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Daily Newsletter, Thursday, 05/10/2001

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The Option Investor Newsletter                 Thursday 05-10-2001
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        05-10-2001        High      Low     Volume Advance/Decline
DJIA    10910.40 + 43.40 10979.10 10868.80 1.05 bln   1868/1222 
NASDAQ   2128.86 - 27.77  2197.03  2128.69 1.73 bln   1902/1942
S&P 100   651.42 -  0.72   658.85   651.10   totals   3770/3164
S&P 500  1255.18 -  0.36  1268.14  1254.56           54.4%/45.6%
RUS 2000  490.58 +  0.40   494.33   490.40
DJ TRANS 2899.76 + 34.03  2908.76  2865.73
VIX        27.24 -  0.58    27.57    26.71
Put/Call Ratio      0.69
******************************************************************

One Toe Over The Line!

Slowly it crept, step by cautious step. After a better than
expected Chain Store Sales Report the markets gapped open on
bullish investor sentiment. The Nasdaq was helped by a report
from Morgan Stanley that called the bottom on the chip sector.
The sentiment failed to hold and the Nasdaq fell to close -67
points below its open and a -27 loss. The Dow managed to
sneak in a close over 10900 if only by 14 points. Could the
bulls be testing the bears resolve by sneaking just a toe
over their line in the sand at 10900?






The best news of the day was the Chain Store Sales Report which
posted a surprisingly strong gain of +3.8%. This was the strongest
gain since the +4.8% from January. The gains were mainly due to
better weather conditions which prompted consumers to buy summer
clothing. Discount stores continue to outperform department stores
as consumers are being more cost conscious. The gains in sales
took some of the heat off the consumer sentiment bias. If consumers
are still buying at a strong pace then their outlook can't be
very bad. Layoffs continue to increase and could slow this pace
over the summer. Also several analysts said the increase in
sales was due to drastic mark downs and inventory clearances
which will be negative for profits.

The initial claims for unemployment fell last week to 384,000
from a revised 425,000 from the prior week. The indicator tends
to be volatile and the 41K drop in initial claims is not material
and does not specifically indicate that unemployment is better
and companies are hiring again. This could easily spike even
higher than the 425,000 number from last week after the layoffs
announced this week take effect.

AMD said today that they felt the PC market had bottomed out.
Several analysts upgraded AMD saying Intel could not win a
price war and the chips AMD was selling were cheaper and fit
with the discounted PC equipment being sold now. AMD gapped up
on the news but fell when the competing chip comments began.
Morgan Stanley came out this morning with an upgrade of chip
equipment makers. They upgraded AMAT, LRCX, KLAC, NVLS and TER
to "strong buy" from "outperform." They felt the sector would
start to rebound in early 2002 and predicted share prices could
rise +40% by years end. They said "the train had left the station"
on these stocks.

Immediately afterwards Merrill, Goldman Sachs, Credit Suisse
First Boston and Cantor Fitzgerald all disagreed with the Morgan
Stanley call. CSFB said they "remain skeptical" about PC orders
increasing in the second half of the year. Goldman said the
sector could still go down in the near term and rated only
a 50% chance that orders would increase this year. Merrill
said the Morgan scenario was "not likely."  Let's see, one
for a rebound and four against. Can you guess what happened
to chip stocks after the gap open. Clue - they did not go up.

RMBS was found guilty of fraud by a federal jury on Wednesday.
They said Rambus had not informed the organization that sets
standards for semiconductors about its patent applications.
Infineon had complained that RMBS was not playing by the rules
and made it hard to comply with patent infringement requirements.
This could impact other cases like the Micron and Hyundai cases.
They are claiming RMBS patents are not valid and an attempt to
back patent processes that others use. This could halt royalty
payments if some patents are found to be unenforceable. Bad
news for Rambus, good news for other chip stocks.

While the chip/PC companies were battling it out in the analyst
war all day IBM was planning a sneak attack after the close.
IBM held its spring analyst meeting tonight to say they were
going to spend massive amounts of money on networking going
forward. Saying the PC price war was getting ugly they are
going to continue to focus on services and networking which
is where the corporate economy is going. They said hand held
PC devices would eventually dwarf the desktop PC and connecting
those devices would be big business. IBM has an $85 billion
backlog of orders in their service businesses and things are
looking rosy. They said they were only looking for single
digit revenue growth but upped estimates for double digit
earnings growth. After saying harsh things about the PC box
makers and good things about their profits going forward it
is likely DELL, HWP and GTW could come under pressure on Friday.
Dell and HWP will both release earnings on May 17th.

Oracle took another hit today after Salomon Smith Barney
lowered estimates for the quarter. They lowered estimates
to $.13 and analysts consensus was $.15. There have been
several rumors lately that ORCL would warn for the second
consecutive quarter.

The ECB cut rates overnight by a quarter point to 4.5%. This
was the first cut since 1999 and helps relieve the pressure
on the Fed. The Fed had felt it was on its own to rescue the
world economy by slashing U.S. rates. With help from our friends
there is a better chance of global success. Bank stocks were
up slightly on the news.

Wondering why the markets are listless? TrimTabs.com said today
that only $400 million came into stock funds in the week ended
on Wednesday. This is compared with $15 billion the week before.
Turn off the cash spigot and buyers dry up quickly. There is
still a lot of cash on the sidelines and in fund hands but
whenever the flows slow the spending also slows.

Where to from here? With the PPI and Retail Sales on Friday,
Industrial Production on Monday and the FOMC on Tuesday, it
will be anything but boring. There are plenty of things to
move the markets and the only thing we are unsure of is
direction. The S&P rallied one point over resistance at 1267
and promptly fell back again giving back all the gains and
slipping below yesterday's close. The Nasdaq opened higher
and fell all day on a constant stream of negative news.
The IBM conference should provide a boost to IBM on Friday
which would also boost the Dow. The Dow's gains today were
on the financials and retailers as well as materials stocks.
If Retail Sales tomorrow follow the Chain Store Sales today
then retailers could follow through. The banks should hold
their gains in front of the FOMC meeting and there is nothing
other than profit taking to impact MMM and DD which were big
winners today. The downgrade on ORCL and the negative comments
by IBM on the PC sector could cause ORCL, DELL, HWP, GTW, SUNW,
INTC and CSCO to continue their fall on Friday. This sets the
Nasdaq up for a fall although there was no new news. Simply
a restatement of known facts. The Dow's close over 10900 is
positive and should it hold those gains OR even rise slightly,
that would be bullish for the market. Still 11000 is going to
be a formidable opponent and any gains between now and the
FOMC decision are likely to be hard fought and easily lost.

Enter passively, exit aggressively!

Jim Brown
Editor

Away from your computer? Call 900-378-PICK and get this
information along with the intraday updates including plays.





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

Cheeky!
By Matt Russ

We raised our glasses in a toast to the ECB, which unexpectedly
cut interest rates today, with hopes that it would help drive the
Dow 30 through the 11,000 mark.  But, today would not be the day.
The ECB recently warned of rising inflation and todays move
only undercuts their credibility.  And so the U.S. markets
continued to be choppy, seeking a trend.  Talk about trendless,
the SPX.X closed two-hundredths of a point above its opening price.
Oh, how we need volatility!  The VIX.X sunk below 27 briefly today,
but settled at 27.24.  Should make for some cheap May premiums
going into expiration next week.  Let's just hope it doesn't
implode any further.

NASDAQ & QQQ
Man, it hurts to even look at the Nasdaq chart.  This says it all.
Gaps up, gaps down, all met by selling pressure at some point.
Today was no different.  The COMPX gapped up near 2200 again,
setting the high of the day, and then sold off throughout the
session, closing at 2129.  Notice that these gap up openings are
getting lower and lower, and today's just happened to line up with
the red downtrend line that I drew on Tuesday.  Coincidence?
Nope.  Those Nasdaq market makers are playing the levels, gapping
their stocks up to resistance and whacking them throughout the
day.  The market is telling us that there's no reason to buy.  So
what should we do?  Ride this train back down the tracks.  We were
looking to 2165 as support from Tuesday, but Wednesday's whipsaw
trading put an end to that.  A key break of 2150 today could
attract more selling, however, it's worth noting that volume on
the Nasdaq the past two days has been around 1.7 bln shares.
Next support is 2089.  If that gives way, 2000 would conceivably
be our next stop.  Resistance is at 2150 and the dominant
downtrend line.  The QQQs gave up the $46 level today.  Watch
for support at $45.30, and then at the 38.2% retracement level
of $43.43.




SPX & OEX
Sellers jumped on the S&P 500 again today at 1268, but 1254 was as
low as they could take it.  This bullish wedge continues to narrow
on the SPX.X, bound on the upside with 1270.  I've said it once
and I'll say it again, we are at a pivotal point on the SPX.  The
likely catalyst to break these barriers tomorrow could be the PPI.
Retail Sales numbers also will be released.  Yesterday, buyers
stepped in at 1247 and at 1250, so this area will be a support
level to watch.  We all know where resistance is, so keep an
eye on 1270 as this broad index continues to coil.  The same
goes for the OEX.X, the S&P 100, which is bumping into 660.
OEX support lies at 648 - 650.




DOW 30
The INDU has been stair stepping higher, establishing higher highs
and higher lows.  Support levels have been proven at both 10700
and 10800.  Today, after the gap up on the word that the ECB cut
rates, the Dow 30 topped out at 10979.  Given the ECB's action,
we thought that having the Europeans on board to fight slowing
global economic growth would boost the Dow through 11,000.
However, the Bank Index (BKX.X) rolled over shortly after the
open without even testing its resistance at 900.  Leading the
Dow today to its 43 point gain were the Cyclicals.  Caterpillar
(NYSE:CAT) made 52-week highs(see the Call Play List), with
Dupont (NYSE:DD) and United Tech (NYSE:UTX) each gaining.  While
typically perceived as boring, this group itself is at a pivotal
point.  Check out the Cyclical Index (CYC.X) below.  Its long-term
downtrend line is right there.  A break above this line will likely
bring the techs along with it and drive the Dow through resistance,
just as it did in April '99.  And vice versa.  All of these stars
are aligning and now we're just waiting for the celestial break.
On the Dow, intraday support is now at 10900, with the 11,000 mark
overhead.






We are waiting for that moment.  The pressure, indeed, is building.
This break is so close, yet the signals are not giving us a clear
resolve.  PPI tomorrow will be a tradable number, but the Fed's
call on Tuesday might be the ultimate catalyst.  Either way, we
will be able to take advantage of this low volatility and short
time premiums in May contracts next week.  My gut says QQQ puts
off resistance near 2200.

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/051001_1.asp





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:
*****

NXTL $17.40 -0.61 (-2.34) Unfortunately, the wireless sector
was not able to muster up enough strength to propel NXTL past
tough resistance at $20 this week.  Pervasive malaise in the
technology sector seems to have destroyed the momentum for the
time being, and NXTL has fallen out of its previous upward
channel.  Due to the fact that the stock has closed below our
stop level, we are dropping it tonight.

VRSN $53.31 -1.64 (-2.51) Very nimble day traders could have
taken a quick gain on Wednesday with a move from $54.50 to
almost $57 in a few hours.  However, as is the case with most
technology stocks, the movement in VRTS is highly dependent
on the movement in the sector, and the GSO.X has not
been performing up to par the last two days.  Today's drop
of nearly 5% in GSO.X is somewhat disconcerting for software
stocks going forward, and considering the fact that VRSN has
closed below our stop level of $54, we are dropping it tonight.

LAB $38.17 -1.60 (-2.03) It appears that resistance at $40 may be
too formidable for now.  After spending the past week attempting
to break through that level, shares of the NYSE Specialist firm
now appear to need a breather.  Stochastics have crossed over
bearishly, today's reversal of over 4 percent, and weakness in
peers SCH and NITE are just some of the reasons that this may be
the case.  Add to that the close below its 5 and 10-dmas (at
$39.70 and $38.56, respectively) and our stop price of $39, and
we have little choice but to drop coverage.


PUTS:
*****

MMM $118.04 +1.11 (-1.95) Despite formidable resistance at the
$120-122 area, it appears that the bulls and bears alike are not
yet ready to make a firm break in either direction.  With
strong support at $115, traders seem quite comfortable to keep
MMM in this range for now.  This lack of volatility, which may be
good for stock traders, is not as favorable for option players,
since premiums decay over time.  While still below our stop price
of $119, we are no longer recommending any new positions.

SGR $57.01 +1.56 (-0.09) We are taking gains on our put play in
SGR.  The recently slow decent of the stock has provided us with
a successful play.  However, it appears now that SGR may be ready
to move higher.  Stochastics have crossed over bullishly, and
today's gain of 2.81 percent on 1.13 times the average daily
volume was enough to put the stock just above our closing stop
price of $57.  In keeping with our sell rules, we are taking our
gains off the table, to be used on future plays.





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The Option Investor Newsletter                 Thursday 05-10-2001
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:
http://www.OptionInvestor.com/htmlemail/051001_2.asp





********************
PLAY UPDATES - CALLS
********************

MO $52.32 +0.94 (-0.43) After dipping to $51 earlier in the
week, MO regained some momentum on Thursday afternoon.  It is
important to note that MO found strong support at $51, which
held strongly.  On Thursday, MO stated that Kraft's Nabisco
plans to roll out distribution of its chocolate filled
Oreo cookie by June, but did not give further information due to
the "quiet period" required by the SEC before a stock offering.
The closer we get to the IPO, the more momentum MO is likely
to gain.  At this point, the date has not been finalized, but
MO has stated that the company intends to complete the IPO by
the end of June.  At this point, a pullback to the 10-dma of
$51.50 would be a possible entry point.  MO is encountering
strong resistance at $54, and a break above this level could
be a green light for additional entry points.  Remember to keep
an eye on others in the sector, like LTR and RJR and move
closing stops up to $50.50.

GDW $61.98 +1.10 (+3.23) GDW opened with a gap up of almost a
full point, and held onto its gains the entire day.  A dip to
$61 which occurred in the mid morning turned out to be a superb
entry level, as the stock quickly rebounded on heavy volume.
Substantial buying is occurring here, as GDW continues to move
on approximately one-and-a-half times the average daily volume.
GDW's next resistance level is $62.40, and it seems likely that
we may cross it ahead of the Fed meeting next week.  A move
above $62.40 with heavy volume could be a good entry point for
conservative traders.  More aggressive types might want to wait
for another pullback to $61.50, if others in the sector are
continuing to demonstrate strength, such as ASFC, WM and GPT.
We are moving stops up to $60.

STOR $18.02 +1.22 (+2.62) It looks like we're another step
closer to the $20 challenge!  Today's bullish open gave way to
impressive trading above the $18 level, rewarding traders who
had open positions.  Plus, the successful test of $17.57 at
noontime further confirmed the stock's capacity to endure market
gyrations.  Although it must be noted that leaders in the
storage sector like EMC and NTAP are simply trading sideways.
Therefore, it's important to remember to play STOR on its own
merits.  In an effort to safeguard our capital, we'll continue
coverage over the weekend only if STOR delights us with a CLOSE
above $17.  And please, don't get greedy.  Lock in profits as
STOR targets the $20 level.  If this stellar performer rocks
through the opposition, you can always jump back into the
momentum for another round.  Now if we only had to rely on an
analyst call, then STOR would be top pickings.  Today Dain
Rauscher Wessels and Robinson Humphrey awarded STOR with a
Speculative Buy and Outperform, respectively.

AOL $52.45 +0.45 (+0.25) As we've reiterated, the key to
estimating AOL's upside moves is a bullish market coupled with a
cooperating sector.  Today was such a scenario.  After days of
lackluster activity, a bold open at $52.98 clearly set the stage
for profit opportunities.  Along with other media stocks such as
VIA.B, DIS, and NWS, AOL broke out of the choking confinement
set by its upper resistance.  The chance to take some cash off
the table became available for those traders looking to unload
open positions.  Going forward, look for today's test of the $52
level (previous resistance) to sustain the share price and serve
as a launching point for those interested in taking subsequent
entries.

MER $65.85 +0.18 (-1.70) A dismal day for the financial group on
Wednesday, in conjunction with Merrill Lynch's announcement to
cut 20% of its investment management unit by the end of the
year, didn't entice many buyers.  However the $65 support, which
also marks our closing stop, managed to sustain the share price.
Today's spirited marketplace also offered little incentive for
traders to take positions in MER.  But on the bright side,
lower-than-average volume accompanied any selling and this is
certainly a good indication for those holding long positions.
An enterprising entry off this level could lend lucrative gains,
but there's a big IF involved.  A more conservative approach is
to wait for a visible move through the $67.50 and $68 before
jumping into this play.

YHOO $18.23 -0.63 (-1.79) Considering the broad based weakness
exhibited by the Nasdaq Thursday, YHOO fared comparatively well,
as the stock is holding up above its 50-dma of $17.43.  News
of the closing of a major Internet fund, as well as a revenue
forecast slashing by Terra Lycos (TRLY) did not bode well for
INX.X over the last two days.  We still feel that the short-term
downside risk is somewhat limited here compared to the upside
potential.  When the Nasdaq dropped to 2000 the week of April
24th, YHOO found strong support at $17.50, from which it promptly
rebounded to a high of over $23.  If we see a rebound in the
Nasdaq in anticipation of the Fed meeting, it is possible that
the same scenario could replay.  Traders could take positions
on a bounce from $17.50, if INX.X and others in the sector like
AOL are strong.  We are setting closing stops tight at $17.50,
so end the position if YHOO closes below this point.

CAT $53.43 +1.43 (+2.88) With or without cooperation from the
NYSE, shares of leading earth-moving equipment maker Caterpillar
have been inching steadily forward and in the process, making new
52-week highs.  Yesterday, despite a flat to down day for the Old
Economy index, CAT was up fractionally on news that the company
raised $1.1 billion in the bond market, taking advantage of
recently lowered interest rates.  An up day for 3-letter issues
today helped the stock to move strongly higher, gaining 2.75
percent on over 1.18 times the average daily volume.  A positive
earnings report from one of CAT's distributors, Finning
International, in which the company posted strong new equipment
sales figures, was certainly good news for CAT.  Continued buying
pressure leading to a break above $54 on volume may allow
conservative traders to take a position, but note that the real
resistance lies at $55.  To protect our profits, we are upping
our closing stop price from $50.75 to $51.75.  Bounces off
support at $53, $52.50 and $52 may allow aggressive traders to
make a play, but keep an eye on sector peers DE and DOV.

GPS $32.41 +3.61 (+4.31) When we initiated coverage on GPS
yesterday, we cited strong fundamental reasons as well as
positive technical factors leading to this decision.  A favorable
economic environment and a host of upgrades, along with a nice
consolidation pattern leading to a successful test of the bottom
of its up-trend channel, were just a few of the reasons that made
this play an attractive one.  Today, the stock exploded, gapping
up at the open and ending the day up over 12.5 percent on 3.7
times the average volume.  An upgrade from WF Van Kasper, from a
Buy to a Strong Buy rating, certainly did its part to bring out
the buyers.  But the bulk of the credit goes to strong retail
numbers due to warmer-than-expected weather, helping apparel
makers to post higher than anticipated sales figures.  The
company also came out to say that first-quarter earnings (due
next Thursday) would surpass current Street estimates.  At this
point, we are tightening our stop up, from $27.50 to $31.50.
High-risk players looking for an entry may look for low volume
pullbacks to support at $32 and $31.50, but confirm sentiment
with movement in peers AEOS and ANF.  Please be aware that Retail
Sales figures due tomorrow may also affect trading!  A break
above $33 on continued buying volume may allow for an entry on
strength.

LLY $85.01 -0.50 (+1.03) Missing the drop list by the hair of
its chin, LLY spent another day consolidating its recent
advance.  Just like the broader markets, our play can't decide
if it wants to continue upwards or sit out.  Resistance between
$86-87 has been formidable, and the stock has now fallen to rest
just a penny above our $85 stop.  Only time will tell whether
the bulls can get re-invigorated as we head into another weekend
and the May 15th FOMC meeting rapidly approaches.  The return of
buyers should lift LLY from current levels, providing aggressive
traders with another attractive entry point.  Beware of the
bears though; volume is still below the ADV, but gradually
increasing the past few days.  Not only that, but today marked
the stock's first close below the 10-dma (currently $85.45) in
almost 3 weeks.  The more prudent approach might be to initiate
new positions on continued strength as LLY rallies through
intraday resistance near $86.  The Pharmaceutical index (DRG.X)
is having a hard time as well, sitting right on its recent
ascending trendline; unless it can resume its uptrend by
bouncing from the 396-397 level, LLY will have a hard time
moving significantly higher.  Insofar as the DRG.X, watch for
a breakout above 400 to confirm strength in LLY.


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

GMST $37.60 -1.66 (-2.20) Investor interest in GMST continues to
be blasť.  Despite news on Wednesday that the company had won a
new deal with cable provider Shaw Communications, shares of the
digital media provider headed lower, dropping $1.00 or about
2.5 percent on weaker than average trading volume.  Today, the
stock lost another 4.23 percent of its value, with trading volume
once again light - only 87 percent of the ADV.  Continued apathy
on the part of bulls could work in our favor, especially in light
of the positive announcements from the company.  Any negative
factors that may arise leading to even a slight increase in
selling, with few willing bidders at the moment, could accelerate
GMST's slide.  With that in mind, a break below $37.50 on volume
may allow traders to enter on weakness.  Just be aware that GMST
may find support from its 50-dma at $36.65.  Failed rallies at
the 5 and 10-dma, at $39.35 and $40.61 respectively, along with
horizontal resistance at $38.25 and our new closing stop price of
$39, may allow aggressive traders to make a play.  Track sector
sentiment by following movement in peers SFA and WINK.

AMAT $51.01 -0.03 (-0.52) Dueling analysts made for some early
excitement in the Semiconductor stocks this morning before more
rational thinking prevailed.  It started before the open with a
Morgan Stanley upgrade of several chip equipment companies,
including AMAT, to Strong Buys.  Salomon Smith Barney chimed in,
citing evidence of a bottom in the semiconductor equipment
sector.  That gave the bulls the shot of adrenaline they needed,
helping AMAT to gap up above $54 at the open, and providing
aggressive traders with an attractive, but risky entry point as
the stock began to rollover almost immediately.  Dissenting
opinions hit the newswires before amateur hour was even over,
with Goldman Sachs citing the group has not turned around, and
CSFB disagreeing with Morgan Stanley's earlier call and advising
investors to sell these stocks into strength.  The tape tells
the rest of the story, with the sellers in control for the rest
of the day, stripping AMAT of all of its early gains by the
close.  While the gap open steamrolled our $53 stop, the bearish
activity for the remainder of the day gives us good cause to
keep AMAT on the playlist.  We are still looking for AMAT to
fall through the $50 support level, and that will be the trigger
for conservative traders to take a position.  More aggressive
entries can continue to be taken on failed intraday bounces near
the $53 level, so long as our stop is not violated on a closing
basis.  Continue to monitor the Semiconductor index (SOX.X), as
a drop below the important 600 level will likely correspond to
AMAT taking out the $50 level.

HGSI $58.42 -2.43 (-3.35) As expected, the Biotechs are
continuing to weaken, and today the BTK.X punctured the 555
level with hardly a struggle.  HGSI isn't looking much better,
falling back through the $61 and $60 levels in short order.  The
rally attempt from earlier in the week was unable to clear the
$64 resistance level, and the rollover provided some attractive
entries for aggressive traders.  By lunchtime, the stock had
begun to find support between $57-58 and spent the remainder of
the day consolidating near this level.  This is likely to be the
next significant battleground between buyers and sellers, and we
would look to initiate new positions as HGSI drops below $57,
preferably on increasing volume and continued weakness in the
BTK.X.  After the sharp downward move today, we are ratcheting
our stop down to $62.  Aggressive traders can consider new
positions on an intraday bounce near this level, so long as
sellers remain in control.  The next major level of support to
watch for will be near $54, and this will be a good area to
consider locking in some profits.

JNPR $53.61 -3.76 (-7.52) Once again, Networking stocks took it
on the chin and JNPR got hit for 6.5% loss, closing near the
bottom of its $6 intraday range.  The less-than-stellar earnings
report from CSCO is still weighing heavily on the Networking
index (NWX.X), and upward moves continue to provide attractive
entry positions for put plays in the sector.  After a bullish
open across the broader markets, which allowed JNPR to open just
south of $60, the sellers didn't waste any time pushing the
stock lower.  The only green on the screen came during lunch
hour and was quickly followed by increasingly heavy selling
right into the close.  The straw that broke the camel's back was
a conference call between ABN Amro and JNPR's VP of Investor
Relations.  The key point from the call was that JNPR gave no
guidance going forward; not the kind of cheerful news that
investors are currently craving.  JNPR is now sitting just
above significant support near $53, and is quickly approaching
the $51 support level, last seen just before the Fed's surprise
interest rate cut on April 18th.  The bottom line is that there
hasn't been any noticeable pickup in the Telecom Equipment
sector, and optimistic bulls are watching their recent paper
gains disappear.  We have lowered our stop to $56, and
aggressive traders will want to target new entries on an
intraday bounce near this level.

NVLS $49.49 -0.11 (-1.46) Another victim of the conflicting
analyst calls this morning, NVLS provided vigilant traders with
some nice profits by the time the closing bell rang.  It started
before the open with upgrades to the Semiconductor Equipment
stocks to Strong Buy ratings from Morgan Stanley.  Salomon Smith
Barney, chimed in citing evidence of a bottom in the equipment
sector.  Less than an hour into the trading day, Goldman Sachs
and CSFB were lobbing their dissenting opinions into the fray,
citing no visible evidence that there is any improvement in the
sector.  Trading in NVLS seemed to follow the whims of the
analysts, gapping up at the open and temporarily slicing through
our $51 stop.  While it looked bad for the bears at the open,
they quickly got their second wind as the Semiconductor index
(SOX.X) rolled over and ended right at its low of the day, having
given up almost its entire early gain.  On a daily chart, we can
see the clear "Shooting Star" doji pattern, which certainly
doesn't favor the bulls' chances in the next few sessions.
Because of the bearish action in the sector and NVLS, which
ended the day more than 6% off its high, we are comfortable
keeping the play alive as we head into Friday.  Aggressive
traders will want to target shoot new entries near our $51 stop,
while the more conservative approach will be to wait for NVLS to
fall through the $48 support level.





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

AGGRESSIVE:

BA - The Boeing Company $65.95 +0.95 (+1.45 this week)

The Boeing Company, an aerospace company, operates, together with
its subsidiaries, in three principal segments: Commercial
Airlines Operations, Military Aircraft and Missiles, and Space and
Communications. Commercial Airplanes Operations is involved in the
development, production and marketing of commercial jet aircraft.
The segment also provides related support services, principally to
the commercial airline industry worldwide. The Military Aircraft
and Missiles segment is involved in the research, development,
production, modification and support of military aircraft,
including fighter, transport and attack aircraft; helicopters;
and missiles.  The Space and Communications segment is involved in
the research, development, production, modification and support
of space systems, missile defense systems, satellites and
satellite-launching vehicles, rocket engines and information
and battle management systems.

After reaching a 52-week high of $70.93 on December 8th, and
Dipping to a low of $49.36 during the Dow sell off on March 22nd,
Boeing has formed an almost perfect chart pattern for bullish
traders.  Excellent news which has been released recently
combined with strength in the Dow average and the defense sector
have combined to move BA into the spotlight.  Aerospace and
military defense stocks have been attracting investors of late,
as the new federal budget is anticipated to include substantial
increases in spending on new defense programs.  Over the last
week, BA has announced several new large contracts.  Today, BA
confirmed that American Airlines had ordered 15 new Boeing 767
Airplanes.  BA has also received a new US fighter jet
contract.  In addition, Wall Street took notice when XMSR
launched its second Boeing 702 satellite this week.  Today's
close above previously strong resistance at $65.50 is a very
bullish sign, and should bode well for BA going forward.  Also,
the announcement by Boeing that the company plans to move its
headquarters to Chicago seemed to stimulate interest in the
company on Thursday.  Traders could take positions at current
levels, if others in the sector like LMT are rallying.  A
pullback to support at $65.50 is possible, and could be an entry
point for more aggressive traders.  We are setting stops at
$64, right above the 10-dma of $63.91, so be prepared to end
the play if BA closes below this level.

***May contracts expire next week***

BUY CALL MAY-60 BA-EL OI=5763 at $6.30 SL=4.50
BUY CALL MAY-65*BA-EM OI=8463 at $1.85 SL=1.00
BUY CALL JUN-60 BA-FL OI= 255 at $7.20 SL=5.50
BUY CALL JUN-65 BA-FM OI=1587 at $3.60 SL=1.75

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


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

AGGRESSIVE:

QLGC - Qlogic Corp $44.35 -2.89 (-4.94 last week)

QLogic Corporation is the leading manufacturer of fibre channel
bus adaptors.  The company is also a designer and supplier of
semiconductor and board level input/output (I/O) components
They've been designing and marketing SCSI-based (small computer
system interface) products for over 12 years and sells its
products to server, workstation, and date peripheral makers.
Blue-chip clients include Compaq, Dell, Hitachi, IBM, and
Quantum Corporation.

A crucial break through QLGC's support caught our attention and
prompted immediate coverage of this semiconductor player.  In
recent trading, the $46 level sustained QLGC amid any
adversity.  But now that earnings are just around the corner and
the NASDAQ is floundering, the tides are turning - and not in
favor of QLGC!  Investors seem to be preparing for the worst.
Ironically, it's expected that they'll come in at $0.28 p/s in
comparison to last year's same quarter of $0.24.  The company is
preparing to release its earnings next Tuesday, May 15th, after
the market close; but mark your calendars, we NEVER hold over an
announcement.  This week QLGC lost over 10% of its value; and on
the day, its slide under the critical $46 support amid robust
trading with a $2.89, or 6.1% loss.  And then there's the sector
itself to consider.  Today's strong sell-off across the board
saw the Semiconductor Index (SOX.X) tank almost 30 points from
open to close.  Currently, there's support at 620, with another
safety net around 605.  A major signal for downside sentiment
would be a break through 600!  Use this index measurement to
help plan your strategy on QLGC.  Put entries might be found on
rollovers from the 5-dma ($47.27) or more conservatively, from
the 10-dma ($45.69) in a declining market.  If you enter on
downward momentum through $44, consider targeting the proximity
of $40 for an exit point.  We'll continue coverage on QLGC
through the weekend as long as it stays below $46.50 on
Friday's close.

***May contracts expire next week***

BUY PUT MAY-50 QLC-QJ OI=181 at $7.20 SL=5.00
BUY PUT MAY-45*QLC-QI OI=671 at $3.90 SL=2.50
BUY PUT JUN-45 QLC-RI OI=168 at $6.60 SL=4.50
BUY PUT JUN-40 QLC-RH OI=199 at $4.20 SL=2.50

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


BRCM - Broadcom Corporation $38.35 -1.90 (-4.64 this week)

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

Earnings this week from Cisco had a palpable effect on
communications chipmaker Broadcom, as the company is a major
supplier to the networking giant.  While CSCO managed to beat
lowered Street estimates by a penny, lack of visibility going
forward continues to plague the sector.  In a market that does
not like uncertainty, this was not good news.  Merrill Lynch
analyst Michael Ching came out yesterday and re-iterated his
Neutral rating on BRCM, along with sector peers such as AMCC
CNXT, PMCS and VTSS.  The decline of capital expenditures by the
Telecom sector has no doubt taken its toll.  Excess inventory
continues to weigh on the stock prices of high tech equipment
manufacturers, inventory that is depreciating as it sits on the
shelves.  Technically, the stock has been making a series of
lower highs and lower lows.  While BRCM was able to break above
its 50-dma (now at $35.74) in late April, it appears now that the
stock may test its major moving average support.  Today's decline
of 4.72 percent on higher-than-average volume put the stock below
psychological support at $40.  Continued selling pressure leading
to a break below $38 may allow cautious traders to take a
position, but confirm with volume.  Failed rallies as BRCM
approaches the 5 and 10-dma at $41.68 and $42.14 respectively,
along with horizontal resistance at $39.50, $40 and our closing
stop price of $41, may provide potential entries for aggressive
traders.  When making a play, make sure that movement in the
Philadelphia Semiconductor Index (SOX) confirms sector weakness.

***May contracts expire next week***

BUY PUT*MAY-40 RCQ-QH OI=6001 at $4.10 SL=2.50
BUY PUT MAY-35 RCQ-QG OI=6016 at $1.90 SL=1.00

http://www.premierinvesor.com/oi/profile.asp?ticker=BRCM


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

JNPR - Juniper Networks $53.61 -3.76 (-7.52 this 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.

Most Recent Write-Up

Once again, Networking stocks took it on the chin and JNPR got
hit for 6.5% loss, closing near the bottom of its $6 intraday
range.  The less-than-stellar earnings report from CSCO is
still weighing heavily on the Networking index (NWX.X), and
upward moves continue to provide attractive entry positions for
put plays in the sector.  After a bullish open across the
broader markets, which allowed JNPR to open just south of $60,
the sellers didn't waste any time pushing the stock lower.  The
only green on the screen came during lunch hour and was quickly
followed by increasingly heavy selling right into the close.
The straw that broke the camel's back was a conference call
between ABN Amro and JNPR's VP of Investor Relations.  The key
point from the call was that JNPR gave no guidance going
forward; not the kind of cheerful news that investors are
currently craving.  JNPR is now sitting just above significant
support near $53, and is quickly approaching the $51 support
level, last seen just before the Fed's surprise interest rate
cut on April 18th.  The bottom line is that there hasn't been
any noticeable pickup in the Telecom Equipment sector, and
optimistic bulls are watching their recent paper gains
disappear.  We have lowered our stop to $56, and aggressive
traders will want to target new entries on an intraday bounce
near this level.

Comments

While shares of Juniper firmed in after hours trading Thursday
evening, the stock took out several key support levels during
the regular session and appears technically weak.  We're
looking for JNPR to work its way towards the $50 level during
Friday's session.  Aggressive traders might consider entering
new positions near the open Friday morning, IF the Nasdaq
weakens as it did during Thursday's opening.  Confirmation of
continued weakness would be provided if JNPR falls below the
$53.64 level, which would provide an entry and should put the
stock on the path towards $50.

***May contracts expire next week***

BUY PUT MAY-55*JUX-QK OI=10057 at $5.10 SL=3.00
BUY PUT MAY-50 JUX-QJ OI=10076 at $3.00 SL=1.50
BUY PUT JUN-55 JUX-RK OI= 1490 at $8.30 SL=6.00
BUY PUT JUN-50 JUX-RJ OI= 7454 at $6.00 SL=4.00

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





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

Industrial Stocks Rebound!

Strength in blue-chip shares pushed the Dow higher today with
retail and cyclical issues leading the rally.

Wednesday, May 9

Stocks retreated today on concerns over demand in the networking
equipment industry after Cisco Systems (NASDAQ:CSCO) said future
capital spending is uncertain.  The NASDAQ closed down 42 points
at 2,156 and the Dow finished down 17 points at 10,866.  The S&P
500 index was down 5 points at 1,255.  Trading volume on the Big
Board hit 1.04 billion shares with advances beating declines 16
to 14.  Activity on the NASDAQ was light at 1.77 billion shares
exchanged with losers outpacing winners 21 to 17.  In the bond
market, the 30-year Treasury rose 1 1/32, pushing its yield down
to 5.66%.


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

Stratos    (NASDAQ:STLW)  JUN12C/JUN10P $11.00  debit   collar
ADC Tele.  (NASDAQ:ADCT)  AUG10C/AUG7P  $0.15   debit   synthetic
Metricom   (NASDAQ:MCOM)  JUL5C/JUL5P   $0.30   credit  synthetic

Today's bearish activity provided two excellent opportunities to
enter our new combination positions.  MCOM opened lower and the
initial credit was slightly higher than expected.  The synthetic
position in ADCT also offered an acceptable entry price but STLW
was less cooperative.  The stock opened at $10.50, pushing the
cost of the protective Put to $1.50 and the issue remained near
that price for most of the session.  The bullish collar was not
available at the target debit on a simultaneous order basis, but
we will watch for additional entry opportunities in the coming
sessions.


Portfolio Plays:

The equity markets consolidated today as renewed selling in the
technology group weighed heavily on many segments of the Dow
and S&P 500 index.  Most of the selling pressure on the NASDAQ
was attributed to Cisco's (NASDAQ:CSCO) vague earnings outlook.
Cisco slumped to $19 Wednesday after the company reported third
quarter earnings that beat estimates by a penny but offered no
specific revenue guidance for the rest of the year.  Cisco also
said that fourth quarter revenues would be down as much as 10%
from the third quarter.  Several analysts raised their 2001 and
2002 earnings estimates on the stock to reflect a lower expense
while others said the company's long-term growth rate of 30% to
50% will be almost impossible to achieve.  The selling pressure
spread to the semiconductor sector, where stocks were hampered by
an industry report that predicted global semiconductor revenues
will decline 17% in 2001 to about $188 billion.  The data also
suggested that the industry will experience a slow recovery in
2002.  Other technology groups also retreated including Internet
and computer hardware shares and Microsoft (NASDAQ:MSFT) led the
software sector lower despite an announcement it will launch the
next version of Windows operating system, Windows XP in October.
On the Dow, Procter & Gamble (NYSE:PG), Alcoa (NYSE:AA), Boeing
(NYSE:BA) and Merck (NYSE:MRK) were among the industrial leaders
while Home Depot (NYSE:HD) and Intel (NASDAQ:INTC) pulled the
blue-chip average lower.  In the broader market, gold, natural
gas, oil, chemical, biotechnology and utility shares advanced
while bank and brokerage, retail and airline issues generally
consolidated.

Despite the lackluster session, the Spreads section had lots of
activity.  The big surprise occurred on Tuesday evening as Shire
Pharmaceuticals Group (NASDAQ:SHPGY) announced that it received
notification that the proposed merger with BioChem (NASDAQ:BCHE)
had been approved.  Shire also announced that, assuming closing
takes place on Friday 11 May 2001, the average Shire ADS price,
to determine the exchange ratio for the purposes of the merger,
is $48.78.  On the basis of an average Shire ADS price of $48.78,
the exchange ratio to be applied would be 2.2757 Shire ordinary
shares being issued for each BioChem Share.  However, it is more
complicated than that as the company is Canadian and there is a
difference between the ratio for Shire common stock and the ADS
shares (SHPGY) that are issued here in the United States.  Most
investors will receive ADS shares equal to the exchange ratio
divided by three.  In simple terms, the value of each BCHE share
is roughly equivalent to 75.8% of the price of a SHPGY share, or
about $35.85, based on today's opening prices.  So, what kind of
options did we have in the bearish position (MAY-$37C/MAY-$35C)
and were there favorable adjustment opportunities?  The easiest
alternative was to simply buy the stock (near $35.50 for most of
the morning) and the sell the long Call option (at $0.40-$0.55),
thus establishing a simple Covered-call with a new cost basis of
approximately $34.25. (Remember, we also have a $0.75 credit from
the original spread position.)  The profit range begins at our
new cost basis and maximum gain is at $35.00.  Another possible
strategy is to simply wait for the closing date and adjust the
original spread based on the price of Shire, which will determine
the exact value of BCHE shares (75.8% of SHPGY).  Since there is
no reason for a significant rally, now that the news is public,
and the technical character of SHPGY is less than outstanding, a
"wait-and-see" approach may be more effective for aggressive
traders.

Among other active issues, our new Reader's Request position in
Watson Pharmaceuticals (NYSE:WPI) has definitely experienced a
change in character after the company posted favorable results in
its quarterly earnings report.  The issue has moved back above a
recent resistance area near $50 on increasing volume and the new
buying support is very solid.  Our Put-calendar spread at $45 is
unlikely to produce a profit without an adjustment so we decided
to roll into a bullish, Put-credit spread at $50.  The original
position had a debit of $1.00 and the credit for the JUN-$50 Put
is approximately $2.00, thus the new cost basis will be near $49.
In the technology portfolio, Cisco (NASDAQ:CSCO) was the most
prominent issue in the news as the company's record of posting
greater sales and bigger profits came to a halt after 11 years.
The networking equipment giant posted a quarterly loss and gave
no guidance on when business could return to normal.  Cisco's
CEO hinted that some of the industry's capital spending issues
might be improving and that long-term prospects remain healthy,
but he also said that profits for the next quarter would be flat.
Our long-term calendar spread at $20 appears to be correctly
positioned as the issue has established a new comfort zone near
$19.  Those of you that participated in the roll-out to JUN-$20
options (in the short-position) on the day of the announcement
made an excellent decision and the play is already profitable.


Thursday, May 10

Strength in blue-chip stocks pushed the Dow higher today with
retail and cyclical issues leading the rally.  The Dow ended up
43 points at 10,910 but the NASDAQ slid 27 points to 2,128 even
as some popular analysts issued bullish comments on the chip
equipment group.  The S&P 500 index was unchanged at 1,255.
Trading volume on the NYSE reached 1.05 billion shares with
advances beating declines 3 to 2.  Activity on the NASDAQ was
light with 1.73 billion shares exchanged and no significant
bias in the technology index breadth.  In the bond market, the
30-year Treasury fell 1 5/32, pushing its yield up to 5.75%.


Portfolio Plays:

Industrial stocks rallied today with the Dow posting modest
gains on strength in a variety of sectors.  The top performers
were DuPont (NYSE:DD), American Express (NYSE:AXP), Home Depot
(NYSE:HD), United Technologies (NYSE:UTX), Walt-Mart (NYSE:WMT),
and Walt Disney (NYSE:DIS).  The blue-chip average has recently
been confined to a relatively narrow trading range as neither
buyers nor sellers have been able to take control and today the
outcome was much the same as the 11,000 mark again proved to be
a formidable barrier.  Mediocre earnings reports have been the
problem in past weeks and the lack of future revenue guidance is
also a major concern for most investors.  Technology stocks are
plagued by similar conditions but semiconductor shares received
a boost today from analysts at Morgan Stanley Dean Witter, who
said that "the train has left the station" and the recent market
retreat creates opportunity in an upward trend.  The brokerage
also reported that upside estimate adjustments should begin in
earnest by early 2002.  Other select NASDAQ groups moved higher
including networking issues but computer software, hardware and
data storage stocks continued to slump.  In the broader market,
the retail sector rallied amid a plethora of "same-store sales
releases" which revealed better-than-expected results.  Advances
were also seen in the financial, cyclical and gold sectors while
renewed selling pressure surfaced in the oil service, utility,
airline and insurance segments.

The bullish activity in industrial issues dominated the Spreads
portfolio and a number of positions benefited from the upbeat
activity.  Lowe's (NYSE:LOW) was a big winner, up over $43 to a
new high near $64.  Our bullish, Put-credit spread at $55 should
expire at maximum profit.  The strength in the retail group also
boosted Liz Claiborne (NYSE:LIZ) and our sold Put option at $40
(an adjustment from last month's bullish spread) is expected to
expire with a small gain for the overall position.  Brokerages
performed well during today's session and the recent spreads in
Lehman Bothers (NYSE:LEH) and Merrill Lynch (NYSE:MER) profited
from the move.  Financial services provider Providian (NYSE:PVN)
rebounded from near-term selling pressure and our bullish play
at $45 appears safe for now.  On the downside, some of the new
selections in the small-cap technology group are suffering from
profit-taking and it remains to be seen whether these declines
will substantially affect the recent recovery in these issues.
One position that has definitely gone awry is Unitedhealth Group
(NYSE:UNH) and as we commented last week, traders that did not
take action when the issue moved below near-term support at $60
should set aside funds to purchase the issue; in the event of
assignment.

Questions & comments on spreads/combos to Contact Support

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

PEP - PepsiCo  $46.54  *** Options Activity! ***

PepsiCo (NYSE:PEP) is engaged in the snack food, soft drink and
juice businesses.  The company, through its many subsidiaries,
markets, sells and distributes salty and sweet snacks in the
United States and internationally.  Pepsi also makes concentrates
of Pepsi, Mountain Dew and other brands for sale to franchised
bottlers in the United States and globally and produces, markets,
sells and distributes juices under several Tropicana trademarks
in the United States and internationally.  Pepsi's domestic food
business is conducted by Frito-Lay North America, and its global
snack food business is conducted through Frito-Lay International.
Their soft drink business operates as the Pepsi-Cola Company and
is comprised of two business units, Pepsi-Cola North America and
Pepsi-Cola International.

PEP options have been active this week on speculation that its
plan to acquire Quaker Oats (NYSE:OAT) could run into regulatory
problems.  Some traders believe the soft drink giant's takeover
of the popular cereal maker could be derailed due to antitrust
concerns and a Federal Trade Commission official recently said
commission investigators fear the buyout will give Pepsi too much
control over the U.S. sports drink market.  In its defense, Pepsi
said that in discussions as recent as Thursday morning, it had no
indication from FTC officials of problems with the merger and they
are continuing their dialogue with the FTC to reach a mutually
acceptable outcome.  The FTC's five-member commission, which must
assess whether the deal complies with U.S. antitrust laws, is
scheduled to vote in the next several weeks on whether it should
go to court to block the deal.

Apparently, investors are either in favor of a potential problem
with the merger or they simply aren't concerned with the issue
as the stock has rallied significantly since the rumors began.
In any case, the current technical indications are bullish and
traders who believe the trend will continue can attempt to profit
from that outcome with these combination positions.

PLAY (aggressive - bullish/credit spread):

BUY  PUT  JUN-42.50  PEP-RV  OI=2168  A=$0.50
SELL PUT  JUN-45.00  PEP-RI  OI=1878  B=$1.10
INITIAL NET CREDIT TARGET=$0.70-$0.75  ROI(max)=38% B/E=$44.30

- or -

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-50.00  PEP-GJ  OI=6294  A=$1.20
SELL PUT   JUL-42.50  PEP-SV  OI=2410  B=$0.90
INITIAL NET DEBIT TARGET=$0.00-$0.10 TARGET PROFIT=$0.80-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,550 per contract.

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

******************************************************************
                  - STRADDLES AND STRANGLES -
******************************************************************

NSC - Norfolk Southern  $22.39  *** Cheap Speculation! ***

Norfolk Southern's (NYSE:NSC) railroads operate on thousands of
miles of railway in the states of Alabama, Delaware, Florida,
Georgia, Illinois, Indiana, Iowa, Kentucky, Louisiana, Maryland,
Michigan, Mississippi, Missouri, New Jersey, New York, North
Carolina, Ohio, Pennsylvania, South Carolina, Tennessee, Virginia
and West Virginia, and in the Province of Ontario, Canada.  The
company's railcars carry raw materials, intermediate products and
finished goods primarily in the Southeast, East and Midwest, and
to and from the rest of the United States and parts of Canada.
Regularly scheduled passenger operations on NS' lines consist of
Amtrak trains operating between Alexandria and New Orleans, and
between Greensboro and Selma, North Carolina.

NSC shares vaulted higher today, extending a 5-day rally after
company officials outlined new services and investor initiatives
as well as restructuring initiatives and comprehensive analyses
of key businesses to help increase shareholder value and improve
business growth.  The company CEO said, "Norfolk has the network,
determination and value to be the most successful transportation
company in the 21st century" and investors applauded the upbeat
attitude.  Analysts are encouraged by Norfolk's progress in the
first quarter of 2001, in which the corporation saw an improved
operating ratio and growth in railway operating revenues, fueled
by double-digit increases in their coal and intermodal divisions.
Indeed, the future looks bright for the company and although the
current trend is bullish, the issue has come a long way in just
a few weeks, up from $16 in late April.  Now the question is,
"Where to from here?" and traders who want to speculate on that
outcome can profit from future volatility with these favorably
priced positions.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-22.50  NSC-EX  OI=22  A=$0.70
BUY  PUT   MAY-22.50  NSC-QX  OI=10  A=$0.65
INITIAL NET DEBIT TARGET=$1.25 TARGET PROFIT=$0.35-$0.50

- or-

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUN-22.50  NSC-FX  OI=25  A=$1.25
BUY  PUT   JUN-22.50  NSC-RX  OI=0   A=$1.20
INITIAL NET DEBIT TARGET=$2.30-$2.35 TARGET PROFIT=$0.75-$0.95

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

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AC - Alliance Capital $49.03  *** An Old Favorite! ***

Alliance Capital (NYSE:AC) is a global investment management firm
best known for its growth style of equity investing.  Assets under
management are almost $400 billion and Alliance Capital manages
retirement assets for many of the largest public and private
employee benefit plans (including many of the U.S. Fortune 100
companies), for public employee retirement funds across the United
States, and for foundations, endowments, banks, and insurance
companies worldwide.  Alliance Capital is also one of America's
largest mutual fund sponsors, with almost 6 million shareholder
accounts and a family of diversified fund portfolios that are
distributed globally.  Alliance Holding owns over 40% of Alliance
Capital, the operating private partnership.  AXA Financial owns
interests in both Alliance Holding and Alliance Capital, amounting
to an approximate 57% economic interest in Alliance Capital.

Alliance Capital has been one of our best performing candidates
in the Debit Straddles category and once again, the technical
indications and the option premiums favor a neutral position in
the issue.  AC has relatively inexpensive option premiums, a
history of adequate price movement and there are future events
or activities that may generate volatility in its industry (the
upcoming FOMC meeting/interest rate announcement).  This process
of selection provides the foremost combination of low risk and
potentially high reward but as with any recommendation, it must
be reviewed thoroughly, so you can make your own decision about
the future outcome of the position.

AC - Alliance Capital  $49.03

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUL-50  AC-GJ  OI=289  A=$2.40
BUY  PUT   JUL-50  AC-SJ  OI=196  A=$3.10
INITIAL NET DEBIT TARGET=$5.30-$5.40 TARGET PROFIT=$1.35-$1.50

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

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NVLS - Novellus Systems  $49.49  *** Trading Range? ***

Novellus Systems (NASDAQ:NVLS) manufactures, markets and services
advanced systems used to deposit thin conductive and insulating
films on semiconductor devices, as well as unique equipment for
preparing the device surface for these deposition processes.  The
company supplies high-productivity deposition and also surface
preparation systems used in the production of integrated circuits.
Novellus focuses on advanced thin film deposition systems and
surface preparation equipment including processes such as Chemical
Vapor Deposition, Physical Vapor Deposition, photoresist strip,
electrofill, and residue removal systems that 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.

Novellus options were active today after an analyst at Morgan
Stanley raised his investment ratings on the top manufactures of
equipment used in the production of semiconductors, saying the
stocks had hit bottom and positive earnings momentum would return
early next year.  The analyst also said the recent pullback in
the chip equipment stocks had created a buying opportunity as the
industry moves into a positive cycle that will result in increased
earnings estimates beginning in earnest by early 2002.  That's a
very optimistic outlook considering the recent profit forecasts
by other companies in the group but most experts believe that the
bottom of the cycle is approaching.  We also favor a number of
companies in this sector and since NVLS has a relatively stable
trading range and a solid support area near $35, we are going to
sell OTP premium for credit and use the earned income to offset
any losses on the downside, in the event of assignment.

PLAY (conservative - neutral/credit strangle):

SELL CALL  JUN-65  NLQ-FM  OI=1944  B=$0.80
SELL PUT   JUN-35  NLQ-RG  OI=1212  B=$0.70
INITIAL NET CREDIT TARGET=$1.60-$1.75 ROI(max)=14%
UPSIDE B/E=$66.60 DOWNSIDE B/E=$33.40

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

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





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