Option Investor

Daily Newsletter, Wednesday, 04/10/2002

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The Option Investor Newsletter                Wednesday 04-10-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        04-10-2002        High      Low     Volume Advance/Decline
DJIA    10381.73 +173.06 10394.67 10210.40 1443 mln   2261/ 887	
NASDAQ   1767.07 + 24.50  1772.00  1733.69 1762 mln   2116/1411
S&P 100   565.35 +  6.52   566.22   558.50   totals   4377/2298
S&P 500  1130.47 + 12.67  1131.76  1117.80           
RUS 2000  511.30 +  8.29   511.30   503.01
DJ TRANS 2843.44 + 75.48  2843.64  2765.60
VIX        20.20 -  0.85    21.92    20.20
Put/Call Ratio      0.80
Poof!  Instant Rally!
By Buzz Lynn

Fundamentally, what passes for an excuse to rally is beyond me, 
especially after IBM's warning and the suspicion that CSCO might 
warn too.  Plus, there was no economic news today.  Nor will there 
be until Oh and did anybody notice that EMC fell below $10 today 
and that AT&T is proposing a 1:5 reverse stock split?  That was 
once a maneuver of desperate Internet companies in late 2000.

Perhaps in T's case at a current $14.50 per share, a value per 
share of $72.50 will make it look respectable to widows, nuns, 
orphans, and fund managers again.  Fund managers are not going to 
get too deep into a position at the current price.  While the 
desired outcome of an enhanced image to the investing public may 
be achieved in the headlines, in reality, this just rearranges the 
deck chairs on the Titanic.  

Sure interest rates are low, the market has stabilized, and 
housing prices are skyrocketing.  America has bounced back in 
spirit from the 9/11 tragedy.  What's wrong with that?  Nothing 
except that to know this requires that we look behind the 
headlines to see that banks are having a hard time underwriting 
business loans despite cheap rates, P/E ratios and dividends are 
still out of whack thanks to a Fed that chants an "inflate or die"
 mantra, and that Americans are hocking anything to load up on 
housing debt because "values" continue to skyrocket.  Why?  Again, 
the Fed has replaced a NASDAQ bubble with a housing bubble.

Oh well, sweep it aside.  Let's speculate!  The good news for us 
traders is that we now have a 500-point trading range on the Dow 
from roughly 10,150 - 10,650.  Same with the NASDAQ between 1700 
and 2000.  Same for the SPX between 1080 and 1180.  With that 
knowledge coupled to a technical chart, we can trade it.  So let's 
skip my ramblings for today, shorten the Wrap, and go straight to 
the technicals where the story will be told there.

I know yesterday was a down day for the market, but we could have 
taken some bullish entries at support near the close as the 
stochastics cycled into and turned up from oversold.  That's in 
keeping with the daily emergence from oversold of the major 
indexes Monday that led me to believe the markets might be on the 
rise for now.  Let's take a peek.

Dow Industrials chart - INDU (weekly/daily/60)


We see the range.  While the bear dominates the weekly chart 
stochastics, the bull is back on the daily chart as shown by the 
upturn from oversold.  60-min is also bullish but toppy.  If you 
play this bullish, keep your eyes on 10,450 for resistance and let 
the 60-min stochastic cycle down before taking an entry.

NASDAQ chart  - COMPX (weekly/daily/60)


What a pig, even with lipstick!  This thing can't get out of its 
own way and continues to post lower daily highs.  While the daily 
stochastics may be turning up from oversold, recent history has 
shown that it doesn't last long.  This is definitely the weakest 
of the three major indexes and is suitable for puts on cycles of 
the 60-min stochastic to overbought.  With tech stocks about to 
hit the earnings confessional, overhead resistance should remain.

S&P 500 chart - SPX (weekly/daily/60)


The SPX is somewhere in between.  The bulls took back impressive 
control of the daily stochastic but are now bumping their heads on 
resistance just above 1130.  Also, while the SPX managed to close 
back above its 50-dma of 1127, the 200-dma at 1137 may be more 
formidable.  Still, the stochastic reversal favors the bulls.  The 
60-min chart also favors the bulls, but there is resistance here 
at 1130-1132 while the stochastics near overbought.  My opinion is 
that it's better to let the 60-min cycle down before taking a 
bullish position here.

VIX?  Fahgeddabouddit.  20.20 is a bunch of confidence in 
direction, which makes me nervous.  Complacency begets explosions 
in all walks of life including the markets.  But premiums are fore 
the most part cheap compared to relative norms.

Volumes picked up a bit today to 1.44 mln on the NYSE and 1.95 bln 
on the NASDAQ - pretty respectable.  There was a steady flow of 
program buy orders today but nothing huge.  Couple that with 
shorts that probably want to cover from 1150 last week and that 
might help explain today's solid bullish action.  Note that 
program trades and short-covering are not the stuff sustained 
rallies are made of.  This is probably no exception.  

Nonetheless, the daily trend still suggests "up", thus any 
pullbacks to support could make reasonable swing trade 
opportunities.  Just don't bet the ranch that this is FINALLY the 
resumption of the old bull market.  This is a bear market with a 
tradable bullish correction.

This is also a short Wrap tonight because there isn't a whole 
bunch to talk about.  Tomorrow we get initial claims, but we 
always get initial claims on Thursday - no great shakes.  Unless 
there is something there that rocks our world, import/export data 
won't matter much either.

See you at the bell!


Big Board Bears On The Run
by Leigh Stevens

The S&P indexes closed near the highs of the day and OEX closed 
well above the hourly bullish declining wedge that I highlighted 
in my closing Index Trader wrap up last night. I suggested on the 
Market Monitor this morning, on the first OEX move up to the 564 
area, to buy OEX calls on dips, such as back to 562 - to put some 
fear into the bulls, they took the OEX calls all the way back to 
the 559 area! -- whereupon OEX reversed right from the lower down 
trendline of the wedge as you can see on the chart. The May 570 
Calls dipped to almost 8, but closed at 10.50, for a gain of 2.00 
on the day.  Guess I didn't have the courage of my conviction, as 
I thought it shouldn't dip as far as it did.  I have seen too 
many of these rallies fade over the past 2 weeks.  

The only "official" position I have is long QQQ -- I would gladly 
trade 1 QQQ for 1 May OEX 570 call, bought on that dip! Any 

The media talking heads are wondering why the cyclical big caps 
are up so big and not the techs, or much else. Well, I have news 
for them -- it's always this way when you come out of bear market 
which we are slowly doing. There will be a LOT of backing & 
filling along the way of course. 

Don't accuse me of being TOO bullish, I do look to a place to buy 
when the market gets oversold and traders get overly BEARISH as 
now AND I am looking for 2-3 week trades, not 2-3 days. Given 
this trading approach, I will tend to be early in entry, but am 
looking to get positioned in an "area". I actually love BEARs - 
they are fuzzy & cute -- when sleeping! Otherwise, the bear is 
pretty grumpy & fierce when aroused.  

Obviously, all the action is in big-cap Dow and S&P 100 stocks.  
The Nasdaq will catch on at some point as the public, in their 
heart of hearts, still lusts for techs.  

Will be looking to buy dips in the OEX, such as the May 575 calls 
(OEB EO), on dips of which there will be a few no doubt, even 
assuming a decent rebound over the next 2-3 weeks.  April, by the 
way, has the 4th. best annual tendency for stocks to be up on the 

Speaking of bearish sentiment, here is my Call to Put ratio chart 
on the CBOE equities calls only -- I find that measuring equities 
calls only, taking out the hedging activity related to Index 
options, gives a more "pure" reading on market SENTIMENT; i.e., 
how bullish or bearish traders are in their market outlook for 
rising (bullish) prices or falling prices (bearish) ahead.  

Stevens Call/Put Indicator:


OR GET THESE FIGURES -- the answer is, only on this site.  I keep 
these numbers up to date by hand, as no one else calculates the 
figures this way. You will see the sometimes problem with the PUT 
to call readings, which you will see further on here.   

As you can see above, my Call to Put indicator does not have a 
perfect record of giving buy or sell "signals" by itself. 
However, COUPLED with other market measurements like the 
trendline above -- note what happened on the dips to the 
trendline when my Call/Put Indicator was also in bullish 
territory. Bullish or bearish readings also tend to LEAD the 
market, as they tend to precede the actual turning points by 1-5 
days.  I loved the reading today, as the ratio barely turned up 
as traders were busy buying puts -- of course, some amount of 
this can relate to Nasdaq type stocks. 

You can read more about this and some other unique market 
indicators I use, in my book, now available on www.amazon.com.  
Search for "Essential Technical Analysis" from John Wiley & Sons. 
How's that for a shameless plug! 

The best rallies tend to occur when a high degree of bearish 
sentiment tends to persist for a while after the rally starts.  
Traders are always trading the past -- that is, they are trading 
the type of market that existed in the past major or intermediate 
price swing.  Once, we get into a bear or bull market mind set, 
we tend to persist in that thinking for some time.  

This is usually because when we get bullish too early in a cycle, 
we get slammed a few times.  The reverse is true when we get 
bearish early.  My former Cantor Fitzgerald colleague Bill 
Meehan, now deceased, who was a widely followed Market analyst, 
got bearish about a year before the final top in the Nasdaq.  He 
was captive to traditional thinking on valuations and was, I 
suppose, not as much of a student of market psychology, which is 
needed to understand a "bubble". Anyway, Bill's credibility got a 
bit tarnished as he was advocating standing aside or selling WAY 
early.  However, he was proved very right in the end also.

Now the problem with the put/call indicator you will find, for 
example, on Q-charts, which takes all daily options put volume 
and divides by daily total call volume, is that you do not always 
get the right "signal" or reading. 


By the way, don't accuse me of having a permanent bullish bias, 
but I have been anticipating a rally over the past few sessions.  
I do tend to anticipate a place to buy when the market gets 
oversold and traders get overly BEARISH as now. I love BEARs - 
they are fuzzy & cute -- when sleeping! Otherwise, the bear is 
pretty grumpy & fierce when aroused. 

Also, I am looking for 2-3 week trades, not 2-3 days. This 
approach will lead to being early at times, as I look to get 
positioned in the area of a top or bottomed and then stay 
positioned for awhile, as the easiest money is made early in a 
NEW trend while disbelief is still high. This outcome is a result 
of looking primarily at risk to reward rather than having a bias 
on one side of the market or another -- more on that related to 
the next chart. 

When I wrote bearish market CNBC.com columns when Nasdaq Comp was 
at 5000, I nearly got lynched. Some people actually tracked me 
down at Cantor Fitzgerald and dressed me down -- being far away 
(up at least!) on the 105th floor of World Trade Tower, was no 
protection from this (or anything else, as you know). 

OEX Daily chart: 


OEX Hourly chart:


Where do we go from here?  In the S&P and DJX (Dow Industrial 
options), higher -- enough so that I recommend buying May OEX out 
of the money calls on pullbacks in the S&P 100 index, such as 
back into the 563-565 area; e.g., buying the May 575 (OEB EO) 
calls at in the 7-7.50 area if available. (Buying DJX calls would 
be an alternative play. Dow chart to follow QQQ.)  

Take 1/2 of your normal position on a pullback such as to 563-565 
area, to account for the possibility that OEX will retest the 
recent lows in the 558-559 area.  This would the area to buy the 
second half of what would be a normal Index position for you.  
Stop out on a move under 557 in OEX.                 

QQQ Daily chart: 



QQQ trading strategy: 

Countertrend - Those long QQQ on my suggestion at 34.30, either 
in the stock or calls, should adhere to the suggested stop -- a 
QQQ break of 33 (stop at 32.50). Will look to buy a second 
position on a breakout of overhead resistance, with the ability 
to hold this area as support on a subsequent pullback.

DJX daily chart: 


DJX strategy:

Suggest buying May out of the money calls, on a pullback, such as 
back into the 10,250-10,300 area.

Last but not least, my other key indicators that have to line up, 
as overbought or oversold at same time as my Call/Put Indicator 

Advance-Decline & Advancing volume "indicators: 



Long/Call Positions:

Long QQQ at 34.30 
Stop: 32.50.  
Objective: 38.00  

The objective is based on the prospects for a move back up to the 
longer-term Dec.- Feb.- early-March down trendline on the daily 
charts, which would be a normal recovery type bounce.   

Leigh Stevens
Chief Market Strategist 

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Negating Theta Decay

Equity options are the greatest leverage tool known to 
modern man. Modern men who trade, that is. They offer 
the greatest return on capital possible and the allure
 of that mathematical fact is great.

However, there is another side to this lever. Options 
are also the most complex to succeed with, but most of 
that complexity can be easily negated or eliminated. 
How, you say? By using them in the manner for whence 
they were invented, i.e. capital risk management.

Lest all you call & put buyers click away in despair, 
hold on partner! We’re still talking speculation in 
here with chance to profit far greater than not by our 
own control. But let’s just visit a few ideas about 
thwarting one of the worst fiends that afflict option
 traders: time decay.

How many of you ever bought options that went sideways 
to lower in value even as the underlying stock or 
symbol rose? Yes, my little paw is stretched up in the 
air as well. We’ve all done it or are going to do so 
quite soon.

Debit Spreads
Buying extra time premium is one way of negating theta 
decay, but not the only one. May I suggest to you that 
most big money pros in our field lean on debit spreads 
for a reason?

Debit spreads are merely directional trades that hedge 
off time and usually volatility premiums on a trade. 
It is the act of buying a call or put closer to actual
current price levels while selling another call or put 
(respectively) one or more strikes in distance further 
from the money. Elementary, right? Yes it is, but why 
then don’t more traders use them to great advantage?

1999. That was the period in time newly born traders 
realized options can appreciate +100% to +1,000% or 
more when underlying markets are flying. Up or down, 
calls and puts made many of us untold sums of money on 
pure buying & selling. But all things in life are 
cyclical, market action included. No longer do we see 
stocks posting $10 moves in a day unless it’s IBM 
(ouch!) or similar culprit enduring reality checks 
that will become more common this year. 

More often a stock or index will make smaller, 
deliberate moves before consolidating or turning 
course again. Jeff Bailey & Eric Utley are masters at 
finding those common and sometimes obscure stocks 
poised to move, but often times they are not high-
flying picks. Solid, profitable performers but not 
like the days of NDX 4,000 by any means. On a side 
note, I just finished a new book hot off the press 
where the author referred to Nasdaq sessions of 150-
point moves “average”. Seen any of those days around 
here lately? I hope & pray we’re both along for that 
ride when it comes, but our wait may be awhile.

Just as that book was written not so very long ago, so 
shall our memories endure. We’re sure those days are 
right around the corner next quarter, just like Maria 
& ilk promise us the economic recovery and tech 
turnaround must be straight ahead. Is that one of the 
three great promises? I forget.

Soft Entries
Anyways, now that you got me off track and back on 
again, forward the thought. Near to medium-term future 
trading is probably just what Jeff & Eric do right 
here in OI every day: boring stocks that create 
interesting results in a trader’s account. One 
excellent method for capturing these gains with 
minimal capital, defined risk and time value not a 
factor is by spreading yourself out.

(Weekly/Daily Charts: CSCO)


Mighty CSCO. My, my, from whence we have come. This 
one will make a nice buy & hold around $8 to $10 
before we sip New Year’s champagne again, but I 
digress. For those who follow this stock it was a 
lead-pipe lock short setting up for weeks and breaking 
down just days ago. Those who bought April puts last 
Friday or this Monday bagged some serious change. But 
what of those who got in early? What of those who 
cannot watch intraday action and need to time their 
entries a bit on the soft side?

Debit spreads. We could have bought the May 17.5 put 
for roughly 1.50 and sold the May 15 put for roughly 
0.50 or net debit of our account for $100 even. How 
many of these spreads can you afford? Probably a whole 
bunch, and the upside return could be $250 for a +150% 
gain. I realize that doesn’t seem very sexy to those 
who cashed in straight puts for several times that, 
but what if they bought those puts weeks ago instead? 
Time value would have eroded greatly by now. 
Meanwhile, traders who erased time value back then 
still have their full intrinsic value enroute and 
staying power on their side.

(Weekly/Daily charts: UTH)


Utility HOLDRs have been on a nice run but are now 
coiled into a tight wedge and ready for action. Which 
way? Weekly chart stochastic signals say lower. The 
UTH May 95/90 put debit spread is now available for 
2.50 net-debit (pure math example only, not a trade 
suggestion!) and those who think it might break to 90 
or thereabouts in the next six weeks can risk 2.50 to 
return 5.00 or +100% gain if correct.

Downside risk is capped at -2.50 per spread and not a 
penny more. Vega and Theta are eliminated. Place such 
a trade, go on about your life and let time take over 
from there. Find enough of these low-beta plays, lock 
out time decay and I’m willing to bet your summer 
trading will be a lot more fun this year than one 
might ever imagine.

This Saturday we’ll continue the topic of methods for 
part-time and longer-term traders again. See you then!

Best Trading Wishes,
Austin Passamonte


A Primer on Online Volatility Tools - Part II
By Mark Phillips

Judging from the string of email that flowed into my inbox in the
past several days, last week's article, which kicked off the
topic of Online Volatility Tools was a big hit.  And I really
snuck one in there, as the Calculator that we talked about gave
not only volatility data, but option-specific values for all the
other Greeks, including Delta, Gamma and Theta -- all the neat
little metrics that we've been talking about for these past many
weeks.  Sure enough, the site we spoke about last week
(www.ivolatility.com) provides a wealth of option-specific data.

This week, I want to focus on a more rudimentary, but certainly
no-less-useful tool.  This one allows us to evaluate the
probability of a prospective trade resulting in a profit or a
loss.  If that sounds like we're going to get a glimpse inside
the bookie's odds-making book, then you're catching on quickly.
Understanding the probabilities of a given outcome gives us just
one more piece of information to chew on before we send our
hard-earned cash out into the cold, cruel markets.

Let's assume that we have a bullish stance on Broadcom
(NASDAQ:BRCM) and are looking to profit from that bias using May
options.  By this point in the process, we should have completed
our fundamental and technical analysis, and then done some
research into the Greeks to winnow our choices down to the best
one or two options.  Now the final step in our quest for profits
(before actually placing a trade) is to determine our probability
of profit.

So I headed over to a website that I know has a simple probability
calculator and entered in the pertinent data.  The site that I
used is Larry McMillan's Option Strategist
and the only information that I need is the current stock price,
my target price, percent annual volatility and the calendar days
remaining until expiration.

For BRCM, I'm using the May expiration cycle (39 days left to
expiration), and for the sake of discussion, let's assume that
I'll use the $40 strike calls.  From the iVolatility.com site,
I've already found that the IV is 85.5 (for calls), so now all I
have to do is plug in the appropriate values.


The calculator kicks out two values, one for the probability
that the stock will be above my target price and the other for
the probability that the stock will be below my target.  A 28.5%
chance of BRCM being above $40 at expiration does not bode well
for my odds of success, now does it?  Try plugging in some other
options for other stocks and you'll see that this is a common
value for the odds of success when buying options.  Now you can
see why the majority of options expire worthless -- the odds
favor the option seller.  So if we are going to buy options, we
need to take actions to increase our odds of success, such as
doing quality fundamental and technical analysis and picking our
entry point wisely.  That work won't change the underlying
probabilities (which are based on the mathematical rules of
statistics), but it can make the difference between profit and
loss.  Remember, that the probability calculator doesn't tell us
that we have a 28.5% chance of making a profit.  It tells us that
there is a 28.5% chance of BRCM being above $40 on expiration
Friday in May.  The quality of our entry point (and exit point)
based on our technical analysis will likely determine whether our
trade will prove to be a profitable experience.

I actually view the probability calculator as a far more valuable
tool for traders that prefer to employ strategies involving the
sale of options, where the desired outcome is to have options
expire worthless.  This could simply be a sale of a naked option
(with our bullish bias, we would want to sell a naked put),
although I'm not a fan of naked option sales due to the
potentially unlimited risk.  But let's examine that alternative
using our probability calculator.  Sellers of options like to
initiate the trade with as little time as possible to expiration,
so we would want to select the April expiration cycle.  For those
that like to live dangerously, we could opt to sell the BRCM April
$30 put, as the $30 has repeatedly provided support in the past.
So let's see what our calculator tells us.


See how the odds favor the option seller?  There is more than
an 83% chance that at expiration next week, BRCM will be trading
above $30.  And with Monday's bounce near the $31 level (I'm
writing this on Monday afternoon, as I'll be away from the
markets over the next 2 days), I like the odds of success in
this proposition.  For those looking for a bit more security,
they might try a bullish put spread to limit their risk.

There's another way in which we can use this simple probability
calculator to our advantage.  What about employing the strategy
of buying a Butterfly spread in a sideways market, where we are
betting that the equity in question will remain rangebound until
expiration?  I'm not going to go into the details of the
Butterfly spread here -- I wrote some articles on this topic
last fall and they can be accessed here:

More Corrections and a Kickoff for Butterfly Spreads
The Long Butterfly Spread - Picking the Right Candidate
Spreads - The Final Installment (The Short Butterfly)

With a long Butterfly, we are looking to initiate the trade for
a small debit and we make our profit if the stock closes right
in the middle of the range (point B in the articles listed
above).  Since the profit percentages in Butterfly spreads are
relatively small, we need to make sure that the probabilities
are in our favor.

Let's use AutoZone (NYSE:AZO) for our Butterfly example and see
how things shake out for the probabilities of profit.  The stock
has been trading in a rather wide range since the first of the
year, but one could make an argument that it will likely remain
in the $65-75 range over the intermediate term (Long Butterfly's
are best entered with 30-60 days until expiration), so we'll
utilize May contracts for this example.

From iVolatility.com, the IV for calls is 30.72% and for puts it
is 30.43%.  It's hard to make a compelling case from the
volatility numbers to use either one or the other, so I've opted
to use the calls.  Without going into each of the specific option
prices and the exact breakeven points, let's assume that the
Butterfly spread will be profitable, so long as AZO remains
between $66-74 (assuming a $1 cost for the spread).  That gives
us our target prices to enter into the Probability calculator.

First let's look at the low end:


And then the high end:


The net result is that we have a 72% chance of AZO finishing
above $66 on expiration Friday next month and a 70% chance of the
stock finishing below $74.  Although it is a rather crude way to
do the math, I can just average those 2 numbers and come up with
a 71% chance of success.

The concept of probability of success really only addresses half
the problem in trying to determine the probability of PROFIT.
In order to answer that question, we need to bring in the issue
of risk vs. reward.  By combining both of these metrics, we can
quantify what our odds of success are, and then use the
information on risk vs. reward to say how much we should make on
the trade, based on the probabilities we have derived from the
calculator.  Tune in next week and we'll tie it all together
with a couple more examples.

Until next week, happy exploring!


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by Leigh Stevens

The top 5 sector gainers today, were Biotech (BTK.X), Gold and 
Silver (XAU), DJ Transports (TRAN), the Cyclical Index (CYC.X) 
and Natural Gas (XNG.X), and all were up over 2%, with Biotech + 
5%.  My highlight is on the cyclical index with a specific upside 
target for the Index and a suggested call play on one of the 
stocks in the Index.  



The stocks comprising the New York Financial Index (Symbol - 
"$NF.X") which is all the financial stocks and that I discussed 
yesterday, continued to push higher today.  At the rate it's 
going, we should see a weekly chart breakout.  Meanwhile the 
daily chart is presented here, and it is at the cusp of where it 
will confirm more bullish upside for the financials -- favorable 
bullish action tends to bode well for the future direction of the 
NYSE stocks as a whole. 


SECTOR plays based on the strength of the financials - none 
currently, so plays are on individual stocks.

Cyclical Index - Weekly chart:


As per the notes about the bullish flag pattern, another is seen 
on the weekly chart of the cyclical stocks.  

A play is suggested in Alcoa -- see chart below:



Buy the AA May 40 calls at 1.00 or less
Objective on AA is to 42-43

Objective is based on a measured move objective based on the 
extent of the last upswing.  I think a next rally will cover at 
least as much ground as the late-Feb. to early-March advance, 
which went from the 33.50 area to the 39.50 level.  The current 
rally began from the $36 area. I think the next move can exceed 
the last, but will assume only a rally equal to the last.    


UTH - Utilities Holders trust (AMEX) 
Bought at 95.25 area; 
Stop: 91.00
Objective: To 105 (revised) 

My revised upside objective is based on the current sideways 
consolidation being likely to be about half way in a total 
advance, which would suggest that UTH will get to the 105 area.  
That is also the area where the stock would complete a 62% 


XAU (PHLX Gold & Silver Index)
Bought May 65 puts at 1.80  
Stop: .85 or to no value on the option
Objective: 6.00
Time frame: 4 weeks.

RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 
Objective: 90; Stop: 102 
Time frame: 3-6 weeks.

Sector: XLB (Basic Industrial Sector SPDR) at 23.75
Stop: 24.50

Sector: XLP (Consumer Staples SPDR) at 26.00
Stop: 26.25

Sector: IYD (US Chemical Index iShares) at 45.25
Stop: 46.60

Sector: IYE (US Energy Index iShares) at 49.70
Stop: 52.00 

RISK to REWARD guidelines:  
Determining an objective is important, even if it is a moving 
target, as this is the reward potential.   Determining reward 
potential is critical to establishing whether a stop that makes 
“sense” (e.g., a sell stop that was placed under a key support 
level) would, if triggered, result in a dollar loss that is in 
proportion to profit potential; e.g., 1/3 of it.  (On occasion, 
when the purchase price of call or put is equal to 1/3 or less of 
the estimated reward potential, there may not be a specific exit 
suggestion, as the cost of the option is equal to the amount that 
is being risked.)   

Leigh Stevens
Chief Market Strategist

”If you haven’t traded options online – you haven’t really traded 
options,” claims author Larry Spears in his new compact guide 

“7 Steps to Success – Trading Options Online”.

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Contact Support
The Option Investor Newsletter                Wednesday 04-10-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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THC  - call
Adjust from $67.50 up to $68.20

UNH  - call
Adjust from $75.50 up to $76.25

GS   - put
Adjust from $88 down to $86.50

TMPW - put
Adjust from $34 down to $33.50

VRSN - put
Adjust from $26 down to $25.75

GNSS - put
Adjust from $24.50 down to $24

WPI  - put
Adjust from $26.50 down to $26





”If you haven’t traded options online – you haven’t really 
traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.



ENZN - Enzon $41.37 +2.52 (+0.00 this week)

Enzon, Inc. is a biopharmaceutical company that develops and
commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary
platform technologies: polyethylene glycol (PEG) and single
chain antibodies. The Company applies the Company's PEG
technology to improve the delivery, safety and efficacy of
proteins and small molecules with known therapeutic efficacy.

Most Recent Update

The Biotechnology Sector Index (BTK.X) has taken it on the
chin in the last several weeks.  The downside momentum
appears to be gaining strength.  The BTK finished down by
2.91% in today's trading, out pacing the weakness in the
broader market as measured by the S&P 500.  The BTK is in
danger of taking out its February lows tomorrow morning.  Any
downside follow through from today's selling will have the BTK
breaking down in a big way, setting the index up for a
retest of the September lows, which are about 30 points lower
from current levels.  The weakness in the sector has us turning
our attention to the weakest components of the group.  ENZN
popped up on the scan as the stock broke to a new yearly low on
heavy trading volume.  The breakdown is a momentum trader's
delight as the stock doesn't have any meaningful support below
the $40 level.  In fact the closest historical support for this
stock rests below at the $33 level.  A trade down to that level
in the coming weeks is probable, especially if bearish sentiment
continues building in the biotechs.  Look for the BTK to break
below the 450 level in tomorrow morning's trading.  Use such
weakness to enter new bearish plays into ENZN at current
levels.  If the sector pops on short covering, look to enter a
rollover in ENZN between the $41.50 to $42.25 range.  Just above
that resistance zone rests the 10-dma at $42.79, which could be
another rollover level.  Our stop is set at $43.


The Biotech Sector rallied today on good news from several
companies.  The 5% gain in the BTK helped to remove some of the
oversold nature of the weak stocks in the group.  Bearish
traders can start to look for rollovers in ENZN in the coming
days.  Use the $43 resistance level which is the current site of
our coverage stop as a starting point.  The falling 10-dma at
$42.43 can also be used to spot rollovers.  Confirm weakness in
the BTK.

***April contracts expire next week*** 

BUY PUT APR-40 QYZ-PH OI=457 at $1.15 SL=0.50
BUY PUT MAY-40*QYZ-QG OI=708 at $2.65 SL=1.75

Average Daily Volume = 1.25 mln


Trading 101: Option Pricing Fundamentals
By Ray Cummins

One of our new readers submitted an excellent question about
theoretical pricing and open interest with regard to buying
and selling options.

Dear Ray,

  Thank you very much for your informative reply this afternoon
in regards to my questions.  What you wrote cleared up a lot of
things for me.  However, I still have a lingering question that
is probably best asked with an example.

  Let’s say hypothetically that I purchased a WLP call at $70
for April expiration for $0.25 (I’m actually tracking this one
on paper to observe the price movements of the option relative
to the underlying stock and to see what would come of my
hypothetical purchase).  Let’s say that when April 19th comes
around (the last trading day before expiration) the stock has
taken off so now the option is worth $0.50.  Is it safe to try
and sell this call on the last trading day before expiration?
Can I use the “open interest” to gauge “liquidity” (the higher
open interest meaning more liquidity and the more likely I am
to get my asking price)?  Is it difficult in general to close
out an option position on the last day before expiration or is
it a “mad dash” in a race to beat the clock?


Hello JH,

That's a simple question with lots of possible answers...

From your example:

If Wellpoint Health (NYSE:WLP) is near $67 and you buy an APR-$70
call at $0.25, the option will not have any value at expiration
unless the stock rises to $70+ (or it makes a significant upward
movement in the near-term).

If the stock is trading at $70.50 on the day of expiration at the
close, you should be able to sell the (APR-$70 call) option for
about $0.40.  If it is at $70.50 a few hours before the close, you
will almost surely get the full asking amount ($0.50) as traders
will be "buying-to-close" their short options prior to expiration.

Here is some additional information...

Buying a call is the most basic option trading strategy an
investor can utilize when he anticipates a bullish movement in
a particular stock.  There are different methods for choosing
the underlying issue but in simple terms, when you buy a call,
you expect to the stock's value to increase before the option
expires.  It's a great technique when used properly but many
inexperienced traders don't realize how difficult it is to
profit from the strategy on a regular basis.  Buying options
provides investors with leverage, as well as limiting the loss
on the position to the cost of the option.  This common method
of directional option trading maximizes the trader’s potential
for profit and provides tremendous flexibility in managing the
position for optimum performance.  However, statistics reveal
and most experts will agree that option buyers lose money the
majority of the time.

One of the primary reasons that traders fail to achieve a high
rate of success in this strategy is they rely too much on market
timing and too little on proper position selection.  The concept
most investors overlook is that the change in value of a given
option is not always directly correlated to the price movement
of the underlying security.  As a result, even when a call option
is purchased at the exact low point in the underlying stock’s
current trend, it is still quite possible that the eventual
upside movement will not generate a favorable profit from the
resulting change in the price of the option.  The fact that the
price of the underlying instrument and the value of option
fluctuate independently, based on several unique components, is
one reality that is often ignored by the novice trader.

Understanding theoretical pricing and the elements that determine
the fair value of a specific option can be very difficult for new
investors.  The primary factors that influence an option’s value
include the price and volatility of the underlying instrument, and
the time remaining in the life of the option.  These components
can affect the price of the listed option substantially and it is
important to determine whether they will adversely change the
potential for profit in a given position.

Implied volatility is a fundamental element in the pricing of an
option and traders should be aware of how a change in this value
can affect the outcome of a position.  In some instances, an issue
that has been historically volatile may reach periods in which it
is somewhat inactive, and conversely, stocks which are normally
subdued in terms of volatility will suddenly rally or decline
precipitously.  These changes in price behavior will alter the
influence of this factor on the option premium.  Often, when you
buy an option, a subsequent decline in volatility can create a
loss in the position, regardless of whether the underlying issue
moves in the forecast direction.  Ideally, an option buyer should
focus on situations where implied volatility is relatively low.
Using that approach, one can profit not only from a bullish
movement in the underlying security but also from a favorable
change in the option’s volatility.

There are other influences that can have an effect on the price
behavior of a specific option.  One important bias is the trend
of the market.  For example, optimism rises during a market rally
and prices often become inflated as new interest in call options
enlarges demand.  Option premiums increase substantially during
periods of bullish sentiment, and in many cases, theoretically
expensive options emerge, regardless of the price movement of
the underlying issue.  Even during times when the market lacks a
definite trend, public opinion and the current economic outlook
can have an important effect on option price behavior.  When the
majority of investors lack interest in the market, or there is
indecision on the part of analysts about future direction, option
prices generally decline.  The reason is simple; options need
activity, either in the price movement of the underlying issue
or in its potential (speculative) value, to maintain robust
premiums.  An experienced trader will use these market slumps to
increase his potential for profit, opening new positions when the
option premiums are at a discount.

Another significant factor to consider when buying options is
supply and demand.  This element, along with liquidity, can have
a material affect on the pricing of options.  A lack of buying
interest causes premiums to deflate, creating opportunities for
traders who use strategies that profit from discounted prices.
Liquidity relates to trading volume, and the ability to buy or
sell an option for a fair price, at the true market value.  As
noted earlier, market rallies normally produce higher trading
volumes and the bullish trend often carries over to derivatives,
creating greater demand for listed options.  The increased
liquidity attracts institutions, which in turn add to the trading
volume.  Surprisingly, institutions are primarily option writers,
selling both put and call options to enhance the income from their
stock portfolios.  This lesser-known aspect of option trading can
be a great benefit to investors who attempt to earn their profits
through speculative (buying) strategies.

The appropriate price for a particular option is a primary factor
to consider when participating in a directional strategy.  At the
same time, the outlook for the underlying issue, its potential
volatility and the overall character of the market are also
material considerations.  As with any investment, the position
entry is particularly important.  It deserves one’s best analysis
and judgment.  Correctly timing the purchase requires a thorough
knowledge of charting techniques and market trends.  In addition,
it's important to make a few key decisions: What is your risk
tolerance?  What will you do if the trade goes against you?  At
what price and in which way are you going to exit the position?
Are there alternative strategies that can help limit losses and
increase profits?  At times, it seems the most costly (and often
self-taught) lesson is the value of an exit strategy however, the
entire process is something you must completely understand because
a successful exit is by and large the product of a proper entry.

Good Luck!

Summary of Current Positions
(As of 04-09-02)

Naked Puts

Stock  Strike Strike  Cost Current  Gain  Potential
Symbol  Month  Price Basis  Price  (Loss) Mo. Yield

COF      APR    50   48.60  63.00   1.40     5.6%
CEPH     APR    50   48.35  60.69   1.65     7.9%
KLAC     APR    55   53.30  63.76   1.70     6.9%
PHTN     APR    45   43.30  46.41   1.70     7.0%
GILD     APR    28   26.75  33.70   0.75     6.4%
ACS      APR    48   46.60  53.63   0.90     4.4%
COF      APR    50   49.10  63.00   0.90     4.9%
SYMC     APR    35   34.35  35.33   0.65     5.2%
CYMI     APR    40   39.50  50.09   0.50     4.7%
GILD     APR    30   29.55  33.70   0.45     5.7%
ROOM     APR    55   54.25  54.61   0.36     3.0%
GILD     APR    33   32.10  33.70   0.40     5.1%

Symantec (NASDAQ:SYMC) is the only issue on the watch-list,
due to the slump in software issues, and based on the recent
technical indications, traders who do not want to own the
stock should consider exiting the bullish position.

Naked Calls

Stock  Strike Strike Break Current  Gain  Potential
Symbol  Month  Price  Even  Price  (Loss) Mo. Yield

NVDA     APR    70   71.00  40.76   1.00     5.6%
QLGC     APR    60   60.85  45.25   0.85     5.8%
PSFT     APR    43   43.30  23.22   0.80     7.2%
BRCM     APR    45   45.45  32.79   0.45     6.1%
SEBL     APR    38   38.05  27.56   0.55     7.7%

Put-Credit Spreads

Symbol  Pick  Last  Month L/P S/P Credit  C/B  (G/L)  Status

BBY    75.27  77.84  APR   60  65  0.55  64.45  0.55   Open
CI     96.38 105.28  APR   80  85  0.60  84.40  0.60   Open
FRX    83.65  80.36  APR   70  75  0.50  74.50  0.50   Open
TOL    26.50  27.40  APR   20  23  0.32  22.18  0.32   Open
VLO    47.85  47.14  APR   43  45  0.40  44.60  0.40   Open
CI     98.90 105.28  APR   85  90  0.50  89.50  0.50   Open
WFMI   47.09  45.24  APR   40  45  0.60  44.40  0.60   Open
WSM    49.05  48.25  APR   40  45  0.55  44.45  0.55   Open
GD     95.24  95.01  APR   85  90  0.60  89.40  0.60   Open
SLM    98.01  96.20  APR   90  95  0.50  94.50  0.50   Open

Positions Closed: Biogen (NASDAQ:BGEN), Nike (NYSE:NKE)

Call-Credit Spreads

Symbol  Pick  Last Month L/C S/C Credit  C/B  (G/L)  Status

LXK    50.48 53.90  APR   65  60  0.60  60.60  0.60   Open
BRCM   40.24 32.79  APR   55  50  0.55  50.55  0.55   Open
LEH    63.49 62.90  APR   75  70  0.60  70.60  0.60   Open
QLGC   48.96 45.25  APR   65  60  0.65  60.65  0.65   Open
CCMP   65.73 57.85  APR   80  75  0.60  75.60  0.60   Open
BRKS   44.32 38.16  APR   55  50  0.50  50.50  0.50   Open
RE     66.00 71.70  MAY   80  75  0.00  75.00  0.00   Open ***

Everest RE Group (NYSE:RE) soared Monday in conjunction with
the insurance industry rally and the strength in the sector,
along with the improving technicals suggested an adjustment
(or exit) in the bearish play.  A roll-out to the MAY-80C/75C
bear-call spread was available for a debit of $0.60, leaving
the overall position near break-even (minus commission costs).
Other than closing or "legging-out" of the current play, that
adjustment was the only alternative with a viable risk-reward

Debit Straddles/Strangles: 

Stock  Position    Debit  Target   M/V      G/L      Status

NTRS   APR60C/60P  4.00    5.00    3.50    (0.50)    Closed
DST    MAY50C/50P  3.90    5.50    4.10     0.20      Open
EMLX   APR32C/30P  3.65    4.35    4.50     0.85     Closed?
VRTS   MAY45C/40P  2.75    3.30    6.00     3.25     Closed

The volatility in technology continued to benefit our recent
positions in Veritas (NASDAQ:VRTS) and Emulex (NASDAQ:EMLX)
and the DST Systems (NYSE:DST) straddle achieved profitability
early in the week.  In addition, the bearish portion of the
DST straddle offered a near "break-even" exit for the entire
Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    G/L   Status

APOL   65.80   61.92   MAY65C/45P  (0.20)  44.80  (0.10)  Open
NUE    53.30   53.55   APR70C/60P   0.10   59.90   0.10   Open

Apollo Group (NASDAQ:APOL) appears to be making a bullish move
and the speculative synthetic position may achieve a profit in
the coming sessions.

New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Credit Spreads Galore!

I received two requests for "bullish" credit spreads this week
and since there are currently a number of great candidates in
this category of combination strategies, today's BIG-CAP section
will focus on that technique.  All of these companies have solid
fundamentals and relatively bullish technical indications, but
each position must also be evaluated for portfolio suitability
and reviewed with regard to your personal investing criteria.

ACDO - Accredo Health  $60.79  *** Healthcare Sector! ***

Accredo Health (NASDAQ:ACDO) provides specialized contract
pharmacy services on behalf of biopharmaceutical manufacturers
to patients with chronic diseases.  The company's services help
simplify the difficult and often challenging medication process
for patients with a chronic disease and help ensure that patients
receive and take their medication as prescribed.  The company's
services benefit biopharmaceutical manufacturers by accelerating
patient acceptance of new drugs, facilitating patient compliance
with the prescribed treatment and capturing valuable clinical
information about a new drug's effectiveness.  The company's
services include contract pharmacy services, clinical services,
reimbursement services and delivery services.  Accredo's earnings
report is due on 4/29/02.

ACDO - Accredo Health  $60.79

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-50  DZU-QJ  OI=404  A=$0.70
SELL PUT  MAY-55  DZU-QK  OI=115  B=$1.30

ASD - American Standard  $74.24  *** Earnings Play! ***

American Standard Companies (NYSE:ASD) is a global, diversified
manufacturer of brand-name products in three major product groups,
air conditioning systems and services, bathroom/kitchen fixtures
and fittings, and vehicle control systems for trucks, trailers,
luxury cars and sport utility vehicles.  The company's brand names
include Trane and American Standard for air conditioning systems,
American Standard, Ideal Standard, Standard, Porcher, Armitage,
Shanks and Dolomite for plumbing products, and Wabco for vehicle
control systems.  The company's quarterly earnings are due on
4/17, so you may want to wait until Thursday to initiate this

ASD - American Standard  $74.24

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-65  ASD-QM  OI=30  A=$0.35
SELL PUT  MAY-70  ASD-QN  OI=65  B=$0.90

BSC - Bear Stearns  $65.65  *** Bullish Brokerage! ***

The Bear Stearns Companies (NYSE:BSC) is a holding company that,
through its subsidiaries, principally Bear, Stearns & Co. Inc.;
Bear, Stearns Securities; Bear, Stearns International Limited
and Bear Stearns Bank plc, is an investment banking, securities
and derivatives trading, clearance and brokerage firm serving
corporations, governments, institutional and individual investors
worldwide.  BSSC, a major subsidiary of Bear Stearns, provides
professional and correspondent clearing services, in addition to
clearing and settling customer transactions and certain other
proprietary transactions of the Company.  Bear Stearns is mainly
engaged in business as a securities broker and dealer operating
in three principal segments: Capital Markets, Global Clearing
Services and Wealth Management.

BSC - Bear Stearns  $65.65

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-55  BSC-QK  OI=80   A=$0.35
SELL PUT  MAY-60  BSC-QL  OI=356  B=$0.85

FAST - Fastenal Company  $81.99  *** A Big Day! ***

Fastenal Company (NYSE:FAST) and its subsidiaries sell industrial
and construction supplies.  These supplies are grouped into nine
major product lines.  The construction market includes general,
electrical, plumbing, sheet metal and road contractors.  The
manufacturing market includes both OEM's and maintenance and
repair operations.  Other users of the company's products include
farmers, truckers, railroads, mining companies, municipalities,
schools and certain retail trades.

FAST - Fastenal Company  $81.99

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-70  FQA-QN  OI=3383  A=$0.30
SELL PUT  MAY-75  FQA-QO  OI=1018  B=$0.80

KSS - Kohl's Corporation  $75.00  *** Retail Sector Rally! ***

Kohl's Corporation (NYSE:KSS) operates over 350 family oriented,
specialty department stores that feature quality, national brand
merchandise priced to provide value to customers.  The company's
stores sell moderately priced apparel, shoes, accessories and
home products targeted to middle-income customers shopping for
their families and homes.  Kohl's stores have fewer departments
than traditional department stores, but offer customers dominant
assortments of merchandise displayed in complete selections of
styles, colors and sizes.  Central to their pricing strategy and
overall profitability is a culture focused on maintaining a low
cost structure.  Critical elements of this low-cost structure are
the company's store format, lean staffing levels, sophisticated
management information systems and operating efficiencies that
result from centralized buying, advertising and distribution.

KSS - Kohl's Corporation  $75.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-65  KSS-QM  OI=388  A=$0.55
SELL PUT  MAY-70  KSS-QN  OI=416  B=$1.15

PCAR - PACCAR  $77.34  *** Hot Sector! ***

PACCAR (NASDAQ:PCAR) operates in two principal industry segments:
manufacture and distribution of light-, medium- and heavy-duty
trucks and related aftermarket distribution of parts; and finance
and leasing services provided to customers and dealers.  PACCAR
and its subsidiaries design and manufacture trucks, which are
marketed under the Peterbilt, Kenworth, DAF and Foden nameplates,
in the heavy-duty diesel category.  These vehicles are built in
five plants in the United States, four in Europe and one each in
Australia and Mexico, and are used worldwide for over-the-road
and off-highway hauling of freight, petroleum, wood products,
construction and other materials.  Commercial trucks and related
service parts comprise the largest segment of PACCAR's business,
accounting for 93% of total 2000 revenues.

PCAR - PACCAR  $77.34

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-65  PAQ-QM  OI=165  A=$0.40
SELL PUT  MAY-70  PAQ-QN  OI=325  B=$0.85

WLP - WellPoint Health Networks  $67.79  *** New High! ***

WellPoint Health Networks (NYSE:WLP) is a United States managed
healthcare company.  WellPoint offers a range of network-based
managed care plans.  WellPoint provides these plans to the large
and small employer, individual, Medicaid and senior markets.  The
company's unique managed care plans include preferred provider
and health maintenance organizations, and point-of-service and
other hybrid plans and traditional indemnity plans.  In addition,
the company offers managed care services, including underwriting,
actuarial services, network access, medical cost management and
claims processing.  The company also provides an array of other
products, including pharmacy, dental, utilization management,
life insurance, preventive care, disability insurance, behavioral
health, COBRA and flexible benefits account administration.

Note: This is the issue our reader referred to in the "Reader's
Write" portion of today's BIG-CAPS section.  WellPoint Health
Network has long been a favorite of the OIN and traders who
agree with a bullish outlook for the stock in the near-term
can profit from future upside activity with this position.

WLP - WellPoint Health Networks  $67.79

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-60  WLP-QL  OI=7    A=$0.40
SELL PUT  MAY-65  WLP-QM  OI=113  B=$1.15


BEARISH PLAYS - Naked Calls & Combinations

All of these plays are based on the current price or trading
range of the underlying issue and its recent technical history
or trend.  The probability of profit from these positions may
also be higher than other plays in the same strategy based on
disparities in option pricing.  However, current news and market
sentiment will have an effect on these issues so review each
play individually and make your own decision about the future
outcome of the position.

MRVL - Marvel Technology  $37.70  *** Technicals Only! ***

Marvell Technology (NASDAQ:MRVL) designs, develops and markets
integrated circuits utilizing proprietary communications mixed
signal and digital signal processing technology for communication
markets.  The company's products provide the critical interface
between analog signals and the digital information in computing
and communications systems and enables its customers to store and
transmit digital information quickly and reliably.  The company
also develops high-performance communications internetworking and
switching products for the broadband communications market.  

MRVL - Marvel Technology  $37.70

PLAY (aggressive - sell naked call):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL MAY 42.5 UVM ER  320       1.40    43.90      9.9%
SELL CALL MAY 45   UVM EI  2,316     0.85    45.85      8.1%
SELL CALL MAY 47.5 UVM ES  748       0.45    47.95      4.6% "TS"

TER - Teradyne  $34.64  *** Struggling Chip Sector! ***

Teradyne (NYSE:TER) is a manufacturer of automatic test equipment
and related software for the electronics and communications
industries.  Products include systems to test and inspect
semiconductors; circuit boards; high-speed voice and data
communication, and software.  Teradyne is also a manufacturer
of back-planes and associated connectors used in performance
electronic systems.

TER - Teradyne  $34.64

PLAY (aggressive - sell naked call):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

SELL CALL APR 37.5 TER DU  2,088     0.40    37.90     11.9%
SELL CALL MAY 37.5 TER EU  139       1.45    38.95      9.6%
SELL CALL MAY 40   TER EH  217       0.75    40.75      6.7% ***

CSC - Computer Sciences Corporation  $44.82  *** Rolling Over! ***

Computer Sciences Corporation (NYSE:CSC) is in the information
technology (IT) services industry.  The company helps clients
use IT more efficiently in order to improve their operations and
profitability and to achieve business results.  CSC offers a
broad array of professional services to clients in the global
commercial and government markets, and also specializes in the
application of advanced and complex IT to achieve its customers'
strategic objectives.  Its service offerings include outsourcing,
systems integration, and management consulting and professional
services, including e-business solutions.

CSC - Computer Sciences Corporation  $44.82

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-55  CSC-EK  OI=84  A=$0.25
SELL CALL  MAY-50  CSC-EJ  OI=40  B=$0.85

SMH - Semiconductor Holders Trust  $44.38  *** Range-Bound? ***

The Semiconductor Holders Trust (AMEX:SMH) is a unique instrument
that represents an investor’s ownership in the stock of specified
companies in the biotechnology sector.  HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient.  Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies).  They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts.  In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each.  The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted.  In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.

A complete description of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:


Traders who participate in credit-spreads often utilize options
on sectors or industry groups as they provide an instrument less
prone to large "gapping" moves.  From a technical viewpoint, the
semiconductor segment is comfortably "range-bound" with signs of
a stable resistance area near area $47 and those who agree with
a neutral-to-bearish outlook for this industry group can profit
from that type of activity with this low-risk position.  Target
a higher premium initially, to allow for a brief rally in the
semiconductor sector.

SMH - Semiconductor Holders Trust $44.38
PLAY (very conservative - bearish/credit spread):

BUY  CALL  MAY-55  SMH-EK  OI=1127  A=$0.20
SELL CALL  MAY-50  SMH-EJ  OI=5843  B=$0.60





Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

PG     92.34  MAY 90P  1.30   MAY 85P  0.55   0.80     19%
DIAN   71.90  MAY 65P  1.40   MAY 60P  0.65   0.80     19%
LLL 	123.80  MAY 115P 1.85   MAY 110P 1.20   0.70     16%
PGR 	174.12  MAY 165P 1.80   MAY 160P 1.15   0.70     16%
ITT 	 67.58  MAY 65P  0.95   MAY 60P  0.30   0.70     16%
RYL 	 99.21  MAY 90P  1.75   MAY 85P  1.15   0.65     15%
UTX    75.00  MAY 70P  1.00   MAY 65P  0.45   0.60     14%
AVP 	 56.99  MAY 55P  0.70   MAY 50P  0.20   0.55     12%


Stock  Last   Short    Bid    Long     Ask   Target  Monthly
Symbol Price  Option   Price  Option   Price Credit   Gain

QLGC 	 45.25  MAY 55C  1.15   MAY 60C  0.55   0.65     15%
CCMP 	 60.00  MAY 70C  1.15   MAY 75C  0.60   0.60     14%
LXK 	 55.10  MAY 60C  0.85   MAY 65C  0.30   0.60     14%
SLB 	 54.72  MAY 60C  0.80   MAY 65C  0.25   0.60     14%
TER 	 34.78  MAY 40C  0.75   MAY 42C  0.50   0.30     14%
MWD 	 54.47  MAY 60C  0.60   MAY 65C  0.15   0.50     11%



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Two new bullish candidates tonight.  Both of the old economy type.

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