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Daily Newsletter, Tuesday, 05/08/2001

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The Option Investor Newsletter                  Tuesday 05-08-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        05-08-2001        High      Low     Volume Advance/Decline
DJIA    10883.50 - 51.70 10946.80 10819.80 0.99 bln   1609/1446 
NASDAQ   2198.66 + 25.09  2210.45  2165.37 1.88 bln   2142/1712
S&P 100   656.36 -  1.10   659.19   650.90   totals   3751/3158
S&P 500  1261.14 -  2.37  1267.01  1253.00           54.3%/45.7%
RUS 2000  491.77 +  2.13   492.47   488.16
DJ TRANS 2865.54 + 14.90  2867.68  2837.50
VIX        27.54 -  0.57    28.54    27.01
Put/Call Ratio      0.64
******************************************************************

Close But No Cigar!

10995, close to 11000 but not quite! Many short sellers jumped the
gun on Monday and tried to be the first on their block to short
the rally over 11000. The rush to beat the crowd short circuited
the Dow and it rolled over as expected but just a little early.
The Nasdaq continues to bump its head on 2200 and closed just
slightly under once again at 2198. The main focus for today was
the CSCO earnings announced after the bell.








Hurry up and wait. That was the sentiment on the Nasdaq as everyone
held their breath waiting for the CSCO earnings. On the surface
they managed to beat the street with a +.03 gain compared with
the two cent estimate. Last year their earnings for the same
period were .13 cents. The reason they beat the street by a
penny was simply a smaller write down of obsolete equipment than
previously expected. CSCO CEO, John Chambers, said "We are now in
a valley much deeper than any of us anticipated and we believe
the basic issues are macro economic and capital spending related."
The conference call was not positive and CSCO rolled over in after
hours trading after closing up +1.10. AMCC which is a big supplier
to CSCO rallied on the announcement but also fell back to $27.50
in after hours after cautious statements by CSCO. The Nasdaq
futures spiked to the upside initially but as the call progressed
they began to drop and were down over -32 an hour after the close.
Near the end of the call they did say they saw a possible bottom
forming over the next couple quarters. Way to hedge your bets John!

There were several earnings warnings today with National Semi
being the worst. NSM announced after the bell that it will post
a proforma net loss of -.04 to breakeven, with revenue of
approximately $390-$400 million. They said they were cutting
-1,100 jobs and expected sales to fall more than -16% sequentially.
They said market conditions were continuing to affect orders and
shipments. They said lower than expected orders, high inventory
and changes in the cell phone market were impacting the visibility
going forward. Basically it was a "things are not getting any better
any time soon" warning. NSM fell -2 in after hours.

Maxim Integrated Products, Nasdaq:MXIM, also announced earnings
that were in line with estimates but said bookings going forward
were off drastically. Bookings for their next quarter were only
$205 million, well below the $332 million for last quarter. In
warning they said the steepness of the order drop off was not
expected.

Economic reports today continued to suggest that things are still
not recovering. The Richmond Fed Manufacturing Survey came in at
-25.0 and the shipments index at the lowest reading for the eight
year history of the survey. This shows that manufacturing in the
Richmond region is still contracting at a significant pace. New
orders and backlog order indexes were also very weak and showed
that future improvements may be slow to development. Prices
received for products are also falling and calling into question
the profitability of companies caught in this downturn.

Productivity fell -0.1% in the first quarter and hourly wages
rose +5.2%. Unit labor costs also rose +5.2% and was an increase
in the previous pace. The productivity report today showed that
there are inflation pressures creeping back into the economy
even when new growth is stagnant. The drop in labor productivity
was the first time since 1995. Labor productivity has been seen
by the Fed as the key factor in keeping inflation under control.
Wages can rise but as long as output is rising at a faster rate
everybody is happy. Once productivity starts falling any rise
in wages will impact the cost of those products causing a rise
in prices. Reports remaining this week include the Import-
Export Prices on Thursday and PPI and Retail Sales on Friday.

Weakness in the financial stocks were a drag on the Dow today
after JP Morgan Chase was downgraded to a sell and American Express
was downgraded to a neutral. Legg Mason fell -2.63 after saying
quarterly profits fell -26% as falling stock markets cut into
its brokerage operations.

One of the positive developments today was an announcement that
Ciena won a $150 million contract from Tycom Ltd, a supplier of
fiber optic cable networks. CIEN was up over +6 on the news.
The contract covered the purchase of Ciena's MultiWave CoreDirector
and CoreStream products which will be used in a network to
connect all six inhabited continents.

Just can't get a break. That is what investors are feeling after
seeing the Dow roll over only five points away from 11000 on
Monday. The follow on today was even weaker with a solid top
again at 10900. The CSCO earnings were widely credited with
putting a halt to trading on the Dow as well as the Nasdaq.
Nobody wanted to be caught holding stocks if CSCO warned of
a significant further deterioration in the economy.

The Nasdaq was still treading water just under 2200 while
waiting to be rescued by a positive CSCO conference call.
Sorry, it did not happen. The almost two hour conference call
was peppered with things like "no visibility" and "significant
challenges" and it was not until the end of the call before
they closed on an up note. Futures only recovered slightly
and all the stocks that do business with CSCO were trending
down in after hours. On CNBC three hours after the close,
Chambers dodged questions but tried to be positive in spite
of the third degree. His performance may have blunted the
negative feelings about Cisco's outlook going forward. There
were over 171 million shares trading in CSCO on Tuesday.

For Wednesday we will be held captive to investor sentiment
on the CSCO announcement. The Dow is still struggling just
to hold the high ground and the Nasdaq is having the same
problem with 2200. As I stated on Sunday, the closer we get
to the FOMC meeting next Tuesday the greater the chance of
a sell off. The rate cut is already priced in and any inflation
signs like we received today could slow their pace. Since we
have not broken 11000 yet, each day makes it more unlikely
that it will happen before the meeting. With the summer
doldrums rapidly approaching investors may be saying wait
instead of buy. The volume on Tuesday would confirm that with
the NYSE failing to break one billion and the Nasdaq trading
only 1.8 billion. Considering almost 10% of that was
CSCO the real volume was VERY light. No conviction and more
earnings warnings could be spelling trouble going forward.
However, every day we spend at 10900 and 2200 builds support
for a stronger breakout when/if it finally occurs. This is
one of those "inflection points" in the market. I think we
should treat it as a "reflection" point instead and review
why we would want to be buyers today. There is no clear
direction. There is a period of traditional weakness in
front of us. The economy is showing the possibility of
stagflation for at least two more quarters. The momentum
from last week has disappeared. Why buy? There may not be
any overriding reason to sell but is there a real reason
to buy? I don't see one yet. Should the Dow close over 11000
on strong volume or the Nasdaq close over 2250 on strong
volume then I would be a believer. Until then I suggest
caution.

Beginning today this commentary along with the intraday
updates and play updates will be available by phone at
900-378-PICK. If you are away from your computer please
feel free to call our hotline to keep in touch with the
market and have the information to make those crucial,
time critical, investment decisions. Since 900 numbers
cannot be dialed from cell phones we will have an 800
number in place next week as well.

Enter passively, exit aggressively!

Jim Brown
Editor





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

Usual Suspect
By Matt Russ

Could it get anymore boring?  The market remained stagnant ahead
of Cisco's (NASDAQ:CSCO) earnings report, which beat lowered
estimates but left something to be desired on the guidance front.
As Bill would say, "It sounds like a trough to me."  Bill, I
hope you're enjoying your extended Cinco de Mayo fiesta in the
Baja.  While the market isn't hungover from the celebrations,
we could sure use a dose of good ol' volatility.  The VIX.X is
drifting around 27 with the low today right at its 252-dma.  It
feels like a break is right around the corner...until then,
the question remains: are those bullish wedges or rolling tops?

NASDAQ & QQQ
The Nasdaq ventured into the 2200 territory on the gap open but
that was short-lived.  Slipping early, the COMPX found bid support
at the 2165 area, coincidentally the lows from Monday.  Buyers
gauged this level as support last Friday as well on the last leg
up into the close.  The range is narrowing from 102 points on
Friday, 49 yesterday, and 45 today.  It's important to note that
the Nasdaq did not take out yesterday's high of 2215 on an intraday
basis.  We know we have the bullish wedge pressuring the
2233 - 2250 zone, but everybody seems to be waiting for the other
to take it higher.  Volume has been light and as conviction wanes,
the market doesn't seem as sure of itself.  Was it waiting for
CSCO?  Maybe.  CSCO traded lower after-hours, taking the Nasdaq
futures with it.  But, that doesn't mean anything as we learned
after last Friday's Job Report.  The series of lower highs on the
chart below is beginning to send up red flags.  Intraday support
sits at the 2165 area, along with 2100.  Our overhead resistance
remains the same: 2233 - 2250.  The QQQs are narrowing as well,
with support at $47, and resistance coming down a bit from $49.50
to $48.50.




SPX & OEX
Resistance is still solid at 1270 and the S&P 500 remains sideways.
Please volatility, come back!  It's our lifeblood as option traders.
Really, nothing has changed in the SPX.X besides another day has
gone by.  The chart looks good though, maintaining higher lows and
still right near resistance at 1270.  Buyers showed up twice today
at 1253 and the pivotal point is eminent.  Quite honestly, this
chart makes a trader think that they might come out and buy this
market tomorrow regardless of CSCO.  It wouldn't surprise me at
all, even given the Nasdaq chart.  That high volume break of 1270
would create a short-covering panic and 1300 will print before you
know it.  Tomorrow will be very telling, now that CSCO is out and
said nothing disastrous.  Watch for buyers at 1250 and 1240 on the
SPX.  On the OEX, resistance continues to be 660, with support at
650 and 640.




DOW 30
Ralph Bloch was on CNBC yesterday and said that he sees a rally
through 11,000 setting up.  He specifically addressed the
increased put buying going on, as it did back in March 1999 when
the Dow approached and broke 10,000.  To support his general
feel is last Friday's COT Report, which revealed that Commercials
were Net-Long +25% while Small Specs were Net-Short -57%.  Today's
action had buyers supporting the Dow 30 at 10813 and rallying
steadily into the close at 10882.  10900 will be the next level
of resistance and of course, the elusive 11,000 mark.  Failure
to hold support of 10800 will likely result in a retest of support
in the low 10700s.  Watch the Bank Index, BKX.X, and its resistance
at 900.  The support of the Financials will be key to the INDU's
breakout.




That's it for tonight's Market Sentiment.  I'm happy to announce
that, back by popular demand, is the COT Report Data.  While we
are changing the format of this section, we realize the importance
to give you, the reader, what you want.  We will continue to offer
our own interpretations of the data, while printing it for your
own analysis.  Thanks for working through the changes and for
your patience.

Trade Smart,

Matt Russ


**********************
CBOT Commitment Of Traders Report: Friday 05/04
Weekly COT report discloses positions held by small specs and
commercial traders of index futures contracts on the Chicago
Board Of Trade(CBOT).

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

                    Small Specs               Commercials
                (Current)  (Previous)    (Current)  (Previous)
S&P 500
Open Interest
Net Value        +36513      +57298       -41144      -61741
Total Open
Interest %      (+14.90%)   (+26.22%)    (-6.05%)    (-8.52%)
                net-long    net-long     net-short   net-short

DJIA Futures
Open Interest
Net Value         -6592       -3478        +7488       +5051
Total Open
Interest %      (-57.98%)   (-20.21%)    (+25.09%)   (+16.58%)
                net-short   net-short    net-long    net-long

NASDAQ 100
Open Interest
Net Value         +4288       +2520       -10972      -10299
Total Open
Interest %      (+22.06%)   (+11.28%)    (-17.02%)   (-16.11%)
                net-long    net-long     net-short   net-short


What COT Data Tells Us
**********************
Indices: Dramatic changes this week as Commercials have reduced
their net-short positions on the S&P 500 by 2.5 percent. In
addition, we see extreme divergence on the DJIA with the Small
Specs doubling their short positions while the Commercials
increased their long positions by 8.5 percent.

From here were are in limbo until %values actually switch to flat
or net-long sometime in the future. We could see fluctuation of
positions oscillate up and down for weeks or even months to
follow. A major market hurdle will be the S&P 500 commercial
traders moving to net-long in accumulation stage and that is still
undetermined from here.

Data compiled as of Tuesday 05/01 by the CFTC.


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

Please visit this link for Market Posture:

http://www.OptionInvestor.com/marketposture/050801_1.asp


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

Escape To Tehran
By David Popper

There is an ancient Middle East parable about a rich merchant.
Somehow he learned that Death was looking for him.  The merchant
decided to jump on his horse and escape to Tehran in order to
outwit Death. Upon his arrival in Tehran, he ran right into Death.
His appointment with Death was scheduled to take place in Tehran.
In his panic, the merchant left safety and hurried into the
clutches of Death.

Just like that merchant, sometimes when the short-term action
moves against my trade, I prematurely escape my position for
a perceived safer position.  Only then, I discover that I would
have been better off if I had just held firm. A good example
of this took place in January of this year when I decided to
make longer term "safer" plays in one account.

I bought 1000 QQQ (AMEX:QQQ) at $60 per share and wrote the
January 2002 $60 call at $15.  This provided a 25% return over
the course of the year with the chance to do better if I could
repurchase the calls cheaper during a downturn and eventually
rewrite the calls.  Well, everything went according to plan as
the value of those calls eventually shrunk to $2 before
eventually recovering.  Had I simply held my ground, I would have
been able to write the calls twice and achieved another $7,000
in premium.  The problem was not the plan, rather it was my nerve.
I read too much Barron's and watched too much CNBC, and eventually
closed my position at a poor level. Instead of being underwater,
I could have been profitable.

How hard it is, however, when it seems the whole world is in panic,
to remain resolute.  How difficult it is to trust your plan when
everything seems to be blowing up. Trading is so emotional. It
shouldn't be. But eventually, the market will uncover any emotional
weakness. This begs the question of whether it is possible to
remain resolute in the face of adversity so that a good plan can
be executed, even in the face of volatility.

The first thing necessary is to understand how you personally
handle short-term losses.  If losses throw you, it is better
to understand the possible downside to a position prior to
entering the position.  With tech stocks, it is possible that you
will have to endure being stopped out or alternatively suffer
a large "paper loss" while the play develops. In short, it is
critical to understand the downside risk as well as the upside
reward.

A second idea, which may be helpful, is to consider short-term
trades over multiple sectors so that a hit in one sector does not
rock your boat.  For example, I currently hold positions in
Johnson & Johnson (NYSE:JNJ), and Washington Mutual (NYSE:MU)
simply because they have announced splits.  This factor ought to
provide some momentum for the stock through the split date.
Additionally, these two securities are in different sectors and
provide balance. Of course, these companies are leaders in their
field and have charts that indicate that a breakout is due.

A third idea is to only trade issues that you wouldn't mind owning
in the event that the market went south. If you only trade stocks
of companies that have real businesses and real earnings, then an
enormous amount of pressure is relieved.  It is far easier to hold
Cisco (NASDAQ:CSCO) for a loss than it is holding Amazon
(NASDAQ:AMZN). Alternatively, trading a basket of stocks such as
QQQ provides the same sense of security.

Fourth, determine a realistic time frame in which to make the
trade.  It is not realistic to enter short-term trades using
short-term signals if you can't watch the market during the day.

Fifth, when you enter a play, use basic technical analysis to make
a decent entry. If you are entering a long-term play, use
long-term indicators such as the 50- and 200-day moving averages,
volume indicators and relative strength tools.

Once you have selected a trading strategy over a reasonable time
period, select a security that represents a solid business and
enter that security at a technically good point. Even then, it
is still a good idea to maintain a percentage of cash in order to
allow flexibility to take advantage of market downturns.

When all of these factors are utilized, you have taken every
reasonable precaution that is possible.  Knowing that you have
thought through a sound plan will give you the fortitude to
confront the feeling of panic which happens to most traders at
some point. Further if you write down the reasons for the trade
and the precautions taken, in times of market downturns, you will
be able to revisit your original ideas to determine if they are
still valid. In my case, I needed a downturn in order to repurchase
the calls for a pittance. When the storm comes, if your ideas are
still valid, maybe you can hold the line and prevent an escape to
Tehran.


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

Ready to Trade
By Scott Martindale

Like I was writing last week, all systems appear to be a go.  The
Fed is cutting rates and injecting cash like never before, market
breadth is healthy, many stocks are still oversold, short sellers
are sweating, investors are regaining their buying mood, and the
return of coastal fog here in Santa Barbara tells me that
summertime is almost here.  Can it get any better than this?

Of course, history tells us that just when it all seems too good,
it's time to get cautious.  Nevertheless, after scaling back my
trading activity for several months while the economy bottoms and
the markets consolidate, I'm getting itchy to trade.  I was
looking for some direction, and I now see about 10% on the
downside for the Nasdaq from here, versus about 100% on the
upside.  So, I've moved a lot of cash back into my trading
account, and I'm starting to put it to work.

As I've talked about many times in this column, I prefer to sell
premium rather than buy it, especially when the volatility is
keeping premiums high.  I'm looking for strong charts on stocks
from my watchlist as well as those listed on OIN's play lists --
both the call list (which sometimes gives naked put alternatives)
and the naked put section.  This week I wrote OTM positions on
intraday weakness in Millennium Pharmaceuticals (NASDAQ: MLNM),
Impath (NASDAQ: IMPH) and Avici Systems (NASDAQ: AVCI), as well as
ITM positions on Qualcomm (NASDAQ: QCOM) and Calpine (NYSE: CPN).
I also have unfilled open orders to write OTM puts on Rosetta
Inpharmatics (NASDAQ: RSTA) and Oracle (NASDAQ: ORCL), but my
limit prices are pretty aggressive and might not get filled
without a hefty sell-off.

When I play options on market indices, I prefer the Nasdaq 100
Trust (AMEX: QQQ) and the OEX (maybe I learned this preference
from the IndexSkybox).  Last Tuesday when the markets ran up near
resistance levels of 10,900 on the Dow and 1265 on the SPX, I
started thinking short-term pullback.  And since I held no short
positions but a lot of long positions, I went ahead and bought a
few OEX puts just to give myself some profit exposure to a
possible pullback.  The OEX dipped early the next day but didn't
hit my target, and then the markets strengthened, so I closed out
half my position for a small loss. I hit my target on the other
half on Thursday's weakness.  Specifically, I bought the May 640
puts near Tuesday's close for 9.00.  I sold half the position on
some mid-day weakness on Wednesday for 8.20, and sold the other
half at my target of 12.20 on Thursday, for a net gain of 13% on
the initial play.

Today, with Cisco Systems (NASDAQ: CSCO) due to report after the
close, I bought a May 20 straddle just before the close for 2.70,
that is, I bought May 20 calls and an equal number of May 20 puts
for a total debit of 2.70.  Then I anxiously awaited the news....A
penny better than reduced estimates, little else to surprise up or
down, and the stock price remained mostly flat in afterhours....
Hmmm....Perhaps a better play would have been on one of the more
volatile networking plays, like Ciena (NASDAQ: CIEN), Juniper
Networks (NASDAQ: JNPR), Redback Networks (NASDAQ: RBAK), Extreme
Networks (NASDAQ: EXTR), Applied Micro Circuits (NASDAQ: AMCC), or
Broadcom (NASDAQ: BRCM)....Let's pull up their afterhours
prices.... Nope, everyone's flat or maybe down a smidge.  Well,
I'll see what happens tomorrow and then decide how to close out
the straddle or let one leg run.

As for the current market conditions, the 21-day moving average of
the CBOE equity put/call ratio moves inversely to the market, and
it is currently around 0.55.  This ratio last formed a short-term
bottom at 0.52 in early February.  The market fell sharply for the
next two months.  At the big capitulation in early April, the CBOE
put/call ratio actually approached 1.0, indicating that almost as
many put contracts traded as call contracts.  And even after the
market strengthened on April 5th, the 21-day moving average peaked
at 0.69. Such a high level would usually signal a near-term market
bottom, which it certainly was, in retrospect.  But a return to
February's low put/call ratio might be troublesome for the market.

But on the flip side, John Bollinger made his usual Tuesday
appearance on CNBC today to express his continued good impressions
of the charts, particularly the fact that the markets have been
rallying in the face of bad news -- meaning that these
announcements already have been priced in.  He expects the dollar
to be the key to markets later this year, whether up or down.  The
dollar has been strengthening again lately after showing signs
that it might be ready to weaken.  Although the VIX has risen to
over 30 during the past week, it closed today slightly below 28 --
right where it was last Tuesday.

Some analysts say that the stock market has never formed a
significant, long-term bottom with sentiment readings this
optimistic.  However, as I have pontificated before, the good ol'
U.S. of A. has never been more peaceful, creative and productive.
We Americans have become terminally optimistic about technological
and medical advances improving our lives.  We have learned that
stocks historically offer vastly superior returns over the long
term compared with bonds and money funds.  The ultra-conservative
T-bond investors of old, many of whom sweated through the Great
Depression, are being replaced with a modern breed of investor
that would rather lose some in a temporary bear market than miss
out on the big gains of a major advance.  The market veterans will
call me naive, but in my view, comparing consumer and investor
sentiment readings today with the 1930's or 1970's is simply not
valid.





PICKS WE DROPPED
****************

When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

RE $63.10 +0.25 (-0.90) RE offered call players some chances for
gains over the last week, as a dip to $61.50 last Wednesday
recovered to $64 on Friday.  However, on Monday and Tuesday, RE
has moved in a very narrow range between $62.87 and $64.25.
Considering the strength in the insurance sector, RE really
should have been able to rally past resistance at $64.  Since the
stock appears to have lost momentum for the time being, we are
dropping it tonight.

C $49.80 -0.85 (-0.98) Time decay and volatility are two factors
which option investors need to be aware of.  While stock traders
need only be concerned with the intra-day gyrations of their
position, a stock that remains static can have an adverse impact
on an option play.  With that in mind, shares of leading Citibank
have been stuck in a narrow range on low volume.  While the stock
could break out either way at any moment, this has been the case
for the past couple of weeks.  In light of this, we are taking
our money off the table, to be put to use in plays with more
attractive profit potential.

FDC $65.52 -0.58 (-0.67) While FDC's up-trend is still intact,
and our stop price and strong support at $65 remains unviolated,
we are taking pre-emptive steps to protect our capital by
dropping coverage on this call play.  Over the past few trading
sessions, the stock has slipped below support from the 5 and
10-dmas.  These two moving averages helped FDC to rally in the
month of April.  Now converged at just above $66, there is no
reason not to expect this area to act as formidable resistance
going forward.  As well, stochastics have crossed over bearishly,
suggesting that the next move for FDC may be lower.  As such, we
no longer recommend taking on new positions.


PUTS:
*****

PMCS $44.10 +4.79 (+2.85) Earnings from Tech bellwether Cisco no
doubt took center stage in the minds' of traders this week.  With
the networking giant being one of PMCS' main customers, sentiment
surrounding this event likely influenced trading in the
communications chipmaker.  The stock retreated $1.94 or 4.7
percent in Monday's trading session, with volume clocking in at
60% of the average daily volume, reflecting the uncertainty and
nervousness ahead of CSCO's report.  Today, traders were a lot
more optimistic, as PMCS rallied over 12 percent on 115% of ADV.
In doing so, the stock closed above our stop price of $43.  True
to our sell rules, we are dropping coverage of this play.





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The Option Investor Newsletter                   Tuesday 05-08-2001
Copyright 2001, All rights reserved.                         2 of 2
Redistribution in any form strictly prohibited.

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
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********************
PLAY UPDATES - CALLS
********************

YHOO $19.74 -0.24 (-0.23) Yahoo traded in a tight range as the
Internet sector (INX.X) consolidated, and closed near support at
210.  CSCO's earnings reports may have a dramatic impact on
YHOO Wednesday, so be sure to assess the market's reaction to
the report before taking positions.  YHOO has been trading
between support at the 50-dma of $17.63 and resistance at the
10-dma of $20.26 for the last two weeks, with a pop up to
$23.74 last week, which could very well be repeated if the
market conditions are favorable.  A break and close above $21
could get the ball rolling, and conservative traders might
want to wait for this move.  Alternatively, a bounce from
Tuesday's support level of $19.15 could be an entry level for
more aggressive traders.  The Nasdaq's pullback to the 2025
level on April 25th brought YHOO to strong support at $17.50,
which we are keeping as our closing stop, as a drop below this
level could be very bearish.

NXTL $18.94 -0.03 (-1.06) NXTL pulled back slightly in a nervous
market over the last two days.  Tuesday's light volume reflects
the environment of uncertainty which plagued the markets before
Cisco's earnings release.  However, support was strong at $18.35
on Tuesday, and, if the wireless sector can regain momentum,
NXTL may be ready to surge past strong resistance at $20.
A quarterly release from VSTR, which reported a slightly lower
than expected loss was not well received on Monday and Tuesday,
and this news could have weighed on the sector.  Entry points
can be taken at current levels, if other wireless bellwethers
like AWE and PCS are strong.  Brave traders could try scooping
up positions on another pull back to $18.50.  We are moving
closing stops a notch tighter to $18, so exit positions if NXTL
closes below this level.

MO $51.00 -1.00 (-1.61) Big tobacco took a breather on Tuesday,
after last week's substantial run up in MO, LTR, and RJR.  News
regarding a stay in a highly publicized lawsuit against three
tobacco companies may have dampened investors' enthusiasm for MO,
but we feel that this may be temporary, as previous dips over
the last six months have resulted in excellent buying
opportunities.  MO, Lorillard Tobacco Co., and Liggett Corp.
struck a deal on Monday with a Florida court guaranteeing them
a stay in the Engle case while the verdict is being appealed.
This means that MO will put money in an escrow account while
the case is in appeals court.  While the case may drag on in
the courts for months, it seems likely that investors'
enthusiasm for the upcoming IPO of Kraft will attract
attention to MO after the news of the lawsuit drifts to the
back burner.  The IPO is slated to bring MO a cash proceed of
between $7 and $10 billion, which will make it the second
largest IPO in history.  Strength in the Dow will likely
bode well for MO going forward, so traders may consider taking
positions on a move up past the 10-dma of $51.35, particularly
if others in the sector are strong.  We are setting closing
stops at $50, so end positions if MO closes below this level.

AOL $51.93 -0.17 (-0.27) This week, AOL's coiling spring
tightened another notch.  Near-term support elevated to the $51
level and the formidable $52 resistance continued to refuse
passage.  The sideways activity is frustrating.  The assessment
is simple.  AOL needs to break to the upside of $52 amid heavy
volume to generate the volatility needed to create profit
opportunities for traders.  Be patient for the upside move
before beginning new plays.  We'll drop coverage if AOL fails to
close above our REVISED $51 protective stop.  In the news,
Computer retailer CompUSA and AOL joined forces to create a
marketing alliance.

STOR $16.02 +0.20 (+0.62) This week's consolidation, following
three days of fantastic gains, isn't unusual.  The base-lining
at the $16 level demonstrates the stock's strength and indicates
another breakout is possible.  We've raised our protective stop,
yet again, and will now exit on a close below the $15 mark.
Look for an unmistakable move through $17 amid active trading to
flag the next momentum wave.  In the event of a big breakout in
an advancing market, err on the side of caution and take profits
as STOR approaches the $20 level.

MER $66.30 +0.00 (+1.25) A strong show above the $66 support
and the bolstering 200-dma line defines MER overall strength as
we approach this month's Fed meeting.  The fueling speculation
that HSBC, a global banking behemoth, could be laying the
groundwork to acquire Merrill Lynch may also play a part in the
stock's trading over the short-term.  As it is now, the less
risk-adverse should wait for MER to exhibit strong upside
action.  A bold move through $68 and into the $70 range provides
strong confirmation that MER can indeed rise to the occasion and
challenge January's highs.  Our closing stop remains set at $65,
sandwiched between the 10-dma ($64.76) and the 5-dma ($66.63).
An aggressive entry off this level could generate lucrative
gains, but beware of the old sideways trading pitfall.

LLY $86.04 -0.74 (+0.00) Along with the rest of the market,
LLY's recent rally has run out of momentum.  Since breaking
above its channel just over a week ago, the stock has been
consolidating its recent gains between $84-87.  While this
hasn't been a good environment for position trading, nimble
day-traders have had a predictable cash generator for the past
week.  Let the bears to push the price down to support near
$84-85 in the morning, and then grab a fistful of calls as the
price stabilizes.  Then wait until the end of the day as the
stock runs up and take your profits at the end of the day.  That
simple pattern alone would have been profitable 5 of the last 6
days.  How's that for consistency?  Even today was a winner, as
the stock dropped sharply during amateur hour before bouncing
just above $84 and rallying throughout the day, ending just
slightly over $86.  Aggressive traders can continue to apply
this strategy as long as it works, but watch out for a failure
of support at $84.  If the bears are able to crack this level,
then this gravy train will likely be over.  More conservative
traders will want to wait for LLY to move up through the $87
resistance level on strong volume before taking a position.
Remember to keep stops set at $85.  Any close below this level
will also force us to close out the play.

CAT $51.85 +0.34 (+1.30) We started our call play on CAT
yesterday based on favorable fundamental forces leading to
technical strength.  The stock broke out yesterday to a new
52-week high on heavy volume, in spite of a weak to flat day for
the NYSE.  News that Morgan Stanley Dean Witter raised their
price target to $60, to go with their Outperform rating on the
stock, was well received.  With that, CAT ended Monday trading up
almost 2 percent on 1.55 times the average daily volume.  Today,
the stock continued to push ever higher, posting a fractional
gain on stronger than average trading volume.  Continued buying
pressure leading to a break above today's intra-day high of
$52.25 may allow for an entry on strength, but make that sure
rivals DE and DOV confirm upward momentum.  Aggressive traders
may target pullbacks intra-day to horizontal support at $51, $50,
and our closing stop price of $49.  Additionally, moving average
support from the 5 and 10-dma may be found at $50.85 and $50.48
respectively.

LAB $40.30 +0.23 (+0.10) Connecting the highs and lows since
April, it appears that shares of NYSE Specialist firm LaBranche
are continuing its steady climb upward.  Volume has been light
lately, but acceptable as long as the price action remains
positive.  Indecision was the name of the game Monday, as
bulls and bears played tug-of-war with the stock on low volume.
This carried on into Tuesday's session, with the bulls ending the
day with a slight edge.  If past performance were any indication
of future results, then the prospect of another leg higher would
be likely indeed.  A bullish surge above $41 resistance on volume
could allow conservative players to make a play, but only if
sector peers NITE and SCH are also moving higher.  To protect our
profits, we are tightening our stop from $38 to $39.  Bounces off
horizontal support at $40 and $39 may provide aggressive traders
with targets to shoot for.  The 5-dma, currently at $39.50 may
also serve as a potential entry point, but confirm bounces with
buying volume.


*******************
PLAY UPDATES - PUTS
*******************

AMAT $52.60 +1.86 (-1.07) Did you notice the Semiconductors
today?  Those pesky bulls actually tried to mount a rally,
pushing the Philly Chip index (SOX.X) up to 640 resistance.
The real test will come in the next couple days though as the
bulls try to push back over the 650 level.  As long as the
bears are able to prevent this occurrence, AMAT should continue
to find more sellers than buyers.  Despite a tight range-bound
day for the major indices again, AMAT managed to stage a pretty
impressive rally, gaining nearly $2 on the day.  Of course the
volume was less than stellar, coming in at only 60% of the ADV,
indicating it shouldn't be long until the selling resumes.
Resistance (and our stop) are looming just overhead at $53 and
aggressive traders will want to consider new positions on any
weakness near current levels as the bears are likely to make
another run at the $50 support level.  If they can push prices
lower than that, conservative traders will want to consider new
positions as the $50 level appears to be firm support.  This
will open the door for a test of lower support levels, first at
$48 and $46, followed by $44 and then $42.  As always, keep an
eye on the SOX.X, because weakness here will be a good
indication of what to expect from AMAT.  Don't forget that AMAT
will announce its earnings on May 15th after the close.

HGSI $62.85 +3.40 (+1.08) Defying all our charting prowess from
last night, HGSI found support just below $58 this morning and
rallied strongly throughout the day.  Climbing right through the
$61 and $62 resistance levels with hardly a hitch, the stock was
looking like it was going to clear the $64 level before the
close as the price continued to rise and volume was on the rise
too.  Fortunately our $64 stop held firm and HGSI retraced a bit
at the close, ending the day with a hint that aggressive entry
points may materialize in the morning.  The Biotechnology index
(BTK.X) had a pretty strong day as well, charging right up to
the $570 level to end a wild day with a gain.  So where do we go
from here?  The game plan hasn't changed at all, we'll just get
a better entry point into the play.  Aggressive traders will
want to target new entries near the $64 level as bulls run out
of momentum and let the bears have the ball.  The action in the
last hour of trading today would have been a good setup, except
for the fact that volume kept increasing right into the close.
Look for confirmation of weakness in the morning before playing.
More conservative entries will materialize as HGSI falls back
through first the $62 and then $61 support levels.

JNPR $58.90 +1.82 (-2.23) While the Networking index (NWX.X) did
manage to post a slight gain today, it sure wasn't much to write
home about.  CSCO was upgraded this morning before the open by
Morgan Stanley, and CEIN managed to ink a major contract with
Tycom, Ltd.  Despite the good news, all the NWX could do was
gain a measly 1.5% and our JNPR play didn't fare much better,
gaining just over 3%.  Anticipation of CSCO's earnings tonight
after the bell was largely responsible for the gains in recent
days, and the news wasn't well received by the market.  While
CSCO traded flat in the after hours session, stocks like JNPR
traded sharply lower, negating all of the gains accrued during
the regular session.  The downtrend is still in effect and we
will want to use any market strength in the morning as an
opportunity to enter new positions on a bounce near the $59
resistance level.  But judging from the after hours reaction,
conservative traders are likely to get the first entry tomorrow
morning as JNPR falls through the $55 support level.  Keep stops
set at $62 and continue watching the NWX for clues to the health
of the Networking sector.

NVLS $51.95 +2.13 (+1.00) Continuing to be tossed about by the
whims of the broader Semiconductor sector, NVLS actually managed
to gain some ground today, after confirming the $50 level as
support yesterday.  Given the quiet action in virtually all
sectors, it should come as no surprise that NVLS has been stuck
between $50-52 for the past few days.  That makes our plan of
action pretty simple now, doesn't it?  Conservative traders will
want to wait for the $50 support level to fail as support before
taking positions as the stock moves back down into the range
between $40-49.  More aggressive traders will want to target
shoot new entries on any weakness that begins to show near
current levels, looking to profit as the rubber band snaps back.
Keep in mind that our stop is sitting at $52 and any close above
that level will spell the end of our play.  Watch the
Semiconductor index (SOX.X) for a measure of strength or
weakness in the overall sector.

GMST $40.26 +0.43 (+0.46) Even positive analyst comments have
failed to ignite investor interest in shares of digital media
provider Gemstar.  Yesterday, Wit SoundView initiated coverage on
the stock with a Buy rating.  Despite the good news, the only
rally the bulls were able to muster was a gain of 3 pennies on
62% of the average daily volume.  Today was more of the same, as
GMST managed to squeak by with a gain of just over 1 percent on
half the ADV.  Moving average resistance overhead is formidable
indeed, with the 5, 10 and 100-dma at $40.70, $40.65 and $42.55
respectively.  Failed rallies as the stock approaches these
levels may allow higher risk players to take a position, provided
that GMST remains below our stop price of $41 by the close.  For
the more risk averse, a break below $40 on selling volume may
allow for an entry on weakness.  From there, the stock could make
a quick trip down to $37 before encountering support from its
50-dma.  In both cases, correlate entries with movement in sector
sisters SFA and WINK.

SGR $55.24 -1.49 (-1.86) It appears that with this put play, our
patience has finally been rewarded.  While already a profitable
play before today's session, SGR had been drifting down slowly
and with little conviction.  Nonetheless, the weak technicals
suggested that at some point we could see more downside.
Yesterday SGR retreated fractionally on half the average daily
volume, in sympathy with a flat to down day for three-letter Old
Economy issues.  Today, the sellers finally gained the upper
hand, with the stock dropping 2.63 percent on 1.22 times the
average daily volume.  This came in spite of positive comments
from Merrill Lynch analyst Fritz Von Carp, who highlighted SGR as
a top pick.  Continued weakness leading to a bearish plunge below
today's intra-day low of $54.50 may allow conservative traders to
take a position.  For higher risk players, resistance overhead
may be found at $56, the 5-dma at $56.83 and the 10-dma at
$57.73.  Just be aware that we have lowered our closing stop
price, from $58 to $57.  In both cases, track sector sentiment by
following competitors MLI and KMT.





**************
NEW CALL PLAYS
**************

AGGRESSIVE:

VRSN - Verisign Inc. $58.07 +2.55 (+2.25 this week)

VeriSign, Inc. is the leading provider of trusted infrastructure
services to Web sites, enterprises, electronic commerce service
providers and individuals. The company's domain name, digital
certificate and payment services provide the critical web
identity, authentication and transaction infrastructure that
online businesses need to conduct secure e-commerce and
communications. VeriSign's services are available through its
websites (www.verisign.com and www.netsol.com) or through its
direct sales force and reseller partners around the world.

VRSN is one of the few stocks which blew away the analysts'
expectations for the first quarter, without having to offer
any excuses about deteriorating economic conditions.  While
the Nasdaq and the software sector have been regaining strength,
few stocks have exhibited as much momentum as VRSN during
April and May.  On April 26th, VRSN reported revenues of $213.4
million for the first quarter, up sharply from the $34 million
reported in the year ago quarter.  VRSN reported earnings of
$48.6 million, which was nearly double the consensus forecast.
As icing on the cake, the company announced that the Board of
Directors had authorized a share repurchase program for up to
$350 million worth of common stock.  The stock easily surged
past its 50-dma of $42.67 after reporting, and has subsequently
positioned itself firmly above the 10-dma of $53.50 and 5-dma
of $57.29.  Further strength in the software sector (GSO.X),
and the Nasdaq could propel VRSN above the $60 level, which has
been acting as resistance.  In fact, a bullish wedge has been
developing since VRSN's earnings report with three higher lows
and two failed attempts to clear $60.  Aggressive traders could
take positions at a pullback to support at $57, if others in
the sector like MSFT and VRTS are strong.  Alternatively, wait
for a strong break above $60 with heavy volume before entering.
As always, monitor the sector (GSO.X) for strength.  We are
setting closing stops at $54, so be prepared to exit if VRSN
closes below this level.

***May contracts expire in less than two weeks***

BUY CALL MAY-55*QVR-EK OI=2292 at $5.90 SL=4.00
BUY CALL MAY-60 QVR-EL OI=1330 at $3.30 SL=1.75
BUY CALL JUN-55 QVR-FK OI= 450 at $8.50 SL=6.00
BUY CALL JUN-60 QVR-FL OI= 882 at $6.10 SL=4.00

http://www.premierinvestor.com/oi/profile.asp?ticker=VRSN


*************
NEW PUT PLAYS
*************

AGGRESSIVE:

ENE - Enron Corp $56.11 -1.93 (-3.37 this week)

Enron is a global energy and communications company.  It engages
in all facets of the electricity, natural gas, and
communications businesses throughout the world.  The Company is
also developing an intelligent network platform to facilitate
online business, to provide bandwidth management services and
deliver high bandwidth applications.

May Day ushered in a big sell-off of the heavy weight energy
companies.  Enron (ENE), Chevron (CHV) and Exxon Mobil (XOM) all
saw a significant cut in their respective share prices early
last week.  The major difference between ENE and its competitors
is simple - ENE failed to recover!  Not only did ENE trade
sideways while CHV and XOM returned to the higher levels, but
this week, ENE fell off another ledge.  A clean slide through
the buoying support at $57.50 gave notice that additional losses
may be forthcoming.  This technical transgression from grace and
the stock's divergence from its sector mates opened the door for
a put play.  Traders might find downside entries as ENE cracks
the $55 base and picks up momentum.  Another potential entry
might be found on a high-volume rollover from the upper $58 to
$59 resistance, near the converge 5, 10 & 30 DMA lines.  This
approach is more risky, but can be very profitable; especially
if you lock in gains quickly.  We're keeping a protective stop
in place at $59 and will drop coverage if ENE resurfaces above
this level on a CLOSE.  On the global front, there's trouble in
western India.  Energy giant, Enron, said last Tuesday that it
has no plans to sell its stake in the financially distraught
Dabhol plant, but would meet with members of the government
panel to re-negotiate the $2.9 bln power project.

***May contracts expire in less than two weeks***

BUY PUT MAY-60 ENE-QL OI=2633 at $4.30 SL=2.75
BUY PUT MAY-55*ENE-QK OI=2687 at $1.20 SL=0.50
BUY PUT JUN-60 ENE-RL OI=2652 at $5.20 SL=3.25
BUY PUT JUN-55 ENE-RK OI=2012 at $2.35 SL=1.00

http://www.premierinvestor.com/oi/profile.asp?ticker=ENE


MMM - Minnesota Mining & Mfg. $116.36 -1.54 (-0.60 this week)

Minnesota Mining & Manufacturing is engaged in the research,
manufacturing and marketing of products related to its technology
in coating and bonding for coated abrasives.  Characterized by
substantial inter-company cooperation, 3M's business has
developed upon the research and technology of its original
product, coating and bonding.  This process consists of applying
one material to another, such as abrasive granules to paper or
cloth (coated abrasives), adhesives to a backing
(pressure-sensitive tapes), ceramic coating to granular mineral
(roofing granules), glass beads to plastic backing (reflective
sheeting) and low-tack adhesives to paper.

In line with the broader markets, the month of April was a
bullish one for 3M, as stock got a boost from an easing Fed,
along with the prospect that better economic times were just
around the corner.  In light of this, the stock gained 20 percent
last month.  Connecting the highs and lows during that time
reveals an upward-trending regression channel.  Having failed to
take out formidable resistance at the $120-122 area, it appears
now that 3M may be ready to pull back.  The company recently
reported first quarter earnings, posting a 7 percent decline in
net income and announcing a restructuring plan in which 5000 jobs
would be cut over the course of the next 12 months.  During the
conference call, the CEO stated, "There are no clear signs that
the situation is improving anytime soon."  Rising energy costs,
unfavorable foreign-exchange rates and difficult economic
conditions were cited as causes of the decline.  With that in
mind, these fundamental factors are not only persisting, but
arguably, are continuing to deteriorate.  This has caused shares
of 3M to break below its up-trend line and settle into a
consolidation pattern.  Now sitting just above support at $115, a
break below this level on volume could allow conservative traders
to jump in.  Just make sure to confirm downward movement with
weakness in the NYSE.  Aggressive players may target failed
rallies as the stock approaches moving average resistance from
the 5 and 10-dma, at $117.71 and $117.89 respectively. Horizontal
resistance may also be found at $117, $118 and our closing stop
price of $119.

***May contracts expire in less than two weeks***

BUY PUT MAY-120*MMM-QD OI= 851 at $5.10 SL=3.00
BUY PUT MAY-115 MMM-QC OI=2021 at $2.25 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=MMM


*********************
PLAY OF THE DAY - PUT
*********************

AMAT - Applied Materials $52.60 +1.86 (-1.07 this 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
technologies.

Most Recent Write-Up

Did you notice the Semiconductors today?  Those pesky bulls
actually tried to mount a rally, pushing the Philly Chip index
(SOX.X) up to 640 resistance.  The real test will come in the
next couple days though as the bulls try to push back over the
650 level.  As long as the bears are able to prevent this
occurrence, AMAT should continue to find more sellers than
buyers.  Despite a tight range-bound day for the major indices
again, AMAT managed to stage a pretty impressive rally, gaining
nearly $2 on the day.  Of course the volume was less than
stellar, coming in at only 60% of the ADV, indicating it
shouldn't be long until the selling resumes.  Resistance
(and our stop) are looming just overhead at $53 and aggressive
traders will want to consider new positions on any weakness
near current levels as the bears are likely to make another run
at the $50 support level.  If they can push prices lower than
that, conservative traders will want to consider new positions
as the $50 level appears to be firm support.  This will open the
door for a test of lower support levels, first at $48 and $46,
followed by $44 and then $42.  As always, keep an eye on the
SOX.X, because weakness here will be a good indication of what
to expect from AMAT.  Don't forget that AMAT will announce its
earnings on May 15th after the close.

Comments

Following Cisco's boring, apathetic conference call and
National Semi's warning, shares of Applied Materials may be
poised to test support at $50, again.  While AMAT fell in the
after hours session, it is likely to have room to fall near the
opening bell Tuesday, assuming the market sells off in the wake
of the two aforementioned news events.  Of course, a break below
$50 - the highly visible support level - will allow for new entries
into the play.  Monitor the action in the SOX, and look for the
semi index to work its way down to the 600 level.

***May contracts expire in less than two weeks***

BUY PUT MAY-55*ANQ-QK OI=7018 at $4.50 SL=2.75
BUY PUT MAY-50 ANQ-QJ OI=6711 at $2.10 SL=1.00
BUY PUT JUN-50 ANQ-RJ OI=1848 at $4.10 SL=2.50
BUY PUT JUN-45 ANQ-RI OI=1140 at $2.40 SL=1.25

http://www.premierinvestor.com/oi/profile.asp?ticker=AMAT





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

Cisco Steals The Show!

Stocks ended mixed today as technology shares moved higher on
strength in the Networking sector while industrial issues faded on
weakness in financial issues.

Monday, May 7

The stock market traded in a range today, with the major indices
ending relatively unchanged in anticipation of new economic data
due out of later in the week.  The NASDAQ finished down 17 points
at 2,173 while the Dow was down 16 points at 10,935.  The S&P 500
index ended 3 points lower at 1,263.  Trading volume on the NYSE
was a light 930 million shares with declines beating advances 16
to 14.  On the NASDAQ, activity was light with 1.7 billion shares
exchanged and losers outpacing winners 10 to 9.  In the U.S. bond
market, the 30-year Treasury fell 1/32, pushing its yield to 5.67%.


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

Watson Pha. (NYSE:WPI)     MAY50P/45P   $2.20   debit    bear-put
Watson Pha. (NYSE:WPI)     JUN45P/45P   $1.00   debit    calendar
Dynegy      (NYSE:DYN)     MAY65C/60C   $0.50   credit   bear-call
West. Wire  (NASDAQ:WWCA)  MAY50C/35P   $0.95   credit   strangle
Watchguard  (NASDAQ:WGRD)  JUN10C/J7P   $0.10   credit   synthetic

The surprise of the day came as drug maker Watson Pharmaceuticals
announced its earnings before the open, saying that first quarter
operating revenue rose more than 15% on profits from acquisitions
and strong sales at its branded divisions, particularly in women's
health product lines.  The company posted earnings of $43 million,
or $0.40 per share, compared with $37 million, or $0.37 per share
in the 2000 first quarter, meeting consensus analysts' estimates
of $0.40 for the quarter.  Since the news came out before the open,
there was no opportunity for speculation on the announcement and
the premium disparities in the near-term (ATM) options were also
much lower.  We did not participate in the bearish debit spread,
but decided to play the probabilities in the calendar spread with
the slightly higher initial debit of $1.00.  If the issue remains
in a relatively small range over the next week, the play will profit.
If the issue rallies back through the resistance area near $50, we
may consider rolling into a bullish, put-credit spread to offset
any losses.  Dynegy, Western Wireless and Watchguard all provided
acceptable opening credits in their respective plays.


Portfolio Plays:

Stocks took a breather in Monday's session as caution ahead of
some upcoming economic reports kept analysts on guard and traders
on the sidelines.  Investors were also concerned about Cisco's
(NASDAQ:CSCO) quarterly earnings, due on Tuesday after the market
close.  CSCO shares slumped even though Lehman Brothers raised its
target on the stock to $24.  Among other NASDAQ sectors, Internet
and networking stocks slid lower and computer hardware shares also
retreated amid light volume.  Telecom stocks were down in sympathy
with 3Com (COMS), which plummeted to $6.50 after saying it would
reduce its work force by almost one-third as part of an effort to
save $1 billion annually.  Select software stocks enjoyed buying
pressure after UBS Warburg reiterated its "strong buy" rating on
Microsoft (NASDAQ:MSFT), saying the company may be in the process
of making a major change to its software licensing policies.  On
the Dow, J.P. Morgan Chase (NYSE:JPM) slid to $50 after Prudential
Securities cut its estimates and lowered its rating on the stock
to a rare "sell" recommendation.  Prudential said the consensus
estimates are too high and that it expects problems with loans to
increase in the slowing economy.  Leading the blue-chip average
on the upside were AT&T (NYSE:T), SBC Communications (NYSE:SBC),
Eastman Kodak (NYSE:EK) and Caterpillar (NYSE:CAT).  The broader
market saw renewed selling in retailers and financials while drug
and oil stocks achieved small gains.  Looking forward, CS First
Boston analyst Tom Galvin commented in a research note, "While
this market will never move in a straight line, we are convinced
more than ever that the first quarter represented the trough in
the economy, profit outlook and stock prices."  That's one of the
few statements we can all be optimistic about!

Despite the lackluster trading activity, the Spreads Portfolio
enjoyed a number of favorable moves in today's session.  The
big surprise was Icos (NASDAQ:ICOS), which rallied to $61 on
strength in the drug manufacturing group.  The bullish movement
provided a $6.25 closing credit in our recent debit straddle; a
potential gain of 45% in less than one week.  Scios (NASDAQ:SCIO)
was another popular issue in that segment and traders who played
Friday's dip were rewarded with a favorable "early-exit" profit
in the synthetic position.  Biochem Pharma (NASDAQ:BCHE) was not
as lucky, falling $0.81 to $32.90, and our bearish "call-credit"
spread at $35 appears safe for now.  Minnesota Mining (NYSE:MMM)
was another stock that moved lower (in our favor) and there is
little chance it will reach the sold call option at $125 in two
weeks.  On the downside, Unitedhealth (NYSE:UNH) continued to
slump amid weakness in the Healthcare sector and traders in the
bullish synthetic position should plan to roll forward and down
in the sold Put or expect the possibility of owning the issue.
Among other industrial segments, Progressive (NYSE:PGR) was one
of the stronger issues, climbing back to a recent high near $118
and our bullish spread at $100 should expire at maximum profit.
In the technology group, Cirrus (NASDAQ:CRUS) continued to rally,
rising to $24 at midday and the move provided a profitable exit
for traders who chose to close the (long) SEP-$30 Call instead of
remaining in the speculative time-selling play.  Sprint (NYSE:FON)
was also an unexpected winner, climbing above $23 on speculation
of a possible merger with British entrepreneur Richard Branson's
Virgin Mobile.  Sources say that Virgin executives are close to
signing a deal with Sprint, the #3 U.S. long-distance telephone
company, as part of a $1 billion assault on the American telecom
market.  Our long-term calendar spread in FON has already offered
some excellent opportunities and the surprise rally improved the
overall position.


Tuesday, May 8

Stocks ended mixed today as technology shares moved higher on
strength in the Networking sector while industrial issues faded on
weakness in financial issues.  The NASDAQ closed up 25 points at
2,198 but the Dow was down 51 points at 10,883.  The S&P 500 index
was relatively unchanged at 1,261.  Trading volume on the NYSE was
a light 993 million shares with advances beating declines 16 to 14.
Activity on the NASDAQ was also thin as volume reached just 1.87
billion shares.  Technology winners outpaced losers 21 to 17.  In
the bond market, the 30-year Treasury fell 24/32, pushing its yield
up to 5.72%.


Portfolio Plays:

Industrial issues retreated again today, pressured for a second
consecutive session by financial stocks.  Shares of brokerage
and banking companies were among the Dow's worst performers after
Morgan Stanley Dean Witter lowered its rating on American Express
(NYSE:AXP), based on an unfavorable outlook for earnings and its
current valuation.  Morgan Stanley told clients, "fundamentals in
the credit card industry fundamentals continue to deteriorate"
and the pessimism quickly spread to other financial issues.  J.P.
Morgan Chase (NYSE:JPM), which was downgraded on Monday, and
Citigroup (NYSE:C) also weighed on the blue-chip average.  Among
the few bullish components were International Business Machines
(NYSE:IBM), Eastman Kodak (NYSE:EK), Caterpillar (NYSE:CAT), and
Home Depot (NYSE:HD).  The NASDAQ edged higher as investors were
cautious ahead of the earnings report from technology bellwether
Cisco Systems (NASDAQ:CSCO).  An analyst upgrade of Cisco boosted
the networking group and buyers also emerged in the semiconductor
and Internet sectors.  Hardware issues generally retreated with
Dell Computer (NASDAQ:DELL) leading the way lower after Monday's
announcement that the company will slash 3,000 to 4,000 jobs over
the next couple of quarters.  On the bright side, Dell also said
it will meet first-quarter earnings expectations, due in mid-May.
In the broader market, chemical, gold, oil and insurance issues
escaped the selling pressure while utility, financial, retail and
drug shares consolidated.

There was very little excitement in the market today but some of
our technology positions improved with the momentum surrounding
Cisco (NASDAQ:CSCO), ahead of the company's quarterly earnings
report.  CSCO moved up $1.12 to $20.37 and our calendar spread
at $20 is near the area of maximum profit.  Traders who believe
CSCO will rally after today's quarterly announcement had a great
opportunity to roll up and forward to the JUN-$22.50 option at
almost no cost.  That would leave the new spread; OCT20C/JUN22C
with no upside risk at a basis of $2.50.  The more conservative
alternative was a transition to the (short) JUN-$20 Call, with
a credit of almost $1.00, which would leave the original spread
bias intact at a reduced basis of $1.50.  Another new position
in that category, Network Appliance (NASDAQ:NTAP) also climbed
during the session, closing near $27 amid bullish optimism in the
networking sector.  Our Covered-calls on LEAPS position achieves
maximum profit at $30.  In the semiconductor group, PMC Sierra
(NASDAQ:PMCS) was a big mover, up almost $5 to $44 on comments
by a Morgan Stanley Dean Witter analyst, who said that business
for networking chip-makers is stabilizing.  In the biotechnology
segment, Human Genome Sciences (NASDAQ:HGSI) rallied $3.40 to a
recent high near $63 as traders returned to the group and Cirrus
(NASDAQ:CRUS) continued its recent climb with a move to $24 on
strength in companies that produce chips for consumer audio and
entertainment systems.  Among industrial shares, Progressive
(NYSE:PGR) was popular again today and in the small-cap section,
Checkpoint Systems (NYSE:CKP) jumped another $0.62 to $12.75.
Traders holding the MAY-$10 Calls from our bullish synthetic
position can close the play for an excellent profit.

Questions & comments on spreads/combos to Contact Support

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

One of our readers requested some low-cost speculation positions
on small-cap technology issues, based on the possibility for a
significant recovery in the coming months.  Here are some unique
candidates with favorable technical histories or trends.  All of
these plays offer excellent risk/reward potential but they should
be evaluated for portfolio suitability and reviewed with regard
to current market sentiment and upcoming news or events.

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

ADCT - ADC Telecommunications  $8.84  *** Earnings Rally? ***

ADC Telecommunications (NASDAQ:ADCT) is a global supplier of
optical and copper-connectivity systems, broadband access and
network equipment, software and integration services designed to
improve the speed and performance of broadband, multiservice
communications networks.  The company offers its products and
services through three business groups: Broadband Connectivity;
Broadband Access and Transport; and Integrated Solutions.

ADCT rallied today along with other stocks in the industry as
investors looked to the Telecom Equipment group for issues with
future upside potential.  The company also announced a major
breakthrough in loop electronic solutions; the PG-FlexPlus Field
Shelf, a broadband micro-digital loop carrier (DLC) that enables
carriers to add incremental voice and data capacity on existing
copper plant infrastructure.  The PG-FlexPlus Field Shelf, with
its environmental hardening, is ideal for carriers looking to
satisfy the demand for additional services in areas of copper
exhaust without incurring the major time and capital expense of
new copper deployment in the distribution plant.  This product
will allow broadband service suppliers to easily and effectively
increase the capacity of their networks and investors applauded
the announcement.  In addition, ADCT is due to report quarterly
earnings later in May and the results will likely determine the
outlook for the company's share value in the near future.


Strategy Description - Synthetic Positions

Here's a good way to capitalize on an anticipated stock movement
without investing as much cash as you would when buying the issue
outright in the open market.  If you buy stock you are considered
"long" in the stock, as you own it, and you participate in all
the upward movement of the stock.  In this case, you buy an (OTM)
Call to take advantage of this possible upward movement, and you
sell an (OTM) Put to pay for the Call.  Selling an OTM Put gives
you some additional downside risk but you must be willing to own
the stock in the event of a sudden downturn.  Of course, you will
have a small downside margin under the current stock price; it can
stay the same or even drop some and you will not lose money.  But,
be careful of using other stocks as margin collateral (the whole
market can decline at once) and don't be greedy in taking profits
if the position moves favorably in the first few weeks after it is
initiated.  Also, be sure to understand the various outcomes and
potential risk, so you can comfortably use this type of strategy.

Overview of benefits:

1. The results are similar to being long on the stock.
2. You can use portfolio collateral to finance the short Put.
3. There is a potential for unlimited gain.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  AUG-10.00  TLQ-HB  OI=3659  A=$1.25
SELL PUT   AUG-7.50   TLQ-TU  OI=2765  B=$0.90
INITIAL NET DEBIT TARGET=$0.00-$0.10  TARGET PROFIT=0.85-$1.10

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $320 per contract.

http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=ADCT

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

MCOM - Metricom  $5.40  *** Disparity Play! ***

Metricom (NASDAQ:MCOM) is a provider of mobile wireless data
access to corporate networks and the Internet.  Metricom began
offering its commercial service, marketed under the Ricochet
brand name, in 1995.  Ricochet service is now available in San
Francisco, in the Seattle and Washington D.C. metropolitan areas;
parts of Los Angeles and New York; and in certain airports and
corporate and university campuses.  Metricom has focused its
efforts on designing and developing its new high-speed service
has designed its new service to meet the needs of the growing
number of business professionals who require access to their
corporate networks and the Internet while away from the office.
Metricom's service also will appeal to consumers who desire
high-speed mobile access to the Internet.

Metricom recently introduced a new wireless service that offers
high-speed connections to the Internet and corporate intranets,
enabling streaming media and allowing access to critical files
and applications.  Their Ricochet wireless system connects at
128 kbps via a telephone number without the need for a landline,
giving users office-like connections from remote locations and
the claims the new feature will give corporate professionals an
important competitive edge.  Indeed, the product is attractive
and since being introduced last year, the mobile access system
has added roughly 41,000 subscribers and the company has also
engaged some new partners including WorldCom and EarthLink.

The relative value of Puts versus Calls is in our favor and
traders who believe MCOM shares can return to their once lofty
valuation may use this position to profit from that outcome.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-5  MQM-GA  OI=2401  A=$1.60
SELL PUT   JUL-5  MQM-SA  OI=2296  B=$1.70
INITIAL NET CREDIT TARGET=$0.20-$0.30 TARGET PROFIT=$0.75-$0.95

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $330 per contract.

http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=MCOM

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

STLW - Stratos Lightwave  $10.96  *** Low-Risk Speculation! ***

Stratos Lightwave (NASDAQ:STLW) develops, manufactures and sells
optical subsystems and components for high data rate networking,
data storage and telecommunication applications.  The company's
optical subsystems are designed for use in local area networks,
storage area networks, metropolitan area networks, and wide area
networks and central office networking in telecom markets.  The
company's optical subsystems are compatible with the transmission
protocols used in these networks, including Gigabit Ethernet,
Fast Ethernet, Fibre Channel and asynchronous transfer mode.  The
company also designs, manufactures and sells a range of optical
components and cable assemblies for use in these networks.

Telecommunications network equipment maker Stratos Lightwave has
struggled in recent months due to a slowdown in equipment orders
from industry giants such as Nortel Networks, Cisco Systems and
Alcatel.  The company says it now expects 2001 product sales to be
in a range of $125 million to $130 million, an increase of about
75% to 80% from last year.  Investors have come to terms with the
reduced outlook and although the slowdown is expected to continue
for at least a few more quarters, industry analysts say there are
signs that spending in telecommunications equipment has almost
reached the bottom.  Based on the recent technical activity in
STLW shares, there is little downside potential from this point
and traders who want to speculate on the future performance of
the company should consider this position.  Target a lower cost
basis initially, to allow for any consolidation after Cisco's
after-hours earnings announcement.

PLAY (conservative - bullish/collar):
BUY STOCK STLW  ASK=$11.00
SELL CALL  JUN-12.50  SZQ-FV  OI=470  B=$1.20
BUY  PUT   JUN-10.00  SZQ-RB  OI=149  A=$1.20
INITIAL NET DEBIT TARGET=$10.80-$10.90  PROFIT(max)=14%

A collar is an option strategy in which stock is purchased, an
out-of-the-money call is sold, and an out-of-the-money put is
purchased.  The strategy is called a "collar" since both the
potential risk and reward are limited.  This type of position
can be initiated with varying degrees of risk versus reward,
depending on which strikes are bought and sold.

http://www.OptionInvestor.com/charts/may01/charts.asp?symbol=STLW

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





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