Option Investor

Daily Newsletter, Sunday, 07/09/2000

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The Option Investor Newsletter                  Sunday  07-09-2000
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        WE 7-7           WE 6-30          WE 6-23          WE 6-16
DOW    10635.98 +188.09 10447.89 + 43.14 10404.75 - 44.55  -164.76
Nasdaq  4023.20 + 57.09  3966.11 +120.77  3845.34 - 15.22  - 14.28
S&P-100  803.00 + 12.75   790.25 +  9.18   781.07 -  7.67  +  9.04
S&P-500 1478.90 + 24.30  1454.60 + 13.12  1441.48 - 22.98  +  7.51
RUT      528.22 + 10.99   517.23 +  6.82   510.41 -  3.33  -  9.32
TRAN    2784.64 +139.27  2645.37 + 14.66  2630.71 - 42.48  -116.98
VIX       21.82 -   .44    22.26 -  3.63    25.89 +  2.34  -  1.64
Put/Call    .48              .48              .61              .53

Summer rally, summer rally, summer rally! If you say it enough
will it come true?

And the answer is....you decide. The talking heads could not say
it enough on Friday and for good reason. After a huge drop on
Thursday both major indexes came roaring back after a tame? jobs
report. The bullish sentiment may be so rampant that traders
could not see the numbers behind the numbers due to the tint of
their rose colored glasses. Ask anyone about market direction
next week and the odds are they will say up, enthusiastically!
It appears that almost all sectors took part in the rally and
when you get banks and techs moving in the same direction it
can't be all bad.

Finally we are going to see some real earnings next week. The
last major week of warning season was a killer. Every time
traders thought they had digested the most recent confession
another one self destructed in their path. The list was long
and included companies like CPWR, CA, BMCS, HMN, LZB, DNEX,
BRIO, MNTR, NESY, FD, HAUP and on and on. The warnings caused
a real scare on Wed/Thr as both indexes appeared to be heading
south at a high rate of speed. The warnings on Friday were
ignored as market moving events in light of the tame? Non-farm
Payroll report.

What did move specific sectors on Friday were specific news
events including a down grade of YHOO by DB Alex Brown to a
"buy" from "strong buy." The analyst said valuations are more
important now with advertising rates dropping fast. She said
other companies like Lycos and AOL are also in danger of flat
revenue growth. With dot.coms dropping like a rock, have you
looked at SFE, CMGI or ICGE lately?, the Internet boom is
rapidly turning into a bust. Internet stocks are facing a long
hot summer that may end up being a dead end trip through death
valley. Those that make it past October will be stronger and
consolidations are going to be occurring at rapid rate. The
analyst said in an interview that as the Internet model matures
you would expect a return back to a more realistic PE of 30
instead of the astronomical triple digit numbers of today.
Remember PE means price to earnings ratios. YHOO currently
has a PE of 563. Using a PE of 30 and 12 month earnings of
$.50 would give you a share price of $15.00, not the $116
close today. While I disagree strongly with her forecast
of future dot.com values, (heck, I am one!), I do feel there
is some irrational exuberance in numbers like the YHOO 563.
Where the future values of stocks in a sector where there are
4000 new competitors every day, (really), will finally settle
is anybody's guess but both extremes are definitely not
on my horizon. I do look at the YHOO PE in amazement. I know
profitable dot.coms are rare, heck, I am one of those also,
but try offering me even a 100 PE and I will show you a prime
example of "sell to soon." This "reality check" by investors
is what I think will eventually "mature" the sector. Mature
companies like IBM, GE, WMT, INTC, MSFT, in mature sectors
have "quarterly profits", measured in billions of dollars each,
which is more than the "yearly revenue" of the leading Internet
companies. Eventually the Internet sector will conform to the
norm but it will be a long and painful process.

In the financial world today Merrill Lynch made the news with
the possibility of a 2000 person layoff. Normally this is good
for stocks since the $150 million savings would increase
earnings but after the recent spike in MER there was a sell off
at the open and a slight loss for the day. Other brokers fell
in sympathy but quickly rallied as well. Actually financials
mounted a rally for the week on the prospects that the Fed is
finally done raising rates.

I might as well quit beating around the bush and bring up the
employment report on Friday. On the surface the drop in new
jobs to only an increase of +11,000 was pure evidence of a
slowing economy. Everybody loved it. The market soared. End of
story. Sorry, wrong number. In reality the new jobs number was
+206,000 for the private sector. Is it my imagination but isn't
that the sector that we are concerned about? If you look behind
the numbers you will see that the government laid off -197,000
census workers last month. That makes the net number only
+11,000 but you can bet your bippy, (remember that term?) that
they will not be laying off 197K more in July. The census has
inflated or distorted the numbers for the last three months as
they added and now subtracted large numbers of workers.
So lets look at the real numbers. Net private sector jobs
was +206,000. Average hourly wages increased +.4% in June
compared to +.1% in May. The unemployment rate dropped to 4.0%,
down from 4.1% in May and only .1% away from the 30 year low
set in April. Looks pretty negative to me. Also there is
a rumor going around that the jobs number would have been higher
if there were trained employees to hire. The job market is
very strong for qualified help but that is the catch. At 4%
unemployment you are scraping the very bottom of the barrel.
I know we have a terrible time getting qualified employees.
We placed nine ads in both the local papers last week and we
only hired one person this week out of the 20+ we are looking
to hire. Several more are in the process but the majority of
people applying for even the non-technical positions are not
employable. At least not in our office. I am sure the rest of
the country is having the same problem. The July employment
report will be very interesting. Coming before the August Fed
meeting a 3.9% unemployment again will start the entire Fed
worry cycle anew.

Enough gloom and doom. I like what I am seeing for next week.
The Nasdaq sellers tried to take the market down on Thursday
along with the Dow and buyers met them head on. We had what
I would call an orchestrated market test. With the low volume
it does not take many sellers to move the market. If fund
managers wanted to test the bottom of the market it would
not take much to push the prices around. If you were a fund
manager, bullish but skeptical of a possible "summer rally",
you could test the bottom, kind of like testing thin ice.
Say you had a large position in a dozen tech stocks. To
test the market you dump a quantity of sell orders in
increasing quantity on the market. If the stocks don't firm
at support or you scare other sellers off the fence then
there is no bottom and you stay on the sidelines. If a bottom
appears, as it did on Thursday, then you can buy back the
shares you dumped earlier, possibly at a profit, and then
feel more comfortable about adding to previous positions.
If you know there is a bottom then wading into murky water
is far less risky. This is of course a simplified example
of how this happens but you get the point.

Again, I like what I see with the exception of the VIX.
The Nasdaq closed over 4000 and only -40 points off its
recent high. The Dow closed right at the high of its recent
down trend channel. Both indexes appear to be poised to
breakout. Even the S&P-500 appears poised to breakout over
resistance that has held since April at 1485.

While I am not a cheerleader for summer rallies I would
gladly accept one. Recent history has shown July to be bearish.
However we all know that nothing always happens the same.
Just because October is normally a bad month... well maybe
that is not a good example. Let's try that differently. Just
because the last two Julys have had an almost identical
-15% drop after expiration Friday does not mean that it will
happen this year, does it?

In 1999 the Monday after expiration was the 19th. In 1998 it was
the 20th. Is this just a coincidence? I think not. However trends
change just as quickly as they form. This year we have several
things working in our favor. First we have already suffered a
severe sell off from the spring highs. After dropping into a
bear market, excuse me I don't need any hate mail, a "correction"
in March we have struggled with a two steps forward, one step
back market to a position of being poised for a breakout. This
is good! Two, we are now free of the Fed dread for at least the
next several weeks. Well, at least four days, until the PPI next
Friday. If the PPI comes in higher than expected the fear of
an August rate hike will return immediately. Three, oil prices
appear to have peaked after several months of steady increases.
The falling oil prices will relieve pressure on many prices
and soften the blow from higher interest rates. Four, Dow theory
followers are bragging about the rebound in the transports
as confirmation of the Dow rally this week. The rebound of course
was due to falling oil prices but lets not let that fact get in
the way of their bullish view. Five, the term soft landing was
used almost as many times as summer rally in the major media.
It is again not reality but perception of reality that will
govern our markets going forward. If the perception exists that
the Fed has engineered a soft landing for the economy and that
they are done raising rates then why should we tell them any

Friday was a good day. The Dow posted the biggest gain since
May 30th. The gains were solidly on the back of IBM +3.44,
HWP +6.38, INTC +2.69, MSFT +1.06, UTX +1.06 and a monster
move by two non-techs, WMT +4.06 and HD +4.00. Financials
helped some with C +1.31, JPM +.94, AXP +1.81. I would expect
the financials to add more gains next week but there is no
trend to confirm the moves on HD and WMT. Actually with the
Retail Sales report next Friday we could see a pull back in
the retail sector. The tech stalwarts put in a good performance
and with earnings coming we could have a good week for them.
On the Nasdaq side DELL actually broke out over $50 and almost
made the play list this weekend. It did not because they
announce in August and typically they lose ground in the
prior month. Adding to the Nasdaq gains was CSCO which looks
like it is mounting a rebound and ORCL recovered some of its
recent loss. With the top five stocks MSFT, INTC, DELL, CSCO
and ORCL all showing positive trends the Nasdaq should hold
its own for at least a couple days.

So here is the skinny. If the Nasdaq can breakout and hold
over 4100 that would be a confirmation for many that the
rally was real. Same with the Dow if it can hold over 10650
traders would nibble but if it closes over 10750 there could
be a flood of money off the sidelines. Our challenge will
be the PPI, Retail Sales and Industrial Production reports
on Friday. Any big gains early in the week will probably
see some profit taking in front of Friday's reports. The
CPI follows on Tuesday but is not normally a big mover. The
big movers next week will be the arrival of real earnings
announcements. Dow component Alcoa (AA) starts the parade on
Monday followed by International Paper and YHOO on Tuesday.
Thursday Dow components GE and JPM announce. With the
downgrade of YHOO on Friday any softness in the numbers after
the close on Tuesday will likely be an Internet disaster of
titanic proportions. If YHOO beats the street with higher
revenue than expected then the Internet sector should breathe
a sigh of relief and continue with earnings as usual.

I would view any rally next week as a trading rally, not a
buy and hold event. Even with the positive points I outlined
above I would still be ready to move to the sidelines on
or before expiration Friday. Since expiration this July
occurs on the farthest possible date, 21st, any "sell the
earnings news" event could start before that day. So, trade,
profit, enjoy, but keep your eyes on the calendar just in case
we get a three-peat of the previous July drops. In case you
are wondering, the drop in 1997 started on Thursday, the
day before expiration, but only lasted several days and
was less than -100 points. (1600 Nasdaq) There was a summer
rally in 1997 that added +350 points or +25% to the Nasdaq
between June-15th and October-13th. (1400 to 1750) The
following week took almost all of it back but that is another
story. Summer rallies do occur, just rarely.

Last week I mentioned that the VIX was at a three month low
of 22.26 and was flashing extreme caution. The wed/thr market
drop spiked it back up to almost 25 and neutral but the
ensuing rally has pushed it to a new four month low of 21.92.
Remember the VIX is seldom wrong and then only by a few days.
Below 22 is a warning but under 20 is extreme danger. We have
only been there twice in the last year. Nov 19th we hit 19.50
and the other day.....July 16th, 1999 at 17.70. Need I say more?
That was a 52 week low. The previous 52 week low? July 20th 1998
at 16.73. We will see if lighting strikes the same place three
times in a row.

Don't forget the 3-day stock/option seminar in New York
starts next Thursday and there are still a few seats available.
Instructors include Chris Verhaegh, Steve Rohades and Scott
Zimmerman. Traders Corner writer, Mary Redmond, will also be
there. See the rest of the schedule below.

Also, check out my Options 101 article this week called
"Exit Stratagies, Escaping With Profits."

Trade smart, sell too soon.

Jim Brown

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Last weeks plays failed to break the entry point critera due
to the market sell off on wed/thr. Patient traders would have
avoided any bad plays. By establishing your entry critera in
advance you avoid expensive emotional trading. When you wait
on the market/stock you will trade less but be more profitable
when you do trade.

MRVC - MRV Communications

Prior week

Last week

We never got the breakout over $68 and you should not have
entered this play. If you were bullish on MRVC there was an
incredible entry point on Thursday when it bottomed on
support at $55. I would wait on starting a new play on
this stock now until we see a breakout over $68. The red
candle at the close on Friday was probably only weekend
profit taking but we only want to play on obvious strength.
By waiting for the breakout we eliminate any more sellers
who are now wishing they had sold at $68.

JNPR - Juniper Networks

Prior week

Last week

Last week I said we should wait for confirmation of the
closing Friday spike and a breakout over $150 as an entry
for conservative traders. Neither occured but we are right
back at the $150 high and prepared to breakout again. JNPR
also gave us a tremendous entry point at $128 when it bounced
off support on the Thursday dip. Still, it did not cost us
any money to wait. Trading profitable requires discipline.
Wait for the breakout and close the position if it falls
under $150 again.

MSFT - Microsoft

Prior week

Last week

MSFT did not break our $80 entry point until late Thursday.
The aggressive traders should be long at this point. The
conservative entry point of $82 was broken slightly but
fell back. Technically these traders shold be long also.
Sentiment however would have prevented me from going long
on a summer Friday without a little more confirmation. I
still like the play and with earnings over a week away I
think we could see a decent move, possibly as high as $89
as long as the market cooperates. I would probably be a
seller at $89. We do not want to hold over earnings and
we do not want to be the last ones out.

New Play *************

TIBX - Tibco Software

My only worry about this play is the jinx I am liable to
cause by writing about it. This is a killer chart. Nice
steady solid move. No real problems. No dips on market
weakness. Just a great chart. The problem is waiting to
get in. Since the dips have been so small you never know
when the next serious dip will occur. I would still take
a chance whenever it hits the bottom of the channel. Just
wait for it to start moving up again before opening the


My current positions are still VOD, NOK, MSFT leaps. Boring
I know but I have been out of the office on business for most
of the last three weeks. I think I have several weeks ahead
where I can trade again and I am looking forward to some
action. Since I personally am worried about a July repeat
I want to be totally in cash by July 20th. I am even going
to put stops on my leaps just in case.

The plan for the week will be to wait until the east coast
lunch lull on Monday and assess the market again. I am in
no hurry to trade just to trade.

As always, wait for positive stock, sector and market before
opening new positions.

Good Luck



From Wall Street To Pamplona
By Austin Passamonte

The starting gun sounded at 8:30 am EST Friday when the
employment report came in astonishingly light. Projected
estimates of job growth by the "experts" spanned a gap wide
enough to make Evil Knievel in his prime blanch with fear.
Apparently the numbers digested well because the market built
upward momentum that lasted the entire day.

NASDAQ closed above the magical 4,000 mark much to the bulls
delight. Speaking of the bulls, did you see them chasing all
those short-sellers over there in Pamplona, Spain? Around two
dozen were hospitalized (not the bulls), must have been using
second-mortgages to short the NASDAQ & Dow at Wednesday's

All appears well for the start of earnings season. Buyers
feel good and money could begin to flow freely. Some technical
signals are mixed, clouding the picture. CBOE index option
put/call ratios soared even as the markets rallied and VIX
dropped near dangerous levels. What gives? Looking into the
day's volume we see gamblers eschewing Vegas to load up on
deep OTM index puts, taking advantage of low pricing to wager
a huge payoff if the markets slide and volatility increases.

Math was never my favorite subject but let me see here; the
government eliminated 195,000 temporary jobs while the private
sector added 206,000 permanent ones. I wonder which included
higher wages and greater skilled workers? What might next
month's employment numbers resemble absent such an unusually
large temp position? We have to ask ourselves this question.

The VIX hovering near 20 keeps me leery of any sustained rally.
A move above 24 would set the bulls at ease.

The other major indicator of concern remains the COT report.
As briefly outlined in articles last week, extreme positions
held by commercial traders in one direction while opposed by
speculators in the opposite cannot last forever. Someone must
be right and that is usually the commercial giants.

Commercial traders in the S&P 500 futures are usually long or
flat. Currently, they hold their widest net-short position in
ten years. Meanwhile, speculator positions have increased
net-long for seven weeks and counting. The last two times
these camps were net extreme was Oct 1999 and Oct 1998. Care
to guess who was which? That's right, commercial interest was
heavily long as the SPX traded near bottoms of 1250 in '99
and 950 in '98.

Speculators were flat to short while media bulls wailed &
gnashed their teeth. Would you have liked to buy stocks with
both hands either of those two times given the chance again?
The SPX rallied from 1250 to 1500 and from 950 to 1400 in
short order respectively. Major capitulation occurred all
around them as commercials quietly bought everything in

Today they hold greater net-short positions than either of
those net-long zones percentage wise. Meanwhile, speculators
are long and deep. I ask you, based on official stats from
the CFTC, who is buying and who is selling to whom today?
Long-term, which would you bet your retirement funds on to

I consider it my obligation here in Market Sentiment to remain
staunchly objective and present all indications that help you
reach conclusions on future market direction. Plainly we have
strong cases to build for both. I truly hope you're able to
profit wildly as the markets move ahead in each direction
over time. Remember, buying calls or puts at the right entries
will swell your account in equal measures.


The CBOE Market Volatility Index measures certain S&P 100
option pricing to determine investor sentiment. Historically,
readings near 30 signal possible market bottoms while levels
near 20 indicate possible market tops.

Thur 7/06 close: 24.2          Fri 7/07 close: 21.82

CBOE Equity Put/Call Ratio
The CBOE equity put/call ratio is a contrarian-sentiment
indicator. Numbers above .75 are considered bullish, .75 to
40 neutral and bearish below .40

                             Tues       Thurs         Fri
Strike/Contracts            (7/04)      (7/06)

CBOE Total P/C Ratio         .48          .56         .48
Equity P/C Ratio             .47          .51         .37

Peak Open Interest (OEX)
CBOE index put/call ratio is a contrarian-sentiment indicator.
Numbers above 1.5 are considered bullish, 1.5 to .75 neutral
and bearish if below .75

                      Tues         Thurs        Fri
Strike/Contracts     (7/04)        (7/06)      (7/07

All index options      .97          .75        2.35* Bullish
OEX Put/Call Ratio     .61          .69        1.15*divergence

OEX Maximum Open Interest Strikes/Contracts:

Puts                  770 / 5496    790 / 4989  790/5120
Calls                 790 / 6370    790 / 6485  790/6453
Put/Call Ratio        1.37           .86           .79

OEX S/R (Support/Resistance) Ratio Index
The OEX S/R ratio is a formula to gauge possible support
or resistance based on open-interest disparity. Values
above 5 considered excessive. Divergence of numbers may
indicate future market direction.

OEX                      Tues         Thurs     Sat
Benchmark:                            (7/6)    (7/8)

Overhead Resistance:
(830 - 815)               38.41       39.90    41.49
(810 - 790)                4.84        3.27     2.27

OEX Close:                           789.92   803.00

Underlying Support:
(790 - 770)                2.28        2.28     1.90
(765 - 750)                1.90        3.13     2.21

What the S/R measure indicates: Net open-interest ratios
are very high above 810 OEX level while underlying support
is comparatively light. The OEX has considerable downside
pressure from 810 with little upward support in comparison.
A large move in either direction seems favored to the downside.
Sustained levels above 810 may be difficult before July option
contract expiration 7/21 unless considerable overhead clears.

200 Day Moving Average
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW;   10,738                    10,481*       10,635*
NASDAQ; 3,777                     3,960         4,023
NDX;    3,491                     3,793         3,842
SPX      1409                      1456          1478
OEX       756                       789           803

CBOT Commitment Of Traders Report: Friday 6/30
Biweekly COT report discloses positions held by small specs,
large specs and commercial traders of index futures contracts
on the Chicago Board Of Trade. Small specs are the general
public, large specs primarily funds with commercials being
financial institutions. Commercials are historically on the
correct side of future trend while small specs are not.
Extreme divergence between each signals a possible market
turn in favor of commercial trader's direction.

                 Large Specs    Small Specs    Commercials
DOW futures
Total O/I;        7,161          8,435           28,719
Net contracts;    2,219 short    1,281 short      3,501 long
%long/short;        31% short      15% short        12% long

Total O/I;       10,771          17,334          89,812
Net contracts;    4,777 long      6,423 long     11,200 short
Percent S/L         44% long        37% long        12% short

S&P 500
Total O/I;       35,404          215,951         613,538
Net contracts;      840 long      36,659 long     37,498 short
Percent S/L;         2% short        17% long         6% short


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 last week.

Interest rates
5.87% on the 30-year Treasury Bond may be signaling the rate
fears are over. Fed-Fund futures are pricing a waning chance
of one more hike, .25 basis at this time.

Corporate Earnings
Last quarter earnings expected to be very strong, especially
for the tech sector. Major stalwarts in the Dow and NASDAQ
begin the three-week session this week.

Some recent IPO's have been met with positive enthusiasm.

Index Option put/call ratio
Friday's activity showed unusual OTM put volume, suggesting
buyers hedging for a market slide. Contrarian nature considers
this bullish development.

Improving NASDAQ
NASDAQ's close above 4,000 is a relief to bulls. Holding above
this level will be important going forward from here.



Friday's close below 22 warns of impending market top danger.

Struggling Dow
The Dow remains below it's 200 DMA with several components
near 52-week lows.

Energy Prices
Relief may be coming but are still high. It will be difficult
to curb inflation with gas and oil prices remaining high.
Ultimately, this affects profit margins. August Crude closed
$30.28 Thursday amid recent reports of more production.
Seasonal energy patterns typically bottom by late summer.

COT Report
Friday's updated figures show small spec traders heavily
long S&P 500 contracts while commercial positions remain
at several-year lows, net short. Divergence suggests possible
market turn in favor of commercials.

Equity Put/Call Ratio
Thursday's equity put/call ratio remained below the .40
neutral zone at .37, considered bearish territory.


As of Market Close - Sunday, July 9, 2000

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

DOW Industrials   10,250  10,650  10,635    Neutral   7.09 **
SPX S&P 500        1,420   1,490   1,484    Neutral   7.09 **
OEX S&P 100          750     806     803    Neutral   7.09 **
RUT Russell 2000     455     535     528    Neutral   5.05
NDX NASD 100       3,300   4,000   3,841    Neutral   5.30
MSH High Tech        965   1,030   1,024    Neutral   6.06

XCI Hardware       1,440   1,550   1,529    Neutral   5.30
CWX Software       1,160   1,360   1,257    Neutral   6.06
SOX Semiconductor  1,060   1,300   1,160    Neutral   6.29
NWX Networking     1,095   1,270   1,262    BULLISH   6.02
INX Internet         525     605     525    BEARISH   5.30

BIX Banking          505     600     554    Neutral   7.09 **
XBD Brokerage        450     515     507    Neutral   6.22
IUX Insurance        575     660     644    Neutral   6.20

RLX Retail           810     955     929    Neutral   7.09 **
DRG Drug             345     430     417    Neutral   7.09 **
HCX Healthcare       755     870     854    Neutral   7.09 **
XAL Airline          140     172     167    BULLISH   5.25
OIX Oil & Gas        270     320     294    Neutral   6.30

Posture Alert
Economic data was favorable and brought buyers to the table.
Preliminary resistance levels were broken, but be careful not
to chase overextended stocks.  Drugs and Healthcare witnessed
profit taking today and did not participate in the rally.
Posture changes:  Bearish to Neutral (DOW,SPX,OEX,BIX,RLX)
Bullish to Neutral (DRG,HCX).  Watch bullish levels for trend


Put This on Your Radar
By Buzz Lynn
Contact Support

Internet HOLDRS (HHH, IIH, and IAH) could see some action
Wednesday depending on Yahoo's earnings outcome after the bell on

What's the ralationship?  YHOO has typically had nice pre-earnings
runs over the past eight quarters.  However, that didn't happen
last quarter and it hasn't happened this quarter either - not good
news for those playing a past trend.  Only this time the focus is
on revenue going forward, and not so much on earnings.  Part of
YHOO's challenge Tuesday will be to overcome the notion that dot
com's have exhausted their advertising budgets, a source of
revenue that YHOO has come to depend on in order to consistently
blow away analysts' estimates.  Without significant advertising
revenue and a good revenue outlook to match, YHOO could easily
come up short of of their typical blowout.  The implication would
be that if YHOO isn't cutting it, then neither is anyone else,
which could drive a few more nails into the general Internet
coffin, especially the HHH.  If YHOO's outcome is negative, we
could then consider going short the HHH.  If it's surprisingly
positive on big revenue expectations for the next two quarters,
the sector could rally and we could go long.  Of course, if
results are mixed and we see the prospect of continued sideways
trading, simultaneously selling puts and calls on the HHH (OTM
strangle for our purposes) could be just the ticket.  Same with a
covered call or calendar spread.  All that said, this is NOT a
recommendation to do it first thing Monday.  Our job is to keep it
on our radar for a potential new play in Tuesday's update.  Until
then, watch and observe along with your regular trades!

Here's some other stuff to keep on your radar.  IAH had a nice
move Friday on high volume.  We stopped short of picking it this
weekend because no new trend has been established.  But Thursday
and Friday's gains sure look good.  We would add this to our play
list on a move over $94 as long as volume accompanied the move.
In similar vein, we came close to adding BDH back as a long or
straddle play since BDH components (SDLI, GLW, SCMR to name a few)
had a nice Friday finish, and are the most likely to offer upside
surprises this earnings season.  Our entry would be potentially
triggered by a strong move over $94.  While neither of these are
plays yet, they could be on Tuesday.

We will watch for a new trend to emerge to confirm the validity of
these radar screen bogies.  Until we see if the recent market
rally can hold its gain, this play list will be thin.  The last
thing we want to do is go long only to have the NASDAQ roll over
at 4100.

On a final note, how did you like the new strangles, covered
calls, and calendar spreads intoduced last last week on the QQQ?
Would you like to see more of those?  Would you like those
strategies applied to other HOLDRS?  Do you want to see just
plays?  Just technical analysis?  Or would you like more analysis
on sentiment?

We mentioned it last week, but we'll mention it again.  Our aim at
Sector Trader is to help you trade sectors more profitably without
having to be right on just one stock pick.  We want to know what
you like so far about Sector Trader, or what you'd change. Have a
favorite strategy you'd like to share or a question about this
section that you'd like anwered?  What would help you to trade
sectors for better more consistent profits?

Send us your comments and questions.  We'll do our best Burger
King imitation and serve this section up YOUR WAY!

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    96.13   1.81   0.00  -3.88   2.94   1.63   2.50
HHH Internet     105.25   2.00   0.00  -4.13   1.88  -2.75  -3.00
BBH Biotech      197.19   4.50   0.00   5.25   4.50   5.19  19.44
PPH Pharm.       103.50  -0.94   0.00   1.69  -1.88  -1.19  -2.31
TTH Telecom       76.88   1.75   0.00   0.50  -0.63   0.88   2.50
IAH I-net Arch.   92.63   0.94   0.00  -3.38   0.31   3.25   1.12
IIH I-net Infr.   59.31   0.81   0.00  -2.75   0.69  -1.88  -3.13
BHH B2B           39.25  -0.28   0.00  -1.19  -0.81   0.06  -2.22
BDH Broadband     91.38   2.69   0.00  -3.31  -0.06   2.25   1.56
SMH Semicon.      95.25   2.13   0.00  -7.50   3.63   3.00   1.25
RKH Reg. Banks    99.06   3.19   0.00   0.75   0.31   3.06   7.31
UTH Utilities     90.63   0.88   0.00  -0.75   1.31   0.88   2.31


QQQ - NASDAQ 100 $96.13 (+2.50 last week) Ah, can you see the
beauty of SELLING time vs. buying time?  We had a big move over
previous resistance at $95 on Friday, yet $0.25 of time value
evaporated from the OTHER guy's acount right into our pocket.
Recall that we sold the $90 put and the $95 call in a short
strangle for a $5.75 credit.  We can now buy the whole position
back for $5.50 for a small profit (which could grow larger as the
July expiration date approaches) even though we could be called
out at our $95 short call position.  The objective here is let
time value erode and buy the position back cheaper prior to
expiration.  The risk is that QQQ continues to move up enough or
down far enough to have the combined intinsic value of the options
exceed our credit.  We would then want to close the position or
perhaps roll out of the ITM leg.  Similar action is required by a
calendar spread.  But in that situation, you can sider buying back
the short current month call instead for a small loss or perhaps a
small gain if enough time value has evaporated since the time of
sale.  In the case of a covered call, you can even consider just
letting yourself get called out.  Of course that only works if you
paid less than $95 for the QQQ shares, but you still got to keep
the time premium you originally sold for a profit.  OK, so what
now?  Consider covering your short call postion if QQQ breaks back
over $97.  That would be a clue that QQQ is on the mend.  On the
other hand, a dip under $94.50 ($95 if you can handle more risk)
could be a signal to short calls again.  Want to turbocharge that
stangle strategy?  Wait for further price drops to support ($92?)
before shorting the put.  For those just playing QQQ with long
calls and puts, it started what looks like could be a rollover at
$97.  We would have to call it resistance for now, and also a good
place to consider put buying.  Look for a bounce south of $97 to
enter, and watch $95 for possible support.  That could be a place
to buy calls if QQQ bounces north from there.  If not, view any
drop under $94.50 as an opportunity to buy puts again.  The
nearest support then would be around $92.

Short Strangle:

SELL CALL JUL-95 QVQ-GQ OI= 7424 at $3.63
SELL PUT  JUL-90 QVQ-SL OI=39110 at $1.31

Net Credit = $4.94 or greater
Stop Loss  = $7.00

SELL CALL JUL-97 QVQ-GS OI= 1740 at $2.63
SELL PUT  JUL-92 QVQ-SN OI= 8586 at $1.88

Net Credit = $4.51 or greater
Stop Loss  = $6.50

Covered Call:

SELL CALL JUL-96 QVQ-GR OI= 5524 at $3.13

Net Debit = $92.81 or less

Calendar Spread:

BUY  CALL DEC-90 QVQ-LL OI= 1457 at $16.63
SELL CALL JUL-96 QVQ-GR OI= 5524 at $ 3.13
Net Debit = $13.50 or less

At Support:
BUY CALL JUL-90 QVQ-GL OI= 7701 at $7.00 SL=5.00
BUY CALL JUL-95 QVQ-GQ OI= 7424 at $4.00 SL=2.50
BUY CALL AUG-95 QVQ-HQ OI=  620 at $6.88 SL=4.75

At Resistance:
BUY PUT JUL-100 QVO-SV OI= 1621 at $6.13 SL=4.25
BUY PUT JUL- 95 QVQ-SP OI= 4847 at $2.81 SL=1.50
BUY PUT AUG-100 QVO-TV OI= 1438 at $8.50 SL=6.00

Average Daily Volume = 25.3 mln


PPH - Pharmaceuticals $103.50 (-2.31 last week) Hmmm. . .well,
perhaps we shouldn't be surprised by the pullback in PPH given the
strong tech sector recovery, especially in the semiconductor
sector from the beating they took last Thursday.  Nonetheless, the
PPH is need of some medication if it's going to retain a strong
heartbeat.  We thought about dropping PPH, but decided against it
since the NASDAQ (read that tech sector) breakout isn't quite yet
confirmed for real.  Not only that, but we couldn't boot a sector
that had yet to violate its 10-dma, currently at $102.96.  A close
below that level though would be our cue to exit.  As it is now,
historical support is at $103.50, the same level as Friday's
close.  Don't send home the paramedics yet.  Other than landing on
support, Friday's candlestick is ugly.  It's an upside down "T" or
doji, which generally represents a weak push up, no support, and
lack of buyers on the way back down.  A bounce up from here would
earn it "keep" status on the list.  A descent from here under
$102.75 would earn it a "drop".  Again, support at $103,
resistance at $105, then again at $106.50.  A breakthrough at that
level would make a great entry as PPH could then continue into
blue sky.  Watch carefully and execute accordingly.

BUY CALL JUL-100 PPH-GT OI= 24 at $4.63 SL=2.75
BUY CALL JUL-105 PPH-GA OI=123 at $1.56 SL=0.75
BUY CALL AUG-105 PPH-HA OI= 28 at $3.50 SL=1.75

SELL PUT JUL-100 PPH-ST OI= 0 at $0.63 SL=1.00, no OI

Average Daily Volume = 118 K


BBH - Biotech $197.19 (+19.44 last week) Gotta love that jobs
report!  BBH was the only HOLDR this week showing us a clear
directional trend.  The trend is up, but that doesn't mean it will
last forever.  Nothing goes up or down in a straight line,
afterall.  However Friday's move was significant for a couple of
reasons.  First, BBH closed fractionally over its then current
level or resistance at $196.75.  Second, while BBH did back off
from its intraday high near $199, it still found intraday support
at $196.25.  That's darn good considering it started the day off
around $192.  Anyway, that makes four big up days in a row.
Prudence tells us to protect those nice profits with a tightened
up stop order (maybe just under support at $195.50 as not to get
kicked out on an intraday gyration?).  Gunslingers tolerant to
bigger risk may want to target shoot at this level or even open a
position at Friday's opening price of $192.50.  For us who
sometimes play it a bit greedy, just be aware that the 5-dma is
way back at $187.34, and at some point BBH will have to fall to
touch it.  Conservative types can target shoot there, but you may
not get filled anytime soon.  Play it according to your risk
profile.  If BBH can clear $199, $200 may offer more resistance as
a psychological barrier.  However, $205 is the next technical and
historical level of resistance that BBH will likely encounter.

BUY CALL JUL-190 BBH-GR OI= 291 at $13.13 SL= 9.75
BUY CALL JUL-195 BBH-GS OI= 138 at $10.25 SL= 7.25
BUY CALL AUG-195 BBH-HS OI=  31 at $15.00 SL=11.00
BUY CALL AUG-200 BBH-HT OI=  36 at $18.38 SL=13.25

SELL PUT JUL-185 BBH-SQ OI=  37 at $ 3.38 SL=1.75

Average Daily Volume = 605 K


IIH - Internet Infrastructure $59.31 (-3.13 last week) we're
giving IIH the boot print on the behind for failing to hold at $60
support, let alone move up through esistance at $63.  We'll have
to wait and see how it sets up following YHOO's earnings report to
determine our next play.  While IIH could find support at $58, the
lower high at $61.50 is not encouraging going forward, and
certainly makes for a lousy directional play at this point.  We'll
step aside with the idea of re-entering when there is a bit more
visibility to the whole Internet sector.

Average daily volume = 284 K

No Play


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For the week of July 10, 2000


Consumer Credit          May    Forecast: $7.5B    Previous: $9.3B


Wholesale Inventories    May    Forecast:  0.6%    Previous: $0.8%


None Scheduled


Initial Claims           07/08  Forecast:  302K    Previous:  296K
Export Prices ex-ag.     Jun    Forecast:   N/A    Previous:  0.1%
Import Prices ex-oil     Jun    Forecast:   N/A    Previous: -0.2%


Retail Sales             Jun    Forecast:  0.3%    Previous: -0.3%
Retail Sales ex-auto     Jun    Forecast:  0.4%    Previous:  0.0%
PPI                      Jun    Forecast:  0.6%    Previous:  0.0%
Core PPI                 Jun    Forecast:  0.1%    Previous:  0.1%
Industrial Production    Jun    Forecast:  0.3%    Previous:  0.4%
Capacity Utilization     Jun    Forecast: 82.1%    Previous: 82.1%
Michigan Sentiment       Jul    Forecast: 106.8    Previous: 106.4

Week of July 17th

07/17 Business Inventories
07/18 CPI
07/18 Core CPI
07/19 Trade Balance
07/20 Housing Starts
07/20 Building Permits
07/20 Initial Claims
07/20 Philadelphia Fed
07/21 Treasury Budget

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This newsletter is a publication dedicated to the education
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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
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The Option Investor Newsletter                   Sunday 07-09-2000
Sunday                                                      2 of 5

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How big can a company get?
By Mary Redmond

In recent years we have seen the growth of many companies' market
capitalizations to numbers which were perhaps inconceivable a
few years ago.  Market capitalization is one of the key factors
to consider when evaluating stocks and options.  To determine a
company's market cap you simply multiply the number of shares by
the price of each share.

Market cap is important for a number of reasons.  It is one of
the key criteria institutions and mutual funds use when
evaluating a stock.  Generally speaking, most large funds are
prohibited from buying micro-cap stocks (under $500 million
market cap) for a number of reasons.  These stocks are not as
liquid as larger ones, and a large buy or sell order can cause
a huge impact on the share price.  Once a company's market cap
reaches about $10 billion or more the shares are generally
easier to buy and sell.

There are other factors to consider.  One is the fact that the
rate of growth in a stock price usually slows down at a certain
point in the company's growth cycle.  We have seen many great
companies increase their stock price by several hundred percent
a year, only to slow down this rate of growth when their market
cap reaches a certain size.  An example of this might be Dell.
Dell was one of the wonder stocks of the 1990's.  From 1995 to
1998 Dell's chart was almost vertical.  At the end of the fiscal
year 1997 the stock price had risen by nearly 140% annually for
five years.  For the last couple of years, however, the stock's
velocity slowed.

There are a number of reasons why this can happen.  One is the
fact that it takes a much larger amount of money flow to
increase the price of a mega-market cap company than a small
one.  In addition, it is easier for a company's trading volume
to increase if it only trades one or two million shares per
day than if it normally trades twenty or thirty million shares
per day.

Take a look at some of the stocks which have doubled and tripled
this year.  Most of them have market caps of under $100 billion.
Rambus is an example, as the stock moved from $14.62 in September
to over $100, a price at which the market cap was approximately
$9 billion.  It would be much more difficult for a stock like
Cisco, with a market cap of over $430 billion to double or triple
in a year.  This doesn't mean it can't happen.  It just means
it is less likely to happen as fast.

This fact also applies to movement of the stock indexes.  For
example, at 10600 the Dow 30 average has a market capitalization
of approximately $3.8 trillion.  A dollar flowing into the Dow
average today has less of an impact on the price of the index
than it did when the Dow was 5000.

Some market analysts have stated that the huge liquidity flows
which have been helping to fuel the bull market may dry up
when the baby boom generation retires and stops investing.
However, they may be neglecting to consider that the money
entering the US markets from foreign investors has been almost
as robust as the money coming from the US alone.  In the first
quarter of this year foreign investors have poured $62,682
billion into the US stock market while redeeming US treasuries.
The liquidity and trading opportunities in the US seem to
attract investors from all over the world to our markets.

Mutual fund inflows are usually slowest from June to October.
However, the ipo schedule is usually lighter in the summer
months, which can free up funds' cash to be invested in the
market.  Many market analysts state that one of the reasons the
market is usually slower in the summer months is that many
businesses have slower cash flow, pay less taxes, and have less
money left over to invest in the market.

According to AMG Data Services, the four day week ending July 5
showed robust cash flows to equity funds of over $4.9 billion.
64% of the cash went into growth funds.  Large cap index funds,
treasury bond funds and corporate bond funds experienced a net
outflow.  The investment company institute reported that retail
money market funds experienced a net outflow of $217.2 million
last week, and institutional money market funds experienced a
net inflow of $12.87 billion.  The total amount of cash in money
market funds as of June 5 totalled $1.677 trillion.

According to Edgar online approximately $2.6 billion in new
issues have been priced to hit the market from July 10 to 14.
However, underwriters frequently cancel ipos at the last minute
so it is not always possible to know how many ipos will start
trading in a particular week.  The pattern in ipo trading over
the last few weeks seems to have been one of increased
selectivity in the institutional and retail interest.  Fewer
ipos are being priced than during the peak periods of last year.
However, there is a liquid market for certain new issues, as we
saw an excellent gain in first day trading of certain ipos in the
last few weeks.  This pattern may be beneficial to the markets
this year, as a very heavy ipo schedule can drain too much cash
from the markets, and exert downward pressure when the lockup
periods expire.

Contact Support


Touché-Pronounced Two-Shay
By Lynda Schuepp

After spending the last week with my daughter at the Fencing
Nationals held in Austin, I had a lot of time to "think" about
trading and how similar it is to fencing.  My days consisted of
standing around the convention center waiting for long periods of
time for events to begin, watching lessons that were squeezed in
between bouts and then running back and forth between strips to
watch two key events that were scheduled to run at the same time.
It is uncanny how similar fencing is to trading.  With trading, I
usually wait and wait for the market to give me an entry/exit
signal, spend my time reading to learn new twists on timing and
then boom-everything you're watching pops at once and you're a
trying to juggle multiple charts with various time frames to
monitor your multiple positions.

As I've written before, I am using summer vacation strategies.  I
trade intra-day on rainy days when I'm home; otherwise, I am using
longer-term strategies.  Most of my positions are in leap spreads
that I can check once a week and about 10% of my positions are in
some short-term (1-3 weeks) positions.  The two short-term positions
I had this past week were my OEX positions and my naked puts in
Triquent Semiconductor (TQNT).

I haven't been doing naked puts since the recent burning or should
I say correction.  Anyway, since the lows of March, April and May,
I have been a little less eager to sell naked puts.  After all, you
shouldn't fight the trend.  But I feel the market is turning back,
ever so slowly.  I like TQNT, because I feel it is a good strong
stock with real earnings and very little debt and is splitting on
July 12th.  There was a lot of support at 100 so I sold the
July 100 puts, anticipating the stock would close above 100 in a
split run.

See 60 minute Chart of TQNT below:

As you can see from the chart, TQNT is a very volatile stock;
hence the very hefty option premiums.  TQNT had come down and hit
the 100 again, so I sold the "at-the money" July 100 puts for 9
points with 3 weeks to expiration and a split coming up on
July 12th.  I'm a little more conservative than Jim, who probably
would have sold the 120's.  I went with the "at-the-money" options
which have the highest time value, because there is no intrinsic
value.  Since 90 was a previous level of support/resistance, I
decided that if TQNT dropped to 90, my plan was to short the stock.
I could short the stock but I would have my short put to cover the
stock.  This concept is called a covered put and might be new to
some of you,  so let me explain.  I received 9 points of premium
for the July 100 put I sold.  If the stock were "put" to me, I
would have to buy the stock at 100.   I could in turn, use that
stock to cover my short position.  Let me give you an example
using some numbers.  If TQNT dropped to 90, I would first short
the stock and let's assume I could get filled at 89 3/4.  Let's
say the stock drops further to 80 at expiration and the stock
is put to me (my naked 100 put).  I would have to buy the stock
at 100 but I could turn around and cover my short of 89-3/4.
Instead of losing 11 points (100 strike less 80 current price of
stock + 9 for put sold) I would only lose 1-3/4 points.  Let's
run the numbers and see where we'd be in this position that had
gone sour.

Short Stock @ 89-3/4 is a plus of 89-1/4
Short Put @ 9 is a plus of 9
Buy Stock that was put to you @ 100 (strike price)
Maximum Net Loss is 1-3/4

Now that was the plan, but I got caught up in a fencing bout around
the close of the market and didn't initiate my short on July 5th.
I figured and prayed TQNT wouldn't tank so I could short it at the
open but the next day, TQNT gapped open at 91, so I thought I was
safe and didn't check it at all that day (dumb on a stock like this,
but my priorities were for my daughter's competition.  July 6th was
the day my daughter was to compete in her first national competition,
so needless to say, I was a little distracted.  I got three lucky
breaks--the first was that my short was not executed at the close
on the 5th, the second was the gap up on the 6th and the third was
that the stock continued to run up to close at 97-1/4.  I was now
back in the money, with the stock headed back up.  I returned home
Friday just before the close only to find it up over 100-phew!
Sometimes it's better to be lucky than smart.

My second short-term play was my options on the OEX-See 10 min
Chart below:

On June 28th the OEX had tanked but appeared to put in a bottom at
782.  This is 2 points above a very key support level of 780.  As
I mentioned before, I am basically bullish about the near-term
future, so this was my excuse to go long.  I bought 10 contracts
of the July 790 calls for 13-1/2.  My plan was to exit if the OEX
CLOSED below 778 (2 points below the 780 key level) or my option lost
50% of it's value.  My upside exit was set tentatively at 20-1/4 or
50% profit, which I guestimated the OEX would have to go to 800,
another very key level.  My order was no sooner filled when the
OEX dropped to 778.  Good thing I wasn't watching minute by minute
or I might have been tempted to do a disengage (fencing term,
meaning retreat).  The OEX traded within a narrow range for the
rest of the day and closed above my exit point.  The next day,
the OEX gapped down and traded in a very narrow range forming a
symmetrical triangle.  Vix was low so options were pretty cheap.
I decided to buy some puts at the top of the triangle late in the
day for 12-3/4 (see chart).  I bought the 780 puts but watched
them closely and kept a tight stop (break-out of triangle) because
I was more bullish than bearish.  I was only planning to pick up
some spare change intra-day (1-2 points to the downside). The OEX
headed back down to 779 and I put in an order to sell at 14, but
I was too greedy and didn't get filled. The OEX then turned back
around and ran up and broke through the triangle so I got out
at 12 for a loss of 3/4 of a point.  My 790 calls were now back to
being profitable.  The OEX traded as high at 796 the next day and
my call options got as high as 19-1/4 where they closed.  The next
day, July 4th, I was on a plane headed to Austin.  The next day
went back down to test the 780 level but held above my stop
(778 close).  I wasn't watching the market but gave my broker
instructions since I was tied up all day at fencing matches.
Thursday the OEX went down to touch the key level of 780 and
turned around back up and never looked back.  Friday, I boarded
a plane at 6:30 AM to return home.  I checked on the prices when
I changed planes and everything was looking very good.  I decided
I would take my profits near the end of the day, when I got home
even if my target wasn't reached because time erosion over the
weekend could deteriorate my gain.  When I got home, I checked the
chart and watched the OEX continue to rise. It was now 3 o'clock
so I decided to hold on until the first sign of weakness or near
the close, which ever came first.  At 3:10 a Doji candlestick
pattern was formed at the top.  Doji's at the top are much more
reliable at tops than bottoms, but I waited for confirmation.
The next candle was my bearish confirmation, so I sold my calls
and got 22-1/2.  So as they say in the fencing strips-TOUCHÉ!

Contact Support


Come What May...
By Molly Evans

The last time you heard from me, I was talking bear.  Sure enough
and true to market form, the Nas bull bucked me right out of my
seat.  The composite advanced 115 points in the next two pre-
holiday sessions.  The sellers showed up Wednesday to take the
Nasdaq down 97 points and then Thursday and Friday, the bulls
battled back to allow the Nasdaq to finish up 57 points for the
week.  Even better than that was the Dow pushing over its 50 day
ma and breaking its downward trendline.  The Dow finished up
1.8% on the week but is still down 8.1% for the year while the
Nasdaq was up 1.4% on the week and now is down just 1.1% on the
year.  Will it hold?

This is the question I've been obsessed with.  Like so many
other small traders and investors, I don't want to be swept up
in the tide of enthusiasm and miss the cracks in the underlying
foundation.  In all my research for clues and evidence I've come
to at least one realism:  market opinions are as plentiful as
the granules of sand on a beach.  I could show you "evidence"
that would make you immediately go to 100% cash for the next
two years.  I read these opinions, turn a critical eye to look
at their arguments and statistics and am inclined to agree.  On
to the next site, journal or book and I find the opposite stance.
Maria Bartiromo was talking about cash flow coming into the
mutual funds again yesterday on CNBC.  I watched block trades go
by all week, big ones, the big boys are playing and the breadth
does seem to be improving.  So, my conclusion?  No conclusion.
The markets seem to be at a critical juncture here.  The chart
patterns suggest that the markets want to breakout to higher
ground but I then think about the VIX, the FED, earnings
warnings, inflation, smart money index charts, and how the market
just doesn't behave like we think it will.  These are the days
that I think a day trader has the best idea.  Play what is handed
to you for the day and take your money off the table before the
closing bell.  Yet, if that were easy . . . yes, everyone would
do it.

I've been looking at the TRIN lately.  Also known as the ARMS
Index, the TRIN, is a indicator for measuring overbought and
oversold conditions secondary to emotional extremes.  The TRIN
is derived by taking advancing issues over declining issues and
comparing it to the advancing volume over the declining volume.

  Advancing Issues         Advancing Volume
TRIN =   Declining Issues    X    Declining Volume 

The TRIN value equals one (1) when the advancing issues move
proportionately with the advancing volume and when the decliners
move in proportion with the declining volume.  A TRIN value below
1 is bullish and above 1 is considered bearish.  As the TRIN
deviates from 1 in either way, it shows which animal is in force,
the bull or the bear.  If the TRIN is dropping, the bulls are
getting more optimistic as prices and volume are increasing.
I've been looking at key market days, trying to correlate
patterns within the TRIN to market movements.  Sometimes there
is a definite correlation and sometimes there isn't.  I would
surmise that this is related to news events that strike the
market with surprise.  I'll keep you abreast of any earth
shattering findings.  I have noticed that Thursday and Friday's
"candles" of TRIN readings form a pattern that in the past has
precluded nice gaps up.  I have nothing scientific on it at
this point and can't prove it but I'm still looking.  Friday's
TRIN value closed at .72.

The VIX sitting on 21.82 reflects a bit of optimism.  As you all
know, the VIX is a contrarian indicator measuring the implied
volatility of several strikes on OEX options.  The common saying
goes, "When the VIX is low it's time to go and when the VIX is
high, it's time to buy."  When the Nasdaq was busy making its
parabolic move in the fall the VIX was pretty inverse with the
flight of the composite.  Now it's in the low 20s again,
signaling over enthusiasm.  The VIX can remain low like this but
if you throw bollinger bands around the trend, you see that it
perhaps wouldn't be a bad idea to take profits if they're there.
Actually, taking the profits is never a bad idea.

One can certainly get very bogged down trying to weed through all
the market information and opinions.  When you're following it each
day and trying to guess which way it's going to go so you can best
position yourself, you're going to get very frustrated.  I'm the
poster child for that.  Should I buy calls?  Should I buy puts?
Should I just hold this stock and sell covered calls?  When
should I sell the calls?  The market is falling down as I'm
looking at it, should I hurry up and sell them before it really
tanks or should I wait for the bounce and sell the volatility?
The market is up now, should I position myself for a breakout or
should I sell everything I have right now and sit and watch?  My
position is down now, but I still think it's the right position,
I just didn't get in at the very best entry.  How much further do
I have to go in the hole before I see this trade has gone
decisively against me?  This position is a winner.  Let my winners
run.  Oh, it's rolling over?  Should I give it some room to let it
do as it will or should I get the heck out because there is
something going on that I'm not aware yet?  Does everyone go
through this everyday?  Are we crazy?

A friend wrote in a story of how he had defeated a chess wizard
at his own game by simply allowing the pro to beat himself.  His
moral of the story was that he had reasoned that one who wraps
himself all up in the cobweb of information and study just might
be getting all tangled up in it and not seeing the task at hand.
In our situation, that is to make money.  We buy what is going up,
sell what is going down, walk away from a trade that is not working
to minimize the losses and let the market tell us what it is going
to do.  It sounds so simple.  I was reminded of a friend who
returned over 2000% last year.  Yes, you read that right.  He's
our legend.  He doesn't give two cents to what the broader market
is doing usually, he doesn't worry about how the session after
options expiry historically plays out or if the Fed will raise
rates again.  He simply plays the heck out of one or two stocks
that have a history of earnings runs or some other driving force
to propel it forward.  He buys deep in the money calls, adds to
it on pullbacks to a trend line and is long gone before the
stock ever thinks about rolling over.  The guy is a candlestick
genius and has an uncanny sense for when to get in and when to
get out.  He sticks to his plan and he doesn't force a trade.
He's the one who waits until there is money lying over there in
the corner and he just goes and picks it up.

My friend then had pointed out that anyone who didn't know a
thing about options could have just bought OIN's recommendations
on BRCD, BRCM, TIBX, RBAK, JNPR, SDLI and bought the calls OIN
recommended at the highest price the day after the recommendation,
and still be up very nicely on the year.  He's right about that
too.  Maybe we should just get on to the recommendations from

Good luck!

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Exit Strategies, Escaping with Profits
By Jim Brown

No, this is not an article on Sell Too Soon. I just wanted
to put all your minds at ease that I was not going to try
to twist your arm to sell those winners, while they were
still winners.

I am going to try to broaden your horizons with some types
of exits that will add to your profits and reduce your losses.
With that aim, I have to build from a common base and move into
the more exotic stuff. So bear with me.


It would be really nice if we never needed to discuss this
topic but we all know that Murphy's Law is alive and well.
Before you enter a trade, you should always know how much
you are willing to lose. I said LOSE. I know from experience
that most will enter a $6 option with the idea that you will
sell if it hits $10 or $4. Profit and loss. Now in reality
the closer the price gets to either number human nature takes
over and we start changing the plan. On the loss side, the
closer it gets to $4 the more you will start rationalizing
that the stock chart looks like a bottom is forming. I will
sell it when it gets to $3.00. It had to be just a large
block order. The drop is market related. I will sell it when
it gets to $2.50. The earnings's warning was from another
company. It will bounce soon. I will sell it when it gets to
$2.00.  It has to come back up. I will sell it when it gets
to $1.00. Why did the jobs report impact my stock. I wish it
would go back up so I could get $1.00 for it.

Lose means sell for a loss. Not hold for a loss. Before a $6
option can sell for $2 it has to sell for $5, and $4 etc. The
trend is going against you and yet for some reason we always
convince ourselves that it is just temporary. Once you understand
the following principle and act on it, selling for a loss will
be a lot easier. Here is the principle: You can buy it back.

When you are in the trade you cannot think clearly and
objectively. Maybe you are that one individual that can
always do this but I have never met anyone that does.
We all know that when a trade is going against us, the
minute we sell for a loss is the minute the stock will
rebound like a rocket. This keeps us from exercising
rational judgement and closing the trade. In reality this
is always made worse by our procrastination to sell in the
first place. If we had sold that option at $4.50, we would
not have had the problem of rationalizing a sell for a bigger
loss at $3.

If we are in a trade and we researched every conceivable way
before making the trade and the trade goes against us then
the answer that should instantly pop into our minds is:

OOPS! That was not the entry point!
I will sell it and wait for a better entry point.

If we had that attitude then everything else in trading would
be easy. Instead, we all take the position that "It will come
back" and our fate is sealed. We agonize over every .25 drop
in the stock and corresponding drop in the option. We are
totally focused on this position and are missing other winning
plays because we are trying to "hope it back up."

Think about it. If you liked the stock/option at $6.00 you
should really like it at $2.00. If you had sold it at $4.00
and the stock was bouncing then you would love to be back in
at $2.00.

The essential point here is the decision you make to get back in.
If you had not made the first trade, WOULD YOU BUY THIS OPTION

This should be an entirely different decision. Not one based on
a previous play. Many times traders will jump right back into
the fire they just escaped from simply because they felt the
first loss was just a mistake.  MAKE SURE THE SECOND BUY IS

Types of stop losses:

When you enter the first trade, you should know exactly where
your loss exit will be. This number can either be based on the
option price or the stock price. There are pros and cons to
both. Basically, the option price is loosely tied to the stock
price. Depending on the time remaining and the ITM/OTM depth
of the strike price the option price can move more OR less than
the stock price.

Stops based on Option Price:

By setting a stop loss based on the option price you are not
filled until the option price actually hits that price. Sometimes
the stock can be moving so fast that the option price lags the
actual stock move. By the time the option prices hits your stop
and then you get executed it could be much lower than you expected.
When stocks are moving rapidly the spread between bid and ask on
options widens.

Stops based on the Stock Price:

Recently another way of setting stop losses has been developed.
That is setting the stop loss or sell order based on the stock
price. I believe this way has merits for many situations. If
you are setting stops that are very close to the current option
price then you should use the option price method. Let's say you
bought a $6 option that is trading for $10 and you want to set
a profit stop loss at $9.50. When the bid hits $9.50 your order
turns into a market order instantly and you execute at or close
to $9.50. Stops based on the stock price are better utilized as
catastrophe insurance. If your $6 option was trading at $10 and
you wanted to protect yourself against intraday spikes in the
option price due to order volume or small swings in the stock
price then you could use a stock price stop. If the stock price
was $150 you could enter the order to sell your option if the
stock price touches $144.75. It would take a full $5.25 downward
move in the stock price to execute your sell but you would be
protected against a major disaster. The example is extreme but
I think you get the idea. I like the stock price concept since
the stock price is what drives the option price. If some event
caused a quick drop in the stock price your order could be
executed before the option price had a chance to fully equalize
and possibly get you out quicker and for a higher sell. The
only broker I know that offers this option is Preferred Capital.

Trailing Stops:

A wise way to use stop losses is to follow your option price
upward with a trailing stop loss. This prevents you from losing
all the profits you have gained to that point. If your $6 option
is now trading for $10, and you would rather not take the 66%
profit then set a stop loss for $7.75. I never use an even number.
If you watch the bid and ask on active stocks like QCOM or JDSU
then you will see the market maker adjust the bid from a 1/4 or
3/8 to 13/16 or 15/16. He will not go to the even number. Retail
investors tend to set even numbers as limit sell stops and by
stopping the bid on the even dollar number he will get a flood
of sell orders. By setting the bid, just under the even dollar
amounts he has time to survey the order flow and decide where
to go next. Options market makers however seem to like even
numbers. If the stock is falling they will tend to react to the
next even number for the option price. Setting your trailing stop
at the $x.75 level may keep you from being stopped out by an
intraday spike. It has saved me on numerous occasions.

Selling for a Profit:

Now that we got the stop loss discussion out of the way, we can
move into the more enjoyable side of selling. Selling for a profit.

There are many ways to do this but first consider trailing stops
as your first line of defense.

The best offense is a limit sell for a predetermined amount.
If you are happy with a 66% profit then place a $9.88 limit sell
for your $6.00 option once your order is executed. You will have
a much better chance of being filled if you use the same logic
on profit sell orders as you do on stop losses. That is don't
place even number orders. The best number is probably $x.75. It
allows the market maker to set the ask for the even number and
then creep the bid to take you out at the same time. Obviously
you need to take into account the normal bid/ask spread on the
option first. If you are playing QCOM options the bid/ask spread
could be $2 but an AOL spread could be only 1/8.

Once you set your limit sell you can become the market at any
time. If the stock moves quickly and the order flow is thin then
the market maker may not want to cover you and the next "market"
buy order that comes in can take you out even when the posted
prices are different. This should not happen in an electronic
market but it does. Whenever humans are involved human nature
plays a big part in execution.

Set a sell immediately after you buy!

What to sell for?

I will not go into the different rationales for when to sell
but you know my thoughts. I like to take a profit over and over
instead of trying to make a homerun on every play. I feel like
the longer you have an open position the more chances of a
market event turning your profit into a loss. With a $10,000
account, if you took a 25% profit once every two weeks for
a year you would have $62,500 profit without the benefits of
compounding. Read that again. If you never invested more than
$10,000 total at one time, and only closed the trade once every
two weeks, you could make over $62,500 in one year. Granted,
some positions will lose money but even if you are in the market
you will also have many positions that will make more than 25%
due to news events or gap opens. I estimate that a trader who
will follow instructions EXACTLY can net $50,000 on a $10,000
account every year without fail. Notice I said follows
instructions EXACTLY.

Different personalities of course will want to risk larger
losses for the possibilities of larger profits. That is your
choice. Just don't bad mouth options trading if you get your
account cleaned from time to time.

Types of Closes:

The simple way out is of course to sell your entire position
at once when your profit target is reached. Too simple? Too
limiting? Not enough upside? Not everyone likes coffee either.

Optional exits include selling only a portion of your position
at predetermined exits. This allows for greater profits on the
remaining contracts while locking in a minimal return on the
early contracts. Lets say you bought 20 contracts at $4.00 and
sold 5 contracts at +50%, 5 contracts at +75%, 5 contracts at
+100% and 5 contracts at +150%. Your total profit would be 7,500
and you would have only $1,500 at risk after the first ten
contracts are sold.

20 x $4.00 = $8,000
5 x $6.00 = $3,000 50%
5 x $7.00 = $3,500 75%
5 x $8.00 = $4,000 100%
5 x $10.00= $5,000 150%

You can adjust this scenario any way you want. Maybe 10 @ 50%
and 10 @ 100%. The downside of course is the length of time in
the trade. The first sell may be in only a day or two and the
last sell could be two weeks later. My thoughts are always on
limiting my time in a trade. The longer you are at risk the
better chance of that risk biting you. Of course my trading
goals and risk profile is much shorter than 90% of most option
traders. If you are committed to holding options rather than
trading them then this is a good strategy for reducing your
risk. After the first half sell, the trade is almost risk free
and you can ride it indefinitely.

Now the exciting exits!

Exiting on the upside

Lets say you have been in a play for some time. Your $6 call
option for the $75 strike is now worth $13 and the stock is at
$86. You could just sell for the $13 and have a homerun but you
feel that even though the stock is looking tired it may still
have some room to move. How can you maximize this position?

Consider this. Sell the $90 call option to close the play. If the
stock is at $86 the $90 option is probably $5 or more depending
on the time remaining on the option. By selling a higher priced
strike you lower your cost on the play. If you sell the $90 for
$5 your $6 option now has a cost basis of $1.00. If the stock
finishes under $90 your higher strike expires worthless and you
keep the $5.00. If the stock goes over $90 your upside on the
$75 call is now limited to $15 (the difference between $75-$90)
but you made $5 on the higher call. At expiration you exercise
your $75 call to cover the $90 call you sold. The net to you is
$20. This type of play should be used on tired stocks that may
have peaked and you expect them to finish around the strike price
you sold. The risk is having to hold the $75 call longer to
remain covered on the $90 call. Of course, you could close both
positions at any time the stock price started falling. You should
still be profitable on both since the OTM $90 call will decay
faster than the ITM call.

Exiting on the downside

Yes, it happens. You did not sell when it hit your stop loss.
Now you are wishing you had sold but the stock just does not
want to cooperate. Your $75 call for $6 is now only worth $.50
and the stock price is $72 and dropping. How can you salvage
some capital?

Consider this: Sell the $70 call for $3.00 using your worthless
$75 call for collateral (margin). If the stock price is $72 but
sliding then the ITM call for $3.00 is soon to be out of the money
and worthless also. You recover $3 of your investment in the $75
call. If the stock continues to less than $70 then both options
will expire worthless and you keep the $3 or half of your starting
investment. Your risk is that the stock will have a miraculous
recovery and bounce off $70 and move up again. This is good news!
You should close the position on the call you sold when it passes
what you received for it. The good news is that your previously
worthless call is now appreciating in value and the play you
started with is alive again. If you did not cover in time the
most you could be out is $2.00 even if the stock went to $100.
That is the difference between $70 and $75 ($5) minus the $3
you received as premium. The way to avoid this is to maintain
a buy to close stop loss of say $4.00. Your total out of pocket
would be $1.00 and you are still long an appreciating $75 option.


It is always better to manage profitable positions than losing
positions. Be proactive on the profit side and totally inflexible
on the down side. Set your stops and take small losses.

Jim Brown


Call Play of the Day:

SEBL - Siebel Systems $170.94 (+7.38 last week)

See details in sector list

Put Play of the Day:

LCOS - Lycos, Inc. $49.25 (-4.75 last week)

See details in sector list


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Index      Last    Week
Dow    10635.98  188.09
Nasdaq  4023.20   57.09
$OEX     803.00   12.75
$SPX    1478.90   24.30
$RUT     528.22   10.99
$TRAN   2784.64  139.27
$VIX      21.82   -0.44


TIBX     115.25    8.03  Still running, institutions chasing
SEBL     170.94    7.38  Signing one major contract after another
CIEN     171.88    5.19  Potential for better-than-expected profits
COHR      88.88    5.00  New, the beat goes on!
MUSE     169.06    3.56  New, beautiful stairstep pattern
ISSX     102.00    3.31  Earnings are expected on July 18th
RSAS      72.50    3.25  Companies lining up for their security
NT        71.63    3.03  Not quite a breakout but new highs
AGIL      73.50    2.81  Technical breakout and positive sentiment
BRCD     185.56    2.10  Another week & the story remains the same
MSFT      82.00    2.00  Moving on up with increasing volume
JNPR     147.31    1.75  Waiting for a breakout over $150
DNA      173.00    1.00  New, looks poised for earnings run
KANA      60.94   -0.94  Steady-building momentum run
GSPN     119.56   -2.50  It may have been sideways but not boring
JPM      117.88   -3.50  Earnings Thursday BEFORE the bell
PRSF      59.75   -4.13  Successful retest and looking up
ARBA      93.38   -4.66  Dropped, relative weakness and concerns
GLW      256.69   -8.69  In both long- and short-haul markets


LCOS      49.25   -4.75  Negative comments about internet portals
CMGI      41.25   -4.56  New, cash-strapped Internets getting hit
PHCM      62.38   -2.75  Drowning in the dark abyss
ICIX      28.44   -1.31  Looks like lower margins going forward
DD        43.94    0.19  Inflation-friendly news just not enough


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.


ARBA $93.38 (-4.67) Last week, ARBA ran up on strong volume,
driven by a series of positive announcements from the company.
The stock looked poised to break up and out;  all was looking
well.  Since then, the news has stopped, and with it the upward
momentum.  Encountering strong resistance at $100 and failing to
break through early in the week, the stock has since moved lower.
On Friday, with news from analysts expecting widening losses for
ARBA when it reports earnings this coming Wednesday, the stock
drifted down in a strong market.  In light of the relative
weakness of the stock, combined with a violation of the 5 and
10-dma, we are closing this play before the profit-takers arrive
in force.


No dropped puts today.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
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.


DNA - Genentech $173.00 (+1.00 last week)

Using human genetic information to discover, develop,
manufacture and market human pharmaceuticals for significant
unmet medical needs is DNA's quest.  Thirteen of the currently
approved Biotechnology products came as a direct result of
the company's science.  DNA markets and manufactures 7 of
these with the eighth just getting ready to go into production.
The products include Rituxan, Activase, Nutropin, NutropinAQ,
Nutropin Depot, Protropin, Pulmozyme, and Actimmune.  The firm
is developing other cancer drugs with ImmunoGen and earns
royalties for hepatitis B vaccines, bovine growth hormones,
and Humulin (human insulin).

Take a strong sector, add in a company with strong revenue
growth and actual earnings, and you get the ingredients for a
great play.  The Biotechs are alive and well, leading the
NASDAQ to the top of its recent trading range, and companies
like DNA are leading the charge.  With earnings rapidly
approaching (confirmed for July 17th), the stock looks poised
to begin its earnings run.  After striking a low near $92 in
late May, DNA has been marching higher, giving us a nice
pattern of higher lows and higher highs.  The stock moves up
sharply, consolidates for 4-5 days, and then repeats the
process.  The past 4 days have built a nice plateau of support
near $169, with the 5-dma ($170.81) continuing to provide
upward pressure.  Look to initiate new positions as the stock
bounces again from this level, but keep your eye on the volume.
Friday's gain came on rather light volume (roughly two-thirds
the ADV), and we will need to see it ramp up again to propel the
stock higher.  Any broad market weakness could cause an intraday
pullback to the next level of support near $160, but we would be
hesitant to pull the trigger if the price closes below the 10-dma
(currently $162.63).  The stock hasn't spent much time below this
level since beginning its upward move in late May.  If you are
more comfortable entering on strength, wait for the buyers to
push the price above $178 on strong volume.

Announcing the availability of Nutropin Depot, the first
long-acting dosage form of recombinant human growth hormone
on June 28th was just the catalyst needed to break the stock
out of its trading range.  Then last Wednesday, DNA's CFO
announced three core company growth goals for the next five
years.  While increasing sales by 20-30% per year, the company's
profit margin is seen increasing from 18% to 25%, yielding an
increase in earnings of 25% per year.

***July contracts expire in two weeks***

BUY CALL JUL-170 DNA-GZ OI= 40 at $10.25 SL=7.25
BUY CALL JUL-175*DWN-GO OI=505 at $ 8.38 SL=6.00
BUY CALL AUG-175 DWN-HO OI= 60 at $15.38 SL=11.25
BUY CALL AUG-180 DWN-HP OI=115 at $13.38 SL=10.00
BUY CALL SEP-180 DWN-IP OI=259 at $18.88 SL=13.75

SELL PUT JUL-165 DNA-SM OI=  0 at $ 5.25 SL= 7.50
(See risks of selling puts in play legend)

Picked on July 9th at   $173.00     P/E = N/A
Change since picked       +0.00     52-week high=$245.00
Analysts Ratings      5-8-4-0-0     52-week low =$ 58.25
Last earnings 04/00   est= 0.26     actual= 0.28
Next earnings 07-17   est= 0.29     versus= 0.28
Average Daily Volume = 1.33 mln

COHR - Coherent, Inc. $88.88 (+5.00 last week)

Coherent is a global leader in the design, manufacture, and sales
of lasers, laser systems, precision optics and related
accessories.  Founded in 1966, Coherent sells products in over 80
countries and today has 23 production, research, and service
facilities worldwide.  Coherent is a world leader in the design
and manufacture of lasers and systems for commercial, scientific,
medical, and telecom markets.  Coherent pioneered the development
of lasers used in medical applications 30 years ago and remains a
global leader and innovator in this market.

The beat goes on.  Throughout these past couple of weeks of
volatile and sideways trading, Coherent has been marching to the
beat of its own drummer, drumming up day after day of gains for
its stockholders, regardless of the general market.  After
consolidating in a narrow trading range of about 9 points from
$55 to $64 for the first two weeks of June, the stock broke up
and out on strong volume.  Since then, COHR has been moving
upwards day after day with but a couple of down days.  Since
breaking out of $85, the stock has traded up a steeper upward
channel.  Currently, the bottom of the range is at $82.88, with
the top at $90.88, which also happened to be the high of the day
for Friday.  Those looking for an entry point will find that for
the past three weeks, bounces off the 5-dma, currently at $86,
have been good buying opportunities.  Short term intraday
support is at $84.  This would be an excellent entry.  Below this,
the $80 level is solid support.  The next obstacle for COHR will
be at $93.  Breaking this level the stock will encounter its next
level of resistance at the psychological $100 level and from there
it is poised to challenge its all-time high.

On Wednesday, Coherent entered into a refractive laser distribution
agreement with WaveLight Laser Technologies, with the intent to
aggressively market laser eye surgery equipment to surgeons.  The
company also filed with the SEC to sell 3 mln common shares which
will add a little under 12% to the current outstanding float.

***July contracts expire in two weeks***

BUY CALL JUL-85 HRQ-GQ OI=   8 at $ 6.75 SL= 4.75
BUY CALL JUL-90 HRQ-GR OI=  51 at $ 3.38 SL= 2.50
BUY CALL JUL-95 HRQ-GS OI=   0 at $ 1.69 SL= 0.75
BUY CALL AUG-90*HRQ-HR OI=  90 at $ 6.88 SL= 5.00
BUY CALL AUG-95 HRQ-HS OI=  96 at $ 5.25 SL= 3.25

SELL PUT JUL-80 HRQ-SP OI=   0 at $ 0.88 SL= 1.50
(See risks of selling puts in play legend)

Picked on July 9th at   $88.88     P/E = 134
Change since picked      +0.00     52-week high=$107.38
Analysts Ratings     1-0-0-0-0     52-week low =$ 14.75
Last earnings 03/00  est= 0.27     actual= 0.31
Next earnings 07-27  est=  N/A     versus= 0.22
Average Daily Volume  =  240 K

MUSE - Micromuse $169.06 (+3.59 last week)

Making software that monitors and manages the elements of an
information technology infrastructure, MUSE sells its products
directly and through distribution partners such as Cisco
Systems.  Its Netcool suite collects and consolidates network
data and events.  Netcool includes a desktop tool that
customizes network information and allows operators to
automatically resolve service problems with reporting in
multiple formats such as 3-D charts and spreadsheets.  Major
customers include AOL, Cellular One, and Charles Schwab.

Even with the earnings warning from Entrust Technologies (ENTU),
Internet software stocks like MUSE have continued to march
higher.  The intraday chart shows us a beautiful stairstep
pattern of higher highs and higher lows over the past 3 weeks
as the stock moves back towards its high near $200 from this
past March.  The 5-dma (currently $161.13) has been providing
support throughout this most recent upward move, and it happens
to coincide with intraday support between $161-162.  Friday's
volume topped the ADV by about 20%, and combined with the large
gains in the past 3 days, it looks like this may be the
beginning of an earnings run as the company's report date (July
19th) approaches.  There has been a significant amount of profit
built up in MUSE over the past few weeks, and a little profit
taking would not be unexpected.  If it does occur, look for a
bounce at the intraday support levels of $155 or $150.  The
10-dma is sitting at $151.50, and a violation of this level
would be good cause to stand aside until the uptrend continues.
After moving through near-term resistance at $166 on Friday,
the next major resistance sits up at $180.  Look for new entries
as MUSE bounces from support, but confirm the all important
volume and market direction before playing.

There is little in the way of news on MUSE, which leaves us to
focus on the rapidly approaching earnings, confirmed for July
19th after the close.  The way volume ramped up over the past
couple days leads us to think MUSE could have a nice earnings
run over the next 7 days.

***July contracts expire in two weeks***

BUY CALL JUL-165*UZQ-GM OI=24 at $14.88 SL=11.75
BUY CALL JUL-170 UZQ-GP OI=42 at $12.25 SL= 9.25
BUY CALL JUL-175 UZQ-GQ OI=12 at $ 6.75 SL= 4.75
BUY CALL JUL-180 UZQ-GR OI=26 at $ 5.25 SL= 3.25
BUY CALL OCT-180 UZQ-JP OI=25 at $30.00 SL=22.50

SELL PUT JUL-155 UZQ-SK OI= 0 at $ 5.25 SL= 7.50
(See risks of selling puts in play legend)

Picked on July 9th at $169.06     P/E = N/A
Change since picked     +0.00     52-week high=$206.00
Analysts Ratings    9-4-0-0-0     52-week low =$ 20.03
Last earnings 04/00 est= 0.07     actual= 0.08
Next earnings 07-19 est= 0.09     versus= 0.05
Average Daily Volume = 628 K

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The Option Investor Newsletter                   Sunday 07-09-2000
Sunday                                                      3 of 5

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SEBL - Siebel Systems $170.94 (+7.38 last week)

Siebel is a leading provider of sales automation and customer
service software.  Its main product, Siebel Sales Enterprise,
offers client information and decision support across a
corporation's worldwide computer network.  Field personnel can
access Siebel applications through wireless devices as well.
Glaxo Wellcome, Prudential Insurance, and Lucent are among
Siebel's clientele.

The Computer Software sector wasn't the best of places to be last
week.  With the likes of Computer Associates (CA) and BMC
Software (BMCS) issuing profit warnings early last week, traders
were a bit tepid heading into the weekend.  Yet, despite the
warnings of weak profits and investor nervousness ahead of a key
economic report Friday, SEBL prevailed.  Of course, a relative
strength rating greater than 97% of its peers certainly helped
SEBL triumph over the bears last week.  Unlike CA and BMCS, SEBL
recognized the coming change in the software business with the
advent of the Internet.  SEBL shifted its strategy over a year
ago to focus on marketing and selling software and services to
customers via the Internet.  Tom Siebel, Chairman and CEO of
SEBL, made the right bet last year, and has been rewarding
shareholders ever since.  Mr. Siebel's recognition of the shift in
the Software sector allowed him to position SEBL as one of the
premier Application Service Providers (ASP).  The efficiency with
which SEBL executes has lead to the company signing one major
contract after another.  And, it's been that winning of
contracts, along with a tame jobs report, that propelled SEBL to
an all-time high last Friday.  The buyers that we saw late
Thursday returned Friday morning to carry SEBL higher.  SEBL
blasted through resistance at $170, and trended higher near the
close of trading.  The stock did, however, sell-off in the last
half hour of trading in what appeared to be a pre-weekend round
of profit taking.  SEBL did bounce off the $170 level, which
warrants the consideration of an entry at current levels.  For
those of you looking for a more conservative entry point, wait
for the bulls to carry SEBL past resistance at $175, which would
position the stock to retest its new 52-week high.

SEBL will hold one of its famous eBusiness World 2000
conventions in Boston early next week.  The event gives SEBL the
opportunity to present in-depth product demonstrations to
prospective customers.  Given that the conference is held in a
financial hub, a few Bostonian financial analysts may show up to
the gathering and make their voices heard on Wall Street.

***July contracts expire in two weeks***

BUY CALL JUL-165 SGW-GM OI= 757 at $12.50 SL= 9.25
BUY CALL JUL-170*EZG-GN OI=1119 at $ 9.63 SL= 6.50
BUY CALL JUL-175 EZG-GO OI=2177 at $ 7.25 SL= 5.00
BUY CALL AUG-170 EZG-HN OI= 776 at $19.00 SL=13.75
BUY CALL NOV-175 EZG-KO OI= 390 at $27.63 SL=22.00

SELL PUT JUL-160 SGW-SL OI= 741 at $ 4.25 SL= 6.25
(See risks of selling puts in play legend)

Picked on July 6th at   $164.38    P/E = 271
Change since picked       +6.56    52-week high=$177.06
Analysts Ratings     15-3-0-0-0    52-week low =$ 24.19
Last earnings 03/00   est= 0.14    actual= 0.17
Next earnings 07-21   est= 0.18    versus= 0.12
Average Daily Volume = 4.51 mln

GLW - Corning Inc. $256.69 (-8.69 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.

The flailing flame in the fiber optic stocks was re-ignited
Friday after Sycamore Networks (SCMR) said it had captured a $430
mln contract to supply optical networking equipment.  The
announcement from SCMR was the news that the fiber optic stocks
needed to revive the group's nearly forgotten momentum.  The sign
that business is still cooking in the group helped GLW to power
higher Friday.  And, the revelation that GLW is capturing market
share in the local loop of the optical networking market may be
the catalyst to carry our play higher in the near-term.  It has
long been known that GLW is the premier provider of optical cable
in long-haul applications.  But, GLW has recently received
several large orders to provide cable for use in short-haul
optical networks.  The local loop market for optical cable is
surprisingly much larger than the long-haul market.  The
consensus among analysts is that GLW is positioned to be the
premier provider in both long and short-haul markets which could
carry our play higher if the contracts continue coming in.  While
GLW did stage an impressive rally last Friday, the stock had
trouble clearing resistance at its 10-dma, currently at $258.19.
A move back above the 10-day might catapult GLW past resistance
at the $260 level.  Consider an entry if the fire in the fiber
optic stocks burns brightly Monday morning and carries GLW past
$260.  If the bears extinguish the flame early next week look for
GLW to find support at the $250 level, and consider entry if the
stock bounces from that level.  The brief bouts of profit taking
have proved to be profitable entry points in GLW recently, but
before buying on the dip consider your risk tolerance.

GLW revised its second quarter earnings upward about a month ago.
While investors quickly factored increased profits into the
stock, the same investors will anxiously anticipate GLW's
official Q2 report which is scheduled for release in two weeks.
Building optimism may boost GLW into an earnings run in the
coming week and add profits to our play.

***July contracts expire in two weeks***

BUY CALL JUL-250 GRJ-GJ OI=1435 at $15.13 SL=11.00
BUY CALL JUL-260*GRJ-GZ OI=1261 at $10.00 SL= 7.00
BUY CALL JUL-270 GWD-GN OI=2189 at $ 5.88 SL= 4.00
BUY CALL AUG-260 GRJ-HZ OI=2330 at $21.88 SL=15.75
BUY CALL NOV-270 GWD-KN OI= 130 at $36.50 SL=26.50

SELL PUT JUL-240 GRJ-SH OI= 576 at $ 3.75 SL= 5.75
(See risks of selling puts in play legend)

Picked on June 6th at   $217.25    P/E = 137
Change since picked      +39.44    52-week high=$277.88
Analysts Ratings      6-5-0-0-0    52-week low =$ 60.31
Last earnings 04/00   est= 0.55    actual= 0.64
Next earnings 07-24   est= 0.80    versus= 0.49
Average Daily Volume = 2.72 mln

CIEN - Ciena Corp $171.88 (+5.19 last week)

Ciena makes multiplexing systems that increase the capacity of
long-distance fiber-optic telecommunications networks.  The
company's systems transmit signals simultaneously over the same
circuit.  Customers such as Sprint, Bell Atlantic, and MCI
Worldcom, use its lines for long-distance optical transport and
for shorter distances.  The company is expanding its product and
geographic breadth as it transforms itself from niche market
specialist to optical networking supplier.

What a difference a weak jobs report makes!  The possibility of
the Fed engineering a soft landing of the economy spurred the
Networking sector into rally mode early Friday morning, with our
CIEN leading the charge.  The prospects of stabilizing interest
rates and a neutral Fed are welcome signs to the cash intensive
Telecom sector.  After Friday's tame employment report, the
consensus on Wall Street expects the Fed to stand pat for the
time being, which if it holds, could add a little momentum to our
play.  While CIEN's second quarter earnings report is more than a
month away, many of the company's competitors will announce
profits in the next two weeks.  Telecom equipment giant LU will
be the first company on the earnings dock a week from Monday,
followed by networking brethren LVLT and NT shortly thereafter.
The potential for better-than-expected profits in the Networking
sector might be the ticket to take our play to the next level.
After surviving two straight days of relentless profit taking,
CIEN went another round with the bears Friday, ultimately winning
the fight and bolting back into its month-long upward trend.  The
stock charged out of the gates Friday morning, and rose steadily
throughout the day.  The profit takers showed up late to rain on
CIEN's parade.  If the bears come out punching early Monday
morning, look for CIEN to find support just below at $170, and
consider entry if the stock reverses from that level.  For a more
conservative entry, wait for CIEN to clear resistance at $175,
and confirm a breakout with healthy volume.

Internet Asset Management announced Friday that it had added a
new portfolio to its family of funds.  The new mutual fund will
be called the PEH Fiber Optics fund.  The fund will attempt to
capitalize on the current boom in the fiber optic business.  Not
by coincidence, we're trying to do the same thing.  The larger
positions in the fund include the usual suspects like GLW, JDSU,
and SDLI.  The fund's manager said that CIEN will be one of the
fund's top three initial holdings which should add to CIEN's
increasing institutional sponsorship.

***July contracts expire in two weeks***

BUY CALL JUL-165 UEE-GM OI=3862 at $14.75 SL=10.75
BUY CALL JUL-170*UEE-GN OI=3016 at $11.63 SL= 8.50
BUY CALL JUL-175 UEE-GO OI=1232 at $ 8.50 SL= 6.00
BUY CALL AUG-170 UEE-HN OI= 200 at $22.00 SL=16.00
BUY CALL OCT-175 UEE-JO OI=5512 at $30.50 SL=22.00

SELL PUT JUL-160 UEE-SL OI= 378 at $ 4.38 SL= 6.25
(See risks of selling puts in play legend)

Picked on July 2nd at   $166.69    P/E = 1005
Change since picked       +5.19    52-week high=$189.00
Analysts Ratings     12-9-2-0-0    52-week low =$ 29.06
Last earnings 04/00   est= 0.10    actual= 0.12
Next earnings 08-17   est= 0.17    versus= 0.01
Average Daily Volume = 6.03 mln

TIBX - TIBCO Software $115.25 (+8.00 last week)

TIBCO's ActiveEnterprise enables businesses to connect resources
with customers and automatically deliver event-driven information
across networks and the Web in real-time.  The company also
offers e-commerce, consulting, and support services.  Customers
license the software to integrate, personalize, and distribute
content.  TIBCO is enhancing its business-to-business trading
capabilities.  Reuters owns more than 60% of the company, and
Cisco holds a minority stake of 7%.

TIBX is still running.  While many B-2-B and Internet stocks
alike fell apart Friday after the detrimental downgrade of Yahoo,
our TIBX play was unfazed as the stock remained on its track of
higher highs.  The difference between TIBX and many of its fallen
peers is of fundamental concerns.  TIBX, unlike many B-2-Bs, is
consistently growing its top and bottom-line numbers.  The
company has charged into the realm of profitability debt free,
and has built a handsome cash position along the way.  TIBX's
CEO, Vivek Ranadive, is considered a genius among analysts and
has won the approval of Wall Street.  A quick glance over TIBX's
chart reveals just how much the professionals approve of TIBX.
The stock has more than doubled after rebounding from its lows in
late May and has shown few signs of slowing.  Like clockwork,
TIBX has edged higher in the past month using its 5-dma as
support.  In fact, the stock has yet to close below its 5-day in
the past three weeks which explains TIBX's relative strength
rating of 99.  We'll look for that impressive strength combined
with the company's superior fundamentals to continue to carry our
play higher.  We've seen few signs of profit taking thus far in
our play.  If the sellers come out of hiding early next week, use
a pullback to the 5-dma, currently at $111.19, for a possible
entry.  Make sure to wait for the stock to rebound off support
before pulling the trigger.  A rally above $118 might provide a
more conservative entry point for the judicious trader.  Monitor
TIBX's volume levels closely, confirm rallies with healthy trade
to decipher if institutions are still accumulating the stock.

According to the most recent numbers, insiders own well over 80%
of TIBX's stock, while institutions control around 14%.  Early
last week, a TIBX director filed to sell nearly $10 mln worth of
stock.  Investors hardly flinched at the announcement since
professionals have been accumulating TIBX recently.  Insiders
filing to sell sometimes scares traders, especially after a stock
has made a prolonged run.  That didn't happen with TIBX which
bodes well for our play.

***July contracts expire in two weeks***

BUY CALL JUL-110*PIW-GB OI= 26 at $10.75 SL= 8.00
BUY CALL JUL-115 PIW-GC OI=  0 at $ 8.00 SL= 5.75
BUY CALL JUL-120 PIW-GD OI= 17 at $ 5.63 SL= 3.50
BUY CALL AUG-115 PIW-HC OI=135 at $15.63 SL=11.25
BUY CALL NOV-120 PIW-KD OI=168 at $25.00 SL=18.00

SELL PUT JUL-105 PIW-SA OI= 32 at $ 3.00 SL= 5.00
(See risks of selling puts in play legend)

Picked on June 27th at   $98.94    P/E = 2875
Change since picked      +16.31    52-week high=$147.00
Analysts Ratings      4-0-1-0-0    52-week low =$  6.56
Last earnings 05/00   est= 0.01    actual=  0.04
Next earnings 09-21   est= 0.05    versus= -0.01
Average Daily Volume = 1.60 mln

PRSF - Portal Software, Inc. $59.75 (-4.13 last 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.

Last week when we handed out report cards for the month of June,
PRSF passed with flying colors.  And although PRSF is down for the
past four trading sessions, the theme this week for the stock can
be summed up in one word: retest, a successful one at that.
Continuing its pattern of consolidation and breakout, the stock
spent the week digesting its breakout above the strong resistance
level of $57.  The stock found itself revisiting that level when
it sold off on Thursday on low volume, in sympathy with the
general market.  PRSF bounced from $58.13, just above its 10-dma.
Closing on Thursday above the 10-dma was a good sign of a recovery
and continued consolidation.  Looking at the chart, we see the
trend continuing where volume is strong on the up moves and light
on the down moves.  As long as the down moves are accompanied by
low volume and the $57 level holds, entry points abound.  Bounces
above the 10-dma, currently at $58.44 is also another target to
shoot for.  Overhead, there is now resistance at the 5-dma,
currently at $61.50.  This is now an important area to break
through as Thursday's drop moved the stock below the up-trend
line it has been maintaining for the last two weeks of its rally.
This level now becomes resistance and was confirmed on Friday
when it failed to close above this.  Conservative traders will
want to wait for the stock to break through before entering.
Once through, the stock will be poised to once again challenge
resistance at $63.

There has been no news this past week and as such, this giant
remains sleeping, consolidating before its next move.

***July contracts expire in two weeks***

BUY CALL JUL-55*PUS-GK OI= 240 at $ 6.88 SL= 5.00
BUY CALL JUL-60 PUS-GL OI=1343 at $ 5.00 SL= 3.00
BUY CALL JUL-65 PUS-GM OI=1050 at $ 1.81 SL= 0.75
BUY CALL AUG-65 PUS-HM OI=  56 at $ 5.25 SL= 3.25

SELL PUT JUL-55 PUS-SK OI=  94 at $ 1.63 SL= 3.25
(See risks of selling puts in play legend)

Picked on June 29th at   $61.00    P/E = 5894
Change since picked       -1.25    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 = 1.77 mln

GSPN - GlobeSpan, Inc. $119.56 (-2.50 last week)

GlobeSpan, Inc. is a leading provider of integrated circuit,
software, and system designs for digital subscriber line (DSL)
applications which enable high-speed data transmission over
existing copper wire telephone lines at rates over 100 times
faster than today's 56 Kilobit modems.  Globespan's business is
accelerating communications through high-speed solutions based on
DSL technologies.  The company's innovations make possible
real-time video conferencing, telecommuting, high-speed Internet
surfing, and video-on-demand.

This may have been a week of sideways movement for GSPN, but it
was far from boring.  After encountering strong resistance at
$128 on a quiet and shortened Monday, the stock set off a
fireworks display of its own on Wednesday.  GSPN sold off $15.38,
or 12.56%, on news of the company detailing plans for a secondary
stock offering.  GlobeSpan registered with the SEC to sell 8 mln
shares, 1.5 mln from the company and 6.5 mln from shareholders,
which set of a wave of selling due to worries of dilution.  On
Thursday, GSPN tested the psychological support level of $100
early in the day, bouncing strongly to close above its 10-dma.
Friday was a continuation of that recovery finding a temporary
base in the $116-117 area and closing above its 5-dma and 10-dma,
currently at $116.87 and $110.69.  So after a week of action with
GSPN swinging up to $128, then down to $100 and back up again, we
find ourselves about where we were last week when we started this
play.  To be fair to GSPN, the Wednesday sell-off occurred on a
strong market downdraft so a portion of it can be attributed to
general market weakness.  It is encouraging though to see the
stock recover strongly when the general market moved up.  Looking
ahead, the $113 level is an important barometer to GSPN's health.
Closes below that level will find support for the stock at the
10-dma, currently $110.69, but those looking for confirmation will
want to wait until the stock moves above $113 before entering.
Intraday, GSPN has a range of 13-14 points so aggressive traders
can profit from the bounces off support and resistance levels.
There is overhead resistance at $122.50.  Breaking through this
level on strong volume will find the stock challenging the
resistance at $128.  A break through $128 can find the stock
moving up quickly to the $135 level with ease.

Along with the news of the secondary offering on Wednesday was
the completion of GSPN's acquisition of iCompression, Inc.
Failure to hold key support levels may mean the end of the
earnings run.

***July contracts expire in two weeks***

BUY CALL JUL-115*GHY-GC OI= 696 at $12.25 SL= 9.25
BUY CALL JUL-120 GHY-GD OI=  35 at $ 9.88 SL= 7.50
BUY CALL JUL-125 GHY-GE OI=  15 at $ 7.75 SL= 6.00
BUY CALL AUG-120 GHY-HD OI= 121 at $17.75 SL=13.50
BUY CALL AUG-125 GHY-HE OI=  47 at $15.63 SL=11.25

SELL PUT JUL-110 GHY-SB OI=  41 at $ 4.63 SL= 6.50
(See risks of selling puts in play legend)

Picked on July 2nd at   $122.06     P/E = N/A
Change since picked       -2.50     52-week high=$167.00
Analysts Ratings      2-4-0-0-0     52-week low =$ 11.25
Last earnings 03/00   est= 0.01     actual= 0.03 surprise=200%
Next earnings 07-31   est= 0.04     versus=-0.14
Average Daily Volume = 1.14 mln

BRCD - Brocade Communications $185.56 (+2.09 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

Another week and the story remains the same.  BRCD continues to
march higher with the 10-dma (now at $172.75) providing support.
The market weakness on Thursday provided the entry point we were
looking for as the stock bounced right at the $170 support level,
reversing and heading higher into the close.  The strength
continued on Friday, with the $180 level providing another entry
before investors bid the price as high as $192 before some profit
taking at the close.  There was nothing significant in the news
department last week, but the stock still appears to be benefiting
from the positive news of the week before (see below).  Networking
stocks were strong this week, helping to propel BRCD higher, and
Friday's high marked a new all-time high for the stock.  The drop
at the close looked like simple profit taking, as the stock ended
the day at a new closing high, keeping the pattern of higher lows
and higher highs intact.  A bounce from the $185 level is buyable,
but any market weakness could produce a drop to the $180 support
level, providing an even better entry.

Continuing to be a leader in the industry, BRCD is still riding
the wave of enthusiasm created by its Fabric Aware
interoperability program for Storage Area Networks (SANs).  After
virtually all of the major players in this space endorsed
this initiative in late June, Chase H&Q added a little extra
push by initiating coverage of the stock with a Buy rating.

***July contracts expire in two weeks***

BUY CALL JUL-185 GUF-GQ OI= 659 at $ 8.75 SL=6.00
BUY CALL JUL-190*GUF-GR OI=1961 at $ 6.13 SL=4.00
BUY CALL JUL-195 GUF-GS OI= 641 at $ 4.25 SL=2.50
BUY CALL AUG-190 GUF-HR OI= 482 at $15.00 SL=11.00
BUY CALL AUG-195 GUF-HS OI= 107 at $12.38 SL= 9.25

SELL PUT JUL-175 GUF-SO OI=1052 at $ 2.69 SL= 4.25
(See risks of selling puts in play legend)

Picked on June 6th at   $138.88     P/E = 804
Change since picked      +46.69     52-week high=$192.00
Analysts Ratings      9-5-2-0-0     52-week low =$ 21.75
Last earnings 05/00   est= 0.08     actual= 0.11
Next earnings 08-14   est= 0.13     versus= 0.01
Average Daily Volume = 3.06 mln

ISSX - Internet Security Systems $102 (+3.28 last week)

Internet Security Systems is a global provider of security
management solutions for protecting e-business.  The company's
Adaptive Security Management approach to information security
protects distributed computing environments from attacks, misuse
and security policy violations, while ensuring the
confidentiality, privacy, integrity and availability of
proprietary information.  ISSX delivers an end-to-end security
management solution through its SAFEsuite security management
platform coupled with around-the-clock remote security
monitoring through the company's managed security services

Although volume was robust, ISSX had a pretty boring day on
Friday.  After an opening spike to $104, the stock traded in
a very narrow range and ended the session unchanged.  Intraday
support built all day at $102, and as long as the markets
cooperate next week, this level looks like a good point to
initiate new positions.  With the NASDAQ approaching the top of
its recent range, there could be some weakness ahead, and we
would look for a pullback to the 10-dma (currently at $94.38)
as a good level to target shoot new entries.  Just make sure
that there is good buying volume supporting the bounce - you
don't want to try catching a falling knife.  Although it is in
a different area, YHOO reports earnings on Tuesday after the
close, and this could have a significant impact on technology
shares as the July earnings cycle kicks into high gear over the
next couple weeks.  Speaking of earnings, ISSX is rapidly
approaching its own release date, confirmed for July 18th before
the opening bell.  The earnings warning from Entrust
Technologies (ENTU) had a fairly minor impact on the share price
of ISSX, which is encouraging.  This would seem to indicate that
investors are focusing on individual stocks with strong revenue
growth rather than throwing the baby out with the bathwater
whenever one company in a sector warns of a profit shortfall.
Conservative investors will want to let ISSX prove itself before
pulling the trigger; a strong move through $105 is what to watch
for here.

After receiving the Frost & Sullivan Award last week, ISSX
got more good news on Monday.  Microsoft has licensed key
components of ISSX's RealSecure intrusion detection technology
for inclusion in its new Internet Security and Acceleration
(ISA) Server 2000.  This move makes the RealSecure product the
leading commercial intrusion detection component embedded
within a multi-purpose security server.

***July contracts expire in two weeks***

BUY CALL JUL-100*ISU-GT OI=127 at $ 8.75 SL= 6.25
BUY CALL JUL-105 ISU-GA OI=240 at $ 6.13 SL= 4.00
BUY CALL JUL-110 ISU-GB OI= 65 at $ 4.38 SL= 2.50
BUY CALL AUG-100 ISU-HT OI= 51 at $14.13 SL=10.50
BUY CALL AUG-105 ISU-HA OI= 13 at $11.50 SL= 8.50

SELL PUT JUL- 95 ISU-SS OI= 11 at $ 4.00 SL= 6.00
(See risks of selling puts in play legend)

Picked on July 6th at $102.00     P/E = 481
Change since picked     +0.00     52-week high=$141.00
Analysts Ratings    7-2-0-0-0     52-week low =$ 20.00
Last earnings 05/00 est= 0.06     actual= 0.07
Next earnings 07-18 est= 0.08     versus= 0.05
Average Daily Volume  = 495 K

NT - Nortel Networks $71.63 (+2.75 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

Not quite a breakout, but we did see new highs last week.
Recall from last weekend that it looked like NT was poised
for a breakout to new highs.  Monday's positive market lifted
shares of the Canadian networking company above $72, but the
ensuing market weakness was too much for the bulls to overcome.
NT gradually pulled back before bouncing at the $68 support
level early Thursday afternoon.  Then it was off to the races
as NT ran as high as $72.50 Friday morning, before consolidating
its gains ahead of the weekend.  Average volume is backing the
gradual move higher as the stock uses the 10-dma (currently
$69.13) for support.  This lines up nicely with support on the
chart near $69.50, and we would look for a bounce in this area
(market permitting) as a trigger for new entries.  We still have
a little time to get positioned in the play before earnings,
which are confirmed for July 25th after the close.  This play
doesn't move fast, but it is a steady mover, meaning good
entries on pullbacks to support.  Wait for the bounce at support
before entering the play and don't forget to confirm both
strong volume and a positive market

Posting another busy week despite the holiday, NT completed its
acquisition of Architel Systems on Monday, creating the
industry's most comprehensive solutions for enabling service
commerce.  Then on Wednesday, H&R Block chose NT's eBusiness
applications to help with its evolution into a diversified
financial services company.  Thursday saw Joe Davis join the
company as VP and general manager of the Clarify eBusiness
Applications division.  And finally on Friday, NT signed a
contract with Sonera that will bring the first Optical Internet
solution based on DWDM (dense wavelength-division multiplexing)
technology for long haul networks to Finland and Russia.

***July contracts expire in two weeks***

BUY CALL JUL-65 NTV-GM OI=10075 at $7.50 SL=5.25
BUY CALL JUL-70*NTV-GN OI=10571 at $3.75 SL=2.25
BUY CALL JUL-75 NTV-GO OI= 6894 at $1.38 SL=0.75
BUY CALL AUG-70 NTV-HN OI= 1541 at $6.38 SL=4.25
BUY CALL AUG-75 NTV-HO OI= 2672 at $4.00 SL=2.50
BUY CALL SEP-75 NTV-IO OI= 3599 at $5.25 SL=3.25

Picked on June 15th at   $67.00     P/E = N/A
Change since picked       +4.63     52-week high=$72.50
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 = 9.87 mln

RSAS - RSA Security $72.50 (+3.25 last week)

RSA Security Inc. is a trusted name in e-security, helping
organizations build secure, trusted foundations for e-business
through its two-factor authentication, encryption and public
key management systems.  As the global integration of Security
Dynamics and RSA Data Security, RSA Security has the market
reach, proven leadership and unrivaled technical and systems
experience to address the changing security needs of e-business
and bring trust to the new, online economy.  A global company
with more than 5,000 customers, RSA Security is renowned for
providing technologies that help organizations conduct e-business
with confidence.

Prompted by the long list of companies lining up to use RSAS'
security solutions, investors seem to be waking up to the value
of the stock.  Operating in the hot Internet security field, the
stock sports an almost laughably low PE of 18, and revenue
growth north of 30%.  After the abuse meted out to the
technology sector this past spring, RSAS found solid ground near
$40 in mid-April and has been moving up nicely ever since.  The
lethargic overall market held the stock below the $65 level
until the last week of June.  Then, with the rash of positive
news announcements over the past 2 weeks, the buyers started to
appear, pushing right through and establishing a higher support
level at $68.  After moving over $74 on Monday, the stock
suffered a minor setback with the Entrust Technologies (ENTU)
earnings warning on Wednesday.  It quickly found its feet again,
bouncing right on $68 for a beautiful entry point.  The stock
then steadily marched up to the $74 level on Friday before
giving back a little ahead of the weekend.  Intraday support
is building at $72, followed by $70.  Look for any market
weakness to provide a pullback to support and then jump in for
a quick run into earnings on Thursday, after the close.

This week, RSAS added to the list of companies that have
embraced its security software.  On Wednesday, Sentillion
selected RSAS' products to enable authentication among
healthcare applications.  Thursday saw Telenisus and CoStar
Group come into the RSAS fold, with NetScreen joining in on
Friday.  With the rate at which the company is adding
customers, the future looks bright.

***July contracts expire in two weeks***

BUY CALL JUL-70*QSD-GN OI=519 at $ 6.00 SL=4.00
BUY CALL JUL-75 QSD-GO OI=250 at $ 3.25 SL=1.50
BUY CALL AUG-70 QSD-HN OI=  6 at $ 8.88 SL=6.25
BUY CALL AUG-75 QSD-HO OI= 10 at $ 6.50 SL=4.50
BUY CALL OCT-75 QSD-JO OI=153 at $10.50 SL=7.75

SELL PUT JUL-65 QSD-SM OI=283 at $1.69 SL=3.50
(See risks of selling puts in play legend)

Picked on June 27th at $68.38    P/E = 18
Change since picked     +4.13    52-week high=$93.06
Analysts Ratings    4-6-3-0-0    52-week low =$15.88
Last earnings 04/00  est=0.19    actual=0.20
Next earnings 07-13  est=0.21    versus=0.15
Average Daily Volume =  476 K

JPM - JP Morgan & Co $117.88 (+7.75 last week)

JPM is a premier international banking firm headquartered in the
U.S. It is a holding company for subsidiaries engaged in global
banking and investment.  They offer services to corporations,
institutions, and the very wealthy.

The stock's technical bounce off its lows at $110 coupled with
the overall strengthening of the financial sector this week
prompted us to add JPM as a call on Thursday evening.  But, make
no mistake here.  JPM is a quick get in, grab a profit, and
exit before the company reports its earnings play.  JP Morgan is
announcing its numbers this Thursday, July 13th, BEFORE the
market opens.  In which case, it leaves a maximum of three more
sessions to make our trades.  On Thursday, JPM closed above both
the 5 & 10-dmas, which provided some confirmation that JPM was
technically poised to move higher.  However, the Friday's
weaker-than-expected employment report was a key variable
as it provided an overall lift for the financial sector.
Unfortunately, we were correct in our earlier write-up and JPM
struggled in the vicinity of $119.  The stock hit the ceiling at
$119.38, yet persisted and traded at that higher level for much
of the day.  This in itself is a positive sign.  Yet, if you're
reserved about playing this financial, especially considering
the short-time frame, you may want to wait on the sidelines.
Otherwise, look for the volume to remain robust and only jump
in after there's a conclusive break on the upside of $119.
Other than that, there's some room for JPM to climb before it
would face opposition at June 26th's intraday high at $126.69.

Wasserstein Perella initiated coverage on JPM with a Buy
recommendation on Thursday.  No other comments were available.

***July contracts expire in two weeks***

BUY CALL JUL-110 JPM-GB OI= 178 at $9.38 SL=6.25
BUY CALL JUL-115*JPM-GC OI= 523 at $5.75 SL=3.75
BUY CALL JUL-120 JPM-GD OI=1294 at $3.00 SL=1.50
BUY CALL AUG-115 JPM-HC OI= 138 at $8.00 SL=5.75
BUY CALL AUG-120 JPM-HD OI= 215 at $6.13 SL=4.00

Picked on July 6th at   $116.94    P/E = 11
Change since picked       +0.94    52-week high=$145.38
Analysts Ratings      2-3-7-0-1    52-week low =$104.69
Last earnings 03/00   est= 2.68    actual= 3.37
Next earnings 07-13   est= 2.45    versus= 2.52
Average Daily Volume = 1.37 mln

AGIL - Agile Software Co $73.50 (+2.81 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

A technical breakout and positive sentiment gave a breath of
life to AGIL in late June.  From that point on, AGIL's been
driven by market conditions and pure trading momentum.  After
some struggle in the $60 to $64 range the previous week, AGIL
once again broke the shackles and resumed its uptrend.  In
Monday's pre-holiday session, AGIL easily shattered the
opposition at the $70 mark, but in hindsight set the stage for
tough overhead resistance at $75.  Since short-term support
also established itself higher at $72 and $73, we now have a
tight channel to wrangle.  If AGIL moves to the negative in a
correction, look to the 10-dma, currently at $68.33, as a
warning devise.  Examine a daily chart to confirm how this level
acted as a safety net in Thursday's early morning sell-off.  If
you don't want to wait for AGIL to move above $75 before you
take an entry, then target shoot the dips near the 5-dma
($72.41) if the bounce is coupled with robust volume - it's been
slightly below par this week.  New readers, please keep in mind
this is a simple momentum play and considered rather HIGH-RISK
as it's also connected to the Internet group.

In the news this week, Agile announced it will sponsor its first
annual Agility in Collaborative Manufacturing Awards ceremony.
The event will recognize the best practices in collaborative
manufacturing commerce by Agile customers

***July contracts expire in two weeks***

BUY CALL JUL-70*AUG-GN OI=96 at $ 6.75 SL=4.75
BUY CALL JUL-75 AUG-GO OI=83 at $ 3.50 SL=1.75
BUY CALL JUL-80 AUG-GP OI=77 at $ 2.13 SL=1.00
BUY CALL AUG-70 AUG-HN OI= 3 at $10.88 SL=8.25
BUY CALL AUG-75 AUG-HM OI=16 at $ 8.38 SL=5.75

Picked on June 22nd at  $63.63    P/E = N/A
Change since picked      +9.88    52-week high=$112.50
Analysts Ratings     2-7-0-0-0    52-week low =$ 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 =   711 K

MSFT - Microsoft Corp $82.00 (+2.00 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.

The recovering share price laid trapped under the $80 mark for
what seemed like an eternity!  Then, Mr. Softee exhibited some
upside action after the holiday break and held the gains.  The
positive closes above $80 on both Thursday and Friday were
paramount.  MSFT's leash had been very short.  The stock's
bullish move in response the tame Jobs Report gives us hint that
MSFT will make a charge for the elusive 200-dma technical line.
We're anticipating the positive market conditions and also the
company's upcoming earnings' release will continue to pump
adrenaline into MSFT.  On the bright side too is the returning
volume levels.  All week they've been increasing, which further
demonstrates the momentum is building up once again.  As we move
into next week, $80 should hold as short-term support and also
serve as a launching point for entries.  Are you still
apprehensive?  Then wait for MSFT to not only squeak by the new
proximate resistance at $82.88, but instead to make conclusive
moves through this obstacle.  Don't fret, there's time to make
an entry.  Microsoft isn't reporting until the following week on
July 18th, after the bell.

Microsoft scaled back its investment stake in Telewest
Communications, the UK's #2 cable company, to clear the way for
its purchase of 23.7% of the company.  The deal came down to
Microsoft agreeing to abstain from any management control.  In
monetary terms, this deal is worth approximately $2.4 bln at
Friday's prices.  Let's keep a watch on some news that came out
on Saturday.  The Chinese government announced it's backed the
use of Linux computer operating systems over MSFT's Windows in
fear of security threats during a time of war.  Of course, MSFT
discredited the concerns and reiterated its software sales in
China surged 80% in 1999 and continues to expand.

***July contracts expire in two weeks***

BUY CALL JUL-75 MSQ-GO OI=31481 at $ 7.75 SL=5.50
BUY CALL JUL-80*MSQ-GP OI=61005 at $ 3.88 SL=2.50
BUY CALL JUL-85 MSQ-GQ OI=57274 at $ 1.38 SL=0.50
BUY CALL AUG-80 MSQ-HP OI= 6064 at $ 5.75 SL=3.75
BUY CALL AUG-85 MSQ-HQ OI=10100 at $ 3.88 SL=2.25

Picked on June 15th at   $72.38    P/E = 49
Change since picked       +9.62    52-week high=$119.94
Analysts Ratings    10-16-2-0-0    52-week low =$ 60.38
Last earnings 03/00   est= 0.41    actual= 0.43
Next earnings 07-18   est= 0.42    versus= 0.40
Average Daily Volume = 36.7 mln

KANA - Kana Communications $60.94 (-0.94 last week)

Kana Communications is a leading provider of comprehensive
online customer communications solutions for marketing, sales
and service. These mission critical applications support
multiple channels of online contact including inbound and
outbound e-mail, web based customer self-service, web forms,
real-time messaging and voice over the Internet.  The company
offers a comprehensive suite of online customer communication
products for managing the entire customer lifecycle.

KANA has experienced a solid 21% advance since the latter part
of June.  Admirable remarks from a band of analysts first
instigated the slow, but steady-building momentum run.  Currently,
KANA is consolidating at short-term support of $61 and $62 amid
moderate volume levels.  On Wednesday, the share price peaked
intraday, just a fraction under the $70 target area, before
succumbing to the profit takers.  So this pullback in itself
isn't too harmful.  What is of concern is the $70 ceiling.  Expect
some resistance here.  At least by knowing the possible
limitations at hand, profitable plays can be planned.  Entries
into this momentum play can be made off the current level if
you're a bit more aggressive or better yet, wait for a move
through the 5-dma near the $63 level.  The momentum could get a
boost too with the company's earnings approaching this month.
At this time, however, Kana Communications has not nailed down a
report date.  Speculation is for sometime between July 19th &
26th.  We'll keep you posted.  The date is important because
you'll certainly want to exit any open positions prior to the

No company news to report this week.

***July contracts expire in two weeks***

BUY CALL JUL-55*URW-GK OI= 173 at $8.50 SL=6.00
BUY CALL JUL-60 URW-GL OI= 527 at $5.38 SL=3.25
BUY CALL JUL-65 URW-GM OI= 272 at $3.13 SL=1.50
BUY CALL AUG-60 URW-HL OI=  71 at $9.13 SL=6.25
BUY CALL AUG-65 URW-HM OI=1068 at $7.00 SL=5.00

Picked on July 2nd  at   $61.88    P/E = N/A
Change since picked       -1.25    52-week high=$175.50
Analysts Ratings      4-3-0-0-0    52-week low =$ 22.78
Last earnings 03/00   est=-0.23    actual=-0.19
Next earnings 07-19   est=-0.27    versus=-0.18
Average Daily Volume = 1.76 mln

JNPR - Juniper Networks Inc $147.31 (+1.75 last week)

Juniper Networks develops and provides next-generation Internet
infrastructure systems that are designed to meet the
scalability, performance, density, and compatibility
requirements of IP networking systems.  The company's M40 and
M20 Internet backbone router use JUNOS network traffic
management software, ASICs.  Its clients include some of the
world's leading service providers such as Ericsson and

The momentum powering JNPR the week prior to the holiday was
dynamic to say the least.  JNPR's share price surged 18.5%, or
$22.75 after it hit the press that the stock was included on the
Lehman Brother's list of "10 Uncommon Values".  Juniper's deal
with Nortel Networks, who agreed to market and sell its Internet
backbone routers, further pumped up the momentum.  Last week, we
saw some fluctuations amid respectable volume.  Please take a
look at a daily chart and you can visually confirm why JNPR is
deemed RISKY.  The sharp and swift movements were not for the
faint of heart.  Overall $140 managed well as a decent short-
term support - with the exception of Thursday's fiendish slide
to 127.75 during amateur hour.  And above, we now have a force
field at the $151 mark, which lies just below the 200-dma
($155.85).  But, there is a rainbow.  Friday's solid trading
performance in the $148 and $149 range demonstrated JNPR is
poised for another run.  So at this point in the momentum play,
we're looking for the company's earnings' release and rallying
markets to generate some more excitement and propel JNPR through
the clouds.  Your strategy should be short and sweet.  Juniper
is set to report earnings this Thursday, July 13th, after the
market closes.  Be prepared to close any positions before the
announcement.  You don't want to get caught in a post-earnings

In the news this week, Juniper announced that Sonera, a company
committed to advancing data security and manageability of the
next generation Internet, has selected its M-series IP backbone
routers to increase the speed of its Internet backbone.

***July contracts expire in two weeks***

BUY CALL JUL-140 JUY-GH OI=1101 at $13.63 SL=10.25
BUY CALL JUL-145*JUY-GI OI=1082 at $10.50 SL= 7.50
BUY CALL JUL-150 JUY-GJ OI=2797 at $ 8.25 SL= 5.75
BUY CALL JUL-155 JUY-GK OI=1341 at $ 6.50 SL= 4.50
BUY CALL AUG-150 JUY-HJ OI= 506 at $15.75 SL=11.50
BUY CALL AUG-155 JUY-HK OI= 324 at $12.88 SL= 9.75

Picked on July 2nd at   $145.56    P/E = N/A
Change since picked       +1.75    52-week high=$156.47
Analysts Ratings     11-3-1-0-0    52-week low =$ 20.33
Last earnings 03/00   est= 0.03    actual= 0.06
Next earnings 07-13   est= 0.04    versus=-0.02
Average Daily Volume = 4.70 mln


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The Option Investor Newsletter                   Sunday 07-09-2000
Sunday                                                      4 of 5

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CMGI - CMG Information Services $41.25 (-4.56 last week)

What began as a direct marketing firm has become a prolific
investor in the future of the Internet.  Concentrating on
marketing and advertising, content and community, e-commerce, and
technology companies, CMGI has packed its portfolio with stakes
in more than 70 Internet companies including Furniture.com,
Engage, Lycos, and Vicinity.  The firm nurtures new companies in
house and invests in others through its @Ventures funds.

CMGI has seen better days.  The bellwether of the Internet sector
has taken a beating recently.  Investors have turned bearish on
CMGI and other Internet incubators after the IPO market virtually
disappeared about three months ago.  While the demand for new
issues has been on the rise recently, traders have been very
selective in their buying of IPOs.  The money-losing Internet
companies that made CMGI a darling of Wall Street are now avoided
by IPO investors like they carried the plague.  Without access to
the capital markets, CMGI is left holding dozens of private
Internet companies that burn through cash as if it grew on trees.
Barron's magnified the cash burn rate of several high-profile Net
concerns about a month ago, which only added to CMGI's recent
demise.  The revelation of Web companies spending money with
gusto coupled with little access to new capital from investors
combined to reveal yet another problem for CMGI.  The company
relies heavily upon advertising and marketing revenues.  If Net
companies can't raise additional funds in the capital markets,
they will be forced to cut costs.  And you guessed it, marketing
and advertising budgets are the first to be cut.  The slowing of
online advertising was punctuated by DB Alex Brown analyst Andrea
Rice on Friday when she downgraded Web portal Yahoo.  Rice
pointed to weakening advertising demand for cash-strapped Web
companies.  The downgrade of YHOO sent a cataclysm through the
Internet sector Friday which dragged CMGI below a key support
level at $43.  CMGI looks weak at current levels where an
aggressive trader might look for entry.  Otherwise, wait for CMGI
to fall below major support at $40 before entering the play.  On
a relief rally, target shoot for entry if CMGI bumps against
resistance at $43.

***July contracts expire in two weeks***

BUY PUT JUL-45*QGW-SI OI=1654 at $5.00 SL=3.00
BUY PUT JUL-40 QGW-SH OI= 858 at $2.00 SL=1.00

Average Daily Volume = 6.25 mln


DD - DuPont E.I. De Nemours & Co. $43.94 (+0.19 last week)

DuPont is the largest chemical company in the US.  Developer of
Lycra, Dacron, and Teflon.  DuPont has operations in about 65
countries.  Its eight business units make products including
coatings, nylon, specialty polymers, and pigments and chemicals.
Other units produce specialty fibers, herbicides, pesticides, and
biotechnology products such as food ingredients and seeds.

If it weren't for Intel and its other tech components the DJIA
might be a lot lower this year.  The old-line names such as CAT,
HON, and our DD play have weighed heavily on the Dow's
performance in 2000.  Several of the "old economy" companies that
epitomize the Dow are trading near three-year lows, including DD.
Rising interest rates and a slowing economy generally go hand in
hand.  The combination has proved detrimental to DD's business.
DD has attempted to diversify its operations by expanding into
the realm of biotechnology.  But, investors have been less than
impressed with DD's attempt to win back their capital.  The
company has announced several partnerships to further expand its
biotechnology presence, most recently with Emisphere (EMIS).
The reception with which DD was greeted with after announcing
the alliance with EMIS stunk of bearish sentiment.  DD has been
on an accelerating downward slide since peaking in early April
after investors briefly ran from the Tech sector in search of
safety.  The return of the dichotomy between old and new was
validated last Friday after an inflation-friendly economic report
was released.  Nearly every sector enjoyed a healthy rally.  One
of the few groups to fall Friday was the Diversified Chemicals
sector.  Union Carbide (UK), Dow Chemical (DOW), and DD all
suffered disappointing losses Friday.  DD sank further into the
mire by sipping past support at $44.  DD continues to look weak,
feel free to enter the play at current levels if the stock
continues sliding early next week.  For a more conservative
entry, wait for DD to fall beneath its last support level at its
52-week low of $43.13.

***July contracts expire in two weeks***

BUY PUT JUL-50*DD-SJ OI=3056 at $6.25 SL=4.00
BUY PUT JUL-45 DD-SI OI=4993 at $2.00 SL=1.00

Average Daily Volume = 2.93 mln

ICIX - Intermedia Communications $28.44 (-1.31 last 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 U.S. cities.

It was full speed ahead for the Telecom sector Friday.  As you
well know, nearly every sector advanced into the weekend on the
heels of a tame jobs report.  Major CLECs such as SBC and VZ
achieved substantial gains Friday.  However, one CLEC that did
not advance was ICIX.  Investors dumped ICIX in part because SBC
will start offering Texas residents telephone services beginning
Monday.  Texas is one of ICIX's key markets in which it has
nearly 1 mln customers.  That number might shrink with the
entrance of SBC into the Texas market.  SBC's main goal is to
offer competitive long-distance services.  But, the company will
also offer wireless, high-speed Internet, and extra calling
features.  All of which are services that ICIX currently provides
consumers.  An executive from SBC succinctly said, "Finally,
Texas consumers are going to see what real competition means."
More competition for ICIX translates into even lower margins
which means deeper losses.  Already mired in losses, more
competition is that last thing ICIX needs.  The entrance of SBC
into the Texas market might continue to pressure ICIX early next
week.  Watch Monday to see if investors' nervousness continues to
drive ICIX down.  Entry at current levels can be considered if
ICIX looks weak early Monday.  A more conservative entry point
might be found just below support at $27.  An aggressive trader
might look for an entry on an intra-day rally if ICIX bumps into
its 5-dma, currently at $29.25, which has been formidable
resistance for the past two weeks.  Institutions have been
unloading ICIX recently, noting the surge in volume while the
stock falls lower.  Confirm lower lows with heavy trade as a sign
the professionals are still selling.

***July contracts expire in two weeks***

BUY PUT JUL-35 QIX-SG OI= 170 at $7.13 SL=5.00
BUY PUT JUL-30*QIX-SF OI=1293 at $3.13 SL=1.50

Average Daily Volume = 1.56 mln

LCOS - Lycos, Inc. $49.25 +0.00 (-4.75 last week)

Founded in June 1995, Lycos was one of the earliest search and
navigation sites designed to help people find information more
easily and quickly on the World Wide Web.  The core Lycos
technology, which identifies and categorizes online information,
was developed at Carnegie Mellon University.  Through its
acquisitions of Tripod, Inc., and WhoWhere, Inc., in 1998, the
Lycos Network has become the largest and fastest growing online
community with more than 5 million registered Tripod and
Angelfire members.

Since starting this play on Thursday, we've been rewarded with an
entry point as well as news in our favor.  Using the middle of
June as a local top, the past three weeks have seen LCOS move
lower through a downtrend channel spanning 12 points from top to
bottom.  We mentioned on Thursday that a bounce off the 5-dma
could provide for an entry point and on Friday, we got it.
Bumping its head near its 5-dma and against the top of its
downtrend channel at $51.38 in the early going, the stock drifted
down for the rest of the day.  Our put play also got help on
Friday when Deutsche Banc Alex Brown analyst Andrea Williams Rice
downgraded YHOO, along with the Internet portal sector, citing
concerns over slower-than-expected revenue growth and valuation
considerations.  With earnings season fast approaching, one would
expect the possibility of news and positive results driving stock
prices.  However, Rice is not as optimistic and feels that
earnings could bring bad news for Internet portals, like Lycos,
which rely heavily on banner-based advertising.  With banners as a
key revenue source for Internet portals, any slowdowns in
advertising spending could result in lower revenue over the next
several quarters.  For those looking for an entry point, bounces
off the 5-dma, currently at $51.02 continues to be an ideal target.
The stock has also failed to break the 10-dma, currently at $53.33.
Those keeping an eye on that downtrend channel will find the top
of the channel currently at $51.38, though by Monday it will have
moved below the psychological $50 level.  As mentioned on Thursday,
there is support for the stock at $45.  Breaking through that
level could bring the stock at the $40 level in short order.

***July contracts expire in two weeks***

BUY PUT JUL-55*QWL-SK OI=2516 at $6.50 SL=4.50
BUY PUT JUL-50 QWL-SJ OI=1388 at $3.13 SL=1.75
BUY PUT JUL-45 QWL-SI OI= 523 at $1.25 SL=0.75

Average Daily Volume = 4.00 mln

PHCM - Phone.com $62.38 (-2.75 last week)

Phone.com develops and markets software that enables wireless
operators to access the Internet and corporate Intranets.  In
other words, no matter where you are, Phone.com can help you
access the Internet and obtain information on everything from
the weather to your favorite sports team via your mobile phone.
The company developed much of the technology behind the wireless
application protocol (WAP) standard and has quite an impressive
list of blue-chip clients.  The vast majority PHCM's sales
(about 60%) come from maintenance and support.  Customers that
are licensing its technology include Matsushita, Ericsson,
Alcatel, Motorola, Samsung and Siemans.

When will PHCM take hold of a lifeline and start swimming
toward the light?  As it is right now, PHCM is drowning in a
dark abyss.  For weeks now, the share price has been wallowing
in the muck despite a host of positive coverage from the
analysts and an attractive share price.  Not that we're
complaining.  The stock is moving in the right direction for our
purposes and we've hit our target area of $60!  The increasing
volume levels on the decline this week are also promising.
However, we've got to be prepared for a rebound in the short-
term.  The question is of course when and at what price level.
Let's take a step back in time.  In May, PHCM rebounded off $60,
but in April there wasn't a reversal until it hit $50.  So let's
err on the side of caution, and at least keep the stops tight if
you have open positions or plan on opening new ones. Nonetheless,
be aware of the exposure and risk.  This week PHCM received
another new Strong Buy recommendation.  In addition, SG Cowen
analyst John Graves issued a $100 price target.  If you're fingers
are still itching for more of PHCM, then watch the 5-dma technical.
On Friday, it served as a nice point of entry before the share
price bobbled in the vicinity of the new intraday low at $60.50.

***July contracts expire in two weeks***

BUY PUT JUL-65*UGE-SM OI=462 at $7.25 SL=5.00
BUY PUT JUL-60 UGE-SL OI=522 at $4.25 SL=2.50
BUY PUT JUL-55 UGE-SK OI=182 at $2.25 SL=1.00

Average Daily Volume = 2.65 mln


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Earnings Warnings and a Slowing Economy = Rangebound Trading
By Mark Phillips
Contact Support

Are you still looking for proof that the markets have changed?
Look no further than our old standby, YHOO.  It has failed to
deliver on its usual earnings run (now only 2 days away) and has
headed the other way on mounting concerns about its revenue
growth and lofty valuation.  Accordingly, it has made it onto
the Drop list this weekend, and you can read the details below.
This is just another example that proves the importance of good
money management.  No matter how good your picks and entry
points, inevitably a play will go against you and in order to
remain profitable in this market, you must cut those losers off

As you have read many times in recent weeks, the market remains
rangebound and to make money, you have to pick the right plays.
Both the DJIA and the NASDAQ have reached the top of their
recent range, and unless we start seeing some stellar earnings
in the next 2 weeks, it will be difficult for the markets to
break out to the upside.  Adding still more weight on our
struggling camel's back is the VIX, which moved down on Friday
to close out the week at 21.92.  This is its lowest closing
level since March 3rd, the day before the NASDAQ selloff began.
Recall that the VIX is a very reliable indicator of market
tops (when it reaches 18-21) and bottoms (when it reaches the
low 30's).  Don't look now, but we are very close to the danger
zone, and I would urge caution in opening any new positions at
this juncture.  Does that mean, don't trade this week?  No, of
course not.  But it does mean that you need to pay particular
attention to what the broader markets are doing.  Afterall,
even a helium balloon will go down if it is in a descending

There are plenty of great plays in the LEAPS portfolio.  We have
done the job of culling these from the hundreds of stocks with
LEAPS available.  We have also described the entry strategy for
each of these plays.  The price may have moved since the play
was initiated, but the basic strategy remains intact; pick a
good support level where you would like to enter the play and
wait for it.  That is the hard part - waiting for your
pre-determined entry conditions to be met, and then having the
discipline to pull the trigger when they are met, without
jumping the gun if there are not.  Patience is a virtue, and it
will be justly rewarded, especially in the stock market.  Until
I see how the market reacts to the first batch of earnings, I
am still in the "Don't Buy Too Soon" camp.

Have a profitable week.

Current Plays


EMC    11/07/99  JAN-2001 $ 40  EMB-AH   $ 7.69   $40.25   423.41%
                 JAN-2002 $ 45  WUE-AI   $ 9.50   $41.88   340.84%
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $28.50   198.12%
                 JAN-2002 $ 45  WIV-AI   $11.00   $30.50   177.27%
NT     11/28/99  JAN-2001 $37.5 ZOO-AU   $11.13   $35.25   216.71%
                 JAN-2002 $37.5 WNT-AU   $15.13   $41.50   174.29%
TXN    12/12/99  JAN-2001 $ 55  TNZ-AK   $11.13   $20.00    79.69%
                 JAN-2002 $ 60  WGZ-AL   $14.25   $23.75    66.67%
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $22.13    25.52%
                 JAN-2002 $ 90  WJX-AR   $22.00   $28.38    29.00%
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $11.75    28.70%
                 JAN-2002 $ 40  WSY-AH   $12.63   $16.38    29.69%
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 7.25    46.76%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $ 9.00    33.33%
NSM    02/27/00  JAN-2001 $ 70  NSM-AN   $18.50   $ 6.88   -62.81%
                 JAN-2002 $ 70  WUN-AN   $24.25   $14.75   -39.18%
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $ 7.75   -44.64%
                 JAN-2002 $ 65  WAN-AM   $18.63   $13.50   -27.54%
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $12.50    72.41%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $15.63    67.52%
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $ 8.00    60.00%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 7.50    39.41%
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $26.25    50.06%
                 JAN-2002 $ 70  WVV-AN   $26.00   $37.13    42.81%
JDSU   04/16/00  JAN-2001 $ 80  XJU-AP   $27.50   $47.50    72.73%
                 JAN-2002 $ 80  YJU-AP   $39.63   $63.00    58.97%
VSTR   04/16/00  JAN-2001 $ 90  UVT-AR   $23.88   $49.88   108.88%
                 JAN-2002 $ 90  WWP-AR   $35.00   $66.25    89.29%
YHOO   04/30/00  JAN-2001 $140  YMM-AH   $32.13   $17.75   -44.76%
                 JAN-2002 $140  WYZ-AH   $46.38   $34.88   -24.80%
MOT    05/14/00  JAN-2001 $33.3 MOT-AY   $ 6.58   $ 6.13   - 6.84%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $ 9.50   - 0.42%
NOK    05/21/00  JAN-2001 $ 50  NZY-AJ   $10.25   $12.00    17.07%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $18.88     9.45%
HD     05/28/00  JAN-2001 $ 50  HD -AJ   $ 6.25   $11.00    76.00%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $16.25    42.79%
XLNX   05/28/00  JAN-2001 $ 70  ZIZ-AN   $14.63   $26.75    82.84%
                 JAN-2002 $ 70  WXJ-AN   $23.38   $36.63    56.67%
NXTL   06/11/00  JAN-2001 $ 60  FZC-AL   $12.25   $14.38    17.39%
                 JAN-2002 $ 60  YFG-AL   $19.25   $22.38    16.26%
C      06/18/00  JAN-2001 $ 65  ZRV-AM   $ 7.63   $ 8.38     9.83%
                 JAN-2002 $ 65  WRV-AM   $13.75   $15.38    11.85%
AMGN   07/02/00  JAN-2001 $ 75  YAA-AO   $10.75   $12.63    17.49%
                 JAN-2002 $ 75  WQY-AO   $20.75   $22.75     9.64%
                 JAN-2003 $ 70  VAM-AN   $28.75   $32.00    11.30%
VRSN   07/02/00  JAN-2001 $180  JSV-AP   $56.88   $55.25   - 2.87%
                 JAN-2002 $190  YVS-AR   $66.25   $66.00   - 0.38%

Spotlight Play

NSM - National Semiconductor $53.00

If you like great entry points, then you owe a word of thanks to
Salomon Smith Barney analyst Jonathan Joseph.  Downgrading the
entire Semiconductor sector and NSM from Buy to Outperform, he
sees the current shortage of chips going away and an actual
price war on the horizon.  This tanked the entire sector and by
the end of the day NSM had dropped below its 200-dma (then
$51.50) for the first time in over a year.  So what makes us
select NSM as our spotlight play, you ask?  After the dark days
of 1997 and most of 1998, where NSM watched its revenues and
profits decline, NSM has seen increasing profits and
accelerating revenues for the past 6 quarters.  That, coupled
with the strong bounce at the $48 support level, gets our
attention and we think 'ol NSM still has a couple good moves up
its sleeve before Mr. Joseph's prognostication comes to pass.
Friday's strong move took NSM back above the 200-dma, and we
would look for a bounce at support between $48-50 to trigger
new entries.  As always, watch for increased buying volume and
sector strength before jumping in.

BUY LEAP JAN-2002 $55.00 WUN-AK at $22.13
BUY LEAP JAN-2003 $60.00 VSN-AL at $25.88

New Plays

DELL - Dell Computer $50.69

Like the rest of the technology sector, DELL began a long slide
in early March, finally reaching a bottom in late May.  The
broad market recovery lent support to the computer company, just
grazing the $50 level several times last month.  After spending
much of the past 3 weeks consolidating between $47-50, DELL
jumped nearly $3 on Friday to close above the $50 mark, making
it the stocks highest close since May 1st.  Solid volume
accompanied the move, and similar gains were seen in stocks of
other box-makers such as Gateway, Compaq, and Hewlett-Packard.
With the benign Employment Report on Friday, evidence of a
slowing economy is mounting, indicating that the recent series
of interest rate hikes may be nearing its conclusion.  The
market recovery is still shy of breaking out of its recent
range, so look for any market weakness to cause a pullback in
DELL as well.  A bounce from the $49-50 level looks like a good
entry, and in this market environment, the patient investor
will likely be rewarded.

BUY LEAP JAN-2002 $55.00 WDQ-AK at $12.63
BUY LEAP JAN-2003 $60.00 VDL-AL at $15.38


YHOO $116.50 From Yahoo! to BooHoo, this Internet bellwether
has finally fallen victim to the impact of revenue concerns
that has been infecting the Internet sector.  With the drubbing
many of the stocks in this sector have taken, speculation is
mounting that YHOO will have a hard time continuing to post
strong revenue and earnings growth, without which it is
difficult to justify the stock's lofty valuation.  The
deteriorating sentiment has not only kept the stock from having
its usual earnings run, it has dropped the price very close to
major support at $110.  With earnings only 2 trading days away,
this is particularly discouraging for our play.  While it has
given us a couple nice opportunities to profit since we picked
it at the end of April, it is looking like the near future will
be flat to down.  Rather than wait (and hope) for the recovery,
we'll let YHOO go until sentiment in the sector improves.


Traders Do Some Stock Splitting Of Their Own
By Ryan Nelson

Who said you need the company's permission to cut a stock in
half?  A rash of earnings warnings early this week forced many
stocks to 50% losses.  Unfortunately, you don't get twice as
many shares with this trading action.  We saw just how brutal
summer trading can be as companies announced shortfalls in
earnings that crippled their stocks.  But, by most analysts
admission, warnings season has ended and the good news should
begin.  As you know from last week, I am looking for about
30 split announcements this month as many stocks are positioned
for such a dividend, likely to be announced with earnings.  We
won't count those self-imposed splits like ENTU, FWIS, CA, etc,
either.  We did see our first major company to split with BMET
announcing on Thursday, but the good stuff is still to come!

Current Split Run Plays


Current Split Candidate Plays


Candidates That Are Not Current Plays


Recent Announcements We Predicted

TXN (most recent announcement)

For our complete stock split calendar, click here...

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The Option Investor Newsletter                   Sunday 07-09-2000
Sunday                                                      5 of 5

To view this email newsletter in HTML format with imbedded
charts and graphs, click here:


Option Trading Basics: Rules for survival...
By Mark Wnetrzak

To be a profitable option trader, it is important to review the
most successful strategies on a regular basis.  There are always
new interpretations or methods to be integrated into your current
system but maintaining a structured trading approach is the best
way to achieve consistent returns.  It is also paramount to have
a precise set of rules to govern your actions when positions
don't react as expected.  These guidelines must be simple enough
to recall and implement while monitoring a complex portfolio of
plays in a volatile market.  In addition, the rules should apply
across a wide range of situations and be designed to compensate
for one's weaknesses and inadequacies.  To be effective in the
long term, they must be formulated to help maintain discipline
on a general basis and at the same time, offer a timely memory
aid for difficult situations.

Before you make the next trade, consider these tried and tested

1. Learn to limit losses and your profits will grow.

The science of successful trading is less dependent on making
profits, but rather on avoiding losses.  The need to restrict
draw-downs and prevent losing plays from significantly eroding
capital should be a dominant theme in any type of trading.  To
reduce losses, most traders prefer to use a specific plan with
pre-determined exits.  Stop-loss orders can be used to remove
urgent decision-making from the equation and trailing stops can
be utilized to follow a position into greater profits while
protecting for unexpected reversals.  In addition, not only must
losses be limited, but all positions must be reviewed regularly
to ensure that the total portfolio risk is kept to a practical

2. Establish trading account limits before you open any position!

Just as setting stops on each individual position is an absolute
must, a "maximum allowable loss" must be considered when managing
portfolio positions.  The rule is simple, never trade with more
money than you can reasonably afford to lose and always maintain
a reasonable cash reserve.  When assessing position size and
collateral requirements, ensure that funds for active trades are
not co-mingled with capital for other functions.  It is also very
important to set a "loss limit" at the beginning of each month or
option expiration period.  When this level is breached, trading
should be halted for the duration of that period.  Of course if
your losses are consistently more than your gains, stop trading!
Step back and take some time off.  When you are ready to try
again, evaluate your current trading strategies and review the
losses (to learn from previous mistakes), then move on.  When you
begin to make money, put some of the profits in a reserve account,
just in case there are any unexpected developments in the future.

3. Know your strategy, its advantages and weaknesses, and only use
techniques that fit your trading style and portfolio outlook.

You can't make good decisions without knowing the mechanics of a
specific technique and the best traders are those who are acutely
aware of the shortcomings of their particular approach.  Focus on
positions whose trading characteristics match your ability and
risk/reward attitude.  Don't use complex or advanced methods
simply because they are intriguing.  In addition, if the strategy
is not appropriate for your financial condition, then it should be
avoided, regardless of how attractive it appears.  Obviously every
strategy has risk.  The key is to develop an arsenal of profitable
techniques; use only those that fit the market outlook; and manage
each individual play for maximum potential.

4. Learn the art of patience; entry timing is the key to success!

The entry position is of particular importance.  It deserves your
best analysis and judgment and it is vital to assess all potential
trades well in advance.  In the case of stocks, the issue should
be one you want to own and the price must be technically favorable
with minimal downside risk.  Correctly timing the initial purchase
requires a thorough knowledge of charting techniques and market
trends.  The entire process is something a trader must completely
understand because a successful exit is by and large the product
of a proper entry.  Those who are guilty of "over-trading" should
assess their past results in this careless practice whenever they
are tempted to participate in such activities.

5.  Be diligent and after you develop a plan, stick with it!

Success will come when you create a favorable balance between hard
work, sound judgment and patience.  Too many traders give up after
a few losing plays, long before they have time to learn and absorb
the various methods required for profitable trading.

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

CYTO    9.69  11.19   JUL   7.50  2.94  *$  0.75  12.1%
FSII   18.25  21.19   JUL  17.50  2.63  *$  1.88  10.5%
ARQL   13.88  23.56   JUL  12.50  2.44  *$  1.06  10.1%
TGEN   12.25  14.50   JUL  10.00  3.00  *$  0.75   8.8%
LYNX   47.56  47.38   JUL  40.00  9.63  *$  2.07   7.9%
CCUR   13.13  12.38   JUL  12.50  1.38   $  0.63   7.8%
FHS    13.13  14.88   JUL  12.50  1.63  *$  1.00   7.6%
ZD     11.38  10.13   JUL  10.00  2.25  *$  0.87   6.9%
MED     9.44   8.50   JUL   7.50  2.69  *$  0.75   6.9%
LYNX   32.63  47.38   JUL  25.00  9.75  *$  2.12   6.7%
CYTO    7.97  11.19   JUL   5.00  3.38  *$  0.41   6.5%
RHAT   25.00  24.63   JUL  20.00  6.38  *$  1.38   6.4%
CEGE   25.56  31.50   JUL  20.00  6.88  *$  1.32   6.1%
BCGI   14.56  13.25   JUL  12.50  2.88  *$  0.82   6.1%
GENE   27.75  26.25   JUL  20.00  9.25  *$  1.50   5.9%
BCRX   27.00  29.00   JUL  22.50  5.63  *$  1.13   5.7%
CLTR   20.50  21.06   JUL  17.50  3.63  *$  0.63   5.4%
CAIR   25.50  24.69   JUL  20.00  6.63  *$  1.13   5.2%
TGEN   12.25  14.50   JUL   7.50  5.25  *$  0.50   5.2%
IBC    14.94  14.06   JUL  12.50  3.25  *$  0.81   5.0%
NERX   18.88  21.88   JUL  15.00  4.38  *$  0.50   5.0%
IFCI   23.13  24.06   JUL  20.00  4.00  *$  0.87   4.9%
GLGC   38.75  35.50   JUL  30.00 10.00  *$  1.25   4.7%
LCCI   27.31  25.94   JUL  22.50  5.50  *$  0.69   4.6%
ALSC   26.88  25.56   JUL  22.50  5.88  *$  1.50   4.4%
BWEB   22.88  22.69   JUL  17.50  5.88  *$  0.50   4.3%
TSEM   30.69  29.81   JUL  25.00  6.50  *$  0.81   3.6%
PGO    19.00  16.75   JUL  17.50  2.25   $  0.00   0.0%
SCUR   18.81  16.56   JUL  17.50  2.19   $ -0.06   0.0%

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


Concurrent Computer's (CCUR) technical outlook remains bullish as
the issue consolidates on low volume.  Ziff-Davis (ZD) appears to
have made a successful test of the May low, but will it take out
the June high?  E-Med Soft.Com (MED) didn't move to a new low but
the position requires close monitoring.  Red Hat (RHAT) went up
strong and came down hard, but remains above our sold strike.
Boston Communications (BCGI) bounced off of support on low volume
and may move lower - evaluate your long term outlook.  Monitor
Corsair (CAIR) closely as it is at the bottom of a price channel.
Interstate Bakeries (IBC) remained above last Friday's low but it
may test the April low near our sold position.  International
Fibercom (IFCI) is likely to endure some profit-taking.  Alliance
Semiconductor (ALSC) is under selling pressure and may decline to
its 150 dma (near our cost-basis).  Tower Semiconductor (TSEM) is
also under selling pressure.  Evaluate whether you want to own
Petroleum Geo (PGO) or exit the position.  Earnings report fears
may explain Secure Computing's (SCUR) slump from the June high
this week.


Sequenced by Company

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

EGAN   13.94  JUL  12.50  EQZ GV  2.19  428  11.75   14    13.8%
TKTX   39.00  JUL  30.00  UFT GF  9.88  4    29.13   14     6.5%

DLK    16.75  AUG  12.50  DLK HV  5.25  50   11.50   42     6.3%
EPTO   15.13  AUG  12.50  QTP HV  3.38  0    11.76   42     4.6%
IVIL    8.94  AUG   7.50  IIU HU  2.13  112   6.82   42     7.3%
PSFT   18.38  AUG  15.00  PQO HC  4.38  8602 14.00   42     5.2%
WFR    18.38  AUG  15.00  WFR HC  4.38  0    14.00   42     5.2%

Sequenced by Return

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

EGAN   13.94  JUL  12.50  EQZ GV  2.19  428  11.75   14    13.8%
TKTX   39.00  JUL  30.00  UFT GF  9.88  4    29.13   14     6.5%

IVIL    8.94  AUG   7.50  IIU HU  2.13  112   6.82   42     7.3%
DLK    16.75  AUG  12.50  DLK HV  5.25  50   11.50   42     6.3%
PSFT   18.38  AUG  15.00  PQO HC  4.38  8602 14.00   42     5.2%
WFR    18.38  AUG  15.00  WFR HC  4.38  0    14.00   42     5.2%
EPTO   15.13  AUG  12.50  QTP HV  3.38  0    11.76   42     4.6%

Company Descriptions

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

EGAN - eGain Communications  $13.94  *** Ready to Move? ***

eGain Communications is a leading provider of integrated
e-customer communications solutions.  To help businesses deliver
a superior customer experience, eGain offers licensed and hosted
applications for email management, interactive Web and voice
collaboration, intelligent self-help agents, and proactive online
marketing.  Among their clients are AOL, CNBC, and Home Depot.
eGain's downtrend ended with last quarter's earnings report
showing a strong increase in revenues.  The stock has been
gaining the attention of analysts and investors alike and
appears to be under heavy accumulation.  The acquisition of
Inference Corp. and several new products should help eGain
continue to deliver solutions that are increasingly in demand.
The chart continues to improve and eGain appears ready to exit
its stage I base - after a successful test of the May low - as
investors anticipate the next earnings report (July 24?).

JUL 12.50 EQZ GV LB=2.19 OI=428 CB=11.75 DE=14 MR=13.8%

Chart =
TKTX - Transkaryotic Therapies  $39.00  *** Speculation Only! ***

Transkaryotic Therapies is a biopharmaceutical company that is
developing a broad and renewable product pipeline based on
several proprietary platforms.  Transkaryotic currently has four
products in clinical development, for conditions such as anemia
and hemophilia.  Transkaryotic is currently defending itself
against rival Amgen's accusations of patent infringement but
recently submitted a Biologics License Application to the
FDA seeking marketing approval of Replagal(TM), its enzyme
replacement therapy for the treatment of Fabry disease.  This
will be the first and only treatment available for patients
who suffer from Fabry disease.  Yet, with the future undecided,
a short-term position (two weeks) seems appropriate, based on
the increasingly bullish chart.

JUL 30.00 UFT GF LB=9.88 OI=4 CB=29.13 DE=14 MR=6.5%

Chart =
August Plays
DLK - Datalink.net  $16.75  *** Solid Earnings! ***

Datalink.net is in the business of developing and marketing "Web
to Wireless" information products for consumers and business-level
services utilizing the company's wireless information technology.
Their products and services extend the World Wide Web and non-Web
based customized information to individuals using wireless devices
such as pagers, cellular phones, and personal digital assistant
devices.  They allow users to access and search databases, receive
and send messages and other information, and to receive data in
real-time.  Datalink reported favorable earnings for the quarter
and investors took notice.  In the coming year, DLK is dedicating
its resources to building a strong infrastructure for the Internet
enterprise market.  With $17 million in additional cash and three
new top executives, Datalink.net is moving aggressively to market
its wireless enterprise solutions.

AUG 12.50 DLK HV LB=5.25 OI=50 CB=11.50 DE=42 MR=6.3%

Chart =
EPTO - Epitope  $15.13  *** Own this One! ***

Epitope develops, manufactures and markets oral specimen
collection devices and diagnostic products using its proprietary
oral fluid technologies.  Their primary focus is on the detection
of antibodies to the Human Immunodeficiency Virus (HIV), the
cause of Acquired Immune Deficiency Syndrome (AIDS).  Epitope's
lead product, the patented OraSure collection device, is used in
conjunction with screening and confirmatory tests approved by
the FDA.  The growing acceptance of Epitope's oral fluid testing
for HIV was reflected in last quarter's earnings and showed a
strong increase across existing markets.  Epitope plans to merge
with STC Tech which should leverage their expertise in oral fluid
technology.  The agreement with LabOne to jointly develop and
commercialize a laboratory-based oral fluid screening test for
Hepatitis C antibodies should further enhance Epitope's future.
The stock has resumed its stage II climb on heavy volume and
appears ready to challenge the March high.

AUG 12.50 QTP HV LB=3.38 OI=0 CB=11.76 DE=42 MR=4.6%

Chart =
IVIL - iVillage  $8.94  *** Internet Bottom-Fishing! ***

iVillage is an online destination targeted at women and one of
the most demographically focused communities on the Internet.
iVillage.com is an easy-to-use, comprehensive network of Web
sites tailored to the interests and needs of women aged 25
through 54.  iVillage provides advertisers and merchants with
targeted access to women using the Internet, and also generates
revenue by selling products or services that have a high degree
of relevance to its audience.  iVillage started its uptrend after
Goldman Sachs analyst Tonia Pankopf specifically disputed the
"Barron's article" regarding iVillage's cash burn rate.  She
believes that by the third quarter of 2000, iVillage should
turn a profit, stating that Barron's analysis was "inaccurate"
and failed to "reflect diminishing net income losses."  On
Thursday, iVillage announced several agreements that mark a
change in strategy for iVillage, to a core media business focus
from e-commerce retailing.  Investors are apparently pleased as
they pushed the stock up over a dollar on Friday.  Earnings are
due in about two weeks.

AUG 7.50 IIU HU LB=2.13 OI=112 CB=6.82 DE=42 MR=7.3%

Chart =
PSFT - PeopleSoft  $18.38  *** A Breakout, But Why? ***

PeopleSoft designs, develops, markets and supports a family
of enterprise client/server and Internet based application
software.  Their market includes large and medium sized clients,
including corporations worldwide, higher education institutions,
and federal, state, and local government agencies primarily in
North America.  Yes the sector is taking a beating and yes
PeopleSoft dropped on Thursday shortly before a lawsuit was
filed accusing their executives of insider trading.  But wait,
on Friday Lehman Bros raised its rating on PeopleSoft to
"outperform" from "neutral"!  What to make of it all?  Well,
investors voted on Friday  (heavy volume) and the stock gapped
above its recent stage I base.  The "tape" usually reveals a
stock's character and we favor the long term support near the
sold strike.  Speculative yes, but reasonable risk/reward!
Earnings are due near July 20.

AUG 15.00 PQO HC LB=4.38 OI=8602 CB=14.00 DE=42 MR=5.2%

Chart =
WFR - MEMC Electronic  $18.38  *** Another Breakout! ***

MEMC Electronic Materials is a worldwide producer of silicon
wafers, operating manufacturing facilities in Europe, Asia and
the United States. MEMC sells silicon wafers to most of the
world's largest manufacturers of semiconductors.  Back near the
end of June, John Roque of Arnhold & S. Bleichroeder listed a
bushel of semiconductor stocks he thinks will weaken, including
MEMC Electronic.  Looks like it just provided an opportunity for
investors to get some stock near support.  Now WFR has taken
out the June and May highs on heavy volume.  We call that move
a breakout of a stage I base - not weakness!  With the recent
volatility and failure of the market(s) to follow through to the
upside, we will remain cautious, favoring a conservative entry
point with a cost basis at support.  Quarterly earnings are due
near July 24.

AUG 15.00 WFR HC LB=4.38 OI=0 CB=14.00 DE=42 MR=5.2%

Chart =

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Naked Put Percentage List
By Ryan Nelson

Stock  Stock  Strike Option  Option Margin Percent Support
Symbol Price  Price  Symbol  Price  At 25% Return  Level

ADBE   137.38  130   AXX-SF   3.25   3435    9%    130
AKAM   114.00  110   RWU-SB   5.38   2850   19%    110
BRCD   185.56  180   GUF-SP   4.38   4639    9%    180
BRCM   235.13  230   RDU-SF  10.00   5878   17%    220
CDWC    69.31   65   DWQ-SM   2.44   1733   14%     64
CHKP   225.06  220   YKE-SD  11.63   5627   21%    210
CIEN   171.88  165   UEE-SM   5.75   4297   13%    162
DNA    173.00  165   DNA-SM   6.75   4325   16%    165
EXTR   101.25  100   EUT-ST   5.88   2531   23%    100
GLW    256.69  250   GRJ-SJ   7.13   6417   11%    240
GSPN   119.13  115   GHY-SC   6.50   2978   22%    110
IDPH   130.13  120   IDK-SD   3.25   3253   10%    125
ISSX   102.00  100   ISU-ST   6.00   2550   24%     95
ITWO   116.81  115   QYJ-SC   7.50   2920   26%    110
JNPR   147.31  150   JUY-SJ  10.25   3683   28%    140
MERQ   103.75   95   RQB-SS   2.50   2594   10%     96
MLNM   130.50  120   QMR-SD   6.63   3263   20%    120
MUSE   169.50  160   UZQ-SL  10.50   4238   25%    160
PWER   115.88  105   OGU-SA   3.25   2897   11%    100
RBAK   165.44  150   BKK-SJ   5.75   4136   14%    150
RMBS   101.00  100   BWR-ST   6.75   2525   27%    100
SDLI   295.31  280   QJV-SP  11.75   7383   16%    260
SEBL   170.94  165   SGW-SM   5.38   4274   13%    165
SEPR   135.50  130   ERU-SF   4.50   3388   13%    120
TIBX   115.25  110   PIW-SB   4.50   2881   16%    105
TLGD   129.44  130   TQK-SF   8.75   3236   27%    114
TQNT   102.31   95   TNN-SS   5.25   2558   21%     92
VRSN   172.88  170   QVZ-SN   8.25   4322   19%    165
VRTS   117.00  110   VUQ-SB   3.50   2925   12%    105
VRTX   123.44  110   VQR-SB   2.63   3086    9%    110


Bond Basics - Part II: Fixed income with growth potential...
By Ray Cummins

This week we continue our discussion of conservative investing
strategies with a review of convertible securities.  These unique
financial vehicles offer worthwhile opportunities for investors
who need current income, yet want to invest in companies that
will benefit from the bullish market trends.  Although this
category of investing is not well known, it can offer favorable
annual returns along with potentially high rewards for those that
choose to learn the fundamentals of the strategy.

Bonds and preferred stock that can be exchanged for common stock
are the most conventional types of convertible securities.  These
instruments provide the necessary means for companies to raise
capital for growth and ongoing operations.  Most corporations fund
their future activities through bank loans or the sale of bonds or
common stock.  Bondholders are reimbursed for their investment
with interest added but inflation will often erode their profits.
Shareholders can benefit from appreciation of a company's share
value but they have no guaranteed income from the investment.
Convertible bondholders enjoy the best of both worlds as they
receive a fixed rate of interest, are virtually assured a return
of their principal, and also have the right to exchange or convert
the bond into a fixed number of shares of common stock.

Convertible preferred stock is a similar financial instrument.  In
this case however, the investor receives a regular distribution or
dividend premium rather than a periodic interest payment.  Unlike
convertible bonds, the distribution is usually not guaranteed.
This type of issue can be exchanged or converted into a fixed
number of shares of common stock but it will not be redeemed at
the end of a specific term; it simply exists as preferred stock
until physically converted.

When a company's stock grows in value, the convertible bondholder
can exchange his holdings and participate in the appreciation of
the issue.  It the company fails to perform in the short-term, at
least the investor gets paid a good rate of interest for waiting.
It's a well-known fact that most of the technology companies pay
little or no dividend however, convertible instruments on the same
issues generally offer attractive yields, plus the opportunity for
future profit at a substantially lower risk.

Convertible instruments are ideal investments for IRA's and other
qualified plans.  The distribution income can often be deferred or
sheltered and the growth of the common stock will protect against
losses from inflation and higher interest rates in other vehicles.
Regular premium bonds have only a small yield advantage over most
convertibles and the risk/reward ratio favors the profit potential
inherent in the future growth of the underlying equity.  In most
cases, convertible instruments will provide a conservative and yet
competitive method to participate in the growth of the current
bull market

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

SIRI   44.31  47.38   JUL  35.00  1.88  *$  1.88  25.4%
TGEN   14.88  14.50   JUL  12.50  0.38  *$  0.38  13.9%
FSII   18.25  21.19   JUL  15.00  0.75  *$  0.75  13.6%
IMG    18.31  18.94   JUL  15.00  0.56  *$  0.56  13.3%
EFCX   10.56  13.00   JUL   7.50  0.44  *$  0.44  12.5%
SCUR   15.88  16.56   JUL  12.50  0.38  *$  0.38  11.6%
MRVT   19.50  22.63   JUL  15.00  0.44  *$  0.44  11.0%
GENE   30.44  26.25   JUL  22.50  0.50  *$  0.50  11.0%
CAMP   29.00  48.81   JUL  22.50  0.81  *$  0.81  10.6%
TSEM   30.69  29.81   JUL  25.00  0.69  *$  0.69  10.3%
TLCM   40.06  31.38   JUL  30.00  0.56  *$  0.56   9.5%
GENE   26.13  26.25   JUL  17.50  0.63  *$  0.63   9.3%
OAKT   20.94  22.88   JUL  17.50  0.44  *$  0.44   8.9%
LBRT   29.31  28.38   JUL  20.00  0.38  *$  0.38   8.8%
NSS    20.13  20.31   JUL  15.00  0.44  *$  0.44   8.6%
FSII   16.00  21.19   JUL  12.50  0.50  *$  0.50   8.4%
PILT   15.31  14.56   JUL  10.00  0.38  *$  0.38   8.0%
CREAF  28.00  23.50   JUL  22.50  0.69  *$  0.69   7.8%
CBST   49.25  53.13   JUL  35.00  0.50  *$  0.50   7.0%
CAIR   25.50  24.69   JUL  17.50  0.44  *$  0.44   6.9%
OMKT   19.00  13.94   JUL  12.50  0.38  *$  0.38   6.6%
MPPP   19.19  12.63   JUL  10.00  0.38  *$  0.38   6.5%
SYMM   20.00  22.13   JUL  15.00  0.38  *$  0.38   6.3%
VITR   48.13  65.25   JUL  30.00  0.56  *$  0.56   6.0%
SIPX   27.25  23.88   JUL  20.00  0.31  *$  0.31   5.8%
CLRS   38.88  37.13   JUL  30.00  0.69  *$  0.69   5.8%
CEGE   27.25  31.50   JUL  17.50  0.44  *$  0.44   5.4%
IMNX   44.69  65.38   JUL  30.00  0.56  *$  0.56   5.1%

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


Why didn't we just buy some California Amplifier (CAMP) calls?
Tower Semiconductor (TSEM) is under selling pressure and sector
uncertainty.  Telcom Semiconductor (TLCM) has also slumped but
it appears to be holding at support.  Creative Technology (CREAF)
had a nice bounce on Friday on heavy volume after flirting with
its 150 dma - some follow through next week should help.  Keep an
eye on Corsair (CAIR) as it is at the bottom of its price channel.
Mp3.Com continues to weaken but appears to be holding at support.
Sipex (SIPX) has moved back down to its 150 dma amid a sector-wide

Positions Closed: Us Lec Corp. (CLEC)


Sequenced by Company

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

ANCC   30.22  JUL  22.50  UZE SX  0.44  30   22.06   14    14.7%
CEGE   31.50  JUL  25.00  UCG SE  0.38  388  24.62   14    12.4%
DLK    16.75  JUL  12.50  DLK SV  0.38  105  12.13   14    21.9%
YRK    28.94  JUL  25.00  YRK SE  0.38  187  24.62   14    10.3%

MRVT   22.63  AUG  17.50  SQD TW  0.50  50   17.00   42     7.2%
NFLD   17.50  AUG  15.00  DHQ TC  1.00  88   14.00   42    13.2%
NXLK   39.69  AUG  30.00  QNF TF  0.75  20   29.25   42     6.3%

Sequenced by Return

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

DLK    16.75  JUL  12.50  DLK SV  0.38  105  12.13   14    21.9%
ANCC   30.22  JUL  22.50  UZE SX  0.44  30   22.06   14    14.7%
CEGE   31.50  JUL  25.00  UCG SE  0.38  388  24.62   14    12.4%
YRK    28.94  JUL  25.00  YRK SE  0.38  187  24.62   14    10.3%

NFLD   17.50  AUG  15.00  DHQ TC  1.00  88   14.00   42    13.2%
MRVT   22.63  AUG  17.50  SQD TW  0.50  50   17.00   42     7.2%
NXLK   39.69  AUG  30.00  QNF TF  0.75  20   29.25   42     6.3%

Company Descriptions

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

ANCC - Airnet Communications  $30.22  *** On The Move! ***

AirNet Communications provides base stations and other wireless
infrastructure products designed to support the Global Standard
for Mobile Communications system of mobile voice and data
transmission.  AirNet designed its base stations to be easier to
deploy and upgrade and to have lower capital and operating costs
than other existing base stations.  AirNet's leading product
provides an unparalleled advantage.  The broadband, software-
defined AdaptaCell base station provides a high capacity base
station with a software upgrade path to the wireless Internet
and the AirSite base station eliminates the need for a physical
backhaul link, thus dramatically reducing operating costs.  Based
on the recent bullish movement, traders favor the outlook for the
company and its unique services.  The quarterly earnings are due
in late July.

JUL 22.50 UZE SX LB=0.44 OI=30 CB=22.06 DE=14 MR=14.7%

Chart =
CEGE - Cell Genesys  $31.50  *** A New Range! ***

Cell Genesys is engaged in the development and commercialization
of gene therapies to treat major, life-threatening diseases,
including cancer and AIDS.  Cell Genesys currently has two gene
therapy programs, the clinical programs and the pre-clinical
programs.  The clinical programs include GVAX(TM) cancer vaccines
in Phase I/II studies to treat specific types of cancer, such as
lung and prostate cancers, and T cell gene therapy for AIDS,
which is undergoing Phase II testing.  Cell Genesys also develops
and commercializes human monoclonal antibodies for pharmaceutical
applications, including inflammation, auto-immune disorders and
cancer.  The biotechnology group is on the move and traders have
become interested in the issue amid reports the company's factor
IX blood-clotting protein performed well in recent tests, with no
discernible ill effects.  Friday's move above a recent trading
range suggests the technical outlook is still bullish.  CEGE is
expected to report earnings during the last week in July.

JUL 25.00 UCG SE LB=0.38 OI=388 CB=24.62 DE=14 MR=12.4%

Chart =
DLK - Datalink.net  $16.75  *** Solid Earnings! ***

Datalink.net is in the business of developing and marketing "Web
to Wireless" information products for consumers and business-level
services utilizing the company's wireless information technology.
Their products and services extend the World Wide Web and non-Web
based customized information to individuals using wireless devices
such as pagers, cellular phones, and personal digital assistant
devices.  They allow users to access and search databases, receive
and send messages and other information, and to receive data in
real-time.  Datalink reported favorable earnings for the quarter
and investors took notice.  In the coming year, DLK is dedicating
its resources to building a strong infrastructure for the Internet
enterprise market.  With $17 million in additional cash and three
new top executives, Datalink.net is moving aggressively to market
its wireless enterprise solutions.

JUL 12.50 DLK SV LB=0.38 OI=105 CB=12.13 DE=14 MR=21.9%

Chart =
YRK - York International  $28.94  *** Strong Sector! ***

York International is the largest independent supplier of air
conditioning, heating, ventilating, and refrigeration equipment
in the USA and a leading competitor in the industry worldwide.
They offer standardized systems for private homes, apartments,
and small commercial facilities.  They provide customized heating
and refrigeration solutions for airports, hospitals, manufacturing
facilities, and other large sites.  York has been in a stage I
base since last October and the current trend is gaining momentum
as the issue re-tests the June high.  Friday's move suggests the
attempt will be successful but we favor a conservative cost basis
below the near-term technical support.

JUL 25.00 YRK SE LB=0.38 OI=187 CB=24.62 DE=14 MR=10.3%

Chart =
August Plays
MRVT - Miravant Medical  $22.63  *** 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.  Miravant also reported positive
results with its PhotoPoint treatment, a photodynamic therapy that
uses light-activated drugs to target and destroy diseased cells
and blood vessels.  In June, McDonald Investors initiated coverage
with a "buy" rating.  Miravant has completed a "double-bottom"
formation (which tested a long-term trendline) and the June high
should now provide support for any future consolidation.

AUG 17.50 SQD TW LB=0.50 OI=50 CB=17.00 DE=42 MR=7.2%

Chart =
NFLD - Northfield Labs  $17.50  *** Undervalued? ***

Northfield Laboratories is developing a safe, effective
alternative to transfused blood for use in treating acute blood
loss.  Their PolyHeme blood substitute is a solution of
chemically modified hemoglobin derived from human blood.  Clinical
studies have shown PolyHeme carries as much oxygen as transfused
blood, and that it is universally compatible.  Blood typing prior
to infusion would be unnecessary, so PolyHeme could be used
immediately in emergency situations.  To make it an even more
desirable product, PolyHeme has an extended shelf life compared
to blood.  Northfield's largest shareholder recently sent a letter
to other stock owners asking that NFLD management begin to maximize
value for its investors.  The shareholder, a CEO of an investment
firm, said he has retained Beacon Hill Partners as a strategic
advisor regarding opportunities to improve shareholder value.  He
says the shares are very undervalued because the company has
continually refused to communicate details of its successes and
status to the public.  Based on the bullish activity, someone must
believe him!

AUG 15.00 DHQ TC LB=1.00 OI=88 CB=14.00 DE=42 MR=13.2%

Chart =
NXLK - Nextlink Communications  $39.69  *** Own This One! ***

Nextlink Communications is a provider of telecommunications
services.  To serve its customers' telecommunications needs,
Nextlink has assembled a unique collection of high-bandwidth,
local and national network assets.  They intend to integrate
these assets with advanced communications technologies and
services in order to become one of the nation's leading providers
of a comprehensive array of communications services.  With its
recent acquisition of Concentric Network, Nextlink is poised to
become a dominant player in the electronic information industry.
Concentric offers local and long-distance services, DSL access,
Web hosting, Virtual Private Networks, dedicated access, and
global application infrastructure services for delivering data
over the Internet.  In late June, NXLK was upgraded by First
Union Securities to reflect the benefits of the Concentric
acquisition.  Analysts believe the synergy with Concentric
and opportunities from its recent European expansion represent
substantial revenue potential.

AUG 30.00 QNF TF LB=0.75 OI=20 CB=29.25 DE=42 MR=6.3%

Chart =


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What a difference a day makes...
By Ray Cummins

Friday, July 7

The Dow enjoyed triple-digit gains and the Nasdaq rallied to a
recent high after a favorable employment report.  The industrial
average closed up 154 points at 10,635 and the technology index
ended 62 points highre at 4023.   The S&P 500 rose 22 points to
1478.  Trading volume on the NYSE reached 933 million shares,
with advances beating declines 1,814 to 1,087.  Activity on the
Nasdaq was moderate at 1.47 billion shares traded, with winners
beating losers 2,092 to 1,837.  In the bond market, the 30-year
Treasury rose 20/32, pushing its yield down to 5.86%.

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

Vitria      VITR   JUL45P/JUL50P   $0.50   credit   bull-put
3com Corp.  COMS   AUG60C/JUL60C   $2.31   debit    calendar
Kellogg     K      SEP30C/JUL30C   $1.38   debit    calendar

All of our new positions offered favorable entry points during
the session and each entry price was based on observed trades.

Portfolio plays:

The market rallied Friday after positive economic news spurred
hopes that the Federal Reserve might be done raising rates in
the near-term.  A sharp drop in census jobs offset a large jump
in private hiring to leave U.S. non-farm payrolls up just 11,000
in June, the weakest growth since January 1996 and well below
expectations.  Although analysts were encouraged by the report,
some suggested that corporate earnings concerns will continue to
underscore the financial markets.  Several major companies are
expected to report earnings next week and most experts believe
investors will be extremely cautious in the coming sessions.

In Friday's trading, semiconductor, biotech and hardware stocks
led the Nasdaq with the majority of bellwether issues rebounding
from downgrades earlier in the week.  Internet stocks also
rallied despite a number of downgrades from Deutsche Banc Alex.
Brown.  On the Dow, Hewlett-Packard (HWP), Home Depot (HD) and
Wal-Mart (WMT) topped the gainers with the bullish activity in
retail issues coming amid the favorable interest rate outlook.
In the broader market, textile and agricultural products stocks
were strong, while aluminum, advertising and tobacco issues
generally consolidated.  Our Spreads portfolio enjoyed a number
of positive moves and the percentage leader was Plantronics (PLT)
with a $10 rally to $124.  Technology issues were higher across
the board and shares in the Major Drug group also performed well.

With two weeks until options expiration, the primary positions on
our watch-list are Emulex (EMLX), International Business Machines
(IBM), Payne Webber (PWJ), and Secure Computing (SCUR).  Each of
these issues has endured recent slumps and are testing key areas
in their respective technical trends.  We will monitor each stock
closely and look for signs of further downside momentum in order
to limit potential losses in the underlying positions.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
SPW - SPX Corporation  $125.88  *** Technical Breakout! ***

SPX Corporation is a global provider of technical products and
systems, industrial products and services, service solutions and
vehicle components.  SPX designs, manufactures and markets fire
detection systems, data networking equipment, broadcast antennas
and automated fare collection systems.  The company also designs,
manufactures and markets power transformers, industrial valves,
mixers, electric motors, laboratory freezers, high-pressure
hydraulics, industrial furnaces and coal feeders, as well as
specialty service tools, equipment and services primarily to the
motor vehicle industry in North America and Europe.  In addition,
the company is also engaged in the design and manufacture of
transmission and steering components for light and heavy-duty
vehicle markets, principally in North America and Europe.  SPX
operates in 19 countries around the world.

SPW shares jumped to $125 Friday as industrial issues returned to
favor amid the positive economic outlook.  Now the stock is well
above technical support and clearly in a new trading range.  With
momentum from institutional-sized volume and the recent bullish
trend, the issue should easily finish the expiration period above
our cost basis.

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-110  SPW-SB  OI=0   A=$0.56
SELL PUT  JUL-115  SPW-SC  OI=10  B=$1.12
INITIAL NET CREDIT TARGET=$$0.62-$0.68  ROI(max)=14% B/E=$114.38

Chart =

YHOO - Yahoo  $116.50  *** Upcoming Earnings! ***

Yahoo! is a global Internet communications, commerce and media
company that offers a comprehensive branded network of services
to more than 120 million users worldwide.  As the first online
navigational guide to the World Wide Web, www.yahoo.com is a
major 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 its clients' Web services,
including audio and video streaming, store hosting and management,
and Web site tools and services.  Under the Yahoo! brand, the
company provides broadcast media, communications, and commerce

Yahoo shares tumbled $5 Friday after Andrea Williams Rice, an
analyst with Deutsche Banc Alex Brown, downgraded Yahoo to a
"buy" rating, saying that not even this popular Internet site
was immune to the decline in advertising revenue.  Her concerns
were echoed all over Wall Street, where analysts who have grown
accustomed to seeing the company surpass the rosiest forecasts,
said the upcoming quarters would be more challenging for Yahoo.
The concerns are not so much on Yahoo's earnings, which are
expected to meet estimates, but on whether their growth warrants
the valuation that investors have given the company.

The majority of analysts believe the stock is still at levels
that may be too high, given the inevitable slowdown in YHOO's
rate of growth and the pullback in ad spending by other dot-coms.
This bearish position offers a favorable reward with an excellent
expectation of profit.  After Friday's big drop, a brief technical
rally may occur and with any luck we can increase the overall credit
for the spread.  Our initial target will be $0.43 and we will make
an adjustment based on tomorrow's opening prices.

PLAY (very conservative - bearish/credit spread):

BUY  CALL  JUL-145  YMM-GI  OI=3689  A=$0.75
SELL CALL  JUL-140  YMM-GH  OI=5594  B=$1.06
INITIAL NET CREDIT TARGET=$0.38-$0.43  ROI(max)=8%

Chart =


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 disparities in
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.

SANG - SangStat Medical  $27.81  *** Consolidating! ***

SangStat Medical Corporation is a global bio-pharmaceutical
company applying a disease management approach to improving the
outcome of organ, bone marrow, and stem cell transplantation.
The company's business currently is organized into two segments:
Transplantation Products and Transplantation Services.  The
Transplantation Products segment consists of six marketed
products, two principal product candidates and additional product
candidates in various stages of research and development.  The
Transplantation Services Segment consists of The Transplant
Pharmacy, which provides mail order distribution of drugs and
transplant patient management services, and TransplantRx.com,
the first online pharmacy dedicated to organ transplantation.

Technically, SANG continues to fail at resistance with the last
rally ending in a "hanging man" candlestick - a rather bearish
signal.  Thursday and Friday produced a pair of "shooting stars"
which suggest the bulls are unable to push the stock any higher.
As it appears SANG is unable to penetrate its upside resistance,
a move to test the June low seems likely.  However we will profit
if the recent sideways pattern simply continues for another two

PLAY (aggressive - bearish/credit spread):

BUY  CALL  JUL-35  QDY-GG  OI=154  A=$0.56
SELL CALL  JUL-30  QDY-GF  OI=257  B=$1.56
INITIAL NET CREDIT TARGET=$1.12  ROI(max)=28% B/E=$31.12

Chart =

PSFT - PeopleSoft  $18.38  *** Technical Breakout! ***

PeopleSoft designs, develops, markets and supports a family
of enterprise client/server and Internet based application
software.  Their market includes large and medium sized clients,
including corporations worldwide, higher education institutions,
and federal, state, and local government agencies primarily in
North America.

We found this calendar-spread candidate while researching plays
for the Covered-calls section.  With favorable disparities in
the front-month premiums, this position offers a very favorable
speculation play for those who are bullish on the issue.  As with
any play, it should be evaluated for portfolio suitability and
reviewed with regard to your strategic approach and trading style.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  OCT-20  PQO-JD  OI=2599  A=$3.00
SELL CALL  JUL-20  PQO-GD  OI=2838  B=$0.50

Chart =

                   - STRADDLES AND STRANGLES -
TVGIA - T.V Guide  $34.94  *** Merger In Doubt? ***

TV Guide is a media and communications company that provides
print, passive and interactive program listing guides to
households; distributes programming to cable television systems
and direct-to-home satellite providers; and markets satellite
delivered programming to C-band satellite dish owners.  The
company is divided up into three operating groups.  The TV Guide
Magazine Group provides TV Guide Magazine, the most widely
circulated paid weekly magazine in the U.S., to households and
newsstands.  The TV Guide Entertainment Group supplies cable
television systems and other multi-channel video programming
distributors satellite-delivered on-screen program promotion
and guide services, including TV Guide Channel and Sneak Prevue.
The United Video Group provides direct-to-home satellite
services, satellite distribution of video entertainment
services, software development and systems integration and
satellite transmission services for private networks.

The acquisition of TV Guide by Gemstar International (GMST) may
not be going as well as planned and some investors are predicting
the deal will not be consummated.  Under terms of the proposed
buyout, Gemstar agreed to swap 0.6573 share for each TV Guide
share.  Shares of TV Guide are trading much lower than one might
expect, based on the exchange ratio, indicating that the public
believes there is significant risk the acquisition will not be
completed.  The companies had expected to complete the sale last
month, but the Justice Department is still reviewing whether the
purchase, which will combine the two largest distributors of
electronic program guides for cable television, would hurt

Regardless of the outcome, we favor the underlying issue for a
bullish position (in the short-term) and have decided to sell
premium for credit and use the earned income to offset any losses
on the downside, in the event we are required to accept assignment
of the stock.  If the price of the issue moves above the (short)
call at $45, we will buy the stock to cover our sold options.

PLAY (aggressive - neutral/credit strangle):

SELL CALL   JUL-45  UQK-GI  OI=0   B=$0.43
SELL PUT    JUL-25  UQK-SE  OI=71  B=$0.43
INITIAL NET CREDIT TARGET=$0.93-$1.00 ROI(max)=11%
UPSIDE B/E=$46.00 DOWNSIDE B/E=$24.00

Chart =

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Option Investor Inc is neither a registered Investment Advisor nor a Broker/Dealer. Readers are advised that all information is issued solely for informational purposes and is not to be construed as an offer to sell or the solicitation of an offer to buy, nor is it to be construed as a recommendation to buy, hold or sell (short or otherwise) any security. All opinions, analyses and information included herein are based on sources believed to be reliable and written in good faith, but no representation or warranty of any kind, expressed or implied, is made including but not limited to any representation or warranty concerning accuracy, completeness, correctness, timeliness or appropriateness. In addition, we do not necessarily update such opinions, analysis or information. Owners, employees and writers may have long or short positions in the securities that are discussed.

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