Option Investor

Daily Newsletter, Wednesday, 06/19/2002

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The Option Investor Newsletter                Wednesday 06-19-2002
Copyright 2001, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
MARKET WRAP  (view in courier font for table alignment)
        06-19-2002        High      Low     Volume Advance/Decline
DJIA     9561.57 –144.55  9733.39  9542.74 1126 mln   1194/1998
NASDAQ   1496.83 – 46.13  1538.36  1496.08 1725 mln   1095/2407
S&P 100   507.64 -  9.09   516.99   506.33   totals   2289/4405
S&P 500  1019.99 – 17.15  1037.61  1017.88
RUS 2000  462.62 -  6.79   473.83   462.92
DJ TRANS 2755.10 + 21.42  2786.54  2724.58
VIX        29.71 +  1.38    29.87    28.05
VIXN       55.24 -  0.16    56.86    54.49
Put/Call Ratio      0.90

Bad News Bears Batter Bourses

High profile earnings warnings and a rash of negative news items 
pounded the markets lower despite a brief morning rally attempt.  
After a tough session the Dow Jones Industrials ended down 144 
points to close back under the 9600 level at 9561.  Volume was 
close to 1.3 billion on the NYSE and advancing issues faded 
decliners 12 to 20.  The Nasdaq Composite faired even worse with 
an almost 3 percent loss that put the closing total back under 
the 1500 mark by 4 points.  Volume on the Nasdaq was 1.7 billion 
and declining issues tromped advancing ones 24 to 11.  Broader 
market indices also failed poorly with the S&P 500 dropping 1.65% 
to 1019.99, the Russell 2000 slipping 1.44% to 462.92 and the 
Wilshire 5000 Total Market index cutting 1.59% to 9658.

The second quarter earnings season is just around the corner but 
before corporate America turns in their report cards mid-July, 
investors have to wander through the always-joyful earnings-
warning season first.  If you didn't notice, the tech sector 
helped kick off this quarter's warnings season with a bang last 
night.  OptionInvestor.com covered the big ones in Tuesday's wrap 
but here's a quick recap.

The PC Law of Gravity

It should come as no surprise that Apple Computer (Nasdaq:AAPL) 
is suffering the same slow down that has mired the rest of the PC 
market.  Wall Street had already anticipated potential bad news 
as the stock had dropped from the $26 level in mid-May to close 
just above $20 Tuesday night.  After the company warned that 
their traditional seasonal sales in late May and early June 
"didn't materialize" shares of the stock gapped down sharply and 
closed at $17.12 for a 15% loss.  In a conference call, Apple's 
CFO Fred Andersen said, "The consumer market for personal 
computers is soft around the world."  I could imagine Michael 
Dell and Carly Fiorina sending him a card saying "welcome to the 
club."  That is if they weren't busy watching the damage to their 
own stock prices. Shares of DELL lost 7.4% and HPQ shed 5.14%.

Fried Chips

The Tuesday evening newswires were also humming with negative 
comments from rival chipmakers AMD and INTC.  Shares of INTC were 
already suffering from their early June analyst call.  Given all 
the (negative) press Intel received, it looks like AMD wanted a 
piece of the action and offered a warning of their own.  
Complaining about a weak personal computer market (see above) and 
a poor start to the essential back-to-school shopping season, AMD 
stated that they would miss revenue estimates.  Some analysts 
speculated that AMD was also suffering from additional pricing 
pressures and stolen market share from Intel.  More than one 
broker was quick to stamp the stock with a downgrade and lower 
their own earnings estimates for the company.  Not to be outdone 
by AMD, Intel took the opportunity to announce they were closing 
their doors on its web hosting business, which would amount to a 
$100 million charge.  

Four more semiconductor companies were also to blame for the 
weakness in the sector on Wednesday.  The Federal Trade 
Commission pointed its anticompetitive finger at memory chip 
designer Rambus.  Claiming the company tricked the memory 
industry into using technology that RMBS was seeking patents on, 
the U.S. regulators are going for the jugular.  RMBS generates 
about 75% of its revenues from its licensing fees for its 
patented technology.  These antitrust violations further weaken 
its defenses as the company currently battles several private 
lawsuits over similar issues.

It was also revealed today that three of the world's largest 
computer memory makers had been subpoenaed in "an ongoing 
criminal investigation" (Associated Press).  Samsung Electronics, 
Infineon Technologies and Micron Technology all confirmed they 
were subpoenaed and that they would cooperate.

By the end of the day, shares of INTC fell almost 8.8%, AMD gave 
up 15.5%, MU also lost 14.9%, RMBS plummeted almost 36% and the 
$SOX.X index closed down 6.7%.

No Nets Work

Investors have been wishing for months that they had some kind of 
net to catch this falling technology sector but the Networking 
industry or as some call it the communications equipment group 
was dealt another blow by previous high-flyer CIENA. Last night 
the company warned that revenues would be significantly lower 
despite their merger with ONI Systems.  With orders being 
canceled or delayed (what's new?) their Q2 is looking worst than 
their first.  Investors hit CIEN for a 10% loss today and big 
names for the group also felt the pain with JDSU losing 8.27% and 
JNPR down 6.24%.  

Any traders hoping for a dead cat bounce in this group might want 
to keep looking.  After the close today, Sycamore Networks 
(Nasdaq:SCMR) offered a warning of their own.  SCMR plans to 
slash their workforce by a third and stop development of some of 
its products.  Cutting 235 jobs is expected to force SCRM to take 
a restructuring charge of $45 to $55 million.  Management also 
took the press time to lower their Q4 outlook.

More Biotech Terror

Rounding out our parade of earnings warnings is Genzyme Corp 
(Nasdaq:GENZ).  The biotech company came out right after the 
close with bad news regarding its second-quarter results.  Wall 
Street estimates had been for a 33-cent profit, but GENZ now 
expects a gain of only 25 to 26 cents a share.  Shares closed 
today at $25.87 but in after hours trading the stock was closer 
to $21.  This could be a serious blow to the $BTK.X index, which 
already looks like it's rolling over inside its descending 
channel.  I wouldn't be surprised to see GENZ close near the $20 
mark tomorrow.

Another biotech stock trading lower after hours is ImClone 
Systems (Nasdaq:IMCL).  You might be as sick of hearing about the 
company as we are but the corporation can't seem to escape bad 
news.  This time the news hounds picked up word that the company 
had received a "Wells Notice" from the SEC, which indicates the 
agency is considering civil action.  According to sources, a 
Wells notice means the SEC has already decided a violation has 
occurred and the company or individual now has a last chance to 
explain its actions before the SEC makes their final decision(s).  
Shares of IMCL had rebounded nicely off their lows of $7 in mid-
June to close at $11.41 tonight.  However, after the report, the 
stock was trading closer to $10 in after hours.

Good News Ignored

Investors were just not willing to chase after any good news that 
did manage escape today.  The home improvement & building 
products company, Masco Corp (NYSE:MAS) raised their Q2 and full 
year earnings guidance claming strong sales for their faucets and 
cabinets.  This shouldn't be a surprise given the incredibly 
strong housing sector that the U.S. economy refuses to let go of.  
This probably isn't going to change in the near-future given the 
propensity for mortgage rates to remain low over the next few 

Goodyear Tire (NYSE:GT) also raised its Q2 outlook with new 
estimates of 10 to 15 cents a share outpacing the previous 
guidance of 5 to 10 cents. The company claims that ongoing cost-
reductions and improved numbers from their international units 
will contribute.

Rohm & Haas (NYSE:ROH) is another big board stock that raised its 
second-quarter guidance today.  Previous estimates were 32 to 36 
cents but business for the specialty materials maker (plastics 
and rubber) has been good and the company should earn 44 to 48 
cents a share in Q2.  

Burning Hotter
The only issues that might come close to burning hotter than the 
Colorado and California wildfires are the tensions in the mid-
east.  Two devastating suicide bombings in two days have set the 
Israeli-Palestine conflict back into the spotlight.  This comes 
at a very bad time for President Bush who was due to make a big 
speech on the subject at a press conference today.  The President 
cancelled his press conference as Israeli troops and tanks moved 
into reoccupy sections of Palestinian territory.  Prime Minister 
Sharon stated that Israel would continue to occupy more and more 
of the West Bank and Gaza Strip until the violence and suicide 
bombings stop.

The one thing Wall Street hates the most is the unknown.  It 
hates to be left in the dark and right now no one knows how the 
mid-east conflict will evolve and its ramifications on terrorist 
activities here in the States.  The U.S. has close ties to Israel 
but we also want to keep our Arab "friends" in Saudi, Pakistan 
and across the region on our side while we continue our global 
hunt for terrorism and drum up support for ousting Saddam 

What brings the indecision and fear of the unknown even closer to 
home was the discovery of a mysterious package identified near 
the Federal Reserve Building in Washington this afternoon.   
According to the news, the mysterious package did indeed turn out 
to be some kind mechanism similar to a pipe bomb.  What should 
concern us as investors is that fact that the markets are quietly 
terrified about when and where the next terrorist attack on our 
home soil will occur.  Right now the FBI has all of its field 
offices working on plans for how they will cover their local 
communities during the upcoming Fourth of July holiday.  There 
will be a lot of events and parades that could be seen as targets 
but the agency says this activity is not a response to any one 
particular threat. 

Overall Climate

Desperate bulls may be disappointed in today's market action but 
informed traders should not be shocked that the major indices 
gave back some ground.  The $INDU, COMPX and the SPX had all seen 
big moves from Friday's lows and short-term traders did not want 
to see those gains evaporate in another sell-the-rally event.  
Unfortunately, that's exactly what we appear to be seeing again.  
There was some excitement generated when the major indices 
appeared to breakout of their short-term descending channels but 
they failed to reach, hold or close over significant resistance 
levels.  Furthermore, the lack of truly strong volume that might 
indicator investors are pulling the money off the sidelines, out 
of their money markets or out of bonds and into equities has not 

Chart of the Dow Jones Industrials

Chart of the Nasdaq Composite

Chart of the S&P 500

What we are observing in the markets is exactly the opposite of 
what bullish investors want to see.  Big money continues to seek 
the safety of bonds because the risk-reward ratio is still not 
enticing enough in equities.  The outbreak of a potentially 
painful earnings warning season last night will only reinforce 
worries that this mythical second-half recovery may not 
materialize and businesses are already looking to 2003 in hopes 
of a turnaround (at least in tech).  Investor confidence 
continues to be riddled by CEO resignations (think DYN today), a 
hyper-active group of government regulators announcing 
investigations almost daily into accounting irregularities, 
insider trading and anti-trust violations.  Combine all of these 
ingredients with the seasonal summer slowdown in the markets and 
in business (especially Europe), plus concerns over Brazil's 
economy and debt load, plus simmering nuclear powers in East-
Asia, an outbreak of violence in the Mid-East, bomb-like packages 
in Washington, and you can see why there isn't any strength 
behind the rallies.

I realize this paints a pretty bleak picture going forward.  It 
sort of reminds me of Edvard Munch's famous painting titled "The 
Scream".  (don't remember it?  check it out with this link)

Despite all the bearishness, as traders we can really take 
advantage of the volatility.  While the market's going down, 
let's learn to play the downside.  When we finally reach the 
September lows for the Nasdaq and the SPX then we can look for a 
potentially profitable bounce higher.  If that miraculously turns 
into a sustainable rally, then all the better!  I for one am not 
going to let the falling markets depress my enthusiasm for 
profitable trading opportunities that we see appear on a daily 



by Leigh Stevens

The Bear took a break only - he was back today as gloom and doom 
returned due to still-weak tech earnings expectations and the 
flare up of violence in the Middle East.  

My big mystery today was why my intraday QQQ charts, namely my 
hourly chart, showed this spike up last night (Tuesday) that was 
NOT reflected in the Daily chart on TradeStation - I checked Q-
charts, and BigCharts.com - same thing showing! So I had this QQQ 
"spike" high on an intraday basis to 29.75 and I at first thought 
it was a bad tick.  

Having been both a research analyst (PaineWebber), the charting 
applications product manager for Dow Jones Telerate and the data 
products manager for Cantor Fitzgerald, this was something I was 
keenly interested in and determined to get to the bottom of.  

Moreover, I heard from OI subscribers who got the same DIFFERENT 
quotes on still other charting applications.  And, I heard from a 
subscriber who got killed trying to buy QQQ puts after 4 pm, 
after I put out a bearish note on the QQQ Head & Shoulder's top 
pattern that formed on the index intraday charts - especially 
apparent on the 30-min chart. You can imagine what the sharp jump 
in price volatility did to the put option premiums in a thinly 
traded market, even though the spike was UP - hey, volatility 

Here's my note and "warning" to all of our QQQ (Nasdaq 100 
Tracking Stock) stock and option Traders - 

After tracking down a manager in the product development group at 
the American Stock Exchange I can confirm that the REGULAR 
trading hours for QQQ, considered to be an Exchange Traded Fund 
(ETF), is from 9:30 am to 4:15 pm Eastern.
Many Quote Vendors, like Q-Charts, and many others, have 
"templates" that tells their software WHAT TIME to stop 
collecting quotes in terms of what makes up the Daily High & Low.  
Most, of them have it WRONG!  
These quote/charting services are showing the DAILY HIGH for 
Tuesday, June 18, in QQQ as 29.15.  In fact, the Daily High was 
29.75, a price level hit between 4:04 and 4:10 pm Eastern, on 
very low volume and due to a POST (regular Nasdaq/NYSE trading 
hours) earnings announcement from Oracle.  
NOTE on INTRADAY charts: price quotes and intraday charts after 
4:00 pm is not usually governed by the Daily chart "session 
times" and the quotes continue to come in and draw the 1, 5, 15, 
30, 60 minute "bars" or candlesticks after 4 pm. These quotes are  
NOT cut off or ignored like they might be in terms of what  
constitutes the Daily price range. This is why you will likely 
see a 29.75 high on a 15 or 60-minute chart, as it occurred after 
4 Pm on 6/18/02.
Now this possible volatility after regular stock hours, may 
affect YOU because Options bid/offers can suddenly spike up/down 
and affect your Stop or LIMIT orders - they may suddenly get 
illed unexpectedly. You then may find the next day that you got 
some price on a Stop, Market or Limit order that is not only 
unexpected but well above/under what your chart service is 
showing you as the Daily High or Low of the day.
I have contacted my TradeStation charting service and asked that 
they correct the Daily trading hours for QQQ to reflect a CLOSE 
at 4:15 pm eastern (plus, typically they allow 2-minutes more for 
quotes that "dribble" in).  Subscribers or users of services 
(besides TradeStation) could do the same with their quote or 
charting services. END OF STORY!

While the QQQ chart did not break the "neckline" on the possible 
Head & Shoulder's (H&S) Top formation I was see on QQQ before the 
Tuesday close, the Nasdaq Composite did. I was tempted to issue a 
specific trade recommendation on QQQ even though the break of the 
important trendline called the "neckline" (see below) had not 
occurred by its close - such a break tends to "confirm" the H&S 
pattern and next move. However, just the formation of the (H&S) 
pattern is so reliable that I could "predict" after trading 
yesterday that whatever the overnight and key next day "news" 
was, it would likely be bearish.  

I am not an "event" or news-driven trader/analyst. I tend to find 
that the chart patterns that occur because of the collective 
action of all traders and investors PREDICTS the events that 
follow - most of the time - if there were no exceptions, 
technical analysis would be error free (as used by an expert) and 
there are times that patterns "fail" in their predictive ability 
- "the market humbles us all" at one time or another. 


The Nasdaq Composite Chart above shows the Head & Shoulder's 
pattern that developed that was especially apparent on a 30-min 
chart basis.  I could show it on the QQQ chart but the sharp 
spike" higher after 4 pm makes the pattern unclear. Not so, on 
the Composite.  QQQ or NDX puts could have been bought around the 

In fact, if you had confidence in the predictive ability of the 
H&S pattern showing above, that post-4pm QQQ spike could have 
been seen as a great shorting opportunity in the Q's for intraday 
traders. (Moreover, that same spike sort of "magically" reversed 
at the intersection of the trendline you'll see below on the QQQ 
hourly chart.) Long-term traders who have otherwise busy lives  - 
most I think - can do plenty with by observing the H&S top 
pattern on the Dow chart that I highlighted last night. By see 
these better rallies for what they most likely are - great put 
buying opportunities.    

Since I have been discussing the Head & Shoulder's chart pattern 
of late, because there have been a few of these patterns that 
formed on various index charts recently, you may start looking 
for them every other day or every other week - NOT LIKELY! The 
H&S pattern is not THAT common, but they do develop - all it 
takes is an eye for them, which can develop over time. When this 
kind of top or bottom pattern does develop it can offer very 
high-potential trading opportunities.   

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


I think that the Nasdaq 100 will be in position to rally by 
tomorrow (Thursday) - Tues & Thurs often being "reversal" days 
too - and in terms of QQQ, this could occur from the 27 area, 
support implied by a return to the previously broken down 
trendline and by a cluster of prior lows.  

The 27 area is key - an hourly close below this level, with an 
inability to get back above this level on any subsequent rallies, 
would suggest the QQQ was going to be back in its downtrend 
again, sung to the tune of "back in the saddle again". The 
position of the 21-hour stochastic is telling as well. With the 
14-day stochastic still in it's upside crossover position, the 
stage for another rally is set.  

Note on the daily chart, how the rebound reversed right at the 
21-day moving average, which is why I often call this a "pivot" 
(pivotal) point in trading terms.  By the way, "pivot" points 
lack any precise technical definition.  It is like a Rorshock 
(sp?) inkblot test - it is in the eyes of the beholder.  Meaning 
that the term is used in various ways and variously in trading 
"systems" - generally it means a price that suggests that upside 
or downside momentum will develop by a move above/below the 

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


To the extent that they trade in tandem and the two markets have 
been diverging at times this week, the S&P 100 (OEX) would have 
to go sideways to lower awhile longer to get down into an 
oversold area on both hourly stochastic models.  However, it is 
oversold on the short one and is neutral and getting down toward 
an oversold area on the longer.  

Moreover, OEX looks to have further to go on the downside before 
it will reach good technical support - 510-509 could have been a 
stopping place but wasn't and the daily close near its low 
presents a weak technical picture also. However, a rebound early 
back above 509-510 would suggest otherwise. 

The cluster of prior lows around, and a bit under, 500 suggests 
this area as a key support. Also, the area around 500 would be a 
return to the previously broken down trendline - which could now 
act as support. 

516-520 is key resistance - the most bullish near term outlook I 
have is for a return to this area but not a move above it.  So, 
OEX looks to present a sell at 520, a potential buy around 500. 

Leigh Stevens
Chief Market Strategist 

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A Repeat of Recent History?
By Mark Phillips

While watching the closing action in the broad markets Monday
afternoon, I was struck by a strong feeling of Deja vu.  I
couldn't put my finger on it at the time, but something about
the day's action seemed very familiar and the familiarity seemed
recent, rather than distant.  So after I finished my Trader's
Corner article for the day, I sat down in front of my charting
application and started scanning back through time in intraday
charts, looking for that day that was triggering my memory

I know this is an Options 101 article, and we are starting out
with what seems to be a Trader's Corner, but stick with me and I
think you'll see the connection.  How's that for a teaser to
keep you hooked until the end?  BIG GRIN!!

I've written a couple of articles in the past talking about the
useful information I find from the market breadth indicators
(ADVDECV.NY and ADVDECV.NQ).  A big part of the familiarity I
was feeling came from what I was seeing on these indicators in
conjunction with the price action on the DOW and NASDAQ.  It felt
like simple short-covering on the surface, but if I could find
the point of reference in the recent past, then that would give
me greater confidence for trading decisions throughout the
remainder of what looked like it was going to be a volatile
expiration week.

If you missed those prior articles, here are the links for your
reading pleasure.

Interesting Observations
Observations With Greater Clarity
More on the Topic of Market Breadth

Alright, so back to the market action on Monday.  If you recall,
we saw some impressive follow-though to Friday's rebound off the
lows, with the DOW tacking on more than 200 points.  Throughout
the day, the ADVDECV indicator maintained an upward trend after
starting out at the flatline.  But volume wasn't nearly as
impressive as we would need to see to convince us that the rally
was anything more than short-covering.  Here's what the action
looked like on an intraday basis.

Intraday (5-Minute) Dow Chart vs. ADVDECV.NY - June 17


Up volume swamped down volume throughout the day, but the overall
picture looked to me like one of short-covering.  Notice that
after the sharp rise in the first hour of the day, the bulls had
a hard time extending their gains.  Sure, they managed to push
slightly higher into the closing bell, but the momentum
definitely slowed to a crawl despite the heavy bullish bias to
the up/down volume ratio.

But gut feel isn't enough to go on to call this a short-covering
rally that won't last.  What I want is an answer to the nagging
question of "Where have I seen this picture before?"  It didn't
take too long to find the answer, as an almost perfect mirror
image occurred a month before on May 14th.

Intraday (5-Minute) Dow Chart vs. ADVDECV.NY - May 14


Here we have a very similar picture, with the DOW getting a
strong push higher at the open and then struggling to advance
significantly throughout the remainder of the day despite once
again having buying volume well in excess of selling volume
throughout the session.  Sure the ebbs and flows of price
throughout the day are slightly different than what we saw this
Monday, but the theme is VERY similar.

And that prompted me to look at the price action from the two
windows in time (on a slightly wider timeframe) to see what
other commonalities might exist.  Sure enough, aside from the
fact that the price levels are different, the dynamic of the DOW
running strongly higher into firm resistance seems to be an
important factor in both cases.

Intraday (30-Minute) Dow Chart May 14 vs. June 17


In May, we spent 3 days testing the 10,350 resistance level
before the bears finally won and drove the DOW back down to the
10,000 level and then eventually much lower.  With Monday's
short-covering rally only a couple days old, we're a bit early
if the concept of a historical repeat is going to hold water.
But look at the underlying market sentiment.  Back in May,
investors were still quite enthusiastic about the potential for
a second half recovery, but given the spate of bad economic and
corporate news over the past month (along with the adverse price
action) it is entirely conceivable that the bears will move back
into a dominant position that much faster.  Today's trading
action would certainly seem to bear that out! (All puns

I really don't know what conclusion I would draw from this
historical inquiry, except to say that I think we are setting up
for another decline in the broad market.  It may not come from
the level of today's close, and I think it would be perfectly
reasonable (and fit nicely with the model we saw in the middle
of May) for another rally attempt on resistance before the bulls
throw in the towel.

I promised to tie this in with the concept of options trading and
now is the time where I make good on my promise.  This is options
expiration week, and as such there are likely to be some
shenanigans with prices being pushed around artificially as
Friday approaches.  Anyone want to venture a guess where May
14th fit into the May expiration cycle?  You win the prize if you
guess the early part of expiration week.  I would consider the
DOW's ability avoid breaking down until the following week a
direct consequence of the artificiality of the expiration cycle.
So what should we expect this time around?  My bet is for more
artificial support to hold us up into the end of the week and
then a repeat performance with the DOW falling back near support
next week.  Where that support resides is a topic for another
discussion altogether, but I really would be surprised if we
don't revisit the lows from last week before seeing a breakout
over the 9800 resistance level.  But see, I told you we'd tie
this into the topic of options.

The focus of this article was to point out the benefits of using
historical trading patterns to help shape our trading strategy in
the future.  But don't think that I am just using the similarity
of this pattern to initiate a trade.  There are other factors at
play in my mind as well, among them the fact that the daily
Stochastics have now bounced well out of oversold and are looking
a bit top-heavy.  And let's not forget the Bullish Percent
reading for the DOW.  Back in the middle of May, it was sitting
near 66% and was still listed as Bull Correction.  The bulls have
taken a few body blows since then and the Bullish Percent has
now reversed into Bear Confirmed, with the current reading at
only 42%.  That means that the DOW is significantly weaker than
it was during the last expiration cycle, and that could be a part
of why the bulls were unable to stage a second serious test of
the 9750 resistance level today.

But the real key is that I found a very similar trading pattern
in the last expiration cycle and I just might be able to use what
I observed in the past to guide my trading decisions in the near
future.  And you can bet that I'll keep an eye out for a repeat
of this pattern in future expiration cycles, so long as rallies
continue to be truncated by the bears' selling party.

My point here is not so much that the DOW looks ripe for a fall
(which I think it does).  The important point is that there is a
lot of merit to looking for and utilizing historical patterns to
predict future action.  While it is rare to see an exact repeat
of a given trading situation, I think this one might be about as
close as we get.  Hopefully this little discussion gives you
another tool that you can use in your pursuit of trading success!

** FULL DISCLOSURE - I took advantage of these observations to
initiate a put play on the DOW when the index rolled over today.
In addition, I expect to add to that position on repeated
rejections at resistance.  So long as the bulls continue to be
unable to power through the 9800 resistance level, I will
continue to believe that the high odds direction for the DOW is
down, especially after the artificiality of triple-witching
expiration has passed.

Have a great week!


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by Leigh Stevens

It was back to the same themes of fear and loathing of more 
earnings disappoints in Semiconductors, continued free fall in 
fiber options and networking, PC makes, and tech sectors in 
general.  The Imclone implsion hit the biotech sector.  

Strength only was seen in Health Providers - possibly near a 
double top, but another day or two will tell on that.  Transports 
are bucking the trend which bodes well for the economy in the 
long run - but investors are more focused on the short-term.  
Precious metals picked up bit, as did homebuilders and forest 
products.  It's mostly that sinking feeling across the board 
again however. 



DOWN ON THE DAY on Wednesday - 



Small is beautiful! - we hope!!  
I suggested today on the Market Monitor to buy the iShares of the 
S&P 600 small cap iShares (IJS), the fund shares were rallying 
and in the 91 area and above at the time.  It looked as though 
IJS was achieving a bullish breakout above its recent rally high.  

Not for long, as the small caps came back down with the rest of 
the market.  I still favor this sector and would buy a further 
dip in into the area of the 3rd. low that the stock may be making 
- right hand side on the hourly chart below.  




Besides a "fill" in the S&P 600 small cap value iShares stock 
(IJS) at 91.25, I am making a further suggestion here for 
purchase at 88.50 or less.  

Suggested stop or risk point is on a close under 87.60, in order 
to both keep a reasonable risk point and to protect against 
intraday weakness that reverses by the close of trading. 

Besides the S&P 600 small cap sector, the Russell 2000 iShares 
are a similar play and participation.  Support looks like it 
could continue to develop around 91 (dashed line area). The IWM 
fund stock is an alternative way to participate in the small cap 

This iShares suggestion also prompted the following exchange 
today - 

"Can you recommend another way to play your recommendation on the 
I shares of the S & P 600 small cap index? There are not any 
options on this index available." 

That is the problem with "sector trading" - the inability to 
trade them in a leveraged way.  It is why the iShares are the 
only game in town as far as sector trading.  I have suggested in 
industry sectors, buying calls/puts on individual stocks in an 
index as a way of playing that sector - provided that 2-3 
different individual stock options are used so that you get some 
On the small cap sector, I favor the Russell 2000 iShares also 
(IWM) - there are options on the Russell 2000 ($RUT.X) that trade 
on the CBOE - I'm not crazy about the bid-ask spreads and the 
amount of premium you have to pay as a buyer, as a general rule.  
Yesterday (6/18) total RUT call volume was 85; with put volume at 
2,154, according to what I show in the Journal.  This lopsided 
ratio suggests that the options are being used more as a 
portfolio hedge than a speculative option play. Institutions may 
not balk at paying a huge premium as a portfolio hedge. 
With the RUT trading around 470 currently, I show the Sept. 470 
calls (RUT IN) offered at 24.80, with 0 volume today according to 
Q-Charts and with a miniscule open interest of 103. The 480 Sept 
calls have a larger open interest indicated at 756.  The Sept. 
500 calls (RUT IT) have the largest open interest at 1,168 - 
these calls are offered at 11.40.  
So, this is what we are up against in trying to trade almost any 
sector option - there are only a few that are offered - one of 
the most real active ones, on an ongoing basis (XAU is more 
active currently, but big gold rallies only come along rarely), 
is the Semiconductors (SOX) and with call volume on a good day at 
maybe 2000 and similar in put volume recently at least - this is 
not an index option that I feel comfortable recommending on OI, 
unless perhaps I think I have "caught" a major top and puts are 
"relatively" cheap, or vice versa at bottoms.

FYO, there are options on the Russell 2000 Value, IWN, $136.37, 
July 140 Call (IWNGH), bid/ask 1.60/1.85, open interest, 1,000 
Russell 2000 Growth, IWO, $49.50, July 50 Call (IWOGJ), bid/ask 
1.30/1.55, open interest, 1,001 contracts.
Russell 2000 Index, IWM, $93.10, July 95 Call (IWMGS), bid/ask 
1.65/1.90, open interest, 4,380 contracts.

Leigh Stevens
Chief Market Strategist

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The Option Investor Newsletter                Wednesday 06-19-2002
Copyright 2001, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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AET - call
Adjust from $48.75 up to $49

VRTX - call
Adjust from $16.50 up to $16.75

HIG - put
Adjust from $63.50 down to $63

MIL - put
Adjust from $40 down to $37

TDS - put
Adjust from $69 down to $68





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

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



TDS - Telephone Data Systems $63.15 -1.45 (+0.00 this week)

Telephone and Data Systems, Inc. (TDS) is a diversified
telecommunications service company with wireless telephone and
wireline telephone operations. TDS conducts substantially all
of its wireless operations through United States Cellular
Corporation (U.S. Cellular) and substantially all of its
wireline telephone operations through its wholly owned
subsidiary, TDS Telecommunications Corporation. TDS, U.S.
Cellular and TDS Telecom hold various investments in publicly
traded companies, the majority of which were the result of
sales or trades of non-strategic assets. Minority positions are
held in Deutsche Telekom AG, Vodafone plc, Rural Cellular
Corporation and VeriSign, Inc.

Most Recent Update

Even the seemingly strong telecommunications companies are being
dragged through the mire that has become their industry.  Many
analysts are predicting further bankruptcies in the telecom
business following the most recent declaration by XO
Communications.  And despite the recent perceived good news such
as the appointment of a new CEO at Qwest Communications (NYSE:Q),
the fundamentals of the business just aren't getting any better.
UBS Warburg noted that much on Thursday when the brokerage firm
lowered its price target on TDS citing the negative sentiment by
the market on the telecommunications group.  Negative sentiment
is an understatement for TDS' trend that has been in place
since early April when the stock was trading above the $90 level.
Almost -$30 later, the trend appears no where near its end as
the selling volume continues to increase on the way down.  The
last two days of a bounce did nothing more than to work off the
stock's short term oversold nature, and in doing so setting up
another entry point into put plays.  As long as the stock
remains below its 10-dma, now at the $67.42 level, the longer
term descending trend will remain in place and we will like put
entries at or around current levels.  Traders looking for a
little higher of entry points can look for a rollover from
the $67 level.  Momentum traders can look for a breakdown below
yesterday's intraday low at the $63 level.  Our stop is initially
in place at the $69 level.


The bloodletting in the telecom sector appears to be far from
over.  The sector was hammered again today on continued
investor fears and market weakness.  For its part, TDS broke
down from its inside day yesterday, which should bring on more
selling in the coming sessions.  Look for the stock to lose
short term support at the $63 level and a retest of relative
lows from there.  

BUY PUT JUL-60*TDS-SL OI=50 at $2.65 SL=2.00
BUY PUT JUL-55 TDS-SL OI=50 at $1.20 SL=0.50

Average Daily Volume = 244 K


Sellers Take Charge Amid Dismal Outlook
By Ray Cummins

Stocks tumbled today after a slew of high profile technology
companies warned that profits would not rebound in the near

Advanced Micro Devices (NYSE:AMD), Apple Computer (NASDAQ:APPL)
and Ciena (NASDAQ:CIEN) were the harbingers of bad news, saying
that demand is poor among their customers, and that a genuine
recovery in earnings may not take place until next year.  The
negative news weighed heavily on chip and hardware stocks but
the software segment helped the NASDAQ limit its losses to 46
points, closing at 1,496.  Declines in shares of Hewlett-Packard
(NYSE:HPQ), Intel (NASDAQ:INTC), SBC Communications (NYSE:SBC),
AT&T (NYSE:T), and Disney (NYSE:DIS) pulled the Dow Industrial
Average 144 points lower to 9,561.  The broader market Standard
& Poor's 500-stock Index sagged 17 points to 1,019 on weakness
in almost every sector while safe-haven industry groups such as
defense, paper, utilities and retail issues helped the market
avoid catastrophic losses.  Trading volume totaled 1.27 billion
on the NYSE and 1.71 billion on the technology exchange.  Market
breadth was negative with decliners surpassing advancers 5 to 3
on the NYSE and by 2 to 1 on the NASDAQ.  Bonds were popular as
stocks continued to move lower and the 10-year note rallied 26/32
to yield 4.73% while the 30-year government bond added 1 3/32 to
yield 5.39%.

Summary of Current Open Positions
(As of 06-18-02)

Naked Puts

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

EMLX     JUL    23   21.75  28.65   $0.75    7.50%
CCMP     JUL    35   34.25  45.49   $0.75    5.04%
QLGC     JUL    35   33.90  46.19   $1.10    7.38%
NVDA     JUL    25   24.15  28.28   $0.85    7.97%

Naked Calls

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

CYMI     JUN    55   55.60  39.87   $0.60   5.98%
PHTN     JUN    50   50.40  33.03   $0.40   5.20%

Put-Credit Spreads

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

UNH     88.39  95.39  JUN   75  80  0.45   79.55  $0.45   Open
INTU    42.92  48.34  JUN   35  40  0.55   39.45  $0.55   Open
SRCL    35.04  39.84  JUN   30  33  0.30   32.20  $0.30   Open
FNF     30.52  29.92  JUL   25  27  0.30   27.20  $0.30   Open
ERTS    64.10  65.62  JUL   50  55  0.50   54.50  $0.50   Open
ATH     72.00  73.75  JUL   60  65  0.70   64.30  $0.70   Open
AET     49.76  50.87  JUL   40  45  0.55   44.45  $0.55   Open
CI     104.46 102.92  JUL   90  95  0.60   94.40  $0.60   Open
HCA     50.30  51.02  JUL   45  47  0.40   47.10  $0.40   Open
NOC    121.80 129.70  JUL  105 110  0.40  109.60  $0.40   Open
THC     76.10  76.54  JUL   65  70  0.50   69.50  $0.50   Open

Call-Debit Spreads

Symbol  Pick  Last  Month  L/C  S/C  Debit  C/B   G/L   Status

NUE    68.85  67.41  JUL   60C  65C  4.15  64.15  0.85   Open?

Call-Credit Spreads

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

BHI    35.96 35.88  JUN   43  40  0.35  40.35  $0.35  Open
BGEN   42.44 42.90  JUL   60  55  0.25  55.25  $0.25  Open
ROOM   55.30 47.51  JUN   70  65  0.55  65.55  $0.55  Open
ADBE   35.85 30.09  JUN   45  40  0.55  40.55  $0.55  Open
CYMI   40.59 39.87  JUL   55  50  0.60  50.60  $0.60  Open
C      42.34 43.07  JUL   50  48  0.30  47.80  $0.30  Open
EDS    49.28 48.58  JUL   60  55  0.45  55.45  $0.45  Open
VIA    46.59 47.10  JUL   55  50  0.70  50.70  $0.70  Open

Synthetic Positions:

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

ABT    46.90   45.42   JUN42P/50C   0.20   50.20   6.40  Closed
DLTR   39.19   39.36   AUG45C/35P   0.25   34.80   0.35   Open
UNH    91.77   97.15   JU100C/80P   0.10   79.90   2.00  Closed
GD    103.35  107.24   JUL110C/95P  0.10   95.10   1.90   Open
LMT    65.51   68.25   JUL70C/60P   0.10   60.10   1.10   Open

General Dynamics (NYSE:GD) and Lockheed Martin (NYSE:LMT) both
achieved favorable "early-exit" credits in only one week, and
traders should consider taking profits in the bullish positions.
The bearish play in Abbott Labs (NYSE:ABT) provided an awesome
closing gain of over $6.00 as the stock continued its slump to
a long-term low near $35.

Credit Strangles:

Stock  Pick     Last    Position   Credit   G/L   Yield  Status

ERTS   63.21   65.62   JUN70C/55P   1.25   1.25    8.9%   Open
ACS    54.45   53.82   JUL60C/47P   1.30   1.30   10.7%   Open
LXK    59.89   58.50   JUL65C/55P   3.00   3.00   20.0%   Open

Debit Straddles:

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

DGX    85.72   90.79  AUG85C/85P  10.60  12.50   1.90   Open
FLIR   44.75   43.90  JUL45C/45P   7.25   7.00  (0.25)  Open

The Quest Diagnostics (NYSE:DGX) straddle achieved a favorable
"early-exit" profit last week and has also reached the upside
break-even point with the bullish portion of the play paying
for the entire position.

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 ***).



EBAY - eBay Inc.  $61.82  *** Recovery In Progress! ***

eBay (NASDAQ:EBAY) is a Web-based community in which buyers and
sellers are brought together to browse, buy and sell items such
as collectibles, automobiles, high-end or premium art items,
jewelry, consumer electronics and a host of practical and other
miscellaneous items.  The eBay trading platform is an automated,
topically arranged service that supports an auction format in
which sellers list items for sale and buyers bid on items of
interest, and a fixed-price format in which sellers and buyers
trade items at a fixed price established by sellers.  Through
its wholly owned and partially owned subsidiaries and affiliates,
the Company operated online trading platforms directed towards
the United States, Australia, Austria, Belgium, Canada, France,
Germany, Ireland, Italy, Japan, the Netherlands, New Zealand,
Singapore, South Korea, Spain, Sweden, Switzerland and also the
United Kingdom.

Shares of EBAY rallied earlier this week after analysts said the
company would likely surpass consensus estimates when it posts
quarterly earnings in July.  The company's recent addition of
new home sales and office rentals, and a joint online auction
site with Sotheby's for fine art, antiques and collectibles are
expected to boost the bottom line in the third quarter and eBay
customer's are projected to exchange more than $10 billion worth
of items in the coming year.  The technical indications suggest
that EBAY has successfully completed a necessary consolidation
and traders who believe the issue will move higher in the next
few weeks can profit from that outcome with these positions.

EBAY - eBay Inc.  $61.82

PLAY (sell naked put):

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

SELL PUT  JUL 50   QXB SJ   8,275     0.80   49.20       5.9% ***
SELL PUT  JUL 55   QXB SK   7,076     1.65   53.35       8.6%
SELL PUT  JUL 60   QXB SL   6,987     3.10   56.90      12.1%

RYL - The Ryland Group  $54.40  *** Revenge Play! ***

The Ryland Group (NYSE:RYL) is a homebuilders and mortgage-finance
company.  The company has built more than 175,000 homes and, in
addition, the Ryland Mortgage Company (RMC) has provided mortgage
financing and related services for more than 155,000 homebuyers.
Currently, Ryland homes are available in more than 260 communities
in 21 markets across the United States.

Shares of homebuilders rallied today after Lennar (NYSE:LEN) posted
much better-than-expected second-quarter results.  The activity led
us to an analysis of the other issues in the sector and one of the
most popular stocks in the segment, The Ryland Group, surfaced as a
candidate for a "premium-selling" position.  Ryland was a bullish
selection in the BIG-CAPS portfolio last month but the position was
closed after the issue fell through technical support near $52-$54.
Now the stock in is recovery mode and appears on track to test the
yearly highs.  Traders who agree with that outlook can profit from
future upside activity in the issue with these positions.

RYL - The Ryland Group  $54.40

PLAY (sell naked put):

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

SELL PUT  JUL 45   RYL SI     745     0.45   44.55       3.6% "TS"
SELL PUT  JUL 47.5 RYL SW     469     0.80   46.70       5.2% ***
SELL PUT  JUL 50   RYL SJ     852     1.30   48.70       7.1%

SNPS - Synopsys  $55.30  *** Up On A Down Day! ***

Synopsys (NASDAQ:SNPS) is a global supplier of electronic design
automation software to the global electronics industry.  The
company's products are used by designers of integrated circuits,
including system-on-a-chip ICs, and the electronic products (such
as computers, cellular phones and Internet routers) that use such
ICs to automate significant portions of their chip design process.
ICs are distinguished by the speed at which they run, their area,
the amount of power they consume and the cost of production.  The
company's 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.  Synopsys
also provides consulting services to assist customers with their
IC designs, as well as training and support services.

There is little news to explain the recent bullish activity in
Synopsys shares but analysts believe the acquisition of Avant!
(NASDAQ:AVNT) will significantly benefit the company's IC design
offerings and new customers will also enjoy a strong operational
infrastructure in the combined business.  That's probably not the
only reason for the near-term upside bias but today's heavy-volume
rally suggests there is strong demand for the issue at the current
price.  Traders can speculate on the future movement of the stock
with these positions.

SNPS - Synopsys  $55.30

PLAY (sell naked put):

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

SELL PUT  JUL 45   YPQ SI     558     0.40   44.60       3.3% "TS"
SELL PUT  JUL 50   YPQ SJ     803     1.15   48.85       6.5% ***
SELL PUT  JUL 55   YPQ SK      51     2.80   52.20      11.5%


BULLISH PLAYS - Credit Spreads

One of our readers commented that we had relatively few bullish
credit-spreads in the portfolio (after closing the majority of
plays in the section earlier this month), so we decided to look
for some issues that have withstood the recent selling pressure
in the equity markets.  These stocks have excellent technical
indications and favorable option premiums however, each position
must also be evaluated for portfolio suitability and reviewed
with regard to your personal trading criteria.

CTX - Centex Corporation  $56.56  *** Homebuilders Rally! ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operates in six principal business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase and
development of land.  Investment Real Estate operations involve
the acquisition, development and sale of land, and the development
of industrial, office, retail and mixed-use projects.  Financial
Services operations involve the financing of homes, home equity
and sub-prime lending, and the marketing of insurance coverage.
Construction Products involves cement production and distribution,
and the production, distribution and sale of gypsum wallboard,
concrete, aggregates and recycled paperboard.  Contracting and
Construction Services involves the construction of buildings.
Centex HomeTeam Services is involved in pest and termite control,
lawn and landscape care, electronic security, alarm monitoring
and homewiring services.  The company's quarterly earnings are
due July 18.

CTX - Centex Corporation  $56.56

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-45  CTX-SI  OI=652   A=$0.35
SELL PUT  JUL-50  CTX-SJ  OI=2754  B=$0.70

DGX - Quest Diagnostics  $91.85  *** New High Coming? ***

Quest Diagnostics (NYSE:DGX) is a provider of diagnostic testing
and related services for the healthcare industry.  The company
offers a broad range of clinical laboratory testing services used
by physicians in the detection, diagnosis, evaluation, monitoring
and treatment of diseases and other medical conditions.  Quest is
engaged in clinical laboratory testing and esoteric testing,
including molecular diagnostics, as well as anatomic pathology
services and testing for drugs of abuse.  The company also has a
network of principal laboratories located in approximately 30
metropolitan areas throughout the United States, several joint
venture laboratories and approximately 150 smaller rapid-response
laboratories and 1,300 patient service centers.  The company also
operates an esoteric testing laboratory and development facility,
known as Nichols Institute, located in California, as well as one
laboratory facility in Mexico City, Mexico and another near London,

DGX - Quest Diagnostics  $91.85

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-80  DGX-SP  OI=259  A=$0.55
SELL PUT  JUL-85  DGX-SQ  OI=95   B=$1.05

ERTS - Electronic Arts  $64.86  *** Trading Range! ***

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

ERTS - Electronic Arts  $64.86

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-50  EZQ-SJ  OI=112  A=$0.30
SELL PUT  JUL-55  EZQ-SK  OI=554  B=$0.70

EXPD - Expeditors International  $62.50  *** Hot Sector! ***

Expeditors International of Washington (NASDAQ:EXPD) is engaged
in the business of providing global logistics services.  The
company offers its customers a seamless international network
supporting the movement and strategic positioning of goods.  The
company's services include the consolidation or forwarding of air
and ocean freight.  In each U.S. office, and in many overseas
offices, the company acts as a customs broker.  The company also
provides additional services including distribution management,
vendor consolidation, cargo insurance, purchase order management
and customized logistics information.

EXPD - Expeditors International  $62.50

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-55  URP-SK  OI=1   A=$0.30
SELL PUT  JUL-60  URP-SL  OI=12  B=$1.00

KSWS - K-Swiss  $48.16  *** Two-Year High! ***

K-Swiss (NASDAQ:KSWS) designs, develops and markets a growing
array of athletic footwear for high performance sports use,
fitness activities and casual wear.  The K-Swiss "Classic" shoe
has evolved from a high-performance shoe into a casual, lifestyle
shoe.  The company sells its products in the United States through
independent sales representatives, primarily to specialty athletic
footwear stores, pro shops, sporting good stores and department
stores.  It also sells its products to various foreign distributors
and the company has sales offices or distributors around the globe.

KSWS - K-Swiss  $48.16

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-40  SWU-SH  OI=55  A=$0.30
SELL PUT  JUL-45  SWU-SI  OI=11  B=$1.00

LEN - Lennar  $59.18  *** Solid Earnings! ***

Lennar (NYSE:LEN) is a homebuilder and a provider of residential
financial services.  The company's homebuilding operations include
the sale and construction of single-family attached and detached
homes as well as the purchase, development and sale of residential
land directly and through its unconsolidated partnerships.  The
company's financial services operations provide mortgage financing,
title insurance and closing services for both its homebuyers and
others, resell the residential mortgage loans it originates in the
secondary mortgage market and also provide Internet access, cable
television and alarm monitoring services to residents of its many
communities.  The company recently acquired Patriot Homes, a new
homebuilder in the Baltimore marketplace, and expanded into the
Carolinas with the acquisition of Don Galloway Homes as well as
the assets and operations of Sunstar Communities.

LEN - Lennar  $59.18

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-50  LEN-SJ  OI=241  A=$0.50
SELL PUT  JUL-55  LEN-SK  OI=191  B=$1.25

UNH - UnitedHealth Group  $97.30  *** Healthcare Leader! ***

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.

UNH - UnitedHealth Group  $97.30

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-85  UHB-SQ  OI=570  A=$0.65
SELL PUT  JUL-90  UHB-SR  OI=789  B=$1.25


BULLISH PLAYS - Synthetic Positions

CNF - CNF Incorporated  $36.55  *** Hot Sector! ***

CNF Incorporated (NYSE:CNF) is a management company of worldwide
supply chain services.  CNF's operations are represented by four
primary business segments: Con-Way Transportation Services, Emery
Worldwide, Menlo Logistics, and Other.  Con-Way provides regional
next-day and second-day less-than-truckload freight shipments in
the United States, Canada and Mexico, as well as transportation,
logistics, airfreight forwarding and truckload brokerage services.
Emery provides expedited and deferred domestic and international
heavy airfreight services, ocean delivery and customs brokerage.
Menlo provides integrated contract logistics services, including
the development and management of complex distribution networks,
and supply chain engineering and consulting.  The Other segment
includes the operating results of Road Systems, a truck-trailer
manufacturer, and Vector SCM.

Stocks in the freight transportation group have performed very
well in recent weeks and CNF is one of the leading companies in
the industry.  The fundamental outlook for CNF Incorporated is
excellent and the near-term technical indications suggest the
issue will move higher ahead of the company's quarterly earnings
report in July.  Traders who want to speculate on future bullish
movement in the stock should consider this position.

CNF - CNF Incorporated  $36.55

PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-40.00  CNF-IH  OI=12  A=$1.25
SELL PUT   SEP-32.50  CNF-UZ  OI=75  B=$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $1,175 per contract.


BEARISH PLAYS - Credit Spreads

Here are some bearish candidates for those of you who expect the
market to continue its recent slump.  All of these issues meet our
fundamental criteria for profitable "bear-call" credit spreads: a
well defined resistance area and a high probability of remaining
below the sold strike prices.  However, current news and market
sentiment will have an effect on these issues so review each
play individually and make your own decision about the future
outcome of the position.

BWA - Borg Warner  $60.15  *** Failed Rally? ***

BorgWarner (NYSE:BWA) is a global supplier of highly engineered
systems and components, primarily for vehicle power-trains and
other applications.  These products are manufactured and sold
worldwide, primarily to original equipment manufacturers of
passenger cars, sport utility vehicles, trucks, commercial
transportation products and industrial equipment.  The company's
products fall into five reportable operating segments: Air/Fluid
Systems, a designer and manufacturer of electro-mechanical,
mechanical and electronic components and systems used for various
automotive air and fluid systems; Cooling Systems, a provider of
engine cooling solutions; Morse TEC, a manufacturer of chain and
chain systems and turbochargers; TorqTransfer Systems, a provider
of transfer cases and torque management systems, and Transmission
Systems, a manufacturer of components for automatic transmissions
and the systems that combine such components.

BWA - Borg Warner  $60.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-70  BWA-GN  OI=124  A=$0.40
SELL CALL  JUL-65  BWA-GM  OI=267  B=$0.95

CDWC - CDW Computers  $43.87  *** Computer Hardware Slump! ***

CDW Computer Centers (NASDAQ:CDWC) is a direct marketer of various
brands of computers and related technology products and services.
CDW's extensive offering of products, including hardware, software
and accessories, combined with its service offerings, provide
comprehensive solutions for its customers' technology needs.  The
company offers more than 80,000 products, which include a wide
range of product types from manufacturers such as Cisco, Compaq,
Hewlett-Packard, IBM, Intel, Microsoft, Sony and Toshiba, among
others.  The company's value-added services include its ability to
custom-configure multi-branded solutions for its many customers
and offer technical support 24 hours a day, seven days a week.
The company has two main operating segments, corporate, which is
comprised of business customers, but also includes consumers, and
public sector, which is comprised of federal, state and local
government and educational institutions who are served by CDW
Government, a wholly owned subsidiary.

CDWC - CDW Computers  $43.87

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-55  DWQ-GK  OI=507   A=$0.30
SELL CALL  JUL-50  DWQ-GJ  OI=2568  B=$0.80

COF - Capital One Financial  $58.73  *** Rolling Over? ***

Capital One Financial (NYSE:COF) is a holding company whose many
subsidiaries market a variety of financial products and services
to consumers using its proprietary information-based strategy.
The company's primary business is consumer lending, with a focus
on credit card lending, but including other consumer lending such
as unsecured installment lending and automobile financing.  The
company's primary subsidiary, Capital One Bank, a limited-purpose,
state-chartered credit card bank, offers credit card products.
Capital One, F.S.B., a federally chartered savings bank, offers
consumer lending and deposit products.  Capital One Services, a
subsidiary, provides various operating, administrative and other
services to the company and its subsidiaries.  The company's
quarterly earnings are due on July 16.

COF - Capital One Financial  $58.73

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-70  COF-GN  OI=339  A=$0.30
SELL CALL  JUL-65  COF-GM  OI=995  B=$0.90



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