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Daily Newsletter, Wednesday, 04/16/2003

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The Option Investor Newsletter                Wednesday 04-16-2003
Copyright 2003, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Tale of Two Markets
Futures Wrap: 15 Minute Momentum
Index Trader Wrap: See Note
Weekly Fund Family Profile: Killen Group: The Berwyn Funds
Options 101: Complacency Reigns!


Posted online for subscribers at http://www.OptionInvestor.com
*******************************************************************
MARKET WRAP  (view in courier font for table alignment)
*******************************************************************
        04-16-2003        High      Low     Volume Advance/Decline
DJIA     8257.61  -144.75 8446.47  8233.73 2,999 mln   1477/1777
NASDAQ   1394.99  + 3.74  1418.52  1391.99 1,792 mln   1393/1649
S&P 100   446.78  - 5.30   455.47   445.69   totals    2870/3426
S&P 500   879.91  -10.90   896.77   877.93
RUS 2000  377.73  - 1.87   381.81   377.36
DJ TRANS 2299.69  –16.93  2330.96  2293.36
VIX        25.93  +  .05    26.55    25.10
VXN        37.04  +  .54     37.71   36.37
Put/Call Ratio      0.66
*******************************************************************

Tale of Two Markets
Jonathan Levinson

Last night's session and the early morning futures almost caused a
massive capitulation- by the bears.  An almost perfect bullish
consensus seemed to be underway, marred only by the persistent
weakness in the US Dollar Index overnight.  Despite a massive
infusion of 11.25B via overnight and 5-day repurchase agreements
by Al Green, the indices were unable to hold their opening gains,
and spent the day headed lower.

Chart of the INDU





Chart of the COMPX




The day opened with the CPI and housing starts data at 8:30.  The
CPI data came in showing a 0.3% increase, less than the .4%
analysts expected.  This reading was down from a .6% gain in
February.  The core rate of inflation, which ignores food and
energy prices, was flat.  These low readings show that inflation
is very tame, giving the Fed more room in which to manoeuvre with
monetary policy, but then, the 4 year low on core rate and the
decrease in the overall rate from February is also deflationary.
I believe that this latter interpretation was at least in part
responsible for Al Green's rather aggressive open market
operations at 10AM.

Housing starts posted their largest gain in 6 months, rising 8.3%
in March to a 1.780M annualized rate.  Single family housing
starts was up 7.7% to 1.4M annualized units.  Permits for new
construction fell however, by 7%, the largest drop in one year.
The blowoff top in housing that many have been calling for months
continues to advance, but the drop in permits clearly removed
whatever elation that the otherwise bullish housing starts number
might have inspired.

As the charts above show, today was a tale of two markets, with
the INDU getting croaked for 144 points while the COMPX finished
up by 3.  This is attributable, other than for technical reasons,
to carryover from the strong bullish reaction to INTC and MSFT the
night before, and from some less than stellar results in the Dow
components.

MER announced earnings of 72 cents a share, well above First Call
estimates of 61 cents and up from 67 cents in Q1 2002.  It cited
gains in its fixed income business that offset weakness in its
equity-related businesses.  CAT also surprised to the upside,
reporting 37 cents per share, 12 cents above First Call estimates
and up from Q1 2002's 213 cents per share.

KO, however, got hammered for 6.18% on the day on analyst comments
that while earnings were on track, the quality of those earnings
was "poor", and that case sales were due to fall about 2% short of
estimates.  MMM was down 3.47% after seeing its earnings cut by
J.P. Morgan.  Altria (NYSE:MO) beat by a penny at $1.07 per share,
down from $1.09 per share in Q1 2002.  The stock sold off for more
than 2% notwithstanding, not helped by the announcement that its
stock buyback would be suspended.

The Nasdaq, as mentioned, was more resilient, actually finishing
in the green and assisted by residual bullishness from the after-
hours feeding frenzy yesterday on the earnings announcements from
INTC and MSFT, which finished up 6.01% and 1.22% respectively.
After the bell, SUNW reported a quarterly profit of $4M on
revenues of $2.8B, meeting analyst expectations on profits but
falling short on revenues by $100M.   SUNW was trading down 8
cents in afterhours from its close at $3.32.

BRCM reported increased revenues of $327.5M and announced a
narrower-than-expected loss of 25 cents per share, down from 63
cents per share a year earlier.  It was trading 49 cents above its
close of $14.05 in afterhours trading.   AAPL beat by 2 cents,
coming in at 4 cents per share, but down from 11 cents last year.
Revenue dropped by $275M from $1.5B.  The stock was up 11 cents
afterhours.  AMD was off 20 cents afterhours at $7.70 after
announcing wider losses on a decrease in demand for CPUs.
Nonetheless, QQQ was trading $26.28 afterhours, up 6 cents from
its close.

Stocks received a lift around 10:30 when Tom Ridge announced that
the National Threat Level was being lowered from Orange ("high")
to Yellow ("elevated"), citing a fresh assessment of ongoing
threats by the intelligence community and the continued protective
measures in place domestically.  Ridge added that he felt that the
US is safer under a yellow alert today than it was under the same
alert one year ago, due to the extensive security practices that
have now become routine.

President Bush spoke in St. Louis today, and said that while the
work in Iraq is far from over, Iraqis can look forward to a
brighter future, and that Saddam Hussein's regime is finished.
This followed his signing a $79B appropriations bill covering the
initial cost of the war, reconstruction and humanitarian aid.

It was also announced that the US and North Korea will hold
diplomatic talks for the first time in 6 months.  The multilateral
talks will include China as a full participant, and will be held
in Beijing.  The Bush administration had refused to engage in
talks that did not include other concerned nations in the regions,
stating that it would not give in to "nuclear blackmail."  The
talks in China actually represent a concession by North Korea,
which had initially insisted on holding talks with the US in
Washington.

While news was plentiful today, the markets appeared to trade more
on technicals than anything else.  The major indices found a wall
of sellers in the area of the 200 day exponential moving average.
Amid the hysteria of the open following a strong and sustained
rally in the futures yesterday afternoon and overnight, we saw the
put to call ratio hit a multi-month low at .43.  Breadth was
tilted so far to the bullish side at the open, following an
extended advance all this week, that there was simply insufficient
energy to sustain the move.

While the Nasdaq closed in the green, its gap open above the 200
day EMA felt the real thing, and even tech-bears considered today
a victory.  However, the bullish case cannot be dismissed.  The
Dow gave back nearly all of this week's gains, but the Nasdaq
barely filled today's opening gap.   While weeks and months' worth
of bad economic news has been discounted by attention to the war,
we saw last night with the reaction to INTC's and, to a lesser
extent, MSFT's earnings report, that there is still a great deal
of enthusiasm for good corporate news.  The deep pullback in the
INDU stopped at solid support, and while the COMPX is at loftier
heights, the 1380 level is strong support as well.

I believe that a great deal of the weakness seen in the INDU today
can be attributed to the selloff in the US Dollar Index as
depicted in today's bearish engulfing print.





The selling of US dollars today occurred despite treasury bonds
closing in the green, with the thirty year yield down 3.1 basis
points, the ten down 3.3 basis points, and the five year down 2.3
bps.  The Fed's 11.25B in overnight and five day repos no doubt
helped keep bonds in positive territory, as Governor Bernanke has
stated it intends to do. However, it looks like little was left
over to support blue chip stocks, the other asset class in which
foreign money tends to reside.  If this analysis is correct, then
the selling in the Dow should continue, or at least follow the
moves in the US Dollar Index.

Direction for tomorrow is anyone's guess.  The indices closed near
their lows of the day with little show of strength after the first
hour.  However, with support nearby below and volumes thinning
ahead of the long weekend, with Good Friday and Passover this week
and the majority of options expiring tomorrow, it promises to be
an interesting session.  Traders should continue to exercise great
caution and underleverage.  We can all remember easier markets in
the past, and until the market gets easy again, capital
preservation remains our top priority.


************
FUTURES WRAP
************

15 Minute Momentum
By Vlada Raicevic

Daily Settlement Numbers 4:15pm ET

> DOW
Last: 8257.61
Net: -144.75
High: 844.47
Low:  8233.73

> YM 03M
Last: 8227
Net: -173
High: 8490
Low:  8209

> S&P 500
Last: 879.91
Net: -10.90
High: 896.77
Low:  877.93

> ES 03M
Last: 879
Net: -15
High: 903.50
Low:  876.50

> Nas 100
Last: 1054.89
Net: +1.81
High: 1078.23
Low:  1051.52

> NQ 03M
Last: 1057.50
Net: -3
High: 1084
Low:  1052.50

DAILY PIVOTS

> YM 03M
R2: 8569
R1: 8367
Pivot: 8288
S1: 8086
S2: 8007

> ES 03M
R2: 911
R1: 893
Pivot: 885
S1: 866
S2: 858

> NQ 03M
R2: 1094
R1: 1073
Pivot: 1063
S1: 1042
S2: 1031

When the futures opened yesterday, there was much euphoria from
earnings and it looked like today was going to be the day that
bulls could call their own, with a potential not only to meet, but
possibly exceed recent highs.  During the night session, ES hit
903.25, sold off, then moved up again to 903.50, this double top
then led to selling which brought the ES down to open the day
session at 895.25, down 8.25 from the overnight highs.  Some
buying managed to take price up to 896.75, but from there the ES
pulled back to fill the gap, and to break below yesterdays highs
before more buying came in.  Buyers then pushed the ES up to a
lower high at 895.50, but couldn't get any momentum and selling
took over again, this time on heavy volume.

At this point, it seems that there were slack jaws all across the
trading landscape.  Bulls couldn't believe the continued selling,
and bears were stunned to have either been stopped out of their
positions, or were wailing because most were waiting for higher
levels to enter into shorts.  Selling took the ES down to 882.75
which produced a mild bounce.  Volume fell off a cliff, and price
did very little for an hour, then started grinding slowly down
again, making new lows by .25 with each little burst of selling.
Finally, more selling kicked in, but again, without much momentum
as the volume stayed quite thin.  Price finally bottomed out at
876.50 before some short decided to take enough profits to push
the ES back up 3-4 points on lackluster buying.

Here is the amazing chart of the overnight session:

ES 30 Minute Overnight Session Chart:




Most short term and long term traders that I know have been very
confused by a market that continues to throw a monkey wrench into
the works.  It really doesn't matter if one follows E-wave,
Fibonacci, Time Cycles, or just the Macd, almost all known ways to
interpret the market have been practically useless.  Yesterday we
looked to have almost confirmed a bullish market, and
today....well, today looked like a bad hangover from the party
last night. Not only that, but somebody stole the punch bowl.  Do
we take this as a bearish reversal day?  Well yesterday we looked
like a bullish confirmation day.  A few days back when we had all
those lovely upper tails on the daily chart it looked like we were
failing at every attempt to move the market higher.  It certainly
seems like the markets are either just completely confused, or
there are powerful forces pushing on the markets and trying to
make 'certain' things happen.  Again, it is all irrelevant.  All
we can do is try our best to analyze what's happening and try to
swim with the current.

The ES daily chart has a bearish engulfing candle, completely
eliminating yesterdays rise, and a good part of Monday's rise as
well.  I noticed that the bulls are saying that today's selloff
was on low volume.  Yet, the volume was greater than the last two
days which caused all the bullishness.  Still, with all the
selling, we have not reversed the bullish slant of the daily
charts.  Macd and RSI are close to, but have not crossed back
down.  ADX is still on a bullish rise, and stochastics are
generally unconvinced of anything and have decided to just flatten
out.  Price did not reach the recent high, and instead sold off at
the upper tine of the regression channel (blue).  There are two
rising trendlines of support near the 875 area as well as
horizontal support.

ES Daily Chart:




The ES 135 minute chart shows how price stopped well above the
rising trendline which sits around the 875 area.  Macd and RSI
both were repelled from breaking above their falling trendlines,
with RSI dropping enough to pierce it's 21 period moving average.
Multi-Stochastics doesn't look healthy with two rolling over and
crossing, but the longer term is still pointing up and not moving
in unison, showing that longer term indicators are having trouble
keeping up with all the wild price swings.  Fast stochastic
(5,5,2) peaked at yesterday's close, and is now in full rollover.
The ADX shows selling increasing and buying decreasing, but it is
far from crossing over bearish.

This all shows that yes, we had selling today, but not enough to
completely remove the bullish case.  Yesterday was the first time
that actual buying during the day caused indicators to roll up
positive.  The other two recent crossovers to the upside were done
via gaps.  This is also why the selling today was a surprise.
Raising the futures overnight on very low volume does not
necessarily verify the market mood, and smells of manipulation,
but the buying on Monday and yesterday was done during the day
session, and should lend a touch of validity to the rise.
Nevertheless, like most other gaps up, today was sold, and sold
hard.

ES 135 Minute Chart:





The ES 60 minute chart shows the proper resolution of a rising
wedge into resistance.  Yesterday's close attempted to break above
the pattern, but in the end, it sold off.  Indicators are
decidedly bearish, with Macd having made a bearish divergence at
the top (two equal height peaks but price made higher high),
before rolling over and now breaking the centerline.  RSI broke
out of the rising channel it had been moving in, and ADX is on the
verge of crossing bearish.  Stochastics are also showing no sign
of stopping the decline, since all of them are still moving in
perfect unison.

ES 60 Minute Chart 1:




I also wanted to put up a 60 minute, all sessions chart to show
that this chart shows selling reaching the oversold levels with
all indicators bottoming out and price reaching the bottom of the
regression channel.  There will be plenty of time for price to
work off those oversold levels overnight, but it can be a good
thing to look at this chart during the day session to see if
perhaps it may tell you something the other charts are not.  In
this case, with price reaching this level, it could have told you
that the selling was most likely done for the day.  It might not
bounce, but additional selling would have to wait.

ES 60 Minute Chart 2:




Yesterday I said that the NQ daily chart still had not
conclusively verified as bullish.  Today did surprisingly little
to change that daily chart.  In fact, the indicators are almost at
the exact same place that they were yesterday: on the verge of
crossing bullish, but not quite there.  The NQ's were much more
bullish this morning, and after the first round of selling, they
made a higher high, unlike the ES, before selling too over.  They
did not fall as far as the ES, and in fact, they closed at the
same spot that they closed at yesterday, although they did probe
down close to yesterdays opening price.  Therefore, the damage to
the daily chart was negligible, and the NQs still have the
opportunity to turn back up without having to work as hard as the
ES.

NQ Daily Chart:




Unlike the daily chart, the NQ 135 minute chart shows the damage
done by today's selling.  You can see how price tried to cheat and
gap above all that resistance where the arrow is pointing, and
ended up closing yet again below those converging regression
channel lines.  Macd did a very nice crossover of the trendline
and centerline but is now in danger of rolling back over.  RSI is
still holding above the trendline but has taken a rather sharp
turn down; the fast and the multi-stochastics are also rolling
over, and D+ on the ADX is crossing below the rising trendline it
has had since 4/10.  This is a chart in the first throes of
rolling over and could portend what the daily is poised to do.

NQ 135 Minute Chart:




The NQ 60 minute chart shows a closer look at the selling, with
indicators fully rolled over and no where near being oversold. The
center of the regression channel indicates that the 1045 area
could see some support, but with further selling that centerline
could tilt to the 1041 area, which coincides with yesterday's low
of 1041.

NQ 60 Minute Chart:





After today, we are left again to ponder the mysteries of the
market via mixed signals.  Bullish one day, bearish the next.  It
IS a cycle.  However, one would like to see market cycles a little
longer than 1-2 days, and momentum lasting more than 15 minutes.
Tomorrow will most likely be a very low volume day, and unless
some kind of strong news shows up, we are unlikely to get any real
verification on whether this market wants to go up or go down.
For that kind of resolution, I think we will have to wait for next
week.


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

Check the Site Later Tonight For Jeff’s Index Trader Article
http://members.OptionInvestor.com/itrader/marketwrap/iw_041603_1.asp


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**************************
WEEKLY FUND FAMILY PROFILE
**************************

Killen Group: The Berwyn Funds

The Killen Group, based in Berwyn, PA is the investment advisor
to the Berwyn Funds, a trio of mutual funds that have different
objectives, strategies and risk-reward potential.  The flagship
Berwyn Fund (BERWX), a small-cap value fund, was started on May
7, 1984.  Berwyn Income Fund (BERIX), an income-oriented hybrid
fund with a current Morningstar 5-star rating, began operations
on September 3, 1987.  Berwyn Cornerstone Fund (BERCX) recently
was added to the mutual fund lineup, and applies Killen Group's
value-oriented style/strategy to U.S. stocks with market values
of $1 million to $15 million (i.e. mid-caps).

The Killen Group, Inc. was formed in September 1982.  Robert E.
Killen is Chairman and CEO of the Killen Group and the Chairman
and President of the Berwyn Funds.  He also serves as co-manager
of both the Berwyn Fund and Berwyn Cornerstone Fund.  Edward A.
Killen is Vice President of the Killen Group, and is manager of
the Berwyn Income Fund.  Other key members include Lee S. Grout,
Head of Investment Research.  Grout also serves as co-manager of
the Berwyn Fund and Berwyn Cornerstone Fund.  Raymond J. Munsch,
the fourth member of the firm's investment management committee,
is President and Chief Operating Officer of the Killen Group.

The Berwyn Funds have a minimum initial investment of $3,000 to
open a regular account ($1,000 for initial IRA).  Berwyn Income
Fund has an annual operating expense ratio of 0.69%, the lowest
of the three Berwyn mutual funds.  The annual expense ratios of
the Berwyn Fund and Berwyn Cornerstone Fund are 1.24% and 2.00%,
respectively, per the fund prospectus.  The Berwyn Funds may be
purchased directly or through one of several brokerage networks,
including Ameritrade, Accutrade, Fidelity, Schwab, Vanguard and
others.  For more information or to download a prospectus, logon
to the Berwyn Funds' website at www.berwynfunds.com.

Fund Overview

The Berwyn Fund and its younger sibling, Berwyn Cornerstone Fund
seek to achieve long-term growth of capital; current income is a
secondary consideration.  Berwyn Income Fund as its name implies
seeks to provide investors with current income, while seeking to
preserve capital, by taking what the Killen Group's considers to
be "reasonable" portfolio risks (in other words, consistent with
a low-risk policy).

The Berwyn Fund (BERWX) co-managed by Robert E. Killen and Lee S.
Grout, pursues the fund's objective by investing in common stocks
and fixed income securities offering a potential for appreciation
(income secondary).  In security selection, Killen and Grout seek
undervalued common stocks and base their decisions on fundamental
investment values.  Fixed income securities are limited to 20% of
assets.  The fund is registered with the SEC as a non-diversified
open-end investment company.  So, it may invest a greater portion
of its net assets in the shares of individual issuers.

The Berwyn Cornerstone Fund (BERCX) is very similar in objective,
style and strategy as its older sibling, Berwyn Fund, and is also
co-managed by Robert E. Killen and Lee S. Grout.  It is different
from Berwyn Fund only in terms of its market capitalization range
($1 million and $15 million), maintaining a mid-cap bias overall.
Berwyn Fund tends to buy stocks with market caps of $1 billion or
less, maintaining a small-cap bias.  Mid-cap stocks theoretically
have less risk than small-cap stocks, and offer greater potential
return than large-cap stocks.

The Berwyn Income Fund (BERIX) seeks current income by investing
in debt securities and dividend-paying stocks, with appreciation
a secondary consideration.  Common stock investments can't exceed
30% of the value of net assets.  Fixed income investments include
corporate bonds, preferred stocks and government debt securities,
as well as lower-rated, high-yield fixed income securities.  This
income-driven fund generally maintains enough equity exposure to
land it in Morningstar's domestic hybrid category and in Lipper's
mixed equity category.  It recently sported a trailing (12-month)
yield of 5.99%, per Morningstar, higher than the average balanced
fund.

Please read the fund prospectus for additional information on the
risks incurred by each fund.  In the next section, we take a look
at how well the Berwyn mutual funds have performed in relation to
similar funds.

Fund Performance and Ratings

Because of its income objective, Berwyn Income Fund has done well
over the past three years relative to more equity-oriented hybrid
funds and pure stock funds.  Its trailing 3-year annualized total
return of 11.2% was high enough to rank in the top 2% of all U.S.
hybrid funds according to Morningstar.  Over the same period, the
average domestic hybrid fund lost an average of 5% per year while
the S&P 500 large-cap index declined at an annual-equivalent rate
of 11.8%.





But the story doesn't end there.  The Berwyn Income Fund compares
favorably to other domestic hybrids in both the short-term and in
the long run.  The fund's trailing 1-year return of 5.7% was high
enough to rank in the top 4% of the category.  Its average annual
return of 4.7% over the past five years was strong enough to land
in the category's top 5%.  And its trailing 10-year average total
return through March 31 of 8.3% ranked in the top 18% of the U.S.
hybrid fund category, per Morningstar, nearly beating the S&P 500
large-cap index in the process.

Overall, the Berwyn Income Fund has produced high return with low
risk within the domestic hybrid category for a Morningstar 5-star
(highest) risk-adjusted performance rating.  However, things were
not always this good.  In 1997, 1998 and 1999, when equity prices
were rising, the portfolio produced annual returns that ranked in
the bottom quintile of the domestic hybrid category.  When stocks
are advancing, this fund may lag more equity-oriented hybrids and
when stocks are declining, this fund will fare better than hybrid
funds with larger equity stakes.

Berwyn Fund's long-term record of performance is not as strong as
its income-oriented sibling, but over the past three years it has
shined.  Lee Grout addition as co-manager in July 2001 appears to
have helped this fund gets things turned around.  In 2001, it had
a 28.9% annual total return, ranking in the top 10% of the small-
cap value category per Morningstar.  In 2002, the fund lost 6.9%,
ranking in the top one-third of the category, and so far in 2003,
the fund is up 0.5%, ranking in the category's 15th percentile of
performance.  The result, a trailing 3-year average annual return
of 12.1% and top quintile ranking in the small-cap value category
per Morningstar.






Relative to its small-cap value peers, the Berwyn Fund produced
above average returns the past three years while maintaining an
average risk level, for a Morningstar risk-adjusted rating of 4
stars (above average overall).  The fund's 5-year, 10-year, and
overall rating 2 stars of isn't worth bragging about, but since
Grout became co-manager in 2001 the fund's relative performance
has improved.

The Berwyn Fund's younger sibling, Berwyn Cornerstone Fund, is
relatively new and does not yet have a Morningstar fund report.
For the quarter ended March 31, 2003, the fund lost 2.4%, less
than 3.2% decline by the S&P 500 index and the 4.4% decline by
the S&P Midcap 400 index.  You may want to come back and review
this fund's performance after May 1, 2003, when it reaches its
one-year anniversary.

Conclusion

Value investors seeking capital appreciation may want to consider
the Berwyn Fund or Berwyn Cornerstone Fund as a supporting player
in their equity portfolio.  Value investors seeking a high-income
level consistent with a lower risk strategy may prefer the income
oriented, Berwyn Income Fund, for their investment needs.

Because the Killen Group is a value manager that emphasizes small
and mid-cap stocks, their equity funds may potentially lag other
styles (blend and growth funds) when value stocks are out of sync
with the market or large-cap stocks do better than small and mid-
cap stocks in general.  Berwyn Income Fund tends to maintain more
fixed income exposure than other domestic hybrids, see it'll tend
to lag in rising markets and lead in falling markets (relative to
more equity-oriented hybrid peers).

For further information on the Berwyn Funds or Killen Group, Inc.
as an investment manager, go to www.berwynfunds.com website.

Steve Wagner
Editor, Mutual Investor
steve@mutualinvestor.com


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

Complacency Reigns!
By Mark Phillips
mphillips@OptionInvestor.com

I've been writing about the Volatility Index (VIX.X) so much
lately that I feel like a bit of a one-trick pony, but I keep
coming back to it because the action is so compelling and I feel
it is sending us some big warning signals that we can't afford to
ignore.  Despite continued volatile action in the broad market,
the VIX has continued to drill to new multi-month lows, very
clearly telegraphing that option writers are becoming less and
less nervous.

The big question is "why"?  The economy is not in good shape, and
while this earnings season probably won't be a disaster, neither
will it provide any evidence of the much-ballyhooed second half
recovery.  While I touch on the topic of the VIX every week in the
LEAPS column, the strange behavior of this indicator has prompted
me to write a couple of lengthy articles on the topic in recent
months.  For those of you just tuning in, here are the links to
what I think are the pertinent issues related to the VIX.

Best of Intentions
http://members.OptionInvestor.com/options101/opt_022603_1.asp

Consolidation
http://members.OptionInvestor.com/options101/opt_032603_1.asp

Let's summarize what we were looking for, so that we can put the
recent action in the VIX into the proper context.  Stepping
backward in time just a couple weeks, I was looking at some
potential support levels in the VIX, first at the ascending
trendline (just below 29) and then at the November/January double
bottom near 26.20.  Well the trendline was violated late last
week, and yesterday's close of 26.04 fractionally broke the double
bottom support.  With last night's bullish reception of the
MSFT/INTC earnings results, a strong move at the open (and hence
more weakness in the VIX) seemed to be a certainty.

While we did get a slight gap up at the open, it isn't the price
action in the major indices that I think was important.  It was
the weakness in the VIX, which traded down to 25.10 this morning,
its lowest level since June 11th, 2002.  There was one other, more
esoteric support floor that I came up with for the VIX and it came
from a historical calculation I did with respect to the VIX and
its 200-dma.  This study demonstrated that over the past several
years, there has been a floor under the VIX at a level 30-32%
below the 200-dma.  Based on the 200-dma at 35.82 this morning,
that pegged the practical floor for the VIX in the 24.36-25.07
area.  So isn't it interesting how the VIX bottomed right at the
top of this range today?  We've looked at this chart before, but I
think an updated picture as of today will prove most enlightening.

Daily Chart of the CBOE Volatility Index (VIX.X)




Those two potential support levels near 29 and 26 didn't hold, but
the calculated floor for the VIX based on the 200-dma was spot on!
And I like the way the VIX drifted up to close just over 26 this
afternoon.

On several occasions in recent months (specifically in the Best of
Intentions article), I've noted the strange divergence between the
VIX and the S&P 100 (OEX.X).  Over the past several months, there
has been a consistent draining of fear out of the market, and that
phenomenon caught my attention big time.  Today I want to take a
different look at this relationship, in a way that I think will
better demonstrate what I'm seeing.

Relative Strength Chart of the VIX vs. OEX




Those two charts may look the same, but take a closer look and
you'll notice some subtle, but I believe very important
differences.  See that island candle that was entirely above the
upper trendline in the first chart?  In the relative strength
chart, the close was back below the trendline.  And look at the
action over the past week.  While the past five days have been
below the lower trendline on the first chart, when we look at the
VIX in this relative strength format, we see that the lower
trendline has been respected on both of the past 2 days.  In
addition, look at the horizontal support produced by the
November/January double bottom.  That level of support also held
today, whereas it has been violated on the standard VIX chart.

Alright, I know I've probably already made my case, but I want to
present one more perspective of the inter-relationship between the
VIX and the OEX that shows how fear has been draining out of the
market.

OEX Daily Chart with VIX Overlay




Normally, the VIX and OEX should move opposite of one another, but
that is clearly not what has been happening lately.  Even though
the OEX is actually below its 10/21/02 level, the VIX is also
lower, by 34%!!  The aberration from the normal VIX/OEX
relationship was further highlighted today, as the OEX fell back
to $446 while the VIX essentially ended the day unchanged.  Let's
go back in time a mere 10 trading days, and we can see the OEX
came to rest on 4/02 at $447.  Where was the VIX at the time?
31.29.  The OEX is marking time, while the VIX continues to show a
shocking lack of fear.

This strangeness is not confined to the OEX/VIX relationship
though.  Have you taken a look at the NASDAQ-100 Volatility index
(VXN.X) lately?  Yesterday, the VXN hit a new all-time low of
35.98.  Now I realize there isn't as much historical data for the
VXN as there is for the VIX, but the last time the VXN was in the
area of 36 was at the end of March 2002.  Do you remember what
happened to the NASDAQ for the next four months?  It got clobbered
to the tune of a 38% loss.  Here's a fun exercise for those of you
that use Qcharts.  Pull up your own relative strength chart of the
VXN vs. the NASDAQ-100.  The actual entry for the symbol field is
"index:vxn.x /index:ndx.x"  Don't forget the space between the
first symbol and the "/".  Do you see anything there that looks
vaguely familiar?

So what does it all mean?  Is the market ready to fall apart
again?  Well, yes and no.  I've made no secret of my opinion that
the equity market is still headed lower -- much lower.  And this
blatant display of complacency being demonstrated by the
volatility indices only solidifies that belief.  As traders,
determining direction is only one part of our daily struggle.
Perhaps more important is timing.  While I think this bear market
rally is getting a bit long in the tooth right now, I keep coming
back to the bullish percent readings and they tell me that I'm
still a bit too early to start getting aggressive to the downside.

Based on the discussion above, I think we are very close to a
bottom in the VIX.  But at the same time, I am holding off on
entering bearish position trades on the major indices because of
my expectation for further upside due to the position of the
bullish percents.  My ideal situation is to see the VIX fall near
the 24 level, the OEX climb up to the site of its descending
trendline (on the exponential chart shown in the Consolidation
article referenced above), which is currently at $468 and for the
bullish percents to work their way closer to overbought territory.
Currently the OEX bullish percent is only 45%, so clearly there is
further upside POTENTIAL.  But I'll also point out that I have no
conviction in seeing further upside.  The bullish percents could
halt their advance right where they are and the markets could
proceed south from here.  That's why I'm not trading the major
indices (even on a short-term basis) from the bullish direction.
My attention is focused on the bearish setups now and I'm just
hoping the stars line up for the entries I want.  As you can see,
there are still several factors that need to line up for that
great shorting opportunity, but if my analysis on the VIX is
accurate, I certainly wouldn't rule out a repeat of what
transpired between May and July of 2002.

No matter how you slice it, we're likely to see some excitement in
the weeks and months ahead!

Mark

Note: I'm taking a brief respite from the markets next week, so I
won't be doing my normal Monday and Wednesday articles.  So rest
up in my absence and we'll get back to educating as usual on April
28th.


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The Option Investor Newsletter                Wednesday 04-16-2003
Copyright 2003, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

In Section Two:

Market Watch: Five More to Keep Watch
Premium Selling Plays: Earnings Season Rally Sputters!

Updated on the site tonight:
Market Posture: The old Switcharoo!


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

Five More to Keep Watch

Johnson & Johnson - JNJ - close: 54.39 change: -1.59

Shares of JNJ are sliding despite positive earnings growth in
their Q1 report.  Wall Street appears to be worried about
competition and they're showing it.  Volume has been very strong
the last two days.  Wednesday's session was a 2.8 percent drop
that placed the blue chip below the $55 mark and its 50, 100, and
200-dma's.  This is NOT a bullish show of strength!  MACD has
rolled over as are other oscillators.  It may feel like a chase
here, but the stock looks like it is headed for $50.00.
Optimistic bulls might be hoping for some support at the $51.50
level.

Chart=


---

SLM Corp - SLM - close: 114.59 change: -1.91

SLM Corp, or better known as Sallie Mae, has been incredibly
strong lately.  As of yesterday, even this morning, it was
hitting new all-time highs.  The bad news for bulls is the stock
is looking pretty overbought and today's session painted a
bearish engulfing candlestick.  This could be a potential
reversal in the making.  To add more volatility to the mix, the
company is expected to announce earnings tomorrow.  Now, you're
probably thinking we're bearish, but we're not.  Yes, we expect
the stock to trade lower but in reality we're looking for an
entry point to play the stock's up coming 3-for-1 split.  The
split is to be approved in May.  Now our outlook may change if
the earnings report tomorrow comes out negative.  Hopefully, SLM
will get a big enough drop to pull back to what should be support
at $110.  Keep in mind; the stock is so overbought on a weekly
basis that a much bigger round of profit taking could ensue.
This is a good case to take a wait and see approach.

Chart=


---

Wellpoint Health Network - WLP - close: 73.83 change: -3.72

Wow! Talk about selling the news.  Investors are selling WLP on
the news and it's not even WLP's news they are selling.  WLP is
one of the biggest health insurance companies out there but they
trade in close tandem with UnitedHealth (UNH) who is the biggest.
This morning UNH came out with very strong Q1 earnings reports.
Revenues were up 37% and UNH said they expect revenue to rise by
16% for 2003.  This is great news but traders sold it.  WLP is
guilty by association.  Shares of WLP fell 4.79% and dropped out
of its rising trend and broke the $75 level.  It's currently
resting just above the 200-dma.  Volume was very strong on the
decline today.  The MACD for WLP has rolled over into a bearish
crossover.  There is potential support at $73 and again at $70
but with the market on the verge of a turnover (see the comments
on the VIX tonight) WLP may actually fall to the $65 area.  WLP's
earnings are due on April 23rd after the close.

Chart=


---

St. Jude Medical - STJ - close: 48.50 change: -1.15

STJ is another medical stock that announced strong earnings this
morning, beating by three cents.  What did traders do?  They sold
it.  So far the up trend is still intact but a close under $48 or
$47.50 could have the bears crowding in.  The stock is primed for
some profit taking.  Should this occur we'd look for a move to
the $42.50 area while being wary of potential support at $45.
Keep in mind, that we'll be looking for a bottom as STJ is one of
the stronger stocks bulls will be playing for a rebound.

Chart=


---

Burlington Resources - BR - close: 46.71 change: -0.39

This oil & gas company is a potential bullish candidate for the
patient trader.  Shares don't move very fast but there is no
denying their relative strength.  The plan would be to wait for
shares to complete their consolidation back down to the bottom of
their rising channel.  Shares might rebound at the $46 mark but
if you're patient, odds are bulls might get a better entry by
waiting for a dip towards $45.  If a long position is created a
stop is essential.  We'd make the stop pretty tight if your entry
is near the $45 mark.  Earnings are expected on April 24th but
considering the pace of the stock you may be better off by
waiting until after earnings to initiate a position and by using
options six to nine months out.

Chart=



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*********************************************
SPREADS, COMBINATIONS & PREMIUM-SELLING PLAYS
*********************************************

Earnings Season Rally Sputters!
By Ray Cummins

Stocks ended mixed today as technology shares edged higher on
favorable news from Microsoft and Intel, while broader-market
issues drifted lower amid a glut of negative earnings reports.

The NASDAQ added 3 points to 1,394, its first test of the 1,400
level since early January.  Buying pressure emerged in computer,
networking and Internet stocks.  The Dow Jones Industrial Average
slid 147 points to 8,255 after two consecutive sessions of gains.
The big losers on the blue-chip gauge were Coca-Cola (NYSE:KO),
SBC Communications (NYSE:SBC) and 3M (NYSE:MMM).  The S&P 500
stock index retreated 10 points to 879.  Biotechnology, drug and
tobacco shares slumped while defense and airline stocks enjoyed
limited upside activity.  Trading volume was moderate with 1.56
billion shares exchanged on the NYSE while 1.51 billion shares
were swapped on the NASDAQ.  Losers outpaced winners 6 to 5 on
the Big Board and bearish stocks outnumbered bullish issues 8 to
7 on the technology exchange.  In the U.S. bond market, treasury
issues firmed, sending yields marginally lower as strong housing
data failed to convince traders the economy is on solid footing.
The 10-year bond rose 12/32 for a yield of 3.94%.

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

SUMMARY OF CURRENT POSITIONS - AS OF 4/15/03

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

The following summary is a reasonable account of the positions
previously offered in this section.  However, no representation
is being made as to the actual performance of a position and in
fact, there are frequently large differences between the summary
results and those of our subscribers, due to the variety of ways
in which each play can be opened, closed, and/or adjusted.  In
addition, the summary might not be completely representative of
the manner in which the average trader would react to changing
conditions in a position and to the options market in general.
The editor of this section does not take actual positions in any
published plays and the summary comments are simply a service to
help new traders understand when positions might be opened and
closed.  In most cases, actions taken based on the commentary
would be far too late to be effective, thus it is not intended
as a substitute for personal trade management nor does it in
any way replace your duty to diligently monitor and manage the
positions in your portfolio.


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

The Maximum Yield (listed in the summary and with "naked" option
selling plays) is the greatest possible profit available in the
position.  This amount, expressed as a percentage, is based on
the initial margin requirement as determined by the Board of
Governors of the Federal Reserve, the U.S. options markets and
other self-regulatory organizations.  Although increased margin
requirements may be imposed either generally or in individual
cases by various brokerage firms, our calculations use the widely
accepted margin formulas from the Chicago Board Options Exchange.
The "Simple Yield" is based on the cost of the underlying issue
(in the event of assignment), including the premium from the sold
option, thus it reflects the maximum potential loss in the trade.


Naked Puts
**********

Stock  Strike Strike  Cost Current   Gain    Max   Simple
Symbol  Month  Price Basis  Price   (Loss)  Yield  Yield

CELG     APR    22   21.25  25.90   $1.25   8.68%   5.88%
ERES     APR    20   19.20  28.18   $0.80   8.04%   4.17%
EXPE     APR    40   39.50  54.10   $0.50   4.15%   1.27%
GENZ     APR    30   29.60  35.79   $0.40   4.69%   1.35%
KLAC     APR    32   31.95  37.36   $0.55   5.84%   1.72%
MSFT     APR    24   23.35  24.61   $0.40   4.85%   1.71%
APPX     APR    20   19.45  16.53  ($1.25)  0.00%   0.00% *
GENZ     APR    30   29.70  35.79   $0.30   4.56%   1.01%
KLAC     APR    32   32.10  37.36   $0.40   5.35%   1.25%
NVLS     APR    25   24.65  26.28   $0.35   6.36%   1.42%
ROOM     APR    50   49.10  67.17   $0.90   8.23%   1.83%
YHOO     APR    22   21.90  24.81   $0.60   9.63%   2.74%
BSTE     APR    35   34.75  41.48   $0.25   4.56%   0.72%
CAT      APR    47   47.10  52.70   $0.40   4.51%   0.85%
GENZ     APR    35   34.60  35.79   $0.40   6.10%   1.16%
KLAC     APR    32   32.25  37.36   $0.25   4.87%   0.78%
CMCSA    APR    27   27.25  30.08   $0.25   8.20%   0.92%
DCX      APR    30   29.55  31.85   $0.45   14.07%  1.52%
AVID     MAY    20   19.50  26.47   $0.50   5.89%   2.56%
ERES     MAY    22   21.90  28.18   $0.60   6.03%   2.74%
GILD     MAY    40   39.60  42.90   $0.40   5.36%   1.01%
JCOM     MAY    25   24.70  34.26   $0.70   6.83%   2.83%
RYL      MAY    42   41.50  49.75   $1.00   4.45%   2.41%
AVID     MAY    20   19.70  26.47   $0.30   4.53%   1.52%
CTSH     MAY    18   17.27  19.79   $1.10   14.54%  6.37%

The bullish position in American Pharmaceutical Partners
(NASDAQ:APPX), which has been on the watch-list since 4/2,
was closed when the issue hit a new multi-week low.  The
loss reflected in the summary is based on Monday's (4/14)
closing prices.


Naked Calls
***********

Stock  Strike Strike Cost  Current   Gain    Max   Simple
Symbol Month  Price  Basis  Price   (Loss)  Yield  Yield

COF      APR    32   33.05  37.49  ($2.19)  0.00%  0.00% *
MERQ     APR    35   35.80  33.50   $0.80   7.15%  2.23%
IGEN     APR    45   45.55  34.93   $0.55   7.71%  1.21%
MCHP     APR    25   25.40  18.15   $0.40   7.37%  1.57%
BSX      APR    45   45.40  43.11   $0.40   3.93%  0.88%
IGEN     APR    45   45.45  34.93   $0.45   7.93%  0.99%
NE       APR    35   35.50  31.44   $0.50   6.06%  1.41%
VIA.b    APR    42   39.00  41.24   $0.30   3.37%  0.77%
IGEN     APR    42   42.95  34.93   $0.45  11.18%  1.05%
NE       APR    35   35.30  31.44   $0.30   5.39%  0.85%
QCOM     APR    37   37.90  33.08   $0.40   7.07%  1.06%
CCMP     MAY    50   50.70  44.18   $0.70   5.44%  1.38%
MERQ     MAY    37   37.95  33.50   $0.45   5.59%  1.19%
QLGC     MAY    42   43.40  39.17   $0.90   6.76%  2.07%

Capital One Financial (NYSE:COF), which has been on the
watch-list for two weeks, became an "early-exit" victim
on 4/10/03 when the issue closed at a three-month high.
The loss reflected in the summary is based on Thursday's
closing prices.  The position in Pulte Homes (NYSE:PHM)
has previously been closed to limit losses.


Put-Credit Spreads
******************

Symbol  Pick   Last   Month L/P S/P Credit  C/B    G/L  Status

AMGN    55.33  60.15   APR   47  50  0.30  49.70  $0.30  Open
NKE     46.48  53.77   APR   40  42  0.30  42.20  $0.30  Open
ADBE    33.02  33.88   APR   25  30  0.50  29.50  $0.50  Open
CMCSA   29.91  30.08   APR   25  27  0.30  27.20  $0.30  Open
FRX     53.10  53.40   APR   45  50  0.60  49.40  $0.60  Open
LXK     65.89  68.69   APR   55  60  0.50  59.50  $0.50  Open
SLM    110.21 116.50   APR   95 100  0.45  99.55  $0.45  Open
BSTE    38.47  41.48   APR   30  35  0.40  34.60  $0.40  Open
CFC     58.00  60.34   APR   50  55  0.40  54.60  $0.40  Open
ERTS    59.56  59.11   APR   50  55  0.50  54.50  $0.50  Open
IBM     81.46  82.79   APR   70  75  0.50  74.50  $0.50  Open
BBH     97.50  96.05   MAY   85  90  0.60  89.40  $0.60  Open
CAT     51.71  52.70   MAY   45  47  0.30  47.20  $0.30  Open
RYL     47.52  49.75   MAY   40  42  0.25  42.25  $0.25  Open
VIP     37.73  37.10   MAY   30  35  0.60  34.40  $0.60  Open


Call-Credit Spreads
*******************

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

BHI     30.13  28.01  APR  35  32   0.25  32.75  $0.25   Open
INTU    50.44  40.13  APR  60  55   0.55  55.55  $0.55   Open
OMC     53.96  61.30  APR  65  60   0.50  60.50 ($0.80)  Open *
CCMP    44.61  44.18  APR  55  50   0.50  50.50  $0.50   Open
DVN     47.70  47.99  APR  55  50   0.45  50.45  $0.45   Open
IP      35.63  34.06  APR  40  37   0.20  37.70  $0.20   Open
APC     46.05  45.43  MAY  55  50   0.50  50.50  $0.50   Open
ATK     53.08  50.00  MAY  65  60   0.45  60.45  $0.45   Open
TOT     65.30  66.91  MAY  75  70   0.65  70.65  $0.65   Open
CAH     56.55  58.33  MAY  65  60   0.80  60.80  $0.80   Open
GM      34.48  35.17  MAY  40  37   0.30  37.80  $0.30   Open
MXIM    35.51  37.05  MAY  45  40   0.75  40.75  $0.75   Open
MHP     56.65  59.41  MAY  65  60   0.65  60.65  $0.65   Open *

The position in Omnicom (NYSE:OMC) became a candidate for early
exit when the issue closed above the sold strike.  Mcgraw Hill
(NYSE:MHP) and Maxim Integrated Products (NASDAQ:MXIM) are on the
"early exit" watch-list and conservative traders should consider
closing these spreads on any further upside movement.  Positions
in Centex (NYSE:CTX), Lennar (NYSE:LEN), and Lehman Brothers
(NYSE:LEH), have previously been closed to limit potential losses.


Synthetic Positions
*******************

Stock   Pick   Last   Expir.  Long  Short  Initial  Max.    Play
Symbol  Price  Price  Month   Call   Put   Credit   Value  Status

GGP     54.02  54.50   APR     55    50     0.00    0.40    Open?


Calendar Spreads
****************

No Open Positions


Credit Strangles
****************

No Open Positions


Questions & comments on spreads/combos to Contact Support
**************

NEW POSITIONS

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.  The positions with "*" will be
included in the weekly summary.  Those with "TS" (Target-Shoot)
are below our minimum monthly return, but may offer a favorable
entry price with a limit order, due to the daily volatility of
the underlying issue.

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

BULLISH PLAYS - NAKED PUTS

All of these issues have robust option premiums and relatively
favorable technical indications.  However, current news and market
sentiment will have an effect on these stocks, so review each play
thoroughly and make your own decision about its future outcome.

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered puts entails considerable financial risk,
far more than the initial margin or collateral required to open
a position.  The maximum financial obligation for the sale of a
naked put is the strike price (of the underlying stock) that is
sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of puts should have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  In addition, there is one very important rule when using
this strategy: Don't sell puts on stocks that you don't want to
own!  Why?  Because stocks occasionally experience catastrophic
declines, exponentially increasing the margin maintenance and
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock's price falls.
Many professional traders suggest closing the position when the
underlying share value moves below the sold strike, or using a
"buy-to-close" stop order at a price that is no more than twice
the original premium received from the sold option.

***************
ADI - Analog Devices  $30.26  *** Favorable Earnings! ***

Analog Devices (NYSE:ADI) is engaged in the design, manufacture
and marketing of high-performance analog, mixed-signal and
digital signal processing (DSP) integrated circuits.  The firm's
many products play a fundamental role in converting real-world
phenomena, such as temperature, motion, pressure, light and sound,
into electrical signals to be used in a wide array of electronic
equipment, ranging from industrial process control, automation
systems equipment, smart munitions, base stations, central office
equipment, wireless telephones, computers, cars, computer-aided
tomography (CAT) scanners, digital cameras and DVD players.

ADI - Analog Devices  $30.26

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 25    ADI QE     484    0.35  24.65   4.9%   1.4% *
SELL PUT  MAY 30    ADI QF     312    1.70  28.30  12.7%   6.0%


**************
BBY - Best Buy Company  $30.79  *** Bullish Retailer! ***

Best Buy Company (NYSE:BBY) is specialty retailer of consumer
electronics, personal computers, entertainment software and
appliances.  Best Buy operates retail stores and commercial
Websites under the brand names Best Buy, Media Play, On Cue,
Sam Goody, Suncoast, Magnolia Hi-Fi and Future Shop.  The firm
operates three segments: Best Buy, Musicland and International.
Best Buy is mainly a specialty retailer of consumer electronics,
home office equipment, entertainment software and appliances.
Also included in the Best Buy segment is Seattle-based Magnolia
Hi-Fi, a high-end retailer of audio and video products.  Their
Musicland segment is primarily a mall-based retailer of movies,
prerecorded music, video games and other entertainment-related
products.  The International segment consists of Future Shop, a
specialty retailer of consumer electronics, home office equipment,
entertainment software and appliances with operations in Canada.

BBY - Best Buy Company  $30.79

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 27.5  BBY QY   3,256    0.50  27.00   5.3%   1.9% *
SELL PUT  MAY 30    BBY QF     708    1.15  28.85   9.2%   4.0%


**************
KLAC - KLA Tencor  $38.51  *** Chip-Equipment Leader! ***

KLA-Tencor (NASDAQ:KLAC) is a supplier of process control and
yield management solutions for the semiconductor and related
microelectronics industries.  The company's large portfolio
of products, software, analysis, services and expertise is
designed to help integrated circuit manufacturers manage yield
throughout the entire wafer fabrication process, from research
and development to final mass production yield analysis.  The
company offers a broad spectrum of products and services that
are used by every major semiconductor manufacturer in the world.
These customers turn to the company for in-line wafer defect
monitoring; reticle and photomask defect inspection; CD SEM
metrology; wafer overlay; film and surface measurement; and
overall yield and fab-wide data analysis.

KLAC - KLA Tencor  $38.51

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 32.5  KCQ QZ   3,460    0.45  32.05   4.6%   1.4% *
SELL PUT  MAY 35    KCQ QG   3,942    0.95  34.05   7.5%   2.8%
SELL PUT  MAY 37.5  KCQ QU   1,147    1.70  35.80  10.7%   4.7%


**************
LLTC - Linear Technology  $33.13  *** More Chip Stocks! ***

Linear Technology (NASDAQ:LLTC) designs, manufactures and sells
a broad line of standard high-performance linear integrated
circuits (ICs).  Applications for the company's products include
telecommunications, cellular telephones, networking products,
optical switches, notebook and desktop computers, computer
peripherals, video/multimedia, industrial instrumentation,
security monitoring devices, high-end consumer products, digital
cameras and MP3 players, complex medical devices, automotive
electronics, factory automation, process control and military and
space systems.

LLTC - Linear Technology  $33.13

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 27.5  LLQ QY     749    0.35  27.15   4.5%   1.3% *
SELL PUT  MAY 30    LLQ QF   1,464    0.90  29.10   8.3%   3.1%
SELL PUT  MAY 32.5  LLQ QZ   1,393    1.75  30.75  12.3%   5.7%


**************
MSTR - MicroStrategy  $27.66  *** New 52-Week High! ***

MicroStrategy (NASDAQ:MSTR) is a global leader in the increasingly
critical business intelligence software market.  Large and small
firms alike are harnessing MicroStrategy's business intelligence
software to gain vital insights from their data to help them
proactively enhance cost-efficiency, productivity and customer
relations and optimize revenue-generating strategies.  The firm's
business intelligence platform offers exceptional capabilities that
provide organizations, in virtually all facets of their operations,
with user-friendly solutions to their data query, reporting, and
advanced analytical needs, and distributes valuable insight on this
data to users via Web, wireless, and voice.

MSTR - MicroStrategy  $27.66

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 22.5  EOU QX     93     0.50  22.00   7.9%   2.3% *
SELL PUT  MAY 25    EOU QE     73     1.10  23.90  11.7%   4.6%


**************
SLAB - Silicon Laboratories  $27.58  *** Trading Range! ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and sells
proprietary high-performance mixed-signal integrated circuits for
the wireless, wireline and optical communications industries.  The
company initially focused its efforts on developing ICs for the
personal computer modem market and is now applying its mixed-signal
and communications expertise to the development of ICs for other
high growth communications devices, such as wireless telephones and
optical network applications.  The company's mixed-signal design
engineers utilize standard complementary metal oxide semiconductor
(CMOS) technology to create ICs that can reduce the cost, size and
system power requirements of devices that the company's customers
sell to their end user customers.

SLAB - Silicon Laboratories  $27.58

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 22.5  QFJ QX   2,340    0.35  22.15   5.6%   1.6% *
SELL PUT  MAY 25    QFJ QE     759    0.90  24.10   9.8%   3.7%


**************
XLNX - Xilinx  $25.53  *** Semiconductor Sector Rally! ***

Xilinx (NASDAQ:XLNX) is the world's leading supplier of complete
programmable logic solutions.  Xilinx develops, manufactures, and
markets a broad line of advanced integrated circuits, software
design tools and intellectual property.  Their customers use the
automated tools and intellectual property, which are predefined
system-level functions delivered as software cores, from Xilinx
and its partners to program the chips to perform custom logic
operations.

XLNX - Xilinx  $25.53

PLAY (sell naked put):

Action    Month &   Option    Open    Last  Cost    Max.  Simple
Req'd     Strike    Symbol    Int.    Price Basis  Yield  Yield

SELL PUT  MAY 20    XLQ QD   2,477    0.20  19.80   3.8%   1.0% TS
SELL PUT  MAY 22.5  XLQ QX   1,997    0.60  21.90   7.8%   2.7% *
SELL PUT  MAY 25    XLQ QE     587    1.40  23.60  12.8%   5.9%


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

BULLISH PLAYS - CREDIT SPREADS

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may also be higher than other plays in the same strategy, due to
small disparities in option pricing however, each play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.

***************
EVG - Evergreen Resources  $47.07  *** New 18-Month High! ***

Evergreen Resources (NYSE:EVG) is an independent energy company
engaged in the operation, development, production, exploration
and acquisition of natural gas properties.  Evergreen is also a
developer of coal bed methane reserves in the United States.
Its operations are focused on developing and expanding its coal
bed methane project located in the Raton Basin in Colorado.  The
company has begun coal bed methane projects in the United Kingdom
and Alaska.  In addition, the firm is engaged in the exploration
of natural gas prospects in Northern Ireland and the Republic of
Ireland, and owns additional interests in other domestic and
international areas.

EVG - Evergreen Resources  $47.07

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-40.00  EVG-QH  OI=5  A=$0.20
SELL PUT  MAY-45.00  EVG-QI  OI=0  B=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$44.50


**************
KRON - Kronos  $43.41  *** Pre-Earnings Rally? ***

Kronos (NASDAQ:KRON) develops, manufactures and markets frontline
labor management systems that improve workforce productivity and
the utilization of labor resources by planning, tracking and
analyzing time and activities information about a company's
employees.  By eliminating the need for manual data collection
and data entry, the systems reduce the time needed to collect
employee work-related information, improve payroll accuracy and
provide time-sensitive labor information to frontline managers.
Kronos offers an integrated suite of employee-centric solutions
for labor management, payroll and human resources.  The software
incorporated in the company's frontline labor management systems
is parameter-driven, which allows it to be configured upon
installation to meet the needs of an individual customer and
reconfigured as customer needs evolve without the need for
expensive custom software coding.

KRON - Kronos  $43.41

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-35.00  KUE-QG  OI=8   A=$0.40
SELL PUT  MAY-40.00  KUE-QH  OI=50  B=$0.85
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$39.50


**************
TBL - Timberland  $47.84  *** Awesome Earnings! ***

Timberland (NYSE:TBL) is a global leader in the design, engineering
and marketing of premium-quality footwear, apparel, and accessories
for consumers who value the outdoors and their time in it.  The
company's products offer quality workmanship and detailing and are
built to withstand the elements of nature.  They can be found in
leading department and specialty stores as well as Timberland-brand
retail stores throughout North America, Europe, Asia, Latin America,
and the Middle East.

TBL - Timberland  $47.84

PLAY (conservative - bullish/credit spread):

BUY  PUT  MAY-42.50  TBL-QV  OI=48  A=$0.35
SELL PUT  MAY-45.00  TBL-QI  OI=65  B=$0.60
INITIAL NET-CREDIT TARGET=$0.25-$0.35
POTENTIAL PROFIT(max)=11% B/E=$44.75


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

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

The sale of uncovered calls entails considerable financial risk,
far more than the initial margin or collateral required to open
the position.  The maximum financial obligation for the sale of a
naked option is the strike price (of the underlying stock) that
is sold.  Although this obligation is reduced by the premium from
the sale of the option, a writer of options must have the cash or
collateral equivalent of the sold strike price in reserve at all
times.  The simple fact is: stocks often experience large price
swings, exponentially increasing the margin maintenance and very
possibly causing a devastating shortfall in your portfolio.  It
is also important that you consider using trading stops on naked
option positions to help limit losses when a stock price moves in
a volatile manner.  Many professional traders suggest closing the
position when the underlying share value moves beyond the sold
strike, or using a "buy-to-close" stop order at a price that is no
more than twice the original premium received from the sold option.

***************
IGEN - IGEN International  $34.25  *** Speculation Only! ***

IGEN International develops and markets products that incorporate
its proprietary electrochemiluminescence (ORIGEN) technology,
which permits the detection and measurement of various biological
substances.  ORIGEN provides a combination of speed, sensitivity,
flexibility and throughput in a single technology platform.  The
product is incorporated into instrument systems and other related
consumable reagents, and IGEN also offers assay development and
services used to perform analytical testing.  Products based on
ORIGEN technology address the Life Sciences, Clinical Testing and
Industrial Testing worldwide markets.

IGEN - IGEN International  $34.25

PLAY (sell naked call):

Action     Month &  Option    Open   Last  Cost    Max.   Simple
Req'd      Strike   Symbol    Int.   Price Basis  Yield   Yield

SELL CALL  MAY 37.5 GQ EU      872   1.95  39.45  15.9%    4.9%
SELL CALL  MAY 40   GQ EH      646   1.25  41.25  13.8%    3.0%
SELL CALL  MAY 42.5 GQ EV      251   0.80  43.30  10.6%    1.8%
SELL CALL  MAY 45   GQ EI      383   0.50  45.50   6.9%    1.1% *


**************
QCOM - Qualcomm  $32.72  *** Competition From Samsung! ***

Qualcomm (NASDAQ:QCOM) 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.  Qualcomm 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 and enhanced
component integration and interoperability, as well as reduced time
to market.

QCOM - Qualcomm  $32.72

PLAY (sell naked call):

Action     Month &  Option    Open   Last  Cost    Max.   Simple
Req'd      Strike   Symbol    Int.   Price Basis  Yield   Yield

SELL CALL  MAY 32.5 AAW EZ    2,550  1.90  34.40  12.7%    5.5%
SELL CALL  MAY 35   AAW EG   10,457  0.85  35.85   7.4%    2.4% *
SELL CALL  MAY 37.5 AAW EU    6,342  0.30  37.80   3.5%    0.8% TS


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

BEARISH PLAYS - CREDIT SPREADS

All of these positions are favorable candidates for "bear-call"
credit spreads, based on the current price or trading range of
the underlying issue and its recent technical history or trend.
The probability of profit from these positions may be higher
than other plays in the same strategy, due to disparities in
option pricing.  However, current news and market sentiment will
have an effect on these issues, so review each play individually
and make your own decision about its future outcome.

**************
DGX - Quest Diagnostics  $56.70  *** Sell-Off Underway! ***

Quest Diagnostics (NYSE:DGX) offers a wide range of clinical
laboratory testing services to physicians, hospitals, managed
care organizations, employers, governmental institutions and
other independent clinical laboratories.  Quest provides full
esoteric testing, including gene-based testing and testing for
drugs of abuse.  The company also provides anatomic pathology
services and testing to support clinical trials of new drugs
worldwide.  The company manufactures and markets diagnostic
test kits and systems primarily for esoteric testing.  Also,
the company develops clinical connectivity and data management
solutions for healthcare organizations and clinicians and
provides workflow and content management solutions.  Quest
offers diagnostic testing, information and related services
used by physicians and other healthcare customers to diagnose,
treat and monitor diseases and other medical conditions.

DGX - Quest Diagnostics  $56.70

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  MAY-65.00  DGX-EM  OI=1350  A=$0.40
SELL CALL  MAY-60.00  DGX-EL  OI=1270  B=$1.30
INITIAL NET-CREDIT TARGET=$0.90-$1.00
POTENTIAL PROFIT(max)=21% B/E=$60.90


**************
EASI - Engineered Support  $37.91  *** Trading Range? ***

Engineered Support Systems (NASDAQ:EASI) along with its various
subsidiaries, designs and manufactures military support equipment
and electronics for the United States armed forces.  The company
also engineers and manufactures air handling and heat transfer
equipment, material handling equipment and custom molded plastic
products for commercial and industrial users. Engineered Support
Systems' six wholly owned subsidiaries are Systems & Electronics
(SEI), Engineered Air Systems (Engineered Air), Keco Industries,
(Keco), Engineered Coil Company (d/b/a Marlo Coil), Engineered
Electric Company (d/b/a Fermont) and Engineered Specialty
Plastics.

EASI - Engineered Support Systems  $37.91

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAY-43.37  RUF-EZ  OI=190  A=$0.35
SELL CALL  MAY-40.00  RUF-EH  OI=72   B=$0.80
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=17% B/E=$40.50


**************
MMM - 3M Corporation  $129.00  *** Premium Selling Only! ***

3M Company (NYSE:MMM), formerly known as Minnesota Mining and
Manufacturing Company, is an integrated enterprise characterized
by intercompany cooperation in research, manufacturing and sale
of products.  3M's 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 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 Corporation  $129.00

PLAY (less conservative - bearish/credit spread):

BUY  CALL  MAY-140.00  MMM-EH  OI=2429  A=$0.55
SELL CALL  MAY-135.00  MMM-EG  OI=1423  B=$1.35
INITIAL NET-CREDIT TARGET=$0.80-$0.90
POTENTIAL PROFIT(max)=18% B/E=$135.80



**************
SEE DISCLAIMER - SECTION 1
**************


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

The old Switcharoo!

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