Option Investor

Daily Newsletter, Sunday, 06/25/2000

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The Option Investor Newsletter                   Sunday  6-25-2000
Copyright 2000, All rights reserved.                        1 of 5
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com

Entire newsletter best viewed in COURIER 10 font for alignment
        WE 6-23          WE 6-16          WE 6-9           WE 6-2
DOW    10404.75 - 44.55 10449.30 -164.76 10614.06 -180.70 +495.52
Nasdaq  3845.34 - 15.22  3860.56 - 14.28  3874.84 + 61.46 +608.27
S&P-100  781.07 -  7.67   788.74 +  9.04   779.70 - 12.99 + 56.61
S&P-500 1441.48 - 22.98  1464.46 +  7.51  1456.95 - 20.31 + 99.24
RUT      510.41 -  3.33   513.74 -  9.32   523.06 + 10.03 + 55.66
TRAN    2630.71 - 42.48  2673.19 -116.98  2790.17 - 39.19 +141.81
VIX       25.89 +  2.34    23.55 -  1.64    25.19 +  1.08 -  3.38
Put/Call    .61              .53              .45             .41

Internet stocks cash burn torches Nasdaq

Just another exciting day in the Internet world with yet another
round of bad mouthing by the Internet analysts. The spark for the
session was comments from Lehman Brothers analyst Navi Suria who
questioned Amazon.com's credit worthiness. In 1999 Amazon lost
an average of nearly $2 million per day. Navi claimed Amazon was
burning cash at a record pace and sales were only expected to be
up +2% from the first quarter of this year putting revenue at
$600 million. On Thursday Goldman Sachs analyst Anthony Noto
also predicted similar numbers. Lehman Brothers release a research
note telling bond traders that the company's credit was "weak and
deteriorating." Of the 33 firms making recommendations on Amazon
15 list it as a strong buy, 9 suggest a buy and 9 recommend a hold
which is a polite way of saying "avoid." Since 1997 Amazon has
received $2.8 billion in bond funding which amounts to .95 cents
for every dollar of merchandise sold. Mary Meeker, Internet
analyst at Morgan Stanley, said Q3 and Q4 revenues would probably
not top her estimates and "there could be some modest downside."

Amazon was not the only Internet scapegoat on Friday. Ebay took
its share of licks as WR Hambrecht downgraded Ebay to a "buy"
from "strong buy" saying that there was no compelling reason to
buy the stock at this time. Ebay has had very strong growth but
the space is full and growth of new auction junkies is slowing
as the fad passes. While he expected Ebay to be a core holding
and to post solid Q2 results of +$.03 per share he felt the story
was fading. Ebay lost -$4 and closed at an eleven month low on
the news.

With all the negative news Nasdaq traders ran for cover as
Internet stocks gave back recent gains. The Dow managed to
recover some of the recent losses as tech money eased back
into old economy stocks which were perceived as values after
their recent drops. EK gained +1.19, KO +1.75, GM +1.44, JNJ
+1.19, MCD +1.19, WMT +1.25. Even JPM got into the act with
a +1.19 gain after being severely beaten up for -$15 over the
last two weeks.

Rambus continued to be a stellar performer on the Nasdaq after
settling the suit with Hitachi. Although it closed about -$14
off its high the gain for the day was still a very respectable
+$17. One analyst set a new price target for Rambus of $165
but several others are warning that all the good news may be
priced in already. The settlement with Hitachi and Toshiba will
give Rambus a 1%-2% royalty on about 12% of the DRAM industry.
The majority share however will not be as easy to capture
with over 50% of the market controlled by Samsung, Hyundai
and Micron. Jeremy Lopez at Moringstar said it would be highly
unlikely that Rambus could capture that share and that the
Rambus risk/reward ratio was unquestionably skewed toward risk
at this point. He compared RMBS rocket rise to the QCOM
spike last year when it appeared CDMA would be the world
winner in cellular access. As we can see from recent events
the domination of the world by QCOM is far from certain just
as domination of the DRAM business by RMBS is the "least
likely outcome" per Jeremy.

Trading still lacked conviction with lackluster volume again
and the internal market factors were negative. On the NYSE there
were only 25 new highs compared to 62 new 52 week lows. The
advance decline ratios continued to be negative on both the
Nasdaq and NYSE. The key here is still the Fed meeting next week.
This is a two day meeting and while all 29 analysts that track
the Fed rate policy are calling for no hike there is still the
worry that the Fed would rather hike once more now instead of
passing now and having to raise again just before the elections.
Many feel the market has already priced in a "no hike" scenario
with the rally over the last two weeks and any negative news
would be met with selling.

With the dog days of summer rapidly approaching the possibility
of a significant rally is dwindling. If the Feds go neutral and
fail to raise rates we could see a rally into earnings but the
anticipation of a fall off in mid July would likely keep it
from being very strong. The Dow has been stuck in a diamond
pattern since April 1999 and is currently nearing a breakout.
The breakout is caused by the lower highs and higher lows
converging with only one winner. The current trend is down
which would lead you to expect a breakout to the downside but
the last 10 months of the trend has been dominated by an
aggressive Fed hiking rates monthly. If the Fed trend changes
with the meeting next week that could be the catalyst for a
breakout to the upside.

The Nasdaq appears to be forming an inverse head and shoulders
pattern but it is really too early to tell. If we assume, and
you know what ass-u-me stands for, that the mid July drop will
make it three years in a row then the Nasdaq could retest 3500
to 3300 in mid-July. This would provide a strong consolidation
base to begin a late summer rally into October earnings. (Ouch,
I even hate to write October since that brings up another set
of scary comparisons) The period we option traders should focus
on is the next two weeks. A neutral, no hike, Fed could give us
two weeks to play the long side before a possible July dip. If
you are considering long calls please don't get caught thinking
"I will buy November so I will have extra time in case something
goes wrong." Use the 50-50-90 rule. If there is a 50-50 chance
the market will dip in July, there is a 90% chance of it
occurring if you go long next week. Do you really want to go
long (3-4 months out) only to be locked into the position while
the dog days of summer pressure stock prices and premiums OR
would you like to open new positions in Late July or August
if/when a summer rally really appears?

I know this is heresy. You mean stay out of the market for
several weeks? Yes. You mean buy all the time I want, just
don't use it? Yes. Do you mean I don't have to be tied to my
monitor all summer? Yes. BUT, if a summer rally does appear
you will be in cash on the sidelines and ready to jump into
action. The alternative is to be in options that are worth
half what you paid for them and you spend every day just
hoping that they get back close to what you paid for them.
(been there, done that?)  I hate to be so negative but if
you have tried to trade during the summer for the last several
years you probably lost money or at least had to fight for
every dime you got. I tell people in our seminars that you
should have a trading plan. The number one rule in your plan
should be "to trade only when profitable." Sounds glib but
why would you want to trade any other time? Summer is usually
not profitable.

Yale Hirsch in his Stock Traders Almanac shows that since 1950
the months of May to Oct have been very hard to trade. If you
had invested $10,000 in the S&P in May of each year and
withdrew it in Oct and allowed it to compound for the last
50 years you would now have $11,138. Yep! Absolutely flat and
this included the last 10 years of this huge bull market. If
you invested $10,000 on Nov-1st and withdrew it on Apr-30th
for those same 50 years you would have over $350,000. Now,
why was it that you wanted to invest over the summer months
again? Now before you decide to go on a four-month vacation
from trading you should remember that there are major moves
in the market in almost every month regardless of the season.
The key is waiting for the move. I think the key to trading
in the summer is benchmarks. We should pick a benchmark like
Nasdaq 3900 and let it dictate our strategy. Above 3900 we
go long, below 3900 we go flat. This is a simple, end of
day indicator, that is almost fool proof. Of course if the
Nasdaq did retrace to 3300-3500 we would reset our benchmark
depending on the market conditions.

I know that 90% of our readers will continue to trade on a
daily basis until we get those traders anonymous meetings
started in your area. That is ok too as long as you are
reactive to the market. With that in mind keep your eyes
on the Fed next Wednesday and be ready to move quickly.
In the last decade the week after the June triple witching
Friday was down 8 of 10 years. Last week made 9 of 11.
The next two weeks has historically been bullish when the
Fed was not a factor. Lets hope the trend continues. Next
week is the end of the quarter and some portfolio balancing
may occur as well as in the first week of July. This provides
the bullish bias as funds try to dress up their statements
for advertising purposes.

You can profit from the dog days of summer by using the
time you are not trading to attend one of our regional
seminars near you. We had a packed out crowd in the LA
3-day seminar last week. We had so many people who wanted
to attend but couldn't that we scheduled another 3-day
for Orange county on Aug-10-12th. If you are on the east
coast the Washington DC 2-day seminar starts Tuesday but
we still have four seats available. 100% money back!

Trade smart, don't buy too soon.

Jim Brown


Technical Analysis, Stock and Option Seminar
Three days of indepth education.

The next seminar is a two day event in Washington DC on
June 27-28th. We guarantee you will not be disappointed.
The class size is small so you will get plenty of
individual attention from Chris Verhaegh and the staff.
At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

June 27-28 Washington DC  2 day
July 13-15 New York       3 day
July 21-23 Seattle        3 day
July 27-29 Atlanta        3 day
Aug  10-12 Orange County  3 day NEW !!!!!!!!!!!!!!
Aug  17-19 Orlando        3 day
Aug  28-29 Detroit        2 day

Australia coming soon!

Has the market been beating you up? Did you give back
your gains from April? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

You can learn from the experts how to interpret all
these indicators, read charts, pick stocks and which
option strategies to use on those stocks for less than
the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:


Summer Seminar Series
Back by popular demand!

We are proud to announce the summer OptionInvestor & Optionetics
seminar schedule featuring options guru, money manager and best
selling author George Fontanills.

The OptionInvestor/Optionetics Seminar was designed to help
you gain the know-how necessary to compete in the marketplace.
Over the course of the last 7 years George Fontanills has developed
a series of high profit, low risk, low stress trading techniques
that will empower you to systematically approach the markets. Learn
how to intelligently combine options to maximize profits and minimize
risk. Designed to fit the needs of novice and seasoned traders, this
workshop and home study course will show you how to use managed risk
options strategies in today's highly volatile markets.

The seminar and home study course materials include:

Delta neutral non directional trading
28 options strategies including Spread Trading, Straddles,
Strangles, Condors (low risk trades), Butterflies
George Fontanills' "5 Minutes a Day to find a trade"
How trade volatile markets
911 Repair Strategies - what to do when a trade goes wrong
trade action plan "How to get Started".

With our unique tuition package you will receive:

Before the event:  Home Study Course with 8 digitally mastered video
tapes and a 500 page manual "Trading for the 21st Century" plus your
personal coach available to answer your questions.

Live Seminar: 2 days of live trading with George Fontanills and Tom
Gentile plus FREE partner attendance - two people for the price of
one. You may bring a friend, spouse and business partner to the event
for FREE.  Both teachers available for our personal questions
and you get a full Money Back Guarantee.

Venues: George Fontanills, together with his chief options
strategist Tom Gentile, will personally teach two days live
trading delta neutral strategies in the following cities:

July 10 & 11  Atlanta (Tom Gentile only teaching)
July 16 & 17  Houston
July 23 & 24  San Francisco

Our Home Study Course is available for the same price if you can't
make these dates and you may attend a later seminar when your
schedule allows.

Order today as seating is strictly limited to first come first
served basis. You will receive a $5,000+ value package, but pay
only the special price of $2,400 for your tuition.  Please reserve
your place now to not be disappointed when we sell out.

Click here for more info:



Business interferred with trading last week and I was unable
to place any trades. Had I been around a PC however I would
like to have sold my NOK leaps before NOK dropped -$10. That
was painful. So was the -$5 drop in Microsoft but I have two
years to go on those leaps. VOD also rewarded me with a -$6
drop. (Don't even start on me with the stop loss lecture!)

Instead of boring you with the same three portfolio positions
I scanned the picks for this week and picked three that I
thought looked especially good. I have added my comments
below but you still need to make your own decisions before
making an investment.

BRCD - Brocade

I really like the BRCD pattern. A string of long up days followed
by a sharp bout of profit taking which gives us an entry point.
I like BRCD because of the higher low double bottom on Friday.
The Nasdaq was diving at the close and BRCD was gaining +4 off
the second bottom. I think this stock should bounce on Monday
if the market cooperates.

RBAK - Redback Networks

RBAK has a similar pattern to BRCD but instead of a sharp sell
off after a decent gain it simply consolidated in place. No
major pull back just a slowing. RBAK showed remarkable strength
Friday afternoon with a good uptrend all day after the drop at
the open. This is the kind of pattern I look for when the
market is down. Good stocks caught in the downdraft but
recovering in spite of the market.

HGSI - Human Genome

HGSI is strictly a news play. With the news on Friday that the
human genome sequencing completed the next task of developing
drugs based on this information will begin. This stock had a
sharp pullback on the move into the Russell-1000 by 17 biotech
stocks on Thursday. This took some of the profit out and gives
us an entry point, market permitting.

Good Luck



3Com, Cabletron, and Nike!

Technology stocks stumbled into the weekend, as all of the gains
that were made in the early part of the week were given back. The
Internet sector led the losers Friday by posting a -6.28% loss,
thanks to some negative comments on Amazon.com, which then
spilled over into the rest of the sector. Regardless, the NASDAQ
was not able to hold the magical 4,000 mark like we predicated
earlier in the week.

One figure that Pinnacle loves to watch is the put/call ratio on
the NASDAQ 100. Now on Thursday, we mentioned that the P/C Ratio
for the NDX was 0.11, indicating call speculating in the face of
a downdraft. Friday's P/C ratio was 0.17, even though technology
stocks were getting hit yet again. Now even in the face of a
selloff, call speculators are betting on a rise in the NDX, which
from a contrarian stand, is bearish for this index. During the
major gains of the NDX during the last couple of years, it was
common for the Put/Call ratio to be in the 2.50-4.50 range, which
is a very bearish number, and from a contrarian stand is quite
bullish. Right now it stands at 0.91. If the contrarian play is
correct on this index, we have more room for downside on the NDX.

Looking ahead, we obviously have the Fed meeting this week as
well as a few corporate earnings, not to mention the negative
pre-releases that always seem to come during the last week of
June. Now currently, there is a 24% chance that the Fed will
raise rates by 25 basis points. This figure is well off of the
86% figure from several weeks ago, but there is still a one-in-
four chance that we may see another hike this week. Regardless,
the sentiment that is being weighed on the Fed will diminish
significantly, as traders and investors start focusing on the
corporate earnings ahead. Now even though we are still several
weeks from the major earnings run, there will be a handful of
companies that are due to report their earnings. Now, below is a
small list of equities (that should be reporting their earnings
this next week) and our Pinnacle Index for those particular
stocks. The Pinnacle Index is a proprietary product that
determines current market sentiment and expectations for
underlying equities and indexes, which is based upon speculation
in the option markets. Also included are their expected earnings,
the infamous whisper number (if available), their estimated
earnings release date, as well as the put/call ratio if

What we look for are liquid stocks/options that garner a lot of
interest from the investment community. Most of the issues are
high tech, and are thus more aggressive. We then filter out many
of the equities, only to show stocks with excessive optimism or
pessimism. From a contrarian standpoint (a high number is a good
indication of extreme optimism, and a low number is a good
indication of extreme pessimism) you should buy when its low, and
sell when its high. Last quarter, we highlighted some stocks with
a Pinnacle Index that were stratospheric (as high as the upper
20's). Needless to say, these stocks had so much pent-up
enthusiasm, that after their earnings, they tanked. It is the old
adage, buy the rumor - sell the news. There were also numerous
companies with a Pinnacle Index less than one. However, once
these companies came out with their bad quarter, the stocks
rallied due to the oversupply of pessimism.

Company     Symbol  Pinnacle     Expected    Whisper#:   Put/Call
                    Index(PI):   Earnings:                Ratio:

3Com        COMS       2.43        -.22        n/a*       0.35
Cabletron   CS         1.98        -.02        .01        0.38
Liberate    LBRT       2.68        -.20        n/a         n/a
Nike        NKE        0.98        +.46       +.47        0.89
*= Due to a major reorganization, earnings were greatly
different and insufficient.

Now last quarter, we highlighted Cabletron Systems as a high
expectation stock. The Pinnacle Index for this issue last quarter
was 9.77, and as you can see by the chart below, expectations
were so great that once they announced earnings they got crushed.
This week, none of the above stocks have high expectations.
However, Nike does a low Pinnacle Index, which may indicate that
the bad news is already out on the stock, and that a relief rally
may be in the works. Regardless, the major earnings run is just a
few weeks away, and Pinnacle is looking forward to bringing you
the expectational analysis that has been very prosperous for
many. Have a good week!



Interest Rates (5.896):
The fear of future rate hikes may now be over with.

Mixed Signs:

Volatility Index (25.89):
The VIX has proved that the low 30's are an excellent buying
opportunity, and the low 20's continue to be a great selling


Put/Call Ratio NDX:
Even in the face of a selloff, call speculators are betting on a
rise in the NDX, which from a contrarian stand, is bearish for
this index. During the major gains of the NDX during the last
couple of years, it was common for the Put/Call ratio to be in
the 2.50-4.50 range. Right now it stands at 0.91.

Slowing Economy:
If the economy is truly slowing down, we will start feeling the
effects once corporate earnings report over the next couple of
quarters. This has just occurred as Circuit City, Electronics for
Imaging, Proctor & Gamble, Lands End, H&R Block, McDonalds,
Electronic Data Systems, Mylan Labs, Harmonic Lightwave, NBC
Internet, Wachovia Bank, Perot Systems, Xerox, Gadzoox Networks,
Honeywell, Computer Sciences Corp., Carnival Cruise Lines, and
Qualcomm have all warned of poorer times ahead or have had
earnings cut by analysts.

IPO Dilution:
$58.6 billion of stock was freed up for trading in March, $67.3
billion April, and $118.3 billion in May. This is too much
stock for the system to handle.

Energy Prices:
With the rapid rise in crude oil, everything from manufacturing
to transportation will be affected by higher costs. These higher
costs will be felt 1-2 quarters out, and could put pressure on
profit margins.


The Power of Sentiment Analysis

It has often been said that the crowd is right during the
market trends but wrong at both ends.  Measuring and
evaluating the sentiment of the crowd, therefore, can give
savvy option traders a decided edge.

Pinnacle Index
OEX                              Friday       Tues        Thurs
Benchmark                        (6/23)      (6/27)       (6/29)
Overhead Resistance (805-825)    11.27
Overhead Resistance (775-800)     1.03

OEX Close                       781.07

Underlying Support  (745-770)     1.53
Underlying Support  (715-740)     8.09

What the Pinnacle Index is telling us:
Overhead is still strong (805-825), indicating that the potential
for a major rally in the short term is low. Both direct overhead
and support are light, indicating that the OEX continue on it's
trading range ways, with a near term emphasis on the bearish

Put/Call Ratio
                                Friday      Tues       Thurs
Strike/Contracts               (6/23)      (6/27)      (6/29)

CBOE Total P/C Ratio            .61
Equity P/C Ratio                .53
OEX Put/Call Ratio             3.04

Peak Open Interest (OEX)
                     Friday          Tues            Thurs
Strike/Contracts     (6/23)         (6/27)           (6/29)

Puts                790 / 5,449
Calls               880 / 6,293
Put/Call Ratio        0.87

Market Volatility Index (VIX)
Date                Turning Point       VIX
October 97          Bottom              54.60
July 20, 1998       Top                 16.88
October 8, 1998     Bottom              60.63
January 11, 1998    Top                 26.38
March 4, 1999       Bottom              28.15
May 14, 1999        Top                 25.01
July 16, 1999       Top                 18.13
August  5, 1999     Bottom              32.12
October 15, 1999    Bottom              32.06
January 28, 2000    Bottom              29.09
April 14, 2000      Bottom?             39.33

June 25, 2000                           25.89


As of Market Close - Friday, June 23, 2000

                   Key Benchmarks
Broad Market       Bearish/Bullish  Last    Posture/Since  Alert

DOW Industrials   10,200  11,400  10,405    Neutral   5.05
SPX S&P 500        1,350   1,500   1,442    Neutral   5.30
OEX S&P 100          725     800     781    Neutral   5.30
RUT Russell 2000     450     550     510    Neutral   5.05
NDX NASD 100       3,000   4,000   3,686    Neutral   5.30
MSH High Tech        800   1,050     995    Neutral   6.06

XCI Hardware       1,250   1,600   1,510    Neutral   5.30
CWX Software       1,050   1,300   1,219    Neutral   6.06
SOX Semiconductor    850   1,200   1,217    BULLISH   6.20
NWX Networking       900   1,100   1,160    BULLISH   6.02
INX Internet         600     650     546    BEARISH   6.23 **

BIX Banking          520     640     532    Neutral   6.09
XBD Brokerage        450     515     490    Neutral   6.22
IUX Insurance        600     650     621    Neutral   6.20

RLX Retail           900   1,000     823    BEARISH   6.09
DRG Drug             355     400     397    Neutral   4.28
HCX Healthcare       710     800     809    BULLISH   6.15
XAL Airline          140     155     158    BULLISH   5.25
OIX Oil & Gas        265     300     309    BULLISH   5.11

Posture Alert
Technology shares ended the week on a sour note, as the NASDAQ got
hit for -91 points thanks to weakness in the Internet sector (-
6.28%). Concerns over Amazon's credit started the selling
pressure, which naturally spread to other net stocks such as
Yahoo, Ebay, and America Online.  With this most recent action, we
have lowered the INX to Bearish from Neutral.


You Want Options on HOLDRS?  You Want New HOLDRS Too?
By Buzz Lynn

With some help from both AMEX and Merrill Lynch, we bring you both
starting this weekend!

We know lots of you have been asking when options will be
available on other HOLDRS besides the QQQ, HHH, and BBH.  As of
last Thursday, options are available on ALL HOLDRS (except the new
ones, which we'll get to in a second).  From here on out we will
no longer need to list them as optionable or not optionable.  That
means we can now apply the leverage available in trading options
for hopefully greater returns on the PPH, TTH, IAH, IIH, BHH, BDH,
and SMH HOLDRS!  This is great news for those that have been
trading the $97/share semiconductor sector both long and short.
Now, you are no longer required to shell out the $9700 +/- just to
get in the game - all it takes is the price of an options
contract, or roughly $700 for a slightly in the money (JUL-95)
call contract.  By definition, sector trading just became more
affordable to the small investor.  The only downside here is that
due to their newness, liquidity is questionable and spreads may be
large at first until more trading volume and open interests
develop.  By no means is that a red flag to stay away from the
options though.  It just means to play with a bit more caution
until they get a discernable and more predictable trading
personality.  That will come with time, and probably not much time
at that.

As if options were not enough to keep us happily planted at our
trading screens a while longer, two new HOLDRS were introduced on
Friday too- the RKH, a basket of 20 regional banks, and the UTH, a
basket of 20 utility stocks.  The components will be listed next
week sometime on the site.  The RKH and the UTH both offer a way
to play a defensive position if the hot sectors are headed south.
The theory here is that their steady income streams will be in
favor as profit growth shrinks in the environment of a slowing
economy.  Careful though.  That's just a theory as bankers have
now taken on the role of insurance agent, estate planner, and
stockbroker.  They no longer can, nor do they have to rely solely
on interest income for profits (see Traders Corner, Sunday, June
4, Staging an Index by Molly Evans for more detail).  Similarly,
utilities no longer rely on just electricity sales for steady
profits.  Many like Enron (ENE) and Williams (WMB) are heavily
into bandwidth development too.  Neither sector is as heavily
segmented or insulated as it used to be and may not behave like a
"normal" defensive play of the past.  Even so, we'll take a long
position RKH or a UTH any day over an HHH headed south.

Come to think of it, we'll take an HHH headed south too - on the
put or short side!  See the new play section for the latest!

One thing to note about these new HOLDERS though - we will not be
adding them to our play list for a while until they develop a
distinguishable trading pattern.  Until then we'll keep an eye on
them with the intent to play them sometime in the future.

Finally, a housekeeping item - I've received many e-mails asking
about how to find the underlying component stocks and weighting in
each HOLDR.  Here's how to do it.  First, go to the OIN Web site
(If you aren't already doing this, and just using the e-mail
version, you're missing out!  You can double the effectiveness of
your trading education from all that rich meaty content you won't
otherwise see in the e-mail version!).  After logging in, click on
"Sector Trader" under the "Strategies" section.  Then click on the
most recent update.  At the top of update you will see the daily
summary of price moves for the HOLDRS, each with its own link.  By
clicking the link, you can then view all the components and their
weights in the selected HOLDR.

There you have it.  For your trading pleasure, all HOLDRS now
offer options, except the new ones, which we won't immediately
play.  With the FOMC meeting looming this week, use extra
diligence in planning your trades and trading your plan.  Good

Still have questions or suggestions?  We're building this section
for you.  Write me at Sectortrader@OptionInvestor.com.  Thanks to
all who have written so far.


Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    91.75   3.81  -0.25   1.25  -3.94  -3.50  -2.63
HHH Internet     109.63   1.13   5.63   2.50  -6.13  -7.38  -9.25
BBH Biotech      171.50   9.75   3.44   7.50  -9.44  -3.50   7.75
PPH Pharm         98.06   0.31  -1.94   1.88  -1.69   0.31  -1.13
TTH Telecom       76.25   1.56  -0.50   0.50  -0.31  -1.19  -0.94
IAH I-net Arch    89.63   4.25  -1.00   0.13  -2.25  -2.75  -1.88
IIH I-net Infr    56.50   3.00   2.88   0.19  -2.19  -3.38   0.50
BHH B2B           39.50   0.87   1.13   1.81  -2.44  -1.00   0.38
BDH Broadband     88.06   2.81  -0.63   1.44  -2.56  -1.50  -0.44
SMH Semicon       97.50   6.50   1.50   0.44  -5.19  -1.75   1.50

New Plays

HHH - Internet $109.63 (-9.25) Headline reads, "Queen
Piranha, Mary Meeker Turns AMZN Waters Red".  Henry Blodget too
joined in the feeding frenzy.  If you missed it, both analysts,
once strong AMZN supporters, stunned the dot com world Friday by
stating they did not expect AMZN to show revenue growth going
forward or the meet current revenue expectations.  It's not a
surprise then that AMZN, a big part of this HOLDR dragged down
every other dot coms in this HOLDR too.  But the problems aren't
just restricted to AMZN.  In fact, on Friday, every component
closed in the red.  EBAY with its own slowing growth, YHOO, and
AOL with its TWX merger aren't helping.  Technically, the index
itself sold off below then current support ($114), thus filling
the gap up from three weeks ago on volume exceeding the ADV by
25%.  While there is mild support at $105, we think there is
enough negative sentiment in this sector now thanks to "Mary and
Hank" to send HHH back for a retest at $100.  We would look for a
possible put or short target shooting entry if HHH reaches back
for $112, then turns down again.  Otherwise, a move below $108.50
might make a good put or short play entry.  Any recovery could be
just a dead cat bounce.  Again, you might want to treat it as a
put or short entry opportunity.  If a miracle happens though, and
HHH breaks back above $112 (unlikely, but that's why it's called a
miracle), the next point of resistance would be back at $115.

At Support:
BUY CALL JUL-105 HHH-GA OI= 10 at $10.00 SL=7.00
BUY CALL JUL-110 HHH-GB OI= 59 at $ 7.38 SL=5.25
BUY CALL AUG-110 HHH-HB OI= 26 at $10.38 SL=7.25

At Resistance:
BUY PUT  JUL-110 HHH-SB OI=376 at $ 7.13 SL=5.00
BUY PUT  JUL-105 HHH-SA OI=150 at $ 5.13 SL=3.00
BUY PUT  AUG-105 HHH-TA OI= 92 at $ 7.75 SL=5.50

Average Daily Volume = 1.19 mln


QQQ - NASDAQ 100 $91.75 (-2.63) As goes NASDAQ, so goes QQQ.  QQQ
failed to hold its then newfound support of $95, and fell through
its technical support at the 10-dma of $94.64.  Did you get short
at $94?  It provided nice intraday resistance before QQQ sank like
a stone in the final two hours.  All the big leaders gave back
over $1 on Friday, including MSFT, DELL, CSCO, and WCOM.  Only
INTC squeaked by with a fractional gain.  While there is mild
support at $91.50, $90 is a more solid level and should hold,
barring unforeseen catastrophe.  If it doesn't, consider it an
invitation to buy puts or go short.  In the meantime, if we don't
get a move back over $95, QQQ could be stuck back in the $90 to
$95 trading range like the two weeks prior to this last one.  You
can play it that way for now as long as fear of the FOMC keeps
traders paralyzed.  But a move over $95 is a clue to consider
going long or buy calls again.  Watch the market tone and play off
support and resistance until the direction is clear.

At Support:
BUY CALL JUL-90 QVQ-GL OI= 2749 at $6.38 SL=4.25
BUY CALL JUL-95 QVQ-GQ OI= 5702 at $3.88 SL=2.25
BUY CALL AUG-95 QVQ-HQ OI=  108 at $6.25 SL=4.25

SELL PUT JUL-90 QVQ-SL OI=15539 at $4.00 SL=6.00, Huge OI

At Resistance:
BUY PUT  JUL-95 QVO-SV OI= 3713 at $6.75 SL=4.75
BUY PUT  JUL-90 QVQ-SL OI=15539 at $4.25 SL=2.75
BUY PUT  AUG-90 QVQ-TL OI=  162 at $6.25 SL=4.25

Average Daily Volume = 27.51 mln


TTH - Telecom $76.25 (-0.94) Again, the 50-dma is acting
as resistance.  Helping even more is that TTH violated its 10-dma
on Friday (then about $77.50), then attempted to get back through
and failed.  Now it has both the 50 and the 10-dma working as
resistance.  We would expect that to continue since AT&T (T)
reported that its move to eliminate the monthly long distance
access fee will cost it a penny or so at earnings time.  We have
to comment here too on their incredibly backward plan to INCREASE
long distance rates in the process.  Their focus on maintaining
voice revenue is going to cost them while their competitors build
out new networks and grow their data business (where the real
revenue and growth is), relegating AT&T to also-ran status within
a few years if it can't execute its broadband strategy more
convincingly.  Here's a real life case of tripping over dollars to
pick up pennies that betrays T's long term weakness in our
opinion.  OK, off the soapbox.  SBC, BEL, BLS, and WCOM are
helping to drag down the index too.  As noted Thursday,
stochastic, RSI, and MACD are now pointing south in unison.  While
there is mild support at $75.75, $74 looks like the next stop to
us given the sentimental weakness of the major components.  If $74
can't hold, TTH too will be subject to retracing the gap up of
three weeks ago, perhaps making a reach to $72.50.  Consider too
taking a short or put position if it claws back to $78.  Either
way, there is opportunity to the downside.  However, should TTH
get back to $78 and hold, you can consider buying calls or going
long again.

At Support:
BUY CALL JUL-75 TTH-GO OI= 0 at $3.63 SL=2.00, no OI
BUY CALL JUL-80 TTH-GP OI=12 at $1.31 SL=0.75

At Resistance:
BUY PUT  JUL-80 TTH SP OI= 0 at $4.75 SL=3.00, no OI
BUY PUT  JUL-75 TTH SO OI= 0 at $1.94 SL=1.00, no OI

Average Daily Volume = 83 K


BBH - Biotech $171.50 (+7.75) As suspected, the profit
taking continued on Friday in overall market weakness.  That may
be partially related to the "buy the rumor, sell the news"
mentality in anticipation of the government's and Celera's (CRA)
intent to announce they have successfully mapped the human gene.
Thing is CRA was one of only a handful of up issues (+$7) on
Friday.  HGSI also saw $12.38 of gain the news that the company
outlined human clinical trials of B-lymphocyte stimulator, or
BLyS, a protein that may help patients with immune system problems
by stimulating the production of antibodies.  Despite gains there,
the 5-dma of $174.75 was violated.  While there is historical
support at $170, the 10-dma of $166.95 may make a better entry.
This is still a sentimentally hot sector and should come back.
Either way, a solid bounce with a turn around on the Dow and
NASDAQ might make a good entry.  However, if it violates the 10-
dma to the downside, you may want to consider buying puts as the
next stop would likely be $160.  That said, we'll have to wait and
see what happens in front of the FOMC meeting.  Be watching for
BBH to pick a direction soon.

At support:
BUY CALL JUL-165 BBH-GM OI= 100 at $15.75 SL=11.25
BUY CALL JUL-170 BBH-GN OI=1254 at $13.13 SL=10.00
BUY CALL AUG-170 BBH-HN OI=   5 at $18.38 SL=13.25, low OI

At resistance:
BUY PUT  JUL-175 BBH-SO OI=  86 at $13.50 SL=10.25
BUY PUT  JUL-170 BBH-SN OI= 116 at $10.88 SL= 8.00
BUY PUT  AUG-170 BBH-TN OI=   3 at $15.38 SL=11.25, low OI

Average Daily Volume = 637 K


IIH - Internet Infrastructure $56.50 (+0.50) While all of the
components of this HOLDR were in the red, VRSN, one of the largest
components, was down nearly $12.  No particular news other than
that it may have been "Meekerized" or "Blodgetized" by Meeker and
Blodget's unfavorable comments on the Internet sector related to
AMZN.  That said, investors may no longer feel the love for this
segment of the Internet sector, which helps explain why expected
support at $57.50 didn't hold.  So why keep it?  We thought that
if $57.50 didn't hold, a move further down to historical support
of $54 might happen.  That's still our thinking since anything
below $57.50 is a violation of the 10-dma and sign of weakness.
Stochastic, MACD, and RSI are also nicely pointed south.  A move
back to $57.50 followed by a decline would be our invitation to
buy puts or go short as would a descent under $54.  Conversely, a
bounce at $54 or renewed strength at $57.50 would suggest getting
long or buying calls again.  We favor the downside, but watch for
Greenspasms to affect this play in either direction.

At Support:
BUY CALL JUL-55 IIH-GK OI= 1 at $5.25 SL=3.25, rock bottom OI
BUY CALL JUL-60 IIH-GL OI= 0 at $3.00 SL=1.50, no OI
BUY CALL AUG-65 IIH-HL OI= 0 at $4.50 SL=2.75, no OI

At Resistance:
BUY PUT  JUL-60 IIH-SL OI= 0 at $6.13 SL=4.25, no OI
BUY PUT  JUL-55 IIH-SK OI= 1 at $3.13 SL=1.75, rock bottom OI
BUY PUT  AUG-55 IIH-TK OI= 0 at $4.50 SL=2.75, no OI

Average Daily Volume = 301 K


BDH - Broadband $88.06 (-0.44) This weekend, BDH is on the bubble
and in danger of being popped - in other words, double-secret
probation.  We had expected the then 10-dma of $88.71 with
historical support of $88.50 to hold.  It didn't and the 10-dma
was violated, which would normally earn it a drop from the list.
However, given the minimal loss compared to the whole NASDAQ
market, it had good relative strength, thanks to NT's gain of
$1.56 on Friday.  NT and LU are the two largest components, with
SDLI, GLW, JDSU and SCMR making up some of the sexier entries in
this HOLDR.  These are still sentimental favorites and they held
up pretty well too.  CIEN was the big loser, down $11.75.
Solidifying our faith in BDH though was the $1 bounce upward in
the last 15 minutes of trading.  We need to see the bounce
continue from here (actually from $87.50) if we are to make any
money.  If it can't bounce, BDH is technically poised on the chart
to retest $85.  We can't make a strong case for going short or
buying puts at this level and would look for a bounce accordingly.
If it can't, we'll likely give it the boot on Tuesday.  Look for a
move back over $88.50 or a bounce from $85 as a potential entry.
Just make sure the rest of the market is in your favor.

At Support:
BUY CALL JUL-85 BDH-GQ OI= 0 at $7.38 SL=5.25, no OI
BUY CALL JUL-90 BDH-GR OI= 0 at $4.75 SL=3.00, no OI
BUY CALL AUG-90 BDH-HR OI= 0 at $7.63 SL=5.50, no OI

At Resistance:
BUY PUT  JUL-90 BDH-SR OI= 0 at $6.25 SL=4.25, no OI
BUY PUT  JUL-85 BDH-SQ OI= 1 at $3.25 SL=2.25, rock bottom OI
BUY PUT  AUG-85 BDH-TQ OI= 0 at $6.13 SL=4.25, no OI

Average Daily Volume = 189 K


IAH - Internet Architecture $89.63 (-1.88) IAH gets the boot.
While it's been falling for four days, everything on the component
list is rolling over too, including SUNW, HWP and IBM.  Not only
that, but this HOLDR violated its 10-dma (now $91.76) in a big way
and didn't make an attempt at recovery on Friday.  We look for the
weakness to continue thanks to downturned technicals, but not to
sink it completely.  There may be some consolidation around the
$89 level for a bit before the market tells us which way this one
will move.  The 50-dma could be the next strong support at about
$86.  We'll just have to wait and see.  In the meantime, money can
be made on other plays.

Average Daily Volume = 71 K

No Play



For the week of June 26, 2000


Existing Home Sales      May    Forecast:  4.85M   Previous:  4.88M


FOMC Meeting  8:30 a.m. ET
Consumer Confidence      Jun    Forecast:  140.0   Previous:  144.4


Durable Orders           May    Forecast:   2.8%   Previous:  -6.5%


GDP - Final              Q1     Forecast:   5.4%   Previous:   5.4%
GDP Chain Deflator       Q1     Forecast:   2.7%   Previous:   2.7%
Initial Claims           06/24  Forecast:   300K   Previous:   302K
New Home Sales           May    Forecast:   900K   Previous:   909K
Help-Wanted Index        May    Forecast:     NA   Previous:     88
FOMC Minutes             05/16  Forecast:    ---   Previous:    ---


Personal Income          May    Forecast:   0.3%   Previous:   0.7%
PCE                      May    Forecast:   0.3%   Previous:   0.4%
Chicago PMI              Jun    Forecast:  54.5%   Previous:  53.9%
Michigan Sentiment       Jun    Forecast:  106.5   Previous:  106.8

Week of July 3rd

07/03 Auto Sales
07/03 Truck Sales
07/03 NAPM Index
07/03 Construction Spending
07/05 NAPM Services
07/05 Leading Indicators
07/06 Initial Claims
07/06 Factory Orders
07/07 Nonfarm Payrolls
07/07 Unemployment Rate
07/07 Hourly Earnings
07/07 Average Workweek

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This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in
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The Option Investor Newsletter                    Sunday 6-25-2000  
Sunday                                                      2 of 5


There is No Holy Grail
By Molly Evans

The hardest part about being anything other than a "buy and 
forget about it" investor is determining one’s own system for 
investing and then sticking to it.  Before I discovered this 
whole new world of active trading, I had purchased shares of 
INTC, CSCO, C, and PFE with the intent that I'd look at it 
again sometime when I was an old lady.  Sometimes I wonder if 
that still wasn't the best plan.  The problem with that was this 
style of investing didn’t fit my personality.  I wanted to look.  
I wanted to learn more and be an active participant in the 
market.  After holding that INTC stock for 18 months I had 
close to a 60% return.  "Great!  Super!  This is a lot better 
than that mutual fund I had for three years!"  Then came 
a fateful day that an options trader talked me into selling 
my INTC stock and putting that money into LEAPS.  I had a 
double in two months.  Tell me, who wouldn't absolutely 
love that?  At that point, it didn't faze me a bit to blow 
out the CSCO to do the same thing and to just plain throw 
out those snail paced C and PFE shares.  "Give me tech!  
Give me front month calls!  That 60% INTC appreciation was 
just child’s play.  This is wonderful!"  Yes, it must be so 
embarrassingly obvious that I began my true options 
education in earnest just last November.  You wondered why I 
whined so much about this correction?.  Here you go...and 
"poof" it was gone.

So I admit it.  The love bug bit me on my first play.  Of 
course I am no seasoned trader but I do now have a much
healthier respect for the nuances of the market and of options 
trading in particular.  A screaming bull market makes a 
genius of any fool.  Yet, we all know the truth; if this were 
easy, everyone would do it and anyone could make a fortune.  
It's simply not like that.  

I’ve had to do a lot of quiet thinking and reflection about
what I want to accomplish in the market.  I believe this is 
the first question one must ask of himself.  What is it that
you are trading for?  Are you doing this to build your nest
for retirement?  Are you trying to raise cash for your kids’ 
college tuition?  Are you planning to make a living off your 
earnings?  You might think of this exercise as if you were 
writing a business plan.  What is your mission?  Is it 
realistic?  What kind of a return on your money do you need 
to achieve in order to reach that goal?  Is that also realistic?  
In Jack Schwager’s Market Wizards, famed trader Ed Seykota 
said, "Everybody gets what they want out of the market."  
Schwager recounts in his follow-up book, The New Market Wizards 
how that statement came back to haunt him.  Schwager told Ed 
how he had wanted to wind down his trading and be out of the 
market during a time that he was too busy to be trading.  
"Why didn’t you close the account?" Ed had asked.  Schwager 
went on to explain that he had to keep trading as he had been 
on a winning streak and had he closed out the account, he’d 
have always wondered if he would have hit the really BIG money.  
He just couldn’t pass up that opportunity.  Ed, at that point, 
suggested to Schwager, "In other words, the only way you 
could stop trading was by losing.  Is that right?"  Dig
deeply and ask yourself what you really want with regards
to your trading.  If you have only a vague notion of where 
you are going, it’s likely that you’ll end up somewhere else.
Next, you would need to take into account the amount of 
your trading capital.  How much do you have at your disposal
and how much of that can you bear to lose?  You need to be
honest with yourself.  Can you really stand to lose 30% of 
that capital?  How about 50%?  When I take a hit, I really
don’t get too upset about the monetary loss.  I lost $3500 
in a trade last week and then simply entered it into my 
minus side of the ledger and intended to move on.  That’s 
certainly not the biggest hit I’ve ever taken but as I 
looked at and thought about it, I realized that $3500 was 
not petty change for me.  I would never leave my purse just 
laying around with $3500 in my billfold just waiting to be 
picked off.  This made me question that perhaps my loss 
tolerance was too lax for myself.  While I had considered 
the ill timing and execution of the trade to be the far 
more important issue, and it still is, it did, nevertheless, 
give me pause to wonder about what I was doing and where my 
own risk tolerance should be placed.  (Just for the record, 
it should be said that yes, there is a profit column to my 
ledger too. I squawk only about the bad guys.)  

Limiting your downside and defining your risk tolerance is a 
whole topic in itself.  What is important here is your amount 
of raw capital and your gut reaction to losing a portion of 
that.  If you can’t afford to lose it, you shouldn’t risk it.  
Bad things happen when you expose sacred money to stock market 
risk.  The fear of losing will make you display terrible 
judgment.  You’ll jump out of a good position at the first 
downtick, and then watch the stock run higher.  On the other 
hand, fear will lead to a fatal indecisiveness on a trade gone 
wrong.  Should you or shouldn’t you jump?  Oh I can hear you, 
I’ve heard myself, "Ohhhh, dangit!  I know if I sell right now 
it will be the absolute low and I’ll hate myself!  An hour 
later, Curses!  Why didn’t I dump this junk pile when I wanted 
to?  I can’t believe I’m so stupid!  The truth is, you should 
not trade when you’re feeling anything but confident and eager 
to execute a well constructed plan.  Fear and low capital risk 
tolerance is a debilitating disease in this business.  

So how do I get that confidence? someone asks.  Confidence 
comes on the heels of self-study and dedication of time and 
effort to the craft.  To just throw money at the market and 
expect that it will reward you is ludicrous.  I did that.  I 
got rewarded initially yes, but it didn’t last.  I only got 
lucky in the beginning.  However, luck runs out in the market 
and the meek do not inherit the earth.  Only the strong survive.  
You must devote the time and energy to studying what it is that 
you’re putting dollars at risk for.  There are innumerable 
opportunities for profit in the stock market but you have to 
find them.  There’s no Holy Grail or grand secret to be found.  
The road to prosperity lies within one’s self.  It all goes 
back to devising that business plan.  What is your mission?  
How do you expect to achieve it?  Within the confines of that, 
what are your own rules to live by?  Does the methodology fit 
your personality and tolerance level?  Ask the questions and 
write the answers.  

The methodology is the fun part of the business plan.  
This is where you determine the income.  Based upon your
mission, and risk tolerance, the methods should practically
write themselves into that section.  As previously stated,
there’re so many ways to profit (and lose) in the market.  
One can scalp for fractions of points and clear the books 
each day, buy calls, buy puts, put on spreads and straddles, 
write covered calls, write naked puts, buy breakouts, short 
gaps, on and on and on.  Nothing says you can’t try all of 
them.  This is where I’m at now.  I don’t want to be a one
trick pony but I don’t want to get myself all mixed up and 
then have no real plan at all either.  I’ve done the 
daytrading thing and loved the quick coup.  Then, what was 
supposed to be a quick trade turned against me and I refused 
to take the loss.  I rationalized that I didn’t have to 
lock in a loss as it’s long stock and not melting in my 
hands like an option.  It’ll come back.  Ok, so I’ve 
already blown one of my rules within a methodology.  I guess 
I really don’t like that plan.  I ended up writing covered 
calls on the stock and am now ahead.  I’m tickled pink but 
that did defeat the system of clearing the books each night.  

I’m still experimenting with what is going to end up being 
my system of trading.  While I know and love the call and 
put buying based upon charting, the market has to be right
for that activity and I’m just not convinced that it is at 
this time.  The spreads are wide and the premiums are so 
inflated with volatility.  I’m happy with a few entries of 
calls but they’re melting as the time passes and we have 
this up and down thing going every other day.  Unless you’re
a superb stock picker and timer, your portfolio gyrates right 
along with the market and that can be quite unsettling to a 
number of people.  I think an options buyer in this market is 
brave.  The volume is unconvincing and the swings in sentiment 
vary daily.  I love a good thunderstorm but I’m always on the 
lookout for funnel clouds.  Shoulda, woulda, coulda is alive 
and well for not heeding the sell signal warnings. Had I had 
a set system in place, I think that I actually would have sold 
those calls Wednesday.  The thought was there and things were 
looking toppy and lacking in conviction but I held tight to be 
there for that summer rally.  Fear and greed, they’ll get 
ya every time.

Investing and trading can be a lot of fun but should not
be viewed as a hobby.  You and your hard earned money deserve 
a fair chance to profit from the market.  Investing is a 
serious endeavor and should be approached as seriously as 
if you were setting up business.  The goal of a business 
is so grow assets and quite bluntly, not go broke.  How you
accomplish that is determined by your personality and risk
tolerance profile.  I urge you to give your system some 
serious thought in the coming days.  What are you doing right?
What are you doing wrong?  How can you improve that?  Is it
time to set back and simply study more?  If so, go to 100% 
cash, take time away and do that.  Summer is a great time
to do it.  The market and many more opportunities will be 
here when you get back.  

For those of you who will be doing so, may you enjoy profitable 
trading in the coming week!  Good luck.

Contact Support


Theta and Delta in Leaps
By Mary Redmond

If you think the market is going to rally over the next several
months, you might consider buying leaps on some of your favorite
stocks.  In order to trade leaps successfully you need to have 
an understanding of many of the characteristics of options, 
including theta (rate of time decay) and delta (rate of change 
in option price for every point change in stock price).  Leaps
can often give you the leverage of options with less risk.

The theta is the rate of time decay of an option.  The rate
of time decay in not linear.  A one year leap has a much slower
theta than an option which will expire in one or two months. 
If you buy a Jan 02 leap you have 18 months before the leap
will expire.  For the next four to six months the leap will
probably retain most of its time value if the stock stayed in
the same range.

For example, if you bought a QCOM Jan 02 at the money leap at 
$28, and the stock stayed the same price for the next six months
the leap would most likely remain above $26-$27.  When the leap
has twelve months before expiration it will start to lose
time value slowly.  You might lose a small percentage each
month if the stock stayed at the same price.  When the leap
has nine months to expiration it will start to lose time
value a little more quickly, and from there it will accelerate 
based on the square root of the time remaining.  For example, 
a two month option will decay twice as fast as a four month 

You must also consider the delta, or the rate of change in 
option price per rate of change in stock price when deciding
when to buy or sell leaps.  An at the money leap or option
will usually move approximately half a point for every point
the stock moves up or down.  A deep in the money leap or option
will generally move approximately one point for every point
change in the stock price.  

In addition, many other factors can influence the price of 
options.  For example, if the stock price increases, and the
demand for the option or leap you own increases dramatically  
the option price may increase by a larger percentage due to 
the increased volatility in the stock price.  For example, if 
QCOM went up to $100 before the end of the year then the $70 
leap might increase to over $60 or $70, depending on the public's 
perception of whether the price would keep increasing at the 
same rate.

If you remember December of 1999 when Qualcomm had made huge
gains on a daily basis the one month at the money options were 
often priced at a 30 to 40% premium to the stock.  This is 
partly because the options were priced on the assumption that 
the stock price would keep increasing at the same rate.  The 
Dec $270 SDLI options were priced at $78.5 on Friday, in part 
because the stock has just made an fast upward move of over 50%.  

The best time to buy a leap is usually when the volatility 
is lower than the historical volatility.  There are a number
of stocks which made huge gains last year, and have not moved
much this year.  If the stocks started to move in the same 
pattern it moved last year the leaps could show huge gains.
Eventually historical volatility can change if the stock's 
trading pattern makes a permanent change, as it is similar to 
a moving average of the historical trading pattern of the stock.  

Many analysts had expressed concern that the amount of stock
which was issued in initial and secondary public offerings 
in 1999 drained a significant amount of liquidity from the 
market, and is still continuing to present a problem.  I 
think it is important to note that some of the tech ipos
which were issued last week experienced a strong gain on the 
first day of issuance.  This may be an optimistic sign.  It
indicates that institutional and retail investors still have
an interest in the technology ipo market.  If the institutions
were bearish, they would probably not buy technology ipos.

However, it seems likely that the public may be more selective
when investing in ipos for a long time to come.  There is still
tremendous growth potential on the internet.  However, in 1999
may internet ipos went public which were run by people who had
little or no technical experience.  We have found that it takes
a lot of technical expertise to run an internet based business
successfully.  The investment bankers will probably be much more
discriminating in selecting future internet related ipos.

According to last week's Barron's the ipo pricings were in the
range of $2 billion.  It is possible that if we were to see ipo
pricings in this range for an extended period of time that this 
could potentially free up liquidity to be invested in the market.

AMG Data Services reported a net outflow of $100 million from
equity funds last week.  This is a minor outflow.  Growth sector
funds still experienced a net inflow and most of the outflow 
was from emerging market funds.  The investment company institute
reported a huge outflow from money market funds last week.
Retail money market funds experienced a net outflow of $7.71 
billion to $969.11 billion.  Institutional money market funds 
experienced a net outflow of $2.88 billion to $702.94 billion.
It seems likely that this money may be going into the stock 
market, as volume on the NYSE and Nasdaq has increased, and 
almost all of the margin call related selling is over.  

Contact Support


Concerning Debit Straddles

Dear OIN:

With the market-wide volatility in options beginning to return
to normal levels, I am planning to participate in more debit
straddles.  I have been quite successful with some of your past
positions and was wondering if you would consider sharing the
techniques used to find these candidates.




Regarding the OIN "Combos" section - Straddle candidates...

The majority of positions for my section come from news articles
on options activity (increased volume), volatility searches and
scans, and proprietary software programs that provide candidate
lists based on premium disparity algorithms.

Most of the straddle positions are based on current implied vs.
historical volatility rankings and these lists can be found on
a number of sites and in various software programs.  Probability
calculators and charting programs are also helpful in sorting
through the large number of possible issues to identify the
most undervalued options and make assumptions about future
movements in the underlying security.

Profitable debit straddles are relatively simple to uncover and
there are three rules to identifying favorable conditions for a
straddle purchase.  First, the trader should select options that
are undervalued (cheap).  Next, the underlying security must have
the potential to move (high or low) enough to make the straddle
profitable.  Finally, the underlying stock should have a history
of multiple movements through a sufficient range in the required
amount of time to justify the overall risk/reward of the position.

There are many sources of information on the Internet and one of
the best ways to find new candidates for combination positions is
to follow the mainstream activity.  News articles on extremes in
option trading volume and volatility are listed at many sites
(Yahoo, The Street.com, and CBS Marketwatch are some examples)
and the major exchanges; The CBOE, PHLX, and AMEX have excellent
resources for historical and statistical option pricing.

When you find a candidate that appears to have all the attributes
of a favorable position, it probably has a good chance of being
profitable.  The key is to use all the sources available to find
these candidates and participate when they meet your skill level,
risk-reward tolerance and portfolio outlook.

Good Luck!


Index      Last    Week
Dow     10404.75  -44.55
Nasdaq   3845.34  -15.22
$OEX      781.07   -7.67
$SPX     1441.48  -22.98
$RUT      510.41   -3.33
$TRAN    2630.71  -42.48
$VIX       25.89    2.34


ABGX      138.03   23.53  The Biotechs were set ablaze on Friday
QLGC       67.56   16.63  New, court ruling brings back old momentum
RBAK      135.50   16.50  Rebounded Friday as our Play of the Day
ARBA       88.56   14.50  New, held nicely despite the market
LNUX       47.13   14.38  Not $300, but heading the right direction
HGSI      145.38   11.88  Human Genome announcement moves stock 9%
BRCD      156.00   11.06  Had a good week despite the bad markets
PDLI      172.63    8.63  The Biotechs refuse to lose
MSFT       77.69    5.13  Been awhile since MSFT moved like this
AETH      191.00    5.06  Hanging on by its teeth...$180 the key
AGIL       61.69    4.50  Good relative strength late last week
MERQ       94.56    4.25  New, only three days for the S&P addition
JDSU      123.44    3.25  Holding up well as merger nears
PMCS      186.81    2.75  Dropped, it couldn't hold the breakout
CIEN      145.44    0.19  Dropped, it was great while it lasted
MRVC       55.00   -0.38  Rumors of a spinoff are the main driver
NT         65.19   -2.00  Ready to rebound with the markets
LLTC       64.69   -4.75  Dropped, investors say goodbye for now
GLW       240.00   -8.31  Still holding above that $240 level
SEBL      145.13  -11.94  Dropped, Nasdaq pressure was too much
VRSN      149.25  -15.31  Dropped, fell through key $160 support
YHOO      125.31  -15.63  Can it recover for an earnings run??


AMZN       33.88  -12.13  Warnings from key analyst propel our play
WY         43.50   -3.06  New, the sector continues to be punished
UTX        57.06   -1.81  Dropped, not enough action last week
DCLK       37.63   -0.88  Amazon disaster rippled through sector
NKE        37.06   -0.19  Be watchful of earnings this Thursday



MERQ - Mercury Interactive
ARBA - Ariba Inc
QLGC - QLogic Inc


WY - Weyerhauser


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.


PMCS $186.81 (+2.75) PMCS just isn't performing up to par.  
Thursday's back-fill to support at $190 was understandable, but 
that was the proverbial line drawn in the sand.  PMCS crossed 
over that line in Friday's session.  The intraday high at 
$195.44 should've instead been the share price's near-term 
support level.  And the stock's close just a fraction away from 
the daily low coupled with a 10-dma infringement added more salt 
to the wound.  Perhaps this potential splitter will rise to the 
occasion as its earnings' approaches next month, however at the 
moment, there's no play.  The company is expected to report 
around July 13th.  

SEBL $147.13 (-9.94) SEBL fell for the second day in a row
Friday.  The stock bounced along support at $150 for a good part
of the day, but plunged below that level in the final hour of
trading.  It appears the late day buyers we've come to know left
early for the weekend, leaving the sellers to wreak havoc on our
play.  Traders blamed SEBL's decline on profit taking.  We're
wondering what profits they were taking.  What's disconcerting
about SEBL's slide Friday is the stock violated its pattern of
higher lows.  Furthermore, SEBL has been falling through key
support levels like a rock.  We don't want to hang to see more
support levels give way.

CIEN $145.44 (+0.19) As far as we can tell, the buyers hit
the beach early Friday, leaving the sellers free reign.  CIEN
plunged right from the opening Friday morning, finding support 
at $150.  The stock attempted to rally in midday trading, and
actually climbed back above resistance at $155.  That's as far as
CIEN made it Friday, as the bears came back from lunch growling,
and erased nearly all of CIEN's gains from earlier in the week.
While CIEN didn't suffer major technical damage Friday, we did
notice that the selling accelerated in the final moments of
trading with a surge in volume, which doesn't bode well for CIEN
early next week.

LLTC $64.69 (-4.75) The "Big MO" is gone and investors in LLTC
seem to have forgotten why they were bidding shares of the 
company higher just a few short days ago.  Weakness in the
Semiconductors, along with generalized fears about the economy
and declining profits was more than LLTC could handle and shares
of the company gave back all of its recent gains on Thursday 
as the 10-dma (then at $68.44) got shattered on the way down.
After an aborted recovery during amateur hour on Friday, LLTC
rolled over at the 10-dma and headed lower for the balance of
the day.  Until conditions improve, we are dropping LLTC like
a hot potato this weekend.

VRSN $149.25 (-15.31) After spending nearly 2 weeks in a
trading range between $160 and $180, VRSN investors gave the
international sign of surrender and sold shares of the Internet
security firm with gusto.  The last 3 days saw more than a $25
drop in price on robust volume and Friday’s selling shattered
the previous support at $158-160.  The Internet sector really
never recovered on Friday after Mary Meeker’s bearish comments
on Amazon.com, and VRSN was punished along with the sector.
There was no negative news on VRSN, but the guilt-by-association
selling was enough to kick it off our play list this weekend.
We’ll step aside and wait for better plays to materialize.


UTX $57.06 (-1.81 last week) UTX has gotten a bit bullheaded the
past few sessions.  Could it be a sign the bulls are about to
take control again?  We really aren't sure, however the lack of
any follow-through selling at support has caused us to pull this
one from the line-up.  A pattern of higher lows is beginning to
develop, forming an ascending triangle.  This consolidation
pattern, can be considered bearish in a market heading south.
After dropping to $55.13 on Tuesday, the bears have tried
unsuccessfully for three straight days to push UTX lower.  Our
play is loosing its momentum, and with the $55 area of support
seemingly doing its job, we may begin to see a bargain hunters
emerge.  For traders wanting to continue on, we would need to
see UTX break below $55 with better than average volume to
restore our confidence.  For now we will concentrate our efforts


We don't list all splits available, only those we 
feel may have play possibilities. 

Symbol - Stock          Splits/Date  
NVDA - NVIDIA Corp.     2:1 06-26-00 ex-date 06-27
MRCL - Micrel Inc.      2:1 06-27-00 ex-date 06-28
BRL  - Barr Lab.        3:2 06-28-00 ex-date 06-29
GMH  - Hughes Elec.     3:1 06-30-00 ex-date 07-03
REMC - REMEC, Inc.      3:2 06-30-00 ex-date 07-03
AMFC - AMB Financial    3:2 06-30-00 ex-date 07-03
ABGX - Abgenix, Inc.    2:1 07-07-00 ex-date 07-10
TQNT - TriQuint Semi.   2:1 07-11-00 ex-date 07-12
BFCI - Brauns Fashions  3:2 07-11-00 ex-date 07-11
IWOV - Interwoven       2:1 07-13-00 ex-date 07-14
FITB - Fifth Third Banc 3:2 07-14-00 ex-date 07-14
XETA - Xeta Corp        2:1 07-17-00 ex-date 07-18
FII -  Federated Invest.3:2 07-17-00 ex-date 07-17
TBL  - Timberland Comp. 2:1 07-17-00 ex-date 07-18
TIF  - Tiffany and Co.  2:1 07-20-00 ex-date 07-21
INTC - Intel Corp.      2:1 07-28-00 ex-date 07-31
AIG  - American Intl.   3:2 07-28-00 ex-date 07-31
AUTN - Autonomy Corp.   3:1 08-01-00 ex-date 08-01
STII - Silicon Storage  3:1 08-11-00 ex-date 08-11
POS  - Catalina Mktg.   3:1 08-17-00 ex-date 08-18

For a complete list of all the coming splits check out the
"split calendar" on the side of the online edition newsletter


Call Play of the Day:

LNUX - VA Linux Systems Inc. $47.13 (+14.38 this week)

See details in sector list

Chart = /charts/charts.asp?symbol=LNUX

Put play of the day:

DCLK - DoubleClick, Inc. $37.63 (-0.88 last week)

See details in sector list

Chart = /charts/charts.asp?symbol=DCLK


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
TP/P= True premium or Time premium
RRR = Risk/Reward/Ratio
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the 
group. If the stock moves as expected we feel they have the best 
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5 
Analysts who follow each stock rate it and these rating are 
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell" 

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

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


Tired of waiting on trades to execute? 
Does your broker offer Stop Losses on Options?  

Trade instantly with Stop Losses at Preferred Capital Markets
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with Preferred Capital

Anything else is too slow!



The Option Investor Newsletter                    Sunday 6-25-2000  
Sunday                                                      3 of 5


BRCD - Brocade Communications $156.00 (+11.06 last week)

Brocade Communications is a provider of Fibre Channel switching
solutions for Storage Area Networks (SANs), which apply the
benefits of a networked approach to the connection of computer
storage systems and servers.  The company’s family of SilkWorm
switches enables companies to cost-effectively manage growth in
their storage capacity requirements and improve the performance
between their servers and storage systems.  This provides the
ability of increasing the size and scope of a company’s SAN,
while allowing them to operate data-intensive applications,
such as data backup and restore, and disaster recovery on the

Someone was bound to blink, and this time it was the bears.
Investors got tired of waiting for the outcome of the FOMC
meeting (scheduled for this Tuesday and Wednesday), and bid
shares of BRCD sharply higher on Monday.  The $15 gain was
enough to push the share price through resistance as $145 and
$155, and by Wednesday BRCD was trading north of $165.  Alas,
the market ran out of momentum and shares of BRCD settle back
into consolidation mode over the past 2 sessions.  Volume has
dropped off considerably, and BRCD managed a nice late-day
bounce at the 10-dma ($150.25) and closed out the week above
the all important $155 level.  With plenty of positive press
to keep the bulls happy, (see below), the decline over the past
2 days looks like simple profit taking.  We need to see the
upward trend resume in the next few days in order to keep the
momentum alive.  Look for a bounce from the $150 level (10-dma)
on increasing volume to signal your entry.  More cautious
traders will wait for the price to tick back over the $160
level before playing.  In either case, it might be prudent to
wait for the outcome of the FOMC meeting and the corresponding
market reaction before playing.

It’s hard to argue with good news, and BRCD had a bunch on
Wednesday.  The Fibre Channel Standards Committee selected the
company’s new Fabric Shortest Path First (FSPF) Routing Protocol
as the standard for multi-vendor switch interoperability.
Adding strength to the move this week were positive comments
form AG Edwards on Wednesday.  The firm initiated coverage of
the stock with a Buy rating.  As if that wasn’t enough, Bear
Stearns included BRCD in its list of the Best Internet
Infrastructure Stocks.  Analyst Shaw Wu calls BRCD “my favorite
in the space” and issued a price target of $175 per share.

BUY CALL JUL-150*UBZ-GJ OI=4452 at $16.38 SL=11.75
BUY CALL JUL-155 UBZ-GK OI=1340 at $13.88 SL=10.50
BUY CALL JUL-160 UBZ-GL OI=1547 at $10.75 SL= 8.00
BUY CALL AUG-160 UBZ-HL OI=  52 at $18.63 SL=13.50
BUY CALL AUG-165 UBZ-HM OI=  34 at $16.75 SL=12.00
BUY CALL OCT-165 UBZ-JK OI= 141 at $28.75 SL=21.50

SELL PUT JUL-150 UBZ-SJ OI= 151 at $ 8.13 SL=11.00
(See risks of selling puts in play legend)

Picked on June 6th at   $138.88     P/E = 726
Change since picked      +17.13     52-week high=$185.00
Analysts Ratings      8-4-2-0-0     52-week low =$ 18.75
Last earnings 05/00   est= 0.08     actual= 0.11
Next earnings 08-14   est= 0.13     versus= 0.01
Average Daily Volume = 3.24 mln

NT - Nortel Networks $65.19 (-2.19 last week)

Nortel Networks is a leading global supplier of data and
telephony network solutions and services.  Covering all the
bases, its business consists of the design, development,
manufacture, marketing, sale, financing, installation,
servicing and support of networks for both carrier and
enterprise customers.  With a presence in over 150 countries,
NT serves local, long-distance, personal communications
services and cellular mobile communications companies as well
as cable television companies, Internet service providers and

Declining volume throughout the week was our first signal that
NT was due for some profit-taking.  After 6 up days in a row,
and 5 days of gains on the NASDAQ, it was time for a little
consolidation.  The drop was a little more than we would have
liked to see, as NT dropped through its 10-dma at $65.25 on
Thursday.  Fortunately, we got a nice solid bounce at $64, and
the stock held its ground on Friday.  This is particularly
encouraging as the NASDAQ had another bad day, dropping down
to close below 3900 again.  With the June FOMC meeting looming
just around the corner and the price of crude oil still above
$30 a barrel, investors are understandably nervous as we
approach July earnings.  The drop over the past 2 days has
brought us right back to the $64 support level and another
bounce here looks buyable for new entries as long as it is
confirmed by increasing volume.  If you are looking for some
confirmation before playing, wait for NT to move back above
the 10-dma (currently $65.81) on strong volume.  Further
market weakness could produce a drop to the next support
level at $62 before buying resumes in earnest.  A bounce
there would make for a more attractive entry point, but make
sure it bounces before you buy.  Violation of support at $62
would be very bad for our play, and we would stand aside at
that point and wait for the dust to settle.

NT made waves at the Wireless Internet summit in Paris,
announcing a strategic alliance with Hewlett-Packard to develop
end-to-end Wireless Internet solutions and mobile e-services to
deliver profitable, seamless, high-speed access to information
anytime, anywhere.  Then on Tuesday, UBS Warburg added NT to
its “Global Tech Focus List” with a Buy rating.  Warburg said
the outlook for NT’s optics and wireless business appears very
robust and expects the company to continue its leadership in
both areas.

BUY CALL JUL-60*NTV-GL OI=5965 at $7.00 SL=5.00
BUY CALL JUL-65 NTV-GM OI=6634 at $3.75 SL=2.00
BUY CALL JUL-70 NTV-GN OI=6827 at $1.75 SL=1.00
BUY CALL AUG-70 NTV-HN OI= 822 at $3.63 SL=1.75
BUY CALL AUG-75 NTV-HO OI= 332 at $2.13 SL=1.00
BUY CALL SEP-70 NTV-IN OI=4522 at $4.88 SL=3.00

Picked on June 15th at   $67.00     P/E = N/A
Change since picked       -1.81     52-week high=$72.09
Analysts Ratings    19-11-3-1-0     52-week low =$19.91
Last earnings 04/00   est= 0.19     actual= 0.23
Next earnings 07-25   est= 0.14     versus= 0.14
Average Daily Volume = 9.92 mln

RBAK - Redback Networks $135.50 (+16.60 last week)

Founded in 1996 and headquartered in Sunnyvale, Calif., Redback
Networks is a leading provider of advanced networking solutions
that enable carriers, cable operators, and service providers to
rapidly deploy broadband access and services.  The company's
market-leading Subscriber Management Systems (SMSs) connect and
manage large numbers of subscribers using any of the major
broadband access technologies such as Digital Subscriber Line
(DSL), cable, and wireless.  To deliver integrated transport
solutions for metropolitan optical networks, Redback's SmartEdge
multi-service platforms leverage powerful advances in
application-specific integrated circuit (ASIC), IP, and optical
technology.  With this product portfolio, Redback Networks is 
the first equipment supplier focused exclusively on developing
integrated solutions for the New Access Network.

This past week saw Redback continuing its steady pattern of
breakout and consolidation.  During the previous two weeks RBAK
traded in range between $105 to $120, providing aggressive
options traders with many opportunities to play the range.  $120
was a formidable obstacle indeed but on Monday, RBAK finally
broke through the $120 resistance level on heavy volume, tacking
on almost 15% in gains on the heels of a strong day for the
telecom sector.  Since then the stock has been consolidating,
trading in a range between $129 to $145 where there is formidable
resistance.  For the past number of weeks, RBAK's stock has moved
in sync with the Nasdaq but on Friday, on a day when the Nasdaq
was selling off on low volume, RBAK displayed strength in the
weak market moving up $3.25, albeit on low volume. but closing
right on its 5-dma at $135.50.  Average daily volume has been
steadily rising however lending strength to RBAK's cycle of
consolidation and breakout.  For those looking to play the range
$129-130 is the target to shoot for.  The stock has bounced
strongly off of 129 twice in the last two trading sessions. RBAK
may however decide to test its former resistance level, now
support at $124.  The past six weeks has proven the 10-dma to 
be the launching pad for any rallies.  Bounces off this line,
currently at $125.92 may also provide an excellent opportunity
for entry.

On the news front, Tuesday saw news of a strategic alliance 
with Internet infrastructure provider AsiaInfo in a broadband
initiative in China. On Wednesday analyst Bob Hirschfeld of Bear
Stearns made positive comments about Internet infrastructure
stocks, giving a thumbs up to RBAK, calling it the leader in
DSL/cable aggregation.

BUY CALL JUL-125 BKK-GE OI= 175 at $22.13 SL=18.25
BUY CALL JUL-130*BKK-GF OI= 340 at $19.38 SL=13.75
BUY CALL JUL-135 BKK-GG OI=1172 at $16.88 SL=12.25
BUY CALL JUL-140 BKK-GH OI=1425 at $14.75 SL=11.25
BUY CALL OCT-155 BKK-JK OI=  77 at $27.13 SL=24.25

SELL PUT JUL-120 BKK-SD OI= 434 at $ 7.63 SL=10.00
(See risks of selling puts in play legend)

Picked on May 28th at    $72.06     P/E = N/A
Change since picked      +63.44     52-week high=$198.50
Analysts Ratings      9-3-1-0-0     52-week low =$ 20.00
Last earnings 04/00   est= 0.03     actual= 0.05 surprise=33%
Next earnings 07-12   est=-0.06     versus=-0.05
Average Daily Volume = 3.06 mln


QLGC - Qlogic Corp $67.56 (+16.63 last week)

QLogic Corporation is the leading manufacturer of fibre channel 
bus adaptors.  The company is also a designer and supplier of 
semiconductor and board level input/output (I/O) components
They've been designing and marketing SCSI-based (small computer 
system interface) products for over 12 years and sells its 
products to server, workstation, and date peripheral makers.  
Blue-chip clients include Compaq, Dell, Hitachi, IBM, and 
Quantum Corporation.

They say whispers can move mountains.  Well there must have been 
a few buzzing around the Street this week.  Early Tuesday 
morning, QLGC took off like a flash.  Over the next few days, it 
continued to rise up in a straight run.  But the major breakout 
to the upside occurred on Thursday after it was reported that 
the Federal Trade Commission and Department of Justice granted 
early termination of the Hart-Scott-Rodino (H-R-S) waiting 
period for QLogic's previously announced agreement to acquire 
Ancor Communications (ANCR).  Respective shareholder meetings to 
consider the deal are expected to be held on August 1st.  The 
news brought much cheer and applause from investors.  ANCR is a 
provider of high-performance Fibre Channel switches for storage 
area networks (SANs) and this union enhances QLGC's arsenal of 
products; thus keeping them on the leading edge of the industry.  
The chart looks quite nice too.  Coming off Monday's lows of 
$49, QLGC steadily rose through the staunch resistance levels 
at $60 and $65.  With the exception of the ostensible 200-dma 
(currently at $78.28), this momentum surge was supported by 
moves through the other technical lines and should continue to 
the upside going forward.  A break through the 200-DMA line 
would be considered even more bullish.  QLGC hasn't seen the 
tiptop of this technical since early May; although the first 
line of opposition is at $72.25, Thursday's intraday high.  
Firm support should easily hold up above $56.  Momentum players 
however are looking for upward moves off shorter-term support at 
$65 and the 50-dma ($66.08).  Earnings are also on the horizon 
for next month.  The company is expected to report around July 
17th, after the bell.

Separately on Thursday, Qlogic announced a supportive 
affiliation for Network Appliance's (NTAP) Direct Access File 
System (DAFS).  This new memory-to-memory protocol is designed 
to enhance storage network applications.

BUY CALL JUL-60 QLC-GL OI=1290 at $11.63 SL= 8.50
BUY CALL JUL-65*QLC-GM OI=1127 at $ 8.63 SL= 6.00
BUY CALL JUL-70 QLC-GN OI=1035 at $ 6.38 SL= 4.50
BUY CALL JUL-75 QLC-GO OI= 461 at $ 4.63 SL= 2.75
BUY CALL AUG-60 QLC-HL OI= 152 at $14.38 SL=10.75
BUY CALL AUG-65 QLC-HM OI= 176 at $11.75 SL= 8.75

Picked on June 25th at   $67.56    P/E = 97
Change since picked       +0.00    52-week high=$203.25
Analysts Ratings      3-4-0-0-0    52-week low =$ 30.94
Last earnings 04/00   est= 0.21    actual= 0.24
Next earnings 07-17   est= 0.24    versus= 0.15
Average Daily Volume = 3.22 mln


GLW - Corning Inc. $240.00 (-6.00 last week)

Corning provides communications technology at light speed.  The
materials pioneer is one of the world's top makers of fiber-optic
cable, which it invented more than 20 years ago.  Corning's
Telecom unit (about 50% of sales) makes optical fiber and cable
and photonic components.  The company's Advanced Materials unit
makes industrial and scientific products, including semiconductor
materials.  Its Information Display segment makes glass products
for TVs, VCRs, and flat-panel displays.  The company operates 40
plants in 10 countries.

GLW survived another week to remain on the OIN call list.  It
turns out a relative strength rating of 97 helps a lot on days
like last Friday.  In retrospect, GLW's action was fairly
constructive last week given the stock's mammoth rally the week
prior.  While the stock didn't suffer major technical damage,
like we cautioned in Thursday's newsletter, it didn't make much
progress either.  But, last week's consolidation may be the base
that lifts GLW for its next leg up.  The downgrade early last
week was the primary culprit in snuffing GLW's momentum.  With a
fresh beginning next week, we may see that momentum return.  GLW
recently told analysts to raise their earnings estimates, so
investors have priced in the positive profit picture.  An item
that may bring momentum back to GLW is the company's new dense
wavelength division multiplexer (DWDM) it recently launched.  The
new fiber optic product is the top of the line, carrying 160
channels.  The new DWDM will increase bandwidth of standard fiber
optic cable, and aid in boosting GLW's bottom-line even further.
GLW traded in typical fashion Friday by bouncing in its new
found trading range between $240-248.  To see GLW's support at
$240 hold strong was encouraging.   For the risk takers among our
readers, you might consider playing a bounce off $240 early next
week.  However, be very cognizant of the $248 level.  GLW failed
to hurdle that level three times last week.  With that said,
watch for a breakout above $248 for a more conservative entry
point.  The gap above $250 is still unfilled, and with the Fed
looming in the shadows next week, one might consider waiting for
GLW to cross that level before entering into the play.

In a muted news release last week, CoreComm Limited, a 
competitive telecom provider, said it had selected GLW to be 
the preferred supplier for optical fiber for deployment in a 
highly advanced broadband network for residential Internet users.  
The announcement was a small landmark since the new optical 
network is the first effort to bring the power of fiber optic 
networks directly to the home user.

BUY CALL JUL-230 GRJ-GF OI=2745 at $22.38 SL=16.25
BUY CALL JUL-240*GRJ-GH OI= 755 at $16.50 SL=11.75 
BUY CALL JUL-250 GRJ-GJ OI=1012 at $12.00 SL= 9.00
BUY CALL AUG-240 GRJ-HH OI=2499 at $25.88 SL=18.75
BUY CALL NOV-250 GRJ-KJ OI= 548 at $37.75 SL=27.50

Picked on June 6th at   $217.25    P/E = 128
Change since picked      +22.75    52-week high=$257.19
Analysts Ratings      8-5-0-0-0    52-week low =$ 54.56
Last earnings 04/00   est= 0.55    actual= 0.64
Next earnings 07-24   est= 0.67    versus= 0.49
Average Daily Volume = 2.93 mln

JDSU - JDS Uniphase $123.44 (+3.00 last week)

JDSU makes laser subsystems and equipment for fiber optic
telecommunications, signal processing, and laser-based
semiconductor analysis.  The company's products include source
lasers and passive components for modifying signals.  JDSU also
sells equipment for testing optical components.  The company
sells to manufacturers including CIENA, Lucent, Nortel, and
Siemens.  About 60% of sales come from outside North America.

After announcing it had received approval for its proposed merger
with ETEK Thursday night, JDSU was greeted with a host of
positive analysts comments Friday morning.  PaineWebber was the
first out on the wires Friday morning reiterating its Buy rating
on JDSU, raising its price target to $220, and increasing its
earnings estimates.  Merrill Lynch, Piper Jaffray, ABN AMRO, and
a host of others followed suit by reiterating either a Buy or
Strong Buy rating, and raising the respective price targets.
Despite the praise from Wall Street, JDSU finished Friday with a
modest loss.  The stock traded back and forth between positive
and negative territory, but was unable to hold onto its gains
due to the broad sell-off in the Tech sector.  Going forward, 
the completion of the merger may catalyze our play.  ETEK
shareholders are scheduled to vote on the proposal next
Wednesday, and if approved, JDSU may get a lift.  Additionally,
second quarter earnings season is fast approaching.  While JDSU
didn't pre-announce better than expected earnings, like we hoped,
investors will be looking for stellar numbers from the fiber
optic equipment maker.  Independent of the ETEK merger, analysts
have been touting JDSU recently, stating that the company is
relatively immune to the rising interest rate environment, and
should continue to enjoy robust demand into the end of the year.
With the FOMC meeting next week trading should be interesting,
and we should expect to see volatility in JDSU.  If JDSU's slips
Monday, look for an entry if the stock bounces from support at
$120.  Otherwise, wait for JDSU to resume its ascent, and look
for entry points if it clears resistance at $128, or above at

The approval of the merger didn't lift JDSU as much as we
expected Friday in part from the Department of Justice's
stipulation that ETEK had to dispose of its contractual rights
to thin-film filters, a key technology for separating light in
fiber optic systems.  However, JDSU recently acquired OCLI who 
is a leading thin film maker.  Making the disposition of ETEK's
rights rather trivial in the scheme of the merger.

BUY CALL JUL-120*UCQ-GD OI=6905 at $12.00 SL= 9.00
BUY CALL JUL-125 UCQ-GE OI=4360 at $ 9.38 SL= 6.50
BUY CALL JUL-130 UCQ-GF OI=7739 at $ 7.38 SL= 5.25
BUY CALL AUG-125 UCQ-HE OI= 541 at $14.88 SL=11.00
BUY CALL SEP-130 UCQ-IF OI=3317 at $17.00 SL=12.25

Picked on June 13th at  $121.38    P/E = 366
Change since picked       +2.06    52-week high=$153.38
Analysts Ratings    20-13-2-0-0    52-week low =$ 16.75
Last earnings 03/00   est= 0.10    actual= 0.11
Next earnings 07-26   est= 0.12    versus= 0.06
Average Daily Volume = 19.0 mln

MRVC - MRV Communications $55.00 (-0.38 last week)

MRV Communications, Inc. is a world-class leader in optical
network components and systems.  The company has leveraged its
early leadership in fiber optic transmission into a well-focused
range of solutions, integrating switching, routing, access
servers and optical transmission systems.  MRV has initiated and
funded cutting edge start-up companies including Zaffire, Inc.,
Charlotte's Networks, Hyperchannel, Zuma Networks and most
recently RedC Optical Networks, Inc., Optical Crossing and All
Optical, Inc.

The plot could be thickening in our play on MRVC.  First of
all, let's examine what we know for sure.  Investors took some
more money off the table on Friday, with MRVC giving back another
5.2%.  The volume on the move down the past three days averaged
about 2.5 million shares per day, compared to the 4.3 million
traded on both Monday and Tuesday.  On Thursday we mentioned
support could come into play between $54 and $55, which for now
it did.  Since the beginning of the month the company has gained
about 128% and has fallen back about 30% from its recent high.
These are the facts, as we know them.  There has been no company
news to speak of since the first of the month, and there could
lie the problem.  Traders drove the price of MRVC stock higher
in anticipation of a spin-off of the company's Luminent division.
According to participant's in the chat room's that follow the
company religiously, MRVC could be in their "quiet period", prior
to announcing the actual spin-off.  Well folks the native's are
getting restless, with several beginning to question whether or
not a spin-off will take place.  We are NOT suggesting anyone
enter or exit a play based on chat room conversation, but it
certainly makes a play that has had no news or events a bit
more interesting.  For our purposes we will stick with what we
know.  MRVC did close near its low of the day on Friday, and
just below its 10-dma at $55.42.  That would suggest last week's
pullback may continue.  If the sellers return with blood in their
eye, there could be support at $52, $50, however don't forget
the gap back at $48.50 as a possible entry for a new play, as
long as a bounce is accompanied by solid volume.  On the other
hand, last week's action could have been nothing more than pure
profit taking.  If the current levels continue to provide support
and investors begin adding MRVC to their portfolios in strong
numbers, we would certainly consider adding new positions as well.

Other than speculation of a spin-off, MRVC is well positioned 
in the fiber industry and benefited from its recent strength.
Continued momentum in the industry could also help our play get
back on track.

BUY CALL JUL-45 VQX-GI OI=1796 at $12.75 SL= 9.50
BUY CALL JUL-50 VQX-GJ OI=1504 at $ 9.25 SL= 6.50
BUY CALL JUL-55 VQX-GK OI=1126 at $ 6.50 SL= 4.50
BUY CALL AUG-55*VQX-HK OI=  30 at $ 9.63 SL= 6.75
BUY CALL OCT-50 VQX-JJ OI= 898 at $16.25 SL=11.75

SELL PUT JUL-55 VQX-SK OI= 120 at $ 5.50 SL= 7.75
(See risks of selling puts in play legend)

Picked on Jun 11th at    $46.00    PE = N/A
Change since picked       +9.00    52 week high=$97.44
Analysts Ratings      1-1-0-0-0    52 week low =$ 5.88
Last earnings 04/00   est=-0.01    actual= 0.03 
Next earnings 07-27   est= 0.03    versus= 0.01
Average daily volume = 2.02 mln


YHOO - Yahoo! Inc. $125.31 (-15.63 last week)

Yahoo! Inc. is a global Internet communications, commerce and
media company that offers a comprehensive branded network of
services to more than 145 million individuals each month 
worldwide.  As the first online navigational guide to the Web,
www.yahoo.com is the leading guide in terms of traffic,
advertising, household and business user reach, and is one of
the most recognized brands associated with the Internet.  The
company also provides online business services designed to
enhance the Web presence of Yahoo!'s clients, including audio
and video streaming, store hosting and management, and Web
site tools and services.  The company's global Web network
includes 22 local World properties outside the United States.

To some our play may be looking a bit grim.  However it could
be setting up to provide traders with another golden opportunity.
Ok, let's get the negative's out of the way first.  After running
smack dab into resistance at the 50-dma on Tuesday, YHOO finished
the week with an 11% loss.  On Wednesday, Holly Baker, of Lehman
Brothers started the ball rolling when she initiated coverage of
YHOO with a mere rating of Neutral.  Merrill Lynch analyst, Henry
Blodget, followed up saying he expects a "strong but slightly
less robust" second-quarter compared to the first.  Blodget said
in his report, that advertising sales may have lost some momentum
in the second quarter.  We rounded out the week with a loss of
-6.38 on Friday, after analysts expressed concerns about AMZN.
In question were revenue growth, dwindling cash reserves and the
company's credit status.  The AMZN report dragged not only YHOO
but the entire NASDAQ lower on Friday.  Granted, YHOO closed
below its 50-dma at $128.19, not to mention its 200-dma back
near $139.  In fact the decline that began mid-week may not be
over yet.  Technically the decline on Friday brought us within
$0.25 of filling the gap created back on June 2nd.  Depending on
the decision and the rhetoric coming out of the FOMC meeting next
week, the major indices could begin to rally, and take YHOO along
for the ride.  Yahoo! reports second-quarter results on July
11th, so we could still see an earnings run develop.  The Web
giant is also expected to unveil a new corporate portal next
week, called "YES", or Yahoo Enterprise Solutions.  It will offer
corporations a package of software tools for creating customized
versions of Yahoo's Web portal.  This will help the company
broaden their revenue stream by getting into the potentially
lucrative corporate arena, which could please both investors and
the analysts.  While YHOO could bounce early in the week, we
would be somewhat cautious unless the participation is better
than average.  We see support at $122, near $116 and back at
$110.  YHOO, may need to cook for a while, but traders with
patience, could be rewarded quite nicely.

YHOO has relied heavily on advertising revenues.  By diversifying
into YES, mentioned above, the company will create something akin
to a software sales division.  According to one source, YHOO will
sell YES to corporations based on how many users and how much
customization is required.

BUY CALL JUL-120 YMM-GD OI=2885 at $13.38 SL=10.00
BUY CALL JUL-125*YMM-GE OI=1773 at $10.88 SL= 8.25
BUY CALL JUL-130 YMM-GF OI=1600 at $ 8.38 SL= 6.00
BUY CALL JUL-135 YMM-GG OI=4468 at $ 6.75 SL= 4.75
BUY CALL AUG-125 YMM-HE OI=  13 at $14.75 SL=10.75
BUY CALL OCT-130 YMM-JF OI= 557 at $19.38 SL=14.00

SELL PUT JUL-125 YMM-SE OI=5130 at $ 9.50 SL=12.50
(See risks of selling puts in play legend)

Picked on May 28th at   $112.06    PE = 570
Change since picked      +13.25    52 week high=$250.06
Analysts Ratings    16-14-3-0-0    52 week low =$ 55.00
Last earnings 04/00   est= 0.09    actual= 0.10 
Next earnings 07-11   est= 0.10    versus= 0.05
Average daily volume = 10.1 mln

MERQ - Mercury Interactive $94.56 (+4.19 last week)

Mercury makes testing software for enterprise resource planning
applications, client/server software, and e-business
applications.  The company's products perform such tasks as
analyzing and eliminating Web site performance bottlenecks, and
automating quality assurance testing.  Customers include AOL,
American Airlines, Citigroup, and ETrade.  Mercury is looking 
for the growing demand for e-commerce to fuel its business.

It turns out that it's pretty easy to make money from the Web.
Of course, you have to be in the right business.  As the B-2-C
companies are proving, it's harder than once thought to turn a
profit on the Internet.  On the flip side are the companies that
provide hardware, and the software and services, such as MERQ.
The so-called pick and shovel providers are cashing in on the
boom in e-business services.  There is a great demand growing 
for the products and services that MERQ supplies.  The company
adjusted its business strategy a while back, and the result has
been a more consistent stream of revenues and growing profits.
Wall Street has welcomed the idea of profits.  MERQ has enjoyed 
a host of analyst praise going into the company's second quarter
earnings report.  Most recently DB Alex Brown reiterated its
Strong Buy rating on MERQ and told clients to expect a healthy
profit report in three weeks.  Also worth noting, Standard and
Poor's said last Wednesday that is was adding MERQ to the S&P 500
at the close of trading on June 28th.  MERQ has surpassed
earnings estimates in its last three quarters.  Investors will 
be looking for another surprise this quarter, which could drive 
the stock higher.  MERQ has been on a steady climb upward since
rebounding from its early April lows.  The stock has been tracing
a series of higher highs in an attempt to return to its spring
highs.  Despite the tech meltdown late last week, MERQ is in a
strong technical position to extend its rally.  The stock found
support right at its 10-dma Friday, currently at $91.38.
Consider an entry at current levels if the Tech sector rallies
Monday.  Or, wait for MERQ to move back above the ever-important
$100 level for a more conservative entry into the play.

The possible earnings run, addition to the S&P 500, and the fact
that MERQ is a split candidate is enough to catch our attention.
MERQ last split its shares back in January of this year when the
stock was trading around $87.  The company has plenty of shares
to authorize a split after shareholders approved the proposal at
the company's last annual meeting.

BUY CALL JUL- 90 RQB-GR OI=589 at $13.63 SL=10.00
BUY CALL JUL- 95 RBF-GS OI=388 at $10.75 SL= 7.50 
BUY CALL JUL-100 RBF-GT OI=486 at $ 8.75 SL= 6.25
BUY CALL AUG- 95*RBF-HS OI= 15 at $13.63 SL=10.00
BUY CALL OCT-100 RBF-JT OI=276 at $17.75 SL=12.75

Picked on June 25th at   $94.56   P/E = 215
Change since picked       +0.00   52-week high=$134.50
Analysts Ratings      9-2-1-0-0   52-week low =$ 16.88
Last earnings 03/00   est= 0.10   actual= 0.11
Next earnings 07-13   est= 0.12   versus= 0.09
Average Daily Volume = 1.56 mln 

ARBA - Ariba Inc. $88.56 (+14.50 this week)

As a leading provider of B2B solutions and services to leading
companies around the world, including more than 20 of the FORTUNE
100, Ariba helps companies cut through the complexity of
opportunities presented by the new economy.  Ariba provides the
most comprehensive and open commerce platform to build B2B
marketplaces, manage corporate purchasing, and electronically
enable suppliers and commerce service providers on the Internet. 
Made up of a complete set of integrated commerce solutions and
open network-based commerce services, the Ariba B2B Commerce
Platform™ offers a single system for managing buying, selling,
and marketplace eCommerce processes.  Whether automating
enterprise-wide procurement processes, building state-of-the-art
B2B exchanges, or bringing new commerce services online, the
Ariba B2B Commerce Platform delivers the fastest time to market,
the most comprehensive solution, and the greatest long-term
flexibility and scalability.

Since putting in a double bottom over the previous two months at
the $50 level, Ariba has rallied throughout the month of June.
Connecting the local highs and local lows since late May, it is
clear to see that ARBA has been trading in a channel with a 
range of about 25 points from top to bottom.  After a short
consolidation during the previous week, this past week saw ARBA
blasting through previous resistance at $84 and moving up on
strong volume.  Finding strong resistance at the psychological
$100 level, Thursday and Friday saw profit taking in light of
weakness on the Nasdaq.  With earnings a little over two weeks
away on July 12th, we expect upward momentum in ARBA to continue
as ARBA has had a history of beating earnings estimates.  As
resistance becomes support once broken, ARBA has support at
$84-85 which it has already twice tested successfully.  This may
prove to be an ideal entry point.  The bottom of the current up
channel is at $77.68 but expect it to move up quickly.  The
20-dma and 200-dma are both currently sitting at $75, though we
expect the $84 support level to hold.  As mentioned, there is
resistance at $100 and a break above this point on strong volume
will find $110 as the next level of resistance.

BUY CALL JUL-85 IUR-GO OI=1078 at $12.13 SL=9.00
BUY CALL JUL-90*IUR-GR OI=1819 at $ 9.25 SL=6.25
BUY CALL JUL-95 IUR-GS OI=1996 at $ 7.13 SL=5.00
BUY CALL AUG-95 IUR-HS OI= 607 at $11.25 SL=8.25

SELL PUT JUL-70 IUR-SP OI= 720 at $ 3.38 SL=5.50
(See risks of selling puts in play legend)

Picked on Jun 25th at    $88.56      PE = N/A
Change since picked       +0.00      52-week high=$183.31
Analysts Rating     13-12-1-0-0      52-week low =$ 15.25
Last earnings 3/00    est=-0.08      actual=-0.06
Next earnings 7-12    est=-0.09      versus=-0.12
Average Daily Volume = 6.92 mln


AGIL - Agile Software Co $61.69 (+4.50 last week)

Agile develops and markets product content management software, 
which is software that enables companies to collaborate over the 
Internet by interactively exchanging information about the 
manufacture and supply of products and components.  Agile's 
collaborative suite of software products is designed to improve 
the ability of all members of the manufacturing supply chain. 
Since their start in 1996, they have licensed their products to 
approximately 300 customers including Gateway, Texas 
Instruments, Philips Mobile Computing, Lucent Technologies, 
Solectron, GE Marquette Medical Systems and FSI International.  
About 40% of sales come from additional material procurement 
applications, consulting, implementation, support, and training 

Waiting to exhale?  No, no, it's the other way around.  Waiting 
in desperation for a run through resistance.  After beginning a 
steadfast recovery this month, AGIL took in a breath of fresh 
air and made a charge in late afternoon trading on Wednesday.  
It cracked the nearly impregnable 200-dma at $61 and broke to 
the upside on increasing volume.  Southwest Securities couldn't 
have timed their new coverage for AGIL any better.  They stepped 
in with a new Buy rating and $86 price target.  Analyst Bradley 
Whitt initiated the coverage citing "the stock deserves a 
premium valuation due to its accelerating software growth, high 
gross margins, leadership status, exceptional execution, 
scalable business model, and financial security".  The boost of 
adrenaline propelled AGIL out of its tight trading range of $56 
and $59.  The run was further ignited on Thursday after the 
company announced its partnership with Symix Systems, which was 
formed in order to provide mid-market manufacturing customers 
with extended supply chain collaboration capabilities.  The 
companies' technologies will work in conjunction to deliver 
comprehensive e-business-driven supply chain and collaboration 
solutions.  The collaboration should take the market by storm.  
The share price peaked at $66.19 and volume remained robust at 
more than double the ADV.  There was some late day profit taking 
however, which extended into Friday's session.  Good news is 
that the 200-dma at $61 held up as short-term support.  Additional 
support comes into the play lower at $57 and $58, so the upward 
bounces off Friday's daily low at $60.63 were definitely bullish.  
But keep an eye out for stronger volume to confirm a legitimate 
breakout.  And don't look for an earnings' announcement to 
generate any excitement.  The company isn't due to report until 
late August.  For now, play the trend for what it is - a technical 
breakout powered by momentum. 

Last week AGIL received a positive reiteration by analyst 
Michael Micciche at DLJ.  He restated a Buy recommendation and 
also issued a $100 price target.  

BUY CALL JUL-55 AUG-GK OI=117 at $10.38 SL=7.50
BUY CALL JUL-60*AUG-GL OI=211 at $ 7.38 SL=5.00
BUY CALL JUL-65 AUG-GM OI=165 at $ 5.25 SL=3.25
BUY CALL JUL-70 AUG-GN OI= 81 at $ 3.50 SL=1.75
BUY CALL AUG-60 AUG-HL OI=  0 at $10.75 SL=8.00
BUY CALL AUG-65 AUG-HM OI=  0 at $10.00 SL=7.00

Picked on June 22nd at  $63.63    P/E = N/A
Change since picked      -1.94    52-week high=$112.50
Analysts Ratings     3-6-0-0-0    52-week low =$ 17.13
Last earnings 03/00 est= -0.06    actual= -0.02
Next earnings 08-26 est= -0.04    versus= -0.09
Average Daily Volume =   704 K

MSFT - Microsoft Corp $77.69 (+5.13 last week)

Microsoft is the #1 software company in the world.  They 
develop, manufacture, license, and support a broad range of 
software products including Windows operating systems, server 
applications, the popular MS Office suite, and a Web Browser.  
As most of you know, the company is presently involved in anti-
trust issues with the government.  CEO and co-founder, Bill 
Gates still owns 15% of Microsoft.

Judge Jackson ruled on Tuesday that he is indeed sending the 
anti-trust case directly to the Supreme Court, bypassing a 
federal appeals court where Microsoft preferred to go next.  
But in a surprising twist, he also granted Microsoft a stay, or 
freeze, of the conduct remedies he imposed until the higher 
court rules.  The "remedies" were set to take effect of 
September 5th.  The impact of the surprise Restrictions Stay 
became immediately evident right from the get go on Wednesday.  
MSFT opened up $2 at $77 and tacking on an overall $5.75, or 
7.7% for a strong finish.  And there was heavy trading to boot.  
Volume topped 80.2 mln shares in comparison to the ADV of 39.2 
mln.  While the volume wasn't quite as impressive on Thursday, 
43.7 mln shares exchanged isn't anything to sneeze at either.  
And there was good reason for the vivacious excitement.  
Microsoft unveiled its blueprint for the future.  Over the next 
few years the company plans on developing software to connect 
PCs, the Internet and smaller devices such as cell phones and 
handheld computers; thus setting the stage for the standards of 
this leading edge technology.  Their ".net" strategy faces 
competition from the likes of Sun MicroSystems and Oracle who 
also want to dominate this evolving niche.  It also signals an 
important shift in the company's business model.  Instead of 
licensing fees for stand-alone products, Microsoft will reap 
monetary benefits from the subscription of software services 
that's delivered over the Internet.  During his long-awaited 
presentation, Mr. Gates poignantly quoted, "you could say we're 
betting the company on this strategy".  So in summation, while 
MSFT continues to make the headlines with its legal battles, 
the company is certainly not down and out.  This is clearly 
reflected in the recovering share price.  Just take a peak at a 
daily chart for visual confirmation.  MSFT has drastically 
improved its share price from a 52-week low of $60.38 set in 
late May to intraday highs topping $82 this week.  We're betting 
that no matter what the courts through at Microsoft, the stock 
will reign.  And importantly, we believe the investors are 
turning their attention back to the company's prosperous future.   
Conservative entries into this recovery play can be found on 
upward moves off the current level at the 5-dma ($77.39), which 
so far is serving as a launching platform on the upswing.  If 
you're a bit more daring, then try target shooting on dips near 
the ascending 10-dma (now at $73.75).

On Thursday, CIBC World Markets upgraded MSFT to a Buy from a 
Hold and issued an $89 price target.  Analyst Melissa Eisenstat 
cited her upgrade was based on the sentiment that investor focus 
is shifting away from the ongoing antitrust trial with the 
Justice Department - right in line with our thinking!  Intel 
president and CEO, Craig Barrett also told a news conference 
during a tour of Europe that he doesn't "think there will be a 
big impact on the computer industry if Microsoft is split up". 
He figures that "the horizontal breakup of Microsoft that has 
been proposed, that is an operating system company and an 
applications company, is relatively consistent with the 
horizontal structure of the computer industry".  So again, all 
the cards appear to be on the table.  Still it's important to 
pay attention to the stock's daily nuances and the market's 
overall direction.

BUY CALL JUL-70 MSQ-GN OI=31224 at $ 8.88 SL=6.25
BUY CALL JUL-75*MSQ-GO OI=32851 at $ 5.25 SL=3.25
BUY CALL JUL-80 MSQ-GP OI=49735 at $ 2.56 SL=1.25
BUY CALL AUG-75 MSQ-HO OI=  511 at $10.13 SL=7.00
BUY CALL AUG-80 MSQ-HP OI=  880 at $ 6.88 SL=5.00
BUY CALL AUG-85 MSQ-HQ OI= 3296 at $ 4.13 SL=2.50

Picked on June 15th at   $72.38    P/E = 47
Change since picked       +5.31    52-week high=$119.94
Analysts Ratings    11-15-3-0-0    52-week low =$ 60.38
Last earnings 03/00   est= 0.41    actual= 0.43
Next earnings 07-19   est= 0.42    versus= 0.40
Average Daily Volume = 39.3 mln

AETH - Aether Systems, Inc. $191.00 (+5.06 last week) 

Aether Systems, Inc., is a leading provider of wireless and 
mobile data services allowing real-time communications and 
transactions across a full range of devices and networks. 
Using its engineering expertise, its Aether Intelligent 
Messaging (AIM) software platform, its ScoutWare family 
of products and its customer service and network operations 
center, Aether Systems is a one-stop source for corporations 
seeking comprehensive, technology-independent wireless and 
mobile computing solutions. Aether's wireless and mobile 
data services can increase efficiency and productivity 
for companies in a wide variety of industries, including: 
financial services; transportation logistics; health care 
and field sales.

It wasn’t pretty the past couple of days, but AETH is still 
in the game.  What looked to be a continuation of a breakout 
earlier in the week was quickly thwarted in a bout of heavy 
selling on the Nasdaq.  Support has looked good at the $190s 
(even better at $180 too) and that was an entry point so now 
here is the chance again.  It’s got a great story and is doing
well as a company, but in the stock market, that sometimes just 
doesn’t matter if the broader market is selling off.  AETH was 
sold down on light volume on the closure of both Thursday and 
Friday, but we were encouraged to see it bounce back both days 
to critical moving average points.  On Thursday it stopped on 
the 5-dma and on Friday it came right back up to the 10-dma on 
good volume.  Sure, we’d like to have our entry here but we’re 
already in and are sticking by it with an objective view to 
drop the play if it doesn’t behave itself.  Traders will want 
to study the conviction in the early part of next week.  If
the stock is selling down on high volume, then its time to give 
AETH its walking papers.  As stated previously, AETH is a 
volatile stock and can reap sweet rewards for a great entry, 
but...proceed with caution.

The newswire for the company was pretty sparse this week.  
Aether Systems does have the largest stake in OmniSky, which 
is a company created by the former executives of handheld 
pioneer device PALM.  OmniSky markets a wireless modem and 
companion internet service for users of Palm's sleek Palm V 
handheld computer.  OmniSky this week came out with a new IPO, 
HAND, which opened at $20 and zoomed up more than 30% to close 
at $26 15/16 on its first day.

BUY CALL JUL-190*HEX-GR OI=186 at $19.75 SL=14.50
BUY CALL JUL-195 HEX-GS OI= 44 at $17.38 SL=12.50
BUY CALL JUL-200 HEX-GT OI=414 at $15.25 SL=11.00
BUY CALL AUG-190 HEX-HR OI= 62 at $32.13 SL=25.00
BUY CALL AUG-200 HEX-HT OI= 83 at $29.50 SL=23.00

Picked on June 20th at  $205.19     PE = NA
Change since picked      -14.19     52-week high=$345.00
Analysts Ratings      6-3-0-0-0     52-week low =$ 16.00	
Last earnings 04/00  est= -1.14     actual= -1.13
Next earnings 07-26  est= -2.78     versus= N/A
Average Daily Volume = 1.36 mln

LNUX - VA Linux Systems Inc. $47.13 (+14.38 this week)

Linux is poised to become more than just a fringe player in
corporate computing.  Firms employing Linux for print-n-file,
e-mail, and Web services are offering encouraging reports of
the operating system's high reliability, performance, and
scalability.  There are also firms using clustered Linux systems
for intensive tasks on large data sets.  Within the Global 2000,
Linux is picking up speed, moving forward as a legitimate
alternative OS for both server and desktop.  Certainly not
hurting its chances of deployment is the fact that information
systems departments can significantly cut budgets in the 
per-server and per-client licensing fees arena by electing this
Unix-like OS.

Linux formed a nice bottom pattern earlier this month and the
news this week helped pull the company out of the doldrums. It
also delivered what has the potential to be a darn good play.
We kicked this one off on Friday with a gain of only $1.94.
The recent strength for LNUX has come from several areas.  The
previous week investors began to perk up when IBM said it would
pre-install its version of Linux on its ThinkPad portables.
Dell Computer said it is upgrading Red Hat Linux to the same
status as Microsofts's Windows and Novell's NetWare operating
systems have within Dell.  That means Linux is no longer a fringe 
alternative software at Dell, and will become one of their three
strategic operating systems.  Investors certainly applauded the
move at DELL, but really didn't get excited until this week, 
when Intel entered the picture.  On Thursday, INTC unveiled a
limited function computer for e-mail and surfing the Internet.
On the announcement from Intel, Linux gapped up $3 and by the
end of the session had gained $6.94.  The demand for the Web
appliances product is expected to be huge in the next two years,
which may have helped LINUX find new life.  So how do we treat
our play?  Momentum is a funny thing.  The volume on Friday
slowed a bit, but was still almost five times better than the
norm.  With the Fed meeting ahead we wouldn't be surprised
to see our play consolidate early next week, although investors
could go home this weekend and re-examine their positions and
come back hungry to buy more.  If that's the case resistance 
is seen at $50 and again between $52 and $53.  After that there 
is little on the radar screen until the $66 level.  Intraday 
support shows up near $45, although the $42 area could also 
bring buyers back to the market should we see any profit taking.  
Whether the bulls return or the bears resurface, we would consider 
adding new plays in either case.  Conservative traders may prefer
to wait for investors to digest the Fed decision before entering.

Another reason for the popularity of Linux among hardware makers
is it's free.  Dell is the number two supplier of Linux servers.
Companies have a much greater profit opportunity on a Linux
server than one based on Windows, since they have to pay a
licensing fee to Microsoft. 

BUY CALL JUL-40*NUU-GH OI=218 at $ 9.88 SL= 7.00
BUY CALL JUL-45 NUU-GI OI= 51 at $ 7.38 SL= 5.25
BUY CALL JUL-50 NUU-GJ OI= 22 at $ 5.13 SL= 3.00
BUY CALL AUG-40 NUU-HH OI= 52 at $12.13 SL= 9.00
BUY CALL NOV-40 NUU-KH OI=110 at $16.38 SL=11.75

SELL PUT JUL-40 NUU-SH OI= 36 at $ 2.69 SL= 4.25
(See risks of selling puts in play legend)

Picked on Jun 22nd at  $45.19    P/E = N/A
Change since picked     +1.94    52-week high=$320.00
Analysts Ratings    0-4-0-0-0    52-week low =$ 26.88
Last earnings 05/00 est=-0.23    actual=-0.13
Next earnings 08-22 est=-0.13    versus= n/a
Average Daily Volume =  663 K


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The Option Investor Newsletter                    Sunday 6-25-2000  
Sunday                                                      4 of 5


PDLI - Protein Design Labs $172.63 (+8.63 last week)

Protein Design Labs develops human and humanized monoclonal 
antibodies to prevent and treat diseases.  The FDA approved 
the company's first humanized antibody product, Zenapax 
(daclizumab), for the prevention of kidney transplant rejection 
and there are seven other antibodies in the developmental 
pipeline.  Global patents have been issued for the PDLI's 
humanization technology and currently they have business 
agreements with Eli Lilly and Genentech.

Ok let's step back and take a look at the big picture.  For 
those of you following this play, you know the givens.  OIN 
initiated coverage on PDLI earlier in the month on June 4th 
strictly as a high-risk momentum play.  PDLI had resurrected 
itself from the depths of $93 and $95 seen at the end of May to 
rise through the resistance levels at the then converged 5, 10, 
& 30 DMAS, which were all in the vicinity of $110 to $113.  
Using a lowest to highest spectrum, PDLI more than doubled its 
share price in about four week's time.  The return of big money 
flowing back into the biotechs was the fire that fueled the 
momentous run.  Can you say WOW!?  The impressive gains however 
weren't backed by exceptional volume.  Historically that's not 
too unusual for this stock.  Typically, PLDI rises on low to 
moderate volume and descends quickly when volume peaks above the 
ADV.  So keep a close watch on this vacillating level.  While 
PDLI is considered a pure momentum play, there's another 
potential variable to consider as well.  The company recently 
held its Annual Meeting on June 15th and shareholders voted on a 
proposal to increase the number of authorized shares from 40 mln 
to 90 mln.  From a technical perspective, PDLI is a split 
candidate at $150.  Therefore the light is green for stock split 
announcement.  This kind of news would surely give PDLI a big 
shot of adrenaline.  If an earnings' release was however to be 
the trigger event, then we've got a bit of time to wait.  The 
company isn't expected to report until the beginning of August.  
At present PDLI is testing our nerves.  On Monday, PDLI pumped 
up the biotech's velocity with an $18, or 11% increase and 
penetrated the formidable resistance at $165.  But the 
volatility and wide spreads that followed were not for the faint 
of heart.  On Wednesday for example, PDLI rocketed up to $191.75 
only to crash through near-term support at $173-$176 and the 5-
dma (now at $176.06) by Thursday's end.  Even though PDLI 
steadied itself in Friday's session, it'd be prudent to wait for 
upward confirmation before adding positions.  If you can keep 
some restraint on those itchy trigger fingers, look first for 
PDLI to move back through $180 and make a charge for overhead 

It crossed the wire that Celera Genomics (CRA) is planning to 
announce a major breakthrough in DNA sequencing this week.  This 
type of competitive news could send others in the sector on a 
downward spiral, so be aware of the potential pitfall.  Human 
Genome Sciences (HGSI) also said it would begin clinical trials 
in humans of B-lymphocyte stimulator, or BlyS, a protein that 
may help patients with immune system problems.

BUY CALL JUL-165*RPV-GM OI= 39 at $26.50 SL=20.75
BUY CALL JUL-170 RPV-GN OI=110 at $23.88 SL=18.50
BUY CALL JUL-175 RPV-GO OI= 11 at $20.38 SL=14.50
BUY CALL JUL-180 RPV-GP OI=205 at $18.00 SL=13.00
BUY CALL AUG-170 RPV-HN OI= 56 at $31.25 SL=24.25
BUY CALL AUG-180 RPV-HP OI= 48 at $25.13 SL=19.50

Picked on June 4th at   $125.13    P/E = N/A
Change since picked      +47.50    52-week high=$338.00
Analysts Ratings      2-2-3-0-0    52-week low =$ 20.88
Last earnings 03/00   est=-0.04    actual= 0.04
Next earnings 08-04   est= 0.19    versus=-0.14
Average Daily Volume = 1.26 mln

ABGX - Abgenix Inc $138.06 (+23.56 last week) 

Abgenix uses genetically engineered mice to develop antibody
theraputics for inflammatory and autoimmune disorders, cancer,
and transplant-related conditions.  The company's four antibody
products use the XenoMouse technology, which Abgenix bought from
Japan Tobacco.  Treatments for disorders, cancer, and psoriasis
are in clinical trials.  The company has alliances with
Millennium Pharmaceuticals, Pfizer, and Amgen.

The Biotech sector was set a blaze with volatility Friday.
Fortunately, the wide intraday price swings in ABGX turned in
our favor.  We have been mentioning that ABGX is greatly affected
by the overall movements in the Biotech sector, patricularly
that of the genomic related issues.  The news that sparked the
momentum in the group Friday was that HGSI said it was entering
clinical trials in humans for a protein that may help patients
with immune system problems.  The further development of new
drugs by leading biotech firms translates into profitability, and
Wall Street likes that!  We may see the momentum in ABGX build as
early as Monday, when scientists from the Human Genome Project
are expected to reveal the first rough draft of the completed
human genetic code.  The completion of the human genome is just
the beginning, scientists have a long ways to go to decipher the
genetic jigsaw puzzle.  For our intents and purposes, the
announcement could set the Biotech sector a light.  ABGX was
teetering on the brink of a breakdown after last Thursday's
massacre in the Biotech sector.  But, given the late day lift
skyward on Friday, ABGX is well onto the road to recovery.  In
case you missed it, ABGX exploded nearly $8 higher in the final
ten minutes of trading Friday.  If that heavy buying interest
returns Monday morning, look for an entry as ABGX clears
resistance at $140.  Above that level, ABGX will once again face
congestion around the $145 area.  A more conservative trader
might wait for ABGX to clear $145 before entering the play.  Once
again, ABGX tends to follow the general biotech trend, make sure
to confirm direction in the sector before entering the play.

The Frank Russell Company, famous for its mid-cap indices, will
be moving 17 stocks from the Russell 2000 to the Russell 1000
Index next week.  More than half of the companies making the move
are biotech stocks, including ABGX.  The Russell 1000 is used by
money mangers as a performance reference.  The addition of ABGX
to the index may give our play a subtle boost as mutual fund
managers tend to align their portfolios with the Russell 1000.

BUY CALL JUL-135*AXY-GG OI=55 at $17.75 SL=13.00
BUY CALL JUL-140 AXY-GH OI=82 at $16.00 SL=11.50 
BUY CALL JUL-145 AXY-GI OI=12 at $14.50 SL=10.75 low OI
BUY CALL AUG-140 AXY-HH OI= 0 at $23.63 SL=17.00 Wait for OI!
BUY CALL OCT-145 AXY-JI OI=11 at $32.50 SL=23.50 low OI

Picked on June 8th at   $112.00    P/E = N/A
Change since picked      +25.56    52-week high=$206.50
Analysts Ratings      3-3-0-0-0    52-week low =$  7.38
Last earnings 03/00  est= -0.11    actual= -0.09
Next earnings 07-27  est= -0.05    versus= -0.11
Average Daily Volume =    821 K

HGSI - Human Genome Sciences $145.38 (+11.88 last week)

Human Genome Sciences, Inc., founded in 1992, is a pioneer in
the use of genomics, the study of all human genes, and the 
development of new pharmaceutical products.  They are a leader
in moving these genomics-based drugs into patient-based clinical
trials.  In 1999, three HGS drugs were tested in patients.  Their
goal is to become a global pharmaceutical company that discovers,
develops, manufactures and sells our own genomics-based drugs.

Talk about a play that was saved by the bell.  The bell we are
referencing was the opening bell on Friday, as traders began the
day bidding shares of HGSI sharply higher.  Our play may not be
out of the woods yet, however Friday's 9% move gave it some
breathing room.  By now you've probably heard the strength came
from an announcement by the genomics company, that said it's
ready to start testing a treatment that could boost production
of antibodies in people with immune systems disorders.  A protein
known as BLyS, will be tested in people suffering from a defect
of the immune system.  If BLyS shows promise, then Humane Genome
may test the drug in patients suffering from certain forms of
blood cancers.  Lance Willsey, a physician and founding partner
of DCF Capital, which invests in biotechnology said, "there is
still a long way to go, but this is a critical first step."
The initial phase of this testing will involve about 100 patients
and would take up to a year to complete.  As we've said before
investors view many of the companies in the genomics and biotech
fields differently when it comes to earnings and revenues.  They
are obviously willing to buy shares of a company on hope rather
than concentrate on the bottom line and valuations.  For now,
that's a definite plus for our play.  The next challenge on the
horizon will be for HGSI to maintain the momentum from Friday.
The high of the day at $150 was reached in the very early minutes
of trading.  HGSI did bounce off its 10-dma at $136.70 after
profit taking set in during the first hour.  It formed support
near $143 as well.  For now we will use those two levels as a
gauge for entry points into new plays.  Continued moves higher
could also be considered.  However, we would still use caution,
as a move through $150 or last weeks high at $157.25, escorted
by strong volume would be necessary for HGSI to regain its

According to the FDA, only about 20% of the drugs that enter
human testing move successfully through advanced trials and
win U.S. Food and Drug Administration approval. In commenting
about the BLyS studies a company spokesman said, "the drug
looked in pre-clinical studies to be very well tolerated, and
we really couldn't identify any acute side effect in animals."

BUY CALL JUL-140*HHA-GH OI=335 at $18.88 SL=13.75
BUY CALL JUL-145 HHA-GK OI=102 at $16.63 SL=12.00
BUY CALL JUL-150 HHA-GL OI=569 at $14.38 SL=10.75
BUY CALL AUG-140 HHA-HH OI= 10 at $27.38 SL=20.00
BUY CALL OCT-140 HHA-JH OI 124 at $38.88 SL=28.00

SELL PUT JUL-135 HHA-SG OI=136 at $10.13 SL=13.25
(See risks of selling puts in play legend)

Picked on June 8th at   $117.56    PE = N/A
Change since picked      +27.81    52 week high=$232.75
Analysts Ratings      1-5-2-0-0    52 week low =$ 19.38
Last earnings 04/00   est=-0.33    actual=-0.35 
Next earnings 07-27   est=-0.20    versus=-0.05
Average daily volume = 1.87 mln


The Leaders Pause And We’re Stuck In The Middle Again
By Mark Phillips
Contact Support

The recent NASDAQ breakout came on the backs of the Wireless,
Semiconductor, and Networking sectors; all of which decided to
take the last few days off.  Whether it is apprehension about
next week’s FOMC meeting, concerns about corporate profits,
trepidation about the sky-high price of Crude Oil, or a
combination of all of them, the net effect was to drag the
NASDAQ back below the key 3900 level on Friday.  The declines
from Thursday and Friday served to push the VIX back into the
absolute center of its historical range, with a weekly close
at 25.57.

The big question is whether the market is ready to run into
July earnings, or if the combination of the recent interest
rate hikes, expensive Crude Oil, and an apparently slowing
economy will produce a sustained downtrend in the equity
markets.  This market is difficult to trade, with few definable
trends that last more than a few days at a time.  There is no
shame in sitting this round out.  If you don’t feel comfortable,
then by all means, leave your account in cash.  But if you are
looking for a relatively safe way to leverage your trading
account, some of our LEAPS plays may be just the ticket.

Here lies the beauty of LEAPS.  You can pick those strong stocks
with good business models (and profits), and wait for the market
to drag them down to reasonable levels.  Many of the stocks on
our playlist have gotten pushed down to good support levels and
look to be providing nice entry points.  NT, TXN, CY, VSTR
(Spotlight Play), NOK, NXTL, and even good old EMC are either
at or near major support levels.  Given the long time frame
available (some stocks now have expirations all the way out to
January 2003), once you pick a solid stock, you have plenty of
time to be right before the monster we know as time decay rears
its ugly head to take a bite out of your account.

This is when you want to have cash in hand so you are prepared
to buy the inevitable dips.  Especially in this sideways market,
it doesn’t pay to chase stocks higher - exercise a little
patience and you will be rewarded as the plays you have chosen
come back to you.  Notice that this is the second week in a row
with no new LEAPS plays.  Nothing looked really good, so we
decided to stand aside this week and at least wait for the
interest rate picture to clear up before jumping into anything
new.  Rest assured, we will take a careful look throughout the
week and promise to bring you something juicy next weekend.

Current Plays


EMC    11/07/99  JAN-2001 $ 40  EMB-AH   $ 7.69   $37.75   390.90%
                 JAN-2002 $ 45  WUE-AI   $ 9.50   $41.13   332.95%
IBM    11/07/99  JAN-2001 $100  IBM-AT   $13.63   $22.25    63.24%
                 JAN-2002 $110  WIB-AB   $16.50   $28.13    70.48%
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $26.38   175.94%
                 JAN-2002 $ 45  WIV-AI   $11.00   $28.75   161.36%
NT     11/28/99  JAN-2001 $37.5 ZOO-AU   $11.13   $30.63   175.20%
                 JAN-2002 $37.5 WNT-AU   $15.13   $35.25   132.98%
TXN    12/12/99  JAN-2001 $ 55  TNZ-AK   $11.13   $26.25   135.85%
                 JAN-2002 $ 60  WGZ-AL   $14.25   $34.38   141.26%
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $19.75    12.02%
                 JAN-2002 $ 90  WJX-AR   $22.00   $26.50    20.45
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $16.25    77.98%
                 JAN-2002 $ 40  WSY-AH   $12.63   $22.25    76.17%
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 5.25     6.28%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $ 8.38    24.15%
NSM    02/27/00  JAN-2001 $ 70  NSM-AN   $18.50   $16.38   -11.46%
                 JAN-2002 $ 70  WUN-AN   $24.25   $27.88    14.97%
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $ 6.63   -52.64%
                 JAN-2002 $ 65  WAN-AM   $18.63   $12.25   -34.25%
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $14.00    93.10%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $16.88    80.92%
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $ 5.88    17.60%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 5.75     6.88%
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $30.13    72.17%
                 JAN-2002 $ 70  WVV-AN   $26.00   $41.38    59.15%
CMGI   04/16/00  JAN-2001 $ 50  ZB -AJ   $21.50   $13.25   -38.37%
                 JAN-2002 $ 55  WCK-AK   $27.75   $20.13   -27.46%
JDSU   04/16/00  JAN-2001 $ 80  XJU-AP   $27.50   $54.50    98.18%
                 JAN-2002 $ 80  YJU-AP   $39.63   $69.63    75.70%
VSTR   04/16/00  JAN-2001 $ 90  UVT-AR   $23.88   $49.88   108.88%
                 JAN-2002 $ 90  WWP-AR   $35.00   $66.38    89.66%
YHOO   4/30/00   JAN-2001 $140  YMM-AH   $32.13   $23.00   -28.42%
                 JAN-2002 $140  WYZ-AH   $46.38   $40.88   -11.86%
MOT    5/14/00   JAN-2001 $33.3 MOT-AY   $ 6.58   $ 5.88   -10.64%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $ 9.75     2.20%
NOK    5/21/00   JAN-2001 $ 50  NZY-AJ   $10.25   $12.25    19.51%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $19.75    14.49%
HD     5/28/00   JAN-2001 $ 50  HD -AJ   $ 6.25   $ 6.00   - 4.00%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $11.25   - 1.14%
XLNX   5/28/00   JAN-2001 $ 70  ZIZ-AN   $14.63   $29.00    98.22%
                 JAN-2002 $ 70  WXJ-AN   $23.38   $37.63    60.95%
NXTL   6/11/00   JAN-2001 $ 60  FZC-AL   $12.25   $10.00   -18.37%
                 JAN-2002 $ 60  YFG-AL   $19.25   $16.75   -12.99%
C      6/18/00   JAN-2001 $ 65  ZRV-AM   $ 7.63   $ 6.88   - 9.83%
                 JAN-2002 $ 65  WRV-AM   $13.75   $13.25   - 3.64%

Spotlight Play

VSTR - VoiceStream Wireless $120.81

When we began playing VSTR in mid- April, it was bouncing at
the $80 support level and flirting with the 200-dma.  After
putting in one more bounce at the end of April it was off to
the races.  VSTR quickly ran up to resistance at $117-118 and
fell back.  After the third attempt in late May, VSTR broke
above resistance and has used that level as support ever since.
Strength in the Wireless sector helped to fuel the recent
NASDAQ gains and VSTR ran as high as $143 before encountering
significant resistance.  The entire Wireless sector has had a
rough time over the past few days, as leaders like NOK and VSTR
have given back some of their gains to profit taking.  Don’t
look now, but Friday’s drop brought the stock right back to
support at $118-120, now the site of the 30-dma ($119.56), and
it was encouraging to see the stock’s refusal to break under
$119.88 all day.  The other nice thing is the way volume ramped
up in the final hour, pushing the stock up off its lows.  Wait
for the buying volume to ramp back up and then consider new
entries at current levels.  If investors get nervous again next
week, current support could give way to a market downdraft, so
confirm market and sector direction before playing.

BUY CALL JAN-2001 $130.00 BWU-AF at $28.38
BUY LEAP JAN-2002 $130.00 WWP-AF at $51.88

New Plays





Put plays can be very profitable but have a larger risk than call 
plays. When a stock is falling the entire investment community 
(except the shorts) is hoping it will reverse and start back up. 
The company management is also doing everything they can to shore 
up their stock price. The company issues press releases, brokers 
talk it up, analysts try to put a positive spin on everything. 
Then of course there is the death knell, the "buy recommendation" 
simply because the price has dropped to some level that analysts 
feel attractive again. Buyers who like the stock wait until it 
appears a bottom has been reached and then jump on it in a feeding 
frenzy. They may already have a large position and are averaging 
down. Many factors can stop a free falling stock in mid drop.


NKE - NIKE Inc. $37.06 (+0.31 last week)

NIKE is the world's #1 shoe company and controls more than 45% of
the US athletic shoe market.  The company designs and sells shoes
for just about every sport.  NIKE also sells Cole Haan dress and
casual shoes and a line of athletic wear and equipment.  In
addition, it operates NIKETOWN shoe and sportswear stores.  The
company sells its products to about 20,000 US accounts, in about
110 other countries, and on the Internet.

The Footwear sector is a cyclical one, which has been on a
downward spiral since 1997.  NKE's business has suffered from
slowing orders by retailers, partly from rising interest rates
and a slowing economy, more importantly, from slowing demand
from consumers.  Blame it on Michael Jordan.  Since NKE's marquee
marketing man retired, sales of its "Air Jordan" shoes have
suffered.  And as sales have slowed, NKE has had to cope with
another problem, rising inventories.  With all the extra sneakers
on hand, NKE had to dramatically slash prices, which in turn,
lowered its margins.  The idea of lower profits prompted a slew
of downgrades by several leading brokerage houses.  As you might
imagine, NKE's chart isn't the prettiest of pictures.  The stock
has been on a wild ride this year, with a definite downward bias.
The stock enjoyed a brief rally last spring as investors fled the
Tech sector to find temporary solace in the Retail sector.  But,
with the resurgence of technology issues over the past two weeks,
investors have ran from NKE once again.  The stock did enjoy
some press on CNBC Friday after staging a modest rally.  However,
what the reporters failed to mention is that NKE ran smack into
resistance at its descending 10-dma, at $37.44.  Furthermore, the
rally Friday came on less than impressive volume.  For those of
us on the short side, Friday's rally may prove to be a good entry
point.  For the aggressive traders, consider an entry at current
levels Monday if NKE rolls over.  For a more conservative entry,
wait for the stock to fall past resistance at $35.  NKE is
expected to announce reduced earnings this Thursday, consider
exiting the play before then to avoid risk.

BUY PUT JUL-40*NKE-SH OI= 791 at $4.50 SL=2.75
BUY PUT JUL-35 NKE-SG OI= 572 at $1.81 SL=1.00 

Average Daily Volume = 1.11 mln

DCLK - DoubleClick, Inc. $37.63 (-0.88 last week)

Providing comprehensive Internet advertising solutions for
advertisers and Web publishers, DoubleClick wants to double
how many times you click on online banner ads.  The company has
two principal service offerings, the DoubleClick Network and
DART Service.  The DoubleClick Network consists of highly
trafficked Web sites grouped together by DCLK in defined
categories of interest.  The DART Service provides Web
publishers, advertisers, and ad agencies with the ability to
control the targeting, delivery, measurement and analysis of
their online marketing campaigns.  This is all done in real-time
by dynamically targeting and delivering ads to Web users based
on pre-selected criteria.

As the pain increases for DCLK investors, so do our profits.
Although the government has advocated self-regulation by
Internet ad-server companies on the privacy issue, DCLK has
been unable to move higher.  The Clinton administration has
endorsed the industry-developed privacy platform (P3P), but
despite being involved with the project, DCLK shares have
continued to suffer.  Then on Monday, Robertson Stephens analyst
Lowell Singer lowered 2000 and 2001 revenue projections and
issued a cautious note that dwindling advertising dollars (can
you say slowing economy?) could hurt DCLK’s performance in the
short term.  The effect was immediate as the stock traded as
low as $32.88 before recovering to close back above $37.  Then
we had a slight rally in DCLK that took the price right up 
to the point where we would have bailed out.  As we said on
Tuesday, $45 was as far as we could let the price go and still
keep the play.  Well, after running up to $44.88, it became
clear that we were just getting one more entry point before
heading south again.  After the weakness in the Internets over
the past 2 days, DCLK is right back where it began last week,
below the $40 support level, and looking like there might be
more declines ahead.  There is long-term support between $33-35,
but if that fails to hold, look for a decline to the $26-27
level.  The best entries can be had on mini-rallies to
resistance, currently at $40 (with the 10-dma now down to
$40.63).  Consider new positions as the price rolls over, or
wait for the breakdown through support to provide confirmation
that DCLK has further to fall.

BUY PUT JUL-40*QWE-SH OI=1406 at $5.75 SL=3.75
BUY PUT JUL-35 QWE-SG OI=2676 at $3.13 SL=1.50

Average Daily Volume = 4.01 mln

AMZN - Amazon.com $33.88 (-12.13 this week)

Amazon.com opened its virtual doors in July 1995 with a mission
to use the Internet to transform book buying into the fastest,
easiest, and most enjoyable shopping experience possible.  Today,
Amazon.com is the place to find and discover anything you want to
buy online. Over 17 million people in more than 160 countries
have made them the leading online shopping site.  Earth's Biggest
Selection of products, including free electronic greeting cards,
online auctions, and millions of books, CDs, videos, DVDs, toys
and games, and electronics.  In addition to its US Web site, the
Company currently has two internationally focused Web sites
located at www.amazon.co.uk and www.amazon.de. The Company also
has invested in and developed strategic commercial relationships
with a number of selected e-commerce companies.

There is only one word to describe this beautiful put play. 
Prescient.  When we opened this play on Thursday, we were
expecting downside but who could have expected that on Friday
AMZN would gap down right at the open and begin trading at
$36.69, down $5.31 and end the day just off to its lows of
$32.47.  And while it did close with strengthening volume and
some buying interest at the end of the day, it was nothing
compared to the whopping number of shares traded during the huge
downdraft.  With average daily volume at roughly 7.27 million, to
see the stock trade over 51.84 million in one session is nothing
short of unbelievable.  We mentioned that if AMZN were to break
its support of $40.50 on good volume there would be little
resistance left to the downside.  The volume was there and the
support was broken with ease.  For those looking to kick AMZN
while its down, the stock has used the 5-dma to ride its way
down, currently way up at $42.41.  What was once support at
$40.50 will not be resistance.  Use any failed rallies above 
this level as a opportunity to go in.  So what was the reason 
for AMZN's swandive?  Critical words from Lehman Bros. analyst 
Ravi Suria early in the morning when he noted, "Amazon has one 
of the best-established brands in the B2C space.  However, from 
a bond perspective, we find the credit weak and deteriorating."  
The company was also criticized for a weak balance sheet, poor 
management of working capital, and massive negative operating 
cash flow which according to Suria, is a recipe for disaster.

BUY PUT JUL-35*QZN-SG OI=1154 at $5.13 SL=3.00
BUY PUT JUL-30 ZQN-SF OI=  42 at $2.94 SL=1.50

Average Daily Volume = 7.27 mln

WY - Weyerhaeuser Co. $43.50 (-3.06 last week)

Weyerhaeuser Company one of the world's largest integrated
forest products companies, was incorporated in 1900.  In 1999,
sales were $12.3 billion.  It has offices or operations in 13
countries, with customers worldwide.  Weyerhaeuser is engaged 
in the growing and harvesting of timber; the manufacture,
distribution and sale of forest products; and real estate
construction, development and related activities.  The company
has grown through acquisitions, including Canada's MacMillillan
Bloedel and US-based Trus Joist MacMillan.  Their competition
comes from Georgia-Pacific Group and International Papaer. 

Talk about a company that can't seem to buy a break.  Since
the beginning of the new millennium Weyerhaeuser has been on
a steep slide.  What may have began as profit-taking back near
the $75 level in early January turned into all out selling after
a downgrade from Merrill Lynch back on January 7th.  They missed
the boat as far as earnings in January which only added fuel to
the fire.  In April the paper products company beat estimates
handily, but downgrades continued to plague WY.  We only mention
the past six months history to show how tough it can be to put
the breaks on a stock that's headed south.  The company even
initiated a 12-million share buyback plan in February, which
could normally help prop up the price in a declining market.
Last Tuesday WY authorized the repurchase of another 10 million,
or 4.3% of its outstanding shares.  Earlier this month Standard
and Poors placed its rating for Weyerhaeuser on CreditWatch, with
negative implications.  This is not a huge deal, but another
reason for investors to think twice before placing buy orders.
Other hurdles have begun to appear for WY as the slowing economy
has put a crimp in the housing sector.  While 11 of the 16 
brokers still have the company rated a Strong Buy or Buy, 5 have
placed a hold on the stock.  The most recent comments came in
late May as Deutsche Banc Alex Brown downgraded WY from a Buy
to a Market Perform.  On Thursday the folks at Goldman Sachs
lowered earnings estimates on Georgia-Pacific Corp and Louisiana-
Pacific Corp, which could cast a cloud over Weyerhaeuser as well.
WY is closing in on a two year low near the $37 area and has
little in the way of support until then.  Technically the stock
is sitting in oversold territory.  A pop back up to the $45-$46
area followed by more weakness could provide a good entry point.
Don't discount continued moves lower when considering an entry
for our new play, as a downhill slide is not only ugly it can
be tough to stop.
BUY PUT JUL-50*WY-SJ OI=448 at $6.38 SL=4.25
BUY PUT JUL-45 WY-SI OI=124 at $2.75 SL=1.50

Average daily volume = 1.21 mln

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The Option Investor Newsletter                    Sunday 6-25-2000  
Sunday                                                      5 of 5


Covered-calls: Portfolio Objectives...

One of our readers requested that we discuss our outlook for
the covered-write strategy and explain the guidelines used to
identify favorable candidates.

The primary objective of covered writing for most investors is
increased income though stock ownership.  The amount of downside
protection and the return on investment are both very important
considerations in determining which play to choose.  Friday's
market-wide correction offered a great example of why we focus
on conservative, "in-the-money" covered writing and a consistent
return on investment.

Writing a covered call consists of the sale of a call while 
simultaneously owning the underlying security.  The seller of
the call (the writer) is generally neutral to bullish on the
underlying stock.  If the issue rises, he may not participate
fully in its appreciation.  However, he now has protection if
the stock declines in price.  If the underlying issue remains
relatively unchanged, he will profit from the premium-reduced
cost basis.  This simple benefit of writing calls has convinced
many fund managers and institutions that the technique offers a
favorable method of hedging conservative stock portfolios.

There are a number or reasons why professional option writers use
the covered-call strategy to achieve above-average returns.  The
motivation to sell call options comes from the fact that they are
generally overpriced.  Whether due to supply and demand factors
or simple speculation, it's common for traders to pay more for
call options than they are worth.  When options are expensive,
option writers benefit by receiving larger time values.  Even a
relatively small difference in premium can result in a 3% to 5%
increase in the annual returns from this strategy.

The basic techniques institutional investors use when implementing
this strategy can be beneficial to retail traders as well.  One of
the most common traits is selling short-term options to obtain
higher relative time values.  In most cases, longer-term series
have much less premium (proportionally) in the option price due to
a smaller demand from traders.  Fund managers and pension-plan
buyers generally select high-quality stocks and write in-the-money
options for increased probability of assignment.  When compared
to outright ownership, this conservative method is almost equal
to "pre-selling" the issue at a profit.

To identify favorable covered-write candidates, we concentrate
on "return not called."  This is the return on investment that
one would achieve even if the stock price were unchanged at 
option expiration.  A trader can compare potential plays more 
fairly using this approach since no assumption is made about 
an upward movement in the stock price.

In this conservative option writing strategy, we look for plays
that return a minimum of 3%-5% per month with a downside margin
at least 10% (of the current stock price).  The overall position
that is constructed using these guidelines will be a relatively
low risk play (regardless of the volatility of the underlying
stock) since the levels of protection will be large and there
is still the expectation of a reasonable return.  Based on our
historical success, it appears this may be the safest way to
consistently outperform all but the most aggressive techniques
in the majority of market conditions.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return! 

Stock  Price  Last   Call  Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

FSII   18.25  19.44   JUL  17.50  2.63  *$  1.88  10.5%
FHS    13.13  12.81   JUL  12.50  1.63  *$  1.00   7.6%
MED     9.44   8.63   JUL   7.50  2.69  *$  0.75   6.9%
LYNX   32.63  39.75   JUL  25.00  9.75  *$  2.12   6.7%
CYTO    7.97   9.69   JUL   5.00  3.38  *$  0.41   6.5%
RHAT   25.00  31.38   JUL  20.00  6.38  *$  1.38   6.4%
CEGE   25.56  27.63   JUL  20.00  6.88  *$  1.32   6.1%
BCGI   14.56  14.44   JUL  12.50  2.88  *$  0.82   6.1%
GENE   27.75  29.75   JUL  20.00  9.25  *$  1.50   5.9%
CAIR   25.50  25.25   JUL  20.00  6.63  *$  1.13   5.2%
TGEN   12.25  12.25   JUL   7.50  5.25  *$  0.50   5.2%
IBC    14.94  14.38   JUL  12.50  3.25  *$  0.81   5.0%
ALSC   26.88  28.38   JUL  22.50  5.88  *$  1.50   4.4%
PGO    19.00  18.13   JUL  17.50  2.25  *$  0.75   3.9%
ZD     11.38   9.50   JUL  10.00  2.25   $  0.37   2.9%

*$ = Stock price is above the sold striking price.


Fsi International (FSII) is retreating to support after failing
to move above the March high.  Monitor Foundation Health (FHS)
as the issue may test its 30 dma.  Alliance Semiconductor (ALSC)
still appears somewhat toppy - watch for further indications.
You may consider exiting the Ziff-Davis (ZD) position early, if
the stock continues to move lower.


Sequenced by Company

Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

ARQL   13.88  JUL  12.50  ARQ GV  2.44  180  11.44   28    10.1%
BCRX   27.00  JUL  22.50  BIU GX  5.63  23   21.37   28     5.7%
CYTO    9.69  JUL   7.50  UOR GU  2.94  736   6.75   28    12.1%
GLGC   38.75  JUL  30.00  CGU GW 10.00  166  28.75   28     4.7%
IFCI   23.13  JUL  20.00  IQD GD  4.00  1512 19.13   28     4.9%
TGEN   12.25  JUL  10.00  GNU GB  3.00  168   9.25   28     8.8%
TSEM   30.69  JUL  25.00  TWQ GE  6.50  544  24.19   28     3.6%

Sequenced by Return 

Stock  Last  Call  Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

CYTO    9.69  JUL   7.50  UOR GU  2.94  736   6.75   28    12.1%
ARQL   13.88  JUL  12.50  ARQ GV  2.44  180  11.44   28    10.1%
TGEN   12.25  JUL  10.00  GNU GB  3.00  168   9.25   28     8.8%
BCRX   27.00  JUL  22.50  BIU GX  5.63  23   21.37   28     5.7%
IFCI   23.13  JUL  20.00  IQD GD  4.00  1512 19.13   28     4.9%
GLGC   38.75  JUL  30.00  CGU GW 10.00  166  28.75   28     4.7%
TSEM   30.69  JUL  25.00  TWQ GE  6.50  544  24.19   28     3.6%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, MR-Monthly Return.

ARQL - ArQule $13.88  *** Technical Breakout! ***

ArQule is engaged in the production and development of chemical
compounds with commercial potential in the pharmaceutical, biotech,
bioseparations and agrochemical industries.  The company primarily 
manufacture arrays of synthesized compounds for delivery to their
customers for use in lead compound generation and lead compound 
optimization activities.  They also offer other R&D services and
have established a number of joint drug discovery programs with 
biotech companies and academic institutions, and are pursuing a 
limited number of their own internal drug discovery programs.  No
news since early May yet ArQule started to rally in June and has
surpassed last month's high.  Somebody appears to be interested in
this stock and the move above the 150 dma is technically bullish!

JUL 12.50 ARQ GV LB=2.44 OI=180 CB=11.44 DE=28 MR=10.1%

Chart =
BCRX - BioCryst Pharmaceuticals  $27.00  *** Trading Range ***

BioCryst Pharmaceuticals is a biopharmaceutical company focused on
the development of pharmaceuticals for the treatment of infectious,
inflammatory and cardiovascular diseases and disorders.  BioCryst,
which reported favorable earnings in April, has been relatively
news free, even with the recent excitement in biotechs.  The stock
has been stuck in a trading range for over a year and the current
technicals suggest the trend will continue.  We favor a cost basis
near the lower end of the channel to take advantage of BioCryst's
neutral trend.  As always, due-diligence is a must with drug and
biotech issues!

JUL 22.50 BIU GX LB=5.63 OI=23 CB=21.37 DE=28 MR=5.7%

Chart =
CYTO - Cytogen  $9.69  *** Another Biotech! ***

Cytogen is a biopharmaceutical company engaged in the development
and marketing of products to improve diagnosis and treatment of
cancer and other diseases.  Their diagnostic imaging agents, used
in cancer detection, include ProstaScint and OncoScint CR/OV.
They also market Quadramet, a proprietary cancer therapeutic
agent for pain relief in patients with metastatic bone lesions.
The Biotech sector is HOT and appears to be the "current" growth
industry of choice for many investors and institutions.  This week
Cytogen's subsidiary, AxCell Biosciences announced that it had
completed the first stage of its proteomics automation.  Cytogen
has continued its stage II rally and has now taken out the April
high.  Favorable speculation on a bullish issue with a conservative
cost basis.

JUL 7.50 UOR GU LB=2.94 OI=736 CB=6.75 DE=28 MR=12.1%

Chart =
GLGC - Gene Logic  $38.75  *** Biotechs Galore! ***

Gene Logic is a leading genomics and bioinformatics company, that
develops proprietary information products, software, and provides
research services for the global pharmaceutical and life science 
industries.  Gene Logic's information products combine software
tools with large-scale gene expression information, which specifies
the degree to which genes are active in a broad range of normal, 
diseased, and treated conditions.  The company's broad range of 
products and services enable customers to accelerate the discovery
and development of drugs, diagnostics, and agricultural products.
Yes, another conservative entry point into an excellent biotech
issue with bullish technicals and a reasonable cost basis.

JUL 30.00 CGU GW LB=10.00 OI=166 CB=28.75 DE=28 MR=4.7%

Chart =
IFCI - International FiberCom  $23.13  *** Enough Biotechs! ***

International FiberCom is a leading end-to-end solutions provider 
for the telecommunications industry, offering a broad range of
engineering-based solutions designed to enable and enhance voice, 
data and video communications through fixed and wireless networks.
The company designs, deploys, and manages internal and external 
networks infrastructure for leading wireline, wireless and broad-
band telecommunications providers in the U.S.  IFCI reported 
favorable earnings last quarter with revenue doubling and net
income up over 50%.  Several new contracts and the acquisition
of Premier Cable should position International FiberCom to continue
to outpace the competition.  The technicals remain bullish as IFCI
has completed a "double-bottom" formation.  We favor a conservative
cost basis on this bullish issue.

JUL 20.00 IQD GD LB=4.00 OI=1512 CB=19.13 DE=28 MR=4.9%

Chart =
TGEN - Targeted Genetics  $12.25  *** Ok, One More Biotech! ***

Targeted Genetics develops gene therapy products and technologies
for the treatment of acquired and inherited diseases.  The company
now has two lead products in clinical trials for treating cystic
fibrosis and treating cancer.  They are engaged in preclinical 
product development activities in the areas of hemophilia, 
rheumatoid arthritis, cardiovascular disease and HIV vaccines.
Targeted Genetics is in a burning hot sector and recently reported 
favorable Phase I clinical trial results on tgAAV-CF, the company's
gene therapy product for the treatment of cystic fibrosis.  As for
the technicals, TGEN is consolidating at resistance after breaking
out of a stage I base on heavy volume.  Targeted Genetics offers 
another favorable Biotech position to add to our current selection.

JUL 10.00 GNU GB LB=3.00 OI=168 CB=9.25 DE=28 MR=8.8%

Chart =
TSEM - Tower Semiconductor  $30.69  *** Own This One! ***

Tower Semiconductor is an independent manufacturer and service 
provider of semiconductor integrated circuits on silicon wafers. 
As a foundry, Tower provides IC design, manufacturing and turnkey
services and is specializing in providing solutions for embedded 
non-volatile memory devices and CMOS image sensors.  Tower broke
out of its short-term stage I base shortly after announcing that
it had completed QS-9000 quality certification with The Standards 
Institution of Israel.  Achieving this certificate pre-qualifies 
Tower as a quality supplier for the automotive segment of the 
semiconductor industry, as well as for other markets that demand
strict quality control.  Tower has resumed its stage II climb
on heavy volume and has now taken out the April high.  We favor
a conservative entry point near technical support that still
offers a reasonable return.

JUL 25.00 TWQ GE LB=6.50 OI=544 CB=24.19 DE=28 MR=3.6%

Chart =


Stock Ownership - Mastering the Market Mentality...

There are a number of ingredients that must be present in any
successful investment portfolio.  The inventory of resources
that one needs to stay ahead of the market can be daunting to
new traders.  Most novice participants become overwhelmed with
the vast amount of information and ideas that must be absorbed
before consistent profits can occur.  The best way to begin is
to focus on those strategies and techniques that have a proven
history of generating a prosperous outcome.  Today we will
discuss the effects of public sentiment in the stock market.

The first thing that new investors must learn when they enter
the market is the importance of human psychology in the buying
and selling of stocks.  This emotional component has absolutely
nothing to do with the fundamentals of the company, but it does
have an overwhelming affect on the share value.  Of course, the
idea that emotion determines stock prices may contradict the
opinions of many valuation investors but when you understand the
changes produced by public sentiment, it becomes much easier to
discern the broader, more technical movements in the market.

The primary unwritten rule is that rumors are one of the prime
movers of stock prices.  It's amazing how quickly speculation of
upcoming events can change the character of the current trend. 
The market anticipates the movement of the economy and shows us
in advance what we can expect with regard to corporate health,
unemployment, interest rates and other financial trends.  When
investors and analysts begin to discuss bearish trends, the
market generally reacts negatively because the public believes
it is destined for a downturn.  In contrast, when an upcoming
financial report is rumored as favorable, the market erupts far
in advance of the actual announcement.  Understanding the many
subtleties of the media's affect on the stock prices is one of
the basic prerequisites for long-term success.

As strange as it may seem, the common trait among professional
traders is they rarely go along with the crowd.  That is the
primary reason institutional investors are so successful when
stock values are ruled by emotion.  History suggests the first
indication of a potential bull-market correction is a period of
euphoria.  That occurs when risk is no longer discussed and
previous losses are forgotten.  As the bullish trend becomes
prominent and well-defined, the investing public grows more
comfortable with higher price-earnings ratios and historically
low yields.  The idea that "this time it will be different"
becomes an accepted theme.  Monetary greed drives undisciplined
buyers to purchase stocks near the market top and when the
inevitable correction finally occurs, they are unable to accept
the truth.  Fear eventually pushes the same investors to sell
near the market bottom, at the worst possible time.  The key is
to avoid the impulse to buy near the height of the rally just
because the market is up and everyone is talking about their
successes.  You must fight the fear that would draw you into
the stampede.

Unfortunately, resisting the impulse to sell amid panic is only
half the battle; the even tougher challenge is to buy during
this hysteria, when it appears the market is at its worst.  Of
course, that is indeed the case, and it is the one reason you
should be buying while everyone else is selling.  When large
numbers of traders act the same way at once, a classic climax
ensues, bringing opportunities for those who are adept enough
to recognize the activity.  The central basis for this type of
thinking is the requirement to approach the stock market from
a contrarian viewpoint; one that opposes the views of the
collective majority.  Only in this manner can you avoid the
tendency to react emotionally in the heat of the moment rather
than using a sound and sensible investment method based on
proven strategies.

Good Luck!

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Put   Strike Price   Profit  Monthly
Symbol Picked Price  Month Sold   Picked  /Loss   Return

FSII   18.25  19.44   JUL  15.00  0.75  *$  0.75  13.6%
EFCX   10.56  13.00   JUL   7.50  0.44  *$  0.44  12.5%
CAMP   29.00  34.88   JUL  22.50  0.81  *$  0.81  10.6%
GENE   26.13  29.75   JUL  17.50  0.63  *$  0.63   9.3%
NSS    20.13  18.38   JUL  15.00  0.44  *$  0.44   8.6%
FSII   16.00  19.44   JUL  12.50  0.50  *$  0.50   8.4%
PILT   15.31  14.25   JUL  10.00  0.38  *$  0.38   8.0%
CREAF  28.00  24.25   JUL  22.50  0.69  *$  0.69   7.8%
CAIR   25.50  25.25   JUL  17.50  0.44  *$  0.44   6.9%
OMKT   19.00  13.44   JUL  12.50  0.38  *$  0.38   6.6%
MPPP   19.19  14.19   JUL  10.00  0.38  *$  0.38   6.5%
CLEC   28.13  24.50   JUL  20.00  0.44  *$  0.44   6.3%
SYMM   20.00  20.56   JUL  15.00  0.38  *$  0.38   6.3%
CEGE   27.25  27.63   JUL  17.50  0.44  *$  0.44   5.4%
IMNX   44.69  50.38   JUL  30.00  0.56  *$  0.56   5.1%

*$ = Stock price is above the sold striking price.


Fsi International (FSII) could be just "filling the gap" after
Wednesday's strong move.  The slump in Ns Group (NSS) appears
to have halted at its 30 dma.  Pilot Network (PILT) has made
one successful test of the May low as it continues to form a
stage I base.  Monitor Creative Technology (CREAF) as the issue
tests its 150 dma.  Open Market (OMKT) is consolidating towards
the May highs - check daily.  Friday's downward move on heavy
volume is a bearish signal for Us Lec (CLEC) and the position
should be closely monitored.  Symmetricon (SYMM) continues to
act "toppy" and appears somewhat overextended.


Sequenced by Company

Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

IMG    18.31  JUL  15.00  IMG SC  0.56  57   14.44   28    13.3%
MRVT   19.50  JUL  15.00  SQD SC  0.44  50   14.56   28    11.0%
OAKT   20.94  JUL  17.50  KAU SW  0.44  68   17.06   28     8.9%
SCUR   15.88  JUL  12.50  UQU SV  0.38  113  12.12   28    11.6%
SIPX   27.25  JUL  20.00  UQX SD  0.31  0    19.69   28     5.8%
TSEM   30.69  JUL  25.00  TWQ SE  0.69  120  24.31   28    10.3%
VITR   48.13  JUL  30.00  TKU SF  0.56  7    29.44   28     6.0%

Sequenced by Return  

Stock  Last  Put   Strike Option  Last  Open Cost  Days to Monthly
Symbol Price Month Price  Symbol  Bid   Intr Basis Expiry  Return

IMG    18.31  JUL  15.00  IMG SC  0.56  57   14.44   28    13.3%
SCUR   15.88  JUL  12.50  UQU SV  0.38  113  12.12   28    11.6%
MRVT   19.50  JUL  15.00  SQD SC  0.44  50   14.56   28    11.0%
TSEM   30.69  JUL  25.00  TWQ SE  0.69  120  24.31   28    10.3%
OAKT   20.94  JUL  17.50  KAU SW  0.44  68   17.06   28     8.9%
VITR   48.13  JUL  30.00  TKU SF  0.56  7    29.44   28     6.0%
SIPX   27.25  JUL  20.00  UQX SD  0.31  0    19.69   28     5.8%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even 
point, DE-Days to Expiry, MR-Monthly Return.

IMG - Intermagnetics  $18.31  *** Stock Dividend! ***

Intermagnetics is a leading developer and manufacturer of super-
conducting materials, radio-frequency coils, magnets and devices
utilizing low- and high-temperature superconducting wire, cable 
and tape, and related refrigeration equipment.  The company's
current revenues are derived primarily from applications within
magnetic resonance imaging for medical diagnostics and cryogenic
applications for vacuum and related processes.  In early June, 
IMG announced a 3% stock dividend (to be distributed 8/25 to 
shareholders of record on 8/4) and a contract with the DOE for a
3 year, $4.5 million project to commercialize the manufacturing 
process for second generation high-temperature superconductors.
We favor the bullish movement up and out of a stage I base (on
heavy volume) and the position provides an opportunity to be
paid for trying to own IMG at a reasonable cost basis.

JUL 15.00 IMG SC LB=0.56 OI=57 CB=14.44 DE=28 MR=13.3%

Chart =
MRVT - Miravant Medical  $19.50  *** New Developments! ***

Miravant Medical Technologies specializes in both pharmaceuticals 
and devices for photoselective medicine.  Miravant Medical is 
developing its proprietary PhotoPoint procedure for serious eye 
and skin conditions, cancer and cardiovascular disease.  Miravant 
is looking forward to follow-up data on their macular degeneration 
clinical trials and as of early May, a data safety-monitoring 
board (they review the data every 3 months) had not identified 
any significant safety issues.  Last week McDonald Investors 
initiated coverage with a "buy" rating.  Miravant has completed
a "double-bottom" formation (which tested a long-term trendline)
and Friday's move suggests higher prices are forthcoming.  The
late April high should now provide support and that is exactly
where we will enter this bullish position.

JUL 15.00 SQD SC LB=0.44 OI=50 CB=14.56 DE=28 MR=11.0%

Chart =
OAKT - Oak Technology  $20.94  *** A New All-time High! ***

Oak Technology designs, develops and markets high performance
integrated semiconductors, software and platform solutions to
original equipment manufacturers that serve the optical storage,
consumer electronics and digital imaging equipment markets.  The
company's products consist primarily of integrated circuits and
supporting software designed to store and distribute digital
content, thereby enabling its customers to deliver cost-effective,
powerful systems for the home and enterprise.  Oak contracts with
independent foundries to manufacture all of its products and
their target markets include optical storage, digital imaging
equipment and consumer electronics.  The company's current goal
is to build on their state-of-the-art technology in the digital
imaging and optical storage markets, capitalizing on the high
growth rates projected for the CD-RW and digital versatile disk
markets.  Based on the recent technical performance of the issue,
investors agree with OAKT's approach to financial success.

JUL 17.50 KAU SW LB=0.44 OI=68 CB=17.06 DE=28 MR=8.9%

Chart =
SCUR - Secure Computing  $15.88  *** A Big Day! ***

Secure Computing develops and sells computer software products
and services designed to provide secure extranets for business
organizations engaged in electronic business.  Their extranet
solutions combine impenetrable perimeter defense for business
networks with scalable, authenticated Web and application access
control so that an organization may conduct business safely with
growing numbers of customers, employees, partners and suppliers.
The company's main security products are Sidewinder, SafeWorld
and SmartFilter.  The upcoming earnings report is generating
speculation on this issue and based on consensus estimates, the
results should be favorable.  Institutions have also began to
participate in the stock with a number of block "buy" orders
occurring during Friday's rally.  With the technical momentum
from a new 3-month high, this issue is poised for further gains.

JUL 12.50 UQU SV LB=0.38 OI=113 CB=12.12 DE=28 MR=11.6%

Chart =
SIPX - Sipex  $27.25  *** Merger Target? ***

Sipex designs, manufactures, and markets high performance analog
integrated circuits.  Sipex sells its products across the analog
semiconductor market and has targeted high-growth sectors that
it believes are especially compatible with the company's design
and process capabilities.  Applications for their products include
telecommunications, cellular telephones, networking, computers and
peripherals, notebook and desktop computers, instrumentation,
aerospace, and military.  The Texas Instruments' proposed buyout
of Burr-Brown is expected to trigger a wave of consolidation in
the industry and the sympathetic speculation along with a surge
in the overall sector has helped Sipex's stock rally during the
last week.  Our position offers a favorable way to participate in
the future movement of this potential merger candidate.

JUL 20.00 UQX SD LB=0.31 OI=0 CB=19.69 DE=28 MR=5.8%

Chart =
TSEM - Tower Semiconductor  $30.69  *** Own This One! ***

Tower Semiconductor is an independent manufacturer and service 
provider of semiconductor integrated circuits on silicon wafers. 
As a foundry, Tower provides IC design, manufacturing and turnkey
services and is specializing in providing solutions for embedded 
non-volatile memory devices and CMOS image sensors.  Tower broke
out of its short-term stage I base shortly after announcing that
it had completed QS-9000 quality certification with The Standards 
Institution of Israel.  Achieving this certificate pre-qualifies 
Tower as a quality supplier for the automotive segment of the 
semiconductor industry, as well as for other markets that demand
strict quality control.  Tower has resumed its stage II climb
on heavy volume and has now taken out the April high.  We favor
a conservative entry point on this bullish issue.

JUL 25.00 TWQ SE LB=0.69 OI=120 CB=24.31 DE=28 MR=10.3%

Chart =
VTRA - Vitria Technology  $48.13  *** More Earnings! ***

Vitria is a leading provider of eBusiness infrastructure software.
Their primary product BusinessWare, provides the infrastructure
which enables incompatible information technology systems to
exchange information over corporate networks and the Internet.
BusinessWare enables this exchange to take place automatically,
without human intervention.  This eliminates manual entry of
information into multiple IT systems, and eliminates the need to
manually exchange information with customers and business partners
using phone, facsimile or mail.  BusinessWare is also designed to
provide business managers with a software infrastructure that gives
them complete control and visibility of their business operations,
enabling them to reduce time to market, rapidly respond to change,
and manage the growing complexity of business interactions with
partners and customers.  Earnings are driving the market and VTRA
is expected to report a loss of $0.02 per share (for the quarter)
on Monday.  The fundamental outlook for the company is favorable
but there will likely be some profit-taking after the announcement.
Our plan is to "target shoot" the position for a slightly higher
premium ($0.68-$0.75) and hope for a brief sell-off followed by a
resumption of the bullish trend.

JUL 30.00 TKU SF LB=0.56 OI=7 CB=29.44 DE=28 MR=6.0%

Chart =


Debit Straddles - Pricing, Potential and Probability...

Last week's exuberant, "no holds barred" trading of the Lennox
(LII) debit-straddle suggests we need to continue our review of
this common strategy.

                  - DEBIT STRADDLES (PART II) -
Note:  While the COMBOS editor is on hiatus from the market, we
will further explore one of his favorite, low risk option-trading

Position outlook:

The debit straddle is an appropriate strategy for occasions in
which one suspects that the price of the instrument will move
substantially but does not know in which direction it will go.
This "delta-neutral" technique can work very well in situations
where important news is about to be released and it is expected
to be either very favorable or extremely detrimental.

Corporate earnings announcements, new drug approvals, merger or
takeover speculation, and annual board meetings (splits/spin-offs)
are just a few common examples of situations in which uncertain
information will be released on or near a specific date.  Option
trading is generally very active in these cases and participants
expect the issues to move significantly after the announcement.
However, trading straddles on these occasions is certainly not
without risk.  When investors already know or expect the event,
options will be overpriced (relatively high implied volatility)
and the price of the underlying stock may not move enough to
make the position profitable when the announcement occurs.  If
this happens, the worst thing a trader can do is to hold on to a
previously purchased straddle in the faint hope that some other,
unanticipated news will be released before the options expire.

The most important thing to remember when evaluating a straddle
is to understand that the greater uncertainty associated with the
previous examples are known by everyone.  The options will often
be priced according to a higher stock volatility, making the play
unfavorable.  The most attractive straddles will be those in which
the trader is confident that the underlying issue will be more
volatile than everyone else.

Time-value characteristics:
The first subject we must discuss is often considered the most
important component of option pricing: time value.  As most of
you know, option premium consists of two components: Intrinsic
Value and Time Value.  Assume that a current stock's price is
equal to the strike price.  In this case, an option's premium
for the call and put does not have any intrinsic value, only
time value.

The main factors that influence Time Value include:
1)  The number of days until expiration
2)  Implied Volatility 
3)  How far the option is in or out-of-the-money. 

At-the-money options have the highest time value.  As the option
starts moving in or out-of-the-money, the time premium begins to
drop in value.  The closer the option is to expiration, the more
its premium will shrink (per unit time) due to time decay.

This gives us a guideline in selecting a straddle.  We should
pick an expiration month so that the price of the straddle will
not be too high (too far from expiration).  However, it must also
provide enough time for the stock to perform as expected, before
we have to exit the trade to preserve capital.  One important fact
to remember; the highest increase in time decay for at-the-money
options occurs in the last 30 days before expiration.  That means
we should rarely hold a straddle position to expiration.  When you
understand that time decay is working against you, you can begin
to choose trades in which other beneficial components will help
your position profit, even as time passes.

Pricing components:

Now you've learned that time decay is working against us in the
straddle.  What other factors can help us to achieve the goal of
selling at a higher price in the future?  Two components; Implied
Volatility and Intrinsic Value.

Implied volatility is a characteristic of an option's time value.
The higher the implied volatility, the higher the option's time
value is.  When you find a situation where implied volatility is
statistically low (probability dictates that it should start to
move higher), you can occasionally make a profit by selling your
straddle at a higher price, even if the underlying stock price
doesn't move significantly.  Obviously, any increase in implied
volatility will boost the time value of your position and move
your trade closer to a profitable outcome.

(Editors note: If you do not have a thorough knowledge of Implied
Volatility, please review that subject before you participate in
these types of positions.  It is important that you understand
the concept and how it relates to option pricing before you spend
money on strategies expected to profit from changes in volatility.)

Another basic component that can help us profit in a straddle is
Intrinsic Value.  Once again, assume that the underlying price is
equal to the strike price; this means that our straddle does not
have any intrinsic value.  When the stock starts moving in either
direction, one of our options will become "in-the-money."  This
will cause the intrinsic value to expand in that option.  But, in
contrast, the time value of both positions begins to decrease as
the underlying moves away from the at-the-money strike.  Remember,
the further the option is in or out-of-the-money, the less time
value it contains.

The rate of change for both of these values is very important.
Intrinsic value has a rate of change equal to one; if the stock
price moves one point into the money, intrinsic value increases
by one point.  Time value is obviously much more complex.  The
rate of change depends on how far away the option is from the
strike price; the further the option is in or out-of-the-money,
the smaller the rate of change on a one point move in the
underlying issue.  With that concept in mind, it is easy to see
that when the underlying issue's price moves away from the
strike price, we gain more in intrinsic value than we lose in
time value.  That’s one way in which a debit straddle achieves
profits.  Keep in mind, the measurement of the underlying issue's
move is statistical volatility and we look for straddle positions
on instruments where we expect that component to increase.

Making the strategy work:

To construct profitable straddle positions, it is important to be
aware of the effects of all these components.  A theoretical edge
in one or two of these factors can make a position favorable but
it is better to have the majority of them on your side.  If one
were to review trading histories, the most common mistake among
new traders is the purchase of short-term straddles.  You can
profit from these positions but generally that occurs only when
the underlying starts moving immediately after the play is opened.
Of course it appears attractive because the straddle does not have
a large amount of time value and the small movement required for
profit seems very probable.  The problem is, if the underlying
doesn’t move right away, time decay will start to increase rapidly
and your position will suffer regardless of the (eventual) stock
price movement.  Most experienced traders agree that two to three
months should be the minimum time frame for (debit) straddles.  If
you have a choice between two different series of expirations and
the implied volatility for the longer-term options are lower, you
should consider the position with the greater time value because
those options are likely to be theoretically cheaper.

Always remember to look for volatility that is low with respect to
its historic levels.  The reason is the tendency for volatility to
return to its former range or median value.  The concept is often
called the "Rubber Band" effect and it basically means there is a
high probability that when volatility is pulled too far in one
direction, it will eventually reverse, moving the opposite way.
This pattern of behavior is the primary reason why experienced
traders use volatility-based positions to make money.  They try to
construct plays that take advantage of the future volatility of an
issue - when the current value is high or low compared to recent
historical trends.  Volatility is a predictable and powerful
component for derivatives traders and understanding this concept
is paramount for consistent profits in the options market.

More information on this and other spread/combination techniques
can be found in Sheldon Natenburg's book, "Option Volatility and
Pricing Strategies", available in the OIN bookstore.

Good Luck!

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