Option Investor

Daily Newsletter, Sunday, 06/03/2001

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The Option Investor Newsletter                   Sunday 06-03-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 6-01          WE 5-18          WE 5-11          WE 5-04
DOW    10990.41 + 78.47 11005.37 -296.37 11301.74 +480.43  -129.93
Nasdaq  2149.44 + 38.95  2251.03 + 52.15  2198.88 + 91.45  - 84.10
S&P-100  649.61 +  3.38   658.29 - 10.09   668.38 + 22.95  - 13.31
S&P-500 1260.67 +  4.85  1277.89 - 14.07  1291.96 + 46.29  - 20.94
W5000  11671.40 + 61.20 11849.89 - 73.63 11923.52 +432.18  -195.93
RUT      501.72 +  5.22   508.62 +  2.34   506.28 + 18.92  -  5.53
TRAN    2887.05 - 58.85  2929.20 - 49.75  2978.95 + 99.39  + 10.37
VIX       23.96 -  2.00    23.15 -  1.11    24.26 -  3.22  -   .24
Put/Call    .53              .62              .47              .63

Bovine / Ursa Battle Continues

Directional markets are slightly less common lately than Ally
McBeal making her third pass to an all-you-can-eat buffet. Of the
two I'd say broad market action is far more erratic and slightly
less rational than Fox TV's malnourished starlet. Bulls & Bears
continue to jockey, wager and guess which way equities are
destined next in seesaw fashion.

Yes we saw several sessions sell off from last week into this as
markets dove on bad news, but can you really keep up with market
perception of news being bad or good? One session's negative
economic reports is cause for concern that a recovery is further
away than hoped, while the next interprets negative economic news
as assurance of further rate cuts ahead.

Which is it? Enough already: negative economic news is either good
or bad. Pick a conviction and please convict to it!

We must ask ourselves if "The Market" knows all and precludes
near-term direction. Sometimes I think the market is clueless and
hapless on where to go from here. Price action sure looks that way
to me. If markets were predictive and all knowing, why have we
endured so many extreme gap moves and short-squeeze rallies this

On the subject of news, let's forego what took place on Friday
concerning who announced what and all that. By now anyone who
cares has read the news, seen the news and is quite likely tired
of news. On a personal note I really don't care if analysts are
upgrading or downgrading the chip sector last, which seems to
happen both directions every week these days. I concern myself
only with how the market behaves and what it hints of next. The
rest I'll leave to fundamentalists!

I had to do my weekly/daily chart work for the upcoming sessions
ahead and figured it was just as easy to have you peek over my
shoulder. Care to help me out? Let's go...

(Weekly/Daily Charts: Dow)

O.K. First up is the old index and it wants to blow away that
11,000 level no matter what. From here a strong catalyst is needed
worse than a Mt. Everest climber needs air to do so. Both have
tested high peaks numerous times and now remain in danger of
sudden storms cropping up in the near future that may sweep them
from their respective lofty peaks.

The Dow's weekly chart (left) shows historical resistant strength
of 11,000 and we now see long-term stochastic action topping out
in overbought extremes. This is not my favorite setup from which
to enter bullish plays with reckless abandon... as a matter of
fact I'd be looking for those weekly stochastic values to cycle
down near oversold extremes before betting long-term upside from
here. Bearish plays may be high-odds in the offing.

We also see what could very well be a double-top failure near the
11,400 level which is another less than bullish pattern. The daily
chart (right) offers more upside hope. A steep bull flag channel
has formed over the past eleven days as stochastic values cycled
down near oversold levels now. Could continue down but a pop to
the upside at any time is more likely now than it was back near
11,400 when everything was extended in overbought.

(Weekly/Daily Charts: COMPX)

The Nasdaq appears a bit mixed as well. Weekly chart at left shows
rock-solid resistance at 2250, a point Jim has been speaking of as
the line of declination for weeks now. Stochastic values are
extended but could go higher as well.

Daily chart at right shows stochastic values falling straight down
in bearish fashion and a tiny little three-day bear flag is
shaping up as well. That's a bit brief to make determinations from
but it's all we've got to work with right now. We need to see if
it continues to build from there and will play a break to the
downside as bearish confirmation as well.

(Weekly/Daily Charts: SPX)

The SPX looks feeble at best. Weekly chart shows a seven-week Bear
Pennant forming, stochastic values curling over in bearish fashion
and bearish stochastic/price action divergence as well. Fair for
us to say that isn't an overall bullish setup right now?

The last three days have been forming a neutral wedge over in the
daily chart at right. Again, too brief for conclusions but I'd be
watching for a close below the projected formation as a sign of
continued downside movement from there. Beware intrasession fakes
breaking down and then recovering back within!

(Weekly/Daily Charts: BTK)

Biotechs look better than most for bullish speculators right now.
"Biotech Investor" is an oxymoron, isn't it? Anyway, we gamblers
love this sector and I'd look here for near-term strength in
relation to the previous markets we viewed.

Weekly chart has stochastic values still rising straight up in
healthy fashion, albeit within overbought extreme. Still has room
to run. The descending channel (Bull Flag formation) dating back
to August 2000 for the first time since saw price action close
above the upper confines if ever so slightly.

Better than that, the daily chart at right shows stochastic values
turning up and a clear Bullish Pennant broke out and confirmed
strength on Friday. With a pattern low near 580 and high near 650,
that gives us a 70-point upside target from the break to shoot
for. A break at the 610 area plus 70 index points suggest the BTK
could see 680 level before long.

Up Or Down?
So that's our view of the markets. Mixed to weak in the broad
indexes while certain sectors show strength as usual. My best
guess is we see choppy action (big surprise) with a downward bias
through the summer. Pre-warn will challenge the bulls while June's
upcoming FOMC will challenge the bears.

Make no mistake: traders are now addicted to the "Greenspan Put"
rate-cut injection and will inwardly or outwardly expect the same
once more. That's how addiction goes in hand with denial: the time
will come when no more cuts are in the offing. Companies must
stand on their own PE's to attract actual buyers who intend to
hold for awhile instead of shorts getting squeezed to cover who
can't wait to dump unwanted issues instead. That's the type of
"buying" we've had since January's first Greenspan surprise and it
is not actual investing to base a new bull market from.

We should expect strong volatility, mixed sessions and no clear
trend from here for some time. Past the FOMC could see one
sustained move in either direction. That's the best anyone can
predict right now.

Cheap & Priceless Education
If it weren't for day-trading lately, Wendy would be buying far
fewer shoes. Tough to buy & hold (or short & hold) anything
without getting washed out at stops. Buy & hold is my favorite
trading (allows for plenty of play time) while day trading is not
but we must go where the money is. I'm looking forward to Sunday
night's webcast seminar that will cover many of the fine points to
day trading stocks, e-minis and options. There's still a bit of
room in each session for any last-minute traders who'd like to
join our interactive fun. Details are elsewhere in this

Out Of Retirement
A few weeks ago I retired from writing at OI to focus on work over
at IndexSkybox. Now I'm well rested and I miss you guys! Can I
come back? Will you have me back? Hope so, because I'll see you
again in Monday's Trader Corner.

Last time I left off on the first article of a series that covers
the basics of daily-chart investing using technical studies
similar to the examples we perused above. If interested, you can
find that in the OI Trader's Corner archives or use the hotlink


Two more articles in IS built on from there and my next visit here
will cover using weekly chart studies for buy & hold stocks and
LEAPs as well. Anyone interested in catching up on the middle two
articles are quite welcome to send a blank email to:
austinp@indexskybox.com with "send OI articles" or something like
that in the subject line. I'll forward articles #2 and #3 in the
series in Wordpad format and we'll be all caught up and ready to go
from here in one fell swoop. Fair enough?

As always, I enjoyed my time spent here with you immensely. Look
forward to our next visit and hope you have a prosperous week
while playing the right direction!

Best Trading Wishes,
Austin Passamonte
Contributing Editor

Optimizing Your Day Trading Skills
Online Interactive Seminar This Sunday

Austin Passamonte, Editor of IndexSkybox.com will present
a two hour interactive online seminar on Sunday June-3rd.
He will discuss getting into high-odds trades at the right
time, getting out of successful AND unsuccessful trades.
Also exit points for long term survival and success. He will
teach how to learn without burning in the process, market
timing, stock/index selection, indicators, account management
and the tools needed to do it right.

Click here for more information:


June Online Seminar Calendar

You can take the following seminars without leaving the
comfort of your home or office. They are interactive and
allow you to question the presenter during the presentation.

You do not need any special software to take the seminar but
you must have a 56K Internet connection or faster for best
results and a separate phone for the audio portion.

If you are interested in these seminars please click here
for more information.


Sun Jun-3  Optimize Your Daytrading Skills - Austin Passamonte
Wed Jun-6  Introduction to Technical Analysis - Derek Baltimore
Thr Jun-7  Using Volatility to Pick Stocks - John Seckinger
Sun Jun-10 Advanced Chart Reading & Retracements - Eric Utley
Sun Jun-10 Basic Technical Analysis - Austin Passamonte
Mon Jun-11 Psychology of Trading as a Business - Matt Russ
Tue Jun-12 Starting with Point & Figure Charts - Jeff Bailey
Wed Jun-13 Ask the Analyst - Eric Utley
Wed Jun-13 Basic Option Strategies - Jim Brown
Thr Jun-14 Using Volatility to Pick Stocks - John Seckinger
Thr Jun-14 Basic Candlesticks - Jon Farnlof
Sun Jun-17 7 Steps to Play Picking - Matt Russ/Eric Utley
Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins
Tue Jun-19 Understanding Option Volatility - Matt Russ
Tue Jun-19 Profiting From Failed Technical Patterns - John Seckinger
Wed Jun-20 Chart Patterns, Flags, Pennants, Wedges - Derek Baltimore
Wed Jun-20 Entry Point, Exit Point - Jim Brown
Thr Jun-21 Day-Trading for People WIth Day Jobs - Jon Farnlof
Sun Jun-24 Determining Support and Resistance - Derek Baltimore
Sun Jun-24 Ask The Analyst - Eric Utley
Mon Jun-25 Using Retracement Levels - Matt Russ
Tue Jun-26 Assessing Risk with Point & Figure - Jeff Bailey
Tue Jun-26 Charting, Stage Analysis - Mark Wnetrzak, Ray Cummins
Wed Jun-27 Big Cap Strategies - Jim Brown
Wed Jun-27 Conservative CC/NP - Mark Wnetrzak, Ray Cummins

Click here for a detailed explanation of each:


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Stop Losses based on the option price or the stock price.
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Anything else is too slow!



Market Sentiment
By Russ Moore

Investors closed out the shortened week on an upbeat thanks to a
healthier than expected employment number. Pre-market futures were
looking pretty ugly until a jobless rate of 4.4 percent was
announced. In addition, non-farm payrolls lost only 19,000, far
better than the 30,000 economists had been looking for.

On the surface this data appears to indicate an improving economy.
A peek behind the numbers shows a labor force shrinking by 485,000
people as many simply gave up looking for work.

The other piece of data facing investors was the National
Association of Purchasing Managers Index. Coming in at 42.1, down
from April's 43.2, the number showed the manufacturing sector
still in dire straits with no immediate signs of a turnaround

The DOW struggled a little in the morning session while the NASDAQ
moved along nicely. As the afternoon wore on the blue chip index
caught fire as investors made the choice to focus on the first
piece of data and ignore the other. In the end it was the DOW
posting a 0.7 percent gain and the NASDAQ advancing by 1.8
percent. The NDX enjoyed a very nice move piling on 2.3 percent
and closing nicely above the 1800 mark.

Volume was definitely on the light side as the NYSE only managed
to trade 983 million shares with NASDAQ hitting 1.48 billion.
Market breadth was positive on both boards with the NYSE at 18/13
and the tech index at 22/16.

Tech sectors were showing green with the chips especially strong
as evidenced by the 3.15 percent gain on the SOX index. Biotech,
gold, and drugs were among the other winners. The minus column
featured utilities, natural gas, chemical, oil service and airline

On your mark! Get set! GO! Yes folks, it's warnings season and that
means plenty of volatility and, several key support levels about
to face some stiff challenges. This is the period most dreaded by
the bulls however, if the markets can hold near-term levels i.e.
10,800 on the DOW and 2,050 on the NASDAQ, renewed confidence
would be gleaned and maybe, just maybe, we'd be in for a late
summer or fall rally.

Option Investor Market Sentiment provided by www.Indexskybox.com


Friday 06/01 close: 23.96

Friday 06/01 close: 57.19

30-yr Bonds
Friday 06/01 close: 5.69%

Total Put/Call Ratio: .53

Equity Option Put/Call Ratio: .47

Index Option Put/Call Ratio: 1.18


NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   33.60
Current close: 46.05

Volume/Open Interest
Maximum calls: 50/96,338
Maximum puts : 40/69,297

Moving Averages
 10 DMA 47
 20 DMA 47
 50 DMA 44
200 DMA 64


S&P 100 Index (OEX)
52-Week High:  834.93
52-Week Low:   548.16
Current close: 649.61

Volume/Open Interest
Maximum calls: 680/8,019
Maximum puts : 530/9,582

Moving Averages
 10 DMA  660
 20 DMA  657
 50 DMA  629
200 DMA  696


S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:   1081.19
Current close: 1260.67

Volume / Open Interest
Maximum calls: 1250/43,274
Maximum puts : 1250/45,400

Moving Averages
 10 DMA 1280
 20 DMA 1271
 50 DMA 1218
200 DMA 1328


52-Week High:  11,518.83
52-Week Low:    9,047.56
Current close: 10,990.41

Volume / Open Interest
Maximum Calls: 100/51,297
Maximum Puts   100/72,120

Moving Averages:
 10 DMA 11,068
 20 DMA 11,030
 50 DMA 10,548
200 DMA 10,641


CBOT Commitment Of Traders Report: Friday 06/01
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        +70242     +63916        -68496     -70908

Total Open
Interest %       (+33.61%)  (+31.81%)    (-9.48%)   (-10.01%)
                 net-long   net-long      net-short  net-short

                     Small Specs             Commercials
DJIA futures
Open Interest
Net Value          -4226      -7101          +5812     +8925
Total Open
interest %      (-30.65%)    (-51.65%)      (+16.24%)  (+23.70%)
                 net-short   net-short     net-long    net-long

                     Small Spec              Commercials
Open Interest
Net Value         +2912      +444         -11508    -9946

Total Open
Interest %        (+14.80%)   (+2.24%)     (-18.82%) (-14.87%)
                 net-long   net-long      net-short net-short

What COT Data Tells Us
Indices:.Commercials reduced their net-short positions on the S&P
500 by half a percent while Small Specs added two percent to their
net-longs. We are seeing increasing divergence on both the DJIA
and NASDAQ 100 with Commercials reducing long positions on the
DJIA and adding to their shorts on the NASDAQ 100. Small Specs cut
back dramatically on the DJIA net short positions while adding to
their net-longs on the tech index.

Gold: Commercials are now at a five-year net short extreme, while
small specs are opposed at a five-year net long extreme in full
speculation. Commercials are end users of gold and are hedging
current inventory purchased at lower prices. They seem to feel the
risk/reward clearly lies to the downside in prices right now and
made a dramatic move from accumulation to distribution in the past
four weeks:

5/08: 17,247 contracts net-long
5/15: 13,915 contracts net-short
5/22: 65,250 contracts net-short
5/29: 68,443 contracts net-short

Gold could rally considerably higher this year, but we expect at
least one pullback from current levels based on the action above.

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

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

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

Data compiled as of Tuesday 05/29 by the CFTC.


Please visit this link for Market Posture:


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Stop Losses based on the option price or the stock price.
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Anything else is too slow!



A Cup, Minus the Handle
By Eric Utley

I know that it's summer.  After all, the rivers here in the Rocky
Mountains are a flood with runoff and my allergies are wreaking
havoc on my everyday life.  But, in the spirit of the pursuit of
excellence, I have to send my encouragement to the Colorado

At the risk of upsetting Tony Soprano's crew and, more importantly,
any readers who reside in New Jersey, my bet is on the Avs, baby!

On a heavier note, I would like to send my best wishes to my
ex-colleague, but still good friend, Matt Russ, who departed the
Option Investor crew last week.  If you're out there, Russmeister, I
should tell ya' that Tony Clifton stopped by this weekend with two
banjos, a big plate of sushi and one helluva cough.

On a final note, readers of this column should be interested in
checking out my online seminar next weekend.  I will be
presenting some advanced chart reading techniques that professionals
(Read: Market Makers) use to better manage risk and, more
importantly, increase profits.  The platform that I'll be using
to present the seminar is pretty interesting in and of itself, but
I can assure you that the content of the presentation will be even
better and my aim is to help readers make more money.  If any of my
readers are interested in attending, just follow the link below.

And by the way, that picture is terrible.


Any questions concerning the seminar can be sent to the e-mail
address just below.

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


Alliance Gaming - ALLY

Can you please give us your comments on ALLY?  We received this
as a tip from a friend when it was trading around $23.  Point
and Figure Chart showed it was on an ascending triple top break
out alert.  We also noted that it was in the IBD leisure group
which was position 4 out of 197.  However, we looked at the
candlestick charts and also determined that MACD was rolling
over (down) and the stock seemed to be going up on relatively
lower volume.  We thought that it would not go much higher.
That was 6 points ago!!  We have no position in it at this
time.  If you were looking at this chart now, what would you
do? - Thanks, Gary & Liana

Thanks for the thoughtful question, Gary and Liana.  But I
have to reiterate that I cannot give specific investment
advice per your question: "What would you do."  However, I'll
give you my honest take on Alliance Gaming (NASDAQ:ALLY),
which makes and sells computerized gambling machines and owns
and operates two casinos.

The gaming sector has been hitting on all cylinders recently,
as noted by the fact that Investor's Business Daily (IBD) has
the sector ranked high on its list.  The companies that make the
video gambling machines have been especially strong lately.
Others in the group, similar to what Alliance does, include
International Game Technology (NYSE:IGT), Shuffle Master
(NASDAQ:SHFL) and Anchor Gaming (NASDAQ:SLOT).  You'll note
that shares of the three aforementioned companies are
trading at or very near ALL-TIME highs, including our focus

At its current level, I think there are three ways to play
Alliance.  The first, and perhaps most tedious, strategy
would be to wait for the stock to consolidate its recent
gains.  It looks like shares of Alliance have found a
temporary ceiling at the $30 level, but I don't know how
long they'll stay there.  The stock briefly paused at the
$20 and $25 levels before breaking out to higher prices,
which was probably a function of the psychology of the
market and its leanings towards comfortable numbers, such
as $20, $25 and now $30.  Of course, consolidation is a
function of time, in addition to weeding out the weak longs
in the stock before resuming its ascent.

The second strategy, and possibly the most difficult in
terms of individual psychology, would be to play Alliance
on a pullback to a demand/support level.  As you can see
on the chart below, for quite some time, the 40-dma has
attracted buyers, especially during the dip down to that
level last week.  Going forward, the $25 level, or
thereabouts, should attract buyers if they're still
interested in taking shares of Alliance higher.

The third strategy, in which risk is the most difficult to
manage, is to buy the stock at current levels and hope that
the price and underlying business momentum continues to carry
Alliance higher.  It's very possible that after Alliance's
snapback bounce off its 40-dma last week the stock breaks
out above the $30 resistance level early next week.  If one
were to pursue the momentum-based strategy, and enter at
current levels, I think it would be prudent to take profits
if/when shares of Alliance hit roughly $38.50 - its bullish
price objective according to point & figure, which was
generated in late March.


Energy Conversion - ENER

With the interest in alternative energy, what do you think of
ENER as a medium/long-term investment? - Thanks, Dan

Thanks for the pertinent question, Dan.

I'll be honest, I didn't know much about Energy Conversion
(NASDAQ:ENER) prior to your request, Dan.  But I did make
a few interesting observations during my research, which
I think may be beneficial to my readers.

The company is relatively small ($600 million market cap) and
is as high-tech as an energy company can be.  I've taken the
following company description from Energy Conversion's Web

The company has successfully developed a range of technologies
- including both products and advanced manufacturing processes -
primarily within the fields of energy and information
processing.  Commercialization of the company's proprietary
technologies has proceeded through licensing agreements and
the formation of several manufacturing joints ventures.

From what I gathered, Energy Conversion is the proprietor of
several technologies that, for example, increase the capacity
of a battery, allow for safer storage of hydrogen and is
involved in the further development of fuel cell technology.  Of
course the latter is a popular conversation piece amongst
investors recently due to the energy crisis sweeping the United
States.  Energy Conversion owns the rights to several patents
on its technologies and should receive large royalty payments
if/when its technologies are commercially accepted.  To a
growing extent, its battery technology is gaining acceptance and
the company stands to reap large revenues from that.

My real concern with Energy Conversion and, indeed, those
companies involved in alternative energy businesses, such as
fuel cells, is that most of them have yet to turn a profit.
For its part, Energy Conversion lost above $15 million from
operations in the past year.  And while the company has
enough cash to sustain itself for quite some time, there's
no hiding the fact that it's a money losing operation.

But, like I wrote earlier, if Energy Conversion's technologies
are increasingly adopted, the company will see its revenues
rise and ultimately turn profitable.  The key is to watch
for the adoption of its technologies.

(It wasn't too long ago that the market was infatuated with
the new, new thing in the form of dot coms.  And we all know
how that story ended.  Just be skeptical, that's all!)


HomeStore.com - HOMS

Stock is heading down as expected.  Where do you think would
be support when one should plan to buy? - Thanks, Sunil

As always, thanks for writing in, Sunil.

Recent readers of this column probably have seen a
review of HomeStore.com (NASDAQ:HOMS) once or twice.  I'm
beginning to think that Sunil is an expert on how to trade
this stock and perhaps he can share his insights with the
rest of us.

In the meantime, Sunil, I see demand/support for HomeStore
in the general $23 - $25 vicinity on the point $ figure
chart.  Perhaps that may be the area where the stock traces
its next relative low, if its pattern of higher lows
continues.  In the event that HomeStore doesn't find support
between $23 - $25, I think risk would be pretty easy to manage
with a simple stop.

Then again, the buyers did show up late last week, when
HomeStore bounced from roughly $26.  So, the stock could
very well be defining a new distribution at current levels.


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 June 4, 2001

Auto Sales             May     Forecast:  6.2M    Previous:  6.4M
Truck Sales            May     Forecast:  6.9M    Previous:  6.0M

Productivity-Rev       Q1      Forecast:  -0.7%   Previous: -0.1%
Factory Orders         Apr     Forecast:  -2.7%   Previous:  1.4%
NAPM Services          May     Forecast:   N/A    Previous: 47.1%


Initial Claims         6/2     Forecast:   N/A    Previous: 419K
Wholesale Inventories  Apr     Forecast:   N/A    Previous:  0.1%
Consumer Credit        Apr     Forecast:  $8.6B   Previous: $6.1B


Week of June 11th
Jun 13  Export Prices ex-ag
Jun 13  Import Prices ex-oil
Jun 13  Retail Sales
Jun 13  Retail Sales ex-auto
Jun 14  Initial Claims
Jun 14  PPI
Jun 14  Core PPI
Jun 14  Business Inventories
Jun 15  CPI
Jun 15  Core CPI
Jun 15  Industrial Production
Jun 15  Capacity Utilization
Jun 15  Mich Sentiment-Prel

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The Option Investor Newsletter                   Sunday 06-03-2001
Sunday                                                      2 of 5

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Naked Puts With a Security Blanket
By Buzz Lynn

Afraid to sell naked puts out of fear of assignment of nearly
worthless stock?  I have a solution for you.  It's called a
bullish put credit spread and is a cousin to Jim's style of naked
put trades, but does not require the potential capital outlay of
stock purchases!

Veteran OIN readers who have attended OIN seminars may recall my
propensity to "get naked".  Jim Brown does this too and I assure
you it has nothing to do with a trader's dress code.  It is a
strategy of selling at-the-money (ATM) or slightly out-of-the-
money (OTM) calls (Deep ITM for Jim - he trades delta.  Be sure to
catch his on-line seminar on this very topic.  It is a winner.)
when a stock has bottomed and likely to rise.  Naked puts (and
calls) are the closest thing to "free money from God" that I have
found.  But they carry a boatload of risk with the potential to
submarine your account (and other assets too) if you aren't

Here's how a naked put works.  We want theta or time decay and a
rising stock price to work in our favor against the other guy.
Ideally we are never put the stock and the option expires
worthless to the buyer.  We keep the premium for having taken the

The strategy is to sell puts at the low.  For instance, say that
JDS Uniphase (JDSU) is trading at $180 (remember March 2000?) and
appears to be on its way to $200 by expiration day.  I might have
sold a $180 put (ATM) for $20 in anticipation of the price
continuing up (based on candlesticks, oscillators, and Bollinger
bands), which hopefully would expire worthless as JDSU traded for
$210 on expiration day.

Of course, as I would soon discover, I was ill-prepared for a
meltdown at that time on my naked put positions.  As prices of
stocks began to tumble, I was in real danger of being forced to
pay $180 for what is now a $20 stock (or less - remember I sold a
put in what turned out to be a popped-bubble market, which allowed
the holder to "put it too me" at the $180 strike price).  It was
either that or buy back (cover) the naked puts at a greater price
for a huge loss on the position.

There had to be a better way to accomplish the same thing with
less risk - time decay on the other guy with quantifiable, and
minimal loss of capital if everything went wrong.  That's when I
began to think the credit spread might be a great strategy.

I don't know about you, but getting the benefit of time decay in
my favor with only LIMITED DOWNSIDE RISK (!!) sounds like a no-
brainer to me!  A nice looking technical chart offering a high-
odds entry is the key.

Unlike a naked position, a credit spread isn't as dangerous or
intimidating as you might think.  While it too carries some
downside risk, it is quantifiable and you always know your maximum
loss before you enter the trade.  And you can use a much less
volatile equity - like an index equity - instead of a volatile
tech stock to make steady returns.  You don't need to be a high
wire expert or gunslinger to make this work.  It isn't quite a
"set and forget" trade, but many readers will appreciate that
using this strategy does not require intraday monitoring to yield
success.  It can be monitored and managed once a day after hours
if you like.

Here's how it works.  Take for instance a biotech stock that has
been bucking the trend as of late.  Imclone (IMCL) finally broke
out over its $50 resistance and did so on increased volume - a
decent bullish sign.  So with IMCL now at $53.09 and the new floor
likely to be at $50, let us see how we can make some money on a
credit spread.

We expect that $50 is the bottom and that IMCL will rise from
here, and we want to take advantage of that.  (Again, this is an
example only and is not a recommendation to back up the truck.)

Just like a naked put, we SELL the JUN-50 Put for what seems like
the meager sum of $1.55.  But here's the twist.  Just in case we
are wrong, we simultaneously BUY a lower priced strike for
protection - JUN45 Put for $0.50 - just in case the FDA proclaims
IMCL's cure for cancer causes cancer in laboratory mice, thus
sending the stock to $5 overnight with no chance for us to cover.

The net result is a credit to our account for $1.05 instead of
1.55.  But we have a security blanket in the form of a long put to
counter our losing short put in case of catastrophe.  That little
insurance policy has cost us only $0.50, but has drastically
limited the downside potential.  If you can squeeze the price
between the bid and ask for both sides of the position, the credit
can become even greater.

Just what is the downside potential?  It will always be the
difference in the strike prices minus the credit.  In the case of
IMCL, the difference in strikes is $50-$45, or $5.  The credit is
$1.05.  The maximum loss is $3.95.  Of course, all of this is per

Per contract, that means a profit potential of $105 with a maximum
loss of $395.  $395 per contract also happens to be the margin
requirement since it is the most you can lose.  $105 return
divided by $395 of margin sounds pretty good to me - that is 26.5%
on your margin capital in just two weeks!  You can do this spread
for as many contracts as you like, as long there is an equal
amount of both positions.  That way your short position always
stays hedged with your long position.

Entering the trade is pretty simple.  First, you must be approved
for spread trading with your broker.  Many on-line brokers
actually let you enter the whole position from their interface so
you do not have to leg in one position at a time.  Unfortunately,
Preferred does not have that capability (yet) so the order must be
phoned in, and they will only accept orders of 10 contracts or
more.  Fortunately in this example, 10 contracts requires only
$3950 in cash or marginable securities for the $1050 profit
potential, a figure manageable for many accounts.  You do not
already have to be rich to pull this one off!

The $1.05 credit is ours to keep if IMCL is above $50 on
expiration day, June 15th.  Breakeven occurs at $48.95.  That
occurs if we are put the shares at $50, but have the $1.05 credit
against it for a cost of $48.95.  Anything less than that at
expiration, and the position goes in the red a penny for every
cent under $48.95 all the way to maximum loss of $3.95 per share.
Remember though, we were smart enough to have bought the $45 put
that saves us from further loss even if the stock price goes to
zero!  That is our security blanket!

Naturally, we ought to try to limit losses.  Thus, it may be in
our best interest to buy back the whole position for a cost of
less than $3.95 if the trade gets too far away from us and reaches
our threshold of financial pain.  Each of us must make that
determination for ourselves.  Personally, unless there is a
technical reason to stay in the play with the idea that it will
soon be profitable again, my preference is to close the whole
position when the stock price trades at less than my breakeven
($48.95 in this case).  It is an arbitrary figure that I use to
tell me the play has gone south beyond my expectation and that I
should exit now to avoid maximum loss upon expiration.

One other thing.  While it does not always happen, if we let a
position get too far away from us by hanging on too long, a
position can cost more to close than the loss we would take on
expiration.  In that case, I will let the contracts expire for
maximum loss.  But if I do that, it will always be a painful
reminder that I should have sold too soon.  Don't let the trade
get away from you like that.

Back to the big picture. . .our intention here again is to have
time decay work in our favor to narrow the spread to zero by
expiration and the whole $1.05 will be ours!  Ten contracts of
this trade would ideally yield $1050 if held to expiration for
maximum profit and we would only need to maintain $3950 of margin
to do it.  (Check with your broker as most require a minimum
account size to employ this strategy - Preferred requires $10,000
in cash balance).

Now can you see the profit potential?  Again, the key is time
decay working in your favor.  But with a credit spread, your
downside risk is limited and quantifiable.  You'll sleep much
better at night employing this strategy rather than "getting
naked" and worrying about "accounting irregularities" on the
company in which you shorted puts.

Now you too can get naked with a security blanket!


Diagonal Spreads
By Robert Ogilvie

The definition of a diagonal spread is a combination of both price
and time (calendar) spreads. A pure time/calendar spread consists
of buying a longer-term option (long option) and also selling a
short-term option (short option) with the same strike price. For
example, buy 1 XYZ September 90 Call, Sell 1 XYZ June 90 Call or
Buy 1 XYZ January 2000 90 Put, Sell 1 July 90 Put.  As you can
see, the strike price is the same while the expiration month is
different.  This is called a calendar or time spread.  A price
spread consists of buying an option at one strike price and also
selling an option at another strike price.  For instance, Buy 1
XYZ May 125 Call, Sell 1 XYZ May 130 Call (Bull Call Spread).
Another example of a price spread would be Buy 1 XYZ June 150
Put, Sell 1 XYZ 145 June Put (Bear Put Spread).  I hope that
summary didn't confuse too many people.  A diagonal spread
consists of buying an option at a different strike price and
expiration month than the option being sold (ie. Buy 1 XYZ August
100 Put, Sell 1 XYZ May 90 Put).

Now that I laid down the basics, the diagonal spread that I am
going to concentrate on is a Bullish Call Diagonal Spread.  I
covered this strategy briefly once in another article.  However,
I am going to cover the all the bases.  As the above example
shows, a diagonal spread can consist of either a call or a put.
In addition, the option being sold can either be higher or lower
than the option being bought.

**Note:  If the option sold against the bought (long) option is
a call and is at a lower strike price and nearer term expiration,
it is not covered and will require additional margin.  Inversely,
if the put option sold is at a higher strike price and nearer
term than the long put, it too will require additional margin.
All spreads must be executed in a margin account.

For the purposes of this article, I am only going to cover the
strategy of buying a longer-term call and selling a nearer term
call at a higher strike price.  I will give you the mechanics of
the trade followed by an example of what you should look for
when executing a trade like this and then discuss the options on
closing out the position.

First you need to know the mechanics of this strategy.  We are
looking for a debit that is preferably less than the price
spread.  For instance, a price spread of 10 points (Buy strike
of 50 and sell strike of 60) you want a debit less than $10.  I
like this strategy because I found one main problem with a pure
calendar spread.  The problem occurs when I research and find a
sensational stock and it goes up above the strike price I sold.
The problem results from the deltas of the long and short
approaching one another.  When the delta of the short option
approaches the long options, the value of that option is
accelerating faster than the long term option.  If both options
are in the money when closing out the position, the credit may be
less than the initial debit due to this phenomenon.  One possible
cure is to close out the short side when the stock reaches the
level of the short strike price and sell the next higher strike
in order to help cover the cost of buying back the option.
Another alternative is to close out both legs if the short leg's
delta approaches the delta of the long legs.

The diagonal spread protects me from having to close out the
option I sold because if the stock closes above the sold options
strike, it will be assigned (the stock will be sold at the price
of the sold options strike price).  Then the lower strike option
is exercised.  I will make the difference between the two strikes
(the price spread), less the initial debit.  If the stock doesn't
close above the option I sold (short), then I will sell the
option for the next month and collect the premium for one more
month, and so on until the stock closes in the money.  Sometimes,
if the stock advances in the money before expiration, one can
close out the position for a greater credit than received if
assigned at expiration.  Why?  Because the option you buy in the
money at the lower strike price has a higher delta and therefore,
accelerates faster than the sold option.  Now comes the $64K
question.  "Instead of only buying the call, why did I sell a call
against the one that I bought if I have to pay more for it when I
close everything out?  My answer is if you knew for sure that the
stock was going up, you should have sold you house, car, dog, kids
and loaded the boat with all you had.  Just kidding!  Simply, you
never know how an option trade will pan out.  That is why they call
it speculation.  This strategy allows a little room for error.

A great feature of this strategy is the hedging capabilities.  If
you invest $8000 cash in a $40 stock, you can afford to buy 200
shares of said stock.  If you sells 2 May 45 covered calls for
$1.50 per contract, you will receive $300 initially.  If the
stock advances above $450, you will receive $45 per 200 share upon
assignment of the May option at expiration.  If this occurs, the
maximum profit will be $1300.  Now if you invest in 10 contracts of
August 35 calls for $8 per contract, you will spend the same $8000.
If you sells 10 contracts of the same May 45 calls for $1.50 per
contract, you will receive an initial $1500.  If the stock advances
above $45 per share before expiration, you have an option to close
out the entire position and still have a chance of making a profit
(due to the deltas).  The covered call doesn't have that luxury.
Finally, if the stock closes above $45 on expiration of the May
call, then the May 45 call will be assigned.  This means 1000
shares of stock will be sold.  You must cover the short stock by
either buying the stock at the current market or exercising your
August 35 call.  If you exercise you will be buying the stock at
$35 and selling at $45.  That is a $10 difference multiplied by
1000 shares.  Your total profit is the $10 difference less the
initial debit of $6.50 ($8 - $1.50 = $6.50).  Or $3.50 per
contract ($10 - $6.50).  That is a total gain of $3500.  That is a
little better than the assigned gain of $1300 from the covered
call.  Furthermore, you make an initial return and, if assigned or
closed out previous to expiration, a closing return.  The initial
return, for instance, is achieved when you buy XYZ 60 call @ 11
and sell XYZ 70 call @ 3.  This is a 27.2% initial return.  The
assigned return is 18.2% ($2 profit divided by $11).

To further illustrate this strategy, we are going shopping today
for the least expensive debit on XYZ.  The debit is created when
you pay more for the long-term option than you can sell the
short-term option for. The January options have expired and
February options still have four weeks of premium.  XYZ has
February, May & August expirations.  XYZ is currently trading at
152.  I want the option I am buying to be in the money and still
not be over priced in relation to the short-term option.  First,
we will bargain hunt for the May 150 Calls.  They are trading at
$9 per contract.  The February 155 Calls are trading at $4 per
contract.  This gives a debit of $5 and a price spread of 5.  The
February 160 Calls are trading at $2 per contract.  This is good.
It gives a debit of $7 and a price spread of 10.  But before we
do this trade, lets look at buying the May 145 Calls for 12 and
Selling the February 155 Calls for 4.  This is good too.  It
gives us an $8 debit and a price spread of 10.  I realize I said
that we want the least expensive spread.  But the 145 - 155
spread is only $3 from being in the money while the 150 - 160
spread is $8 from being in the money.  This is up to you!!  In
order to help you make the decision, look at the initial and
potential closing returns as well as the likelihood of
assignment in the near future.  One final note is that it is not
always necessary to find a trade with a debit less than the

There are a few more things to know about this strategy.  One
good thing is that the long-term option's cost basis is reduced.
This allows room for the stock to fluctuate without having to be
overly concerned.  It is necessary to place stops on these
strategies.  One might place the stop at a percentage of the net
debit.  Remember that both sides must be closed out.  Unless you
are cleared for naked options, consider the cost of buying back
the short leg of the spread when calculating your desired stop.
One can only speculate on the price of the short leg when the
stock drops to the stop loss point.  One other strategy is
buying back the short and then selling the same option if and
when the stock advances to safer levels.  If you entered the
position due to technical reasons, then you should exit it if
those reasons change.  I cannot provide all the variables that
can happen and their respective solutions.  As with all
strategies, there are various actions that may be done that I
my not have considered.  If you have any questions, please contact

Access this hyper link to receive a copy of the Characteristics and
Risks of Standardized Options:


Robert John Ogilvie

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

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Call Play of the Day:

AMGN - Amgen Inc $68.58 (+2.71 last week)

See details in sector list

Put Play of the Day:

ISSX - Internet Security Systems $48.02 (-6.69 last week)

See details in sector list

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



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.


No dropped calls this weekend


BMY $56.25 (+2.05) A healthy downtrend looked promising when we
began coverage.  It's unfortunate the downward trend got nipped
in the bud at $51.93.  Friday's sharp reversal in the healthcare
sector effectively took us out of our play on BMY.  A strong
open set the stage for a bullish run.  Our protective stop at
$55 quickly became a dot in the rearview mirror.  The gains were
across the board with major drug companies like MRK and LLY
leading the pack.


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.


CELG - Celgene Corp $30.74 (+2.71 last week)

Celgene Corporation is a biopharmaceutical company that develops
and commercializes human pharmaceuticals and agrochemicals.  The
Company has developed and integrated a large set of proprietary
target and drug discovery technologies to accelerate the
application of genomics to the discovery of new classes of gene-
regulating drugs.  The Company's drug discovery and development
programs are focused in several disease areas in which gene
dysregulation plays a major role in the onset and progression of
disease, including cancer and inflammatory diseases.  Celgene's
lead compound, THALOMID, is in clinical trials for the treatment
of a variety of cancers and is being marketed for the treatment
of ENL, a complication of leprosy.  Celgene is also awaiting FDA
approval for Attenade, a drug to treat attention deficit

An admirable rebound in the Biotech Index (BTK.X) on May 17th
accompanied Celgene's announcement that they plan to pursue a
major trial to further evaluate THALOMID as a potential therapy
for late stage renal cell carcinoman.  The recent news released
from the American Society of Clinical Oncology about novel
treatments for cancer also helped boost the sentiment
surrounding many of the biotech stocks.  Investors lost no time.
Shares of this potentially profitable company were sent into
motion.  A steady climb from the $20 level positioned CELG to
challenge the tough line of resistance at $30.  On Friday, CELG
succeeded in breaking through the subservient trading realms on
1.5 times the ADV.  It's likely the news that Celgene had begun
clinical studies to determine if its THALOMID drug, when
combined with Roche Holding AG's Xeloda, is effective in
treating colorectal cancer generated additional excitement
within the industry.  In recent weeks the volume has been
average to exceptional, so of course look for heavy trading to
incite future gains.  The next objective is to make an unbridled
charge towards $40; although be prepared for some light
resistance in the vicinity of $35.  If the penchant for the
sector remains intact, look for powerful momentum to keep the
BTK.X topside of the climacteric 600 level.  Trading of this
magnitude gives players the green light to jump on CELG in
an advancing market - assuming CELG is not bucking the trend!
We're initiating a protective stop at $25 and will drop coverage
if CELG cannot maintain a position above this mark on a CLOSE.

***June contracts expire in two weeks***

BUY CALL JUN-25 LQH-FE OI= 565 at $6.20 SL=4.25
BUY CALL JUN-30*LQH-FF OI= 681 at $2.40 SL=1.25
BUY CALL JUN-35 LQH-FG OI=  18 at $0.65 SL=0.00
BUY CALL JUL-30 LQH-GF OI=1154 at $3.90 SL=2.50
BUY CALL JUL-35 LQH-GG OI= 913 at $1.85 SL=0.75

Average Daily Volume = 2.16 mln

VRSN - VeriSign, Inc. $56.24 (-6.23 last week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

It's hard to argue with a technology company that is still
growing revenues at a better than 500% annual clip while
blasting through analyst expectations every quarter.  While it
is still an Internet company that has yet to turn a profit,
the company's leading position in Internet security and
Internet domain registrations are keeping it on a healthy
growth path.  Investors are apparently pleased with the
company's performance too as they have pushed VRSN's price
higher by more than 100% since the beginning of April.  As the
price continues to walk higher, supported by the ascending
trendline, more investors come off the sidelines to fuel the
next leg up.  Most recently, VRSN shot up to the $68 resistance
level and has spent the past 2 weeks consolidating its gains
near the $55-56 level, right at the ascending 2-month trendline
and the 30-dma ($55.40).  Daily stochastics are still falling,
so we could see a bit more weakness before VRSN reverses and
heads higher again.  Consider aggressive entries on a bounce
from support at $53, or even our $51 stop level.  VRSN has
been struggling to clear the $58.50 resistance level over the
past few days and more conservative traders may want to consider
new entries as the stock crests this level or better yet
resistance between $60-61.

***June contracts expire in two weeks***

BUY CALL JUN-55*QVR-FK OI= 885 at $4.50 SL=2.75
BUY CALL JUN-60 QVR-FL OI=2349 at $2.15 SL=1.00
BUY CALL JUN-65 QVR-FM OI=2143 at $0.95 SL=0.00
BUY CALL JUL-60 QVR-GL OI= 165 at $5.30 SL=3.25
BUY CALL JUL-65 QVR-GM OI= 132 at $3.50 SL=1.75
BUY CALL JUL-70 XVR-GN OI= 147 at $2.45 SL=1.25

SELL PUT JUN-55 QVR-RK OI=1123 at $3.10 SL=5.00
(See risks of selling puts in play legend)

Average Daily Volume = 8.94 mln

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The Option Investor Newsletter                   Sunday 06-03-2001
Sunday                                                      3 of 5

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AMGN - Amgen Inc $68.58 (+2.71 last week)

Amgen, Inc. is a global biotechnology company that
discovers, develops, manufactures and markets human therapeutics
based on advances in cellular and molecular biology. The Company
manufactures and markets four human therapeutic products, EPOGEN
(Epoetin alfa), NEUPOGEN (Filgrastim), INFERGEN (Interferon
alfacon-1) and STEMGEN (Ancestim).  Amgen uses wholesale
distributors of pharmaceutical products as the principal means
of distributing the Company's products to clinics, hospitals and

Being one of the largest and most profitable biotech companies
in the industry, it's no wonder investors have been scooping up
shares AMGN amid the bullish rotation back into the sector.  The
Biotechnology Index reversal out of its long-term downtrend
demonstrated strength across the board in mid-May.  The
technical strength of BTK.X in recent sessions further exhibits
a positive sentiment going into next week.  And on Friday, the
stock's 3.2% surge closed the gap on the historical resistance
found in the proximity of $67.50.  The breakout of the strong
wedge formation, coupled with the established pattern of higher
lows, suggests AMGN is at another fork in the road.  Look for
AMGN to make a bold move through $70 and challenge the price
levels of last February.  An entry on a pullback might find
traders target shooting for positions at $66.50, near the
supportive 10-dma line.  Otherwise, buy into the momentum as
AMGN shatters the $70 level and rivals like IMCL and DNA are
making their own respective strides.  It'll be important to see
the BTK.X keep rallying above the important 600 level as well.
Be prepared to exit the play if AMGN fails to close above $65.

***June contracts expire in two weeks***

BUY CALL JUN-60 YAA-FL OI= 4033 at $9.10 SL=6.25
BUY CALL JUN-65*YAA-FM OI= 8182 at $4.50 SL=2.75
BUY CALL JUN-70 YAA-FN OI= 9016 at $1.45 SL=0.75
BUY CALL JUL-65 YAA-GM OI=10197 at $6.60 SL=4.50
BUY CALL JUL-70 YAA-GN OI=13328 at $3.40 SL=1.75

Average Daily Volume = 10.4 mln

ITG - ITG Inc $52.25 (-0.49 last week)

ITG is headquartered in New York with offices in Boston, Los
Angeles, Dublin, London, Melbourne, Sydney, Tel Aviv and
Toronto.  As the leading provider of technology-based equity
trading services and transaction research to institutional
investors and brokers, ITG generates superior trading results
for its clients. ITG's services help clients to access
liquidity, execute trades more efficiently and make better
trading decisions.  ITG's cutting-edge trading tools are easy to
use and interface seamlessly with clients' workflow.  As an
electronic broker, ITG differentiates itself with institutional
customers via front-end or desktop services that provide unique
content and connectivity. In the electronic trading marketplace,
through its POSIT system, ITG is the premier confidential stock-
crossing system for the industry.

A whirlwind of activities in recent months that included a
respectable earnings' report, upgrades, industry-wide
consolidation, and a well received IPO by Instinet manifested
the bullish disposition currently effecting shares of this
electronic broker.  We initiated coverage on Thursday evening as
ITG's close had positioned it just below the 50-dma of $50.60.
We advised an aggressive entry on a break above this level on
strong volume.  The trading fairies saw that it came to fruition
following Friday's amateur hour.  The convincing break took
shares of ITG right up to the 10-dma line, which unfortunately
has served as a forerunner to the $55 stubborn resistance.
It'll be important to continue monitoring others in the
financial service industry like INET and IFIN to get the slant
on the investment community; although it appears ITG may very
well run its own course over the short-term.  Keep closing stops
set at $48.

***June contracts expire in two weeks***

BUY CALL JUN-50*ITG-FJ OI=437 at $3.90 SL=2.50
BUY CALL JUN-55 ITG-FK OI= 80 at $1.15 SL=0.00
BUY CALL JUL-50 ITG-GJ OI=526 at $5.60 SL=3.50
BUY CALL JUL-55 ITG-GK OI=146 at $3.20 SL=1.50

Average Daily Volume = 234 K

CEFT - Concord EFS Inc $50.50 (-0.10 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

The warm fuzzy feeling surrounding CEFT eased a bit last week as
the share price consolidated at its 52-week highs.  And no one
should balk at that, CEFT's had a great run!  Volume's remained
robust throughout the consolidation period; and going forward,
it's definitely a healthy sign that the buying lulled.  It gives
the upward dynamics a chance to replenish as well as demonstrate
its ability to stay afloat of the psychological $50 level.  At
this point in the play, let's be patient for a run over the
intermediate term before jumping into aggressive positions on
pullbacks.  If industry peers FDC and PAYX rally in an advancing
marketplace, then you might want to jump into the sector
momentum as CEFT surges above $51.  This still poses risk, but
at least you have the market and sector on your side.  If you
choose to implement this game plan, it may be wise to lock in
gains as CEFT approaches $55.  Keep closing stops in place at $49.

***June contracts expire in two weeks***

BUY CALL JUN-45*EQF-FI OI=10172 at $5.90 SL=4.00
BUY CALL JUN-50 EQF-FJ OI= 5120 at $1.90 SL=1.00
BUY CALL JUN-55 EQF-FK OI= 2221 at $0.35 SL=0.00
BUY CALL JUL-50 EQF-GJ OI=  187 at $3.40 SL=1.75
BUY CALL JUL-55 EQF-GK OI=  557 at $1.30 SL=0.50

SELL PUT JUN-50 EQF-RJ OI=  628 at $1.35 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 3.83 mln

NOVN - Noven Pharmaceuticals Inc $32.06 (+0.11 last week)

Noven Pharmaceuticals develops advanced transdermal and
transmucosal drug delivery systems and technologies.  Their
principle products are for use in hormone replacement therapy.
Noven's first commercial success was an estrogen patch for the
treatment of menopausal symptoms marketed under the brand name
Vivelle in the US and Canada.  Noven holds over 20 additional US
patents relating to its products and technologies.

May was a fantastic month for Noven Pharmaceuticals!  A solid
earnings' report on May 1st chaperoned by a Strong Buy
recommendation from the influential UBS Warburg launched NOVN out
of the abyss.  A well-received presentation at the UBS Warburg
5th Annual Global Specialty Pharmaceuticals Conference on May
21st then fueled NOVN's break through the $32 price level.  It
looked like NOVN was aiming for the stars, but the synergy of a
stumbling NASDAQ and Biotech Index (BTK.X) was too much pressure.
NOVN pulled back to its previous resistance at the $29, which
offered aggressive traders the opportunity to begin new plays in
an advancing market.  There was also big news hitting the press
to generate short-term excitement last week.  Noven
Pharmaceuticals announced last Wednesday that it was issued a US
patent to the transdermal delivery of methylphenidate for the
treatment of Attention Deficit Hyperactivity Disorder (ADHD).
The proprietary technology for delivering a therapeutically
effective dose of methylphenidate, the benchmark medication for
ADHD via a transdermal patch is bottom-line, lucrative;
especially considering that the patent is effective through the
year 2018.  Although NOVN is currently trading on respectable
volume at the higher levels, we'd like to see a big breakout
through $34 to confirm strength on the upside.  Let's start the
week with a $30 protective stop.  If NOVN doesn't keep afloat of
that level on a close, we'll exit the play.

***June contracts expire in two weeks***

BUY CALL JUN-25 NPQ-FE OI= 83 at $7.50 SL=5.25
BUY CALL JUN-30*NPQ-FF OI= 59 at $3.20 SL=1.50
BUY CALL JUN-35 NPQ-FG OI= 34 at $0.85 SL=0.00
BUY CALL JUL-30 NPQ-GF OI= 63 at $4.60 SL=2.75
BUY CALL JUL-35 NPQ-GG OI=126 at $2.25 SL=1.00

Average Daily Volume = 449 K

CB - Chubb Corporation $74.35 (+1.13 last week)

Chubb Corporation, incorporated in June 1967, is a holding
company with subsidiaries principally engaged in the property and
casualty insurance business. The Company presently underwrites
most forms of property and casualty insurance. The Company's
Property and Casualty Insurance Group writes non-participating
policies. Several members of the Property and Casualty Insurance
Group also write participating policies, particularly in the
workers' compensation class of business, under which dividends
are paid to the policyholders.

Insurance stocks have been on the rise lately and CB has been
leading the charge.  Kicked off by a well-received earnings
report in late April, shares of the company have been attracting
a lot of buying interest, further fueled by positive analyst
ratings from the likes of Merrill Lynch, Dresdner bank, and most
recently Morgan Stanley raising their rating to Outperform.
Morgan Stanley stated that they expect 2002 to be a banner year
in terms of earnings and this helped to push the stock through
the venerable 200-dma (currently $75.24) on Wednesday.  Well, it
had to happen eventually and on Thursday the profit takers
showed up, dragging CB lower into the close on Friday.  The $74
support level is still intact, but showing signs of wear after
Friday's weakness.  Aggressive traders can target a bounce near
this level for new positions next week, but only if it is
accompanied by solid buying volume.  A close below our $74 stop
will spell the end of the play, so keep that in mind before
playing.  The more conservative approach will be to wait for CB
to once again clear the 200-dma and ideally the $76.50 level,
which offered resistance last week.

***June contracts expire in two weeks***

BUY CALL JUN-70 CB-FN OI=167 at $4.80 SL=3.00
BUY CALL JUN-75*CB-FO OI=250 at $1.35 SL=0.50
BUY CALL JUL-75 CB-GO OI=541 at $2.60 SL=1.25
BUY CALL JUL-80 CB-GP OI=312 at $0.85 SL=0.00

SELL PUT JUN-75 CB-RO OI= 21 at $1.80 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 1.02 mln

CD - Cendant Corporation $18.98 (+0.11 last week)

Cendant is a diversified provider of business services,
especially in the real estate and travel industry.  Cendant's
Real Estate Division is the leader in the world's largest
industry, with affiliates responsible for more than one out of
every four homes sold or purchased in the U.S., the leading
relocation services company, and a leading home-related Internet
portal.  As one of the world's leading franchisers of mid-economy
market lodging brands and a leading car rental company, and the
world's largest timeshare exchange company, Cendant's Travel
Division is one of the largest providers of travel services
around the globe.

Looking at a daily chart of CD, it would be hard to guess that
the economy has been slowing.  After putting in a triple-bottom
near $9 at the end of last year, the stock has been in a nice
upward trend, with the share price more than doubling in the
past 5 months.  Fueling this ascent is the most fundamental of
catalysts, earnings.  While much of the economy continues to
slow and one company after another is slashing earnings
estimates, CD is going the other way; beating analyst
expectations and occasionally revising their earnings
estimates upwards.  Analysts are starting to warm up to the
company too, as demonstrated by JP Morgan's recent coverage of
the stock with a Buy rating and a $23 price target.  The company
appears to be returning to its growth-by-acquisition strategy,
and has attracted investor attention with its proposed spinoff
of Cendant Merchandising Services this fall.  Adding the final
touch to our play, the company's CEO confirmed his expectation
that the CD will meet or exceed analyst expectations for the
remainder of the year.  The stock price has been steadily
marching higher and has now reached the critical $19 resistance
level, with solid support now resting at $18.  Consider new
positions either on a bounce from support, or at the ascending
10-dma ($18.75), or on a breakout above $19.25 on solid volume.
Our stop is sitting at $18, as a drop below this level would be
a disturbing technical development.

***June contracts expire in two weeks***

BUY CALL JUN-17.5*CD-FW OI= 3430 at $1.75 SL=0.75
BUY CALL JUN-20.0 CD-FD OI= 8124 at $0.35 SL=0.00
BUY CALL JUL-17.5 CD-GW OI=  239 at $2.20 SL=1.00
BUY CALL JUL-20.0 CD-GD OI= 1750 at $0.80 SL=0.00
BUY CALL AUG-20.0 CD-HD OI=18039 at $1.00 SL=0.00

SELL PUT JUN-20   CD-RD OI= 106 at $1.15 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 7.51 mln

IMCL - Imclone Systems $53.09 (+3.03 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.

After the Biotechnology index (BTK.X) failed to hold above the
$600 support level, it looked like our IMCL play might be
destined for the drop list.  But the bulls had different plans.
Starting right from the open on Thursday, buyers lined up to
propel the BTK higher.  IMCL dipped briefly below our $47 stop
on Thursday before reversing on a dime and heading sharply
higher.  Rumors surfaced on Thursday that the company was
seeking a partner for drug development efforts stemming from
its leading product candidate, IMC-C225.  Speculation that
Bristol Myers might be interested in IMCL, but as a buyout
candidate really got the stock hopping on Friday.  The stock
gapped right through the $50 resistance level and ended the day
with better than a $3 gain on volume nearly double the ADV.
That's what we call a breakout, and IMCL is now in territory it
hasn't visited since last November.  With the breakout, we are
moving our stop up to $50, and aggressive traders can consider
new positions on any volume-backed bounce above this level,
preferably at the $52.50 intraday support level.  More
conservative players will want to wait for IMCL to rally through
the $54 resistance level before opening new positions.  Make
sure the BTK is still in rally mode, as our play may have some
difficulty in continuing its ascent without the cooperation of
its sector.

***June contracts expire in two weeks***

BUY CALL JUN-50 QCI-FJ OI=3397 at $4.70 SL=2.75
BUY CALL JUN-55*QCI-FK OI=1587 at $2.20 SL=1.00
BUY CALL JUN-60 QCI-FL OI=  20 at $0.85 SL=0.00
BUY CALL JUL-55 QCI-GK OI= 441 at $4.70 SL=2.75
BUY CALL JUL-60 QCI-GL OI= 557 at $2.90 SL=1.50

SELL PUT JUN-50 QCI-RJ OI= 425 at $1.40 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.44 mln

OAKT - Oak Technology $10.99 (-0.31 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 are still waiting for OAKT to get moving, and
if the last two days are any indication, they may be rewarded
next week.  Following the broader Technology market lower during
the early part of the week, OAKT attracted buyers just above the
$10 support level on Thursday.  Despite light volume, the stock
managed to advance back to the $11 level Friday afternoon.
Resistance is resting just overhead at $11.50, and if the bulls
can clear this hurdle, they'll be clear to attempt a breakout
over $12.50.  That will be the 'go' signal for initiating new
positions, especially if volume picks up in the vicinity of the
ADV.  Clearly aiding OAKT in its advance over the past couple
days has been the Semiconductor index (SOX.X), which has once
again moved above the critical $600 level.  Traders still seem
to be betting on the Semiconductors to lead the market higher
with the emergence of the second-half recovery, and who are we
to argue?  This is an aggressive play and we don't want to buy
the dips.  Wait for the volume-backed move through $12.50,
accompanied by a continued advance on the SOX, and it looks
like a OAKT could quickly advance to the 200-dma (currently
$14.46), followed by resistance near $18.  Remember that our
stop is sitting at $9.50, and any close below that level will
spell the end of our play.

***June contracts expire in two weeks***

BUY CALL JUN-10.0*KAU-FB OI=1190 at $1.40 SL=0.75
BUY CALL JUN-12.5 KAU-FV OI= 304 at $0.30 SL=0.00
BUY CALL JUL-10.0 KAU-GB OI=4837 at $1.80 SL=1.00
BUY CALL JUL-12.5 KAU-GV OI=1339 at $0.80 SL=0.00
BUY CALL OCT-12.5 KAU-JV OI= 327 at $1.60 SL=0.75

Average Daily Volume = 1.14 mln

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The Option Investor Newsletter                   Sunday 06-03-2001
Sunday                                                      4 of 5

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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


CREE - Cree Inc. $27.80 (-5.05 last week)

Established to commercialize silicon carbide (SiC) semiconductor
wafers and devices, CREE is the world leader in developing and
manufacturing compound semiconductor materials and electronic
devices made from SiC.  SiC-based devices offer significant
performance advantages over competing products made from
silicon, gallium arsenide, sapphire and other materials.  CREE
uses its compound semiconductor technology to make enabling
products such as blue and green light emitting diodes, or LEDs.
Primary applications for these LEDs include backlighting for
automotive dashboards and interior lighting, wireless handsets
and indoor and outdoor full-color displays, such as video boards
in arenas and stadiums.

Proving that the law of gravity has not yet been repealed,
bullish investors finally decided to take some profits off the
table after propelling CREE from its April low near $12 to a
high of more than $36.  For those of you keeping score at home,
that is almost a 200% rise.  No wonder the stock came off its
highs.  The big question now is whether the profit taking will
expand into heavy selling, but judging from the action on
Friday, it doesn't look good for the bulls.  Volume swelled to
25% above the ADV as the stock gradually crept lower, pressing
against the $27 support level.  If the bears can breach this
level, they'll be setting their sights on lower levels of
support at $25 and then $22, also the site of the 50-dma.  While
CREE has managed to keep its earnings relatively intact during
the recent tech-wreck, speculation of a more protracted economic
slowdown doesn't bode well for the company's flow of orders.
The ongoing analyst battle over when the Semiconductor industry
will truly rebound is likely to have a significant effect on
CREE, and further weakness in the Semiconductor index (SOX.X)
should seal the bulls' fate.  Aggressive traders can target new
positions on a rollover from intraday resistance at $29 or the
level of our stop at $31.  A more passive approach will be to
enter the play as selling pressure breaches the $27 support
level on increasing volume.

***June contracts expire in two weeks***

BUY PUT JUN-30*CQR-RF OI= 732 at $3.40 SL=1.75
BUY PUT JUN-25 CQR-RE OI=3338 at $1.00 SL=0.00
BUY PUT JUL-30 CQR-SF OI= 191 at $4.90 SL=3.00
BUY PUT JUL-25 CQR-SE OI=2335 at $2.25 SL=1.00

Average Daily Volume = 2.52 mln

AIG - American Intl Group Inc $80.09 (-2.22 last week)

American Intl Group is a holding company that through its
subsidiaries provides a variety of insurance and insurance-
related activities in the US and overseas.  AIG's primary
activities include writing property, casualty, and life
insurance, as well as providing a broad range of financial
services and asset management.

The majority of insurance stocks experienced great popularity
lately, as is measured by the Insurance Index (IUX.X).
However, the index's bullish support at 770 started to show
signs of deterioration last week; and on Friday it closed at
758.18, just a few points from its intraday low.  A teetering
broader sector coupled with news of its $23 bln stock
acquisition of the #3 US life insurer, American General Corp
(AGC), sent shares of AIG into a downward spiral.  Although it
may be true that the largest acquisition ever to take place in
the insurance industry will ultimately provide fantastic returns
to investors, the bears are definitely in control at present.
Conforming to the broader sector's pullback, AIG is currently at
its own crux.  If the $80 levels crumbles, then it wouldn't be
unimaginable for the stock to see $75 and make a charge for the
52-week low, at $72.64.  That scenario invites conservative
players to jump on AIG and ride the decline to the vicinity of
bottom support.  On the other hand, you might target an entry on
a rollover from our $83 closing stop, or even a bit higher
depending on the market conditions; but be sure your portfolio
can handle the added risk.  Track sector movements by monitoring
the IUX.X and individual stocks like CB, PGR, and SPC.  A
bullish close above $83 and we'll drop coverage that evening.

***June contracts expire in two weeks***

BUY PUT JUN-85 AIG-RQ OI=1800 at $5.10 SL=3.00
BUY PUT JUN-80*AIG-RP OI=1986 at $1.35 SL=0.75
BUY PUT JUN-75 AIG-RO OI=1386 at $0.30 SL=0.00

Average Daily Volume = 5.13 mln


ISSX - Internet Security Systems $48.02 (-6.69 last week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services

If you like double-tops, you sure can't argue with the gem that
ISSX offered us a little over a week ago when it failed to power
through the $61 resistance level.  Since then the price has been
slashed by more than 20%, and is on the verge of breaking below
the $46-47 support level.  Internet security stocks actually had
a nice run in April and May, but it is starting to look like it
is time to pay the piper.  ISSX currently has a PE ratio just
fractionally below 100, and if they even make a hint of missing
earnings in the current quarter, the abuse could be severe.  The
stock bottomed in early April near $20, and any bad news could
be just the ticket to send it back down to test support near
$37-38.  All we need is for selling volume to pick up again, and
we could see those recent gains evaporate quicker than a desert
rainstorm in July.  Although buyers showed up on both Thursday
and Friday near the $46 support level, they seem to run out of
conviction between $48-49, presenting us with an attractive put
opportunity.  With our stop still resting at $51, aggressive
traders can consider new entries on a rollover below this level.
More conservative entries will appear as ISSX drops through the
$46 support level, preferably on increasing volume.

***June contracts expire in two weeks***

BUY PUT JUN-50*ISU-RJ OI= 76 at $5.00 SL=3.00
BUY PUT JUN-45 ISU-RI OI= 26 at $2.50 SL=1.25
BUY PUT JUL-45 ISU-SI OI=307 at $4.80 SL=3.00
BUY PUT JUL-40 ISU-SH OI=313 at $3.00 SL=1.50

Average Daily Volume = 1.80 mln

JNPR - Juniper Networks $42.79 (-9.37 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.

The aborted Lucent/Alcatel merger at the start of the week sat
like a bad omen over the Networking sector, and it seems as
though none of the major players in this arena escaped
unscathed.  JNPR started out by plunging through its long-term
support at both $52 and then $50 before descending into a new
trading range between $40-45.  While the heavy volume that
accompanied the drop early in the week has dissipated somewhat,
the bulls certainly haven't been in a hurry to boost the stock
above $45.  Except for the gap-up open on Friday, the bears
remained in control all week.  The early April gap between
$40-42 has now been filled, so we are now left to wait and see
how determined the bears are to push the stock even lower.  We
are now entering earnings warnings season again, and there
should be plenty of confessions lying in wait to push the
Networking index (NWX.X) ever lower.  Target shooting new
entries on a failed rally from the $45 level (also the location
of our stop) will provide for attractive entries next week.
More cautious investors will want to wait for continued selling
pressure to push JNPR below the $40 support level before
initiating new positions.

***June contracts expire in two weeks***

BUY PUT JUN-45*JUX-RI OI=6961 at $4.80 SL=3.00
BUY PUT JUN-40 JUX-RH OI=4521 at $2.30 SL=1.25
BUY PUT JUL-45 JUX-SI OI=3023 at $7.20 SL=5.00
BUY PUT JUL-40 JUX-SH OI=7531 at $4.60 SL=2.75
BUY PUT JUL-35 JUX-SG OI=2819 at $2.75 SL=1.50

Average Daily Volume = 29.3 mln

NEWP - Newport Corp. $32.08 (-6.68 last week)

Newport is a global supplier of test, measurement and automation
systems and subsystems that enable manufacturers of fiber-optic
components, semiconductor capital equipment and aerospace
products to automate manufacturing processes, enhance product
performance and improve manufacturing yields.  The key Fiber
Optics and Photonics division offers a broad line of automated
manufacturing systems that address a spectrum of applications in
the fiber-optic component manufacturing process; from pre-test
to assembly and packaging, to final device testing and burn-in.

Just like the rest of the Networking sector, NEWP reacted badly
to news that the merger between Alcatel and Lucent was a no-go.
The entire Networking index (NWX.X) dropped sharply on the news,
and NEWP hit a recent low on Wednesday of $30.80, its lowest
close in 6 weeks.  There was some mild buying interest on
Thursday, but fears that the tech recovery might be further off
than the second half kept the rally well contained.  Investors
that bought puts on the opening spike on Friday are smiling
this weekend, and next week could be offering up more of the
same as earnings warning season gets under way.  Our stop is
currently resting at $35, and any failed rally below this level
will present attractive entry points.  The more cautious
approach will be to wait for increased selling pressure to push
NEWP below the $30 support level before venturing into new
positions.  Despite daily stochastics deep in the oversold
region, there is little reason to buy Networking stocks, and
NEWP could very well be headed into another sustained decline
as the summer doldrums approach.

***June contracts expire in two weeks***

BUY PUT JUN-35*NZZ-RG OI=1234 at $4.60 SL=2.75
BUY PUT JUN-30 NZZ-RF OI= 455 at $1.85 SL=1.00
BUY PUT JUN-25 NZZ-RE OI= 216 at $0.60 SL=0.00
BUY PUT JUL-30 NZZ-SF OI= 156 at $3.90 SL=2.50
BUY PUT JUL-25 NZZ-SE OI= 186 at $2.15 SL=1.00

Average Daily Volume = 3.75 mln

PMCS - PMC-Sierra, Inc. $32.08 (-5.12 last week)

PMCS designs, develops, markets and supports high-performance
semiconductor networking solutions.  The company's products are
used in the high-speed transmission and networking systems,
which are being used to restructure the global
telecommunications and data communications infrastructure.
Providing components for equipment based on Asynchronous
Transfer Mode, Synchronized Optical Network, Synchronized
Digital Hierarchy, High Speed Data Link Control, and Ethernet,
the company sells its products to over 100 customers either
directly or through its worldwide distribution channels.

Amazingly, the only thing that seems to be propping up shares of
PMCS is the recovery in Semiconductor stocks.  Yep, you heard me
right.  The Semiconductor index (SOX.X) managed to crawl back
over the $600 resistance level and the 50-dma (currently at
$609.66) to repair a goodly portion of the damage that was done
earlier in the week.  Of course, PMCS operates in both the
Semiconductor and Networking sectors, and the carnage visited on
the Networking index (NWX.X) thanks to the blown Lucent/Alcatel
merger was significant.  Throw in bad news on the likes of SUNW
and EMC and it is a wonder that the damage to technology stocks
wasn't worse last week.  Poor economic reports aren't helping
the case either, but investors seem to be grasping at hopes of
another interest rate cut when the Fed meets again in June.  The
reality is that there is precious little to drive PMCS upwards
and with the beginning of another dismal earnings warning season
upon us, lots of potential factors to drive the stock down.
When both the SOX and NWX get moving down at the same time, our
play ought to pick up speed as it heads for support at $27,
followed by $24.  Aggressive entries can be taken as PMCS rolls
over near the $33 intraday resistance level or our stop at $35.
More conservative traders will want to wait for the stock to
fall through $30.50 before taking a position.

***June contracts expire in two weeks***

BUY PUT JUN-35*SQL-RG OI=8487 at $4.80 SL=3.00
BUY PUT JUN-30 SQL-RF OI=2981 at $1.95 SL=1.00
BUY PUT JUL-30 SQL-SF OI= 263 at $3.80 SL=2.25
BUY PUT JUL-25 SQL-SE OI= 282 at $1.90 SL=1.00

Average Daily Volume = 9.77 mln

A - Agilent Technologies Inc $33.97 (-3.72 last week)

Agilent is a globally diversified technology company that
provides solutions to high growth markets within the
communications, electronics, healthcare and life sciences
industries.  They're a leading maker of analysis equipment with
over 50% of sales deriving from its Test and Measurement Unit.
In its basic form, Agilent Technologies tests the Web's parts
before they are put into action.  Blue chip customers include
AT&T, Cisco, and Pharmacia.

A sharp drop alongside the NASDAQ on Wednesday took Agilent down
to the mat.  The critical breach and failure to resurface sets
shares of A up for a technical breakdown over the near-term.
The bulls made a valiant effort to push the price topside of $35
late afternoon Friday, but ultimately failed.  The broad
industry is mixed with related issues like FCEL, who announced a
2:1 stock split and solid earnings on Thursday, flying high and
others such as JBL, CLS, and BLDP barely holding par.
Therefore, it's imperative to pay careful attention to the
stock's individual direction in accordance with market gyrations
versus the sector's more specific rotations.  You might target
practical entries on the downside as shares of Agilent rollover
from the current level and violate the $33 support.  Better
confirmation is a high-volume slide to the underside of $32 in a
declining marketplace.  The $30 level poses a threat, so be
prepared for charging bulls.  In other words, taking profits as
the stock approaches this potential trap might be the best bet.
Maintain a CLOSING stop at $35.

***June contracts expire in two weeks***

BUY PUT JUN-40 A-RH OI= 806 at $6.30 SL=4.50
BUY PUT JUN-35*A-RG OI=1356 at $2.10 SL=1.00
BUY PUT JUN-30 A-RF OI= 360 at $0.35 SL=0.00

Average Daily Volume = 2.43 mln

BLDP - Ballard Power Systems $54.56 (-3.94 last week)

Ballard Power Systems, Inc. was founded in 1979 to conduct
research and development in high-energy lithium batteries. In
1983, Ballard began developing proton exchange membrane (PEM)
fuel cells.  Today, these systems have evolved into
pre-commercial prototypes proving the practicality of the Ballard
fuel cell and fuel cells are widely viewed as viable alternatives
to conventional technologies.  Ballard's focus is now on working
with its strategic partners to develop competitive products for
mass markets by reducing cost and implementing high volume
manufacturing processes.

Before the dramatic change in Senate, Bush's energy plan sent
the alternative energy companies soaring.  In an effort to
combat the energy shortages that have plagued various parts of
the US, notably California, President Bush outlined a plan that
detailed the use of alternative energy technologies.  But
unfortunately, the fanfare was short-lived.  After jumping over
14% in one session on the news, BLDP succumbed to sideways
trading and eventually violated the $56 relative support on
Wednesday.  The dashing slide to $50.60 reaped grand profits for
those who bought into the downward momentum.  Aggressive types
may look for entry points on failed rally attempts at the
overhead resistance primarily near $55 and the 10-dma line, but
keep stops tight.  On Thursday, industry rival FuelCell (FCEL)
reported stellar earnings and announced a 2:1 stock split.  FCEL
tacked on $6.16, or 8.6% amid the excitement.  Continue to track
sector sentiment by following FCEL, PLUG, and HPOW.  Our closing
stop is currently set at $55.

***June contracts expire in two weeks***

BUY PUT JUN-55*DFQ-RK OI= 516 at $3.40 SL=1.50
BUY PUT JUN-50 DFQ-RJ OI=1379 at $1.35 SL=0.50

Average Daily Volume = 849 K

MIR - Mirant Corp $38.10 (-2.85 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.

Energy issues are the talk of the town, the nation for that
matter!  From refineries to alternative energy sources, it's all
a matter of who has the means to supply our country's epicure
for unlimited power.  Initially President Bush's energy plan
bolstered shares of the energy and energy-related companies.
But after the political merry-go-round and uncertainty that
followed, many investors rotated their portfolios.  Coming off
recent highs of $47 amidst its earnings' release, MIR crashed
"on the news".  More specifically, MIR experienced a technical
breakdown last Wednesday that rocked its foundation.  A "no
holds bar" slide through the 30-dma now sets MIR up for further
devastation.  A fractional break of the $38 support on Friday
hints that the new bottom could also be letting go; however, be
patient for the confirmation.  If MIR tumbles through $37 and
the correlating 50-dma, traders might consider buying into the
weakness, targeting the $34 and $35 level.  We've lowered our
closing stop to $40 to safeguard existing profits.

***June contracts expire in two weeks***

BUY PUT JUN-45 MIR-RI OI=1601 at $7.20 SL=5.00
BUY PUT JUN-40*MIR-RH OI= 933 at $2.85 SL=1.25
BUY PUT JUN-35 MIR-RG OI= 428 at $0.70 SL=0.00

Average Daily Volume = 2.50 mln

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Let's Review Our Strategy
By Mark Phillips
Contact Support

Although I thought I had covered our new strategy in sufficient
detail in recent weeks, the volume of email I received this week
told me I was wrong.  Some of the inquiries undoubtedly came
from new subscribers, but there were some from old hands as
well.  Rather than try to determine the root of the problem, I
decided to devote my space to further education on entries and
exits for LEAPS positions and how to utilize our two playlists.

I hope you'll forgive me for taking the time to review, but I
think it will do us all good to re-establish the baseline before
we try to go forward.  So long as I don't get too wordy here,
I'll endeavor to wrap up with a little bit of commentary on the
market and what I see as we head into the summer months.

For starters, I have described the basic parameters of our
strategy in the Strategy section.  For those of you that have
never been there, it can be accessed by clicking on the Strategy
link at the top of the current week's LEAPS article on the
website.  Most of the pertinent details of how to use the LEAPS
column are covered there and I won't duplicate them here.  But
the items that I think bear closer scrutiny are the entry and
exit points and how to determine them from what is contained in
the Watch List and Portfolio.

Simply put, there are only two conditions that should prompt us
to enter a new position from the Watch List:

1. The stock drops to our defined entry target and bounces on
solid volume (the stronger the better).  If support doesn't hold
at this defined level, then we need to look for a new support
level to hold, as buying after a violation of support is like
trying to catch a falling knife...a good way to slice off some
fingers, and a very unpleasant experience!  Given a violated
critical support level, we may opt to pull the play from the
Watch List for poor performance.

2. If the stock drops through our entry target, then we need to
wait for strength to return.  A good measure of this strength is
if the stock can rally through our previously defined entry
target on solid volume.  This tells us that the buyers are once
again in control and that the bears couldn't halt the stock's
advance when it reached the level of our target.

Since a picture is worth a thousand words, I'll use a couple of
charts to demonstrate what I am looking for in terms of entry
points.  First up is General Electric (NYSE:GE).  Recall that
after the breakout over the $50 level, we moved the entry target
up to $50-51.  So we now needed to wait for the stock to come
back to that level and bounce higher.  We finally got what was
looking like an attractive pullback on May 25th, as we saw GE
bounce into the close, ending just below $50.  Then this past
Tuesday, it gapped up and crashed right through $50 again,
forcing us to wait a little longer.  Now what we need is a
strong-volume push through the $51 level (the upper edge of
our target zone) before we can take our entry.

So there's an example of an entry that failed to materialize,
forcing us to wait a bit longer.  Next, I'd like to look at a
successful entry that cropped up on Friday.  QCOM made its move
from the Watch List on Friday as described in the entry writeup
below, but let's take a look at the chart.

While volume was less than stellar at the time, three bounces in
as many days at the target zone gave me confidence to take a
position anyways.  To make the entry ideal, we would have seen
the stock rallying into the close, with volume on the rise.

Hopefully that helps to solidify the entry part of our strategy.
The exit side still needs some work as demonstrated by the
performance of the 3 plays that were dropped this week.  We are
still in a very unstable market, and until we see evidence that
an upward trend is willing to form, we need to be more
aggressive in harvesting profits.  All three of the dropped
plays had significant gains just a week or two ago.  In trying
to balance the merits of our long-term approach with not letting
gains get away from us, we got caught right in the middle, being
stopped out just before each of the plays reversed and headed

Particularly frustrating was the NOK play which recently had a
gain of over 140%, but by the time our stop was triggered, those
gains had been whittled to less than 50%.  It's time to take a
more aggressive approach to harvesting profits when they are
made available.  As trending markets once again return later on
this year, we will consider modifying our approach once again to
give our plays enough room to run so that they can accrue those
triple-digit gains we all know and love.

So here's the approach we will follow in the near term.  As our
plays begin to accrue significant gains, we will more
aggressively tighten up our stops.  That way, we should be taken
out of the play with most of our gains intact, should an adverse
price move develop.  If we are taken out of the play on a short
dip, and the long term trend still looks positive, then we could
very well recycle that play right back onto the Watch List, so
that we can watch for a fresh entry point.  A prime candidate
for this is the QQQ play.  While we were stopped out this week,
don't be surprised if it finds its way back onto the Watch List
as early as next week.

Feel free to modify your own entry and exit strategy as you see
fit, but this is how we will manage our positions in the LEAPS
column for the near future as we head into the summer doldrums.
We didn't change any of our stops this week due to the fact that
so many of our plays are near their stop levels.  And most of
the Watch List plays are now below our prescribed entry targets,
so we need to see a subsequent rally to trigger our entries into
those plays.

Unfortunately, I have used up all the time and space I have
available this week, so I'll have to forgo my usual market
commentary this week.  I hope you found this exercise useful
and can apply it in fine-tuning your game plan for the months

As you'll see from reading the Market Wrap and Market Sentiment
sections this week, the markets are having a hard time deciding
which way they want to go, so this is the perfect time for us
to fine tune our strategy while the bulls and the bears duke it
out for dominance.

See you next week!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  CLX-AG  $ 3.50  $ 4.20    5.70%  $ 30
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.60    8.20%  $ 30
GENZ   03/23/01  '02 $ 85  GZQ-AQ  $24.50  $32.10   34.69%  $ 99
                 '03 $ 90  OZG-AR  $27.75  $41.20   48.47%  $ 99
SWS    03/22/01  '02 $ 18  YWF-AT  $ 4.10  $ 4.90   19.51%  $ 20
                 '03 $ 20  VWZ-AD  $ 5.00  $ 5.90   18.00%  $ 20
WM     03/22/01  '02 $33.8 BWT-AY  $ 4.00  $ 4.90   22.50%  $ 32
                 '03 $33.8 OBN-AY  $ 6.13  $ 7.30   19.09%  $ 32
WMT    03/23/01  '02 $ 50  WWT-AJ  $ 7.00  $ 7.20    2.86%  $ 51
                 '03 $ 50  VWT-AJ  $11.00  $12.00    9.09%  $ 51
JWN    03/30/01  '02 $ 20  JWN-AD  $ 1.65  $ 1.80    9.09%  $17.50
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.40    3.03%  $17.50
GS     04/05/01  '02 $ 90  GS -AR  $14.00  $17.40   24.29%  $ 91
                 '03 $ 90  VSD-AR  $20.50  $26.80   30.73%  $ 91
FON    04/09/01  '02 $ 25  WO -AE  $ 2.80  $ 1.45  -48.21%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 3.80  -13.64%  $ 19
DELL   04/27/01  '02 $ 25  WDQ-AE  $ 6.20  $ 4.40  -29.03%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 7.30  -18.89%  $ 23
ADBE   05/16/01  '02 $ 40  AEQ-AH  $11.00  $ 9.20  -16.36%  $ 37
                 '03 $ 40  VAE-AH  $14.60  $15.00    2.74%  $ 37
AOL    05/16/01  '02 $ 55  AOO-AJ  $ 9.60  $ 8.90  - 7.29%  $ 48
                 '03 $ 55  VAN-AJ  $14.60  $13.90  - 4.79%  $ 48
NXTL   05/25/01  '02 $ 20  WFU-AD  $ 3.40  $ 2.75  -19.12%  $ 15
                 '03 $ 20  VFU-AD  $ 5.80  $ 5.10  -12.07%  $ 15
LRCX   06/01/01  '02 $ 30  WMJ-AF  $ 6.60  $ 6.60    0.00%  $ 25
                 '03 $ 30  VPC-AF  $10.30  $10.30    0.00%  $ 25
QCOM  06/01/01   '02 $ 65  AAO-AM  $13.00  $13.00    0.00%  $ 55
                 '03 $ 70  VLM-AN  $18.70  $18.70    0.00%  $ 55

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
BRCD   05/13/01  $40-41        JAN-2002 $ 45  UBF-AI
                               JAN-2003 $ 45  OMW-AI
BRCM   05/27/01  $35-36        JAN-2002 $ 40  WGJ-AH
                               JAN-2003 $ 40  OGJ-AH

New Portfolio Plays

LRCX - Lam Research Corp. $28.45

Semiconductor stocks took a beating again early last week, as
the Technology sector reeled from the pounding delivered by both
SUNW and EMC.  Buyers did emerge on Thursday, lifting LRCX off
its lows and the Semiconductor index (SOX.X) managed to claw its
way back over the $600 level by week's end.  Miraculously NVLS
provided a mid-quarter update on Thursday that was more positive
than expected, helping Semiconductor equipment stocks to
continue their rise on Friday.  After bouncing from just above
the $26 support level Thursday afternoon, steady buying
gradually pushed LRCX through $27 and then $28, satisfying our
entry criteria.  Due to the ferocity of the debate over the
near-term future of the Semiconductor sector, we are going to
play this one with a fairly generous stop at $24, until we can
see confirmation of the uptrend continuing.

BUY LEAP JAN-2002 $30.00 WMJ-AF $ 6.60
BUY LEAP JAN-2003 $30.00 VPC-AF $10.30

QCOM - Qualcomm Inc. $61.59

When we initiated coverage of QCOM on the Watch List, it looked
like we might be getting a little too greedy, asking for a dip
near $61 before entering the play.  But broad-based weakness in
Technology stocks early in the week, piled on top of DB Alex
Brown's bearish comments targeted at most Wireless stocks and
QCOM in particular spooked investors into entering sell mode
once again.  The firm slashed earnings estimates for QCOM due to
perceived weakness in the CDMA market, despite the recent China
deal.  Sure enough, QCOM declined throughout the week, and by
Thursday afternoon it was testing support near $60.  Friday was
a bit of a quiet day with volume coming in at less than half the
ADV, but we decided to take the bait and enter the play as QCOM
rallied back through $61, the upper edge of our target zone.
Support should hold near $60, but if it doesn't, look for
further support at the 50-dma ($58.42), and then $56.  We are
starting the play with our stop resting at $56, a level that
hasn't been violated since the Fed's mid-April interest rate

BUY LEAP JAN-2002 $65.00 AAO-AH $13.00
BUY LEAP JAN-2003 $70.00 VLM-AN $18.70

New Watchlist Plays



MU $37.96 Pressured by deteriorating sentiment in the
Semiconductor sector, MU has been posting lower highs and lower
lows for the past month.  Sure enough, the pressure was too much
and the $39 support level finally gave way on Tuesday, yielding
a close of $37.96 and violating our $38 stop.  While MU will
likely be a winning stock once its sector begins to show signs
of improvement, it looks like we showed up to the party a bit
early.  We'll take our lumps and congratulate ourselves on
limiting our losses through judicious use of our stop loss.
We'll be back when conditions in the sector and on MU's chart
are more favorable.

NOK $28.51 The downward pressure exerted on technology stocks
this week by the likes of SUNW and EMC was too much for the NOK
bulls to withstand.  After holding the line on Tuesday at the
$30 level, they succumbed to the bears on Wednesday and let the
price fall through our stop at $29.  That's what our stop was
designed for, and it took us out of the play with a nice gain
since we initiated coverage in early April.  NOK continues to
distance itself from its competitors and we will keep an eye out
for another attractive opportunity to play the stock again in
the near future.

QQQ $44.43 Downgrades of technology bellwethers SUNW and EMC got
the QQQ off to a rocky start last week, and the bulls were
unable to hold the line at support near $45, allowing the price
to drop through our stop and end Wednesday's session at $44.43.
Proving that Murphy is alive and well, the QQQ proceeded to firm
up throughout the remainder of the week, ending just north of
$46.  Perhaps I was too eager to tighten up the stop on the play
considering the long-term nature that LEAPS afford us, but
nonetheless, we needed to obey our discipline and exit the play
as our stop demanded.  I still feel the QQQ will be an excellent
way to game the recovery in tech stocks when it occurs for real
later on this year.  So I'll be looking for another opportunity
to jump back on that horse and give it another ride.

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

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The Option Investor Newsletter                   Sunday 06-03-2001
Sunday                                                      5 of 5

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Market Mentality: Overcoming Your Psychological Barriers
By Mark Wnetrzak

A crucial factor in being a successful trader is to recognize and
believe with your heart that trading is a game of probabilities.
Sometimes you win and sometimes you lose and most of the time our
decisions are based on emotional impulses that we try to justify
with logic.

When it comes to money and investing, humans are irrational.  In
fact, the notion of the irrational investor is the basis for many
of the market strategies used by professionals.  In trading more
than any other vocation, we rely heavily on our instincts, either
through unrealistic goals or expectations, based on our previous
experiences.  Rather than reasoning in the present, we often rely
on acquired associations (past) or idealistic perceptions (future)
to help make difficult judgments.  One of the most troublesome
skills a trader must develop is the ability to remain focused on
the present, evaluating each position based on its current merits
and assessing the trade as it unfolds.

Before a trader can learn to make timely and effective adjustments,
he must understand his personality and know his individual faults
and limitations.  The stock market has a unique way of reflecting
the fundamental emotions and character of humans and in addition
to offering great financial rewards, it can also help us to know
ourselves better.  Before entering a position, you must recognize
the anxiety it might produce and be prepared to base your trading
decisions on sound ideas rather than impulses or "gut" reactions.
Taking the emotion out of trading can be very difficult, however
it is achievable if you have the discipline to develop and follow
a trading plan.

Just as a business plan describes in detail the establishment and
development of a potential venture, a trading plan outlines the
proposed structure for participation in the financial markets.
In most venues, there are two primary requirements of a trading
plan: a method of price prediction which signals if and when to
initiate a position and a money management system which prescribes
the maximum amount of portfolio capital to risk on any one trade.
Strategies that involve stocks or options must also specify when
to take profits and cut losses, and include a means to correctly
position trading stops.  Since the optimal management of winning
plays is the key to success in any probabilities-based strategy,
special attention must be given to techniques that protect gains
once they are achieved.  While adhering to the parameters of the
trading plan is paramount to consistent profits, the system must
also remain flexible in the sense that it should be constantly
evaluated so as to improve its overall performance.

Some of the most common suggestions for developing a successful
approach to the market include:

1) Develop a clear profile of your unique personality, emotional
   traits and personal limitations.  Realize that success will
   come when you create a favorable balance between hard work,
   sound judgment and patience.  Too many traders give up after
   a few losing plays, long before they have time to learn and
   absorb the various methods required for profitable trading.

2) Learn fundamental and technical analysis methods that will
   help you understand the trends and cycles of the stock market.
   Know your strategy, its advantages and weaknesses and only use
   techniques that fit your trading style and portfolio outlook.
   Also, if the strategy is not appropriate for your financial
   condition, it must be avoided, regardless of how attractive
   it appears.

3) Trade a fully diversified portfolio and do not devote more
   capital to a specific position than is warranted by the size of
   your portfolio.  Trade liquid markets as those with less than
   adequate volume can create excessive slippage when entering and
   exiting positions.

4) Devise a personalized system that is appropriate solely to
   your specific situation.  Paper trade to safely gain valuable
   experience and avoid the tendency to jump from one scheme to
   another, particularly following a losing period, without
   thoroughly testing the new plan before adopting it.  Remember,
   in all cases, the key to success is to limit losses, exploit
   winning positions and maintain a conservative outlook with
   regard to portfolio risk.

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  13.12   JUN  10.00  1.15  *$  1.15  11.3%
CYGN    7.79   8.53   JUN   7.50  0.75  *$  0.46   9.9%
OSUR   10.24  11.29   JUN  10.00  1.00  *$  0.76   8.9%
STOR   19.27  19.00   JUN  15.00  5.40  *$  1.13   7.1%
VOXX   10.09   9.84   JUN  10.00  0.95   $  0.70   6.7%
APHT   20.00  21.55   JUN  17.50  3.50  *$  1.00   6.6%
SPWX   15.70  13.50   JUN  12.50  3.90  *$  0.70   6.4%
FNSR   20.98  16.81   JUN  15.00  7.00  *$  1.02   6.3%
ABMD   25.60  25.40   JUN  22.50  4.00  *$  0.90   6.3%
ALXN   26.02  26.24   JUN  22.50  4.40  *$  0.88   6.2%
MCDTA  31.95  26.20   JUN  25.00  7.90  *$  0.95   6.0%
CELG   22.99  30.74   JUN  20.00  4.00  *$  1.01   5.8%
STLW   13.01  11.26   JUN  10.00  3.50  *$  0.49   5.6%
WEBX   16.20  16.45   JUN  12.50  4.30  *$  0.60   5.5%
SBYN   15.28  13.85   JUN  12.50  3.20  *$  0.42   5.3%
MEDX   26.30  27.84   JUN  22.50  4.80  *$  1.00   5.1%
PGNX   20.16  21.16   JUN  17.50  3.20  *$  0.54   4.8%
NEM    20.98  20.83   JUN  20.00  2.00  *$  1.02   4.7%
AFCI   17.70  18.89   JUN  15.00  3.40  *$  0.70   4.3%

MRVC   12.35  10.50   JUL  10.00  3.20  *$  0.85   5.1%

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


Continue to monitor Audiovox (NASDAQ:VOXX) closely as it tests
its 50 dma.  The next support area is the April high around
$8.50.  Newmont Mining (NYSE:NEM) is still at a key moment and
a move towards $19.00 seems probable with the failed rally in
the price of Gold.  SpeechWorks International (NASDAQ:SPWX) has
moved back below its 50 dma - monitor the position closely.
Finisar (NASDAQ:FNSR) met estimates but guided lower for the
next fiscal year.  The technicals have weakened with the stock
moving down and testing the April high.  Time to revise your
long-term outlook?  McData Class A (NASDAQ:MCDTA) is acting a
bit worrisome and should be closely monitored as the stock is
now at a key moment.  What's up with WebEx Communications
(NASDAQ:WEBX)?  A rather drastic drop this week on no news?
We still have a bit of downside protection but will judge the
strength of the issue by how well it holds at 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

BTX     8.50  JUL  7.50   BTX GU  1.90 30     6.60   49    8.5%
GENE   13.44  JUN 12.50   GUG FV  1.75 245   11.69   14   15.1%
HPOW   13.74  JUN 12.50   HQF FV  1.65 368   12.09   14    7.4%
MCAF   11.90  JUL 10.00   CFU GB  2.70 72     9.20   49    5.4%
NUAN   16.50  JUN 12.50   DUN FV  4.30 162   12.20   14    5.3%
OPTV   13.87  JUN 12.50   OUZ FV  1.80 339   12.07   14    7.7%
ROS     5.49  JUL  5.00   ROS GA  1.05 261    4.44   49    7.8%

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

GENE   13.44  JUN 12.50   GUG FV  1.75 245   11.69   14   15.1%
BTX     8.50  JUL  7.50   BTX GU  1.90 30     6.60   49    8.5%
ROS     5.49  JUL  5.00   ROS GA  1.05 261    4.44   49    7.8%
OPTV   13.87  JUN 12.50   OUZ FV  1.80 339   12.07   14    7.7%
HPOW   13.74  JUN 12.50   HQF FV  1.65 368   12.09   14    7.4%
MCAF   11.90  JUL 10.00   CFU GB  2.70 72     9.20   49    5.4%
NUAN   16.50  JUN 12.50   DUN FV  4.30 162   12.20   14    5.3%

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).

BTX - BioTime  $8.50  *** Technicals Only ***

BioTime (AMEX:BTX) is a development stage company engaged in the
research and development of synthetic solutions that can be used
as blood plasma volume expanders, blood replacement solutions
during hypothermic surgery and organ preservation solutions.
BioTime is also developing a specially formulated hypothermic
blood substitute solution that would have a similar function and
would be used for the replacement of very large volumes of a
patient's blood during cardiac surgery, neurosurgery and other
surgeries that involve lowering the patient's body temperature
to hypothermic levels.  The company recently entered into a
license agreement with Horus, B.V., a subsidiary of Akzo Nobel,
N.V., under which BioTime expects to receive up to $9.5 million
of license fees for the right to manufacture and market Hextend
(its lead product) overseas.  Hextend(R), is a physiologically
balanced blood plasma volume expander, for the treatment of
hypovolemia.  We simply favor the improving technicals and
recent move above the 150 dma on high volume.

JUL 7.50 BTX GU LB=1.90 OI=30 CB=6.60 DE=49 TY=8.5%

GENE - Genome Therapeutics  $13.44  *** What's Up? ***

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, GENE is seeking to accelerate the discovery and
development of products to treat and diagnose several diseases.
Shares of GENE rocketed 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 Therapeutics was a leader in using
pathogen genomes to find anti-infective drugs and they believe
the company will discover several anti-infective agents with large
potential markets.  A reasonable short-term return for investors
who also believe that GENE's R&D effort is greatly undervalued
and want to speculate on the company's future.

JUN 12.50 GUG FV LB=1.75 OI=245 CB=11.69 DE=14 TY=15.1%

HPOW - H Power  $13.74  *** Energerized Breakout! ***

H Power (NASDAQ:HPOW) is a leading fuel cell development company
and one of the first providers to complete a commercial sale of a
proton-exchange membrane (PEM) fuel cell system.  PEM fuel cells
generate electricity efficiently and cleanly from the electro-
chemical reaction of hydrogen and oxygen.  H Power's fuel cells
are designed to provide electricity for a wide range of stationary,
portable and mobile applications including residential cogeneration
products for rural, remote homes, and backup power units for mobile
applications.  Energy technology companies' shares soared two
weeks ago when President Bush's energy proposals turned out to be
more favorable than expected for fuel cells and micro-turbines.
H Power broke out of 5-month Stage I base on high volume which
suggests further upside potential.  We simply favor the current
bullish momentum in the industry and this short-term position that
offers a reasonable cost basis in the issue.

JUN 12.50 HQF FV LB=1.65 OI=368 CB=12.09 DE=14 TY=7.4%

MCAF - McAfee.com  $11.90  *** It's A Deal! ***

McAfee.com (NASDAQ:MCAF), a majority-owned subsidiary of Network
Associates (NASDAQ:NETA), is a consumer security Application
Service Provider (ASP).  The company delivers software benefits
through an Internet browser, virtually eliminating the need to
install, configure and manage the technology on a local PC or
network.  McAfee.com hosts software application services on its
vast technology infrastructure and provides these services to
users online.  McAfee.com has signed up more than 920,000 paid
subscribers and regularly has more than 800,000 visitors each
day.  McAfee.com's shares exploded on Tuesday, May 22, after
the company announced a strategic alliance with Microsoft
(NASDAQ:MSFT).  McAfee.com will supply security services for
Microsoft's planned set of online services, called HailStorm.
The high-volume breakout was impressive and now the stock has
firmly moved above its 150-dma with no near-term resistance
until the $18 range.  However, we prefer an entry point closer
to technical support.

JUL 10.00 CFU GB LB=2.70 OI=72 CB=9.20 DE=49 TY=5.4%

NUAN - Nuance $16.50  *** Stage I Speculation ***

Nuance (NASDAQ:NUAN) is a leader in Voice Web software - speech
recognition, voice authentication, text-to-speech and voice
browsing products that make information, services, and the
Internet accessible from any telephone.  Every day, millions of
people interact with Nuance systems at companies like BeVocal,
Merrill Lynch, Nomura Securities, Sprint PCS and Tellme Networks.
Nuance has been showing signs of strength after suffering from
an earnings warning in April.  The company recently unveiled a
comprehensive set of design and production services aimed at
helping businesses build world-class voice applications.  The
stock appears to be forming a Stage I base and the technicals
suggest a bullish change of character for the near-term.

JUN 12.50 DUN FV LB=4.30 OI=162 CB=12.20 DE=14 TY=5.3%

OPTV - OpenTV  $13.87 *** Double The Growth, Double The Fun! ***

OpenTV (NASDAQ:OPTV) is a leading interactive television and
media solutions company.  OpenTV builds a complete software
and infrastructure platform that enables digital interactive
television and brings on-demand content to other digital
communications devices.  OpenTV solutions are crafted to meet
the needs of digital communications networks and include
operating middleware, content applications and creation tools,
professional services expertise, and strategic consulting.
OpenTV rallied sharply last week when it announced that its
software is now installed in 16 million digital set-top boxes
worldwide, more than double the amount deployed a year earlier.
The strong growth should continue as Philips Semiconductors
plans to use OpenTV's software in their home-entertainment
"Nexperia" line of products.  Short-term speculation with a
reasonable cost basis on a bullish stock.

JUN 12.50 OUZ FV LB=1.80 OI=339 CB=12.07 DE=14 TY=7.7%

ROS - Rostelecom  $5.49  *** Cheap Speculation! ***

Rostelecom (NYSE:ROS) provides international and domestic long
distance telecommunications services in Russia.  Rostelecom also
provides Internet access and multimedia communications, leases
out digital channels and transmits a number of television and
radio programs through its network to transmission facilities
throughout Russia.  Rostelecom supplies international tele-
communications services between Russia and 295 countries around
the world and has direct international communication lines with
89 operators from 72 countries, including 65 operators of digital
fiber optic communications lines.  No recent news but Rostelecom
is rallying strongly and has now moved above the April high.  The
technical indications suggest further upside potential on this
low-cost, speculative issue.

JUL 5.00 ROS GA LB=1.05 OI=261 CB=4.44 DE=49 TY=7.8%



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

PCLN    5.29  JUL  5.00   PUZ GA  1.10 8364   4.19   49   12.0%
DMRC   18.06  JUN 17.50   DQT FW  1.35 16    16.71   14   10.3%
STLW   11.26  JUN 10.00   SZQ FB  1.65 1200   9.61   14    8.8%
DTHK    8.22  JUL  7.50   DTU GU  1.50 2      6.72   49    7.2%
SCMR   11.51  JUL 10.00   SMZ GB  2.50 318    9.01   49    6.8%
AMLN   11.16  JUL 10.00   AQM GB  2.10 747    9.06   49    6.4%
BIOM    7.63  JUL  7.50   BSU GU  0.75 26     6.88   49    5.6%

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


Market Mentality: Confidence is not a Virtue
By Ray Cummins

The majority of traders have an opinion about the condition of
the stock market and the manner in which they can profit from
its future movement.  When asked about recent positions, most
will reply with certainty that the strategies they use will
result in a successful outcome.  Unfortunately, a high degree
of conviction can frequently lead to failure.  The trouble
begins soon after the initial trading decision has been made.
As the new position matures, the reasons for the trade, whether
accurate or timely, are often adjusted to support the original
outlook.  The facts just seem to fall into place.  The market
character; the earnings outlook; the potential for bullish
announcements.  All of the available supporting evidence is
included in the rationalization.  Whether relevant or not, a
plethora of reasons to remain in the position are marshaled in
defense of this decision.

Its no different with analysts and financial gurus; those that
attempt to forecast the market's future on a regular basis.
Each and every one has a long list of justifications for the
current trends or "why the market has declined" and "when the
market will recover."  Inflationary issues, economic conditions,
developments in technology, and changes in the political arena
are all given as common explanations for situations that have
yet to be proven "predictable."  The problems with attempting to
explain the events of the past, or forecast the outcome of the
future are numerous but the primary reason to avoid this trait
is simple.  Once we have entered a position with this attitude,
we will continue to assemble and connect information in a manner
which will support our original conclusion, rather than reflect
the actual conditions of the market.

The fact is, the majority of investors have trouble recognizing
that all situations change and there is no perfect and complete
method of knowing when, where, and how these developments will
occur.  In early stages of learning and throughout most of our
adult lives, we are trained to make decisions in a positive and
absolute manner.  We are taught to endorse and defend our ideas
with resolve.  We strive to be correct!  It is a conditioned
response, and simply a matter of existence in today's society.
Based on the customs of our culture, changes in opinion are often
seen as a failure to arrive at the proper solution during the
initial assessment.  That is why it is so difficult to admit when
we are wrong, to take the loss (even when it is small), and to
reassess the position and correct our original observations.
Human nature is the culprit here and until one can overcome the
debilitating effects of pride and presumption, there is little
hope for prosperity in the stock market.

For most traders, profit comes from the successful participation
in specific positions.  As with any investment or speculative
venture, the key is to remain alert for signs of changing trends
in character or direction and respond promptly and decisively
when and if such events occur.  By using the appropriate money
management techniques, you can safely earn consistent profits.
The most important concept the novice player must understand
is that trading options requires hard work and discipline.  But,
you can learn to be like the professionals, taking profits and
losses one trade at a time with precise, long-term goals for
your portfolio.

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

AMLN   10.85  11.16   JUN  10.00  0.60  *$  0.60  22.3%
FIBR   13.33  12.14   JUN  10.00  0.35  *$  0.35  17.6%
GENE   13.60  13.44   JUN  10.00  0.35  *$  0.35  17.3%
EXEL   15.97  15.00   JUN  12.50  0.70  *$  0.70  15.6%
DTHK    8.74   8.22   JUN   7.50  0.25  *$  0.25  15.1%
MCAF   12.02  11.90   JUN  10.00  0.30  *$  0.30  14.8%
VIGN   10.02   8.90   JUN   7.50  0.30  *$  0.30  14.2%
SEAC   20.37  19.08   JUN  17.50  0.50  *$  0.50  13.2%
STOR   21.93  19.00   JUN  15.00  0.45  *$  0.45  10.1%
ILUM   32.01  32.56   JUN  25.00  0.65  *$  0.65  10.0%
NMTC   22.22  20.23   JUN  17.50  0.45  *$  0.45  10.0%
SMTC   31.70  27.93   JUN  25.00  0.60  *$  0.60   9.4%
NFLD   13.50  16.80   JUN  10.00  0.30  *$  0.30   8.7%
AVCI   13.59  10.18   JUN   7.50  0.30  *$  0.30   8.6%
TSAI   12.03  12.01   JUN  10.00  0.30  *$  0.30   8.5%
PLUG   35.40  32.78   JUN  25.00  0.40  *$  0.40   8.1%
GLGC   21.05  22.55   JUN  17.50  0.50  *$  0.50   7.8%
APCC   16.83  16.97   JUN  15.00  0.45  *$  0.45   7.3%
PDG    11.05  10.94   JUN  10.00  0.30  *$  0.30   7.1%
GNSS   20.45  28.01   JUN  15.00  0.35  *$  0.35   6.9%
OO     26.00  24.41   JUN  22.50  0.35  *$  0.35   5.2%
SBSE   23.79  19.21   JUN  20.00  0.65   $ -0.14   0.0%

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


Sbs Technologies (NASDAQ:SBSE) continued to weaken this week and
has now moved below its 150 dma.  Time to use a rally for a quick
and pain-free exit?  Semtech (NASDAQ:SMTC) also appears like a
candidate for a break-even exit as the technicals continue to look
horrid.  Keep a close watch on Numerical Technologies (NASDAQ:NMTC)
as it has dropped below its 150 dma though support at $18 appears
to be solid.  Use consolidation phases to measure the bullish
strength of issues you may want to own.  Do they hold at the top
of support areas (strong), dive towards the bottom (weak), or
break through (yikes)?

Positions Closed:



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

AMZN   16.95  JUN 12.50   ZQN RQ  0.25 6745  12.25   14   14.9%
AVGN   21.25  JUL 15.00   GKU SC  0.45 55    14.55   49    5.9%
DMRC   18.06  JUL 15.00   DQT SC  0.65 0     14.35   49    8.4%
IDCC   13.99  JUN 12.50   DAQ RV  0.35 640   12.15   14   17.1%
MRVC   10.50  JUL  7.50   VQX SU  0.35 451    7.15   49    8.9%
PLUG   32.78  JUN 25.00   PQL RE  0.35 1090  24.65   14   11.0%
PRST   12.97  JUN 12.50   PQK RV  0.40 28    12.10   14   17.0%

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

IDCC   13.99  JUN 12.50   DAQ RV  0.35 640   12.15   14   17.1%
PRST   12.97  JUN 12.50   PQK RV  0.40 28    12.10   14   17.0%
AMZN   16.95  JUN 12.50   ZQN RQ  0.25 6745  12.25   14   14.9%
PLUG   32.78  JUN 25.00   PQL RE  0.35 1090  24.65   14   11.0%
MRVC   10.50  JUL  7.50   VQX SU  0.35 451    7.15   49    8.9%
DMRC   18.06  JUL 15.00   DQT SC  0.65 0     14.35   49    8.4%
AVGN   21.25  JUL 15.00   GKU SC  0.45 55    14.55   49    5.9%

Company Descriptions

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

AMZN - Amazon.com  $16.95  *** Cheap Speculation! ***

Amazon.com (NASDAQ:AMZN) is an online retailer that serves over
17 million customer accounts in over 150 countries.  The company
directly offers for sale millions of distinct items in categories
such as books, music, DVDs, videos, toys, electronics, software,
video games and home improvement products.  Through its Internet
offerings, the company has created Web-based marketplaces where
buyers and sellers can enter into transactions with respect to a
wide range of products.  The company also has developed strategic
commercial relationships with a number of selected e-commerce
companies.  Traders are speculating on the outcome of Amazon's
upcoming annual meeting, which will occur on Tuesday June 5, 2001.
As long as there are no major surprises, AMZN should have little
difficulty remaining above the sold strike in this OTM position.

JUN 12.50 ZQN RQ LB=0.25 OI=6745 CB=12.25 DE=14 TY=14.9%

AVGN - Avigen  $21.25  *** New Drug Discoveries! ***

Avigen (NASDAQ:AVGN) is a leader in the development of gene
therapy products for the treatment of inherited diseases.  The
company is developing a broad-based proprietary gene delivery
technology based on adeno-associated virus vector technology,
known as AAV vectors, to deliver DNA into the cells of patients
that are suffering from genetic diseases.  AAV vectors are a
relatively new system for gene therapy.  The company believes
that AAV vectors can be used to deliver genes for the treatment
of hemophilia, Gaucher disease, Parkinson's disease and beta-
thalassemia.  Avigen is an innovative company with some unique
products and investors who want a conservative position in the
gene-therapy research segment should consider this candidate.
Target a higher in this (July) position to increase the return
on investment.

JUL 15.00 GKU SC LB=0.45 OI=55 CB=14.55 DE=49 TY=5.9%

DMRC - Digimarc  $18.06  *** Technicals Only! ***

Digimarc (NASDAQ:DMRC) provides a patented digital watermarking
technology that allows an invisible digital code to be embedded
in the printed or digital versions of media content, such as
commercial and consumer photographs, movies, music, magazine
advertisements, catalogs, product packages, and other valuable
documents, including financial instruments, passports and event
tickets.  The company's products are grouped along three primary
lines of business: Secure Documents, Media Commerce and Digimarc
MediaBridge.  Each product line offers systems generally including
embedder software, which is used to place Digimarc's watermarks
into content, and reader technology, which is incorporated into
digital devices to detect, read and respond to the embedded code.
Digimarc has recently been the target of legal actions that many
other companies have experienced since the downfall of IPO stocks
with the broader market.  These lawsuits focus on allegations of
improper underwriting practices associated with the IPO and they
have little do with the current outlook for the company.  Traders
who agree that DMRC has a unique product in a growing industry
can establish a favorable cost basis in the issue with this
conservative position.

JUL 15.00 DQT SC LB=0.65 OI=0 CB=14.35 DE=49 TY=8.4%

IDCC - Interdigital Communications  $13.99  *** Own This One! ***

Interdigital Communications (NASDAQ:IDCC) specializes in the
design and development of technology content and unique solutions
for advanced digital wireless communications applications.  Over
the course of its nearly thirty-year history, the company has
amassed a substantial and significant library of know-how and
patents related to digital wireless technology.  The company
market its technologies and solutions capabilities primarily to
telecommunications equipment producers and related suppliers for
embedding into products targeted for the following applications:
mobile phones, personal digital assistants, mobile computing
devices, base stations and other infrastructure equipment, other
terminal-end wireless devices.  Long-term investors are betting
that IDCC will eventually profit from an extensive portfolio of
wireless patents and potential royalties due to current product
litigation with Ericsson (NASDAQ:ERICY).  With excellent support
at our cost basis, this position has a favorable risk/reward

JUN 12.50 DAQ RV LB=0.35 OI=640 CB=12.15 DE=14 TY=17.1%

MRVC - MRV Communications  $10.50  *** 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.  After a stellar rally
and a brief sell-off, MRV appears to have found new buying support.
MRV is also a popular play among speculative traders and those of
you who want to own a solid company in the networking sector can
use this position to establish a favorable cost basis in the issue.

JUL 7.50 VQX SU LB=0.35 OI=451 CB=7.15 DE=49 TY=8.9%

PLUG - Plug Power  $32.78  *** Still Flying High! ***

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 rallied 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 also
technical support, and its a great way for Plug Power to establish
its products in the field.  Despite the strong bullish momentum,
the stock could experience a significant pull-back at any time.
Target a higher premium in the position initially, to allow for
the daily volatility in the issue.

JUN 25.00 PQL RE LB=0.35 OI=1090 CB=24.65 DE=14 TY=11.0%

PRST - Presstek  $12.97  *** Manufacturing Sector ***

Presstek (NASDAQ:PRST) is a manufacturer, developer and marketer
of non-photographic, digital imaging and printing technologies for
the printing and graphic arts industries.  Presstek's products and
applications incorporate its patented, proprietary Pearl and DI
digital imaging technologies and utilize Pearl consumables for
computer-to-plate (CTP) and direct-to-press applications.  Their
patented DI and Pearl thermal laser diode product family enables
its customers to produce high-quality, color lithographic printed
materials more quickly and cost effectively.  The company has two
operating segments, Digital Imaging and LaserTel.  Subscribers are
always asking for stable issues that can offset the unpredictable
activity in most NASDAQ stocks and hedge their long-term portfolios.
Presstek is a great candidate in that category and investors who
agree with a bullish outlook for the issue should consider this
position.  Learn more about the company at its Annual Meeting of
stockholders, which will be broadcast over the Internet on Tuesday,
June 5 at 1:00 p.m. (http://www.videonewswire.com/PRESSTEK/060501)

JUN 12.50 PQK RV LB=0.40 OI=28 CB=12.10 DE=14 TY=17.0%



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

DTHK    8.22   JUN 7.50   DTU RU  0.25 20     7.25   14   19.3%
AMLN   11.16  JUN 10.00   AQM RB  0.25 50     9.75   14   15.3%
STOR   19.00  JUN 15.00   OSU RC  0.25 279   14.75   14   13.4%
CRXA   18.32  JUL 15.00   CVQ SC  0.90 6     14.10   49   11.4%
GLGC   22.55  JUN 20.00   CYV RD  0.35 47    19.65   14   11.1%
RIMM   35.69  JUL 25.00   RUL SE  1.00 183   24.00   49    7.6%
YHOO   19.46  JUL 15.00   YHZ SC  0.50 3186  14.50   49    7.1%

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Optimistic Buyers Ignore Dismal Capital Spending Data...

Friday, June 1

U.S. equities continued to recover Friday as a late rally boosted
the major averages to a positive finish, despite concerns over a
pessimistic manufacturing report earlier in the day.  The NASDAQ
composite climbed 38 points to 2,149 and the Dow Jones industrial
average advanced 78 points to 10,990.  The S&P 500 index edged 5
points higher to 1,260.  Trading volumes on both the NYSE and the
NASDAQ were relatively light.  Big Board volume reached 1 billion
shares with advances outpacing declines 1,821 to 1,235.  Activity
on the NASDAQ was also sparse with 1.5 billion shares exchanged.
Technology winners surpassed losers 2,168 to 1,598.  In the bond
market, the 30-year Treasury rose 18/32, pushing its yield down
to 5.70% in the wake of weak manufacturing data.

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

A.G. Edwards (NYSE:AGE)     AUG45C/JUN45C  $1.45  debit  calendar
John Hancock (NYSE:JHF)     SEP40C/JUN40C  $2.15  debit  calendar
Costco       (NASDAQ:COST)  JUL42C/JUL35P  $0.10  debit  synthetic

Although the AGE spread did not meet the target debit, both of the
new "time-selling" plays were available at acceptable entry prices.
Costco dipped briefly to a low near $37.50 at midday, but we did
not get any quotes for that period, so the opening debit will be
listed at the best observed price.

Market Activity:

Stocks moved higher today, in spite of new economic data that
suggested the outlook for capital spending is mediocre at best.
The Dow climbed above the 11,000 mark before retreating at the
close and the NASDAQ finished near its session high of 2,157.
Trading was mixed early in the day after the National Association
of Purchasing Management said its index of economic activity fell
to 42.1 in May from 43.2 in April.  The May level was slightly
below the 43.7 that economists had forecast.  The NAPM said that
three major components, employment, inventory, and price fell in
May and it was also the 10th month that the main index remained
below the 50.0 "boom-or-bust" level.  A value above 50 indicates
the manufacturing economy is generally expanding while a number
below 50 signals it is generally contracting.  Analysts said the
purchasing managers' report was disappointing because it showed
continued weakness in the manufacturing sector and the potential
for a protracted downturn in technology spending.  Surprisingly,
one of the reasons for the bullish NASDAQ activity was a positive
announcement from Novellus (NASDAQ:NVLS), which said it expects
second-quarter earnings to be $0.40 a share, above the $0.39 that
analysts are anticipating.  Shares in the semiconductor industry
edged higher on the news and Intel (NASDAQ:INTC) led the sector
on hopes for a sharp recovery once the economy emerges from its
current slump.  Palm (NASDAQ:PALM) was an unexpected leader in
the technology segment, closing up almost 10% after the hand-held
device maker said it is starting to see signs of improvement in
its business.  Among the Dow's hi-tech components, International
Business Machines (NYSE:IBM) and Microsoft (NASDAQ:MSFT) managed
small gains while Hewlett-Packard (NYSE:HWP) finished relatively
unchanged.  Boeing (NYSE:BA) was a big gainer, climbing to $65 on
news the aerospace giant and the Machinists' union in St. Louis
reached a tentative contract agreement.  General Motors (NYSE:GM)
also rallied after saying its May U.S. vehicle sales jumped 0.6%
compared with a year ago.  The company also said it's comfortable
with the current consensus earnings estimates.  In the broader
market, healthcare, real-estate, basic materials and industrial
products stocks were popular while financial, conglomerate and
utility issues generally retreated.

Portfolio Plays:

Today's bullish activity in the technology group boosted a number
of portfolio positions and the dominant issues were in the chip
sector.  Intel (NASDAQ:INTC) and Novellus (NASDAQ:NVLS) paced the
stocks in that group and there was also positive sentiment in the
computer software sector.  Microsoft (NASDAQ:MSFT) is our primary
entry in that segment and since we hold both bullish and bearish
positions, we would prefer that the issue simply trade in a small
range.  MSFT finished the day slightly higher but there was some
interesting news after the closing bell.  A new report suggested
that discussions over whether America Online will be included in
Microsoft's upcoming Windows XP operating system broke down today
and recent negotiations, which had been ongoing since a contract
between the two ended in January, were halted after the companies
could not agree to new terms.  A representative said Microsoft
would still provide AOL with the technical information it uses to
make the company's Internet software compatible with XP if users
install it themselves but there were no plans to make additional
concessions.  Until MSFT's share value makes a decisive move in
either direction, we will continue to project a neutral outlook
for the issue.

Among the S&P 500 groups, stocks in the finance sector continued
to suffer from recent selling pressure but Providian (NYSE:PVN),
Lehman Brothers (NYSE:LEH) and American Express (NYSE:AXP) moved
in opposition to the general trend.  The drug sector was led by
Watson Pharmaceuticals (NYSE:WPI), which jumped over $3 to a new
yearly high near $63 on news of apparent regulatory difficulties
that rival Abbott Laboratories (NYSE:ABT) faces with its thyroid
drug.  The U.S. FDA has ruled that Abbott must seek approval to
keep selling its thyroid drug Synthroid, because the product has
a "history of problems."  Another stock in the sector, Alexion
Pharmaceuticals (NASDAQ:ALXN) has proved to be a great candidate
for time-selling strategies as the issue has retained its recent
volatility while trading in a relatively stable pattern.  Our
recent calendar spread is already profitable and there is still
excellent upside potential in the position for traders that can
effectively manage the underlying issue.  National City (NYSE:NCC)
is also performing well and now that the issue is encountering
resistance near our sold strike at $30, we will monitor the play
closely for potential adjustments.  One other candidate in that
category, Sinclair Broadcasting (NYSE:SBGI) dropped 5% Friday on
no news and the first level of support is near $8.  A move below
that price range would signal a possible exit in the position.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
SCMR - Sycamore Networks  $11.51  *** Reader's Request! ***

Sycamore Networks (NASDAQ:SCMR) develops and sells software-based
intelligent optical networking products that allow network service
providers to quickly and cost-effectively provide bandwidth and
create new high speed data services.  The company's intelligent
optical networking products are designed to allow network service
providers to deploy, manage and optimize the performance of their
fiber-optic systems.  Sycamore's products are based on a common
software architecture that it believes will accelerate its release
of new products and enable the company's customers to upgrade with
minimal network impact and operator training.  The company has
designed its family of products to the protect service providers'
existing investment in fiber optic and transmission equipment and
provide a migration path to the next generation optical public
network infrastructure.

A number of readers have asked for candidates to use with Jim's
strategy of selling "deep-in-the-money" puts.  Along with these
requests, we have received a number of suggestions for possible
plays and Sycamore was offered by two different subscribers.  In
light of the apparent optimism for the stock and the requests for
guidance with regard to the correct option series to use, I have
decided to include this play in this week's selection.  Of course,
this technique should only be used with stocks that have bullish
potential, so if you don't believe SCMR can move higher in the
coming months, please do not initiate this position.  In addition,
the specific option series I have listed are based on my personal
preferences concerning intrinsic/time value, open-interest and the
outlook for risk versus reward.

Those of you who have questions about this unique strategy can
learn more about the technique at:


PLAY (speculative - covered-put combination):

SELL  PUT  JAN03-40  ODO-MH  OI=164  B=$28.70
BUY   PUT  SEP01-10  SMZ-UB  OI=526  A=$1.80

KSS - Kohl's  $60.96  *** Retail Sector Slump! ***

Kohl's (NYSE:KSS) operates family oriented, specialty department
stores primarily in the Midwest, Mid-Atlantic and Northeast areas
of the United States that feature quality, branded merchandise
priced to provide exceptional value to customers.  The company's
stores sell moderately priced apparel, shoes, accessories and
home products targeted to middle-income customers shopping for
their families and homes.  Kohl's stores have fewer departments
than traditional, full-line department stores but offer customers
dominant assortments of merchandise displayed in a wide selection
of styles, colors and sizes.  Central to their pricing strategy
and overall profitability is a culture focused on maintaining a
low cost structure.

Retail stocks have retreated in recent sessions as investors grow
concerned their share values aren't warranted by companies' profit
outlooks.  Fears that stock prices have risen too far were also
bolstered by reports indicating that May results are proving to be
weaker than analysts had expected.  Overall, stocks in the retail
index, the market's key gauge with a basket of industry leaders,
dropped 1.5% during the last week in May and shares of KSS have
slumped in sympathy with the group.  An analyst from Jeffries and
Company did little to help matters, cutting his recommendation on
the company's shares to "accumulate."

Technically, the stock appears poised for a test of the May lows
near $55 and traders who think the issue has little chance of
finishing the expiration period above $65 can profit from that
outcome with this bearish combination position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-70  KSS-FN  OI=624   A=$0.20
SELL CALL  JUN-65  KSS-FM  OI=4917  B=$0.70

CHBS - Christopher & Banks  $39.00  *** More Retail Woes! ***

Christopher & Banks (NASDAQ:CHBS), formerly Braun's Fashions, is
a Minneapolis-based regional retailer of women's specialty apparel
which operates through its subsidiary, Braun's Fashions, Inc.  In
fiscal 2000, the company's lines of merchandise included four main
categories: sportswear, sweaters, dresses and accessories.  As of
early this year, the company operated a chain of 274 stores in 27
states, primarily in the northern half of the United States.  The
company's stores are located primarily in regional shopping malls
in mid-sized cities and suburban areas.

Shares of CHBS dropped unexpectedly last week amid concerns that
the company will fall short of double-digit estimates for sales
growth in the month of May.  Last month, the company's numbers
were below the previous month's and officials blamed the weather
for hurting their results.  Chris Krueger, equity research analyst
at Dougherty & Co., said the women's specialty apparel company is
"up against a tough comparison with last year's same-store sales."
John Zolidis, equity analyst at Sidoti & Co., estimates that CHBS
will report only a 7% increase in May and he jokingly added that,
"investors are concerned that poor weather will continue to hamper

Obviously, the issue is due for some profit taking, having risen
in May to a 52-week high of $47.50, up from a 52-week low of $9.78
set one year ago.  The sell-off on Thursday came on heavy volume,
suggesting there is indeed potential for a failed rally.  In this
case, the premiums for the (OTM) call options are favorable and
the potential for a successful (technical) recovery is affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-50  URH-FJ  OI=5    A=$0.15
SELL CALL  JUN-45  URH-FI  OI=380  B=$0.60
INITIAL NET CREDIT TARGET=$0.50-$0.60  ROI(max)=11%

SHPGY - Shire Pharma  $51.71  *** Low-Risk Speculation! ***

Shire Pharmaceuticals Group (NASDAQ:SHPGY) is an international
specialty pharmaceutical company with a strategic focus on four
therapeutic areas: central nervous system disorders, metabolic
diseases, oncology and gastroenterology.  The company operates
and manages its business in the United States, Europe and the
rest of the world.  Within these geographical segments, revenues
are derived from sales of products by the company's own sales
and marketing operations, licensing and development fees and
royalties.  Shire Pharmaceuticals has its own direct marketing
capability in the United States, Canada, the United Kingdom, the
Republic of Ireland, France, Germany, Italy and Spain.  Shire
also participates in other pharmaceutical markets indirectly
through distributors.

Stocks in the drug-discovery industry have performed well over
the past few sessions and the recently completed merger with
Toronto-based BioChem Pharma (NASDAQ:BCHE) positions Shire as a
leading company in the global specialty pharmaceutical industry.
Prior to the merger, Shire posted solid first quarter results,
with outstanding revenue growth of 31% and an increase of 50% in
pre-tax income.  The company also announced that following the
approval of Reminyl earlier in the year, Shire was awaiting the
upcoming U.S. launch of the product by Janssen Pharmaceutica and
Ortho-McNeil Pharmaceutical.  In addition, the first filing of
Foznol in Europe was a very important milestone for the company
and the new product should soon add to the revenues currently
provided by prescription sales of Adderall, Agrylin, Carbatrol,
Pentasa and ProAmatine.

Based on the recent buying activity, SHPGY is poised for future
upside movement and traders who want to speculate on that outcome
with portfolio collateral can use this position.  Target a lower
premium (or even a small credit) in the play initially to allow
for brief consolidation in the issue.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-60  UGH-GL  OI=209   A=$1.25
SELL PUT   JUL-45  UGH-SI  OI=4367  B=$0.95

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,500 per contract.


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