Option Investor

Daily Newsletter, Tuesday, 06/05/2001

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The Option Investor Newsletter                  Tuesday 06-05-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        06-05-2001        High      Low     Volume Advance/Decline
DJIA    11175.84 +114.32 11196.53 11043.44 1.11 bln   1987/1091 
NASDAQ   2233.66 + 77.73  2244.23  2167.24 1.82 bln   2461/1363
S&P 100   662.09 +  7.61   663.93   654.05   totals   4448/2454
S&P 500  1283.57 + 16.46  1286.62  1267.11           64.5%/35.5%
RUS 2000  516.48 +  9.16   516.48   507.32
DJ TRANS 2917.42 + 39.18  2920.73  2875.03
VIX        21.22 -  1.61    23.00    21.11
Put/Call Ratio      0.55

X Marks The SOX

Programmable logic device maker, Xilinx (NASDAQ:XLNX), ignited
a rally in tech shares Tuesday.  The company reported Monday
evening that its business was showing signs of improvement - that
is, increased visibility.  In case readers missed Monday's
Market Wrap, that evening Xilinx officials reported that they
were seeing a slowdown in cancellations in orders.  In addition,
they also said that inventory turnover had improved.  While part
of Xilinx's improved visibility may be a product of capturing
market share from its competitor Altera (NASDAQ:ALTR) - who warned
not too long ago - it may also portend a recovery in the tech
food chain, part of which starts with the beleaguered telecom

Coincidentally, Lucent Technologies (NYSE:LU) - the epitome of
a beaten down tech/telecom company - reaffirmed its fiscal
third-quarter guidance Tuesday morning.  Lucent officials
reported that their cost cutting efforts would result in a
sequential improvement over the company's second-quarter
operating loss of 37 cents per share.  While the Lucent news
didn't necessarily suggest that demand in the telecom space was
picking up, it did lend to the idea that business isn't getting
any worse, which was well received by the market.

The combined guidance of Lucent and Xilinx set the tech sector
a light, with solid internals and decent volume on the Nasdaq.
Trading on the Nasdaq reached 1.8 billion shares exchanged,
which is in-line with the exchange's 50-day average.  What was
especially encouraging with the guidance delivered by Lucent
and Xilinx was the combined impact on shares of tech bellwether
Cisco Systems (NASDAQ:CSCO), which gained $1.81 on the day, or
9.2 percent.  Lucent is a competitor of Cisco's, and Xilinx is
a supplier to the networking giant.

Indeed, Xilinx boosted the Philadelphia Semiconductor Index
(SOX.X) above the 620 resistance level we addressed in Monday's
Market Wrap.  The SOX traded as high as 656 Tuesday, before
pulling back on profit taking near the close.  Nevertheless, the
chip index ended with a 6.74 percent gain Tuesday.

I've tried to make it clear in past columns, that it is my
belief that the SOX leads the Nasdaq, hence my focus.  And
going forward, the SOX does have some resistance around the 665
level (plus or minus 10 points).  Beyond that general area, the
BIG hurdle for the SOX is the 700 level - for both psychological
and technical reasons.  There's some supply on the point & figure
chart on the SOX up around the 700 level, and 700 is also the
current site of the 200-dma.  In short, I think if the SOX
convincingly clears the 700 level over the short- or medium-
terms, the Nasdaq Composite will make its way towards 2500.  In
terms of pullbacks, the SOX should now find support around the
625 (plus or minus 5 points) area.

While the Nasdaq's price action was impressive Tuesday, and
volume was pretty good, too, there are a couple of disconcerting
developments I see on the daily chart.  For one, the COMPX is
testing the 50 percent retracement from its peak in late
January to its trough in early April.  The 50 percent
retracement currently sits at 2250.  This particular retracement
bracket has been a very good trading tool recently, as evidenced
on the chart below.

My second cause for concern is that the COMPX appears to be
forming a head-and-shoulders (H&S) top, which is a bearish
indeed.  The left shoulder was traced on May 1st at 2232, and
the head was traced on May 22nd at 2328...is it a coincidence
the COMPX closed at 2233 Tuesday?  One point away from its left
shoulder?  (While some technicians may disagree, I'd put the
COMPX's neckline at 2100)

I appreciate human psychology and its tendency to fulfill
prophecies, thus my reason for pointing out the H&S top in the
COMPX.  And if this pattern is indicative of a pullback in the
COMPX, the bearish price objective is roughly 1870.  (Difference
from head to neckline subtracted from the neckline.)

Conversely, the Nasdaq could certainly reject the H&S, advance
above the 2250 retracement level, scare the shorts and retest
its relative highs around 2328.  If this scenario plays out in
the coming days, momentum-based strategies may work best.

If the Biotechnology Index (BTK.X) continues on its tear, the
Nasdaq will have a better chance of rejecting its H&S top.  The
BTK was bolstered by positive analyst comments Tuesday morning,
delivered by J.P. Morgan.  Although, the BTK does appear
overbought at current levels, and bullish traders in the sector
might start looking to book gains in the coming sessions.

Insofar as the Dow Jones Industrial Average (INDU) is concerned,
it's comfortably back above the 11,000 level and judging by
Tuesday's action, feels like it wants to test its relative high
at 11,350.  We got confirmation from both the Bank Sector
Index (BKX.X) and Cyclical Index (CYC.X), with a modest breakout
in the former.  I'd suggest monitoring the BKX and CYC in an
attempt to game the INDU in the coming sessions.

Second to the Xilinx and Lucent guidance Tuesday, perhaps the
best piece of news was the lack of a major earnings warning.
And the longer we go without a big blow-up in the tech and
telecom spaces, the more nervous the shorts grow and the more
encouraged the bulls grow.

On deck Wednesday morning is Hewlett-Packard (NYSE:HWP), who is
delivering its analyst meeting at 11:00 AM EST.  Keep this event
in mind when trading Wednesday morning as H-P can have an impact
on several hardware makers, such as IBM (NYSE:IBM), EMC (NYSE:EMC)
and Sun Microsystems (NASDAQ:SUNW), among others.  The H-P
conference could move the market one way or another, so stay
tuned into that event.  (You can log into the conference call
through Yahoo's Finance site.)

Keep an eye on the key resistance levels I set forth tonight,
especially in the Nasdaq.  The shorts are growing nervous, and
the buyers could be waiting higher so any advance from current
levels could be perpetuated to the upside in excess.  But just
keep in mind there are a few red flags being waived, such as the
extreme level of complacency indicated by the Market Volatility
Index (VIX.X).  The VIX fell to yet another new yearly low
Tuesday at 21.22.  Then again, with the VIX at such low levels,
premiums are decreasing, which can benefit speculators willing
to take on risk and those looking to lock in recent gains with
some cheap hedges.

Questions, concerns and comments are welcome at:

Eric Utley

Advanced Chart Reading with Retracements
Online Interactive Seminar This Sunday

Eric Utley, Contributing Editor for OptionInvestor and
IntradayTrader, will be presenting a two hour interactive online
seminar at 8:00 PM EST, on Sunday June 10th.  Eric will teach
attendees how to use Fibonacci retracement brackets to better
manage risk and increase profits.  The seminar will benefit
both investors and traders and Eric will incorporate current
examples in his presentation, along with requests from

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.


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
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 - Eric Utley
Mon Jun-18 Zero Cost Leaps - Mark Wnetrzak, Ray Cummins
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
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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Bulls On Parade
By Russ Moore

The dust was flying as the tech bulls stampeded down Wall Street
leaving a few trampled bears in their path. What was the catalyst
behind this impressive rally you ask? How about a couple of tech
companies i.e. Xilinx and Lucent, offering a reaffirmation of
projected earnings.

The NASDAQ was out of the gate in a hurry, on its way to a 3.6
percent gain with the big-cap stocks on the NDX leading the way.
The NDX put in a stellar performance with a 4.6 percent jump. The
blue chip DOW wasn't quite sure what it wanted to do in the early
going but by the afternoon session was well on its way to a
triple digit gain, or a 1.0 percent climb.

Sectors moving forward included biotechs, drugs, retailers, paper,
cyclicals, and brokerages. Utilities, the darling of defense, were
on the negative side.

Volume picked up somewhat with the NYSE trading 1.11 billion shares
and the NASDAQ doing 1.83 billion. Market breadth was of course
positive on the NYSE at 20/11 and on the NASDAQ at 25/14.

We did have some economic data out today, but given the way market
action unfolded, it doesn't seem to have been given much weight by
 investors. For those expecting an early economic recovery the
numbers had to be disappointing. Non-farm productivity fell 1.2
percent, down from the expected 0.7 percent. Unit labor costs were
revised up to 6.3 from 5.2, the largest increase in eleven years.
Factory orders dropped 3 percent versus the 2.5 percent expected
and the NAPM non-manufacturing came in at 46.6, slightly lower
than the anticipated 47.7.

What does all this data mean? The economy is still showing signs
of weakness via slowing growth and, when we throw in an increased
possibility of inflation down the road, we could very well be
headed for a bout of Stagflation.

Option Investor Market Sentiment provided by www.Indexskybox.com


Tuesday 06/05 close: 21.22

Tuesday 06/05 close: 53.90

30-yr Bonds
Tuesday 06/05 close: 5.67%

Total Put/Call Ratio: .68

Equity Option Put/Call Ratio: .58

Index Option Put/Call Ratio:  1.81


NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   33.60
Current close: 47.85

Volume/Open Interest
Maximum calls: 50/90,848
Maximum puts : 45/71,054

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: 662.09

Volume/Open Interest
Maximum calls: 680/5,750
Maximum puts : 530/9,661

Moving Averages
 10 DMA  657
 20 DMA  657
 50 DMA  632
200 DMA  695


S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:   1081.19
Current close: 1283.57

Volume / Open Interest
Maximum calls: 1250/42,669
Maximum puts : 1250/43,876

Moving Averages
 10 DMA 1275
 20 DMA 1272
 50 DMA 1224
200 DMA 1326


52-Week High:  11,518.83
52-Week Low:    9,047.56
Current close: 11,175.84

Volume / Open Interest
Maximum Calls: 100/51,299
Maximum Puts   100/72,501

Moving Averages:
 10 DMA 11,054
 20 DMA 11,043
 50 DMA 10,582
200 DMA 10,642


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:



When Experience Contradicts the Experts
By David Popper

When I began investing in early 1998, it felt a bit like taking a
stab in the dark.  After a few rounds of beginner's luck, I was
convinced that investing was easy.  I drew the conclusion that
any stock which declared a split was destined to go up regardless
of any other factor.  I also read IBD voraciously, and was
convinced that successful investors only "bought high and sold
higher." In January of that year B.J.Services (BJS:NYSE) declared
a 2:1 split scheduled in April.  I reasoned that the stock was
splitting, and that oil was a commodity in demand.  I also noted
that BJS was a leading oil integrated oil services provider and
had a low PE.  I debated about purchasing options or the stock.
I chose the stock.  I purchased 1000 shares of BJS and sat back
waiting to become a millionaire.  Over the course of the next 3
months I witnessed the unthinkable happen.  BJS went from $35 to
$11 as oil went to $10 a barrel.  In utter frustration I sold.
In 2001 that stock recently hit $80 a share. Someone made an
800% profit in two and a half years while I lost 2/3's of my
investment. The BJS trade has kept me humble ever after.  I have
perhaps overanalyzed the mistakes that I made.  I could talk
about the lack of being aware of the general market for oil. I
could also talk about my lack of understanding of simple chart
analysis. The stock was in a decline and just breached its 200
day moving average.  I could talk about the lack of selling
discipline. I could also talk about the problem of placing all of
eggs in one basket.  I could talk about several other mistakes.
The trade was a complete course in how to make a bad trade. I
would instead like to concentrate on another issue.  This is the
issue of recognizing the opportunity of a lifetime when it
presents itself.

There have been several times over the last three years, where I
have noticed  quality stocks in essential sectors being unfairly
punished for whatever reason, only to later rise from the ashes
and shine.  While most people sat around, wrung their hands and
made predictions for the demise of the sector, others purchased
low risk positions and doubled, tripled, and quadrupled their
money.  Oil was not going to stay at $10 a barrel.  The sector
has always cycled.  In hindsight, this was a no brainer, even
though every analyst was recommending that the stock be sold.
Yes, it took patience and guts to hold oil services stock in
1998. The sector was rated on the bottom of the list in IBD and
others were bailing out.  It would not be fun to have money tied
up in this "dead" sector while the net was racing. But which
investor would be better off today? Do you want other examples?
Check out the health care industry's performance in 1999/2000
compared with its performance in 2000/2001. Also, look at the
the utilities. By using common sense and simply noticing if
there are sectors, which are essential to the economy, and which
are beaten down, one could purchase shares and await the
inevitable.  The returns are fantastic and there is far less
danger than trading the current popular stocks.

It does take nerve to employ such a strategy.  It is impossible
to pinpoint a bottom so it is very possible that the stocks you
select will continue down for a time. If you employ basis chart
analysis, however, using 6 month, 1 year, 5 year, and 10 year
charts in conjunction with each other, you can be more accurate.
Further, when these stocks are at their lowest levels, the
the news is extremely negative, and the predictions are dire.  It
takes courage to see through the smoke and realize that this is
an essential sector which will come back. Warren Buffet's mentor,
Benjamin Graham once commented that the way to consistently in
the market is to buy these critical sectors when the stocks tank,
and to sell when they are on the rise.  Because he was a
fundamentalist, and not a technician, he stated that stocks
purchased may continue to go down, and that stocks, which are
sold, may continue higher.  He was not concerned because his
profit was healthy. If this strategy was used, but enhanced with
chart analysis, the profits could be enhanced.  If option
strategies were employed, such as writing OTM covered calls,
while awaiting the rebound, the profits would be enhanced.
Simply put, there are treasures available in those essential
sectors which are not currently being mined by the majority of
the active traders. The BJS story of its temporary demise and
800% resurrection will continue to happen.  Some investors
will continue to make quiet fortunes in these overlooked areas.


Revisiting Some High Potential Sectors
By Scott Martindale

Today, I'd like to revisit some of the "high potential" sectors I
have discussed over the past several months to see how they've
performed and whether any might be poised to move from here.

But first, the weather report.  The markets closed strongly above
important levels today.  For many stocks, short-term technicals
have turned up sharply from deeply oversold levels, but I'm always
concerned about "too much, too fast."  Needless to say, last week
was disappointing.  I expected a pre-holiday pullback and some
relief of the overbought market conditions, and then perhaps a
Nasdaq run to 2500 -- but it wasn't even close.  I never expected
high-volume panic selling like we got on Wednesday.  I guess we're
still not beyond that kind of behavior.  This week we're seeing a
moderate-volume rally.

I started writing puts again, but I didn't make many large
commitments before the panic.  I grudgingly stopped out of some
naked positions, but held most others.  Although I may have been a
bit early on some of my technology plays, they are now showing
good accumulation, and short-term stochastics have turned up from
deeply oversold, which is encouraging me to hang on.  Some, such
as those in drugs and biotech, have been doing quite well all
along.  Semiconductors, which should lead any sustained tech
rally, were strong today on some good earnings reports, so my
positions are looking good again.

Cash is piling up on the sidelines, but the "permabears" are
squealing that Greenspan cannot create corporate earnings by
cutting rates and printing money -- he can only fuel inflation and
flight from bonds, and create another stock market bubble that
will inevitably burst worse than ever.  Nevertheless, consumer
sentiment is increasingly optimistic, and I remain so as well.

Over the past year, I periodically have written about high-
potential sectors to watch and play.  Today, I thought I'd review
some of them to see what the possibilities might have been.

First of all, the basket of tech stocks that I started watching
several weeks ago that seems to have the greatest gains when the
Nasdaq rallies did quite well today.  BEA Systems (NASDAQ: BEAS),
Human Genome Sciences (NASDAQ: HGSI), Juniper Networks (NASDAQ:
JNPR), Mercury Interactive (NASDAQ: MERQ), and Ballard Power
(NASDAQ: BLDP) are still looking like investor favorites.  Only
JNPR has shown any significant weakness since the March-April
selloff in tech.  They have been volatile and explosive -- perfect
for options traders and speculative investors who bought on
extreme weakness while others were selling.

Some of the sectors I have written about include energy and power
generation, alternative power, superconductors, power chips, and
application service providers (ASP's).  As you can see, most of
them are energy related.  Energy is the lifeblood of economic
growth, and as conventional energy sources deplete while demand
grows, all related sectors stand to benefit in any economic
climate other than a global depression.

Petroleum will remain the dominant energy source for the
foreseeable future.  Diverse players in this space include
ExxonMobil (NYSE: XOM), USX-Marathon Group (NYSE: MRO), Anadarko
Petroleum (NYSE: APC), Nabor Drilling (AMEX: NBR), Seitel (NYSE:
SEI), Apache (NYSE: APA), Global Marine (NYSE: GLM), BJ Services
(NYSE: BJS), and Halliburton (NYSE: HAL).  They have been
consolidating recently after some strong gains this year, and the
technical picture indicates that all are now in the midst of
renewed upside moves, as demonstrated by the AMEX Oil Index (AMEX:

Independent power producers and natural gas players include
Excelon (NYSE: EXC), AES Corp. (NTSE: AES), Calpine Corp. (NYSE:
CPN), Shaw Group (NYSE: SGR), Dynegy (NYSE: DYN), Enron (NYSE:
ENE), Williams Companies (NYSE: WMB), El Paso Energy (NYSE: EPG),
Questar (NYSE: STR), and Western Gas Resources (NYSE: WGR).
A one-year chart of CPN shows its strength has coincided with the
California power crisis, but it has been extremely weak lately as
some of its contracts may be threatened.  This strong, growing
company can be highly news-driven in short-term price swings --
great for options plays. It has dropped out of its $50-56 trading
range, heading toward the low-40's, and has violated its 200-day
moving average.  Notice though that the stochastic seems poised
for another upswing.  For conservative investors, it may be time
to exit, but to me this is not a stock for the trash bin.  For
speculative investors, this might be a buying opportunity.

Alternative energy is much more speculative.  These stocks have
been running up on news of petroleum shortages and market
manipulations, as well as on reports of new contracts.  Some
companies include Capstone Turbine (NASDAQ: CPST), AstroPower
(NASDAQ: APWR), Ballard Power (NASDAQ: BLDP), Plug Power (NASDAQ:
PLUG), Fuel Cell Energy (NASDAQ: FCEL), and Mechanical Technology
(NASDAQ: MKTY).  They, too, are consolidating after a big run from
the April lows, and for several the stochastic is emerging from
oversold territory.

Superconductors promise to improve the efficiency of things like
power generation and storage, magnetic resonance imaging (MRI),
cryogenic refrigeration, and wireless transmission.  Key players
include American Superconductor (NASDAQ: AMSC), Intermagnetics
General (AMEX: IMG), Conductus (NASDAQ: CDTS), and Superconductor
Technologies (SCON).  My personal favorite, SCON, has shown signs,
but hasn't yet given me a "really big" move this year because of
the general telecom malaise, although it may be preparing for
another run at $10.  However, AMSC and IMG have been moving lately
thanks to their association with the hot sectors of power
generation and health care.  The chart shows that AMSC may only be
taking a breather before continuing to climb, although it will
have to challenge overhead resistance in its 200-day moving

Power semiconductors are used to regulate power conversion,
control electrical flow, distribute electrical loads, save energy,
or make ordinary appliances "smart."  Players include Advanced
Power Technology (APTI), International Rectifier (IRF), and IXYS
Corporation (SYXI).  APTI and SYXI have been relatively stagnant,
but IRF has been particularly strong, given that virtually any
electrical device would be better with their chips.  It moved up
big today, and the technical picture remains good.

In 1999 Red Herring Magazine named enterprise ASPs as one of their
Top Trends for 2000.  Then many observers went negative on the
sector, with Technology Investor Magazine naming the ASP as one of
its "doomed technologies." Players include Corio (NASDAQ: CRIO),
USinternetworking (NASDAQ: USIX), Digex (NASDAQ: DIGX), and Citrix
Systems (NASDAQ: CTXS).  On average, they have doubled in price
from their April lows, but have languished overall for the year --
good for limited-risk call options on extreme weakness, but not
great for long-term investment.

So, all of these sectors have shown a propensity for speculative
rallies following good news or technical weakness.  Some are
moving pretty well right now.

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


OAKT $10.94 +0.00 (-0.05) Boring!  That is an apt one-word
description of OAKT.  We initiated coverage looking for a volume
backed move through $12.50, and the stock never got close.  The
past week has seen the price trapped between $10-11, and volume
continues to dry up.  While the bulls could reappear any time,
we've lost patience and are dropping coverage tonight.


MIR $35.55 -2.57 (-2.55) Bulls Eye! Today's action took MIR down
6.7%!  The powerful slide under $37 and the 50-dma measurement
spelled disaster.  As a result of the technical breakdown and
volatility, the June 40 & 45 contracts delivered hefty gains for
many traders.  Instead of pushing the limits and getting greedy,
we're exiting MIR this evening on target.  If by chance you have
existing put positions, there may be more downside IF the share
price stumbles below $35 amid a high-volume rush.  Use extreme
caution going forward and plan on locking in gains as MIR
approaches the $30 level.

BLDP $54.99 +0.54 (+0.43) The play started off on the right
foot.  Quick-fingered traders were provided with a variety of
entries to ride the subsequent decline to $51.50 last Thursday.
Unfortunately, it doesn't appear the market will provide an
adequate environment going forward.  Strength in some of the
energy-related stocks and BLDP's evolving pattern of higher-lows
gives us clear warning.  It's time to move on to more lucrative
opportunities; notwithstanding the penny close within our stop

CREE $30.20 +2.47 (+2.40) With the bullish move in Semiconductor
stocks, sellers stepped aside, allowing CREE to rise throughout
the day, and volume remained solid.  Although our $31 stop
hasn't been violated yet, it appears the prudent move is to step
aside right now.  Daily stochastics are reversing in oversold
territory, signaling us that the risk in the play currently
outweighs the potential reward.

JNPR $46.58 +2.14 (+3.79) Networking stocks seem to be coming
back to life, as demonstrated by the 5% rally in the Networking
index today.  The recovery in JNPR was more sedate, but the
stock did tack on more than $2, surging solidly through our $45
stop and holding onto most of the gains at the close.
Oscillators are once again pointing northward, indicating that
buyers have once again achieved the upper hand.  We posted some
juicy gains since we initiated coverage and are perfectly happy
to take those and move on to the next play.

PMCS $35.78 +3.88 (+3.70) A positive mid-quarter report
from chip stock XLNX seems to have been all it took to light a
fire under the Networking and Semiconductor sectors and PMCS
bulls were all too happy to join the party this morning.  As is
the case with many beaten-up Technology stocks, PMCS is being
buoyed by improving market sentiment and managed to clear our
$35 stop on solid volume.  Violated stop means a drop, and we
aren't going to argue with the market.

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The Option Investor Newsletter                   Tueday 06-05-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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CELG $34.57 +1.57 (+3.83) CELG staged a nice run through $33.25
on heavy volume today.  Trading activity was double the norm as
the bulls took CELG to $36.48, flirting with the $37 resistance
level.  CELG proved to be a great risk-to-reward play.  A
pullback to the vicinity of $33 and $34 provides a more
aggressive entry versus buying into subsequent momentum, but of
course, the market will dictate the approach.  JP Morgan came
out this morning and raised its rating on CELG to a Buy citing
the company could benefit from expanded clinical tests on
Thalomid to be used in conjunction with other cancer drugs.
Rival Human Genome Sciences (HGSI) also received an upgrade from
the influential brokerage firm, who is very bullish on the
biotech sector going forward.  In response to the rising share
price, we've upped our closing stop to $32.

AMGN $70.02 +0.13 (+1.44) The Biotech Index staged a nice
breakout through the significant resistance at 650 today,
peaking at a six-month high!  And across the sector, competitors
like IMCL and DNA experienced significant topside gains.  AMGN
was positively effected showing strength throughout the session,
but unfortunately the $70 resistance is proving quite formidable
and stymied its advancement.  A bullish close above the
resistance, at just a mere fraction from the stock's intraday
high, suggests AMGN is on the brink of a breakout.  But again,
let's wait for the confirmation.  In an effort to avoid a major
mishap we've raised our closing stop to $67.  A dashing bounce
off the current level signals traders to jump into the momentum.
Look for the BTK.X to also challenge its next level of
resistance at 700 in an advancing marketplace.

NOVN $36.24 +3.22 (+4.18) The positive sentiment and continued
advances within the Biotech industry is fueling many stocks,
including NOVN.  Today Myriad Genetics announced it discovered
the human gene responsible for high total cholesterol and high
density lipoprotein levels in people who have suffered heart
attacks at an early age.  The company's triumphant breakthrough
and JP Morgan's upgrades on CELG and HGSI pumped up the general
excitement.  On the day, NOVN tacked on a whopping $3.22, or
9.8%.  With the $35 resistance now cracked and NOVN pushing the
envelope at $38, the stock is positioned to challenge last
January's $41.50 ceiling.  If intraday gyrations allow, traders
might opt for an entry near the $35 and $36 level.  Honestly, it
may be just as risky to jump into a wave above $38 in light of
the historical barrier near $40.  Today's huge spike prompts us
to raise our closing stop to $33.50 for protection.  Today,
Novan Pharmaceuticals held its Annual Shareholder's Meeting, but
there wasn't any market moving news to report.

CEFT $51.34 +1.15 (+0.84) Well it didn't quite make it over the
top, but shares of CEFT managed to finished just cents from the
intraday high as it fought to shatter the $52 upper resistance.
The consolidation continues at these higher trading levels.  The
more conservative approach suggests that traders stay on the
sidelines until the uptrend resumes course.  A clean break of
$51 provides an opportunity to jump into the momentum and target
$55 on the upside.  Keep closing stops at $49 until there's some
action to justify a change.

ITG $54.35 +1.46 (+2.10) A valiant charge from the open took ITG
to $55.49 and through the stubborn resistance.  Volume was
exceptional at 2.2 times the ADV.  However, make no mistake.
The stock needs to shatter this $55 barrier and hold gains going
forward if it's to remain a viable call play.  The $54 level
should evolve as near-term support and provide a nice launching
pad to take entries.  Continue to monitor other financial
service companies like IFIN (+2.95) and INET (+0.69), which
notably, also fared well in today's market.  We're tightening
the reins and raising our closing stop to $53 to avoid potential
profit taking in coming days.

CB $76.28 +0.88 (+1.93) While it doesn't provide the explosive
moves we are currently seeing in Biotech stocks, the Insurance
index (IUX.X) is making a convincing show of wanting to break
through the $775 resistance level.  CB is performing even better
than its sector.  After yesterday's do-nothing day, our play
surged through the 200-dma (currently $75.25) and closed just
below the $76.50 resistance level.  New entries look attractive
on a continuation of the rally, as CB pushed through resistance,
opening the door for a run at the $80 resistance level.  More
aggressive traders can target shoot intraday dips to the $75
level, or even $74 when initiating new positions.  We need to
see the IUX successfully break through its own resistance to
keep the bulls interested in CB, so keep this index on your
radar screen if you decide to play.  Keep stops set at $74.

CD $19.22 +0.22 (+0.24) Putting one foot in front of the other,
CD continues to creep higher on a consistent basis.  Pressure is
building for a breakout over the $19.50 resistance level, and if
the bulls continue to charge ahead, it still looks like the $23
level is a viable target.  Volume picked up in today's session,
helping CD to regain the $19 level and inch closer to that
long-awaited breakout.  The 10-dma (currently $18.96) continues
to provide support and this seems a good target level for
aggressive traders to shoot for in initiating new positions.
More conservative traders will want to see CD clear the $20
level before opening new positions.  Look for volume to continue
to increase as CD advances.  A close below our $18 stop level
would be a significant technical failure and would see CD making
a quick trip to the drop list.

IMCL $54.70 +2.28 (+1.61) After consolidating its recent gains
yesterday, IMCL spent all day Tuesday in rally mode, closing
very near the highs of the day.  The heavy volume that
accompanied last week's breakout has abated, dropping volume
back to the ADV over the past 2 days.  Support firmed near $52
during yesterday's quiet session, so we are raising our stop to
that level to preserve our profits.  The Biotech sector has been
leading the NASDAQ higher over the past several sessions and the
Biotechnology index (BTK.X) managed to tack on another 5% gain
on Tuesday.  The bulls charged right through the BTK's $665
resistance level as though it wasn't even there and this helped
IMCL to scale the $54 level.  Although the stock is getting a
bit extended here, if IMCL can clear the congestion between
$55-57, the next level to challenge will be $61.  Aggressive
traders will want to wait for an intraday pullback near the $52
support level before initiating new positions, while
conservative players will want to wait for the bulls to push
through $57 before playing.  As long as the BTK remains in rally
mode and volume remains solid, IMCL looks like it still has room
to run.  Move stops up to $52 to preserve your profits.

PDLI $90.39 +7.73 (+12.14) Go, Biotechs, go!  Hardly pausing to
allow us to get onboard this morning, PDLI shot higher right
from the opening bell.  After the initial surge this morning,
the stock paused to consolidate between $87.50-89.00 and then
the bulls pushed it higher right into the close.  When we
mentioned the $90 resistance level, which fell to the bulls in
the final 30 minutes, we didn't think we'd hit it so soon.  The
Biotech index is still in rally mode, helping to lift all ships
in this sector.  As long as it continues, the next obstacle will
be $95, followed by $98.  PDLI is deep into overbought territory
now, and likely to see some profit taking in the near future.
To protect your profits, move stops up to $84 in case the bears
come out to play.  Look for an intraday pullback in the vicinity
of $87-88 to provide new entries or continue to play the
momentum run, entering as PDLI surges through the $91 level.

VRSN $56.60 +2.30 (+0.36) The broad Technology rally appeared
just in time, helping VRSN to find support near $54.  While
volume was still a bit light, our play did manage to clear the
$56 resistance level today.  The stock tested the $58 level
early in the day, but the bulls couldn't hold off the bears,
resulting in a bit of afternoon profit taking.  Closing back
over the 30-dma (currently $55.83) is a good sign for the bulls,
but we still have the daily Stochastics flashing a warning
signal as they are still pointing down, just entering the
oversold region.  The $55-56 level looks like it could provide
a good level for initiating new positions, although aggressive
traders may want to hold out for another bounce between $53-54.
We are moving our stop up to $53, so plan your trades
accordingly.  The more conservative approach will be to wait
for strong volume to push VRSN through the $58 resistance level
before initiating new positions.


A $34.10 +0.60 (+0.13) The share price was crimped between
$33.50 and $34.35 throughout today's session, reflecting
yesterday's lack luster trading.  This extremely narrow range
combined with the robust volume invites danger on the scene.  As
the battle between the bulls and bears plays out, traders are
stuck between a rock and a hard place.  One hand, the bulls
can't generate enough oomph to bring A topside of $35, but on
the other, the bears haven't managed to it through $33 either.
Be patient for a high-volume break through the $32 bottom
support before jumping into this put play.  Keep closing stops
at $35.  A game of wait-and-see doesn't create profits, but it
sure protects capital!

AIG $81.70 +0.63 (+1.61) The Insurance Index inability to stay
sub-745 raises concerns.  It'd be much to our advantage if this
broad sector measurement rendered some serious downside action
over the near-term.  The lack of sector cooperation, with the
likes of PGR (+2.44) and SPC (+0.98) making headway, is buoying
AIG at the $80 support level.  We need AIG to make a charge for
$75 and the 52-week low at $72.64 soon.  Consider buying into
the weakness as AIG violates the $80 support before targeting a
rollover strategy.  While we hang in limbo, our closing stop
remains in place at the $83 level.

ISSX $48.66 +1.87 (+0.64) The Technology market got off to an
early start this morning floating nearly all boats higher.  By
midday, it was looking like ISSX would take a quick trip to the
drop list this evening, but the bears showed up just in time.
After tagging a daily high of $51.80, the bulls just ran out of
conviction, and the bears were more than happy to slash off
better than half the intraday gains.  ISSX was kind enough to
close below our $50 stop level, and the real encouraging point
was the way selling volume ramped up right into the close.
After surging through the $49.50 resistance level in the morning
and then falling back through it in the afternoon, it looks like
the bears are back in charge.  Beware of another buying surge,
but aggressive traders can consider new positions on another
rollover near the $50 level.  More conservative players will
want to wait for ISSX to drop back under $48 before taking a
position.  Watch out for support near $46, and let volume be
your guide.

NEWP $33.15 +1.25 (+1.07) NEWP got left behind in the rally in
the Networking index (NWX.X) today, keeping it a prime candidate
on the put list.  Sure it managed to eke out a gain today, but
it wasn't very impressive in the face of the strong sector-wide
move.  That's just what we want to see in our put plays -- pick
on the weakling in the sector.  Over the past week, the lows
have been getting lower, and resistance at $35 is looking
stronger on a daily basis.  We are keeping our stop at $35 and
aggressive traders can target new entries at this level or at
the $34 intraday resistance level.  Conservative traders will
want to wait for more weakness to materialize before playing; a
drop through the $31 support level on increasing volume will be
just the ticket.  Keep an eye on the NWX index, as weakness
there will likely renew selling pressure in NEWP.

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SGP - Schering-Plough Corp $43.76 +1.14 (+1.06 this week)

Schering-Plough develops and markets pharmaceutical products and
treatment programs worldwide.  It operates in three principle
product lines: prescription drugs, animal health products, and
over-the-counter (OTC) drugs.  At the top of the company's
pharmaceutical inventory is the world's leading antihistamine,
Claritin.  Some OTC drugs that you may be familiar with include
brand names Afrin, Dr. Scholl's and Coppertone.

Schering-Plough along with dominant drugmaker Johnson & Johnson
(JNJ) lifted the DOW higher today.  The Pharmaceutical Index's
(DRG.X) change was rather minimal at 0.83%; however at 410, it's
flirting with a critical level of resistance.  Others in the
sector like BMY, ABT and MRK currently emulate the same plight
as they hover at precarious levels.  SGP and JNJ on the other
hand, are breaking through their respective levels of opposition
in rising markets.  Both companies had their own news to toot
around the Street, but it was SGP that received an upgrade to
Strong Buy from Dain Rauscher today.  They brokerage firmed also
issued a $60 price target citing the anticipated FDA approval of
a PEG-INTRON plus ribavirin combination therapy as major
catalysts, going forward.  Nonetheless, SGP faces a formidable
task as it approaches the upper $40 range and specifically,
$48.74.  Last February, SGP fell from investors' grace and
plummeted from this higher price level.  It'll be a
psychological achievement if SGP can break the chain and regain
a position above $50.  A break of these historical shackles
should generate lots of upward momentum and provide traders with
profit potential over the short-term.  Confirmation of continued
strength across the sector should become evident as the DRG.X
rallies above its imminent resistance at 415 and 420.  It's also
a good plan to monitor specific drug stocks to get an even
better feel for the overall sentiment.  Traders might find an
entry into this momentum play on a pullback to $41.50 or $42; or
more conservatively wait for another visible breakout and buy
into that swell.  We'll drop coverage if SGP fails to make a
bullish close above the $42 mark.

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

BUY CALL JUN-35 SGP-FG OI= 1334 at $9.00 SL=6.25
BUY CALL JUN-40 SGP-FH OI=13906 at $4.10 SL=2.50
BUY CALL JUN-45 SGP-FI OI= 3140 at $0.75 SL=0.00
BUY CALL JUL-40*SGP-GH OI=  352 at $5.00 SL=3.00
BUY CALL JUL-45 SGP-GI OI=  936 at $1.90 SL=1.00

Average Daily Volume = 7.48 mln

XOM - Exxon Mobil $91.55 +0.72 (+2.60 this week)

Widely known as one of the world's largest integrated oil
companies, XOM has a broad scope of operations.  Engaged in
exploration for and mining and sale of coal, copper, and other
minerals, the company manufactures and markets basic
petrochemicals including olefins, aromatics, polyethylene and
polypropylene plastics.  XOM also has interests in electric
power generation facilities.  Incorporated in 1882, XOM operates
or markets products in the United States and approximately 200
other countries and territories.

After failing to hold above the $90 level a little over 2 weeks
ago, XOM fell back to consolidate in the $87-88 area and is
taking another run at achieving new highs.  Getting the current
rally going again was news yesterday that the company managed to
win two of Saudi Arabia's three multibillion-dollar gas deals.
With a long history of in Saudi Arabia, XOM beat out fierce
competition to achieve the leadership position in the prized $15
billion South Ghawar development and the $5 billion Red Sea gas
deal.  That was enough to push the stock through the $90
resistance level yesterday, and despite OPEC making no change to
their production levels today, XOM managed to extend its gains
today.  This is a limited play, as resistance near $95 is likely
to halt the bulls in their tracks.  News out after the close
today that inventory levels of crude oil and gasoline climbed
again could put pressure on shares of the oil conglomerate
tomorrow.  Look for the $90 level to hold as support, confirming
the recent breakout.  We have placed a tight stop at $90, as a
close below this level will be another technical failure
signaling us to take our money elsewhere.  Aggressive traders
will want to target a bounce near the $90 support level for new
positions, while more conservative traders will want to wait for
continued strength to push XOM through $92 resistance before
playing.  Confirm sector strength by looking for positive
movement in the Oil index (XOI.X) before leaping into new

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

BUY CALL JUN- 90 XOM-FR OI=10327 at $2.30 SL=1.25
BUY CALL JUN- 95 XOM-FS OI= 9876 at $0.35 SL=0.00
BUY CALL JUL- 90*XOM-GR OI=18276 at $3.90 SL=2.50
BUY CALL JUL- 95 XOM-GS OI=16228 at $1.50 SL=0.75
BUY CALL JUL-100 XOM-GT OI= 3750 at $0.50 SL=0.00

Average Daily Volume = 6.10 mln


NETE - Netegrity Inc $38.02 +6.62 (+4.29 this week)

Netegrity  is a provider of software and services that manage and
control user access to Web-based e-commerce applications.  The
company's SiteMinder product is a directory-enabled secure user
management system, which is used to build and manage what is
commonly known as a portal.  Netegrity also offers professional
services that support its software product offerings.

WOW! NETE experienced a huge surge in today's session tacking on
more than 21% on 1.7 times the ADV.  The leading provider of
solutions for securely managing e-business announced that
Gartner, one of the most respected authorities in the access
management space, has once again placed Netegrity in the
leadership position in the Gartner Extranet Access Magic
Quadrant.  This is the second year in the row that Netegrity has
been awarded this honor and may explain the spike in share price
today.  So you ask, why in the world are we adding NETE to our
put list?  Let's not mince sentiment here.  This is a
speculative play for the more adventurous types.  We're looking
for NETE to complete the head-and-shoulders formation and
rollover.  A rise into the vicinity of $43 would close the gap
on recent highs and set NETE up for profit taking.  This
scenario presents the ideal entry in terms of risk and reward.
The first objective target on the downside is the previous
resistance at $35, followed by a second wave of losses taking
NETE to the $30 and $31 bottom support.  Take a look at a daily
chart for visual confirmation.  A close above $44 portends there
may be a bullish challenge of $47.13, the intraday high set on
May 21st.  If the momentum that carried NETE upward today
results in a close above $44, we'll immediately drop coverage.

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

BUY PUT JUN-45 UPN-RI OI= 22 at $7.80 SL=5.75
BUY PUT JUN-40*UPN-RH OI=219 at $3.60 SL=1.75
BUY PUT JUN-35 UPN-RG OI=516 at $1.30 SL=0.75

Average Daily Volume = 1.40 mln

ELNT - Elantec Semiconductor $30.61 -2.76 (-2.39 this week)

Elantec is engaged in the design, manufacturing and marketing
of high performance analog integrated circuits, primarily for
the video, optical storage, and DSL markets.  The company
offers approximately 150 products such as amplifiers, drivers,
faders, transceivers and multiplexers, most of which are
available in multiple packaging configurations.  ELNT targets
high growth commercial markets in which advances in digital
technology are driving increasing demand for high speed, high
precision and low power consumption analog circuits.

A better than expected mid-quarter business update from XLNX
last night set the Semiconductor sector on fire this morning,
and by the time the closing bell rang, the Semiconductor index
(SOX.X) had posted a 6.5% gain.  Gains were seen across the
sector throughout the day, except for our new play, ELNT.  So
what kept this stock from advancing with its sector?  What else,
an earnings warning and the announcement of layoffs.  The
company lowered its earnings estimate from 10-11 cents per share
to 6-8 cents, before taking a $2.9 million charge associated
with its announced 15% workforce reduction.  The rally on the
SOX couldn't brighten the dark skies this created, as ELNT
dropped more than 8% on more than double its ADV.  If the sector
falters in its current recovery (entirely possible with
resistance looming just overhead at $650), the loss of this
buoyant effect should be enough to really pull the rug out from
beneath ELNT.  The stock ended the day tenuously perched on the
$30 support level, but if this support fails, the stock could
quickly drop to major support near $25.  While it isn't a big
move, it is certainly enough to allow us to book a solid gain.
Place stops at $33 and consider taking new positions on any
failed rally below this level.  More conservative traders will
want to wait for the $30 support level to fail before taking a
position, and weakness on the SOX will just stack the odds
further in our favor.

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

BUY PUT JUN-30*UET-RF OI=107 at $1.45 SL=0.75
BUY PUT JUN-25 UET-RE OI= 40 at $0.40 SL=0.00
BUY PUT JUL-30 UET-SF OI=  5 at $3.50 SL=1.75
BUY PUT JUL-25 UET-SE OI=  0 at $1.45 SL=0.75  Wait for OI!!

Average Daily Volume = 976 K


ISSX - Internet Security Systems $48.66 +1.87 (+0.64 this 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

Most Recent Write-Up

The Technology market got off to an early start this morning
floating nearly all boats higher.  By midday, it was looking
like ISSX would take a quick trip to the drop list this evening,
but the bears showed up just in time.  After tagging a daily
high of $51.80, the bulls just ran out of conviction, and the
bears were more than happy to slash off better than half the
intraday gains.  ISSX was kind enough to close below our $50
stop level, and the real encouraging point was the way selling
volume ramped up right into the close.  After surging through
the $49.50 resistance level in the morning and then falling
back through it in the afternoon, it looks like the bears are
back in charge.  Beware of another buying surge, but aggressive
traders can consider new positions on another rollover near the
$50 level.  More conservative players will want to wait for
ISSX to drop back under $48 before taking a position.  Watch
out for support near $46, and let volume be your guide.


ISSX suffered a terrible close Tuesday.  The stock rolled over
in a big way during midday trading and accelerated to the
downside into the close.  Volume on the way down near the close
exceeded volume that accompanied the stock's advance earlier in
the day.  If Tuesday's finish is indicative of near-term price
action, ISSX appears as if it wants to work lower.  Use a
rollover near resistance at $50 to gain entry.  Or, consider
entering on weakness if the Nasdaq is in the red and ISSX falls
below $48 on heavy volume.

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

BUY PUT JUN-50*ISU-RJ OI=154 at $4.10 SL=2.50
BUY PUT JUN-45 ISU-RI OI= 54 at $1.40 SL=0.75
BUY PUT JUL-45 ISU-SI OI=309 at $4.30 SL=2.75
BUY PUT JUL-40 ISU-SH OI=318 at $2.65 SL=1.25

Average Daily Volume = 1.80 mln

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Anything else is too slow!



Who Said There Would Be No Summer Rally?

U.S. equities soared today with the Dow enjoying a triple-digit
gain and the NASDAQ continuing its recent recovery as investors
speculated that a technical bottom is finally in place.

Monday, June 4

Blue-chip stocks ended higher today in light trading as investors
searched for companies that will weather the economic slump.  The
Dow ended up 71 points at 11,061 and the NASDAQ closed 6 points
higher at 2,155.  The S&P 500 index was also up 6 points at 1,267.
Volume on the NASDAQ was the lightest so far this year with only
1.29 billion shares exchanged.  Technology advances beat declines
20-to-17.  Trading volume on the NYSE was also extremely low with
just 840 million shares traded.  Big Board winners outpaced losers
by almost 2-to-1.  In the bond market, the 30-year Treasury rose
11/32, pushing its yield down to 5.67%.

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

C & B    (NASDAQ:CHBS)  JUN50C/JUN45C  $0.35  credit  bear-call
Kohl's   (NYSE:KSS)     JUN70C/JUN65C  $0.40  credit  bear-call
Shire    (NASDAQ:SHPGY) JUL60C/JUL45P  $0.10  debit   synthetic
Sycamore (NASDAQ:SCMR)  SEP10P/J0340P  $27.50 credit  Put-LEAPS

Although they did not meet our target prices, the two bearish
positions offered acceptable entry credits.  Shire Pharma was
available at the suggested entry price.  There were also a few
contracts traded at the target credit in the "Reader's Request"
position in Sycamore.

Market Activity:

A lack of commitment marked today's session, with equity values
moving in a small range before finishing "in the black."  Stocks
that ended positive achieved relatively small gains and analysts
said the lackluster action was expected with the market entering
a seasonally slow period.  Optimism concerning remarks from Fed
Chair Alan Greenspan added some support after he suggested there
are few signs of inflationary pressure in the U.S. economy.  The
chief financial officer noted that increasing costs continue to
be absorbed by companies rather than consumers, but he also said
rising energy prices might have a greater impact on the economy
than previously thought.  Investors offered mixed opinions about
Greenspan's comments but most agreed the overall market trend is
improving.  On the Dow, Johnson & Johnson (NYSE:JNJ), Exxon Mobil
(NYSE:XOM) and United Technologies (NYSE:UTX) led the gainers.
DuPont (NYSE:DD) also edged higher after the Wall Street Journal
said that Bristol-Myers Squibb (NYSE:BMY) and Novartis (NYSE:NVS)
my be competing for DuPont's pharmaceutical division.  Among the
Dow's losers were Wal-Mart (NYSE:WMT), McDonald's (NYSE:MCD) and
General Motors (NYSE:GM).  There was little significant activity
on the NASDAQ, but Cisco (NASDAQ:CSCO) was a popular issue after
a British newspaper said the firm is planning to bid $17 billion
for the U.K. telecom equipment maker Marconi.  The semiconductor
segment was also in the news after Bear Stearns cut its earnings
estimates on chip giant Intel (NASDAQ:INTC).  Analysts at Goldman
Sachs backed the bearish outlook, saying the company would likely
report disappointing news at its upcoming meeting.  Another stock
in the sector, Cypress Semiconductor (NYSE:CY) reduced its second
quarter revenue and earnings estimates but traders said that was
no surprise as the reduced revenues were already "priced-in" to
the issue's share value.  In the broader market, oil, financial,
biotechnology and select drug issues advanced while airline and
retail stocks limited the market's upside.

Portfolio Activity:

The Spreads section enjoyed a number of favorable moves in the
banking and brokerage groups with Merrill Lynch (NYSE:MER) among
the top performers.  Also moving higher were Providian (NYSE:PVN),
Mellon Bank (NYSE:MEL), American Express (NYSE:AXP), State Street
(NYSE:STT) and A.G. Edwards (NYSE:AGE).  The bullish move in AGE
provided a small profit in our recent "time-selling" play and we
will begin to look for a potential early-exit opportunity.  There
were other broad market segments that participated in the upside
activity and PepsiCo (NYSE:PEP) and Stone Energy (NYSE:SGY) were
beneficiaries of the bullish momentum.  In the technology group,
Hewlett Packard (NYSE:HWP) and Cisco (NASDAQ:CSCO) were the big
surprises with HWP climbing higher after settling an old lawsuit
with Pitney Bowes (NYSE:PBI) and Cisco up on rumors of an offer
for telecom equipment maker Marconi.  The Cisco calendar spread
has reached a favorable (35%) closing profit.  The "watch-list"
included Alexion (NASDAQ:ALXN), MRV Communications (NASDAQ:MRVC)
and Sinclair Broadcasting (NASDAQ:SBGI), and all three positions
finished the day higher.  With the Alexion calendar spread, we
are watching for a favorable exit opportunity as the front-month
premiums begin to decline.  Both MRVC and SBGI have struggled in
recent sessions and we were monitoring each issue for favorable
recovery signals.  MRVC finished the day lower but did offer a
near break-even exit on the long option and SBGI rebounded over
5%, so we will remain in the bullish position for now.

Tuesday, June 5

U.S. equities soared today with the Dow enjoying a triple-digit
gain and the NASDAQ continuing its recent recovery as investors
speculated that a technical bottom is finally in place.  The Dow
Dow was up 114 points to 11,175 and the NASDAQ closed 77 points
higher at 2,233.  The S&P 500 index was up 16 points at 1,283.
Big Board volume hit 1.11 billion shares, with winners outpacing
losers by 2 to 1.  NASDAQ trading was mild with only 1.8 billion
shares exchanged.  Technology advances beat declines by 24 to 13.
In the bond market, the 30-year Treasury rose 15/32, pushing its
yield down to 5.65%.

Market Activity:

Technology stocks rallied today and the buying pressure spread to
the broader market as investors decided that stocks are indeed at
bargain prices.  Traders say the technical indications suggest a
significant bottom is being formed and with the current interest
rates at favorable levels, analysts believe there is potential for
a solid recovery in 2002.  In addition, today's headlines showed
some popular hi-tech companies reaffirming earnings projections,
lending credence to the view that the economy will improve in the
coming months.  On the NASDAQ, chip companies were a hot commodity
and networking and software issues also enjoyed excellent gains.
Computer hardware issues moved higher with shares of International
Business Machine (NYSE:IBM) and Hewlett-Packard (NYSE:HWP) among
the blue-chip technology winners.  The Dow Industrial Average was
supported by bullish activity in a number of issues.  Johnson &
Johnson (NYSE:JNJ), Alcoa (NYSE:AA), International Paper (NYSE:IP)
and Boeing (NYSE:BA) were the major catalysts.  The broader market
received a boost from biotechnology stocks with shares of Myriad
Genetics (NASDAQ:MYGN) and Human Genome Sciences (NASDAQ:HGSI) up
on news of positive drug developments.  Analysts say "Biotech" is
one of the strongest segments of the market and the speculative
buying appears to support that view.  Among other groups, finance,
paper and cyclical sectors rallied while utility, gold and natural
gas issues generally retreated.

Portfolio Activity:

Tuesday was a banner day for the Spreads section with a surplus
of favorable activity in the bullish positions.  The majority of
technology issues moved higher and stocks in the blue-chip and
broader-market categories also performed very well.  Among the
biggest (percentage) gainers were Intel (NASDAQ:INTC), Stratos
Lightwave (NASDAQ:STLW), Cisco (NASDAQ:CSCO), Linear Technology
(NASDAQ:LLTC) and MRV Communications (NASDAQ:MRVC).  Microsoft
(NASDAQ:MSFT) was also a popular issue, up almost $2 to $72.60
and the move suggests a possible test of resistance levels near
$73.50 and $74 in the coming sessions.  For more than a month,
MSFT has been thwarted by resistance near $72 but with today's
breakout, there is definite potential for more bullish movement.
Since our short (call) option in the bearish spread is at $75,
we will monitor the issue closely for signs of continued upside
strength as it approaches that range.  The bullish trends also
produced some winners in the section with Shire Pharmaceuticals
and Alexion (NASDAQ:ALXN) providing excellent short-term gains.
One issue we must monitor for additional upside bias is Optimal
Robotics (NASDAQ:OPMR).  Today the stock rebounded to a recent
high near $32.50 and we don't want to let the bearish spread at
$35 become a losing play.  Total Fina (NYSE:TOT) and Electronic
Data Systems (NYSE:EDS) are the other bearish positions in the
portfolio but for now, they are both comfortably below the sold
(call) strike prices.

Questions & comments on spreads/combos to Contact Support
                       - UPCOMING SEMINAR -
This month I will be conducting an instructional seminar for new
traders who are interested in the fundamentals of "time-selling"

The general topics of discussion will be:

- Increasing portfolio returns with long-term options (LEAPS)
- Reducing the cost of these options with covered-calls
- Learning to sell time (and potential) for a profit

You can take the seminar without leaving the comfort of your home
or office.  It is interactive and you can ask questions after the
presentation.  You do not need any special software to attend
the presentation but you must have a 56K Internet connection or
faster for best results and a separate phone to listen to the
audio portion.

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


                       - SPECULATION PLAYS -

Today's positions are based on recent increased activity in the
stock and underlying options.  All of these plays offer favorable
risk/reward potential but they should be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

TSFG - South Financial  $18.45  *** What's Up? ***

The South Financial Group (NASDAQ) is a financial holding company.
The company operates through subsidiaries consisting of Carolina
First Bank, a South Carolina state-chartered commercial bank;
Citrus Bank, a Florida state-chartered commercial bank; Carolina
First Mortgage Company, a mortgage banking company, and the Blue
Ridge Finance Company, Inc., an automobile finance company.  The
company provides a range of banking services, including mortgage,
trust and investment services, designed to meet substantially all
of the financial needs of its customers.  The company conducts its
business through 74 locations in South Carolina, five locations in
North Carolina, and 15 locations in northern and central Florida.
As of the beginning of the year, the company had over $5 billion
in assets, $3.7 billion in loans, $4 billion in deposits and $468
million in shareholders' equity.

It has been so long since we offered a "bullish" diagonal spread
that when I saw the favorable July option premiums in this issue,
I knew there was only one way to offer the candidate in a spread.
There has been no public news about South Financial Group beyond
comments of consolidation in the sector, but the recent activity
in the issue suggests that "something" may be in the works.  The
stock has jumped 15% in just three days and the near-term option
prices are inflated as well.  Officials from the company haven't
made any comments about the recent stock or options activity, so
there is little to go on other than the "heavy-volume" buying.

The issue is due for a consolidation but the excess premium in
the short-term options should help our position when the stock
eventually retreats.  Traders who believe there is additional
upside potential in TSFG can speculate on that outcome with this
low-cost combination play.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  AUG-17.50  QCF-HW  OI=629  A=$2.00
SELL CALL  JUL-20.00  QCF-GD  OI=35   B=$0.75

HYSQ - Hyseq  $16.66  *** A Big Move! ***

Hyseq (NASDAQ:HYSQ) researches and develops biopharmaceuticals to
treat acute and chronic diseases.  The company is conducting its
pre-clinical studies on IL-1Hy1 anti-inflammatory and CD39L4 anti
clotting product candidates, and is researching a number of other
candidates for its clinical pipeline.  Their biopharmaceutical
products are proteins produced by novel, rarely expressed genes.
The company uses its proprietary technology with its partners for
therapeutic and diagnostic target discovery, in pharmacogenomics
and polymorphism analysis, and with its DNA analysis tools such
as the HyChip system.

Hyseq is another issue with outstanding bullish activity and no
news to explain the movement.  In addition, option buyers are
out in force with 703 contracts of the JUN-$17.50 (call) options
trading today against an existing open interest of 0.  That is a
substantial change in the option series volume for a relatively
unknown issue and suggests there is more to this move than simply
bullish character in the overall sector.  The activity may be due
in part to short-covering as the float on this stock is fairly
small.  In addition, there may be new participation by a mutual
fund or other institutional trader that believes in the future of
the company's proprietary diagnostic technology.

Regardless of the reason for the move, a change in character is
definitely underway and traders who think the trend will continue
can profit from future bullish movement with this position.

PLAY (conservative - bullish/covered-call)

SELL CALL   JUL-15.00  HUH-GC  OI=435  B=$2.85
TARGET COST BASIS=$13.60  PROFIT(max)=$1.40 YIELD=10.2%


PLAY (speculative - bullish/debit spread):

BUY  CALL  JUL-12.50  HUH-GV  OI=155  A=$4.70
SELL CALL  JUL-15.00  HUH-GC  OI=435  B=$2.85

WLL - Willamette Industries  $48.89  *** Merger Outcome? ***

Willamette Industries (NYSE:WLL) is an integrated forest products
company with 105 plants, located in the U.S., France, Ireland and
Mexico.  The company owns 1.7 million acres of forestland in the
U.S. and manages it continuously to produce building materials,
composite wood panels, fine paper, office paper products, unique
corrugated packaging and grocery bags.

The outcome of the takeover battle between Weyerhaeuser (NYSE:WY)
and Williamette is expected to conclude this week as Williamette
shareholders will vote Thursday on whether to elect a slate of
directors backed by Weyerhaeuser, who would then vote to accept
their $5.5 billion offer.  Weyerhaeuser, a rival timber company
that has been unsuccessful with its buyout offers for Willamette
is fighting to get three directors on Willamette's board.  Some
experts say a vote for Weyerhaeuser means more problems, but with
a big payoff down the line.  A vote against means Weyerhaeuser's
$5.5 billion offer to buy Willamette fails, possibly removing up
to a third of the company's market value in the process.  If the
Weyerhaeuser board is elected, they will likely proceed with the
$50 cash tender offer and if they lose, the company will likely
withdraw all bids for Williamette.  Analysts are predicting an
extremely close board vote, with either side winning by a very
small percentage and with the potential for an increased bid
unlikely, shares of WLL have fallen in recent sessions.

Traders who agree there is little potential for a large upside
move in this issue may speculate on the outcome of the vote with
this position.  There are unusually large BID/ASK spreads in the
WLL options, to prevent arbitrage by institutional players.  But,
a retail participant should have no problem achieving a favorable
opening credit as traders exit their previous positions prior to
the meeting on Thursday.

PLAY (speculative - bearish/credit spread):

BUY  CALL  JUL-55  WLL-GK  OI=638   A=$0.70
SELL CALL  JUL-50  WLL-GJ  OI=4015  B=$1.80


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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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