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Daily Newsletter, Sunday, 06/02/2002

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The Option Investor Newsletter                   Sunday 06-02-2002
Copyright 2001, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

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Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-31          WE 5-24          WE 5-17          WE 5-10
DOW     9925.25 -179.01 10104.26 -248.82 10353.08 +413.16  - 66.68
Nasdaq  1615.73 - 45.76  1661.49 - 79.90  1741.39 +140.54  - 12.15
S&P-100  529.20 - 10.72   539.92 - 13.38   553.30 + 30.06  -  7.28
S&P-500 1067.14 - 16.68  1083.82 - 22.77  1106.59 + 51.60  - 18.44
W5000  10106.49 -144.15 10250.64 -223.54 10474.18 +456.71  -184.57
RUT      487.47 -  6.17   493.64 - 15.30   508.94 + 16.21  - 19.59
TRAN    2749.26 +  5.59  2743.67 - 54.69  2798.36 +155.26  -100.46
VIX       22.90 +  1.64    21.16 +   .88    20.28 -  4.75  +  1.80
VXN       45.95 +  3.09    42.86 -   .08    42.94 -  7.79  +  4.47
TRIN       1.11             1.59             0.78             2.56
Put/Call    .73              .82              .72              .83
******************************************************************

 
Economy Is Growing, Does Anybody Care?  
by Jim Brown

The open on Friday was full of bullish cheerful traders calmly
picking over the few bargains available but like Kmart shoppers
on a budget there were no volume buyers. A nibble on semis, a 
biotech or two, even an oil stock here and there. There was a 
flood of economic reports coming out at 10:AM but nobody seemed
to care. They will be positive because everybody knows the 
recovery is underway. Sure enough they were positive and with
that ammunition the buyers became a little more excited as stocks
ran up to resistance but once the easy pickings were gone so 
were the appetites.



 



 

The Chicago PMI report soared to 60.8 in May and far surpassed
expectations. The index gained +6 points from the April reading
of 54.7. Any reading over 50 represents an expansion of 
manufacturing activity. New orders jumped to 65.8 from 59.0 
and production jumped to 65.7 from 55.8. The production jump 
was the largest one month increase since December 1995. You 
can't get much more bullish than this.

Factory Orders rose +1.2% last month and nearly doubled the 
estimates. Shipments increased by +2.4% and inventories declined.
Sounds like an economic wonderland! Want more good news? The
Productivity Report showed a +8.4% spike in productivity and 
unit labor costs fell by -5.2%. The largest quarterly drop since
1983. Productivity up, costs down, Dow 15,000 here we come, right?
Not in this fairy tale.

The holdup is not in the tech sector if you believe the 
Semiconductor Billings Report. Billings were up +3% in April for 
the third monthly increase in a row. Wireless communications chips 
led the gain. Considering the pounding the wireless sector has 
taken recently this should have been good news. Neither MOT, NOK 
nor QCOM could manage a gain of more the $.50 cents on the news. 

Probably the most watched release of them all was the University 
of Michigan Sentiment Survey. The index rose to 96.9 in may from
93 in April. This is the highest level since late 2000. The 
current conditions index was 103.5 and four points higher than
in April. The expectations index rose to 92.7. The survey was
impacted by the continued drop in home mortgage rates and the
continued low inflation. This was also great economic news in
that a happy consumer is a shopping consumer. 

So why did these great economic reports fail to spark a monster
short covering rally that would make the Cisco event look like
a lazy day in summer? Multiple reasons. First, it is summer and
most investors are worried about other things than following the
stock market on a tick by tick basis. They have followed the long
standing Ray Hirsch advice to "go away in May." This can be proven
by the volume on the Nasdaq which started out the week with a 
meager 1.2 billion shares and finished up on Friday with only 1.46 
billion. Granted Fridays are slow in the summer but it was still 
the highest volume day of the week. Great economic news but nobody 
was listening.

Secondly the current active(?) investor has taken a "show me
the money" stance. They have been told that profits were coming
for several quarters now and they never appeared and in most
cases got worse. They are now waiting for "real earnings" from
real companies. The earnings shell game that was brought vividly
to the surface by Enron and now dozens of companies since has
built up a defensive wall between the market and the investors
accounts. They do not want to part with the cash until they see
who is left standing when the smoke clears.

Thirdly, the bearish sentiment has been so prevalent for so long
that it has rubbed off on everyone. It is like having a smoker 
come to live in a non-smoking house for several months. Even 
though they don't smoke "in the house" the smoke is in their car, 
their clothes, their breath, etc. Even in the most cautious home 
this smoker smell eventually contaminates everything. You don't 
realize it until one day you open the front door and it hits you. 
By then it is too late. (I am not picking on smokers but I am 
relating a recent personal experience.) The bearish sentiment has 
so infiltrated the market that almost everyone is admitting that 
we will see lower lows and a retest of some past bottom. They have
accepted that all the bear claims are true and many are even 
beginning to look for the second economic dip. Add to that the
daily analyst surprise and you have a recipe for investor apathy.

Did I mention that two nuclear powers are getting ever closer to
war? The U.S. government warned that all non-essential personnel
should leave India immediately. They were already ordered out of
Pakistan two months ago. Both countries now have a million soldiers
each facing each other over the disputed line of control. There
were warnings of a possible 10-12 million deaths within the next 
two weeks if the countries escalated their war into a nuclear 
conflict. The problem is the uneven ratio of power with India the
strongest power by far. Possible scenarios include a first strike
by Pakistan to level the odds and a retaliatory strike by India
to punish them for the attack. While this seems like science 
fiction or a Tom Clancy mystery novel it is real life and this
is weighing heavily on the markets. (Clancy did write a novel 
about a possible nuclear conflict between these two countries 
called "Line of Control.") This is not just a distant war 
possibility but a real potential impact to major companies. Oracle
and HPQ have several thousand employees in their manufacturing
plants in India and these are only two of the hundreds of U.S.
companies with exposure to the potential war. 

Those bulls that felt led to buck the trend and buy stocks 
on Friday were met with several critical downgrades. Lehman
Bros drastically cut estimates on Micron to a loss of -.43 cents
from a gain of a penny. A major haircut! Morgan Stanley also 
downgraded Micron on Friday. The problem is the continued 
slippage in corporate spending. The lack of buyers for 
computer equipment is causing a severe price war and one
of the first items to be cut is excess memory. Prices for 
components are becoming so cheap that it is hard for the major
manufacturers to make a profit because the smaller independents
are cutting their throats just to stay open. I bought a Pentium-4
2.2GHZ processor and Gigabyte motherboard today for less than 
$350. I bought 1.5GB of DDR PC2700 333mhz memory for $297. I will 
throw this into my existing case and have to buckle my seatbelt 
when Isit down to trade. The problem? I upgraded to a state of the 
art system for next to nothing. I could have bought it as an 
entire computer for a couple hundred more. There is no profit in 
computers in this market. 

There is so much "extra" horsepower available today that there 
is not enough computing needs to max it out. Even with my four 
monitors and running Qcharts with nearly 100 charts and almost 
1000 active quote sheet symbols, half a dozen browsers, email, 
Preferred Trade, Interquote, a couple of Word documents and an 
Excel spreadsheet there will be easily 75% of the power to spare. 
I can't imagine ever using all the capacity. (Famous last words) 
This system for normal people would replace 2-3 older computers 
with one. Many of our readers use multiple computers for trading
platforms. One for quotes/charts, one for a browser and/or broker
interface and maybe even one for email and "work" during the day.
Instead of upgrading all these systems they can upgrade one and 
toss the others out. This goes the same for businesses. Tasks 
that took several computers two years ago may only take one now. 
We have half the servers we had two years ago and twice the 
amount of data and active pages. For more on this impact to the 
tech sector I recommend this: 
http://biz.yahoo.com/smart/020531/20020524aheaofthecurv_16.html

A reader emailed me this link this afternoon and while I don't 
normally agree with Fleckenstein he is on the same track. 
http://money.msn.com/content/p24025.asp
He is not the only one that thinks the computer upgrade cycle
everyone has been waiting for may not be as robust as expected.
Lehman Brothers analyst Dan Niles suggested lightening up on 
chip stocks because the summer was not going to be kind to them.
He feels the upgrade patterns mentioned above will continue to 
pressure earnings and with the average chip stock at a PE of 45
and chip equipment makers over 70, there could be some price
compression in the future. (In English, "stock prices are coming
down") The semiconductor sector saw a brief bounce on short 
covering when the economic and semiconductor billing news was
released but it was only temporary and it finished at the days
lows. Intel barely broke even after trading up intraday after
several analysts said they expected Intel to guide to the 
lower end of their range next Thursday when they have their
mid-quarter update. Time and time again we have heard about
how this quarter has been very slow and it will be extremely
back end loaded. With their update on June 6th they will not
know for sure how it is going to end and may be forced to be
ultra conservative and guide lower hoping to surprise to the
upside later.  

Other techs were targeted on Friday as well. IBM, which is 
continuing to cut workers, 2,000 this week, was the target of
cautious comments from several sources. The stock lost -1.80
even though it announced an order for a $224 million computer
from the government, announced its leadership role in disk 
storage and announced its worldwide leadership role in super-
computer revenue. Some days it just doesn't pay to go to work!

Merrill Lynch, concerned about the slow IT growth, cut sales and
earnings estimates on the software sector, primarily ORCL, SEBL 
and SY. Microsoft lost -1.73. Merrill said that many companies
will struggle to gain limited sales improvements for the rest of
the year. Check out the MSFT chart intraday and look at the drop
at the close. Somebody wanted out really bad before the weekend.
I looked at time and sales and did not see any giant blocks of
stock trade but there were a lot of multi-thousand share trades
at the low of the day. 

The 2Q is shaping up like this so far. According to First Call
there have been 285 negative and 247 positive pre-announcements.
On the surface that appears bearish but analysts are actually 
glad it is not worse. Next week the 2Q-warning season will begin
to heat up. The economic calendar is also huge with the ISM Survey
(formerly known as NAPM) and Construction Spending on Monday. 
Tuesday we get the BTM and Redbook. Wednesday the non-
manufacturing ISM and Friday the Non-farm Payrolls and Wholesale 
Inventories. The Intel analyst update on Thursday after the close 
will have tech investors shaking all week. Will they or won't they 
guide lower?

The markets on Friday appeared to be pricing in many of the 
negative factors described above. The post economic report rally 
was likely inspired by some limited short covering since there was 
no volume and no follow through. I am sure some diehard bulls were 
buying in hopes of a breakout on the first leg of a new bull 
market. They were sorely disappointed when the +130 point Dow gain 
dwindled to only +13 points at the close. What was unthinkable 
last Friday, a retest of the 9800 lows, when the Dow closed at 
10100, came to pass. While it should have been seen as the 
"bottom" and a successful retest of the May-7th lows, it was 
met with a yawn and not even a respectable bout of short 
covering. After Friday's roll over the chances of another
retest of even lower numbers are very strong.  

The Nasdaq stopped dead on resistance intraday at 1650 and then
dropped -34 points to close with a loss of -16 for the day. 
Nearest support is 1600-1607 but that could be only a pause if the 
tech downgrades and warnings continue. The next support is a 
distant 1560 with eventual support well below that in the low 1400 
range. While that may only be a doomsday scenario the odds for 
another drop to something below 1600 are pretty good. 

The S&P, probably the best barometer for the general market, 
failed at 1080 on Friday and closed under support at 1070. The 
Thursday low of 1054 was only 4 points above real support at 1050.
This should be our line in the sand. We can give the bears the
next 17 points but the 1050 level is critical. That will determine
the next phase of this market decline. If we can stop the bleeding
there and trade sideways for a couple weeks then the July earnings
expectations may kick in to provide a little positive momentum.
That of course assumes enough positive pre-announcements to wake
up the bulls from their summer nap. 

A well-known market prognosticator who has been laying low 
recently, made a public statement on Friday. "Until we witness a 
definitive upside breakout, we will view the sustainability of any 
rally (or rallies) from current levels as suspect," said Ralph 
Acampora, Prudential Securities' top technical analyst. In English 
he said, "if the markets don't go up they will probably go down." 
After being a lightning rod during the 1999-2000 bubble he has 
been very quiet and has avoided any market moving calls or 
predictions.

In reality he is right. If, after the extremely positive economic
reports this week, the markets cannot put together a solid gain
on Monday/Tuesday then in reality we are toast. With no volume
our path may already be carved in stone. Volume is a weapon for
the bulls. Markets can go down on low volume simply due to lack
of interest but it takes volume to make it go up. Volume is the
measure of supply and demand. When there is no demand ANY supply
will push prices down. Even a positive advance/decline ratio on
both exchanges could not hold the markets up with light volume 
on Friday. When the good economic news from Friday fades behind 
nuclear war newsbytes on Monday, bulls may not see an urgent 
need to own stocks.

Trading in these markets is tough at best. For the Nasdaq the 
only long positions I would consider would be a bounce off 1565
or a breakout over 1675. Trading the chop in the middle could be
expensive. The Dow is even harder. It has resistance at every 
century mark beginning with 10000. Waiting for a breakout of any
hundred mark gives you very little room before the next one is 
a problem. After the lackluster rebound performance from the 
9800 dip on Thursday I would be hard pressed to buy a dip to 
that level again. I would only play the Dow (DJX) long on a 
rebound with strong volume or short it on any drop below 9800. 
I know this may sound very negative or defeatist but this is 
a tough market and pretending it isn't will cost you money. 
You need to be very quick about entry points and even quicker 
about exits. 

If you would like some guidance during the trading day about 
entry points and trade setups then click on the Market Monitor. 
Leigh, Jeff, Jonathan and myself will provide continuous updates 
and trade signals through the day. We will help you cut through 
the intraday noise and understand what is happening in the 
markets. We can't make the markets better but we can help you 
understand what is really happening. 

Enter Very Passively, Exit Very Aggressively!

Jim Brown
Editor


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

GOOD ECONOMY/BAD MARKET
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

Usually, the market "leads" the economy, but now the economy is 
way ahead of the market.  The more good news we get, contained in 
such reports as on the latest Consumer Sentiment numbers, factory 
orders, etc., the more the market wails, but VARE are the 
EARNINGS!  Then, it (the market) proceeds to have a temper 
tantrum and the refusnik bears stomp on rallies growling sell, 
sell, sell! It's time for some market discipline: You vill rally 
and you vill ENJOY it! 

In a sign that investors continue to exchange paper with pictures 
of dead presidents on it for stock shares, the total new money 
invested in stocks in April was nearly $12 Billion ($11.76). 
However, this was down substantially from nearly $30 Billion 
($29.6) in March according to the Investment Company Institute. 
If April new money was down over 50% from March, May must be off 
from the prior month pace also. (NOTE: This year through April, 
investors have put $66.8 billion into stocks, more than triple 
the amount of the first four months of 2001.)
 
In the S&P 500 (SPX), I highlighted last week the long term 
bullish chart pattern that I believe is forming - that of a 
bullish Head & Shoulders (H&S) bottom (see below, left), that 
peculiar 3 pronged bottom with the middle low under the other two 
lows on either side of it. This may well be the longer-term 
picture, but the unknown is when the buying will come in to lift 
stocks, as a sideways trend (just more "shoulder") could go on 
for weeks longer.  

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


 

Meanwhile, the daily chart showed how the 21-day moving average 
acts as a common "pivot" point, helping define the short-term 
rend as bullish or bearish - witness the rally failure as the 
1080 high touched, then reversed, from 1080 on Friday; the close 
then was 13 points under this intraday high. 

I think we have more to go on the downside.  Just as opposites 
attract, we can get a short-term top pattern within a longer term 
bottom formation of the same type, per the outline of the Head 
and Shoulders TOP pattern that has become clear on the HOURLY 
chart below.  

S&P 500 (SPX) Hourly chart:


 
 
Judging by market action on Friday, as the SPX reversed right at 
resistance implied by prior lows and a down trendline drawn 
through the 1106-1097-1080 highs, SPX has more to go on the 
downside. Specifically, as implied by measuring a "minimum" 
downside objective for the H&S pattern, an objective is obtained 
to 1042-1045. 

This measurement also suggests that the recent pair of lows at 
1054 and the early-May bottom (1049) will be exceeded. SPX in the 
low 1040 area, if seen, offers a next buying opportunity in my 
estimation.  

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


 


The S&P 100 (OEX) has a similar pattern on the weekly and daily 
charts in all respects except the H&S bottom is not as well 
defined on its weekly chart.  

S&P 100 (OEX) Hourly chart:


 

The move to and reversal at the hourly charts down trendline at 
537 was the "kiss of death" for the rally occurring at the end of 
last week. As with the SPX, I anticipate new lows for the current 
move, which should both put the hourly stochastic into an 
oversold area, and build up a good deal of bearishness - typical 
for bearish "sentiment" to be high to set up what should be a 
next tradable bottom - in the 520 area (or a bit lower).  

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


 

Not much to say regarding this chart pair, except to note that 
the Nasdaq is oversold, so a good-sized rally would not be 
surprising if the political and earnings worries lift for a 
while. Meanwhile, I think the Q's move lower before shorts need 
to think about covering.  

Nasdaq 100 Trust Stock (QQQ) Hourly chart:


 

 
I suggested intraday on the Market Monitor, to sell QQQ as soon 
as it became apparent that the rally was failing in the 31 area, 
right at resistance implied by the down trendline.  As with the 
S&P, a Head & Shoulders top is outlined.  

Wish I had noticed this pattern earlier, as it offered guidance 
to sell near the "top" of the Right Shoulder (RS) - the H&S top  
pattern tends to be so reliable as a probable top, that shorting 
can be done before the "confirming" break of the "Neckline" 
(dashed line), using a stop just over the peak of the 3rd. and 
final rally (RS).

I anticipate further weakness early in the week - for those who 
are short/long puts: a move to new lows, such as at the implied 
downside H&S objective in the 27.5 area, is suggested as a place 
to take profits.  Buying in this area appears warranted as well.  


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Cheap Options

Even in a directional market (down) there are cheap options to 
be found. Normally these are found on the really high volume 
stocks or stocks that are not normally the focus of attention

Ball Aerospace (BLL) is really not an aerospace company. Sure,
they have a division that works on satellites and defense items
but their main business is aluminum cans. They are one of the
largest, if not the largest can maker in the world. Look on 
any pop or beer can the next time you drink one for the Ball
logo near the bottom. 

When the war started and every defense contractor looked like 
they would get more money than they could spend from uncle sam
Ball soared and they even announced a split for March. Now that
the defense contracts and reorders have been given out or toned
down, Ball is left to go back to the satellite and can business.
With aluminum costs climbing, profits could be shrinking. Either
way the trend on Ball is down. 

The key here is the $41 level. There is limited support at $41 
with nothing after $41 until it nears the $35 level. I would set
a buy stop for $41 ($39.95 actually) and enter the trade automatically
if that level is hit.



 

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

Semiconductor Blues

The semiconductors got two separate downgrades on Friday but 
most traders were looking the other way. They were thinking 
weekend or positive economic reports. When the next round 
of downgrades appears, and it could be with Intel's analyst
update on Thursday, the sector could retest the old lows.
Support is in the $33-$34 area and buying ITM options would
allow you to capture most of the gains. 

Check out the two links to chip stories in the Sunday wrap
and then decide what you think the future holds for the SMH.



 


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

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

Good Luck

Jim Brown


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

Broken Trend
By Eric Utley

Well, the post Memorial Day rally never really got cooking last
week.  The Nasdaq capped off a less than stellar four day week
with about a 1.5 percent drop Friday.  Meanwhile, the blue chip
averages finished virtually unchanged.

I don't know what the market's failure to rally during one of
the most bullish weeks of the year says about its prospects
going forward.  I would dare guess that the deviation from the
seasonal trend implies a weaker than previously thougth market.
But that seems too logical, so I really don't know what to make
of it.

I do know this.  There's a widening of the spread between
commercial and small traders in the S&P 500 futures market.  Of
the Committments of Traders (COT) numbers, I give the S&P's the
most credence because of their liquidity.  Commercial traders
it seems grew more bearish last week after bringing in a few
short positions ahead of the Memorial Day holiday.  But more
interesting, the small traders in the S&P futures grew even
more bullish, reaching their highest level of bullishness in
over a year.  The spread between these two is usually telling of
a market event, and more often than not the commercials are on
the right side of the move.  That being the case, the extreme
bullishness on the part of small traders may very well lead to
a nasty downturn in the S&P 500 this summer.  So much for the
summer rally theory.  If we do get any sort of bounce in the
blue chip names, it will probably be a good shorting opportunity
as it's likely to hold without the support of the big commercial
interest who are obviously betting in a bearish way on this
market.

The bearishness in the S&P pit may stem from the still relatively
overbought ways of the index versus others such as the Nasdaq
100.  Turning to bullish percent data, it was a quiet week for
the indicator, and almost unheard Friday as the only markets to
change were the NDX and the S&P 100 (OEX.X).  Of them all, the
NDX is the most overbought as it quietly lost a few more stocks
last week to end at the 33 percent level.  It's getting awful
close to being below the oversold 30 percent level, which may
mean that there's less downside risk in the NDX this summer.
By contrast, the SPX is bullish percent is still above 60
percent.  Granted, the market remains in a bull confirmed mode,
but there's more downside risk in it than the others.  Maybe
that's why the commercials are betting so heavily bearish on the
market.

Elsewhere, the ARMS Index (INDEX:TRIN) short term indicator
reached an extreme oversold reading during Friday's session
with the 5-day moving average ending up above the magical 1.50
level.  The other intermediate and long term indicators are
still well below oversold extremes, but the short term number
is indicating that a short covering rally of some size may be
around the corner in the broader market.  The market is certainly
not washed out by any means, so another short covering pop,
which the 5-day ARMS has been pretty good about predicting
recently, may set up just another good entry point into short/put
positions.

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

Market Averages

DJIA ($INDU)

52-week High: 11350
52-week Low :  8062
Current     :  9925

Moving Averages:
(Simple)

 10-dma: 10090
 50-dma: 10155
200-dma:  9888



S&P 500 ($SPX)

52-week High: 1316
52-week Low :  945
Current     : 1067

Moving Averages:
(Simple)

 10-dma: 1082
 50-dma: 1101
200-dma: 1115



Nasdaq-100 ($NDX)

52-week High: 2071
52-week Low : 1089
Current     : 1208

Moving Averages:
(Simple)

 10-dma: 1258
 50-dma: 1320
200-dma: 1443



Oil Service ($OSX)

The OSX traded higher ahead of the weekend while crude bounced
back as well.  The OSX was the day's best performing sector with
its 1.13 percent rally, fueled by further geopolitical fears.

Leading to the upside included Global Industries (NASDAQ:GLBL),
Varco (NYSE:VRC), Nabors Industries (NYSE:NBR), Transocean
(NYSE:RIG), and Noble (NYSE:NE).

52-week High: 131
52-week Low :  58
Current     : 106

Moving Averages:
(Simple)

 10-dma: 105
 50-dma: 104
200-dma:  87


Biotech ($BTK)

The BTK was the worst performing sector last Friday.  The index
finished lower by 2.52 percent on the day.

Leading to the downside included shares of Millennium
Pharmaceuticals (NASDAQ:MLNM), Protein Design Labs (NASDAQ:PDLI),
Sepracor (NASDAQ:SEPR), and Amgen (NASDAQ:AMGN).

52-week High: 676
52-week Low : 375
Current     : 405

Moving Averages:
(Simple)

 10-dma: 414
 50-dma: 447
200-dma: 507

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

Market Volatility

The VIX turned lower Friday on the heels of the 0.06 percent
gain in the S&P 100 (OEX.X).  It bounced above its converged
10- and 50-dmas.

The VXN shed 1.56 percent despite the 1.59 percent drop in the
Nasdaq-100 (NDX.X).  Go figure.

CBOE Market Volatility Index (VIX) - 22.81 -0.33
Nasdaq-100 Volatility Index  (VXN) - 45.89 -0.73

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

          Put/Call Ratio  Call Volume   Put Volume
Total          0.73        365,435       266,163
Equity Only    0.55        306,482       169,056
OEX            1.01         15,482        15,750
QQQ            0.40         27,820        11,267

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

Bullish Percent Data

           Current   Change   Status
NYSE          61      + 0     Bull Confirmed
NASDAQ-100    33      - 1     Bull Correction
DOW           63      + 0     Bear Correction
S&P 500       60      + 0     Bull Confirmed
S&P 100       60      - 1     Bear Correction

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

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

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

 5-Day Arms Index  1.54
10-Day Arms Index  1.24
21-Day Arms Index  1.29
55-Day Arms Index  1.30

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

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

Market Internals

        Advancers     Decliners
NYSE      1930           1228
NASDAQ    1782           1690

        New Highs      New Lows
NYSE      117             40
NASDAQ    104             94

        Volume (in millions)
NYSE     1,226
NASDAQ   1,687

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

Commitments Of Traders Report: 05/28/02

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

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

S&P 500

Commercials grew more bearish last week by adding about 5,000
contracts to their net bearish position.  They did so by adding
more shorts than longs.  Listen up!  Small traders reached their
most bullish position in over a year by adding a big number of
long positions to total more than 114,000 net long contracts.  The
spread here between commercials and small traders has widen
considerably over the last two weeks!

Commercials   Long      Short      Net     % Of OI 
05/14/02      343,941   424,893   (80,952)  (12.1%)
05/21/02      354,039   429,803   (75,764)   (9.7%)
05/28/02      362,607   442,845   (80,238)   (9.9%)

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

Small Traders Long      Short      Net     % of OI
05/07/02      154,664     59,583   95,081     44.4%
05/14/02      163,035     58,587  104,448     49.8%
05/21/02      172,313     57,803  114,510     49.8%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year: 114,510 - 3/26/02
 
NASDAQ-100

Nasdaq commercials grew less bullish last week by reducing their
longs more than their shorts.  Small traders went in the opposite
direction by growing less bearish, reducing their net position by
about 3,000 contracts. 

Commercials   Long      Short      Net     % of OI 
05/14/02       40,858     35,761     5,097   (5.5%)
05/21/02       51,448     45,375     6,073   (6.3%)
05/28/02       49,669     44,900     4,769   (5.0%)

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

Small Traders  Long     Short      Net     % of OI
05/14/02       11,920    17,479    (5,559)     8.2% 
05/21/02       12,567    19,899    (7,332)    22.6%
05/28/02       12,562    16,969    (4,407)    14.9%

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

DOW JONES INDUSTRIAL

Dow commercials were flat on a week over week basis.  Their net
position lost less than 100 contracts.  Small traders grew less
bearish, though, by adding a number of long positions.

Commercials   Long      Short      Net     % of OI
05/14/02       21,080    14,725    6,355     14.4% 
05/21/02       20,173    15,317    4,856     13.7%
05/28/02       20,289    15,513    4,776     13.3%

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

Small Traders  Long      Short     Net     % of OI
05/14/02        4,930    10,899    (5,969)   (25.2%) 
05/21/02        3,661     9,585    (5,924)   (44.7%)
05/28/02        5,709     9,180    (3,471)   (23.3%)

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

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


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Contrarian or Kooky?
By Eric Utley

I normally don't comment on what I read in the financial press.
But something caught my attention Saturday morning that I thought
was worth passing along.  Barron's ran a piece over the weekend
that was bullish on the telecom sector?  Stocks mentioned included
AT&T (NYSE:T) -- one of the stocks I reviewed this weekend --
Verizon (NYSE:VZ), and Vodaphone (NYSE:VOD).

Look, I appreciate the fact that the telecom sector is the most
oversold sector in the entire market.  So there's not a lot of
downside risk.  But I think the business is far from a bottom,
meaning that the stocks are not good buys in here.  Period.

I remember the cover story on XO Communications in early '01,
when the stock was trading north of $20.  And yes, it was most
bullish.  But guess what, six months later, XO was at zero.
There, enough said.  Let's move on.

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

Please send your questions and suggestions to:

Contact Support 

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

AT&T (NYSE:T)

What do you think about short on T? - Bernard

Thanks for the question, Bernard.

There's a lot going on with Ma Bell at the moment, so let's
get a quick run down on some important events.  First, the
debt downgrade.  The rating agencies have been on the prowl
in the telecom sector, and T hasn't avoided the downgrades.
The company's debt rating was downgraded by Moody's earlier
in May.  With about $25 billion of debt on the sheet, the
downgrade certainly didn't help matters at Ma Bell in the
form of increased borrowing costs.  

T is under contract to buy the 66 percent it doesn't already
own of AT&T Canada (NASDAQ:ATTC) by next year.  The company
is expected to shell out about $3.4 billion for the buyback,
of which some of that money is going to come from a stock
offering that is estimated to be around $2.25 million.  Or,
in other words, more dilution.

The company is in the process of selling its broadband unit,
which will knocked some dollars off of the stock.  In an
attempt to make the stock more appealing to institutional
investors, the company is going to effect a reverse stock
split.  Now this is interesting.

I can think of only one reverse stock split that I've ever
seen work, and that was in Iomega (NYSE:IOM), a component of
the Disk Drive Index (DDX.X), back in October of last year.
The 1 for 5 reverse split brought IOM up from below $1 to
about $6.  The stock has doubled since then, so I'd consider
that reverse split a success for the time being.  The other,
oh, 100 or so reverse splits I've seen put in place have
failed miserably.  Granted, all of the companies I've seen
issue reverse splits were micro cap stocks, no where near
the size of T.  But the reverse split generally isn't a
boost of confidence.

Technically, the stock is a mess.  It hasn't traded this low
for over a decade as depicted by this monthly chart.

T - Monthly


 

But do I think T is a good short?  The fundamentals certainly
suggest so.  It's just that the stock is so very oversold,
and the same goes for its sector, that I don't know if a short
at current levels offers the best risk versus reward set up.
I'd like to see a rebound in the stock back up to a level
where you can manage risk a little bit easier, rather than
running the risk of shorting the stock in a whole, a what might
turn out to be a relative low for a few weeks or months.  I do
think that the stock will trade lower into the end of the year,
but I think that there's a better entry point than current
levels.  I would like to get in it somewhere near the five
month downward trend line that is drawn on the daily chart below.
I think there that you can manage risk just a little bit better
in case I'm wrong about the stock's direction into the end of
the year.

T - Daily


 

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

Home Depot (NYSE:HD)

I've been watching Home Depot go lower without much signs of a
bottom.  Where do you see support for this one and what's your
outlook for the stock. - Regards, Kathy

Thanks for the question, Kathy.

Home Depot had been holding up very well versus the broader
market, as measured by the S&P 500, through most of April and
into May, up until just a few weeks ago when the company
reported its most recent quarter.

The company hit its targets, but it was the guidance that sent
fear into the minds of investors.  Some analysts said that
HD's failure to raise guidance for the next quarter caused
worries.  Many were expecting that the company would continue
to raise the bar, and that had built into the stock price.
But the failure to do so shifted investor's perceptions for
growth in the huge retailer going forward.  

When rival Lowe's (NYSE:LOW) reported analysts suggested that
its numbers were better, but even late last week investors
began to get nervous about its growth prospects.  The two
taken together, I think, might be saying something about the
strength of the U.S. consumer, and maybe to a smaller extent
even the housing market.

To digress, HD's recent spill caused quite a bit of technical
damage to the stock.  The breakdown below the $45 level from
its consolidation essentially negated the consolidation.  I
would actually be bearish on this stock going forward, but
would be willing to wait for a good entry point.  I think a
retest of the previous descending support line would offer
a good entry point with tight risk management into short/put
positions.

HD - Daily


 

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

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


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

==================================================
Market Watch for the week of June 3rd
==================================================

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

Symbol  Company               Date           Comment      EPS Est

------------------------- MONDAY -------------------------------

None

------------------------- TUESDAY ------------------------------

BTH    Blyth Inc.             Tue, Jun 4   -----N/A-----     0.34
BOBE   Bob Evans Farms        Tue, Jun 4   -----N/A-----     0.45
RDY    Dr. Reddy`s Labs       Tue, Jun 4   -----N/A-----      N/A
PETM   PETsMART               Tue, Jun 4   Before the Bell   0.10
RYAAY  Ryanair Holdings       Tue, Jun 4  -----N/A-----      0.18
SNPS   Synopsys               Tue, Jun 4   After the Bell    0.37

-----------------------  WEDNESDAY -----------------------------

ABS    Albertson`s            Wed, Jun 5   Before the Bell   0.56
CMVT   Comverse Technology    Wed, Jun 5   After the Bell   -0.06
MDZ    MDS                    Wed, Jun 5   Before the Bell   0.15
SFD    Smithfield Foods       Wed, Jun 5   -----N/A-----     0.21

------------------------- THURSDAY -----------------------------

IDT    IDT Corporation        Thu, Jun 6   -----N/A-----      N/A
NSM    National Semiconductor Thu, Jun 6   -----N/A-----    -0.08
AHO    Royal Ahold N.V.       Thu, Jun 6   -----N/A-----      N/A

------------------------- FRIDAY -------------------------------

None


----------------------------------------------
Upcoming Stock Splits In The Next Two Weeks...
----------------------------------------------

Symbol  Company Name              Ratio    Payable     Executable

SRCL    Stericycle Inc.           2:1      05/31       06/03
FBC     Flagstar Bancorp          3:2      05/31       06/03
ALC     Alltrista                 2:1      05/31       06/03
PRSP    Prosperity Bancshares     2:1      05/31       06/03
CNBC    Center Bancorp           21:20     06/01       06/03
FDC     First Data                2:1      06/03       06/04
SLFI    Sterling Financial        5:4      06/03       06/04
AAON    AAON Inc                  3:2      06/04       06/05
FIC     Fair, Isaac and Co        3:2      06/04       06/05
ESI     Fair, Isaac and Co        2:1      06/05       06/06
GBTS    Gateway Financial Hldngs 11:10     06/05       06/06
UPC     Union Planters Corp       3:2      06/06       06/07
CPS     ChoicePoint               4:3      06/06       06/07
GGG     ChoicePoint               3:2      06/06       06/07
AWR     American States Water     2:1      06/07       06/10
FOSL    Fossil, Inc.              3:2      06/07       06/10
ATK     Alliant Tech              3:2      06/10       06/11
SABB    Pacific Capital           4:3      06/10       06/11
APPB    Applebees                 3:2      06/11       06/12
IFIN    Investors Fincl. Srvcs    2:1      06/13       06/14
WTRS    Waters Instruments        3:2      06/14       06/17
OZRK    Bank of the Ozarks, Inc.  2:1      06/14       06/17
MI      Marshall & Ilsley         2:1      06/14       06/17
ALFA    Alfa Corp                 2:1      06/14       06/17


--------------------------
Economic Reports This Week
--------------------------

Did you hear it?  Wall Street is already looking towards the
June earnings warning season.  Feels like we just finished the
Q1 numbers.  We're looking at a somewhat quiet week.  Auto
and truck sales come out on Monday and a small pile of reports
come out on Friday.

==============================================================
                       -For-           

Monday, 06/03/02
----------------
Auto Sales (NA)          May  Forecast:   6.3M  Previous:    6.3M
Truck Sales (NA)         May  Forecast:   7.5M  Previous:    7.5M
ISM Index (DM)           May  Forecast:   55.0  Previous:    53.9
Construction Spendng(DM) Apr  Forecast:  -0.1%  Previous:   -0.9%

Tuesday, 06/04/02
-----------------
None

Wednesday, 06/05/02
-------------------
ISM Services (DM)        May  Forecast:   56.0  Previous:    55.3

Thursday, 06/06/02
------------------
Initial Claims (BB)    06/01  Forecast:    N/A  Previous:    410K

Friday, 06/07/02
----------------
Nonfarm Payrolls (BB)    May  Forecast:    70K  Previous:     43K
Unemployment Rate (BB)   May  Forecast:   6.1%  Previous:    6.0%
Hourly Earnings (BB)     May  Forecast:   0.3%  Previous:    0.1%
Average Workweek (BB)    May  Forecast:   34.2  Previous:    34.1
Wholesale Inventories(DM)Apr  Forecast:   0.1%  Previous:    0.0%
Consumer Credit (AB)     Apr  Forecast:  $6.0B  Previous:   $4.6B


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


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

THE SECTOR BEAT - 6/02
by Leigh Stevens

Friday, retail stocks put in a good performance; also, the oil, 
oil service, cyclicals and gold sectors. Biotech, software, 
boxmakers and internet stocks were among groups that fared poorly 
at week's end.

Losses in the software sector hit the Nasdaq as investors didn't 
find more to like after Thursday's gains. Oracle (ORCL) fell 5.9% 
following a bearish report from First Albany Corp. that suggested 
that the company's fiscal Q4 results were "not likely to be 
pretty". Microsoft (MSFT) gave back 3.3%, PeopleSoft 2.4% and  
Siebel Systems 6.2 percent.

HIGHER ON THE DAY ON Friday - 


 


DOWN ON THE DAY on Friday - 


 


SECTOR HIGHLIGHT OF THE WEEK -

Why the divergent results? For small-cap indexers, the devil has 
been in the details of which benchmarks the various funds seek to 
track. The biggest difference is that for more than two years, 
the Russell 2000 index used by several "small cap" funds, has 
lagged far behind a competing benchmark, Standard & Poor's S&P 
SmallCap 600 ($ )used by still other funds. 

The RUT however still has a number of tech stocks left over from 
the late-1990s Nasdaq/dot-com bubble. There are more of those 
weaker-performing tech issues in Russell 2000, dragging down its 
returns, compared with the S&P small-cap index.



 

The RUT iShares (IWM) are correcting from a top and there is no 
apparent sign of a bottom yet. IWM may retrace a further portion 
of its last run up, perhaps as much as 75% of it - such as to the 
94 area, which also corresponds to a prior high. A re-test of the 
February low could take it back to 90.80. For small cap 
participation, I favor the S&P 600 iShares.  

The recent performance gap certainly has been striking. From full 
year 2000 through April 2002, the Russell 2000 gained an average 
1.9% a year, compared with 12.3% for the S&P SmallCap 600. There 
are significant differences in the methodology and composition of 
the two leading small-cap benchmarks, which investors in small-
cap index funds should consider. The Russell 2000, first 
calculated in 1986, tracks the performance of the 2,000 U.S. 
stocks that rank after the largest 1,000 in market 
capitalization, or the total value of shares outstanding. 

The chart below is of the iShares of the Index (IJR) -


 

The 600 stocks in the S&P small-cap benchmark, meanwhile, are 
selected by the same committee that selects the stocks in the 
widely followed Standard & Poor's 500-stock index of large 
stocks. S&P's process is more subjective, and stocks aren't added 
or removed on any set schedule. Further, the committee's 
guidelines for new additions call for companies to have been 
profitable in four recent quarters -- a test that kept out most 
of the hot Internet names of the late 1990s.

S&P says it generally follows the industry breakdown of the total 
stock market in picking stocks for the small-cap index. The S&P 
benchmark tends to have a higher market capitalization than the 
Russell 2000.  Recently, the figure was $440 million for the 
Russell 2000, and $586 million for the S&P SmallCap 600.

Indexing hasn't been as popular in the small-cap realm as among 
large stocks, in part because stock-picking small-cap managers 
have often beaten the traditional Russell 2000 benchmark. Still, 
a total of about $24 billion in mutual funds and other accounts 
is indexed to the Russell 2000, and about $12 billion to the S&P 
600 by an estimate I saw in the Wall Street Journal this morning.

There are a couple of iShares choices in the S&P 600 - one being 
a "growth" segment (IJT) and the other a "value" segment (IJS).  
John Bollinger and some others I have heard from suggest the 
value trust, IJS - certainly, the "value" iShares have held up 
better on the recent decline. 

The growth stock, IJT, is showing an apparent double top and a 
deeper retracement.  On the other hand, the index has gotten 
oversold and looks like it may find support in the 75-76 area. 
This one is more volatile, but may also be in an area where it is 
again worth buying. 



 
 

The value segment of the S&P 600 as represented by the iShares, 
symbol IJS, has broken below its up trendline, and today topped 
on a return to that line - (prior) support (once broken) 
"becomes" resistance. I believe that IJS would be a buy if it 
dropped to the 89-91 zone, where I suggest accumulation of the 
trust stock.  



 


SECTOR REVIEW - 

Airline Index ($XAL.X)
STOCKS: ALK; AMR; AWA; CAL; DAL; FRNT; KLM; LUV; NWAC; U; UAL

Still in a downtrend, well under its 50 and 200-day moving 
averages. 

Sector would not break out above its major down trendline before 
89. Support has developed in the last month in the 77.00 - 79.00 
area. Sector looks like it may be bottoming, but is not yet in a 
position to rally much - little buying interest in the group has 
shown up as evidenced by the pattern of lower relative lows after 
the early-May rebound.  LAST UPDATE: 6/02

Amex Composite Index ($XAX.X)
The small cap stocks so predominating in the Amex, as a group, 
has been in a sideways consolidation.  Recent rally attempts have 
been finding resistance in the 964 area. 947-948 looks like a key 
near support, with a break under this level suggesting at least a 
temporary top. LAST UPDATE: 6/02  

Bank Index ($BKX.X)
STOCKS: BAC; BBT; BK; C; CMA; FBF; FITB; GDW; JPM; KEY; KRB; MEL; 
NCC; NTRS; ONE; PNC; SOTR; STI; STT; USB; WB; WFC; WM; ZION

The bank index has made at least a temporary double top in the 
916 area - closing penetration of this prior top, and subsequent 
support developing in this area, would suggest a new up leg.  

BKK fell under its up trendline this week and its 50-day moving 
average.  It would need to close back above 889 to reverse this 
bearish near-term picture.  Significant support lies in low 860 
area - no major trend change is signaled without a move to under 
this area. LAST UPDATE: 6/02

Biotechnology Index ($BTK.X)
STOCKS: ABGX; ADRX; AFFX; AMGN; BGEN; CELG; CEPH; CHIR; CRA; DNA; 
ENZN; GENZ; GILD; HGSI; ICOS; IDPH; IMCL; IMNX; INCY; MEDI; MLNM; 
MYGN; PDLI; TARO; TEVA; VRTX; XOMA

Biotech has been in pronounced downtrend, which may have 
reversed at the early-May lows in the 380 area. A continued rally 
from this point would suggests that index can work higher as long 
as BTK maintains a pattern of higher (up) swing highs and higher 
(down) swing lows. This pattern would be broken on a downside 
penetration of 393. 

A key technical resistance is 449-450, the area of several 
prior lows and the intersection of daily down trendline. A close 
above 449-450 would indicate that the trend has reversed higher. 
Further resistance then comes in at the top of its downtrend 
channel at 475. 

Suggested buy of Biotech Holdr's (BBH) at 101.50 on 5/24 open; 
recommended initial stop/exit point at 92.5; initial objective: 
113; longer-term objective: 127, back to area of mid-March highs. 
LAST UPDATE: 6/02

Computer Technology Index  ($XCI.X)
STOCKS: to be listed 

Remains in a downtrend; May rally recently reversed at 50-day 
moving average and from an overbought reading on the daily 
oscillators; e.g., 4-day RSI.  Resistance is at 658, then 
682. Close over these levels would turn the trend up. 

Early-May lows in the 580 area now looks like major support. XCI 
has been continuing to trend lower, from its upswing high in the 
680 area. LAST UPDATE: 6/02
 
Computer Boxmaker Index ($BMX.X) 
STOCKS: AAPL; CPQ; DELL; GTW; HWP; IBM; SNE; SUNW; UIS; VRTS  

The Boxmaker sector, an unglamorous term for PC manufacturers, 
had a mid-May rally right to its down trendline at it's 50-day 
moving average, where BMX reversed - this was also area of its 
50-day moving average.  

Resistance is at 94, then 98. Major support looks like 83-85. 
LAST UPDATE: 6/02 

Cyclical Index; Morgan Stanley; ($CYC.X)
STOCKS: AA; C; CAT; CSX; DCN; DD; DE; DOW; ETN; F; FDX; GP; GT; 
HON; HWP; IP; IR; JCI; KRI; MAS; MMM; MOT; PBI; PD; PPG; PTV; R; 
S; UTX; WHR; X 

The cyclical index has been locked in a 552-595 trading range 
since early- March, with current levels closer to the high end of 
this range. 

A breakout above 595 on a closing basis, with subsequent ability 
to hold this level on pullbacks, would suggest that another up 
leg was developing in CYC. A close below 552 would reverse the 
trend down. LAST UPDATE: 6/02

Defense Index; Amex ($DFI.X)
STOCKS: ATK; BA; COL; DRS; EASI; EDO; ERJ; ESL; FLIR; GD; INVN; 
ITT; LLL; LMT; NOC; OSIS; RTN; SSSS; TDY; TTN; UIC

The Defense sector, a very strong performer in the January to May 
timeframe, formed a May top after repeated failures to get 
through resistance in the 680 area - retreat from the top area 
was accompanied by the a downside break of the Jan-May up 
trendline. The last rally to this area occurred on less relative 
strength, forming a classic price/RSI divergence.  

Resistance at the previously broken up trendline is at 673 
currently, not far under the major 680 resistance.  Am watching 
to see if the 50-day moving average acts as support beyond today. 
Downside possibilities for a pullback in DFI may lie either in 
the 615 or 595 areas, representing the 38% and 50% retracements, 
respectively. LAST UPDATE: 5/23 

Disk Drive Index ($DDX.X)
STOCKS: ADIC; ADPT; DSS; FLSH; HTCH; IOM; MXO; RDRT; SNDK; STK

The disk drive index remains in a downtrend. However, after a 
drop to the 82 area in early-May, which completed a 62% 
retracement of the September '01 - February '02 advance, DDX 
rebounded some. If the index can hold above its prior low at 82, 
the index could be a position to rally.  

The last rally reversed at its 200-day moving average. A close 
above 88, current resistance implied by its down trendline, would 
suggest some further rally potential at least back up to re-test 
its 200 and 50-day moving averages. LAST UPDATE: 5/26 


Fiber Optics Index ($FOP.X)
STOCKS: ADCT; ALA; AMCC; AVNX; CIEN; CORV; CSCO; FNSR; GLW; JDSU; 
JNPR; LU; MRVC; NEWP; NT; NUFO; ONIS; PMCS; Q; SCMR; TLAB; VTSS; 
WCG

The Fiber Optic group has been in a downtrend since peaking in 
the 139 area in early-December. FOP's recent low was made at 65 
in early-May and the index is again near that area.  A break of 
this level would suggest another downswing, but I don't have 
enough price history to focus on what might be a possible further 
downside objective.  

On the upside, a close over 71.00 would put FOP above its down 
trendline, basis the daily chart. Sector is again approaching an 
oversold reading on the daily oscillators. LAST UPDATE: 5/26

Financial Index; NYSE ($NF.X)
STOCKS: This index is composed of all the financial stocks on the 
NYSE; e.g., banks, insurance, etc. 


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

Gold & Silver Sector Index ($XAU.X)
STOCKS: ABX; AEM; AU; FCX; GOLD; HGMCY; MDG; NEM; PD; PDG; SIL

XAU continues to accelerate to the upside, but may find near 
resistance at the top end of its steep uptrend channel at around 
90. My longer-term objective is 100 however. Near support looks 
like 80, with major support at 70.  
 
If you want to buy into this sector it is high risk, although 
gold bullion has a possible per ounce target to $340-345, maybe 
350. The question is how much of the potential further price rise 
in gold is priced into the XAU stocks already. LAST UPDATE: 5/23

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


Healthcare Index; Morgan Stanley ($HMO.X)
STOCKS: AET; AHG; ATH; CAH; CI; FHCC; HUM; MME; OHP; OPTN; PHSY; 
TGH; THC; UNH; WLP

Healthcare ($HMO.X) rebounded strongly from where it needed to 
maintain its bullish technical chart picture, at its up 
trendline. However, the prior high in the 644 area now looms as 
significant resistance. LAST UPDATE: 6/02

** Previously suggested basket of 3 HMO stocks/calls -

PacifiCare Health Systems (PHSY) at 23.5-24.7. Stop/exit: 23.3

Wellpoint Health Networks (WLP) - Entry at 72.00, then at 70. 
Stop/exit point: 65 Additional buy suggested at 66. 

Humana (HUM) - Entry suggested at 15.60 & 15.00-15.15. Stop/exit 
point: 13.2 


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)
STOCKS: AMAT; AMD; CMOS; CREE; IDTI; INTC; KLAC; LLTC; LSCC; LSI; 
MOT; MU; NSM; NVDA; NVLS; PMCS; RMBS; TER; TXN; XLNX

The Semiconductor sector, after making an approximate double 
bottom in the in the low 460 area, rebounded strongly. This was 
accompanied by an RSI reading that was well above its prior low, 
which is a bullish divergence and also suggested a bottom.  

One option play on this sector is to buy SOX index calls, 
although they have a tendency to get pricey as soon a rally 
develops so limit orders and picking an area to buy them on a 
pullback is important, Individual stocks that look favorable, 
and will likely trade in line or as well as the SOX on a 
rebound, include MU, NSM, and TXN.  LAST UPDATE: 6/02  

Software Index; Goldman Sachs ($GSO.X)

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

Transportation Average; Dow Jones ($TRAN)

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
lstevens@OptionInvestor.com


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

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

CALLS              Tue    Wed    Thu    Fri   Week

TEVA     67.03   -0.50   0.15   0.65  -0.70   0.23  Still strong
ERTS     64.00   -0.89  -0.46   1.84  -0.30   0.19  Breakout???
NOVN     26.61    0.38   0.58   0.69   0.60   2.24  Good plan!!
SNPS     50.44   -1.23  -0.87   0.39  -0.55  -2.23  Entry point
ADBE     36.10   -1.00  -0.82   0.68  -0.43  -1.57  At support
CI      106.05    0.19   0.05   0.88   0.12   1.24  Steadily up
GILD     35.66    0.90  -2.60   1.46  -1.15  -1.39  Dropped
PDLI     11.37    0.30  -0.49   0.20  -0.69  -0.68  Dropped
THC      74.50    1.45   0.95   1.22   0.30   3.92  Breakout???
DGX      87.42    0.44   0.33   1.28   0.42   2.47  Rebound!!
INTU     43.73   -0.74   1.44   1.56  -0.75   1.51  Entry point
WFMI     51.17   -0.89   0.60  -0.14   1.61   1.18  New, runner


PUTS               

HB       60.75   -0.54  -0.48   1.10   0.25   0.33  Dropped
GS       75.45   -1.29  -0.75  -1.07   0.37  -2.74  Relief pop
PLAB     22.87   -0.25  -0.75  -0.24   0.15  -1.12  Entry point
COHU     24.50    0.30  -0.65   0.10   0.75   0.50  10-dma roll
WHR      71.40   -1.26  -0.80  -0.75   0.30  -2.51  200-dma spot
VRTS     22.67   -1.48  -1.14   2.06  -0.32  -0.88  Down trend
WMB      14.20   -0.31  -1.64  -1.47   0.20  -3.22  $14 support
DUK      32.01   -0.11  -1.08  -1.73   0.23  -2.69  Breakdown??
EXPE     71.50   -0.93  -1.75  -2.59  -4.16  -9.43  New, falling
BLL      41.58   -0.21  -0.86  -0.59  -0.94  -2.60  New, trend


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

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

WFMI - Whole Foods Market $51.17 (+1.18 last week)

See details in play list




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

EXPE – Expedia, Inc. $71.50 (-9.43 last week)

See details in play list





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

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


CALLS
^^^^^

PDLI $11.37 (-0.68) The bears have burst the bubble that
Biogen built and the BTK index finally violated its 3-week
ascending trendline on Friday, falling nearly 3%.  PDLI fared
even worse, sliding sharply to end the day down more than 5%.
With daily Stochastics pointing south and the bearish sector
technicals, the factors that had us looking bullish on PDLI have
all but disappeared.  Rather than hang onto a losing play, we're
going to pull the plug this weekend to make room for better
candidates.

GILD $35.66 (-1.39) GILD appears to be weakening and looks like
it will breakdown from its upward trend as early as next week.
The stock is being pressured by the weakness in the biotech
arena, and we don't want to hang around a sector that is
displaying signs of weakness.  Look to exit plays early next
week on a relief rally in Monday's session.


PUTS
^^^^

HB $60.75 (+0.33) HB broke above its downward sloping 10-dma
in decisive fashion last week and closed above that level in
Friday's session.  The short covering that we detected in the
last few sessions looks like it has some legs, and for that
reason we're dropping coverage on HB this weekend.  Look to
get out of plays on a pullback to the 10-dma next week.


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

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

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

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

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

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

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


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The Option Investor Newsletter                   Sunday 06-02-2002
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Note: Options involve risk. Risk disclosure: 
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**************
NEW CALL PLAYS
**************

WFMI - Whole Foods Market $51.17 (+1.18 last week)

Whole Foods Market, Inc. owns and operates a chain of natural and
organic foods supermarkets. The categories of products that the
Company offers include: produce, grocery, meat and poultry,
seafood, bakery, prepared foods, specialty (beer/wine/cheese),
nutritional supplements, body care, pet products, floral,
household products and educational products such as books. On
average, the Company's stores carry approximately 20,000 SKUs
(stock-keeping units) of food and non-food products.

Niche super market chains and food stocks have been star
performers this year.  And the small group appears to be
gaining price momentum.  That's because of the stellar earnings
being reported by the major players in the group.  WFMI in
early May reported a 36 percent jump in earnings and a 10
percent rise in sales.  In addition to beating its estimates,
the company raised sales and earnings targets for the rest of
this year, citing continued strong demand from consumers and
growth in new stores.  Wall Street is eating up the story at
WFMI with its positive earning surprises and stock price
momentum.  And the news is only getting better for the stock
as Standard & Poor's recently announced the entrance of WFMI
into its small cap index to replace BJ Services.  The stock
broke out from its recent short term consolidation during
last Friday's session on relatively heavy volume.  About
double the average daily volume exchanged last Friday on the
way to a more than 3 percent gain for the day.  The stock's
three week consolidation followed by the breakout last
Friday should lead to another upward trend into the summer
months.  And with earnings reported just three weeks ago,
we have plenty of time to ride this stock higher over the
next two months.  Look to take entries at or around current
levels on further strength above last Friday's close.
Pullbacks down in the consolidation zone may offer good
entry points as well.  Look for a bounce from the $50 level
on future weakness.  We'll start the play with a stop at the
$48 level. 

BUY CALL JUN-50*FMQ-FJ OI=716 at $2.00 SL=1.00
BUY CALL JUN-55 FMQ-FK OI=  0 at $0.30 SL=0.00
BUY CALL JUL-50 FMQ-GJ OI=  2 at $2.85 SL=1.75
BUY CALL JUL-50 FMQ-GK OI= 56 at $0.80 SL=0.25

Average Daily Volume = 571 K



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

ADBE – Adobe Systems $36.10 (-1.57 last week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all
sizes.

Turbulent trading has been the watchword in the depressed
Software sector (GSO.X) lately and the past week was no different.
After once again dipping to the $120 support level, a bit of
bullish action gave the sector a boost on Thursday, only to give
most of it back on Friday.  The GSO is looking like it is trying
to put in a solid bottom, but is in a very precarious position
here, a mere 7% above the intraday lows from late September.
ADBE is one of the few stocks in the sector that has held up
rather well over the past few months, trading well off its
September lows, and consistently finding support in the $36 area.
Its relative strength is a major reason why we are featuring ADBE
on the call list right now, as a rebound in the sector should
benefit the stronger stocks.  Sure enough, even with this week's
sector weakness, ADBE continued to hold above support, coming to
rest Friday afternoon just above $36.  Continue to use intraday
dips near this level to enter new positions, but wait for the
bounce before playing.  Alternatively, look for bullish conviction
to show itself with ADBE pushing through near-term resistance at
$38.75 before initiating new momentum-based positions.  Keep stops
in place at $35, just below the early May lows.  Don't forget that
earnings are set to be announced on June 13th. 

BUY CALL JUN-35*AEQ-FG OI=1752 at $2.80 SL=1.50
BUY CALL JUN-40 AEQ-FH OI=4507 at $0.75 SL=0.25
BUY CALL JUL-35 AEQ-GG OI=1533 at $3.70 SL=2.25
BUY CALL JUL-40 AEQ-GH OI=4170 at $1.45 SL=0.75

Average Daily Volume = 3.72 mln


DGX – Quest Diagnostics $87.42 (+2.47 last week)

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

Looking across the major sectors of the market in the middle of
the day on Friday it was a sea of green.  That picture changed
significantly by the closing bell, with several sectors,
including Health Care (HMO.X) ending with losses for the day.
In light of that environment, it was encouraging to see DGX hang
on to post a fractional gain, albeit a small one.  The stock has
been trading well over the past week after finding support near
the $85 level and began rebounding strongly on Thursday
following Moody's upgrade of the company's debt.  With bullish
life returning to the Health Care sector, DGX should benefit from
any meaningful move due to the continued strong earnings the
company has been reporting.  The ascending trendline that has
been supporting the stock on major pullbacks has now risen to
$84, the site of our stop, and we expect to see it support another
extended bullish move as it rises to meet historical support at
$85.  Over the past week, DGX has been building a new ascending
trend, which currently rests at $87.  This is interesting given
the fact that the stock has been finding intraday support at that
level over the past 2 days.  Another rebound from that level would
make for a decent entry point, as would a dip and rebound near the
$86 level.  Keep stops set at $84, which is just below the recent
lows.

BUY CALL JUN-85*DGX-FQ OI=2544 at $4.30 SL=2.75
BUY CALL JUN-90 DGX-FR OI= 636 at $1.50 SL=0.75
BUY CALL JUL-85 DGX-GQ OI=  45 at $5.90 SL=4.00
BUY CALL JUL-90 DGX-GR OI= 149 at $3.10 SL=1.50
BUY CALL JUL-95 DGX-GS OI=  37 at $1.40 SL=0.75

Average Daily Volume = 873 K


ERTS – Electronic Arts $64.00 (+0.19 last week)

ERTS creates, markets and distributes interactive entertainment
software for a variety of hardware platforms, including Sony's
PlayStation 2, the PC, Nintendo GameCube and the recently
launched Xbox.  The company's EA.com business segment is engaged
in the creation, marketing and distribution of entertainment
software which can be played or sold online, as well as the
ongoing management of subscriptions of online games and Website
advertising.

While the overall Software sector (GSO.X) continues to languish
just above its September lows, shares of companies involved in
making the video game software for Microsoft's Xbox and Sony's
Playstation 2, have been seeing renewed buying interest.  This
was confirmed on Thursday when Electronics Boutique (ELBO)
reported solid earnings due to the fact that recent price cuts
are stimulating increased sales of both game platforms.
Additionally, the rate of software sales are picking up speed,
and those comments are likely to keep buyers interested in
shares of ERTS next week.  After bottoming in early May, the
stock has been steadily working higher and looks like it is
coiled for a breakout over the $65 level.  The intraday lows are
moving higher, with the ascending trendline connecting the lows
from the past 3 weeks now sitting near $63.  Intraday dips near
this level (or even down at $62 support) look attractive for new
entries on the rebound, as does a volume-backed rally through the
$65 resistance level.  Note that a trade at $65 will generate a
fresh double-top buy signal on the PnF chart, giving the bulls
confidence that the stock has a decent shot at testing its
all-time highs near $67.  Once clear of that level, bulls will
have to turn to the PnF vertical count for upward guidance.  The
current count is forecasting an eventual bullish price target of
$79.  Our stop remains at $61.

BUY CALL JUN-60 EZQ-FL OI=2037 at $5.10 SL=3.00
BUY CALL JUN-65*EZQ-FM OI=4484 at $1.85 SL=1.00
BUY CALL JUL-65 EZQ-GM OI= 699 at $3.30 SL=1.75
BUY CALL JUL-70 EZQ-GN OI= 372 at $1.45 SL=0.75

Average Daily Volume = 2.85 mln


SNPS - Synopsis, Inc. $50.44 (-2.26 last week)

Synopsis is a supplier of electronic design automation software
to the global electronics industry.  The company's products are
used by designers of integrated circuits (ICs), including
system-on-a-chip ICs, and the electronic products (such as
computers, cell phones, and internet routers) that use such ICs
to automate significant portions of their chip design process.
SNPS' products offer its customers the opportunity to design ICs
that are optimized for speed, area, power consumption and
production cost, while reducing overall design time.

As the Semiconductor (SOX.X) and Software (GSO.X) sectors
struggle to find a near-term bottom, we have been focusing on
shares of SNPS, which although still being locked in a long-term
descending trend, has been holding up fairly well.  After
bouncing strongly in early May after the company raised earnings
and revenue guidance, the stock has risen to the 5-month
descending trendline near $52.  The past 2 weeks have seen
numerous attempts to push through this trendline, but so far the
bears have been able to keep the bulls at bay.  In order to push
higher, SNPS is likely going to need the participation of at
least the SOX and ideally the GSO indices in order to stage a
sustained move through this resistance level.  At the same time,
it has been encouraging to see that intraday dips are being met
by solid buying interest near the $50 level, the site of the
20-dma ($50.18), 50-dma ($49.94) and 200-dma ($50.31).  Bounces
from this level, look good for fresh entries, so long as our
$49.50 stop isn't violated on a closing basis.  On the upside,
new entries can be considered on a push through the trendline at
$52, although the real bullish conviction will come into play as
SNPS pushes through the $54 resistance level.  Make no mistake
though, that won't necessarily get SNPS out of the bearish woods
though, as there is more resistance to contend with at $55 and
$56.  But we've got to start somewhere, and right now relative
strength is starting to build in SNPS.  Unfortunately, our fuse
is growing short on this play as SNPS is set to announce earnings
on Tuesday, June 4th after the close.  So one way or the other,
we'll be dropping the play Tuesday night.  Make sure to close
all positions before then.

BUY CALL JUN-50*YPQ-FJ OI=1341 at $2.85 SL=1.50
BUY CALL JUN-55 YPQ-FK OI= 949 at $0.90 SL=0.25
BUY CALL JUL-50 YPQ-GJ OI=  20 at $3.80 SL=2.25
BUY CALL JUL-55 YPQ-GK OI=  26 at $1.70 SL=0.75

Average Daily Volume = 1.25 mln


THC– Tenet Healthcare Corp. $74.50 (+3.92 last week)

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

Health Care stocks are back in favor with the bulls after taking
most of the month of May off to consolidate the huge bullish
gains accrued earlier in the year.  The last two days of the week
saw the Health Care Payor index (HMO.X) push through the $625
resistance level, putting the PnF chart back on a buy signal and
that has had investors jockeying for new entries into what they
expect will be another strong run.  Shares of THC have been
languishing just above the $70 level since early May, but that
situation improved over the past few days, as the stock has
pushed higher on strong volume and is within a dollar of its
all-time highs.  Even with the late-day broad market weakness,
shares of THC managed to eke out a fractional gain on Friday and
that is a good sign for our play.  While we would like to see a
dip and bounce near the $72 level to allow us an attractive entry
point, with strength returning to this sector, we may have to
settle for buying a bounce near the $73 intraday support level.
Momentum traders will want to watch for a move through the $75.50
level on strong volume before initiating new positions.  Given
the recent strength, we are once again ratcheting our stop up,
this time to $71.

BUY CALL JUN-70 THC-FN OI=3614 at $5.10 SL=3.00
BUY CALL JUN-75*THC-FO OI=2036 at $1.50 SL=0.75
BUY CALL JUL-70 THC-GN OI=  30 at $5.80 SL=4.00
BUY CALL JUL-75 THC-GO OI= 191 at $2.55 SL=1.25

Average Daily Volume = 1.75 mln


TEVA - Teva Pharmaceuticals $67.03 (+0.23 last week)

Teva Pharmaceutical Industries Ltd. is a fully integrated global
pharmaceutical company producing drugs in all major therapeutic
categories. In the area of proprietary drugs, Teva has focused
on products for central nervous system disorders, primarily the
development of Teva's first globally marketed branded drug,
Copaxone, a treatment for relapsing-remitting multiple sclerosis.
Teva also possesses significant manufacturing operations for
active pharmaceutical ingredients (API). Teva Pharmaceuticals USA,
Inc., Teva's principal United States subsidiary, is a generic
drug company in the United States.

TEVA has been one of the few bright spots in the broader
Biotechnology Sector (BTK.X) during the last two months.  The
stock has gained about 24 percent since the beginning of May
on favorable news from the legal front.  TEVA's performance has
far out paced the continued weakness in the biotech group, which
is the reason that we're still in this play for its relative
strength.  Last week's consolidation which saw TEVA finish
the week fractionally higher could lead to the next rally in the
stock next week if the market and the biotech sector at the
very least stabilize.  We saw late last week the 10-dma provide
support during the early pullback Thursday, which helped the
stock back up to just below the $68 level.  That 10-dma finished
Friday right at the $66 level, which has become our preferred
level for an entry point during any pullbacks next week.  The
bulls should be there to try and carry TEVA higher again, so
we like the odds of an entry and the tight risk management at the
$66 level.  To the upside, the stock is encountering resistance
at the $68 level.  A breakout entry point above $68 is
possible, but just make sure that the BTK.X and broader market
are bullish enough to support a breakout and follow through in
TEVA.

BUY CALL JUN-65*TVQ-FM OI=1417 at $3.10 SL=1.75
BUY CALL JUN-70 TVQ-FN OI=1037 at $0.60 SL=0.25
BUY CALL JUL-65 TVQ-GM OI= 122 at $4.00 SL=2.00
BUY CALL JUL-70 TVQ-GN OI= 824 at $1.60 SL=0.75

Average Daily Volume = 910 K
 


NOVN - Noven Pharmaceuticals $26.61 (+2.24 last 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.

What a week for NOVN!  Since the company received Federal Drug
Administration (FDA) approval for expanded use of its drug
Vivelle, the stock has responded in the most bullish way.  Just
as scripted last week, the stock steadily worked higher
throughout last week, one day after another finishing higher by
2 percent or thereabout.  In Friday's session, the stock
finally climbed back up to its relative high at the $26.80
level.  NOVN's intraday high last Friday was $26.82!  Those
traders who took profits on that move up to the $26.80 level
last week, well done!  If you're still holding positions,
consider taking some off of the table next week.  Our plan was
to take profits at the $26.80 level upon a retest, so make sure
to stick with your plan and don't let greed take over.  Also,
the stock is increasingly overbought on the daily timeframe.
Friday's 2.30 percent close higher marked the ninth consecutive
day that NOVN closed higher.  Clearly the stock is under
institutional accumulation, but we nevertheless expect a
pullback at any time.  For that reason, traders with open plays
should be using a very tight trailing stop to protect against
a big downward blow off move.  As for new entry points, we still
like the trend in this stock very much, and don't want to drop
it just because it's ready to pullback.  Instead we'd view such
a pullback as an entry point.  We'll start looking for such an
entry near the $24 to $25 range.

BUY CALL JUN-22 NPQ-FX OI=103 at $4.10 SL=2.75
BUY CALL JUN-25*NPQ-FD OI= 65 at $2.00 SL=1.50
BUY CALL JUL-22 NPQ-GX OI= 74 at $4.50 SL=3.00
BUY CALL JUL-25 NPQ-GE OI=207 at $2.65 SL=1.75

Average Daily Volume = 206 K



CI - CIGNA Corp. $106.05 (+1.24 last week)

CIGNA Corporation and its subsidiaries are an investor-owned
employee benefits organizations in the United States. Its
subsidiaries are major providers of employee benefits offered
through the workplace, including health care products and
services, group life, accident and disability insurance,
retirement products and services and investment management.
CIGNA's operating divisions include Employee Health Care, Life
and Disability Benefits, CIGNA Group Insurance, Employee
Retirement Benefits and Investment Services, and International
Life, Health and Employee Benefits. 

Slowly but surely, CI ticked higher last week above the $106
resistance level that we had been watching for when we first
profiled this play.  The stock's close above the $106
resistance level last Friday was very encouraging as it
revealed that the bulls are more than ready to take this stock
higher provided the market and the sector continues to support
such a move.  We also noticed a slight uptick in volume
during last Friday's rally.  Though still well below the stock's
30-day average volume of more than 800 K, the volume last
Friday did pick up to the most active level we've seen in
about a week and a half.  From here we expect a slow and
steady ascent up to the $110 level over the next week or two.
Of course the right catalyst at the right time could have the
shorts running for cover and have CI moving quickly back up to
the $110 area.  Traders looking to game such an event can
look to enter positions on moves above the previous day's high.
Using a breakout above last Friday's high at the $107.20 level
on higher intraday volume could be used for such a strategy.
Those who favor entering strong stocks on a pullback to support
can use the recent series of relatively higher lows to pick
a spot near intraday support.  If the stock does pullback by
a little more than last Friday's low of $105.70, the look for
the 10-dma to come into play below around the $104.50 area.
Look for declining hourly volume on the way back down, and
wait for a rebound from the 10-dma before entering on
weakness.

BUY CALL JUN-100 CI-FT OI= 38 at $7.00 SL=4.00
BUY CALL JUN-105*CI-FA OI=208 at $3.30 SL=1.75
BUY CALL JUN-110 CI-FB OI=402 at $1.10 SL=0.75
BUY CALL JUL-105 CI-GA OI=431 at $4.80 SL=2.25

Average Daily Volume = 834 K



INTU - Intuit $43.73 (+1.51 last week)

Intuit, Inc. is a provider of small business, tax preparation and
personal finance software products and Web-based services that
simplify complex financial tasks for consumers, small businesses
and accounting professionals. The Company's principal products
and services include Quicken, QuickBooks, Quicken TurboTax,
ProSeries, Lacerte and Quicken Loans. Intuit offers products and
services in five principal business divisions, which include Small
Business, Tax, Personal Finance, Quicken Loans and Global Business.

There's no denying that the U.S. consumer remains extremely
strong in light of the continued weakness in the business
sector of the economy.  Recent economic data from the consumer
continues to show that he or she is spending and gaining
confidence in the economy.  The primary reason that INTU is
trading so well is because the company's products and services
cater to consumers.  Though the company does provide a lot of
products and services to small businesses, its primary line of
business is with the consumer, which is why it continues to
hit financial goals and grow sales and earnings.  So as long as
the market believes that the consumer is holding up well and
gaining confidence, then INTU should continue working higher.
The stock did just that early last Friday when it broke above
the $45 level, taking out the short term overhead congestion that
we had pointed out in the first play write up Thursday
evening.  The breakout above the $45 level didn't hold because of
the rollover in the Nasdaq.  But we liked very much the stock's
powering through its overhead congestion which cleared the way
for further upside upon a stabilization of the tech sector.
Friday's pullback offered a very favorable entry set up on the
pullback as traders can start looking for rebounds early next
week from current levels or slightly lower down around the
rising 10-dma at the $42.83 level.  Monitor the price action of
the Software Sector Index (GSO.X) closely to gauge the sentiment
in the broader sector.  If the bulls return to that group, then
watch for INTU to lead to the upside.

BUY CALL JUN-40 IQU-FH OI=1668 at $4.50 SL=3.75
BUY CALL JUN-45*IQU-FI OI=1691 at $1.20 SL=0.75
BUY CALL JUL-40 IQU-GH OI=3797 at $5.20 SL=4.00
BUY CALL JUL-45 IQU-GI OI=1880 at $2.20 SL=1.75

Average Daily Volume = 2.41 mln
 


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

EXPE – Expedia, Inc. $71.50 (-9.43 last week)

Expedia is a provider of online travel services for leisure and
small business travelers, offering one-stop shopping and
reservation services with real-time access to schedules, pricing
and availability.  The company's global travel marketplace
includes direct-to-consumer Websites offering travel-planning
services at Expedia.com, Expedia.co.uk, Expedia.de, Expedia.nl
and Expedia.it.  In addition, the company provides
travel-planning services through its telephone call centers and
through private label travel Websites through its WWTE business.
WWTE is a division of Travelscape, Inc., one of EXPE's wholly
owned subsidiaries.

It may sound crazy to initiate a put play on a stock that is up
more than 250% since the September lows, but you know what they
say, "The taller they are, the harder they fall".  While EXPE has
been a bullish favorite for the past 8 months as it shot nearly
straight up the charts, there are some disturbing developments on
the daily chart, at least if you're a bull.  The stock has now
tested the $84 level on 3 separate occasions in the past 6 weeks
and after the sharp decline this past week, it appears that the
bulls have lost possession of the ball.  The handwriting was on
the wall before this past week as the "consolidation" near the
highs since late April has been taking place on very heavy
volume.  This is not a healthy consolidation pattern and in a
previously bullish trend, is usually resolved to the downside.
The weakness last week dropped EXPE right to major support at
the $70-71 level and given the fact that volume continues to
rise, it doesn't look like the bears are even close to being
done.  The recent double-bottom sell signal on the PnF chart is
giving us a vertical count of $59.  That correlates nicely with
the long-term ascending trendline beginning at the September
lows, which is currently at $60.  This is simply a case of a
stock that has run too far too fast, and we are looking to take
a piece of the action as it pulls back to a more realistic
valuation.  Given the volatile nature of the stock, we need to
start out with a fairly wide stop, set initially at $77.  With
EXPE sitting on major support, it could be due for an oversold
bounce.  Look to initiate new positions on a rally failure near
the $75-76 area, or else target a breakdown below $70.  There is
more support at $68 and then $65.  EXPE is still a favorite of
the bulls, so expect continued volatile trade with bounces from
support levels likely to continue.  The best entries will clearly
come as those rebounds run out of steam and the stock then heads
back to earth.

BUY PUT JUN-75 UED-RO OI=1960 at $5.40 SL=3.50
BUY PUT JUN-70*UED-RN OI=1674 at $2.75 SL=1.25
BUY PUT JUN-65 UED-RM OI= 672 at $1.30 SL=0.75

Average Daily Volume = 1.48 mln


BLL - Ball Corp. $41.58 (-2.60 last week)

Ball Corporation is a manufacturer of metal and plastic packaging,
primarily for beverages and foods, and a supplier of aerospace and
other technologies and services to commercial and governmental
customers. Ball's principal business is the manufacture and sale
of rigid packaging products, primarily for beverages and foods.
Polyethylene terephthalate packaging is Ball's newest product
line. The aerospace and technologies segment includes civil space
systems, defense operations and commercial space operations. The
defense operations business unit includes defense systems,
systems engineering services and advanced antenna and video
systems, as well as electro-optics and cryogenic systems and
components.

Despite all of the seemingly positive economic news coming out
from the government, the economically sensitive stocks are
starting to display signs of weakness.  We've seen it happen in
the cyclical stocks of the market, as well as basic materials
issues.  BLL is one such stock that is showing signs of weakening
and is in a short term trend of lower highs and lows.  The
company is obviously one that would benefit from a pickup in the
economy due to the nature of its businesses.  But it seems that
the market is revealing that the pickup in the economy may be
pushed out even further judging by the way that BLL has been
trading since mid April when the stock briefly traded above the
$50 level following its 2 for 1 split.  The normal post split
pullback took place in late April before the stock tried to
rebound through early May.  But the rally attempt failed as the
stock recently broke down from its consolidation and into a new
descending trend which appears to be picking up steam to the
downside.  The stock broke from a short term pause six days ago
pressured by the declining 10-dma now overhead at the $43.87
level.  In Friday's session, the stock broke below the lower
end of that consolidation and finished on its low for the day,
revealing that the sellers may not be finished dumping this
stock going into next week's trading.  Watch for further
weakness in the Dow Jones Industrial Average ($INDU) to pressure
BLL below its low closing last Friday at the $41.58 level.  With
the 200-dma below at the $37 level, we'll turn to that level for
a possible short term downside target if the trend in BLL
continues over the next two weeks.  Our stop is initially in
place at the $45 level.

BUY PUT JUN-40*BLL-RH OI= 73 at $0.90 SL=0.25
BUY PUT JUL-40 BLL-SH OI=118 at $1.55 SL=0.75

Average Daily Volume = 414 K



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The Option Investor Newsletter                   Sunday 06-02-2002
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*****************
CURRENT PUT PLAYS
*****************

GS – Goldman Sachs Group $75.45 (-2.74 last week)

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

With Brokerage stocks still reeling from the recent blow dealt
to Merrill Lynch by the NY Attorney General's probe into
purported unethical behavior by its analysts, the Broker/Dealer
index (XBD.X) spent most of last week in the red, falling back
to important support near $453.  That was enough to push shares
of GS back to its early May lows near the $74 level on Thursday.
The group got a bit of a boost on Friday morning with the
attempted broad market rebound, but Prudential knocked the legs
out from under the hopeful bulls, reducing estimates for several
firms in the sector, including GS.  Citing expectations for
"flattish" 2Q revenue, the earnings expectations for GS were
reduced from $1.08 to $1.04.  That stopped the fledgling rally
in its tracks and when the broad market rolled over in the
afternoon, so did GS, falling back to close near the lows of the
day.  The stock is sitting near major support ($74) and is deeply
oversold, so we could be near an important near-term bottom.  So
we want to keep those stops tight (ours is currently set at $78)
to protect our current gains in the play.  We're keeping the play
open though due to the possibility that the bears could manage to
push GS under the $74 level, which would unleash another round of
selling.  Use failed intraday rallies near the $77 level (like we
saw on Friday) to initiate new positions or else wait for a drop
under $74 on strong volume to add new positions.  Recall that the
current vertical count on the PnF chart is forecasting a decline
to the $70 level.

BUY PUT JUN-75*GS-RO OI=3865 at $2.35 SL=1.25
BUY PUT JUN-70 GS-RN OI=1488 at $0.85 SL=0.25

Average Daily Volume = 3.12 mln


VRTS – Veritas Software $22.67 (-0.88 last week)

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

With all the major indices testing important support levels last
week, eager bulls are hoping that they have seen a near-term
bottom so they can play the upside again.  But the failure of any
of the intraday rallies to gain any traction is certainly casting
a pall over any bullish enthusiasm.  One of the weakest areas of
the technology sector is Software, with the GSO index trading
just slightly above the September lows and showing very little
inclination to head higher.  Showing that Thursday's gain was
little more than short-covering, the GSO gave back nearly all of
those gains on Friday, closing the week just above the $120
support level.  VRTS mirrored that action, getting a nice
short-covering rebound on Thursday.  The bulls stopped their
advance just over $23, showing the tenuous nature of the rebound
in their inability to even test the first level of tangible
resistance at $23.50.  The rollover that commenced near the $23
level provided another attractive entry point, but don't worry
if you missed it because from the looks of the bounce at the
close, we're going to get another chance on Monday.  We'll
continue to look for fresh entries to present themselves on
failed rallies below the descending trendline (currently $24.25),
which also happens to be the site of our stop.

BUY PUT JUN-22*VIV-RX OI=8895 at $1.95 SL=1.00
BUY PUT JUN-20 VIV-RD OI=2025 at $1.00 SL=0.50

Average Daily Volume = 12.6 mln


WMB – Williams Companies $14.20 (-3.22 last week)

Williams is engaged in the transportation and sale of natural
gas and petroleum products and other energy related activities.
Through its subsidiaries, the company is engaged in price risk
management services; the purchase, sale and transportation and
transmission of energy and energy-related commodities;
transportation and storage of natural gas; exploration,
production and marketing of oil and gas.  Along with being
involved in seemingly every aspect of the energy production
and marketing business, WMB also is engaged in energy commodity
trading and marketing, and even participates in the
communications business.

The issue of "round trip" energy trading is plaguing just about
every company involved in this relatively new enterprise and if
you follow business news, it seems that hardly a day goes by
without another energy trader's accounting practices being called
into question.  Just in the past week, negative stories broke on
EP, WMB, DYN, MIR and XEL and the flood of accusations have
continued to pressure the group lower.  Whether in fact any of
these firms engaged in this questionable practice, the very
question has created a black cloud over the sector and is
pressuring many of the stocks to multi-year lows.  WMB's
assertion last week that the company did not engage in round-trip
trading was enough to give the stock a pop up to the $18 level
(the first positive action since mid-April), it didn't last and
the stock had an ugly week last week.  After falling through the
$15 support level, WMB traded all the way down to the $13.70
level on Thursday, its lowest level since late 1995.  Friday's
rebound was lacking in enthusiasm and it looks like WMB could be
setting up for another leg down.  Ideally we could see a rebound
to the $15 resistance level (prior support) to provide us with
fresh entries before the stock rolls over again, but judging by
the lethargic advance (?) on Friday, it looks like we may have to
settle for taking on new positions near current levels.  Our first
target to the downside is found near the $11 level, historical
support dating back to 1994.  Our stop is set at $16.50.

BUY PUT JUN-15*WMB-RC OI=4265 at $1.55 SL=0.75
BUY PUT JUN-12 WMB-RV OI=7317 at $0.50 SL=0.25

Average Daily Volume = 3.69 mln


PLAB - Photronics $22.87 (-1.09 last week)

Photronics, Inc. and its subsidiaries manufacture photomasks,
which are high precision photographic quartz plates containing
microscopic images of electronic circuits. Photomasks are a key
element in the manufacture of semiconductors, and are used as
masters to transfer circuit patterns onto semiconductor wafers
during the fabrication of integrated circuits and, to a lesser
extent, other types of electrical components. The Company
operates principally from 11 facilities, five of which are
located in the United States, three in Europe and one each in
Korea, Singapore and Taiwan.

Just as we had planned, PLAB followed through to the upside
in last Friday's session following its rebound from the $22
level in Thursday's session on another round of short covering
in the broader technology space, which appeared to come to an
end in last Friday's session.  The stock never even approached
its overhead and falling 10-dma which now stands at the $24.66
level.  We would actually like to see some more upside in this
stock which would provide a gift for an entry point and help to
remove a lot of upside risk from the pent up demand in short
covering.  Going into next week, we hope to get the stock up
around the $24 to $24.50 area.  We will start to look for
aggressive put entry points upon such a set up.  If the stock
continues lower we will look at taking momentum based entry
points upon a breakdown below the short term support that was
established during last Thursday's rebound.  However, we want
to see the broader Semiconductor Sector Index (SOX.X) give up
some ground before entering puts into weakness in PLAB.
Ideally we would also like to see confirmation in the broader
technology sector with further weakness in the Nasdaq.
Momentum based entry points below the $22 level can target the
$20 level to the downside.

BUY PUT JUN-25*PQF-RE OI=1440 at $2.90 SL=1.50
BUY PUT JUL-25 PQF-SE OI= 350 at $3.50 SL=2.25

Average Daily Volume = 699 K



COHU - Cohu Inc. $24.50 (+0.50 last week)

Cohu, Inc. is the owner and operator of businesses in the
semiconductor equipment segment, and the television camera segment.
The Company's wholly owned subsidiary Delta Design, Inc., designs,
manufactures and sells semiconductor test handling equipment to
semiconductor manufacturers and semiconductor test subcontractors
throughout the world. The Company's Electronics Division designs,
manufactures and sells closed circuit television cameras and
systems to original equipment manufacturers, contractors and
government agencies. 

The short covering that we saw taking place in COHU last Thursday
continued into Friday's session when the stock bucked the trend
of weakness in the broader market as well as its sector, the
Semiconductor Sector Index (SOX.X).  For its part, the SOX.X
finished lower by about 1 percent for the day, while COHU
managed to put together a 3 percent gain for the day.  But we
are not too upset with the stock's out performance to the upside
because what it did was help to remove a lot of the short covering
potential that had been built up during the last three weeks.
Secondly, the stock's rally into Friday's session set up another
favorable put entry point near resistance upon a rollover in
next week's trading.  The stock closed last Friday just under its
descending 10-dma overhead at the $24.87 level.  A continuation
up to that level early next week followed by a rollover would
offer a favorable entry point, and could be played with a tight
stop just above the 10-dma at the $25 or $25.50 levels.  Without
a strong day or two in the SOX.X, the rally in COHU is unlikely
to have legs with it, and the stock will eventually roll back
down under the weight of the weakness in its sector.  So make
sure to look for continued weakness in the broader chip sector
next week before gaming a rollover from the 10-dma.

BUY PUT JUN-25*QCH-RE OI=71 at $1.55 SL=1.00
BUY PUT JUL-25 QCH-SE OI=20 at $2.10 SL=1.75

Average Daily Volume = 160 K



WHR - Whirlpool $71.40 (-2.51 last week)

Whirlpool Corporation is a worldwide manufacturer and marketer
of major home appliances. The Company manufactures in 13
countries under 11 major brand names and markets products to
distributors and retailers in more than 170 countries. The
Company manufactures and markets a full line of major
appliances and related products, primarily for home use. The
Company's principal products are home laundry appliances, home
refrigerators and freezers, home cooking appliances, home
dishwashers, room air-conditioning equipment, and mixers and
other small household appliances. The Company also produces
hermetic compressors and plastic components, primarily for the
home appliance and electronics industries.

The worsening in old favorite blue chips is disconcerting for
the bulls who believe in the economic recovery.  We spotted
such a breakdown in WHR last week when the stock declined
from its three month consolidation below the $72 level.  The
stock attempted to rally in last Friday's session following its
short covering bounce from Thursday's rebound.  But that rally
attempt failed miserably when WHR turned lower into the close
of trading to finish with only a fractional gain on the day.
The stock is setting up to test its 200-dma below at the $68.73
level possibly as early as next week's trading.  Short term
traders should keep in mind the 200-dma as a short term
reference of support or even as a potential downside target over
the next week or two.  For entry points, using future rollovers
should be the best way to get into new put positions.  Another
rollover like the one we witnessed last Friday would serve that
purpose well.  Of course a failed rally up to the declining
10-dma at $73.24 would serve up a nice entry point as well.  When
tracking this stock for entry and exit points, make sure to keep
a close watch on the Dow Jones Industrial Average ($INDU).  WHR
seems to track the index quite closely, so using the two
together should help to increase odds of success.

BUY PUT JUN-70*WHR-RN OI=315 at $1.45 SL=0.75
BUY PUT JUL-70 WHR-SN OI=  4 at $2.70 SL=1.75

Average Daily Volume = 555 K



DUK - Duke Energy $32.01 (-2.69 last week)

Duke Energy Corporation offers physical delivery and management
of both electricity and natural gas throughout the United States
and abroad. Duke Energy provides these and other services through
seven business segments: Franchised Electric, Natural Gas
Transmission, Field Services, North American Wholesale Energy
(NAWE), International Energy, Other Energy Services and Duke
Ventures.

DUK tried to appease Federal Regulators last Friday by telling
them that the company hadn't engaged in any questionable trading
transactions, such as wash trades in an attempt to boost sales
and trading volume.  The company said that it had conducted an
internal review of its trading division in the Western U.S. and
concluded that it hadn't used any round trip trading techniques.
DUK's press release was in response to a Federal inquiry on
May 21.  The company is expected to file another report on June
5, which is a date to keep on the calendar as it could turn up
some negative news for the company and adversely impact the
stock.  As for Friday's action, the stock rebounded on the
press release on what appeared to be a day of relief for the
broader energy sector.  But the stock still fell to a new
relative low in the recent trend earlier in the session when
it bounced from the $31.33 level.  Volume remained very active
as the buyers and sellers remained at odds.  Looking out into
next week's trading, we're looking for either a short term bounce
up to resistance, or a breakdown below support for entry points.
A rollover from the $33 level would offer good entries into new
positions, while a breakdown below the $31 level should pave the
way for more selling to come into the stock.

BUY PUT JUN-32*DUK-RZ OI=2591 at $1.45 SL=0.75
BUY PUT JUL-30 DUK-SF OI=6849 at $1.25 SL=0.75

Average Daily Volume = 4.16 mln



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*****
LEAPS
*****

Summer Doldrums or Summer Rally?
By Mark Phillips
mphillips@OptionInvestor.com

Who's to say?  Certainly not me!  I've been expecting some
bullish action over the past couple weeks, but clearly I've been
wrong as the broad markets have continued to drift lower.  Is
there a rally in our future, or have we already seen it?  Welcome
to the fun of trading in the summer months in a market that has
little reason to go up.  A big part of the current problems in
the market is the war fear surrounding the Kashmir region.
Whether a conventional war in that part of the world would have
a significant market effect is not the issue.  The possibility of
that occurrence along with the remote possibility of a nuclear
exchange, is creating uncertainty.  The markets hate uncertainty,
and as a result they have continued their persistent downward
slide.

Add in the fact that the volatility measures (VIX and VXN) are
trolling along at the lower end of their respective historical
ranges, and the approach of typically slow summer trading and you
can see that there just isn't any compelling reason for investors
to buy.  With no fear, (note that uncertainty is not the
equivalent of fear) there is not the proverbial wall of worry for
the bulls to climb.  Light summer trading volume appears to be
here and that isn't going to be helpful to the bullish case.  Even
with a full list of positive economic news on Friday, the markets
couldn't sustain altitude.  While there has been a lot of volatile
chop both up and down, the S&P has done little more than drift a
few points lower over the past month.  Over the same period of
time, the DOW is up by a mere 15 points, while the NASDAQ-100 is
off by 42.  Can you say rangebound?  Sure, I knew you could.

I continue to look for the broad indices to put in a significant
bottom near current levels, but without strong buying interest
(tough to come by with low volatility and summer upon us), I don't
see how the bulls can push this market significantly higher over
the near term.  Short term traders can profit handsomely in this
environment, selling resistance and buying support, but long-term
position traders better hit those entry points just right and take
profits when they are offered.

Eventually there will be enough conviction to lift the markets
from their current malaise, but this weekend I cannot see from
whence the catalyst will come.  If good economic news can't do
the trick, then our next hope will come from the July earnings
cycle and we've got some time to wait before that rolls around.

You'll notice that there are currently no put plays on the
Watch List, and that is largely due to the fact that I don't
see a significant downside risk right now.  The markets want to
put in a bottom and rally, but lack the conviction to do so.  I
still think the bullish side is where the action is over the near
term, but will continue to view any rally as just the latest
bear-market rally, not the beginning of a new bull market.

But in the midst of that environment, there are always
opportunities for profit.  So let's see how our current list
of candidates is faring.

Portfolio:

JNJ - It was another nip and tuck week for JNJ, but despite the
pronounced weakness in the DOW, the stock is continuing to ride
its ascending trendline higher.  Entries near this level still
look attractive, but we need to keep a tight stop on the play.
We're ratcheting ours up to $60 this weekend to protect against
the possibility of a breakdown.

MDT - Consolidation was the name of the game last week, and the
result is that MDT appears to be working on building a new base
near the $46 level.  We could see a bit more weakness, before the
bulls take another shot at the $47 resistance level, but it
should be fairly minor.  We've raising our stop to $44 to
minimize the potential for loss while awaiting the push through
resistance.

MSFT - It was either a sucker's entry, or else we'll eventually
be proven right on our bottom-fishing play on the king of Software
stocks.  The GSO index is trying to put in a bottom and MSFT is
doing the same.  For now, it is just a wait-and-see process.

XOM - This play has a similar feel to it as our JNJ play, as the
stock keeps bouncing right there on the ascending trendline.
These bounces still look attractive for fresh entries as we await
the next bullish catalyst.  Crude Oil prices have been weak for
the past couple weeks, but we're looking for that trend to change
as summer driving season kicks into high gear.  Ratchet stops up
to $38.50.

PG - It has been a long wait, but the stock finally graduated
onto the Portfolio after giving us precisely the entry point we
were looking for.  Use the ascending channel for your guide to
the play.  Rebounds from the lower channel line are buyable,
while a breakdown below the $86 level will tell us clearly that
the bullish run is over.  So set tight stops at that level.


Watch List:

WMT - Another week, another test of major support.  WMT fell
below our hoped-for entry point and now appears like it needs a
more meaningful support level to stimulate significant buying.
With the RTH (Retail HOLDR) on a sell signal, we're going to look
lower for our entry into the play.  The $50-51 level looks strong
as support and should correspond with major support in the RTH.

BRCM - Interesting how little movement is taking place in BRCM
with the SOX breaking support levels on a regular basis.  Believe
it or not, I think we are getting very close to a solid entry
into the play, and it's about time.  Keep focused on the entry
target and be patient.

AMAT - Inching lower, AMAT is in a critical situation here.  The
PnF chart is sitting right on strong support at $22 (also the
site of the 200-dma), but if the stock prints $21 it could be
lights out.  The good news from AMAT's earnings report has been
wiped out by a lack of positive guidance from NVLS' update last
week.  A rebound from the $22 area looks good for long term
entries, but if filled, we want to play with a tight stop just
below $20, the next level of strong support.

BBH - So much for holding the ascending trendline!  Biotech
stocks failed to hold their relative strength last week and we
are forced to look for an entry at a lower level as the NASDAQ
struggles to find support.  Lower the entry target to $92-93
(the site of the early May gap), but wait for the bounce before
playing.

Note that we have begun listing the 2005 LEAP symbols (where
available) in the Watch List as these strikes have begun to
appear.  If you are looking for maximum time in your LEAPS
purchases, they are definitely worth considering, as time decay
won't be a factor for quite some time.

As I have said repeatedly, I believe we are currently in a
primary bear market and profits to the long side will come only
from carefully picking both the right stocks and the right entry
points.  The markets continue to look to me like they want to
put in a bottom and get on with the next bear-market rally.  But
the geopolitical fears (India and Pakistan right now) appear to
be keeping the buyers on the sidelines.  The one disconcerting
factor is that the VIX and VXN volatility indicators are showing
a distinct lack of fear.  Until there is a spike upwards in
these indicators, there will be no wall of worry for the bulls
to scale, and that will keep any subsequent rally rather muted.

At the same time, I don't see the catalyst that will generate a
substantial selloff as I think the nuclear war fears have been
substantially overblown, making the upside the high odds bet over
the near term.  When the next rally runs its course, we'll start
to populate the Put side of the Watch List with new plays in an
attempt to profit as the persistent bear rears its head again
later this year.

My advice is to play the long side with caution, keeping position
sizes small.  The time to enthusiastically trade from the long
side of the market will come again, but it isn't here right now.
Remember the number 1 rule of successful investing, which is
capital preservation.  If there isn't a trade that looks good to
you, that often means the right trade is to make no trade at all.

Have a great week!

Mark



LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
JNJ    03/05/02  '03 $ 65  JNJ-AM  $ 3.30  $ 2.80  -15.15%  $60
                 '04 $ 65  LJN-AM  $ 6.40  $ 6.40  + 0.00%  $60
MDT    05/15/02  '03 $ 45  VKD-AI  $ 4.00  $ 4.90  +22.50%  $44
                 '04 $ 45  LKD-AI  $ 7.30  $ 8.20  +12.33%  $44
MSFT   05/13/02  '03 $ 55  MSQ-AK  $ 5.90  $ 4.80  -18.64%  $48
                 '04 $ 55  LMF-AK  $10.20  $ 9.60  - 5.88%  $48
XOM    05/22/02  '03 $ 40  XOM-AH  $ 3.00  $ 2.95  - 1.67%  $38.50
                 '04 $ 40  LXO-AH  $ 5.10  $ 5.00  - 1.96%  $38.50
PG     05/30/02  '03 $ 95  PG -AS  $ 3.70  $ 4.40  +18.92%  $86
                 '04 $ 95  LPR-AS  $ 9.00  $ 9.80  + 8.89%  $86


Puts:
None


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
BRCM   10/28/01  $18-20        JAN-2003 $ 25  OGJ-AE
                            CC JAN-2003 $ 20  ORD-AD
                               JAN-2004 $ 25  LGJ-AE
                            CC JAN-2004 $ 20  LGJ-AD
WMT    03/31/02  $50-51        JAN-2003 $ 55  VWT-AK
                            CC JAN-2003 $ 50  VWT-AJ
                               JAN-2004 $ 55  LWT-AK
                            CC JAN-2004 $ 50  LWT-AJ
AMAT   05/12/02   $22          JAN-2003 $ 25  ANQ-AE
                            CC JAN-2003 $ 22  ANQ-AX
                               JAN-2004 $ 25  LPJ-AE
                            CC JAN-2004 $ 22  LPJ-AX
                               JAN-2005 $ 25  ZPJ-AE
                            CC JAN-2005 $ 20  SPJ-AD
BBH    05/26/02   $92-93       JAN-2003 $100  GBZ-AT
                            CC JAN-2003 $ 95  GBZ-AS
                               JAN-2004 $100  KBB-AT
                            CC JAN-2004 $ 95  KOV-AS
                               JAN-2005 $100  XBB-AT
                            CC JAN-2005 $ 90  XBB-AR
BBY    06/02/02   $40          JAN-2003 $ 50  VBY-AJ
                            CC JAN-2003 $ 45  VBY-AI
                               JAN-2004 $ 50  LBS-AJ
                            CC JAN-2004 $ 45  LBS-AI


PUTS:

None


New Portfolio Plays

PG - Proctor & Gamble $88.75 ** Call Play **

Finally!  It seems like we've been waiting forever for PG to drop
back to the bottom of its year-long ascending channel, but the
persistent broad-market weakness managed to get the job done last
week.  PG rebounded strongly from a low of $87 on Thursday and
managed to extend those gains on Friday.  Recall that we don't
expect PG to scream up the charts, but we can play the range in
the current channel as long as it lasts.  The stock has continued
to perform well in the weak economic environment due to the fact
that the company provides all those consumer staples that we all
need to purchase regardless of the state of the economy.  With a
consistent pattern of meeting or exceeding earnings estimates, it
is no wonder investors continue to step up and buy the dips when
they occur.  We took our position here following Thursday's
bullish day, even though the Weekly Stochastics are currently
pointing south.  Note that they haven't made it into oversold for
over a year now, and if this trend is going to continue, then we
would expect to see a short-cycle bullish reversal in the very
near future.  After the recent test of very strong resistance at
the $94 level, it is no surprise to see some concerted profit
taking, and we would advocate using repeated bounces near the
lower channel line to initiate new or add to existing positions.
Given the fact that a dominant portion of our technical
justification for the play is the price channel, any significant
violation of the lower channel line will be reason to close it
out.  For now, we are setting the stop at $86.

BUY LEAP JAN-2003 $95 PG -AS $4.40
BUY LEAP JAN-2004 $95 LPR-AS $5.10


New Watchlist Plays

BBY - Best Buy $46.20  **Call Play**

Up until the middle of May, we had a convenient gauge of the
Retail sector through the CBOE Retail Index (RLX.X).  But with
the cessation of that index leaves us with no convenient measure
of the strength of the Retail sector, except for the Retail
HOLDR (AMEX:RTH).  While this measure shows that Retail stocks
are currently under distribution, I think we are near an
important bottom for the group.  Last week's drop to the 200-dma
near $93 created a fresh sell signal on the PnF chart, which
leaves the RTH vulnerable to the $85 level according to the
current vertical count.  So the time to think about new long
positions is not here yet, but could materialize in the fairly
near future.  One of the strongest Retail stocks since the
September lows is BBY, which had nearly doubled at its March
highs, relative to the lows.  Since then, the stock has been
drifting lower and understandably bounced off its own 200-dma
last week near the $45 level, helped somewhat by the positive
earnings report from Electronics Boutique (NASDAQ:ELBO) on
Thursday night.  While aggressive traders might consider new
positions near the 200-dma, I think we'll get another opportunity
at a lower price.  The PnF chart currently has BBY on a sell
signal as well, with the vertical count pointing to the $40 level
as a likely bottom.  Note that this was a level of solid support
prior to the selloff last September, and I'm looking for it to
provide us with a solid entry point as the economy recovers.  One
of the factors that has me leaning bullish on the stock is the
news reports recently pointing to increasing sales of both Xbox
and Playstation 2 game units and game software (due in part to the
recent price cuts).  Apparently consumers are still gobbling up
items that can be used for entertainment in their own homes.  The
optimum entry into the play will come with the RTH dropping to
find support in the $85 area and BBY falling to major support in
the $40 area.  Then we can follow it up with a tight stop at the
$37.50 level.  As has been our theme here for awhile now, wait
for the entry point to come to you rather than chasing it.
Chasing entries just doesn't work in the current market
environment, and your account balance will thank you later for
exercising patience now.

BUY LEAP JAN-2003 $50 VBY-AJ
BUY LEAP JAN-2003 $45 VBY-AI  For Covered Call
BUY LEAP JAN-2004 $50 LBS-AJ
BUY LEAP JAN-2004 $45 LBS-AI  For Covered Call

Drops

None


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

Option Trading Basics: Market-Makers And Floor Brokers
By Mark Wnetrzak

One of our readers had some excellent questions about the methods
used by floor brokers and other option specialists at the major
exchanges.


To: questions@OptionInvestor.com
Subject: Floor-trading techniques

Hello OIN,

I have always been interested in the tasks of a floor trader and
would love to develop the skills they have in capturing a profit
from their trades.  Since many of you deal directly with these
folks, I thought you might be able to answer some questions about
their jobs.  As I understand it, when an order to trade an option
is given to a floor broker, he announces the order to the trading
crowd.  Then the traders in the crowd respond with their bids and
offers.  If the broker/market-maker has an order to buy at the
current offer price, or sell at the current bid price, the order
will trade.  I know that one way a market-maker tries to profit
is to buy at prices below the theoretical value and then sell at
higher prices.  But I'm sure that isn't always possible, so how
else do floor traders make money trading options?

TG


Regarding option trading and floor brokers:

The majority of methods employed by floor specialists to profit
from trading in options and their associated stocks are based on
pricing theory and statistical probability.  There are also a
number of scalping techniques; the most common of which occurs
when heavily traded options are bought at the bid and sold at the
ask, generating a spread credit for the market-maker.  Specialists
who participate in risk-free transactions also utilize various
arbitrage techniques.

A large number of specialists favor box-spreads and conversions or
reversals (reverse conversions).  A box spread consists of two
call options with different strike prices and two put options with
strike prices equivalent to the calls.  Box spreads are initiated
when the options are miss-priced on a relative basis.  The price
risk of the call spread is offset by the opposite position in the
put spread thus guaranteeing a risk-free profit.  In addition,
the specialist does not need to purchase the underlying issue
to participate in the technique.  Unfortunately, opportunities for
this type of position are available primarily to floor traders who
can instantly exploit the disparities among the options, and the
ongoing execution of orders in a liquid market eventually returns
the prices to their relative fair values.

Conversions involve calls, puts, and the underlying stock.  For
example, the conversion is used when a retail trader is interested
in buying a call option.  To offer the position, a specialist will
buy an under-priced put and sell an overpriced or fairly priced
synthetic put (a short call and long stock position).  The initial
profit is achieved when the transaction yields a credit. If the
value of the (sold) call option goes up, the (long) stock position
will offset the change.  If the value of the (long) stock falls,
the put is exercised to cover the loss.  In this manner, the floor
broker trades risk-free and profits from the initial transaction.
Of course, funds must be borrowed to finance the purchase of the
stock and the current interest rate is always figured into the
overall position.

The technique for a reversal (reverse-conversion) is simply the
opposite.  When a retail trader desires to sell a call option, a
floor broker will attempt to buy the call at a discount and sell 
an overpriced or fairly priced synthetic call (a short put and 
short stock).  The initial credit received is risk-free profit. In
the case of a reversal, the funds received from the (shorted) stock
are placed in a risk-free, short-term investment.  At expiration, 
the call will be exercised to purchase the underlying or the stock
is received via assignment, replacing that which was borrowed in 
the initial transaction.  There are no up-front funds needed for 
this technique but because of the rules (sales on the up-tick only)
and difficulty in short selling, specialists generally do not 
receive all of the funds from the short sale. 

All of these techniques are risk-free transactions since the price
change on the option purchased is offset with the sale of synthetic
positions.  The knowledge of option pricing is the primary manner
in which the specialist profits from these transactions.  Simple
box spreads and conversions are the most common forms of option
arbitrage and once you understand the basics of each method, your
relationship with the market-maker will be a much happier one.

Trade Wisely!


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

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

USU     8.05   7.49   JUN   7.50  1.10   $  0.54   8.8%
MACR   20.32  22.20   JUN  20.00  2.25  *$  1.93   7.7%
INFA    8.16   8.97   JUN   7.50  1.30  *$  0.64   6.8%
UNTD   11.00  10.92   JUN  10.00  1.75  *$  0.75   5.9%
USU     9.34   7.49   JUN   7.50  2.30   $  0.45   5.6%
INET    7.95   7.53   JUN   7.50  0.90  *$  0.45   5.5%
NTIQ   22.10  23.12   JUN  20.00  3.50  *$  1.40   5.5%
PCLE   10.59  10.96   JUN  10.00  1.15  *$  0.56   5.2%
VVTV   21.99  21.74   JUN  20.00  3.10  *$  1.11   5.1%
VSNX   11.49  10.44   JUN  10.00  1.90  *$  0.41   4.8%
MEDC   14.00  16.30   JUN  12.50  2.00  *$  0.50   4.7%
GIVN   13.99  13.90   JUN  12.50  2.25  *$  0.76   4.7%
SIE    18.50  18.75   JUN  17.50  2.00  *$  1.00   4.4%
QSFT   15.06  14.00   JUN  15.00  1.70   $  0.64   4.2%
VVTV   21.75  21.74   JUN  20.00  2.40  *$  0.65   3.8%
RETK   27.45  24.39   JUN  25.00  3.90   $  0.84   3.1%
MIPS    7.61   7.10   JUN   7.50  0.65   $  0.14   2.3%
SRP     7.81   6.97   JUN   7.50  0.75   $ -0.09   0.0%
CKFR   23.76  21.22   JUN  22.50  2.25   $ -0.29   0.0%

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

Comments:

The major averages held up fairly well considering the daily 
terrorist warnings and the threat of a nuclear war in India.
Well, at least they didn't break through support (the early
May lows).  As for the Covered-Call portfolio, the majority
of positions are holding up relatively well even in this most
troublesome environment.  We did close AirGate PCS (NASDAQ:
PCSA) as it continues to move lower and is threatening to
test the February low.  Quest Software (NASDAQ:QSFT) is still
in a precarious position and it is worrisome that it can not
move above its 50-dma.  QSFT will remain on the "early exit"
watch-list.  The following stocks are also candidates for an
early exit, depending on your outlook:  Retek Inc. (NASDAQ:
RETK), Sierra Pacific Resources (NYSE:SRP) and CheckFree
(NASDAQ:CKFR).  MIPS Technologies (NASDAQ:MIPS) should also
be monitored closely as the stock tests support near $7.00.

Positions Closed:  Northfield Labs (NASDAQ:NFLD), Endocare
(NASDAQ:ENDO) and AirGate PCS (NASDAQ:PCSA).



NEW CANDIDATES
*********

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

ACXM   17.78  JUN 17.50   UQA FW  0.85 200   16.93   21    4.9%
COB     5.29  JUN  5.00   COB FA  0.55 1805   4.74   21    7.9%
DLTR   40.27  JUN 40.00   DQO FH  1.55 653   38.72   21    4.8%
EXTR   11.28  JUN 10.00   EXJ FB  1.70 2335   9.58   21    6.4%
KROL   23.40  JUN 22.50   KRQ FX  1.45 158   21.95   21    3.6%
MEDC   16.30  JUN 15.00   MQH FC  1.80 531   14.50   21    5.0%
ULGX   15.63  JUN 15.00   OZU FC  1.15 78    14.48   21    5.2%

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

COB     5.29  JUN  5.00   COB FA  0.55 1805   4.74   21    7.9%
EXTR   11.28  JUN 10.00   EXJ FB  1.70 2335   9.58   21    6.4%
ULGX   15.63  JUN 15.00   OZU FC  1.15 78    14.48   21    5.2%
MEDC   16.30  JUN 15.00   MQH FC  1.80 531   14.50   21    5.0%
ACXM   17.78  JUN 17.50   UQA FW  0.85 200   16.93   21    4.9%
DLTR   40.27  JUN 40.00   DQO FH  1.55 653   38.72   21    4.8%
KROL   23.40  JUN 22.50   KRQ FX  1.45 158   21.95   21    3.6%


Company Descriptions

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

*****
ACXM - Acxiom  $17.78  *** On The Rebound! ***

Acxiom (NASDAQ:ACXM) involved in the business of customer data 
integration and customer recognition infrastructure, enables 
businesses to develop and deepen customer relationships by 
creating a single, accurate view of their customers across the 
enterprise.  Acxiom achieves this by providing customer data 
integration software, database management services, and premier
customer data content through its AbiliTec, Solvitur and Info-
Base products, while also offering a broad range of information
technology outsourcing services.  The company's products and 
services enable its clients to use information to improve their
business decision-making processes and to effectively manage 
existing and prospective customer relationships.  Acxiom has
three business segments: Services; Data and Software Products;
and Information Technology Management.  Acxiom received some 
good news when Standard & Poor's affirmed its ratings and 
revised its outlook on Acxiom to stable from negative.  This
reflects Acxiom's sequential improvement in profitability over
the past three quarters as well as expectations for continued
improvement.  CIBC World Markets recently initiated coverage
on Acxiom with a "Strong Buy" rating.  We simply favor the
break-out this week on increasing volume as the stock moves
to a test of the January high.  A reasonable cost basis near
technical support on a rebounding issue.

JUN 17.50 UQA FW LB=0.85 OI=200 CB=16.93 DE=21 TY=4.9%


*****
COB - Columbia Labs  $5.29  *** Stage I Speculation ***

Columbia Laboratories (AMEX:COB) develops women's healthcare 
and endocrinology products, including those intended to treat 
infertility, endometriosis and hormonal deficiencies.  Columbia
is also developing hormonal products for men and a buccal 
delivery system for peptides.  The company's products primarily
utilize its patented Bioadhesive Delivery System technology. 
Products include Crinone, a vaginally delivered, natural pro-
gesterone product; Advantage-S, a female contraceptive gel; 
Replens, a vaginal moisturizer, and other products, as well as
a testosterone-progressive hydration buccal tablet, a testost-
eroned progressive hydration vaginal tablet, and a peptide 
delivery system.  In early May, Columbia announced favorable
results in the company's analyses of clinical pharmacokinetic 
trials.  On May 14, the company announced that it had sold
454,545 shares of its common stock to Acqua Wellington North
American Equities Fund, Ltd, raising $2.0 million.  This week,
Columbia announced a supply agreement with Mipharm S.p.A. for
the manufacture and supply of commercial forms of Columbia's 
testosterone buccal tablet.  We simply favor the move above
the October-November 2001 resistance area and the current
bullish momentum.  Try target shooting a lower net-debit to
allow for a short-term consolidation in the stock price and
produce a higher potential yield.

JUN 5.00 COB FA LB=0.55 OI=1805 CB=4.74 DE=21 TY=7.9%


*****
DLTR - Dollar Tree Stores  $40.27  *** Joining The NASDAQ 100 ***

Dollar Tree Stores (NASDAQ:DLTR) is an operator of discount 
variety stores offering merchandise at the fixed price of $1.00.
Since 1986, Dollar Tree has evolved from opening primarily mall-
based stores to opening primarily strip-shopping-center-based 
stores.  Since 1997, the company gradually increased the size of
stores that it opened each year as it improved its merchandise
offerings and service to its customers.  The company's store 
growth has resulted from opening new stores and completing
selective mergers and acquisitions from 1998 through 2000.  As
of December 31, 2001, Dollar Tree operated 1,963 single-price-
point stores that operate under the names of Dollar Tree, Dollar
Express, Dollar Bills, Only One Dollar and Only $One.  They also
operate 12 multi-price point stores under the name Spain's Cards 
and Gifts.  In April, Dollar Tree reported a record 1st-quarter
with earnings per share of $0.20 compared to $0.10 last year.
On June 3, Dollar Tree will replace Adelphia Communications
(NASDAQ:ADLAE) in the Nasdaq-100 index.  The stock rallied
strongly on the news, moving above the May high on extremely
heavy volume.  We favor the technical support near the cost 
basis in this position and investors who are interested in a 
long-term portfolio holding in the retail sector should
consider this issue.

JUN 40.00 DQO FH LB=1.55 OI=653 CB=38.72 DE=21 TY=4.8%


*****
EXTR - Extreme Networks  $11.28  *** Breaking The Downtrend? ***

Extreme Networks (NASDAQ:EXTR) is a provider of network infra-
structure equipment for business applications and services.  The 
company delivers high-performance application and services infra-
structure for enterprise, service provider and metropolitan area 
networks (MANs)-based on technology that combines high performance,
intelligence and a low cost of ownership. Extreme's family of 
Summit stackable, BlackDiamond and Alpine chassis switches share
the same consistent hardware, software and management architecture,
enabling businesses to build a network infrastructure that is 
simple, easy to manage and scalable to meet the demands of growing
businesses.  Extreme Networks has received several upgrades over
the last couple weeks on expectations of market-share gains from
Cisco Systems (NASDAQ:CSCO), signs of businesses' increased spend-
ing on network gear, and potential earnings growth over the next 
six to twelve months.  We simply favor the recent rally through
the down-trend line that started from the October high in 2000.
Investors who retain a bullish outlook on Extreme can obtain a
reasonable entry point with this position -- one that is near
technical support as the stock exits a Stage IV downtrend and
enters a Stage I base.

JUN 10.00 EXJ FB LB=1.70 OI=2335 CB=9.58 DE=21 TY=6.4%


*****
KROL - Kroll  $23.40  *** Hot Sector! ***

Kroll (NASDAC:KROL) is a global risk consulting company special-
izing in investigative, intelligence and security services.  Head-
quartered in New York with more than 55 offices on six continents,
Kroll serves a multinational clientele of individuals, law firms,
corporations, non-profit institutions, and government agencies.
Kroll offers a broad portfolio services to help clients reduce 
risks, solve problems, and capitalize on opportunities.  The
company operates through three core business groups: 1) Consulting
Services, which offers business investigations and intelligence 
services, and financial services such as forensic accounting, 
business valuation and corporate recovery; 2) Security Services
which offers crisis management, and architectural, institutional, 
personal and information security services; and (3) Employee 
Screening, which offers employee and vendor screening, substance 
abuse testing, and video surveillance services.  On May 1, Kroll
reported that 1st-quarter profits rose almost five times, citing
a corporate restructuring and surging demand for its security
services after the Sept. 11 attacks.  This week, Kroll received
antitrust clearance from the FTC for its proposed acquisition of 
Ontrack Data (NASDAQ:ONDI), which provides data recovery and 
electronic discovery services.  Kroll is in a strong Stage II
rally and this short-term position offers a conservative entry
point with a cost basis near technical support.  Target a lower
net-debit to improve the profit potential in the position.

JUN 22.50 KRQ FX LB=1.45 OI=158 CB=21.95 DE=21 TY=3.6%


*****
MEDC - Med-Design  $16.30  *** New Needle = New Royalties ***

Med-Design (NASDAQ:MEDC) principally is engaged in the design,
development and licensing of safety medical devices intended to
reduce the incidence of accidental needle-sticks.  Each safety 
medical device the company designs and develops incorporates
its proprietary needle retraction technology.  Med-Design’s 
technology enables health care professionals to retract a needle
into the body of the medical device for safe disposal without 
any substantial change in operating technique.  The company's
products generally can be categorized into four groups: hypo-
dermic syringes used to inject drugs and other fluids into the
body; fluid collection devices used to draw blood or other fluids
from the body; venous and arterial access devices used to provide
access to patients' veins and arteries; and specialty safety 
devices for other needle based applications.  A new contract 
with Sultan Chemists will help Med-Design market the Safety 
Dental Injector directly to dentists.  This week, Becton 
Dickinson (NYSE:BDX) announced that it is launching the Integra
safety syringe, a new needle it licensed from Med-Design.  This
new product launch will help Med-Design's revenues as they will
receive royalties from the sales of the needle.  Traders can 
speculate on the near-term performance of the issue with this 
conservative position.

JUN 15.00 MQH FC LB=1.80 OI=531 CB=14.50 DE=21 TY=5.0%


*****
ULGX - Urologix  $15.63  *** What's Up?  Urologix! ***

Urologix (NASDAQ:ULGX) has developed and offers non-surgical, 
catheter-based therapies that use a proprietary cooled micro-
wave technology for the treatment of benign prostatic hyper-
plasia (BPH), a disease that affects more than 23 million men 
worldwide by causing adverse changes in urinary voiding patterns.
The company markets its products under the Targis and Prostatron
names. Both systems utilize Cooled ThermoTherapy, a targeted 
microwave energy combined with a cooling mechanism that protects
healthy tissue and enhances patient comfort while providing safe,
effective, lasting relief from the symptoms of BPH.  Back in
April, the FDA removed contraindications for the Urologix's 
TargisŪ System for BPH patients with co-existing prostate or
bladder cancer, after reviewing additional data and research 
demonstrating that the procedure presented no known side effects.
But there is no recent news to explain this week's rally on heavy
volume.  Does somebody know something?  A reasonable entry point
from which to speculate on Urologix' future.

JUN 15.00 OZU FC LB=1.15 OI=78 CB=14.48 DE=21 TY=5.2%


*****

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

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

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

ODSY   35.25  JUN 35.00   UPE FG  2.15 46    33.10   21    8.3%
ORB     7.70  JUN  7.50   ORB FU  0.60 784    7.10   21    8.2%
DDS    30.03  JUN 30.00   DDS FF  1.25 1708  28.78   21    6.1%
ICST   20.84  JUN 20.00   IUY FD  1.65 259   19.19   21    6.1%
CTEC   18.30  JUN 17.50   UBC FW  1.40 154   16.90   21    5.1%
IPXL    8.38  JUL  7.50   UPR GU  1.45 11     6.93   49    5.1%
CAMP    6.05  JUL  5.00   UMP GA  1.40 43     4.65   49    4.7%
TREE   14.10  JUN 12.50   QQP FV  1.95 115   12.15   21    4.2%



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

Investing 101: Achieving Goals Requires Careful Planning
By Ray Cummins

The recent decline in equity prices has significantly reduced the
value of many stock portfolios, however investors who follow a
sensible and prudent wealth-building strategy can achieve their
goals in any market environment.

Most people invest for a reason: they want to achieve specific
goals such as a higher standard of living, early retirement, or
providing a college education for their children.  But, investing
is just one part of the financial planning process and in many
cases, the fundamental steps in building a profitable portfolio
are ignored due to an overwhelming desire to "get rich quick" in
the stock market.  Rather than focus on picking the next "winner"
in the "hot" sector, today we are going to discuss some concepts
that can help you achieve success with any financial instruments.

The first step to long-term capital appreciation is to establish
tangible goals based on specific dollar amounts and time frames.
Vague and imprecise targets are difficult to achieve because they
require no distinct commitment with regard to attaining necessary
returns and adhering to loss limits.  Goals that are well defined
in monetary terms and include target completion dates create an
obligation to identify and implement strategies for realizing the
objectives.  At the same time, all goals must be realistic and
achievable, and the strategy selection process should strive for
a balance between acceptable capital risk and potential reward.
If a suitable balance cannot be achieved, the investor should
consider whether the potential gain is worth the risk, or if the
primary portfolio goals need to be altered or adjusted.

The second step is to examine your current portfolio holdings and
cash reserves, to determine how they can best be used to achieve
the established objectives.  You should consider existing assets
as well as future inflows when making this assessment but do not
include financial resources that have been allocated for other
purposes such as short-term saving accounts and emergency funds,
or money from previously established retirement investments such
as company stock-options, pensions and cash-value life insurance.
After you have calculated the total available capital and income
for investing, a critical determination will have to be made: Do
the existing resources provide an adequate asset base to achieve
your long-term goals?  If the answer is yes, no further action is
necessary.  If not, your assets may require repositioning before
the plan is initiated or you may need to adjust the time frame or
portfolio risk tolerance to attain the portfolio goals.

After the monetary resources are established and the objectives
are clearly defined, the next step is to consider the possible
strategies and financial products for achieving your goals.  The
vast array of investing vehicles offers ample tools for tailoring
the plan to the purpose, thus the most important task is to find
a combination of methods and instruments that will accomplish the
desired results.  The basic differences among investments are the
required time period, the risk-reward outlook, and the capital
and liquidity requirements.  All of these components should be
carefully evaluated when selecting a particular strategy and in
addition, any method used to help achieve portfolio goals must be
clearly understood (including loss-limiting techniques) before
new positions are initiated.

The final phase of the investing process includes implementing
the plan and monitoring the results so that future adjustments
can be made in a timely manner.  Because circumstances change,
the portfolio must be reviewed on a regular basis to determine
if its performance is on pace to achieve the original goals.  A
periodic evaluation of each individual position is necessary to
determine if the issue or instrument is yielding the estimated
earnings.  If the investment is not performing as expected, an
adjustment can be made to remedy the situation before it has a
substantial (negative) effect on the overall portfolio value.

There are a number of proven investing strategies than can be
used to achieve your personal financial goals and in the next
segment, we will discuss some of the most popular techniques
among stock and option traders.

Good Luck! 

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


SUMMARY OF PREVIOUS CANDIDATES
*****

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

WFR     8.30   7.70   JUN   7.50  0.60  *$  0.60  13.9%
AMZN   19.47  18.23   JUN  17.50  0.65  *$  0.65  11.3%
ENDP   11.56  10.90   JUN  10.00  0.55  *$  0.55   9.5%
MACR   23.89  22.20   JUN  20.00  0.60  *$  0.60   8.3%
AMZN   19.16  18.23   JUN  15.00  0.40  *$  0.40   8.2%
ADRX   45.22  43.27   JUN  35.00  0.70  *$  0.70   8.1%
RMCI   27.46  27.58   JUN  22.50  0.70  *$  0.70   7.5%
CKFR   23.89  21.22   JUN  20.00  0.65  *$  0.65   7.4%
GG     9.36   11.75   JUN   8.75  0.35  *$  0.35   7.3%  2-1 split
TDY    21.24  20.15   JUN  20.00  0.50  *$  0.50   7.3%
RMCI   31.23  27.58   JUN  25.00  0.55  *$  0.55   7.0%
PHSY   30.06  27.74   JUN  25.00  0.60  *$  0.60   6.9%
NOVN   24.37  26.61   JUN  22.50  0.50  *$  0.50   6.7%
SIE    19.88  18.75   JUN  17.50  0.65  *$  0.65   6.5%
PHSY   25.87  27.74   JUN  20.00  0.50  *$  0.50   6.4%
TTWO   25.60  25.67   JUN  20.00  0.40  *$  0.40   6.3%
TTWO   25.50  25.67   JUN  20.00  0.30  *$  0.30   6.3%
MACR   22.00  22.20   JUN  17.50  0.25  *$  0.25   6.1%
AMZN   16.94  18.23   JUN  12.50  0.30  *$  0.30   5.9%
DCN    22.67  21.32   JUN  20.00  0.45  *$  0.45   5.7%
TDY    19.17  20.15   JUN  17.50  0.60  *$  0.60   5.6%
WIN    19.20  19.41   JUN  17.50  0.30  *$  0.30   5.4%
IDXX   31.10  31.60   JUN  30.00  0.55  *$  0.55   5.2%
RDC    26.12  25.70   JUN  22.50  0.50  *$  0.50   4.9%
HDWR   18.42  17.23   JUN  17.50  0.70   $  0.43   4.4%
FLM    25.35  22.14   JUN  22.50  0.80   $  0.44   3.9%
PLXS   28.00  22.61   JUN  25.00  0.75   $ -1.64   0.0%

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

Comments:

The big surprise in the portfolio this week occurred when
shares of contract manufacturer Plexus (NASDAQ:PLXS) fell
sharply on Wednesday after brokerage firm Raymond James &
Associates cut its rating on the stock amid concerns about
the company's customer base.  Although the bearish activity
offered plenty of time for adjustment (and the issue was on
the "early exit" watch-list), there was no reason to think
the downgrade would have such a significant effect on the
stock's price.  That type of activity clearly reflects the
fear and apprehension among investors in the current market
environment and reinforces the need for effective position
management and timely transactions when limiting portfolio
losses.  With the recent decline in equity values, a number
of positions remain on the watch-list including: Fleming
Companies (NYSE:FLM), Headwaters Inc. (NASDAQ:HDWR), Right
Management Consultants (NASDAQ:RMCI), Pacific Healthcare
Systems (NASDAQ:PHSY), and Memc Electronic (NYSE:WFR).

Positions Closed:

Endocare (NASDAQ:ENDO), Plexus (NASDAQ:PLXS)



NEW CANDIDATES
*********

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

BJS    37.52  JUN 35.00   BJS RG  0.65 802   34.35   21    7.2%
EMLX   30.11  JUN 22.50   UML RX  0.30 901   22.20   21    6.9%
JBL    22.96  JUN 20.00   JBL RD  0.35 1951  19.65   21    7.7%
NOVN   26.61  JUN 25.00   NPQ RE  0.40 0     24.60   21    6.1%
NTIQ   23.12  JUN 20.00   CDJ RD  0.45 60    19.55   21    9.9%
OSTE    8.30  JUN  7.50   OQQ RU  0.20 0      7.30   21   10.7%
TTWO   25.67  JUN 22.50   TUO RX  0.40 320   22.10   21    7.7%
VVTV   21.74  JUN 20.00   UVR RD  0.25 505   19.75   21    5.0%

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

OSTE    8.30  JUN  7.50   OQQ RU  0.20 0      7.30   21   10.7%
NTIQ   23.12  JUN 20.00   CDJ RD  0.45 60    19.55   21    9.9%
JBL    22.96  JUN 20.00   JBL RD  0.35 1951  19.65   21    7.7%
TTWO   25.67  JUN 22.50   TUO RX  0.40 320   22.10   21    7.7%
BJS    37.52  JUN 35.00   BJS RG  0.65 802   34.35   21    7.2%
EMLX   30.11  JUN 22.50   UML RX  0.30 901   22.20   21    6.9%
NOVN   26.61  JUN 25.00   NPQ RE  0.40 0     24.60   21    6.1%
VVTV   21.74  JUN 20.00   UVR RD  0.25 505   19.75   21    5.0%


Company Descriptions

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

*****
BJS - BJ Services  $37.52  *** Oil Service Sector! ***

BJ Services Company (NYSE:BJS) is a provider of pressure pumping
and oilfield services serving the petroleum industry worldwide.
The company's pressure pumping services consist of cementing and
stimulation services used in the completion of new oil and gas
wells and in remedial work on existing wells, both onshore and
offshore.  Other oilfield services include product and equipment
sales for pressure pumping services, tubular services provided
to the oil and natural gas exploration and production industry,
commissioning and inspection services, provided to refineries,
pipelines, offshore platforms and specialty chemical services.
Despite the recent consolidation in the sector, BJS is trading
near 52-week highs and traders who favor the outlook for stocks
in the oil service group should consider this position.

JUN 35.00 BJS RG LB=0.65 OI=802 CB=34.35 DE=21 TY=7.2%


*****
EMLX - Emulex  $30.11  *** Entry Point! ***

Emulex (NASDAQ:EMLX) is a designer, developer and supplier of a
broad line of storage networking host bus adapters, application
specific computer chips and other software products that provide
connectivity solutions for storage area networks (SANs), network
attached storage and redundant array of independent disks storage.
The company's products are based on internally developed ASIC,
firmware and software technology, and offer support for a variety
of SAN protocols, configurations, system interfaces and operating
systems.  The company's architecture offers customers a stable
applications program interface that has been preserved across
multiple generations of adapters, and to which many OEMs have
customized software for mission-critical server and storage
system applications.  One of our readers said he would like to
see some "target-shooting" plays on leading technology stocks,
in order to establish discounted positions in these companies for
his long-term portfolio.  Emulex is a great candidate for any
stock portfolio and $22 seems like a fair price at which to own
the issue.

JUN 22.50 UML RX LB=0.30 OI=901 CB=22.20 DE=21 TY=6.9%


*****
JBL - Jabil Circuit  $22.96  *** Another Entry Point! ***

Jabil Circuit (NYSE:JBL) is a worldwide independent provider of
electronic manufacturing services.  Jabil designs and manufactures
electronic circuit board assemblies and systems for major original
equipment manufacturers in the communications, personal computer,
peripherals, automotive and consumer products industries.  Jabil
serves its OEM customers with dedicated work cell business units
that combine high volume, automated continuous flow manufacturing
with advanced electronic design and design for manufacturability
technologies.  The company's customers include Cisco Systems, Dell
Computer Corporation, Hewlett-Packard Company, Johnson Controls,
Lucent Technologies and Marconi PLC.  Jabil is another technology
issue that would be a great addition to any long-term portfolio
and investors who believe the recent decline for NASDAQ stocks is
coming to an end can attempt to profit from that outcome with this
position.

JUN 20.00 JBL RD LB=0.35 OI=1951 CB=19.65 DE=21 TY=7.7%


*****
NOVN - Noven Pharmaceuticals  $26.61  *** FDA Approval! ***

Noven Pharmaceuticals (NASDAQ:NOVN) 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 major 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.  Noven's second-generation estrogen
patch was launched in the United States under the brand name
Vivelle-Dot.  This product is expected to be launched in 2002 in
several foreign countries under the brand name Estradot.  Noven
also developed a combination estrogen/progestin transdermal patch
for the treatment of menopausal symptoms, which is marketed under
the brand name CombiPatch in the U.S. and under the brand name
Estalis in Europe and certain other markets.  On May 20, Noven
received Food and Drug Administration approval for the expanded
use of their Vivelle-Dot in the prevention of postmenopausal
osteoporosis.  The shares rallied on the news and the move to a
new trading range suggests continued upside activity in the near
future.

JUN 25.00 NPQ RE LB=0.40 OI=0 CB=24.60 DE=21 TY=6.1%


*****
NTIQ - NetIQ  $23.12  *** Bottom-Fishing! ***

NetIQ (NASDAQ:NTIQ) is a provider of e-business infrastructure
management and intelligence solutions for the components of an
organization's e-business infrastructure from back-end servers,
networks and directories, to front-end Web servers and other
applications.  NetIQ's product family is designed to reduce the
cost of its customers' operations and increase the security,
performance and overall availability of Windows-based e-business
applications, directories, servers and networks.  The company's
solutions also address the key e-business management needs and
the wide variety of Internet-based systems including Web servers,
firewalls, proxy servers, media and e-mail servers and database
systems.  NetIQ's product family consists of three broad product
groups: systems test, migration and administration; operations
and security management; and e-business intelligence.  A review
of the technical outlook for NTIQ suggests that a base of support
has been established near $20 and traders who think the neutral
trend will continue in the near term can speculate on the that
outcome with this position.

JUN 20.00 CDJ RD LB=0.45 OI=60 CB=19.55 DE=21 TY=9.9%


*****
OSTE - Osteotech  $8.30  *** Health Services Sector ***

Osteotech (NASDAQ:OSTE) provides services and products primarily
focused in the repair and healing of the musculoskeletal system.
These products and services are marketed mainly to the orthopedic,
spinal, neurological, oral and maxillofacial, dental and general
surgery markets in the United States and Europe.  The company is a
processor and developer of human bone and bone connective tissue,
or allograft bone tissue, forms.  The allograft bone tissue the
company processes is procured by independent tissue banks or other
Tissue Recovery Organizations, primarily through the donation of
tissue from deceased human donors, and is used for transplantation.
The company has two operating segments, the Grafton Demineralized
Bone Matrix Segment and the Base Allograft Bone Tissue Segment.
OSTE came up in a search of bullish issues in favorable sectors
and the buying support just below the cost basis makes this play
reasonable speculation for traders who like the outlook for the
company.  Target-shoot a higher premium in the issue initially,
to allow for a short-term consolidation in the stock price.

JUN 7.50 OQQ RU LB=0.20 OI=0 CB=7.30 DE=21 TY=10.7%


*****
TTWO - Take-Two Int. Software  $25.67  *** Earnings Play! ***

Take-Two Interactive Software (NASDAQ:TTWO) is an integrated
developer, marketer, distributor and publisher of interactive
entertainment software games and accessories for the personal
computer, PlayStation, PlayStation2, Nintendo Game Boy Color,
Nintendo GameCube, Nintendo Game Boy Advance and the Xbox.  The
company publishes and develops products through various wholly
owned subsidiaries including Rockstar Games, Rockstar Studios,
Gathering of Developers, TalonSoft, Joytech, PopTop, Global Star
and under the Take-Two brand name.  The company maintains sales
and marketing offices in Cincinnati, New York, Toronto, London,
Paris, Munich, Vienna, Copenhagen, Milan, Sydney and Auckland.
Take Two's game sales jumped 79% in the first quarter while net
income quadrupled to $34 million, but an investigation by the
SEC overshadowed the company's success.  Apparently, investors
have decided the probe involving revenue recognition in prior
periods will not affect the future because the issue has moved
higher since early April.  However, the stock has stalled near
all-time highs on concerns over Take-Two's upcoming earnings
report (due 6/6/02) which will certainly have an effect on its
near-term share value.  This is the last week that traders who
think the announcement will be favorable can profit from that
outcome.

JUN 22.50 TUO RX LB=0.40 OI=320 CB=22.10 DE=21 TY=7.7%


*****
VVTV - ValueVision  $21.74  *** A Record First Quarter! ***

ValueVision (NASDAQ:VVTV) is an integrated direct marketing
company that markets its products directly to consumers through
various forms of electronic media.  VVTV also conducts business
under the corporate name ValueVision Media.  The company's major
operating strategy incorporates television home shopping, web
e-commerce, vendor programming sales and fulfillment services.
The company's principal electronic media activity is its home
shopping business, which uses recognized on-air television home
shopping personalities to market brand name and proprietary and
private label consumer products at competitive prices.  In mid-
May, ValueVision announced that it had replaced Arthur Andersen
with Deloitte & Touche as their independent auditors.  Last week
ValueVision reported a small quarterly profit as it wrote down
fewer investments and booked more revenue from its ShopNBC.com
site.  More importantly, the company is expecting future sales
of $128 million to $133 million, up 22% to 27% from a year ago.
The recent break-out above the MAR - APR resistance area, which
is now technical support, suggests higher prices in the near
future and this position offers a conservative method to profit
from further upside activity in the company's share value.

JUN 20.00 UVR RD LB=0.25 OI=505 CB=19.75 DE=21 TY=5.0%


*****

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

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

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

TNL    25.85  JUN 25.00   TNL RE  0.70 20    24.30   21    9.9%
NEM    31.21  JUN 30.00   NEM RF  0.80 6939  29.20   21    9.6%
TRI    45.19  JUN 45.00   TRI RI  1.15 51    43.85   21    8.8%
USPI   31.07  JUN 30.00   QPJ RF  0.70 27    29.30   21    8.4%
F      17.65  JUN 17.50     F RW  0.40 3150  17.10   21    7.9%
CACI   33.68  JUN 30.00   KFQ RF  0.45 268   29.55   21    6.4%
CEN    22.86  JUN 22.50   CEN RX  0.35 0     22.15   21    5.6%
X      20.54  JUN 20.00     X RD  0.30 81    19.70   21    5.4%
REY    30.45  JUN 30.00   REY RF  0.45 0     29.55   21    5.4%


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


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

The Summer Doldrums Arrive...
By Ray Cummins

******************************************************************
                         - MARKET RECAP -
******************************************************************
Friday, May 31

Stocks opened strong today, but the gains dwindled late in the
session as traders exited long positions prior to the closing
bell.

The Dow Jones Industrial Average ended only 13 points higher at
9,925 after rising 131 points in early trading.  The strongest
blue-chip issues were Home Depot (NYSE:HD), Honeywell (NYSE:HON),
Coca-Cola (NYSE:KO), Exxon-Mobil (NYSE:XOM), and Merck (NYSE:MRK).
The NASDAQ was less fortunate, finishing down 16 points at 1,615
as buyers retreated from software, semiconductor and networking
shares.  The broad-market S&P 500 index ended almost unchanged as
retail, oil, oil service, consumer and gold issues edged higher
while biotechnology, utility, drug and defense issues generally
moved lower.  Trading volume totaled 1.23 billion shares on the
Big Board and 1.55 billion shares on the NASDAQ.  Market breadth
was positive, with advancers surpassing decliners 19 to 12 on the
NYSE and 18 to 17 on the technology exchange.  In the treasury
market, government bonds retreated as the new economic data ended
the recent advance.  The 10-year note slumped 5/32 to yield 5.04%
while the 30-year "long" bond retreated 9/32 to yield 5.61%.  On
the fund flow front, Trim Tabs said that all equity funds had
outflows of $700 million in the past week, compared with outflows
of $3.8 billion in the prior week.  Equity funds that invest in
U.S. stocks had outflows of $1.1 billion for the second straight
week. 


Portfolio Activity:

The second quarter ended with a week of relatively uneventful
sessions as trading volumes dwindled while investors continued
to show their disinterest in the stock market.  The dearth of
activity was very evident in the Spreads/Combos portfolio and
only a few issues had movement of any significance.  Among the
new straddle candidates, Williams Companies (NYSE:WMB) was the
big winner, offering a closing credit of up to $1.00 on $2.80
invested as the stock sank to multi-year year lows on Friday.
Cognos (NASDAQ:COGN) was also very active, however the opening
gap on Tuesday prevented any entry in the position.  Cablevision
Systems (NYSE:CVC), Juniper Networks (NASDAQ:JNPR), and Westwood
One (NYSE:WON) were volatile from a percentage standpoint, but
they have yet to achieve profitability.  In the credit-spreads
group, all of the current positions are profitable, including
the adjusted plays (Clear Channel and Qlogic) from last month.
We are monitoring Schlumberger and Nabors Industries for further
downside activity and plan to exit or adjust those positions if
that occurs.  In the synthetic positions section, Patterson-UTI
Energy (NASDAQ:PTEN) made another downward move this week and
the bullish play is now a strong candidate for early-exit.  The
neutral, premium-selling position in Adobe Systems (NASDAQ:ADBE)
is performing well and the calendar spread in American Express
(NYSE:AXP) has achieved profitability in less than two months.

******************************************************************
                 - READER'S WRITE E-MAIL REPLIES -
******************************************************************

One of our subscribers submitted a good question about a recent
neutral-outlook play on the S&P 100 Index (OEX) and it is worth
reprinting for the benefit of all the OIN's readers.

To: Contact Support
Subject: OEX Credit-Spread Strangles

Ray,

The most recent OEX Credit-Spread Positions (5/18 Spreads/Combos)
have the S&P 100 index at 553.  It is now at 542 (on the close of
business 5/22).

Questions:

1)  Do you adjust the strike prices (of the spreads) accordingly?

2)  What are the abbreviations for the amounts: A=$2.05/$4.10 and
    B=$2.50/$4.50 that are listed with the bearish and bullish
    credit spreads?

Thanks for your help,

BF


Hello BF,

Here is the original play (5/18/02 Spreads/Combos):

OEX - S&P 100 Index  $553.30

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-585  OEB-FQ  OI=513   A=$2.05
SELL CALL  JUN-580  OEB-FP  OI=2916  B=$2.50
NET CREDIT TARGET=$0.50-$0.55  PROFIT(max)=11%

- and -

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-525  OEB-RE  OI=706   A=$4.10
SELL PUT  JUN-530  OEB-RF  OI=4684  B=$4.50
NET CREDIT TARGET=$0.45-$0.50 PROFIT(max)=9%

Abbreviation examples:

A=$2.05 is an abbreviation for ASK=$2.05
B=$2.50 is an abbreviation for BID=$2.50

Other Abbreviations:

B/E = Break-even price
OI  = Open Interest
ROI = Return on investment
ITM = In-the-money
ATM = At-the-money
OTM = Out-of-the-money

I also list a suggested "net-credit" or "net-debit" target to help
traders open the play.  This is simply a recommended entry point,
just my opinion of what a trader might use as an initial "limit"
for the spread-opening order, and it should be a reasonable price
to initiate the play even with small changes in the stock and
option quotes.  The target is always less than the quoted BID/ASK
numbers (we don't pay "market" for spread orders) and generally,
you can expect to shave a minimum of $0.10-$0.20 off the BID/ASK
price when opening or closing even the smallest spread order.  The
margin can be more or less, depending on the price of the options,
whether they are ITM or OTM, the time-value premium, the volatility
of the stock, etc.  I generally try to give the beginning trader
an idea of the value of the position because the option prices are
always different the next day.  Of course, you may need to adjust
this target based on the activity of the underlying issue, the
trading volume of its options and the implied volatility of the
series being traded.

As far as the range of the OEX and the play publishing date: The
the outlook for this type of position is "neutral" and indeed, the
volatile market movement near the beginning of this week prevented
an entry at the suggested prices.  So, as you observed, traders
who still believe the OEX will be range-bound should move their
strikes downward (and give thanks for the volatility prior to the
position entry -- which increases the option premiums slightly,
providing a small theoretical edge in the position).  The strike
prices in our adjusted position (based on the bearish open) were
both $5 lower than the target spread.

Hope that helps!

Ray

P.S. Remember, the Option Investor Newsletter is really just a
selection of candidates to supplement your search for profitable
trading positions.  As with any investment, you must decide if
the issues meet your criteria for potential plays.  Only you can
know what trading strategies are suitable for your skill level,
risk-reward tolerance and portfolio outlook.  In addition, we
recommend 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.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                           - NEW PLAYS -
******************************************************************
IPXL - Impax Laboratories  $8.38  *** Reader's Request! ***

Impax Laboratories (NASDAQ:IPXL), which was formerly known as
Global Pharmaceutical Corporation, is a unique technology-based,
specialty pharmaceutical company focused on the development and
commercialization of generic and brand name pharmaceuticals.  In
the generic pharmaceuticals market, the company is primarily
focusing its efforts on selected controlled-release generic
versions of popular brand name pharmaceuticals.  In the brand
name pharmaceuticals market, the company is developing products
for the treatment of central nervous system disorders.  Impax's
initial brand name product portfolio consists of a number of
development-stage projects to which it is applying its unique
formulation and development expertise to develop differentiated,
modified or controlled-release versions of marketed substances.
The company intends to expand its brand name products portfolio
primarily through internal development, and in addition, through
licensing and acquisition.

One of our new subscribers submitted this stock for a potential
"bottom-fishing" position and based on the option premiums and
recent technical outlook, there is a favorable opportunity for
low-cost speculation with the issue.  The bullish activity in
the issue is due to a recent announcement that Impax received
tentative approval from the Food and Drug Administration for a
generic version of Claritin-D 12-Hour extended-release tablets.
Final approval may be some months away however, due to pending
patent-infringement litigation with Schering-Plough (NYSE:SGP)
and the expiration of the 30-month stay under the Hatch-Waxman
Amendments.  Investors appear optimistic about the future of
the company and traders who agree with that outlook can profit
from additional upside movement in the issue with this position.

PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-10.00  UPR-HB  OI=772  A=$0.80
SELL PUT   AUG-7.50   UPR-TU  OI=50   B=$0.80
INITIAL NET CREDIT TARGET=$0.10-$0.25  TARGET PROFIT=$0.50-$0.75

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $320 per contract.


******************************************************************
              - CONSERVATIVE SYNTHETIC POSITIONS -
 
Readers who are interested in a more conservative outlook with
this strategy should consider these next two candidates.  Aflac
recently reaffirmed its 2002 and 2003 earnings-per-share growth
target of 15%-17% and Kraft is one of the most popular issues in
the Food and Beverage group; a segment that generally performs
very well when the broader-market sectors are in a bearish trend.
As always, traders should review the issues thoroughly and make
their own decision about the future outcome of each position.

******************************************************************
AFL - Aflac  $32.16  *** Solid Fundamental Outlook! ***

AFLAC (NYSE:AFL) is the holding company of subsidiaries engaged
primarily in the supplemental health and life insurance business,
and in printing.  The supplemental health and life insurance
business is administered primarily through American Family Life
Assurance Company of Columbus (AFLAC).  The company's operations
in Japan (AFLAC Japan) and the United States (AFLAC U.S.) service
the two markets for the company's insurance business.  Aflac is
authorized to conduct insurance business in all 50 states, the
District of Columbia, several U.S. territories and many foreign
countries.  Currently, the company's only significant foreign
operation is AFLAC Japan, which accounted for 77% of their total
revenues in 2001.  Total assets attributable to AFLAC Japan were
84% as of December 31, 2001.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  AUG-35  AFL-HG  OI=405  A=$0.50
SELL PUT   AUG-30  AFL-TF  OI=260  B=$0.60
INITIAL NET CREDIT TARGET=$0.10-$0.25  TARGET PROFIT=$0.80-$1.00

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,225 per contract.


******************************************************************
KFT - Kraft Foods  $43.01  *** New "All-Time" High! ***

Kraft Foods (NYSE:KFT) together with its subsidiaries, is engaged
in the manufacture and sale of branded foods and beverages in the
United States, Canada, Europe, Latin America and Asia Pacific.
The company conducts its global business through its subsidiaries,
Kraft Foods North America, and Kraft Foods International.  Kraft
has operations in 68 countries, and markets its products in more
than 145 countries.  Kraft Foods North America operates in the
United States, Canada and Mexico, and manages its operations by
product category, while Kraft Foods International manages its
operations by geographic region.  Kraft Foods North America's
reportable segments are Cheese, Meals and Enhancers; Biscuits,
Snacks and Confectionery; Beverages, Desserts and Cereals, and
Oscar Mayer and Pizza.  Kraft Foods International's reportable
segments are Europe, Middle East and Africa; and Latin America
and Asia Pacific.

Traders should target a smaller debit (or even a credit) in the
position initially, to allow for a brief consolidation in the
underlying issue.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-45  KFT-II  OI=360  A=$1.15
SELL PUT   SEP-40  KFT-UH  OI=473  B=$0.80
INITIAL NET DEBIT TARGET=$0.00-$0.10  TARGET PROFIT=$1.00-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,425 per contract.


******************************************************************
                        - CREDIT SPREADS -
******************************************************************
CI - Cigna  $106.05  *** Technicals Only! ***

Cigna Corporation (NYSE:CI) and its subsidiaries are investor
owned employee benefits organizations in the United States.  Its
subsidiaries are major providers of employee benefits offered
through the workplace, including health care products and other
services, life, accident and disability insurance, retirement
products and services and investment management.  CIGNA's main
perating divisions include Employee Health Care, Disability and
Life Benefits, CIGNA Group Insurance, Employee Retirement, and
Investment Services, and International Life, Health and Employee
Benefits.  The company's Other Operations include the recognition
of deferred gains on the sales of individual life insurance and
annuity business and reinsurance business, and the results of
CIGNA's retained reinsurance business, corporate life insurance
business, settlement annuity business, and other non-insurance
operations.

This play is based on the current price or trading range of the
underlying issue and its recent technical history or trend.  The
probability of profit from this position may be higher than other
plays in the same strategy based on disparities in option pricing.
Although the position offers favorable risk/reward potential, it
must also be evaluated for portfolio suitability and reviewed
with regard to your strategic approach and trading style.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-95   CI-RS  OI=256  A=$0.30
SELL PUT  JUN-100  CI-RT  OI=980  B=$0.80
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


******************************************************************
SII - Smith International  $73.38  *** Technicals Only! ***

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

Smith International is comfortably established in a bullish trend
but the long-term resistance near the sold strike price (at $80)
and the recent consolidation in oil industry stocks suggests that
this play offers reasonable speculation for conservative option
traders.

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-85  SII-FQ  OI=677   A=$0.30
SELL CALL  JUN-80  SII-FP  OI=2140  B=$0.75
INITIAL NET CREDIT TARGET=$0.50-$0.60  PROFIT(max)=11%


******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
MNX - CBOE Mini NDX Index  $120.84  *** Speculation Only! ***

The CBOE Mini-NDX Index (CBOE:MNX) is based on 1/10th the value of
the Nasdaq-100 Index (NDX).  The Nasdaq-100 Index is a modified,
capitalization-weighted index composed of 100 of the largest non 
financial securities listed on the NASDAQ Stock Market.  The index
was created in 1985 with a base value set to 250 on February 1 of
that year. After reaching a level of nearly 800 on December 31,
1993, the index level was halved on January 3, 1994.  For more
information on the MNX, visit the CBOE online at www.cboe.com.

The MNX is a very popular index among professional traders and
the premiums and liquidity are perfect for traders who want to
speculate on the movement of technology stocks.  In this case,
the index meets our criteria for a favorable straddle; cheap
option premiums, a history of adequate price movement and the
potential for volatility in the stock or its industry.  This
selection process provides the foremost combination of low risk
and potentially high reward but, as with any position, it must
be evaluated for portfolio suitability and reviewed with regard
to your strategic approach and trading style.

PLAY (very speculative - neutral/debit straddle):

BUY  CALL  JUL-120  MQX-GD  OI=205   A=$7.70
BUY  PUT   JUL-120  MQX-SD  OI=5266  A=$6.60
INITIAL NET DEBIT TARGET=$14.25-$14.50  TARGET PROFIT=15-40%


******************************************************************
CEPH - Cephalon  $53.58  *** Premium-Selling! ***

Cephalon (NASDAQ:CEPH) is a worldwide biopharmaceutical company
engaged in the discovery, development and marketing of products
to treat sleep disorders, neurological disorders, cancer and
pain.  In addition to conducting a very 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.

Here is a good candidate for a premium-selling position, based on
the underlying issue's technical background.  CEPH has a fairly
stable trading range from $45 to $65 and the chart indications
suggest the current (long-term) trend will continue.  At the same
time, CEPH is not a passive issue, having tested the boundaries
of its recent range ($54-$60) on a regular basis.  Traders who
employ "premium-selling" strategies can use that volatility to
initiate a neutral-outlook position with an acceptable credit.
The probability of the share value reaching the sold strikes is
rather low, but there is always the possibility of a break-out
from the current trading range, so monitor the position daily
for changes in technical or fundamental character.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  JUL-65  CQE-GM  OI=261  B=$1.00
SELL PUT   JUL-40  CQE-SH  OI=87   B=$1.25
INITIAL NET CREDIT TARGET=$2.25-$2.40 PROFIT(max)=17%
UPSIDE B/E=$67.25 DOWNSIDE B/E=$37.75


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


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

We expect a return of volatility next week.  Watch for these watch 
list candidates to begin triggering action points.


To Read The Rest of The OptionInvestor.com Market Watch Click Here
http://members.OptionInvestor.com/watchlist/060202.asp


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

More volatility is likely next week.  Look to tighten your support 
and resistance levels with this weekend’s Posture.


To Read The Rest of The OptionInvestor.com Market Posture Click Here
http://www.OptionInvestor.com/marketposture/060202_1.asp


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

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


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