Option Investor

Daily Newsletter, Sunday, 05/06/2001

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The Option Investor Newsletter                   Sunday 05-06-2001
Copyright 2001, All rights reserved.                        1 of 5
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         WE 5-4          WE 4-27          WE 4-20          WE 4-12
DOW    10951.24 +141.19 10810.05 +230.20 10579.85 +452.91  +335.85
Nasdaq  2191.53 +115.85  2075.68 - 87.73  2163.41 +201.98  +241.07
S&P-100  658.74 +  9.63   649.11 +  5.45   643.66 + 35.89  + 30.42
S&P-500 1266.61 + 13.56  1253.05 - 10.07  1242.98 + 60.41  + 54.14
W5000  11687.27 +178.43 11508.84 + 99.07 11409.77 +557.12  +534.25
RUT      492.89 +  8.92   483.97 + 17.26   466.71 + 11.69  + 20.36
TRAN    2869.19 +  6.82  2862.37 +  1.07  2861.30 + 94.71  + 79.56
VIX       27.72 -   .05    27.77 -  1.24    29.01 -  1.27  -  6.48
Put/Call    .67              .48              .91              .76

Job Cuts Equal Rate Cuts, Did You Buy The Dip!

It is going to be hard to restrain myself today from being
overly bullish but I will try. The dip at the open on the
Dow hit 10673 and the Dow closed at 10950, almost +300 points
from the low of the day AND over 10900! Sorry, I can't be
quite as bullish on the Nasdaq and S&P but they both turned
in respectable performances. The Nasdaq added +45 points but
still closed under the critical 2200 level. The tech worries
are still with us. The S&P closed right back at resistance that
has held all week of 1266. Good but no break out.

It all came down to the Jobs Report and the report was a disaster.
The economy lost -223,000 jobs in April instead of a gain of
25,000 jobs as expected. OOPS! Manufacturing and services each
lost more than -100,000 jobs showing that the economic weakness
is becoming more broad based. This drop was far more than many
analysts had even speculated and was the biggest drop since 1991.
The unemployment rate rose to 4.5% and was the highest since 1998.
It appears the "turnaround" may not have appeared as many had
thought. The manufacturing sector has now lost -373,000 jobs
since the beginning of the year and it is accelerating. The
race is on between the Fed and a recession. Analysts now wonder
if the Fed can cut rates fast enough to avoid a recession. The
Jobs Report is a lagging indicator but with the flurry of recent
layoffs announced it is by no means over. Inter-meeting cut
anyone? Not likely since the FOMC meeting is only six trading
days away but a -50 basis point cut is almost a sure thing with
yet more cuts in the near future. The White House said it was
"entirely possible" that the recent 2% GDP reading will be
revised downward. Are you listening Alan?

Rambus may be close to its own recession after losing a crucial
battle in court Friday. A Federal judge dismissed the remaining
patent infringement claims brought by Rambus against Infineon.
RMBS fell to under $13 on the news and some analysts say $13 is
still too high if this ruling sticks. The key is not the royalties
they would have gained from Infineon but the proverbial crack in
the dike that this would cause. Rambus has multiple cases in
court for this same type of infringement case and once the concept
is tossed in one court the odds are very good the other courts
will follow suit. The once high flying RMBS may be overrun with
suits to toss out previous victories and their royalty income
could suffer drastically. The keywords here are "could" and
"appeal." RMBS has appealed the decision and feels they will
be victorious. Any bets?

How many cell phones do you own? Goldman Sachs went bullish on
wireless companies on Friday and added AWE, NXTL and PCS to
their recommended list. Adam Harkness initiated coverage of
Nokia at a buy rating. Nokia CEO, Ollila, said he believed
NOK would be the number one 3G equipment provider with a goal
of 35% market share. Since Nokia is gaining market share in
almost all areas this should not be a difficult task.
RFMD was upgraded by JPM based on the demand for cell phone
chips, especially the GSM type. He said Nokia would likely
choose RFMD for their continued supplier due to their good
history in the past.

Cell phone carriers have got to get their customer service
act together before they progress much farther however. For
example I called AT&T Thursday to ask about converting an
analog phone I have to a GSM phone which will work in
Europe. After spending 15 min wandering through endless
recorded menus I finally got a real person. "Do you have a
phone that I can use in Europe?" No. "You have service in
Europe, right?" No. "Are you sure? Not even on a roaming
basis?" No. "What about your World Connect Service?"
It works on GSM, not TDMA. "OK, can I get a phone that uses
that?" No. Maybe by the end of the year.....  I resigned
myself to order a Nextel phone for $39.95 a month, good in
75 countries including the U.S., and just cancel my AT&T
account. I was telling a co-worker, another AT&T user, about
this at lunch Friday and he also thought it was strange that
AT&T did not offer a product for this market. He went to
an AT&T phone store after lunch and brought me a brochure
about their 100 country product called, believe it or not,
"World Connect." Duh! No wonder AT&T lost $300+ million last
quarter if their wireless customer service reps can't even
answer questions correctly. Enough griping......

What did you say? Merrill Lynch economist Bruce Steinberg shed
his always optimistic view on Friday and issued a note saying
"the economy could be beginning to look recessionary." Fifteen
minutes later, he took it back. He acknowledged that two
straight months of job losses are almost always associated
with a recession but added that the Fed has never cut rates
so rapidly. He admitted that there isn't any evidence yet of
sharp recessionary cutbacks in consumer spending. Now who do
you suppose dialed his number?

Using the Dow's performance on Friday as an indicator of next
weeks action we could almost find ourselves thinking the
markets have returned to 1999. Just consider the indicators.
The markets are rallying on bad news. Dip buyers are being
rewarded handsomely. Earnings warnings are not an excuse for
a -50% haircut. Advancers are beating decliners by large
margins. The Dow closed over recent strong resistance. If we
could just get the S&P and Nasdaq to do the same, the bears
would be in full retreat. Earnings are almost over with 434
of the S&P-500 already reported. Spring is here and the sun
is actually shining in some parts of the country. What could
possibly be wrong?

There is a 74% chance of the Fed cutting rates by 50 basis
points once again as evidenced by the Fed fund futures. The
only dark cloud on the horizon is the fear of recession.
The only two major earnings reports in our future are CSCO
and Dell and both have already warned. The Cisco warning
barely caused a blip in the markets and Dell is rumored to
be close to beating the lowered estimates. (Sure..) So we
only need to worry about the recession cloud and the Fed
is racing the storm with almost biweekly rate cuts. The
only problem now is the fear that the consumer will hear
all the negative job news and start withholding their
spending. If that happens the recession will appear. The
continued drop in jobs is having a negative impact on
consumer confidence and those with jobs are wondering if
their company will be next with the pink slips. Enter the
stock market. As long as Greenspan and crew can keep the
markets moving ahead, consumer confidence from those who
still have jobs, will improve. The economy is teetering on
the brink of disaster but the Fed is making it obvious
that they are not going to let it happen.

This scenario has energized the markets and as I stated
on Thursday the underlying sentiment is seriously bullish.
Everybody wants the markets to go up and that desire turned
into buying on Friday morning. Make no mistake, the markets
are still overbought from the start of the April-4th rally.
That does not mean they cannot get even more overbought.
The charts are setting up for a breakout and we still have
over a week before the Fed meeting. The possibility of a
strong pre-meeting rally next week is huge. This is the
type of market that drives bears crazy. The Dow is only
-50 points from extreme resistance and closed at the high
of the day. If you remember my comments from last week I
said there is an army of shorts ready to open new positions
when we hit 11001. This is exactly what we need. "IF" buyers
jump on any dip from over 11000 like they did the open on
Friday, then the race is on! The shorts will be forced
to cover and buyers, upon seeing a rebound over 11000 again,
could pile on like a school yard game of dogpile.

Of course this scenario assumes we actually break 11000
next week. Without any negative news over the weekend the
first attempt should come on Monday. Remember this level
of resistance has failed 11 times since September. The
Nasdaq may lag any Dow rally because of the CSCO earnings
on Tuesday. We think we know what they will say but until
they say it traders may be cautious. There are so many
traders waiting for a break over 11000 as the definitive
buy signal that once we are over, a chain reaction could
occur. There is nothing fundamental to support it since
the economy is still falling but that bullish sentiment
is ready to run wild. This "trading rally" may also come
to a screeching halt as the FOMC meeting gets closer just
in case the Fed feels less pressure to cut big. Investors
should listen closely to any Fed speak next week. If they
are not going to cut big they should be telegraphing their
intentions to prevent a market meltdown on the announcement.

The market next week will be anything but tame. The bears
are nervous that the market may keep going up. Ironically
the bulls are also nervous the market may keep going up.
They want another dip to continue easing into positions
a little at a time. If we get a blowout over 11000 they
may be forced to chase stocks and they are worried about
that possibility. Has dip buying come back into vogue?
Sure looks like it! Selling into rallies has finally
become hazardous to your health.

Those preceding paragraphs were my bullish side speaking.
There are still a lot of bearish things to consider as
well and in the interest of balance I want you to hear
these thoughts as well. There are some technicians that
are pointing to the declining volume as the rally progresses
as signs that everyone who wants to buy, has done it already.
There are also those that see bearish wedges on the Nasdaq
and Dow as well as converging resistance lines. No magic
there, I have said this repeatedly.

My problem is this. Chartists love to tell you what happened
but very few can tell you where we are going. If you have been
reading my articles long you know I am a "news and events"
player, not a technician. I have technicians send me charts
constantly saying XYZ stock is about to breakout and we should
recommend it. I ask them when they are going to announce earnings
and they say, "why?, I don't know anything about earnings!"
Investing is simply not about JUST looking at a chart, it involves
news and current events for the company as well as the market
and the economy. It also involves cycles in investor sentiment.

So back to the point. While I think the market is setting up for
a great trading rally next week, I also feel that there will be
another dip around the Fed meeting. The current rally is based
on the expectations that the Fed will cut 50 basis points. Even
if they do, it is already priced in. Secondly, earnings are over.
There is no positive event to continue to power the market. The
biggest news now is the impending recession possibilities which
is not market positive. The current market is running on hope,
bullish hope. Volume is slowing which means hope is slowing.
The summer season is normally a negative for the markets.
Volume goes down, traders go on vacation, kids are out of school
which takes the focus off investing for a large portion of the
retail traders. It is entirely likely that the current Dow
rally which started on April 4th will fail in the next eight
days and we will go back to being locked in a trading range
until fall.

My suggestion, now that I have pointed out both sides of the
picture, is trade any rally we get this week but go flat before
the FOMC meeting on the 15th. Wait for the smoke to clear and
see if the market conditions have changed. Remember, the
markets go down over 80% of the time on the two days after
a FOMC meeting, even if they cut rates! Buy the rumor, sell
the fact.

Trade smart, enter passively, exit aggressively!

Jim Brown


The "Capturing Stock Appreciation With Leap Puts" seminar
for this Sunday was rescheduled to Sunday May-20th due to 
the Mothers Day conflict. We had numerous complaints that
we would schedule this without thinking about the family
strife it would cause. SORRY GUYS!!! We apologize!
Click here for current info: 


If you are interested in attending an online seminar on my
strategy of capturing stock appreciation by selling Leap Puts
it will be next Sunday, May 20th at 8:PM ET and I will repeat
it at 8:PM PT as well. It will last 90-120 minutes and will be
interactive. You will be able to ask questions and I will
answer your questions in real time with charts and diagrams.
You do not need any special software to view the seminar
but you must have a 56K Internet connection or faster for
best results and a seperate phone line for audio.

If you are interested in this seminar please click here
for more information.


Breakouts to New Relative Highs

When looking for a stock to play in a market that is moving
up broadly you should not just pick any symbol with a couple
days gains and jump on board. There are many different thoughts
on which stocks to play but one of my favorites is a "new
relative high" or a breakout from congestion.

The stock may have many higher highs but as it progresses
up from the recent bear market sell off every dollar gain
is at the expense of traders who wish they had sold the last
time it was at the current level.

If you had a $80 stock that fell to $40 and then rallied
back to $60 before falling even lower, there are thousands
of investors who said "if only I had sold it at $60." It
may languish below $60 for months but those investors still
remember that $60 level as their pain threshold. Under $60
is too painful, I will hold, but when it hits $60 again I
am out of here!

Once the stock clears these artificial resistance levels
it tends to run quickly to the next higher level. Setting
buy stops just above the current resistance allows us to
wait for that run to begin. To wait for those sellers to
be done selling. We don't want to own a stock that others
are just waiting to sell.

I am going to list some examples today of stocks that I
think would be good plays once they break out to a new
relative high. We want to set a buy stop right above
resistance and try and catch the bounce.

QLGC - Resistance at $50.00

SANM - Resistance at $35.00

MSFT - Resistance at $71.25 - $72.50

LLTC - $52.00

As always please protect your positions with stop losses.
What looks good on paper (or monitor) does not always work
out in real life.



Caught By Surprise
By Bill Kaeiser

That is an understatement.  Both the bulls and the bears got thrown
for loop.  First, it was the Non-Farm Payrolls missing the estimate
by almost 250,000 jobs.  While the expectation was to add 25K, the
weakening job market actually lost 223K jobs.  Then, after a gap
down, the bears got shook out as buyers stepped right up from the
open.  A nice little squeeze to keep this market looking and
feeling strong.  Pullbacks are beginning to be seen as opportunity
and the sentiment is shifting.  Shorts see this too.  They are
covering quicker, in effect giving more cushion to the downside.
However, there's a lot of talk out there about another pullback
and how everyone wants to get long at that point.  I'm starting
to wonder if the market fades the expectations of a pullback
and leaves us kicking ourselves for waiting too long.  Patience
might be the best bet here though.

The COMPX gapped down to 2100 on the open and briefly dipped
below.  From that point on, there was very little red on the
chart.  Look at the green candles all day on the 60 minute
chart below.  This timeframe shows the range we've been trading
between 2000 and 2232.  Not real exciting but our recent gains
in tech are being digested.  Given this range, a breakout above
2243, which was the high on March 7th and the pivot before
testing 2000, will probably bring out that panic buying of old.
I am more inclined to think that a retest of the lower bound at
2000 will happen first, but we saw what happened on Friday.  I'm
hoping that my patience pays off on getting a long entry.
Further strengthening the "pullback" sentiment crowd is the
weekly chart.  The downtrend line from all the way back in
March 2000 when the Nasdaq traded 5000 is looming right at
current levels.  Support remains at 2000 with resistance at
the 2250 area.  On the QQQs, we're looking at $49.50 resistance
and $43.50 as support, coinciding roughly with the COMPX levels.

Resistance is solid at the 1267 area.  Impenetrable?  At least for
now.  It's beginning to look and feel top-heavy, and like the
Nasdaq, may be in for a retest of the lower end of the range.
If a we do see weakness in the S&P 500, a break below intraday
support at 1240 could lead to a further pullback near 1200.  On
the flipside, if the SPX.X breaks higher, we could see a very
big rally fueled by short covering.  As for the OEX.X, resistance
is still sitting at 660, with support at 640 and 620, being the
38.2% retracement of April's rally.

DOW 30
Forget 10900!  Buyers pushed the Dow ($INDU) through previous
resistance there, managing to close just 50 points off the
11000 mark.  This is our next upside challenge and you know that
the sellers will be waiting there.  Friday's rally lifted the
Dow 30 over May 2nd's high of 10939.  After the open, the Dow
dropped right down to support at 10700 and once the buying
began, it didn't stop.  There certainly is conviction to the
upside at this support level.  We would look for 10900 to now
provide support after this breakout.  A failure of this would
allow shorting opportunities.  Until then, it's all about 11000.

COT Data
This Friday's COT report shows some interesting developments.
Commercials have reduced their net-short positions on the S&P 500
by 2.5%, while increasing their net-long positions on the DJIA
future by 8.5% to 25%.  Here's the biggie:  Small Specs have
doubled their net-short positions on the DJIA from -26% to -58%!
We are going to see a battle on the Dow.  On the Nasdaq 100
futures, Commercials remained unchanged, still net-short 17%.
Small Specs, however, doubled their net-longs to 22%.  This
bodes well for the Nasdaq's general health.  Now we just hope
there's one more pullback to catch that great entry point in

Until we meet again,

Bill K.


Please visit this link for Market Posture:



Cisco's Chance
By Eric Utley

Tuesday will bring Cisco Systems' (NASDAQ:CSCO) fiscal third-
quarter earnings report.  I recall, in early April, Cisco said
it would write-off billions worth of inventory and that its
revenue growth would decline by 30 percent sequentially.  The
report should be telling of the current condition of the
networking business and I anxiously await the conference call
for guidance from Chambers.

In other news, the Colorado Avalanche were defeated by the Los
Angeles Kings Friday night in Game 5 of the Western Conference
semifinals of the Stanley Cup Playoffs.  The Kings edged past
the Avs by 1-0.  The Avs' inability to net the puck caused
me to cover some of my Los Angeles Kings short position, but
I'm still very long the Avalanche!

While the Avs were unable to score this weekend, my little
sister, Stefanie, netted her first goal of the soccer season,
extending her team's unprecedented 17-0 record.  Stefanie,
following your power kick past the goalie, I heard something
echoing across the Rockies that sounded like: GOOOAAALLL!!!
Way to go, dude!

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


Gaming THE Pullback

Since I have been sitting with 95% cash in my account and made
almost 50% last year I was wondering [if] I missed the
opportunity this time or do [you] think there will be a pull
back (profit taking).  Since several of the stocks I was
following are EMLX, BRCD, CHKP and MERQ and all of them are
more than 100% gain without pullback, do [you] think
there will be possibility of profit taking within next week
or so?  Please give some hints regarding market's overall
direction.  Since you were little more bearish I was waiting
for pullback and now I am loosing my patience. - Thanks,

Before I address your request, Mitul, I'd like to congratulate
you on a stellar performance last year.  Well done!

I think that Mitul's request concerning a pullback is very
pertinent to the current condition of the markets, so let's
get on with it!

In the space of five short weeks, the Nasdaq Composite (COMPX)
advanced 38 percent from its low of 1619 traced on April 4th
to a relative high of 2232 traced last Wednesday.  Obviously,
the magnitude of that move was awesome.  But was it just
another bear market rally or was it the advance that marked
the end of the bear?  Like I've written before, I think we've
seen the lows across the broader market averages, but I also
think that a 38 percent advance, for example, requires

The advances in individual issues, as you alluded to, Mitul,
have been even more impressive.  Let's take Brocade
(NASDAQ:BRCD), for example, whose shares ran up 200 percent
recently - 200 percent!  Fortunately, Option Investor was in on
some of those gains.

Now I know that Brocade, along with several other data storage
companies such as Emc (NYSE:EMC) and Network Appliance
(NASDAQ:NTAP), have recently suggested that demand was
beginning to slightly up-tick.  But does the mere suggestion
of an improvement in business justify a 200 percent advance in
price?  I'm not smart enough to answer that question and I'm
not smart enough to pick tops in stocks, which is why Brocade
is still on the Option Investor call list.  However, Mitul,
I do think that stocks such as Brocade need to pullback and
consolidate recent gains, hence our relatively tight stop on
the Brocade play.  A quick glance over Brocade's chart
reveals a V-bottom, which I don't necessarily buy into.  And
I don't "believe" in V-bottoms relative to the current
market because of the massive downside moves that many of
these stocks experienced; downside moves need to be
consolidated, too!  Furthermore, the Nasdaq is trading like
it's 1999 again and I don't think the current economic
environment is necessarily conducive to these monster
moves to the upside.  Let me make it clear, however, that I'm
by no means bearish on the economy nor the market.  The recent
advance was just a little too much, too fast - - but that's
just my opinion.

To directly answer your questions Mitul, yes I think the
stocks you mentioned will pullback.  And yes, I think the
broader market will pullback on profit taking.  But, timing
is EVERYTHING, so I'm not necessarily recommending shorting.

And in the event of a pullback in a stock such as Brocade,
I think an appropriate tool to employ would be a
retracement bracket in an attempt to gain a good risk
to reward entry into the stock.  On the Brocade chart below,
I've simply laid a retracement bracket over the stock's
recent relative highs and lows in an attempt to ascertain
levels to monitor for a pullback.  Additionally, I've used
similar retracement brackets on the reviews to follow to
better illustrate this concept.


Emc - EMC

Hope the fishing was good [last] weekend.  Of course a bad day
fishing is better than a good day at work...well maybe.  Anyway
I was looking at the chart of EMC looks like a cup and handle
forming.  Can you confirm this?  Thanks for the help and great
work. - David

David, the fishing was great last weekend!

Although I've reviewed Emc (NYSE:EMC) quite a bit recently, I
think the question concerning the perceived cup-and-handle
bottom pattern on its chart is very pertinent.

I won't go into any fundamental issues this weekend concerning
the data storage market, of which Emc controls roughly 40
percent.  I think I've made it clear in past columns that I'm
bullish on shares of Emc and the data storage business over
the intermediate- and long-term.

As David pointed out, shares of Emc have traced a cup-with-handle
pattern over the past two months.  This pattern is appearing on
the charts of many tech stocks following the rebound in the
Nasdaq.  The only "issue" I have with these bottom patterns is
that they formed in a short amount of time.  I think the longer
a stock bases, the stronger the ensuing rally once it breaks out
of its consolidation.  For Emc's part, the stock traced the
cup portion of its base over eight weeks.  Ideally, the stock
should spend 12 weeks, or more, forming its base.

The handle portion on Emc's chart is clearly defined by the $37 -
$46 range.  Again, I'd like to see the stock trade sideways for
another six to eight weeks - that would give shares of Emc a
solid base to rally from.  In addition, the stock rallied roughly
80 percent from its relative low at $25, and that type of move
to the upside requires consolidation just as Emc's downside move
from its relative highs around $100 requires lateral trading.
Also worth noting is the declining volume on which shares of
Emc are trading as they form the handle.  The sideways trading
on decreasing volume is indicative of a basing pattern and
serves the purpose of weeding out the "weak hands."

Those who wish to gain entry into Emc from the long side, at
the "right" time, will want to wait and watch for a breakout
above the upper-end of its current trading range on volume in
excess 30 or 40 million shares.


Wal Mart Stores - WMT

WMT was recently on the call list of OIN.  A very bullish
article was written that the stock is getting ready for a
strong earnings run.  However within 2 days the stock was
dropped from the call list since it traded below 52.  However
the stock is now trading above 52 and has touched also 53.50.
Can you advise your views please if you see this stock making
an earnings run and expected to go higher? - Thanks, Sunil

Thanks for the question, Sunil!

We (Option Investor) picked up Wal Mart (NYSE:WMT) on April
25th after the stock bounced off the $50 level, near its
aggressive ascending support line.  We liked the technicals
on the chart and behavior in price along with the prospects
of continued rate cuts following the Fed's surprise move on
April 18th.

After capturing a few points in the stock, we decided to move
our downside protective stop up to the $52 level.  And you can
see on the chart below that the $52 level marked the 50
percent retracement of Wal Mart's move lower from its relative
high of $58.75 on January 3rd to its low of $45.18 on March
23rd.  In short, we figured the $52 level was key support and
important for Wal Mart to trade above.  Unfortunately, we
cut the stock loose after it closed below that level.  And,
as you alluded to, Sunil, Wal Mart subsequently traded up to
$53.55 - the site of its 61 percent retracement level.  I
think that $53.55 is the key resistance level as you can see
on the chart below.  Wal Mart has been stuck in the range
between its 50 and 61 percent retracement levels for six
trading days now.  In addition, Wal Mart faces resistance at
its descending trend line around the $54 level.  However, if
$54 is cleared, I think that Wal Mart will trade up to its
relative high around $57.

I don't know if anticipation of the company's earnings report
on May 15th will power Wal Mart higher in the short-term.
When Wal Mart reported its March sales figures on April 12th,
it reduced its first-quarter earnings forecast by one penny to
31 cents per share.  The company blamed its shortfall on
colder-than-expected weather during March and that warning may
keep a lid on shares ahead of the earnings report because
market participants may fear an additional warning on May 15th.
But, that's just speculation on my part so take it for what
it's worth.  In addition, we're all aware that the Dow Jones
Industrial Average closed less than 50 points from the nearly
impenetrable 11,000 level and Wal Mart is a component of the
Dow, which makes a breakout above Wal Mart's own resistance
all the less likely in the short-term.


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 May 7th, 2001

Consumer Credit           Mar  Forecast:  $9.8B  Previous: $13.5B

Productivity-Prel          Q1  Forecast:  1.10%  Previous:  2.20%
Wholesale Inventories     Mar  Forecast:  0.20%  Previous: -0.10%
Richmond Fed Mfg.         Apr  Forecast:    NA   Previous:  -9.0

Oil & Gas Inventory     4-May  Forecast:    NA   Previous:318.2MB

Initial Claims          5-May  Forecast:    NA   Previous:   421K
Export Prices ex-ag.      Apr  Forecast:    NA   Previous: -0.10%
Import Prices ex-oil      Apr  Forecast:    NA   Previous: -0.90%

PPI                       Apr  Forecast:  0.30%  Previous: -0.10%
Core PPI                  Apr  Forecast:  0.10%  Previous:  0.10%
Retail Sales              Apr  Forecast:  0.20%  Previous: -0.20%
Retail Sales ex-auto      Apr  Forecast:  0.50%  Previous: -0.10%
ECRI Wkly Leading Idx   4-May  Forecast:    NA   Previous: 122.0

Week of May 14th
May 14  Business Inventories
May 14  Industrial Production
May 14  Capacity Utilization
May 16  CPI
May 16  Core CPI
May 16  Housing Starts
May 16  Building Permits
May 17  Initial Claims
May 17  Philadelphia Fed
May 17  Leading Indicators
May 18  Trade Balance
May 18  Mich Sentiment-Prel.
May 18  Treasury Budget


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The Option Investor Newsletter                   Sunday 05-06-2001
Sunday                                                      2 of 5

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The Party Continues and Is Now In Overtime
By Renee White

The rumor is out. Believers are showing up everywhere. While I
am waiting to enter on the next significant pullback, others are
jumping in for fear of missing the rebound. Whichever side you
are on, there is plenty of evidence to support the argument. That
in itself is a bullish sign, or at least a sign that if the bear
is not dead, he is darn well drunk and not feeling as strong as
in the past.

There hasn't been much selling at all. The test of buying on the
dip will soon be upon us. We are approaching a typically weak
season for the markets, yet few of us feel any signs of weakness.
The next sell-off will be important, and the level we bounce at
should be well documented in your notes. I do not expect us to
reach our previous lows, but one can never be too sure when the
markets have been this ill for this long. To be safe, we need
proof. On that proof, I will play. For the record: I didn't
believe the August 2000 rally and saw no reason for the over
zealous bullishness then. I waited and waited to enter, finally
jumping in on a day with volume on a good economic report at the
end of the month. Naturally, two days later, it reversed. We all
know what has happened since. Bummer!

Just to keep things in perspective, our charts are looking similar
to the rally in January. Although I was bearish then and played
that rally with covered calls, I feel much better about this rally.
We have more economic data behind us.  We have no artificial
money strength from end of year 401K & bonus money to artificially
surge the markets. No, this strength is real buying, and it is
broadening out into many sectors. Heck, want a healthy internet
company? Ebay (NASDAQ:EBAY) is above its 50- and 200-dma.

From a technical review, money has been stepping up to the plate
since the week of April 9th. We are due for a pullback, and we
are seeing that. I am being conservative and waiting before
entering. I would bet on a pullback this week with the Dow
Industrials ($INDU) knocking at 11,000. The index is acting
healthy and it may soon take this level out. I would expect it to
pull back first. The NASDAQ (COMPX) bounced off of its 50-dma
Friday. A very healthy sign. Still, we have come so far and
cannot ignore the recent double top formation formed in the last
two weeks. Like the January rally, we are dancing around the
50-dma, which has flattened out from its downward slope since
early April. Another good sign, if it holds.

With so much money ready to enter the markets, how the markets
react to pullbacks will tell the whole story. If buying the dips
with strong volume begins again, then we can relax our guard a
bit. Playing the new leaders will get fun. Be sure to identify
those companies you want to either own longer term, or play quick
trades with. In tech land, choose those which have rallied the most
with this recent surge of money inflow. Some notables on my radar
are: EBAY +35%, Verisign (NASDAQ:VRSN) +49%, Brocade (NASDAQ:BRCD)
+100%, Siebel Systems (NASDAQ:SEBL) +33%, and Internet Security
Systems (NASDAQ:ISSX) +80%. There are many others. I would suggest
making your own list. On the next major pullback, identify the
ones that sell-off the least, AND if you have a means to identify
it, chose those with the heaviest buying volume above the average
volume on a bounce.  Also, look for the biggest block trade volume
on that same day. Some of those could very well be purchases made
by big institutional portfolios, buying on the dips.

So far, I think my dip-buying theory will hold. We had a lot of
opportunities to sell-off last week, but the markets held strong.
Amateur hour proved deadly Friday morning, with a fake-out
sell-off due to the Employment Report. I did not understand what
all the fear was about. This report is a lagging indicator and
the next one should be even worse. Be prepared for a lower
consumer confidence level also. I was beginning to wonder if my
last article was circulated among the media this week. Suddenly,
someone announced that the glowing GDP was likely to be revised
downward. Like I warned in my article a week ago, this revision
could be drastic and plant us right at zero economic growth, not
the artificial 2% reading from the estimates. Will the markets
hold once the revisions are out?

An even bigger shocker for me was hearing an announcement that
we now have increased natural gas reserves. What? What happened
to the energy crisis? What's this about an inventory build up in
natural gas and at a 52-week low? Something doesn't add up here.
My electric bill is increasing 30% in our area soon, yet inventory
of natural gas is piling up. Could someone please tell me how to
play this industry?! Enron (NYSE:ENE) has had lower highs since
September, and the AMEX Natural Gas Index (ING.X) shows
lower highs since late December, when every analyst was screaming
for all to buy. Since the tech correction of 2000 taught me
contrarian analyst skills, my gut reaction was to hold off buying
at that time. Good thing. ENE was then around $85. It is now
hovering around $59 with an ugly technical chart. Calpine
(NYSE:CPN), on the other hand, has posted nice gains, trading
near its 52-week high, bouncing occasionally off its 50-dma.

With the financials acting well along with the techs, we have the
potential birthing of the next bull. Still, it is a high-risk
environment. Can the Dow make it over 11,000 and hold? Probably
not yet, but I bet it will soon. We are witnessing the struggle
between a very aggressive Fed and a very large bear weakening to
its presence. We may still get mauled, and a mild recession is
still a possibility. But as a trader, I feel better knowing he
is aging, showing signs of wear and tear, and that his strength
may be dissipating even if he still remains active in the markets
a while longer. Trade cautiously.


Call Play of the Day:

LAB - LaBranche & Co., Inc. $40.20 (+4.71 last week)

See details in sector list

Put Play of the Day:

GMST - Gemstar-TV Guide $39.80 (-0.11 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.


AEOS $37.39 (+0.22) AEOS offered call players opportunities
for gains over the last week, as the stock surged to a high of
$39.96 on Tuesday.  However, AEOS has been unable to penetrate
strong resistance at $40, despite the strength in the retail
sector.  In addition, considering the strong action in the broad
indexes on Friday, AEOS really should have been able to stage
a more impressive performance.  AEOS has lost momentum at this
point, and we are dropping coverage on the stock this weekend.


IDPH $51.75 (+2.30) IDPH had a wild day on Friday, as it
gapped down at the open, and subsequently dropped to a low of
$42.90.  However, the biotech sector soared later in the day on
news that Genentech would not have to pay patent royalties to
Glaxo Smith Kline on sales of its breast cancer drug or lymphoma
treatment Rituxin.  Since DNA shares the revenues from Rituxin
with IDPH, both stocks surged on this news, and, and as such,
we are dropping the play 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.


NXTL - Nextel Communications Inc. $19.99 (+2.35 last week)

Nextel Communications Inc., based in Reston, Virginia, is the
leading provider of fully integrated wireless communications
services and has built the largest guaranteed all-digital
wireless network in the United States covering thousands of
communities across the United States.  Nextel and Nextel Partners
Inc. currently serve 185 of the top 200 U.S. markets.  Through
recent market launches, Nextel and Nextel Partners' service is
available today in areas of the U.S. where approximately 220
million people live or work.  In addition, through Nextel
International Inc., Nextel has wireless operations and
investments in Canada, Mexico, Argentina, Brazil, Peru, Chile
and Japan.

Nextel hit a 52-week low of $11.18 on April 4th before making a
dramatic V shaped bottom and starting to regain momentum.  Over
the last month, NXTL has formed a clear pattern of higher lows
with increasing volume corresponding to increases in price.
The market responded well to NXTL's earnings which were
released on May 1st, and several analyst upgrades, as well as
strength in the wireless sector have added to the accelerating
momentum.  On Tuesday, NXTL reported a smaller first quarter
loss than expected, and stated that they had added 695,400 new
subscribers in the quarter, compared to an expectation of
500,000.  NXTL also stated that they would be laying off 5% of
their workforce, and said that they expect to add 2 million
subscribers this year.  The market liked the news, as NXTL
moved up over two points with strong volume on Tuesday, easily
passing its converged 50 and 10 dmas of $17.  Bear Stearns
picked up coverage of NXTL with a buy rating, and on Friday,
Goldman Sachs initiated coverage of Nextel and several of its
wireless peers with a market outperform rating.  The market
loved Goldman's bullish comments, as strong volume
propelled NXTL to a high of $20 during Friday's trading.  With
continued strength in the Nasdaq and the wireless sector next
week, NXTL is likely to clear the $20 level with heavy volume,
which would give a green light to conservative traders looking
for an entry point.  A pullback to $19 would be a more
aggressive entry point.  Monitor others in the wireless sector
such as PCS, VOD and AWE, and set stops at $17.50.  We will end
the play if NXTL closes below $17.50.

***May contracts expire in two weeks***

BUY CALL MAY-17.50 FQC-ES OI=5948 at $3.20 SL=1.50
BUY CALL MAY-20   *FQC-ED OI=6539 at $1.75 SL=1.00
BUY CALL JUN-17.50 FQC-FS OI= 216 at $4.00 SL=2.50
BUY CALL JUN-20    FQC-FD OI=1357 at $2.65 SL=1.25


MER - Merrill Lynch & Co $67.55 (+3.64 last week)

Merrill Lynch provides a variety of financial and investment
services to individuals and institutions on a global basis.
Approximately 25% of its sales derived from overseas' business.
Under pressure from industry consolidation, Merrill Lynch, once
the undisputed leader in the financial world, now finds itself
in a close fight for dominance with fellow retail/wholesale
financial supermarket Morgan Stanley Dean Witter.

We're initiating coverage on this financial powerhouse on the
belief it's poised to rise to the occasion and line traders
pockets with gold.  Robust volume and an evolving pattern of
higher-highs and higher-lows boasts a bullish inclination going
into this month's Fed Meeting.  However, the takeover
scuttlebutt surrounding Merrill Lynch may have also influenced
the share price higher on Friday.  Rumors resurfaced that
London-based HSBC would make an offer for the #1 brokerage firm;
although market experts doubted a deal was imminent.
Nevertheless, the financial sector climbed alongside the broader
maker in despite of the weak employment report.  MER rallied
$1.55, or 2.3% as fierce rivals Goldman Sachs (GS), Morgan
Stanley (MWD) and Bear Stearns (BSC) also tacked on significant
gains.  A dynamic move through the immediate resistance at $68
followed by MER closing the gap above $70 signals momentum
traders to jump on the bandwagon.  A big breakout into the $70
range also offers the more conservative a safer approach into
this play.  Pullbacks to the firm support at the $65 level,
which is bolstered by the 5 & 200 DMAS, can also provide
enterprising entries into this play; however, be prepared to
bail if MER can't maintain a position above $65 on the close.

***May contracts expire in two weeks***

BUY CALL MAY-60 MER-EL OI= 3366 at $8.30 SL=5.75
BUY CALL MAY-65*MER-EM OI=18091 at $4.50 SL=2.75
BUY CALL MAY-70 MER-EN OI= 9316 at $1.70 SL=0.75
BUY CALL JUN-65 MER-FM OI= 4293 at $6.70 SL=4.50
BUY CALL JUN-70 MER-FN OI= 9290 at $4.00 SL=2.50
BUY CALL JUN-75 MER-FO OI=  719 at $2.35 SL=1.25



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The Option Investor Newsletter                   Sunday 05-06-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
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MO - Philip Morris Companies Inc. $53.00 (+2.03 last week)

With 2000 underlying operating revenues of $80.3 billion,
($88.3 billion assuming Philip Morris owned Nabisco for all
of 2000) the Philip Morris family of companies is the world's
largest producer and marketer of consumer packaged goods.
Philip Morris Companies Inc. has five principal operating
companies :  Kraft Foods Inc., Miller Brewing Company,
Philip Morris International Inc., Philip Morris Incorporated,
and Philip Morris Capital Corporation.

MO stood for momentum on Friday, as Philip Morris opened
higher in a weak market, and spent the rest of the
day forming a smooth upward trend with a brief pause at
Thursday's 52-week high of $52.35.  Several important factors
have bolstered the technical strength in the tobacco sector over
the last several days, and several of MO's peers also made
substantial gains on Friday.  Investors have been speculating
that the Department of Justice might drop its lawsuit against
the tobacco industry, as the Bush administration did not ask
Congress for the funds necessary to continue the legal work.
In addition, the tobacco companies have won several high
profile lawsuits this year which has led some investors to
speculate that the companies' legal fees may decrease in
the years ahead.   Furthermore, several analysts upgraded MO
last week, as most analysts agree that a rise in the price
of cigarettes would benefit the stocks.  However, the really
big news is the upcoming IPO of Kraft, which should result in
a windfall cash profit to Philip Morris.  Now that MO is at
a new 52-week high, and positioned well from a technical
standpoint, traders might want to take positions at the current
level, depending on the strength in the overall indexes.  A
pullback in the Dow could result in MO possibly retreating to
its 5 dma of $51.56, which would also offer an entry
point.  Keep an eye on others in the sector, like RJR and LTR.
We are moving closing stops to $50, as we want to leave MO
plenty of room to move, and this is an exceptionally strong

***May contracts expire in two weeks***

BUY CALL MAY-47.5 MO-EW OI= 4231 at $5.90 SL=4.00
BUY CALL MAY-50  *MO-EJ OI=17253 at $3.50 SL=1.75
BUY CALL JUN-47.5 MO-FW OI= 8728 at $6.60 SL=4.50
BUY CALL JUN-50   MO-FJ OI=26889 at $4.70 SL=2.75


RE - Everest Reinsurance $64.25 (+0.01 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.

Patient traders were rewarded by RE on Friday, as an
exceptionally strong move in the insurance sector, IUX.X,
helped RE climb out of Thursday's slump and poke its
head through its 50 dma of $64.15.  IUX.X burst through its
200 dma of 747.69 in the first hour of trading, and the
momentum carried it to an 11.98% gain for the day.  Other
financial sectors such as banking also demonstrated strength
on the anticipation of more aggressive rate cuts from the Fed.
In general, financial stocks have been helped this week by a
Re-opening of the capital markets, as several very large debt
offerings and IPOs were successfully issued this week.  This
momentum is likely to continue in anticipation of the upcoming
Fed meeting on May 15th, which gives traders plenty of time for
this play.  While RE has stayed firmly above its 200 dma for
the last twelve months, it dipped below the 50 dma several
times since January, and recovered each time.  RE appears
determined to continue its upward stair step pattern, and a
good entry point would be the current level, particularly if
IUX.X continues to exhibit strength.  Alternatively, a surge
past $65 could be an entry point for more conservative traders.
Continue to monitor others in the sector like BRK A, and CB,
and set closing stops at $62.

***May contracts expire in two weeks***

BUY CALL MAY-60 RE-EL OI=137 at $4.70 SL=2.75
BUY CALL MAY-65*RE-EM OI=492 at $1.55 SL=0.75
BUY CALL JUN-60 RE-FL OI=  8 at $5.90 SL=4.00
BUY CALL JUN-65 RE-FM OI=100 at $3.10 SL=1.50


BRCD - Brocade Communications $47.65 (+12.03 last week)

Brocade Communications is a provider of Fibre Channel switching
solutions for Storage Area Networks (SANs), which apply the
benefits of a networked approach to the connection of computer
storage systems and servers.  The company's family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements and improve the performance
between their servers and storage systems.  This provides the
ability of increasing the size and scope of a company's SAN,
while allowing them to operate data-intensive applications,
such as data backup and restore, and disaster recovery on the

Providing more evidence that market sentiment is changing, the
entire market rallied throughout the day on Friday, recovering
sharply from its gap down open.  Storage stocks went along for
the ride, and BRCD was no exception, gaining nearly $5 from its
low of the day on average volume.  While the employment numbers
were responsible for the early drop, investors voted with their
wallets, indicating their belief that the economy is on the mend
and will continue to heal with the aid of the Fed's tonic of
aggressive interest rate cuts.  BRCD found support at $43, right
at the 3-week ascending trendline, as it closed the gap from
Wednesday morning and abruptly returned to rally mode.
Investors are clearly focused on the twin catalyst of the Fed's
expected 50 basis point rate cut and earnings, both scheduled
for May 15th.  Although the bias on Friday was definitely skewed
towards the bulls, it is important to note that buyers seemed to
run out of steam as BRCD neared the $48 resistance level.
Conservative investors will want to see the stock move above
this level and preferably Wednesday's highs near $50.50 before
taking a position.  Aggressive traders will want to take
advantage of intraday dips next week to gain a better entry, so
long as the stock holds above our $45 stop before returning to
its uptrend.

***May contracts expire in two weeks***

BUY CALL MAY-45*UBF-EI OI=1358 at $6.30 SL=4.25
BUY CALL MAY-50 UBF-EJ OI=2764 at $3.60 SL=1.75
BUY CALL JUN-45 UBF-FI OI= 347 at $8.70 SL=6.00
BUY CALL JUN-50 UBF-FJ OI= 513 at $6.50 SL=4.50
BUY CALL JUN-55 UBF-FK OI= 241 at $4.70 SL=2.75

SELL PUT MAY-45 UBF-QI OI=1868 at $3.30 SL=5.25
(See risks of selling puts in play legend)


LLY - Eli Lilly $86.04 (+3.24 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.

Starting the week out right, LLY jumped up at the open on
Monday, breaking out of its ascending channel and spent the
week gradually advancing, using the top of its old channel as
support.  Helped along by positive news on the development
front throughout the week, each dip is being met by eager
buyers.  On Tuesday, LLY announced positive results on trials
of their new impotence drug, Cialis.  Wednesday saw more good
news, as LLY announced that using Nizatidine in combination
with Zyprexa for the treatment of schizophrenia reduced the
treatment-emergent weight gain by approximately 50 percent.
Finally on Thursday, LLY announced that they are collaborating
with bioMerieux-Pierre Fabre to develop a new artherosclerosis
treatment.  Adding to the bullish bias was the strength in the
Pharmaceutical Index (DRG.X) which is making a valiant effort
to move through the 397 resistance level as it emerges from
the downtrend that engulfed the sector at the beginning of the
year.  Early weakness on Friday provided another aggressive
entry point as LLY fell to test the $84 support level once
again before rallying through the $86 level by midday.  We are
now seeing resistance forming near $86.50, and conservative
traders will want to wait for the stock to move through this
level before adding new positions.  To stack the deck in your
favor, make sure the DRG index is pushing through resistance
as well.  Keep stops set at $84; a close below this level will
force us to end the play.

***May contracts expire in two weeks***

BUY CALL MAY-85*LLY-EQ OI=3867 at $2.75 SL=1.25
BUY CALL MAY-90 LLY-ER OI=1208 at $0.85 SL=0.00  Aggressive!
BUY CALL JUN-85 LLY-FQ OI= 604 at $4.60 SL=2.75
BUY CALL JUN-90 LLY-FR OI= 832 at $2.35 SL=1.25
BUY CALL JUL-90 LLY-GR OI=4626 at $4.00 SL=2.50

SELL PUT MAY-85 LLY-QQ OI= 957 at $1.95 SL=3.50
(See risks of selling puts in play legend)


SEBL - Siebel Systems $47.90 (+2.20 last week)

Providing sales automation and customer service software through
its main product, Siebel Sales Enterprise, SEBL offers its
customers the ability to access client information and decision-
making support across a corporation's global computer network.
The company's e-commerce applications deliver the first entirely
Web-based, enterprise class family of sales, marketing and
customer service applications.  Among the company's heavyweight
clientele are Lucent Technologies, Glaxo Wellcome, and
Prudential Insurance.

Buying the dips is back in vogue, and all you have to do is look
at a daily chart of SEBL to see the proof.  Since rebounding
from its lows a month ago, the stock has tacked on better than
100%, helped in large part by the fact that it managed to avoid
the mistake of missing earnings in the last quarter.  Investors
have clearly been in a buying mood since the Fed's surprise
interest rate cut on April 18th, and are clearly expecting
another 50 basis point reduction at the May 15th FOMC meeting.
USB Piper Jaffray further motivated investors on Monday when the
issued a new Buy rating for SEBL, and it didn't hurt that Rick
Sherlund of Goldman Sachs stated on Thursday that Software
stocks will be among the first to recover in the beaten up
Technology sector.  Comments from the company's CEO last week
that they have visibility into the second quarter is carrying
more weight than the dismal employment numbers released on
Friday.  Just look at the stock's movement on Friday.  After a
market-wide selloff at the open, which dragged SEBL as low as
$43, buyers jumped back in and pushed the stock right back up
to the $48 resistance level by the close.  The strong recovery
kept the $46 support level intact, and the stock is now poised
to move through resistance next week.  Aggressive entries can
still be taken on intraday dips, so long as SEBL is able to stay
above our $46 stop.  The strength on Friday lasted throughout
the day, and if it continues on Monday, conservative investors
will get their entry point as buyers push the stock through the
$49 level.  Confirm positive sentiment in the sector by watching
for positive movement in the GSTI Software index (GSO.X) before

***May contracts expire in two weeks***

BUY CALL MAY-45*SGW-EI OI=16090 at $5.10 SL=3.00
BUY CALL MAY-50 SGW-EJ OI= 9944 at $2.55 SL=1.25
BUY CALL JUN-45 SGW-FI OI= 2266 at $7.60 SL=5.25
BUY CALL JUN-50 SGW-FJ OI= 1709 at $4.80 SL=3.00
BUY CALL JUN-55 SGW-FK OI= 7743 at $3.10 SL=1.50

SELL PUT MAY-45 SGW-QI OI= 4456 at $2.20 SL=3.75
(See risks of selling puts in play legend)


C - Citigroup Inc. $50.78 (-0.13 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.

A one-two punch of strengthening fundamentals and the sideways
movement this past week may just be the catalyst in helping
shares of financial services provider Citibank to move strongly
higher.  Weaker than expected employment numbers late in the week
suggested to traders that the economy may still need help,
prompting speculation of another rate cut of 50 basis points as
we head into the upcoming FOMC meeting in mid-May.  After more
than doubling in value during the month of April, the recent
consolidation allows a healthy pause to refresh, as profit taking
is met with an almost equal amount of buying pressure, with the
bulls and bears meeting calmly in an orderly manner on low
volume.  With support below at $49 and resistance overhead just
above $51, this narrow trading range on low volume at some point
will resolve itself and when it does, the move could be a
significant one.  Aggressive traders looking to enter on dips may
target support at the 5-dma ($50.38), the 100-dma ($50.16), the
psychological $50 mark, the 10-dma at $49.88 and our stop price,
set at $49.  In doing so, confirm bounces with buying volume and
make sure that C continues to close above our stop.  Traders who
are more risk averse will note that the last line of moving
average resistance left to conquer is the 200-dma, looming just
overhead at $51.56.  A break above this major moving average on
heavy trading volume may allow for an entry, provided that AMEX's
Banking Index (BIX) confirms bullish sentiment.

***May contracts expire in two weeks***

BUY CALL MAY-45 C-EI OI= 5747 at $6.20 SL=4.25
BUY CALL MAY-50*C-EJ OI=29063 at $2.00 SL=1.00
BUY CALL JUN-50 C-FJ OI=21795 at $3.10 SL=1.50
BUY CALL JUN-55 C-FK OI=19634 at $1.00 SL=0.00


FDC - First Data Corporation $66.19 (-0.21 last week)

First Data is the remarkably efficient, often invisible engine
powering today's global shift to a cashless economy.  They
process and safeguard every type of electronic payment method:
credit, debit and stored-value cards, electronic checks and
cash.  They also provide Electronic Funds Transfers to 75
percent of the world and provide card issuer services for
1,400 financial institutions and 396 million consumers
worldwide. And, through their visionary Internet Commerce
Group, they are developing advanced services and solutions
that help financial institutions, merchants, business and
consumers access the power and possibilities of the Internet.

Consolidation has been the name of the game this past week for
shares of electronic transaction processing giant FDC.  On Monday
the stock made a new all-time closing high.  Since then, FDC's
share price has drifted lower on light to average trading volume.
On the news front, announcements have been few, but positive.
The company completed its purchase of financial processing
software firm PaySys International.  As well, FDC benefited from
positive retail news from its check acceptance division Telecheck
mid-week.  It appears at this point that the recent momentum,
driven by the company's stellar earnings report and positive
comments from Merrill Lynch, has been factored in, and the bulls
are looking for a new reason to take the stock higher.  The
prospects of further reductions in interest rates could help the
NYSE to rally ahead of the upcoming FOMC meeting, taking FDC
along with it.  A bullish surge back above the 5-dma (now at
$66.77) on increased trading volume may be a sign that the stock
is ready to resume its advance, allowing cautious traders to
take a position.  Just make sure that competitors FISV and PAYX
are also moving higher.  For higher risk players, pullbacks
intra-day to support at $66, the 10-dma at $65.80 and our closing
stop price and horizontal support at $65, may provide potential
entry points.

***May contracts expire in two weeks***

BUY CALL MAY-60 FDC-EL OI=2055 at $6.90 SL=5.00
BUY CALL MAY-65*FDC-EM OI=3212 at $2.80 SL=1.50
BUY CALL JUN-65 FDC-FM OI= 959 at $4.40 SL=2.75
BUY CALL JUN-70 FDC-FN OI= 351 at $2.05 SL=1.00


LAB - LaBranche & Co., Inc. $40.20 (+4.71 last week)

Founded in 1924, LaBranche & Co Inc. operates primarily as a New
York Stock Exchange Specialist firm.  It is one of the oldest and
largest NYSE Specialists, in terms of capital, number of stocks
and dollar and share volume traded.  As a Specialist, the role of
LaBranche is to ensure that the market for each of the stocks it
represents remains fair and orderly.  LaBranche accomplishes this
by connecting buyers to sellers, helping to find the best
available bids and offers.  In addition, LaBranche adds
liquidity, reduces volatility and stabilizes prices by committing
capital when buyers or sellers outnumber each other.

Since the lows of early April, shares of NYSE specialist firm
LaBranche have bounced bullishly in a v-bottom fashion.  A number
of fundamental factors have contributed to the technical strength
of LAB.  Uncertainty over the effects of decimalization of the
NYSE was a major worry on the part of shareholders.  However, the
company recently came out with a stellar earnings report.
Revenues increased by 24 percent year-over-year and earnings per
share rose 8 percent.  In the company's conference call, the CEO
noted that in light of the weak economic climate at the time, the
numbers were solid indeed.  News that the NASDAQ exchange will be
going public also helped to give market making firms across the
board a lift.  What's more, the recent pickup in trading activity
means more business for LAB.  This was a great week for those who
were long this stock, as LAB was able to break above all its
major moving averages.  Connecting the highs and lows since April
reveals an upward trending regression channel.  With plenty of
potential room to the upside, continued buying pressure lifting
the stock above $40.50 with conviction may allow for an entry on
strength.  Support below is strong, especially with the 10, 50
and 100-dma converged at just above $36.  To protect this
profitable play, we are moving up our closing stop price, from
$37 to $38.  Pullbacks to support at $40, $39, the 5-dma at
$38.37 and $38, may allow higher risk players to make a play, but
only if rivals NITE and SCH are also showing strength.

***May contracts expire in two weeks***

BUY CALL MAY-35 LAB-EG OI= 93 at $5.70 SL=3.50
BUY CALL MAY-40*LAB-EH OI=766 at $2.20 SL=1.25
BUY CALL JUN-35 LAB-FG OI=  1 at $6.80 SL=5.00
BUY CALL JUN-40 LAB-FH OI=  5 at $3.80 SL=2.50


AOL - AOL Time Warner Inc $52.20 (+2.21 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.

The threat of an industry walkout and dismal economic reports
couldn't take AOL down for the count last week.  The share price
maintained its stance at the $50 near-term support level as it
fought off the negative sentiment effectively knocking other
media stocks like GMST, V, and DIS, to the mat.  The nice
recoveries off the low end of the trading spectrum, at the 10-
dma line, gave traders an opportunity to take entries; although
it was prudent to lock in gains as AOL approached the $52
resistance.  So while the day traders might have found occasion
to add new positions, the conservative were sitting on the
sidelines waiting for a visible breakout.  The underlying power
will be evident in an advancing market where buyers are control
and taking the broad sector to new highs.  Friday's bullish
close, at just a fraction from the intraday high of $52.40,
bodes well going into next week, but wait for definitive follow
through next week before jumping into the play.  We're looking
for high-volume momentum to launch AOL into the next resistance
zone of $55 and $58.  As it's been during the AOL vigil, keep
the protective stop in place at the $50 level.  Be prepared for
OI to drop coverage if the share price falls below this mark on
a close.

***May contracts expire in two weeks***

BUY CALL MAY-45 AOE-EI OI=17002 at $7.60 SL=5.25
BUY CALL MAY-50*AOO-EJ OI=26745 at $3.30 SL=1.50
BUY CALL JUN-45 AOE-FI OI=  671 at $8.50 SL=5.00
BUY CALL JUN-50 AOO-FJ OI= 2816 at $4.60 SL=2.75
BUY CALL JUN-55 AOO-FK OI=10741 at $2.10 SL=1.00


STOR - StorageNetworks Inc $15.40 (+5.46 last week)

StorageNetworks is a provider of storage management services and
developer of storage management technology.  It operates in two
distinct business segments: managed storage services and
professional services, which assist customers in assessing their
data storage needs and designing appropriate data storage
systems.  Most of StorageNetworks' sales come from monthly fees,
as well as consulting and related data storage services.  The
company is currently expanding its network, which currently
includes more than 20 data centers in 11 US metropolitan areas
and one in the UK.

It was aggressive to jump into this technically driven momentum
play yesterday, but the risk-reward ratio reaped lucrative gains
for those who took the plunge.  We added STOR to our call list
on Thursday evening after noticing the inverse head-and-
shoulders formation and importantly, the convincing break above
the $13.50 neckline.  In addition to the technical achievement,
a major storage deal with Ford Motors combined with a Buy
recommendation by Thomas Weisal Partners was on investors'
minds, setting STOR up for a big rally.  Well, it came to
fruition.  STOR stormed out of the gate and ran straight up amid
heavy trading.  On the session, the share price saw a 19%, or
$2.63 gain at its peak, with a strong close above the $15.50
intraday support.  But let's not throw caution to the wind.  We
raised our protective stop from $12.50 to $13.50 in an effort to
safeguard gains and capital, going forward.  Make no mistake,
STOR is an AGGRESSIVE play.  If you have a very opportunist
nature and the risk profile to match, you might find viable
entries near the $13 and $14 levels, which is bolstered by the
5-dma ($12.66) - IF STOR becomes a victim of heavy profit taking
and bounces back!  However, that approach is pushing the
envelope, so to speak.  Instead you may fare better looking to
catch a ride on an upside wave through the immediate opposition
at $17 and lock in gains as STOR charges $20.  An advancing
NASDAQ certainly casts a better disposition on the success of
this play.

***May contracts expire in two weeks***

BUY CALL MAY-10   OSU-EB OI=1111 at $5.90 SL=4.00
BUY CALL MAY-12.5 OSU-EV OI=1051 at $3.50 SL=1.75
BUY CALL MAY-15  *OSU-EC OI=1364 at $2.05 SL=1.00
BUY CALL JUN-12.5 OSU-FV OI= 268 at $4.50 SL=2.75
BUY CALL JUN-15   OSU-FC OI= 232 at $3.30 SL=1.50
BUY CALL JUN-17.5 OSU-FW OI= 109 at $2.25 SL=1.00



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The Option Investor Newsletter                   Sunday 05-06-2001
Sunday                                                      4 of 5

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NVLS - Novellus Systems $50.95 (-1.93 last week)

Providing equipment for advanced Semiconductor manufacturing,
NVLS focuses on advanced, high-productivity thin film
deposition systems and surface preparation systems used in
the fabrication of integrated circuits.  Utilizing Chemical
Vapor Deposition (CVD), Physical Vapor Deposition,
electroplating, photoresist strip and residue removal systems,
the company's products provide high film quality while
attaining the high levels of productivity required to meet
the semiconductor industry's need for high-volume, low-cost
wafer production.

The flagging strength of semiconductor shares is providing us
another attractive put play, this one on NVLS, one of several
suppliers of semiconductor manufacturing equipment.  As the
Semiconductor Index (SOX.X) has run out of upward momentum, NVLS
has been unable to penetrate the $57 support level, falling back
sharply towards the end of the week.  The Tucker Anthony Sutro
downgrade to Underperform on Thursday really got the sellers
moving, and the stock has now lost 8% in the past 2 days.  The
company didn't help its own case much on Thursday when it said
it doesn't see a recovery in the chip sector until the fourth
quarter, at best.  The disappointing employment report on Friday
produced a drop to the $50 level where the stock saw some buying
interest, but the weakness of the rebound gives the impression
that NVLS will have a hard time going much higher.  Use intraday
bounces to gain a better entry point, so long as the $52-53
resistance level remains intact.  More conservative traders will
want to wait for the stock to fall through the $50 support level
before taking a position.  Regardless of your approach, keep an
eye on the SOX.  Weakness in the broader sector is likely to
keep equipment stocks like NVLS under pressure.  We are starting
the play with stops set at $53.

***May contracts expire in two weeks***

BUY PUT MAY-50*NLQ-QJ OI=2062 at $3.10 SL=1.50
BUY PUT MAY-45 NLQ-QI OI=1602 at $1.25 SL=0.50
BUY PUT JUN-50 NLQ-RJ OI= 746 at $5.70 SL=3.75
BUY PUT JUN-45 NLQ-RI OI=2930 at $3.50 SL=1.75


PMCS - PMC-Sierra, Inc. $41.25 (+3.30 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.

It's been said that where the Semiconductors lead, the NASDAQ
follows.  So it's no surprise that the NASDAQ rally last month
was in a large part fueled by bullish activity in the Chip
sector.  With that in mind, shares of communications chipmaker
PMCS more than doubled in value in less than three weeks of
trading.  Since that time, the stock has settled into a period of
sideways movement, with support at $35 and resistance at $43.  A
number of factors are suggesting that the next move for PMCS
could be lower.  For one, the underlying fundamentals in the Chip
sector have only begun to reverse course.  Analysts are
suggesting that the turnaround could take longer than anticipated
and as such, the question of earnings visibility is once again
being asked.  With the rollover in stochastic levels and a recent
series of lower highs, the first signs of what could be a bearish
wedge have made themselves visible.   A break below $40 could
allow for an entry on weakness, if the Philadelphia Semiconductor
Index (SOX) is also heading lower.  For aggressive traders,
failed rallies as PMCS approaches $43 may be a signal to jump in.
One event to be aware of that could lead to increased volatility
for the stock is Cisco's earnings report, which is set for this
coming Tuesday.  The market will gauge the health of PMCS'
business based on its major customer in Cisco.  As a result,
Cisco's earnings release most definitely increases the risk
profile of this play.  Conservative traders may choose to stay on
the sideline until this event has passed.  Finally, we're setting
upside, protective stops at the $44 level.

***May contracts expire in two weeks***

BUY PUT MAY-40*SQL-QH OI=5260 at $3.60 SL=1.75
BUY PUT MAY-35 SQL-QG OI=3603 at $1.80 SL=1.00



AMAT - Applied Materials $51.53 (-2.36 last week)

Applied Materials develops, manufactures, markets and services
semiconductor wafer fabrication equipment and related spare
parts for the worldwide semiconductor industry.  Many of
AMAT's products are single-wafer systems designed with two or
more process chambers attached to a base platform.  The
platform feeds a wafer to each chamber, allowing the
simultaneous processing of several wafers to enable high
manufacturing productivity and precise control of the process.
These platforms support chemical vapor deposition, physical
vapor deposition, etch and rapid thermal processing

Although they led the recovery on the NASDAQ in early April,
Semiconductor stocks are beginning to show definite signs of
weakness.   The 6-month descending trendline exerted its
influence last week at 690, thwarting yet another attempt by
the Philadelphia Semiconductor Index (SOX.X) to break through
the 700 resistance level.  The subsequent retreat in the SOX
hit Semiconductor Equipment stocks the hardest, causing AMAT to
roll over near the $56 resistance level.  Sure enough, AMAT fell
back under the 200-dma (currently at $54.10) on Thursday, and on
Friday buyers were turned back right at the 10-dma (currently at
$53.08), providing another attractive entry point for aggressive
traders.  Pushing AMAT lower on Thursday were bearish comments
from Tucker Anthony Sutro, accompanied by a downgrade to
Underperform.  On Friday, AMAT dropped within a fraction of $50
on the heels of the dismal employment numbers before recovering
for the rest of the morning.  After lunch though, sellers came
back with a vengeance, driving the stock back under $52,
effectively puncturing this as a support level.  While earnings
for AMAT are set to be released on May 15th, it appears unlikely
that buyers will be aggressively buying the stock ahead of the
report, given the returning bearish sentiment.  Look for any
bounce in the stock to provide a better entry point, with $53
(the high on Friday) likely to provide resistance.  More
conservative entries will materialize as the $50 support level
falls to the bears renewed attacks.  Keep stops set at $54.

***May contracts expire in two weeks***

BUY PUT MAY-55 ANQ-QK OI=6780 at $5.60 SL=3.50
BUY PUT MAY-50*ANQ-QJ OI=6385 at $2.95 SL=1.50
BUY PUT JUN-50 ANQ-RJ OI=1744 at $4.90 SL=3.00
BUY PUT JUN-45 ANQ-RI OI= 873 at $3.00 SL=1.50


JNPR - Juniper Networks $61.13 (+6.11 last week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  The routers provided
by the company combine the features of the JUNOS Internet
Software, high performance ASIC-based packet forwarding
technology and Internet-optimized architecture into a
purpose-built solution for service providers.

This is clearly an aggressive play, and we may be tilting at
windmills here (read: fighting the Fed), but the Networking
index (NWX.X) is showing definite signs of weakness.  While the
NWX managed to move to new recent highs last week, these new
highs were not confirmed by a comparable rise in the daily
Stochastics oscillator before price action began to weaken.
Take a look at the chart, and you can see the bearish divergence
setting up.  Sure enough, JNPR is running into formidable
resistance near $68, and despite its recovery off the lows on
Friday, looks vulnerable to more selling next week.  The rebound
off the lows brought JNPR right up to the $64 resistance level
(also the location or our stop), providing a nice entry for
aggressive traders before the stock rolled over, ending the day
just above the $61 support level.  As the stock sold off into
the close, selling volume was on the rise, indicating we could
see more weakness in the week ahead.  Should sellers start to
exert their influence on the NASDAQ ahead of the FOMC meeting on
May 15th, it is entirely possible that JNPR could test the $50
support level.  The pivotal event for next week will likely be
the CSCO earnings report, set to be released Tuesday after the
closing bell.  As a bellwether for the Networking sector,
investors will likely be focused on the outlook more than the
actual numbers.  If visibility is still absent, look for JNPR
and other leading Networking stocks to feel the pain of the
bears' assault.  Aggressive entries can still be considered on
an intraday bounce near the $64 level (our stop), while those
looking for a more conservative entry will want to wait until
JNPR falls below the $60 level before taking a position

***May contracts expire in two weeks***

BUY PUT MAY-60*JUX-QL OI=13713 at $4.70 SL=2.75
BUY PUT MAY-55 JUX-QK OI= 5911 at $3.10 SL=1.50
BUY PUT JUN-60 JUX-RL OI=  682 at $8.00 SL=5.75
BUY PUT JUN-55 JUX-RK OI= 1312 at $5.90 SL=4.00


TBL - Timberland Co. $48.67 (+1.62 last week)

Timberland is a global leader in the design, engineering and
marketing of premium quality footwear, apparel and accessories
for consumers who value the outdoors and their time in it.
Timberland products offer quality workmanship and detailing
and are built to withstand the elements of nature.  The company's
products can be found in leading department and specialty
stores as well as Timberland retail stores throughout North
America, Europe, Asian, Latin America and the Middle East.

While TBL moved higher last week, a close examination of the
chart pattern reveals an unmistakable monthly and weekly
pattern of lower highs at key pivot points.  Since early
March, TBL has rolled over from $60, $55, and $53.50.  This
week, TBL rolled over from $49.50 on Monday, and $49 on
Wednesday.   Friday's action was particularly revealing, as
TBL rallied with the broad indexes during the day, but
failed to cross strong resistance at $49 toward the close.
At this point, TBL is poised precariously below its 50 dma
Of $51.21, and its 200 dma of $49.74.  A rollover from
current levels would most likely bring TBL to the next
support level at $47.50.  This could be a good entry point,
particularly if it is accompanied by a roll over in RLX.X
from current levels.  A drop below $47.50 would be very
bearish, and another possible entry point.  If strong
support at $46 is broken, TBL could very well experience a
quick drop to $42.50, which occurred the third week in April.
While RLX.X is still above its major moving averages, it
appears to have formed a mini head and shoulders pattern,
over the last few weeks.  The left shoulder was formed at
904, the head at 912, and the right shoulder formed last week
with a rollover from 904.   Keep an eye on this formation,
as a strong break below 900 in RLX.X could correspond to
an entry point in TBL.  We are keeping stops at $50, so
close the position if TBL closes above this level.

***May contracts expire in two weeks***

BUY PUT MAY-50*TBL-QJ OI= 50 at $3.10 SL=1.50
BUY PUT MAY-45 TBL-QI OI=142 at $1.05 SL=0.50


GMST - Gemstar-TV Guide $39.80 (-0.11 last week)

Gemstar-TV Guide International develops, markets and licenses
proprietary technologies and systems that simplify and enhance
consumers' interaction with electronics products and other
platforms that deliver video, programming information and other
data.  The company's first proprietary system, VCR Plus+, is
currently incorporated into virtually every major brand of VCR
sold worldwide.  The company has also developed and acquired a
large portfolio of technologies and intellectual property to
implement interactive program guides (Gemstar Guide Technology),
which enable consumers to navigate through, sort, select and
record television programming.

Shares of digital media content provider Gemstar have more than
doubled in value last month, thanks to a number of positive
announcements.  Bullish coverage from brokerage houses Gerard
Klauer Mattison and UBS Warburg helped to spark investor
interest.  A major customer win in the form of a 10-year
exclusive IPG agreement with Congeco Cable added fuel to the
buying frenzy.  The company also launched its major Internet
initiative, with its online version of TV Guide opening for
business last month.  High profile customers such as CBS
Marketwatch and Rolling Stone Magazine signing up has been seen
as a good sign for the site's prospects going forward.  A major
shuffle in the upper echelon has also been well received, with
News Corp. becoming the largest shareholder in GMST stock, with a
17 percent stake.  Despite all the recent good news, it's
difficult if not impossible for a stock to sustain such a steep
up-trend.  In the midst of all this, the technicals have been
quietly deteriorating, suggesting that GMST may head lower.  The
5 and 10-dma, which supported the stock's recent rally, has
started to act as resistance.  Now sitting at just above its
50-dma ($37.39), stochastics have already crossed over bearishly
and appear to be in the process of rolling over.  A break below
this major moving average on volume may allow conservative
traders to make a play, but confirm with volume.  For aggressive
traders, failed rallies as GMST approaches resistance at $40, the
10-dma at $40.47, $41, the 5-dma at $41.84 and $42, may allow for
ideal entry points.  Track sector sympathy by following movement
in sector sisters SFA and WINK.  As well, please note that we are
moving our closing stop down from $43 to $42.

***May contracts expire in two weeks***

BUY PUT MAY-40*QLF-QH OI=2071 at $3.60 SL=1.75
BUY PUT MAY-35 QLF-QG OI=3097 at $1.45 SL=0.75


SGR - Shaw Group Inc. $57.10 (-0.40 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.

Despite a great week for Old Economy stocks, shares of leading
energy infrastructure provider SGR have drifted steadily lower in
a display of relative weakness.  Since the company's stellar
earnings report in which SGR grew sales by 95 percent and
earnings by 68 percent year-over-year, the stock has been unable
to attract investor interest and make a sustained rally.  The $3
billion order backlog appears to have been already factored into
the stock price, as has the current energy crisis, which has led
to a renewed build-out effort of energy infrastructure.  There
has also been a distinct lack of company-specific news recently
to give the buyers a reason to be bullish.  While the stock's
long-term up-trend going back to late 1998 is still firmly
intact, the technicals are slowly and steadily eroding,
suggesting that SGR may test the bottom of its upward sloping
regression channel, with that support line currently sitting at
the $42 level.  The 5 and 10-dma (currently at $57.44 and $58.54
respectively) provided support for the stock during its April
run, in which the stock managed a gain of 40 percent, has become
formidable resistance.  Failure to rally above these two levels
may give higher risk players an ideal entry point.  Just be aware
that we are inching down our closing stop price, from $59 to $58.
A bearish plunge below support at $56 on strong selling volume
could allow conservative traders to take a position.  In doing
so, make sure that peers MLI and KMT are also moving lower.

***May contracts expire in two weeks***

BUY CALL MAY-60*SGR-QL OI=1035 at $4.60 SL=2.75
BUY CALL MAY-55 SGR-QK OI= 300 at $1.90 SL=1.00



Whoa!  Who Went On The Buying Spree?
By Mark Phillips
Contact Support

Last week when I said "Buy Now, The Recession Is Over", I was
only kidding!  It seemed to me that the preliminary GDP number
coming in at 2% growth was a pretty flimsy argument for economic
recovery being upon us.  Nonetheless, the talking heads on CNBC
ran with it and investors really gobbled up stocks this past
week, lifting the DJIA within striking distance of the venerable
11,000 level by the time the closing bell rang on Friday.

Economic reports continued to be the driver for our markets last
week, and while the reports didn't surprise me, the reaction of
the broad markets certainly did.  The real shocker was the
Employment report on Friday.  Job growth was expected to come in
at +25,000, and instead we saw -223,000 when the report was
released.  As expected, the markets sold off before the open on
this bad news.  The unbelievable part was the rally that ensued.
Almost before the echo of the opening bell had dissipated,
buyers were lining up to grab their favorite stocks at the
perceived discount.

The NASDAQ continued to be the weak sister, and is still
struggling to penetrate resistance near 2250.  It is moving up
to be sure, but there is a lot of damage to be repaired and
uncertainty is still so thick you can cut it with a knife.  The
S&P500 is arguably a better measure of broad market strength and
it too is banging its head on significant resistance.  It spent
all last week testing the 1265-1270 barrier, and when it does
break through to the upside, it could in fact be an explosive

That move will likely not be driven by massive short-covering
either.  It will be new, legitimate buyers.  Why do I say that,
you ask?  Well, I took a peek at the latest Commitments of
Traders report Friday afternoon, and it appears the big boys
(the Commercials) have been quietly buying back their shorts.
As of the end of trading last Tuesday, they had whittled another
20,000+ contracts off of their previously huge net-short
position.  Remember not so long ago when they were short by more
than 110,000 contracts?  Well that has dropped to a measly
41,000+ contracts -- still huge by historical standards but well
off the recent extremes.  And keep in mind that does not include
their activity Wednesday through Friday.  My bet is their
net-short position will drop still further by the time we get
next week's report.  Check out the Market Sentiment column for a
full report.

Volatility has been dropping as well, reflecting the improvement
in investor sentiment.  Refusing to take one more trip into the
ozone, the VIX spent almost the entire week below 30.  Friday's
action was really interesting as the VIX popped up a little at
the open following the Employment Report and declined steadily
throughout the day, ending the week at 27.72.  We're nowhere
near the historical danger zone yet (that's around 20), but I'm
still expecting one more excursion well above the 30 level
before the bears pack up their stuff and go home.

Why the bullish behavior?  First was the expectation that with
employment falling off a cliff, the Fed would have no choice but
to continue aggressively cutting interest rates (read: 50 basis
points on May 15th).  That is being reflected by the Fed Fund
futures contract which is currently predicting an almost
certainty of 50 points on May 15th.  Add to that the chatter on
CNBC about employment being a lagging indicator, and investors
ignored the employment news and instead focused on the upcoming
gift from the Fed.

But here's the nagging question that I just can't shake.  If
consumers have kept this economy afloat by continuing to spend,
and control up to 70% of the economy, what effect are massive
job losses going to have on this group's spending habits?  Up
through the first quarter, they continued to gobble up
big-ticket items like houses and cars.  Where are the new
jobless Americans going to get the money to continue this
behavior?  Next Friday brings us the Retail Sales report, and
I would be surprised if speculation of weakness in this area
doesn't come to fruition.

Accordingly, we are tightening the stops on our Retail plays,
Wal-Mart (NYSE:WMT) and Nordstrom (NYSE:JWN).  We have seen
profits begin to accrue in these as well as several other plays,
and part of our active management approach is to guarantee that
we don't let our winners turn into losers.  Check out the
Portfolio for details and update your stops.

Although we have been well rewarded for nibbling on new
positions in late March and early April, now is not the time to
back up the truck for new long-term positions.  Many of these
positions have had quite a run, and will likely retrace a bit
in the weeks ahead.  We are still waiting for a pullback to fill
some of our Watch List plays, and due to the fact I expect some
weakness around the FOMC meeting, I am hesitant to move our
entry targets higher.  The recovery process is just that, a
process.  Let's let the current rally run its course and then
we'll get our new entries on the pullback.

We did a couple of new Watch List plays this week, Adobe Systems
(NASDAQ:ADBE) and AOL-Time Warner (NYSE:AOL), but we still are
looking for proof of strength as these stocks need to hold above
critical levels of support to induce us to enter the plays.  We
want to be in both of these plays  as the markets recover this
year, but jumping in too soon could be a painful experience.

Let's review.  The commercials have been covering their huge
net-short positions and there are slight hints of a bottom in
the economy.  The Fed's stimulative behavior is having an
effect, if only on investor psychology.  Keep in mind that
changes to interest rates take 6-9 months to truly be felt by
the economy, meaning that the January 3rd 50 basis point cut
still will not be factored into the economy until early June
at the earliest.  Earnings season is winding down and the
warnings have already started...and we've already seen 50% more
warnings this quarter than we had at this time last quarter.
And last quarter was an all-time record!

I may be proven wrong, but I don't think this market is going
to run away from us.  We don't have the economy firing on all
cylinders, and that will keep our precious equity markets from
going ballistic any time soon.  Patience and discipline are
still the watchwords that will keep your nest egg growing.
Make no mistake, I firmly believe we have seen the bottom in
the markets for this economic cycle.  But that doesn't preclude
some back-and-filling to solidify support levels.  When that
profit taking occurs, we will be able to gauge the strength of
the markets and use our almighty technical tools to find the
low risk/high reward entry points that will keep our Portfolio
growing throughout the year.

One final note.  Those of you that have been with us for awhile
have witnessed the recent changes in the LEAPS column.  Well,
the final installment of that process is upon us this weekend.
The Strategy section (see the link at the top of this page) has
been completely rewritten to provide a better roadmap on how to
utilize the information found herein.  Additionally, we have
started something that I've been wanting to do for a long time.
See the link at the top of this page labeled "Track Record".
While far from impressive right now, this will be how we will
measure our success over the remainder of the year.  Each play
that we enter and then exit will show up in this section.
Needless to say, I expect the results at year-end will be

As I said last week, 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)


CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $18.90    80.00%
                 JAN-2003 $ 40  OLB-AH   $15.38   $23.90    55.45%

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  $ 5.90  - 3.28%  $ 28
GENZ   03/23/01  '02 $ 85  YGZ-AQ  $24.50  $31.50   28.57%  $ 99
                 '03 $ 90  OZG-AR  $27.75  $39.10   40.90%  $ 99
SWS    03/22/01  '02 $ 18  YWF-AT  $ 4.10  $ 7.40   80.49%  $ 20
                 '03 $ 20  VWZ-AD  $ 5.00  $ 8.10   62.00%  $ 20
WM     03/22/01  '02 $ 50  WWI-AJ  $ 6.00  $ 6.90   15.00%  $ 48
                 '03 $ 50  VWI-AJ  $ 9.20  $10.30   11.96%  $ 48
WMT    03/23/01  '02 $ 50  WWT-AJ  $ 7.00  $ 9.30   32.86%  $ 50
                 '03 $ 50  VWT-AJ  $11.00  $13.80   25.45%  $ 50
JWN    03/30/01  '02 $ 20  WNZ-AD  $ 1.65  $ 2.40   45.45%  $17.50
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.90   18.18%  $17.50
GS     04/05/01  '02 $ 90  WSD-AR  $14.00  $21.30   52.14%  $ 89
                 '03 $ 90  VSD-AR  $20.50  $30.10   46.83%  $ 89
MU     04/05/01  '02 $ 40  WGY-AH  $10.60  $11.40   12.26%  $ 38
                 '03 $ 40  VGY-AH  $14.80  $16.60   16.22%  $ 38
NSM    04/05/01  '02 $ 25  WUN-AE  $ 5.50  $ 7.40   34.55%  $ 24
                 '03 $ 30  VSN-AF  $ 7.20  $ 9.30   29.17%  $ 24
NOK    04/06/01  '02 $ 25  WIK-AE  $ 4.70  $11.70  148.94%  $ 29
                 '03 $ 25  VOK-AE  $ 7.00  $14.10  101.43%  $ 29
FON    04/09/01  '02 $ 25  WO -AE  $ 2.80  $ 3.30   17.86%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 5.00   13.64%  $ 19
QQQ    04/25/01  '02 $ 40  WD -AN  $11.10  $13.00   17.12%  $ 41
                 '03 $ 45  VZQ-AS  $12.30  $14.20   15.45%  $ 41
DELL   04/27/01  '02 $ 25  WDQ-AE  $ 6.20  $ 6.00  - 3.23%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 8.90  - 1.11%  $ 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
ADBE   05/06/01  $36-37        JAN-2002 $ 40  WAE-AH
                               JAN-2003 $ 40  VAE-AH
AOL    05/06/01  $49-50        JAN-2002 $ 55  WAN-AK
                               JAN-2003 $ 55  VAN-AK

New Portfolio Plays


New Watchlist Plays

ADBE - Adobe Systems $41.36

While the broad Technology market and the more focused GSTI
Software index (GSO.X) didn't find bottom until the first week
in April, ADBE found support and began to rebound in mid-March,
following the company's earnings release.  Handily beating
downwardly revised estimates, the stock began to see some buying
interest while the rest of the NASDAQ proceeded to trade lower.
Since then, the leading supplier of desktop publishing software
has been on a tear, building a new uptrend line that currently
rests right at the $37 level, which also happens to be the
location of historical support.  According to Rick Sherlund at
Goldman Sachs, Software stocks should be among the first to
recover in the depressed Technology sector.  Looking at the
chart for the GSO.X and ADBE, we must say it doesn't take a
rocket scientist to come to that conclusion.  Last week saw
some weakness, and ADBE traded as low as $39 on Friday before
the sharp recovery took hold.  We are going to attempt to enter
new positions as this current retracement runs its course.
Look to establish new positions on a dip into the $36-37 range,
and then hold on.  Until we have conclusive proof that the
economy is on the mend, it could be a bumpy ride.  After entry,
initial stops will be placed at $30.  Just in case there is a
little more weakness in store, we don't want to be kicked out
of the play prematurely.

BUY LEAP JAN-2002 $40.00 WAE-AH
BUY LEAP JAN-2003 $40.00 VAE-AH

AOL - AOL-Time Warner $52.20

Ever since being stopped out of our AOL play in early April,
I've been grinding my teeth in frustration, watching the stock
rise and waiting for the 'inevitable' pullback to allow us back
into the play.  Whether you like the service they provide or
not, there is one undeniable fact - the company will be one of
the big winners in the battle for dominance among the pure-play
Internets.  The company sealed that fate when it merged with
Time Warner last year to form an online media powerhouse.  In my
opinion, this is one to hold for the long-term.  The problem now
is how do we get onboard without subjecting ourselves to an
undue amount of risk?  Afterall, the stock has risen almost $20
(that's 54%) since we were stopped out on our last attempt.  The
stock has now solidly broken above the $50 level and investors
appear determined in their efforts to defend the stock at those
levels.  So we are going to place our entry target fairly close
to current levels, despite the fact that all our oscillators are
buried in overbought territory.  They've been there for the past
3 weeks and there is nothing that says they can't remain there
for another 6.  Target shoot new entries on a pullback to the
$49-50 area, but don't jump in until you actually see the
bounce.  Because the potential exists for a significant
pullback, we will manage it with a $46 stop.  This should
sufficiently protect our capital, while at the same time giving
the stock some wiggle room in the event of some volatility
around the upcoming FOMC meeting.

BUY LEAP JAN-2002 $55.00 WAN-AK
BUY LEAP JAN-2003 $55.00 VAN-AK




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The Option Investor Newsletter                   Sunday 05-06-2001
Sunday                                                      5 of 5

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Trading Basics: Position Management
By Mark Wnetrzak

When new traders discuss the subject of money management, they
usually refer to techniques for the placement of protective stop
orders or the principle of investing a limited portion of one's
portfolio in each position to prevent catastrophic losses.

There is something to be said for stop-loss orders as they are
an efficient method to follow the movement in a stock or other
instrument while insuring some profit (or limited loss) if the
primary trend changes character.  Generally, we recommend taking
profits when the position produces the target return and trading
stops are an excellent way to remove the emotional or reactive
decisions that often occur in the stock/options markets.  When
the technical outlook for the instrument changes or a correction
becomes likely, one may tighten the stop (closer than usual) to
guarantee a reasonable profit (if stopped out) and still allow
for a greater gains and a possible resumption of the trend.

In most cases, a simple STOP order is the best method to limit
losses or protect profits.  The basic guidelines for establishing
protective stops suggest that the initial or opening limit should
be placed at a point where important technical support is evident.
Most often, this will be a relatively small range reflecting the
bottom of a basing pattern or trend-line established prior to
entering the position.  An important objective of this initial
stop-loss limit is to preserve capital if the play goes badly and
yet provide every opportunity for the position to achieve its
potential.  If the primary trend is directional, the placement of
the first stop will differ, depending on your overall risk/reward
tolerance.  One should also take into account the past volatility
of the issue when setting the initial loss limit.  On a bullish
stock you might trail the stop loss slightly below the previous
day's low to lock-in profits (or preserve capital) if the trend
falters.  With highly volatile instruments, this can be difficult
as they often fluctuate by large amounts.  As the move progresses
in your favor, the stop-loss can be advanced more aggressively.
To assist in correctly placing these stops, we use generally use
trend-lines, minor lows, and support/resistance areas.

While these principles work well with the majority of situations,
there will always be those cases when even the most common rules
do not seem to apply.  In particularly fast-moving markets where
straight line advances make the placement of protective stops
difficult, an arbitrary buy or sell "at the market" might be more
advisable.  There are also "progressive" stop order systems for
traders who wish to fine tune the limit-setting process to allow
for brief periods of technical consolidation.  Regardless of the
manner in which you determine the placement of stops, there is
one fundamental rule of protective limits that remains inviolate.
After an initial target is achieved, it is critical to avoid
placing stops below a point which would eliminate more than half
of your profit.  In addition, protective stop orders under long
positions are never moved down, nor are protective stop orders
over short issues ever adjusted higher.

Next week, we will discuss portfolio diversity and the efficient
use of account equity to maximize profits.

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   4.70   MAY   5.00  1.30   $  0.78  21.6%
MFNX    5.25   6.25   MAY   5.00  0.95  *$  0.70  17.7%
MRVC    8.80   8.80   MAY   7.50  2.15  *$  0.85  13.9%
BORL    7.99  10.99   MAY   7.50  1.05  *$  0.56   8.8%
ENMD   20.26  20.60   MAY  17.50  3.70  *$  0.94   8.2%
ASTE   16.05  19.00   MAY  15.00  2.10  *$  1.05   8.2%
SRNA   18.81  21.03   MAY  15.00  4.50  *$  0.69   7.0%
JBL    26.00  32.76   MAY  22.50  5.00  *$  1.50   6.2%
EXAR   30.15  28.15   MAY  25.00  6.50  *$  1.35   6.2%
EXFO   31.95  37.75   MAY  25.00  8.60  *$  1.65   6.1%
SBYN   13.75  14.50   MAY  10.00  4.40  *$  0.65   6.0%
AHAA   21.21  27.20   MAY  17.50  4.80  *$  1.09   5.8%
MU     44.07  41.80   MAY  37.50  8.00  *$  1.43   5.7%
NXCD   11.35  10.06   MAY  10.00  1.85  *$  0.50   5.7%
FDRY   13.35  16.91   MAY  10.00  3.70  *$  0.35   5.3%
ILUM   29.13  31.50   MAY  25.00  5.00  *$  0.87   5.2%
ISIL   31.74  33.10   MAY  25.00  7.60  *$  0.86   5.2%
ZIGO   24.74  38.04   MAY  17.50  8.20  *$  0.96   5.0%
PVTL   24.13  20.95   MAY  20.00  4.80  *$  0.67   5.0%
EMIS   18.20  13.64   MAY  15.00  4.10   $ -0.46   0.0%

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


Almost like old times; the 'Markets' ramping up on "bad" news
after an initial drop.  Sure seems like a change of character
to me, but then I've been fooled before.  The challenge is to
not become complacent or abandon your strategy and chase higher
returns at the expense of protection.  It looks like investors
were please with Metromedia Fiber Network's (NASDAQ:MFNX)
delayed earnings.  Luminent (NASDAQ:LMNE) is still having
trouble staying above its 50 dma.  EntreMed (NASDAQ:ENMD) is
nearing a key technical moment as it moves towards its 150 dma.
Keep an eye on Exar Corp. (NASDAQ:EXAR) as it has failed to
remain above its 150 dma and now a test of support around
$25 appears likely.  Hopefully, Friday's dip washed out all
the week holders in Micron Technology (NYSE:MU).  Monitor
the position closely as a break of the OCT'00 to APR'01 trend-
line would be bearish.  The technicals on Nextcard (NASDAQ:NXCD)
have begun to weaken and a move lower may be forthcoming.  The
action in Pivotal (NASDAQ:PVTL) is worrisome and Emisphere Tech
(NASDAQ:EMIS) is at a key moment after reporting earnings on
Tuesday.  Time to take a small loss or break-even exit and move
money to more profitable positions?


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

ITWO   23.85  MAY 20.00    JQ ED  4.40 4448  19.45   14    6.1%
NFLD   11.55  MAY 10.00   DHQ EB  1.85 401    9.70   14    6.7%
PIOS   13.37  MAY 12.50   OQJ EV  1.25 129   12.12   14    6.8%
SMTC   31.67  MAY 27.50   QTU ES  4.80 406   26.87   14    5.1%
STOR   15.40  MAY 12.50   OSU EV  3.40 1051  12.00   14    9.1%
TWAV   17.70  MAY 15.00   TQB EC  3.10 14    14.60   14    6.0%
ULCM   28.00  MAY 22.50   UUL EX  6.00 34    22.00   14    4.9%

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

STOR   15.40  MAY 12.50   OSU EV  3.40 1051  12.00   14    9.1%
PIOS   13.37  MAY 12.50   OQJ EV  1.25 129   12.12   14    6.8%
NFLD   11.55  MAY 10.00   DHQ EB  1.85 401    9.70   14    6.7%
ITWO   23.85  MAY 20.00    JQ ED  4.40 4448  19.45   14    6.1%
TWAV   17.70  MAY 15.00   TQB EC  3.10 14    14.60   14    6.0%
SMTC   31.67  MAY 27.50   QTU ES  4.80 406   26.87   14    5.1%
ULCM   28.00  MAY 22.50   UUL EX  6.00 34    22.00   14    4.9%

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).

ITWO - i2 Technologies  $23.85  *** New CEO = Rally Mode! ***

i2 Technologies (NASDAQ:ITWO) is a provider of e-business and
marketplace software solutions that may be used by enterprises
to optimize business processes both internally and among trading
partners. Its solutions are designed to help enterprises improve
efficiencies, collaborate with suppliers and customers, respond
to market demands and engage in dynamic business interactions
over the Internet.  On Wednesday, i2 announced that Greg Brady
has been promoted to chief executive officer, replacing Sanjiv
Sidhu who will continue as chairman of the board of directors.
The company gave no explanation for the change but investors
appear to favor the move as the stock is now up $6 from Tuesday's
close.  To further stoke the rally fires on Friday, Josephthal &
Co. upgraded their rating on i2 to a "strong buy".  Reasonable
short-term speculation taking advantage of the current bullish
momentum and strength in the software sector.

MAY 20.00 JQ ED LB=4.40 OI=4448 CB=19.45 DE=14 TY=6.1%

NFLD - Northfield Labs  $11.55  *** Blood Substitute ***

Northfield Laboratories (NASDAQ:NFLD) is engaged in the development
of a safe and effective alternative to transfused blood for use in
the treatment of acute blood loss.  Its PolyHeme blood substitute
product is a solution of chemically modified hemoglobin derived
from human blood.  The company is devoting substantially all of
their efforts and resources to the research, development and
clinical testing of PolyHeme(TM).  We simply see a stock that has
traded around $10 for several years and whose price recently moved
above a short-term "double bottom" formation.  New drug speculation
with a favorable cost basis.  Do your research!

MAY 10.00 DHQ EB LB=1.85 OI=401 CB=9.70 DE=14 TY=6.7%

PIOS - Pioneer  $13.37  *** Earnings Miss Priced-In? ***

Pioneer-Standard Electronics (NASDAQ:PIOS) is one of the world's
largest distributors of electronic components and computer systems,
with annual revenues of $2.6 billion for the fiscal year ended
March 31, 2000.  Pioneer, which will be reporting earnings on
Tuesday, May 8, warned in early April that 4th-quarter earnings
would be around 25 cents to 30 cents a diluted share, below an
average estimate of 34 cents, citing an industry-wide slowdown.
The company also will take a 4th-quarter charge of $14.2 million,
or about 23 cents a diluted share, related to the write-down of
information technology assets.  The stock tested the DEC'00 low
on the news and has since rallied back above its 150 dma.  We
favor the technical support near our cost basis and the current
bullish momentum as Pioneer forges a Stage I base.

MAY 12.50 OQJ EV LB=1.25 OI=129 CB=12.12 DE=14 TY=6.8%

SMTC - Semtech  $31.67  *** Bracing For A Rally! ***

Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal
semiconductors. Semtech designs, manufactures, and markets a
range of products for commercial applications, the majority of
which are sold to the communications, industrial and computer
markets.  On April 18, Semtech announced that it expects net
sales for the this quarter to be approximately $60 million, up
5% from last year, but down 14% sequentially.  Nothing like a
FED rate cut (and another cut?) to make investors disregard
the near term and concentrate on the future.  Semtech is
in a lateral consolidation but improving technicals raise
the probability of further upside movement.  A conservative
entry point for those wishing to speculate on SMTC's  future.

MAY 27.50 QTU ES LB=4.80 OI=406 CB=26.87 DE=14 TY=5.1%

STOR - StorageNetworks  $15.40  *** Bottom Fishing! ***

StorageNetworks (NASDAQ:STOR) is the world's leading provider of
data storage management services, and an innovator of storage
management software.  Their technology, software and services
enable enterprises to easily and cost-effectively store rapidly
growing volumes of business-critical information.  Shares of
StorageNetworks shot up nearly 50% this week after the company
said Ford Motor Co. (NYSE:F) had signed up for two of its storage
packages.  At a time where many of its customers are cutting costs
and technology spending, StorageNetworks has said it can reduce
storage costs for its clients by 25% to 30%.  Analysts say the
company's services also improve utilization.  We simply like
the heavy volume breakout above a short-term base with support
(the MAR and APR highs) near the sold strike.

MAY 12.50 OSU EV LB=3.40 OI=1051 CB=12.00 DE=14 TY=9.1%

TWAV - Therma-Wave  $17.70  *** Litigation Rally ***

Therma-Wave (NASDAQ:TWAV) is a worldwide leader in the development,
manufacture, marketing and service of process control metrology
systems used in the manufacture of semiconductors.  TWAV currently
offers leading-edge products to the semiconductor industry for the
measurement of transparent, semi-transparent and opaque thin films,
for the monitoring of ion implantation, and for the integration of
metrology into semiconductor processing systems.  Investors cheered
the news that Therma-Wave and KLA-Tencor (NASDAQ:KLAC) have settled
all pending litigation.  The stock has rallied strongly off the
April low which completed a short-term head-n-shoulders bottom.  A
post-earnings consolidation appears to be over and the stock now
appears ready to move higher.  A favorable entry point that offers
a reasonable short-term profit potential.

MAY 15.00 TQB EC LB=3.10 OI=14 CB=14.60 DE=14 TY=6.0%

ULCM - Ulticom  $28.00  *** What's Up? ***

Ulticom (NASDAQ:ULCM) provides service enabling software for
wireless, wireline and Internet communications in Intelligent,
Converged and Programmable Networks.  Ulticom's products,
Signalware (R) for Ultimate Call Control and Nexworx for
Ultimate Service Control, are used by the telecommunication
industry's leading equipment and service providers worldwide.
There is no news to explain the heavy-volume supported rally
that started on Wednesday, May 2.  The stock has now moved
above its 50 dma and the late March high.  Reasonable short-
term speculation with a favorable cost basis.  Remember, the
tape doesn't lie; somebody is interested in this stock.

MAY 22.50 UUL EX LB=6.00 OI=34 CB=22.00 DE=14 TY=4.9%



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

BVSN    7.64  MAY  7.50   QVB EU  0.85 3269   6.79   14   22.7%
GSPN   22.20  MAY 20.00   GLQ ED  3.20 284   19.00   14   11.4%
BIOM    8.41  JUN  7.50   BSU FU  1.60 212    6.81   42    7.3%
SCUR   18.48  MAY 17.50   UQU EW  1.55 0     16.93   14    7.3%
MCHM    8.32  JUN  7.50    QQ FU  1.50 326    6.82   42    7.2%
WGRD    8.40  JUN  7.50   RUH FU  1.55 0      6.85   42    6.9%
PRGN   24.75  MAY 20.00   GQP ED  5.20 515   19.55   14    5.0%
CRUS   22.04  JUN 17.50   CUQ FW  5.60 2989  16.44   42    4.7%
HYSL   17.20  JUN 15.00   WQE FC  3.10 0     14.10   42    4.6%


Trading Systems: The Correct Attitude And Mentality Is Essential
By Ray Cummins

Success in trading often depends as much on the psychology and
temperament of the individual as the method used to participate
in the market.

The first rule of trading: You should feel comfortable with any
strategy or procedure you utilize.  A system that is customized
to your personality and particular needs will be easier to obey
and administer, eliminating the majority of problems associated
with discipline and emotional reactions.  To ensure the success
of any approach, you must develop tactics that are compatible
with your unique character and comfort level.  In this manner,
decision-making stress is limited and positions are more easily
managed for maximum profit while unnecessary risks are avoided.
We often forget that humans make decisions based on emotions and
then justify them with logic.  The assumption that we can easily
learn to be rational in the market is regrettably inaccurate and
when it comes to trading, it is natural to become illogical.  In
most cases, we make judgments based on our past experiences and
associations or unrealistic desires and perceptions.  That's why
it is so important to remove these emotional components from our
trading methodology.

There are other psychological pitfalls you must avoid including
complacency and the subjective mental states of Overconfidence
and Denial.  Complacent traders are those that are too passive in
their approach to position management.  These nonchalant players
initiate a trade and then leave it unattended until a profit is
achieved or the play is stopped-out (if they were wise enough to
use a loss-limiting order).  In contrast, the astute trader will
note any abrupt changes that occur in the market and act quickly,
changing his (or her) plans as the situation dictates.  At that
point, the difference between profit and loss may depend more on
a timely adjustment or a revised exit strategy, rather than the
initial forecast or projection.  When trading with stop orders,
it is important to adjust the downside loss-limit as the issue
moves higher to "lock-in" gains.  This rule is often ignored by
inexperienced traders because they become comfortable after the
initial profit is achieved.  In today's volatile markets, prices
rise and fall hundreds of points in a matter of minutes and huge
gains can become disastrous losses with little or no warning.

Overconfidence is a positive attribute in many fields but in the
stock market there is little room for vanity and self-esteem.
Obviously, a certain amount of conviction is necessary to make
decisive judgments but that comes from thorough research and a
well-defined plan of action.  Traders who fail to employ these
concepts usually don't last very long, because their portfolios
are quickly wiped out.  The most visible indication of egotism in
trading is lack of fear and that often occurs after a string of
successes.  Unfortunately, a common result is that you begin to
over-trade, with less preparation and a wider margin for error.
The outcome is never favorable and courage is quickly replaced
by remorse.  Overconfidence can also lead to an affinity with a
particular position, thus limiting your ability to be objective.
The longer you hold a position, the greater that attachment will
become and the result is seldom profitable.  There are plenty of
opportunities in the market and remaining in a position after it
has changed character or turned in the wrong direction will only
extend your losses.

Denial comes in many forms but the simple definition applies
directly to traders: refusal to admit the truth or reality.  In
markets with long-term primary trends, setbacks have far less
affect on an investors' mentality because corrections are seen
as new buying opportunities.  However that does not mean every
position will recover.  Eventually, the market reverses course
and the price of your issue moves in the direction opposite to
the one you originally hoped it would follow.  As the value of
the position dwindles, common phrases such as, "It can't go any
lower," or "It will come back...it always has before" are used
to dismiss the need to make a decision.  Realizing when a trade
as "gone bad" and controlling losses effectively is the key to
consistent profits.  Indeed, when emotions affect your actions,
it is easier to justify why the market is wrong rather than
focus on the obvious signals.  Remember, winning positions are
easy to manage but the manner in which a trader reacts to losing
plays will define his success.

Experienced traders use a variety of techniques to profit in
the market but regardless of their individual approach, everyone
agrees with this simple rule: control your emotions and it will
be easier 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    20.86  20.40   MAY  15.00  0.45  *$  0.45  14.1%
PPD    17.25  20.40   MAY  10.00  0.50  *$  0.50  13.8%
UCOMA  15.39  16.71   MAY  10.00  0.30  *$  0.30  12.9%
FNSR   16.00  20.97   MAY  10.00  0.40  *$  0.40  12.1%
SNWL   16.60  18.41   MAY  12.50  0.40  *$  0.40  11.7%
MCDT   25.99  35.21   MAY  17.50  0.45  *$  0.45  11.5%
MANU   34.40  34.44   MAY  22.50  0.75  *$  0.75  10.7%
NTAP   23.55  25.17   MAY  15.00  0.50  *$  0.50  10.4%
PSFT   35.87  38.64   MAY  27.50  0.55  *$  0.55  10.3%
EBAY   41.63  52.35   MAY  30.00  1.10  *$  1.10  10.1%
RFMD   17.85  32.42   MAY  12.50  0.45  *$  0.45   9.7%
EMLX   34.96  43.30   MAY  22.50  0.50  *$  0.50   9.7%
SEBL   45.70  47.90   MAY  32.50  0.65  *$  0.65   9.6%
AMD    30.00  30.99   MAY  22.50  0.35  *$  0.35   8.0%
SCI    22.99  27.15   MAY  17.50  0.45  *$  0.45   7.7%
VSEA   39.35  38.25   MAY  30.00  0.70  *$  0.70   7.1%
BRCD   36.78  47.65   MAY  22.50  0.50  *$  0.50   6.9%
MUSE   48.83  45.90   MAY  25.00  0.65  *$  0.65   6.8%
EXFO   31.95  37.75   MAY  17.50  0.45  *$  0.45   5.7%

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


Let see if I have this straight:  Bad news is Good news and Good
news could have been bad?  The real "bad" news is watching stocks
you sold puts on ramp up.  Or is it?  Maybe the "good" news is
that you closed your positions early for $0.10 or $0.15 and
locked in a "good" profit in half the time.  Ok, I'll stop.
Sonicwall (NASDAQ:SNWL) continued to rally higher this week
and is comfortably above the sold strike.  Peoplesoft (NASDAQ:
PSFT) is acting strong and may not fill the gap from last week.
Anybody else wishing they had just bought a call with RF Micro
Devices (NASDAQ:RFMD)?  Varian Semiconductor (NASDAQ:VSEA) is
acting worrisome as it approaches a key support area at $35.


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

AHAA   27.20  MAY 22.50   GAK QX  0.50 82    22.00   14   16.3%
AVCI   14.98  MAY 10.00   QYV QB  0.30 5271   9.70   14   19.8%
CANI   26.05  MAY 22.50   CDU QX  0.45 22    22.05   14   13.4%
CTLM   32.73  MAY 25.00   UUM QE  0.40 151   24.60   14   12.5%
GOTO   21.92  MAY 17.50   GUO QW  0.35 156   17.15   14   16.1%
ISIL   33.10  MAY 25.00   UFH QE  0.40 378   24.60   14   12.4%
SRA    23.60  MAY 20.00   SRA QD  0.45 65    19.55   14   15.5%

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

AVCI   14.98  MAY 10.00   QYV QB  0.30 5271   9.70   14   19.8%
AHAA   27.20  MAY 22.50   GAK QX  0.50 82    22.00   14   16.3%
GOTO   21.92  MAY 17.50   GUO QW  0.35 156   17.15   14   16.1%
SRA    23.60  MAY 20.00   SRA QD  0.45 65    19.55   14   15.5%
CANI   26.05  MAY 22.50   CDU QX  0.45 22    22.05   14   13.4%
CTLM   32.73  MAY 25.00   UUM QE  0.40 151   24.60   14   12.5%
ISIL   33.10  MAY 25.00   UFH QE  0.40 378   24.60   14   12.4%

Company Descriptions

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

AHAA - Alpha Industries  $27.20  *** Bracing For A Rally? ***

Alpha Industries (NASDAQ:AHAA) designs and manufactures RFICs for
wireless handsets, wireless base stations, and several broadband
end markets (cable, fiber optic, fixed wireless).  The company's
technologies enable RF functions, such as tuning, switching, and
amplification and its primary product offerings include switches,
power amplifiers, discrete semiconductors, and ceramic products.
In early March, Alpha cut its 4th-quarter projections, citing the
downturn in the economy and continued softness in the wireless
handset and infrastructure markets.  On May 1, the company said
that fiscal 2001 sales grew 46% to $272 million and earnings rose
to $0.75 per share from $0.42 per share a year ago.  The numbers
met revenue and EPS guidance for the quarter despite the economic
and global inventory issues.  Although the company forecast a net
loss for the June quarter, the bad news appears to be "priced-in"
to the share value and this position offers a conservative entry
point from which to speculate on the recent bullish momentum.

MAY 22.50 GAK QX LB=0.50 OI=82 CB=22.00 DE=14 TY=16.3%

AVCI - Avici Systems  $14.98  *** Technicals Only! ***

Avici (NASDAQ:AVCI) develops and sells high-speed data networking
equipment that allows communications service providers to transmit
high volumes of information across fiber optic networks.  Their
high-performance solution is being marketed to telecommunications
companies and Internet service providers that are creating new
optical networks to address the increasing data traffic on the
Internet.  The Avici Terabit Switch Router product is designed to
address the critical needs of carriers by: managing high volumes
of network traffic at high speeds; providing the ability to add
capacity to the network without disrupting network performance;
with high levels of availability and redundancy; prioritizing
traffic types for new revenue-generating services, such as video
streaming and the transmission of telephone calls over the web;
and operating with existing carrier equipment.  We simply favor
the recent basing pattern and the low-risk cost basis.

MAY 10.00 QYV QB LB=0.30 OI=5271 CB=9.70 DE=14 TY=19.8%

CANI - Carreker  $26.05  *** Strong Sector! ***

Carreker (NASDAQ:CANI) is a provider of integrated consulting and
software solutions that enable banks to maximize their electronic
finance opportunities, increase their revenues and reduce their
costs.  The company's e-finance offerings are delivered through
three primary suites of solutions: ePaymentSolutions, software
and consulting services that assist banks in transitioning from
paper-based systems to electronics; eCashSolutions, e-finance
solutions that enable banks to profit from their non-earning cash
assets; and eBusinessSolutions, consulting services that help
banks define and realize their full revenue potential from the
Internet economy.  CANI shares have performed well over the past
few weeks, in tandem with the software segment, and we favor the
opportunity to own the issue at a discounted price.

MAY 22.50 CDU QX LB=0.45 OI=22 CB=22.05 DE=14 TY=13.4%

CTLM - Centillium Communications  $32.73  *** Telecom Play! ***

Centillium Communications (NASDAQ:CTLM) designs and markets
communications chipset solutions for central office equipment,
digital loop carrier line cards, and customer premise equipment
for DSL, premise networking and Voice-Over-Packet.  Centillium
beat estimates in January on revenues of $24.3 million, due to
significant sequential growth in product shipments and design
wins.  The stock rallied strongly that month but consolidated
until early April when the company posted favorable earnings
results.  Centillium said that revenues benefited from strong
demand from its Japanese customers and both Credit Suisse First
Boston and Robertson Stephens raised their annual estimates on
the news.  CTLM continues to forge a Stage I base and Friday's
move suggests a rally may be forthcoming.  This position offers
a reasonable cost basis from which to speculate on Centillium's

MAY 25.00 UUM QE LB=0.40 OI=151 CB=24.60 DE=14 TY=12.5%

GOTO - GoTo.com  $21.92  *** Can't Catch This One! ***

GoTo.com (NASDAQ:GOTO) is an online marketplace that introduces
consumers and businesses that search the Internet to advertisers
who provide products, services and information.  Advertisers
using its marketplace include retail merchants, wholesale and
service businesses and manufacturers.  GoTo facilitates these
introductions through its search service that lets advertisers
bid in an ongoing auction for priority placement in its search
results.  Consumers access the GoTo search service through its
affiliates, a network of Websites that have integrated GoTo's
search service into their sites or that direct consumer traffic
to its site.  The GOTO rally started after the company reported
favorable first-quarter results and predicted higher revenue and
smaller losses for the rest of the year.  Merrill Lynch upgraded
the company's shares and now the stock is testing a 52-week high.
Our position provides a conservative way to profit from future
upside activity.

MAY 17.50 GUO QW LB=0.35 OI=156 CB=17.15 DE=14 TY=16.1%

ISIL - Intersil  $33.10  *** 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 also posted 1st-quarter revenues of $127.8 million.  ISIL
did "warn" that revenue would be about 5% to 8% lower next quarter
with flat margins but investors pushed the stock skyward on heavy
volume and after a brief consolidation, the issue is again testing
recent highs.  We favor the bullish indications but prefer a cost
basis closer to technical support.

MAY 25.00 UFH QE LB=0.40 OI=378 CB=24.60 DE=14 TY=12.4%

SRA - Serono S.A.  $23.60  *** Biogen Beater? ***

Serono S.A. (NYSE:SRA), headquartered in Geneva, Switzerland, is a
global biotechnology company that has four recombinant products on
the market: Gonal-F, Rebif, Serostim, and Saizen.  In addition to
being the world leader in reproductive health, Serono has strong
market positions in the therapeutic fields of neurology, metabolism
and growth.  The company's research programs are focused on these
businesses and on establishing new therapeutic areas.  SRA shares
rallied last week after the company announced Wednesday that it will
release data May 8 from a highly anticipated study, comparing its MS
drug, Rebiff, to Biogen's drug, Avonex.  Data from the head-to-head
trial wasn't expected until the third quarter, which leads observers
to believe that Serono just can't wait to release good news for its
drug.  Serono must prove that Rebiff is more effective than Avonex
to enter the U.S. market prior to 2003 as Avonex currently enjoys
"orphan status," which blocks competition until then.  Speculation

MAY 20.00 SRA QD LB=0.45 OI=65 CB=19.55 DE=14 TY=15.5%



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

WGRD    8.40  JUN  7.50   RUH RU  0.65 0      6.85   42   15.1%
MANU   34.44  MAY 25.00   ZUQ QE  0.50 291   24.50   14   14.7%
TSM    23.00  MAY 20.00   TSM QD  0.40 263   19.60   14   13.2%
FNSR   20.97  MAY 15.00   FQY QC  0.25 244   14.75   14   12.2%
OPWV   39.41  MAY 30.00   UGE QF  0.45 1889  29.55   14   11.7%
RETK   31.37  MAY 25.00   QRD QE  0.35 20    24.65   14   11.5%
NTIQ   33.95  MAY 25.00   CQT QE  0.35 308   24.65   14   10.7%


Going Naked To Own

For those of you that are curious enough to click on this article,
prepare to be dazzled. Recently I have written on various
strategies utilizing naked puts and the margin requirements to do
them. As stated before, this is a complex strategy with many
variables. That is why I have written so many different articles
on the subject.

Before I get into the meat and potatoes of the strategy, I want to
go over some basics. Many of you may already know that selling
naked puts may obligate you, the seller, to be assigned the
underlying security. This means that you buy that security at the
strike price. I have received questions regarding the possibility
of a premature assignment. This does happen. Depending on the
brokerage's methods, first in first out or lottery, early
assignment may happen to a portion or all of one's position.
Options that may be assigned on or before option expiration are
American Style. Equity, Ishares, "HOLDRS" ("HOLding company
Depositary ReceiptS") and some index options are American
style. European style options may only be exercised or assigned
on the day of expiration. Broad-based index options are usually
European style options. Because of this characteristic,
broad-based uncovered options usually have a slightly lower
margin requirement.

Now that boring stuff is over with, the purpose of the article is
to go over an alternative entry method to buy a stock you would be
happy owning and/or writing covered calls on it. Although I realize
many like the idea of selling the deep in the money puts in order
to collect the big premium and get a high delta. However, selling
out of the money puts at a strike price that reflects a preferable
purchase price on the security is a widely used strategy with great

The first benefit is reducing the cost basis on the purchase of
the stock shares. For instance, XYZ is trading at $36. The May 30
puts are selling for 1.50 per contract (this is a volatile stock).
Referring to my margin calculations in the Margin Monster article,
the initial requirement for 10 contracts is approximately $6,900.
This consists of about $5,400 cash requirement plus the current
closing premium of 1.50 per contract. Because we are options
traders, we have to discuss the leverage. The initial return is
great. $1,500 divided by $5400 is about 27%. However, we really
can't bank on that. I actually want to buy this stock at $30 per
share. That will require a minimum initial margin requirement of
$15,000 ($30 x 1000 shares x 50%) to purchase the stock. If
assigned, my reduced cost basis is roughly the stock's purchase
price less the premium ($28.50 = 30 - 1.50). If assigned the
stock at 30, the price is probably below $30. Therefore, it is too
early to calculate how much money you have made or lost.  If
assigned early, which is unlikely, you could sell the May 30 calls.
But you will probably have to sell the June calls. Another exit
strategy may be to hold onto the stock and wait for the price to
move up and sell it at a profit.

Because I am selling the puts at or slightly above a support level,
I may wish to have an exit strategy in place if either the stock
(if already assigned) or the put penetrates that level. It is very
important to be disciplined on the entry and exit strategies.

Another benefit is the leverage. As described in the above example,
I have full intentions of buying up to 1000 shares of XYZ at $30
per share. Many brokerages require a minimum equity to sell naked
puts. Ask your broker what their equity requirement is to do naked
options. That means I at least have enough money in my money market
account to not only satisfy the initial requirement on the naked
put but also the requirement to buy the stock if assigned. Although
not a great big benefit, I only need to use approximately $5,400 of
my cash for the margin requirement on the naked put. This may
increase if the stock declines and decrease if the stock advances
up. That leaves that money in cash for a few weeks to gather a
little interest or be allocated for short-term trades. I know I
have to be careful because I may have to use this money to make a
purchase. Depending on one's risk tolerance, an investor/trader
could swing trade, position trade, sell a deep in the money put
on a short-term bullish candidate, trade stock, etc. In short, I
have a little flexibility with my left over money for a few weeks
because of the leverage. I can choose the amount of risk I want to
take. This flexibility could be either profitable or very costly.
Be careful. Knowledge can be a powerful weapon.

Maybe the best scenario is if the put isn't assigned, and you get
to keep the premium. This makes a nice little profit in my example.
A person could say they made $1,500 on the put with only having to
put up $5,500. That is a good return. But in the real world, you
had the cash required to buy the stock hanging out there as the
denominator. There are good arguments to either side. Being
conservative in your figures provides a little more room for error.

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

Robert John Ogilvie
Toll Free 877-925-0880

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


When All The Bad News Is Good...

Friday, May 4

Stocks rallied today as investors ignored a rise in unemployment
and focused instead on a potential rate cut at the upcoming FOMC
meeting.  The NASDAQ closed up 45 points at 2,191 while the Dow
was up 154 points at 10,951.  The S&P 500 index was up 18 points
at 1,266.  Trading volume on the NYSE reached 1.07 billion shares
with advances doubling declines 2 to 1.  On the NASDAQ exchange,
volume hit 2.04 billion shares with winners outpacing losers 22
to 15.  In the U.S. bond market, the 30-year Treasury fell 13/32,
pushing its yield up to 5.663%.

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

Merrill  (NYSE:MER)     MAY55P/60P   $0.60   credit   bull-put
Merrill  (NYSE:MER)     JUN80C/50P   $0.10   debit    synthetic
Icos     (NASDAQ:ICOS)  MAY55C/55P   $4.60   debit    straddle
Lincare  (NASDAQ:LNCR)  MAY60C/50P   $1.80   credit   strangle

The early slump in MER provided an excellent entry opportunity
in the bullish combination positions.  There was also some fairly
aggressive call buying in the issue, due to a rumor that global
bank group HSBC Holdings (NYSE:HBC) might purchase the company.
The opening price of the ICOS straddle was lower than expected
and one trader achieved a debit of $4.40 early in the session.
The straddle credit traded as high as $5.10 later in the day as
the stock cycled though a $5 range and a number of new positions
were apparently closed for small profits.

Portfolio Plays:

The market staged a broad-based rally today in anticipation of
another reduction in interest rates.  A Bridge News poll put the
chances of a 50 basis-point cut at 83% and most analysts see a
further rate reduction at the Fed's next meeting in late June.
Investors ignored the fact that non-farm payroll jobs plunged in
April while the unemployment rate climbed to 4.5%, the highest
since 1998 and above the 4.4% estimate.  Apparently, the recent
recovery in equities is more important than the anemic economic
outlook because even the market bears are worried about missing
the bottom.  Inside technology trading, networking stocks moved
higher and software issues also advanced on continued strength
in Microsoft (NASDAQ:MSFT).  Merrill Lynch raised its earnings
and revenue estimates on the company for the June quarter.  J.D.
Edwards (NASDAQ:JDEC), another software maker, surged over 30%
on heavy volume after the company announced it expects quarterly
results to be "significantly better" than a year earlier.  The
semiconductor sector led the hardware group lower but shares of
Dell Computer (NASDAQ:DELL) gained nearly 4% even after a report
of a new price war with Compaq (NYSE:CPQ).  Rambus (NASDAQ:RMBS)
tumbled 20% after a federal court ruled against the chipmaker in
a patent-infringement suit with sector rival Infineon (NYSE:IFX).
On the Dow, American Express (NYSE:AXP), J.P. Morgan (NYSE:JPM),
and Alcoa (NYSE:AA) were among the best performers.  The broader
market saw gains in oil and oil service, drug, financial, retail
and biotechnology shares.

Today's rally benefited virtually every bullish position in the
portfolio and there was little negative news to report.  The
big winners in the technology group were Human Genome Sciences
and Cirrus (NASDAQ:CRUS), which continued its recent rally after
matching analysts' revised profit estimates.  The company said
revenue jumped 25% to $199.7 million, in line with its March 30
forecast, from $160.2 million in last year's fourth quarter and
CRUS officials now expect revenue from the analog and Internet
segments to resume 40% growth per year in the September quarter.
The move provided an excellent premium for the Jun-$30 Call in
our long-term calendar spread as well as a break-even exit for
those who believe the bullish trend is short-term in nature.  In
the industrial group, Lowe's (NYSE:LOW), Providian (NYSE:PVN),
Lehman Brothers (NYSE:LEH) and Active Power (NASDAQ:ACPW) moved
higher while Unitedhealth Group (NYSE:UNH) continued to slump.
Last month's position (May-$7.50 Call) in Data Broadcasting was
a popular play as the issue rallied to a 52-week high near $8.
Those of you still in the position enjoyed a favorable gain and
the stock appears poised for further upside activity.

Questions & comments on spreads/combos to Contact Support

                           - NEW PLAYS -

WPI - Watson Pharmaceuticals  $47.09  *** Reader's Request! ***

Watson Pharmaceuticals (NYSE:WPI)is primarily engaged in the
development, manufacture, marketing and distribution of branded
and off-patent pharmaceutical products.  Through internal product
development and synergistic acquisitions of unique products and
businesses, the company has grown into a diversified specialty
pharmaceutical provider that markets more than 28 branded lines
and over 100 generic pharmaceutical products.  The company also
develops advanced drug delivery systems designed to enhance the
therapeutic benefits of existing drug forms.  The company markets
patented products as well as a number of trademarked off-patent
products directly to healthcare professionals, which are listed
as branded pharmaceutical products.

Here is an interesting issue that one of our readers submitted
for a bearish position, based on the recent technical indications
and the company's earnings report, which is due on Monday morning
after the opening bell.  The near-term Put options have been very
active over the past few days and the bias is definitely negative
with volume and open interest at institutional levels.  There are
a number of favorable plays, depending on your personal outlook
but these two positions appear to offer a good balance between
risk and reward.

PLAY (aggressive - bearish/debit spread):

BUY  PUT  MAY-50  WPI-QJ  OI=2213  A=$3.90
SELL PUT  MAY-45  WPI-QI  OI=2426  B=$1.60
INITIAL NET DEBIT TARGET=$2.20-$2.25  PROFIT(max)=120% B/E=$47.75

- or -

With favorable disparities in the front-month premiums, this
position offers a favorable speculation play for time-selling
traders who are bearish on the issue.

PLAY (speculative - bearish calendar spread):

BUY  PUT  JUN-45  WPI-RI  OI=211   A=$2.40
SELL PUT  MAY-45  WPI-QI  OI=2426  B=$1.65



DYN - Dynegy  $54.44   *** Failed Rally? ***

Dynegy (DYN:NYSE) is a provider of energy and communications
solutions to customers in North America, the United Kingdom and
Continental Europe.  The company's expertise extends across the
entire convergence value chain, from broadband, power generation
and wholesale and direct commercial and industrial marketing and
trading of power, natural gas, coal, emission allowances, and
weather derivatives to transportation, gathering and processing
of natural gas liquids.  The company also is involved in the
transmission and distribution of electricity and natural gas and
provides retail service to electric and gas consumers.  Dynegy
operates in four segments: Dynegy Marketing and Trade, Dynegy
Midstream Services, Transmission and Distribution and Dynegy
Global Communications.

The California energy crisis is far from over and shares of
power plant operators slumped last week on news of additional
political, regulatory and legal challenges.  Dynegy's production
segment has been negatively affected by the recent activity and
on Wednesday, Lt. Gov. Cruz Bustamante sued five wholesalers,
claiming they conspired to drive up power prices and bilk the
state's treasury.  The defendants, which includes Dynegy, said
they didn't gouge the public and that the lawsuit could hamper
attempts to bring new power to the state.  Wholesale suppliers
are already the targets of investigations by the state attorney
general and a state Senate committee, several civil lawsuits,
and have been ordered by the Federal Energy Regulatory board
to refund $124 million in overcharges to California.

Regardless of the outlook for the company, the news definitely
isn't favorable and with the uncertainty in the sector, there
is little chance the issue will reach our sold strike in two

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-65  DYN-EM  OI=5351  A=$0.20
SELL CALL  MAY-60  DYN-EL  OI=5331  B=$0.70
INITIAL NET DEBIT TARGET=$0.55-$0.60  ROI(max)=12% B/E=$60.55



WGRD - Watchguard Technologies  $8.40  *** Cheap Speculation! ***

WatchGuard Technologies (NASDAQ:WGRD) is a provider of Internet
security solutions that protect enterprises or telecommuters that
useg the Internet for electronic commerce and communications.  The
company's core market is small- to medium-sized enterprises, and
the company has recently expanded its marketing focus to include
larger enterprises as well as small offices and home offices, and
telecommuters, particularly those using broadband web connections.
The company's subscription-based LiveSecurity solution broadcasts
threat responses, software updates, information alerts, expert
editorials, support flashes and virus alerts over the Internet,
enabling enterprises to keep their security systems current with
minimal effort.  The dynamic nature of the company's solution is
made possible through a unique up-datable security appliance that
executes software sent from a remote management system receiving
the company's LiveSecurity broadcasts.

Web security is a priority for every company and individual that
uses the Internet and Watchguard is one of the leaders in the
industry.  The company designed its LiveSecurity System for use
by enterprises that want to manage their own Internet security
and it allows a business to affordably deploy protection to all
sites on its network, while retaining centralized control and
administration of the system.  The company's recently introduced
security appliance for larger enterprises enables the WatchGuard
LiveSecurity System to support up to 5,000 simultaneous users and
over 50 simultaneously connected virtual private networks.  This
higher-performance security appliance will allow the company to
offer bigger companies integrated solutions to protect the main
office, branch offices, and also employees who telecommute.

Although the company offers a unique service, its share value has
fallen in sympathy with other internet issues and only recently
has it shown any potential for recovery.  WGRD's quarterly report
may have been one catalyst as the company announced net revenues
of $17.1 million, an increase of 74% from $9.8 million in the
first quarter of 2000.  Product sales were $13.3 million for the
quarter, an increase of 56% from $8.5 million in the first quarter
of 2000 and service subscription revenues were $3.8 million for
the quarter, an increase of 192% from $1.3 million for the same
period of 2000.  Those are respectable numbers for a company in
the Software and Services sector and traders who think the trend
will improve can speculate on that outcome with this bullish

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-10.00  RUH-GB  OI=18  A=$1.15
SELL PUT   JUL-7.50   RUH-SU  OI=35  B=$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $346 per contract.


                   - STRADDLES AND STRANGLES -

WWCA - Western Wireless  $44.70  *** Trading Range? ***

Western Wireless (NASDAQ:WWCA) provides wireless communications
services in the United States principally through the ownership
and operation of cellular systems.  The company offers cellular
operations primarily in rural areas in 19 western states under
the Cellular One brand name, serving over 834,000 subscribers.
Western Wireless International Corporation, a subsidiary of the
company, is a provider of wireless communications services
worldwide.  WWI has built and launched wireless networks in six
countries, and is currently constructing nationwide cellular
networks in three additional regions.  The company's quarterly
earnings are due on May 10, 2001.

Stocks in the Wireless Communications group have been active in
recent sessions and WWCA is no exception.  The volatile activity
has produced some excellent option premiums in the near-term and
with the relatively well-defined trading range, the issue offers
an excellent opportunity for premium selling.  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-50  WRQ-EJ  OI=850  B=$0.70
SELL PUT   MAY-35  WRQ-QG  OI=512  B=$0.40
UPSIDE B/E=$51.25 DOWNSIDE B/E=$33.75




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