Option Investor

Daily Newsletter, Tuesday, 06/12/2001

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The Option Investor Newsletter                  Tuesday 06-12-2001
Copyright 2001, All rights reserved.                        1 of 2
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MARKET WRAP  (view in courier font for table alignment)
        06-12-2001        High      Low     Volume Advance/Decline
DJIA    10948.38 + 26.29 10982.14 10788.58 1.13 bln   1572/1519 
NASDAQ   2169.95 -   .83  2184.20  2105.26 1.69 bln   1727/2032
S&P 100   647.69 +   .96   650.58   635.87   totals   3299/3551
S&P 500  1255.94 +  1.46  1261.00  1235.75
RUS 2000  506.90 +   .00   507.53   500.37
DJ TRANS 2794.04 - 35.83  2830.06  2778.95
VIX        22.98 +   .24    24.65    22.77
Put/Call Ratio      0.87

Where Is That Summer Love?

The doldrums of summer, weighted down by several major earnings
warnings, erased any vestiges of summer love by buyers at the
market open on Tuesday. However, bulls are quick to forgive
and forget and they promptly bought the dip and the Dow staged
a miraculous recovery. The Nasdaq recovery was not as dramatic
as the Dow's but a close +64 points off the lows was encouraging.

The biggest cloud over the markets on Tuesday was the big Nokia
profit warning. Nokia said they were revising their 2Q estimates
down to $.12-$.14 cents. Analysts estimates were in the $.18 cent
range. Nokia receives 75% of its revenues from cell phone sales
and they see that business falling to only a +10% growth rate
going forward. Analysts who reviewed the warning said it is likely
to get worse still before it gets better. There is no improvement
seen in the near term. The bottom line is Nokia is not selling as
many cell phones as it is making and the free phone giveaway by every
agent is not finding many takers. The slowing cell phone revolution
is putting pressure on more than just manufacturers. This is
showing up in resellers, providers, switches, routers, etc. All
the components of the networks worldwide are slowing as well. The
market realizes this and that is why the warning hit us so hard.

Biotechs also took a huge hit with the Affymetrix warning. The
stock lost almost -30% after saying that it had seen a large drop
in sales of its chips used in the drug discovery process. It seems
large drug companies are delaying orders. Not just PC companies
are seeing corporate spending being curtailed due to the economic
weakness. AFFX is not the first company to see a pullback in
biotech chips. ABI and MDCC also warned recently that demand was
slowing. Many analysts see investments in these companies as a
waste of time and money over the next several quarters until the
sector shows new life.

Dell Computer actually gained ground after saying at a tech
conference that they did not see any recovery until the fourth
quarter or later. The reason for the gain was an upgrade from
Morgan Stanley. The COO of Dell, Kevin Rollins, said they had
giving the street a down-tick in estimates of -3% to -5% and
they were still confident in that guidance. He said Dell was
leading the current price war and stood to gain market share from
the experience. They are hanging their hat on a replacement cycle
for the Y2K computers that were purchased in 1999. They are
expecting them to be coming to the end of their performance cycle
and customers are going to be looking at 1000 MHZ models this
Christmas. Sounds like wishful thinking to me but it worked for
them today. The MS upgrade was from neutral to outperform and
resulted in an $.84 gain in the stock. When was the last time
an "outperform" was worth anything in share price? MS thinks
that Dell will break into the networking equipment business
and ink some reseller agreements with some leading players.

Avaya warned of continued weakness and announced layoffs of
3000 jobs. The recent Lucent spin-off is following in daddy's
footsteps. S&P said they did not see a return in profitability
for Lucent until possibly late 2002 and cut their bonds to junk
status. Analysts now fear they will not be able to get more than
$4 billion for their fiber business and some estimates had been
as high as $7 billion. Welcome to the summer of 2001!

CMGI also reported that it lost almost $1 billion in the last
quarter. Ouch! Estimates had been for a loss of -$2.14 and the
actual number came in at -$2.80. They said they expected revenue
to continue to decline and be only $290 million. They said they
were slashing costs to preserve cash. They estimate that they
have 12 quarters of cash left which is an improvement over the
previously reported 9 quarters. They are shutting down AdForce
to save money and said Internet advertising could continue to
suffer for 2-3 years. Their only highlight is UBID.com which
saw a +16% increase in visitors.

The Dow screeched to a halt exactly on 10800 which has been
support since early May. Had we broken that level there would
have been serious consequences. The Nasdaq low of 2105 was
encouraging and the third in a sequence of higher lows from
mid-May. I think the rebound today was bullish but before we
start yelling "summer rally" we should also remember that we
have been selling off for several days and it is natural that
we should bounce off support with an oversold rally. The true
test will be to see if we can maintain this rally through the
end of the week.

For a rally that managed to bounce the Dow +159 points off its
low the volume was wimpy at only 1.1 billion shares. The Nasdaq
managed only 1.7 billion or only about 70% of what you would
expect for a dip buying recovery. This means that there is no
conviction by buyers and with earnings warning season in full
bloom, as evidenced by Nokia and AFFX today, investors are
waiting on the sidelines for the next shoe to fall. Some are
waiting for the whole closet to collapse before taking any new
positions. The Dow came to rest just under recent resistance at
10977 and could struggle going forward. The Nasdaq is in the
middle of its recent range and could easily move 70 points in
either direction without any major effort. Moving farther than
that in either direction would take a major sentiment change.
Buyers are simply waiting between 2000-2100 and sellers are
waiting at 2250 leaving no exciting possibilities for traders.

While I am positive about the bounce I am negative about the lack
of conviction. We have nothing to power a rally and many chances
for more warnings. Aggressive buyers could buy any dip back to
2100 and conservative buyers should wait for a breakout over
2250. Waiting is about as much fun as watching grass grow but
buying just before a dip ranks right up there with a root canal.

Enter passively, exit aggressively!

Jim Brown

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Turnaround Tuesday
By Russ Moore

What a great label for today's volatile session.  Pre-market
futures action turned decidedly bearish, following an earnings
warning from Finnish cell phone maker Nokia (NOK).

As the day progressed, market action continued to bleed red
with the DOW falling below the 10,800 support level and the
NASDAQ only a nickel away from 2100. Fast forward to the
afternoon portion of the day and a completely different story
unfolded. The NASDAQ led the turn with hardware, software,
and Internet stocks beginning to attract some buying interest.
With about an hour to go the blue chip DOW joined the party,
managing to close above water while the NASDAQ closed near
its starting level.

The reason for the turnaround was likely nothing more than
bargain hunters looking to buy.

Volume on the major indices was light to moderate with 1.13
billion shares trading on the NYSE and 1.72 billion on the
NASDAQ. The DOW ended with a 0.2 percent gain while the tech
index slipped 0.83 percent. The NDX posted a minimal gain of
0.3 percent. Winners and losers ended in a draw on the NYSE
while losers were victorious on the NASDAQ posting a 20/17

Sectors moving to the upside included gold, retail, oil and
utility. Headed in the other direction were biotechs,
financials, paper and cyclicals.

Today's action was void of economic data but that will change
tomorrow with May retail sales and the Feds' beige book due

"SAY CHEESE"! Kraft's much anticipated IPO was priced at $31.00
and should be very active in tomorrow's session, its first day
of trading.

With triple witching week upon us, we can expect the next few
days to be filled with a few more surprises. Tomorrow's economic
data, especially the retail sales numbers, could provide the
next market catalyst in a very cautious investor environment.


Tuesday 06/12 close: 22.98

Tuesday 06/12 close: 54.13

30-yr Bonds
Tuesday 06/12 close: 5.65%

Total Put/Call Ratio: .87

Equity Option Put/Call Ratio: .74

Index Option Put/Call Ratio:  1.54


NASDAQ 100 Index (NDX/QQQ)
52-Week High: 103.51
52-Week Low:   33.60
Current close: 45.80

Volume/Open Interest
Maximum calls: 50/95,767
Maximum puts : 45/88,911

Moving Averages
 10 DMA 46
 20 DMA 47
 50 DMA 45
200 DMA 62


S&P 100 Index (OEX)
52-Week High:  834.93
52-Week Low:   548.16
Current close: 647.55

Volume/Open Interest
Maximum calls: 680/5,880
Maximum puts : 530/9,723

Moving Averages
 10 DMA  651
 20 DMA  657
 50 DMA  638
200 DMA  691


S&P 500 (SPX)
52-Week High:  1530.01
52-Week Low:   1081.19
Current close: 1255.85

Volume / Open Interest
Maximum calls: 1250/41,930
Maximum puts : 1250/44,825

Moving Averages
 10 DMA 1263
 20 DMA 1275
 50 DMA 1235
200 DMA 1320


52-Week High:  11,518.83
52-Week Low:    9,047.56
Current close: 10,948.38

Volume / Open Interest
Maximum Calls: 100/51,310
Maximum Puts   100/73,242

Moving Averages:
 10 DMA 11,002
 20 DMA 11,076
 50 DMA 10,700
200 DMA 10,639


CBOT Commitment Of Traders Report: Friday 06/08
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        +77601     +70242        -77490     -68496
Total Open
Interest %       (+33.61%)  (+33.61%)    (-10.71%)    (-9.48%)
                 net-long   net-long      net-short  net-short

                     Small Specs             Commercials
DJIA futures
Open Interest
Net Value          -4251      -4226          +5829     +5812
Total Open
interest %      (-35.39%)    (-30.65%)      (+14.71%)  (+16.24%)
                 net-short   net-short     net-long    net-long

                     Small Spec              Commercials
Open Interest
Net Value         +1155      +2912         -11335    -11508
Total Open
Interest %        (+5.43%)  (+14.80%)     (-18.42%)  (-18.82%)
                 net-long   net-long      net-short  net-short

What COT Data Tells Us
Indices: Almost no perceptible change across the all-important
S&P and thinly traded Dow futures markets. Current data is
unretreivable for the ND01 contracts until Tuesday, 6/12 but
we can assume it is relatively unchanged based on the first two
markets, being the thinnest volume and least-traded contracts
of the these three.

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
6/05  42,314 contracts net-short

Commercials backed off their five-year historical short and may
be poised to begin accumulating again soon.

These recent moves are volatile in an otherwise quiet market.
Many felt that the latest move was merely a short-squeeze and
retail rally while the real move in gold could begin this summer
if the economy remains weak and inflation pressures build.

Data compiled as of Tuesday 06/05 by the CFTC.


Please visit this link for Market Posture:



How're Our Trades Doing?
By Lee Lowell

I thought we'd take a look back at our theoretical trades from the
last few weeks and see how they have progressed.  Our put
backspread trade on YHOO, the ratio put spread on AMAT, and our
AMAT put skew example, can be seen in previous 101 articles from
May 1st, 15th, and 29th.

On May 1st we executed our theoretical put backspread trade on
YHOO as we thought there was a good chance for big downside
movement.  We purchased 2 Oct '01 $20 puts for $4.10 and sold 1
Oct '01 $35 put for $15.20, for a net credit of $700.  Below is
the YHOO option chain for today's intraday trading.  We can see
there really has been no movement in total option price changes
 with YHOO around $17.30/share.  Our put backspread could be
initiated today for about an initial $820 credit, so we are down
about $1.20 on the trade so far. (Splitting bid/ask prices.)

If we look at the Imp Vol(B) and the Imp Vol(A) columns, we see
that if we split the bids/asks, our spread will be initiated at
a relatively flat skew.  There's some interpolation involved
here, but that's what the results yield.  If we sell the $35
put at $17.60, that's roughly a 79-80% IV and if we buy 2 $20
puts for $4.70, that's roughly a 77.5% IV, giving us a very
slight edge, volatility-wise.

We still have time left on this trade to mature, but as stated
in the original article, we would want to exit this trade about
30 days before expiration because that's when time decay would
start to really eat away at our long $20 puts.  That would take
us to about the third week of September before needing to take
full action.

Let's see what our AMAT put ratio spread is doing.  On May 15th,
we bought 1 June '01 $50 put and sold 2 June '01 $45 puts for a
small $.40 credit.  Our position would profit if AMAT was
trading anywhere above $39.60.  Ideally we want AMAT to expire
right at $45 for maximum results.  As of today, 6/12/01, AMAT
is trading for $54.50/share and it looks like we are in good
shape.  If AMAT finishes above $50 at expiration, all our puts
will expire worthless and we'll keep our $.40 credit (Yeeha!).
If AMAT starts ticking below $50, we'll start making $1 for
every $1 down move by AMAT until we hit $39.60.  The options
expire this Friday.  Here's the graph again.

If you are still uncomfortable with the 1 naked short $45 put,
you can easily buy it back now for the minimal debit.  Heck, you
can even buy back both short $45 puts and end up with a naked
long $50 put.  If AMAT pre-warns before Friday and it tanks to
$30/share for example, your long $50 put will be golden.
(Remember, illustrative purposes only!)

Finally, our AMAT skew example from last week using the July '01
$40/$50 debit put spread.  AMAT has risen about $1.25 since I
last wrote and our debit put spread is now worth $2.15, giving
us a loss of about $.60  Here's the updated option chain for
today, 6/12/01:

If we had just bought the $50 put outright, we would be down $1
on the trade, so by initiating a put spread instead, we have kept
our loss to a smaller amount so far.  Plus, our breakeven on the
spread requires AMAT to move a full $1 less to the downside.
This is due to the fact that the spread cost us $2.75, whereas
the $50 put could've been bought initially for $3.80, making the
breakeven $1 farther away for the outright long $50 put.  If you
look at the IV columns, you will see that this debit put spread
can still be done favorably on an IV basis.  The $50 put can be
bought for 64% IV and the $40 put can be sold for 73% IV.  Even
if AMAT doesn't move to the downside as you once predicted, you
still know that you put the spread on at favorable prices.  Last
week's article illustrated this point by going through scenarios
if we bought this spread at unfavorable IV skews.

I hope I haven't bored you with our spread and skew examples from
the last few weeks, but I feel that these are the necessary steps
to be taken before initiating any kind of option trade.  There
are many traders whose position life span may be only a few
minutes long, and this kind of analysis would be worthless for
them.  I have a slightly longer time frame (weeks to months), and
so doing all the research will help me put on trades with
favorable conditions.

Until next time...


Option Investing: Spreading Out Risk
By Austin Passamonte

Time premium can be an option investor's friend or enemy. From
1999s' artificial markets, many came to believe extra time value
in an option contract raised their possibility for profit far
above buying front-month or near expiration contracts instead.
Billions of dollars in expired options since then have placed
that fallacy to well deserved rest.

Very little is more agonizing than watching time premium bleed
out of contracts for months on end while the underlying market
trades far away from previous levels, never to return. Those of
us who've done so can promise others it is little fun. Hope that
some miracle will restore what eventually become deep out of
money contracts back to profitable levels in the back of our
minds while forced to admit day after painful day that such will
not be the case is demoralizing.

So what's an investor to do? Forego extra time value in option
contracts and only play those about to expire? Nope, that's not
option investing; it is pure speculation which can be fun & very
lucrative but lies outside of tonight's discussion. Why not
continue to use plenty of extra time value but why not do so in
ways that neutralizes massive theta decay?

Let's talk about position trades and defensive moves to help us
make money or preserve capital in semi-passive manners: debit
spreads, credit spreads and collars.

Debit Spreads
If we have a market bias towards future direction but need time
to see it unfold, no better way I can think of from the long side
than buying debit spreads. An example follows.

Perhaps we think the SPX is due for a pullback, decline or
outright sell off soon. What would it take for us to hold a long
position good for the next six weeks from Monday's open until
July expiration?

Long : SPX July 1250 Put @24.00 ask
Short: SPX July 1225 Put @15.00 bid
Cost :  9.00
Value: 25.00 [intrinsic]
Gain : 16.00 [maximum profit]

We could have purchased the July 1250/1225 bear-put debit spread
for $900 Monday morning. Our maximum risk if the index holds
above 1250 for the next six weeks straight without dipping down
below there once is $900. If we are willing to risk that, what
might be our return?

Well, intrinsic value on a 25-point spread is $2500. If the index
trades below 1225 in six week's time it would be worth $2500 at
expiration or something slightly less should the index crater
before then. $2500 - $900 = $1,600 net profit if we are correct
about the market's decline in the next six weeks.

Now, nine out of ten option players are thinking, "That's nice,
but why not simply buy the 1250 put outright and hold on. That
gives me unlimited profit potential and I want it all". Unlimited
potential yes, but with a prevailing "ask" price of 24.00 you
would need the SPX to reach 1226 by expiration just to break
even. If it craters sooner than that you could do very well...
possibly better than the debit spread would.

Tick... tick... tick goes the time-value clock against you
meanwhile as your open put bleeds theta value during flat market
action. Keep in mind that the debit spread buys and sells off-
setting time value to negate decay. A $900 risk/$2500 reward is a
277+% return on cost for the debit spread on a "buy & forget"
type of play. Can you live with that as a passive trade with
limited downside? Have you seen many buy & hold plays do better
than that lately?

What if we have no clear directional bias but feel these markets
are ready to move either way? Can we still profit from the long
side with debit spreads? Why sure!

Long : SPX July 1275 Call @28.00 ask
Short: SPX July 1300 Call @17.00 bid
Cost : 11.00
Value: 25.00 [intrinsic]
Gain : 14.00 [maximum profit]

We could own the 1250/1225 bear-put debit for $900 and the
1275/1300 bull-call debit for $1100 or total cost of $2,000.
Breakeven for us would be the SPX trading at 1230 or 1295 with
maximum profit of $500 outside of those ranges. Total loss comes
with the index closing between 1250 and 1275 in six weeks.
Partial gains or significant profit could come from legging out
of one or both sides during volatile swings in market action
should that occur.

Can you see how debit spreads give us significant leverage while
negating time decay as directional plays? Can you see how we have
better odds playing market-neutral directions with chances good
for modest profits if market action heads directionally either
way? These are tactics used by floor brokers in the SPX and other
index pits that we should keep in mind.

Credit Spread/Debit Spread Combos
Market pros love to play combinations when market bias is strong
for dual bang from each buck. Of course, greater leverage also
comes with the risk of greater loss but we'll examine this tactic
as well.

This method can be used in any market but is safest to apply on
the SPX and DJX index contracts. They are both European-style
exercised which means the short side cannot be exercised against
the seller except for the day they cease trading expiration week
Thursday. That gives us full staying power without worry of early

Most other popular option contracts like the OEX, QQQ, all HOLDRs
and equity options I'm familiar with are American-style and the
short side CAN be exercised at any time against us. Sudden market
moves could indeed blow up an otherwise good trade we want to
keep. Details and dangers of early assignment lie far outside our
time & space to explain in this brief article, so please consult
info from the CBOE, AMEX or your broker for specific details.

Plenty of big-money pros guess which way the market is headed
next and sell OTM credit spreads in the opposite direction. But
instead of keeping the proceeds in their account, they use that
credit received to buy debit spreads for dual directional punch!

Bearish example:

CREDIT SPREAD #1 - Conservative
Short : SPX July 1300 Call @17.00 bid
Long  : SPX July 1325 Call @ 9.00 ask
Credit: 8.00
Value : 25.00 [intrinsic]
Risk  : 17.00 [maximum risk]

CREDIT SPREAD #2 - Aggressive
Short : SPX July 1275 Call @27.50 bid
Long  : SPX July 1300 Call @17.50 ask
Credit: 10.00
Value : 25.00 [intrinsic]
Risk  : 15.00 [maximum risk]

Long : SPX July 1250 Put @24.00 ask
Short: SPX July 1225 Put @15.00 bid
Cost : 9.00 [maximum risk]
Value: 25.00 [intrinsic]
Gain : 16.00 [maximum profit]

A conservative trader may sell credit spread #1, collect $800 in
credit received and buy the debit spread with proceeds. A more
aggressive trader may sell credit spread #2, collect $1,000
credit and buy the debit spread with proceeds as well. How would
they fare?

Trader #1: SPX closes above 1325; loses $1700 in credit spread
plus $900 in debit spread for total net loss of $2,600.

SPX closes below 1300 but above 1250: keeps $800 in premium but
loses $900 debit. Lower than SPX 1250 is profit with maximum of
$800 credit + $2,500 intrinsic on debit for $3,300 return.

Trader #2: SPX closes above 1300; loses $1500 in credit spread
and $900 in debit spread for total net loss of $2,400.

SPX closes below 1275 but above 1250: keeps $1,000 in premium but
loses $900 debit. Lower than SPX 1250 is profit with maximum of
$1,000 credit + $2,500 intrinsic on debit for $3,500 return.

We can see the various risk/reward scenarios at work here with
debit and or credit spread strategies that give us opportunity to
play directional movement while negating time decay while we
wait. When strong directional bias exists we can also use credit
spread receipts to purchase debit spread directional plays for
little or no out-of-pocket expense with the acceptance of greater
capital risk if we are dead wrong on market direction.

Option traders with rock & roll mentality have either yawned
their way through this section or clicked out long ago. The rest
of us left perusing these thoughts must admit they hold merit, or
floor traders and professionals would not use the exact-same
tactics to pay for their place in the Hamptons and the Keys, now
would they?

Best Trading Wishes,

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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.


NOVN $34.01 -1.49 (-1.63) The complete deterioration of the
Biotech Index, which hit a very bearish 571 and finished sub-600
at 592 Tuesday, is simply putting too much negative pressure on
NOVN.  Despite NOVN's strong stance at the higher support
levels, the current environment doesn't portend significant
upward movement; enough to create volatility and hence,
potential gains.  Therefore, we're dropping coverage this
evening in light of the growing difficulty for NOVN to "buck the

PIXR $42.90 -0.80 (-1.80) The entertainment sector was mixed
this week with shares of FOX, ATVI and VIA.B trading in narrow
ranges.  It was, however, the downside action of PIXR and its
sector-mate MVSN that results in tonight's dropped coverage.
Both stocks were cut significantly in the past two sessions.
The frightening sell-off in early trading took PIXR to $41.65
before a turnaround in the market returned the share price back
above our $42 closing stop.  Notwithstanding the somewhat
bullish close, we can't ignore PIXR's floundering behavior and
its failure to challenge the $44 level on the rebound.  If you
have open positions, consider selling into intraday strength if
buyers can manage to move it through $43; sometimes amateur hour
can supply the necessary volatility to reap gains.


No dropped puts this tonight

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The Option Investor Newsletter                   Tueday 06-12-2001
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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

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

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

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


BRCD $47.17 +1.10 (+2.08) Following the early-morning dip near
$41 yesterday, buyers showed up to support shares of BRCD
throughout the afternoon.  Volume increased all afternoon,
handing the stock a gain on the day.  Then NOK warned this
morning, driving technology stocks lower, but it was encouraging
to see shares of BRCD find support near $44, providing a good
level for buyers to launch the afternoon rally.  By the time the
dust settled, BRCD had posted another modest gain, closing near
the high of the day, and keeping the fledgling rally alive.  Not
only that, but volume was strong at more than 30% over the ADV.
Resistance is looming just overhead at $48, followed by $51.
Conservative traders will want to see the stock clear the $48
level on continued strong volume before taking a position.  More
aggressive entries will materialize on intraday dips near $46 or
even $44, so long as the dip is followed by a strong
(read:volume) bounce.  Move stops up to $43.

CB $76.76 +0.64 (+0.38) Despite the large drop in the broader
market this morning, the Insurance index (IUX.X) kept its early
losses well-contained.  Once buying interest began to emerge in
the afternoon session, the IUX rallied back near the unchanged
level, keeping the uptrend alive.  Shares of CB performed almost
identically.  After dipping just below $76 in the morning,
buying volume grew throughout the afternoon, boosting the stock
up to close near the high of the day, just below the $77.50
resistance level.  Upward pressure is building, and once the
stock breaks above this level, conservative traders will have
an attractive opportunity to step into the play.  Intraday dips
near the $76 level are still giving aggressive traders a chance
to enter the play at a better price.  Keep stops in place at
$74, and continue to monitor the IUX index for confirmation of
sector strength.

MUSE $43.51 +0.73 (-1.58) The bears tried valiantly to break the
back of MUSE's fledgling rally today following the NOK earnings
warning.  But the bulls were waiting for them, ready to buy once
again at the ascending trendline.  Aggressive traders got a
great entry point as the stock bounced sharply from the $40
support level and rallied through $42 resistance level on its
way to posting a daily high of $45.20.  Although there was some
selling at the close, it was encouraging to see MUSE end another
turbulent trading session with a fractional gain.  Due to the
strong intraday rebound, we are willing to overlook the fact
that MUSE dipped below its $41 stop this morning.  Software
stocks, as measured by the Software index (GSO.X) posted a nice
recovery this afternoon, and a continuation of this move should
propel MUSE through the $45 resistance level.  Such move will
provide opportunities for conservative entries, but keep an eye
on the $50 level, as it will likely offer resistance and a
possible site of profit taking.  We are leaving our stop at $41,
and aggressive traders can still consider fresh entries on a
bounce above this level, possibly near $42.

SEBL $48.73 +1.86 (+0.12) Cratered with the rest of the Software
sector this morning, SEBL looked like a clear-cut drop until the
surge of buying that appeared shortly after lunchtime.  The
effect of the NOK warning this morning drove SEBL down near the
$44 level before buying volume began to increase.  It didn't
take long for the stock to clear our $46 stop as it ran nearly
to $50 before seeing a bit of profit taking at the close.  With
such a stellar recovery, we are compelled to keep SEBL on the
playlist in anticipation of an extension of the bullish move
throughout the rest of the week.  While we are keeping our stop
in place at $46, aggressive traders will want to be cautious
about buying the dips - make sure they are accompanied by strong
buying volume.  The more conservative approach will be to wait
for the stock to clear $50 on solid volume before taking on new
positions.  Just keep an eye out for profit taking as SEBL
attempts to scale resistance looming overhead at $52 and $54.

VRSN $57.95 +4.04 (+2.29) Now that made for an exciting day.  In
the wake of more NASDAQ weakness and NOK's warning this morning,
our VRSN play was looking like a definite drop tonight after it
fell through our $53 stop.  Then that 38% retracement appeared
near $52 to support the stock, giving the bulls a good
springboard for the afternoon's gains.  Buyers showed up right
after the lunch hour, propelling the stock as high as $58.80
before the enthusiasm began to wane in the final hour.  This
brings us right back to resistance at $59, where we sat last
Thursday.  Although still stuck in a range, the solid volume
today (the heaviest seen in over 3 weeks) tilts the scale in
favor of the bulls and their odds of pulling off the breakout
above the $60 resistance level.  We are leaving our stop in
place at $53 and aggressive traders can continue to target shoot
entries on intraday bounces first at $57 and then at the $54-55
level.  More conservative players will want to wait for
continued buying interest to push VRSN through the $60 level
before playing.

CEFT $53.52 +0.48 (+0.91) This e-transaction processor eked out
gains in both sessions this week, stretching its limits and
setting more consecutive 52-week highs.  Today's intraday high
of $54.60 tops the record books.  The stock's underlying
strength in adverse markets defines its ability to keep the
uptrend intact as we move forward; however let's not throw
caution to the wind.  Across the sector, PAYX and FDC are
hitting lower-lows and that's not a good sign.  With that in
mind, safeguard existing profit and capital.  If you're
still of the opinion to buy into subsequent momentum thrusts,
keep stops tight.  We have a $50 CLOSING stop in place.  We
won't think twice about taking our gains and moving on to other
moneymaking plays in the event of heavy profit taking.

MSFT $72.08 -0.04 (-1.11) The Bollinger Bands, roughly binding
today's parameters from the lower $70.50 level upward to $73,
set the pace.  Aggressive traders were presented with viable
entries near $70.80 and $71; although we'll need a big breakout
through $73.50 and $74 to generate the lucrative exit points.
The overall decline in the Software Index (GSO.X) further tested
MSFT limits, but its recovery back to the vicinity of 230
indicates there's hope of a sector-wide breakout.  The 240 level
previously hindered advances.   A bullish propulsion through
2200 in the NASDAQ would also signal traders to prepare for a
MSFT rally and thus, commit to entries on the upswing towards
the 52-week high, at $82.87.  Our closing stop remains set at
the $67 breaking point.

PSFT $43.96 +0.19 (-1.02) PeopleSoft's show-stopping release of
its CRM software, which directly competes with Siebel Systems'
product, propped up its shares recently.  But this week, it
was Siebel Systems (SEBL) that wooed the Street with an
announcement that it snagged two major financial
services clients - the investment banking division of Morgan
Stanley and Australian insurer AMP Financial Services.  PSFT
rode on the tailwinds of Siebel's news and the NASDAQ's surge
today.  The return to its higher support levels sets PSFT up to
make the charge for its 52-week high ($53.87).  Aggressive
players may have used today's downswing, through our $42
protective stop, as an opportunity to jump on PSFT.  Expect
resistance near $47.


AIG $80.86 -0.09 (+0.10)  The lingering is enough to send
someone off a cliff - and that's exactly what we want AIG to do!
The stock's recent behavior mimics the "I think I can"
mentality.  Just as we though AIG would make the big slide
through the critical $80 support, buyers lifted the share price
off $80.02 intraday.  But it wasn't easy.  Take a look at a
daily chart.  It's evident from the bottom fishing that buyers
really didn't have the necessary momentum to crack the $81
ceiling.  AIG remains on our put list in anticipation of a
genuine rollover that can break through the $80 bottom,
targeting $75 on the decline.  Continue to monitor AIG and take
note of how it traced the Insurance Index (IUX.X).  Let's keep
our closing stop at $82.

NETE $36.60 +0.54 (-1.13) A weak open at $34.95 coupled with
additional downside to $33.45 reaped gains for traders looking
to exit open positions.  But if you didn't prepare with sell
limits, you'd have had to be nimble to the keyboard.  The NASDAQ
resurrection was fast and furious, taking NETE straight up to
$37.60 for a strong close at just a point lower.  This grand
ascent provides an awesome opportunity going into tomorrow.
Remember, we first initiated coverage on this stock because of
its volatile behavior and thus, the likelihood of rollover
scenarios.  So accordingly, aggressive traders might find an
entry if NETE backfills from the higher proximity of $37 and
$38; or market permitting, an entry into a strong decline below
the $34 level.  If you're riding from the top end of the
spectrum, consider locking in gains as NETE approaches the
$35 relative support area.  The protective stop remains set at
$40 to safeguard against a reversal.

TLAB $27.65 -1.15 (-3.27) Intel moved aside and Juniper took the
Street by storm, literally!  Juniper delivered a "no holds bar"
warnings that knocked the Networking Index off its rocker, so to
speak.  By this morning the NWX.X had tumbled to 392, barely
able to manage a close above the 400 level.  The complete
breakdown of the networking-related issues invited OI readers to
jump into the play on TLAB.  TLAB, which was already in a
precarious state, fell an astounding 10.6%, or $3.27 in a mere
two sessions.  Monday's slide through $30 bottom was
psychologically crucial; and today's $1.70 change was certainly
welcome.  However going forward, look for a convincing drop
below $26.80, the new intraday low before entering into the
downward trend.  The continuous nibbling at this level hints a
bottom may be forming and we don't want to get caught in a
buying spree.  We're keeping a loose closing stop at $32 to
give it room to operate on the upside.  The purpose is take
advantage of high-volume rollovers at the respective resistance

EBAY $63.49 +0.70 (-0.06) With a devastating earning from NOK
this morning, the NASDAQ started out underwater and looked like
it was going deeper.  EBAY followed the Internet index (INX.X)
lower at the open, only to find support at $61, with buyers
lined up in sufficient numbers to halt the stock's slide.  Then
a buy program seemed to go into effect after lunch, with the
stock rallying in the afternoon session until finding resistance
near $64.  While this helped EBAY to regain the high side of its
ascending trendline at the close, the daily stochastics
oscillator is still showing bearish divergence, pointing to a
more protracted decline ahead.  With that in mind, aggressive
traders will look for a rollover near current levels, $65, or
our stop at $66.  The jumpy nature of the Internet sector lately
will keep more conservative players on the sidelines until EBAY
trades decisively below the $59-60 congestion zone.

ELNT $30.35 +0.19 (-0.65) Semiconductor stocks fell early this
morning on the heels of the NOK warning, with the Semiconductor
index (SOX.X) reaching the $620 level before buyers showed up.
Underscoring its inherent weakness, ELNT followed the SOX lower
this morning, briefly penetrating the $28 level before a buy
program lifted the entire group throughout the afternoon
session.  Although the stock recovered to post a fractional gain
for the day, the $31 resistance level is looming just overhead,
reinforced by the 50-dma at $31.03.  Our stop is still resting
at $33, and aggressive entries will appear on a rollover at
either of these resistance levels.  One cautionary point comes
from the daily Stochastics oscillator, which is trying to turn
upwards from within the oversold region.  If the SOX continues
its recovery, buyers could be motivated by the stock's oversold
condition to try to push it through resistance.  More
conservative players will want to take advantage of continued
weakness by initiating new plays as ELNT falls back below the
$30 level, or even back below $28.

NEWP $32.52 +1.42 (+0.39) Responding immediately to the early
NASDAQ weakness this morning, NEWP probed below the $29 level
in the first hour of trading, but the bears couldn't maintain
control.  Buyers came out of the woodwork almost immediately,
helping to lift the stock throughout the afternoon.  Resistance
once again materialized near $33 at the close, and a rollover
near this level could provide attractive entry points tomorrow.
More conservative traders will want to see a drop through the
$28.50 support level before initiating new positions.  NEWP has
recently been underperforming the Networking index (NWX.X), so
weakness in the sector should produce further declines in our
play.  The NWX probed below the $400 support level today, and
if it closes below this level, could open the door for further
losses both in the broader sector and in our NEWP play.  Our
stop is still resting at the $34 level.

RIMM $30.85 -0.84 (-1.97) An earnings warning from NOK this
morning served up more weakness for the Wireless sector, driving
shares of RIMM lower right at the open.  After finding support
near $28, shares of the company recovered all day, but still
ended underwater, posting a fractional loss for the day.  The
downtrend is still intact, but with daily Stochastics entering
the oversold region, we are moving our stop down to $33, where
support failed yesterday afternoon.  Adding to the downward
pressure was a downgrade to Neutral from Merrill Lynch this
morning.  The downtrend is still in effect and aggressive
traders will want to target a rollover near current levels or
possibly the $33 level for new positions.  A drop back under the
$30 level will provide for more conservative entries, although
we'll want to watch out for support in the $27-28 level.  This
may be a good level to consider taking profits.

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EXTR - Extreme Networks $32.30 +2.33 (+0.20 this week)

Extreme Networks is engaged in the design, development,
manufacture and sale of high performance networking products
based on Gigabit Ethernet technology.  The company's next-
generation (Layer 3) switches transmit more information faster,
and enable enterprises such as network service providers and
content providers to migrate from older networks to current
technologies.  The company's Summit and BlackDiamond switches
share a common hardware, software, and management architecture
that facilitates a relatively short product design and
development cycle, reducing the time-to-market for new products
and features.

Somebody forgot to tell EXTR investors that the Networking index
(NWX.X) is locked in a persistent downtrend.  As the NWX
continued to decline today, EXTR CFO Vito Palermo did his part
to stop the decline by reiterating the company's guidance for
the current quarter.  Speaking at the CIBC World Markets
Communications Food Chain conference in New York, Palermo said
that April and May sales were strong and that "June was already
greater than May".  Although he didn't raise forecasts, he
stated that he was comfortable with estimates for both the top
and bottom line.  This was enough to cheer investors as they
started buying in quantity after the noon hour.  By the time the
dust had settled, EXTR had posted a 7% gain for the day on
volume that doubled the daily average.  That's the kind of
action we like to see on our bullish plays!  This marks the
third time in the past month that the stock has confirmed
support near $28, making it a logical level to place our stop.
Aggressive entries look good on a dip to the $30 level or even
$28 again, so long as the buying volume is strong on the
rebound.  Conservative entries may be the first to get filled
though as EXTR pushes through resistance near $35.  Keep an eye
on the NWX, as weakness in the broader sector could still throw
a wet blanket over our play.

BUY CALL JUL-30.0 EUT-GF OI= 288 at $5.60 SL=3.50
BUY CALL JUL-32.5*EUT-GZ OI= 173 at $4.10 SL=2.50
BUY CALL JUL-35.0 EUT-GG OI=1091 at $3.00 SL=1.50
BUY CALL JUL-37.5 EUT-GU OI=  95 at $2.25 SL=1.00
BUY CALL SEP-35.0 EUT-IG OI= 417 at $6.40 SL=4.50
BUY CALL SEP-40.0 EUT-IH OI= 445 at $4.80 SL=3.00

SELL PUT JUL-27.5 EUT-SR OI=  59 at $2.05 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 5.33 mln

GE - General Electric $48.77 +1.37 (+0.63 this week)

As one of the largest and most diversified industrial companies
in the world, GE's products include major appliances, lighting
products, industrial automation equipment, medical diagnostic
equipment, electrical distribution and control equipment and
power generation and delivery products.  Additionally, GE
provides commercial and military aircraft jet engines,
locomotives and nuclear power support services.  Through the
National Broadcasting Company (NBC), GE delivers network
television services, operates television stations and provides
cable, Internet and multimedia programming and distribution

Over the past 3 weeks, shares of GE have been under pressure,
but it looks like that could be coming to an end.  The recent
high of $53.55 corresponded to the recent high on the DJIA
(11,350), for which GE normally behaves as a reasonable proxy.
Adding to the downside pressure recently has been uncertainty
over the pending merger with Honeywell (HON).  Despite already
gaining acceptance from the U.S. Department of Justice, GE is
running into problems with the European Union (EU), which is
making demands that the company feels are unreasonable.  Despite
the uncertainty, GE found eager buyers this afternoon as the
broader markets turned around on an apparent buy program.  The
stock price rebounded more than 7% intraday, testing the $49
resistance level near the close.  The decline of the past 3
weeks pushed the daily Stochastics oscillator deep into oversold
territory, and with the strong rally (more than double the ADV)
today, we can see the fast line poking up out of oversold
territory, possibly pointing to another attempt to crest the
$50 resistance level.  While aggressive traders can target
intraday pullbacks above our $46 stop for new positions, more
conservative players will want to see the $50 resistance level
in the rear-view mirror before playing.

BUY CALL JUL-45.0 GE-GI OI= 1239 at $4.70 SL=2.75
BUY CALL JUL-47.5 GE-GW OI= 2071 at $2.95 SL=1.50
BUY CALL JUL-50.0*GE-GJ OI=28187 at $1.55 SL=0.75
BUY CALL SEP-47.5 GE-IW OI= 7220 at $4.30 SL=2.50
BUY CALL SEP-50.0 GE-IJ OI=25407 at $2.85 SL=1.50
BUY CALL SEP-55.0 GE-IK OI=24301 at $1.20 SL=0.50

SELL PUT JUL-45.0 GE-SI OI= 4392 at $0.70 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 21.6 mln


SFA - Scientific-Atlanta Inc $49.18 -2.42 (-5.05 this week)

Scientific-Atlanta provides products and services for advanced
communications networks that deliver voice, data and video.  The
company is one of the largest makers of set-top boxes (those
cable boxes that sit on your TV), which accounts for about 40%
of sales.  SFA is currently moving out of the satellite
networking business and focusing on digital broadband equipment
to fuel growth.

The scope of SFA's freefall through its relative supports at $54
and $52 this week in combination with today's volatile trading
presents the opportunity to make gains using a rollover
strategy.  SFA initially sank amid the NASDAQ adversity and
correspondingly, blustered its way topside of $51 on the
market's newfound momentum.  News that it was chosen by Comcast
Cable to assist in the installation, integration, and digital
launch support of one of the largest commercial VOD service
rollouts to date may have also peaked investor interest.
Scientific-Atlanta will support Comcast in its goal to have as
many as 500,000 digital cable subscribers with access to VOD by
the end of the year.  The last minute sell-off however, dropped
SFA back to a sub-$50 level.  The high-volume activity indicates
the selling may extend into tomorrow.  If the bears take hold of
SFA right from the get-go, target $45 on the downside.
Otherwise, wait for clear-cut direction and enter passively on
the topside supports.  You want to make sure the bears can turn
the uptrend, whether it be from $52 or $54 before jumping into a
rollover play.  Intraday volume of 100+ K typically drives the
share price.  If you come into the play from the upper-levels,
the $49 and $50 levels could pose serious opposition; therefore,
you might want to lock in gains early.  Set stops initially at

BUY PUT JUL-55 SFA-SK OI=  71 at $7.70 SL=5.50
BUY PUT JUL-50*SFA-SJ OI=2033 at $4.50 SL=2.75
BUY PUT JUL-45 SFA-SI OI= 220 at $2.10 SL=1.00

Average Daily Volume = 2.22 mln

MWD - Morgan Stanley Dean Witter $60.55 -1.70 (-4.04 last week)

MWD is the #2 retail broker in the US only after Merrill Lynch.
The 1997 merger of Morgan Stanley and Dean Witter created an
investment banking and retail brokerage powerhouse.  The company
is now a global financial service firm with three primary
business segments: securities, asset management, and credit
services.  Its Discover unit has been one of the leading credit
card issuers.  MWD has more than 430 branches in the US and some
30 more abroad.  Its clients include both individuals and

Profit warnings, outlook warnings, and a generally damp economic
mood continue to soften the market sentiment and drive the major
financials lower.  Powerhouse financials like JPM, AXP, MER and
LEH have all taken hits recently.  We've chosen to add MWD to
our put list because of its exceptional momentum to the downside
and its upcoming earnings' release.  The dynamics of the market
and sector appear to be taking quite a toll on shares of MWD.
It's currently teetering at a crucial level and if it breaks
$60, we could be looking at 12 points in a negative marketplace.
The Banking Index (BKX.X) also foretells the demise.  This
broader measurement of the bank-related issues recently violated
its 30-DMA (900) and is currently approaching a crucial level of
its own.  A decline through 880 and it could be curtains for
many of the financials, MWD included.  As we move closer to
Morgan Stanley's scheduled earnings' release on June 21st,
BEFORE the market, let's look for an entry.  We'd like to see
MWD shave off more its share price and violate $60 on heavy
volume of 150+ K intraday.  Some traders might be interested in
riding a decline from the higher support levels, but your risk
of getting caught in a trading channel could stymie gains;
although we are giving this put play a healthy spread.  We've
initiated a CLOSING stop at the $65 level.  This week too, we
may hear more merger scuttlebutt surrounding Morgan Stanley's
supposed interest in buying American Express.  Barron's reported
on Saturday that "people close to the situation" whispered about
a possible deal, but as it is, preliminary talks have never
materialized.  A bid for American Express would give Morgan
Stanley a stronger foothold in the international markets and
boost its share of the fast-growing asset management business.

BUY PUT JUL-65 MWD-SM OI=13936 at $6.90 SL=5.00
BUY PUT JUL-60*MWD-SL OI= 7626 at $4.20 SL=2.50
BUY PUT JUL-55 MWD-SK OI= 2499 at $2.25 SL=1.00

Average Daily Volume = 6.14 mln


VRSN - VeriSign, Inc. $57.95 +4.04 (+2.29 this 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.

Most Recent Write-Up

Now that made for an exciting day.  In the wake of more NASDAQ
weakness and NOK's warning this morning, our VRSN play was
looking like a definite drop tonight after it fell through our
$53 stop.  Then that 61% retracement appeared near $52 to
support the stock, giving the bulls a good springboard for the
afternoon's gains.  Buyers showed up right after the lunch
hour, propelling the stock as high as $58.80 before the
enthusiasm began to wane in the final hour.  This brings us
right back to resistance at $59, where we sat last Thursday.
Although still stuck in a range, the solid volume today (the
heaviest seen in over 3 weeks) tilts the scale in favor of the
bulls and their odds of pulling off the breakout above the $60
resistance level.  We are leaving our stop in place at $53 and
aggressive traders can continue to target shoot entries on
intraday bounces first at $57 and then at the $54-55 level.
More conservative players will want to wait for continued
buying interest to push VRSN through the $60 level before


Shares of Verisign rebounded from a significant support level
at $52 yet again Tuesday.  Buyers continue to defend that
price and traders can look for entry points near $52 on any
future pullbacks.  In the meantime, look for the tech
momentum to carryover into Wednesday's trading and watch for
VRSN to breakout above the $60 level on heavy volume.

BUY CALL JUL-55 QVR-GK OI= 258 at $7.80 SL=5.75
BUY CALL JUL-60*QVR-GL OI=1769 at $5.30 SL=3.25
BUY CALL JUL-65 QVR-GM OI= 306 at $3.50 SL=1.75
BUY CALL SEP-60 QVR-IL OI=1473 at $9.00 SL=6.25
BUY CALL SEP-65 QVR-IM OI= 728 at $7.10 SL=5.00
BUY CALL SEP-70 XVR-IN OI= 337 at $5.50 SL=3.50

SELL PUT JUL-50 QVR-SJ OI= 158 at $2.30 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 8.81 mln

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An Optimistic Outlook Is Just What The Market Needs...

Industrial stocks recovered from recent selling pressure today as
investors were comforted by upbeat remarks from New York Federal
Reserve Bank President William McDonough.

Monday, June 11

The stock market retreated today after another round of revenue
warnings boosted investor's concerns about the upcoming earnings
season.  The NASDAQ closed down 44 points at 2,170 and the Dow
finished 54 points lower at 10,922.  The S&P 500 index was also
down, ending 10 points lower at 1,254.  Trading volume on the Big
Board was light at only 856 million shares, with declines beating
advances 3 to 2.  Activity on the NASDAQ was the third lowest of
the year, with just 1.39 billion shares exchanged as losers beat
winners 23 to 14.  In the bond market, the 30-year Treasury rose
21/32, pushing its yield down to 5.70%.

Market Activity:

U.S. equities started the week with a broad sell-off after a slew
of companies warned of disappointing financial results, suggesting
the slowing economy will affect corporate profits much more than
expected.  Several brokerages fueled investor's renewed worries
about the outlook for earnings in the technology sector with the
most negative comments coming from UBS Warburg.  Analysts at the
brokerage lowered earnings estimates on Tellabs (NASDAQ:TLAB) and
Nortel Networks (NYSE:NT) saying Nortel's second and third quarter
sales will likely be below first-quarter levels.  Analysts also
noted that due to the condition of the fiber optic market, Lucent
(NYSE:LU) would likely receive just $4 billion from the impending
sale of its fiber business, well below the original estimate of $7
billion.  UBS Warburg offered additional bearish commentary in the
hardware group, saying they saw little progress in PC fundamentals.
The brokerage said, "Overall demand continues to be weak.  However,
the real worry is the increase in U.S. retail channel inventory
levels."  Merrill Lynch added to the negative tone by downgrading
the electronics manufacturing sector, reporting that many of those
stocks have climbed substantially from their early 2000 lows while
business conditions have worsened.  They also noted, "The expected
rebound later in the year could prove to be more hope and wishful
thinking than reality."  Most investors are betting that earnings
will bottom in the second quarter, but the most recent indications
in the technology industry suggest otherwise.  Among the blue-chip
industrial issues, things were much the same with Merck (MRK:NYSE),
Honeywell (NYSE:HON) and General Electric (NYSE:GE) dragging the
Dow average lower.  General Electric and Honeywell were down after
a report that the European Commission is now reviewing GE's offer
to triple its divestitures in an attempt to gain approval for the
acquisition of Honeywell.  Banking services firm American Express
(NYSE:AXP) was one of the few winners, closing the session higher
after Morgan Stanley (NYSE;MWD) reportedly approached the banking
and credit-card giant about a possible merger.  Among the broader
market groups, oil and oil service, media, waste management and
utility shares moved higher while most other sectors declined.

Portfolio Activity:

There was little bullish activity in the Spreads Portfolio today
as virtually every market segment was affected by the new glut of
corporate warnings.  In the past few weeks, almost 500 companies
have warned their quarterly results will not meet expectations for
the second quarter, far more than the 75 companies that had warned
at this time a year ago.  Of the current profit warnings, over 35%
have come from technology-related firms and the trend is expected
to continue, due to excessive inventory levels and falling demand
for computer and communication electronics.  Investors had hoped
the positive impact of interest rate cuts by the Fed would put a
floor under the market, but the results have been less effective
than most analysts originally anticipated.  Today's downward bias
did wonders for a number of our bearish positions with Microsoft
(NASDAQ:MSFT), Optimal Robotics (NASDAQ:OPMR), Christopher and
Banks (NASDAQ:CHBS) and Kohl's (NYSE:KSS) all retreating to recent
ranges.  One of the few positive activities occurred when Barron's
reported that Morgan Stanley (NYSE:MWD) has approached American
Express (NYSE:AXP) to consider a possible merger, with discussions
continuing on and off for over a year.  Shares of American Express
rose on the news and our bullish position near $40 may eventually
close profitable.  Stone Energy (NYSE:SGY) was another issue that
moved in opposition to the downward trend and the bullish credit
spread at $50 is once again "in the black."  Our new position in
General Motors (NYSE:GM) was off to a good start with the stock
holding in positive territory despite the selling pressure in the
broader market.  In the small-cap section, Watchguard (NASDQ:WGRD)
was a nice surprise, closing above $7 for the first time in two
weeks as the recent recovery rally continued.

Tuesday, June 12

The broad-market recovered from recent selling pressure today as
investors were comforted by upbeat remarks from New York Federal
Reserve Bank President William McDonough.  The popular financial
mogul said that a second half recovery is still the most likely
scenario and that inflation is not a matter of concern right now.
A late rally in industrial stocks helped the Dow Jones industrial
average finish up 26 points at 10,948.  The NASDAQ finished almost
unchanged at 2,169 and the S&P 500 index ended slightly higher at
1,255.  Trading volume on the NYSE hit 1.13 billion shares, with
declines pacing advances.  NASDAQ volume was light at 1.70 billion
exchanged, with losers beating winners 20 to 17. In the U.S. bond
market, the 30-year Treasury rose 17/32, pushing its yield down to

Market Activity:

Technology stocks slid lower today after another wave of revenue
warnings battered "new economy" shares.  A report from the world's
largest manufacturer of portable phones, Nokia (NYSE:NOK) was the
catalyst for the selling pressure.  The company slashed its profit
estimate for the second quarter and warned that sales growth for
the period would fall significantly short of its prior estimates.
Nokia, which controls more than 35% of the handset market, said it
expects quarterly sales to grow less than 10%, rather than the 20%
it forecast in April.  Nokia also said it now sees growth in the
worldwide mobile-phone market as "very modest" when compared with
last year.  A number of other stocks in the wireless telecom group
retreated after the announcement and the renewed pessimism spread
to the majority of NASDAQ sectors.  Recent earnings warnings from
Juniper Networks (NASDAQ:JNPR), Varian Semiconductor (NYSE:VAR)
and Dupont Photomasks (NASDAQ:DPMI) weighed heavily on the hi-tech
group but Internet, hardware and software sectors managed to close
with small gains.  Affymetrix (NASDAQ:AFFX) led a sell-off in the
biotechnology segment after the company lowered its estimates for
the second quarter and was downgraded by several analysts.  A 30%
drop in Praecis Pharmaceuticals (NASDAQ:PRCS) also weighed on the
group as the company and its partner Amgen (NASDAQ:AMGN) were told
by the FDA that the data in its drug application for a prostrate
cancer therapy was inadequate.  On the Dow, Honeywell (NYSE:HON)
continued to slide as General Electric's (NYSE:GE) planned buyout
of the technology and manufacturing company hit its most serious
obstacle to date.  Europe's antitrust enforcers asked GE to sell
more than half of Honeywell's entire aerospace division, the very
business that originally enticed GE to seek to acquire Honeywell.
Helping to limit the Dow's upside were AT&T (NYSE:T), J.P. Morgan
Chase (NYSE:JPM) and Alcoa (NYSE:AA) while shares of Philip Morris
(NYSE:MO), Boeing (NYSE:BA), General Electric (NYSE:GE), Procter &
Gamble (NYSE:PG) and Hewlett-Packard (NYSE:HWP) edged higher.  In
the broader market sectors, gold, utility, retail and oil stocks
were the best performers.

Portfolio Activity:

Today's rebound in industrial issues helped a number of positions
in our portfolio.  Costco (NASDAQ:COST) led the retail group, up
over the $40 mark on solid buying pressure in a continuation of
the recent rally.  Our synthetic position has already provided a
great profit but there may be additional upside potential in the
issue.  In the bank and brokerage group, Merrill Lynch (NYSE:MER)
and Lehman Brothers (NYSE:LEH) both moved higher and with any luck
the bullish spreads in those issues will finish at maximum profit.
John Hancock Financial (NYSE:JHF) and A.G. Edwards (NYSE:AGE) have
performed exactly as expected and with both issues trading almost
exactly at the sold strike prices, the calendar spreads in those
stocks are near maximum profit.  National City (NYSE:NCC) is the
other banking issue in that category and if the stock can move up
a few pennies in the coming sessions, our bullish "time-selling"
play will be profitable.  Among technology positions, Watchguard
(NASDQ:WGRD) continues to demonstrate unusual strength in spite
of the bearish market conditions.  The issue has moved up almost
25% over the last week and the trend shows no signs of weakness.
One the downside, PepsiCo (NYSE:PEP) has traded in a relatively
small range since we offered the issue as a speculative candidate
in May but if today's bounce off support at $44 is not supported
by additional buying, the issue may test its yearly lows in the
next few weeks.

The Straddles Section enjoyed a favorable surprise today as Sony
(NYSE:SNE) dropped to a recent low near $70 on concerns over the
Japanese economy.  The bearish portion of the straddle was near
$9.50 early in the session, offering a great opportunity to pay
for almost the entire cost of the position.  At the same time,
the stock has excellent downside potential to the $65-$67 range
and it may yet become profitable on an overall basis.  Investors
who participated in Sunday's straddles in Merck (NYSE:MRK), Kos
Pharmaceuticals (NASDAQ:KOSP) and Jabil Circuit (NYSE:JBL) saw
some big moves on Monday and today the most active issue was Taro
Pharmaceuticals (NASDAQ:TARO).  The issue jumped almost $5 to a
recent high near $74 and it appears to be poised for additional

Questions & comments on spreads/combos to Contact Support
                       - UPCOMING SEMINAR -
On June 18, 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


                      - READER'S REQUEST -

One of our readers commented about the increased bullish activity
in the Hospital Services Group and asked if we might be able to
identify some favorable combination positions in that segment.
Here are three candidates for your review, based on the technical
outlook for the underlying issues and their current option prices.

HMA - Hospital Management Assoc.  $18.95  *** On The Move! ***

Health Management Associates (NYSE:HMA) provides a broad range of
general acute care health services in non-urban communities.  The
company operates general acute care hospitals and psychiatric
hospitals.  Services provided by the company's hospitals include
general surgery, internal medicine, obstetrics, emergency room
treatment, radiology, oncology, diagnostic care, coronary care,
pediatric services, behavioral health services and psychiatric
care and, in several of the hospitals, specialized services such
as open-heart surgery and neurosurgery.  The company's facilities
benefit from a number of shared services such as purchasing data,
finance and control systems, facilities planning, recruitment
services, administrative personnel management, marketing as well
as public relations.

There's not much news on HMA to explain the recent rise in its
share value but part of the activity may be due to the issue's
upgrade in late May by Goldman Sachs.  The brokerage started new
coverage on a number of hospital chains and placed three of the
leading companies on the "recommended for purchase" list, citing
prospects for solid earnings growth.  Health Management was in
the "market out-performer" category and it has certainly lived up
to that title over the past two weeks.  The company's stock has
rallied 20% since May 22 and the trend shows no immediate signs
of weakness.  Traders who think there is future upside potential
in the issue can attempt to profit from that outcome with this
speculative position.  Target-shoot a small credit in the play
initially, to allow for any near-term consolidation.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-20.00  HMA-GD  OI=96  A=$0.65
SELL PUT   JUL-17.50  HMA-SW  OI=11  B=$0.40

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $675 per contract.

UHS - Universal Health  $44.50  *** Post-Split Rally! ***

Universal Health Services (NYSE:UHS) principal business is owning
and operating acute-care hospitals, behavioral health centers,
ambulatory surgery centers, radiation oncology centers and women's
centers.  The company operates hospitals, acute-care facilities,
behavioral health centers and a specialized women's health center
across the United States.  The company, as part of its Ambulatory
Treatment Centers Division, owns outright, or in partnership with
its physicians, and operates or manages a number of surgery and
radiation oncology centers located in 12 states and the District
of Columbia.

UHS shares split 2-for-1 in early June and the issue has been in
"rally mode" ever since.  Brokerage upgrades from Legg Mason and
Goldman Sachs helped the stock recover from the selling pressure
in late May and it appears the issue will soon test this year's
(adjusted) high near $46.  Our combination play will not benefit
from further upside activity but it is a relatively safe way to
capitalize on the current bullish trend.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-37.50  UHS-SU  OI=38   A=$0.55
SELL PUT  JUL-40.00  UHS-SH  OI=724  B=$0.85

HCA - Hca Heathcare Company  $42.26  *** New range? ***

The Healthcare Company (NYSE:HCA) is a healthcare provider that
owns, manages or operates hospitals, ambulatory surgery centers,
diagnostic centers, radiation and oncology therapy centers, as
well as comprehensive outpatient rehabilitation and physical
therapy centers and various other facilities.  The company owns
approximately 200 hospitals, comprised of general, acute-care and
psychiatric facilities and also nine hospitals included in joint
ventures.  In addition, HCA operates freestanding surgery centers.
The company's facilities are located in 24 states, England and
Switzerland.  HCA also operates preferred provider organizations
in 47 states and the District of Columbia.

HCA is another issue that was included in the recent Goldman Sachs
upgrade and the company's shares were among the few listed on the
"recommended for purchase" list.  Analysts placed a $48 target on
the nation's largest hospital chain, based on the fact that HCA
can leverage cash flow generation to repurchase its shares and is
expected to sustain 15% earnings per share growth over the next
several years.  That's a very favorable outlook considering the
recent slump in the economy and traders who like to participate in
time selling strategies should consider this position.  The option
premiums do not offer any substantial disparities but the current
technical pattern is favorable and with a recent resistance area
near $45, the risk-reward ratio is acceptable for a low cost,
speculative position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  AUG-45  HCA-HI  OI=3117 A=$1.15
SELL CALL  JUL-45  HCA-GI  OI=246  B=$0.50


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