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Daily Newsletter, Wednesday, 05/08/2002

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The Option Investor Newsletter                Wednesday 05-08-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
      05-08-2002          High     Low     Volume Advance/Decline
DJIA    10141.83 +305.28 10148.94  9847.96  1.50 bln   2021/1177
NASDAQ   1696.29 +122.47  1696.35  1625.73  2.39 bln   2465/1085
S&P 100   540.62 + 22.40   540.80   518.22   Totals    2486/2262
S&P 500  1052.67 + 20.76  1075.96  1052.65             
RUS 2000  509.75 + 10.77   509.83   498.98
DJ TRANS 2753.01 + 69.17  2756.56  2684.57
VIX        23.16 -  1.41    24.09    22.28
VXN        45.85 -  4.27    49.16    45.85
TRIN        0.38
PUT/CALL    0.65
*******************************************************************
Last Hurrah or Sustained Bullish Move?
By Buzz Lynn
buzz@OptionInvestor.com

Strike up the band!  Party hats and horns!  Happy days are here 
again!  I almost expected CNBC's finest to begin high-fiving each 
other again.  The truth is that +305 on the Dow, +122 on the 
NASDAQ Composite, and +39 on the S&P 500 was a huge day in terms 
of point gain.

We can attribute today's gains to. . .what?  Cisco!  I was 
thinking, "You must be kidding.  CSCO caused that???"  Nice 
thought.  But that would be like giving roosters credit for the 
sunrise.  Let's get some things out in the open that apparently 
went unnoticed, or perhaps noticed and ignored by market 
cheerleaders.

First CSCO "beat the numbers" by $0.02 thanks to cost cutting 
measures.  Can you say, "You're fired" and "Let's buy our occupied 
buildings from the owners"?  Sure I knew you could!  A company can 
always cut costs by laying off employees and stopping real estate 
lease payments.  While laying off employees probably yielded the 
greatest gain, the Street likes the idea that CSCO is eliminating 
their synthetic real estate leases.  That's an arrangement similar 
to a sale-leaseback, except the tenant can depreciate the building 
they don't own in addition to expensing the rent payment.  It's an 
off-balance sheet accounting gimmick that many companies, 
including CSCO yesterday, are washing their hands of to avoid 
tough accounting questions while implying to shareholders, "We're 
coming clean and want you think more highly of our accounting 
practices".  

Really?  And what should we have thought of your accounting 
practices until you [the company] came clean?  Seems to me kind of 
like a hardened criminal playing the "born again" card in front of 
the payroll board in order to get out of jail.  One freshly 
polished Oscar for Mr. Chambers please.  While Chambers' 
leadership abilities and understanding of business (nobody better) 
are commendable, they guy is also king of spin with masterful 
blurring of the line between good information and cheerleader.

Second, revenues came in at the low end of expectations at $4.72 
bln.  That certainly does not indicate growth in the industry.  In 
fact, CSCO will no longer provide expected revenue growth figures. 
Why?  Because they are flat.

Third, did anyone notice the book to bill ratio?  If they had, 
they would have noticed it under 1 this quarter, near 1 last 
quarter and over 1 the quarter before that.  Those are three data 
points that make a descending line.  The trend is still down!  It 
means that orders are not coming in as fast as CSCO is collecting 
from previous sales.  I'll have to look to see what's happening to 
accounts receivable.  Maybe a sharp-eyed reader already has the 
answer.  While in general, a shrinking number is good along with a 
shrinking collection period (After all, we all try to get that 
money in the door fast.  DELL has this down to an art form.), 
reality is that fewer sales are booked.

Just as an aside, did anyone notice that Lehman made a call on 
Applied Materials (AMAT) suggesting that it will provide worse 
than expected bookings guidance when it reports earnings on May 
14th?  So AMAT will guide semiconductor equipment manufacturing 
sales bookings down, yet the semiconductors (SOX rallied over 11% 
today.  Unbelievable.  And who said speculators had exited the 
market?  No matter, as long as they are alive and well, there will 
be another rally to short.  Just maybe not right now.

Let me offer up two cents on market action while we are at it.  
Despite today's big point gains across the board, I caught Art 
Cashin on CNBC offering cautionary notes.  This is one commentator 
I like precisely because he doesn't cheerlead - he comments and 
clarifies the mood of the trading floor by offering relevant 
facts.  He noted that a lot of today's action was electronically 
hedgefund-induced and didn’t necessarily mean that retail buyers 
were jumping in.  He noted that the markets had been extremely 
oversold and equated them to coiled springs.  Furthermore, he 
stated that many shorts were covering today following an opening 
rally that failed to produce a significant selloff.  That possibly 
ushered in more short covering.  Sellers were notably absent.

And while the volume was strong (1.5 bln NYSE; 2.39 bln NASDAQ), 
it wasn't a barnburner.  Breadth was strong though at better than 
2:1 on both exchanges.  Nice on both counts but not stellar.

Now take everything I said and toss it aside.  While I am still 
fundamentally convinced this is a bear market, there are 
interesting technical developments that suggest there might be 
some legs to the bull this time around, fundamentals be damned.  
But as is true every time, nothing goes up or down in a straight 
line.  Let's take a look.

Dow Industrial chart - INDU:


 

Starting with the weekly, we see a bullish divergence in black 
with a deeper stochastic selloff into oversold than the last one 
coupled with a higher low on the candles compared to the last one.  
Usually, this is bullish.  But the real focus is on the daily 
chart where the declining upper trend line was broken to the 
upside today.  That is bullish too, but also dangerous in that it 
came so far so fast.  The real test now will be at former 
horizontal support at roughly 10,100, then again at roughly 9975-
10,000.  Breakdown at 10,100 takes the points off the horns.  
10,000 would mean to me that today was a one-hit wonder born of 
short covering and few sellers.  Failure there is bearish.

Speaking of bearish, as traders, we need to watch the 60-min chart 
too, which is way overbought stochastically and stratospherically 
topped out on the candles.  It's ripe for immediate correction.  
Don't let today's bullish move have you placing market orders for 
calls at the open tomorrow.  It could result in you paying the 
highest price of the day only to see losses on positions from 
there.  If stochastics can cycle to oversold with minimal candle 
damage (say to 10,050 or higher), I would consider calls on the 
emergence from oversold.

NASDAQ chart - COMPX (weekly/daily/60):


 

After a better than 100 point one-day gain on the NASDAQ, pundits 
are jacked up like a workaholic on 5 cups of morning coffee.  
Don't fall for it.  Despite the gains, the NASDAQ is still the 
weakling index.  Besides that, and more to the point, gaps get 
filled, as history shows on the daily chart.  I would expect his 
one to be no different especially given the magnitude of the gain.  

Removing rose-tinted lenses or sharp horns, we note that the index 
closed just under its horizontal resistance of 1700 on the daily 
chart.  A close over that would have more meaning.  The real test 
comes to see if the breakout can hold support at roughly 1665-1675 
on the theory that what was once resistance can become support.  
Daily stochastics?  Emerging like the green buds of spring, but 
far from convincing with only a fast line break over 20%.  Too 
early to tell if bulls will prevail here.

And that 60-min chart - way overbought with a gap to be filled.  
I'd be a call buyer only if the daily stochastics emerge from 
oversold, the 60-min stochastics cycle to oversold and re-emerge 
with candles holding above 1667.

SPX chart  - SPX (weekly/daily/60):


 

Again, another huge move up that likely can't be sustained.  Lots 
of resistance at this level and again at 1100 on the weekly chart.  
Same for the daily even though the stochastics have emerged from 
oversold.  Bullish, perhaps, but the chart needs anther day to 
season.  Meanwhile the 60-min chart like the others above is over 
bought at resistance and begging to be sold.  I'd only consider 
calls at a pullback to and bounce from 1175 once 60-min 
stochastics emerge again from oversold.

For tomorrow?  I'll enter my SWAG (Scientific Wild something 
Guess) prediction:  With 60-min charts grossly overbought at 
resistance, I'd guess the market buy orders will cease at exactly 
10:00 a.m. ET before the market decides on a bit of consolidation 
for the rest of the day.  More to the point, that will likely be 
the high of the morning and maybe the day.  I'll favor calls then, 
but with failure of any support lines, the horns come off the bull 
and trading range resumes.  ARMS index too is very low at 0.38, 
which says that everyone is on the same side of the trade - far 
too many bulls on the tape to sustain.  Having said that, I've 
jinxed myself and I'll be wrong.  (Hey, it's only a guess!)

As for economics, the only thing on tap for tomorrow would be the 
FOMC minutes and Import/Export prices - no surprises expected 
except the unexpected curveball from the Fed minutes.  VIX remains 
a non-issue at 23.16.  Trade 'em.  Don't take 'em home.

See you at the bell.


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

HOLY COW! 
by Leigh Stevens

The bull was running loose today! The mark of an oversold market 
is that only one spark is needed to set off an explosion. Today's 
spark was predictably about earnings.  Namely of course, from 
Cisco (CSCO).  Which raises the question of how all the talking 
heads on CNBC can go from doom and gloom stories to trying to 
explain how the Dow is up 300 points. It's only a problem if you 
assume that the Market is rational.  Is human nature rational?  I 
rest my case. 

Looking at the tip offs, if any, from any market internals that 
might have pointed to an explosive rally, there were a few. I 
have highlighted them before, and repeat the charts at the end of 
this piece, under the general market indicators section.  To 
recap, the market measures that I find most important are market 
sentiment (the daily put versus call volume ratio), net advance-
decline figures on a 10-day basis and daily upside volume on a 
10-day moving average basis - the later two on a 10-day moving 
average basis. All were showing oversold (or, with NYSE A-D, was 
in an uptrend) levels, although I thought my sentiment model 
would show a greater extreme than it did - in fact, it hit the 
requisite level.  

Why these foregoing indicators are important, is this - when 
these 3 indicators line up, PLUS, the indexes dip under the 
trading envelopes I use, substantial market turnarounds usually 
occur - more than a 1-2 affair.  This by way of an observation 
that, if you are too bearish to believe a more sustained rally 
can happen, you are not alone!  This type of bearish sentiment is 
what "makes" and "marks" a trend change from down to up. 

Not that indices will not retrace some portion, even all of the 
gains made today.  In fact, as I said today on Market Monitor and 
want to repeat cause its important -- possibly -- is that one  
thing to watch is where the chart gaps are. 

It is very common, even if this rally is THE long-awaited market 
turnaround, to see the Indexes drop back to its gap areas, the 
difference between one bar's high (or low) and the next bar's low 
(or high). Charts gaps tend to both get "filled in" (subsequent 
trading occurs in the gap area) and/or act as areas of future 
support in the case of upside gaps. 

If today's upside chart gaps get filled in, in part or all, you 
have a chance then to exit puts and see what happens next. On the 
other hand, if the gap area does NOT get filled in, this is 
valuable too -- prices will usually get close to these areas 
again and it is a sign that major lows are in place; i.e., the 
indices will not see lower lows anytime soon. 

Chart gap areas are - SPX: 1054-1056 (hourly chart only); OEX: 
520.5-521.8 (hourly chart only); DJX/INDU - no chart gap; COMP: 
1594.6 - 1625.7; NDX: 1167.2-1212.8; QQQ: 29.3-29.8 

Regarding the S&P Index calculations - the reasons chart gaps are 
generally not seen on the daily charts is that the opening stock 
prices of the stocks making up the S&P indices are calculated as 
the prior day's close, IF there is not an immediate opening tick. 
This convention came about because delayed openings could cause a 
distortion in the initial or early index calculations. Because of 
this, S&P uses a closing price on any stock without an initial 
opening tick to calculate the index level.  However, on the 
hourly charts, chart gaps will appear. The S&P "cash" indexes 
almost never have daily chart gaps, however. 

S&P 500 (SPX) Daily/Hourly Charts: 


 

A move above 1090 is a breakout above the hourly chart downtrend 
channel, which we have not seen in awhile. To fake out the most 
hard core bears, of which there are MANY, look for a possible 
pullback early, then for SPX to come on again later. We are 
overbought short-term and that will have an effect at some point.  

1070 looks like key support. I would like to see what next 
correction looks like to determine when and where to play the 
long side for awhile.  There is not doubt a short/buy put play 
ahead, but it will take watching the market to find it.  Maybe 
SPX turns lower from 1090, or 1095 at the 21-day moving average, 
but 1100-1107 is another zone from which it corrects.    

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


 


Break out above 540 keeps the bullish momentum going.  Resistance 
comes in around 545, at the 21-day average. Upside targets above 
here is 550.  We could get here, but close under 545. Support is 
537, then 527.   

Dow Industrials 1/100 Index ($DJX.X) Daily/Hourly Chart: 


 


DJX -
Most bullish of the charts, due to close over the 21-day moving 
average. Resistance at 104, then 105-105.5, where I would take to 
the put side.  Near support, 100, then 99, which looks like a 
place to go long calls IF hourly stochastic is oversold again.   

Nasdaq Composite ($COMPX) Daily/Hourly Charts: 


 

1710 area, at 21-day moving average is key resistance if 1708, 
top of the hourly channel is taken out. 1725 is the next area to 
look for signs of a temporary top. Support, 1642, then 1622.

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


 

IF the Q's break out above the closing level and thereby pierce 
the top of its downtrend channel, 32.8 looks like next 
resistance. The 34 to 35 zone looks like the stopper and a place 
to buy short/buy puts for a next downswing.  How the Nasdaq holds 
up on the next correction will tell us the story as to whether 
the Q's have seen a final bottom. 

Support is in the 30 area, then 29.5. 

Index Trade Recommendations 

-Informal trade guidance offered recently only.  On the next 
pullback, will put out specific trade recs.  


GENERAL INTERNAL MARKET STUDIES/INDICATORS - 

SENTIMENT - 
I measure it a little differently and plot these numbers myself 
on a daily basis.  This is a daily reading on CBOE equities call 
to put volume ratios, taking out the index calls/puts widely used 
in hedging.  Only a 1-day reading is enough to call a market 
turn, IF the other key general indicators line up the same way.



 


DAILY ADVANCE-DECLINE FIGURES - 
Following two graphs are 10-day moving averages of the daily 
difference of advances minus declines of each market. 

NASDAQ - QUITE OVERSOLD PRIOR TO TODAY 


 

NYSE A-D 
Not fully oversold, but in an uptrend relative to its other 
relative lows. 



 


UPSIDE VOLUME - 
Daily upside volume for each market tends to "contract" to a 
reoccurring area, on a 10-day moving average basis, prior to 
significant market bottoms.  Upside volume, an indication of 
stocks bought on upswings or on up ticks, is a measure that tends 
to precede price movement.  "Volume precedes Price".  



 



 

ARMS INDEX (TRIN) - BEST MEASURE OF DAILY SELLING PRESSURES 
When, on a 10-day moving average basis, certain extremes occur, 
this measure will precede major market rallies -- the strength 
AND weakness with this indicator is that it often ahs a long lead 
time before a trend reversal is seen.  It is a weakness, cause 
you only have a GENERAL ideas of the timeframe for a reversal, a 
strength because it gives you time to be planning strategy. For 
example, instead of getting more and more bearish, you can know 
with some certainty that at some point you want to switch from a 
heavy put position to a substantial call position.    



 



 


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

An Online Option Trading Reference Manual
By Mark Phillips
mphillips@OptionInvestor.com

Judging by the lack of reader email over the past couple weeks,
I think we have just about exhausted our long discussion on the
topic of option pricing as it relates to the various Greeks.  So
I thought I would use our time together this afternoon to
summarize the numerous tools we have discussed in the recent
past, putting together a central reference point for valuable
option trading tools.

One of the more common questions I have gotten in recent months
is what is a good resource for finding reliable option quotes.
During market hours, I rely on my broker, Preferred Trade.  In
addition to providing a first-rate trading platform (shameless
plug), they also give access to reliable option quotes.  Just
enter that symbol and Voila!, a real-time option chain.  But it
gets better from there, as once the desired option is selected in
the trade entry window, Preferred gives me the ability to check
the Bid/Ask on each of the major exchanges, to see where the best
pricing and best liquidity exists.  If you'd like to check out
the service they provide, click on over to their site HERE.

For those that are happy with their current broker, there's a
convenient solution as well.  The Chicago Board Options Exchange
provides a first rate option quote service.  Delayed quotes are
free of charge and if you can't live with the 20-minute delay,
the real-time quotes only cost $8 per month (including OPRA
exchange fees).  For active traders, that's a bargain!  Here's a
link to their Delayed Quotes page (CBOE Delayed Quotes) and you
can navigate to the Real-Time quotes page using the links at the
top of the page.

Just obtaining price quotes on options is only the tip of the
iceberg, as we have chronicled in these pages in recent months.
If we really want to understand the pricing (or more importantly
the value) of an option we are considering trading, we need to
look at the Greeks that influence that pricing.  While the bread
and butter of their service centers on option volatility, the
folks over at iVolatility.com provide us with a wealth of
valuable information.  We've covered that in great detail in the
recent past, so if you're looking for the roadmap to that site,
check out my past articles below:

Oh, That Vexing Volatility
Volatility - Part Deux
Varying Views on Volatility
A Primer on Online Volatility Tools - Part I

As you will recall, the iVolatility.com site gives us data on
all the Greeks, and the price of the basic service (FREE!) is
hard to beat.

Our next stop on the Greeks Education Express was the topic of
Probability.  As you'll recall, 80-90% of all options expire
worthless, and I think a big part of the explanation for that
statistic is that many traders fail to grasp the often low odds
of success when buying a specific option, particularly one that
is far out of the money.  That led us to our second installment
on Online Volatility Tools, where we explored a couple of
probability calculators in the following article.

A Primer on Online Volatility Tools - Part II

In addition to the site I listed in that article, Larry McMillan's
Option Strategist, there is a more sophisticated probability
calculator found at

http://www.hoadley.net/Options/barrierprobs.asp I'll leave the
exploration of that tool up to you, but if you understood the
process we went through on McMillan's site, it should be
self-explanatory.

We wrapped up our discussion of option volatility by taking a
glimpse at volatility skew and how it can be used advantageously
by spread traders.  While I didn't list it last week, one site
that I like for the glimpse it gives me of what the skew looks
like is Option Metrics.com.  Just type in your symbol in the
Quote field and hit Go.  Up comes an option chain with a small
chart of volatility plotted by strike price, giving us a snapshot
view of the shape of the skew.  Then clicking on the Show Greeks
button gives us IV, Delta, Gamma and the rest of the Greeks for
each of the strikes shown in the option chain.  Then the links
at the top of the page give us the same data for different
expiration cycles.

Isn't it amazing the wealth of information that is available to
us with a few clicks of the mouse?  I hope this recap of our
adventure in Option Pricing has been valuable.  Barring a fresh
round of questions on the topic, I think we're done with the
Greeks.  If any of what we have covered since the first of the
year is unclear, don't hesitate to email me.  It is entirely
possible that others share your confusion, and I'll happily share
the answer with everyone that cares to tune in over the weeks
ahead.  And of course, if you have an option-related question
that I haven't covered recently, send it along.  I'll do my best
to help.

See you next week!


Mark


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

THE SECTOR BEAT - 5/8
by Leigh Stevens

SECTOR ACTIVITY/OUTLOOK – 


 

The above list is the top 10 sector performers today and more 
than half of them were up over 10 percent. This is of course, a 
strong performance, but it must be kept in mind that the 
percentage gains were from very low levels in all cases.  In 
fact, all the daily charts look remarkably similar as you can see 
from the 4-chart montage below - that is, a sharp rebound, after 
a long decline and from a very oversold level.  

FOUR REPRESENATIVE SECTOR CHARTS - MUCH THE SAME PATTERN

The FOP index ($FOP.X) is the Fiber Optic sector -
XCI is the Computer Technology Index -
GSO is the Software index -
INX is the Internet index -  



 

There are none of these stock sectors that I would automatically 
chase higher, until we see how things sort out.  Whether, for 
example, subsequent corrections successfully re-test the prior 
lows and so on.  

I favor buying the previously strong sectors that were going up, 
against the declining market -- after they correct.    
     


SECTOR TRENDS AND TRADING IDEAS - 

Healthcare Payors Index ($HMO.X): 

SECTOR HAS BEEN CORRECTING
Today, rebounded just slightly as some money was going into tech 
for a change.  

Would like to purchase of Oxford Health Plans (OHP) on a 
pullback as a play on this sector. Buy the stock or deferred OTM 
calls in the 40-41.00 area. In terms of the sector, am looking 
for a correction of the HMO Index back to the lower end of its 
daily uptrend channel around 570.  


 
A POSSIBLE GOLD PLAY - 
XAU may be starting to correct  - at least, this week, this 
sector has been down slightly from last week. 
 
Weekly XAU chart suggests that it may be into a resistance area, 
which suggests that there may be a correction that would take XAU 
back into a buying area for new positions. A way to play this 
sector, rather than buying the XAU calls, is to buy Newmont 
Mining (NEM) around near support at 28.50 -- low today was 28.49 
with a preference to buy on a more substantial pullback to the 
25 area, in a lower technical support area. 


LONG/CALL TRADES, PREVIOUSLY RECOMMENDED:

>> 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  

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.

Exit if stock closes under 17.25. 



OPEN SHORTS/PUT PLAYS:

NONE


LIQUIDATIONS:

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

Sold UTH at 91.25, not gaining much improvement on our stop.  
For those waiting and watching, close was better price at 92.19. 
Our stop would have been elected, as low was 90.97


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

Took profits on our short position today at 98.00 for a 1-point 
profit. Sector was oversold and looked like it would rally, which 
it did today.  

 
 

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


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                Wednesday 05-08-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.



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*****************
STOP-LOSS UPDATES
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AZO  - call
Adjust from $74 up to $74.50

SII - call
Adjust from $69 up to $70

SRCL - call
Adjust from $69 up to $70

KMI  - put
Adjust from $49.25 down to $49


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

EXPE $76.59 -5.06 (-7.44) News broke Wednesday morning that
two large hotel chains were starting a price war, which sent
shares of online travel companies reeling lower.  For its
part, EXPE tumbled for more than 6 percent during the day,
on extremely active volume.  More than 6 million shares
traded during the sell off.  With short term levels of support
now broken, and our stop violated, we're dropping coverage
this evening.  If you weren't stopped out this morning, look
for any dead cat bounce tomorrow as an exit opportunity.


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

GS $79.50 +4.65 (+0.95) News of "positive developments" in the
New York attorney general's case against Merrill Lynch set the
brokers a blaze during today's session.  The AMEX Securities
Broker Dealer Index (XBD.X) finished better by 6.86 percent
during the day.  Obviously GS rallied in sympathy with its
group.  With the sentiment shifting, we're choosing to drop
coverage tonight.  Use a pullback early tomorrow to exit
open positions.

SEBL $23.07 +3.18 (+1.91) SEBL shot higher on what appeared to
be irrational short covering in today's session.  The stock
finished about 16 percent higher on relatively heavier trading
volume.  Never mind the reason for the rally, even though it
may be flawed, we're dropping the play tonight after having
our coverage stop triggered.  Use a pullback during tomorrow's
session in the broader software sector to exit plays from
SEBL.

VRTS $27.96 +3.86 (+2.96) It's been an extremely volatile
week for VRTS, and it's only Wednesday.  After breaking down
in a big way during yesterday's session, the shorts decided
to cover today to the tune of 16%.  The stock shot past its
10-dma and along the way triggered our upside stop.  We're
dropping the play tonight after that violation, and will look
for any intraday weakness during tomorrow's session as an
exit opportunity to cut losses.


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**********************
PLAY OF THE DAY - CALL
**********************

SII - Smith International $73.80 +3.41 (-0.54 this 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.

Most Recent Update

SII has pulled back in the last two sessions on the weakness in
the broader energy sector, as well as the crude oil market. The
futures market saw the price of oil dip in the last two days,
but the oil related equities saw the brunt of the weakness. The
Oil Service Sector Index (OSX.X) dipped down below the 103 level
in today's session before the buyers stepped back in to bring
the sector higher. Iraq's announcement over the weekend has
been the primary reason for the weakness in the OSX.X, but the
weakness in the OSX.X and SII was more likely a product of
profit taking, setting up possibly the next favorable entry
point into bullish plays. The bounce near the double bottom
today around the $69 level was encouraging in SII and could
lead to the next leg higher. Use intraday dips down to the $69
level from here as entry points with tight stops.

Comments

After a two day pullback, SII rebounded during today's session.
The broader energy sector followed suit.  Look for the buying
to return in tomorrow's session with strength in the Oil Service
Sector Index (OSX.X).  A breakout above the $75 level in SII
could see that stock moving significantly higher.  Watch for
volume to confirm higher prices.

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

BUY CALL MAY-70*SII-EN OI= 378 at $5.10 SL=3.50
BUY CALL MAY-75 SII-EO OI=1958 at $2.05 SL=1.00
BUY CALL JUN-70 SII-FN OI= 200 at $7.90 SL=4.75
BUY CALL JUN-75 SII-FO OI= 333 at $5.20 SL=2.25

Average Daily Volume = 1.22 mln



************************************************
BIG-CAP COVERED CALLS, NAKED PUTS & COMBINATIONS
************************************************

Cisco Inspires Incredible Rally!
By Ray Cummins

The equity markets soared today with hi-tech shares leading the
way after Cisco Systems (NASDAQ:CSCO) issued an upbeat earnings
report and a bullish forecast for the future.

The NASDAQ Composite posted a massive one-day gain of 122 points,
closing at 1,696 as investors flocked to downtrodden networking
and electronics manufacturing companies in anticipation of an
economic recovery.  Cisco, the world's largest maker of Internet
networking equipment, was the catalyst for the activity, posting
quarterly profits that more than tripled as cost-cutting efforts
paid off.  Cisco also announced that spending has improved for
the battered information technology sector and the trend should
continue.  The optimism among investors spread to non-technology
industries with the Dow Jones Industrial Average up 307 points
to 10,143 on strength in General Electric (NYSE:GE), Microsoft
(NASDAQ:MSFT), International Business Machines (NYSE:IBM), Kodak
(NYSE:EK), Intel (NASDAQ:INTC), and Hewlett-Packard (NYSE:HPQ).
The broader-market Standard & Poor's 500 Index was up 39 points
to 1,088 as almost every major sector moved higher.  Shares of
defensive stocks such as gold, tobacco and health-care companies
were the only decliners.  Market breadth was positive with three
stocks gaining for every two that dropped on the Big Board, while
more than two stocks rose for every falling issue on the NASDAQ.

***************
Summary of Current Positions
***************
(As of 05-07-02)

Naked Puts

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

ACF      MAY    35   34.45  37.79   $0.55    5.88%
MXIM     MAY    45   44.30  43.70  ($0.60)   0.00%
ADRX     MAY    35   34.50  45.59   $0.50    7.03%
PHTN     MAY    43   41.75  38.11  ($0.75)   0.00%

Photon (NASDAQ:PHTN) was closed on 5/3 when the issue
moved below the current trading-range support at $46.
With the stock price at $44.63, the (ask) price of the
option was $1.50, a reasonable closing debit for the
bullish position.


Naked Calls

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

MRVL     MAY    48   48.00  30.99   $0.50   5.11%
TER      MAY    40   40.75  29.89   $0.75   6.67%
ICOS     MAY    55   55.50  23.70   $0.50   5.74%
CCMP     MAY    75   75.90  44.17   $0.90   6.86%
MXIM     MAY    65   65.90  43.70   $0.90   5.85%


Put-Credit Spreads

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

ACDO    60.79  59.00  MAY   50  55  0.65   54.35  $0.65   Open
ASD     74.24  75.40  MAY   65  70  0.60   69.40  $0.60   Open
BSC     65.65  60.36  MAY   55  60  0.55   59.45  $0.55   Open
FAST    81.99  85.18  MAY   70  75  0.55   74.45  $0.55   Open
KSS     75.00  71.15  MAY   65  70  0.65   69.35  $0.65   Open
WLP     67.79  73.31  MAY   60  65  0.80   64.20  $0.80   Open
IGEN    41.10  41.21  MAY   30  35  0.50   34.50  $0.50   Open
PGR     59.27  57.20  MAY   53  55  0.20   54.80  $0.20   Open
EXPE    80.56  81.65  MAY   65  70  0.70   69.30  $0.70   Open
TRMS    49.15  43.47  MAY   40  45  0.65   44.35 ($0.88)  Open
XAU     74.07  77.50  MAY   65  70  0.70   69.30  $0.70   Open
ATK    112.45 107.51  MAY  100 105  0.60  104.40  $0.60   Open
GD      98.31  97.73  MAY   90  95  0.55   94.45  $0.55   Open
NOC    124.68 119.47  MAY  115 120  0.80  119.20  $0.27   Open
DGX     94.75  94.63  MAY   85  90  0.55   89.45  $0.55   Open
SRCL    68.99  72.33  MAY   60  65  0.50   64.50  $0.50   Open

As previously noted, Paccar (NASDAQ:PCAR) was closed when the
issue moved below support at $70.  Trimeris was a candidate for
early exit when it moved below a recent trading-range top near
$45.  Bear Stearns (NYSE:BSC) and Northrop Grumman (NYSE:NOC)
are on the current issues on the "early-exit" watch-list.


Call-Credit Spreads

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

RE     66.00 65.70  MAY   80  75  0.00  75.00  $0.00  Open
CSC    44.82 39.98  MAY   55  50  0.65  50.65  $0.65  Open
SMH    44.38 37.37  MAY   55  50  0.55  50.55  $0.55  Open
PFE    37.85 35.75  MAY   42  40  0.35  40.35  $0.35  Open


Debit Straddles/Strangles: 

Stock   Position   Debit  Target   M/V      G/L      Status

DST    MAY50C/50P  3.90    5.50    4.10     0.20     Closed
SPC    MAY50C/50P  3.90    5.50    3.75    (0.15)    Closed
GS     MAY80C/80P  6.00    0.00    0.00     0.00     No Play

The DST Systems (NYSE:DST) straddle is approaching another
break-even exit in the bearish portion of the play with the
issue near $46.  Traders who have remained in the position
through the recent volatility should consider any profitable
closing opportunity prior to the May expiration.  Although
Goldman Sachs (NYSE:GS) did not offer our target entry debit
(on a simultaneous order basis), the neutral-outlook position
easily achieved profitability.


Synthetic Positions:

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

APOL   43.42   38.34   MAY43C/30P  (0.13)  42.77   0.46  Closed
GM     64.95   64.15   MAY70C/60P   0.45   59.55   0.55  Closed
BA     45.37   42.46   MAY40P/50C  (0.40)  49.60   0.10  No Play
KBH    49.76   49.85   JUN55C/45P   0.25   44.75   1.00  Closed
KLAC   60.31   58.97   JUN70C/50P  (0.10)  69.90   1.65  Closed
ADVP   34.39   30.90   JUN40C/30P   1.00   29.00   0.00   Open
RIG    37.20   35.80   JUN40C/35P   0.30   34.75   1.05  Closed
RTN    42.40   42.72   JUN47C/37P   0.00   37.50   0.40   Open
WLP    77.00   73.31   JUN85C/70P   0.25   69.75   0.00   Open

The new position Trans-Ocean (NYSE:RIG) offered an excellent
short-term profit as the issue moved lower Thursday morning,
allowing a favorable entry credit, then rallied almost $2 over
the next two sessions.  In contrast, Advancepcs (NASDAQ:ADVP)
dropped almost $3 during the morning of the same session (on
no news), but never recovered.  The decline provided a higher
than expected entry credit but the position has yet to produce
a profit.  The Raytheon (NYSE:RTN) play was not (initially)
available at the suggested credit but it has achieved a small
credit.  Speculative positions in KB Homes (NYSE:KBH) and
KLA-Tencor (NASDAQ:KLAC) have produced excellent gains over
the past week.


New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

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

BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

***************
NVLS - Novellus Systems  $50.90  *** Sector Leader! ***

Novellus Systems (NASDAQ:NVLS) manufactures, sells and services
semiconductor processing equipment.  The company's products are
comprised primarily of advanced systems used to deposit thin
conductive and insulating films on semiconductor devices, as well
as equipment for preparing the device surface prior to these
deposition processes.  Novellus is a supplier of high productivity
deposition and surface preparation systems used in the fabrication
of integrated circuits.  Chemical Vapor Deposition systems employ
a chemical plasma to deposit all of the dielectric (insulating)
layers and certain of the metal (conductive) layers on the surface
of a semiconductor wafer.  Physical Vapor Deposition systems are
used to deposit conductive metal layers by sputtering metallic
atoms from the surface of a target source via high DC power.
Electrofill systems are used for depositing copper conductive
layers in a dual damascene design architecture using an aqueous
solution.

One of our readers has been asking for more "put-selling" plays in
the semiconductor group, so we went in search of some issues with
relatively stable support near our target strike.  Novellus is
one of the stronger stocks in the semiconductor sector and after
today's rally, the technical outlook for the issue is neutral to
bullish in the near term.  Traders who agree with that assessment
can speculate on the future movement of NVLS' share value with
these positions.

NVLS - Novellus Systems  $50.90

PLAY (sell naked put):

Action    Month &  Option    Open    Opt Bid   Cost     Target
Req'd     Strike   Symbol    Int.    Premium   Basis   Mo. Yield

SELL PUT  MAY 45   NLQ QI    9,460     0.40    44.60     10.2%

SELL PUT  JUN 40   NLQ RH    3,532     0.95    39.05      5.2% "TS"
SELL PUT  JUN 45   NLQ RI    5,057     1.85    43.15      6.9%


***************
VSEA - Varian Semiconductor  $46.89  *** A Big Day! ***

Varian Semiconductor Equipment Associates (NAASDAQ:VSEA) designs,
manufactures, markets and services semiconductor processing
equipment used in the fabrication of integrated circuits.  The
company's product line includes EHP-200 and EHP-500 products,
EHPi-220 and EHPi-500 products, VIISion 80 LE and VIISion 200
products, and VIISta products.  Varian also provides customer
support and services such as The Varian Introduction Support
Teams and Varian Productivity Transfer Teams, FAB Care Plus,
VEDoc and Remote Assist.

Varian is another popular issue in the semiconductor-equipment
segment and today's bullish activity suggests the stock is
ready to test recent (yearly) highs near $50.  Traders who
believe the stock has additional upside potential can profit
from that outcome with these positions.

VSEA - Varian Semiconductor  $46.89

PLAY (sell naked put):

Action    Month &  Option    Open    Opt Bid   Cost     Target
Req'd     Strike   Symbol    Int.    Premium   Basis   Mo. Yield

SELL PUT  MAY 45   UES QI    137       0.75    44.25     16.2%

SELL PUT  JUN 40   UES RH    14        1.10    38.90      5.2% "TS"
SELL PUT  JUN 45   UES RI    37        2.50    42.50      7.9%


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

BULLISH PLAYS - Credit Spreads

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.

***************
RYL - The Ryland Group  $113.06  *** Construction Sector ***

The Ryland Group (NYSE:RYL) is a unique homebuilders and mortgage
finance company.  The company has built more than 175,000 homes.
In addition, the Ryland Mortgage Company has provided mortgage
financing and related services for more than 155,000 homebuyers.
Ryland homes are currently available in more than 260 communities
in 21 markets across the United States.  The company is planning
a 2-for-1 stock split on May 30, for shareholders of record, at
the market close, on May 15.

RYL - The Ryland Group  $113.06
  
PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUN-90  RYL-RR  OI=112  A=$0.90
SELL PUT  JUN-95  RYL-RS  OI=102  B=$1.30
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
SII - Smith International  $73.80  *** Oil Service Sector ***

Smith International (NYSE:SII) is a worldwide supplier of premium
products and services to the oil & gas exploration and production
industry, the petrochemical industry and other industrial markets.
Smith provides a comprehensive line of technologically-advanced
products and engineering services; drilling and completion fluid
systems, solids-control equipment, waste-management services,
three-cone and diamond drill bits, fishing services, drilling
tools, under-reamers, casing exit and multilateral systems,
packers and liner hangers.  The company also offers supply-chain
management solutions with an extensive branch network providing
pipe, valve, tool, safety and other maintenance products.  The
company's operations are aggregated into two business segments:
Oilfield Products and Services, and Distribution.  The Oilfield
Products and Services segment consists of M-I, M-I SWACO, Smith
Bits and Smith Services.  The Distribution segment consists of
Wilson.

SII - Smith International  $73.80

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-55  SII-RK  OI=121  A=$0.55
SELL PUT  JUN-60  SII-RL  OI=209  B=$1.15
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%


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

BULLISH PLAYS - Synthetic Positions

***************
ATVI - Activision  $33.95  *** Solid Earnings! ***

Activision (NASDAQ:ATVI) is an international publisher, developer
and distributor of interactive entertainment and leisure products.
The company's products span a wide range of genres (including
action, adventure, extreme sports, racing, strategy and simulation)
and target markets (game enthusiasts, mass market consumers, value
buyers and children).  In addition to its genre and major market
diversity, Activision publishes, develops and distributes products
for a variety of game platforms and operating systems, including
personal computers (PCs), the Sony PlayStation and PlayStation 2
and Nintendo N64 console systems and Game Boy hand-held devices.
The company is also currently focusing on the development of new
products for Microsoft Xbox and Nintendo GameCube console systems
and Nintendo Game Boy Advance hand-held device.

Shares of Activision soared today after the video-game maker beat
fourth-quarter expectations and raised its 2003 earnings guidance.
Quarterly revenue totaled $164 million, 30% higher than the $126
million in revenue reported a year ago.  Wall Street was expecting
the company to report net income of only $0.11 per share on $146
million in revenue and after the news, a number of analysts upped
their ratings on ATVI, based on the bullish fundamental outlook.

Traders who think Activision's share value will continue to move
higher in the coming month can attempt to profit from that outcome
with this position.

ATVI - Activision  $33.95

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUN-40  AQV-FH  OI=20  A=$0.65
SELL PUT   JUN-30  AQV-RF  OI=58  B=$0.75
INITIAL NET CREDIT TARGET=$0.20-$0.30  TARGET PROFIT=$0.70-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,030 per contract.


***************
CTAS - Cintas  $55.02  *** New Trading Range? ***

Cintas Corporation (NASDAQ:CTAS) is primarily a corporate identity
uniform company that also provides ancillary services as discussed
below.  Cintas provides a highly specialized service to businesses
of all types, from small service and manufacturing companies to
major corporations that employ thousands of people.  The company
classifies its businesses into two operating segments: Rentals and
Other Services.  The Rentals segment designs and manufactures
corporate identity uniforms, which it rents along with other items,
to its customers.  The Other Services operating segment involves
the design, manufacture and sale of uniforms to its customers as
well as the sale of other services including sanitation supplies,
first aid and safety products and services, and cleanroom supplies.

Shares of CTAS continued to move higher today with the stock price
breaking up and out of a previous trading range.  The rally above
a long-term "triple-top" formation suggests the issue will enjoy
further upside movement in the future and traders can profit from
that activity with this position.

CTAS - Cintas  $55.02

PLAY (conservative - bullish/synthetic position):

BUY  CALL  AUG-60  NQQ-HL  OI=263  A=$1.25
SELL PUT   AUG-50  NQQ-TJ  OI=471  B=$1.05
INITIAL NET CREDIT TARGET=$0.00-$0.10  TARGET PROFIT=$1.00-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,800 per contract.


***************
JPM - J.P. Morgan Chase  $36.91  *** Recovery Mode! ***

J.P. Morgan Chase (NYSE:JPM) is a financial holding company with
operations in over 50 countries.  Its principal bank subsidiaries
are JPMorgan Chase Bank in New York, and Chase Manhattan Bank USA
in Delaware.  JPMorgan Chase's principal non-bank subsidiary is
its investment bank, J.P. Morgan Securities.  JPMorgan Chase's
activities are internally organized into five business segments:
Investment Bank, Treasury & Securities Services, Investment
Management & Private Banking, JPMorgan Partners and Retail &
Middle Market Financial Services.  In November 2001, the company
merged its two lead banks, The Chase Manhattan Bank and Morgan
Guaranty Trust Company of New York. The name of the merged bank
is JPMorgan Chase Bank.

The Federal Deposit Insurance Corporation said today that earnings
for the biggest U.S. banks grew significantly in the first quarter
of 2002 as economic activity recovered following the slump that
began in March 2001.  The results were a record high for the group,
surpassing the previous high of $15 billion achieved in the first
quarter of 2000, with the 25 largest U.S. banking companies posting
record net income of $16 billion in the first quarter of this year.
The first quarter income also represents a $4.8 billion rise over
the fourth quarter of 2001.  J.P. Morgan is one of those financial
giants and investors who believe the company's share value will
continue to recover in the coming month can speculate on that
outcome with this position.

JPM - J.P. Morgan Chase  $36.91

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUN-40.00  JPM-FH  OI=20730  A=$0.70
SELL PUT   JUN-32.50  JPM-RZ  OI=7274   B=$0.60
INITIAL NET CREDIT TARGET=$0.10-$0.20  TARGET PROFIT=$0.70-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,100 per contract.


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

Neutral Plays - Straddles & Strangles

Traders have been asking for more "earnings" volatility plays,
where the underlying issues have discounted option premiums and
the potential to move significantly upon announcement of their
quarterly profit results.  Here are two favorable candidates,
based on analysis of the historical option pricing and technical
background.  In addition, both stocks have a history of multiple
movements through a sufficient range in the required amount of
time to justify the overall risk of the positions.  As always,
review each play individually and make your own decision about
the future outcome of the position.

***************
A - Agilent  $30.04  *** Earnings Play! ***

Agilent Technologies (NYSE:A) is a global diversified technology
company that provides enabling solutions to high growth markets
within the communications, electronics and life sciences
industries.  The company has three primary businesses: test and
measurement, which provides test instruments, standard and
customized test, measurement and monitoring instruments and
systems for the design, manufacture and support of electronics
and communications devices, and software for the design of high
frequency electronic and communications devices and networks;
semiconductor products, which provides fiber optic communication
devices and assemblies, components and integrated circuits for
wireless, networking, computing and printing applications, image
sensors and general-purpose opto-electronic components, and
chemical analysis, which provides analytical instruments, systems
for chromatography, spectroscopy and bio-instrumentation and
consumables.  The company's quarterly earnings announcement is
expected on or about 5/16/02.

A - Agilent  $30.04
  
PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAY-30  A-EF  OI=3938  A=$1.15
BUY  PUT   MAY-30  A-QF  OI=7547  A=$1.10
INITIAL NET DEBIT TARGET=$2.00-$2.10 TARGET PROFIT=15-25%


***************
URBN - Urban Outfitters  $29.50  *** Earnings Play! ***

Urban Outfitters (NASDAQ:URBN) is a merchandising company that
operates specialty retail stores under two distinct brands,
Urban Outfitters and Anthropologie, as well as the Free People
wholesale division.  The company creates and manages retail
stores that offer highly differentiated collections of fashion
apparel, accessories and home goods in dynamic store settings.
In addition to its retail stores, the company offers its many
products and markets its many brands directly to the consumer
through the urbn.com and anthropologie.com Websites, as well
as the Anthropologie catalog.

URBN - Urban Outfitters  $29.50

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  MAY-30  URQ-EF  OI=186  A=$0.85
BUY  PUT   MAY-30  URQ-QF  OI=43   A=$1.40
INITIAL NET DEBIT TARGET=$2.00-$2.10 TARGET PROFIT=15-25%


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

BEARISH PLAYS - Naked Calls & Combinations

***************
BGEN - Biogen  $42.24  *** Technicals Only! ***

Biogen (NASDAQ:BGEN) is a biopharmaceutical company principally
engaged in the business of developing, manufacturing and marketing
drugs for human healthcare.  Biogen derives revenues from sales of
AVONEX (Interferon beta-1a), for the treatment of relapsing forms
of multiple sclerosis and from royalties on worldwide sales by its
licensees of a number of products covered under its many patents.
In addition, Biogen has a significant number of ongoing research
programs and a pipeline of development stage products, including
AMEVIVE (alefacept), which is being considered for approval by the
U.S. Food and Drug Administration and regulatory authorities in the
European Union and Canada for the treatment of moderate to severe
psoriasis.

This position was discovered with one of our primary scan/sort
techniques; identifying potentially bearish issues with bullish
options activity.  In this case, the premiums for the (OTM) call
options are favorable, due to today's rally, and the potential
for a successful recovery from the recent decline is affected by
the resistance at the sold strike price; a perfect condition for
a bearish credit spread.

BGEN - Biogen  $42.24

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-55  BGQ-FK  OI=752   A=$0.40
SELL CALL  JUN-50  BGQ-FJ  OI=4640  B=$0.90
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
ROOM - Hotel.com  $55.30  *** Price War Erupts! ***

Hotel.com (NASDAQ:ROOM), formerly known as Hotel Reservations
Network, is a consolidator of hotel and lodging accommodations.
The company contracts with lodging properties in advance for
volume purchases and guaranteed availability of rooms at lower
prices, and sells these rooms to consumers often at significant
discounts to published rates.  The company's supply relationships
also often allow it to offer customers accommodation alternatives
for otherwise unavailable dates.  In addition, through its wholly
owned subsidiary, TravelNow.com, the company offers customers the
ability to book hotel rooms, airline travel and car rentals.  The
company has room supply agreements with over 2,600 hotels in 97
major markets in North America, the Caribbean, Western Europe and
Asia, as well as 113 vacation rental properties in 17 markets in
North America and the Caribbean.

Shares of online travel companies slumped today amid reports that
two large U.S. hotel chains were starting a price war, provoking
fears about increased competition in the travel accommodations
industry.  Six Continents and Starwood Hotels & Resorts Worldwide,
two of the countries largest hotel chains, are planning to compete
with online travel sites by offering their own room deals through
direct reservations.  The news sent the share value of ROOM lower
as investors took profits from recent gains and although analysts
said the sharp declines were an "overreaction," it appears the
issue will have some extra work to do before resuming its recent
bullish trend.  

The risk-reward outlook in this spread is favorable and traders
who participate in limited-risk strategies can profit from a
short-term consolidation in ROOM with this bearish position.

ROOM - Hotel.com  $55.30

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-70  URD-FN  OI=289  A=$0.50
SELL CALL  JUN-65  URD-FM  OI=268  B=$1.10
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%



***************
SUPPLEMENTAL CREDIT-SPREAD CANDIDATES
***************

BULLISH PLAYS:

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

ANN    46.15  JUN 40P  1.05   JUN 35P  0.50   0.60     14%
ACF    41.75  JUN 35P  1.35   JUN 30P  0.80   0.60     14%
ATH    68.50  JUN 60P  1.10   JUN 55P  0.55   0.60     14%
LEN    55.93  JUN 50P  1.05   JUN 45P  0.50   0.60     14%
MHK    65.02  JUN 60P  1.30   JUN 55P  0.75   0.60     14%
WHR    77.15  JUN 70P  1.05   JUN 65P  0.50   0.60     14%


BEARISH PLAYS:

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

PHTN   41.70  JUN 50C  0.95   JUN 55C  0.40   0.60     14%
AIG    69.95  JUN 75C  0.75   JUN 80C  0.20   0.60     14%
WMT    56.39  JUN 60C  0.70   JUN 65C  0.15   0.60     14%
EXPE   76.59  JUN 90C  1.45   JUN 95C  0.90   0.60     14%
TKTX   34.86  JUN 40C  1.55   JUN 45C  1.05   0.55     12%
ADI    38.15  JUN 45C  0.80   JUN 50C  0.30   0.55     12%
LLTC   38.12  JUN 45C  0.80   JUN 50C  0.30   0.55     12%

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


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