Option Investor

Daily Newsletter, Sunday, 05/27/2001

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The Option Investor Newsletter                   Sunday 05-27-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 5-25          WE 5-18          WE 5-11           WE 5-4
DOW    11005.37 -296.37 11301.74 +480.43 10821.31 -129.93  +141.19
Nasdaq  2251.03 + 52.15  2198.88 + 91.45  2107.43 - 84.10  +115.85
S&P-100  658.29 - 10.09   668.38 + 22.95   645.43 - 13.31  +  9.63
S&P-500 1277.89 - 14.07  1291.96 + 46.29  1245.67 - 20.94  + 13.56
W5000  11849.89 - 73.63 11923.52 +432.18 11491.34 -195.93  +178.43
RUT      508.62 +  2.34   506.28 + 18.92   487.36 -  5.53  +  8.92
TRAN    2929.20 - 49.75  2978.95 + 99.39  2879.56 + 10.37  +  6.82
VIX       23.15 -  1.11    24.26 -  3.22    27.48 -   .24  -   .05
Put/Call    .62              .47              .63              .67

What is the Definition of Support?
by Jim Brown

Answer: Friday's close on the Dow and Nasdaq! Each closed within a
whisker of being exactly on critical support levels. The Nasdaq
closed at 2251, a mere one point above critical support at 2250.
The Dow also snugged in close to 11000 at 11005. The S&P remains
about 10 points above support. With a blessing from Greenspan on
Thursday the light is green for a post holiday rally if the bulls
can muster up the courage to attend.

Thank you grandpa! You could not tell it from the major indexes on
Friday but Greenspan gave the economy and the markets his blessing
in the Economic Club of New York speech on Thursday. He warned that
the manufacturing correction is not yet over, (old news) but that
the Fed was monitoring the problem and they would not be bashful
should it require a policy response. (further rate cuts) He said
"this period of sub-par economic growth is not yet over, and we are
not free of the risk that economic weakness will be greater than
currently anticipated, requiring further policy response" but there
was no sign of inflation and productivity was still growing. Count
on interest rates going lower and count on the economy recovering
in the last half of the year. That was the bottom line of the wordy
message. He did suggest that the five previous rate cuts would provide
needed support and the Fed may be toning down its aggressive posture.

The economic reports out Friday did not project a picture of glowing
economic health. The first quarter GDP was revised downward to +1.3%
from the previously reported 2.0%. Things are not as rosy as previously
projected. Couple that with Greenspan's "not out of the woods" speech
and traders were a little cautious. Also existing home sales fell an
incredible -4.2% showing that not only new homes are staying on the
market longer but all homes. It appears that consumer confidence, which
came in Friday at .92 as expected, may be about to take a turn for
the worst as evidenced by home sales. If they are not buying houses
then they are not buying appliances to go in those houses. Durable
Goods came in with a -5.0% drop which was much more than expected.
What we have here is light at the end of the tunnel with the
Greenspan comments, but the tunnel just got longer, much longer.
This was the main culprit for holding back the markets on Friday.

It also did not help that a major analyst was talking GE down as well.
Saying that short cycle products were still declining in May and there
was evidence that Jack Welch's comments, "ugly and getting worse" may
still be true. Long cycle products like aircraft engines were still
in a growth mode of about 20% for GE but consumer type items were
dragging them down. GE and HON both fell on the news as well as UTX
and MMM in sympathy. GE also fell on the news that they, along with
Goldman Sachs, would provide $7 billion to rescue Finova, FNV. Pocket
change, right?

The Nasdaq fell despite an upgrade of the semiconductor sector. The
culprits Friday were ADCT and DITC whose earnings problems tanked the
communications/networking sectors and overpowered the semiconductors.
Even JNPR, which was rumored to have won a contract over CSCO, dropped
-2.41. Lehman made a very public call saying the second half of the
year may be more challenging than previously expected. There were
no winners in anything Nasdaq with profit built in over the last
two weeks. With so much uncertainty in the U.S. a well as overseas,
the urge to go into the long weekend flat was just too strong. Still
volume was still VERY light. The Nasdaq just squeaked out a second
lightest day of the year award with 1.38 billion while the NYSE
posted the lowest volume day of the year at only 818 million.

Remember the almost 30,000 volume on the Microsoft leaps on Thursday?
There was another 15,000 of the Jan-02-120 calls on Friday. Merrill
Lynch analyst, Henry Blodget, came out Friday pounding the table on
Microsoft. That was just a coincidence, right? You don't think Merrill
Lynch would take a 45,000 leap position just before their golden
boy went bullish on the stock? It did not do Blodget any good because
MSFT lost -.81 for the day. That was also surprising since MSFT
and AOL are now kissing cousins again. The feud between MSFT and AOL,
which bought Netscape, appears over and they are reportedly going
to announce a deal where MSFT will bundle AOL software with the
new Windows XP. Could this be a condition for a pending settlement
with the Justice Dept? If MSFT and AOL do get together again it
could be trouble for RealNetworks. RNWK has refused to slim down
its software for AOL and their agreement is ending. AOL could
easily go with Windows Media Player instead and I am sure MSFT
would love to grab 28 million more users away from RNWK.
(Note: I was talking to one of the other editors late Friday night
and I went back to show him the volume on the MSFT leaps and all
the daily volume was gone as well as the open interest on the CBOE.
I mention this in case it was all a data problem at the CBOE but it
was there at 4:PM!)

Next week could be a challenge. Since both major averages have
dropped back to basically a goal line stand on their previous
breakout points, trading could be tricky on Tuesday. After the
Friday morning dip and recovery the Nasdaq held 2250 the rest of
the day. The Dow only dipped below 11000 once to 10993 and quickly
rebounded. However, the Dow does not look as healthy as the
Nasdaq and with a -117 close you can see why. It is trending
down rather steadily and not far from the low of the day. Just
profit taking? Maybe, but the line was drawn in the sand at 11000
by a beaten and battered defender not a bull with just a bloody

The VIX was behaving strangely on Friday. With both major
indexes falling the VIX was heading DOWN for a 23.15 close. This
is a number not seen since September of last year. The saying "when
the VIX is low its time to go" has always worked in the past but
how low is low? Last August the low was near 18. This was just
before the Dow rolled over at 11250 and fell to 9656. What is
strange about this is the market was falling triple digits on
Friday which normally pushes the VIX up as traders buy puts. Is
everyone so bullish they are not even considering puts? Do we
have a disaster waiting to happen here? If so, the conditions
are setting up so quietly that many may get caught by surprise.
This is something traders really need to watch next week.

With summer officially upon us and Tuesday likely to be a very
low volume day as well, it may be Wednesday before we can confirm
direction. The battle may be fought in minor skirmishes Tuesday
and as yet unknown news headlines will control our fate. The
first economic reports to worry about are the Personal Income
and Spending on Tuesday, Chicago PMI on Thursday and the biggie,
Nonfarm Payrolls on Friday. The midweek reports are noise
but the Payroll report could be trouble. With the economy possibly
weaker than expected by the Fed's own admission, falling payrolls
could trigger more uneasiness. Put worry about the payrolls together
with very low volume and we could see a volatility spike and
support levels tested again. On the other hand, investors, not
traders, have pretty much accepted the fact that the patient will
not die and the antibiotic has already been administered. Next
week it will be up to the true believers to hold the line. Would
the true believers please stand up! We are behind you all the way,
at least until the Nasdaq falls below 2250 and then you are on your

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

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I am going to keep it short this week. Since market direction
is still not known I am cautious about entering plays without
a safety net. The easiest way to do this is with bull put spreads.
You can maximize your upside as far as you want and at the same
time limit your downside.

I will use EBAY as an example:

After a strong run from $30 EBAY has a lot of profit built in
and if the market starts to tank there will be selling. Still
EBAY could continue up as one of the only profitable Internet
companies. Very profitable and growing. It was announced last
week that SunMicro sold $100 million in surplus equipment on
EBAY over the last year. Surprise! You and I are not the only
customers placing junk on auction. As more and more companies
move to EBAY to sell their excess inventory discreetly EBAY
profits will soar, or so the analysts say. Still I am concerned
about the $30 of profit so I do not want to enter any play
without insurance.

The way I would play this is to buy the June-$60 put at $3.30
and sell the June-70 for $8.80. I actually like the June-85
better for the short side but there is no open interest so the
odds of an assignment are greater.

Your risk in the trade is any drop in the stock to $60 plus
the premium paid for the long put. Personally I would use the
long put just for insurance and put a stop loss on the short
side only at about $59.75. Just under $60 to prevent the price
magnet syndrome from taking you out. I would not enter the trade
until 30 min after the open on Tuesday. If we get an opening dip
and rebound, sell the short side on the bounce and buy the long
side before the close, hopefully after it has rebounded a couple

If EBAY continued to fall under $60 your short side would be
closed and your long $60 put would be increasing in value.
The $55 area could be support and I would close the long side
under $56.

Another play using this same strategy would be the QQQ.

The QQQ closed right at $49 on Friday with the Nasdaq at 2251.
The QQQs should not break 48 without the Nasdaq breaking 2200.
I would buy the June-47 puts for $1.30 to limit your risk in
case of a disaster and sell the June-55 for $6.20. If we get a
rally before the summer slump we could see 52-53 easy. I would
set a buy to close stop on the short side at 53 or above. That
would mean about a $4 profit plus any remaining value on the 47
put which would be minimal. If the market is moving strongly I
would let the short put run and just follow it up with a trailing
stop. Your risk in this play is the difference between 49 and 47
(-2) and the price paid for the long put (-1.30). Your maximum
profit is the amount received for the short put (6.20) minus the
1.30 for the long put or 4.90.

Enter passively, exit aggressively!



If you like this type of strategy but would like to learn
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Predicting Profits
By Matt Russ

Since the rate cut back on May 15th, all the major market indices
have had fantastic gains.  It was to be expected that we would see
some retracement.  But it is predicting the magnitude of the
profit taking that is the challenge.  While investor sentiment
and confidence continues to improve with the recent breakouts,
it would be a disservice to say the selling is over and we are
back on the bull track.  Pullbacks represent opportunity in this
type of environment.  So let's get right to it and identify some
key levels, look at the COT report, and where demand may lie.

The Nasdaq closed right at 2250 on Friday.  Off the open, the
COMPX quickly put in its high and low of the day, 2282 and 2242.
The 30 point decline was simple consolidation and traders just
taking a little off the top before heading away for the holiday
weekend.  Volume was very light at 1.36 bln.  Ideally, on the
support side, we'd like to see the 2232 area continue to hold.
Below that, expect support at 2200 which corresponds with the
50% retracement level of the recent range.  The 2405 anchor is
the 61.8% level from January 24th high to the April 4th low,
which was shown on Thursday.  Resistance overhead will be 2280
and 2328.  The QQQs have support at $48.50 and $47.25, with
resistance at $50.

We had a breakdown through key support at 1281 on the SPX Friday.
After Thursday's close at 1293, that level proved to be a point
of supply as the index sold off from there throughout Friday's
session.  Our goal now is to determine how much profit taking is
enough to result in demand returning.  On the 30 minute chart,
the SPX frighteningly resembles a head-and-shoulder(H&S) pattern.
With the head at 1315 and the neckline at 1281, which was just
broken today, the bearish objective is 1247.  It certainly looks
like a test of 1272, from which the index broke out, may be in the
cards.  Whether the SPX goes for the H&S bearish objective depends
on whether the index holds the pivot of 1272.  While the sentiment
feels bullish after the recent run, we should prepare ourselves
for the possibility of a pullback toward 1250.  As a confirmation
of the H&S objective, the Point & Figure chart shows that a healthy
pullback may be due and a print of 1250 would be right on support,
which will likely attract buyers.  On a break of 1272, short
opportunities may arise in some of the weaker S&P 500 issues.
On the OEX, we see a very similar chart pattern, however, the
pivot point of the breakout, 660, was violated Friday.  Its close
at 658 is right near support at 655-657.  Below, look to 650.
Resistance lies at 660 and 664.

DOW 30
We saw consistent profit taking throughout the week on the Dow.
Speculation that the Dow would retrace to test its breakout pivot
near 11,000 has come to fruition.  Previous highs prior to the
break are noted by the blue line in the chart, approximately 10990.
While GDP was revised lower as expected, the strong selling off
the open was probably traders locking in profits and heading for
the beaches early.  Like the Nasdaq, volume was very light at
818 mln.  The Dow did give up 117 points and a breakdown below
11,000 could attract more shorts, but we aware that a quick move
below may just be a fakeout to trigger stops before advancing.
It still is a very psychological level.  On a breakdown, 10900
would be support and 10800 is very strong.  If traders return to
buy next week ahead of the Employment Report due out Friday, 11050
and 11100 will be overhead challenges.

Friday was a typical light volume profit taking day ahead of a
holiday weekend.  The major indices retraced recent gains in a
normal fashion.  Right now, we are trying to identify new levels
to trade.  The COT Report tells us that both Commercials and
Small Specs remained relatively unchanged on the DJIA and SPX
futures.  Commercials continue to be Net-Long the DJIA and
Net-Short the SPX.  Small Specs have the opposite position.
However, the biggest change was in Small Specs closing 24% of
their Net-Long positions on the Nasdaq.  The little guys are
taking some profits...and were right on the move!  How often
does that happen?  The Commercials were forced to cover some
of their shorts on the Nasdaq as a result of the recent move,
going from Net-Short -21.87% to -14.87%.  It good to see that
they're not always right.  Enjoy the Memorial Day weekend and
watch those levels next week.

Trade Smart,

Matt Russ

CBOT Commitment Of Traders Report: Friday 05/25
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         +63916     +65713         -70908      -72034
Total Open
Interest %       (+31.81%)  (+32.56%)      (-10.01%)   (-10.15%)
                 net-long   net-long       net-short   net-short

DJIA Futures
Open Interest
Net Value          -7101      -7166          +8925       +8151
Total Open
Interest %       (-51.65%)  (-54.70%)      (+23.70%)   (+22.89%)
                 net-short  net-short      net-long    net-long

Open Interest
Net Value           +444      +4578          -9946      -12711
Total Open
Interest %        (+2.24%)  (+26.20%)      (-14.87%)   (-21.87%)
                  net-long  net-long       net-short   net-short

What COT Data Tells Us
Indices: Commercials held their net short positions on the S&P 500 at
 10 percent. Small Specs showed a tremendous reduction in net-long
positions on the NASDAQ 100 while the Commercials lightened up on
their net-short positions on the tech index.

Data compiled as of Tuesday 05/22 by the CFTC.


Please visit this link for Market Posture:


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By Eric Utley

Not too long ago, I dreaded the weekends.  After all, what's
life without the market?  Two entire days without monitoring
price action was just too much, let alone an extended holiday
weekend.  But recently, I've been attempting to focus my
energy towards self-actualization, which I think is a pyramid
of needs and self-development, but not sure.  At any rate,
fly fishing and family are beginning to take a greater
precedence in my life.

Viewing an advertisement for the most recent war movie earlier
this week reminded me that one of my grandfathers fought in
the Korean War.  In fact, both of my grandfathers served in
the U.S. Military.  And for reasons unknown to me, I have
never thanked either of them.  So it's with my new aim towards
actualization, on the eve of Memorial Day, that I write the

Grandpa Utley and Grandpa O'Leary,

Thank you both and I love you.

Indeed, to all of the veterans that read this column, I would
like to send a resounding thank you for protecting something
that I cherish: freedom.

I don't mean to get mushy on my readers, but just remember
to focus on the important things in life this weekend.  And
for those venturing to Yellowstone National Park over the
holiday (Read: Eric's Family), make sure to tell those bears
where to go...

To all, have a safe and very enjoyable Memorial Day weekend!

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


Veritas Software - VRTS

Please advise your views on VRTS.  Although OIN dropped this
call play recently but it appears to be heading high.  Is OIN
waiting for it to cross $80 to be included as a call play once
again? - Regards, Sunil

Thanks for the question, Sunil!

I can't say whether or not Option Investor will add Veritas
(NASDAQ:VRTS) to the call list in the coming days if it breaks
out over $80.  I suppose it will depend upon our play posture
at that time.

As I've written in the recent past, I'm fairly bullish on the
broader data storage sector over the short- and
intermediate-terms.  And the reason is that information is
ubiquitous and the demand for data storage products is
insatiable.  Data storage products and services were one of
the last components cut from information technology (IT)
spending budgets last year.  As such, I would expect that
data storage would be one of the first to benefit from an
increase in IT spending on the part of corporate purchasers.

I think that we're starting to witness a rebound in
corporate spending and, indeed, the data storage sector as
evidenced by recent guidance given by Emc (NYSE:EMC), Network
Appliance (NASDAQ:NTAP), Brocade (NASDAQ:BRCD) and even
Cisco Systems (NASDAQ:CSCO).  All of the aforementioned
companies have recently hinted towards a rebound in the
enterprise market.

In short, the above rambling is my bullish argument for
companies such as Veritas.

So let us address the price action of Veritas.  I don't
necessarily believe that "chasing" stocks on breakouts is the
best strategy in the current market, especially in tech stocks.
Of course that is a very subjective statement in terms of time
frames and risk tolerances; neither of which I can intelligently
qualify for my readers.  At the risk of contradicting myself,
however, I do think that if the Nasdaq continues to advance and
Veritas can convincingly clear the $80 level, we'll see the
stock work up to the $100 level in the coming months.

So if I don't think that "chasing" stocks is the most
prudent strategy in the current market environment, I must be
thinking entries on pullbacks.  And in Veritas' case, I think
a low-risk/potential high-reward entry would be provided on a
pullback down around the $72 - 74 range.  If that general
support area holds, I think Veritas will bounce back up to the
$80 level.  If it doesn't hold, the risk is mitigated with a
tight stop!


Cree - CREE

What is your take on the technical picture for CREE?  Is its
uptrend capable of sustaining? - James

Good question, James.

Shares of Cree (NASDAQ:CREE) have had an incredible run from
their April 4th lows.  But over the past two weeks, the stock
has ran into a trading range that has historically been filled
with supply.  The trading range I'm referring to is the $30 and
$40 levels.  Shares of Cree spent all of last December and
January trading between those two levels and I would imagine
that there are a large number of longs anxious to get out at
current levels in order to breakeven from their purchases last
winter.  In addition, I would also imagine that there are still
some shorts in the stock willing to defend their positions at
current levels.  On that note, there are still approximately
6 million shares short, or roughly 10 percent of the stock's

I think it will take quite a catalyst to break Cree above its
significant $40 resistance level in light of its current
overbought condition.  But if Cree did break above $40 I think
the remaining shorts would cover, resulting in a violent
advance up to possibly the $50 level.

In the meantime, like the Veritas technical review above, I think
the most prudent approach would be to enter Cree on a pullback,
if you're bullish, of course.  On the daily chart below, I've
laid a retracement bracket over Cree's recent move from its
low at roughly $12.20 up to the $36.60 level.  Readers will note
that the 38% retracements currently sits around the $27 level,
while the 50% retracement lies just beneath at $24.40.  A
pullback to $27 on Cree's daily chart would coincide nicely
with a demand level on Cree's point & figure chart.


Krispy Kreme Doughnut - KKD

Everyone seems to be shorting KKD (including me) and we're
getting burned.  I must say, their management knows how to
move the market via free doughnuts on the NYSE and lost of PR
on CNBC and now a stock split coming up.  Help me out oh wise
one, why does a company that makes great doughnuts (which is
not exactly a break through invention or cure to mankind's
ills...I mean it's unhealthy and there is dunkin doughnuts)
continue to go thru the roof with their stock prices?  Their
PE is out of sight for like industries.  Is this like the
dot coms of 1999 even if KKD does make a profit?  They are
on the upper ranges of the Bollinger bands, showing a
screaming overbought, but are people like me and the
institutions that are shorting this company causing this
upsurge in price aka contrarian indicators? - Thanks, Skier1

Excellent question, Skier1!  And I feel the code name.  If
you're a snow skier, and haven't already, I highly recommend
visiting Alta, Utah, next season for its unsurpassed pow-pow
before the 2002 Winter Olympics lets the world in on a little

The excellent question was posed in your request that if so
many participants are short Krispy Kreme (NYSE:KKD), should it
be viewed contrarily?  To a certain extent, I think yes.  When
so many traders are short a stock, the edge in doing so becomes
muted as the short side grows "crowded."  That is, the fear of
being wrong in the bearish bet can morph into mass covering
and that buying perpetuates to the upside to the point of
excess.  And I think that is exactly what has happened since
Krispy Kreme debuted on the NYSE at $59.40 per share.  Roughly
$14 later, I think the shorts are feeling some heavy heat.  So
readers know, roughly 33 percent of Krispy Kreme's float is
currently sold short, which is very "crowded."

I don't know about being a wise one, but I tend to agree with
your thesis that shares of Krispy Kreme are overvalued at
current levels, which is a product of not only the short
covering, but the novelty of its brand.  On a trailing twelve
month basis, shares of Krispy Kreme trade with a multiple of
118, and sport a multiple of roughly 95 on a forward-looking
basis.  Either way you slice, the stock is overvalued.

If Krispy Kreme was expected to grow earnings at a 100 percent
clip over the next several years, I could justify its lofty
valuation.  But it's not.  The company is expected to grow its
bottom-line by roughly 25 percent, which gives its stock a
price-to-earnings-growth (PEG) ratio of 3.8, on a forward-looking
basis.  Again, very rich!

To reiterate, Krispy Kreme's lofty valuation is a product
of recent short covering and the novelty of its brand.  Having
said that, I think there will be a point when a ton of money
will be made in shorting this stock.  But timing will be
EVERYTHING!  It may help, Skier1, if you go back and study the
likes of the Snapple brand, or even the Amazon.coms (NASDAQ:AMZN)
of the market and at what point fundamentals began to be
reflected in the stock price.  Obviously the fundamentals are
NOT being reflected in shares of Krispy Kreme currently.

One more quick note: In perusing the point & figure chart of
Krispy Kreme, I noticed that the stock's bullish price objective -
which was created following its advance past the $45 level in
late April - was $74.  The stock peaked last week at $75...


Netopia - NTPA

..Can you give me your opinion on NTPA and how it looks on a
technically and also how it looks on a point & figure chart? -
Thank you, Jay

Netopia (NASDAQ:NTPA) is one of those fallen dot coms that we
used to love to trade from the long side.  These types of
stocks are beginning to show life to the upside, and I'm not
sure if it's solely a product of short covering or if we'll
soon see an improvement in the underlying fundamentals of
these businesses.  If it's the latter, we're likely to have
some good opportunities to make a lot of money from the long
side in these stocks, again.

For its part, Netopia makes and sells broadband Internet
equipment and e-commerce platforms for small and medium-sized
businesses.  I don't have much insight into the company, per
se.  But I do know that it competes with the likes of Cisco
and Lucent (NYSE:LU) in its router business, and IBM (NYSE:IBM),
Computer Associates (NYSE:CA), Intel (NASDAQ:INTC) and
Microsoft (NASDAQ:MSFT) in other arenas.  The reason I bring
up its competitors is because Netopia may be an acquisition
target if the rumored Lucent/Alcatel (NYSE:ALA) deal is a sign
of coming consolidation in the networking business.

Turning to the technicals, Netopia presents an interesting
case study at current levels.  In Friday's trading, the stock
clearly traced a bearish reversal, insofar as Japanese
candlestick proprietors are concerned.  I consulted my good
friend, John Seckinger, who confirmed that Netopia traced a
shooting star Friday because it did not settle on its low.
Had Netopia closed on its low for the day, John pointed out
that it would've completed a gravestone doji.  In either case,
the stock looks poised to pullback and retrace some of its
recent gains.

What's even more interesting about Netopia's reversal Friday
is that it nearly hit its bullish price objective of $8.25,
which was generated from its advance from the $3.00 level to
$4.50 earlier this month.  Moreover, my astute colleague,
Jeffrey Canavan, made a comparison of Netopia and Priceline
(NASDAQ:PCLN) recently on PremierMarkets.com, which is very
pertinent to our review here today:


Jeffrey drew some conclusions which I tend to agree with.
And here's the point & figure chart analysis you requested,


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.


For the week of May 28th, 2001

None Scheduled

Personal Income           Apr  Forecast:  0.30%  Previous:  0.50%
PCE                       Apr  Forecast:  0.40%  Previous:  0.30%
Consumer Confidence       May  Forecast: 110.3   Previous:  109.2

Oil & Gas Inventory    25-May  Forecast:    NA   Previous:324.6MB
MBA Mortage Survey     25-May  Forecast:    NA   Previous: 475.4

Agricultural Prices       May  Forecast:    NA   Previous:  3.90%
Initial Claims         26-May  Forecast:    NA   Previous:   407K
Chicago PMI               May  Forecast: 40.00%  Previous: 38.90%
Help-Wanted Index         Apr  Forecast:    NA   Previous:    66
Online Help Wanted Idx    May  Forecast:    NA   Previous:   105
Chicago Fed Idx           Apr  Forecast:    NA   Previous: -0.80%

Auto Sales                May  Forecast:    NA   Previous:   6.4M
Truck Sales               May  Forecast:    NA   Previous:   7.0M
Nonfarm Payrolls          May  Forecast:   -25K  Previous:  -223K
Unemployment Rate         May  Forecast:  4.60%  Previous:  4.50%
Hourly Earnings           May  Forecast:  0.30%  Previous:  0.40%
Average Workweek          May  Forecast:  34.3   Previous:  34.3
Construction Spending     Apr  Forecast:  0.30%  Previous:  1.30%
NAPM Index                May  Forecast: 43.50%  Previous: 43.20%
Employment Situation      May  Forecast:     0   Previous:  -223K
ECRI Future Inflation     May  Forecast:    NA   Previous: 107.4
ECRI Wkly leading Idx  25-May  Forecast:    NA   Previous: 122.5

Week of June 4th
Jun 05  Productivity-Rev.
Jun 05  Factory Orders
Jun 05  NAPM Services
Jun 07  Initial Claims
Jun 07  Wholesale Inventories
Jun 07  Consumer Credit

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The Option Investor Newsletter                   Sunday 05-27-2001
Sunday                                                      2 of 5

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Mixed Signals Add To The Confusion
By Renee White

There are times when I have scoured charts, news and research
trying to pick just the right candidate for a major market move.
Feeling as though I have finally completed this project, I
celebrate my decision and plan my entry on the next pullback.
Then, the unusual seems to happen, as if the market knew I had
picked a play and made up my mind. My research time goes down
the drain and I start all over again.

The addictive nature of trading the markets is a direct function
of never being able to learn every detail that will affect the
market for tomorrow's trading: a bottomless pit of information
in an ever-changing scenario.

Market bottoms are the most difficult to navigate and trade.
The vacillations occurring at a bottom gives traders on both
sides of the market, plenty of justification for their moves.
These cross-signals are rarely read as being as dangerous as
they are because once you are on the right side of the trade,
it is easy to feel omnipotent. These are times when it is truly
important to understand what your trading goal and style really is.
Trading market bottoms can be dangerous due to the whipping activity

Personally, I think two types of traders are best suited for
this market: the day-trader who can react intraday and keeps
a keen eye out for quick reversals, and the long-term investor
who buys and ignores the gyrations of the position for 6-12
months. At that point, he should be able to look back and gloat
at his courage to buy when stability was uncertain. Unfortunately,
it is the swing trader and option trader who have the hardest
time with mid-term market movements and short-term economic
projections. When the business cycle is on the bottom, as we are
now, it is hard to bank any short-term conviction with confidence.

A perfect example of this is the recent political upheaval in
the Senate. Something as historical as a shift in the voting
margins of Senate immediately starts a sell off. I was hoping to
enter some issues, during the seasonal spring weakness, but a
change in the political environment has all my potential
candidates dropping through support. How quickly things change.
I couldn't help but wonder how much of the recent surge in these
issues were actually due to politics. To add to the confusion,
we've heard that natural gas inventories were beginning to
stabilize and that there would probably be ample supply after
all. Of course, there is always an unknown and this one is not
knowing if next winter will be colder or warmer than usual. If it
were warmer, I'd take profits now on plays that have recently run
up. Oh, the luxury of a crystal ball.

There are other things which just don't make sense to me about
certain areas within energy, making play decisions difficult.
For instance, California is definitely upset with Reliant Energy
(NYSE:REI) these days. It seems as though Reliant saw a desperate
situation and used capitalistic theory to capitalize their pockets.
Californians have learned to talk with their teeth clenched when
discussing the price gouging that has recently affected their
sunny Californian lifestyle. I do feel for them.

However, closer to home where Reliant cashes its checks, I am
left confused. Beginning next month, we will be hit with a 30%
increase in our electric bills. If inventory levels have
stabilized, and natural gas prices have come down, why then a big
permanent jump in rates? Furthermore, if the increase is due to
potential defaults from California for not paying the inflated
scavenger rates they were billed, then all Reliant customers are
paying for a portion of that gouging. What's even more confusing
to me is if there is a huge potential default of over $350
million, then why hasn't Reliants stock price been hit hard?  I
mean, if you overcharge, then your profits should increase, right?
If that's the case, why did we get a 30% increase in our rates?

Concerned about this very issue, I bypassed an entry point when
the stock hit its 200-dma in late March. It violently turned
on a dime on the same day, and shot straight up to a new 52-week
high, due to an IPO spin-off occurring in April. Since that time
though, technicals on the chart are looking sick with relative
strength dropping. I would caution anyone considering playing in
this minefield until clarity develops.

To intertwine this into the markets a bit more, I find myself
thinking through what effect rates will have on my trading.
It seems to reason, if coast-to-coast energy prices rise that the
cost of goods sold must also rise to allow profit margins to
increase. We are currently in a business profit margin squeeze,
with an adjusted 1st quarter GDP of 1.3%. Virtually, flat growth.
However, if we have flat growth now with weakness still coming,
no clear signs of a pick up in durable good orders, and on the
edge of surging energy costs...won't businesses be forced to
increase prices just to stay neutral?

Although Consumer Sentiment readings appear to be healthy, I feel
the latest number is an aberration. The housing sector is showing
its first signs of peaking, with the largest drop in new home
sales in 4 years. Add that to continued lay-offs, and an electric
bill surprise around the corner, and I would lay money on the
Consumer Sentiment numbers softening soon. In my basic economic
analysis, I smell inflationary pressures down the road, so I was
pleasantly surprised when Mr. Greenspan denied seeing any
immediate signs. Still, I expect it within 6-9 months, unless of
course, this energy crisis is really no crisis. With shriveling
corporate profits now, energy costs will certainly affect their
bottom lines.

The good news is that this market has shown surprising strength
after a fabulous two-phased rally. It feels like it wants to hold,
yet it is sitting on support leaning towards a fall. The
crosscurrents again make it hard to read, without a clear signal
in either direction for the short-term. I have watched the VIX
hover in the low 23 area all week and still, there it sits. My
bias is still for a pullback although I can't ignore the recent
strength in the Nasdaq or the Dow. Personally, I am hoping for
a major pullback to gain LEAP entries in my portfolio.

I also can’t ignore the S&P 500 chart (INDEX:SPX.X). It opened
the year at 1298 and closed Friday at 1277, 3 days after the
end of its recent rally high of 1315. Overall, breadth in the
market appears to be improving. In fact many more small and
mid-cap stocks are crossing up over their 200-dma. That too
gives confidence that general market improvement is occurring.
Still, we have crosscurrents and the next earnings warning season
is approaching while traders sit on their recent profits. That
seems high risk to me.

So, pick your bias and your strategy. You could justify either
side. If you are a very short-term trader, superfluous information
means nothing to your trade. Day traders are keen to just jump on
board for a fast ride. And long-term holders are relaxed knowing
they don't care what gyrations occur the next few months.

If you want to trade options during these crosscurrents, it is
usually best to buy all the time you can afford. Decisions are
harder these days so at least remember the lessons learned last
year, and take all profits when you have them.

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index instead?

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Call Play of the Day:

MSFT - Microsoft Corporation $70.91 (+2.82 last week)

See details in sector list

Put Play of the Day:

MIR - Mirant Corp $40.95 (-4.49 last week)

See details in sector list

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Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


EXTR $34.62 (-1.07) A continuation of Monday's rally wasn't in
the cards, as EXTR gradually deteriorated right up to the
closing bell on Friday.  Despite the fact that volume was
light, we didn't get the expected bounce at the $35 support
level.  Disappointing results from ADC Telecom cast a dark
cloud over the Networking sector in the morning, from which it
never really recovered.  EXTR didn't find any buying support
until $34, and that buying was weak.  With weakness across the
board in the Networking sector, and a violated stop in our play,
it is time to cut bait and move on.

BAC $58.71 (+1.71) We are closing out our BAC call play on a high
note.  While the stock is still firmly above our closing stop
price of $58, resistance overhead at $60 is proving to be
formidable.  After a stellar run for shares of the Financial
giant this week, BAC could take a breather before making another
attempt at challenging the $60 level.  It's been said that the
best time to exit a play is when you can, and not when you have
to.  We are choosing now to bank our gains and as a result,
dropping coverage.


No dropped puts this weekend


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


FMKT - FreeMarkets Inc. $14.80 (+2.95 last week)

FreeMarkets, Inc. creates business-to-business online markets and
provides electronic commerce technology and services for the
procurement of industrial parts, raw materials, commodities and
services.  FreeMarkets has created over 9,200 online markets and
has enabled its customers to source products from more than 165
suppliers.  More than 9,300 suppliers from over 55 countries have
participated in online markets created by FreeMarkets.  In
addition to its FullSource offering, which provides customers
with the full range of FreeMarkets' technology, services and
information, FreeMarkets offers its DirectSource and QuickSource
hosted services, which enable customers to run their own online
markets.  FreeMarkets also operates the FreeMarkets Asset
Exchange for buyers and sellers of surplus assets and inventory.

After making a V-shaped bottom from a 52-week low of $6.25 on
April 4th, FMKT established an upward trading channel in the
beginning of May.  This week, the stock demonstrated how a little
good news can go a long way with an oversold stock, particularly
when significant short covering occurs.  A breakaway gap from
the 50-dma of $10.86 on May 2nd set the wheels in motion, as
investors responded with enthusiasm to the news that FMKT had
announced an e-Procurement agreement with Texas Instruments.
Following that announcement, news of another outsourcing contract
with MiTAC, one of Taiwan's leading manufacturer of computer
systems, kept the optimism alive.  However, the really big news
which pushed FMKT up 4 points on 2.5 times the average daily
volume occurred last Monday, and was a critical turning point
for the stock.  FMKT announced that they had expanded their
relationship with Raytheon by which Raytheon will use FMKT's
Asset Exchange to sell used equipment and surplus inventory,
in addition to using FMKT's B2B Marketplace to conduct strategic
sourcing projects around the world.  In Friday's lackluster
trading environment, support at the 5-dma of $14.70 held up,
and aggressive traders could consider this level as a possible
entry point.  Ideally, we would like to see a strong break
above $16 with heavy volume, which could potentially carry
FMKT up to $20 with light resistance.  There is still a heavy
short position in FMKT, and a break above $16 would likely
send the shorts running for cover in a big way.  Conservative
traders should wait for such a scenario to occur before taking
positions.  Keep an eye on other B2B stocks like ORCL, and
set closing stops at $13.50.

BUY CALL JUN-15.0*FAQ-FC OI=418 at $1.45 SL=0.75
BUY CALL JUN-17.5 FAQ-FW OI=204 at $0.60 SL=0.00
BUY CALL JUL-15.0 FAQ-GC OI=582 at $2.20 SL=1.00
BUY CALL JUL-17.5 FAQ-GW OI=282 at $1.35 SL=0.75

Average Daily Volume = 866 K

OAKT - Oak Technology $11.30 (+1.30 last week)

Oak Technology designs, develops and markets high-performance
integrated semiconductors, software and platform solutions to
original equipment manufacturers (OEMs) that serve the optical
storage, I-appliance and digital imaging equipment markets.
The company's products consist primarily of integrated circuits
and supporting software, all designed to store and distribute
digital content, enabling its OEM customers to deliver
cost-effective, powerful systems to home and enterprise end

Aggressive traders, take notice.  This play is for you.  OAKT is
making a convincing case that it wants to work higher, but we
need to see it push through the $12.50 level before taking a
position.  After falling below $5 last month, the stock has been
working higher, most recently consolidating near $9.50.  Needham
& Co. initiated coverage with a Buy rating on Friday, and this
may provide an upside bias next week.  The volume picture seems
to favor the upside as well, as positive days are seeing
stronger volume, and we will need to see this pattern continue
if OAKT is going to work significantly higher.  The risk in the
play is that the Semiconductor index (SOX.X) has yet to confirm
that it can hold above the 650 support level.  If it can
continue its recovery next week, OAKT should be able to extend
its rally as well.  Due to the aggressive nature of this play,
we don't want to buy the dips.  Instead, wait for a solid move
through the $12.50 resistance level on strong volume before
taking a position.  In order to give the stock some room to move
before breaking out to the upside, we are setting a liberal stop
at $9.50, where OAKT found solid support on its most recent
pullback.  The NASDAQ finished the week just above the critical
2250 level on Friday, and we will need to see renewed buying in
the broad technology market next week to propel our play higher.

BUY CALL JUN-10.0*KAU-FB OI=1011 at $1.55 SL=0.75
BUY CALL JUN-12.5 KAU-FV OI= 297 at $0.30 SL=0.00
BUY CALL JUN-10.0 KAU-GB OI= 457 at $1.85 SL=1.00
BUY CALL JUL-12.5 KAU-GV OI=1309 at $0.65 SL=0.00
BUY CALL OCT-12.5 KAU-JV OI=  45 at $1.40 SL=0.75

Average Daily Volume = 1.21 mln

CEFT - Concord EFS, Inc. $47.11 (+3.49 last week)

Concord is a vertically-integrated electronic transaction
processor. Primary activities include Payment Services, providing
credit, debit, check authorization, and EBT processing services
to supermarkets, gas stations, and other selected retail
segments; and Network Services, providing gateway processing, ATM
driving, and debit card processing to the financial services
industry, plus coast-to-coast network access under the STARsm,
MAC and Cash Station brands.  From their early beginnings as a
point of sale equipment manufacturer to our position today as the
nation's leader in ATM driving, network access, and online debit

It's been a great year so far for CEFT.  The company was added to
the S&P 500, has basked in the warmth of analyst upgrades and
positive coverage (including Robinson Humphrey, Hoak Breedlove
Wes, USB Piper Jaffray, Barrington Research), with strong
earnings helping the stock to move ever higher.  CEFT reported
first quarter earnings in late April, growing EPS by 43 percent
year-over-year.  Since that time, the stock has been in rally
mode, benefiting from general market strength as well as
company-specific announcements.  UBS Warburg analyst upgraded the
stock on Friday from a Buy to a Strong Buy rating, upping his
price target from $60 to $65, and reassuring investors that the
secondary offering the company recently filed is a temporary
event and in the long term, the view is bullish.  With that, CEFT
rallied, gaining $1.56 or 3.18 percent, and while volume was not
as high as we would have liked, the break above formidable
psychological resistance at $50 to a new all-time high was a good
sign indeed. At this point, a run over the intermediate term
to the mid-60's level within the next month is quite possible.
Continued buying momentum leading to a surge above Friday's
intra-day high of $51 would allow conservative players to enter
on strength. For aggressive traders, pullbacks to $50, $49,
$49.50 and our closing stop price of $48 may provide
opportunities for entry. In both cases, keep an eye on industry
peers FDC and PAYX.

BUY CALL JUN-45*EQF-FI OI=10201 at $6.10 SL=4.00
BUY CALL JUN-50 EQF-FJ OI= 5267 at $2.05 SL=1.00
BUY CALL JUN-55 EQF-FK OI= 2096 at $0.50 SL=0.00
BUY CALL JUL-50 EQF-GJ OI=   84 at $3.50 SL=1.75
BUY CALL JUL-55 EQF-GK OI=   31 at $1.45 SL=0.75

SELL PUT JUN-50 EQF-RJ OI=  534 at $1.15 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 3.78 mln

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.

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Contact Support

The Option Investor Newsletter                   Sunday 05-27-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

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

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

Sign up for a two week free trial and see for yourself at


QCOM - Qualcomm $67.52 (+1.07 last week)

QUALCOMM Incorporated (www.qualcomm.com) is a leader in
developing and delivering innovative digital wireless
communications products and services based on the Company's CDMA
digital technology. The Company's business areas include CDMA
integrated circuits and system software; technology licensing;
the Binary Runtime Environment for Wireless(TM) (BREW(TM))
applications platform; Eudora. e-mail software; digital cinema
systems; and satellite-based systems including portions of the
Globalstar(TM) system and wireless fleet management systems,
OmniTRACS. and OmniExpress(TM). QUALCOMM owns patents that are
essential to all of the CDMA wireless telecommunications
standards that have been adopted or proposed for adoption by
standards-setting bodies worldwide. QUALCOMM has licensed its
essential CDMA patent portfolio to more than 100
telecommunications equipment manufacturers worldwide.

During the light trading which occurred on Friday, QCOM held
at strong support at a daily higher low at $67.50.  The
longer QCOM can hold at this support level, the stronger
a breakout above $70 is likely to be.  In order for this to
occur, we may need to have additional bullish news released
in the telecommunications equipment sector.  While most of the
analysts who follow QCOM feel that the near term visibility
is somewhat cloudy, investors started to get excited last
week with the prospect of the opening of China as a market for
QCOM's CDMA technology.  China's largest cellular communications
company, China Unicom placed a $2 billion order with Nokia,
Lucent, Ericsson and others, which will potentially give QCOM
a highly lucrative revenue stream in the form of royalties
for years to come.  QCOM rallied strongly when this news was
released on May 15th, and spent most of last week consolidating
the gains.  Next week, traders will want to pay attention to
volume, as the stock will likely need the type of heavy buying
of close to 18 million shares in order to propel QCOM above
the $70 resistance level, which forms the apex of an ascending
triangle.  Aggressive traders can continue to take positions
at the $67.50 support level, particularly if others in the
communications equipment sector like NOK and ERICY are rallying.
A bounce up from the 5-dma of $68.50 could be another entry
point.  Ideally, conservative traders should wait for a break
and close above $70 with strong volume.  We are keeping
closing stops tight at $67.

BUY CALL JUN-65*AAO-FM OI=74840 at $5.30 SL=3.50
BUY CALL JUN-70 AAO-FN OI= 5427 at $2.70 SL=1.25
BUY CALL JUL-65 AAO-GM OI= 4562 at $8.30 SL=6.50
BUY CALL JUL-70 AAO-GN OI=10382 at $5.70 SL=3.50

Average Daily Volume = 18.2 mln

DELL - Dell Computer Corp $27.00 (+2.21 last week)

Dell Computer is the world's #1 direct-sale computer vendor and
one of the world's top PC makers.  Therefore it's understandable
that the company designs, develops, manufactures, markets,
services, and supports a variety of computer systems including
desktops, notebooks, workstations, network servers, and storage
products.  Dell's clients include the government, corporations,
the medical and education industries, as well as the individual
consumer.  Founder Michael Dell is still the CEO and maintains a
14% stake in the company.

The convergence of the long and short-term DMAS combined with
DELL tracing the top spectrum of the Bollinger Bands suggests
that there's strong upper resistance at $27 and that mild profit
taking may be on the horizon.  Last Wednesday, a powerful
breakout rocketed DELL through its technical resistance and set
the stage for consolidation above the $26.50 near-term support.
A bold announcement by the CEO to engage in a full-scale price
war and perhaps, even use its huge cash reserves to make
acquisitions prompted immediate coverage from two influential
brokerage firms.  Merrill Lynch and Goldman Sachs put DELL on
their Recommend List and Focus List, respectively, and noted the
company's healthy business model, going forward.  The robust
volume throughout the week also indicated there's an active
interest for the issue.  The sagging Computer Hardware Index
(GHA.X) however, isn't helping our position on Dell.  Use this
broad measurement index as a guide in planning future plays.  A
solid reversal off 347 and move through 360 dictates a bullish
sentiment across the sector.  You might consider buying into a
visible momentum run as DELL burns through the $27 and $28
levels in an advancing marketplace.  Entries from the vicinity
of $25, the mark of our protective stop, sanctions heavy risk.
We'll drop coverage and move on to more lucrative opportunities
if DELL fails to close above this level.

BUY CALL JUN-20 DLY-FD OI=  368 at $7.40 SL=5.00
BUY CALL JUN-25*DLQ-FE OI=22050 at $2.60 SL=1.25
BUY CALL JUN-30 DLQ-FF OI=10891 at $0.30 SL=0.00
BUY CALL JUL-25 DLQ-GE OI= 1190 at $3.20 SL=1.50
BUY CALL JUL-30 DLQ-GF OI= 2997 at $0.85 SL=0.00

Average Daily Volume = 36.4 mln

FFIV - F5 Networks $13.31 (+2.15 last 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

FFIV sprung forward last Monday, crashing through the $12 top
resistance.  The technical breakout generated enough momentum to
keep it afloat throughout the week's market action.  The solid
support at $13, currently bolstered by the 5-DMA, confirms the
stock's strength going into this week.  The continual tests of
the $14 level also advocates a potential breakout.  On the
upside there's plenty of room for profitability - approximately
six points before FFIV faces the $20 obstacle.  On the downside,
we set our closing stop tight at $11.50 to protect our capital.
If leading networkers like BRCD and NTAP start to break their
support levels at $45 and $24.50, respectively, raise your red
flags.  A conservative strategy is to wait for the coil to
spring before taking positions long.  You might consider buying
into strength as FFIV climbs off the 5-DMA ($13.23) and
penetrates $14 amid heavy volume.

BUY CALL JUN-10.0 FLK-FB OI=101 at $3.60 SL=1.75
BUY CALL JUN-12.5*FLK-FV OI=445 at $1.75 SL=1.00
BUY CALL JUN-15.0 FLK-FC OI=127 at $0.65 SL=0.00
BUY CALL JUL-10.0 FLK-GB OI=293 at $4.10 SL=2.50
BUY CALL JUL-12.5 FLK-GV OI=155 at $2.60 SL=1.25
BUY CALL JUL-15.0 FLK-GC OI=377 at $1.55 SL=0.75

Average Daily Volume = 396 K

IBM - International Business Machines $117.80 (-0.15 last week)

International Business Machines Corporation (IBM) uses advanced
information technology to provide customer solutions. The Company
operates using several segments that create value by offering a
variety of solutions, including, either singularly or in some
combination, technologies, systems, products, services, software
and financing. Organizationally, the Company's three hardware
product segments are comprised of Technology, Personal Systems and
Enterprise Systems. IBM's other major operations consist of a
Global Services segment, a Software segment, a Global Financing
segment and an Enterprise Investments segment.

As one of the premier technology stocks traded on the exchanges,
IBM is well positioned to attract investors' money, as its
stable, consistent growth pattern has offered more dependable
results than many of its former high-flying peers.  In a
market environment which continues to be uncertain, IBM offers
reassuring guidance, as well as an increasingly enticing chart
pattern.  IBM has been range bound for over a year, with
consolidation occurring between the nearly converged 200-dma of
$106.80 and the 50-dma of $106.10, and resistance at $120.
IBM formed a bullish wedge over the last two weeks, with
resistance at $117.80, which was cleared on Monday of last
week.  IBM spent the rest of the week consolidating between
support at $117.80, which could be an aggressive entry point,
and resistance at $120.  Ideally, a break and close above $120
could be a very bullish signal, particularly if accompanied by
strength in the hardware sector.  Once $120 is cleared,
resistance is light until $125.  Keep an eye on other hardware
bellwethers like HWP and DELL, and keep closing stops at $117.

BUY CALL JUN-115 IBM-FC OI=13977 at $5.40 SL=3.50
BUY CALL JUN-120*IBM-FD OI=14396 at $2.60 SL=1.25
BUY CALL JUL-115 IBM-GC OI=15347 at $8.30 SL=6.00
BUY CALL JUL-120 IBM-GD OI= 2384 at $5.60 SL=3.50

Average Daily Volume = 9.96 mln

ABGX - Abgenix Inc. $42.00 (+1.24 last week)

Operating in the biopharmaceutical field, Abgenix develops and
intends to commercialize antibody therapeutic products for the
treatment of a variety of disease conditions including
transplant related diseases, inflammatory and autoimmune
disorders, and cancer.  Harnessing the power of the mouse,
ABGX has developed XenoMouse technology, a proprietary
technology which the company believes enables quick generation
of fully human antibody product candidates using mice.  Current
internal product development programs have yielded four
antibody product candidates, with ABX-CBL being the current
front runner.

As expected, profit taking appeared ahead of the holiday
weekend, and the Biotechs were not immune from the selling.
Fortunately, volume was relatively light, as ABGX fell back
to consolidate for most of the day between $41-42.  Similarly,
the Biotechnology index (BTK.X) dropped early in the day before
finding support near $600 and gradually recovering into the
close.  The upward trends for both the BTK and ABGX are still
intact, and barring any unpleasant surprises over the long
weekend, look for buyers to return on Tuesday.  After the recent
rally, a little bit of consolidation was expected, and it has
been encouraging to see it take place on relatively light
volume.  One bearish factor that we are concerned about is the
daily Stochastics oscillator, which has now dropped out of
overbought territory.  We need to see the $40 support level
(also the site of our stop) hold up against the bears next week.
Aggressive traders can still target shoot new entries on dips
near $40-41, but will want to see the bounce confirmed by solid
buying volume before taking a position.  More conservative
entries will materialize on a rally through the $44 intraday
resistance level, or on a move through the recent high of
$46.50.  Regardless of your entry strategy, keep an eye on the
BTK index.  We'll need it to continue its uptrend if our play
is going to have a realistic chance of moving up to challenge
the $50 level.

BUY CALL JUN-40*AZG-FH OI=3371 at $4.50 SL=2.75
BUY CALL JUN-45 AZG-FI OI= 200 at $2.10 SL=1.00
BUY CALL JUL-45 AZG-GI OI= 484 at $4.40 SL=2.75
BUY CALL JUL-50 AXY-GJ OI=  82 at $2.85 SL=1.50
BUY CALL JUL-55 AXY-GK OI= 163 at $1.80 SL=1.00

SELL PUT JUN-40 AZG-RH OI=1213 at $2.00 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 1.75 mln

IMCL - Imclone Systems $50.06 (+5.13 last 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.

Continuing to outperform the broader Biotechnology index
(BTK.X), IMCL clawed its way above the $50 level again on
Friday, setting the stage for a continued rally next week.  For
its own part, the BTK gave back a little ground heading into
the weekend, but managed to hold above the 200-dma (currently
619.26).  IMCL dipped early in the day to the $48 level, but
buyers were waiting in the wings.  As expected, volume was
anemic ahead of the long weekend, but the buying volume that did
appear helped to keep the uptrend intact.  Bulls are focused on
the $50 resistance level, and a return of volume next week could
be just what they need to accomplish the next breakout.
Conservative traders will want to wait for a move above $51 on
solid volume before adding new positions.  Dip buying seems to
be back in vogue, and aggressive entries can still be taken on
intraday dips to support at $48.  Volume will be the critical
parameter to monitor next week, and if the buyers come back in
numbers, IMCL could very quickly push through resistance at $55
on the way to a test of the $60 level.  IMCL is solidly in
overbought territory, so we have ratcheted our stop up to $47,
just in case the profit taking resumes next week.  If you are
going to buy the dips, make sure to wait for the bounce.  We
don't want to get caught trying to catch a falling knife.
Weakness in the BTK index will likely drag IMCL lower as well,
so make sure the index is moving up as well before initiating
new positions.

BUY CALL JUN-50*QCI-FJ OI=3792 at $3.60 SL=1.75
BUY CALL JUN-55 QCI-FK OI=1194 at $1.65 SL=0.75
BUY CALL JUL-50 QCI-GJ OI= 281 at $6.00 SL=4.00
BUY CALL JUL-55 QCI-GK OI= 395 at $3.80 SL=2.25
BUY CALL JUL-60 QCI-GL OI=   0 at $2.50 SL=1.25  Wait for OI!!

SELL PUT JUN-45 QCI-RI OI= 408 at $1.15 SL=2.25
(See risks of selling puts in play legend)

Average Daily Volume = 1.39 mln

OPWV - Openwave Systems $45.38 (+8.33 last week)

Openwave Systems is a provider of Internet-based communication
infrastructure software and applications, serving over 150
communications service providers with over 500 million
subscribers.  Among OPWV's customers are wireless network
operators, wireline carriers, Internet Service Providers
(ISPs), portals, and broadband network providers.  OPWV has a
broad portfolio of products, including wireless Internet
infrastructure and browsers, unified messaging, mobile email,
directory services, voice processing and instant messaging

Our OPWV play is off to a decent start, despite the broad
market weakness on Friday.  As expected, trading volume was
anemic ahead of the long weekend, and the market-wide profit
taking continued right up to the closing bell, bringing the
NASDAQ Composite right back to the critical 2250 level.
Continuing its upwards stair-step pattern, OPWV dipped to the
$43 support level (also the site of the 5-dma) at the open
before attracting buyers for the remainder of the morning.
After reaching the $47 resistance level, buying interest dried
up, and we watched a slow deterioration into the close.  Volume
dropped off sharply in the afternoon, indicating that there
aren't many traders that are willing to sell at these levels
either.  Even after the afternoon profit taking, OPWV eked out
a fractional gain, bringing the stock to its highest close since
late February.  Once the $47 resistance level has been cleared,
the bulls will have their work cut out for them near $50, the
site of the 6-month descending trendline.  Aggressive traders
will want to use intraday dips to the $43 support level or our
$41 stop as entry points for new positions, but make sure to
wait for buying volume to appear before playing.  The market is
at a critical juncture here, and we don't want to catch a
falling knife.  More cautious investors will want to wait for a
volume backed move through the $47 level before taking the plunge.

BUY CALL JUN-45*UGE-FI OI=2454 at $3.80 SL=2.25
BUY CALL JUN-50 UGE-FJ OI=1804 at $1.75 SL=1.00
BUY CALL JUL-45 UGE-GI OI=1374 at $6.90 SL=5.00
BUY CALL JUL-50 UGE-GJ OI=3009 at $4.70 SL=2.75
BUY CALL JUL-55 UGE-GK OI=2529 at $3.10 SL=1.50

SELL PUT JUN-40 UGE-RH OI=1371 at $1.25 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 6.08 mln

CSCO - Cisco Systems, Inc. $22.05 (+1.85 last week)

Cisco Systems is the worldwide leader in networking for the
Internet.  Cisco's networking solutions connect people, computing
devices and computer networks, allowing people to access or
transfer information without regard to differences in time, place
or type of computer system.  Cisco provides end-to-end networking
solutions that customers use to build a unified information
infrastructure of their own, or to connect to someone else's
network.  An end-to-end networking solution is one that provides
a common architecture that delivers consistent network services
to all users.

It appears that aggressive rate cuts from the Fed are helping to
improve shareholder confidence and with that, large cap tech
stocks have become direct beneficiaries.  Last year, the slowing
economy lead to reduced capital expenditures, affecting even the
high growth Networking industry.  With that, earnings estimates
were reduced, billions of dollars of inventory was written off as
losses and visibility became limited at best.  Since early April
however, it seems that the sentiment has turned from one where
traders were still waiting for a bottom to the feeling that the
bottom may have already been reached.  Cisco reported earnings in
early May, beating lowered Street estimates by a penny.  While
the conference call continued to mention limited visibility going
forward, shareholders have been much more optimistic, with the
thinking that the worst is now behind the stock.  Since early
April, CSCO has been trading in an ascending channel.  Hitting
the top of this channel on Tuesday, following a breakout day on
Monday, the stock has since been in consolidation mode, trading
narrowly on decreasing volume.  With traders now more willing to
buy the dips, aggressive players may target bounces off support
at $22, $21.75, the 10-dma at $21.10, $21 and our closing stop
price of $20.  Bullish activity in the AMEX Networking Index
(NWX), corresponding with a break above $23 by CSCO could be the
signal for conservative traders to make a play.

BUY CALL JUN-20.0 CYQ-FD OI=90311 at $2.75 SL=1.50
BUY CALL JUN-22.5*CYQ-FX OI=60630 at $1.10 SL=0.50
BUY CALL JUN-25.0 CYQ-FE OI=32313 at $0.40 SL=0.00
BUY CALL JUL-22.5 CYQ-GX OI=40651 at $1.95 SL=1.00
BUY CALL JUL-25.0 CYQ-GE OI=59679 at $1.05 SL=0.00

SELL PUT JUN-20.0 CYQ-RD OI=33635 at $0.45 SL=1.00
(See risks of selling puts in play legend)

Average Daily Volume = 62.7 mln

MCDT - McDATA Corporation $39.60 (+2.91 last 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.

It just goes to show that the apple does not fall far from the
tree.  MCDT is storage giant EMC's response to the growth
opportunities in the Storage Area Networking (SAN) space.  Spun
off late last year, the company is a direct competitor of Brocade
Systems (BRCD).  The storage sector last year was not immune to
the slowdowns in capital equipment spending.  Coupled with the
detonation of many dotbomb companies, it's no wonder that the
growth rate has pulled back.  While the stock has had a volatile
ride so far in its short life, it appears now that the direction
is up.  The company reported earnings in April, growing sales by
83 percent year-over-year, with gross margins of over 45 percent.
So despite the slowdown, it appears that MCDT's growth rate
continues to be brisk.  Connecting the highs and lows since
March, we can see that upward trending regression channel which
MCDT has been trading in.  This past week, the stock spent
most of its time in a trading range between support at $36 and
resistance at $40.  While MCDT has pierced the $40 level
intra-day, what we are looking for is a close above this critical
level as a bullish signal.  Another surge over $40 on strong
volume could do it, giving conservative traders an opportunity to
enter this play.  If the stock decides to make a brief pullback,
then aggressive traders may target support at $39, $37.50 and
$37, but make sure that MCDT continues to close above our new
closing stop price of $38.  In both cases, track sector sentiment
be keeping a close watch on sector peers such as NTAP and VRTS.

BUY CALL JUN-35 DMU-FY OI=1040 at $6.10 SL=4.00
BUY CALL JUN-40*DMU-FZ OI=1346 at $3.00 SL=1.50
BUY CALL JUN-45 DMU-FI OI= 619 at $1.35 SL=0.75
BUY CALL JUL-40 DMU-GZ OI=3865 at $5.30 SL=3.50
BUY CALL JUL-45 DMU-GI OI= 228 at $3.60 SL=1.75

SELL PUT JUN-35 DMU-RY OI=1130 at $1.40 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 2.20 mln

MSFT - Microsoft Corporation $70.91 (+2.82 last week)

Microsoft Corporation develops, manufactures, licenses and
supports a wide range of software products for a multitude of
computing devices. Microsoft software includes scalable operating
systems for servers, personal computers and intelligent devices,
server applications for client/server environments, knowledge
worker productivity applications, and software development tools.
The Company's online efforts include the MSN network of Internet
products and services and alliances with companies involved with
broadband access and various forms of digital interactivity.

As a key component in the NASDAQ as well as the DOW, the health
of the market can in part be measured by activity in this
bellwether stock.  After hitting a bottom at the psychological
support level of $50 in March, Microsoft has since bounced
strongly.  Aggressive rate cuts on the part of the Fed no doubt
played an important role in renewing investor confidence and
sentiment in macro economic conditions.  On a more
company-specific level, excitement over new product introductions
later this year from Bill Gates & Co. are on the forefront of
the minds of shareholders.  A new iteration of MSFT's core
operating system, Windows XP, along with the introduction of an
interactive net-enabled gaming console, the X-Box, has generated
investor interest.  The prospect of a new licensing scheme, along
with business generated from upgrade costs, have filled
shareholders with visions of higher revenue numbers going
forward.  What's more, the anti-trust case, which weighed heavily
on MSFT's stock price last year seems all but forgotten for now.
At this point, the stock is at a technically important point.  A
break above formidable resistance at $72 would not only be a
signal for conservative traders to make a play, but also suggest
that the stock could move quickly to $80.  This would be bullish
not only for MSFT shareholders, but most likely the market as a
whole.  For higher risk players looking to buy on dips, look for
horizontal support at $70.50, $70, our closing stop price of
$69.50, with moving average support from the 5 and 10-dma at
$70.28 and $69.38.  We would advise entering only if Merrill
Lynch's Software HOLDR (SWH) confirms the bounce.

BUY CALL JUN-65 MSQ-FM OI=10682 at $6.90 SL=5.00
BUY CALL JUN-70*MSQ-FN OI=77190 at $3.10 SL=1.50
BUY CALL JUN-75 MSQ-FO OI=73265 at $1.00 SL=0.00
BUY CALL JUL-70 MSQ-GN OI=40564 at $5.30 SL=3.50
BUY CALL JUL-75 MSQ-GO OI= 3513 at $2.85 SL=1.50

SELL PUT JUN-65 MSQ-RM OI=59898 at $0.55 SL=1.00
(See risks of selling puts in play legend)

Average Daily Volume = 44.2 mln

QLGC - QLogic Corporation $58.53 (+4.41 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

Analyst upgrades and highly bullish comments have combined with
technical strength to help shares of QLGC to rise strongly.  In a
report by IDC, QLGC was singled out as the only company to offer
end-to-end Storage Area Network (SAN) infrastructure products, a
market expected to reach $1 billion in revenues by the end of
this year.  Having initiated coverage on QLGC last week, the past
five trading sessions have been productive indeed.  On Monday,
the stock was upgraded by Robertson Stephens from a Long Term
Attractive to a Buy rating.  This combined with a buying spree on
the NASDAQ resulted in a bullish surge of over 14 percent on
almost twice the average daily volume.  Since then, the stock has
retreated slightly and appears to be consolidating, trading in a
narrow range with support just above $58 and formidable
resistance overhead at $62.  At this point, it appears that QLGC
is setting itself up for a charge to the $70 level.  If the
buyers take control, lifting the stock past $60 with conviction,
this could allow conservative traders to enter on strength,
provided that the Philadelphia Semiconductor Index (SOX) confirms
upward momentum.  To protect what has become a nicely profitable
play, we are moving up our closing stop price, from $56 to $57.
Aggressive traders may look for pullbacks intra-day to support at
$58 and $57 as potential entry points, but confirm with volume.

BUY CALL JUN-55 QLC-FK OI=1123 at $6.70 SL=4.50
BUY CALL JUN-60*QLC-FL OI=1669 at $3.90 SL=2.50
BUY CALL JUN-65 QLC-FM OI= 454 at $2.10 SL=1.00
BUY CALL JUL-60 QLC-GL OI=1226 at $7.50 SL=5.25
BUY CALL JUL-60 QLC-GM OI= 593 at $5.50 SL=3.50

SELL PUT JUN-55 QLC-RK OI= 865 at $2.60 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 5.78 mln

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The Option Investor Newsletter                   Sunday 05-27-2001
Sunday                                                      4 of 5

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MIR - Mirant Corp $40.95 (-4.49 last week)

Mirant, incorporated in 1993, is a very competitive global
energy company.  They have an integrated business model with
energy marketing and risk management experience associated with
market price fluctuations.  Mirant has extensive operations in
North and South America, Europe, Asia, and the Caribbean
developing, constructing and running power plants.  They also
sell wholesale electricity, natural gas, and other energy-
related commodities.

Shares of Mirant, which was once known as Southern Energy, began
trading on the Big Board last September.  The stock set a
closing high of $47.20 early Monday on its earnings release.
The stardom was short-lived however, and MIR succumbed to a
typical post-earnings decline.  A $6.25, or 13.2% cut on the
week returned MIR to a precarious position on the charts.  The
technical deviation, or breach of the light support found at the
$42 level, brought MIR to our put list this weekend.  The new
coverage comes despite a new Buy rating and $60 price target
from JP Morgan.  Friday's selling was dynamic at 1.7 times the
norm as investors sliced and diced MIR and other integrated
energy companies like Duke Energy (DUK) and Calpine (CPN).  The
sector weakness instigated by the returning confidence in the
technology stocks provides a great atmosphere to play MIR on the
downside. Ideally, we'd like to see the stock break below $39
and the correlating 30-dma before jumping on MIR; although we
think it'd easily work down to $35 after that.  Look for a
declining market to boost the odds.  In the news, the Atlanta-
based power producer announced on Wednesday that it sold
privately $750 mln of 20-year convertible bonds.  The bonds
carry a coupon of 25% and are convertible into Mirant common
shares at $67.95, a big 51% premium over Wednesday's closing
price of $45.  And in an effort to help the energy crisis in
California, Mirant announced a 19-month agreement with the
California Department of Water Resources (DWR) to provide the
state with 500 megawatts of electricity -- enough power for
approximately 500,000 homes.  Initially, we're setting stops
at the $43 level, and would close positions if MIR settled
above that level.

BUY PUT JUN-45 MIR-RI OI=1602 at $4.50 SL=2.75
BUY PUT JUN-40*MIR-RH OI= 209 at $1.45 SL=0.75
BUY PUT JUN-35 MIR-RG OI= 387 at $0.45 SL=0.00

Average Daily Volume = 2.33 mln


BMY - Bristol-Myers Squibb $54.20 (-1.80 last week)

Bristol-Myers is best known as a leader in the personal care
industry as a producer and distributor of familiar items such
as Clairol and Excedrin.  However the company focuses its
primary efforts on pharmaceuticals, which comprise about 70% of
its total sales.  Cardiovascular treatments, anticancer, and
anti-infective drugs top their research-development list.
Through divisions and subsidiaries they also make baby formula,
nutritional products, and medical devices.

BMY is a stock that never recovered from the March slide.  After
plummeting from the mid-sixties, the $56 and $56 levels had, up
until last week, supported the share price.  However, the
synergy of news that it was selling its Clairol business to
consumer goods giant Proctor & Gamble (NYSE:PG) for $4.95 bln
and a party change in the Senate served as supplementary
catalysts to shake BMY off its support.  BMY and other major
pharmaceuticals like Merck (MRK), Unitedhealth Group (UNH), and
Pfizer (PFE) were already feeling the effects of market
rotation.  A mixed bag of recommendations from Prudential
Securities on seven of the major pharmaceuticals on Wednesday
didn’t raise much of a fuss either.   It was Thursday's dramatic
trading at 2.7 times the ADV and violation of the 5-dma line
that prompted our coverage.  The objective is to target an entry
on a definitive rollover from the current vicinity and ride the
decline as BMY approaches the $52 level.  A break through this
mark might accelerate the downtrend; although it may be better
to lock in gains first.  If the bulls take the market after the
holiday weekend and BMY closes above $55, OI will exit the play.
Across the globe, Dutch food group Numico named Bristol Myers
Squibb, Novartis, and American Home Products (AHP) as possible
bidders to takeover its company.

BUY PUT JUN-60 BMY-RL OI= 2547 at $6.20 SL=4.50
BUY PUT JUN-55*BMY-RK OI=10506 at $2.00 SL=1.00

Average Daily Volume = 5.10 mln

JNPR - Juniper Networks $52.16 (-2.65 last week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  JNPR's flagship product
is the M40 Internet backbone router, which complements the
recently-introduced M20, which is a router built specifically
for emerging service providers.  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.

An abysmal earnings report from ADC Telecom started the
Networking sector off on the wrong foot Friday morning, and it
never really recovered.  Similarly, JNPR fell to the critical
$52 support level early in the day and never really attracted
any buyers.  It was no real surprise to see weakness ahead of
the holiday weekend, and anemic volume was the order of the day
for most stocks.  Sure enough, JNPR only saw 12 million shares
trade hands on Friday, less than 40% of the ADV.  The weak
volume makes it hard to place too much credence in the price
action, and trading next week will be pivotal for our play.  If
the $52 support level fails, the bears will be encouraged to
take a run at support at $50.  Should $50 fail to support the
stock, the bears will likely become more aggressive in the
selling, targeting support at $47 and then $42.  A volume-backed
move below $52 will provide one possible entry strategy,
although aggressive traders can still target new positions on a
failed rally near the level of our stop, now at $55.  We should
see a breakout of the 6-week bearish wedge in the next several
sessions, and the odds favor a move to the downside.  Watch the
Networking index (NWX.X) for continued signs of weakness, as
JNPR will likely follow the broader sector.

BUY PUT JUN-55 JUX-RK OI= 8468 at $5.90 SL=4.00
BUY PUT JUN-50*JUX-RJ OI=14343 at $3.30 SL=1.75
BUY PUT JUN-45 JUX-RI OI= 4786 at $1.65 SL=0.75

Average Daily Volume = 29.1 mln

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Political Change Delivers The Expected Consolidation
By Mark Phillips
Contact Support

Just when the bulls were getting comfortable, along comes a
little political turmoil to rattle their complacency.  In case
you missed the news earlier in the week, Vermont Senator James
Jeffords announced his defection from the Republican party.
Normally this wouldn't be a big deal, but in this case it shifts
the balance of power in the Senate.  Investors weren't sure how
to interpret the news, but in the end, decided the prudent
course of action would be to take some profits off the table
ahead of the 3-day weekend.

Although the major indices ended the week at or near major
support levels, the selling was orderly and came on very light
volume, indicating that there wasn't a mad rush for the exits.
With the changes to the political structure in Washington,
gridlock is the most likely outcome, as it will be harder to get
anything done in the nation's capital.  This is normally good
news for the markets, as it means less government intervention
to influence the orderly conducting of business.

To be fair, by Friday most of the damage from the political
scene had already been done.  The culprit on Friday was the
Durable Goods Orders report, which came in much weaker than
expected at -5.0% vs. expectations of -2.0%.  This raised the
spectre of a delay in the much-hoped-for economic recovery, and
predictably, investors decided to take their profits ahead of
the weekend.

For the record, the DJIA finished the week at 11005, just above
the critical 11,000 support level, while the NASDAQ Composite
closed at 2251, just above its own pivotal 2250 level.  Volume
on both the NYSE and the NASDAQ on Friday was anemic; just what
we would expect in front of the holiday weekend.  If we can hold
these levels next week, it could provide a nice springboard for
a rare summer rally.  Of course, I would be remiss in my duties
if I didn't point out that earnings warnings should start to
flow freely again next week.  Didn't we just go through this?
Yep!  I for one am hoping that it isn't as bad as the dismal
process we went through last quarter.  Another record quarter
for warnings will not be good for our fledgling recovery, and
would likely send the indices below critical support faster than
you can say

Fear is still dissipating in the market, and we need look no
further than the VIX for confirmation of that fact.  Despite
broad-based selling over the past few days, our trusty fear
index continued to walk lower this week, coming to rest at
23.15.  A quick look at the daily chart confirms we haven't seen
it this low since early October.  We are now approaching levels
where initiating new long-term positions becomes more risky, as
investors are becoming less fearful and more bullish.

You can see this lack of fear in several of our Watch List plays
such as Brocade Communications (NASDAQ:BRCD), Siebel Systems
(NASDAQ:SEBL) and Verisign (NASDAQ:VRSN).  These plays are way
above our entry targets, but you'll notice that I have not moved
any of the targets this week.  I expect some weakness before the
next leg of the rally, and one of the key components to my ideal
entry strategy will be an increase in the level of fear in the

The current rally has been fueled by interest rate cuts (none of
which have shown up in the economy yet) and the HOPE of a
second-half economic recovery.  The upcoming earnings warning
season has the potential to cause a lot of damage if investors
begin to lose faith in the highly advertised recovery.  Buying
the dips seems to be back in vogue, which allows us to initiate
positions on our own terms without getting sucked into chasing
our favorite stocks higher.  The current recovery is tenuous
enough that we should continue to be rewarded for our patience.

This week marks a milestone for the LEAPS column, as we are
finally closing out the old Playlist.  The last resident of that
list found its way onto the Drop list this weekend, due in large
part to the political uncertainty mentioned above.  Calpine
(NYSE:CPN) has been deteriorating for several weeks, and the
decline this week sealed its fate.  The risk/reward on the play
no longer looks favorable and we have also removed it from the
Watch List.

There were a couple other interesting developments this week
that are worth mentioning.  General Electric (NYSE:GE) drew the
wrath of sellers late in the week after making an offer to
provide financial assistance to troubled load provider Finova
Group (NYSE:FNV).  GE fell right through our entry target,
ending the week just below the critical $50 level.  We now need
to wait for a recovery through the $51 level before taking a
position.  Then there was poor old EMC Corp. (NYSE:EMC), which
drifted lower all week, ending well below our entry target.
While the play still looks good, we need to see it regain the
upper side of $40 before we nibble on new positions.

One other development to keep your eye on next week is the
developing weakness in shares of Wal-Mart (NYSE:WMT).  Last
week's fledgling rally was clipped right at the descending
trendline, and Friday's loss placed the stock just fractionally
above our $51 stop (also the site of the 50-dma).  A close below
this level will be cause for ejection of the play from our

So where do we go next week?  Although it sounds like a broken
record, I think the best approach is patience.  The major
indices are at critical levels of support and the VIX indicates
an absence of fear.  If support holds, it should pave the way
for the next leg higher.  But if support fails, our patience is
likely to be rewarded, as the ensuing weakness could provide
entry points on several of our most coveted plays.  Our action
plan (entry targets) is in place and now we need to wait for
the market to give us that for which we have asked.

One final thought before I wind this up.  We all enjoy these
three-day weekends, but take some time over the next few days to
reflect on the significance of Memorial Day.  If not for the
sacrifices of those that gave their lives to defend our country,
I doubt we would have this incredible opportunity to pursue our
own financial freedom as we do.  I, for one, am very grateful!

Stick to your plan and have a safe a profitable week!

Mark Phillips
Contact Support

Current Playlist (Old Format)


CPN    01/21/01  JAN-2002 $ 40  YLN-AH   $10.50   $14.10    34.29%
                 JAN-2003 $ 40  OLB-AH   $15.38   $18.60    20.98%

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  CLX-AG  $ 3.50  $ 3.50    0.00%  $ 30
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.10    0.00%  $ 30
GENZ   03/23/01  '02 $ 85  GZQ-AQ  $24.50  $31.50   28.57%  $ 99
                 '03 $ 90  OZG-AR  $27.75  $40.10   44.50%  $ 99
SWS    03/22/01  '02 $ 18  YWF-AT  $ 4.10  $ 6.50   58.54%  $ 20
                 '03 $ 20  VWZ-AD  $ 5.00  $ 7.40   48.00%  $ 20
WM     03/22/01  '02 $33.8 BWT-AY  $ 4.00  $ 5.10   27.50%  $ 32
                 '03 $33.8 OBN-AY  $ 6.13  $ 7.60   23.98%  $ 32
WMT    03/23/01  '02 $ 50  WWT-AJ  $ 7.00  $ 7.30    4.29%  $ 51
                 '03 $ 50  VWT-AJ  $11.00  $11.30    2.73%  $ 51
JWN    03/30/01  '02 $ 20  JWN-AD  $ 1.65  $ 2.05   24.24%  $17.50
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.80   15.15%  $17.50
GS     04/05/01  '02 $ 90  GS -AR  $14.00  $18.90   35.00%  $ 91
                 '03 $ 90  VSD-AR  $20.50  $28.10   37.07%  $ 91
MU     04/05/01  '02 $ 40  MU -AH  $10.60  $ 9.40  -11.32%  $ 38
                 '03 $ 40  VGY-AH  $14.80  $14.70  - 0.68%  $ 38
NOK    04/06/01  '02 $ 25  WIK-AE  $ 4.70  $ 9.40  100.00%  $ 29
                 '03 $ 25  VOK-AE  $ 7.00  $12.00   71.43%  $ 29
FON    04/09/01  '02 $ 25  WO -AE  $ 2.80  $ 1.60  -42.86%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 3.60  -18.18%  $ 19
QQQ    04/25/01  '02 $ 40  WD -AN  $11.10  $12.80   15.32%  $ 45
                 '03 $ 45  VZQ-AS  $12.30  $13.90   13.01%  $ 45
DELL   04/27/01  '02 $ 25  WDQ-AE  $ 6.20  $ 5.80  - 6.45%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 8.90  - 1.11%  $ 23
ADBE   05/16/01  '02 $ 40  AEQ-AH  $11.00  $12.20   10.91%  $ 37
                 '03 $ 40  VAE-AH  $14.60  $17.70   21.23%  $ 37
AOL    05/16/01  '02 $ 55  AOO-AJ  $ 9.60  $ 9.40  - 2.08%  $ 48
                 '03 $ 55  VAN-AJ  $14.60  $14.50  - 0.68%  $ 48
NXTL   05/25/01  '02 $ 20  WFU-AD  $ 3.40  $ 3.40    0.00%  $ 15
                 '03 $ 20  VFU-AD  $ 5.80  $ 5.80    0.00%  $ 15

LEAPS Watchlist

Current Possibles


GE     03/25/01  $50-51        JAN-2002 $ 53  WGE-AX
                               JAN-2003 $ 55  VGE-AK
TXN    03/25/01  $36-37        JAN-2002 $ 40  TXN-AH
                               JAN-2003 $ 40  VXT-AH
EMC    04/22/01  $39-40        JAN-2002 $ 45  EMC-AI
                               JAN-2003 $ 45  VUE-AI
SEBL   04/22/01  $41-42        JAN-2002 $ 45  YDS-AI
                               JAN-2003 $ 45  OIE-AI
VRSN   04/29/01  $50-51        JAN-2002 $ 50  YXO-AJ
                               JAN-2003 $ 55  OVX-AL
LRCX   04/29/01  $27-28        JAN-2002 $ 30  WMJ-AF
                               JAN-2003 $ 30  VPC-AF
BRCD   05/13/01  $40-41        JAN-2002 $ 45  UBF-AI
                               JAN-2003 $ 45  OMW-AI
QCOM   05/20/01  $60-61        JAN-2002 $ 65  AAO-AH
                               JAN-2003 $ 70  VLM-AN
BRCM   05/27/01  $35-36        JAN-2002 $ 40  WGJ-AH
                               JAN-2003 $ 40  OGJ-AH

New Portfolio Plays

NXTL - Nextel Communications $17.30

Pre-holiday weakness gave us just the entry point we were
looking for as NXTL bounced from the $17 level several times
over the past 2 days.  Although none of the bounces were
particularly strong, the fact that the broad market weakness
couldn't drag the stock lower speaks to relative strength, which
should help attract buyers next week.  It has been encouraging
to see the stock hold above the $17 level while the daily
stochastics has cycled down into the oversold region on light
volume.  Provided there aren't any unpleasant developments in
the Wireless sector over the next several days, we should see a
resurgence of buyers propel our play up towards the $20
resistance level, especially if the NASDAQ bulls return from the
long weekend in a buying mood.  Support looks firm near $15.25,
so we are starting out with a fairly tight stop at $15.  A close
below this level would cause us to question the premise of our
play and exit the position prematurely.  A renewed bounce from
the $17 level still looks attractive for new entries, but only
if confirmed by solid buying volume and strength in the broad
technology sector.

BUY LEAP JAN-2002 $20.00 WFU-AD $3.40
BUY LEAP JAN-2003 $20.00 VFU-AD $5.80

New Watchlist Plays

BRCM - Broadcom Corp. $39.35

A lack of selling and hints of improving conditions within the
Semiconductor sector, has us eyeing BRCM as a long-term recovery
candidate.  As a leading provider of integrated silicon
solutions for the broadband voice, video and data transmission
markets, BRCM is positioned to benefit as the capital spending
freeze begins to thaw in the second half of the year.  Despite
weakness ahead of the Memorial Day weekend, the Semiconductor
index (SOX.X) held above the important $650 support level, and
the NASDAQ Composite managed to hold onto support at 2250.  BRCM
has improved significantly since early April, due in large part
to the Fed's aggressive policy of cutting interest rates.  After
BRCM failed to hold above the $48 resistance level last week,
investors began harvesting profits ahead of the long weekend.
It looks like an attractive entry point is in the making, and we
are targeting the $35-36 support level for new positions.  In
addition to historical support, we have the 50-dma, (resting at
$35.84), and it looks like we could get a bounce near this level
about the time the daily Stochastics oscillator finishes its
current decline into oversold territory.  Watch the SOX for
confirmation of sector strength, and look to initiate new
positions when BRCM bounces from support with the assistance of
solid buying volume.

BUY LEAP JAN-2002 $40.00 WGJ-AH
BUY LEAP JAN-2003 $40.00 OGJ-AH


CPN $49.00 Political changes in Washington have cast a cloud of
uncertainty over energy stocks in recent days and CPN was hit
with heavy selling all week.  Although it looked like it might
be setting us up for an entry point on Thursday, the continued
selloff on Friday really changed the character of the play.
Sellers cut through the $50 support level as though it weren't
even there, and we now have a rollover on the Stochastics
oscillators in both the daily and weekly timeframes.  With the
technical violation coming on heavy volume, the risks of the
play now outweigh the potential rewards.  We are removing CPN
from the old playlist and the Watch List this weekend.

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

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The Option Investor Newsletter                   Sunday 05-27-2001
Sunday                                                      5 of 5

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Trading Basics: Position Adjustments and Averaging
By Mark Wnetrzak

One of our readers requested some guidelines for "averaging" a
position.  By definition, averaging is the practice of purchasing
the same security at various price levels, thereby arriving at a
higher or lower average cost.  Averaging down is the more common
tactic among novice investors, as it seems like an excellent way
to lower the cost basis in an issue.  Likewise, the technique is
also used by professional fund managers to reduce the cost-per-
share in a bearish market but they also add-to portfolio holdings
on a regular basis to increase profits in a bullish market.

Surprisingly, it is better to "average up" than to "average down."
This activity is contrary to the one ordinarily recommended in
investing manuals; that being the practice to "buy and hold," and
then buy more on a decline.  From an emotional standpoint, it is
natural to rationalize this strategy as it offers a more favorable
entry opportunity than that of the original position.  But, it is
far more productive to consider that any increase in exposure to a
specific market is similar to entering the initial position; thus
it must be assessed based on its current merits.  The question to
ask before adding to a losing position is whether the recent price
action warrants additional portfolio capital.  That question can
only be answered after careful study of the prevailing conditions,
both technical and fundamental.  Of course, the notion that buying
additional stock at a lower price in a long position improves the
overall cost basis often overshadows the fact that this benefit is
at the expense of the new shares.  In simple terms, the existing
position cannot be averaged without producing a similar effect on
the more recent purchase and the end result has a relative benefit
only when viewed with regard to the original position.

For most investors, the strategy of "averaging down" can be very
successful in the long-term but the purchase of additional shares
should never considered if the added exposure is not justified by
the current outlook for the issue.  Indeed, to "buy down" requires
strong will and deep pockets, and financial self-destruction is a
common outcome for those who possess both attributes.  At the same
time, there are savvy market players that "buy and hold," then
"add-to" and finally sell for a profit.  This class of traders is
schooled in the science of systematic investing and the art of
accumulation of wealth over time.  They have acquired the virtue
of patience, entering the market prudently with a long-term outlook
that is untroubled by its cycles and fluctuations.  Investors of
this nature buy in depressed times with the idea of profiting
through a widespread recovery in the economy, which leads to higher
equity values.  These astute participants are contrarians who view
the infrequent lulls as an opportunity to increase their holdings
at attractive prices.  They purchase issues that have the potential
to grow exponentially when the market turns upward and they add to
their positions at regular intervals to even out the troughs and
peaks, accruing wealth over time in a methodical, organized manner.

Regardless of the manner in which you approach the stock market,
it is important to devote only the amount of capital that is
within the proper limits of your investing portfolio.  When in
doubt, limit the size of the initial position until a favorable
trend is well established.  After the position is in place, have
the courage to accept a loss and act promptly at the first sign
of danger.  The most important lesson to learn is that each issue
should be constantly evaluated both fundamentally and technically
to determine if it merits your investment capital.  You have to
ask, "If I were considering this stock for the first time today,
would I buy it?" If not, sell it and move your assets to a more
favorable investment.  Learning to manage the situation (keeping
the losses to a minimum) is one of the most important aspects of
successful investing and that's a subject we'll discuss further in
next week's edition.

Good Luck!

Note:  Margin not used in calculations.

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

NPIX   10.00  13.50   JUN  10.00  1.15  *$  1.15  11.3%
OSUR   10.24  11.97   JUN  10.00  1.00  *$  0.76   8.9%
VOXX   10.09  10.16   JUN  10.00  0.95  *$  0.86   8.2%
STOR   19.27  19.40   JUN  15.00  5.40  *$  1.13   7.1%
APHT   20.00  22.63   JUN  17.50  3.50  *$  1.00   6.6%
SPWX   15.70  14.97   JUN  12.50  3.90  *$  0.70   6.4%
FNSR   20.98  20.69   JUN  15.00  7.00  *$  1.02   6.3%
CELG   22.99  28.03   JUN  20.00  4.00  *$  1.01   5.8%
STLW   13.01  13.25   JUN  10.00  3.50  *$  0.49   5.6%
WEBX   16.20  20.00   JUN  12.50  4.30  *$  0.60   5.5%
MEDX   26.30  28.11   JUN  22.50  4.80  *$  1.00   5.1%
NEM    20.98  21.97   JUN  20.00  2.00  *$  1.02   4.7%
AFCI   17.70  21.04   JUN  15.00  3.40  *$  0.70   4.3%

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


Aremissoft (NASDAQ:AREM) recovered above our cost basis this week,
offering a less painful exit for anyone remaining in the issue.
I would rather wait on the sidelines until the contract dispute
is resolved, not to mention the lawsuits.  Also, keep an eye on
Audiovox (NASDAQ:VOXX) as it consolidates towards its 50-dma at
$9.50.  Gold dropped this week and analysts believe the current
rally will not hold.  It's time to keep a close watch on Newmont
Mining (NYSE:NEM) as it moves towards support.

Positions Closed:

Aremissoft (NASDAQ:AREM)


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

ABMD   25.60  JUN 22.50   IBU FX  4.00 96    21.60   20    6.3%
ALXN   26.02  JUN 22.50   XQN FX  4.40 31    21.62   20    6.2%
CYGN    7.79  JUN  7.50   YNQ FU  0.75 1046   7.04   20    9.9%
MCDTA  31.95  JUN 25.00   MQG FE  7.90 84    24.05   20    6.0%
MRVC   12.35  JUL 10.00   VQX GB  3.20 1192   9.15   56    5.0%
PGNX   20.16  JUN 17.50   GUB FW  3.20 64    16.96   20    4.8%
SBYN   15.28  JUN 12.50   QYS FV  3.20 30    12.08   20    5.3%

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

CYGN    7.79  JUN  7.50   YNQ FU  0.75 1046   7.04   20    9.9%
ABMD   25.60  JUN 22.50   IBU FX  4.00 96    21.60   20    6.3%
ALXN   26.02  JUN 22.50   XQN FX  4.40 31    21.62   20    6.2%
MCDTA  31.95  JUN 25.00   MQG FE  7.90 84    24.05   20    6.0%
SBYN   15.28  JUN 12.50   QYS FV  3.20 30    12.08   20    5.3%
MRVC   12.35  JUL 10.00   VQX GB  3.20 1192   9.15   56    5.0%
PGNX   20.16  JUN 17.50   GUB FW  3.20 64    16.96   20    4.8%

Company Descriptions

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

ABMD - Abiomed  $25.60  *** Starting The Next Leg Up? ***

Abiomed (NASDAQ:ABMD) is a leading developer, manufacturer and
marketer of medical products designed to assist or replace the
pumping function of the failing heart.  The company's first
generation AbioCor Implantable Replacement Heart is in an
advanced stage of development and preparation for initial human
trials.  Abiomed currently manufactures and sells the BVS, a
heart assist advice for the temporary support of all patients
with failing but potentially recoverable hearts.  Last week,
Abiomed reported earnings that revealed product revenues
increased 20% to $22.0 million in fiscal 2001.  The BVS is
demonstrating that it is the most successful device in the
treatment of patients for reversible heart failure.  Investors
are looking to the future since Abiomed received permission
from the FDA to commence initial clinical trials with the
AbioCor Implantable Replacement Heart.  A reasonable cost
basis from which to speculate on the company's future.

JUN 22.50 IBU FX LB=4.00 OI=96 CB=21.60 DE=20 TY=6.3%

ALXN - Alexion Pharmaceuticals  $26.02  *** Stage I Entry ***

Alexion Pharmaceuticals (NASDAQ:ALXN) develops products for the
treatment of heart disease, and inflammation, diseases of the
immune system and cancer in humans.  The company's lead product
candidates are genetically altered antibodies that target specific
diseases that arise when the human immune system induces undesired
inflammation in the human body.  Alexion suffered over the last
year on concerns over mixed trial results and their resistance
to partnering with a major pharmaceutical developer.  There is
some speculation that Alexion is now undervalued as it is trading
above its cash value.  Investors may simple be interested in the
potentially promising products under development, including some
treatments for rheumatoid arthritis, multiple sclerosis, and also
xenotransplantation rejection.  We simply favor the formation of
a Stage I base on improving technicals with support near our cost
basis.  Don't forget to do your homework!

JUN 22.50 XQN FX LB=4.40 OI=31 CB=21.62 DE=20 TY=6.2%

CYGN - Cygnus $7.79  *** New Product Receives FDA Approval ***

Cygnus (NASDAQ:CYGN), headquartered in Redwood City, California,
develops and manufactures non-invasive diagnostic medical devices,
utilizing proprietary biosensor technologies to satisfy unmet
medical needs cost-effectively.  Cygnus' current efforts are
focused on the GlucoWatch Biographer and enhancements thereto.
In March, Cygnus doubled its value after the FDA granted the
company approval to market its GlucoWatch. Biographer as a
prescription device for adults with diabetes.  The GlucoWatch
Biographer is the first and only monitoring system that provides
glucose readings automatically and non-invasively, up to three
times an hour, day or night.  This could represent a major step
forward in the management of diabetes.  Investors are looking
towards a profitable future as Cygnus prepares to commercialize
this revolutionary product in the U.S. and other countries.

JUN 7.50 YNQ FU LB=0.75 OI=1046 CB=7.04 DE=20 TY=9.9%

MCDTA - McDATA (Class A) $31.95  *** Own This One! ***

McDATA (NASDAQ:MCDTA) is a provider of high availability storage
area network director switching devices that enable enterprises
to connect and centrally manage large numbers of storage and
networking devices.  McDATA designs, develops, manufactures and
sells switching devices that enable enterprise-wide storage area
networks.  The company's products enable business enterprises to
cost-effectively manage growth in storage capacity requirements,
improve the networking performance of their servers and storage
systems and scale the size and scope of their SAN or information
infrastructure while operating data-intensive applications on the
SAN.  MCDTA has established an excellent upward trend with solid
buying pressure and good volume.  The cost basis in this position
is near a recent support area and offers a low-risk entry point
in the issue.

JUN 25.00 MQG FE LB=7.90 OI=84 CB=24.05 DE=20 TY=6.0%

MRVC - MRV Communications  $12.35  *** Networking Sector ***

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.  Networking stocks have
found new buying support in recent weeks and MRVC is one of the
more popular issues among speculative investors.  Those of you
who want to own a solid company in the group can use this (July)
position to establish a favorable cost basis in the issue.

JUL 10.00 VQX GB LB=3.20 OI=1192 CB=9.15 DE=56 TY=5.0%

PGNX - Progenics  $20.16  *** Rally Mode! ***

Progenics Pharmaceuticals (NASDAQ:PGNX) is a biopharmaceutical
company focusing on the development and commercialization of
innovative products for the treatment and prevention of cancer
and viral and other life-threatening diseases.  The company
applies its immunology expertise to develop biopharmaceuticals
that induce an immune response or that mimic natural immunity
in order to fight cancers, such as malignant melanoma, and viral
diseases, such as HIV infection.  The company's recent product
candidates include GMK, a therapeutic vaccine for the treatment
of melanoma; MGV, a vaccine for the treatment of various cancers;
and PRO-542 and PRO-367, which are therapeutic products designed
to block HIV.  Progenics recently announced that in pre-clinical
studies, their experimental prostate cancer vaccine generated a
favorable response and they have also initiated an international
Phase III trial with its GMK vaccine to prevent the relapse of
malignant melanoma, the deadliest form of skin cancer.  Traders
are supporting the latest rally with excellent volume and this
position offers a low-risk cost basis from which to speculate
on PGNX's new drug products.

JUN 17.50 GUB FW LB=3.20 OI=64 CB=16.96 DE=20 TY=4.8%

SBYN - SeeBeyond  $15.28  *** Entry Point! ***

SeeBeyond (NASDAQ:SBYN) enables the seamless flow of information
within and among enterprises in real time.  The SeeBeyond eBI
Suite offers a rapidly deployable and infinitely scalable
infrastructure for application integration, B2B connectivity
and business processes optimization.  SeeBeyond continues to
expand its operations with several new partnerships and is
growing its customer base in the Asia Pacific region.  Several
recent alliances and contracts, including a major deal with GM
have garnered additional investor interest in the company.  From
a technical viewpoint, a short-term, as well as a longer-term
"double-bottom" formation is evident and this position offers a
favorable entry point for those investors who are bullish on
SeeBeyond's future.

JUN 12.50 QYS FV LB=3.20 OI=30 CB=12.08 DE=20 TY=5.3%



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

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

WEBM   31.68  JUN 30.00   UUW FF  4.10 1491  27.58   20   13.3%
PRCS   27.10  JUN 22.50   FGU FX  5.70 25    21.40   20    7.8%
DTHK    8.74  JUL  7.50   DTU GU  2.00 0      6.74   56    6.1%
LMNE    6.16  JUL  5.00   ULN GA  1.65 793    4.51   56    5.9%
MCAF   12.02  JUL 10.00   CFU GB  2.90 70     9.12   56    5.2%
AVGN   20.60  JUN 17.50   GKU FW  3.60 30    17.00   20    4.5%

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


Naked Put Percentage List
By Matt Russ

Stock  Stock  Strike Option  Option Margin Percent Support
Symbol Price  Price  Symbol  Price  At 25% Return  Level

BRCD   46.48     50  UBF-RJ    5.10   1162   44%     40
CHKP   61.31     65  KEQ-RM    5.60   1533   37%     54
CIEN   60.34     60  EUQ-RL    3.70   1509   25%     55
CMVT   63.05     65  CQV-RM    5.10   1576   32%     60
CRA    45.15     50  CRA-RJ    5.50   1129   49%     42
EBAY   62.20     65  QXB-RM    5.40   1555   35%     58
FCEL   86.53     90  FQG-RR    8.30   2163   38%     80
IDPH   60.53     65  IHD-RM    5.50   1513   36%     56
IMCL   50.06     55  QCI-RK    6.40   1252   51%     45
ISSX   54.72     60  ISU-RL    6.80   1368   50%     50
KKD    73.55     75  KKD-RO    6.70   1839   36%     66
KLAC   56.61     55  KCQ-RK    2.65   1415   19%     50
MERQ   67.55     70  RQB-RN    5.90   1689   35%     58
NVDA   91.70     95  RVU-RS    7.80   2293   34%     85
OPWV   45.38     50  UGE-RJ    5.90   1135   52%     40
PDLI   78.75     75  RPV-SO    7.70   1969   39%     71
QLGC   58.53     60  QLC-RL    4.90   1463   33%     52
SEBL   51.92     55  SGW-RK    4.90   1298   38%     48
VRSN   62.47     65  QVR-RM    5.50   1562   35%     60
VRTS   75.00     80  VUQ-RZ    7.80   1875   42%     72
VRTX   45.45     50  VQR-RJ    5.50   1136   48%     38


Option Trading Basics: Margin and Monthly Yield Explained!
By Ray Cummins

One of our readers submitted some excellent questions concerning
collateral and return-on-investment calculations for naked-puts
and covered-calls.

Dear Ray:

I enjoy your column very much.

I would appreciate it if you let me know how the monthly yield on
the naked puts is calculated along with an example.

Also, the average monthly yield for May for covered calls was
7.06% and 10.47% for selling naked puts.  This is an almost 50%
better return for naked puts.  I have trouble comparing the risk
of covered call writing and naked puts.  However, my gut reaction
is that the risk of the two strategies is comparable.  I would
appreciate your comments on this.

I realize this is only one month but 10.7% compounded monthly
would be 330% for 12 months.  Is the profit from writing "naked"
puts likely to be in that range?



Concerning the margin requirements and monthly yield calculations
for naked puts and covered-calls:

Here is an explanation of the margin and collateral requirements
for common equity-option strategies including "naked" puts.


The margin requirement for writing options is vastly different than
that which is used with stocks.  The margin requirement is simply a
deposit that an investor must provide to guarantee that he or she
will cover any written options in the event they are exercised.
This collateral is a legal requirement and it is a very important
component in your strategy selection because it determines the
overall "return on investment" or ROI.  There are two different
categories of margin requirements with options: Initial Margin and
Maintenance Margin.


The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  Recall that with options,
margin means the cash or securities required to be deposited by
an option writer with his brokerage firm as collateral for the
writer's obligation to buy or sell the underlying interest, or in
the case of cash-settled options, to pay the cash settlement
amount, if assigned an exercise.  The minimum margin requirements
are imposed by the Board of Governors of the Federal Reserve, the
U.S. options markets and other self-regulatory organizations, and
increased margin requirements may be imposed either generally or
in individual cases by various brokerage firms.  The most widely
used margin requirements are based on the regulations at the
Chicago Board Options Exchange:

Writers of uncovered puts or calls must deposit and maintain 100%
of the option proceeds* plus 20% of the aggregate contract value
(current equity price x $100) minus the amount by which the option
is out-of-the-money, if any, subject to a minimum for calls of
option proceeds* plus 10% of the aggregate contract value and a
minimum for puts of option proceeds* plus 10% of the aggregate
exercise price amount. (*For calculating maintenance margin, use
the option's market value instead of the option's proceeds.)


The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
(and the underlying stock) changes, so does the maintenance
margin.  With (short) put options, the margin requirements can
increase when the underlying stock price falls and also when it
rises significantly.  The reason is the manner in which the
collateral amount is determined (with the exchange formula) and
traders should always consider not only the initial margin
requirement, but also the maximum margin needed through the life
of the position.  Option writers occasionally have to meet calls
for additional margin during adverse market movements and even
when there is enough equity in the account to avoid a margin call,
the need for increased collateral will make that equity unavailable
for other purposes.  Consider these facts carefully before you
initiate any "naked" option positions.


As far as the calculations we use to determine collateral and net
return for our Naked-Put positions.  The following explanation will
demonstrate the small mathematical advantage of this technique when
compared to covered-call writing.

Return On Investment (ROI) = Profit / Collateral Requirement.  In
this strategy, profit is the initial premium received for the sold
option.  The collateral requirement is simply the amount of cash or
equity that must be in your account to open the position.  Most
discount/online brokers use the following formula to determine the
collateral  requirement for "naked" puts.  The margin maintenance
per contract is the greater of:

The premium received plus 40% of the underlying issue price, minus
the out-of-the-money amount;

(0.40 * Stock Price + Premium - ( Price Picked - Strike))

- or -

The premium received plus 20% of the underlying issue price;

(0.20 * Stock Price + Premium)

The second formula generally applies when the strike price sold is
significantly below the underlying stock price.

An example:

Stock Price = $29.25
Strike Price Sold = $25
Premium Received = $0.50
Cost Basis = $24.50
The 20% formula requirement = $6.35
The 40% formula requirement = $7.95
Using the greater value of the two formulas, the collateral for
this play is $7.95 per contract.
The Return On Investment (ROI) = $0.50 / $7.95 = 6.29%

To correlate the ROI to a monthly basis, annualize the ROI and
divide by 12.  Using the above example of a 6.29% ROI with an
expiration of 3 weeks (21 days),  calculate the Target Yield as
follows:  6.29 / 21 * 365 / 12 = 9.11%.  The original collateral
requirement is always utilized in the monthly summary, regardless
of the eventual change in stock price.  The final price of the
stock determines the actual profit when that price is below the
sold strike but above the cost-basis.  In any case, the total
profit can never be greater than the initial premium for the sold

As you can see, there is a slight mathematical edge with this
strategy when compared to covered-calls because of the lower margin
maintenance or collateral requirement.  However, the risk is the
same in both techniques; the underlying stock can always fall to $0.

Regarding your last question: Is the profit from naked put writing
likely to be in that range?

No, unfortunately there will always be draw-downs and even one or
two catastrophic (unavoidable) losers.  In fact, the need to limit
large losses and prevent failed plays from significantly eroding
capital should be a dominant theme in any trader's approach to the
market.  In addition, all positions must be reviewed regularly to
ensure that the total portfolio risk is kept to a practical minimum.
Since this is a limited profit strategy, you simply can't afford to
have many losers.  That's why it is so important to monitor each
position on a daily basis and exit those issues that experience a
significant change in character.  Every loss factors into the
overall return, which on average is 4-5% monthly, annualized.
That's slightly better than the covered-call average, due to the
differences in collateral requirements.

Good Luck!

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


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

EXEL   15.97  16.00   JUN  12.50  0.70  *$  0.70  15.6%
VIGN   10.02   9.93   JUN   7.50  0.30  *$  0.30  14.2%
SBSE   23.79  21.54   JUN  20.00  0.65  *$  0.65  11.1%
STOR   21.93  19.40   JUN  15.00  0.45  *$  0.45  10.1%
ILUM   32.01  31.90   JUN  25.00  0.65  *$  0.65  10.0%
NMTC   22.22  23.00   JUN  17.50  0.45  *$  0.45  10.0%
SMTC   31.70  28.36   JUN  25.00  0.60  *$  0.60   9.4%
NFLD   13.50  16.90   JUN  10.00  0.30  *$  0.30   8.7%
AVCI   13.59  13.27   JUN   7.50  0.30  *$  0.30   8.6%
TSAI   12.03  13.08   JUN  10.00  0.30  *$  0.30   8.5%
GLGC   21.05  23.81   JUN  17.50  0.50  *$  0.50   7.8%
APCC   16.83  18.25   JUN  15.00  0.45  *$  0.45   7.3%
PDG    11.05  11.62   JUN  10.00  0.30  *$  0.30   7.1%
GNSS   20.45  27.12   JUN  15.00  0.35  *$  0.35   6.9%
OO     26.00  25.49   JUN  22.50  0.35  *$  0.35   5.2%
SAWS   30.60  24.03   JUN  25.00  0.80   $ -0.17   0.0%

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


Sawtek (NASDAQ:SAWS) warned this week that it expects fiscal 3rd
quarter earnings to fall below Wall Street estimates.  Is it time
to take a small loss or do you believe the news is already priced
in?  We will take the small loss.  Sbs Technologies (NASDAQ:SBSE)
has pulled back to its 150 dma - a key moment.  Tuesday, Semtech
(NASDAQ:SMTC) reported 1st quarter earnings that met expectations,
but warned of a weaker 2nd quarter.  Stephens Inc. downgraded the
company on Wednesday and Banc of America Sec. upgraded on Friday.
Will support hold near our cost basis?  That is the question you
must answer, then act accordingly.  Monitor Placer Dome (NYSE:PDG)
closely as gold is under some selling pressure amid speculation
the current rally will fail.  Now why didn't we just buy calls on
Genesis Microchip (NASDAQ:GNSS)?


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

AMLN   10.85  JUN 10.00   AQM RB  0.60 51     9.40   20   22.3%
DTHK    8.74  JUN  7.50   DTU RU  0.25 20     7.25   20   15.2%
FIBR   13.33  JUN 10.00   QFW RB  0.35 78     9.65   20   17.6%
GENE   13.60  JUN 10.00   GUG RB  0.35 586    9.65   20   17.3%
MCAF   12.02  JUN 10.00   CFU RB  0.30 166    9.70   20   14.8%
PLUG   35.40  JUN 25.00   PQL RE  0.40 1033  24.60   20    8.1%
SEAC   20.37  JUN 17.50   UEG RW  0.50 40    17.00   20   13.2%

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

AMLN   10.85  JUN 10.00   AQM RB  0.60 51     9.40   20   22.3%
FIBR   13.33  JUN 10.00   QFW RB  0.35 78     9.65   20   17.6%
GENE   13.60  JUN 10.00   GUG RB  0.35 586    9.65   20   17.3%
DTHK    8.74  JUN  7.50   DTU RU  0.25 20     7.25   20   15.2%
MCAF   12.02  JUN 10.00   CFU RB  0.30 166    9.70   20   14.8%
SEAC   20.37  JUN 17.50   UEG RW  0.50 40    17.00   20   13.2%
PLUG   35.40  JUN 25.00   PQL RE  0.40 1033  24.60   20    8.1%

Company Descriptions

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

AMLN - Amylin Pharmaceuticals  $10.85  *** Drug Speculation! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is engaged in the discovery
and development of potential drug candidates for the treatment of
metabolic disorders.  The company pioneered research of a hormone
called amylin and is also developing Symlin, a synthetic analog of
the human hormone amylin for the treatment of people with diabetes
who use insulin.  The company's second drug candidate, synthetic
exendin-4, which is a naturally occurring peptide derived from the
salivary secretions of the Gila monster is now in Phase II studies.
The company is also evaluating another drug in for potential use
in the treatment of metabolic disorders relating to cardiovascular
disease.  Amylin shares rallied on Thursday after Lehman Brothers
said the company will present new information from recent clinical
tests at the American Diabetes Association's meeting highlighting
developmental therapies that promote weight loss and reduce the
risk of hypoglycemia among diabetics.  Investors appear to favor
the news and the relatively stable support area near $10 provides
a reasonable risk/reward outlook in this position.

JUN 10.00 AQM RB LB=0.60 OI=51 CB=9.40 DE=20 TY=22.3%

DTHK - DigitalThink  $8.74  *** Bottom Fishing! ***

DigitalThink (NASADAQ:DTHK) provides online learning solutions
designed to address the strategic business objectives of its
customers by helping them to increase employee productivity, sales
channel effectiveness and customer loyalty and satisfaction.  The
company's e-learning environment consists of technologies that it
has designed and created to function as an integrated solution.
The company's business is divided into seven operating segments:
content delivery system, system architecture, course enrollment
options, tracking and reporting systems, tutoring, collaboration
tools, testing and assessment.  There's no public news to explain
the recent activity but a 20% gain in just two sessions warrants a
closer look.  The heavy trading volume suggests that "someone" is
very interested in owning the issue and we will speculate on its
future upside activity with this conservative position.

JUN 7.50 DTU RU LB=0.25 OI=20 CB=7.25 DE=20 TY=15.2%

FIBR - Sorrento Networks  $13.33  *** Awesome Earnings! ***

Sorrento Networks (NASDAQ:FIBR), formerly Osicom Technologies, is
a supplier of end-to-end, intelligent optical networking solutions
for metro and regional applications worldwide.  Sorrento Networks'
products support a wide range of protocols and network traffic over
linear, ring and mesh topologies.  Their existing customer base and
market focus includes communications carriers in the telecom, cable
television, fixed wireless and utilities markets.  The Storage Area
Network (SAN) market is addressed though alliances with SAN system
integrators.  FIBR shares rallied last week after the company's two
operating subsidiaries, Sorrento and Meret Optical rose 130% in the
current quarter.  Sorrento reported first quarter revenues of $13
million, the highest in Sorrento's history, an increase of 179%
over the prior year's first quarter revenues and a sequential
growth of 19% over the fourth quarter of fiscal year 2001.  Those
are great numbers, considering the current economy and investors
have flocked to the issue.  Traders who think the recent rally
will continue can speculate on that outcome with this position.

JUN 10.00 QFW RB LB=0.35 OI=78 CB=9.65 DE=20 TY=17.6%

GENE - Genome Therapeutics  $13.60  *** On The Move! ***

Genome Therapeutics (NASDAQ:GENE) is primarily engaged in the
commercialization of genomics-based drug discovery.  Through the
identification of genes and the characterization of the function of
those genes, the company is seeking to accelerate the discovery and
development of products to treat and diagnose a number of diseases.
The U.S. government has selected the company to participate in a
number of gene discovery programs, including the Human Genome
Project, and the Rat Genome Sequencing Program.  Genome's depth of
experience in the genomics field permits it to be a leader in
creating industrial scale genomics tools for product development.
Shares of GENE rocketed last week after Ladenburg Thalmann raised
its rating on the stock to a "strong buy" and gave it a 12-month
price target of $84.  Analysts said Genome was a leader in using
pathogen genomes to find anti-infective drugs and analysts believe
the company will discover several anti-infective agents with large
potential markets.  The firm also believes Genome is developing
expertise in positional cloning, as demonstrated by its discovery
of a key disease gene in asthma.  Traders who agree with a bullish
outlook for the company can use this play to establish a favorable
cost basis in the issue.

JUN 10.00 GUG RB LB=0.35 OI=586 CB=9.65 DE=20 TY=17.3%

MCAF - McAfee.com  $12.02  *** Microsoft Deal! ***

McAfee.com (NASDAQ:MCAF) provides a range of online computer
management products and services for consumers.  Through its
web site, www.McAfee.com, the company allows consumers to secure,
repair, update and upgrade their PCs.  As an applications service
provider, the company generates revenue by encouraging PC users
to subscribe to its service.  Subscriptions allow users to access
online, version-less PC security and management software, which
the company hosts on its servers.  Shares of the software maker
rallied last week after the company announced it had signed a
strategic alliance with Microsoft.  McAfee said it plans to
integrate its software, including anti-virus, privacy, and
firewall products, with Microsoft's .Net Internet servers.  In
addition, the two companies will also work to integrate McAfee's
software with other web-based software services from Microsoft.
The news is great for McAfee's share value and this position
establishes an acceptable cost basis from which to speculate on
its future movement.

JUN 10.00 CFU RB LB=0.30 OI=166 CB=9.70 DE=20 TY=14.8%

PLUG - Plug Power  $35.40  *** Up, Up and Away! ***

Plug Power (NASDAQ:PLUG) is a designer and developer of on-site,
energy generation systems utilizing proton exchange membrane fuel
cells for stationary applications.  The company's goal is to make
reliable, efficient and safe fuel cell systems at affordable cost
for mass-market consumption.  Plug is now focusing its efforts on
overall system design, component and subsystem integration, and
also quality control processes.  Plug Power's shares jumped to $35
last week after the firm agreed to sell 75 of its commercial fuel
cell systems to an undisclosed public utility for $7 million.  The
deal includes installation, maintenance, training, engineering and
other technical support, and its a great way for the company to
establish its products in the field.  Despite the strong upward
trend, the issue is due for a pull-back.  Target a higher premium
in the position initially, to allow for a brief consolidation.

JUN 25.00 PQL RE LB=0.40 OI=1033 CB=24.60 DE=20 TY=8.1%

SEAC - SeaChange International  $20.37  *** A Big Day! ***

SeaChange (NASDAQ:SEAC) develops, markets and supports products
to manage, store and distribute digital video for television
operators, including cable, broadcast, telecommunications and
other new media companies.  The company's products utilize its
proprietary distributed application software and standard computer
industry components to automate the management and distribution of
video streams including advertisements, movies, news updates and
other video programming requiring precise, accurate and continuous
execution.  The company's digital video products with their unique
electronic storage and retrieval capabilities are designed to offer
higher image quality and to be more reliable, easier to use and
less expensive than analog tape-based systems.  SEAC shares rose
on Friday after UBS Warburg raised its price target on the company
and said they expect SeaChange to report strong revenues this year
as it is progressing well in establishing distribution agreements
with cable operators domestically and abroad.  That's a confident
statement from a popular analyst and we think a cost basis near
$17 is a favorable price at which to own the issue.

JUN 17.50 UEG RW LB=0.50 OI=40 CB=17.00 DE=20 TY=13.2%



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

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

LMNE    6.16  JUN  5.00   ULN RA  0.25 821    4.75   20   24.5%
INKT   10.96  JUN 10.00   KFN RB  0.50 616    9.50   20   19.4%
ISIL   36.00  JUN 30.00   UFH RF  0.75 92    29.25   20   12.5%
WEBM   31.68  JUN 22.50   UUW RX  0.50 100   22.00   20   11.1%
QSFT   36.13  JUN 30.00   QUD RF  0.60 84    29.40   20   10.2%
ITWO   25.75  JUN 20.00    JQ RD  0.35 1698  19.65   20    9.7%

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Traders Take A Day Off!

Friday, May 25

Stocks drifted lower today in light trading ahead of the Memorial
Day Holiday.  Profit-taking in technology issues drove the NASDAQ
30 points lower to 2,251 and the Dow lost 117 points to finish at
11,005.  Unfavorable economic data weighed heavily on the broader
market with the S&P 500 index closing 15 points lower at 1,277.
The NASDAQ had its second slowest day of the year, with only 1.37
billion shares changing hands.  Technology losers outpaced winners
19 to 18.  Trading volume came in at 813 million on the NYSE where
market breadth was marginally negative.  Big Board losers outpaced
winners 16 to 14.  In the bond market, the 30-year Treasury fell
1/32, pushing its yield up to 5.83%.

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

Freemarkets  (NASDAQ:FMKT)	 OCT20C/OCT12P  $15.40   debit  collar
Next Level   (NASDAQ:NXTV)	 SEP17C/SEP7P   $10.75   debit  collar

Today's bearish market activity offered a great opportunity to
initiate our new covered-collars at favorable prices.

Market Activity:

The stock market retreated Friday ahead of the upcoming Memorial
Day holiday.  Investors were less than inspired by the morning's
batch of economic news and Fed chair Alan Greenspan's comments
about the future of the economy.  Speaking before the Economic
Club of New York, the Fed chief said the economic slowdown hasn't
yet run its course and that the central bank is ready to step in
and slash rates again if needed.  Greenspan noted "the period of
sub-par economic growth is not yet over, and we are not free of
the risk that economic weakness will be greater than currently
anticipated, requiring further policy response."  His remarks on
inflation proved reassuring to those concerned about future rate
cuts and after the speech, Ian Shepherdson, chief U.S. economist
at High Frequency Economics, said he now expects the Fed to ease
interest rates by another 50 basis points in the coming months.
Even with optimistic outlook, buying pressure was muted and the
light trading volume suggested there was little interest in new
positions.  The technology group endured profit-taking in every
major segment with networking, Internet, software and hardware
issues pacing the decline.  Semiconductor stocks performed better
than most after Prudential issued a research note on equipment
stocks, upgrading the group to a "strong buy" based on signs of
selective end market stabilization.  Among the blue-chip shares,
Boeing (NYSE:BA), American Express (NYSE:AXP), General Electric
(NYSE:GE), Honeywell (NYSE:HON), Wal-Mart (NYSE:WMT) and Disney
(NYSE:DIS) were the worst performers.  In the broader market, oil
stocks generally traded lower but oil service shares advanced as
analysts issued some positive comments on the sector.  Stocks in
the gold sector were also popular while transportation, retail,
biotechnology, drug and utility issues moved lower.

Portfolio Activity:

Despite the widespread lack of interest in today's market, the
spreads portfolio enjoyed a few favorable surprise as traders
speculated on the small-cap segment.  WatchGuard (NASDAQ:WGRD)
continued its recent technical recovery and Stratos Lightwave
(NASDAQ:STLW) finished higher after announcing a new group of
miniaturized transceivers for next generation Metropolitan area
networking equipment applications.  Visx (NYSE:EYE) was a big
mover, up $1.30 to $21.50 on news of some negative comments about
its main competitor.  Analysts at Dain Rauscher said that Alcon
USA, a producer of unique ophthalmic products and technologies,
may be issuing a recall on its laser system due to unanticipated
laser pulses.  The announcement bolstered optimism in the Visx
product line and some traders believe the company's market share
will increase as a result of Alcon's problems.  In the finance
sector, Providian (NYSE:PVN) was very strong, moving higher in
opposition to the overall sector trend.  On the downside, shares
of bellwether American Express (NYSE:AXP) continued to decline
and we decided to make an early adjustment, in the event of a
continued slump after the holiday weekend.  Our new position is
short at $40 (Put) in July and we sold the (long) JUN-$42.50 Put
to retain a small credit in the overall play.  A recent bearish
candidate, Optimal Robotics (NASDAQ:OPMR) has performed better
than expected and one of our new debit straddles also achieved
profitability today.  Union Pacific (NYSE:UNP) traded as low as
$55 and the move provided a $5.00 closing credit in the neutral
position.  That is a 20% profit after just one week in play and
traders who want to "lock-in" a gain might consider selling the
bearish portion of the straddle to pay for the entire position.
The remaining option will be "risk-free" with unlimited profit
potential; a viable exit strategy, considering the technical
support near the current price.

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

This week, our publishing deadline has been moved to Friday night
so that the OIN's dedicated research staff can spend the holiday
weekend with their families.  Since there will be little time for
extensive research, I decided to provide some favorable straddle
candidates for your review.  Based on the analysis of historical
option pricing and technical backgrounds, these issues meet the
basic criteria for delta-neutral (debit) strategies.  As you know,
profitable straddles are relatively simple to uncover and there
are three common rules to identifying favorable conditions for a
straddle purchase.  First, the trader should select options that
are undervalued (cheap).  Next, the underlying security must have
the potential to move (high or low) enough to make the straddle
profitable.  Finally, the underlying stock should have a history
of multiple movements through a sufficient range in the required
amount of time to justify the overall risk/reward of the straddle.
These stocks have acceptable values in all three categories and
traders who think the volatile trends will continue can profit
from that outcome with neutral outlook positions.  Our opening
targets in each straddle will be slightly lower than the current
quoted prices, to allow for some shrinkage in the premiums over
the long holiday weekend.  Please review each play individually
and make your own decision about the outcome of the position.

MWD - Morgan Stanley Dean Witter  $69.48  *** Broker Revenge! ***

Morgan Stanley Dean Witter (NYSE:MWD) is a worldwide financial
services firm that maintains major market positions in each of
its three business segments: Securities, Asset Management and
Credit Services.  MWD conducts its businesses through several
highly integrated subsidiaries and affiliates.  The company
provides execution, trading and research services to a variety
of clients for listed equity securities, over-the-counter equity
securities, options, Actual Deferral Ratios and a broad range of
fixed income securities.  In addition, MWD provides its clients
with an array of investment and credit products and services,
such as individual retirement planning, individual annuities and
complete defined contribution plan services for businesses,
including 401(k) plans.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUN-70  MFZ-FN  OI=2880  A=$2.40
BUY  PUT   JUN-70  MFZ-RN  OI=2974  A=$2.80

VIA'B - Viacom (class B) $58.00  *** A Calculated Gamble! ***

Viacom (NYSE:VIA'B) is a diversified worldwide entertainment
company with operations, during 2000, in seven segments.  The
Cable Networks segment operates MTV; Showtime; Nickelodeon; VH1;
TNN, and CMT.  The Television segment consists of the CBS and UPN
television networks, 39 owned broadcast television stations and
the company's television production and syndication business.
The Infinity segment operates 184 radio stations through Infinity
Broadcasting, and outdoor advertising properties.  The company's
Entertainment segment includes Paramount Pictures and Paramount
Parks.  The Video segment consists of an approximately 82% equity
interest in Blockbuster.  The Publishing segment publishes and
distributes consumer books and related multimedia products.  The
Online segment provides online music and children's destinations
through Internet sites.

PLAY (very speculative - neutral/debit strangle):

BUY  CALL  JUN-60  VMB-FL  OI=6795  A=$0.75
BUY  PUT   JUN-55  VMB-RK  OI=1638  A=$0.60

RETK - Retek  $39.15  *** Pure Volatility! ***

Retek  (NASDAQ:RETK) provides advanced application software to
help retailers create, manage and fulfill consumer demand.  The
company's software solutions enable retailers to use the Internet
to communicate and collaborate efficiently with their suppliers,
distributors, wholesalers, logistics providers, product brokers,
transportation companies, consolidators and manufacturers.  The
company's advanced predictive capabilities provide forecasts of
consumer demand, and integration between planning and execution
functions enables retailers to respond more rapidly to changes in
either supply or demand.  With regard to its customers, Retek is
primarily focused on retailers with sales of $500 million or

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  JUN-40  QRD-FH  OI=905  A=$2.20
BUY  PUT   JUN-40  QRD-RH  OI=46   A=$3.10

SRNA - Serena Software  $29.25  *** Always Moving! ***

Serena (NASDAQ:SRNA) is a provider of eBusiness infrastructure
software change management, or SCM, solutions.  Serena's products
and services are used to manage and control software change for
organizations whose business operations are dependent on managing
information technology, or IT.  The company's product offerings
support the industry standard IBM mainframe platforms, including
MVS, and are marketed under the brand name Full.Cycle mainframe.
This product suite automates the software application life cycle
and creates an IT environment that facilitates concurrent develop-
ment efforts by separate programming teams, improves process
consistency, enhances software integrity and protects valuable
software assets.  The Full.Cycle mainframe product suite includes
Change Man, Comparex, Merge+Reconcile, OR M+R, StarTool, StarWarp,
Detect+Resolve MainFrame, and Change Transfer.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-30  NHU-HF  OI=160  A=$4.90
BUY  PUT   AUG-30  NHU-TF  OI=39   A=$5.40

TRW - TRW, Inc. $43.56  *** New Trading Range! ***

TRW (NYSE:TRW) is an international company engaged in the design,
manufacture and sale of products and the performance of systems
engineering, research and technical services.  The principal
businesses of TRW and its subsidiaries provide advanced technology
products and services for industry and the U.S. Government in the
automotive, aerospace and information systems markets.  In 2000,
TRW operated its business in seven segments: Occupant Safety
Systems, Chassis Systems, Automotive Electronics, Automotive,
Space & Electronics, Systems and Information Technology and
Aeronautical Systems.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  JUL-45  TRW-GI  OI=480  A=$1.60
BUY  PUT   JUL-45  TRW-SI  OI=20   A=$2.80

HSY - Hershey Foods  $59.76  *** Probability Play! ***

Hershey Foods (NYSE:HSY) and its subsidiaries are engaged in the
manufacture, distribution and sale of consumer food products.
The company produces and distributes a broad line of chocolate
and non-chocolate confectionery and grocery products.  Hershey's
principal product groups include chocolate and non-chocolate
confectionery products sold in the form of bar goods, bagged
items and boxed items, and grocery products sold in the form of
baking ingredients, chocolate drink mixes, peanut butter, dessert
toppings and beverages.

PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-60  HSY-HL  OI=216  A=$2.75
BUY  PUT   AUG-60  HSY-TL  OI=981  A=$2.50


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