22.50   UTU QX  0.50 45    22.00   21   10.9%
ZIGO   37.10  MAY 25.00   UZY QE  0.55 10    24.45   21   10.0%
DG     23.88  MAY 20.00    DG QD  0.30 403   19.70   21    7.3%
QLGC   41.44  MAY 25.00   QLC QE  0.40 637   24.60   21    6.7%
GILD   45.58  MAY 37.50   GDQ QU  0.40 203   37.10   21    5.5%


Naked Put Exit Strategies

Selling naked (uncovered) puts is a complex strategy that has many
variables to consider. This article is a continuation to my 
previous three articles (Margin monster, Return of the Margin 
Monster and Selling In the Money Puts). The previous articles 
outlined the margin requirements and the basic strategy of naked 
puts. This article will cover a few strategies to exit.

Out of the Money

Selling out of money naked puts is a strategy that one might use 
to collect premium while setting a buy point on the underlying 
security. I recommend my clients sell the put at a specific strike
price that provides a preferable cost basis at a support level. 
There should be a reason for selling a put at the strike you 
choose. For instance, XYZ is trading at $15.21. The next support 
level is at 11.95. If I sell the 20 contracts of the 12.5 PUT for 
$0.60 per contract that will give me an approximate cost basis of
$11.90 if the put is assigned (I buy 2000 shares at $12.50). I 
can either sell the stock or sell calls. If the stock stays above
$12.50 and the put expires worthless, I keep the premium. 

The margin requirement changes as the stock price and option 
premium changes. At a minimum, you will want to calculate the 
margin requirement when the security is at the strike price. In 
the above example, the initial margin requirement is $4,242: 

(10% X 15.21 stock price X 2000 shares) + $1,200 PUT Value = $4,242

If the stock drops to $12.50, the theoretical value of the PUT 
increases to $1.55 and the margin requirement increases to $8,100:

(20% X 12.50 stock price X 2000 shares) + $3,100 PUT Value = $8,100 

In this example, the requirement increases to almost twice the 
initial margin. If you have no intention of owning the stock, you 
may choose to close out the position here. Another place to exit 
is if the security price violates the previous support level. 
Another exit strategy is to buy the put to close at a specific 
percentage above the sale price. Some use 25%. However, that is 
sometimes the price spread. There are some investors that have 
their buy points at 25, 30, 50 or 100% of the initial sale price. 
The exit point you choose should be based upon your individual 
risk tolerance and investment objectives.

In the above example, if XYZ were assigned to me, would require a
minimum of $12,500 initial margin to buy the stock and have a 
total cost of $25,000. Therefore, a balance of anything less than
$12,500 would require more cash to be deposited. If assigned the 
security, exit strategies include selling the security (may be at 
a profit or loss) or selling calls against the newly acquired 
security. One could also hold the security and buy a protective 
put to hedge the downside.

If the stock goes up, you may always choose to close out the naked 
put and lock in the profit. This frees up the cash for another 
trade opportunities.

In the Money

The reason I sell in the money puts is to capture the premium 
depreciation over time and/or profit on buying to close the naked 
put if the security’s price advances. But what do we do if the 
stock moves the wrong way? Do we wait and hope it comes back up? 
Unfortunately, the answer isn’t set in stone. It depends. Assuming 
the Naked Put’s strike price is at a support level (because we 
don’t pick some arbitrary number), a violation of that support 
would be a reason to buy the put to close and exit the position. 
If you don’t, a breakdown could occur and eat up a lot of capital. 
If you enter the trade because of technical reasons, you should 
exit it as well. If the stock drops and bounces, there might be a
reason to hang in there. 

As with the out of money scenario, exit points based on a 
percentage of the sale price are a common method in determining an 
exit point. For instance, ABC is at 50, you sell the ABC July 70 
Put for $25 per contract. If ABC declines, the Put will increase 
in price. If you placed an exit point at 25% greater than the 
initial sale, you would buy the option at around $31.25 per 
contract. One could also argue that the cost basis price is a good
decision point. In this example, that price is $45. If ABC is 
assigned, you buy the stock at $70 and keep the $25 per contract. 
If the stock is assigned early, there are a few possibilities 
depending on the price of the security. You may be able to still 
profit from the trade. However, it is rare to be assigned early. 
Even if you are, you might only be assigned on part of your 
position. As stated above, if you are able to buy the put to close 
at a profit, you should look for the best opportunity.

There isn’t one simple strategy that is best for all circumstances.
Because every investor has a specific risk tolerance level and 
investment objective, each position requires a specific entry and 
exit strategy. Those of you that really want to do some form of 
naked puts, but are frustrated that they may be too complex or 
you can’t access your computer, should find a good full service 
options broker. As I stated, there are many facets to this strategy. 
I am sure I forgot something. If you have any questions or comments 
or subject suggestions, please contact me toll free at 877-925-0880. 
I am a full service financial consultant and ROP with Cutter & 

Robert John Ogilvie


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.


Another Good Week!

Friday, April 27

Stocks rallied again today on the heels of favorable economic
data.  The Dow finished 117 points higher at 10,810 and the
NASDAQ closed up 40 points at 2,075.  The S&P 500 index was up
18 points at 1,253.  Trading volume on the NYSE hit 1.09 billion
shares with advances beating declines 2 to 1.  Activity on the
NASDAQ was light at 1.79 billion shares exchanged.  Technology
winners outpaced losers 23 to 14.  In the U.S. bond market, the
30-year Treasury fell 1 12/32, pushing its yield up to 5.80%.

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

Providian    (NYSE:PVN)      MAY40P/45P  $0.45  credit  bull-put
Shire Pharma (NASDAQ:SHPGY)  MAY60C/40P  $1.50  credit  strangle
Unitedhealth (NYSE:UNH)      MAY60C/50P  $0.05  credit  synthetic

Our new positions in SHPGY and PVN were available at acceptable
prices, although neither play traded at the target credit.  UNH
posted earnings of $0.64 per share in the first quarter, beating
analysts' estimates of $0.60 per share.  The company also raised
its full-year earnings guidance to $2.66 to $2.68 per share, well
above consensus estimates.  The issue rallied early in the day
before pulling back to its opening price, however the suggested
credit was not available (on a simultaneous order basis).

Portfolio Plays:

Today's robust gross domestic product (GDP) data gave investors
new hope for the future of the U.S. economy and that translated
to additional buying in the equity markets.  America's GDP was
up 2% in the first quarter, well above analysts' expectations of
a 1.1% rise, due in part to a 3.1% increase in consumer spending.
A moderate 1.1% gain in capital spending along with an improving
trade balance added to the optimism that growth will improve in
the second half of the year.  The major averages rallied on the
news with industrial stocks propelling the Dow to a triple-digit
advance.  The blue-chip leaders were American Express (NYSE:AXP),
International Business Machines (NYSE:IBM), Intel (NASDAQ:INTC),
Wal-Mart (NYSE:WMT) and J.P. Morgan (NYSE:JPM).  Alcoa (NYSE:AA)
and Caterpillar (NYSE:CAT) reached new 52-week highs during the
session.  Microsoft (NASDAQ:MSFT) was one of the few losers on
rumors the company might delay the release of its new operating
system, Windows XP, to October because it needs to work out some
compatibility issues.  Among other technology issues, computer
hardware, networking and semiconductor shares were popular and
biotech stocks also rallied amid positive announcements from the
gene-mapping group.  Human Genome Sciences (NASDAQ:HGSI) posted a
lower-than-expected quarterly loss and Celera Genomics (NYSE:CRA)
said it has completed the mapping of the mouse genome.  In the
broader market, retail, financial, gold and transportation stocks 
moved higher while utility, natural gas and oil service companies
generally retreated.

It was another great day for positions in the "Combos" Section as
the market continued to recover from recent selling pressure.  In
the technology segment, PMC Sierra (NASDAQ:PMCS), AT&T (NYSE:T),
LSI Logic (NYSE:LSI), Intel (NASDAQ:INTC), Tollgrade (NASDAQ:TLGD),
Hewlett-Packard (NYSE:HWP) and Human Genome Sciences (NASDAQ:HGSI).
achieved favorable gains.  Among the broader market issues, Lehman
Brothers (NYSE:LEH), Active Power (NASDAQ:ACPW) and Progressive
(NYSE:PGR) moved higher and of course, and our bullish spread on
the OEX is performing very well.  One issue that failed to rally
during today's session was Total Fina Elf (NYSE:TOT) and we were
grateful for the brief reprieve.

One of the surprise announcements of the session affected our new
speculation play in Visx (NYSE:EYE).  J.P. Morgan analyst Chris
Shibutani said he was downgrading the company's stock, apparently
due to a recommendation from Institutional Shareholder Services,
which suggested that Visx shareholders "vote against Icahn."  In
this case, it seems Institutional Shareholder Services may have
been recommending that shareholders vote for Visx's new group of
officers rather than those proposed by Mr. Icahn.  Investors may
have thought they recommended a vote against the takeover, but it
seems strange that anyone would oppose a $32 bid for the company.
The Visx board has said it will allow a shareholder decision on
Icahn's recent bid, so the confusion will likely be resolved in
the coming weeks.

Questions & comments on spreads/combos to Contact Support

                           - NEW PLAYS -

BCHE - Biochem Pharma  $30.16  *** Merger Woes? ***

BioChem Pharma (NASDAQ:BCHE) is a worldwide biopharmaceutical
company involved in the research, development, manufacturing and
marketing of products for the prevention, detection and treatment
of human diseases.  Biochems' most advanced therapeutic product
candidates are being developed for use in treatment of cancers
and infectious diseases.  BioChem is also engaged in the research,
development, production and marketing of vaccines for human use.
BioChem's anticancer and anti-infective research and development
activities are either done internally, through agreements with
CliniChem Development, or through strategic alliances.  Biochem
shares commercialization rights for 3TC and Zeffix with Glaxo
Wellcome in Canada and has also granted to the latter exclusive
commercialization rights in the rest of the world.

Options in BCHE were active this week as the company reported
earnings and rumors circulated that a pending merger with Shire
Pharmaceuticals (NASDAQ:SHPGY) might be in jeopardy.  In March,
Biochem agreed to merge with Shire for $36 per-share, valuing the
combined company at $8.5 billion.  The Canadian government said
last month that it did not see the merits of the marriage but
on Shire's request, an additional 30-day review was granted.  The
review period ended on Friday, however Shire requested another
extension on April 25, and since no news has been posted, there
is rampant speculation on both sides of the outcome.

Regardless of the result, it is unlikely that BCHE will trade
much above our sold strike price with the buyout expected at $36
and that's the basis for this speculative position.

PLAY (aggressive - bearish/credit spread):

BUY  CALL  MAY-37.50  BQX-EU  OI=348   A=$0.45
SELL CALL  MAY-35.00  BQX-EG  OI=3916  B=$0.95
INITIAL NET CREDIT TARGET=$0.55-$0.60 ROI(max)=28% B/E=$35.55

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



LOW - Lowe's  $62.10  *** Recovering Economy? ***

Lowe's Companies (NYSE:LOW) is the second largest retailer of home
improvement products in the world, with a specific emphasis on
retail do-it-yourself (DIY) and commercial business customers.
Lowe's specializes in offering products and services for home
improvement, home decor, home maintenance, home repair and also
remodeling and maintenance of commercial buildings.  The company's
principal customer groups are DIY retail customers and commercial
business customers.

Retails stocks rallied on Friday after new data showing the U.S.
economy expanded more than expected in the first quarter fueled
hopes that consumer spending may rebound later this year.  Gross
Domestic Product, the broadest measure of economic activity, grew
in the first quarter at a stronger-than-forecast 2% annual rate
due to an increase in consumer demand.  Home improvement shares
also received a boost last week after a report showed that sales
of new homes rose to a record rate in March and sales of existing
homes rose to their second-highest rate on record.  Of course, the
implication is that construction demand will remain high in the
coming months and that will bolster share values in this group.

Traders who agree with that outlook can speculate on the future
direction of LOW with this conservative position.  We will target
a higher premium initially, to allow for a brief consolidation in
the issue.

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-50  LOW-QJ  OI=1797  A=$0.25
SELL PUT  MAY-55  LOW-QK  OI=2807  B=$0.60
INITIAL NET CREDIT TARGET=$0.45-$0.50  ROI(max)=9% B/E=$54.55


                      - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.


ARBA - Ariba  $7.39  *** Cheap Speculation! ***

Ariba (NASDAQ:ARBA) is a business-to-business electronic commerce
software and network services platform provider.  Ariba provides
software, network access and commerce services that help enable
corporations to electronically automate and optimize business
with their buyers and suppliers.  Customers can do this by both
automating their existing relationships with their buyers and
suppliers and by building a marketplace that brings buyers and
suppliers together to buy and sell electronically.  In addition,
the company offers commerce services such as content management,
electronic payment, electronic sourcing and electronic logistics,
among others.  The Ariba B2B Commerce Platform consists of four
primary components, including Ariba Buyer, their Internet-based
procurement application, Ariba Marketplace and Dynamic Trade, its
Internet-based market-maker applications, and Commerce Services
Network, its Internet-based commerce services application.

Ariba has fallen on hard times recently, plummeting from a share
value near $160 to an incredible all-time low of $4.38 in less
than nine months.  Surprisingly, the company's performance was
not that bad as revenues more than doubled this past quarter to
$90.7 million, up from $40 million a year earlier.  At the same
time, the future revenue outlook is somewhat limited due to the
unpredictable nature of the Internet marketplace business.  But,
the selling has abated for now and there appears to be excellent
upside potential from a technical viewpoint.  Traders who share
that optimistic outlook should consider this speculative play.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-12.50  IRU-HV  OI=3555  A=$1.00
SELL PUT   AUG-5.00   IRU-TA  OI=5641  B=$0.80

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $250 per contract.


                  - STRADDLES AND STRANGLES -

BAB - British Airways  $49.30  *** Probability Play ***

British Airways plc (NYSE:BAB) is the holder of British Airways,
the world's largest international passenger airline.  Its primary
scheduled route network is one of the world's most extensive.  In
1998-1999 the airline operated an average of over one thousand
flights a day on an unduplicated route network of about 686,000
kilometers.  The British Airways fleet numbers in hundreds and
the airline's main bases are London Heathrow Airport, the largest
international airport in the world and London Gatwick, which is
now the sixth largest airport.  The British Airways Group, along
with Deutsche BA, and Air Liberté, carries millions of passengers
each year to destinations around the world.

This week we received a number of requests for conservative debit
straddles.  Unfortunately, with the recent market volatility, the
number of theoretically favorable candidates is small.  However,
this position meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and future
events or activities (quarterly earnings in May and the ongoing
problems with the Concorde) that may generate volatility in the
issue or its options.  This selection process provides the best
combination of low risk and potentially high reward.  As with
any strategy, it should be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUL-50  BAB-GJ  OI=10  A=$2.80
BUY  PUT   JUL-50  BAB-SJ  OI=14  A=$4.80

- or- 

PLAY (very speculative - neutral/debit strangle):

BUY  CALL  JUL-60  BAB-GL  OI=100  A=$0.45
BUY  PUT   JUL-40  BAB-SH  OI=100  A=$0.85



VECO - Veeco Instruments  $49.70  *** More Premium-Selling! ***

Veeco Instruments (NASDAQ:VECO) designs, manufactures, markets and
services a broad line of equipment primarily used by manufacturers
in the optical telecommunications, data storage and semiconductor
industries.  These industries produce computer integrated circuits,
personal computers, hard disk drives, network servers, fiber optic
networks, digital cameras, television set-top boxes and personal
digital assistants.  Veeco's Process Equipment products precisely
deposit or remove (etch) various materials in the manufacturing of
advanced thin film magnetic heads for the data storage industry
and optical telecommunications components.  Veeco's Metrology
equipment is used to provide critical surface measurements on
semiconductor devices, thin film magnetic heads and disks used in
hard drives and in optical telecommunications and many research

Here is another issue with a relatively well-defined trading range
and no apparent news or events that will substantially change its
character prior to the May options expiration.  Veeco's quarterly
earnings announcement occurred earlier in April and the report was
favorable with a positive outlook for the future.  In addition,
the profit envelope coincides with VECO's recent trading range
and there should be ample time to make an adjustment if the issue
moves beyond the sold (short) strikes.  As with any stock, news
and market sentiment will have an effect on the issue so review
the play individually and make your own decision about the future
outcome of the position.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  MAY-60  QVC-EL  OI=12   B=$0.95
SELL PUT   MAY-40  QVC-QH  OI=186  B=$1.00
INITIAL NET CREDIT TARGET=$2.00-$2.10 ROI(max)=13%
UPSIDE B/E=$62.00 DOWNSIDE B/E=$38.00




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