Option Investor
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Daily Newsletter, Wednesday, 06/05/2002

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The Option Investor Newsletter                Wednesday 06-05-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.


Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
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        06-05-2002        High      Low     Volume Advance/Decline
DJIA     9796.80 +109.00  9800.00  9688.30 1296 mln   1759/1388
NASDAQ   1595.26 + 17.14  1595.42  1563.55 1413 mln   1662/1734
S&P 100   520.87 +  4.84   521.05   514.84   totals   3421/3122
S&P 500  1049.90 +  9.21  1050.11  1038.84
RUS 2000  475.04 +  1.28   475.71   470.97
DJ TRANS 2680.63 + 17.13  2684.38  2656.49
VIX        24.71 -  1.44    26.28    24.71
VIXN       48.02 -  1.02    49.89    47.97
Put/Call Ratio      0.78
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Oracle Says "We didn't Warn."

Ah... the lazy days of summer right?  You might think that with 
the constant day after day of lackluster volume.  One might get 
the picture that the host of investors that brought the markets 
up off their September 2001 lows have all checked out.  After a 
rough spring semester the final school bell has rung and the 
crowd has now left the building happy to be on summer vacation.  
It has indeed been a tough 2002 for the major indices and 
investors are seeing more and more reasons to sit back and wait 
before putting their money to work.

High up on the list is the geo-political turmoil that has taken 
center stage in the media these last few weeks.  The threat of 
nuclear war between India and Pakistan is a nightmare that could 
throw the entire global economy into a depression.  Fortunately, 
there were hints and whispers today that the situation may indeed 
be cooling in contrast to the +100 degree heat citizens are 
feeling in India right now.  The Indian Prime Minister offered a 
suggestion that both India and Pakistan jointly patrol the Line 
of Control in Kashmir but the Pakistani government countered that 
India's offer was a media ploy.  Despite the rejection, some 
analysts are encouraged that India, the more powerful of the two 
countries, is at least considering negotiations.  Countering any 
positive press was a new travel warning from the U.S. State 
Department strongly urging Americans in the region to leave the 
area.

One hot spot that has been overshadowed by the nuclear silhouette 
between any Indian-Pakistani conflict is the Middle East.  There 
was another suicide bombing today that claimed 17 Israeli lives 
and injured 36 more.  The Islamic Jihad took credit for the 
attack as the perpetrator drove a car, lined with explosives, 
next to a bus and detonated the bomb in Megiddo, Israel.  
Ominously, reporters noted that Megiddo is Hebrew for Armageddon 
and the attack took place on the 35th anniversary of the 1967 
Arab-Israeli war. Arafat condemned the attack but President Bush 
issued increasingly harsh language for Arafat's lack of 
leadership of the Palestinian people.  The Israeli response was 
to send tanks into the town of Jenin, the reported base for the 
Islamic Jihad.  

I realize that if you wanted a news report on the Middle-East 
conflict or the ongoing concerns in central Asia you'd probably 
turn on CNN or your nightly news.  The issue here is that a 
backdrop of political and military unrest does not induce 
investors to part with the money but quite the opposite.  The 
markets turn defensive as they cautiously await any outcome that 
might hinder business locally or globally.

Market internals expressed this hesitancy as volume did come in 
light with 1.2B on the NYSE and 1.4B on the Nasdaq.  Bulls will 
point to the up volume out pacing down volume on the NYSE but the 
advance decline numbers were mixed.  1759 advancers sneaked past 
decliners of 1662 on the NYSE but decliners got their revenge on 
the Nasdaq beating advancers 1734 to 1338.  The major indices may 
have ended the day in the green but it wasn't due to any change 
in investor sentiment.  

Economists and market commentators may have been encouraged by 
the ISM non-manufacturing numbers this morning but nobody else 
really seemed to notice.  For May the index rose to 60.1% 
outpacing the estimates for 56.0% and April's 55.3% reading.  
This was the highest reading in almost two years for the 
indicator but the major indices merely yawned.

Like clockwork, the regularly scheduled Wednesday stock-specific 
disaster was right on time.  This morning the Federal Energy 
Regulatory Commission (FERC) threatened to revoke the trading 
licenses of Williams Co. (NYSE:WMB), El Paso Electric (NYSE:EE), 
Avista (NYSE:AVA) and Portland General Electric, which is owned 
by bankrupt energy trading company Enron (Nasdaq:ENRNQ).  The 
FERC flexed its muscles as the agency alleges the group has 
failed to respond adequately to their investigation into possible 
energy market manipulation during the California crisis.   
Investor response was immediate and the fallout was painful.  WMB 
lost 18%, EE lost 7.88%, AVA fell 13.3%, and ENRNQ slid another 
4.76%. The commission has given the companies 10 days to "show 
why the commission should not revoke their market-based rate 
authority".  It will be interesting to see how this develops but 
we hope any shareholders in these company owned protective puts 
on their positions.

Additional stocks contributing to the general malaise of the 
markets were found across multiple sectors.  eFunds (EFDS) lost 
over 29% to close at $9.32 after lowering Q2 earnings and revenue 
estimates.  Not only did the software company claim a growing 
list of customers were pushing back purchases but the CFO would 
be stepping down as of June 30th.  It didn't take long for 
someone to slap a "hold" on the stock from a previous "buy" 
recommendation.  


Tech company, Hewlett-Packard (NYSE:HPQ) got its earnings 
estimates trimmed by Credit Suisse Boston after HPQ's Tuesday 
conference call.  Big surprise, the company lowered guidance for 
the current year and said revenues would fall.

Another big cap that can't get any respect is AOL-Time Warner 
(NYSE:AOL).  Shares continue to slip even after the company 
reiterated its 2002 America Online advertising revenue target of 
$1.8 to $2.2 billion.

EBAY is another remnant from the Internet bubble that has been 
able to maintain a stock price not found in the single digits.  
The bad news is we may be seeing the first chink in the 
impenetrable armor of this auction-site behemoth.  The company 
had earlier announced that 2002 earnings might come in below 
analysts expectations.  EBAY confirmed that news with guidance of 
73 to 75 cents a share versus the First Call consensus of 76 
cents.   Many have made the claim before but with a P/E close to 
133 shares are priced for perfection and a couple of missteps 
could be painful for shareholders.

Joining its fellow big cap brethren were shares of WCOM.  News 
has it that the company is looking into a 20% cut in its 
workforce in an effort to shoulder its $30 billion in debt.  
That's almost 16,000 jobs over and above the 13,000 the company 
has already slashed in the last two years.  Shares ended down 
2.48%.

Adding just one more log to the growing funeral pyre for the tech 
rebound in late 2002 was the CEO of Ericcson (Nasdaq:ERICY), Kurt 
Hellstrom.  The Sweden-based telecom equipment giant is still 
struggling.  The CEO believes the downturn may not end in 2002.  
As quoted by the Financial Times, Kurt said, "We don't think the 
market has become worse but the downturn has been prolonged. We 
have to face the possibility that next year doesn't turn 
upwards".  Despite the negative comments shares of ERICY, QCOM 
and NOK all ended to the plus side.  

One company that seems to have a poisonous touch is Adelphia 
Communications.  The company's investment banker, Salomon Smith 
Barney, maintained a "buy" rating on the stock despite the 
implosion in its share price and the SEC is now investigating 
Salomon's banking deals with Adelphia.  

Would you believe that gold finally hit some profit taking after 
touching the $330 level on Tuesday?  The June contracts for gold 
(gc02m) hit $330.30 intraday in yesterday's session in what was 
the end of a non-stop three-week rally.  We outlined the $330 
level as potential resistance last week.  Gold futures fell over 
$6.00 today in profit taking.  The pull back started yesterday in 
the XAU.X as traders began to take profits in a number of gold-
related stocks.  After doing some research early this afternoon 
it's amazing the different perspectives you get from traders.  
Those bears who have been waiting to short the sector are 
drooling to grab their slice of any downdraft but there appears 
to be just as many bulls looking for the bounce to jump on the 
goldbug bullet train.  Bears will correctly point to the weekly 
chart of gold and show you how the sector and the metal is very 
overbought and in need of a good bout of selling.  However, bulls 
we tell you that neither the metal or the XAU index has violated 
its bullish trend and there is plenty of (trading) support still 
below it for an opportune entry point even if another day or two 
of declines were to be seen.  I can see both sides of the 
argument but given its incredibly overbought state (bearish for 
gold) and the geo-political unrest and falling dollar (bullish 
for gold) I would avoid it.  Only aggressive traders using 100% 
risk capital should approach gold at these levels (either 
direction).  Bears who go short only to find India and Pakistan 
threatening the first nuclear exchange in 50 years next week 
could be in trouble and bulls who go long will be yelping in pain 
if the metal and the index see a 20% pull back.

How about some good news?  The drug sector is still hitting new 
lows but the FDA is sparking bullish interest in AstraZeneca 
(NYSE:AZN) and Millennium Pharmaceuticals (Nasdaq:MLNM).  AZN 
said it had received an approval letter from the FDA for its 
cholesterol drug Crestor.  The FDA also gave "fast-track" status 
to MLNM's drugs to fight leukemia and multiple myeloma.  While 
both stocks gapped higher this morning they did fail to maintain 
the majority of their gains.  Let's try again. 

If we're looking for good news who could you turn to for a few 
choice words to lift the markets.  Why John Chambers of course!  
The CEO of Cisco Systems, one of the few men (besides Greenspan) 
who can change the course of the markets with a well-crafted 
utterance.  Last time the markets received positive news from 
CSCO there was a sharp rally higher as shorts ran for cover in 
fear that a bull stampede was right behind them.  Unfortunately, 
no such stampede occurred.  This time John offered some soothing 
words for an oversold market but no one cared.  It was if 
Chambers had become the boy who cried, "wolf" (or recovery) one 
too many times.  The CEO stated that he believed the rebounding 
U.S. economy would revive the telecom industry.  John was quoted 
as saying, "We believe the commercial marketplace will come back 
first.  That will be followed by the enterprise, and that will be 
followed by the service providers. Unfortunately, service 
providers lagging two to six months behind the enterprise."  The 
market's response was a 16-cent loss for shares of CSCO and a new 
all-time low for the NWX.X.  

So what's a bullish trader to do besides turn in his uniform and 
join the other team?  Why look to the software sector for a 
little pep talk.  I know. I know... you're thinking that any bull 
looking to the software sector for trades has probably got mad-
cow disease.  Believe it or not, the $GSO.X turned in another 
positive session making it two in a row.  That's an uncommon site 
around here, especially considering that Manugistics 
(Nasdaq:MANU) and Tibco Software (Nasdsaq:TIBX) both warned 
today.  Most of Wall Street has already written the software 
sector off as a lost cause.  In the last few weeks Goldman, 
Salomon and Merrill have all downgraded the group due to the I.T. 
spending outlook.  Imagine the market's surprise when ORCL says 
the made their numbers late afternoon.

It looked like those bears that were still paying attention this 
afternoon decided to cover when Ellison announced, "We didn't 
warn."  The expectation for ORCL to guide lower was pretty strong 
but Ellison said the company made its per-share profit estimates 
of 12 cents for the fourth quarter.  This was the catalyst for 
the afternoon rally and the major indices all closed just below 
major resistance levels.  While this sounds like good news for 
ORCL and the sector my concern is with the details.  What are the 
odds that ORCL "made the numbers" due to massive cost cutting and 
expense controls?  Recent successes due to resource management 
and not rising revenues have not been the seed of any prolonged 
market recovery.  I said I was looking for good news and the 
markets may continue to rally/cover tomorrow but with Intel's 
analyst meeting after the close on Thursday I'm not expecting a 
lot of investors willing to place bets in tech land.

That's right.  Tomorrow night, the biggest semiconductor company 
in the market is holding its mid-quarter analyst meeting.  In its 
Q1 results Intel forecasted Q2 revenues to come in between $6.4 
and $7 billion.  The last couple of weeks have shown a growing 
expectation that Intel will guide to the lower end of that range.  
Analysts believe that Intel may be cautious since this is 
typically a back-end loaded quarter.  With the SOX.X attempting 
to bounce off the 450 level of support any positive news could 
light a big fire under the group and lead the Nasdaq higher as 
well.  Any significant negative news could have the sector 
breaking to new relative lows and likewise become a lead weight 
around the Nasdaq's neck.

Traders can also expect news to come out from the management team 
at EMC.  The storage device leader will begin its own analyst 
meeting at 10:00 a.m. ET tomorrow but the CFO is expected to 
focus on the company's new products versus any guidance to the 
company's quarter.

The Dow Jones Industrials has bounced strongly off the 9600 level 
but closed just shy of resistance at 9800.  If investors can keep 
the upward momentum going I'd expect the battle to take place 
between the 200-dma (near 9880) and the 10K mark.

Chart of the Dow Jones


 

The Nasdaq Composite has also rallied off the 1550 support level 
but closed just under the 1600 level of resistance.  If the ORCL 
news can keep the bears on the defensive then a rally back to the 
1650 level might not be out of the question.  However, before you 
day trading bulls start looking for plays, keep this in mind.  
The Intel report after the bell is likely to keep the tech-heavy 
Nasdaq in limbo as investors wait to hear the news.

Chart of the Nasdaq


 

Dancing in unison, the S&P 500 also closed just under resistance 
of 1050 but looks like it could bounce another day or two before 
running out of steam.  Unfortunately, I would not be surprised to 
see it trade sideways as the markets wait for direction from 
either Intel or the Payroll report on Friday.  My bigger concern 
is the bearish outlook from the weekly charts for all three of 
the major indices.  

Chart of the SPX


 


Taking into account the bearish trends we see in so many sectors, 
the lack of strength in the Transports and Airlines even through 
oil has fallen significantly from its recent highs (down 12%), 
the political unrest overseas, the falling dollar, lack of any 
pick up in I.T. spending and negative guidance for the remainder 
of the year, and the onset of summer - a traditional time of year 
that bulls go into hibernation... I don't see a lot of reasons to 
buy stocks at this time. 

Weekly chart of the Dow Jones


 

Weekly chart of the Nasdaq


 

Weekly chart of the SPX


 

I hate to sound bearish because history has shown too many times 
that when everything looks the worst it can usually mean the 
bottom is just around the corner.  What should concern you and I 
is how do you define "the worst". 

James


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

BEARS BEWILDERED
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 

There is so much negative sentiment that the bears are 
bewildered whenever a rally lasts more than a day, 
especially if the rally has so-so Advances over Declines (NYSE) 
or has a negative A/D such as the Nasdaq today - COMP was still 
up over 1%.  Of course the reason for this is that mostly the big 
cap tech stocks were advancing.  It's not a numbers game like the 
Dow (an Arithmetic average), but it’s the weight of the stocks in 
a capitalization weighted index.  

If the market is bottoming, and I think it is - it takes a long 
time and the rallies don't look much unless it’s a rebound from a 
panic sell off - like Sept. As Barton Briggs, the fine Morgan 
Stanley chief market strategist said the other day, it's often 
the case that you have an ultimate low on a panic, then a 
secondary low on a "whimper". This fits with the weekly Head & 
Shoulders bottom pattern on SPX, with the 3rd. low (right 
shoulder) usually having less volume than the other 2 lows (left 
shoulder and head).   

And, we always seem to be doomed to trade the last big trend.  We 
get habituated to the trend and don't "believe" that it is 
changing - well, the clues to trend change are not easy to see. 
They never are. Witness all the folks that were still chasing the 
Nasdaq rally as it went over 5,000 - so many thought 6000 was 
next. Shades of the Coyote running off the cliff as Road Runner 
deftly turns the corner, while the poor Coyote is still running 
in air. 

GENERAL MARKET INDICATORS - 
Something that will tend to tell you that the market is oversold 
on advance-decline basis is to look at the daily advances minus 
declines figure on a 10-day moving average basis. Such a plot for 
the NYSE is below - only the 10-day average is shown as also 
plotting the daily figure makes the chart too cluttered to really 
see the average which is the important think.  On this basis the 
market is as oversold as in February, the last time we had a 
substantial rally.  The turn up in the NYSE A/D line, from 
oversold, is key also:  



 

Of course, my A/D "indicator" is not as oversold as September, 
but that was the panic event and not one I expect to be repeated 
absent some catastrophe - this could happen again of course, but 
I am not taking that bet right now. 

The other thing to note is that you don't get "perfect" signals 
every time - a "false "overbought' was reached in Oct. This is 
why NOT to rely on any one indicator and to look for other 
"confirmations"; e.g., chart patterns, a "sentiment" extreme, 
etc.  Strong bullish sentiment being what we did NOT get in 
October by the way - can you recall being real bullish a month 
after 9/11?

My Nasdaq A/D indicator is below: 


     

The same pattern presents itself in the Nasdaq in terms of the 
oversold extreme and recent rebound in the advance-decline line 
in Nasdaq. 

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


 


You will notice on the daily chart the tendency for the bottoms 
that have occurred near the lower envelope line to be more than a 
1-day affair.  On average, we see tradable bottoms developing 
over 4-7 trading days. Are we vulnerable to further downswings - 
yes, but I don't anticipate the lows to be taken out or 
penetrated, at least not by much. 

Further dips are an opportunity in my estimation to accumulate 
index calls - out beyond the June expiration also.  I am not 
suggesting the play of the day here, especially in this daily 
commentary. 1030 is support.  This is an area to accumulate, but 
not throw caution to the wind of course - I suggest a stop/exit 
point at 1014 to allow 5% "slippage" or for a reversal. 

A rally failure in the 1060 resistance area may well offer short-
term downside potential. Quite tradable - but, I am staying 
somewhat more focused on a chance to get on board a bigger trend, 
with a rally at some point in the not distant future that could 
carry back up above 1100 again. 

With the premiums higher now, very short-term trading gets 
tougher as you have to have better and better intraday timing or 
you find that you were right on the market and somehow didn't 
profit from it, in the instances when you didn't make up a 5-6% 
premium on long index options, which expands on an upswing also.  

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


 


Buy OEX in the 510 area on a further drop, with a stop/exit at 
505. I anticipate a drop back to the area of the lows based on 
the "wedge" like hourly chart pattern - but in case this DOESN'T 
happen am already long part of a position.  527-530 is the 
breakout point current.  The resistance areas are those prior 
highs, stair stepping up the hourly chart.    

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


     

96 appears to offer solid support, at the February lows. 
Buy dips back to the 96-96.30 area with stop protection at 95.   
99 is key near resistance and also the "breakout" point should 
DJX penetrate it. As with the S&P there has been a bullish upside 
crossover in the 14-day stochastic. This can flip back and forth 
a couple of times such as the last time the market put in a 
decent bottom. 

Nasdaq Composite ($COMPX) Daily/Hourly charts:


 

The COMP has made an apparent "double bottom" low, after filling 
in the upside chart gap from early-May.  I don't hear this talked 
about much at all. All focus is the Dow.  Good.  Play tech too, 
especially since we are also seeing possible double bottom lows 
in the Software and Semiconductor sectors per my comments last 
night in the Sector Trader wrap.  

The hourly chart shows the rising bearish wedge pattern. This 
formation is not a reliable (in its outcome) as the bullish 
falling wedge, but is a pattern that suggests that a further drop 
could lie ahead - I like to see lows re-tested if I think it 
might be an important bottom.  

Resistance can be anticipated in the 1610-1614 area, at the top 
of the hourly downtrend channel. Ability to get above 1607 and 
STAY ABOVE this level on subsequent "reactions" (price dips) 
would be bullish for the COMP.  

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


 


I suggested long QQQ positions at 29.25 and day to day readers 
had an opportunity to buy this area again today or even a bit 
lower, at 29.0. I wouldn't want you to think that the only 
trading possibilities are intraday.  There are numerous 
opportunities in a year for those who only catch up with the 
market at the end of the day.  You just have to be patient and 
pick your occasional spots.  Options trading is not like stocks, 
but its not all about day to day and very short term trading 
either.  

30 will likely offer resistance and I would not be surprised to 
see another reversal from this area - and, another move down to 
the 29 area again. I am maintaining a 28.50 stop.  Short-term 
traders will probably have a shorting opportunity ahead.  
However, I would use a 30.5 stop on shorts, if 30 is reached and 
you get short.  I prefer to stay long. Especially given the 
double bottom low we've seen so far and the bullish upside 
crossover generated in the 14-day stochastic. 

It’s really all in INTC, MSFT, ORCL, CISCO and QCOM, which are 
the key Nasdaq big cap stocks - all of which are still trading 
under resistance at the top ends of their downtrend price 
channels - except for QCOM, which has had a minor break out above 
the top end of its downtrend channel, although the stock is still 
trading basically sideways still.  

Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 


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

Which Option Should I Buy? -- Part Deux
By Mark Phillips
mphillips@OptionInvestor.com

Sometimes, I think the people that read my column are psychic.
Last week we went through a graphic explanation of how to decide
on which option to buy, whether ITM, ATM or OTM for a given
option trade.  As experienced traders know, that is only half of
the question, as we also need to determine which expiration month
to use.  So after writing last week's piece, my intention was to
cover the issue of expiration month this week.  I guess I should
have indicated that's where we were headed next, as I got several
emails asking to cover the issue of which expiration month to
utilize.  I guess I better not disappoint.

Last week, we used IBM as an example using June put contracts
showing that the perceived advantage of utilizing OTM options
(due to their lower cost) may often be an illusion.  In the
example that we highlighted, even with a more than $10 drop in
the price of the underlying stock, investors would have gotten
more bang for their buck (in terms of %Return) using an ATM
option than the "cheaper" OTM option.  The theoretical reason for
this is that the higher Delta of the ATM option allows the trade
to start working in our favor earlier and at a greater rate.

In addition to picking the direction and severity of an expected
move in the underlying stock, we also have to have an idea of the
time period over which we expect that move to take place.  If we
are targeting a move over the next 2-5 days, then typically the
front-month options will serve us well.  But what happens if the
move takes a bit longer, say 2-3 weeks?  The depreciation due to
time decay that occurs while we are waiting for the stock to
reach our anticipated price target may exceed the appreciation
resulting from the price movement in the stock.  The net result
would be that we are right in terms of the expected move in the
stock but wrong on our timing, yielding a losing trade where a
winner should have been.  That's always a frustrating experience
and I'm sure I'm not the only one that has gotten caught in that
trap.

I'm a big believer in teaching by example, so let's dive right
into a recent winning trade of mine and see if I made the best
choice in terms of timeframe.  Jeff Bailey got my attention with
his recent bearish comments on shares of Williams Companies
(NYSE:WMB), as the energy trader was looking very top-heavy under
the continuing scrutiny by investors and regulators.  Here's what
the chart looked like when it first caught my attention.



 

Heavy selling had dropped the stock right down to the $15 level,
which was just above major support at the $14 level.  But with
oscillators buried in oversold, I wasn't ready to take the trade.
Looking at the PnF chart, I could see the double-bottom sell
signal that occurred as the stock fell to the $15 level was
forecasting an eventual decline to the $11.50 level.  That gave
me my target price and wanting to take advantage of both Delta
and Gamma, I decided to select the $12.50 strike price, which
would be ATM (maximum time value) if my price target was met.
So what do we need next?  How about an entry point?  Sure enough,
the market handed me one and I didn't have to wait very long.  



 

A nice little rebound to the $18 level was all the bulls could
manage, but that was enough to lift the daily Stochastics out
of oversold territory.  When that bearish crossover occurred on
May 29th, it was time to enter the play.  Aaahh, but that brings
us the central theme of our discussion here today.  What month
options should I buy?  We were already well into the June
expiration cycle, so the June contracts were too short-term for
my liking.  When would the stock collapse under its recent lows?
Would it meander lower or crater?  Inquiring minds (Me!) wanted
to know.  Just in case it ended up being a long, slow grind
lower, I opted to utilize August contracts.  They cost me more
up front, but I knew I would be fairly well insulated against
the effects of time decay.



 

As you know from following the news recently, shares of WMB have
absolutely collapsed in the past week, greatly exceeding my
wildest expectations for the play.  With one negative news event
after another driving WMB to new multi-year lows, investors have
been screaming "Get me Out!", which can be seen in the
extraordinarily heavy selling volume on Monday and Wednesday of
this week.

As I mentioned above, I was targeting the $11.50 level, and when
WMB fell to the $11 level and stabilized yesterday, that was
enough for me.  I closed out my entire position, but after
today's drop I'm wishing I had held on a bit longer.  Seller's
remorse hits again.  So let's look at the relative performance of
the $12.50 Puts for June, July and August and see how they fared.
I'll use the closing price of 5/29 as the entry point and then
look at the price of each of the options at the close on Monday
(6/3) and today (6/5).

Expiration                   Price       Price       Price
Month          Symbol       (5/29)       (6/3)       (6/5)
June           WMB-RV       $0.25        $2.10       $3.00
July           WMB-SV       $0.75        $2.40       $3.30
August         WMB-TV       $0.95        $2.70       $4.00

Hmmmm.  Looks like I could have done MUCH better with a more
aggressive selection of June or July contracts, now doesn't it?
Rather than the paltry 184% gain offered by the August contracts
between 5/29 and 6/03, the June's would have been good for 740%!!
But what would I have done with those June contracts if the stock
had taken a couple more weeks to get moving?  They would have
likely expired worthless, keeping me from enjoying the profits of
the play.  July looks like the best selection from the data I've
shown here, and I would have to say that I was a bit too
conservative with the selection of August strikes.  But given the
chance, I think I would make the same selection, as buying plenty
of time gave me the reassurance that I could be patient with the
position while waiting for the forces of supply and demand to work
in my favor.

As you can see, there are no hard and fast rules for which
expiration month to select, as it is predicated on factors such
as our expectations (which are basically an estimate), and the
current market environment.  As option traders, we strive to
balance risk against possible reward, entering a given trade for
as little as possible, while still giving ourselves enough time
to be right.

As a side note, one of my early mentors in the option trading
world advocated always buying 60-90 days of time when purchasing
options due to the fact that it will keep you relatively insulated
against the ravages of time decay while waiting for the trade to
work in your favor.  From my selection of expiration month, you
can see that early advice is still exerting its influence in my
trading decisions.  And that may be the critical point to stress
on the topic.  Buy as much time as you need to feel comfortable
in the trade.  You may not make the killing that comes with buying
front month options, but in my experience, sometimes a position
trade with back-month options is the right choice to keep the
account growing while we get our adrenaline rush day-trading
front-month options on more volatile issues.

Best Trading Wishes!

Mark


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

THE SECTOR BEAT - 6/5
by Leigh Stevens

SECTOR HIGHLIGHT -

The important and interesting events relating to market sectors 
in the past week, is that ones that just seemed to never stop 
going up - the ones that have been always appearing on the 
"green" list - like Forest and Paper Products ($FPP.X) reflecting 
strength in homebuilding, the Financial stocks, as seen in the 
NYSE Financial Index ($NF.X), Defense ($DFI.X), Gold and Silver 
($XAU.X), Oil ($OIX.X) and Oil Services ($OSX.X), the size 
darlings - small and mid cap - as reflected in the Amex Composite 
Index ($XAX.X) and the Russell 2000 ($RUT.X), have been falling - 
the corrections in some cases taking the form of sharp breaks.  

The major exception to the rotation OUT of the sectors that have 
been in strong up trends is health care ($HMO.X) and the Health 
Providers to some extent ($RXH.X) which shot up today although 
these groups are down from their highs and could yet be building 
tops - time will tell - guess we're all going to get sick and die 
HMO has to penetrate 644.7 to clear its old high - it remains 
in a strong trend for now (today's close: 622.0).  

On the other hand, sectors that have been the bears whipping 
boys, especially the brokers ($XBD.X), and the key tech sectors 
of Software ($GSO.X) and Semis ($SOX.X) have recently made double 
bottoms - so far - time will tell.  

What is this telling us - a lot I think.  There is a sea change 
going on in the market as all of a sudden there is a lot of money 
coming out of former winners and into -- what?  Well, think of it 
as buying power for some rotation of money into areas of the 
market that have been out of favor.  Of course, the big cap Dow 
stocks continue to reflect a theme of investing in "safe" stable 
"name" companies with stable earnings.  


HIGHER ON THE DAY ON Wednesday - 


 


DOWN ON THE DAY on Wednesday - 


 


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)


  

CHART AS OF 6/5 - Comments tomorrow 

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 index may be forming a double bottom low in the 385-386 
area, so the selected stocks in the group like Amgen (AMGN) may 
be setting up as a buy in terms of the stock or its call options.   



  

Suggested buy of Biotech Holdr's (BBH) at 101.50 on 5/24; 
If suggested stop point at 92.5 was adhered to, exit has been 
made. However, the HOLDR's are getting interesting again, if we 
are seeing a double bottom low setting up. Will be looking to re-
enter this trade possibly. 



 

I don’t like the recent downside gap in terms of showing 
technical weakness, but it may be what is called an "exhaustion" 
gap that signals some "final" capitulation by the bulls and will 
set the stage for a rally ahead.  Time will tell.  Will give this 
one a little more time to see how the action is for the next 
couple or few days.  The volume was not huge on the last break, 
which supports the double bottom possibility.  LAST UPDATE: 6/5

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  



 

CHART AS OF 6/5: Bottom may be setting up here. 

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



 

CHART AS OF 6/5: Double top and bearish RSI divergence has 
manifested in a continued weakness and correction, as suggested 
previously.  Think we have lower to go still, perhaps back to the 
600 area. 

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. 



 

CHART AS OF 6/5: The financials have continued lower after the 
rally failure of mid-May. The question is whether NF's second 
down "leg" has run its course after the double top of March-
April. This sector has completed a "measured move" objective and 
the 200-day moving average has "caught" the recent lows.  Stay 
tuned! 

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


 

CHART AS OF 6/5: The further apart (in time) for a double top the 
more significant it tends to be in terms of a top. I anticipate 
further weakness. The key level to watch on the downside now is 
the prior (down) swing low in the 345 area - this was also the 
level of price peak in Dec. and the again in late-January.  If 
345 is penetrated, the next level of potential support become the 
200-day moving average in the 338 area.  Maybe the new home boom 
is moderating or they just did so much building in the warm 
weather months, that the demand has moderated. 


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


 

CHART AS OF 6/5: In case you thought that they had repealed the 
laws of gravity for the metals and that they would forever be 
"precious" - stay tuned!  If this break continues and the 
downside chart "gap" is a bearish sign, then the key levels to 
watch are the up trendline around 80; then, if exceeded, at the 
50-day moving average in the 76 area.  A close under the 50-day 
average says that the gold run may be done for a while.  I have 
been surprised it went this long, but there was a LOT of 
political uncertainties - there still is but the "hot" spots may 
be cooling down some. 

** MORE TOMORROW ** THURSDAY ** 

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

** SEE SECTOR HIGHLIGHT OF THE DAY **  

Software Index; Goldman Sachs ($GSO.X)
STOCKS: ERTS; INFA; INKT; INTU; ISSX; ITWO; IWOV; JDEC; MANU; 
MENT; MSFT; MUSE; NATI; NOVL; NTIQ; ORCL; PMTC; PRGN; PRSF; PSFT; 
RATL; RETK; REY; RHAT; RNWK; SEBL; SNPS; SY; SYMC; TIBX; VIGN; 
VRTS; WEBM; WIND; YHOO

** SEE SECTOR HIGHLIGHT OF THE DAY **  

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


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The Option Investor Newsletter                Wednesday 06-05-2002
Copyright 2001, All rights reserved.                        2 of 2
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*****************
STOP-LOSS UPDATES
*****************

BRCD - call
Adjust from $17.75 up to $18

INTU - call
Adjust from $41 up to $41.50

BLL - put
Adjust from $45 down to $44

WMB - put
Adjust from $12 down to $11.35

DUK - put
Adjust from $33 down to $32

COHU - put
Adjust from $24 down to $22.50


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

None


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

None


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*********************
PLAY OF THE DAY - PUT
*********************

DUK - Duke Energy $31.31 -0.39 (-0.70 this 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.

Most Recent Update

Energy traders were under attack again yesterday when fellow OI
put play WMB was defending against allegations that it had played
a role in the manipulation of energy prices in California.  And
of course the tragic news out of El Paso cast a cloud over the
sector for most of the day.  The sentiment caused another sharp
drop in DUK which saw the stock take out its short term support
at the $31 level.  The stock and broader sector staged a minor
relief rally today, which came on much lighter volume and was
unable to take out even yesterday's relatively lower low at the
$32 level.  Today's short term relief rally could have possibly
set up another entry point into this stock as the sentiment in
the sector remains incredibly bearish.  We'll look for short
term resistance to start forming at the $32 level, and look to
possible rollovers from that level as entry points through the
rest of the week.  Of course we'll take breakdowns below short
term support as well, if the selling in the sector resumes on a
news driven event.

Comments

DUK traced its second inside day today.  The time for decision
is approaching.  Traders with open positions should lower stops
to Monday's high at $32.  While momentum traders can look for a
breakdown below the low yesterday at $30.80, confirmed by a
decline below Monday's low at the $30.61 level.  Look for volume
to increase on the way back down as a sign that the big sellers
have returned.  Confirm sector sentiment in the energy sector.

BUY PUT JUN-32*DUK-RZ OI=7771 at $1.85 SL=1.00
BUY PUT JUL-30 DUK-SF OI=3859 at $1.55 SL=0.75

Average Daily Volume = 4.16 mln



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

The Calm After The Storm!
By Ray Cummins

Blue-chip shares rebounded today after a bullish economic report
bolstered investor optimism about the long-term outlook for the
stock market.

The Institute for Supply Management said its index of business
activity in non-manufacturing sectors jumped to 60.1 in May from
55.3 a month earlier, smashing the estimate of 56 predicted by
economists polled by Thomson Global Markets.  The service sector
accounts for about two-thirds of economic activity in the U.S.
and it was the index's biggest increase since August 2000.  The
Dow Jones Industrials ascended 108 points to 9,796 on renewed
strength in its retail and cyclical issues.  Walmart (NYSE:WMT),
Honeywell (NYSE:HON), Microsoft (NASDAQ:MSFT), American Express
(NYSE:AXP) and United Technologies (NYSE:UTX) were the leading
performers while Hewlett-Packard (NYSE:HPQ), J.P. Morgan Chase
(NYSE:JPM), Citigroup (NYSE:C), AT&T (NYSE:T) and General Motors
(NYSE:GM) limited the average's gains.  The NASDAQ Composite also
ended higher, but losses in the telecom and networking sectors
continued to weigh on technology shares.  The hi-tech index ended
17 points higher at 1,595.  The Standard & Poors 500-stock index
edged up 9 points to 1,049 on select buying in retail, brokerage,
biotechnology, consumer and cyclical shares.  On the downside, oil
issues took a hit following bearish supply numbers released by the
American Petroleum Institute and gold stocks plunged after weeks
of extensive gains.  On the Big Board, where 1.29 billion shares
traded, advancers squeaked past decliners 18 to 14.  Losers paced
winners 17 to 16 on the NASDAQ, where 1.63 billion shares changed
hands.  Government bonds retreated as the strong economic data
kept buyers cautious.  The 10-year note fell 5/32 to yield 5.05%
while the 30-year bond slid 1/2 to yield 5.66%.

***************
Summary of Current Positions
***************
(As of 06-03-02)

Naked Puts

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

NVLS     JUN    40   39.05  40.01   $0.95   5.90% **

As noted last Wednesday, Varian Semiconductor (NASDAQ:VSEA)
moved below a recent support area and was closed to limit
losses.  Monday's bearish activity also prompted an early
exit from our bullish position in Novellus (NASDAQ:NVLS).


Naked Calls

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

CYMI     JUN    55   55.60  40.20   $0.60   5.98%
PHTN     JUN    50   50.40  36.88   $0.40   5.20%


Put-Credit Spreads

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

RYL     56.50  51.60  JUN   45  48  0.27  47.23  $0.27  Closed
SII     73.80  69.90  JUN   55  60  0.65  59.35  $0.65  Closed
ADRX    46.06  41.51  JUN   30  35  0.65  34.35  $0.65  Closed
BBOX    54.94  49.01  JUN   45  50  0.55  49.45 ($0.44) Closed
FDC     82.18  78.20  JUN   70  75  0.50  74.50  $0.50  Closed
HON     39.25  37.55  JUN   33  35  0.30  34.70  $0.30  Closed
UOPX    34.00  29.20  JUN   26  30  0.35  29.65 ($0.45) Closed
AVE     71.75  68.75  JUN   65  70  0.90  69.10 ($0.35) Closed
SRCL    35.04  33.79  JUN   30  33  0.30  32.20  $0.30   Open
UNH     88.39  90.37  JUN   75  80  0.45  79.55  $0.45   Open
INTU    42.92  42.60  JUN   35  40  0.55  39.45  $0.55   Open

Monday's precipitous declines negatively affected almost all
of our bullish spreads and any issues that fell below recent
support areas were closed in order to limit losses.

Positions previously closed: DRS Technologies (NYSE:DRS).


Call-Credit Spreads

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

BHI    35.96 35.29  JUN   43  40  0.35  40.35  $0.35  Open
BGEN   42.44 48.80  JUL   60  55  0.25  55.25  $0.25  Open
ROOM   55.30 49.05  JUN   70  65  0.55  65.55  $0.55  Open
ADBE   35.85 35.30  JUN   45  40  0.55  45.55  $0.55  Open

 
Synthetic Positions:

Stock  Pick     Last    Position   Credit   C/B    M/V   Status

RTN    42.40   43.57   JUN47C/37P   0.00   37.50   0.75  Closed
ATVI   33.95   32.28   JUN40C/30P   0.30   29.70   0.30  Closed
CTAS   55.02   50.84   AUG60C/50P  (0.10)  50.10   0.60  Closed
JPM    36.91   34.66   JUN40C/32P   0.30   32.20   0.80  Closed
HSIC   49.75   49.10   JUL55C/45P   0.10   44.90   0.10  Closed
LLL    63.95   59.85   JUN70C/57P   0.20   57.30   0.20  Closed
ABT    46.90   45.42   JUN42P/50C   0.20   50.20   0.85   Open

All of the bullish synthetic positions were closed during the
severe sell-off on Monday.  The sole bearish play in Abbott Labs
(NYSE:ABT) achieved a favorable "early-exit" credit and traders
should consider locking-in profits in the position.


Credit Strangles:

Stock  Pick     Last    Position   Credit   G/L   Yield  Status

ERTS   63.21   62.93   JUN70C/55P   1.25    1.25   8.9%   Open


Debit Straddles:

Stock   Pick   Last    Position   Debit   M/V    G/L   Status

DGX    85.72   87.40  AUG85C/85P  10.60  10.10  (0.50)  Open
FLIR   44.75   44.63  JUL45C/45P   7.25   7.00  (0.25)  Open


New Candidates:

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

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

BULLISH PLAYS - Naked Puts

One of our readers requested some conservative "premium-selling"
plays on leading technology stocks to profit from the potential
recovery in that group.  Investors with a bullish outlook on the
underlying issues, who plan to use the recent share-value slump
to initiate new positions, may find the risk-reward outlook in
these plays attractive.  All of these companies have favorable
fundamentals but the stocks must also be evaluated for portfolio
suitability and each position should be reviewed with regard to
your personal investing criteria.

***************
CCMP - Cabot Microelectronics  $47.70  *** Bottom-Fishing! ***

Cabot Microelectronics (NASDAQ:CCMP) is a global supplier of high
performance polishing slurries used in the manufacture of advanced
integrated circuit (IC) devices, within a process called chemical
mechanical planarization (CMP).  CMP is a polishing process used
by IC device manufacturers to planarize, or flatten, many of the
multiple layers of material that are built upon silicon wafers and
necessary in the production of advanced ICs.  Planarization is a
polishing process that levels and smooths, and removes the excess
material from the surfaces of these layers.  CMP slurries are
liquid formulations that facilitate and enhance this polishing
process and generally contain engineered abrasives and proprietary
chemicals. CMP enables IC device manufacturers to produce smaller,
faster and more complex IC devices with fewer defects.

CCMP - Cabot Microelectronics  $47.70

PLAY (sell naked put):

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

SELL PUT  JUN 40   UKR RH     850     0.45  40.45       7.2%
SELL PUT  JUL 35   UKR SG     134     0.70  35.70       4.7% ***
SELL PUT  JUL 40   UKR SH     241     1.55  41.55       8.3%


***************
EMLX - Emulex  $30.78  *** 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.

EMLX - Emulex  $30.78

PLAY (sell naked put):

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

SELL PUT  JUN 27.5 UMQ RY   2,304     0.70  28.20      13.7%
SELL PUT  JUL 20   UML SD   1,000     0.40  20.40       4.2% "TS"
SELL PUT  JUL 22.5 UML SX     976     0.75  23.25       7.5% ***
SELL PUT  JUL 25   UMQ SE   7,942     1.25  26.25      11.1%


***************
NVDA - Nvidia Corporation  $32.60  *** Technical Base Forming? ***

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

NVDA - Nvidia Corporation  $32.60

PLAY (sell naked put):

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

SELL PUT  JUN 27.5 UVA RY   1,485     0.45  27.95      10.2%
SELL PUT  JUN 30   RVU RF   8,084     0.95  30.95      15.9%
SELL PUT  JUL 22.5 UVA SX     139     0.45  22.95       4.5% "TS"
SELL PUT  JUL 25   UVA SE   2,032     0.85  25.85       8.0% ***


***************
QLGC - QLogic  $46.03  *** Trading Range! ***

QLogic Corporation (NASDAQ:QLGC) is a designer and supplier of
Storage Area Networking (SAN) infrastructure building blocks.
Its SAN infrastructure building blocks, comprised of various
semiconductor chips, host board adapters and switches, are
integrated into storage networking solutions of the world's
leading system and storage manufacturers.  Companies such as
Sun Microsystems, IBM, Dell, Compaq, Fujitsu Microelectronics,
and Hitachi all use some of its components in the storage and
systems solutions they sell to the world's largest information
technology environments.  In addition to its original equipment
manufacturer relationships with these and other companies, the
company now delivers selected Fibre Channel building blocks
through leading distributors, systems integrators and resellers,
thereby expanding its reach and visibility to the information
technology community.

QLGC - QLogic  $46.03

PLAY (sell naked put):

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

SELL PUT  JUN 40   QLC RH   6,254     0.65  40.65       9.5%
SELL PUT  JUL 40   QLC SH   4,095     2.20  42.20      10.4%
SELL PUT  JUL 30   QLC SF   3,343     0.50  30.50       3.6% "TS"
SELL PUT  JUL 35   QLC SG   1,281     1.10  36.10       7.4% ***


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

BULLISH PLAYS - Spreads & Combinations

***************
ATH - Anthem  $72.00  *** Hot Sector! ***

Anthem (NYSE:ATH) is a health benefits company serving over seven
million members, or customers, primarily in Indiana, Kentucky,
Ohio, Connecticut, New Hampshire, Maine, Colorado and Nevada.
The company owns the exclusive right to market its products and
services using the Blue Cross Blue Shield (BCBS) names and marks
in these states under license agreements with the Blue Cross Blue
Shield Association, an association of independent BCBS plans.
Anthem's product portfolio includes a diversified mix of managed
care products, including health maintenance organizations (HMOs),
preferred provider organizations (PPOs) and point-of-service (POS)
plans, as well as traditional indemnity products.  The company's
unique managed care plans and products are designed to encourage
providers and members to select cost-effective healthcare by
utilizing the full range of its medical management services,
quality initiatives and financial incentives.

Stocks in the Health Care Plans sector are "hot" and the bullish
momentum helped shares of ATH finish today's session at a new,
all-time high.  With few groups performing as well as the health
care segment, investors are likely to continue pouring money into
that industry and traders who want to profit from the activity
should consider this limited-risk position.

ATH - Anthem  $72.00

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-60  ATH-SL  OI=401  A=$0.70
SELL PUT  JUL-65  ATH-SM  OI=71   B=$1.35
INITIAL NET CREDIT TARGET=$0.65-$0.75  PROFIT(max)=15%


***************
ERTS - Electronic Arts  $64.10  *** Low Risk - Low Reward! ***

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

One of our readers asked that we occasionally offer some "very
conservative" credit-spread candidates for traders who like to
target a 5-7% monthly return in this strategy.  Electronic Arts
is a good nominee for this category of low-risk spread trading,
based on the underlying issue's "neutral-to-bullish" technical
background and its relatively low volatility.  The short-term
indications suggest the current trend will continue and traders
who agree with that outlook can profit from upside activity in
the issue with this position.

ERTS - Electronic Arts  $64.10

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-50  EZQ-SJ  OI=31   A=$0.40
SELL PUT  JUL-55  EZQ-SK  OI=172  B=$0.85
INITIAL NET CREDIT TARGET=$0.50-$0.50  PROFIT(max)=11%


***************
FNF - Fidelity National  $30.52  *** Approaching New Highs! ***

Fidelity National Financial (NYSE:FNF) is a title insurance and
diversified real estate related services company.  The company's
title insurance underwriters are Fidelity National Title, Chicago
Title, Ticor Title, Security Union Title and Alamo Title.  The
company provides title insurance in 49 states, the District of
Columbia, Guam, Puerto Rico and the U.S. Virgin Islands, and in
Canada and Mexico.  In addition, the company provides an array of
escrow and other title related services, as well as real estate
related services, including collection and trust activities,
trustee's sales guarantees, recordings, reconveyances, property
appraisal services, credit reporting, exchange intermediary
services in connection with real estate transactions, real estate
tax services, home warranty insurance, foreclosure posting and
publishing services, loan portfolio services, flood certification,
field services, property records and multiple listing services.

The housing market is performing well and companies who provide
real-estate related services, such as Fidelity National, are
enjoying the benefits of the activity.  With interest rates at
historic lows, the trend is expected to continue and traders who
agree with that outlook can profit from future upside movement
in one of the leading companies in the Surety and Title Insurance
group with this position.

FNF - Fidelity National  $30.52

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-25.00  FNF-SE  OI=0     A=$0.25
SELL PUT  JUL-27.50  FNY-SY  OI=2091  B=$0.55
INITIAL NET CREDIT TARGET=$0.30-$0.40  PROFIT(max)=14%


***************
NUE - Nucor Corporation  $68.85  *** Steel Industry Giant! ***

Nucor Corporation (NYSE:NUE) manufactures and sells steel products.
Principal steel products are hot-rolled steel, cold-rolled steel,
cold-finished steel, steel joists and joist girders, steel deck
and steel fasteners.  Hot- and cold-rolled sheet steel are produced
to customer orders and other hot-rolled steel, cold-rolled steel,
cold-finished steel and fasteners are manufactured in a variety of
sizes with inventories maintained.  In 2001, approximately 90% of
the company's hot- and cold-rolled steel production was sold to
non-affiliated customers; the remainder was used in the manufacture
of other steel products.  Nucor's hot- and cold-rolled steel and
cold-finished steel are sold primarily to steel service centers,
fabricators and manufacturers throughout the United States; steel
fasteners are sold to distributors and manufacturers, and steel
joists, joist girders and steel deck are sold to contractors and
fabricators throughout the United States.

Nucor, the second-largest steel maker in the United States, has
signed an agreement with Birmingham Steel to purchase most of the
Alabama company's assets for $615 million in cash and analysts say
the addition of their plants will strengthen Nucor's position as
the leader of quality steel production.  Nucor officials believe
the acquisition of Birmingham Steel will boost its earnings per
share within 12 months of closing the deal and investors appear to
agree with the outlook as the company's share value has rallied to
a multi-year high on heavy volume.  Traders who favor the bullish
technical indications can profit from future upside activity in
the issue with this position.

NUE - Nucor Corporation  $68.85

PLAY (moderately aggressive - bullish/debit spread):

BUY  CALL  JUL-60  NUE-GL  OI=204  A=$9.40
SELL CALL  JUL-65  NUE-GM  OI=718  B=$5.10
INITIAL NET DEBIT TARGET=$4.15-$4.20  PROFIT(max)=19%  B/E=$64.20


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

BULLISH PLAYS - Synthetic Positions

***************
DLTR - Dollar Tree  $39.19  *** Retail Rally! ***

Dollar Tree (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.  Dollar Tree now operates almost
2000 in 37 states and the company's store growth has resulted
from opening new stores and completing selective mergers and
acquisitions from 1998 through 2000.  Dollar Tree stores operate
under the names of Dollar Tree, Dollar Express, Dollar Bills,
Only One Dollar and Only $One.  The company also operates 12
multi-price point stores under the name Spain's Cards and Gifts.

The discount/variety segment of the retail sector has been
performing well in recent weeks and today the group was one of
the market leaders.  Dollar Tree is one of the top companies in
this unique industry and its share value recently received a
boost with its addition to the NASDAQ-100 Index.  This index
is one of the most widely followed benchmarks in the world and
changes to the index are generally followed by heavy trading in
shares of the companies affected as fund holdings are adjusted
to match the popular market gauge.  Traders who think the rally
will continue in the coming months can profit from that outcome
with this speculative position.
   
DLTR - Dollar Tree  $39.19

PLAY (speculative - bullish/synthetic position):

BUY  CALL  AUG-45  DQO-HI  OI=201  A=$0.95
SELL PUT   AUG-35  DQO-TG  OI=164  B=$1.05
INITIAL NET CREDIT TARGET=$0.20-$0.25  TARGET PROFIT=$0.75-$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,250 per contract.


***************
UNH - UnitedHealth Group  $91.77  *** An Old Favorite! ***

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

James J. Cramer, a popular market analyst for the Street.com,
recently talked about the "mini-rotation into health care"
and indeed, the bullish activity in the group suggests that
investors are plowing money back into the segment.  UnitedHealth
Group has long been one of our favorites in the sector and today's
rally to a new, all-time high indicates that Wall Street also has
an optimistic outlook for the company.  Traders can attempt to
profit from future upside movement in shares of UNH with this
speculative position.

UNH - UnitedHealth Group  $91.77

PLAY (conservative - bullish/synthetic position):

BUY  CALL  JUL-100  UNH-GT  OI=70  A=$0.70
SELL PUT   JUL-80   UNH-SP  OI=86  B=$0.50
INITIAL NET DEBIT TARGET=$0.00-$0.10  TARGET PROFIT=$1.00-$1.50

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $2,500 per contract.


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

BEARISH PLAYS - Naked Calls & Combinations

Based on analysis of historical option pricing and the underlying
stock's technical background, these issues meet our fundamental
criteria for profitable "bear-call" credit spreads.  Each issue
has robust option premiums, a well defined resistance area and a
high probability of remaining below the sold strike prices.  As
with any recommendations, these positions should be carefully
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and personal trading style.

***************
CYMI - Cymer  $40.59  *** Technicals Only! ***

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

CYMI - Cymer  $40.59

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-55  CQG-GK  OI=108  A=$0.45
SELL CALL  JUL-50  CQG-GJ  OI=175  B=$1.00
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


***************
C - Citigroup  $42.34  *** Technicals Only! ***

Citigroup (NYSE:C) is a diversified global financial services
holding company whose businesses provide a range of financial
services to consumer and corporate customers.  The company has
over 192 million customer accounts in over 100 countries and
territories.  The company's activities are conducted through
Global Consumer, which delivers a wide array of banking, lending,
insurance and investment services; Global Corporate, which
provides corporations, governments, institutions and investors
with a broad range of financial products and services; Global
Investment Management, which offers a broad range of life
insurance, annuities and asset management products and services;
Private Banking, which consists of customary banking activities,
and Investment Activities, which are the company's venture
capital activities.

C - Citigroup  $42.34

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-50.00  C-GJ  OI=1891  A=$0.15
SELL CALL  JUL-47.50  C-GW  OI=5055  B=$0.40
INITIAL NET CREDIT TARGET=$0.30-$0.35  PROFIT(max)=14%


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

BULLISH PLAYS:

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

ABK    66.78  JUL 65P  1.35   JUL 60P  0.55   0.85     20%
OHP    48.05  JUL 45P  0.90   JUL 42P  0.55   0.40     19%
CI    103.85  JUL 95P  1.15   JUL 90P  0.60   0.60     14%
UNH    91.77  JUL 85P  1.20   JUL 80P  0.65   0.60     14%
WLP    76.50  JUL 70P  1.00   JUL 67P  0.75   0.30     14%
MMM   125.73  JUL 115P 1.25   JUL 110P 0.75   0.55     12%
NOC   120.50  JUL 110P 1.15   JUL 105P 0.65   0.55     12%
MIK    44.05  JUN  40P 0.60   JUL 40P  0.20   0.50     11%

 
BEARISH PLAYS:

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

ATN    34.43  JUL 40C  0.95   JUL 45C  0.40   0.60     14%
AIG    65.07  JUL 70C  0.75   JUL 75C  0.20   0.60     14%
KMG    56.38  JUL 60C  0.80   JUL 65C  0.25   0.60     14%
NVLS   42.12  JUL 50C  1.00   JUL 55C  0.45   0.60     14%
NBR    39.25  JUL 45C  0.65   JUL 47C  0.40   0.30     14%
ETN    78.85  JUL 85C  1.00   JUL 90C  0.45   0.60     14%

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


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