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Daily Newsletter, Wednesday, 06/26/2002

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The Option Investor Newsletter                Wednesday 06-26-2002
Copyright 2002, All rights reserved.                        1 of 2
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Posted online for subscribers at http://www.OptionInvestor.com
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MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
        06-26-2002        High      Low     Volume Advance/Decline
DJIA     9120.11 -  6.71  9160.81  8926.57 1990 mln   1362/1904
NASDAQ   1429.33 +  5.34  1436.57  1375.53 2060 mln   1432/2064
S&P 100   482.57 -  0.85   485.08   471.24   totals   2794/3968
S&P 500   973.53 -  2.61   977.43   952.92
RUS 2000  452.97 +  0.52   453.46   441.76
DJ TRANS 2637.70 +  9.78  2643.88  2578.71
VIX        32.33 -  2.94    35.99    32.29
VIXN       64.14 +  0.39    65.32    62.43
Put/Call Ratio      0.98
*******************************************************************

To Capitulate Or Not to Capitulate

That is the question investors, analysts, fund managers and the 
rest of the world is asking after the volatile day in the U.S. 
markets.  The word "capitulate" means to surrender, to give up 
all resistance, to come to terms.  So the real question is has 
the market surrendered?  Have the major indices given up all 
resistance? 

The gap down this morning was expected after the WCOM news late 
Tuesday.  What worried investors was how low would it go and 
would it come back?  Was this it?  Have bulls finally 
"surrendered" or thrown in the towel?  There was so much focus on 
this being "the day" or "the event" that the extreme panicked 
selling everyone was looking for to mark the occasion didn't 
really appear.  Imagine the investing population being so 
ingrained not to sell "the bottom" and then given the warning 
that this might be "the bottom" may have defused or reduced some 
of the selling impact today could have seen.  Don't get me wrong.  
The volume was strong today.  The NYSE saw 2.3 billion shares 
with 1.6B of it as down volume.  The NASDAQ saw over 2 billion 
shares with 1.1B of it as down volume.  This was the biggest 
volume day of the year for the NYSE.  Advancing issues lost to 
declining issues across the major exchanges at a ratio of 29 to 
43 (including the AMEX). There were just over 200 new highs yet 
these were overshadowed by 559 new lows.  All of this is 
definitely negative but capitulation?  I'm not so sure.

Have the major indices "given up resistance" or in our case 
support?  The big focus was on the Nasdaq and the S&P 500 and if 
these two indices would bounce or break the old September 21st 
lows (the fist day the markets opened after the 9/11 attack).  
The Nasdaq did manage to pierce the old low but the afternoon 
rally put it back in positive territory.  Absolutely amazing!

Chart of the Nasdaq



The S&P 500 (SPX) turned in a similar rebound during Wednesday's 
volatile session.  Although the index did not actually touch its 
September low of 945, the 953 bottom today may be close enough.  

Chart of the S&P 500



Out of the big three indices the Dow Jones Industrials has been 
significantly stronger and is several hundred points above its 
September lows.  The big question everyone was asking before the 
market opened this morning was how bad will it be?

Chart of the Dow Jones Industrials



I think it is premature to answer the question if the major 
indices have capitulated.  The Nasdaq Composite and the SPX have 
essentially hit the September low, which is now our current level 
of support but the real question is will it hold?  If we look at 
other market and sector specific indices like the NDX, the GSO.X, 
the BTK.X, DRG.X, IXTCX, XTC.X, and the NWX.X they have all 
surpassed their September lows and continued to fall.  Granted 
the ones listed are technology, telecom, biotech and drug 
related, which are not the strongest groups due to the recession 
in tech spending and the hailstorm of negative drug-related news 
in recent months, but it's a good example to show that the major 
averages don't have to stop here.

Analysts have been pointing at the September lows for months.  
This was supposed to be the big retest that the markets needed 
for any significant rally to materialize.  In essence it was to 
be the conception of the new bull market.  Unfortunately, much 
like a pregnancy, you usually don't know until a few weeks later 
that you are pregnant or in our case that the bull market really 
has begun.  Only then can look back and attempt to pinpoint when 
it began.  Part of the challenge for investors is that the 
incubation period for any real birth to the next bull market 
could be months.  Furthermore, investors need to consider the 
possibility that just because this MIGHT be a bottom (or close to 
it) that doesn't mean the market is going to go up from here.  
The U.S. markets are still suffering from a crisis in investor 
confidence and a falling dollar which is discouraging foreign 
investment into our none-to-stable equity markets.

"The best communication services in the world"

If you haven't heard, and I can't imagine how one could avoid it, 
but WCOM was the news of the day. Last night the ailing telco 
reported that it had padded the books by $3.8 billion over the 
last five quarters.  Shares of WCOM had fallen under $1.00 to 83 
cents in Tuesday's session and the company was crumbling under a 
huge debt load and a stagnant to falling revenues.  Shares of 
WCOM were halted all session but shares were seen trading between 
9 and 23 cents on a few ECNs before the open.  The odds for 
WCOM's bankruptcy appear to be a sure thing but the company and 
its banking creditors are probably going to see if they can keep 
the business alive.  The speculation growing now is that WCOM's 
fraudulent ways could reach upwards of $10 billion as the search 
continues.  The company had already been in the SEC spotlight as 
the government agency looked into potential overstatement of 
revenues and billing practices.  If you thought the Enron 
bankruptcy was bad, WCOM's will be worse.  At $103 billion it 
will be THE largest corporation bankruptcy in America and the 
shockwaves will be felt across multiple sectors.  The banks that 
had debt exposure to the company, other telco's and equipment 
suppliers will be severely hit by WCOM's demise.  Shares of TLAB 
fell 8.9%, GLW dropped 14.7%, NT sunk 8.7%, JNPR skidded 18.4%, 
FON lost 10.5%, JDSU suffered a 10.5% loss and LU cratered 19.8%.  
That quote up above about the "best communication services 
company in the world" was from WCOM's website.  I doubt its 
shareholders and the 17,000 employees it will be laying off soon 
would agree with that statement.

The Fed Leaves Rates Unchanged.

Lost in the WCOM maelstrom was the FOMC meeting and the vote on 
interest rates.  No one really expected an interest rate hike and 
some actually feared they might cut but the decision was to leave 
rates unchanged.  At 1.75%, the Federal funds rate remains at 40-
year lows and the discount rate will stay at 1.25%.  The FOMC's 
press release stated they felt the risks to the economy were 
evenly balanced between weakness and inflationary pressures.  The 
Fed statement countered positive observations about increasing 
economic activity with any degree of strength remains uncertain 
and growth in final demand appears to have moderated.  You can 
read the short release here:
http://www.federalreserve.gov/BoardDocs/Press/monetary/2002/20020626/default.htm

Also lost in the wind was good news in the housing sector, a rise 
in the durable goods orders and positive earnings statements from 
GE, CL, GIS, AVP and even COMS, which rose strongly on better-
than-expected Q4 numbers.

The U.S. dollar continued to fall despite the Bank of Japan's 
attempts to strengthen the dollar against the Yen three times 
overnight.  Meanwhile gold ended the day relatively unchanged 
(down a few cents) despite a positive morning.

Looking Ahead.

Considering the extreme oversold conditions in the market, the 
VIX hitting 36 and closing near 32, the potential for more short 
covering now that the Nasdaq and the SPX have "retested" the 
September lows, and the end of the quarter window dressing... I 
wouldn't be surprised to see a bounce tomorrow.  However, like 
every other relief rally we've seen in the last few months I 
don't expect it to last very long.  Until the markets can 
breakout of their current down trend and until Wall Street and 
figure out how to assuage investor fears we're probably not going 
to see that next bull market for a while just yet.  Makes me want 
to look and see what Ray and Mark have on their covered call list 
for the weekend.  Volatile weeks like this one can make small 
consistent gains look pretty darn appealing if you're not 
comfortable playing puts.  By the way, my hat's off to the team 
on the OI market monitor.  They really put a lot of effort that 
coverage and it's paying off.

James


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

STORMY WEATHER
by Leigh Stevens

TRADING ACTIVITY AND OUTLOOK - 
Just when it seemed that investors had heard about the last fraud 
and corporate chicanery, we got the next major accounting scandal 
from WorldCom - the stock had gone from $60 to practically nil on 
the basis of "cooked books" - how fast & furious would the stock 
have been crushed if the REAL story on their revenues for the 
past several quarters had been known. 

At any rate, some "event" always comes along to put the indexes 
back at the low end of those of those relentlessly down-trending 
price channels on the hourly charts.  The pretty much exact 
rebound from the intersection at the low end of the hourly 
channels again set up the place to take put profits perhaps and 
turn to the buy side for those that still believe that they are 
fast enough to play the upside.  

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


 

I think we saw a tradable SPX low today - fear and loathing was 
about as extreme as it gets without some kind of oversold 
rebound.  On the daily chart you will note that SPX did not quite 
"test" it's Sept low - it may do that at some point. 

Then again, maybe not - the S&P 100 has "retested" its prior 
bottom and maybe the broader index will not. We see the same 
pattern on the hourly chart pattern as on all the hourly index 
charts - that of a "W" bottom.  This is not to suggest that this 
pattern means there is a major reversal.  

However, when you put enough technical clues together - a bottom 
at hourly and daily envelope lines, extremes also showing in all 
stochastic time frames, from weekly to hourly, extremely high 
volatility readings, and a rebound (even a minor one) from at or 
near a major prior low - a bottom, at least an interim one, is a 
possibility.  Besides the bears are getting too fat and sassy!

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


 

OEX was not yet at the oversold extremes on all time frames that 
was needed to put the index at a low - the trigger of WorldCom 
put the oscillators there however. As indicated last night, when 
480 was penetrated, 473 became the target, at the low end of the 
downtrend channel. As suggested yesterday, it then became 
opportune for traders to exit puts and play the call side for a 
rebound. Well, OEX got to 471 - close enough to 473 for a winning 
trading cigar! I ended my wrap last night on OEX with statement 
that "On balance, OEX looks like a buy around 470, a sell at 
500." Well, we got the "around 470" part, give us 500 again to 
short!   

480, then 471 is support.  The close above 480 is significant 
from a technical standpoint as it may be the first (the only?) 
successful retest of the Sept. OEX low.  Time will tell.  I would 
consider it significant if 480 becomes a support "floor" tomorrow 
in this index.  

I suggested today on the Market Monitor to buy OEX calls when the 
index was trading in the 477.50 area but dropping fast off a 
rally - I then was able to repeat the call to buy in the 475-477 
area. Having a little time is good - I dislike having to buy 
index options on the upswing. My suggested stop is at 474.50 

Key resistance remains 495-500, as suggested by the cluster of 
prior relative lows and the recent high (in red). 

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


 


I said that DJX looks like a potential buy around 89. OK, but now 
what.  If you bought the dip, stay put and hold out for a 
potential move into the zone of resistance beginning at 92.6 and 
extending up to the 93.2 area. Above this area, stronger 
resistance is anticipated in the 94 area, at the top of the 
downtrend channel and in the area of the prior (up) swing high. 

If 90.8, at the swing bottom before today's 89.3 low, should 
become support on Thursday, the day would shape up bullishly.  
Key support remains as the low of today however and the low end 
of the hourly downtrend channel. 

Nasdaq Composite ($COMPX) Daily/Hourly charts:


 

I don't show the COMP chart everyday, but its interesting for two 
things - the successful (so far) re-test of its prior low from 
post 9/11, at 1387 and as a visual reinforcement of how 
consistently the indexes trade within these hourly channels, once 
they get into a trading "groove".  It seems that about every 
OTHER low is AT the channel line - these "touches" have led to 
some decent rallies.  We'll see how this one unfolds. 

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


 


Per last night - "QQQ is probably a buy in the 24-24.5 area and a 
definite sell back up toward the 27 area again." I got the buy 
part right - maybe! - I'll see how I like being long tomorrow. 

Would like to sell a rally up to the 26.6 to 27 zone. Meanwhile, 
I suggested on the Market Monitor an intraday buy rec on QQQ when 
it was trading at 25.5, after some upside momentum developed.  
Suggested stop is 24.50. The hint of a "bull flag" on this (and 
all the index charts) suggests that the Q's could be about half 
way in an upswing from the second low on the hourly chart.  The 
same "W" bottom is suggested, but is not as clear cut as on the 
OEX chants.  

Bullish action in MSFT, INTC, QCOM, ORCL and CSCO has been the 
key "bottoms up" approach to understanding that a QQQ low might 
be in the offing.  Time will tell, but watch these stocks for 
that telling direction they should provide to the Q's! 


NOTE: The "centered" moving average on the hourly charts is 
not shown (unlike the daily chart) - it is 21; e.g., on the 
hourly chart, the lower band is always 5% below the 21-hour 
moving average. THIS week's TRADER'S CORNER (Thursday) article 
will be on the "ins and outs" of moving average envelopes.  


Leigh Stevens
Chief Market Strategist 
lstevens@OptionInvestor.com 



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

Gearing Up For MOCO
by Mark Phillips
mphillips@OptionInvestor.com

In yet another example of Newton's Law of action-reaction, it
seemed as though my Monday article fell into the realm of
self-fulfilling prophecies.  Bad things happen in bear markets
and the WCOM announcement yesterday is a perfect example.
Investors aren't so concerned with the meltdown of the company,
but they are very worried about where the next cockroach is
going to come from.  Very rarely do you only find one or two.
Recall that I was looking at historical pattern of the VIX with
respect to broad market action.  I got a wave of positive email
on that article, so it seems that I hit on a useful way to
describe the mechanics of the VIX moving to extremes.

If you missed that article, you can find it Here.

Yesterday, I thought of another analogy that applies to the
setup I'm looking for with respect to the VIX.  What I want to
see is a capitulative selloff that drives the VIX over 40
(preferably above 50) in response to the major indices plunging
below significant levels of support.  Remember when you were
younger and set up hundreds of dominos in a pattern, so that
when you pushed the first one over they all fell down in order?
I clearly remember one such childhood experience, where the
final domino that tipped over fell into a glass of water.

Equating the process of knocking down dominos to getting the
capitulation that I'm looking for, WCOM's admission of
fraudulent accounting was the equivalent of pushing over the
first domino.  If everything plays out the way I would like
(wouldn't that be nice!) the VIX spiking above 55 is the
equivalent of that last domino falling into the glass of water.

I received a number of emails today, asking if I thought this
was the capitulation day that would put a bottom in place and
let me institute my MOCO trade.  In a word, "NO".  Don't get
me wrong, there was the possibility for a washout session when
the DOW was trading down by 180-200 points and the VIX was
inching up to the 36 level.  But the Buy Program in the final
hour that sent all the indices back near breakeven on the day
caused the VIX to collapse back to just above 32.  As Art
Cashin said on CNBC this afternoon, floor traders didn't
like the rebound off the lows, as there was no catalyst for
the improvement.  As he's been saying for weeks now, we need
to get a washout, and today was clearly not it.

Oh sure, the rebounds off the lows both this morning and this
afternoon were tradable events.  But they don't fit within
the parameters that I'm looking for in my MOCO setup.  Today
the rubber band got stretched the most it has been since the
end of October, but there is still a lot more stretch left to
go.  My strategy will be to hold my fire until I see what
looks like true panic, and we certainly didn't see that today.

It is important to highlight that I could very well be left
at the altar if the markets fail to deliver the setup I'm
looking for.  I've defined my action points based on specific
VIX levels, as I really don't care what the specific price
levels of the broad market are at the time I start initiating
my position.  This is a VIX trade, pure and simple.

So let's talk about what I'm planning on trading and how I
will implement the trade.  Since I am planning on triggering
my entries on specific VIX levels, it seems that I better
define what those levels will be, and how much capital I will
allocate at each of those levels.  I've already decided how
much money I will allocate to this trade and since we all
have different risk profiles, we each need to decide what that
dollar amount is.  But I think it is valuable to show how I
will allocate capital to the trade as the dominos fall.

Trigger           Action
VIX > 40          Invest 10%
VIX > 45          Invest 15%
VIX > 50          Invest 20%
VIX > 55          Invest 25%
VIX > 58          Invest 30%

Note that by the time the VIX reaches 58, I will have
established the entire position value that I originally
decided on.  This may seem counter-intuitive, that I am only
willing to establish a full position if the market reaches the
level of panic last seen in September.  Rational minds would
rightly state that we shouldn't see that level of panic anytime
soon.  Those same people would have told me 2 months ago that
there was no way that WCOM would be a bankruptcy candidate or
that the S&P 500 would test its September lows.  Well don't
look now, but WCOM is headed for bankruptcy court (in my
never-to-be humble opinion) and the intraday lows on the SPX
today were a mere 8 points above the September intraday lows.

Let me state it another way.  If the VIX only rises to 45
before the big recovery gets underway, then I will only have
allocated 25% of my maximum amount to the trade.  The higher
the VIX goes, the greater the potential reward (rubber band
stretched to the limit), and therefore, the greater the amount
I am willing to risk.  My reason for scaling into the trade is
that I don't want to completely miss out if the VIX reverses
from a level lower than my hoped-for 58-60 extreme.  That is
the reason why fully 55% of my investable amount for this trade
is allocated in the VIX = 55-60 range, where potential reward
is highest.

Now that we've finished setting the action points, we need to
determine what we are going to take action on.  We're looking
to benefit from a broad market rebound and for me that means
either one of the S&P indices or the DOW.  I don't even
consider the NASDAQ or the QQQ as viable for this trade.
Until cap-ex spending sees some sort of meaningful growth, the
QQQ will remain effectively dead in comparison to the DOW and
S&Ps.  After perusing historical option price charts, I could
see that I would get better bang for the buck by trading the
SPX or OEX contracts, but managing the allocation percentages
I highlighted above is tough with less than $25-30K to work
with.  Due to the lower contract costs and my expectation that
the DOW should lead to the upside on the snap-back rally that
I'm expecting, I chose to go with the DJX options.  Utilizing
the September contracts should give me more than enough time
to be right and that just leaves me with the issue of choosing
what strike level to buy.

Well, that is a bit of a dilemna, now isn't it?  Since we don't
know where the DJX will be trading at the point of entry (and
it will likely be at different levels for the different VIX
readings), the solution to this problem is to define the
targeted strikes as being a specified distance from ATM at the
time of entry.  I went through some historical option charts
(DEC-01) for various strikes and found that from the bottom in
September, with the DOW trading near 8000, the best bang for
the buck (>600% Return) came from the DJX 90 Calls over a
2-month holding period.  However the return from the DJX 86
Calls was still really solid at 500% over the same time period.
Using a lower strike started to seriously impact performance due
to the deleterious effect of the volatility and theta premium
built into the At-the-money and Near-the-money options.  

This is an important point, as we are looking to buy calls in a
period of exceptionally high volatility.  We will without a
doubt be buying options with inflated premium due to that
volatility.  But the further we go OTM, the less impact that
volatility will have on the cost of our options.  So essentially,
we are going out-of-the-money to minimize the volatility
collapse that hits our contracts and we are using distant
month contracts to minimize the effect of time decay.

After looking at what seemed to be an endless parade of options
charts, I finally decided that the best balance of return for
capital invested was likely to come from options 400-500 DOW
points OTM at the time of purchase.  So if the VIX hit 40 with
the DOW at 8800, then I would be looking to buy the September
DJX 92 Calls on the first hint of a serious rebound, allocating
10% of my capital earmarked for this trade.  Then if the DOW
continued to fall with the VIX still rising, I might get the
VIX trigger of 45 with the DOW trading at 8600.  Then I would
allocate another 15% of my capital to the trade using September
DJX 90 calls.  I think you can work out the rest of the
projections, based on the table above.

I've said it before, but it bears repeating that this sort of
trade is not for the weak of heart.  It is a HIGH RISK trade
and there is likely to be a fair amount of volatility
surrounding the capitulation bottom that we are trying to buy
into.  Likewise, it is not for impatient traders that don't
have the ability to patiently sit on their hands, waiting for
exactly the predefined setup before putting capital at risk.
But it is the sort of trade that appeals to me for all the
reasons that I laid out in Monday's article.

I may be totally wrong in waiting for the blowoff in the VIX
to get me into the trade.  If so, then I'll let this one go.
I will not force the trade by changing the levels.  A VIX of
38.50 is not "good enough" for me.  That's why my action plan
is written down in my trading journal.  I have an action plan
and that is how I'll stay alive and hopefully profit wildly in
the volatile times ahead.  You're more than welcome to tag
along with me on this adventure or watch from the sidelines.
Either approach will likely provide a valuable educational
experience.  As appropriate, I'll come back to this topic and
we'll see how things are playing out.

Have a great week and beware of the bear!

Mark


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

THE SECTOR BEAT - 6/26
by Leigh Stevens

Most of the same influences ruled the industry sectors today. The 
small cap indexes took a hit on the opening but closed plus on 
the day in terms of the Russell 2000 (RUT) and S&P600 Small Cap.  
There is rebalancing of portfolios going on related to the new 
grouping of the RUT into value and growth segments. The 
Semiconductors and some of the tech-related indexes like disk 
drives, semiconductors and software rebounded a bit.

Biotech was higher - I think this group has put in at least an 
interim bottom and we got filled on my Biotech HOLDR rec. 

Gold stocks continues to look suspect and I think another 
downswing is coming that will be the second down "leg".  
Healthcare and Defense rebounded some today as did the Retail 
sector - while the retail sector rallied today it has been in a 
pronounced downtrend as the consumer maybe has been getting 
spooked by looking at the declining wealth in their brokerage 
accounts. 

Telecoms got CRUSHED - if its too late to "punish" WorldCom, 
there is always AT, BLS, FON, LU, LVLT, NT, NXTL, Q, SBC, T, TMX 
and VZ - especially Qwest (Q) which traded 86 million shares 
today, ending down a whooping 57% to 1.79 - can penny stockdom be 
far behind! 
 

HIGHER ON THE DAY ON Wednesday - 


 

 
DOWN ON THE DAY on Wednesday - 


 


SECTOR TRADE RECOMMENDATIONS & REVIEW -

OPEN/NEW TRADE RECOMMENDATION(S) - 

NONE


OPEN POSITIONS - 

Long BBH at 79.10 (Biotech HOLDR's Trust stock)
Stop: 75.15 (5 percent from entry), revised from previous initial 
stop suggested at 76.00

 
TRADE LIQUIDATIONS -

NOTE ON POSITIONS - 
IJS (S&P 600 SmallCap Value fund) and IWM (Russell 2000 iShares), 
listed as "open positions" in my 6/25 wrap (yesterday), were in 
fact stopped out by the 6/25 close, on their respective stops.  

6/25 - Sold IJS at 86.60 on recommended 87.60 stop.

6/25 - Sold IWM at 89.50 on recommended 89.50.


QUESTION RE STOPS -

Wed, 6/26 -  
Is the stop on IJS & IWM on closing basis, or real time? It is 
obvious they will gap down this morning. 

RESPONSE -  
It was intended to be a "regular" intraday stop - if it was not 
such a crazy-dangerous market and we could enter a stop on close 
order ("Close-only" stops not accepted by exchange), I might have 
suggested doing it on a close-only basis.  

If I leave my IJS shares until the close, it is because I can 
watch the market. However, these recommendations are going out to 
subscribers who cannot necessarily do that. And, for example, if 
IJS closed at 83.50, on an 87.60 stop, that would be more risk 
than I suggested at trade outset.

I may go to a risk strategy of setting a stop equal to 5 percent; 
i.e., on IJS, this would have made my stop equal to 85.38 based 
on my average price on IJS at 89.87. The resulting stop at 85.38 
would have kept us in based on today's (6/26) low of 85.80 and 
the IJS close at 87.90. 

This is what I will begin to do - 5 percent and out.


SECTOR HIGHLIGHT(S) -
NONE


Leigh Stevens
Chief Market Strategist
lstevens@OptionInvestor.com


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The Option Investor Newsletter                Wednesday 06-26-2002
Copyright 2002, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.


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

EMMS - put
Adjust from $27.00 down to $20.25

EXPE - put
Adjust from $67.75 down to $67

JCI - put
Adjust from $82 down to $81.25

KMI - put
Adjust from $42.50 down to $41

LXK - put
Adjust from $56.75 down to $54.50

MIL - put
Adjust from $37 down to $32.25

NVLS - put
Adjust from $38 down to $35.50

TDS - put
Adjust from $66.50 down to $63.50

ZLC - put
Adjust from $41.50 down to $39


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

None


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

None


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

QCOM - QUALCOMM $27.08 +0.72 (+0.96 this week)

QUALCOMM, Inc. is a developer and supplier of code division
multiple access (CDMA)-based integrated circuits and system
software for wireless voice and data communications and global
positioning system (GPS) products. The Company offers complete
system solutions, including software and integrated circuits
for wireless handsets and infrastructure equipment. This
complete system solution approach provides customers with
advanced wireless technology, enhanced component integration
and interoperability, as well as reduced time to market.
QUALCOMM provides integrated circuits and system software to
many wireless handset and infrastructure manufacturers.

Most Recent Update

Through the gloom and doom of the telecom sector, there's been
one stock to hold up relatively well.  And the company expects
a strong third-quarter, how do you like that for guidance?  QCOM
said late last week that it expected to meet or beat the high
end of its previous financial guidance during its fiscal third
quarter due to increasing demand for its wireless technology.
The company had previously said that it expected earnings per
share of 21 cents to 23 cents.  The analyst community had an
average expectation for earnings of 22 cents per share, in
between the company's guidance.  In addition to its higher than
expected earnings guidance, QCOM offered up higher than expected
unit shipments of phone chips.  Yet despite the positive outlook
offered by the company, all the negativity surrounding the
Nasdaq and broader technology sectors drowned out QCOM's lone
sign of strength.  But we think that the first sign of stable
price action should lead the buyers back into QCOM who seek
technology exposure in this market environment.  Moreover,
the stock could see a run into the earnings announcement as
traders bet ahead on just how positive the good news could be
for which QCOM offered a hint last Friday.  Traders looking to
take new plays can look for bounces near support at the $25
level which is close to current levels.  A stop just below at
the $24 level should help to manage the play.  If you're more
comfortable with trading a breakout, then wait for the stock
to clear its short term congestion with a rally above the $28
level on heavier intraday volume.  Confirm direction in the
broader tech sector before entering on a breakout.

Comments

QCOM held its support just as scripted.  The stock fell
briefly below the $25 mark in the early part of the session,
but then led the rally higher into the close.  The stock came
more than $2 off of its lows to finish near the day’s high.
A follow-through session tomorrow should see QCOM breaking
out above short-term resistance.  Look for a rally above the
$28 level on heavy intraday volume.  Confirm any such entry
with an advance past the 10-dma, currently at the $28.12
level.

BUY CALL JUL-25*AAW-GE OI= 3123 at $3.60 SL=1.75
BUY CALL JUL-30 AAW-GF OI=12225 at $1.25 SL=0.50 
BUY CALL AUG-25 AAW-HE OI=  531 at $4.50 SL=2.25
BUY CALL AUG-30 AAW-HF OI= 1423 at $2.10 SL=1.00

Average Daily Volume = 15.2 mln



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

WorldCom Announcement: A Catalyst For Capitulation?
By Ray Cummins

The major equity averages plunged in early trading after a $3
billion accounting error surfaced at WorldCom (NASDAQ:WCOM),
threatening to drive the company into bankruptcy and producing
thousands of layoffs.

WorldCom's stock fell almost 80% in after-hours trading Tuesday
and remained halted on the NASDAQ as the exchange awaited more
information from both WorldCom and MCI Group.  The hi-tech index
sold off in conjunction with the announcement, however investors
could not stay on the sidelines for long and a "bargain-hunting"
buying spree eventually boosted the technology composite 5 points
higher to 1,429.  The Dow Jones industrial average slid 6 points
to 9,120, having fallen to a session low of 8,926 earlier in the
day.  The blue-chip average was hampered by losses in its finance
components amid concerns that banks with loans to WorldCom could
take a hit if the company goes broke.  The broader-market S&P 500
index finished 2 points lower at 973 as airline, tobacco and oil
service issues slumped.  Retail, drug, biotechnology and consumer
stocks led the afternoon rebound and housing stocks opposed the
bearish trend after data showed that May new home sales were up
over 8% to 1.03 million, shattering the 922,000 level that was
forecast by economists.  Trading volume was the heaviest of the
year at 1.99 billion on the Big Board and at 2.06 billion on the
technology exchange.  Market breadth was negative with decliners
pacing advancers 19 to 13 on the NYSE and 21 to 14 on the NASDAQ.
Government bonds rallied as investors looked for safety amid the
stock sell-off.  The 10-year treasury rose 19/32 to yield 4.74%
while the 30-year government bond jumped 14/32 to yield 5.43%.

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

Reader's Write: E-mail Replies

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

To: Contact Support
Subject: Adjusting put-credit spreads by shorting the underlying


Hi Ray,

Thanks for the help.  I have two questions about shorting stock
as an adjustment to a put credit spread.  First, I would assume
you buy back the stock if it goes back above the point at which
you shorted it (say, the strike of the sold stock).  If this is
true, how do you deal with holding the stock overnight - this
would seem to add a lot more risk to the trade.  Also, how would
you deal with trading it in extended hours?

Second, what happens if you get near expiration and the ITM put
is assigned?  Have you now bought the stock you shorted back at
the (higher) strike price of the put that was exercised?  If this
is true, does this close the short and effectively eliminate any
hedge you might have gained with it?  I think I may just have
something mixed up here, but I'm not sure.

Thanks,

DF


Hello DF,

Regarding your comments/questions:

I would assume you buy back the stock if it goes back above the
point at which you shorted it (say, the strike of the sold stock).

That is the technique generally used by traders who participate
in this strategy...and a buy-stop is often utilized to purchase
the underlying in a timely manner as it crosses the sold put
strike price.  Of course, one downfall to this method is
"slippage" -- the amount of money lost due to the size of the
bid/ask spread when selling, and then repurchasing, the stock.
There are also times when the stock will range-trade near the
sold strike, moving back and forth across the buy/sell price.
That can present problems if you are trading with limit and stop
orders.  

If this is true, how do you deal with holding the stock overnight;
this would seem to add a lot more risk to the trade.  Also, how
would you deal with trading it in extended hours?

I am not sure I understand this question because you are actually
selling the stock to "cover" the sold put in this strategy.  It
is used to offset the obligation to buy the stock (the short put),
thus it is your hedge.  You can't further offset your short
position in the stock without affecting the profit/loss outlook
in the original play, so the risk is inherent in the recovery
technique.  If you are concerned about a potential "gap-up" in the
share value of the stock, a call can be purchased to compensate
for that activity but again, it will increase the cost of the
overall position.  Also, buying/selling in extended hours should
not have a significant effect on the strategy unless the stock is
thinly traded.  That it is an issue you should be aware of before
initiating the original position.

Second, what happens if you get near expiration and the ITM put is
assigned?  Have you now bought the stock you shorted back at the
(higher) strike price of the put that was exercised?  If this is
true, does this close the short and effectively eliminate any hedge
you might have gained with it?

If the sold put is "in-the-money," and you have "covered" your
obligation by selling stock at the strike price of the put, your
position is hedged.  If the put is assigned, you will be assigned
stock (long), which is already sold through the "short" position,
at the strike price of the put.  A put will not be assigned if it
is not in-the-money and you should not have a short position in
the stock if its current value is above the strike price of the
sold put.  The simple process in this "covering" strategy is:
sell the stock as it falls below the sold put strike price and
repurchase the stock when it climbs above the sold put strike
price.  If you can do that with minimal slippage and the stock
does not linger near the strike price of the sold put (creating
multiple trades as it moves back and forth across the strike),
the technique will help you avoid large losses in bullish,
credit-spread positions.

Hope that helps!

Ray

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

Summary of Current Open Positions

***************
(As of 06-25-02)

Naked Puts

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

EMLX     JUL    22.5 21.75  21.60  ($0.15)   0.00%
CCMP     JUL    35   34.25  38.41   $0.75    5.04%
QLGC     JUL    35   33.90  37.45   $1.10    7.38%
EBAY     JUL    50   49.20  60.34   $0.80    5.92%
RYL      JUL    47.5 46.70  50.62   $0.80    5.18%
SNPS     JUL    50   48.85  52.88   $1.15    6.48%

The Nvidia (NASDAQ:NVDA) position at $25 was closed for a loss
last Wednesday, as the stock moved through the sold (put) strike.
Other technology issues on the "early-exit" watch-list include
Emulex (NASDAQ:EMLX) and Qlogic (NASDAQ:QLGC).


Put-Credit Spreads

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

FNF     30.52  30.52  JUL   25  27  0.30   27.20  $0.30   Open
ERTS    64.10  62.35  JUL   50  55  0.50   54.50  $0.50   Open
ATH     72.00  66.36  JUL   60  65  0.70   64.30  $0.70  Closed
AET     49.76  46.37  JUL   40  45  0.55   44.45  $0.55  Closed
CI     104.46  96.98  JUL   90  95  0.60   94.40  $0.60  Closed
HCA     50.30  48.39  JUL   45  47  0.40   47.10  $0.40  Closed?
THC     76.10  71.01  JUL   65  70  0.50   69.50  $0.50  Closed
UNH     97.30  89.75  JUL   85  90  0.65   89.35  $0.40  Closed
CTX     56.56  55.09  JUL   45  50  0.40   49.60  $0.40   Open
NOC    121.80 124.00  JUL  105 110  0.40  109.60  $0.40   Open
DGX     91.85  83.41  JUL   80  85  0.55   84.45 ($1.04) Closed
ERTS    64.86  62.35  JUL   50  55  0.40   54.60  $0.40   Open
EXPD    31.25  31.33  JUL   27  30  0.37   29.63  $0.37   Open
KSWS    24.08  23.99  JUL   20  22  0.37   22.13  $0.37   Open
LEN     59.18  58.53  JUL   50  55  0.80   54.20  $0.80   Open


Call-Debit Spreads

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

NUE    68.85  65.15  JUL   60C  65C  4.15  64.15  0.85  Closed

 
Call-Credit Spreads

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

BGEN   42.44 40.30  JUL   60  55  0.25  55.25  $0.25  Open
CYMI   40.59 33.13  JUL   55  50  0.60  50.60  $0.60  Open
C      42.34 39.12  JUL   50  48  0.30  47.80  $0.30  Open
EDS    49.28 46.63  JUL   60  55  0.45  55.45  $0.45  Open
VIA    46.59 44.49  JUL   55  50  0.70  50.70  $0.70  Open
BWA    60.15 57.12  JUL   70  65  0.60  65.60  $0.60  Open
CDWC   43.87 43.91  JUL   55  50  0.55  50.55  $0.55  Open
COF    58.73 57.56  JUL   70  65  0.65  65.65  $0.65  Open


Synthetic Positions:

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

UNH    91.77   89.75   JUL100C/80P  0.10   79.90   2.00  Closed
GD    103.35  103.13   JUL110C/95P  0.10   95.10   1.90  Closed
LMT    65.51   68.25   JUL70C/60P   0.10   60.10   1.80  Closed
DLTR   39.19   38.58   AUG45C/35P   0.25   34.80   0.35   Open
CNF    36.55   35.10   SEP40C/32P   0.10   32.40   0.10   Open


Credit Strangles:

Stock  Pick     Last    Position   Credit   G/L   Yield  Status

ACS    54.45   46.73   JUL60C/47P   1.30    0.53   7.8%  Closed
LXK    59.89   52.05   JUL65C/55P   3.00    0.05   0.5%  Closed


Debit Straddles:

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

DGX    85.72   83.41  AUG85C/85P  10.60  12.50   1.90   Open
FLIR   44.75   40.18  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

***************
EBAY - eBay Inc.  $60.63  *** Internet Giant! ***

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.

eBay is the last of the Internet giants from the bullish market
era and last week, the company's shares rallied earlier after
analysts said the world's largest online auctioneer 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.
From a technical viewpoint, EBAY is performing much better than
most technology stocks, in the wake of the recent sell-off, and
the issue has excellent buying support in the $50 range.  Traders
who believe the issue will move higher as the market searches for
a bottom can profit from that outcome with these positions.

EBAY - eBay Inc.  $60.63

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   10,042    0.80   49.20       7.3% ***
SELL PUT  JUL 55   QXB SK    7,160    1.70   53.30      11.1%
SELL PUT  JUL 60   QXB SL    7,406    3.30   56.70      16.2%


***************
ERTS - Electronic Arts  $63.75  *** Favorable Outlook! ***

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.

The market for interactive games was one of the very few areas
of growth in technology during the last year and Bear Stearns
analyst Jeffrey Vilensky expects 16% top-line growth for the
sector through 2005, with 2002-2003 sales growth of more than
20%.  The top five game publishers, which includes Electronic
Arts, are expected to report operating earnings growth in the
low-to-mid-20% range, easily outperforming the S&P 500 over the
next year.  The catalyst driving this growth is the five-year
life cycle of new videogame consoles.  Approximately every five
years, the videogame makers come out with a new platform for
gamers and the current cycle is only about 20% complete.  That
means that EA and others in the group have additional profit
potential to look forward to in the coming months and traders
who agree with that outlook can profit from upside activity in
ERTS' share value with these positions.

ERTS - Electronic Arts  $63.75

PLAY (sell naked put):

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

SELL PUT  JUL 55   EZQ SK    624     0.60    54.40       4.6% ***
SELL PUT  JUL 60   EZQ SL    1309    1.40    58.60       8.0%


***************
SNPS - Synopsys  $53.49  *** Trading Range! ***

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.

Despite last week's bullish activity, Synopsys' shares were unable
to break above a recent trading-range near $55.  However, analysts
believe the acquisition of Avant! (NASDAQ:AVNT) will significantly
benefit the company's IC design offerings and its new customers
should enjoy a strong operational infrastructure in the combined
business.  That positive outlook has helped the issue remain in a
relatively neutral trend even with the extreme selling pressure in
many technology issues and there is demand for the stock near the
current price.  Traders who think the stock will "weather the
storm" can speculate on its future movement with these positions.

SNPS - Synopsys  $53.49

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    625     0.60    44.40       5.8% ***
SELL PUT  JUL 50   YPQ SJ    987     1.65    48.35      11.2%


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

BULLISH PLAYS - Credit Spreads

***************
GD - General Dynamics  $103.06  *** Get Defensive! ***

General Dynamics (NYSE:GD) operates businesses that produce
information and communications technology, land and amphibious
combat systems, and also engage in naval, as well as commercial
shipbuilding, and business aviation.  These are high technology
firms that use design, manufacturing and program management
expertise together with advanced technology and the integration
of complex systems as part of their everyday operations.  The
company operates in four primary business groups: Information
Systems and Technology, Combat Systems, Marine Systems, and
Aerospace.  The company also owns other commercial operations.

Although most defense issues have retreated in recent sessions,
General Dynamics stopped giving ground today after the builder
of warships and tanks said it expects 2002 revenue to reach the
high end of its previous target, thanks in part to strength in
its defense business.  The CEO said he expects the company to
report revenue of approximately $14 billion for 2002 and $18
billion for 2005 and he also noted that the company's primary
market is "healthy and growing."  Traders who think the solid
fundamental outlook will translate to higher share values can
profit from that activity with this conservative position.
  
GD - General Dynamics  $103.06
  
PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-90  GD-SR  OI=  A=$0.45
SELL PUT  JUL-95  GD-SS  OI=  B=$1.00
INITIAL NET CREDIT TARGET=$0.60-$0.70  PROFIT(max)=14%


***************
INTU - Intuit  $47.15  *** Downgrade, Upgrade, Rally! ***

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

Shares on Intuit have been on a roller-coaster ride in recent
sessions after Morgan Stanley analysts lowered the company's
earnings estimates while Jeffries & Co. upgraded the issue on
strong potential growth.  Apparently, investors opted for the
bullish outlook as they drove the stock almost $3 higher during
today's volatile trading activity.  The heavy-volume rally is
exactly what the stock needed to get "back on track" and traders
who think the up-trend will resume can profit from that outcome
with this very low-risk position.

INTU - Intuit  $47.15

PLAY (very conservative - bullish/credit spread):

BUY  PUT  JUL-35  IQU-SG  OI=2113  A=$0.20
SELL PUT  JUL-40  IQU-SH  OI=3335  B=$0.50
INITIAL NET CREDIT TARGET=$0.35-$0.40  PROFIT(max)=7%


***************
LEN - Lennar  $60.38  *** 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.

The recent rally in Lennar shares began when the company said last
week that fiscal second-quarter earnings rose 9.3%, spurred by the
strength of the housing market.  The company posted earnings for
the quarter of $106 million, or $1.51 per share, compared with $97
million, or $1.40 per share, a year ago and the company's revenues
rose 13% to $1.6 billion.  Analysts were expecting earnings near
$1.24, with estimates ranging from $1.10 to $1.30 but the company
easily surpassed those numbers and increased its outlook for 2003.
The CEO noted, "The homebuilding market in America is strong, and
this strength is reflected not only in our numbers but in the
numbers across the homebuilding business."

Traders who agree with that outlook for Lennar and the company's
share value can speculate conservatively on its future with this
position.

LEN - Lennar  $60.38

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-50  LEN-SJ  OI=283  A=$0.40
SELL PUT  JUL-55  LEN-SK  OI=341  B=$1.00
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=15%


***************
SII - Smith International  $71.73  *** An Old Favorite! ***

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

Those of you who read this section know we are very familiar with
SII and have traded the issue successfully a number of times over
the years.  This week's candidacy for a bullish position is based
on the apparently successful technical consolidation near $70 and
the upcoming 2-for-1 split of the company's stock.  Traders who
also have a favorable outlook for the issue can profit from future
upside movement in the stock with this position.

Smith International  $71.73

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-60  SII-SL  OI=1062  A=$0.35
SELL PUT  JUL-65  SII-SM  OI=470   B=$0.85
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


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

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 favorable "bearish" positions.  Each issue has a well
defined resistance area, robust option premiums and a higher than
average probability of remaining below the break-even point in the
target position.  As with any recommendations, these plays should
be carefully evaluated for portfolio suitability and reviewed with
regard to your strategic approach and personal trading style.

***************
EXPE - Expedia  $59.89  *** Sell-Off In Progress! ***

Expedia (NASDAQ:EXPE) is a provider of travel-planning services.
The company's travel marketplace includes direct-to-consumer
Websites offering travel-planning services located at Expedia.com,
Expedia.co.uk, Expedia.de, Expedia.ca, Expedia.nl and Expedia.it.
Expedia also provides travel-planning services through Voyages
sncf.com, as part of a joint venture with the state-owned railway
group in France.  In addition, the company offers travel-planning
services through its telephone call centers and through private
label travel Websites through its WWTE business.  WWTE is now a
division of Travelscape, one of Expedia's primary subsidiaries.
In February 2002, a controlling stake in the Expedia was acquired
by USA Networks.

EXPE - Expedia  $59.89

PLAY (aggressive - sell naked call):

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

SELL CALL JUL 65   UED GM  1,693     2.10    67.10      13.3%
SELL CALL JUL 70   UED GN  1,085     0.85    70.85       7.6% ***


***************
LLL - L-3 Communications Holdings  $51.35  *** Recent Lows! ***

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

LLL - L-3 Communications Holdings  $51.35

PLAY (aggressive - sell naked call):

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

SELL CALL JUL 55   LLL GK  1,985     1.55    56.55      11.1%
SELL CALL JUL 57.5 LLL GY  2,050     0.85    58.35       7.4%
SELL CALL JUL 60   LLL GL  2,333     0.40    60.40       4.3% ***


***************
KSS - Kohl's  $69.82  *** Trading Range! ***

Kohl's (NYSE:KSS) operates family-oriented, specialty department
stores. The Company's stores sell moderately priced apparel, shoes,
accessories and home products targeted to middle-income customers
shopping for their families and homes.  Kohl's stores have fewer
departments than traditional, full-line department stores, but
offer customers assortments of merchandise displayed in complete
selections of styles, colors and sizes.  Since 1992, the company
has increased square footage an average of 22% per year, expanding
from 79 stores located in the Midwest to a total of 420 stores with
a presence in six regions.  Of the 420 stores it operates, 116 are
take-over locations, which facilitated the entry into several new
markets, including Chicago, Illinois; Detroit, Michigan; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

KSS - Kohl's  $69.82

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-80  KSS-GP  OI=1875  A=$0.25
SELL CALL  JUL-75  KSS-GO  OI=3239  B=$0.85
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)=15%


***************
LEH - Lehman Brothers  $59.66  *** Faltering Financial Sector ***

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

LEH - Lehman Brothers  $59.66

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-70  LEH-GN  OI=4721  A=$0.25
SELL CALL  JUL-65  LEH-GM  OI=5983  B=$0.75
INITIAL NET CREDIT TARGET=$0.55-$0.60  PROFIT(max)=12%


***************
MMM - 3M Company  $122.42  *** Falling From Grace? ***

3M Company (NYSE:MMM), formerly known as Minnesota Mining and
Manufacturing Company, is an integrated enterprise characterized
by substantial inter-company cooperation in research, development,
manufacturing and marketing of products.  3M's primary business
has developed from its research and technology in coating and
bonding for coated abrasives, the company's original product.
Coating and bonding is the process of applying one material to
another, such as abrasive granules to paper or cloth (coated
abrasives), adhesives to a backing (pressure-sensitive tapes),
ceramic coating to granular mineral (roofing granules), glass
beads to plastic backing (reflective sheeting), and low-tack
adhesives to paper (repositionable notes).  The company conducts
its business through six operating segments: Industrial Markets;
Transportation, Graphics and Safety Markets; Health Care Markets;
Consumer and Office Markets; Electro and Communications Markets;
and Specialty Material Markets.

MMM - 3M Company  $122.42

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-135  MMM-GG  OI=2500  A=$0.35
SELL CALL  JUL-130  MMM-GF  OI=2701  B=$0.90
INITIAL NET CREDIT TARGET=$0.60-$0.65  PROFIT(max)=14%


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


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