Option Investor

Daily Newsletter, Wednesday, 05/22/2002

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The Option Investor Newsletter                Wednesday 05-22-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        05-22-2002        High      Low     Volume Advance/Decline
DJIA    10157.90 + 52.20 10157.90 10063.50 1149 mln   1606/1530
NASDAQ   1673.50 +  9.30  1676.64  1643.96 1735 mln   1524/1950
S&P 100   541.92 +  3.64   541.92   536.06   totals   3130/3480
S&P 500  1086.02 +  6.14  1086.02  1075.64
RUS 2000  493.91 -  1.55   497.14   490.23
DJ TRANS 2716.20 + 13.42  2721.17  2700.93
VIX        21.59 -  1.18    23.19    21.52
VXN        44.70 -  0.38    45.24    44.29
Put/Call Ratio      0.86

After Two Strikes, Bears Throw A Ball

With two negative days already under out belt this week it 
appeared that Goldman Sachs was pitching for a third day in the 
red with a massive downgrade of the software sector before the 
bell this morning.  This move came on the heels of Tuesday's 
downgrade of several software issues by Solomon Smith Barney.  
While Solomon threw darts at SEBL, PSFT, ARBA and EPNY yesterday, 
Goldman unloaded a barrage of cuts for 26 software companies 
before Wednesday's bell.

The source for Goldman's bearish outlook was a May survey that 
showed IT budgets would likely remain flat throughout 2002.  This 
put a pretty big rip in the bulls' security blanket that a second 
half recovery for the tech sector might still materialize (well at 
least the software sector).  You'll recognize most of the names on 
Goldman's list.  Here are some of the tech bull favorites: PSFT, 
ITWO, and MANU.  But wait, there's more.  You'll love this.  In 
spite of Solomon's and Goldman's downgrades, CS First Boston came 
out with a "buy" upgrade from  "hold" for PSFT.  Granted their 
reasons were that the stock was trading at a discount from its 
peers and appeared to be at a level of lower downside risk, we 
don't believe them.  PSFT still looks like it's heading for its 
September lows, which is at least another 12.5% below current 
levels.  However, that is a stock specific bias and a new relative 
low under $19 might be the key trigger point.  Let's look at what 
happened in the markets today.

Weak overseas markets did little to inspire investors this morning 
with most major indices following the U.S. markets lead from 
Monday-Tuesday.  The London FTSE 100 closed down 0.87% to 5152.  
The German DAX slipped 1.3% to 4919 and the French CAC-40 lost 
1.7% to 4326.  With no apparent leadership, the Dow Jones traded 
sideways early morning while investors tried to decipher the Bank 
of Japan's decision to sell the Yen and weaken their currency 
against the falling dollar.  There has been a lot of focus on the 
dollar and how it relates to gold recently but more on that later.  

It wasn't too long before a rally developed from what appeared to 
be a buy program but the market's strength withered under another 
round of terrorists warnings.  All the major indices were soon 
trading at their lows for the day as news that a package had been 
found on the Brooklyn Bridge and New York authorities closed the 
bridge for an hour before bomb squads revealed no threat.  The 
uneasiness felt by this false alarm left a shadow across the 
markets that lasted the better part of the day.  Government 
officials had been warning U.S. citizens that possible attacks 
against New York landmarks in conjunction with the up coming 
Memorial Day holiday could be a threat.  

Fortunately, turnabout is fair play.  The same way negative 
terrorist rumors had stolen investor enthusiasm for the markets 
the bulls erupted from their dugouts in the last hour of trading 
on rumors that Osama Bin Laden had been captured by the U.S. Army.  
The effect was immediate, as bears, realizing the indices were 
still near significant support, were quick to cover positions into 
the close.  The Dow rallied about 90 points from the 10063 area to 
close up 52 points at 10157.  The S&P 500 jumped from its lows 
near 1075 to end up 6 points on the day at 1086.  Likewise the 
Nasdaq Composite rallied about 30 points from its 1644 lows to end 
the day with a gain of 9 points at 1673.  Unfortunately, the 
internals of the market, while improving in the last hour, still 
did not reflect a true turnaround.  Advancers beat decliners on 
the NYSE but the reverse was true on the Nasdaq.  Across the U.S. 
markets, new highs squeaked past new lows 53 to 49.  The Army 
denied those rumors later in the day but it was enough to end a 
two-day losing streak for all three major indices.

All That Glitters

Gold bugs must be in heaven right now as you can hardly miss the 
media's recent fixation on the rising price of both gold futures 
and the gold-specific indices.  Jeff Bailey discussed gold today 
in a couple of his intraday updates so I won't go into a lot of 
detail but as usual he looks to be right on with his observations.  
To recap, Jeff discussed the Bank of Japan's move against the Yen 
had more assets flowing into gold in a potential hedge against the 
dollar.  Plus, given a backdrop of two significant down days in 
the markets and a U.S. that's on high-alert for terrorism, 
investors were shifting their focus to traditional safe havens 
like gold and bonds.  Obviously, some investors are buying gold as 
a hedge against a dropping stock market and as an anti-
inflationary investment.  Still others are merely trying to cover 
their shorts when gold futures crossed the $300 and then $310 
marks on their beliefs the metal was overbought.  Jeff also went 
into detail on how different gold companies who hedge have under 
performed those companies that do not hedge.  I'm going to focus 
briefly on the short-term observations I see in the gold futures 
and gold indices.  

Gold, like the U.S. bond market, can be seen as a global safe 
haven.  When money managers and hedge funds decide to move into 
gold, we're not just talking about U.S. investors but investors 
around the world.  It is the global political and military 
insecurities that has been a big factor in the strength of gold 
and right now the spotlight is focused on the India-Pakistan 
showdown.  These two fledgling nuclear powers are on the brink of 
their third war over the battle-torn Kashmir region.  Remarks made 
by India's Prime Minister today, directed at his troops, to be 
prepared for a "decisive" encounter have many global spectators 
expecting the area to heat up quickly.  

A quick look at the price of gold futures (gc02m, June futures) 
will identify the $320 level as current overhead resistance.  This 
will be meaningless if India and Pakistan open fire on each other 
(for real this time).  However, in the meantime, we agree with UBS 
Warburg who feels that the $315 level is likely to be short-term 
support for the futures.  I think we could even see a pull back to 
the $310 level and the bullish trend will still be very much 
intact.  Meanwhile, it is the XAU.X Gold and Silver index that 
looks like it's way overdue for a bit of profit taking.  It could 
easily see a consolidation back to the $80 area without losing its 
bullish trend.  The question is whether investors will use that 
pull back as a chance to cover and drive the sector higher once 
again.  A glance at the weekly chart of the XAU will show that 
there is potential overhead resistance in the 90 to 92 range but 
that's still a good distance away.

chart of the XAU


Even In Sideways Markets

Like everyday in the markets, there are a hundred little company-
specific stories that could influence your trading in their 
respective sectors.  To sum up some of the leading news we'll 
touch on the bigger headlines for Wednesday.

If you've got a gamer in the family they'll be interested to see 
what's coming out of this year's E3 or Electronic Entertainment 
Expo - the annual video game industry trade show.  The biggest 
news in this industry has been the continuing saga of MSFT's 
willingness to do battle with industry leader SNE for the game 
console market.  Recent reports have revealed that MSFT is staking 
a huge claim in this market with a $2 billion (with a "B") 
investment to oust reigning champ Sony's PlayStation 2 from the 
top gaming console slot.  You've probably already heard about the 
price cuts, initiated by Sony in what could be a console war that 
lasts for years to come.  Everyone knows that MSFT loses money on 
each console they sell with plans to make it up on the game 
purchases.  Sony's move to slash their game box by $100, one that 
was matched by MSFT, is going to make MSFT's move into this 
industry that much more painful.  MSFT's strategy on this is 
geared to more than just games but games will be the first 
battleground.  And why not?  With a $20 billion gaming industry 
that is expected to grow for several years to come, there is a 
huge slice of the pie at stake.  Industry forecasters don't have 
to look far in a post-9/11 world to see an American public with a 
potentially growing subconscious desire to stay home and be 

One of the interesting observations that tech investors might see 
is the strength shown by the software companies that make the 
games for SNE and MSFT.  Compare the charts of ERTS, THQI, ATVI 
and even AKLM and you'll see how they have all out performed a 
sinking GSO.X software index.  They may not qualify as bullish 
plays at the moment but they'll definitely be on my watch list 
when the tech sector does turn around.

Speaking of watch list, I've been watching shares of GSB rocket 
higher the last few sessions on rising volume.  Suddenly, 
Citigroup (NYSE:C) announces that they will buy Golden State 
Bancorp for $5.8 Billion in cash and stock.  Gosh, you don't think 
someone knew about the announcement before it came out do you?  
GSB was up 7.78% to close at $39.34 while C was down 26 cents to 
$45.00.  What makes this even more interesting is rumors that WFC 
might make a counter offer for the California-based GSB.

Another story stock today was Johnson and Johnson (JNJ).  The 
company announced positive results for their U.S. trials of its 
drug-coated stents.  These stents are already on the market in 
Europe so it's not a big surprise but JNJ did help lead the Dow 
Jones higher.  

Shares of the Gap (NYSE:GPS) reflected news today that CEO Millard 
Drexler, a 19-year veteran of the company, would effectively step 
down once a replacement could be found.  Shares of GPS fell 15% to 
$13.55 on the news and MER was quick to downgrade the stock.  

Our daily serving of corporate earnings came from NIVIDIA 
(Nasdaq:NVDA).  NVDA is best known as the chipmaker for the 
graphics card in MSFT's X-box.  Shares have not had a good year 
and have slid by more than 50% from their January highs as the 
company dealt with a SEC probe into their accounting practices.  
The company will be expected to restate a few previous quarters 
but it looks like the probe may be behind them. Meanwhile, shares 
sold off yesterday ahead of their Q1 earnings report.  NVDA turned 
in 47 cents, a penny ahead of estimates, on revenue of $582.9 
million.  This was more than double the same period a year ago and 
$83 million more than the previous quarter.  The company offered 
bullish comments for the Q2 numbers but I'd be on the alert for 
any sort of sell-the-news effect that has been so rampant lately.  
However, I think a close over the $40 level looks attractive for a 
short-term play.  Bears may not be able to hold this one down 
since it's one of the few tech companies that is actually growing 

ADC Telecom (ADCT) was another company to announce earnings today.  
Unfortunately for shareholders the company came in with a wider 
than expected loss.  Of course the stock has been range bound in 
the single digits for weeks but there seems to be a renewed round 
of bearish developments for a Telecom sector that's been sent to 
the intensive care unit one too many times.  One to watch for 
tomorrow is Qwest (Q).  S&P cut their credit rating to junk status 
today, which makes borrowing costs higher for this mismanaged 
company.  It will be interesting to see if shares of Q can 
maintain its grip on the $5.00 level where it has been hovering 
for the last few weeks.  It was only a couple of weeks ago that 
WCOM had its credit rating slashed but today was a good day for 
WCOM shareholders.  The new management has decided to retire the 
MCI tracking stock (MCIT).  This is expected to save the company 
more than $280 million a year in dividend payouts for MCI 

I would keep an eye on the telecom group.  QCOM made positive 
comments this week but the stock really hasn't reacted to them.  
NOK took a 10% stake in Redback Networks in an effort to diversify 
and investors yawned.  As a matter of fact, NOK shares slid over 
8% overseas while the U.S. ADR shares only fell 3.2%.  A move 
below $14.50 and NOK looks like a short to its September lows.  

Looking Ahead.

Last week I had outlined a potential pull back in the Dow Jones 
Industrials to the 10150 to 10100 with a possible short-term 
bottom at 10K.  I didn't expect it to take a week to occur but the 
low today was 10063 before the afternoon rally brought us back 
into the green.  While I'm not enthusiastic about the overall 
investor sentiment it would not be surprising to see a little more 
short covering tomorrow spark a potential move back to the 10350 
level in the next few days.  

Chart of the Dow


The S&P 500 index has painted a similar technical picture.  Last 
Wednesday my target was for a pull back to the 1080 area and the 
low today was about 1075.  The end of day rally could carry over 
into Thursday but it's not a rally I would take serious positions 
on.  There is still resistance between 1100 and 1108 and the 50 
and 200-dma's are going to be extra pressure on the index soon.

Chart of the S&P 500


I'm probably the most optimistic about the Nasdaq even though 
there isn't much but my short-term bullish bias to support it.  
The longer-term downtrend is still very much intact but the 
pullback to the 1650 level could be the consolidation we needed 
for the next move up.  I outlined a "fill the gap" theory in my 
wrap last Wednesday and Leigh reaffirmed it in the market monitor 

Chart of the Nasdaq


Don't misunderstand me.  Broader market indices look like we're 
still due for more consolidation.  The Wilshire 5000 (TMW.X) 
bounced at the 10200 level today but could easily drift to the 10K 
again before we see real buying step into the market.  The Russell 
2000 index (RUT.X) is also looking pretty weak with a new relative 
low before the afternoon bounce.  Yet despite the Russell's 
weeklong decline I'd bet it's overdue for a relief rally.  The 490 
level is likely to be a crucial pivot point for this index and one 
a lot of traders may be watching.

Additional major sector indices that traders will want to watch is 
the SOX.  If the chip sector can follow through on the bounce at 
the 500 level today then the Nasdaq might just be able to put 
together a few back to back gains.  The lead weight on the tech 
rally could be the software sector.  Traders may also want to keep 
their eyes and ears open for news from SUNW.  Prudential put out 
some positive comments on the company today and Wall Street is 
expecting SUNW to provide a mid-quarter update tomorrow after the 
bell on Thursday.

Overall I'm quietly optimistic.  We've suffered through a string 
of terrorist warnings, another bombing near Tel Aviv today, 
potential war in Kashmir, a terminal diagnosis for any software 
sector rebound later this year by Solomon and Goldman and still 
the markets held at support levels and even managed to stage a 
late day rebound.  As Jeff said in one of his updates today, 
"trade what you see".  Aggressive traders are probably looking at 
a potential short-term rebound but the rest of us may be better 
off taking a wait and see approach.



Oh, Osama!
by Leigh Stevens

Amazing how the indices rally in technical support areas based on 
some "event" - near the close it was on a rumor that Osama Ben 
Laudin had been killed.  This after the upside chart gaps from 
last week that I have been highlighting as THE areas to focus on, 
had been completely or nearly (SPX & OEX) filled in. 

The indices that had fallen under their 21-day moving averages 
reversed to close above them. If you recall, there is tendency 
when rallies reverse from above the 21-day average, to either 
fall back to this average or dip slightly under it. It is when 
the indexes close under this pivotal number for two consecutive 
days that there is a greater likelihood of more downside ahead.  
The tendency is either to fall to the area of the average or well 
under it. 

Besides the Osama effect not being around on the open, the 
technical bothersome aspect to assuming that we've seen a low 
today for this pullback, is the relative position of the daily 
stochastic which is still coming down from overbought readings. 

Given the terrorist backdrop and the willingness of Government 
officials to speculate out LOUD (often) about how we sitting 
ducks in hunting season, I would like to have the market oversold 
again before taking a position type trade.  It is very common for 
bad news to hit overbought markets the most and oversold markets 
the least, unless it is a catastrophic event of course. 

The lows today have allowed me to readjust the lower hourly chart 
channel lines.  It takes a few reaction highs and lows to get the 
right definition so to speak.        

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


SPX jumped at the close from an area of technical support.  The 
rally took the index above its hourly downtrend line.  Moreover, 
SPX closed back above its 21-day moving average. If I was only 
looking at the hourly chart, I would buy the opening in the 
morning. The market may still be backing and filling for a while, 
but I think 1075 can hold as support. 

Near-term resistance is 1090, then at 1103-1105. More major 
resistance is at 1115. If 1075 is penetrated, there may be a move 
to retest the prior low in the 1054 area.  

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


535 is still where I favor buying OEX calls, but don't like the 
downward momentum showing on the daily stochastics. Near 
resistance is at 540-541, then 551, with more resistance at the 
trendline at 560. Near support is at 535-537 - if this area gives 
way, downside potential is to the 523 area at the prior downswing 

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


If you are looking for a trade, my comfort level is greatest on 
the buying the DJX calls around the 100.7-101 area. 100 is next 
lower support, which I doubt will be penetrated, but then I've 
been surprised before - if surprise rules, 99 is a next target.  

DJX's rebound was from its 21-day moving average, which is a key 
technical pivot point - bullish action here. The overall 
technical picture would be more bullish if the 14-day stochastic 
was also nearer an oversold area. Near resistance is at l02.2, 
then 103.3-103.5, with major resistance at the top of the channel 
at 104.6.  

Nasdaq Composite Index ($COMPX) Daily/Hourly charts:


Would like to see one more low to see if this lower channel line 
is valid. Bullish that the Composite filled in the upside price 
gap from last week and closed back above its 21-day moving 
average. Least bullish is the still-declining daily stochastic.  
With that indicator closer to the low end of its range and after 
seeing what a next reaction low looks like, there should be a 
buying opportunity coming.  

Near resistance is at 1698-1700, then 1715. Near support is in the 
1650 area, then it can't really be "measured" technically until 
down around the 1600 area. 
Nasdaq 100 Trust Stock (QQQ) Daily/Hourly charts: 


Anyone who bought the 31 area per my suggestion that this was 
good support and could be the low for a while, I would risk to 
30.5 and see what happens if near resistance in the 32 area is 
seen. Nest resistance is 33.  

Microsoft's closing action was bullish and this was a major QQQ 
influence. By the way, MSFT has key resistance at 55.5, key 
support at 52. Keep one eye on Microsoft trade for direction on 
the Q's. 

If there is another downswing, I would focus on the possibility 
for a retest of the 29.5 low. 

Leigh Stevens
Chief Market Strategist 

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Out With The Old, In With The New
By Mark Phillips

It is hard to believe, but spring has sprung and with the new
growth springing up around us, it seems a good time to cover the
topic of the LEAPS life cycle.  May expiration ushers in the
process of changing the front year LEAPS (in this case 2003) to
regular option symbols, and this is quickly followed by the
issuance of the new out year LEAPS (in this case 2005).  Since
the process whereby this happens is less than straightforward, I
think it is high time we have a little review.  Old-timers will
recall that I cover this topic about this time every year, as we
can all use a refresher due to the fact that we really don't
think about it during the course of the year.

There always seems to be a fair amount of confusion surrounding
this process, both why it is necessary and how the process works.
Since I've actually been through it a few times, let me see if I
can clear things up.

In the past, all of the changes took place at once, but a few
years ago, the CBOE had to stagger their approach due to the huge
volume of options that are now traded.  Now the process takes
place over a period of just over 2 months, beginning the week
before May expiration and ending about a week after July
expiration, with roughly a third of the Leap-able stocks receiving
their 2005 LEAPS shortly after each expiration event.  Making the
educational process easier, the CBOE has put together a tutorial
explaining the process and those interested in taking the time can
begin their process of discovery Here.

Since I know many of you don't want to take the time to go through
the whole tutorial just to obtain some simple answers, let me see
if I can cover the highlights for you here.

If you are like me the first time I encountered this process, you
are scratching your head and asking what this ‘conversion’ is and
what it means to a LEAP trader.  Fortunately the answer is fairly
simple.  All 2003 LEAPS symbols begin with the letter ‘V’ and all
2004 LEAPS begin with the letter ‘L’.  Since the CBOE only carries
LEAPS for 2 years at a time, before the 2003 LEAPS can be issued,
the 2003 LEAPS must be converted to regular cycle Call (or Put)
options expiring in January of 2003.  This conversion refers to
the simple process of changing the symbol from a LEAP symbol to a
regular option symbol.  And here's a little sneak preview -- the
2005 LEAPS will all begin with the letter 'Z'.

In the case of MSFT, the 2003 $55 LEAP (VMF-AK) changed to a
January 2003 $55 Call (MSQ-AK) on May 13th.  There is no change
in the way the option trades when it is converted, except that
it is now referred to as a Call (with a different symbol),
rather than a LEAP.  There is no change to the 2004 LEAPS at
this time except that they now become the front-year LEAPS.
Next year at this time, the 2004 LEAPS will undergo a similar
conversion process as the 2006 LEAPS become available.

The LEAPS expiration (conversion to regular Call Options) occurs
in 3 cycles.  The cycle 1 2003 LEAPS are converted to regular
options on the Monday prior to May expiration (in this case,
May 13th) and then the Cycle 1 2005 LEAPS are issued on the
Monday, 1 week after the May expiration event.  So with the
Memorial Day holiday pushing it out to Tuesday this year, the
2005 Cycle 1 LEAPS will arrive on Tuesday, May 28th.  

Extending that process out to the Cycle 2 LEAPS, the 2003's will
convert to regular options on Monday, June 17th and the 2005's
will be issues on Monday, July 1st.  Finally, the Cycle 3 2003
LEAPS will convert to regular options on Monday, July 15th, with
the 2005 LEAPS making their appearance on Monday, July 29th.

I know you are all champing at the bit, wondering how do you find
out if a given stock is on Cycle 1, 2 or 3.  I'm way ahead of you,
and after speaking with a very helpful gentleman at the CBOE, I
found that there is a quick shortcut we can use to make the
determination.  Pull up an option chain on the stock in question.
It will have option chains listed for June and July, as these are
the 2 front months at the current time.  The next month that is
listed gives us the clue as to which Cycle the stock belongs to.
If the next month is October, then it is on Cycle 1.  Note that
this is the case with MSFT, which began the conversion process
just over a week ago.  If the next month listed in an option
chain (after June and July) is August, then the stock is Cycle 2
(conversion process in June).  Finally, if September options are
the third month listed in the option chain, then the stock
resides in Cycle 3.

Wasn't that easy?  No scrolling through endless lists of equities
and LEAP symbols looking for the one in question to find out what
cycle it belongs to.  All we do is bring up the option chain and
the months listed tell us which Cycle it belongs to.  And with
the dates provided above, you should be able to determine
precisely when any stock you are interested in will begin and
complete its conversion process.  One note I should make is that
this trick only works like this AFTER May expiration.  If we had
been looking at this prior to May expiration (before all the July
contracts had been issued), then the month/cycle relationship
would be a little different, and perhaps make a bit more sense.
Prior to May expiration, stocks with July contracts would have
been Cycle 1, those with August contracts would be Cycle 2 and
those with September contracts would be Cycle 3.  Hopefully I
haven't made that too confusing!

Should you want to determine if a stock has LEAPS available, the
CBOE provides a comprehensive list of all optionable stocks at
http://www.cboe.com/TradTool/Symbols/SymbolDirectory.asp.  Then
selecting the link for LEAPS near the top of the page will give
you a list of all equities with LEAPS available.  So if you ever
question whether a stock has LEAPS available, this is the central
repository for that information.  Of course, you can always just
pull up an option chain and see if there are options listed out
to 2003 and 2004, and that will give you the answer. 

I know this has been a rather dry article, but hopefully it gives
you a roadmap for determining when to expect the issuance of the
new 2005 LEAPS for any stock in which you happen to be interested.

Happy Exploring!


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by Leigh Stevens



DOWN ON THE DAY on Wednesday - 



Gold & Silver Sector Index ($XAU.X)
This sector has been much talked about. I took at look at XAU in 
Sector Trader last week and concluded that a lower risk entry 
into new positions either in the stock or in options was not 
possible until/unless the sector corrected from the high end of 
its uptrend channel. 


Instead, XAU today sharply accelerated to the upside, pulling the 
index squarely up into the broader uptrend channel. I had also 
previously highlighted Newmont Mining (NEM) as a representative 
stock play in the index and one that options perhaps more 
"fairly" priced than the XAU options.

My notation on the chart then, and still here, is that the stock 
needed to hold at or above trendline support at 25 to keep its 
bullish trend intact. The next day the stock dipped to 27.29 and 
continued on its merry way, closing today at 30.69. NEM has 
upside potential to the $36 area currently, where it would hit 
resistance implied by the top of its uptrend channel.  

If you want to buy into this sector it is high risk, although 
gold bullion has a possible gold per ounce target to $340-345, 
another $25 higher from current levels. Take a look at the 
continuous contract for gold futures below:  


I wonder if this chart reminds you a bit of Nasdaq type stocks a 
couple of years ago as they started going straight up. So, judge 
the risk accordingly.  Also, the gold stocks like Newmont may 
have largely priced in gold at 340-350 an ounce. 




I will be starting a daily chart/technical review of all the 
major popular sectors. Each will not be updated every day if 
there is no change in the LAST update. If there is a chart, with 
technical patterns and/or indicators that may be of particular 
interest, I will include the chart. 

Also, over this week, the stocks in each sector will be listed by 
at least the symbol. In addition, if there is a complimentary 
iShares or HOLDR that represents the sector, its symbol and name 
will be noted also.  The advantage of a HOLDR/iShares is that you 
have immediate diversification as the shares represent ownership 
in a basket of stocks in that industry. 

If you enter a trade in only one stock or its option, within the 
sector, that particular stock may not perform in line with the 
Index in question; e.g., there is a broker downgrade on the 
stock, but not others in the sector.  

Options do, of course, offer the benefit and attraction of 
offering a leveraged and limited risk (long options) means to 
participate in a sector's trend.  However, the ideal means to 
play individual stocks is to select at least 3 of the group for 
the sector play, using representative stocks in that group. 

You'll also note that there are two Indexes, that are not sectors 
per se - the Amex Composite Index and the Russell 2000.  One of 
the popular investment "themes" this year, is buying the small 
and mid cap stocks. These two indexes are composed of many of 
these companies. As such, they are of interest to many traders 
and investors. 


Airline Index ($XAL.X)
Still in a downtrend, retreating further from its 50 and 200-day 
moving averages at 95.9 and 93.7, respectively. Support can't be 
clearly seen before the 70 area. XAL is nearing an initial 
oversold area, but could get still more extreme as it did last 

Amex Composite Index ($XAX.X)
The small cap stocks so predominating in the Amex are correcting 
from recent highs.  The recent pullback in XAX is in danger of 
piercing its up trendline. If so, downside potential is to 925-
932 area.    


Bank Index ($BKX.X)
The bank index has made a least a temporary double top in the 916 
area. If BKK falls under 890, the index could drop to the low 860 
area again. 


Biotechnology Index ($BTK.X)
Biotech remains in a downtrend and may be heading back down to 
retest its early-May lows in the 380 area, the low end of its 
downtrend channel. Recent rally to 420 didn't get close to its 
down trendline, intersecting in the 461 area currently.


Computer Technology Index  ($XCI.X)
Computer Boxmaker Index ($BMX.X) 

Cyclical Index; Morgan Stanley; ($CYC.X)

Defense Index; Amex ($DFI.X)

Disk Drive Index ($DDX.X)

Dow Transportation Average ($TRAN)

Fiber Optics Index ($FOP.X)

Financial Index; NYSE ($NF.X)

Forest & Paper Products Sector Index ($FPP.X)

Gold & Silver Sector Index ($XAU.X)


Health Providers Index; Morgan Stanley ($RXH.X)

Healthcare Index; Morgan Stanley ($HMO.X)

** 3 HMO stocks already suggested -

PacifiCare Health Systems (PHSY) dropped twice into  
suggested 23.5-24.7 buy zone. 
5/22 UPDATE: PHSY close at 29; Stop/exit point: 23.3

Wellpoint Health Networks (WLP) - Entry suggested at 72.00, then 
again at 70. 
5/22 UPDATE: Close: 68.04; Stop/exit point: 65 
Additional buy at 66 if available.

HUMANA (HUM) - Purchase suggestion made at 15.60, and again at  
15.00-15.15. HOLD only.
5/22 UPDATE - Stop/exit point: 13.2; Stock needs to climb above 
14.76 to suggest bullish trend is back on track. 

** Other HMO stocks - 

Oxford Health Plans (OHP) - Favor buys at 42 

Unitedhealth Group Inc. (UNH) - Suggest buying stock/calls at 

Aetna (AET) - Was anticipating pullback to 44.35 area, where 
prior upside gap would be filled.  
5/22 UPDATE: Low at 44.75 filled most of its chart gap, then AET 
closed at 46.15.

** There has not been a good way to play the Healthcare Payors 
index in iShares of HOLDR's as, for example, the iShares US 
Healthcare Index (IYH) is not a "pure" HMO play and in fact the 
charts look very different. To participate in the strong 
performance of the HMO group, it's been necessary to buy a basket 
of the stocks or a basket of their calls. 

High Tech Index; Morgan Stanley ($MSH.X)

Internet Index; CBOE ($INX.X)

Natural Gas Index  ($XNG)

Networking Index ($NWX.X)

Oil Index; CBOE ($OIX.X)

Oil Service Sector Index ($OSX.X)

Pharmaceutical Index ($DRG.X)

Retail Index; S&P - CBOE ($RLX.X)

Russell 2000 Index ($RUT.X)

Securities Broker Dealer Index ($XBD.X)

Semiconductor Sector Index ($SOX.X)

Software Index; Goldman Sachs ($GSO.X)

Telecoms Index; No. American ($XTC.X)

Utility Sector Index ($UTY.X)

Wireless Telecom Sector Index  ($YLS.X)

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

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options,” claims author Larry Spears in his new compact guide 

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The Option Investor Newsletter                Wednesday 05-22-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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ERTS - call
Adjust from $59.50 up to $60.00

NOVN - call
Adjust from $20.40 up to $20.75

TEVA - call
Adjust from $60 up to $62.50

BRCM - put
Adjust from $29.00 down to $27.50

HB   - put
Adjust from $62.68 down to $62.00

RE   - put
Adjust from $66.00 down to $64.50


SYMC $33.51 -2.90 (-5.66) Goldman Sachs abruptly brought an end
to our play on SYMC when the Wall Street house lowered its outlook
for the entire software sector this morning, precipitating a steep
slide in even the strongest stocks in the sector.  The firm said
that the second half of this year was shaping up as poorly as the
first half, which would lead to revenue shortfalls on the part of
major suppliers such as SYMC.  Though the stock finished off of
its lows for the day, it never really recovered like the broader
market.  Given the change of sentiment in SYMC, we're dropping
the play this evening in favor of more bullish stocks.



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traded options,” claims author Larry Spears in his new compact 
guide book:  

“7 Steps to Success – Trading Options Online”.  

Order today and save 25% (only $15) by clicking on PreferredTrade 
and clicking on the link to the book on its home page.



NOVN - Noven Pharmaceuticals $22.87 +0.20 (+2.38 this week) 

Noven Pharmaceuticals, Inc. is engaged in the development and
manufacture of advanced transdermal drug delivery products and
technologies and prescription transdermal products. Noven's
principal commercialized products are transdermal drug delivery
systems for use in hormone replacement therapy. The Company's
first product was an estrogen patch for the treatment of
menopausal symptoms marketed under the brand name Vivelle in the
United States and Canada and under the brand name Menorest in
Europe and other markets.

Most Recent Update

A handful of biotech and drug stocks are bucking the trends in
these two sectors.  That's including the technical and fundamental
trends.  Several high profile biotech firms have seen their
shares hammered this year because of failures to meet regulatory
approval for new drugs, or problems with existing products such
as has been the case with the major pharmaceutical manufacturers.
But some companies are ticking right along.  NOVN is such a stock
that has recently emerged from a three month base and is actually
trading near its relative highs, poised for a breakout.  The
stock has been helped so far this week by positive news from the
FDA.  The company said that it received approval for the
expanded use of its post menopausal osteoporosis.  The drug was
already being used for menopausal symptoms, but with the FDA
approval, its uses will now be expanded.  The building sentiment
has helped NOVN to buck the trend of weakness in the overall
biotech sector, leading to a breakout above short term resistance
during today's session.  Traders can look for follow through
during tomorrow's trading on strength in the broader market and
the biotech sector.  Watch for a move above today's intraday
high at the $22.70 level, then confirm with a rally above the
$23 level.  From there, we'll focus on overhead resistance at
$24.  If the stock pulls back on sector and market weakness,
look for a light volume pullback down into the $22.25 range,
where the 10-dma is likely to provide support.  Our coverage
stop is initially in place at the $20.40 level, just below the
recent lows.


NOVN came within a few pennies of breaking out during today's
trading.  The shorts are getting nervous.  Look for the
market recovery to carry over into tomorrow's session, in
conjunction with strength in the biotech sector.  Watch for
NOVN to advance past the $23.50 level, then confirm the
breakout attempt with a high volume move through the $24

BUY CALL JUN-20 NPQ-FD OI= 31 at $3.40 SL=2.00
BUY CALL JUN-22*NPQ-FX OI= 66 at $1.60 SL=0.75
BUY CALL JUL-22 NPQ-GX OI= 76 at $2.00 SL=1.00
BUY CALL JUL-25 NPQ-GE OI=192 at $0.90 SL=0.25

Average Daily Volume = 206 K

The Bears Have Eaten Their Fill (For Now)...
By Ray Cummins

Stocks edged higher today despite concerns over the possibility
of terrorist activity and worries that tight corporate budgets
will limit any economic recovery in the near future.

The upcoming holiday weekend kept many traders on the sidelines
but the market staged a late-session comeback on strength in
consumer and energy shares.  Notable performances were seen in
DuPont (NYSE:DD), Johnson & Johnson (NYSE:JNJ), Exxon (NYSE:XOM),
and Coca-Cola (NYSE:KO) while Home Depot (NYSE:HD) was again the
Dow's biggest loser.  The blue-chip index rose 52 points to end
at 10,157.  In the technology segment, software issues saw the
worst selling pressure and the downward movement in the group
spread to other sectors, but the selling faded late in the day.
The NASDAQ Composite eventually finished up 9 points at 1,673.
Activity in the broad market was a mixed bag with utility, oil
service and biotechnology stocks enjoying gains while banking,
airline and retail shares generally retreated.  The Standard &
Poor's 500-stock Index edged up 6 points, closing at 1,085.  As
expected, gold was strong early in the day, propelling one of
the group's primary gauges to a four-year high.  Investors have
recently boosted their buying in safe-haven areas of the market
such as gold, in reaction to anxiety over potential terrorist
activities and flagging corporate profits.  Trading volume was
light at 1.14 billion on the NYSE and at 1.70 billion on the
NASDAQ.  Market breadth was mixed with winners outpacing losers
16 to 15 on the NYSE while declines led advances 19 to 15 on the
technology exchange.  In the bond market, the 10-year note rose
1/8 to yield 5.12% while the 30-year bond ratcheted up 11/32 to
yield 5.64%.

Summary of Current Positions
(As of 05-21-02)

Naked Puts

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

NVLS     JUN    40   39.05  48.82   $0.95   5.90%
VSEA     JUN    40   38.90  47.45   $1.10   5.86%

Put-Credit Spreads

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

RYL    113.00 109.32  JUN   90  95  0.55  94.45  $0.55  Open
SII     73.80  71.58  JUN   55  60  0.65  59.35  $0.65  Open
ADRX    46.06  45.70  JUN   30  35  0.65  34.35  $0.65  Open
BBOX    54.94  51.18  JUN   45  50  0.55  49.45  $0.55  Open
DRS     45.40  40.66  JUN   35  40  0.50  39.50  $0.50 Closed
FDC     82.18  80.30  JUN   70  75  0.50  74.50  $0.50  Open
HON     39.25  38.19  JUN   33  35  0.30  34.70  $0.30  Open
UNH     88.39  87.20  JUN   75  80  0.45  79.50  $0.45  Open
UOPX    34.00  32.21  JUN   26  30  0.35  29.65  $0.35  Open

Defense electronics firm DRS Technologies (NYSE:DRS) said this
week that fourth-quarter profit jumped 50% due to increased
business from its acquisition of the sensors and electronics
systems unit of Boeing.  Despite the optimistic outlook, the
stock fell over 10% Monday, past the bottom of a recent trading
range (near $42) and the downward movement should be considered
an "early exit" signal.

Call-Credit Spreads

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

BHI    35.96 35.13  JUN   43  40  0.35  40.35  $0.35  Open
BGEN   42.44 41.48  JUN   55  50  0.55  50.55  $0.55  Open
ROOM   55.30 52.20  JUN   70  65  0.55  65.55  $0.55  Open

Synthetic Positions:

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

RTN    42.40   43.00   JUN47C/37P   0.00   37.50   0.75   Open
ATVI   33.95   32.26   JUN40C/30P   0.30   29.70   0.30   Open
CTAS   55.02   53.80   AUG60C/50P  (0.10)  50.10   0.60   Open
JPM    36.91   37.52   JUN40C/32P   0.30   32.20   0.80   Open
HSIC   49.75   49.99   JUL55C/45P   0.10   44.90   0.10   Open
ABT    46.90   46.63   JUN42P/50C   0.20   50.20   0.20   Open

J.P. Morgan (NYSE:JPM) is the newest winner in the section and
Raytheon (NYSE:RTN) has previously achieved a favorable profit.
Cintas (NASDAQ:CTAS) also provided a small gain prior to this
week's broad-market slump.

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

I received a favorable comment on last week's large selection
of credit-spread candidates and since there are few outright
"premium selling" positions, I have decided to offer another
extensive list of potential plays in this category.  As always,
these plays are based on the current price or trading range of
the underlying issue and its recent technical history or trend.
However, current news and market sentiment will have an effect
on these issues so review each play individually and make your
own decision about the future outcome of the position.  Due to
the unusually high number of candidates in today's section, I
will not be able to track the positions in the monthly summary.

MHK - Mohawk Industries  $69.65  *** Near All-Time Highs! ***

Mohawk Industries (NYSE:MHK), including its primary operating
subsidiaries, Mohawk Carpet and Aladdin Manufacturing, is a
producer of woven and tufted broadloom carpet and rugs for
principally residential applications.  The company designs,
manufactures and markets carpet and rugs in a broad range of
colors, textures and patterns.  The company's brands include
Mohawk, Aladdin, Mohawk Home, American Weavers, Bigelow, Custom
Weave, Durkan, Galaxy, Helios, Horizon, Image, Karastan, Mohawk
Commercial, Newmark Rug, World, Harbinger and WundaWeve.  Their
products are marketed primarily through carpet retailers, home
centers, mass merchandisers, department stores, commercial end
users and dealers.  Some products are also marketed through
private labeling programs.

MHK - Mohawk Industries  $69.65
PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-60  MHK-RL  OI=85  A=$0.40
SELL PUT  JUN-65  MHK-RK  OI=26  B=$1.00

NOC - Northrop Grumman  $124.45  *** "Bullish" Wedge Pattern ***

Northrop Grumman Corporation (NYSE:NOC) is a global defense
company that provides unique, technologically advanced products,
services and solutions in defense and commercial electronics,
systems integration, information technology and nuclear and
non-nuclear shipbuilding and systems.  Northrop Grumman has
operations in 44 states and 25 countries, serving U.S. and
international military, government and commercial customers.
Northrop Grumman is aligned into six primary business sectors:
Electronic Systems, Information Technology, Integrated Systems,
Ship Systems, Newport News and Component Technologies.

NOC - Northrop Grumman  $124.45

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-110  NOC-RB  OI=1411  A=$0.60
SELL PUT  JUN-115  NOC-RC  OI=999   B=$1.10

RCII - Rent A Center  $61.53  *** Why Buy When You Can Rent? ***

Rent-A-Center (NASDAQ:RCII) is a primary store operator in the
rent-to-own industry.  Rent-A-Center operates almost 3,000
company-owned stores in 50 states, the District of Columbia and
Puerto Rico.  The company's subsidiary, ColorTyme, is a national
franchisor of rent-to-own stores.  ColorTyme has over 300 stores
in 42 states, 330 of which operated under the ColorTyme name and
12 stores of which operated under the Rent-A-Center name.  The
company's stores offer popular consumer products, such as home
electronics, appliances, computers and furniture, and accessories
under flexible rental purchase agreements that typically allow the
customer to obtain ownership of the merchandise at the conclusion
of an agreed-upon rental period.  These unique agreements cater to
customers who only have a temporary need, or who simply desire to
rent rather than purchase, the merchandise.

RCII - Rent A Center  $61.53

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-50  RQG-RJ  OI=3    A=$0.60
SELL PUT  JUN-55  RQG-RK  OI=117  B=$1.00

RIG - Transocean Sedco Forex  $38.61  *** Recent High! ***

Transocean Sedco Forex (NYSE:RIG) is a provider of offshore
contract drilling services for oil and gas wells.  The company
owns, or has partial ownership interests in, operates or has
under construction over 150 mobile offshore and barge-drilling
units.  The company's active fleet includes 13 high-specification
drill-ships, three other drill-ships, 20 semi-submersibles, 30
other semi-submersibles, 55 jack-up rigs, 37 drilling barges,
five tenders and three submersible rigs.  The fleet also includes
four mobile offshore production units, two multi-purpose service
vessels and three platform-drilling rigs.  Transocean's primary
business is to contract these drilling rigs, related equipment
and work crews to drill oil and gas wells.  The company focuses
on technically demanding segments of offshore drilling, with a
spotlight on deepwater and harsh environment drilling services.
Transocean also provides management of third-party well service

RIG - Transocean Sedco Forex  $38.61

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-30  RIG-RF  OI=218   A=$0.15
SELL PUT  JUN-35  RIG-RG  OI=1830  B=$0.60

RYL - The Ryland Group  $109.65  *** Split Coming! ***

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

Traders should target a higher premium in the play initially, due
to the slightly inflated "bid/ask" spreads.

RYL - The Ryland Group  $109.65

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-90  RYL-RQ  OI=130  A=$0.80
SELL PUT  JUN-95  RYL-RR  OI=336  B=$1.15


BULLISH PLAYS - Synthetic Positions

LLL - L-3 Communications  $63.95  *** "Defens"-ive Speculation! ***

L-3 Communications Holdings (NASDAQ:LLL) is a merchant supplier
of sophisticated secure communication systems and specialized
products.  The company derives all of its operating income and
cash flow from its wholly owned subsidiary, L-3 Communications.
The company produces secure, high-data-rate communication systems,
training and simulation systems, engineering development and
integration support, avionics and ocean products, fuzing products,
telemetry, instrumentation, space and guidance products and other
microwave components.  These systems and products are critical
elements of virtually all communication, command and control,
intelligence gathering and space systems.  The company's systems
and specialized products connect a variety of airborne, space,
ground- and sea-based communication systems, and are used in the
transmission, processing, recording, monitoring and dissemination
functions of these communication systems.

Shares of L-3 Communications stock recently split 2-for-1 and
after a brief consolidation, it appears the issue is poised for
further upside activity.  Traders who believe the defense sector
will move higher in the coming weeks can attempt to profit from
that outcome with this position.

LLL - L-3 Communications  $63.95

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JUN-70  LLL-FN  OI=770  A=$0.70
SELL PUT   JUN-55  LLL-RY  OI=493  B=$0.70

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,975 per contract.


Neutral Plays - Straddles & Strangles

ERTS - Electronic Arts  $63.21  *** Trading Range? ***

Electronic Arts (NYSE:ERTS) operates in two principal business
segments globally: EA's Core business segment comprises the
creation, marketing and distribution of entertainment software,
while the EA.com business segment is composed of the creation,
marketing and distribution of entertainment software which can
be played or sold online, ongoing management of subscriptions
of online games and Website advertising.

Electronic Arts is a good candidate for premium-selling, based on
the underlying issue's technical background.  ERTS has a stable
trading range near $65 and no (expected) upcoming events that will
substantially change its fundamental or technical character prior
to the June expiration.  Technically, ERTS should continue to move
laterally in a Stage I base within a near-term trading pattern of
$55 to $66.  The short-term indications suggest the current trend
will continue and traders who agree with that outlook can attempt
to profit from volatility within a small range with this position.

ERTS - Electronic Arts  $63.21

PLAY (conservative - neutral/credit strangle):

SELL CALL  JUN-70  EZQ-FN  OI=4224  B=$0.65
SELL PUT   JUN-55  EZQ-RK  OI=2263  B=$0.55
UPSIDE B/E=$71.25 DOWNSIDE B/E=$53.75


BEARISH PLAYS - Credit Spreads

CEPH - Cephalon  $55.04  *** Testing 2002 Lows! ***

Cephalon (NASDAQ:CEPH) is an international biopharmaceutical
company dedicated to the discovery, development and marketing
of products to treat sleep disorders, neurological disorders,
cancer and pain.  In addition to conducting an active research
and development program, the company markets three products in
the United States and a number of products in various countries
throughout Europe.  Cephalon's United States products comprise
Provigil for the treatment of excessive daytime sleepiness
associated with narcolepsy, Actiq for cancer pain management
and Gabitril for the treatment of partial seizures associated
with epilepsy.

CEPH - Cephalon  $55.04

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-70  CQE-FN  OI=832   A=$0.15
SELL CALL  JUN-65  CQE-FM  OI=3776  B=$0.50

ESRX - Express Scripts  $53.35  *** Recent Slump! ***

Express Scripts (NASDAQ:ESRX) provides health care management and
administration services on behalf of clients that include health
maintenance organizations, insurers, third-party administrators,
employers and union-sponsored benefit plans.  The company's fully
integrated pharmacy benefit management services include network
claims processing, mail pharmacy services, benefit consultation,
drug utilization review, formulary management, disease management,
medical and drug data analysis services, medical information
management services, disease management support services and also
outcome assessments and informed decision counseling services
through its Express Health Line division.  The company provides
non-PBM services including distribution services through its
Express Scripts Specialty Distribution Services subsidiary.

ESRX - Express Scripts  $53.35

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-65  XTQ-FM  OI=0.35  A=$0.35
SELL CALL  JUN-60  XTQ-FL  OI=0.85  B=$0.85

GILD - Gilead Sciences  $35.30  *** Trading Range! ***

Gilead Sciences (NASDAQ:GILD) is an independent biopharmaceutical
company that discovers, develops and commercializes therapeutics
to advance the care of patients suffering from life-threatening
diseases.  The company has five products that are marketed in the
United States and in other countries worldwide.  These are Viread,
a drug for treating HIV infection; AmBisome, a drug for treating
and preventing life-threatening fungal infections; Tamiflu, a drug
for treating and preventing influenza; Vistide, a drug for treating
cytomegalovirus (or CMV) retinitis in AIDS patients, and DaunoXome,
a drug for treating AIDS-related Kaposi's sarcoma.

GILD - Gilead Sciences  $35.30
PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-45  GDQ-FI  OI=91    A=$0.20
SELL CALL  JUN-40  GDQ-FH  OI=2874  B=$0.65

LEH - Lehman Brothers  $64.77  *** All Brokers Aren't Bad! ***

Lehman Brothers Holdings (NYSE:LEH) is a global investment bank
serving institutional, corporate, government and high-net-worth
individual clients and customers.  The company is engaged mainly
in providing financial services and operates in three business
segments: Investment Banking, Capital Markets and Client Services.
Other businesses in which the company is engaged represent less
than 10% of consolidated assets, revenues or pre-tax income.  The
company's business includes capital raising for clients through
securities underwriting and direct placements, corporate finance
and strategic advisory services, private equity investments,
securities sales and trading, research and the trading of foreign
exchange and derivative products and certain commodities.  The
company acts as a market-maker in all equity and fixed-income
products in both the domestic and international markets.

LEH - Lehman Brothers  $64.77

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-75  LEH-FO  OI=53    A=$0.20
SELL CALL  JUN-70  LEH-FN  OI=2646  B=$0.75

LH - Laboratory Corporation  $46.57  *** Post-Split Slump! ***

Laboratory Corporation of America Holdings (NYSE:LH) is a major,
independent clinical laboratory company.  Through a network of
laboratories, LCAH offers more than 4,000 different clinical
laboratory tests, which are used by the medical profession in
routine testing, patient diagnosis, and in the monitoring and
treatment of disease.  Since its founding in 1971, the company
has grown into a network of 24 primary testing facilities and
approximately 1,200 service sites consisting of branches, patient
service centers and STAT laboratories, serving clients in 50
states.  The company provides testing services to a broad range
of healthcare providers, including independent physicians and
physician groups, hospitals, HMOs and other managed care groups,
as well as to other institutions, including governmental agencies,
large employers and other independent clinical laboratories that
do not have the breadth of the company's testing capabilities.

LH - Laboratory Corporation  $46.57

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JUN-52.50  LH-FX  OI=1921  A=$0.30
SELL CALL  JUN-50.00  LF-FJ  OI=610   B=$0.65



CYMI - Cymer  $46.13  *** Premium Selling! ***

Cymer (NASDAQ:CYMI is a supplier of excimer laser illumination
sources, the essential light source for deep ultraviolet (DUV)
photolithography systems used in the building of semiconductors.
DUV lithography is a key enabling technology, which has allowed
the semiconductor industry to meet the exacting specifications
and manufacturing requirements for volume production of today's
most advanced semiconductor chips.  Cymer's lasers are used in
step-and-repeat and step-and-scan photolithography systems for
the manufacture of semiconductors with critical feature sizes
below 0.35 microns.  Cymer believes its excimer lasers constitute
a substantial majority of all excimer lasers incorporated in DUV
photolithography tools.  Cymer's various products consist of
photolithography light sources, replacement parts and service.

This issue is a good candidate in the premium-selling category
of option trading.  Based on analysis of historical pricing and
the underlying stock's technical background, this issue meets
our fundamental criteria for selling profitable naked-calls.
The stock has robust option premiums, a well-defined resistance
area and a high probability of remaining below the target strike
price.  As with any recommendation, these positions should be
carefully evaluated for portfolio suitability and reviewed with
regard to your strategic approach and personal trading style.
CYMI - Cymer  $46.13  *** Premium Selling! ***

PLAY (aggressive - sell naked call):

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

SELL CALL JUN 50   CQG FJ  1,266     1.80    51.80      11.1%
SELL CALL JUN 55   CQG FK  819       0.60    55.60       6.0% ***



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