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Daily Newsletter, Sunday, 05/16/2004

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The Option Investor Newsletter                   Sunday 05-16-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: Escaped With A Minor Loss
Futures Market: See Note
Index Trader Wrap: SLIPPAGE
Editor's Plays: Dead Carbohydrate Bounce
Market Sentiment: Big Moves
Ask the Analyst: See Note
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 5-14         WE 5-07         WE 4-30         WE 4-23
DOW    10012.87 -104.47 10117.3 -108.23 10225.6 -247.27 + 20.87
Nasdaq  1904.25 - 13.71 1917.96 -  2.19 1920.15 -129.62 + 54.03
S&P-100  535.47 -  1.88  537.35 -  3.53  540.88 - 15.92 +  1.86
S&P-500 1095.66 -  3.03 1098.69 -  8.61 1107.30 - 33.30 +  6.03
W5000  10634.71 - 51.33 10686.0 -107.62 10793.7 -356.76 + 72.34
SOX      450.99 -  6.02  457.01 + 13.52  443.48 - 44.50 +  7.84
RUT      543.76 -  4.80  548.56 - 11.24  559.80 - 30.91 +  7.34
TRAN    2848.89 +  2.71 2846.18 - 40.26 2886.44 -115.27 + 62.24
******************************************************************

Escaped With A Minor Loss
by Jim Brown

After a very rocky week traders escaped with only a minor loss
across all the indexes. The Dow was the most negative at -104
for the week and mostly on the back of losses in CAT, IBM, MRK,
C and JPM. The Nasdaq only finished with a -14 point drop despite
some high profile losses in individual stocks. As the time ran
out on the clock at Friday's close the bulls mounted a solid
goal line stand to prevent the Dow and Nasdaq both from dropping
under the critical 10000/1900 levels.

Dow Chart - Daily


Nasdaq Chart - Daily



After dropping to new lows for the year on Wednesday the Dow
has managed to trade sideways for two days at the 10000 level.
Considering the negativity from multiple events this was a
minor miracle. Unlike Thursday the economics on Friday were
great. The Consumer Price Index led the list with a minimal
+0.2% jump in the headline number and slightly below the +0.3%
consensus. The core rate only rose +0.3% and is now only +1.8%
for the year. No soaring inflation in sight for consumers
according to this report. Both numbers were actually less than
they were in March. If you dig into the internals it does show
that core inflation although moderate is growing an annualized
rate of +3.3% over the last three months. We are far from home
free. Most analysts do not expect this rate to continue but
to lessen over the summer. This slight bump in the core rate
is what lessened the Fed's fears of "unwelcome fall in inflation"
or what the rest of us would call deflation. To be free of the
"D" monster the Fed would be perfectly happy with a hint of
moderately higher inflation ahead.

The Fed has been trying to fan the inflationary fire under
conditions similar to midnight in the cold north woods. With
only one match left they are very relieved to see a warming
flame begin to develop from the smoldering economic embers.
The alternative was a cold winter night and frost on their
sleeping bags and bears closing in on all sides.

There was one small point of contention. The CPI actually
showed that energy prices slowed to only a +0.1% gain in
April. Anybody at least room temperature and breathing
should doubt this statistic based on the price of oil and
soaring gasoline prices. Expect an unwelcome upward revision
in May.

Also bullish was a +0.7% jump in Business Inventories and
well over consensus of only +0.5%. This was a March number
and February was revised up to +0.8%. The governments last
estimates for inventory buildup were very low and this hot
number should spike the GDP on the next revision. Business
Sales also shot up +2.9% prompting the inventory to sales
ratio to fall to a record low at 1.30. The +2.9% jump was
the largest single month gain in the 12 year history of the
report. Manufacturing shipments rose +3.8%. Considering
this is a March number and the 1.3 inventory to sales ratio
means there was only 1.3 months of inventory on hand I think
we are going to see a real blowout in April. We all know
April was a stronger month than March and those inventories
have got to be much lower today. This ties into the next
paragraph on Industrial Production and the rise in capacity
utilization. The race is on.

Industrial Production jumped a huge +0.8% and well over the
consensus at +0.3%. Capacity Utilization also rose +0.3% and
is at the highest level in over a year at 76.9%. Several
analysts believe this is artificially low and is a result of
the Fed's failure to remove "dead" capacity from their figures.
The ISM capacity utilization numbers are nearer 85% and this
is more in line with current production growth. However you
look at it the number was strong and climbing.

The negative news for the day was the Consumer Sentiment at
94.2 and unchanged from last month. Consensus was slightly
higher but the higher cost of gasoline appears to be an
offset to the new jobs. Also, the falling stock market over
the last two weeks and prisoner scandal in Iraq have combined
to depress expectations. The expectations component posted its
second consecutive monthly drop and is now at 85.8 suggesting
consumers are becoming more depressed as the summer doldrums
near. Consumers have held in the 94.5 range for the last six
months except for an unexplained spike in January to nearly
104. There is no explanation for that event and we have seen
nothing similar since. It remains to be seen if the pace of
job creation can overcome $50 oil and $3 gasoline.

$50 oil? Yes, that is the growing forecast. Demand continues
to grow faster than supply. Oil traded at a 20-year high on
Friday at $41.60 and closed at $41.40. This is the highest
level we have seen since the Iran hostage crisis in 1979
that sent oil to an inflation adjusted price of $78. OPEC
is meeting on May-22/24th to discuss boosting quotas and
Saudi Arabia called on OPEC to raise output by 1.5M barrels
per day. Don't hold your breath. I still believe the OPEC
countries around Iraq are mad at us for the war and are
extracting their pound of flesh in retaliation. Remember I
also mentioned last week that oil tankers are booked solid
for months to come and there is no additional shipping
capacity available. The manager of the Russian pipeline
system said output from Russia was at max capacity. This
eliminated hope that Russia could fill the shortfall. A
survey also announced on Friday said that oil consumption
in some sections of China would increase 600% over the next
year. Currently $44 is almost a given and $50 is the current
whisper number target. With unleaded now over $2.40 in many
places $50 oil could spike that price to $3.00 or more very
quickly. How would that impact consumer sentiment?

After the close on Friday Oracle reduced its bid for PSFT
to $21 from $26 to reflect "current market conditions".
Since the tech decline began ORCL has dropped from $15 to
$11.50 and PSFT dropped to $17 from $24. If ORCL could not
buy it for $26 I doubt they will be successful at $21. I am
sure they were beginning to have a lot of stockholders
reconsider their offer of $26 with the stock nearing 52-week
lows but that is ancient history now.

Dell traded down to $34.50 and barely saw any rebound after
posting earnings that disappointed quite a few traders. This
was just a drop in the bucket compared to the crash in ADIC
which fell to $7.50 from its $10 close on weaker than expected
earnings. BEAS got hit for a -22% loss from $10.80 to $8.34
after saying sales declined. This was the backdrop on Friday
that saw the Nasdaq hold over 1900 despite a -22 point drop.
There is no joy in tech land and the current three-week
decline is showing no signs of letting up.




The Dow has failed to rally from the massive sell off over
the last three weeks and could not get out of its trading
range all week. The negativity is very strong but there is
a chance that by holding the line we could be getting ready
to attempt a rebound. I know this would be a stretch for most
to comprehend given the heavy selling but don't count it out.

Wednesday was very negative and volume was high. Almost 2B
shares of the volume came in the last hour when the S&P bounced
off the 200dma in what is being called the Barton Biggs Bounce.
That bounce found no follow through but sellers have not been
able to put in a repeat performance. Volume for Thr/Fri was
very low with barely 3.5B shares traded and the A/D ratios
were almost even. Overall internals were much closer than
the indexes would lead you to believe. Only the Nasdaq
internals were significantly worse with declining volume
3:1 over advancing. The high profile earnings problems
contributed to this imbalance. More on the rebound
potential later.

Other internal problems included very large cash outflows
from mutual funds. I mentioned Thursday night the numbers
were somehow missing from the news reports. They appeared on
Friday and now we know why. Equity funds saw $2.4 billion in
outflows for the week ended on Wednesday. Junk bond funds saw
outflows of $2.15 billion indicating traders were becoming
much more concerned about the future and were jumping to
safety now that yields are nearing 5.0%. Emerging market
equity funds saw the largest fund outflows on record for
any single week. Tech funds saw cash outflows for the 15th
consecutive week. Considering the Wednesday drop probably
triggered many investors to head for the barn on Thursday
those outflows will not be tallied until next week.

There were several comments in the analyst community on
Friday about hedge fund losses over the last month. Names
were withheld to protect the guilty but evidently there are
some hedgies in serious trouble. Seems the monster moves and
whipsaw nature of the last couple months have caused some
best laid plans to go astray. The momentum players have had
their heads handed to them and nobody knows which way to
jump. Welcome to reality.

Speaking of reality it is coming home to roost for Greenspan.
His appointment as Chairman of the Fed is up on June 20th.
Bush has said he would reappoint him BUT has not done it yet.
With the next Fed meeting on June-30th the scuttlebutt making
the rounds has the Bush administration applying pressure to
Greenspan to delay the rate hikes until after the election.
The economy continues to ramp up, jobs are created, income
generated and everybody votes Republican. If this is the
case then somebody is smoking grass clippings. I could see
Bush leaning on Greenie about rates but not with a heavy hand.
If Bush is really withholding the appointment to apply pressure
it is more likely to get him to shut up about the deficit and
the looming Baby Boomer Social Security crash. Greenspan has
been taking shots at the administration for the last couple
of months as if he and Bush have their own cold war brewing.
Either way the countdown is on and after 14 years at the helm
their may only be 35 days left in Greenspan's tenure.

Ten-year Yields


Banking Index - Daily



When trying to generate a potential scenario for a market
rebound it must include financials and they are not leading
the pack. Bonds sold off at the open on Friday with ten-year
yields hitting 4.90% but then rallied on the tame CPI news.
Financials failed to gain any ground and until the Fed begins
its rate hike process there will be a cloud over the sector.

SOX Chart - Daily



Another cloud continues to be the Semiconductor sector and
the midweek rebound to 470 has been completely erased. The
SOX is threatening to break the May support at 440 and test
support from last September at 420. The Nasdaq cannot rebound
without the SOX.

Russell-2000 Chart - Daily




Behind the SOX the Russell was the next weakest supporter of
the Nasdaq on Friday. The index dropped back to close right
on its 200ema and very close to a significant drop. Small caps
continue to be weak and the record withdrawals from emerging
markets last week were a signal to me that the Russell is
likely seeing the same fund weakness. If you follow the
pattern on the chart above from the last touch of 600 you
will see large drops followed by several days of consolidation
and then a repeat of the process. This is a "b" pattern selling
cycle. The Russell could be about ready to take the next dump
to 520 to begin the next "b".

I started this conversation thread with the potential for a
coming rebound. Unfortunately the evidence is very thin and
not something on which I would bet the farm. Here is my case.
This is option expiration week. Open interest is very high,
much higher than normal and most of the indexes are underwater.
The MaxPain numbers for the DJX/DIA are 103, NDX 1425, SPX 1125
and QQQ 36. This suggests there could be some upward pressure
on Monday as traders attempt to square positions and market
makers try to maneuver the indexes higher to expire more
options worthless.

There are no material economic reports early in the week and
nothing significant in the earnings arena until Tuesday. The
Nikkei stopped its slide on Friday with a minimal gain but a
gain never the less. The Dow closed at 10000 support. The
Nasdaq at 1900 support and the NDX at 1400 support. It was
a fight but they all held their ground at the close in front
of weekend event risk. The SPX has not sold off since testing
its 200dma on Wednesday and has been holding 1095, right where
it closed. All of this is circumstantial evidence as the say
but it is the only evidence we have. They tried to sell them
both Thursday and Friday and were unsuccessful. As a betting
man I am betting we "could" see an options related rebound on
Monday morning assuming there are no "events" over the weekend.

If we do see a rebound I expect it to only be a trading rally
and we continue to see weakness once positions are squared.
The Dow has resistance at 10200 and strong resistance at 10300.
I would be very surprised to see those touched. The Nasdaq is
the weak link and has strong resistance at 1930, 1950 and 1960.
Corresponding resistance for the SPX is 1110 and 1120. Any
expiration rally should slow considerably at those levels.
I continue to advise selling any rally until the pattern
changes.

I still believe we have some serious risk in front of us
with rates, Iraq, elections, Olympics, oil prices, China
and declining earnings growth. Now we have the Greenspan
time bomb ticking down in our future. Whatever you think
about Greenspan the markets will definitely be volatile
around any change in the Fed chairmanship. Views of any
new appointee will be immediately scrutinized and reacted
to accordingly. At least the countdown will reduce the
impact of a sudden change from a health issue. The Fed
replacements will be cussed and discussed in the media
until Greenspan's fate is finally known. Our fate next
week should be known very quickly. We will either rebound
out of the gate on Monday or sink beneath current levels
to our next support plateau. Choose your direction carefully.

Enter Very Passively, Exit Very Aggressively!

Jim Brown


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

Futures wrap is not emailed due to the excessive number of charts.
It may be read on the website at this address.
http://www.OptionInvestor.com/indexes/futureswrap.asp


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

SLIPPAGE
By Leigh Stevens
lstevens@OptionInvestor.com

THE BOTTOM LINE –
The market is presenting a quite mixed picture, not surprising
given the contradictory cross-currents of a strengthening
economy, a corresponding prospect of higher interest rates, a
difficult Iraqi conflict and a major spike in energy prices.

From a technical standpoint there are reasons to think that the
indices reached at least temporary bottoms last week and I
highlighted those key points in my recent Trader's Corner article
– http://www.OptionInvestor.com/traderscorner/tc_051304_1.asp

However the reality is also a continuing slippage of upside
momentum, given that many indexes now are either trading under
their 200-day moving averages [Nas Composite (COMP), Nas 100
(NDX), Dow 30 (INDU), Dow Transports (TRAN), Russell 2000 (RUT)
and the Semiconductors (SOX)] OR are only a short distance above,
in the case of the S&P 500 (SPX) and the S&P 100 (OEX). In the
Dow for example this is the first occasion it is trading under
its 200-day average since just over a year ago.

While the Dow is managing to hold above the psychologically
important 10,000 mark on a weekly closing basis and above key
technical support in the 9860 area in terms of intraday lows to
date for the recent correction, it is hard to see yet if and when
much of a rally will get going.  It is one thing to find a low,
quite another for a sustained rally to get ignited.  Well,
sometimes the market does climb a "wall of worry" and there are
plenty of worries out there.

I will key off from the ability/inability of SPX to hold above
1080 and the OEX above 525-530 on a daily and weekly closing
basis.  If these key blue chip indexes slip under those price
points, the dominant trend turns down in my estimation.

FRIDAY'S TRADING ACTIVITY –

The morning release of economic reports brought weaker than
anticipated consumer sentiment, a neutral inflation report and
industrial production figures better than expected.

The Nasdaq was off on weakness in the semiconductor sector (SOX)
and overall by the concern over the sharp surge of oil prices and
when and how much on the expected Fed hike of interest rates.

The S&P 500 (SPX) fell a fraction of a percent on the day, to
1,095.7. The Dow 30 (INDU) did manage to close up slightly, by a
couple of points – to 10,012.8 – it was down 105 for the week
however.

The Nasdaq Composite (COMP) was off nearly 22 points (1.1%) to
close at 1,904.2.  SOX weakness was a key influence as it fell
nearly 2% on the day.  .

Crude oil futures ran up to a new peak, with the June crude oil
contract closing at $41.38.  Gasoline is now around 2 bucks a
gallon nationwide! – and, up to 2.40 here in California at the
majors.

OTHER REPORTS AND DATA –

U.S consumer prices were reported to have rose 0.2% in April, the
smallest gain this year. The core rate of the consumer price
index, which strips out food and energy costs, was up 0.3%.

Industrial production was reported at a better than expected 0.8%
as indicated by the Federal Reserve. Capacity utilization rose to
76.9% from 76.5%, which was the highest level in 3 years. An
increase in business sales boosted the inventory-to-sales ratio
and that set a new record low in March according to the Commerce
Department.

The University of Michigan reported that its latest consumer
sentiment index figure stayed at 94.2, same as late-April. But
expectations on the Street was for an improvement.  Consumer
sentiment continues to be a hard figure to quantify, but the
Street does look at this survey to try and gauge how consumer
spending, still the mainstay of the economy, will fare in the
weeks ahead.

OTHER MARKETS –

Bonds rallied slightly after the inflation numbers – the
speculation was that the Fed might not raise rates as soon as
June.

The dollar gained against the Euro (+0.7%) to close in New York
trading at $1.188.  Against the Yen, the dollar was off some, -
0.3% to 114.42.

MY INDEX OUTLOOKS –

S&P 500 Index (SPX) – Daily chart:

As I said last week, the S&P 500 could get down to about 1080.
Now what?  I suggested that I would be a buyer of the SPX calls
in this area (1080) – I also now would say that I will exit on
close under 1080 or to below the 1080 level (thinking that such a
close will set off some institutional selling, even though "cash"
is not offering much of a return, but it's better than seeing
stock value slip further and further) - setting a stop based on
the closing level is higher risk; suppose SPX closed at 1060?

I usually count on an oversold condition such as the one we're in
now to diminish the likelihood of going into "free fall", but
these are also times of potential "shocks" such as from a
terrorist attack. Calculation of risk-to-reward is important - I
look at how much I could or might lose always, not first and
foremost how much I might make on a trade.

Near-term upside potential is to 1115-1120 on a rebound, but SPX
may struggle to close back above 1117 resistance implied by the
21-day moving average.




One bullish backdrop to this market is the amount of recent put
activity, put volume which as my Call to Put indicator in a
bullish area.  Enough so to form a "contrary" type indicator –
the thing with this type trader "sentiment" measure is that it
can go on for some time before it sets the stage for a rebound;
e.g., usually, these 1-2 readings at the lower ("bullish") line,
are associated with a turnaround or upside rebound that occurs as
long as 5 trading days later.

5-6 trading days later is an eternity in options, but it is a
telling forewarning to not get to complacent if holding index
puts.  Might be a good time to sell puts.

S&P 500 Index (SPX) – Hourly chart:

Resistance, at the hourly down trendline is at 1100.  A plunge to
below 1080-1076, would suggest SPX falling to the lower end of
the implied downtrend channel in the 1066 area. On an hourly
basis or near-term, the index is overbought – this factor plus
the fact that the last rally reversed at the down trendline, is
suggesting that the path of least resistance remains lower.





S&P 100 Index (OEX) – Daily chart:

525-530 looks to be the key support as far as what happens next.
Near resistance is at 540-542, then 550.  Major resistance is at
560 and major support is probably at 510 (rather than 500 which
is the "obvious" psychological support making me think that OEX
won't get there, at least anytime soon).

So far, the OEX has been managing to hold above its 200-day
moving average and I continue to look at this key average.  Why?
No special reason in terms of 200 being some magical level, but
in terms of it being an investment and longer-term benchmark,
yes.




You can see from the 14-day RSI that the S&P 100 is getting down
toward an oversold reading at the lower (green) level line –
nothing "magical" about this level either, just a benchmark and
something that gives you an idea about whether the market could
rally, if there was some good news or just a feeling that this
decline is overdone and there are some stocks worth buying.

Dow Industrials (INDU) Daily:

The Dow 30 Average closed just under its 200-day moving average –
first week that this has happened in over a year I mentioned
already.  10,060 is near resistance.  A close back above 10,200
(prior support) is probably needed to get something going to the
upside here.  More major resistance comes in at the downtrend
trendline at 10,400 where the red (down) arrow is positioned.

9850 is important support – a close under this level would
suggest that those prior lows going back to November could be re-
tested – this suggest downside potential at that point to the
low-9600 area.  I don't consider this so likely at this juncture,
but it should be in our sights, if there is another bout of
weakness.  The bear has gotten into town and onto the Street of
Dreams!




Nasdaq 100 (NDX) Index  – Daily & Hourly:

1380 now looks like support – I was doubting that prior support
at 1400 would hold and it didn't, intraday at least.  There is a
faint suggestion of a rounding bottom setting up on the hourly
chart – time will tell on this possibility.  Trendline resistance
is at 1410 on the hourly chart.  The Daily chart picture of prior
highs and former lows, as well as the 50-day average, suggest
that significant technical resistance also comes in at 1435-1440.

Below 1380, we should be watching that cluster of prior lows off
late-March in the 1368 area as to whether buying in the big cap
Nasdaq (Nasdaq 100) will come in there again.  Stay tuned!





Nasdaq 100 tracking Stock Daily & Hourly (AMEX:QQQ):

Well, I'm at break-even on some QQQ stock I bought at an average
price at 34.75 by buying dips under 35 – my exiting sell stop is
just under the low end of the downtrend price channel as seen
lower right – it intersects in the first hour of trading on
Monday at 34.25.  I will exit at 34.15. I stay with stops.

QQQ may be a buy on dip to the area of its prior lows at 34, but
significant selling could also touch off a many (sell)_ stops
just below 34.0.  I would rather get back in if there if the Q's
fell to say 33.5 and then rallied.  This might be the low in a
bear trap reversal. A bear trap reversal just being a kinda cute
name for a decline to a new low followed by an immediate upside
reversal.

Resistance is what I have attempted to identify at the red arrows
on both the hourly chart (at 36.25, then at 36.40 at the upper
trendline) and daily charts (around 36.90 in terms of the daily
chart down trendline).




Good Trading Success!


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

Dead Carbohydrate Bounce

Last week warnings that the Atkins diet was impacting multiple
bread makers including IBC, PNRA, PZZA, KKD and SLE knocked
the flour off all the specialty bakers. Investors dropped
KKD faster than a picking up a hot donut fresh out of the
grease.

While KKD bore the brunt of the damage with hot greasy donuts
falling to the bottom of the low carbohydrate chain, another
specialty baker also got hit. PNRA warned that earnings would
be less than expected due to higher costs for milk products
used in baking.

PNRA reported profits on Thursday inline with prior estimates
but warned that the current quarter would be short. They said
full year earnings would remain the same due to new stores
coming on line later this year. JP Morgan said this "was a
stretch" with commodity prices continuing to rise and the
cost of building new stores.

The stock fell from $42 to $36.50 on the KKD news and dropped
again to near $33 on Thursday after their earnings. Friday
saw a dead cat bounce back to $36 as diehard investors went
shopping for a sugary treat.

I view $35 as support and the stock retreated from the intraday
high of $36 to close right on $35 on Friday. I do not think the
damage is over. PNRA has been trending down since last September
and I think the excitement may be off this high flyer.

This is a risky play because of the PNRA groupies but with the
Nasdaq on the verge of collapse to 1800 the prior high flyers
may be thrown out first. PNRA does have earnings and a PE at
40 after the haircut. I just don't think it has any sex appeal
left.

I am looking at the June-$30 put UPA-RF at $0.45 cents. If I
am wrong there is not much risk. We are going to target $1.00
as our exit. There is no stop.

PNRA Chart - Weekly





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

IBM Put Update  $86.37

The IBM put from last Sunday hit our target of $2.25 on the
Wednesday drop after opening at $1.25 on Monday. I still
think IBM is going to continue down for those who are holding
out for more. This play is closed.

http://members.OptionInvestor.com/editorplays/edply_050904_1.asp


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


EBAY Put Update  $79.00

Ebay continues to fight the decline but failed to move
much over $80 this week. The low was $77.80 and our target
is $76. Keep the faith.

http://members.OptionInvestor.com/editorplays/edply_042504_1.asp


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


News Corp Update $35.38

We finally hit our entry trigger on the last two contracts
of the Jan-2006 $40 calls on Thursday when NWS touched the
200dma at $35.31. The option price at that time was $3.30
which gives us an average cost for the six contracts of
$3.83 each.

Once we see a bounce in the market we will try to sell some
covered calls against our position to reduce our cost. I
do not want to sell calls in a decline because there is no
premium and any bounce can get you called out. I want to
sell calls at the top of a rebound cycle when calls have
premium value.

Current position: Long (6) Jan-2006 $40 Calls WLN-AH @ $3.83

http://members.OptionInvestor.com/editorplays/edply_041104_1.asp

http://members.OptionInvestor.com/editorplays/edply_041804_1.asp


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

Big Moves
Jonathan Levinson

There was much ado about breadth this week, with the now-(in)famous
Biggs exclamation presumably referencing the large swings in the New
Highs minus New Lows category.  For all the drama and handwringing,
price moves were relatively subdued- for examply, the NYSE's NYHL
chart (new highs-new lows) reached a low this week at levels seen
only thrice in at least 10 years (the outer limit of my dataset).
While the swings in price were significant for leveraged speculators,
the overall moves were nothing like the swings in breadth.

By the end of Friday's session, most of the damage was repaired, with
the NYSE's NYHL line closing  just south of unchanged in neutral
territory.  The VXO closed below 19 after a number of bursts above 20,
with the recent prints in the low 14's a distant memory.  The Nasdaq
volatility index, the VXN, closed above 29, also well above the recent
lows around 20.

The seesaws in the internals were not matched by equivalent moves in
the prices of the indices, and that disconnect is attributable to the
action of a few major bellwethers, most notably MSFT and GE, both of
which held up remarkably well during the worst plunges of the week.
Whether this was mutual funds or other interests defending the
headline index numbers, the market was far weaker below the surface
than was apparent from the index prices.  By the end of the week, the
worst of the internal imbalanced were corrected.  For next week, we
will see whether the bounces off the lows were the first steps of a
daily change in direction and a new upleg, or merely the result of the
more deeply bearish internals, a deadcat bounce.  The COT data
indicates that commercials in the E-mini S&P are betting on the former,
while for the other contracts, the market is not clearly favoring
either outcome yet.


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8416
Current     : 10012

Moving Averages:
(Simple)

 10-dma: 10137
 50-dma: 10303
200-dma: 10021



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  912
Current     : 1095

Moving Averages:
(Simple)

 10-dma: 1104
 50-dma: 1121
200-dma: 1079



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1103
Current     : 1399

Moving Averages:
(Simple)

 10-dma: 1413
 50-dma: 1438
200-dma: 1436



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

CBOE Market Volatility Index (VIX) = 18.47 -0.39
CBOE Mkt Volatility old VIX  (VXO) = 18.93 -0.46
Nasdaq Volatility Index (VXN)      = 29.04 +0.93


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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.97        530,308     1,046,464
Equity Only    0.82        398,858       326,891
OEX            0.91         37,692        34,406
QQQ            4.24         20,726        87,791


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

Bullish Percent Data

           Current   Change   Status
NYSE          62.1    + 0     Bear Confirmed
NASDAQ-100    34.0    + 0     Bear Confirmed
Dow Indust.   66.7    + 0     Bear Confirmed
S&P 500       59.0    + 0     Bear Confirmed
S&P 100       61.0    + 0     Bear 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-dma: 1.00
10-dma: 0.92
21-dma: 1.14
55-dma: 1.14


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


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

Market Internals

            -NYSE-   -NASDAQ-
Advancers    1513      1045
Decliners    1313      1987

New Highs      25        46
New Lows      104        81

Up Volume    721M      260M
Down Vol.    897M     1210M

Total Vol.  1644M     1485M
M = millions


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

Commitments Of Traders Report: 05/04/04

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

Commercials increased their open interest be equivalent amounts
both long and short, while small traders went net shorter.

Commercials   Long      Short      Net     % Of OI
04/20/04      409,729   421,456   (11,727)   (1.4%)
04/27/04      406,927   416,244   ( 9,317)   (1.1%)
05/04/04      397,964   417,175   (19,211)   (2.4%)
05/11/04      401,365   421,672   (20,307)   (2.5%)

Most bearish reading of the year: (111,956) -  3/06/02
Most bullish reading of the year:   23,977  - 12/09/03

Small Traders Long      Short      Net     % of OI
04/20/04      136,699    92,982    43,717    19.0%
04/27/04      133,775    90,535    43,240    19.3%
05/04/04      137,112    80,201    56,911    21.6%
05/11/04      135,534    76,987    58,547    27.5%

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

Commercials were much more active in the e-mini S&P contracts,
reducing their shorts slightly and dramatically increasing longs,
flipping to net long for the first time in at least 4 weeks.
Small traders took the other side of the trade, reducing longs and
increasing their net short position.

Commercials   Long      Short      Net     % Of OI
04/20/04      275,985   355,555    (79,570)  (10.1%)
04/27/04      291,365   370,549    (79,184)  (12.0%)
05/04/04      316,840   370,781    (53,941)  ( 7.8%)
05/11/04      378,696   362,887     15,809     2.1%

Most bearish reading of the year: (354,835)  - 06/17/03
Most bullish reading of the year:  133,299   - 09/02/03

Small Traders Long      Short      Net     % of OI
04/20/04      186,799     69,137   117,662    46.0%
04/27/04      175,788     69,613   106,175    43.3%
05/04/04      119,308     74,407    44,901    23.2%
05/11/04      101,199     94,408     6,791     3.5%

Most bearish reading of the year: (77,385)  - 09/02/03
Most bullish reading of the year: 449,310   - 06/10/03


NASDAQ-100

Commercials added slightly to their net short position, while
small traders reduced both shorts and longs but favoring the long
side, reducing their overall net short position.

Commercials   Long      Short      Net     % of OI
04/20/04       54,852     35,964    18,888   20.8%
04/27/04       54,196     33,948    20,248   23.0%
05/04/04       56,931     35,209    21,722   23.6%
05/11/04       57,680     37,410    20,270   21.3%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  21,722   - 05/04/04

Small Traders  Long     Short      Net     % of OI
04/20/04        8,538    19,431   (10,893)  (39.0%)
04/27/04        9,008    20,347   (11,339)  (38.6%)
05/04/04       10,247    24,764   (14,517)  (41.5%)
05/11/04        9,716    21,072   (11,356)  (36.9%)

Most bearish reading of the year: (14,517) - 05/04/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Commercials increased their net long position, while small traders
took the other side of the trade, increasing longs and reducing
shorts.


Commercials   Long      Short      Net     % of OI
04/20/04       24,156    22,009    2,147       4.7%
04/27/04       23,676    22,009    1,667       3.6%
05/04/04       24,296    22,181    2,115       4.6%
05/11/04       22,614    21,507    1,107       2.5%

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

Small Traders  Long      Short     Net     % of OI
04/20/04        5,997     9,631   (3,634)   (23.3%)
04/27/04        5,998     8,868   (2,870)   (19.3%)
05/04/04        6,262     8,155   (1,893)   ( 9.2%)
05/11/04        7,009     7,640   (  631)   ( 4.3%)

Most bearish reading of the year: (12,106) -  3/09/04
Most bullish reading of the year:   8,523  -  8/26/03

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


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

Due to Technical Difficulties, Jeff's Ask the Analyst Will Be
Posted on Monday.


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

-----------------
Earnings Calendar
-----------------

Symbol  Co               Date           Comment      EPS Est

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

A      Agilent Technologies  Mon, May 17  After the Bell      0.24
BAB    British Airways       Mon, May 17  Before the Bell      N/A
CCH    Coca-Cola Hllnc BttlngMon, May 17  Before the Bell     0.05
CSC    Computer Sciences CorpMon, May 17  After the Bell      1.00
LTD    Limited Brands        Mon, May 17  -----N/A-----       0.13
LOW    Lowe's Co             Mon, May 17  Before the Bell     0.54
ROS    Rostelecom            Mon, May 17  Before the Bell      N/A
TOY    Toys R Us             Mon, May 17  Before the Bell    -0.01
VAL    Valspar               Mon, May 17  Before the Bell     0.74


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

AMAT   Applied Materials     Tue, May 18  -----N/A-----       0.19
ADSK   Autodesk, Inc.        Tue, May 18  After the Bell      0.30
BKS    Barnes&Noble          Tue, May 18  Before the Bell     0.12
BJ     BJ's Wholesale Club   Tue, May 18  Before the Bell     0.22
BGP    Borders Group Inc.    Tue, May 18  After the Bell      0.02
DE     Deere & Co            Tue, May 18  -----N/A-----       1.74
DKS    Dick's Sporting Goods Tue, May 18  Before the Bell     0.18
HPQ    Hewlett-Packard       Tue, May 18  After the Bell      0.34
HD     Home Depot Inc        Tue, May 18  Before the Bell     0.43
JCP    JCPenney              Tue, May 18  Before the Bell     0.34
MNT    Mentor                Tue, May 18  After the Bell      0.32
OOM    MMO2                  Tue, May 18  Before the Bell      N/A
NTAP   Network Appliance     Tue, May 18  After the Bell      0.12
SKS    Saks Incorporated     Tue, May 18  Before the Bell     0.17
SCO    Scor                  Tue, May 18  -----N/A-----        N/A
SPLS   Staples, Inc.         Tue, May 18  Before the Bell     0.22
TJX    The TJX Co Inc.       Tue, May 18  Before the Bell     0.32
ZLC    Zale Corp             Tue, May 18  Before the Bell     0.43


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

ADCT   ADC                   Wed, May 19  After the Bell     0.00
AAP    Advance Auto Parts    Wed, May 19  After the Bell     0.66
BLI    Big Lots, Inc.        Wed, May 19  Before the Bell    0.04
BRCD   Brocade Comm Systems  Wed, May 19  After the Bell     0.03
EV     Eaton Vance Corp.     Wed, May 19  Before the Bell    0.50
FL     Foot Locker, Inc.     Wed, May 19  -----N/A-----      0.31
GT      Goodyear Tire Rubber Wed, May 19  Before the Bell   -0.20
INTU   Intuit                Wed, May 19  After the Bell     1.16
PETC   PETCO ANIMAL SUPPLIES Wed, May 19  After the Bell     0.25
ROST   Ross Stores, Inc.     Wed, May 19  Before the Bell    0.32
SNPS   Synopsys              Wed, May 19  After the Bell     0.33
TLB    Talbots               Wed, May 19  -----N/A-----      0.57


------------------------- THUSDAY -----------------------------

ARO    Aeropostale, Inc.     Thu, May 20  After the Bell      0.09
BTY    BT Group PLC          Thu, May 20  Before the Bell      N/A
CBRL   CBRL Group            Thu, May 20  Before the Bell     0.53
CIEN   CIENA Corp            Thu, May 20  Before the Bell    -0.08
CLE    Claire's Stores, Inc. Thu, May 20  Before the Bell     0.24
GPS    Gap Inc.              Thu, May 20  After the Bell      0.32
HRL    Hormel Foods Corp     Thu, May 20  Before the Bell     0.33
MRVL   Marvell Technology GrpThu, May 20  After the Bell      0.32
NGG    National Grid Transco Thu, May 20  Before the Bell      N/A
NAV    Navistar InternationalThu, May 20  Before the Bell     0.59
JWN    Nordstrom             Thu, May 20  After the Bell      0.43
PDCO   Patterson Dental      Thu, May 20  Before the Bell     0.65
PETM   PetsMart              Thu, May 20  -----N/A-----       0.21
UU     United Utilities      Thu, May 20  Before the Bell      N/A
UVV    Universal Corp        Thu, May 20  After the Bell       N/A

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

TKS    Tomkins PLC           Fri, May 21  Before the Bell      N/A


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

Symbol  Co Name              Ratio    Payable     Executable

SYK     Stryker Corp              2:1      May  14th   May  17th
TOUS    Tech Olympic USA, Inc     3:2      May  14th   May  17th
BCR     C.R.Bard                  2:1      May  14th   May  17th
PBCT    Peoples Bank              3:2      May  15th   May  17th
BWA     BorgWarner Inc            2:1      May  17th   May  18th
TK      Teekay Shipping Corp      2:1      May  17th   May  18th
DHR     Danaher Corp              2:1      May  20th   May  21st
ODFL    Old Dom Freight Line, Inc 3:2      May  20th   May  21st
CCNE    CNB Financial Corp        5:2      May  21st   May  24th
FBTC    First BancTrust Corp      2:1      May  21st   May  24th
ASBC    Associated Banc-Corp      3:2      May  21st   May  24th
SONC    Sonic Corp                3:2      May  21st   May  24th
RCI     Renal Care Group, Inc     3:2      May  24th   May  25th
BMRC    Bank of Marin             3:2      May  24th   May  25th
BFCF    BFC Financial Corp        5:4      May  25th   May  26th
ESCA    Escalade, Inc             2:1      May  25th   May  26th
ANN     AnnTaylor Stores Corp     3:2      May  26th   May  27th
ERES    eResearchTechnology, Inc  3:2      May  27th   May  28th
KIND    Kindred Healthcare, Inc   2:1      May  27th   May  28th
IEX     IDEX Corp                 3:2      May  28th   May  31st
CEDC    Central European Dist     3:2      May  28th   May  31st
QCRH    QCR Holdings, Inc         3:2      May  28th   May  31st
CNQ     Canadian Natural Res Lmtd 2:1      May  28th   May  31st


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

If it wasn't for a full week of stock splits, there wouldn't be
much to report this week.  We have the NY Empire State Index
report due on Monday and the Leading Indicators set for Thursday.


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

----------------
Monday, 05/17/04
----------------
NY Empire State Index (BB) May  Forecast:    34.8  Previous:     36.1


-----------------
Tuesday, 05/18/04
-----------------
None


-------------------
Wednesday, 05/19/04
-------------------
Housing Starts (BB)        Apr  Forecast:   1988K  Previous:    2007K
Building Permits (BB)      Apr  Forecast:   1940K  Previous:    1976K


------------------
Thursday, 05/20/04
------------------
Initial Claims (BB)      05/15  Forecast:     N/A  Previous:     321K
Leading Indicators (DM)    Apr  Forecast:    0.2%  Previous:     0.3%
Philadelphia Fed (DM)      May  Forecast:    31.2  Previous:     32.5


----------------
Friday, 05/21/04
----------------
None


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


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The Option Investor Newsletter                   Sunday 05-16-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Energy, Defense and more
Dropped Calls: None
Dropped Puts: None


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**********
Watch List
**********

Energy, Defense and more


How to use this watch list:
    Readers can use the candidates below as a springboard for their
    own research. Many are in the process of breaking support or
    resistance or in the process of starting new trends or
    extending old ones. With your own due diligence these could be
    strong potential plays.



ConocoPhillips - COP - close: 73.33 change: +1.38

WHAT TO WATCH:  With crude oil prices soaring to new 13 year
highs and global demand for oil showing no signs of slowing the
larger oil conglomerates could be plays for short-term and
longer-term bulls.  The action in COP looks tempting.  The stock
appears to be basing along rising technical support at its 40 &
50-dma's.  More aggressive traders might speculate on positions
now.  More conservative traders can look for a move over $75.00
and target $80.00.

chart =


---

General Dynamics - GD - close: 95.19 change: +1.57

WHAT TO WATCH:  Defense contractor Northrop Grumman issued some
positive comments to analysts recently and they are lifting the
defense sector.  Rival GD looks pretty good with three strong
gains in a row.  GD is approaching resistance at $96 and is close
to producing a new buy signal on its P&F chart.  There is some
resistance near $97 but this could be a decent candidate for
traders in a tough market to find bullish plays.

chart =


---

Lear Corp - LEA - close: 56.15 change: -0.03

WHAT TO WATCH:  Lear Corp might be one to watch for new bearish
positions.  It looks oversold now after last week's plummet
through major support at its 200-dma and the $60.00 level.
Shares have been consolidating those losses above the $55 mark
the last few days but the bounce has been more sideways than up,
which suggest potential weakness ahead.  Its P&F chart looks
rather bearish too and points to a $46 price target.  We would
look for a breakdown under $55 as a trigger to consider new
bearish plays.  Watch for potential support in the $52.50 region
dating back to last summer.

chart =


---

Ballard Power Systems - BLDP - close: 9.09 change: -0.12

WHAT TO WATCH:  Investors willing to do some digging might want
to research BLDP and find out why this alternative energy play is
not seeing more buying interest with oil prices soaring.
Technical traders should note the pullback toward crucial support
near $9.00.  A breakdown here could lead it toward the 2002 lows
under $7.00.

chart =



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

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


CALLS
^^^^^

None


PUTS
^^^^

None


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

! Please note changes to the Option Chains for new call and put
  plays.  We are no longer listing a "SL" or Suggested Stop Loss
  on individual options.  Most brokers offer the ability to list
  a stop loss for your option on the underlying stock.

  All of OptionInvestor.com's directional call or put plays list
  a suggested stop loss for the stock itself and if the stock
  trades at or below that stop on an intraday basis we will
  close any hypothetical play at that time.

OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
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.

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


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The Option Investor Newsletter                   Sunday 05-16-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: ADP, JNJ, LXK
New Calls: None
Current Put Plays: AMZN, APOL, CAKE, CTX, GM, MBG, MSTR, WHR
New Puts: None


! Please note changes to the Option Chains for new call and put
  plays.  We are no longer listing a "SL" or Suggested Stop Loss
  on individual options.  Most brokers offer the ability to list
  a stop loss for your option on the underlying stock.

  All of OptionInvestor.com's directional call or put plays list
  a suggested stop loss for the stock itself and if the stock
  trades at or below that stop on an intraday basis we will
  close any hypothetical play at that time.


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

Auto. Data Proc. - ADP - close: 45.48 change: -0.35 stop: 43.25

Company Description:
Through its many subsidiaries, ADP is a provider of
computerized transaction processing, data communication and
information services.  The company's operations are divided
into Employer Services, Brokerage Services, Dealer Services and
Claims Services.  Among the activities managed by the Employer
Services division are payroll, human resources, benefits
administration, tax filing and reporting and retirement plan
services.

Why we like it:
When we began coverage on ADP last weekend, we were hoping for
a pullback to test support in the $44-45 area to give us a
solid entry into the play, and it looks like we're getting our
wish.  The initial breakout did manage to extend up near $47
for a test of the top of the rising channel before the bulls
ran out of conviction and the past few days have seen the stock
pulling back towards support on significantly diminished
volume.  So far, things are going according to plan, with ADP
coming back into what should be strong support in the $44.50-
45.00 area, while daily Stochastics work their way down out of
overbought territory.  We should see the 20-dma ($45.08) and
30-dma ($44.94) reinforce that support, making a dip to support
look that much better as an entry point.  Traders that would
prefer to enter on strength will want to trigger entries on a
break back above the $46 level, which would represent a
breakout above the short-term descending trendline of the past
week.  Maintain stops at $43.25, which is now comfortably below
the 50-dma ($43.71).

Suggested Options:
Shorter Term: The June $45 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Aggressive longer-term traders can use the August
$47 Call, while the more conservative approach will be to use
the August $45 Call.  Our preferred option is the June $45
strike, as it is currently at the money and should provide
sufficient time for the play to move in our favor.

! Alert - May options expire next week!

BUY CALL JUN-45*ADP-FI OI=1183 last traded @ $1.70
BUY CALL JUN-47 ADP-FW OI= 390 last traded @ $0.65
BUY CALL AUG-45 ADP-HI OI=2493 last traded @ $2.55
BUY CALL AUG-47 ADP-HW OI=1387 last traded @ $1.40

Annotated Chart of ADP:



Picked on May 9th at         $46.03
Change since picked:          -0.55
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.06 mln
Chart =


---

Johnson & Johnson - JNJ - close: 54.52 change: -0.12 stop: 52.75

Company Description:
Johnson & Johnson is engaged in the manufacture and sale of
products related to human health and well-being.  Through over
200 operating companies, it conducts business worldwide.  The
company's business is divided into three segments: Consumer,
Pharmaceutical and Medical Devices and Diagnostics.  The
Consumer segment manufactures and markets a range of products
used in the baby and child care, skin care, oral and wound care
and women's healthcare fields, as well as nutritional and over-
the-counter pharmaceutical products.  The Pharmaceutical
segment's principal worldwide franchises are in the antifungal,
anti-infective, cardiovascular, contraceptive, dermatology,
gastrointestinal, hematology, immunology, neurology, oncology,
pain management, psychotropic and urology fields.  The Medical
Devices and Diagnostics segment includes a range of products
used by or under the direction of physicians, nurses,
therapists, hospitals, diagnostic laboratories and clinics.

Why we like it:
Recent price action should have effectively demonstrated why we
weren't interested in breakout entries in our JNJ play.  While
the stock is a viable defensive stock play, it does not tend to
break out and rally strongly.  Instead, it tends to slowly move
in a given direction, but with far less volatility than many
other stocks.  As expected, the breakout over the $55 level
needed some consolidation before the stock can move higher and
we've seen JNJ pull back from its foray over $56, coming down
to test the $54 level on Friday, before rebounding to end right
near the middle of its intraday range.  Recall from our initial
write-up that we thought ideal entries would be found on a
rebound from the $54 level and Friday's bounce from the low
certainly would have qualified.  For traders not willing to
blindly buy the dip, the next best strategy will be to enter on
the next push over the $55 level, which will represent a
breakout over the short-term descending trendline that has
capped the intraday rally attempts over the past week.  Keep in
mind the big picture with JNJ is that the stock is in a bullish
PnF alignment, with an upside target of $65.  We're just
looking to take a piece of that longer-term move, entering in
the $54-55 area and exiting near $60.  Maintain stops at
$52.75.

Suggested Options:
Shorter Term: The June $55 Call will offer short-term traders
the best return on an immediate move, as it is currently at the
money.

Longer Term: Longer-term traders can use the July $55 Call.
Our preferred option is the July strike, as it is currently at
the money and gives the stock plenty of time to move upwards
without a significant loss of time value.

! Alert - May options expire next week!

BUY CALL JUN-55 JNJ-FK OI=12538 last traded @ $1.10
BUY CALL JUL-55*JNJ-GK OI=44130 last traded @ $1.50

Annotated Chart of JNJ:



Picked on May 9th at         $55.30
Change since picked:          -0.78
Earnings Date               4/13/04 (confirmed)
Average Daily Volume =     7.23 mln
Chart =


---

Lexmark Intl. - LXK - close: 92.65 change: -1.38 stop: 89.75

Company Description:
Wrapping its arms around the entire life-cycle of printers, LXK
develops and manufactures a broad range of laser, inkjet and
dot matrix printers for the office and home markets.  The
company is also the exclusive source for new print cartridges
for the laser and inkjet printers it manufactures.
Additionally, LXK provides supplies for IBM printers and offers
after-market laser cartridges for the large installed base of a
range of laser printers sold by other manufacturers.

Why we like it:
It appears that part of the rise in LXK's price on Thursday may
have been anticipation of DELL's earnings report. That report
came in softer than investors had hoped and DELL fell sharply
on Friday.  That weakness seemed to spread to shares of LXK at
the open, resulting in an intraday dip down to the $91.55 level
before the stock rebounded slightly to close just over $92.
Recall from our initial writeup that we were looking for a
pullback near the $92 level for a solid entry setup and
Friday's dip and reflexive rebound certainly qualifies.  The
stock has been consistent about bouncing from the 50-dma
($90.84) over the past several months and last week's bounce
from that average suggests that we've got a repeat performance
on our hands.  Following this pullback, the first milestone
will be for LXK to scale the $95 level and then we can look for
a run at the recent highs at $97.  But based on the way the
stock has been trading these past months, we're expecting to
see another breakout to new multi-year highs.  Our target for
the play at $100 looks achievable if this 50-dma rebound is the
real deal.  Maintain stops at $89.75, just under the bottom of
the stock's range of the past month.

Suggested Options:
Shorter Term: The May $90 Call will offer short-term traders
the best return on an immediate move, as it is currently in the
money.  But with May options expiring next week, the June
strikes probably are the wiser choice.

Longer Term: Aggressive longer-term traders can use the June
$95 Call, while the more conservative approach will be to use
the July $95 Call due to the greater time until expiration.
Our preferred option is the June $90 strike, as it is currently
in the money and should provide sufficient time for the play to
move in our favor.

! Alert - May options expire next week!

BUY CALL MAY-90 LXK-ER OI=2369 last traded @ $3.30
BUY CALL JUN-90*LXK-FR OI= 257 last traded @ $5.50
BUY CALL JUN-95 LXK-FS OI= 349 last traded @ $2.80
BUY CALL JUL-95 LXK-GS OI= 415 last traded @ $3.90

Annotated Chart of LXK:




Picked on May 13th at        $94.03
Change since picked:          -1.38
Earnings Date               4/19/04 (confirmed)
Average Daily Volume =     1.07 mln
Chart =



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Amazon.com - AMZN - close: 43.05 chg: -0.56 stop: 44.75

Company Description:
Amazon.com, a Fortune 500 company based in Seattle, opened on the
World Wide Web in July 1995 and today offers Earth's Biggest
Selection. Amazon.com seeks to be Earth's most customer-centric
company, where customers can find and discover anything they
might want to buy online, and endeavors to offer its customers
the lowest possible prices. Amazon.com and other sellers offer
millions of unique new and used items in categories such as
health and personal care, jewelry and watches, gourmet food,
sports and outdoors, apparel and accessories, books, music, DVDs,
electronics and office, kids and baby, and home and garden.
(source: company press release)

Why We Like It:
The tech-heavy NASDAQ continues to suffer under its trend of
lower highs.  Both the COMPX and the INX Internet index produced
a failed rally at their 10-dma's on Friday and both look
vulnerable to new declines this coming week.  That makes AMZN's
recent bounce toward resistance near $44 look like a potential
entry point for new short positions.  However, we'd rather wait
and see this rebound begin to fade.  We suggested on Thursday
that this rebound was a possible bear flag pattern and that still
holds true.  Traders looking for new entry points can watch for a
breakdown under $42.50 or $42.00, which may be a better entry and
should be a breakdown from out of the bear flag pattern.  If
stocks continue to be weak as investors rotate out of equities
due to interest rate concerns then higher P/E Internet stocks are
likely to lead the way lower.  AMZN with a triple-digit P/E
certainly looks like a candidate for more selling.  Both bulls
and bears will be watching how AMZN reacts if it moves toward
psychological round-number support/resistance at the $40.00 mark.

Suggested Options:
Given the bounce back toward resistance at $44 the 42.50s or 45s
might be a good play.  We're still suggesting the June puts. Our
preference is for the June 40's or 42.50's.

! Caution - May options EXPIRE this coming Friday!

BUY PUT JUN 40.00 ZQN-RH OI=3562 Last traded @ $1.10
BUY PUT JUN 42.50 ZQN-RV OI=4590 Last traded @ $2.00
BUY PUT JUN 45.00 ZQN-RI OI=4303 Last traded @ $3.40

Annotated Chart:




Picked on May 02 at $ 43.60
Change since picked: - 0.55
Earnings Date      04/22/04 (confirmed)
Average Daily Volume:   8.4 million
Chart =


---

Apollo Group - APOL - close: 90.57 change: -0.21 stop: 95.00*new*

Company Description:
The Apollo Group provides higher education to working adults.
The company operates through its subsidiaries, The University
of Phoenix, Inc., Institute for Professional Development, The
College for Financial Planning Institutes Corporation and
Western International University, Inc.  APOL offers its
programs and services at 58 campuses and 102 learning centers
in 36 states, Puerto Rico, and Vancouver, British Columbia.

Why we like it:
Ever since Monday's selloff, shares of APOL have been trying
valiantly to hold above the 50-dma ($88.53) and make a decent
attempt at a rebound.  Well one out of two isn't bad.  The
stock did manage to hold above the 50-dma through the end of
the week, but the size of the rebound was pretty small.  APOL
did manage a solid bounce on Tuesday, but the rest of the week
was little more than a holding action and we saw price hold
well below the $92 resistance level, while daily oscillators
languished in oversold.  This certainly feels like a bounce
that isn't going to go anywhere of note, reinforcing our belief
that a short-term push into the $92-93 area will represent a
great entry point to the downside.  Recall that we've got a
fresh PnF Sell signal that translates into downside target of
$81, also the site of solid historical support and the 100-dma.
However, with the reversal into a column of X, we can now see
that a trade at $95 would produce a new PnF Buy signal, so
we're lowering our stop to $95 this weekend.  Aggressive
entries should be taken on the rollover near resistance, while
the more conservative approach will be to wait for a breakdown
under the $87.50 level (just below last Monday's low) before
playing.

Suggested Options:
Aggressive short-term traders should use the June $90 strike
due to May options expiring next week.  Our preferred option is
the June 90 strike, as it is currently at the money and should
provide ample time for the play to move in our favor.

! Alert - May options expire next week!

BUY PUT JUN-90*OAQ-RR OI= 1387 last traded @ $3.80
BUY PUT JUN-85 OAQ-RQ OI=  922 last traded @ $2.00

Annotated Chart of APOL:



Picked on May 11th at         $90.32
Change since picked:           +0.25
Earnings Date                6/11/04 (unconfirmed)
Average Daily Volume =      1.72 mln
Chart =


---

Cheesecake Factory - CAKE - cls: 40.30 chng: +0.21 stp: 44.10

Company Description:
The Cheesecake Factory operated 61 upscale, full-service,
casual dining restaurants under The Cheesecake Factory mark in
20 states and the District of Columbia as of March 3, 2003.
The company also operated three upscale casual dining
restaurants under the Grand Lux Cafe mark in Chicago, Illinois,
Los Angeles, California, and Las Vegas, Nevada, as well as one
self-service, limited-menu, express foodservice operation under
The Cheesecake Factory Express mark inside the DisneyQuest
family entertainment center in Orlando, Florida.  It also
operated a bakery production facility in Calabasas Hills,
California, which produces baked desserts and other products
for its restaurants and for other foodservice operators,
retailers and distributors. It also licensed three bakery cafes
under The Cheesecake Factory Bakery Cafe mark to another
foodservice operator.

Why we like it:
While Friday's rebound in shares of CAKE wasn't exactly what we
were hoping for, it did confirm our primary belief in this
play.  The stock is weak and getting weaker.  After Thursday's
sharp selloff below the $40 level, the bulls weren't even able
to reach $41 - much less the 200-dma ($41.45) before allowing
the stock to roll over again.  We're looking for rollovers in
order to set up our desired entry into the play, but were
hoping to see a bounce into the $41-42 area before taking the
plunge.  That said, aggressive traders certainly could have
taken an entry on Friday's rollover -- the stock's $40.97
intraday high may have been close enough.  A push up to
stronger resistance near $42 would be preferable, but we'll
have to take what the market decides to give us.  Recall that
while the PnF chart is on a strong Sell signal with a downside
target of $31, we're deliberately avoiding taking breakdown
entries into the play due to the fact that the bullish support
line (which is likely to catalyze the next serious rebound) is
resting at $39.  Either enter on a rollover from resistance or
stand aside from the play.  Maintain a wide stop at $44.10 for
now.

Suggested Options:
Since we're looking for a rebound entry and May options expire
next week, there really isn't enough time for a profitable play
using front month options.  Consequently, we've only listed
June strikes for the play.  Aggressive traders can use the $40
strike, while the more conservative approach will be to use the
in-the-money $45 strike.  Our preferred option is the June 45
strike, as it is currently in the money and should provide
ample time for the play to move in our favor.

! Alert - May options expire next week!

BUY PUT JUN-45*CFQ-RI OI= 42 last traded @ $5.20
BUY PUT JUN-40 CFQ-RH OI=167 last traded @ $1.60

Annotated Chart of CAKE:



Picked on May 13th at         $40.09
Change since picked:           +0.21
Earnings Date                4/20/04 (confirmed)
Average Daily Volume =         579 K
Chart =


---

Centex Corp - CTX - close: 45.66 change: +0.42 stop: 49.35

Company Description:
Dallas-based Centex, through its subsidiaries, ranks among the
nation's largest home builders, mortgage originators and
commercial contractors. Centex was recently ranked No. 12 on
Business Week's annual list of the "Top 50 Best Performing
Companies" in the U.S. and consistently ranks among the most
admired companies in its industry, according to FORTUNE magazine.
(Source:  Company Press Release.)

Why We Like It:
The bounce continues for the DJUSHB home construction index and
shares of CTX followed suit with a small climb of its own.  We're
still looking for that failed rally-rollover entry under the 200-
dma in CTX and it could be just around the corner.  Interest rate
concerns continue to plague the stock market and this will remain
a dark cloud over the home building stocks.  Historical research
shows that the homebuilding sector strongly under performs the
broader market when the Fed begins to raise rates.  Investors
know that and that's why we've seen such a drop in the housing
stocks already.  As the job numbers and PPI/CPI data continue to
show a strong and growing economy the FOMC will be inching closer
and closer to its next rate hike.  This train of thought is very
evident in the huge sell-off in the bond market.  Bonds have
plunged over the last several weeks driving yields back toward
4.78% on the 10-year note.  What we do find noteworthy and a
potential caution flag for bears in home stocks is the action in
the bond market on Friday.  Bonds were and still are very
oversold.  They began to bounce on Friday and the yield edged
lower.  The chart pattern on the yield looks like a bearish
engulfing pattern.  This suggests a pull back in yields as bonds
bounce from oversold conditions.  That could produce a short-term
bounce in housing stocks (which appears to already be underway).

Fortunately, we're looking for a bounce but we want to see the
rebound in CTX fail under its 200-dma.  Currently, CTX's 200-dma
is just under $48.00.  Traders can evaluate new entry points to
buy puts on a failed rally/rollover in the $46-48 range.
However, we're going to leave this play UNTRIGGERED until we
actually see the rollover occur.  What this means is that more
active traders can probably get a better entry point than we will
but we highly recommend you pay close attention to your stops.
To simply things look for a move toward the $47 area and then a
drop back under $46.00.  That's when we'll probably list an
"official" entry on this play.

Suggested Options:
The June or July options should work well for short-term traders.
We like the June 45s or the July 47.50s.

! Caution - May options EXPIRE this coming Friday!

BUY PUT JUN 45.00 CTX-RI OI=2775 Last traded @ $2.15
BUY PUT JUN 50.00 CTX-RJ OI= 745 Last traded @ $5.30
BUY PUT JLY 45.00 CTX-SI OI=1900 Last traded @ $2.90
BUY PUT JLY 47.50 CTX-SW OI=1836 Last traded @ $4.20
BUY PUT JLY 50.00 CTX-SJ OI=1565 Last traded @ $5.90


Annotated Chart for CTX:



Picked on May xx at $ xx.xx (See rollover entry.)
Change since picked: - x.xx
Earnings Date      04/20/04 (confirmed)
Average Daily Volume:   2.0 million
Chart =


---

General Motors - GM - close: 44.35 change: +0.20 stop: 47.25

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

Why we like it:
With the spectre of rising interest rates firmly planted in
their frontal lobes, traders have lost their appetite for
shares of GM.  After breaking down under the $44 level and
issuing a PnF Sell signal (the first in over a year), the stock
put in a very weak bounce on Monday, failing to even test the
200-dma ($45.47) before settling into a very tight
consolidation pattern for the remainder of the week.  Providing
support on the downside is the bottom of the December gap, just
under $43.50, but this tight range is unlikely to last.  Next
week is options expiration, so anything is possible, but we'd
expect the stock to gravitate towards the $45 level over the
next 5 days as market makers shoot for that 'max pain' point.
That means that we ought to look at any failed rally in the
$45-46 area as a solid entry point in anticipation of the stock
breaking down in deference to the picture shown on the PnF
chart.  In addition to broken support in that area being strong
resistance now, we have the 10-dma ($45.63), 50-dma ($46.54),
30-dma ($46.82) and 20-dma ($46.94) all bearing down on the
200-dma and likely to turn back anything other than a strong
rally attempt.  That makes our $47.25 stop look quite safe
except in the event of an unexpected reversal from last week's
lows.  Traders preferring to enter on further weakness should
wait for a break under the $43.25 level before playing.

Suggested Options:
Aggressive short-term traders will want to use the June 42 Put.
Those with a more conservative approach will want to use the
June 45 put.  Traders looking for more insulation against time
decay can look out to the September strike.  Our preferred
option is the June 45 strike, as it is just out of the money
and should provide ample time for the play to move in our
favor.

! Alert - May options expire next week!

BUY PUT JUN-45*GM-RI OI=19129 last traded @ $2.10
BUY PUT JUN-42 GM-RV OI=15801 last traded @ $1.10
BUY PUT SEP-42 GM-UV OI= 3930 last traded @ $2.70

Annotated Chart of GM:



Picked on May 9th at          $44.60
Change since picked:           -0.25
Earnings Date                4/20/04 (confirmed)
Average Daily Volume =      5.21 mln
Chart =


---

Mandalay Resort Group - MBG - cls: 51.17 chng: +0.20 stop: 53.21

Company Description:
Mandalay Resort Group, founded in 1974 as Circus Circus
Enterprises, Inc., is in the business of entertainment, with its
core strength in casino gaming. The company's asset base,
operating cash flow, profit margin, multiple markets and customer
counts rank it as a gaming industry leader.  (Source:  Company
Website.)

Why We Like It:
Early in May, Merrill Lynch downgraded MBG to a neutral rating
from its previous buy rating.  Saying the "best was behind us,"
the firm said that the rest of 2004 and all of 2005 might see
growth rates for casino and hotel companies slowing.  Although
Deutsche Bank had reiterated its buy rating in mid-April,
investors' opinions and price action appeared to be more in
harmony with Merrill Lynch's opinion. Since hitting its April
high of $62.20 on April 6, MBG has tumbled, with volume building
as it declines.  That tumble created a P&F double-bottom
breakdown on the P&F chart in late April. This week, candles have
been congregating at the 100-dma, but now look ready to tumble
below it, perhaps all the way to a test of the 200-dma.  We're
going to trigger this play with a trade at $49.95, just below
Thursday's low.  We're targeting $46.25, and will set an initial
stop at $53.21 if this play is triggered.

Those considering this play should consider some important
possible support levels, especially since MBG's decline has
already been so steep.  Those levels must include the
psychologically important $50.00 level, of course.  The 30-week
average, one closely watched by some market old-timers, lies at
$49.18.  In addition, the 38.2 percent of the rally off the 2003
low lies at $47.49, with that level also perhaps providing
support and possible bounce potential.

WEEKEND UPDATE:
Wow!  We came VERY close to be triggered in MBG on Friday.  The
stock dropped to $50.44.  Our TRIGGER to go short/buy puts was
$50.43.  Upon further consideration we're going to adjust our
trigger to UNDER the round-number support/resistance level at
$50.00.  Our NEW TRIGGER to buy puts is $49.95.  Until MBG trades
at or below this level we're willing to sit out.  Fortunately, we
could see MBG fall under the $50.00 level soon as its trend of
lower highs continues to build.  Aside from its early morning
strength there was virtually no bounce on Friday!

Suggested Options:
Open interest is about equal for all these put options
surrounding MBG's current price.  Our preference would be for the
JUN 47.50 or 50 strikes.

! Caution - May options EXPIRE this coming Friday!

BUY PUT JUN 47.50 MBG-RW OI= 3174 Last traded @ $1.15
BUY PUT JUN 50.00 MBG-RJ OI= 1465 Last traded @ $1.90
BUY PUT JUN 55.00 MBG-RK OI= 1962 Last traded @ $4.80

Annotated Chart for MBG:



Picked on May xx at $ xx.xx (See Trigger)
Change since picked: - 0.00
Earnings Date      06/03/04 (confirmed)
Average Daily Volume:   1.7 million
Chart =


---

MicroStrategy Inc. - MSTR - cls: 45.73 chng: +0.65 stp: 48.05

Company Description:
MicroStrategy Inc. is a worldwide provider of business
intelligence software that enables companies to analyze the raw
data stored across their enterprise to reveal the trends and
insights needed to develop solutions to manage their business
effectively.  The company's software delivers this critical
information to workgroups, the enterprise and extranet
communities via e-mail, Web, fax, wireless and voice
communication channels.  MSTR offers an integrated business
intelligence platform, known as MicroStrategy 7i, which is
designed to enable businesses to turn information into
strategic insight and make more effective business decisions.

Why we like it:
The past week has certainly been a volatile one for shares of
MSTR, as the stock tries to build a new base following the
major breakdown under the $47 level.  With several tests on
each side of the range in recent days, MSTR appears to be
building a range between $43-46, with slightly higher lows.
This could be a bullish wedge forming or it could be a bearish
slightly-ascending wedge formation.  Right now, it is too hard
to discern the most likely pattern.  Daily oscillators have now
turned up, so we should expect a bit more testing of resistance
before we see a bonified rollover.  Aggressive traders can open
new positions on a rollover from the $46-47 area, although we'd
prefer to see the 10-dma ($46.39) continue to provide solid
resistance as it did over the past two sessions.  We're
maintaining our stop at $48.05, as that is close enough to keep
us from giving too much back, yet far enough away to prevent
getting hit on a brief failed upward spike before the downtrend
continues.  Remember, we're steering clear of breakdown entries
for now due to the fact that there's now a fairly tight web of
support in the $42-43 area and below there we're looking for an
exit from the play near $40.

Suggested Options:
Aggressive short-term traders will want to use the June 40 Put.
Those with a more conservative approach will want to use the
June 45 put.  Our preferred option is the June 45 strike, as it
is just now at the money and should provide ample time for the
play to move in our favor.

! Alert - May options expire next week!

BUY PUT JUN-45*EOU-RI OI= 231 last traded @ $3.10
BUY PUT JUN-40 EOU-RH OI= 117 last traded @ $1.35
BUY PUT JUL-40 EOU-SH OI= 403 last traded @ $2.15

Annotated Chart of MSTR:



Picked on May 6th at          $47.02
Change since picked:           -1.29
Earnings Date                4/27/04 (confirmed)
Average Daily Volume =         417 K
Chart =


---

Whirlpool Corp - WHR - close: 64.38 chg: -0.06 stop: 65.76

Company Description:
Whirlpool is one of world's leading manufacturers and marketers
of major home appliances, with annual sales of more than $12
billion, 68,000 employees, and nearly 50 manufacturing and
technology research centers. The company markets Whirlpool,
KitchenAid, Brastemp, Bauknecht, Consul and other major brand
names to consumers in more than 170 countries. (Source:  Company
Press Release.)

Why We Like It:
We don't have a lot to report on for WHR.  The stock dropped
steadily during the morning hours on Friday but rebounded back
toward the $64.50 level and hovered there throughout the
afternoon.  The good news is that resistance at the $65.00 level
continues to hold.  The breakdown through support at $65 last
week was crucial on both its daily, weekly and point & figure
charts.  The bounce back to test this level as resistance is not
uncommon but traders should remain careful.  We would probably
watch this stock for a drop through Friday's low near $63.40
before considering new positions.  Fortunately WHR is likely to
under perform the markets.  The company is likely suffering from
the rise in steel prices over the last several months and
concerns over interest rates affects mortgage rates which
influences home buying and in the process indirectly influences
the sales of home appliances.

Suggested Options:
With May expiration in less than two weeks, we suggest June
options, in particular the June 65's.

! Caution - May options EXPIRE this coming Friday!

BUY PUT JUN-60 WHR-RL OI= 293 Last traded @1.15
BUY PUT JUN-65 WHR-RM OI=3451 Last traded @3.20

Annotated Daily Chart for WHR:



Picked on May 05 at $ 64.69
Change since picked: - 0.31
Earnings Date      04/21/04 (confirmed)
Average Daily Volume:   555 thousand
Chart =




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

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The Option Investor Newsletter                   Sunday 05-16-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Between A Rock And A Hard Place
Option Spreads: Quickies – It’ Time To Roll The Dice Again
Futures Corner: Russell Emini Game Plan


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*****
LEAPS
*****

Between A Rock And A Hard Place
By Mark Phillips
mphillips@OptionInvestor.com

It should be crystal clear to anyone with a modicum of
intelligence that we've got some serious inflation on our hands
and that the Fed really has no choice but to embark down the path
of raising interest rates.  We've been talking about this for a
couple months now, citing the strength in even the government-
sanctioned inflation gauges as incontrovertible evidence that the
flagrantly irresponsible method of printing up money at an
unprecedented rate has indeed put inflation back into the economy.

As we have recently discussed, this was the plan all along, but
the Fed managed to keep us distracted just enough (with the whole
deflationary song and dance) to not really notice the extent of
the damage being inflicted on the value of our currency.  The
amount of money that has rolled off the printing press in the past
year is truly astounding and it was inevitable that it would have
an inflationary impact.  Many investors don't seem to understand
the significance of monetary inflation, so I thought I would
provide a graphic example that everyone understands.

Let's say that you're an investor in IBM and there are currently
100 million shares outstanding.  Everything hums along, with the
company turning out profits and the price of the stock rising and
falling with the rise and fall in investor sentiment and the rise
and fall of profits.  That's an equation we all understand quite
well.

Now let's draw the equivalence to our national economy.  The
stream of profits can be equated to the GDP, the investor
sentiment can be equated to the Consumer Sentiment or any one of a
couple dozen metrics that in some way measure how we feel about
the state of our economy.  The trade surplus or deficit can be
roughly equated to IBM's balance sheet, showing whether the
company is going further into debt or paying down its debts.  In
our comparison of IBM to the U.S. economy, the marketplace tells
us what IBM is worth through the price action of its stock.  The
market tells us what our economy is worth through the price action
of our currency and to a lesser extent our government-issued
bonds.  Are you with me so far?

So let's weigh the balance sheet.  Our nation is running a chronic
(and growing) trade deficit and a chronic (and growing) budget
deficit, the combination of which is not a pretty sight.  Imagine
IBM adding to its debt quarter after quarter, while at the same
time selling less products and services.  Would investors reward
the stock with a higher valuation?  I doubt it.  But that's not
the real shocker.  What if we add to the equation the fact that
IBM has been issuing 10 million shares and selling them into the
marketplace to raise funds on each of the past 4 quarters?  That
represents a dilution of the outstanding stock by 40% in only one
year.  Investors won't stand for that and each time new stock is
issued, a stock is given a corresponding haircut, keeping
corporate executives from viewing stock issuance as an unlimited
piggy bank.

So how does this relate to the national economy?  Printing more
money is the precise analog to printing up more stock.  With the
Fed having printed up an obscene amount of money over the past
couple years, it is truly astounding that we haven't seen even
more weakness in our currency than we have.  Just the increase in
actual hard money supply is up more than 20% in the past 2 years,
and that may not seem like much of a problem.  Until we delve into
the whole picture of the fractional reserve system, which allows
for a single dollar of actual money to be multiplied through the
financial system as much as 100 times.  That kind of inflation of
the money supply would be disastrous if reflected as an increase
in IBM's shares outstanding.  Big Blue would quickly be reduced to
penny-stock status.

So why hasn't this reality caused the value of the dollar to
absolutely crash?  The simple answer is because in terms of the
Dollar Index, our currency is simply compared to a basket of other
paper currencies, each from nations that engage in nominally the
same practices.  The dollar is a fiat currency, which is valued
against several other fiat currencies, so seeking what is the true
value of that currency is a difficult endeavor, at best.

It is a complex mix of the nation's economic health, its trade
balance, budget surplus/deficit, interest rates, money supply
growth/contraction along with a host of secondary and tertiary
factors.  With the price of renting money overnight (the Fed Funds
rate) languishing down near the 1% level for the past couple
years, it is no great surprise that our currency has been falling.
It has paid next to nothing to hold our bonds and that has added
to the pressure on the dollar, driving the DX00Y index down to
multi-year lows near 85 earlier this year.  Since then, the
oversold rebound has finally gotten underway, with the index
rising right to the descending trendline at 92 last week.  Will
this be the top for the move, or are we headed higher from here.

The question really boils down to one of interest rates.  Over the
past several weeks, the bond vigilantes have absolutely hammered
bonds lower, showing their strong conviction that interest rates
will be rising soon and they will be rising far.  In fact, the Fed
has been backed into a corner of sorts.  They would prefer to be
patient and do nothing about short-term rates over the next few
months, because the last thing they want to do is raise rates and
kill the nascent economic recovery.  But at the same time, the
bond market is telling the Fed that they're already tardy with the
first rate hike and bond traders are doing the Fed's work for it.
So either the Fed must play catch-up -- something the equity
market is concerned about, or the central bank will be stubborn,
refusing to be bullied into action, waiting until they think the
time is right and intervening in the bond market to keep long
rates down, if necessary.

Basically the Fed has been put in a very awkward position of
wanting to let the economic recovery pick up a bit more steam
before acting to slow it down with rising rates.  But at the same
time, they are being goaded by the bond market to hurry up and
act.  How will it all play out?  That's the $64,000 question, but
my gut feel is that we'll probably get a 25-bp cut at either the
June or August meeting and another one later in the year.  I
expect the Fed to drag their heels on rate cuts at least through
the end of the year and then their actions will be predicated on
the health of the economy.

Alan Greenspan still wants the legacy of leaving office in a
healthy economic environment and that means he desperately does
not want to screw things up again.  But at the same time, he's
being forced (by the bond traders' reaction to clearly
inflationary economic reports) to take some action.  "Just do
something, even if it's wrong"!  Basically, A.G. is now between a
rock and a hard place, and we better hope he knows what he's
doing.  The good news is that if we can believe the numbers in
terms of inflation and job growth, the Fed is back to presiding
over a system that they have at least some control over -- an
inflationary environment that can be controlled through monetary
supply and interest rate policy.  Whether the old tools will work
as they have in the past is anyone's guess, but I think it is a
safe bet to say that this is the path upon which the Fed will soon
be embarking.

So where does this discussion leave us in terms of equity market
direction for the near and longer term?  I think I summed up my
feelings pretty well last weekend.  The "Sell in May and Go Away"
trade appears to be in force.  We've seen all the major indices
come well off their recent highs, and we have clear violations of
support across the board.  That said, I do not think we're looking
at a major selloff coming in the market this summer.  Remember the
summer doldrums?  Expect them to return this summer and that will
make things even rougher on intraday traders, as the hedgies
increase their ever-more-dominant position, accounting for more
and more of the volume on both the NYSE and the NASDAQ exchanges.

The DOW exceeded it's downside PnF target of 10,000 last week and
then rebounded from the bullish support line and is now in the
process of trying to build a new base.  With the bullish percent
reading now strongly Bear Confirmed at 67%, we should expect more
downside action in the weeks and months ahead, but I have the
sense that the price action to the downside will be rather muted
as we wait for the BP to fall back towards oversold territory.

The price action on the SPX looks a bit more ominous for the
bulls, with last week's dip to the 1080 level finally issuing a
PnF Sell signal with a downside target of 1000.  That's still a
ways down there, and there's clearly lots of support in that area,
reinforced by the bullish support line at 985.  Bullish percent
readings are favorable for the bears as well, as it is now
strongly Bear Confirmed at 59% and well on its way to oversold
territory.

Finally, the NASDAQ COMP is trying to find support near the 1900
level, its former bearish price target.  The NASDAQ-100 on the
other hand, may be offering the clue as to future direction, as it
is on a big PnF Sell signal with a downside price objective of
1280.  The problem is that it won't take much (only a push to
1430) to create a new Buy signal.  We also have the reality that
the Bullish Percent is already growing stretched to the downside,
reaching the 34% level last week and now just above oversold
territory.

Take all these factors together and I see the broad market and
many stocks heading further south in the weeks and months ahead,
but not by a great deal.  What we should expect to see through the
summer months is a market that is consolidating in anticipation of
a resumption of the bull market after Labor Day.  That means
winning long-term directional plays are going to be few and far
between in the near-term and it makes sense that we're trimming
our active plays in anticipation of that rangebound environment.

Whether the market in fact does head higher after the summer
months or chooses to head south again is anybody's guess.  And if
I were to offer an opinion here at this time, it would be little
more than a guess.  But I think our discussion above concerning
the state of the U.S. economy and interest rate policy will play a
very big part in the months ahead.

Since I'm running behind again on my commentary, I better cut this
short and get to addressing the individual plays.  We'll delve
into some more of these big picture issues next week.  And as
always, if you have questions, comments or suggestions, don't
hesitate to send them along.

Portfolio:

HD - Hmmm...what was that I said about HD likely finding support
near $33?  GRIN  Just as expected, that former support did serve
to help the stock find its legs again after a dip to roughly
$32.50.  While this play is finally moving in our favor, keep in
mind that we're not out of the woods yet -- HD needs to trade the
$31 level to issue a PnF Sell signal and really get things moving
in our favor.  Things are definitely looking more encouraging
though and over the next couple weeks we can watch the relative
action of the 50-dma and the 200-dma, the former of which looks
headed for a bearish cross of the latter.  That will provide
bearish confirmation for us.  Once we get that cross and price
cracks the $31 level, we'll have a new price target of $24 to work
with and can seriously target the downside.  More realistically
though, the $26 level is about all we can hope for, as that is the
site of the bullish support line.  For now, failed rebounds in the
vicinity of $35 look good for new entries.  Lower stops to $38
this weekend, which is just fractionally above the intraday highs
of the multi-month top just put in place.

CHK - It was a rough week all the way around for the equity
market, as investors brace for rising interest rates.  Even with
the price of Natural Gas continuing to climb, CHK got hit by a
fresh round of profit taking, falling back towards the rising
trendline support at $12.75 before a strong rebound at the end of
the week that brought price right back to the key $13.50 level.
We can expect lots of volatility from the uncertainty in the
Energy sector, but the trend should remain up.  We're looking for
a decided push through the $14.50 level to really kick the stock
along towards its next obstacle in the $16 area.  So long as price
remains above the 200-dma ($12.25) and nominally within its rising
channel, we should look at irrational dips like that from last
week as entry points ahead of the next strong rally move.
Maintain stops at $12.

LUV - Relative to the very negative tone that LUV went out on a
week ago, last week's price action wasn't too bad.  The bears
tried to press the stock lower, but met plenty of buying support
near $13.50.  Friday's strong rally looked very encouraging, as it
came on strong volume and sent the stock back over the 50-dma.
Weekly Stochastics have turned bearish, so that's a problem, but
we're encouraged by the possibility that the stock is finally
putting in a higher low.  If successful, this should be the
beginning of a significant move higher, and the next confirmation
of that will be a breakout over the April highs near $15.30.
Maintain stops at $12.75.

Watch List:

TYC - It took long enough, but TYC finally gave us the bullish
price action we were looking for and the play moves over to the
Portfolio this weekend.

AIG - Another week has passed, and AIG has yet to make a viable
bullish move.  Sure it could do so next week, but I am growing
concerned.  The 100-dma is providing closing resistance and the
50-dma is bearing down as further resistance.  Add to that the
fact that the weekly oscillators are clearly bearish and it's hard
to get excited about AIG's bullish prospects.  This is precisely
why we've been cautious with our entry setup and why we've
remained on the sidelines this long.  Last week's intraday dip to
$68.73 came very close to issuing a new PnF Sell signal and
tripping our stop before we even get a chance to play.  We'll
stick by our guns for now, targeting entries on a rally back over
$72, but pulling the plug should the stock dip below $68 at any
point.

GM - Clearly the tide has turned for shares of GM, as the stock
barely budged off its lows last week, in a classic buyer's strike.
We can expect the stock to gravitate towards the $45 level towards
the end of next week, with options expiration approaching.  Last
week's breakdown under the $44 level was the key, as it gave us a
new PnF Sell signal (downside target = $37) to work with.  Now our
objective is to find a viable entry point into the play.  I
suspect that our initial target at $47-48 may be asking for a bit
much with the 50-dma now falling below the $47 level.  So let's
ratchet our entry target down a notch to $46-47.  We'll initially
target the $37-38 area, using an initial stop just over $50.

Radar Screen:

EK - How many different ways can we say boring?  EK has no
strength, but it is likewise not showing us much in the way of
weakness.  This incessant choppy price action in a very tight
range is not conducive to picking good entry points and we'll
remain on the sidelines with this candidate until we see a solid
directional move unfold that can offer us a better entry.

QQQ - This is precisely why I wasn't in a hurry to add QQQ to the
Watch List.  The breakdown that materialized a couple weeks ago
has had virtually no downside follow-through and certainly plenty
of buying support.  At the same time, the intraday highs have been
steadily moving lower.  Putting it in context though, the QQQ has
barely exceeded a range of $1.25 for the past two weeks and it
certainly hasn't been directional in nature.  Strong support
exists at $34, but it really hasn't been tested yet.  We need a
sizeable rally back towards the $37.00-37.50 resistance level to
give us a decent setup for a downside play.  For now, we wait and
watch.

$DJUSHB - Last week, I raised the issue of a bearish LEAP play on
the Housing sector, but with the thought that we don't need to be
in a hurry, as the topping formation that we should expect to see
as rates begin to rise, won't really be complete until near the
end of the summer or early Fall.  While I promised to do an in-
depth analysis between the LEAP-able Housing stocks (LEN, DHI,
CTX, PHM and RYL) this weekend, as I got started on that task, it
became clear that the study will require an article of its own --
perhaps even two.  I hope it's clear that we aren't in any hurry
in this sector, so an extra week here and there isn't going to
affect our results.  But getting the analysis right certainly
will!  Look for the first installment of that analysis in the
Trader's Corner section next week.

Closing Thoughts:
The confirmation we've been looking for arrived last week with all
the major indices breaking below important support and giving us
indications of more weakness ahead.  Despite that confirmation,
I'm erring on the side of caution in my analysis and expecting
that the downside will be muted as the Bear Confirmed readings on
the Bullish Percent charts run their course.  At the same time, I
expect we won't have a sufficient bullish catalyst throughout the
summer that can drive the markets through its recent highs.  It
isn't an environment that I expect to be conducive to large wins
in the directional play arena, so we'll need to pick our plays
very carefully.

On another note, until further notice, I will not be commenting on
the VIX/VXO measures of market volatility.  I've been watching
these indices since the CBOE changed the basis of their
calculation last September.  I've been avoiding this conclusion
for a long time, but I'm now of the mind that these indices are
worthless for now and probably some time to come.  We used to
trade based on the levels of the VIX, but that was when we knew
what the 'normal' range was.  With the basis of the calculation
changed, we have no way of knowing what the new 'normal' range is,
or even if it will provide useful boundaries like the old VIX did.
I'm through wasting my time trying to understand the action of the
VIX relative to the market action and I'm through wasting your
time with meaningless commentary on that action.  The VIX is
broken and while part of that may be due to changing market
conditions, it didn't help that the CBOE removed any tie we might
have had to a reference point.

Have a great week!

Mark



LEAPS Portfolio

Current Open Plays



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
AIG    04/25/04   $71-72       JAN-2005 $ 75  ZAF-AO
                            CC JAN-2005 $ 70  ZAF-AN
                               JAN-2006 $ 75  WAP-AO
                            CC JAN-2006 $ 70  WAP-AN
                            PP AUG-2004 $ 65  AIG-TM



PUTS:
GM     05/09/04   $47-48       JAN-2005 $ 45  ZGM-MI
                               JAN-2006 $ 45  WGM-MI
                            PP SEP-2004 $ 50  GM -IJ



New Portfolio Plays

TYC - Tyco International $28.32  **Call Play**

It seems like we've been waiting forever for TYC to finally give
us a viable entry point.  For weeks and weeks, we were stymied by
a stock that wouldn't come down to our entry target and then we
had to wait for earnings to pass and then the stock couldn't seem
to put together even a hint of a rebound.  Thankfully, it looks
like all those issues are behind us.  TYC dipped almost exactly to
$27 last Wednesday before the buyers finally made their presence
known.  The move looked encouraging on Thursday, but the key was
Friday's rally back over the $28 level, finally satisfying our
entry criteria.  Ignoring the bad tick from late February, shares
of TYC have been finding support at a gradually rising trendline
that crosses just over the $27 level and clearly provided support
last week.  Looking at the bigger picture, we can see that the
stock has been trading in a broad consolidation pattern since
February and despite the bearish look of the weekly oscillators,
this looks like a healthy pattern.

Obviously, we think the stock is headed significantly higher in
the months ahead or we wouldn't be adding it as a bullish
Portfolio play this weekend.  But it's nice to have the PnF chart
back up our expectations with a strong Buy signal that projects a
rally to the $54.50 level. That's a long way off, so we really
need to look at our standard candle charts to gauge what some
nearer-term targets might be.  First off, we need to see a push
through the March highs in the $30-31 area, and then we can see
solid resistance near $35.  But if the bulls can manage to push
through that level, without allowing a PnF Sell signal to print,
then we should be able to set our sights on a move to $40 and
possibly $45 in the months ahead.  We'll place stops initially at
$24.50, just under the 200-dma.  While this is a bit wider than
we're normally comfortable with, I hope you can see that it makes
sense in light of the stock's apparent upside potential.

BUY LEAP JAN-2005 $30 ZPA-AF $ 2.15
BUY LEAP JAN-2006 $30 WPA-AF $ 4.00
BUY PUT  JUL-2004 $25 TYC-SE $ 0.55 **Protective Put**

New Watchlist Plays

None


Drops

EBAY $77.53 The party had to end eventually and the sharp market
losses early last week, finally pushed EBAY off its pedestal and
all the way down to $77 on Monday.  We've had quite the ride from
the stock, entering near the $66 level and actually riding it as
high as $84 and change.  We tightened our stop to the $79 level as
a trade at that point would have produced a new PnF Sell signal.
But even leaving our stop at the $77 level wouldn't have kept us
in the play, as the intraday low was $76.92.  Now EBAY has made a
habit out of giving PnF Sell signals which turn out to be the
perfect entry for the next leg up the charts.  That's how we got
the great entry down at $66, by taking advantage of that pattern.
It may be repeated this time around, but my gut says no, that the
stock will probably pull back towards the $70-72 area and work to
build a new base.  All positions should have been closed on the
drop on Monday and now we'll watch the stock from the sidelines in
anticipation of another opportunity to play in the months ahead.


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Option Spread Strategies
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Quickies – It’ Time To Roll The Dice Again
By Mike Parnos, Investing With Attitude

This month has been hairy to say the least.  But, we’re not going
to keep us from creating some quickies.  Hey, life is a crapshoot.
And, never let it be said that I don’t have as much crap as anyone
else.

As I do every month, let me remind you that these quickies are
risky.  They do seem to work out more often than not.  However,
when they don’t, it can cost you dearly.  Remember, government
cheese is not a delicacy.

May Quickie #1 – QQQ Call - $34.75
This one is just based on a feeling.  I believe that, at some
point next wee, the QQQs are going to bounce up to about $35.50.
It’s going to take a few very strong days for that to happen.
But, I’m willing to bet $.15 that it will happen.  As a matter of
fact, let’s go nuts and trade 20 contracts.   Our total out of
pocket risk is a mere hypothetical $300.  If the QQQs make it up
to $35.50, our $300 will be worth a minimum of $1,000.

Buy 20 QQQ May $35 calls @ $.15

The upside is unlimited.  If you’re not going to be around, you
can always put in a GTC (Good Till Cancel) order for $.90 and go
to the movies.

May Quickie #2 – OEX Siamese Condor - $535.42
While I believe the QQQs might spike up, I think the market as a
whole will trade in a pretty tight range next week (but, again,
what do I know?).  Let’s take advantage of it by establishing one
of our Siamese Condors.  We’ll:
Sell 10 of the OEX 535 calls @ $5.00 = $5,000
Sell 10 of the OEX 535 puts @ $4.60 = $4,600
Total credit of $9,600

Now, we’re going to have to, protect ourselves, or at least make
it seem like we’re going to protect these short options.  So,
we’ll:
Buy 10 OEX 555 calls @ $.25 = $250
Buy 10 OEX 510 puts @ $.50 = $500

Our net credit is $8.85 ($8,850).  Our ABSOLUTE bailout points are
543.85 on the topside and $526.15 on the bottom.  We’ll make money
if OEX closes anywhere in between.  The closer OEX closes to 535,
the more money we’ll make.  That’s a pretty sizable range of 17.70
points.   The technical   maintenance is a hefty $25,000 – but
it’s only for a week and it’s not really at risk if we know our
exit points – and WE DO!

May Quickie Position #3 – BBH Iron Condor - $147.29
Well, do you think BBH has gotten all of the volatility out of its
system?  Could be.  How can we take advantage of that scenario?
With one of our Iron Condors.  There’s only a week left.  I’m
going to guess that it will finish somewhere between $145 and
$150.
Sell 10 BBH $145 puts
Buy 10 BBH $140 puts
Credit: $.65 ($650)
Sell 10 BBH $150 calls
Buy 10 BBH $155 calls
Credit: $.70 ($700)
Total net credit: $1.35 ($1,350).
We’re using $5 spreads, so our actual risk is $3.65 ($3,650).  The
maintenance for this position is $5,000.

MAY CPTI POSITIONS
A little over a week to go to expiration.  It’s been a long five-
week option cycle.  We’ve exercised amazing patience.  Let’s hope
the market cooperates and rewards our patience – and discipline.

May Position #1 – SPX Iron Condor – 1095.70
We sold 10 SPX May 1080 puts and bought 10 SPX May 1070 puts for a
total credit of $1.90 ($1,900).  Then we sold 7 SPX May 1175 calls
and bought 7 SPX May 1190 calls for a credit of  $1.40 ($980).
Our total net credit and potential profit is $2,880.  Our maximum
profit range is 1080 to 1175.  Maintenance: $10,500.

May Position #2 – RUT Iron Condor – 543.76
We sold 10 RUT May 620 calls and bought 10 RUT May 630 calls for a
credit of $1.20 ($1,200).  Then we sold 10 RUT May 540 puts and
bought 10 RUT May 530 puts for a credit of $1.30 ($1,300).  Our
total net credit and profit potential is $2,500.  Our maximum
profit range is 540 to 620.  Maintenance: $10,000.

May Position #3 – MNX Iron Condor - $139.99
We sold 10 MNX May $152.50 calls and bought 10 MNX May $157.50
calls for a credit of $.80 ($800).  Then we sold 10 MNX May $140
puts and bought 10 MNX May $135 puts for a credit: $.95 ($950).
Our total net credit and profit potential is $1,750.  Our maximum
profit range is $140 to $152.50.  Maintenance: $5,000.

May Position #4 – BBH Iron Condor - $147.29
We sold 10 BBH May $155 calls and bought 10 BBH May $165 calls for
a credit of $.70 ($700).  Then we sold 10 BBH May $135 puts and
bought 10 BBH May $125 puts for a credit of  $.70 ($700).  Our
total net credit and profit potential is $1.40 x 10 contracts =
$1,400.  Our maximum profit range is  $135 to $155.  Maintenance:
$10,000.
________________________________________________________________

ONGOING POSITIONS

QQQ ITM Strangle – Ongoing Long Term -- $34.75
We bought 10 contracts of the 2005 QQQ $39 puts and 10 contracts
of the 2005 QQQ $29 calls for a total debit of $14,300.   We make
money by selling near term puts and calls every month.  Here's
what we've done so far:
Oct. $33 puts and Oct. $34 calls – credit of $1,900. Nov. $34 puts
and calls – credit of $1,150. Dec. $34 puts and calls – credit of
$1,500.  Jan. $34 puts and calls – credit of $850.  Feb. $34 calls
and $36 puts – credit of $750. Mar. $34 calls and $37 puts –
credit of $1,150. Apr. $34 calls and $37 puts – credit of $750.
May $34 calls and $37 puts – credit of $800.  Total credit:
$8,850.

Note:  We haven't included the proceeds from this long term QQQ
ITM Strangle in our profit calculations.  It's a bonus!  And it's
a great cash flow generating strategy.

ZERO-PLUS Strategy.  OEX – 535.42
In my Feb. 8th column, I outlined a strategy based on an initial
investment of $100,000.  $74,000 was spent on zero coupon bonds
maturing in seven years at a value of $100,000.  The principal
$100,000 investment is guaranteed.  We’re trading the remaining
$26,000 to generate a “risk free” return on the original
investment.

Long Term: Bought 3 OEX Jan. 2006 540 calls @ $81 (x 300 =
$24,300)
March: Sold 3 OEX 585 calls @ $3.10 (x 300 = $930)
March: 535/525 Bull Put spread for credit of $1.10 (x 300 = $330).
Bought back 3 OEX March 585 calls for $.10 & sold 3 of March 560
calls for $1.35.  A credit of $1.25 x 300 = $375.00.  Bought back
March 560 calls for $.15, locked in profit of $120 x 3 = $360.
Cash position is $3,320 ($1,620 plus the unused $1,700).  Our cash
position as of April expiration is $2,640 plus unused $1,700 =
$4,340.

The April 570 OEX call and the OEX 515/505 bull put spread expired
worthless.

New May Zero Plus BPS Position
We sold 5 OEX May 530 puts and buy 5 contracts of May 520 puts for
credit of  $1.10 (x 5 contracts = $550).

We sold a call against our long 540 call. We sold 5 OEX May 575
calls for $1.40 (x 5 contracts = $700).  Today (Thursday), when
the market tanked, we bought back the May 575 call for $.15 ($75).
This locked in $1.25 profit on the 575 call.  Then, we still have
two weeks left, so we sold 5 of the May 560 calls for $1.15
($575).

If these plays work out, we can add another $1,175 + $575 ($1,750)
to our cash total – just a little bonus while we wait for the
market to go up.

OSX Calendar Spread Plus - $98.50
OSX is the Oil Index. This is a play on the common belief that oil
prices will continue to move up over the next month or two. Bought
10 OSX June $115 calls (36 delta) and sold 10 OSX April $115 calls
(23 delta) at a cost of $2.15 ($2,150). We also put on an April
$100/$90 bull put spread and took in an extra $.70 ($700) to
reduce the cost basis to $1.45 ($1,450). We rolled out our April
$115 call and took in $1.20 - further reducing our cost basis to
$.20. Then, aggressive traders (which we are in this strategy) put
on the May $100/$90 bull put spread and took in $.95. So, now we
are a "plus" $.75. In the best-case scenario, the OSX will finish
just below $110 at May expiration.
______________________________________________________________

New To The CPTI?
Are you a new Couch Potato Trading Institute student?  Do you have
questions about our educational plays or our strategies?  To find
past CPTI (Mike Parnos) articles, first look under "Education" on
the OI home page and click on "Traders Corner."  For more recent
columns, you can look under “Strategies” and click on
“Combinations.”  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
______________________________________________________

Couch Potato Trading Institute Disclaimer
All results reported in this section are hypothetical. While the
numbers represented here may have been achieved or beaten by our
readers, we make no representation that any individual investor
achieved these exact results. The tracking for the plays listed in
this section uses closing prices for the day the newsletter is
published and it is not meant to imply that any reader actually
received those prices or participated in these recommendations.
The portfolio represented here is hypothetical and for investment
education purposes only. It is only an illustration of what type
of gains a knowledgeable investor might receive utilizing these
strategies.


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

Russell Emini Game Plan
By Jim Brown

I have been tweaking a set of indicators on the Russell for
several months now. While I do not claim to have a perfect system
I do think it has been performing well for me personally. I tested
the entries in the monitor for public viewing on Thursday and
Friday and the signals performed very well. The numbers are
hypothetical as it was just a test so readers could get familiar
with the types and style of entries.

After running the Momentum Model for nearly a year now I have
always been frustrated with the entry and exit scenarios.
Especially the stops. Whenever I had a successful trade in
progress I would start getting emails about exits. Eventually I
would cave in and exit the trade and many times the ES would run
dozens of points without us. The entry points were always supposed
to be on a cross/touch of the momentum averages. This was easier
said than done in many cases. Many times we went for days without
an entry. From the quantity of email I receive it was evident
readers wanted a system that would consistently take small 3-5
point gains instead of waiting a week for a potentially huge gain
in one play.

I became interested in the ER (Russell Emini) some time ago due to
its less erratic movement. It still has strong moves but it tends
to jerk around less. This tends to be easier to trade based on
indicators. I have been working on programming trade signals from
a combination of several indicators as well as some internal logic
for about six months. Unfortunately we all know there is no holy
grail and no "system" works every time. It still requires human
input. This is where the system breaks down when human input
depends on personal bias for each trade. We all have a bias
regardless of where we are in the trading day. We exit longs early
because we know the run is about over. We refuse to jump into a
short because the market is already severely oversold. Our bias
eventually costs us money.

The hardest part of day trading for me is following the trend.
Sounds easy but it is never simple. Our trader bias wants to start
anticipating the end of the trend or the "turning point" for the
trend. If we just closed our eyes and bet on the house we would be
better off in most cases.

What I have devised in my current ER project is simply a trend
following system that looks for confirmation from multiple
indicators before signaling a change in the trend. On the charts
you will see the candles will show three colors. Blue for Longs,
Red for shorts and Yellow for undecided. With Red or Blue all the
indicators are in agreement. When Yellow there is disagreement
among indicators or the program logic is not seeing enough
agreement to confirm.

The charts you will see are based on Tradestation. I cannot
replicate this in Qcharts because of the program logic and the
lack of tick charts. I will give you some basic indicators for a
setup but the program logic is the key, at least for me. It gives
me a black/white trade signal and the indicator interpretation has
already been done.

As with any indicator system a slow range bound day will produce
indicator convergence and beat you to death. This is where the
human input comes into play. We have to recognize the lulls and
the trading ranges and avoid them. As such I will not be taking
every trade that appears. Normally the middle of the day is slow
and we will try to avoid anything that is not directional.

Play Entries
I am going to change the way I post entries in this model. Instead
of picking entries in advance with stops I am going to point out
entries as they happen and stick with them until they change. I
will warn as we are approaching an entry and approximately where I
anticipate it to occur then post it when it happens. I am
anticipating signals to be for 2-4 points normally and they will
be 1-2 points late. I am not trying to pick tops or bottoms, just
trade in the direction of the trend when the direction changes. We
will then trade in the direction of the trend until that trend
reverses.

Stops
I am not going to give stops. The majority of directional changes
will trigger a change in position within two points or less. Since
the majority of readers use different stop management systems than
me I think it is better for everyone to plan their own exits. Some
like tight one point stops, others 3-5 points. I shudder at more
than two points but to each his own. By not giving a stop we are
not at as much risk of being taken out on a blip only to see the
move continue. It will happen and there will be times we will get
whipsawed. It is a fact of life.

Number of Trades
There will be a lot of trades. Depending on the market we could
see 6-8 trades per day. I do not plan on trading in the middle of
the day when indicators tend to converge. I do plan on not trying
to anticipate trends. We will take what the market gives us and
trade it, good bad and indifferent. We will not trade before the
open or leave trades open overnight.

Trade Entries
The following entry formats will be used:
ER Trend Trade Entry Point Alert -
ER Trend Trade Exit Point Alert -
Potential ER Trend Trade Setup Alert -
Quite often we will change sides at the same time from long to
short or short to long with no pause in between.
Base Indicator Setups for 233 Tick Chart
Keltner Exp Channel 30, 4 (HLOC)/4
MACD 15,26,11
CCI 30,1,-100,100
Chart showing the basic setup:
http://www.OptionInvestor.com/charts/514200420902PM_81.asp

Performance
I am making no claims about performance other than it has been
working well in practice. I tested the signals in the monitor on
Thr/Fri and the hypothetical results are below. Many times systems
that work in private do not work in public and two days is not a
valid trial. Many times the translation time between signal, entry
and posting make the systems unusable. We will use next week as a
live test and see if the signals can be reader profitable.

Over the last two days of testing in the monitor the test signals
have generated +19.50 ER points through noon Friday. Conditions
were perfect and I do not expect this performance in real life.

Friday
Time - signal - entry - - exit - - gain - - max move
09:54 Short 543.00, 539.50, +3.50, low- 537.90
10:33 Long- 540.50, 544.00, +3.50, high 545.90
11:29 Short 543.00, 542.00, +1.00, low- 539.80
12:10 Long- 542.50, 545.50, +3.00, high 548.80 closed early
Net gain/loss +11.00 (hypothetical only)

Thursday
Time - signal - entry - - exit - - gain - - max move
09:51 Short 548.0, 546.0, +2.00, low- 543.30
10:13 Long- 546.0, 548.0, +2.00, high 549.80
10:47 Short 547.0, 547.0, +0.00, low- 546.20
11:36 Long- 547.0, 550.0, +3.00, high 551.10
12:27 Short 549.0, 544.0, +4.00, low- 541.80
14:45 Short 544.0, 545.0, -1.00, low- 543.40
15:06 Long- 546.0, 545.0, -1.00, high 547.60
15:32 Short 545.5, 546.0, -0.50, low- 544.70
Net gain/loss +8.50 (hypothetical only)

Russell Contract Specs
The Russell-2000 Emini contract is worth $100 per point.
It trades in .10 increments at $10 per tick.
The bid/ask spread is normally one tick.
Intraday margin is $1750. Overnight margin is $3500.
The trade symbol depending on your trading platform is ER2 or @ER2
To chart the contract on Qcharts use MR04M
To chart the contract on TradeStation use @ER2


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The Option Investor Newsletter                   Sunday 05-16-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: Inflation Concerns Subdue Stocks...
Premium-Selling Plays: Naked Puts and Calls


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*******************
SPREADS & STRADDLES
*******************

Inflation Concerns Subdue Stocks...
By Ray Cummins

The major equity averages made little headway in Friday's session
after a larger than expected increase in April's core CPI renewed
worries about inflation.

The Dow blue-chip average finished almost unchanged, up 2 points
at 10,012 with gains in its transportation and energy components.
Technology was one of the weakest groups, weighed down by losses
in computer hardware and chip stocks.  The NASDAQ Composite fell
21 points to 1,904.  The broad S&P 500 Index ended flat, despite
buying pressure in oil and gas equipment, gold, tobacco, casino,
homebuilding, airline, auto, REIT, and hospital shares.  Trading
volume was 1.34 billion on the Big Board and 1.52 billion on the
technology exchange.  Winners outpaced losers 6 to 5 on the NYSE
but breadth was negative on the NASDAQ, where 2 stocks fell for
every one that moved higher.  Bond prices rebounded in a "short
covering" rally.  The 10-year note was up 18/32 while its yield
dropped to 4.78%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 05/14/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


PUT-CREDIT SPREADS

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

DNA     56.00  61.09   MAY   47  50   0.25   49.75   0.25   Open
EBAY    75.94  78.95   MAY   65  70   0.65   69.35   0.65   Open
HDI     55.63  54.95   MAY   47  50   0.25   49.75   0.25   Open
PDCO    74.97  74.59   MAY   65  70   0.65   69.35   0.65   Open
CME    116.11 118.65   MAY  100 105   0.60  104.40   0.60   Open
MATK    65.12  70.37   MAY   55  60   0.60   59.40   0.60   Open
MTG     74.42  70.69   MAY   60  65   0.50   64.50   0.50   Open
AVP     84.00  84.39   MAY   75  80   0.45   79.55   0.45   Open
MUR     68.50  66.04   MAY   60  65   0.50   64.50   0.50   Open?
ERES    32.29  31.99   MAY   27  30   0.25   29.75   0.25   Open
ZBRA    74.62  75.97   MAY   65  70   0.40   69.60   0.40   Open
ERTS    51.88  51.04   JUN   45  47   0.35   47.15   0.35   Open
IMDC    61.17  57.78   JUN   50  55   0.50   54.50   0.50   Open
GPRO    38.30  37.48   JUN   30  35   0.70   34.30   0.70   Open
MATK    68.01  70.37   JUN   55  60   0.65   59.35   0.65   Open

L/P = Long Put  S/P = Short Put  CB = Cost Basis  G/L = Gain/Loss

Bullish positions in BJ Services (NYSE:BJS), Nabors Industries
(NYSE:NBR), Navistar (NYSE:NAV), Henry Schein (NASDAQ:HSIC) and
(Silicon Labs NASDAQ:SLAB) have previously been closed to limit
potential losses.  Murphy Oil (NYSE:MUR) remains on the "watch"
list.


CALL-CREDIT SPREADS

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

SOHU    25.46  16.95   MAY   35  30   0.60   30.60   0.60   Open
SFNT    31.65  22.40   MAY   40  35   0.70   35.70   0.70   Open
GENZ    46.40  42.56   MAY   55  50   0.60   50.60   0.60   Open
PRX     55.25  40.26   MAY   65  60   0.65   60.65   0.65   Open
MERQ    45.59  44.60   MAY   55  50   0.60   50.60   0.60   Open
NEM     42.86  36.95   MAY   50  47   0.25   47.75   0.25   Open
RYL     77.41  74.92   MAY   90  85   0.60   85.60   0.60   Open
AMZN    45.20  43.05   MAY   55  50   0.65   50.65   0.65   Open
BOBJ    27.85  19.70   MAY   35  30   0.75   30.75   0.75   Open
NTES    51.43  37.34   MAY   65  60   0.50   60.50   0.50   Open
VECO    27.43  23.81   MAY   35  30   0.55   30.55   0.55   Open
BSX     40.25  39.57   MAY   45  42   0.25   42.75   0.25   Open
RIMM    97.54  92.61   MAY  115 110   0.50  110.50   0.50   Open
MRVL    38.92  39.72   MAY   45  42   0.30   42.80   0.30   Open
OVTI    22.38  21.77   MAY   30  25   0.55   25.55   0.55   Open
AMZN    43.95  43.05   MAY   50  47   0.25   47.75   0.25   Open
CHIR    45.58  43.87   MAY   50  47   0.25   47.75   0.25   Open
BCSI    38.55  36.09   MAY   50  45   0.40   45.40   0.40   Open
CFC     56.30  59.99   MAY   65  60   0.45   60.45   0.45   Open?
CTX     44.80  45.66   JUN   55  50   0.50   50.50   0.50   Open
IVGN    67.61  65.38   JUN   80  75   0.55   75.55   0.55   Open

L/C = Long Call  S/C = Short Call  CB = Cost Basis  G/L = Gain/Loss

Countrywide Financial (NYSE:CFC) is now on the "watch" list.


DEBIT STRADDLES

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

ZMH     80.84  81.85   MAY    80    80     4.90    6.15    Open?
AH      35.78  34.40   MAY    35    35     3.10    2.90   Closed
QLTI    29.60  24.85   MAY    30    30     3.00    5.25    Open?
HOTT    22.26  20.19   MAY    22    22     1.80    2.25    Open
LF      19.67  20.11   JUN    20    20     3.50    5.25    Open?
BSTE    30.63  38.00   JUL    30    30     6.00   11.50    Open?
MKSI    23.10  19.53   JUL    22    22     4.70    5.50    Open

Hot Topic (NASDAQ:HOTT) provided a favorable one-week profit and
(Zimmer Holdings NYSE:ZMH), LeapFrog (NYSE:LF), MKS Instruments
(NASDAQ:MKSI) and QLT Inc. (NASDAQ:QLTI) have also offered viable
short-term gains.  The Stratasys (NASDAQ:SSYS) position has been
closed to preserve capital.  The Corinthian Colleges (NASDAQ:COCO)
straddle was not available at the target entry price, due to the
"gap-up" on the day after the straddle was listed as a candidate.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As with
any new investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your personal skill level, risk-reward tolerance
and portfolio outlook.  In addition, we recommend that you avoid
any trading techniques in which you are not completely comfortable
with the potential capital loss, the necessary adjustments, and
the common entry-exit strategies.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BULLISH PLAYS - CREDIT SPREADS

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

ASD - American Standard  $107.89  *** 3-for-2 Split Coming! ***

American Standard Companies (NYSE:ASD) is a global, diversified
manufacturer of brand-name products that operates in three major
business segments: Air Conditioning Systems and Services, Bath
and Kitchen and Vehicle Control Systems.  The Air Conditioning
Systems and Services Group designs and produces commercial and
residential air conditioning systems and equipment for domestic
and export sales.  It also provides control systems, aftermarket
service and parts for its products and performance contracting
for the installation and maintenance of heating, ventilation and
air conditioning systems.  The Bath and Kitchen segment designs
and produces bathroom and kitchen fixtures and fittings on a
global basis.  Vehicle Control Systems designs and manufactures
braking and control systems for the worldwide commercial vehicle
industry.

ASD - American Standard  $107.89

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-95.00   ASD-RS  OI=10   ASK=$0.40
SELL PUT  JUN-100.00  ASD-RT  OI=183  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.45-$0.55
POTENTIAL PROFIT(max)=9% B/E=$99.55


__________________________________________________________________

IMCL - ImClone Systems  $71.36  *** Premium-Selling Only! ***

ImClone Systems (NASDAQ:IMCL) is a unique biopharmaceutical firm
involved in advance oncology care by developing a portfolio of
targeted biologic treatments designed to address the needs of
patients with cancer.  It focuses on three major strategies for
treating cancer: growth factor blockers, angiogenesis inhibitors
and cancer vaccines.  Their lead product, ERBITUX (Cetuximab), is
an antibody which has been approved by the United States Food and
Drug Administration for use in combination with irinotecan in the
treatment of patients with a specific type of colorectal cancer.

IMCL - ImClone Systems  $71.36

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN-50.00  QCI-RJ  OI=1820  ASK=$0.45
SELL PUT  JUN-55.00  QCI-RK  OI=8876  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$54.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - CREDIT SPREADS

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NTLI - NTL Incorporated  $55.28  *** Sector Slump! ***

NTL Incorporated (NASDAQ:NTLI) is a broadband communications and
broadband services company in the United Kingdom and the Republic
of Ireland.  The firm's principal lines of business are consumer
services, including residential telephony, cable television,
Internet access and interactive services and wholesale Internet
access solutions for United Kingdom Internet service providers;
business services, including data, voice and Internet services;
broadcast transmission and tower services, including digital and
analog television, radio broadcasting, wireless network management,
tower and site leasing, satellite distribution services and radio
communications for public safety; network services, including the
management of their United Kingdom national network infrastructure;
and carrier services and mobile such as national and international
carrier telecommunications services.

NTLI - NTL Incorporated  $55.28

PLAY (aggressive - bearish/credit spread):

BUY  CALL  JUN-65.00  NUD-FM  OI=2232  ASK=$0.55
SELL CALL  JUN-60.00  NUD-FL  OI=3496  BID=$1.40
INITIAL NET-CREDIT TARGET=$0.90-$1.00
POTENTIAL PROFIT(max)=22% B/E=$60.90


__________________________________________________________________

VIP - Vimpel-Communications  $91.45  *** In A Trading Range? ***

Vimpel-Communications (NYSE:VIP) provides a range of wireless
telecommunications services in Russia under the "Bee Line" family
of brand names.  VimpelCom's license portfolio covers more than
92% of Russia's population, including Moscow and St. Petersburg.
VimpelCom offers two digital cellular communications standards
and has built a dual band GSM-900/1800 cellular network.  The
company is engaged in the development and emergence of the mass
consumer market for wireless telecommunications in Russia with
prepaid products such as "infotainment" services, location-based
services, mobile portal, and wireless Internet access through
"BeeOnLine."  The firm also provides GPRS (General Packet Radio
Services) with per-byte billing and GPRS roaming capabilities.

VIP - Vimpel-Communications  $91.45

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-110.00  VIP-FB  OI=397  ASK=$0.95
SELL CALL  JUN-105.00  VIP-FA  OI=259  BID=$1.35
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=11% B/E=$105.50



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
DEBIT SPREADS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


SUPPLEMENTAL CANDIDATES

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

CALL DEBIT SPREADS

Stock   Current Long    Ask    Short   Bid    Cost   Spread  Max
Symbol  Price   Call   Price   Call    Price  Basis  Debit   ROI%

TK      64.53   KFK    10.10   TKFL    5.60   59.50   4.50   11.1
SLXP    32.75   PQNFE   9.00   PQNFF   4.50   29.50   4.50   11.1
CELG    56.97   LQHFH  17.40   LQHFJ   8.40   49.00   9.00   11.1
CFC     59.99   CFCFJ  10.60   CFCFK   6.10   54.50   4.50   11.1
DIGE    38.01   QDGFF   8.50   QDGFG   4.00   34.50   4.50   11.1
DNA     61.09   DNAFJ  11.50   DNAFK   7.00   54.50   4.50   11.1
KMRT    44.30   KTQFG   9.90   KTQFH   5.40   39.50   4.50   11.1
CME    118.65   CMEFT  19.70   CMEFB  10.60  109.10   9.10    9.9


PUT DEBIT SPREADS

Stock   Current Long    Ask    Short   Bid    Cost   Spread  Max
Symbol  Price   Put    Price   Put     Price  Basis  Debit   ROI%

PHTN    29.82   PDURG   5.80   PDURZ   3.60   32.80   2.20   13.6
AVCT    32.35   QVXRU   5.30   QVXRG   3.10   35.30   2.20   13.6
XMSR    22.89   QSYRF   7.30   QSYRE   2.90   25.60   4.40   13.6
NTLI    55.28   NUDRM  10.40   NUDRL   6.00   60.60   4.40   13.6
CLF     40.55   CLFRJ  10.30   CLFRI   5.90   45.60   4.40   13.6
BCSI    36.09   IYURJ  15.20   IYURH   6.30   41.10   8.90   12.4
SLAB    45.71   QFJRL  14.60   QFJRJ   5.70   51.10   8.90   12.4

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
STRADDLES AND STRANGLES
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


SUPPLEMENTAL DEBIT STRADDLES -- "EARNINGS REPORT SPECULATION"

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.

Stock    Pick     Exp.  Straddle  Long    Long    Target  Target
Symbol   Price   Month   Strike   Call    Put     Debit    Gain

A        25.59    MAY    25.00     A-EE    A-QE    2.00    0.70
ADSK     34.73    MAY    35.00   ADQ-EG  ADQ-QG    2.30    0.80
BBOX     47.93    MAY   50C/45P  QBX-EJ  QBX-QI    0.60    0.25
BJ       20.29    MAY    20.00    BJ-ED   BJ-QD    1.25    0.45
BLI      12.83    MAY    12.50   BLI-EV  BLI-QV    0.80    0.30
FL       21.68    MAY   22C/20P   FL-EX   FL-QD    0.70    0.25
LOW      50.58    MAY    50.00   LOW-EJ  LOW-QJ    2.50    0.85
ZLC      53.95    MAY    55.00   ZLC-EK  ZLC-QJ    2.30    0.80

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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*****************************************
PREMIUM-SELLING PLAYS: NAKED PUTS & CALLS
*****************************************

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 05/14/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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


MONTHLY YIELD FOR UNCOVERED OPTIONS: MAXIMUM & SIMPLE

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NAKED PUTS

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

FWHT     MAY    17    17.15   19.91    0.35   4.19%   2.04%
MICC     MAY    17    17.15   21.45    0.35   4.31%   2.04%
MNST     MAY    22    21.95   25.34    0.55   4.39%   2.51%
HNT      MAY    22    22.00   22.76    0.50   4.76%   2.27%
IPXL     MAY    20    19.50   21.57    0.50   5.43%   2.56%
SSNC     MAY    22    21.60   23.31    0.90   7.85%   4.17%
IPXL     MAY    20    19.65   21.57    0.35   4.38%   1.78%
JBLU     MAY    22    22.15   25.92    0.35   3.65%   1.58%
LSCP     MAY    22    21.95   30.32    0.55   5.43%   2.51%
ASKJ     MAY    30    29.50   37.23    0.50   4.47%   1.69%
BRCM     MAY    37    36.70   37.66    0.80   4.83%   2.18%
FWHT     MAY    20    19.35   19.91    0.56   6.28%   3.36%
HOLX     MAY    20    19.50   19.38   (0.12)  0.00%   2.56%
HSII     MAY    22    22.25   26.53    0.25   2.61%   1.12%
LF       MAY    20    19.55   20.11    0.45   5.16%   2.30%
TSAI     MAY    20    19.80   20.24    0.20   2.99%   1.01%
TSO      MAY    20    19.50   22.07    0.50   5.60%   2.56%
APPX     MAY    35    34.40   34.88    0.48   4.65%   1.74%
BLDP     MAY    10     9.75    9.09   (0.66)  0.00%   2.56%
ELN      MAY    17    17.30   22.25    0.20   4.01%   1.16%
ERES     MAY    25    24.50   31.99    0.50   6.05%   2.04%
HOLX     MAY    20    19.65   19.38   (0.27)  0.00%   1.78%
LSCP     MAY    22    22.10   30.32    0.40   5.49%   1.81%
PDII     MAY    22    21.75   27.77    0.75   8.99%   3.45%
TELK     MAY    22    22.20   23.14    0.30   4.32%   1.35%
TNOX     MAY    15    14.50   16.60    0.50   8.35%   3.45%
APPX     MAY    35    34.65   34.88    0.23   2.47%   1.01%
EYE      MAY    17    17.20   22.81    0.30   5.00%   1.74%
JCOM     MAY    22    22.30   22.96    0.20   2.82%   0.90%
MGAM     MAY    22    21.90   22.49    0.59   7.05%   2.74%
NIHD     MAY    33    32.88   33.24    0.37   3.20%   1.52%
PXLW     MAY    17    16.95   16.45   (0.50)  0.00%   3.24%
SNIC     MAY    17    17.15   18.79    0.35   5.76%   2.04%
DNDN     MAY    12    12.25   11.15   (1.10)  0.00%   2.04%
FWHT     MAY    20    19.60   19.91    0.31   5.50%   2.04%
NIHD     MAY    35    34.50   33.24   (1.26)  0.00%   1.45%
OSTK     MAY    30    29.25   32.84    0.75   9.75%   2.56%
SNIC     MAY    17    17.20   18.79    0.30   6.05%   1.74%
UTHR     MAY    20    19.65   23.74    0.35   6.71%   1.78%
ATRS     MAY    25    24.55   23.85   (0.70)  0.00%   1.83%
DRTE     MAY    17    17.20   16.36   (0.84)  0.00%   1.74%
FWHT     MAY    20    19.65   19.91    0.26   5.03%   1.78%
INSP     MAY    30    29.50   31.50    0.50   7.20%   1.69%
ISPH     MAY    15    14.50   16.57    0.50  11.39%   3.45%
PTEN     MAY    35    34.65   31.23    0.40   4.13%   1.01%
UTHR     MAY    22    22.10   23.74    0.40   6.82%   1.81%
ARTC     MAY    22    22.20   21.10   (1.10)  0.00%   1.35%
CPKI     MAY    20    19.70   19.44   (0.26)  0.00%   1.52%
HEW      MAY    30    29.50   29.99    0.49   6.56%   1.69%
ISPH     MAY    15    14.55   16.57    0.45  12.90%   3.09%
MGM      MAY    20    19.65   20.45    0.35   7.24%   1.78%
SONO     MAY    20    19.60   21.10    0.40   8.71%   2.04%
USPI     MAY    35    34.35   36.17    0.65   7.48%   1.89%
DRIV     MAY    25    24.75   28.41    0.25   5.17%   1.01%
GPRO     MAY    35    34.70   37.48    0.30   4.34%   0.86%
JILL     MAY    20    19.60   21.25    0.40   9.70%   2.04%
MVSN     MAY    20    19.65   23.11    0.35   9.34%   1.78%
PDII     MAY    25    24.55   27.77    0.45   8.88%   1.83%
SYMC     MAY    45    44.65   48.00    0.35   3.95%   0.78%
VXGN     MAY    15    14.50   16.36    0.50  16.34%   3.45%
ADP      MAY    45    44.65   45.48    0.35   5.00%   0.78%
ERES     MAY    30    29.70   31.99    0.30   7.04%   1.01%
FARO     MAY    20    19.75   23.41    0.25   9.82%   1.27%
MXIM     MAY    45    44.70   47.18    0.30   4.57%   0.67%
NCF      MAY    30    29.50   31.50    0.50  11.10%   1.69%
NSM      MAY    20    19.70   20.41    0.30   9.79%   1.52%
BCGI     JUN    10     9.65   10.88    0.35   7.73%   3.63%
LPNT     JUN    35    34.30   36.59    0.70   4.03%   2.04%
ASCA     JUN    30    29.35   33.05    0.65   5.02%   2.21%
DRIV     JUN    25    24.25   28.41    0.75   7.04%   3.09%
FARO     JUN    20    19.45   23.41    0.55   7.32%   2.83%
GIVN     JUN    30    29.25   35.61    0.75   7.01%   2.56%
MVSN     JUN    20    19.65   23.11    0.35   4.54%   1.78%
PDII     JUN    22    22.00   27.77    0.50   6.67%   2.27%
SMTC     JUN    20    19.50   21.98    0.50   6.25%   2.56%
SSTI     JUN    12    12.15   12.37    0.22   4.40%   2.88%

Positions in ADEX, ALKS, CAMD, CLZR, ESIO, GNTA, GVHR, IMM,
INSP ($35 strike), MICC, MRVL, NET, NFLX, ORBZ, PLMO, TINY,
TOMO, USG and XMSR were previously closed to limit potential
losses.  New additions to the "early-exit" list are: ARTC,
ATRS, BLDP, CPKI, DRTE, DNDN, HOLX, NIHD, SSTI and PXLW,
among others.  In light of the recent bearish activity, most
of the remaining portfolio issues are on the "watch" list.


NAKED CALLS

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

AFCI     MAY    25    25.75   15.88    0.75   7.73%    2.91%
QLGC     MAY    37    37.95   27.05    0.45   4.22%    1.19%
AVCT     MAY    37    38.15   32.35    0.65   4.61%    1.70%
INTU     MAY    47    48.00   42.49    0.50   2.80%    1.04%
PPCO     MAY    20    20.30   12.71    0.30   6.92%    1.48%
SINA     MAY    45    45.55   28.45    0.55   6.61%    1.21%
NANO     MAY    20    20.40   11.93    0.40  10.66%    1.96%
PHTN     MAY    35    35.60   29.82    0.60   7.03%    1.69%
SFA      MAY    35    35.55   32.43    0.55   6.17%    1.55%
SOHU     MAY    25    25.75   16.95    0.75  11.61%    2.91%
SWIR     MAY    35    35.60   23.92    0.60   9.26%    1.69%
HOV      MAY    42    42.90   33.10    0.40   4.07%    0.93%
NFI      MAY    45    45.40   33.88    0.40   7.16%    0.88%
PHTN     MAY    35    35.30   29.82    0.30   6.07%    0.85%
RMBS     MAY    25    25.30   19.01    0.30   7.84%    1.19%
FLSH     MAY    20    20.25   16.30    0.25   8.55%    1.23%
BRCM     MAY    42    42.80   37.66    0.30   4.46%    0.70%
APPX     MAY    50    50.55   34.88    0.55  11.50%    1.09%
KG       MAY    20    20.25   13.88    0.25  12.67%    1.23%
SHRP     MAY    30    30.45   27.55    0.45   8.28%    1.48%
ATRX     MAY    30    30.35   27.86    0.35   9.16%    1.15%
KOSP     MAY    40    40.65   34.05    0.65  12.52%    1.60%
PBY      MAY    27    27.85   24.20    0.35  10.04%    1.26%
IACI     JUN    32    33.15   29.25    0.65   5.22%    1.96%
OVTI     JUN    30    30.80   21.77    0.80  11.79%    2.60%

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
NEW POSITIONS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

NEW NAKED-PUT CANDIDATES

Stock   Strike Strike  Cost    Stock   Option   Max.   Simple
Symbol  Month  Price   Basis   Price   Price   Yield   Yield

CELG     JUN    45.00  44.40   56.97    0.60   5.07%   1.35%
ELN      JUN    17.50  17.05   22.25    0.45   9.31%   2.64%
FRO      JUN    25.00  24.50   30.28    0.50   6.91%   2.04%
IMMU     JUN     5.00   4.75    5.82    0.25  14.42%   5.26%
LNCR     JUN    32.50  32.05   35.09    0.45   3.84%   1.40%
MCK      JUN    32.50  32.00   33.95    0.50   4.01%   1.56%
NFLX     JUN    25.00  24.45   30.74    0.55   7.85%   2.25%
PHRM     JUN    20.00  19.65   27.60    0.35   6.05%   1.78%
RTN      JUN    32.50  32.00   33.12    0.50   3.86%   1.56%
VXGN     JUN    12.50  12.10   16.36    0.40  11.04%   3.31%

__________________________________________________________________

CELG - Celgene  $56.97  *** Pure Premium-Selling! ***

Celgene (NASDAQ:CELG) is an integrated biopharmaceutical company
engaged in the discovery, development and commercialization of
therapies designed to treat cancer and immunological diseases
through regulation of cellular, genomic and proteomic targets.
The firm has built a discovery, development and commercialization
platform for drug and cell-based therapies that allows it to both
create and retain significant value within its unique therapeutic
franchise areas of cancer and immune/inflammatory diseases.  This
target-to-therapeutic platform integrates both small molecule and
cell-based therapies and spans the key functions that are required
to generate a pipeline of new drugs and cell therapy candidates.

CELG - Celgene  $56.97

PLAY (sell naked put):

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

SELL PUT  JUN 45    LQH RI    576   0.60  44.40   5.1%   1.4%


__________________________________________________________________

ELN - Elan Corporation  $22.25  *** Favorable Outlook! ***

Elan Corporation (NYSE:ELN) is an integrated biopharmaceutical
firm engaged in research and development in Alzheimer's disease,
Parkinson's disease, multiple sclerosis, pain management and
autoimmune diseases.  The company's objective is to discover and
develop products that will fulfill the unmet medical needs of
patients.  Elan conducts its worldwide business, including all
research and development, manufacturing and marketing, through
wholly owned subsidiaries incorporated in Ireland, the United
States, the United Kingdom and other countries.

ELN - Elan Corporation  $22.25

PLAY (sell naked put):

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

SELL PUT  JUN 17.5  ELN RW    2198   0.45  17.05   9.3%   2.6%


__________________________________________________________________

FRO - Frontline  $30.28  *** Transportation Sector ***

Frontline (NYSE:FRO) is a Bermuda-based shipping company engaged
in the ownership and international operation of oil tankers,
including oil/bulk/ore carriers.  The company primarily operates
a fleet of tankers in two sizes: very-large crude carriers and
Suezmaxes.  The company is also involved in the charter, purchase
and sale of vessels, and charters in 11 modern VLCCs, a Suezmax
tanker and a fleet of 10 dry-bulk carriers that included Capesize,
Panamax and Handymax size bulkers.

FRO - Frontline  $30.28

PLAY (sell naked put):

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

SELL PUT  JUN 25    FRO RE     384   0.50  24.50   6.9%   2.0%


__________________________________________________________________

IMMU - Immunomedics  $5.82  *** Cheap Speculation! ***

Immunomedics (NASDAQ:IMMU) is a biopharmaceutical firm 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 other radioactive isotopes,
chemotherapeutics or toxins, in each case to create highly
targeted agents.  In addition to its therapeutic discoveries,
the firm has also developed highly specific diagnostic imaging
agents, one of which, CEA-Scan, has already been approved in the
United States, Canada and the European Union, where it is being
marketed for the detection of colorectal cancers.

IMMU - Immunomedics  $5.82

"SPECULATIVE" PLAY (sell naked put):

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

SELL PUT   JUN 5    QUI RA    1272   0.25   4.75  14.4%   5.3%


__________________________________________________________________

LNCR - Lincare Holdings  $35.09  *** Safe-Haven Sector? ***

Lincare Holdings (NASDAQ:LNCR) together with its subsidiaries,
is a provider of oxygen and other respiratory therapy services
to patients in the home.  The company's customers suffer from
chronic obstructive pulmonary disease such as emphysema, chronic
bronchitis or asthma, and require supplemental oxygen or other
respiratory therapy services in order to alleviate the symptoms
and discomfort of respiratory dysfunction.  Lincare serves over
400,000 customers in 47 states through 642 operating centers
and also provides a variety of durable medical equipment and
home infusion.

LNCR - Lincare Holdings  $35.09

PLAY (sell naked put):

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

SELL PUT  JUN 32.5  LQN RZ     415   0.45  32.05   3.8%   1.4% TS


__________________________________________________________________

MCK - McKesson Corporation  $33.95  *** Rally Mode! ***

McKesson Corporation (NYSE:MCK) provides supply, information and
care management products and services designed to reduce costs
and improve quality across the healthcare industry.  The company
conducts its business through three primary segments.  With the
Pharmaceutical Solutions segment, McKesson distributes ethical
and proprietary drugs and health and beauty care products, and
provides patient and payor services in the United States.  The
Medical-Surgical Solutions segment distributes medical-surgical
supplies and equipment, and provides logistics and other related
services.  The company's Information Solutions segment delivers
enterprise-wide patient care, clinical, financial, supply chain,
managed care and strategic management software solutions, as well
as outsourcing and other services, to healthcare organizations
throughout North America, certain European countries and the U.K.

MCK - McKesson Corporation  $33.95

PLAY (sell naked put):

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

SELL PUT  JUN 32.5  MCK RZ     118   0.50  32.00   4.0%   1.6% TS


__________________________________________________________________

NFLX - Netflix  $30.74  *** In A Trading Range? ***

Netflix (NASDAQ:NFLX) is an online entertainment service in the
United States that provides more than 600,000 subscribers access
to a comprehensive library of more than 11,500 movie, television
and other filmed entertainment titles.  The company's standard
subscription plan allows subscribers to have three titles out at
the same time with no due dates, late fees or shipping charges.
Subscribers can view as many titles as they want in a month and
they select these titles at the firm's Website www.netflix.com)
aided by its proprietary CineMatch technology.  They receive them
on DVD by first-class mail and return them to Netflix at their
convenience using prepaid envelopes.  Once a movie title has been
returned, Netflix mails the next available title in a subscriber's
queue.

NFLX - Netflix  $30.74

PLAY (sell naked put):

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

SELL PUT  JUN 25    QNQ RE    5160   0.55  24.45   7.8%   2.2%


__________________________________________________________________

PHRM - Pharmion Corporation  $27.60  *** New Drug Speculation! ***

Pharmion Corporation (NASDAQ:PHRM) is a global pharmaceutical
company focused on acquiring, developing and commercializing
products for the treatment of hematology and oncology patients.
The company has established its own regulatory, development and
sales and marketing organizations and has a distributor network
to serve the global hematology and oncology markets.  Pharmion
has acquired rights to two products, Innohep and Refludan.  It
also has two products, Thalidomide Pharmion 50 mg) and Vidaza,
in advanced stages of development.  Pharmion intends to continue
to build a balanced portfolio of approved and pipeline products
targeting the hematology and oncology markets.

PHRM - Pharmion Corporation  $27.60

PLAY (sell naked put):

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

SELL PUT  JUN 20    JUT RD      0    0.35  19.65   6.0%   1.8%


__________________________________________________________________

RTN - Raytheon Company  $33.12  *** Entry Point? ***

Raytheon Company (NYSE:RTN) is a defense electronics contractor
serving all branches of the United States military and other
U.S. government agencies, North Atlantic Treaty Organization,
and many allied governments.  The company range of systems and
equipment include missiles; radar; sensors and electro-optics;
intelligence, surveillance and reconnaissance; command, control,
communication and information systems; naval systems; air traffic
control systems, and technical services.  Raytheon's commercial
electronics businesses leverage unique technologies in commercial
markets.  Raytheon Aircraft is a provider of business and special
mission aircraft and delivers a broad line of jet, turboprop and
piston-powered airplanes to corporate and government customers
worldwide.

RTN - Raytheon  $33.12

PLAY (sell naked put):

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

SELL PUT  JUN 32.5  RTN RZ     46    0.50  32.00   3.9%   1.6% TS


__________________________________________________________________

VXGN - VaxGen  $16.36  *** More Drug Speculation! ***

VaxGen (NASDAQ:VXGN) is a biopharmaceutical company focused on
the commercial development and manufacture of products for the
prevention and treatment of human infectious disease.  Spun-off
from Genentech in 1995, VaxGen utilizes recombinant technology to
clone and express complex proteins, including those made through
bacterial and mammalian-cell fermentation.  The firm is focused
on developing and commercializing vaccine candidates to address
bioterrorism threats, including anthrax and smallpox.  VaxGen is
being funded by the National Institutes of Health to develop a
modern, recombinant anthrax vaccine, known as rPA102.  In 2003,
it was awarded a contract from the NIH to advance the vaccine
candidate into Phase II clinical trials, conduct animal efficacy
studies and manufacture a three-million-dose stockpile of rPA102.
The company is also the single-largest shareholder in Celltrion,
a joint venture formed to build biopharmaceutical manufacturing
operations.

VXGN - VaxGen  $16.36

"SPECULATIVE" PLAY (sell naked put):

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

SELL PUT  JUN 12.5  UWG RV    119    0.40  12.10  11.0%   3.3%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

BEARISH PLAYS - NAKED CALLS

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

WARNING: THE RISK IN SELLING UNCOVERED OPTIONS IS SUBSTANTIAL!

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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

PHTN - Photon Dynamics  $29.82  *** A Lateral Consolidation ***

Photon Dynamics (NASDAQ:PHTN) is a provider of yield management
solutions to the flat panel display (FPD) industry.  The company
also offers yield management solutions for the printed circuit
board assembly and advanced semiconductor packaging industries
and the cathode ray tube display and CRT glass and auto glass
industries.  The firm's test, repair and inspection systems are
used by manufacturers to collect data, analyze product quality
and identify and repair product defects at critical steps in the
manufacturing.

PHTN - Photon Dynamics  $29.82

PLAY (sell naked call):

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

SELL CALL  JUN 35    PDU FG     68    0.35  35.35   5.0%   1.0%


__________________________________________________________________

SLAB - Silicon Laboratories  $45.71  *** Sell-Off Underway! ***

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

SLAB - Silicon Laboratories  $45.71

PLAY (sell naked call):

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

SELL CALL  JUN 55    QFJ FK    636    0.50  55.50   5.3%   0.9%



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

SEE DISCLAIMER - SECTION 1

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~


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