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Daily Newsletter, Sunday, 05/04/2003

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The Option Investor Newsletter                   Sunday 05-04-2003
Copyright 2003, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.


Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Bad News Bulls
Futures Market: Confirmation Day
Index Trader Wrap: Climbing a Wall of Worry
Editor's Plays: Short Squeeze
Market Sentiment: Out In A Cheer
Ask the Analyst: Risk/Reward, Point & Figure, and minimizing risk
with options
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-02         WE 4-25         WE 4-17         WE 4-11
DOW     8582.68 +276.33 8306.35 - 31.30 8337.65 +134.24 - 73.74
Nasdaq  1502.88 + 68.34 1434.54 -   .96 1425.50 + 66.65 - 24.66
S&P-100  471.87 + 15.77  456.10 +  2.49  453.71 + 12.74 -  5.72
S&P-500  930.08 + 31.27  898.81 +  5.23  893.58 + 25.28 - 10.55
W5000   8834.06 +308.17 8525.89 + 59.04 8466.85 +239.31 - 92.43
RUT      407.67 + 19.17  388.50 +  4.80  383.70 + 12.40 -  1.98
TRAN    2460.80 +108.19 2352.61 -  9.58 2326.19 +131.63 +  6.28
VIX       23.61 -  0.29   23.90 -   .69   24.59 -  3.68 -  4.53
VXN       32.36 -  1.34   33.70 -  2.18   35.88 -  3.74 -  2.83
TRIN       0.66            1.95            0.50            0.88
Put/Call   0.71            0.87            0.52            0.79
***************************************************************


Bad News Bulls
by Jim Brown

Feeding the bulls a diet of bad economic news has made them tougher
than a pack of junk yard dogs. Falling jobs numbers, contracting
economy, terrorist alerts, no problem let's rumble. Rumble they
did and pushed the indexes to new highs and above resistance which
has held for months.

Dow Chart - Daily



Nasdaq Chart - Daily




Friday morning started slow with the Jobs Report showing a loss of
another -48,000 jobs. While this was bad it was not as bad as was
expected and the talking heads spun the news as positive for the
entire day. The March number was revised upward to -124,000 from
-108,000. The unemployment number rose to a high of 6%, a number
only seen two other times in the last two years, Apr-02 and Dec-02.
Reporters made a big deal of the smaller loss than the prior two
months. (-353,000, -124,000) The actual number was only about a
third as bad as the worst whisper number of -150,000 and in reality
this is the reason the markets celebrated. With the new Jobless
Claims still rising to obscene levels everyone thought the Jobs
Report would be terrible and the bad news was already priced into
the market.

Was it a bad report or should we celebrate only losing -48,000? We
need to remember this report is done by survey during a one week
period early in the month. Three weeks ago the war had just ended
and euphoria was rising along with the markets. Did that affect
the survey responses? Did the strong losses the prior two months
provide us a layoff lull in April while employers seeing the war
end were holding firm to see if an instant recovery appeared?
Three weeks ago Jobless Claims were at the lowest level for the
month (412,000) as the war was ending on TV. The bottom line will
be the May numbers. If the report improves then February layoffs
were the bottom and all is well in the economy. If May surges back
to a -100,000 or higher then April was just an end of war induced
lull and we are back to problems again. We have lost jobs in five
of the last six months and new Jobless Claims have been over -400K
and rising for eleven weeks. Analysts do not expect any material
job growth until mid-2004 and they expect 6.2% unemployment by
year end.

Anther point to emphasize is that there are 600,000 more full time
workers employed in part time jobs than there was this time last
year. It means full timers have resorted to part time employment
in order to pay the bills while they continued to search for a
permanent job. Despite this surge in temporary employment the
unemployment rate continues to rise. Historically we have not had
three months of job losses in recent decades without having a
recession. Not a good historical precedent. Also, we have not had
three months of losses without the Fed cutting rates. We have an
FOMC meeting on Tuesday and the Fed Funds Futures are only showing
a 19% chance of a cut at that meeting. Clearly the Fed is not
telegraphing any change in rates and they will want to see if the
trend continues and if the wars end changed the economy before
making a move. There are so many external factors that the Fed is
likely to sit on their hands.

Factory Orders surprised traders with a +2.2% gain compared to
only a +1.2% estimate. This was surprising considering it was
for the March period when all the company guidance was for gloom
and doom due to the war beginning. For investors expecting a
bearish prewar drop it actually showed some increases in things
like new orders +2.2%, back orders +0.3% and shipments +1.9%.
Suddenly there was new hope that a recovery was actually underway.
Traders should be aware that this report is a month older than the
ISM, which we received on Thursday. That would indicate that the
Factory Orders for March at +2.2% and the weak ISM for April shows
that the economy is deteriorating from a March bounce. Obviously
bulls will read these reports many different ways and ignore the
facts on which they disagree. Nobody will know the real answer
until another 30-60 days have passed in the postwar economy.

Bulls not only ignored the economics but they ignored several
reports of problems in the tech sector. JP Morgan said they had
surveyed manufacturers and fabricators and in all cases the days
of inventory on hand had increased over the last four weeks as
the impact from SARS filters back through the supply chain. IBM,
FLEX, TSM, UMC and others had reported an increase in inventory
levels as sales slowed. Several chip companies had reported
delayed orders due to SARS as well. I think this is only temporary
but there has been an undeniable dip in 2Q revenue worldwide.
Contrary to the above comments Soundview spent a day at IBM and
came away saying they expected revenue to come in above estimates.

Those minor negative points were disregarded by traders as they
bought the dip again and did not stop until they had pushed the
indexes over strong resistance and to highs not seen in many
months. Airlines posted strong gains on bargain hunting from
investors that feel the worst is over. No attacks, no AMR
bankruptcy and oil dropping like a rock. The transports broke
resistance at 2425 that has held since last October. The chart
is showing a clear breakout and confirming the Dow move. Traders
seeing this felt if the transports were on fire then everything
else could not be far behind.

The Banking Index also broke to a new high at 806 and over
resistance dating back to last August. With banks and transports
leading it probably brought tears to long time traders. Could it
be, a REAL rally? On the surface it sure looks like it and there
is little anyone can say to deflate the expectations. The
predominant theme was "maybe it is not as bad as we thought."
We will get to test that theory next week. JPM is holding a tech
conference where HPQ, MOT, IBM and INTC will be among the top
presenters. It will be a dog and pony show more than an update
on the state of the economy but traders are hoping to get a few
positive indications of how business is going.

While earnings are about over with 411 S&P companies already
reported there are some major companies still to report next week.
Of those 411 companies 58% have already warned about the 2Q and
24% have raised guidance. (2:1) Some of the major announcements
for next week include MET (Monday), CSCO, ERTS, PRU, G (Tuesday),
EDS, PIXR, THQI (Wednesday), NVDA, LTR, XMSR (Thursday) and BRKa
on Friday. Obviously the biggest names for tech followers are
CSCO and EDS. The week is weighted to the smaller tech and biotech
companies but those two giants will be the ones to watch. Cisco
has made comments in the last couple weeks that would lead investors
to believe things are improving. Obviously this positive expectation
is already priced into the stock. Cisco is hovering near strong
resistance at $15.50 that has held it back since Aug-2002. EDS has
under performed the market after rocking techs with a massive
warning in September. After dropping from $40 to $10 on the warning
the company is easing up to the $20 level again with strong
resistance at $21. Should EDS, which competes with IBM for services
contracts, says things are improving we might see a strong rebound
not only for EDS but for IBM and techs in general.

I mentioned this earlier but it bears another comment. The Fed meets
on Tuesday and while there is no change in interest rates expected
we have seen three months of negative job growth and historically
they take action. Traders may bid up stocks in advance of the meeting
in the hopes they follow suit again. Either way the guidance they
give in the announcement will be key. Several Fed governors have
gone on record recently with positive comments and should those
comments bleed into the official guidance we could see another
celebration in the markets.

The celebration on Friday was very strong. Volume over all exchanges
was over four billion shares with the NYSE almost reaching the two
billion mark. Advancers were 3:1 over decliners on the NYSE. On the
Nasdaq at 1.86 billion and little more than 2:1 ratios the action
was good but not as great as it appeared on the surface. Don't get
me wrong. I am not complaining about the Nasdaq closing over 1500.
This is a banner day not only for the Nasdaq but for almost every
index on the board. The Nasdaq is only a few ticks away from the
last major resistance for the last year. That is the 1521 high on
December 2nd. We have a strong higher low in Feb/Mar, a month of
consolidation just under 1425 and now several days of breakout
trading at higher highs. I know there was applause somewhere when
the Nasdaq closed over 1500 because there was definite excitement
in my office.

The Dow also broke out over the 8520 resistance that has kept it
in check since March 21st. This is a strong signal and the breakout
of the bullish wedge is a very good sign. Next resistance on the
Dow begins around 8700 and gets stronger around 8850-8900. Make
no mistake. The trading on Friday turned a lot of heads and Monday
could be exciting. If Ma and Pa Investor look at the "New Highs"
headline in Saturday's paper they could decide the 1% return of
their money market funds is no longer attractive. That makes
Monday confirmation day. The volume on Friday was good but not
great. I attribute that to being an early summer Friday. If we
can get a strong volume confirmation on Monday then the race
could be on. I am not expecting a vertical rise to old highs but
I do think the current performance in the face of absolutely
terrible economic news is very strong. We will have pullbacks
and there are some hair pin turns and sharp objects in the road
but the road was heading uphill at least on Friday.

We still have SARS. We still have terrorists. There was a new
alert issued by homeland security on Friday. We still have rising
unemployment but traders are convinced these factors do not matter.
They are convinced the third time is the charm. You know, the second
half recovery of 2001 and then 2002 and now 2003. Actually there is
good historical precedence for a 2003 recovery as it is the third
year of a presidential term, normally bullish, and the campaigning
has already begun.

Next week is a wasteland in the economic arena with very little
in the way of reports to feed the bears. The ISM Services is
Monday but it should be ignored if bad and cheered if better
than last months negative report. Tuesday is the FOMC meeting and
the only thing important there is the guidance. Wednesday we get
Wholesale Inventories and short of a disaster nobody will notice.
The week ends with Jobless Claims and FOMC minutes on Thursday.
After 11 weeks over 400,000 new claims there could be a dip at
any time to something starting with a three and it will be
heralded as a clear sign the recovery has sparked into life.

Life is good when the indexes tack on triple digits in a week that
breaks strong resistance. It is like leaving on a long vacation
trip to some exotic destination. You are full of hope for the
excitement ahead and the cares of the office are left behind.
Everything is wonderful until the tire blows or the radiator
overheats or both. Your trip is still intact but suddenly the
excitement fades with greasy hands and complaining passengers.
We cleared the traffic jam of strong resistance today and we are
cruising down the highway for those cool mountain tops ahead. Dow
9000, Nasdaq 1600? Who knows, half the fun of the getting there is
the journey or so they say. We all know what comes next. Detours,
traffic jams at higher levels and the required pit stops for repairs
and profit taking. The bottom line is that the trend has changed.
Baring a catastrophic event next week the markets could continue
climbing higher on the backs of the disbelieving bears. Trust me,
there are a bunch of us, ahh, them. Yes, I am converting, almost.

I don't believe it for a minute. I see an economic disaster behind
every rock and believe we are in a recession. However, it does not
matter what I believe. The market wants to go up. Just like it did
in October and again in March. There was no economic justification
for either of those events. The bears just kept denying it and
shorting every resistance level. The bulls just kept denying it
and waiting for the pull back that never came. Eventually it became
and race until those advances simply became so over bought they
just could not advance any more. Short, chase, cover, chase,
short, chase, cover, chase. I know so many readers that are short
to their eyebrows it is crazy. The ones that are not short were
sending those "is this it, I don't want to miss it" emails all day
Friday. If the volume had been 25% stronger and the advance/decline
4:1 or 5:1 then I would feel better about saying this is it. I can't
because the internals were just not that strong. BUT, this was a
summer Friday and Monday is a new day in new territory.

If we get confirmation on Monday then there could be a lot of real
money come off the sidelines. Quit worrying if this is it and trade
what you see. If you see strong upside volume on Monday then go for
it. If the volume is mediocre and the price does not confirm with
a new high then be afraid. Breaking out of a downtrend does not
guarantee success. I think we are seeing another breakout of the
SIE virus (Severely Irrational Exuberance) and until the bulls get
their vaccination it could spread rapidly to borderline bears. This
virus is very contagious among weary traders. Tonight the rally
looks very good on paper but Monday is a new day. Trade what you
see and keep looking for sharp objects in the roadway ahead.

Enter Very Passively, Exit Very Aggressively!

Jim Brown



**************
FUTURES MARKET
**************

Confirmation Day
by Jim Brown

   05-02-2003           High     Low
DJIA     8582.68 +128.43  8593.25  8409.29
NASDAQ   1502.88 + 30.32  1504.22  1469.84
S&P 500   930.08 + 13.78   930.56   912.35
NDX      1136.51 + 23.30  1137.45  1109.66
ES03M     927.25 + 12.50   930.25   910.75
YM03M    8556.00 +115.00  8570.00  8385.00
NQ03M    1139.50 + 25.50  1139.50  1111.00


Daily Pivots (rounded to nearest point)
           R2     R1    Pivot   S1     S2
DJIA      8712   8648   8528   8464   8344
COMPX     1527   1515   1492   1480   1458
ES03M      942    935    923    915    903
YQ03M     8689   8622   8503   8437   8318
NQ03M     1158   1149   1130   1120   1101


Friday opened with a dip on the Jobs Report to support at 910, which
rebounded and never looked back. There was a brief pause at 920
resistance which had held since April-23rd but the pause was only
temporary. The intraday lull found support at 925 and the afternoon
bounce found new resistance at 930.

Monday will be confirmation day. All the indexes appear poised to
rally to next resistance but it will require more volume and conviction
than we saw Friday. The volume was good but not great and the A/D ratio
was just over 2:1 across all markets. This would normally have been a
great day in a normal market but considering the magnitude of the
resistance broken the internals should have been much stronger. I am
attributing this lack of strong volume to an early summer Friday and
hope we will see confirmation on Monday.

The ES chart shows a complete retracement to the January resistance
highs of 935. The high from Friday at 930 does not give us much room
to the upside before this strong resistance is hit. With a strong
volume breakout we could see virgin territory for the contract.

ES03M Chart - Daily




This breakout needs support from the other indexes to continue.
The NQ is testing uptrend resistance from January between 1140-1150
and will be fighting its own battle to continue the up trend.
Initial support for the NQ is well below at 1100 with critical
support at 1050.

NQ03m Chart - Daily




The Dow futures appear the least restricted of the futures. The
YM does not have any resistance until somewhere around the 8700
level with stronger resistance at 8800-8850. The Dow should be
the controlling influence on all the markets on Monday.

YM03M Chart - Daily





With the resistance on the Dow cash so close at 8610 and the
bullish sentiment from Friday we should get carry over on
Monday morning that will take us over 8610 at the open. If
the Dow can hold on to those gains we should have a good day.

I want to stress this again. Everything appears strongly bullish
but we need volume to confirm Friday's move and any continuation
on Monday. This is going to be a crucial test. If traders who
have been waiting patiently on the sidelines sat home over the
weekend and decided they were just going to watch for a couple
more days we could be in trouble. Fund managers with cash to
burn are going to be looking for confirmation as well. Retail
traders will also be looking for clues. If everyone just waits
on everyone else then this bounce could fail. Somebody need to
take the first step of buying the top at the open on Monday
to jump start the Dow over that 8610 resistance and the Nasdaq
Compx over its 1521 resistance. Once over those levels we should
be good to go for several days. Shorts, if there are any left
would cover and retail traders would begin chasing prices. (I
can hope can't I?)

See you in the Futures Monitor on Monday!


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

Climbing a Wall of Worry
By Leigh Stevens
lstevens@OptionInvestor.com

The market, especially in a transition out of a full-blown bear
market will sometimes seem to be climbing a "wall of worry" - and
investors have plenty to be concerned about: record high
unemployment, less available work for those who are working and
economic policies that lack a bold new prescription for change.

The public has seen the winning effects of a daring foreign
policy, not seemingly matched on the home front by an
administration banking mostly on cutting federal taxes still
further as an engine of renewed economic growth. The states are
strapped and may take the money back. Time will tell - hope
they're right cause there is no back up plan as far as I know.

THE BOTTOM LINE –
Tech stocks, which have lost the most have had the best rebound
off their March lows. With stocks like eBay nearly doubling off
it's recent bottom - and, with substantial gains in share
prices of the likes of Amazon and Yahoo, it's not surprising that
investors have some enthusiasm for tech heck. The key test of
demonstrating an actual up trend is still ahead however, as the
Composite (COMPS) approaches its prior (Dec.'02) peak of 1520.
The S&P 500 or SPX will need to manage to a weekly close over 960
to suggest a turnaround in the major bear trend.

Fortunately, to make money in options (and not having a crystal
ball showing where the economy is going), us trader types don't
need to bank on a sustained trend of months' duration.  The
current advance has had some legs and momentum.  There was no
excess of bullish sentiment last week - had there been it would
have suggested more danger for a further bull trend.  The market
IS overbought, so is vulnerable to reversals - to overstay on the
long side as we approach old highs is not the best bet. If you
have call profits, you could start taking them off the table.  An
opportunity in puts is coming, maybe at the top of the uptrend
channels we can see on most of the hourly index charts below.

FRIDAY'S TRADING ACTIVITY –
A bit of an early damper was provided by the Labor Department
report on jobs - our economy lost 48,000 of them in April after
124,000 of them were lost in March, along with a decline of some
350,000 in February.  Still, stock enthusiasts could see a
declining trend - maybe the next month will go into plus
territory and new job CREATION due to the resolution of uncertain
economic fallout from the Iraqi conflict.

Total hours worked in April fell by 0.7%, with the average
workweek falling 34 hours, matching the lowest level since the
recession began.  Economists had forecasted the average hourly
workweek at 34.2 hours. As Jeff Bailey pointed out in a Friday
mail, the 18-minute loss in hours worked is equivalent to losing
more than 1 million jobs in terms of output.

The average weekly paycheck fell by 0.7% (to $513.74). As I
noted, those that are working are getting less money.  But hey,
they got a job and the growing unemployed ranks probably would
take less money and at least reverse money flows from out to in.

An upgrade from mother Merrill (Lynch) on the airlines gave a
boost to this very depressed sector.  The Merrill Lynch analyst
speculated that the worst may be over - how bad can it get ahead
with what has already been - SARS, war with Iraq and recession.
The Dow Transportation Index popped to a multimonth high,
although this is from very depressed levels, not seen in its
sister index, the Dow 30 Industrials.

Stocks upgraded from neutral to buy included Alaska Air (ALK),
Continental (CAL), Delta (DAL), and Frontier Airlines (FRNT). As
it happens these are still ones I tend to fly (Alaska, when I can
get up to visit Brother Jeff in Talkeetna) and think have their
"act" together in one way or another.  These guys and Southwest
Airlines of course.

More economic data came along midmorning to give the bulls still
more encouragement - March factory orders came in at nearly
DOUBLE the consensus forecast.  The U.S. Commerce Dept. reported
that manufacturing orders rose 2.2%, the biggest increase since
last summer and well above an anticipated 1.2% rebound.

For the day, the Dow climbed 128.43 points, or 1.5%, to 8582.68,
the Nasdaq Composite 30.3 points (2.1%) to 1502.88, which was its
first climb above the 1500 mark since last June. The S&P 500
Index (SPX) was also up 1.5 percent.  The Russell 2000 (RUT)
small-cap index was up even more, with a closing gain of 2.2%.

The Nasdaq Composite has advanced a bit over 15% since its March
low, while the Dow has tacked on some 12%. During the past week,
COMPX was up nearly 5%, with SPX and the Dow up a little over 3
percentage points. NOT BAD! Record oil profits announced by the
big multinationals have boosted the oil sector and the S&P also.

Investors are banking on lower oil prices, an accommodative FED
policy, improved corporate cash flow, some improvement in capital
expenditures, some inventory accumulation and some added tax
relief to lead to a better year end economy - better than the
economy being on its rear end! Oh, this all and some pretty
decent earnings seen in the last quarterly reports too.

OTHER MARKETS -
The 10-year T-bond fell a substantial 22/32, as money came out of
bonds and into equities.  The 10-year yield rose to 3.925%. It
may not complete much with stocks until it's back at or above 4%.
The dollar was up a bit against the Yen and flat against the
Euro, which continues to advance - it ended the week at a buck 12
(1.12).  Better take that trip to Spain or Italy - not to
politically incorrect France or Germany - sooner rather than
later folks!

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Weekly, Daily & Hourly charts:

A downswing I thought might have taken SPX to around 885, based
on a possible bear flag pattern on the hourly chart, was not to
be - the oversold stochastic trumped "pattern" this time.  The
key technical event was the ability for SPX to pierce resistance
in the 920 area - (prior) resistance now "becomes" near support.
935 is the current top end of the rising hourly uptrend channel.

The 935-940 area if reached, is where I would look for a lid on
the current rally and do some put buying for an objective to 920,
as I think it's likely that that area will be re-tested at least
once.





You can see on the weekly chart above (left), the key trading
range and suggesting 960 as both resistance and a possible
"breakout" point for SPX.  If the S&P gets to the 960 area it
will likely be registering a longer-term overbought on the 13-
week RSI.   Meanwhile on the daily chart, the RSI is registering
that kind of extreme (overbought) already.  This usually if not
always suggests that the market is vulnerable to downdrafts and
shocks, which is not to say just WHEN they may happen.

No excess is seen in the 10-day TRIN measuring buying and selling
activity in the NYSE.  Lack of a fever pitch of buying or selling
or a quiet market is common in turnarounds in bear markets, if
that's what this is (and that I have been suspecting that it is,
based on the long-term up trendlines). There is usually not a lot
of bullish conviction prior to when the economy starts growing
again.

S&P 100 Index (OEX) – Daily & Hourly charts:

This past week saw no extreme readings in my Call to Put
indicator, so the extreme in call buying seen the week before was
not "confirmed" so to speak.  Rallies tend to go further when
there is disbelief in the climb out of the pits.

475-477 looms as important potential technical resistance based
on the hourly uptrend channel and an approach to the March top -
I would bet on the selling to be in this area and look to buy OEX
puts if sellers take charge and overwhelm buying interest.





The oversold hourly stochastic readings that existed coming into
this past week was more telling than the overbought daily
readings on these type indicators.

OEX is now approaching my upper trading band or envelope line and
provides another indication that the market is getting extended
on the upside - this does not have to indicate a reversal - it
does suggest that the further potential for extending gains is
limited without a pause, meaning at least a slow down in upside
momentum.

The top end of the OEX price range will likely be in the 475 to
480 area. The downside of the expected range is to 458-460 in the
coming week. A close under the last hourly low in the 458 area,
which is also the approximate low end of the hourly uptrend
channel suggests a deeper correction, such as back down to the
low 450's.

Dow Industrials - Daily & Hourly:

While a retest of the March top around 8800 is a key longer range
target, important near resistance is at 8600 at the top end of
the hourly uptrend channel in DJX.  I anticipate a 8600 to 8400
range in the Dow.

If the Average holds at or above the prior tops around 8530-8550
- (prior) resistance "becoming" support - a strong buying
interest is being demonstrated and more of a sideways correction
may be in the offing.  This is a tricky market to call - our
"usual" expectation for the rally to go to expected zones of
resistance then fall apart, has not been happening at least yet.






Nasdaq Composite Index (COMPX) – Weekly, Daily & Hourly:

I mentioned 1520 before as an area of technical importance, which
can be seen by this area being both the top of the hourly uptrend
channel and especially by it being the prior weekly high - dating
back to December (2002). If the prior peak is pierced, especially
on a daily and weekly closing basis, the potential implied by the
"V" weekly bottom begins to be more fully realized.  If so, an
eventual upside "measured move" objective, assuming rally
potential equal to the first move up, is to around 1660.

A objective for a second up "leg" that was 1.6 times the first,
which is not uncommon, would be closer to 1900 in the Composite.
This is a second longer-term objective as a possibility assuming
a decisive move above the prior top - an uptrend only being
established when the prior upswing high is passed.

Last week, the Composite did maintain its bullish chart per my
comments, by finding support at and above the prior highs at the
low-1430 area, as the line of prior resistance "became" a new
support. As well, the oversold hourly stochastic model lent
support for an assumption for rally potential from this area.





The use of the 6% trading envelopes on the COMPX chart above,
relative to its 21-day moving average (middle line), gives an
idea of where the COMPX reaches an overbought or extended price
area.  It does not tell how soon that will happen, which is of
almost the same importance to trading the index options. However,
its a better than even bet that if a move to 1520 develops, there
is significant likelihood of a pullback again to the low end of
the hourly channel around 1475.


Nasdaq 100 (NDX) Index - Daily & Hourly charts:

Since we can't trade the Composite directly, we move on to the
Nas 100 chart that we can buy/sell.  1160 is resistance and 1110
near support, implied by the hourly trend channel. A break of
1100 suggests a move back to 1080 at least and a close below 1080
in turn suggests possible downside back to as low as a retest of
support in the 1020 area but this is probably too bearish a view.





QQQ charts - Daily & Hourly:

Near QQQ support looks to be 26-26.50 or a bit higher, judging by
the relevant trendlines. The rally this past week came before any
next dip and my suggestion to buy the Q's if they got back to the
25.5 area was something that was not to be. Right idea, WRONG
price!

I haven't had a lot of bullish conviction due to the relatively
low volume, but then again this is not uncommon in this kind of
market. If there is a turnaround developing that is more than
another bear market rally, there is not a lot of initial bullish
enthusiasm.  I can find this in myself certainly as its hard to
get enthused about stocks in such an uncertain economy.  If the
market is starting to account for or "discount" better times
ahead, a common characteristic of stocks, then that's another
thing.  Hey, if it (the market) was easy to figure, we'd all be
rich(er)!





As with NDX, the tracking stock exceeded both its March high and
early-December closing high, which is bullish action. (NDX would
have to get above 1155 to take out its early-December intraday
peak and QQQ would need to top 28.79 for this same hat trick.)

At this juncture, there are a couple of possible hourly uptrend
channels that can be drawn - one narrower, one wider, as I have
drawn them above.  One resistance point intersects around 28.5 as
shown - the other, comes in around 29.75. There is near-term
upside momentum suggested by the hourly stochastic mode, but with
the daily stochastic up at an overbought extreme.

Being at an extreme does not suggest that the rally is going to
stop just yet, so we have to see. If QQQ falters in the 28.50
area it's a good indication for shorting. If the stock goes
though this implied resistance and upside momentum continues AND
if 29.50-29.70 is seen, shorting/put buying in this area becomes
a good opportunity in my estimation.

Good trading success!


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

Short Squeeze

We have seen several short squeezes lately on individual stocks.
Look at AMZN when it surprised with earnings last week. Amazing.
Look at CY, a current play in this column when it broke $9
yesterday. There are gaps happening everywhere with the market
breaking down resistance that has held for months.

Back in February I profiled HLTH as a short squeeze candidate
with 23 million shares shorted and strong resistance at $10.
Sadly the resistance held and the stock spent a couple more
months consolidating before beginning a strong up move again.
I am not going to rewrite the entire article again but the
reasons remain the same. Here is the link to the initial article.
http://members.OptionInvestor.com/editorplays/edply_022303_1.asp

HLTH has risen to resistance at $10 on the strength of EBAY,
YHOO and AMZN and the realization that there are companies
making money on the Internet. At the close on Friday HLTH
squeaked to $10.08 at the bell. Volume was very heavy at nearly
three times normal with numerous big blocks. It has not traded
more than a few cents over $10 since Jan-2001 and that is a long
way from its 1999 high of $126. With an improving profit picture,
much improved business model and a rising market there could
be a lot of shorts ready to bolt if that $10 level really breaks.
With an average volume 1.5 million and a short interest of 23
million we could see a serious squeeze.

A word of caution. HLTH is not a rapid mover. It is simply a
short term play that we are going to play for the breakout and
quit. I personally like it for the long term but it would be
like watching paint dry.

I am thinking about the June $10 call at 75 cents or the July
$10 call at 90 cents. The July call will hold value better if
the breakout does not come and at only 15 cents more it is the
one I am suggesting. I would love to see a pop to $12 on a break
out. I am going to recommend a profit stop at $1.75 on the July
option. Hope for an explosion and then exit.

BUY Call July-$10.00 HUT-GB $.90 (Friday close)
Set profit stop at $1.75

WebMD Chart - Daily






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

Play updates:

I am only listing the current recommendations with a
link to the initial write up and unless the play changed
substantially.

IVX - Calls - $16.38
4/27/03 ($15.28 when recommended)

I guess we can kiss that pullback to $14 goodbye. The stock
opened up on Monday and never looked back. The theory was to
buy 2 contracts of the Jan-2004 $15 call at the open on Monday
and then buy one more on a pullback to $14.50 and two more
on a pullback to $14.00. I would leave the other orders active
just in case lightning strikes. The KIV-AC opened at $2.00 on
Monday and closed at $2.85 on Friday.

http://members.OptionInvestor.com/editorplays/edply_042703_1.asp


QQQ - Put - $28.27
4/20/03 ($26.82 when recommended)

I think we can kiss our 15 cent May-$25 puts goodbye with the
QQQ on steroids. With the ask a nickel and no bid we do not
have to worry about selling them. Let's continue to hold them
because you never know what can happen in two weeks.

http://members.OptionInvestor.com/editorplays/edply_042003_1.asp
http://members.OptionInvestor.com/editorplays/edply_041303_1.asp


ORCL - Put - $12.20
4/6/03 ($11.37 when recommended)

Oracle has not dropped due to the market support but it has not
gone up either. It is still stuck at $12.00. I am closing this
trade today for lack of progress. The stock is only up +83 cents
but that is small consolation.

http://members.OptionInvestor.com/editorplays/edply_040603_1.asp


CY - Cypress Semi Call - $10.70 ($11.15 week high)
3/2/03 ($6.41 when recommended)

Cypress has almost doubled in price since we picked it back in
March. The stock spiked on Friday to a seven month high on
short covering when it passes the $9 resistance. The June $7.50
call that was profiled at 75 cents traded as high as $3.60 on
Friday. The Jan-$7.50 call that was recommended at $1.45 closed
at $3.90 on Friday.

http://members.OptionInvestor.com/editorplays/edply_030203_1.asp


EMC Call from Feb-2nd  $9.44 ($9.61 week high)
($7.70 when recommended)

http://members.OptionInvestor.com/editorplays/edply_020203_1.asp


Powerball - From 12/29/02

FLEX, RFMD and TLAB still hogging the top spots on the losers
list. We still have nine months until expiration. If the Nasdaq
keeps exploding we could be in the green soon.

It would have taken $1,255 to buy one contract of each on
January-2nd. Any bets on what this will be worth on 12/31/03





http://members.OptionInvestor.com/editorplays/edply_122902_1.asp

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

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

Good Luck

Jim Brown


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

Out In A Cheer
- James Brown

All those traders who were holding their breath must have
released it and when they did it came out in a cheer.  No doubt
some market watchers are perplexed that a rally occurred when the
nation's unemployment rate number rose to six percent with
another 48,000 jobs lost last month.  Well, nowadays instead of
corporate earnings whisper numbers we have to contend with
economic report whisper numbers, which shouldn't be a surprise
given the total focus on the economy.

The employment report's -48,000 jobs was a lot less than the
whisper number of -150,000 jobs.  Creating the one-two punch that
has temporarily stunned the bears was a surprise in the recent
factory orders.  Economists were expecting 1.2% growth and the
result was +2.2%.  Good news indeed.  If you don't want to
believe it's the economy then maybe America was feeling a little
optimistic after George Bush's almost perfectly scripted address
to the nation from the deck of a moving aircraft carrier on
Thursday night.

Yet it wasn't just the U.S. markets that rallied.  Sure, the Dow
Jones Industrials jumped 128 points to breakthrough resistance at
8525 and close at 8582.  Sure the NASDAQ Composite rose 30 points
or 2% to close at 1502, which happens to be the first close over
1500 in almost a year.  Sure the NDX rose 23 points or 2% to 1136
and the small-cap Russell 2000 rose 8.8 points or 2.2% to
breakthrough resistance at 400 and close at 407.  Even the S&P
500 rose 1.5% to 930 producing a confident close over the pivotal
920 area.  But the global markets cheered as well.  The NIKKEI
225 index jumped almost 44 points to 7907.  The Hang Seng rallied
90.9 points to 8808 and the Singapore Strait Times added 17.8 to
1299.  Across the pond the FTSE 100 rose 72 points or 1.87% to
3952 and the German DAX 30 ended 44 points higher or +1.49% to
2986.

The U.S. market internals echo this exceedingly strong bullish
optimism.  Advancing stocks over decliners were nearly 22 to 6 on
the NYSE and 22 to 8 on the NASDAQ.  New 52-week highs continue
to crush new 52-week lows at 388 to 41, respectively.  Up volume
beat down volume by more than 5 to 1 on the NYSE and more than
7.5 to 1 on the NASDAQ.  It's tough to be a bear in this market.

The strength of the market is also showing up in the year-to-date
numbers.  The Industrials are up 2.9% YTD.  The S&P 500 is up
5.7% YTD.  The Russell 2000 (RUT) is up 6.4% YTD.  The NASDAQ
Composite is up 12.5% YTD.

The perception on Friday, at least at the moment, is one of hope.
People are feeling hopeful that things will finally improve.
Wall Street is hopeful that corporations have turned the earnings
corner and are working their way back to growth.  Economists are
hopeful that the much lower oil prices and a low interest rate
environment will reduce costs and stimulate businesses.  The
taxpayer is hopeful that the President will actually be able to
accomplish some form of tax relief that will benefit them
immediately.  The investor is hopeful that the recent SEC-Wall
Street settlement will have brokerage firms actually telling the
truth.  Finally, the average citizen is hopeful that maybe, just
maybe, after three years of looking for it, we'll see a second
half recovery.

That's the good news.  Now for the less than good news.  The
markets can't keep this pace up forever.  It's a game of give and
take, of ebb and flow.  The money has been flowing into stocks
and it's going to be time to ebb soon.  Consider these
indicators.  The 5-day moving average of the ARMS index is at
0.86.  Traditionally, ARMS watchers translate moves to 0.85 as
bearish.  Keep in mind that these signals tend to be few and far
between and usually a little bit early.  The bullish percent
indicators are looking a little top heavy.  The NASDAQ-100 (NDX)
has seen the rally push its bullish percent number to 73.  The 70
and above level is considered overbought.  Jeff Bailey likes to
compare the bullish percent indicator as a football field.  When
the bulls get the reading to 70, they have "scored".  Well, what
happens after a team scores?  They kick the ball to the other
team.  Now this indicator can go higher but I'd be watching for
"ball" to change hands sooner rather than later.  What might give
us some time is the S&P 100 bullish percent is only at 61 and the
S&P 500 bullish percent is at 59.  They don't have to get to 70
before reversing.  Bears can steal the ball at any time but for
the S&P indices we can still hope for the bulls to "score".

Needless to say the VIX and VXN are very low and continue to
drop.  Unfortunately, both are turning from big yellow flags of
caution to big red flags of warning for the bulls.  Also of note
is the equity-only put-to-call ratio.  As of Friday's close it
dropped to 0.51.  Jon Levinson, our own prolific MarketMonitor
commentator, would consider that a bearish sentiment indicator.

Now I fully believe in trading what you see and not what you
believe, thus the overabundance of calls on the play list.
However, given the extremely bullish market overtones I continue
to encourage strong risk management and vigilant stop loss
monitoring.  Consider these numbers over the weekend.  From the
March 2003 lows, the Industrials are up 13.6%.  The S&P 500 is up
15.6%.  The NASDAQ Composite is up 19.8%.  While short-term the
markets looks ready to go higher, there's a lot of profit on the
table and traders don't like to leave it there.  Next week it
will be interesting to look back and see what the fund flow
numbers were for this week.


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

Market Averages

DJIA ($INDU)

52-week High: 10353
52-week Low :  7197
Current     :  8583

Moving Averages:
(Simple)

 10-dma: 8457
 50-dma: 8138
200-dma: 8308



S&P 500 ($SPX)

52-week High: 1106
52-week Low :  768
Current     :  930

Moving Averages:
(Simple)

 10-dma:  913
 50-dma:  867
200-dma:  879



Nasdaq-100 ($NDX)

52-week High: 1350
52-week Low :  795
Current     : 1137

Moving Averages:
(Simple)

 10-dma: 1107
 50-dma: 1046
200-dma:  995



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


The fresh upside breakout in the major averages will further drive
the market volatility indices even lower.  It's speculation on our
part, but the turning point could be the 20 area on the VIX and the
30 area on the VXN.  Historically speaking, the VIX traditionally
signals market tops when it approaches or trades at or below 20.
These are new all time lows for the VXN and the index does not have
a lot of history behind it.

CBOE Market Volatility Index (VIX) = 23.61 -0.89
Nasdaq-100 Volatility Index  (VXN) = 32.36 -0.13

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.72        632,075       452,423
Equity Only    0.51        514,596       260,367
OEX            1.38         22,160        30,609
QQQ            0.91         37,824        34,561


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

Bullish Percent Data

           Current   Change   Status
NYSE          53.5    + 1     Bull Confirmed
NASDAQ-100    73.0    + 3     Bull Confirmed
Dow Indust.   56.7    + 7     Bull Confirmed
S&P 500       59.4    + 2     Bull Confirmed
S&P 100       61.0    + 3     Bull Confirmed


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

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

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

 5-Day Arms Index  0.86
10-Day Arms Index  1.01
21-Day Arms Index  1.07
55-Day Arms Index  1.25


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

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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    2199      2194
Decliners     639       860

New Highs     157       231
New Lows       16        25

Up Volume   1553M     1567M
Down Vol.    280M      208M

Total Vol.  1855M     1789M

M = millions


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


Commitments Of Traders Report: 04/29/02

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

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

S&P 500

Hmmm...not much new to report here.  The report is dated
April 29th.  The markets were still consolidating sideways
and had not yet seen the Friday session breakout.  The
numbers below show a slight strengthening of the Commercials'
net long positions and a very small increase in the Small
Traders' net short position.  Considering the Friday breakout,
guess who was "right"?

Commercials   Long      Short      Net     % Of OI
04/08/03      420,084   407,452    12,632     1.5%
04/15/03      424,219   409,853    14,366     1.7%
04/22/03      430,758   423,295     7,463     0.9%
04/29/03      432,710   419,245    13,465     1.6%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   14,366  -  4/15/03

Small Traders Long      Short      Net     % of OI
04/08/03      136,173   122,006    14,167      5.5%
04/15/03      148,434   137,680    10,754      3.8%
04/22/03      147,068   140,153     6,915      2.4%
04/29/03      149,616   154,782     5,166      1.7%

Most bearish reading of the year:  10,754 - 4/15/03
Most bullish reading of the year: 114,510 - 3/26/02


E-MINI S&P 500

Yet again, the positions are reversed on the E-mini numbers.  The
Commercials bumped up their net shorts while the Small Traders
significantly added to their longs.

Commercials   Long      Short      Net     % Of OI
04/08/03      114,210   344,961   (230,751)  (50.3%)
04/15/03      119,316   390,555   (271,239)  (53.2%)
04/22/03      124,200   437,597   (313,397)  (55.7%)
04/29/03      134,751   472,247   (337,496)  (55.6%)

Most bearish reading of the year: (337,496)  - 04/29/03
Most bullish reading of the year: (222,875)  - 04/01/03

Small Traders Long      Short      Net     % of OI
04/08/03      319,460    35,629   283,831    79.9%
04/15/03      365,876    44,137   321,739    78.5%
04/22/03      395,596    40,480   355,116    81.4%
04/29/03      459,687    50,030   409,657    80.4%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 409,657   - 04/29/03


NASDAQ-100

Again, there isn't much change to be seen here as by April 29th,
the markets were mostly churning sideways, albeit with an
upward bias.

Commercials   Long      Short      Net     % of OI
04/08/03       44,257     36,711     7,546    9.3%
04/15/03       44,976     37,929     7,047    8.5%
04/22/03       45,647     38,531     7,116    8.5%
04/29/03       45,497     37,557     7,940    9.5%

Most bearish reading of the year: (15,521) -  3/13/02
Most bullish reading of the year:   9,068  - 06/11/02

Small Traders  Long     Short      Net     % of OI
04/08/03       11,365    17,790   ( 6,425)  (22.0%)
04/15/03       11,182    17,438   ( 6,256)  (21.9%)
04/22/03       10,929    20,376   ( 9,447)  (30.2%)
04/29/03       11,219    19,760   ( 8,551)  (27.6%)

Most bearish reading of the year: (10,769) - 06/11/02
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercial traders remain net long the Dow Jones Industrials
with a slight increase in their overall long positions.
Small Traders maintained their net short position but saw
a drop in overall long positions during the week.

Commercials   Long      Short      Net     % of OI
04/08/03       18,566    12,616    5,950      19.1%
04/15/03       17,881    13,124    4,757      15.3%
04/22/03       16,942    14,750    2,192       6.9%
04/29/03       17,927    14,083    3,844      12.0%

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

Small Traders  Long      Short     Net     % of OI
04/08/03        5,886     7,964    (2,078)   (15.0%)
04/15/03        7,748     8,704    (  956)   ( 5.8%)
04/22/03        8,081     8,275    (  194)   ( 1.2%)
04/29/03        7,081     8,604    (1,523)   ( 9.7%)

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

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


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***************
ASK THE ANALYST
***************

Risk/Reward, Point & Figure, and minimizing risk with options

PnF on Astrazenaca (AZN)... I'm looking at the PnF chart and want
to know if my analysis is correct.  I figure an upside to 47,
counting from the column that has a red A.  How do I figure the
downside risk?  Is it to 31 where the current column of X's
started?

Fantastic!  The trader is actually trying to forecast a future
upside price objective (reward), but also assessing potential
downside risk.  Hopefully, by the time we get done with this "Ask
the Anlayst" column, we'll have a better feel for risk/reward in
the trade.

Before I start, I want to check the SECTOR that a stock like
Astrazenaca (NYSE:AZN) $41.51 +1.84% (05/02/03 close) is
associated with.  According to Dorsey/Wright and Associates, AZN
is a "drug" stock and the sector bullish % ($BPDRUG) is currently
in "bull alert" status at 50%.  This means that in a "universe"
of drug stocks, for every 100 stocks, 50 have a "buy signal"
currently associated with their point and figure chart, while 50
have a "sell signal" associated with their PnF chart.  In
December of 2002 (a red C on a point and figure chart), this
sector's bullish % reached a relative high of 52%, then fell to
26% in early March (red 3 on a PnF chart), then reversed up to
the current "bull alert" status in late March (just before a red
4 on a PnF chart) and has been building "buy signals" since that
time.

So... the drug sector is gaining favor, or at least finding more
and more stocks generating PnF "buy signals," so this sector
would attract a bullish trader's attention.

Now, the subscriber needs to do some work on their bullish
vertical count technique, but that is what the "Ask the Analyst"
column is intended to do.  Help try and educate and polish some
of the techniques for using the tools in our toolbox.

For future reference, traders can bookmark this article for
"bullish vertical count" or a prior article I wrote in the
Bailey's Basics section titled "The BULLISH vertical count."
There's also an article in that section titled "The BEARISH
vertical count."

Let's take a look at Astrazeneca's (AZN) $41.51 point and figure
chart and not only calculate the bullish vertical count, but also
assess longer-term risk/reward in a trade.  As always, we'll view
the stock's chart from both a bull and bear's objective.  That
way we try and keep an unbiased view on first perusal.  We've
already addressed the sector as being "bull alert" and more and
more stocks generating "buy signals" so I've already developed a
more BULLISH stance toward the sector.  Let's see if that carries
forward with the stock.

Astrazeneca (AZN) Chart - $1-box




First off, I think it is always interesting to tie in the bullish
% data and timeframe with the chart of the stock I'm thinking
about trading.  We talked about the "red C", then "red 3" and a
period just before the "red 4" when the sector started to show
some renewed bullishness.  It's interesting, that AZN chart shows
the stock giving a "double top buy signal in April and demand has
been outstripping supply into early May (red 5).

Now, the trader "thought" the bullish vertical count was $47.  I
think I know where he/she got this from.  I think they were
counting the column of "X" dating back to October (red A) and
that column of X from $29 to $34.  Using the formula in the above
chart, that would have been the bullish vertical count back in
October.  However, that bullish vertical count was then NEGATED
by the "double-bottom sell signal" at $34 in January (red 1).

"Finding" the bullish vertical count column is kind of like
turning a light switch on and off.  The simplest way to explain
it is to look for the FIRST buy signal (where we haven't seen a
sell signal since) that would have NEGATED the FIRST sell signal.

Does anyone remember where the various MAJOR INDEX bullish % were
in December (red C)?  If memory serves me correct, the S&P 100
Bullish % ($BPOEX) and S&P 500 Bullish % ($BPSPX), which are
MARKETS that AZN would most likely be associated with were at 76%
and 68% respectively.  Hmmmm.... MARKET were either "overbought"
above 70%, or nearing "overbought" of 70%.  Who has the risk at
70% or higher?  Bullish traders right?  Right!

Trader can check me by visiting www.stockcharts.com and looking
at the various bullish % charts for FREE!

Was anything necessarily "wrong" with AZN in December, or were
the markets just a little more "overbought?"

Anyway.... I digress, but just trying to show HOW IMPORTANT it is
to try and understand MARKET RISK, and how that RISK can also
impact SECTORS and the stocks within those sectors.

The current risk/reward profile as I see it for AZN is that I, or
the MARKET for that matter, is assessing risk of $12 to
potentially make $64.  This would represent a risk of $1 to
potentially make $2 longer-term.

Does this fit your business plan?  For many, this is probably a
threshold at least.

Now, would I (Jeff Bailey) actually risk $1,200 (100 shares with
risk of $12) to potentially make $2,400?  Mmmmmmm, probably not.
IF the stock pulled back to its recent double-top buy signal at
$37, then the risk/reward profile improves doesn't it?

The predicament right now is... "what if the bullish vertical
count continues to grow?  Then what?

Ahhhhh..... options.  The perfect instrument for mitigating risk.

Let's pretend that a FULL position for a trader would be 200
shares of AZN.  It could well be that AZN is embarking on a very
bullish long-term run.  After all, the stock has been under some
strong accumulation the past two months (as have the MARKETS) and
hasn't been able to reverse 3-boxes at this point.

I'm looking at the AZN October $40 Call (AZNJH) $4.40 x $4.60.  A
1/2 position would have me risking not $1,200, but $460 (plus
commission) for exposure to this stock over the next 5-months.
Should the stock trade $29, then I'm not happy at all, but I've
also mitigated my risk by exposing just $460, while allowing 5-
months for the stock to "work its magic."

Now.... as TIME progresses, I would surely think that the PnF
chart of AZN would build some type of "higher low", where I would
eventually raise a stop under, but right now, the AZN chart would
put risk to $29.  Even under the most recent bearish of MARKET
conditions, AZN didn't trade $29.

Now... last weekend's column also generated a lot of interest as
it relates to using the point and figure charts on a 1% box size
scale.  Instead of displaying price movement on a standard point
and figure $-basis, we displayed price action in terms of %.

Now... on the above chart, where did the PnF chart say to "buy"
AZN?  At $37 right?  Where the "red 4" is.

Let's say you reviewed your business plan, and that business plan
says that you CANNNOT take more than a 10% loss in the price of
the UNDERLYING security (the stock or index price itself) you're
trading (bullish or bearish trade loss) for FULL POSITION.  One-
half position might then allow for 20% risk.  One-quarter
position, even greater risk still.

Is there a tool or technique that you're now aware of that could
help analyze if AZN is/was the trade for you?

Remember..... "red 4" ..at $37.00.  At this time, the bullish
vertical count would have been building at $52, while downside
risk was still being assessed to $29. Risk $8 to potentially make
$15 was still roughly 1:2.

Note:  ALWAYS HONOR the conventional point and figure chart
FIRST, then use the techniques you've learned to "fine tune" and
better assess risk/reward in the trade.

Astrazeneca (AZN) Chart - 1% box scale at time of $37




This is what the 1-PERCENTAGE box size scale point and figure
chart would have looked like when AZN traded $37 on April 23rd.
Technically, a BULLISH trader could have assessed downside risk
of 8% to a sell signal and if they're trade DISCIPLINE stated a
MAXIMUM allowable loss/risk of 10%, that could have been
referenced and tied in with the chart.  Was $37 or $37.11 a good
trade for you?

Now that we have an "understanding" of percentage risk at perhaps
an OPTIMUM trade entry point, lets fast forward to present.  Is
current price still OPTIMUM, or what position size might be used
to compensate for RISK assessment?

Astrazeneca (AZN) Chart - 1% box scale at time of $37




Wow!  Nice little move from $37, but the 1% chart shows how
BULLISH risk in new entries has grown.  What's the bull from
$33.59 thinking?  What's the bull from $37 thinking?

In past commentary, we've discussed 1/4, 1/2 and FULL positions
and how the strategy of defining what a FULL position is for YOU
as it relates to the UNDERLYING security (then translating that
to options contracts where 1 contract = 100 shares) should become
more and more apparent as to why OPTIONS traders need to think
"stock" first, then "option" second.

Do you see how at "optimum" bullish trade entry, a trader that
has bullish thoughts for AZN at $37, could indeed have taken a
FULL position at that point, and tied in some technical
significance with a 10% risk assessment, which would have been
above the $29 mark from the conventional $1-box scale of the p/f
chart?

Do you see how "benchmarking" back now has new bullish entry
perhaps RISKING 20% to the very same $33.59 level?  Based on RISK
assessment, a NEW BULL looking to establish and perhaps build a
position might now only establish 1/2 bullish position.

A trader set on FULL position, with a STATED MAXIMUM ALLOWABLE
risk of 10% decline in the underlying security could place a 10%
line on the chart as shown above, but we see that there is little
"technical significance" as it relates to the point and figure
charts.

So... we've answered the trader's question as to calculating the
bullish vertical count, and discussed 2 techniques of assessing
risk.

Risk to $29 is considered LONGER-TERM risk and would be measured
against the LONGER-TERM bullish vertical count.  Let's face it.
The SMARTEST money in the market bought AZN on March 12th at
$29.41, that's also when the "dumbest money" sold the stock.

SMART money bought at $37, when demand began outstripping supply
on a more meaningful basis and a "buy signal" was generated.

Using the percentage scale, we've tied in the conventional $1-box
scale and began testing the supply/demand chart against our
stated discipline of not taking more than 10% downside risk in
the UNDERLYING security we are trading on FULL position, and then
began incorporating the successfull strategy of limiting position
size to still account for RISK, but allow BULLISH exposure to a
security that certainly has the sector and the stock exhibiting
longer-term bullish potential.

We have perhaps further limited risk, with bullish exposure to a
stock with the use of a call option.  A trader that does consider
10% downside risk on a full position, with full position being
roughly $5,000 in the underlying security, may well see that with
AZN trading $41.51, then 10% would be a risk of roughly $4.10.
The prior mentioned Oct. $40 call, priced at $4.60, would be
relatively equivalent to 10% risk.  The nice thing about an
option is that it gives the trader the OPTION of time and perhaps
honoring the conventional supply demand chart and monitoring the
MARKET/SECTOR internals over time as the trade progresses.

You see, while AZN may decline 10% in the next three weeks and
equity trader may indeed follow their stated DISCIPLINE and limit
their losses at that point.  However, the OPTION trader, that
properly addresses risk to begin with, and carried that risk to
their option's contract, already took care of their downside risk
assessment.

It could well be that when/if AZN were to decline 10% from a
bull's entry point, that MARKET or SECTOR internals as depicted
by the bullish% indicate that the trade should be cut from the
portfolio, there are also times when a stock's price action will
be influenced by "sympathetic" price movement as it relates to
news, and with the passage of time, the news either wares off or
the "knee-jerk" reaction to the news was eventually deemed
insignificant.

When properly used and NOT over leveraged, options can indeed
give traders/investors and edge over underlying stock
traders/investors.

True, there's a premium associated with options, but we all know
why.  It's because options mitigate and limit risk to the capital
invested.

Jeff Bailey


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

==========================================
Market Watch for the week of April 28th
==========================================

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

Symbol  Company               Date           Comment      EPS Est

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

AOC    Aon Corporation       Mon, May 5  Before the Bell      0.47
CHD    Church & Dwight Co.   Mon, May 5  Before the Bell      0.40
CUZ    Cousins Prop Inc      Mon, May 5  Before the Bell      0.93
COX    Cox Comm Inc.         Mon, May 5  Before the Bell     -0.03
CCI    Crown Castle Intl     Mon, May 5  After the Bell      -0.36
CSKKY  CSK Corporation       Mon, May 5  -----N/A-----         N/A
DVA    DaVita                Mon, May 5  Before the Bell      0.47
DECA   Decoma International  Mon, May 5  -----N/A-----        0.25
EPN    El Paso Energy Part   Mon, May 5  After the Bell       0.35
ENH    Endurance Spec Hldng  Mon, May 5  Before the Bell      0.60
ETM    Entercom Commu        Mon, May 5  Before the Bell      0.16
EOG    EOG Resources         Mon, May 5  Before the Bell      1.20
GLG    Glamis Gold Ltd       Mon, May 5  -----N/A-----        0.04
HNT    Health Net, Inc.      Mon, May 5  Before the Bell      0.55
HEW    Hewitt Associates     Mon, May 5  Before the Bell      0.27
MET    MetLife Inc.          Mon, May 5  After the Bell       0.65
OHP    Oxford Health Plans   Mon, May 5  Before the Bell      0.89
PRE    PartnerRe Ltd.        Mon, May 5  After the Bell       1.49
QGENF  Qiagen N.V.           Mon, May 5  After the Bell       0.07
RA     Reckson Ass Realty    Mon, May 5  After the Bell       0.57
TDS    Telephone Data        Mon, May 5  Before the Bell      0.45
PFG    The Principal Fin Grp Mon, May 5  After the Bell       0.55
USM    U.S. Cellular         Mon, May 5  Before the Bell      0.31
WFT    Weatherford Intl      Mon, May 5  Before the Bell      0.27
HLTH   WebMD                 Mon, May 5  After the Bell       0.10

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

ADVP   AdvancePCS            Tue, May 6  After the Bell       0.47
AEG    AEGON N.V.            Tue, May 6  Before the Bell      0.19
AAA    Altana AG             Tue, May 6  Before the Bell       N/A
AMH   AmerUs Group Co.       Tue, May 6  After the Bell       0.90
AIV    Aprtmnt Invest & Man  Tue, May 6  After the Bell       0.91
ITU    Banco Itau Hldng Fin  Tue, May 6  -----N/A-----         N/A
BRW    Broadwing Commu       Tue, May 6  Before the Bell     -0.05
CDX    Catellus Dvlpmnt Corp Tue, May 6  After the Bell       0.36
CPG    Chelsea Prop Group    Tue, May 6  After the Bell       0.75
CSCO   Cisco Systems         Tue, May 6  After the Bell       0.14
CZN    Citizens Comm         Tue, May 6  Before the Bell      0.07
CSR    Credit Suisse Group   Tue, May 6  Before the Bell       N/A
CEI    Cres Rl Estate Eq     Tue, May 6  Before the Bell      0.34
CMLS   Cumulus Media Inc.    Tue, May 6  After the Bell      -0.07
CVS    CVS Corporation       Tue, May 6  Before the Bell      0.48
DISH   EchoStar Comm         Tue, May 6  Before the Bell      0.10
ERTS   Electronic Arts       Tue, May 6  After the Bell       0.34
EMR    Emerson Electric      Tue, May 6  After the Bell       0.62
HSIC   Henry Schein          Tue, May 6  -----N/A-----        0.53
ITY    Imperial Tobacco Grp  Tue, May 6  Before the Bell       N/A
KG     King Pharmaceuticals  Tue, May 6  Before the Bell      0.35
LAF    Lafarge North America Tue, May 6  After the Bell      -0.84
LM     Legg Mason            Tue, May 6  Before the Bell      0.69
MVL    Marvel Enterprises    Tue, May 6  Before the Bell      0.36
MAS    Masco                 Tue, May 6  -----N/A-----        0.31
MBI    MBIA Inc.             Tue, May 6  Before the Bell      1.08
NXY    Nexen                 Tue, May 6  Before the Bell      1.25
PRU    Prudential Fncl, Inc. Tue, May 6  After the Bell       0.56
REG    REGENCY CTRS CORP     Tue, May 6  After the Bell       0.65
TRK    Speedway Motorsports  Tue, May 6  Before the Bell      0.45
TLM    Talisman Energy       Tue, May 6  -----N/A-----        2.29
G      The Gillette Company  Tue, May 6  Before the Bell      0.24
TOT    Total Fina Elf        Tue, May 6  Before the Bell      1.68
UVV    Universal Corporation Tue, May 6  After the Bell       1.21
WPI    Watson Pharm, Inc.    Tue, May 6  Before the Bell      0.42
WRC    Westport Resrcs Corp  Tue, May 6  -----N/A-----        0.34

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

AEE    ARG  Airgas           Wed, May 7  After the Bell       0.25
AMLN   Amylin Pharm, Inc.    Wed, May 7  Before the Bell     -0.33
BAY    Bayer                 Wed, May 7  Before the Bell       N/A
BHP    BHP Billiton Ltd      Wed, May 7  Before the Bell      0.16
VNT    C. A. Nac Tele Ven    Wed, May 7  After the Bell      -0.29
CNQ    CANADIAN NAT RES LTD  Wed, May 7  Before the Bell      1.33
CEPH   Cephalon, Inc.        Wed, May 7  After the Bell       0.20
CPWR   Compuware Corporation Wed, May 7  After the Bell       0.08
EDS    Electronic Data Sys   Wed, May 7  After the Bell       0.31
ENB    Enbridge Inc.         Wed, May 7  -----N/A-----         N/A
EPC    Epcos                 Wed, May 7  -----N/A-----         N/A
EXPD   Expeditors Int WA     Wed, May 7  After the Bell       0.23
FRT    Fed Rlty Invst Trust  Wed, May 7  After the Bell       0.62
FMS    Fresenius Med Care    Wed, May 7  Before the Bell       N/A
FBR    Friedman, Ramsey Grp  Wed, May 7  Before the Bell       N/A
LAMR   LAMAR ADVERTISING CO  Wed, May 7  Before the Bell     -0.16
MME    Mid Atlantic Med Srvs Wed, May 7  After the Bell       0.64
NEM    Newmont Mining Corp   Wed, May 7  -----N/A-----        0.17
PNP    Pan Pac Ret Prprts    Wed, May 7  Before the Bell      0.78
PSC    Philadelphia Suburban Wed, May 7  Before the Bell      0.19
PIXR   Pixar Anim Studios    Wed, May 7  After the Bell       0.11
DNY    RR Donnelley          Wed, May 7  Before the Bell      0.02
SPI    Scottish Power        Wed, May 7  Before the Bell       N/A
SPG    Simon Prop Grp Inc.   Wed, May 7  -----N/A-----        0.86
SDX    Sodexho Alliance S.A. Wed, May 7  Before the Bell       N/A
TELN   Telenor ASA           Wed, May 7  -----N/A-----         N/A
TRLY   Terra Lycos           Wed, May 7  -----N/A-----       -0.04
WFMI   Whole Foods Market    Wed, May 7  -----N/A-----        0.41


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

ATVI   Activision            Thu, May 8  After the Bell      -0.13
ATK    Alliant Techsys Inc.  Thu, May 8  Before the Bell      0.88
RMK    Aramark Corporation   Thu, May 8  Before the Bell      0.22
BCH    Banco de Chile        Thu, May 8  -----N/A-----        0.33
CLX    Clorox                Thu, May 8  Before the Bell      0.50
CNA    CNA Financial Corp    Thu, May 8  Before the Bell      0.61
CMCSA  COMCAST HOLDINGS CORP Thu, May 8  -----N/A-----       -0.09
DF     Dean Foods            Thu, May 8  Before the Bell      0.63
DEG    Delhaize Group        Thu, May 8  Before the Bell       N/A
DVN    Devon Energy Corp     Thu, May 8  Before the Bell      2.26
ECA    EnCana Corporation    Thu, May 8  -----N/A-----        1.11
ENO    Enodis plc            Thu, May 8  Before the Bell       N/A
FST    Forest Oil Corp       Thu, May 8  After the Bell       0.72
FS     Four Seasons Hotels   Thu, May 8  -----N/A-----        0.09
GFI    Gold Fields Limited   Thu, May 8  Before the Bell      0.12
HCC    HCC Insurance Hlds    Thu, May 8  After the Bell       0.46
HB     Hillenbrand Ind       Thu, May 8  Before the Bell      0.99
KPP    Kaneb Pipe Line L.P.  Thu, May 8  Before the Bell      0.80
LTR    Loews Corp.           Thu, May 8  Before the Bell      1.34
CLI    Mack-Cali Realty Corp Thu, May 8  Before the Bell      0.89
MGA    Magna Int Inc.        Thu, May 8  -----N/A-----        1.46
MDG    Meridian Gold Inc.    Thu, May 8  After the Bell       0.11
MYL    Mylan Laboratories    Thu, May 8  Before the Bell      0.37
NXL    Nw Pln Excl Rlty TrustThu, May 8  -----N/A-----        0.48
NVDA   NVIDIA Corporation    Thu, May 8  After the Bell       0.10
PSA    Public Storage        Thu, May 8  After the Bell       0.63
ROIAK  Radio One             Thu, May 8  -----N/A-----       -0.01
RRI    Reliant Resources     Thu, May 8  Before the Bell     -0.07
SPP    Sappi Limited         Thu, May 8  -----N/A-----        0.23
SRV    Service Corp Intl     Thu, May 8  -----N/A-----        0.12
SHU    Shurgard Storage Cent Thu, May 8  -----N/A-----        0.69
TLD    TDC A/S               Thu, May 8  Before the Bell       N/A
TLSN   TELIASONERA AB        Thu, May 8  -----N/A-----         N/A
IPG    Interpublic Grop Co   Thu, May 8  After the Bell       0.07
MNY    The MONY Group Inc.   Thu, May 8  During the Market    0.02
TRZ    Trizec Properties,    Thu, May 8  Before the Bell      0.42
UVN    Univision Comm        Thu, May 8  After the Bell       0.04
WGR    Western Gas Resources Thu, May 8  Before the Bell      0.69
WBK    Westpac Banking       Thu, May 8  -----N/A-----         N/A

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

ABV    AmBev Co Bebidas Am   Fri, May 9  -----N/A-----        0.33
CEP    Centerpulse AG        Fri, May 9  -----N/A-----         N/A
E      ENI SpA               Fri, May 9  During the Market     N/A
MLS    Mills Corporation     Fri, May 9  Before the Bell      0.78
NZT    Telecom Corp New Zlnd Fri, May 9  -----N/A-----         N/A


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

Symbol  Company Name              Ratio    Payable     Executable

ZQK     Quicksilver               2:1      May   8th   May   9th
ESBF    ESB Financial Corp.       6:5      May  15th   Apr  29th
FBC     Flagstar Bancorp          2:1      May  15th   May  16th
NOVB    North Valley Bancorp      3:2      May  15th   May  16th


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

Earnings announcements are starting to slow down a bit this week.
The economic reports are also ebbing from last week's deluge.
However, the FOMC does meet on Tuesday.  There is not much hope
for a rate cut at this meeting.

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

Monday, 05/05/02
----------------
ISM Services (DM)       Apr  Forecast:   50.0  Previous:     47.9


Tuesday, 05/06/02
-----------------
FOMC Meeting (DM)


Wednesday, 05/07/02
-------------------
Wholesale Invntories(DM)Mar  Forecast:    0.1%  Previous:    0.3%
Consumer Credit (DM)    Mar  Forecast:   $4.0B  Previous:   $1.5B


Thursday, 05/08/02
------------------
Initial Claims (BB)   05/03  Forecast:    N/A  Previous:     448K
FOMC Minutes (DM)


Friday, 05/09/02
----------------
None


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


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The Option Investor Newsletter                   Sunday 05-04-2003
Sunday                                                      2 of 5


In Section Two:

Market Watch: (See Note)
Daily Results
Call Play of the Day: IBM
Put Play of the Day: None
Dropped Calls: ERTS, IMDC
Dropped Puts: FITB, INTU


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************
Market Watch
************

The Market Watch will be emailed out tomorrow (Sunday, May 4th,
2003) and posted on Monday, May 5th.


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

For Best Alignment view in Courier Ten Font
*******************************************

CALLS    LAST      Mon    Tue    Wed   Thu  Week

ADTN     43.65    0.53   1.20  -0.22  0.92  4.61 Shooting ahead
AZO      82.47    1.27   1.02   0.47  0.15  4.42 Secondary Target
ERTS     61.77    1.33  -1.35  -0.39 -0.18  2.22 DROP, earnings
HLTH     10.05                                   NEW, High Risk
IBM      87.57                                   NEW, Strong Techs
KLAC     42.15                                   NEW, Chip Catch up?
IMDC     39.98    0.95  -0.15   0.24  1.71  3.73 DROP, Target reached
MEDI     36.11    0.81   0.15  -0.47  0.00  1.15 Long-term, no update
NXTL     15.18    0.75   0.63  -0.29  0.54  1.18 Pause to rally?
SLM     114.79    0.57  -1.48  -0.35  0.03  1.31 Perfect bounce


PUTS

FITB     50.54    1.10  -0.16  -0.36 -0.48  1.89 DROP, never triggered
GM       35.80                                   NEW, Relative Weakness
INTU     39.90   -2.17   3.95   0.08 -0.35  2.94 DROP, Software strong
KSS      55.45    1.67   0.59  -0.48 -1.31  0.43 Relative Weakness


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

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

Intl Business Mach - IBM - cls: 87.57 chg: +1.68 stop: 84.00

See details in play list




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

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


CALLS
^^^^^

Electronic Arts - ERTS - close: 61.78 change: +2.82 stop: 58.00

It was a tough decision, opting to drop our ERTS play this
weekend, especially after such a strong move on Friday.  But with
earnings scheduled for Tuesday after the close, there just isn't
enough time to contemplate new positions.  If the stock had
managed to close above the $62 level (which would have been a
clean breakout), we might have kept it active.  As it is, there
wasn't enough buying interest to hold the stock above that solid
resistance.  So we're closing it out with a small gain from our
picked price of $59.99.  Traders already in the play will want to
use any upward continuation on Monday as an opportunity to exit at
a more favorable level.  Stops should now be raised to breakeven
or better just in case of a sharp pullback on Monday.

Picked on April 20th at  $60.04
Change since picked:      +1.79
Earnings Date          05/08/03 (unconfirmed)
Average Daily Volume = 2.92 mln

---

Inamed Corp - IMDC - close: 39.98 change: +0.98 stop: 36.00

We hope traders did well with the IMDC play.  The cooperating
bullish market environment and some decent earnings news worked
out in favor of the bulls.  Per our update on Thursday, the plan
was to exit on any intraday spike to $40.00 during Friday's
session.  We got several chances.  By the looks of the intraday
chart on Friday the buyers are still in control but the stock
looks pretty extended right now and the risks here at the $40
mark are to the bulls, not the bears.  Given the success of
trading IMDC's channel, we'll keep it in mind for another play
should it pull back to the bottom edge (see chart).

Annotated Chart for IMDC:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/IMDC050403.gif



Picked on April 17th at $35.00
Change since picked:     +5.00
Earnings Date         04/30/03 (confirmed)
Average Daily Volume = 215 K


PUTS
^^^^

Fifth Third Bancorp - FITB - cls: 50.52 change: +1.78 stop: 50.25

A perfect example of a well-executed, but failed play, FITB moves
to the drop list tonight.  We were looking for the stock to break
down below the $47 level in conjunction with the Banking index
(BKX.X) once again failing at the $800 resistance level.  Neither
happened, and on Friday the BKX broke out to its highest level
since early July.  FITB went along for the ride, finally cracking
above its own resistance at $50.25.  The reason we're calling this
a well-executed play is that we set a trigger at $47 to make the
stock prove its weakness before entry.  Since that never occurred,
no entries should have been taken and nobody got hurt.  Now we
move on to fresh candidates.

Picked on April 24th at $47.73
Gain since picked:       +2.79
Earnings Date         07/15/03 (unconfirmed)
Average Daily Volume = 2.69 mln

---

Intuit Inc. - INTU - close: 39.90 change: +1.43 stop: 40.00

The market rally and technology strength is putting the kibosh on
our plans for a put play in INTU.  The first day we opened it,
shares crashed but after hours news and a positive spin had
shorts covering.  We thought puts might still be a potential
winner with two days of failure at the $40 level.  Unfortunately,
Friday's big day pushed the software sector higher by 3.7%.
That's giving INTU bulls a lot of courage and we'd rather not get
stopped out on Monday.  There is still overhead resistance at $41
but we would be apprehensive about opening new short positions
until we saw some more weakness.

Picked on April 27th at $37.24
Change since picked:     -2.66
Earnings Date         05/15/03 (confirmed)
Average Daily Volume = 4.53 mil
Chart link:



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

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

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

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

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

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

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


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The Option Investor Newsletter                   Sunday 05-04-2003
Sunday                                                      3 of 5


In Section Three:

New Calls: HLTH, IBM, KLAC
Current Calls: ADTN, AZO, NXTL, SLM
New Puts: GM


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NEW CALL PLAYS
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WebMD - HLTH - close: 10.05 change: +0.30 stop: 9.49

Company Description:
WebMD Corporation provides services that help physicians,
consumers, providers and health plans navigate the complexity of
the healthcare system. Our products and services streamline
administrative and clinical processes, promote efficiency and
reduce costs by facilitating information exchange, communication
and electronic transactions between healthcare participants.
WebMD Health is the leading provider of online information,
educational services and communities for physicians and
consumers. WebMD Medical Manager is the leading provider of
physician practice management software and related services.
WebMD Envoy is the leading provider of electronic data
interchange services for healthcare providers and commercial
health plans. (source: company press release)

Why We Like It:
Time to trade like it's 1999!  Okay, that may be going too far
but the Internet sector has been a big winner for investors
lately.  EBAY, YHOO, AMZN...all of the major online survivors
have been beating expectations and running higher after their
earnings announcement.  We're going to roll the dice on HLTH and
hope it doesn't come up craps.  That's right, we're breaking our
own rule here.  HTLH is expected to announce its Q1 earnings
after the bell on Monday just after 4:00 PM ET.  Those traders
willing to speculate on a high-risk gamble can continue reading.
If you're not interested in using high-risk capital then please
skip to the next play.  REPEAT - THIS IS A HIGH RISK PLAY.  THE
OPPORTUNITY to lose money is substantial if HLTH botches their
earnings report.

Last time they announced, which was only March 13th, was their Q4
numbers.  HLTH actually beat estimates by 4 cents.  They reported
a net loss of $24 million or 1-cent a share.  This was a drastic
improvement over the Q4 the prior year where HTLH lost $199.5
million or 62 cents a share.  At their Q4 conference call HLTH
said revenues were expected to rise 10 to 12% this year.  This is
their chance to let us know if they are on track or not.

The stock has huge multi-year resistance in the $10.00 to 10.50
area dating back to January 2001.  As one of the current TOP 20
most shorted stocks any positive earnings surprise could create a
HUGE short squeeze.  To get the biggest bang for your high-risk
buck, look to take a position before the earnings event at
Monday's close.  Doing a little speculation on a potential profit
target, we'd look to the $12.50 area, which correlates with the
overhead bearish resistance on HLTH's point-and-figure chart.
FYI...keep in mind that any pre-earnings rumors could seriously
affect the stock price during Monday's session.

Suggested Options:
Remember, this is a Lottery-ticket style of play.  You buy your
ticket and it's either a winner or a loser and the odds are
against you.  Of course this time we're hoping the odds are just
a little bit better than slim-to-none.  We're going to list the
June and July 10's.  Real lotto-style players might consider the
12.50's and if you really want to put your money on the roulette
wheel you could try May options that expire in two weeks.

ALERT! MAY OPTIONS EXPIRE IN TWO WEEKS

BUY CALL JUN 10 HUT-FB OI=  739 at $0.80 SL=0.00 high risk!
BUY CALL JUL 10*HUT-GB OI=14577 at $0.95 SL=0.00 high risk!

Annotated Chart for HLTH:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/HLTH050403.gif



Picked on May 4th at $10.05
Change since picked:  +0.00
Earnings Date      05/05/03 (confirmed)
Average Daily Volume = 2.3 Million
Chart link:


---

Intl Business Mach - IBM - cls: 87.57 chg: +1.68 stop: 84.00

Company Description:
Big Blue is being heralded as the world's largest technology
company.  Considering their massive hardware and software
business across the globe it's not surprising.  However, IBM's
services and consulting business is growing by leaps and bounds
and is a major source of revenues.

Why We Like It:
We're making another bet on technology with this IBM play.  The
markets are in breakout mode and companies with real revenues
should out-perform their struggling brethren.  IBM last reported
earnings on April 14th.  While the headline number was a one-cent
miss, income was up 8% to 79 cents or $1.39 billion.  More
importantly, IBM's revenues grew by 11 percent to $20.07 billion.
This surpassed the estimates for $19.85 billion in revenues.
Given the strong growth, investors appeared to forgive the miss.
Especially since IBM offered an easy scapegoat with the purchase
of both PWC Consulting and Rational Software.

Shares of Big Blue have been trading sideways between $84 and $86
for almost two weeks.  The big rally on Friday was a breakout
above $86 and we're looking for it to continue.  Yes, there is
potential resistance near $89 and $90 but the market is in
breakout mode.  Maybe IBM can follow suit again.

Potentially driving the stock this coming week is news of their
new mainframe computer expected out on May 13th.  Plus, IBM is
presenting at the JPM tech conference Tuesday and Wednesday.  On
top of that, word has it SoundView met with IBM recently and the
analyst believes IBM will beat the revenue estimates again.

Suggested Options:
We listed mostly 90-strike options but that reflects our
expectation of a breakout above the 89-90 level.  It would not
hurt to use the 85 strikes.  We're not listing any May options
given their time left to expiration.

ALERT! MAY OPTIONS EXPIRE IN TWO WEEKS

BUY CALL JUN 85 IBM-FQ OI= 7456 at $4.60 SL=2.25
BUY CALL JUN 90 IBM-FR OI= 8771 at $1.75 SL=0.80
BUY CALL JUL 90 IBM-GR OI=32914 at $3.00 SL=1.50
BUY CALL OCT 90 IBM-JR OI= 7378 at $5.10 SL=3.00

Annotated chart for IBM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/IBM050403a.gif


Picked on May 4th at $87.37
Change since picked:  +0.00
Earnings Date      04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:


---

KLA-Tencor - KLAC - close: 42.15 change: +1.11 stop: 39.95

Company Description:
About KLA-Tencor: KLA-Tencor is the world leader in yield
management and process control solutions for semiconductor
manufacturing and related industries. Headquartered in San Jose,
Calif., the company has sales and service offices around the
world. An S&P 500 company, KLA-Tencor is traded on the Nasdaq
National Market under the symbol KLAC. (source: company press
release)

Why We Like It:
It's all about hope.  The markets are rising on hopes that the
worst for corporate profits and America's economy is behind us.
That dream of a second half recovery that has failed to
materialize the last two years is still alive and well for 2003.
Despite these dreams the chip sector as measured by the SOX
index, while positive on Friday, has failed to breakout to new
relative highs.  We're betting that the semiconductor sector will
play catch up with the broader indices, especially if the Nasdaq
and the Dow Jones keep up the pace and build on their Friday
success.

So why KLAC?  There were a lot of chip stocks to consider.  KLAC
announced earnings on April 23rd, 2003.  The company managed to
beat estimates by two-cents due to strictly managed cost cutting.
Net income fell by 21% over the same quarter a year ago and
management guided lower for its June quarter.  So why did shares
react positively to the news?  Again, it is that dream of a
second half recovery.  Many analysts now believe that the worst
for the semiconductor industry is behind it.  After a two-year
downturn things are starting to look up.  KLAC's management
confirmed the optimism with their own expectation for the
equipment industry to grow by 5% in 2003.  Besides, if KLAC has
already warned that the June quarter will be bad then the news is
already out.  Investors don't have to worry about an earnings
warning down the road.  We also like how KLAC actually managed to
close at new relative highs while most other chips are still
stuck below their mid-April high.

Some traders may want to look for a dip to $40-41 as their entry.
Others may want to wait for a move above $42.50.  Whatever you
choose, keep a sharp eye on the $SOX.  Where the SOX goes, KLAC
will follow.  Keep your ears open for any positive comments from
KLAC when they present at the JPM tech conference this week.

Suggested Options:
We're not going to list any May options due to their two-week
lift span.  Thus, Junes look like the best bet.  Septembers look
good if you feel like you need the extra time.  We didn't list
the 42.50 strikes but they do exist for those traders interested
in them.

ALERT! MAY OPTIONS EXPIRE IN TWO WEEKS

BUY CALL JUN 40.00 KCQ-FH OI=5008 at $4.00 SL=2.00
BUY CALL JUN 45.00 KCQ-FI OI=7726 at $1.40 SL=0.70
BUY CALL SEP 45.00 KCQ-II OI=3012 at $3.40 SL=1.50

Annotated Chart for KLAC
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/KLAC050403.gif


Picked on May 4th at $42.15
Change since picked:  +0.00
Earnings Date      04/23/03 (confirmed)
Average Daily Volume = 11.4 Million
Chart link:



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

ADTRAN, Inc. - ADTN - close: 43.65 change: +2.25 stop: 40.00*new*

Company Description:
ADTRAN, Inc. develops products and services that simplify access
to telecommunications networks.  The company's high-speed, digital
transmission products improve the operation of, and reduce the
costs associated with, building and using communications networks.
Small and large telephone companies, long-distance carriers and
other network service providers use the company's products to
deliver high-speed data, voice, video and Internet services to
their customers.  Businesses, schools and government agencies use
ADTN's products to connect facilities, remote offices and mobile
workers, enabling corporate information services, Internet access,
telecommuting and videoconferencing within their organizations.

Why we like it:
Apparently, Thursday's marginal breakout was just a taste of
things to come.  With the broad market surging through major
resistance, the stock used the $41.40 breakout level as a
launching pad for a 5.4% gain, with volume running almost double
the ADV.  There was no news to speak of.  This was just a plain
old-fashioned momentum breakout over resistance and there were
likely more than a few shorts caught on the wrong side of the
move.  Putting the stock's strength into perspective, Friday's
close puts ADTN at its best level since late October of 2000.  So
what's next?  There is significant resistance in the $44-45 area,
so it is probably no coincidence that the stock fell short of that
region on Friday.  Conservative traders that entered on the
initial breakout will want to consider harvesting some gains on a
move into that zone.  Traders still looking for an entry into the
play will want to look for a pullback into the $41-42 area.  While
daily Stochastics are entering overbought, they are still on the
rise, leading to the possibility of further upside in the
immediate future.  While the PnF chart is on a strong Buy signal,
with a bullish price target of $60, our eventual target is the
$48-50 area, where the stock will run into strong historical
resistance.  We're raising our stop to $40 this weekend, which is
just below the ascending trendline.

Suggested Options:

Shorter Term: The May 45 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  Note that
May options expire in 2 weeks.

Longer Term: Traders looking to capitalize on a sustained breakout
move to and possibly above the $45 level will want to look to the
June 45 Call or even the August 45 Call.  These options are
currently out of the money, but should provide sufficient time for
the stock to move higher without time decay becoming a dominant
factor over the short run.

ALERT: MAY options EXPIRE in TWO WEEKS

BUY CALL MAY-45 RQA-EI OI=170 at $0.95 SL=0.50
BUY CALL JUN-45 RQA-FI OI= 43 at $2.05 SL=1.00
BUY CALL AUG-45 RQA-HI OI=361 at $3.40 SL=1.75

Annotated Chart of ADTN:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/ADTN050403a.gif



Picked on April 29th at  $40.70
Change since picked:      +2.95
Earnings Date          07/15/03 (unconfirmed)
Average Daily Volume = 767 K

---

AutoZone, Inc. - AZO - close: 82.47 change: +1.51 stop: 80.00*new*

Company Description:
AutoZone is a retailer of automotive parts and accessories,
primarily focusing on do-it-yourself customers.  Each of its more
than 2900 stores in 42 states and Mexico carries an extensive
product line for cars, vans and light trucks, including new and
re-manufactured automotive hard parts, maintenance items and
accessories.  Approximately half of its domestic stores also have
a commercial sales program, which provides commercial credit and
prompt delivery of parts and other products to local repair
garages, dealers and service stations.

Why we like it:
Like the Energizer Bunny, AZO just keeps going and going, posting
higher highs and higher lows.  With four consecutive closes above
the $80 level and the stock ending Friday's session at its highest
level since late November, the uptrend is definitely becoming more
mature.  With its elevated price, risk to the bulls is increasing
at these levels and only the most aggressive players should be
considering new entries.  Our first target area for harvesting
gains ($82-83) was achieved on Friday, and conservative traders
should have harvested gains on that move.  The only viable entry
point for new entries would be on a dip and rebound from above our
new stop at $80.  That $84-85 level represents strong resistance
from last fall, and it seems unlikely that the bulls will be able
to push through that level ahead of earnings in early June.  For
that reason, we'll look to close out the play for a nice gain
should price move into that upper resistance zone early next week.

Suggested Options:

Shorter Term: The May 80 Call will offer short-term traders the
best return on an immediate move, with manageable risk.  More
aggressive traders can utilize the May 85 Call.

Longer Term: Traders looking to minimize their exposure to time
decay over the next week will want to look to the June 85 Call.
This option is currently out of the money, but should provide
sufficient time for the stock to move higher without time decay
becoming a dominant factor over the short run.  Note that May
options expire in 2 weeks.

ALERT: MAY options EXPIRE in TWO WEEKS

BUY CALL MAY-80 AZO-EP OI=1163 at $3.50 SL=1.75
BUY CALL MAY-85 AZO-EQ OI= 380 at $0.85 SL=0.40
BUY CALL JUN-85 AZO-FQ OI= 938 at $2.20 SL=1.00

Annotated Chart of AZO:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/AZO050403.gif


Picked on April 13th at  $75.24
Change since picked:      +7.23
Earnings Date          06/03/03 (unconfirmed)
Average Daily Volume = 1.17 mln

---

Nextel Communications - NXTL - cls: 15.18 chg: -0.12 stop: 13.90

Company Description:
Nextel Communications, a Fortune 300 company based in Reston,
Va., is a leading provider of fully integrated wireless
communications services and has built the largest guaranteed all-
digital wireless network in the country covering thousands of
communities across the United States. Nextel and Nextel Partners,
Inc., currently serve 197 of the top 200 U.S. markets. Through
recent market launches, Nextel and Nextel Partners service is
available today in areas of the U.S. where approximately 240
million people live or work. (source: company press release)

Why We Like It:
It's nice to see some corporate profits again.  NXTL recently
announced their Q1 results and the numbers were pretty positive.
Not only that, it was their fourth consecutive quarterly profit.
Earnings came out on April 23rd and the Q1 numbers showed a 21%
jump in revenues.  Net income was 20 cents a share or $240
million, which is a huge improvement over the same quarter a year
ago with an 82-cent loss.  Analyst estimates for the latest
quarter were just 16 cents.

The company said the higher earnings were driven by much better
than expected subscriber growth.  New customers totaled 480,000
for the quarter.  This brought total subscribers to 11.1 million.
At an average monthly revenue per subscriber of $67, the new
additions really boosted revenues.  The company also shared that
customer churn, the rate at which customers leave their service,
was down to 1.9%.  This was the lowest level in four years.
Management also said they would meet or exceed their 2003 goals.
How's that for guidance?

As a matter of fact, the entire "wireless" industry is doing
pretty well despite previous slow downs from the go-go days of
the late 90's.  Verizon Wireless saw a big jump in revenues and
AT&T Wireless (AWE) isn't doing so bad either.  Some Wall Street
pundits are speculating that the bigger telecom companies in the
U.S. may actually have to buy NXTL or AWE to have an edge against
the competition.

This play on NXTL initially came out last Tuesday evening with a
trading range of $15.00 to $14.50 as our "entry point".  The next
day, Wednesday, shares of NXTL pulled back as expected and closed
at $14.76.  Our official entry was now $15.00.  The pull back
continued on Thursday and NXTL dipped to $14.45 before bouncing
strongly back over $15.00 again.  So far the play has performed
as scripted.  What is suddenly concerning to us is the stock's
lack of participation in the Friday rally.  The stock actually
lost 12 cents.  We still believe NXTL offers a tempting call play
but it's possible that the stock may need to digest some of its
recent gains for a few more sessions.  Dips to $14.50 can still
be considered entry points but be very vigilant with your stop.
We are going to keep our stop at $13.90.  More conservative
traders might be able to get away with $14.45.  Fortunately,
there really is no serious resistance overhead until the $18.25
area.

Suggested Options:
Most of the volume is going to be in the short-term front month
options in May but there are only two-weeks left.  That's not
much time and a wrong turn can be painful.  Thus, we're going to
roll out to the next available time frame.  Traders with a
longer-term time frame can consider August or Novembers.  You
don't have to hold them that long and can close the position at
any time.

ALERT: MAY options EXPIRE in TWO WEEKS

BUY CALL JUN 15.00*FQC-FC OI= 4590 at $1.25 SL=0.00
BUY CALL JUN 17.50 FQC-FS OI= 1865 at $0.40 SL=0.00*much riskier*
BUY CALL AUG 15.00 FQC-HC OI=10526 at $1.85 SL=0.90
BUY CALL NOV 17.50 FQC-KS OI= 1939 at $1.50 SL=0.75

Annotated Chart of NXTL:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/NXTL050403.gif


Picked on April 30th at $15.00
Change since picked:     +0.18
Earnings Date         04/23/03 (confirmed)
Average Daily Volume = 21.6 Million
Chart link:


---

SLM Corp. - SLM - close: 114.79 change: +2.61 stop: 111.00*new*

Company Description:
SLM Corporation is engaged in the provision of a broad array of
education credit and related services to the education community,
including student loan origination, student loan and guarantee
servicing  and debt management and collection services.  The
company participates in all phases of the student loan process by
holding and servicing the loan from origination and guarantee
through ultimate collection, and in some cases, post default
collection.  SLM manages a large portfolio of student loans under
the Federal Family Education Loan Program, serving over seven
million borrowers through its ownership and management of $79
billion in student loans.

Why we like it:
When we initiated coverage of SLM on Thursday, it looked like the
stock was poised for a nice reversal from the recent bout of
profit taking.  Imagine our surprise to see the stock launch
higher right from the open on Friday, reaching right up to the
$115 resistance level before a very slight relaxation into the
close.  Daily Stochastics are now turning quite bullish, and
another strong day like we saw on Friday could have the stock
moving up to hit our first upside target near $117.  Since there
was no second test of the $111 level on Friday, we're raising our
stop to $111 (just below the 50-dma) this weekend.  After Friday's
strong rally, SLM should not fall back to test that level if this
rebound is for real.  A pullback near the $113 level, which is the
center of the 8-month ascending trendline, looks to be the best
setup for new entries, although aggressive momentum types can
consider new positions on a breakout over Friday's intraday high
of $115.08.  Conservative traders will want to consider harvesting
gains near the 117 level, while those with a higher risk tolerance
can hold for a move to the $120 bullish price target from the PnF
chart.  Watch the Banking index (BKX.X) for confirmation of sector
strength.  This index finally broke through the $800 resistance
level on Friday and if it extends its gains early next week, it
will likely portend more upside for SLM.

Suggested Options:

Shorter Term: The May 115 Call will offer short-term traders the
best return on an immediate move, but this is a higher risk
approach with May expiration only 2 weeks away.  Traders with less
tolerance for risk will want to use the May 110 Call.  Note that
May options expire in 2 weeks.

Longer Term: Traders looking to capitalize on a breakout move
toward the $120 bullish price target will want to look to the June
115 Call.  This option is currently at the money, and should
provide sufficient time for the stock to move higher without time
decay becoming a dominant factor over the short run.

ALERT: MAY options EXPIRE in TWO WEEKS

BUY CALL MAY-110 SLM-EB OI= 191 at $5.40 SL=3.50
BUY CALL MAY-115 SLM-EC OI=1984 at $1.60 SL=0.75
BUY CALL JUN-115 SLM-FC OI= 151 at $3.20 SL=1.50
BUY CALL JUN-120 SLM-FD OI= 168 at $1.25 SL=0.60

Annotated Chart of SLM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/SLM050403.gif


Picked on May 1st at    $112.18
Change since picked:      +2.61
Earnings Date          07/17/03 (unconfirmed)
Average Daily Volume = 915 K


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

General Motors - GM - close: 35.80 change: +0.69 stop: 38.10

Company Description:
General Motors Corporation provides automotive-related products
and services by primarily designing, manufacturing and marketing
vehicles, as well as providing communications services and
financial services.  The company operates in two segments,
Automotive, Communications Services and Other Operations, and
Financing and Insurance Operations.  It's automotive business
segment consists of General Motors Automotive, which encompasses
four regions: GM Norma America, GM Europe, GM Latin
America/Africa/Mid-East and GM Asia Pacific.  The communication
services include digital entertainment, information and
communications services and satellite-based private business
networks.  The company's other operations include the design,
manufacturing and marketing of locomotives and heavy-duty
transmissions.  GM's Financing and Insurance Operations primarily
relate to General Motors Acceptance Corporation (GMAC).

Why we like it:
Automotive manufacturers are having to pay the piper after 18
months of aggressive incentives to lure in prospective buyers.  By
their own admission, GM has found that any time they try to back
off on the incentives, sales fall significantly and have therefore
management has resigned themselves to continuing the incentives in
order to maintain market share.  The net result is that the
company is losing money on vehicle sales.  So with the company
continuing to post what appear to be solid earnings, one might ask
how they're doing it.  The short answer is from their financing
unit, as well as the "estimated" gains from their pension plan.
The pension plan is another source of problems though, as it is
grossly underfunded, while at the same time future estimates are
for gains of 9-10% for the next several years -- a rate of
appreciation that seems wholly unattainable.  If pension gains
continue to come in below these pie-in-the-sky estimates, the only
way to correct the underfunding is to funnel cashflow into the
pension plan, which will reduce reportable earnings.

All of these problems seem to be having a detrimental effect on
the stock, which has been unable to really participate in the
recent market rally.  Certainly the recent trend of falling sales
isn't helping, with April's report showing a 9% drop.  Apparently
the analyst community is starting to get the picture as well, with
Lehman lowering their rating to Underweight on Friday, citing a
belief that GM is losing its ability to control market share
through price leadership.  The firm also lowered its price target
for the stock to $28.  We note that price would represent a new
11-year low for the stock, and based on the fundamentals and
technicals, it certainly looks achievable.  The stock has been in
a persistent trend of lower highs and lower lows for the past 3
years, and this latest bounce looks like another attractive
opportunity to play the downside.  The descending trendline from
the December and January highs is just fractionally below the 200-
dma ($38.07) and should represent a very firm resistance level.
More importantly, the April high near $37.50 is probably the
highest price we're going to see for quite some time.

GM plunged on the downgrade on Friday, but the positive tone in
the rest of the market helped it to bounce back to close with a
fractional gain.  Since daily Stochastics are trying to turn up,
we'll look for a slight rebound from current levels to provide the
best entry into the play.  Looking at the bigger picture on
Stochastics, we can see bearish divergence (see chart), and that
certainly doesn't portend bullish things for the stock.  A
rollover in the $36.50-37.00 looks like an ideal setup for
entering new positions.  With the choppy trading range GM has been
in for the past couple months, it is difficult to make the case
for an entry on a breakdown until the stock falls below $33.  So
we're going to focus on entries at resistance for the time being.
Initial stops will be set at $38.10, just above the 200-dma.

Suggested Options:
Short-term traders will want to focus on the May 37 Put, as it
will provide the best return for a short-term play.  Those looking
for additional staying power to hold through the recent (and
expected future) volatility will want to use the June 35 strike.
Note that May options expire in 2 weeks.

BUY PUT MAY-37 GM-QU OI= 1773 at $2.50 SL=1.25
BUY PUT MAY-35 GM-QG OI= 9360 at $0.85 SL=0.40
BUY PUT JUN-35 GM-RG OI=17030 at $1.70 SL=0.75

ONLY TWO-WEEKS LEFT for MAY OPTIONS

Annotated Chart of GM:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/GM050403.gif


Picked on May 4th at    $35.80
Change since picked:     +0.00
Earnings Date         07/15/03 (confirmed)
Average Daily Volume = 5.11 mln


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The Option Investor Newsletter                   Sunday 05-04-2003
Sunday                                                      4 of 5


In Section Four:

Current Put Plays: KSS
Leaps: Breakout!
Traders Corner: Meet Miss Direction – Our Own Prestidigitator
Traders Corner: Dow Theory
Traders Corner: How Do You Trade Your Options?
Traders Corner: Where is the Dow Going?
Futures Corner: What to do when a Futures Exchange Halts
unexpectedly.


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*****************
CURRENT PUT PLAYS
*****************

Kohl's Corporation - KSS - close: 55.45 change: -0.04 stop: 58.00

Company Description:
Kohl's Corporation operates family-oriented, specialty department
stores, primarily in the Midwest.  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 full-line
department stores, but offer customers assortments of merchandise
displayed in complete selections of styles, colors and sizes.  Of
the 420 stores the company operates, 116 are takeover locations,
which have facilitated the entry into several new markets,
including Chicago, Illinois; Detroit, Michigan; Ohio; Boston,
Massachusetts; Philadelphia, Pennsylvania; St. Louis, Missouri,
and the New York region.

Why we like it:
The action in KSS was certainly perplexing early last week, as the
stock dipped under our $54.70 entry target Monday morning, before
rebounding strongly.  Fortunately, that rebound failed under the
$58 resistance level and the last 3 days have seen the stock
continuing with its downward trend.  The $55 support level is
still holding, supported by the 50-dma ($55.05), but appears to be
weakening.  With the strong bullish performance by the broad
market on Friday, as even the Retail index (RLX.X) posted a 1.67%
gain, KSS' inability to post a gain certainly looks bearish.
We're still looking for a solid break under that $55 support level
to usher in another wave down.  While the 10-period Stochastics
(shown below) is trying to turn up, the faster 5-period
Stochastics (not shown) is rolling over at its 4th consecutive
lower high in the past 6 weeks and also portends near-term
weakness.  Another failed rebound below the $57 level (just below
the 20-dma at $57.34) can be used for aggressive entries, while a
break below last Monday's intraday low of $54.35 should work for
more conservative players.  We're leaving our stop set at $58
until we get a close under the 50-dma.

Suggested Options:
Short-term traders will want to focus on the May 55 Put, as it
will provide the best return for a short-term play.  Those looking
for additional staying power to hold through the recent (and
expected future) volatility will want to use the June 50 strike.
Note that May options expire in 2 weeks.

ALERT! MAY OPTIONS EXPIRE IN TWO WEEKS

BUY PUT MAY-55 KSS-QK OI=18583 at $1.85 SL=1.00
BUY PUT MAY-50 KSS-QJ OI=15279 at $0.70 SL=0.35
BUY PUT JUN-50 KSS-RI OI= 1003 at $1.40 SL=0.75

Annotated Chart of KSS:
http://www.OptionInvestor.com/oin/images/commentary/newsletter/2003-05-04/KSS050403.gif


Picked on April 27th at $55.02
Change since picked:     +0.43
Earnings Date         05/15/03 (confirmed)
Average Daily Volume = 3.64 mln


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*****
LEAPS
*****

Breakout!
By Mark Phillips
mphillips@OptionInvestor.com

There's no other way to say it.  The market broke out from some
formidable resistance last Friday and the bulls should be proud of
themselves.  The SPX powered through the 920 level, breaking the
trendline from the August and November highs.  But more
importantly, the SPX broke out of its descending channel for the
first time since it began back in 2000.  Is this the beginning of
a new bull market?  It might be, but that's certainly not the way
I'd be placing my long-term bets!

First let's look at the bulls' other significant achievements last
week.  The DOW finally busted out above the 8521 level, giving an
apparent bullish resolution to the bullish triangle pattern that
had been building since 3/21.  If that breakout sees some follow
through next week, the next challenge for the bulls will be in the

Additionally, the NASDAQ Composite closed above 1500 for the first
time since last June.  On a percentage basis, the NASDAQ is
definitely showing the best performance of all the major indices
this year, just as I had expected.  Alas, I couldn't get a decent
bullish QQQ entry over the past several weeks and we had to let
that play go.  If in the play, I'd be looking to exit on strength
now that the Nasdaq-100 Bullish % is sitting at 73%.  From a price
perspective, the next bullish test will come at the 1525
resistance from the 2-year descending trendline.  If the bulls
power through that level, then 1600 is the next target, as it is
an important historical level, both on the way up in the late
1990's and on the way down in 2001-2002.

One factor that I actually found encouraging for the bulls last
Friday was that even with the strong gains across the major
indices, the volatility indices didn't implode.  The VIX only fell
to 23.79, and the VXN only dropped to 32.36.  In other words,
investors did not continue their recent trend of indiscriminate
complacency -- they at least kept an air of skepticism about them,
which lends credence to the notion of more upside in the markets.
As I noted in my MOPO articles last week, as long as the VIX can
refrain from dropping into the 19-21 area, then there is likely
still enough skepticism in the market to prevent it from falling.

Additionally, we need to monitor those bullish percent readings to
make sure we remain on the right side of the big money.  Right
now, it still seems to be in an accumulation mode, and will likely
remain that way until the Bullish percents turn down from
overbought territory.  The NDX is finally in overbought, but not
yet showing any signs of weakness.  The DOW, OEX and SPX still
have a ways to go before reaching the overbought area near 70%, so
pressing the downside at this juncture is not a prudent move.

However, it is a good idea to start harvesting gains on those
bullish trades that have treated you well in recent weeks.  We did
just that with our ADBE play this weekend and we may be getting
close to doing the same thing with EMC.  For details on the rest
of the list, let's go through each play one at a time.

Portfolio:

EMC - While the bulls weren't able to power EMC to a new high last
week, neither were the bears able to inflict any significant
damage.  The stock spent the bulk of the week consolidating near
its recent highs, but we haven't yet seen the convincing breakout.
The stock has been finding support at the ascending trendline
connecting the October and December lows again, after that line
presented itself as resistance in March and early April.  EMC
looks like it wants to break out over the $9.50 level, but will
likely need to see the overall NASDAQ Composite push up towards
the 1525 area in order to get the job done.  There is one risk to
the play on tap next week, which is earnings from CSCO.  Any
negative comments from the CEO could put a crimp in the current
rally.  Erring on the side of caution, I'm raising the stop on EMC
to $8.50, as this is just below the prior low of $8.68 and the 20-
dma ($8.53).  Given the gains in the play, I'm more inclined to be
aggressive in the pursuit of harvesting gains than to hold out for
a home run.  I still favor locking in gains on a push up into the
$10-11 area.

AIG - So much for last week's breakdown!  This week, AIG popped
back above the $55 level and pushed right back up to the 200-dma,
where it has remained pinned for the past 3 days.  Part of the
rebound may be due to the abating fears related to SARS, but I
think the lion's share of the stock's rebound has been due to the
broad market strength.  The Insurance index (IUX.X) is continuing
to work higher along its ascending trendline, but has a couple of
significant obstacles to deal with.  First up is the descending
trendline from the August highs ($265) and then there is strong
horizontal resistance at $272.  This correlates nicely with the
resistance AIG is currently encountering at the 200-dma and the
April high near $58.  Then we have January's gap resistance from
$58.50-60.00.  I still like new entries near current levels for
traders not yet on board.

Watch List:

NEM - What can I say?  It looks like we missed the boat on the NEM
play, and all because I was a bit too stingy on the entry point.
The stock has been putting in a series of higher highs and higher
lows since the end of March, and a pullback to the long-term
ascending trendline is now looking quite unlikely in the near
term.  We'll try this one more time, raising the entry target to
$26, which is right at the shorter-term (6-week) ascending
trendline, as well as a significant historical support level.  A
pullback into that area could still prove to be a solid entry as
gold continues its bottoming process.  If we do get an entry, the
stop will be set at $24, just below the lows in March, and also
below the long-term trendline.

GD - After launching higher in the wake of its better-than-
expected earnings report on 4/16, GD seems to be relaxing off its
recent highs, giving the impression that the stock just might come
back and give us a second chance.  We're not going to chase it any
further -- a pullback and rebound from the $56-57 area can still
be used for new entries, but we will need to carefully monitor the
weekly Stochastics as well.  They've gone screaming higher over
the past several weeks and if they turn south, we'll pull the plug
on this Watch List play in a hurry.

AMZN - I know what you're thinking.  AMZN is right in the middle
of the targeted entry zone.  Isn't it an entry yet?  Sadly, no.  I
certainly haven't seen anything I would characterize as weakness
in the stock as it remains right at the top of its ascending
channel.  At the same time, it is looking grossly overextended up
here, at least in my opinion.  I'm still expecting the $30 level
to represent impenetrable resistance, but there is no reason to
try to pick a top until that weakness begins to appear.  That
said, Stochastics are looking toppy on both the daily and weekly
charts.  I'm willing to wait for a test of the $30 level and see
how AMZN responds up there.  Remember, this is a higher-risk play,
as we are attempting to pick a top in a grossly overvalued and
over-extended Internet stock.  We may turn out to be geniuses, or
we might get burned by Internet Craze, Scene II.  Time will tell.

KO - Patience is required on our KO play, as it is truly a slow-
moving stock.  Friday's action finally pushed the stock up to the
$41 level, but we're in no hurry on this one.  We're looking for a
rally failure as close as we can get it to the top of the $41.50-
42.50 area as our entry trigger.  With the market still rising, we
have time to allow the bulls to have their fun.  When they're
done, then it is our turn.

As we've discussed here today and in the recent past, I see the
still rising indices and bullish percent readings and my senses
are attuned to the greater risks being assumed by those in the
bullish camp.  But at the same time, I really see nothing (other
than complacency and overt bullish sentiment) to indicate the
market is ripe for a fall.  So we're in the process of closing out
our bullish plays and getting ready to play the downside when the
time is right.

Note that we've added two more bearish Watch List plays this
weekend, so getting set up for those ought to keep everyone busy.
But before you head off to stage those orders, let me caution you
that I am going to be exceedingly cautious about entries on these
new bearish plays.  Our job is not to plunge in ahead of the
stampeding bulls and turn them around.  No, if we're smart, we'll
wait until they run out of energy, and that's when we'll find
those high-odds bearish entries.  I'll be trying to keep things
updated in the Market Monitor over the next couple weeks, but it
is entirely possible, we'll do a follow up article on the DJX play
if warranted by market conditions.

My bias is down for the next few months, primarily because I can't
see the catalyst that justifies current prices, much less higher
ones.  But at the same time, I have never claimed to be
infallible.  I see major resistance for the DOW near 8800-8900 and
for the SPX either at 940 or as high as 960.  We may not test any
of those levels, we may tag them precisely and reverse, or the
bulls may just plow right through them.  Being right is not our
toughest job in this business, it is to minimize our losses on
those occasions when we are wrong, thereby keeping us in a
position to profit handsomely when we are wrong.

If we are in fact entering the transition phase I envision over
the next few weeks, then there will be plenty of time to take
advantage of those entry setups.  Use the time between now and
then to get your action plan in place.

Have a great week!

Mark


LEAPS Portfolio

Current Open Plays

SYMBOL OPENED     LEAPS    SYMBOL  ENTRY   CURRENT  CHANGE  STOP

Calls:
EMC    03/12/03  '04 $  7  LUE-AU  $ 1.40  $ 2.90  +107.1%  $8.50
                 '05 $  7  ZUE-AU  $ 2.15  $ 3.60  +67.44%  $8.50


Puts:
AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 4.80  -14.29%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 7.70  - 9.41%  $61.00


LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
NEM    03/09/03  $26           JAN-2004 $ 25  LIE-AE
                            CC JAN-2004 $ 20  LIE-AD
                               JAN-2005 $ 25  ZIE-AE
                            CC JAN-2005 $ 20  ZIE-AD
GD     03/23/03  $56-57        JAN-2004 $ 60  KJD-AL
                            CC JAN-2004 $ 50  KJD-AJ
                               JAN-2005 $ 60  ZZJ-AL
                            CC JAN-2005 $ 50  ZZJ-AJ


PUTS:
AMZN   04/13/03  $29-30        JAN-2004 $ 25  LOH-ME
                               JAN-2005 $ 25  ZWE-ME
KO     04/27/03  $41.50-42.50  JAN-2004 $ 40  LKO-MH
                               JAN-2005 $ 40  ZKO-MH
DJX    05/04/03  $88-89        DEC-2003 $ 84  DJX-XF
                               DEC-2004 $ 84  YDJ-XF
GS     05/04/03  $78-79        JAN-2004 $ 75  KGS-MO
                               JAN-2005 $ 75  ZSD-MO


New Portfolio Plays

None


New Watchlist Plays

DJX - Dow Jones Industrials $85.83  **Put Play**

Readers that caught my MOPO articles last week don't need a lot of
explanation to see what I'm after with this play.  The market is
looking awfully extended here, but we're looking for some other
points of confirmation before trying to game the downside using
the DJX.  First up, the VIX has a bit further to fall, preferably
near 20-21.  Secondly, we need to see the bullish percent readings
get extended up towards overbought and then tip over.  The DOW
Bullish % is currently at 56% and has some room to run before
reaching overbought levels.  The BP high in March of 2002 was 76%,
while the high last December was 73%, so we can see that readings
over 70% are certainly possible.  Now that the $85.21 resistance
level has finally been broken to the upside, the goal becomes
picking the most likely resistance level where the market will run
out of steam at the same time as the confirming signals come from
the VIX and the BP.  Clearly, we're early to the game here with
this play as none of the requirements have been fulfilled yet.
But hopefully by setting things up early, we'll get a nice entry
and ride the DJX lower through the summer.  My initial target
entry is in the $88-89 area, with initial stops set at $91.00.
That is just above the intraday highs of last August and December.
A break of that level would confirm that something has definitely
changed, although there are few things that would surprise me
more.  Just to be perfectly clear, regardless of price, this play
will not be initiated until the VIX falls below 22 and the DOW's
BP rises above 65%.

BUY LEAP DEC-2003 $84 DJX-XF
BUY LEAP DEC-2004 $84 YDJ-XF

GS - Goldman Sachs $76.60  **Put Play**

Regardless of the recent market trend, the Brokerage stocks are in
trouble.  Anyone that thinks the recent $1.4 billion fraud
settlement between the big Wall Street firms and U.S. market
regulators is the end of that story doesn't have a clear grasp of
the litigious nature of this country's citizenry.  With the term
"fraud" actually used in the settlement, there are going to be
class-action suits a-plenty, and every one of them are going to
paint the big brokerage firms in a very unfavorable light.  Add to
that the declining business from retail investors/traders and the
virtually non-existent investment banking business, and it is no
wonder the Broker/Dealer index (XBD.X) is still mired in its
persistent 16-month downtrend.  There are lots of pundits saying
this rally is different, and maybe they're right.  But going with
the law of averages, it seems unlikely that the XBD index or GS
are going to be able to break out of their downtrends, especially
as we head into the summer.  The XBD has descending trendline
resistance at $450 and then horizontal resistance just a bit
higher at $460-465 (which also happens to be the 62% retracement
of the rebound off the post-9/11 lows).  For its part, GS is
facing a couple descending trendlines of its own, first the long-
term descending trend at $78 and then the shorter-term trendline
connecting the August and November highs, which currently sits at
$78.75.  So that $78-79 area is setting up to be a real
battleground, and a failed rally near that area looks like a great
time to enter a bearish play.  We'll initially set our stop at
$82.50, just above the intraday peaks from May, August and
November of last year.  Our target on the downside will be for a
retest of the 200-dma, and quite possibly a drop back to confirm
the early-March lows in the $62-65 area.

BUY LEAP JAN-2004 $75 KGS-MO
BUY LEAP JAN-2005 $75 ZSD-MO

Drops

ADBE - $37.92 Now that's the way things are supposed to work in
this game!  After giving us a great entry near the ascending
trendline back in late February, our ADBE play has risen steadily
for the past couple months (albeit in staccato fashion), now up
nearly 38% from where we initiated the Portfolio position.  This
play actually exceeded my expectations, as I was looking for the
$36 gap resistance to provide a firm lid on the stock.  Thursday
and Friday's strong upward surge is the kind of surprise I like
and I'm not one to let that sort of gift get away.  With well over
a 100% gain on the '04 LEAP, this is a perfect example of when it
makes sense to harvest gains on strength.  While I know there are
traders that will hold on, hoping for more gains, I would advise
them to tighten stops to no lower than $36 (just below Friday's
opening low) and plan on aggressively exiting the play in the $40-
42 area, if reached.


**************
TRADERS CORNER
**************

Meet Miss Direction – Our Own Prestidigitator
By Mike Parnos, Investing With Attitude

At the Couch Potato Trading Institute, we aren’t big on picking
direction because we don’t claim to know the future and we rarely
try to guess.   It's a lot like magic – slight of hand.  The
market can pick your pocket and you'll be lucky to be left with
your Fruit-of-the-Looms.

So, my revered audience, meet Miss Direction.  She's this week's
CPTI centerfold.  She's a temptress. She's magical.  Go ahead and
make your move.  You just might get lucky.  You might also get
your heart broken.  She's an exciting illusion. But remember, she
can saw a brokerage account in half (and not restore it!).

A few years back, people were making fortunes by throwing darts at
the stock pages.  But that was then.  For these same people,
picking a direction eventually became the fastest way for them to
go from Armani and Rolex to J.C. Penny and Timex.

Nevertheless, there are those who still dare to defy the gods of
logic and throw caution to the wind.  The least I can do is offer
a practical, less risky way to place your directional bet – using
a Calendar Spread.
____________________________________________________________

The Calendar Spread
In the following hypothetical example, we will use a horizontal
calendar spread on BBH -- the Biotech Holders Trust – an index
that recently broke out over some long-term resistance.  The
market seems like it wants to continue higher.  Let's look at how
we can take advantage of a slow and steady move up.

The “Horizontal" Calendar Spread
The “horizontal” calendar spread consists of the purchase of a
long-term option and the simultaneous sale of a short-term option
at the same strike price.

BBH closed Friday at $104.50.  We will:
a) Buy the BBH October $110 calls @ $5.10
b) Sell the BBH June $110 calls   @ $1.40
Total debit is:                      $3.70
Regardless of where BBH moves, our total risk is limited to $3.70.

How We’ll Make Money
If we’re right about the direction of BBH, it will move up slowly.
The delta of the October $110 call is 46.  The delta of the June
$110 call is 29.  That means that for every $1.00 BBH goes up, the
value of the June call will increase $.46 and the February call
will go up only $.29.  Deltas are important because they’ll tell
us if, and when, to make adjustments to the position later on.

There are four option cycles left until the October expiration
after the sale of the June call.  In a perfect world (and who’s
kidding who?) BBH would move up to $109.90 by June expiration and
the June call would expire worthless.  Then, we could sell the
July $115 call – retaining the increased value of the long October
call, taking in additional premium while leaving the long October
call five more points of room to move up at a much higher delta.

What happens if . . .
a) What if the BBH is at $107 at June expiration? The June $110
call would expire worthless.  The October $110 call would have
increased in value and we’re now free to sell the July $110 call
and take in another $1.00.  That would further reduce the cost
basis of the October $110 call to $2.70.  If we take in an about a
buck a month, we will have paid for the October call in less than
four months.  Everything above and beyond is profit.

b) What if the BBH is at $101 at June expiration? The June $110
call would obviously expire worthless. If you believe a negative
trend has developed, you have a few choices.  1) Simply sell your
long October $110 call for about $2.70 and take a small $1.00
loss, or, if you believe the uptrend is still intact, 2) Sell the
July $110 for about $.40 while you patiently wait for a bounce
back up.

c) What if the BBH moves above $110 prior to June expiration?
It’s moved up a little too quickly.  That’s one scenario you want
to head off at the pass.  Why?  Because the delta of the June $110
call may soon surpass the delta of the October $110 call.  That
will cost you money if you don’t make an adjustment before that
plays out.  It means the June $110 call will be increasing in
value faster than the October $110 call.  You may have to close
the spread when the deltas are no longer in your favor.  You will
likely have made a respectable profit.  Then, if you’re still
bullish, you can put on another calendar spread using higher
strikes.

Closing Early
There are times, during the course of an option position, that it
may be a good idea to close out your position early.  Look at the
chart.  Let's say you guessed right about the direction. BBH has
moved up nicely, but is about to bump into some overhead
resistance at the $110 level.  Take a look at the spread and
figure out how much you would take in if you closed out the
position.

With your cost at $3.70, perhaps you could buy back the short call
and sell the long call for a total of $4.70.  That's $1.00 profit
on a $3.70 risk – a very nice return.  There's nothing wrong with
unwinding the spread and putting that $1.00 in your pocket.  How
much profit would you accept and in what time frame.  Just because
there are three or four months left on the long option doesn't
obligate you to keep the position going.
_____________________________________________________________

The “Diagonal” Calendar Spread
A “diagonal calendar spread” is basically the same as the
“horizontal” calendar spread except the strike prices are
different.  Using the example above, a “diagonal” spread might
consist of:
Buying the October $105 call  @ $7.50
Sell the June $110 call       @ $1.40
Total debit of:                 $6.10.

The main benefit is that you are basically buying more delta.
October $105 call has a delta of 57 vs. the 46 delta of the
October $110 call.  With a "diagonal calendar spread," it's also
the months of time you buy in the long option that gives you
flexibility. You can buy more or less time, depending on how long
you think it will take for the underlying to go in your direction.

Remember that, in both the “horizontal” or “diagonal” calendar
spreads, you have many choices. You can take profits (if they
exist) by liquidating at any time during the life of the long
option.
_____________________________________________________________

Gut Check Time
The market has been moving up lately.  Some of the positions in
our CPTI portfolio are nearing their upper limits.  We're due for
a pullback because our upper limits were placed at resistance
levels.  This week should be interesting.
 _____________________________________________________________

May CPTI Portfolio Positions

Position #1 -- SMH Baby Condor.  Friday's Close: $27.25
SMH is the Semiconductor Holder Trust.  We feel that semiconductor
stocks have moved up a little too far and too fast.  We created a
baby condor by selling the May SMH $25 puts and $27.50 calls.  For
protection, we bought the May $22.50 puts and $30 calls.  The net
credit is $1.05

Our maximum profit range is $25 to $27.50.  We're only exposed for
the 2 1/2 point difference between the strikes ($25/$22.50 or
$27.50/$30) less what we've taken in ($1.05) = $1.45.  Maximum
potential profit is $1,050.

SMH has been bouncing around within the range – but then, that's
what it's supposed to do.  Actually, it traded as high as $27.78.
Our safety range is $23.95 to $28.55.  It's still within the
range.
____________________________________________________________

Position #2 – SPX Iron Condor.  Friday's Close: 930.08
We believe the market may be a bit extended so we gave it a big
sandbox to play in.  We sold the SPX May 825 puts and the May 950
calls.  Then we bought the SPX May 800 puts and May 975 calls for
protection.  The net credit was $2.95.  Our exposure is a little
more than usual – 25 points less the $2.95 we took in = $22.05.
That's why we're only doing five contracts. Our maximum potential
profit is $1,475.

SPX traded up to 930+.  It's still within the range, but the
market is moving up.    We'll watch it, but we won't obsess over
it.
______________________________________________________________

Position #3 – MSFT Minage-A-Qua – Friday's Close: $26.13
Microsoft just came out with respectable earnings and
unenthusiastic guidance.  We believe that MSFT will finish at or
around $25.

We sold the May MSFT $25 puts and calls for a credit of $1.80.  We
bought the $27.50 calls and $22.50 puts for protection at a cost
of  $.45 – yielding a net credit of $1.35.  Our maximum profit
occurs if MSFT closes right at $25.  Our profit range is from
$23.65 to $26.35.  Our risk is only $1.15 with the potential to
make $1.35.  Maximum potential profit is $1,350.
_____________________________________________________________

Position #4 – DJX Minage-A-Qua – Friday's Close: $85.83
The DJX tracks the DOW.  It looks like the DOW is in a minor
uptrend with resistance at $85 and support at $82.   We sold 10
contracts of the May DJX $84 puts and bought the May DJX $80 puts.
Then sold 10 contracts of the May DJX $84 calls and bought the May
DJX $88 calls for a credit of $.80 for a total net credit of
$2.25.   We'll receive our maximum profit if the DOW closes right
at 8400.  However, we will be profitable if the DOW closes
anywhere between 8175 to 8625.  That's a 450-point range.  The
closer it finishes to 8400, the greater the profit.  Maximum
profit potential: $2,250
______________________________________________________________

Happy trading! Remember the CPTI credo: May our remote batteries
and self-discipline last forever, but mierde happens. Be prepared!
In trading, as in life, it’s not the cards we’re dealt. It’s how
we play them.

Your questions and comments are always welcome.
Mike Parnos


**************
TRADERS CORNER
**************

Dow Theory
By Jane Fox

On July 3, 1884 Charles Dow published the first stock market
average composed of the closing prices of eleven stocks: nine
railroad companies and two manufacturing firms. Dow felt that
these eleven stocks provided a good indication of the economic
health of the country. In 1897, Dow determined that two separate
indexes would better represent that health, and created a 12 stock
industrial index and a 20 stock rail index. The idea came to life
when industrial production and railroads were the two staples of
American economic growth. Although seemingly different, they were
both important pieces to one puzzle. After all, if goods were
being produced in factories, they also had to be shipped. This was
a win-win situation for production and rail transport. If demand
for goods dropped, then factories slowed production. And if
factories produced less, then the rail carriers suffered from a
lack of demand for their services. That was a lose-lose scenario.
By 1928 the industrial index grew to its current size of 30
stocks.

Dow never wrote a book on his theories but set down his ideas of
stock market behavior in a series of editorials that The Wall
Street Journal published around the turn of the century. In 1903,
the year after Dow’s death, S.A. Nelson compiled these essays into
a book called the “The ABC of Stock Speculation” and coined the
phrase “Dow Theory.” Richard Russell, who wrote the introduction
to a 1978 reprint, compared Dow’s contribution to stock market
theory to Freud’s contribution to psychiatry.

Basic Tenets

1. The Averages discount everything

“The sum and tendency of the transactions of the stock exchange
represent the sum of all Wall Street’s knowledge of the past,
immediate and remote, applied to the discounting of the future.
There is no need to add to the averages, as some statisticians do,
elaborate compilations of commodity price index numbers, bank
clearings, fluctuations in exchange, volume of domestic and
foreign trades or anything else. Wall Street considers all these
things” (Hamilton, pp 40-41)

What this is saying is that the market reflects every possible
knowable facet that affects supply and demand and discounts it
all. The theory applies to market averages, as well as to
individual markets and even makes allowances for acts of God (or
exchanges going down) by not anticipating them but almost
instantaneously assimilating their affects into the price action.

2. The Market has Three Trends

In Dow theory an uptrend is successive higher highs and higher
lows, a downtrend is successive lower highs and lower lows, which
is the cornerstone of technical analysis. “Records of trading show
that in many cases when a stock reaches a top it will have a
moderate decline and then go back again to near the highest
figures. If after such a move, the price again recedes, it is
liable to decline some distance.” I think he just described a head
and shoulders here.

Dow then considered a trend to have three parts, Primary,
Secondary and Minor which can be compared to the tide, then the
waves which make up the tide and ripples making up the waves. You
can see the direction of the tide my looking at the highest point
on the beach reached by each successive wave. If each wave is
reaching higher on the beach then the tide in coming in, if each
successive wave reaches a lower spot than the previous one then
the tide in going out.

Dow determined that the direction of primary trends (tides) could
last for several years whereas the secondary trend (a correction
within the larger trend) usually lasted three weeks to three
months and most frequently retrace 50% of the previous move. Dow
also stated that these retracements could be 1/3 or 2/3, which I
see tying into Fibonancci analysis very nicely.

3. Major Trends have Three Phases

Dow theory states that the primary trend (the tide) has three
phases: accumulation, public participation and distribution. If
the previous trend was bearish the bullish trend start with the
accumulation phase represented by informed buying by the most
astute buyers because they have recognized that the market has
assimilated all the so-called “bad” news. The public participation
phase is where most of the technical trend followers begin to
participate and prices begin to advance rapidly. The distribution
phase takes place when the newspapers begin to print increasingly
bullish stories, economic news is better than ever and speculative
volume increases. It is during this phase that the informed
investors begin to distribute before anyone else.

4. The Averages Must Confirm Each Other

Dow theory says that no important bull or bear market signal could
take place unless both averages (industrial and transportation)
confirmed one another by giving the same signal. Both averages
must exceed a previous secondary peak to confirm the inception or
continuation of a bull market. He did not believe the signals had
to occur simultaneously, but recognized that a shorter length of
time between the signals provided a stronger confirmation.

The theory, then, is that the two indexes should behave in tandem.
Typically one leads the other, but the lagger shouldn't be far
behind. It is widely accepted that the transportations are more
apt to lead, since factories and capital goods producers make
shipping arrangements well in advance (sometimes even before they
actually have made the goods they're going to ship). Assuming a
stable business cycle, they should even both make news highs and
new lows in almost perfect synchronization (again, the theory says
that one typically leads the other slightly). As long as this is
happening, forecasting the general direction of stocks is fairly
transparent.

5. Volume Must Confirm the Trend

Dow theory says that volume is important but secondary. Simply
stated, volume should expand or increase in the direction of the
major trend.

6. A Trend is Assumed to be in Effect Until it Gives a Definite
Signal that it has Reversed

This tenet relates to the physical law a body in motion tends to
stay in motion until some external force causes it to change
direction. But what constitutes a change in direction?

A number of technical tools are available to traders to assist in
the difficult task of spotting reversal signals, including the
study of support and resistance, price patterns, candlestick
patterns, trendlines, moving averages, etc. And here is where the
molasses gets real thick, is the move we are currently in a
correction of the prior move or a reversal, i.e. is the tide now
moving out instead of in.

Although Dow theory has stood the test of time, it has not gone
without its criticism. A Dow signal usually occurs in the second
phase of a trend as price penetrates a previous intermediate peak.
This is also, incidentally is about where most trend-following
technical systems begin to identify and participate in the
existing trends. In all fairness though, Dow never intended to
anticipate trends, rather he sought to recognize the emergence of
major bull or bear markets and to capture the middle portion of
important moves.

An understanding of Dow theory provides a solid foundation of a
study of technical analysis, whether it be trendlines, support and
resistance, candlesticks or just plain price patterns. The
standard definition of a trend, the classification of a trend into
three categories and phases, the principles of confirmation and
the use of percentage retracements all derive in on way or another
from Dow Theory.


**************
TRADERS CORNER
**************

How Do You Trade Your Options?
By Steve Gould

My son is going through that dreaded "what is the best" phase.
You dads know what I am talking about.  Dad, what is the best car?
Dad, what is the best pistol?  Dad, what is the best airplane?
And the list goes on.  My answer is always the same.  Son, that
depends.

He is now old enough to understand stocks and options.  In fact, I
took him to one of my seminars.  Not only was he the youngest one
there, he actually asked the instructor well thought out question.
I inevitably got that dreaded question, dad, what is the best
option to buy?  My answer, as always, was son, that depends.

So what is the best option to buy?

I could not even begin to opine as to what is the best option to
buy.  It is going to be different for each person depending on
their risk tolerance.  What I am going to do is present the risks
and rewards associated with different types of options and let you
decide what your risk tolerance is and how you want to trade.

When we trade options, we can buy either in the money (ITM), at
the money (ATM) or out of the money (OTM) options.  Taking this
just one stop further, we can also purchase way out of the money
options or deep in the money options.  The basic difference
between each of these choices is the delta.  The delta determines
how much the option changes value with each $1 move of the stock.
ATM options generally have a delta around 50.  The further out of
the money the option goes, the closer to zero the delta becomes.
The deeper in the money the option goes, the closer to 100 the
delta becomes.

For example, let's take a stock that is trading at $37. The $40
call option cost $2.00 and has a delta of 35.  When the stock
increases in value by $1, the option increases in value by $0.35.
Therefore, when the stock reaches $38, the option will now be
worth $2.35.

The profit and loss scenarios are slightly different for each of
the different types of options. This is because the delta changes
the risk curves.

I think the easiest way to present the risk and rewards is to run
through a sample trade and see what the numbers are for each
option.

Let's take my favorite stock, the Diamonds.  Here is a weekly
chart of the Dow as of 5/1/2003.

Chart:  Weekly Dow as of 5/1/2003





Until proven otherwise, this is the path I think the Dow is going
to take over the summer.  (Unless, of course, it doesn't.)  I am
anticipating a move to 6967 by 9/1/2003.  My stop loss is the high
over the II wave at 9043.  As of this writing (5/1/2003) the Dow
is at 8454 making the DJX worth $84.54.  So an approximately 6
point move up on the DJX would invalidate the current wave count
and I would exit the trade.  If the Dow moves above 9043, it will
most likely do so within the next month.  Otherwise I am expecting
approximately a 15 point move down.

Since I am anticipating the move by 9/1/2003, I am going to be
looking at December 03 DJX options so I do not have to consider
theta (time) decay.  Here are how the options are priced as of
5/1/2003.


OpSym   Strike   Type   Bid    Ask    Delta     Vol    OI
-----   ------   ----   ---    ---    -----     ---    --
DJYXD     56      Put   0.30   0.45    -3.5      0    3343
DJYXH     60      Put   0.50   0.60    -5.2      0    3828
DJXXL     64      Put   0.70   0.90    -7.5     53   13295
DJXXP     68      Put   1.20   1.40   -11.3      5    6031
DJXXR     70      Put   1.40   1.65   -13.3      5    8869
DJXXT     72      Put   1.85   2.00   -16.0      6    4121
DJXXX     76      Put   2.75   2.90   -21.9   1080   93665
DJXXB     80      Put   4.00   4.10   -29.0    373   46249
DJXXF     84      Put   5.50   5.80   -36.8     49    9568
DJXXJ     88      Put   7.40   7.90   -45.1     20    8583
DJVXN     92      Put  10.00  10.50   -53.0      1    1938
DJVXR     96      Put  13.00  13.60   -59.8      0     760
DJVXV    100      Put  16.40  17.00   -65.2      5    6826
DJVXZ    104      Put  20.00  20.60   -69.4     0     132
DJVXD    108      Put  23.80  24.40   -72.3     0     614
DJVXH    112      Put  27.70  28.30   -74.2     0     281
DJWXL    116      Put  31.60  32.20   -75.8     0     199

Various theories abound as to which options to trade with.  Some
people think that you should buy only deep in the money options.
Others believe that at the money options are best.  Still others
think that out of the money options with a delta around 25 (or -25
for puts) are the best.  For the sake of illustration, we will
choose the following options, trying to account for each point of
view.  Note the deltas for each.

Category               Strike     Delta
--------               -----      -----
Way out of the money     64        -8
Out of the money         80       -29
At the money             84       -37
In the money             96       -60
Deep in the money       116       -76

To make things as equal as we can, we will buy an appropriate
number of contracts to approximate the same dollar amount.

Way out of the money:   .90 * 36 contracts = $3,240
Out of the money:      4.10 *  8 contracts = $3,280
At the money:          5.80 *  6 contracts = $3,480
In the money:         13.60 *  3 contracts = $4,080
Deep in the money:    32.20 *  1 contract  = $3,220

Let's graph the risk curves for each option.  (I have to do a
little fudging because the Options Toolbox only allows me to enter
strike prices in increments of 5.  I do not think that is going to
throw the calculations off that much.)

For the way out of the money options.

Chart: Way out of the money options risk




On June 1, the options lose $1,980


Chart: Way out of the money options reward




On September 1, the options profit $4,392.

For the out of the money options.

Chart: Out of the money options risk




On June 1, the options lose $1,568


Chart: Out of the money options reward




On September 1, the options profit $5,416.


For the at the money options.

Chart: At the money options risk





On June 1, the options lose $1,554


Chart: At the money options reward




On September 1, the options profit $5,730.



For the in the money options.

Chart: In the money options risk





On June 1, the options lose $1,182


Chart: In the money options reward





On September 1, the options profit $3,519.



For the deep in the money options.

Chart: Deep in the money options risk





On June 1, the options lose $505


Chart: Deep in the money options reward





On September 1, the options profit $1,313.


Here is a summary of the results.

Option    Total     Loss      Loss    Profit   Profit
           Cost              Percent           Percent
------    -----     ----     -------  ------   -------
 Way OTM  $3,240   $(1,980)    61%    $4,392    136%
     OTM  $3,280   $(1,568)    48%    $5,416    165%
     ATM  $3,480   $(1,554)    45%    $5,730    165%
     ITM  $4,080   $(1,182)    29%    $3,519     86%
Deep ITM  $3,220   $  (505)    16%    $1,313     41%

Below are risk graphs of all the options together. Note: the graph
is minus the way OTM options.  The program only allows for 4.
Also, these were calculated on 5/2/2003 so the P&L is going to be
slightly different from the above chart.

Chart: All options risk





Chart: All options reward





So which are the best options to buy?  It depends on your risk
tolerance.  The message is clear though.  The deeper in the money
you buy options, the lower the risk, but the lower the reward.
The further out of the money you buy options, the greater the
risk, but the greater the reward.  The reward seems to reach a
point of diminishing returns the further out of the money you go.
As you approach way out of the money, the delta is so small that
the profit potential is limited.

Given this data, you can now decide how you wish to trade options
based on your goals and risk tolerance.


**************
TRADERS CORNER
**************

Where is the Dow Going?
By Steve Gould

Many moons ago, when I had more time on my hands, I saw a TV
commercial for a local car dealership.  The starting scene was a
picture of the Milky Way galaxy.  The next picture was a close up
of the Milky Way sector that Earth was in.  Then one of our solar
system.  Then one of the Earth from far away.  Then one of the
Earth from the moon.  Then one of the Earth from a satellite.
Then one of the United States.  Then one of Oregon.  Then one of
Portland.  Then one of the city block where the car dealership was
in and eventually we saw a bird's eye view close up of the bald
head of the owner of the dealership.

It was interesting to see the "big" picture and the perspective of
where we are and how we fit in to the grand scheme of things.
Some how, the fine details didn't seem so important any more.

In order to know where the Dow is going, it is really crucial to
see the "big" picture.  It is impossible to look at the last week,
month or even year to get a perspective as to why I think the Dow
is ultimately headed down to at least 6000, possibly even 4000
before the year's end.

I would like to take you back to the 1700's when the United States
stock market was born, but my data does not go back that far.  My
data only goes back to 1915.  At that time the Dow was at 56.  The
high for the Dow has been over 10,000.  In order to see the whole
progression, we must use a log scale.

Chart: Dow Monthly since 1915





This is a monthly chart of the Dow since 1915.  I labeled the
Elliott Wave progression of the major wave (I, II, III) and the 5
wave pattern within wave III.  The wave III peak occurred on
January 14, 2000.

According to this chart, the Dow is now in a wave IV counter
trend.  How far down it will go and how long it will last are the
questions of the day.  It is impossible to know exacts, but we do
have three clues to help us.

Clue number one is that we know that 4 waves generally retrace
between 38 – 62% of the 3 wave.  The 38% retracement is
approximately 7300 while the 68% retracement is about 4500.

Clue number two is the rule of alternation.  This rule states that
what happened in the previous type of wave will probably not
happen in the current one.  Specifically here, if we look at the
wave II counter trend, we see a very sharp decline.  Using the
rule of alternation, the wave IV counter trend should be a
sideways correction.  We can see how this rule expresses itself
very clearly by looking at wave 2 and wave 4 within the III wave.
Wave 2 was a sharp correction while wave 4 was a sideways
correction.

Finally, clue three is that all counter trend waves are A-B-C
waves.  Granted, A-B-C corrections can be rather complex, but we
know it is coming and can anticipate the count.

Now that the Dow is known to be in a wave IV, we can zoom in on
the chart and concentrate on the timeframe from January 14, 2000
to the present.

But first a quick review of Elliott Waves.

As the market progresses, it will unfold in waves.  All a wave is
is a specific series of up and down movements in a particular
direction.  Bull waves traverse up, bear waves traverse down.
Each basic wave is segmented into five parts.  For a bull wave,
three segments move up and two segments move down.  The net
movement is up.  The opposite is true for bear waves.  The basic
pattern looks like this:

Chart: Basic 5 wave pattern





Note that waves 1, 3 and 5 move up. These are called motive waves.
Waves 2 and 4 move counter trend and are called corrective waves.

A complete cycle is made up of 8 waves: a five wave motive wave
and a 3 wave corrective wave.  The complete cycle looks something
like this.

Chart: Complete Elliott Wave Cycle




Each wave within the 8 wave cycle can be subdivided.  Waves 1, 3,
5 and C will subdivide into another 5 wave basic pattern.  Waves 2
and 4 will divide into another 3 wave corrective pattern.  Because
waves 1, 3, 5 and C subdivide into a basic 5 wave pattern, their
behavior is rather predictable.  Waves A and B will also
subdivide, but the permutations are numerous.

Now, let's take a look at a closer view of the Dow.

Chart: Dow Weekly Long Term





This is a weekly chart of the Dow starting from the wave III peak
on January 14, 2000.  We are now in the A wave of the wave IV, A-
B-C counter trend.  Wave A is the green arrow.

A waves typically will be either another A-B-C wave pattern or a 5
wave basic pattern.  Right now, we do not know if we are in the C
wave of an A-B-C pattern or the 3 wave of a 5 wave basic pattern.
In either case, both C waves and 3 waves subdivide into a 5 wave
basic pattern so the analysis is the same.

For now, let us assume we are in a 5 wave basic pattern within the
A wave.  The red arrow traces out the 1, 2 and 3 waves.  This
means that we are currently in the 3 wave down which started on
March 19, 2002.

Subdividing further, the 3 wave will trace out a 5 wave basic
pattern, here marked in purple.  I can see two possible paths for
the Dow here.  The preferred path is that the Dow has already
traced out the (1) and (2) waves and is in the midst of a (3) wave
down.  This sounds like an old tune, but that (3) will subdivide
into a 5 wave basic pattern and so far within that (3) wave, the i
and ii waves are complete.  If this scenario plays out, we are
about to start the iii wave of the (3) wave of 3 wave.  3 waves
are the strongest and most powerful wave of the five so prepare
yourself for a 5G drop down.  (That is rollercoaster lingo for all
you non-amusement park enthusiasts.)

The other possibility is that the Dow is taking a different path
for the (2) wave.

Chart: Dow Weekly Long Term Alternative





Here the (2) wave is taking a slightly longer path.  The (2) wave
is tracing out a much larger a-b-c correction, possibly all the
way up to 9350.  At the conclusion of the (2) wave, the Dow will
continue its downward track.

So how will we know which path the Dow is tracking out?  Take a
look at daily chart of the Dow for the last several months.

Chart: Dow Daily Long Term close up





I left all the lines in from the previous chart for reference.

If the Dow has indeed completed the A-B-C correction of wave ii,
then it will start a strong decline very, very shortly.  But, if
the Dow goes above 8612, the c wave may not yet be complete and it
may track a bit higher.  Then it will start its strong decline.
If the Dow goes above 9043 (current wave (2)), then the alternate
scenario is in place.

The next several days should determine the direction of the Dow.
The S&P and NASDAQ will follow.  I have put my money (literally)
on the preferred count where the Dow is starting back down.  If it
does start, it will be swift and decisive.  I have not been
recommending many stock plays recently as I am awaiting the
direction of the Dow (and S&P and NASDAQ).  I have a few stocks
waiting in the wings.  Some are bull plays, others are bear plays.
I will bring them out once the Dow shows its direction.

Stay tuned for the next action packed, fun filled episode.


**************
FUTURES CORNER
**************

What to do when a Futures Exchange Halts unexpectedly.
by Alan Hewko

Abbreviations used in this article:

                                    Ticker $ move per index pt
ES = E-mini SP500   June futures  ES03M    $ 50 per ES pt
YM = E-mini Dow $5  June futures  YM03M    $  5 per YM pt
NQ = E-mini NDX 100 June futures  NQ03M    $ 20 per NQ pt


On Thursday, May 1 2003 something very unusual happened. Something
that I do not recall every happening before.

For almost an entire trade day, the CME Futures Exchange had halts
on its two largest electronically traded contracts of ES and NQ.
The Trade Halt came on at 11:40AM EST and they did not resume
trading until approximately 7:00 PM EST that evening. This was the
day President Bush landed on the Aircraft Carrier off the coast of
San Diego via Fighter Jet.

This outage ONLY affected the electronic Emini Contracts.

Trade halts have certainly occurred before for various technical
reasons, but they usually last 1-2 hours at most. A very important
note: the full-size, pit-traded SP 500 (SP) and NDX (ND) contracts
continued their trading in the pits during the Emini Halt of ES
and NQ.

Also, the CBOT exchange never experienced any outage as they are
in a different building (both are in Chicago) and use different
software and hardware completely.

Once upon a time, big money never traded the ES or NQ and only
used the full size pit traded contracts. Since the volume on ES
and NQ has increased so greatly, in current times, big money will
indeed use ES and NQ as either a trade or a hedge. Naturally, when
problems such as this Emini problem happen, big money will simply
turn to Chicago's full-size pits. So we the retail trader must
also have a ready solution in mind when a Halt occurs.

Perhaps you are new to futures trading and have never experienced
a Halt of this nature before and on Thursday were not quite sure
what to do if you had been holding a ES/NQ position prior to the
Halt. This article will address some of the ways in which some
money management might have been used if you had.

Reality of the world is that "bad stuff sometimes happens". Maybe
you had a Short ES 907 position with a stop at 910 and decided to
just hold it expecting the Halt to end in an hour or two and were
then shocked and panic-attacked when it re-opened at 916s; blowing
out your stop in the process as Stops were cancelled by CME. Easy
to say and hard to do, but take the Loss and move on for no one
can predict or control any type of technical issue; whether on
your end, or at the Exchange.

Let's examine some things you could have done during this Halt.

SCENERIO 1 : Short 10 ES at 905

You are Short 10 contracts of ES at 905 and you are stuck Short in
the Halt near 11:40AM

You bring up the Dow cash chart, and SPX (SP500 cash) chart.
They are upticking quite strongly so you normally would be exiting
your ES short but are not able to because of the Halt.

You have several choices:

Note: 10 ES contracts = 2 full-size SP contracts
Note: 10 ES contracts = 10 YM Dow$5 contracts

A. Use the full-size SP contract

(this depends on your futures broker)
Buy to Cover 2 Full-size SP (SP500 futures) either on the phone or
online.
You are now short 10 ES at 905, and Long 2 SP at 907
and your net position is now flat. Most brokers do not require
additional margin for this as it’s a 100% Hedge.

B. Use the YM Dow$5 Futures

Go Long 10 YM Dow futures contracts to 100% hedge your 10 Short ES
contracts.
Again, some brokers do not require additional day-trade margin for
this.

C. Stock Options

Go Long (buy to open) Stock Options, either Index options such as
DJX for the Dow, or perhaps Buy OEX Calls (S&P 100). One could
even buy Calls on stocks that usually follow the general market
such as GE, MSFT, MMM, IBM, etc.

The harder part is being able to QUICKLY compute how many stock
option contracts you would need to buy to 100% Hedge those 10
Short ES 905 contracts you have during this Halt. It can get very
complicated as you need to compute the Option Greeks and try to
guess where ES might open up at in order to hedge properly.
Example: IBM is $85, the May 85 calls are $3.50; and we are 2
weeks to May expiry; the Delta on these calls is 60. How many Long
85 calls must I buy to Hedge those 10 Short ES futures contracts ?
(not only is it complicated math, it's also subjective for no one
knows how much the market will move during the Halt).


D. SSFs Single Stock Futures

Hedging that ES 905 Short via Single Stock Futures is also another
choice. They do not trade at the CME, and remained open all day.
Once again, it becomes a bit complicated math-wise trying to
quickly figure out how many you must buy in order to hedge 100%.
Also, as these are on a different exchange, your broker will
require normal full margin for these contracts.

E. Panic
Panic is a "choice" for what to do the moment you learned ES was
Halted for an unknown amount of time and you saw SPX rallying very
hard in a classic "Short and Wrong" situation.

It goes without saying, "panic" as a choice is not good money
management but nonetheless is a very real possibility especially
if you are new to Futures and this is your first time in a Halt.

Summary:

My advice would be to (the moment you realize you are Short 10 ES
and Wrong) INSTANTLY and I mean INSTANTLY either hedge with 2 SP
Longs -or- 10 YM Longs thus creating a 100% Hedge.

Once you are filled in those, the panic goes away and you now can
"forget" about this position and even ponder putting a new trade
down, such as going Long some more size as the tape is indeed
moving higher.

When the Halt comes off, you simply exit both sides to go back to
Flat; in this case that would be:
Sell to Close 10 YM Longs
Buy to Cover 10 ES Shorts

Bottom line is that INSTANT hedging is wise and allows for the
emotions to ease and to more calmly evaluate the Market.


SCENERIO 2 : you are LONG 10 ES at 902 when it is Halted

And just as in the last example, you note the Dow and SP500 cash
indices are leaking higher and while you are not happy about
having your ES position be Halted, you remain "Long and Happy".

Look at the below chart of the Market that day.




You suspect that many ES traders were caught Short and now are
covering those shorts creating a Squeeze Higher; so you decide to
do nothing. You had a case of panic when the Halt came, but are
now quite happy an hour later at 1pm to still be Long, so you
decide there's no reason for you at this moment to Hedge that 902
ES long via Shorting YM.

After being surprised that hours later at 2:30pm, ES is still
Halted for trading, ES is now at 920. You know this to be a large
area of resistance and IF you were able to - you would be selling
to close out your 902 Long in this area and being delighted with
your 18 point gain. But you cannot because of the Halt.

So, you take your Profits by Selling 2 Full-Size SP contracts (or
Selling 10 YM contracts). If it were me, and given that choice, I
would Sell the 2 SP contracts.

You now have your 18 point ES gain locked in; and it doesn't
matter where ES opens at when it comes off its Halt; for your
futures clearing firm will offset your
"Long 10 ES / Short 2 SP position" to FLAT.

SCENERIO 3 : you are FLAT all futures when the Halt occurs

After realizing it is possible an ES short-squeeze is occurring,
you decide to trade the YM, which trades on the CBOT and is not
affected. This becomes just a normal trade for you, other than not
being to electronically trade the ES and NQ.


SUMMARY:

I recall once that the NYSE stock exchange was down on technical
reasons for about two hours. Nasdaq was still open. On that day,
neither the SP or ES traded during the NYSE halt; nor did Dow
futures trade either until the NYSE re-opened.

The CBOT (for technical trouble) has briefly halted the Dow
Futures trading while ES and NQ remained open. On Sept 11 2001,
everything was Halted: YM ES NQ.

There have been times the Exchanged are fully open, but your
Broker (or the clearing firm) is having technical trouble and your
online futures account cannot trade. This is one reason some
Futures traders maintain two separate Futures accounts making sure
two different clearing firms are used, so if Broker A is down for
30minutes for a technical reason, you can use Broker B.

Every trader has been "caught" in a Halt at one point or another.
You the Trader can either be "right" or "wrong" in your existing
position when the Halt occurs, and there's nothing you can do
except not to panic and to quickly come up with a way to Hedge if
you believe you are Wrong.

Do NOT "HOPE" that your position will become ok once the Halt
comes off. "HOPE" is foolish for a trader.
HOPE is a town in Arkansas [smiles]
(birthplace of former President Clinton actually).

"Sh*t Happens" ~ That is a fact in Life as well as Trading, but
how we deal with things after it happens is what is more
important.

Alan Hewko


There had been some questions received regarding how one selects
which of the above three US Futures contracts make the best trade
vehicle at any one particular moment in time.

Also, perhaps some of you have only traded the ES contract and
have not generated many trades yet with either YM or NQ; and there
are times when YM or NQ do indeed provide a better rate of return
than ES does.

Let's examine each contract a bit closer.

YM of course is the Dow Futures contract, and mirrors the 30
stocks in the Dow.

ES mirrors the 500 stocks in the S&P 500 (SPX) Index.

NQ follows the NDX, which is comprised of the 100 stocks in this
index; however, a handful of stocks provide the majority of this
index's movement. The single most important stock in the NDX is
MSFT with its 11% weight; with the rest being AMGN, CMCSA
(Comcast), CSCO, DELL, EBAY, INTC, ORCL, and QCOM.

MSFT of course is also in the Dow and S&P500; and by example, if
MSFT moved 2 points today, and every other stock did not change at
all (impossible of course but humor me), then due to its massive
weight in the NDX, the NDX index would move the largest percentage
amount vs. the Dow and S&P500 index.

The single most important stock in the Dow based on possible point
movement criteria is MMM.

If the two Dow stocks of MMM ($125) and T ($15) each moved 10%
today (again, not likely but makes for easy math to follow),
     MMM $ 137.50 + $12.50 + 10%
       T $  16.50 + $ 1.50 + 10%
And based on how the Dow is computed, MMM's impact on the Dow (and
therefore the YM Dow futures) is vastly greater than T's impact.

Let's now discuss rate of return on the three Futures contracts:

It's very common for ES and YM to match almost exactly both on
point movement and your possible money gain.

If ES is +10 points today, it is very likely the Dow (and YM) are
+100 points then as the ratio is usually about 1 in 10. Meaning
that for each 1 ES (S&P 500) point move, there is a 10 point
movement in YM (Dow cash).

Also, the money matches as well.
10 ES pts at $50 per point = $ 500
100 YM pts at $5 per point = $ 500

So then why not just stay with the more liquid ES and ignore the
YM?

One easy answer is those times when ES is closed at 4:15PM and
some news event occurs at 4:30PM when YM is still trading.

But the other answer is this:
Scenerio:
The Dow stock MMM pre-open just had some great news and will be
going higher all day. Its impact is going to be vastly greater in
the Dow 30 than its impact in the S&P 500 (where it only 1 of 500
stocks); so YM would likely provide a better Long trade than ES.

Bringing NQ into the equation:

10 ES pts = 100 YM pts = 25 NQ pts

There are days when the Tech stocks lead the market, either higher
or lower. If you feel that today is one of those days, when the
percentage movement in the COMPX is going to outweigh the movement
in the more sector-balanced S&P 500 and Dow, then very likely a NQ
futures trade will provide a greater monetary rate of return than
either a YM or ES futures trade. Example might be the day ending
at:
DOW    + 89  + 0.9%
SP 500 + 9   + 1.2%
COMPX  + 38  + 2.1%
On such a day as this, a Long NQ most likely provided a better
return than either Long YM or Long ES.


SECTOR DIVERGENCE:

Let's take an example where this scenario occurs:
The Financials (Banks, Brokers and Insurance stocks) have had a
very nice strong up move and very shortly CSCO is due to report
its earnings. CSCO says wonderful things about its forward
guidance, and on the same day, several analysts downgrade the
Financial sector based on valuation after their recent run-up.

You sense that Big Money is going to be taking profits on its
Longs in the Financial sector (therefore selling them) and
rotating those gains into Tech stocks based off CSCO's comments.

So - SELL Financial sector stocks = SELL YM (or ES)
BUY tech stocks = BUY NQ

And you the trader follow along in perhaps this fashion:
1. Long (Buy) NQ
     or perhaps even in this fashion:
2. Short YM and Long (Buy) NQ


SELECTING JUST ONE FUTURES CONTRACT BASED OFF NEWS

The key xyz stock just warned at 4:05 PM ---
Which Futures contract do I short ?

Well, if MSFT just warned, then very likely, Shorting NQ makes the
most sense.

If MMM just warned, then a YM short makes the most sense.

As strange as it may sound, if some event occurs which will move
the entire market, such as something Iraq related which was so
common last month, ES is not always the best choice. Why? Because
it's the most liquid and trades the largest number of contracts. I
know that sounds foolish, but Big Money may be going to buy 1000
full size SP500 Spoos futures contracts right NOW because that's
the only place they can get that type of size liquidity. So
therefore, ES has already moved the first and fastest; and YM or
NQ might (repeat might) be lagging behind a bit offering us
retail-size traders a better fill in YM or NQ simply because the
big-money is chasing the full-size Spoos price.

I appreciate that this article was mostly common sense, but I felt
it was worth a mention.

There are many Futures traders who only trade ES; and there is
nothing wrong with that at all. However, if you have never tried
YM or NQ, they may be worth adding to your trade selection
choices.

Alan Hewko


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The Option Investor Newsletter                   Sunday 05-04-2003
Sunday                                                      5 of 5


In Section Five:

Covered Calls: Understanding Stop-Loss Strategies
Naked Puts: Diversify For Success!
Spreads/Straddles/Combos: Some Good Ol' Fashioned "Irrational
Exuberance"

Updated In The Site Tonight:
Market Posture: Full Speed Ahead


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offers fast option executions

PreferredTrade offers these online option trading features and more;
call 1-888-889-9178 or click for more information.

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

Trading 101: Understanding Stop-Loss Strategies
By Mark Wnetrzak

This week's discussion concerns the use of stop-loss orders for
position management with covered-calls.

Attn: Covered-Calls Editor
Subject: Help With Exit Strategy

Mark,

I have been using the covered-call strategy with limited success
and the problem seems to be my loss management.  I know that I
should have an exit plan in place when I buy the stock but I don't
always know which type is best to use.  Most books recommend some
kind of trading stop for straight option plays but does this work
with covered-calls too?

JK


Concerning position management:

Stop-loss strategies protect investors from an excessive drain on
their capital by making a quick exit from a losing position when a
sell signal is triggered.  This could be a percentage (5%, 10%, ??%)
decline in position value or overall capital, a technical violation
in the stock chart, or simply a move to the break-even point.  This
method is not dependent on option expiration but rather a mechanical
(or mental) signal that is activated as soon as it is hit.  However,
stop-loss strategies are not a "perfect" solution and generally will
not protect against a catastrophic drop in the underlying stock's
price, especially after the close (and before the open) of trading.
There are other alternatives that can be used in losing positions
such as adjusting the covered-write by rolling forward and/or down;
a technique described adeptly in Larry McMillan's book, Options: As
a Strategic Investment.

Some of the best suggestions regarding position management come from
our readers and the following comments are from a letter I received
last year during the widespread market slump.  Although this method
works for some people, you will need to find a technique that fits
your personal risk-reward tolerance and investing style.

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

Mark,

  I notice many readers ask how much they should lose on a covered
write play and the answer is usually in percentage and psychological
terms.  My method is easier.  The cost basis for each play is listed
in OIN.  This is equivalent to "break even."  I simply place a stop
loss order at the cost basis and a "buy to close" (order) on the
option contingent on that price.  No muss no fuss.  Since the cost
basis is usually about 15%-20% below the original cost of the stock,
it's a pretty good bet that if it sinks that low, it's time to go.
This results in little or no loss and easy management.  It's also
important to figure your profit going in.  Is it worth risking $250
to make $500?  I think not.  OIN's plays have a terrific average and
I rarely lose overall.  (I do this on OptionsXpress, which has the
best covered-write screens I've seen.)

S7

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

As you can see, this investor offers an excellent way to implement
mechanical stops in a "no muss no fuss" exit strategy.  Regardless
of which method an investor uses, success is based on effectively
limiting the downside losses (and the potential for catastrophic
portfolio damage) in a losing position.  Stop-loss orders work well
most of the time, but they are not a solution to every losing play.
The key to consistent profits is to carefully evaluate the risk and
reward potential before entering any position, then utilize proven
money-management techniques in a timely manner, in order to maximize
gains and minimize losses.

Trade Wisely!


SUMMARY OF PREVIOUS CANDIDATES
*****

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.

Note:  Margin not used in calculations.

Stock   Price   Last    Option    Price   Gain  Potential
Symbol  Picked  Price   Series    Sold   /Loss  Mon. Yield

XICO     5.09    6.38  MAY  5.00  0.45    0.36*   8.4%
OSTE     8.39   10.50  MAY  7.50  1.30    0.41*   8.4%
IMMU     2.95    4.09  MAY  2.50  0.65    0.20*   7.6%
ASML     7.59    9.13  MAY  7.50  0.55    0.46*   7.1%
CAL      5.68   11.80  MAY  5.00  1.00    0.32*   5.9%
SEAC     7.80    7.92  MAY  7.50  0.75    0.45*   5.5%
CCRD    11.05   12.70  MAY 10.00  1.50    0.45*   5.1%
ALTR    15.78   16.51  MAY 15.00  1.45    0.67*   5.1%
IFX      8.17    7.80  MAY  7.50  1.00    0.33*   5.0%
CTLM     5.18    7.75  MAY  5.00  0.45    0.27*   5.0%
NEOL    13.50   15.10  MAY 12.50  1.80    0.80*   5.0%
UNTD    19.23   21.90  MAY 17.50  2.80    1.07*   4.7%
RINO    13.29   13.50  MAY 12.50  1.40    0.61*   4.5%
BMRN    12.06   11.62  MAY 10.00  2.35    0.29*   4.3%
COMS     5.17    5.24  MAY  5.00  0.45    0.28*   4.3%
PDE     15.17   16.23  MAY 15.00  0.60    0.43*   4.3%
MVSN    15.97   18.20  MAY 15.00  1.40    0.43*   4.3%
AAII    11.43   11.25  MAY 10.00  1.80    0.37*   4.2%
PLCE    13.34   15.23  MAY 12.50  1.40    0.56*   4.1%
UNTD    19.67   21.90  MAY 17.50  2.95    0.78*   4.1%
NEOL    13.60   15.10  MAY 12.50  1.65    0.55*   4.0%
TOM      8.01    8.28  MAY  7.50  0.70    0.19*   3.8%
MSCC    11.77   12.66  MAY 10.00  2.25    0.48*   3.7%
OVRL    18.02   17.48  MAY 17.50  0.95    0.41    3.5%

*   Stock price is above the sold striking price.

Comments:

The bulls continue to run as investors ignore rather lackluster
economic news and look (back) to the future.  Yes, it almost
feels like 1999.  Regardless, the covered-call portfolio is in
fine shape though it may be the source of some "call" selling
regret.  Noven Pharmaceuticals (NASDAQ:NOVN), a covered-call
play for the previous week, was generous in announcing before
Monday's bell that U.S. regulators rejected its application to
market a transdermal patch to treat ADHD.  As the listed play
wasn't viable, the position will not be shown in the summary.
As for the "early exit" watch-list, look for issues that act
weaker than expected such as Infineon Technologies (NYSE:IFX),
or aaiPharma (NASDAQ:AAII), etc., and monitor the positions
closely as we enter the final two weeks of the May expiration.

Positions Previously Closed: None


NEW CANDIDATES
*********

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

AMR     5.47  MAY  5.00  AMR EA  0.70  70283   4.77  14  10.5%
TER    12.75  MAY 12.50  TZY EV  0.75  21261  12.00  14   9.1%
GRP    12.52  MAY 12.50  GRP EV  0.45  8      12.07  14   7.7%
CYBX   23.87  MAY 22.50  QAJ EX  2.05  164    21.82  14   6.8%
ABGX   10.77  MAY 10.00  AZG EB  1.05  1418    9.72  14   6.3%
OSIP   21.19  MAY 17.50  GHU EW  4.10  1054   17.09  14   5.2%
IGEN   38.90  MAY 35.00   GQ EG  4.70  4440   34.20  14   5.1%


Company Descriptions

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

*****
AMR - American Airlines  $5.47  *** Bottom Fishing: Part I ***

AMR Corporation's (NYSE:AMR) operations fall almost entirely in
the airline industry.  American Airlines, Inc. is AMR's principal
subsidiary.  In April 2001, American Airlines, Inc. purchased
substantially all of the assets and assumed certain liabilities
of Trans World Airlines, Inc. (TWA).  At the end of 2001, AMR
provided scheduled jet service to more than 161 destinations
throughout North America, the Caribbean, Latin America, Europe
and the Pacific.  AMR is also a scheduled air freight carrier,
providing a full range of freight and mail services to shippers
throughout its system.  Shares of large U.S. airlines jumped on
Friday as analysts said the worst of the downturn may soon be
over though huge losses will continue.  American Airlines appears
to have averted bankruptcy in the near-term and this speculative
position offers a reasonable reward for those who believe the
airline stocks can fly higher.  A June covered-call play is
listed in the supplemental candidate list below.

MAY-5.00 AMR EA LB=0.70 OI=70283 CB=4.77 DE=14 TY=10.5%


*****
TER - Teradyne  $12.75  *** Bottom Fishing: Part II ***

Teradyne (NYSE:TER) is a supplier of automatic test equipment, high-
performance interconnection systems and electronic manufacturing
services.  The company's automatic test equipment products include
Semiconductor Test Systems, Circuit Board Test and Inspection
Systems and Broadband Test Systems.  Teradyne's interconnection
systems products and services (Connection Systems) include high-
bandwidth backplane assemblies and associated connectors used in
electronic systems, and electronic manufacturing services of
assemblies that include Teradyne backplanes and connectors.  TER
has been forming a Stage I base for almost a year and the stock
appears poised to move higher in the coming sessions.  Traders
who believe the issue is destined for a future rally can profit
from upside movement with this position.

MAY-12.50 TZY EV LB=0.75 OI=21261 CB=12.00 DE=14 TY=9.1%


*****
GRP - Grant Prideco  $12.52  *** Earnings Rally ***

Grant Prideco (NYSE:GRP) is a manufacturer & supplier of oilfield
drill pipe and other drill stem products, and a North American
provider of high-performance premium connections and tubular
products.  The company also provides a variety of products and
services to the worldwide offshore and deepwater market through
its marine products and services segment.  Grant's drill stem
products are used to drill oil and gas wells, while its premium
connections and tubular products are used to complete oil and
gas wells once they have been successfully drilled.  Its marine
products & services are used for subsea construction, installation
and production.  The company's customers include major, independent
and state-owned oil companies, drilling contractors, oilfield
service companies and North American oil country tubular goods
distributors.  Grant operates 22 manufacturing facilities located
in the United States, Mexico, Canada, Europe, and Asia, and 30
sales, service and repair locations globally.  On Friday, GRP
reported 1st-quarter net income of $4 million, or 3 cents per
share, compared with $1.1 million, or a penny per share, last
year, on revenues that increased 25%.  The news was apparently
well received as the issue vaulted higher on Friday.  Investors
who want to own a popular issue in the Oil and Gas Services
sector should consider this position.

MAY-12.50 GRP EV LB=0.45 OI=8 CB=12.07 DE=14 TY=7.7%


*****
CYBX - Cyberonics  $23.87  *** Still Moving Higher! ***

Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and
markets the NeuroCybernetic Prosthesis, an implantable medical
device that delivers a novel therapy, Vagus Nerve Stimulation,
for treating epilepsy and debilitating neurological, psychiatric
diseases and other disorders.  In July 1997, the NCP System was
approved by the United States Food and Drug Administration for
commercial distribution in the United States for the treatment
of epilepsy, which the firm sells using its own employee-based
direct marketing organization.  In addition, the NCP System is
marketed internationally for the treatment of epilepsy (mainly
in Europe) using a combination of Cyberonics' own direct sales
organization and independent distributors.  During fiscal 2001,
the firm obtained approval for commercial distribution of the
NCP System for the treatment of depression in Europe and Canada.
CYBX is in a bullish sector and the company has a product that
is proven and well known for treating epilepsy.  In addition,
the firm's fundamentals are improving with sales up 50% to $27
million in the last quarter in a sixth straight quarter of 20%
or better revenue growth.  Investors can establish a cost basis
near $22 in the issue with this position.

MAY-22.50 QAJ EX LB=2.05 OI=164 CB=21.82 DE=14 TY=6.8%


*****
ABGX - Abgenix  $10.77  *** Breaking Out! ***

Abgenix (NASDAQ:ABGX) is a biopharmaceutical company that is
focused on the discovery, development and manufacture of human
therapeutic antibodies for the treatment of a variety of disease
conditions, including cancer, inflammation, metabolic disease,
transplant-related diseases, cardiovascular disease and infectious
diseases.  Abgenix has proprietary technologies that facilitate
rapid generation of highly specific, antibody-therapeutic product
candidates that contain fully human protein sequences and that
bind to disease targets appropriate for antibody therapy.  Abgenix
developed its XenoMouse technology, a technology using genetically
modified mice to generate fully human antibodies.  It also owns a
technology that enables the rapid ID of antibodies with desired
function and characteristics, referred to as SLAM technology.
Abgenix rallied this week and broke-out above a resistance area
near $9.50 (the AUG, NOV, and early APR highs).  Traders who
believe the rally will continue can profit from that outcome
with this short-term play.  "Target shooting" a lower net-debit
initially will increase the potential yield and lower the cost
basis point.  A June position is also listed in the supplemental
candidate list below.

MAY-10.00 AZG EB LB=1.05 OI=1418 CB=9.72 DE=14 TY=6.3%


*****
OSIP - OSI Pharmaceuticals  $21.19  *** Rally Mode! ***

OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on
the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism-
based, gene-targeted therapies.  The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR).  The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.  After
faltering a bit in Mid-April on some clinical trial news, OSIP
rallied after Merrill Lynch raised its rating on the company to
"buy" from "neutral" based on a greater probability of success
for Tarceva, its cancer drug.  Investors who agree with the
firm's bullish outlook can establish a reasonable cost basis in
the issue with this position.  Due diligence is a "must" with
this issue.

MAY-17.50 GHU EW LB=4.10 OI=1054 CB=17.09 DE=14 TY=5.2%


*****
IGEN - IGEN Int'l  $38.90  *** Growing Stronger Everyday ***

IGEN International (NASDAQ:IGEN) develops and markets products
that incorporate its proprietary electrochemiluminescence
(ORIGEN) technology, which permits the detection and measurement
of biological substances.  ORIGEN provides a combination of speed,
sensitivity, flexibility and throughput in a single technology
platform.  ORIGEN is incorporated into instrument systems and
related consumable reagents, and IGEN also offers assay
development and other services used to perform analytical
testing.  Products based on IGEN's ORIGEN technology address
the Life Sciences, Clinical Testing and Industrial Testing
worldwide markets.  IGEN recently said it is selling its Origen-
based botulinum toxin test to the Food Safety and Inspection
Service of the U.S. Department of Agriculture.  We simply favor
the bullish breakout above the March high and 150-dma and this
short-term position offers investors a favorable reward scenario
at the risk of owning IGEN near a technical support level.

MAY-35.00 GQ EG LB=4.70 OI=4440 CB=34.20 DE=14 TY=5.1%


*****


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

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

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

OIIM   12.63  MAY 12.50  XQQ EV  0.70  114    11.93  14  10.4%
HLTH   10.05  MAY 10.00  HUT EB  0.50  1686    9.55  14  10.2%
MUSE    7.52  MAY  7.50  QUM EU  0.30  1158    7.22  14   8.4%
MVL    17.75  MAY 17.50  MVL EW  0.90  530    16.85  14   8.4%
AMR     5.47  JUN  5.00  AMR FA  1.05  4438    4.42  49   8.1%
WFII    7.75  MAY  7.50  QUU EU  0.50  966     7.25  14   7.5%
NVDA   15.90  MAY 15.00  UVA EC  1.40  8705   14.50  14   7.5%
CMOS    7.70  MAY  7.50  CQS EU  0.40  98      7.30  14   6.0%
ALKS   10.29  MAY 10.00  QAL EB  0.55  1808    9.74  14   5.8%
ACTL   20.43  MAY 20.00  LQA ED  0.95  25     19.48  14   5.8%
FTUS    5.28  JUN  5.00  FEQ FA  0.70  84      4.58  49   5.7%
ABGX   10.77  JUN 10.00  AZG FB  1.60  299     9.17  49   5.6%
WFII    7.75  JUN  7.50  QUU FU  0.85  3       6.90  49   5.4%
ALKS   10.29  JUN 10.00  QAL FB  1.05  532     9.24  49   5.1%
GNTA    8.46  JUN  7.50  GJU FU  1.50  1068    6.96  49   4.8%
CNCT   17.96  MAY 17.50  UXU EW  0.80  286    17.16  14   4.3%




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

Options 101: Diversify For Success!
By Ray Cummins

All experienced traders agree on the wisdom of diversification.

Those who participate in the financial markets know a diversified
group of investments is one of the fundamental prerequisites to
long-term success.  By spreading out across industries, you can
avoid the agony of violent swings in a particular stock or sector
and limit losses when unexpected events occur.  This reality is
the main reason trader who have limited capital should divide
their portfolio efficiently among a few positions in different
industry groups or market segments.  When your capital assets are
small, you must manage the collateral effectively and it has been
our experience that most of the issues in a specific sector will
perform in a similar manner.  For example, if one or two of the
primary companies in a given industry move in a bearish manner,
the rest of the stocks in that segment or category also have a
high probability of performing poorly.  In contrast, when a stock
performs well, the odds are high that the rest of the issues in
that sector will react in a comparable manner.  Unfortunately,
new traders usually have little margin (capital) for error in
their portfolios and when they put all their eggs in one basket,
the result is rarely favorable.

Choosing issues in a variety of industries, as well as different
growth categories, can help you take advantage of a wider range
of trading opportunities.  In the current economic environment,
many experts believe that small-cap firms offer the best growth
opportunities because they generally have innovative products
and services.  At the same time, they may have higher share-price
volatility and the associated liquidity risks because of their
limited stature and relative instability.  Those who endorse
"value" investing would recommend owning under-priced stocks of
well-established businesses that have a faster growth rate than
large companies but also more stability than small companies.  A
blue-chip portfolio would focus primarily on the stocks of large
companies that, because of their asset size, tend to be the most
stable.  Another area of diversification includes the geographic
component; buying stocks of companies located both in the United
States and in other countries and regions around the globe.  The
best combination of these groups would blend expanding companies
priced below their long-term valuation with strong potential for
above-average earnings growth in the future.

Some traders believe that diverse portfolios should also contain
a few issues which will react differently to changes in economic
conditions or the outlook for a specific sector or industry.  We
often identify these candidates as "hedge" positions and one way
to illustrate the concept involves the oil sector.  A conservative
investor might hedge a portfolio by initiating positions in both
an electric utility and a major oil service company.  Higher fuel
costs will have negative impact on the utility, but will boost
the value of the oil service issue.  Obviously, the reverse is
also true; lower oil prices will impact the oil service company
negatively while improving the utility's outlook.  This strategy
not only protects your portfolio against unexpected downturns in
a particular industry, it also enables you to take greater risks
with a few positions, which in some cases can increase your total
return.  Regardless of the manner in which you diversify your
portfolio, it's important to remember that the activity is more
than just a one-time event.  In all cases, you should follow a
precise and well-developed trading plan and you must adjust that
process when a change is warranted due to unexpected conditions.

Good Luck!


SUMMARY OF PREVIOUS CANDIDATES
*****

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.

Stock   Price   Last    Option    Price   Gain   Simple  Max
Symbol  Picked  Price   Series    Sold   /Loss   Yield  Yield

WYNN    17.02   17.15  MAY 15.00  0.50    0.50*   5.0%  13.7%
RMBS    15.75   14.65  MAY 12.50  0.55    0.55*   3.3%  10.8%
LSCC     8.54    8.80  MAY  7.50  0.25    0.25*   3.7%  10.3%
PHSY    30.20   35.07  MAY 27.50  0.70    0.70*   3.8%  10.1%
MSTR    30.35   28.75  MAY 25.00  0.50    0.50*   3.0%   9.9%
NFLX    19.55   22.63  MAY 15.00  0.60    0.60*   3.0%   9.6%
FTS     10.06    9.77  MAY  7.50  0.25    0.25*   3.0%   9.6%
WYNN    16.22   17.15  MAY 12.50  0.40    0.40*   2.9%   9.5%
AVID    25.54   27.38  MAY 22.50  0.80    0.80*   3.2%   8.7%
GTRC    23.25   22.88  MAY 22.50  0.50    0.50*   3.3%   8.0%
EYE     11.96   16.38  MAY 10.00  0.35    0.35*   2.6%   8.0%
BOBJ    20.75   22.18  MAY 17.50  0.40    0.40*   2.5%   8.0%
OVTI    25.29   26.19  MAY 20.00  0.40    0.40*   2.2%   8.0%
SEPR    19.00   19.23  MAY 17.50  0.35    0.35*   3.0%   7.9%
JCOM    32.12   29.30  MAY 25.00  0.75    0.75*   2.2%   7.6%
SEPR    15.77   19.23  MAY 12.50  0.30    0.30*   2.1%   7.5%
VRTS    21.20   23.69  MAY 20.00  0.40    0.40*   3.0%   7.5%
GTRC    21.10   22.88  MAY 20.00  0.65    0.65*   2.9%   7.1%
SEPR    16.35   19.23  MAY 12.50  0.35    0.35*   2.1%   7.0%
BCGI    18.90   18.69  MAY 15.00  0.25    0.25*   1.8%   6.7%
RIMM    14.88   16.58  MAY 12.50  0.35    0.35*   2.1%   6.5%
JCOM    31.96   29.30  MAY 22.50  0.50    0.50*   2.0%   6.3%
MRVL    23.15   23.99  MAY 20.00  0.35    0.35*   1.9%   5.9%
NFLX    20.77   22.63  MAY 15.00  0.30    0.30*   1.8%   5.9%
BOBJ    18.31   22.18  MAY 15.00  0.35    0.35*   1.7%   5.8%
INTC    18.66   19.05  MAY 17.50  0.35    0.35*   2.2%   5.7%
ADRX    14.71   15.98  MAY 12.50  0.25    0.25*   1.8%   5.5%
CMCSA   31.73   30.49  MAY 30.00  0.40    0.40*   2.0%   5.1%
CMCSK   28.44   28.91  MAY 25.00  0.60    0.60*   1.8%   5.1%

*  Stock price is above the sold striking price.

Comments:

Stocks finished the week in "rally mode" as optimistic investors
came off the sidelines to support the renewed upside activity in
share values.  The recent bullish technical indications suggest
a basing pattern may finally be emerging in the multi-year "bear"
market however all the major equity averages are approaching key
resistance levels, thus it is important to be very selective when
choosing new positions.  Traders should also continue to monitor
any portfolio issues with less than outstanding chart patterns as
the rally will likely enter a consolidation phase in the coming
week.  One stock that is not benefiting from the recent activity
is Footstar (NYSE:FTS) and the issue plunged 10% Wednesday after
saying it would not file its annual report as expected because its
financial statements are still under review.  Conservative traders
should consider closing this position to limit potential losses.
Issues on the watch-list include j2 Global (NASDAQ:JCOM), Guitar
Center (NASDAQ:GTRC) and Comcast (NASDAQ:CMCSA).

Previously Closed Positions: None



WARNING: THE RISK IN SELLING NAKED 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.


MARGIN REQUIREMENTS

The Initial Margin is the amount of collateral you must have in
your account to initiate the position.  In specific terms, margin
refers to cash or securities required of an option writer by his
brokerage firm as collateral for the writer's obligation to buy
or sell the underlying interest if assigned through an exercise.
The Maintenance Margin is the amount of cash (or securities)
required to offset the changing collateral requirements of the
written options in your portfolio.  As the price of the option
and the underlying stock changes, so does the maintenance margin.
With (short) put options, the margin requirements can increase
when the underlying stock price declines and also when it rises
significantly.  The reason is the manner in which the collateral
amount is determined (with the formula listed above) and traders
should always consider not only the initial margin requirement,
but also the maximum margin needed for the life of the position.
Option writers occasionally have to meet calls for additional
margin during adverse market movements and even when there is
enough equity in the account to avoid a margin call, the need
for increased collateral will make that equity unavailable for
other purposes.  Please consider these facts carefully before
you initiate any "naked" option positions.

For more information on margin requirements, please refer to:

http://www.cboe.com/LearnCenter/pdf/MarginManual2000.pdf


MONTHLY YIELD: MAXIMUM & SIMPLE

The Maximum Monthly Yield (listed in the summary and with each
new candidate) 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 Monthly 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 position.


NEW CANDIDATES
*********

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open  Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int.  Basis Exp. Yield  Yield

IMCLE  21.00  MAY 17.50  QCI QW 0.35 3667  17.15  14   4.4%  14.5%
KOSP   21.97  MAY 20.00  KQW QD 0.45 10    19.55  14   5.0%  13.5%
APPX   24.30  MAY 20.00  AQO QD 0.35 2354  19.65  14   3.9%  13.2%
CYBX   23.87  MAY 20.00  QAJ QD 0.25 35    19.75  14   2.8%   9.2%
XLNX   27.30  MAY 25.00  XLQ QE 0.30 10245 24.70  14   2.6%   7.3%
CELG   27.52  MAY 22.50  LQH QX 0.20 2829  22.30  14   1.9%   7.0%
ADTN   43.65  MAY 40.00  RQA QH 0.40 857   39.60  14   2.2%   6.1%


Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, SY-Simple Yield (monthly basis - without
margin), MY-Maximum Yield (monthly basis - using margin).

*****
IMCLE - ImClone  $21.00  *** New Sheriff In Town! ***

ImClone Systems (NASDAQ:IMCL) is a biopharmaceutical company whose
mission is to advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the medical needs
of patients with a variety of cancers.  The company's lead product,
Erbitux, is a therapeutic antibody that inhibits stimulation of
epidermal growth factor receptor upon which certain solid tumors
depend in order to grow.  In addition to the development of its
lead product candidates, the company conducts research in a number
of areas related to its core focus of growth factor blockers, as
well as cancer vaccines and angiogenesis inhibitors.  IMCL has also
developed diagnostic products and vaccines for certain infectious
diseases.  IMCL's shares rallied in early March amid optimism that
new data about the firm's experimental cancer drug Erbitux will be
released shortly and prove positive.  The rally continued after the
biotech firm received a $60 million cash payment from Bristol-Myers
Squibb under the companies' amended March 2002 agreement to develop
Erbitux.  This week, IMCL moved higher on news that Bristol-Myers
will tighten its control over the company after the resignation of
Harlan Waksal, the biotech firm's chief executive, and Robert
Goldhammer, chairman.  Investors appear to be happy with the news
and traders wouldn't mind owning IMCLE at a cost basis near $17
should consider this position.

MAY-17.50 QCI QW LB=0.35 OI=3667 CB=17.15 DE=14 TY=4.4% MY=14.5%


*****
KOSP - KOS Pharmaceuticals  $21.97  *** Earnings Are Due! ***

KOS Pharmaceuticals (NASDAQ:KOS) is a fully integrated specialty
pharmaceutical company engaged in the development of proprietary
prescription products for the treatment of chronic cardiovascular
and respiratory diseases.  The company manufactures its marketed
products, Niaspan and Advicor, and markets such products directly
through its own specialty sales force and through a sales force
provided by a contract sales organization.  Their cardiovascular
products are based on controlled-release, once-a-day, oral dosage
formulations.  The company's respiratory products in development
consist of aerosolized inhalation formulations to be used mainly
with its proprietary inhalation devices.  Shares of KOSP climbed
to a new 6-month high this week as investors speculated on the
company's upcoming quarterly report, which should be delivered
on Tuesday morning.  Investors who agree with a bullish outlook
for the issue can profit from a favorable earnings report with
this position.

MAY-20.00 KQW QD LB=0.45 OI=10 CB=19.55 DE=14 TY=5.0% MY=13.5%


*****
APPX - American Pharmaceutical  $24.30  *** Premium Selling! ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
pharmaceutical company that develops, manufactures and markets
injectable pharmaceutical products.  The firm produces over 100
generic injectable pharmaceutical products in more than 300
dosages and formulations. Its primary focus is in the oncology,
anti-infective and critical care markets.  The company makes
products in all of the three basic forms in which injectable
drugs are sold: liquid, powder and lyophilized (freeze-dried).
American Pharmaceutical Partners is a controversial issue that
intrigues both investors and traders alike and the inflated
option premiums offer a unique opportunity to speculate on the
company's future share value.

MAY-20.00 AQO QD LB=0.35 OI=2354 CB=19.65 DE=14 TY=3.9% MY=13.2%


*****
CYBX - Cyberonics  $23.87  *** New 14-Month High! ***

Cyberonics (NASDAQ:CYBX) designs, develops, manufactures and
markets the NeuroCybernetic Prosthesis, an implantable medical
device that delivers a novel therapy, Vagus Nerve Stimulation,
for treating epilepsy and debilitating neurological, psychiatric
diseases and other disorders.  In July 1997, the NCP System was
approved by the United States Food and Drug Administration for
commercial distribution in the United States for the treatment
of epilepsy, which the firm sells using its own employee-based
direct marketing organization.  In addition, the NCP System is
marketed internationally for the treatment of epilepsy (mainly
in Europe) using a combination of Cyberonics' own direct sales
organization and independent distributors.  During fiscal 2001,
the firm obtained approval for commercial distribution of the
NCP System for the treatment of depression in Europe and Canada.
CYBX is in a bullish sector and the company has a product that
is proven and well known for treating epilepsy.  In addition,
the firm's fundamentals are improving with 6 straight quarters
of 20% or better revenue growth.  Investors can establish a cost
basis near $20 in the issue with this position.

MAY-20.00 QAJ QD LB=0.25 OI=35 CB=19.75 DE=14 TY=2.8% MY=9.2%


*****
XLNX - Xilinx  $27.30  *** 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.  The semiconductor sector has been a driving force
behind the recent rally in technology stocks and one of the more
well-known issues in the group is XLNX.  The company has a solid
fundamental outlook and the issue has excellent upside potential.
Investors who have a bullish outlook on the stock can speculate
on the company's future share value with this position.

MAY-25.00 XLQ QE LB=0.30 OI=10245 CB=24.70 DE=14 TY=2.6% MY=7.3%


*****
CELG - Celgene  $27.52  *** (Almost) Free Money! ***

Celgene (NASDAQ:CELG) is a commercial-stage biopharmaceutical
company.  The company is primarily engaged in the discovery,
development and commercialization of small molecule drugs that
are designed to treat cancer and immunological diseases through
gene and protein regulation. Small molecule drugs are man-made,
chemically synthesized drugs that, because of their relatively
small size, can typically be administered orally.  The firm's
drugs are designed to modulate multiple disease-related genes,
including cytokines (which are proteins) such as Tumor Necrosis
Factor alpha, or TNF(alpha), growth factor genes such as those
that control angiogenesis, blood vessel formation and apoptosis
genes.  Because the company's drugs can be administered orally,
they have the potential to advance the standard of care beyond
current injectible protein drugs that inhibit TNF (alpha) and
other disease-causing cytokines.  Celgene expects to meet or
exceed 2003 financial targets, as its new cancer drug Thalomid
propels the company to profitability.  Celgene also recently
said it has discovered a new class of anti-cancer compounds and
is in the early stages of developing them in the lab.  Investors
wouldn't mind owning the stock near a cost basis of $22 should
"target-shoot" a slightly higher premium to open this position.

MAY-22.50 LQH QX LB=0.20 OI=2829 CB=22.30 DE=14 TY=1.9% MY=7.0%


*****
ADTN - Adtran  $43.65  *** New Multi-Year High! ***

Adtran designs, develops, manufactures, markets and services a
broad range of high-speed network access products utilized by
providers of telecommunications services and corporate end users
to implement advanced digital data services over both public and
private networks.  The company's business is arranged with two
divisions, the Carrier Networks Division (CN) and the Enterprise
Networks Division (EN), to enable it to quickly respond to the
needs of the two important market segments that its products
address.  These two market segments are CN products for use in
the service provider's Local Loop, including central office,
remote terminal and customer premises, and EN products for use
at enterprise headquarters, remote offices and telecommuting
locations.  Adtran offers more than 500 products built around a
set of core technologies, and developed to address high-speed
digital communications over the last mile of the Local Loop.
This company's stock is at a multi-year high and option traders
can use the favorable option premiums to establish a bullish,
low-risk position in the issue.

MAY-40.00 RQA QH LB=0.40 OI=857 CB=39.60 DE=14 TY=2.2% MY=6.1%


*****


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

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

Sequenced by Maximum Yield (monthly basis - margin)
*****
Stock  Last    Option    Option Last Open  Cost  Days Simple  Max
Symbol Price   Series    Symbol Bid  Int.  Basis Exp. Yield  Yield

OSIP   21.19  MAY 17.50  GHU QW 0.55 2066  16.95  14   7.0%  22.4%
UTSI   23.36  MAY 22.50  UON QX 0.45 590   22.05  14   4.4%  10.9%
VRTS   23.69  MAY 22.50  VIV QX 0.40 2552  22.10  14   3.9%  10.0%
COF    42.80  MAY 40.00  COF QH 0.60 3305  39.40  14   3.3%   8.7%
EYE    16.38  MAY 15.00  EYE QC 0.20 1041  14.80  14   2.9%   8.1%
NFLX   22.63  MAY 20.00  QNQ QD 0.25 1408  19.75  14   2.8%   8.1%
IGEN   38.90  MAY 32.50   GQ QZ 0.35 968   32.15  14   2.4%   8.0%
IRF    23.86  MAY 22.50  IRF QX 0.25 212   22.25  14   2.4%   6.4%
LLTC   35.49  MAY 32.50  LLQ QZ 0.30 2188  32.20  14   2.0%   5.7%
BA     28.62  MAY 27.50   BA QY 0.25 5007  27.25  14   2.0%   5.1%
PHSY   35.07  MAY 32.50  HYQ QZ 0.25 374   32.25  14   1.7%   4.6%


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


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

Some Good Ol' Fashioned "Irrational Exuberance"
By Ray Cummins

The major equity averages soared Friday as investors ignored yet
another negative economic report and chose instead to focus on
optimistic forecasts in expectation of an eventual recovery in
share values.

The Dow Jones Industrial Average finished 128 points higher at
8,582 with 28 of the 30 blue-chip components enjoying bullish
activity during the session.  The technology-laden NASDAQ ended
up 30 points at 1,502, its highest level since June, 2002 on
strength in chip and computer hardware stocks.  The broader S&P
500-stock index rose 13 points to 930 with finance and airline
shares among the best performers.  Advancers pounded decliners
by roughly 3 to 1 on both the New York Stock Exchange and the
NASDAQ.  Trading volume was moderate, with 1.5 billion shares
changing hands on the Big Board and 1.8 billion shares swapped
on the technology exchange.  In the U.S. treasury market, the
10-year note lost 21/32, pushing its yield to 3.93%.

*****************
PORTFOLIO SUMMARY
*****************

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.


PUT CREDIT SPREADS
******************

Symbol  Pick   Last   Month LP  SP  Credit  CB     G/L   Status

AZO     76.38  82.47   MAY  65  70   0.55  69.45  $0.55   Open
BSTE    42.33  49.70   MAY  30  35   0.50  34.50  $0.50   Open
GILD    44.15  47.25   MAY  37  40   0.30  39.70  $0.30   Open
OIH     54.58  55.88   MAY  45  50   0.55  49.45  $0.55   Open
MDT     46.90  48.25   MAY  42  45   0.35  44.65  $0.35   Open
NBR     41.11  39.21   MAY  35  37   0.30  37.20  $0.30   Open
BBBY    39.52  39.95   MAY  35  37   0.30  37.20  $0.30   Open
PFCB    42.47  43.25   MAY  35  40   0.55  39.45  $0.55   Open
GENZ    39.82  41.47   MAY  35  37   0.30  37.20  $0.30   Open
IVGN    31.45  33.83   MAY  27  30   0.30  29.70  $0.30   Open
SEE     41.62  43.29   MAY  35  40   0.50  39.50  $0.50   Open

LP = Long Put  SP = Short Put  CB = Cost Basis  G/L = Gain/Loss

Nabors Industries (NYSE:NBR) is on the "early-exit" watch-list.


CALL CREDIT SPREADS
*******************

Symbol  Pick   Last   Month LC  SC  Credit  CB      G/L   Status

CAM     49.39  47.35   MAY  60  55   0.45  55.45   $0.45   Open
DRYR    67.40  69.01   MAY  75  70   1.10  71.10   $1.10   Open?
HCA     37.70  33.05   MAY  45  42   0.25  42.75   $0.25   Open
VAR     49.04  53.54   MAY  60  55   0.60  55.60   $0.60   Open
OIH     54.58  55.88   MAY  65  60   0.50  60.50   $0.50   Open
BAC     71.34  74.91   MAY  80  75   0.60  75.60   $0.60   Open?
GSK     38.09  43.45   MAY  42  40   0.30  40.30  ($1.20) Closed
OEX    440.97 471.87   MAY 480 475   0.55 475.55   $0.55   Open
WLP     76.80  76.47   MAY  90  85   0.50  85.50   $0.50   Open
SYK     66.35  66.57   MAY  75  70   0.65  70.65   $0.65   Open
IGT     79.55  87.28   MAY  90  85   0.55  85.55  ($1.73) Closed
INTU    37.24  39.90   MAY  45  40   0.40  40.40   $0.40   Open?
MCK     23.94  29.12   MAY  27  25   0.30  25.30  ($1.55) Closed
NVLS    27.21  29.00   MAY  32  30   0.25  30.25   $0.25   Open

LC = Long Call  SC = Short Call  CB = Cost Basis  G/L = Gain/Loss

The big surprise this week was McKesson (NYSE:MCK) as the stock
soared over 10% after posting a 43% increase in fourth-quarter
net income on double-digit revenue growth in its pharmaceuticals
and information-solutions segments.  Needless to say, a "timely"
exit or adjustment was necessary in the bearish credit spread and
traders who chose to close the spread Wednesday morning (after
the earnings report and the ensuing rally) endured a net loss of
$1.50-$1.75, on a simultaneous order basis.  The other candidates
for early exit included GlaxoSmithKline (NYSE:GSK), which gapped
higher during Thursday's trading and was closed at the end of the
session, and International Game Technology (NYSE:IGT), which used
Friday's market-wide rally to achieve a new "all-time" high.  The
bearish position in L-3 Communications (NYSE:LLL) has previously
been closed to limit potential losses.  Issues on the watch-list
include Bank of America (NYSE:BAC), Dreyer's (NASDAQ:DRYR), and
Intuit (NASDAQ:INTU).


CALL DEBIT SPREADS
******************

Symbol  Pick   Last  Month  LC  SC   Debit   B/E   G/L   Status

BGEN    35.67  38.97  MAY   30  32   2.20   32.20  0.30   Open
GILD    44.04  47.27  MAY   37  40   2.25   39.75  0.25   Open
SLM    115.05 114.79  MAY  105 110   4.50  109.50  0.50   Open

LC = Long Call  SC = Short Call  B/E = Break-Even  G/L = Gain/Loss


PUT DEBIT SPREADS
*****************

Symbol  Pick   Last  Month  LP  SP   Debit   B/E   G/L   Status

WMT     52.98  56.15  MAY   60  55   4.30   55.70 (0.45)  Open?
BSX     42.19  45.88  MAY   47  45   2.10   45.40 (0.48) Closed
CCMP    42.68  43.80  MAY   50  45   4.30   45.70  0.70   Open

LP = Long Put  SP = Short Put  B/E = Break-Even  G/L = Gain/Loss

Wal-Mart (NYSE:WMT) rallied again this week, however the technical
resistance area near $57 seems to be limiting its trading range.
We will continue to monitor the issue for signs of further upside
activity in the coming sessions.  Boston Scientific (NYSE:BSX) has
broken above a recent resistance area (near $44) on heavy volume
and conservative traders should consider closing the position to
limit potential losses.


SYNTHETIC (BULLISH)
*******************

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

OVRL    15.99  17.48   MAY     17    15     0.10    1.00    Open?
DCTM    16.09  19.98   MAY     17    15    (0.30)   2.25   No Play
SMH     26.43  27.25   AUG     30    22     0.10    0.45    Open

Documentum (NASDAQ:DCTM) did not offer the target entry price, but
the position was very profitable for traders who paid a small debit
to initiate the play.  The suggested entry price was available in
the Semiconductor Holdrs (AMEX:SMH) and the position has already
achieved a favorable profit.


SYNTHETIC (BEARISH)
*******************

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

QQQ     25.51  28.28   MAY    24     27     0.10    0.00   Closed

As noted last week, conservative traders should have exited this
position when the issue closed above recent resistance near $27.


CALENDAR & DIAGONAL SPREADS
***************************

Stock   Pick   Last     Long     Short    Current   Max     Play
Symbol  Price  Price   Option    Option    Debit   Value   Status

BMET    28.52  30.74   JUL-30C   MAY-30C  (0.20)   0.70     Open
ESI     29.11  30.00   OCT-30C   MAY-30C   2.00    2.40     Open
OCR     27.07  25.83   JUN-27C   MAY-27C   0.60    0.40     Open
MO      32.13  30.97   JUN-27P   MAY-27P   0.95    0.45     Open
ATN     23.73  18.75   JUL-25C   MAY-25C   0.00    0.00    No Play
FILE    13.75  15.39   JUL-15C   MAY-15C   0.60    0.65     Open

Biomet (NASDAQ:BMET) and ITT Educational Services (NYSE:ESI) are
trading near maximum profit.  Positions in Altria Group (NYSE:MO),
which has already offered a small profit, and Omnicare (NYSE:OCR)
were not available at the suggested entry prices, however we are
tracking the plays at the higher initial debits.  The "Reader's
Request" calendar spread in Action Performance (NYSE:ATN) was not
available as the issue gapped lower prior to Monday's session on
news of a weak revenue outlook.


DEBIT STRADDLES
***************

Stock   Pick   Last   Exp.   Long  Long  Initial   Max     Play
Symbol  Price  Price  Month  Call  Put    Debit   Value   Status

LNC     29.88  33.05   MAY    30    30    3.00     3.70    Open?


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 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.

**************
CREDIT SPREADS
**************

These candidates are based on the underlying issue's technical
history or trend.  The probability of profit in these positions
may be higher than other plays in the same strategy, due to
small disparities in option pricing.  Current news and market
sentiment will have an effect on these issues, so review each
play individually and make your own decision about its outcome.

*****
BZH - Beazer Homes  $71.80  *** Homebuilders Rally! ***

Beazer Homes USA (NYSE:BZH) designs, builds and markets single
family homes in the following locations within the United States:
Florida, Georgia, North Carolina, South Carolina, Tennessee,
Arizona, California, Colorado, Nevada, Texas, Maryland, Virginia,
New Jersey, and Pennsylvania.  The company designs its homes to
appeal primarily to entry-level and first time move-up homebuyers.
The company's objective is to provide its customers with homes that
incorporate quality and value while seeking to maximize its return
on invested capital.  Beazer's homebuilding and sales activities
are conducted under the name of Beazer Homes in each of its markets
except in Colorado (Sanford Homes) and Tennessee (Phillips Builders).

BZH - Beazer Homes  $71.80

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-60.00  BZH-RL  OI=58   A=$0.50
SELL PUT  JUN-65.00  BZH-RM  OI=114  B=$1.00
INITIAL NET-CREDIT TARGET=$0.55-$0.70
POTENTIAL PROFIT(max)=12% B/E=$64.45


*****
CECO - Career Education  $60.52  *** Bullish Industry! ***

Career Education Corporation (NASDAQ:CECO) is a provider of
private, for-profit post-secondary education, with 51 campuses
throughout the United States, Canada, France, the United Kingdom
and the United Arab Emirates.  The company also offers online
programs through American InterContinental University-Online,
its e-learning division.  The company's schools have master's
degree, bachelor's degree, associate's degree and a range of
diploma programs in career-oriented disciplines.  The company's
schools offer educational programs principally in five major
career-related fields of study: visual communication and design
technologies, offered at 34 campuses; business studies, offered
at 32 campuses; information technology, including Internet and
intranet technology, offered at 27 campuses; culinary arts,
offered at 10 campuses, and health education, offered at three
campuses.

CECO - Career Education  $60.52

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-50.00  CUY-RJ  OI=40  A=$0.40
SELL PUT  JUN-55.00  CUY-RK  OI=30  B=$0.85
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$54.50


*****
FDC - First Data Corporation  $40.22  *** New 10-Month High! ***

First Data Corporation (NYSE:FDC) operates in four major business
segments: payment services, merchant services, card issuing and
emerging payments.  The company provides money transfer, official
check, money order, electronic payment and other stored-value card
services in its payment services segment; credit and debit card
transaction processing services on behalf of merchants, check
verification and guarantee services and also operates an automated
teller machine network in the merchant services segment; card
issuing and processing services for financial institutions issuing
credit and debit cards and to issuers of oil/fuel, retail/private
label, stored-value and smart cards in its card issuing services
segment, and mobile payments, government payments and enterprise
payment solutions in its emerging payments segment.

FDC - First Data Corporation  $40.22

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-35.00  FDC-RG  OI=95   A=$0.30
SELL PUT  JUN-37.50  FDC-RU  OI=347  B=$0.55
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$37.20


*****
RCII - Rent-A-Center  $65.35  *** Why Buy When You Can Rent? ***

Rent-A-Center (NASDAQ:RCII) is a store operator in the rent-to-own
industry.  Rent-A-Center operates over 2,200 company-owned stores
in 50 states, the District of Columbia and Puerto Rico.  RCII's
subsidiary, ColorTyme, is a national franchisor of rent-to-own
stores with over 300 franchised stores in 42 states.  The firm's
stores offer consumer products including electronics, appliances,
computers and furniture, and accessories under rental purchase
agreements that typically allow the customer to obtain ownership
of the merchandise at the conclusion of an agreed-upon rental
period.  These agreements cater to customers who have a temporary
need, or who simply desire to rent rather than purchase, the
merchandise.

RCII - Rent-A-Center  $65.35

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-55.00  RQG-RK  OI=99   A=$0.45
SELL PUT  JUN-60.00  RQG-RL  OI=188  B=$1.00
INITIAL NET-CREDIT TARGET=$0.60-$0.70
POTENTIAL PROFIT(max)=14% B/E=$59.40


*****
PG - Procter & Gamble  $90.15  *** Trading Range? ***

The Procter & Gamble Company (NYSE:PG) manufactures and markets
more than 250 products to more than five billion consumers in
130 countries throughout the world.  The company categorizes its
business operations as follows: Baby, Feminine and Family Care,
Fabric and Home Care, Beauty Care, Health Care, and Food and
Beverage.  The company acquired Clairol, a manufacturer of hair
color and hair care products, from Bristol Myers Squibb in 2001.

PG - Procter & Gamble  $90.15

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-100.00  PG-FT  OI=160   A=$0.15
SELL CALL  JUN-95.00   PG-FS  OI=2574  B=$0.60
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$95.50


*****
NBR - Nabors Industries  $39.21  *** Sector Slump! ***

Nabors Industries (NYSE:NBR) operates in two primary business
segments within the oilfield services industry, contract drilling
and manufacturing and logistics.  The company provides drilling,
workover, well-servicing and related services on land and offshore
in the lower 48 states of the United States (lower 48 states),
Canada and Alaska, as well as international markets.  The company
also manufactures and leases (or sells) top drives, drilling
instrumentation systems and rig-reporting software domestically
and internationally, and provides oil rig construction, logistics
services and marine transportation and support services in Alaska
and the lower 48 states.

NBR - Nabors Industries  $39.21

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-45.00  NBR-FI  OI=1250  A=$0.30
SELL CALL  JUN-42.50  NBR-FV  OI=3122  B=$0.60
INITIAL NET-CREDIT TARGET=$0.35-$0.45
POTENTIAL PROFIT(max)=16% B/E=$42.85


*************
DEBIT SPREADS
*************

These candidates offer a risk-reward outlook similar to credit
spreads, however there is no margin requirement as the initial
debit for the position is also the maximum loss.  Since these
positions are based primarily on technical indications, traders
should review the current news and market sentiment surrounding
each issue and make their own decision about the outcome of the
position.

*****
AXP - American Express  $38.46  *** Recovery Underway! ***

American Express Company (NYSE:AXP) is primarily engaged in the
business of providing travel-related services, financial advisory
services and international banking services worldwide.  Through
American Express Travel Related Services Company, the firm offers
travel-related products and services including charge cards, card
member lending products, travelers checks and corporate as well as
consumer travel services.  Financial advisory services and products
include financial planning and advice, investment advisory services
and various products, including insurance and annuities, investment
certificates and mutual funds.  Through American Express Bank, the
firm provides private, financial institution and corporate banking,
as well as personal financial services and global trading.

AXP - American Express  $38.46

PLAY (very conservative - bullish/debit spread):

BUY  CALL  JUN-32.50  AXP-FZ  OI=20   A=$6.30
SELL CALL  JUN-35.00  AXP-FG  OI=137  B=$4.00
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$34.75


****************
GENZ - Genzyme General  $41.47  *** Aldurazyme Approved! ***

Genzyme General Division (NASDAQ:GENZ) is a division of Genzyme
Corporation, a biotechnology and human healthcare company that
develops products and provides services for unmet medical needs.
Genzyme General develops and markets therapeutic products and
diagnostic products and services with an emphasis on genetic
disorders and other chronic debilitating diseases with defined
patient populations.  The company is organized into two segments,
Therapeutics, which focuses on developing and marketing products
for genetic diseases and other chronic debilitating diseases,
including a family of diseases known as lysosomal storage
disorders, and specialty therapeutics, and Diagnostic Products,
which develops, markets and distributes in vitro diagnostic
products.  The company also operates a wholly owned subsidiary,
GelTex Pharmaceuticals.

GENZ - Genzyme General  $41.47

PLAY (very conservative - bullish/debit spread):

BUY  CALL  JUN-35.00  GZQ-FG  OI=1781  A=$7.20
SELL CALL  JUN-37.50  GZQ-FO  OI=423   B=$4.90
INITIAL NET-DEBIT TARGET=$2.20-$2.25
POTENTIAL PROFIT(max)=11% B/E=$37.25


****************
CALENDAR SPREADS
****************

A calendar spread (or time spread) consists of the sale of one
option and the simultaneous purchase of an option of the same
type and strike price, but with a future expiration date.  The
premise in a calendar spread is simple: time erodes the value of
the near-term option at a faster rate than the far-term option.
The positions in this section are speculative (out-of-the-money)
spreads with low initial cost and large potential profit.

*****
IBM - International Business Machines  $87.57  *** Go Big Blue! ***

International Business Machines Corporation (NYSE:IBM) makes and
sells computer services, hardware and software.  The company also
provides financing services in support of its computer business.
The firm's major operations comprise a Global Services segment;
three hardware product segments (Enterprise Systems, Personal and
Printing Systems, and Technology); a Software segment; a Global
Financing segment; and an Enterprise Investments segment.  IBM
offers its products through its global sales and distribution
organizations. The Company operates in more than 150 countries
worldwide and derives more than half of its revenues from sales
outside the United States.

IBM - International Business Machines  $87.57

PLAY (speculative - bullish/calendar spread):

BUY  CALL  JUL-90.00  IBM-GR  OI=32914  A=$2.70
SELL CALL  MAY-90.00  IBM-ER  OI=14728  B=$0.45
INITIAL NET DEBIT TARGET=$2.10-$2.20
INITIAL TARGET PROFIT=$0.60-$0.90


*******************
SYNTHETIC POSITIONS
*******************

These stocks have momentum-based trends and favorable option
premiums.  Traders with a directional outlook on the underlying
issues may find the risk-reward outlook in these plays attractive.

*****
SLAB - Silicon Laboratories  $30.17  *** Chip Sector Rally! ***

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  $30.17

PLAY (speculative - bullish/synthetic position):

BUY  CALL  JUN-35.00  QFJ-FG  OI=124  A=$0.70
SELL PUT   JUN-25.00  QFJ-RE  OI=347  B=$0.60
INITIAL NET CREDIT TARGET=$0.05-$0.10
INITIAL TARGET PROFIT=$0.45-$0.90

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $750 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25).


*****


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