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Daily Newsletter, Sunday, 06/27/2004

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The Option Investor Newsletter                   Sunday 06-27-2004
Copyright 2004, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Entire newsletter best viewed in COURIER 10 font for alignment

In Section One:

Wrap: Tick, Tick, Tick
Futures Market: See Note
Index Trader Wrap: SUMMER DOLDRUMS
Editor's Plays: Got Cash?
Market Sentiment: Deadline June 30th
Ask the Analyst: Another quarterly rebalancing (update)
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 6-25         WE 6-18         WE 6-11         WE 6-04 
DOW    10371.84 - 44.57 10416.4 +  6.31 10410.1 +167.18 + 54.37 
Nasdaq  2025.47 + 38.74 1986.73 - 13.14 1999.87 + 21.25 -  8.12 
S&P-100  549.75 -  5.06  554.81 -  0.09  554.90 +  7.82 +  1.95 
S&P-500 1134.43 -  0.57 1135.00 -  1.47 1136.47 + 13.97 +  1.86 
W5000  11073.60 + 39.48 11034.1 - 11.83 11045.9 +109.64 +  9.95 
SOX      478.91 + 25.83  453.08 - 23.20  476.28 +  5.37 - 17.95 
RUT      587.70 + 17.16  570.54 +  1.42  569.12 +  1.37 -   .53 
TRAN    3164.18 + 95.61 3068.67 + 43.96 3024.71 + 32.43 + 44.27 
*************************************************************** 

 
Tick, Tick, Tick
by Jim Brown

While most Americans are oblivious to the coming events
the clock continues to count down to June 30th. Whether
it will pass as a major calendar event or pass quietly
like a mini Y2K is yet unknown. The volume of press the
events are now getting should go a long way toward making
them anticlimactic. Investors, if you believe the talking
heads, are sitting on pins and needles worrying about 
Wednesday's events. Personally I think Friday's Jobs
Report will be more critical but you never know. 

Dow Chart - Daily

Nasdaq Chart- Daily

Russell-2000 Chart - Daily



In the economic arena investors received another blow 
when the final GDP for Q1 came in lower than expected at
+3.9%. This was less than the 4.4% estimate and the last
revision. This shocker contained offsetting components.
Corporate profits were revised up to +1.7% from the +1.2%
reported in the last revision. That is good news but there
was an offsetting entry. The PCE deflator, a key inflation
gauge used by the Fed, jumped to +2.0% from the prior +1.7%.
The GDP price index was also revised up to +2.8% from +2.6%.
It seems the inflation threat is increasing and the economy
is slowing. This is bad news for the Fed and could put them
in a bind when they make their rate decision on Wednesday.
Business inventories were revised down to $25.5B from 
$28.2B. The bulk of the downward GDP revision came from
a larger than expected trade deficit at -$535.6B. This 
was a $10B increase from the prior revision.

The Michigan Consumer Sentiment did rise as we expected
but only slightly to 95.6 from the preliminary 95.2. This
was more than a +5 point jump from May's 90.2. If you 
recall May saw a -5 point decline from April and the 
June bounce has now completely erased that drop. We
speculated at the time that the Iraq prisoner scandal 
had depressed the May responses. Rocketing gas prices
also impacted consumer wallets. It appears those problems
have passed. 

As I suspected on Thursday the Existing Home Sales roared
higher than consensus estimates and set a new record of
6.8 million units. This was substantially over estimates
and the 6.63 million units in April. For the same reasons
I wrote about on Thursday the turnover in existing homes
is ripping along at the same hot pace as new homes. Each
move to a new home vacates an existing home and the ripples
behind the scenes begins. Each time a high-end buyer 
upgrades it produces a series of vacancies/sales at lower 
levels. Firming consumer confidence/sentiment is helping
promote the current wave of upgrades. Including new home
sales the annualized pace of total home sales surged past
the eight million mark for the first time ever in May.

The big news of the day was not the economics although a
low GDP and negative Durable Goods did nothing to help 
stocks. The big news was the Russell shuffle at the close
and it was nothing like anyone expected. Normally the
Russell tanks into the close as fund managers sell the
stocks leaving the indexes and buy the new stocks that
will be in the indexes as of Monday. Surprise, surprise!
The Russell failed to see any serious selling during the
day despite constant conversations on stock TV about the
possibilities. Just before the close, around 3:30, the
Russell begin to climb, not just climb but accelerate 
into a vertical spike. The Russell posted a gain of 
+8.65 for the day and the Dow went out at -71 due to
extreme volatility related to the rebalancing. This is
crazy. The Dow closed at 10443 on Thursday and is showing
a 4:PM close of 10412 for Friday. However, due to extreme 
after hours volatility right at 4:PM the after hours 
settlement is printing 10371 for a -71 loss. Needless 
to say there will be some serious volatility at the open
on Monday.

Major drops in GE, -1.00 at the close, and several other
Dow stocks tanked the Dow instead of the Russell. Dell
moved +1.00 after the close. Somebody needs to reevaluate
their computer models if stocks not really involved in 
the rebalance got thrown this severely out of whack. The
normal pattern was supposedly disrupted by the lack of
hedge fun participation according to one analyst. The
current lack of interest in the market and the pending
news events prompted many hedge funds to simply pass on
trying to arbitrage the trade. Many funds were reported
to have legged out of the deletions and into the additions
over the last two weeks instead of doing the normal Friday
dump and buy. Whatever the reason it appears there was a
substantial short contingent in anticipation of the normal
routine and that routine was broken. Shorts found themselves
in a squeeze with nobody dumping stock and once the short
covering began it skewed the delicate market balance into
a serious imbalance. 

On the charts the Dow is showing a solid stop at 10400
and a close at 10412. With the after hours imbalance
we have no idea where this will resolve on Monday. I
feel the 10400 level is the current support level and 
it held up very well on Friday. However, for the third
consecutive day the Dow rebounded to 10487 and failed.
It just can't seem to get to the strong resistance at
10500. With support at 10400 and resistance at 10500 we
are looking at a very tight range next week while we wait
for the Wednesday events. If the after hours volatility
stands then I would expect that range to expand to 10360
to 10500. We could easily trade there through Wednesday
except for several external factors. 

The Fed meeting has become a non-event. More than 25 points
have already been priced into the market and with the two
weak reports, GDP and Durable Goods, and the high Jobless
Claims the Fed is back in the hot box. They have gone out
of their way to prepare the market for a rate increase and
yet the economy is not holding its prior pace. On the other
side of the coin it appears inflation is rising on all
fronts. The Fed is trapped and has to raise rates and a
25 point hike should be market positive. The uncertainty
will be gone and a calming statement with the hike could
put the bond junkies at peace until after the election. 
Bottom line, the Fed meeting should not have any negative
impact on the market. 

The Iraq turnover has been cussed and discussed so much 
that everyone expects the worst and anything short of a
Saddam escape should be ignored. The new Iraq officials
are talking a good game and everybody knows there will 
be numerous attacks. I believe this is already priced
into the market. I do not believe we will see any event
that will cause us to tank except an event on U.S. soil.
We saw 75 deaths and nearly 400 injured in the big attack
this week and the market barely blinked. As one reporter
put it on Friday, Iraq will revert to prime time next
week and while we are not sure they are ready for the
spotlight even the bad side will not be anything we 
have not seen before. The more they exaggerate the event
the less impact it may have on the markets. Traders tend
to glaze over after days and days of the same news.

On the positive side this is the end of the quarter and 
retirement funds will be flowing. Some analysts think 
most funds are heavy in cash because they were waiting 
for the June implosion from the convergence of events.
With no implosion and the events upon us and priced in
those funds will want to put the money into stocks before
the quarter end statements. With more cash about to hit
those retirement accounts this should accelerate this
need to invest. This should provide a positive bias 
into Wednesday's close. 

Conventional wisdom suggests we are going sideways
until after the June 30th events. I have been buying 
this argument myself up until last week. When I started
seeing the bullish factors lining up a week ago I began
to reevaluate this outlook. Friday's action convinced me
we still have more potential to move higher than lower
next week. Of course any material event not currently
contemplated could change that in an instant but that
is my view today. 

To expand on this thought process I think the longer 
term view is the key. By longer term I am thinking three
weeks. I have to clarify that because "longer term" 
means different things to different people. My longer
term view is a post Fed rally into the holiday weekend
and then a continuation of that rally for the week after
the holiday. This will set us up for the Q2 earnings and
the Q3 guidance. Once we get to July expiration all bets
are off for the rest of the summer. 

One of the potholes in this yellow brick road is the
Nonfarm Payrolls next Friday. The current consensus for
the June jobs gain is +275,000. This is very strong for
a summer jobs report. John Challenger was interviewed on
Friday and he said employment was slowing. According to 
his surveys 69% of corporations did some hiring in the
first six months of 2004. For the next six months the
number of firms considering hiring drops to only 44%.
Also the pace of hiring is slowing. Corporations have
staffed up and now they are only looking at filling the
vacancies rather than a new wave of additions. This view
along with some of the slowing employment components from
the various manufacturing surveys suggests the next Jobs
Report could be a disappointment. That report is next
Friday. But, depending on what the Fed says on Wednesday
it could be completely ignored. 

For Q2 earnings we have had very few warnings and also 
very few guidance upgrades. Racing into the earnings
cycle with no material earnings news could have a dual
impact. No news could be good news for stocks as all the
optimists line up at the buyer window. This allows us to
speculate about how good things might be without really
having any evidence to back it up. That sets us up for 
an earnings challenge for the last two weeks of July if
there is no positive news from the early reporters. 

Most analysts expect a deceleration of earnings and an
increasing failure to hit the high bar as we near 2005.
In fact 2005 estimates are positively anemic compared
to the last two quarters. This will put added emphasis
on the Q3 guidance, especially in front of a tossup 
election. Traders will be looking for a reason to stay
in the market not necessarily a reason to exit. 

To net all this out into a trading plan for next week I
would again suggest buying the dips in anticipation for
a retest of the 10500 resistance level. We may not hit
it until after the Fed decision but I suggest you plan
your trades for the eventuality. With the high volatility
at Friday's close there is no telling where we will open
on Monday. The Dow is showing a close at 10371 based on
the after hours settlement. Using the 10360 support I 
mentioned earlier I would look for a long entry on a 
rebound from that level. Should the market gap up in 
a correction from the Friday volatility skew I would 
probably look for another dip to enter. Try to get in
as close to the 10360-10400 range as possible.

The risk on a long entry is the extended Nasdaq at 2030.
This is the beginning of a strong resistance range for
the Nasdaq and a level that could produce some profit
taking. 2050-2070 is the next major resistance. The 
Nasdaq could see an additional bounce on Monday as funds
complete their Russell purchases. Quite a few funds will
normally wait until after the volatility event to enter
the new stocks. This could provide support for the Nasdaq
if not an outright upward bias. 

I hope I have given you a general idea of what may happen
but please realize this will be an event motivated week.
These events may be already priced in but there is always
the potential for the unexpected. For instance Bush is
out of the country and could try to sneak into Iraq for
the changeover. A truck full of explosives was reportedly
found in a Turkey airport on Friday. An airport Bush will
use this weekend. On Friday an air strike in Fallujah 
knocked al-Zaqawi to the ground with a near miss but he
was helped into a car and escaped. A direct hit could 
produce a significant market bounce. The Fahrenheit 9/11
film opening this weekend could start something and change 
the entire election balance. I hope you get the picture
that this is a critical week and the picture could change
in a heartbeat. Plan your trades including your exits and
trade your plan. Don't get married to your market bias, 
divorce is painful. 

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

SUMMER DOLDRUMS
By Leigh Stevens
lstevens@OptionInvestor.com 

THE BOTTOM LINE – 
I thought that we would see some modest further upside gains in 
the S&P related indices – we did – but the subsequent fall to 
back below the prior highs from early this month, is bearish. 
Unless the S&P 500 (SPX) can get, and stay, back above this prior 
peak at 1142, this market segment will likely drift sideways to 
lower.  

The tech heavy Nasdaq (COMP) – hey, fund managers got to find 
something to buy and Nas stocks have been lagging – rallied to 
finally achieve an upside penetration of its bearish down 
trendline.  So, tech may get a further bounce, as led by the 
smaller stocks and seen in the Russell 2000 (RUT)upside progress 
this past week.  

However, the related bellwether index for tech, the Semiconductor 
SOX) Index, has not also achieved a bullish breakout, which it 
would do if it gets, and stays, above 480 (Fri. close: 478.9), so 
I'm watching this level as key to whether there is going to be 
much sustained upside follow through in tech.  

The market is hanging in, but further upside progress seems 
stymied – not a good situation for index option traders - unless 
you are selling premium or shorting calls and puts I suppose.  

FRIDAY'S TRADING ACTIVITY – 

THE NUMBERS – 

The Standard & Poor 500 Index (SPX) was off 6.3 points (-0.6%) to 
close for the week at 1,134.3, which was basically unchanged from 
the prior weekly close.  The Dow 30 (INDU) finished down 71.9 
points (-0.7%) to 10,371.8. For the week, the Dow was down just 
under a half percent.

The Nasdaq Composite Index (COMP) rose 9.9 points on the day (+ 
0.5%), closing at 2,025.47. The Nasdaq was up nearly 2% on the 
week and so bucked the trend of the S&P market group. There is 
now a clear cut break out of the COMP (and in the Nas 100 – NDX) 
above its January – April – early June down trendline.  

By the way, Nasdaq bellwether Microsoft (MSFT) has failed to 
achieve upside follow through after its prior week's gains, 
pointing up its possible vulnerability to starting to fall again 
– a possible bearish wedge pattern was noted in my Trader's 
Corner article of a couple days back. There is more on wedge 
patterns and a link to this article further on – scroll on. 

The Dow Transportation Average (TRAN) ran up to 3164, +37 points, 
which exceeds its high made early this year.  The fundamental 
influence was  a decline in oil prices, as August Crude Oil 
futures fell under $38.  I would also say that technically, it 
might have a lot to do with short-covering buying as well. The 
Transportation stocks have been favored shorts.  

In terms of Dow theory, this is an "unconfirmed" new high in TRAN 
without a similar new high in the Dow 30 or the Dow "Industrials" 
(Is it time to change the name? – "Manufacturing" even doesn't 
quite capture the flavor anymore!)

Having just written recently, in the past week, about rising 
"Wedge" type patterns that often signal a reversal ahead, I 
wonder what is to come – if prices stall from Friday's high point 
and then fall back under the up trendline or that prior high, 
look out below – 



Along with the delusions of crowds, tulip manias, south sea 
bubbles, there is a tendency (among technical analyst types) to 
see the things that they have recently been thinking about 
everywhere. There is a cure for that called reality! The market 
will soon tell us about whether the outlined "wedge" pattern on 
the Transports chart above, marks a possible high and even a 
substantial downside reversal after that.  Stay tuned!

Anyway, my musings on the subject of Wedges, along with the On 
Balance Volume Indicator or OBV, is at - 
http://www.OptionInvestor.com/traderscorner/tc_062404_2.asp 


THE REPORTS – 
Prior to the opening, the Commerce Department released its final 
revision of first-quarter Gross Domestic Product (GDP) showed 
growth at an annual rate of 3.9%, down from the previous 
estimates of 4.4% growth. GDP at 3.9% came in well under the 
consensus estimates of a 4.4% growth rate.  This was a 
significant number and you had to figure that the market would 
react to it, although the market rallied briefly after the 
opening when initial thoughts were more about how this would 
cause the Fed to be measured in raising interest rates.   

An inflation measure - the personal consumption expenditure price 
index, rose 3.2%, and this was a bit higher than expectations, 
which averaged around 3%.

The University of Michigan came out with a revision on its June 
Consumer Sentiment Index, to a slightly higher number – to 95.6 
from 95.2, and above the forecasted number of 95.0.  Now, the 
idea that you can forecast anything as wily as a number that 
surveys the feelings of consumers, seems a bit crazy to me.  
Hey, people will bet on anything. 

THE TALK –
The rise in consumer sentiment index is a plus, as is the final 
revision of Q1 GDP downward – from 4.4 to an annual rate of 3.9%.  
The weaker than expected growth is positive for the market on 
balance as it makes a half percent hike by the Fed this coming 
week less likely. All eyes will be on the Fed.  

Some amount of bad news is already priced into stock prices and 
the mood with investors is mostly confident about corporate 
earnings and the health of the economy.   

OTHER MARKETS – 
In currency trading, the dollar was higher.  The euro was down 
0.1% against the buck at $1.216, influenced by data showing 
business confidence in Germany back on the decline. I don't blame 
them – if I had their labor costs it would take a lot to get me 
really confident. 

The dollar was also up (+0.5%) against the yen, closing at 
107.70.

Treasury bonds closed the week in plus territory, with prices 
slightly up and yields down after the week's economic data – 
which did not influence the prevailing view of a Fed rate hike 
next week of a quarter of 1 percent.  

Crude oil futures were down, with the most actively traded nearby  
August contract off 38 cents to $37.55, which is off nearly 4% on 
the week.  Crude prices were under pressure by news that the 
Norwegian government will use compulsory arbitration to end a 
management-labor dispute.  Not settling this eventually threatens 
oil output from Norway, the world's 3rd-largest exporter.

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

As I noted already: the move to a new relative high in the 1147 
area, an area of some prior peaks, followed by a close well under 
the most recent top, is bearish.  This plus the rising Call-Put 
indicator of last week that almost got to a 1-day extreme.  

It seems that there is a bit of a complacent attitude and 
consensus confidence that stock prices will stay steady and not 
retreat much.  I don't know if that's warranted – the technical 
action of this past week suggests that buying support may not be 
strong enough to churn through stock available for sale. It takes 
strong buying to put em up into new high ground but a lack of 
buying interest (mostly) will  bring em back down.  



Technically, the S&P 500 (SPX) appears vulnerable to a fall back 
to at least the 1120 support area. Major support is 1100.  Major 
resistance is around 1160.  

S&P 100 Index (OEX) – Daily chart:

OEX is stalling out just under 560.  As with the broader 500 
(SPX), I think it'll take more bullish optimism than we see at 
present to take the S&P 100 up through resistance and a prior 
series of highs at 560-564.  

I took the close under 550, after making a new high as a possible 
bull trap reversal.  Stay tuned. The technical outlook turns more 
bullish if and when OEX can get above 560.  Major resistance 
begins in the 570 area.  



Some support may be found at 545-546, but better technical 
support looks to be at 540-541.  Momentum is down now according 
to the 14-day Stochastic.  I suggested last week that the 
overbought/high Stochastic reading at least suggested that the 
trend at best would be more sideways. All in all, not an exciting 
market – summer doldrums!

Dow Industrials (INDU) Hourly:

As anticipated, resistance and selling interest picked up once 
the Dow got into the 10,500 area.  

Key technical support continues to look like 10,300. Prices have 
broken down below the hourly uptrend channel I was working with, 
and I think prices head lower still.  



I would say again, unchanged from last week, that an ability for 
INDU to now hold at or above 10,400 is a tip off as to whether 
the Dow average can continue higher or has to fall back to 10,300 
or bit above to consolidate for another possible rally attempt.  

Nasdaq 100 (NDX) Index  – Daily:

Resistance was figured for the 1500 area and that's the key test 
in the coming week – the ability to stay above 1500 – there are a 
series of highs there as you can see on the chart below.  Based 
on the lack of a confirming new high in the stochastic model, 
plus the minor overbought condition and the inability of the 
semiconductors to rally much, my best guess is that this rally 
runs out of steam shortly.  

However, if more buying does come in this week, a first key test 
ought to be at the prior peak at 1524.  1550 is major resistance. 
If we get there, buying puts is a "lay up" – pardon my sports 
metaphor but it would to me look like a high potential trade. Too 
easy and won't happen I'm thinking – the market is too perverse 
to hand us these neat (trade) setups – well, sometimes it does.  
Like, you can most often believe in double tops for example!  



Nasdaq 100 tracking Stock (QQQ) Daily:

The pattern is bullish with the upside penetration of the down 
trendline with the possibility QQQ could get to 38.25 or higher.  
First, the stock has to get through the prior highs in the 37.4-
37.5 area, then 37.70-37.9.

There was a good move up from the last dip to the 36 area.  Those 
who bought the stock may get a couple of bucks out of the trade.  
I would protect something and set an exiting (sell) stop at 
36.75. 

 

The Q's have an advantage of giving a volume trend we can also 
analyze like any other stock.  Notice the declining daily volume 
trend since the sideways trend since from when the Q's started 
going more or less sideways.  With Wednesday's breakout move, 
volume has continued to be low – not the best confirming 
indicator for rally strength.  But, at least the On Balance 
Volume (OBV) turned up since the point of the recent low, which 
is mildly bullish as to the volume trend – best would have been 
to have seen a surge in volume along with the rally.  

Information on the OBV indicator is in the same recent Trader's 
Corner article that I cited above – 
Balance Volume Indicator or OBV, is at - 
http://www.OptionInvestor.com/traderscorner/tc_062404_2.asp

Good Trading Success!


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

Got Cash?

We all know which company has the biggest cash hoard
stashed away for a rainy day. Microsoft has between
$50-$60 billion depending on who is telling the story.
Microsoft has been steadfast in their refusal to spend
the money. They are rapidly running out of reasons to
postpone the event. 

The current plan according to news releases is for
MSFT to announce a plan for the cash before the analyst
meeting on July 29th. Various thoughts have been offered
including a huge share buyback or a one time cash dividend.
Either way it should move the stock either in excitement
or disgust. They could announce this plan with their 
July-22nd earnings. 

The game plan for this event will be a combination 
play. Since we do not know which way the stock will
move we are going to cover both directions. 

With MSFT at $28.57 the AUG-$27.50 put is 60 cents
and the AUG-$30 call is 45 cents. With a little 
volatility on Monday we can probably get both for 
a total of $1.00. 

This gives us a month of anticipation and a good chance
we could see a directional move before the event. MSFT
has already moved from $26.50 to $28.50 on the news
but the potential is still there, especially if we
were to get a strong post Fed rally. 

The plan will be to weigh our options just before the
earnings announcement and decide a course of action. 
Hopefully it will be clear by then. 

AUG-$27.50 Put  MSQ-TY $0.60
AUG-$30.00 Call MSQ-HE $0.45

Microsoft Chart - Weekly




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

SEC Going to School  

Last week I profiled puts on CECO and the continuing 
problems they were having with allegations of falsifying
records and earnings to influence the stock price. CECO
was trading at $55 after a -$14 drop the prior two days.

Our target was to enter on a bounce to $58 and again on
a touch of $60 in anticipation of another drop once the
dip buyers ran dry. On Tuesday CECO rose to 59.22 and
several readers took advantage of the bounce to enter
positions early. I had suggested waiting until Wednesday
for the option expiration volatility to ease as well as
the -$14 drop to wear off. Those that entered early were
richly rewarded. 

On Wednesday it was announced the SEC was going to 
formally investigate the allegations based on preliminary
findings in their informal review. CECO was immediately 
knocked for another loss to $50 with a two day decline to 
just under $41. I tracked the play in the market monitor
with a trailing stop and we were hit at $44. If you were
one of the lucky ones that entered on the bounce to $58
then you profited from the -$14 drop. Congratulations.


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

Trouble Across the Pond
News Corp Update $35.50

Our News Corp leaps ran into a little trouble this week
when the keepers of the indexes issued a ruling that
NWS could not be in multiple indexes at the same time
if it did complete its move to the U.S. News Corp wanted
to maintain a dual listing in both the Australian ASX
marketplace and the U.S. NYSE exchange. News Corp is
7.5% of the ASX and by preventing a dual listing those
fund managers indexing to the ASX will have to sell 
their positions as the move progresses. This could 
pressure NWS in the U.S. as the current NWS ADR price
is tied to the current ASX share price. NWS dropped 
-$1 on the news but company officials tried to ease
the blow by restating the reasons for the move. NWS
is expected to gain significantly more world wide
investor interest as part of the S&P-500 than they 
would ever see on the ASX. With the billions of dollars
indexed to the S&P a NWS inclusion could spike the
stock +25% or more just from funds adjusting their
holdings. Many funds are currently prohibited from
holding ADR shares. 

This was a long term play in anticipation of the
eventual move to the U.S. and inclusion to the S&P.
Nothing has changed. The plan is to sell calls against 
our leaps but with the stock stuck in the $37 range
it has not been practical yet. Our time will come. 

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 

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

TYC Call Update $32.57

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


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

PVN Call Update $14.85

Providian still hanging in at its 52-week highs and 
waiting on the Fed news to free the financials once
again. 

http://members.OptionInvestor.com/editorplays/edply_061304_1.asp





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

Deadline June 30th
- J. Brown

This is it.  We've finally made it to the final week of June.  
Wednesday June 30th marks the end of a two-day FOMC meeting and 
the formal handover of sovereignty from the coalition to the 
Iraqi people.  Alan Greenspan & Co is expected to announce a 25 
bps hike in interest rates and Iraq is expected to be an 
exceptionally dangerous place to be this week.  Of course there's 
no guarantee the Fed won't surprise us with a 50-point hike and 
there's no guarantee that terrorist in Iraq and/or Saudi Arabia 
won't shock the world with some sort of unexpected attack.  
That's why stocks are likely to remain range bound through 
Wednesday.  Actually stocks are prone to trade sideways all week 
long because Wall Street will also be waiting and watching for 
the Friday morning non-farm payrolls report. (Although I will 
note that the NASDAQ looks more bullish than the other indices.)

June 30th also marks the end of the quarter.  While I don't 
expect much window-dressing to push stocks higher by month's end 
we could see some pension-fund buying pressure in early July.  As 
Jim pointed out in the market wrap if we can make it through this 
week and then the long fourth of July holiday weekend without any 
terrorist event on home soil we're set up for a rally into the Q2 
earnings season.  

It could be a strong rally too because right now a lot of the 
sentiment indicators look bearish.  A big move higher would catch 
a lot of shorts off guard.  The volatility indices remain near 
their lows.  The ARMS or TRIN index is approaching some bearish 
signals on some of its moving averages.  The latest COT data 
(below) also offers some interesting insights.  Commercial 
traders have brought their large S&P futures contracts close to 
parity while slashing their long positions on the e-minis leaving 
them drastically net short/bearish.   Commercial traders tend to 
be correct on the big moves while small, retail traders march the 
opposite direction.  Sure enough small traders dramatically 
reduced their short positions on the e-minis leaving them 
overwhelmingly bullish.  Hmm.. maybe things aren't looking so hot 
and money managers plan on "selling the news" come Wednesday?

On the positive side oil prices have continued to slip in spite 
of rising violence in Iraq and elsewhere.  A steady decline in 
oil will be good news for several cyclical sectors as well as 
give consumers some relief at the gas pumps.  Let's not forget 
the stellar home sales this week.  Surging home sales, both new 
and used, is a huge boom for the economy because they produce so 
many ancillary purchases by consumers.  They can also be 
interpreted as a direct vote of confidence by Americans about the 
economy and the future.  Or if you're a cynic the big home sales 
numbers are just consumers trying to get in before the next up 
cycle in interest rates hits the market.

I continue to suggest trading what you see but make sure you're 
aware of your risk.  We may trade sideways this week but it could 
be a choppy sideways!



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

Market Averages

DJIA ($INDU)

52-week High: 10753
52-week Low :  8871
Current     : 10371

Moving Averages:
(Simple)

 10-dma: 10388
 50-dma: 10252
200-dma: 10143



S&P 500 ($SPX)

52-week High: 1163
52-week Low :  962
Current     : 1134

Moving Averages:
(Simple)

 10-dma: 1134
 50-dma: 1119
200-dma: 1096



Nasdaq-100 ($NDX)

52-week High: 1559
52-week Low : 1180
Current     : 1498

Moving Averages:
(Simple)

 10-dma: 1475
 50-dma: 1447
200-dma: 1439



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

CBOE Market Volatility Index (VIX) = 15.19 +0.38
CBOE Mkt Volatility old VIX  (VXO) = 14.89 +0.50
Nasdaq Volatility Index (VXN)      = 18.96 -0.40

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

          Put/Call Ratio  Call Volume   Put Volume

Total          0.68        567,925       385,072
Equity Only    0.57        477,164       272,300
OEX            1.03         12,950        13,353
QQQ            1.16         26,644        30,910


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

Bullish Percent Data

           Current   Change   Status
NYSE          67.1    + 0     Bear Confirmed
NASDAQ-100    45.0    + 2     BULL ALERT
Dow Indust.   66.7    + 0     Bear Confirmed
S&P 500       64.8    + 0     Bear CORRECTION
S&P 100       63.0    + 0     Bear Confirmed



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

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


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

 5-dma: 0.95
10-dma: 0.99
21-dma: 0.95
55-dma: 1.04


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    1522      1749
Decliners    1273      1244

New Highs     198       133
New Lows       42        44

Up Volume   1078M     1690M
Down Vol.   1228M      893M

Total Vol.  2354M     2623M
M = millions


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

Commitments Of Traders Report: 06/22/04

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

It looks like commercial traders are hedging all their bets
by bringing them close to parity.  If the "smart money" doesn't
know what direction the S&P is going to go after June 30th
how are the "little folk" supposed to know? *grin*  Evidently,
the retail trader isn't listening.  They reduced their shorts
to leave them strongly bullish on stocks.

Commercials   Long      Short      Net     % Of OI
06/01/04      406,665   421,681   (15,016)   (1.8%)
06/08/04      397,294   452,904   (55,610)   (6.5%)
06/15/04      428,905   444,197   (15,292)   (1.8%)
06/22/04      407,842   415,462   ( 7,620)   (0.9%)

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
06/01/04      137,100    79,583    57,517    26.5%
06/08/04      158,373    92,794    65,579    26.1%
06/15/04      169,595   115,336    54,259    19.0%
06/22/04      124,985    89,934    35,051    16.3%

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! Maybe commercial traders are just ignoring the large
S&P contracts and focusing on the e-minis.  They reduced their
positions in both longs and shorts but they almost cut their
longs in half.  That's VERY bearish for the market.  Likewise
small traders are lockstep in unison going the opposite direction.


Commercials   Long      Short      Net     % Of OI 
06/01/04      325,865   325,274        591     0.0%
06/08/04      367,191   409,246    (42,055)   (5.4%)
06/15/04      440,867   522,546    (81,679)   (8.5%)
06/22/04      229,290   446,974   (217,684)  (32.2%)

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
06/01/04      111,484     90,625    20,859    10.3%
06/08/04      140,191     84,649    55,542    24.7%
06/15/04      216,759    147,247    69,512    19.1%
06/22/04      243,444     58,389   185,055    61.3%

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 are reducing their positions in both longs
and shorts for the NDX and bringing them closer to break even.
Small traders are following suit bring their shorts and longs
close to even.  Looks like no one knows what direction the
NASDAQ is going.


Commercials   Long      Short      Net     % of OI 
06/01/04       59,944     34,784    25,160   26.6%
06/08/04       64,747     41,178    23,569   22.3%
06/15/04       78,542     54,341    24,201   18.2%
06/22/04       40,397     37,413     2,984    3.8%

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
06/01/04        9,755    30,025   (20,270)  (51.0%)
06/08/04        9,716    29,594   (19,878)  (50.6%)
06/15/04       15,794    35,880   (20,086)  (38.9%)
06/22/04        9,311     9,950      (639)  ( 3.3%)

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

Hmm... oddly enough commercial traders are turning more bullish
on the Dow Industrials.  Looks like they like the upside breakout.
Small traders are more pessimistic here.


Commercials   Long      Short      Net     % of OI
06/01/04       23,397    24,393   (  996)     (2.0%)
06/08/04       24,636    25,821   (1,185)     (2.3%)
06/15/04       30,438    24,766    5,672      10.3%
06/22/04       26,808    19,752    7,056      15.2%

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

Small Traders  Long      Short     Net     % of OI
06/01/04        9,000     6,021    2,979     19.8%
06/08/04        8,325     6,431    1,894     12.8%
06/15/04       13,942    20,953   (7,011)   (20.1%)
06/22/04        5,626     7,798   (2,172)   (16.2%)

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

Another quarterly rebalancing (update)

It's that time of year.  Pull out your brokerage statement, get 
your calculator out, sharpen up a pencil, as it time to rebalance 
your investment portfolio.

Last quarter (see 04/05/2004 Ask the Analyst) we rebalanced the 
"Beetles Balanced Benchmark Fund" and boy did that rebalancing 
pay off and save investors, that diversify across various asset 
classes, some money.

Well kind of.

Here's where things stood on our last rebalancing (03/26/04 as we 
neared the end of the first quarter), where without trying to 
time the market, we rebalanced, forcing us to "buy low and sell 
high," whereby rebalancing, and bringing things back to an even 
distribution across asset classed, we have no other choice but to 
sell some profits (high), and buy asset classes that declined in 
value (low).

As noted in prior articles.  I'm using a non-strategic dollar 
weighting among asset classes, in part so that we can actually 
see how the various asset classes are performing, and reacting to 
various economic and geopolitical dynamics that can impact 
investments.

Beetle's Balanced Benchmark - 03/26/04 Close (Since 12/26/03)



On March 26, 2004, the "Beetles Balanced Fund" showed a value of 
$12,119.47, where strong gains in the fixed income portion of the 
portfolio (+3.38% for that quarter) had our portfolio a little 
"overweight" relative to the equity side of things (-1.07%) where 
we sold some of our fixed income (SHY, IEF, TLT, LQD, PHF) and 
also sold a small amount of our equity position (SPY) and 
redistributed those proceed more heavily in the HUI.X, and then 
the DIA and QQQ.  

In doing so, here's how things look today, at the June 25, 2004 
close, where the "Beetle's Balanced Benchmark Fund" would show a 
quarterly loss of $459.09, or -3.79% for the quarter.  Please 
note that the portfolio's value does not account for any monthly 
or quarterly distributions (additions) of interest earned, or 
dividends paid (from equities).

Beetle's Benchmark - 06/25/04 Close (Since 03/26/04 rebalance)



The "good news" is that by selling some of the fixed income 
assets and redistributing that cash more toward the equity side 
of the portfolio, greater quarterly losses were avoided.  The 
"worst news" came from the AMEX Gold Bugs Index ($HUI.X), which 
on the 03/26/04 rebalancing, we put a greater portion of cash to 
work with, and in return, got slapped with 15.75% decline for our 
effort.  

With a current "Value" now of 11,655.04, and 10 asset classes 
represented in the portfolio, I would need to bring all asset 
classed back to an equal "Cost" of $1,165.55 per asset class.

This will have me selling some dollars (dx00y), 1-3 year 
Treasuries (SHY), Dow Diamonds (DIA), S&P Depository Receipts 
(SPY) and NASDAQ-100 Tracker (QQQ), then taking those proceeds 
and buying 7-10-year Treasury (IEF), 20-year + Treasury (TLT), 
Higher Grade Corporate Bonds (LQD) and "Junk Bonds" as depicted 
by the Pacholder High Yield (PHF).

In brief, with the declines seen in the fixed income, we will be 
returning a portion of our cash into more income producing 
assets, where in the first quarter, most of the Treasury holdings 
were yielding multi-decade low returns.  

Now... we actually started this exercise, or what many believe to 
be a PRUDENT policy of investment/portfolio management, as it 
related to an investors question regarding an article he had read 
that rebalancing a portfolio can add upwards of 1% in gain to a 
portfolio per year, if an investor will rebalance their assets 
from time to time, instead of just "letting it ride."

Well.... does it?

Here's a comparison of what the Beetles Benchmark would look like 
if we hadn't rebalanced since 12/26/03, and where we stand today.  
Again, both portfolios "Value" do not account for an dividend and 
interest income received.

Comparison of Non-rebalance vs. Quarterly Rebalanced



The upper portfolio was how the Beetle's Balanced Benchmark Fund 
would look if we had not rebalanced since 12/26/03.  It's value 
would be 11,649.14 at Friday's close.  The lower portfolio is how 
the Beetle's Balanced Benchmark Fund looks today, having been 
rebalanced on 03/26/04.  

Please remember, that in the lower portfolio, or rebalanced 
portfolio, the P/L % represents the recent QUARTER'S percentage 
profit/loss of those asset classes.  The upper portfolio's P/L % 
is actually a "benchmark" of how the various asset classes have 
performed.

In BLUE, I have highlighted what should be a very important note 
to investors as it relates to fixed income investments.

I personally know for a fact, that each month, the Pacholder High 
Yield Fund (PHF) has kicked off a monthly dividend of $0.075 per 
share.  Based on WHEN, and at what COST BASIS, or AVERAGE COST 
BASIS an investor would have bought such an investment, an actual 
return would then be calculated.

For example:  With six months now under our belt, the PHF has 
distributed $0.45 per share in dividends.  Yes, dividends, as 
this is a closed-end fund that trades like a stock, so while the 
fund manager is buying and selling "junk bonds," he's 
distributing the interest income, plus realized gains, less 
realized losses, to shareholders in the form of a dividend.

Now, if using basic math, an investor that did hold a position, 
taken all at once on 12/26/04 (upper portfolio), could view the 
PHF holding as having a cost basis of $9.23 - $0.45 (dividends 
received over 6 months) or $8.78 per share.  

If moving to the LOWER portfolio, then based on Friday's close, a 
modest gain of $0.15 per share could be calculated ($8.93 - $8.78 
= $0.15), or 1.7% gain.

I would also urge investors that do short bonds on their own, 
most likely for the first time, to understand that when you or I 
short a bond, the process of shorting has us BORROWING the asset 
from another investor, where we also OWE that investor interest 
that the bond generates.  

On 12/26/04, the 10-year Treasury yield ($TNX.X) was yielding 
4.148%.  With six months now gone, a trader that SHORTED the 10-
year yield would OWE roughly 2.124% in interest payments.  

In the context of "great gains" from shorting Treasuries, we 
might put that in the context of a 3.14% decline for the IEF 
since 12/26/04.  

A recalculation would be needed for such a comparison if having 
shorted the 10-year Treasury when it was yielding ($TNX.X) 3.834% 
on 03/26/04.  Almost at the bottom of its 45-year lows, which 
were found on 03/17/04 at 3.65%.

Well.... lets get back to rebalancing.  Here's what the 
rebalanced portfolio looks like, and we're ready to start the 
third quarter!

Beetle's Balanced Benchmark - 06/25/04 Close (rebalance 06/25/04)



In PINK is the carryover total, where in BLUE is an equal 
distribution of approximately $1,165.50 in each asset class.

Now.... lets have a little fun, but also learn how the market 
will add and remove risk, as only an efficient market can do.  
Here's a real neat feature that Dorsey/Wright and Associates 
provides with its EQUITY sector bullish percent, where we can 
actually make some time comparisons.

This is an EQUITY sector bell curve comparison, and while the 
width is not conducive to posting on the web page, will really 
give us an idea of how "overbought" many sectors were on 12/26/03 
(benchmark) and then what took place up to 03/26/04 (first 
rebalance).  

Dorsey/Wright Sector Bull Curve Comparisons - 12/26/03-03/25/04



We can see how things were shifted way to the right of the scale 
(0% to 100%) on 12/26/03, and by 03/25/04 the market was 
certainly starting to remove some risk (shifting to left).

We really only have one "sector" represented in our portfolio as 
it relates to equities, and that's the AMEX Gold Bugs Index 
($HUI.X), which I would equate to the Precious Metals Bullish % 
(BPPREC) from Dorsey/Wright and Associates.  Gold stocks were 
seeing some risk removed weren't they?

Now... here's another time reverence, from 03/25/04 to today.

Dorsey/Wright Sector Bull Curve Comparisons - 12/26/03-03/25/04



And here's where the various sectors reside within the sector 
bell curve.  Things have really been spread out over the last six 
months, that's for sure.

I've noted that while the Precious Metals sector is still the 
weakest equity sector in the bell curve, it is also the most 
"oversold" at this point, and just this week, a couple of stocks 
in Dorsey/Wright's precious metals sector saw some reversing 
higher point and figure buy signals, where last week, only 0-14% 
of the stocks in that sector showed any type of demand being 
found.

Hey... if the $HUI.X can gain back 1/2 of what it lost last 
quarter, then perhaps our current rebalancing will pay off!

Jeff Bailey







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

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

Symbol  Co               Date           Comment      EPS Est

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

RIMM   Research In Motion LtdMon, Jun 28  After the Bell      0.32
SONC   Sonic Corp.           Mon, Jun 28  -----N/A-----       0.31

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

MKC    McCormick & Company   Tue, Jun 29  Before the Bell     0.29
NPSN   NASPERS LTD           Tue, Jun 29  -----N/A-----        N/A


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

STZ    Constellation Brands  Wed, Jun 30  After the Bell      0.50
EMMS   Emmis Communications  Wed, Jun 30  -----N/A-----       0.07
GIS    General Mills, Inc.   Wed, Jun 30  Before the Bell     0.72
MON    Monsanto Company      Wed, Jun 30  Before the Bell     0.82


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

BMET   Biomet, Inc.          Thu, Jul 01  Before the Bell     0.36
CAG    ConAgra Foods, Inc.   Thu, Jul 01  Before the Bell     0.42


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

None


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

Symbol  Co Name              Ratio    Payable     Executable

FBMT    First National Bancshares 3:2      Jun  30th   Jul   1st
KWK     Quicksilver Resources, Inc2:1      Jun  30th   Jul   1st
AXYS    Axsys Technologies, Inc   3:2      Jun  30th   Jul   1st
TEVA    Teva Pharm Industries Ltd 2:1      Jun  30th   Jul   1st
PTEN    Patterson-UTI Energy Inc  2:1      Jun  30th   Jul   1st
CNT     CenterPoint Prop Trust    2:1      Jun  30th   Jul   1st
LPMA    Lipman Elect Engineering  2:1      Jul   1st   Jul   2nd
BPOP    Popular Inc.              2:1      Jul   8th   Ju1   9th
URBN    Urban Outfitters Inc      2:1      Jul   9th   Ju1  12th


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

This is it!  This is the week the markets have been focused on 
for the past month.  Tuesday brings the consumer confidence numbers.
Wednesday is the PMI, the FOMC decision on rates and the Iraq
handover.  Thursday is the ISM index announcement and Friday
is the June non-farm payrolls report.  



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

----------------
Monday, 06/28/04
----------------
Personal Income (BB)       May  Forecast:    0.5%  Previous:     0.6%
Personal Spending (BB)     May  Forecast:    0.8%  Previous:     0.3%


-----------------
Tuesday, 06/29/04
-----------------
Consumer Confidence (DM)   Jun  Forecast:    95.0  Previous:     93.2


-------------------
Wednesday, 06/30/04
-------------------
Chicago PMI (DM)           Jun  Forecast:    64.5  Previous:     68.0
FOMC Meeting - ANNOUNCEMENT on INTEREST RATES
IRAQ DEADLINE for formal handover of power.

------------------
Thursday, 07/01/04
------------------
Initial Claims (BB)      06/26  Forecast:     N/A  Previous:     349K
Construction Spending (DM) May  Forecast:    0.5%  Previous:     1.3%
ISM Index (DM)             Jun  Forecast:    61.2  Previous:     62.8
Auto Sales (NA)            Jun  Forecast:    5.6M  Previous:     5.7M
Truck Sales (NA)           Jun  Forecast:    8.0M  Previous:     8.5M


----------------
Friday, 07/02/04
----------------
Nonfarm Payrolls (BB)      Jun  Forecast:    240K  Previous:     248K
Unemployment Rate (BB)     Jun  Forecast:    5.6%  Previous:     5.6%
Hourly Earnings (BB)       Jun  Forecast:    0.3%  Previous:     0.3%
Average Workweek (BB)      Jun  Forecast:    33.9  Previous:     33.8
Factory Orders (DM)        May  Forecast:    1.5%  Previous:    -1.7%


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



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The Option Investor Newsletter                   Sunday 06-27-2004
Sunday                                                      2 of 5

In Section Two:

Watch List: Four-Lettered Candidates
Dropped Calls: GDW
Dropped Puts: INSP


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

Four-Lettered Candidates

___________________________________________________________________

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.
___________________________________________________________________


KLA-Tencor Corp - KLAC - close: 47.97 change: +0.89

WHAT TO WATCH: The SOX semiconductor sector has seen a pretty 
strong rebound this week with a 5.5% gain.  KLAC has out 
performed its fellows with a 6.9% gain on the week.  Furthermore 
KLAC has broken out above technical resistance at all its short-
term moving averages.  Right now KLAC is under resistance at 
$48.50.  A push through this level could be an entry point for 
bullish positions.  We would target a move to the 200-dma near 
$53.00.  However, watch out for potential resistance at its 100-
dma and the $50.00 mark.  A trade above the $49.00 mark would 
reverse its P&F chart from a sell signal to a buy signal.

Chart=


---

Amazon.com - AMZN - close: 51.80 change: +0.78

WHAT TO WATCH: Just four days ago AMZN was on the verge of 
collapsing through support and heading lower.  Actually, shares 
did trade below support at $49.00 and its simple 200-dma but 
managed a small rebound by the close on Tuesday.  Now the stock 
has spent the last two sessions trying to breakout over 
resistance at $52.00.  This just happens to coincide with the 
descending trendline of lower highs dating back to its October 
2003 high.  A breakout over $52.00 could lead to a run towards 
its January highs near $57.50.  Its bullish P&F chart points to a 
$75 price target.  Here is something else to keep in mind about 
AMZN.  Internet-buddy YHOO is going to report earnings in a 
couple of weeks.  Speculation is building that YHOO is going to 
have a great quarterly report.  Bulls could send YHOO, AMZN and 
the rest of the Internets higher in a pre-earnings ramp up.  
AMZN's earnings are expected a week or two after YHOO's.

Chart=


---

Electronic Arts - ERTS - close: 53.25 change: +1.94

WHAT TO WATCH: Wow!  ERTS was having a decent Friday but then 
shares surged higher toward the close to breakout above the 
$53.00 mark on stronger than average volume.  We see a couple of 
different patterns in ERTS' daily chart.  The easiest to see is 
the bull-flag pattern, which ERTS just broke out of.  The 
flagpole is suggesting a $57.00 price target.  The other pattern 
is an inverse head-and-shoulders pattern but it's harder to see 
so maybe we just need to wipe the dust from our monitors. 
However, if it is an H&S pattern then the target would be $58.00.  
This could be your bullish entry point.

Chart=


---

QUALCOMM - QCOM - close: 69.08 change: +0.40

WHAT TO WATCH: Yes, that is an optical illusion on your screen.  
If you look at QCOM's high for the day it might say $70.05 but we 
never actually saw it trade above $69.60 all day long.  Should 
QCOM actually break the $70.00 barrier it would produce a new 
quadruple-top breakout buy signal on its P&F chart with an $81.00 
price target.  Fortunately, daily technicals are positive again 
so we might actually see the breakout occur next week. 

Chart=


---

Inamed Corp - IMDC - close: 64.00 change: +1.99

WHAT TO WATCH: IMDC's high for the day is another optical 
illusion.  Some of the charting services available might point to 
a trade at $70.00.  It didn't happen during the normal session.  
IMDC never traded above $64.50.  However, the gain today is a new 
breakout to a new high as investors moved into IMDC due to it 
being added to the S&P midcap 400 index.  The recent rally also 
produced a new triple-top breakout buy signal on its P&F chart.  
This could be an entry point for a true run toward $70.00.

Chart=



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


WLS: $92.50 +0.30 - We highlighted WLS in the MarketMonitor today 
because the stock has produced an inverse H&S pattern with a 
triple-digit target.  Unfortunately, it's not optionable and 
stock trading volume is low.

BRCM: $45.41 +0.41 - We still like BRCM as a bullish play above 
the $44.00 level.  Target $50.00.

GD: $100.60 +1.67 - Wow!  After all this time GD has FINALLY 
broken through resistance at the $100.00 mark.  This looks like 
an entry point to target a run toward $110.

YHOO: $34.91 +0.80 - Yet another new multi-year high.  Earnings 
are expected on July 7th.

WFMI: 93.43 +2.07 - There appears to be no stopping this train.  
Only VERY aggressive traders should try and jump on.  Bulls are 
targeting psychological round-number resistance at $100.

KMRT: $73.82 +2.75 - Speaking of non-stop trains if you're long 
this one we suggest you seriously tighten your stop loss.  
Nothing goes up forever!


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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
^^^^^

Golden West Fncl - GDW - close: 107.65 chg: -1.15 stop: 107.00

We think it's time to cut this one loose, even though we never 
actually opened the play. We've been waiting for two weeks for 
GDW to trade through resistance and hit our trigger at $110.01 
but it never happened.  Friday's drop in the banking indices was 
mirrored in GDW and the group appears stuck in its trading range 
and/or poised to test recent support.  We'll look for new plays 
elsewhere.

Picked on June xx at $xxx.xx <-- See TRIGGER
Change since picked:  + 0.00
Earnings Date       07/20/04 (confirmed)
Average Daily Volume:    694 thousand   
Chart =



PUTS
^^^^

Infospace, Inc. - INSP - close: 35.96 change: +0.79 stop: 36.00

So much for that potential H&S topping formation.  INSP bottomed 
the day after we initiated coverage, having never hit our entry 
trigger and the proceeded to head higher throughout the balance 
of the week, finally triggering our stop on Friday.  Chalk this 
one up as a potential play that never gave us an opportunity to 
get aboard.  Given the way it played out, we're thankful for 
that!

Picked on June 22nd at        $33.83
Change since picked:           +2.13
Earnings Date                7/28/04 (unconfirmed)
Average Daily Volume =      1.08 mln
Chart =



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

! Please note changes to the Option Chains for new call and put
  plays.  We are no longer listing a "SL" or Suggested Stop Loss
  on individual options.  Most brokers offer the ability to list
  a stop loss for your option on the underlying stock.  
 
  All of OptionInvestor.com's directional call or put plays list
  a suggested stop loss for the stock itself and if the stock 
  trades at or below that stop on an intraday basis we will 
  close any hypothetical play at that time.  
 
OI  = Open Interest - the number of open contracts outstanding.
Last Trade @ = Indicates where the option traded last.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume
 
The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.
 
RISKS of SELLING PUTS:
The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


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DISCLAIMER
**********

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ADVERTISING INFORMATION

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or any Premier Investor Network newsletter please contact:

Contact Support
The Option Investor Newsletter                   Sunday 06-27-2004
Sunday                                                      3 of 5

In Section Three:

Current Calls: AHC, CAT, DHR, MERQ, EASI, ETN, PD
New Calls: EBAY
Current Put Plays: CCMP, ESRX, KSS, MO, OMC, SLAB
New Puts: GCI


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

Amerada Hess Corp. - AHC - close: 77.25 change: -0.26 stop: 73.85

Company Description:
Amerada Hess Corporation explores for, produces, purchases, 
transports and sells crude oil and natural gas.  These 
exploration and production activities take place in the United 
States, United Kingdom, Norway, Denmark, Equatorial Guinea, 
Gabon, Indonesia, Thailand, Azerbaijan, Algeria, Malaysia, 
Colombia and other countries.  The company also manufactures, 
purchases, transports, trades and markets refined petroleum and 
other energy products.  It owns 50% of a refinery joint venture 
in the United States Virgin Islands, as well as another refining 
facility, terminals and retail gasoline stations located on the 
east coast of the United States.

Why we like it:
As expected, shares of AHC had a strong move last week after 
breakout above the $75 resistance level, surging right to next 
resistance in the $78-79 area.  After pulling back on Thursday, 
the stock consolidated near the $77 level and actually held up 
rather well in light of the broad market weakness on Friday.  
While we're expecting to see a bit more weakness before the next 
upward push, new entries look favorable on a rebound from the $76 
level, which should provide solid support, with the 10-dma 
($75.14) rising swiftly.  We should not see price fall back into 
the former consolidation range, so our stop at $73.85 should be 
safe.  Traders that would prefer to enter on renewed strength 
will want to use a trigger over last week's high of $79.10 for 
entering new bullish positions.  We'll continue to target a rally 
to the $82-83 area for the successful conclusion of the play.

Suggested Options:
Shorter Term: The July $75 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 August 
$80 Call, while the more conservative approach will be to use the 
August $75 Call.  Our preferred option is the August $75 strike, 
as it is currently in the money and should provide sufficient 
time for the play to move in our favor.  

BUY CALL JUL- 75 AHC-GO OI=2404 last traded @ $3.40
BUY CALL JUL- 80 AHC-GP OI=1483 last traded @ $0.95
BUY CALL AUG- 75*AHC-HO OI=2447 last traded @ $4.70
BUY CALL AUG- 80 AHC-HP OI=1063 last traded @ $2.15

Annotated Chart of AHC:

 

Picked on June 17th at       $74.15
Change since picked:          +3.10
Earnings Date               4/28/04 (confirmed)
Average Daily Volume =     1.12 mln
Chart =


---

Caterpillar, Inc. - CAT - close 78.15 change: -0.95 stop: 76.00

Company Description:
Caterpillar Inc. operates in three principal lines of business: 
Machinery, Engines and Financial Products.  The Machinery segment 
designs, manufactures and markets construction, mining, 
agricultural and forestry machinery.  The Engines segment 
designs, manufactures and markets engines for Caterpillar 
machinery, electric power generation systems; on-highway vehicles 
and locomotives; marine, petroleum, construction, industrial, 
agricultural and other applications, and related parts.  The 
Financial Products segment consists primarily of Caterpillar 
Financial Services Corporation (Cat Financial), Caterpillar 
Insurance Holdings, Inc. (Cat Insurance) and their subsidiaries.  
Cat Financial provides a range of financing alternatives for 
Caterpillar machinery and engines, solar gas turbines, as well as 
other equipment and marine vessels.  Cat Insurance provides 
various forms of insurance to customers and dealers to help 
support the purchase and lease of Caterpillar's equipment.

Why we like it:
When we initiated coverage of CAT following its breakout over the 
$78 resistance level, we were hoping for a pullback to test that 
broken resistance as new support.  Based on Friday's pullback to 
near that level, it looks like we're going to get a solid shot at 
that ideal entry point.  The PnF chart is solidly bullish now and 
carries with it an upside target of $86, which would represent a 
breakout to new all-time highs.  We're setting our sights just a 
bit lower, looking for a rise to the $84-85 area, that caused the 
stock to stall both in January and then again in April.  Traders 
that would rather enter on continued strength will want to wait 
for a push through the $79.50 level before playing.  With the 50-
dma ($76.83) and 200-dma ($76.80) converged below current price, 
our $76 stop should have ample protection.

Suggested Options:
Shorter Term: The July $75 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 August 
$80 Call, while the more conservative approach will be to use the 
August $75 Call.  Our preferred option is the August $80 strike, 
as it is currently near the money and should provide sufficient 
time for the play to move in our favor.  

BUY CALL JUL- 75 CAT-GO OI=3269 last traded @ $3.80
BUY CALL JUL- 80 CAT-GP OI=4695 last traded @ $0.85
BUY CALL AUG- 75 CAT-HO OI=2962 last traded @ $4.80
BUY CALL AUG- 80*CAT-HP OI=8654 last traded @ $2.10

Annotated Chart of CAT:

 

Picked on June 24th at       $79.10
Change since picked:          -0.95
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.35 mln
Chart =


---

Danaher Corp. - DHR - close 50.40 change: +0.24 stop: 48.50*new*

Company Description:
Danaher Corporation operates in two business areas: 
Process/Environmental Controls and Tools and Components. The 
company's Tools and Components segment produces and distributes 
general purpose mechanics' hand tools and automotive specialty 
tools.  Among the household names they are responsible for are 
Sears' Craftsman line, Allen wrenches, and NAPA hand tools.  The 
Process Controls division, led by Veeder-Root, makes leak 
detection systems for underground storage tanks, as well as 
sensors, switches, measurement devices, and communications and 
power protection products.

Why we like it:
It was a strong week for our DHR play, with the stock smashing 
through the $49 resistance level first thing on Monday and then 
continuing upward to almost $51 before succumbing to some profit 
taking at the end of the week.  A quick look at the weekly chart 
shows just how significant this breakout is, as it is a bullish 
resolution to the continuation flag that has been building since 
the beginning of the year.  Breakout entries can be taken on a 
move above $51, while those looking for a pullback to support 
will want to target the $49.50-50.00 area.  Note that this 
support level should receive reinforcement from the rising 10-dma 
(currently $49.38).  We've raised our stop to $48.50 this 
weekend, which will be below the 20-dma ($48.37) by Monday 
morning.  There is likely to be more resistance found near $53, 
but our upside target for the play remains a viable target for 
those willing to wait for it.

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

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

BUY CALL JUL- 50 DHR-GJ OI=1200 last traded @ $1.40
BUY CALL AUG- 50*DHR-HJ OI= 800 last traded @ $2.15
BUY CALL AUG- 55 DHR-HK OI= 554 last traded @ $0.40

Annotated Chart of DHR:

 

Picked on June 20th at       $48.74
Change since picked:          +1.66
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     1.55 mln
Chart =


---

Mercury Interactive - MERQ - cls: 50.60 change: +0.16 stop: 48.50

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:
The more time that passes, the better that entry point back down 
at $48 is looking.  After consolidating there for the better part 
of a week, MERQ kissed the 20-dma (now at $48.56) and launched 
itself higher throughout last week.  We knew there would be some 
resistance found near $50 and it was encouraging to see the stock 
steadily push right through that obstacle and end near its high 
of the day on Friday after a failed selloff to just above $49.  
We can expect to see solid support now in the $49.50 area, which 
is being supported by the 10-dma (now at $49.30).  Traders that 
have their eye on a run all the way to strong resistance at $54 
can consider new entries above $51, but such an entry doesn't 
make sense for those traders only seeking a rise into the $52 
area.  For traders seeking that lower price objective, the best 
approach for new entries is on another successful rebound from 
above the 10-dma.  We'll maintain our stop at $48.50 this 
weekend, as it is just under the 20-dma.

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

Longer Term: Aggressive longer-term traders can use the August 
$50 Call, while the more conservative approach will be to use the 
August $47 Call.  Our preferred option is the July $50 strike, as 
it is currently at the money and should provide sufficient time 
for the play to move in our favor.  

BUY CALL JUL- 47 RQB-GR OI=2169 last traded @ $3.40
BUY CALL JUL- 50*RQB-GJ OI=2404 last traded @ $1.60
BUY CALL AUG- 47 RQB-HR OI=  45 last traded @ $4.30
BUY CALL AUG- 50 RQB-HJ OI= 233 last traded @ $2.85

Annotated Chart of MERQ:

 

Picked on June 6th at        $47.56
Change since picked:          +3.04
Earnings Date               4/22/04 (confirmed)
Average Daily Volume =     2.07 mln
Chart =


---

Engineered Support Sys - EASI - cls: 58.71 chg: +0.04 stop: 55.99*new*

Company Description:
Engineered Support Systems, Inc. is a diversified supplier of
high-tech, integrated military electronics, support equipment and
logistics services for all branches of America's armed forces and
certain foreign militaries. The Company also serves a variety of
commercial and industrial customers
(source: company press release)

Why We Like It:
It's been a bullish couple of weeks for defense stocks with the 
DFI index hitting new all-time highs.  EASI has followed in the 
DFI's shadow hitting new relative highs but not new all-time 
highs.  EASI needs to breakout over resistance at $60.00 and it's 
been trying all week.  Fortunately, traders have been buying the 
pull backs and EASI is producing a trend of higher lows that 
should produce an upside breakout.  Consider how close EASI is to 
our suggested profit target in the $60-62 range we are not 
suggesting new bullish positions at this time.  

Traders currently in the play need to decide if they're willing 
to exit at $60.00 or look for the move to $62.00 or anywhere in 
the middle.  We're feeling optimistic about the higher target 
with the DFI's intraday rebound from its simple 10-dma on Friday. 
The DFI has been bouncing from its 10-dma for the last few weeks 
so the group is poised for another spurt higher.  We're going to 
raise our stop loss to $55.99 but more conservative traders could 
actually place theirs under the $58 level to reduce their risk.

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

Annotated Chart:

 

Picked on June 20 at $ 56.22 
Change since picked:  + 2.49
Earnings Date       05/25/04 (confirmed)
Average Daily Volume:    297 thousand   
Chart =


---

Eaton Corp - ETN - close: 62.81 chg: -0.04 stop: 59.95

Company Description:
Eaton Corporation is a diversified industrial manufacturer with
2003 sales of $8.1 billion. Eaton is a global leader in fluid
power systems and services for industrial, mobile and aircraft
equipment; electrical systems and components for power quality,
distribution and control; automotive engine air management
systems and powertrain controls for fuel economy; and intelligent
drivetrain systems for fuel economy and safety in trucks. Eaton
has more than 54,000 employees and sells products to customers in
more than 100 countries. (source: company press release)

Why We Like It:
If you missed the first entry point on the breakout above 
resistance at $62.00 here's your chance to buy the pull back.  It 
is very common to see stocks pull back and retest recently broken 
resistance as support.  Looking at ETN bulls can look for a dip 
back to the $62.50 region (give or take 50 cents) and buy the 
bounce.  We will admit that ETN is overbought with the stock up 
five weeks in a row so we might actually see ETN trade sideways 
above $62.00 for a little while.  The next leg (sideways or up) 
will likely depend on the action in the major market indices.

Remember that we're playing a head-and-shoulders pattern breakout 
in ETN.  The H&S pattern points to a $71.00 target.  We're only 
going to target a move to $70.00.  Currently, the point-and-
figure chart, with its new triple-top breakout buy signal, points 
to an $80.00 price target (for longer-term investors).  Traders 
do need to be aware of ETN's earnings, which are expected on July 
13th.  If ETN doesn't hit our target by then we'll most likely 
close the play to avoid any earnings-announcement surprises.

Suggested Options:
We're going to suggest the July options but the Octobers are
available.  Our favorite would be the July 60s.

BUY CALL JUL 60.00 ETN-GL OI= 322 Last traded @ $3.50
BUY CALL JUL 62.50 ETN-GZ OI= 923 Last traded @ $1.70
BUY CALL JUL 65.00 ETN-GM OI= 325 Last traded @ $0.65

Annotated Chart:

 

Picked on June 18 at $ 62.05
Change since picked:  + 0.76
Earnings Date       04/14/04 (confirmed)
Average Daily Volume:    1.0 million    
Chart =


---

Phelps Dodge - PD - close: 77.73 chg: +1.65 stop: 77.00 *new*
 
Company Description:
Phelps Dodge Corp. is the world's second-largest producer of
copper, a world leader in the production of molybdenum, the
largest producer of molybdenum-based chemicals and continuous-
cast copper rod, and among the leading producers of magnet wire
and carbon black. The company and its two divisions, Phelps Dodge
Mining Co. and Phelps Dodge Industries, employ more than 13,500
people in 27 countries. (source: company press release)

Why We Like It:
Wow! Sometimes it pays to be lucky.  Not in the fact that PD has 
traded higher these last two weeks.  We expected that.  No, we're 
talking about PD trading higher for 9 days straight.  Stocks 
don't move in a straight line.  Normally it's 3 days up and 1 or 
2 days back or 5 days up and 2 or 3 days back.  Seeing PD up 9 
days in a row makes us very cautious because we know the pull 
back is coming.  Bulls should be encouraged by the rally, its 
breakout over resistance at $75.00 and the 100-dma and that it's 
been powered by better than average volume.  

We may have to give credit to PD's 2% jump on Friday to Lehman 
Brothers.  For the last 55 years LEH has produced their "10 
uncommon values" list with their top 10 picks they believe will 
out perform the S&P 500 over the next year.  That list was 
announced on Friday and PD was on it.  If you're curious the 
other nine stocks on the list are: CD, CVS, DISH, ITW, KRB, PGR, 
TEVA, TYC, and UNH.  

So what do we do now?  Our target has been the $80.00 region and 
PD is within striking distance.  Here's our suggestion.  We 
strongly recommend that traders consider taking profits now.  The 
July 70s calls have run from $3.80 to $8.20 and the July 75s have 
surged from $1.50 to $4.20.  However, we're going to hold out 
hope that PD can keep the momentum alive just a little while 
longer.  We're going to LOWER our OFFICIAL exit to $79.50.  That 
way we can jump out before everyone else does as PD approaches 
round-number psychological resistance at $80.00.  Yet we're also 
going to significantly TIGHTEN our stop to $77.00 so we can 
protect a good portion of this move.  

Suggested Options:
PD is very close to our profit target.  We are not suggesting new 
bullish positions at this time.

Annotated Chart:

 

Picked on June 20 at $ 71.68 
Change since picked:  + 6.05
Earnings Date       04/28/04 (confirmed)
Average Daily Volume:    2.6 million    
Chart =



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

eBay Inc - EBAY - close: 90.72 change: +1.98 stop: 86.50

Company Description: 
eBay is The World's Online MarketplaceŽ. Founded in 1995, eBay 
created a powerful platform for the sale of goods and services by 
a passionate community of individuals and businesses. On any 
given day, there are millions of items across thousands of 
categories for sale on eBay. eBay enables trade on a local, 
national and international basis with customized sites in markets 
around the world. Through an array of services, such as its 
payment solution provider PayPal, eBay is enabling global e-
commerce for an ever-growing online community.
(source: company press release)

Why We Like It:
Bulls certainly like to play their "favorites" and near the top 
of the list is EBAY.  The Internet auction giant has been a non-
stop train of momentum.  Shares are up 250% in the last 21 months 
and up 39% YTD alone.  Some would say the Internet bubble is back 
with EBAY's P/E reaching 111 but bulls point to its enviable 
growth rate.  A week ago Goldman Sachs issued positive comments 
on the stock stating their belief that EBAY would continue to out 
perform.  Sure enough in the last four days we've seen EBAY 
produce a bullish engulfing reversal candlestick while 
simultaneously rebounding from support at $84.00 and its rising 
40-dma.  This led to the breakout from its bull-flag pattern and 
now shares have hit new all-time highs above round-number 
psychological resistance at $90.00 (on volume 75% above average).  
Of course this should be nothing new to our readers.  We've been 
commenting and following EBAY's moves in the daily MarketMonitor 
and our nightly watch lists.  

We feel the recent technical breakout will coincide with an old-
fashioned earnings run.  The flagpole on the bull-flag pattern 
points to a $100 price target.   This plays handily into the old 
market maxim that stocks breaking past $90 tend to hit $100 in 
the near future.  The $100 mark being a powerful magnet for the 
momentum traders.  EBAY could also remain strong as investors 
speculate on another split announcement.  We suspect that EBAY 
could announce their next split with their earnings report due on 
or around July 22nd.  Currently its P&F chart just produced a new 
double-top breakout buy signal and points to a $117 price target.  
We're going to initiate the play with a stop loss at $86.50.  
Bulls can enter here or on any rebound above the $88.00 mark.  
More conservative traders may want to use a stop closer to $88.

Suggested Options:
We're going to suggest the August calls because the July calls
will expire before EBAY's earnings announcement.  Our favorites
are the 90s and 95s, unless EBAY dips back to $88.00 and then
the 85s would work nicely.

BUY CALL AUG 85 XBA-HQ OI= 981 Current Ask $7.80
BUY CALL AUG 90 XBA-HR OI=4231 Current Ask $4.60
BUY CALL AUG 95 XBA-HS OI=1098 Current Ask $2.40
BUY CALL AUG100 XBA-HT OI= 623 Current Ask $1.15 - gamblers only

Annotated Chart: 

 

Picked on June 27 at $ 90.72 
Change since picked:  + 0.00
Earnings Date       04/21/04 (confirmed)
Average Daily Volume:    8.3 million    
Chart =



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CURRENT PUT PLAYS
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Cabot Micro. - CCMP - close: 28.77 chg: +0.26 stop: 29.51*new*

Company Description:
Cabot Microelectronics, headquartered in Aurora, Illinois, is the
leading supplier of CMP slurries for polishing various materials
used in semiconductor manufacturing processes. The company's
products play a critical role in the production of the most
advanced semiconductor devices, enabling the manufacture of
smaller, faster and more complex devices by its customers.
(source: company press release)

Why We Like It:
As you know CCMP is a chemical/slurries supplier to the 
semiconductor industry.  As such it can be affected by big moves 
in the SOX.  We're encouraged that CCMP traded sideways on a week 
the SOX gained more than 5%.  The relative weakness in CCMP 
continues to look promising and overhead resistance at its simple 
40-dma is holding up.  Keep an eye on the SOX as a warning 
beacon.  If the SOX surges through overhead resistance at 480 and 
its 100-dma then CCMP might try to follow.  We'd probably 
consider new short positions in CCMP if it traded back down 
through $28.00 or $27.85.  Or we'd consider new positions now at 
current levels with our new stop at $29.51.  


Suggested Options:
Our favorite puts for short-term traders are the July 30s.  Traders
looking for new positions might want to consider the August 30s.

BUY PUT JUL 30 UKR-SF OI= 3044 Last traded @ $2.10
BUY PUT JUL 25 UKR-SE OI= 3085 Last traded @ $0.35
BUY PUT AUG 30 UKR-TF OI=  138 Last traded @ $2.90

Annotated chart:

 

Picked on June 13 at $ 29.46 
Change since picked:  - 0.69
Earnings Date       04/22/04 (confirmed)
Average Daily Volume:    3.7 million    
Chart =


---

Express Scripts - ESRX - close: 77.05 chg: +0.98 stop: 77.51

Company Description: 
Express Scripts, Inc. is one of the largest pharmacy benefit 
management (PBM) companies in North America. Express Scripts 
provides integrated PBM services, including network pharmacy 
claims processing, mail pharmacy services, benefit design 
consultation, drug utilization review, formulary management, 
disease management, medical and drug data analysis services, and 
medical information management services. Express Scripts is 
headquartered in St. Louis, Missouri.(source: company press 
release)

Why We Like It: (ORIGINAL Thursday Play Description)
We like ESRX because the stock is starting to fade after a strong 
run from under $55 to $80.00 between October 2003 and April 2004.  
Technically everything is turning bearish.  ESRX broke its five-
month rising channel in early May but managed another rally back 
to resistance at $80.00.  When ESRX failed to breakout over $80 
again this turned into a bearish double-top pattern.  Then on 
June 14th Wachovia downgraded the stock from "out perform" to 
"market perform" and ESRX gapped down under its simple 50-dma to 
test mild support at $75.00.  Shares of ESRX have since rallied 
back to fill the gap at $78.00 and are now rolling over again.  
Its daily technicals (MACD, RSI and stochastics) are all bearish 
while its weekly chart also shows a new MACD sell signal.  Its 
point-and-figure chart is bearish with a $64 price target.  The 
company had a chance to announce positive stock-moving news at 
the William Blair & Co 24th Annual Growth Stock conference this 
morning but whatever they presented failed to inspire investors.  

We're going to suggest using a TRIGGER at $74.95, which would be 
a breakdown under the round-number psychological $75.00 mark and 
its simple 100-dma.  Once triggered we'll target a move toward 
the 200-dma currently at $68.50; of course by the time we reach 
the 200-dma it may be a bit higher.  Our initial stop loss will 
be $77.51.

WEEKEND UPDATE:
ESRX did manage to bounce from support above $75.00 and its 100-
dma but the rebound began to lose steam in the afternoon and the 
stock produced a new short-term lower high.  We remain 
un-triggered in this play as we wait for the drop to $74.95.

Suggested Options:
There are only three weeks left for July options so we're going
to suggest the August puts.  Our favorite is the August 75s but
the 70s look good too.

BUY PUT AUG 75 XTQ-TO OI= 1408 Last traded @ $2.05
BUY PUT AUG 70 XTQ-TN OI= 1000 Last traded @ $0.80

Annotated Chart: 

 

Picked on June xx at $ xx.xx <-- see Trigger
Change since picked:  - 0.00
Earnings Date       04/27/04 (confirmed)
Average Daily Volume:    733 thousand   
Chart =


---

Kohl's Corp - KSS - close: 43.20 change: -0.40 stop: 44.35*new*

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:
Another day, another decline.  That seems to be the order of 
things for KSS and bears are loving it.  The stock is down 11 out 
of the last 12 days.  Shares have broken through round-number 
support at $45.00, at what should have been technical support in 
its 40 and 50-dma's and volume is better than average on the 
declines.  We feel it's important to reiterate to readers that 
it's okay to take profits early.  The July 50 puts have grown 
from $3.50 to $7.00 and the July 45 puts have risen from 85 cents 
to $2.15.  KSS is very short-term overbought and overdue for a 
bounce.  Don't let a rebound rob you of your profit.  After 
looking over KSS' intraday chart we suspect the stock could 
bounce back to the $44.00 region before fading again.  Therefore 
we're going to really tighten our stop to $44.35 to protect a 
decent chunk of this move.  Our goal all along has been a drop to 
the $41-42 region and KSS is getting close.   The $42 level is 
potential support so we might call it quits and exit if KSS hits 
$42.00.  Be ready.  

Suggested Options:
KSS is getting pretty close to our profit target range.  We are
not suggesting new bearish positions at this time.

Annotated Chart:

 

Picked on June 06 at $ 47.45 
Change since picked:  - 4.25
Earnings Date       05/13/04 (confirmed)
Average Daily Volume:    3.7 million    
Chart =


---

Altria Group - MO - close: 47.80 change: -0.65 stop: 49.50

Company Description:
Altria Group, Inc., formerly Philip Morris Companies Inc., is a 
holding company and the parent company of Philip Companies Inc.  
The company's wholly owned subsidiaries, Philip Morris USA, 
Philip Morris International and its majority-owned (84.2%) 
subsidiary, Kraft Foods Inc. are engaged in the manufacture and 
sale of various consumer products, including cigarettes, foods 
and beverages.  The company changed its name from Philip Morris 
Companies to Altria Group in January 2003.

Why we like it:
We've certainly had our patience tested by MO, as the stock 
drifted along for close to two weeks in a very tight 
consolidation pattern.  With the move slightly over the 30-dma 
($48.32) late last week, it looked like we might be in trouble -- 
that is until the end of day selloff that took the stock back 
under $48, along with daily Stochastics tipping over into a fresh 
bearish cross.  Traders that kept the faith and used the recent 
test of resistance as an entry point may be rewarded next week, 
with MO looking like it is finally going to roll over and break 
near support at $47.  That breakdown will be the trigger for 
momentum traders to jump into the fray, seeking a quick plunge 
down to next support near $45.  Maintain stops at $49.50, just 
over the top of the most recent failed rebound.

Suggested Options:
Aggressive traders will want to use the July 47 Put while those 
with a more conservative approach will want to use the July 50 
strike.  Our preferred option is the July 50 strike, as it is 
currently in the money and should provide ample time for the play 
to move in our favor.

BUY PUT JUL-50*MO -SJ OI= 1344 last traded @ $2.40
BUY PUT JUL-47 MO -SW OI=12811 last traded @ $0.85

Annotated Chart of MO:

 

Picked on June 15th at        $47.55
Change since picked:           +0.25
Earnings Date                7/20/04 (unconfirmed)
Average Daily Volume =      6.63 mln
Chart =


---

Omnicom Group - OMC - close: 77.02 change: +0.88 stop: 79.75

Company Description:
Omnicom Group is a marketing and corporate communications 
company.  The company has grown its strategic holdings to over 
1500 subsidiary agencies operating in more than 100 countries.  
OMC's wholly and partially owned businesses provide 
communications services to clients on a global, pan-regional and 
national basis.  The company's agencies provide an extensive 
range of marketing and corporate communications services, 
including advertising, brand consultancy, crisis communications, 
custom publishing, database management, digital and interactive 
marketing, business-to-business advertising, employee 
communications and environmental design.  OMC also provides field 
marketing, healthcare communications, marketing research, 
promotional marketing and sports and event marketing.

Why we like it:
Just as we hoped it would, OMC slid lower during the early part 
of last week, confirming the long-term H&S pattern with a 
breakdown under the $76 neckline.  Also as expected, the stock 
found solid support at the $75 level and rebounded strongly on 
Friday to close back over $77 and right on that broken neckline.  
Note that Friday's intraday high was perfectly capped by the 10-
dma ($77.34).  While we'd like to think OMC will roll over from 
here, that doesn't seem a reasonable expectation with the daily 
Stochastics only part way towards overbought.  More 
realistically, we should be looking for a continued rebound up 
into the $78.00-78.50 area for a retest of broken support.  With 
the 20-dma ($79.01) and 30-dma ($79.13) steadily approaching the 
top of that resistance zone, any upside move over that level is 
going to be difficult to achieve.  We'll continue to target 
entries on a rollover from that resistance area, expecting the 
downtrend to reassert itself and drive OMC down towards the $70 
area.  Momentum traders will now want to see a break of the March 
low at $74.65 before jumping aboard.  Note that our stop is 
currently $79.75, which is just over the 50-dma ($79.74) and 
solidly over what should be strong resistance.

Suggested Options:
Aggressive traders will want to use the July 75 Put while those 
with a more conservative approach will want to use the July 80 
strike.  Our preferred option is the July 80 strike, as it is 
currently in the money.

BUY PUT JUL-80*OMC-SP OI=3589 last traded @ $3.60
BUY PUT JUL-75 OMC-SO OI= 939 last traded @ $0.80

Annotated Chart of OMC:

 

Picked on June 20th at        $77.14
Change since picked:           -0.12
Earnings Date                4/27/04 (confirmed)
Average Daily Volume =      1.09 mln
Chart =


---

Silicon Labs. - SLAB - close: 47.27 change: +0.01 stop: 48.50

Company Description:
Silicon Laboratories designs, manufactures and markets 
proprietary high-performance mixed-signal integrated circuits 
(ICs) for the wireless, wireline and optical communications 
industries.  The company initially focused its efforts on 
developing ICs for the personal computer modem market and is now 
applying its mixed-signal and communications expertise to the 
development of ICs for other high growth communications devices, 
such as wireless telephones and optical network applications.

Why we like it:
What a roller coaster ride SLAB has been on in the past week.  
Starting out with a strong break under the $44.90 entry trigger, 
the stock plunged below $43 only to turn on a dime and rally 
strongly higher, coming within 2-cents of tapping our stop on 
Thursday before pulling back under the 20-dma ($48.19) and 30-dma 
($48.05).  So we're left with the question of whether the 
breakdown was a bear trap or if this current rebound is a bull 
trap.  The Semiconductor index (SOX.X) isn't really providing any 
guidance, as it is above the $470-475 area, but not by much, 
keeping the larger downtrend intact.  Until we see more 
significant signs of renewed weakness, it is hard to justify new 
entries into the play.  That doesn't mean that it wouldn't work 
well for aggressive traders willing to do so, but it is a very 
aggressive move in light of the strength with which SLAB ended 
the week.  A more prudent approach will be to wait for a break 
back under $46.50 before playing.  We still have our sights set 
on a decline down to the $39-40 area, but first we need to see 
this rebound fail.  Maintain stops at $48.50, as a move through 
that level will confirm that we're on the wrong side of the 
trade.

Suggested Options:
Aggressive traders will want to use the July 45 Put while those 
with a more conservative approach will want to use the July 50 
strike.  Our preferred option is the July 50 strike, as it is 
currently in the money.

BUY PUT JUL-50 QFJ-SJ OI= 675 last traded @ $3.70
BUY PUT JUL-45*QFJ-SI OI=4993 last traded @ $1.10

Annotated Chart of SLAB:

 

Picked on June 20th at        $44.99
Change since picked:           +2.28
Earnings Date                4/26/04 (confirmed)
Average Daily Volume =      1.14 mln
Chart =



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

Gannett Co - GCI - close: 84.95 change: -0.32 stop: 86.05

Company Description: 
Gannett Co., Inc. is a leading international news and information 
company that publishes 101 daily newspapers in the USA, including 
USA TODAY, the nation's largest-selling daily newspaper. The 
company also owns more than 500 non-daily publications in the USA 
and USA WEEKEND, a weekly newspaper magazine. Gannett subsidiary 
Newsquest is the United Kingdom's second largest regional 
newspaper company. Newsquest publishes more than 300 titles, 
including 17 daily newspapers, and a network of prize-winning Web 
sites. Gannett also operates 22 television stations in the United 
States and is an Internet leader with sites sponsored by its TV 
stations and newspapers including USATODAY.com, one of the most 
popular news sites on the Web. (source: company press release)

Why We Like It:
It's been a tough week for advertisers and newspaper companies.  
The industry has already been struggling because a much-
anticipated rebound in the advertising market, fueled by big 
spending for political ads and the upcoming Olympics, is behind 
schedule.  Now the sector is sinking after it was reported this 
past week that two major newspapers in the Chicago and NY area 
have been lying about their circulation numbers.  Fears that 
over-inflated circulation results are an industry wide problem 
have hit GCI, the producer of USA Today.  Furthermore GCI 
recently reaffirmed its earnings guidance for $1.28-1.30 per 
share, which is essentially under current analysts' estimates at 
$1.30.  

Technically GCI doesn't look so hot either.  The stock broke 
through technical support at its 200-dma two days ago. Volume has 
been very big on the last three days of declines suggesting there 
is some momentum behind the move.  GCI's point-and-figure chart 
shows support at $84.00, which matches with support on its daily 
and weekly charts.  A breakdown under $84.00 would produce a 
quadruple-bottom breakdown sell signal on its P&F chart.  So 
we're going to use a TRIGGER at $83.95 to open the play.  Our 
initial target is only $80.00 but we'll re-evaluate as GCI nears 
$80.  We'll use an initial stop loss at $86.05.

We need to see the breakdown soon because GCI is set to report 
earnings on July 13th and we don't plan to hold over the 
announcement.

Suggested Options:
While we plan to exit before the July options expire we'd still
prefer to play the August puts.  Our favorites are the August
85s.
BUY PUT AUG 85 GCI-TQ OI= 170 Current Ask $2.30
BUY PUT AUG 80 GCI-TP OI=  11 Current Ask $0.75

Annotated Chart: 

 

Picked on June xx at $ xx.xx <-- See TRIGGER
Change since picked:  - 0.00
Earnings Date       07/13/04 (confirmed)
Average Daily Volume:    957 thousand   
Chart =



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The Option Investor Newsletter                   Sunday 06-27-2004
Sunday                                                      4 of 5

In Section Four:

Leaps: Anticipation
Option Spreads: Covered Call Trading – The Reality – Part II


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*****
LEAPS
*****

Anticipation
By Mark Phillips
mphillips@OptionInvestor.com

It seemed so far away when we first started discussing the events 
about to unfold this week - the FOMC meeting and the Iraq handover 
- but here they are in the week straight in front of us.  As 
expected, the markets have had a hard time gaining any real 
traction ahead of these major events, but in 3 more trading days, 
the rubber is going to hit the road and we'll see whether the 
bulls or the bears have the upper hand.

In my opinion, it's a foregone conclusion that the Fed will raise 
interest rates by 25 basis points in Goldilocks fashion.  There's 
been enough jaw-boning about the "measured approach" that will be 
taken that anything more than 25 basis points will be too much.  
On the other hand, if the Fed were to fail to raise rates at all, 
we would collectively be asking ourselves "what's wrong with the 
economy that the Fed doesn't think it can handle even a minor rise 
in rates?".  The die is cast and I think that's what we've been 
seeing in these halting upward moves in the market.  Investors 
have come to the same conclusion and expect rates to rise by the 
token 25 basis points.  Any deviation from the expectation and I 
would expect to see the broad market sell off.  The Fed has put so 
much effort into guiding investors' expectations, that I think a 
surprise is unlikely.

The major indices have begun to inch over solid resistance, gold 
has pushed over the $400 level and the yield on the 10-year Note 
is threatening to break back under the key 4.6% level after 
putting in a double top near 4.9%.  To me, this suggests that the 
stock market will go up after the meeting, gold will resume a 
bullish trajectory and bonds will drop.  The action in the bonds 
is what I think is the most interesting.  After breaking out on 
fears of rising short-term rates, it appears the bond traders are 
having second thoughts.  I think this is a direct reflection of 
the admission that perhaps bonds have moved too far, too fast for 
what is now the perceived rate of rising rates from the Fed.  Make 
no mistake, rates are going to be heading higher and we will see 
the 10-year Note push through the 4.9% level in the months ahead, 
but perhaps not until we see a significant pullback first.  The 
only thing that could prevent bonds from heading higher over the 
balance of the year is if investors start to get a whiff of that 
nasty "Deflation" monster, which I view as unlikely, but still 
possible.

So with equities, gold and bonds giving us a hint as to where 
they're headed in the near-term due to clear expectations of what 
the Fed will do this next week, why hasn't it happened with any 
real force?  That's the big question and the answer comes in two 
parts.  First off, in concert with the FOMC meeting, we have the 
Iraq handover, and with the escalation in violence as the date 
approaches, there's clearly some concern that the transition will 
not proceed smoothly.  Additionally, we have the 4th of July 
weekend coming up right afterwards and that is potentially a ripe 
target for terrorists bent on causing madness and mayhem.  In 
short, while the decision on interest rates is important, there's 
still a great deal of uncertainty in investors' minds as to what 
the immediate future holds.  We see that manifested in the lack of 
conviction in any moves in any broad market, whether it be related 
to stocks, bonds, currencies or commodities.

Combine those immediate factors with the fact that there are other 
notable events throughout the summer (Olympics and the Republican 
and Democrat conventions) and there is a dearth of motivation to 
take big positions.  Of course, we're already well within the 
usual summer doldrums, but I have a sneaky suspicion that this 
summer won't turn out to be the sleeper that so many market 
participants expect.  That opinion won't buy you much though, as 
it is only one man's view, however well-considered that opinion 
might be.

So once we get past the events of next week, what might create the 
catalyst to heat things up?  How about earnings?  That's right, 
it's time to get that cycle started again and with the dearth of 
meaningful warnings, what might that tell us?  Reading between the 
lines, I think we can say that our corporate chieftains are pretty 
comfortable with earnings estimates and are looking for a solid 
performance for this earnings cycle.  I dare say investors have 
already come to that conclusion and it is the near-term event risk 
that has them on the sidelines.

One aspect of the market that has caught my attention over the 
past couple weeks is the very strong action in the Internet 
sector.  Have you looked at the charts of EBAY, YHOO and AMZN 
lately?  I can't believe I missed Watch Listing EBAY, but the 
recent dip was a classic bullish entry point near the $85 level.  
Check out that PnF chart, and it gives an upside target of $117!!  
How about YHOO pushing to fresh multi-year highs and AMZN on a PnF 
Buy signal again with an upside target of $75.  I'm not ready to 
put any of them on our list of play candidates, but I do view this 
as a sign of investor sentiment.  These stocks are not 
particularly sensitive to interest rate policy and as we've seen 
in the past, not particularly vulnerable to geopolitical events.  
Could it be that they're giving us the early hint that the market 
will head higher through the summer months, barring any big 
surprises?

But there is one issue that is causing me some concern on the 
economic front.  It is the relative action in the CPI and PPI 
reports.  Let's deal with the raw numbers, rather than core 
numbers, as I think it is silly to remove such things as food, 
energy and housing from the equations -- these are obviously 
important factors.  Over the past 3 months, we've seen the PPI 
rise by +0.5%, +0.7% and most recently +0.8%.  Let's forget about 
the implications of projecting that out to an annual rate of 
inflation and instead just note that we've seen a total increase 
of +1.8% over the past 3 months.  Now let's look at the CPI 
reports over the same period of time.  The CPI rose +0.4% in 
March, followed by +0.3% in April and most recently +0.6% in May 
for a total rise of +1.3% over the past 3 months.

Now let's review what these reports actually represent.  The PPI 
is the Producer Price Index, which represents the rise (or fall) 
in the cost to producers of finished goods.  The CPI is the 
Consumer Price Index, which represents the rise (or fall) in the 
price of goods we as consumers pay.  If PPI is up +1.8% in the 
past 3 months and CPI is up +1.3%, it doesn't take a genius to 
figure out that producers have not been able to pass all their 
additional costs on to the consumer.  The bottom line there is 
that profits will be squeezed.  That extra 0.5% has to come from 
somewhere, doesn't it?  That, in a nutshell is my concern -- why 
aren't the costs being passed on to the consumer?  Is competition 
that stiff?  The corollary to that question is whether we're 
looking at a strong rise in consumer prices in the months ahead, 
as producers play catch up?

We all know that consumer expenditures make up roughly 70% of U.S. 
GDP.  Could it be that we can't afford to pass all the additional 
production costs on to the consumers for fear that it will cause 
spending to slow down and thus threaten the strength of the 
economic recovery?  I don't have the answers, but I do have a lot 
of questions and that keeps me cautious when trying to interpret 
the macro-economic data trends.

Alright, that's enough of the big picture -- now let's see what is 
happening in our individual plays and play candidates.  With the 
notable exception of AIG (which I think is waiting on the FOMC 
decision) our bullish plays are actually doing quite well.

Portfolio:

HD - It certainly appears that HD is waiting for some direction 
from the FOMC meeting next week before making a directional move.  
The stock continues to wander around in the $35-36 area, with 
neither the bulls or the bears able to make any significant 
progress.  We'll stay the course here, with our stop up at $38, 
but my expectation is that this one will not work out in our 
favor.  Traders unwilling to take the risk of a significant 
adverse post-FOMC move may just want to book the loss near current 
levels and look for a more favorable place to put the capital to 
work.  As we've been saying for more weeks than I care to count, a 
break below $31 will be necessary to turn that PnF chart bearish.  
The way the stock continues to hug the upper channel line suggests 
to me that an upside break is brewing.

CHK - After several failed attempts, our Natural Gas play on CHK 
has really gotten some traction and last week the stock actually 
touched the $15 level.  I like the way volume appears to be rising 
along with price and the stock looks like it has finally begun the 
bullish move that will take it up to next resistance near $16.50.  
Note how price actually broke above the top of the 4-month rising 
channel last week.  New positions at this juncture don't really 
look favorable, but those positions already established appear to 
be in good shape.  The weekly chart is particularly encouraging, 
as it shows the stock having broken above more than 6-months of 
horizontal consolidation, with the Stochastics oscillator making 
another bullish reversal from well above oversold territory.  
We're nearing the point of having a double on this play since our 
entry point, so I would suggest that a rally up to the $16.00-
16.50 area should be used to harvest gains and then perhaps look 
to re-enter on the next pullback near support.

LUV - As mentioned last weekend, LUV certainly looked poised for 
an upside breakout, with the strength in the Transports starting 
to have a positive effect.  It took until Friday's deal was struck 
with the flight attendants to provide the catalyst for the 
breakout, but then the stock really took off.  The first leg of 
Friday's rally took the stock over the 200-dma, and then upside 
continuation pushed it even higher, ending right at $17 on huge 
volume.  Recall that we were expecting the heavy travel season to 
give this play an upside boost and it certainly seems to be 
playing out that way.  We should expect to see some resistance 
come in near the $18 level and then we'll see if there's enough 
thrust for a rally towards strong resistance in the $19.50-20.00 
area.  Raise stops to $15 this weekend, which is just under the 
50-dma, as well as exactly the intraday low from mid-June.

TYC - While TYC didn't exactly end the week on a positive note, 
the stock did manage another weekly gain.  Of course, it wasn't 
any great surprise to see the pullback from the first foray over 
the $33 level, as the stock ran into the 200-week moving average.  
I would expect to see a dip into the $31-32 area before TYC is 
able to once again return to its upward trajectory.  With our 
initial target at $35 and our longer-term objective up at $40, we 
don't want to crowd our stops too much yet.  But it does make 
sense to raise the stop to $29.50, which is just below both the 
50-dma (29.83) and the lower boundary of the rising channel.

AIG - With investors clearly fixated on the impact of rising 
interest rates, AIG is the lone laggard on our bullish playlist, 
as it continues to vacillate about our $72 entry point.  We still 
have the potential for a H&S top being built, but at the same 
time, this could simply be a sideways consolidation before the 
stock delivers a strong upside move in agreement with the picture 
offered by the PnF chart (target = $94).  We've taken our position 
and now we're waiting with the rest of the market to see what 
impact next week's FOMC decision will have on the stock.  With $4 
of downside risk and more than $20 of upside potential, the risk 
to reward scenario is quite favorable.  Maintain stops at $68, 
which would be a new PnF Sell signal, invalidating our current $94 
target.

Watch List:

GM - Another week of consolidation in the $47-48 area is about 
what we should have expected from our potential play on GM.  
Afterall, the company derives the bulk of its profits from the 
Financial arena, so next week's interest rate decision should be 
pivotal.  We could see the stock surge or plunge following the 
FOMC meeting, but I'm personally expecting an upside move.  What 
we can't gauge is whether it will be strong enough to propel GM 
through the top of its long-term descending channel or if it will 
offer a delectable entry point and rollover right at the top of 
the channel. I'm quite content to keep the play on hold, pending 
the outcome of next week's trading action, especially with weekly 
Stochastics still pointing straight up after having given us very 
clear bullish divergence.

OMC - Last week's price action certainly gave us some nice 
confirmation for our potential play on OMC.  The stock continued 
its weakness early in the week, breaking the long-term H&S 
neckline near $76.50 and then finding support right at the $75 
level.  The ensuing bounce has price action headed towards what 
should be very strong resistance in the $79-80 area, with a fresh 
bearish cross of the 50-dma and 200-dma.  The PnF chart is 
currently bearish to the $69 level, but our H&S pattern gives us a 
downside target of $65.  With our entry target at the $79-80 
resistance level, and our stop at $84, that gives us a very nice 
risk to reward ratio.  Look for that rollover at resistance to 
provide entry.


Radar Screen:

EK - We're actually starting to see a bit of upside action from EK 
as the stock hints that it might be waking from its long slumber.  
I took some time this week to more accurately draw my long-term 
descending trendline, and it now rests right at $27.  Oscillator 
and price action suggests that we'll see a test of that line, 
quite possibly next week in response to the FOMC decision on 
interest rates.  Despite that potential, I just can't bring myself 
to move EK onto the Watch List this weekend.  The better entry 
will come on a rollover up near the highs from January and 
February, but at the same time, that would be a solid breakout 
over the descending trendline.  That leaves us with a mixed 
picture, which is a strong indication that we ought to leave it 
alone for now.  Perhaps more clarity will emerge in the week 
ahead.

CTX - It took over a month, but we've finally finished the 
analysis series on the Housing sector and CTX emerged as one of 
the two most likely candidates for a downside play.  But I can't 
stress enough the importance of remembering that every view we can 
take of the overall sector is one of continued bullishness.  In 
other words, we don't yet have "permission" to play the downside.  
But when the sector does crack, we have a very clear benchmark for 
where to consider a play on CTX.  That will come on a breakdown 
under the $43 level.  If we had a bearish view on the $DJUSHB 
sector, I might have considered adding CTX to the Watch List this 
weekend, but that's just too big a leap (pun intended) to take 
ahead of next week's FOMC meeting.  Barring any big surprises, 
look for CTX to make a move to the Watch List next weekend.

LEN - I actually like the downside prospects for LEN better than 
CTX, the reasons for which have been laid out in my recent series 
on the Housing sector.  But with the picture on the daily chart 
hinting at an upside breakout, it's obviously premature to move 
this one onto the Watch List.  My expectation is that we'll see a 
near-term upward move towards the $50 level, which will hopefully 
complete that H&S top formation and then we'll finally see the 
breakdown below the $41 neckline.  What I really like about LEN as 
a downside candidate is the fact that the modified scale PnF chart 
is already on a strong Sell signal.  As I've mentioned several 
times lately, next week's decision on interest rates is only the 
starting point for the final setup we're looking for.

NEM - We've been closely monitoring the action in the Precious 
Metals sector in recent weeks, looking for a sign that it's time 
to take another shot at a bullish play on NEM.  One of the keys 
we've talked about is needing to see the price of gold move back 
over the pivotal $400 level and we got that last week.  That 
turned the $5-box scale PnF chart for $GOLD bullish again, with an 
upside target of $455, which will continue to grow as long as we 
don't see the price of the yellow metal put in a 3-box reversal.  
We've also looked at the alternate scale PnF charts on the XAU and 
HUI indices, and are seeing some encouraging signs there as well.  
XAU is already bullish, with its upside target of $120, while $HUI 
is also bullish with an upside target of $258.  Note that those 
targets (if achieved) would be new multi-year highs for $XAU and a 
match of the recent highs for $HUI.  NEM's own PnF chart looks 
solid on the standard scale, and a trade at $41 will be a new Buy 
signal there as well, completing the bullish picture.  We're 
likely to see things shaken up a fair amount following next week's 
FOMC meeting, and if NEM can trade the $41 level, then we'll be 
looking to add this one to the Watch List as well.  But for now, 
we remain interested observers.

NOK - We're still waiting for something bullish to materialize on 
NOK's charts, with the stock still looking rather weak, especially 
on the PnF chart.  The stock has spent the past few weeks hugging 
the $14 level, as it continues to be pressured by the 50-dma.  At 
the same time, we're seeing a very tempting bullish picture on the 
weekly Stochastics -- we just need something else to tilt the 
scales in our favor.  Patience has been working rather well for us 
in recent months, so we'll apply it to this play as well.  
Hopefully next week's decision on interest rates will help to 
provide more clarity.

MSFT - This one's been percolating around in my head ever since 
the announcement that MSFT will decide what to do with its cash 
hoard.  I don't think the actual use of that cash is particularly 
important except as a catalyst to get the stock moving again.  
Take a look at the weekly chart and you can see the way it has 
been wedging up under the $30 level.  I need to do some more chart 
research on this one, but I'm thinking we could see a strong 
breakout -- possibly ahead of the company's earnings report.  If 
MSFT does break out, the obvious first hurdle will be the $35 
level, but I like the prospects for a long-term move towards the 
$40 resistance level, which was last visited 4 years ago.

Closing Thoughts:
One way or the other, 7 days from now, we should have a great deal 
more clarity to work from.  I was really tempted to add some new 
plays this weekend, but in the end felt it was more in keeping 
with our disciplined approach to wait for the events of the next 
week to unfold first.  We've been doing fairly well lately and I'm 
not one to mess with success.  Patience has been working quite 
well and I think it's a quality we should all endeavor to apply in 
all of our trading exploits.  One thing is certain -- next week 
there will be some new plays to consider.  I just don't know if 
they will be bullish or bearish!

Have a great week!

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
                            PC SEP-2004 $ 50  GM -IJ
OMC    06/20/04   $79-80       JAN-2006 $ 80  YGS-MP
                               JAN-2007 $ 75  OBG-MO
                            PC SEP-2004 $ 85  OMC-JQ



New Portfolio Plays

None


New Watchlist Plays

None


Drops

None


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

Covered Call Trading – The Reality – Part II
By Mike Parnos, Investing With Attitude

Successful option trading is a lot like therapy – it takes hard 
work.  Unfortunately, we live in a lazy world.  Rather than put 
forth a little effort, many people hand over life responsibilities 
and tasks to others – then whine like spoiled children when the 
results aren’t what they wanted.  The path of least resistance 
isn’t like the yellow brick road.  It leads to the soup kitchen – 
especially when it comes to taking care of your money.

Covered call writing is a popular strategy.  Why?  Because it’s 
pretty simple.  You own a stock.  You sell someone the right to 
buy your stock.  They give you money.  Either the stock goes or it 
stays.  Like I said, pretty simple.  You can’t lose, right?  If 
you believe that, you’re either an idiot or you’ve been listening 
to too many old Wade Cook tapes.

What Is A Successful Covered Call?
A successful covered call play results in your stock being called 
away.  Don’t become depressed.  Don’t take it personally.  You 
haven’t been deserted.  You shouldn’t suffer from separation 
anxiety.  Your stock was a tool – something you used to generate a 
little cash flow – nothing more, nothing less.  You shouldn’t sell 
covered calls on stocks that you don’t want to have called away.
Does that stop traders from selling calls on their favorite 
stocks?  Hell no.  When their precious stock is trading above the 
strike price of the short call, what can they do – besides panic, 
of course?

Rolling For Dollars
If you believe your sold call is at risk of being exercised, you 
can buy it back and roll it out for another month or two and to a 
higher strike price.  This, in effect, buys you more time and 
should put a few more premium dollars into your account.

For example, let’s say you sold the near term DELL $30 call.  The 
stock has moved to $31.50 and you believe it’s going to continue 
higher – without you.  The problem is that you’ve capped your 
potential profit when you sold the $30 covered call.  With a few 
weeks left to expiration, there will still be some time value left 
(about $.50) in the $30 call along with the intrinsic value 
($1.50).  It might cost you $2.00 to buy back the option and free 
up your stock.

You might look at the next month’s option chain and see that the 
$32.50 call is selling for $.75.  You could sell the July $32.50 
call and take in the $.75, thereby covering the extra $.50 of time 
value you spent to buy back the June $30 call.  You would again be 
taking on an obligation to sell your DELL shares – this time at 
$32.50 – in about six weeks.  As DELL continues to move up, you 
can repeat the process.  Additional option premium may not always 
be there, but at least you’ll still own your precious stock.
 
When Uncle Sam Gets Too Personal
Let’s say you bought a stock years ago and, after a few stock 
splits, you have a cost basis of $5 on 1,000 shares of DELL stock.  
DELL was trading at $29 when you decided to pick up a few extra 
dollars by selling the $30 covered call.   It didn’t cross your 
mind at the time that, if the DELL stock gets called away, you 
will have to pay capital gains tax on your profits.  On expiration 
Friday, DELL closed at $31.50.  Say goodbye to 1,000 shares.

Is there a way to avoid that uncomfortable feeling of Uncle Sam’s 
hand fishing around in your pocket for his share of your profits?  
Yes, there is.  There are actually two things you can do.

1) On expiration Friday, when you see that DELL is $31.50, you 
should be able to buy back your short call for about $1.60.  That 
eliminates your obligation and your 1,000 shares of DELL are still 
yours.  The $1.60 you paid to buy back the short call is almost 
entirely made up for by the additional $1.50 that DELL is above 
the $30 strike price.

2)  Suppose you didn’t have the presence of mind to buy back your 
short call prior to expiration and you’re faced with losing your 
1,000 shares of DELL.  All is not lost.  All you have to do is, on 
Monday, simply buy another 1,000 shares of DELL.  You see, the 
market doesn’t care which 1,000 shares of DELL it takes from you 
when the short call is exercised.  You will have do designate in 
your records (and with your broker) that the new 1,000 shares are 
the ones you want to give up. Your records will then reflect your 
cost basis as whatever you paid for the new shares.  If you paid 
over $30, the increased value of your old 1,000 shares should make 
up for any difference.

In this instance, you can take advantage of your ability to buy 
the new shares of stock on margin.  After all, you’ll only have 
them in your possession for a day or two before they’re gone.  So, 
what looks like a $31,500 expenditure is actually only half of 
that.  That’s another reason why it never hurts to keep some 
powder dry – just in case.  The funds to buy new shares can 
actually come from other marginable securities.  If you have 
another $32,000 of marginable stock in your account, you probably 
wouldn’t need any additional cash.


We’re Not Done Yet
We’ve only addressed what your alternatives are if the stock moves 
up too far too fast.  The more likely scenario is that the stock 
will go down too far too fast – and you will have reacted like the 
deer caught in the headlight.  That’s where venison steaks come 
from.

In our next column – “A Covered Call Story – The Repair” – we’ll 
look at ways of fixing covered call trades that have gone bad.  
Bear in mind that there’s not always a solution.  But, there are 
avenues we can explore to try and mitigate the losses.
___________________________________________________________

JULY NEW POSITIONS
Position #1 – SPX Iron Condor – 1134.43
We sold 10 July SPX 1170 calls and bought 10 July SPX 1180 calls 
for a credit of about: $1.10 ($1,100).  Then we sold 7 July SPX 
1075 puts and bought 7 July SPX 1060 puts for a credit of about:  
$1.20 ($840).  The total net credit of was $1,940.  Maximum profit 
range of 1075 to 1170.  Breakeven points of 1072.23 to 1171.94.  
Maintenance: $10,500.  Potential profit: $1,940.

Position #2 – RUT Iron Condor – 587.70
We sold 10 July RUT 600 calls and bought 10 July RUT 610 calls for 
a credit of about: $1.00 ($1,000). Then we sold 10 July RUT 530 
puts and bought 10 July RUT 520 puts for a credit of $1.30 
($1,300).  Our total net credit was $2.30 ($2,300).  Maximum 
profit range of 530 to 600.  Breakeven points of 527.70 to 602.30.  
Maintenance: $10,000.  Profit potential $2,300.

Position #3 – SPX Credit Spread Boogie – 1134.43
We haven’t done this strategy is quite some time.  To review, it 
consists of establishing a 25-point credit spread and taking in 
$6-7 of premium (as much as possible).  If the trend continues, 
you keep the premium.  If the trend reverses, you close the trade 
for double the premium amount.  Then, you open a credit spread in 
the opposite direction, using enough contracts to replenish what 
you spent to close the initial spread.

We sold 3 SPX July 1125 puts and bought 3 SPX July 1100 puts for a 
total credit of about: $6.30 ($1,800).  

Our profit potential:  $1,800.  Maintenance: $7,500 (initially).  
We’ll need to keep a close eye on this one.  We have to be alert – 
plus, we have to have a large enough account size to accommodate 
trading an increased number of contracts if adjustments become 
necessary.

Position #4 – SOX (Semi-Conductor Index) – Iron Condor – 478.91
We sold 10 SOX July 490 calls and bought 10 SOX July 500 calls for 
a credit of about: $1.10 ($1,100).  Then we sold 10 SOX July 420 
puts and bought 10 SOX July 410 puts for a credit of about: $1.30 
($1,300).   Our total net credit of: $2.40 ($2,400).  Maximum 
profit range: 420 to 490.  Breakeven points: 417.60 & 492.40.  
Maintenance: $10,000.  Potential profit: $2,400.  


ONGOING POSITIONS
QQQ ITM Strangle – Ongoing Long Term -- $37.33
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).  We rolled out to 
the July $34 calls ($.20 credit) and $37 puts ($.60 credit) on 
Tuesday and took in another net credit of $.80 ($800).  Our new 
total credit is now $10,400.

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 – 549.75
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 was 
$4,390 plus unused $1,700 = $6,090.  From the June option cycle, 
we are able to officially add $1,175 to our cash position – that 
now stands at $6,265 ($4,565 plus unused $1,700).

New July Zero Plus Positions.  
July bull put spread 535/525 for credit of $1.30 x 5 contracts = 
$650.  Short 570 call for credit of $1.40 x 5 = $700.  If all goes 
well, we’ll be able to add $1,350 to our cash position as we wait 
for the market to move up.
____________________________________________________________
 
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 "Spreads & 
Combos." 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 06-27-2004
Sunday                                                      5 of 5

In Section Five:

Spreads and Straddles: 
Premium-Selling Plays: 


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

Trepidation Emerges Ahead Of Fed Meeting...
By Ray Cummins

Stocks closed the week mixed as the rally in technology shares
continued while the broader equity sectors retreated on concerns
over the FOMC's upcoming decision on interest rates.

The Dow Industrial Average fell 71 points to 10,371 with Pfizer
(NYSE:PFE) among the laggards after announcing it would acquire
the rights it doesn't already own to a colorectal cancer drug
from Sanofi-Synthelabo for $620 million.  The technology-laden
NASDAQ Composite added 9 points to close at 2,025 on strength
in Internet, electronic manufacturing, and wireless shares.  The
S&P 500 Index slid 6 points to 1,134 on weakness in automotive,
tobacco, homebuilding, pharmaceutical, and cable stocks.  About
1.8 billion shares changed hands on the New York Stock Exchange
while 1.9 billion shares were crossed on the NASDAQ.  Breadth
was positive on both exchanges.  In the bond market, the 10-year
note closed the session unchanged at 4.64%.

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~
SUMMARY OF CURRENT POSITIONS - AS OF 06/25/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

AMZN    50.95  51.80   JUL   42  45   0.30   44.70   0.30   Open
YHOO    31.87  34.91   JUL   25  27   0.30   27.20   0.30   Open
CFC     69.15  71.09   JUL   60  63   0.35   63.03   0.35   Open
QCOM    69.86  69.08   JUL   60  65   0.45   64.55   0.45   Open
SWIR    33.83  34.31   JUL   25  30   0.90   29.10   0.90   Open
CTSH    24.25  25.93   JUL   20  22   0.27   22.23   0.27   Open
NUE     69.54  75.85   JUL   60  65   0.75   64.25   0.75   Open
SII     53.26  55.99   JUL   47  50   0.30   49.70   0.30   Open
MXIM    51.62  52.03   JUL   45  50   0.70   49.30   0.70   Open
RJR     65.90  66.84   JUL   55  60   0.35   59.65   0.35   Open

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

  
CALL-CREDIT SPREADS

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

APPX    34.03  30.26   JUL   45  40   0.50   40.50   0.50   Open
GENZ    41.93  47.06   JUL   47  45   0.30   45.30  (1.76) Closed
INSP    34.71  35.96   JUL   45  40   0.65   40.65   0.65   Open
WMS     28.75  28.52   JUL   35  30   0.65   30.65   0.65   Open
GS      90.21  94.55   JUL  100  95   0.70   95.70   0.70   Open
SYMC    42.42  42.14   JUL   50  45   0.65   45.65   0.65   Open
FRX     56.32  58.46   JUL   65  60   0.60   60.60   0.60   Open

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

The position in Genzyme (NASDAQ:GENZ) should have been closed on
Wednesday, when the issue moved through the sold (call) strike,
for a smaller than published loss.  Goldman Sachs (NYSE:GS) is on
the "early-exit" list and Forest Labs (NYSE:FRX) is one to "watch"
closely in the coming sessions.  The Oil Service Holdrs (AMEX:OIH)
position has previously been closed to limit potential losses.


DEBIT STRADDLES

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

GRMN    32.60  34.66   JUL    35    30     2.15    2.35    Open?
SNDK    22.90  21.93   JUL    22    22     3.40    3.60    Open
GDT     56.02  56.40   JUL    55    55     4.80    4.50    Open
DNA     54.60  54.50   JUL    55    55     4.25    4.10    Open
OVTI    15.50  17.03   JUL    15    15     2.70    2.75    Open

Omnivision (NASDAQ:OVTI) and Sandisk (NASDAQ:SNDK) have achieved
small profits, and there may be hope for Garmin (NASDAQ:GRMN) as
it has once again become active in recent sessions.

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

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

PHTN - Photon Dynamics  $34.93  *** Bottom-Fishing Only! ***

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

PHTN - Photon Dynamics  $34.93

PLAY (less conservative - bullish/credit spread):

BUY  PUT  JUL-30.00  PDU-SF  OI=216  ASK=$0.35
SELL PUT  JUL-32.50  PDU-SZ  OI=28   BID=$0.60
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$32.20


__________________________________________________________________

IWM - iShares Russell 2000 Index  $116.60  *** Disparity Play ***

The iShares Russell 2000 Index Fund (IWM) seeks to achieve
investment results that correspond generally to the price and
yield performance of the Russell 2000 Index.  The fund uses a
representative sampling strategy in order to track the Russell
2000 Index, which measures the daily performance of the small
capitalization sector of the US equity broad market.  It invests
in approximately 2000 of the smallest capitalization-weighted
companies in the Russell 3000 Index.

IWM - iShares Russell 2000 Index  $116.60

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-109.00  IWT-SE  OI=22735  ASK=$0.40
SELL PUT  JUL-110.00  IWT-SF  OI=11584  BID=$0.50
INITIAL NET-CREDIT TARGET=$0.10-$0.15
POTENTIAL PROFIT(max)=11% B/E=$109.90


__________________________________________________________________

URBN - Urban Outfitters  $60.80  *** Bullish Retailer! ***

Urban Outfitters (NASDAQ:URBN) is a lifestyle merchandising
company that operates specialty retail stores under the Urban
Outfitters, Anthropologie and Free People brands, as well as
a wholesale division under the Free People brand.  The firm
offers differentiated collections of fashion apparel,
accessories and home goods in inviting and dynamic store
settings.  In addition to its retail stores, Urban Outfitters
offers its products and markets its brands directly to the
consumer through its e-commerce Websites, and the Urban
Outfitters and Anthropologie catalogs.

URBN - Urban Outfitters  $60.80

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-50.00  URQ-SJ  OI=234  ASK=$0.20
SELL PUT  JUL-55.00  URQ-SK  OI=721  BID=$0.55
INITIAL NET-CREDIT TARGET=$0.40-$0.45
POTENTIAL PROFIT(max)=8% B/E=$54.60



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

BEARISH PLAYS - CREDIT SPREADS

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

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

CTX - Centex  $47.34  *** Homebuilding Sector Slump! ***

Centex Corporation (NYSE:CTX) is a multi-industry company with
operates in six principal business segments.  Conventional Homes
operations involve the construction and sale of single-family
homes, town homes and low-rise condominiums, and the purchase and
development of land.  Investment Real Estate operations involve
the acquisition, development and sale of land, and the development
of industrial, office, retail and mixed-use projects.  Financial
Services operations involve the financing of homes, home equity
and sub-prime lending, and the marketing of insurance coverage.
Construction Products involves cement production and distribution,
and the production, distribution and sale of gypsum wallboard,
concrete, aggregates and recycled paperboard.  Contracting and
Construction Services involves the construction of buildings.
Centex HomeTeam Services is involved in pest and termite control,
lawn and landscape care, electronic security, alarm monitoring
and home-wiring services.

CTX - Centex  $47.34

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-52.50  CTX-GX  OI=1761  ASK=$0.10
SELL CALL  JUL-50.00  CTX-GJ  OI=5488  BID=$0.35
INITIAL NET-CREDIT TARGET=$0.30-$0.35
POTENTIAL PROFIT(max)=14% B/E=$50.30


__________________________________________________________________

SINA - SINA Corporation  $35.60  *** Premium-Selling Only! ***

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.  SINA generates revenue through advertising, various
fee-based services, e-commerce and enterprise services.

SINA - SINA Corporation  $35.60

PLAY (conservative - bearish/credit spread):

BUY  CALL  JUL-45.00  NOQ-GI  OI=4630  ASK=$0.20
SELL CALL  JUL-40.00  NOQ-GH  OI=8435  BID=$0.60
INITIAL NET-CREDIT TARGET=$0.45-$0.50
POTENTIAL PROFIT(max)=9% B/E=$40.45



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

MDC - M.D.C. Holdings  $64.77  *** Earnings Speculation ***

M.D.C. Holdings (NYSE:MDC) is principally engaged in owning and
managing subsidiary companies that build and sell homes under the
name Richmond American Homes.  The company also owns and manages
HomeAmerican Mortgage Corporation, which originates mortgage loans
primarily for MDC's home buyers.  In addition, it provides title
agency services through American Home Title and Escrow Company to
MDC home buyers in Virginia, Maryland and Colorado and also offers
third-party insurance products through American Home Insurance
Agency, to the company's home buyers in all of its markets.  The
company's quarterly earnings are due on July 12, 2004.

MDC - M.D.C. Holdings  $64.77

PLAY (very speculative - neutral/debit straddle):

BUY CALL  JUL-65.00  MDC-GM  OI=430  ASK=$1.80
BUY PUT   JUL-65.00  MDC-SM  OI=64   ASK=$2.35
INITIAL NET-DEBIT TARGET=$4.00-$4.05
INITIAL TARGET PROFIT=$1.50-$2.10



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

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 06/25/04
~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~

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

CVTX     JUL    15    14.60   16.73    0.40   5.63%   2.74%
DITC     JUL    17    16.80   24.61    0.70   8.40%   4.17%
SYNA     JUL    17    16.85   19.96    0.65   7.48%   3.86%
PTIE     JUL     7     7.15    9.18    0.35   9.89%   4.90%
BCC      JUL    35    34.25   37.36    0.75   5.12%   2.19%
JILL     JUL    20    19.45   24.44    0.55   6.72%   2.83%
LSS      JUL    20    19.50   27.30    0.50   6.07%   2.56%
OI       JUL    15    14.65   16.78    0.35   5.64%   2.39%
NVTL     JUL    15    14.65   25.13    0.35   7.34%   2.39%
PDII     JUL    25    24.70   30.30    0.30   3.91%   1.21%
RSAS     JUL    17    17.05   20.92    0.45   6.22%   2.64%
STLD     JUL    25    24.45   28.49    0.55   5.33%   2.25%
UPL      JUL    30    29.55   37.77    0.45   4.14%   1.52%
USG      JUL    15    14.15   18.00    0.85  13.32%   6.01%
ATI      JUL    12    12.20   15.62    0.30   7.44%   2.46%
BJS      JUL    42    41.70   46.02    0.80   4.75%   1.92%
LCAV     JUL    25    24.35   28.98    0.65   6.85%   2.67%
NCRX     JUL    27    26.80   32.02    0.70   7.30%   2.61%
NVTL     JUL    17    17.05   25.13    0.45   8.97%   2.64%
SSYS     JUL    23    22.20   28.40    0.30   4.41%   1.35%
SWIR     JUL    30    28.85   34.31    1.15  10.66%   3.99%
SYNA     JUL    17    16.90   19.96    0.60   8.98%   3.55%
YHOO     JUL    30    29.20   34.91    0.80   6.80%   2.74%
AMHC     JUL    22    21.80   26.60    0.70   9.36%   3.21%
CTSH     JUL    22    22.20   25.93    0.30   4.34%   1.35%
CYBX     JUL    30    29.25   35.65    0.75  10.31%   2.56%
ERES     JUL    22    21.85   26.88    0.65   9.03%   2.97%
HLEX     JUL    15    14.65   16.78    0.35   7.40%   2.39%
NINI     JUL    20    19.65   26.29    0.35   5.89%   1.78%
NFI      JUL    30    29.30   37.95    0.70   9.77%   2.39%
PTIE     JUL     7     7.25    9.18    0.25  11.96%   3.45%
RIMM     JUL    50    49.15   60.69    0.85   6.57%   1.73%
SGTL     JUL    22    22.25   29.13    0.25   4.25%   1.12%
BRCM     JUL    40    39.30   45.41    0.70   6.43%   1.78%
CSGP     JUL    40    39.60   45.41    0.40   3.49%   1.01%
DHB      JUL    12    12.20   14.94    0.30   8.97%   2.46%
DY       JUL    25    24.65   27.53    0.35   4.63%   1.42%
ERES     JUL    22    22.20   26.88    0.30   4.97%   1.35%
FWHT     JUL    20    19.60   22.83    0.40   6.89%   2.04%
GVHR     JUL    22    22.20   26.48    0.30   5.07%   1.35%
IMH      JUL    20    19.75   22.50    0.25   4.41%   1.27%
NVTL     JUL    17    16.90   25.13    0.60  15.07%   3.55%
PLMO     JUL    25    24.55   33.08    0.45   7.28%   1.83%
USG      JUL    15    14.70   18.00    0.30   7.05%   2.04%


NAKED CALLS

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

ASKJ     JUL    45    45.55   37.97    0.55   6.50%   1.21%
AMLN     JUL    25    25.35   22.32    0.35   5.29%   1.38%
ICOS     JUL    30    30.45   28.81    0.45   5.26%   1.48%
OIIM     JUL    17    17.80   15.98    0.30   5.50%   1.69%
INSP     JUL    40    40.50   35.96    0.50   6.88%   1.23%
RHAT     JUL    25    25.60   22.23    0.60   9.08%   2.34%
XMSR     JUL    27    27.75   25.50    0.25   4.34%   0.90%
CECO     JUL    65    65.90   44.97    0.90   7.19%   1.37%
ESI      JUL    45    45.50   37.54    0.50   5.47%   1.10%
FMT      JUL    20    20.40   18.02    0.40   8.75%   1.96%
NBIX     JUL    55    56.10   51.94    1.10   8.21%   1.96%
SLAB     JUL    50    50.75   47.62    0.75   6.39%   1.48%
AGIX     JUL    20    20.45   19.29    0.45   9.16%   2.20%
LEND     JUL    30    30.55   29.63    0.50   6.63%   1.64%

Lend America (NASDAQ:LEND) and Silicon Labs (NASDAQ:SLAB) 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

BCC      JUL   35.00   34.55   37.36    0.45    5.53%   1.30%
CHIC     JUL   20.00   19.65   21.75    0.35    7.68%   1.78%
CENX     JUL   22.50   22.00   24.49    0.50    9.64%   2.27%
ENDP     JUL   22.50   22.15   23.84    0.35    6.56%   1.58%
IFIN     JUL   37.50   37.05   43.00    0.45    5.93%   1.21%
STTX     JUL   22.50   22.05   23.43    0.45    8.10%   2.04%
TASR     JUL   30.00   29.65   42.09    0.35    6.39%   1.18%
USG      JUL   15.00   14.70   18.00    0.30   10.67%   2.04%
VSAT     JUL   22.50   22.20   23.88    0.30    5.67%   1.35%

__________________________________________________________________

BCC - Boise Cascade  $37.36  *** Strong Sector! ***

Boise Cascade (NYSE:BCC) is a multinational contract and retail
distributor of office supplies and paper, technology products
and office furniture.  Boise Cascade is also a distributor of
building materials and a manufacturer and distributor of paper,
packaging and wood products.  The firm operates in four segments:
Boise Office Solutions, Contract; Boise Office Solutions, Retail;
Boise Building Solutions and Boise Paper Solutions.

BCC - Boise Cascade  $37.36

PLAY (sell naked put):

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

SELL PUT  JUL 35    BCC SG     221  0.45  34.55   5.5%   1.3%


__________________________________________________________________

CHIC - Charlotte Russe  $21.75  *** Bullish Retailer! ***

Charlotte Russe Holdings (NASDAQ:CHIC) is a mall-based specialty
retailer of apparel and accessories targeting young women between
the ages of 15 and 35.  The firm has two distinct store concepts:
Charlotte Russe and Rampage.  Charlotte Russe stores provide a
wide range of fashionable, affordable apparel and accessories
that have been tested and accepted by the marketplace.  Rampage
stores feature emerging fashion trends.  Both Charlotte Russe and
Rampage stores are located in high-visibility, center court mall
locations in spaces that average approximately 7,100 square feet.

CHIC - Charlotte Russe  $21.75

PLAY (sell naked put):

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

SELL PUT  JUL 20    UYC SD      20   0.35  19.65   7.7%   1.8%


__________________________________________________________________

CENX - Century Aluminum  $23.49  *** Riding Alcoa's Coattail! ***

Century Aluminum Company (NASDAQ:CENX) is a holding company,
whose principal subsidiaries are Century Aluminum of West
Virginia, Inc., Berkeley Aluminum, Inc. and Century Aluminum
of Kentucky, LLC.  Through its ownership interests, the company
has an annual production capacity of approximately 1.2 billion
pounds of primary aluminum.

CENX - Century Aluminum  $23.49

PLAY (sell naked put):

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

SELL PUT  JUL 22.5   CQL SX       1   0.50  22.00   9.6%   2.3%


__________________________________________________________________

ENDP - Endo Pharmaceuticals  $23.84  *** Next Leg Up? ***

Endo Pharmaceuticals (NASDAQ:ENDP) is a specialty pharmaceutical
company specializing in pain management.  The company is engaged
in the research, development, sale and marketing of branded and 
generic prescription pharmaceuticals used primarily to treat and
manage pain.  The company's primary area of focus is analgesics,
with a portfolio of branded products that includes Percocet, 
Lidoderm, Percodan and Zydone.  Endo's generic portfolio is 
comprised of products that cover a broad range of indications,
most of which are focused in pain management.

ENDP - Endo Pharmaceuticals  $23.84
  
PLAY (sell naked put):

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

SELL PUT  JUL 22.5   IUK SX     148   0.35  22.15   6.6%   1.6%


__________________________________________________________________

IFIN - Investors Financial Services  $43.00  *** Rally Mode! ***

Investors Financial Services (NASDAQ:IFIN) provides services
for a variety of financial asset managers such as mutual fund
complexes, investment advisors, banks, and insurance companies.
Through a wholly-owned subsidiary, Investors Bank & Trust Company,
they offer core services including global custody, multicurrency
accounting, and mutual fund administration, and value added
services including securities lending, foreign exchange, and cash
management.

IFIN - Investors Financial Services  $43.00

PLAY (sell naked put):

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

SELL PUT  JUL 37.5  FLQ SU    1164   0.45  37.05   5.9%   1.2%


__________________________________________________________________

STTX - Steel Technologies  $23.43  *** Entry Point? ***

Steel Technologies (NASDAQ:STTX) is a steel processor engaged
in the business of processing flat rolled steel to specified
close tolerances in response to orders from customers who
require steel of precise type, thickness, width, temper,
finish and shape for their manufacturing purposes.  The firm's
principal processed products are cold-rolled strip and sheet,
cold-rolled one-pass strip, high-carbon and alloy strip and
sheet, hot-rolled strip and sheet, high-strength low-alloy
strip and sheet, hot-rolled pickle and oil and coated strip
and sheet, hot-rolled pickled and oiled sheet, tin plate,
blanking and cut-to-length processing of coil steel and
fabrication and welding of steel sheets and plates.

STTX - Steel Technologies  $23.43

PLAY (sell naked put):

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

SELL PUT  JUL 22.5  SFU SX      0    0.45  22.05   8.1%   2.0%


__________________________________________________________________

TASR - TASER International  $42.09  *** Pure Premium-Selling! ***

TASER International (NASDAQ:TASR) develops and manufactures a
range of less-lethal self-defense devices.  The firm's primary
product lines include the ADVANCED TASER and the TASER X26, a
recently introduced weapon system offering a new "shaped pulse"
technology, and a smaller form factor.

TASR - TASER International  $42.09

PLAY (sell naked put):

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

SELL PUT  JUL 30    QUR SF   12031   0.35  29.65   6.4%   1.2%


__________________________________________________________________

USG - USG Corp.  $18.00  *** Asbestos Fund Deal? ***

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.  $18.00

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    USG SC    2623   0.30  14.70  10.7%   2.0%


__________________________________________________________________

VSAT - ViaSat  $23.88  *** Bracing For A Rally? ***

ViaSat (NASDAQ:VSAT) is a provider of advanced broadband digital
satellite communications and other wireless networking and signal
processing equipment and services to the defense and commercial
markets.  For the defense market, the company offers UHF DAMA
(ultra-high frequency demand assigned multiple access) products
and services.  In addition, ViaSat has developed communications
products for military applications such as the Link-16 MIDS
(multi-function information distribution system) terminal,
information assurance and simulator and test products.

VSAT - ViaSat  $23.88

PLAY (sell naked put):

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

SELL PUT  JUL 22.5  IQS SX      0    0.30  22.20   5.7%   1.4%



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

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.

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

FEIC - FEI Company  $23.42  *** In A Trading Range? ***

FEI Company (NASDAQ:FEIC) designs, manufactures, markets and
services products and systems used in research, development and
manufacturing of very-small objects, primarily by providing an
understanding of their three-dimensional shape.  The majority
of the company's customers work in fields that are classified
as nanotechnology, which can be described as the science of
characterizing, analyzing and fabricating things smaller than
100 nanometers (a nanometer is one billionth of a meter).

FEIC - FEI Company  $23.42

PLAY (sell naked call):

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

SELL CALL  JUL 25    FQE GE     88    0.35  25.35   6.9%   1.4%


__________________________________________________________________

PAYX - Paychex  $33.92  *** A Big "Down" Day! ***

Paychex (NASDAQ:PAYX) offers payroll, payroll-related and human
resource products to meet the needs of its client base.  These
include payroll processing, tax filing and payment, employee
payment, retirement services administration, employee benefits
administration, regulatory compliance (new-hire reporting and
garnishment processing), workers' compensation insurance and
bundled human resource administrative services.

PAYX - Paychex  $33.92

PLAY (sell naked call):

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

SELL CALL  JUL 35    PQX GG     93    0.40  35.40   5.0%   1.1%


__________________________________________________________________

TSS - Total System Services  $21.06  *** PAYX Sell-Off Victim! ***

Total System Services (NYSE:TSS) provides electronic payment
processing and related services, primarily to financial and
non-financial institutions throughout the United States, Canada,
Mexico, Honduras, the Caribbean and Europe.  The firm's services
include processing consumer, debit, commercial, stored value and
retail cards, as well as student loan processing.  The firm also
offers value-added products and services to support its core
services, including risk management tools and techniques,
revenue enhancement tools and customer retention programs,
such as loyalty programs and bonus rewards.

TSS - Total System Services  $21.06

PLAY (sell naked call):

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

SELL CALL  JUL 22.5  TSS GX      3    0.40  22.90   8.7%   1.7%



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

SEE DISCLAIMER - SECTION 1

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


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