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Daily Newsletter, Sunday, 05/30/2004

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The Option Investor Newsletter                   Sunday 05-30-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: What A Difference A Week Makes
Futures Market: See Note
Index Trader Wrap: See Note
Editor's Plays: Earnings Lottery
Market Sentiment: Ready for the Weekend
Ask the Analyst: Biotech can bring great reward, and disappointment
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 5-28         WE 5-21         WE 5-14         WE 5-07
DOW    10188.45 +221.71 9966.74 - 46.13 10012.9 -104.47 -108.23
Nasdaq  1986.74 + 74.65 1912.09 +  7.84 1904.25 - 13.71 -  2.19
S&P-100  545.13 + 10.80  534.33 -  1.14  535.47 -  1.88 -  3.53
S&P-500 1120.64 + 27.08 1093.56 -  2.10 1095.66 -  3.03 -  8.61
W5000  10926.36 +301.26 10625.1 -  9.61 10634.7 - 51.33 -107.62
SOX      488.86 + 30.68  458.18 +  7.19  450.99 -  6.02 + 13.52
RUT      568.28 + 22.47  545.81 +  2.05  543.76 -  4.80 - 11.24
TRAN    2948.01 + 82.26 2861.75 + 12.86 2848.89 +  2.71 - 40.26
******************************************************************

What A Difference A Week Makes
by Jim Brown

I predicted last Sunday that there was a bounce building
in our immediate future. I outlined the reasons I thought
the selling was over and why I thought we would rally. I
suggested it would slow in the SPX 1020, Dow 10200 range
and that is where we stopped. Unfortunately after several
weeks of declines and a rebound as predicted the future is
far less clear.

Dow Chart - Weekly


Nasdaq Chart - Weekly



The economics for the week were a definite surprise. With
a number of reports coming in weaker than expected the
markets shrugged them off and continued higher. The bad
news bulls appear to be back in charge. The weaker than
expected reports continued on Friday with the Consumer
Sentiment dropping to 90.2 and the lowest level since Oct
2003. Expectations were for a gain to 95.0 but analysts
were quick to downplay the release. The common refrain was
that sentiment was "news event" driven and did not reflect
the true nature of the recovery. I will agree with them on
that except that they always pound the table with delight
when it is higher than expected. The increasing pessimism
is coming from the Iraq prisoner scandal, rising gas prices
and up until this week the falling markets. The Michigan
survey is taken from 500 respondents. The preliminary number
is from the first 250 respondents and the final number from
the total of all 500. The swing from the preliminary release
in May to the final number was about -8 points and a very
large swing over the last two weeks. This correlates with
the ABC News/Money Magazine poll that also dropped sharply.

Conversely the Personal Income and Spending numbers released
on Friday showed income was twice the level of spending and
up +4.8% year over year. Income rose +0.6% and spending only
+0.3%. This was the highest increase in spending since the
end of 2000. Inflation as shown by the PCE Deflator rose only
+0.1% for the month pushing the core PCE to only +1.4% year
over year. This is one of Greenspan's favorite indicators
and is showing almost no inflation. This could allow the Fed
to remain patient for an extended period of time.

The NY-NAPM rose for the ninth straight month in May but the
rate of increase slowed slightly. In May the index hit 287.1
a gain of +4.9 points and a new record high. However current
conditions fell to 59.7 from 70.9 and manufacturing conditions
fell to 52.7 from 80.3. The quantity of purchases fell to 56
from 75. The worst drop was the six-month outlook, which fell
from 85.7 to 62.5. Probably the biggest highlight that the
outlook is slipping was the Production Materials Buying Policy
which fell from 150 days to only 40 days of inventory. This
could be seen in two ways. Either production has ramped up
so strongly that managers cannot keep a longer supply on
hand OR the future prospects have fallen off so sharply that
managers are afraid to keep more raw materials on hand. When
you consider the drop in the other components I think the
latter is likely the case. It appears the New York recovery
may be topping.

The strongest survey for the week was the PMI, which rose to
68.0 and a level not seen since Jan-1988.  This report helped
to push the weakness in many of this weeks releases to the
background with a +6 point jump over expectations. The New
Orders component rose to 74.4 and the highest level since
1983. To keep pace with the increasing demand the employment
component rose +4 points. Where the NY report showed a
slowing rate of manufacturing growth the Chicago PMI shows
an exploding rate of growth. This suggests the national ISM
next week could also be stronger than expected. This would
help continue the bullish optimism in the markets. The only
downside was the soaring prices paid component to 80 and the
highest level since 1995.

On Thursday the weaker than expected GDP at 4.4% was a small
disappointment but still strong. The 2Q GDP is only expected
to be in the +3.5% to +4.0% range but the strong PMI and a
strong ISM next week could go a long way towards raising
those estimates. That ISM for May will be released at 10:00
on Tuesday. The other material reports are Factory Orders
and Productivity on Thursday and Jobs on Friday. The Jobs
report is the biggest hurdle with consensus estimates at
+233,000, slightly less than the +288K for April.

Unless the Jobs report was over +350K the odds of the Fed
reacting before the June-30th meeting are slim. Currently
the odds of a quarter point rate hike at the June meeting
are 92%, down from 94% last Sunday and 100% several weeks
ago. This is still a virtual certainty in Fed terms but a
lower than expected ISM or Jobs could decrease the odds
even further.

With economics mixed but still improving where it matters
and strong earnings the markets pulled a recovery out of
the hat last week. The Dow rallied to resistance at 10220
and came to a dead stop on Thursday. Friday's high was just
below that level at 10216 but support at 10175 was also
very strong. The Nasdaq was by far the stronger index with
a +120 point gain from the prior weeks lows. The Nasdaq
went out Friday at its highs at 1988 and very close to the
2000 level once again. That 2000 level, actually 2000-2025,
is very strong resistance and coupled with that 10200-10300
resistance level on the Dow could easily limit upward
movement next week. The SPX came to a halt at 1121 right
on schedule and the Russell at 570. All of these levels
are strong resistance. However, closing at very strong
resistance on a Friday with three day weekend event risk
ahead was bullish. The major qualification was the holiday
volume at only 2.5 billion shares across all markets. The
NYSE only traded 1.2B and the Nasdaq 1.09B. These levels
are -38% below Tuesday's level at 4.01B for the strong
gain. The rally volume was also only moderate and lacking
in conviction.

The Nasdaq has now closed up +6 consecutive days and is
nearing that stronger resistance mentioned above. With the
summer doldrums ahead that trend is not likely to continue
much longer. The summer doldrums are commonly known as
June-August. Over the last five years the S&P has lost
an average of -2.5% over those months. To put that in
perspective it would only be -28 points from Friday's
close. Hardly a tidal wave of selling and suggests that
doldrums is a proper name.

Offsetting the potential for three months of aimless
wandering is the election year trend. Since 1900 there
has been a summer rally in 73% of election years with an
average gain of +7% according to Ned Davis Research. Now
we have a choice between aimless wandering and a +7% avg
gain. Who is right? Actually historical norms are only
accurate over extremely long periods. Short-term views
can be skewed significantly by current events and market
trends. The doldrums trend I mentioned above simply
reflects the bear market for three of the last five
years. No surprise that the average was down. The longer
election year trend since 1900 covers only 25 election
year cycles and multiple major wars and economic disasters.
With 73% of those years (18) showing a gain compared to
27% (7) showing a loss that is not really a trend you can
count on. It is better than a coin toss but only slightly.
Add in the June-30th Fed meeting, Iraq turnover and Olympics
and the recent terror warning and the election year trend
is probably nullified.

With the Nasdaq and the Russell each up +4% for the week
and the SOX up +7% you could easily make a case that the
market is overbought. Buyer conviction is far from strong
with the put/call ratio 1.05 and the TRIN 1.13 at Friday's
close. Low volume, lack of conviction but closing at the
highs on a holiday Friday. What a conflicting picture!
I had gone into Friday afternoon thinking we were going
to see a closing sell off on profit taking but other than
some light chop there was no real attempt to take them down.
There were several attempts to take them higher but those
also failed but not very decisively. It appears there is
no conviction on either side.

When there is no conviction we need to look at the real
support and resistance and the longer term trend to decide
the probable outcome. Each of the major indexes are nearing
their downtrend resistance dating back to early 2004. This
will be a key test for next week. The Nasdaq has been down
trending since January and that trend line is currently
2020. With round number resistance at 2000 to slow any new
gains the 2020 level could be tough. Support is well below
at 1940 & 1920. The path of least resistance for the Nasdaq
is not up or down but sideways. It is right in the middle
of a large range and we could wander in this 1940-2020 range
for all of June while waiting for the month end events to
unfold.

Nasdaq Chart - Daily



The Dow has monster resistance at 10300-10350 and heavy
congestion between 10300-10550. The upward path for the
Dow is going to be much more difficult than the Nasdaq.
The +2% gain (+222) for the Dow was only half the Nasdaq
gain and stopped right at 10220 resistance for the last
two days. Most of the Dow recovery was based on only a
very few stocks. UTX, AIG, INTC, HD, KO, AXP and MMM
carried the index with many of the other issues flat to
down. The Dow has very low relative strength when compared
to the other indexes. With strong resistance from 10220-
10350 and support well below at 9900 the Dow also has a
big range available for movement over the next four weeks.
The path of least resistance is down for the Dow to
something around the 10100 level.

Dow Chart - Daily




The two indexes that helped the rally the most were the SOX
and the Russell. Both tacked on some serious gains but both
are nearing some serious resistance. The SOX reached downtrend
resistance on Friday at 490 and with the +7% gain for the week
is definitely overbought. We could easily see some profit
taking in chip stocks.

SOX Chart - Daily


Russell Chart - Daily




The Russell is also very extended from the May base around
535 and the +35 point gain was extreme. 570 is strong
resistance and could act to blunt any further gains next
week.  The small caps set a lower high on Friday and were
very choppy all afternoon. This suggests indecision and a
lack of fund buying. When funds buy or sell the Russell the
direction and speed leaves no doubt. There was definite
doubt on Thr/Fri.

Based on the market information above I think the rebound
is about over and profit taking should follow. With the
weekend event risk over and a positive ISM on Tuesday we
could easily see a move higher but with all the multiple
resistance levels across all the indexes the odds of a
major move higher are not high. I believe instead we
could see a range bound market with risk to the downside
until Friday's Jobs report. Everyone is expecting a blowout
report and I have already heard one 500K prediction. The
expectations are very high and potential for disappointment
high as well. That is where we run into trouble. If the
number did come in at 500K the Fed would almost certainly
act immediately. In this case a blowout could be dangerous.
Then there is also the persistent rumor that there will be
a rally after the first cut because it means the Fed has
begun to act and the economy is strong. If the number is
well below the estimates the Fed may remain on hold and
that could also rally stocks. This is a very tough week
to call except for the obvious. My best analysis says that
any move higher early in the week will fail and we will
remain range bound until the Jobs report.

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

Due to a family emergency Leigh is unavailable this weekend.
Look for his column to return next weekend.


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

Earnings Lottery

Ditech Communications won the lottery on Friday after
beating estimates of 20 cents by +4 cents. Nice earnings,
nice quarter but was it worth a +30% jump in the stock
price? I would be really surprised to see it hold. I am
sure there were a lot of shorts thinking they would miss
earnings and they lost big with a +$5 jump in DITC.

I think this was extremely overdone and the decline since
January will return. I am going to make a lottery play of
my own with the June $20 put. DITC was trading in the $13
range two weeks ago and while I do not expect them to move
back to that level I would not be surprised to see $18
after the $20.60 close on Friday.

Let's take a very short-term lottery play with the June
$20 put, QZD-RD, which closed at 75 cents on Friday. This
is just a coin flip based on the over reaction on Friday.
There is no fundamental story here but just a roll of the
dice.

Buy June-$20 Put QZD-RD (75 cents on Friday)
Exit target $18 on DITC.
No stop loss.

DITC Chart - Daily




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

TYC Call Update $30.82

Tyco continued to rally all week and jumped from $29.41
last Friday to break resistance at $30 and close at $30.82
for the week. The July-$30 option rose from $1.00 to a high
of $1.80 and close at $1.65. There was no exit plan on this
play and there is no evidence the gains will slow. The
chart continues to be strong. Tighten your stops to where
you are comfortable and exit when ready. I am closing this
play as of today as a winner but I do expect it to move
higher.

http://members.OptionInvestor.com/editorplays/edply_052304_1.asp


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

PNRA Put Update $34.75

PNRA rose sharply with a gap open on Thursday morning but
then sold off into Friday's close. The excitement seems to
be fading again but I am not hopeful for this position. The
option is currently 20 cents and will require a drop in
PNRA under $33 to be profitable. The cost of the option as
profiled was 45 cents. The market rally this week breathed
new life back into this stock. At 20 cents I think it is
worth holding another week. Target for the June $30 put
UPA-RF is still $1.00. Traders may want to exit for a
break even if the opportunity arises.

http://members.OptionInvestor.com/editorplays/edply_051604_1.asp



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


News Corp Update $36.80

NWS rebounded nicely from the $34.68 lows two weeks ago.
We are looking for some continued bullishness to return to
allow us to sell come covered calls against our leaps to
reduce our cost.  With the bounce back over $35 the next
available calls are the $40. The June calls are 10 cents
and the July calls 35 cents. This is not enough risk/reward
to justify selling calls at this level. Our time will come
and I am going to be patient.

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

Ready for the Weekend
- J. Brown

Friday's action was mixed and witnessed some mild profit taking
but stocks ended the week on an up note.  Meanwhile investors
were eagerly leaving early for the long Memorial Day weekend
after a choppy month.  The Dow Industrials ended the week up 2.2%
but down 37 points for the month.  Meanwhile the NASDAQ Composite
added 3.9% for the week and 66 points for the month (3.4%).

Fueling the week's positive move was a steady drop in crude oil
from its all-time high on Monday.  Oil did bounce a bit on Friday
but remained under the $40.00 per barrel mark.  Thursday and
Friday's markets were also boosted by generally positive economic
data.  Thursday was the 4.4% GDP reading while Friday unveiled
strong consumer spending and a very strong Chicago PMI number.

The rally this week is encouraging but many of the sector
specific indices are trading right under resistance.  We'd like
to see the rally continue but we could be due for a little more
rest (a.k.a. consolidation), especially for tech stocks.

Next week is short with the markets closed on Monday for Memorial
day.  However, the remaining four days of the week could be
exciting.  Tuesday will bring the ISM report and Thursday unveils
the ISM services number and the Factory report.  Another
potential market mover will be the Thursday night mid-quarter
update from Intel (INTC).  Yet the spotlight will be clearly
focused on Friday's non-farm payrolls report.  Conjecture on how
strong the jobs number will or won't be will consume the
financial media for the next several days.  The result of the
jobs report could very well set the tone for June.

Judging from the declines in the volatility indices investor
sentiment is pretty bullish but the major indices have significant
overhead resistance to deal with.  Watch those stops losses.

Don't forget to say thank you to all the men and women serving
in the armed forces this weekend.  Happy Memorial Day!



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8679
Current     : 10188

Moving Averages:
(Simple)

 10-dma: 10029
 50-dma: 10246
200-dma: 10064



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  946
Current     : 1120

Moving Averages:
(Simple)

 10-dma: 1101
 50-dma: 1116
200-dma: 1085



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1165
Current     : 1466

Moving Averages:
(Simple)

 10-dma: 1422
 50-dma: 1438
200-dma: 1426



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

CBOE Market Volatility Index (VIX) = 15.50 +0.22
CBOE Mkt Volatility old VIX  (VXO) = 15.82 +0.29
Nasdaq Volatility Index (VXN)      = 21.33 -0.17


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.05        388,547       407,570
Equity Only    0.70        325,223       228,402
OEX            1.16         12,858        14,818
QQQ            1.45         28,509        41,263


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

Bullish Percent Data

           Current   Change   Status
NYSE          63.8    + 0     Bear Confirmed
NASDAQ-100    38.0    + 2     BULL ALERT
Dow Indust.   66.7    + 0     Bear Confirmed
S&P 500       60.4    + 1     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: 0.71
10-dma: 0.96
21-dma: 1.00
55-dma: 1.07


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    1617      1575
Decliners    1192      1453

New Highs      80        79
New Lows       22        14

Up Volume    725M      698M
Down Vol.    641M      497M

Total Vol.  1392M     1217M
M = millions


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

Commitments Of Traders Report: 05/25/04

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

Not much movement from the commercial traders.  It looks like
they shifted a handful of money from shorts to longs.  Conversely
the small traders have rotated some money from longs to shorts.


Commercials   Long      Short      Net     % Of OI
05/04/04      397,964   417,175   (19,211)   (2.4%)
05/11/04      401,365   421,672   (20,307)   (2.5%)
05/18/04      394,352   423,258   (28,906)   (3.5%)
05/25/04      400,713   420,764   (20,051)   (2.4%)

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
05/04/04      137,112    80,201    56,911    21.6%
05/11/04      135,534    76,987    58,547    27.5%
05/18/04      139,647    74,597    65,050    30.4%
05/25/04      136,086    79,060    57,026    26.5%

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

There was a big drop in longs by the commercial traders but
it was coupled with a significant drop in shorts too.  They
remain net bullish on the S&P 500.  Small traders have grown
net bearish after last week's bullish reading.


Commercials   Long      Short      Net     % Of OI
05/04/04      316,840   370,781    (53,941)  ( 7.8%)
05/11/04      378,696   362,887     15,809     2.1%
05/18/04      390,484   357,157     33,327     4.5%
05/25/04      353,722   336,406     17,316     2.5%

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
05/04/04      119,308     74,407    44,901    23.2%
05/11/04      101,199     94,408     6,791     3.5%
05/18/04       62,216     87,269    25,053    16.8%
05/25/04       91,515    100,759   ( 9,244)  ( 4.8%)

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


NASDAQ-100

Commercial traders have upped their long positions and remain
net bullish on the NDX.  Small traders have likewise upped their
short positions and remain net bearish.


Commercials   Long      Short      Net     % of OI
04/27/04       54,196     33,948    20,248   23.0%
05/04/04       56,931     35,209    21,722   23.6%
05/18/04       58,376     37,528    20,848   21.8%
05/25/04       59,891     37,630    22,261   22.8%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  22,261   - 05/25/04

Small Traders  Long     Short      Net     % of OI
05/04/04       10,247    24,764   (14,517)  (41.5%)
05/11/04        9,716    21,072   (11,356)  (36.9%)
05/18/04        9,843    18,935   ( 9,092)  (31.6%)
05/25/04       10,184    20,653   (10,469)  (33.9%)

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

Commercial traders are adding to their short positions while
small traders are adding to their longs, which is generally
par for the course.  Guess who is right more often?  Yup,
the commercial traders.


Commercials   Long      Short      Net     % of OI
05/04/04       24,296    22,181    2,115       4.6%
05/11/04       22,614    21,507    1,107       2.5%
05/18/04       22,257    22,444   (  187)     (0.4%)
05/25/04       23,578    24,632   (1,045)     (2.2%)

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

Small Traders  Long      Short     Net     % of OI
05/04/04        6,262     8,155   (1,893)   ( 9.2%)
05/11/04        7,009     7,640   (  631)   ( 4.3%)
05/18/04        9,098     6,591    2,507     16.0%
05/25/04        9,623     6,614    3,009     18.5%

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

Biotech can bring great reward, and disappointment

Hello Jeff, I appreciate your insight what is the technical out
look on OSIP ?

OSI Pharmaceuticals (NASDAQ:OSIP) $82.40 remains in what I
consider to be very good technical health.  For now.

For just about any publicly traded biotechnology company,
especially those with only one or two products in development,
its stock price can change dramatically at any given point in
time, and investing and trading in biotech's is often-times a
purely technical trade.

At least for me it is.  While I am perhaps fascinated with all
that takes place in the biotechnology landscape, I'm not a
biochemist, I didn't enjoy the biology classes I took in high
school or college, but marvel at what these people dressed in lab
coats and goggles have been able to come up with over the years.

Take OSI Pharmaceuticals (OSIP) as an example.  Prior to the
company's announcement that a recent Phase III study for its
Tarceva lung cancer treatment indicated the drug may be capable
of extending the survival rates of relapsed lung cancer patients
by at least 33%, relative to placebo, shares of OSIP where
trading strong and holding near their 52-week high of $43.26.

The company released the news the morning of April 26, and the
shares gapped significantly higher from $38.14 to $91.00.

Before we proceed with OSIP analysis, lets quickly review some
"reasons" I profiled this biotech company as bullish on May 6,
near the close of that day's trade.

One reason was that we had recently had some success in a BEARISH
trade with Taser Intl. (TASR) using our 38.2% fitted retracement
technique, where a bullish trade setup in OSIP required the stock
to prove a close above $76.55.

A second reason was that in a rather uncertain market
environment, with geopolitical events, fears of inflation, rising
oil prices, you name it, a stock like OSIP, with favorable news
regarding its Phase III Tarceva study provided some uncertainty
around the stock.

A third reason is that prior to the stock gapping significantly
higher, short interest was high at 5.9 million shares, where at
that time, the days to cover was calculated at 5.9 million
shares.  In a relatively bearish market environment, shorts might
be more eager to cover a position that has resulted in 100% loss
and look elsewhere for bearish gains.

OSI Pharmaceuticals (OSIP) Chart - Daily Intervals



Since the gap higher on April 26, there's actually been very
little "good news" for OSIP.  On 04/27/04 IRG cut their rating on
OSIP to "sell" from "neutral," saying risk/reward was poor and
that the Tarceva's survival data are not significantly better
than Iressa's, its main competitor.  The stock retraced some of
its gap higher to trade a recent low of $67.60 after Barron's
wrote a story suggesting that OSIP's stock price had probably
discounted Tarceva's sales prospects to the fullest extent.

I wasn't aware of that article until after my bullish profile
(July $90 call option) near the close of trade on 05/06/04, which
I had set up for traders a couple of days in advance, where I
wanted the stock to close above $76.55, as if to show enough
demand from market participants to hold that close.

Then wouldn't you know it, on 05/11/04, OSIP reported a quarterly
loss of $1.27 per share, which was 24-cents worse than consensus
estimates of $1.03.

Considering some of this news, I'd have to say OSIP's technicals
remain pretty strong, but there is obviously more than a few
comments that would bring caution to the stock.

I want to quickly address the gap higher for OSIP, but also bring
in the observation of short interest and a market maker's
responsibility.

Why did OSIP gap like it did?  Perhaps the Tarceva results are
going to have this drug being a blockbuster, but we don't really
know if this is true.  I think the stock gapped so much higher
because market makers had very little long/bullish inventory to
meet market demand.  How does a market maker mitigate his/her
risk when a stock gaps to new highs, but under rules where the
market maker MUST MEET MARKET LIQUIDITY NEEDS UNDER ANY AND ALL
MARKET CONDITIONS?  A market maker that lacks long/bullish
inventory must by default short stock to the market, in order to
meet the liquidity demand of buyers.  It would be my analysis
that the sever gap higher was an immediate attempt to try and
mitigate a market makers risk (price it high enough to keep some
demand at bay, but still do your job and provide liquidity).
However, as you and I should both know, a market maker doesn't
sit there and crunch fundamentals.  They trade levels, manage
inventory, and keep track of the bottom line, to try and make
sure that they don't lose money in inventory.  At least not for
long, while doing their job and providing liquidity to buyers and
sellers.

A trader that can fully grasp these very simple beliefs, can
perhaps become a disciplined and profitable trader/investor.

OSI Pharmaceuticals (OSIP) Chart - Daily Intervals



This is a chart we started out with, when we began monitoring
OSIP after its gap higher.  We used past trade in TASR, with
similar retracement technique, to provide a test for OSIP.  TASR
never was able to close back above its 38.2% retracement after
spiking to an all-time high.  The test for an OSIP bullish play
was for OSIP to prove enough strength and hold a close above
$76.55 to prove itself worthy of an investor/trader's capital.

Technical note:  Once OSIP closed ABOVE any level of trade, it
has NEVER closed below 3 LEVELS lower.  For instance, the day
OSIP gapped higher, it closed ABOVE $87.62.  When it declined, it
NEVER closed BELOW $69.70.  DIVERVGENCE to this pattern would
become more BEARISH.

One negative in my view, was that OSIP had exceeded its point and
figure chart's bullish vertical count, so assessing potential
upside reward is difficult.  For any trader/investor, the main
question was if an OSIP July $90 call option priced at $4.20 per
contract ($420 + commission) was worth the risk.

Now, we also performed some addition work with another
retracement several weeks ago (using a fitted retracement
technique), but now that we have additional periods of data to
work with (observations) here's what I'm going to do.

I'm leaving the ABOVE retracement intact, but now I'm going to
use the SAME 38.2% fitted retracement technique, to begin
defining more near-term levels for further testing.

All I'm going to do is try and look for some area/level in OSIP's
chart, where there has been some type of resistance, and try to
make sense out of how the stock HAS traded, in order to try and
discover how the stock SHOULD trade to continue to meet a bull's
eventual objective.

OSI Pharmaceuticals (OSIP) - 60-minute intervals



The BLUE retracement levels and the DARK PURPLE 38.2% is a newly
fitted retracement, that gives the trader additional levels to
measure OSIP's trade.

I like this new retracement, and will stick with it, as I think
it represents how a market maker would be trading the stock.

I've anchored at the pullback low, and for whatever reason, OSIP
seemed to find some resistance, which wasn't explained by my
prior retracement at the $80.51 area.  So, I want to try and mark
that observation as a significant level.  See how the stock
"popped" above that level?  Almost as if buyers finally overcame
sellers.

Now, not unlike what took place at our prior 38.2% retracement
(BRIGHT PINK) once the 38.2% was violated to the upside, that
38.2% became pullback support.

It would appear that our newly added 38.2% (DARK PURPLE) has
shown some similar action.  Resistance broken becoming support.

Now, similar tests for strength by a bull can be tested as it
relates to levels of trade with the newly added retracement.  So
far, once OSIP has moved above a level ($74.58), it has NOT
fallen back below the much tighter level below ($68.65).  Again,
once OSIP moved above a level ($80.51), it has NOT fallen back
below the much tighter level below ($74.58).

It is almost as if market participants (especially market makers)
are buying stock on pullback, then providing liquidity at the
higher level (perhaps still having to short some stock if not
squared up in inventory) at the next higher level.

Another thing I like about our newly fitted retracement, is that
its resulting 61.8% ($87.84) correlates very nicely with our
first retracement at $87.82, which was a result from that 38.2%
fitted retracement.

It would have to be my analysis, that this is a level $87.82,
where if I'm correct in my analysis that market makers lacked
inventory, they will want to be squared up, should the stock
trade that level.

If I'm incorrect in my analysis, and market makers are currently
squared up in their inventory (they know how to manage risk in
inventory), then a short squeeze could develop above $87.84, if
the current rise in short interest as of May 15, was built by
other market participants.

Market makers have the upper hand on me right now, as I don't
know what their order flow is like (buy side versus sell side),
and I don't know what the market maker's inventory is (net long,
net short, or neutral) right now.  The trade action would suggest
net short, or neutral as the stock has been moving higher.

Now, to play devil's advocate, I should admit that what has gone
up on favorable clinical trial results, can go down just as
quickly on any disappointment, and it would be my best analysis
that any disappointing news is going to come prior to, or after
normal trading hours, where it would be difficult to exit any
position on a gap lower move.

It would be this devil's advocate thought that has me preferring
bullish exposure to OSIP with the use of call options, which give
me the right, but not the obligation to buy the stock at $90 (or
any strike price you prefer) where I can immediately assess my
risk, in the option itself.

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

Market Holiday - No Earnings Due


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

BNS    Bank of Nova Scotia   Tue, Jun 1  -----N/A-----         N/A
PLL    Pall Corp.            Tue, Jun 1  After the Bell       0.39
RYAAY  Ryanair Holdings      Tue, Jun 1  -----N/A-----        0.03
UNFI   United Natural Foods  Tue, Jun 1  -----N/A-----        0.20


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

ABS    Albertson's           Wed, Jun 2  -----N/A-----       0.11
CWP  Cable & Wireless PLC    Wed, Jun 2  Before the Bell      N/A
CMVT  Comverse Technology    Wed, Jun 2  After the Bell      0.02
HOV  Hovnanian Ent, Inc.     Wed, Jun 2  After the Bell      1.03
MDZ  MDS Inc.                Wed, Jun 2  -----N/A-----        N/A
NMGa  Neiman Marcus Group    Wed, Jun 2  After the Bell      1.40


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

KWD    Kellwood Company      Thu, Jun 3  After the Bell       0.89
MBG    Mandalay Resort Group Thu, Jun 3  -----N/A-----        1.10
SKIL   SkillSoft Corporation Thu, Jun 3  After the Bell       0.02
COO    The Cooper Companies  Thu, Jun 3  After the Bell       0.59


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

PNY    Piedmont Natural Gas  Fri, Jun 4  -----N/A-----        1.01


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

Symbol  Co Name              Ratio    Payable     Executable

IDEX    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
PVTB    PrivateBancorp, Inc       2:1      May  31st   Jun   1st
BNN     Brascan Corp              3:2      May  31st   Jun   1st
GSBC    Great Southern Bancorp    2:1      Jun   1st   Jun   2nd
BR      Burlington Resources      2:1      Jun   1st   Jun   2nd
FNLC    First Natl Lincoln Corp   3:1      Jun   1st   Jun   2nd
PCBC    Pacific Capital Bancorp   4:3      Jun   8th   Jun   9th
ZLC     Zales                     2:1      Jun   8th   Jun   9th
MOGN    MGI Pharma Inc            2:1      Jun   9th   Jun  10th
SFCC    SFBC International, Inc   3:2      Jun  10th   Jun  11th
HE      Hawaiian Electric Ind     2:1      Jun  10th   Jun  11th
BXX     Brooke Corp               2:1      Jun  10th   Jun  11th
SSP     E.W.Scripps               2:1      Jun  10th   Jun  11th
PVA     Penn Virginia Corp        2:1      Jun  10th   Jun  11th
PNM     PNM Resources             3:2      Jun  11th   Jun  12th


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

The first week of June is a big week for economic data.  Wall
Street will focus on the ISM index on Tuesday and the Factory
orders and ISM services number on Thursday.  Yet the one report
everyone will talk about and point to all week will be the
non-farm payrolls report on Friday.

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

----------------
Monday, 05/31/04
----------------
None - Market Holiday -


-----------------
Tuesday, 06/01/04
-----------------
Construction Spending (DM) Apr  Forecast:    0.4%  Previous:     1.5%
ISM Index (DM)             May  Forecast:    61.5  Previous:     62.4


-------------------
Wednesday, 06/02/04
-------------------
Auto Sales (NA)            May  Forecast:    5.4M  Previous:     5.2M
Truck Sales (NA)           May  Forecast:    7.9M  Previous:     7.8M


------------------
Thursday, 06/03/04
------------------
Initial Claims (BB)      05/29  Forecast:    337K  Previous:     344K
Productivity Rev. (BB)      Q1  Forecast:    3.7%  Previous:     3.5%
Factory Orders (DM)        Apr  Forecast:   -1.0%  Previous:     4.3%
ISM Services (DM)          May  Forecast:    66.0  Previous:     68.4


----------------
Friday, 06/04/04
----------------
Nonfarm Payrolls (BB)      May  Forecast:    215K  Previous:     288K
Unemployment Rate (BB)     May  Forecast:    5.6%  Previous:     5.6%
Hourly Earnings (BB)       May  Forecast:    0.2%  Previous:     0.3%
Average Workweek (BB)      May  Forecast:    33.8  Previous:     33.7


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 05-30-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Internets to Insurance and More!
Dropped Calls: None
Dropped Puts: None


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

Internets to Insurance 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.
___________________________________________________________________


Ask Jeeves - ASKJ - close: 40.40 change: +1.22

WHAT TO WATCH: ASKJ can be a little too volatile for some traders
and we would approach it cautiously.  The big market rally on
Tuesday this past week sent ASKJ through resistance at $39.00 and
$40.00.  After two days of profit taking traders stepped in to
buy the dip on Friday near $39.  Its P&F chart looks a lot more
attractive with a fresh quadruple top bullish breakout and a
target of $52.00.  Aggressive traders may want to consider
positions at current levels with an initial target of $45 and a
secondary target of $50.

Chart=


---

UnitedHealth - UNH - close: 65.25 change: +0.82

WHAT TO WATCH: Health insurance stocks appear to be on the move
again and UNH is one of them.  Shares broke out over technical
resistance at its 40 and 50-dma's mid-week and broke out over the
$65 level on Friday.  A move above $67.00 would actually be a new
P&F buy signal.  However, we'd consider new bullish positions at
current levels with an eye on the $70 mark.  A pull back and
bounce from $64.00 would also be an attractive entry point.

Chart=


---

eBay Inc - EBAY - close: 88.80 change: +0.75

WHAT TO WATCH: It's a bird! It's a plane!  No, it's those high-
flying shares of Internet auction site EBAY.  Yes, once again
EBAY has taken flight with a non-stop rally this week to new
highs.  Volume was pretty strong early in the week and then
tapered off as we headed into the long weekend.  We'd keep an eye
on this one for a pull back toward the $85 level.  Odds are good
the previous chatter about a possible split announcement is going
to spring up again.

Chart=


---

Patterson Dental Co - PDCO - close: 75.71 change: +0.87

WHAT TO WATCH: The strong four-day rally in PDCO has produced a
new buy signal in its MACD and a fresh bull-flag breakout.  We're
impressed with the strong volume on Friday despite the holiday
weekend.  Traders might want to use a trigger over $76.00 and
target a quick move to $80.00.  The bull flag pattern is pointing
to a target of $85.

Chart=


---

OSI Pharmaceuticals - OSIP - close: 82.40 change: +0.01

WHAT TO WATCH: We've been watching OSIP for a dip back toward the
$80 level and $80.81 was the low on Friday.  This happens to be a
bounce off its simple 10-dma and near its rising trendline of
support.  We like the rising channel formed in the month of May
and we think this looks like a good entry point for bullish
positions.  Target the $90.00 level.

Chart=



-----------------------------------
RADAR SCREEN - more stocks to watch
-----------------------------------

HAR $80.14 +2.34 - HAR has broken out over technical resistance
at its 40 & 50-dma's and the $80.00 mark.  Target $85-86.

ERES $25.29 +0.85 - This is a new all-time high for ERES and the
bounce on Thursday from just under $24 looks tempting.

XLNX $36.48 +0.29 - XLNX battled with resistance all day Friday
but couldn't close over its 50-dma.

CME $129.20 -1.10 - This looks very overbought but it just keeps
climbing.  Watch for a dip and a bounce from the $122.50-125.00
range.


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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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DISCLAIMER
**********

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The Option Investor Newsletter                   Sunday 05-30-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: BCR, IMCL, QCOM, ZMH, AIG, BA, ERTS, JNJ, LXK
New Calls: AET, SLAB
Current Put Plays: CAKE
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
******************

Bard C R - BCR - close: 112.17 chg: +0.10 stop: 108.49

Company Description:
C. R. Bard, Inc. (www.crbard.com), headquartered in Murray Hill,
N.J., is a leading multinational developer, manufacturer, and
marketer of innovative, life-enhancing medical technologies in
the fields of vascular, urology, oncology, and surgical specialty
products. (source: company press release)

Why We Like It:
Here we go!  We added BCR for its relative strength and potential
for a stock split run up and we're happy to report that the stock
has broken out above resistance at $110 and the $112 levels.  The
2-for-1 split occurs over the long weekend and BCR should begin
trading at $56.08 on Tuesday.  That means any options positions
held will double in quantity but will halve their values to match
the stock split.  Be sure to double-check with your broker what
the new options symbols might be.

Now comes the tricky part.  Some stocks who display decent pre-
split run ups tend to turn lower after the split as momentum
traders rotate out.  Other times a stock will continue to run
higher after a split because new investors now see the stock as a
value or closer to their price range.  We're going to keep BCR as
an open play due to its impressive relative strength and bullish
breakout to new highs.  Our stop loss at $108.49 will become
$54.25 post-split.

Suggested Options:
Short-term traders will probably do best with June or July calls.
We're going to suggest the June's, especially the $110's, which
will become $55s after the split.

! Be sure to DOUBLE-CHECK your options symbols on Tuesday, June 1
  since they may change from this posting due to the split!

BUY CALL JUN 105 BCR-FA OI=124 Last traded @ $7.80
BUY CALL JUN 110 BCR-FB OI=162 Last traded @ $3.80
BUY CALL JUN 115 BCR-FC OI=280 Last traded @ $1.25
BUY CALL JUL 110 BCR-GB OI=186 Last traded @ $5.20

Annotated Chart:



Picked on May 20 at $110.00
Change since picked: + 2.17
Earnings Date      04/20/04 (confirmed)
Average Daily Volume:   386 thousand
Chart =


---

Imclone Systems - IMCL - close: 74.34 chg: -0.35 stop: 70.00

Company Description:
ImClone Systems Incorporated is committed to advancing oncology
care by developing and commercializing a portfolio of targeted
biologic treatments designed to address the medical needs of
patients with a variety of cancers. The Company's three programs
include growth factor blockers, angiogenesis inhibitors and
cancer vaccines. ImClone Systems' strategy is to become a fully
integrated biopharmaceutical company, taking its development
programs from the research stage to the market. ImClone Systems'
headquarters and research operations are located in New York
City, with additional administration and manufacturing facilities
in Branchburg, New Jersey. (source: company press release)

Why We Like It:
The rebound in biotech stocks has been pretty impressive.  Last
week the BTK index was poised to produce a serious breakdown
under the 492 level and its simple 200-dma.  Instead we've seen a
steady rally with some profit taking in the last session and a
half.  IMCL has joined that rally and hit new short-term relative
highs.  Unfortunately, we saw some steady selling in Friday's
session but shares only lost 35 cents.  Thursday Smith Barney
initiated coverage on the stock with a "hold" and a $90 price
target.  We are still bullish on IMCL but the BTK index and
shares of IMCL might need a minor pull back before continuing
higher.  We'd look for a dip back toward $73.00 in IMCL and
traders can use that as a new entry point but look for the bounce
before initiating positions.  We would start to become concerned
if shares traded under $72.50.  Our short-term target remains $80
compared to its P&F target of $96.

Suggested Options:
June or July calls appear to be the best bets for short-term
traders.  Our favorites are the June 70s or 75s or the July 75s.

BUY CALL JUN 70 QCI-FN OI= 6704 Last traded @ $7.10
BUY CALL JUN 75 QCI-FO OI= 6671 Last traded @ $4.30
BUY CALL JUL 75 QCI-GO OI=  664 Last traded @ $6.20

Annotated Chart:




Picked on May 26 at $ 74.05
Change since picked: + 0.29
Earnings Date      04/27/04 (confirmed)
Average Daily Volume:   2.9 million
Chart =


---

QUALCOMM - QCOM - close: 67.07 chg: +0.27 stop: 64.00

Company Description:
QUALCOMM Incorporated (www.qualcomm.com) is a leader in
developing and delivering innovative digital wireless
communications products and services based on the Company's CDMA
digital technology. Headquartered in San Diego, Calif., QUALCOMM
is included in the S&P 500 Index and is a 2003 FORTUNE 500.
company. (source: company press release)

Why We Like It:
We are still bullish on QCOM.  The stock has been holding up
pretty well after its strong rally on Tuesday and breakout over
resistance at its 40 and 50-dma's and the $65.00 level.  Since
then shares of QCOM have traded in a relatively tight $1.00 range
but do appear to be drifting higher.  Shares are still a couple
of points away from producing a new P&F buy signal but if it does
it will be a triple-top buy signal.  Right now initiating
positions at $67.00 are okay but it might be a good idea to look
for another dip toward $66.00-65.50 and buy a bounce.  Our short-
term target remains at $70.00 our secondary target is $74.

Suggested Options:
Short-term traders should be looking at the June or July strikes.
Our favorites are the June 65s.

BUY CALL JUN 60 AAO-FL OI= 2538 Last traded @ $7.40
BUY CALL JUN 65 AAO-FM OI=11330 Last traded @ $3.00
BUY CALL JLY 65 AAO-GM OI=21910 Last traded @ $4.20

Annotated Chart:




Picked on May 24 at $ 66.01
Change since picked: + 1.06
Earnings Date      04/22/04 (confirmed)
Average Daily Volume:   9.6 million
Chart =


---

Zimmer Holdings - ZMH - close: 85.35 chg: +0.15 stop: 80.00

Company Description:
Founded in 1927 and headquartered in Warsaw, Indiana, Zimmer is
the worldwide #1 pure-play orthopaedic leader in the design,
development, manufacture and marketing of reconstructive and
spinal implants, trauma and related orthopaedic surgical
products. In October, 2003, the company finalized its acquisition
of Centerpulse AG, a Switzerland-based orthopaedics company and
the leader in the European reconstructive market. The new Zimmer
has operations in more than 24 countries around the world and
sells products in more than 80 countries. As a result of the
acquisition of Centerpulse, reported 2003 sales were $1.9
billion. Full-year 2003 pro forma worldwide sales of Zimmer and
Centerpulse were approximately $2.6 billion. The new Zimmer is
supported by the efforts of more than 6,500 employees.
(source: company press release)

Why We Like It: (Original Play Description from Thursday)
Zimmer should satisfy the fundamental and technical trader alike.
Fundamentally business is great.  Q1 sales this year were up 90%
to more than $742 million.   Profits are on the rise.  ZMH has
consistently grown its net income for more than two years.  It
may be a little expensive with a P/E of 60 but ZMH trades for
less than 9 times its sales.  Everyone is praising its recent
acquisition of Swiss orthopedics maker Centerpulse.  According to
Forbes the deal was originally expected to dilute earnings but
now the acquisition is expected to add to its full year EPS due
to the smooth integration.  According to multiple sources the
U.S. knee and hip replacement business is growing at 16% a year
and ZMH is the dominant player in the field.

We really like its relative strength over the past couple of
months.  While the market was sliding ZMH was slowing gaining,
although the last few weeks have been mostly sideways.  Tuesday's
market-wide rally produced a big bounce from the $80 level for
ZMH and the follow through has pushed it right toward resistance
near $85.00-85.25.  We're willing to go long at the current
levels with a stop loss at $80.00.  Should the stock dip, look
for a bounce from $82.00 before initiating positions.  More
conservative players might want to use a trigger near $85.50 to
confirm the upside breakout.  Short-term traders can target
$90.00 but suspect ZMH has more upside than that.  It's P&F chart
has a $96 price target and a freshly minted triple-top breakout
buy signal.

Weekend Update:
We had expected a bit more momentum from ZMH on Friday but with
the major averages stuck in a tight sideways trading range and
extremely low market volume due to the holiday weekend we're not
complaining.  No change in our strategy from Thursday.
Fortunately, there was some good news on Friday for ZMH.  S&P has
raised its credit outlook for ZMH from "stable" to "positive"
based on the company's "improving credit profile resulting from
substantial repayment of debt..."  The move is also "based on the
company's leading position in the orthopedics market and on its
geographic diversity. (source: S&P).

Suggested Options:
Short-term traders can choose from the June and July options.
Septembers are available but there's no reason to use that much
time if you don't need it.  We like the June 80s and 85s or the
July 85s.  The June 80s are currently trading with a premium of
just 70 cents.

BUY CALL JUN 80 ZMH-FP OI= 1259 Last traded @ $6.00
BUY CALL JUN 85 ZMH-FQ OI= 1364 Last traded @ $2.35
BUY CALL JUL 85 ZMH-GQ OI=  112 Last traded @ $3.60

Annotated Chart:



Picked on May 27 at $ 85.20
Change since picked: + 0.15
Earnings Date      04/26/04 (confirmed)
Average Daily Volume:   1.2 million
Chart =


---

American Int'l Grp. - AIG - cls: 73.30 chng: +0.50 stp:
69.25*new*

Company Description:
Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

Why we like it:
AS we suspected, Tuesday's rally in shares of AIG was a key
reversal day and after closing right at the $72 resistance level,
the stock continued pushing its way higher through the balance of
the week.  While there may be some resistance found at the $74
level, the first real test for the bulls in this nascent bullish
move will be found in the $75.00-75.50 area, as the stock tests
the highs from February and March.  There's always the
possibility that AIG is building a topping formation, and a
failure at the $75 level would serve to trace out the right
shoulder of a H&S topping formation.  But obviously that is not
the most likely scenario, at least from where we sit.  We're
looking for the stock to push through that level of resistance
and make a run at the April highs just over $77, at which point
conservative traders may want to take the quick gain.  More
aggressive traders can hold out for our higher target at $80.
The best new entries will present themselves on a mild pullback
to confirm new support near $72, where the 50-dma ($72.29) and
the 100-dma ($72.05) are now converging.  we've inched our stop
up slightly to $69.25 this weekend, which is just under the
intraday low from last Tuesday.

Suggested Options:
Shorter Term: The June $70 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive longer-term traders can use the July $75
Call, while the more conservative approach will be to use the
July $70 Call.  Our preferred option is the July $75 strike, as
it is currently just out of the money and should provide
sufficient time for the play to move in our favor.

BUY CALL JUN- 70 AIG-FN OI=13646 last traded @ $3.80
BUY CALL JUN- 75 AIG-FO OI=18030 last traded @ $0.70
BUY CALL JUL- 70 AIG-GN OI=  491 last traded @ $4.50
BUY CALL JUL- 75*AIG-GO OI= 3147 last traded @ $1.40

Annotated Chart of AIG:



Picked on May 25th at        $72.00
Change since picked:          +1.30
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     5.31 mln
Chart =


---

The Boeing Company - BA - close: 45.80 change: -0.40 stop: 43.25

Company Description:
One of the world's major aerospace firms, BA operates in three
principal segments: commercial airplanes, military aircraft and
missiles, and space and communications.  Commercial airplanes
operations involves the development, production and marketing of
commercial jet aircraft, principally to the commercial airline
industry.  The Military Aircraft and Missiles division is
involved in the research, development, production, modification
and support of military aircraft, including transport and attack
aircraft.  The Space and Communications segment is involved in
the research, development, production, modification and support
of space systems, rocket engines and battle management systems.

Why we like it:
We really didn't expect to see any follow-through to BA's strong
breakout on Thursday, at least not ahead of the long holiday
weekend.  We weren't disappointed either, as the stock traded an
inside day of consolidation, failing to challenge either the high
or the low from the prior day.  That leaves us with a nice little
metric for gauging the stock's strength early next week though.
A breakout over Thursday's $46.62 high will be a renewed sign of
strength and can be used for aggressive entries.  But our
preference is still for entries on a pullback near strong support
in the $44.50-45.00 area.  Given the amount of time it took to
finally break through that level as resistance, it should provide
solid support on the next pullback.  Taking note of the fact that
daily Stochastics began to tip over on Friday, odds favor a minor
pullback before this rally can continue.  Maintain stops at
$43.25.

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

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

BUY CALL JUN- 45 BA -FI OI=7958 last traded @ $1.55
BUY CALL JUN- 47 BA -FW OI=1774 last traded @ $0.40
BUY CALL JUL- 45*BA -GI OI= 630 last traded @ $2.10
BUY CALL JUL- 47 BA -GW OI= 707 last traded @ $0.85

Annotated Chart of BA:



Picked on May 27th at        $46.20
Change since picked:          -0.40
Earnings Date               4/28/04 (confirmed)
Average Daily Volume =     2.87 mln
Chart =


---

Electronic Arts - ERTS - close: 50.92 change: -0.02 stop: 47.40

Company Description:
ERTS creates, markets and distributes interactive entertainment
software for a variety of hardware platforms, including Sony's
PlayStation 2, the PC, Nintendo GameCube and the recently
launched Xbox.  The company's EA.com business segment is engaged
in the creation, marketing and distribution of entertainment
software which can be played or sold online, as well as the
ongoing management of subscriptions of online games and Website
advertising.

Why we like it:
As noted mid-week, ERTS certainly tested our patience (and its
stop) before Tuesday's rally launched the stock sharply higher.
Another strong performance on Thursday pushed ERTS through its
shorter-term descending trendline, but that pesky 50-dma ($51.25)
is still holding back the stock's advance.  We wouldn't be
surprised to see the stock pull back just a bit to test support
near the $50 level before continuing higher.  Note that in
addition to horizontal support at that level, we have the 10-dma
($50.05) and the 20-dma ($50.22), reinforcing that level and
making it an ideal spot to consider new entries.  Keep in mind
that we need to see a break above $53 before ERTS will be on a
PnF Buy signal, so that keeps this a higher-risk play until that
happens.  Aggressive momentum traders can consider new entries
above Thursday's high, but the more favored momentum entry will
come on the break over $53.  We're maintaining a fairly wide stop
at $47.40 for now, just under Tuesday's intraday low.

Suggested Options:
Shorter Term: The June $50 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 July $55
Call, while the more conservative approach will be to use the
July $50 Call.  Our preferred option is the July $50 strike, as
it is currently at the money and should provide sufficient time
for the play to move in our favor.

BUY CALL JUN- 50 EZQ-FJ OI=7238 last traded @ $1.95
BUY CALL JUN- 52 EZQ-FX OI=3708 last traded @ $0.75
BUY CALL JUL- 50*EZQ-GJ OI= 474 last traded @ $2.90
BUY CALL JUL- 55 EZQ-GK OI= 381 last traded @ $0.85

Annotated Chart of ERTS:



Picked on May 18th at        $49.60
Change since picked:          +1.32
Earnings Date               4/29/04 (confirmed)
Average Daily Volume =     3.89 mln
Chart =


---

Johnson & Johnson - JNJ - cls: 55.71 chng: -0.08 stop: 54.00

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:
Following the strong rally on Tuesday that posted a big engulfing
candlestick, shares of JNJ have continued their upward trek,
drawing very near to the $56 resistance level.  As we've noted on
several occasions, JNJ moves slowly enough that the best way to
play it is by nibbling on the pullbacks to support and traders
that took advantage of the recent pullback near that $54 level
got a solid entry into the play.  With the 10-dma ($55.17) and
the 20-dma ($54.95) straddling the $55 support level, that is
where we should now have our attention focused for the next
pullback entry.  While aggressive traders can certainly consider
entries over the $56.39 intraday high from May 11th, that isn't
the most favorable strategy due to looming resistance near $58
and the fact that risk will still be down to our $54 stop.  JNJ
moves slowly and that means exercising patience is the best
strategy.

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.

BUY CALL JUN-55 JNJ-FK OI=17658 last traded @ $1.30
BUY CALL JUL-55*JNJ-GK OI=45341 last traded @ $1.75

Annotated Chart of JNJ:



Picked on May 9th at         $55.30
Change since picked:          +0.41
Earnings Date               4/13/04 (confirmed)
Average Daily Volume =     7.26 mln
Chart =


---

Lexmark Intl. - LXK - close: 94.32 change: +0.69 stop: 91.70*new*

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:
The continued back and forth action is certainly keeping LXK
investors on their toes, as each push higher is met with a trip
back down to test support.  But each support test over the past
couple weeks has found willing buyers at slightly higher levels,
keeping the slowly rising trend in place.  The pullback after
Tuesday's bullish move above the $95 level was met by selling and
the stock dipped back towards the 10-dma ($93.40) yesterday and
then a slight rebound into the weekend.  LXK remains above the
rising trendline and the 50-dma ($92.43), so despite the
weakening of the daily Stochastics, we still view these regular
dips to support as viable entry points before the rally really
gets moving.  Until recently, we've also been advocating breakout
entries above resistance, but with the mid-week high less than $2
below solid resistance at $97, that does not appear to be the
best choice.  We're torn about raising our stop at this point.
The best technical level is still at $89.75, just under the
recent base that was formed.  But an argument can be made for a
stop at $91.70, just under Tuesday's intraday low, and solidly
below the 50-dma, which has been a pivotal line of support for
this play.  Aggressive traders can still work with the wider
stop, but we're going to err on the side of caution, raising our
stop this weekend to $91.70.

Suggested Options:
Shorter Term: The June $90 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive longer-term traders can use the July $100
Call, while the more conservative approach will be to use the
July $95 Call.  Our preferred option is the July $95 strike, as
it is currently near the money and should provide sufficient time
for the play to move in our favor.

BUY CALL JUN- 90 LXK-FR OI= 595 last traded @ $5.30
BUY CALL JUN- 95 LXK-FS OI=1310 last traded @ $1.95
BUY CALL JUL- 95*LXK-GS OI= 511 last traded @ $3.70
BUY CALL JUL-100 LXK-GT OI= 779 last traded @ $1.70

Annotated Chart of LXK:



Picked on May 13th at        $94.03
Change since picked:          +0.29
Earnings Date               4/19/04 (confirmed)
Average Daily Volume =     1.14 mln
Chart =




**************
NEW CALL PLAYS
**************

Aetna Inc - AET - close: 81.20 change: +1.86 stop: 77.00

Company Description:
As one of the nation's leading providers of health care, dental,
pharmacy, group life, disability and long-term care benefits,
Aetna puts information and helpful resources to work for its
approximately 13.3 million medical members, 11.2 million dental
members, 8.1 million pharmacy members and 12.4 group insurance
members to help them make better informed decisions about their
health care and protect their finances against health-related
risks. Aetna provides easy access to cost effective health care
through a nationwide network of more than 618,000 health care
professionals, including over 370,000 primary care and specialist
doctors and 3,783 hospitals. (source: company press release)

Why We Like It:
Stocks turned in a decent week but we were encouraged by the
sustained rallies in both insurance and healthcare stocks.
Looking at the IUX insurance index and the HMO healthcare index
you can see the multi-day rally but you'll also notice that both
closed just below combined resistance at their 40 and 50-dma's.
We suspect both sectors could breakout to the upside next week.
Potentially leading the charge higher should be AET.  Shares of
AET have dropped from $95 in early April to support at $77.00 in
May due to profit taking both before and after its earnings
report.  Now shares have based along support at $77.00 for three
weeks and investors are starting to nibble at the stock again.

We like the new buy signal on its MACD indicator and its RSI and
stochastic indicators also look bullish.  If AET can trade over
$82.00 it will produce a new P&F buy signal.  What is really
encouraging is the breakout over $81.00 and its 21-dma and 100-
dma.  Volume was almost normal on Friday's 2.34% gain despite the
low volume in the markets due to the holiday weekend.  Looking
over the headlines we noticed that Bank of American (BAC)
reiterated their "buy" rating on the stock a couple of days ago.
Plus, Moody's has raised their outlook on AET's debt from
"stable" to "positive" based on "the steady and solid earnings
Aetna has reported over the last several quarters..." among other
things. (source:Moody's).

We're going to suggest longs at current levels with an initial
target of $85.00 and its 50-dma.  However, it wouldn't surprise
us at all to see AET trade higher.  Our beginning stop loss will
be $77.00.

Suggested Options:
Short-term traders can choose from the June or July options.
There are only three weeks left on June options so we'll suggest
the July 80s.

BUY CALL JUN 75 AET-FO OI=  205 Last traded @ $6.80
BUY CALL JUN 80 AET-FP OI= 4585 Last traded @ $2.80
BUY CALL JUN 85 AET-FQ OI=  726 Last traded @ $0.50
BUY CALL JUL 80*AET-GP OI=11308 Last traded @ $4.10
BUY CALL JUL 85 AET-GQ OI= 3455 Last traded @ $1.65

Annotated Chart:



Picked on May 30 at $ 81.20
Change since picked: + 0.00
Earnings Date      04/29/04 (confirmed)
Average Daily Volume:   1.5 million
Chart =


---

Silicon Labs. - SLAB - close: 52.13 change: +0.96 stop: 48.50

Company Description:
Silicon Laboratories designs, manufactures and markets
proprietary high-performance mixed-signal integrated circuits
(ICs) 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.

Why we like it:
Semiconductor stocks led the NASDAQ lower throughout much of the
past month, so it only makes sense that this sector is the first
place where we are seeing a revival of bullish sentiment.  After
finding solid support near $440, the Semiconductor index (SOX.X)
rose back to resistance at $470 and finally broke out last week,
helping the broad market along on Tuesday's strong rally.  SLAB
got hit pretty hard on the decline from the April highs, falling
through its 200-dma before finding support near $45 and embarking
on the road to recovery.  Tuesday's move back over the 200-dma
($49.87) was encouraging, but the real key that got us interested
in the stock as a bullish play was the move through the $51
level, which generated a new PnF Buy signal with a tentative
upside target of $63.  It was very encouraging to see the stock
continue its midweek rally even on Friday, breaking through the
50-dma ($51,74) on Friday and just eking out a close over the
100-dma ($54.15).

But we shouldn't be getting overly excited about momentum entries
here, because SLAB closed right up against its PnF bearish
resistance line.  This is the first test of the line and odds
favor a retracement before pushing through to higher levels.
That means that we clearly favor pullback entries at this point
and with strong historical support near $50, with the 200-dma
rising to reinforce that support, that is the spot where we'd
suggest targeting entries.  Once over the $53 level, we're
looking for SLAB to make steady progress towards the $56 level
and quite possibly a run at the April highs in the $58-59 area.
Place initial stops at $48.50, which is just below the now
upwardly-sloping 20-dma ($48.57).  As a point of confirmation
when looking to buy the dip, watch for the SOX to find support
above the $470 level on a pullback.

Suggested Options:
Shorter Term: The June $50 Call will offer short-term traders the
best return on an immediate move, as it is currently in the
money.

Longer Term: Aggressive longer-term traders can use the July $55
Call, while the more conservative approach will be to use the
July $50 Call.  Our preferred option is the July $50 strike, as
it is currently in the money and should provide sufficient time
for the play to move in our favor.

BUY CALL JUN- 50 QFJ-FJ OI=1385 last traded @ $3.50
BUY CALL JUN- 55 QFJ-FK OI=1217 last traded @ $1.05
BUY CALL JUL- 50*QFJ-GJ OI=1212 last traded @ $4.90
BUY CALL JUL- 55 QFJ-GK OI=2324 last traded @ $2.55

Annotated Chart of SLAB:



Picked on May 30th at        $52.13
Change since picked:          +0.00
Earnings Date               4/26/04 (confirmed)
Average Daily Volume =     1.16 mln
Chart =



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Cheesecake Factory - CAKE - cls: 39.06 chng: +0.39 stp: 40.75

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:
Is it a real bounce, or a failed rally?  Inquiring minds want to
know!  Seriously, CAKE investors are having a hard time making up
their minds about what to do with the stock.  The recent drop
below $38 found plenty of buyers, and we saw that level defended
again on Tuesday.  But the next day, the stock was quickly turned
back from the $40 level of resistance and the remaining two days
of the week saw the stock meandering between those two points of
inflection, without being able to test either.  The intraday lows
have been rising over the past week, while at the same time, CAKE
continues to be turned back from its 10-dma ($39.30).  We've got
a nice little consolidation zone building, with lower highs and
higher lows and something will have to give.  The first sign that
the bulls are gaining the upper hand will be a close over the 10-
dma, and more importantly above $40.  On the other hand, the
bears will be watching for a break below the short-term rising
trendline near $38.60.  Failures below $40 still look like viable
bearish entries, with momentum traders wanting to wait for a
break under $37.50.  For now, we'll maintain our stop at $40.75,
which is now protected by the 20-dma ($40.64).

Suggested Options:
Aggressive traders can use the $35 strike, while the more
conservative approach will be to use the in-the-money June $40
strike.  We've also listed a July strike for those desiring
greater insulation against time decay.  Our preferred option is
the June 40 strike, as it is currently in the money and should
provide ample time for the play to move in our favor.

BUY PUT JUN-40*CFQ-RH OI= 521 last traded @ $1.90
BUY PUT JUN-35 CFQ-RG OI=  42 last traded @ $0.25
BUY PUT JUL-35 CFQ-RH OI=1849 last traded @ $2.50

Annotated Chart of CAKE:



Picked on May 13th at         $40.09
Change since picked:           -1.03
Earnings Date                4/20/04 (confirmed)
Average Daily Volume =         639 K
Chart =



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

None


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The Option Investor Newsletter                   Sunday 05-30-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Home In The Range...Again!
Option Spreads: Running Naked Through The Marketplace


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LEAPS
*****

Home In The Range...Again!
By Mark Phillips
mphillips@OptionInvestor.com

Hey there, sports fans!  It's Memorial Day weekend and I hope you
all know what that means.  It's the start of the summer
BBQ/grilling season, outdoor fun, family time and relaxation.  If
you're wondering what in tarnation that has to do with the market,
I'll tell you it has EVERYTHING to do with it!

Did you enjoy that stimulating session on Friday?  To relieve the
boredom, I actually stepped out back to see if I could actually
observe the grass growing.  Seriously, whether you liked the
action (I use the word very loosely), get used to it.  There are a
lot more where Friday's session came from.  Why, you ask?  First
off it's a rangebound market (hence the recycled title on this
week's column) and did I mention it's Memorial Day weekend?

The market isn't good or bad, it just is.  And something we have
to deal with is that the summer doldrums officially arrive next
week, as many professional traders have already made their money
for the year and are just coasting, determined not to screw it up
before the action heats up again after Labor Day.  We can expect
volume to fall off further, intraday ranges to contract and
catalyst for tradable moves to be few and far between.

We talked about this last week -- there are a number of factors
lying in the market's path that will have to be dealt with in the
months ahead, but they are likely to create short-term
dislocations, not tradable trends.  At the end of June we have the
FOMC meeting with the speculation over whether or not short-term
rates are going to start rising.  Just about the same time, the
U.S. is supposed to relinquish control of Iraq.  Then we have the
July earnings cycle, a number of significant political events and
of course the Olympics in Athens.  Did I leave anything out?  Oh
yeah, we have the constant peril of terrorism, both here and
abroad.  Other than that, it ought to be a fairly quiet summer.

The kicker is that with the exception of the July earnings cycle,
all of these potential events have known schedules, but unknown
outcomes.  When the outcome is known, we're likely to see the
typical knee-jerk reaction, with very little follow-through.  Let
me put it another way.  The market has already cast its vote for
how things are going to proceed for the next few months and as
I've been saying for some time now, we should be looking for
rangebound action until something big and unexpected occurs.
That's what it will take to break this range.

I said little about the broad market last week and I'm going to
say even less this week -- primarily because we've got a defined
range and until that range is broken decisively, there's little of
merit for long-term investors to discuss.  The pile ain't going
very far.

So let's discuss something a little more near and dear to my heart
-- the action of the U.S. Dollar Index (DX00Y).  We spoke about
this one a bit last week, and I noted the significance of the 92
level, but didn't have the time to put together a chart to
demonstrate the point graphically.  I've taken care of that this
week, so let's take a peek together.

Weekly Chart of the U.S. Dollar Index (DX00Y)



See the horizontal support-turned-resistance at 92?  That was an
important multi-year line of support until broken and we can see
its significance demonstrated by the recent rollover from both
that resistance as well as the declining year-long trendline.
Just to add emphasis, we have the weekly Stochastics tipping over
in classic bearish fashion.  Do you see any similarity to the
overall picture from last summer?  Last April?  October 2002?  I
can tell you this -- this is not the point that I'd be wanting to
be long the dollar!

Alright, that's the technical picture.  What we really want to
know is what is happening behind the scenes and causing the move,
right?  I think it's a safe bet that we will never know precisely
what the answer is, but I think we can do some well-reasoned
speculation.  The DX00Y began to rise near the first of the year
as investors began to expect that the Fed would need to raise
interest rates.  That trade picked up steam with a handful of
economic reports focusing on inflation and employment that was
pointing towards a strengthening economic recovery and the Fed has
now made it clear that interest rates will be rising in the not-
too-distant future.

Rising interest rates will make US Treasury bonds more attractive
due to the higher yield, implicitly strengthening the underlying
currency -- at least relative to other paper currencies.  But
recently the Fed has been back-pedaling a bit, hinting that
they're in no hurry to raise rates?  Was a deal struck between
Greenspan and the White House wherein Greenspan gets to keep his
job in return for not torpedoing the economy with rising rates
ahead of the election?  I'll let you be the judge, but it
certainly seems to me that the Fed's official statements have
softened since Greenspan's official reappointment.

If the Fed is now intent on waiting a bit longer before beginning
the rate hike cycle, then don't you think it makes sense from a
fundamental standpoint that the dollar is once again headed south?
I think the location of the bottom of this decline will be very
instructive in terms of what to expect from the equity market,
currencies, precious metals, fixed income and commodities over the
balance of the year.

Jonathan has frequently referred to the "binary dollar trade" that
has been in place over the past year, with the dollar moving one
way and everything else moving the other way.  Could it be that
once short rates begin to rise that we'll finally see that link
severed and the different asset classes resume their normal inter-
relationships?

At the core of what has been fueling this action has been the
astounding level of money and credit creation, as every asset
class has been floated higher on a sea of liquidity.  That party
can't go on indefinitely and the clear presence of rising
inflation may be the equivalent of the cops showing up and finding
no adults present and lots of alcohol.  I don't have any
predictions for how it will play out, but I will be a very
interested observer, looking to see what dislocations will occur
once the rate hike cycle commences.  If you read my article last
Thursday, you've got an idea of how I think it will play out in
the housing market.

We are unlikely to get a solid data point on interest rate policy
going forward until the FOMC meeting at the end of June.  While
the Fed Funds futures are predicting a near-certainty of a hike,
I'm less sure and wouldn't be at all surprised to see that first
hike pushed out to August.

With a lack of resolution on the interest rate issue in the near-
term, I see it as very unlikely that the equity markets will be
able to break their recent ranges and that means we need to be
very cautious.  Here's the latest updates on the plays we're
currently following.


Portfolio:

HD - Did we say something up above about rangebound action?
Apparently HD investors got a sneak peek at the script, because
they picked themselves up last week and sent the stock back up
towards strong resistance.  The bottom of the range near $33 held
firm and rather than roll over last week, the stock launched
higher with the broad market, moving through its 200-dma, then 50-
dma and finally the 100-dma, failing to find any resistance until
encountering the top of the long-term descending channel just
under $36.50.  This puts the stock right back in the middle of the
consolidation range that has prevailed for more months than I care
to remember.  More importantly, weekly Stochastics are hinting at
a longer-term bullish move and we never did get the Sell signal on
the PnF chart.  While we can hope that Friday's move represented a
near-term top, I'm doubtful and I'm putting this play on
probation.  We'll keep our stop set at $38, but any sustained move
over Friday's high will have me looking to drop the play.
Conservative traders may want to jump the gun and pull the plug on
a close over $36.50.

CHK - With the continued strength in energy prices, you'd expect
our Natural Gas play to be acting better, especially with the
overall market in rally mode last week.  But the Natural Gas index
(XNG.X) fell back from resistance near $235 in the latter half of
the week and our CHK play followed suit, rolling over from just
below the $14 level.  The stock is still in the rising channel
that has contained price for the past several months, but the
price action is not looking encouraging.  With weekly Stochastics
firmly in bearish decline, new entries don't look particularly
attractive at this time.  Hopefully, we'll see price meander
sideways until we see a fresh buy signal on the weekly oscillator.
In the meantime, sitting pat with our stop in place at $12 seems
the best course of action.

LUV - The DOW Transports continue to be amazing in their
reluctance to show any weakness, ending the week near 2950, even
though the price of fuel continues to hold near all-time highs.
The Airline index (XAL.X) did show a bit of weakness towards the
end of the week, but still posted a respectable gain for the 5
days just ended.  Investors have been showing LUV some love
though, with the stock breaking out over the $15.25 level last
week and holding that breakout into the end of the week.  We
should expect some firm resistance near $16, especially with the
200-dma just overhead, but the stock still appears on track for a
rally to the $18 level as the summer travel season heats up.  With
our stop set at $13.50, we should be able to ride out any near-
term turbulence.

TYC - So, what do you think -- was it worth exercising some
patience to get this tasty entry point?  No sooner did we initiate
our Portfolio play on TYC than the stock went vertical.  First
hitting resistance at $30, TYC then broke out in a big way on
Thursday, with volume running nearly quadruple the daily average.
Some analysts may attribute the move to some news about the
company paying down debt and perhaps boosting its dividend.  But
I'd make the argument that the breakout occurred because
technically it was ready.  After several months of sideways
consolidation, the stock was ready to move, and whether by luck or
by skill, we managed to catch it at just the right time.  We
should expect to see a pullback to test support in the $29-30
area, but that dip should find support at that higher level and
provide for secondary entries on the rebound from support.  The
next resistance level for us to really worry about is the $35
level, but it may take some time for the stock to get there.  Note
that we've raised our stop to $26.75, just under the early May
low.

AIG - Here again, our patience was rewarded, with AIG finally
surging back to our $72 entry level on the back of Tuesday's
strong market rally.  We're not out of the woods just yet, but the
move over both the 50-dma and the 100-dma certainly looks
encouraging.  We can expect to see some mild resistance at $74,
and stronger resistance at $75, where the bears will be working to
turn the daily chart into a possible H&S top.  But we're going to
go with the picture displayed by the PnF chart, which projects to
significantly higher levels.  See below for full details on this
new Portfolio play.

Watch List:

GM - Finally a bounce in GM, and the stock inched its way back
over the $45 level, but is currently pinned under both the 50-dma
and the 200-dma.  This isn't even close to what I want for an
entry point, and I'm going to step add another level of caution to
the play.  Looking at the weekly Stochastics, I see a very real
potential for bullish divergence to set up, and that could shoot
the stock right through our prior entry target and put us in a
very bad position.  I'm going to put the play on hold for now.

Radar Screen:

EK - Hey, don't look now, but there was actually a bit of life to
be found in shares of EK on Friday, with the stock rising to touch
the declining trendline.  I know the actual trendline should act
as strong resistance, but what's bothering me here is the weekly
Stochastics, which are midway through their ascent towards
overbought territory.  I found last week's price action a bit more
encouraging to the prospects of an eventual bearish play here, but
I don't think we need to be in a hurry.  I still have a strong
feeling that the stock is going to make another run towards the
$28-29 area.  We'll keep watching for a move that looks viable for
a longer-term bearish position.

QQQ - What was I thinking?  I've been talking for weeks about the
potential for a rangebound market through the summer and that by
definition means long-term directional index plays are very
unlikely to be profitable.  Sure enough, QQQ rebounded strongly
last week, moving right to its descending trendline on Friday.
I'm expecting a breakout and a run back to the $38-39 area.  It
isn't enough to justify a bullish play, but neither will it be
conducive to give us a winning bearish one either.  I'm dropping
QQQ from consideration as a play and will likely leave the indices
alone until I can make a case for a break of the current ranges.

$DJUSHB - We're making progress on laying out the road map for how
to play the downside in the housing arena once short-term interest
rates finally start to climb.  We handled the background in last
Thursday's article and we'll delve into specific analysis and
strategies next week.  Once we're done with that process, look for
one or two of the home builders to appear in this section next
month.

NEM - Did you see that?  NEM actually made it over the $40 level
before tipping over at the end of last week, which is a pretty
beefy move from the lows below $35 of a few short weeks ago.  We
still don't have a bullish PnF char to work with and I'm expecting
the stock to now work back towards the $38 level, at which point
we may start to see something viable set up.  As you can tell from
my continued commentary on the dollar, I'm expecting good things
out of the gold sector and NEM should be a leader.

Closing Thoughts:
Just when all looked bleak, the broad market (especially
Technology) put in an impressive performance last week, pushing
all the major indices back into the middle of their respective
ranges.  It will take a sizeable move from here to break either
support or resistance, and I suspect it's going to take a while to
materialize.  For those engineers out there, I think we're looking
at an over-damped system and we've just witnessed the first two
oscillations, which by definition should have the largest
magnitude.  Until there is another disturbance to the system, we
shouldn't expect the broad market to move beyond the highs from
earlier in the year or the lows posted earlier this month.  They
don't call them the summer doldrums for nothing!

Best Wishes for a Safe and Enjoyable Memorial Day Weekend!

Mark


LEAPS Portfolio

Current Open Plays



LEAPS Watchlist

Current Possibles

SYMBOL  SINCE    TARGET PRICE  TARGETED LEAP  SYMBOL

CALLS:
None



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



New Portfolio Plays

AIG - American International Group $72.00  **Call Play**

As mentioned last week, it was interesting how AIG just couldn't
trade the $68 level that would have printed a fresh PnF Buy
signal.  The stock rallied strongly last week, hitting our entry
target at $72 at the close on Tuesday and initiating our Portfolio
play.  The biggest risk in the play is that the current rally will
stall out near $75, trace out a right shoulder to complete the
possible H&S topping pattern and then head down through our $68
stop.  But taking a look at the PnF chart, we like the bullish
odds here.  The PnF target is $94, or $22 above our entry point,
while the initial risk is a mere $4.  Weekly Stochastics haven't
turned bullish yet, but they are clearly trying to put in a bottom
and another bullish week ought to do the trick.  Aggressive
traders that missed the opportunity next week will now want to
look for a short-term pullback near the $71-72 level to provide
for entries.  With potential resistance at $74, $75 and then $77,
breakout entries don't really hold any appeal.  That's a lot of
resistance to work through, and it may be a tough road as we head
into the summer doldrums, but all the technicals certainly seem to
be leaning in our favor.  Once AIG closes over $78 we'll have a
pretty good idea that we've got a runner on our hands.

BUY LEAP JAN-2005 $75 ZAF-AO $ 3.80
BUY LEAP JAN-2006 $80 WAP-AO $ 5.90
BUY PUT  AUG-2004 $65 AIG-TM $ 1.05 **Protective Put**


New Watchlist Plays

None


Drops

None


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Option Spread Strategies
************************

Running Naked Through The Marketplace
By Mike Parnos, Investing With Attitude

I’ve had requests from some of the more aggressive CPTI students
to discuss naked option writing.  Well, get your raincoats ready.
We’re about to go out in public.  Be prepared.  It’s dangerous out
there – and drafty, too.

Do You Have What It Takes?
Naked option writing isn’t for everyone.  It has certain
requirements: the highest trading level approval from your broker,
a VERY large brokerage account, and grapefruit-sized cajones.  A
little knowledge helps, too.

Puts Or Calls?
That decision depends on the direction du jour.  Actually, naked
option writing should ideally be done in a trending market.  Try
to determine the direction of the market is trending and then sell
the appropriate option.

For example, let’s say you are bullish – at least for the near
term.  Let’s pick a high premium tech stock and run the numbers.
NTES (Netease.com) is trading at $45.05.   Uri Geller returned
from the dead one night, bent your spoons and told you that NTES
will continue higher in the next three weeks.  Now, let’s look at
an option chain.

The June $45 put is selling for $2.00.  Let’s sell 2 contracts and
take in $400.  Remember, you have no interest in owning NTES stock
(although that is a possibility).  You’d prefer to keep the $400
of premium and – if you guessed right about the direction, the
$400 will remain happy in its new home (your pocket).  If NTES is
above $45 at June expiration, the option will expire worthless and
you will live happily ever after.

Maintenance Requirement
You don’t think the broker is going to let you skate without
holding some of your money, do you?  Without going into the basic
formulas for naked position, you can estimate the maintenance to
be about 25% of the total stock price.   Two hundred shares of
NTES would be worth about $9000.  The requirement would be about
$2,250.

But, What If . . .
Maybe Uri Geller was off his game.  The voice from beyond was in
Portuguese and you misunderstood.  For whatever reason, NTES
starts moving down.  It’s $43, then $41.50, then $40.  HELP!!!!
What do you do?

When the stock hits $40, you should be able to buy back your June
$45 puts for about $5.50 (x 2 contracts = $1,100).  Now, you’ve
just spent $1,100.  If you stopped there, you would incur a $700
loss.  Are you still bullish?  If the answer is “yes,” then take
another look at the option chain.  The July $40 puts are selling
for $3.25.  For each contract of the July $40 puts you sell,
you’ll take in $325.

How many July $40 put contracts do you have to sell to recuperate
the $1,100 you just spent?   Three contracts would bring in only
$975 – not enough.  So, we’ll sell four contracts and take in
$1,300.  Now, you’ve accomplished three things:  1) you have a
whole other month for NTES to see the error of its ways and right
itself; 2) you have lowered the short strike price by $5 (from $45
to $40); and 3) you’ve taken in an additional $200 of premium.

Your account size has to be able to accommodate the additional
margin requirements.  The four $40 puts now represent 400 shares.
That’s a value of $16,000.  Using the same formula, the
maintenance is now about $4,000.  The maintenance requirement will
fluctuate up and down with the value of the stock.
Rolling For Credits
This strategy is called “rolling for credits.”  If NTES continues
to fall to the next strike price ($35), the process is repeated –
increasing the number of contracts to cover the cost of buying
back the about to be violated short options.  Eventually, NTES
will stop falling (they “usually” do) – and the last set of
written options will expire worthless.  You will then make an
overall profit consisting of an amount equal to all the credits
(dollars) you took in to that point.

There are two requirements for success with this strategy – that
the stock will eventually stop falling.  Secondly, you must have
enough collateral backing to stay with the strategy, even if the
stock dips heavily against you.

The maintenance required for naked put (or call) writing can be in
the form of cash or securities.  A large stock portfolio can be
used to finance the strategy through its loan value.  There would
be no margin interest charges incurred, because all transactions
are credit transactions.  The securities in the portfolio would
remain untouched unless the strategy was terminated before
completion.

In Summary
There you have it.  Sounds like a “can’t lose” plan, right?  Don’t
kid yourself.  Trading naked options close to the money (or
anywhere else for that matter) is inviting trouble.   Most of you
won’t be able to use this strategy because of the trading level
approval.  For those of you who qualify, you might as well put
your money on the endangered species list.
________________________________________________________

A Real Football Fan?
From the “Get A Life” file, Eric Stephenson, a Salt Lake City,
Utah lawyer, obviously has way too much time on his hands.  He
should be chasing ambulances or drafting wills like his friends.
But not Eric.   Apparently, Eric sued Viacom (CBS owner) for
$5,000 because his sensibilities were offended.

He believes Viacom should pay him $5,000 because of Janet
Jackson’s “wardrobe malfunction.”  Eric is the father of three
children, ages 2, 4 and 6.  He maintains that TV guides and pre-
game advertising led him to believe that the halftime
entertainment would be of a patriotic and family nature.   Well,
“nature” was definitely present – in all of its wonder and beauty.
It just wasn’t what he expected.  It was America at its finest.
Eric believed he was led astray.  The kids?  They were probably
playing with Leggos.  I’ll bet Eric was the only one watching.

Judge Jerald Jensen obviously had a grasp and told Eric to just go
away.  He didn’t cite a reason for his ruling.  I suspect he was
just being kind.  Besides, the entire incident happened so quickly
that Eric would have had to tape it, replay it, transfer it to his
computer, and enlarged the image ten times just to get a glimpse.


NEW JUNE POSITIONS
June Position #1 – SPX Iron Condor – 1120.68
We sold 5 SPX June 1150 calls and bought 5 SPX June 1170 calls for
a credit of $1.20 (x 5 contracts = $600).  Then we sold 7 SPX June
1025 puts and bought 7 SPX June 1010 puts for a credit: $1.00 (x 7
contracts = $700).  Our total net credit is $1,300.  Maintenance:
$10,500.  Maximum profit range of 1025 to 1150.  Potential profit
is $1,300.

June Position #2 – BBH Iron Condor - $147.77
We sold 10 BBH $155 calls and bought 10 BBH $165 calls for a
credit of $.70 (x 10 contracts = $700).  Then we sold 10 BBH $135
puts and bought 10 BBH $125 puts for a credit: $.90 (x 10
contracts = $900). Our total net credit is $1,550.  Maintenance:
$10,000.  Maximum profit range of $135 to $155.  Potential profit:
$1,550.

June Position #3 – RUT – Iron Condor – 568.28
We sold 10 RUT 590 calls and bought 10 RUT 600 calls for a credit
of $.80 (x 10 contracts = $800).  Then, we sold 10 RUT 490 puts
and bought 10 RUT 480 puts for a credit: $1.00 (x 10 contracts =
$1,000).  Our total net credit is $1,800.  Maintenance $10,000.
Maximum profit range of 490 to 590.  Potential profit: $1,800.

June Position #4 – MNX – Iron Condor - $146.62
Sold 10 MNX 147.50 calls and bought 10 MNX 152.50 calls for a
credit: $.70 (x 10 contracts = $700).  Then sold 10 MNX $132.50
puts and bought 10 MNX $127.50 puts for a credit: $.60 (x 10
contracts = $600).  Our total net credit of $1,300.  Maintenance:
$10,000.  Maximum profit range of $132.50 to $147.50.  Profit
potential: $1,300.


ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $36.55
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.
We rolled out the May $34 calls to the June $34 calls for a credit
of $.60 and then the May $37 puts to the June $37 puts for credit
of $.15.  The total net credit was $.75 ($750).  Our new total
credit: $9,600.

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 – 545.13
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 December 2006 540 calls @ $81 (x 300 =
$24,300).  Our cash position as of May expiration is $4,390 plus
unused $1,700 = $6,090.

June Zero Plus Positions.
We established a June OEX bull puts spread 515/505, taking in a
credit of $1.15 x 5 contracts = $575.  We also sold the June 560
call taking in a credit of $1.20 x 5 contracts = $600.  If all
goes well, we’ll be able to add an additional $1,175 to our cash
position at June expiration.
Some people have asked about why I’m using a 5-contract position
when we only own 3 OEX Dec. 2006 calls.  Well, we have $74,000
worth of zero coupon bonds that are certainly marginable and years
to go to maturity.  If violated, we can roll these spreads out
however long is necessary to retain our profits.  We’ll be
adequately covered by the margin from the zeroes.

OSX Calendar Spread Plus - $98.88
OSX is the Oil Index. This was a play based on the belief that oil
prices will continue to move up.  Well, the oil prices have gone
up, but the index hasn’t.  Bought 10 OSX June $115 calls and sold
10 OSX April $115 calls 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, we were a “plus” $.75 ($750).

The May $115 call expired worthless.  For June, on Thursday, we
sold the June $105 call for $.70 against the June $115 call we
still own.  We closed our May bull put spread for a loss of $3.25
and rolled it out to the June $95/$85 bull put spread for a credit
of $2.25.  We had to trade 15 contracts of the bull put spread to
cover what we spent to close the May $100/$90 bull put spread.

We now have a positive $1.45 ($1450) -- $750 from before and
another $700 from selling the $105 June call.  We bought ourselves
another month for the OSX to behave.  We’re scrambling and I’ll be
glad to be out of this damn trade with my butt still attached.
That’ll teach me to try something directional.  Never fear, we
shall persevere.


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.


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The Option Investor Newsletter                   Sunday 05-30-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: A Good Time For A Holiday!
Premium-Selling Plays: Naked Puts and Calls


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

A Good Time For A Holiday!
By Ray Cummins

Stocks traded in a small range Friday with few catalysts for
direction ahead of the Memorial Day holiday.

The Dow Jones Industrial Average ended the session 16 points
lower at 10,188 with Alcoa (NYSE:AA), McDonald's (NYSE:MCD),
and Intel (NASDAQ:INTC) among the best blue-chip performers.
The NASDAQ Composite Index closed up 2 points at 1,986 with
semiconductor stocks accounting for most of the gains in the
technology segment.  The S&P 500 finished almost unchanged at
1,120 as steel, tobacco and airline shares limited the upside
activity in the broader market.  Trading was extremely slow
as many investors started the holiday weekend early.  Volume
on the New York Stock Exchange was a light 1.1 billion shares
while slightly more than 1.2 billion shares were crossed on
the NASDAQ.  Advancers outpaced decliners by a decent margin
on both the Big Board and the technology exchange.  The bond
market also closed early with the price of the 10-year note
down 12/32, while its yield climbed to 4.65%.

U.S. equity markets will be closed Monday in observance of the
Memorial Day holiday.


~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 05/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

ERTS    51.88  50.94   JUN   45  48   0.35   47.15   0.35   Open
IMDC    61.17  60.52   JUN   50  55   0.50   54.50   0.50   Open
GPRO    38.30  41.81   JUN   30  35   0.70   34.30   0.70   Open
MATK    68.01  63.29   JUN   55  60   0.65   59.35   0.65   Open
ASD    107.89 111.83   JUN   95 100   0.50   99.50   0.50   Open
IMCL    71.36  74.69   JUN   50  55   0.50   54.50   0.50   Open
CSC     42.17  42.99   JUN   35  40   0.65   39.35   0.65   Open
GILD    62.54  65.71   JUN   55  60   1.00   59.00   1.00   Open
RIMM    99.98 116.34   JUN   80  85   0.45   84.55   0.45   Open
QCOM    65.40  66.80   JUN   55  60   0.45   59.55   0.45   Open
ZBRA    80.08  80.82   JUN   70  75   0.65   74.35   0.65   Open
BRCM    42.54  42.63   JUN   38  40   0.30   39.70   0.30   Open
EBAY    85.33  88.05   JUN   75  80   0.50   79.50   0.50   Open

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

Martek Biosciences (NASDAQ:MATK) is on the "watch" list.


CALL-CREDIT SPREADS

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

CTX     44.80  48.30   JUN   55  50   0.50   50.50   0.50   Open
IVGN    67.61  68.65   JUN   80  75   0.55   75.55   0.55   Open
NTLI    55.28  58.88   JUN   65  60   0.80   60.80   0.80   Open
VIP     91.45  95.99   JUN  110 105   0.50  105.50   0.50   Open
CERN    41.33  42.49   JUN   50  45   0.55   45.55   0.55   Open
SEPR    45.06  45.15   JUN   55  50   0.60   50.60   0.60   Open
BSC     80.02  80.92   JUN   90  85   0.50   85.50   0.50   Open
FRX     59.20  63.46   JUN   70  65   0.55   65.55   0.55   Open
MDT     47.66  48.55   JUN   55  50   0.60   50.60   0.60   Open
AZO     83.38  84.69   JUN   95  90   0.20   90.20   0.20  No Play

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

NTL Inc. (NASDAQ:NTLI) has been joined on the early-exit "watch"
list by Forest Labs (NYSE:FRX) and Medtronic (NYSE:MDT).  The was
no viable credit available in the Autozone (NYSE:AZO) position.


DEBIT STRADDLES

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

GRMN    32.60  34.23   JUL    35    30     2.15    2.35    Open
KKD     19.63  20.73   JUN    20    20     3.00    2.80    Open

There was no further downside activity after Krispy Kreme Donuts
(NYSE:KKD) announced quarterly earnings, so we will watch for a
recovery in the stock during the next weeks, before considering
an early exit in the position.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.

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

AMZN - Amazon.com  $48.50  *** On The Rebound! ***

Amazon.com (NASDAQ:AMZN) is a website where customers can find
and discover anything they may want to buy online.  The company
lists millions of items in categories such as books, music, DVDs,
videos, consumer electronics, toys, camera and photo items, PC
software, computer and video games, tools and hardware, outdoor
living items, kitchen and house-wares products, toys, baby and
baby registry, travel services and magazine subscriptions.  At
its Amazon Marketplace, Auctions and zShops services, businesses
and individuals can sell virtually any product to millions of
customers, and with Amazon.com Payments, sellers are able to
accept credit card transactions in addition to other methods of
payment.  The company operates a U.S.-based Website: amazon.com,
and four internationally focused Websites: www.amazon.co.uk,
www.amazon.de, www.amazon.fr and www.amazon.co.jp.

AMZN - Amazon.com  $48.50

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-42.50  ZQN-RV  OI=10019  ASK=$0.30
SELL PUT  JUN-45.00  ZQN-RI  OI=15107  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$44.70


__________________________________________________________________

EYET - Eyetech Pharmaceuticals  $44.32  *** Rally Mode! ***

Eyetech Pharmaceuticals (NASDAQ:EYET) is a biopharmaceutical firm
that specializes in the development and commercialization of novel
therapeutics to treat diseases of the eye.  Its initial focus is
on diseases affecting the back of the eye, particularly the retina.
The company's most advanced product candidate is Macugen, which it
is developing for wet age-related macular degeneration (AMD) and
diabetic macular degeneration (DME).

EYET - Eyetech Pharmaceuticals  $44.32

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUN-35.00  QUJ-RG  OI=90  ASK=$0.25
SELL PUT  JUN-40.00  QUJ-RH  OI=17  BID=$0.70
INITIAL NET-CREDIT TARGET=$0.50-$0.60
POTENTIAL PROFIT(max)=12% B/E=$39.50


__________________________________________________________________

RIMM	- Research In Motion  $119.93  *** New 2004 High! ***

Research In Motion (NASDAQ:RIMM) is a designer, manufacturer and
seller of wide area wireless solutions for the worldwide mobile
communications market.  Through the development of integrated
hardware, software and services that support multiple wireless
network standards, the firm provides platforms and solutions for
seamless access to time-sensitive information including e-mail,
phone, short message service messaging, as well as Internet and
intranet-based corporate data applications.

RIMM	- Research In Motion  $119.93

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUN- 95.00  RUP-RS  OI=5467  ASK=$0.55
SELL PUT  JUN-100.00  RUP-RT  OI=8015  BID=$0.80
INITIAL NET-CREDIT TARGET=$0.40-$0.50
POTENTIAL PROFIT(max)=8% B/E=$99.60



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

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.

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

RYL - The Ryland Group  $79.60  *** Housing Sector Slump? ***

The Ryland Group (NYSE:RYL) is a homebuilder and mortgage-finance
company.  The company has built more than 190,000 homes during its
34-year history.  Ryland homes are available in more than 260 new
communities in 21 markets across the United States.  In addition,
the Ryland Mortgage company has provided mortgage financing and
related services for more than 165,000 homebuyers.  The company's
operations span all the significant aspects of the home-buying
process, from design, construction and sale to mortgage financing,
title insurance, settlement, escrow and homeowners insurance.

RYL - The Ryland Group  $79.60

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUN-90.00  RYL-FR  OI=585   ASK=$0.20
SELL CALL  JUN-85.00  RYL-FQ  OI=1889  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$85.50


__________________________________________________________________

VIP - Vimpel Communications  $92.25  *** Failed Rally? ***

Vimpel Communications (NYSE:VIP) is an established provider of
telecommunications services in Russia, operating under the Bee
Line family of brand names.  VimpelCom's license portfolio covers
much of Russia's population including the City of Moscow and the
Moscow Region.  VimpelCom introduced two digital communications
standards to Russia and built a dual band GSM-900/1800 cellular
network.  The company also led the development and emergence of
the mass consumer market for wireless communications in Russia by
introducing a prepaid product solution.  VimpelCom offers various
technologies, such as wireless application protocol and BeeOnline,
a multi-access web portal that provides a multitude of wireless
information and entertainment services, including location-based
features.

VIP - Vimpel Communications  $92.25

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUN-105.00  VIP-FA  OI=476  ASK=$0.70
SELL CALL  JUN-100.00  VIP-FT  OI=422  BID=$1.25
INITIAL NET-CREDIT TARGET=$0.60-$0.65
POTENTIAL PROFIT(max)=14% B/E=$100.60



~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
__________________________________________________________________

Due to the abbreviated holiday publishing schedule, there will be
no "Supplemental" plays today...

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
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.
__________________________________________________________________

Due to the abbreviated holiday publishing schedule, there will be
no straddles or strangles today...

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

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 05/27/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

BCGI     JUN    10     9.65   10.65    0.35   7.73%   3.63%
LPNT     JUN    35    34.30   37.24    0.70   4.03%   2.04%
ASCA     JUN    30    29.35   32.69    0.65   5.02%   2.21%
DRIV     JUN    25    24.25   31.60    0.75   7.04%   3.09%
FARO     JUN    20    19.45   26.46    0.55   7.32%   2.83%
GIVN     JUN    30    29.25   30.71    0.75   7.01%   2.56%
MVSN     JUN    20    19.65   23.06    0.35   4.54%   1.78%
PDII     JUN    22    22.00   29.05    0.50   6.67%   2.27%
SMTC     JUN    20    19.50   25.23    0.50   6.25%   2.56%
CELG     JUN    45    44.40   56.42    0.60   4.75%   1.35%
ELN      JUN    17    17.05   23.08    0.45   8.73%   2.64%
FARO     JUN    20    19.45   26.46    0.55   8.04%   2.83%
FRO      JUN    25    24.50   34.28    0.50   6.48%   2.04%
IMMU     JUN    5      4.75    6.00    0.25  13.52%   5.26%
LNCR     JUN    32    32.05   34.25    0.45   3.60%   1.40%
MCK      JUN    32    32.00   34.27    0.50   3.76%   1.56%
NFLX     JUN    25    24.45   33.20    0.55   7.36%   2.25%
PHRM     JUN    20    19.65   37.00    0.35   5.67%   1.78%
RTN      JUN    32    32.00   33.16    0.50   3.62%   1.56%
VXGNE    JUN    12    12.10   15.58    0.40  10.35%   3.31%
ARTI     JUN    22    22.00   25.07    0.50   6.11%   2.27%
AVID     JUN    45    44.30   52.63    0.70   4.62%   1.58%
BLUD     JUN    25    24.70   31.10    0.30   3.54%   1.21%
DIGE     JUN    35    34.25   39.50    0.75   6.16%   2.19%
DRIV     JUN    25    24.60   31.60    0.40   5.37%   1.63%
ERES     JUN    27    26.85   36.66    0.65   7.59%   2.42%
NUE      JUN    55    54.25   67.00    0.75   3.96%   1.38%
PHRM     JUN    20    19.70   37.00    0.30   5.30%   1.52%
SPLS     JUN    25    24.60   27.58    0.40   4.24%   1.63%
YHOO     JUN    25    24.60   30.56    0.40   4.64%   1.63%
ARO      JUN    22    23.03   26.10    0.35   4.75%   1.52%
CRDN     JUN    25    24.65   33.05    0.35   5.57%   1.42%
ERES     JUN    27    27.05   36.66    0.45   6.61%   1.66%
FARO     JUN    22    21.85   26.46    0.65   9.88%   2.97%
ISPH     JUN    15    14.55   17.52    0.45  10.57%   3.09%
IDEV     JUN     5     4.70    8.42    0.30  17.36%   6.38%
PDII     JUN    22    22.20   29.05    0.30   5.83%   1.35%
SSYS     JUN    22    21.85   26.12    0.65   9.43%   2.97%
SLXP     JUN    25    24.70   29.06    0.30   4.85%   1.21%
ASKJ     JUN    35    34.40   39.18    0.60   6.85%   1.74%
AUO      JUN    20    19.55   22.51    0.45   8.86%   2.30%
ERES     JUN    30    29.70   36.66    0.30   4.60%   1.01%
FWHT     JUN    20    19.65   22.96    0.35   6.25%   1.78%
GPRO     JUN    35    34.45   41.81    0.55   5.54%   1.60%
MEE      JUN    22    22.15   24.56    0.35   5.66%   1.58%
SMTC     JUN    20    19.70   25.23    0.30   6.79%   1.52%
SWIR     JUN    22    22.20   28.05    0.30   6.05%   1.35%
YHOO     JUN    27    27.15   30.56    0.35   4.58%   1.29%

Silicon Storage Tech (NASDAQ:SSTI), although profitable, has
been closed to limit potential losses.  Issues on the "watch"
list are: Boston Communications (NASDAQ:BCGI), Given Imaging
(NASDAQ:GIVN) and Raytheon (NYSE:RTN).


NAKED CALLS

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

IACI     JUN    32    33.15   31.54    0.65   5.22%   1.96%
OVTI     JUN    30    30.80   22.70    0.80   11.79%  2.60%
SLAB     JUN    55    55.50   51.23    0.50   4.93%   0.90%
PHTN     JUN    35    35.35   31.70    0.35   4.69%   0.99%
ENDP     JUN    25    25.70   22.31    0.70  11.16%   2.72%
IPXL     JUN    22    23.05   21.72    0.55   8.75%   2.39%
MMR      JUN    15    15.25   13.41    0.25   7.20%   1.64%
APPX     JUN    40    40.40   33.98    0.40   6.84%   0.99%
OVTI     JUN    27    27.25   22.70    0.25   6.69%   0.92%
WSM      JUN    32    33.00   31.93    0.50   5.64%   1.52%
ABAX     JUN    20    20.25   18.82    0.25   5.81%   1.23%
CHIC     JUN    20    20.35   17.70    0.35   8.70%   1.72%
USNA     JUN    30    30.40   27.74    0.40   6.29%   1.32%

InteractiveCorp (NASDAQ:IACI), Impax Labs (NASDAQ:IPXL) and
Williams-Sonoma (NYSE:WSM) are on the "watch" list.


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

ASKJ     JUN   35.00   34.55   40.40    0.45   6.43%   1.30%
CRDN     JUN   30.00   29.45   33.27    0.55   8.32%   1.87%
DRXR     JUN   15.00   14.65   17.00    0.35  10.88%   2.39%
ERES     JUN   23.37   23.03   25.29    0.35   6.55%   1.52%
NKTR     JUN   17.50   17.25   21.49    0.25   8.24%   1.45%
NSM      JUN   20.00   19.70   21.67    0.30   6.58%   1.52%
NVDA     JUN   22.50   22.15   23.45    0.35   6.38%   1.58%
SMTC     JUN   22.50   22.20   25.12    0.30   6.21%   1.35%
YHOO     JUN   27.50   27.25   30.66    0.25   4.28%   0.92%

__________________________________________________________________

ASKJ - Ask Jeeves  $40.40  *** Uptrend Intact! ***

Ask Jeeves (NASDAQ:ASKJ) is a provider of Internet-wide search,
providing consumers with authoritative and fast ways to find
relevant information to their everyday searches.  Ask Jeeves
deploys its search technologies on Ask Jeeves (Ask.com and
Ask.co.uk), Teoma.com, and Ask Jeeves for Kids (AJKids.com).
In addition, to its internet sites, Ask Jeeves syndicates its
monetized search technology and advertising units to a network
of affiliate partners.  The company is based in Emeryville,
California, with offices in New York, Boston, New Jersey, Los
Angeles, London and Dublin.

ASKJ - Ask Jeeves  $40.40

PLAY (sell naked put):

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

SELL PUT  JUN 35    AUK RG    3301  0.45  34.55   6.4%   1.3%


__________________________________________________________________

CRDN - Ceradyne  $33.27  *** Supplying The U.S. War Machine! ***

Ceradyne (NASDAQ:CRDN) develops, manufactures and markets advanced
technical ceramic products and components for industrial, defense,
consumer, microwave communications and automotive applications.
The company derives a portion of its revenues from its traditional
products, which include lightweight-ceramic armor for military
helicopters and microwave tube products.  However, newer products
developed or being developed by Ceradyne for defense, industrial
and consumer applications represent an increasing share of its
business.

CRDN - Ceradyne  $33.27

PLAY (sell naked put):

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

SELL PUT  JUN 30    CEU RF      89   0.55  29.45   8.3%   1.9%


__________________________________________________________________

DRXR - Drexler Technology  $17.00  *** A Secure Stock! ***

Drexler Technology Corporation (NASDAQ:DRXR) develops, produces
and markets optical data storage products and systems featuring
LaserCard optical memory cards and chip-ready Smart/Optical cards.
Drexler-made LaserCard optical memory cards are used for "digital
governance" applications such as immigration services, visas,
cargo manifests, motor vehicles, import-duty collection, standard
pay-per-use systems, and ID/access; and for healthcare and other
digital read/write wallet-card applications.

DRXR - Drexler Technology  $17.00

PLAY (sell naked put):

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

SELL PUT  JUN 15    RXQ RC     932   0.35  14.65  10.9%   2.4%


__________________________________________________________________

ERES - eResearch Technology  $25.29  ** Post-Split Entry Point? **

eResearch Technology (NASDAQ:ERES) is a provider of technology and
services that enable the pharmaceutical, biotechnology and medical
device industries to collect, interpret and distribute cardiac
safety and clinical data more efficiently.  The company offers a
range of products and services, including Diagnostics Technology
and Services and Clinical Research Technology.  Their Diagnostics
Technology and Services include centralized diagnostic services
and clinical research operations, including clinical trial and
data management services.  Their Clinical Research Technology and
Services include the developing, marketing and support of clinical
research technology and services.

ERES - eResearch Technology  $25.29

PLAY (sell naked put):

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

SELL PUT  JUN 23.37  BKM RV       0   0.35  23.03   6.6%   1.5%


__________________________________________________________________

NKTR - Nektar Therapeutics  $21.49  *** Pure Premium-Selling! ***

Nektar Therapeutics (NASDAQ:NKTR) makes drug delivery products
based on its portfolio of technologies and expertise designed
to improve drug performance throughout the drug development
process.  The company has developed three distinct technology
platforms: Nektar Molecule Engineering, which uses advanced PEG
(polyethylene glycol)ylation and PEG-based delivery systems to
enable drug performance, Nektar Particle Engineering, which uses
the company's expertise in pulmonary particle technology and
supercritical fluids technology to design and manufacture optimal
drug particles and Nektar Delivery Solutions, which uses advanced
systems for pulmonary drug administration to improve therapeutic
outcomes.

NKTR - Nektar Therapeutics  $21.49

"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 17.5  QNX RW    1776   0.25  17.25   8.2%   1.4%


__________________________________________________________________

NSM - National Semiconductor  $21.67  *** Bullish Outlook! ***

National Semiconductor (NYSE:NSM) designs, develops, manufactures
and markets a wide array of semiconductor products, including a
broad line of analog, mixed-signal and other integrated circuits.
The company's analog and mixed-signal devices include amplifiers
and regulators, image sensors, power monitors and line drivers,
radio frequency, audio amplifiers, display drivers and signal
processors.  NSM also makes other products with digital-to-analog
or analog-to-digital capability include products for local area
and wireless networking and wireless communications, as well as
products for personal systems and personal communications.  NSM
uses the brand name Super I/O to describe its ICs that handle
system peripheral and input/output functions on the personal
computer motherboard.

NSM - National Semiconductor  $21.67

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    NSM RD   16420   0.30  19.70   6.6%   1.5%


__________________________________________________________________

NVDA - Nvidia  $23.45  *** Bottom Fishing! ***

Nvidia (NASDAQ:NVDA) designs, develops and markets graphics and
media communication processors and related software for personal
computers (PCs), workstations and digital entertainment platforms.
The company provides an architecturally compatible top-to-bottom
family of unique, performance 3-D graphics processors and graphics
processing units that set the standard for performance, quality
and features for a broad range of desktop PCs.  Nvidia's graphics
processors are used for a wide variety of applications, including
games, digital image editing, business productivity, the Internet
and industrial design.  Its graphics processors are designed to be
architecturally compatible backward and forward between computer
generations, giving its original equipment manufacturers (OEMs),
customers and end users a low cost of ownership.

NVDA - Nvidia  $23.45

PLAY (sell naked put):

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

SELL PUT  JUN 22.5  UVA RX    7858   0.35  22.15   6.4%   1.6%


__________________________________________________________________

SMTC - Semtech  $25.12  *** Favorable Earnings! ***

Semtech (NASDAQ:SMTC) is a supplier of analog and mixed-signal
semiconductors.  The company operates in two business segments,
Standard Semiconductor Products and Rectifier, Assembly and Other
Products.  The Standard Semiconductor Products segment makes up
the vast majority of overall sales and includes power management,
protection, test and measurement, advanced communications and
human input device product lines.  The Rectifier, Assembly and
Other Products segment includes the company's line of assembly
and rectifier devices, which are the remaining products from its
original founding as a supplier into the military and aerospace
market.

SMTC - Semtech  $25.12

PLAY (sell naked put):

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

SELL PUT  JUN 22.5  QTU RR    6918   0.30  22.20   6.2%   1.4%


__________________________________________________________________

YHOO - Yahoo!  $30.66  *** Another 2004 High! ***

Yahoo! (NASDAQ:YHOO) is a global Internet business and consumer
services company that offers a comprehensive branded network of
properties and services to more than 200 million individuals
worldwide.  The company offers an online navigational guide to the
Internet via its www.yahoo.com Website, which is a guide in terms
of traffic, advertising and household and business user reach.
Through Yahoo! Enterprise Solutions, the firm also provides many
business services designed to enhance the productivity and Web
presence of its clients.  Yahoo! has offices in the United States,
Europe, Asia, Latin America, Australia and Canada.

YHOO - Yahoo!  $30.66

PLAY (sell naked put):

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

SELL PUT  JUN 27.5  YHQ RY   27900   0.25  27.25   4.3%   0.9% TS



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

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.

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

ABGX - Abgenix  $15.12  *** Drug Speculation Only! ***

Abgenix (NASDAQ:ABGX) is a biopharmaceutical company that is
focused on the discovery, development and manufacture of human
therapeutic antibodies for the treatment of a variety of disease
conditions, including cancer, inflammation, metabolic disease,
transplant-related diseases, cardiovascular disease and infectious
diseases.  Abgenix has proprietary technologies that facilitate
rapid generation of highly specific, antibody-therapeutic product
candidates that contain fully human protein sequences and that
bind to disease targets appropriate for antibody therapy.  Abgenix
developed its XenoMouse technology, a technology using genetically
modified mice to generate fully human antibodies.  It also owns a
technology that enables the rapid ID of antibodies with desired
function and characteristics, referred to as SLAM technology.

ABGX - Abgenix  $15.12

"SPECULATIVE" PLAY (sell naked call):

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

SELL CALL  JUN 17.5  AZG FW   12657   0.35  17.85  13.9%   2.0%


__________________________________________________________________

CREE - Cree Incorporated  $23.01  *** In A Trading Range? ***

Cree (NASDAQ:CREE) is engaged in the development and manufacture
of compound semiconductor materials and electronic devices made
from silicon carbide (SiC), and a developer and manufacturer of
optoelectronic and electronic devices made from gallium nitride
and related materials.  The company also produces radio frequency
power transistor components and modules for wireless infrastructure
applications using silicon-based bipolar and laterally diffused
metal oxide semiconductor process technologies.  Cree operates its
business in two segments, the Cree segment, which consists of its
SiC-based products and research contracts, and the Cree Microwave
segment that consists of RF transistors and RF transistor modules
based on a silicon platform.

CREE - Cree Incorporated  $23.01

PLAY (sell naked call):

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

SELL CALL  JUN 25    CQR FE    6576   0.25  25.25   5.4%   1.0%


__________________________________________________________________

SSNC - SS&C Technologies  $22.99  *** Consolidation Underway? ***

SS&C Technologies (NASDAQ:SSNC) is a provider of client/server
based investment and financial management software, application
service provider solutions and business process outsourcing
solutions.  The company's products and related services compete
in a variety of vertical markets in the institutional investment
management marketplace, including commercial lending, financial
institutions, hedge funds and family offices, institutional asset
management, insurance entities, pension funds, municipal finance
and real estate property management.

SSNC - SS&C Technologies  $22.99

PLAY (sell naked call):

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

SELL CALL  JUN 25    QUN FE      35   0.50  25.50  10.4%   2.0%



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

SEE DISCLAIMER - SECTION 1

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


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