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Daily Newsletter, Thursday, 06/29/2000

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The Option Investor Newsletter                  Thursday 6-29-2000
Copyright 2000, All rights reserved.                        1 of 2
Redistribution in any form strictly prohibited.

Posted online for subscribers at http://www.OptionInvestor.com
******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
       6-29-2000           High     Low     Volume Advance Decline
DOW    10398.00 - 129.80 10523.90 10359.50 1,113,562k 1,457  1,477
Nasdaq  3877.23 -  63.11  3929.10  3838.85 1,549,717k 1,827  2,175
S&P-100  779.74 -   8.26   786.65   775.01    Totals  3,284  3,652
S&P-500 1442.39 -  12.43  1455.14  1434.63            47.3%  52.7%
$RUT     512.58 -   8.41   520.99   511.30
$TRAN   2708.79 -  11.07  2718.07  2691.44
VIX       22.02 -   1.56    24.65    22.02
Put/Call Ratio       .48
******************************************************************

The Day After Syndrome

Not unexpected, the markets had a post-Fed let down today.  It
looked doomed from the get-go today as the Nasdaq and Industrials
both opened sharply lower.  This set the tone for the day and
life never got very interesting on Wall Street.  You can see
from the chart below that the range-bound nature of a few weeks
past has returned.  I like to refer to this pattern as "summer".
This is no surprise and it doesn't make the trading life very
interesting, but there are still individual movers and stories
to add spice to the session.

Before we charge off on today's individual movers, let's run
down the broad market situation.  First, you have the DJIA which
has formed a diamond pattern and is on the verge of a breakout
one way or the other.  Instead of rehashing this story, please
check out the Market Wrap from last Thursday, which Jim wrote, for
further enlightenment with charts.  Just note that today's loss
took the DJIA back down to the bottom of this pattern.  The
DJIA closed down 129.75 to 10,398 on decent volume of 1.1 bln.
We should note that this better than average volume was likely
due to institutions finishing their "window dressing" ahead of
the long holiday.  The support level to watch is 10,200.  This
has historically held us up during the trying months of March,
April and May.  A move below this support level could really
damp sentiment and push the markets into a slide that would
end...oh, let's say around Oct 10th or so.  OK, that might be
too extreme of a statement, but you get the picture.  It's hard
enough to generate buying interest in the summer and a technical
debacle like that could finish any such hope.




The Nasdaq faired better, but not by much.  It sunk for most of
the morning before trying a late day rally that pushed it almost
up to the unchanged line.  To no avail though, as the sellers
returned for the final hour.  The volume totaled 1.5 bln.  All
and all, a lackluster day.  Biotechs and Semis were the main
culprit for leading this index down.  The Semis are part of a
multi-day downtrend now and the Biotechs seem to be suffering
from a post-human gene sequencing letdown.  The Nasdaq has been
stuck in a hundred point range for five straight days now.  The
top is 3950 and the bottom at 3850.  Today's action shows this
scenario with a high of 3929 and a low of 3838.

The VIX was worth mentioning today too.  It made a nice dip
for some reason to close down at 22.02.  This is not typical
of what should happen on a down day in the market so there is
cautious for suspicion.  The 10-year treasury note yield sunk
to 6.02% from 6.09%.  Decliners lead advancers on the Nasdaq
by a 3 to 2 margin and on the Big Board by a 7 to 6 margin.
On the economic front, new homes sales in May fell 0.2%, slowing
for the 2nd straight month in evidence the hot housing market
may be softening in light of higher interest rates.  Also,
consumer spending surged in the first quarter.  This propelled
the economy to an annual growth rate of 5.5%, according to the
government's final tally of the economy's performance for the
period.  And jobless claims rose unexpectedly last week by a
seasonally adjusted 2,000 to 306,000, pointing to a possible
slowdown in the jobs market.

The weak opening to the market came from earnings warnings.
Goodyear, Unisys, and Ericsson all came forward with such
news.  Ericsson’s president Kurt Hellstrom warned that growth
in the mobile phone market could slow due to higher-than-expected
costs operators are paying for third generation cell-phone
licenses.  ERICY traded down to $18.69, a loss of $1.38.  Unisys
announced that it’s expecting second-quarter earnings of $0.18-
$0.20 cents a share.  That compares to a First Call estimate of
$0.37 cents due to weakness in its federal government and
financial services business.  UIS closed down $8.25 to $14.88,
a loss of over 35%.  Finally, Goodyear said the quarter would
not be good.  It said second-quarter earnings would fall short
of forecasts because of higher fuel and raw material costs and
growing competition in many of the tire maker's markets.  GT
finished the session down $2.31 to $21.

There was widespread selling in the computer hardware sector
this afternoon as Salomon Smith Barney downgraded CPQ.  They
cut their rating on the stock to a Neutral from Buy and lowered
its price target to $25 from $45, citing second-quarter revenue
concerns.  CPQ fell to $25.50, down $3.00  This feels like a
story told a thousand times, but Compaq did try to dispel any
such talk with a statement made after the close.  "Compaq's
channel inventory has been low and in some cases near stock-out
levels. The second quarter has been very back-end loaded due
to supply constraints early in the quarter," the company said.
The Goldman Sachs Computer Hardware Index fell 3.8 percent.

In general, the market had a strong feeling of indecisiveness
today, and of late.  Many are pointing to the diamond triangle
on the DJIA as the one to watch, while others are looking at
the Nasdaq for signs of a breakout of almost a month of boredom.
I have to believe both sides are right.  We are in a holding
pattern on the markets.  Does that mean don't trade?  Not
necessarily.  There are still plenty of individual movers in
this market.  For example, if you decided to take last month
off you would have missed some plays like RBAK which has surged
over 130%.  Of course, they all won't do that, but, as I have
said before, it is an individual stock pickers market right
now.  Not all trading has gone away for the summer.

With that said, you may be well advised to take Friday and
Monday off.  We could see decent volume due to window dressing,
but most traders will be cutting out early for the holiday.
Monday should be a total sleeper.  The real week will start
on Wednesday.  Thank goodness options expiration falls late in
July on the 21st since we are essentially being robbed the
first half of next week.  There are some economic reports due
out tomorrow morning to watch for.  Personal spending and
income reports are due before the bell with estimates of 0.02%
and 0.03% gains respectively.  Also, the Chicago PMI is due
out at 10am with an estimate of 53.5%.  The futures are
unchanged at the time of this writing and that really doesn't
surprise me relative to the dull action that may occur in the
next two trading days.  Be smart and don't get stuck holding
any unwanted positions over what will feel like an eternity
before Wednesday and the re-emergence of trading interest.


Ryan Nelson
Asst. Editor


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

As The Index Churns
By Austin Passamonte

For those of us who thought market direction would commit after
yesterday’s FOMC meeting, our soap opera continues.  The Fed’s
pass on another rate increase could have resumed the rally but
cryptic warnings about further vigilance left investors
tentative.

Is window dressing the cause of today’s volatility?  The bulls
would like to see those swings to the upside as Funds reshuffle
their decks.  Anything less than positive gains Friday on
strong volume across major sectors doesn’t bode well for next
week.

Today’s top IPOs went one for three:

       Open    High    Low     Close

CARE:  11.25   12.13   9.75    10.00

ACCD:  11.00   11.19   9.00     9.00

CPST:  27.19   51.75   27.19   48.00

Yesterday’s new issues struggled to hold gains as well.

Weakness in the DOW remains a concern.  Today’s close at 10,398
is far below it’s 200 DMA of 10,743.  The clear "diamond pattern"
almost complete isn’t promising.  January’s high at 11,800 and
the subsequent March low near 9800 creates a spread of 2,000
points.  Technicians would use this to measure the projected
price target any breakout in either direction might ultimately
reach.  Ouch!  Talk about market sepsis (sorry LLY)...just half
of that to the downside would be ugly.

Umpiring a game isn’t an easy task and seldom wins favor of the
fans but our job requires us to call ‘em as we see ‘um.  Technical
weakness in the DOW coupled with NASDAQ’s failure to maintain
the 4,000 level this near to earnings season could make buying
put options a favorable venture soon.


BULLISH SIGNALS

The end of earnings warnings
The time has come for warnings to fade and profits to appear.
Most of the pre-announcements should have trickled out by
the end of this week.

Interest rates
5.88% on the 30-year treasury may be signaling the rate fears
are over. Fed-Fund futures are pricing in one more hike of .25
at this time, subject to change.

Corporate Earnings
Last quarter earnings expected to be very strong, especially
for the tech sector.


MIXED SIGNALS

IPO sentiment
As mentioned above, a possible precursor to the market
temperature.


BEARISH SIGNALS

Failing NASDAQ
Although it hasn't broken major support levels, failure to
hold above 4,000 is a concern.

Energy Prices
Still no significant relief.  It will be difficult to curb
inflation with gas and oil prices remaining high.  Ultimately,
this affects profit margins. August Crude climbed 82 cents
to $32.70 close on Thursday.

Volatility Index (22.02)
Today’s drop to 22.02 warns us that a top may be near.

Commitment of Traders
CBOE report June 13th shows S&P 500 Large Speculators (Funds)
net flat from recent longs and Commercial Traders (Financials)
largest net-short levels in last ten years!


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


CBOE Total P/C Ratio            .61         .57          .48
Equity P/C Ratio                .53         .47          .42
OEX Put/Call Ratio             3.04         .91          .97


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

Puts                790 / 5,449    700 / 6426       770 / 5410
Calls               880 / 6,293    880 / 6308       800 / 3949
Put/Call Ratio        0.87           1.02             1.37


Market Volatility Index (VIX)
*****************************************************************
                    Major
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 29, 2000                           22.02



**************
MARKET POSTURE
**************

As of Market Close - Thursday, June 29, 2000

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

DOW Industrials   10,200  10,775  10,398    Neutral   6.29 **
SPX S&P 500        1,350   1,500   1,442    Neutral   6.29 **
OEX S&P 100          725     800     779    Neutral   6.29 **
RUT Russell 2000     450     550     512    Neutral   5.05
NDX NASD 100       3,000   4,000   3,666    Neutral   5.30
MSH High Tech        800   1,050     997    Neutral   6.06

XCI Hardware       1,250   1,600   1,490    Neutral   5.30
CWX Software       1,050   1,350   1,264    Neutral   6.06
SOX Semiconductor    850   1,280   1,128    Neutral   6.29 **
NWX Networking       900   1,225   1,200    BULLISH   6.02
INX Internet         500     650     538    Neutral   5.30

BIX Banking          520     600     528    Neutral   6.09
XBD Brokerage        450     515     506    Neutral   6.22
IUX Insurance        575     650     638    Neutral   6.20

RLX Retail           810     920     832    BEARISH   6.09
DRG Drug             360     425     414    BULLISH   6.27
HCX Healthcare       725     850     844    BULLISH   6.15
XAL Airline          140     165     159    BULLISH   5.25
OIX Oil & Gas        275     310     301    BULLISH   5.11

Posture Alert
Intra-day rallies in the major indexes have been met with
selling and buyers seem to be hesitant.  If techs lose the
leadership of the semiconductors, we could see further weakness.
Drugs and software were the bright spots, and semiconductors
showed weakness with little strength in intermittent market
rallies.



**************
TRADERS CORNER
**************

If it Looks Like a Bear and it Acts Like a Bear
By Molly Evans

It might be a bear.  HEY!  Is it just me or is there some funny
business going on here?  This up and down pogo stick ride is
making me nauseous.  Everyone pleaded for no more rate hikes
and we could begin the rally into earnings.  After that, we'd
have this nice little sell off and resume our bull market into
the fall.  Did you fall for that?  Are the markets really
going to do just what everyone scripts?  Not.  The party should
have begun today and if this is a party, I want my money back.
Nervous Nellies left this scene Friday and Monday and then the
bulls came back to get in before the announcement yesterday.
The announcement came and then, nothing.  At least I read it as
nothing while many would say it rolled over.  Certainly no grand
steam tank of volume came in to lift us over 4000 on the Nasdaq.
Always the optimist, I did hold on for that "summer rally and
earnings run."  Seems like I've been here before.  Oh yes! I
have; it was back in March.  On just the outside chance that
we'd make a big move up, I kept a hand in the pot.  Yet, I had
to wonder why, if everyone thought we'd really rally, were they
selling their portfolios?  Always the optimist but now striving
to be a realist, I think that this action is ominous.

"The charts aren't working now."  I heard this not too long ago.
I even paused to consider and had the urge to agree with it.
But then, somewhere from the higher centers of gray matter, came
a voice, "You big doof!  Of course they're working, they're just
saying something different than you want to see.  Take off those
rose colored glasses girl."  I'm looking at the Nasdaq chart right
now.  I see the bullish wedge, sure, but I also know that you can
draw whatever lines you want to prove a point.  I see a market
trying to rage against the storm of higher interest rates, a
growing number of corporate warnings against profit expectations,
gas price gouging right here in the Midwest, slowing infusions of
money to the mutual funds and a hot summer just getting started.
We'd all like the market to keep going up but I'm sick of getting
up each day and wondering if "today will be the day we start the
big run" and it never happens or at least never follows through.

So, it's not happening.  I know it's really easy for me to sit
here in my comfy chair talking bear when the markets have just
gone through another treacherous day.  Hey, I fight myself all
the time.  I want to buy in on the days it's running and bail out
on the down days.  I think one is supposed to be the opposite
when investing.  However, more and more, I'm very suspicious of
up days because everyone I know is talking about how they'll sell
on the next up day.  That makes for a whole lot of resistance if
that's what everyone is doing.  I happened to be watching JDSU
the other day when it started to plummet.  I bailed.  I was the
low of the day and it nearly brought tears of frustration to my
eyes.  Will I never learn!?  UGH!  Yesterday it was up $5 - $6 at
one point and I had that fleeting thought that maybe I should just
buy them back.  Jeez!  Today my calls are $3.00 lower than what
I sold them for.  That's a big difference on multiple contracts.
Do I want them back now?  In a word:  No.  As you watch the real
time, something happens to a person - at least it does to me.  My
brain misfires and my emotions make trades.  Bad, bad business!
When I step away and look at the charts, I think, "Well of course!
There's an entry and there's an exit."  You all know this battle
so I won't dwell on it.

As for the markets, the climate has changed and I think we all
know that too, we’ve just been trying to deny it.  That's why
they behave as they do.  We're on the tail end of a trend and the
turning point is upon us.  It's still being fought out so this
makes for some very choppy waters and tough trading.  Earnings
warnings are but a smattering of what we may expect.  How about
those analyst downgrades as companies do warn?  There is little
mercy for companies that do warn, just kiss your money good-bye
if you're holding contracts on one that does.  Ask those holding
HLIT and CTXS how they're doing.

One can't deny that oh yes indeed, we are in a great period of
technological advancement but it all got out of hand last fall
when stock prices in those greatest of companies took off at a
near 90 degree "UP" angle.  All those old guys at big mutual
fund companies were scratching their heads on CNBC and we were all
laughing to the bank.  It's very hard to resist the temptation to
join the herd, even harder to speak out against it.  Warren Buffet
comes to mind.  I don't know Mr. Buffet but if he's the gentleman
I envision him to be, I'd bet he's not publicly saying "I told ya
so" but you can bet, he's thinking it.   True, he missed out on
a heck of a lot of money by not jumping on that tech train but
you've got to give the man his due.  He's got more dough than you
or I will ever see (I assume Bill Gates or Larry Ellison is NOT
reading this).  Buffet stuck to his principles and discipline
and is arguably turning in a better performance than many of us
out here in the herd.  Berkshire A and B shares are both off
4 - 5% on the year.

Let's look at another example of how the tide has changed.  YHOO
typically gets an earnings run.  We all know it, we all buy it
for the ride up and/or the inevitable ride down.  It worked like
a charm for what...eight quarters or something like that?  It
didn't play out so well last quarter.  Something changed.  Would
this quarter be different?  Will we get that old bull back like
before?  It could still happen but there's only six trading days
left before earnings.  YHOO was down $4.25 today.  Something
smells fishy to me there.  Let me quote from the Schwager book,
The New Market Wizards again:

"Markets will often do whatever confounds the most
traders.  In this type of situation, many traders who
have been long realize they have been wrong and are
reconciled to liquidating a bad position -- not right
away of course, but on the first rebound.  Other traders
who have been waiting to go short realize that the train
may have left without them.  They too are waiting for any
minor rebound as an opportunity to sell.  The simple truth
is that most traders cannot stand the thought of selling
near a recent low, especially soon after a sharp break.
Consequently, with everyone waiting to sell the first rally,
the market never rallies."

Does that tell the tale of YHOO?  If so, it might not work to
try and capitalize on the up OR downside.  It might just sit
there and bleed all the options of their time and volatility.

I'm not saying that the markets are going to tank tomorrow or
next week.  If one knew that without a doubt...well...she
wouldn't be writing a column about it - she'd be sunning on an
exotic tropical beach.  I simply believe that just as we have to
work for a living in the real world, so too do we in the market.
The game is tough and that competitive edge develops only from
many hours of study and observation.  Keep your nose to the
ground and your eyes open.

molly@OptionInvestor.com


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*************
SECTOR TRADER
*************

Earnings Concerns Linger in the Goldilocks Economy
By Buzz Lynn
Sectortrader@OptionInvestor.com

The Three Bears in the forest (oil, earnings, and interest rates)
are contemplating a return to their cabin to scare the bejeebers
out of Goldilocks.


Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    91.69   2.50  -1.28   1.63  -2.34   0.00   0.50
HHH Internet     106.56  -3.19   2.63   0.00  -2.69   0.00  -3.25
BBH Biotech      176.25   5.75  -5.00   7.88  -3.88   0.00   4.75
PPH Pharm.       103.75   2.19   0.81   0.00   2.69   0.00   5.69
TTH Telecom       73.81  -0.25  -0.50  -0.94  -0.75   0.00  -2.44
IAH I-net Arch.   89.81   1.94  -1.69   2.19  -2.19   0.00   0.25
IIH I-net Infr    61.50   2.38  -0.63   3.00   0.25   0.00   5.00
BHH B2B           39.19  -0.81  -0.63   1.69  -0.50   0.00  -0.25
BDH Broadband     88.13   2.06  -1.81   1.25  -1.44   0.00   0.06
SMH Semicon.      92.69   0.00  -3.13   0.50  -2.19   0.00  -4.81
RKH Reg. Bank     94.00   0.75   0.81  -0.50  -2.13   0.00  -1.06
UTH  Utilities    90.06  -0.25  -2.88   1.63  -0.69   0.00  -2.19


**************
New Plays
**************

PPH - Pharmaceuticals $103.75 +2.69 (+5.69 this week) The drug sector
has been handing willing investors some nice profits over the last three
weeks.  The only reason we haven't played it so far this week is because
we thought it would smack right into $100 resistance - and it did.
That is until this morning where the sector gave us a nice gap up to
$103.  Thanks goes mostly to LLY who announced they had met their goals
in a Phase III trial of a treatment for sepsis, a condition caused by a
spreading of a bacterial infection which mostly results in death of the
victim.  LLY was up $14.63 (!!) on the news.  JNJ, BMY and MRK helped
out, but to a much smaller degree.  Now that you've read all this good
news, DON'T run out to buy PPH tomorrow morning.  While it held support
nicely at $102.50 today, we need to see a little pullback from such a
big gap in a normally steady sector (ideally, to previous resistance at
$101.50).  These aren't Internet companies, and a gap that big needs
filling.  The good news is that historically, drug stocks do well when
investors aren't hot for technology.  They can coexist.  It's just that
one or the other tends to draw most of the attention at any given time.
Couple a sentimental favorite with a breakout over previous resistance
and you have good relative strength.  That said, consider a long/call
entry at $102.50 or $101.50 depending on your risk profile.  There is no
overhead resistance so PPH is free to run.  Just be sure to use a
trailing stop.  You don't want to give back your profits if investors
fall in love with technology again and send the drug stocks packing.

At Support:

BUY CALL JUL-100 PPH-GT OI=24 at $4.75 SL=3.00
BUY CALL JUL-105 PPH-GA OI=25 at $1.75 SL=1.00
BUY CALL AUG-105 PPH-HA OI=23 at $3.75 SL=2.25

SELL PUT JUL-100 PPH-ST OI= 0 at $0.69 SL=0.00, no OI

At Resistance:

BUY PUT  JUL-105 PPH-SA OI= 0 at $2.88 SL=1.50
BUY PUT  JUL-100 PPH-ST OI= O at $0.94 SL=0.00
BUY PUT  AUG-100 PPH-TT OI= 0 at $2.19 SL=1.25

Average Daily Volume = 118 K

/charts/charts.asp?symbol=PPH


**************
Updates
**************

QQQ - NASDAQ 100 $91.69 -2.34 (+0.50 this week) Once again, QQQ
tested $95 and squeaked by it to $95.50, but on less than
inspiring volume following yesterday's Fed decision to leave rates
alone.  While the selloff began shortly before yesterday's close,
the real "damage" was done today as QQQ dropped under $92 to test
$91.50.  It held and QQQ remains range-bound between $90 and $95.
This is a tough range to trade and is sending mixed signals
throughout the day creating even more congestion.  Directional
plays with QQQ are hard!  That said, you may want to sit out until
we see a real breakout over $95 or clear descent under $90.  For
those of you with a bit more experience, this could be a good time
to open a straddle (buying a put and a call with the same strike
price) thanks to the low volatility on the VIX.X at 22.02
(historically on the low end).  Any market breakout or breakdown
would inflate the volatility again, thus adding more time value to
both strike premiums.  A big enough move in either direction would
add intrinsic value too.  Just make sure you buy strikes far
enough out in order to leave plenty of time to be right -
generally three months or more.  Again, make sure you understand
this strategy before you implement it.

At Support:
BUY CALL JUL-90 QVQ-GL OI= 4477 at $5.75 SL=3.75
BUY CALL JUL-95 QVQ-GQ OI= 7567 at $3.00 SL=1.50
BUY CALL AUG-95 QVQ-HQ OI=  323 at $5.75 SL=3.75

SELL PUT JUL-90 QVQ-SL OI=24276 at $3.13 SL=1.75, Huge OI

At Resistance:
BUY PUT  JUL-95 QVO-SV OI= 5360 at $6.00 SL=4.00
BUY PUT  JUL-90 QVQ-SL OI=24276 at $3.50 SL=1.75
BUY PUT  AUG-90 QVQ-TL OI=  788 at $5.88 SL=4.00

Average Daily Volume = 27.68 mln

/charts/charts.asp?symbol=QQQ

-----

TTH - Telecom $73.81 -0.75 (-2.44 this week) SBC and FON were the
only issues in the bunch to show any gain today, and that was on
news that SBC might still roll out long-distance service in Texas,
while FON may be in Deutsche Telekom's acquisition sites.
Otherwise, failure in the big names - T ( new low again), BEL,
BCE, BLS, and GTE - kicked TTH into the cellar.  Not only did it
fall under $75 support we'd looked for, but also it gapped down
under $74 to trade in the $73 range most of the day.  The bounce
up to $74.50 followed by the rollover would have made a beautiful
entry.  $72.50 may provide mild support, but given copper
company's legacy model of making money on consumers rather than
high bandwidth applications, this sector could easily test its
last support of $68.  Look for an entry on any bounce down from
$74 or a descent under $72.50.  Down from $79 last week, it still
looks ugly in the sentiment department!  Our hunch is to the
downside for now.

At Support:
BUY CALL JUL-70 TTH-GN OI= 0 at $5.00 SL=3.00, no OI
BUY CALL JUL-75 TTH-GO OI= 0 at $2.00 SL=1.00, no OI
BUY CALL AUG-75 TTH-HO OI= 0 at $3.25 SL=1.75, no OI

At Resistance:
BUY PUT  JUL-75 TTH SO OI= 0 at $3.13 SL=1.75, no OI
BUY PUT  JUL-70 TTH-SN OI= 0 at $1.06 SL=0.25, no OI
BUY PUT  AUG-70 TTH-TN OI= 0 at $1.88 SL=1.00, no OI

Average Daily Volume = 79 K

/charts/charts.asp?symbol=TTH

------

BBH - Biotech $176.25 -3.88 (+4.75 this week) Whoa!  Did you catch
a piece of that rise yesterday?  The FOMC meeting meant nothing.
What started as a gap open yesterday morning turned into a strong
run up to $182 in complete defiance of typical "sell the news"
behavior stemming from CRA's announcement of the completion of the
human genome sequencing earlier in the week.  Lows are getting
higher, along with support which now rests at $174 (forget $172).
Mild support is also apparent at $176, nearly exactly where BBH
finished today.  The good news is that the 10-dma continues to
hold and is currently at $175.19.  That might make an excellent
target at which to shoot so long as the market isn't sinking like
a stone.  Sinking with a parachute is acceptable as long as the
sector is holding up.  Historical support of $173 could also work
as an entry, but if it hovers there too long (more than an hour?),
that might indicate that buyers aren't interested - and we
shouldn't be either.  Look for the bounce before entering on that
strategy.  Just so you know, DNA carried the load today while only
three out of the remaining 19 registered gains.  By implication,
you should also be watching the underlying components.  (To see
them, click the link from the web site.)

At Support:
BUY CALL JUL-170 BBH-GN OI=1254 at $14.63 SL=10.75
BUY CALL JUL-175 BBH-GO OI= 129 at $11.88 SL= 8.75
BUY CALL AUG-175 BBH-HO OI=  25 at $18.00 SL=13.00

At Resistance:
BUY PUT  JUL-180 BBH-SP OI=  41 at $12.38 SL= 9.25
BUY PUT  JUL-175 BBH-SO OI=  91 at $ 9.50 SL= 6.50
BUY PUT  AUG-175 BBH-TO OI=   5 at $15.13 SL=11.00, low OI

Average Daily Volume = 637 K

/charts/charts.asp?symbol=BBH

------

IIH - Internet Infrastructure $61.50 +0.25 (+5.00 this week)
That's more like it!  We like to see two days of better prices in
the face of market flatness.  While there was definite red in
about half of today's components, VRSN, VIGN, BEAS, PRSF, and VITR
shared the heavy lifting, giving this HOLDR a fractional gain for
the day.  Sure enough, IIH flashed us the entry yesterday by
moving convincingly over $59.50, its previous resistance, and
moving over $62 today before pulling back into the close.  Still
$60 held as support all day.  If the market doesn't fall out of
bed tomorrow, you might consider taking a long or call position at
this level ($61) since there is some historical support here.
Otherwise you may best be served by looking for another bounce
from $60.  If it falls under $60, better to look back at $57
again.  While the moving averages (5 and 10-dma) are holding up
right now, under $59.50 they too will be violated.

At Support:
BUY CALL JUL-55 IIH-GK OI=  1 at $7.88 SL=5.50, rock bottom OI
BUY CALL JUL-60 IIH-GL OI=201 at $4.38 SL=2.75
BUY CALL AUG-60 IIH-HL OI=  0 at $6.50 SL=4.50, no OI

At Resistance:
BUY PUT  JUL-65 IIH-SM OI=  1 at $6.00 SL=4.00, rock bottom OI
BUY PUT  JUL-60 IIH-SL OI=200 at $3.00 SL=1.50, no OI
BUY PUT  AUG-60 IIH-TL OI=  0 at $4.75 SL=3.00, no OI

Average Daily Volume = 301 K

/charts/charts.asp?symbol=IIH


**************
Drops
**************

HHH - Internet $106.56 -2.69 (-3.25 this week) That was fast!
Sure enough, $110 proved to be formidable resistance creating an
entry opportunity for us yesterday.  Near the close, weakness
developed that set up a gap-down opening this morning.  It tried
to follow through to where we thought we might find support at
$105.  Unfortunately, it came sooner at just over $106.  With AMZN
having the stuffing mostly beaten out of it already, and AOL
actually gaining $1 today, HHH has not had as precipitous a
selloff as we thought it might.  In retrospect, we were probably a
day too late in listing this play.  It doesn't mean it won't fall
further (we think it will) and that you should bail out at any
cost.  We just don't suggest opening any new positions.  And
unfortunately, that it couldn't fall under $105 earns it a trip to
the ejection seat tonight, though we may be kicking ourselves over
it tomorrow.

BDH - Broadband $88.13 -1.44 (+1.25 this week) Finally, BDH gets
the boot.  The Fed's decision yesterday to keep interest rates the
same only prolonged the inevitable for another hike in August.
That said, this sector found no reason to go higher.  And with the
recent run-up, it was due for some profit taking.  JDSU, NT, LU
SCMR, and SDLI were notable losers.  Accordingly, $88.50 didn't
hold and BDH looks headed for $87, perhaps even a test of $85.
Until we see a new direction emerge, BDH gets some much-deserved
time off after such a strong run.


**************
No Play
**************

IAH
BHH
SMH
BDH
HHH
RKH
UTH



*************
DAILY RESULTS
*************

Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10398.04  138.24  -38.53   23.33 -129.75   -6.71
Nasdaq  3877.23   66.78  -53.16   81.38  -63.11   31.89
$OEX     779.74    8.14   -4.27    3.06   -8.26   -1.33
$SPX    1442.39   13.77   -4.70    4.27  -12.43    0.91
$RUT     512.58    5.95   -8.28   12.91   -8.41    2.17
$TRAN   2708.79  -16.16   66.42   38.89  -11.07   78.08
$VIX      22.02   -1.17    0.16   -1.30   -1.56   -3.87

Calls

BRCM     204.75   13.75    4.50    4.69   16.75   39.69  Look out!
RBAK     166.69   19.06   -7.31   12.44    7.00   31.19  Superhero
GLW      266.50   20.19   -6.94   11.75    1.78   26.78  Still hot!
BRCD     176.38    3.50    2.38   11.13    3.38   20.38  Climbing
PRSF      61.00    5.88    0.81    2.63    3.13   12.44  New
MRVC      65.94   11.00   -3.94    2.31    1.56   10.94  Piling in
TIBX     100.06    3.90    5.53    5.81   -4.69   10.56  Held $100
ENTU      74.13    4.19   -0.69    2.25    3.94    9.69  New
AGIL      68.25    1.19   -1.50    5.63    1.25    6.56  Upside!
RSAS      68.75    4.00    1.88    2.00   -1.63    6.25  Strategy
ARBA      94.50    3.63   -2.13    3.69    0.75    5.94  Good news
NT        68.09    2.25   -0.63    1.69   -0.88    2.44  Growth
MSFT      77.19    1.81   -0.69    0.13   -1.75   -0.50  $80 ceiling
QLGC      66.63    7.56   -6.13    0.44   -2.81   -0.94  At 50-dma
AETH     189.97   -0.06    5.06    5.00  -11.03   -1.03  Dropped
LNUX      44.50   -4.69   -0.69    1.13    1.63   -2.63  Be ready
PDLI     166.75   -8.69   -2.94   10.00   -4.25   -5.88  "Hit List"
YHOO     119.31   -6.00    6.63   -2.38   -4.25   -6.00  Dropped
HGSI     138.00   -2.00   -9.34   11.34   -7.38   -7.38  Neutral
ABGX     121.00   -5.47  -10.38    5.56   -6.75  -17.03  Dropped
INKT     117.00  -25.31    5.63   -0.69   -3.00  -23.38  Bottom

Puts

PHCM      66.00   -0.63   -6.00    0.50   -2.50   -8.63  Concerns
ICIX      30.88   -0.13   -2.44    0.88   -1.31   -3.00  New
F         43.25   -1.56    0.00    0.81    0.97    0.22  New
DCLK      38.19   -0.38    2.69   -2.81    1.06    0.56  Mild boost


PICKS WE DROPPED
****************
When we drop a pick it doesn't mean we are recommending a sell
on that play. Many dropped picks go on to be very profitable.
We drop a pick because something happened to change its
profile. News, price, direction, etc. We drop it because we
don't want anyone else starting a new play at that time.
We have hundreds of new readers with each issue who are
unfamiliar with the previous history for that pick and we
want them to look at any current pick as a valid play.


CALLS:
*****

AETH $190.00 -11.00 (-1.00)  With a 5.5% drop today, we are
concerned with AETH's inability to hold over the $200 level.  At
the same time, the stock is fairly volatile and tends to be spiky.
We will be dropping it tonight.  Yet, this doesn't mean you have
to get out of open position the minute the market opens.  AETH
can put up impressive intraday gains and can offer attractive
exit points.  Our concern stems from the inability to hang on to
those intraday spikes.  Support lies at $182, the 100-dma.
Further downside and there could be a bounce from that level.
Overhead, $195 and $200 will be resistance.  Look for exits on
intraday spikes to resistance.  Today's selloff was in sympathy
to the concern over future growth in the wireless sector.  AETH
can move back to $200, but we are dropping coverage.

ABGX $121.00 (-17.06) Lehman Brothers initiated coverage on ABGX
Thursday with a Neutral rating.  The lukewarm welcoming by Lehman
defines the current sentiment in the Biotech sector.  Investors
have become indifferent on the group.  After the monumental
announcement regarding the Human Genome earlier this week, the
Biotech sector has lost its momentum.  ABGX has formed a bearish
descending triangle pattern over the past four days, which does
not bode well for the health of our play.  The stock is hovering
above a key support level at $120, and we don't want to hang
around to see that support fail.

YHOO $119.31 -4.25 (-6.00) We got the answer to our question as
to whether the bounce was for real or another head-fake.  The
number of buyers bidding shares of YHOO higher to faded away
just like the price of the stock the past two days.  YHOO has
struggled even though a couple of analysts have reiterated
Buy and Strong Buy ratings so far this week.  The announcement
earlier when YHOO launched its corporate portal did little to
raise the head of any bulls.  Our play has drifted sideways to
lower for the better part of the last two sessions and is
approaching the lows made on Monday.  While some suggest the
Internet company may be getting ready to explode, the current
lack of participation, has left us little choice but to put
YHOO on the back-burner for now.  A bounce off current levels
may be buyable, but we would be prepared to exit.  For now, it's
time we moved on.



********************
PLAY UPDATES - CALLS
********************

ARBA $94.50 +0.75 (+5.94) All week long ARBA has been sending out
news, and for the most part, the news is good.  Monday was the
announcement of the acquisition of Suppliermarket.com.  Tuesday
saw ARBA forming a partnership with B2B infrastructure startup EC
Company.  On Wednesday, investors were treated with a double-shot
of news.  First was another alliance for Ariba, this time a
partnership with Inforte to help companies quickly and smoothly
implement a variety of eCommerce solutions. Next, Ariba
introduced the Ariba Content Delivery and Discovery Services, a
comprehensive set of solutions enabling buyers, suppliers and
marketplaces to be implemented on the Ariba B2B Commerce
Platform.  The company has been busy and the rise in stock price
this week reflects it.  Support currently is at $90 which is just
above the 10-dma.  This past week ARBA has hovered around the
5-dma line, currently at $91.89.  The past couple of days we have
seen the volume starting to rise as the stock inches up.
Overhead, the stock has found resistance at $97 this week.  A
break through that level on rising volume will see the
psychological level of $100 as the next hurdle.

INKT $117.00 -3.00 (-23.38) Ever since the huge sell-off of the
stock on Monday's news that Yahoo would switch to Google for its
searching needs, the dust has started to settle and the stock has
been trading in a narrow range of about 7 points on declining
volume.  We picked this play on the premise that we felt the
worst was over and so far, after bouncing off the $113 level on
Monday, the stock has held steadily above that level.  Below the
$113 level there is support at the 200-dma, currently at $109.25.
Resistance above can currently be found at the 5-dma, currently
just above $122.50 which INKT had a difficult time with today.
As well, the $127.50 level will be a formidable obstacle where
the 50-dma and 20-dma now rest.  A break above this point on
strong volume will provide for an ideal entry point for the
conservative. From there, the next level of resistance will be at
$130.  Remember that this is a higher risk play.  On the news
front, ever since Monday, all has been quiet hence the narrow
range and declining volume.

RBAK $166.69 +7.00 (+31.19) Like a superhero able to leap tall
buildings in a single bound, whenever Redback encounters
resistance, it just walks right through it on strong volume and
moves onward and upward.  On Tuesday, we mentioned $155 as
resistance.  Wednesday saw RBAK breaking through $155 resistance
level on over 150% of average daily volume.  Today, on a weak day
for the Nasdaq, not only did RBAK finish in the green but broke
through a major resistance level at $160.  This is a bullish sign
for the stock.  Next resistance point is now at $170 and then at
$180.  From there, the stock can challenge its all-time high in
the $190 area.  Throughout RBAK's month-long rally, the 5-dma and
10-dma, currently $152.39 and $142.72, have provided support for
the stock.  Bounces off these two moving averages have been ideal
entry points all month long.  There is also support at the $160
level and below that $155.  Volume has remained strong throughout
Redback's rally and as long as this is the case, the stock will
continue to move forward.

BRCM $204.88 +16.88 (+39.81) Look out above!  BRCM charged higher
Thursday despite the terrible Tech sector.  The stock climbed
above the psychologically significant $200 level into the close
of trading.  BRCM's impressive showing came on the eve of the
stock's addition to the S&P 500.  BRCM will replace GTE after the
close of trading Friday.  Money managers scrambled to accumulate
BRCM Thursday in order to align their portfolios with the S&P.
According to Merrill Lynch analyst Diane Garnick, institutions
are expected to buy around $2.5 bln worth of BRCM stock.  If the
indexers didn't get their fill Thursday, we might continue to see
the fund buying Friday morning, which would fuel our play
further.  Watch for the big funds to step in Friday morning, and
consider an entry at current levels if the BRCM's momentum
carries on.  The stock might face resistance above current
levels, a trader looking to minimize risk might wait for BRCM to
clear $215 before entering the play.  BRCM showed no signs of
letting up into the close of trading, but be on your toes Friday
morning and target shoot to your risk level for an entry point.

TIBX $100.13 -4.63 (+11.06) The newswires were busy with TIBX
announcements Wednesday.  First, TIBX said it would demonstrate
its e-business software at the eB2B World Conference this week,
held in sunny California.  Second, TIBX said it had lined up two
more contracts Wednesday.  Hitachi (HIT) said it had selected
TIBX's software to automate its supply chain processes. And,
RiverSoft, an infrastructure management company, said it had
chosen TIBX's e-business software to use in its OpenRiver
product.  The string of announcements were enough to propel TIBX
past resistance at $100 Wednesday.  However, the stock did
retreat in Thursday's session in what appeared to be profit
taking combined with a weak Tech sector.  Despite the selling
pressure Thursday, TIBX found support at $100, which proved to be
a higher lower in its ascending channel.  An aggressive trader
might look for an entry if TIBX bounces off $100.  For the
conservative traders, watch for an entry point if TIBX clears
resistance at $105.

GLW $266.50 +1.81 (+26.81) The hottest area in the market
continues to be the fiber optic equipment makers.  We need look
no further than our play in GLW to justify that statement.  The
stock continues to trace new 52-week highs in the face of a
fickle Fed and a weak broad market.  In fact, GLW has set three -
new all-time highs so far this week.  And according to Merrill
Lynch, GLW is headed a lot higher.  Merrill reiterated its Buy
rating on GLW Thursday, and raised its price target to $325,
citing the company's excellent fundamentals.  Merrill wasn't
alone in supporting GLW Thursday, Sands Brothers lifted its price
target to $330, stating that its prior $270 target proved to be
too conservative.  Along with the positive analyst comments
Thursday, GLW said it had signed another contract to build an
undersea communications network that would link 15 countries.
Watch for GLW's climb to continue, and look for a new entry if
the stock clears the $270 level.  If the profit takers return,
GLW has support at $260 which may provide an entry if the stock
bounces.

NT $68.13 -0.88 (+2.94) John Roth, famed CEO of NT, accompanied
the company's new COO, Clarence Chandran, in an interview on
CNNfn Wednesday morning.  Roth said NT has several years of good
growth ahead, and the company expects to grow earnings by 35%
this year.  The positive press gave NT a nice pop Wednesday
morning, along with the news that the stock will be included in
the influential Lehman Brothers 10 Uncommon Values.  The news
from Lehman was followed by a host of reiterations and raising of
price targets by several brokerages.  In the news Thursday, NT
said it had formed an alliance with Juniper Networks (JNPR) to
provide optical solutions to carriers building Internet networks.
NT actually gapped down Thursday morning by over $1, but fought
back throughout the day to fill much of its gap.  Given its
strong showing into the close Thursday, you might consider an
entry at current levels if the bulls show up Friday morning.  A
more conservative entry might be found if NT can clear resistance
at $70.

BRCD $176.38 +3.38 (+20.38) BRCD rallied ahead of the Fed
announcement Wednesday and kept climbing higher after Greenspan
spoke.  The stock's momentum accelerated in the final hour of
trading with a surge in volume.  BRCD's rally was sparked early
in the day after the company said it had extended its alliance
with HWP to provide fibre channel switches in the buildout of
Windows NT workgroups.  BRCD's late day surge Wednesday paved the
way for higher prices Thursday.  The stock slipped in early
morning trading and bounced off support at $170.  But, investors
insatiable appetite for leading tech stocks returned Thursday and
carried BRCD past the $175 level.  Despite the languishing Tech
sector and weakness in the broader markets, BRCD is showing
impressive strength.  The stock is on the verge of a full-fledged
breakout and BRCD is knocking on the door of its all-time high.
Consider entry at current levels if the momentum returns Friday
morning.  Or, watch for a bold move into new territory above
$185.  BRCD has support below at $170, if the bears rear their
ugly claws Friday, watch for the stock to bounce from that level.

MRVC $65.94 +1.56 (+10.94) Interestingly, the biggest news on
MRVC, is there still is no news.  Traders piled into shares
of MRVC on Monday after a favorable article on several Web
sites.  The last few days shares of the communications company
have consolidated between $62 and $65.  Late today MRVC made
a run to a high of $67.81, only to fall back as the broad
markets began to deteriorate.  The battle between the bulls
and the bears, has kept this one interesting.  Traders seem
to be willing to hang on, in anticipation of an announcement
of an IPO of the company's Luminent division.  We must stress
again, we have had no official announcements from the company
that any IPO for Luminent is currently in the works, although
the company has certainly alluded that at some point in time
IPO's of some of their companies are in their plans.  Many
long-term investors suggest MRVC could easily approach its
old high near $97, while others seem to be growing impatient
due to the lack of news or information coming from the company.
Support for our play comes in at $64 and $62, with 10-dma
showing a reading of $61.41.  If the momentum returns in earnest,
feel to jump on board.  Otherwise look for more consolidation
and bounces off support for an entry into our play.

HGSI $138.00 -7.38 (-7.38) Our play in HGSI has made several
attempts to move higher, with the bears taking the opportunity
to put some money in their pockets.  Technically what we see
developing is a triangle pattern with a base near $133 and a
trend line coming down from the recent high near $157.  Some
call this a pennant or flag formation, but the bottom line
would suggest the next move should be higher.  As you know
what may happen and actually does happen could be two very
different things.  HGSI is in an industry that attracts
investors when anticipation is high.  Our play has spent most
of the week consolidating, as the excitement or anticipation
announced last week has began to wear off.  Human Genome
got very little help the folks at Lehman Brothers today.
Joseph P. Dougherty initiated new coverage of the genomics
company with a rating of Neutral. Dougherty's 12 month price
target?  $140.00.  With the close today you can't get much more
neutral than that.  How do we continue?  A plus at this point
shows buyers willing to re-enter as HGSI has bounced off the
$132-$133 area.  As long as that area holds, new positions could
be considered.  However, for HGSI to find its way out of the
woods and its trading pattern, a strong move through the $147
area may be in order before consider any new plays.

LNUX $44.50 +1.63 (-2.63) Well at least this play is headed in
the right direction.  Since being added last weekend traders
took full advantage of weakness early in the week to put some
money their pockets.  At this point the lows near the $40 level
have brought a few buyers back to the market, which is a
definite plus for our play.  We certainly would like to have
seen the momentum return with a bit more enthusiasm, but we
will take what we can get.  The volume the past three days has
totaled about 2.3 million.  Depending on you point of view the
light volume can be interpreted as a plus for either the bulls
or the bears.  If LNUX is going to continue to make any real
progress, we would like to see the participation improve.  On
Wednesday, the company did announce a strategic alliance with
MySQL to help accelerate the use and development of the MySQL
database, one of the most popular databases for Linux.  This
morning Amit Chopra an analyst at Credit Suisse First Boston
reiterated LNUX as Buy rating.  Chopra projected a twelve
month price target of $53 per share.  If buyers continue to
raise their hands we would consider adding to or initiating
new plays, as long as the volume is solid.  Until we see the
numbers improve, be prepared to take profits.

RSAS $68.75 -1.63 (+6.25) Like we said Tuesday, hardly a day
goes by that RASA doesn't enter a strategic relationship.  The
latest came from Baltimore Technologies and GE Global eXchange
Services.  Now we realize these companies are not necessarily
a household name among most investors, but it does show RSAS
is aggressive in its bid to do business.  Most investors have
their favorites they follow whether it be on a daily or weekly
basis.  RSAS seems to have its own group of staunch investors
who find the company a great buy at current levels.  Our new
play got off to a great start on Wednesday, and suffered a bit
of profit taking today.  After pushing through the $72 level
the bears stepped in pulling prices back to support at $68.
As we said Tuesday RSAS is due to report quarterly results on
July 13.  Earnings are expected to come in with about a 40%
increase over last year.  The company made it through earnings
season with no announcements.  One of the things that could
hold our play back is the sentiment in the broad markets.  If
psychology improves we would consider entering this play on
moves higher or bounces of support at $68 or the $64 area.
If not stand aside and wait for a new support to be established.

QLGC $66.63 -2.81 (-0.94) A slight pullback in today's trading
returned QLGC to the 50-dma ($66).  Momentum players will look
for upward moves off this level to confirm the trend.  In other
words, this is a great entry point if QLGC responds to a
positive market.  The upward bounce off today's intraday low at
$65.06 was also favorable.  Look for confirming moves through
the higher short-term support at $69 and $70.  If you've been
bitten once and are a bit shy, wait for QLGC to once again move
through the line of resistance at $72.25 before jumping back
into this momentum play.  Earnings are also approaching next
month and are confirmed for July 17th, after the bell.

PDLI $166.75 -4.25 (-5.88) There was some selling amongst the
biotechs today and PDLI was put on Lehman Brothers' "hit list".
Analyst Michael Wood started PDLI with a Neutral rating and a
12-month price target of $140, which is lower than the stock's
current level.  There were no other comments available.
Nonetheless, PDLI performed well in the past two sessions.
Importantly the stock broke out of the narrow $160 and $162
trading range and steadily made headway above the $175 mark.
Today earnings worries took the NASDAQ down, but PDLI shaped up
quickly with solid bounces off firm support at $160 and upwards
moves to the proximity of $172.  However for starters, better
confirmation is for the share price to close back above $173 and
$175.  Before opening new positions, wait for the trend to
resume and keep stops tight to protect profits.

AGIL $68.25 +1.25 (+6.56) Upside action! Breakout!  Call it what
you will, AGIL is on the move once again.  After consolidating
for a few days between $60 and $64, AGIL stretched higher
following the FOMC meeting.  It advanced an impressive 9.2%, or
$5.63 on Wednesday and extend the gains into today's session.
Near-term support is now higher at $64 to $66 near the 5-dma
($64.24) with intraday support possibly developing at the $68
level.  Positive market conditions coupled with more technical
and momentum players joining the party should keep the uptrend
intact.  Keep the 200-dma ($61.87) on your radar - AGIL
shouldn't violate this technical.  Recall this indicator
previously served as tough resistance and a dip under this mark
is likely a sign of trouble.  In the news, Amkor Technology, the
world's largest provider of contract microelectronics
manufacturing solutions, announced that it will be using the
Agile Anywhere product content management software solution as
the backbone of its Module Business Unit.

MSFT $77.19 -1.75 (-0.50) There's not too many ways to reiterate
MSFT's status - Range Bound!  On one hand the outcome of the
FOMC meeting didn't incite much of a rally when it came to MSFT.
The stock once again bumped its head on the $80 ceiling, yet
held its ground during the late afternoon.  Today there wasn't
too much excitement either.  As the earnings worries clouded the
markets, the share price floated between $77 and $79 on very low
volume.  In one sense the lack of volume is good (no one's
looking to dump the stock), but on the other we need to see some
dynamic action to keep it on our call list.  The question
remains:  is this a temporary condition or a new comfy zone for
MSFT?  In the near-term, look for trading activity to resume and
for MSFT make a charge through $80.


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DISCLAIMER
**********
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
options. It is possible at this or some subsequent date, the
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buy or sell securities presented. All investors should consult
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information provided has been obtained from sources deemed
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The newsletter staff makes every effort to provide timely
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The Option Investor Newsletter                  Thursday 6-29-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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*******************
PLAY UPDATES - PUTS
*******************

DCLK $38.00 +0.88 (+0.38)  Today, DCLK got a mild boost even as
the market had a hangover from the Fed meeting yesterday.  Driving
the gain was news that DCLK and RealNetworks(RNWK) announced a
joint global ad sales partnership.  This is actually an expansion
to a current relationship between the two companies.  Yet, we do
not feel that this news warrants a trend reversal.  You cannot
deny the strength of the downtrend.  In fact, looking at an
intraday chart, DCLK sold over a dollar in the final moments of
trading.  The 10-dma at $39.13 still looms overhead and continues
to be a depressing force.  Throughout the day, $40 offered staunch
resistance.  A move back toward this level would provide a good
entry point.  On the downside, DCLK could move to $36 before
finding support.  This would be a very nice exit.  It is a tight
range, yet very tradable and predictable.

PHCM $66.00 -2.50 (-8.63) The good news of "no rate hike this
time folks" didn't prompt PHCM to rally, which is most assuredly
a good sign that investors aren't quite ready to jump back into
this wireless stock.  Today the rush of earnings' warnings
renewed investors' concerns about overall revenues.  While this
outlook is long-term, they lost no time selling-off.  PHCM gave
up another notch in its belt and established a lower intraday
bottom at $65.  This pattern of lower-lows offers some
conviction that PHCM can move lower in the short-term.
This is especially true when you consider the wave of positive
comments that analyst have thrown its way this week.  Downward
bounces off the upper resistance at $68, which is below the
current 5-dma line at $70.31, should provide reasonable entries
into this technical play.  Remember there is a strong bottom at
$60 so expect some opposition at this level.


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

PRSF - Portal Software, Inc. $61.00 +3.13 (+12.44 this week)

Portal is building the business infrastructure for the Internet.
As the leading provider of customer management and billing
software for Internet and emerging, next-generation
communications services, their real-time solutions enable service
providers to manage customers, support services and collect
money.  Portal has an unsurpassed track record of helping
Internet and next-generation communications service providers
around the world to generate more revenue and be more competitive
by enabling them to bring new services to market quicker than
ever before and by establishing innovative ways of supporting
customers' needs.

The month of June so far has seen PRSF move up over 40%.  Making
a large move in the early part of the month, the stock went on to
consolidate, finding support at the $47 level.  After
encountering strong resistance at $57 early last week, the stock
sold off back to that $47 level where it bounced, closing right
above the 20-dma.  Since then, the stock has used that moving
average as a launching pad, rallying strong all week on
increasing volume.  This week alone the stock has tacked on over
25%.  Today found PRSF testing and breaking through the strong
resistance level of $57 on almost twice the average daily volume.
This level will now serve as a support level and any bounces above
this area will provide for an ideal entry point.  Today's move is
especially demonstrative of PRSF's impressive relative strength,
flexing its muscles in a weak, low volume market.  With buyers
strong in conviction and momentum clearly on its side, we have
chosen PRSF as a new call play.  Early in June when the stock was
on a tear the 5-dma provided support as well as entry points.
This past week, we find this once again to be true.  The 5-dma
currently sits at $55.23.  Looking above, the next level of
resistance is at the $63-64 level.  A break through that area on
strong volume will find the next level of resistance at $70.

Monday's news may provide some insight into PRSF's strength
throughout this week.  The company announced that it signed
contracts with three industry leading Chinese companies: China
Railway Communications Company and Ji Tong Communications Co.
Ltd., which are two of China's largest communication service
providers, and Xinhua News Agency, a national Chinese news
agency.  Like our RBAK play, the market is rewarding companies
which are able to penetrate the China market and leaving those
who cannot by the wayside.

BUY CALL JUL-55 PUS-GK OI= 246 at $ 8.63 SL= 6.00
BUY CALL JUL-60*PUS-GL OI=1436 at $ 5.75 SL= 4.25
BUY CALL JUL-65 PUS-GM OI= 954 at $ 3.50 SL= 1.75
BUY CALL AUG-60 PUS-HL OI=  24 at $ 8.88 SL= 6.25

SELL PUT JUL-55 PUS-SK OI= 128 at $ 2.25 SL= 4.25
(See risks of selling puts in play legend)

Picked on June 29th at $61.00    P/E = 5788
Change since picked     +0.00    52-week high= $86.00
Analysts Ratings    7-5-0-0-0    52-week low = $17.13
Last earnings 05/00 est=-0.01    actual= 0.02
Next earnings 08-17 est= 0.01    versus= 0.00
Average Daily Volume =  1.88M

/charts/charts.asp?symbol=PRSF


ENTU - Entrust Technologies Inc $74.13 +3.94 (+9.69 this week)

Entrust Technologies' security software ensures the privacy of
electronic communications and transactions across corporate
intranets and the Internet. The Entrust solution automates the
management of digital certificates through public key
infrastructure (PKI) technology designed to assure the privacy
and authenticity of internal and external electronic
communications.  Customers include Customers include Citibank,
JP Morgan, NASA, and the Royal Bank of Scotland.  Nortel
Networks (NT) has a 32% stake in the company.

Low and behold, what's this?  Greenspan sputtered "no rate
hike", the company completed a merger, solid earnings' are
on the horizon and ENTU is on the upswing.  Even though
Wednesday's rally waned towards the end of the session, it was
enough to give ENTU a boost out of its narrow channel.  The
fractional close on the upside of $70 was promising and today's
action confirmed a developing uptrend.  ENTU tacked on 5.6% with
respectable volume and hinted that short-term support may evolve
higher at $72 and $74.  Additional support is, of course, much
lower at $65 and $68, which is more in-line with the 5 and
10-dmas at $69.06 and $67.51, respectively.  This week Entrust
Technologies completed the acquisition of closely held EnCommerce,
Inc. for $703.4 mln in stock.  While this is quite a hunk of out
of the company's portfolio, the acquisition expands its product
line, thus attracting a larger corporate audience.  Importantly,
the announcement didn't shake up investors on the downside.  The
company's earnings outlook is positive too.  ENTU is confirmed to
report in just a few weeks on July 18th, after the bell.  We're
looking for this momentum breakout to carry forward into an
earnings' run.  Let's be somewhat conservative though and wait
for more conclusive moves on the upside before jumping in
headfirst.  Timing and patience are everything when making an
entry.

On the news front, Entrust Technologies and PSINet Ventures LTD
formed an investment alliance with webHancer Corp, the industry
pioneer in customer-focused Internet performance management
solutions.  webHancer Corp closed $13 mln in venture capital
backing with the help of the above-mentioned.  Earlier last
week, analyst Christopher Russ at First Union Securities
initiated a new Buy rating for ENTU and issued a $80 price
target.

BUY CALL JUL-70*QYE-GN OI=655 at $8.13 SL=5.75
BUY CALL JUL-75 QYE-GO OI=366 at $5.38 SL=3.25
BUY CALL JUL-80 QYE-GP OI=331 at $3.38 SL=1.75
BUY CALL AUG-70 QYE-HN OI= 39 at $9.50 SL=6.50
BUY CALL AUG-75 QYE-HO OI=287 at $9.25 SL=6.25

Picked on June 29th at   $74.13    P/E = 469
Change since picked       +0.00    52-week high=$150.00
Analysts Ratings      9-3-1-0-0    52-week low =$ 18.31
Last earnings 03/00   est= 0.06    actual= 0.06
Next earnings 07-18   est= 0.08    versus= 0.02
Average Daily Volume = 1.28 mln

/charts/charts.asp?symbol=ENTU



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

ICIX - Intermedia Communications $30.88 -1.31 (-3.00 this week)

Intermedia is an integrated communications provider to high
volume business and government customers.  It offers local access
and private line phones, high-speed data transmission, Internet
access, and Web hosting.  The company is developing an Internet
protocol based backbone to allow data and voice applications to
be carried over a single network.  It has fiber optic networks in
14 southeastern US cities.

ICIX shareholders were rewarded in early June with rumors of a
takeover.  CNBC reported on June 8th that Broadwing (BRW) was in
talks to acquire ICIX.  The announcement sent ICIX sailing nearly
30% higher.  However, the very next day CNBC reported that the
talks between BRW and ICIX had fallen apart due to concerns over
accounting issues.  The news sent ICIX into a tailspin, and the
stock has yet to recover from that fatal blow.  While ICIX has
received praise from a few analysts recently, there is another
side to Wall Street that is less convinced about the company's
future.  Some analysts suggest that ICIX's eclectic collection
of telecommunications businesses makes the stock unattractive.
That is because ICIX operates in two distinct business segments:
Integrated Communications Services and Digex (DIGX).  The latter
division is a subsidiary of ICIX and is engaged in Web hosting
services.  The problem that analysts have with ICIX is that
neither of its divisions are profitable.  And the losses from both
divisions keep adding up.  In fact, DIGX made the infamous Barron's
list of dot coms on their way to running out of cash. ICIX's
communications division operates in the highly competitive CLEC
arena.  Without a merger partner, analysts feel ICIX will have a
hard time competing with the more adept companies in the field.
After its embarrassing breakdown of merger talks with BRW, ICIX
has fallen into a descending channel, finding resistance at its
5-dma.  The stock found support at $30 Thursday, and lifted
slightly higher into the close.  Wait for ICIX to fall below $30
for an entry point.  Or, consider a bump against resistance at the
5-dma, currently at $32.38, for a more aggressive entry.

BUY PUT JUL-35 QIX-SG OI= 162 at $5.63 SL=3.50
BUY PUT JUL-30*QIX-SF OI=1263 at $2.38 SL=1.25
BUY PUT JUL-25 QIX-SE OI=  28 at $0.63 SL=0.00

Average Daily Volume = 1.63 mln

/charts/charts.asp?symbol=ICIX


F - Ford Motor Company $43.25 +0.97 (-1.19 this week)

Ford is the world's largest truck maker and the #2 maker of cars,
behind General Motors.  It makes vehicles under the Aston Martin,
Ford, Jaguar, Lincoln, Mercury, and Volvo brands.  Two of its
biggest successes are the Ford Taurus and the F-Series pickup.
The company also has a controlling stake in Mazda, and recently
acquired BMW's Land Rover operations.  Its finance subsidiary,
Ford Motor Credit, is the US's #1 auto finance company.

When the Tech sector turned sour last Spring, investors found
solace in old economy names such as F.  But the auto giant's
rally lasted only one month as fears of rising interest rates and
a slowing economy settled into traders' minds.  F's stock reached
its peak in mid-April, and followed the Auto sector downhill
since that time.  The Auto sector is the epitome of a cyclical
industry.  Domestic auto makers' fortunes rise and fall with the
ebb and flow of the U.S. economy.  While the economy appears to
be healthy for the time being, it's investors' anticipation of a
slowdown that has driven F into the ground, and we're looking for
that pessimism to persist.  If the domestic concerns weren't
enough, F has seen its market share in key European areas shrivel
in 2000.  Just last week, analysts said F's market share in
Europe had been cut down to a mere 12.1%, blaming the company's
aging product line, and its failure to deliver diesel powered
vehicles, which are in high demand across the Atlantic.  While
we're on the topic of fuel, let us turn our attentions back to
the U.S.  Fuel prices are high, really high!  F is infamous for
its monster trucks and SUV's that consume large amounts of
gasoline.  Many analysts warn that the high price for petroleum
products will slow consumers' purchases of F's large trucks.
What's more, F just spun-off its parts division known as Visteon
(VC) on Thursday.  The spin-off is part of F's value extraction
plan, and might leave a wake that carries the stock lower.  After
precipitously falling in mid-June, F has been biding its time
above support at $42.50.  Look for an entry if F falls below its
critical support level.  For the more aggressive traders among
our readers, you might target shoot for an entry point if F runs
into resistance at its descending 10-dma during an intraday
rally, currently at $43.81.

BUY PUT JUL-50*FOD-SJ OI=0 at $6.50 SL=3.00
BUY PUT JUL-45 FOD-SI OI=0 at $2.25 SL=0.75

***check for current ask price at tomorrow's open***

Average Daily Volume = 3.79 mln

/charts/charts.asp?symbol=F



**********************
PLAY OF THE DAY - CALL
**********************

AGIL - Agile Software $68.25 +1.25 (+6.56 this 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 services.

Most Recent Write-Up

Upside action!  Breakout!  Call it what you will, AGIL is on the
move once again.  After consolidating for a few days between $60
and $64, AGIL stretched higher following the FOMC meeting.  It
advanced an impressive 9.2%, or $5.63 on Wednesday and extend
the gains into today's session.  Near-term support is now higher
at $64 to $66 near the 5-dma ($64.24), with intraday support
possibly developing at the $68 level.  Positive market conditions
coupled with more technical and momentum players joining the
party should keep the uptrend intact.  Keep the 200-dma ($61.87)
on your radar - AGIL shouldn't violate this technical.  Recall
this indicator previously served as tough resistance and a dip
under this mark is likely a sign of trouble.  In the news, Amkor
Technology, the world's largest provider of contract
microelectronics manufacturing solutions, announced that it will
be using the Agile Anywhere product content management software
solution as the backbone of its Module Business Unit.

Comments

In the face of a tough day for the NASDAQ, AGIL held up relatively
well as sellers stepped into the broader markets.  With a nice
looking trend, momentum certainly appears to be solid.  Pullbacks
to $65 can provide good entries.  Overhead, $70 looks like it may
prove to be resistance.  That is a level not seen since April 10th.
A move through that point with volume could send AGIL to the upper
$70s.  Watch the intraday trends for entries, especially since
AGIL is less volatile than the choppy trading in the broader
markets.

BUY CALL JUL-60 AUG-GL OI=211 at $11.00 SL=8.75
BUY CALL JUL-65*AUG-GM OI=174 at $ 7.88 SL=6.00
BUY CALL JUL-70 AUG-GN OI= 97 at $ 5.00 SL=3.25
BUY CALL AUG-75 AUG-HO OI=  9 at $ 6.88 SL=5.25

Picked on June 22nd at  $63.63    P/E = N/A
Change since picked      +4.63    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

/charts/charts.asp?symbol=AGIL


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************************
COMBOS/SPREADS/STRADDLES
************************

Stocks slide amid a flurry of profit warnings...

Wednesday, June 28

The market rallied today after the Federal Reserve left interest
rates unchanged.  The Dow ended up 23 points at 10,527 and the
Nasdaq closed 81 points higher at 3940.  The S&P 500 Index was up
4 points at 1454.  Volume on the NYSE reached 1.06 billion shares
with advances beating declines 1,810 to 1,104.  Trading activity
on the Nasdaq was heavy at 1.65 billion shares, with advances
beating declines 2,368 to 1,600.  In the bond market, the 30-year
Treasury fell 9/32, pushing its yield up to 5.95%.


Tuesday's new plays (positions/opening prices/strategy):

Emulex        EMLX   AUG50C/JUL65C   $13.50   debit   diagonal
Thermo Elec.  TMO    SEP20C/JUL22C   $2.00    debit   diagonal
Nu Horizons   NUHC   OCT30C/JUL30C   $1.88    debit   calendar

Our new spread positions were a mixed lot in Wednesday's session.
Thermo Electron and the "reader's request" play on Emulex offered
favorable entries but Nu Horizons was less than cooperative.  The
best observed entry for the calendar spread was available only
for a brief period and in addition to being difficult to achieve,
it was also above our target debit.  While we did not enter the
position at the higher price, we will track it for portfolio
performance.


Portfolio plays:

Stocks finished higher today following the FOMC's decision to
leave interest rates unchanged.  The announcement generated new
optimism that the current policy of monetary tightening may have
come to an end in the short term.  As expected, the central bank
left the overnight funds rate at 6.5%, 175 basis points above the
level from which the Fed began its policy of "inflation-fighting"
rate hikes last year.  Committee officials warned of potential
inflationary imbalances going forward but also offered a neutral
economic outlook.  The central bank commented that, "While core
measures of prices are rising slightly faster than a year ago,
rapid advances in productivity have been containing costs."  At
the same time, the Fed also noted that signs of cooling in the
economy can only be considered "tentative and preliminary."

Internet, chip, and financial stocks led today's advance and a
number of market forerunners rallied as institutional investors
bought "window-dressing" for the end of the quarter.  Shares of
Hewlett-Packard (HWP) topped the Dow, up almost $7 after Lehman
Brothers cited the stock as one of its top 10 "Uncommon Values."
On the Nasdaq, computer issues moved higher and biotech stocks
rebounded from a poor performance earlier in the week.  In the
broader market, electronic, railroad and gold mining companies
advanced, while tobacco, and iron and steel issues all slumped.

Our portfolio enjoyed a number of positive surprises.  Juniper
Networks (JNPR) was the big winner, up $10 to $136 after the
company was listed as an "Uncommon Value" in the Lehman Brothers
report.  The brokerage aims to identify stocks with fundamental
merits and unrealized potential to outperform their industries
over the next year and Juniper was seen as one of those issues.
Our current short position at $175 is not yet in danger but we
will need to cover (with the purchase of stock or another long
option) if the issue continues to rally.  Macromedia (MACR) was
another strong performer, up almost $8 to $95 on strength in the
Internet Software group and our bullish credit spread achieves
maximum profit above $70.  Cv Therapeutics (CVTX) and Sepracor
(SEPR) led the Major Drug group, both with $6 rallies and Imunex
(IMNX) posted a $2.68 gain to close near $53.  Our new diagonal
position in IMNX reached the profit target in less than one week.

The small-cap group continues to perform very well and today's
surprise issue was Conseco (CNC).  The stock rallied to a daily
high near $8.56 on reports that it will name former GE Capital
head Gary Wendt chief executive officer.  Today's Wall Street
Journal said Wendt could replace interim chief David Harkins as
early as this morning, now that a non-compete issue with his
former employer General Electric (GE) has been resolved.  Our
bullish diagonal spread is trading in positive territory and we
will attempt to exit near maximum profit in the next few sessions.
The Straddle section is enjoying the recent volatility and today
the Lennox (LII) position achieved a new profit target.  The
overall credit for the straddle reached $2.25, almost a 300%
profit for the position in less than one month.


Thursday, June 29

The market closed lower today on concerns over future corporate
earnings.  The Dow closed down 129 points at 10,398.  Weakness
in the telecom sector drove the Nasdaq down 63 points to 3877.
The S&P 500 Index ended 12 points lower at 1442.  Volume on the
NYSE reached 1.11 billion shares with declines beating advances
1,480 to 1,464.  Trading activity on the Nasdaq was moderate at
1.54 billion shares.  Technology declines outpaced advances 2,178
to 1,834.  In the bond market, the 30-year Treasury rose 1 4/32,
pushing its yield down to 5.87%.


Portfolio plays:

The stock market moved lower today as profit-taking pushed the
major averages down amid concerns over future corporate earnings.
A number of bearish profit warnings drove investors to unload
mediocre portfolio positions ahead of the upcoming reporting
period.  Industrial shares led the market on the downside and
computer hardware and chip stocks also slumped.  The retail PC
group fell in sympathy with the Salomon Smith Barney downgrade
of Compaq Computer.  The broader market saw the biggest gains in
oil service, drug, brokerage and paper stocks but biotechnology
and retail issues were generally depressed.

Juniper Networks (JNPR) continued to rally today, up another $11
to $148 after reporting it has agreed to work with optical and
wireless communication equipment vendor Nortel Networks (NT) in
what is being called a "joint marketing, network planning, and
implementation" alliance.  Nortel's inability to meet customers'
needs for a high speed Internet routing solution has been in the
news recently and now Juniper's routers will be used to fill that
gap.  Once again, our short position will need to be covered with
the purchase of stock (or another long option) if the issue moves
above $175.  The top performers in the section were much the same
as yesterday.  Cv Therapeutics (CVTX) continued to rally, up over
$7 to a new all-time high near $73 and Macromedia (MACR) added $4
to close at the $100 mark.  Our new additions to the leader-board
included Cabletron (CS) and Convergys (CVG).  Cabletron rallied
$2.75 to $25 after the company's earnings topped estimates.  SG
Cowen and FAC Equities both gave Cabletron a "buy" rating.  Our
bullish, long-term position is at maximum profit above $22.50.
Convergys jumped $3 after announcing it has signed a multi-year
contract with OmniSky Corporation, a leading provider of complete
wireless Internet services for users of hand-held mobile devices.
The upside activity should provide a new, early-exit opportunity
for our bullish, debit spread in the next few sessions.

We had another winner today in the Straddles section.  Insight
Communications (ICCI) jumped to a mid-day high above $20 after
the company received favorable coverage from CIBC World Markets.
The overall credit for the straddle reached $5.25, a $1.31 profit
on $3.92 invested in just over one month.  Unfortunately, that
wasn't the only news in the "delta-neutral" portfolio.  Unisys
(UIS) pre-announced that it's expecting second-quarter earnings
of $0.18 to $0.20 a share compared to the First Call estimate of
$0.37 due to weakness in its government and financial services
business.  The stock fell $4 initially, allowing a brief exit
opportunity and then continued to slump as the report gained
attention.  Obviously, there was no chance to limit the loss with
a trading stop and the best observed exit price on the short
(JUL-$20 Put) position was $3.25; a $1.88 loss overall.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
AGTX - Applied Graphics Tech.  $4.75  *** Cheap Speculation ***

Applied Graphics Technologies is an independent provider of
digital media asset management services and also a publisher
of greeting cards, calendars, art prints and other wall décor
items.  The company provides various digital media asset
management services to magazine publishers, advertising agencies,
entertainment companies, automobile and other consumer product
manufacturers and retailers.  Applied sells its publishing
products primarily to mass-market merchants, card shops,
bookstores, art galleries, designers and framers.

The implied volatility in options on Applied Graphics has been
high in recent sessions and some traders are speculating the
issue may be a takeover candidate.  In March, the digital media
production company hired an investment bank to explore strategic
alternatives, including a possible sale of the company, and that
may be the reason for the current activity.  A market-maker for
the issue characterized yesterday’s options turnover as "much
heavier" than typical, with some large orders, relative to the
usual thin volume.  We favor the new bullish trend but the rally
appears to be driven by retail buying, rather than institutional
orders.  The premium disparity in front-month options will allow
us to speculate on the outcome of the rumors at a relatively low
cost.

This position is based on recent increased activity in the stock
and underlying options.  With the extreme disparities in option
pricing, the play offers favorable risk/reward potential however,
it must be evaluated for portfolio suitability and reviewed with
regard to your strategic approach and trading style.


PLAY (very aggressive - bullish/calendar spread):

BUY  CALL  DEC-5.00  QDX-GA  OI=166  A=$1.62
SELL CALL  JUL-5.00  QDX-LA  OI=132  B=$0.50
INITIAL NET DEBIT TARGET=$1.00  TARGET ROI=50%

Chart =

/charts/charts.asp?symbol=AGTX
******************************************************************
NMSS - Natural Microsystems  $105.50  *** On The Move! ***

Natural Microsystems Corporation provides enabling technologies
to suppliers of networking and communications equipment.  Its
customers incorporate its software and hardware products and
technologies into their solutions in order to enable service
providers and enterprises to rapidly and cost-effectively deploy
data and voice applications and enhanced services in converged
networks.  Its products, which use technologies including digital
signal processing, media processing, signal protocol processing,
switching and packet classification, are essential components in
networking and communications equipment deployed in the wireline
and wireless Internet and PSTN.  The company also provides its
customers with software development tools and other systems
architecture and engineering design services.  These products,
tools and services facilitate the rapid creation and deployment
of enhanced services and applications.

Natural Microsystems’ communications and networking components
are in demand.  The company's hardware and software can be found
in network-based platforms, wireless networks, media servers,
voice messaging systems, voice over Internet Protocol platforms,
integrated voice and Web-enabled call center products.  NMSS is
a leading component supplier for equipment makers in markets that
are widely viewed as being on the edge of a huge growth spurt and
the results of this demand can be seen in their recent earnings.
First quarter sales jumped 67% to $27 million amid surging global
demand for communications software and hardware.  Net income for
the quarter improved to $1 million, or $0.07 per share, up from a
loss of $4 million in the prior year period.  The company is now
financially sound with $200 million in cash and going forward,
management is optimistic that new products, internal growth and
potential acquisitions will fuel future revenues.  Analysts are
also optimistic.  Of the eight experts covering the company, all
have positive investment ratings on the potential share value.

We simply favor the bullish technical outlook and our relatively
conservative position offers a way to participate in the issue
with low risk.


PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-80  YYQ-SP  OI=0  A=$1.43
SELL PUT  JUL-85  YYQ-SQ  OI=0  B=$1.88
INITIAL NET CREDIT TARGET=$0.50  ROI(max)=11% B/E=$84.50

Chart =

/charts/charts.asp?symbol=NMSS
******************************************************************
                         - STRADDLES -
******************************************************************
This week we received a number of requests for conservative debit
straddles.  Unfortunately, with the recent market volatility, the
number of theoretically favorable candidates remains relatively
low.  That is not to suggest that you can’t make money in the
strategy, it just means you cannot focus entirely on historical
volatility as a method of analysis.  In today’s research, we have
identified two favorable candidates.

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.

Based on analysis of the historical option pricing and technical
background, these positions meet the fundamental criteria for
favorable straddles.  As with any recommendation, each play must
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.  As you have come to
expect, these plays are based on the current price or trading
range of the underlying issue and the recent technical history or
trend.  The probability of profit from these positions is also
higher than other plays in the same strategy based on theoretical
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.

******************************************************************
NITE - Knight Trading Group  $29.69  *** A Market Favorite! ***

Knight Trading Group is one of the top market-makers in Nasdaq
securities and in the Third Market, which is the over-the-counter
market in exchange-listed equity securities, primarily those
listed on the New York Stock Exchange (NYSE) and the American
Stock Exchange (AMEX).  The company has attained its leadership
position as a market-maker by providing best execution services
to broker-dealer and other institutional customers through its
proprietary trading methodology and sophisticated systems.  With
its wholly-owned subsidiary, Knight, the company makes markets
in the majority of equity securities on the Nasdaq and on the
NASD's OTC Bulletin Board.  In addition, through the company's
wholly-owned subsidiary, Trimark, it makes markets in all NYSE
and AMEX equity securities in the Third Market.

Knight has been a popular candidate for straddle traders recently
as the options are statistically cheap and the issue has a solid
history of volatility.  As of Friday's close, Knight was down 38%
for the year and over 50% below its 2000 intraday peak, which it
hit late in March.  Larry McMillan has commented on the viability
of this position in recent articles and yesterday he said, "NITE
has the best statistical probabilities of making a straddle buyer
happy because the options are currently cheap, and a look at the
chart shows that in the past, the stock has rather easily been
able to make moves that are larger than the price of the straddle."
It is hard to disagree with the master of volatility so in case
you haven’t noticed the position in other forums, here it is for
your review.


PLAY (conservative - neutral/debit straddle):

BUY  CALL  OCT-30  QTN-JF  OI=720   A=$5.38
BUY  PUT   OCT-30  QTN-VF  OI=1165  A=$5.00
INITIAL NET DEBIT TARGET=$10.12-$10.25  TARGET ROI=50%

Chart =

/charts/charts.asp?symbol=NITE
******************************************************************
NOVN - Noven Pharmaceuticals  $30.12  *** Up, Up, and Away! ***

Noven Pharmaceuticals is primarily engaged in the development of
advanced transdermal and transmucosal drug delivery techniques.
Noven's principal products are transdermal delivery systems for
use in hormone replacement including an estrogen patch for the
treatment of menopausal symptoms under the brand names Vivelle
and MENOREST and a second generation estrogen patch under the
brand name Vivelle-Dot.  The company also developed a novel
transmucosal anesthetic delivery for the prevention of pain from
oral injection and for soft tissue dental procedures sold under
the brand name DentiPatch.  Noven markets its products through
direct sales, joint venture with Novartis Pharmaceuticals and
license agreement with Rhone-Poulenc Rorer, in the U.S., Canada,
Europe and other foreign countries.

We are going to include this position only because it meets the
criteria for a favorable debit straddle, and there have been
so many requests for this type of position.  Obviously, the
recent technical history suggests the underlying issue is poised
for further gains and with the bullish outlook, it is difficult
to initiate a delta-neutral position.  However, for those of you
that understand the fundamental concept in a debit straddle, it
is certainly one to watch in the next few sessions as the trend
will eventually come to an end.


PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-30  NPQ-HF  OI=17  A=$2.93
BUY  PUT   AUG-30  NPQ-TF  OI=0   A=$2.56
INITIAL NET DEBIT TARGET=$5.25-$5.38  TARGET ROI=35%

Chart =

/charts/charts.asp?symbol=NOVN



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