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Daily Newsletter, Wednesday, 04/17/2002

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The Option Investor Newsletter                Wednesday 04-17-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      04-17-2002          High     Low     Volume Advance/Decline
DJIA    10220.78 - 80.54 10326.44 10188.26 1.37 bln   1671/1490
NASDAQ   1810.67 -  6.12  1832.01  1804.65 1.71 bln   1670/1868
S&P 100   559.73 -  1.56   563.79   558.38   Totals   3341/3358
S&P 500  1126.07 -  2.30  1133.00  1123.37             
RUS 2000  518.77 -  4.18   523.79   518.77
DJ TRANS 2848.31 - 33.09  2882.72  2848.31
VIX        20.21 -  0.09    20.79    20.05 
VXN        39.29 -  0.14    40.14    38.53
TRIN        0.81 
Put/Call    0.54
*******************************************************************

Still Waters Run Deep
By Buzz Lynn
buzz@OptionInvestor.com

The surface appearance of nothingness graced the markets today.  
But underneath this non-descript day, currents are churning.  

Take a listen to Greenspan's speech on Capitol Hill where he notes 
that rates must eventually rise but that with low inflation and 
lousy corporate pricing power, the Fed could wait until economic 
recovery was in full swing to raise rates again (from a recession 
that never happened).

And to listen to the dominant financial media, you might also 
think that a recovery was now well under way.  Sure, tell that 
CAT, UTX, and BA.  Caterpillar announced earnings yesterday that 
missed by a penny from which further losses extended today.  
Boeing reported today and missed by $0.09 ($0.75 actual vs. $0.84 
est.).  UTX lost today too when they met earnings.  Met?  Why did 
the stock fall?  In some truthful words uttered by the analyst 
community, "But I think people are starting to refocus on the 
market realities here, which are that commercial aerospace is 
looking pretty weak".  This from Deutsche Bank's Chris Mecray.  
It's future earnings, Silly!

Adding insult to injury, Delphi Automotive (DPH), a major supplier 
to GM is cutting an additional 6100 workers from its force, which 
it had already reduced by over 11,000 workers in the past year.  
That doesn't speak well to the auto industry and flies in the face 
of GM's bumped-up earnings estimates from earlier this week.

These are huge companies with combined sales of over $130 bln. - 
roughly the equivalent of MSFT, INTC, DELL, and CSCO (four biggest 
NASDAQ stocks).  The long and the short of it is that 
manufacturing is far from recovery.  Negative publicity and lower 
stock prices would result if these four NASDAQ stocks missed or 
warned, but there seems much less concern with CAT, UTX, BA, and 
DPH.  Maybe it's because they have real earnings and pay a 
dividend?

Then there's IBM, which announced a week ago that it would 
disappoint.  Everybody lowered their numbers and braced for the 
worst.  What happens when IBM announces that it met lower, 
revised, reworked, and restated numbers?  Right, the price pops up 
$2 in after hours trading.  This is investing?

Alright, before I get all riled up on the fundamentals that do not 
support ridiculous stock prices, I need to focus back on today's 
internals.

Despite that the Dow lost 70 points and that markets for once 
could have cared less about Greenspan's comments, the 
advance/decline line was about even on the NYSE and only slightly 
negative on the NASDAQ.  It didn't fall apart completely when it 
easily could have on any other losing day.  Over and above that, 
volume was pretty good at 1.39 bln shares on the NYSE and 1.93 bln 
on the NASDAQ.  While I wouldn't call this wildly bullish, it does 
show that bulls have been able to maintain some control today 
following what was likely some short-covering driving yesterday's 
big Dow gains.  

Let's see - shorts cover forcing big gains the first day and don't 
re-short on day-two.  Meanwhile, volume picks up, internals 
improve, and the markets lose far less today than yesterday's 
gains.  Seems slightly in favor of the bulls for now.  But what 
about the charts?  Just a quick comment on each.

Dow chart - INDU (weekly/daily/60)



No telling the Dow's direction - weekly is bearish; daily is 
wobbly but met with declining resistance on every pop.  Still the 
50-dma (magenta) held.  60-min looks like the bulls might make a 
teasing charge to perhaps 10,300 before any resistance is 
encountered.

NASDAQ chart - COMPX (weekly/daily/60)



Same for the NASDAQ - upturned but wobbly daily stochastics; 
declining upper resistance trendline held again, and today's 
candle closed just under the 50-dma of 1817.  The 60-min chart 
looks coiled for a bounce from oversold - at least on a daytrade.  
But the bigger future is uncertain.

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


SPX?  ZZZZZZZZZZZZZZZ.  Same.  Weak weekly chart; pop over daily 
declining trendline with current price now barely below the 50-dma 
of 1127 with plenty more resistance not far overhead at the 200-
dma of 1134.  Yet the 60-min candles found support with the 
stochastic just entering oversold.  Again, bounce from here?  
Difficult to tell.  Chalk up another one to "inconclusive".

Hmmm. . . sounds like three full paragraphs that say, 
"Rangebound"!  In this environment, it's safe for daytrading only.  
No buy and hold here.

Anything to read into the VIX?  Nope, still hovering just over 20, 
which is symptomatic of a complacent market.  Everyone currently 
seems to believe the markets are not going to budge much.  I call 
it complacency.  Others call it belief that they are comfortable 
with the markets' current direction - sideways for now.  It's 
precisely at these times I get twitchy in that the majority cannot 
be right.  From that, I'm starting to think we are nearly due for 
a breakout or breakdown in the coming weeks.  The good news is 
that we only need think of tomorrow's action.

So for tomorrow and Friday, personally, I would not take a 
position home with me and would be out by the time the exchanges 
close.  Calls might make for a fast swing or daytrade early on.  
But the bigger weekly chart bearish pressure is still in place.  
Get in, get out.  Just rent the things for a while and return them 
before you go home.

See you at the bell.




********************
INDEX TRADER SUMMARY
********************

Quiet pullback on more volume
by Leigh Stevens

The market seems to have a quiet pullback, at least it was not a 
rout, but volume picked up from yesterday as profit taking set in. 
Total volume was 1.6B in NYSE versus 1.3B yesterday and 1.9B in 
Nasdaq versus 1.7B on Tues.

The two markets present slightly differing views on the charts as 
the oversold tech held up relatively better than the Dow and the 
S&P. The market is not falling apart, so after a pause, here looks 
like more upside here although fundamentals are weighing a bit 
heavy in higher oil and gold prices. 

THE CHART PARADE  -    
 

Dow (DJX) Hourly chart: 




The Dow Industrials, with the least relative strength of the 
Indices on this recent rally, has retreated from the top of its 
hourly downtrend price channel at 10,325 and from its 21-day 
moving average (10318) -- so, key resistance is 10318-10325. My 
hourly stochastic oscillator (length: 21) is on a downward 
momentum sell signal. Near support: 10,160; then, 10,100-10,080; 
support at low end of hourly downtrend channel is 10,000-10,025 
area into tomorrow. I lean to covering DJX puts and buying calls 
when both the hourly stochastic gets into an oversold area again 
at one of the better support areas, like around 10,100-10,150.


S&P 500 (SPX) Hourly chart: 




Reversed at hourly resistance point I highlighted in 1130 area, 
which was level of recent prior hourly highs; This is key 
resistance now, in SPX; above this area, resistance is 1135 - 1140 
zone; Near support anticipated at 1118 area, at previously broken 
hrly down trendline; support then extends down to 1112 area over 
course of trading tomorrow (Thurs).  Like the Dow 
suggest purchases when hourly stochastic gets oversold again, 
especially if holding in support in the 1110-1115 zone.

S&P 100 (OEX) hourly chart: 




OEX reversed from below resistance at 565, consistent with the 
weaker technical picture presented by the 100 Index; OEX is about
 to test next support at 557-558, which is likely to give way, 
given downward momentum showing currently; next and likely better 
support is at prior hourly lows in the 547-548 area; if OEX should 
go to a new low, support is anticipated the lower trend channel 
boundary, at 540-541. Same strategy as with SPX - I favor buying 
when the oscillator is back to an oversold reading and in support.  

QQQ Daily/hourly charts: 




Resistance developed in the 35.5 area, which put it low end of 
35.5-36.00 resistance; 34.40-33.90 is likely support area -- this 
is the area of upside price gap of yesterday. Gaps tend to get 
"filled in" by trade in that space, but not always. It's more 
bullish if it does not - fairly normal it is does, then rallies. 
In this event and with oversold again on the hourly oscillator, I 
would cover shorts and look to buy.

Long/Call Positions:
Long QQQ at 34.30 
Stop: 32.50.  
Objective: 38.00  

My bullish general market indicators: 




A bit more on the Arms Index or "TRIN":
Invented by Richard Arms in 1967, this is a widely followed 
technical indicator.  It appears even on the CBNC scrolling 
at 
the bottom of our TV screens every few minutes.  It is a 
simple  calculation that compares the number of stocks up to 
the number of stocks down at any given time, and relates that to 
the advancing and declining volume at the same 
instant.  

High daily numbers show extremes in selling pressure.  When 
a 10-day moving average of the daily figure get to the 
levels circled above, it has a good record of PRECEDING 
intermediate-term rallies of a 2-3 weeks or more.  The lead 
time before this happens can as long as 2-3 weeks however. 


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 

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***********
OPTIONS 101
***********

A BIG Correction, and Ruminations on Trading
By Mark Phillips
mphillips@OptionInvestor.com

In my haste to finish last week's article and get back to the
casino (Vegas, not Wall Street), I made one heck of a blunder in
my math on the Butterfly trade on AZO.  So I'll spend most of
today's article correcting that error and showing you, my loyal
fans, where I went wrong.  But first, I want to talk a bit about
my reference above to the casino.  That's right.  I spent a good
portion of last week in Las Vegas.  I only live 3 hours away, but
until last year, had never been to the "City of Sin".  I've found
that enjoy short trips there for several reasons, not the least
of which is the observations I can make about human nature.

I've actually watched people lose 5 and 6 figure chunks of cash
in a short span of time, and then head right for the cashier to
get a wad of dough, to keep the game going.  Do you know anyone
that has done that in the Financial markets?  I sure do!  I
personally know people that ran 6 and 7 figure accounts down to
NOTHING during the tech crash of 2000-2001, because they just
"knew" the next trade would work and they could win back all
their losses.  Ouch!  It's painful just thinking about some of
the tales of woe that I've witnessed.  If you're in the market,
risking more than you can afford to lose, on the hopes of finally
winning it all back, get help!!  You have a gambler mentality and
are risking your own financial security.  Before you place one
more trade, go back to my Monday article, What To Do When You
Can't Do Anything Right.  Read it and then apply the lessons
contained within.  It won't make you an overnight success, but
it will help to get you back on the right path.

There's another interesting observation that I've come across
when playing for a few days in Vegas.  See, I became a trader many
years before I ever tried my hand at gambling.  And to be honest,
I'm not much of a gambler, as I don't like having such a lack of
control.  But I have found that I can apply the same money
management rules that work in trading to gambling.  I'll sit down
at a table and start with $1000.  Immediately the stop loss goes
in place at $500, as that is all that I am willing to lose in
that one sitting.  If I run the lot up to $1500, the stop loss
goes up to breakeven, so that no matter what happens, I get to
keep my original capital.  Regardless of where I initially place
my stop, it NEVER gets lowered!  Not only has trading taught me
how to gamble more effectively and enjoy the experience, gambling
on occasion has solidified my adherence to my stops when trading.
It is kind of funny, but somehow the money seems more real (and
thus commands greater respect) at the BlackJack table than it does
when it is put to work in the option market.  But it is just as
real, and we need to remain cognizant of that fact at all times.

But enough about my ruminations on the commonalities between
trading and gambling, we're here to talk about options.  Recall
last week, that we were (or so I thought) wrapping up our
discussion of Online Volatility Tools.  I concluded the article
with an example of Probability on a butterfly spread on AZO.  I
concluded that we could just average the probability of each end
of the spread being successful to arrive at a probability of
success for the entire spread.  Boy was I wrong!!  Fortunately,
I've got a bunch of vigilant readers out there (some of which
have a firmer grasp on the math than I!  Don't tell my old
colleagues at NASA -- I'd never hear the end of it.  (BIG GRIN)

Alright, in the pursuit of both accuracy and clarity, I'm going
to rectify that error so that everyone understands the error I
made and also how to correctly determine the probability of
success for this Butterfly Spread.

From last week's article (full text Here ):

" 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."

And here's an excerpt from the email I received, correcting my
error:

"Mark,
It's been a long time since my finite math classes, but I remember
enough to question your conclusion on the AZO butterfly example.
The part I have a problem with is your averaging of the
probabilities that AZO will be above 66 and below 74 to get the
probability it will be between those two prices.

Your first calculator gives a 72.6% chance of AZO will be above
66, but also a 27.3% chance of it being BELOW 66.  So, when you
look at the second calculator and find a 70.4 % chance of the
stock being below 74, 27.3% of that is also below 66 leaving a
43.1% chance of it being above 66 AND below 74.  You can reach
the same conclusion the other way -- The second calculator showed
the probability of being above 74 as 29.5%.  The first calculator
gave the chance of being over 66 as 72.6%.  When you subtract
72.6-29.5, you again get a 43.1% chance of the stock being in the
66 to 74 range.  Another way to look at it is that the first
calculator showed 27.3% chance of <66, the second one showed 29.5%
chance of >74, leaving a 43,1% chance of it being between 66 and
74 (100 - 27.3 - 29.5 = 43.1).

I know it "just math" but the result has a significant bearing on
whether or not you would want to do that butterfly!

Hoping I've been helpful,
Al"

Indeed you have, Al!  Many thanks for pointing out the error of
my ways, as doing the math correctly has a significant effect on
the probability of success and hence our willingness to put on
the trade.

I had to remove some cobwebs from a dusty corner of my brain to
confirm that Al's calculations are correct and in my continuing
effort to be accurate, let me restate the process for figuring
the probability on the Butterfly spread in case anyone is still
confused.

First, take the probability of AZO being below $66, which is
27.3%.  Then take the probability of AZO being above $74, which
is 29.5%.  Subtract both of those numbers from 100%
(100 - 27.3 - 29.5) to arrive at the correct probability of
success, which is 43.1%.  What we are actually calculating is
the probability that AZO will not be between $66-74, as that is
the area where we would be unprofitable on the trade at
expiration.

My apologies for the inaccuracy and any confusion that it caused.
Hopefully this helps to clarify the process of figuring
probabilities on this type of spread trade.

See you next week!

Mark


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***********************
INDEX TRADER GAME PLANS
***********************

THE SECTOR BEAT - 4/17
by Leigh Stevens


TRADE PLAY REVIEW: Semiconductors - 

A subscriber e-mail asked about the way I drew the (red) 
down trendline on this chart, from last night's (4/16) 
Sector Trader wrap.  (This explanation might normally be 
seen only in our "Trader 101" section, but include here as it
 relates to a recent sector play and so that the most 
Subscribers may see why some points of my trendlines will 
fall above or below my lines.)  




"My question concerns your statement: 
"Once the SOX blasted through the down trendline at 581, it was 
off to the races."

I do not understand the placement of the down trendline. Why 
doesn't it go from the high on 3/8 through the high on 4/1? This
 would have it breaking the trend line on 4/16 at about 595 
instead of 581."


There are different ways of drawing trendlines -- the 
"conventional" way is by drawing a line through 2-3 points that 
represent the highest intraday highs or the lowest intraday lows. 
 Another way of constructing a trendline, one I use extensively, 
is to draw an "internal" trendline or "best fit" trendline. This 
method draws a trendline through the greatest number of highs or 
lows.  

I actually was a bit careless in drawing the down trendline shown 
on the chart above -- redrawing it more precisely as seen below, 
internal Trendline 2 (Red line - T2), has a penetration or 
"breakout" point at 572, or just above the 5/16 open in the SOX at 
571.62. You'll note that Trendline 1 (Blue line - T1) also 
intersects or is drawn through the most number of lows.  
Consequently, with this trendline, there are few points where the 
intraday lows are under this line.




I have also drawn the trendline in the chart above, the way our OI 
Subscriber describes; i.e., touching the two highest highs, which 
is Trendline 3 (T3) - dashed magenta line - the intersection of 
this line is at 594.  

The strong advance in the Semiconductor index happened to 
penetrate both the internal and traditional ("external") 
trendlines (T2 & T3) at 572 AND 594 in the same strong 1-day move. 
We could consider the breakout of external trendline (T3) as 
"confirmation" of the earlier upside penetration of the lower 
internal trendline (T2).  That's fine, but the internal trendline 
alone predicted upside follow through. I was already on board – 
even taking the breakout point as being at 581, we jumped in much 
earlier than at 594, when the conventional or external trendline 
T3 was pierced.  

Keep in mind also that 2 points with which to draw a trendline is 
minimal -- better to have 3 points, which we would not have here –
- UNLESS we made use internal trendline method. This "best fit" 
type trendline is the one I favor and have found to "work" in the 
most number of circumstances.       
A trendline is basically showing the rate of price change or the 
trajectory of the trend, up or down. Use of internal trendlines is 
one way of doing that effectively.  Just keep in mind that this 
method can cut through one or more highs or lows as the trend 
develops.  Also, trendlines often need to be re-drawn to achieve 
the best fit. Trendlines are an "art", not exact "science". 
 
(You can find out all you ever wanted to know, and probably MORE, 
on trendlines in my "Essential Technical Analysis" book -- go to 
the web site  if you want to know more.)
 http://www.essentialtechnicalanalysis.com 


Stay with the cyclicals, such as Alcoa, etc.   

NEW TRADE PLAYS and GUIDELINES:

Internet Sector index ($INX.X) - 
The internet sector which includes stocks as diverse as 
Amazon (AMZN), Cisco Systems (CSCO) and Juniper Networks 
(JNPR), is rebounding from the low end of its downtrend 
channel as shown in the chart below. Upside momentum is 
indicated by the slow stochastic on a 14-day basis.  




For a speculative play, as I think the rally in tech will 
continue longer, a suitable stock showing good relative 
strength within this sector, is JNPR (Juniper Networks), +5% 
today at 12.40.  

JNPR closed today above its 21-day and 50-day averages today 
(not shown), on improving volume from its prior session.  
Purchase of the May 15 Call, which closed at .40 (+.15 – 
volume: 900)today, is suggested at tomorrow's opening. 
Suggest limit on the option is .40, with maximum at .45-.50.  
Upside objective on the stock is to 18, a 50% retracement of 
the Dec. to early-March downswing. 
 




LONG/CALL TRADES, PREVIOUSLY RECOMMENDED: 

<> Telecom ($XTC.X) index - 4/15 Sector Trader suggestion:
OPTION play: Sector stock, Level 3 Communications (LVLT)-
1)June 5 Call (HGY FA) suggested: 4/16 open: .60
2)LVLT outright purchase, with stock under $5, also 
suggested: 
4/6 open: 4.16
Objective: LVLT to 5.5/6. 

	Semiconductor Index ($SOX.X) - 4/15 Sector Trader 
	suggestion:
Most active OTM May 650 calls (SOW EJ) - 4/16 opening: 14.30
NOTE: May 650 call closed at 4.60 on 4/12. No one buying the 
day AFTER I highlighted bullish SOX (on 4/15) is making out in 
these 
Index calls.
Individual Semiconductor stocks were a better play    

<> Cyclical sector ($CYC.X) - 4/15 Sector Trader suggestion:
iShares Cyclical Trust (IYC)  - 4/16 open: 56.95
Objective: new high above 63.00
OPTION play: Sector stock -- Alcoa (AA) 
May 40 calls (AA EH) - 4/16 open: .60   

<> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion:
OPTION PLAY: Sector stock Southwest Airlines (LUV) 
Sept. 20 (LUV ID) call suggested - 4/16 open: 1.25  
OBJECTIVE: $22 near-term in the stock; $24, longer-term.  


OPEN SHORTS/PUT PLAYS:

RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 
Objective: 90; Stop: 102 
4/17 NOTE: This HOLDR still looks like it is forming a top

XAU (PHLX Gold & Silver Index)
Bought May 65 puts at 1.80  
Stop: Risk to no value on the option
Also recommended May 60 Puts
Objective: XAU to 60.50, where it has support
NEW: Stop suggestion -- exit put positions if XAU achieves a 
new 
closing high; i.e., a close above 72.33 - close today, at 
72.32 
is about as close as you can get and not be at a new high. 

IYE (US Energy Index iShares) at 49.70
Stop: 50.00 (lowered from 52.00) 
Objective: 46.50
NOTE: renewed rally in energy/oil sectors, is creating some 
strength in IYE; would rather take a look at re-shorting if 
stock challenges its prior intraday (51.59) or closing (51.43) 
high, but does not exceed it, setting up a double top.   

OPEN LONG or CALL POSITIONS:

UTH - Utilities Holders trust (AMEX) 
Long at 95.25 
Stop: 91.00
Objective: 105
4/17 NOTE: UTH "gapped" up today and looks like it can 
achieve a 
move to a new high above 97. 

LIQUIDATIONS OR CLOSED-OUT TRADES - 4/17:

Sector: Short XLB (Basic Industrial Sector SPDR) at 23.75
EXITED: 23.73, at open for.02 gain (before commission).

Sector: Short XLP (Consumer Staples SPDR) at 26.00
EXITED: 28.85, at open for loss of 2.85 
Given the strong move in the market and the recent upswing 
in 
XLP, this position longer appeared undesirable. 

Sector: Short IYD (US Chemical Index iShares) at 45.25
EXITED: 45.90, at open for loss of .65
Same reason as above -- this sector appeared to be headed higher


NOTE: 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
lstevens@OptionInvestor.com

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The Option Investor Newsletter                Wednesday 04-17-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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*****************
STOP-LOSS UPDATES
*****************

AZO  - call
Adjust from $69.50 up to $70.25

RYL  - call
Adjust from $95 up to $96.75

JDEC - put
Adjust from $13.50 down to $13.05

WPI  - put
Adjust from $26 down to $25.25

*************
DROPPED CALLS
*************

KKD $37.95 -1.47 (-2.68) The rotation out of KKD continued
into today's trading.  The stock continued significantly
lower for the second consecutive session on increasingly
active trading.  Wednesday's volume topped 1.2 million
shares in conjunction with a 3.7% drop.  The breakdown and
close below our stop has OI dropping coverage on KKD tonight.
Look for a relief rally early tomorrow morning to repair
positions and cut losses.


************
DROPPED PUTS
************

TMPW $31.03 +1.08 (+1.93) The short covering continued in
TMPW today.  The strength in the Internet Index (INX.X)
was most likely the reason for the jumpy bears.  Volume
saw a slight up-tick from the day ago total, plus the stock
closed fractionally above its 10-dma, and our stop at the
$31 mark.  Though a rollover is likely from here, we're
taking gains off the table.  Use weakness below the 10-dma
early tomorrow to take positions off.


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*********************
PLAY OF THE DAY - PUT
*********************

MU - Micron $30.24 +0.13 (+1.18 this week)

Micron Technology, Inc. and its subsidiaries are principally
engaged in the design, development, manufacturing and marketing
of semiconductor memory products. The Company offers products
that include dynamic random access memory, synchronous dynamic
random access memory, double data rate dynamic access memory,
legacy dynamic random access memory products, static random 
access memory products and Flash products.

Most Recent Update 

Texas Instruments (TXN) delivered a seemingly positive
earnings report last night.  And Novellus Systems (NVLS) raised
guidance.  After the bell tonight, Intel (INTC) reported
in line numbers.  The bullish news in the broader semiconductor
group may have the bulls trying to run these stocks higher.
But if it's like the pattern we've seen time and again this
year, the rally in the chips should begin to lose steam, and
the stocks should rollover near key resistance levels.  One
of the recently weaker stocks in the group, MU could be
poised for such a rollover as early as tomorrow.  The stock
was trading slightly higher in the after hours session,
reaching above the $31 level.  We hope that MU trades that
high tomorrow, because we'd look to take entries into new
put plays on rollovers near the $31 level.  There's a lot of
short term congestion at that point, plus a gap lower marked
by the short term top at the $32 level.  We're looking to
take entries near $31 with a stop at the $32 level, betting
on a rollover from there.  To the downside, a pullback in
the semiconductors could bring MU back down to the $28
level, giving a nice quick $3 trade.  If the downtrend in
MU resumes however we could see the stock work down to the
$25 level over the next several weeks.

Comments

MU under performed the Chip Sector (SOX.X) today.  The SOX
finished up by 1.26%.  MU could only manage a fractional
gain.  The stock's rollover from the $31.50 level reinforced
resistance near there, which should have the bears looking
for entries just below the $32 gap level.  A breakdown below
the $29.50 level should come on any weakness in the broader
chip sector.  Look for weakness to return in tomorrow's
session.

BUY PUT MAY-32 MU-QS OI= 6432 at $3.70 SL=2.00
BUY PUT MAY-30*MU-QF OI=10032 at $2.35 SL=1.25

Average Daily Volume = 8.07 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************


A Turning Point Or Just Another One-Day Wonder?
By Ray Cummins

Stocks consolidated today as investors adopted a "wait and see"
attitude on the heels of the biggest rally this year.

The Dow industrial Average slumped 80 points to 10,200 despite
solid performances from J.P. Morgan (NYSE:JPM), General Motors
(NYSE:GM), General Electric (NYSE:GE), Intel (NASDAQ:INTC), and
SBC Communications (NYSE:SBC).  Boeing (NYSE:BA) was the biggest
disappointment, falling almost 5% after the company reported a
first-quarter profit that was well below consensus estimates.
Technology stocks were more upbeat with the NASDAQ Composite
losing only 6 points to finish at 1,810 as positive news from
Intel boosted the outlook for the semiconductor sector.  The
chip giant noted that its first quarter revenue increased, and
said it anticipates better profit margins for the rest of the
year.  The optimism was limited, however, by unexpected losses
in the software sector after Veritas (NASDAQ:VRTS) warned that a
slowdown in sales would push its second-quarter results below
Wall Street's expectations.  Shares of Veritas plunged over 15%
on the announcement, taking many of the popular software-makers
down in its wake.  In the broader market, the S&P 500 Index slid
2 points lower to 1,126 as oil service, natural gas, brokerage,
gold and airline sectors edged higher while consumer, defense,
drug and retail issues generally sagged.  In economic news, the
Commerce Department said the nation's trade deficit widened to
$31 billion in February, with increased imports signaling rising
consumer demand at home.  The news did not affect comments from
Fed Chair Alan Greenspan, who told Congress that the Fed will be
patient in raising rates, bolstering consensus that the initial
rate hike won't be made until August.  Greenspan also noted with
optimism that "The foundation for economic expansion has been
laid," and that is something we can all be happy about!

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

MAILBAG - Reader's Comments & Questions

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

To:	Contact Support
Subject: Straddles

Hi, Ray--

While I wait for more decisive stock direction in my ANF, CVS,
and JPM straddles I have been looking around for other possible
straddle candidates.  Would the May straddles in KO and/or UPS
meet your criteria for relatively inexpensive, high probability
trades?

Many thanks for your column.  I think I am slowly learning, but
the toughest think to learn is patience!!

All the best, 

DS


Hello DS,

Thanks very much for the inquiry!

I am still "out to lunch" so to speak with my new (3-day-old)
baby girl, so I am performing only very limited functions with
regard to the market, trading and the OIN.

Both UPS and KO are regularly on the "low premium" list, which
is a sort for low overall IV, relative to the equity options
market.  But until recently, neither issue was high on the list
of stocks that had made enough historic (large) movements to
justify a straddle position.  KO has recently changed character,
so it may be a better candidate than UPS at the current time.
Of course, if I knew all the answers and which plays would be
winners...

I hope things work out for you in the other straddles.  Lots of
time left to be successful -- but don't let hope get in the way
of sound money management (always another play to profit from).

Ray


To:	Contact Support
Subject: More On Condors

Hi Ray,

Hope all are healthy, in good spirits, and that you're all getting
some sleep after an eventful week (now that you have a new tax
deduction).

I noticed MERX on your recent supplemental (naked puts) play list.
I checked the chart and MERX is trading at $17.66 and has been in
an extended defined rolling pattern between 16 and 20.  The 15/20
condor for June expiration looks good.  The appropriate strike
prices for May are not yet being offered.  One could take in $1.10
in premium with a maximum potential loss of only $1.40 -- a nice
risk/reward ratio (and a potential 79% return).  However, a lot
can (and probably will) happen in the 10 weeks until expiration.
I know that stocks often consolidate for even longer periods.
What are your thoughts about a 10-week exposure?

Be well.  Talk to you soon.

Your friend,
MP


Hello MP,

Sorry it took so long to reply.  I don't have much attachment to
the market right now (with all the activities surrounding my new
baby girl).

I haven't had a chance to look at MERX in depth, but 10 weeks
would definitely be a long exposure on an individual equity
unless the premiums were inflated (so you could expect to close
early) or the stock was historically very stable (something like
Dupont:DD).  That doesn't mean a MERX condor won't be good play.
The quarterly earnings date has passed and the event apparently
hasn't caused any extreme movements.  Does the June expiration
occur before the next earnings date?  Also, look at the closely
related issues in its group (the company's real competitors).
Are there any upcoming events that could significantly affect
their niche industry?

Anyway, many things to do with this major change in lifestyle!

Good Luck!

Ray


To:	Contact Support
Subject: CSCO Spread

Hi Ray,

Here is a question:

I had used CSCO Jan 03 $15 Put and the near month $20 Puts
successfully a couple of times.

Now the APR $20 Puts are deep-in-the-money and not much time
is left.

My options are:

1. Buy back APR 20 Puts.
2. Take assignment and sell CSCO later (hoping that it will
bounce and I could recover some of the loss).

Any other strategies I can use in this situation? (feel free
to direct me to any previous articles).

Thanks

KM


Hello KM,

First, could you please give me just a little more information?

Is this a spread (or hedged position)?

Example: Long CSCO JAN03-$15 Put / Short APR02-$20 Put

Or, are these just individual positions you have successfully
SOLD in the past?

If it is a spread, how much did the initial position cost?

Indeed, your alternatives for the individual position (Short
APR-$20 Put) are:

1. Buy back the APR-$20 Puts and take the loss.
2. Accept assignment of the underlying and hope CSCO recovers
   later (to sell covered-calls or sell the stock outright).
3. Roll down and forward (although it is a bit late for that
   alternative, since the options are now deep-in-the-money).

In cases like this, the adjustment potential is very limited and
although an option trader has many different alternatives when
the underlying issue moves beyond the sold strike price in a
combination position, the appropriate action should be taken
prior to that event, when the issue experiences a technical
change in character (such as breaking-out of a trading range or
closing above/below a moving average).

Hope That Helps!

(Note: More on the CSCO play as information become available.)

***************
Summary of Current Positions
***************
(As of 04-16-02)

Naked Puts

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

COF      APR    50   48.60  63.76   1.40     5.6%
CEPH     APR    50   48.35  62.19   1.65     7.9%
KLAC     APR    55   53.30  68.25   1.70     6.9%
PHTN     APR    45   43.30  49.02   1.70     7.0%
GILD     APR    28   26.75  36.50   0.75     6.4%
ACS      APR    48   46.60  50.55   0.90     4.4%
COF      APR    50   49.10  63.76   0.90     4.9%
SYMC     APR    35   34.35  37.36   0.65     5.2%
CYMI     APR    40   39.50  52.62   0.50     4.7%
GILD     APR    30   29.55  36.50   0.45     5.7%
ROOM     APR    55   54.25  64.11   0.75     6.3%
GILD     APR    33   32.10  36.50   0.40     5.1%


Naked Calls

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

NVDA     APR    70   71.00  39.82   1.00     5.6%
QLGC     APR    60   60.85  49.97   0.85     5.8%
PSFT     APR    43   43.30  23.96   0.80     7.2%
BRCM     APR    45   45.45  38.36   0.45     6.1%
SEBL     APR    38   38.05  28.31   0.55     7.7%
MRVL     MAY    48   48.00  41.68   0.50     5.1%
TER      MAY    40   40.75  39.49   0.75     6.7%

Teradyne's (NYSE:TER) rally to a new 9-month high suggests
further upside potential.  Conservative traders should
consider using any weakness to exit or adjust the bearish
position.
  
 
Put-Credit Spreads

Stock                                           Gain
Symbol  Pick  Last  Month L/P S/P Credit  C/B  (Loss) Status

BBY    75.27  78.85  APR   60  65  0.55  64.45  0.55   Open
CI     96.38 107.49  APR   80  85  0.60  84.40  0.60   Open
FRX    83.65  78.00  APR   70  75  0.50  74.50  0.50   Open
TOL    26.50  27.00  APR   20  23  0.32  22.18  0.32   Open
VLO    47.85  47.26  APR   43  45  0.40  44.60  0.40   Open
CI     98.90 107.49  APR   85  90  0.50  89.50  0.50   Open
WFMI   47.09  46.23  APR   40  45  0.60  44.40  0.60   Open
WSM    49.05  47.36  APR   40  45  0.55  44.45  0.55   Open
GD     95.24  92.55  APR   85  90  0.60  89.40  0.60   Open
SLM    98.01  97.20  APR   90  95  0.50  94.50  0.50   Open
ACDO   60.79  61.24  MAY   50  55  0.65  54.35  0.65   Open
ASD    74.24  74.38  MAY   65  70  0.60  69.40  0.60   Open
BSC    65.65  65.42  MAY   55  65  0.55  64.45  0.55   Open
FAST   81.99  82.37  MAY   70  75  0.55  74.45  0.55   Open
KSS    75.00  75.10  MAY   65  70  0.65  69.35  0.65   Open
PCAR   77.34  74.76  MAY   65  70  0.50  69.50  0.50   Open
WLP    67.79  65.74  MAY   60  65  0.80  64.20  0.80   Open

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


Call-Credit Spreads

Stock                                          Gain
Symbol  Pick  Last Month L/C S/C Credit  C/B  (Loss) Status

LXK    50.48 54.67  APR   65  60  0.60  60.60  0.60   Open
BRCM   40.24 38.36  APR   55  50  0.55  50.55  0.55   Open
LEH    63.49 63.03  APR   75  70  0.60  70.60  0.60   Open
QLGC   48.96 49.97  APR   65  60  0.65  60.65  0.65   Open
CCMP   65.73 62.87  APR   80  75  0.60  75.60  0.60   Open
BRKS   44.32 42.53  APR   55  50  0.50  50.50  0.50   Open
RE     66.00 68.49  MAY   80  75  0.00  75.00  0.00   Open
CSC    44.82 47.86  MAY   55  50  0.65  50.65  0.65   Open
SMH    44.38 46.58  MAY   55  50  0.55  50.55  0.55   Open

 
Debit Straddles/Strangles: 

Stock  Position    Debit  Target   M/V      G/L      Status

NTRS   APR60C/60P  4.00    5.00    5.00     1.00     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 neutral position in Northern Trust (NASDAQ:NTRS) finally
experienced some volatility as the stock plunged almost 10%
after the company reported quarterly earnings.  Unfortunately,
we cannot take credit for the success because we had already
closed the straddle in our portfolio.

 
Synthetic Positions:

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

APOL   65.80   61.92   MAY65C/45P  (0.20)  44.80   0.70  Closed
NUE    53.30   53.55   APR70C/60P   0.10   59.90   0.10   Open

Apollo Group (NASDAQ:APOL) became one of our big winners this
week after the company's shares traded at an all-time high on
Monday.  The speculative synthetic position achieved a profit
of up to 0.70 and the issue may move higher in 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 - Naked Puts & Combinations

***************
ACF - AmeriCredit  $44.66  *** Strong Earnings! ***

AmeriCredit (NYSE:ACF) has been operating in the automobile
finance business since September 1992.  Through its branch
network, the company purchases auto finance contracts without
recourse from franchised and select independent automobile
dealerships and makes loans directly to consumers buying late
model used and new vehicles.  AmeriCredit targets consumers
who are typically unable to obtain financing from traditional
sources.  Funding for the company's auto lending activities is
obtained primarily through the sale of loans in securitization
transactions.  The company services its automobile lending
portfolio at regional centers using automated loan servicing
and collection systems.  AmeriCredit's typical borrowers have
experienced prior credit difficulties or have limited credit
histories.

On Monday, AmeriCredit announced record net income of $91.6
million, or $1.02 per share, for its third fiscal quarter,
versus earnings of $60.4 million, or $0.70 per share, for the
same period a year earlier.  On a comparative basis, income
increased 52% and earnings per share rose 46%, and the news
made both investors and analysts very happy.  The outlook for
the company is also much more favorable than in past years and
traders who believe the recent bullish activity in its share
value will continue should consider these positions.

ACF - AmeriCredit  $44.66

PLAY (sell naked put):

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

SELL PUT  MAY 40   ACF QH  2,139     1.55    38.45     10.7%
SELL PUT  MAY 35   ACF QG  2,611     0.55    34.45      5.9% ***


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

Credit Spreads

***************
IGEN - IGEN International  $41.10  *** Next Leg Up? ***

IGEN International (NASDAQ:IGEN) develops and markets products
that incorporate the company's proprietary ORIGEN technology,
which permits the detection and measurement of biological
substances.  ORIGEN is incorporated into instrument systems and
related consumable reagents.  The company also offers assay
development and a wide range of other services that are used to
perform analytical testing.  Products based on the company's
ORIGEN technology currently address the following markets: Life
Science; Clinical Testing-In Vitro; and Industrial Testing.

On Monday, a federal court reaffirmed its judgment that Swiss
pharmaceutical firm Roche Diagnostics must pay IGEN over $500
million in damages in a licensing dispute.  The judgment in U.S.
District Court for Maryland confirms IGEN's right to terminate
the license agreement and directs the Roche division to grant to
IGEN a license to improvements developed by Roche, including the
company's Elecsys diagnostics product line.  In upholding the
earlier judgment, the district court rejected several motions
filed by Roche seeking to reduce by more than $400 million the
monetary damages awarded to IGEN.  The court also rejected a
challenge to the jury's finding that Roche materially breached
the license agreement and dismissed Roche's attempts to obtain
a new trial.  The news is very positive for IGEN and traders
who think the bullish activity will continue can profit from
that outcome with this conservative position.

IGEN - IGEN International  $41.10
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-30  GQ-QF  OI=60  A=$0.25
SELL PUT  MAY-35  GQ-QG  OI=66  B=$0.70
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


***************
PGR - Progressive Corporation  $177.83  *** Split Coming! ***

The Progressive Corporation (NYSE:PGR) is an insurance holding
company for 73 subsidiaries, one mutual insurance company and
one reciprocal insurance company affiliate.  Their insurance
subsidiaries and affiliates provide personal automobile insurance
and other specialty property-casualty insurance as well as related
services throughout the U.S.  The company's property-casualty
insurance products protect its customers against collision and
physical damage to their motor vehicles and liability to others
for personal injury or property damage arising out of the use of
those vehicles.

Shares of Progressive traded at a new "all-time" high today in
anticipation of its quarterly earnings report, due after the
closing bell.  Investors were not disappointed when the company
announced that quarterly profits more than doubled on rising
premiums and a lower number of paid claims than in the year-ago
period.  The company's net profits, including one-time items,
rose to $176 million, or $2.35 a share, in the first quarter,
comfortably above analyst's estimates.  With today's news and
the upcoming 3-for-1 stock split (due on 4/23), the issue should
have little difficulty remaining above the sold strike in this
bullish combination position.

PGR - Progressive Corporation  $177.83

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-160  PGR-QL  OI=29   A=$0.60
SELL PUT  MAY-165  PGR-QM  OI=125  B=$1.15
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


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

BULLISH PLAYS - Synthetic Positions

***************
GM - General Motors  $64.95  *** New 9-Month High! ***

General Motors (NYSE:GM) is a diversified automotive business
with interests in communications services, locomotives, finance
and insurance.  GM's automotive business designs, manufactures,
and/or markets vehicles primarily in North America under the
Chevrolet, Pontiac, GMC, Oldsmobile, Buick, Cadillac, Saturn and
Hummer nameplates, and outside North America under the Opel,
Vauxhall, Holden, Isuzu, Saab, Buick, Chevrolet, GMC and
Cadillac nameplates.  GM's communications services relate to its
Hughes Electronics Corporation subsidiary, which includes digital
entertainment, information and communications services, and
satellite-based private business networks.  GM also is engaged
in the design, manufacturing and marketing of locomotives and
heavy-duty transmissions.  General Motor's financing and
insurance operations are conducted primarily through General
Motors Acceptance Corporation, which provides a broad range of
financial services.

General Motors' shares rallied to a 9-month high today after the
company posted a profit of $228 million for the first quarter
due to cost-cutting moves and strong sales in North America.
The world's largest automaker also raised it full-year earnings
forecast to $5 per share, up from $3.50 per share, and Deutsche
Securities and Salomon Smith Barney raised their ratings on the
issue based on the positive outlook.  From a technical viewpoint,
the trend is very bullish and traders can attempt to profit from
further upside activity in GM's share value with this position.

GM - General Motors  $64.95
 
PLAY (speculative - bullish/synthetic position):

BUY  CALL  MAY-70  GM-EN  OI=131     A=$0.45
SELL PUT   MAY-60  GM-QL  OI=11829   B=$0.60
INITIAL NET CREDIT TARGET=$0.05-$0.10  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $2,150 per contract.


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

Neutral Plays - Straddles & Strangles

***************
SPC - St. Paul Companies  $50.05  *** Earnings Play! ***

The St. Paul Companies (NYSE:SPC) is a management company
principally engaged, through its subsidiaries, in providing
commercial property-liability insurance, and reinsurance
products and services worldwide.  Through ownership of The
John Nuveen Company, St. Paul also has a presence in the
asset-management industry.  As a management company, the
company oversees the operations of its subsidiaries and
provides them with capital, management and administrative
services.  The company has eight business segments in its
insurance operations, which consist of: Commercial Lines
Group, Global Healthcare, Global Surety, Global Specialty,
International, Reinsurance, Property Liability Investment
Operations and Life Insurance.  The company's quarterly
earnings are due 4/29/02.

One of our readers submitted this candidate for a short-term
"speculative" debit straddle and based on the issue's option
premiums and its share price history, SPC appears to offer a
favorable opportunity for delta-neutral traders.  As always,
review the play carefully and make your own decision about
the future outcome of the position.

SPC - St. Paul Companies  $50.05
  
PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-50  SPC-EJ  OI=129  A=$1.90
BUY  PUT   MAY-50  SPC-QJ  OI=12   A=$1.85
INITIAL NET DEBIT TARGET=$3.50-$3.60 TARGET PROFIT=15-25%


***************
MXIM - Maxim Integrated Products  $56.93  *** Reader's Request! ***

Maxim Integrated Products (NASDAQ:MXIM) designs, develops, makes
and markets a broad range of linear and mixed-signal integrated
circuits, commonly referred to as analog circuits.  Maxim also
provides a range of high-frequency design processes and unique
capabilities that can be used in custom design.  The analog chip
market is highly fragmented and characterized by many diverse
applications, a great number of product variations and, as to
many circuit types, relatively long product life cycles.  Maxim's
objective is to develop and market both proprietary and industry
standard analog integrated circuits that meet the increasingly
stringent quality standards demanded by customers.

It's been a long time since we offered a credit-strangle, due to
the historically low premiums in equity options.  However, one
of our readers has been asking for "premium-selling" candidates
and MXIM is a good nominee for the neutral-outlook strategy.
The issue's technical background and the range-bound character
of the semiconductor segment are both favorable attributes and
MXIM has a stable trading pattern near $55 with indications that
the recent trend will continue.  The only event that may affect
the price of MXIM is the upcoming earnings report, due on 4/30.
If the issue remains in a relatively small range until that date,
the position can likely be closed early for a small profit.  In
any case, review the play thoroughly and make your own decision
about its outcome.

MXIM - Maxim Integrated Products  $56.93

PLAY (aggressive - neutral/credit strangle):

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

SELL CALL MAY 65   XIQ EM  2,533     0.90    65.90      5.8%
SELL PUT  MAY 45   XIQ QI  1,613     0.70    44.30      5.9%


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

BEARISH PLAYS - Naked Calls & Combinations

***************
CCMP - Cabot Microelectronics  $62.07  *** Earnings Play! ***

Cabot Microelectronics Corporation (NASDAQ:CCMP) is a supplier
of high performance polishing slurries used in the manufacture
of advanced integrated circuit (IC) devices, within a process
called chemical mechanical planarization (CMP).  CMP is a unique
polishing process used by IC device manufacturers to planarize
(or flatten) many of the multiple layers of material that are
built upon silicon wafers and necessary in the production of
advanced ICs.  Planarization is a polishing process that levels
and smoothes, and removes the excess material from the surfaces
of these layers.  CMP slurries are liquid formulations that
facilitate and enhance this polishing process and generally
contain engineered abrasives and proprietary chemicals.  CMP
enables IC device manufacturers to produce smaller, faster and
more complex IC devices with fewer defects.

The quarterly earnings season is in full swing and Cabot Micro
is one of the big players set to announce results in the coming
week.  Based on the recent mediocre activity in its share value,
investors are not expecting a positive surprise.  Traders who
agree with a neutral to bearish outlook for the popular issue
can speculate on that outcome with these positions.

CCMP - Cabot Microelectronics  $62.07

PLAY (aggressive - sell naked call):

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

SELL CALL MAY 65   UKR EM  435       3.80    68.80      15.0%
SELL CALL MAY 70   UKR EN  485       1.85    71.85      10.0%
SELL CALL MAY 75   UKR EO  61        0.90    75.90       6.9% ***


***************
ICOS - ICOS Corporation  $41.64  *** Drug Development Concerns ***

ICOS Corporation (NASDAQ:ICOS) is a product-driven company that
has expertise in protein-based and small molecule therapeutics.
The company combines its capabilities in molecular, cellular and
structural biology, high-throughput drug screening, medicinal
chemistry and genomics to develop unique products with commercial
potential.  The company is evaluating Cialis, a small molecule
compound that inhibits the phospho-diesterase type five enzyme
for the treatment of male erectile dysfunction and female sexual
dysfunction.  ICOS is also evaluating Pafase, a recombinant human
serum protein, for the treatment of sepsis and other diseases
characterized by increased activity of platelet-activating factor.

On Monday, drug giant Eli Lilly (NYSE:LLY) reiterated that it is
planning to launch anti-impotence drug Cialis, developed jointly
with ICOS, in the second half of this year.  However, the Food and
Drug Administration has said it will hold up approval of Lilly's
new medications until the company resolves a few quality-control
shortcomings at its manufacturing facilities.  Some analysts have
said the quality-control problems could delay approval of Cialis,
and investors apparently agree with that outlook as they have yet
to support the company's share value in the wake of its recent
slump.  Traders can speculate on continued concerns for the new
drug's development with these positions.

ICOS - ICOS Corporation  $41.64
  
PLAY (aggressive - sell naked call):

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

SELL CALL MAY 45   IIQ EI  315       2.10    2.50      13.8%
SELL CALL MAY 50   IIQ EJ  951       0.90    1.15       9.9%
SELL CALL MAY 55   IIQ EK  193       0.50    0.80       5.7% ***


***************
PFE - Pfizer  $37.85  *** Cautious Outlook! ***

Pfizer (NYSE:PFE) is a research-based, global pharmaceutical
company.  The company discovers, develops, manufactures and
markets prescription medicines for humans and animals as well
as many consumer products.  Pfizer operates in two primary
business segments: Pharmaceuticals and Consumer Products.  The
Pharmaceuticals segment includes prescription pharmaceuticals
for treating cardiovascular diseases, infectious diseases,
nervous system disorders, diabetes, urogenital conditions,
allergies, arthritis and other disorders; products for food
animals and companion animals; and the manufacture of empty
gelatin capsules.  The Consumer Products segment includes self
medications, shaving and fish food and fish care products, as
well as confectionery products consisting of chewing gums,
breath mints and cough tablets.

Shares of Pfizer slumped today after the company's management
forecast a lower-than-expected second-quarter profit.  Pfizer
officials said they now expect a second-quarter profit growth
rate in the "single digits" because of higher expenses.  Some
analysts had been expecting second-quarter profit growth of
about 20% but Pfizer said the revised growth rate reflects low
expenses incurred during the second quarter of 2001.  For the
full year, Pfizer reaffirmed its earnings target of $1.56 to
$1.60 per share but the company's cautious tone about the
upcoming quarter made investors nervous and they sold the
issue down to levels not seen in 6 months.  Traders who think
the bearish trend will continue in the near-term can profit
from that outcome with this position.

PFE - Pfizer  $37.85

PLAY (conservative - bearish/credit spread):

BUY  CALL  MAY-42.50  PFE-EO  OI=2563  A=$0.15
SELL CALL  MAY-40.00  PFE-EH  OI=8520  B=$0.45
INITIAL NET CREDIT TARGET=$0.35-$0.45  PROFIT(max)=16%


***************
BA - Boeing  $45.37  *** Post-Earnings Slump! ***

The Boeing Company (NYSE:BA), together with its subsidiaries, is
an aerospace firm.  The company operates in principal areas that
include commercial airplanes, military aircraft, missile systems,
space and communications and customer and commercial financing.
The Commercial Airplanes segment is involved in development,
production and marketing of commercial aircraft; the Military
Aircraft and Missile Systems segment is involved in the research,
development, production, modification and support of military
aircraft; the Space and Communications segment is involved in the
research, development, production, modification and support of
space systems, missile defense systems, satellites and satellite
launching vehicles, rocket engines and information and battle
management systems, and the Customer and Commercial Financing
segment is primarily engaged in the financing of commercial and
private aircraft and commercial equipment.

Boeing became one of the Dow's big losers today after the world's
largest aviation company posted a $1.25 billion net loss for the
first quarter.  The loss was its first since 1997 and to make
matters worse, the company said its costly space and satellite
unit performed very poorly during the quarter.  Including charges
Boeing incurred a net loss of $1.54 billion, compared to a profit
of $1.24 billion a year earlier, and investors were not pleased
with the report.  The issue fell over $3 to a recent low near $45
and traders who want to speculate, in a very conservative manner,
on further downside activity should consider this position.

BA - Boeing  $45.37

PLAY (speculative - bearish/synthetic position):

BUY  PUT   MAY-40  BA-QH  OI=2064  A=$0.40
SELL CALL  MAY-50  BA-EJ  OI=8493  B=$0.40
INITIAL NET CREDIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.55-$0.75

Note:  Using options, the position is similar to being short the
stock.  The collateral requirement for the sold (short) call is
approximately $1,390 per contract.


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

SUPPLEMENTAL CREDIT-SPREAD CANDIDATES

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

BULLISH PLAYS:

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

DGX 	 85.69  MAY 80P  1.00   MAY 75P  0.45   0.60     14%
PNRA 	 66.90  MAY 60P  0.95   MAY 55P  0.40   0.60     14%
MMM 	123.52  MAY 115P 1.10   MAY 110P 0.60   0.55     12%
MDY 	100.95  MAY 97P  0.75   MAY 96P  0.65   0.12     12%
JPM    37.27  MAY 35P  0.65   MAY 32P  0.40   0.30     12%
LXK    54.42  MAY 50P  0.80   MAY 45P  0.35   0.50     11%


BEARISH PLAYS:

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

KRON 	 40.65  MAY 45C  1.10   MAY 50C  0.55   0.60     14%
OSIP 	 36.75  MAY 40C  0.80   MAY 45C  0.25   0.60     14%
ATK 	101.85  MAY 110C 1.10   MAY 115C 0.60   0.55     12%
MEDI 	 35.06  MAY 40C  0.75   MAY 45C  0.25   0.55     12%
ACS 	 50.23  MAY 55C  0.65   MAY 60C  0.20   0.50     11%
CEPH 	 61.75  MAY 70C  0.70   MAY 75C  0.25   0.50     11%


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**************
TRADERS CORNER
**************

Playing Those Bounces
Austin Passamonte

Intraday traders find it quite easy to mop up the profits these 
past few weeks. It is the part-time trader resigned to entering 
trades only at certain times of the day and/or letting them run 
until the next day & beyond who must tread a bit more lightly. If 
it seems like my how-to article slots are geared for intermittent 
traders lately, you’re right! It is this group that needs focus 
for success right now, but we’ll try to encompass all camps for 
equal education alike.

(Weekly/Daily Charts: SOX)



The very first thing I do before considering any trade in either 
direction is to consult weekly/daily chart templates that look 
just like this. We have Fibonacci retracement measures from the 
last relative lows and highs, which both happened to occur in 
year 2001. These are the pivotal measures to keep an eye on as 
price action trades in between. Such levels have acted as pretty 
strong price magnets since last fall, haven’t they? No reason to 
suspect that behavior won’t continue into the future as well.

The daily chart (right) gives us more of a near-term directional 
bias on any given day. We saw a pretty big move in the SOX these 
past four days of white candles. Note too that price action broke 
out of its bearish descending channel in big fashion on Tuesday. 
A wider view in the weekly chart shows price action ran right up 
against 75% retracement of year 2001 lows toward highs. The past 
three times it hit this mark there was an immediate reversal 
lower. Something to think about for longs who entered near the 
start of this SOX rally... and those who bought near the top need 
to keep an eye on this as well. Shorts are sitting right on that 
level looking for repeated success going four for four. Whether 
they will prevail or not is unknown, but history tells us this is 
firm resistance and may hold fast again.

Part-time traders who played call options on chips should 
strongly consider locking in gains as that level is met while 
waiting for the next reaction. If price action stalls out right 
there, perhaps some May SMH or SOX short calls or long puts would 
be in order. We could safely short this market right at that 75% 
retrace measure and place our exit stop just above resistance for 
safety. Our first downside target would be found back in the 
daily chart on the top line of that descending channel. Price 
action near 580 level would reach an inflection point that could 
go either way, but the space in between is pretty high odds to 
play.

(Weekly/Daily Charts: OEX)



The OEX has been very methodical to trade these past few weeks as 
well. 50% of year 2001 retracement held support on a close for 
two weeks straight. Once that level gave way and broke below 570 
from there, shorts were off to the races. It ran about 25 
index points lower from there in gentle fashion, a distance we 
used to trade intraday back in 2000. That was hands-down the best 
year for option trading any of us could ever wish for again. 
Imagine if we’d have all just bought deep, deep, deep OTM put 
LEAPS and walked away for a year? Mind boggling gains were there 
to be had that dwarf anything 1999 had to offer. But I digress.

Two times in the past five sessions we saw significant short 
covered rallies. That is usually the catalyst for any rally to 
form a bottom and grow legs from there. Part-time traders 
wondering which trend direction is next need only key off weekly 
chart’s stochastic values and Fib retracement values. This proxy 
index for our use tonight could be and sector or individual stock 
as well. We see price action holding above key support at 553 
area with next measure resting below near 527. That would be a 
most profitable move indeed should it come, but how will we know 
if it does?

One key is the daily chart descending channel to our right. 
Notice that price action is clinging right to support on the 
upper channel line? A break back inside that channel near 557 
would be an early bearish warning. A break below 553 level would 
be confirmation the index is headed lower and May 540 or even 530 
puts on a buy & hold basis could work real well. 

Widen The View
Part-time traders must work within the confines of their ability. 
Instead of trying to force resolve on a favored stock or symbol, 
pick the ones poised for movement straight ahead. Maybe chips or 
bios aren’t looking clear as other sectors at any given time. 
Drilling down into sectors poised to move gives us the components 
setting up perfectly right now. When entries must be staged and 
trades left to run beyond one session’s time, the right symbol 
poised to move beats a favored symbol plodding sideways through 
its chart every time!

This weekend we’ll profile some tips & tricks suitable for short-
term traders so we don’t lose their attention as well.

Best Trading Wishes,
Austin Passamonte



************
MARKET WATCH
************


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