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Daily Newsletter, Sunday, 06/24/2001

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The Option Investor Newsletter                   Sunday 06-24-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 6-22         WE 06-15          WE 6-08          WE 6-01
DOW    10604.59 - 19.05 10623.64 -353.36 10977.00 - 13.41  + 78.47
Nasdaq  2034.82 +  6.39  2028.43 -186.67  2215.10 + 65.66  + 38.95
S&P-100  636.15 +  9.52   626.63 - 25.29   651.92 +  2.31  +  3.38
S&P-500 1225.35 + 10.99  1214.36 - 50.60  1264.96 +  4.28  +  4.85
W5000  11312.45 + 74.45 11238.00 -498.70 11736.70 + 65.13  + 61.20
RUT      488.65 -  6.48   495.13 - 16.51   511.64 +  9.92  +  5.22
TRAN    2676.49 - 17.13  2693.62 -188.47  2882.09 -  4.96  - 58.85
VIX       22.50 -  3.83    26.33 +  4.92    21.41 -  2.55  -  2.00
Put/Call    .69              .73              .54              .53
******************************************************************

Merck Joins Symantec in the Valley of Death!

MRK spoiled the party with an announcement this morning that their
arthritis drug VIOXX was struggling and they would miss their prior
estimates. Analysts were quick to jump on the downgrade bandwagon
and said that Merck's other major drugs were also experiencing
stiff competition from generics. The Dow component lost -6.75 in
very heavy trading. Schering Plough was also hit since they have
a competing drug for VIOXX.







Just another fun day in the markets! The Symantec warning produced
a haircut of epic proportions. SYMC lost -22.41 to close at $38.90
on news that earnings would drop about 30% for the quarter. While
Micron gained +.67 on actual earnings that were over 200% worse
than expected.  Do we have a perception problem here? The software
makers had been doing relatively well until this week while the
semiconductors have been beaten to a pulp. The turn around in MU
came after comments that they saw a greater demand than ever in a
new wave of new products launching over the next several years.
The new wave of chips are not expected to hit markets until 2003
but investors appeared to feel that it could not get any worse.
The book to bill ratio was slightly higher for May at .46 but
still under estimates of .50.

The Merck announcement must have put defensive traders into a
quandary. If their favorite defensive sector, drugs, was suffering
just like the tech sectors then where should they put their money?
MRK, SGP, AHP, PFE, all darlings of the defensive crowd were
bleeding money as investors ran for cover expecting more warnings
to come. SGP was under fire separately by the FDA for continued
manufacturing problems. Biotechs did not fare much better. Biogen
took a serious hit of -6.93 after detrimental drug claims from a
competing company were brought to court. Serono and Biogen are
arguing over which MS drug works better. This news as well as the
MRK announcement caused many high flyers to give back recent gains.
PDLI led the biotech loser list with almost a -$7 loss.

The retail sector was doing great on the expectations of another
Fed rate cut until the Gap announced that it will be forced to
cut between 500 and 700 jobs in its first ever wave of layoffs.
The company will reduce its 10,000 worker office staff by -5% to
-7% through attrition and layoffs. They are also shrinking their
aggressive expansion program as well. GPS lost -1.51 on the news.

Surprisingly networkers were also higher Friday along with
telecommunication stocks. Lucent and Ciena were both higher with
CIEN adding +2.25 to $41.50 after analysts speculated that CIEN
might make a bid for Lucent's fiber optic business. Investors
and analysts believe that things can't get any worse in the
optical networking sector and they even bought TLAB, NT and
SCMR on bottom fishing speculation. JDSU and MCLD were also on
the high side but MFNX lost again and is heading for penny stock
status at $1.43.

Despite the ups and downs for the week the Dow closed only 19
points from where it started the and the Nasdaq was within
six points. Stuck in a range appears to be the keywords prior
to the Fed meeting. The Oracle news slapped the Nasdaq down and
then propped it back up again with a slightly positive outlook.
Micron painted a bleak picture with their actual results but then
talked themselves out of a hole with forward looking comments that
remind us of the Internet stocks with PE ratios based on 2005 to
2010 expected earnings. Still investors bought the story. The
brokerage group is still generally on the upside with only slight
profit taking on several stocks. The Airline stocks took another
hit on Friday after reports from the Middle East that the U.S.
was taking seriously terrorist threats related to the military
barracks bombing in 1996. If oil supplies slow then higher prices
and lower travel volume will continue to impact profits. Ironically
gas prices had been heading down by as much as -$.50 a gallon from
where they were just a couple weeks ago.

Earnings next week include COMS, PALM, CS, CWTR, FDX, NKE and LBRT.
The street is sure to form and discard several opinions about the
tech sector as further warnings and the COMS, PALM and LBRT numbers
are made public. The real focus for the week is of course the Fed
meeting. I hate repeating this dry facts over and over each month
but as traders we are faced with losing money if we do not pay
attention. The consensus (100%) favor a +25 point cut and there
is a 44% chance of a -50 point cut as evidenced by the Fed funds
futures. A 25 point cut would not be good for the market as it
would paint a picture of a Fed that thinks its work is done even
though the economy is still at the bottom. A -50 point cut would
likely create a short rally until the next major earnings warning.
If IBM, MSFT or some other major company which had not previously
shown weakness were to warn then the cycle could start all over
again.

Baring any major warning and a -50 point cut by the Fed there is
ample cash on the sidelines to expect a Fourth of July rally. The
real test is whether any rally would have any legs. The leading
indicator I quoted on Thursday night performed a perfect swan dive
at the open on Friday. I am speaking about the Russell-2000 RUT.X
which now looks like a break through of support at 485 is possible.
The oversold/Fed bounce on the Nasdaq suffered profit taking due
mostly to the damage in the Dow and traders going flat before the
summer weekend and Fed meeting. The selling was not that heavy but
it was there. The Dow bounced off support at 10575 for the third
time this month. I have to say the Dow does not look good. The
weakness in MRK overwhelmed the index where only eight stocks
finished positive with none up over a dollar.

If the Dow falls much below 10575 we could see another round of
selling as the bears enjoy their summer fling. The Dow is right
on support built over the last two weeks and should this fail
the next support level is 10450 and we do not want to go there.
The wildcard is the defcon Delta in the Middle East. With the
navy taking ships out of port and Americans being warned to
stay out of the area, there will be a level of uneasiness which
traders will be watching. The Fed is still the key. Greenspan
has gone on record this week that he is still going to the
wall to stop this recession from happening. Lyle Gramley said
he felt that Greenspan would be pounding the table to get at
least one more 50 point cut. The contrarians feel the prior
hikes have already done the trick and stopped the drop and more
cuts will be pouring gas on smoldering coals. This war of words
should keep a lid on the market but a lid is the least of our
problems. We need a bottom not a top! The VIX is near its six
month low and that could mean traders are still too complacent
for a meaningful rebound.

Earnings are dead for the second quarter. They appear DOA for
the third quarter as well. Funds are probably thinking they
can sit back and watch until September and maybe get a better
entry point. The "I have got to get into this market before
it runs away" syndrome from several weeks ago has completely
disappeared. There appears to be no urgency to go long and
the chart on the Dow, which should be in rally mode after five
50 point rate cuts, paints the real picture. It is struggling
to hold support and any negative news the market is not
expecting, could be the last straw. Next week could be exciting.
Buckle your seat belts when you climb aboard on Monday morning.
The first few hours may be boring, like the ride up the first
hill on a roller coaster, but after the Fed announcement the
rest of the week could be real exciting!

Enter passively, exit aggressively!

Jim Brown
Editor


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***************
ASK THE ANALYST
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Adaptability
By Eric Utley

A recent question from a reader piqued my interest this weekend.
And it's a very good question.

When do you think the good days will return when every earning
run will give you handsome profits?  Do you think it will be
December 2001/January 2002? - Sunil

Sunil, let's qualify "good days."  If you're referring to the
period between October 1998 to March 2000, I don't think those
days will return, at least in my lifetime.  And I'm relatively
young!  It was a period of excess created by a technological
boom, multiplied by the excitement of the Internet and taken
parabolic by the cheap cost of money.  And now we're paying for
the excesses.

Will good economic times return, and support a broad-based
advance in the equity markets?  Yes.  And that's how I define
"good days."  Will a new batch of Yahoos and CMGIs surface that
allow traders to take $20, $30 even $50 on an earnings run?  I
doubt it.

There's no doubt that many, many market participants were
lured into the game of trading over the last several years.  And
as fate would have it, those relatively new market participants
witnessed one of the greatest bear markets in history.

But, as history clearly shows, the market never really changes,
only the faces in the game.  That's because human nature hasn't
really evolved in the space of time that the stock market has
existed.  The market goes through its cycles of excess, both to
the upside and downside, its goes through periods of stability
and instability, and at times it does nothing.

So it's up to those traders who want to stay in the game and
succeed to adapt to the current conditions.  Trading isn't
easy.  But, in my very biased opinion, it's one of the most
rewarding activities in terms of psychological accomplishment
and financial reward.

To digress from my rambling, we're putting together the
schedule for July Online Seminars and I have a couple of good
ideas and would like some feedback from my readers.  I thought
about giving a class on Short Selling/Put Buying to help
educate those eternal bulls on how to trade the "other" side
of the market.  I also thought about giving a seminar on
Straddle strategies.  Please let me know if these ideas would
be of interest, or if you have any requests for online seminars,
please let me know via the following e-mail address.  Thanks.

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

----------------------------

Amgen - AMGN

AMGN looks like a good short at $66-67 with a view of the $60
or below area.  The BTK looks to be forming the last leg of a
right shoulder of a very negative H&S pattern.  Even if the
neckline is not broken AMGN would probably see $60.  If it is
broken AMGN could see the recent April lows. - Rob

Shares of Amgen (NASDAQ:AMGN) do appear to be forming some sort
of an intermediate-term top.  Whether or not the stock has
traced a head-and-shoulders (H&S) top is debatable.  And the
reason I might argue that it's not a H&S is because of its
open below the $65 level and subsequent rejection of that move
back above $65 on June 12th.  If it weren't for that move, I'd
unequivocally agree with your observation, Rob.  From where I
sit, if Amgen's recent price behavior is, in fact, indicative
of a H&S top, I would place its neckline at $65.  (That's why
I place credence on Amgen's move back on June 12th - it was
right around the neckline.)

However, for the sake of argument, let's agree that Amgen has
traced a H&S top.  The neckline of the pattern lies at $65,
the left and right shoulders appear to lie around $67 and
$68, respectively, and the head was formed at $70.  I can take
the difference from the head to the neckline ($70 - $65) to
come up with $5.  In turn, I can take that number and
subtract if from the neckline ($65 - $5) to arrive at a bearish
price objective of $60, which is the level you alluded to, Rob.

The $60 bearish price objective generated by the H&S top
coincides with a significant retracement level of Amgen's
advance from its relative lows in late March.




For those that might argue that the retracement bracket above
is nonsensical because of the extreme nature of Amgen's move
in late March, I've laid another retracement bracket on the
chart below.  This time, I anchored from the stock's relative
low in early April around the $50 level.  But again, we observe
that the $60 level is reinforced by the 50% retracement level.
What's more, we can also observe that the 38.2% retracement
level lies around the $63 level, which, not by coincidence, was
Amgen's low on that move on June 12th.




Wait, this Amgen conundrum gets more interesting.  Just for the
helluva it, I pulled up a point & figure chart for Amgen and
discovered something quite interesting.  As you can see on the
chart below, Amgen has a significant ascending support line,
starting from its relative low at $45...that support line
currently sits at $63 - the site of the 38.2% retracement level
on the chart above!




Judging from the various support levels I've set forth, the
reward in shorting Amgen at its current levels may be somewhat
small relative to the potential risk.  The one thing that does
favor shorting the stock right here is that the S&P Healthcare
Sector, of which Amgen is a component, is relatively overbought.
So there may be some more downside in the sector and Amgen.
But, if you're going to short the stock, I'd just say be
careful!  Of course, if Amgen does breakdown below the $60
level, I'd probably agree with you, Rob, in that the stock
could retest its April lows.

----------------------------

UnitedHealth - UNH

There appears to be a very negative pattern forming on UNH.
Possible 80-90% profit on a short at $61.  This stock looks
to have formed a H&S pattern as follows: Left Shoulder in March,
Head in April and May, Right Shoulder in late May and June,
Neckline at $51...It's a medium- to long-term bet but I wouldn't
mind betting some big $$$ on this one.  Any thoughts? - Rob

I'm taking two of Rob's requests this weekend because I intended
to get to UnitedHealth (NYSE:UNH) last week.  Sorry for the
delay, Rob.

Maybe I should've titled this weekend's column: Heads, Shoulders,
Knees and Toes...WHOA!

Shares of UnitedHealth have traced a protracted head-and-shoulders
pattern over the course of about five or six months.  The stock
has had several fluctuations during that time, between tracing
its left shoulder and head, but now appears to be tracing its
right shoulder.  The neckline of this pattern is imperfect, and
I'd probably place it around $50 or $52, so your judgment is
perfect, Rob, at $51.  We can observe the head of this particular
pattern was traced on April 27th at $67.  To use our formula
again, we take the value of the head and subtract if from the
neckline ($67 - $51) to arrive at our reference of $16.  We,
in turn, subtract $16 from the neckline ($51 - $16) to arrive at
our bearish price objective of $35.  That would be an awful BIG
move for a stock such as UNH!



While the Daily chart of UNH does clearly depict a H&S top, I
think it would be prudent to view the stock on a longer time
frame, especially in this instance.  The Weekly chart below
shows that UNH has had a very nice advance from the $20 level
back in October of 1999.  So the question is: Is the stock
topping out and ready to roll or merely consolidating its
gains?  If it turns out to be the latter, we obviously want
to approach any short with caution.  But if the stock is
ready to roll, we can monitor several levels to discern that
much.  On the chart below, I've laid a retracement bracket
over UNH's advance.  Now, it's normal for a stock to pullback
and consolidate its gains, as UHN has been doing during this
year.  The retracement below indicates the stock has
significant support right around $50 - a level that UNH has
bounced from.  But, if UNH falls and, more importantly,
settles below $50 we may conclude that there's further
downside in the stock.  (Interestingly, the 61.8% retracement
level is not too far from the H&S bearish price objective...)




To take this a step further, as with the Amgen review above,
I discovered a very interesting development on UNH's point
and figure chart.  Last Friday, the stock advanced right up
to its descending supply (resistance) line at $62.  If, in
fact, UNH does complete its H&S top next week, it should
rollover from current levels, providing traders with an
excellent entry point in terms of risk/reward.  For example,
a trader can short the stock at current levels and set a
relatively tight stop at $64 (left shoulder), giving up less
than $3 in risk.  On the other hand, if UNH does pullback,
it could fall as low as $55 or $56 in the short-term, giving
the potential of $5 or $6 in reward.



In terms of risk/reward, UNH is currently at the possibly
"best" level to short the stock for a short-term trade,
because it's extremely easy to know if and when you're wrong -
UNH advances above its descending resistance line at $62!
Whether or not the stock does complete its right shoulder
next week remains to be seen, and like I suggested earlier,
for it to decline down to the $35 price objective would
require UNH to first break below $50.  And I think something
fundamentally would have to change for the worse for that to
happen...just a thought!

----------------------------

Williams Communications - WCG

..I get a lot of news and feedback on Williams Communication
Group here in [Tulsa].  The stock is way down right now and it
appears that they are leaders in fiber optic network systems
or so they say.  Can I get you all to switch gears and tell me
what you think about this for the long term (3-5 years) and
writing covered calls or leaps on this, or just plain old buy
and hold?  I have read that Williams insiders are purchasing
11% coupon bonds @ 0.33 on the dollar.  Considering that I'm
very ignorant on what this means, is this a revealing event
or just typical?  I'm willing to do my part and dig for some
more info, but I haven't found anything yet that yields clues.
How do you interpret that? - Thanks, Kyle

Thanks for the question, Kyle.

Williams Communications (NYSE:WCG) is concerned with the great
telecom debate:  When will demand return?  At what levels?  How
much overcapacity exists?  Unfortunately, we do not yet know
the answer to these questions as the story is still being
written.  More unfortunate, perhaps, was that this story took
a major turn for the worse recently in the wake of Level 3
Communications' (NASDAQ:LVLT) earnings blow-up.

Bankruptcies are appearing left and right in the telecom
space, and that has investors expecting the worse for some
of the remaining companies, such as Williams Communications.
Kyle alluded to the fact that some of Williams' debt recently
traded for 33 cents on the dollar.  Such depressed levels
suggest that debt market participants expect Williams itself
to declare bankruptcy.

But the market's perception of Williams is in stark contrast
to what its CEO said last week.  He opined that the overcapacity
of fiber currently is "not accurate," especially dark fiber,
which is optical cable in the ground.

The CEO went on to suggest that the recent debacle within the
telecom space created a larger opportunity for Williams, and
opined that the company is "perfectly positioned" to supply
network capacity to carriers in the future.  Reports suggest
that Williams has financing that will carry the company through
the next year or so, at which time the company expects to
become cash flow positive (Read: Profitable).

Unfortunately, I could not substantiate what you read, Kyle,
concerning the purchase of debt on the cheap by Williams
insiders.  I would think that that would be a positive
development as the insiders are putting their money where their
mouths are.  I'll do a little more digging over the coming
week and pass along any findings.

I could see how it would be tempting to buy Williams, after all,
the stock finished Friday at $2.72 and it can only go as low
as zero.  But, I have a rule of NEVER buying a stock at or near
its 52-week low, let alone its ALL-TIME low.  And, I never argue
with the market - the market is portending bad things for
Williams currently.  Further, Kyle, you alluded to using options
in the form of covered calls.  From what I saw in Williams'
options, it was hard to find a bid - literally - going out to
2002 contracts.

I don't mean to be too negative, but money is money.  And there
are innumerable places in the market that are easier to put
that capital to work than in a struggling telecom.  At the very
least, I would wait for Williams to stop falling before buying
the stock.  A little basing, actually a lot of basing, might
portend the stock is not going to zero, at which time it may
be worth while to revisit.  In the meantime, go where it's
easier to make money from the long side.




----------------------------

NVIDIA - NVDA

Can you please advise your views on this stock.  Since you last
wrote about NVDA it has had nothing but an erratic behavior.
Trading up and down between 80's and 90's.  Is this a rollover
or consolidation?  Look forward to your expert advice. - Sunil

As always, thanks for the astute question, Sunil.

We (Option Investor) added NVIDIA (NASDAQ:NVDA) to the Put
List over the weekend.  Why, you ask?

Just two weeks ago, I reviewed NVIDIA and addressed the
significant resistance it faced just above its current levels,
at that time, at $100.  The stock failed to get above $100
since our last review and actually broke and, more importantly,
settled below its long standing ascending support line last
week.  The chart below is the same I used two weeks ago, only
the prices have changed.




I think that if NVIDIA breaks below $90 early next week, it
should see the $83 level in short order.  But much of NVIDIA's
trading next week, I would guess, will be predicated upon the
Fed's actions.

----------------------------

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


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*************
COMING EVENTS
*************

For the week of June 25, 2001

Monday
======
Existing Home Sales    May  Forecast:  5.13M  Previous:  5.2M


Tuesday
=======
Durable Orders         May  Forecast:  -0.5%  Previous: -5.0%
Consumer Confidence    Jun  Forecast:  115.0  Previous: 115.5
New Home Sales         May  Forecast:   900K  Previous:  894K


Wednesday
=========
Oil/Gas Inventories   6/22  Forecast:    N/A   Previous: 315.5
MBA Mortgage App      6/22  Forecast:    N/A   Previous: 510.3
FOMC Meeting

Thursday
========
Initial Claims        6/23  Forecast:    N/A   Previous:  400K
Help-Wanted Index      May  Forecast:    N/A   Previous:    65
Online Help Wanted     Jun  Forecast:    N/A   Previous:    99
FOMC Minutes 2:00 pm

Friday
======
GDP - final             Q1  Forecast:   1.3%   Previous:  1.3%
Chain Deflator-final    Q1  Forecast:   3.2%   Previous:  3.2%
Chicago PMI            Jun  Forecast:  39.0%   Previous: 38.7%
Mich Sentiment-rev.    Jun  Forecast:   91.0   Previous:  91.6


Week of July 2
=================
Jul 02 Auto Sales
Jul 02 Truck Sales
Jul 02 Personal Income
Jul 02 PCE
Jul 02 Construction Spending
Jul 02 NAPM Index
Jul 03 Factory Orders
Jul 05 Initial Claims
Jul 05 NAPM Services
Jul 06 Nonfarm Payrolls
Jul 06 Unemployment Rate
Jul 06 Hourly Earnings
Jul 06 Average Workweek


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The Option Investor Newsletter                   Sunday 06-24-2001
Sunday                                                      2 of 5

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Point and Figure Chart Construction
By Jeffrey Canavan

We use point and figure charting quite often on this site, and
I'm sure some new readers, as well as long time subscribers,
often look at the chart and wonder if this is a chart of a
stock, or a game of tic tac toe.

While bar charts decipher a stock by using price, time, and
volume, point and figure charts measure supply and demand by
recording a series of Xs and Os to track the movement of a
stock.  When you break trading down to its simplest form, it
is merely an open auction that is governed by the laws of
supply and demand.  If demand exceeds supply, prices go up.

To show how a point and figure chart is constructed, let's
assume that Zaphod, a hypothetical stock, goes public at $20.
Since Zaphod is close to finding a cure for the common hangover,
the initial public offer is a success, and the stock jumps $5
dollars on the first day of trading.  The point and figure chart
would look something like this.

25 X
24 X
23 X
22 X
21 X
20

A new X is added each time the stock rises by $1, so to climb
another X, Zaphod has to have a high, not a close, of $26 or
greater.  So if on the second day Zaphod has a high of $29 and
closes at $27, this is what the chart would look like?

30
29 X
28 X
27 X
26 X
25 X
24 X
23 X
22 X
21 X
20

Even though the stock closed at $27, 4 more Xs are recorded to a
level of $29, since that was the high of the day.

So what happens if on day three the stock has a high of $29, and
a low of $28?  It didn't have a high of $30, so we can't add
another X, and it didn't fall far enough to give a three-box
reversal (coming up next), so nothing is done to the chart.  This
is one of the differences between a point and figure chart and a
bar chart; a bar chart must print something everyday, where an
inactive stock's point and figure chart can go unchanged for
days.  If the supply/demand picture hasn't changed, why change
the chart?

On day four, Zaphod is subjected to some profit taking, and had
a high of $29, and a low of $26.  The first thing we look at is
the high to determine if one more box is added.  If Zaphod would
have traded $30, we would have added another X, and not worried
about the low.  But it didn't, so now we must look at the low to
see if the stock dropped enough for a three-box reversal.  To
change a column of Xs into a column of Os the stock must trade 3
boxes lower.  So when Zaphod had a low of $26 that was enough to
reverse the current column of Xs into a column of Os.

30
29 X
28 X 0
27 X 0
26 X 0
25 X
24 X
23 X
22 X
21 X
20

On day five the first thing we want to check is if Zaphod had a
low of $25 or less.  It had a low of $24, so the chart would
now look like this.

30
29 X
28 X O
27 X O
26 X O
25 X O
24 X O
23 X
22 X
21 X
20

With our stock currently sitting in a column of Os at 24, what
would tomorrows high have to be to reverse this stock back into
a column of Xs?  27 is correct.

30
29 X
28 X 0
27 X 0 X
26 X 0 X
25 X 0 X
24 X 0
23 X
22 X
21 X
20

Those are the basics of point and figure chart construction, so
lets take a little quiz to see if we've got it.  With a stock
currently trading at $30, update the following chart with this
information.

       High   Low
Day 1  34     29
Day 2  35     31
Day 3  35     32
Day 4  32     27
Day 5  28     25
Day 6  29     25

36
35
34
33
32
31
30 X
29 X
28 X
27 X
26 X
25 X
24 X


Your update chart should look like this:

36
35 X
34 X O
33 X O
32 X O
31 X O
30 X O
29 X O X
28 X O X
27 X 0 X
26 X O X
25 X O
24 X

How did you do?  Once you get the basics down, we can move
on to the fun stuff like bullish catapults, bearish price
objectives, and bullish percent data.

Questions are welcome:

jcanavan@sungrp.com


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**************
BROKERS CORNER
**************

Trading Rule Book
By Robert Ogilvie

This article is intended to offer a few helpful hints that will
hopefully benefit you in the future.  While the markets appear
to be in a perpetual trading range, it is becoming more and more
frustrating to trade in these conditions. Many investors have
either given up as indicated by the anemic volume or are looking
at new trading strategies for an answer to why they haven't been
making the gains they once were.  Before you start a new
strategy, develop and write down some sound trading rules that
are easy to follow.

You should begin by establishing your investment goals and
objectives.  Ask yourself, "why am I trading?" and/or "what
(realistic) short and long term rate of return do I want to
achieve?"  Are you investing for fun, to build wealth, to earn
a living, and/or to retire?  An example would be, "I want to
make 50% per year. To do this, I have to average 4% per month."
A lot of people like the idea of 10% or 20% per month.  But it
comes at a cost.

Higher returns come with higher risk.  There is no way getting
around it.  In concert with your investment goals, you need to
determine your risk tolerance.  What amount can you afford to
lose?  Stocks are risky.  Options on stocks are even riskier.

After you have determined your goals and risk tolerance, you
have a choice of many investment strategies.  This article is a
little vague because I can't cover every possible variable for
every type of investor.  Just because some person is successful
shorting stocks doesn't mean it is the strategy for you.  You
might be eligible for something even riskier and more complex.
The amount of time you have to monitor your investments also
determines the strategies you can use.  Some people can spend
all day and night at their computers analyzing charts and
trading while others barely have time to stop and eat.
Depending on your circumstances, choose a strategy that not
only fits your goals and risk tolerance, but also your time
frame and your understanding.  Some people just don't comprehend
the concept of various strategies.  It isn't because they are
dumb.  It is similar to how some people are whizzes at calculus
while others have a hard time with algebra.

Another tip is to use a variety of strategies for your overall
portfolio. Cash allocation is important to diversification.  For
instance, allocate the majority of investment capital in lower
risk instruments, while dedicating a smaller portion to more
aggressive strategies.  Everyone's cash allocation model is
different.  You're model should represent your goals and risk
tolerance.  Determining how much cash to invest in various
strategies is key to achieving those goals.  For instance, if you
have an annual return goal of 20%, with 80% of your capital in a
money market account earning 4% annually and 20% invested in
options, the small amount in options will need to be very
successful to make about 100% annually.

Now that the boring tedious stuff is out of the way we can get
to the hard part.  Choosing a research method can be very
frustrating.  With so many indicators to choose from, which ones
are the best?  The best indicators are the ones that work for
you in all market conditions.  I have read that statistically,
only 1 out of 4 stocks goes up in a bear market.  If you are
buying or going long as an investment strategy, then you will
have to find the stocks going up.  The same is true for the
stocks going down.  The problem with so many stocks going down
is that you have to determine which will continue to go down.
Some investors use only technical or fundamental analysis.  I
think both should be used.  I think the key to using technical
indicators is to find a few that work well for you.  If you use
too many, the signals may conflict.  KISS - Keep It Simple
Stupid is what I tell my clients.  Just as investment objectives
are different for each investor, so are the tools for each
person.  Personally, I like using Stochastics, MACD, and
Bollinger Bands as a confirmation tool for the bar chart and
the 10 and 40 DMA.

After you have found a few candidates for your strategy, develop
strict entry parameters.  This should reflect your research
method.  If all of your criteria are met, then proceed with
caution.  If one of the criteria doesn't meet your parameters,
don't enter the position.  This is where having too many
indicators can burn you.  We are emotional creatures that will
find a reason to enter if we find a conflicting indicator that
matches our emotion.  There is a reason the average investor is
considered "the sheep" and the institutional money is the "smart
money."  The "smart money" trades without emotion.

Once you have committed to entering this position, it is
important to have a strict exit strategy.  Again, some require
tighter stop loss parameters than others.  It all depends on
your tolerance.  Because you have determined your goals, you
know how much you need to profit on the trade to help meet those
return goals.  Don't let your emotions get the better of you. If
you entered the trade because of technical and fundamental
reasons, then you should exit the trade if any of those reasons
change.  Do not get greedy.  That is the worst emotion.  After
you have determined your sell parameters and written them down,
write "3 ways to lose money - hope, fear, and greed."

Write down all of your trading rules and keep a copy of the list
on hand at all times.  Laminate it if necessary.  Keep a copy
near your computer and a copy in your wallet.  The reason to
have the rules is to be consistent.  If you are consistent, and
your results aren't meeting your goals, it may be easier to
pinpoint the problem.  This is a little vague for a reason, if
you need help with your rule book, I am happy to help you get
through the steps.  As a financial consultant, it is my job to
help determine an investor's needs and develop a strategy to
help them reach their goals.  Except for our ego, there are no
consolation prizes for succeeding on our own.

Robert John Ogilvie
robert.ogilvie@verizon.net

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


********************
THE PLAYS OF THE DAY
********************

Call Play of the Day:
*********************

QCOM - Qualcomm, Inc. $54.03 (+4.68 last week)

See details in sector list




Put Play of the Day:
********************

NETE - Netegrity Inc $30.14 (-2.71 last week)

See details in sector list




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**************************
PICKS WE DROPPED THIS WEEK
**************************

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


CALLS

CB $77.55 (-1.45) Old economy stocks spent another day in the
doghouse on Friday, and although selling in the Insurance sector
was mild, CB continued its disappointing behavior of the past
week.  After tagging a high of $79.37 a week ago, the stock has
been gradually drifting lower.  While it could resume its ascent
any day now, the rollover in the daily Stochastics seems to
point to a more extended decline in the days ahead.  Rather than
wait to be stopped out, let's take a more proactive approach,
exiting any open plays on Monday.  Use any rally as an
opportunity to close open positions at a more favorable level.


PUTS

CMVT $57.81 (-2.12) Aggressive traders that were waiting for
CMVT to rollover below our $56 stop to initiate new positions
were sorely disappointed on Friday.  Shooting through that level
before amateur hour was done, our short-lived play dropped back
to test that level three times throughout the day, but the bulls
held their ground, finally invoking a late-day rally to close
near the high of the day.  All positions should now be closed,
but if you happened to miss your exit point, look for a dip near
the $56 level on Monday to provide for a less painful exit.


***********
DEFINITIONS
***********

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

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

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

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

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

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


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

AHC - Amereda Hess $83.60 (-0.60 last week)

Amerada Hess is an integrated oil and gas company engaged in the
worldwide exploration for and the production of crude oil and
natural gas.  Amerada Hess also engages in refining and markets
refined petroleum products, natural gas and electricity in the
United States.

The broader energy sector is deeply oversold.  As of last
Friday, the Bullish Percent of the S&P Energy sector had fallen
to 28 percent.  That tells us that only 28 percent of the stocks
within the S&P Energy sector are currently in bullish patterns.
Furthermore, amid increased tensions in the Middle East - a
huge oil exporting region of the world - the recent slip in
energy prices may reverse and advance.  The combination of
deeply oversold conditions and the threat of unrest in the
Middle East may set up a potentially bullish trade in the
energy sector next week.  In order to game this potential event,
we're initiating bullish coverage on AHC.  The stock, despite
the pullback in the broader energy sector, still trades
relatively well.  Furthermore, the risk to reward in the
play is favorable as AHC bounced from a key demand (support)
level last week at $81, as evidenced on its point & figure
chart - not by coincidence, $81 is our stop.  As for upside,
AHC could advance up to the $87 level next week.  But, we
have to concede that this is a very aggressive play and
predicated on speculation of an oversold bounce combined with
news.  As such, please consider your risk tolerances when
examining this play and realize that gaps are very likely as
news filters out from the Middle East over the weekend.

BUY CALL JUL-80 AHC-GP OI= 10 at $5.20 SL=3.00
BUY CALL JUL-85*AHC-GQ OI= 55 at $2.45 SL=1.25
BUY CALL JUL-90 AHC-GR OI=334 at $0.95 SL=0.00

Average Daily Volume = 729 K



CEPH - Cephalon $68.60 (+0.61 last week)

Cephalon seeks to discover, develop and market innovative products
to treat neurological disorders, sleep disorders and cancer.  The
company is committed to providing patients and the medical
community with novel therapies to treat unmet medial conditions
through its proprietary research programs and by acquiring
promising products for clinical development and commercial sale.

CEPH, unlike many of its cohorts in the biotech sector, is
expected to burst into profitability during fiscal 2001.  That's
because the company has three primary products that are sold
in the United States, which are expected to produce revenues
of around $240 million during the current fiscal year.  Perhaps
its financial out performance lends to CEPH's exceptional share
price performance this year, in addition to the broader biotech
sector trading relatively well.  Aside from the company's
fundamentals, we noticed a very enticing price pattern on CEPH's
point & figure chart Friday, which begged that we initiate
bullish coverage on the stock.  CEPH has traced several bullish
patterns on its point & figure chart, which most certainly
indicate the stock is under heavy accumulation.  The stock
needs only to breakout above the $71 level early next week in
order to complete a most bullish buy signal.  If it does, we
could very well see the stock work its way up to the mid $90's
over the intermediate-term.  On the other hand, if your style
is to enter on pullbacks, look for support as low as $66.  But,
if CEPH settles just below that level at $65, we'll drop coverage
on the play as that level marks the line in the sand.  Getting
back to the pivotal breakout point, those who prefer trading
momentum and breakouts will simply watch for CEPH to decidedly
advance above the $71 level early next week on volume of at
least 2 million shares.  But, make sure to confirm direction
in the Biotechnology Sector Index (BTK.X) before entering on
any breakout.  Look for the BTK to get above 625.

BUY CALL JUL-65 CQE-GM OI= 250 at $6.40 SL=4.50
BUY CALL JUL-70*CQE-GN OI=1464 at $3.60 SL=1.75
BUY CALL JUL-75 CQE-GO OI= 279 at $1.85 SL=1.00
BUY CALL AUG-70 CQE-HN OI=1409 at $6.30 SL=4.50
BUY CALL AUG-75 CQE-HO OI=1062 at $4.30 SL=2.75

SELL PUT JUL-65 CQE-SM OI= 765 at $2.50 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.91 mln



MWD - Morgan Stanley Dean Witter $65.05 (+7.53 last week)

Morgan Stanley & Co. is a preeminent global financial service
firm with well recognized brand names including Morgan Stanley
and Discover Card, among others.  Morgan Stanley combines the
strength of innovative financial products and services with
powerful distribution capability to individual and institutional
cliens.  Morgan Stanley's products and services include
underwritten public offerings of securities, mergers and
acquisitions and other financial advisory services, securities
sales and trading, research and asset management services.

A week ago, we had been gaming MWD from the short side, and
had some success in that endeavor.  However, following its
better-than-expected earnings report last week, we're picking
up bullish coverage on the play this time 'round, going into
next week's trading.  Speaking of next week's trading, the
Federal Reserve conveys early next week to determine the
direction of short-term interest rates, culminating with an
official announcement on Wednesday.  Following several key and
disconcertingly weak economic reports recently, many economists
expect the Fed to cut by 50 basis points, which was unheard of
just two weeks ago.  But, currently, the consensus expects a
50 percent chance of a 50 basis point cut.  In the event of
a 50 basis point cut, we want exposure in a financial stock
going into next week, which is where MWD comes in.  Although,
the stock's momentum last week on the heels of the company's
earnings report may continue to carry MWD higher going into
next week.  Now, we appreciate that gauging the Federal
Reserve is risky, but we can use MWD's technicals as a guide.
For those who have the risk tolerance, consider entering at
current levels ahead of the FOMC announcement Wednesday.
There exists some meaningful resistance at $68, so those
earlier in their entries might use any advance up to that
level as an exit point, at least for partial positions.
Conversely, those wanting confirmation of trend might use
any advance above $68 as an entry point, as that breakout
should allow MWD to retest its relative highs.  Insofar as
support in concerned, dip buyers might consider using a
bounce off $63, or lower near $62.50 support to gain entry.
Stops are initially being set at $61, and we would drop
MWD if it CLOSED below that level.

BUY CALL JUL-60 MWD-GL OI= 5826 at $6.60 SL=4.50
BUY CALL JUL-65*MWD-GM OI=13019 at $3.40 SL=1.75
BUY CALL JUL-70 MWZ-GN OI=14504 at $1.50 SL=0.75
BUY CALL AUG-65 MWD-HM OI=  306 at $4.80 SL=3.00
BUY CALL AUG-70 MWZ-HN OI=  472 at $2.60 SL=1.25

SELL PUT JUL-60 MWD-SL OI=11632 at $1.40 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 5.85 mln



OPWV - Openwave Systems $28.67 (+0.67 last week)

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

Reflecting the recent trend in the broad Technology market, OPWV
is managing to lead a recovery in the Wireless sector due to
their strong position in wireless-enabling software.  Recall
that one of the leading sectors in the NASDAQ last week was
Software, due to the better than expected earnings report from
ORCL, coming on the heels of ADBE's better than expected
results.  With the bad news already out from many of the players
in the Wireless market (such as NOK, PALM and RFMD), investors
seem to be taking the attitude that the bad news is out and they
are ready to rally.  While we are early in the move, we can see
that the $25 level once again provided support, and an
opportunity for the daily Stochastics oscillator to stabilize
and begin to emerge from oversold territory.  Look for an
intraday dip to the $27-28 level, or even solid support near
$25 to provide entry, if you like to buy the dips.  Otherwise,
hold on and wait for OPWV to clear the $32 resistance level
before playing.  Keep in mind, there is a gap between $34-38,
which will need to be filled by the bulls.  But the bears will
be lying in wait to sell into that rally, so keep a tight reign
on your position until you see the $38 level in your rear-view
mirror.  Above that, resistance will be waiting near $40,
confirmed by the bearish resistance line on the Point and
Figure chart.  Place stops at $24.

BUY CALL JUL-25 UGE-GE OI= 984 at $6.00 SL=4.00
BUY CALL JUL-30*UGE-GF OI=1565 at $3.30 SL=1.75
BUY CALL JUL-35 UGE-GG OI=5230 at $1.75 SL=0.75
BUY CALL AUG-30 UGE-HF OI= 123 at $4.60 SL=2.75
BUY CALL AUG-35 UGE-HG OI=  42 at $3.00 SL=1.50

SELL PUT JUL-25 UGE-SE OI=1995 at $1.90 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 6.41 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=OPWV


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

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

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


**********
DISCLAIMER
**********

Please read our disclaimer at:
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**************************************************************
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Contact Support

The Option Investor Newsletter                   Sunday 06-24-2001
Sunday                                                      3 of 5

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

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

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


******************
CURRENT CALL PLAYS
******************

MEDI - MedImmune $45.30 (+3.06 last week)

MedImmune Incorporated is a fully integrated biotechnology
company focused on developing and marketing products that
address medical needs in areas such as infectious disease,
immune regulation and cancer.  Headquartered in Gaithersburg,
Maryland, MedImmune has manufacturing facilities in Maryland
and the Netherlands.

MEDI's weekly chart clearly displays an ascending trend that
has carried the stock higher since it traced a bottom in
mid-March.  Indeed, the biotech sector, as measured by the
Biotechnology Sector Index (BTK.X), has traded relatively well
during that time.  An aggressive, ascending trend line can be
drawn on MEDI's weekly chart by anchoring near its bottom around
the $28 level.  When reduced to the daily chart, MEDI's ascending
trend line has clearly provided support since mid-March.  We can
use this trend line, which currently resides around $42 (our
stop), for approaching entry points on any future pullbacks.
Although, the stock's breakout Thursday above the $45 level may
make that price a platform of sorts, as was the case Friday.
The earnings warning from drug giant Merck adversely impacted
the broader biotech sector Friday, including MEDI.  But our play
pulled back on rather light volume, which was somewhat of a
condolence.  If the $45 level is retested again early next week
and again holds, traders might consider gaming entries on any
subsequent bounce off of $45.  Conversely, if the $45 level
breaks early next week, look for support to materialize around
the ascending support line at $42, assess the direction of the
BTK, and consider taking entries off that ascending support
line, which should offer a favorable risk/reward dynamic should
it hold.  On the flip-side, those who prefer trading momentum
might look for entries on any advance above the $47.50 level
on healthy volume, after confirming strength in the BTK.  But,
keep an eye on MEDI's 200-dma just above at $48.85.  MEDI's
peak open interest in July calls currently lies in the 40 and
45 strikes.  If the stock can continue to advance early next
week, that open interest may help to perputate any rally attempt.

BUY CALL JUL-40 MEQ-GH OI=3249 at $6.70 SL=4.50
BUY CALL JUL-45*MEQ-GI OI=2191 at $3.50 SL=1.75
BUY CALL JUL-50 MEQ-GJ OI=1338 at $1.35 SL=0.75
BUY CALL AUG-45 MEQ-HI OI= 155 at $4.90 SL=3.00

SELL PUT JUL-45 MEQ-SI OI= 671 at $2.80 SL=5.00
(See risks of selling puts in play legend)

Average Daily Volume = 3.23 mln



RATL - Rational Software $26.30 (+2.31 last week)

Rational Software provides a platform for software development
that speeds time-to-market while improving software quality.
This integrated full life-cycle solution combines software
engineering best practices, market-leading tools, and
professional services.  Ninety of the Fortune 100 build
software with the Rational solution.

RATL's price and volume action Friday was very indicative of
consolidation.  The stock traded in a range of only $1.40, on
a mere 1.6 million shares - its 30-day average volume is
around 4.50 million.  Its consolidation is constructive, make no
mistake about it.  In light of the Symantec's and Micron's
earnings blow-ups late last week, the fact that RATL finished
slightly lower Friday bodes very well for our play going
forward and hopefully portends a breakout above the increasingly
critical $29 level.  To review, an advance above $29 would
generate a bullish breakout on RATL's point & figure chart, as
well as clear a significant retracement level on the daily chart.
But for a breakout to occur, we need to see the Software Index
(GSO.X) rebound early next week.  In the wake of Symantec's
warning late last week, the GSO pulled back Friday to support
around the 212 level.  Ideally, we'd like to see the GSO rebound
and advance above the 225 resistance level, coinciding with
RATL breaking out above $29, which would give the green light
for entries into the play.  However, for those whose style is
to enter on weakness, turn to the $25 first when looking for
significant support levels from which RATL might bounce.  The $25
level is currently the site of RATL's 10-dma.  Thereafter,
significant demand (support) levels lie between $23 and $24.
Keep in mind that the former level is the site of our stop.  If
the stock does pullback early next week, make sure that light
volume, such as Friday's, accompanies any weakness as a sign
the weakness is market related!

BUY CALL JUL-22.5 RAQ-GR OI= 207 at $5.10 SL=3.00
BUY CALL JUL-25.0*RAQ-GE OI=1252 at $3.50 SL=1.75
BUY CALL JUL-30.0 RAQ-GF OI=1625 at $1.40 SL=0.75
BUY CALL AUG-25.0 RAQ-HE OI=  52 at $4.40 SL=2.75
BUY CALL AUG-30.0 RAQ-HF OI= 292 at $2.40 SL=1.25

SELL PUT JUL-22.5 RAQ-SR OI= 373 at $1.15 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 4.50 mln



ADBE - Adobe Systems $43.58 (+4.02 last week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Shooting higher last week on the heels of ORCL's better than
expected earnings report, ADBE was due for a break after scaling
the $45 level on Wednesday.  While the stock held its ground on
Thursday, fear of darkness on Friday led to the desired pullback
as profit taking dropped the share price right down to the $43
support level before a mild bounce into the close.  Volume was
rather light, adding credence to the theory of a pullback before
the stock launches higher in the days ahead.  While ADBE
recently beat earnings estimates by a nickel, don't forget the
big unknown on Tuesday - we get the results of the latest FOMC
meeting, and the decision on interest rates could drive the
NASDAQ (and ADBE with it) in either direction.  Timid traders
may want to lock in gains before the announcement and consider
re-opening positions after the unknown becomes known.  ADBE is
on the cusp of a breakout over the $46 level, after which the
bulls will need to conquer the stubborn $48 level which has
thrice turned them back since mid-April.  Momentum players can
consider new positions as the stock pushes through $46, while
dip-buyers will want to target the $42-43 support level, near
the converged 10-dma ($41.97), 30-dma ($42.03) and 50-dma
($42.47).  Real risk-takers can even try to pick up an entry
near our $40 stop, but make sure the rebound comes on strong
volume.  Watch for continued strength on the Software index
(GSO.X) before playing, and keep one ear to the newswires.
ADBE is presenting at the Thomas Weisel Partners conference
Monday evening.

BUY CALL JUL-40 AEQ-GH OI=3997 at $5.30 SL=3.25
BUY CALL JUL-45*AEQ-GI OI=4715 at $2.10 SL=1.00
BUY CALL JUL-50 AEQ-GJ OI=3338 at $0.80 SL=0.00
BUY CALL AUG-45 AEQ-HI OI= 228 at $3.70 SL=2.00
BUY CALL AUG-50 AEQ-HJ OI= 311 at $1.90 SL=1.00
BUY CALL AUG-55 AXX-HK OI=  65 at $0.85 SL=0.00

SELL PUT JUL-40 AEQ-SH OI=4630 at $1.25 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 4.39 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=ADBE


FRX - Forest Laboratories $72.10 (+1.87 last week)

One of many specialty pharmaceutical companies, Forest
Laboratories develops, manufactures and sells both branded
and generic forms of ethical prescription and non-prescription
drug products.  . Some of the company's more notable products
are Celexa (for depression), Tiazac (for hypertension and
angina), and respiratory products Aerobid, Aerochamber and
Tessalon.  Additionally, the company produces Infasurf, a
lung surfacant for the treatment and prevention of respiratory
distress syndrome in premature infants.  FRX markets its
products directly to physicians using the company's own
specialized sales force.

Market participants couldn't decide what to do with FRX on
Friday, but in the end it was very encouraging, as the stock
posted only a fractional gain.  While not exciting for those
holding calls, it sure was a relief, when compared to the
Pharmaceutical index (DRG.X), which gave up more than 3.5%.
Thanks to Merck warning of an earnings shortfall due to
less-than-stellar sales of Vioxx, the entire sector was under
pressure.  In a bold show of relative strength, FRX reversed
its early loss on the MRK news to close nearly unchanged.  While
the uptrend has definitely been weakened in the past 2 days,
this could be just the rest break the bulls needed before
resuming the rally.  Dip-buyers will look for a bounce near the
10-dma (currently $71.69) or even a return to the $70 level to
provide entry into the play.  Just make sure buyers defend those
levels by pushing up the volume before playing.  Those who
prefer to follow the herd (read: momentum players) will want to
wait for FRX to scale the $74 level on strong volume before
playing.  The real test will be whether FRX can clear $76, and
this will provide for more entries, as the bulls prepare for
their assault on the all-time high of $78.28.  Keep in mind that
the Point and Figure chart is forecasting a bullish price target
of $88.  So if FRX reaches new highs, it will likely still be
healthy enough to provide a profitable play.

BUY CALL JUL-70 FRX-GN OI= 319 at $4.60 SL=2.75
BUY CALL JUL-75*FRX-GO OI=1090 at $2.00 SL=1.00
BUY CALL AUG-70 FRX-HN OI= 313 at $6.10 SL=4.00
BUY CALL AUG-75 FRX-HO OI= 688 at $3.30 SL=1.75

SELL PUT JUL-70 FRX-SN OI=1608 at $1.95 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 1.40 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=FRX


GE - General Electric $51.86 (+3.05 last 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
services.

GE finally shook off its malaise associated with the Honeywell
merger, which is likely to be blocked by European anti-trust
regulators.  Despite poor news on that front, the bulls found
new life mid-week and pushed the share price solidly through
the important $50 level on continued strong volume.  GE is now
above all its moving averages, and the 50-dma ($49.25) is just
about to cross up through the 200-dma ($49.57), generally a
solidly bullish sign.  The next obstacle will be the recent
high near $53.50 and resistance between there and $54.
Clearing that level will create new entry points as the bulls
take aim at $55 and then $56 resistance levels.  Those that like
to get in a bit cheaper will still want to target the pullbacks,
now in the vicinity of $50, followed closely by that 200-dma.
Since GE normally moves in sympathy with the broader non-tech
market, it has been really encouraging to see the bulls remain
in control while the DJIA continues to struggle with keeping its
head above water.  With daily Stochastics now entering
overbought, watch out for profit-taking as the stock approaches
the $54 level.  If it can clear that level on strong volume, GE
could soon be taking aim on the $60 level.  Keep stops set at
$49 for the time being.

BUY CALL JUL-50 GE-GJ OI=65412 at $3.00 SL=1.50
BUY CALL JUL-55 GE-GK OI=17312 at $1.75 SL=0.75
BUY CALL AUG-50*GE-HJ OI= 1428 at $3.80 SL=2.25
BUY CALL AUG-55 GE-HK OI= 7062 at $1.25 SL=0.50
BUY CALL SEP-50 GE-IJ OI=29499 at $4.40 SL=2.75
BUY CALL SEP-55 GE-IK OI=29580 at $1.85 SL=1.00

SELL PUT JUL-50 GE-SJ OI=29308 at $1.00 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 21.9 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=GE


QCOM - Qualcomm, Inc. $54.03 (+4.68 last week)

Based on its proprietary CDMA technology, QCOM is engaged in
developing and delivering digital wireless communications
services.  The company's business areas include integrated
CDMA chipsets and system software and technology licensing.
QCOM owns patents that are essential to all of the CDMA
wireless telecommunications standards that have been adopted
or proposed for adoption by the worldwide standards-setting
bodies.  Currently, QCOM has licensed its CDMA patent portfolio
to more than 80 telecommunications equipment manufacturers
around the world.

There's nothing quite like picking the bottom on a successful
play to put a smile on your face, and that is exactly what QCOM
allowed us to do last week.  Based on historical support and a
bearish price target from the Point and Figure chart, we were
looking for a bottom to form near $48.  While the initial bottom
formed near $48.50, patient dip-buyers got a chance on both
Wednesday and Thursday to enter the play right at $48.  We are
close to achieving our initial $55 bullish price target as well,
but based on the stock's current strength, we think it might
have a bit more upside in store.  This is confirmed by the Point
and Figure chart, which is now forecasting a bullish price
target of $67, just one point above the bearish resistance line.
QCOM fans will recall this is the area which QCOM has repeatedly
struggled with in recent months, making it a great place to
take profits.  But first the bulls will have to scale the $56-57
resistance level and then the even tougher obstacle at $60, the
site of the converged 30-dma ($60.34) and 50-dma ($59.73).  We
have moved our stop up to $50, but dip buyers can continue to
target bounces above this level (preferably near $52) for new
positions.  Friday's advance came to a halt right at $54.50, the
38% retracement of the stock's loss since June 8th.  If the
bulls can clear this level on solid volume next week, that
would also make for an attractive entry into the play.

BUY CALL JUL-50 AAO-GJ OI= 4750 at $6.90 SL=5.99
BUY CALL JUL-55*AAO-GK OI= 7255 at $3.90 SL=2.50
BUY CALL JUL-60 AAF-GL OI=10679 at $1.85 SL=1.00
BUY CALL AUG-60 AAO-HK OI= 1432 at $3.80 SL=2.25
BUY CALL AUG-65 AAF-HM OI=  534 at $2.30 SL=1.25

SELL PUT JUL-50 AAO-SJ OI= 9657 at $2.20 SL=3.75
(See risks of selling puts in play legend)

Average Daily Volume = 14.6 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=QCOM


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The Option Investor Newsletter                   Sunday 06-24-2001
Sunday                                                      4 of 5

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

HGSI - Human Genome Sciences $62.50 (-2.60 last week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

If you've been viewing the recent Biotech rally with some
suspicion, you aren't alone, or without good reason.  A quick
glance at the daily chart of the Biotechnology index (BTK.X)
reveals a possible Head & Shoulders formation, with the
neckline resting near $580.  Should the BTK fall through this
level, the weakest players in the Biotech group should fall
first and heaviest.  Which brings us to our new put play on
HGSI.  The stock just can't seem to clear the 200-dma
(currently $65.75), also the site of significant historical
resistance.  Not only does this help to define our risk, but
it also gives us an easy location for our stop loss, namely
$66.  The pivotal level on the play though is $61.  $61.50 is
the 38% retracement of the April-May gains, and also the level
at which HGSI has been recently finding support.  This support
is confirmed by the bullish support line that appears on the
Point and Figure chart.  A drop through $61 will provide
attractive entries and open the door for a test of the next
support level, $57.25, which also just happens to be the 50%
retracement level.  While target-shooters can attempt to gain
a more profitable entry by buying a rollover near the 200-dma,
bear in mind that the proof of the play will be when it falls
through the $61 level.  Let the BTK index be your guide.  When
it falls through it's own support, it is a pretty safe bet that
HGSI will follow suit.

BUY PUT JUL-65 HHA-SG OI= 537 at $6.40 SL=4.50
BUY PUT JUL-60*HHA-SF OI=2506 at $4.00 SL=2.50
BUY PUT JUL-55 HHA-SE OI=1488 at $2.40 SL=1.25

Average Daily Volume = 3.47 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=HGSI


NVLS - Novellus Systems $51.97 (+0.76 last week)

Providing equipment for advanced Semiconductor manufacturing,
NVLS focuses on advanced, high-productivity thin film
deposition systems and surface preparation systems used in
the fabrication of integrated circuits.  Utilizing Chemical
Vapor Deposition (CVD), Physical Vapor Deposition,
electroplating, photoresist strip and residue removal systems,
the company's products provide high film quality while
attaining the high levels of productivity required to meet
the semiconductor industry's need for high-volume, low-cost
wafer production.

Although that noisy daily chart may be hard to decipher at
first, drilling down to the hourly chart reveals a compelling
Head & Shoulders top that points towards a breakdown in the days
ahead.  Semiconductor equipment stocks are by no means shining
brightly, and NVLS looks like it presents an attractive
risk/reward ratio.  Although the top of the current shoulder
rests at $56, it seems like a fairly safe approach to target
failed intraday rallies to the $53-54 level for new entry
points.  We are starting the play with our stop at the $54
level, and just the downside to the neckline takes NVLS to $46.
While this level seems to provide pretty solid support, we've
seen the damage an unexpected earnings warning can have.  With
the declining fundamentals in the Semiconductor sector, the odds
favor a surprise to the downside in the next couple weeks.  The
converged 10-dma ($52.08), 30-dma ($51.99) and 50-dma ($51.91)
will provide a pivotal trading point.  A break below this level
(nominally $52) on solid volume will make for another good entry
point.  Finally, those that would prefer to trade a breakdown
may want to wait for a drop through the $49 support level before
playing.  At any rate, let the strength of the Semiconductor
sector (SOX.X) be your guide.  If it continues to weaken, NVLS
should too.

BUY PUT JUL-55 NLQ-SK OI=2293 at $6.00 SL=4.00
BUY PUT JUL-50*NLQ-SJ OI=2937 at $3.40 SL=1.75
BUY PUT JUL-45 NLQ-SI OI=2249 at $1.75 SL=1.00

Average Daily Volume = 9.36 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=NVLS


*****************
CURRENT PUT PLAYS
*****************

NETE - Netegrity Inc $30.14 (-2.71 last 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.

We were pleased to see NETE lose 10 percent Friday on volume
that was exceptional.  The stock's advance Thursday was a cause
for concern for those of us on the short side, but the subsequent
weakness Friday offered some redemption.  NETE's decline on heavy
volume Friday was most likely a product of Symantec's earnings
debacle.  Nevertheless, although NETE popped higher last Thursday,
the daily chart still reveals a series of relatively lower highs,
in descending fashion.  This development is most encouraging,
and may very well lead to NETE breaking down below its remaining
major support level early next week.  The support level that we're
going to want to monitor closely next week is $28.  For it is not
only the site of NETE's 61.8 percent retracement level, but it
also marks a level of demand on the point & figure chart.  A
decline below the $28 level early next week could very well shift
the risk/reward dynamic in this stock and force longs to liquidate
and shorts to add to their bearish bets.  So, for those not yet
in this play, watch for a heavy volume breakdown below the $28
level next week in order to gain entry into this play.  For those
who prefer to add on strength and go against the trend, consider
gaming an entry on any rollover near $31.  That is, if NETE
advances on light volume up to that level.  For those already in
this play, keep in mind that we've captured about $8 in the
underlying since initiating bearish coverage.  Whether or not
you've made money during those 8 points obviously depends upon
specific entry points.  But, if you're in at higher prices
consider booking some gains.  In fact, the $28 level may offer
an exit point for those with gains.

BUY PUT JUL-35 UPN-SG OI= 23 at $7.00 SL=5.00
BUY PUT JUL-30*UPN-SF OI=927 at $4.00 SL=2.50
BUY PUT JUL-25 UPN-SE OI=120 at $1.65 SL=0.75

Average Daily Volume = 1.45 mln



EMLX - Emulex Corporation $32.70 (-0.18 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial
distributors.

Have you noticed that EMLX just can't seem to catch a break?
Even when the stock posts a small gain (like it did on
Thursday), the bears come along to quickly snatch it back.  Even
though the stock has gone virtually nowhere since we picked it
on Monday, its trading pattern has made for consistent
day-trading profits between $34-31.  Thursday's action provided
the most recent opportunity to play, as the rally fell apart in
the afternoon, falling sharply back through our $35 stop and
keeping the play alive for the bears to play again on Friday.
While the price is being supported by the $30.88 level (50%
retracement of the April-May gains), rallies are being kept in
check by the 38% retracement level, $35.22.  Failed rallies near
the $35 level still make for attractive entry points for
short-term trades, while we wait for support to fail.  When it
does, we'll have a fresh opportunity to play, because a drop
through $30 will open the door for a test of the 61% retracement
level near $26.50.  And for you point and figure aficionados,
the current bearish price target falls at $12, coincident with
the April lows.  One possible catalyst for price action next
week will be the company's presentation Tuesday evening at the
Thomas Weisel Partners conference.

BUY PUT JUL-35 UMQ-SG OI=2873 at $5.30 SL=3.25
BUY PUT JUL-30*UMQ-SF OI=2194 at $2.70 SL=1.25
BUY PUT JUL-25 UMQ-SE OI=1816 at $1.35 SL=0.50

Average Daily Volume = 6.37 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=EMLX


NVDA - NVIDIA Corporation $91.30 (-3.75 last week)

NVIDIA Corporation designs, develops and markets 3D graphics
processors, graphics processing units and related software that
set the standard for performance, quality and features for
every type of desktop personal computer user.  Used in a wide
variety of application including games, the Internet and
industrial design, the company's products were the first to
incorporate a 128-bit multi-texturing graphics architecture.
This design approach delivers to users a highly immersive,
interactive 3D experience with compelling visual quality and
stunning effects at real-time frame rates.  NVDA sells its
products to major PC manufacturers such as Compaq, Dell,
Gateway, Hewlett-Packard and IBM.

Our NVDA play got off to a good start on Friday, as volume
continued to diminish and the bulls were unable to penetrate
the $94 resistance level.  The stock definitely looks like it
is in a topping formation, and while only time will tell, with
a little imagination; we can see the beginnings of a Head &
Shoulders top forming with a neckline at $83.  So long as our
$96 stop isn't violated, entries on failed intraday rallies near
the $94-95 level should provide for attractive entries.  Of
course, you might want to wait for the bears to prove they are
in control before playing.  In that case, wait for volume to
increase with the price falling through first the $89 and then
$85 support levels.  According to the Point and Figure chart,
the $82 level looks like a good first-order price target and a
good place to take profits.  By then, we can focus on the H&S
pattern.  IF it proves itself true, then we'll get a high-volume
breakdown as NVDA falls through $82, completing the pattern and
opening the door for a more protracted decline.  Let's face it;
when the leading maker of video cards for PCs (have you seen
DELL's chart lately?) sports a PE ratio just under 70, it is
pretty clear that the bears see some easy pickings ahead.  All
we want to do is grab our chunk out of the middle.  Keep one ear
open for any company guidance as it presents at the Thomas
Weisel Partners conference Monday evening.

BUY PUT JUL-95 RVU-SS OI= 407 at $9.70 SL=6.75
BUY PUT JUL-90*RVU-SR OI=1178 at $7.10 SL=5.00
BUY PUT JUL-85 RVU-SQ OI=1183 at $5.20 SL=3.25

Average Daily Volume = 5.52 mln
http://www.OptionInvestor.com/charts/chart.asp?symbol=NVDA


SRNA - Serena Software $27.72 (-0.03 last week)

Serena Software is a provider of eBusiness software change
management (SCM) solutions.  The company's products and
services are used to manage and control software change for
organizations whose business operations are d3ependent on
managing information technology (IT).  SRNA's product
offerings support the industry standard IBM mainframe
platforms, including MVS, and are marketed under the brand
name Full Cycle mainframe.  This product suite automates the
software application life cycle and creates an IT environment
that facilitates concurrent development efforts by separate
programming teams, improves process consistency, enhances
software integrity and protects valuable software assets.

Despite positively-received earnings reports from ORCL and
ADBE, the Software sector seems to be in trouble.  One look at
the GSTI Software index (GSO.X) confirms this conclusion, as
the highs are getting lower, and the index appears to be having
a hard time scaling the combined 50-dma ($223.10) and 30-dma
($224.83).  Should the GSO index remain under pressure, stocks
like SRNA are likely to follow suit.  We can already see that
the bulls have been repeatedly turned back at the 200-dma (now
at $30.06).  Every attempt to rally higher is met by the bears,
who are ever ready to engage in some selling.  Resistance near
$28 and then $29 produces selling, while buying tends to appear
first at $27, then $26, and finally $25.50.  With our stop still
resting at $30, we can enter new plays on each failure to
penetrate resistance and then ride the position down to support,
harvesting a couple points each time.  If support breaks down,
then we get a longer ride, and an opportunity to add to our
position.  Especially if it is accompanied by increasing volume.
Recall that Uncle Alan will be announcing his verdict on
interest rates on Tuesday, an event that is sure to increase
volatility in the market in the near-term.  That could be just
what we need to shake SRNA out of its recent trading pattern and
push the stock down towards its next support level near $20-21.

BUY PUT JUL-30.0*NHU-SF OI= 74 at $4.20 SL=2.60
BUY PUT JUL-25.0 NHU-SE OI=154 at $1.60 SL=0.75
BUY PUT JUL-22.5 NHU-SX OI= 78 at $0.95 SL=0.00

Average Daily Volume = 594 K
http://www.OptionInvestor.com/charts/chart.asp?symbol=SRNA


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*****
LEAPS
*****

Hold on and Don't Forget the Dramamine!
By Mark Phillips
Contact Support

Did anyone else feel like the markets were being buffeted by
stormy seas the past couple weeks?  We had sharp violent rallies
that suckered the Portfolio into new plays last week, just in
time for the bottom to fall out again, putting those very same
plays far underwater before I could even report to you what we
had done.  More craziness appeared this week, kicked off by
Oracle's (NASDAQ:ORCL) better-than-expected earnings report.
That put software stocks into rally mode and we saw the effect
in a recovery to nominally unchanged on our Adobe Systems
(NASDAQ:ADBE) play.  The changing tide in the Software sector
ushers ORCL onto our Watch List, an event many have been
clamoring for.

The sharp one-day rally that pushed Texas Instruments (NYSE:TXN)
from the Watch List to the Portfolio is little more than a
memory, and so is that play, relegated to the Drop list this
weekend.  This is a perfect example of why it is dangerous to
buy breakouts for long-term positions in this market.  You
frequently end up buying at or near the high, only to watch your
premium melt away faster than a Popsicle on a hot summer day.
See the drop below for further details, but my recommendation
is to study the chart of TXN for a picture of what NOT TO DO in
the current market environment.

A sharp and vigilant reader caught me with mismatched strikes on
the AOL play last week.  In my cleanup efforts, I found errors
on the strikes listed for a couple other plays.  All the errors
have now been corrected, so verify correct symbols with this
week's Portfolio and Watch List before playing next week.

A rarity in the Portfolio this week, Washington Mutual (NYSE:WM)
actually had a nice rally.  While we are tightening our stop to
the $36 level, keep in mind that we have had a heck of a run in
the stock since we began playing it near the $16 level.  Those
of you that have been with us since then may be thinking about
locking in profits near current levels, and I can't say I blame
you.  The stock has more than doubled, and the PE ratio is now
over 15, and you'll never go broke taking a profit.  On the
other hand, the weekly chart shows that WM has just broken out
of a bullish wedge formation, indicating we could be poised for
further upside.  While I wouldn't initiate new positions at
current levels, I don't want to cut off the possibility of
further gains; hence, the beauty of stop losses - set and
forget protection.

Speaking of those volatile moves, did you notice what happened
to Verisign (NASDAQ:VRSN) this week?  As of last weekend, the
new position was off by more than 20%, while this week it is in
the green to the tune of better than 10%. Thanks to a strong
mid-week rally, the stock is back near the $60 resistance level.
The bulls will need to take a run at this level to overpower
the bears, but last week was definitely encouraging!

So where are we in terms of the big picture?  It looks like a
holding pattern in advance of Tuesday's FOMC meeting.  The
NASDAQ Composite is flopping around the 2000 level with very
little sense of direction.  At the same time, we have watched
the DJIA give up its battle with the 11,000 level, and it is
now trying to keep its head above water.  With another close
right on the 10,600 level on Friday, and below the 200-dma, it
doesn't look very encouraging.  The bulls are hoping that these
support levels will hold (possibly with assistance from the
Fed), while the bears are getting ready to pile on to the
downside on the heels of any devastating earnings warning
(haven't we had enough already?) or an indication from Uncle
Alan that the interest rate reduction gravy train is coming
to an end.

Have you noticed the action of the VIX lately?  If this is an
accurate reading of fear in the market, then I'm a little
concerned.  We get a very mild rally in the S&P500 (actually
more of a weak bounce) and the VIX drops from almost 29 to less
than 22 in only 5 days?  I'm sorry, but that just smacks of
overeager bulls ignoring all the bad news.  When the VIX gets
this low, we want to be extra-careful in contemplating new
long-term positions -- when everyone is lined up on one side
of the boat (calls) it doesn't take much of a disturbance to
tip it over.  For the record, the VIX closed out the week at
22.50.

My fearless forecast for the summer?  Although we will likely
see some little rallies, with expectations for the recovery to
be pushed out to the first half of 2002, I'm looking for
rangebound action to persist through much of the summer.  Of
course that is the perfect environment in which to target shoot
some attractive entries into 2003-2004 LEAPS.  To occupy your
time and make a little extra cash, consider writing covered
calls against LEAPS to reduce their cost basis.  For those of
you that missed it, I wrote the first of 2 articles on that
topic last week in the Options101 column.  The second
installment will appear on Tuesday, complementing the
theoretical with actual examples.

Observant readers will notice that the 2002 LEAPS have all been
pulled from the Watch List this week.  While still eminently
tradable in the short term, they no longer make a good vehicle
for the strategy we employ here in LEAPS.  Of course, we are in
that no-man's land where not all equities have had their 2004
LEAPS released by the CBOE.  If they are available, we will list
the 2004 strikes, but until then we will have some new plays
listed with only the 2003 strikes.  For plays currently listed
with only the 2003 strikes, we will add the 2004s when they
become available over the next month or so.  They should have
all been released by the end of July.

As redundant as it sounds, my advice remains largely unchanged.
Pick those entry points you want while the markets are closed.
Then when the conditions are right, you will have the confidence
to strike, filling your 'recovery portfolio' for the recovery
that will begin to appear in earnest over the next several
months.

Have a profitable week!

Mark Phillips
Contact Support



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

CLX    03/13/01  '02 $ 35  CLX-AG  $ 3.50  $ 3.50    0.00%  $ 33
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.10    0.00%  $ 33
WM     03/22/01  '02 $33.8 BWT-AY  $ 4.00  $ 7.30   82.50%  $ 36
                 '03 $33.8 OBN-AY  $ 6.13  $ 9.70   58.24%  $ 36
JWN    03/30/01  '02 $ 20  JWN-AD  $ 1.65  $ 1.45  -12.12%  $17.50
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.10  - 6.06%  $17.50
FON    04/09/01  '02 $ 25  FON-AE  $ 2.80  $ 1.10  -60.71%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 3.20  -27.27%  $ 19
DELL   04/27/01  '02 $ 25  DLQ-AE  $ 6.20  $ 3.40  -45.16%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 6.30  -30.00%  $ 23
ADBE   05/16/01  '02 $ 40  AEQ-AH  $11.00  $10.40  - 5.45%  $ 37
                 '03 $ 40  VAE-AH  $14.60  $15.90    8.90%  $ 37
AOL    05/16/01  '02 $ 55  AOO-AK  $ 9.60  $ 8.60  -10.42%  $ 48
                 '03 $ 55  VAN-AK  $14.60  $14.00  - 4.11%  $ 48
LRCX   06/01/01  '02 $ 30  WMJ-AF  $ 6.60  $ 5.90  -12.12%  $ 25
                 '03 $ 30  VPC-AF  $10.30  $10.40  - 1.94%  $ 25
BRCD  06/05/01   '02 $ 45  UBF-AI  $10.70  $ 8.20  -23.36%  $ 35
                 '03 $ 45  OMW-AI  $18.40  $14.30  -22.28%  $ 35
BRCM  06/05/01   '02 $ 40  RCQ-AH  $ 9.70  $ 7.40  -23.71%  $ 30
                 '03 $ 40  OGJ-AH  $14.00  $12.90  - 7.86%  $ 30
SEBL 06/12/01    '02 $ 45  SGW-AI  $13.00  $ 9.70  -25.38%  $ 34
                 '03 $ 45  OIE-AI  $18.40  $15.40  -16.30%  $ 34
VRSN 06/12/01    '02 $ 50  YXO-AJ  $17.10  $18.90   10.53%  $ 42
                 '03 $ 60  OVX-AL  $20.40  $23.40   14.71%  $ 42
GE   06/21/01    '02 $ 53  WGE-AX  $ 3.70  $ 4.00    8.11%  $ 47
                 '03 $ 55  VGE-AK  $ 6.80  $ 6.90    1.47%  $ 47



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

EMC    04/22/01  $21-22        JAN-2003 $ 25  VUE-AE
                               JAN-2004 $ 30  LUE-AF
IBM    06/17/01  $100-102      JAN-2003 $110  VIB-AB
                               JAN-2004 $110  LIB-AB
MRK    06/17/01  $65-66        JAN-2003 $ 70  VMK-AN
                               JAN-2004 $ 70  LMK-AN
BEAS   06/24/01  $27-28        JAN-2003 $ 30  VZP-AF
ORCL   06/24/01  $15-16        JAN-2003 $17.5 VOC-AW



New Portfolio Plays

GE - General Electric $51.25

Shaking off the Honeywell merger uncertainty, the bulls ended
the week with a flourish, pushing GE to close solidly above our
$51 entry target.  This gave us another clean entry into the
portfolio, and given its excellent management, the stock should
continue to perform well when the economy recovers, whenever
that is.  In the meantime, all appears healthy, as the buyers
are getting ready to challenge the recent high near $53.50.  The
50-dma is just about to cross over the 200-dma, normally a solid
bullish sign.  With the 38% retracement of the April-May gains
providing support near $47.40 on this latest round of profit
taking, $47 seems a good location for our stop loss.  It has
been encouraging to see GE outperform the DJIA, and we would
expect a rally on the old-economy index to provide more
high-octane fuel for GE's ascent.  Another pullback and bounce
in the $50-51 area will provide entries for those that missed
their opportunity last week, but make sure that there is solid
buying volume on the bounce.

BUY LEAP JAN-2002 $53.00 WGE-AX $ 3.70
BUY LEAP JAN-2003 $55.00 VGE-AK $ 6.80


New Watchlist Plays

BEAS - BEA Systems $32.07

Finding a profitable niche in the online world, BEAS is an
e-business infrastructure software company whose customers use
its products as a deployment platform for Internet-based
applications.  In diversity is strength, and BEAS has taken
this to heart, capturing business in a wide variety of
industries; from commercial and investment banking to
telecommunications and software and then to airlines,
healthcare and utilities.  While it may seem a bit premature
to target LEAPS in the company with the weekly Stochastics
still declining steeply, it is precisely that near-term weakness
we want to exploit before the stock resumes an upward trend.
The long-term future is bright, but there should be some
near-term weakness this summer as the overall market struggles
with the task of identifying the bottom of the current economic
downturn.  Look for market weakness to provide entry on a bounce
from the $27-28 support level, and then hold on as the bulls
take control.

BUY LEAP JAN-2003 $30.00 VZP-AF


ORCL - Oracle Corp. $17.48

I've had several requests from readers, asking if LEAPS on
ORCL made sense yet.  Although I put you all off at the time, on
the heels of Larry Ellison's characteristic ebullience when his
company announced earnings last Monday, I must say the answer is
an unequivocal "Yes".  The Software index (GSO.X) is trying to
get into rally mode, but still isn't quite firing on all
cylinders.  That should provide enough weakness to allow us into
the play on a pullback, without risking a sharp selloff.  While
we don't want to buy strength (I think we have ample evidence of
exactly what can go wrong), I think a pullback to the $15-16
level looks very attractive for new positions.  ORCL has
continued to weather the recent economic downturn well,
enhancing its revenue stream with its e-Business suite of
software, successfully moving into new markets, while
maintaining a dominant position in the database market.  Be
patient waiting for your entry point, and then place your stop
at $13, just below the April lows.

BUY LEAP JAN-2003 $17.50 VOC-AW


Drops

TXN $29.60 Ouch!  Man, that was painful!  If ever there was an
example of how a well laid plan can blow up in your face, TXN
was it.  We got a handful of entries on that head-fake rally on
June 7th, and when things started coming apart at the seams
again (read: earnings warnings), all we could do is hold on and
hope that our stops would hold.  While other plays are holding
in there, TXN closed fractionally below our $30 stop last
Tuesday, and we had to pull the plug.  While it is painful for
me to chalk up another loss in the Portfolio, hopefully this is
another reminder of the price we pay every time we chase
breakouts in the current market.  As I lamented last weekend,
pullbacks are the most consistent method of trading rallies
until the great bull returns.


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The Option Investor Newsletter                   Sunday 06-24-2001
Sunday                                                      5 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:
http://www.OptionInvestor.com/htmlemail/3469_5.asp

*************
COVERED CALLS
*************

Technical Analysis 101: Defining The Trend
by Mark Wnetrzak

With the upcoming seminar on basic technical analysis and the
four stages of a stock's movement, now is a great time to review
one of the fundamental areas of charting; Trends and Averages.

To be successful in the stock market, it's important to understand
how to evaluate historic trends.  In any exchange system based on
supply and demand, there are three primary stages or phases of
movement.  These three phases consist of a basing or range-bound
condition; an upward slope or growth stage and finally, a segment
where buying interest becomes exhausted.  Some experts refer to
these conditions as the accumulation, markup and distribution
phases.

The first step in any analysis is look beyond the daily gyrations
to identify the overall trend.  The changes in the rate of upward
and forward movement can be approximated with the smoothing effect
of a moving average.  The basic definition of a moving average is:
the mean price of a security or financial instrument at a specific
point in time.  With this type of analysis tool, a shorter time
span produces a more sensitive indication while a longer time
span reflects a smoother history.  There are a number of ways to
determine a primary trend but very few technical analysis tools
are as versatile as a moving average.  The moving average offers
an objective method for defining support and resistance and it
can also help isolate cycles and identify overbought or oversold
conditions.  Traders often use moving averages to render buy and
sell signals based on multiple histories plotted on one chart.
The crossing of moving average lines, a major topic in the study
of Stochastics, is a very popular method of recognizing trend
reversals.

Unfortunately, for a trader to depend solely on a moving average
is comparable to using the hour hand of a watch to check the time
of day.  It provides a good approximation of the time but offers
little guidance for specific appointments.  In market terms, a
moving average will help you discern whether the primary trend is
up or down but it does little to help you with timing entry and
exit points with regard to a particular issue.  To be profitable
on a consistent basis, you need to know where the instrument is
in its current cycle.  Is it in the accumulation phase, markup
phase or distribution phase?  The movement of a specific issue
is generally determined by the intensity with which the shares
are bought or sold.  One method of measuring this effect in a
prolonged trend is to use a moving average on transaction or
trading volume.

Trading volume, or the number of shares traded, is an important
indicator in interpreting market direction and stock price.  The
change in stock price is the result of supply and demand; those
who want to buy versus those who want to sell.  The key point is
that a rise or fall in price on a small volume of shares traded
is far less important than a move supported by heavy volume.  If
there is heavy trading on an upward movement, buyers control the
market, and their enthusiasm for the stock often pushes it far
beyond a reasonable value.  Experienced traders know that rising
volume generally accompanies any substantial change in a stock's
price and that is an important characteristic to be aware of when
when reviewing market trends.

When combined with a moving average of trading volume, a simple
moving average can help confirm that the market is transitioning
into a condition of accumulation or in the case of a failed rally,
a new distribution stage.  Of course, there are often chaotic and
choppy transition phases between each cycle or trend and those
can be very difficult to evaluate.  The type of indicators that
work best during transition periods include the Moving Average
Convergence-Divergence system (MACD), or exponential (weighted)
averages that are designed to be more sensitive to quick changes
in market direction.

Investors who develop a background in various technical analysis
tools can use intricate moving average combinations to formulate
different timing methods for entering and exiting the market.  One
popular entry technique is based on signals from a short-term MACD
and confirmation from the moving average of the volume indicator.
A number of exit strategies use the convergence between the price
action and the volume average or diversions among different moving
averages.  Blending diverse combinations of indicators is one way
to discover the best system for your style of trading and for new
investors, this can create a unique set of tools and intuitive
techniques to help you profit in the market on a regular basis.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****
Note:  Margin not used in calculations.

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

ROS     5.49   5.55   JUL   5.00  1.05  *$  0.56   7.8%
AMLN   14.42  14.12   JUL  12.50  3.00  *$  1.08   6.8%
WEBX   20.31  26.30   JUL  17.50  4.00  *$  1.19   6.3%
LEXG   11.66  10.28   JUL  10.00  2.45  *$  0.79   6.2%
CCRD    8.60   9.45   JUL   7.50  1.60  *$  0.50   6.2%
ORCH    5.65   5.43   JUL   5.00  0.95  *$  0.30   5.5%
MCAF   11.90  10.50   JUL  10.00  2.70  *$  0.80   5.4%
BTX     8.50   7.11   JUL   7.50  1.90   $  0.51   4.8%
Z      15.54  14.99   JUL  15.00  1.30   $  0.75   4.6%
CWST   10.92  10.90   JUL  10.00  1.40  *$  0.48   4.4%
TCNO    9.25   9.35   JUL   7.50  2.10  *$  0.35   4.3%
WCNX   31.50  33.00   JUL  30.00  2.90  *$  1.40   4.3%
OCPI   14.86  11.41   JUL  12.50  3.30   $ -0.15   0.0%
GNSL    5.40   4.05   JUL   5.00  0.90   $ -0.45   0.0%
VLNC    9.06   6.31   JUL   7.50  2.15   $ -0.60   0.0%
TIVO    8.40   5.95   JUL   7.50  1.55   $ -0.90   0.0%
MCAF   14.56  10.50   JUL  12.50  2.90   $ -1.16   0.0%
MRVC   12.35   7.73   JUL  10.00  3.20   $ -1.42   0.0%

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

Comments:

What's up with WebEx (NASDAQ:WEBX) and why didn't we just buy
calls?  Maybe it is all those OIN seminars!  Biotime (AMEX:BTX)
is a good example of a stock testing a key moment (make a trend-
line with the MAR and APR lows).  Venator (NYSE:Z) just may fill
the gap - monitor the position closely.  Optical Communication
(NASDAQ:OCPI) is offering a low loss exit with a technical bounce
(provided by an upgrade Friday) or you could roll-down to an OCT
$10 call and lower your cost basis to $9.50.  Genomic Solutions
(NASDAQ:GNSL) is testing support and should be monitored closely.
The rally this week in Valence Technology (NASDAQ:VLNC) offered
a less painful exit.  The technicals are weakening and a test of
the April low would surely hurt.  TiVo (NASDAQ:TIVO) appears to
be holding at the top of its support area after giving back most
of its recent gain.  A roll-down to a FEB $5 call could lower your
cost basis below $5, but not by much.  Exit now or wait for a
violation of the support area?  McAfee.com (NASDAQ:MCAF) retreated
in sympathy with the Manugistics (NYSE: NASDAQ:MANU) plunge and is
now at a key moment as it sits on its 50-dma.  MRV Communications
(NASDAQ:MRVC) continues to act horrid and has been closed.


******************************************************************
                       - UPCOMING SEMINAR -
******************************************************************
On June 27, Mark Wnetrzak (Covered-calls) and Ray Cummins (Naked
Puts) will be conducting an instructional seminar for new traders
who are interested in the fundamentals of their approach to these
conservative strategies.

The general topics of discussion will be:

- How to earn monthly income through stock ownership
- How to reduce the effects of downside market moves
- How to purchase new portfolio stocks at a discount

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
information:

http://www.premierinvestorseminars.com/seminarcalendar.asp

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

NEW CANDIDATES
*********

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

AMLN   14.12  JUL 12.50   AQM GV  2.65 1084  11.47   28    9.8%
CWST   10.90  JUL 10.00   KWQ GB  1.35 61     9.55   28    5.1%
DRMD   15.30  JUL 15.00   DUQ GC  1.20 512   14.10   28    6.9%
FNSR   14.87  JUL 12.50   FQY GV  3.00 153   11.87   28    5.8%
INHL   34.65  JUL 30.00   QNH GF  6.20 616   28.45   28    5.9%
PCLN    7.68  JUL  7.50   PUZ GU  0.85 8453   6.83   28   10.7%
SONE   13.85  JUL 12.50   FBZ GV  1.85 2287  12.00   28    4.5%

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

PCLN    7.68  JUL  7.50   PUZ GU  0.85 8453   6.83   28   10.7%
AMLN   14.12  JUL 12.50   AQM GV  2.65 1084  11.47   28    9.8%
DRMD   15.30  JUL 15.00   DUQ GC  1.20 512   14.10   28    6.9%
INHL   34.65  JUL 30.00   QNH GF  6.20 616   28.45   28    5.9%
FNSR   14.87  JUL 12.50   FQY GV  3.00 153   11.87   28    5.8%
CWST   10.90  JUL 10.00   KWQ GB  1.35 61     9.55   28    5.1%
SONE   13.85  JUL 12.50   FBZ GV  1.85 2287  12.00   28    4.5%


Company Descriptions

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

*****
AMLN - Amylin Pharmaceuticals  $14.12  *** Drug Speculation! ***

Amylin Pharmaceuticals (NASDAQ:AMLN) is engaged in the discovery
and development of potential drug candidates for the treatment of
metabolic disorders.  The company pioneered research of a hormone
called amylin and is also developing Symlin, a synthetic analog of
the human hormone amylin for the treatment of people with diabetes
who use insulin.  The company's second drug candidate, synthetic
exendin-4, which is a naturally occurring peptide derived from the
salivary secretions of the Gila monster is now in Phase II studies.
The company is also evaluating another drug in for potential use
in the treatment of metabolic disorders relating to cardiovascular
disease.  Amylin shares rallied in late May on optimism over the
company's presentation of new information from recent clinical
tests.  This week the company reported lower blood sugar levels in
diabetes patients using its experimental drug in clinical tests.
Amylin rallied sharply on the news and this position offers a
conservative entry point from which to speculate on the company's
future.

JUL 12.50 AQM GV LB=2.65 OI=1084 CB=11.47 DE=28 TY=9.8%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=AMLN
*****
CWST - Casella Waste Systems  $10.90  *** Technicals Only ***

Casella Waste Systems (NASDAQ:CWST), headquartered in Rutland,
Vermont, provides collection, transfer, disposal, recycling and
related services primarily in the northeastern United States.
The Waste Management industry has been one of the few strong
sectors and with earnings due on June 27, Casella continues to
climb higher.  The technicals continue to improve as the stock
is working up through its resistance area.  The rally this year
(beginning at the December low) has broken a long-term downtrend
and signals a change of character.  Favorable speculation for
those who are bullish on the sector and the company's future.

JUL 10.00 KWQ GB LB=1.35 OI=61 CB=9.55 DE=28 TY=5.1%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=CWST
*****
DRMD - Duramed Pharmaceuticals $15.30  *** FDA Approval ***

Duramed Pharmaceuticals (NASDAQ:DRMD) develops, manufactures and
markets prescription drug products.  Duramed's business strategy
emphasizes products with attractive market opportunities and
potentially limited competition due to technological barriers to
entry, focusing on women's health and the hormone replacement
therapy market.  Duramed's mission is to be the premier supplier
of solid oral dose hormone products.  Duramed entered a Stage II
rally after announcing that the FDA had approved its Abbreviated
New Drug Application for Aviane-28 Tablets (Levonorgestrel and
Ethinyl Estradiol Tablets USP, 100 mcg and 20 mcg, respectively).
The stock broke out of its base on very heavy volume in early
May and hasn't looked back since.  A reasonable cost basis in
a favorable company that is bringing new products to market.

JUL 15.00 DUQ GC LB=1.20 OI=512 CB=14.10 DE=28 TY=6.9%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=DRMD
*****
FNSR - Finisar  $14.87  *** Bottom Fishing Revenge! ***

Finisar (NASDAQ:FNSR) is a technology leader of fiber optic
subsystems and network performance test systems which enable
high-speed data communications over Gigabit Ethernet local area
networks (LANs), Fibre Channel storage area networks (SANs),
and wide-area and metropolitan data networking applications
(WANs and MANs).  The company is focused on the application of
digital fiber optics to provide a broad line of high-performance,
reliable, value-added optical subsystems for networking and
storage equipment manufacturers.  Finisar rebounded off the
top of its support area this week after stating that it had
terminated the proposed acquisition of thermoelectric cooler
maker Marlow Industries.  Several analysts are also expecting
carriers to improve their spending patterns as the market moves
through next year.  Wit SoundView gave the Fibre industry a
boost this week with positive comments; upgrading several stocks
as well as reiterating their "strong buy" rating on Finisar.  A
reasonable cost basis from which to speculate on the movement
of FNSR.

JUL 12.50 FQY GV LB=3.00 OI=153 CB=11.87 DE=28 TY=5.8%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=FNSR
*****
INHL - Inhale Therapeutic Systems  $34.65 *** Technicals Only ***

Inhale Therapeutic Systems (NASDAQ:INHL) develops advanced drug
delivery solutions for the biopharmaceutical industry.  Inhale
is focused on two main opportunities: improved delivery of macro-
molecules, including peptides and proteins, and improved per-
formance of drug powders.  To address these opportunities, Inhale
is pioneering inhaleable delivery of macromolecules, supercritical
fluids processing for powder particle production and, upon approval
of the acquisition of Shearwater, advanced PEGylation.  Inhale is
currently collaborating with major pharmaceutical and biotechnology
companies, including AstraZeneca, Biogen, Bristol-Myers Squibb,
GlaxoSmithKline, Lilly and Pfizer.  Inhale continues to show
improving technical strength, which suggests the current basing
phase will resolve to the upside.  An unfavorable English court
ruling on Wednesday this week only resulted in a rally.  This
position offers an acceptable cost basis in the issue.

JUL 30.00 QNH GF LB=6.20 OI=616 CB=28.45 DE=28 TY=5.9%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=INHL
*****
PCLN - Priceline.com  $7.68  *** Is Captain Kirk Back? ***

Priceline.com (NASDAQ:PCLN) has pioneered an e-commerce
pricing system, known as a demand collection system, which
enables consumers to use the Internet to save money on a
range of products and services, while enabling sellers to
generate incremental revenue.  Using its consumer proposition,
"Name Your Own Price," the Company collects consumer demand,
in the form of individual customer offers, for a particular
product or service at a price set by the customer.  Hmmm,
Delta Air Lines (NYSE:DAL) sells 2.64 million shares of
Priceline.com and yet the stock rallies?  Earlier this month,
Goldman Sachs analyst Anthony Noto upped his forecast for
PCLN and two firms controlled by Hong Kong tycoon Li Ka-shing
said they would buy an additional 25 million shares of PCLN,
raising their joint stake in the company to 30% from 20%.
The stock continues to move higher on heavy volume as
investors begin to filter back in the few "true" internet
stocks.  A reasonable entry point on a speculative issue.

JUL 7.50 PUZ GU LB=0.85 OI=8453 CB=6.83 DE=28 TY=10.7%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PCLN
*****
SONE - S1  $13.85  *** Earnings Rally! ***

S1 (NASDAQ:SONE) is a leading global provider of innovative
eFinance solutions and services that are centered on banking,
brokerage and insurance.  S1 is enabling financial service
providers to create a complete Enterprise eFinance Experience(TM)
by delivering the tools necessary to meet the evolving demands
of their customers across various lines of business, market
segments and delivery channels.  S1 has been in rally mode
since posting better than expected earnings and increasing
revenue in early May.  Several upgrades followed (better
late than never) and the stock has surged above a January high
completing a "double-bottom" formation.  An expanded alliance
with IBM (NYSE:IBM) gives S1 premier partner status within
the IBM PartnerWorld for Developers and allows IBM to jointly
sell, market, and further integrate the S1 product set.  We
simply favor an entry point in a bullish stock.  Earnings are
due near the end of July.

JUL 12.50 FBZ GV LB=1.85 OI=2287 CB=12.00 DE=28 TY=4.5%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=SONE
*****

*****************
SUPPLEMENTAL COVERED CALL CANDIDATES
*****************

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

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

PCTL    5.16  JUL  5.00   PTQ GA  0.55 2088   4.61   28    9.2%
APCS   12.73  JUL 12.50   CUT GV  1.05 55    11.68   28    7.6%
CCRD    9.45  JUL  7.50   UCD GU  2.30 96     7.15   28    5.3%
VSAT   20.12  JUL 17.50   IQS GW  3.40 18    16.72   28    5.1%
SCON    6.23  JUL  5.00   OUP GA  1.45 32     4.78   28    5.0%
CYGN    8.64  JUL  7.50   YNQ GU  1.45 338    7.19   28    4.7%


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*****************
NAKED PUT SECTION
*****************

Option Trading Basics: Some Guidelines For Success!
By Ray Cummins

To be a profitable option trader, it is important to review the
most successful strategies on a regular basis.  There are always
new interpretations or methods to be integrated into your current
system but maintaining a structured trading approach is the best
way to achieve consistent returns.  It is also paramount to have
a precise set of rules to govern your actions when positions
don't react as expected.  These guidelines must be simple enough
to recall and implement while monitoring a complex portfolio of
plays in a volatile market.  In addition, the rules should apply
across a wide range of situations and be designed to compensate
for one's weaknesses and inadequacies.  To be effective in the
long term, they must be formulated to help maintain discipline
on a general basis and at the same time, offer a timely memory
aid for difficult situations.

Before you trade again, consider these well-known maxims:


1. Learn to limit losses and your profits will grow.

The science of successful trading is less dependent on making
profits, but rather on avoiding losses.  The need to restrict
draw-downs and prevent losing plays from significantly eroding
capital should be a dominant theme in any type of trading.  To
reduce losses, most traders prefer to use a specific plan with
pre-determined exits.  Stop-loss orders can be used to remove
urgent decision-making from the equation and trailing stops can
be utilized to follow a position into greater profits while
protecting for unexpected reversals.  In addition, not only must
losses be limited, but all positions must be reviewed regularly
to ensure that the total portfolio risk is kept to a practical
minimum.


2. Know your limits before you open any position!

Just as setting stops on each individual position is an absolute
must, a "maximum allowable loss" must be considered when managing
portfolio positions.  The rule is simple, never trade with more
money than you can reasonably afford to lose and always maintain
a reasonable cash reserve.  When assessing position size and
collateral requirements, ensure that funds for active trades are
not co-mingled with capital for other functions.  It is also very
important to set a "loss limit" at the beginning of each month or
option expiration period.  When this level is breached, trading
should be halted for the duration of that period.  Of course, if
your losses are consistently higher than your gains, stop trading!
Step back and take a few days off.  When you are ready to try
again, evaluate your current trading strategies and review the
previous plays (to learn from your mistakes), then move on.  When
you begin to make money, put some of the profits in a small reserve
account, just in case there are any unexpected developments in the
future.


3. Know your strategy, its advantages and weaknesses and only use
techniques that fit your trading style and portfolio outlook.

You can't make good decisions without knowing the mechanics of a
specific technique and the best traders are those who are acutely
aware of the shortcomings of their particular approach.  Focus on
positions whose trading characteristics match your ability and
risk/reward attitude.  Don't use complex or advanced methods
simply because they are intriguing.  In addition, if the strategy
is not appropriate for your financial condition, it must be avoided,
regardless of how attractive it appears.  Obviously every strategy
has risk.  The key is to develop an arsenal of profitable methods;
use only those that fit the market outlook; and manage each play
for maximum potential.


4. Learn the art of patience; entry timing is the key to success!

The opening trade is of particular importance.  It deserves your
best analysis and judgment and it is vital to assess all potential
trades well in advance.  In the case of stocks, the issue should
be one you want to own and the price must be technically favorable
with minimal downside risk.  Correctly timing the initial purchase
requires a thorough knowledge of charting techniques and market
trends.  The entire process is something a trader must completely
understand because a successful exit is by and large the product
of a proper entry.  Those who are guilty of "over-trading" should
assess their past results in this careless practice whenever they
are tempted to participate in such activities.


5. Be diligent and after you develop a plan, stick with it!

Success will come when you create a favorable balance between hard
work, sound judgment and patience.  Too many traders give up after
a few losing plays, long before they have time to learn and absorb
the various methods required for profitable trading...

Good Luck!


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


SUMMARY OF PREVIOUS CANDIDATES
*****

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

AMLN   12.60  14.12   JUL  10.00  0.40  *$  0.40  11.9%
CBST   34.50  34.78   JUL  30.00  1.35  *$  1.35  11.0%
MDCC   22.61  17.49   JUL  17.50  0.80   $  0.79  10.8%
ACTN   22.50  23.40   JUL  20.00  0.95  *$  0.95   9.2%
DMRC   22.95  24.60   JUL  20.00  0.70  *$  0.70   8.8%
UIS    12.94  13.58   JUL  12.50  0.65  *$  0.65   8.7%
ALKS   34.65  37.10   JUL  30.00  1.00  *$  1.00   8.5%
DMRC   18.06  24.60   JUL  15.00  0.65  *$  0.65   8.4%
SCIO   27.03  22.10   JUL  20.00  0.60  *$  0.60   7.2%
PXLW   30.66  28.21   JUL  22.50  0.65  *$  0.65   6.9%
NSM    26.91  25.84   JUL  22.50  0.55  *$  0.55   6.9%
HCR    27.20  28.05   JUL  25.00  0.65  *$  0.65   6.1%
GNSS   33.49  31.53   JUL  25.00  0.60  *$  0.60   6.0%
AVGN   21.25  17.50   JUL  15.00  0.45  *$  0.45   5.9%
PRHC   30.87  33.31   JUL  25.00  0.40  *$  0.40   5.1%

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

Comments:

This pre-FED roller-coaster is making me seasick!  Molecular
Devices (NASDAQ:MDCC) is now an exit candidate as it continue to
move towards a new low.  Scios' (NASDAQ:SCIO) recent action is
a bit suspect and a violation of its 150-dma on a closing basis
would be bearish.  Monitor the position closely.  Pixelworks
(NASDAQ:PXLW) continues to form something of a symmetrical
triangle leaving a rather ambiguous short-term outlook.  Keep an
eye on Avigen (NASDAQ:AVGN) as it is acting especially weak after
the news of a new vector patent on Wednesday.  Merck (NYSE:MRK)
sure didn't help the pharmaceutical sector on Friday.

Positions Closed:

Intermedia (NASDAQ:ICIX), MRV Communications (NASDAQ:MRVC)


******************************************************************
                       - UPCOMING SEMINAR -
******************************************************************
On June 27, Mark Wnetrzak (Covered-calls) and Ray Cummins (Naked
Puts) will be conducting an instructional seminar for new traders
who are interested in the fundamentals of their approach to these
conservative strategies.

The general topics of discussion will be:

- How to earn monthly income through stock ownership
- How to reduce the effects of downside market moves
- How to purchase new portfolio stocks at a discount

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
information:

http://www.premierinvestorseminars.com/seminarcalendar.asp

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

NEW CANDIDATES
*********

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

CTXS   31.00  JUL 27.50   XSQ SY  0.85 371   26.65   28    9.5%
EXBD   38.57  JUL 35.00   EBU SG  1.05 0     33.95   28    8.8%
LPNT   39.70  JUL 35.00   PUN SG  0.70 5     34.30   28    6.4%
NKE    44.55  JUL 40.00   NKE SH  0.85 1113  39.15   28    6.5%
PPD    19.66  JUL 15.00   PPD SC  0.50 3221  14.50   28   12.3%
SLVN   22.14  JUL 20.00   NQV SD  0.45 10    19.55   28    6.8%
WEBX   26.30  JUL 17.50   UWB SW  0.40 51    17.10   28    7.7%

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

PPD    19.66  JUL 15.00   PPD SC  0.50 3221  14.50   28   12.3%
CTXS   31.00  JUL 27.50   XSQ SY  0.85 371   26.65   28    9.5%
EXBD   38.57  JUL 35.00   EBU SG  1.05 0     33.95   28    8.8%
WEBX   26.30  JUL 17.50   UWB SW  0.40 51    17.10   28    7.7%
SLVN   22.14  JUL 20.00   NQV SD  0.45 10    19.55   28    6.8%
NKE    44.55  JUL 40.00   NKE SH  0.85 1113  39.15   28    6.5%
LPNT   39.70  JUL 35.00   PUN SG  0.70 5     34.30   28    6.4%


Company Descriptions

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

*****
CTXS - Citrix Systems  $31.00  *** CFSB Upgrade! ***

Citrix Systems (NASDAQ:CTXS) develops, markets, sells and supports
comprehensive application delivery and management software that
enables the effective and efficient enterprise-wide deployment and
management of applications, including those designed for Microsoft
Windows operating systems and UNIX Operating Systems.  Their unique
products operate by executing the applications on a multi-user
Windows NT, Windows 2000 or UNIX server and provide users access
to the server from a variety of client platforms through the ICA
protocol.  The company's primary market for its products is large
and medium-sized enterprises that require the ability to securely
deploy, manage and access business applications across the extended
enterprise.  Credit Suisse First Boston recently raised its rating
on the software maker to a "buy" and lifted its profit estimate
for fiscal year 2002 to $0.92 a share.  Separately, Merrill Lynch
also started coverage on the company with an intermediate and long
term "accumulate" rating.

JUL 27.50 XSQ SY LB=0.85 OI=371 CB=26.65 DE=28 TY=9.5%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=CTXS
*****
EXBD - Corporate Exec. Board  $38.57  *** New Trading Range? ***

The Corporate Executive Board (NASDAQ:EXBD) provides unique "best
practices" research and analysis focusing on corporate strategy,
operations and general management issues.  Best practices research
identifies and analyzes specific management initiatives, processes
and strategies that have been determined to produce the best results
in solving common business problems or challenges.  The company also
provides research and analysis on an annual subscription basis to a
membership of 1,480 of the world's largest corporations.  For a
fixed annual fee, members of each subscription program have access
to an integrated set of services, including best practices research
studies, executive education seminars, customized research briefs
and on-line access to the program's content database and other
services.  EXBD moved to the top of a recent trading range on Friday
and the bullish technical indications suggest that a new yearly high
may not be far away.

JUL 35.00 EBU SG LB=1.05 OI=0 CB=33.95 DE=28 TY=8.8%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=EXBD
*****
LPNT - Lifepoint Hospitals  $39.70  *** Own This One! ***

Lifepoint Hospitals (NYSE:LPNT) operates 21 general, acute care
hospitals with an aggregate of 1,988 licensed beds in growing,
non-urban communities.  The company's hospitals are located in
Alabama, Florida, Kansas, Kentucky, Tennessee, Utah and Wyoming.
The hospitals usually provide commonly available medical and
surgical services.  These hospitals also provide diagnostic and
emergency services, as well as outpatient and ancillary services,
including outpatient surgery, laboratory, radiology, respiratory
therapy and physical therapy.  In addition to providing capital
resources, the company makes available a variety of management
services to its healthcare facilities.  These services include
information systems; leasing contracts; accounting, financial and
clinical systems; legal support; personnel management; internal
auditing; and resource management.  LPNT is one of our favorite
companies in the Health Services group and this position offers
a great cost basis in the issue.

JUL 35.00 PUN SG LB=0.70 OI=5 CB=34.30 DE=28 TY=6.4%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=LPNT
*****
NKE - Nike Class B  $44.55  *** Consumer Non-Durables ***

Nike (NYSE:NKE) designs, develops and markets quality footwear,
apparel, equipment, and accessory products.  Nike is the largest
seller of athletic footwear and athletic apparel in the world.
The company sells its products to approximately 19,000 retail
accounts in the United States and through a mix of independent
distributors, licensees and subsidiaries in approximately 140
countries around the world.  Virtually all of its products are
manufactured by independent contractors and most of its footwear
products are produced outside the United States, while apparel
products are produced both in the United States and abroad.  The
company's earnings are due next week and investors are expecting
a favorable revenue report.

JUL 40.00 NKE SH LB=0.85 OI=1113 CB=39.15 DE=28 TY=6.5%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=NKE
*****
PPD - Per-Paid Legal  $19.66  *** On Again - Off Again! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans (Memberships).  The company's legal
expense plans currently provide for or reimburse a portion of the
legal fees associated with a variety of legal services in a manner
similar to medical reimbursement plans.  The company had 827,979
Memberships in force with members in all 50 states, the District
of Columbia and the Canadian provinces of Ontario and British
Columbia.  The company memberships allow members to access legal
services through a network of independent provider law firms under
contract with the company.  The love-hate relationship with PPD is
on good terms again and traders who believe Friday's rally will
continue can speculate on that outcome with this position.

JUL 15.00 PPD SC LB=0.50 OI=3221 CB=14.50 DE=28 TY=12.3%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=PPD
*****
SLVN - Sylvan Learning  $22.14  *** Rally Mode! ***

Sylvan Learning Systems (NASDAQ:SLVN) is an international provider
of educational services to families and schools.  SLVN provides
lifelong educational services through five separate business
segments.  The Sylvan Learning Centers segment designs and delivers
individualized tutorial programs to school age children through
franchised and company-owned Learning Centers.  The Education
Solutions segment principally provides educational programs to
students of public and non-public school districts through contracts
funded by Title 1 and state-based programs.  The company's newest
segment, Sylvan Ventures, invests in companies developing emerging
technology solutions for the education marketplace.  SLVN climbed
to a two-year high last week and the heavy volume rally suggests
there is further upside potential in the issue.

JUL 20.00 NQV SD LB=0.45 OI=10 CB=19.55 DE=28 TY=6.8%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=SLVN
*****
WEBX - WebEx Communications  $26.30  *** Entry Point! ***

WebEx Communications (NASDAQ:WEBX) is the leader in Internet
infrastructure for real-time business communications.  WebEx
provides Web-based carrier-class communication services using
its multimedia switching platform deployed over a global network.
WebEx's services enable end-users to share presentations,
documents, applications, voice, and video spontaneously in a
seamless environment.  In April, WebEx reported record 1st-quarter
results with revenues up 568% from last year, and 32% sequentially.
WebEx exceeded analysts' expectations for the third consecutive
quarter as their strong growth has continued with record bookings.
The stock rallied on the last FED cut and pulled back sharply on
no news.  Now the stock has again rallied on heavy volume and the
bullish trend appears to be intact.  We simply favor a discounted
entry opportunity in the issue.

JUL 17.50 UWB SW LB=0.40 OI=51 CB=17.10 DE=28 TY=7.7%

http://www.OptionInvestor.com/charts/jun01/charts.asp?symbol=WEBX
*****

*****************
SUPPLEMENTAL NAKED PUT CANDIDATES
*****************

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

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

NXCD    7.57  JUL  7.50   DQX SU  0.70 102    6.80   28   20.8%
ALTR   25.37  JUL 22.50   LTQ SS  0.95 484   21.55   28   12.5%
NTIQ   24.72  JUL 17.50   CDJ SW  0.55 1120  16.95   28   10.9%
MATK   25.45  JUL 22.50   KQT SX  0.75 10    21.75   28   10.2%
AEM     8.08  JUL  7.50   AEM SU  0.25 148    7.25   28    9.4%
IMDC   25.30  JUL 22.50   UZI SX  0.55 20    21.95   28    7.6%


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

A Dull And Dreary Market...(I'm Glad I Missed Most Of It!)

Friday, June 21

Stocks moved lower today on new concerns over the dismal outlook
for corporate earnings.  A profit warning from Merck (NYSE:MRK)
sent the blue-chip industrial average down 110 points to 10,604.
ON Semiconductor (NASDAQ:ONNN) led the chip-equipment group lower
and the selling eventually spread to other hi-tech sectors.  The
technology index fell 23 points 2,034.  The S&P 500 index also
slumped, falling 11 points to 1,225.  On the Big Board, declining
issues outpaced advancers 3 to 2 on light trading volume of 1.39
billion shares.  NASDAQ volume reached 1.70 billion, with losers
topping winners 21 to 15.  In the bond market, the U.S. 30-year
Treasury rose 24/32, pushing its yield down to 5.576%.


Last Sunday's new positions/prices/strategies):

Capital One  (NYSE:COF)    JUL70C/JUL65C  $0.80  credit  bear-call
Teva         (NASDAQ:TEVA) JUL55P/JUL60P  $0.55  credit  bull-put
Cadiz        (NASDAQ:CLCI) JAN10C/JUL10C  $1.10  debit   calendar
Amerisource  (NYSE:AAS)    JUL60C/JUL60P  $3.85  debit   straddle
General Dyn. (NYSE:GD)     AUG70C/AUG70P  $6.40  debit   straddle

All of our new combination positions were available at acceptable
prices during the volatile week.  COF rallied with the financials
but must still prove the recovery is genuine with a move through
our sold strike price.  Teva is holding above a recent short-term
trend-line but Merck's bearish news is very a negative catalyst
for the drug group and may be difficult to overcome.  AAS and GD
both had excellent movement this week, but are currently still in
a range and we will monitor those issues for future activity and
any potential changes in character.

Due to a much-needed vacation with my family, I have not yet had
the opportunity to design a new (static) summary format for the
Spreads section, but some of the activity we noticed during the
week included; profitable exit opportunities in Health Management
(NYSE:HMA) and Costco (NASDAQ:COST) and a favorable closing gain
in the John Hancock (NSE:JHF) calendar spread.  Among the older
positions, Hyseq (NASDAQ:HYSQ) and Freemarkets (NSDAQ:FMKT) have
rebounded from recent selling pressure and our adjustments in
PepsiCo (NYSE:PEP) and American Express (NYSE:AXP) will likely
end profitable.  The bearish portion (JUL-$70P) of the straddle
in Sony (NYSE:SNE) reached an $11 credit today and those of you
remaining in the play must decide whether to take the small gain
and retain the "free" call or hold out for additional profit on
the downside; a difficult decision.

******************************************************************
                     - A UNIQUE EXPERIENCE -
******************************************************************
Last Monday, I conducted my first online educational seminar;
Calendar Spreads and Zero-Cost Leaps, and the interactive
presentation was certainly a unique experience.  The web-based
conferencing technology is incredible and the manner in which the
information can be displayed offers a range of alternatives for
sharing ideas and strategies.  On the downside, the software is
complex and requires a thorough knowledge of its capabilities;
something I did not possess at the time.  Thankfully, the devoted
readers who attended the class were very patient and sympathetic
about the learning process that took place as we viewed different
applications during the "Questions & Answers" portion of the
seminar.  After the session ended, I received a number of useful
suggestions including some constructive critiques, and many of
those ideas are being incorporated into upcoming presentations.
To show my gratitude for the wonderful treatment I received, I
have arranged for all of you to sit in on the expanded version
of this class at no cost.  The new seminar will focus on a more
interactive approach, rather than the narrative style, and will
include additional examples as well as real-time analysis of
current candidates using profit-loss graphs and online pricing
software .  Traders who are interested in the new and improved
"Time-Selling Techniques" can send me a request via E-mail or
watch for further information in this section.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                       - TRADING STRATEGIES -
******************************************************************
One of the course evaluations included a suggestion that a text
based version of the presentation be provided prior to the actual
seminar.  Of course, that is an excellent idea and since there
were many of you who did not have the opportunity to attend the
online strategy discussion, I have decided to publish an overview
of one of the most popular "time-selling" strategies.


Calendar Spreads: Selling Time for Profit

The options market offers a number of tools and techniques that
can help the astute trader construct a powerful portfolio; one
which possesses a high degree of safety with consistent returns.
Through the use of combinations, the trader has a vehicle to
pursue a wide variety of strategies.  The complete option player
can profit with bullish and bearish plays in situations that
dictate either aggressive or conservative positions.  With an
understanding of the risk-reward relationships between long and
short options at different prices in varying time periods, he can
benefit from the most advanced techniques available in the market.

The majority of traders utilize spreads to reduce the cost and the
risk of option ownership.  They construct combination plays with
partially offsetting option positions to reduce the potential for
capital loss.  Spreads can be designed to generate return diagrams
of almost any character but unfortunately, the fundamental benefit
of this type of trading is also its downfall; the potential gains
are limited.

One of the most popular combination positions is the calendar or
time spread.  This type of spread benefits from the rate of decay
in the time value of the short-term option.  Also commonly known
as a horizontal spread, the position involves the purchase of an
option with one expiration date and the sale of another option
with the same strike price but a different expiration date.  The
philosophy for using calendar spreads is that time will erode the
value of the short term option at a faster rate than it will the
long term option.  A spread that is established when the stock is
at or near the strike price of the target options is a neutral
spread and if the stock price remains relatively unchanged until
the near-term option expires, the position will earn a profit.

It is important to understand how a calendar spread profits from
the passage of time.  When opening a horizontal spread, we buy a
long term option and sell a short term option.  Both options have
the same exercise price, thus they have the same intrinsic value.
Regardless of the movement of the stock, time value will always
be less in the near term option.  As long as the underlying stock
price remains relatively close to the exercise price, the value
of the spread will be determined by the time premium of each
option.  When the position is closed at expiration, the remaining
time value in the short term option will be very low relative to
that of the long term option.

A horizontal spread is completely dependent upon the relative
behavior of time value decay in each of the option positions.
Since the profitability of this strategy is determined solely
by the difference in time values of the options, it is important
for the underlying issue to remain near the strike price; where
time premium is theoretically the highest.  If the stock price is
at a high or low extreme, the time values of both options will be
relatively small and the position will likely incur a loss; the
remaining credit will be less than the opening debit.

To the average trader, it would appear that this technique can't
lose.  One would simply buy the longer-term option and sell the
shorter-term option.  As both time values decayed, the position
would gain value.  In reality, it's rarely that easy because the
the underlying stock does not remain constant.  One way to reduce
the negative effects of a volatile stock is to establish the play
at least two to three months before the near-term option expires,
capitalizing on the ability to sell a second position against the
longer-term option.  Ideally, the stock price would be just below
the sold strike when the near-term option expires, however if the
options are in-the-money, they must be re-purchased to preserve
the long-term position.  Another method commonly used to increase
the probability of profit in this type of approach requires an
understanding of implied volatility in option pricing.  When
opening any spread, it's important to take advantage of premium
disparities to create the best possible position.  Traders should
try to initiate new plays when there is excess value in the sold
option, or a discount in the purchased option, thus ensuring an
entry with a theoretical edge.

There is always the risk of early exercise in a calendar spread.
The degree of risk depends on which options are bought and sold
and the distance to the underlying stock price.  The greater the
time value in the sold option, the lower the probability of it
being exercised.  If it does occur, a trader can always fulfill
the obligation by simply purchasing the underlying stock or an
offsetting option.  The more important issue is to be notified by
the broker in a timely manner, so that the appropriate action can
be taken before the stock price increases significantly.

For the investor who is not familiar with spread trading, this
strategy offers an excellent opportunity to learn the basics in a
low risk environment.  The concept of the calendar spread is easy
to understand and once established, the position can be managed
with little difficulty.  The occasional adjustments also provide
the necessary background for more advanced techniques.  Those who
enjoy directional trading can construct positions to fit their
style as well.  Although the potential for profit is lower than
other popular spread strategies, the limited downside exposure
and relatively consistent returns in time-selling plays offers a
more attractive approach to the options market for the majority
of investors.

Good Luck!


Note: The Spreads editor is on a brief hiatus from the market but
he will return next week with a new selection of candidates for
conservative combination traders.


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