Option Investor
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Daily Newsletter, Sunday, 05/05/2002

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The Option Investor Newsletter                   Sunday 05-05-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-03          WE 4-26          WE 4-19          WE 4-12
DOW    10006.60 + 95.88  9910.72 -346.39 10257.11 + 66.29  - 80.82
Nasdaq  1613.00 – 50.89  1663.89 -132.94  1796.83 + 40.64  - 80.82
S&P-100  530.52 -  1.85   532.37 - 27.42   559.79 +  6.05  - 10.28
S&P-500 1073.43 -  2.89  1076.32 - 48.85  1125.17 + 14.16  - 11.72
W5000  10202.04 -  5.42 10208.26 -426.79 10635.05 +129.08  - 45.46
RUT      512.32 + 10.82   501.50 - 15.90   517.40 +  1.94  + 17.70
TRAN    2743.56 + 20.93  2722.63 - 74.24  2796.87 - 78.16  + 17.70
VIX       23.23 -  1.41    24.64 +  4.34    20.30 -  1.79  +   .96
VXN       46.26 +  4.02    42.24 +  2.89    39.35 -  3.46  +  1.96
TRIN       1.71             1.82             1.18             1.03
TICK       +910             +367             -492             +460
Put/Call    .91              .87              .79              .99
******************************************************************


Are we there yet?

Technology stocks took it on the chin for the second straight 
week as the "more than tech-heavy" NASDAQ-100 (NDX.X) fell 2.82% 
on Friday and -4.8% on the week.  With the NASDAQ-100 showing 
losses 7 out of the last 8 weeks, traders and investors are 
wondering a near-term bottom is in site?

I think the answer is that big technology is a lot closer to 
finding a near-term bottom now than in December and March.  "How 
can you possibly think that?" says the tech bear with a belly 
full of gains since the beginning of the year!

It's never easy, but "risk" is what will eventually have the 
NASDAQ-100 and many technology stocks rebounding.  Once again, 
I'll try and illustrate with my favorite indicator, the NASDAQ-
100 Bullish % ($BPNDX) from Stockcharts.com.

NASDAQ-100 Bullish % Chart - 2% box



 

In December, it was unthinkable for bulls that the NASDAQ-100 and 
the bulk of technology stocks were "overbought" as depicted by 
the NASDAQ-100 bullish % showing that 78% of the stocks in this 
market were showing a buy signal on their point and figure 
charts.  Nonetheless, we issued a word of caution to be locking 
in gains on call options that had the bull holding some nice 
gains or at least snugging up some tight stops to help try and 
assure profitability.  In mid-March (after red 3) we did the same 
after a rather "quick" and sharp move higher from a low reading 
in February (red 2) of 28% to a torrid 70% just 5-weeks later.

Today, I'll take the opportunity to tell bears to snug down your 
stops and implement account management practices to start getting 
the account less bearish.  Why?  Because this is most likely what 
the NASDAQ market makers are doing in their stock inventories.

Why would you or I give a darned what the market maker is doing 
with their inventories?  Because these are the guys and gals that 
know what the order flows are looking like (I don't), but the 
history of the NASDAQ-100 as marked by the beginning of each 
months above tells us, when levels of lower bullish % like we're 
at right now take place, the risk for a market maker holding an 
overly short positions in their inventories has that market 
maker's account at risk.

Imagine if you will, that you are the head of trading for Hewey, 
Dewey Suckfinger and Associates.  You've got 10 market makers 
under your watch and each of those 10 market makers are assigned 
the task of managing the firms inventories and trading revenues 
for the firm.  Each of those 10 traders are responsible for 
making a market in 10 different stocks for the NASDAQ-100.

Now, for simplicity sake, lets imagine that back in December, 
mid-March, you came into work and noticed that the NASDAQ-100 
Bullish % reached a level of 70% and alerted you (head of 
trading) that the risk levels for bullish inventory was high.  
What did you do?

You strolled onto the trading floor and slapped each of your 10-
traders on the back and said, "Slap those retracement to the 
highs and the lows and manage your risk.  If you're not getting 
the order flow on the buy side, you'd better be short.  The 
spouse has informed me we're 5-kids on a world tour this summer 
and it's going to cost me a fortune and I can't afford to lose my 
job!"

You then sauntered back into your office, pulled up a chart of 
the NASDAQ-100 yourself, slapped on the retracement from the 
September lows to the December highs, perhaps added a regression 
channel to signify trend and have monitored it until now.

Based on the NASDAQ-100 bullish %, what kind of conversation are 
you going to have with your 10-traders Monday morning?  I'm 
thinking "Stick with those retracement brackets gang and manage 
your risk.  If you're not getting the order flow from the SELL 
side, you'd better get back to neutral.  The spouse has informed 
me that the neighbors kids are coming along on the summer 
vacation and it's costing me a fortune and I can't afford to lose 
my job!"

NASDAQ-100 Index Chart - Daily Interval


 

With retracement to define a range from the September lows to the 
December highs (correlates with the bullish % too) the NASDAQ-100 
trader now has a way to define the NASDAQ-100, not only as it 
pertains to risk (from the bullish %) but in a numerical trading 
value for the NASDAQ-100.  With a regression trend overlaid, we 
see some technical significance that ties in directly with 
historical trading dating back to February.

Earlier I said "the NASDAQ-100 is at the same level of RISK as it 
was in early September (red 9) as defined by the bullish %.  On 
the far left of the chart, I marked September 4th, which was just 
about the time the bullish percent reading of 18% (red 9) would 
have been charted.  Notice how the NDX.X was sitting right 
on/near the 1,335 level several session later, September 10th?  
One could almost argue that the NASDAQ-100 had "sought out" that 
level as potential support.  The collapse lower came the next 
trading session, September 17th, just after the terrorist 
attacks.

That argument could be further supported as the NASDAQ-100 
attempted to hold that 1,335 in October, February and April.  
Note the more "powerful" rally from February and check it against 
the bullish % reading of 28%.  Do you see, or at least "get the 
observation" of how market action can reflect levels of bullish 
%?

If a bear is looking or anticipating such a collapse as 
experienced in late September from current levels, I think he/she 
must then be looking for a similar type of catastrophe 
experienced on September 11th.  While I'm a believer that the 
MARKET is all knowing, I do NOT believe the MARKET knows anything 
about events like those that took place on September 11th.

So if a bear has the bulk of risk right now, is there a way a 
bull can perhaps look to capitalize on a market rally in the 
NASDAQ-100 and still not get crushed should the rally not take 
place?

The answer is yes.  A trader still holding some put/short 
positions is perhaps in the best situation as any offsetting 
bullish positions in the NASDAQ-100 Trust (AMEX:QQQ) $29.74 
(depending on dollar amount weighting) creates a "synthetic 
hedge."

Let's imagine you've got some puts on individual stocks in the 
QQQ that still have some room to their bearish vertical counts 
and their relative strength is weak and they trade below their 
bearish resistance trends.  These are the stocks you and I 
perhaps feel should "outperform" to the downside if the QQQ is 
going to accomplish its bearish vertical count of $38.

Say what!  BEARISH vertical count of $25, what are you talking 
about going long or getting neutral for?  Let's look at a 
risk/reward trade setup, but lets use the p/f chart where we can 
then "tie in" with the bullish percent chart better.

NASDAQ-100 Trust (QQQ) - $1 box


 

Market makers aren't concerned about market direction.  They're 
only concerned with account/inventory risk management.  If most 
trading desks at the major institutions listened to what their 
analysts said about the markets there wouldn't be any market 
makers or institutional trading desks around.  They'd all be out 
of business or posting losses of biblical proportions if they 
didn't manage their inventory risk.

Same can be said for most traders if they disregard risk and how 
the bullish % can help them manage and trade it.

Let's once again look back and imagine you're a market maker and 
you wanted to make the "most" money from past trading in the QQQ.  
Let's benchmark back again to early September (red 9).  It's as 
god as any since the bullish % readings are now at similar 
levels.  

We don't know what might have happened in the QQQ if the 
September 11th terrorist attacks didn't happen, but the QQQ did 
achieve its bearish vertical count, just 2 days prior to the 
attacks.  With that said, did a market maker get crushed if 
he/she got their inventory to 20% long and 80% short in the QQQ 
at that point?  Heavens no.  They came out smelling like a rose.  
Heck, just two months later, that 20% they bought was actually 
profitable.

Will a bull in the QQQ get crushed form current levels?  He/she 
might if they don't implement some trade/account management 
practices.  Right now, I'm still assessing longer-term downside 
to $25 from the bearish vertical count.  Isn't it funny though 
(maybe not) how we were alerting bulls to be careful in the 
NASDAQ-100 or QQQ in December (red C) at the $40-$43 range?

You can't believe the amount of e-mail I got from the bulls 
saying we were too bearish!

Guess what the e-mail may be reading in the next day or so?  Too 
bullish is my guess. 

Let's talk about getting 25% of a market maker's inventory back 
on the bullish side of things in the QQQ.  This doesn't 
necessarily have to translate to an individual trader like you 
and I placing 25% of our $10K options trading account into a QQQ 
call.

In September (red 9) at $35.  Imagine that you put 25% of what 
you'd normally put in an options trade in a QQQ call.  How long 
did you have to "wait" for that call to show a gain?  By November 
(red B) the call was probably slightly positive or at least 
break-even (considering time erosion.)  

Here we'll talk about risk once again.  I'll argue that current 
month options are inherently "more risky" that an option that is 
dated for expiration a couple of months out.  We can perhaps use 
the past to help trade the future.  Therefore, if I'm going to 
risk 1/4 or even 1/2 of my stated trade discipline amount on a 
QQQ call, I want to at least go out to July.  I'd much prefer 
August as that would give me 3-months and tie in nicely with the 
"peak" in the QQQ of December (red 3).

Even more preferable perhaps would be the September $30 (QAVID) 
$2.65.

What does your stated trade discipline say with regards to how 
much you place in a trade?  Don't talk to me about "number of 
contracts."  10 contracts of a $5 option is twice as "risky" as 
10 contracts of a $2.50 option.  I want to know what your trade 
discipline says about how much you are allowed to risk in any one 
trade on a full position.

You'll blow yourself up as a trader (stock or option) if you're 
trades shares/contracts and not dollar amounts.

I (Jeff Bailey) have said before, I don't use stops losses with 
my option trading.  I assign myself to the potential loss before 
the trade takes place, as this assures myself I've properly 
assessed the risk/reward.

On the previous chart, I "imagined" potential near-term trading 
in the QQQ.  As we pull in some observations from the bar chart, 
we can see how the downward regression trend could serve as 
similar support as found in the Feb-March timeframe.  A "simple" 
rally on the point/figure chart would have a level near $34 
achieved.  That would have a September $30 call most likely 
trading a minimum bid of $4.00.

Should the QQQ decline to the September 2001 lows of $27 this 
week, I would then "round to full" in the exact same Sep. $30 
call.  I do NOT consider averaging down in a 1/4 or 1/2 position 
as a violation of what we teach about "never averaging down."  
Again, a trader using some trade/account management with a 
partial position has already started to reduce his/her risk in a 
bullish trade.  Besides, with the NASDAQ-100 bullish percent down 
at 20%, it's the bears that currently carry the bulk of the risk.

New market terminology comes of age

The term "Blue Chip" is an age-old term used by investors to 
describe stocks that represent large, well-established companies 
that usually pay dividends.  Subscribers are beginning to use the 
term "Red Chip" to describe the bulk of technology stock that 
continue to have a habit of dishing out disappointment to the 
bulls as the weekly statistics continue to show red numbers on a 
more regular basis.

This also has some thinking/believing we're in a "bear market."  
Well, I guess that depends on where you've been that last several 
months.  One might even say it depends where you were this week.

For the week, the Russell 2000 Index (RUT.X) gave bulls a stellar 
gain of 2.2%.  That's right!  A gain.  The "Blue Chip" Dow 
Industrials managed to shrug off some of the previous weeks 
losses and rebounded with a 1% gain of its own.  Heck, even the 
NYSE Composite (NYA.X), what some old-timer considered the "real 
market" edged higher with a 0.5% gain.

I'm getting a little tired of some media channels and anchors 
talking about the beating bulls took this week.  The S&P 500 
Index (SPX.X) didn't show a gain this week, it slipped lower by 
0.3%, but it hardly suffered the shellacking the NASDAQ Composite 
(COMPX) and narrower NASDAQ-100 (NDX.X) took this week as they 
fell 3% and 4.8% respectively.

Bear market?  Yes, for most of technology.  What we saw this week 
was a good old-fashioned "belch" from technology bulls.  I get 
the feeling that the last little bit of last year's four-course 
meal of losses has now created the feeling of indigestion.  If 
you've ever seen a sick dog, then you know what I'm talking 
about.  A sick dog usually starts salivating, then its stomach 
starts retching, just before it lays a rather unpleasant surprise 
right on the new dining room carpet.

No, it's not a pretty sight and just about enough to make one 
gag.

Plop, plop, fizz, fizz....

We talked about the NASDAQ-100 Bullish % ($BPNDX), which showed a 
reading of 25%, but Friday's action found a net-loss of 5 stocks 
to sell signals on their point and figure charts as the gut 
retching picked up.

It's rather interesting to me that we seeing such a nice round of 
selling in technology, when for the first time in over nine 
months, the economy actually added jobs!  That's right, sell them 
technology stocks just when the economy actually adds some jobs.

So why all this selling?  Because the technology bulls can't take 
the pain anymore, that's the most probable reason.  Yes, the 8-
year high unemployment rate of 6% is enough to make a bull's 
stomach queasy, but once again, there's been areas of relief and 
even select stocks with a technology theme that have done well.

Weekly market averages/sector performance


 

Forest/Paper Products (FPP.X) were this weeks winners with a 4.3% 
gain.  It's nice to see a deep cyclical group like the paper 
stocks bounce back strong and help boost the Morgan Stanley 
Cyclical Index (CYC.X) back after a four-week losing streak.

It's interesting that just as the economy begins to add some 
jobs, some of the more economically sensitive sectors that should 
benefit most from an early recovery actually show yearly gains!  
This is something we've been talking about in the last 12 months 
and it continues to show up.

Also worth noting is that the 10-year Treasury YIELD ($TNX.X) 
stayed rather steady this week and actually edged higher.  Lots 
of subscriber's have been asking just where the money is going 
since it isn't going back into the bond market at an alarming 
rate.

One area of bullishness that may be "hidden" a bit is the slight 
DIVERGENCE between the Airline Index (XAL.X) and the Dow 
Transportation Average (TRAN).  The XAL.X got hit for a 7.2% loss 
this week, but look at the broader Transportation Average (TRAN) 
showing a marginal gain of 0.8%.

As I flip through the charts of the Dow Transport components, one 
stock I'll monitor closely at the beginning of this week are 
shares of Fedex Corp. (NYSE:FDX) $51.49 -0.29%.  I want a few 
observation days, but I like the way the stock found support 
right at the $50 level.  PremierInvestor.com had profiled the 
stock as bullish in the past and if not for a tight stop and a 
brief 1-session decline, the stock performed quite well.

Fedex Corp. Chart - Daily Interval


 

Unfortunately our play list at PI didn't get the "full potential" 
from a previous bullish trade in FDX as a one-day decline 
triggered our stop just before the stock really got going.  Here 
we are about 3-months later and FDX is right back where it 
started from in January.  I'd like to see the stock hold above 
the $48 level as a trade there would have a sell signal on the 
point and figure chart canceling out the current bullish vertical 
count of $83, which has been in place since October of last year.

Roadway Corporation (NASDAQ:ROAD) $34.01 +7.35% was today's 
transport winner.  While I consider it a "trucking/ground" stock 
and Fedex (FDX) an "air/ground" transport, it's the similar 
patterns and today's bullish move from ROAD that has my 
attention.

Roadway Corporation Chart - Daily Interval


 

After a week of consolidation right at it's 50% retracement 
bracket, shares of Roadway (ROAD) made a nice move this week and 
today broke back above its 200-day moving average on strong 
volume.  Roadway's earning's warning of March 21st that it would 
post a loss of $0.08-$0.12 a share for its 1st quarter had all 
the truckers seeing some losses that day (YELL, JBHT, KNGT, 
SWFT), but for some reason (we'll eventually find out) the stock 
continues to trade rather strong.

Here's the Dow Transport components and how they traded today.  
Notice the commercial aircraft stocks like LUV, NWAC, AMR, UAL 
and DAL trading down today, but transport stocks that carry 
packages and cargo traded stronger.

Dow Transport Components - Sorted by % gain


 

When sorted by % gain on today's session, we see that the 
"truckers" were really the stocks that outperformed.  I think one 
reason that CNF Inc. (NYSE:CNF) 31.98 -2.94% didn't participate 
today was that the stock had traded strong in the previous two 
trading sessions.  CNF has also found good support in recent 
months at its 50% retracement level of $30.31, but stays range-
bound with resistance at $34.

The trade in the transports has been to buy weakness at support, 
then sell strength at resistance.  I haven't see monstrous gains 
of more than 10%, but those have been very hard to come by in 
bullish trades in recent weeks.

However.  As the group continues to consolidate, it looks as if 
weaker hands are passing stock off to stronger and more longer-
term committed hands.  As this stock "turns over" it can then 
create a supply/demand setup where the bulk of the stock is owned 
at a rather tight level and should a bullish catalyst present 
itself and sellers become few, a strong move can take place.

My goodness!  There's a four-lettered technology stock in our 
play list at PI and it's in the "bullish" section.  What's up 
with that!  

I had to go back to early March to find a 4-lettered technology 
stock in the PI bullish play list.  That was a play in Research 
in Motion (NASDAQ:RIMM) $16.40 -5.36% from the $27.32 level.  We 
actually held that silly bugger until March 20th, when the play 
was stopped at $26.49.  With the stock now at $16.40, it's 
another lesson on how important a stop loss can be when 
investing/trading.  I guess you could say the dog was salivating 
when we got stopped out, and now suffers from "motion sickness."

I have to say, I am somewhat impressed with how Applied Materials 
(NASDAQ:AMAT) $22.17 -3.06% traded Friday.  The Semiconductor 
Index (SOX.X) fell 4.72%, so there was a little bit of relative 
strength in AMAT.  As mentioned in the intra day commentary on OI 
Friday, AMAT has pulled right into its bullish support trend.  
With the NASDAQ-100 Bullish % down at 20% a lot of "risk" has 
been reduced for the bulls and AMAT is still 1 of the 20 stocks 
in the NASDAQ-100 still showing a "buy signal" on its 
point/figure chart.  From the institutional/point figure 
perspective, AMAT has had a nice little pullback. 

One thing we should note today is that AMAT and "like" 
semiconductor equipment stocks Novellus (NASDAQ:NVLS) $43.50 
-4.66% and KLA Tencor (NASDAQ:KLAC) $52.78 -4.40 tested, or came 
very close to testing their 200-day moving averages today.  
There's been quite a bit of "risk" taken out of the stocks in the 
past two-weeks as AMAT has lost about 21%, KLAC has fallen 
approximately 24% and NVLS has dropped 19% from their recent 
highs.

When enough is enough!

Bears should have looked to book some gains today in some stocks 
on Friday.  One of PI's bearish plays is perhaps indicative of 
how a market maker may also be reducing some bearish inventory 
risk.  I think the action in SERENA Software (NASDAQ:SRNA) $13.10 
+3.47%, while not indicative of the entire technology area right 
now, hints that there are definitely some bears locking in gains 
on broader tech weakness.

As profiled in the SERENA (SRNA) trade, our bearish target of 
$12.51 was achieved.  While the stock did trade as low as $12.45 
and below our target, evidently we weren't the only ones watching 
current levels closely.  

SERENA Software Chart - Daily Interval


 

It's always nice to lock in a gain ahead of the weekend and build 
a little cash in the account.  The bearish side of the play list 
is off to a nice start this month, as it should be, considering 
tech weakness.

Also closed out today on the bearish side was semiconductor stock 
DuPont Photomask (NASDAQ:DPMI) $32.32 -4.05% at the profiled 
target of $35.50.  There may be some downside left in this one to 
the bearish vertical count of $29 (tie it in with the bearish count
 in the QQQ of $25 perhaps), but the stock has fallen for 
about 5-straight sessions.  A trader that may have played AMAT 
long could have held the stock short, but a nice gain was at hand 
and that's what a trader is looking for.  Gains.

Dow Industrials just didn't have it

As mentioned earlier, the Dow Industrials did manage to edge out 
a gain this week and didn't get hit to the downside too bad 
today, loosing just 85 points on the session.  Last night we felt 
a break above the 10,120 level might spark a rally, but the 
MARKET was too fixated on this morning's 6% jobless rate.  

Dow Components Intel (NASDAQ:INTC) $26.60 -4.55%, SBC 
Communication (NYSE:SBC) $31.14 -3.97% and Microsoft 
(NASDAQ:MSFT) weighed on the index, while gains in Eastman Kodak 
(NYSE:EK) $33.65 +4.5%, McDonalds (NYSE:MCD) $29.29 +2.77% and 
Hewlett Packard (NYSE:HWP) $17.44 +2.04 helped keep the Dow above 
the 10,000 level on a closing basis.

Dow Industrials Chart - Daily Interval Chart


 

If any of the major market averages shows any technical strength 
or ability to stage a rally, then it's the Dow Industrials.  
General Motors (NYSE:GM), 3M (NYSE:MMM), Procter & Gamble 
(NYSE:PG) and Wal-Mart (NYSE:WMT) are now showing the biggest 
gains since the terrorist attacks, while SBC Communications 
(NYSE:SBC), Eastman Kodak (NYSE:EK), AT&T (NYSE:T) and General 
Electric (NYSE:GE) are now at the bottom.

Hypothetical Dow Portfolio - $1000 in each on Sept. 10th


 

The good old Dow "hypothetical portfolio" we started on September 
10th, the day before the terrorist attacks, is holding up rather 
well on a total basis with a 2.92% gain.  There's a large 
disparity between the upper 15 and lower 15.

Quick generalizations continue to have telecom in SBC $31.14 -
3.97% and T $13.86 +1.38% at the bottom.  Eastman Kodak (EK) 
$33.65 +4.50 rallied right back to its 200-day moving average 
today and may be a stock to watch for a move off the bottom.  
Conglomerate General Electric (GE) $31.70 +0.31% managed a small 
gain today and I'd like to think the weaker U.S. $ would help, 
but the MARKET just doesn't seem interested in the stock.

General Motors (GM) $65.68 -0.84% "shocked" the market earlier in 
the week reporting strong car sales and saying it would ramp up 
production.  Look for a bullish play in "like stock" Daimler 
Chrysler (DCX) $47.33 +0.55% next week in our bullish play list.  
For a "prep," traders and investors may want to go back and 
review Wednesday's market wrap and comparisons between the big 3 
automakers and their point and figure charts.

All eyes on Cisco

You can bet that technology bulls will have their eyes and ears 
open next week when networking giant Cisco Systems (NASDAQ:CSCO) 
$13.14 -3.66% is scheduled to report earnings on Tuesday, after 
the close of trading.  Analysts polled by Multex are looking for 
CSCO to report earnings of $0.09 a share.  I'm not expecting an 
earnings "surprise" from CSCO, but what most likely influence 
technology trading is what CSCO says about visibility.  

Suffice it to say, if CSCO gives negative or "lack of visibility" 
type guidance Tuesday evening, then expect a now salivating dog 
to finally cough up what's been stuck in its throat since the 
December highs.  Conversely, any bullish outlook on the future 
will most likely see a large short-covering rally as gains have 
been plentiful.

Have a great weekend!

Jeff Bailey



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

ANOTHER ROLLER COASTER WEEK
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

This week was pretty much of a roller coaster ride, similar to 
last week, but the difference was that we had a narrower weekly 
price range and there were a couple of good upswings, so that all 
the tradable swings were not just on the downside. This is a 
function of the market being oversold, not any appreciable change 
in fundamentals or investor sentiment, which has grown more 
bearish.  

On the other hand, the volatility measures of VIX and VXN are not 
showing the kind of high option volatility that we normally have 
seen at significant market bottoms. This suggests some degree of 
complacency in market outlook. Yes, we all think that the market 
will eventually recover along with the rebounding economy. 
Investors have been willing to hang on.  The only problem is that 
the market doesn't usually turn up in a substantial and sustained 
way until more investors throw in the towel -- yes, it (the 
market) is really perverse that way.  But hey, it (the market) is 
a reflection of humans joined large in the ownership marketplace.  
Strange indeed. 

Well, this week, more patient tech long-term "buy and hold" 
investors had enough and decided to give them up (their big-loss 
stocks) for whatever dollars they were bringing that day.  
Declining volume swamped upside volume -- what had to give was 
price, as some of the tech-stock biggies went sort of into free 
fall. 

In the meantime, the market has gotten oversold, but not yet on a 
longer-term basis, as can be seen from the MACD Indicator applied 
to the weekly charts shown.  
 
S&P 500 (SPX) Weekly/Hourly Charts: 


 


Another down week, but there was a rebound from the Monday lows, 
which consisted of two back to back up days in the S&P stocks. 
Hadn't seen that in awhile. The rally fell apart in mid channel, 
but the hourly chart is showing, so far, a pattern of higher 
downswing lows; isn't that the definition of an uptrend? 

Time will tell.  I know I want to be a seller/put buyer in the 
1096-1100 area. Conversely, I would buy into another early week 
sell off, especially a dip into the low 1050's. 

This type of decline is the drip method of bear markets.  Your 
stocks just erode a small amount every week or two.  

1032, which represents a 62% retracement of the September -
 January advance, looks like a next lower target if 1050 is 
exceeded on any daily close.   

S&P 100 (OEX) Weekly/Hourly Charts: 


 

THE WEEK BEFORE I WROTE: 
"Hourly work with the channel lines suggests a short-term buying 
opportunity may be close at hand as OEX approaches the lower 
boundary of the downtrend channel, which comes in around 528-530 
currently. Resistance comes in at 545, then 552."  

Hmm, buying in the 528 area worked pretty well, a couple of times 
even, but to grab some profits on those trades would require a 
more nimble trader than Jack be Quick!  For those content to just 
wait to scope up some puts, 540 is my suggested area. 

In the short-term I think there is another downswing ahead, 
possibly to new lows.  I would see a buying opportunity on a 
break to the 520 area, with 517 as the current target for new 
lows.  

The major downside potential for OEX looks like to be to 500, 
with 480 an outside possibility. Those even 100 levels attract 
more buying interest, or selling, depending on which way we are 
talking about.    


Dow Industrials ($INDU & $DJX.X) Weekly/Hourly Charts: 


 

The Dow Industrials (INDU) held above its 40-week moving average, 
although there was a slight penetration below it, before the 
weekly close.  Dow stocks that have been well bid this week 
include key consumer stocks like MCD, PG, DIS, MO, and KO.

The Dow looks to be vulnerable to another downswing early in the 
week.  I continue to suggest playing the extremes of the hourly 
down trend channel, with an emphasis toward selling, the 
direction of the dominant trend.  

DJX -
Sell in the 100.50 area; exit if there starts to be hourly closes 
above 101. 103 is my preferred area for adding to put positions. 

97, if seen, would be worthwhile for buying for a short-term 
rebound. 

The Big Picture - The Dow Weekly technicals continues point to 
the average being vulnerable to another break below 10,000. A 
move that would take the average to a new relative closing low 
below 10,000, such as 200-300 points under.  
     

Nasdaq Composite ($COMPX) Weekly/Hourly Charts:


 

We're there, as far as being at the bottom of the downtrend 
channel on the hourly chart.  While there is potential for a 
further decline of another 100 points, to the 1500 area, the 
short-term should offer the prospect of an oversold rally from 
1600 or at least the decline becomes more gradual. 

On any rebound, 1640-1642 is immediate overhead resistance.  A 
series of hourly, or daily, closes above 1642 would suggest 
stronger rally potential, such as potential up to a retest of 
resistance around 1685.   


Nasdaq 100 ($NDX.X) Weekly/Hourly Charts: 


 

The weekly chart presents a very weak trend rolling over with 
just an approach to the major down trendline. 1090, at the prior 
weekly low, becomes a possible objective now, as NDX continues to 
sink like a stone. Meanwhile, near-term, there is perhaps a 
buying opportunity for a short-term trade buying in the 1180 
area.  Minor resistance comes in at 1230. A move well over 1230, 
suggests potential back to tougher resistance in the 1280 area.

Nasdaq 100 Trust Stock (QQQ) Daily/Hourly Charts: 


 

 
Near-term, buys in the QQQ 29.50 area offer some potential for a 
rebound. The Q's are now oversold on all but a weekly basis. 
Every dog has its day, but not much upside can be estimated 
beyond 30.6 in the immediate term.  If 30.6 was well penetrated, 
potential is back up to the upper hourly channel line, where 
selling is suggested in the 32.5 area.   

27 become a longer range downside objective, which would offer a 
possible retest of the prior QQQ weekly low (not shown).  


Index Trade Recommendations 

- Informal trade guidance offered this week only 


Long/Call Positions:

Date: 
Bought; Stop or risk parameters;  
Trade Objective: 
Comments: 

Short/Put Positions: 

Date: 
Bought; Stop or risk parameters;     
Trade Objective: 
Comments:


MAJOR MARKET INDICATORS - 


 
 
Given the "extremes" in this decline, I think it likely that we 
will see a spike well into bullish territory before the market 
bottoms more conclusively such as in the late-Feb low reading (on 
left in chart, yellow circle).  Such an extreme, is at least one 
day in equities options when the put and call volume are equal or 
close to it; e.g., 1:1. In a bear market there have been extremes 
in bearish sentiment, before a market turn, when put volume was 
greater than calls.   

The other two indicators that I usually see line up at 
significant trend reversals are measures of "overbought" or 
"oversold" relating to advance/decline figures and the trend of 
daily advancing volume. We still see downward momentum in the 10-
day moving average overlays that I use for these two studies.   



 


Both indicators are now dipping into oversold territory and when 
these 10-day averages turn up from oversold readings, assuming a 
collaborative signal on my option "sentiment" indicator, a market 
trend reversal is usually starting or about to.  


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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**************
Editor's Plays
**************

Due to Jim being out of town this weekend, there are no editor’s plays!


****************
MARKET SENTIMENT
****************

Retest or Recovery?
By Eric Utley

Last week's economic releases had investors questioning the
direction of the U.S. economy.  Friday's jobs data added to the
confusion.  The unemployment rate reached an eight year high
despite non-farm payrolls rising to 43,000 during April.  The
number fell short of expectations.  Rising unemployment may
sneak over into consumer confidence for the worse, which is
probably what the market was thinking late last week.

There weren't any major company specific developments in the
technology sector last Friday to spur continued weakness there,
expect for maybe the chatter about Worldcom (NASDAQ:WCOM)
possibly seeking bankruptcy.  Other than that, it appeared that
investors deferred to the crumby macro data, and began to lose
belief in the new economy way of thinking.  (Yes, there is an
element of that line of thought still alive.)

The sector scorecard saw another day of bifurcation between the
old economy names, such as papers, and the tech sectors.  Again,
big losses were sustained in the technology sector.  Another
trend that we've seen build through the year is the upside in
gold.  Both the metal and equities traded to a new yearly high
in last Friday's session.  There may have been a defensive bid
there.

Treasuries continued trading with a bid; the benchmark 10-year
Yield (TNX.X) finished lower to 5.062%.  The weak run of
economic data has helped to ease fears of inflation, and thus
a rise in short term rates.  The Fed is now expected to stay
off the brake longer than previously thought, but we'll now
more about the Fed's action or inaction next week.

Each down day in the market makes stocks increasingly oversold.
Indeed, most oscillator type measures are at or near oversold
readings, including bullish percent, the ARMS Index, and weekly
and daily Stochastics readings.  But that doesn't mean the
market can't grow more oversold, which has happened before.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10007

Moving Averages:
(Simple)

 10-dma: 10013
 50-dma: 10285
200-dma:  9925



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1073

Moving Averages:
(Simple)

 10-dma: 1086
 50-dma: 1126
200-dma: 1127



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1191

Moving Averages:
(Simple)

 10-dma: 1274
 50-dma: 1403
200-dma: 1484



Gold and Silver ($XAU)

The falling dollar continued lending a bid to bullion.  Spot
gold traced a yearly high at $312.50 per ounce.  The move in
the metal boosted the equities to a fresh yearly high.  The
XAU was the day's best performing sector; it finished 2.61
percent higher.

Leading to the upside included shares of Harmony Gold
(NASDAQ:HGMCY), Gold Fields (NASDAQ:GOLD), Meridian Gold
(NYSE:MDG), Anglogold (NYSE:AU), and American Eagle Mines
(NYSE:AEM).

52-week High: 79
52-week Low : 49
Current     : 78

Moving Averages:
(Simple)

 10-dma: 75
 50-dma: 69
200-dma: 59


Semiconductor ($SOX)

The rout in the technology sector continued last Friday, led
lower by the SOX.  The sector lost 4.72 percent for the day,
arguably breaking down below the psychological 500 level.

Leading to the downside included shares of LSI Logic (NYSE:LSI),
Altera (NASDAQ:ALTR), Broadcom (NASDAQ:BRCM), National Semi
(NYSE:NSM), and Teradyne (NYSE:TER).

52-week High: 711
52-week Low : 344
Current     : 480

Moving Averages:
(Simple)

 10-dma: 527
 50-dma: 570
200-dma: 536

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

Market Volatility

The VIX ticked higher during Friday's weakness in stocks.  The
fear gauge added 3.79 percent to finish the week at 23.23.

The VXN'x relative strength versus the VIX was reinforced Friday
when the former broke to a new relative high, which only made
sense because the NDX broke to a new relative low.  At this point,
the VXN is confirming the weakness in the NDX, but it's not to an
extreme level yet...

CBOE Market Volatility Index (VIX) - 23.23 +0.85
Nasdaq-100 Volatility Index  (VXN) - 46.26 +1.74

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.91        571,200       522,569
Equity Only    0.82        487,584       401,677
OEX            0.99         15,036        14,861
QQQ            1.11         80,143        88,833

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

Bullish Percent Data

           Current   Change   Status
NYSE          63      + 0     Bull Confirmed
NASDAQ-100    20      - 5     Bear Confirmed
DOW           47      - 3     Bear Confirmed
S&P 500       60      - 1     Bear Alert
S&P 100       53      - 1     Bear Alert

Bullish percent measures the number of stocks in an index 
currently trading on a buy signal on their point and figure 
chart.  Readings above 70 are considered overbought, and readings 
below 30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - Pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

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

 5-Day Arms Index  1.44
10-Day Arms Index  1.48
21-Day Arms Index  1.39
55-Day Arms Index  1.26

Extreme readings above 1.5 are bullish, and readings below .85 
are bearish.  These signals don't occur often and tend be early, 
but when the do, they can signal significant market turning 
points.

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

Market Internals

        Advancers     Decliners
NYSE      1643           1475
NASDAQ    1578           1886

        New Highs      New Lows
NYSE      257             58
NASDAQ    193            137

        Volume (in millions)
NYSE     1,297
NASDAQ   1,777

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

Commitments Of Traders Report: 04/30/02

Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the 
Chicago Mercantile Exchange and Chicago Board of Trade. COT data 
can be found at www.cftc.gov.

Small specs are the general trading public with commercials being 
financial institutions. Commercials are historically on the 
correct side of future trend changes while small specs tend 
to be wrong.  

S&P 500

Commercials grew less bearish again during the most recent
reporting period by adding more longs than shorts.  It was the
third week of decreased bearishness for the S&P commercials.
Meanwhile, small traders grew less bearish by adding more
short positions.

Commercials   Long      Short      Net     % Of OI 
04/09/02      320,101   411,075   (90,974)  (12.4%)
04/16/02      322,578   411,245   (88,667)  (12.1%)
04/30/02      340,936   421,673   (80,737)  (10.6%)

Most bearish reading of the year: (111,956) -   3/6/01
Most bullish reading of the year: ( 36,481) - 10/16/01

Small Traders Long      Short      Net     % of OI
04/09/02      151,237     47,678  103,559     52.1%
04/16/02      150,529     50,424  100,105     49.8%
04/30/02      153,158     56,372   96,786     46.2%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 107,702 - 3/26/02
 
NASDAQ-100

Nasdaq commercials grew less bearish by adding a number of
long positions last week.  The group is still net bearish, but
growing less so with each week.  On the other side, small
traders slipped from a net bullish to a net bearish position.

Commercials   Long      Short      Net     % of OI 
04/09/02       28,985     35,221    (6,236)   (9.7%)
04/16/02       32,024     35,723    (3,699)   (5.5%)
04/30/02       34,591     35,933    (1,342)   (9.7%)

Most bearish reading of the year: (15,521) -  3/13/01
Most bullish reading of the year:   7,774  - 12/21/01

Small Traders  Long     Short      Net     % of OI
04/09/02       11,640     8,353     3,287     16.4%
04/16/02       12,458    10,572     1,878      8.2% 
04/30/02       12,271    12,703     (432)      1.7%

Most bearish reading of the year:  (9,877) - 12/21/01
Most bullish reading of the year:   8,460  -  3/13/01

DOW JONES INDUSTRIAL

Commercial traders reduced their net bullish position again during
the most recent reporting period.  The group grew less bullish
by dropping more longs than shorts.  Meanwhile, small traders went
in the opposite direction by reducing their net bearish position.

Commercials   Long      Short      Net     % of OI
04/09/02       19,393    13,445    5,948     16.7%
04/16/02       19,080    14,267    4,813     14.4% 
04/30/02       17,275    13,341    3,934     12.8%

Most bearish reading of the year: (8,322) -  1/16/01
Most bullish reading of the year: 15,135  - 10/16/01

Small Traders  Long      Short     Net     % of OI
04/09/02        5,459     9,340    (3,881)   (26.2%)
04/16/02        5,644     9,448    (3,804)   (25.2%) 
04/30/02        5,813     8,869    (3,056)   (20.8%)

Most bearish reading of the year:  (8,777) - 10/12/01
Most bullish reading of the year:   1,909  -  1/16/01

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


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***************
ASK THE ANALYST
***************

NDX Issues
By Eric Utley

I keep thinking that we're closer to a bottom in the Nasdaq types
because of the removal of so much downside risk during the last
few weeks.  But that thinking has been wrong!  Very wrong!  In
the short run, psychology trumps technicals.  Psychology is
influenced by myriad factors, and can shift quickly.  That's
why heeding risk levels is so important, no matter the prevailing
sentiment.

I think that a lot of downside risk has been removed from the
Nasdaq names judging by the NDX bullish percent, which fell
below 30 -- an oversold benchmark -- last week for the first time
since February.  Oversold markets, however, can always become
more so, which is what's happening now.  Part of the increasing
oversold nature of the Nasdaq is attributable, in my view, to two
sectors: Semiconductor and Biotech.  Let's take a closer look...

The point and figure charts that appear in this column were
created using www.StockCharts.com.

Please send your questions and suggestions to:

Contact Support 

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

Biotechnolgy

There are 18 biotech names in the Nasdaq-100.  The index hasn't
always been so biotech heavy.  Last fall, the people who decide
what goes into the Nasdaq picked a load of biotech shares to
replace the dozen beaten down Internet and telco names.  As it
turns out, betting on biotech was a bad call.

I've written about the AMEX Biotechnology Index (BTK.X)
extensively in this column, as well as through Intraday Updates
and the Market Monitor.  Through those previous observations, I
established that the 450 level was quite important as support
from an institutional perspective.  That level was broken about
a week ago, and the BTK.X has fallen apart since then.  With
450 now acting as resistance in a very big way, the remaining
level of support in the BTK.X is 400, around which the index
flirted late last week.  The 400 level won't be broken until a
print at 375.00.  But if that happens, lookout below, because
I don't see support until 250 -- that's where the downside risk
lies.

BTK.X - 25 Point Box


 

I don't think we'll see if next week, but if the BTK.X does
fall below 375.00, then the NDX could grow a lot more oversold
as psychology will be stretched to the bearish camp.  A move
below 375.00, if it comes, will be very tradable to the
downside, using some of the weaker components of the BTK.X as
the trading vehicle, or an ETF such as the Biotech HOLDRs
(AMEX:BBH).

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

Semiconductor

Chips have long been a part of the Nasdaq-100.  Obviously the
bigger names such as Intel (NASDAQ:INTC) and Applied
Materials (NASDAQ:AMAT) are among the bellwethers of the tech
heavy index.  Some smaller, niche names are among the chips
included in the NDX, such as PMC-Sierra (NASDAQ:PMCS).

Back in early February, I wrote about the January Effect as
it related to sectors.  The SOX.X was one of the few tech
sectors to finish in the top ten performers during January,
perhaps foreshadowing a better year for the index at the time.
I think the SOX.X's performance during January helped to lend
the bid that stuck with the group through most of March, and
into late April.  But the belief, or maybe the hope, that the
chips would carry the tech sector through this downturn is
eroding.  We've seen a significant shift in relative strength
over the last month, notably the sentiment has shifted away
from the chips.

The 400 level to the BTK.X is the 500 level to the SOX.
Depending on which perspective you use, the SOX may or may
not have broke down below 500 last week.  The smaller views
will reveal that the SOX did in fact breakdown.  But using
the same bigger view that we did in the BTK, the SOX is
still trading above the 500 level.  A breakdown would only
come after a print at 475.00.  But from there, and as the
chart below reveals, there's the potential for support to
form at the 450.00 level -- at the bullish support line.  If
the bullish support is broken, then risk shifts down to the
September low at 350.00.

SOX.X - 25 Point Box


 

Trading around the SOX.X from here will most likely depend
on your unique style and risk tolerance.  For instance, a
short/put can be tried on a breakdown below 475.00, while a
long/call trade might be trade near the 450.00 level.  Either
way, the SOX.X will tell us a lot about the future direction
of the NDX.  And like the BTK, traders can use the Semi HOLDR
(AMEX:SMH) as a trading vehicle, or one of the components
that track it closely such as Intel.

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

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


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

-----------------------------------------------------------------
Major Earnings This Week...
-----------------------------------------------------------------

Symbol  Company               Date           Comment      EPS Est

BMC    BMC Software           Mon, May 06  Before the Bell   0.11
CEPH   Cephalon               Mon, May 06  After the Bell    0.15
CHD    Church & Dwight        Mon, May 06  Before the Bell   0.32
ABV    Companhia Bebidas Am   Mon, May 06  Before the Bell   0.19
MAS    Masco                  Mon, May 06  -----N/A-----     0.29
PRE    PartnerRe              Mon, May 06  After the Bell    1.30
PPS    Post Properties        Mon, May 06  After the Bell    0.72
PVN    Providian Financial    Mon, May 06  After the Bell    0.02
QGENF  QIAGEN                 Mon, May 06  After the Bell    0.07
SKM    SK Telecom             Mon, May 06  Before the Bell    N/A
SKE    Spinnaker Exploration  Mon, May 06  -----N/A-----     0.20
WRC    Westport Resources     Mon, May 06  -----N/A-----    -0.25

ATVI   Activision             Tue, May 07  After the Bell    0.11
AEG    AEGON N.V.             Tue, May 07  Before the Bell   0.41
ALS    Alstom SA              Tue, May 07  Before the Bell    N/A
AMH    AmerUs Group           Tue, May 07  After the Bell    0.86
RMK    ARAMARK Corporation    Tue, May 07  -----N/A-----     0.17
ASN    Archstone-Smith Trust  Tue, May 07  Before the Bell   0.52
CSCO   Cisco Systems          Tue, May 07  After the Bell    0.09
CCU    Clear Channel Comm     Tue, May 07  Before the Bell   0.08
CPWR   Compuware              Tue, May 07  After the Bell    0.07
CCRN   Cross Country, Inc.    Tue, May 07  -----N/A-----     0.20
CRWN   Crown Media Holdings   Tue, May 07  Before the Bell  -0.56
DEG    Delhaize Group         Tue, May 07  -----N/A-----      N/A
HAL    Halliburton            Tue, May 07  Before the Bell   0.19
HSIC   Henry Schein           Tue, May 07  Before the Bell   0.42
HSP    Hispanic Brdcstng Cmp  Tue, May 07  Before the Bell   0.05
LAMR   Lamar Advertising      Tue, May 07  After the Bell   -0.21
LM     Legg Mason             Tue, May 07  Before the Bell   0.66
CLI    Mack Cali Realty       Tue, May 07  Before the Bell   0.92
MBI    MBIA                   Tue, May 07  Before the Bell   1.04
MDG    Meridian Gold          Tue, May 07  After the Bell    0.16
MET    Metropolitan Life Ins  Tue, May 07  Before the Bell   0.58
MNY    MONY Group             Tue, May 07  -----N/A-----     0.24
NJ     Nidec                  Tue, May 07  -----N/A-----      N/A
PC     Perez Companc          Tue, May 07  -----N/A-----    -0.73
PAA    Plains All Am Pipline  Tue, May 07  Before the Bell   0.32
PRU    Prudential Financial   Tue, May 07  After the Bell    0.47
QLGC   QLogic                 Tue, May 07  After the Bell    0.20
SPP    Sappi Ltd ADS          Tue, May 07  Before the Bell   0.22
STO    Statoil ASA            Tue, May 07  Before the Bell    N/A
TI     Telecom Italia         Tue, May 07  Before the Bell    N/A
TSP    Telecomunicações São   Tue, May 07  -----N/A-----     0.31
TMPW   TMP Worldwide          Tue, May 07  After the Bell    0.14
TZH    Trizec Hahn            Tue, May 07  Before the Bell   0.57
UNM    UnumProvident          Tue, May 07  After the Bell    0.63
WMI    Waste Management       Tue, May 07  -----N/A-----     0.26
HLTH   WebMD                  Tue, May 07  After the Bell    0.01
WON    Westwood One           Tue, May 07  Before the Bell   0.14

ARG    Airgas                 Wed, May 08  After the Bell    0.20
ARI    Arden Realty           Wed, May 08  After the Bell    0.73
ANZ    Aust&New Zelnd Bank    Wed, May 08  After the Bell     N/A
BBV    Bnco Blbao Vizcaya Arg Wed, May 08  Before the Bell    N/A
BRL    Barr Laboratories      Wed, May 08  Before the Bell   0.83
VNT    C. A. Nac Tele Ven     Wed, May 08  -----N/A-----     0.32
CAMT   Camtek                 Wed, May 08  -----N/A-----    -0.18
CED    Canadian Natural Res   Wed, May 08  Before the Bell   0.44
CM     Coles Myer             Wed, May 08  After the Bell     N/A
CCI    Crown Castle Inter     Wed, May 08  After the Bell   -0.46
CVS    CVS                    Wed, May 08  Before the Bell   0.43
DF     Dean Foods Company     Wed, May 08  Before the Bell   0.54
DYS    Distribucion y Servic  Wed, May 08  -----N/A-----     0.15
E      ENI SpA ADR            Wed, May 08  -----N/A-----      N/A
ENZN   Enzon                  Wed, May 08  -----N/A-----     0.26
EXPD   Expeditors Int WA      Wed, May 08  After the Bell    0.39
FST    Forest Oil             Wed, May 08  After the Bell   -0.05
GALN   Galen Holdings PLC     Wed, May 08  Before the Bell   0.22
JBX    Jack in the Box        Wed, May 08  Before the Bell   0.44
LQI    LA QUINTA PPTYS        Wed, May 08  Before the Bell  -0.02
MME    Mid Atlantic Med Serv  Wed, May 08  -----N/A-----     0.42
MYL    Mylan Laboratories     Wed, May 08  Before the Bell   0.50
PSC    Philadelphia Suburban  Wed, May 08  Before the Bell   0.17
PIXR   Pixar                  Wed, May 08  After the Bell    0.23
PFG    Principal Fin Grp      Wed, May 08  Before the Bell   0.51
REG    Regency Centers Corp   Wed, May 08  After the Bell    0.66
SRV    Service Corp Int       Wed, May 08  After the Bell    0.12
SPG    Simon Property Group   Wed, May 08  After the Bell    0.79
TDK    TDK                    Wed, May 08  -----N/A-----      N/A
TRLY   Terra Lycos, S.A.      Wed, May 08  During the Market-0.05
TMBR   Tom Brown              Wed, May 08  After the Bell   -0.12
TGH    Trigon Healthcare      Wed, May 08  Before the Bell    N/A
WPI    Watson Pharmaceutical  Wed, May 08  Before the Bell   0.34
WTM    White Mount Ins Grp    Wed, May 08  -----N/A-----      N/A
WFMI   Whole Foods Market     Wed, May 08  -----N/A-----     0.33

ATK    Alliant Techsystems    Thu, May 09  Before the Bell   1.02
BRG    BG Group               Thu, May 09  Before the Bell    N/A
CNA    CNA Financial Corp     Thu, May 09  Before the Bell   0.50
CEI    Crescent Rl Es Eq Co   Thu, May 09  Before the Bell   0.45
ERTS   Electronic Arts        Thu, May 09  After the Bell    0.28
EVC    Entravisions Comm Corp Thu, May 09  After the Bell   -0.04
HCC    HCC Insurance Holdings Thu, May 09  After the Bell    0.39
HB     Hillenbrand Industries Thu, May 09  Before the Bell   0.85
JS     Jefferson Smurfit      Thu, May 09  -----N/A-----     0.30
LTR    Loews                  Thu, May 09  Before the Bell   1.24
NAB    National Australia Bk  Thu, May 09  -----N/A-----      N/A
NXL    New Pln Excel Rlty Tst Thu, May 09  -----N/A-----     0.44
OCA    Orthodontic Cent of Am Thu, May 09  Before the Bell   0.36
PCO    Premcor U.S.A.         Thu, May 09  Before the Bell    N/A
PDLI   Protein Design         Thu, May 09  After the Bell    0.01
PRS    Pure Resources, Inc.   Thu, May 09  Before the Bell  -0.14
RSA    Royal&Sun All Ins Grp  Thu, May 09  Before the Bell    N/A
SHU    Shurgard Storage       Thu, May 09  Before the Bell   0.67
NZT    Telecom New Zealand    Thu, May 09  After the Bell     N/A
UBB    Unibanco               Thu, May 09  Before the Bell   0.71
UVN    Univision Comm         Thu, May 09  After the Bell    0.01
WGR    Western Gas Resources  Thu, May 09  Before the Bell   0.21
ZL     Zarlink                Thu, May 09  Before the Bell  -0.09

BSY    BritishSky Brdcstng    Fri, May 10  Before the Bell    N/A
FS     Four Seasons Hotels    Fri, May 10  Before the Bell   0.13
ICCI   Insight Communications Fri, May 10  -----N/A-----    -0.41
MGA    Magna International    Fri, May 10  -----N/A-----     1.67
MITSY  Mitsui & Co Ltd        Fri, May 10  -----N/A-----      N/A
ORH    Odyssey Re Holdings    Fri, May 10  -----N/A-----     0.27

=================================================================
Upcoming Stock Splits This Week & Next...

Symbol  Company Name              Ratio    Payable     Executable

ABM     ABM Industries            2:1      05/03       05/06
TJX     TJX Companies             2:1      05/08       05/09
MCHP    Microchip Technology      3:2      05/08       05/09
PNG     Penn-America Group        3:2      05/08       05/09
WSM     Williams Sonoma           2:1      05/08       05/09
CATY    Cathay Bancorp            2:1      05/09       05/10
WTSLA   The Wet Seal Inc          3:2      05/09       05/10
LH      Laboratory Corp           2:1      05/09       05/10
FAST    Fastenal                  2:1      05/10       05/13
IFNY    INFINITY Inc              2:1      05/10       05/13
BBY     Best Buy                  3:2      05/10       05/13
STZ     Constellation Brands      2:1      05/13       05/14
CNTL    Cantel Ind                3:2      05/14       05/15
EPD     Enterprise Products       2:1      05/15       05/16
FULT    Fulton Financial          5:4      05/17       05/20
VLY     Valley National Bancorp   5:4      05/17       05/20
ANN     Ann Taylor                3:2      05/17       05/20
OCFC    OceanFirst Financial      3:2      05/17       05/20
MAXS    Maxwell Shoe Co           3:2      05/17       05/20
YORW    York Water Co             2:1      05/17       05/20
LLL     L-3 Communications        2:1      05/17       05/20


=================================================================
Economic Reports

Wow, we've got one heck of a week in front of us.  While Wall
Street is still wrapping up earnings, Tuesday could be a day for
volatility with the Wholesale Inventories report and the FOMC 
meeting.  Plus, after the close on Tuesday, CSCO is expected
to announce earnings which could set the tone of the tech sectors
for the rest of the week.  On Friday, analysts will be watching
for the PPI report.

=================================================================

Monday, 05/06/02
None

Tuesday, 05/07/02
Productivity-Prel (BB)    Q1  Forecast:   7.0%  Previous:    5.2%
Wholesale Invntries (DM) Mar  Forecast:  -0.4%  Previous:   -0.7%
FOMC Meeting (DM)
Consumer Credit (DM)     Mar  Forecast:  $7.0B  Previous:   $7.1B

Wednesday, 05/08/02
None

Thursday, 05/09/02
Initial Claims (BB)    05/04  Forecast:   407K  Previous:    418K
Export Prices ex-ag.(BB) Apr  Forecast:    N/A  Previous:    0.2%
Import Prices ex-oil(BB) Apr  Forecast:    N/A  Previous:    0.0%
FOMC Minutes (DM)      03/19

Friday, 05/10/02
PPI (BB)                 Apr  Forecast:   0.4%  Previous:    1.0%
Core PPI (BB)            Apr  Forecast:   0.1%  Previous:    0.1%


Definitions:
DM=  During the Market
BB=  Before the Bell
AB=  After the Bell
NA=  Not Available


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Sunday                                                      2 of 5



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**********************
INDEX TRADER GAMEPLANS
**********************

THE SECTOR BEAT - 5/5
by Leigh Stevens


SECTOR ACTIVITY/OUTLOOK:

There were no new "themes" this week in terms of sectors doing 
well or not doing well.  The same areas: consumer stocks like 
MAC, KO, PG, MO, DIS and EK continue to have good momentum and 
buying interest.  One of the reasons that the Dow 30 (INDU) -- 
"Industrials" seems outmoded! - continues to hold up better than 
it "ought" to, is the number of these type stocks in that 
average.  Plus, GM (Autos), plus IP, (in the strong Forest & 
Paper Products sector), etc.  Lately, even HWP has rebounded 

Fri.5/3-Sector or Market -----close-amt-percent


 

So what investment "themes" do we have in the top five on Friday.  
We don't have the Health Care Index ($HMO.X), but it just 
happened to succumb to a bout of profit taking this week and was 
down slightly on the week.  More on HMO shortly. The continued 
strong sectors up the most at week's end were Papers, Precious 
Metals, Oil and small caps (as reflected in the Amex Composite). 
     


SECTOR TRENDS AND TRADING IDEAS - 

Healthcare Payors Index ($HMO.X): 


 

Suggest purchase of Oxford Health Plans (OHP) on pullbacks, stock 
or deferred OTM calls, to the 40-41.00 area; OR, after a 
correction of the HMO Index back to the lower end of its daily 
uptrend channel around 570.  


HOW LOW CAN THEY GO?


 
 
Look like 456 area, with slippage to 450, intraday, is the best 
case for the bulls.  456 is a 62% retracement -- last hope for a 
bullish retracement only expectation.  Instead, given a 
confirming close under 450, SOX could be headed to a 100% 
retracement BACK to the rally starting point in the 365 area.

 
TIME TO PLAY WITH THE GLITTER?


 

I've been looking at the XAU again and again to see what there is 
technically that could explain the strength in the metals.  I 
don't know the fundamentals well enough to make an intelligent 
analysis of the prospects of this sector to continue to move 
strongly higher.  Mining companies like Newmont Mining (NEM) 
would be my preferred vehicle of choice to play this sector 
strength. 

Looking at the Weekly XAU chart, a very bullish rounding bottom
 over 2 years duration suggest to me now that the "base" for this
 rally is quite large and can "support" a double, by XAU going from
 50 to 100, or over time up toward the wide upper channel boundary.
 Near-term resistance in XAU may be at hand, based on its arrival at
 the more narrowly drawn uptrend channel.  

I would buy NEW at 28.50 or better, stock or Sept. calls, with a 
stop out point, a close under 25.00 


>> DRG, the Pharmaceutical sector index ($DRG.X), (4/22 comment). 
Rebounding from low end of a probable trading range and oversold.  
Moreover, investor attention may focus on DRB due to strength in 
other healthcare areas.
  
DRG sector may be playable by the purchase of the May 60 Merck 
(MRK EL) calls, a prominent stock in this sector, especially on a 
pullback in the stock.

UPDATE: Suggested purchase of the 6o calls on 5/2 - May was original 
suggestion, better now would to go out to June. 


LONG/CALL TRADES, PREVIOUSLY RECOMMENDED:

>> Internet Sector index ($INX.X) - 4/17 Sector Trader 
suggestion: OPTION play: JNPR (Juniper Networks) May 15 Calls 
(JUX EC).JNPR objective is to $18, based on the stock having 
potential to retrace half of the Dec - Feb. downswing.

The May 12.5's (JUX EV) Calls were also recommended. 

UPDATE: Stock is not performing as expected - 
STOP or EXIT below 9.00, especially on a closing basis 


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

UPDATE: AA is rebounding some - SELL at 35.00 

CYC broke technical support recently and AA fell to low end of 
its trading range at $33.30, but is off these lows. HOLD only.   


>> Airline sector ($XAL.X) - 4/15 Sector Trader suggestion:
OPTION PLAY: XAL sector stock Southwest Airlines (LUV) 
Sept. 20 (LUV ID) call suggested at 1.25 or less.  
OBJECTIVE: $22 based on a rebound back toward the high end of the 
current uptrend channel.



 

Both the Airline Index and the sector player chosen, LUV, are 
nearing key support. If the sector and the stock hold these 
levels we can stay with a long play in Southwest and see what 
develops.  A break of these levels, would cause my EXIT with 
options with remaining value. 


>> Utilities Index - Holders trust shares (AMEX: UTH) 
Long at 95.25 
Stop: 91.00



OPEN SHORTS/PUT PLAYS:

>> RTH (AMEX: Retail sector trust stock)
SHORT at 99.00 
Stop: 100 


LIQUIDATIONS:

 


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


***********************************************************
DAILY RESULTS
***********************************************************

Please view this in COURIER 10 font for alignment
*************************************************

CALLS              Mon    Tue    Wed    Thu   Week

DGX      94.91   -1.05   1.89   2.86   0.05   3.86  Super strong
SII      74.34   -0.64  -0.61   1.41   1.84   3.05  Working higher
THC      73.60   -2.78   1.67   0.29  -0.31  -0.88  Consolidating
SRCL     72.10    0.09   0.98   1.46   2.51   5.90  Super star!!!
FISV     43.56   -0.44   1.62   0.32  -0.62   0.18  Dropped
WM       39.35   -0.29   1.00   0.43   1.29   2.33  Watching rates
RTN      43.75    0.52   2.24   0.10   1.35   3.74  Bumping at $44
EXPE     84.03   -4.68   3.08   0.92   1.40   1.59  New, running

PUTS

MU       22.61    0.45  -2.75   1.00  -1.34  -3.39  Going to $20
ADI      34.43   -0.49   1.21  -0.16  -0.64  -1.81  Big breakdown
PLCM     20.38   -0.08   1.69   0.00   0.29   1.37  Stalling $21
LRCX     23.85   -0.19   0.63  -0.08  -1.00  -1.32  Watch 200-dma
SEBL     21.16    1.09   0.51  -1.03  -1.51  -1.43  Another low
VRTS     25.90    2.03   0.09  -0.44  -1.88  -0.32  Breaking too!
FLIR     39.65   -1.18  -2.41  -0.62  -1.26  -3.92  Short covering
GS       78.55   -0.40   0.25   0.46   1.50  -0.60  Rolled over!!
QLGC     41.56   -0.64   2.49  -1.23  -2.02  -2.30  New, breaking
IDPH     50.87   -2.13   2.43  -0.80  -1.72  -3.78  New, bio gone


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

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

EXPE - Expedia $84.03 (+1.59 last week)

See details in play list




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

QLGC - QLogic $41.56 (-2.30 last week)

See details in play list





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

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


CALLS
^^^^^

FISV $43.56 (+0.18) The pressure from the broader markets finally
caught up with FISV in the last two days of last week's weak
trading for stocks.  The stock rolled over in Thursday's and
Friday's sessions, giving up much of the relative strength that
we were initially attracted to.  Instead of waiting around for a
breakdown in this one, we're jumping ship early in favor of better
bullish plays.  Look for a bid next Monday to cut losses short.


PUTS
^^^^

None


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

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

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

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

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

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

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


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

Please read our disclaimer at:
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**************************************************************
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The Option Investor Newsletter                   Sunday 05-05-2002
Sunday                                                      3 of 5


************************Advertisement*************************
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offers true direct access to each option exchange offers stop and 
stop loss online option orders offers contingent option 
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**************
NEW CALL PLAYS
**************

EXPE - Expedia $84.03 (+1.59 last week)

Expedia, Inc. is a provider of branded online travel services for
leisure and small business travelers. The Company operates full
service travel agency Websites targeted at customers in a number
of geographies. The Company operates Expedia.com in the United
States; Expedia.co.uk in the United Kingdom; Expedia.de in
Germany; and Expedia.ca in Canada. The Company also operates the
Travelscape.com, LVRS.com, VacationSpot.com and Rent-a-Holiday.com
websites.

The online travel business is booming.  And this company is in
the sweet spot of the business.  Expedia is hitting on all
cylinders, and then some.  The company recently posted a first
quarter profit that surpassed even the most bullish of
expectations.  The company's results were boosted by strong sales
of vacation and hotel packages sold online.  Not only did the
company handily surpass consensus estimates, but it raised
guidance for the remainder of this year.  The company is
expected to grow by about 30 percent this year, and that much is
attractive to fund managers have a difficult time finding growth
in this market and economic environment.  The simple fact that
Expedia is growing at such a healthy clip in such a poor
environment makes its shares very attractive to the money
management crowd, who have been pouring in and will continue to
do so through the summer travel season.  Traders looking to jump
into this momentum favorite next week can look for an advance
above the $85 level.  Such a move would reveal a breakout and
inspire the bulls to carry shares higher.  Those who would
rather wait for a pullback can look for a retreat down into the
$80 support area, where the buyers have been walking this stock
up for about five days now.  Our stop is initially in place at
$77.

***May contracts expire in two weeks***

BUY CALL MAY-80 UED-EP OI=1318 at $6.40 SL=4.50
BUY CALL MAY-85*UED-EQ OI=1351 at $3.30 SL=1.50
BUY CALL JUN-85 UED-FQ OI= 257 at $6.50 SL=4.50
BUY CALL JUN-90 UED-FR OI= 281 at $4.40 SL=2.75

Average Daily Volume = 1.51 mln



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and clicking on the link to the book on its home page.

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


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

SII - Smith International $74.34 (+3.05 last week)

Smith International, Inc. is a worldwide supplier of premium
products and services to the oil and gas exploration and
production industry, the petrochemical industry and other
industrial markets. The Company provides a comprehensive line
of technologically-advanced products and engineering services,
including drilling and completion fluid systems, solids-control
equipment, waste-management services, three-cone and diamond
drill bits, fishing services, drilling tools, underreamers,
casing exit and multilateral systems, packers and liner
hangers.

The Oil Service Sector Index (OSX.X) capped off a stellar late
week rally last Friday by tracing another new relative high in
its upward trend.  The OSX.X traded as high as 112.74 before
pulling back on an intraday basis.  The index is currently
trading near a 10 month high, hovering near levels not seen
since last June.  The strength of the broader energy group is
impressive indeed, and being helped by the higher crude prices,
which edged up in last Friday's trading.  The black stuff goes
for about $26.62 per barrel, and further strength from here
in oil will only add to the momentum we've witnessed in the
OSX.  As for SII, it's one of the strongest components of the
OSX, but it will still track its index and the broader energy
sector was we move into next week's trading.  If the trend
continues in the energy sector, we should see SII move towards
the $80 level over the next month or two.  That means we'll
be looking for pullbacks to support for entry points into the
stock's strong upward trend.  At this point in the trend, we'd
look to get long calls near the ascending 10-dma, which sits
below market at the $70.70 mark.  A few days of consolidation
near that level would remove some of the downside risk, and
allow for new entries into the play.  Until then, make sure to
tighten stops on open positions to protect those profits!

***May contracts expire in two weeks***

BUY CALL MAY-70*SII-EN OI= 378 at $5.50 SL=3.50
BUY CALL MAY-75 SII-EO OI=1729 at $2.20 SL=1.00
BUY CALL JUN-70 SII-FN OI=  19 at $7.40 SL=4.75
BUY CALL JUN-75 SII-FO OI= 157 at $4.50 SL=2.25

Average Daily Volume = 1.22 mln
 


SRCL - Stericycle $72.10 (+5.90 last week)

Stericycle, Inc. is a regulated medical waste management company
in North America, serving approximately 269,000 customers
throughout the United States, Canada, Puerto Rico and Mexico.
Stericycle's services and operations are comprised of collection,
transportation, treatment, disposal and recycling, together with
related training and education programs, consulting services and
product sales.

Last week, SRCL helped to build the growing bullish sentiment
in the broader health care segment.  Even though the company is
near the bottom of the health care market, it's benefiting
from the robust outlook and business conditions.  After
breaking out above its March highs near the $68 level, SRCL
went on to take out the $70 mark, trading as high as $73.85
in Thursday's session.  Friday's trading was one of pulling
back, which helped to consolidate the big rally from earlier in
the week.  The stock traced a big inside day, which was easy due
to the wide trading range put in during Thursday's volatile
session.  Volume was definitely on the light side, which was
another encouraging sign of consolidation.  Nevertheless, the
stock spent the better part of Friday's session trading in
positive territory, which was another positive that we were
happy to observe.  The buyers definitely remain in control of
this one as evidenced by the positive trading in light of
Friday's ugly market.  Still, as traders, we need to be
careful of a deeper pullback going into next week's trading.
The stock is a bit extended to the upside on its longer
term charts, such as the weekly view.  It has had the tendency
to trade to a new relative high, then pullback, in a rolling
stock fashion.  In order to protect against any consolidation
based pullback next week, traders can set a relatively tight
stop to protect profits.  One level to focus on is the intraday
low set during Thursday's session, which is at the bottom of
the inside day previously mentioned.  That level is at $69.40,
which is still a distance away from Friday's close.  Another
possible approach is to take off partial positions on any
further strength above last Friday's high.  We'll start looking
for new entries on a light volume multi day pullback down to the
$69 to $70 support area.

***May contracts expire in two weeks***

BUY CALL MAY-65*URL-EM OI=521 at $8.00 SL=6.50
BUY CALL MAY-70 URL-EN OI=509 at $3.60 SL=1.75
BUY CALL JUN-65 URL-FM OI= 18 at $9.20 SL=6.75
BUY CALL JUN-70 URL-FN OI= 49 at $5.90 SL=4.00

Average Daily Volume = 286 K



WM - Washington Mutual $39.35 (+2.33 last week)

Washington Mutual Inc. is a financial services company committed
to serving consumers and small to mid-sized businesses. Through
its subsidiaries, Washington Mutual engages in the following
lines of business: consumer banking, mortgage banking, commercial
banking, financial services and consumer finance. The Company's
principal banking subsidiaries are Washington Mutual Bank, FA,
Washington Mutual Bank and Washington Mutual Bank fsb.

As we detailed in the first write of the WM play, the stock is
closely linked to the direction of interest rates.  That
includes both long and short term rates, which are linked to
different sources.  Short term rates are set by the Federal
Reserve, while longer term rates are set by the market.  The
recent round of economic data seem to suggest that the Fed
will remain on hold for longer than the market initially
expected.  Longer term rates are revealing a similar
sentiment.  The benchmark 10-year Note has been moving
steadily higher over the last month, and appears poised for
another breakout possibly next week.  Readers can track the
progress of the Note by monitoring the 10-year yield (TNX.X),
keeping in mind that yield moves inverse to price.  The TNX
is looking like it's ready to breakdown below the 50.00 to
50.50 level as last week's highs were set sequentially lower.
A declining yield would work in the favor of our WM play,
which is why it's very important to monitor the Treasury
market when tracking the WM play.  Specific to WM, the stock
has some historical congestion just below the $40 level.
Without a big breakout in the Note, WM may spend some time
consolidating its recent rally below the $40 level.  On the
other hand, a breakout in the Note should allow WM to clear
the $40 level, and go on to trend towards the $45 mark.  Watch
the bond market closely, and trade the WM's levels accordingly.

***May contracts expire in two weeks***

BUY CALL MAY-37 WM-EU OI=   1 at $2.15 SL=1.00
BUY CALL MAY-40*WM-EH OI=2290 at $0.60 SL=0.25
BUY CALL JUN-37 WM-FU OI= 105 at $2.65 SL=1.25
BUY CALL JUN-40 WM-FH OI= 835 at $1.15 SL=0.50

Average Daily Volume = 3.92 mln


DGX – Quest Diagnostics $94.91 (+3.86 last week)

Quest Diagnostics was the result of a 1996 Corning spinoff,
and currently holds the title of the world's #1 clinical
laboratory.  DGX performs more than 100 million routine tests
annually, including cholesterol, HIV, pregnancy, alcohol, and
pap smear tests.  Operating laboratories throughout the US and
in Brazil, Mexico, and the UK, DGX also performs esoteric
testing (complex, low-volume tests) and clinical trials.  The
company serves doctors, hospitals, HMOs, and other labs as well
as corporations, government agencies, and prisons.

It turned out to be another tough week on the Technology bulls,
but those that have been turning their attention to strong
sectors like Health Care have been doing quite well indeed.
After trading to a new high in the middle of the week, the HMO
index succumbed to some much needed profit taking.  While not a
component of the HMO index, DGX has been benefiting from the
sector strength and managed to trace another all-time high on
Thursday before giving into the desire to consolidate a bit.
The weakness managed to drag our play down to the $92.50 level
(the top of Wednesday's gap), but there were eager buyers waiting
in the wings.  They drove DGX sharply higher in the final 2 hours
on Friday, closing out the day with a slight gain.  Now that's
not bad considering all the red on the screen and the fact that
the HMO index gave up nearly 2%.  DGX continues to see strong
buying interest in the wake of the company's solid earnings
report earlier in the month.  With Health Care still looking
strong, DGX likely has more than one more new high in its bag of
tricks.  Intraday dips near support ($92.00-92.50) look good for
initiating new positions, as does a breakout over the $95.60
level.  Raise stops to $91.50.

*** May contracts expire in 2 weeks ***

BUY CALL MAY- 90 DGX-ER OI=2740 at $5.50 SL=3.50
BUY CALL MAY- 95*DGX-ES OI=1069 at $2.55 SL=1.25
BUY CALL JUN- 95 DGX-FS OI=1546 at $4.60 SL=2.75
BUY CALL JUN-100 DGX-FT OI= 330 at $2.50 SL=1.25

Average Daily Volume = 701 K


RTN – Raytheon Company $43.75 (+3.74 last week)

Raytheon is a provider of defense electronics, including missiles,
radar, sensors and electro-optics, surveillance and
reconnaissance, and command, control, communication and
information systems.  Additionally, the company provides naval
systems, air traffic control systems and aircraft integration
systems.  RTN's commercial electronics businesses leverage
defense technologies in commercial markets.  Raytheon Aircraft
is a provider of business and special mission aircraft and
delivers a broad line of jet, turboprop and piston-powered
airplanes.

News of the Northrup Grumman contract win on the Navy's DD(X)
program launched the Defense Industry index (DFI.X) vertical
again last Tuesday and despite a weak market for the latter half
of the week, the DFI index continued to push higher.  Even the
sharp selloff on Friday morning was reversed by the closing bell,
with the index closing at another all-time high.  Although
Northrup Grumman got the headlines, we can't overlook RTN, which,
as systems integrator for the project, will get 45% of the nearly
$3 billion contract.  That fact wasn't lost on investors, as they
bought the stock with both hands last week, propelling it to fresh
all time highs on Thursday with the breakout over the $43
resistance level.  A bit of profit taking on Friday was all it
took to convince new bulls to enter the play and RTN recovered
nicely from the intraday lows to end the day unchanged.  The PnF
chart shows a very nice bullish trend in place, with the stock's
last sell signal (an it was a short-lived one) occurring back in
November of last year.  The rebound off that dip (near the $30
level) came right at the ascending support line and the resulting
column of X's gives us our current bullish price target of $58.
Play the trend for all it's worth, targeting new positions on
intraday pullbacks to support (first at $42.50-43.00 and then at
major support near $41.50).  Trading the price breakouts can work
too, but entails greater risk.  If you can handle that risk, look
to initiate new positions on a push through the $44 level, so
long as volume remains on the heavy side and the DFI index keeps
pushing higher.

*** May contracts expire in 2 weeks ***

BUY CALL MAY-42*RTN-EV OI=1427 at $1.95 SL=1.00
BUY CALL MAY-45 RTN-EI OI= 520 at $0.70 SL=0.25
BUY CALL JUN-42 RTN-FV OI= 518 at $2.90 SL=1.50
BUY CALL JUN-45 RTN-FI OI= 140 at $1.50 SL=0.75
BUY CALL JUN-47 RTN-FW OI=  31 at $0.80 SL=0.25

Average Daily Volume = 2.52 mln


THC– Tenet Healthcare Corp. $73.60 (-0.88 last week)

THC is the second largest investor-owned healthcare services
company in the United States.  As of the end of May, 2001, the
company's subsidiaries and affiliates owned or operated 111
general hospitals with more than 27,000 licensed beds and
related healthcare facilities serving urban and rural
communities in 17 states.  The related healthcare facilities
included a small number of rehabilitation hospitals, specialty
hospitals, long-term care facilities, and numerous medical
office buildings located nearby its general hospitals and
physician practices.

Momentum traders had some serious fun with the Health Care
stocks over the past 2 months, with the HMO index running
almost vertically up the charts for a 38% gain.  Given that sort
of run, it should come as no surprise to see a bit of profit
taking over the past 2 days, with the index giving back a paltry
3.4%.  Shares of THC participated nicely with the rest of the
sector since the beginning of March, but the past 2 weeks have
the look of some necessary consolidation.  After the sharp selloff
early in the week, the stock has been building a new ascending
trend with a series of higher lows as the bulls continue to chip
away at the $74 resistance level.  Each move to that level has met
with selling in the past several days, but each round of selling
is meeting with buying interest at a higher levels.  This is
notable because the stock has essentially remained flat over the
past 3 days (gathering its strength), while the HMO index has been
dropping.  That indicates an increase in Relative Strength.  And
despite the weakness over the past 2 days, the HMO index is strong
relative to the broader market and looks like it still has
significant upside left.  Use the near-term weakness to enter
new positions near support (first at $72.75-73.00 and then down
at $71.50-72.00).  Traders looking to play the next breakout will
want to wait for THC to crest the $74.75 with the support of
bullish action in the HMO index before playing.  Keep stops set
at $71.

*** May contracts expire in 2 weeks ***

BUY CALL MAY-70 THC-EN OI=5310 at $4.40 SL=2.75
BUY CALL MAY-75*THC-EO OI=1315 at $0.90 SL=0.50
BUY CALL JUN-75 THC-FO OI= 626 at $2.05 SL=1.00
BUY CALL JUN-80 THC-FP OI= 379 at $0.60 SL=0.25

Average Daily Volume = 2.01 mln



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

QLGC - QLogic $41.56 (-2.30 last week)

QLogic Corporation is a designer and supplier of Storage Area
Networking (SAN) infrastructure building blocks. Its SAN
infrastructure building blocks, comprised of semiconductor
chips, host board adapters and switches, are integrated into
storage networking solutions of the world's leading system and
storage manufacturers.

Have you pulled up a chart of Sun Microsystems (NASDAQ:SUNW)
recently?  It's not looking so hot.  How about a daily of
good ole' International Business Machines (NYSE:IBM)?  That one
was on the Option Investor put list when it broke down in a big
way following its high profile warning.  The thing is, both of
these companies, whose stocks are trading near multi year lows,
are big customers of QLogic.  Yet, QLogic hasn't even taken
out its February lows yet.  So something has got to give, and
we think it's going to be to the downside.  The stock slid lower
along its 200-dma during last week's trading when it finally
broke down below that important moving average in Friday's
session.  There exists very little in the way of support between
Friday's close and February's lows down near the $36 level.  We
don't expect QLGC to trade straight down to that level, although
anything is possible in this market environment.  Instead, we
expect a chop and drop pattern to emerge with as oversold that
this stock has become.  That means looking for intraday rollovers
near short term resistance levels for entry points.  The stock
could potentially rally all the way back up to its rolling
10-dma, but that seems unlikely.  If we get that lucky, a rollover
from there would be an excellent entry point.  Stops are at $45
initially.

***May contracts expire in two weeks***

BUY PUT MAY-22*MU-QQ OI=1409 at $1.40 SL=0.75
BUY PUT JUN-22 MU-RQ OI=2939 at $2.30 SL=1.25

Average Daily Volume = 9.00 mln


IDPH – IDEC Pharmaceuticals $50.87 (-3.78 last week)

IDEC Pharmaceuticals is a biopharmaceutical company engaged
primarily in the research, development and commercialization
of targeted therapies for the treatment of cancer, autoimmune
and inflammatory diseases.  IDPH's first commercial product,
Rituxan, and its most advanced product candidate, Zevalin
(formerly Y2B8), are for use in the treatment of certain B-cell
non-Hodgkin's lymphomas.  The company is also developing
products for the treatment of various autoimmune diseases such
as psoriasis, rheumatoid arthritis and lupus.

Biotechnology investors are wishing one of their beloved
companies would engineer a cure for what ails the price of their
stocks, as this group is once again being pushed to fresh yearly
lows.  The Biotechnology index (BTK.X) traded as low as $401 on
Friday and it hasn't been in that neighborhood since March of
last year.  With all of the broken support levels the BTK has
left behind in the past month, it is a wonder there was any
interest in trying to bounce from the $400 level on Friday.  And
to be sure, the rebound certainly lacked conviction, as the BTK
once again sold off into the close.  Shares of IDPH had been
holding up better than the rest of the sector, at least until
last week's plunge through the year-long ascending trendline.  But
that failed decisively on Thursday and the stock weakened further
on Friday, closing below the $51 level for the first time since
October.  Making matters worse was the heavy selling volume,
running 75% above the ADV.  There is now formidable resistance at
the $55 level, but we don't expect to see that any time soon.
First the bulls will have to deal with $52.50 resistance and the
broken trendline (now at $54), both of which are likely to provide
significant resistance.  Use any sort of failed rally at either of
these levels to initiate new positions with an eye towards a
decline towards the PnF price target of $39.  Intraday support was
found on Friday near the $49.40 level, so momentum traders can
look to enter new positions as that support gives way.  Watch the
BTK index, as a violation of the $400 level will likely usher in
a fresh wave of sellers.  Initial stops are set at $55.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-50*IDK-QJ OI=1613 at $2.10 SL=1.00
BUY PUT JUN-50 IDK-RJ OI= 194 at $4.40 SL=2.75
BUY PUT JUN-45 IDK-RI OI= 172 at $2.55 SL=1.25

Average Daily Volume = 3.90 mln



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

ADI - Analog Devices $34.43 (-1.81 last week)

Analog Devices, Inc. is engaged in the design, manufacture and
marketing of high-performance analog, mixed-signal and digital
signal processing integrated circuits (ICs) used in signal
processing applications. The Company produces a wide range of
products that meet the technology needs of a broad base of
customers and markets. 

ADI spent the better part of last week's trading consolidating
its most recent leg lower which saw the stock slide down from
above $40 down to the $36 level.  In Monday's session, the stock
continued lower below the $36 level, but rebounded back above
the $36 level in Tuesday's session which began a pattern of
rollovers from the $38 mark.  Wednesday, the stock traded in a
wide range day in what was a volatile day, but the stock didn't
make much progress as it closed right near where it opened for
that day, resulting in a draw between the bulls and bears.  Then
in Thursday's session, the bulls tried to carry ADI out of its
slump with a rally back up to the $38 level, but the breakout fell
short when the downward sloping 10-dma came into play just below
the $38 level.  The pressure from the 10-dma forced ADI back down
to the $36 short term support level, which led to a massive
breakdown in Friday's session from the consolidation.  It remains
to be seen what happens next week, but judging by ADI's technical
set up, the stock should slip into a new declining trend.  There's
mild historical support at the $34 level, which is the mark to key
off of going into next week's trading.  A breakdown below $34
would confirm that the stock is in fact in a new downward trend
and would most likely lead to lower prices.  Those who didn't get
in put plays on a rollover from the 10-dma last Thursday can look
for a breakdown below $34 as a new entry point.  From there, we'll
target the $30 level to the downside.

***May contracts expire in two weeks***

BUY PUT MAY-35*ADI-QG OI=6006 at $2.20 SL=1.00
BUY PUT JUN-35 ADI-RG OI=3222 at $3.60 SL=1.75

Average Daily Volume = 2.91 mln
 


LRCX - Lam Research $23.85 (-1.32 last week)

Lam Research Corporation designs, manufactures, markets and
services semiconductor processing equipment used in the
fabrication of integrated circuits. The Company's products are
currently used in the front-end of the wafer processing
manufacturing cycle: etch, CMP, and post-CMP clean. The Company's
family of etch systems incorporates plasma technologies designed
to meet both current and future needs. 

The big seller that we detected up around the $26 level early
last week continued unloading in Thursday's and Friday's
sessions.  We witnessed LRCX trade up to the $26 level four
out of the five days last week, each time the rally attempt
resulted in a rollover as the seller overwhelmed any buying
that was coming from short covering.  Without the aid of short
covering in Friday's session, the big seller overwhelmed the
stock and finally pressured it below the stock's 200-dma.  The
200-dma now sits just above the $24 level, and we expect that
the bulls and bears will duke it out around the important
moving average in next week's trading.  Indeed, the stock
rebounded late Friday to trade back up near the now overhead
moving average.  Nevertheless, the stock most likely lost some
of its bid now having pierced below its 200-dma.  The stock
hasn't traded below its 200-dma since early March, so we
expect some of the bulls that are still in the stock are even
more nervous going over the weekend.  For new entry points, we
don't especially favor taking new plays around the 200-dma
due to the increased level of emotions and heightened volatility.
Instead, we'd like to wait for an extended short covering rally
to carry LRCX back up to its downward sloping 10-dma, which is
now around the $25.75 level.  That would help to work off some
of the stock's short term oversold condition, removing some of
the upside risk currently associated with it.  To the downside,
we still think that the stock has the opportunity to trade down
to the $22 level.  In the meantime, lower stops on open plays to
protect profits.

***May contracts expire in two weeks***

BUY PUT MAY-25*LMQ-QE OI=3097 at $1.90 SL=1.00
BUY PUT JUN-25 LMQ-RE OI=1322 at $3.20 SL=1.75

Average Daily Volume = 2.63 mln



MU - Micron Technology $22.61 (-3.39 last 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. 

After about five months of negotiations, Micron formally
announced last Thursday that it had ended talks to acquire
assets of South Korea's Hynix Semiconductor.  The deal called for
a $3 billion swap of Micron stock, and was expected to push
the Idaho based company into the world's top spot of memory
makers for computer systems.  Following Micron's formal
announcement, investors were mulling over the developments in
Friday's session, questioning whether Micron's announcement to
end talks was merely a negotiating ploy, or if the deal was
truly dead signaled by Micron's announcement.  The stock
seemed to continue discounting that the deal had fallen
through, tracking the weakness in the broader semiconductor
sector closely throughout the session.  The question now is
whether the shorts cover and pop the SOX.X next week, or if
they keep selling.  Traders with big gains in this play
should protect against any short covering rally with tight
stops.  As for new entries, we'd welcome a short covering
rally that takes MU back up to the $25 level, from where we'd
look for a rollover based entry point.

***May contracts expire in two weeks***

BUY PUT MAY-22*MU-QQ OI=1409 at $1.40 SL=0.75
BUY PUT JUN-22 MU-RQ OI=2939 at $2.30 SL=1.25

Average Daily Volume = 9.00 mln


FLIR – FLIR Systems $39.65 (-3.92 last week)

FLIR is engaged in the design, manufacture and marketing of
thermal imaging and stabilized camera systems for a wide variety
of commercial, industrial and government applications.  The
company's products are divided into two categories, which
include the thermography products and imaging products.  In the
Thermography division, FLIR manufactures products that are sold
to commercial, industrial, research and machine vision customers.
For industrial customers, FLIR has developed thermography
systems that feature accurate temperature measurement, storage
and analysis.  The Imaging division caters to military, law
enforcement, surveillance and security customers.

If you like the idea of trading divergence, then you've got to
love our FLIR play.  Despite the fact that the Defense Industry
index (DFI.X) is marching to new highs on the back of increasing
government spending, shares of FLIR are definitely not
participating.  Things were already looking weak early last week
and then the stock broke down on huge volume.  There was no news
to prompt the move, but our thinking is that where there's smoke
there's probably some fire too.  Even with BofA coming to the
stock's defense, there is really very little bullish action to be
found as FLIR continues to threaten to break below the $38 level
for good.  It was looking like Friday's bearish action was going
to do the trick, but then along came the short covering at the
end of the day to prop up the price going into the weekend.
There's no question that supply is in control here and the late
rally is likely just an attractive opportunity to get short again.
Look to enter new positions on a rollover from the $40-41 area,
as the 200-dma ($41.38) is likely to turn back any half-hearted
bullish attempts.  Did you notice how the short covering commenced
right at the $35 level?  That was no coincidence, as it is a
critical level of support.  Breakdowns below $37 can still work
for momentum types, but make sure to keep a sharp lookout for
those short-covering rallies until the $35 level fails as support.
Keep stops in place at $41.50.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-40*FFQ-QH OI=184 at $2.70 SL=1.25
BUY PUT MAY-35 FFQ-QG OI=199 at $0.90 SL=0.50
BUY PUT JUN-35 FFQ-RG OI=  0 at $1.90 SL=1.00

Average Daily Volume = 722 K


GS – Goldman Sachs Group $78.55 (-0.60 last week)

The Goldman Sachs Group is a global investment banking and
securities firm that provides a wide range of services worldwide
to a substantial and diversified client base that includes
corporations, financial institutions, governments and high
net-worth individuals. The company provides investment banking,
which includes financial advisory and underwriting, and trading
and principal investments, which includes fixed income, currency
and commodities, equities and principal investments.  GS
recently completed the acquisition of Spear, Leeds & Kellog,
which is engaged in securities clearing, execution and market
making, both floor-based and off-floor.

Brokerage stocks are still feeling the sting of the probe by
the NY Attorney General into the apparent unethical practices
with respect to analyst reports provided to the public.  And
that situation took a turn for the worse on Friday when it was
reported that the discussions between the NY AG and Merrill
Lynch had run into a snag.  Last week's attempted rally in the
Brokerage sector (XBD.X) fell apart on Friday, falling back from
the $466 level and plunging back below that important 38%
retracement level.  The action wasn't much different in our GS
play, as the stock ran out of buying support right at the $81
level and headed lower into the close of trading on Friday.
Daily Stochastics appear to be rolling over without even
entering overbought territory this time, underscoring the
inherent weakness in the stock.  Use any sort of failed rally in
the $80-81 area to enter new positions in anticipation of a drop
to (or below) last week's lows.  The critical level of support
to watch is near $75, as a drop below there will give a strong
indication that GS is headed towards its PnF price objective of
$70.  If looking to trade on further weakness, look for a drop
back under the $78 level on strong volume before playing.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-80*GS-QP OI=3397 at $2.85 SL=1.50
BUY PUT MAY-75 GS-QO OI=2338 at $0.95 SL=0.50
BUY PUT JUN-75 GS-RO OI= 921 at $2.85 SL=1.50

Average Daily Volume = 3.24 mln


PLCM - Polycom, Inc. $20.38 (+1.37 last week)

Polycom manufactures and markets a full range of high quality,
media-rich communications tools and network solutions, which
enable business users to immediately realize the benefits of
video, voice and data over rapidly growing converged networks.
Although the company is primarily a video conferencing and
voice conferencing product provider, it has recently entered
the DSL access market, particularly in the area of integrated
voice appliances and broadband access devices.

Don't you love it when a plan comes together?  PLCM spent most
of last week rebounding from the lows and handed us a gem of an
entry point as it rolled over right at the $21 level.  Although
volume was rather lackluster on Friday, the fact that price
rolled over with daily Stochastics beginning to roll from
overbought territory bodes well for the bears.  We want to see
the stock drop back below the $20 level to give us the
confirmation that PLCM is headed back towards its recent lows,
but that ought to occur early next week.  Use either another
failure at the $21 level or a breakdown under $20 to initiate
new positions and then hold on for the ride.  Keep in mind that
the PnF chart still has a price target of $17 and that will be
our first target for harvesting gains.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-20*QHD-QD OI=1174 at $1.20 SL=0.50
BUY PUT JUN-20 QHD-RD OI=  67 at $2.15 SL=1.00
BUY PUT JUN-17 QHD-RW OI= 199 at $1.15 SL=0.50

Average Daily Volume = 3.40 mln


SEBL – Siebel Systems $21.16 (-1.43 last week)

Siebel Systems is a provider of eBusiness applications.  The
company's products enable organizations to sell to, market to,
and service their customers across multiple channels, including
the Web, call centers, resellers, retail, and dealer networks.
SEBL's eBusiness applications are available in
industry-specific versions designed for the pharmaceutical,
healthcare, telecommunications, insurance, energy, apparel,
automotive, and finance markets.  Through SEBL's applications,
companies can create a single source of customer information
that sales, service, and marketing professionals can use to
tailor product and service offerings to meet each of their
customer's unique needs.

Darwin said it best in his theory of "The Survival of the
Fittest", that the weak get weaker and the strong survive.  A
quick look at the chart of the Software index (GSO.X) tells you
that this sector of the market definitely falls into the 'weaker'
category.  The GSO had a dismal weak, breaking below support and
closing out on Friday at its lowest level since the beginning of
October.  If you're making a case for the NASDAQ to take out its
September lows, the GSO is likely to get there first.  Shares of
SEBL have been unable to find anything approaching support for
weeks now, posting one lower high (and lower low) after another,
as the descending trendline pressures the stock.  So weak is SEBL
that it hasn’t even challenged the steeply descending trendline
at any point in the past month.  Support was looking like it might
hold in the $22 area (also the site of the 62% retracement of the
fall rally), but that has been solidly broken over the past 2
days.  Look for the $20 level to provide the next level of
meaningful support, but if the GSO takes out its September lows,
then the bulls will likely lose that battle as well.  Intraday
rallies continue to provide the best entry points when they fail
near resistance.  Look to initiate new positions on a rollover
near $22.00-22.50, or possibly as high as $23.50.  With the
recent weakness, it looks like a drop below the $20.75 level
(near Friday's intraday lows) is another solid way to play.
Lower stops this weekend to $24.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-22*SGQ-QX OI= 6324 at $2.30 SL=1.25
BUY PUT MAY-20 SGQ-QD OI=16872 at $1.00 SL=0.50
BUY PUT JUN-20 SGQ-RD OI=  603 at $1.90 SL=1.00

Average Daily Volume = 17.1 mln


VRTS – Veritas Software $25.90 (-0.32 last week)

As an independent supplier of storage management software,
VRTS develops and sells products that protect against data
loss and file corruption, allowing rapid recovery after disk
or computer system failure.  The company's products provide
continuous data availability in clustered computer systems with
shared resources. This enables IT managers to work efficiently
with large file systems, making it possible to manage data
distributed on large computer network systems without harming
productivity or interrupting users.  VRTS provides products for
most popular operating systems, including UNIX and Windows NT,
as well as a full range of services to assist its customers in
planning and implementing their storage management solutions.

Following the trend is the secret to investing success, and
right now that trend is down.  At least if you are looking at
the Technology market.  Virtually every stock related to IT or
Enterprise Storage is coming under renewed selling pressure and
that should come as no surprise with stock's like IBM and SUNW
breaking to new multi-year lows.  Afterall, who do you think the
likes of VRTS sell their products and services to?  VRTS hasn't
been able to put together a decent rally for the past month and
the descending trendline (now at $26) continues to keep all the
half-hearted rallies in check.  Last week's short-covering rally
only served to hand us another attractive entry point as VRTS
rolled right at the trendline (then at $29.50), heading sharply
lower into the weekend.  Things were looking better with Friday's
attempt at a rally off the $25 level, but there wasn't any
conviction and the bears pounced again, taking control in the
final hour.  Despite the fact that the bearish price target has
been met, it looks like the $25 level will fail as support early
next week.  Use a breakdown below that level to initiate new
positions or else wait for another failed rally near the
trendline to jump into new positions.

*** May contracts expire in 2 weeks ***

BUY PUT MAY-25 VIV-QE OI=10643 at $1.50 SL=0.75
BUY PUT JUN-25*VIV-RE OI=  422 at $2.55 SL=1.25
BUY PUT JUN-22 VIV-RX OI=  322 at $1.60 SL=0.75

Average Daily Volume = 12.7 mln



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*****
LEAPS
*****

Still Falling!
By Mark Phillips
mphillips@OptionInvestor.com

Let's skip my Rant 'O The Week and instead just focus on the
market action.  No matter how you slice it, this was a clear
victory for the bears and it now seems a foregone conclusion
(although I've been saying it for awhile now) that the markets
want to, need to, must challenge their September lows and in the
very near future too.  Without a doubt the NASDAQ will be the
first one to arrive, but that is because I fully expect to see
it break those lows.  The DOW and S&Ps may be able to hold above
their respective lows, but the bounce off the next meaningful
low will come from levels far lower than where we are tonight.
How's that for sticking my neck out?

Actually, I don't think I'm going very far out on that proverbial
limb.  Look at that amazing VIX, which even after the volatile
week we just endured is hovering just above the 23 level.  Where's
the fear, baby??  The severity of the carnage from last week is
disguised in the numbers as the DOW managed to actually tack on
just shy of 100 points for the week, the S&P500 only lost about 3
points and even the weakling NASDAQ-100 only shed about 60.  If
you want to really see the pain, look at the sectors that are
leading the retreat, Biotechs, Software and of course
Semiconductors.

The Software index (GSO.X) is ticking along just above the
September lows and does not look healthy.  And why should they
with MSFT breaking serious support at $50 and ORCL dropping to
levels not seen since the middle of 1999?  Biotechs, those
kinkiest of the kinky stocks can't stop the bleeding.  Now below
the 200-week moving average, the BTK index was mercifully saved
from breaking the $400 support level on Friday, but with the $414
level now violated, I've got my eye on the $380 level.  That is
the last vestige of support for this group, as it held in March
of both 2000 and 2001.  With the FDA's recent reluctance to
approve new drugs the prospects in this largely unprofitable area
of the market don't look promising.

Finally we have the Semiconductors, which led us out of the
September lows and were supposed to be leading us into economic
recovery.  What happened?  Reality!  The Semiconductor index
(SOX.X) is in full breakdown mode now and last week's little
bounce did little to alleviate that condition.  The February lows
are a road-kill and when the $475 level gives way as support,
look for $460 and $425 to be tested in fairly short order.

Enough with Technology, how about the rest of the market.
Drugs stocks, that safe haven of Defensive investors has already
broken down as measured by the DRG index, which is sitting at a
fresh 1-year low.  The Brokerage sector (XBD.X) is in serious
trouble with the probe by the NY Attorney General only being the
opening salvo in what is likely to be an unpleasant year for the
likes of MER, LEH, GS, MWD and JPM.  The Retail index (RLX.X)
violated the $920 support level on Friday and I think we have to
look to the $890-900 level for the next meaningful support.

If you want to find strength in this market, you've got to look
in some of Jeff Bailey's favorites, Cyclicals (CYC.X), Forest and
Paper Products (FPP.X), Oil Service (OSX.X) and of course Health
Care (HMO.X).  Everything else is the domain of the bears, as
investors come to grips with the fact that no matter what our
government says, we DID have a recession.  And it is my firm
belief that it ain't over yet.  Did you notice that unemployment
hit 6% during the last reporting period?  That GDP blip from
inventory rebuilding is in the past and we now have to focus on
new demand if this economy is going to grow.  I sure don't see
it.

And that pretty much sums up my views of the market.  I think new
longs in this market are fraught with peril unless you are playing
in those few areas of relative strength.  And some of those are
making me a bit nervous as well.  Aside from a quick review of
our current plays, I am not the bit motivated to add new plays to
the Watch List this weekend.  I am hoping I am wrong and the
markets will turn around and rally on Monday, but I am not
putting my money to work on that hope.  I hope you aren't either.

All right, here's the play-specific comments:

Portfolio:

JNJ - Health Care, need I say more?  JNJ is holding up nicely,
although I would have liked to see the stock participate more in
the recent Health Care rally.  But holding above recent support
is a yeoman's feat in this market and I'll take what I can get.
Dips near the $62 level still look buyable, but keep in mind that
a breach of $61 will signal that this one is weakening.
Conviction will come with a breakout over $62.

LUV - What a lousy way to end the week.  Just when it looked like
LUV was going to claw its way higher, the sellers slammed the
stock hard on Friday for a nearly 5% loss on heavy volume.  The
stock came to rest right on its ascending trendline and is less
than 50-cents above our stop.  Fasten your seatbelts, its likely
to be a bumpy ride with the XAL index also breaking down last
week.  If the $84-86 area fails as support, it is a foregone
conclusion that LUV will be stopped out in the not-so-distant
future.

EK - What happened here?  Just when EK was getting ready to really
break down, a 4.5% rally comes out of nowhere and in the midst of
a broad market decline.  I couldn't find any news on Friday's
rebound that I think is meaningful, but this one says caution to
the bears.  There was an item in the company's quarterly report
that stated EK entered a $400 million securitization program in
March.  Hmmm, that sounds like a good-old fashioned debt swap and
it works both ways and I remember that GE investors didn't respond
very favorably to the same sort of move in the recent past.  Time
will tell.  It was encouraging to see the rally stop at the
200-dma, but we're going to need to close below $32 before I'm
going to feel really comfortable with the play.

Watch List:

PG - Maybe next time.  Just when it looked like a breakdown below
the midline of the ascending channel was assured, PG goes and
rallies strongly off of their earnings report.  But it looks like
the daily is rolling over and we'll get another shot at it.
Continue to target the lower channel line in the $85-86 area --
it's a long shot, but if we get it, it should be a very solid
entry.

MDT - Should we or shouldn't we?  I battled my internal demons on
this one all week long and I still haven't made up my mind.  MDT
is still hammering on support in the $43.50-44.00 range and it is
hard to figure out if it is an entry or a prelude to a fall.  With
the weekly Stochastics fully rolled over once again, I think
waiting is the best course of action.  My gut says that the
current support level will eventually give way and we'll get a
shot at $42.  Hopefully that coincides with oversold readings on
both the weekly and daily charts.

WMT - The 200-dma is toast.  Sounds like a familiar refrain
lately, doesn't it?  Needless to say, that ascending channel is
no longer relevant to our discussion either.  We've still got
some time to wait on WMT, as I think the likely entry zone will
be closer to the $50 level at just about the same time as the
price falls to meet the 200-week moving average.  The weekly
Stochastics are still falling, so patience is the key here.  WMT
isn't going anyplace without us until support begins to show
itself.

BRCM - Talk about hitting the target!  BRCM ended the week right
on the $30 level, but there sure isn't any indication that it is
going to hold here.  A rebound from the $30 level could still make
for a solid entry, but ONLY if the SOX turns around and re-enters
rally mode.  I don't think it's going to happen next week.  I
would be looking lower now, possibly in the $25-26 area, but not
until the SOX finds support.

MSFT - Ouch!  Now that has got to hurt!  No more $50 support and
I'm really starting to question if the $48 level will survive.
MSFT (along with ORCL) is responsible for a lot of the weakness
in the Software sector and we don't want to be entering new
positions until we begin to see things firm up quite a bit.  The
GSO index needs to hold the September lows and MSFT needs to
rebound from the $48 level and get back over $50 before I'll be
a buyer.

Until next week, observe the most important rule of
investing -- Preservation of Capital!

Mark



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
JNJ    03/05/02  '03 $ 60  VJN-AL  $ 5.90  $ 6.90  +16.95%  $61
                 '04 $ 60  LJN-AL  $ 9.20  $10.30  +11.96%  $61
LUV    04/12/02  '03 $ 20  VUV-AD  $ 2.10  $ 1.30  -38.01%  $17.25
                 '04 $ 20  LOV-AD  $ 3.90  $ 2.90  -25.64%  $17.25


Puts:
EK     04/12/02  '03 $ 30  VEK-MF  $ 2.70  $ 2.40  -11.11%  $36
                 '04 $ 30  LEK-MF  $ 3.90  $ 4.20  + 7.69%  $36


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  $29-30        JAN-2003 $ 35  OGJ-AG
                            CC JAN-2003 $ 30  OGJ-AF
                               JAN-2004 $ 35  LGJ-AG
                            CC JAN-2004 $ 30  LGJ-AF
MDT    03/10/02  $42, $43-44   JAN-2003 $ 45  VKD-AI
                            CC JAN-2003 $ 40  VKD-AH
                               JAN-2004 $ 45  LKD-AI
                            CC JAN-2004 $ 40  LKD-AH
PG     03/31/02  $85-86        JAN-2003 $ 90  VPG-AR
                            CC JAN-2003 $ 85  VPG-AQ
                               JAN-2004 $ 90  LPR-AR
                            CC JAN-2004 $ 85  LPR-AQ
WMT    03/31/02  HOLD          JAN-2003 $ 65  VWT-AM
                            CC JAN-2003 $ 60  VWT-AL
                               JAN-2004 $ 65  LWT-AM
                            CC JAN-2004 $ 60  LWT-AL
MSFT   04/21/02  $48-50        JAN-2003 $ 55  VMF-AK
                            CC JAN-2003 $ 50  VMF-AJ
                               JAN-2004 $ 55  LMF-AK
                            CC JAN-2004 $ 50  LMF-AJ

PUTS:

None



New Portfolio Plays

None

New Watchlist Plays

None

Drops

None


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

Option Trading 101: Q&A On Covered-Call Strategies
By Mark Wnetrzak

This week's question concerns a repair strategy commonly used
to recover losses in a long-term portfolio stock.


Attn: Covered-Calls Editor

Hello,

First, thank you for providing a great selection of stocks each
week.  Sometimes I use them for covered-call candidates but many
work just as well trading only the stock.  My question is about a
losing covered-call position that has troubled my portfolio for
some time.  I own 1000 shares of Hewlett Packard at a cost basis
near $22 and I do have a positive outlook for HWP/Compaq, but
the option premiums for HWP are very low so I really can't sell
OTM calls (unless I use LEAPS) to reduce my basis in the stock.
Also, I don't want to sell ATM because I would be guaranteeing a
loss if the stock moved higher in the next few months.  I have
heard about a repair strategy using options that can recover the
losses over the long-term.  Can you explain this strategy to me?

Any other suggestions would be much appreciated as well!

TMV


Regarding the "ratio-call" method used to repair a stock's value:

This technique is best suited to long-term portfolio issues that
have declined during a bearish market.

When the share value of a portfolio issue falls, the investor can
react in a number of ways.  The easiest approach is to simply take
no action and hope the stock eventually recovers.  Another common
method is to "average down," which involves adding new shares to
your current position at a lower price.  While this a great way to
lower the overall cost basis in the issue, it also significantly
increases the amount of money at risk in the position.  Possibly a
better method, and one that option traders favor in this situation,
involves using a bull-call spread to lower the break-even basis of
the overall position while increasing its profit potential.  In the
book "Options For The Stock Investor", the author refers to this
strategy as a "covered-call plus a call-debit spread," where the
premium from the sold options are used to offset the cost of the
long calls.  The term "ratio-call spread" is a slightly different
definition than most position traders would use, but regardless
of how the strategy is labeled, it is a favorable technique.


Here is an example similar to your position:

At some date in the distant past, an investor buys 1000 shares of
HWP stock at $23 and writes (10) APR-$25 calls for a premium of $1.
The cost basis is $22.  At the end of the strike period, the stock
has fallen to $17, a realized loss of $5.   Now the trader still
likes the long-term outlook for the issue but is concerned about
further downside risk and needs to recover lost profit potential.
The investor could attempt to improve his overall position by
purchasing (10) NOV-$17.50 calls and selling (20) NOV-$20 calls.
The new position would be a combination of the covered-call and
the bull-call spread.  The components are; LONG 1000 shares HWP
and LONG (10) NOV-$17.50 calls but also SHORT (20) NOV-$20 calls.
Notice there are no "naked" or uncovered calls and with simple
analysis of each individual component, you will find that the
technique offers an excellent remedy for restoring lost profit
potential at a reasonable level of risk.


An explanation of the strategy:

Since the cost of ten (10) NOV-17.50 calls (Ask = 1.85) and the
credit from twenty (20) NOV-20.00 calls [Bid = 0.90] are roughly
equal, no extra expenses (other than commissions) are required
for the play.  However, if there was additional money invested
towards the new position, it would simply raise the "break-even" 
(current cost basis) point by that amount.  Now, if HWP finishes
the November expiration period below $17.50, all of the calls will
expire.  The investor will be no worse off because his cost basis
is increased only by any additional money spent for the bull-call
spread.  In most cases, the amount should be a small percentage
of the stock price (2-5%) or, as in this example, almost nothing.
If HWP finishes above $20 at expiration, the strategy will yield
maximum profit, easily 2-3 times more than a simple covered call,
but it must be structured so as to produce "break-even or better"
results when compared to the original position.

The "Math" using the above information:

Original cost basis: $22,000 (for 1000 shares)

Current stock price is $17.00

Spread Position:
     Buy 10 calls Nov-17.50:   -$1,850.00
     Sell 20 calls Nov-20:      $1,800.00
     Net Difference:              -$50.00

Stock finishes at $20.00:
     New cost basis:          -$22,050.00
     Sold stock at $20:        $20,000.00
     Sold 10 calls Nov-17.50:   $2,500.00
     Expired 20 calls Nov-20:       $0.00
     Net Difference:              $450.00 

This example of a ratio-call spread repair strategy would net
$450.00 (minus commissions) provided the stock "recovered" to 
$20 or higher at the November expiration.

The primary advantage to this technique becomes apparent as you
compare the outcomes when the stock price finishes within the
strike prices.  The profit threshold for the new position occurs
at a much lower (stock) price and increases exponentially as the
value of the underlying issue rises.  In addition, the downside
break-even is reduced by roughly the same amount that is invested
for the bull-call spread, thus providing favorable risk/reward for
any capital spent in the recovery effort.  Of course, all of the
possible results for any particular position can be analyzed by
simply comparing both plays at the various prices, so it is very
important to do the math (and make sure your calculations are
correct!) before you initiate the strategy.

Obviously, no one likes to be in a losing position, but the key
to success is how we react to this type of situation and in many
cases, the ratio-call repair technique offers an excellent method
to recover lost share value.

Trade Wisely!


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

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

AVGN   10.56  10.50   MAY  10.00  1.15  *$  0.59   9.1%
BSML    5.37   5.00   MAY   5.00  0.90   $  0.53   7.4%
WGRD    5.89   5.90   MAY   5.00  1.20  *$  0.31   7.2%
NFLD    8.19   8.00   MAY   7.50  1.30  *$  0.61   6.4%
ZIXI    6.08   5.08   MAY   5.00  1.35  *$  0.27   6.2%
QUIK    5.03   5.00   MAY   5.00  0.30   $  0.27   6.2%
GRP    15.30  16.24   MAY  15.00  0.85  *$  0.55   5.5%
MOVI   18.78  19.49   MAY  17.50  1.90  *$  0.62   5.3%
TDY    17.82  19.17   MAY  17.50  0.90  *$  0.58   5.0%
PLUG   10.26  10.54   MAY  10.00  0.80  *$  0.54   5.0%
MOT    15.00  14.89   MAY  15.00  0.60   $  0.49   4.9%
CCK     8.85  11.47   MAY   7.50  1.80  *$  0.45   4.6%
EMKR    9.10   8.58   MAY   7.50  2.05  *$  0.45   4.6%
ACRT   19.90  18.30   MAY  17.50  3.10  *$  0.70   4.5%
PDG    12.79  12.50   MAY  12.50  0.65   $  0.36   4.3%
IDCC   10.99  11.00   MAY  10.00  1.45  *$  0.46   4.2%
AMLN   10.71   9.25   MAY  10.00  1.15   $ -0.31   0.0%
ADPT   15.13  13.70   MAY  15.00  0.90   $ -0.53   0.0%
PWAV   14.24  11.20   MAY  12.50  2.40   $ -0.64   0.0%
PDLI   17.37  13.38   MAY  15.00  3.20   $ -0.79   0.0%
SAPE    5.40   2.81   MAY   5.00  0.65   $ -1.94   0.0%

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

Comments:

Trying times indeed for those investors implementing neutral to
bullish strategies.  It is usually difficult to paddle upstream.
Yet, even in this bearish environment, Movie Gallery (NASDAQ:
MOVI) gapped a little too quickly to the upside this week to 
offer a reasonable entry point.  It will be removed from the 
summary list.  Many experts use corrections to measure the
strength of their positions.  Stocks that act weaker than ex-
pected are culled from the portfolio to lower the probability
of a catastrophic loss.  Amylin Pharmaceuticals (NASDAQ:AMLN)
and Adaptec (NASDAQ:ADPT) are at a key moment - testing their
150-dmas and should be monitored closely.  The horrid action in
Protein Design Labs (NASDAQ:PDLI) and Sapient (NASDAQ:SAPE) 
is worrisome and offers little hope of a near-term recovery. 
We will show those positions closed.  Powerwave Technologies
(NASDAQ:PWAV) continues to move lower (market induced?) and
will also be closed in our portfolio.  Both IMPCO Technologies
(NASDAQ:IMCO) and Napro Biotherapeutics (NASDAQ:NPRO) continued
last week's decline, though IMPCO did rally mid-week for a less
painful exit.  Remember, a missed opportunity is easier made up
than lost capital.

Positions Closed:  Cygnus (NASDAQ:CYGN), Praecis Pharma (NASDAQ:
PRCS), Microtune (NASDAQ:TUNE), Napro Biotherapeutics (NASDAQ:
NPRO), and IMPCO Technologies (NASDAQ:IMCO). 



NEW CANDIDATES
*********

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

ASGN   20.42  MAY 20.00   UHV ED  0.90 4     19.52   14    5.3%
ENMD    7.60  MAY  7.50   QMA EU  0.50 448    7.10   14   12.2%
ENR    25.01  MAY 25.00   ENR EE  0.60 200   24.41   14    5.3%
FHRX   26.75  MAY 25.00   FUF EE  2.30 625   24.45   14    4.9%
NFLD    8.00  JUN  7.50   DHQ FU  1.05 80     6.95   49    4.9%
NOVT    8.34  MAY  7.50   QOH EU  1.25 218    7.09   14   12.6%
NTBK   17.86  MAY 17.50   NAA EW  1.00 1203  16.86   14    8.2%

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

NOVT    8.34  MAY  7.50   QOH EU  1.25 218    7.09   14   12.6%
ENMD    7.60  MAY  7.50   QMA EU  0.50 448    7.10   14   12.2%
NTBK   17.86  MAY 17.50   NAA EW  1.00 1203  16.86   14    8.2%
ASGN   20.42  MAY 20.00   UHV ED  0.90 4     19.52   14    5.3%
ENR    25.01  MAY 25.00   ENR EE  0.60 200   24.41   14    5.3%
FHRX   26.75  MAY 25.00   FUF EE  2.30 625   24.45   14    4.9%
NFLD    8.00  JUN  7.50   DHQ FU  1.05 80     6.95   49    4.9%


Company Descriptions

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

*****
ASGN - On Assignment  $20.42  *** Assignment...Growth! ***

On Assignment (NASDAQ:ASGN) provides assignments of temporary
professionals in targeted industries.  As of December 31, 2000,
the company served 82 operational markets through a network of 
176 branch offices. On Assignment has two operating segments: 
Lab Support and Healthcare Staffing.  The Lab Support segment's
clients primarily include biotechnology, pharmaceutical, food 
and beverage, chemical and environmental companies.  The Health-
care Staffing segment's clients include companies engaged in the 
healthcare industry.  For the quarter ended March 31, 2002, the
company's net income was $2.9 million, or $0.12 per share, on 
revenues of $42.1 million.  On Assignment retains a strong balance
sheet and with no debt, and plans to grow through acquisitions.  
The company recently completed the acquisition of Health Personnel 
Options Corporation, a leading U.S. provider of traveling nurses,
allied health professionals and other temporary healthcare-related 
personnel.  We simply favor the technical support area at the sold
strike and the recent cross-over of the 30-dma up through the 150-
dma.  Reasonable short-term speculation on a Stage I stock.  

MAY 20.00 UHV ED LB=0.90 OI=4 CB=19.52 DE=14 TY=5.3%


*****
ENMD - EntreMed  $7.60  *** "Basing Pattern" Entry Point ***

EntreMed (NASDAQ:ENMD) is a clinical-stage biopharmaceutical 
company developing angiogenic therapeutics that inhibit abnormal 
blood vessel growth associated with a broad range of diseases, 
such as cancer, blindness and psoriasis.  The company has three 
product candidates: Endostatin, Panzem and Angiostatin, which are
all in clinical trials.  In addition, EntreMed has a pipeline of 
new proteins, small molecules, vaccines and genes-based medicines
in development.  The company's product candidates, targeted to 
inhibit the abnormal growth of blood vessels, may prove effective
in treating certain cancers and a broad range of other diseases. 
Over the last month or so, several reports on current clinical
trials are showing promise.  The company recently announced that 
preclinical findings showed that a new derivative of thalidomide
induces sustained tumor regression in preclinical models of
multiple myeloma, a blood cancer that causes bone loss.  The 
stock is forging a Stage I base and a break below the February 
low would signal a logical stop-loss exit.  Reasonable short-term 
speculation for those investors who have a long-term bullish
outlook on EntreMed's drug pipeline.

MAY 7.50 QMA EU LB=0.50 OI=448 CB=7.10 DE=14 TY=12.2%


*****
ENR - Energizer  $25.01  *** It Keeps Going, And Going... ***

Energizer Holdings (NYSE:ENR) is one of the world's largest
manufacturers of primary batteries and flashlights and a global
leader in the dynamic business of providing portable power.
The company's products, under the brand names "Eveready" and 
"Energizer," have worldwide recognition, and are marketed and
sold in more than 140 countries.  Energizer's subsidiaries manu-
facture and market a complete line of primary alkaline and carbon
zinc batteries, miniature batteries and flashlights and other 
lighting products.  Energizer rallied sharply two weeks ago 
after the company reported that profits rose in its fiscal 2nd-
quarter, as cost-cutting offset slower sales.  Energizer reported
income of $20 million compared to $5.6 million a year ago.  The
stock continues to power towards a new all-time high and this
short-term position offers a method to profit from the current
bullish momentum, while offering a cost basis near the April high.

MAY 25.00 ENR EE LB=0.60 OI=200 CB=24.41 DE=14 TY=5.3%


*****
FHRX - First Horizon   $26.75  *** New Product Launch ***

First Horizon Pharmaceutical (NASDAQ:FHRX) is a specialty pharma-
ceutical company that markets and sells brand name prescription 
drugs.  The company focuses on the treatment of chronic conditions,
including cardiovascular diseases, and respiratory, gastroentero-
logical and gynecological disorders.  First Horizon's strategy is
to acquire pharmaceutical products, which other companies do not 
actively market, that may have high sales growth potential, are 
promotion-sensitive and complement their existing products.  Key 
First Horizon products include Nitrolingual Pumpspray, Robinul and
Robinul Forte, Tanafed and Ponstel.  In addition, First Horizon
intends to develop new patentable formulations, use new delivery
methods and seek regulatory approval for new indications of exist-
ing drugs.  First Horizon recently completed a follow-on public
offering  (the underwriters exercised in full their over-allotment
option) raising an estimated net proceeds of $152.6 million.  The
company is gearing up its sales force as it anticipates launching
Sular®, for the treatment of hypertension, expected within the
next month.  The stock rallied through the end of April and the
share price is now firmly above the 150-dma.  A favorable entry
point from which to speculate on the company's drug line.  The
company's earnings are due 5/06/02, after the close.

MAY 25.00 FUF EE LB=2.30 OI=625 CB=24.45 DE=14 TY=4.9%


*****
NFLD - Northfield Labs  $8.00   *** Who Will Be First? ***

Northfield (NASDAQ:NFLD) is engaged in the development of a safe
and effective alternative to transfused blood for use in the 
treatment of acute blood loss.  The company's PolyHeme blood sub-
stitute product is a solution of chemically modified hemoglobin 
derived from human blood.  Clinical studies to date indicate that
PolyHeme carries as much oxygen, and loads and unloads oxygen in
the same manner, as transfused blood.  Infusion of PolyHeme also
restores blood volume.  Therefore, PolyHeme should be effective
as an oxygen-carrying resuscitative fluid in the treatment of
hemorrhagic shock resulting from extensive blood loss.  North-
field and Biopure (NASDAQ:BPUR) both are trying to win FDA 
approval for their blood substitutes.  In April, Northfield's
CEO stated that based on continuing conferences with the FDA,
he remains optimistic that Northfield will "adequately address" 
the FDA's questions and achieve consensus on the approval of 
PolyHeme.  A favorable entry point in a basing stock as investors
speculate on who will be first to market their blood substitute.

JUN 7.50 DHQ FU LB=1.05 OI=80 CB=6.95 DE=49 TY=4.9%


*****
NOVT - Novoste  $8.34  *** Bullish "Engulfing" Pattern ***

Novoste (NASDAQ:NOVT) has developed the Beta-Cath System, a hand-
held device to deliver beta, or low penetration, radiation to the
site of a treated blockage in a coronary artery to decrease the 
likelihood of restenosis (the renarrowing of a previously treated
artery).  The Beta-Cath System has been shown to reduce the 
incidence of restenosis in-patients who are being treated for 
blocked stents, or in-stent restenosis.  The Beta-Cath System is
designed to fit well with techniques currently used by intervent-
ional cardiologists in the cath lab.  Novoste tanked in April
after the company lowered its earnings forecast for the next 
quarter due to increased competition.  However, the company did 
report a higher than expected 1st-quarter profit on sharply higher
revenues.  What's interesting, is this week's rally on higher 
volume that moved the stock back above Novoste's pre-earnings 
share price.  On a weekly chart, a bullish engulfing pattern is
now evident, which suggests higher prices in the future.  This 
position offers favorable short-term speculation on an issue with
bullish technicals.

MAY 7.50 QOH EU LB=1.25 OI=218 CB=7.09 DE=14 TY=12.6%


*****
NTBK - NetBank  $17.86  *** Stage II Rally Continues ***

NetBank (NASDAQ:NTBK) is a bank holding company.  The company owns
NetBank, FSB (the Bank), a federal savings bank; Market Street
Mortgage Corporation (Market Street), a mortgage company and the 
Bank's wholly owned subsidiary; NetBank Partners, LLP (NetBank
Partners), a partnership involved in strategic partnering opportun-
ities, and NB Partners, Inc. (NB Partners) a corporation involved 
in strategic partnering opportunities.  NetBank provides deposit
products and services, non-banking financial services and lending
and investment services.  Investors rallied NetBank higher this
week after the company reported earnings, which included large
non-recurring and transaction-related expenses related to the
acquisition of Resource Bancshares Mortgage Group, which closed 
on March 31, 2002.  Exclusive of these transaction-related costs,
the company reported net income for the 1st-quarter of $3.3 
million compared with $0.8 million for the same period a year 
ago.  We simply favor the bullish Stage II rally that is showing
no signs of ending.  Reasonable short-term reward potential with
a favorable cost basis.

MAY 17.50 NAA EW LB=1.00 OI=1203 CB=16.86 DE=14 TY=8.2%


*****

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

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

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

ONXX    7.75  MAY  7.50   OIQ EU  0.60 106    7.15   14   10.6%
QSFT   13.25  MAY 12.50   QUD EV  1.30 372   11.95   14   10.0%
WBSN   26.39  MAY 25.00   DQH EE  2.35 49    24.04   14    8.7%
ISLE   22.78  MAY 22.50   QEP EX  0.90 320   21.88   14    6.2%
EMKR    8.58  JUN  7.50   EUH FU  1.75 5      6.83   49    6.1%
SUPG    5.51  JUN  5.00   UQG FA  0.90 10     4.61   49    5.3%
REV     5.11  JUN  5.00   REV FA  0.50 0      4.61   49    5.3%



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

Option Trading 101: Q&A With The Naked-Puts Editor
By Ray Cummins

One of our readers asked about the reasons we focus more on an
issue's technical history rather than the underlying company's
fundamentals when selecting naked-put candidates.

Hello Ray,

I have been reading the naked-puts section for some time and I
have noticed that you rarely comment on a company's fundamental
outlook.  Why do you base your selections on chart technicals
rather than the future earnings and revenues or other similar
valuations -- things that analysts have always said are "key"
to a company's long-term success?

DM


Concerning the use of technical analysis in position selection:

There are many advantages to the "technicals-based" approach but
most importantly, it removes the need to understand the infinite
components of fundamental valuation that market analysts find so
intriguing.  In addition, trading strategies based on historical
price analysis can provide very precise entry and exit signals,
a benefit to traders who participate in short-term strategies.

Technical analysis makes three basic assumptions.  First, simple
market data such as price and volume indicate the true value of a
specific stock or financial issue.  Second, prices historically
exhibit trends or patterns and third, history eventually repeats
itself.  These assumptions can be combined with the study of price
and volume to provide traders the basic information they need to
initiate profitable trading strategies.  The technical indicators
that identify buy or sell signals are contained in various chart
formations and patterns and in many cases, no additional data is
needed.  Since the goal of any investor is to profit from their
predictions, most experts suggest that the best place to begin is
with proven practices such as evaluating an issue's price history
and primary trend.

For most investors, the easiest way to consistently make money in
the market is to form the correct outlook for its future movement
and position themselves to profit from that activity.  In fact,
that is the premise of the technician; that past price behavior
can be used to forecast future trends, thus providing a means to
profit from a successful forecast.  Numerous systems have been
developed to help traders form an opinion based on chart patterns
and predict future turning points and direction in the underlying
issue.  Analysis begins by determining the strength and direction
of a trend.  The basis for future predictions is supported by the
fact that once a primary trend is in motion, it will continue in
that direction until a change in character occurs.  Successful
technical analysts will look at many indicators from different
perspectives and identify signals that forecast upcoming changes
or trend reversals.  When you can do this accurately on a regular
basis, your portfolio value will grow consistently, regardless
of the overall market character.

As far as choosing a viable premium-selling candidate, there are
a number of steps you can take, not directly related to technical
analysis, that will help ensure a high probability of a profitable
trade.  The first step is to identify expensive premiums using the
composite implied volatility of all equity options.  You should
also identify those situations when options are priced at levels
above where they have historically been known to trade in the past.
Then you can use probability analysis to establish the potential
for the underlying market to move the required distance to make the
position unprofitable.  Since that potential almost always exists,
it is also necessary to determine if the stock has displayed a
level of historical volatility that suggests it is likely to move
the required distance (to make the position unprofitable) in the
target timeframe.  The final step is to review the fundamentals of
the underlying issue to find out if there are any obvious reasons
for the option premiums to be inflated.  Since a large part of an
option's extrinsic value is based on a projection of the future
volatility of the underlying stock, there are very few instances
where excess premium exists without a fundamental basis.  The key
for derivatives traders is to find those few instances where the
actual movement of the issue may differ substantially from that
which is forecast and then construct a strategy to profit from
the incorrect pricing of the options.

Good Luck! 

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


SUMMARY OF PREVIOUS CANDIDATES 
*****

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

EAGL   16.97  17.41   MAY  15.00  0.50  *$  0.50  13.6%
VIRL   17.81  18.23   MAY  15.00  0.50  *$  0.50  11.3%
MACR   22.01  20.23   MAY  20.00  0.50  *$  0.50   9.9%
WFR     8.60   7.95   MAY   7.50  0.30  *$  0.30   9.9%
OATS   10.63  10.80   MAY  10.00  0.45  *$  0.45   9.6%
AMZN   16.91  16.05   MAY  15.00  0.30  *$  0.30   8.4%
TTWO   26.53  25.31   MAY  22.50  0.55  *$  0.55   8.4%
ADPT   14.57  13.70   MAY  12.50  0.40  *$  0.40   8.4%
IMCO   14.22  12.55   MAY  12.50  0.50  *$  0.50   8.1%
PLNR   24.73  24.55   MAY  22.50  0.45  *$  0.45   8.0%
PHSY   26.01  27.14   MAY  20.00  0.40  *$  0.40   7.8%
ENER   24.24  23.36   MAY  22.50  0.75  *$  0.75   7.5%
EAGL   17.00  17.41   MAY  15.00  0.45  *$  0.45   7.4%
PHSY   28.30  27.14   MAY  20.00  0.30  *$  0.30   7.3%
IDTI   32.00  25.14   MAY  25.00  0.40  *$  0.40   6.4%
RMCI   25.45  26.77   MAY  20.00  0.40  *$  0.40   6.3%
TOL    27.58  30.85   MAY  25.00  0.65  *$  0.65   6.2%
ISLE   20.50  22.78   MAY  17.50  0.30  *$  0.30   5.9%
MARY   21.50  24.95   MAY  17.50  0.40  *$  0.40   5.8%
LNCR   31.28  31.02   MAY  30.00  0.80  *$  0.80   5.8%
DO     32.10  34.00   MAY  30.00  0.40  *$  0.40   5.2%
AEIS   36.71  31.37   MAY  30.00  0.40  *$  0.40   5.2%
GSF    35.33  36.15   MAY  32.50  0.40  *$  0.40   5.0%
OVER   33.77  22.20   MAY  25.00  0.45   $ -2.35   0.0%
CTLM   13.86   9.36   MAY  12.50  0.45   $ -2.69   0.0%

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

Comments:

This week's bearish activity produced two unexpected events
in our portfolio.  The first surprise occurred when Overture
Services (NASDAQ:OVER) plunged almost 40% after losing a deal
with America Online, which instead contracted with Google.com
for search services.  Analysts quickly lowered their ratings
on the company and traders exited the issue in droves, taking
OVER's share value with them.  Fortunately, the issue will
likely experience a technical rebound, allowing readers who
are still in the position to exit with a reasonable debit.
Another revelation came in advance of the quarterly earnings
report for Centillium (NASDAQ:CTLM) as investors unloaded the
company's stock amid concerns of an unfavorable announcement.
Luckily, the bearish technical indications preceded the slump
allowing a much better closing trade than our (Friday) summary
indicates.  As far as the current issues on the watch-list, we
are monitoring Macromedia (NASDAQ:MACR), Impco (NASDAQ:IMCO),
Take-Two (NASDAQ:TTWO), Memc Electronic (NYSE:WFR), Advanced
Energy (NASDAQ:AEIS), Adaptec (NASDAQ:ADPT), and Integrated
Device Technologies (NASDAQ:IDTI) for potential closing trades
on further downside activity.

Positions Closed: Veeco Instruments (NASDAQ:VECO), JDA Software
(NASDAQ:JDAS), and Sandisk (NASDAQ:SNDK).


NEW CANDIDATES
*********

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

ABF    21.23  MAY 20.00   ABF QD  0.30 164   19.70   14    8.6%
BSTE   32.25  MAY 30.00   BQS QF  0.30 166   29.70   14    6.0%
ENDO   20.70  JUN 17.50   PFU RW  0.65 20    16.85   49    7.0%
ENDP   11.56  JUN 10.00   IUK RB  0.55 0      9.45   49    9.4%
GME    20.80  MAY 20.00   GME QD  0.45 20    19.55   14   12.3%
NSIT   27.15  MAY 25.00   QNT QE  0.25 12    24.75   14    6.1%
SIE    19.88  JUN 17.50   SIE RW  0.65 0     16.85   49    6.5%
TDY    19.17  JUN 17.50   TDY RW  0.60 0     16.90   49    5.6%

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

GME    20.80  MAY 20.00   GME QD  0.45 20    19.55   14   12.3%
ENDP   11.56  JUN 10.00   IUK RB  0.55 0      9.45   49    9.4%
ABF    21.23  MAY 20.00   ABF QD  0.30 164   19.70   14    8.6%
ENDO   20.70  JUN 17.50   PFU RW  0.65 20    16.85   49    7.0%
SIE    19.88  JUN 17.50   SIE RW  0.65 0     16.85   49    6.5%
NSIT   27.15  MAY 25.00   QNT QE  0.25 12    24.75   14    6.1%
BSTE   32.25  MAY 30.00   BQS QF  0.30 166   29.70   14    6.0%
TDY    19.17  JUN 17.50   TDY RW  0.60 0     16.90   49    5.6%


Company Descriptions

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

*****
ABF - Airborne Freight  $21.23  *** Transport Sector ***

Airborne Freight Corporation (NYSE:ABF) is an air express company
and air freight forwarder that expedites shipments of all sizes to
destinations throughout the United States and foreign countries.
ABX Air, the company's principal wholly owned subsidiary, provides
domestic express cargo service and cargo service to Canada.  The
company is the sole customer of ABX for this service.  ABX also
offers charter service.  Airborne Express provides door-to-door
express delivery of small packages and documents throughout the
United States and to and from most foreign countries.  The company
also acts as an international and domestic freight forwarder for
shipments of any size.  Airborne posted excellent first quarter
profits, despite a small decline in revenues and traders responded
favorably to the news.  Investors who are interested in owning a
transport stock with a solid fundamental outlook should consider
this position.

MAY 20.00 ABF QD LB=0.30 OI=164 CB=19.70 DE=14 TY=8.6%


*****
BSTE - Biosite  $32.25  *** Multiple Upgrades = Rally! ***

Biosite Incorporated (NASDAQ:BSTE) is a research-based diagnostics
company dedicated to the discovery and development of protein-based
tests that improve a physician's ability to diagnose disease.  The
company combines separate but integrated discovery and diagnostics
businesses to access proteomics research, identify proteins with
high diagnostic utility, develop and commercialize products and
educate the medical community on new approaches to diagnosis.  In
March, the company entered into a multi-year collaborative pact
under which it will utilize Omniclonal phage display technology,
and potentially Trans-Phage Technology to generate high-affinity
antibodies to targets provided by Amgen (NASDAQ:AMGN).  Shares of
Biosite rallied in late March after the company exceeded analysts'
earnings expectations and raised its revenue projections for the
coming year.  The issue was upgraded by Adams Harkness, Banc of
America Securities, and Deutsche Securities and now it appears to
be heading for previous valuations near $40-$50.  Traders can
speculate on that outcome with this position.

MAY 30.00 BQS QF LB=0.30 OI=166 CB=29.70 DE=14 TY=6.0%


*****
ENDO - Endocare  $20.70  *** Record Growth! ***

Endocare (NASDAQ:ENDO) is a vertically integrated medical device
company that develops, manufactures and markets cryosurgical and
stent technologies for applications in oncology and urology.  The
company has concentrated on developing devices for the treatment
of two common diseases of the prostate, prostate cancer and benign
prostate hyperplasia.  The company is also developing cryosurgical
technologies for treating tumors in other organs, including the
kidney, breast and liver.  Endocare has developed products that
include the Cryocare-4 Probe system, Cryocare-8 Probe System,
FastTrac, CryoGuide and Horizon Prostatic Stent.  The company has
developed the Cryocare System, a next-generation cryosurgery system
that allows the urologist to treat prostate cancer in a minimally
invasive manner.  The company has also developed a new urological
stent that has been designed to provide immediate relief for BPH
patients who undergo thermotherapy, called the Horizon Prostatic
Stent.  Endocare recently reported record growth and its first
profitable quarter, with revenues up 182% from year-ago period.
Investors who like the outlook for the company can speculate on its
future share value in a conservative manner with this position.

JUN 17.50 PFU RW LB=0.65 OI=20 CB=16.85 DE=49 TY=7.0%


*****
ENDP - Endo Pharmaceuticals  $11.56  *** Optimistic Outlook! ***

Endo Pharmaceuticals Holdings (NASDAQ:ENDP), through its wholly
owned subsidiaries, Endo Pharmaceuticals and Endo Inc., is engaged
in the research, development, sales and marketing of branded and
generic prescription pharmaceuticals used mainly for the treatment
and management of pain.  Endo sells branded pharmaceutical to
doctors, drug wholesalers and other healthcare professionals and
markets its generics through sales and marketing activities as
well as customer service activities directly with wholesale drug
distributors and chain and independent retail pharmacists.  Endo's
portfolio of branded products includes recognized brand names such
as Percocet, Percodan, Zydone and Lidoderm.  Endo's portfolio of
generic products includes products for various indications, most
of which are focused on pain management.  Endo reported solid
quarterly numbers in late April as well as an optimistic outlook
for the future.  Investors responded favorably to the news and the
issue has excellent upside potential in the near-term with buying
support above our cost basis.

JUN 10.00 IUK RB LB=0.55 OI=0 CB=9.45 DE=49 TY=9.4%


*****
GME - GameStop  $20.80  *** New Specialty-Retail Issue! ***

GameStop (NYSE:GME) is a video game and personal computer gaming
software specialty retailer.  The company carries an assortment
of new and used video game hardware, video game software and
accessories, PC entertainment software and related products,
including action figures, trading cards and strategy guides.
GameStop operates 1,040 stores in the United States, the District
of Columbia and Puerto Rico under the GameStop, Babbage's, Software
Etc. and FuncoLand names, but is in the process of re-branding most
of its stores under the GameStop name.  GME carries a constantly
changing selection of more than 2,800 stock-keeping units of
electronic game merchandise in most stores.  In addition, GameStop
operates a Website, gamestop.com, and publishes Game Informer, a
circulation multi-platform video game magazine with over 415,000
subscribers.  Gamestop is a relatively new issue with excellent
potential in the Specialty Retail sector and investors who want
to own the stock can establish a low risk cost basis with this
position.

MAY 20.00 GME QD LB=0.45 OI=20 CB=19.55 DE=14 TY=12.3%


*****
NSIT - Insight Enterprises  $27.15  *** Buying The Competition! ***

Insight Enterprises (NASDAQ:NSIT) is a holding company with two
operating units, Insight Direct Worldwide (Insight) and Direct
Alliance Corporation.  Insight is a global direct marketer of
brand name computers, hardware and software, and also offers an
extensive assortment of more than 180,000 stock-keeping units.
Its brands include Compaq, Hewlett-Packard, IBM, Microsoft, Palm,
Toshiba and 3COM.  Direct Alliance is a primarily a business
process outsourcing organization providing marketplace solutions
in the areas of direct marketing, direct sales, logistics, and
finances using proprietary technology, infrastructure and other
processes.  Direct Alliance's services enable manufacturers of
brand name products to sell directly to customers and support
existing indirect sales channels in a cost-effective and timely
manner.  Shares of Insight Enterprises have rallied in recent
sessions after the computer reseller posted favorable quarterly
results and said it had bought a rival in a bid to reach U.S.
government customers, a growing market segment.  Investors who
wouldn't mind owning the issue at a discounted cost basis can
speculate on the outcome of the company's new acquisition with
this position.

MAY 25.00 QNT QE LB=0.25 OI=12 CB=24.75 DE=14 TY=6.1%


*****
SIE - Sierra Health Services  $19.88  *** Hot Sector! ***

Sierra Health Services (NYSE:SIE) is a health care organization
that provides and administers the delivery of comprehensive health
care and workers' compensation programs with an emphasis on quality
care and cost management.  The company's primary types of health
care coverage are HMO plans, HMO Point of Service (POS) plans, and
indemnity plans, which include a preferred provider organization
option.  The POS products allow members to choose one of the many
coverage options when medical services are required instead of one
plan for the entire year.  Shares of Sierra Health Services soared
last week after the company posted first-quarter results that were
well ahead of Wall Street's expectations.  The health care services
provider reported income of $0.25 a share, almost double last year's
numbers and they raised guidance for the rest of 2002.  Traders can
speculate on a popular stock in a "hot" sector with this position.

JUN 17.50 SIE RW LB=0.65 OI=0 CB=16.85 DE=49 TY=6.5%


*****
TDY - Teledyne  $19.17  *** Defense Industry Rally! ***

Teledyne Technologies (NYSE:TDY) is a provider of sophisticated
electronic components, instruments and communications products,
including data acquisition and communications equipment for
airlines and business aircraft, monitoring and control instruments
for industrial and environmental applications and components, and
subsystems for wireless and satellite communications.  Teledyne
also provides systems engineering solutions and other information
technology services for space, defense and industrial applications,
and manufactures general aviation and missile engines and components,
as well as onsite gas and power generation systems.  Teledyne has
four business segments: Electronics and Communications, Systems
Engineering Solutions, Aerospace Engines and Components and Energy
Systems.  Teledyne Technologies was recently awarded a multi-million
dollar contract from the U.S. Army Space and Missile Defense Command.
Teledyne Solutions will provide a broad array of technical services
in support of the Command contract including expertise relating to
missiles, optical and radar sensors, targets, command communications,
test and evaluation, lethality, systems integration, information
technology, simulation, and other areas.  The share value of TDY 
rallied on the news and the bullish "break-out" suggests further
upside activity in the near future.

JUN 17.50 TDY RW LB=0.60 OI=0 CB=16.90 DE=49 TY=5.6%


*****

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

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

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

WBSN   26.39  MAY 22.50   DQH QX  0.40 60    22.10   14   12.3%
ORB     6.10  JUN  5.00   ORB RA  0.30 113    4.70   49   11.4%
PCSA   14.98  JUN 12.50   CQO RV  0.75 0     11.75   49   10.9%
PHSY   27.14  MAY 22.50   HYQ QX  0.25 361   22.25   14    8.4%
EDO    31.49  MAY 30.00   EDO QF  0.40 117   29.60   14    7.6%
SHPGY  27.89  JUN 25.00   UGH RE  0.80 97    24.20   49    5.5%


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

The Sell-Off Continues!
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, May 3

Stocks fell again today amid concerns about the nation's jobless
rate and the sluggish pace of the economic recovery.

The Dow Jones Industrial Average closed down 85 points at 10,006
after discouraging news on the labor market put investors in a
bearish mood.  Adding to the stock market's malaise was a report
showing that business activity in the non-manufacturing sector
expanded in April, but not as strongly as it did in March.  The
news did little to help the outlook for blue-chips and shares of
Intel (NASDAQ:INTC), Microsoft (NASDAQ:INTC), SBC Communications
(NYSE:SBC), International Business Machines (NYSE:IBM), Proctor &
Gamble (NYSE:PG) and Wal-Mart (NYSE:WMT) moved lower.  The NASDAQ
Composite Index fared no better, declining 31 points to finish at
1,613 on weakness in chip, networking, and software issues.  The
broader-market S&P 500 Index slipped 11 points to 1,073 as retail,
airline, brokerage, and biotechnology stocks tumbled while paper,
oil, utility and gold issues saw select buying.  Trading volume
ended at 1.30 billion on the Big Board and at 1.98 billion on the
technology exchange.  Market breadth was mixed as winning issues
edged past losers 16 to 15 on the NYSE while losing stocks paced
decliners 19 to 16 on the NASDAQ.  In the bond market, the 10-year
treasury rose more than 1/4 point while its yield fell to 5.06%.
The 30-year bond added nearly 3/4 point to yield 5.54%.  On the
fund flow front, Trim Tabs estimated that equity funds had inflows
of $2.8 billion in the week ended May 1 compared with outflows of
$6.1 billion during the prior week.


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

Global S.F.   (NYSE:GSF)  JUN40C/JUN30P  $0.10  credit  synthetic
BJ Services   (NYSE:BJS)  MAY32P/MAY35P  $0.30  credit  bull-put
Cigna         (NYSE:CI)   MAY95P/MA100P  $0.60  credit  bull-put
Qlogic        (NSDQ:QLGC) MAY55C/MAY50C  $0.60  credit  bear-call
Conexant      (NSDQ:CNXT) MAY10C/MAY10P  $1.30  debit   straddle
Research Mot. (NSDQ:RIMM) MAY17C/MAY17P  $2.55  debit   straddle
NASDAQ 100    (AMEX:QQQ)  MAY31C/MAY31P  $2.25  debit   straddle

The recent volatile market activity provided some excellent entry
opportunities in our new combination positions.  Spreads in BJ
Services, Cigna, and Qlogic were initiated at the target prices
and the synthetic position in GlobalSantaFe offered an acceptable
opening credit before the issue moved higher later in the week.
The extreme movement in the technology group also produced a big
winner in the Conexant (NASDAQ:CNXY) straddle and the activity in
the NASDAQ 100 Index (QQQ) was more volatile than we expected.
The only position that has yet to prove its worth is the debit
straddle in Research In Motion.  But, with the issue trading at
a recent low, there is certainly potential for further downside.


Portfolio Activity:

There was relatively little activity this week in the Combos
portfolio, so I decided to share a recent E-mail from one of
our readers.


Subject: Bullish Synthetic Positions

You keep offering plays that use synthetic positions.  I
have tried to figure them out from the option positions but
I don't seem to get it. Can you please show a table and or
a graph of how the position looks - a great example would be
ADVP (published in the Big-Caps section on 5/1/02).

Thanks,

PM


Hello PM,

The ADVP play is a popular variation of a "synthetic position"
that uses "out-of-the-money" options to construct a speculative-
outlook play with lower probability of profit and reduced risk.
The premium from the sold put is used to pay for the long call.
It is a low risk position, based on the OTM put.  If the stock
goes up, the value of the call rises while the price of the put
declines.  When a sufficient upward move (in a timely manner)
occurs, the call can be sold and the put repurchased (or allowed
to expire worthless) to produce a net gain.  Occasionally, these
plays achieve profits in a few days.  At other times, they are
held closer to expiration for a small return and sometimes, they
achieve no profit.  The key is the put must expire (worthless) or
the position may endure a loss.  Of course, you may also choose
to let a (ITM) put be assigned and take possession of the issue
for a long-term portfolio holding or future combination plays
such as writing covered-calls.

The great feature of options is they can be used in a number of
ingenious ways to create the most appropriate position for the
current market outlook and your personal risk-reward attitude.
The right combination of puts and calls can produce an effective
position with results that are similar to being long on the stock,
with less expense, and portfolio collateral can be used to finance
the entire transaction.  This approach also has the potential for
unlimited gain, thus providing an opportunity (one you don't have
with naked-puts alone) to overcome a number of losing plays.  For
most investors, the ability to profit from a stock's movement at
a fraction of the cost of owning the issue is the primary reason
for utilizing options.  The bullish, limited-risk approach falls
into two primary categories: option buying and (covered) option
selling, and the most common method of option trading among retail
participants has always been the purchase of calls.  That technique
can be very profitable but it requires an initial capital outlay
and in the case of in- or at-the-money options, leaves the trader
exposed to a large amount of downside risk.  In addition, traders
who purchase options during a strong directional movement in the
underlying will be forced to pay higher premiums, greatly reducing
the probability of profit.  Those who realize the unique difficulty
associated with this type of approach are forced to remain on the
sidelines until they discover an alternative method.  Fortunately,
there are numerous combination strategies that can help limit the
overall cost of the trade while simultaneously benefiting from
inflated option premiums and the synthetic position fulfills that
objective very well.

Here is the article on Synthetic Positions in its complete form:

http://members.OptionInvestor.com/nakedputs/011302_1.asp

Hope that helps!

Ray
OIN

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
RDC - Rowan Companies  $26.60  *** Hot Sector! ***

Rowan Companies (NYSE:RDC) is a provider of international and
domestic contract drilling and aviation services.  Rowan also
operates a steel mill, a manufacturing facility that produces
heavy equipment for the mining, timber and transportation
industries, and a marine construction division that designs and
builds mobile offshore jack-up drilling rigs.  Rowan provides
contract drilling services utilizing a fleet of self-elevating
mobile offshore drilling platforms (jack-up rigs), one mobile
offshore floating platform (semi-submersible rig) and 14 land
drilling rigs.  Rowan's drilling operations are conducted mainly
in the Gulf of Mexico, the North Sea, offshore eastern Canada
and in Texas and Louisiana.

Today's E-mail reply referred to a "bullish" synthetic position
and here is a good example of that strategy.  The underlying
issue is in a favorable sector with good relative strength and
the near-term technical indications suggest there is potential
for further upside activity.  Traders who wouldn't mind owning
RDC can speculate on its future share value in a conservative
manner using this technique.  Target a small credit initially,
to allow for a brief consolidation in current trend.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUN-30.00  RDC-FF  OI=403  A=$0.50
SELL PUT   JUN-22.50  RDC-RX  OI=70   B=$0.35
INITIAL NET CREDIT TARGET=$0.00-$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 $700 per contract.


******************************************************************
SHPGY - Shire Pharmaceuticals  $27.89  *** Bottom-Fishing! ***

Shire Pharmaceuticals Group (NASDAQ:SHPGY) is an international
specialty pharmaceutical company with a strategic focus on three
therapeutic areas: central nervous system disorders, oncology
and anti-infectives.  The company's strategy is also supported
by two technology platforms, drug delivery and biologics.  The
company has sales and marketing subsidiaries with a portfolio
of products targeting the United States, Canada, the United
Kingdom, the Republic of Ireland, France, Germany, Italy and
Spain.

Shire Pharmaceuticals is an old favorite in the Spreads/Combos
portfolio and after months of unrelenting selling pressure, it
appears that the issue is finally making a comeback.  The reason
for the bullish activity is the company recently beat analysts'
first-quarter estimates on the success of its attention deficit
hyperactivity disorder drug Adderall XR.  The company said its
first-quarter operating income was $72.9 million, or $0.33 per
share, up from $52 million, or $0.25 per share, in the year-ago
period.  Analysts were very impressed by the company's revenues,
which were up 30% to $243.2 million, and the fact that Shire now
expects full-year revenue growth to be in the low to mid-teens.

From a technical standpoint, the issue has a well established
base to build on and traders who agree with a bullish outlook
for Shire's share value can attempt to profit from any upside
movement with this position.  Target a small credit initially,
to allow for a brief pullback from the recent rally.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUN-30  UGH-FF  OI=39  A=$1.05
SELL PUT   JUN-25  UGH-RE  OI=97  B=$0.80
INITIAL NET CREDIT TARGET=$0.00-$0.10  TARGET PROFIT=$0.70-$0.90

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $915 per contract.


******************************************************************
                       - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions may also be
higher than other plays in the same strategy due to disparities
in option pricing.  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.

******************************************************************
NBR - Nabors Industries  $48.70  *** Oil Drillers Rally! ***

Nabors Industries (NYSE:NBR) is a land drilling contractor, with
over 550 land drilling rigs.  The company conducts oil, gas and
geothermal land drilling operations in the lower 48 states,
Alaska and Canada, and internationally, primarily in South and
Central America, the Middle East and Africa.  Nabors also is a
land well-servicing and workover contractor in the United States.
The company owns 745 land workover and well-servicing rigs, in
the southwestern and western United States, and 40 well-servicing
and workover rigs in certain international markets.  Nabors also
provides offshore platform workover and drilling rigs.  Nabors
markets 42 platform, 16 jackup and three barge rigs in the Gulf
of Mexico and international markets.  These rigs provide well
servicing, workover and drilling services.  The company also owns
and operates a net of nine rigs through an international joint
venture in Saudi Arabia.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-40.00  NBR-RH  OI=244   A=$0.50
SELL PUT  JUN-42.50  NBR-RV  OI=1578  B=$0.75
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14% B/E=$42.20


******************************************************************
RTN - Raytheon Company  $43.75  *** New Contracts! ***

Raytheon Company (NYSE:RTN) is a provider of defense electronics,
including missiles; radar; sensors and electro-optics; wartime
intelligence, surveillance and reconnaissance; command, control,
communication and information systems; naval systems; air traffic
control systems; aircraft integration systems; and technical
services.  Raytheon's commercial electronics businesses leverage
defense technologies in commercial markets.  Raytheon Aircraft is
a provider of business and special mission aircraft and delivers
a broad line of jet, turboprop and piston-powered airplanes.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-37.50  RTN-RU  OI=60    A=$0.40
SELL PUT  JUN-40.00  RTN-RH  OI=1521  B=$0.65
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14% B/E=$39.70


******************************************************************
SLB - Schlumberger  $56.96  *** Oil Service Sector ***

Schlumberger Ltd. (NYSE:SLB) operates two businesses: Oilfield
Services and SchlumbergerSema. Oilfield Services is a provider
of exploration and production services, solutions and technology
to the international petroleum industry.  ShlumbergerSema is an
Internet technology services company that provides information
technology solutions to the telecommunications, utility, finance,
transport and public sectors, and is also a supplier of smart
card technology.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-45  SLB-RI  OI=415   A=$0.25
SELL PUT  JUN-50  SLB-RJ  OI=1080  B=$0.70
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11% B/E=$49.50


******************************************************************
CCU - Clear Channel  $46.49  *** Earnings Play! ***

Clear Channel Communications (NYSE:CCU) is a diversified media
company with three major business segments: radio broadcasting,
outdoor advertising and live entertainment.  The company owns
and programs, or sells airtime for over 1,000 domestic radio
stations and a national radio network.  In addition, the company
has equity interests in various domestic and international radio
broadcasting companies.  The company also is engaged in outdoor
advertising and is a promoter, producer and venue operator for
live entertainment events with over 100 venues domestically and
31 venues internationally.  The company also owns or programs 19
television stations, owns a media representation firm and also
represents professional athletes.  The company's earnings report
is due on 5/7/02.

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  MAY-55  CCU-EK  OI=3123  A=$0.20
SELL CALL  MAY-50  CCU-EJ  OI=2759  B=$0.70
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12% B/E=$50.55


******************************************************************
                    - SPECULATIVE STRADDLES -

These issues meet our criteria for favorable (speculative) debit
straddles; cheap option premiums, a history of adequate price
movement and the potential for volatility in the stock or its
industry.  This selection process provides the best combination
of low capital risk and potentially high reward but, as with any
positions, they must be evaluated for portfolio suitability and
reviewed with regard to your strategic approach and trading style.

******************************************************************
MVSN - Macrovision  $20.25  *** Recent Volatility! ***

Macrovision (NASDAQ:MVSN) develops and licenses rights management
and copy protection technologies.  The company's many customers
include studios, independent video producers, enterprise and
consumer software vendors, digital set-top box manufacturers and
digital pay-per-view network operators.  Macrovision provides
content owners with the means to market, distribute, manage and
protect video, software and audio content.  The company also is
in the business of consumer software copy protection.  MVSN has
as CD-ROM copy protection and rights management technologies to
a variety of software publishers in the personal computer (PC)
games, home education, information publishing and also desktop
applications software markets.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAY-20  MVU-ED  OI=120  A=$1.50
BUY  PUT   MAY-20  MVU-QD  OI=860  A=$1.00
INITIAL NET DEBIT TARGET=$2.30-$2.35  TARGET PROFIT=15-25%


******************************************************************
SFA - Scientific-Atlanta  $20.55  *** Active Issue! ***

Scientific-Atlanta (NYSE:SFA) provides its customers with
broadband transmission networks, digital interactive subscriber
systems, content distribution networks and worldwide customer
service and support.  SFA has evolved from a manufacturer of
electronic test equipment for antennas and electronics to a
producer of a wide variety of products for the cable television
industry, including digital video, voice and data communications
products.  The company is changing the way consumers interact
with their televisions, and is a supplier of transmission
networks for broadband access to the home, digital interactive
subscriber systems for video, high speed Internet, voice over
IP (VoIP) networks, and worldwide customer service and support.
Scientific-Atlanta is applying its expertise to the current
convergence of the personal computer and the television, and
helping to extend multimedia broadband applications to new
platforms via the set-top.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAY-20  SFA-ED  OI=1557  A=$1.40
BUY  PUT   MAY-20  SFA-QD  OI=1525  A=$0.75
INITIAL NET DEBIT TARGET=$2.00-$2.05  TARGET PROFIT=15-25%

Note:  The Delta or "hedge ratio" in the position suggests that
we should buy 1 call for every 2 puts (1:2 ratio) to maintain
a neutral outlook.  However, any downward movement in the issue
should allow both sides of the position to be purchased at
similar prices.


******************************************************************
YHOO - Yahoo!  $14.77  *** Ready To Move? ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 219 million individuals
worldwide.  The company offers an online navigational guide to
the Internet via its www.yahoo.com Website, which is a guide in
terms of traffic, advertising and household and business user
reach.  Through Yahoo! Enterprise Solutions, the company also
provides business services designed to enhance the productivity
and Web presence of its clients.  Yahoo! has offices in the U.S.,
Europe, Asia, Latin America, Australia and Canada.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAY-15  YHC-EC  OI=16835  A=$0.65
BUY  PUT   MAY-15  YHC-QC  OI=3205   A=$0.85
INITIAL NET DEBIT TARGET=$1.30-$1.40  TARGET PROFIT=15-25%


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


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


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

The shorts are still working with two more triggered Friday.  
We’re trying it again with this Nasdaq favorite.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/050502.asp


**************
MARKET POSTURE
**************

More movement to report from Friday’s session.  Unfortunately, 
most of it was to the downside.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/050502_1.asp


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

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