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Daily Newsletter, Sunday, 05/12/2002

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The Option Investor Newsletter                   Sunday 05-12-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


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Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-10           WE 5-3          WE 4-26          WE 4-19
DOW     9939.92 - 66.68 10006.60 + 95.88  9910.72 -346.39  + 66.29
Nasdaq  1600.85 - 12.15  1613.00 - 50.89  1663.89 -132.94  + 40.64
S&P-100  523.24 -  7.28   530.52 -  1.85   532.37 - 27.42  +  6.05
S&P-500 1054.99 - 18.44  1073.43 -  2.89  1076.32 - 48.85  + 14.16
W5000  10017.47 -184.57 10202.04 -  5.42 10208.26 -426.79  +129.08
RUT      492.73 - 19.59   512.32 + 10.82   501.50 - 15.90  +  1.94
TRAN    2643.10 -100.46  2743.56 + 20.93  2722.63 - 74.24  - 78.16
VIX       25.03 +  1.80    23.23 -  1.41    24.64 +  4.34  -  1.79
VXN       50.73 +  4.47    46.26 +  4.02    42.24 +  2.89  -  3.46
TRIN       2.56             1.71             1.82             1.18
TICK       +364             +910             +367             -492
Put/Call    .83              .91              .87              .79
******************************************************************

 
Cisco Who?  
by Jim Brown

It took a painful week but investors are right back where they 
were this time last weekend. Actually the major averages are 
lower than they were last week. The Dow lost -66, the Nasdaq -12 
and the S&P -18. Cisco who? The supposedly stellar earnings on 
Tuesday sent shorts running for cover and produced a +300 point 
gain. Maybe they should have read the earnings first instead of 
listening to CNBC. Once traders realized orders were still dropping 
and those earnings came on cost cutting efforts and sales of 
inventory written off over the last year they went back to business 
as usual, shortingtech stocks. 



 



 



 

The surprising drop in the PPI on Friday provided no relief for 
the markets as traders were focused instead on news that IBM was
going to layoff 8,000-9,000 more workers. All the talk that maybe 
a recovery was under way was suddenly called into question. If a
recovery was just around the corner why would IBM be cutting its
workforce so drastically? The answer is clear. The recovery is 
missing in action and the IBM CEO was not kidding earlier in the
week when he told his employees that growth for 2002 and 2003 could 
be flat to less than 10%. Surprise! This caused traders to reflect
on the Cisco earnings again and several tech warnings for the week.

Debt downgrades for a major Nasdaq stock, WCOM, did not help either.
Not that WCOM is a bigcap stock any more at $1.59 a share but
cutting their debt to junk cast yet another pall over the telecom
sector. Chip stocks completed a two day slide and were instrumental 
in tanking the Nasdaq. Microsoft fell over -$2 to close at $50
again. Microsoft's slide was prompted by news that the EU may 
exact stiffer penalties from IBM than the US may get. They are 
still talking about an unbundled browser and removing Media 
Player from Windows. Microsoft get 25% of its revenue from the
EU states. Intel continued to lose ground after CEO Barrett said
contrary to wishful thinking sales for the 2Q would be flat due
to lack of demand. QCOM lost -1.54 on worries that the economic 
slowdown would delay acceptance of their new technology. Sounds 
like the Nasdaq is still bleeding from a thousand cuts, none
serious this week, but each extracting a painful toll.

The economic results this week boiled down to more of the same.
The 1Q was purely inventory replenishment which carried over to
the 2Q in some areas. The 3Q/4Q are still a black hole of unknowns
and every day brings us close to earnings disappointments if
something does not start happening fast. Retail earnings will
be the focus next week and we will see if those better than 
expected 1Q sales were at the expense of profits and if the 
guidance is a slowing consumer ahead. 

Next week could be another tech wreck. IBM holds it's biannual
analyst meeting and already there are rumors they will lower 
guidance again. Their meeting is on Wednesday. On Thursday TXN
will hold it's analyst meeting and update them on the state of
the chip sector. Should they guide expectations to slower growth
the outcome would be a disaster. 

The Wednesday rally turned into the feared one day wonder and
a perfect example of rampant short covering. The slide below
10000 on the Dow is a psychological blow for the retail investor
and the odds are strong they will withdraw to the sidelines as
May drags by. Already indications are of an investor drought as
TrimTabs.com reported a net outflow of -$2.4 billion in week
ended Wednesday. It was not just the Nasdaq or the Dow having
trouble this week. The Russell-2000, the star of the show recently, 
dropped to a new two month low of 492.73. This is -31 points
from the April high and shows that buyers are leaving the market
in droves. Declines beat advances 2:1 on moderate volume. 
Unfortunately most of that volume was down. 1.182 billion shares
on the NYSE were down compared to only 196 million up volume.
Now that is really ugly. GE, once the Dow leader is struggling
to hold over $30. A failure of that level would send a very 
negative signal to other Dow holders. 

The good news at the close was the TRIN at 2.62 showing a strong
oversold condition and the VIX at 25 nearing a buy signal. These
are straws, I know, but they do show the internal health of the
markets. Around the office the view was mixed. Bailey was trying
to sell the concept of a stealth Nasdaq rally next week and Leigh
is still promoting the consolidation base in preparation for the
next leg up. Hey, I hope they are both right but with the tech
downtrend firmly in place despite the Cisco news, what will turn
it around? Earnings are over and I can't imagine IBM will change
its spots on Wednesday. They will try to put a positive spin on
a dismal outlook but will the analysts believe it? I doubt it.

The Dow is trapped in a range between 10100 and 9800 and if I 
had to bet on which side broke first it would be the lower number.
It has been tested four times and next week could provide the 
fifth. The S&P hit a seven month low on Tuesday before posting
a +40 points gain which has all but disappeared. That low at 
1048 is only 7 points away. The Nasdaq's Tuesday close of 1574 
is only 27 points away and that was a six month closing low. 
My point in this is simple. If a monster short covering rally 
can't energize investors for more than 6.5 hours then what will
stop this skid next week? 

Economic reports next week will provide only comic relief as
analysts attempt to spin them for maximum impact. Wednesday is
the CPI and Industrial Production. Thursday Housing starts and 
Friday the Consumer Sentiment again. Personally I would be more
afraid of IBM on Wednesday than all of those put together. My
entry points for buy and hold traders are several days out of 
range, 10100/1700/1090. What it means is it would take several
bullish days of price movement to trigger those levels. Buying
any bounce between here and there is asking for trouble. Those 
levels have failed several times and there is nothing to indicate
they would not fail again. Fortunately we don't have just one
card to play. We can play the trend to the downside just as easily
as we play the uptrends when they come. Remember those? 

My suggestion for the week. If you are a trader there will be 
many opportunities. Check out the market monitor for even more
trading ideas than are listed in the newsletter alone. Check out
my daily Swing Trade suggestions in the Monitor. If you are not 
a trader I would be looking to buy a bounce off 9800 for the Dow 
and 1500 on the Nasdaq. Whatever you do please use stop losses
because the odds of negative surprises far outweigh the positive
ones. Keep those seatbelts fastened and trade in the direction
of the skid.

Enter Very Passively, Exit Aggressively!

Jim Brown
Editor

Editors Note: We are having a spring-cleaning sale at OIN.
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Also we have a couple dozen of the year end special CD/Workbooks
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We have delivered several thousand of these to rave reviews and
only have a couple dozen left. Don't miss out!

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Act fast because there are no more. 
When they are gone they are GONE!

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

Day Trader?
 
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http://members.OptionInvestor.com/itrader/marketbuzz/#
http://members.OptionInvestor.com/itrader/archive/marketmonitor.asp


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

VOLATILITY UP, PRICES DOWN
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

Volatility goes up, up, up, prices come down, down, down. The 
market exhibited even more volatility last week as is seen in the 
VIX and VXN charts at bottom that measure S&P and Nasdaq 
volatility, respectively. 

Price action last week was a bear sandwich, with weakness at the 
beginning, a strong rally in the middle, followed by another 
downswing. The S&P 500 was off 18 for the week, for a loss of 
1.7%.  We continue the pattern of lower relative weekly highs and 
lows as is quite apparent on the weekly bar chart. 

There is just not enough bullish news to get the market up, 
especially in tech, as valuations (P/E ratios, etc.) are still 
high. Q2 earnings are a ways away and not expected to show  much 
of an increase anyway. 

So, what have we got of bullish cheer? NOT! On the political 
front, an awful fight and mid east quagmire with no end in sight 
-- one that keeps oil prices high as the cat is out of the bag 
now that Arab use of the oil "weapon" has been whispered about. 
The most active June Crude Oil futures contract closed the week 
at $28, up nearly $1.40 from the week before. Also, the threat of 
terrorism seems to be always with us now.  

Without a steady stream of gangbuster earnings, these political 
and economic worries tend to get pushed to the forefront. It's 
hard to say what could ignite a more sustained rally, beyond 
getting stock price levels to a point where they seem like 
relative bargains - that, plus being oversold. 

When a market gets oversold enough, something usually comes along 
that ignites a rally and money managers have to buy into it; fund 
peer review and judgment against index performance, comes every 
quarter. IBM reports this week (Wed.) - they might provide a 
bullish surprise, like Cisco did last week - maybe not. 

S&P 500 (SPX) Weekly/Daily charts: 


 


We have not hit the 62% weekly retracement level yet, which comes 
in at 1032.  The 8-week RSI momentum oscillator continues lower, 
but is getting near to an oversold reading.  Another 1-2 weeks of 
sideways to lower movement will create a weekly oversold reading. 

The recent rally got started after an oversold daily and hourly 
stochastic reading and after prices had a second touch to the 
lower envelope which is 4.5% under the 21-day moving average. 
When the rally pushed prices to near this average that was the 
end of the advance, which is common.  Now what?      

S&P 500 (SPX) Hourly chart:


  

As both stochastic models are nearly in an oversold area, it 
looks like the next new trading opportunity will be to buy SPX 
calls.  Some support may develop around 1050, at the low end of 
the chart gap, or at 1048, at the prior low.  Should a move 
develop down to the lower channel line at 1040-1037, it offers 
the best risk to reward to get long calls.  

Buy SPX calls in the 1040-1038 area, or on a move above 1060 if 
there is an upside reversal before 1040 is reached, especially if 
the reversal was from a double bottom around 1048.  Risk 5 points 
from entry, with an objective to 1075.        

The rally stopped practically at the upper trend channel line, 
which has also been the pattern for weeks.  Note how the bear 
downtrend has kept rallies short and shallow for the most part.  
The quick and easy money continues to be made from shorting the 
market by put purchases. 

NOTE the way the two stochastic models, short (5) and long (21) 
tend to work in a downtrend. It has been a lock to sell rallies 
when the 5-bar model got up to the overbought area and then 
headed down again.  All the "signals" at the top were money- 
makers if you could execute trades at the time they developed. 
Note that the "signals" that identified trades with the biggest 
price swings were when BOTH lined up at top and then turned down.  

On the 2-3 trading opportunities that presented themselves as 
seen on the hourly chart above, the right time to cover shorts 
and go long was after the 21-hour stochastic model got down to an 
oversold level and then turned up.

S&P 100 (OEX) Weekly/Daily charts: 


 


Almost every technical observation on SPX can be repeated on the 
100 Index. 541.4, the current 21-day moving average, is the 
"pivotal" point - above this average, look for further OEX upside 
if the 21-day average is at the low end of pullbacks. Below this 
line, look for the 21-day average to act as resistance.   

S&P 100 (OEX) Hourly charts: 


 

The 520-521 area, at the low end of the hourly price gap, could 
develop as near support. Below this area, potential support is at 
518, at the prior low; then, at the low end of the downtrend 
channel in the 506 area. Risk 3 points from entry.   

I favor buying calls in any one of these areas where support 
appears to develop, followed by an upturn in the stochastic 
(length: 21). 

526 is the breakout point.  There are two ways to enter a trade -
- entry at or in a support or resistance area - the other is to 
enter when prices go above or below key resistance (or to below 
key technical support). Buying on strength, selling on weakness, 
is playing momentum. 

An upside objective is to 533, where I favor selling/buying puts. 

Dow Industrials ($INDU & $DJX.X) Weekly/Daily charts: 


 


The Dow kind of has the brakes on all the time, but it 
nevertheless keeps slipping lower week after week. It is the 
farthest from being oversold on the RSI momentum oscillator.  One 
close above the 21-day moving average was not enough to signal a 
reversal.  What you want to see is a move above it, with any 
subsequent declines rebounding from the 21-day average. 

As well, a decisive upside penetration of the weekly down 
trendline at 10150, would signal a possible reversal of the 
current downtrend.    

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


 
 
Buying in the 98 area is warranted if support develops at the 
trendline. On a move this much lower, it appears likely that the 
21-hour stochastic would also reach an oversold low. If there is 
a move down toward 96, this should offer an optimal place to take 
some put profits and buy calls.

Resistance is apparent in the 100.5-101 area, which is my 
objective for a rally and a target for exiting calls bought in 
the 98 area.  I'm reluctant to say short this area too, until we 
see how price action unfolds and whether we get overbought hourly 
stochastic readings again. 

If you are looking for 3-4-5 trades a month, monitor the 21-hour 
stochastic from day to day and wait for the extremes in it.  You 
will have fewer trades, but of greater potential -- and, this 
time frame is more easily monitored from day to day, after the 
market closes. 

Nasdaq Composite ($COMPX) Weekly/Daily charts:


 

We have completed a 75% retracement in the weekly Composite, and 
if recent lows in the 1560 area are not penetrated this may be 
the low end of the upcoming trading range. Otherwise, I 
anticipate a round trip to the area of the September lows in the 
1400 area.  Minor resistance is at 1700 area, but the significant 
breakout point is just above the weekly down trendline at 1755.  

Tech looks weak, but the Nasdaq Composite index is also nearly 
fully oversold on a price basis in terms of the weekly 
stochastic. It's hard to say whether we can rally from the 1600 
area first, say back to and above 1700 for awhile, then sink 
again -- or, we sink more, before we'll see another rally set up. 
My crystal ball is cloudy on this subject. 

I continue to look for opportunities for both call and put plays.  
As long as we have some back and forth price swings there is 
opportunity, and we continue to have these coming along.  

Nasdaq Composite ($COMPX) Hourly chart: 


 

Again, note the tendency for the bottom turning points to best 
identified by the longer stochastic and the highest potential 
shorts to develop at the point where both get overbought and at 
the high end of their graphs. 

Look for resistance at 1680 and as an opportunity to put some 
puts in your account.  Support is at 1560, then 1530. A decline 
to and then a rebound from 1560 would set up a possible double 
bottom, which would also suggest a buying opportunity.     

Nasdaq 100 Trust Stock (QQQ) Weekly/Daily charts: 


 
 

We are so close to the prior low at 27 that it seems hard to 
believe that we won't go there. This would be an area where a 
double bottom low could set up, especially given the oversold 
reading on the weekly RSI.  

32 is near resistance.  33 is resistance implied by the weekly 
downtrend channel and a move above this level would be a 
technical breakout.    

Nasdaq 100 Trust Stock (QQQ) Hourly chart:

 

Sell in the 31.3 area, at the upper channel line, on up to 32, 
exiting only if there as a close over 33.  Buy in the 29 area if 
support develops at the low end of the prior upside price gap.  
This is what I anticipate happening, but this market is tough to 
figure until we see what residual or new selling comes in on 
Monday.  

I would also feel confident in going long in the 28-27.5 area. Of 
course if we get to 27.5, 27 is not far away and becomes a 
natural "target". At any rate, stops should be set at 26.3. 

Index Trade Recommendations 

Buy SPX calls (e.g., June 1070's) at 1040-1038
Or, buy on a move to 1060 if rally occurs first
Risk 5 points from entry
Objective: 1075.        

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 - 

We are getting there, but are not quite yet at the daily closing 
levels most often associated with major bottoms and turning 
points.  Watch for closes over 27 on VIX, and for closing levels 
at or above 60 in VXN.  


 


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Expiration Week - Again
QQQ, OEX, IBM

By far the best play in my mind this week is a put on the QQQ.
The Nasdaq is dropping like a rock and if the lows from last 
week fail the QQQ could hit $27.

Because of the $1 strikes and the cheap premiums it is very easy
to play and you can't find a more directional stock today. The
IBM analyst meeting on Wednesday should depress tech stocks even
more and only a $1 move could provide a double in the premium.



 

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

OEX Put

The OEX is on track to set a new relative low next week. Support 
is not until 490 and after the 517 area is passed it could go 
into free fall. The May-515 put is only $3.80.



 

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

IBM Put

Amazingly cheap the May $80 put on IBM is only $1.90. Should
IBM guide lower again the bottom could fall out of the price.
Rumors are already flying that things are not right and the
new CEO could take this opportunity to sweep out the skeletons
and get rid of past problems. If you are worried about a 
possible rebound on good news the $80 call is only $1.60.



 


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

Remember, these are all high risk plays and should only be made
with 100% risk capital.

Good Luck

Jim Brown    

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

Ouch!
By Eric Utley

Thursday's reversal in the Nasdaq-100 Bullish Percent ($BPNDX)
had me cautious to the short side, and growing horns.  That was
painfully wrong!  I've written before that psychology trumps
all else in the short term, which was proven once again last
Friday.  There wasn't even a hint of fear to the upside on the
part of shorts, who pressed and pressed stocks lower into the
close of one heck of a week.

On a side note, last week's volatility is what I live for.
Are you kidding me?  Ten percent in the Nasdaq-100 (NDX.X)
Wednesday, followed by a couple of four percent moves.  Give
me more of that!

Back to the action, the only fear on display last Friday was
that on the part of longs.  The CBOE Market Volatility Index
(VIX.X), which helped to discount Wednesday's rally, spiked
higher in Friday's session to the tune of almost 12 percent.
I'm sensing an increase in capitulatory sentiment; that is,
bulls throwing in the towel.  But we're not there quite yet.

The sector scorecard was awash with red Friday; only two of
the groups that I track finished higher: Gold (XAU.X) and
Oil Service (OSX.X).  Not even the bull-friendly HMOs and
defense stocks could manage a positive finish.  The weakest
links were in tech and telecom.  Big surprise!  Airlines
(XAL.X) were hit especially hard too.  More than any other
sector, though, the Semis (SOX.X) stuck out to me last Friday,
and for much of the week for that matter.  The group had been
the go-to stocks for the bulls, but gave up a lot of relative
strength last week.  Chalk it up as the towel coming off
the rack, but not thrown in just yet.

The short-term ARMS Index indicators are again in extreme
territory.  Mr. Arms has been calling a bottom based on some
arcane double-deuces signal.  I'm not sure what that is, but
like the NDX bullish percent, I think it was false signal.
Anyway, with the ARMS, I think we need to see the longer
term measures creep into extreme territory.  They're creeping,
but still have some room to go.

COT data weren't of much help this weekend.  The only market
I really monitor COT data is in the S&P.  There wasn't much
to report there, other than both groups came off of their
extreme levels reached a few weeks ago.  I'd like to see that
spread widen even more in terms of signaling capitulation.

The market internals were obviously negative last Friday.  I
watched the advance/decline volume tick lower all day long
in the Nasdaq, and to a lesser extent over no the NYSE.
Volume was no where near washout levels.  But worth noting
was the reversal of the new highs/new lows line on the
Nasdaq.  There's no sense in giving this indicator much
credence after one day, but I have noticed a few other
reversals recently, and a definite narrowing of the spread.
It reveals internal weakening of the Nasdaq.

Coming full circle, the $BPNDX added one stock Friday to
remain in bull alert territory.  As long as the indicator
is in this position, at an oversold level, the prudent thing
to do is manage for risk to the upside.  Although that feels
wrong after Friday.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     : 10037

Moving Averages:
(Simple)

 10-dma:  9966
 50-dma: 10275
200-dma:  9914



S&P 500 ($SPX)

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

Moving Averages:
(Simple)

 10-dma: 1073
 50-dma: 1123
200-dma: 1124



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1240

Moving Averages:
(Simple)

 10-dma: 1230
 50-dma: 1389
200-dma: 1474



Oil Service ($OSX)

The OSX was the day's best performing sector with its 2.16 percent
advance.  The unfortunate events in the Middle East continue to
lend a bid to this group.

Sector movers included Rowan Companies (NYSE:RDC), BJ Services
(NYSE:BJS), Smith International (NYSE:SII), Cooper Cameron
(NYSE:CAM), and Transocean (NYSE:RIG).

52-week High: 136
52-week Low :  58
Current     : 108

Moving Averages:
(Simple)

 10-dma: 108
 50-dma: 102
200-dma:  86


Wireless ($YLS)

Friday's worst performing sector was the YLS.  The beaten down
index dropped another 6.95 percent during the day on the heels
of a warning from component Western Wireless (NASDAQ:WWCA).

Sector movers included the aforementioned Western Wireless,
Sprint PCS (NYSE:PCS), PCS Airgate (NASDAQ:PCSA), and AT&T
Wireless (NYSE:AWE).

52-week High: 130
52-week Low :  56
Current     :  56

Moving Averages:
(Simple)

 10-dma: 60
 50-dma: 68
200-dma: 84

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

Market Volatility

That's more like it!  The VIX spiked higher in last Friday's
session, reaching an intraday high at 25.75, which was just beneath
the indicator's 200-dma.  It closed higher by nearly 12 percent.

The VXN closed on its 200-dma, higher by nearly 14 percent.  I
smell a parabolic move higher in this index, which should translate
into a washout in stocks.

CBOE Market Volatility Index (VIX) - 25.04 +2.66
Nasdaq-100 Volatility Index  (VXN) - 50.72 +6.20

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.83        509,913       423,266
Equity Only    0.67        421,904       282,504
OEX            1.04         28,474        29,609
QQQ            0.80         71,007        56,798

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

Bullish Percent Data

           Current   Change   Status
NYSE          62      + 0     Bull Confirmed
NASDAQ-100    28      + 1     Bull Alert
DOW           53      + 0     Bear Confirmed
S&P 500       57      - 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  1.61
10-Day Arms Index  1.53
21-Day Arms Index  1.38
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      1136           2006
NASDAQ    1269           2207

        New Highs      New Lows
NYSE       65             53
NASDAQ    101            107

        Volume (in millions)
NYSE     1,182
NASDAQ   1,836

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

Commitments Of Traders Report: 05/07/02

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

S&P commercials eased further from their extreme bearish
positioning.  The group added more longs than shorts for a
reduction to their net bearish position.  Small traders backed
off from their most bullish reading by adding more shorts than
longs.

Commercials   Long      Short      Net     % Of OI 
04/16/02      322,578   411,245   (88,667)  (12.1%)
04/30/02      340,936   421,673   (80,737)  (10.6%)
05/07/02      348,019   422,801   (74,782)   (9.7%)

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
04/16/02      150,529     50,424  100,105     49.8%
04/30/02      153,158     56,372   96,786     46.2%
05/07/02      154,664     59,583   95,081     44.4%

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 stayed on the fence during the most recent
reporting period.  The group's net position is short 814
contracts; not much conviction there.  Same thing with small
traders; they're long a full 68 contracts.

Commercials   Long      Short      Net     % of OI 
04/16/02       32,024     35,723    (3,699)   (5.5%)
04/30/02       34,591     35,933    (1,342)   (9.7%)
05/07/02       38,338     39,152      (814)   (1.1%)

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
04/16/02       12,458    10,572     1,878      8.2% 
04/30/02       12,271    12,703     (432)      1.7%
05/07/02       13,229    13,161        68      0.3%

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 remained flat during the most recent reporting
period.  The group added a few longs and shorts.  Small traders
grew more aggressive on the bearish side by bringing their net
position to short 4,700 contracts.

Commercials   Long      Short      Net     % of OI
04/16/02       19,080    14,267    4,813     14.4% 
04/30/02       17,275    13,341    3,934     12.8%
05/07/02       19,967    14,045    5,922     17.4%

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
04/16/02        5,644     9,448    (3,804)   (25.2%) 
04/30/02        5,813     8,869    (3,056)   (20.8%)
05/07/02        5,124     9,831    (4,707)   (31.5%)

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

Know Your Levels
By Eric Utley

Reporting on last weekend's discussion, we saw some interesting
technical developments in the SOX and BTK this past week.  Once
again, knowing your levels of risk paid off.  That was especially
evident in the BTK, which traded below the 400 level, but missed
printing 375.00 by a fraction of a point; 0.24 to be exact.
Uncanny!  Over in the SOX, we saw the index print the 500.00 level
to break it down, but there too the shorts began covering near the
bullish support line at 450.00.  The SOX traded 5.27 points away
from 450.00.

Through Friday, these two tech favorites were trading above their
respective key levels of support.  I can assure you that traders
will be monitoring both closely going into next week's trading.

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 

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

Intuit (NASDAQ:INTU)

INTU has been a strong stock since tax season.  It's not going
down...but not going up much either.  Any thoughts? - Thanks,
Ed

Thanks for the question, Ed.  Good observation!

INTU is the type of stock that I'd be focusing on for bullish
positions in the technology sector.  The stock has a really
good looking longer term trend that has pretty much held since
early 2001.  The one thing about the stock that I really like
is its relative strength versus the Nasdaq-100 (NDX.X) -- INTU
is a component of the NDX.  The stock has been out performing
the NDX since late January.  It just recently went back on a
buy signal versus its index, which helped to reinforce its
trend in relative strength.

INTU versus NDX


 

The stock hasn't been able to move higher, as Ed pointed out,
because of the triple top that has kept a lid on shares at the
$41 level.  We now have three tests of that level.  And I
subscribe to the notion that suggests resistance (support) grows
weaker on each test.

The stock's relative strength has kept it propped up during the
most recent downturn in technology shares.  So we have a bit of
a mixed picture based upon price action alone.  But I think the
relative strength reading puts more of a bullish bias on this
stock.

Concerning price action, the only real major negative is that
the stock is still on a sell signal from its brief blip in March
down to the $36 level.  Since then, a relatively higher low as
set at the $37 level, which brings us up to speed through Friday's
session.

INTU - Point and Figure


 

Ideally, I'd like to see the stock breakout above the $42 level,
going back onto a buy signal.  After that, I'd look for another
higher low during any pullback for a good entry point into
bullish positions.  For instance, if the stock broke $41 and
traded up to the $42 to $43 area, then pulled back into the $38
to $39 range, I'd be all over it with a nice tight stop at $36.
It's usually not that easy, as the market likes to make it more
difficult.  But that's the set up that I'll be looking for in
INTU.

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

Conexant (NASDAQ:CNXT)

You reviewed Conexant a while ago, and I think you weren't
very positive on the stock.  I've read some things on the
their split up soon and was wondering if you're still bearish? - 
Rosa

Thanks for the question, Rosa.

I was cautious/bearish on CNXT about three or four points ago,
and nothing has changed from my previous observations.  Look,
these are the company's two divisions: Personal Networking and
Mindspeed Technologies.  The first is its cell phone business,
the second is its networking concern.  I'd suggest taking a look
at something like Nokia (NYSE:NOK) or Qualcomm (NASDAQ:QCOM) to
get a feel of the cell phone business.  Then turn to the chart
to something like Cisco (NASDAQ:CSCO) or Ciena (NYSE:CIEN).

Technically, CNXT's picture has worsened since our last visit.
Get this, the stock's bearish price objective is exactly 0.
Now I don't think that this company is going out of business,
but as a risk manager (Read: Trader) you have to look at it
from that perspective.  In other words, there's about seven
bucks of downside risk in this one.  

Yes the stock is low priced, but that doesn't mean you should
throw good money at a crummy stock, no matter the so called
split up catalyst.  If the spilt of the company is such a good
thing, why then is the stock trading near multi-year lows?

CNXT - Point and Figure


 

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

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

VNT    C. A. Nac Tele de Ven  Mon, May 13  After the Bell     N/A
FUN    Cedar Fair LP          Mon, May 13  After the Bell   -0.59
CKC    Collins&Aikman         Mon, May 13  -----N/A-----     0.01
DQE    DQE                    Mon, May 13  After the Bell    0.22
EN     Enel S.p.A.            Mon, May 13  Before the Bell    N/A
HC     Hanover Compressor     Mon, May 13  Before the Bell   0.23
MAC    Macerich Company       Mon, May 13  Before the Bell   0.70
MAY    May Department Store   Mon, May 13  -----N/A-----     0.31
MCCC   Mediacom               Mon, May 13  Before the Bell  -0.65
TEM    Telefonica Moviles     Mon, May 13  Before the Bell    N/A
TM     Toyota Motor           Mon, May 13  -----N/A-----      N/A
VAL    Valspar                Mon, May 13  -----N/A-----     0.65
WTW    Weight Watchers Int    Mon, May 13  After the Bell    0.28

ANF    Abercrombie&Fitch      Tue, May 14  -----N/A-----     0.21
ROS    AO Rostelecom          Tue, May 14  Before the Bell    N/A
AMAT   Applied Materials      Tue, May 14  After the Bell    0.02
BEAS   BEA Systems            Tue, May 14  -----N/A-----     0.05
BNG    Benetton Group         Tue, May 14  Before the Bell    N/A
CA     Computer Ass. Int      Tue, May 14  After the Bell   -0.04
CSC    Computer Sciences Corp Tue, May 14  After the Bell    0.77
DE     Deere & Company        Tue, May 14  Before the Bell   0.43
FIA    Fiat SPA ADR           Tue, May 14  -----N/A-----      N/A
FOX    Fox Entertainment      Tue, May 14  Before the Bell   0.04
JCP    JC Penney              Tue, May 14  -----N/A-----     0.24
KEP    Korea Electric Power   Tue, May 14  -----N/A-----      N/A
NTAP   Network Appliance      Tue, May 14  After the Bell    0.04
NWS    News Corporation       Tue, May 14  Before the Bell   0.15
PUB    PUBLICIS Groupe SA     Tue, May 14  -----N/A-----      N/A
IMI    SanPaolo IMI SpA       Tue, May 14  -----N/A-----      N/A
TRK    Speedway Motorsports   Tue, May 14  Before the Bell   0.39
TIF    Tiffany Co             Tue, May 14  Before the Bell   0.22
TJX    TJX Companies          Tue, May 14  Before the Bell   0.26
UBS    UBS AG                 Tue, May 14  -----N/A-----      N/A
ZLC    Zale Corporation       Tue, May 14  Before the Bell    0.2

ACXM  Acxiom                  Wed, May 15  After the Bell    0.15
ADVP  AdvancePCS              Wed, May 15  After the Bell    0.33
ANN  AnnTaylor Stores         Wed, May 15  After the Bell    0.63
BOX  BOC Group PLC            Wed, May 15  -----N/A-----      N/A
BRCD  Brocade Comm Systems    Wed, May 15  After the Bell    0.06
CWP  Cable&Wireless Plc       Wed, May 15  Before the Bell    N/A
CPB  Campbell Soup            Wed, May 15  -----N/A-----     0.23
CZN  Citizens Comm Co.        Wed, May 15  -----N/A-----    -0.02
SID  Companhia Sideru Nac     Wed, May 15  Before the Bell   0.16
CSR  Credit Suisse Group      Wed, May 15  12:00 am ET        N/A
FD  Federated Department St   Wed, May 15  -----N/A-----     0.35
GMST  Gemstar-TV Guide Int    Wed, May 15  After the Bell    0.14
HPC  Hercules                 Wed, May 15  Before the Bell   0.16
INTU  Intuit                  Wed, May 15  After the Bell    0.72
JHX  James Hardie Industries  Wed, May 15  -----N/A-----      N/A
MTA  MATÁV                    Wed, May 15  -----N/A-----      N/A
NBG  National Bank of Greece  Wed, May 15  -----N/A-----      N/A
NEM  Newmont Mining           Wed, May 15  Before the Bell   0.12
JWN  Nordstrom                Wed, May 15  After the Bell    0.22
PSS  Payless ShoeSources      Wed, May 15  Before the Bell   1.05
PNX  The Phoenix Companies    Wed, May 15  Before the Bell   0.17

ATK    Alliant Techsystems    Thu, May 09  Before the Bell   1.02 
A      Agilent Technologies   Thu, May 16  -----N/A-----    -0.23
AZ     ALLIANZ AG             Thu, May 16  Before the Bell    N/A
AEOS   American Eagle Outfit  Thu, May 16  -----N/A-----     0.16
ADI    Analog Devices         Thu, May 16  After the Bell    0.12
ADSK   Autodesk               Thu, May 16  After the Bell    0.15
IRE    Bank of Ireland        Thu, May 16  Before the Bell    N/A
BTY    British Telecomm PLC   Thu, May 16  -----N/A-----      N/A
DELL   Dell                   Thu, May 16  After the Bell    0.16
EON    E.ON AG                Thu, May 16  -----N/A-----      N/A
HRL    Hormel Foods           Thu, May 16  Before the Bell   0.22
KSS    Kohl`s                 Thu, May 16  After the Bell    0.29
LE     Lands` End             Thu, May 16  Before the Bell   0.37
NAV    Navistar International Thu, May 16  Before the Bell  -0.11
REP    Repsol YPF, S.A.       Thu, May 16  -----N/A-----      N/A
TEF    Telefonica, S.A.       Thu, May 16  03:00 am ET        N/A
TD     Toronto Dominion Bank  Thu, May 16  -----N/A-----      N/A

SCM    Swisscom AG ADS        Fri, May 17  -----N/A-----      N/A

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

Symbol  Company Name              Ratio    Payable     Executable

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
ZRAN    Zoran Corp                3:2      05/21       05/22
ANE     Alliance Bancorp         11:10     05/21       05/22
DCM     NTT DoCoMo                5:1      05/22       05/22
GTK     GTECH Holdings Corp.      2:1      05/23       05/24
BKNW    Bank of the Northwest     5:4      05/24       05/28


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

TEASER
Earnings season rambles on.  Next week we'll have key tech stocks 
like BEA Systems, Applied Materials, Dell and Computer Associates 
reporting.  IBM has an analyst meeting on Wednesday.  Mix in 
Wednesday's CPI report, Thursday's housing numbers and Friday's 
consumer sentiment and we have the ingredients for another 
stimulating trading week. Yikes!

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

Monday, 05/13/02
None

Tuesday, 05/14/02
Retail Sales (BB)        Apr  Forecast:   0.5%  Previous:    0.1%
Retail Sales ex-auto(BB) Apr  Forecast:   0.4%  Previous:    0.3%

Wednesday, 05/15/02
CPI (BB)                 Apr  Forecast:   0.4%  Previous:    0.3%
Core CPI (BB)            Apr  Forecast:   0.2%  Previous:    0.1%
Business Inventories(BB) Mar  Forecast:  -0.2%  Previous:   -0.1%
Industrial Production(DM)Apr  Forecast:   0.4%  Previous:    0.7%
Capacity Utilization(DM) Apr  Forecast:  75.6%  Previous:   75.4%

Thursday, 05/16/02
Initial Claims (BB)    05/11  Forecast:    N/A  Previous:    411K
Housing Starts (BB)      Apr  Forecast: 1.625M  Previous:  1.646M
Building Permits (BB)    Apr  Forecast: 1.650M  Previous:  1.630M
Philadelphia Fed (DM)    May  Forecast:   12.0  Previous:    12.3

Friday, 05/17/02
Trade Balance (BB)       Mar  Forecast:-$32.5B  Previous: -$31.5B
Mich Sentiment-Prel.(DM) May  Forecast:   93.0  Previous:    93.0


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


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

THE SECTOR BEAT - 5/12
by Leigh Stevens

More red ink today - Airlines down in flames! 

Guess what sectors sold off the most?  Or, another way of asking: 
what sector in the 10 sectors losing the most on Friday, was not 
in TECH!  



  

First answer it tech in general, but suppose we could say tech 
and telecoms.  Only Airlines has the distinction, if we can call 
it that, to be in the company of those tech sectors losing the 
most at the end of the week.  

Airlines took a big Friday hit and the Airline Index ($XAL.X) 
stocks as a group, unlike tech & telecom, did not have earlier 
week gains of 10% like many of these same tech sectors on 
Wednesday.  



 


The jump in oil prices, on top of the backdrop of a still slow 
travel recovery, finally spooked investors who had been holding 
on to these stocks. Those thinking that we were getting into 
fairly valued price areas in these stocks, as XAL approached the 
low of its multimonth trading range. Instead, selling in the 
group and the lack of buying interest accelerated the move to the 
downside once the old lows gave way.  

Southwest Airlines (LUV) had been the best performer in this 
sector and the company is still making money! Southwest was 
previously suggested as a call play, as a way to participate in 
what looked like was a rebound developing in the Airline sector. 
But bail out is bail out and when institutional lemmings DON'T 
want to show airlines in their holdings any more, they jettison 
the good with the bad.  Exit was suggested on the LUV close below 
17.25.  
 

SECTOR TRENDS AND TRADING IDEAS - 

Well, as we know, there are still sectors in strong uptrends. One 
of the strongest performing groups, the Healthcare sector, is 
undergoing a correction.  After this runs it course, these stocks 
look like they have more upside.  However, am refining my play 
list and suggested entry points on the 10 best performing stocks 
in this sector year to date. 

As said before, am a bit cautious on an HMO sector play as the 
stocks have gone up so much in recent weeks.  The recent 
correction is tricky as far as predicting an end to it, so will 
refine my focus and suggestions for each of the stocks I have 
been highlighting.    

Healthcare Payors Index ($HMO.X): 

Of the stocks in the HMO sector suggested in my 5/2 Sector 
Trader summary,only PacifiCare Health Systems (PHSY) dropped back 
into the suggested (23.5-24.7) buy zone. 

PHSY's buy area is shown by two dashed horizontal lines. Note 
how, except for the little dip below it, the stock is holding its 
March-May up trendline.  This suggests that hoped for buyers may 
need to reach higher.  The trendline now intersects in the $25 
area, and purchases in this area may be necessary to get into 
this play, assuming that the stock can take off again from these 
recent lows in the area of the trendline.         

The PHSY chart is shown with the August 30 calls plotted below -


 

I continue to favor Oxford Health Plans (OHP) due to it being one 
of the stronger stocks in Healthcare.  I had suggested purchase 
of the calls (e.g., the Aug. 50's are shown) on a dip in the 
stock back to the $43 area - noted as "preferred buying area" at 
the dashed line on the chart. 



 

43 may be "ideal" as an entry point, but not achievable. So far,
 the OHP correction has held at the up trendline, currently 
intersecting at 45.  My revised higher buy suggestion is to 
purchase in the 45 area as an initial entry point for calls. 43-
43.50 is a second place to get long/buy calls, if reached. 

UNITED HEALTH CARE (UNH) & WELLPOINT (WLP):


 

My prior suggested buy point on UNH may be too low and the 82-83 
area, on a possible setback to its up trendline (up arrow), is my 
revised entry - rather than in the 80 area (dashed level line) as 
first suggested. 

WLP has come back to the area of its up trendline, so a revised 
suggestion is to buy in 72.00 area, with the possibility that 
further purchases be made around $70, as suggested originally (at 
dashed level line).  

AETNA (AET) & HUMANA (HUM) - 


 

While it may be tempting to pay up for AET by buying on setbacks 
to the support trendline (blue up arrow) in the 46.60 area, this 
trendline is also quite steep, perhaps indicating an 
unsustainable rate of change or increase. My revised entry 
suggestion is the $44 area. 

HUM purchase suggestion is revised upwards: first, at 15.60, at 
the support (up) trendline; then if further weakness develops in 
the 15.00-15.15 area (up from 14.50) at the dashed level line. 

MID ATLANTIC MEDICAL (MME) & TENET HEALTHCARE (THC) - 


 

Suggest raising buy point on MME to 32.80-33.00 at the up 
trendline that provided strong support on the recent dip to it.  
Since then the stock has been in very strong recovery mode. Wish 
I had thought to suggest buying at the trendline to begin with 
instead of down in the 30 area.  

YOU NEVER KNOW HOWEVER, as can be seen with companion chart THC, 
which broke its up trendline and kept falling.  With this stock 
will keep my original suggestion to buy in the 66 area, if 
reached - at the dashed level line.  



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  

UPDATE: suggest exiting on a move to and above $36.  Stock is 
still vulnerable to another downswing.  



LIQUIDATIONS:

 >> 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.

UPDATE: EXITED any stock and options with remaining value, when 
LUV closed under 17.25.
 
 

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      93.93   -0.23  -0.05  -0.10  -1.91  -0.97  Rebounded
SII      74.19   -2.97  -0.98   3.41  -1.83  -0.15  Daily wedging
THC      71.50    1.18  -1.26   0.59  -1.46  -2.12  Dropped
SRCL     70.51    0.65  -0.42   1.08  -0.91  -1.59  Pulling back
WM       37.58   -0.72  -0.62   0.17  -0.37  -1.78  Dropped 
RTN      43.77   -1.54   0.51   1.21   0.37   0.86  Another high!
AZO      75.55    0.40   1.10   0.32  -1.04  -0.58  Routine sale
SGR      33.20   -0.60  -0.12   0.46   1.38   1.19  Strengthening!
LLL     130.47   -2.73   0.23   1.80   3.22   1.17  Inside day
MMM     126.90   -2.55  -0.08   2.12  -0.09   0.10  New, leader

PUTS               

ADI      35.56   -0.62   0.38   3.96  -1.30   1.13  Rolled over!!
LRCX     24.31   -0.40  -0.16   2.24  -0.51   0.47  Closing gap
IDPH     49.11   -3.37   0.70   4.48  -2.94  -4.92  Broken bio
KMI      46.18   -0.86  -1.27   0.36   0.34  -2.17  Breaking down
RE       63.70   -0.54  -1.25  -0.10  -1.31  -3.65  Trending down
BRCM     25.78   -0.06  -5.22   3.65  -2.59  -5.46  Weakest chip
GENZ     35.41   -2.11  -0.27   3.53  -1.67  -2.77  Below WED low
FLR      37.11   -1.03   0.24  -0.18  -1.10  -3.16  New, breaking
MGG      37.10   -1.15   0.17  -0.65  -1.48  -4.10  New, selling


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

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

MMM – Minnesota Mining and Manufacturing $126.90 (-0.10 last week)

See details in play list




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

GENZ – Genzyme General $35.41 (-2.76 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
^^^^^

WM $37.58 (-1.78) The higher interest rate problem along with
the weakness in the broader market continued to pressure our
WM call play in last Friday's session.  The stock is on the
brink of breaking down below our stop just below current levels,
which looks probable going into next week's session.  Traders
with open positions can look to use any intraday rally next
week to cut losses and move onto more favorable trends.


PUTS
^^^^

THC $71.50 (-2.10) The bulls have been trying to rally the HMO
index for the past couple days and indeed they have managed to
move it off of its lows near the $595 level.  But THC has failed
to participate in any kind of rebound, continuing to drift lower
into the closing bell on Friday.  With the loss of relative
strength, the HMO sector languishing and a violated stop this
morning at $72, it is clearly time to let this one go.  If you
didn't take your exit on the drop through our stop this morning,
use any sort of rebound on Monday morning to exit open positions.


***********
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:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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The Option Investor Newsletter                   Sunday 05-12-2002
Sunday                                                      3 of 5


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Note: Options involve risk. Risk disclosure: 
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*********************************************************************

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

MMM – Minnesota Mining and Manufacturing $126.90 (-0.10 last week)

Commonly known as the maker of the ubiquitous, adhesive-backed
Post-It Notes, MMM is also a leading manufacturer of a variety
of industrial, consumer, and medical products.  Reflective
sheeting on highway signs, respirators, spill-control sorbents,
and Thinsulate brand insulations are just some of the company's
industrial products.  MMM also makes microbiology products,
making it easier for food processors to test for the
microbiological quality of food.

Relative strength is the name of the game in this market.  If
you're going to trade from the long side, you need to find stocks
that are outperforming the market.  Quick, which DOW component
is trading less than $2 below its all-time highs?  If you guessed
MMM, you win the prize.  After recovering from the
asbestos-litigation scare earlier in the year, the stock took off
in early April following an increase in earnings guidance and as
CSFB upgrade.  After the initial pop, the stock has been working
higher for the past month, posting a series of higher highs and
higher lows.  The rebound off the September lows created a
powerful column of X's on the PnF chart, with the bullish price
objective set at $140.  The solid price action hasn't done
anything to negate that signal and now more than ever it looks
like MMM will achieve that target.  Connecting the lows since the
gap up on April 5th produces an ascending trendline that currently
rests at $124.  Consider entering new positions on a rebound from
that level, managing risk with a stop set at $122.50.  Should the
DOW rebound next week, MMM will likely lead the charge and a
breakout over the $128 level is playable by momentum traders, as
a pop to the $130 level should come in short order.  Regardless of
your entry strategy, remember that we need to wait for positive
action in the DOW before playing.

*** May contracts expire next week ***

BUY CALL MAY-125 MMM-EE OI=4022 at $3.00 SL=1.50
BUY CALL JUN-125 MMM-FE OI= 293 at $5.20 SL=3.25
BUY CALL JUN-130*MMM-FF OI=1267 at $2.60 SL=1.25
BUY CALL JUL-130 MMM-GF OI=1288 at $3.90 SL=2.50

Average Daily Volume = 1.89 mln





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

SGR - Shaw Group $33.20 (+1.19 last week)

The Shaw Group Inc. (Shaw) is a vertically integrated provider of
complete piping systems and comprehensive engineering, procurement
and construction services to the power generation industry. Shaw
has supplied fabricated piping systems in over 375 power plants
with an aggregate generation capacity in excess of 200,000
megawatts of piping systems in the United States and worldwide.

SGR performed to expectations during last Friday's session,
continuing to power higher in the face of an extremely weak
broader market.  It was the stock's impressive relative strength
that initially attracted us to the play, which is exactly what
allowed the stock to continue higher during Friday's late week
meltdown.  We noticed that volume continued to increase on the
way up during Friday's rally.  Trading activity topped 900 K
for the day, about 50 percent higher than the stock's 30 day
average trading volume.  The increase in volume in conjunction
with higher prices is a good sign, as it either reveals that
the shorts in this stock are getting nervous and deciding to
cover, or that the bulls are gaining confidence in this play
and are beginning to commit increasingly larger amounts of
capital to the play.  Either way, it's a good thing for short
term traders to see, and excellent confirmation for further
upside potential.  From here, we'll look for intraday pullbacks
on light volume to find new entry points into the stock's
rising trend.  A pullback down around the low from last
Friday near the $32.75 level may offer a good entry point, or
lower near the rising 10-dma at $31.26.

BUY CALL JUN-30 SGR-FF OI=143 at $4.40 SL=2.75
BUY CALL JUN-35*SGR-FG OI=409 at $1.40 SL=0.75
BUY CALL JUL-35 SGR-GG OI=645 at $2.00 SL=1.00
BUY CALL JUL-40 SGR-GH OI=142 at $0.80 SL=0.25

Average Daily Volume = 620 K
 


SII - Smith International $74.19 (-0.15 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.

Energy names bucked the trend in the broader market last week,
which wasn't much of a surprise because it's a trend that we've
seen all year long.  The Oil Service Sector Index (OSX.X)
rebounded on another round of most unfortunate uprising in the
Middle East.  That rally in the energy sector powered SII
higher for nearly a 3 percent pop on a down when the broader
market was down by nearly as much.  SII formed a nice little
wedge on its daily chart last week, which has it probably
scaring the shorts going into next week's trading.  We would
expect that a rally attempt above the $72.75 to $73 levels
would spark a short covering rally and potentially carry SII
back up to its relative highs above the $75 level.  Such a move
is worth looking for a trade by the short term day traders
and scalpers among you.  Others will want to wait for the stock
to pullback either on an intraday basis, or for a couple of
days before jumping into new positions.  Look for a pullback on
relatively lighter volume down into the $72 level for an entry
point ahead of a potential breakout above the $75 mark.

***May contracts expire next week***

BUY CALL MAY-70*SII-EN OI= 390 at $5.30 SL=3.50
BUY CALL MAY-75 SII-EO OI=1956 at $2.15 SL=1.00
BUY CALL JUN-70 SII-FN OI= 255 at $8.30 SL=5.75
BUY CALL JUN-75 SII-FO OI= 968 at $5.60 SL=3.25

Average Daily Volume = 1.22 mln
 


SRCL - Stericycle $70.51 (-1.59 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.

SRCL finally pulled back in last Friday's session after coiling
in an increasingly tighter wedge earlier in the week.  The
stock's relative strength finally gave way to the broader market
weakness, which saw most big cap stocks fall towards yearly
lows.  We actually view SRCL's pullback as a good thing as it
helped to remove a lot of the downside risk that has been built
up in the play.  Although we certainly don't feel good about the
stock's pullback if you were holding open positions in the play.
Those still holding open positions might look to trim into any
strength early next week as we work through this consolidation
phase which SRCL looks to have entered.  What we'd like to see
during next week's trading is a few more days of slightly
weaker price action on relatively lighter volume.  Last Friday's
trading activity totaled about half of the stock's 30 day
average trading volume, which obviously revealed that the
sellers didn't have too much conviction, and that the buyers
simply stepped away from the stock to give it some time to
rest.  From here, we'd like to see a short term base start to
form around the $70 level, possibly slightly lower on an
intraday basis.  Entries from there with tight stops will be
a good idea going into next week.

BUY CALL JUN-65 URL-FM OI= 64 at $7.70 SL=6.00
BUY CALL JUN-70*URL-FN OI= 59 at $4.20 SL=3.00
BUY CALL JUN-75 URL-FO OI=284 at $2.00 SL=1.00
BUY CALL AUG-75 URL-HO OI=404 at $3.60 SL=1.75

Average Daily Volume = 286 K


AZO – AutoZone, Inc. $75.55 (+0.05 last week)

AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its
more than 2900 stores in 42 states and Mexico carries an
extensive product line for cars, vans and light trucks,
including new and re-manufactured automotive hard parts,
maintenance items and accessories.  Approximately half of its
domestic stores also have a commercial sales program, which
provides commercial credit and prompt delivery of parts and
other products to local repair garages, dealers and service
stations.

With Retail stocks as measured by the RLX index giving back the
lion's share of the gains seen on Wednesday, it is encouraging
to see that AZO hasn't broken down.  But the action in the stock
certainly leaves a lot to be desired from a bullish standpoint.
The ascending channel that AZO had been trading in since early
May fell apart yesterday afternoon and Friday's drop is not
encouraging.  The stock is now resting right on critical support
at $75.50 and if the play is going to remain active, we need to
see a rebound from this level next week.  Note that the 20-dma
has now risen to $75.22 and this is another measure of bullish
support that we need to be monitoring.  The action in the RLX
will be critical to our play as well.  Now that all the Wednesday
gains have been erased, the RLX is sitting back at support near
$900.  A significant break lower will make it very difficult for
the bulls to rally AZO in the face of the sector weakness.  Use
a rebound from near current levels to initiate new positions, but
only if the RLX is also rebounding.  We are keeping our stop in
place at $74.50, as a trade at that level would represent a
major breakdown and violation of the recent pattern of higher
lows.

*** May contracts expire next week ***

BUY CALL MAY-75 AZO-EO OI=1000 at $1.60 SL=0.75
BUY CALL JUN-75*AZO-FO OI=1204 at $4.00 SL=2.50
BUY CALL JUN-80 AZO-FP OI=1320 at $1.75 SL=0.75
BUY CALL SEP-80 AZO-IP OI= 538 at $4.20 SL=2.50

Average Daily Volume = 966 K


DGX – Quest Diagnostics $93.93 (-0.98 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.

The rangebound action continues in shares of DGX and given the
weakness in the broad market as we closed out the week, that is
definitely a positive sign.  The stock rallied right to the $95
level on Friday morning, but the persistent market weakness and
the fact that the Health Care Payor index (HMO.X) lost traction
and fell into negative territory in the afternoon, was enough to
drag DGX lower throughout the afternoon.  Although the stock
managed to close solidly in positive territory on Friday, we're
concerned by the fact that it has been stuck in the $92-96 range
since the first of the month.  This range will eventually break
and we want to make sure we are on the right side of the break
when it occurs.  Another rebound from the $92 support level can
be used to initiate new positions, but we'll want to see that
rebound accompanied by positive action in the HMO index.  Even
though DGX isn't a part of that index, it will have a hard time
staging a significant advance with weakness persisting in the
sector.  Traders interested in trading a breakout will still
need to wait for a trade above the $96 level before taking a
position.  Stops remain at $91.50.

*** May contracts expire next week ***

BUY CALL MAY- 95 DGX-ES OI=1436 at $1.35 SL=0.75
BUY CALL JUN- 95*DGX-FS OI=1662 at $3.60 SL=1.75
BUY CALL JUN-100 DGX-FT OI= 416 at $1.75 SL=0.75
BUY CALL AUG-100 DGX-HT OI= 198 at $3.70 SL=2.25

Average Daily Volume = 746 K


LLL - L-3 Communications Holdings $130.47 (+1.12 last week)

As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

After yesterday's move through the $132 level in shares of LLL,
we were looking for the rally to continue into the weekend,
especially if the broad market tone had been positive.  That
clearly didn't come to pass, as the sellers leaned heavily on
the averages again, wiping out most of the gains seen on
Wednesday's short-covering rally.  With the recent strength in
the Defense index (DFI.X), our LLL play didn't fare too badly
with a decline of just over 1%, but it was a negative day, which
was likely prompted in part by the Merrill Lynch downgrade of ATK
on a valuation basis following the company's earnings report
Thursday morning.  The fact that the profit taking was rather
mild on Friday (and came on light volume) indicates that this is
just a normal pullback that will likely give us an attractive
entry into the play.  The 6-week ascending trendline is now
resting at $128 and a drop back to that level would make for an
attractive level to initiate new positions.  That is also a level
of decent intraday support.  Traders that would prefer to target
a fresh breakout for initiating new positions will need to wait
for LLL to clear the $133.50 level before playing.

*** May contracts expire next week ***

BUY CALL MAY-130 LLL-EF OI= 373 at $2.30 SL=1.25
BUY CALL JUN-130 LLL-FF OI= 128 at $6.20 SL=4.00
BUY CALL JUN-135*LLL-FG OI=  71 at $3.80 SL=2.50
BUY CALL JUL-135 LLL-GG OI=  35 at $5.40 SL=3.50
BUY CALL JUL-140 LLL-GH OI=  25 at $3.50 SL=1.75

Average Daily Volume = 781 K


RTN – Raytheon Company $43.77 (+0.02 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.

After a spike up above the $45 level, mild weakness in the
Defense stocks on Friday led shares of RTN back down to
near-term support near the $43.50-43.75 area at the close on
Friday.  Below that we have stronger support near $43 and
additional help from the ascending trendline near $42.50.  Make
no mistake, the DFI index is one of the strongest in the broad
market right now and appears to have more upside in store in the
near future.  But the weakness in the broad market has been
keeping these stocks in check.  That makes it paramount that we
target solid entry points near support so that we can effectively
manage risk.  So look for a rebound at one of the support levels
listed above before initiating new positions, as trading
breakouts is currently fraught with greater risk.  Before
initiating new positions, be sure to check the action in both the
broad market and the DFI index is positive.  RTN will have a hard
time advancing without bullish sector momentum, but when that
momentum arrives, the stock should outperform to the upside given
its continually improving relative strength.  Keep in mind the
picture currently painted by the PnF chart, which has the stock
in a column of X's, with a bullish price target of $58.  The trend
is up and dips are buyable until that trend is broken.  Keep stops
in place at $42.

*** May contracts expire next week ***

BUY CALL MAY-42 RTN-EV OI=1490 at $1.70 SL=0.75
BUY CALL JUN-42 RTN-FV OI=1098 at $2.80 SL=1.50
BUY CALL JUN-45*RTN-FI OI= 370 at $1.45 SL=0.75
BUY CALL AUG-45 RTN-HI OI=1312 at $2.45 SL=1.25
BUY CALL AUG-47 RTN-HW OI= 303 at $1.50 SL=0.75

Average Daily Volume = 2.44 mln



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

MGG - MGM Mirage $37.10 (-4.10 last week)

MGM MIRAGE owns and operates several hotel-casinos and resorts
through its wholly owned subsidiaries. These properties include
Bellagio, MGM Grand Las Vegas, The Mirage, Treasure Island, New
York-New York Hotel and Casino, Monte Carlo Resort & Casino,
Boardwalk Hotel and Casino, The Golden Nugget, The Golden Nugget-
Laughlin, Buffalo Bill's Resort & Casino, Primm Valley Resort &
Casino, Whiskey Pete's Hotel & Casino, Primm Center, MGM Grand
Detroit, Beau Rivage, MGM Grand Australia and MGM Grand South
Africa.

The casino stocks have had a great run this year.  But they may
be nearing a top.  The group has done very well because many
analyst suggest that consumers are choosing to take shorter,
closer vacations following last fall's tragic events, rather
than taking longer, cross country types of vacations.  That has
put the casino operators in the sweet spot, according to the
analysts, as close to home weekend destinations due to the
regional presence of companies such as MGG.  But a recent
rise in insider selling at the major casinos has called into
question the group's long run.  Analysts point to high valuations
as a possible catalyst for the huge rise in insider sales this
year despite the seemingly positive outlook for the industry.  A
recent report revealed that executives of major casino operators
have sold $215 worth of stock for every $1 bought this year.
That's a huge margin, and could very well signal a reversal of
fortunes for the casino industry.  It's quite possible that the
insiders know something that the general investing public does
not.  Based on that premise, we're turning to MGG as a put play
over the short term.  The stock's long standing bullish trend
definitely turned to the bearish side last week with the slide
from the $40 level down into the $37 range last Friday.  Bears
can look for the trend to continue into next week's trading.
Look for volume to continue to remain on the active side, and
look for a breakdown below last Friday's low at the $37.00
level.  Those who would rather wait for a relief rally and then
a rollover can watch for an climb up to the $38.25 level.  Our
stop is in place at the $40 level.

BUY PUT JUL-40*MGG-RH OI=1085 at $3.60 SL=1.75
BUY PUT JUN-35 MGG-RG OI= 261 at $0.95 SL=0.50

Average Daily Volume = 747 K


FLR – Fluor Corporation $37.11 (-3.19 last week)

Fluor Corporation is a diversified industrial company
conducting business through five operating segments; Energy
and Chemicals, Power, Global Services, Industrial and
Infrastructure and Government Services.  The Energy and
Chemicals segment provides design, engineering, and
construction services on a global basis to an extensive range
of oil, gas, refining, chemical, polymer and petrochemical
clients.  The Industrial and Infrastructure segment provides
the same services to a broad base of businesses, including
general industrial, commercial, institutional, manufacturing
and telecommunications customers.  The Power segment designs,
engineers and constructs power facilities around the globe.

Stocks of the large conglomerate companies are certainly not
among the best loved in the market right now, with accounting
concerns adding to the already uncertain picture concerning
earnings.  Tyco has been the poster child for accounting concerns
in this arena, although GE certainly hasn't been a favorite of
the bulls either.  Since investors have already taken their pound
of flesh out of these stocks, we thought we'd go fishing for
another candidate in the same pool -- one that appears to be
just getting started on its downward slide.  After running into
firm resistance near the $45 level last month, shares of FLR have
been putting together a new downward trend, despite reporting
solid earnings and reaffirming forward guidance at the end of
April.  The bulls were hopeful that the 200-dma ($39.23) would
hold as support last week, but the past two days of weakness
have deflated that hope, especially with volume rising
substantially.  Although there appears to be substantial support
in the $35-36 area, the real damage has already been done with a
fresh PnF double-bottom breakdown yielding a price target now of
$29, which just happens to correspond to the February low.
Thursday's gap below the 200-dma will provide formidable
resistance, so any rebound near that level can be used to
initiate new positions on the rollover.  First look for it to
occur near $38 and then up near the 200-dma.  Trader's looking
to take advantage of the momentum of a breakdown will want to
wait for the $35 support level to give way before playing.
Initial stops are in place at $40.

*** May contracts expire next week ***

BUY PUT MAY-40 FLR-QH OI=46 at $3.20 SL=1.50
BUY PUT JUN-40 FLR-RH OI=23 at $4.20 SL=2.50
BUY PUT JUN-35*FLR-RG OI= 0 at $1.50 SL=0.75

Average Daily Volume = 301 K


GENZ – Genzyme General $35.41 (-2.76 last week)

Genzyme General, a division of Genzyme Corporation, is focused
on developing innovative products and services to solve major
unmet medical needs.  GENZ has nearly 600 products and services
on the  market and a strong pipeline of therapeutic products for
the treatment of rare genetic diseases.  The Diagnostics
business unit develops, markets and distributes in vitro
diagnostic products and genetic testing services. With a solid,
profitable revenue base, this research is intended to maintain
the company’s high rate of earnings growth.

The unmerciful beating that has been taking place in the
Biotechnology sector (BTK.X) over the past 6 weeks has done a lot
of technical damage and it seems that every stock in the sector,
strong and weak is feeling the pain.  Relative strength is a
misnomer, as when a sector is this weak, we're looking for degrees
of relative weakness.  Even stocks that had been holding up better
than the BTK in recent months are breaking down.  One of those was
IDPH, but with the recent breakdown, it has found its way onto our
put list.  A past favorite of the bulls due to its strong
performance, GENZ has lost that loving feeling and has been
falling apart with vigor lately.  Wednesday's short-covering rally
did little more than set the bears up with another attractive
entry point and they pounded GENZ back into submission on Friday,
driving it to a fresh 1-year low with a nearly 6% decline on the
day.  Oh and by the way, volume came in solidly above the ADV.
The only redeeming bullish feature of the stock's chart was the
fact that it bounced off the day's lows early in the session and
recovered into the close with a spurt of short-covering at the end
of the day.  With the BTK poised to break down under the $378
support level and GENZ giving us a fresh PnF sell signal (with a
bearish price objective of $25), we're looking at any sort of
oversold bounce as simply the next opportunity to get short.  Look
for another rollover between $36-37 to provide fresh entry points,
although we wouldn't rule out another bounce to the $38-39 level
before the decline continues.  Once the BTK breaks below its
multi-year support at $378, taking momentum-based entries on a
drop below $34 should work nicely too.  Place stops initially at
$39.50.

*** May contracts expire next week ***

BUY PUT MAY-35 GZQ-QG OI=1155 at $1.25 SL=0.50
BUY PUT JUN-35*GZQ-RG OI= 548 at $2.95 SL=1.50
BUY PUT JUN-30 GZQ-RF OI= 442 at $1.25 SL=0.50

Average Daily Volume = 4.36 mln



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

Covered Calls 

Although I don’t mean to trivialize the purpose and functionality 
of the covered call strategy, a slow and steady strategy like 
covered calls may not offer the same appeal of more aggressive 
strategies. However, the market’s lack of conviction has presented 
many traders with a lot of frustration.  Many times the tight 
trading ranges of the indexes don’t offer enough room to capture 
much if any reward for the risks taken.  By the time the change in 
direction is confirmed, often slippage and/or the volatility 
erodes otherwise profitable trades.  It is stated the option 
seller does better over the long run.  Although I am not 
recommending this strategy is for everyone reading, covered calls 
utilized effectively can be a powerful strategy that can offer 
some stability to one’s portfolio.  I am afraid every one will be 
bored with the idea of potentially making a 3-6% return per month 
on a covered call.  The stocks that move fast offer the potential 
to make a lot of money fast, while they also present the risk of 
losing it fast.  There is a type of market that is more conducive 
for the more volatile stocks.  This may not be that type of 
market.  

Covered calls executed properly can be like receiving a dividend 
every month. Calls, puts, straddles, strangles, spreads, etc. I 
use them all.  Covered calls offer one thing that all of those 
don’t.  Peace of Mind.  I realize that some stocks may drive you 
crazy every day.  If you pick the right one’s, the stress can be 
reduced.  I like to buy stocks with consistent upward trends.  
Volatility is also required in order to make some money on the 
call.  When I buy a stock for this strategy, I want to have the 
call assigned. But if market conditions don’t present this option, 
I want to own a quality stock with great fundamentals and 
technicals that offer long term potential.  Long term in this 
context is a couple of months.  “I don’t marry stocks, I date 
them.”

As option traders, what are we most scared of?  Losing the time 
value premium because the stock went down and we want to wait on 
TIME for the stock to come back.  With covered calls, you sold 
that time for COLD HARD CASH.  You don’t have to worry about a 
little decline one week.  One of the risks of this strategy is 
opportunity loss.  This occurs when you buy a XYZ at 30 and sell a 
May 30 call because it has a good premium.  Then in two weeks time 
the stock rockets up to 35.  This doesn’t happen every day though.  
The mechanics of this trade consist of buying a stock that one 
believes will go higher and simultaneously sell a call against the 
stock.  The call is sold to open.  This is a contract that gives 
the buyer the right, not the obligation, to purchase this stock.  
The seller has sold the obligation to sell the stock at the 
specific strike price on or before expiration if the stock is 
above strike price.  There are various strategies that one can do 
with the option position if the stock pops up.  One strategy is 
buying back the call in a closing transaction.  Most of the time 
this is done if the stock drops, and the speculator believes that 
the stock will retrace within a short period of time.  Then the 
investor may sell the same option contract again or a different 
contract.  This is a more aggressive approach, but it can work for 
you.  Another strategy for when the stock advances deep in the 
money is buying back the initial call (usually at a loss) and then 
sell the next strike price up.  This is referred to as “rolling 
up.”
 
Another risk associated with covered calls is that the stock can 
go down.  If you did your homework, you should have identified 
support levels and have a plan in case the stock breaks support.  
It is better to lose a little and be able to trade another day 
than to get stuck in some stock hoping it will come back someday.  
Remember that you have to buy back the call to close out the 
position completely.  Another method of exiting a position gone 
badly is to close out at the break of the cost basis (stock price 
less the premium received).  However, this usually has no 
relationship to the technical health of the security.  If you 
enter on a technical basis, you should exit on one as well.  This 
may help with keeping your trading consistent.  Remember, you 
don’t have to trade every day to make money in the market.  You 
just have to be consistent.  Sometimes patience is your best 
strategy.  Slow and steady wins the race.

I hope this has helped you. I always enjoy hearing your comments 
and suggestions. If there are some topics you would like to have 
discussed please contact me. 

Robert John Ogilvie
ROgilvie@gunnallen.com


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The Option Investor Newsletter                   Sunday 05-12-2002
Sunday                                                      4 of 5



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

RE - Everest RE Group $63.70 (-3.65 last week)

Everest Re Group, Ltd.'s principal business, conducted through
its operating subsidiaries, is the underwriting of reinsurance
and insurance in the United States, Bermuda and international
markets. The Company underwrites reinsurance both through
brokers and directly with ceding companies, giving it the
flexibility to pursue business regardless of the ceding
company's preferred reinsurance purchasing method.

RE continued lower in last Friday's session along with the broader
market, but we really didn't see a great deal of downside
performance in the stock.  That came earlier in the week when the
stock bucked the Wednesday's rally and continued lower below its
six month support zone.  Friday's trading may have been a case
where traders decided to sell other stocks than RE, focusing
instead of technology shares.  RE was left behind, but drifted
lower nonetheless.  Volume came in very light for the day
relative to the previous several days of trading, which helped
to share the lack of conviction on the part of investors and
traders last Friday.  Nevertheless, we're still bearish on this
stock because of its overwhelming weak trend to the downside,
plus the uncertainty that hangs over the head of the insurance
business.  We did like the penetration to the downside of the
$64 level during last Friday's trading and think that the move
should lead to further technical selling into next week's
trading.  Looking out over the next several sessions, we're
watching for RE to breakdown below its low set last week at the
$63.65.  That move should pave the way for the next round of
long liquidation in the stock and pressure shares closer to the
$60 level.

BUY PUT JUN-65*RE-RM OI= 61 at $3.50 SL=1.75
BUY PUT JUL-65 RE-SM OI=294 at $4.10 SL=2.75

Average Daily Volume = 528 K



ADI - Analog Devices $35.56 (+1.13 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. 

We're happy that we left a liberal stop in place to protect
against upside risk during the past week in ADI.  Going into
the week, there was a lot of pent up buying pressure because
of the heavy amount of selling that we've witnessed over the
last several weeks.  Protecting against that upside risk,
while still trying to game the downside with put plays, is
tricky.  The only way to play it is with a loose stop in order
to give the stock room to move in favor of the position.  That
was the case in ADI last week when the stock traded above the
$38 level during Wednesday's massive rally, but we saw the stock
reverse lower during Thursday's and Friday's sessions, which
brought the stock back down to the site of its gap higher,
which we think will be filled sometime during next week's
trading.  The move back down into the gap could've offered short
term traders an entry point in last Friday's session.  If you
took that entry, one possible exit point next week would be
down near the gap around the $34 level.  Of course a breakdown
below the relative lows is possible if the SOX.X continues
pressuring ADI lower.

BUY PUT JUN-40 ADI-RH OI=1791 at $6.10 SL=3.75
BUY PUT JUN-35*ADI-RG OI=3420 at $3.20 SL=1.75

Average Daily Volume = 2.91 mln
 


LRCX - Lam Research $24.31 (+0.47 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 in LRCX about a week ago near the
$26 level resurfaced at slightly lower prices during last
Wednesday's power rally higher, keeping the stock at bay and
well below the $26 level on an intraday basis.  In Thursday's
session we saw LRCX follow the Philadelphia Semiconductor
Sector Index (SOX.X) back down, but the trading volume wasn't
as active as the day before, which was probably a result of a
lack of interest during the day's session.  But the stock
failed to take out Wednesday's highs, falling just short,
setting up an inside day trade situation.  That inside day
broke to the downside in Friday's session on the big weakness
in the technology sector, which brought LRCX back down near its
200-dma.  That will be the level that the traders monitor
during next week's trading.  A breakdown and follow through to
the downside below the 200-dma should result in LRCX filling
its gap higher down at the $23.30 level.  That's the mark to
look for a quick scalp to the downside on further selling
weakness in next week's trading.  From there, we'll examine
whether or not the stock takes out its recent lows, which itself
could be another good momentum based entry point into weakness
depending on what the broader technology sector and the SOX.X
are doing at the time.

BUY PUT JUN-25*LMQ-RE OI=5012 at $2.55 SL=1.25
BUY PUT JUN-22 LMQ-RQ OI= 511 at $1.20 SL=0.75

Average Daily Volume = 2.63 mln



KMI - Kinder Morgan $46.18 (-2.17 last week)

Kinder Morgan, Inc. is an energy storage and transportation
company in the United States, operating, either for itself or
on behalf of Kinder Morgan Energy Partners, L.P., more than
30,000 miles of natural gas and products pipelines. The
Company owns and operates Natural Gas Pipeline Company of
America, a major interstate natural gas pipeline system with
approximately 10,000 miles of pipelines and associated storage
facilities.

Once again we saw the Natural Gas Sector Index (XNG.X) diverge
from the broader energy sector in last Friday's session, which
is more of the seasonal pattern at play that we've been
focusing on in our KMI put play.  The XNG.X wrapped up a lousy
week last Friday, while the Oil Service Sector Index (OSX.X)
moved back towards its relative highs.  As for KMI, we saw a
small amount of divergence there from its sector.  KMI broke
down below its relative lows below the $46 level on an
intraday basis before slightly rebounding later in the day.
Still volume remained weak as the traders appear content to
focus on more active sectors of the market.  But that's not
necessarily a bad thing for this play, as we let the seasonal
trend in the natural gas index take over from here.  Going into
next week's trading, we're still looking for a more solid
breakdown below the $46 level and confirmation from the XNG.X
to the downside.  We'll watch for KMI to move towards to the
$44 level to the downside next week, which should happen if the
XNG breaks below its very short term relative lows around the
180 area.

BUY PUT JUL-50 KMI-RJ OI=659 at $5.10 SL=3.75
BUY PUT JUN-45*KMI-RI OI=546 at $2.50 SL=1.25

Average Daily Volume = 2.63 mln


BRCM – Broadcom Corporation $24.54 (-5.46 last week)

Sitting in the sweet spot between the Broadband and
Semiconductor sectors, BRCM is a provider of highly integrated
silicon solutions that enable broadband digital transmission
of voice, video and data to and throughout the home and within
the business enterprise.  These integrated circuits permit the
cost-effective delivery of high-speed, high-bandwidth networking
using existing communications infrastructures that were not
originally designed for the transmission of broadband digital
content.  Using proprietary technologies, the company designs,
develops and supplies integrated circuits for several markets
including digital cable set top boxes, cable modems, high-speed
office networks, home networking, and digital subscriber lines.

Bullish hopes for the Semiconductor sector on the heels of
Wednesday's short-covering rally are quickly fading, as the SOX
has given back the bulk of its gains over the past 2 days.
While Technology stocks have once again led the decline, the rest
of the broad market seems to be going along for the slide, and it
is looking like the lows from last week are in jeopardy.  After
rebounding to just above the $28 level, shares of BRCM are heading
south in a hurry, outperforming the SOX to the downside.  This
should come as no surprise, following the stock's breakdown on the
PnF chart on Monday, which created a bearish price target of $14.
All of the stock's mid-week gains are now history, with BRCM now
resting back at $24.50 support.  With the SOX also resting
precariously on support near $475, the stock is primed for a big
fall if the bulls can't stem the selling going on in the sector.
Use any sort of oversold rally next week to establish new
positions as the stock rolls over near resistance, first at
$25.00-25.50 and then up at $26.50-27.00.  Of course a negative
open would drop the stock through near-term support and we can
use that as a momentum-based entry.  Once below $24, it doesn't
look like there is any meaningful support until the stock reaches
the $22 level and then we're looking at the September lows near
$19.  Lower stops to $28.

*** May contracts expire next week ***

BUY PUT MAY-25 RCQ-QE OI=11893 at $1.55 SL=0.75
BUY PUT JUN-25*RCQ-RE OI= 1952 at $3.20 SL=1.50
BUY PUT JUN-22 RCQ-RX OI= 1404 at $2.05 SL=1.00

Average Daily Volume = 13.6 mln


IDPH – IDEC Pharmaceuticals $45.99 (-4.88 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.

Abrupt reversals were the name of the game last week, with the
Biotechnology sector (BTK.X) rebounding violently from the $380
support level on Wednesday and then giving all those gains back
by the end of the week.  Bullish traders in the sector know how
critical it will be for that support level to hold and so do the
bears.  If the BTK breaks $378, there really isn't any significant
support until the $290 level and that could be painful for the
bulls.  Shares of IDPH went with the flow of the BTK this week,
cratering down to the $46 level, rebounding on Wednesday to the
$52 level on short-covering and the weakness over the past 2 days
has us right back at the $46 level.  Showing how weak the stock
is relative to the BTK, IDPH actually closed below Tuesday's lows
on Friday.  The September lows at $45 might provide one last
desperate grasp at support, but then we'll be looking back at the
action from a year ago, which gives us support at $42, $38 and
then down near $35.  It is worth pointing out that the current
bearish price target from the PnF chart is $39, so that gives us
an initial target for harvesting gains.  Use any sort of rebound
next week (ideally near the $49.50 level, but $48 would work to)
to initiate new positions.  Of course if the BTK falls apart and
breaks support, new positions can be taken on a breakdown under
the $45 level (intraday lows on Friday).  We are lowering our
stop to $50.50 this weekend.

*** May contracts expire next week ***

BUY PUT MAY-45 IDK-QI OI=709 at $1.65 SL=0.75
BUY PUT JUN-45*IDK-RI OI=341 at $4.00 SL=2.50
BUY PUT JUN-40 IDK-RH OI=341 at $2.20 SL=1.00

Average Daily Volume = 4.00 mln



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*****
LEAPS
*****

Volatility Anyone?
By Mark Phillips
mphillips@OptionInvestor.com

Last week started about as I expected, with more selling.  But
that huge euphoric ramp job on Wednesday caught me totally by
surprise -- so much so, that in my research on Wednesday night,
I actually identified a few bullish candidates that I could play
for the short term on a mild pullback on Thursday.  Well, the
rest as they say is history and the weakness reasserted itself
for the remainder of the week and most of those bullish gaps are
now mostly, if not completely filled.

The question on everyone's mind is whether we are putting in a
bottom here.  I actually think we might be, at least over the
near term.  But that doesn't mean that we saw the near-term lows
last week.  My long-term view still says we're headed
substantially lower before the mighty bear has had his feel of
rare steak.  You can read all about the week's market action and
the outlook in Jim's Wrap this weekend, as I suspect my outlook
mirrors his.  Simply put, if last week's lows fail to hold, then
LOOK OUT BELOW!

On the outside chance that the lows do hold, I've added a new call
play this weekend on AMAT, which I think is one of the stronger
stocks in the beleaguered Technology sector.  As I detail in the
writeup below, if last week's lows fail to hold then stand aside
from any new bullish positions.

The VIX is heading higher in a hurry, but it is nowhere near the
area that I would consider for new long positions.  Recall from
past comments that the real buy area doesn't start to show itself
until the VIX is testing or even exceeding the 30 level.

It was a rough week for plays in both the Portfolio and the Watch
List, with several casualties finding their way to the Drop list
this weekend:

Portfolio:

JNJ - Weakness on Monday killed our play on JNJ, and in responding
to several reader questions, said it looked like the mid-$50s
would provide a better entry for new positions.  But the rebound
mid-week forced me to change my tune.  So much so, that I cycled
the play right back onto the Portfolio list and took a fresh entry
on the continued strength on Thursday.

EK - In a weak market, I would expect to see far more weakness
from the likes of EK.  I am rapidly losing patience with the
bearish side on this play, and am now looking for a decent exit
point from the play.  I would not want to consider new positions
at this time, and would use any weakness in the week ahead to
close out the play.  EK has been diverging from the broad markets
and looks like it wants to move through the $35 level.  I've
lowered the stop this weekend to $35 and we'll exit the play on
either a rally through that level or a drop back into the $32-33
area.

Watch List:

PG - Amazing in its resilience, PG continues to ride the center
line of its ascending channel as it chews through the heavy
resistance left behind by the price action in 1998-1999.  We're
still waiting for a decent pullback to give us a solid entry
point, although the level of that entry keeps working higher.
Use a selloff in the broad markets to initiate new positions on
a pullback to support that looks firm in the $88-89 area.

MDT - There is little to like or dislike about MDT as the stock
has been languishing in a sideways manner for months now.  I'm
now leaning towards an entry in the $42 area, but only want to
take it if we get a solid rebound from that support level.  With
the broad markets languishing, MDT has been following suit.
Enter on strength, not weakness, as we don't want to get caught
trying to catch a falling knife.  Should we get a bullish
surprise next week (unlikely, I know), new positions can be
considered on a rally through the $44 level, but only if it
comes on strong volume.

WMT - Still falling and the Retial index (RLX.X) certainly isn't
helping matters.  Weekly Stochastics are still falling and it is
becoming difficult to justify keeping the play listed in our
Watch List, even if it is currently on HOLD.  We need to see the
stock begin to firm before we can even contemplate setting a
price target or initiating new positions.  My best guess is that
we could see a bottom begin to form in the $50-51 area, but only
time will tell.

BRCM - Support?  Forget about it!  The $30 level gave way this
week on heavy volume after MOT announced it would be using TXN
as a secondary supplier for its cable modem chips (historically
BRCM's arena) and the resulting selloff created a very ugly sell
signal on the PnF chart.  That bearish target is now only $14!
I'm not willing to remove BRCM from the Watch List quite yet, as
I think it could perform rather well once a bottom forms.  But
we clearly aren't there yet.  BRCM is back on HOLD until we can
see signs of a bottom or until that bearish price objective is
achieved, whichever comes first.

MSFT - Ouch again!  The buoyant effects of the CSCO-induced
short-covering rally have all but disappeared and MSFT is back
at the $50 level.  We're leaving our entry target unchanged on
the off chance that the Technology sector can find support and
rebound from the area of last week's lows.  Take advantage of a
solid rally from that level to initiate new positions.  Otherwise
stand aside until the dust settles.

As you can see, I remain exceedingly cautious on this market as
it is acting in a very unhealthy manner.  Sentiment indicators
like the VIX still have a ways to go before they signal a decent
long-term bullish entry point, and we need to guard our capital
ferociously until that occurs.  Take entries only when everything
lines up in your favor.  Otherwise, stand aside and wait for a
better day.

See you next week!

Mark



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
JNJ    03/05/02  '03 $ 65  VJN-AM  $ 3.30  $ 3.30  + 0.00%  $58.50
                 '04 $ 65  LJN-AM  $ 6.40  $ 6.90  + 7.81%  $58.50


Puts:
EK     04/12/02  '03 $ 30  VEK-MF  $ 2.70  $ 2.40  -11.11%  $35
                 '04 $ 30  LEK-MF  $ 3.90  $ 4.20  + 7.69%  $35


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  HOLD          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
AMAT   05/12/02   $22-23       JAN-2003 $ 25  VPJ-AE
                            CC JAN-2003 $ 22  VPJ-AX
                               JAN-2004 $ 25  LPJ-AE
                            CC JAN-2004 $ 22  LPJ-AX


PUTS:

None



New Portfolio Plays

JNJ - Johnson & Johnson $61.37 ** Call Play **

It seems strange, adding a play into the Portfolio at the same
time that I'm dropping it, but hopefully the explanation above
in the commentary helps to explain my rationale.  All of the
comments I made when we initially entered the JNJ position back
in early March, and if you're interested you can go back and
look at the writeup in the March 10th edition of the LEAPS
column.  Simply put though, the stock is one of the few in my
universe (those with LEAPS available) that is trading near its
all-time highs and has a well-established uptrend in place.  I
had originally drawn the trendline incorrectly, cutting through
the lows in early February and I have redrawn it using those lows
as the second point and the trendline now rests at $60.  This is
also an area of firm support, as evidenced by the solid bounce
the stock saw last week.  When I looked at the sharp decline
Wednesday morning, it looked like this support might fail, but
given the solid rebound, I am forced to acknowledge that JNJ is
still a solid bullish candidate.  Weekly Stochastics have not
quite dropped into oversold territory, but it looks like they are
trying to turn up, a development that would increase our bullish
conviction.  With the continued rebound on Thursday, I bit the
bullet and took a fresh entry for the Portfolio.  I would
consider current levels as acceptable for new positions,
although perhaps the best approach is to take 1/2 positions here
and round out to a full position on another dip and bounce near
the $60 level.  We'll start with our stop set at $58.50, which
is the current level of the still-rising 200-dma.

BUY LEAP JAN-2003 $65 VJN-AM $3.30
BUY LEAP JAN-2004 $65 LJN-AM $6.40


New Watchlist Plays

AMAT - Applied Materials $23.70  **Call Play**

There's no question that the Semiconductor group has been under
tremendous pressure over the past several weeks and the SOX index
is at a critical juncture right here.  We need to see it will
hold support near current levels ($475) or possibly down around
last week's lows in the $460 area if we're going to consider new
bullish positions.  What attracted me to AMAT is the stock's
solid bullish trend.  Ok, the past week wasn't pretty, but if you
take a look at the PnF chart, you can see that the stock is
resting right on its bullish support trend, currently at $22.  We
know from past experience that the Semiconductor Equipment stocks
will tend to lead an improvement in the overall Chip sector and
we're looking for AMAT to once again show that leadership quality
in its earnings report next Tuesday.  The results (and market
reaction to the forward guidance) will likely set the tone for the
SOX over the near term.  If positive, then we will look for the
SOX to firm near current levels and AMAT should lead the next
advance.  With weekly Stochastics still declining (but entering
oversold), an ideal entry would consist of a drop to the $22-23
area (filling last Wednesday's gap) and then rebounding on the
heels of a decent earnings report.  As is our habit, we'll avoid
taking entries on any sort of gap move, as risk is so much more
difficult to manage.  Given the current uncertainty in the
sector, I would avoid taking new positions ahead of AMAT's
earnings, preferring to wait until the news is known.  In
addition to support near the $22 level, we have the 200-dma
resting at $21.60, which should add to support on a continuation
of the pullback we've see over the past couple days.  After
taking a position, we'll look to set our stop at strong support
found at $20.  Whether you enter before or after earnings,
remember that AMAT will only be able to advance with the SOX
heading positive.  If the SOX breaks down below the $460 level,
we'll want to stand aside regardless of the price action in AMAT.


BUY LEAP JAN-2003 $25 VPJ-AE
BUY LEAP JAN-2003 $22 VPJ-AX  For Covered Call
BUY LEAP JAN-2004 $25 LPJ-AE
BUY LEAP JAN-2004 $22 LPJ-AX  For Covered Call

Drops

JNJ $62.10 The intensified selling in the broad markets earlier
in the week was too much for our JNJ play and we had to drop it
on Monday when our option price fell to the point of entry,
kicking us out for a par result.  Sure enough, more selling
ensued the next day and even with the market in rally mode
Wednesday morning, JNJ kept falling, trading below $60 for the
first time since late February.  Even though the uptrend is still
alive, and I still like the prospects for the stock long-term, I
needed to follow the discipline of obeying our stop and exit the
play at the prescribed level.  Afterall, a money-management plan
is worthless if we don't follow it.  

LUV $16.80 The strength we saw in the Transportation sector, and
more specifically in the Airline index (XAL.X) has just fallen
apart in the past month.  LUV has been languishing in this
environment but had been holding its own.  But Friday's big
breakdown in the XAL to levels not seen since last November
created too much of a drag on the stock and LUV fell through our
stop and kept on going, posting a 5% loss for the day.  That digs
a big hole in the long-term uptrend we had been attracted to and
discipline says we have to drop LUV this weekend.  There could
be some strong support in the $16.00-16.50 area, and a strong
rebound from there could signal a better entry point than the
one we took a few weeks ago.  But with a fresh PnF sell signal
and weakness in both the broad market and the Airline sector, I
don't think it provides a good balance of risk and reward at this
point.


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

Option-Trading Basics: Covered-Call Strategies
By Mark Wnetrzak

This week's questions concern the use of "in-the-money" options
and buying stock on margin in covered-call positions.

Attn: Covered-Calls Editor 
Subject: Selling higher-priced calls & using margin


Mark,  

I noticed that all of your plays are in-the-money, even though
many of the stocks you pick are in bullish trends.  If the stock
is expected to go higher anyway, why not sell an out-of-the-money
option to take advantage of the potential capital gain?

I also have a question about position management with stocks
that do not get "called" away and the risk/reward of selling
covered-calls on margined stock.  Using the example of WGRD
(Watchguard) from your recent play list.  If I bought the stock
in the play you recommended and it finished the month just below
the $5 strike price, how would I know whether it is better to
sell the stock or sell a new option?  My basis would be near $5
but if it is near the bottom of its long-term range, any further
downside might be significant.  How then would I close the play?
Also, is there any advantage to using margin in the position.
Would I risk more by borrowing against portfolio collateral (not
having all the cash) to own the shares?

KM


Hello KM,

I agree that many of the issues we list have excellent upside
potential, however the worrisome economic situation and the
precarious condition of the market dictates a more conservative
approach to bullish strategies.  Many of our candidates are
based on downside support rather than upside potential, so I
would not recommend substituting a higher strike price for the
sold call unless you are willing to sacrifice the low risk
outlook.  Some of the issues may fail to move higher, thus the
stock will remain in your portfolio, turning a short-term play
into a longer-term position that requires selling a number of
calls over the next few months to achieve a favorable return.

Some investors prefer to strive for higher potential returns with
an aggressive outlook, writing "out-of-the-money" calls on stocks
in their portfolios.  These (OTM) positions offer greater rewards
but also have less downside protection.  The maximum potential
profit of an OTM position, while slightly greater than that of an
"in-the-money" (ITM) position, will always require an increase in
price by the underlying stock.  Thus, by utilizing an OTM option,
the success of the overall position depends more on the movement
of the stock price and less on the benefits of writing the call.
Since the premium generated from the sale of the call is smaller,
the overall position will be more susceptible to loss if the stock
price declines.  ITM plays are plainly more conservative, offering
less risk but also smaller reward potential.  Though our strategy
is less aggressive, it still requires a disciplined approach and
sound money management techniques, as there is risk of loss in all
trading.

In the example you gave (April 21 Newsletter candidate), if WGRD 
stays near technical support as it consolidates, the best scenario
would be to sell the next month call, provided you retain a neutral
to bullish outlook on the issue.  With the stock near $5, the call
bid should be around $0.50, meaning the new basis would be lowered
to near $4.20.  If the stock is above $4.20 at the June (option)
expiration, you could continue to sell calls or sell the stock and 
take any available profit off the table.  Remember, if you initiate
a play and it turns negative (the issue moves below a technical 
support level or has catastrophic news, etc.), you should consider
closing the play (buying back the calls and selling the stock).  
Professional traders strive to keep losses to a minimum and thus,
preserve their capital for a more favorable position.  If WGRD 
falls below $5 on heavy volume, which is a key support level, 
exiting the bearish position would require buying back the calls
(about $0.15 to $0.30) and then selling the stock.  Closing the
position with the stock at $4.50, would realize a loss of about
$0.50 ($4.70 + $0.20 - $4.50 + commissions) per share. 

This is an acceptable draw-down, as opposed to allowing the stock
to decline to $3, or $2, and this action also avoids tying up your
capital, which you can now put into a profitable play.

Our positions are generally very conservative and "in-the-money,"
focusing primarily on downside protection while also providing an
acceptable monthly return.  Margin can enhance that return and it
is a good tool if used appropriately.

As an example, if the stock ended the expiration period at $4.75:

Initial cost of WGRD = $4.70
Sold JUN-$5 call for $0.50
New cost basis = $4.20
Sell stock at $4.75
Net profit = $0.55 ($4.75 - $4.20)

Thus, the gain without margin equals:

0.55 / 4.2 X 100 = 13.1% (commissions would reduce the profit by
approximately $0.07 on 1000 shares)

If you used margin, the investment cost would be $2.34 (as opposed
to $4.70) and the call option premium of $0.50 would reduce the 
overall cost basis to $1.84.  The interest for one month of margin
is negligible, thus the return would be:

0.55 / 1.84 X 100 = 29.9% (Obviously, quite a bit of difference!)

If the stock fell below the cost basis, the loss would be the same.
The only difference is you would have to come up with the margin
balance of $2.50 per share to close the play.  The main advantage
is the leverage that margin gives you by effectively doubling your
potential return.  Also, the initial requirement for margin is 50%,
but after you own the stock, the collateral obligation falls to 30-
35%, depending on your broker.  This allows a substantially higher 
profit potential and the risk of a margin call is lower when the
position is "in-the-money."  Since our plays are generally very 
conservative, and don't require the issue to rise in value (it can
even fall) to produce a maximum profit, the strategy of buying 
stocks on margin can be beneficial for many of our readers.

Regardless of how they approach the market, successful traders
cut their losses quickly to preserve capital.  The idea is to 
stay in the game, and holding a stock to achieve a "break-
even" exit can last a long time, sometimes a lifetime.

Mark
OIN


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

NOVT    8.34   7.75   MAY   7.50  1.25  *$  0.41  12.6%
ENMD    7.60   7.51   MAY   7.50  0.50  *$  0.40  12.2%
WGRD    5.89   4.97   MAY   5.00  1.20   $  0.28   6.5%
GRP    15.30  15.28   MAY  15.00  0.85  *$  0.55   5.5%
ASGN   20.42  22.36   MAY  20.00  0.90  *$  0.48   5.3%
TDY    17.82  19.10   MAY  17.50  0.90  *$  0.58   5.0%
CCK     8.85   9.55   MAY   7.50  1.80  *$  0.45   4.6%
EMKR    9.10   8.10   MAY   7.50  2.05  *$  0.45   4.6%
PDG    12.79  12.78   MAY  12.50  0.65  *$  0.36   4.3%
IDCC   10.99  11.46   MAY  10.00  1.45  *$  0.46   4.2%
MOT    15.00  14.76   MAY  15.00  0.60   $  0.36   3.6%
ACRT   19.90  17.15   MAY  17.50  3.10   $  0.35   2.3%
PLUG   10.26   9.60   MAY  10.00  0.80   $  0.14   1.3%
BSML    5.37   4.45   MAY   5.00  0.90   $ -0.02   0.0%
QUIK    5.03   4.60   MAY   5.00  0.30   $ -0.13   0.0%
NFLD    8.19   6.73   MAY   7.50  1.30   $ -0.16   0.0%
ZIXI    6.08   4.55   MAY   5.00  1.35   $ -0.18   0.0%
ENR    25.01  24.08   MAY  25.00  0.60   $ -0.33   0.0%
AVGN   10.56   8.37   MAY  10.00  1.15   $ -1.04   0.0%
FHRX   26.75  23.20   MAY  25.00  2.30   $ -1.25   0.0%
NTBK   17.86  15.46   MAY  17.50  1.00   $ -1.40   0.0%

NFLD    8.00   6.73   JUN   7.50  1.05   $ -0.22   0.0%

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

Comments:

The current bearish environment is providing a lesson in money-
loss management.  It is extremely difficult to enter neutral to
bullish plays when the major averages continue to plummet.  Even
Wednesday's exhilarating rally did little but offer a second 
chance to "exit" positions that had been floundering.  Many of
the above issues are testing key support areas and should be
considered early-exit candidates, especially if the Market's 
horrid action continues.  With one week until expiration, it is
time to evaluate the risk-reward potential for any issues you 
still own and act accordingly.

Positions Closed:  Cygnus (NASDAQ:CYGN), Praecis Pharma (NASDAQ:
PRCS), Microtune (NASDAQ:TUNE), Napro Biotherapeutics (NASDAQ:
NPRO), IMPCO Technologies (NASDAQ:IMCO), Powerwave Technologies
(NASDAQ:PWAV), Protein Design Labs (NASDAQ:PDLI), Amylin Pharma-
ceuticals (NASDAQ:AMLN), Adaptec (NASDAQ:ADPT), and Sapient 
(NASDAQ:SAPE).



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

ENDO   19.11  JUN 17.50   PFU FW  2.65 0     16.46   42    4.6%
GIVN   13.99  JUN 12.50   QPG FV  2.25 10    11.74   42    4.7%
INFA    8.16  JUN  7.50   UYF FU  1.30 105    6.86   42    6.8%
MACR   20.32  JUN 20.00   MRQ FY  2.25 119   18.07   42    7.7%
NTIQ   22.10  JUN 20.00   CDJ FD  3.50 31    18.60   42    5.5%
SIE    18.50  JUN 17.50   SIE FW  2.00 0     16.50   42    4.4%
UNTD   11.00  JUN 10.00   QAB FB  1.75 21     9.25   42    5.9%

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

MACR   20.32  JUN 20.00   MRQ FY  2.25 119   18.07   42    7.7%
INFA    8.16  JUN  7.50   UYF FU  1.30 105    6.86   42    6.8%
UNTD   11.00  JUN 10.00   QAB FB  1.75 21     9.25   42    5.9%
NTIQ   22.10  JUN 20.00   CDJ FD  3.50 31    18.60   42    5.5%
GIVN   13.99  JUN 12.50   QPG FV  2.25 10    11.74   42    4.7%
ENDO   19.11  JUN 17.50   PFU FW  2.65 0     16.46   42    4.6%
SIE    18.50  JUN 17.50   SIE FW  2.00 0     16.50   42    4.4%


Company Descriptions

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

*****
ENDO - Endocare  $19.11  *** Pullback = Entry Point ***

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 FW LB=2.65 OI=0 CB=16.46 DE=42 TY=4.6%


*****
GIVN - Given Imaging  $13.99  *** New Diagnostic Device ***

Given Imaging (NASDAQ:GIVN) is an Israeli company established to
develop, produce and market a platform technology for diagnostics
and therapy of the gastrointestinal (GI) tract.  The company was 
founded to commercialize a minimally invasive, disposable imaging
capsule for diagnosing small intestine disorders and diseases. 
Given has submitted more than 20 patents worldwide for the tech-
nologies employed in the Given Diagnostic Imaging System, and for
new capsules to be developed using the basic technological plat-
form.  Future generations of the Given Diagnostic Imaging System 
will be developed to capture images of the rest of the upper GI 
tract and the large intestine.  This week, Given announced that 
it had launched a new camera pill that enables doctors to locate
small intestine disease with increased precision.  The FDA has
approved the software that supports the new M2A pill.  Investors
with a bullish outlook on the company's new products can use this
position to speculate on the near-term performance of Given with 
a cost basis closer to support.

JUN 12.50 QPG FV LB=2.25 OI=10 CB=11.74 DE=42 TY=4.7%


*****
INFA - Informatica  $8.16  *** Bottom-Fishing! ***

Informatica (NASDAQ:INFA) is a provider of enterprise analytics
software that enables its customers to automate the integration,
analysis and delivery of critical corporate information.  INFA's
data integration products simplify the process of integrating 
and analyzing data from multiple systems, while its complementary
analytic application products provide customers with standardized 
reports and metrics that can be extended to meet their unique 
business requirements.  The company's analytics delivery products
enable the deployment of custom or packaged analytic applications
to a broad set of corporate decision-makers via Web, wireless and
voice interfaces.  INFA also offers a comprehensive set of pro-
fessional services, including product-related consulting services, 
training and customer support.  Informatica reported earnings
in April with revenues of $48.5 million as the company broke-even
on a per-share basis for the quarter.  The position offers a 
cost basis near technical support as INFA consolidates from
recent gains.

JUN 7.50 UYF FU LB=1.30 OI=105 CB=6.86 DE=42 TY=6.8%


*****
MACR - Macromedia  $20.32  *** Recovery Underway! ***

Macromedia (NASDAQ:MACR) develops, markets, and supports software
products, technologies, and services that enable people to define
what the Web can be.  The company's customers, from developers to
enterprises, use Macromedia solutions to help build compelling and
effective Websites and eBusiness applications.  As a result of the
deconsolidation of shockwave.com, the company operates in one major
business segment, the Software segment.  Shares of web-publishing
software company Macromedia soared last week after the company said
it expects to return to profitability, on a pro-forma basis, in the
June quarter, and remain "in the black" for the rest of the year.
Also, revenue showed sequential growth for the first time in a year,
and the top line should grow another 10% sequentially in the June
quarter, due to a slew of new products that have been released or
are scheduled for release in the next couple of months.  MACR
has recently announced the release of several upgrades to its Web
software products and on Friday, the company received a favorable
verdict in its counterclaims lawsuit against Adobe Systems (NASDAQ:
ADBE) - Adobe has been ordered to pay $4.9 million in damages.  
Investors can establish a conservative basis in the stock with 
this position.

JUN 20.00 MRQ FY LB=2.25 OI=119 CB=18.07 DE=42 TY=7.7%


*****
NTIQ - NetIQ Corporation  $22.10  *** Low Risk Entry Point ***

NetIQ (NASDAQ:NTIQ) is a provider of e-business infrastructure
management and intelligence solutions for the components of an
organization's e-business infrastructure from back-end servers,
networks and directories, to front-end Web servers and other
applications.  NetIQ's product family is designed to reduce the
cost of its customers' operations and increase the security,
performance and availability of most Windows-based e-business
applications, directories, servers and networks.  The company's
solutions also address the key e-business management needs and
the wide variety of Internet-based systems, including servers,
firewalls, proxy servers, media servers, e-mail providers and
database systems.  In April, NTIQ posted a wider third-quarter
net loss because of acquisition-related charges, but forecast
fourth quarter and full-year earnings above analysts' estimates.
With the relatively well-established support level near $20,
this position allows investors to speculate on the company's
optimistic outlook in a conservative manner.

JUN 20.00 CDJ FD LB=3.50 OI=31 CB=18.60 DE=42 TY=5.5%


*****
SIE - Sierra Health Services  $18.50  *** 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 FW LB=2.00 OI=0 CB=16.50 DE=42 TY=4.4%


*****
UNTD - United Online  $11.00  *** Favorable Earnings! ***

United Online (NASDAQ:UNTD) is a nationwide Internet Service
Provider that was formed in September 2001, as a result of the
merger of NetZero and Juno Online Services, two Internet access
brands in the United States and Canada.  Through its subsidiaries,
United Online offers both free and value-priced Internet access
services in more than 5,000 cities.  United Online features two
major brands of Internet access service, NetZero and Juno, which
offer free, ad-supported Internet access as well as value-priced
access services on a monthly subscription basis.  The pay Internet
access services feature faster page-loads and no banner-ad windows.
A user of one of the United Online services from NetZero or Juno
has the ability to exchange e-mail with any other Internet user,
use popular and widely available Instant Messaging programs such
as those offered by AOL, Yahoo!, MSN and others, and access search
engines, news and sports content and online shopping and financial
services.  United Online said Thursday that its net loss in the
latest quarter narrowed from the previous quarter, driven by an
increase in paying subscribers and cost cutting measures.  The
issue rallied on the news and investors who think the bullish
activity will continue can speculate on that outcome with this
position.

JUN 10.00 QAB FB LB=1.75 OI=21 CB=9.25 DE=42 TY=5.9%


*****

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

PCSA   13.58  JUN 12.50   CQO FV  2.10 2     11.48   42    6.4%
ACRT   17.15  JUN 15.00   QAC FC  3.20 64    13.95   42    5.5%
UAG    30.20  JUN 30.00   UAG FF  2.25 76    27.95   42    5.3%
CKFR   23.89  JUN 22.50   FCQ FX  2.80 57    21.09   42    4.8%
OATS   15.23  JUN 15.00   QOQ FC  1.15 6     14.08   42    4.7%


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

Option Trading Basics: Understanding The Effects Of Volatility
By Ray Cummins

One of our new readers submitted an excellent question about
earnings announcements and their effects on options premiums.


Dear OIN,

First, thanks for a wonderful introduction to option trading!
Your articles have been very helpful to a novice who is trying to
learn the strategies that will make me successful investor in the
long run.  Now, my question:  I have noticed that option premiums
on some of the well known stocks that are due to report earnings
are higher than other stocks near the same price.  If a stock has
the same relative movement in its trading (similar volatility),
and there is no extreme in volume (or Open Interest), why would
the option premiums be higher?  Is it due to the possibility of a
bad report?  If that's the case, how do you know when an option
costs too much, such as with the purchase of a straddle, and is
simply too expensive to warrant buying it?

Again, thanks for all the info!

WR


Hello WR,

Indeed, one of the least understood topics in the world of options
pricing is the effect that potential news or an upcoming event has
on an option's premium.  Since options are basically risk-transfer
instruments, their prices are established in a way that is similar
to the determination of insurance premiums.  In short, a riskier
situation can result in a higher cost (premium) for the insurance.

A great example of this concept would be an automobile (accident)
insurance policy.  If you were a driver with a history of traffic
violations and collisions, there would be considerable risk for any
insurance underwriter who sold you a policy.  Every time you drove
your car, there would be a high probability of an accident and the
resulting claims.  The insurance company would have to offset the
increased risk of injury and property damage with a higher premium
in the insurance policy.

The risk component in an automobile accident insurance premium is
similar to that in an option's price.  A pending news item, such
as an earnings announcement, is much like a high-risk driver: its
effects are very unpredictable.  The company may report earnings
that are favorable (and expected) or the announcement may be much
worse than anticipated, causing a large fluctuation in the stock's
price.  The risk of this potential volatility is reflected in the
price of the issue's options and it is commonly known as Implied
Volatility.

If the options market perceives there is a high probability that
the company will issue a report "in-line" with expectations, the
option premiums (and IV) will be relatively low.  In contrast, if
there is a significant chance of an earnings surprise, the option
premiums will inflate until the results become public.  After the
earnings are announced, the uncertainty disappears and the prices
will return to more normal levels.  Even if the issue trades in a
large range after the announcement, the premiums can decline due
to the reduced potential for unexpected volatility.  If you are
buying options (as in a straddle) in anticipation of an earnings
surprise, you may be paying a lot of money for uncertainty that
disappears (along with the option premiums) immediately after the
announcement.

The easiest way to avoid this problem is to become educated about
option pricing and thoroughly research the historical volatility
of the options (as well as the underlying stock).  The most common
way to gauge historic volatility is to observe an average of some
past period of time, such as a 100-DMA.  Experienced traders also
use an adverse volatility estimate, based on historical volatility,
in order to provide a more conservative appraisal of an option's
true value.  By definition, implied volatility is a mathematical
measure of the relative cost of an option, and it is largely based
on the historical volatility of the underlying issue.  In reality,
the implied volatility of an option is mostly determined by market
expectations of the underlying security so you compare the current
prices to statistical values and use valuation software to measure
the level of uncertainty reflected in the option's premiums.  If
the implied volatility levels are abnormally high, the options are
"pricing-in" an extreme degree of uncertainty and you might want
to avoid buying the options (or the straddle).

To learn more about this unique subject, read the bibles of option
trading professionals: Options Volatility and Pricing Strategies,
by Sheldon Natenburg, and Options as a Strategic Investment, by
Larry McMillan.  Both books are available in the OIN bookstore.

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  15.80   MAY  15.00  0.50  *$  0.50  13.6%
GME    20.80  22.06   MAY  20.00  0.45  *$  0.45  12.3%
VIRL   17.81  16.30   MAY  15.00  0.50  *$  0.50  11.3%
MACR   22.01  20.32   MAY  20.00  0.50  *$  0.50   9.9%
WFR     8.60   8.30   MAY   7.50  0.30  *$  0.30   9.9%
OATS   10.63  15.23   MAY  10.00  0.45  *$  0.45   9.6%
ABF    21.23  22.17   MAY  20.00  0.30  *$  0.30   8.6%
AMZN   16.91  16.94   MAY  15.00  0.30  *$  0.30   8.4%
TTWO   26.53  23.75   MAY  22.50  0.55  *$  0.55   8.4%
ADPT   14.57  12.97   MAY  12.50  0.40  *$  0.40   8.4%
PLNR   24.73  23.11   MAY  22.50  0.45  *$  0.45   8.0%
PHSY   26.01  25.87   MAY  20.00  0.40  *$  0.40   7.8%
EAGL   17.00  15.80   MAY  15.00  0.45  *$  0.45   7.4%
PHSY   28.30  25.87   MAY  20.00  0.30  *$  0.30   7.3%
IMCO   14.22  12.40   MAY  12.50  0.50   $  0.40   6.5%
IDTI   32.00  26.80   MAY  25.00  0.40  *$  0.40   6.4%
RMCI   25.45  27.46   MAY  20.00  0.40  *$  0.40   6.3%
TOL    27.58  30.15   MAY  25.00  0.65  *$  0.65   6.2%
NSIT   27.15  27.17   MAY  25.00  0.25  *$  0.25   6.1%
ISLE   20.50  21.56   MAY  17.50  0.30  *$  0.30   5.9%
MARY   21.50  24.45   MAY  17.50  0.40  *$  0.40   5.8%
LNCR   31.28  31.08   MAY  30.00  0.80  *$  0.80   5.8%
DO     32.10  33.93   MAY  30.00  0.40  *$  0.40   5.2%
AEIS   36.71  31.13   MAY  30.00  0.40  *$  0.40   5.2%
GSF    35.33  34.74   MAY  32.50  0.40  *$  0.40   5.0%
ENER   24.24  21.45   MAY  22.50  0.75   $ -0.30   0.0%
BSTE   32.25  28.80   MAY  30.00  0.30   $ -0.90   0.0%

ENDP   11.56  11.97   JUN  10.00  0.55  *$  0.55   9.5%
ENDO   20.70  19.11   JUN  17.50  0.65  *$  0.65   7.0%
SIE    19.88  18.50   JUN  17.50  0.65  *$  0.65   6.5%
TDY    19.17  19.10   JUN  17.50  0.60  *$  0.60   5.6%

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

Comments:

The mid-week rally had little effect on the overall condition
of the market and Friday's activity made that fact evident
as technology issues slumped to recent lows.  The bearish
activity weighed heavily on the stocks in our portfolio but
fortunately, the majority of positions remained positive.
The newest victims of the broad market sell-off were Energy
Conversion Devices (NASDAQ:ENER) and Biosite Diagnostics
(NASDAQ:BSTE) and the plays on those issues are candidates
for early exit on any further weakness.  Other positions in
that category (the list is long and distinguished) include:
Adaptec (NASDAQ:ADPT), Advanced Energy (NASDAQ:AEIS), Impco
(NASDAQ:IMCO), EGL Inc (NASDAQ:EAGL), Take-Two (NASDAQ:TTWO),
Integrated Device Technologies (NASDAQ:IDTI), Planar Systems
NASDAQ:PLNR) and Macromedia (NASDAQ:MACR).

Positions Closed: Centillium (NASDAQ:CTLM), Veeco Instruments
(NASDAQ:VECO), JDA Software (NASDAQ:JDAS), Overture Services
(NASDAQ:OVER), 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

AMZN   16.94  JUN 12.50   ZQN RQ  0.30 873   12.20   42    5.9%
CKFR   23.89  JUN 20.00   FCQ RD  0.65 71    19.35   42    7.5%
FLM    25.35  JUN 22.50   FLM RX  0.80 400   21.70   42    7.2%
GG     18.71  JUN 17.50    GG RW  0.70 117   16.80   42    7.3%
HDWR   18.42  JUN 17.50   HQK RW  0.70 0     16.80   42    7.1%
PHSY   25.87  JUN 20.00   HYQ RD  0.50 0     19.50   42    6.4%
RDC    26.12  JUN 22.50   RDC RX  0.50 94    22.00   42    4.9%
RMCI   27.46  JUN 22.50   UHU RX  0.70 500   21.80   42    7.5%
WFR     8.30  JUN  7.50   WFR RU  0.60 0      6.90   42   13.9%

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

WFR     8.30  JUN  7.50   WFR RU  0.60 0      6.90   42   13.9%
CKFR   23.89  JUN 20.00   FCQ RD  0.65 71    19.35   42    7.5%
RMCI   27.46  JUN 22.50   UHU RX  0.70 500   21.80   42    7.5%
GG     18.71  JUN 17.50    GG RW  0.70 117   16.80   42    7.3%
FLM    25.35  JUN 22.50   FLM RX  0.80 400   21.70   42    7.2%
HDWR   18.42  JUN 17.50   HQK RW  0.70 0     16.80   42    7.1%
PHSY   25.87  JUN 20.00   HYQ RD  0.50 0     19.50   42    6.4%
AMZN   16.94  JUN 12.50   ZQN RQ  0.30 873   12.20   42    5.9%
RDC    26.12  JUN 22.50   RDC RX  0.50 94    22.00   42    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).

*****
AMZN - Amazon.com  $16.94  *** Optimistic Outlook! ***

Amazon.com (NASDAQ:AMZN) is a Website where customers can find and
discover anything they may want to buy online.  The company lists
millions of unique items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera/photo items, software,
computer and video games, tools and hardware, lawn & patio items,
kitchen products, and wireless products.  Through its Marketplace,
Auctions and zShops services, any business or individual can sell
virtually anything to the company's 30 million customers, and with
Amazon.com Payments, sellers can accept credit card transactions.
In addition to its U.S.-based Website, the company operates four
internationally focused Websites: www.amazon.co.uk, www.amazon.de,
www.amazon.fr and www.amazon.co.jp.  The company also operates the
Internet Movie Database (www.imdb.com), a source of information on
movies and entertainment titles, and cast and crewmembers.  Shares
of Amazon.com surged in April as investors applauded the online
retailer's second-straight blowout quarter.  A number of analysts
quickly published optimistic research reports suggesting that the
company will not only survive but thrive.  Indeed, AMZN appears to
be comfortably established in a bullish trend and investors can
speculate on its near-term share value with this position.

JUN 12.50 ZQN RQ LB=0.30 OI=873 CB=12.20 DE=42 TY=5.9%


*****
CKFR - Checkfree  $23.89  *** New Trading Range! ***

Checkfree Corporation (NASDAQ:CKFR) is a provider of electronic
billing and payment services.  The company operates its business
through three independent but inter-related divisions including
Electronic Commerce, Investment Services and Software.  The
company's electronic commerce services are primarily targeted to
consumers through financial institutions and Internet portals.
CheckFree offers portfolio management and information services
for fee-based money managers and financial planners within
investment advisory firms, brokerage firms, banks and insurance
companies.  Checkfree is also a provider of electronic commerce
and financial applications software and services for businesses
and financial institutions.  It designs, markets, licenses and
supports software products for automated clearinghouse processing,
reconciliation and regulatory compliance.  The recent rally in
CKFR has put the issue in a new trading range and traders can
speculate conservatively on continued bullish activity with this
position.

JUN 20.00 FCQ RD LB=0.65 OI=71 CB=19.35 DE=42 TY=7.5%


*****
FLM - Fleming Companies  $25.35  *** Food = Safety Sector! ***

Fleming Companies (NYSE:FLM) is a wholesale distributor of
consumable goods, and also operates price impact supermarkets.
Through its distribution segment, the company markets products to
customers that operate approximately 3,000 supermarkets, 6,800
convenience stores and over 2,000 super-centers, discount stores,
limited assortment stores, drug stores, specialty stores and
other stores across the United States.  The company's retail
segment operates over 100 stores, predominantly supermarkets
that focus on low prices and high quality perishables.  Fleming,
the #2 U.S. grocery supplies distributor, announced last week
that quarterly earnings rose nearly 60% as new acquisitions
and cost savings helped boost revenues.  Investors want to own
a solid company in a "safe-haven" sector can use this position
to establish a discounted basis in the issue.

JUN 22.50 FLM RX LB=0.80 OI=400 CB=21.70 DE=42 TY=7.2%


*****
GG - Goldcorp  $18.71  *** Gold Sector = Market Hedge ***

Goldcorp (NYSE:GG) is a North American-based gold producer with a
high grade mine in Red Lake, Northwestern Ontario, Canada and its
Wharf Mine in the historic Lead Mining area in the Black Hills of
South Dakota, United States.  In addition, the company owns an
industrial minerals operation in Saskatchewan, Canada.  Goldcorp's
newest mine at Red Lake, located in northwestern Ontario, began
commercial production last year and high grade reserves are now
estimated to be in excess of three million ounces.  The Wharf Mine
in the Black Hills of South Dakota produces approximately 100,000
ounces of gold annually and has produced over 1.2 million ounces
since 1983.  Another subsidiary, Saskatchewan Minerals is a North
American producer of high-quality natural sodium sulfate.  Stocks
in the Gold sector are "hot" and traders who want to hedge against
future downside in the broader equity markets should consider this
position.

JUN 17.50 GG RW LB=0.70 OI=117 CB=16.80 DE=42 TY=7.3%


*****
HDWR - Headwaters  $18.42  *** Unique Company! ***

Headwaters Incorporated (NASDAQ:HDWR) is engaged in developing
and deploying alternative energy and related technologies to the
marketplace.  Headwaters is focused on converting fossil fuels
such as gas, coal and heavy oils into alternative energy products.
Headwaters has the ability to adjust the composition of the fossil
fuel molecules, converting the low value fossil fuel into a higher
value product.  The conversion from low to high value products
also allows the company to extract troublesome elements, like
sulfur, nitrogen and heavy metals, out of the fuel, resulting in
a high value clean product.  Headwaters recently reported solid
earnings, handily beating the consensus estimates and investors
who want to own a unique company with a positive fundamental
outlook should consider this position.

JUN 17.50 HQK RW LB=0.70 OI=0 CB=16.80 DE=42 TY=7.1%


*****
PHSY - PacifiCare Health Systems  $25.87  *** Entry Point! ***

PacifiCare Health Systems (NASDAQ:PHSY) is a healthcare services
company with operations in managed care products for employer
groups and Medicare beneficiaries in the U.S. and Guam, serving
approximately four million members.  The company operates health
maintenance organizations (HMOs) and offers HMO-related products
and services.  The company's commercial and Medicare programs are
designed to deliver quality healthcare and customer service to
members, cost effectively.  The company also offers a variety of
specialty HMO managed care, and HMO-related products and services
that employers can purchase to supplement their basic commercial
plans or as stand-alone products.  The company's other specialty
products include pharmacy benefit management, behavioral health
services, life/health insurance, and dental and vision services.
Shares of PHSY soared in April amid increased insider buying in
the Health Services sector but the "fast and furious" rally came
to an end this month.  Now that the issue has retreated to a more
reasonable price, investors can establish a favorable cost basis
in the company's stock with this position.

JUN 20.00 HYQ RD LB=0.50 OI=0 CB=19.50 DE=42 TY=6.4%


*****
RDC - Rowan Companies  $26.12  *** Oil Drillers Rally! ***

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.  Stocks in the Oil & Gas Drilling
sector are performing well and traders who think the trend will
continue can profit from that outcome with this conservative
position.

JUN 22.50 RDC RX LB=0.50 OI=94 CB=22.00 DE=42 TY=4.9%


*****
RMCI - Right Management Consultants  $27.46  *** Entry Point! ***

Right Management Consultants (NASDAQ:RMCI) is an international
career management and organizational consulting company.  The
company's operations are structured into five geographic groups
that provide management oversight to over 200 service locations
worldwide.  Operations are divided into two lines of business,
career transition services and organizational consulting.  Their
career transition services are divided into two main categories,
individual outplacement services and group outplacement services.
The company also provides organizational consulting services that
assist organizations and employees in the areas of leadership
development, organizational performance and talent management.
Right Management's quarterly earnings were favorable and after a
brief consolidation, the issue appears to be reestablished in a
bullish trend.  Investors who believe the company will continue
to enjoy strong demand for its career transition services can
establish a low-risk cost basis in the issue with this position.

JUN 22.50 UHU RX LB=0.70 OI=500 CB=21.80 DE=42 TY=7.5%


*****
WFR - MEMC Electronic Materials  $8.30  *** Entry Point! ***

MEMC Electronic Materials (NYSE:WFR) is a worldwide producer
of silicon wafers for the semiconductor device industry.  MEMC
operates manufacturing facilities, directly or through joint
ventures, in Europe, Japan, Malaysia, South Korea, Taiwan and
the United States.  The company sells silicon wafers to all of
the world's largest manufacturers of semiconductors, including
the world's largest foundries as well as the major memory,
microprocessor and application specific integrated circuit
manufacturers.  MEMC also provides test/monitor wafers, which
are used by its customers for testing semiconductor fabrication
lines and processes.  The bullish activity has resumed in WFR,
after a favorable earnings report and a necessary consolidation,
and investors who want to establish a discounted basis in the
issue should consider this position.

JUN 7.50 WFR RU LB=0.60 OI=0 CB=6.90 DE=42 TY=13.9%


*****

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

WEBX   15.44  JUN 12.50   UWB RV  0.60 63    11.90   42    11.3%
IDCC   11.46  JUN 10.00   DAQ RB  0.40 1316   9.60   42    8.2%
PECS   26.18  JUN 22.50   PQD RX  0.85 38    21.65   42    8.1%
ATVI   31.79  JUN 30.00   AQV RF  1.35 377   28.65   42    8.0%
GPS    15.50  JUN 15.00   GPS RC  0.70 1419  14.30   42    7.9%
LTD    20.40  JUN 20.00   LTD RD  0.95 0     19.05   42    7.9%
NSIT   27.17  JUN 25.00   QNT RE  0.95 80    24.05   42    7.1%
IVGN   32.70  JUN 27.50   IUV RY  0.65 0     26.85   42    5.5%


SEE DISCLAIMER IN SECTION ONE
*****************************


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

Equities Plunge Amid Gloomy Outlook For Corporate Profits
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, May 10

Stocks retreated again today with technology shares pacing the
decline as more dismal news emerged in the telecommunications
industry.

The NASDAQ Composite dropped 49 points to 1,600 as stocks in the
telecom group slumped in sympathy with WorldCom's (NASDAQ:WCOM)
credit downgrade.  Two debt-ratings services cut their ratings
on WorldCom bonds to "junk" status and the announcement prompted
a number of analysts to suggest that America's second largest
long-distance carrier may eventually be forced to seek bankruptcy
protection.  The malaise in hi-tech issues spread to other areas
as the session progressed with the Dow Jones Industrial Average
eventually slipping 97 points to 9,939 on weakness in Microsoft
(NASDAQ:MSFT), Intel (NASDAQ:INTC), Hewlett-Packard (NYSE:HPQ),
SBC Communications (NYSE:SBC) and Boeing (NYSE:BA).  The broader
markets were plagued by selling in airline, brokerage, utility,
and biotechnology stocks while select buying was seen in the oil
service and gold sectors.  The Standard & Poor's 500 Index fell
18 points to 1,054.  Trading volume closed at 1.17 billion on the
Big Board and at 1.83 billion on the technology exchange.  Market
breadth ended negative, with losers doubling winners 20 to 11 on
the NYSE and 22 to 13 on the NASDAQ.  In the treasury market, the
10-year note added 11/32 to yield 5.12% while the 30-year bond
edged up 1/2 to yield 5.60%.  On the fund flow front, Trim Tabs
estimated that equity funds investing primarily in U.S. stocks
had outflows of $400 million in the week ending May 8, compared
with inflows of $1.9 billion in the prior week.  Meanwhile, all
equity funds had outflows of $2.4 billion versus inflows of $2.8
billion during the prior week.


Last week's new plays (positions/opening prices/strategy):
						
Macrovision   (NSDQ:MVSN)  MAY20C/MAY20P  $2.30  debit   straddle
Scien. Amer.  (NYSE:SFA)   MAY20C/MAY20P  $2.00  debit   straddle
Yahoo!        (NSDQ:YHOO)  MAY15C/MAY15P  $1.30  debit   straddle
Nabors        (NYSE:NBR)   JUN40P/JUN42P  $0.35  credit  bull-put
Raytheon      (NYSE:RTN)   JUN37P/JUN40P  $0.35  credit  bull-put
Slumberger    (NYSE:SLB)   JUN45P/JUN50P  $0.60  credit  bull-put
Clear Chan.   (NYSE:CCU)   MAY55C/MAY50C  $0.50  credit  bear-call
Rowan Drill.  (NYSE:RDC)   JUN30C/JUN22P  $0.20  credit  synthetic
Shire Pharma  (NSDQ:SHPGY) JUN30C/JUN25P  $0.10  credit  synthetic

The volatile market activity did wonders for our debit straddles
with two of the three positions (SFA and YHOO) achieving their
profit targets in only one week.  The explosive trading activity
in the broader sectors also helped readers achieve the suggested
entry prices in all of the new spread and synthetic positions.
Macrovision was the only disappointment as the neutral-outlook
play did not trade at our suggested debit until late in the week,
well after the volatility had subsided, and it now appears that
the issue will remain mired in a relatively small price range.


Portfolio Activity:

The recent precipitous declines in equity values have been very
profitable for volatility traders and during the past week, the
Spreads/Combos portfolio also enjoyed some new winners in the
category of debit-straddles.  The big movers among technology
issues were Emulex (NASDAQ:EMLX) and Veritas (NASDAQ:VRTS) and
they contributed to the extreme activity in the NASDAQ-100 index
(AMEX:QQQ).  In the S&P 500 sectors, utility stocks were "on the
move" and positions in Reliant (NYSE:RRI) and Mirant (NYSE:MIR)
closed Friday's session with large profits.  The sell-off in the
group also had a positive affect on one of our older straddles:
NRG Energy (NYSE:NRG), and the position has a high probability
of a successful outcome prior to its expiration in June.  Among
the more recent plays, BMC Software (NYSE:BMC) and Research In
Motion (NASDAQ:RIMM) provided near "break-even" opportunities
while Conexant Systems (NASDAQ:CNXT) and Applera-Celera Genomics
(NYSE:CRA) extended their recent gains.  Neutral-outlook plays
that did not achieve their profit targets (on a simultaneous
order basis) were CVS Corporation (NYSE:CVS), Viacom (NYSE:VIA),
and Abercrombie & Fitch (NYSE:ANF).  Among the other portfolio
categories, all of the credit-spreads on equities are profitable
and the synthetic position in Andrx (NASDAQ:ADRX) offered a
favorable gain for speculative traders.  In the "time-selling"
category,  American Express (NYSE:AXP) is holding up very well,
despite the slump in broad-market equity values while Applied
Materials (NASDAQ:AMAT) continues to struggle in the wake of the
technology sell-off.  One issue that enjoyed positive activity
this week was Pactiv (NYSE:PTV) and we hope the movement produced
favorable profits for traders in the bullish, long-term position.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
FTI - FMC Technologies  $22.95  *** Reader's Request! ***

FMC Technologies (NYSE:FTI) designs, manufactures and services
technologically sophisticated systems and products for customers
through its Energy Systems and Specialty Systems segments.
Energy Systems is a supplier of systems and services used in the
offshore, particularly deepwater, exploration and production of
crude oil and natural gas.  FMC's Specialty Systems subsidiary
provides technologically advanced handling and processing systems
to industrial customers.  Until December 2001, FMC Corporation
was the primary shareholder of the Company.  In December 2001,
FMC Corporation distributed all the shares of FMC Technologies
stock, rendering the company fully independent.

One our readers asked for some additional synthetic positions in
the Oil Service sector, to take advantage of the recent bullish
activity in the group.  Fmc Technologies is a good candidate for
this strategy as the issue is currently in a strong up-trend and
has short-term technical support at our sold (put) strike price.
Traders should target a smaller debit in the position initially,
to allow for a brief consolidation in the underlying issue.
 
PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUN-25.00  FTI-FE  OI=376  A=$0.75
SELL PUT   JUN-22.00  FTI-RD  OI=10   B=$0.40
INITIAL NET DEBIT 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 $675 per contract.


******************************************************************
SGR - The Shaw Group  $33.25  *** Power Generation Equipment ***

The Shaw Group (NYSE:SGR) is a vertically integrated provider of
complete piping systems and comprehensive engineering, procurement
and construction services to the power generation industry.  Shaw
has supplied fabricated piping systems in over 375 power plants
with an aggregate generation capacity of over 200,000 megawatts
of piping systems in the United States and worldwide.  Shaw also
provides services to the various process industries (including
petrochemical, chemical and refining industries), as well as the
environmental and infrastructure industries.

The Shaw Group is another good candidate for a bullish option
play as the issue has recently traded at an intermediate-term
high and has excellent upside potential.  The first test of
overhead supply will occur near $35 but beyond that price, the
stock has little resistance below the $45 range.  Traders who
believe the current trend will continue can speculate on that
outcome with this position.
 
PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUL-40  SGR-GH  OI=415   A=$0.80
SELL PUT   JUL-30  SGR-SF  OI=1412  B=$1.20
INITIAL NET CREDIT TARGET=$0.50-$0.60  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 $1,125 per contract.


******************************************************************
PTEN - Patterson-UTI Energy  $33.91  *** A Driller Too! ***

Patterson-UTI Energy (NASDAQ:PTEN) operates land-based oil and
gas drilling rigs.  The company owns 302 drilling rigs, with
drilling operations in New Mexico, Utah, Oklahoma, Louisiana,
Texas and western Canada.  The company is also engaged in the
business of pressure pumping, oil and gas exploration and
production, and drilling and completion fluids services.  The
company was formed in May 2001 as the result of a merger
between Patterson Energy and UTI Energy.

Patterson-UTI Energy is one of the most popular issues in the
Oil & Gas Drilling/Exploration sector and the combination of
the two companies has produced a unique organization that may
become one of the leaders in the industry.  Also, the technical
outlook for the stock is favorable and the recent trading-range
"top" near $30 should provide adequate support (to protect our
sold put) in the event of any future corrections.
   
PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-40  NZQ-HH  OI=300  A=$1.10
SELL PUT   AUG-30  NZQ-TF  OI=446  B=$1.55
INITIAL NET CREDIT TARGET=$0.50-$0.60  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 $1,125 per contract.


******************************************************************
PDE - Pride International  $18.98  *** Rally Mode! ***

Pride International (NYSE:PDE) is a major drilling contractor,
providing offshore and onshore drilling, workover and related
services in over 20 countries.  The company operates a fleet
of rigs, including ultra-deepwater drillships, semisubmersible
rigs, jackup rigs, tender-assist, barge and platform rigs, as
well as land rigs.  Its land rigs range in capability from
shallow workover units to 30,000-foot drilling depths.  San
Antonio, a subsidiary, provides a variety of oilfield services
to various customers in Argentina, Venezuela, Bolivia and Peru.
Services provided include integrated project management, coiled
tubing drilling/completion, under-balanced drilling, directional
and horizontal drilling, environmental drilling (river crossings,
fiber-optic cables etc.) and cementing, stimulation and other
related services.  On September 13, 2001, Pride International
merged with Marine Drilling Companies to form the new company.

From a technical viewpoint, PDE is definitely a "bullish" issue
and Credit Suisse First Boston agrees with that outlook, having
recently started coverage of the offshore oil and gas driller
with a "strong buy" rating.  CSFB analyst Ken Sill established a
12-month target price of $31 a share for the company and if the
stock continues to move in that direction in the coming months,
this position will provide a favorable profit.  Traders should
target a smaller debit in the position initially, to allow for
a brief consolidation in the underlying issue.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUL-20.00  PDE-GD  OI=412  A=$1.20
SELL PUT   JUL-17.50  PDE-SW  OI=344  B=$0.80
INITIAL NET DEBIT TARGET=$0.00-$0.10  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 $710 per contract.


******************************************************************
XAU - PHLX Gold & Silver Sector  $79.90  *** Gold Hedge! ***

The PHLX Gold & Silver Sector is a capitalization-weighted index
composed of the common stocks of 9 companies involved in the gold
and silver mining industry.  XAUSM was set to an initial value of
100 in January 1979 and options on the index commenced trading on
December 19, 1983.  More information on the index and its options
can be found at: http://www.phlx.com/products/xau.html

The technical indications of the XAU are favorable and despite
the brief recovery in equity values, most analysts agree that
Gold will continue to be a popular market hedge in the coming
weeks.  Traders who agree with a bullish outlook for gold and
silver prices can profit from that activity with this position.

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUN-65  XAU-RM  OI=1663  A=$0.65
SELL PUT  JUN-70  XAU-RN  OI=851   B=$1.05
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


******************************************************************
                       - TECHNICALS ONLY -
******************************************************************
ADBE - Adobe Systems  $38.75  *** Trading Range! ***

Adobe Systems Incorporated builds software solutions for network
publishing, including Web, print, ePaper, video, wireless and
broadband applications.  Its graphic design, imaging, and media
authoring tools enable customers to create, manage, and deliver
visually rich, reliable content.  The company licenses its unique
technology to major hardware manufacturers, software developers,
and service providers, and offers integrated software solutions
to businesses of all sizes.  The company has operations in the
Americas, Europe, the Middle East, Africa and Asia.
    
Here is a good candidate for a premium-selling position, based on
the underlying issue's technical background.  ADBE has a stable
trading range from $35 to $45 and the near-term chart indications
suggest the current trend will continue.  However, recent news
about a patent infringement suite by Macromedia and other market
sentiment may have an effect on the position, so review the play
thoroughly and make your own decision about its outcome.

PLAY (conservative - neutral/credit strangle):

SELL CALL  JUN-45  AEQ-FI  OI=715  B=$0.75
SELL PUT   JUN-30  AEQ-RF  OI=523  B=$0.45
INITIAL NET CREDIT TARGET=$1.25  Profit(max)=14%
UPSIDE B/E=$46.25  DOWNSIDE B/E=$28.75


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

These issues meet our criteria for speculative 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 foremost combination of low 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.  These plays will
not be tracked in the monthly summary.

******************************************************************
BRCM - Broadcom  $24.54  *** Where To Now? ***

Broadcom Corporation (NASDAQ:BRCM) is a provider of integrated
silicon solutions that enable broadband communications and
networking of voice, video and data services.  The company
designs, develops and supplies complete system-on-a-chip
solutions and related hardware and software applications for
every major broadband communications market.  Their diverse
product portfolio includes solutions for digital cable set-top
boxes and cable modems; high-speed local, metropolitan and wide
area and optical networks; home networking; Voice over Internet
Protocol; carrier access; residential broadband gateways; direct
broadcast satellite and terrestrial digital broadcast; digital
subscriber lines; wireless communications; SystemI/OTM server
solutions, and broadband network processors.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-25  RCQ-EE  OI=3775    A=$1.25
BUY  PUT   MAY-25  RCQ-QE  OI=11893   A=$1.70
INITIAL NET DEBIT TARGET=$2.75-$2.80  TARGET PROFIT=15-25%


******************************************************************
INVN - InVision Technologies  $19.39  *** Big Move Coming? ***

InVision Technologies (NASDAQ:INVN) is a provider of Federal
Aviation Administration (FAA)-certified explosives detection
systems (EDSs) used at airports for screening checked passenger
baggage.  From inception through December 31, 2001, the company
shipped 168 EDS units for installation at U.S. airports.  Also
from inception through December 31, 2001, InVision shipped 103
EDS units for installation in airports outside of the United
States.  The company's products are based on advanced computed
tomography, which is a technology for explosives detection that
has met the FAA certification standards.  InVision was also the
first manufacturer, and is one of only two manufacturers, whose
EDS products have been certified for screening checked baggage.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-20  FQQ-ED  OI=281   A=$1.05
BUY  PUT   MAY-20  FQQ-QD  OI=1376  A=$1.55
INITIAL NET DEBIT TARGET=$2.40-$2.50  TARGET PROFIT=15-25%


******************************************************************
POWI - Power Integrations  $20.20  *** Recent Volatility! ***

Power Integrations (NASDAQ:POWI) designs, develops, manufactures
and markets proprietary, high-voltage, analog integrated circuits
for use in AC to DC power conversion primarily for the cellular
telephone, personal computer, cable and also direct broadcast
satellite decoder box market and various consumer and industrial
electronics markets.  The company's ICs cost-effectively bring
the benefits of high levels of integration to AC to DC switching
supplies.  The company's TOPSwitch high-voltage analog products
are able to meet the power conversion needs of a wide range of
applications within high-volume markets.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-20  QPW-ED  OI=47  A=$0.90
BUY  PUT   MAY-20  QPW-QD  OI=14  A=$0.70
INITIAL NET DEBIT TARGET=$1.50  TARGET PROFIT=15-25%


******************************************************************
PRIA - PRI Automation  $17.83  *** Semiconductor Slump! ***

PRI Automation (NASDAQ:PRIA) is a global supplier of advanced
automation systems, software and services to the semiconductor
industry.  The company offers complete and flexible solutions
that address a wide range of automation requirements for many
semiconductor manufacturers and for OEM (original equipment
manufacturers) manufacturers of semiconductor process tools.
The company's factory automation systems, software and services
help semiconductor manufacturers optimize the flow of material
and data throughout the semiconductor fabrication facility.
They enable customers to respond quickly to changing industry
demands and to effectively plan, schedule and optimize their
production activity.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-17.50  UXQ-EW  OI=34   A=$1.00
BUY  PUT   MAY-17.50  UXQ-QW  OI=505  A=$0.65
INITIAL NET DEBIT TARGET=$1.50  TARGET PROFIT=15-25%


******************************************************************
VRSN - Verisign  $10.00  *** Cheap Speculation! ***

VeriSign (NASDAQ:VRSN) is a provider of digital trust services
that enable Website owners, enterprises, communications service
providers, e-commerce service providers and individuals to engage
in secure digital commerce and communications.  Verisign's trust
services include three core offerings: managed security and
network services, registry and telecommunications services, and
Web presence and trust services.  The company is organized into
two customer-focused lines of business; Enterprise and Service
Provider and Mass Markets.  The Enterprise and Service Provider
division delivers products and services to larger enterprises
and service providers that want to establish Internet-based and
telecommunications-based services to customers.  Mass Markets
delivers products and services to smaller enterprises, as well
as to consumers who wish to establish an online presence.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  MAY-10  QVR-EB  OI=5782  A=$0.65
BUY  PUT   MAY-10  QVR-QB  OI=1073  A=$0.65
INITIAL NET DEBIT TARGET=$1.10-$1.15  TARGET PROFIT=15-25%


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


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

If last week’s volatility continues into the next, we’re sure to 
see more triggered trades.  Here are two ideas to ponder over the 
weekend.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/051202.asp


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

Wednesday’s rally, and the following two day pullback, have 
created a short term range bound situation.  Our levels are pretty 
well intact going into next week’s trading.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/051202_1.asp


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

Please read our disclaimer at:
http://www.OptionInvestor.com/page/oin/aboutus/disclaimer.html


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