Option Investor
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Daily Newsletter, Wednesday, 05/15/2002

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The Option Investor Newsletter                Wednesday 05-15-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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        05-15-2002        High      Low     Volume Advance/Decline
DJIA    10243.70 + 29.74 10349.10 10223.70 1409 mln   1681/1485
NASDAQ   1725.60 +  6.50  1759.33  1694.34 1620 mln   1826/1680
S&P 100   542.02 -  3.58   549.41   541.43   totals   3507/3165
S&P 500  1091.07 -  6.21  1104.23  1088.94
RUS 2000  513.54 +  1.82   515.26   508.50
DJ TRANS 2797.98 + 29.74  2808.79  2762.49
VIX        22.13 -  0.03    22.42    21.03
VIXN       45.29 +  0.00    46.13    43.29
Put/Call Ratio      0.70
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Blue In The Face

You wouldn't know it by just reading the closing numbers but 
the bulls really tried to make it three in a row for the S&P 
500 and the Dow Jones Industrials.  Unfortunately, with Big 
Blue holding a much anticipated analyst conference after the 
bell today, traders were not willing to hold any big bets over 
the close.  However, despite this lack of enthusiasm in the 
broader markets, tech investors did push the Nasdaq to its own 
three in a row with a gain of +6.51 points ending at 1725.  It's 
not like the losses on the Dow (-54) and the S&P 500 (-6.21) were
big.  In reality, today's session was probably just frustrating 
for investors who have witnessed the strength earlier this week.  
There was a growing hope that the bull market really had begun 
and Tuesday's close with the major indices just under resistance 
was just a tease. 

The bad news is that little has changed in the technical picture 
for the markets since Tuesday.  The good news is little has 
changed.  As exasperating as it may have seemed for traders, the 
sideways action is normal for the markets after a two-day rally.  
You've heard it before.  Nothing moves in a straight line and the 
dips and pull backs are necessary and can be opportunities for a 
good entry point when the time is right.  Keep in mind that 
tomorrow morning may not be that time.  As we mentioned, Wall 
Street had another reason to churn sideways today.  IBM, one of 
the leaders in the tech sector would be chatting with analysts at 
its biannual meeting tonight.  What IBM had to say could shape 
the direction for multiple sectors for the next quarter.  Yet 
before we discuss Big Blue's post-market spin session I want to
cover a little intraday action.

The CPI and an Active Rumor Mill

The Labor Department's main gauge on inflation, the Consumer 
Price Index or CPI, was released this morning before the opening 
bell.  Estimates had ranged from a +0.3 percent to +0.4 percent
increase and the actual results surpassed both at +0.5 percent.
The core CPI numbers, which exclude typically volatile food and 
energy prices, rose 0.3 percent on top of a 0.1 percent rise in 
March.  Energy prices were substantially higher with the strong 
increase in oil prices and these translated into hefty increases 
for gasoline.  A few analysts were nonchalant about the report 
claiming it was not a huge influence on the FOMC's decision 
making for interest rates.  Despite this attitude, negative 
comments from a Federal Reserve governor were not constructive 
for market gains.  The good news is an interest rate hike is not 
likely to occur anytime soon.  The bad news is the economy, while 
growing, is doing so at such a slow rate that the FOMC doesn't 
want to jeopardize its recovery.  

Another byproduct of the CPI report was reflected in the housing 
sector.  Investors reacted to the up tick in inflation by selling 
homebuilders.  The DJUSHB index closed flat but many of the 
larger, well-known names in the group ended the session down with 
several falling about three percent.  This appeared to be a pre-
emptive move by investors since the 10-year and 30-year bonds 
merely inched higher, which in response trimmed yields with 
fractional losses.

A big contributor to the profit taking and volatility today was 
an active rumor mill on Wall Street.  Word that British troops 
were in Iraq had many wondering if the allies would be upping 
their timetable to dealing with Saddam.  Another rumor that was 
circling the markets today was word that Venezuelan President 
Chavez was shot today.  Reaction to these stories left many in 
the market indecisive but the price of oil ended the day down 
over $1.00 with most of the losses in the last twenty minutes of 
the regular session.

Speaking of oil, the price of crude may have dropped today but 
the bullish trend is still very much in effect.  I know we 
typically discuss changes in the price of oil due to economic 
demand and changes in the political climate.  However, chart 
readers will probably notice that the $28.00 level could act as 
support for oil and if the profit taking did continue, it could 
see more support at its rising 50-dma near the $26.00 mark.  On a 
related note, the Dow Transports (TRAN) ended the day with its 
third gain in a row and even the Airlines  (XAL.X) followed suit 
with a minor gain.

Dealing With Challenges
 
The biggest hurdle the market had to face today wasn't any rumor 
or economic report.  It was the post-market meeting between Wall 
Street and IBM CEO Sam Palmisano.  This was Sam's first meeting 
with analysts after stepping in behind previous IBM leading man, 
Lou Gerstner.  Tech investors may have been hoping for some 
positive guidance by Sammy but the head honcho tried to avoid 
talking financials and instead used broad strokes to paint a 
positive picture for Big Blue's long-term growth abilities.

Sam did state that the company was "dealing with challenges" but 
expects to drive costs down by $1 billion to $2 billion a year.  
To quote Sam, he said, "[IBM] can continue to drive share growth 
and productivity across the enterprise, those factors combined 
support our goal of double-digit EPS growth over the long-term."  
Die-hard fundamental analysts may be able to stomach this sort of 
spin but the herd is likely to respond negatively.  Wall Street 
doesn't want to hear long-term growth and cost reductions right 
now.  Yes, those are important elements in IBM's success but the 
markets are looking for revenue growth and rising sales to soothe 
our fears that a tech recovery has yet to truly begin.

Shares of IBM began to slip in after hours trading and we would 
not be surprised if investors took some money off the table 
considering the $76 to $84 move in the last several sessions for 
Big Blue.  Rumor has it that IBM is likely to cut up to three 
percent of its work force later this quarter.

Dude, You'd Better Not Miss Estimates

The next big company that could make or break any tech sector 
rally is going to be Dell Computer (DELL).  With revenues of more 
than $31 billion, DELL has been stealing marketshare from the 
likes of HWP, CPQ (now HPQ) and GTW but DELL's $27 share price is 
a far cry from the hey-day of yesteryear.  Shares have been 
climbing the last three sessions and traders could be 
anticipating strong comments from Michael Dell now that two of 
its biggest competitors have merged and will be faced with the 
huge struggle of restructuring their business into a healthy 
rival for the Texas based DELL.  It was only a few weeks ago that 
DELL said results should be inline with estimates of 16 cents a 
share compared to the 17 cents a share for the same period last 
year.  The street is probably expecting to hear decent numbers 
from DELL's retail sales but will be most eager to hear how 
corporate spending turned out.  If things start to get really bad 
they could always resort to selling apparel with their pitchman, 
Steven's trademark "Dude" exclamations.  Oh wait, they're already 
doing that.  Look for DELL's earnings after the close tomorrow.

More Tech Earnings

Readers know that the SOX can have a heavy influence on the 
Nasdaq but it appears that analyst opinions of the industry flip 
flop almost daily.  Earlier this week everyone was talking up the 
praises of AMAT.  When AMAT announces earnings after the bell on 
Tuesday, the press erupted with a number of opinions.  Many were 
bullish on AMAT's report that orders were up 51% but in a sector 
of dueling analysts views we're seeing a number of new bearish 
comments.  Frankly, I know some readers get frustrated with the 
deluge of upgrade/downgrade crossfire on stocks like AMAT and 
INTC.  That's why I find it interesting to turn to the charts and
 see what the price action is telling us.  Unfortunately, the SOX 
looks like a mirror of the Nasdaq composite but the index is 
holding on to its perch above its 200-dma - at least for now.  
Shares of Intel have also managed to remain above its 200-dma and 
claim another close back above the $30 mark.  Both are bullish 
for investors but shares could pull back to fill the gap from Tuesday 
morning.  On the other hand, AMAT has already managed to 
fill the gap from Tuesday's spike higher and we'd keep an eye on 
it for leadership in the coming weeks.  A pull back to the 50-dma 
could be a short-term trader's entry point but the stock has 
strong resistance at $28.00.

Additional tech stocks that will be influencing their individual 
sectors are as follows: TXN recently reaffirmed its own Q2 
revenue and earnings numbers and the company is looking for 
revenue to grow 10 percent to $2 billion.  While this is a 
positive for the semiconductor group shares are mirroring the 
action in the index.  Network Appliance (NTAP) was slammed for a 
16.5 percent loss after reporting Q4 numbers that met estimates 
but fell short on the revenue expectations.  Goldman came out 
with less than enthusiastic comments claiming limited upside at 
current valuations.  However, contrasting this negative news for 
the storage sector was a positive report from Brocade (BRCD).  
BRCD met street estimates and revenue came in just above 
expectations.  Of course they let the cat out of the bag a day 
early yesterday and shares suffered some profit taking today.  On 
the software front, BEAS actually rallied 2.6% despite a 
lackluster earnings report and lower guidance on its revenue 
forecast for the year.  Analyst reactions were mixed with both 
positive and negative reviews.  A bigger influence on the software 
sector is MSFT and shares of the stock failed to rally 
above its 50-dma today and despite its recent turnaround we could 
see more profit taking.  The software giant is still up over 10% 
from its earlier May lows.

Invest Like Bill Gates

Even news that Bill Gates had taken several positions across the 
drug sector in many of the big name companies could not assuage 
the selling pressure plaguing the group.  The last several days 
have seen a competition between some of the big cap drug 
companies on who could come out with the worst news.  While JNJ 
and LLY were in an early lead and latecomer PFE tried to enter 
the race tonight the new runner up is Abbot Labs (ABT).  Shares 
of ABT were slashed for a 9.3% loss when word hit the street that 
the FDA claimed that one of ABT's manufacturing plants did not 
meet their quality system requirements.  ABT's investor repelling 
comments were that the company could not "estimate the financial 
impact" at this time.  While ABT put in a good showing, the big 
winner in this beauty contest was Schering-Plough (SGP).  While 
the stock was already in a dreadful downtrend, shares collapsed 
for another 12% loss closing at $25.00 after investors found out 
about a criminal investigation by the FDA regarding one of SGP's 
products.  The inflammation appears to be a manufacturing plant 
in Puerto Rico but this is not the first time SGP has had 
trouble's with their plants and the FDA.  One analyst stated that 
the company had already spent $100 million on bringing their 
manufacturing processes up to compliance only fall short again.  
Needless to say the drug sector may not be the safe haven it once 
was.  

Looking Ahead

At the end of the day it would appear that some traders may have 
been attempting to talk down the markets with a well placed rumor 
or two.  Considering that we were already due for a little profit 
taking after the Monday-Tuesday rally I'm encouraged that the 
broader indices performed as well as they did.  I've posted a 
chart of the Dow Jones below that portrays a longer-term up trend 
in a wide ascending channel.  You can also see the regression 
channel outlining the multi-week consolidation from the March 
highs to the April-May lows.  The market does indeed appear to 
have broken out of its short-term down trend but given the steep 
rise I would not be surprised to see the Dow pull back to the 
10150 to 10100 levels.  Heaven forbid we could even get a dip to 
the 10K mark but the name of the game here is patience as we look 
for the next bounce.  Fortunately, the MACD had produced a 
bullish crossover and could be confirming the beginnings of our 
next leg higher.  If you prefer, I'd recommend you keep an eye on 
the 10300 level and 10400 levels outlined in Tuesday's wrap as 
overhead resistance for the Dow.




Traders will notice we have a similar breakout in the short-term 
pattern for the S&P 500.  We mentioned in the Market Monitor 
today that traders could be witnessing another "stealth rally" as 
investors slowly put money to work in those stocks that should 
benefit as the economy rebounds.  The recent move in the S&P 500 
might be the beginning of a new leg up but I would not be 
surprised to see a pull back to the 1080 level as the profit 
taking today was relatively mild.




Keep in mind that this bullish trend is still very fragile.  Any 
negative news is liable to hit harder than we like and traders 
will be looking for a reason to sell and take profits off the 
table.  Tomorrow morning Wall Street will be deciphering the 
Initial Claims, the Housing Starts and Building Permits.  On 
Friday we'll have to deal with the Michigan Sentiment numbers.  
However, the event likely to have the biggest affect now will be 
DELL's earnings report and conference call.  After Big Blue's 
song and dance tonight about a "challenging environment" don't be 
shocked to see tech investors do a little sell-button shuffle in 
the Nasdaq tomorrow and Friday.  I'd look for support once the 
gap is filled on the composite around the 1650 level.  After all, 
the Nasdaq is still up 7.8% in the last three sessions and 
nothing moves in a straight line.  Speaking of lines, I bet 
there's a big line a your local theatre for the 12:01 a.m. 
showing of Episode II, Attack of the Clones that opens tonight.  

James

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

SLOW DOWN
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
 
I think we could undergo a 1-2 day correction from the recent 
high.  This would cause the hourly oscillators to fall back to 
neutral or oversold areas.  We can anticipate at least day of 
correction after a 3-day advance.  The bears are beginning to 
wonder if where there is smoke there is fire.  The Bulls will be 
thinking about taking some profits tomorrow, especially in tech. 
The Bulls are chewing their cuds tonight and saying, 'ya' never 
know how long these rallies will last and you never go broke 
taking a profit.  

The Semiconductor Sector Index ($SOX.X), which is a primary 
engine of the Nasdaq and a clear bellwether sector, was 
undergoing a correction already.  As I pointed out in my Index 
Sector wrap yesterday, SOX has to clear serious overhead 
resistance on its weekly chart at 585 - versus today's close at 
537.5.  Until it does, we are not firing on all cylinders in 
terms of a significant sustained upswing in the fallen tech 
angels. 

We have a good individual Nasdaq and SOX bellwether in Intel 
(INTC) which held half its gains today and held above its 
upside chart gap from Tues-Wed; also, holding its 200-day 
moving average for two days. However there are lot of weaker big 
cap stocks, like Sun Micro (SUNW) and Oracle Corp (ORCL) that 
have to get into gear to really get the COMP moving higher.  
Cisco (CSCO) was correcting some today, failing at its intraday 
high right at its 200-day moving average.

If the market undergoes a "normal" correction at this juncture, 
we can anticipate prices dropping back to the chart gap areas 
that formed over Monday-Tuesday, when the indices leaped higher. 
Somewhat unusual for a stock to not "fill in" a chart gap in 
subsequent price action, but very rarely does this happen to an 
index.  Every sector has to be in gear to resist that.  And this 
market is far from that. 

In an emerging uptrend, which is stage where we most likely are, 
there is a lot of backing and filling before overall market 
rallies get going.  There are still too many weak and anemic 
sectors for that.  Great for index option and futures traders, as 
they have a good means to trade some of these bigger price swings 
while enough various sectors get into gear to provide the lift to 
propel the S&P and Nasdaq higher in a more straight line fashion.  


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


 


YESTERDAY's still relevant comment -  
(look for) corrections from the upper trendline of the emerging 
uptrend channel on the hourly chart; potential resistance comes 
in around 1105-1108.  Near support is at 1088-1090. (STILL TRUE)

TODAY - 
The retreat back to the intraday low and near the 21-day average 
suggests that SPX may trade back down under this pivotal level 
tomorrow; i.e., 1086.

I suggested on the Market Monitor today (12:42) buying SPX puts 
as the index was trading at 1194 -- June 1175 (SPT RO) were 
trading around its closing level at 84, up from 81.5 on Tues.  My 
SPX objective is to the 1180 area. This was intended as a short-
term trading objective for intraday market followers. I suggest 
exiting the trade if SPX trades to 1109, above current 
resistance.    

Regarding my downside objective to 1080 - the gap area on the 
hourly charts is 1075-1076. Could envision this as the low on a 
pullback. 1070 begins support implied by the lower support line 
of the emerging uptrend channel, extending to 1066 as shown on 
the hourly chart. A break of 1066, especially on a closing basis 
would demonstrate unexpected technical weakness and I would use 
this as a "stop out" point to exit calls holding any substantial 
value.    

A trading suggestion for those who cannot watch the market 
intraday this week is to buy the June calls with SPX at 1080; 
e.g., buy June 1090 Calls (SPT RO) at 20 or better - today at 
23, down from 30 on 5/14.   


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


 


YESTERDAY - my still-relevant viewpoint:  
Buy calls on a setback back down to the gap area at 535. 

TODAY - 
Emerging hourly uptrend channel is becoming better defined.  
Wider channel right now suggests resistance at 552, with near 
resistance at 548 currently.  Looks like OEX will correct 
some from today. My best guess is that the 535 area may be seen 
on a pullback.  If so favor buying scale down in the 535-529 
zone. 

If you have speculative shorts or put positions I suggest 
following the hourly oscillators - if they trend lower with both 
"lengths (5 & 21) getting oversold, this will be a "confirming" 
indicator if OEX is also near the low end of its price channel.  

As with the S&P 500, retreat to low end of today's range, 
threatening to pierce 539.8, at the 21-day moving average, is 
short-term bearish and suggests that there will be places to 
cover puts and do some speculative buying for the longer haul. 
The stop-out point for such calls is 528, as 530 should hold if a 
bullish trend change is taking hold. 

I think the bell is ringing for the bear trend to subside and the 
bull to stagger slowly awake.  Economic growth is on the upswing 
and this will move the market higher.    

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


 


YESTERDAY comment revisited -   
Looks like the top of the emerging hourly uptrend channel might 
signal resistance developing in the 103.8-104 area. Nimble 
traders might take a stab at shorting there, with a stop at 
104.5. NOT BAD ADVICE TO GUIDE TODAY FOR TRADERS. 

TODAY - 
Still see key support as at 101-101.5. I most favor buying calls 
in this area. A move to 101.11 would "fill in" the upside hourly 
chart gap and offer strong support in my estimation. 

Suggestion is to accumulate DJX calls in this area, with a stop 
out point as 99.5.
 
Nasdaq Composite ($COMPX) Weekly/Daily charts:


 


I favor buying Nasdaq-related calls if the Composite gets back 
into the 1693 to 1653 zone.  The 1655-1660 area, should we get 
that sort of deeper correction is my area to accumulate calls in 
the actively traded Nasdaq index options like NDX and QQQ. 

1640 looks like it may define the low end of the emerging uptrend 
channel.  There could be a retreat to this level and if the COMP 
did not dip any or much further, the bullish trend would remain 
intact. However, a close under 1640 would suggest that this 
strong recent upswing was another short-lived bull fakeout.  

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


 

My view from yesterday that is unchanged: 
I most favor buying calls again, especially if the chart gap is 
filled in by a move back down the 31 area, which not only fills 
in the gap, but is at the lower support end of the emerging 
uptrend channel. 

TODAY -
A well-defined emerging hourly uptrend channel is coming into 
view.  Trade it - the downtrend channel was defining many trading 
opportunities on the way down.  

My best guess is that the Q's retreat again to the gap and 
lightening strikes twice -- as we retreat into the GAP, the 
buyers surface and this marks a great place to take out some 
long-term call protection. Imagine if a bull market started 
without you! 

Well, it's just easier to get in near the lows in options rather 
than chase the rally at the point where a new bull trend proves 
itself to the world. By that time your risk to reward is not as 
favorable.  

Right now, risk -- in buying QQQ calls in the 31 area, would be 
to use 29.50 as a "stop out" point.  Upside potential is to the 
36 area, over time or to test the 40-week moving average. By the 
way, today's close, was first upside breakout above the weekly 
down trendline. Early bird gets the worm and all that stuff.  


INDEX TRADE RECOMMENDATIONS: 

Buy the June SPX calls with SPX at 1080; for example, I think the 
June 1090 Calls (SPT RO) might hit 20 or better at 1180.


MAJOR MARKET INDICATORS - 

On 5/8, the day of the large 1-day advance last week, my Index 
Trader column had all my general market indicator charts; e.g., 
sentiment, advance-decline, volume and TRIN. 

All were pointing to a major trend turnaround and a significant 
rally.  If you are interested in reviewing those indicators, you 
can scroll back on the Option Investor Home page to my 5/8 
column: "Holy Cow!"  

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Working The Spread
By Mark Phillips
mphillips@OptionInvestor.com

Stock traders may not care about the bid/ask spread, especially
now that they are so tight with most equities with the advent
of decimalization.  But for option traders, dealing with the
spread between the bid and ask can often make the difference
between a winning or losing trade.

For many seasoned options traders this will be old hat, but
judging by some of the emails I have recently received, there
are some newbies that could benefit from a basic discussion of
how to work with the spread to reduce risk and hopefully
increase reward.

First off some simple definitions.  The Bid is the price that
another trader (or market maker) is willing to pay for the
specified option.  The Ask is the price at which another trader
(or market maker) is willing sell.  If you have access to
real-time quotes, the Bid represents the best or highest Bid,
while the Ask represents the best or lowest Ask.

The difference between the Bid and the Ask is commonly referred
to as the Bid/Ask spread and for the remainder of this
discussion, I will simply refer to it as the Spread.  The reason
the spread is so important to us as option traders is that when
we buy an option, we typically buy at the Ask and when we sell,
we do so at the Bid.  So when we buy an option, we are immediately
in a loss position, as the option can't be sold for what we paid
for it until the underlying stock moves sufficiently for the Bid
price to reach the level of the Ask when we entered the trade.  I
know that sentence is a mouthful, so let's look at a couple of
examples to demonstrate the concept.

IBM is currently trading near $85 ahead of their analyst meeting
tonight.  Let's assume for the sake of argument that we wanted to
take a speculative trade that the market won't like what they have
to say and want to buy some June puts ahead of the meeting to
profit from the resulting drop.  My broker window tells me that
the JUN-80 Put is Bid at $1.45 and the Ask is $1.60.  So the
spread is $0.15.  So if we placed a Market Buy order for that
option, it would cost us $1.60.  However, if we turned right
around and decided to sell that option, we would only receive
$1.45 for it, realizing the $0.15 spread as a loss.  While that
may not seem like a big deal, 15-cents here and 15-cents there
and pretty soon you're talking about real money.

Some options have much wider spreads that must be dealt with.  One
of the current OIN Call plays, SRCL is currently trading near the
$73 and differs primarily (in terms of trading activity) from IBM
in that daily volume is much lower.  IBM trades nearly 10 million
shares per day and ATM options tend to trade several hundred to
several thousand contracts per day.  SRCL on the other hand, has
an ADV of 265K shares and traded just 20 contracts of the JUN-75
Call today.  Lower volumes mean wider spreads, pure and simple.

Why?  I'm glad you asked!  The spread is the market maker's reward
for taking on the risk of making a market in a particular stock or
option.  When you buy at the Ask, the market maker will typically
buy from another trader at the Bid and then Sell to you at the
Ask, pocketing the difference for his troubles.  If there is less
volume in that particular stock or option, he needs to expand the
spread to compensate for the increased risk that accompanies the
lower liquidity in that market.

If you want to see some really wide spreads, go take a look at an
option chain on the S&P 500 (SPX.X).  With the SPX currently
trading near $1093, the JUN-1100 Call is Bid at $20.10, while the
Ask is $22.10.  That is a $2.00 spread and you can see how having
to eat the spread can have an adverse affect on your profits.  We
all trade different securities and therefore deal with different
spreads, but we all have to deal with the issue of the spread and
the way it impacts our trading results.

One simple solution is to never place Market orders, and instead
try to split the Spread.  For instance on the SPX option above, I
might place a Limit Buy order at $21.10, attempting to cut my
spread-related risk in half.  We can't begrudge the market makers
for taking their cut.  Afterall, they have to make a living too!
But we can try to trim the edges off of our cost of doing
business.  So let's say the market maker is feeling particularly
magnanimous and gives me the option at $21.10.  Then just as the
SPX gets going in my favor, a sell program hits the S&P pits and
I decide to exit the trade with the Bid at $23.50 and the Ask at
$25.30.

Do I attempt to split the spread again, hoping to get out with a
fatter profit or do I just place an order at the Bid?  Decisions,
decisions...

I take a hybrid approach, owing to the fact that I always trade
multiple contracts when I take a position.  I leg into the
position on the entry and then leg out on the exit.  It doubles
my commission costs, but gives me more flexibility in terms of
managing my entries and exits.  When I have decided that I want
to exit the position, I will split my position in half.  The first
half I will place a Limit Sell order midway between the Bid and
the Ask, while I will place a Limit order at the Bid for the
remainder of the position.  That way I know I'll at least get out
of half of my position and can then target more favorable pricing
on the remainder.

You might wonder why I also leg into positions at the entry.  Have
you ever found a solid trade that you wanted to enter and placed a
Limit order, trying to split the spread, and never gotten filled?
Well, I have.  And it can be particularly maddening when you are
right about the play and you end up sitting there watching it run,
unwilling to chase the market higher.  So we apply the same
solution I described above, only in reverse.

Once I have decided to take a position, I'll place a Limit Buy
order for half of my desired position size at the prevailing Ask
and then will place a Limit Buy for the remainder of the position
between the Bid and the Ask.  Best case, they will both be filled
and I will have slightly reduced my cost basis.  Worst case, I
will only be filled on half my position before the market starts
moving in my favor.

Over the years, I have found this strategy to give me a good
balance between grabbing the optimum entry point into a play and
preventing the situation where I watch a play run away without
me.  Or even worse, being too stingy on an exit price and having
the play start moving sharply against me, all because I was
unwilling to give the whole spread to the Market Maker.  Hopefully
this discussion gives you some fresh ideas for working the spread,
so that you can continue to improve your trading results.

Have a great week!


Mark


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order entry for net debit or credit offers fast option executions

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

THE SECTOR BEAT - 5/15
by Leigh Stevens

It was the old "fav" (favorites) sectors back on top again today 
along with life showing in some beaten down transportation 
sectors like Airlines, after a sharp retreat in oil prices today.

HIGHER ON THE DAY - 


 

SECTOR TRENDS AND TRADING IDEAS - 

DOWN ON THE DAY - 


 

Of course, today's sharp retreat in oil prices caused a 
correction in the related energy stock sectors.  If this 
correction leads to a buying opportunity, especially in oil 
services, I will visit this sector in subsequent days with a 
suggested sector play.  



 

As with the Healthcare stocks, I anticipate that the sectors that 
were up strongly (as with OSX), while the overall market was 
falling will continue to be market leaders when more areas of the 
market get in gear.  



  

Of the OSX sector stocks, I have put on my sector watch list: 
Smith International (SII), BJ Services (BJS) and Cooper Cameron 
(CAM) as representative or OSX "proxy" stock plays, with option 
possibilities. 

INTERNET INDEX - 
Life in the old boy or gal!  


 

Here is a sector where the low end of the well-defined uptrend 
channel, highlighted an area from which the beaten up Internet 
stocks would have a decent rebound. 

However, most of this was Amazon (AMZN), up 6% again today, so 
AMZN was the stock play for this sector.  Here is a case where 
our bullish recommendation on the stock would have been 
reinforced by the technical picture presented by the Sector of 
which it is part. 


Healthcare Payors Index ($HMO.X): 

Healthcare ($HMO.X) rebounded today. The scorecard on HMO sector 
stocks (3)that were suggested in Sector Trader and were fillable 
per the purchase area suggested, with option play possibilities, 
were:

PacifiCare Health Systems (PHSY) dropped a second time into my 
suggested buying zone at 23.5-24.7, with a low at 24.1, followed 
by a close at 26.98. The August 30 calls were one play. 

Wellpoint Health Networks (WLP) - suggestion was to buy at 72.00 
area, a doable purchase with dip to nearly 70.  I suggested 
further purchases around $70; recent low was then 67.77, with a 
close at 71.16 today (5/15).   

HUMANA (HUM) - purchase suggestion was at 15.60, at 
its support (up) trendline; then in the 15.00-15.15 area. HUM 
reached recent low of 14.75, with close today (5/15) at 15.40.  


HMO SECTOR: NOT FILLABLE - 

Oxford Health Plans (OHP)  - Buy suggested in $43 area. 

United Health Care (UNH) - Suggested buy at 82-83. Sept. 95 calls 
are a possible option play.   
 
AETNA (AET) - My revised entry suggestion is in the $44 area. 

MID ATLANTIC MEDICAL (MME) - buy point suggested in the 32.80-
33.00 area. 

TENET HEALTHCARE (THC) - buy in the 66 area. 



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


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                Wednesday 05-15-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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

MMM  - call
Adjust from $125.50 up to $126.00

NVDA - call
Adjust from $32.00 up to $33.75

SGR  - call
Adjust from $30 up to $32.75

GENZ  - put
Adjust from $39.50 down to $38.00


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

None


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

None


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

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


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

NVDA - NVIDIA $37.90 +0.73 (+6.02 this week)

NVIDIA Corporation designs, develops and markets graphics
processors and related software for personal computers and
digital entertainment platforms. NVIDIA provides a "top-to
bottom" family of performance 3D graphics processors and
graphics processing units that, in the Company's opinion, has
set the standard for performance, quality and features for a
broad range of desktop PCs, from professional workstations to
low-cost PCs, and mobile PCs, from performance laptops to
thin-and-light notebooks.

Most Recent Update

The bears are turning tail and covering their short positions
after the recent revival of tech shares.  Bulls might do well to
take a closer look at some of the technology sector's most
beaten up shares.  NVDA is one such stock.  A full 15 million
shares are still short in this stock, but that much comes with
little surprise.  Since peaking earlier this year above the
$70 level, the stock has lost about 50 percent of its value even
after accounting for the recent rebound in the stock.  We saw
some of those greedy bears take note of that during today's
run up in the stock, where volume increased compared to the
last several days of light trading activity.  Moreover, NVDA
cleared its short term resistance at the $37 level, which puts
the risk for the bears still in this stock to the $40 level.
Above $40, it's very foreseeable that NVDA could work its
way back up to the $45 resistance area.  With the AMAT report
after the bell helping to build momentum in the semiconductor
group, the bears should be getting even more nervous.  Watch
for a breakout during tomorrow's trading above the $37.55
level for further short covering.  Intraday pullbacks to the
$35 mark could be used as entry points during market weakness.
Our stop is in place at $32.

Comments

NVDA continued higher today on further short covering in the
broader technology sector.  The stock pierced the $38 level to
the upside during today's trading, which could set up a trade
to the $40 level today or Friday.  Look for the bulls to return
to semiconductor shares during tomorrow's session.  Watch for
volume to return to the stock, and an advance above the $38.60
level.

BUY CALL JUN-35 RVU-FG OI=3254 at $5.60 SL=3.75
BUY CALL JUN-40*RVU-FH OI=3208 at $2.90 SL=1.50
BUY CALL SEP-40 RVU-IH OI=1364 at $5.70 SL=4.00
BUY CALL SEP-45 RVU-II OI=3174 at $3.80 SL=2.50

Average Daily Volume = 11.5 mln



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

Technology Shares End Higher As Broader Market Consolidates!
By Ray Cummins

NASDAQ stocks rose today for a third consecutive session in the
wake of renewed optimism for corporate earnings.

The NASDAQ composite index finished 6 points higher at 1,725
amid strength in Internet, networking and semiconductor shares.
Despite the bullish activity in technology shares, the blue-chip
Dow industrial average moved lower, closing down 53 points at
10,244 on weakness in Hewlett-Packard (NYSE:HPQ), Philip Morris
NYSE:MO), Exxon Mobil (NYSE:XOM), General Electric (NYSE:GE),
and Home Depot (NYSE:HD).  In the broader market, biotechnology,
retail and finance stocks saw select buying while oil service,
natural gas, gold and drug issues finished lower.  The Standard
& Poor's 500-stock index ended 6 points lower at 1,091.  Trading
volume came in at 1.4 billion on the NYSE and at 2.26 billion on
the NASDAQ.  Market breadth was positive, with winners outpacing
losers 17 to 15 on the Big Board and 18 to 17 on the technology
exchange.  In the bond market, the 10-year Treasury note added
1/4 to yield 5.24% while the 30-year government bond gained 6/32
to yield 5.73%.

***************
Summary of Current Positions
***************
(As of 05-14-02)

Naked Puts

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

ACF      MAY    35   34.45  40.00   $0.55   5.88%
MXIM     MAY    45   44.30  50.74   $0.70   5.87%
ADRX     MAY    35   34.50  45.39   $0.50   7.03%
PHTN     MAY    43   41.75  42.75   $0.75   7.21% *
NVLS     JUN    40   39.05  51.51   $0.95   5.90%
VSEA     JUN    40   38.90  48.79   $1.10   5.86%

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


Naked Calls

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

MRVL     MAY    48   48.00  41.24   $0.50   5.11%
TER      MAY    40   40.75  32.96   $0.75   6.67%
ICOS     MAY    55   55.50  24.99   $0.50   5.74%
CCMP     MAY    75   75.90  52.16   $0.90   6.86%
MXIM     MAY    65   65.90  50.74   $0.90   5.85%


Put-Credit Spreads

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

ACDO    60.79  55.51  MAY   50  55  0.65   54.35  $0.65  Open
ASD     74.24  77.55  MAY   65  70  0.60   69.40  $0.60  Open
BSC     65.65  62.30  MAY   55  60  0.55   59.45  $0.55  Open
FAST    41.00  41.95  MAY   35  38  0.27   37.23  $0.27  Open
KSS     75.00  73.00  MAY   65  70  0.65   69.35  $0.65  Open
PCAR    77.34  69.72  MAY   65  70  0.50   69.50  $0.22 Closed
WLP     67.79  70.35  MAY   60  65  0.80   64.20  $0.80  Open
IGEN    41.10  41.65  MAY   30  35  0.50   34.50  $0.50  Open
PGR     59.27  56.93  MAY   53  55  0.20   54.80  $0.20  Open
EXPE    80.56  79.70  MAY   65  70  0.70   69.30  $0.70  Open
TRMS    49.15  49.91  MAY   40  45  0.65   44.35  $0.65 Closed
XAU     74.07  76.34  MAY   65  70  0.70   69.30  $0.70  Open
ATK    112.45 108.00  MAY  100 105  0.60  104.40  $0.60  Open
GD      98.31  99.51  MAY   90  95  0.55   94.45  $0.55  Open
NOC    124.68 123.58  MAY  115 120  0.80  119.20  $0.80  Open
DGX     94.75  90.86  MAY   85  90  0.55   89.45  $0.55  Open
SRCL    68.99  72.50  MAY   60  65  0.50   64.50  $0.50  Open
RYL    113.00 115.60  JUN   90  95  0.55   94.45  $0.55  Open
SII     73.80  76.14  JUN   55  60  0.65   59.35  $0.65  Open

Positions Closed (but positive now - Murphy's law!): Paccar
(NASDAQ:PCAR) and Trimeris (NASDAQ:TRMS).


Call-Credit Spreads

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

RE     66.00 63.99  MAY   80  75  0.00  75.00  $0.00  Open
CSC    44.82 41.50  MAY   55  50  0.65  50.65  $0.65  Open
SMH    44.38 43.45  MAY   55  50  0.55  50.55  $0.55  Open
PFE    37.85 37.37  MAY   42  40  0.35  40.35  $0.35  Open
CCMP   53.75 52.16  MAY   70  65  0.00  65.00  $0.00  Open
BGEN   42.44 41.73  JUN   55  50  0.55  50.55  $0.55  Open
ROOM   55.30 54.70  JUN   70  65  0.55  65.55  $0.55  Open


Debit Straddles/Strangles: 

Stock   Position   Debit  Target   M/V      G/L      Status

DST    MAY50C/50P  3.90    5.50    4.10     0.20     Closed
SPC    MAY50C/50P  3.90    5.50    3.75    (0.15)    Closed
GS     MAY80C/80P  6.00    0.00    0.00     0.00     No Play
A      MAY30C/30P  2.15    2.65    2.70     0.55      Open?
URBN   MAY30C/30P  2.50    3.00    2.50     0.00     No Play

Our new straddle in Agilent was available near the suggested
debit and the play achieved its profit target in three days.
Although the Urban Outfitters (NASDAQ:URBN) position did not
offer our target entry price (on a simultaneous order basis),
the neutral-outlook position has achieved a break-even exit
and will likely profit in the coming sessions.

  
Synthetic Positions:

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

APOL   34.39   29.90   MAY43C/30P  (0.13)  42.77   0.46  Closed
GM     64.95   68.02   MAY70C/60P   0.45   59.55   0.55  Closed
KBH    49.76   52.90   JUN55C/45P   0.25   44.75   1.00  Closed
KLAC   60.31   60.29   JUN70C/50P  (0.10)  69.90   1.65  Closed
ADVP   34.39   29.90   JUN40C/30P   1.00   29.00   0.00  Closed
WLP    77.00   70.35   JUN85C/70P   0.25   69.75   0.00  Closed
RIG    37.20   35.80   JUN40C/35P   0.30   34.75   1.05  Closed
RTN    42.40   45.00   JUN47C/37P   0.00   37.50   0.75   Open
ATVI   33.95   32.70   JUN40C/30P   0.30   29.70   0.00   Open
JPM    36.91   37.59   JUN40C/32P   0.30   32.20   0.50   Open
CTAS   55.02   56.28   AUG60C/50P  (0.10)  60.10   0.60   Open
BA     45.37   44.48   MAY40P/50C  (0.40)  49.60   0.10  No Play

The Raytheon (NYSE:RTN) position achieved a favorable early-exit
profit today and new plays in J.P. Morgan (NYSE:JPM) and Cintas
(NASDAQ:CTAS) are off to a great start.  However, positions in
Advancepcs (NASDAQ:ADVP) and Wellpoint (NYSE:WLP) have struggled
in recent sessions, due to the rotation from safety issues to
growth sectors, and traders should consider closing both plays
to conserve capital.


New Candidates:

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

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

BULLISH PLAYS - Credit Spreads

Today's list of candidates is rather limited, due to technical
difficulties with the quote server I use to obtain and process
option prices.  I apologize for the lack of "premium-based"
plays and expect to have the data problem resolved prior to
publishing the weekend (Spreads/Combos) section.  Without the
ability to track, paste, and sort option data in a timely manner,
I am limited to offering spread and combination positions.  All
of these stocks have favorable technical indications and traders
with a positive outlook on the underlying issues should find the
risk-reward ratio in these positions attractive.  However, they
should also be evaluated for portfolio suitability and reviewed
with regard to your personal investing criteria.

***************
ADRX - Andrx Corporation  $46.06  *** Recovery Underway! ***

Andrx Corporation (NASDAQ:ADRX) commercializes controlled-release
oral pharmaceuticals using proprietary drug delivery technologies.
The company has nine proprietary controlled-release drug delivery
technologies that are patented for certain applications or for
which it has filed for patent protection for certain applications.
Andrx uses its proprietary delivery technologies and formulation
skills to develop bio-equivalent versions of selected controlled
release brand name pharmaceuticals, and other controlled release
formulations of existing immediate-release or controlled-release
drugs.  The company is also developing bio-equivalent versions of
specialty, niche and immediate-release pharmaceutical products.

ADRX - Andrx Corporation  $46.06

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-30  QAX-RF  OI=1460  A=$0.55
SELL PUT  JUN-35  QAX-RG  OI=1223  B=$1.10
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


***************
BBOX - Black Box  $54.94  *** Solid Earnings! ***

Black Box (NASDAQ:BBOX) is a technical services company that
designs, builds and maintains network infrastructure systems.
The Black Box team serves more than 150,000 clients in 132
countries throughout the world, providing technical services
on the phone, on site and online.  Through its catalogs and
web-site, the company offers more than 90,000 infrastructure
and networking products, and designs and builds over 650,000
custom products each year.  Black Box is the company's labeled
brand and the company's products are primarily marketed through
the Black Box catalog.

BBOX - Black Box  $54.94
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-45  QBX-RI  OI=494  A=$0.55
SELL PUT  JUN-50  QBX-RJ  OI=247  B=$1.10
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


***************
DRS - DRS Technologies  $45.40  *** "Defens-ive" Issue! ***

DRS Technologies (NYSE:DRS) is a supplier of defense electronics
products and systems.  The company provides a wide range of high
technology products and services to all branches of the military,
aerospace and defense prime contractors, government intelligence
agencies, international military forces and consumer markets.
The cCompany operates in three principal business segments on the
basis of products and services offered.  Each operating unit is
comprised of separate and distinct businesses: the Electronic
Systems Group, the Electro-Optical Systems Group, and the Flight
Safety and Communications Group.

DRS - DRS Technologies  $45.40

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUN-35  DRS-RG  OI=108  A=$0.30
SELL PUT  JUN-40  DRS-RH  OI=69   B=$0.70
INITIAL NET CREDIT TARGET=$0.50-$0.55  PROFIT(max)=11%


***************
FDC - First Data  $82.18  *** On The Rebound! ***

First Data Corporation (NYSE:FDC) operates in four business
segments: payment services, merchant services, card issuing
services and emerging payments.  Payment services consist of
Western Union, Integrated Payment Systems, Orlandi Valuta and
ValueLink companies.  Merchant services is comprised of First
Data Merchant Services, TeleCheck, NYCE Corporation, TASQ
Technologies, Inc. and First Data Financial Services.  Card
issuing services segment includes First Data Resources, First
Data Europe, First Data Solutions and PaySys International.
The emerging payments segment consists of eONE Global.  The
remainder of the xompany's business units are grouped in the
All Other and Corporate category, which includes Teleservices,
Call Interactive, Achex, and Corporate operations.  A 2-for-1
stock split is scheduled for 6/5/02.

FDC - First Data  $82.18
  
PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUN-70  FDC-RN  OI=188  A=$0.55
SELL PUT  JUN-75  FDC-RO  OI=256  B=$1.00
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


***************
HON - Honeywell  $39.25  *** Conservative Conglomerate ***

Honeywell International (NYSE:HON) is a diversified technology
and manufacturing company, serving customers worldwide with
aerospace products and services, control technologies for
buildings, homes and industry, automotive products, power
generation systems, specialty chemicals, fibers, plastics and
electronic and advanced materials.  The company's operations
are conducted by strategic business units, which have been
aggregated under four primary segments: Aerospace Solutions,
Automation & Control, Performance Materials and Power and
Transportation Products.

HON - Honeywell  $39.25

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-32.50  HON-RZ  OI=2414  A=$0.25
SELL PUT  JUN-35.00  HON-RG  OI=6020  B=$0.50
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14%


***************
UNH - UnitedHealth Group  $88.39  *** Safe-haven Sector ***

UnitedHealth Group (NYSE:UNH) forms and operates markets for the
exchange of health and well being services.  Through its family
of businesses, the company helps people achieve optimal health
and well being through all stages of life.  UNH's revenues are
derived from premium revenues on insured (risk-based) products,
fees from management, administrative and consulting services and
investment and other income.  It conducts its business primarily
through operating divisions in the following business segments:
Uniprise; Healthcare Services, which includes UnitedHealthcare
and Ovations; Specialized Care Services, and Ingenix.

UNH - UnitedHealth Group  $88.39

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-75  UHB-RO  OI=1268  A=$0.60
SELL PUT  JUN-80  UHB-RP  OI=686   B=$1.00
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


**************
UOPX - University Of Phoenix Online  $34.00  *** New High! ***

University of Phoenix Online (NASDAQ:UOPX) is a provider of
accessible, accredited educational programs for working adults.
It began operations in 1989 by modifying courses developed by
University of Phoenix's physical campuses for delivery via
modem to students worldwide.  University of Phoenix Online now
offers 11 accredited degree programs in business, education,
information technology and nursing.  Students can log on to
their online classes anytime via the Internet by using basic
technology such as a Pentium-class personal computer, a 28.8K
modem and an Internet service provider, thereby enhancing the
accessibility of and the potential market for its programs.

UOPX - University Of Phoenix Online  $34.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-26.25  JSX-RY  OI=1   A=$0.30
SELL PUT  JUN-30.00  JSX-RF  OI=29  B=$0.60
INITIAL NET CREDIT TARGET=$0.35-$0.40  PROFIT(max)=10%


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

BULLISH PLAYS - Synthetic Positions

***************
HSIC - Henry Schein  $49.75  *** Multi-year High! ***

Henry Schein (NASDAQ:HSIC) is a major distributor of healthcare
products and services to office-based healthcare practitioners
in the combined North American and European markets.  HSIC has
operations in the United States, Canada, the United Kingdom,
The Netherlands, Belgium, Germany, France, Austria, Australia,
Spain, and New Zealand, and conducts its business through two
segments, healthcare distribution and technology.  Healthcare
distribution consists of the dental, medical, veterinary and
international groups.  The international group is comprised of
the company's healthcare distribution business units located
primarily in Europe, and offers products and services to dental,
medical and veterinary customers located in their respective
geographic regions.  The technology segment consists primarily
of the company's practice management software business and also
certain other value-added products and services.

The recent trend in HSIC has been very bullish, despite the
slump in broad-market stock values and today's multi-year high
suggests the upside activity will continue in the near-term.
Traders who believe the issue will climb higher in the coming
weeks can attempt to profit from that outcome with this
speculative position.

HSIC - Henry Schein  $49.75
  
PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUL-55  HQE-GK  OI=43  A=$0.95
SELL PUT   JUL-45  HQE-SI  OI=5   B=$0.80
INITIAL NET CREDIT TARGET=$0.00-$0.10  TARGET PROFIT=$0.75-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,600 per contract.


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

BEARISH PLAYS - Naked Calls & Combinations

***************
ABT - Abbott Laboratories  $46.90  *** Bad News Travels Fast! ***

Abbott Laboratories (NYSE:ABT) is principally involved in the
discovery, development, manufacture and sale of healthcare
products and services.  The company's Pharmaceutical Products
segment produces adult and pediatric pharmaceuticals sold
primarily on the prescription or recommendation of physicians,
while the Diagnostic Products segment produces diagnostic
systems and tests for blood banks, hospitals, commercial
laboratories, alternate care testing sites, and consumers.
The Hospital Products segment offers drugs and drug delivery
systems, perioperative and intensive care products, among
others.  Ross Products include adult nutritionals, and the
International Segment includes hospital, pharmaceutical, and
adult and pediatric nutritional products sold and manufactured
outside the United States.

Abbott shares tumbled today on news that U.S. regulators have
found that one of its plants still fails to comply with quality
standards.  The plant under examination is Abbott's Lake County,
Illinois, diagnostic manufacturing operations, where the company
makes blood tests used by laboratories and hospitals.  Abbott
had previously said a failure to comply with the quality system
regulation could result in additional costs for the firm and
analysts believe the problems may convince current customers to
switch to other vendors, thus affecting the company's future
earnings.

Investors were not happy with the news and they sent Abbott's
shares tumbling in a heavy-volume session.  Traders who believe
the sell-off continue can attempt to profit from that activity
with this position.

ABT - Abbott Laboratories  $46.90
 
PLAY (speculative - bearish/synthetic position):

BUY  PUT   JUN-42.50  ABT-RV  OI=95   A=$0.55
SELL CALL  JUN-50.00  ABT-FJ  OI=114  B=$0.65
INITIAL NET CREDIT TARGET=$0.20-$0.25  TARGET PROFIT=$0.75-$1.00

Note:  Using options, the position is similar to being short the
stock.  The collateral requirement for the sold (short) call is
approximately $1,625 per contract.


*************** 
BHI - Baker Hughes  $35.96  *** Trading Range? ***

Baker Hughes (NYSE:BHI) is engaged in the oilfield and process
industries.  The company also manufactures and sells products
and provides services to industries that are not related to the
oilfield or continuous process industries.  The Oilfield segment
consists of six operating divisions: Baker Atlas, Baker Hughes
INTEQ, Baker Oil Tools, Baker Petrolite, Centrilift and Hughes
Christensen.  The company, through its Oilfield segment, is a
supplier of wellbore-related products, technology services and
systems and provides equipment, products and also services for
drilling, formation evaluation, completion and production of
oil and gas wells.  The Process segment consists of two operating
divisions: EIMCO Process Equipment and BIRD Machine.  Through its
Process segment, the Company manufactures, markets and services a
broad range of separation and treatment solutions and continuous
and batch centrifuges and specialty filters.

Shares of Baker Hughes slumped today in conjunction with the drop
in the oil service sector and despite a recent upgrade by Bear
Stearns, the issues appears destined to remain in its year-long
trading range near $35.  Traders who agree that there is little
chance of a move above the sold strike at $40 can profit from
continued lateral movement in BHI with this position.

BHI - Baker Hughes  $35.96
   
PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-42.50  BHI-FV  OI=246  A=$0.25
SELL CALL  JUN-40.00  BHI-FH  OI=672  B=$0.50
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14%


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

BULLISH PLAYS:

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

MKSI   38.18  JUN 35P  1.00   JUN 30P  0.30   0.65     15%
URBN   33.80  JUN 30P  0.85   JUN 25P  0.30   0.60     14%
EBAY   57.35  JUN 50P  1.10   JUN 45P  0.55   0.60     14%
EXPE   81.03  JUN 70P  1.55   JUN 65P  1.00   0.60     14%
MMM   129.50  JUN 120P 1.10   JUN 115P 0.60   0.55     12%
QLGC   50.19  JUN 40P  1.30   JUN 35P  0.80   0.55     12%
PIXR   43.49  JUN 40P  0.60   JUN 35P  0.60   0.45      9%


BEARISH PLAYS:

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

AIG    65.90  JUN 70C  1.00   JUN 75C  0.30   0.75     17%
AGN    59.87  JUN 65C  0.80   JUN 70C  0.25   0.60     14%
ABT    46.90  JUN 50C  0.65   JUN 55C  0.15   0.55     12%
EP     34.41  JUN 40C  0.75   JUN 45C  0.25   0.55     12%
BGEN   41.96  JUN 50C  0.85   JUN 55C  0.35   0.55     12%
BVF    38.20  JUN 45C  0.75   JUN 50C  0.30   0.50     11%
ADI    39.16  JUN 45C  0.70   JUN 50C  0.25   0.50     11%

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


SEE DISCLAIMER
*****************************


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

Bulls are getting the upper hand judging by triggered plays on the 
Watch List.  Here are two more ideas for both sides.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/051502.asp


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