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Daily Newsletter, Sunday, 06/06/2004

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The Option Investor Newsletter                   Sunday 06-06-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

In Section One:

Wrap: D Day For Bulls
Futures Market: See Note
Index Trader Wrap: The Bottom Line
Editor's Plays: Stand Aside  
Market Sentiment: Lights Are Green
Ask the Analyst: Can I interest you in an IPO? (Retracement)
Coming Events: Earnings, Splits, Economic Events


Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        WE 6-04         WE 5-28         WE 5-21         WE 5-14 
DOW    10242.82 + 54.37 10188.5 +221.71 9966.74 - 46.13 -104.47  
Nasdaq  1978.62 -  8.12 1986.74 + 74.65 1912.09 +  7.84 - 13.71 
S&P-100  547.08 +  1.95  545.13 + 10.80  534.33 -  1.14 -  1.88 
S&P-500 1122.50 +  1.86 1120.64 + 27.08 1093.56 -  2.10 -  3.03 
W5000  10936.31 +  9.95 10926.4 +301.26 10625.1 -  9.61 - 51.33 
SOX      470.91 - 17.95  488.86 + 30.68  458.18 +  7.19 -  6.02 
RUT      567.75 -   .53  568.28 + 22.47  545.81 +  2.05 -  4.80 
TRAN    2992.28 + 44.27 2948.01 + 82.26 2861.75 + 12.86 +  2.71
******************************************************************

D Day For Bulls
by Jim Brown

With the bears hunkered down in their bunkers wondering what
happened to their reinforcements the bulls are gaining in 
strength on a daily basis. Next week could see the bulls 
storming the trading floor and putting the bears into full
retreat. The stars are aligning and the storm clouds are 
disappearing. Monday could be a decisive day for the bulls
to attack. 

Dow Chart - Daily

 
Nasdaq Chart - Daily

 
Russell Chart - Daily

 
SPX Chart - Daily

 

It was a report made in heaven for the bulls. The Jobs report
showed that the economy gained +248,000 payroll jobs in May
and like the Goldilocks porridge it was just right. It was
not too low and not too high and the jobs gained were in the
right places. The headline number was about +25K over the
consensus estimates and not enough to energize the Fed into
a rate hike frenzy. The good news came in the form of upward
revisions to the prior two months for an additional +74,000
jobs. Over the past three months 75.4% of industries have
added workers. Over the same three months nearly one million
jobs have been created and this could go a long way to help
consumer sentiment and election rhetoric.  

This was the third excellent report in a row and there was
no bad news. There were 32,000 new manufacturing jobs added 
in a sector that has been decimated. Average earnings rose
and 173,000 of the new jobs were in positions making over 
$16 per hour. This quiets the claims that all new jobs are 
Wal-Mart or McDonalds quality and shows the depth of the
recovery. Too bullish for you? Me too but that was what the
airwaves were blasting all day. Bullish sentiment was simply
oozing out of every news report. 

The bad news, what there was of it, came in a serious jump
in the Fed funds futures. The futures are now showing a +75
point hike by the August meeting. There is only one meeting
between now and the August 10th meeting and that is on June
30th. According to the futures there is a 10% chance of the
50-point hike being in June and a 30% chance it will be in
August. We can expect those numbers to vacillate greatly as
the month progresses. Just as the debate heated up on Friday
we had a speech by Fed Governor Kohn on "The Outlook for
Inflation". A very timely topic in view of the coming Fed
rate hike series. 
http://www.federalreserve.gov/boarddocs/speeches/2004/20040604/default.htm  

The net of his speech is that the Fed still believes that
the inflation monster is still slumbering despite the recent
rapid jump in some indicators. Kohn said the Fed believes the
jump in inflation was simply due to a rebound from abnormally
low inflation over the last year. The rebound merely put the
standard inflation rate back into sync with an expanding 
economy. He said while the Fed will remain cautious they still
believe there is sufficient slack in the economy to prevent
inflation from rising significantly in the near future. That
said he did warn that the current Fed funds rate was too low
and the Fed would be raising soon but he echoed and emphasized
that there was no reason to rush the process and it will be
removed at a measured pace. Glad to see they all have the key
catch phrase firmly imbedded in their vocabulary. The bottom 
line is calm in bond market despite a two week high in the 
ten-year yields and calm in the stock market despite multiple
rate hikes ahead. 

Just when you thought the stock market could not have any
better news oil prices closed at a five week low at $38.49. 
The OPEC posturing and bad mouthing oil prices for the last
couple days has kicked the props from under the speculative
oil market. No longer are the ripe profits there for the 
picking and traders are beginning to lighten up just in case
oil supplies begin to increase in July as OPEC promised. In
reality almost everyone I have heard claims OPEC is already
pumping the two million barrels they claim they will raise
production and there will not be any new oil coming to market.
Regardless, traders are being much more careful about long
positions in a falling market until some more details are 
known. With oil closing today nearly -$4 under Tuesday's
levels the transports finally found a bid on the hopes the
oil crisis has passed. 

To wrap the week we had favorable reports from Intel and PMCS
to help the chip sector along with an expanded growth outlook
from the Semiconductor Statistics group. The Intel mid qtr
update Thursday night came on the heels of three down days
for the sector. Friday's relief rally added +1.61% to the
SOX and we have the TXN mid quarter update on Monday. You
would think the positive chip news and rebounding Russell
would give the Nasdaq wings. Unfortunately it didn't and 
the Nasdaq lost -8 points for the week. The Nasdaq appears
stuck on 1980 and has traded across that line, sometimes
multiple times for the last six days only to close at 1979
on Friday. What is up with that? The 50 dma is 1978 and it
is trying very hard to move above that level. We have traded
over 1990 six times only to fail each time. Resistance has
been tough as we approach 2000 and it only gets tougher as
we try to move higher. 

The Dow however has moved continually higher for the week
and even succeeded in hitting 10300 on Friday after a four
week dip. Unlike the flat Nasdaq the Dow gained +54 points
for the week which may not sound like much but the trend
was definitely higher. Unfortunately there is monster
resistance at 10325 and any continued rally will face a
tough uphill battle but support is gradually rising.

There are no material economic reports next week until the
PPI and Consumer Confidence on Friday. Greenspan testifies
before the Senate on Thursday regarding his re-nomination. 
This means we will trade almost the entire week on stock 
news with the Thursday testimony the first real drag on
the bulls. 

I started this article with commentary that next week could
see the bulls press the attack. Last Sunday I said this week
would likely be range bound and attempts to move higher would
fail until the Jobs report was history. Now that the numbers
are on the board and good news is breaking out all over the
bulls should be smelling greener grass ahead. Believe it or
not there are only four weeks left in the quarter and the
earnings cycle will begin again. We are moving into the 
warning period for the 2Q and so far there has been almost
none. Estimates are still being raised and the economy does
appear to be picking up speed.

In any other year this would be the recipe for a rare summer
rally. The challenge is the convergence of events on June
30th. We have the Iraq changeover, FOMC meeting, the end
of the quarter and Russell rebalancing. It is also an 
election year with the incumbent in trouble. Stir all these
ingredients together and you get a witches brew forecast.

This is how I read the road map. Oil prices are falling and
OPEC is going on the offensive on prices. Regardless of any
new production they appear committed to push the price down.
This is bullish for the market for multiple reasons. The
Iraq changeover has already been factored into the market.
At least the idea of the changeover has been accepted and
the optimists think that will be the end of the news. The
pessimists know better and fully expect an increasing number
of terrorist activities in Iraq as we near the date. I would
not be a potential government official in Iraq for any amount
of money. They are walking targets. While I think traders
have factored in the changeover they will still react to the
increasing attacks as the date approaches. 

The FOMC meeting is a given. A 25-point increase has already
been factored in and to some extent there is already an
expectation for more. I am sure we will see some volatility
around the meeting but I cannot imagine an outcome that would
sour the market. If they did raise +50 and I doubt it for
political reasons, the market would just ratchet down its
expectations for August and proceed. The wild card that I
think will have the biggest impact on next week is the
election. Typically election summers tend to be positive
when the incumbent is ahead. The jobs numbers were very
positive for Bush and a serious blow for Kerry in terms 
of political talking points. You can expect positive 
comments and better poll numbers next week and that 
should encourage the bulls. 

This analysis suggests the bulls will TRY and press higher
but there is very strong resistance at 10325/2020/1130. The
ideal scenario would be a strong Asian/European performance
on Sunday night and a gap open for the U.S. markets on Monday
to these resistance levels or even higher. The overnight
futures can sometimes overcome resistance levels that cash
trading cannot. A futures gap at the open sometimes causes
short covering in the cash that will overcome sellers at
certain levels because they become less confident during
periods of high volatility. A slow creep up can be met and
measured over an extended period where a strong gap open 
must be reacted to immediately or face strong losses. But,
that would be the ideal scenario not necessarily what will
come to pass. 

However we get there any push to resistance will need some
serious volume to overcome those levels. Friday's volume
was barely three billion shares across all markets. We will
need a lot more conviction than that to breakout to a new
range. The more likely scenario is a slow chipping away at
resistance with spikes to new highs that are quickly sold
but a continued series of higher lows as support continues
to build. With no economic news and very little stock news
expected it could be another range bound week that resembles
trench warfare more than a cavalry charge. 

I would normally say sell resistance here but with current
resistance so close and with support rising the bigger move
could come on the long side. I know moving higher will be 
tough and we are not likely to breakout the first time but
I think the best plan is to buy the dips in anticipation 
of a breakout. Dow 10200 has held for three days and 10150
for three days before that. Those would be my target levels 
for any dips. The Nasdaq has such a narrow range for the 
week that its support at 1970 is only 10 points below its
midpoint at 1980. I would hope for a lower dip but not 
count on it. The key is event risk for next week. Any 
negative events could provide an entry point and I would
not hesitate to take them. Just keep your stops tight on
the entry just in case our dip turns into more than just
a dip. 

Don't be misled by my suggestion to buy the dips. Current
resistance is VERY strong. Look at the S&P and Dow charts
above for a very good visual picture. Moving higher will
be tough if not impossible but as long as support keeps
rising and the news continues to be good we have a chance.
We could also return to the bottom of the channel but there
is nothing on the horizon for Monday to provide that strong
of a dip. I think the risk is on the side of the bears and
the bulls are growing stronger. Hopefully the week will
prove that theory. 

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

The Bottom Line
By Leigh Stevens

THE BOTTOM LINE – 
There are two, not one "bottom line" views of the market here.  
The S&P 500 (SPX) looks like it's capable of churning through 
near resistance, based on the chart picture, moving averages and 
sentiment measures. The Nasdaq Composite (COMP), while back above 
its 200-day average, remains in an overall downtrend channel and 
it doesn't appear likely it can break out above its key 
resistance around 2000. More on COMP in my Index Outlook section.

What kept me bullish on the blue chip stocks at recent lows was 
that SPX held, or rebounded from, its 200-day average, not the 
case for the Dow (INDU) or S&P 100 (OEX).  Upside potential, 
assuming SPX closes above down trendline resistance currently at 
1126, is to the 1140 area at the upper trading envelope line or 
to the prior rally highs at 1147-1150. 


 

If the index continues to stall at the down trendline, I'm 
watching SPX's ability to hold key near support at 1120 as a 
trend benchmark.

FRIDAY'S TRADING ACTIVITY – 

The NUMBERS - 
The Standard & Poor's 500 Index  (SPX)gained a half percent to 
close at 1,122.51 - for the week SPX was up less than 2 points. 
The Dow 30 average (INDU) also gained a half percent on the day, 
up +46.9 points to 10,243.

The Nasdaq Composite Index (COMP) gained close to full percent 
and closed at 1,979, +18.4, but lost 8 points for the week.
The Russell 2000 Index of small-cap stocks (RUT), another 
important bellwether index .9% on the day, closing at 567.75.

THE REPORTS - 
The Labor Department released its latest jobs report and this 
report was the biggest economic/market influence of the day.

The 248,000 non-farm payroll jobs were created by the U.S. 
economy in May. Also reported was their revision in payroll 
growth in April and March by being higher by 74,000 jobs, which 
was a significant increase. Consensus estimates were for a U.S. 
payroll growth of about 220,000 - so, this was a good number.  

There has been a lot of politically related talk about why the 
recent growth in jobs has not translated into better poll numbers 
for the Administration - it just seems to take a number of months 
before these numbers translate into an experience of having 
people we know and hear about, finding work.  

Over the past three months, three quarters of the nearly 300 
industries surveyed added workers. The average workweek stayed at 
33.8 hours for the fifth month in a row in May. Total hours 
worked in the economy increased by 0.3 percent. Average hourly 
pay rose 5 cents or 0.3 percent. Wages are up 2.2% in the past 
year.

The unemployment rate remained at 5.6%. Jobless claims fell by 
6,000 to 339,000 for the week ended May 29 - expectations were 
for a fall (in jobless claims) to 337,000.  The 4-week average of 
initial claims rose by 4,250 to 341,000 after falling to a 3-year 
low two weeks ago.

Additional economic data released by the Labor Dept. showed non-
farm productivity in the U.S. revised higher to 3.8% from the 
previously reported 3.5% in the first quarter, slightly above a 
consensus forecast of around 3.7%.

The only fly in this ointment was that unit labor costs were 
revised to a 1.7% gain from an earlier estimate of zero percent.  
However, the productivity numbers are dazzling - you may have 
suffered in the tech stock implosion but the results of all that 
technology and computing power is impressive - over the past 4 
quarters, the output per hour of American businesses has 
increased 5.5%.  This number is the fastest productivity gain in 
31 years.

THE TALK -
Helping Bonds on Friday and providing a positive backdrop for 
equities were comments by Federal Reserve Governor Donald Kohn 
who indicated that we are not seeing out of control inflation in 
the U.S. despite higher energy prices. Mr. Kohn is known as a 
close adviser to Fed chairman Alan Greenspan. 

In his words to the National Economics Club in Washington: 
"Inflation pressures can be contained, allowing the Fed to raise 
interest rates at a 'measured' pace. The best indications are 
that some economic slack persists and that long-term inflation 
expectations are stable, which bolsters the inference that the 
economy has not entered a situation of steadily rising 
inflation." 

Kohn went on to say that the Fed would not allow its hard-won 
victory over inflation to be lost through complacency. "We must 
preserve those gains. Experience counsels caution."

If you wonder why the tech heavy Nasdaq is languishing you can 
check out the Semiconductor index (SOX) chart below.  News 
influencing this key sector came from Intel (INTC), a key Nasdaq 
and Dow component stock - the stock rallied slightly on the 
release of their mid-quarter update. 

Analysts who follow Intel and the Semiconductors were positive on 
the report, but remain somewhat subdued on the prospects for 
Intel and the sector. There were some analysts who raised the 
target on this key bellwether stock's earnings for Q2 - others 
also noted that increase in revenue projections was already 
priced into the stock.


 

The Semiconductor Index (SOX) is a key bellwether sector and 
Intel is key bellwether stock - I don't look for too much 
improvement in the Nasdaq Composite (COMP) and Nas 100 (NDX) 
while SOX is performing as shown on the chart above relative to 
its key moving averages, especially its downturn/reversal after 
the Index got back up to its 200-day moving average.  

For more on the bellwether concept, I refer you to a prior 
Trader's Corner article I wrote on this subject. See - 
http://www.OptionInvestor.com/traderscorner/tc_051304_1.asp  

OTHER MARKETS – 
Treasuries finished their session at the lows, with yields moving
higher during the course of Friday's trade, as the benchmark 10-
year T-bond yield rose to 4.77, +6.2 basis points. This is the 
10-year's highest closing yield close since late-May.

Crude futures closed down for the day as well as for the week, 
under pressure from OPEC's recent plan to raise output quotas and 
a after a reported rise in last week's U.S. petroleum stocks. 
July crude futures closed at $38.49 per barrel on the New York 
Merc Exchange(NYMEX). This close was off 79 cents on the day and 
put the lead Crude contract down 3.5% on the week versus 39.88 
the week before.  

You can believe that stock traders are keeping a close eye on the 
NYMEX front-month futures contract and especially that prices 
back off from $40 a barrel, a key  benchmark and psychological 
number.

MY INDEX OUTLOOKS – 
 
S&P 500 Index (SPX) – Hourly chart:

What the chart and price recent price patterns are showing here 
is that the Index has gone into a sideways consolidation or 
rectangle pattern after breaking out to the upside above the 
hourly down trendline late last month.  

Such a sideways consolidation most often gets "resolved" in the 
direction of the trend that preceded it - the trend was up, so 
the odds are more in favor of another up leg.  


 
   
However, the overarching thing is to watch for a decisive upside 
or downside penetration of the lines drawn across the various 
highs and lows in the sideways trend.    

S&P 100 Index (OEX) – Hourly chart:

The S&P 100 or OEX has been trading in what has become a well-
defined channel since mid-May.  Key near resistance implied by 
the top end of this channel comes in around 552 currently and key 
trendline support is down in the 540 area. 

Based on top and low end of the hourly channel, I favor put 
purchases at 550-551 (exit on an hourly/close above 552) and 
buying OEX calls in the 540 area (exit on a close below 539).


 

The most striking thing to me about any of the technical 
indicators is that, while prices have trended higher, the RSI 
(length = 21) has made two lower highs. This type of bearish 
price/RSI divergence is pretty common where an Index (or stock) 
is susceptible to a reversal or, in this case, a pullback.  Stay tuned on this!     

Dow Industrials (INDU) Daily:

The Dow 30 (INDU) is approaching key resistance at its down 
trendline which intersects around 10,360 currently.  I peg 
resistance at 10,360-10,400.  Given that INDU is approaching an 
overbought condition, it seems doubtful to me that the Dow is 
going to achieve an upside penetration of this resistance and 
manage, certainly on a closing basis, to get above 10,400.  

Support can be anticipated at the 200-day moving average, 
currently at 10,257 and rising slowly.  10,060 was where the Dow 
had some support, then this same area later defining resistance 
for a time - now, it may offer technical support again. 


  

[NOTE the prior instance where resistance (red down arrow) became 
support (green up arrow) or an area of buying interest, quite a 
bit later on at 9850.]   

Nasdaq Composite (COMP) Index  – Daily:

I made mention in my beginning commentary that the Nasdaq 
Composite (COMP) remains in a downtrend technically until there 
is higher (up) swing high, thereby breaking the pattern of lower 
rally peaks.  A close above 2000 is needed to achieve a bullish 
upside penetration of the downtrend channel as outlined below.  

Support is apparent in the 1875-1900 area.  While the COMP is now 
trading back above its 200-day moving average, a minor bullish 
positive, I place more weight on the aforementioned downtrend 
pattern to give the dominant view.  


 

Only a close over 2000 and the ability to hold this area on 
subsequent pullbacks would change the chart picture to a bullish 
one in my estimation.  Then we would have to see if the Index 
could rally above its prior highs in the 2050 and 2075 areas. 

Nasdaq 100 (NDX) Index  – Daily & Hourly:

I made a measurement or target for the recent rally based on the 
one side ("A") of the first outlined triangle on the hourly chart 
below, as being equal to itself or to the height of "B".  A nifty 
measuring trick that works sometimes quite well.  


 

Not that the index can't/won't go still higher after this kind of 
"measured move" objective is achieved, but the fact that it has  
been going sideways since achieving this objective, while the RSI 
is trending down, is of interest - and, suggests that the next 
move will most likely be a downswing for the Composite and the 
Nas 100 (NDX).   

My most recent Trader's Corner article covered in some more 
detail "Triangles" and price objectives implied by triangle 
breakouts - see
http://www.OptionInvestor.com/traderscorner/tc_060304_1.asp
 
Nasdaq 100 tracking Stock Daily chart (AMEX:QQQ:

I would rather be short the stock than long as it comes again up 
to its down trendline, which intersects in the 36.50 area 
currently.  Above the trendline, the next resistance has to be 
assumed to be at the prior highs in the 37.50 area.     


 

Support is apparent down in the 34 - 34.25 area.  I don't see 
anything ahead that will take QQQ either below 34 or above 37.50-
38 for this month.  

Good Trading Success!


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

Stand Aside  

No new play this week. I considered several dozen possible
trades and none appealed to me for the coming week. We have
risen to very strong resistance in the markets and this is
where we are either going to fail or post a strong breakout.

The direction is completely unknown. I could easily see
SPX 1125-1130 acting as down trend resistance along with
Dow 10325-10350 and squelching any summer rally but I can
also see a breakout in the making. 

The Jobs data could have energized the bulls but the volume
was still very light. If the volume is this light on Monday
then the resistance will hold. If the bulls show up ready
for a fight then a break of those levels could produce some
serious short covering. 

The problem is there is no clear direction. Picking a play
requires some hint of direction. Sometimes it is best to 
simply stand aside and watch. Using those levels above you
can play accordingly as the week progresses but for me to
pick a play in advance today would be like flipping a coin.
I would not trade my own money that way and definitely not
yours. 

We will wait patiently for the situation to be resolved
and then place a trade from a position of strength instead
of blindfolded. 


S&P Chart - Daily with downtrend resistance

 

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

DITC Put Update $19.77

We did not get the pullback on DITC I was expecting to $18 
but it did decline to $19. The stock was unable to add to 
its gains and still appears on the verge of a collapse. I
am still targeting $18 for an exit. 

http://members.OptionInvestor.com/editorplays/edply_053004_1.asp

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

TYC Call Update $31.09

Tyco continued to rally all week closed near the highs. 
The bad news is priced in and TYC continues to post new
52-week highs each week. There is no exit on this play
and the July-$30 call hit a high of $1.95 for the week 
and closed at $1.70. Still plenty of time and very close
to a double from our $1.00 profiled price. I would set
a stop at $1.40 and target something over $2.00 for a 
profit. I said I was closing the play last week but I
still thought it would move higher. This is the last
update on Tyco. 

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


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

PNRA Put Update $34.74

PNRA is still holding just under $35 and no movement for the
week. The $30 put is nearly worthless (45 cents when profiled)
and I would look to exit on any dip for a quarter. PNRA did
not drop as expected and I am writing this one off as a loss.

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


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


News Corp Update $36.35

NWS is still holding while we wait for the stock to move 
to the U.S. and be added to the S&P. This is a very long
term position and once we get some upward movement in the
stock we will sell some calls to reduce our cost.  

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

Lights Are Green
- J. Brown

The streetlight is green but the market might just be spinning 
its wheels.  Friday's rally was very widespread with only the OIX 
oil index and the XNG natural gas index closing lower.  Market 
internals were very bullish with advancing stocks beating 
decliners by 2-to-1 on both the NYSE and the NASDAQ. Up volume 
was more than 3 times down volume on both exchanges.  Despite all 
the bullishness we didn't get very far.  The Dow is still under 
10,300.  The NASDAQ has spent the last week and a half trying to 
breakout over the 2000 level.  Positive news from OPEC, crude oil 
under $39 a barrel, and a jobs report that was just right still 
wasn't enough to fuel the move through resistance.  

Don't get me wrong.  I'm not complaining but merely making an 
observation.  We needed to hear the OPEC news and whether or not 
their "extra" 2 million barrels a day will make a difference or 
not the price of crude has fallen.  July futures for crude oil 
are testing support at $38.00 and its simple 50-dma. Oil is 
already down 9% from its closing highs.  Don't look now but it 
could be due for a bounce.  However, should crude breakdown under 
the $38 per barrel level it should be a big lift for stocks.  

Investor sentiment should be pretty high.  The economy is on 
track.  Oil prices are slipping.  Jobs are rising.  Corporate 
profits are strong.  If these factors can sink in then we might 
have a decent summer in front of us.  Holding us back are rising 
terrorism concerns as we approach the June 30th handover in Iraq.  
Closer to home the market might be a little nervous about 
security surrounding the G8 summit in Georgia this week.  

Next week's economic reports are not quite the market movers this 
week's were.  The PPI and sentiment numbers at the end of the 
week are probably the most important but Wall Street will still 
be watching the wholesale inventories and import/export pricing 
numbers.  We'll also hear from two fed governors this week. 
Thomas Hoenig speaks on Wednesday and Jack Guynn talks on Friday 
but both are liable to maintain their new mantra of slow and 
easy.  


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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8871
Current     : 10242

Moving Averages:
(Simple)

 10-dma: 10145
 50-dma: 10257
200-dma: 10081



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  962
Current     : 1122

Moving Averages:
(Simple)

 10-dma: 1114
 50-dma: 1118
200-dma: 1087



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1180
Current     : 1445

Moving Averages:
(Simple)

 10-dma: 1448
 50-dma: 1444
200-dma: 1429



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

CBOE Market Volatility Index (VIX) = 16.78 -0.25
CBOE Mkt Volatility old VIX  (VXO) = 16.52 -0.77
Nasdaq Volatility Index (VXN)      = 23.84 -0.09


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

          Put/Call Ratio  Call Volume   Put Volume

Total          1.02        569,900       580,062
Equity Only    0.83        424,059       350,459
OEX            1.45         27,385        39,659
QQQ            3.05         45,241       137,780


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

Bullish Percent Data

           Current   Change   Status
NYSE          64.8    + 0     Bear Confirmed
NASDAQ-100    38.0    + 0     BULL ALERT
Dow Indust.   66.7    + 0     Bear Confirmed
S&P 500       61.6    + 0     Bear Confirmed
S&P 100       62.0    + 1     Bear Confirmed



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

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


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

 5-dma: 1.08
10-dma: 0.88
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    1873      1994
Decliners     911      1021

New Highs      60        62
New Lows       26        19

Up Volume   1018M     1048M
Down Vol.    315M      325M

Total Vol.  1344M     1389M
M = millions


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

Commitments Of Traders Report: 06/01/04

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

Action in the large S&P 500 futures contracts has been slow.  
Commercial traders remain net short but the bearish interest has
been declining for two weeks now.  Small traders' positions are
virtually unchanged.


Commercials   Long      Short      Net     % Of OI
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%)
06/01/04      406,665   421,681   (15,016)   (1.8%)

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
05/11/04      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%
06/01/04      137,100    79,583    57,517    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

Wow!  Commercial traders are completely undecided with a 
dead heat between longs and shorts.  Meanwhile small traders
have turned bullish.


Commercials   Long      Short      Net     % Of OI 
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%
06/01/04      325,865   325,274        591     0.0%

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
05/11/04      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%)
06/01/04      111,484     90,625    20,859    10.3%

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 hit new bullish extremes we've not
seen in many months.  Right on track small traders have hit
bearish extremes.  


Commercials   Long      Short      Net     % of OI 
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%
06/01/04       59,944     34,784    25,160   26.6%

Most bearish reading of the year: (21,858)  - 08/26/03
Most bullish reading of the year:  25,160   - 06/01/04

Small Traders  Long     Short      Net     % of OI
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%)
06/01/04        9,755    30,025   (20,270)  (51.0%)

Most bearish reading of the year: (20,270) - 06/01/04
Most bullish reading of the year:  19,088  - 01/21/02

DOW JONES INDUSTRIAL

Not much action going on here with the commercial traders.
They remain slightly bearish on the Dow.  Small traders are 
growing more bullish.


Commercials   Long      Short      Net     % of OI
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%)
06/01/04       23,397    24,393   (  996)     (2.0%)

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

Small Traders  Long      Short     Net     % of OI
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%
06/01/04        9,000     6,021    2,979     19.8%

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

Can I interest you in an IPO? (Retracement)

Have you ever answered the phone and an unfamiliar voice 
introduces him/herself to you and asks if you are an investor?

If you say yes.....

The enthusiastic voice then begins telling you about a "ground 
floor" or "unique" opportunity with their investment firm, for an 
Initial Public Offering of ABC stock.

As the summertime now swings into full gear, questions for the 
Ask the Analyst column become rather thin, but one investor asked 
a couple of questions regarding IPOs, and how to tell a "good 
one" from a "bad one."

I have first hand experience with IPOs, from both the sell side 
and investor side of this "unique/ground floor" investment 
opportunity.

After having started my investment career with an investment 
bank/broker dealer, my general impressions are this.

The first impression, and maybe you've heard somebody say this 
before is that "a good IPO is one the general public very rarely 
gets to participate in."  Unless you're a big wheel that is in 
the upper echelons of company's like Dell Computer, eBay, Martha 
Stewart Enterprises, etc.  Nothing wrong with this.  A good 
broker always looks after his/her biggest customers, or the ones 
that provide the roof over their head, and food on their table.

The second impression, is that IPOs are risky.  To participate in 
many IPOs, the participating investor must often times meet 
higher net worth limits, where most brokers really don't check to 
see if your liquid or asset net worth is what you say it is.  

The third impression is to stick with a larger investment 
bank/broker.  While many boutique firms (smaller) will underwrite 
solid initial public offerings, one possible advantage a larger 
investment bank/broker can bring you, the potential investor, is 
some added clout to support the deal (the initial public 
offering.  If you are contacted by a boutique firm, even a larger 
firm, check into past IPOs they've underwritten over the past 
couple of years.  Get a feel for their track record and 
investment banking expertise, or better yet, lack of expertise.

A good investment banker should have a pretty good track record 
for sniffing out good and bad company's they will have 
underwritten.  

A good starting place to familiarize yourself with the IPO 
process is www.iporesources.org, at this http://www.iporesources.org/

My fourth impression is that whether I was soliciting a buyer for 
the brokerage firm's underwriting of the IPO, or if I am being 
solicited by a broker for an IPO, a first question is "why is the 
company going public?"  Good gravy!  Who wants to have to explain 
every bit of detail of the ongoing business if they don't have 
to?  Who's selling and why?  Is the IPO a way for the owner to 
cash out before things go in the tank?  Or are the proceeds for 
from the IPO, the piece of the company they're selling, going to 
be utilized to fund expansion for a product/service they simply 
have too much demand for, but don't currently have the capital 
resources to fund?

The fifth impression is that if you do participate in an IPO, 
then know what to look for once the stock begins trading in the 
public market.  If it starts discounting.... then something might 
be wrong.  It might not necessarily be "stock specific," but the 
broker syndicate (the group of investment bankers that underwrote 
the deal) is falling apart.  This happens, and I speak of 
personal experience!  I had sold an IPO to some of my best 
clients, and one of the syndicate members went bankrupt about 
three weeks after the deal went public.  In the matter of hours, 
the stock fell 20% as the going bankrupt syndicate member dumped 
their portion of the shoe (overallotment taken by the investment 
bank in order to allow for market making activities).  If memory 
serves me correct, that was the last IPO deal I and my clients 
participated in.  Hey... if your firms lawyers can't pick their 
partners any better than that, then .....

Oh!  And my sixth impression regarding IPOs.... some of the best 
ones are the ones that came public within the past couple of 
months, where you and I as investors can make some observations 
as to how things are going!

Recent Initial Public Offerings

 

I missed profiling a good one this week in Gander Mountain (GMTN) 
$25, which came public back in late April.  Last weekend I had 
read some past comments from fellow analyst Linda Piazza 
regarding this IPO, saw what looked like a good entry point for 
Tuesday, and simply forgot about it over the 3-day weekend.

What I've done is dated each IPO for its first day of trade, the 
"indicated price" was the estimated price the deal was indicated 
for.  For instance, if I'm selling the deal to you, I call you 
and say... "John/Sue, are you interested in 100,000 shares of 
ANDS between $11 and $13?"  You might say.... "No, but I'll 
indicate for 50,000 at $12."  So... I write up a ticket that 
tells the syndicate manager that one of my clients has indicated 
an interest to buy 50,000 of the underwriting at $12.  This gives 
my syndicate manager an idea for demand, based on their assessed 
value of the offering.  Guess what?  You don't pay until the deal 
actually begins trading.  All you are doing as the buyer is 
giving me (the broker) a good faith indication that you'll pay up 
at $12, for 50,000 shares.  (Hint... if I start twisting your arm 
to take down 100,000 a day or two before the IPO, then you should 
sense there hasn't been a lot of interest from other investors)

Then I've listed "priced," which is the official pricing of the 
deal.  For instance, if you indicated for 50,000 shares of GMTN 
at $15, but the deal was PRICED at $16.00, then when it started 
trading at $20, you the buyer only had to write my brokerage firm 
a check for $800,000 ($16 x 50,000).  (Hint.... if you ever 
indicate for $15, but a deal is priced at $16, and the deal 
starts trading at $20, don't get mad at your broker, telling 
him/her that he/she quoted you a price of $15)  (Hint... Don't 
necessarily draw the conclusion that just because a deal is 
priced above or below the INDICATED price that the IPO will trade 
HIGHER or LOWER once trading begins, but combined with any 
changes shares offered, can be used to weed out trade candidates)  
GMTN, NILE and PUMP were priced ABOVE their indicated pricing 
level.  PROS was priced pretty close to its mid-range, while those
with RED "priced" were priced below their initial indicated price 
levels.

The number of shares can from day to day as the IPO date draws 
near.  Based on indicated level of interest, market conditions, 
what have you, both PRICED and SHARES can change, but gives the 
investor a general idea of how big the offering is, which they 
can perhaps begin to weigh against any fundamental data that was 
provided in the Red Herring or Prospectus.  

I've also listed the current High, Low and Friday's Close since 
the above IPOs began trading.

Sector consideration is important.  Is the sector hot, cold, or 
luke warm when the deal is expected to come to market?  Remember 
that roughly 70% of a stock's price movement can be attributed to 
the sector it is associated with.

Underwriter's is also something to consider.  Who is underwriting 
the deal?  If I call you for a deal and tell you I'm with Goldman 
Sachs or I call you with a deal and say I'm with Huey, Dewy and 
Suckfinger, then what's your impression?  Don't answer that! 
(grin).  (Hint.... While there's more to a good IPO than the 
underwriter, an IPO with not much market trade history needs all 
the help it can get, and it can't hurt to have a bigger 
investment bank in the deal to support it)

OK... so there you have some of my thoughts, and then some, on 
IPOs, which should more than answer the 1 question asked by a 
trader/investor this week.

So lets go over some things and techniques I like to try and use 
to sniff out a good trade in an IPO that has started to trade.

Why would somebody consider trading an IPO after it has started 
trading?  One reason is the supply/demand relationship that 
exists.  Did you know that you cannot short an IPO until 30-days 
after it has started trading?  That's one less seller to worry 
about in my book.

One thing I prefer is to let a new IPO trade for awhile.  A 
couple of weeks at a minimum is what I prefer as this allows for 
the stock to settle down a bit, start developing a range or 
trend, and allows for me to try and analyze the stock's 
technicals.  As much as you can do with a fewer number of 
observation.

I'm kicking myself tonight as I look at what Gander Mountain 
(NASDAQ:GMTN) $25.00 +3.05% did this week. 

Gander Mountain (GMTN) Chart - Daily Intervals

 

I've marked some general observations along with facts regarding 
GMTN's recent IPO.  Then I pose a few questions to myself to try 
and get in the mindset of not only the market makers, but also 
that of institutions that may have gotten some of the GMTN.  The 
way the stock was holding up should be some hint that investors 
like the stock, and may not be in it for just the "quick buck" 
and nice gain from the $16 pricing.

Those that may have been in the stock for the "quick buck" might 
have left by now, where volume levels have dried up.

When I looked at GMTN last week, the stock had closed at $22.50, 
which looked bullish after I did some work with retracement.  
What made me almost scream tonight (Friday 06/04/04) was that 
GMTN close right at $25.00, which was where I thought the stock 
might be able to trade this week.

Now.... I also received a couple of e-mail regarding "how can I 
read up on your fitted 38.2% retracement level technique?"  
Another question is where do my "yellow zones" come from when 
using two different retracement?"

To be truthful, using the 38.2% retracement technique is more of 
an art than a science, as is developing those "yellow zones."  
All we're trying to do is try and figure out, or identify, 
"zones" where the smartest money in the market would have been 
most profitable, or used those zones to make buy/sell decisions.  

Gander Mountain (GMTN) Chart - Daily Intervals

 

This is the first chart with some retracement work I start with.  
The RED retracement is simply anchored at the pricing of the IPO, 
and after a couple of weeks of trade, we will sometimes build an 
observation of a "key level" of resistance where the stock either 
refused to trade above, or CLOSE above.  I tend to like to use 
the highest closing value as if to say "why was that the level 
agreed upon my market participants.  The BLUE retracement is 
conventional use of retracement, whereby we simply anchor a high 
and a low.  

You can perhaps see where in an IPO, with very little trade 
history, the stock doesn't "make sense" at many of the levels, 
but perhaps the "yellow zone" defined a zone of support, but more 
interesting is the resultant BLUE 19.1% retracement of $25.03, 
which seems to mark a key level of past trade.  

See how last Friday's close may have gotten a trader's attention, 
with a target of $25.00 being derived?

So... that was my first attempt to analyze GRTN.

Here was a second attempt, and the one I liked best.

Gander Mountain (GMTN) - Daily Intervals

 

Hmmm.... that little sliver of yellow zone sure had the look the 
GMTN might be set for a move back to the $25.00 level at some 
point.  All be darned if it didn't do it this week.

But wait!  It isn't over yet.  Why is the stock doing so well?  
Are institutional bulls that weren't allotted enough in the IPO 
(just 5.7 million shares) coming back for seconds?  So far, 
nobody seems to eager to dump their shares for a nice gain.

I can almost hear it now.... "Recently IPO-d catalog retailer 
Gander Mountain is really doing well where after jumping from its 
IPO Price of $16.00, the stock is hitting new highs."

If so... then traders/investors may need this chart.

Gander Mountain (GMTN) Chart - Daily Intervals

 

Now I'm showing BOTH of the previously shown "fitted 38.2%" 
retracement on the same chart, where should GMTN make a break to 
new highs, we can identify some potential "zones of resistance" 
and trading targets.

I've marked the $26.25 all-time high with a thin BLUE line, as if 
it were the 0% retracement level shown previous charts to mark 
the high and keep trade of that "zone."

IPOs are considered to be more of a "speculative" investment, 
where an investor is really buying a company, where the purchaser 
of the IPO is risking his/her capital on what may be considered 
to be a security, where the value of that security is really 
unknown, as it has not yet been exposed to the MARKET, which will 
eventually establish the worth of that security.

As such, the rewards can be handsome, but those potential rewards 
for those who indicate and get the IPO, come with greater risk 
perhaps, than a security that has been trading for awhile, where 
the MARKET has been given the opportunity to begin establishing a 
price it deems appropriate.

If I get a chance this weekend, I might take a look at some of 
the other "old" IPOs that have recently come to market.  Gander 
Mountain is a company I'm at least familiar with, as I've ordered 
some products from their sporting catalogs.  

I've heard some talk that Cabella's, which is also a large 
catalog and online outdoor products retailer may be looking to 
come public and if nothing else, Gander Mountain may be a test 
case for how a Cabella's IPO might perform.

Hey.... if Banc of America, William Blair and Piper Jaffray can 
put together a successful offering of Gander Mountain, maybe this 
syndicate will be a front runner if Cabella's or Sportsman's 
Warehouse ever decide to go public!

Jeff Bailey


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

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

Symbol  Co               Date           Comment      EPS Est

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

BTH    Blyth Inc.            Mon, Jun 07  Before the Bell     0.38
UTIW   UTi Worldwide         Mon, Jun 07  Before the Bell     0.32


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

TTWO   Tk-Two Intract Sftwr  Tue, Jun 08  Before the Bell    -0.15
  

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

HRB    H&R Block, Inc.       Wed, Jun 09  After the Bell      3.16
MATK   Martek Biosci Corp    Wed, Jun 09  After the Bell      0.14
OVTI   Omnivision Tech       Wed, Jun 09  After the Bell      0.31
SIGY   Signet Group          Wed, Jun 09  -----N/A-----        N/A
SFD    Smithfield Foods      Wed, Jun 09  Before the Bell     0.51
TOM    Tommy Hilfiger        Wed, Jun 09  -----N/A-----       0.37


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

NSM    National Semicon      Thu, Jun 10  -----N/A-----       0.29
TKC    Trkcll Iltsm Hzmtlri  Thu, Jun 10  -----N/A-----       0.50


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

None


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

Symbol  Co Name              Ratio    Payable     Executable

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
FELE    Franklin Electric Co      2:1      Jun  15th   Jun  16th
NARA    Nara Bancorp, Inc         2:1      Jun  15th   Jun  16th
IRM     Iron Mountain Inc         3:2      Jun  15th   Jun  16th
HSY     Hershey Foods Corp        2:1      Jun  15th   Jun  16th
APPB    Applebees Internatl Inc   3:2      Jun  15th   Jun  16th
RIMM    Research In Motion Ltd    2:1      Jun  17th   Jun  18th
PG      Procter & Gamble          2:1      Jun  18th   Jun  21st
CACH    Cache Inc                 3:2      Jun  18th   Jun  21st
WGR     Western Gas Resources, Inc2:1      Jun  18th   Jun  21st


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

This week Wall Street will continue to focus on oil and economic
data but the big events are behind us with the OPEC meeting and
the jobs number.  Terrorism here at home will continue to be an
issue with the G8 Summit in Georgia this week.  Look for comments
from two federal reserve governors on the economy and a host of
economic reports Thursday and Friday.

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

----------------
Monday, 06/07/04
----------------
Consumer Credit (DM)       Apr  Forecast:   $5.5B  Previous:    $5.7B


-----------------
Tuesday, 06/08/04
-----------------
None


-------------------
Wednesday, 06/09/04
-------------------
Wholesale Inventories (DM) Apr  Forecast:    0.5%  Previous:     0.6%
Fed Governor Hoenig in roundtable with reporters.

------------------
Thursday, 06/10/04
------------------
Initial Claims (BB)      06/05  Forecast:    335K  Previous:     339K
Export Prices ex-ag. (BB)  May  Forecast:     N/A  Previous:     0.4%
Import Prices ex-oil (BB)  May  Forecast:     N/A  Previous:     0.3%
Treasury Budget (DM)       May  Forecast: -$67.5B  Previous:  -$88.9B


----------------
Friday, 06/11/04
----------------
Trade Balance (BB)         Apr  Forecast: -$44.9B  Previous:  -$46.0B
PPI (BB)                   May  Forecast:    0.6%  Previous:     0.7%
Core PPI (BB)              May  Forecast:    0.2%  Previous:     0.2%
Mich Sentiment-Prel. (DM)  Jun  Forecast:    91.5  Previous:     90.2
Fed Governor Guynn speaks on U.S. Outlook

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


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Contact Support
The Option Investor Newsletter                   Sunday 06-06-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Food, Financials and more
Dropped Calls: IMCL
Dropped Puts: None


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

Food, Financials 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.
___________________________________________________________________


Whole Foods Market Inc - WFMI - close: 84.55 change: -0.76

WHAT TO WATCH: WFMI has been exceptionally strong the past couple 
of weeks but the stock looks tired.  The breakdown under $85.00 
on Friday and the bearish tint to its MACD, RSI and stochastic 
indicators all suggest a round of profit taking in its immediate 
future.  We would watch WFMI for a pull back to the $81.00 level 
and buy a bounce should one occur.  

Chart=


---

Capital One Financial - COF - close: 69.86 change: +1.55

WHAT TO WATCH: Looking at the BKX struggle under resistance at 98 
and you'll see a similar pattern in COF and its challenge with 
the $70.00 mark.  The technical picture for COF is mixed and its 
P&F chart has produced a low pole reversal so traders need to be 
careful with their stop losses.  Consider buying a breakout over 
$70.00 or its 100-dma.  More aggressive traders might want to 
look at a bounce from $68.00.

Chart=


---

Legg Mason - LM - close: 89.24 change: +1.81

WHAT TO WATCH: The XBD broker-dealer index turned in a strong 
bullish rebound on Friday and LM followed suit.  LM's P&F chart 
has recently produced a new bullish buy signal with a $98 price 
target.  We would consider LM a bullish candidate and use a 
trigger over its 50-dma, just over the $90 mark, as a trigger to 
go long.  An early target for short-term traders would be the $95 
level but we can probably target the $100 region.

Chart=


---

MDC Holdings - MDC - close: 64.16 change: +1.40

WHAT TO WATCH: Chart pattern traders will note the bull flag 
breakout in MDC with Friday's 2.2% gain.  The rebound off its 
simple 40-dma was fueled by better than average volume.  Its P&F 
chart has produced a low pole reversal but won't hit a new buy 
signal until $67.  We would consider a trigger over $65.00 to go 
long and target a run toward the $70-72 region.

Chart=



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

HSY $89.24 -0.25 - We are still watching HSY and we're waiting 
for the breakout over $90.50.

PD $67.34 +2.00 - PD turned in a big bounce on Friday despite a 
drop in copper futures.  Shares remain under tough resistance at 
its 40-dma.

FLIR $52.25 +3.72 - We mentioned FLIR on the MarketMonitor this 
Friday.  The stock soared to a 7.6% gain on huge volume and broke 
out over resistance at $50.00 with no news.  

NKE $69.28 -0.92 - NKE has failed at its 40-dma resistance 
multiple times and is now breaking down under its $70.00 mark.  
Look for a drop back to support near $66.


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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
^^^^^

Imclone Systems - IMCL - close: 72.49 chg: -0.47 stop: 72.00     

We have very mixed feelings about IMCL at these levels.  The 
stock has been drifting lower towards our stop for the last three 
days.  Friday afternoon saw some sharp selling and IMCL has 
broken its recent trendline of rising support.  However, what is 
tempting us to hold on is the analyst meeting on Sunday and the 
huge biotech conference going on next week, which is bounce to 
produce some good news for the sector.  Do we hope for good news 
that might lift all stocks in the group?  Should we bet on 
positive comments from the analyst meeting on Sunday?  More 
aggressive traders might want to speculate but we're going to 
exit IMCL with a small loss.  Readers should monitor their own 
positions on Monday and see how IMCL reacts at the open.  
Murphy's law is alive and well and it wouldn't surprise us to see 
IMCL trading higher next week but right now the short-term 
outlook on IMCL shares is negative and we expect it to test 
support at $70.

Picked on May 26 at $ 74.05
Change since picked: - 1.55
Earnings Date      04/27/04 (confirmed)
Average Daily Volume:   2.9 million    
Chart =



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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Contact Support
The Option Investor Newsletter                   Sunday 06-06-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: AET, BCR, DGX, QCOM, ZMH, AIG, BA, ERTS, JNJ
New Calls: MERQ
Current Put Plays: GS
New Puts: KSS


! 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
******************

Aetna Inc - AET - close: 84.60 change: -0.28 stop: 81.50*new*

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:
The HMO healthcare index and the IUX insurance index hit new 
four-week highs this past week and we were encouraged to see AET 
do the same.  Our initial target price for AET was the $85.00 
mark and we've achieved that on Thursday and Friday.  Thursday's 
gap higher was on double the normal volume and a breakout above 
its 40-dma.  Unfortunately, AET is still struggling with 
resistance at $85.00 and its simple 50-dma.  Considering how the 
stock is right at resistance and at our initial target we are 
suggesting that short-term traders take profits if they have not 
done so already.  FYI: The July 80s calls we suggested are up 50% 
from when we picked AET as a long and the June 80s have almost 
doubled.

We would be very careful about opening new positions.  The 
positive news out this past week could fuel the rally into next 
week a number of stocks and sector indices look tired and 
overbought.  We could be overdue for a pull back.  Should that 
occur look for a bounce from the $82.50-83.00 levels on AET.  
Only then would we really consider new positions.  Meanwhile 
we're going to raise our stop loss to $81.50.  Don't forget that 
AET Will be presenting at the Goldman Sachs Global Healthcare 
Conference on June 10th.  

Suggested Options:
Remember, we're looking for a dip now to consider new positions 
now that AET has hit our initial target.  On a pull back our 
favorite would still be the July 80's.

! Alert - June options EXPIRE in TWO WEEKS!


BUY CALL JUL 80*AET-GP OI=11364 Last traded @ $6.20
BUY CALL JUL 85 AET-GQ OI= 3559 Last traded @ $2.85

Annotated Chart:

 

Picked on May 30 at $ 81.20 
Change since picked: + 3.40
Earnings Date      04/29/04 (confirmed)
Average Daily Volume:   1.5 million    
Chart =


---

Bard C R - BCR - close: 56.65 chg: -0.86 stop: 54.95 *new*

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:
Uh-oh!  It may be time to batten down the hatches.  Friday's 
action painted a bearish engulfing pattern on BCR's chart.  These 
patterns are normally bearish reversals but they do require 
confirmation.  Our initial plan to ride any pre-split run up in 
BCR worked out to some degree but the move hasn't been quite as 
big as expected.  There's been little post-split profit taking 
and Friday's decline may have been some traders taking some money 
off the table ahead of the weekend.  

We continue to be impressed with BCR's relative strength (granted 
it wasn't so strong on Friday) so we're not quite ready to 
abandon ship.  Traders can watch for a bounce from the $56 level 
of support.  If it breaks down under $56 then we might suggest 
exiting.  However, the $55 mark should also be support so we're 
going to raise our stop loss to $54.95.  Traders should 
definitely look for a bounce before considering new positions.

Suggested Options:
BCR may be getting tired so we're suggesting traders look for a 
bounce from support before considering new positions.  We like 
the July 55's.

! Alert - June options EXPIRE in TWO WEEKS!

BUY CALL JUL 52.50 BCR-GX OI= 226 Last traded @ $4.90
BUY CALL JUL 55.00 BCR-GK OI= 364 Last traded @ $3.00
BUY CALL JUL 57.50 BCR-GY OI= 131 Last traded @ $1.50

Annotated Chart:

 

Picked on May 20 at $ 55.00 (post split)
Change since picked: + 1.65
Earnings Date      04/20/04 (confirmed)
Average Daily Volume:   386 thousand   
Chart =


---

Quest Diagnostic - DGX - cls: 88.60 chg: +0.52 stop: 83.95*new*     

Company Description:
Quest Diagnostics Incorporated is the nation's leading provider 
of diagnostic testing, information and services, providing 
insights that enable healthcare professionals to make decisions 
that improve health. The company offers the broadest access to 
diagnostic testing services through its national network of 
laboratories and patient service centers, and provides 
interpretive consultation through its extensive medical and 
scientific staff. Quest Diagnostics is the leading provider of 
esoteric testing, including gene-based medical testing, and 
provides advanced information technology solutions to improve 
patient care. (source: company press release)

Why We Like It:
We certainly can't complain with the action in DGX.  Sure the 
moves this past week could have been bigger but the stock has 
been climbing for two weeks straight.  The relative strength in 
DGX is impressive and the recent breakout has produced an 
ascending triple-top buy pattern on its P&F chart.  Volume has 
been above average for most of this past week.  Now DGX is 
starting to look a little tired and is due for a dip.  

We want to be ready when that dip comes.  A pull back to previous 
resistance in the $86.50-87.50 range is a good bet.  We'd 
consider new entry points on a bounce from this range.  Our 
short-term target is $92.50 but longer-term trader can probably 
target the $100 level.  We are going to inch up our stop loss 
from $83.75 to $83.95.  

Suggested Options: 
We're suggesting the July 85s and 90s but if you're eyeing the 
$100 mark the August calls might work well.

! Alert - June options EXPIRE in TWO WEEKS!

BUY CALL JUL 85 DGX-GQ OI=  98 Last traded @ $5.20
BUY CALL JUL 90 DGX-GR OI= 206 Last traded @ $2.10
BUY CALL AUG 90 DGX-HR OI= 777 Last traded @ $3.30

Annotated chart:

 


Picked on June 01 at $ 87.70 
Change since picked:  + 0.90
Earnings Date       04/22/04 (confirmed)
Average Daily Volume:    603 thousand   
Chart =


---

QUALCOMM - QCOM - close: 67.28 chg: -0.36 stop: 64.95*new*

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:
Keep those fingers nimble.  It may be time to jump out of QCOM.  
The NASDAQ has struggled with resistance at the 2000 level for a 
week and Friday's intraday action in the composite almost suggest 
a pull back next week.  We see the same last hour sell-off in 
QCOM and it has us a little worried.  It could just be profit 
taking ahead of the weekend but technicals on QCOM like the MACD, 
stochastics and RSI are starting to hint at a bearish roll over.  
While the stock has not yet broken support at its 10-dma or the 
$65.00 level it wouldn't surprise us to see it test the $65.00-
65.50 range soon.  That's a couple of points away from its 
current level and such a drop will suck the premiums out of its 
calls.  What concerns us is this might be a new lower high on 
QCOM's daily chart.  Traders looking for new positions will 
probably do best to wait and look for a bounce.  We're going to 
raise our stop loss to $64.95.

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

! Alert - June options EXPIRE in TWO WEEKS!

BUY CALL JLY 65 AAO-GM OI=21910 Last traded @ $4.20
BUY CALL JLY 70 AAO-GN OI=17674 Last traded @ $1.45

Annotated Chart:

 

Picked on May 24 at $ 66.01 
Change since picked: + 1.27
Earnings Date      04/22/04 (confirmed)
Average Daily Volume:   9.6 million    
Chart =


---

Zimmer Holdings - ZMH - close: 87.01 chg: +0.63 stop: 83.00

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:
Our combined fundamental and technical bullish play in ZMH 
finally saw some action this week.  The stock spent a few days 
consolidating its breakout over the $85 level of resistance but 
now the stock is climbing higher again. We're bullish on the 
stock at these new highs, especially with its point-and-figure 
chart triple-top breakout, but buying a dip back to $85.50 
wouldn't be a bad idea either.  There really isn't much more to 
say.  ZMH is exhibiting great relative strength and we should see 
the stock hit $90.00 in a week or two.  No change in our stop at 
$83.00.

Suggested Options:
We are suggesting that traders consider the July calls.  Our 
favorites would be the July 85s on a dip.

! Alert - June options EXPIRE in TWO WEEKS!

BUY CALL JUL 85 ZMH-GQ OI= 173 Last traded @ $4.30
BUY CALL JUL 90 ZMH-GR OI= 524 Last traded @ $1.80

Annotated Chart:

 

Picked on May 27 at $ 85.20 
Change since picked: + 1.81
Earnings Date      04/26/04 (confirmed)
Average Daily Volume:   1.2 million    
Chart =


---

American Int'l Grp. - AIG - cls: 74.10 chng: +0.65 stp: 70.50

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:
With a lack of direction provided by the broad market, our AIG 
play spent most of last week rising in a halting manner, but 
posting a respectable gain nonetheless.  Volume on the rise was 
light, as the stock rose more on a lack of selling pressure, than 
an abundance of buying pressure.  Despite the fact it wasn't the 
strong move we would have liked, it was nice to see the stock 
setting out near $74 resistance on Friday and market permitting, 
we ought to see upside continuation on Monday.  We still don't 
like momentum entries until AIG can push through the $75.50 level 
and hold it, so the best opportunities for entry will likely be 
found on a mild pullback near the $72 level, as former resistance 
should now be support.  Maintain stops at $70.50, which is 
solidly below the 20-dma ($71.33).

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.  

! Alert - June options expire in 2 weeks!

BUY CALL JUN- 70 AIG-FN OI=10968 last traded @ $4.50
BUY CALL JUN- 75 AIG-FO OI=18859 last traded @ $0.75
BUY CALL JUL- 70 AIG-GN OI=  559 last traded @ $5.00
BUY CALL JUL- 75*AIG-GO OI= 5841 last traded @ $1.65

Annotated Chart of AIG:

 

Picked on May 25th at        $72.00
Change since picked:          +2.10
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     5.31 mln
Chart =


---

The Boeing Company - BA - close: 46.90 change: +0.80 stop: 44.00

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:
Wednesday's news-driven spike in shares of BA looked 
unsustainable and indeed it was, as the stock quickly cam back to 
the $46 level to test it as new support.  The bulls held their 
ground and the stock rebounded into the close.  Sellers ruled the 
day on Thursday before Friday's light volume rally that pressed 
the stock back near the $47 level.  Viewed in big picture terms, 
the breakout over $45 looks quite solid and BA is simply 
consolidating its recent move in preparation for another breakout 
and subsequent run at very strong resistance near $50.  While 
aggressive traders can consider breakout entries over the $47.25 
level, that isn't our preferred strategy.  Instead, we favor 
intraday pullbacks near the 10-dma (currently $45.62) for new 
entries, as BA has not tended to follow through with breakout 
moves without at least a bit of back and fill type action.  Note 
that we're leaving our stop in place at $44, solidly below the 
20-dma ($44.35) and just under the top of the recent gap.

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.  

! Alert - June options expire in 2 weeks!

BUY CALL JUN- 45 BA -FI OI=7676 last traded @ $2.25
BUY CALL JUN- 47 BA -FW OI=2104 last traded @ $0.60
BUY CALL JUL- 45*BA -GI OI= 841 last traded @ $2.85
BUY CALL JUL- 47 BA -GW OI=1011 last traded @ $1.35

Annotated Chart of BA:

 

Picked on May 27th at        $46.20
Change since picked:          +0.70
Earnings Date               4/28/04 (confirmed)
Average Daily Volume =     2.87 mln
Chart =


---

Electronic Arts - ERTS - close: 51.40 change: +0.04 stop: 48.00

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 astounding as it may seem, the stalemate between the bulls and 
the bears continues in shares of ERTS, as the 50-dma ($51.48) 
continues to act as a price magnet.  The stock made several 
forays above that average last week, testing the $52 resistance 
level over the past couple days, but so far buyers haven't been 
able to sustain a close over that mark.  As noted in prior 
updates, what we really need to see is a breakout over $53 in 
order to produce a PnF Buy signal.  Until then, ERTS is doing 
little more than drifting sideways, awaiting the next catalyst 
for directional movement.  Technically the play still looks 
favorable for entries on dips near the $50 level, which has the 
support of both the broken descending trendline, as well as the 
20-dma ($50.32).  Dips and rebounds from that level look good for 
new entries, with momentum players needing to wait for that PnF 
Buy signal before playing.  Maintain stops at $48, just under the 
rising brendline and the 200-dma ($48.07).

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.  

! Alert - June options expire in 2 weeks!

BUY CALL JUN- 50 EZQ-FJ OI=7269 last traded @ $2.35
BUY CALL JUN- 52 EZQ-FX OI=3790 last traded @ $0.85
BUY CALL JUL- 50*EZQ-GJ OI= 505 last traded @ $3.30
BUY CALL JUL- 55 EZQ-GK OI=1533 last traded @ $0.95

Annotated Chart of ERTS:

 

Picked on May 18th at        $49.60
Change since picked:          +1.80
Earnings Date               4/29/04 (confirmed)
Average Daily Volume =     3.89 mln
Chart =


---

Johnson & Johnson - JNJ - cls: 56.38 chng: -0.21 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:
After much preparation, JNJ finally made good on its much-
advertised breakout over the $56 level, moving within a hair of 
the $57 level before drifting back on Thursday afternoon and 
Friday.  Traders who set their expectations correctly have been 
rewarded by a slow and somewhat choppy ascent as the stock 
solidified support near $54 and then broke out late last week.  
Speaking of that breakout, did you notice that it came on strong 
volume, while Friday's profit taking was accompanied by very 
light volume?  Key support now rests at $55, which is currently 
sandwiched between the 20-dma and 30-dma, making that support 
that much stronger.  We'd like to see JNJ find support near $56 
on a mild pullback next week, but more realistically we're going 
to see a dip to the $55 level.  So long as support holds, that 
dip can be used for fresh entries in anticipation of a renewed 
rally towards next resistance at $58.  Conservative traders can 
exit on that move, although we'll maintain coverage right up to 
our $60 target if possible.

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

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

! Alert - June options expire in 2 weeks!

BUY CALL JUN-55 JNJ-FK OI=20184 last traded @ $1.60
BUY CALL JUL-55*JNJ-GK OI=45546 last traded @ $2.15

Annotated Chart of JNJ:

 

Picked on May 9th at         $55.30
Change since picked:          +1.08
Earnings Date               4/13/04 (confirmed)
Average Daily Volume =     7.26 mln
Chart =



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

Mercury Interactive - MERQ - cls: 47.56 change: +0.96 stop: 44.00

Company Description:
As a provider of integrated performance management solutions that 
enable businesses to test and monitor their Internet 
applications, MERQ is looking for growing e-commerce demand to 
continue to fuel its business.  The company's products perform 
such tasks as analyzing and eliminating Web site performance 
bottlenecks and automating quality assurance testing.  MERQ's 
client base spans a wide range of industries including Internet 
companies such as Amazon.com and America Online, infrastructure 
companies Ariba and Oracle, as well as Apple Computer, Cisco 
Systems and Ford Motor Company.

Why we like it:
Along with the rest of the Technology sector, shares of MERQ have 
been undergoing an extended bout of profit taking since reaching 
their zenith in mid-January near $54.  But after bottoming near 
the $41-42 area in the middle of March, the stock has really been 
trying to build a new base.  While that based looks a bit noisy 
on the candle chart, if we turn to the PnF chart, it certainly 
looks healthier.  With strong historical support near the $42 
level, MERQ fell to that point and then finally touched and 
rebounded from the bullish support line at $43 just over a month 
ago.  The key factor that was missing was a new PnF Buy signal, 
but we got that just over a week ago when the bulls managed a 
brief foray over $48.  While there hasn't been much in the way of 
follow-through, it has been encouraging to see how the stock is 
holding above the 200-dma ($46.96).  The daily chart shows a fair 
amount of historical support near $46, and we ought to expect a 
dip near that level to be met with buying interest now that the 
PnF chart has turned bullish.

There's no need to use a trigger on the play, with the overall 
landscape already bullish, so we can just focus on picking the 
right entry point.  A dip to $46 looks like the ideal entry, 
especially with the 20-dma ($45.75), 30-dma ($45.40) and 50-dma 
($45.43) all clustered just below there and likely to provide 
strong support.  The final line in the sand is the rising 
trendline at $44, which is where we're initially going to place 
our stop.  After entry, we'll look for an initial rise to the $50 
level, and then possibly towards $52.  Note that one of the keys 
to a successful play will be whether the Software index (GSO.X) 
can bust out of its funk and push through the 50-dma at $152.  
Traders considering entries into strength will want to wait for a 
push through $48.60, with the GSO managing a breakout over the 
50-dma.

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 $50 
Call, while the more conservative approach will be to use the 
July $47 Call.  Our preferred option is the July $47 strike, as 
it is currently at the money and should provide sufficient time 
for the play to move in our favor.  

! Alert - June options expire in 2 weeks!

BUY CALL JUN- 45 RQB-FI OI=1319 last traded @ $3.10
BUY CALL JUN- 47 RQB-FR OI=1964 last traded @ $1.20
BUY CALL JUL- 47*RQB-GR OI=2045 last traded @ $2.45
BUY CALL JUL- 50 RQB-GJ OI=1351 last traded @ $1.35

Annotated Chart of MERQ:

 

Picked on June 6th at        $47.56
Change since picked:          +0.00
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.44 mln
Chart =



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

Goldman Sachs Grp. - GS - close: 91.52 change: +0.97 stop: 94.50

Company Description:
The Goldman Sachs Group is a global investment banking and 
securities firm that provides a wide range of services worldwide 
to a substantial and diversified client base that includes 
corporations, financial institutions, governments and high net-
worth individuals. The company provides investment banking, which 
includes financial advisory and underwriting, and trading and 
principal investments, which includes fixed income, currency and 
commodities, equities and principal investments.  GS recently 
completed the acquisition of Spear, Leeds & Kellog, which is 
engaged in securities clearing, execution and market making, both 
floor-based and off-floor.

Why we like it:
Just to keep us on our toes, GS popped a bit higher on Friday 
after the economic news was released and then traded in a very 
tight intraday range, centered about the $91.50 level.  With our 
trigger point at $90 untouched, that left us on the sidelines for 
the day, which is precisely what we wanted.  Our trigger did the 
job of keeping us out of the play until the technical criteria 
(break below support) occurs.  Once GS breaks below $90, it 
should be a fairly quick trip down to next support near $85.  
Aggressive traders will want to enter on the initial breakdown, 
while the more conservative approach will be to look for a failed 
bounce near the $92 level for entry.  Our initial stop is set at 
$94.50, but on a serious breakdown, we'll look to tighten the 
stop as soon as possible.

Suggested Options:
Aggressive short-term traders will want to use the June 90 Put.  
Those with a more conservative approach will want to use the July 
90 put, as it will provide greater insulation against time decay.  
Our preferred option is the July 90 strike, as it is just out of 
the money and should provide ample time for the play to move in 
our favor.

! Alert - June options expire in 2 weeks!

BUY PUT JUN-90 GS -RR OI=6665 last traded @ $1.10
BUY PUT JUL-90*GS -SR OI=6662 last traded @ $2.45
BUY PUT JUL-85 GS -SQ OI=4145 last traded @ $1.10

Annotated Chart of GS:

 

Picked on June 3rd at         $90.55
Change since picked:           +0.97
Earnings Date                3/23/04 (confirmed)
Average Daily Volume =      3.75 mln
Chart =



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

Kohl's Corp - KSS - close: 47.45 change: -0.29 stop: 50.01

Company Descriptions:
Based in Menomonee Falls, Wis., Kohl's is a family-focused, value 
oriented specialty department store offering moderately priced 
national brand apparel, shoes, accessories and home products. The 
company operates 589 stores in 38 states.
(source: company press release)

Why We Like It:
We might need to label this put play as more than a little 
aggressive.  KSS has been steadily climbing higher for four out 
of the past five weeks and it can be dangerous to step in front 
of that kind of momentum.  The company recently announced May 
same-store sales that were better than expected with a 5% 
increase.  Plus, the last couple of months has produced a number 
of positive analysts comments outlining their belief that KSS is 
in the process of a positive turnaround and that the company will 
be seeing easier comparisons over last year's dismal performance.  
That's the good news.  The bad news that could affect shares are 
recent comments from the company that June same-store sales are 
likely to be flat to +2% while July same-store sales will 
probably be negative in the single digits.  

Chart readers will also note that KSS' rally is starting to 
falter with the stock trading sideways under resistance at $48 
for the last six sessions.  Plus, its technicals like its MACD 
indicator is starting to roll over and its RSI and stochastics 
are starting to edge lower from overbought levels.  In addition 
to the above shares of KSS are under a major trendline of 
resistance dating back to September (see chart).  We're going to 
speculate on a roll over at current levels and target a move back 
toward $41-42. More conservative traders may want to wait for KSS 
to traded under $47.00 again before considering positions.


Suggested Options:
It could take a few weeks to achieve our target so we're suggesting
the July puts.  Our favorites are the July 50s.

BUY PUT JUL 50 KSS-SJ OI= 3119 Last traded @ $3.50
BUY PUT JLU 45 KSS-SI OI= 6206 Last traded @ $0.85

Annotated Chart:

 

Picked on June 06 at $ 47.45 
Change since picked:  - 0.00
Earnings Date       05/13/04 (confirmed)
Average Daily Volume:    3.7 million    
Chart =



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The Option Investor Newsletter                   Sunday 06-06-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Deja Vu All Over Again
Option Spreads: You May Think You’re Covered, But Your Bottom Is 
    Still Exposed


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*****
LEAPS
*****

Deja Vu All Over Again
By Mark Phillips
mphillips@OptionInvestor.com

Hmmm...let's see what did we see last week?  Was it a breakout?  
Was it a breakdown?  No on both accounts.  Last week was another 
chapter in the play we should all now have memorized, "As The 
Rangebound Market Turns".  As I've said enough times to make you 
all sick of hearing it, we're stuck in a trading range and there's 
not likely to be a catalyst to get us out of here until at least 
the June 30th FOMC meeting and the official handover date in Iraq 
have passed.  Of course, that is just before the 4th of July 
weekend, so we're unlikely to see much a move before then.

By the second week in July, market participants will have 
something to sink their teeth into again -- anticipation of 
earnings, where we'll get another read on whether the economic 
recovery is continuing on track.  Additionally, we ought to have a 
better feel for what the inflation picture looks like and what the 
Fed appears likely to do with interest rates, at least for the 
remainder of the year.  Make no mistake, there will still be some 
very cloudy portions of the picture at that time, not the least of 
which will be 'who is likely to be sitting in the White House this 
time next year'.  But by the time July earnings roll around, there 
may be just enough clarity on the geopolitical front to give 
investors the confidence to take a position and stick with it.  
Hey, I can dream, can't I?

It really seems fruitless to continue hashing out the technicals 
of the current market until something breaks, so instead of 
writing 2000 words on the subject, I'm going to leave you with a 
couple simple pictures, which I think makes the point more clearly 
than I could with several pages of text.

Weekly Chart of the S&P 500

 

The strong rally from the October 2002 lows came to a halt just 
over 1160, amazingly close to the 50% retracement of the entire 
bear market decline.  Since tapping that important retracement 
level, the SPX has been in the process of consolidating the gains 
from last year, spending the past several months confined to 
roughly a 100-point range between the 38% and 50% retracement 
levels of the entire bear market decline.

Now certainly there are viable short-term trading opportunities in 
a 100-point range on the SPX, right?  What happens if we dial our 
analysis down a notch and just look at the action over the past 
few months?

Daily Chart of the S&P 500

 

That's a bit eerie, don't you think?  All that back and forth 
action and the SPX seems inexplicably pinned to the 50% 
retracement off the March highs, with the past week's action 
confined between the 38% and 62% retracement levels, a mere 20 
point range. 

Let's say you wanted to develop a directional bias -- would you be 
bullish or bearish, based on those two charts.  Well, let's add a 
bit of spice to the mix.  One of the key tenets of DOW Theory has 
to do with the importance of the 50% level, speaking of 
retracements within a primary trend.  If we look at that weekly 
chart, we can see that the inability of the bulls to push the SPX 
through the 50% point of the entire bear market decline is very 
important.  Until that obstacle is cleared, the overall bearish 
tone of 2000-2002 remains in force.  On the other hand, there 
seems to be a concerted effort to get the SPX over the 50% level 
of the decline off the March highs and that suggests another 
serious rally attempt is brewing, which ought to have the spring 
highs in play as a potential target.

Of course the other piece of the puzzle is where the SPX is 
relative to the rally off the October 2002 lows and while I 
haven't shown it, the market is in a very bullish state on that 
timeframe.  The SPX would have to drop below 1065 just to 
challenge the 25% retracement, with the real test being a drop to 
the 50% level all the way down at 965.  Melding these three 
timeframes together, we can come up with a pretty good impression 
of what the market is currently "thinking".

In terms of the very long-term, the market has been unable to 
recover more than 50% of its bear-market losses and that keeps the 
spectre of the bear hanging over investors' heads.  Stepping down 
one notch, we see the broad market trading very strong relative to 
the rally off the October-2002 or even the March-2003 lows and 
there we see the bullish bias very much intact.  But on the 
shorter timeframe of just the past several months, we can see a 
great deal of indecision at play, partially due to the summer 
doldrums, but the competing messages from the bearish view of the 
past several years and the bullish view of the past 15 months is 
keeping either the bulls or the bears from gaining any substantial 
traction.  This is visually demonstrated on the daily chart with 
retracements shown above.

There will certainly be directional plays that will be quite 
viable even if the rangebound action continues, but we need to 
understand that they will be the exception, not the rule.  And 
attempting long-term (i.e. LEAPS) plays on any of the major 
indices will be a fools errand until this stalemate is broken.  I 
will consider new positions from time to time, but only when there 
is something that really catches my attention.  In a bifurcated 
environment like we are currently presented with, our attitude 
should be one of "Show me", forcing our trade candidates to jump 
out and grab us by the collar, shouting out its merits.  Alas, 
there are very few stocks capable of doing that right now, so I'm 
content to stick with a small and truncated playlist through much 
of the summer.

Portfolio:

HD - Here we go again!  After a brief and encouraging foray down 
into the low $30s, HD is settling right back into its familiar 
$35-37 range near where we began coverage a few months back.  The 
50-dma and 200-dma and coming together and Friday's price action 
was pinned between those two averages.  The descending upper 
channel line is now just over $36, but weekly Stochastics are now 
clearly in bullish ascent.  There's just a lack of conviction in 
either direction, so the most prudent choice is to sit tight.  I 
would not advocate new positions at this point and I would 
certainly understand if traders opted to exit the play here near 
break even in order to put the capital to work elsewhere.  We 
still need a substantial breakdown to get this play moving and we 
may have to wait for the start of the rate hike cycle before that 
comes to pass.

CHK - There hasn't been much of substance to report on our CHK 
play for nearly a month now, as the stock continues to meander in 
the lower half of the rising channel from the February lows.  The 
bulls have failed to sustain any breakouts into new high 
territory, but at the same time the bears haven't been able to 
gain much traction to the downside.  This looks like a situation 
where the overbought condition on the weekly chart is being worked 
off through sideways consolidation.  With energy prices remaining 
quite high, once the weekly oscillators reach oversold, then we 
ought to be able to see a real move towards breakout territory.  
For now, extreme patience is required.

LUV - Despite the continued strength in energy prices, Airline 
stocks are looking more healthy and LUV is certainly leading the 
charge.  Recall that we were looking for this play to really take 
off once the summer travel season got underway and that appears to 
be what is taking place.  Now solidly over the $15.00-15.25 
resistance area, LUV should find support there on any pullback and 
dips near there can be used for new entries.  The next real upside 
obstacle is $16, which is soon to be reinforced by the 200-dma.  
After taking another look at the PnF chart this weekend, I'm going 
to back off on our upside target though, as I think $18 is going 
to be about as far as the bulls can go, right at the bearish 
resistance line.  Maintain stops at $13.50.

TYC - There's certainly nothing to dislike about our TYC play, as 
the stock really hasn't slowed down since satisfying our entry 
criteria a few weeks ago.  TYC is now overdue for a bit of profit 
taking and a drop back to the $29-30 area would be reasonable.  
That said, I wouldn't mind a continued rally right to that first 
major resistance at the 200-week moving average near $33 and then 
$35 horizontal resistance before the bulls lock in some gains.  
Secondary entries can still be considered on a pullback and 
rebound from the $29-30 area, but we would not suggest chasing the 
stock higher.  Buy the pullbacks or let this play go.

AIG - It certainly wasn't pretty, but the initial rise off of 
support is looking decent here, with AIG having now risen back 
above the $74 level.  There's still plenty more resistance to deal 
with near $75.50-76.00 before taking a run at the early April 
highs, but things look ok here.  We're starting to see an upturn 
in the weekly oscillators now and that bodes well for a stronger 
upward move.  But first we're likely to see a pullback to confirm 
higher support in the $71-72 area.  A dip and rebound there looks 
viable for new entries.  At least until the $76 resistance level 
is crested, we'll maintain our stop at $68.

Watch List:

GM - As I suspected, this rebound is looking like it might stick 
and on Friday, GM closed just over its 50-dma.  Notice the way 
volume has been expanding the past few days and we now have the 
weekly Stochastics threatening to turn up from just above oversold 
territory.  If they do indeed turn bullish here, we'll even have 
bullish divergence working against us.  Clearly, this was a good 
time to put GM on hold, where we'll leave it until we see how much 
upside strength there actually is to this move.

Radar Screen:

EK - Just like our current play on HD, EK failed in its breakout 
attempt and dropped back near strong support at $25 last week.  
The trading range continues to narrow and with the stock having 
been confined to less than a $3 range since early March, there's 
just no incentive for jumping into a position.  Fundamentally, I 
love the downside on this one, just as I do with HD.  But neither 
stock is moving enough right now to make for a viable and 
profitable play.  Remaining on the sidelines on EK is still the 
best course of action until we can get enough of a move outside 
the current range to give us a more attractive entry point.

$DJUSHB - For those of you following along with our weekly 
discussion on the Housing sector, I hope the thought process I'm 
going through is helpful in trying to pinpoint a couple of viable 
downside candidates.  I'd say we have a couple more installments 
in that series of articles and then we'll have those candidates 
which we can then monitor here until that attractive entry 
presents itself.  Remember, nothing gets put into motion until the 
first rate hike occurs, so that means we have until at least the 
end of the month to get all our ducks in a row.  Pretty convenient 
timing, don't you think?

NEM - With NEM still on a PnF Sell signal, there's clearly no 
incentive to dive into a bullish position yet.  We do have Buy 
signals on the two mining indices (XAU and HUI), so that's an 
encouraging sign, but I think we're still really premature in our 
search for another viable entry into NEM.  My best guess is that 
we'll see enough of a pullback in the stock to creat a column of 
O's, and then we'll have a Buy signal when price moves over the 
$41 level.  In short, the potential is there, but now we need to 
wait for everything to line up in our favor.  I wouldn't be 
surprised to see the stock tread water near current levels for 
much of the month of June, as we wait for the FOMC decision.

NOK - The past 3 months have been absolutely brutal to shares of 
NOK, with price falling back to levels not seen since early 2003.  
An argument could be made for doing some bottom-fishing here, with 
weekly Stochastics bottomed deep in oversold territory.  The 
problem we have to confront is the VERY bearish PnF chart, which 
is on a huge Sell signal, with a downside target of only $2.00.  
That's just a bit too risky for my blood.  However, there is 
potential here -- we just need to wait for some consolidation to 
take place and then for the PnF chart to issue a new Buy signal.  
Look for a rally back to $15, then a drop back to test support 
near $13 and we'll have the setup for a new PnF Buy signal.  
Nothing is likely to set up for several weeks yet, but now we know 
what to watch for.

Closing Thoughts:
As I've been harping on recently, it is really hard to get overly 
excited about any long-term directional plays when the broad 
market is so clearly stuck in a trading range.  Without the 
catalyst of either a bullish or bearish market to drive our plays, 
the vast majority of candidates we might come up with just don't 
have the necessary fuel to break orbit.  This muddled action could 
end on Monday (very unlikely) or continue through the bulk of the 
summer (much more likely).  In either case, until we see signs of 
a more lively trading pattern emerging in the broad market, I will 
continue to be stingy about adding new candidates onto the Watch 
List and Portfolio.  This is clearly a time where capital 
preservation is more important than aggressive attempts at capital 
growth.

Due to an important family matter, I'll be out of town next 
weekend, so there will be no LEAPS column.  But fear not, I doubt 
we'll have much of consequence transpire this month, so we should 
be able to pick up right where we left off on Father's Day 
weekend.

Best Trading Wishes!

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

None


New Watchlist Plays

None


Drops

None


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

You May Think You’re Covered, But Your Bottom Is Still Exposed
By Mike Parnos, Investing With Attitude

When you embark upon your first adventure into options trading, 
there are those who will tell you that “covered call writing” is 
the safest option strategy.  Even brokerage firms will allow 
novice option traders to trade covered calls in their IRA 
accounts.   Little do they know . . . DAMN little!

Not all who read this column are ready for the more advanced 
strategies that I usually discuss here.   If you do trade covered 
calls, you should probably have your head examined.  This deserves 
some attention.  So let’s give it a try.  The most basic theories 
of therapy involve going back to one’s childhood -- where 
impressions and life-long habits are formed.  So, let’s begin at 
the beginning.

Once upon a time there was an investor.  All of his life he was 
taught that if you bought a stock and held onto it forever, the 
stock would go up, he’d make a lot of money and live happily ever 
after.  It was the American dream.  As we’ve come to learn, those 
dreams and Mother Goose have a lot in common.  They’re fairytales.  
These same investors are now collecting can deposits to supplement 
their Social Security.

The harsh realities of the market have resulted in a rude 
awakening from dreamland.  The Internet bubble, the recent bear 
market, and an abundance of corporate improprieties, have 
systematically demolished hordes of retirement accounts.  They 
“buy-and-holders” are still “holding.”  Old habits die hard.  
Only, what they’re holding isn’t hard anymore.

Covered Call: The Stock
For our example, we’ll say you currently own 1,000 shares of 
Juniper (JNPR) trading at $21.30.  How you came to own this stock 
is anybody’s guess.  Maybe you bought and held, maybe you 
inherited it, maybe you won the lottery.  It’s not really 
important.  The question is – how can you best use this asset to 
make money?  You have a neutral to bullish outlook on JNPR.  You 
project that it will trade flat or possibly up a little in the 
next few months.  If your projection is just wishful thinking and 
you have nothing on which to base your opinion, you have no 
business owning a stock, trying to trade options, or being allowed 
to cross the street by yourself.  

Covered Call: The Option
Well, if you’ve read my previous columns, you know that there is a 
bottomless pit of speculators out there.  “Speculators” is the 
nice word.  “Gamblers” is more accurate.  We all know that fools 
rush in where angels fear to tread.  That’s why there will always 
be, someone out there who is willing to buy an option – betting 
that JNPR will rise substantially in the next month.  He wants to 
buy the right to buy JNPR from you at $22.50 anytime between now 
and June expiration (about 4 weeks).  For that right he’s willing 
to pay you $1.50 per share.  That translates into $1,500 worth of 
dead presidents into your pocket.

The speculator is buying the JNPR June $22.50 call option.  He’s 
buying the “right,” but not the “obligation,” to buy the stock 
from you at $22.50.  He’s expecting that JNPR is going to 
appreciate well beyond $22.50.   If he’s buying the stock at 
$22.50 and the option costs him $1.50, his breakeven is $24.00.

The nice part about all this is that the $1,500 he’s paying you is 
yours to keep – regardless what happens to the stock.  It shows up 
in your brokerage account the very next business day.  What you 
have to be willing to accept is the fact that, if JNPR does happen 
to move up, you’ve agreed to sell it at $22.50.  You will not 
participate in any gains above and beyond $22.50.

More Profit Than You Think
Once you’ve accepted the fact that you and your 1,000 shares may 
soon experience a separation, you can focus on the potential 
profit in the trade.  If JNPR finishes above $22.50.  There are 
two ways you will profit.
1)  You took $1,500 when you sold the call.  That’s a good start.
2)  If your stock is called away at $22.50, you will have made 
another $1,200 in profit from the appreciation of the stock price.  
Remember, this all started with JNPR trading at $21.30.   When the 
stock is sold, you get the $1,200 difference.

You took, in $1,500 from the sale of the option plus another 
$1,200 profit from the sale of the stock – a total of $2,700.   
That’s a better than 13% return for about a month.  If you used 
margin to purchase the stock, it would be about a 26% return.

If JNPR finishes below $22.50, you will still own the stock and 
may be able to sell another call for July.

The Good, The Bad & The Ugly
You now know the good.  Get ready to learn about the bad and the 
ugly.  The main risk in covered call writing is the fact that you 
do own the stock.  And, contrary to popular optimistic thinking of 
the masses, the shares of JNPR could go down just as easily as it 
can go up.  The $1.50 taken in from the option purchase provides a 
little cushion – a damn little cushion. 

The same principles apply to covered call selling as to all other 
trading and/or investment strategies.  The main principle, and the 
toughest one to live with, is that you must have an established 
exit point – and the self-discipline to act on it when necessary.  
Of course, that means having to admit that you’re wrong when JNPR 
turns south instead of going up.

How do you figure out your exit point?  There are a few ways.  
1)  Use a specific dollar stop.  Your account management 
techniques tell you that you have a maximum limit of a $2,000 loss 
per position.  That would dictate that you have to close out your 
entire position by selling your stock and buy back your short JNPR 
$22.50 option when it costs you a total of $18.90 ($18,900).

2) Check for support levels.  There may be a support level at 
$20.50.  Maybe there’s a 50-day moving average at $19.55.  You can 
establish an exit point if one, or both, of these support levels 
are violated.  

Another Way To Play Covered Calls
This strategy alternative is for more aggressive traders.   What 
the hell, as long as you own the shares of stock anyway let’s have 
some fun.  One thing that we know is likely is that JNPR will move 
up and down 2-3 points a few times during the next month.  When 
JNPR moves down, the value of the $22.50 call decreases.  

After two weeks, JNPR falls to $19.60.  The value of the June 
$22.50 call may be $.40.  You can buy it back and play the bounce 
back up from the $50 day moving average at $19.55.   Then, you 
wait until JNPR moves back up to about $22.25 and sell the $22.50 
again, this time for $1.00.  That’s an extra $.60 ($600) taken in 
during the option cycle.  This may happen two or three times 
during the four weeks if the market gets volatile.  That could 
increase the premium taken in by a total of $1.20.  Again, there’s 
no guarantee that any of this will happen.  Some traders, who 
can’t keep their hands in their pockets, like to trade “within 
their trade” to try and generate more premium.

The Bottom Line
Can you guess what I’m going to say?  If you buy a stock, you’re 
exposed for the entire value of the stock, all the way down to 
zero.  If you combine stock ownership with selling a call against 
the stock, you may be able to generate some monthly cashflow.  The 
likelihood is that, if you guess right about the direction, the 
stock will be called away.  If you guess wrong, the stock will go 
down and you will take a few hits of that “hopium” drug and sit 
there “hoping” the stock comes back up.  It won’t and you’ll end 
up still owning the stock at $15.

Selling Calls On Tanking Stocks
Why can’t you sell a call when the stock is at $15?  Well, you 
can, but there won’t be any premium in the $20 or $22.50 July 
calls.  If you sell a $15 or $17.50 call, you’ll be locking 
yourself into a loss on the stock– which is a no-no. 
 
A Marriage Made In . . . ?
Fact: Many brokerage firms only allow covered-call selling in 
IRAs.  Fact: There are still countless “buy and holders” who are 
still holding stocks in their IRA.  It’s fate.  It’s inevitable 
that the twain will meet.  Their money and/or the stocks will 
eventually disappear and these novice traders will have more bad 
things to say about options.   They will continue to live in 
denial.  It wasn’t their fault. They’ll blame the options -- when 
they simply don’t know how to use them.  When all is said and 
done, the only rational way to own a stock is to buy a protective 
put as insurance to protect against catastrophic events.  Check 
out my previous columns in which I discuss the “collar” in great 
detail.
____________________________________________________________

NEW JUNE POSITIONS
June Position #1 – SPX Iron Condor – 1122.50
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 - $147.50
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 – 567.75
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 - $145.50
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 -- $36.19
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 – 547.08
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.
Our current position:  We own 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.
A June OEX bull put 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.

OSX Calendar Spread Plus - $97.18
Originally 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 06-06-2004
Sunday                                                      5 of 5

In Section Five:

Covered Calls: Conservative Stock Ownership
Spreads and Straddles: Stocks Rally On Favorable Jobs Report!
Premium-Selling Plays: Naked Puts and Calls


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

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
CONSERVATIVE STOCK OWNERSHIP: COVERED-CALLS
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

Many investors find that writing "in-the-money" covered-calls
fits their criteria for a conservative, easy-to-manage options
strategy.
__________________________________________________________________

SUPPLEMENTAL COVERED-CALL CANDIDATES

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

Sequenced by Target Yield (monthly basis)

Stock   Last   Option    Option  Last  Open  Cost  Days Target
Symbol Price   Series    Symbol  Bid   Int.  Basis Exp. Yield

NKTR   20.61  JUL 17.50  QNX-GW  4.00  22    16.61  40   4.1%
PTIE    8.60  JUL  7.50   UQ-GU  1.45  401    7.15  40   3.7%
CAMD   14.14  JUL 12.50  CGQ-GV  2.20  173   11.94  40   3.6%
JAKK   17.83  JUL 17.50  UFF-GW  1.10  0     16.73  40   3.5%
TIBX    8.13  JUL  7.50  PAV-GU  0.95  1923   7.18  40   3.4%
SINA   38.79  JUL 35.00  NOQ-GG  5.20  359   33.59  40   3.2%
IMMU    6.00  JUL  5.00  QUI-GA  1.20  531    4.80  40   3.2%
DITC   19.77  JUL 17.50  QZD-GW  2.95  386   16.82  40   3.1%
WEBX   24.55  JUL 22.50  UWB-GX  2.90  27    21.65  40   3.0%
SYNA   19.23  JUL 17.50  QYG-GW  2.35  59    16.88  40   2.8%
OPSW    8.14  JUL  7.50  UWA-GU  0.90  1762   7.24  40   2.7%
VXGNE  16.01  JUL 12.50  UWG-GV  3.90  20    12.11  40   2.4%

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

SEE DISCLAIMER IN SECTION ONE

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


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

Stocks Rally On Favorable Jobs Report!
By Ray Cummins

U.S. equities moved higher Friday amid positive employment data
and lower crude oil prices.

Investors were optimistic after a Labor Department report showed
employers added 248,000 jobs in May, and crude oil futures stayed
below $40 for the third consecutive day, due to OPEC's agreement
to raise output quotas.  The Dow Jones industrial average added
46 points to end at 10,242, with a majority of blue-chip issues
enjoying gains during the session.  The NASDAQ Composite Index
climbed 18 points to finish at 1,978, with Intel's (NASDAQ:INTC)
positive profit outlook lifting the technology segment.  The S&P
500 Index rose 5 points to 1,122 amid renewed buying pressure in
the major industry groups.  Trading volume was relatively low,
with 1.12 billion shares changed hands on the Big Board, while
only 1.41 billion shares were crossed on the NASDAQ.  Advancers
outpaced decliners on both the NYSE and the technology exchange
by a ratio of 2 to 1.  Bond prices retreated with the benchmark
10-year note falling 11/32, while its yield climbed to 4.75%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 06/04/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   CB     G/L   Status

ERTS    51.88  51.51   JUN   45  47   0.35   47.15   0.35   Open
IMDC    61.17  58.52   JUN   50  55   0.50   54.50   0.50   Open
GPRO    38.30  44.85   JUN   30  35   0.70   34.30   0.70   Open
MATK    68.01  63.32   JUN   55  60   0.65   59.35   0.65   Open
ASD     35.96  37.74   JUN   32  33   0.16   33.17   0.16   Open
IMCL    71.36  72.49   JUN   50  55   0.50   54.50   0.50   Open
CSC     42.17  42.45   JUN   35  40   0.65   39.35   0.65   Open
GILD    62.54  64.54   JUN   55  60   1.00   59.00   1.00   Open
RIMM    99.98 116.15   JUN   80  85   0.45   84.55   0.45   Open
QCOM    65.40  67.28   JUN   55  60   0.45   59.55   0.45   Open
ZBRA    80.08  78.02   JUN   70  75   0.65   74.35   0.65   Open
BRCM    42.54  41.64   JUN   37  40   0.30   39.70   0.30   Open
EBAY    85.33  88.08   JUN   75  80   0.50   79.50   0.50   Open
AMZN    48.50  50.95   JUN   42  45   0.30   44.70   0.30   Open
EYET    44.32  43.74   JUN   35  40   0.50   39.50   0.50   Open
RIMM   119.93 116.15   JUN   95 100   0.40   99.60   0.40   Open

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

Martek Biosciences (NASDAQ:MATK) and Inamed (NASDAQ:IMDC) are on
the "watch" list.


CALL-CREDIT SPREADS

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

CTX     44.80  47.48   JUN   55  50   0.50   50.50   0.50   Open
IVGN    67.61  66.96   JUN   80  75   0.55   75.55   0.55   Open
NTLI    55.28  61.85   JUN   65  60   0.80   60.80  (1.05) Closed
VIP     91.45  92.08   JUN  110 105   0.50  105.50   0.50   Open
CERN    41.33  42.12   JUN   50  45   0.55   45.55   0.55   Open
SEPR    45.06  45.18   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  63.95   JUN   70  65   0.55   65.55   0.55   Open
MDT     47.66  49.49   JUN   55  50   0.60   50.60   0.60   Open
AZO     83.38  87.53   JUN   95  90   0.40   90.40   0.20   Open
RYL     79.60  78.72   JUN   90  85   0.60   85.60   0.60   Open
VIP     92.25  92.08   JUN  105 100   0.60  100.60   0.60   Open

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

The position in NTL Inc. (NASDAQ:NTLI) has been closed to limit
potential losses.  Forest Laboratories (NYSE:FRX) and Medtronic
(NYSE:MDT) remain on the "watch" list.  The Autozone (NYSE:AZO)
spread finally offered a viable credit during Thursday's rally.


DEBIT STRADDLES

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

GRMN    32.60  33.78   JUL    35    30     2.15    2.35    Open
KKD     19.63  21.34   JUN    20    20     3.00    2.80    Open?

There was no additional volatility after Krispy Kreme (NYSE:KKD)
announced quarterly earnings, thus conservative traders should
begin to consider 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  $50.95  *** Second Chance Entry! ***

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  $50.95

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-42.50  ZQN-SV  OI=10904  ASK=$0.50
SELL PUT  JUL-45.00  ZQN-SI  OI=8231   BID=$0.80
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$44.70


__________________________________________________________________

YHOO - Yahoo!  $31.87  *** 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!  $31.87

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-25.00  YHQ-SE  OI=18961  ASK=$0.35
SELL PUT  JUL-27.50  YHQ-SY  OI=25290  BID=$0.65
INITIAL NET-CREDIT TARGET=$0.30-$0.40
POTENTIAL PROFIT(max)=14% B/E=$27.20



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

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.

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

APPX - American Pharma Partners  $34.03  *** Downtrend Intact? ***

American Pharmaceutical Partners (NASDAQ:APPX) is a specialty
drug company that develops, manufactures and markets injectable
pharmaceutical products, focusing on the oncology, anti-infective
and critical care markets.  The company is one of the largest
producers of injectables, with more than 130 generic products in
more than 350 dosages and formulations.

APPX - American Pharma Partners  $34.03

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-45.00  AQO-GI  OI=6748  ASK=$0.30
SELL CALL  JUL-40.00  AQO-GH  OI=3970  BID=$0.75
INITIAL NET-CREDIT TARGET=$0.50-$0.55
POTENTIAL PROFIT(max)=11% B/E=$40.50


__________________________________________________________________

OIH - Oil Service Holdrs Trust  $65.40  *** Sector Slump? ***

The Oil Service Holdrs Trust (AMEX:OIH) is a unique instrument
that represents an investor’s ownership in the stock of specified
companies in the oil service sector.  HOLDRS allow investors to
own a diversified group of stocks in a single investment that is
highly transparent, liquid and efficient.  Each HOLDR is a fixed
basket of 20 stocks (except the Telebras HOLDR, which holds 12
companies).  They work operate much like ADRs; American Depositary
Receipts, which allow U.S. investors to purchase foreign-owned
companies on the U.S. exchanges in dollar denominated amounts.  In
just the same way, the investor actually owns the shares of each
underlying company, receives dividends, proxies, and annual reports
from each.  The HOLDRs are not managed, and once the companies and
amounts have been determined they are fixed, no companies will be
substituted.  In this way, the HOLDRs differ somewhat from Spiders
(SPDRs), or Standard & Poor Depositary Receipts and other exchange
traded funds, which will add and delete stocks on a regular basis,
usually in conjunction with an index that they are tracking.

A complete explanation of this issue, including the companies that
make up each HOLDRS' particular industry, sector or group can be
found here:

http://www.holdrs.com/holdrs/main/index.asp?Action=Definition


OIH - Oil Service Holdrs Trust  $65.40

PLAY (less conservative - bearish/credit spread):

BUY  CALL  JUL-75.00  OIH-GO  OI=3046  ASK=$0.25
SELL CALL  JUL-70.00  OIH-GN  OI=3265  BID=$0.90
INITIAL NET-CREDIT TARGET=$0.65-$0.70
POTENTIAL PROFIT(max)=15% B/E=$70.65



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

SNDK - Sandisk  $22.90  *** Break-Out Coming? ***

SanDisk Corporation (NASDAQ:SNDK) designs, manufactures and sells
flash memory storage products that are used in a wide variety of
electronic systems and devices.  The firm's memory products are
compatible with a number of rapidly growing consumer electronics
applications such as digital cameras, personal digital assistants
(PDAs), portable digital music players, digital video recorders
and mobile telephones, as well as in industrial and communications
applications, including communications routers and switches and
wireless communications base stations.

SNDK - Sandisk  $22.90

PLAY (speculative - neutral/debit straddle):

BUY CALL  JUL-22.50  SWQ-GX  OI=2885  ASK=$2.00
BUY PUT   JUL-22.50  SWQ-SX  OI=7402  ASK=$1.60
INITIAL NET-DEBIT TARGET=3.40-$3.50
INITIAL TARGET PROFIT=$1.55-$1.90


__________________________________________________________________

RIO - VALE RIO DO  $49.38  *** Active Sector! ***

VALE RIO DO (NYSE:RIO) is an American Depository Receipt (ADR)
for Companhia Vale do Rio Doce (CVRD), which produces and sells
iron ore, pellets, manganese, iron alloys, gold, kaolin, bauxite,
alumina, aluminium, and potash.  The company also owns stakes in
several steel companies.  CVRD is based in Brazil, where it owns
and operates railroads and maritime terminals.

RIO - VALE RIO DO  $49.38

PLAY (very speculative - neutral/debit straddle):

BUY CALL  JUN-50.00  RIO-FJ  OI=493   ASK=$1.10
BUY PUT   JUN-50.00  RIO-SJ  OI=1154  ASK=$1.75
INITIAL NET-DEBIT TARGET=2.65-$2.75
INITIAL TARGET PROFIT=$0.85-$1.15



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

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 06/04/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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   10.60    0.35   7.73%   3.63%
LPNT     JUN    35    34.30   37.70    0.70   4.03%   2.04%
ASCA     JUN    30    29.35   31.91    0.65   5.02%   2.21%
DRIV     JUN    25    24.25   31.50    0.75   7.04%   3.09%
FARO     JUN    20    19.45   26.27    0.55   7.32%   2.83%
GIVN     JUN    30    29.25   31.80    0.75   7.01%   2.56%
MVSN     JUN    20    19.65   23.65    0.35   4.54%   1.78%
PDII     JUN    22    22.00   29.54    0.50   6.67%   2.27%
SMTC     JUN    20    19.50   24.33    0.50   6.25%   2.56%
CELG     JUN    45    44.40   58.79    0.60   4.75%   1.35%
ELN      JUN    17    17.05   23.80    0.45   8.73%   2.64%
FARO     JUN    20    19.45   26.27    0.55   8.04%   2.83%
FRO      JUN    25    24.50   38.45    0.50   6.48%   2.04%
IMMU     JUN     5     4.75    6.00    0.25  13.52%   5.26%
LNCR     JUN    32    32.05   33.11    0.45   3.60%   1.40%
MCK      JUN    32    32.00   33.99    0.50   3.76%   1.56%
NFLX     JUN    25    24.45   31.40    0.55   7.36%   2.25%
PHRM     JUN    20    19.65   40.00    0.35   5.67%   1.78%
RTN      JUN    32    32.00   33.55    0.50   3.62%   1.56%
VXGN     JUN    12    12.10   16.01    0.40  10.35%   3.31%
ARTI     JUN    22    22.00   24.32    0.50   6.11%   2.27%
AVID     JUN    45    44.30   52.31    0.70   4.62%   1.58%
BLUD     JUN    25    24.70   31.02    0.30   3.54%   1.21%
DIGE     JUN    35    34.25   36.24    0.75   6.16%   2.19%
DRIV     JUN    25    24.60   31.50    0.40   5.37%   1.63%
ERES     JUN    18    18.11   22.99    0.22   3.85%   1.21%
NUE      JUN    55    54.25   64.08    0.75   3.96%   1.38%
PHRM     JUN    20    19.70   40.00    0.30   5.30%   1.52%
SPLS     JUN    25    24.60   27.36    0.40   4.24%   1.63%
YHOO     JUN    25    24.60   31.87    0.40   4.64%   1.63%
ARO      JUN    22    23.03   28.12    0.35   4.75%   1.52%
CRDN     JUN    25    24.65   35.25    0.35   5.57%   1.42%
ERES     JUN    18    18.63   22.99    0.30   6.61%   1.61%
FARO     JUN    22    21.85   26.27    0.65   9.88%   2.97%
ISPH     JUN    15    14.55   17.30    0.45  10.57%   3.09%
IDEV     JUN     5     4.70    7.69    0.30  17.36%   6.38%
PDII     JUN    22    22.20   29.54    0.30   5.83%   1.35%
SSYS     JUN    22    21.85   25.83    0.65   9.43%   2.97%
SLXP     JUN    25    24.70   26.96    0.30   4.85%   1.21%
ASKJ     JUN    35    34.40   41.42    0.60   6.85%   1.74%
AUO      JUN    20    19.55   19.33   (0.22)  0.00%   2.30%
ERES     JUN    20    19.80   22.99    0.20   4.60%   1.01%
FWHT     JUN    20    19.65   22.48    0.35   6.25%   1.78%
GPRO     JUN    35    34.45   44.85    0.55   5.54%   1.60%
MEE      JUN    22    22.15   24.99    0.35   5.66%   1.58%
SMTC     JUN    20    19.70   24.33    0.30   6.79%   1.52%
SWIR     JUN    22    22.20   27.24    0.30   6.05%   1.35%
YHOO     JUN    27    27.15   31.87    0.35   4.58%   1.29%
ASKJ     JUN    35    34.55   41.42    0.45   6.43%   1.30%
CRDN     JUN    30    29.45   35.25    0.55   8.32%   1.87%
DRXR     JUN    15    14.65   13.28   (1.37)  0.00%   2.39% *
ERES     JUN    23    23.03   22.99   (0.04)  0.00%   1.52%
NKTR     JUN    17    17.25   20.61    0.25   8.24%   1.45%
NSM      JUN    20    19.70   21.02    0.30   6.58%   1.52%
NVDA     JUN    22    22.15   21.91   (0.24)  0.00%   1.58%
SMTC     JUN    22    22.20   24.33    0.30   6.21%   1.35%
YHOO     JUN    27    27.25   31.87    0.25   4.28%   0.92%

The position in Drexler Technologies (NASDAQ:DRXR) was not
a good candidate for entry after the news of Accenture's
(NYSE:ACN) government contract award and traders who opened
the play on Tuesday morning were likely out of it by the end
of the session, for a smaller than published loss.  Silicon
Storage Tech (NASDAQ:SSTI), which is profitable, as well as
Au Optronics (NYSE:AUO) and Nvidia (NASDAQ:NVDA), have been
closed to limit potential losses.  Some of the most obvious
issues on the "watch" list are: Boston Comm. (NASDAQ:BCGI),
Digene (NASDAQ:DIGE), Raytheon (NYSE:RTN), eResearch Tech
(NASDAQ:ERES), and Salix Pharmaceuticals (NASDAQ:SLXP).


NAKED CALLS

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

IACI     JUN    32    33.15   30.27    0.65   5.22%   1.96%
OVTI     JUN    30    30.80   23.44    0.80  11.79%   2.60%
SLAB     JUN    55    55.50   49.86    0.50   4.93%   0.90%
PHTN     JUN    35    35.35   31.06    0.35   4.69%   0.99%
ENDP     JUN    25    25.70   22.31    0.70  11.16%   2.72%
IPXL     JUN    22    23.05   22.14    0.55   8.75%   2.39%
MMR      JUN    15    15.25   14.11    0.25   7.20%   1.64%
APPX     JUN    40    40.40   34.03    0.40   6.84%   0.99%
OVTI     JUN    27    27.25   23.44    0.25   6.69%   0.92%
WSM      JUN    32    33.00   31.47    0.50   5.64%   1.52%
ABAX     JUN    20    20.25   19.98    0.25   5.81%   1.23%
CHIC     JUN    20    20.35   19.51    0.35   8.70%   1.72%
USNA     JUN    30    30.40   28.75    0.40   6.29%   1.32%
ABGX     JUN    17    17.85   14.76    0.35  13.94%   1.96%
CREE     JUN    25    25.25   22.32    0.25   5.36%   0.99%
SSNC     JUN    25    25.50   19.99    0.50  10.41%   1.96%

Abaxis (NASDAQ:ABAX), Charlotte Russe (NASDAQ:CHIC), 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

CVTX     JUL   15.00   14.60   16.66    0.40    5.63%   2.74%
JILL     JUN   20.00   19.70   21.22    0.30   10.05%   1.52%
NKTR     JUN   17.50   17.20   20.61    0.30   13.99%   1.74%
OSIP     JUN   65.00   64.50   78.53    0.50    6.89%   0.78%
PTIE     JUL    7.50    7.15    8.60    0.35    9.89%   4.90%
SINA     JUN   35.00   34.50   38.79    0.50   10.37%   1.45%
SMTC     JUN   22.50   22.25   24.33    0.25    7.77%   1.12%
SYNA     JUL   17.50   16.85   19.23    0.65    7.48%   3.86%
TELK     JUN   20.00   19.75   23.53    0.25   10.33%   1.27%
USG      JUN   15.00   14.70   15.95    0.30   13.27%   2.04%
UTHR     JUN   22.50   22.15   23.84    0.35   10.38%   1.58%
__________________________________________________________________

CVTX - CV Therapeutics  $16.66   *** Analyst Upgrade! ***

CV Therapeutics (NASDAQ:CVTX) is a biopharmaceutical firm focused
on the discovery, development and commercialization of new small
molecule drugs for the treatment of cardiovascular diseases.  The
company's most well-known drug is Ranexa (ranolazine), for the
treatment of chronic angina.  CVTX also has several research and
preclinical development programs designed to bring additional
drug candidates into the market.

CVTX - CV Therapeutics  $16.66

PLAY (sell naked put):

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

SELL PUT  JUL 15    UXC SC    1973  0.40  14.60   5.6%   2.7%


__________________________________________________________________

JILL - J. Jill Group  $21.22  *** Bullish Retailer! ***

The J. Jill Group (NASDAQ:JILL) is a multi-channel specialty
retailer of women's apparel, accessories and footwear.  The
company markets its products through catalogs, retail stores
and an e-commerce website.  J. Jill has two business segments,
direct and retail, and each segment is separately managed and
utilizes distinct distribution, sales and inventory management
strategies.  The direct segment markets merchandise through its
catalogs and an e-commerce website.  The retail segment markets
merchandise through retail stores.  The firm's target customers
are active, affluent women ages 35 to 55, who want comfort and
styling, from relaxed career clothing to sophisticated casual
weekend wear, in a broad range of sizes.

JILL - J. Jill Group  $21.22

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    JUI RD     235   0.30  19.70  10.0%   1.5%


__________________________________________________________________

NKTR - Nektar Therapeutics  $20.61  *** 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  $20.61

"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    1857   0.30  17.20  14.0%   1.7%


__________________________________________________________________

OSIP - OSI Pharmaceuticals  $78.53  *** Tarceva Speculation! ***

OSI Pharma (NASDAQ:OSIP) is a biotechnology company focused on
the discovery, development and commercialization of oncology
products that both extend life and improve the quality of life
for cancer patients worldwide.  The company has established a
balanced pipeline of oncology drug candidates that includes both
next-generation cytotoxic chemotherapy agents and novel mechanism
based, gene-targeted therapies.  The company's most advanced drug
candidate, Tarceva (erlotinib HC1), is a small-molecule inhibitor
of the epidermal growth factor receptor (HER1/EGFR).  The protein
product of the HER1/EGFR gene is a receptor tyrosine kinase that
is over-expressed or mutated in many major solid tumors.

OSIP - OSI Pharmaceuticals  $78.53

PLAY (sell naked put):

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

SELL PUT  JUN 65    GHU RM    3693   0.50  64.50   6.9%   0.8%


__________________________________________________________________

PTIE - Pain Therapeutics  $8.60  *** Rally Mode! ***

Pain Therapeutics (NASDAQ:PTIE) is developing a new generation
of opioid painkillers with improved clinical benefits.  The
company's drugs will offer enhanced pain relief and reduced
tolerance/physical dependence or addiction potential compared
to existing opioid painkillers.  If approved by the Food and
Drug Administration, these proprietary drugs could replace
certain existing opioid painkillers commonly used to treat
moderate to severe pain.

PTIE - Pain Therapeutics  $8.60

PLAY (sell naked put):

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

SELL PUT  JUL 7.5    UQ SU     779   0.35    7.15   9.9%   4.9%


__________________________________________________________________

SINA - Sina Corporation  $38.79  *** Internet Sector Rally! ***

Sina Corporation (NASDAQ:SINA), formerly known as SINA.com, is an
online media company and value-added information service provider
for China and the global Chinese communities.  With a branded
network of localized Websites targeting China and overseas Chinese,
the company provides an array of services to its users including
region-focused online portals, search, directory, interest-based
and community-building channels, free and premium e-mail, wireless
short messaging, online games, virtual Internet service provider,
classified listings, e-commerce, e-learning, and enterprise
e-solutions.  In turn, SINA generates revenue through advertising,
fee-based services, e-commerce and enterprise services.

SINA - SINA Corporation  $38.79

"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 35    NOQ RG    8535   0.50  34.50  10.4%   1.4%


__________________________________________________________________

SMTC - Semtech  $24.34  *** In A Trading Range? ***

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  $24.34

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    7477   0.25  22.25   7.8%   1.1%


__________________________________________________________________

SYNA - Synaptics  $19.23  *** Conservative Entry Point? ***

Synaptics (NASDAQ:SYNA) is a worldwide developer and supplier of
custom-designed user interface solutions for notebook computers.
The company's original equipment manufacturer customers include
ten large personal computer OEMs.  Synaptics generally supplies
its OEM customers through its contract manufacturers, which take
delivery of its products and pay the company directly for the
OEMs.  Synaptics family of product solutions include TouchPad,
TouchPad Under Plastic, TouchStyk, dual pointing solutions,
ClearPad, Spiral, QuickStroke, TouchPad with embedded Chinese
character recognition, Fingerprint TouchPad, TouchRing and
TouchScreen.

SYNA - Synaptics  $19.23

PLAY (sell naked put):

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

SELL PUT  JUL 17.5  QYG SW      50   0.65  16.85   7.5%   3.9%


__________________________________________________________________

TELK - Telik  $23.53  *** New Drug Speculation! ***

Telik (NASDAQ:TELK) is a biopharmaceutical company working to
discover, develop and commercialize small-molecule drugs to treat
serious diseases, including cancer and diabetes.  Telik's most
advanced product development programs include TLK286, which is a
small-molecule tumor-activated cancer drug to treat cancers that
are resistant to standard chemotherapy drugs; TLK199, which is a
small-molecule bone marrow stimulant for the treatment of blood
disorders involving low white blood cell levels; and TLK19781,
a proprietary, orally active small-molecule insulin receptor
activator for the potential treatment of Type II diabetes and
other conditions related to insulin resistance.

TELK - Telik  $23.53

"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 20    ZUL RD    118    0.25  19.75  10.3%   1.3%


__________________________________________________________________

USG - USG Corp.  $15.95  *** On The Rebound! ***

USG Corporation (NYSE:USG) produces a range of products for use
in new residential, new non-residential and repair and remodel
construction, as well as products used in certain industrial
processes.  Its operations are organized into three operating
segments: North American Gypsum, which manufactures Sheetrock
brand gypsum wallboard and related products in the United States,
Canada and Mexico; Worldwide Ceilings, which manufactures ceiling
tile in the United States and ceiling grid in the United States,
Canada, Europe and the Asia-Pacific region, and Building Products
Distribution, which distributes gypsum wallboard, drywall metal,
ceiling products, joint compound and other building products
throughout the United States.

USG - USG Corp.  $15.95

"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 15    USG RC    1831   0.30  14.70  13.3%   2.0%


__________________________________________________________________

UTHR - United Therapeutics  $23.84  *** Uptrend Intact! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology company
focused on the development and commercialization of therapeutics
to treat chronic and life-threatening diseases in 3 therapeutic
areas: cardiovascular medicine, infectious disease and oncology.
It has 5 therapeutic platforms: Prostacyclin analogs are stable
synthetic forms of a molecule that has effects on blood-vessel
health and function; Remodulin has been approved in the United
States for the treatment of pulmonary arterial hypertension in
patients with New York Heart Association Class II-IV symptoms; 
Immunotherapeutic monoclonal antibodies are antibodies that
activate patients' immune systems to treat cancer; Glycobiology
anti-viral agents are a class of small molecules that may be
effective as an oral therapy for hepatitis C or other infections,
and Telemedicine involves portable digital devices that enable
physicians to remotely monitor patients' bodily measurements.

UTHR - United Therapeutics  $23.84

"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 22.5  FUH RX    312    0.35  22.15  10.4%   1.6%



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

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.

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

DIGE - Digene  $36.24  *** Trend Reversal? ***

Digene (NASDAQ:DIGE) develops, manufactures and sells proprietary
gene-based testing systems for screening, monitoring and diagnosis
of human diseases.  Its primary focus is in women's cancers and
infectious diseases.  The firm has applied its proprietary Hybrid
Capture technology to develop a unique diagnostic test for human
papillomavirus, which is the primary cause of cervical cancer and
is found in greater than 99% of all cervical cancer cases.  In
addition to its HPV Test, the company's product portfolio includes
gene-based tests for detecting chlamydia, gonorrhea, hepatitis B
virus and cytomegalovirus.  
  
DIGE - Digene  $36.24

PLAY (sell naked call):

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

SELL CALL  JUN 40    QDG FH     819   0.30  40.30   6.9%   0.7%


__________________________________________________________________

MDCO - The Medicines Company  $29.13  *** Sell-Off Underway! ***

The Medicines Company (NASDAQ:MDCO) operates as a pharmaceutical
company selling and developing products for the treatment of 
hospital patients.  MDCO acquires, develops and commercializes
biopharmaceutical products that are in late stages of development
or have been approved for marketing.  The company began selling
Angiomax, its lead product, in U.S. hospitals in January 2001 as
an anticoagulant replacement for heparin.  MDCO is developing
Angiomax for additional potential hospital applications as a 
procedural anticoagulant and for use as a treatment of ischemic
heart disease.

MDCO - The Medicines Company  $29.13

"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 30    MQL FF       7   0.70  30.70  15.5%   2.3%



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SEE DISCLAIMER - SECTION 1

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