Option Investor

Daily Newsletter, Sunday, 06/08/2003

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The Option Investor Newsletter                   Sunday 06-08-2003
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: Sell The News?
Futures Market: DOH!
Index Trader Wrap: WHERE'S THE GOOD NEWS?
Editor's Plays: So Many Choices
Market Sentiment: Too Fast, Too Furious
Ask the Analyst: Gaps... Breakaway, running then exhaustion
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 6-06         WE 5-30         WE 5-23         WE 5-16
DOW     9062.79 +212.53 8850.26 +248.88 8601.38 - 77.59 + 74.37
Nasdaq  1627.42 + 31.51 1595.91 + 85.82 1510.09 - 28.44 + 18.38
S&P-100  495.67 + 12.47  483.20 + 13.45  469.75 -  5.97 +  3.47
S&P-500  987.76 + 24.17  963.59 + 30.37  933.22 - 11.08 + 10.89
W5000   9452.54 +233.65 9218.89 +302.66 8916.23 - 73.62 +106.51
RUT      453.94 + 12.94  441.00 + 22.60  418.40 +  3.73 +  1.14
TRAN    2481.54 -  4.81 2486.35 +102.99 2383.36 - 35.95 - 42.87
VIX       23.43 +  1.73   21.70 +   .32   21.38 +  0.37 -  1.03
VXN       36.13 +  4.47   31.66 +  1.93   29.73 -  1.29 -  1.07
TRIN       1.06            0.92            1.09            0.93
Put/Call   0.78            0.67            0.74            0.52

Sell The News?
by Jim Brown

What the heck happened? That is what bulls wanted to know as
the +170 point Dow rally on good Jobs numbers fizzled into only
a +21 point gain. The Nasdaq did even worse percentage wise by
dropping nearly -60 points from its high of 1684. Friday was a
major reversal day by most standards but the Dow did manage to
close positive and over 9050. It was not a bad day despite the

Dow Chart - Daily

Nasdaq Chart - Daily

The major report for Friday was the Nonfarm Payrolls, which came
in bristling with surprises. The decline in the headline number
to only -17,000 job losses was significantly better than expected.
More important was the revision to April to flat from -48,000.
The January jump in employment was cut but the huge Feb drop in
jobs was cut by almost two-thirds. Going into Friday's report we
were looking at a drop of nearly -550,000 jobs since January.
After the giant revisions that same period accounted for only a
-272,000 job drop. This 50% haircut in bearishness should have
been a clear sign of better than expected business conditions.

There were some negatives with the unemployment rate rising to
6.1% and manufacturing losing -53,000 jobs in May. Also, and this
is a big one, they changed the counting process to something
called the benchmark process. As a result of the change in the
counting process the actual employment shifted lower by 264,000
from April. 2002 jobs were revised down by another -650,000 to
-2.5 million. Where those jobs went and why is unknown. The actual
total unemployment rose +212,000 in May to nearly nine million.
43% of those who received unemployment have dropped off the roles
and are no longer receiving checks. The employment picture is
improving although we are not to the point where jobs are being
created. The market should be thankful for small favors, even if
they were doled out by sharp pencils. Unemployment gains going
into the summer will be more difficult as high school and college
students that graduated will be entering the already decimated

Consumers went on a credit spending spree in April with a $10.7
billion rise in credit. The consensus was for only a gain of
+2.0 billion. This gain was largely in the nonrevolving category
which is highly volatile due to how changing auto incentives
attract buyers. After you average the losses in the same category
over the last two months the rate of increase is actually down
to the lowest level since 1993. The low interest rates have
prompted many consumers to refinance their homes and pay off
normal consumer debt.

The combination of the Jobs numbers and the credit numbers spiked
the market at the open as bond traders sold on a knee jerk
reaction to a reduced possibility of future cuts. The chances of
a premeeting cut or a 50 point at the June-25th meeting decreased
with the jobs revisions. There is still a 100% chance of a 25
point cut to head off deflation and match the ECB but the chance
for a 50 point went to zero. Or maybe I should say almost zero.
Of 25 dealers surveyed on Friday 21 thought the Fed would cut
rates at the June meeting. Seven of those 21 still think there is
a chance of a 50 point cut. The Fed fund futures are only showing
a 2% chance of that coming to pass. That chance increases to 29%
for another 25 points at the August meeting. With economics taking
a sudden turn upward the ten-year treasuries, where yields dropped
as low as 3.25% on Thursday, spiked to 3.41% on Friday. In bond
terms this is a big move. There was a little buying just before
the close but the early dump fueled the stock market with rocket

The second stage of that rocket failed to ignite and it never
broke free of the earths gravity. The Dow soared +170 points to
9215 before quickly rolling over once the internals of the jobs
report filtered through the trading desks. Bonds quit selling
and the extreme volume of the first hour dropped off sharply.
There were simply not enough buyers, even with the flood of bond
money, to sustain the rally at that rarified altitude. The selling
was concentrated in the previous leaders which indicated traders
were simply locking in profits not a broad based correction.

The internals were still very strong and very broad. The new
52-week highs hit a new 52-week high at 1305 compared to only 13
new lows. Even after the sell off Friday afternoon the broader
market was almost evenly split on advance/declines. NYSE volume
was over 2.3 billion shares and the Nasdaq traded 2.996 billion
shares. That totals nearly 5.7 billion shares when you include
all markets. This is huge volume in what was basically a down
day. The Dow did finish higher but the Nasdaq did not on very
heavy volume.

I am not trying to make a bear case. On the contrary I think the
market needed to sell off to relieve some of the excess. The Dow
has serious resistance at 9053. The opening spike shot it to 9215
and well over that resistance. However, when the selling ended
the Dow came to a dead stop at 9053 which is now acting as
support. This was a major victory in my opinion and the positive
close is a bonus. The Nasdaq dropped -60 points from its high
and ended up nearly -20 negative. This was not a sterling
performance. I am still positive despite the drop. We needed the
drop. We needed the profit taking. Getting it from a +170/+40
point spike and ending close to even is a plus. The high volume
shows that there were willing buyers for every seller.

Technically this was a reversal day. The extremely high pole on
Friday's candle is normally a clean sell signal. Especially if
it comes at the end of a rally. Check out the candles on 9/11,
12/2, 4/7. In candle stick charting the candles from Friday and
April 7th are called a Gravestone Doji. The market gaps open
above the previous day's close in an uptrend. It rallies to a
new high then loses strength and closes near its low. This
represents a bearish change of momentum. Confirmation of this
reversal is an open below the candle body on Monday. That would
be under 9040 for the Dow.

Dow Chart with candle examples

The candle on the Nasdaq Compx can be viewed as several things
including a Dark Cloud Cover but they are all bearish and
represent a reversal.

Ordinarily I would be bearish based on the market action today
but I have been expecting a couple consolidation days. The fact
that we may have started with the very high volume from a very
high gap open could have mitigated much of the damage already.
The nearly six billion shares traded gave anyone the chance to
exit at the highs if they desired. I am not naove enough to
believe that the selling is over. That would be nice but I
think we have come too far too fast. We need several days of
consolidation to appease the bears. The first three days of
next week are very light in terms of economic reports. There
is a very good possibility we could see some more selling with
nothing to fixate on for guidance. This has been the pattern in
the recent rally. No reports, no progress. We could also see an
increase in earnings warnings beginning next week. These events
could provide a couple days of retracement.

That is fine if you are a bear and are short. However, if you
are looking for an entry point then Monday/Tuesday could be your
cup of tea along with several million others. Look at the facts.
TrimTabs said investors added $1.52 billion in new cash in the
last week. Not a truckload but a continued positive flow. Many
bond holders may have been reluctant to dump at the open Friday
and are waiting for next week to make a more orderly exit. The
25 point cut is already 100% priced into the market and the odds
of the second 25 points are now at only 2%. Do you hold for the
long shot while everyone else is leaving? Probably not. It was
also confirmed again on Friday that the State of Illinois was
going to sell $10 billion in bonds and 60% of the proceeds would
go into stocks to help heal their pension funds. I heard two
reports on the topic and depending on who you heard there are
between 17 and 29 other states planning on doing the same thing
in the month of June. This represents a huge influx of cash.
We also have a tax cut in the works with stock favorable terms
and 25 million checks going directly to consumers over the next
90 days.

It is also the end of the quarter. Those mutual funds that have
extra cash and have been waiting for a pullback are probably
chomping at the bit to invest it before month end. Next week is
also the week before expiration week. This week has been trending
positive for sometime while the actual expiration week has been
less exciting. Lastly, the economics are improving. Slowly but
surely there is a glimmer of hope on the horizon. If we get some
positive earnings guidance begin to appear from those companies
that over warned due to the war then things could heat up fast.
54% of the S&P warned for the 2Q during the last earnings cycle.
That sets up the potential for some better than expected numbers.
With the Sarbanes-Oxley Act there is no reason for any company
to give optimistic or even mildly uplifting guidance when any
outside event, like the war, could make them subject to suit
or worse. I suspect we will see more upside surprises then
previously expected.

Obviously this is all conjecture. The markets have literally
refused to go down for so long that the easy prediction would
be for a fall. I just do not see it in the internals. I do
believe we will see some selling but I believe the dip buyers
are alive and well and will be softening all the blows. The
Nasdaq has minor support at 1620 and slightly stronger support
just below 1600. Neither of these levels represent a major bout
of selling. 1535 and 1485 are the real support levels if there
is a real change in the trend. We could easily retreat to there
but it would take a serious change in sentiment just when
economic conditions were improving. The Dow has clung to 9000
for 3 of the last 5 days and it is likely to cling to that level
for several more. That does not mean we cannot go lower. The dip
last week to 8900 was bought in a rush and it would probably
happen again.

In short, look for some more selling on Monday/Tuesday but also
look for willing buyers to appear on every dip. Until that trend
is broken the longer term rally will remain intact.

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Enter Very Passively, Exit Very Aggressively!

Jim Brown


Jonathan Levinson

Don't just do something  Stand there!  That's what many bears
did on the cataclysmic gap up open, relentless push higher, and
rounded top that mercifully arrived at a little past 10AM.  From
8AM until well into the morning, most bears were frozen in the
headlights.  After a bit of chop, the indices proceeded to return
to the gap and then fill it, ending the day near their lows.

It was a huge volume day, 2.3B NYSE shares and 2.95B Nasdaq
shares changing hands.  A gravestone doji reversal was printed on
volume, and while we've seen these during the rally, we haven't
seen any on such huge volume or such a perfect one-eighty "doji
moodswing".  Bears were completely caught flatfooted,
capitulating, meditating, hyperventilating.  The reversal was so
perfect that many were buying the dips by that point, and few,
myself included, were able to trust the head and shoulders
neckline failure when it finally came.  Particularly on the
Nasdaq indices, the day went from perfectly bullish to perfectly
bearish, and a tip of the hat to Jim, who warned us in the Market
Monitor not to lunge for the obvious reaction to the bullish
employment report that kicked the bulls' premarket party into
high gear.

The indices closed at their lows of the day.

Intraday QQQ chart

Daily Pivots (generated with a pivot algorithm and unverified):

Figures rounded to the nearest point:

           R2     R1    Pivot   S1     S2
ES03M     1017   1002    994    980    972
YM03M     9275   9163   9104   8992   8932
NQ03M     1286   1249   1230   1193   1174

10 minute chart of the US Dollar Index

The US Dollar Index hit pure nitrous on the 8:30AM jobs data, and
despite the ripcord escape in equities, it consolidated at the
top in what looks like a bullish triangle forming a possible cup
and handle formation.

Daily chart of June gold

The action was bearish for gold, which had gotten a lift on
Thursday and gave it back Friday, but still remained well above
the 359 support line we've been discussing.  The downphase
remains a sideways consolidation and bodes bullish for gold.  The
Commodity Futures Index, the CRB, closed higher by 1.27 at
237.43, led by sugar, soybeans, crude oil, corn, heating oil and

Daily chart of the ten year note yield

Bonds sold off more than the fed's 2B net repo drain would have
implied, with the TNX  adding 6.1 basis points to 3.352% after
having printed a spike low of 3.25% yesterday.

Daily NQ3M candles

The gravestone doji print is so perfect that I felt disinclined
to draw the ascending trendline over it.  The upper candle spike
on Friday's candle violated the upper trendline, and the body
closed below it.  As predicted yesterday, we saw a higher low and
higher high, and if not for the big volume on Friday's reversal,
the day would appear far more bullish than it actually felt.
Note that the oscillators did not give sell signals, but they
appear to be topping, with the slower MacD lagging the

30 minute 20 day chart of the NQ3M

The weaker NQ contract led the way with a potential downside
breakout of a sloppy bear flag formation on the 30 minute
candles.  The oscillators are in clear downphases, and the
stochastic is in oversold territory but with no sign of a turn
just yet.  A weak open looks very likely, but whether this goes
deep enough to start a sell signal on the daily will have to be

Daily ES3M candles

The ES contract was far stronger than the NQ as the above chart
depicts.  The low was far higher than we had on the NQ, and
indeed, the NQ closed on a -1.78% loss, while the ES closed lower
by just -.33%.  Nonetheless, the oscillators are telling the same
story.  While both the NQ, ES and YM are still well within the
ascending channels, Friday's session was a high volume failure to
violate those channels to the upside.

20 day 30 minute chart of the ES3M

The strength in the ES relative to the NQ contract is plain on
the 30 minute candles, which show no downside channel failure
comparable to that on the NQ.

Daily YM3M candles

Nothing to add on the YM, which rose to an astounding high of
9215 but closed at 9044, still bullish except for the high volume
reversal and toppy oscillators.

20 day 30 minute chart of the YM

Once again, good relative strength between the YM and the NQ.  As
we've seen, the Nasdaq related indices tend to lead the others.
We'll have to see on Monday whether this holds true again.

What's clear is that Friday might have been a key reversal, but it will
take further downside to give bears reason to relax.  On the daily and
even 30 minute charts (except for the NQ on the latter), the uptrends
are firmly intact.  As reader Matt put it: "OK, they closed the Dow's
day and week over the August '02 highs. That plus the $Tran's prior
taking out of its highs gives more than a short-term Dow Theory buy
signal (given earlier this week), it signals a full blown multi-month
(to maybe even Bush's reelection) bear rally.

We should hear all about the Dow Theory Bull signal on CNBC and in the
financial press this weekend (odd the way they didn't popularize the
Dow Theory sell signals and then the big Bear signal a few years ago).
So the next week or so should be great distribution weeks as traders
fail to realize that Dow Theory signals aren't short-term market timing
signals.  But I think the bulls with a longer term agenda will step
aside for a while.  They've proven their case."

We'll be watching closely from Monday's open.  In any event,
bears survived Friday's session, a statement which would have
shocked most traders Friday morning.  See you at the bell!


By Leigh Stevens

I may have been thinking it week before last, but the last spurt
up, especially in the tech-heavy Nasdaq may have finally gotten
the Composite Index (COMPX) Index ready for a correction.  At a
minimum, I anticipate that the S&P 500 (SPX) will now have better
relative performance as these sectors get more of a play from
investors and traders as they play catch up.

Market psychology has changed significantly to the glass is half
full, from half empty. It's part of the "charm" (how about
perversity?) of the market, that when it reverses it doesn't take
too many along for the ride.  In the present instance, too many
don't believe that the market is suddenly now "undervalued" or
should be rebounding so strongly. Hey, if there were a lot of
pauses along the way, we would say, "see I told you that it
wasn't going anywhere".

My dear ol pappy said to me about the market: "Son, it ain't what
ya know, its what ya don't know" that makes it go". So, maybe I
didn't know what the heck was going on - except that market
participants were in a mood to buy.  Cause, last week saw such
great news as the Commerce Department saying that outlays on
construction spending fell 0.3% in April, the lowest level
since December of 2002. The Labor Department said initial filings
for state unemployment benefits rose by 16,000 to 442,000 in the
latest week.  Factory orders fell 2.9% in April after a 2.2% gain
in March. The 2.9% decline in April's factory orders was the
biggest drop since November 2001 when factory orders fell 4.1%.

Well, there was some news that the market took as encouraging -

For instance, the Institute for Supply Management (ISM) said that
the service sector expanded in May, with its services index
rising to 54.5 from April's 50.7 reading, and above economists'
forecast of 52.0. Economists had forecasted the ISM Services
Index to come in at 52.0.

The U.S. Department of Labor last week said workplace efficiency
improved by more than first thought as non-farm productivity rose
1.9%, which was more than the 1.6% first reported.

I suppose that the tone of the market last week might have been
set by a minor revival of merger mania as "Merger Monday" as
enterprise software maker PeopleSoft (PSFT) and J.D. Edwards
(JDEC) said they would join forces.  PeopleSoft indicated it
would acquire rival J.D. Edward in a $1.7 billion stock deal to
create the world's second largest enterprise application company.

Of course, by week's end Oracle (ORCL) was trying to muscle in by
an unsolicited bid for PeopleSoft, with their management issuing
a press release saying that "Oracle's bid shows atrociously bad
behavior, from an atrociously bad company."

Hey, these guys seem to have some bad blood!  PeopleSoft and
Oracle have actually a pretty bitter rivalry, not only in product
offerings but at the CEO level. I doubt that they play golf

It was reported that Nonfarm Payrolls for May fell 17,000 versus
economists' forecast for a 30,000 drop.  The May unemployment
rate rose to 6.1%, a record going back 9 years I think, but in
line with the consensus estimate.  Average hourly earnings for
May rose 0.3%, which was slighty higher than economists' forecast
of a 0.2% rise.

So, what happened on this "bad" news? - not only a rally but such
a strong one that trading curbs kicked in as the Dow (INDU) went
to 9,163, up 122-points at the time - but this was even down from
ts session peak of 9,215.

McDonalds (MCD) accounted for significant strength in the Dow 30
average as the stock was up substantially after the company said
it had a 2.2% rise in global May (comparable) unit sales and a
6.3% rise for the U.S. And we thought the overseas nasties were
doing nothing but trashing MAC's overseas restaurants and
boycotting the made in America hamburger king!

Just goes to show, it IS what you DON'T know that is the
surprise.  Anyway, the aforementioned news lit a fire under some
Street of Dreams analysts as they talked up the bullish
implications after expecting some negative global comparables.
And its noteworthy that those Francs, D-Marks, etc. going into
the tills, buy more dollars these days.

The Dow was up 21.49 points on Friday on good volume, after
touching its highest intraday peak sine December (2002). The
Nasdaq Composite however ended down 18.6 points (-1.1%) to
1627.42 as traders took profits by selling into a sharp morning

The Standard & Poor's 500 Index (SPX) finished the week at 987,
up 24 points for a 2.5% gain. SPX even traded above 1000, for the
first time since June of last year. The Dow Industrials(INDU)
finished at 9,062, up 212 points on the week for a 2.4% gain,
from its week-ago close down at 8,850. In terms of the Dow, the
market is up almost 9% on the year - the close above 9,000 was
the first time since July of 2002.

The Nasdaq Composite (COMPX) ended the week at 1,627, up 32
points, or 2% from its week-ago level of 1,595. The Nasdaq has
gained a whooping 22% since Jan.1st.

As I mentioned already, U.S. nonagricultural companies cut some
17,000 jobs in May versus holding steady in April.  However, by
way of explaining some of the bullish enthusiasm for stocks, the
expectations were for a decline of 25,000 jobs. April's figure
had originally been reported as a drop of 48,000 jobs.

The report, particularly with the April revision, seemed to show
a slowing of job cuts.

The Street was less impressed with consumer credit, which grew
about $10.7 billion to a seasonally adjusted $1.756 trillion
according to the Federal Reserve - this versus a predicted credit
rise of by about $1.9 billion in April. Households borrowed more
on credit cards and also took on more non-revolving loans like
car and boat loans, according to the Fed.  AND, NEVER
underestimate our collective addition to plastic!

Intel, (see it's chart below) held firm its forecast for Q2,
noting improvements in its core microprocessor business - but
also continued weakness in communications chips.  Sun Micro
rallied on some merger speculation, gaining nearly 6% (to 5.20).
The market loves mergers as can be seen from the PeopleSoft/JD
Edwards story at the beginning of the week.

The Friday gains ends a strong week, with more investors now
talking about the market and actually putting some money back
into stocks.  The Journal quoted someone who said that "For the
first time in months I am hearing people talk about stocks at
cocktail parties" - ah oh! The quote went on to say that there is
finally the feeling that the "the train is leaving the station
without me." Must be correction time - sorry, can't help my
contrarian nature!


With some key tech stocks having downside momentum confirmed by a
sharp jump in their average daily volume, it tends to reinforce
some things I'm seeing on the Index charts.  Microsoft looks
lower and if the software giant is behaving so poorly, it casts
some doubt on how much higher the Nasdaq indices can go.  Also,
IBM is suffering on some troubles with the regulatory bodies, but
technically watch for a close (or rebound from) its 200-day
average at 78.75 currently.

Intel (INTC) will bear watching per my notes on its chart above.
It needs to close above 22 and find support in this area on
subsequent pullbacks to it.  Absent that - if there is a retreat
from 22, it looks like at least a temporary top.

What's with gold stocks? Dollar strength is most likely what is
pulling up the XAU index - it sure ain't an inflation push-pull.

GE's price action and its solid breakout move, suggests that the
S&P may start to gain or outpace the tech heavy Nasdaq.

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

My sentiment indicator has moderated from the week before,
showing that option traders are not giving up on the put side -
hey, I would want to lock in some gains on some stocks by taking
out some put insurance especially with relatively low volatility.

When I drew the likely trend channel on the daily chart (below,
left) it suggests that OEX could be hitting some practical
resistance - and in terms of those big round numbers (1000 in SPX
and 500 in OEX), these price levels seem to draw some profit
taking.  Unless we get couple of OEX closes above 500 next week,
this last leg up may be the best gains we'll see for a while. Am
I willing to buy OEX puts on the prospect - one more spurt to
around 510 would suggest a good risk to reward in puts, by
exiting on a move to 515.

Downside potential is back to technical support in the 485 area.
Next lower support is around 475 - I would be a buyer of calls in
this area if reached.

A "typical" trading range for the S&P 100 or OEX relative to the
(21-day) moving average envelope bands, also suggests that OEX
has reached an extreme. The 14-day RSI is saying the same thing.
Being at such "extremes" doesn't cause me to play the potential
downside automatically.  These kind of extremes will tend to keep
me out of any new call purchases as the risk to reward ratio is
not in my favor.

As I said last week, if OEX went to 495 it would test 500.  Its
like the rule of thumb about a stock hitting $90 - it will
usually go to a 100. Repeating one comment - the 500 area is my
exit point for OEX calls and is where I want to look closely for
put buying opportunities.  Even though the current rally is
taking on a life of its own, seeming ahead of the current
fundamentals for stocks and the economy. Some bad news comes
along and suddenly its wake up time on the Street of Dreams!

Dow Industrials (INDU) Daily & Hourly (DJX.X) charts:

The Dow hit my upside targets and then some, as I thought it
would struggle to get above 90.  Well, it came down pretty
sharply from 92, so we'll see if 9000 becomes a new "line" of

I peg DJX resistance - assuming is stays in its hourly channel-
at around 91 and technical support at 88.5, then 86.5.  Going by
the way the trend channel looks on the DAILY chart, it looks like
resistance comes in at 92-92.5, and support at 87.5 in DJX.

If the Dow for the most part stays above 9000 this week, it
brings into play my long-standing expectation that the Average
would at least get back up to 10,000.  What I look for is whether
there is more than a 1-day close under 9000.  Two consecutive
days under this level suggests that an interim or temporary top
is in place.

My revised (maximum) expected range on the Dow is 8400-8450 on
the downside and 10,000 on the upside.

Nasdaq Composite Index (COMPX) – Daily & Hourly:

I thought 1620 might be the maximum upside for COMPX for awhile -
WRONG! Never underestimate the ability for the indices,
especially tech, to overshoot any "reasonable" target, once the
bulls (or bears) get the bit in their teeth and you get MO
(mighty MOmentum). 1550 continues to look like key near technical

The 14-day RSI has gotten to a reading that is about as extreme
as it gets, without a correction developing - either a pullback
or at least a sideways move.

I noted on the daily chart below, at the peaks at the 6% envelope
line, the tendency for 3 distinct upswings or rallies, followed
usually by a 2-part corrective downside correction.  Wouldn't be
surprised to see this here next.

Tech stocks have gotten probably as far extended as they're going
to get without earnings follow through in the next reporting
period.  Hope can get em up, but earnings are needed to keep em

I went back to the drawing board and redrew the hourly uptrend
channel by going further back in the hourly price history. (One
advantage I suppose of keep your own price history.) And, as the
below channel outline on the hourly COMPX chart suggests, a
"natural" peak on this last spurt may have been reached.

The big volume that came on Friday in the Nasdaq (see the QQQ
chart at bottom) suggests a volume "climax".  It's hard to pick
tops when (in the words of our Chairman) "irrational exuberance"
kicks in, but the more extreme it gets the higher the probability
of an opposite "reaction" setting in.  Stay tuned!

QQQ charts - Daily & Hourly:

I suggest shorting QQQ now in the 32-32 price zone and looking to
the buy side on a re-test of technical support in the $29 area.

Last week, I thought that resistance would come in in the 30.3 -
30.5 area, which was a bit low from an intraday standpoint but
look about right on a closing basis.

Key near technical support looks like 28.75-29.00.

The minor reversal on the sharp jump in Friday's volume looks
like a minor top.  Note the overbought 14-day stochastic,
although this is the third time at an extreme reading - the third
time being the one to short?  Hard to see in the crystal ball,
but the Nasdaq 100 does register as overbought/overextended on
most technical indicators that I trust. Indicators don't offer as
much to go on as the chart pattern however. The hourly channel
offers the best suggestion that QQQ hit at least a short-term top
on Friday.

The 14-day RSI (not shown) did finally "confirm" the new high
however. No sooner than it did then traders seemed to want to
take some profits off the table.

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Editor's Plays

So Many Choices

Last week I issued a challenge to the readers to come up with
a stock(s) to replace XMSR in my children's powerball account.
I offered $1000 in options of your choice to go to the effort
to find and write up the stocks you though best at this time.
Here is the link to the original article where I invested
$10,600 in the project:


As of Friday's close the portfolio looked like this.

Personal Powerball List - June-6th.

Obviously the rally has been kind to the portfolio. I sold
XMSR for $4.40 on the initial May spike and was looking for
a stock(s) to replace it. Many readers responded with suggestions.

I cannot print them all but I will list a couple this week and
a couple more next week.


(MANU was $4.80 when he sent it in so the numbers and charts
may look a little strange)

Stock: MANU, $5.80, Jan $5 Call - By James Breeding

Initially, I simply thought the chart pattern was intriguing.
Let's look at weekly, daily & 60 (a brief look at the 30-min
chart shows that it is above the magic 130 pma, but our time
frame for this play is longer).

MANU Chart - 30 min

Weekly bar chart shows nothing in particular; stochastics (10,5,3
or 5,3,3) are topping, although I give this no significance due
to its lack of correlation with respect to price action over the
last year.  Weekly MACD crossing into positive territory for the
first time in a year (mark this one for later...); ADX moving
upwards, after just crossing 20.  Hmm, no real price trend has
existed over the last year while ADX was over 20, both rising &
falling, have to question the validity of this one.

MANU Chart - Weekly

Daily chart: pattern is a year-long bullish wedge, with the top
at 4.25, noting there were 4 unsuccessful tests prior to finally
breaking thru. Daily chart moving averages: (not shown) price is
above the 21, 50, 100 & 200 dma's, both simple & exponential.
Daily RSI & stochs topping out, ADX topped out & beginning
downwards.  A Fib retracement from 4/1/02 to 10/14/02 shows first
apparent resistance area @ 5.52, with no other obvious resistance
areas overhead nearby.

MANU Chart - Daily

MANU Chart - Daily with Fibs

60 min chart shows bullish trend going back to April 1st, (which
is also easily seen on daily chart, although the angle on the
daily chart shows it to be unsustainable).  Also, there is what
should be significant support at 4.25 (prior year-long resistance),
also an interesting LINE of support at 4.10. (do not recall seeing
bars actually draw a line quite that blatant, on a liquid stock)

So, from a basic chart pattern, looks fairly decent - but what
does the PnF chart say?

With regard to PnF charting, keep in mind that I'm still working
on an upgrade to "novice" status in this class, but this looks
interesting!  A double-top breakout, combined with price rising
into a resistance line that is 34 columns long (and 12 months old,
hmmm). Looks to me like a print @ 5.00 would break this resistance.


Ok, now let's throw some perspective into the mix, and see what's
going on with the stock, with respect to its market.  It is one of
our old bull-run favorites with 4 letters, so let's check it against
the COMPX.  I won't embarrass myself by evaluating the Nasdaq charts,
s/r lines, etc - the reader can review wraps for expert opinion.
However, I do think it pertinent to look at the bullish % chart for
the compx.

My goodness - 69.91, w/ 10 dma down at 65.7, looks like we are
still on a bull run on the short term, but are destined for
consolidation, if not a healthy pull back.

While we're here, let's look at relative strength versus the compx
(on QCharts, it's index:compx /manu).  This can be a bit confusing,
since what this actually does is divide the compx value by that of
this stock when entered in this order, so for a greater relative
strength of the stock, you would want the trend to go down. If that
doesn't make sense, think of it like this: the compx = 1 (and stays
constant), while MANU incrementally goes from 1, 1.5, 2, 2.5, 3,
etc.  The resultant #'s you get are 1, 0.67, .5, .4, .33, etc,
respectively - demonstrating that the relative strength of the
stock is better than the index. So, if you enter the stated Qcharts
entry, looking at a daily chart, one can see a trend dating back to
May 6 '02, with a decided downward break of trend on 4/25/03.
Looking at just the stock, this was the same day it broke thru its
200 dma.  [Just FYI, I tried entering it in QCharts the other way,
e.g. MANU /compx, but it needs to be scaled significantly to make
sense, so it was easier this way]

Nasdaq/MANU Chart - Daily

So, just how should this be played? Since this is a lottery
play for long-term, I would await an entry at 4.35 (just above
significant support at 4.25), and place an initial stop at 3.8.
The reason for entry at that location is that I believe
consolidation is imminent - for the market, and the stock; I
think it safer to enter just above support to make sure I get
an entry, since sometimes they only get close before launching,
plus this would take the price a bit farther OTM.  The reason
for the stop at the given location is 4-fold: price would have
to break thru a) significant support at 4.25, b) 200 dma
(exponential), c) upward trend line from late march, and d) the
21 sma.  Four levels of support, max risk of 0.55 (13% loss) on
the stock.  Ahh, but if we chose the Jan '04 $5 call ZUQAA
(currently 1.00/1.25 b/a, OI 490), we could fairly easily get
it for 0.75, since we know others got it at that price on 5/20
& 5/22 when the stock was down there.  Risk on the OTM option
would be down to approximately 0.6 depending on VXN behavior,
for loss of roughly 20%.  Let's say your trading plan allows
more (apparent) risk by reducing the # of contracts, and you
jump in right now and use the indicated stop; you'd pay 1.25
@ bid, with risk down to 0.6 (>50% loss).  Well, that is
another way to play it, just not one I'd recommend.

Looking forward, let's say we get the recommended entry at
4.35, how is the play managed going forward?  Assuming the
price actually does what I think for once (grin) and goes up,
I would shift the stop to the higher of either the "current"
value of 200 dma (exponential) or 200 sma, but only after one
of them has crossed back above 4.25 support.


WOW! James went all out with this research project. About the
only thing he left out were the fundamentals of the stock.
What do they do? What is their earnings trend, etc. However
just like SUNW I think we all know MANU or can quickly figure
it out.

I give James the gold star for thoroughness. I just wish he
had given it to us a week earlier before that massive spike
from $4.80 to $6.50 last week.

I like MANU for the potential. As you can see on the longer
term charts there is plenty of potential once it catches fire.
If we can get the stock back down below $5.00 I will add it
to the portfolio and buy James $1000 of his recommended calls.

Good work!



JNJ - Put Play  $52.75  By Chris Meyer

Despite all the euphoria (drug induced?) in recent weeks JNJ has
not participated in the party.  It has been in a downward trend
since March with the current downtrend line in play since early
May.  This resistance held in mid May and again the first few days
of this month.  If volume precedes price we should get a follow
through from Thursday's high volume drop below 52.00, which also
resulted in a double bottom breakdown on an PnF chart.  The 50
and 20 DMA's crossed below the 200 DMA at the end of last month
and the 20 DMA coincides nicely with the downtrend currently in
play.  Friday's action saw a big gap up back towards resistance
and a close back near the lows of the day. Money appears to be
flowing out of this stock.

An entry here would be fine but we would like to see a pop back
near Friday's open at 53.25. A move under 50.00 is the initial
target.  A PnF target (still in the works on this recent move)
currently has us aiming for the mid to low 40's.  A closing stop,
which would violate the downtrend in place can be placed at 54.00.

JNJ-VL    AUG 50 P    1.80 x 2.00    OI - 5751


While I agree with the concept on the JNJ play from Chris I
am not totally in agreement that it is a long term play for
next January. I think we could hit the target in July and
then be maxed out when the stock reverses in the fall.

Good play, good write up. Just shorter term than I am looking

Good job Chris!


Ten Year Bond Yield Calls - By Keene Little

While I understand your initial approach to your lottery play,
and that you don't want to add puts as a counter-balance, I
believe you should use your remaining money to buy calls on
bond yields. The EW pattern is pretty clear about what is likely
to happen to bonds and equities (starting by the end of this
month, the rest of the year won't be pretty for either). Interest
rates are likely to start heading higher once rate cuts have
essentially been priced into the market (slightly lower yields
are ahead of us and then they'll start to rise). This play would
also give you a slight hedge for your portfolio against all your
equity call positions.

Ten Year Notes $TNX.X

I believe we have one more new high in bonds (EW pattern and
it coincides with belief we'll have a run into FOMC). So, I
recommend buying on Monday/Tuesday, 6/23-24, the March 2004
(no January 2004 available) 40 calls--.TNXCH--currently 2.50
x 3.40. Current volatility is right around the middle of it's
52-week historical range so they're reasonably priced, albeit
a wide spread. This strike has the highest current O.I. (141)
and I think presents the best opportunity with an OTM strike
price but reasonably close since you only have 6-9 months you
want to play this.

Instead of waiting until 6/23-4 to buy these calls, and based
on the current delta and the possible further drop in rates
over the next 2 weeks, I would place a GTC order this Monday
to buy at 2.80 and see if you can get it closer to the current
bid price.

As a side note, the reason I picked the 10-year yield is because
not enough O.I. in the 5-year, and I think yield will change
slower on the 30-year.


Keene, I agree we would be buying them at the lows. This would
definitely be a long term play and I would not have any problems
using the March calls. I think this is a solid play and something
all the long term readers should consider. I did not pick it for
the portfolio because I think the upside is limited. If the yields
get back into the 40 area there is significant resistance and I
do not think the Fed is going to move that fast. I think the top
on those calls by January is around $6.00 to $6.50. It is a good
conservative play but not aggressive enough for the lottery.

Good Job!


Play updates:

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

EMC Call from Feb-2nd  $10.97
($7.70 when recommended)



Still moving up the portfolio is up +405 and growing. Without
RFMD it would still look significantly better.

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

Powerball Chart


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

Good Luck

Jim Brown


Too Fast, Too Furious
by James Brown

No, I'm not talking about the new movie with Paul Walker and
Tyrese Gibson that opens this weekend.  I'm referring to the
stock market and your favorite stock market indices.  You know
them; they're the usual suspects.  The Industrials, the S&P 500,
the NASDAQ Composite, the Russell 2000, the Wilshire 5000, the
list could go on.  The pattern is nearly the same across the
board.  The huge ramp up has culminated in a major blow off this
Friday on big volume.  In essence the markets have risen too fast
and too furious and they can't keep this pace up.  (gosh, where
have we heard that before).

I realize I've been waving the warning flag in this column for a
while now.  No, I'm not a bear.  I'm just a bull that's been
burned too many times by buying the top.  It's a painful
experience I don't want to repeat it and neither do you.
Honestly, I'm extremely encouraged by the sheer breadth and depth
that this rally has enjoyed.  It warms my heart to see Wall
Street welcome this new bull market into the world.  Now we just
need to nurture it along slowly before some angry bear swipes its
legs out from underneath it.

Where is investor sentiment?  It would appear it's gone from
joyful to nearly giddy.  The major averages are approaching or
exceeding 52-week highs on the hopes, yes the hopes that the
economy really is recovery.  That in and of itself is not wrong.
The stock market never trades in the here and now.  It's a
calculating machine that always trades on investors' hopes and
fears of the future.  You're not buying that stock on what the
company is worth today but on what an entire market thinks that
company will be worth down the road.  Oh sure, there are always
fluctuations based on news and events and the overall economic
climate but that's just part of the game.  My concern is that
investors are setting themselves up to have their hopes painfully
popped if corporate profits don't improve the way we all want
them to at July's Q2 earnings announcements.

Thankfully, the Friday morning jobs report offered traders some
really good news.  Payrolls fell by 17,000 jobs last month.  Many
economists had been looking for a drop between 30,000 and 48,000
in May.  While this is good news it was eclipsed by even better
results from the government's revision of April's 48,000 drop in
jobs to a flat month.  This is a MASSIVE improvement over
February and March labor numbers.

Why then, if the jobs report was so good, did the markets fail to
hold their early morning gains?  Ah... that is the question.
Frankly, I think it's the beginning of the profit taking we've
been waiting on.  The market needs to consolidate.  If we can
only get a few good down days it will provide a much better entry
point for new highs later in the month.  The trouble is investors
are so fearful of missing the next bull market that they're
liable to buy every dip, which will slow the consolidation we
need to experience.  That's not necessarily a bad thing but it
can just slow the whole process down.

One of the most discernible warnings that I continue to draw to
your attention is the bullish percent numbers.  They have spiked
even higher from Thursday's readings.  The numbers listed in the
table below are approaching or exceeding FOUR-YEAR EXTREMES for
the markets.  I keep saying that they can go higher but we're
quickly running out of room.  These results are merely a
reflection of the amplitude of the rally's strength, which is a
strong positive for the bulls but their extremes forecast a storm
ahead that short-term traders can not ignore.

Best bring your umbrella.  Summer storms can be as brief as they
are thunderous.  Thankfully there is usually a rainbow on the
other side.


Market Averages


52-week High:  9803
52-week Low :  7197
Current     :  9063

Moving Averages:

 10-dma: 8870
 50-dma: 8507
200-dma: 8337

S&P 500 ($SPX)

52-week High: 1041
52-week Low :  768
Current     :  988

Moving Averages:

 10-dma:  960
 50-dma:  914
200-dma:  886

Nasdaq-100 ($NDX)

52-week High: 1266
52-week Low :  795
Current     : 1213

Moving Averages:

 10-dma: 1191
 50-dma: 1113
200-dma: 1021


In spite of the market's strength all week the volatility indices
have been inching upward.  Friday's huge failed rally shot the
VXN up dramatically and it closed above its simple 50-dma.  The
VIX, which moves a bit slower, is inching higher from its lows
last month.  This might indicate a growing demand for puts as
traders expect market weakness ahead.

CBOE Market Volatility Index (VIX) = 23.43 +0.31
Nasdaq-100 Volatility Index  (VXN) = 36.11 +1.58


          Put/Call Ratio  Call Volume   Put Volume

Total          0.78      1,015,706       793,452
Equity Only    0.66        819,901       543,634
OEX            1.49         37,688        56,098
QQQ            3.27         58,804       192,301


Bullish Percent Data

           Current   Change   Status
NYSE          69.2    + 2     Bull Confirmed
NASDAQ-100    91.0    + 4     Bull Confirmed
Dow Indust.   80.0    + 3     Bull Confirmed
S&P 500       82.2    + 2     Bull Confirmed
S&P 100       78.0    + 2     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  0.95
10-Day Arms Index  1.02
21-Day Arms Index  1.11
55-Day Arms Index  1.17

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


Market Internals

            -NYSE-   -NASDAQ-
Advancers    1382      1417
Decliners    1486      1693

New Highs     262       265
New Lows       12         3

Up Volume    950M     1111M
Down Vol.   1286M     1771M

Total Vol.  2250M     2908M

M = millions


Commitments Of Traders Report: 06/03/03

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

Ah...now we're seeing some action in the big S&P futures
contracts.  After weeks of slowly creeping higher, the
commercials have reached their most bullish reading of the year
with a net long of 15,500 contracts.  Small traders are also
net long but this is reversing a small net short position from
the previous week.

Commercials   Long      Short      Net     % Of OI
05/16/03      429,028   419,553     9,475     1.1%
05/20/03      438,238   426,569    11,669     1.3%
05/27/03      435,195   423,474    11,721     1.4%
06/03/03      438,228   422,722    15,506     1.8%

Most bearish reading of the year: (111,956) -   3/6/02
Most bullish reading of the year:   15,506  -   6/3/03

Small Traders Long      Short      Net     % of OI
05/16/03      151,883   148,479     3,404      1.1%
05/20/03      157,034   154,980     2,054      0.7%
05/27/03      147,687   149,344    (1,657)    (0.6%)
06/03/03      169,650   167,172     2,478      6.8

Most bearish reading of the year:  (1,657)- 5/27/03
Most bullish reading of the year: 114,510 - 3/26/02

E-MINI S&P 500

Continuing the contrary trend we've seen between the
e-minis and the full S&P contracts above, the commercial
traders have increased their long positions but they've
also increased their short positions, which boosted their
net short posture overall.  Running true to form, the
small trader's net position is opposite of the commercials.
The small trader has significantly increased their long
positions while simultaneously closing some shorts to
give us the most bullish reading of the year.

Commercials   Long      Short      Net     % Of OI
05/16/03      178,679   452,727   (274,048)  (43.4%)
05/20/03      232,184   468,006   (235,822)  (33.7%)
05/27/03      252,655   485,962   (233,307)  (31.6%)
06/03/03      267,680   512,648   (244,968)  (31.4%)

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
05/16/03      421,540    57,483   364,057    75.9%
05/20/03      422,555    62,580   359,975    74.2%
05/27/03      427,412    66,031   361,381    73.3%
06/03/03      470,655    58,420   412,235    77.9%

Most bearish reading of the year: 283,831   - 04/08/03
Most bullish reading of the year: 412,235   - 06/03/03


Big money (the commercials) remain completely undecided
for the third week in a row with almost a dead heat between
long and short positions.  Small traders are also flip
flopping around and have reversed a small net short to
a small net long.

Commercials   Long      Short      Net     % of OI
05/16/03       43,539     39,046     4,493    5.4%
05/20/03       42,864     42,040       824    1.0%
05/27/03       40,999     41,491      (492)  (0.6%)
06/03/03       42,232     43,217      (985)  (1.2%)

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
05/16/03       11,706    16,104   ( 4,398)  (15.8%)
05/20/03       11,024     9,965     1,059     5.0%
05/27/03       12,194    13,339   ( 1,145)  ( 4.5%)
06/03/03       11,407     9,092     2,315    11.3%

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


We see little change in sentiment for either the smart money
or the retail trader.  Commercials are net long while small
traders are net short.

Commercials   Long      Short      Net     % of OI
05/16/03       18,265    14,396    3,869      11.8%
05/20/03       18,028    14,108    3,920      12.2%
05/27/03       18,660    15,537    3,123       9.1%
06/03/03       19,480    15,282    4,198      12.1%

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
05/16/03        7,873     9,058    (1,185)   ( 6.9%)
05/20/03        8,378     9,922    (1,544)   ( 8.4%)
05/27/03        8,225     9,316    (1,091)   ( 6.2%)
06/03/03        7,948     9,353    (1,405)   ( 8.1%)

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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Gaps... Breakaway, running then exhaustion

I'm not familiar with the term "exhaustion gap", but a 70 year
old floor trader and technician friend used the term in
describing the nature of Friday morning's gap higher in some of
the markets..... the thought being that that was the top for a
while.  Any thoughts about the issue or the term?

Your 70-year old floor trader friend isn't making this up, and is
something we've discussed, or pointed out as it relates to other
bar charts in intra-day commentary.

The "exhaustion gap" your friend is talking about is what many
technicians consider a "final" or the "third stage" of a
prolonged BULLISH or BEARISH trend.

The three "stages" that a technician will look for has the first
stage described as a "breakaway gap."  The way we as traders and
investors might think about this "first gap" is that there has
been some REVALATION by the market that something meaningful is
taking place.  This first "gap" is thought to be the point where
the "smartest money" in the market discovers something important
and is FIRST to take action (bullish or bearish).

The second stage, or second gap is called the "running gap."
This is perhaps analogous to the broader MARKET beginning to
figure things out.  Often times the "breakaway gap" is triggered
by some discriminate piece of news, which when a second tidbit of
news begins to confirm the first, traders and investors begin to
put the pieces together and once again take further aggressive
action (creating another gap).

The third and often final stage of the prolonged move, which
first built with the "breakaway gap" then finds the "exhaustion
gap" taking place.  This "exhaustion gap" is often when "all the
news" is released that then explains what the MARKET was really
acting on to begin with.  It is often thought that this "climax
stage" is where the bulk of the SMART MONEY bails out (they got
in at breakaway and running) and then DUMB MONEY, or LESS
KNOWLEDGEABLE, which has been watching the move, but never took
action, finally becomes convinces the last tidbit of information,
which in essence "confirmed" what SMART MONEY knew all along.
The "exhaustion gap" (final revelation) often comes at the end of
the move as all the news is now known (good or bad) and SMART
MONEY gets out of the trade with big profits and moves on.

One indicator that can often be helpful in understanding the
three stages of the breakaway, running and then exhaustion is
volume.  Especially as it relates to how the one explains the
three "levels of consciousness" that the market tends be
experiencing or has already experienced.

One trade that I will never forget was Oxford Health (NYSE:OHP),
which I had profiled as bullish on January 10, 2002 in a 03:00 PM
EST update.  Here's the chart I showed that day and how I thought
a trader might have began to interpret the "breakaway gap" that
looked to have taken place the day before.

Oxford Health (OHP) Chart - 01/10/02

When I first learned of the "breakaway, or breakout" (different
terms are used, but the "break" is often used) stage, I was
taught and often found the more POWERFUL moves came after a LARGE
base was formed.  Why the large base?  I think its because the
stock then develops such a large ownership at roughly the same
price level, that EVERYONE is on the same level and the playing
field is equal.  The break that comes to the upside (bullish) or
(downside) then has the "breakaway" gap forming, as if a first
REALIZATION takes place.

Then... the "running gap" would be found after the stock had
moved higher, or lower, consolidated, with the "running gap"
taking the stock to a higher level of trade (for bullish) or
lower (for bearish) level of trade.

And then, the "final" gap where all the information is given to
the market and the trade becomes "exhausted."

I'm using OHP as an example, as it did develop the more classic
stages of the running and exhaustion.  Note some of the TOOLS
used to interpret what might take place in OHP.  We thought
"breakout gap", but also used our "fitted retracement" technique
to define some levels to test against in the future, along with
the point and figure chart to assess a longer-term price
objective for our bullish bias.

Here is how a technician might have identified the "three stages"
of gaps for OHP.  I'll admit they aren't as pronounced as some we
may find, but what traders will look for as it relates to the
breakaway, running and exhaustion gap.

Oxford Health (OHP) Chart - Daily Interval

I've tried to show how I would interpret or look for the
breakaway, running and exhaustion gaps in OHP's stock.  I also
went back to some news releases that came out at various times.

One thing I find and found so remarkable in OHP was the number of
broker downgrades on the stock during its rise, which came in the
face of a falling market.

It looks like two scenarios may have been in play during the
rise.  One could have been the "takeover candidate" scenario as
there was some merger activity taking place in the sector.
Strong earnings could also have been the catalyst for the move,
with CIBC's analyst out of the loop, or CIBC as a firm short the
stock and sideways in the trade (downgraded it to get investors
to sell so firm can cover?).

Now that we have a bit of an understanding where the term
"exhaustion gap" comes from and can perhaps begin to identify
these three stages with will sometimes present themselves in a
bar chart, lets see what the subscriber's 70-year old floor
trader and technician friend might be looking at.

Are there any indicators that you know of that might have a
technician on the alert for an "exhaustion gap?"  How about the
S&P 500 Bullish % ($BPSPX), which after reversing up to "bull
confirmed" status in March from 28% to 34% is now at 82.2%
bullish and the highest levels of bullish % this 40-year old
technician has ever seen.

How about the NASDAQ-100 Bullish % ($BPNDX), which in early March
reverse up from 30% to 36% and "bull alert" status, to now read
"bull confirmed" at 91%?  At these high levels of BULLISH RISK,
lets see if we can't identify the breakaway, running and
exhaustion gaps.

I'm going to use the QQQ as an index as I can use volume as an
indicator here.  I can't really do that with the NASDAQ-100 Index
itself.  The S&P Depository receipts (AMEX:SPY) affectionately
called "spiders" or SPDRs, could also be used for volume, as
could the Dow Diamonds (AMEX:DIA).

However, I think the QQQ and SPY are best used when looking to
tied in VOLUME as these two securities are most often used by
institutional traders/investors as securities to either get
immediate bullish exposure to the markets, or used to short in
order to HEDGE their broader inventory of stocks.

I'm going to use retracement as if Friday's gap higher was the
"exhaustion gap" and attempt to define the full range of
"revelation."  Let's see if we can make any sense of this and
figure out just what the MARKET has been thinking, but MORE
IMPORTANTLY what the market will be thinking!

One FACT I do know is this.  MARKET RISK FOR BULLS IS HIGH!  This
FACT comes from the NASDAQ-100 Bullish % at 91%.

NASDAQ-100 Tracking Stock (QQQ) - Daily Interval

Trying to identify a breakaway, running and exhaustion gap in an
index is difficult and will often times never obvious.  The
reason for this is that there are too many stocks that comprise
the index and it takes one heck of a lot of buying/selling to
culminate at ONCE to get the noticeable gap.  The breakaway,
running and exhaustion will be much more noticeable in a single

Now... as mentioned, I set retracement to mark a RANGE from the
now obvious low to Friday's high.  I find it fascinating how this
retracement, at times shows the different levels of retracement
coming into play.

If Friday's gap higher was an "exhaustion gap," then the QQQ
should NOT trade back above the $31.47 level and based on
retracement shown, a normal and healthy cycle pullback would be
for the QQQ to retrace 61.8% of its bullish move from the bottom.

Do breakaway, running and exhaustion gaps present themselves in
downside move?  I certainly think so.  In Tuesday evening's
OptionInvestor.com Index Trader Wrap, I thought IBM might be a
good short candidate at $83.82 or rebound back near $90 if stock
recovered on broader market bullishness.

Here's how I have my IBM chart set up.  I'm showing
"conventional" retracement (March low to recent high) in pink,
but using a blue retracement to give me some other levels and
reflect the building bearish vertical count, which might become
the longer-term price objective.  I think Tuesday's "gap" lower
is indicative of a "breakaway" or "breakdown" gap.

IBM Chart - Daily Intervals

One might interpret the "first gap" lower in IBM's chart as the
"breakdown" gap, but often times, the "breakdown" gap, just like
the "breakaway" gap, comes on BIG volume and first revelation
that something is going on and interest, or disinterest on a
downward move is taking place.

Fun questions to pose is.... "who in their right mind" would have
bought the recent gap down after IBM said the SEC was
investigating its accounting?

Two possible answers.  One is that every short from $83.81 to
$90.40, and the other being, fundamental-based fund managers that
had been sitting on a ton of shareholder cash that just couldn't
see any fundamental reason in the economic data to buy stocks.
It was a GIFT to then get IBM for their mutual fund shareholders
on the pullback to $84.  Or was it?

If short/put and eventually see an "exhaustion gap" on BIG VOLUME
in the low 70's, a bear at that level might be on the alert for a
reversal.  If the bullish % are low like they were in March, then
so much BETTER for a new IBM bull move.

Anyway... the "exhaustion gap" is what many technicians will look
for to market the potential FINALLITY to a trend.

The best time to try and use this 3-step approach to a
stock/indexes bar chart, is when the exhaustion phase looks to be
present at a bullish or bearish vertical count from your point
and figure chart, or when the bullish % charts are at
"overbought" or "oversold" levels.

Jeff Bailey


Market Watch for the week of June 9th

Major Earnings This Week

Symbol  Company               Date           Comment      EPS Est

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


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

LEN    Lennar Corporation    Tue, Jun 10  After the Bell      1.69
UTIW   UTI Worldwide         Tue, Jun 10  -----N/A-----       0.23

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

FCEa   Forest City Entprise  Wed, Jun 11  -----N/A-----        N/A
HRB    H&R Block, Inc.       Wed, Jun 11  After the Bell      2.84

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

ADBE   Adobe Systems         Thu, Jun 12  -----N/A-----       0.26
HNZ    H.J. Heinz Company    Thu, Jun 12  Before the Bell     0.52

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


Upcoming Stock Splits In The Next Two Weeks...

Symbol  Company Name              Ratio    Payable     Executable

ECL     Ecolab                    2:1      Jun   6th   Jun   9th
ATVI    Activision Inc            3:2      Jun   6th   Jun   9th
DF      Dean Foods                3:2      Jun   9th   Jun  10th
RYN     Fayonier Inc              3:2      Jun  12th   Jun  13th
CCBG    Capital City Bank Group   5:4      Jun  13th   Jun  16th
ODFL    Old Dominion Freight Line 3:2      Jun  16th   Jun  17th
JFBC    Jeffersonville            3:1      Jun  17th   Jun  18th
UNH     UnitedHealth              2:1      Jun  18th   Jun  19th
SLM     SLM Corp                  3:1      Jun  20th   Jun  23rd

Economic Reports This Week

This week's economic reports have been loaded to the back end of
the week on Thursday and Friday.  Retail sales, Import/Export
prices, PPI and Sentiment numbers could either fuel or derail the
current rally.


Monday, 06/09/02
Wholesale Inventories(DM)Apr  Forecast:    0.2%  Previous:     0.5%

Tuesday, 06/10/02

Wednesday, 06/11/02
Fed's Beige Book (AB)

Thursday, 06/12/02
Initial Claims (BB)   06/07  Forecast:     N/A  Previous:      N/A
Business Inventories(BB)Apr  Forecast:    0.3%  Previous:     0.4%
Retail Sales (BB)       May  Forecast:    0.2%  Previous:    -0.1%
Retail Sales ex-auto(BB)May  Forecast:    0.3%  Previous:    -0.9%
Export Prices ex-ag.(BB)May  Forecast:     N/A  Previous:    -0.1%
Import Prices ex-oil(BB)May  Forecast:     N/A  Previous:    -0.9%

Friday, 06/13/02
Trade Balance (BB)      Apr  Forecast: -$41.5B  Previous:  -$43.5B
PPI (BB)                May  Forecast:   -0.1%  Previous:    -1.9%
Core PPI (BB)           May  Forecast:    0.0%  Previous:    -0.9%
Mich Sentiment-Prel.(BB)Jun  Forecast:    94.0  Previous:     92.1

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

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The Option Investor Newsletter                   Sunday 06-08-2003
Sunday                                                      2 of 5

In Section Two:

Watch List:
Daily Results
Put Play of the Day: NOC
Dropped Calls: AMGN, BBY, SPW
Dropped Puts: None


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Watch List

Take Your Pick

Microstrategy - MSTR - close: 39.85 change: +1.45

WHAT TO WATCH: We know that the GSO software index was one of the
few indices that managed to close in the green on Friday.  MSTR
did its part to help but the failed rally up through and back
down below the $40 level looks ominous.  MSTR could see some
serious profit taking.  Keep an eye on this one as bulls will be
watching to buy the dip.  Aggressive bears could try and ride the
pull back.



SanDisk Corp - SNDK - close: 35.92 change: -2.13

WHAT TO WATCH: Wow!  Have you seen this stock's PnF chart?
That's one long column of X's.  The computer storage/hard disk
sector has been a big winner for investors.  It looks like profit
taking could it this group hard.  SNDK still has some minor
support at $35.00 but Friday produced a bearish engulfing
candlestick at the top of the trend.  That spells a reversal.
Consider a trigger under $35.00 to go short.



Juniper Networks - JNPR - close: 13.82 change: -0.63

WHAT TO WATCH: Similar to the computer storage sector, the
networking sector has been a huge winner for tech traders.  They
could all be subject to some fierce profit taking.  JNPR produced
a bearish engulfing candlestick and looks ripe for a fall.



FLIR Systems - FLIR - close: 30.80 change: +1.60

WHAT TO WATCH: FLIR just recently completed a 2:1 stock split.
The stock has continued to stay strong after the split and hit
new highs going into Friday's close.  We'd look for a pull back
for possible long positions.



Symantec - SYMC - close: 48.81 change: +1.20

WHAT TO WATCH: Shares of SYMC also out performed most of the
market on Friday although it too gave up most of its gains.  We
watch this one for a bounce from the $48.00 level or a closing
breakout over the $50.00 mark.


RADAR SCREEN - more stocks to watch

PCAR $68.82 - This one has been a huge winner for the bulls and
all the negative press about the auto industry has not affected
it.  We'd be watching this one for a move to support to jump on
the PCAR train.

LFG $45.58 - The sell off for this insurance stock started a day
early.  Watch for a move under $45 and bears could target a
retracement to the $40.00 level.

AGN $77.24 - The breakout on Thursday looked very tempting and we
almost added it as a call play.  Now we'd watch it for a pull
back and bounce at support.


For Best Alignment view in Courier Ten Font

CALLS    LAST      Mon    Tue   Wed   Thu  Week

AMGN     63.38   -1.49   0.51  0.43  0.95  1.66  Drop, Matured
BBY      41.87    1.19  -0.77  1.27  2.33  3.09  Drop, Profitable
DISH     33.81   -0.03   0.18  0.94  0.41  0.91  Better judgment
GENZ     46.61   -2.71   0.53  0.31  1.29 -1.19  New, strong
OHP      38.66   -0.08  -0.10  0.40  0.12  0.86  No new calls
RJR      36.19    0.86   1.09  0.36  0.78  1.65  Look for dip
SPW      43.77    0.35  -0.15  3.14  1.78  4.97  Drop, Profitable


ATH      74.15   -1.01  -0.09  0.41  1.27  0.67  Watch Carefully
HCA      31.40    0.00   0.25  0.25 -1.30 -1.85  Still weak
IBM      80.05   -1.58  -3.51  0.43 -2.35 -8.95  Profitable
LLL      43.81   -0.44  -0.76  0.00  1.10  0.21  Still weak
NOC      85.40   -0.39  -0.74 -0.70 -0.31 -2.70  Triggered
RYL      69.74   -1.19   0.37  3.15  3.41  4.04  New, High Risk

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Put Play of the Day:

Northrop Gruman - NOC - close: 85.40 change: -0.59 stop: 88.75

See details in play list


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.


Amgen, Inc. - AMGN - close: 63.38 change: -2.06 stop: 63.00

While it pains us to have to do it, pulling the plug on our AMGN
play is the prudent course of action this weekend.  The stock has
been steadily working its way higher and actually tagged the $66
resistance level on Friday morning.  But that was before the
market-wide selloff got underway.  AMGN fell nearly $3 from its
intraday high by the closing bell and posted a huge bearish
engulfing candle.  While our $63 stop wasn't violated, that
selloff looks like distribution and it is likely to continue next
week.  It would have been nice to close the play on a high note,
but better a small gain, than no gain at all.  Take advantage of
any Monday morning bounce to exit open positions.

Picked on May 11th at    $61.24
Change since picked:      +2.14
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 10.8 mln
Chart link:


Best Buy Company - BBY - close: 41.87 change: -0.93 stop: 42.00

That was quick!  BBY gave us one heckuva ride last week, breaking
out over the $40 level and then pushing as high as $43.95 on
Thursday.  With our target at $44, it was a no-brainer to tighten
the stop to $42.  Friday's early ramp gave us an early clue that
the bulls were just about done with BBY, as the stock failed to
set a new high, topping out at $43.90 before weakening for the
remainder of the day.  Market Monitor subscribers were advised
intraday to tighten stops to $43, and so should have gotten an
even better exit than those that were stopped out later in the
day when the stock finally broke back under $42.  No matter how
you slice it, this was a nice winner and we're happy to book the
gain and move on.

Picked on June 1st at    $38.70
Change since picked:      +3.17
Earnings Date          07/01/03 (unconfirmed)
Average Daily Volume = 4.27 mln
Chart link:


SPX Corp. - SPW - close: 43.77 change: -0.15 stop: 42.00

Time to book some gains!  SPW has performed beyond our wildest
dreams since we began coverage, vaulting from below $37 to an
intraday high of $45.40 on Friday, before fading with the rest of
the market.  To its credit, SPW held its ground fairly well to
end just slightly in the red.  But remember that the bearish
resistance line resides at $46.  We're thinking that probably
came into play on Friday and that could mean a more sizeable
pullback in the near future.  With nearly a $7 gain on the play,
it seems more prudent to harvest those gains here, rather than
hold out for one more push up near $46.  Traders with the stomach
to wait for another surge higher should at the very minimum keep
a tight stop on the play.  We'd recommend no lower than $42.75,
just below Friday's intraday low.

Picked on May 27th at    $36.86
Change since picked:      +6.91
Earnings Date          07/22/03 (unconfirmed)
Average Daily Volume = 1.13 mln
Chart link:




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.

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 06-08-2003
Sunday                                                      3 of 5

In Section Three:

Current Calls: DISH, OHP, RJR
New Calls: GENZ
Current Put Plays: ATH, HCA, IBM, LLL, NOC
New Puts: RYL

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EchoStar Comm. - DISH - cls: 33.81 chg: -0.59 stop: 32.00

Company Description:
EchoStar Communications Corporation, through its DISH
Network(TM), is a leading U.S. provider of satellite television
entertainment services with 8.53 million customers. DISH Network
provides advanced digital satellite television services to the
home, including hundreds of video, audio and data channels,
personal video recording, HDTV, sports and international
programming, professional installation and 24-hour customer
service. (source: company press release)

Why We Like It:
This is going against our better judgment but we're going to keep
DISH on the active call play list.  Initially, we really liked
the bounce off the rising 50-dma and the $30.00 support level in
mid-May.  The sector had been performing well along with the
markets and DISH looked primed for a short-term move to the top
of its channel.  We suggested that initial targets be set at
$35.00.  Well DISH traded to $35.55 Friday morning before falling
back with the market selloff into the weekend.  Why are we not
dropping it?  We believe it has yet to violate its two-week
rising channel and our new target was $36.00 per Thursday's

Here's the plan.  We would not initiate new bullish plays in DISH
at this time.  We do think it will pull back.  Hopefully, the
$32.50 level will hold as support.  Otherwise, our stop at $32.00
should take us out.  If you're holding a winning position we'd
highly recommend you take some profits off the table.  If you're
holding a losing position it's probably going to get worse so cut
your losses based on your own judgment and risk profile.

Suggested Options:
We are not recommending new bullish positions in DISH at this time.

Annotated Chart for DISH:

Picked on May 21st at $31.10
Change since picked:   +2.71
Earnings Date       05/06/03 (confirmed)
Average Daily Volume = 3.3 million
Chart link:


Oxford Health - OHP - cls: 38.66 chg: +0.52 stop: 37.50 *new*

Company Description:
Founded in 1984, Oxford Health Plans provides health plans to
employers in New York, New Jersey and Connecticut, through its
direct sales force and through independent insurance agents and
brokers. Oxford's services include traditional health maintenance
organizations, point- of-service plans, third-party
administration of employer-funded benefit plans and
Medicare+Choice plans. (source: company press release)

Why We
We originally added OHP to the call list after its breakout,
retest and rebound off its 200-dma.  Since then the stock has
been in a very narrow channel higher.  The simple 10-dma has
offered support during this time and we're raising our stop to
just below the 10-dma now (new stop = 37.50).  Our target has
been the $40.00 level, but given the failed rally in the markets
and in OHP on Friday, we may not make it.  $39.50 was the high
and we'd encourage traders to take profits if any are to be had.
The stock remains very overbought and due for a pull back.

Fundamentally we're very bullish on the sector and think it will
be one that short-term bulls can play successfully again and
again throughout 2003.  However, right now doesn't appear to be
the best time for new positions.  Thus we're not listing any
options for this play.  Look for OHP's management to be speaking
at the 24th annual Goldman Sach's Global Healthcare Conference on
the 10th of June.

Suggested Options:
We are not suggesting new bullish positions in OHP at this time.

Annotated Chart of OHP:

(point-and-figure from stockcharts.com)

Picked on May 20th at $36.51
Change since picked:   +2.15
Earnings Date       05/05/03 (confirmed)
Average Daily Volume = 857 thousand
Chart link:


RJ Reynolds Tobacco - RJR - cls: 36.19 chg: -0.49 stop: 34.95

Company Description:
R.J. Reynolds Tobacco Holdings, Inc. is the parent company of
R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco
Company, Inc. R.J. Reynolds Tobacco Company is the second-largest
tobacco company in the United States, manufacturing about one of
every four cigarettes sold in the United States. Reynolds
Tobacco's product line includes four of the nation's 10 best-
selling cigarette brands: Camel, Winston, Salem and Doral. Santa
Fe Natural Tobacco Company, Inc. manufactures Natural American
Spirit cigarettes and other tobacco products, and markets them
both nationally and internationally. (source: company press

Why We Like It:
The rebound in tobacco stocks since their May lows has been
enormous.  A positive court decision to repeal the $145 billion
"Engle" judgment gave the entire industry a new lease on life.
The President's signing of the tax bill into law brought high
dividend stocks back into vogue and tobacco stocks are some of
the highest yielding equities on the list.  It is these two
positive factors, combined with a bullish market environment (and
RJR's 10% dividend) that really have investors snapping up
shares.  The stock has been trading in a very narrow rising
channel so entry points have been tough to gauge.  We suggest a
dip towards the $35.00 level and its 10-dma as the next best
entry point for new call positions.  With our stop loss at
$34.95, let's hope the profit taking we expect to occur early
next week isn't too sharp and stops us out.

Suggested Options:
There are only two weeks left for June options so traders
should take that into consideration, especially since the broader
markets are in need of a pull back.  We'd suggest July strikes.

BUY CALL JUN 35.00 RJR-FG OI=1061 at $1.85 SL=0.90 *2 weeks left
BUY CALL JUN 37.50 RJR-FU OI=1964 at $0.55 SL=0.00 *2 weeks left
BUY CALL JUL 35.00 RJR-GG OI= 664 at $2.50 SL=1.25
BUY CALL JUL 37.50 RJR-GU OI= 705 at $1.15 SL=0.60
BUY CALL AUG 37.50 RJR-HU OI=1249 at $1.70 SL=0.85

Annotated Chart on RJR:

Picked on June 3rd at $36.49
Change since picked:   -0.30
Earnings Date       07/25/03 (unconfirmed)
Average Daily Volume = 1.6 million
Chart link:


Genzyme Corp. - GENZ - close: 46.61 change: -0.71 stop: 43.50

Company Description:
Genzyme General, a division of Genzyme Corporation, is focused on
developing innovative products and services to solve major unmet
medical needs.  GENZ has nearly 600 products and services on the
market and a strong pipeline of therapeutic products for the
treatment of rare genetic diseases.  The Diagnostics business
unit develops, markets and distributes in vitro diagnostic
products and genetic testing services. With a solid, profitable
revenue base, this research is intended to maintain the company’s
high rate of earnings growth.

Why we like it:
At the outset of trading on Friday, the Biotechnology index
(BTK.X) really looked to be on fire, vaulting through the $500
level for the first time in over a year.  But as proof that
gravity does still exist, profit taking hit with a vengeance,
knocking the index back down near the $480 level by the close.
This round of profit taking could continue as far down as the
$450-460 area, but there it should find strong support.  As this
bullish trend has unfolded in recent weeks, we've had our eye on
shares of GENZ, which recently broke above the ascending channel
that has encapsulated its price action since last July.  After
that breakout, the stock found support near the top of that
channel (near $45) and pushed higher again for most of last week.
What really caught our attention though, was the fact that the
stock seems to have been building a new and steeper channel over
the past 6 weeks, and we're looking for that channel to help
guide GENZ up to the $52 resistance level over the next couple
weeks.  The chart below shows these two channels and the way
support appears to be building near $45, which is also just above
important gap support.  We apologize for the business of the
chart, but hopefully it conveys the message we're trying to

The bottom of the newer channel and the top of the longer-term
channel are currently crossing just above $45, and there is
historical support building near the $44.50 level, which is the
bottom of the gap from last March.  A continued pullback early
next week should provide a solid entry into the play on a rebound
from that area.  The next major chart resistance is up at $52,
where GENZ topped out last March before beginning its long slide
into the July lows.  That will be our eventual upside target, and
as you can see on the chart below, the newer channel intersects
that price level within the next two weeks.  The strong support
shown on the chart gives us a good indication that the $44 level
shouldn't be breached on any further sector weakness, so we're
setting our stop initially at $43.50.  Watch for renewed strength
in the BTK index before playing.

Suggested Options:
Shorter Term: The June 45 Call will offer short-term traders the
best return on an immediate move, as it is currently slightly in
the money.  Note that June contracts expire in 2 weeks.

Longer Term: Aggressive traders looking to capitalize on an
extended rally will want to look to the July 47 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.  More conservative
long-term traders should utilize the July 45 call.

BUY CALL JUN-45 GZQ-FI OI=1350 at $2.90 SL=1.50
BUY CALL JUN-47 GZQ-FS OI= 478 at $1.45 SL=0.75
BUY CALL JUL-45 GZQ-GI OI=1976 at $4.10 SL=2.50
BUY CALL JUL-47 GZQ-GS OI= 693 at $2.75 SL=1.40

Annotated Chart of GENZ:

Picked on June 8th at    $46.61
Change since picked:      +0.00
Earnings Date          07/16/03 (unconfirmed)
Average Daily Volume = 3.54 mln
Chart link:


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Anthem, Inc. - ATH - close: 74.15 change: +0.09 stop: 75.50

Company Description:
Anthem is a health benefits company serving over 7 million
members, primarily in Indiana, Kentucky, Ohio, Connecticut, New
Hampshire, Colorado and Nevada.  The company owns the exclusive
right to market its products and services using the Blue Cross
Blue Shield (BCBS) names in these states under license agreements
with the Blue Cross Blue Shield Association.  ATH's product
portfolio includes a diversified mix of managed care products,
including health maintenance organizations (HMOs), preferred
provider organizations (PPOs) and point-of-service (POS) plans,
as well as traditional indemnity products.  The company's managed
care plans and products are designed to encourage providers and
members to select cost-effective healthcare by utilizing the full
range of its medical management services.

Why we like it:
In light of all the rampant bullishness in the broad market,
especially the Health Care Payor's index (HMO.X), when ATH broke
below the bottom of its long-term ascending channel, it seemed
logical to expect a rebound to confirm resistance back up near
the $74 level.  But Thursday's rebound to close back over that
level had us feeling a bit nervous, especially with the HMO index
hitting another all-time high.  That level of apprehension
increased on Friday, as ATH worked its way back over $75 on
Friday in response to another bullish move by the HMO index.  But
after that first hour, things started to look a lot more
constructive, as the stock gave back virtually all of its
intraday gains to end back near the $74 level.  The fact that ATH
looked so weak through most of the day while the HMO index held
the bulk of its gains confirms the relative weakness we thought
we saw when we initiated coverage last Tuesday.  Aggressive
traders could have gotten a really attractive entry point on
Friday as the stock fell back from the $75 level, while those
with a slightly more conservative nature will want to see the
stock now fall back under $73.75 (just below Friday's intraday
low) before playing.  The real proof of weakness will come when
the stock falls back under the 20-dma (currently $73.09) and
especially when it breaches the $71.70 level (just below last
week's intraday lows.  Maintain stops at $75.50.

Suggested Options:
Short-term traders will want to focus on the June 75 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down below the $70 level will want to
utilize the July 70 Put, which provides greater insulation from
the spectre of time decay.  Note that June contracts expire in 2

BUY PUT JUN-75 ATH-RO OI=438 at $2.00 SL=1.00
BUY PUT JUN-70 ATH-RN OI=628 at $0.40 SL=0.20
BUY PUT JUL-70 ATH-SN OI=461 at $1.35 SL=0.75

Annotated Chart of ATH:

Picked on June 3rd at   $72.38
Change since picked:     +1.77
Earnings Date         07/30/03 (unconfirmed)
Average Daily Volume = 1.19 mln
Chart link:


HCA, Inc. - HCA - close: 31.40 change: -0.05 stop: 34.00

Company Description:
HCA Inc. is a healthcare services company that, as of the end of
2002, operated 179 hospitals, comprised of 166 general, acute
care hospitals, six psychiatric hospitals, one rehabilitation
hospital and six hospitals included in joint ventures.  In
addition, the company operated 78 free-standing surgery centers.
The company's facilities are located in 22 states, England and
Switzerland.  The general, acute care hospitals provide a full
range of services to accommodate such medical specialties as
internal medicine, general surgery, cardiology, oncology,
neurosurgery, orthopedics and obstetrics, as well as diagnostic
and emergency services.

Why we like it:
While a quick look at the daily chart would seem to indicate that
not a lot happened with shares of HCA on Friday, it is precisely
that lack of action that we find so encouraging.  While the broad
market launched to new highs for the year, as did the Health Care
index (HMO.X), shares of HCA barely budged.  That's precisely
what we want from a bearish play in this market environment - one
that doesn't respond to bullish action from the rest of the
market.  Of course, given the meltdown in the broad market this
afternoon, we would have liked to see more weakness in HCA, but
we'll take what we can get.  The action lay remains unchanged.
We want to target new entries either on a failed rebound below
the 20-dma ($32.73) or a breakdown below the $30.70 level.
Monitor the HMO index for sector weakness.  Should that group
weaken, it should act like a hammer to drive HCA lower.

Suggested Options:
Short-term traders will want to focus on the June 32 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down below the $30 level will want to
utilize the July 30 Put, which provides greater insulation from
the spectre of time decay.  Note that June contracts expire in 2

BUY PUT JUN-32 HCA-RO OI=1824 at $1.50 SL=0.75
BUY PUT JUN-30 HCA-RN OI=1360 at $0.35 SL=0.20
BUY PUT JUL-30 HCA-SN OI=3062 at $0.90 SL=0.40

Annotated Chart of HCA:

Picked on June 3rd at   $31.45
Change since picked:     -0.05
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 5.38 mln


Intl Business Machine - IBM - cls: 80.05 chg: -1.85 stop:

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:
Argh!  This was a major dilemma for us this weekend.  Our bearish
play on IBM has worked out too well.  For the last week we've
been reminding everyone to protect profits and get ready to exit
as IBM hits our initial target of $80.00.  Shares did hit our
target.  Actually, IBM traded to 79.84 late Friday afternoon
before bouncing back above the $80 mark.  The trader inside of us
is calmly saying, "Follow your plan and exit at $80.  That's more
than a $7.00 gain on the play just imagine what the options did."
Therein lies the problem.  Imagining.  The human side to every
trader gets greedy.  It says, "oh, look IBM fell again and closed
near its lows for the day.  Look here... the volume has been huge
since that SEC probe news came out.  Imagine what could happen if
the probe widens and IBM breaks support at $78.00?"

The problem is that scenario could very well play out.  Another
article on Friday suggested strongly that the SEC probe could
easily widen.  This would spook investors even more and IBM would
be under stronger selling pressure.  Imagine the technical damage
if it breaks under its simple 200-dma and the point-and-figure
support at $78.00.  Yup... just imagine.

Here's the plan.  I highly suggest that traders take some profit
off the table if they have not done so already.  Whatever you're
willing to risk, we'll lower the stop down to $81.75, which is
just above the midday consolidation for IBM.  We would not
recommend new positions until IBM does break the 200-dma.

Suggested Options:
Typically, stocks tend to move down faster than they move up so
we're going to focus on the short-term June and July options.

*warning, only 2 weeks left for June options.*

BUY PUT JUN 85 IBM-RQ OI=31778 at $5.40 SL=3.00
BUY PUT JUN 80 IBM-RP OI=23382 at $1.90 SL=1.00
BUY PUT JUL 85 IBM-SQ OI=33288 at $6.50 SL=3.25
BUY PUT JUL 80 IBM-SP OI=27029 at $3.40 SL=1.60
BUY PUT OCT 80 IBM-VP OI= 5882 at $5.80 SL=3.00

Annotated Chart for IBM:

Picked on May 29th at $87.36
Change since picked:   -7.31
Earnings Date       04/14/03 (confirmed)
Average Daily Volume = 8.2 Million
Chart link:


L-3 Comms -LLL - close: 43.81 change: +0.31 stop: 44.70*new*

Company Description:
As a leading supplier of sophisticated secure communication
systems and specialized communication products, LLL provides
critical elements of virtually all major communication, command
and control, intelligence gathering and space systems.  The
company's high data rate communication, avionics, telemetry and
instrumentation systems and components are used to connect a
variety of airborne, space, ground-based and sea-based
communication systems.

Why we like it:
Have you ever been faked out by a move in the market?  Well,
that's what happened to us last Tuesday, when LLL sold off to the
$42 level.  That looked like the selloff we had been waiting for,
so we were clearly surprised to see the solid rebound over the
past couple days.  In our expectation that the rollover was
underway, we prematurely lowered our stop to $44.10 and Friday's
action proved how premature that action was.  Fortunately, LLL
didn't hold its intraday gains and fell back under $44 at the
close on Friday, giving us the opportunity to regroup.  The stock
still looks like a good short/put candidate, with a consistent
series of lower highs - note that Friday's intraday high was just
slightly below Monday's intraday high, and it is all below the
200-dma.  So we're going to do something unusual and actually
RAISE OUR STOP ever so slightly to $44.70, which is just above
the 200-dma ($44.58).  Failed rally attempts (like that on
Friday) continue to look like the best entry opportunity until
the stock firmly loses the $42 support level.  We're still
targeting a move to $40, but now we're going to be very closely
monitoring the 50-dma (currently $42.11).  As you can see on the
chart below, that average provided support for the last two
rebounds and this play is now a battle confined between the 50-
dma and 200-dma.  Obviously we think the 200-dma will win this
battle, but note that we wouldn't advocate taking momentum-based
entries until LLL drops below $42 on solid volume.

Suggested Options:
Short-term traders will want to focus on the June 45 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $40 level (or below)
will want to utilize the July 45 Put, which provides greater
insulation from the spectre of time decay.  Note that June
contracts expire in 2 weeks.

BUY PUT JUN-45 LLL-RI OI= 516 at $1.95 SL=1.00
BUY PUT JUL-45 LLL-SI OI= 242 at $2.70 SL=1.25
BUY PUT JUL-40 LLL-SH OI= 689 at $0.70 SL=0.35

Annotated Chart of LLL:

Picked on May 20th at   $41.94
Change since picked:     +1.87
Earnings Date         07/22/03 (unconfirmed)
Average Daily Volume = 1.37 mln
Chart link:


Northrop Gruman - NOC - close: 85.40 change: -0.59 stop: 88.75

Company Description:
Northrop Grumman Corporation is a $25 billion global defense
company, headquartered in Los Angeles, Calif. Northrop Grumman
provides technologically advanced, innovative products, services
and solutions in systems integration, defense electronics,
information technology, advanced aircraft, shipbuilding and space
technology. With approximately 120,000 employees and operations
in all 50 states and 25 countries, Northrop Grumman serves U.S.
and international military, government and commercial customers.
(source: company press release)

Why We Like It:
We just added NOC on Thursday so there's been no change to our
play strategy except that shares of NOC traded through our
trigger to go short at $85.74 late Friday afternoon.

 (Thursday's write up)

We think the market is trying to tell us something.  The DFI
defense index has just closed over its simple 200-dma since its
inception.  After weeks of consolidating in the 500-505 range it
closed at 508 today.  Yet at the same time shares of NOC, the
country's second biggest defense contractor, has been slowly
sliding.  Today is the second day in a row that NOC has closed
under its simple 50-dma.  NOC has been a complete laggard
compared to the overall strength in the markets.  What makes this
perplexing is that NOC has confirmed it would turn in double-
digit revenue and earnings growth for the next two years as
defense budgets rise.  What does Wall Street see that we don't?
The long-term down trend, which has been reversed in so many
sectors and stocks across the markets, is still very much intact
for NOC.  We suspect that NOC could retest support at the $80.00
mark and recent action offers us an entry point for a put play.
However, because the broader markets have been so strong, we are
going to use a TRIGGER at 85.74 to leg us into this NOC play.
The last couple of weeks have shown a trend of lower highs for
NOC but we'd feel more comfortable opening a position as the
stock takes out today's low.

One word of CAUTION, NOC's point-and-figure chart does show the
stock currently testing bullish support at $84.00-85.00.  PnF
aficionados may want to wait for that support to break.

Suggested Options:
We're going to list June, July and August puts for NOC but with
two weeks left before June expiration our preference would be for
July strikes.

*warning, only 2 weeks left for June options.*

BUY PUT JUN 85 NOC-RQ OI=3068 at $1.90 SL=0.90
BUY PUT JUN 80 NOC-RP OI=2259 at $0.55 SL=0.00 *more risky*
BUY PUT JUL 85 NOC-SQ OI= 659 at $3.20 SL=1.60
BUY PUT JUL 80 NOC-SP OI= 310 at $1.45 SL=0.75
BUY PUT AUG 80 NOC-TP OI= 492 at $2.30 SL=1.15

Annotated Chart of NOC
Chart link:

Picked on June 6th at $85.74
Change since picked:   -0.34
Earnings Date       07/29/03 (unconfirmed)
Average Daily Volume = 1.6 million
Chart link:


The Ryland Group - RYL - close: 69.74 change: -1.82 stop: 73.50

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

Why we like it:
On prospects of continued low interest rates and another round of
refinancing and new purchases driving demand for housing,
investors have bid the Dow Jones Home Builders index ($DJUSHB)
higher to the tune of more than 50% in just the past 3 months.
Friday saw that group vault higher to the $460 level, only to
sharply reverse and close near $442 for a complete reversal of
Thursday's gains as well.  All of the major home building stocks
saw sharp reversals, but RYL's was one of the most impressive.
Along with the $DJUSHB, RYL touched a new all-time high of $72.90
before slipping back to close below $70 with a 2.5% loss on the
day.  Even after that sharp pullback, the stock is still nearly
$5 above its 10-dma (currently $65.26) and given the heavy volume
on Friday's pullback, we think there's more bearish price action
in store.  But to be perfectly clear, we aren't expecting a
waterfall decline here.  This is an aggressive play, where we're
looking to take advantage of a bout of much needed profit taking.

There's no point in even looking at the PnF chart, as it still
says full bull ahead.  Remember, this is a gravity play, and when
the stock finds support, we'll want to exit stage left in a
hurry.  A continuation down to the $65 level seems pretty certain
as things appear this weekend, but we'd really like to see the
daily Stochastics turn down from overbought (where they've been
pinned for the past 2 weeks) to give some confirmation of the
downside potential.  While aggressive traders can try to enter on
a failed intraday bounce below Friday's intraday high, the more
prudent strategy might be to wait for some downside continuation
below Friday's low.  So momentum traders will want to key off the
$69.50 level, entering on a volume-backed move below that level.
While our initial target is the mild consolidation (also the site
of the 10-dma) near $65, we'll keep the possibility in mind that
RYL could really get moving and test major support in the $59-60
area.  Initial stops are set at $73.50, just a bit over Friday's
intraday high.

Suggested Options:
Short-term traders will want to focus on the June 70 Put, as it
will provide the best return for a short-term play.  Those
looking for a larger move down towards the $65 level will want to
utilize the July contracts, which provides greater insulation
from the spectre of time decay.  Note that June contracts expire
in 2 weeks.

BUY PUT JUN-70 RYL-RN OI= 90 at $2.50 SL=1.25
BUY PUT JUL-70 RYL-RN OI=104 at $4.10 SL=2.50
BUY PUT JUL-65 RYL-SN OI=544 at $2.30 SL=1.25

Annotated Chart of RYL:

Picked on June 8th at   $69.74
Change since picked:     +0.00
Earnings Date          07/23/03 (unconfirmed)
Average Daily Volume =   763 K
Chart link:

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The Option Investor Newsletter                   Sunday 06-08-2003
Sunday                                                      4 of 5

In Section Four:

Leaps: Breakout!
Traders Corner: A Swing And A Missed Opportunity
Traders Corner: Elliott Wave Plays
Traders Corner: Where is the Dow Going?



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By Mark Phillips

No matter how many different ways you look at it, last week's
action was decidedly bullish!  All the major indices blasted
through their August highs, and despite Friday's sharp intraday
reversal, they held onto those breakouts going into the weekend.
While I still hold a very bearish view for the intermediate to
long term, I really don't think we're at a major top right now.

I know that flies in the face of Friday's intraday action, with it
appearing to be a key reversal day on very heavy volume,
especially on the NASDAQ, which traded just shy of 3 billion
shares!  The problem is that there hasn't been one little bit of
internal weakness yet.  Fundamentally, this market should drop and
drop hard, but it is floating upwards on a sea of liquidity, as
Ben Bernanke and friends work to see just how fast they can print
out those dollars.  Huge levels of debt from the federal
government down to individual consumers is eventually going to
smack investors with a serious day of reckoning -- but not today.
Add in the huge trade imbalance, large and growing levels of
unemployment and negligible signs of economic improvement, and I
believe we're heading for another train wreck on the way to new
multi-year lows for all of the major indices.  But that isn't
relevant to where we are today.  The equity markets want to go up,
and with a dearth of selling pressure, that's precisely where they
are going.

Turning to the bullish percent readings, we have a stark reminder
that overbought can always become more overbought and then become
even more overbought.  I've been listing a table showing the
progress of these readings for the past couple weeks and it seems
worthwhile to continue doing so as long as they continue to grind

NASDAQ-100 - 91% (11/99 high of 92%)
NASDAQ Composite - 69.91% (new all-time high)
DOW - 80% (Same level as 3/00 and 5/01 -- highs in 1998 = 92%)
S&P 500 - 82% (New all-time high)
S&P 100 - 78% (Matches the 3/02 high, 11/98 all-time high = 84%)

In all cases, the major indices' BP is deep in overbought
territory.  The COMPX at 69.91% doesn't really qualify as
overbought, except in the sense that it is so far beyond where it
has ever been before.  But look at the others.  NDX is just 1%
below its all-time high, the DOW is at the same level as March
2000 and May 2001 and the SPX is at a new all time high.  The new
high/new low ratios are just about off the charts and showing no
signs of weakness.  According to Lowry's, selling pressure is
simply collapsing.  If you want to see a graphical representation
of how strong the buying is and how weak the selling has been,
pull up a weekly chart of the Diamonds (DIA) or S&P Depository
Receipts (SPY) with On Balance Volume displayed.  It is simply
astounding how far it has moved to the upside.  In the case of the
DIA, it is at new all-time highs (by a wide margin) and the SPY
has OBV testing its all-time highs.  No matter how you slice it,
this is a STRONG market.  I can't fit enough data on the SPY chart
to show it here, but look at the chart of the DIA below.

Weekly Chart of the DIA with On Balance Volume

I will keep mentioning this until we get a reversal.  I invite you
to go over to Stockcharts and look at the SharpChart for each of
these bullish percent readings.  In every case, the bullish
percent is continuing to push strongly higher, and we have yet to
see any of them break below their respective 10-dmas.  As I've
said before, overextended, but not yet showing anything that can
be termed weakness.  Here's the link I use, for your convenience.

Here are the pertinent Bullish Percent symbols.


Last week I commented that the bulls had pushed the bears right to
the point of capitulation.  Either Friday's reversal was the top
(which I don't believe), or the bears truly have given up, at
least for the time being.  It makes no sense in light of the
economic picture and the outlook for corporate earnings, but
nobody promised that the markets would be logical.  The markets
are more extended than they were last week, but still we see no
sign of any internal weakening.  For weeks now, shorts have been
getting their heads handed to them (myself included) and I think
it is time to pause, breathe and re-evaluate.  For that reason,
I've taken another week off from writing plays.  No new Watch List
or Portfolio plays on the docket.  Next week, I'll be looking for
some sort of indication of either market weakness to justify my
bearish bias or else I'll have to come to terms that this cyclical
bull wants to run a bit further.

A continuation of the recent rally just may be able to give us the
DOW at 9500, the NASDAQ Composite as high as 2000 and the S&P 500
may be setting up to challenge the 1100 level before this cyclical
bull has run its course.  I know it sounds ridiculous, but so did
current levels a month ago.  We'll just have to trade what the
market gives us and try not to fight it.  In the meantime, let's
review what's happening with the plays currently being covered.


AIG - It was another bullish week for our AIG play, much to my
chagrin.  Fortunately, Friday's foray above the $60 level didn't
hold and we may have seen a reversal top, given the strong volume.
the problem is that the stock still ended the week in the green
and back above the 200-dma.  I suspect next week will be make or
break time for this play -- either breaking down as we've been
expecting, or breaking out above our stop.  While aggressive
traders certainly could have gotten a great entry on Friday, I am
having a hard time advocating new entries after the bullish price
action of the past 2 weeks. Making matters worse for us, the PnF
chart displays a new PnF Buy signal based on Friday's price
action.  Conservative traders may just want to cut their losses
here and use a dip back into the $56-57 area to close the play and
wait for a clearer bearish setup to develop.  Note that we won't
really have any confirmation of weakness until AIG closes below
the $54.50 level, and right now that looks miles away.

GM - This play is certainly putting our nerves to the test, now
isn't it?  All the fundamentals are ugly negative, but still
investors buy the stock when the market rises.  Last Monday's
intraday surge to $36.90 was particularly disconcerting, so it was
nice to see a pullback into the end of the week.  But until GM
once again loses the $35 level and falls back near $33, we'll be
stuck in limbo.  I'm still expecting the descending trendline from
the December high and the 200-dma (currently $36.98) to continue
to pressure GM lower, but I suspect it is going to require some
significant weakness in the broad market to get the ball rolling
downhill.  The PnF chart is still bearish with a price target of
$18, but all that would change if the stock were to trade $38 and
generate a new PnF Buy signal.  I still favor new entries on
failed rallies below the $37 level, as GM is one of the only 6 Dow
components that is not on a PnF Buy signal.  But prudence demands
that we maintain a tight stop.

KO - ARRRGGGHHH!  It is starting to look like we should have just
pulled the plug on our KO play when the stock closed above its
200-dma.  Apparently investors believe that the weakness in the US
Dollar is going to have a beneficial impact on shares of KO due to
the favorable exchange rate, as the uptrend seems to be getting
stronger.  Although it closed slightly below our $47 stop on
Friday, the intraday foray above that level and the lack of
weakness going into the close tells me that we'll likely be
stopped out next week.  Traders unwilling to take any further risk
in the stock may just want to take the loss early next week and
move on.  And if we get a more significant pullback near the $44-
45 area, I will probably look at just closing the play.
Obviously, I don't recommend new entries at this point.

AMGN - Wow!  Well, you can't say I didn't warn you.  Last week I
mentioned that if AMGN encountered its next resistance in the $66-
68 area, it was likely to experience a bout of profit taking.
Friday's intraday high was $66 exactly, from which it proceeded to
fall nearly $3 before settling out just above the $63 level.  This
is simply the way AMGN tends to trade.  Look at the selloffs on
May 5-7 and on May 19th.  Those looked awfully bearish too, but
the bulls stepped up to support the stock again above the 50-dma.
We're guessing they'll do the same thing again, so long as the BTK
index doesn't lose the $450 support level.  With the BTK closing
at $482 on Friday, that still means we may have to take some more
heat in this play, but we're counting on the 50-dma to once again
provide support for another higher low and another push back up
the chart.  New entries look favorable on a rebound from above the
50-dma, and we'll continue to target an eventual move to the $72
level.  Just keep in mind that it is likely to be a bumpy ride,
with each new high met by a bout of profit taking.  Maintain stops
at $60, just to be on the safe side.

QQQ - Well, my concerns last week were certainly well-founded, as
the NASDAQ-100 broke convincingly through the 1200 level, driving
the QQQ as high as $31.47 on Friday morning.  While I don't know
if I'd go so far as to call the reversal from that level THE TOP,
it certainly has the looks of one, doesn't it.  Volume on the QQQ
more than doubled the ADV and it was the heaviest volume seen
since last July.  The next step will be to see if the bears can
press the QQQ back under the $30 level and keep it there, or if
this was just another one-day selloff like we saw on 5/19.
Certainly there are a lot of factors that indicate the top should
be near (like the elevated BP readings), but we've thought that
before.  I'm still very cautious on this play until we see a
decisive move back under $30 and preferably under $29.  Successive
failed rallies below Friday's intraday high should make for solid
entry points, but until we see some sort of reversal in the BP
readings, this remains a very aggressive play.

Watch List:

NEM - Enough is enough!  I can't stand the pain of watching NEM
anymore.  As I said last week, a decisive close over $32 would be
the trigger to get me to finally pull the plug on NEM and we got
that and more, with Friday's close over $32!  The intraday high of
$32.85 was a new 5-year high and the stock (and sector) are
looking very strong.  I blew it on the entry point, and it is now
past time to fold up shop and list NEM as a missed opportunity.
Just in case any of you had the foresight to ignore me and enter
the play anyways, I would recommend placing stops at $29.50.  that
is currently just below the 20-dma and below the recent breakout
over $30.  Expect to see a pullback from the recent highs, but the
$30 level should hold as new and strong support.

DJX - Oh yes, Friday's intraday reversal was quite tempting in
terms of taking an entry in this play.  Heck, we were looking for
an entry point in the $90-91 area, and Friday's intraday high was
$92.16!  The problem I have is with the bullish percent readings,
with the DOW reaching 80%.  Not to mention the chart of the DIA I
posted up above.  The DJX looks extremely overextended up here and
Friday's intraday reversal confirms that.  But until we see some
sign of internal weakening (and so far there have been none), I'm
going to be stubbornly patient about entering this play.  Another
point that is worth noting is that despite the sharp pullback from
the highs, Friday's session ended at $90.63, and that is above the
August 2002 high.  In looking at the charts, I think we now have
to accept the possibility of a continued rally up into the $94-95
area, with the $94.73 level defining the 50% retracement from the
January 2000 high to the October 2002 low.  I've modified the
entry point and selected strikes in the playlist below to reflect
that possibility.

Closing Thoughts:

I expected to see some bullish action from the broad market this
spring, followed by the normal weakness beginning in May.
Obviously, I was far too pessimistic, as all of the major averages
have now exceeded what I thought would be their maximum upside
objectives.  Is it a new bull market?  A cyclical one, perhaps.
But the long-term secular bear market will be with us for awhile.
So what to do here?  I think the market is far too extended to the
upside to chase it with bullish trades, but I've thought that for
close to a month now.  In that time, we've had some failed bearish
plays and those currently in the Portfolio aren't looking too hot.
But until we see some definite signs of weakness (and it's going
to take a lot more than Friday's intraday reversal), trying to
pick a top in the market is a dangerous game.

I had to really rein myself in this week.  I so badly want to list
some new plays, but I just can't bring myself to do it.  I see the
market as being grossly overdone to the upside, and that has me
leaning bearish.  By the same token, the market's broke MAJOR
resistance last week and held those breakouts into Friday's close.
At the same time, the VIX refuses to drop, and that tells me there
is just enough fear in this market to allow it to continue
climbing that wall of worry.  As much as I personally detest not
listing new plays every week, I feel it is the responsible thing
to do by way of example.  I am having a very hard time discerning
the likely trend for the next few months and until I have some
conviction, I feel it would be irresponsible to recommend new
plays that I don't have strong confidence in.  Hopefully next week
will provide enough clarity to allow us to fattening up the play
list again.

Over the past couple weeks, I've been mentioning the introduction
of the 2006 LEAPS, promising to give some sort of roadmap to the
process of their introduction.  Rather than reinvent the wheel,
I'll just point you at the article that I put together last year.

Out With The Old, In With The New

In talking with the CBOE, I've been informed that the process is
just the same as it was last year, with the Cycle 1 2006 LEAPS
coming out after May expiration, Cycle 2 after June expiration and
Cycle 3 after July expiration.  It isn't very exciting reading,
but for those of you that have questions, it should provide you
with the answers you need.  Just ratchet the year forward by one,
and it should all make sense.

Have a great week!


LEAPS Portfolio

Current Open Plays


AMGN   05/21/03  '04 $ 60  YAA-AL  $ 7.00  $ 8.60  +32.86%  $60.00
                 '05 $ 60  ZAM-AL  $10.90  $13.00  +26.61%  $60.00

AIG    04/24/03  '04 $ 55  LAJ-MK  $ 5.60  $ 3.90  -30.36%  $61.00
                 '05 $ 55  ZAF-MK  $ 8.50  $ 7.00  -17.65%  $61.00
GM     05/13/03  '04 $ 35  LGM-MG  $ 4.10  $ 3.80  - 7.31%  $37.50
                 '05 $ 30  ZGM-MF  $ 4.60  $ 4.40  - 4.35%  $37.50
KO     05/15/03  '04 $ 40  LKO-MH  $ 1.70  $ 1.10  -35.29%  $47.00
                 '05 $ 40  ZKO-MH  $ 3.85  $ 3.00  -22.08%  $47.00
QQQ    05/27/03  '04 $ 27  KLF-MA  $ 1.70  $ 1.55  - 8.82%  $32.25
                 '05 $ 27  ZWQ-MA  $ 3.10  $ 2.85  - 8.06%  $32.25

LEAPS Watchlist

Current Possibles



DJX    05/04/03  $94-95        DEC-2003 $ 92  DJV-XN
                               DEC-2004 $ 92  YDK-XN

New Portfolio Plays


New Watchlist Plays



NEM - $32.29 I simply missed the ideal entry point on our NEM play
and throughout its steady rise in the past 2 months refused to
chase the stock higher.  Gold prices are looking strong and NEM
finally broke out to new multi-year highs on Friday.  The stock
and sector are looking incredibly strong, yet overextended as
well.  I just can't see the merit in keeping this play on the
Watch List any longer.  We missed the move and I'm chalking it up
as a missed opportunity.  Correct on direction, but a flubbed
entry.  For those that may have entered the play, I would
recommend following with a stop at the $29.50 level.

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A Swing And A Missed Opportunity
By Mike Parnos, Investing With Attitude

A reversal thingy!  That's right.  Hey, I can get technical, too!
That's what we had on Friday.  It might mean the market is going
back down.  It might mean the market is resting before continuing
up. Then again, it might mean there's going to be an eclipse a
week from Tuesday.

Swings In The Market
No, I don't mean two couples frolicking in Kroger's produce
section.  I'm talking about the, sometimes wild, movements of the
stock market.  We've just experienced a huge upside run – for no
apparent reason.  Sooner or later (and we hope sooner) the market
will realize the error of its ways and pull back.

As we know, rarely does the market do anything in moderation, so
we have some volatility swings to look forward to.  How can we
take advantage of these swings – without a corked bat, of course?
Today let's explore a non-directional low risk strategy that can
provide an opportunity for some nice profits.

The QQQ ITM Baby Strangle
Two weeks ago we put on a position that would take advantage of
market swings.  We've done this quite successfully in the past.
We're using the
QQQs – one of my favorite trading vehicles.  Why?  Because of the
$1.00 strike price increments and very narrow bid/ask spreads.
Those factors offer greater flexibility in putting on new and
smaller spreads that, in turn, result in larger profits (or
smaller losses).  CPTI students learn to be penny pinchers.

The QQQs have, along with the rest of the market, been working
their way up over the last month.  Some believe it will continue
to the sky.

Other people, including me, believe the QQQs will have a
substantial pullback.  In either case, it’s not unreasonable to
anticipate a substantial move.  We’re basing this strategy on the
fact that there has seldom been a two month period when the QQQs
have not moved at least three points in one direction or the
other. Our risk will be about $250-300 per month for a year – or a
total of about $3,000 (based on a 10 contract position).  Don’t
worry.  It’s likely we’ll make it back 10 times over.

On May 19th, the QQQs were trading at $28.50
1.  We bought 10 of the QQQ July 28 calls for $2.05
2.  We bought 10 of the QQQ July 30 puts for $1.80
Total invested: $3.85
There is $2.00 of intrinsic value in this position.  So, the
actual risk is only $1.85.

We’re waiting for the QQQs to move three to four points.  It
normally takes less than a month, and we're now well on the way.
If the market continues upward, and the QQQs hit $32, the $28
calls will be worth approximately $4.25 ($4.00 intrinsic value +
25 time value).  Time to liquidate the calls and put the $4.25
back in your pocket – for the moment.

Where do we stand?
Since our cost of the entire position was only $3.85, we would
have a profit of $.40 in our pocket.  Now, for the best part.  We
still have the July $30 put absolutely free for over a month.

If the damn QQQs pull back to $28 in the subsequent 30 days, the
$40 put (that you own at NO COST) would have a value of at least
$2.00.  Nice return.

The ideal time to put on the QQQ ITM Baby Strangle is when the
QQQs are at a support or resistance level.  It seems likely that
the QQQs would either plow through the support or resistance
level, or bounce in the other direction – hopefully for the 3-4
point move we're looking for.

Friday Opportunity
Friday morning, when the market spiked up, the QQQs traded as high
as $31.47 and stayed at that level for a while.  Alert traders
could have sold the $28 call for $3.70.  That would have left them
with the $30 put for a cost of only $.15.

Another Exit Alternative
After the QQQs have made a substantial move, you may not want to
sell the long option.  There's no absolute that says you have to
sell the long option when it has covered the cost of the entire
position.  Perhaps there are a few more points left in the move.
In this case, you could certainly hang onto the option.  Its
value, being well in-the-money, would increase almost dollar for
dollar.  However, you would have to monitor it closely.  And that
doesn't mean put in an order and go to work.  You don't want to
give back what you've already earned.

See the pattern?
What we’re trying to accomplish is to have long puts (or calls) at
little or no cost.  Whenever we liquidate a long position on one
side, we are left with a long position on the opposite with
virtually no cost.  This is complicated stuff, but, for the most
part, requires only minimal monitoring – maybe once a day.

June Position #1 – SPX Iron Condor – Currently at 987.76
We sold 5 contracts of SPX June 995 calls and 5 contracts of SPX
June 895 puts.  For protection we bought 5 contracts of SPX June
1010 calls and 5 contracts of SPX June 880 puts.  Total net credit
of $2.90.

We're giving the S&P 500 a 100-point range.  We'll get our maximum
profit of $1,450 if SPX closes within a huge 895 to 995 range.
Our exposure is $12.10 ($15 points less the $2.90 credit).  If it
works, it's about a 24% return on risk.

June Position #2 – BBH Iron Condor – Aborted

June Position #3 – TOL – Bear Call Spread Plus – Currently at
Sell 10 contracts of June TOL $25 calls @ $1.40
Buy 20 contracts of June TOL $30 calls @ $.15
Net credit of $1.10
We're slightly bearish on the housing market and believe TOL will
finish below $25.  But, just in case we're wrong, we're buying 10
additional contracts of the $30 calls to protect ourselves.  The
market has gone against us.  We have two weeks for TOL to move
back down to $25 or up to $35.  Maximum potential profit is

June Position #4 – COF Iron Condor – Currently at $52.65
Sell 10 contracts of June COF $47.50 calls @ $1.55
Buy 10 contracts of June COF $50 calls @ $.95
Net credit of $.60
Sell 10 contracts of June COF $40 puts @ $1.05
Buy 10 contracts of June COF $37.50 puts @ $.65
Net credit of $.40
Total credit of $1.00.   We're giving COF a $7.50 range.  This is
a credit card stock that appears to have topped out and there's
support around $40.  We'll get our maximum profit of $1,000 if COF
closes between $40 and $47.50.  The nice part is that our exposure
is only $1.50 ($2.50 less our $1.00 credit).  If it works, it's an
80% return on risk.

June Position #5 – QQQ ITM Baby Strangle – Currently at $30.13
Buy 10 contracts of the July QQQ $30 puts @ $2.05
Buy 10 contracts of the July QQQ $28 calls @ $1.80
Total debit of $3.85.
The QQQs have made a big move up.  It's either going to break
through resistance or bounce of and head back down.  Our objective
is for a $3-4 move in the next month.  One of our long options
will hopefully pay for almost the entire position.  That will
leave our other long option, which is now practically free, poised
for the bounce back as the QQQs reverse.

Our exposure is only $1.85 because we have $2.00 of intrinsic
value.  This has worked quite well in the past for us.  It will
take some time to play out so be a little patient.   With the move
up, we find ourselves in a profitable position.

Unofficial CPTI Replacement PositionQQQ Strangle - $30.13
We bought 10 contracts of the QQQ June $31 calls @ $.10 and 10
contracts of the QQQ June $25 calls @ $.10.  Total debit: $200.

We're playing for a big move in the QQQs.  If the QQQs move $3-4,
our long put or call could easily be worth $.75 - $1.25.  We're
only risking $.20.

Greater risk takers (speculators) can buy closer strikes.  The $26
put and the $30 call would cost $.20 each or a total of $.40 ($400
for 10 contracts.  The benefit is that the delta is slightly
higher and a smaller move would be necessary to get into the
profit zone.

Friday morning was a great opportunity, if you were awake. The
QQQs traded up to $31.47.  Our $200 bet was worth $1,000.  A $400
bet was worth $1,700.

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our plays or our strategies?  Feel free to email
me your questions.  An excellent source for new students is the
OptionInvestor archives where we've been discussing strategies and
answering questions since last July.  To find past CPTI (Mike
Parnos) articles, look under
"Education" and click on "Traders Corner."  They're waiting for
you 24/7

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
CPTI Master Strategist and HCP


Elliott Wave Plays
By Steve Gould

Company Profile

The Dow Jones Industrial Average (DJIA) is a price-weighted index
composed of 30 of the largest, most liquid NYSE and NASDAQ listed
stocks.  The DJX is a cash-settlement index option representing
1/100 of the value of the DJIA.

Chart Analysis

Please see "Where is the Dow Going?" for 6/8/2003 for the basic
analysis of the Dow.

Trade Setup

Based on the analysis in "Where is the Dow Going?" for 6/8/2003 we
want to hedge our bets.  Most likely the Dow is going to move
either up or down, versus remain flat, so we need some type of
play that will make money whether the Dow moves up or moves down.
We have two possibilities.  One is a ratio back spread, the other
is a straddle.


A straddle is buying a call and a put at the same strike price and
same expiration.  Since we don't know which way the Dow will move,
although we know it will move one way or the other, we hedge our
bets and play both ways.  One of the advantages is that regardless
of which way the Dow moves, we make money.  Some of the
disadvantages are we would not make as much money had we played
one direction or the other and we need a larger move to make money

Note:  We are technically going to be buying a strangle.
Strangles are similar to straddles except the strike prices are
out of the money.  If we go out of the money just a bit on the DJX
straddle, we can lower the cost significantly and have the exact
same risk. This is a slightly better play.

Since the Dow is at about 9000, we will play the "90" strike.
Since we expect the move to happen over the next 45 days, we will
play the September option.

Sym   Strike   Type   Bid    Ask   Vol   OI
DJVIL SEP 90   Call   3.9    4.1    11   1478      <-- Straddle
DJVUL SEP 90   Put    3.5    3.7   849   1068

DJVIN SEP 92   Call   2.8    3.0    37  14836      <-- Strangle
DJVUJ SEP 88   Put    2.7    2.9   348   5070

What If We Are Right

(Note: All calculations are based on the strangle play.)

Let's say the Dow moves 750 points by July expiration.  It may
move more or less, but we are using this as a reference.  Just
move the price cursor to adjust for a greater move.

Chart: Position Analysis For The First Target

If the DJX moves to 97.50 by July expiration, the value of the
combined options will show a profit of $109.

Chart: Position Analysis For The Second Target

On the other hand if the DJX moves to 82.50 by July expiration,
the value of the combined options will show a profit of $89.

Obviously, in both cases, if the Dow moves more, the profits are
going to be greater.

What If We Are Wrong

Chart: Wrong Scenario

If the Dow has not moved significantly by August 8 (45 days to
expiration) the combined value of the options will show a loss of
$270.  Exit the trade on August 8 regardless of the value of the

Alternately, you can exit the trade on July 18 for a loss of $170.

Ratio Back spread

A ratio back spread is more of a directional play but it allows us
to risk much less in case we are wrong.  In fact, in this case,
you actually make money if you are completely wrong.

In this scenario, we are going to play the Dow to go down, but
hedge our bets in case it goes up to 9750.

We will be buying two September OTM puts and paying for it by
selling one ATM put

Pos  Qty  Sym   Strike   Type    Bid    Ask   Vol   OI
Sell  1  DJVUV  SEP 100   Put    9.9   10.4   415   12
Buy   2  DJVUL  SEP  90   Put    3.5    3.7   849 1068

Depending on the price you get, you will have a credit of about

What If We Are Right

Chart: Position Analysis For The First Target

If the DJX moves to 82.50 by July expiration, the value of the
combined options will show a profit of $119.  Again, if the Dow
continues down, the profits just increase.

What If We Are Wrong

Scenario 1

Chart: Wrong Scenario 1

If the DJX moves to 97.50 by July expiration, the value of the
combined options will show a loss of $10.

As you can see, the higher the Dow moves, the more of the $250
credit we get to keep.  We would buy just back the put we sold at
a much reduced price.

Scenario 2

Chart: Wrong Scenario 2

If the Dow has not moved significantly by August 8 (45 days to
expiration) the combined value of the options will show a loss of
$240.  Exit the trade on August 8 regardless of the value of the

Alternately, you can exit the trade on July 18 for a loss of about

The choice of which play to pick is yours.  It will depend on your
risk/reward tolerance.  For me, based on what I think the Dow is
going to do, I feel the ratio back spread could be the more
profitable choice.


Where is the Dow Going?
By Steve Gould

Every newsletter that I have ever followed has reiterated the same
party line about calling a top.  They all say that the way to call
a top is to wait for all the bears to capitulate.  When the very
last bear resigns, when he relents and goes long, when that last
bear finally gives up the ghost, then and only then will the
market come tumbling down.

Well, I am that last bear.  Not really, but I now believe that I
am in the very small minority of investors that is bearish.  When
I resign myself to the bullish trend, when I finally relent, when
I sell all my puts and buy calls, then the market will crash.  But
I ain't ready just yet.  Oh, I know, I cannot buck this trend for
much longer and I am not going to.  But I am far from ready to
capitulate.  I am just hedging my bets just in case.

If I said we hit a top this week, I do not think too many people
out there are going to believe me.  I have been crying bear for so
long as the market keeps going up that I do believe the market is
doing it just to be ornery. Sort of like my teenage son.
Regardless of what I say, he will do just the opposite out of
spite.  I think the Dow is treating me the same way.

But a day of reckoning is coming.  Not sure exactly when.  (Oh
yeah, I remember now, for the last two months.)  But when it
comes, let it be known that I was a lone voice crying in the

Let's look at some charts.

Chart: Dow Daily 6/6/2003

Here is a daily chart of the Dow since January 2000 with the wave
counts updated.  Based on this current wave count, the Dow is
undergoing a wave (2) correction.  The question I would like to
address is how much higher can the Dow go before it continues

Let's take a closer look at the A-B-C correction that the Dow is
currently in the midst of.

Chart: Dow A-B-C Wave 1 Retracement

First let's examine the wave 1 retracement levels.  Typically, the
A-B-C correction will retrace a wave 1 somewhere between 38-62%.
Currently, the C wave is around the 60% level.  That doesn't mean
that the C wave cannot go higher, but there is strong resistance
at around the 9360 level.  The Dow is almost at that level.  In
fact, even though Friday was an up day, the Dow printed out a
bearish reversal, possibly indicating that it has already gone as
high as it is going to go.

The next thing we want to look at is the type of A-B-C correction
the Dow is undergoing.  In my article Corrections Part I, I
described several different types of A-B-C corrections.  One of
them was called a flat.

Let's do a quick review of flats

Figure 1: Flat chart

On the left in figure 1 is a typical flat.  Flats have several
defining features.  Flats, being a corrective wave, are a three
wave pattern.  Note how the B wave fully retrace the A wave.
Typically, wave B will retrace somewhere between 75-100% of wave
A.  Also note how the C wave only extends to the top of the A

Looking at the chart on the right in figure 2, we can examine the
subdivisions more closely.  Note that the A wave is a 3 wave
corrective pattern.  The B wave is another 3 wave corrective
pattern and the C wave is a 5 wave basic pattern.  The flat
subdivisions are therefore 3-3-5.

Chart: Dow A-B-C as a Flat

Looking again at the Dow, we can see that the B wave retraced the
A wave at about 85%, well within the flat retracement territory.
The A wave is a 3 wave corrective pattern and the B wave is a 3
wave corrective pattern.  This is looking more and more like a
flat.  If we do have a flat, the C wave should extend about the
length (in price) of the A wave.  On the right side of the chart
is a label "Percentage of Wave A".  This functions prints out the
levels where wave C will equal wave A.  At (about) 9265, wave C
will equal wave A.  We are close enough to that value right now
that the flat could be considered complete.  The C wave could be a
5 wave basic pattern.  It would have to be a leading diagonal and
it very well could be.  If this is indeed the case, the Dow will
reverse course tracing out a 5 wave basic pattern of the 3 wave.

The above analysis does not mean that wave C has topped.  This A-
B-C pattern could easily morph into an expanded flat.  An expanded
flat is similar to a flat except that the C wave extends past the
A wave.  In this case, we are looking at a Dow of 9970 (1.38 x A)
to 10406 (1.62 x A).  If the C wave is not that leading diagonal
then expect a move down (wave 4) and then back up (wave 5) to
complete the 5 wave basic pattern.

Could the Dow go up another 800 points?  Yes.  Could the Dow slide
2000 points by October?  Yes.  Do we know which way it is going to
go?  Sorry, my crystal ball is in the shop for repairs.  Although
based on the other technical indicators (does the word overbought
mean anything to you) and the bad economic news (does the word
deflation mean anything to you) waiting to be digested, I would
say we should be headed down.

Bottom line, I am ultimately bearish the Dow longer term.  Shorter
term, I am undecided.  Either scenario is likely.  Best to hedge
your bets.


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The Option Investor Newsletter                   Sunday 06-08-2003
Sunday                                                      5 of 5

In Section Five:

Covered Calls: What is a Covered Call?
Naked Puts: Q&A On Strategies
Spreads/Straddles/Combos: Bulls Rule For Another Week!

Updated In The Site Tonight:
Market Posture: Not Uncalled For

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Trading Basics: What is a Covered Call?
By Mark Wnetrzak

Many of our new readers are comfortable with investing in stocks
but are hesitant to trade options.  Selling "covered" calls is a
strategy that may be more appropriate for their experience level.

Buying stocks is one of the most popular investing techniques in
today's financial markets.  Derivatives are a natural companion
to stock ownership and yet most people never benefit from the
advantages of options because they believe they are too "risky."
It is true that an option buyer can lose the entire value of their
investment, however the same situation exists when buying stocks.
One way to limit the potential downside of stock ownership is to
transfer some of the risk to another trader by writing "covered"
calls on the issue.  A covered call is like placing a limit order
to sell the shares to someone else at a specific price (the strike
price) after it is purchased.  For this obligation, you receive a
premium, which lowers the overall cost basis of the issue.  In
return, you forego a certain amount of upside potential in the
stock.  Investors who use this strategy are interested in earning
consistent (moderate) profits while maintaining an above-average
downside margin during periods of bearish market activity.

The characteristics of the covered-call position are fairly simple
and the first requirement is stock ownership.  When you sell (write)
a call option against that stock (one contract for every 100 shares
owned), you agree to sell your stock at a specific price -- the
strike price of the option -- for a specific amount of time, until
the option expires.  In the transaction, you receive a premium ($$$)
from the option buyer for their right to buy your stock, and you get
to keep this premium regardless of what happens to the stock in the
future.  If the stock price rises above the strike price of the sold
option at expiration, the stock will "called" away (assigned) by the
owner of the option.  When this event occurs, you realize a profit,
providing that your cost basis in the issue is less than the strike
price of the option that you sold.  If, at expiration, the stock
price is below the strike price of the sold option, it will not be
assigned and you keep the stock for future trades -- such as selling
additional options for more cash income.  One thing to remember is
the stock can be assigned at any time prior to the option expiration
date, regardless of its price, so don't write calls against a stock
that you are not willing to sell.

Despite the apparent simplicity of this popular strategy, writing
covered calls involves a number of crucial decisions, the most
important of which is whether you want to be conservative or
aggressive in your approach.  An investor with an aggressive
attitude and a bullish outlook on the market would probably sell
options at strike prices that are higher (out-of-the-money) than
the current price of the stock, thus his potential profit would
include both the premium received from the sold option plus any
capital appreciation (up to the option's strike price) of the issue.
A more conservative investor might sell options with strike prices
that are near (at-the-money) the current price of the stock, thus
establishing a relatively balanced outlook with regard to risk and
reward.  The most risk-adverse investor would construct positions
using options with strike prices that are below (in-the-money) the
current price of the stock, creating a stock-option combination
with a high probability of a limited, but acceptable, profit.  The
key to success with this approach is to carefully calculate the
potential gains in the position based on the adjusted cost basis
in the issue.  Don't agree to sell the stock for less money than
you have invested in it!

Regardless of what method you favor, there are a few guidelines that
apply to writing covered calls in general.  First, the expiration
date of the sold calls should be no more than a few months in the
future because option premium (on a relative basis) is greatest in
near-term options.  Second, options that are at-the-money provide
the greatest amount of theoretical time-value premium, due to the
normal distribution (bell curve) of option pricing.  Third, lower
priced stocks will produce better yields in covered-call positions,
especially when the stock is purchased on margin.  Obviously, selling
an at-the-money call for $1 on a $10 stock is more effective than
receiving the same premium for a similar option on a $20 stock.
Finally, commissions do play a significant part in the calculations
of potential profits as there can be up to three trades in a
successful play; the purchase of the stock, the sale of the call(s),
and the sale of the stock upon assignment.  Experienced investors
offset this effect by purchasing a minimum of 500 to 1000 shares in
each position.

One trading strategy worth noting involves the entry of covered
call positions.  The method I am referring to is the "Buy-Write"
order, which can be very a useful means to establish the overall
profit/loss outlook in a position.  In simple terms, a buy-write
order involves buying stock and selling its option simultaneously.
When placing an order for a buy-write, you are requesting to
purchase the shares and sell the (call) options for a specific
"net" price, with both transactions occurring at the same time.
The exact phraseology is not important but a specific "net-debit"
must be given when the trade instructions are delivered to the
agent.  The floor broker or clearing-house will fill the order if
the specified net-debit can be achieved through any combination
of stock and call-option prices.  One of the advantages of this
technique is that it prevents the possibility of "slippage" during
the position entry process when the premium in the call option
declines.  This problem happens frequently in the plays we list as
many are opened in the first hour of trading on the Monday after
the newsletter is published.  If too many calls are sold without
any buying pressure, the bid premium drops towards intrinsic value
and the (ITM) play becomes unfavorable.  Traders who attempt to
"leg-in" to these positions (buying the stock with plans to sell
the call at a later time) are often surprised to see the previously
overvalued premiums disappear before they can write the options
that complete the play.

Next week, we'll discuss position management and the most common
adjustment techniques with covered calls.

Trade Wisely!


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

SUPG     5.04    5.51  JUN  5.00  0.65    0.61*  20.1%
ARIA     3.37    3.71  JUN  2.50  1.05    0.18*  11.2%
NOR      2.67    2.61  JUN  2.50  0.40    0.23*   8.8%
LGTO     7.60    8.37  JUN  7.50  0.45    0.35*   7.1%
IPXL     7.86    9.96  JUN  7.50  0.80    0.44*   7.0%
PLUG     5.08    5.54  JUN  5.00  0.35    0.27*   6.4%
MOSY     7.50    8.46  JUN  7.50  0.60    0.60*   6.3%
ALKS    12.84   13.22  JUN 12.50  0.95    0.61*   5.8%
IDNX     5.60    6.43  JUN  5.00  0.90    0.30*   5.5%
CBST    10.79   11.96  JUN 10.00  1.15    0.36*   5.4%
TER     13.06   17.62  JUN 12.50  1.40    0.84*   5.2%
FCS     12.55   14.00  JUN 12.50  0.60    0.55*   5.2%
OVER    14.55   17.35  JUN 12.50  2.75    0.70*   5.2%
OVER    17.80   17.35  JUN 15.00  3.30    0.50*   5.0%
MDR      5.08    6.16  JUN  5.00  0.40    0.32*   5.0%
AWE      7.64    7.57  JUN  7.50  0.45    0.31*   4.9%
PLUG     5.39    5.54  JUN  5.00  0.65    0.26*   4.8%
FEIC    17.65   21.01  JUN 17.50  0.85    0.70*   4.7%
FFIV    15.45   17.38  JUN 15.00  1.30    0.85*   4.4%
GNTA     8.78   13.73  JUN  7.50  1.70    0.42*   4.3%
MRVL    26.72   32.65  JUN 25.00  3.10    1.38*   4.2%
MLNM    15.55   16.86  JUN 12.50  3.40    0.35*   4.2%
CELG    31.48   34.76  JUN 30.00  2.80    1.32*   4.0%
GP      17.99   17.83  JUN 17.50  1.40    0.91*   4.0%
BRCM    21.40   26.01  JUN 20.00  2.25    0.85*   3.9%
PEGS    13.00   14.88  JUN 12.50  0.85    0.35*   3.2%
FMKT     7.51    6.97  JUN  7.50  0.35   -0.19    0.0%

*   Stock price is above the sold striking price.


The wildly bullish market environment continues for another week,
though Friday's move could be signaling a consolidation phase.  As
for the covered-call portfolio, Abgenix (NASDAQ:ABGX) is listed
"closed" below after Monday's gap lower on disappointing news at
the American Society of Clinical Oncology's annual convention.  On
Monday, SuperGen (NASDAQ:SUPG) acted rather worrisome though it
has since rebounded and moved to a new 11-month high.  One issue
to monitor closely next week is Freemarkets (NASDAQ:FMKT) as the
issue could test support near $6.00 - an early exit candidate?
As always, monitor closely any issues you do not want to own and
those that are acting weaker than expected.  Always be prepared
because the "Bulls" may finally relent and "allow" a consolidation
phase as they harvest their profits.

Positions Previously Closed: Abgenix (NASDAQ:ABGX), though it did
rebound (second chance exit?).


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

QSFT   12.58  JUL 12.50  QUD GV  1.00  530   11.58  42   5.8%
SEBL   10.98  JUL 10.00  SGQ GB  1.65  4550   9.33  42   5.2%
MTON    5.60  JUL  5.00  KQM GA  0.90  49     4.70  42   4.6%
RHAT    8.27  JUL  7.50  RCV GU  1.20  340    7.07  42   4.4%
EDS    21.99  JUL 20.00  EDS GD  3.00  3610  18.99  42   3.9%
IMMU    6.91  JUL  5.00  QUI GA  2.15  87     4.76  42   3.7%
ASIA    5.97  JUL  5.00  EUJ GA  1.15  418    4.82  42   2.7%

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).

QSFT - Quest Software  $12.58  *** Merger Mania: Part I ***

Quest (NASDAQ:QSFT) is a developer and vendor of application
and database management software products.  The company also
provides support and maintenance services for its products,
as well as post-sale consulting services.  Quest's products
improve the quality of service provided by its customers' key
software applications.  Many of the company's products also
significantly reduce its customers' capital and operating
expenses associated with these systems by minimizing hardware,
software and/or personnel costs.  The company's application
management products support the packaged applications from
many of vendors, including SAP, Siebel, PeopleSoft and Oracle.
Many enterprises also continue to run and deploy internally
developed applications.  These applications require a database
system, such as Oracle, Microsoft SQL Server or IBM's DB2, to
store, access and organize the applications' data.  Quest's
products support all three databases.  Let's see, Oracle is
buying PeopleSoft, and PeopleSoft is buying J.D. Edwards.
Yes, it's merger/buyout mania in software-land and investors
are speculating on future targets.  Quest has solid support
around $11.50 and this position offers a way to participate
in the near-term performance of the issue with a reasonable
cost basis.

JUL-12.50 QUD GV LB=1.00 OI=530 CB=11.58 DE=42 TY=5.8%

SEBL - Siebel Systems  $10.98  *** Merger Mania: Part II ***

Siebel (NASDAQ:SEBL) is a provider of e-business applications
software and is principally engaged in the design, development,
marketing and support of Siebel eBusiness Applications.  This
family of enterprise applications software enables a company to
better manage its customer, partner and employee relationships.
Siebel eBusiness Applications are designed to meet the information
system requirements needed to manage these relationships for
organizations of all sizes, from small businesses to the largest
multinational organizations and government agencies.  As stated
above in the Quest write-up, the attempted buyouts this week by
PeopleSoft (buying J.D. Edwards) and Oracle (a hostile attempt
to buy Peoplesoft -- who is buying J.D. Edwards) has ignited some
bullish activity in the sector.  This position simply offers a way
to speculate on future merger/buyout targets with a cost basis near
buying support.

JUL-10.00 SGQ GB LB=1.65 OI=4550 CB=9.33 DE=42 TY=5.2%

MTON - Metro One  $5.60  *** Bottom Fishing: Part I ***

Metro One Telecommunications (NASDAQ:MTON) is a developer and
provider of Enhanced Directory Assistance and information
services for the telecommunications industry.  The company
primarily contracts with wireless carriers to provide its
services to their subscribers.  The company's customers include
wireless telecommunications carriers such as Sprint PCS, AT&T
Wireless Services, Nextel Communications, Cingular Wireless and
ALLTEL Communications.  In addition, the company has expanded
into the landline telecommunications market and provides its
services to regional competitive local exchange carriers.  The
company offers its services to a carrier's subscribers under a
brand name selected by the carrier, such as "AT&T Connect" or
"Sprint PCS Directory Assistance."  Metro One appears to have
once again successfully tested support near $5.00 as the stock
forges a Stage I base.  We simply favor the bullish technical
indications and our conservative position offers a method to
participate in the future movement of the issue with relatively
low risk.  Target-shooting a lower "net debit" will increase the
potential yield and lower the cost basis in the position.

JUL-5.00 KQM GA LB=0.90 OI=49 CB=4.70 DE=42 TY=4.6%

RHAT - Red Hat  $8.27  *** Microsoft's Bane? ***

Red Hat (NASDAQ:RHAT) provides open source solutions for the IT
infrastructure of Global 2000 companies.  RHAT delivers a single
open source operating platform from the mainframe to the server
to the embedded device.  The company applies its technology
leadership to create its open source operating platform, Red Hat
Advanced Server and related open source solutions that meet the
functionality requirements and performance demands of the large
enterprise and those 3rd party software applications or products
that are critical to the large enterprise, such as the Oracle
Database.  In addition, the company has developed a complete set
of engineering, consulting and managed services offerings to
enable large enterprise customers to capture the significant
cost, performance and scalability benefits of its open source
enterprise solutions.  MSFT's CEO Steve Ballmer recently said
that Linux and free software products, "present a competitive
challenge for us (Microsoft) and our entire industry, and they
require our concentrated focus and attention."  And that is
exactly what investors appear to be doing; focusing their
attention on Linux and open-source related stocks.  The news
generated a sharp rally in Red Hat and traders who believe the
upside activity will continue can speculate on that outcome
with this position.

JUL-7.50 RCV GU LB=1.20 OI=340 CB=7.07 DE=42 TY=4.4%

EDS - Electronic Data Syms $21.99 *** Bottom Fishing: Part II ***

Electronic Data Systems (NYSE:EDS) is a professional services firm
that offers its clients a portfolio of related services worldwide
within the broad categories of traditional information technology
outsourcing, business process outsourcing, consulting, and product
lifecycle management software and services.  Services include the
design, construction and/or management of networks, information
systems, information processing facilities and business processes.
The company's end-to-end portfolio of services integrates its four
lines of business: operations solutions, solutions consulting,
product lifecycle management (PLM) solutions and A.T. Kearney.
EDS has moved up sharply recently as the stock recovers from last
September's crash.  Investors appear to be anticipating good news
when the company talks to analysts on June 18.  We simply favor the
recent move above EDS' 150-day MA on heavy volume and the technical
support area near our cost basis.  Investors who believe that EDS
has turned the corner can use this position to speculate on the
company's future.

JUL-20.00 EDS GD LB=3.00 OI=3610 CB=18.99 DE=42 TY=3.9%

IMMU - Immunomedics  $6.91  *** Cheap Speculation! ***

Immunomedics (NASDAQ:IMMU) is a biopharmaceutical company focused
on the development, manufacture and marketing of monoclonal
antibody-based products for the detection and treatment of cancer
and other serious diseases.  The company has developed a number
of advanced proprietary technologies that allow it to create
humanized antibodies that can be used either alone in unlabeled
form or conjugated with radioactive isotopes, chemotherapeutics or
toxins to create highly targeted agents.  Using these technologies,
IMMU has built a broad pipeline of diagnostic and therapeutic
product candidates that utilize several different mechanisms of
action.  Its technologies are supported by an extensive portfolio
of intellectual property that includes approximately 80 issued
patents in the United States and 233 other issued patents worldwide.
Immunomedics rallied on heavy volume back in May on "no news".
Maybe it was the brief descriptions of two preclinical trials that
had been circulated prior to a planned meeting?  In any case, this
position offers favorable speculation in a rebounding stock with
a cost basis near technical support.  Target-shooting a lower
"net debit" will enhance the yield and downside protection in this

JUL-5.00 QUI GA LB=2.15 OI=87 CB=4.76 DE=42 TY=3.7%

ASIA - AsiaInfo  $5.97  *** Rally Mode = Cheap Speculation! ***

AsiaInfo Holdings (NASDAQ:ASIA) is a provider of telecommunications
network integration services and software solutions in China.  The
company's operations are organized as two strategic business units,
Communications Solutions and Operation Support System Solutions
(OSS).  The Communications Solutions business unit offers network,
service application, security and monitoring solutions.  The OSS
Solutions unit includes the AsiaInfo's highly scalable software,
which can automate a telecom carrier's key business processes such
as customer care and billing, order fulfillment and customer
relationship management.  ASIA conducts most of its operations
through two wholly owned subsidiaries, AsiaInfo Technologies (China)
and AsiaInfo Management Software.  AsiaInfo rallied strongly this
week on no news and moved significantly above a resistance area
near $5.00 (and now a support area).  This position offers a method
to conservatively speculate on the reason for the huge move with a
cost basis near support.  Targeting a lower price in the stock or
a higher price in the option (legging-in) should offer a favorable
cost basis -- much better than the one listed below.

JUL-5.00 EUJ GA LB=1.15 OI=418 CB=4.82 DE=42 TY=2.7%



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

COB     8.09  JUN  7.50  COB FU  1.10  1421   6.99  14  15.9%
RTIX   12.75  JUN 12.50  RQK FV  0.75  3     12.00  14   9.1%
RMBS   18.58  JUN 17.50  BNQ FW  1.75  3986  16.83  14   8.6%
FWHT   13.94  JUN 12.50  HFQ FV  1.85  94    12.09  14   7.4%
CCRT   13.00  JUN 12.50  CUE FV  0.85  0     12.15  14   6.3%
BPUR    6.11  JUL  5.00  QPU GA  1.50  2324   4.61  42   6.1%
DMRC   15.27  JUN 15.00  DQT FC  0.65  23    14.62  14   5.7%
HEPH   13.71  JUN 12.50  QGQ FV  1.50  10    12.21  14   5.2%
OIIM   15.98  JUL 15.00  XQQ GC  1.80  303   14.18  42   4.2%
PSTI   10.50  JUL 10.00  MQA GB  1.05  50     9.45  42   4.2%
OPWV    2.77  JUL  2.50  UGE GZ  0.40  3811   2.37  42   4.0%
EPNY    5.51  JUL  5.00  UEP GA  0.70  86     4.81  42   2.8%


Option Trading 101: Q&A On Strategies
By Ray Cummins

One of our readers asked about a strategy that involves "naked"
puts but has substantial upside potential on bullish issues.

Attn: Naked-Puts Editor
Subject: Buying Calls With Puts?

Hello Ray,

I just started reading about spreads and combination strategies
and I have been following the picks in your other sections.  I
came across a play (ICOS) that included buying a call and selling
a put on the same stock.  This "synthetic" play seemed strange at
the time - a bit too bullish? - even though the stock is now up
about $10.  I know you would have made a ton just buying calls so
why sell the puts?  Are you trying to pay for the calls with the
put premiums? If so, it sounds like a neat way to speculate on
bullish stocks without spending any cash.

Anyway, a great pick it was! I just wish you had put it in with
the naked puts plays.


Editor's Note -- Here is the position, from 5/25/03, referred to
in the E-mail:

ICOS - ICOS Corporation  $29.85

PLAY (very speculative - bullish/synthetic position):

BUY  CALL  JUL-35.00  IIQ-GG  OI=812   ASK=$0.85
SELL PUT   JUL-25.00  IIQ-SE  OI=1796  BID=$0.85

Note:  Using options, the position is similar to being long the
stock.  The minimum initial margin/collateral requirement for the
sold option is approximately $800 per contract.  However, do not
open this position if you can not afford to purchase the stock at
the sold put strike price ($25).

Hello GR,

Indeed, one of the best methods for speculating on directional
issues with options is the synthetic position.  The simplest way
to explain synthetic positions in the financial world is to say
that they are simply alternate ways of constructing the same
risk-reward outlook with different issues or instruments.  The
term "synthetic" is an appropriate description because a unit of
the underlying issue is simply being synthesized.  Futures traders
often use combinations of various derivatives to produce similar
profit/loss characteristics with commodities and fund managers
utilize many of the same techniques to reduce the risk of adverse
market movements in large equity portfolios.  Retail traders can
also benefit from those strategies by creating positions that
mirror the activity of specific stocks and indexes.  With the
purchase of a call and the sale of a put of the same strike and
duration, traders can capitalize on anticipated stock movement
without investing as much capital as they would when buying the
underlying issue on the open market.  Recall that when you buy
stock, you are considered "long", as you own it outright and will
participate fully in any price appreciation of the stock.  With a
synthetic position, the leverage of options magnifies any gain in
the underlying issue, thus providing exponential returns on any
upside activity.

The advantages to this unique strategy are numerous but the major
incentive for this type of approach is that its payoff structure
is very similar to holding a long stock position and yet traders
are not required to take physical delivery of the issue to benefit
from its activity.  Second, the initial capital requirements for
a synthetic position are much lower than being long on the stock,
even when using maximum margin in the purchase.  Finally, since
the synthetic delivers the same performance as a long position
in the underlying issue, there is no additional risk in using
derivatives to duplicate the basic stock ownership strategy.  Of
course, there are some basic requirements for participating in
this strategy, such as having a margin account and the ability to
sell cash-secured or "naked" options.  Another aspect that traders
should be aware of is the ongoing collateral requirement for the
sold (short) options due to the possibility of assignment.  That
expense must be factored into the final analysis of the strategy
when comparing it to other techniques, such as buying the issue
outright or using a combination of stocks and options to produce
a similar position.

A Speculative, Low-Risk Approach

For most traders, the ability to profit from a stock's movement at
a fraction of the cost of owning the issue is the primary reason
for utilizing options.  The bullish, limited-risk approach falls
into two primary categories: option buying and (covered) option
selling, and the most common method of option trading among retail
participants has always been the purchase of calls.  That technique
can be very profitable but it requires an initial capital outlay
and in the case of in- or at-the-money options, leaves the trader
exposed to a large amount of downside risk.  In addition, traders
who purchase options during a strong directional movement in the
underlying will be forced to pay higher premiums, greatly reducing
the probability of profit.  Those who realize the unique difficulty
associated with this type of approach are forced to remain on the
sidelines until they discover an alternative method.  Fortunately,
there are numerous combination strategies that can help limit the
overall cost of the trade and simultaneously benefit from inflated

One of these techniques is a variation of the synthetic position
using "out-of-the-money" options to construct a more speculative
outlook play with lower probability of profit and reduced risk.
In this case, you buy an out-of-the-money call to take advantage
of any extreme or rapid upward movement in the underlying issue,
and you sell an out-of-the-money put to pay for the call.  Buying
an OTM call costs less, at the expense of position Delta, but the
drawback is offset by the sale of an OTM put, which provides a
greater margin of downside risk.  As with any naked-put position,
you must be willing to own the underlying stock in the event of
an unexpected downturn but, by using OTM options, you will have a
larger cushion to absorb additional volatility in the issue.  At
first glance, this strategy may appear far too speculative to be
viable for conservative traders, but in truth, it works very well
with trending issues that have large upside potential and the risk
is little more than if you sold the identical cash-secured put to
collect premium on a bullish stock.

The great feature of options is they can be used in a number of
ingenious ways to create the most appropriate position for the
current market outlook and your personal risk/reward attitude.
The right combination of puts and calls can produce an effective
position with results that are similar to being long on the stock,
with less expense, and portfolio collateral can be used to finance
the entire transaction.  This approach also has the potential for
unlimited gain, thus providing an opportunity (one you don't have
with naked-puts alone) to overcome a number of losing plays.

As with any speculative strategy, be sure to thoroughly explore
the various outcomes and potential risk, so you can comfortably
execute the technique to its fullest potential.

Good Luck!


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

IMCLE   28.50   38.39  JUN 22.50  0.50    0.50*   3.3%  11.7%
USG     11.85   11.81  JUN  7.50  0.35    0.35*   4.3%  11.2%
OVTI    35.89   34.74  JUN 30.00  0.70    0.70*   3.5%  11.1%
CTIC    11.96   12.40  JUN 10.00  0.30    0.30*   3.5%  10.8%
ANPI    28.27   32.77  JUN 22.50  0.80    0.80*   3.2%  10.8%
CTIC    10.21   12.40  JUN  7.50  0.25    0.25*   3.0%   9.5%
ANPI    25.20   32.77  JUN 17.50  0.75    0.75*   3.2%   9.4%
FLEX    10.50   10.73  JUN 10.00  0.25    0.25*   3.7%   9.2%
IMCLE   21.20   38.39  JUN 15.00  0.50    0.50*   3.0%   9.2%
OVTI    28.64   34.74  JUN 22.50  0.80    0.80*   2.7%   8.9%
APPX    27.77   37.00  JUN 22.50  0.65    0.65*   2.6%   8.7%
SOHU    28.04   28.57  JUN 22.50  0.35    0.35*   2.3%   8.4%
NVDA    21.37   25.76  JUN 17.50  0.55    0.55*   2.3%   7.6%
CELG    27.42   34.76  JUN 22.50  0.70    0.70*   2.3%   7.5%
OVTI    30.92   34.74  JUN 25.00  0.45    0.45*   2.1%   7.3%
ITMN    23.89   26.34  JUN 20.00  0.60    0.60*   2.2%   6.9%
ITMN    25.76   26.34  JUN 22.50  0.60    0.60*   2.4%   6.8%
OSIP    26.08   34.83  JUN 22.50  0.40    0.40*   2.0%   6.2%
SOHU    22.83   28.57  JUN 17.50  0.35    0.35*   1.8%   6.2%
ICST    26.05   29.02  JUN 22.50  0.30    0.30*   2.0%   6.1%
NVLS    34.67   38.70  JUN 30.00  0.40    0.40*   2.0%   6.0%
CELG    31.10   34.76  JUN 25.00  0.35    0.35*   1.6%   5.9%
ANPI    28.45   32.77  JUN 22.50  0.30    0.30*   1.5%   5.6%
SFA     20.29   20.77  JUN 17.50  0.35    0.35*   1.8%   5.4%
NVDA    21.26   25.76  JUN 17.50  0.30    0.30*   1.5%   5.2%
APPX    23.40   37.00  JUN 15.00  0.35    0.35*   1.7%   5.0%
APPX    32.20   37.00  JUN 25.00  0.30    0.30*   1.4%   5.0%
GNSS    19.02   16.62  JUN 17.50  0.40   -0.48    0.0%   0.0%

*  Stock price is above the sold striking price.


Another week of (irrational?) exuberance among investors has
helped our portfolio maintain a near-perfect record.  Genesis
Microchip (NASDAQ:GNSS) is the only "fly in the ointment" as
the stock tanked after posting a mediocre mid-quarter update.
Friday morning's rally offered a near break-even exit and that
was all we needed to move this play to the "previously closed"

Previously Closed Positions: Artisan (NASDAQ:ARTI), which is
currently profitable, and Cyberonics (NASDAQ:CYBX).


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.


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:



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.


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  38.39  JUN 30.00  QCI RF 0.40 3009  29.60  14   2.9%  10.8%
BRCM   26.01  JUN 22.50  RCQ RX 0.30 5905  22.20  14   2.9%   9.1%
CELG   34.76  JUN 30.00  LQH RF 0.40 7752  29.60  14   2.9%   9.1%
CYMI   34.51  JUN 30.00  CQG RF 0.35 5662  29.65  14   2.6%   7.9%
BSX    56.06  JUN 45.00  BSX RI 0.40 29084 44.60  14   1.9%   7.4%
ICOS   40.25  JUN 30.00  IIQ RF 0.25 6638  29.75  14   1.8%   6.5%
MERQ   42.26  JUN 37.50  RQB RT 0.30 1523  37.20  14   1.8%   5.2%

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  $38.39 *** More Drug Speculation! ***

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 this week
after ImClone and Bristol-Myers Squibb, its pharmaceutical partner,
said they would resubmit a marketing application for Erbitux in the
second half of this year. Analysts are optimistic about the drug's
prospects for approval and traders who wouldn't mind owning IMCLE
at a cost basis near $30 should consider this position.

JUN-30.00 QCI RF LB=0.40 OI=3009 CB=29.60 DE=14 TY=2.9% MY=10.8%

BRCM - Broadcom  $26.01 *** Entry Point? ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services. Broadcom designs, develops and
supplies complete system-on-a-chip solutions and related hardware
and software applications for every major broadband communications
market. Broadcom's diverse product portfolio includes solutions
for digital cable set-top boxes and cable modems; high-speed local,
metropolitan and wide area and optical networks; home networking;
Voice over Internet Protocol; carrier access; residential broadband
gateways; direct satellite and terrestrial digital broadcast; DSL;
wireless communications; SystemI/OTM server solutions, and for
broadband network processors. Broadcom was one of the few issues
that held on to Friday morning's gains and the recent technical
indications suggest long-term upside potential for this popular
company in the semiconductor sector.

JUN-22.50 RCQ RX LB=0.30 OI=5905 CB=22.20 DE=14 TY=2.9% MY=9.1%

CELG - Celgene  $34.76 *** Biotech Boom! ***

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. Last week, the CEO of Celgene
affirmed that his company expects to be profitable this year,
and he expressed hopes about an experimental cancer treatment
now in development. The new drug, Revimid, appears to have
strong potential as a cancer treatment and the drug could win
FDA clearance in 2004 as a treatment for MDS, a blood disease
that leads to leukemia. Investors who like the outlook for
Celgene can establish a cost basis near $30 in the issue with
this position.

JUN-30.00 LQH RF LB=0.40 OI=7752 CB=29.60 DE=14 TY=2.9% MY=9.1%

CYMI - Cymer  $34.51 *** Chip-Equipment Rally! ***

Cymer (NASADQ:CYMI) is a supplier of excimer light sources, the
essential light source for deep ultraviolet photolithography
systems. DUV lithography is a key technology that has allowed
the semiconductor industry to meet the exact specifications and
manufacturing requirements for volume production of advanced
semiconductor chips. The firm's light sources are incorporated
into step-and-repeat (steppers) and step-and-scan (scanners)
photolithography systems for use in the manufacture of various
semiconductors with critical feature sizes below 0.35 microns.
Cymer's products consist of photolithography light sources,
replacement parts and service. The firm maintains a worldwide
service organization that supports its installed base of light
sources. Cymer has been one of the better performers in the
semiconductor-equipment sector over the past two weeks and
traders who believe the recent momentum will keep the shares
above $30 in the near-term can profit from that outcome with
this position.

JUN-30.00 CQG RF LB=0.35 OI=5662 CB=29.65 DE=14 TY=2.6% MY=7.9%

BSX - Boston Scientific  $56.06 *** Bullish Stent-Maker ***

Boston Scientific (NYSE:BSX) is a global developer, manufacturer
and marketer of less-invasive medical devices. The firm's unique
products are offered by two major business groups, Cardiovascular
and Endosurgery. The Cardiovascular segment focuses on products
and technologies for use in the firm's interventional cardiology,
interventional radiology, peripheral vascular and neurovascular
procedures. The Endosurgery organization focuses on products and
technologies for use in oncology, vascular surgery, endoscopy,
urology and gynecology procedures. Boston Scientific has soared
to incredible heights on speculation over the company's expected
filing with the Food and Drug Administration for its drug-eluting
stent. Aggressive traders can use the inflated option premiums to
profit from further upside activity in the issue.

JUN-45.00 BSX RI LB=0.40 OI=29084 CB=44.60 DE=14 TY=1.9% MY=7.4%

ICOS - ICOS Corporation  $40.25 *** Speculation Only! ***

ICOS Corporation (NASDAQ:ICOS) develops pharmaceutical products
with significant commercial potential by combining its unique
capabilities in molecular, cellular and structural biology,
high-throughput drug screening, medicinal chemistry and gene
expression profiling. The firm applies its integrated approach
to erectile dysfunction and other urologic disorders, sepsis,
pulmonary arterial hypertension and cardiovascular diseases, as
well as inflammatory diseases. The company has established
collaborations with pharmaceutical and biotechnology companies
to enhance its internal development capabilities and to offset
a substantial portion of the financial risk of developing its
product candidates. ICOS shares rocketed higher last week in
the wake of bullish research data on Cialis, an investigational
oral treatment for erectile dysfunction being developed by Lilly
and ICOS. The rally continued after ICOS announced that it and
Biogen (NASDAQ:BGEN) will conclude their program collaboration
on LFA-1, a molecule found in certain immune cells, with ICOS to
acquire sole rights to the program. ICOS intends to pursue small
molecule treatments based on antagonism of LFA-1 and apparently,
investors are happy with the news.

JUN-30.00 IIQ RF LB=0.25 OI=6638 CB=29.75 DE=14 TY=1.8% MY=6.5%

MERQ - Mercury Interactive  $42.26 *** Multi-Year High! ***

Mercury Interactive (NASDAQ:MERQ) is a provider of integrated
performance management solutions that enable businesses to test
and monitor their Web-based applications. Its software products
and hosted services help Global 2000 companies enhance the user
experience by improving the performance, availability, reliability
and scalability of their Web-based applications. Its many hosted
services provide its customers with a cost-effective solution that
quickly meets business needs without dedicating significant time
and internal resources. Its integrated performance management
solutions enable customers to more quickly identify and correct
problems before users experience them. The company also provides
outsourced load testing and Web performance monitoring services
that complement its software products. Shares of MERQ traded at
a new multi-year high Friday and the stock finished with a small
gain, despite the late-session sell-off. The activity suggests
technical strength in the near-term and investors who are bullish
on the issue can speculate on its future performance with this

JUN-37.50 RQB RT LB=0.30 OI=1523 CB=37.20 DE=14 TY=1.8% MY=5.2%



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

RMBS   18.58  JUN 17.50  BNQ RW 0.65 1624  16.85  14   8.4%  20.2%
PDLI   18.86  JUN 17.50  PQI RW 0.60 246   16.90  14   7.7%  19.2%
HEPH   13.71  JUN 12.50  QGQ RV 0.40 20    12.10  14   7.2%  18.6%
ENTG   13.60  JUN 12.50  UFN RV 0.40 44    12.10  14   7.2%  18.3%
SEPR   25.35  JUN 22.50  ERQ RX 0.50 1821  22.00  14   4.9%  13.9%
APPX   37.00  JUN 30.00  AQO RF 0.45 2713  29.55  14   3.3%  11.9%
SRNA   21.00  JUN 20.00  NHU RD 0.35 152   19.65  14   3.9%   9.8%
CREE   25.00  JUN 22.50  CVO RX 0.30 2636  22.20  14   2.9%   8.4%
JCOM   34.30  JUN 30.00  JQF RF 0.35 1823  29.65  14   2.6%   7.8%
CVTX   34.97  JUN 27.50  UXC RY 0.25 275   27.25  14   2.0%   7.5%
BBY    41.87  JUN 37.50  BBY RU 0.30 3629  37.20  14   1.8%   5.1%



Bulls Rule For Another Week!
By Ray Cummins

Stocks consolidated Friday after a second straight week of gains,
driven by optimism over a recovery in the U.S. economy.

Blue-chip shares were among the few winners during the volatile
session with the Dow industrial average closing 21 points higher
at 9,062.  The tech-laden NASDAQ index slid 18 points to 1,627
amid record volume as traders locked-in profits from the recent
rally.  The Standard & Poor's 500 index drifted 2 points lower to
987, after rising above 1,000 for the first time in over a year.
Advancing issues were on pace with declining issues on the NYSE
but technology winners lagged behind hi-tech losers by a 6 to 5
ratio.  Trading volume was heavy, with more than 1.83 billion
shares traded on the Big Board while a near-record 2.95 billion
shares were swapped on the NASDAQ.  In the U.S. Treasury market,
the 30-year bond bucked the overall trend, climbing 5/32 with its
yield down to 4.40%.  The benchmark 10-year note fell 2/32, with
its yield rising to 3.35% from Thursday's 40-year low of 3.24%.


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 or 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.


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

BZH     71.80  88.80   JUN  60  65   0.55  64.45  $0.55   Open
CECO    60.52  62.80   JUN  50  55   0.50  54.50  $0.50   Open
FDC     40.22  43.60   JUN  35  37   0.30  37.20  $0.30   Open
RCII    65.35  71.31   JUN  55  60   0.50  59.50  $0.50   Open
ADTN    45.05  54.11   JUN  35  40   0.45  39.55  $0.45   Open
KLAC    42.49  49.11   JUN  35  37   0.30  37.20  $0.30   Open
LLTC    36.34  35.13   JUN  30  32   0.30  32.20  $0.30   Open
ROST    40.09  42.75   JUN  35  37   0.40  37.10  $0.40   Open
BSX     48.70  56.06   JUN  37  40   0.25  39.75  $0.25   Open
UNH     95.41  97.86   JUN  85  90   0.55  89.45  $0.55   Open
WLP     81.05  85.35   JUN  70  75   0.40  74.60  $0.40   Open
BSX     50.51  56.06   JUN  40  42   0.25  42.25  $0.25   Open
PHM     63.71  66.15   JUN  55  60   0.40  59.60  $0.40   Open
BSX     50.51  56.06   JUN  40  42   0.25  42.25  $0.25   Open
CYMI    33.31  34.51   JUN  25  30   0.50  29.50  $0.50   Open
GILD    52.50  52.20   JUN  45  47   0.25  47.25  $0.25   Open
KLAC    46.23  49.11   JUN  40  42   0.30  42.20  $0.30   Open
PIXR    56.55  60.54   JUN  45  50   0.25  49.75  $0.25  No Play

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


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

PG      90.15   90.80  JUN  100  95  0.40   95.40   $0.40   Open
MMM    122.81  126.40  JUN  135 130  0.50  130.50   $0.50   Open
ANF     27.25   27.92  JUN   32  30  0.20   30.20   $0.20   Open
GM      34.41   35.74  JUN   40  37  0.25   37.75   $0.25   Open
JCI     81.61   85.99  JUN   90  85  0.55   85.55  ($0.44)  Open?
BRL     52.56   57.81  JUN   60  55  0.70   55.70  ($2.11) Closed
BRL     52.75   57.81  JUN   60  55  0.50   55.50  ($2.31) Closed
KSS     51.22   53.39  JUN   60  55  0.55   55.55   $0.55   Open
LLL     43.35   43.81  JUN   50  45  0.55   45.55   $0.55   Open

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

Traders in the Barr Laboratories (NYSE:BRL) position should have
exited the spread Thursday (for a smaller than published loss)
when the stock rallied above the sold (call) strike at $55.  The
Johnson Controls (NYSE:JCI) play is also suspect and should be
closed on any further upside activity.  Kohl's (NYSE:KSS) and L-3
Communications (NYSE:LLL) are on the "watch" list.  Positions in
Cabot Micro (NASDAQ:CCMP), Goldman Sachs (NYSE:GS) and Nabors
Industries (NYSE:NBR) has previously been closed to limit losses.


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

AXP     38.46  43.18  JUN   32  35   2.20   34.70  0.30   Open
GENZ    41.47  46.68  JUN   35  37   2.20   37.20  0.30   Open
BSX     46.91  56.06  JUN   37  40   2.25   39.75  0.25   Open
MERQ    35.75  42.26  JUN   30  32   2.25   32.25  0.25   Open
PNC     49.25  48.85  JUN   45  47   2.25   47.25  0.25   Open

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


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

WMT     52.92  53.82  JUN   60  55   4.50   55.50   0.50   Open
HDI     40.81  44.53  JUN   45  42   2.10   42.90  (1.63) Closed

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

Harley Davidson (NYSE:HDI) was previously on the "watch" list and
the position should have been closed (or adjusted) when the issue
moved above the sold strike at $42.50.


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

SMH     26.43  30.50   AUG     30    22     0.10    2.50    Open
MRVL    26.72  32.65   JUN     30    22    (0.20)   3.60    Open
ICOS    29.85  40.25   JUL     35    25    (0.40)  10.00+   Open?
QCOM    33.55  33.55   JUL     37    30     0.10    0.40    Open?

The position in Icos Corporation (NASDAQ:ICOS) did not offer the
target entry price, but the play was incredibly profitable for
traders who paid a small debit to open the speculative synthetic
position.  Qualcomm (NASDAQ:QCOM) has offered a favorable profit
for short-term traders.  The Silicon Laboratories (NASDAQ:SLAB)
position, although profitable, has previously been closed.


No Open Positions


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

BMET    28.52  28.79   JUL-30C   JUN-30C  (0.70)   0.45    Open
ESI     29.11  27.15   OCT-30C   JUN-30C   1.35    1.60    Open
IBM     87.57  80.05   JUL-90C   JUN-90C   0.25    1.30   Closed
CHKP    18.05  20.18   OCT-20C   JUN-20C   0.70    1.60    Open
GDT     39.98  43.29   OCT-45C   JUN-45C   1.45    1.70    Open
NSM     21.80  23.14   JAN-25C   JUN-25C   2.10    2.50    Open
BRCM    21.40  26.01   JAN-25C   JUN-25C   2.15    3.25    Open
SRNA    19.71  21.00   AUG-22C   JUN-22C   0.70    0.90    Open
VRTY    18.85  19.52   SEP-20C   JUN-20C   1.00    1.25    Open
VIA     44.95  46.68   AUG-47C   JUN-47C   1.10    1.40    Open
SEAC    11.26  10.19   OCT-12C   JUN-12C   0.85    0.65    Open
MCDT    13.47  13.47   OCT-15C   JUN-15C   0.95    0.80    Open

The position in Filenet (NASDAQ:FILE) has previously been closed.


Symbol  Pick   Last   Month  SC  SP  Credit   C/V    G/L   Status

NXTL    13.60  14.26   JUN   15  12   0.75    0.40   0.30   Open
MGAM    24.53  24.46   JUN   25  22   1.90    1.50   0.40   Open

SC = Short Call SP = Short Put C/V = Current value G/L = Gain/Loss


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

TYC     17.27  17.94   JUL   17.5  17.5   1.80     2.10    Open

Questions & comments on spreads/combos to Contact Support

Attn: Spreads/Combos Editor
Subject: Strategy Selection

Dear Ray,

In your spread column, you suggest some stocks for debit spreads
and some for credit spreads.  As far as I understand, a call credit
spread is the same as a put debit spread of the same strike prices.


What makes you decide to list the stock as a call credit instead
of the put debit?  Am I correct that there needs to be just two
categories?  First is a bull spread that can be either a put
credit or call debit.  And second is a bear spread that can be
either a call credit or put debit?

Also, how you decide which stock to select for debit and which
for credit?



Hello AA,

Your comments are correct:

There are two types of vertical (price) spreads -- credit and debit.

Credit Spreads: The bear-call (bearish) and the bull-put (bullish)
Debit Spreads: The bull-call (bullish) and the bear-put (bearish)

Both debit and credit spreads have the same risk-reward outlook.

One advantage of credit spreads is they can be funded with portfolio
collateral (stocks on margin) while debit spreads need an investment
of actual cash.  In addition, credit spreads have lower commission
costs because both options (in a successful position) are simply
allowed to expire.  However, some traders favor positions that have
no margin requirement and that's why I try to list at least one debit
spread each week.  The primary disadvantage to in-the-money debit
spreads (which are equivalent to out-of-the-money credit spreads) is
the potential profits are slightly lower at the same cost basis, due
to the characteristics of option pricing.  For example, it is rare to
find an in-the-money put debit spread that will provide the same risk
to profit ratio as the equivalent out-of-the-money call credit spread.
The same situation exists with in-the-money call debit spreads and
out-of-the-money" put credit spreads.  The reason is that in-the-money
options have very little extrinsic value (premium), when compared to
out-of-the-money options, which are generally all premium, and also
because the bid/ask spreads are larger, which means you pay more money
for long options and sell short options for less money.

The easiest way to choose between one strategy or the other is to
determine which approach has a better risk versus reward ratio.  If
a credit spread offers $0.25 premium on $2.25 collateral, it is a
better (theoretical, with all things equal) choice than a debit
spread that offers $0.20 profit on $2.30 invested.

Example (using 6/02/03 prices -- 12:30 EST):

KLA-Tencor (NASDAQ:KLAC) $46.95

Credit Spread

BUY  PUT  KCQ RH  BID=0.25  ASK=0.30
SELL PUT  KCQ RV  BID=0.55  ASK=0.65
CREDIT = $0.25 PROFIT POTENTIAL = 11% (.25/2.25)

Debit Spread

BUY  CALL  KCQ FH   BID=7.2  ASK=7.3
DEBIT = $2.30 PROFIT POTENTIAL = 8% (.20/2.30)

In this case, the credit spread offers a better risk/reward outlook
(and fewer commissions).

The moral of the story?  Traders who favor low risk/high probability
(vertical) spread strategies will almost always find better profit
potential in OTM credit spreads than in the equivalent debit spreads.

Here is a link for more (vertical/price) spreads information:


And a good book on the subject of spreads and combinations is "Options
As A Strategic Investment" by Lawrence G. McMillan.

Hope that helps!



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.


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.

AGN - Allergan  $77.24  *** New 8-Month High! ***

Allergan (NYSE:AGN) is a technology-driven, global healthcare
firm that develops and commercializes specialty pharmaceutical
products for the ophthalmic, neurological, dermatological and
other specialty markets.  The company is engaged in specialty
pharmaceutical research, targeting products and technologies
related to specific disease areas, such as glaucoma, retinal
disease, dry eye, psoriasis, photodamage, movement disorders,
metabolic disease and various types of cancer.  Within these
areas, Allergan provides therapeutic and other prescription
products, and, to a limited degree, over-the-counter products
that are sold in more than 100 countries worldwide.

AGN - Allergan  $77.24

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-65.00  AGN-SM  OI=1840  ASK=$0.35
SELL PUT  JUL-70.00  AGN-SN  OI=517   BID=$0.85
POTENTIAL PROFIT(max)=11% B/E=$69.50

ERTS - Electronic Arts  $72.35  *** Break-Out! ***

Electronic Arts (NASDAQ:ERTS) is a global software company that
operates in two principal business segments.  The company's core
business segment comprises the creation, sales and distribution
of entertainment software, while the EA.com business segment is
composed of the creation, sales and distribution of entertainment
software that can be played or sold online, ongoing management of
subscriptions of online games and Website advertising.  Electronic
Arts publishes products in a number of categories such as sports,
action, strategy, simulations, role-playing and adventure.  The
company develops or publishes products for eight different hardware
platforms and distributes its products and those of its affiliated
labels primarily by direct sales to retail chains and outlets in
the United States and Europe.

ERTS - Electronic Arts  $72.35

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-60.00  EZQ-SL  OI=1543  ASK=$0.35
SELL PUT  JUL-65.00  EZQ-SM  OI=394   BID=$0.80
POTENTIAL PROFIT(max)=11% B/E=$64.50

MEDI - MedImmune  $39.04  *** FluMist Speculation! ***

MedImmune (NASDAQ:MEDI) is a biotechnology company with a range of
unique products on the market and a diverse product pipeline.  The
firm is focused on using advances in immunology and other biological
sciences to develop new products that address significantly unmet
medical needs in areas of infectious disease, immune regulation and
cancer.  MedImmune actively markets three products, Synagis, Ethyol
and CytoGam and seeks to launch a potential blockbuster product,
FluMist, later this year.

MEDI - MedImmune  $39.04

PLAY (speculative - bullish/credit spread):

BUY  PUT  JUN-32.50  MEQ-RZ  OI=5052  ASK=$0.35
SELL PUT  JUN-35.00  MEQ-RG  OI=2292  BID=$0.65
POTENTIAL PROFIT(max)=14% B/E=$34.70

UNH - UnitedHealth Group  $97.86  *** 2-For-1 Split Coming! ***

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

UNH - UnitedHealth Group  $97.86

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-85.00  UHB-SQ  OI=302  ASK=$0.75
SELL PUT  JUL-90.00  UHB-SR  OI=273  BID=$1.25
POTENTIAL PROFIT(max)=12% B/E=$89.45

APC - Anadarko Petroleum  $44.46  *** Revenge Play! ***

Anadarko Petroleum (NYSE:APC), through RME Petroleum Company,
RME Holding Company, Anadarko Canada Energy, Anadarko Canada
Corporation, RME Land and Anadarko Algeria Company, is a global
independent oil and gas exploration and production company.  The
The company's major areas of operations are located in the United
States, primarily in Texas, Louisiana, the mid-continent region
and the western states, Alaska and in the shallow and deep waters
of the Gulf of Mexico, as well as in Canada and Algeria.  APC is
also active in Venezuela, Qatar, Oman, Egypt, Australia, Tunisia,
Congo and Gabon.

APC - Anadarko Petroleum  $44.46

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-50.00  APC-GJ  OI=1291  ASK=$0.45
SELL CALL  JUN-47.50  APC-GW  OI=273   BID=$0.85
POTENTIAL PROFIT(max)=19% B/E=$47.90

IBM - International Business Machines  $80.05  *** Rolling Over? ***

International Business Machines Corporation (NYSE:IBM) manufactures
and sells computer services, hardware and software.  The firm also
provides financing services in support of its computer business.
The company'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  $80.05

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-90.00  IBM-FR  OI=32545  ASK=$0.15
SELL CALL  JUN-85.00  IBM-FQ  OI=21580  BID=$0.45
POTENTIAL PROFIT(max)=7% B/E=$85.35


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

NBIX - Neurocrine Biosciences  $56.84  *** Rally Mode! ***

Neurocrine Biosciences (NASDAQ:NBIX) is a unique, product-based
biopharmaceutical company focused on neurological and endocrine
diseases and disorders.  Their product candidates address some
of the largest pharmaceutical markets in the world including
insomnia, anxiety, depression, diabetes, multiple sclerosis,
irritable bowel syndrome, eating disorders, pain, autoimmunity
and certain female and male health disorders.  The company has
a large number of programs in various stages of research and
clinical development.  Its lead clinical development program is
indiplon, a drug for the treatment of insomnia that is being
evaluated in Phase III clinical trials.  The company's other
products under clinical development are altered peptide ligand,
gonadotropin-releasing hormone antagonist, interleukin 4 fusion
toxin and corticotropin-releasing factor.

NBIX - Neurocrine Biosciences  $56.84

PLAY (less conservative - bullish/debit spread):

BUY  CALL  JUL-45.00  UOT-GI  OI=10  A=$12.10
SELL CALL  JUL-50.00  UOT-GJ  OI=69  B=$7.70
POTENTIAL PROFIT(max)=15% B/E=$49.35


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.

BEAS - BEA Systems  $11.08  *** Bullish Sector! ***

BEA Systems (NASDAQ:BEAS) is the world's leading application
infrastructure software company, providing the enterprise
software foundation for more than 13,500 customers around the
world, including the majority of the Fortune Global 500.  BEA
and its popular WebLogic brand are among the most trusted names
in business.  BEA's WebLogic Services are based on a unified,
simplified and extensible application infrastructure platform
designed to enable organizations to evolve their application
infrastructure software on a project-by-project basis.  As a
result, the WebLogic platform provides greater responsiveness
to line-of-business needs, lowers overall IT costs, and also
increases the return on IT assets.

BEAS - BEA Systems  $11.08

PLAY (speculative - bullish/calendar spread):

BUY  CALL  SEP-12.50  BUC-IV  OI=7607   ASK=$1.25
SELL CALL  JUN-12.50  BUC-FV  OI=13386  BID=$0.25

EDS - Electronic Data Systems  $21.99  *** Recovery Underway! ***

Electronic Data Systems (NYSE:EDS) is a professional services firm
that offers its clients a portfolio of related services worldwide
within the broad categories of traditional information technology
outsourcing, business process outsourcing, consulting, and product
lifecycle management software and services.  Services include the
design, construction and/or management of networks, information
systems, information processing facilities and business processes.
The company's end-to-end portfolio of services integrates its four
lines of business: operations solutions, solutions consulting,
product lifecycle management (PLM) solutions and A.T. Kearney.

EDS - Electronic Data Systems  $21.99

PLAY (speculative - bullish/calendar spread):

BUY  CALL  SEP-25.00  EDS-IE  OI=124  ASK=$1.50
SELL CALL  JUN-25.00  EDS-FE  OI=93   BID=$0.30


Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable volatility-based plays.

RJR - R.J. Reynolds  $36.19  *** Reader's Request! ***

R.J. Reynolds Tobacco Holdings (NYSE:RJR) is the parent company
of R.J. Reynolds Tobacco Company and Santa Fe Natural Tobacco
Company.  R.J. Reynolds Tobacco Company is the second-largest
tobacco company in the United States, manufacturing about one of
every four cigarettes sold in the United States.  Their product
line includes four of the nation's 10 best-selling cigarette
brands: Camel, Winston, Salem and Doral.  Santa Fe Natural Tobacco
Company manufactures Natural American Spirit cigarettes and other
tobacco products, and markets them both nationally and on an
international basis.

RJR - R.J. Reynolds  $36.19

PLAY (very speculative - neutral/debit strangle):

BUY CALL  AUG-37.50  RJR-HU  OI=1249  ASK=$1.65
BUY PUT   AUG-35.00  RJR-TG  OI=300   ASK=$1.65

Editor's note: This position, which was suggested by one of our
readers, is a bit too aggressive for our portfolio.  However, it
does offer a favorable risk versus reward outlook for volatility
traders who like speculative plays.



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