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Daily Newsletter, Tuesday, 05/22/2001

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The Option Investor Newsletter                  Tuesday 05-22-2001
Copyright 2001, All rights reserved.                        1 of 2
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        05-22-2001        High      Low     Volume Advance/Decline
DJIA    11257.20 - 80.70 11350.00 11239.60 1.23 bln   1493/1613 
NASDAQ   2313.85 +  8.26  2328.05  2291.91 2.31 bln   2158/1760
S&P 100   676.06 -  2.54   680.03   674.89   totals   3651/3373
S&P 500  1309.38 -  3.45  1315.93  1306.89           52.0%/48.0%
RUS 2000  517.23 +  1.32   519.89   513.73
DJ TRANS 2990.97 - 13.38  3010.24  2984.89
VIX        23.49 +  0.25    23.85    23.04
Put/Call Ratio      0.60
******************************************************************

Profit Taking Finally Appears!

The Nasdaq held and the Dow fell. End of story? Not quite! The
Dow was the headliner with an -80 point drop to 11244 on profit
taking and sector rotation but the big news in my opinion was
the Nasdaq. After soaring above resistance at 2200-2250 on
Monday the Nasdaq held its ground and even gained +8 points.
The Nasdaq traded in a very narrow 37 point range and after a
quick morning dip under 2300 it never got close again. This is
great news for traders waiting on a Nasdaq breakout.






The Dow faltered after a four day winning streak and gave up
some gains to profit taking. Sector rotation also was a factor
with cyclicals and drugs showing weakness after the tech rally
on Monday. The Nasdaq stretched its winning streak to six days
and appears poised to continue up from here. Volume was good
at almost 2.3 billion shares on the Naz and 1.25 billion on the
NYSE. Of course strong volume on the NYSE with a Dow close only
five points off the days low is not something to cheer about.
Still the Nasdaq hung back while the Dow was making huge gains
and maybe it is time to turn the tables for a week.

The big story which dominated the news all day was the divorce
between Firestone and Ford. Claiming that they no longer have
confidence in the safety of Firestone tires and have severed
their relationship. Ford will recall 13 million tires at a cost
of $3 billion and Ford will cover all the costs. The press
conference sounded more like a pre-trial press release instead
of a recall announcement. Firestone will ultimately bear the
brunt of the recall costs as well as suits by the relatives of
the 174 deaths that have been attributed to this tire problem.
Ford said they would take a charge that would cause them to
miss earnings for the full year. Goodyear and Cooper tires
soared as the primary sources of replacements. GT gained +2.16
in regular trading and another +2.35 in after hour after
the Ford announcement.

Retailers rallied after Kohl's turned in results that matched
estimates but showed an increase of +43% over the same quarter
last year. They also said they were "very comfortable" with
analysts estimates for this quarter. Target hit estimates with
a +7% profit gain and also said they were comfortable with Q2
estimates. Consumers are still buying and discount stores are
drawing a crowd.

The optical networking group also drew a crowd today after
CSFB had some good things to say about CSCO. They said the
optical portion of Cisco's business was showing some life and
could be the leading product to come out of the tech recession.
CSFB said communication carriers were starting to open the
spigot on orders in this area and there were several very large
orders in process at this time. CSCO jumped from a $20 close
on Friday to a high over $24 on Tuesday. CIEN also gapped up
on the news to a high of almost $67 intraday. There was a
disturbing sell off on JNPR and CIEN at the close but volume
was light.

McAffe.com and Microsoft announced a deal today to provide a
set of services called "HailStorm" which aims to eventually
keep track of everything from an individual's personal calendar
to financial information over a secure online network. MCAF
shares jumped over +50% to $12.50 on the news. No financial
details were disclosed but it was estimated that MCAF sales
could see more than a $1 billion boost. Wish I had owned it
yesterday!

Money center banks and brokerages were gaining ground on the
hopes that the Fed's five rate cuts would eventually bolster
the economy and increase profits. Several Fed members have
spoken this week and the indications are still that they think
the economy is facing more slow growth. Fed fund futures are
showing just barely over a 50% chance of another rate cut at
the June meeting. Either way, the five cuts already in place
could take six more months to be fully felt in the economy and
in corporate earnings. This is what investors who bid up techs
on Monday are betting on and another cut at this point would
only be icing on the cake.

Of concern to Nasdaq traders for Wednesday is the semiconductor
book to bill numbers for April. They were released after the
close on Tuesday and at 0.42 they plunged to a new 10-year low.
The BTB ratio means that for every $100 of product shipped there
was only $42 of new orders. By comparison March was 0.59 and
Nov was 1.12. Stanley Myers, president of Semiconductor
Equipment and Materials International, which tracks this number,
said "the severity and depth of this industry correction is
unprecedented." He blamed order cancellations for the sharp
decline as existing inventory levels continue to build. Orders
for April totaled $711 million compared to $2.72 billion in
April 2000. CIBC World Markets said in a research note on
Tuesday that they do not expect any improvement until the
May report or July at the latest.

The very bearish report could drag on chipmakers on Wednesday
but there was no evidence in after hours trading. Nasdaq
futures were up slightly at +11.50 at 8:15 PM and I think
this is evidence of the bullish sentiment taking over. Traders
think all the bad news is already priced in and a rally on
this news would confirm it. Using my benchmarks for market
entry of 2250 on strong volume you should now be long the
Nasdaq. Should we dip back under that I would close those
positions. With 2300 holding on Tuesday my outlook is bullish
until proven otherwise. The two largest contrarian indicators
were both on CNBC after the close calling this a bear market
rally and predicting a rocky road ahead. Those indicators are
Barton Biggs and Bill Fleckenstein. Both are permanent bears
and both are permanently wrong. For these "noted" analysts
to call for another crash should be good news for bulls.

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

Enter passively, exit aggressively!

Jim Brown
Editor


********************************************
Capturing Stock Appreciation With Leap Puts - Repeat
********************************************

The Leap Put seminar was held on Sunday to rave reviews.
However dozens of people for one reason or another were
unable to attend. We are going to repeat this seminar one
more time at 9:PM ET on Wednesday May-30th. If you are
interested in attending an online seminar on my strategy
of capturing stock appreciation by selling Leap Puts this
is the last time it will be presented. It will last 2 hours
and be interactive. You will be able to ask questions and
I will answer your questions in real time with charts and
diagrams. You do not need any special software to view the
seminar but you must have a 56K Internet connection or
faster for best results and a separate phone for the audio
portion.

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

http://www.premierinvestorseminars.com/online/052001_jbrown.asp


*************************ADVERTISEMENT*********************
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index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.IndexSkybox.com
************************************************************


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

Big Payout On The Trifecta
By Matt Russ

That third dog just came in.  The Nasdaq, while tired and beaten,
completed the trifecta in the markets with impressive style.
It feels like the bull is really back and this just might be
a summer stealth rally in the making.  But before we get ahead of
ourselves, we must focus on profit taking and getting an entry
into this recent run.

NASDAQ & QQQ
The Nasdaq must have known that the spotlight was on it Monday
because it put in a perfect performance.  Early morning buying
took the tech index right on through 2250 and the breakout lasted
into the close, finishing on the high.  It was the buy signal that
we were waiting for and the Nasdaq didn't disappoint.  Today's
trading was consolidation in a tight range of 38 points.  With
the recent move, we must look to new levels.  Tuesday marked the
sixth winning session for the Nasdaq in a row, bringing us to
new territory.  By projecting retracement lines above the 100%
level from our previous bracket, the Nasdaq will have resistance
near 2343 and support below at 2282.  Translated to the QQQs,
$50 will offer good support with today's high $51.64 being
immediate resistance, followed by $52.






SPX & OEX
Friday's momentum continued on Monday for the SPX.X, blasting
higher through our projected resistance at 1303.  From Tuesday's
consolidation trading, we are looking for support to be around
the 1306 area.  Buyers showed up there on two different occasions
this morning.  This 1306 area was also intraday resistance
yesterday, before the SPX.X went higher into the close.  On the
upside, resistance currently stands at 1315, Tuesday's high.
A break above will confirm bullish strength.  On the OEX.X,
resistance is at 680 with support at 673 and 675, where it closed
today.




DOW 30
We saw the Dow 30 peak above our high of 11330 last week on
both Monday and Tuesday.  Off the open this morning, the $INDU
briefly ticked up to 11350 where the sellers stepped in.  Most
of the day was characterized by choppy trading and profit taking.
The series of lower highs on Tuesday and the close near the low
are signs that investors may be booking some profits and looking
for more attractive entry points.  We could see a retest of 11200
this week.  Buyers are there and the trend is up.  Resistance
at 11350 may be difficult moving forward simply because of the
massive gains during the past week.  11400 remains a long-term
resistance from September 2000.




It makes sense to see some consolidation after the recent
breakouts we have seen.  These pullbacks should be welcomed by
traders as opportunities to participate in the new bullish
sentiment.  The breakouts are evident of that feeling and will
continue until proven otherwise.  It was especially encouraging to
see the Nasdaq give us the trifecta all within a week.  Now that
2250 has been toppled, 2500 is widely believed to be the next
target.  The VIX.X is working its way back to the lower end of its
previous range, closing at 23.49.  We could see it back near
the 19 area if these indices keep running.  That would be a sign
to take some profits, if not short the market.  We'll be watching
this as it develops.

Trade Smart,

Matt Russ


**********************
CBOT Commitment Of Traders Report: Friday 05/18
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade.

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

                     Small Specs               Commercials
S&P 500          (Current)  (Previous)     (Current)  (Previous)
Open Interest
Net Value         +65713     +47090         -72034      -49689
Total Open
Interest %       (+32.56%)  (+21.09%)      (-10.15%)   (-7.33%)
                 net-long   net-long       net-short   net-short

DJIA Futures
Open Interest
Net Value          -7166      -7572          +8151       +7468
Total Open
Interest %       (-54.70%)  (-62.11%)      (+22.89%)   (+21.83%)
                 net-short  net-short      net-long    net-long

NASDAQ 100
Open Interest
Net Value          +4578      +2657         -12711       -9986
Total Open
Interest %       (+26.20%)  (+13.59%)      (-21.87%)   (-17.20%)
                 net-long   net-long       net-short   net-short


What COT Data Tells Us
**********************
Indices: Commercials added significantly to their net-short
positions on the S&P 500 while the Small Specs increased their
net-longs. Divergence was also seen increasing on the NASDAQ 100
with the Small Specs adding to their net-longs and the Commercials
going further net-short.

We need to keep in mind that this data was compiled on the
session's close prior to Wednesday 5/16 short-squeeze rally. These
figures may have changed since the time of government compilation.

Gold: Commercials have switched from net-long to net-short as they
now seem to have gold under distribution at higher prices after
accumulating during lower prices. Expect the current gold rally
and XAU index to top out soon.

Copper: Commercials have been building extreme net-long position
in this industrial metal, a bullish sign for economic health.

Eurodollars: Commercials are at a five-year extreme net-short on
an interest rate play in reflection of lowered rates currently and
ahead.

Summation: Commercials are looking for lower interest rates, lower
gold and higher copper prices based on their positions here. Of
particular notice was the switch in gold from net-long last week to
net-short this week, a warning sign that large users are now
selling into the current retail rally.

Data compiled as of Tuesday 05/15 by the CFTC.


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

Please visit this link for Market Posture:

http://www.OptionInvestor.com/marketposture/052201_1.asp


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

Review of My May Plays
By Scott Martindale

Yes, indeed, things continue to look good for the near term.  I
don't expect we'll ever see those early-April prices again.  After
a hair-raising April options month, May turned out to be a great
month, thanks to our latest American hero, Alan Greenspan and the
Federal Reserve Board (sounds like a rock band).  I told you last
Tuesday after the Fed announcement that I thought investors were
merely holding back to let any "sell the news" action play out
before putting their money to work.  And put it to work they have.

As for my trading activity, the month of May really helped me
remind myself why I like to sell premium rather than buy it.  In
particular, I regretted buying May calls so close to expiration
rather than June as many share prices burst out this week.  In my
short-term trading account, I had a net loss on my purchased
options positions but still came out well ahead for the month
thanks to my naked writes.

Because I fully anticipated a 50 basis point Fed rate cut on May
15th, my only short play going into the announcement was the
last-minute purchase of Nasdaq 100 Trust (AMEX: QQQ) May 44 Puts
as a slight hedge on my bullish positions.  I sold them minutes
later on the announcement for a small $0.15 loss.  Prior to the
announcement, I also closed out a couple of bullish plays just to
lighten my exposure a bit, which I later regretted.

For example, on May 9th I bought deep ITM May 60 calls on Varian
Associates (NYSE: VAR) for $7.60 when the stock was around $67.  I
liked the chart a lot, and by buying deep ITM calls, I could get
good leverage and a high delta on the stock's movement with a
relatively small cash outlay.  I had a target price of $12.60, and
I was tentatively prepared to hold the calls until expiration.
The stock held up quite well over the next four trading days, but
because it really hadn't moved up much and it was getting close to
expiration, I closed it out for $8.50 on May 15th before the Fed
announcement.  However, VAR exploded over the next two days,
setting a new 52-week high of $76.50, and pushed the call up to
around $16.  So, my analysis was correct, but my conservative
exit cost me some money.

I also closed out an ITM naked put play on Qualcomm (NASDAQ:QCOM).
I had written May 65 puts for $5.90 when the stock was around
$60.50 on May 7th.  The technicals were looking quite strong, with
a price target of $70, but the stock slid a bit over the next
week.  So when it rallied strongly into the Fed meeting, I closed
out the puts for $4.50, which was still a nice gain.  However, the
stock closed the week above $65, and now sits near $70.

You might recall my writing the other week that with Cisco Systems
(NASDAQ: CSCO) due to report, 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.  I sold
half of the puts the next day for a small gain, and then the other
half on the following day when it looked like CSCO was finding
support around $18.50.  I continued to hold the calls as a play on
a Fed rate cut, and indeed CSCO closed quite strongly on May 16th,
right at resistance at $20.  So I continued to hold looking for a
strong break through resistance.  However, after a brief
breakthrough, $20 acted like a magnet right through expiration, so
I closed them out for pocket change.  I was convinced CSCO was
ready to move, and in fact it has done exactly that this week.  In
retrospect, a better play would have been to close out the May
calls on May 16th's strength and replace them with June 20 calls.

A couple of months ago, I took assignment of shares of
Superconductor Technologies (NASDAQ: SCON) at $10, which I'm still
holding.  It is now trying to make another run at the $10 level.
I'm looking to sell calls against shares in my short-term trading
account, and I'm holding out for $2 or better.

I also have held my JDS Uniphase (NASDAQ: JDSU) shares since
accepting assignment in March.  I regretted not selling or writing
covered calls when the technicals peaked out on April 20th, but I
though it might run some more.  Instead, JDSU pulled back so
quickly as the stock dipped near $18 that by April 26th its short-
term technicals were looking oversold and poised to rally again.
So I sold ITM May 20 naked puts for $3.20, which expired worthless.

Yes, "expired worthless" is a very nice phrase when applied to
naked puts.  Besides the aforementioned plays on QCOM and JDSU, I
also wrote OTM May 35 puts on intraday weakness in Millennium
Pharmaceuticals (NASDAQ: MLNM) and Impath (NASDAQ: IMPH), May
12.50's on Avici Systems (NASDAQ: AVCI), May 20's on Finisar
(NASDAQ: FNSR), May 15's on Transwitch (NASDAQ: TXCC), and May 40
puts on EMC (NYSE: EMC).  I bought back the FNSR puts during the
overall market strength on May 16th, and I let the rest expired
worthless on May 18th.  I also wrote June 55 ITM puts on Calpine
(NYSE: CPN) when the stock was around $52, and they are still
open.

In my long-term account, strength across all sectors served me
well.  In fact, I wrote very few covered calls in an effort to let
my share values continue to run.  I'm invested in a variety of
sectors, including energy, REITs, royalty trusts, and gold, as
well as a whole lot of tech and biotech.  One of my favorite
investments has been Rite Aid (NYSE: RAD), which burned me last
year but has been recovering well.  I have loaded up.

How do I see the markets going forward?  As I've been telling you
for the past few weeks, things look real good.  Given the market's
current strength, don't be surprised if fund managers feel an
urgency to get more invested by month end to demonstrate their
shrewd investing foresight, which could really send the markets
skyward.  Nasdaq 2500 by next week?  Although it's short-term
overextended, it could happen.  I'm looking for a little pullback
prior to the long weekend for another entry point.  Perhaps it's
finally time for LEAPS.


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


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:
*****

VIGN $9.53 -1.06 (-0.49) Well that didn't last long.  After
shooting higher yesterday morning, VIGN quickly ran out of
steam.  Apparently the twin upgrades from First Union Securities
and Salomon Smith Barney didn't have much staying power.
Falling for much of yesterday afternoon, the stock came to rest
just above our $10 stop.  This level became the battleground
throughout the day today, but in the end the bears emerged
victorious, pushing VIGN sharply lower in the final hour.  There
were profits to be made in the play, but only for those who are
very nimble.


PUTS:
*****

No dropped puts tonight


*************************ADVERTISEMENT*********************
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index instead?

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market updates, plays, education and daily commentaries by
those who know.

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IndexSkybox.com:
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The Option Investor Newsletter                  Tuesday 05-22-2001
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/052201_2.asp


*************************ADVERTISEMENT*********************
Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

Sign up for a two week free trial and see for yourself at
IndexSkybox.com:
http://www.IndexSkybox.com
************************************************************


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

GE $52.68 -0.72 (-0.31) Good old dependable GE continues to
move in its slow, methodical fashion.  After having cleared its
200-dma of $50.43, GE is now encountering resistance at $53.55.
Support is strong at the 5-dma of $52.70, and stronger at the
$52 level, either of which could serve as entry points going
forward.  On Monday, the GE and Pratt Whitney alliance announced
they had won their first orders to develop the Airbus Industry
A380 Jumbo Jet.  Going forward, continue to monitor the CYC.X,
as well as the Dow 30, as GE will tend to move in close tandem to
these two indexes.  We are setting stops at $52, so be prepared to
end the position upon a close below the $52 level.  On a side
note, the EU is scheduled to give a final decision on the
Honeywell merger by June 12th, and GE CEO-elect Jeffrey Immelt has
expressed an optimistic viewpoint regarding the merger and its
approval.

QCOM $69.91 -1.08 (+3.55) QCOM fared comparatively well during
Tuesday's lackadaisical trading.  A morning dip to $68.55
provided a good entry point, from which QCOM rebounded to close
above the 200-dma of $69.41 for the second day in a row, which
is a solid sign of technical strength, and still a rarity in the
technology sector.  The steady stream of good news which has
been released since the beginning of May should continue to
stimulate investor interest in the near term, market conditions
permitting.  Considering the recent run QCOM has had, a little
consolidation is a healthy sign, particularly when the dip to the
daily low was met with strong buying.  Look for another bounce
from $68.50 with strong volume as a potential entry point.
Continue to monitor others in the sector like MOT and NOK and set
stops at $65.

BA $67.90 -0.69 (+0.10) While the technology stocks stole the
spotlight over the last couple of days, BA demonstrated a
powerful level of technical strength, with rock solid support
at the 5-dma of $67.84.  BA continues to announce good news,
the latest being a $136 million study contract for NASA space,
as well as an announcement that Egypt Air management had applied
for a $160 million loan to be used to purchase two Boeing 747s.
At this juncture, the Dow average and the cyclical stocks
have been consolidating their gains after the huge run ups we
experienced last week, and it seems likely that another Dow
rally could provide the momentum necessary to propel BA up to
strong resistance at $70, and possibly beyond.  Traders can
continue to take positions at the $67.85 support level, if
other defense stocks are strong.  We are setting stops at
$67, so close the position if BA settles below this level.

HAL $47.99 -1.21 (+0.18) Vice-President Cheney, the former top
executive of this oilfield services giant, recently headed a
task force that promotes more oil, natural gas, coal and nuclear
power production.  This energy plan and the strength in the
broader markets is encouraging the energy-related issues to test
their respective resistance limits.  On Monday, HAL went the
distance and made a valiant effort to return to the highs of
September 2000.  Strong volume at 1.3 times the ADV however,
wasn't quite enough momentum to lead the bulls through the $50
obstacle.  Accordingly, a bold run through $50 beacons a call
opportunity for those who like to buy into strength.  Today's
pullback to the vicinity of the 5-dma line also offers a nice
entry into tomorrow's market, assuming the overall sentiment and
market conditions portend profitability.  As we move forward,
let's raise our closing stop to $47 for added insulation against
a reversal.

XOM $88.81 +0.06 (-1.39) Most stocks are up on the bright
economic outlook, with XOM and other big refiners getting an
additional hike from the skyrocketing energy prices.  Although
this week, XOM consolidated at its strong support between $88
and $89.  On the one hand, the earlier flirting at the $90 line
of opposition generated some confidence of a breakout, but the
lingering threat of being range bound nevertheless exists.  You
can always choose to play the narrow spread and take entries on
strong bounces off the current level; however, waiting for a
visible momentum wave may be more judicious.  Let's raise our
CLOSING stop to $88 to protect against weakness.

VRTS $76.00 -4.00 (+2.19) Both VRTS and Goldman Sach's Software
Index (GSO.X) made dynamic moves through key resistance levels
this week.  The broad index quickly rolled through 236 and 240
on Monday, topping out at 246.45 in today's session.  The
positive sentiment and bullish traders saw VRTS easily tackle
the critical resistance at $75.  Pacific Crest was on the
sidelines too, cheering VRTS on with a resounding Buy
recommendation.  Monday's fantastic charge for $80 coupled with
its finish on the intraday high set the stage for future gains
in a cooperating market.  Bounces off today's mild consolidation
level, which notably is above the previous resistance ($75),
provides the opportunity to take enterprising entry points, if
your portfolio can handle the risk.  Of course, buying into the
momentum as VRTS charges through $80 always offers a gainful
opportunity if your able to manage a quick in-and-out play.
Mark your calendars - tomorrow is the company's semi-annual
Analyst Day.  We have raised our stops on VRTS up to the $74
level.

BAC $58.64 +2.15 (+5.12) Yesterday, shares of BAC took a
breather, still digesting gains from the previous week.  Pulling
back fractionally, the stock retreated on low volume, only 72
percent of the ADV.  The pause to refresh turned out to be a well
deserved one, as strength in the Financial sector today helped
BAC to rally 3.81 percent on almost 1.3 times the ADV.  In doing
so, the stock broke through formidable resistance at $57.50,
along with historical resistance at $57.62.  These two levels
will likely act as support going forward, allowing aggressive
buyers to enter on pullbacks.  To protect our profits, we are
raising our closing stop price to $57.  Bounces off this
level, along with $58 may also provide aggressive targets.  For
an entry on strength, continued buying pressure leading to a
break above $59 could allow conservative traders to make a play,
but only if peers FTU and JPM confirm upward momentum.

CAT $56.20 +0.50 (+3.00) Since the strong rally last Wednesday,
CAT has been in consolidation mode, trading in a narrow range
between support below at $54 and resistance overhead at $56.50.
The stock was downgraded yesterday by Legg Mason from a Strong
Buy to a Market Perform rating.  The news did not deter the bulls
however, as CAT ended Monday's trading session up fractionally on
higher than average trading volume.  Today, the stock inched ever
higher, once again gaining on above decent volume.   However, the
$56.50 resistance level continued to exert its influence on CAT.
If the buyers can get the stock past this level on heavy volume,
this would allow conservative traders to jump in, provided that
industry peers DE and DOV are also moving higher.  Higher risk
players looking to buy into dips may target support at $56, the
5-dma at $55.66, and our new closing stop price of $55.

EBAY $64.25 +0.21 (+1.61) A bullish day for the NADSAQ on Monday
coupled with some profit taking resulted in a heavy volume
trading session for shares of leading electronic auctioneer EBAY,
with the buyers edging out the sellers fractionally by the end of
the day.  Today was more of the same, as the stock advanced
fractionally higher on over 1.25 times the average daily volume.
At this point, fans of candlestick charting will note that EBAY
formed a doji pattern, indicating a sign of indecision.  With
substantial paper profits to preserve, we have decided to tighten
our closing stop price from $61 to $63.  A move above $65 on
volume could indicate a potential resumption to the upside,
allowing conservative traders to take a position.  Higher risk
players may target pullbacks intra-day to support at $64 and $63.
In both cases, track sector sentiment by following Merrill
Lynch's Internet HOLDR (HHH).

PDLI $78.85 +3.88 (+8.75) Ever since the breakout last Thursday,
shares of leading monoclonal antibody Biotech firm PDLI have
advanced strongly higher on accelerating trading volume.
Momentum so far in late May has definitely been on the company's
side, as a blowout earnings report, positive analyst comments and
overall strength in the Biotech sector, as measured by Merrill
Lynch's Biotech HOLDR (BBH), are just some of the factors
accounting for the surge in stock price.  Yesterday PDLI gained
$4.87 or almost 7 percent on over 1.26 times the average daily
volume, in sympathy with a powerful rally in the NASDAQ.  Today,
the stock continued forward adding another 5.18 percent to its
gains on 1.7 times the ADV on news of a collaboration with
Exelixis on a treatment for cancer.  We are moving our closing
stop price up from $70 to $73.  Bounces off this level confirmed
by volume, along with horizontal support at $77 and $75 could be
the signal for aggressive traders to jump in.  If the bulls
continue their charge, a surge above $80 with conviction would
give the more risk averse a chance at a potential play.

QLGC $58.90 -3.01 (+4.78) An upgrade by Robertson Stephens from a
Long Term Attractive to a Buy rating, along with a buying spree
in NASDAQ issues on Monday, translated into a strong day for
shares of QLGC, with the stock rallying $7.79 or over 14 percent
on almost twice the average daily volume.  Today, a note of
caution from USB Piper Jaffray weighed slightly on QLGC, as
analyst Ashok Kumar commented that the stock price could
currently be optimistic compared to the underlying fundamentals.
While the stock gave back 4.86 percent of yesterday's gains, some
profit taking after such a run is not surprising and perhaps even
healthy.  Aggressive traders may look for bounces off support at
$58, $57 and the 5-dma at $54.83.  Just make sure that QLGC
continues to close above $55.  If the stock can successfully move
back above $60, this could signal an entry for conservative
traders, but only if the Philadelphia Semiconductor Index (SOX)
is also showing strength.

ADBE $46.28 +0.78 (+3.77) Like the Energizer Bunny, ADBE keeps
going and going.  While today's gain was fractional and the
volume declined again (now at only about 60% of the ADV), it was
still a gain.  ADBE moved up to test the $48 resistance level
shortly after lunch, but the bulls just didn't have the strength
to push through, falling back for the remainder of the
afternoon.  The Software index (GSO.X) has managed to break out
above the $240 resistance level this week, and that strength, if
it continues, could help ADBE to clear its own resistance.  In
an effort to retain our gains over the past week, we have moved
our stop up to $45, and aggressive traders will want to target
new entries on any intraday bounce near this level.  More
conservative players can open new positions as the stock rallies
through $48.50, on its way to closing the gap from January 31st.

EXTR $37.45 -2.05 (+1.76) Depending on your perspective, it was
either a good day or a boring day.  On its first day in play,
EXTR just couldn't get moving, and ended up closing at the low
of the day.  Not only that, but selling volume was on the rise
as the closing bell rang.  That doesn't sound too good until you
think about entry points.  Current levels may provide an
acceptable entry (provided the stock finds support), although
the risk takers out there may want to hold out for an intraday
dip between the $36 support level and our $35 stop.  Entries are
equally easy to define for the conservative player with a
volume-backed move through the $40 resistance level lighting the
way for new entries.  Daily stochastics have started to roll in
overbought and the price chart is struggling against the upper
Bollinger band, so be careful not to catch a falling knife.
Wait for the buying volume to come back and make sure that the
Networking index (NWX.X) is continuing its ascent before
playing.

MER $70.50 +1.55 (+3.85) It took a few extra days, but today MER
finally climbed above the pesky $70 resistance level.  After
digesting the $2 billion bond issuance from last week, investors
are once again for big Financial stocks, and MER seems to be
near the top of the menu.  Among strength throughout the
Financial sector, the stock continued yesterday's rally, further
distancing itself from its near-drop at $66 late last week.
Closing north of $70 for the first time since early February,
and getting there with the help of solid volume indicates the
improving sentiment in the market.  After gapping higher this
morning, the bulls quickly ran out of strength, largely due to
broad market weakness, and spent the rest of the day meandering
sideways.  Still, MER held above both its gap open level and the
$70 resistance (now support) level, adding strength to the
breakout.  Accordingly we are raising our stop to $69, and would
use a bounce from the $70 level as an aggressive entry point.
More conservative traders will want to see MER trade through
$71.50 before stepping into the play, preferably on continued
strong volume.

Q $38.53 -0.14 (-0.07) Two days up and then two days of
consolidation.  It's hard to argue with that sort of behavior.
But after the solid gains at the end of last week, Q has barely
moved the past 2 days, leaving few attractive entry points for
traders.  Trading in a $1 range this week makes it tough on
hyper-active traders, but helps to solidify entry points for
those that can exercise patience.  Look for the $38 intraday
support level to provide aggressive traders with a decent entry,
although a dip near our stop at $37 could provide a more
attractive entry.  More conservative traders just have to wait
for the bulls to push the stock through the $39 resistance level
before initiating new positions.  Rumblings of improvements in
the Networking and Telecom sectors are giving new life to the
CSCO's and CIEN's.  Maybe it will have the same effect on Q.
The consolidation has come on rather light volume, so when the
stock starts moving again, pay careful attention to whether it
is accompanied by increasing volume.


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

ENE $54.95 -0.04 (+0.05) While it continues to push through our
$55 stop during the day, the bulls can't seem to hold things
together at the close, keeping ENE under the bears thumbs.  With
the rampant strength seen throughout this market, the fact that
ENE can't get moving to the upside is good evidence that we are
on the right side of this one.  Proof that we are correct has
yet to appear though, and we need to continue to trade what we
see.  The descending 3-week trendline is about to run into the
price chart and that should exert additional downward pressure
in the next couple of days.  Entry points are easy to gauge
after a consolidation like we have seen this week.  Aggressive
traders can continue to target a rollover near current levels as
an opportunity to open new positions, while the conservative
approach will be to wait for the stock to fall through the $52
support level.  Volume has been weakening in recent days, as the
stock has been rising in agony.  Watch which way the price is
moving as the volume picks up.  An increase in selling volume
will further stack the deck in favor of the bears.

JNPR $56.94 +0.41 (+2.13) Have you noticed that JNPR keeps
making short trips above the level of our $57 stop?  You've
likely also noticed that every day, the stock retires back under
our stop, albeit very close in today's session.  Stepping back,
it appears that we are still on the right side of this trade as
the highs over the past 3 weeks are getting lower and lower,
topping out near $59 today.  That's right, the stock is being
caged by a bearish wedge, with the base sitting at $52 and the
descending trendline currently resting at $58.    The stock has
been trying to rally on anecdotal evidence of improvements in
the Networking sector, but there is unlikely to be any tangible
evidence of this improvement in the next week.  But the
trendline will continue to pressure the stock.  Aggressive
traders can continue to enter new positions as JNPR rolls over
from the descending trendline, while more conservative players
will want to wait for the stock to fall through the $55 intraday
support level.  This wedge should resolve itself with JNPR
falling through the $52 support level, and when it does, that
will be a good conservative entry as well.


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

AGGRESSIVE:

FFIV - F5 Networks $13.91 +1.75 (+2.75 this week)

F5 Networks provides integrated Internet traffic and content
management solutions designed to improve the availability and
performance of mission-critical Internet-based servers and
applications.  Its flagship BIG/IP balancing controller monitors
servers in a local-area network for malfunctions, managing user
traffic and routing requests to the best available server.  The
company sells its software-based products to ISP's and
corporations with high-traffic Web sites through direct sales
and reselling partners such as Exodus Communications and Dell
Computer.

After falling from grace early last September and losing over
80% of its value, FFIV appears to be coming back into the
limelight.  A spunky, late afternoon climb through $12 on Monday
put FFIV on the traders' hotlist.  Today's fundamental
confirmation combined with the high-volume activity prompts
immediate application.  On the week, FFIV has already
experienced a 25% gain!  And technically speaking, it appears
FFIV has more upside potential than downside risk.  On the
downside, figure about 2.5 points and keep CLOSING stops in
place at $11.50, the level of previous contention.  But on the
upside, there's plenty of room to climb - almost 6 points before
the $20 resistance level comes into play.  Solid bounces off
$13, today's intraday support, might entice traders looking for
a more aggressive entry into an impending momentum break.  Look
for volume to match today's enthusiastic levels at 2.44 times
the ADV.  A discernible breakout through $14 may however, fare
better for the risk-adverse.  Pay attention to industry leaders
Brocade Communications (BRCD) and Network Appliance (NTAP) for
sector guidance as you plan your strategy.

BUY CALL JUN-10.0 FLK-FB OI= 91 at $4.20 SL=2.50
BUY CALL JUN-12.5*FLK-FV OI=344 at $2.20 SL=1.00
BUY CALL JUN-15.0 FLK-FC OI= 47 at $1.00 SL=0.25
BUY CALL JUL-10.0 FLK-GB OI=300 at $4.70 SL=2.75
BUY CALL JUL-12.5 FLK-GV OI=154 at $3.10 SL=1.50
BUY CALL JUL-15.0 FLK-GC OI=202 at $2.00 SL=1.00

Average Daily Volume = 390 K
http://www.premierinvestor.com/oi/profile.asp?ticker=FFIV


IMCL - Imclone Systems $50.20 +1.97 (+4.20 this week)

Engaged in the research and development of novel cancer
treatments, IMCL focuses on growth factor inhibitors,
therapeutic cancer vaccines and angiogenesis inhibitors.  The
company's lead product candidate, IMC-C225, is a therapeutic
monoclonal antibody that inhibits stimulation of a receptor for
growth factors upon which certain tumors depend.  Phase I/II
clinical trials have been promising.  The lead candidate for
angiogenesis inhibition, IMC-1C11 is an antibody that binds
selectively and with high affinity to KDR, a principal
Vascular Endothelial Growth Factor (VEGF) receptor, thus
inhibiting angiogenesis.

Biotechnology stocks have been on a tear over the last week, led
by the likes of IMCL.  So what's all the fuss about?  It looks
like stocks in this group are making solid strides towards their
long promise of providing a cure for cancer.  While there is
still a lot of work to do, positive clinical results presented
at the American Society of Clinical Oncology last week
galvanized investors to go on a buying spree.  IMCL is relying
heavily on the results from IMC-C255, which although not a cure,
is a major breakthrough in the battle against cancer.
Technically, you've got to love the developments on the chart in
the last week too.  After clearing the $43 resistance level
(also the site of the 200-dma) IMCL has extended its recent
gains, cresting the $50 level at the close today.  The stock
hasn't seen these levels since last November, and with volume
still running close to double the ADV, IMCL looks like it could
still have room to run.  The fly in the ointment is the fact
that the price is now above the upper Bollinger band and the
daily Stochastics is flattening out in overbought territory.
That lays the groundwork for some profit taking, and that is
when we are likely to get an attractive entry point.  Mild
pullbacks should find support at intraday support at $49 and
$48, while a more concerted effort by the bears could give us
an even better entry at the $46 or $45 level.  Keep an eye on
the strength of the Biotechnology index (BTK.X).  IMCL will need
the sector to continue its advance, if it is going to continue
higher.  Resistance is seen at $52.50 and $55.  Place initial
stops at $45.

BUY CALL JUN-50*QCI-FJ OI=2416 at $3.90 SL=2.50
BUY CALL JUN-55 QCI-FK OI= 960 at $2.00 SL=1.00
BUY CALL JUL-50 QCI-GJ OI=  98 at $6.40 SL=4.50
BUY CALL JUL-55 QCI-GK OI=  29 at $4.00 SL=2.50
BUY CALL AUG-55 QCI-HK OI= 951 at $5.10 SL=3.00
BUY CALL AUG-60 QCI-HL OI= 176 at $3.50 SL=1.75

SELL PUT JUN-45 QCI-RI OI= 275 at $1.75 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 1.32 mln
http://www.premierinvestor.com/oi/profile.asp?ticker=IMCL


MCDT - McDATA Corporation $39.80 +1.54 (+3.11 this week)

McDATA specializes in providing highly available, scalable and
centrally managed SAN solutions.  McDATA's goal is to deliver
storage networking solutions that truly address the storage
problems of the enterprise.  McDATA's OpenReady Solutions improve
the reliability and availability of data, greatly simplify SAN
management, and reduce the total cost of ownership.  As companies
migrate from server-centric to storage-centric environments, they
require the flexibility to grow their enterprise.  Companies
demand the ability to grow their current environment to meet
future requirements, fully leveraging their investments.

MCDT was spun off last year from Storage gorilla EMC.  The former
Storage Area Network (SAN) divison of EMC is a direct competitor
to Brocade Communications (BRCD).  While the Storage sector has
been one of strong revenue and market growth, it too was not
immune to the slowdown in capital expenditures that have plagued
the economy and especially the Tech sector.  Rate cuts this year
from the Fed have recently been well received by investors, as
the stock and its sector have moved higher since that time.
Reporting earnings last month, the company posted year-over-year
revenue growth of 83 percent and gross margins of over 45
percent.  Following that news, analysts offered their opinions,
with Dain Rauscher Wessels initiating coverage with a Buy
Aggressive rating, while AG Edwards, CE Unterberg and Wit
SoundView all issued downgrades.  Despite this, the stock has
rallied during that time, with parent company EMC giving more
business to MCDT.  Technically, the stock has been moving
sideways for the month of May, with support below at $30 and
resistance overhead at $40.  For conservative traders, another
break above $40 with conviction could be a signal to take on
bullish positions.  Just make sure that industry peers VRTS and
NTAP are also moving higher.  Aggressive players may look for
bounces off support at from the 5 and 10-dma (at $37.40 and
$35.29 respectively) along with $38.75 and our closing stop price
of $36 as potential points of entry, but confirm with volume.

BUY CALL JUN-35 DMU-FY OI=1017 at $6.70 SL=4.50
BUY CALL JUN-40*DMU-FZ OI= 699 at $3.80 SL=2.50
BUY CALL JUN-45 DMU-FI OI= 528 at $1.90 SL=1.00
BUY CALL JUL-40 DMU-GZ OI=1333 at $5.80 SL=4.00
BUY CALL JUL-45 DMU-GI OI= 210 at $4.00 SL=2.50

SELL PUT JUN-35 DMU-RY OI=1105 at $1.95 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 2.19 mln
http://www.premierinvestor.com/oi/profile.asp?ticker=MCDT


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

AGGRESSIVE:

WLP - Wellpoint Health Networks $82.89 -1.08 (-2.01 this week)

WellPoint Health Networks Inc. serves the health care needs of
nearly 9.8 million medical and more than 40 million specialty
members nationwide through Blue Cross of California in California,
through Blue Cross and Blue Shield of Georgia in Georgia and
through UNICARE in other parts of the country. WellPoint
offers a broad spectrum of quality network-based health products
including open access PPO, POS and hybrid products, HMO and
specialty products. Specialty products include pharmacy benefit
management, dental, utilization management, vision, mental health,
life and disability insurance, long term care insurance,
flexible spending accounts, COBRA administration, and Medicare
supplements.

The HMO stocks rallied during 2000, as investors flocked to the
defensive sector in a flight to safety.  However, in 2001,
investors and analysts are now realizing that the HMO stocks may
not be the safe investments they were previously perceived to be.
As one of the largest and most well known managed care companies,
WLP is experiencing heavy selling, due to a plethora of bad news
which has recently plagued the sector, as well as a shift of
money flows to the more dynamic sectors like technology.  WLP
hit a high of $120.49 last December, and since then, has formed
a heavy descending channel, with a series of spiky lower highs at
$106, $100, and $90.  While WLP reported earnings at the high
end of expectations on April 25th, a huge blow was dealt to the
managed care sector when Cigna reported earnings on May 2nd.
While CI reported a modest rise in first quarter earnings, the
huge HMO gave a grim outlook, citing that rising costs of
health care combined with decreasing sales sharply reduced the
management's forward expectations.  Several analysts jumped in
to downgrade CI, including Merrill Lynch, JP Morgan and Morgan
Stanley, and Salomon Brothers went a step further to downgrade
the entire sector.  As if this news wasn't bad enough, Cigna,
Wellpoint, Aetna and several other HMOs are currently facing a
major class action lawsuit brought by 600,000 doctors who claim
that the HMOs cheated on fees.  WLP dropped below its 200-dma of
$96.83 and its 50-dma of $90.98 early in May, and in the last
week, the selling has accelerated, and WLP is now poised to
possibly drop below an important support level of $80.  Traders
can take positions at the current level, if others like CI and
AET are weak.  A break below $82 on strong volume could be a more
conservative entry point.  We are setting closing stops at $85,
and would close the play if WLP settles below this level.

BUY PUT JUN-85*WLP-EQ OI= 70 at $4.90 SL=3.00
BUY PUT JUN-80 WLP-RP OI=148 at $2.40 SL=1.25

Average Daily Volume = 849 K
http:www.premierinvestor.com/oi/profile.asp?ticker=WLP


**********************
PLAY OF THE DAY - CALL
**********************

MER - Merrill Lynch & Co. $70.50 +1.55 (+3.85 last week)

With its bull icon prominently displayed, many investors view
Merrill Lynch as the leader of herd.  The diversified Financial
powerhouse provides investment, financing, advisory, insurance
and related products and services on a global basis to both
individuals and institutions.  Its Corporate and Institutional
Client Group offers investment banking, brokerage and clearing
services to corporate and government clients.  MER has been
slow to move into the online world, entering the online trading
ring in 1999.

Most Recent Write-Up

It took a few extra days, but today MER finally climbed above
the pesky $70 resistance level.  After digesting the $2 billion
bond issuance from last week, investors are once again for big
Financial stocks, and MER seems to be near the top of the menu.
Among strength throughout the Financial sector, the stock
continued yesterday's rally, further distancing itself from its
near-drop at $66 late last week.  Closing north of $70 for the
first time since early February, and getting there with the help
of solid volume indicates the improving sentiment in the market.
After gapping higher this morning, the bulls quickly ran out of
strength, largely due to broad market weakness, and spent the
rest of the day meandering sideways.  Still, MER held above both
its gap open level and the $70 resistance (now support) level,
adding strength to the breakout.  Accordingly we are raising our
stop to $69, and would use a bounce from the $70 level as an
aggressive entry point.  More conservative traders will want to
see MER trade through $71.50 before stepping into the play,
preferably on continued strong volume.

Comments

The broker sector, as measured by the AMEX Securities
Broker/Dealer Index (XBD.X), broke out in a big way during
Monday's session.  The index paused at its 200-dma at 568
Tuesday and pulled back on routine profit taking.  An advance
above the 568 level in the XBD would turn on the green light
to jump into a bullish MER trade.

BUY CALL JUN-65 MER-FM OI= 6368 at $6.70 SL=4.75
BUY CALL JUN-70*MER-FN OI=18024 at $3.00 SL=1.50
BUY CALL JUN-75 JMR-FO OI= 2824 at $0.95 SL=0.25
BUY CALL JUL-70 MER-GN OI=23015 at $4.80 SL=3.00
BUY CALL JUL-75 JMR-GO OI= 7531 at $2.45 SL=1.25
BUY CALL OCT-70 MER-JN OI= 5105 at $7.60 SL=5.25

SELL PUT JUN-70 MER-RN OI=  709 at $2.20 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 5.99 mln
http://www.premierinvestor.com/oi/profile.asp?ticker=MER


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

Time For A Breather...

Technology stocks edged higher today on strength in the Internet
sector while industrial issues retreated amid profit-taking in
cyclical issues.

Monday, May 21, 2001

Technology stocks rallied today, boosting the NASDAQ index to its
highest close in three months.  The hi-tech composite ended 106
points higher at 2,305.  Share values in the broader market also
advanced as positive sentiment returned to equities.  The S&P 500
index was up 20 points at 1,312.  The blue-chip average finished
36 points higher at 11,337 on strength in its computer hardware
components.  Trading volume on the NYSE hit 1.17 billion shares
with advancing issues doubling losing issues by 2 to 1.  Activity
on the NASDAQ was heavy with 2.29 billion shares changing hands
and winners beating losers by 26 to 13.  In the U.S. bond market,
the 30-year Treasury rose 8/32, pushing its yield down to 5.78%.


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

Alexion      (NASDAQ:ALXN)  AUG20C/JUN20C  $1.95  debit   calendar
Sinclair     (NASDAQ:SBGI)  SEP10C/JUN10C  $0.70  debit   calendar
Optimal      (NASDAQ:OPMR)  JUN40C/JUN35C  $0.50  credit  bear-call
Stone Energy (NYSE:SGY)     JUN45P/JUN50P  $0.35  credit  bull-put
Linear Tech. (NASDAQ:LLTC)  JUN65C/JUN40P  $1.15  credit  strangle

The bullish activity in today's market offered little help in the
new combination positions.  The Alexion calendar spread provided
only a brief entry opportunity and the debit was slightly higher
than our target.  However, the issue climbed almost $5 during the
session and a small profit was available in the position.  Stone
energy was also difficult, with the opening credit no higher than
$0.35 on a simultaneous order basis.  Combination positions in
SBGI and OPMR were available at or near the suggested prices and
the LLTC credit strangle traded as high as $1.25 in the afternoon
session.


Market Activity:

Investors returned to large-cap technology issues today, boosting
the recent NASDAQ recovery amid strength in chip and networking
shares.  Bellwethers of the past like Cisco Systems (NASDAQ:CSCO),
Sun Micro (NASDAQ:SUNW) and Oracle (NASDAQ:ORCL) led the bullish
movement and blue-chip technology components including Microsoft
(NASDAQ:MSFT), Intel (NASDAQ:INTC) and Hewlett-Packard (NYSE:HWP)
contributed to the upside activity in computer related companies.
Internet and wireless telecom stocks also enjoyed excellent gains
and 93 stocks on the NASDAQ 100 finished the day higher.  On the
Dow, Walt Disney (NYSE:DIS), American Express (NYSE:AXP) and J.P.
Morgan (NYSE:JPM) led the industrial average higher while Procter
& Gamble (NYSE:PG), Philip Morris (NYSE:MO) and Exxon (NYSE:XOM)
limited its gains.  In broader-market trading, the biotechnology
sector was popular after a number of company upgrades were issued
by Robertson Stephens.  Stocks on the "buy" list were Neurocrine
Biosciences (NASDAQ:NBIX), Human Genome Sciences (NASDAQ:HGSI)
and Vertex Pharmaceuticals (NASDAQ:VRTX).  Overall, there was a
more positive tone in the market as the Fed's aggressive plan for
interest rates, combined with mild unemployment figures and the
possibility of a future tax cut, appeared to be giving investors
confidence in a long-term economic recovery.


Portfolio Plays:

Technology companies were the big winners today and the Spreads
portfolio benefited from the upside activity.  Network Appliance
(NASDAQ:NTAP) jumped almost $4 to a recent high near $26 and our
new Covered-calls on LEAPS position is already profitable.  LSI
Logic (NYSE:LSI), Cisco Systems (NASDAQ:CSCO) and Cirrus Logic
(NASDAQ:CRUS) also rallied and each of these time-selling issues
has produced a favorable return.  In the telecom group, Nextel
(NASDAQ:NXTL), ADC Telecom (NASDAQ:ADCT), Earthlink (NASDAQ:ELNK)
and Metricom (NASDAQ:MCOM) finished higher.  Bank and brokerage
shares were also strong and our new synthetic positions in Mellon
(NYSE:MEL) and Providian (NYSE:PVN) were outstanding performers.
The MEL play has already reached the target credit and PVN will
likely hit the suggested exit point during the next few sessions.
The bullish put-credit spreads in Lehman Brothers (NYSE:LEH) and
Merrill Lynch (NYSE:MER) have performed better than expected and
both positions are trading at maximum profit.  In addition, the
speculative synthetic position in MER ended the session with a
small credit.  In the generic drug group, Watson Pharmaceuticals
(NYSE:WPI) was a popular issue, closing above $54 for the first
time in over a month.  Our sold (put) option at $50 appears safe
for now.


Tuesday, May 22

Technology stocks edged higher today on strength in the Internet
sector while industrial issues retreated amid profit-taking in
cyclical issues.  The NASDAQ closed 8 points higher at 2,313 but
the Dow was down 80 points at 11,257.  The S&P 500 index ended
relatively unchanged at 1,309.  Trading volume on the Big Board
reached 1.25 billion shares with losers beating winners 8 to 7.
Activity on the NASDAQ was heavy at 2.30 billion shares traded,
with advances beating declines 21 to 17.  In the bond market, the
30-year Treasury fell 11/32, pushing its yield up to 5.77%.


Market Activity:

Stocks ended mixed today with the Dow industrial average edging
lower while speculation in technology issues pushed the NASDAQ
composite index to a recent high.  Leading the hi-tech advance
were Internet and networking issues while computer hardware and
semiconductor stocks generally consolidated.  Shares of American
Online (NYSE:AOL) paced the activity in Internet-related issues
after the company said it's boosting the monthly rate of its AOL
Unlimited Use plan by $1.95 to $23.90.  The move marks the first
increase in rates for AOL since 1998 and other bellwether stocks
in the web sector including Amazon.com (NASDAQ:AMZN) and Yahoo!
(NASDAQ:YHOO) rallied on the news.  Networking issues received a
boost from Cisco Systems (NASDAQ:CSCO), which moved higher after
SG Cowen said it's "cautiously optimistic" on Cisco, noting that
it believes the company has addressed tactical issues and remains
focused on executing through the industry downturn.  Fiber-optic
shares also moved higher after Ciena (NASDAQ:CIEN) announced that
AT&T (NYSE:T) was purchasing optical equipment from the company.
On the Dow, financial shares were stronger than most components
with American Express (NYSE:AXP), Citigroup (NYSE:C) and global
investment bank J.P. Morgan Chase (NYSE:JPM) among the day's best
performers.  AT&T (NYSE:T), Alcoa (NYSE:AA), Merck (NYSE:MRK),
United Technologies (NYSE:UTX) and Minnesota Mining (NYSE:MMM)
were among the downside leaders.  McDonald's (NYSE:MCD) enjoyed
some positive activity after a positive Lehman Brothers' report,
which said investors should buy the stock as it has a favorable
risk-reward ratio with shares at 4-year lows.  In the overall
market, gold, paper, chemical, biotech, major drug, oil and oil
service issues generally retreated while select airline, utility
and financial shares moved higher.


Portfolio Activity:

Technology stocks were again the leaders in today's activity as
networking and Internet issues continued to recover from recent
selling pressure.  Network Appliance (NASDAQ:NTAP), Cirrus Logic
(NASDAQ:CRUS), Cisco Systems (NASDAQ:CSCO), Stratos Lightwave
(NASDAQ:STLW) and Worldcom (NASDAQ:WCOM) were among the bullish
movers in the technology group.  Among blue-chip NASDAQ issues,
Microsoft (NASDAQ:MSFT) was a popular stock, climbing back above
$70 on news it has unveiled a new wireless digital media product
for mobile users.  Microsoft also said its Windows Media Player
7.1 is the first complete player to support wireless access to
digital audio and video for Pocket PC users, allowing playback
of audio and video content.  Despite the sell-off in industrial
issues, the Spreads section also enjoyed some positive moves in
the broader-market groups.  Lehman Brothers (NYSE:LEH), Merrill
Lynch (NYSE:MER), Mellon (NYSE:MEL), National City (NYSE:NCC),
Providian (NYSE:PVN) and State Street (NYSE:STT) offered solid
performances.  The PVN play achieved a favorable "early-exit"
profit with a $0.70 credit offered for the speculative synthetic
position (JUN-$65C/JUN-$45P).  In the generic drug group, Watson
Pharmaceuticals (NYSE:WPI) continued its recent rally and one of
our bearish plays, Total Fina Elf (NYSE:TOT) has retreated to a
recent trading near $75, well below our sold (short) call at $80.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                          - NEW PLAYS -

Today's research presented a difficult obstacle as my technical
analysis software quit working, greatly reducing my ability to
search for viable spread candidates.  However, I managed to find
some favorable positions through an alternative scan/sort method.
As with all recommendations, please review each play thoroughly
and make your own decision about the outcome of the position.

******************************************************************
AXP - American Express  $46.05  *** Hot Sector! ***

American Express (NYSE:AXP) is primarily engaged in providing
travel-related services, financial services and international
banking services throughout the world.  the company's travel
related products and services include, among others, charge
cards, card-member lending products, travelers checks and other
corporate and consumer travel services.  The Financial Advisors
Service offers financial planning, investment advisory services
and a variety of products, including insurance and annuities,
investment certificates and mutual funds.  American Express Bank
products and services include providing financial institution,
corporate and private banking, personal financial services and
global trading.

Regardless of how you research potential stock candidates, it
would be hard to miss the recent recovery in financial services
issues.  The sector rebound started in April as investors began
to speculate on the effects of the Federal Reserve's aggressive
policy toward interest-rates and the slowing U.S. economy.  The
FOMC's five rate cuts this year, together with the bullish data
on consumer spending, have made many analysts begin to believe
the economy has hit bottom.  Now we are in the midst of one of
the first major rallies of the year and banks and other financial
stocks have been responsible for much of the Dow's recent bullish
activity.  In the coming months, lower interest rates will have a
pronounced influence on the performance of the U.S. economy and
companies like American Express will benefit because of increased
borrowing by both consumers and corporations as it boosts lending
profits.  That is why stocks in this group generally outperform
the broader market in periods after multiple interest-rate cuts
and traders who believe the trend will continue can speculate on
that outcome this simple combination position.

PLAY (aggressive - bullish/credit spread):

BUY  PUT  JUN-42.50  AXP-RV  OI=931  A=$0.50
SELL PUT  JUN-45.00  AXP-RI  OI=671  B=$1.10
INITIAL NET CREDIT TARGET=$0.70-$0.75  PROFIT(max)=38%

http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=AXP
******************************************************************
MRVC - MRV Communications  $12.07  *** Networking Rally! ***

MRV Communications (NASDAQ:MRVC) is in the business of creating
and managing growth companies in optical technology and Internet
infrastructure.  MRV has created several start-up companies and
formed independent business units in the optical technology and
Internet infrastructure area.  The company's primary operations
include the design, manufacture and sale of two major groups of
products: optical networking and internet infrastructure systems,
primarily subscribers' management, Network Element Management,
and physical layer, switching and routing management systems in
fiber optic metropolitan networks; and fiber optic components for
the transmission of voice, video and other data across enterprise,
telecommunications and cable TV networks.  The company's advanced
optical networking and Internet infrastructure solutions greatly
enhance the functionality of carrier and network service provider
networks.

Stocks in the networking group have been "on the move" in recent
sessions and the bullish speculation in their front-month call
options have produced some excellent pricing disparities.  MRVC
is one of these issues and traders who participate in bullish,
time-selling strategies should consider this position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JUL-15.00  VQX-GC  OI=1591  A=$1.25
SELL CALL  JUN-15.00  VQX-FC  OI=1656  B=$0.65
INITIAL NET DEBIT TARGET=$0.50-$0.55  TARGET ROI=25%

http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=MRVC
******************************************************************
PENN - Penn National Gaming  $21.90  *** A Fair Bet! ***

Penn National Gaming (NASDAQ:PENN) is a diversified gaming and
pari-mutuel wagering company.  The company owns an 89% interest
in the Charles Town entertainment complex, which includes 1,500
gaming machines and a thoroughbred racetrack in Charles Town,
West Virginia.  Penn National also owns and operates racetracks
and off-track wagering facilities in Pennsylvania.  Additionally,
the company owns 50% of a joint venture, Pennwood Racing Group,
which owns and operates Freehold Raceway and, under a long-term
lease, operates Garden State Park in New Jersey.  The company's
Pennsylvania racetracks include Penn National Race Course, one
of two thoroughbred racetracks in Pennsylvania, and Pocono Downs,
one of two harness racetracks in Pennsylvania.  Penn's revenues
are derived primarily from wagering on the company's live races
at the company racetracks, at the company's off-track wagering
facilities at other Pennsylvania racetracks and through phone
wagering.

Penn National Gaming has been a very active issue in recent weeks
and the technical indications along with the option prices favor
a neutral position in the stock.  PENN has relatively inexpensive
option premiums, a history of adequate price movement and future
events or activities (buyout/merger speculation) that may produce
volatility in the issue.  The process of selecting positions with
these attributes provides the best combination of low risk and
potentially high reward and PENN easily meets the basic criteria
for a speculative debit straddle.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUN-22.50  UQN-FX  OI=21  A=$1.05
BUY  PUT   JUN-22.50  UQN-RX  OI=13  A=$1.55
INITIAL NET DEBIT TARGET=$2.40-$2.50  TARGET PROFIT=20%

http://www.OptionInvestor.com/charts/apr01/charts.asp?symbol=PENN
******************************************************************


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