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Daily Newsletter, Tuesday, 07/11/2000

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The Option Investor Newsletter                  Tuesday 07-11-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        07-11-2000        High      Low     Volume Advance/Decline
DJIA    10727.20 + 80.60 10807.40 10626.80  980 mln   1613/1294
NASDAQ   3956.42 - 23.87  4029.30  3936.75 1.71 bln   1849/2166
S&P 100   801.05 +  1.46   807.05   794.96   totals   3462/3460
S&P 500  1480.88 +  5.26  1488.77  1470.48           50.0%/50.0%
RUS 2000  529.74 -  1.09   533.26   529.04
DJ TRANS 2817.10 +  8.08  2821.59  2796.60
VIX        22.39 -  0.49    22.89    21.62
Put/Call Ratio       .53
******************************************************************

Welcome to summer earnings!

Are we having fun yet? The Dow soared to 10807 intraday, a
number not seen since June 8th, but then dropped -150 points
to 10657 as the earnings euphoria wore off. Dow components
Alcoa and International Paper both beat the street and even
Greenspan got into the act to provide the intraday move. Alan
Greenspan, complete with poker face, spoke at the National
Governors Conference and touched on many topics but did not
speak about limits on the economy. Applauding productivity
and the new economy our economic cheerleader generated
significant positive sentiment and about +100 Dow points.
The sentiment quickly cooled with a continuing flood of
earnings warnings. The Nasdaq rallied back from a negative
open on the Greenspan speech but quickly rolled over again
to close down for the second consecutive day.







The earnings warnings just keep coming with Pinnacle Systems
(PCLE) leading the parade and followed by Intermedia (ICIX)
Silicon Graphics (SGI), RPM Inc (RPM), Viatel Inc (VYTL),
Landmark Systems (LDMK) and on and on. While earnings warnings
are still flowing the real fear of investors is the missed
earnings event with no warning. Scientific Learning (SCIL)
shares lost -36% after reporting a loss of -$.56 compared
to estimates of -$.46. Companies warning were hit with heavy
losses but those who fail to warn will be punished severely.

Take the pre-earnings flight from YHOO this week. After a
June 20th high of $150 YHOO had traded in a range between
$120 and $130 until Monday of last week. The drop from $130
to a low today of $99.88 was swift. It was aided by a downgrade
last week but the main culprit was simply fear of a missed
number. The actual announcement today sparked a wild ride
in after hours trading. The +$15 spike on heavy volume came
from decreased expectations and then relief that they beat
the street. The joy may be short lived however since there
was some trouble spots. The slowing growth in page views was
glossed over by the press but with views growing only +9%
from 620 mil in March to 680 mil in June there could be some
repercussions. Some analysts were still expecting the +30%
growth required to support their sky high PE ratios. The more
main line analysts were hoping for +15% to +20% growth and
the actual number of +9% will cause some to rethink their
positions. Slowing Internet growth? Don't even think about
the long term impact of that concept.

The Nasdaq was unable to hold over 4000 again on strong volume
and with the leaders like MSFT, CSCO, ORCL, WCOM, losing
ground before earnings there appears to be some leaks in
the rally ship. Dell gained today on the news that the cheap
Internet PC was dead. Buyers are opting for higher priced
computers with more expensive, high profit features. Intel
struggled to hold on to its recent gains after losing almost
-$4 from its intraday high but finished positive for the day.
Considering that tests announced today showed that similar
Intel 933-mhz computers equipped with standard PC-133 high
speed memory ran faster in 11 of 14 benchmark tests than
the same computers equipped with Rambus memory, the Intel
juggernaut may be about to roar again. Even if all the
tests were just close Rambus would lose in a tie since the
Rambus memory costs as much as double to include in new
computers. Before you rush out to sell your RMBS stock analysts
point out that the Pentium 4 will run at speeds that will be
more able to take advantages of the Rambus features. Here is
a link for the whole story:

http://dailynews.yahoo.com/h/cn/20000711/tc/
intel_benchmarks_show_little_advantage_to_rambus_1.html

When everyone starts saying rally it may be time to head for
the lifeboats. I don't think I have heard a bear in a week.
Everyone is pegging their hopes on the "no more hike" scenario
but contrary to popular belief not everyone believes the
hikes are over. Sure Greenspan did not mention anything today
but did you expect him to? Of course not! Mr. poker face has
much to gain by keeping analysts guessing and not revealing
his hole cards. Remember PPI is due out Friday with Retail
Sales as well. We will get another look at the rate picture
as the focus on our crystal ball improves with real data.

As traders we should be concerned that we now have a lower
high trend in place for the Nasdaq. On June-22nd we hit 4073
and on July 7th we only managed 4054. Still the difference
is not enough to run for the hills just yet. We also have a
higher set of baseline lows as well. The weakness this week
could be entirely related to the concern over YHOO earnings
and with those earnings now quantified the remainder of the
Internet sector will be forced to trade on its own merit.
The lower trend line on the Nasdaq is dead on 3900 and any
fall below that would signify a serious change in market
sentiment. The last cycle low was 3820 on July-6th and matched
the 3818 from June-19th. A break below 3820 would be lights
out in my opinion.

If the YHOO earnings were the culprit then we should see a
rebound across the entire spectrum tomorrow. We will be
faced with another sector challenge on Wednesday with earnings
from Ariba. If investors are disappointed there then yet
another sector sell off could begin. Earnings, as you can see,
are not the be all, end all, that solves all the market problems.
Even great earnings can bring with them problems of a new
sort with warnings of future quarters not able to measure
up to current outstanding results. Investors are fickle.
Beat the street by +25% this time and you are expected to
do it next quarter as well. What? Only +10% over estimates,
you are out of here! Keep your fingers crossed and those stop
losses in place if you decide to tempt fate and hold over
earnings on your favorite stock this season.

There are conflicting internals at work in the market. We
continue to have advances beating declines and new highs
are finally out weighing new lows. This slow but steady
under current to the market is encouraging. What is not
encouraging is the strong volume on the Nasdaq on a down day.
If we just had no buyers and were drifting down in advance of
the earnings I could understand but 1.7 billion shares is
fairly heavy summer volume and after looking at a bunch
of charts I saw very few moving up at the end of the day.
The VIX is still hovering around the 22.42 level and indicates
a level of bullishness that normally occurs just before
some market instability.

Chose your plays carefully and be ready to exit quickly.
Don't you just love summer trading?

Trade smart, sell too soon.

Jim Brown
Editor


Don't buy too soon!


Current long positions include: None - all cash



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

The World Of Bizzaro
By Austin Passamonte

Just like the anti-Superman, today’s market action resembled
Bizzaro’s backward world. Was that the cyclical stocks catching
fire as NASDAQ leaders sold off on stiff volume? During the start
of earnings week?

Remember when we could buy Yahoo calls a few weeks from
announcement day and sell them for tidy profits? My favorite
one-day play had been buying YHOO puts on earnings day close
in order to sell the next session for certain gain. From the
looks of today’s drop and post-market pricing, the opposite
approach would be in order. Just when we have it all figured
out...

Big surprise here, but half the analysts think we’ll rally
while the other half run for cover. Should we flip a coin?

On Wednesday ABT, COF and TWX report before the open while
AMCC, ARBA and MOT enlighten us after the close. Thursday has
JPM and TXI disclose before the open with ALTR, DS, GTW, JNPR,
MERQ, MCHP, PMCS, PWAV, RBAK, VNWK and VTSS coming clean after
the bell.

If you see any of your open positions above, take profits or
pray they please the street. We’ve witnessed what happens to
those who miss these days and it’s not a pretty sight.

Common theme is the markets will wait for Friday’s PPI, Retail
Sales and IP reports to dictate future direction. And what else
is new? Haven’t we lived from one report to the next for what
seems like forever? Lately we’ve witnesses market corrections
weeks before the next FOMC meeting only to rally mere days ahead
of the actual event. Can we at least count on one pattern to hold
around here? Indicators will tell the tale.

I see a market that seems closer to it’s short-term high than
low but anything may happen over the next two weeks. We can
expect companies reporting favorable news might get rewarded
while those who fall short... well, just make sure none of them
are yours!


MARKET SENTIMENT INDICATORS
---------------------------

VIX
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.

      Fri 7/07 close: 21.82          Tues 7/11 close: 22.39


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         Sat
Strike/Contracts            (7/11)      (7/13)       (7/15)
*************************************************************

CBOE Total P/C Ratio         .53
Equity P/C Ratio             .47


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        Sat
Strike/Contracts     (7/11)        (7/13)      (7/15)
**************************************************************

All index options      1.16
OEX Put/Call Ratio     1.27


OEX Maximum Open Interest Strikes/Contracts:

Puts                  790/6,095
Calls                 800/5,632
Put/Call Ratio          1.08

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:               (7/11)       (7/13)    (7/15)

Overhead Resistance:
(840 - 820)               58.88
(815 - 800)                2.8

OEX Close:                 801

Underlying Support:
(800 - 785)                 .86
(780 - 760)                2.59


What the S/R measure indicates: Net open-interest ratios
are very high above 815 OEX level while underlying support
is very light. The OEX has mounting downside pressure from
815 with little upward support in comparison. A large move
in either direction seems favored to the downside. Sustained
levels above 815 may prove difficult before July contract
expiration 7/21 unless growing overhead O/I clears.


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

DOW;   10,740                    10,727
NASDAQ; 3,789                     3,956
NDX;    3,505                     3,744
SPX      1412                      1480
OEX       758                       801



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. *Will be
updated this Friday*


                 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

NASDAQ 100
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


BULLISH SIGNALS

Interest rates
5.88% on the 30-year Treasury Bond may be signaling the rate
fears are over. Fed-Fund futures are pricing a lessening
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
began the three-week session this week.

IPO’s
Recent IPO’s have been met with positive enthusiasm.

Improving Dow
The Dow remains barely below it’s 200 DMA but shows signs of
life after breaking 10,800 intraday and closing above 10,700.

Index Option put/call ratio
Recent activity showed unusual OTM put volume especially
On the DJX, NDX and SPX, suggesting buyers hedging for a
market slide. Contrarian nature considers this a bullish
development.


******

BEARISH SIGNALS

VIX
Today’s close near 22 warns of impending market top danger.


Faltering NASDAQ
NASDAQ’s close below 4,000 again is a warning to bulls.
Reaching and maintaining above this key level will be
critical going forward from here.


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
$29.05 today amid recent reports of more production. Seasonal
energy patterns typically bottom by late summer.

COT Report
Latest 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. Update coming Friday

Weakness in Big-Cap Issues
Dow and NASDAQ need strong leadership to break resistance and
sustain any rally. Near-term strength in large caps currently
suffering is vital.



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

As of Market Close - Tuesday, July 11, 2000

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

DOW Industrials   10,450  10,850  10,727    Neutral   7.09
SPX S&P 500        1,435   1,490   1,480    Neutral   7.09
OEX S&P 100          772     806     801    Neutral   7.09
RUT Russell 2000     470     535     529    Neutral   5.05
NDX NASD 100       3,450   4,000   3,744    Neutral   5.30
MSH High Tech        965   1,035   1,003    Neutral   6.06

XCI Hardware       1,440   1,550   1,496    Neutral   5.30
CWX Software       1,160   1,300   1,234    Neutral   6.06
SOX Semiconductor  1,060   1,200   1,122    Neutral   6.29
NWX Networking     1,100   1,285   1,256    BULLISH   6.02
INX Internet         470     545     474    BEARISH   5.30

BIX Banking          520     600     553    Neutral   7.09
XBD Brokerage        470     535     534    BULLISH   7.11  **
IUX Insurance        595     660     645    Neutral   6.20

RLX Retail           860     960     951    Neutral   7.09
DRG Drug             350     430     427    BULLISH   7.11  **
HCX Healthcare       755     880     874    BULLISH   7.11  **
XAL Airline          136     172     166    BULLISH   5.25
OIX Oil & Gas        270     320     304    BULLISH   7.11  **

Posture Alert
The major indices remain mixed, but with a positive bias.  Many
indexes are near the tops of trading ranges.  Look for pullbacks
and breakouts as entry points.  Posture Changes: Neutral to
Bullish - (XBD,DRG,HCX,OIX).



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

What is volatility?
By Mary Redmond

What does volatility mean? The dictionary definition of volatile
is "capable of being vaporized readily; changeable; fickle or
inconstant; given to violence, explosive.  Changeable, fickle,
and inconstant sound like perfect characteristics of today's
stock market and investors.  The market temperament can change
dramatically in only a few weeks, and the investing public's
interest in a stock can be as fickle as a fashion trend.  We
can see that all the time as some of last year's superstar
stocks are being dumped like yesterday's hottest fashion item
to be thrown in the back of the closet and never worn again.

As far as option trading is concerned, volatility can help to
measure whether options are overpriced or underpriced.  The
historical volatility of a stock generally refers to the trading
range over a specified period of time, which could be a month,
six months, a year or longer.  If a stock has been relatively
flat for a period of time the volatility will usually be low.
If the stock makes a dramatic move up or down the volatility
tends to rise.

The implied volatility of an option measures the market's
perception of what the stock will do during the life of the
option.  Implied volatility can increase if a specific event
is coming up, like a company's earnings or a major economic
report.  It is usually best to look for options which have
low implied volatility as compared to previous periods and
as compared to the historical volatility.

There are many other factors to consider.  If you were to
simply pick options which have low implied volatility you
might be successful some of the time.  However, an option's
implied volatility might be low because there is something
fundamentally wrong with the company.  For example, AT & T's
implied volatility is currently 42.2.  This is historically
very low, as the IV had been as high as 275.  This does not
necessarily mean that this is a good time to buy AT & T
options.  In fact, in last Sunday's New York Times there was
an article about the financial community's dissappointment
with T's last earning's report and progress in the broadband
area.  It might be a long time before the stock recovers, if
it ever does.

In addition, a stock's historical volatility may move to a
higher number if there is a fundamental change in the company.
For example, if a company is added to the S & P 500 or a major
index this could mean that the volume should increase during
the time the stock is included in the index.  This could push
up the volatility numbers, but it doesn't necessarily mean it
is time to sell.

In order to trade options or stocks successfully you need to
study the fundamentals of the company, it's technical pattern
and the overall trend of the market.  An ideal time to buy
an option can be when the stock has been flat for a period
of time, the option's implied volatility is low, and you
have a reason to believe the stock will make an explosive
move during the life of the option.

No one has been able to successfully trade using only pre-
programmed computer models.  Some people have tried this,
and some have been successful for short periods, but there
is always a "what if" factor.  What if the CEO of a company
you are trading dies?  What if there is another earthquake
in Taiwan which could disrupt chip component production?
Computer programs and options caculators are valuable tools
to be used in conjunction with your own judgement of a
situation.

Ultimately, the volatility is a tool to use in pitting your
own judgement against the general perception of the stock's
future in the market.  Do you know something that everyone
else doesn't know in terms of developments in the industry
or capability of the management team?  Do you think there is
a general misperception or misunderstanding of the company's
future prospects which has pushed the option prices down to
a point at which they are highly undervalued?

I currently own NT Jan 02 80 leaps.  The implied volatility
of 50.4 is low compared to the stock's historical iv chart
which reached a high of over 100 earlier in the year.  I
think the stock is in a strong technical uptrend.  One of
the reasons I feel comfortable trading this stock is the
fact that it usually moves in a steady gradual predictable
rate without wild swings of 10 or 20 points in a day.  But
if the market makes a severe downturn, stocks and options
with low implied volatility numbers are not immune to
losses.  Sometimes you need to use common sense rules in
trading.  For example, the Nasdaq just rose 1000 points
during the month of June.  It seems likely that it would
be due for a period of consolidation.

An options trader is like a cheetah.  A cheetah waits for
sometimes hours at a time for its prey to be in a vulnerable
position.  When it makes its move the cheetah is one of the
fastest animals on earth, often jumping on its prey at speeds
of over 100 mph at a time.  Cheetahs are swift, precise and
strike only when the timing is perfect.  They don't run
after everything which crosses their path.  They understand
patience.  They rarely miss their target.

Contact Support


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

Yahoo! May Give Us the Mother of All HHH Entries
By Buzz Lynn
Contact Support

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    95.00  -1.56   0.53   0.00   0.00   0.00  -1.03
HHH Internet      99.88  -4.25  -1.13   0.00   0.00   0.00  -5.38
BBH Biotech.     196.63  -0.88   0.31   0.00   0.00   0.00  -0.56
PPH Pharm.       107.00   2.50   1.00   0.00   0.00   0.00   3.50
TTH Telecom.      74.63  -0.94  -1.25   0.00   0.00   0.00  -2.19
IAH I-net Arch.   91.56  -0.38  -0.69   0.00   0.00   0.00  -1.06
IIH I-net Infr.   57.00   0.06  -2.38   0.00   0.00   0.00  -2.31
BHH B2B           38.75   0.38  -0.88   0.00   0.00   0.00  -0.50
BDH Broadband     89.31  -1.75  -0.31   0.00   0.00   0.00  -2.06
SMH Semicon.      93.63  -0.13  -1.50   0.00   0.00   0.00  -1.63
RKH Reg. banks    98.25  -0.56  -0.25   0.00   0.00   0.00  -0.81
UTH Utilities     93.63   1.81   1.19   0.00   0.00   0.00   3.00


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

QQQ - NASDAQ 100 $93.25 -1.22 (-2.47 this week) Are you beginning
to discover the value of selling time vs. buying time in option
premiums?  While QQQ continues to move rangebound between $92 and
$97 in the short term and between $90 and $95 in the slightly
longer term, the premiums we sold have been evaporating on the
other guy and putting more money in our pockets with the passage
of time.  Let's look at each strategy so far this week.

Short Strangle:

$96 provided resistance yesterday while $93.50 provided intraday
support today.  Yep, the QQQ's are stuck in a range with our sold
positions declining nicely as expiration date looms on July 21st.
The best case scenario is that these positions expire worthless
and we get to keep the premiums without being put or called out of
the QQQ's.  YHOO numbers were released tonight and could add
downward pressure to the NASDAQ tomorrow after amateur hour
euphoria.  Fear of coming overcapacity in the once hot
semiconductor sector is helping to keep the NASDAQ rangebound too.
Our JUL-90P/95C position has already earned us $1 since Sunday if
we were to close it.  If you still want to play the rangebound
sentiment, which could exist all the way through the FOMC meeting
in August, consider opening an August position to capture more
time value.  The downside is that you have wait longer for the
profit.  In the meantime, more can go wrong so keep your stops set
in case a major breakout happens.

SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06
SELL PUT  JUL-90 QVQ-SL OI=27774 at $ 1.56

Net Credit = $ 3.63 or greater
Stop Loss  = $ 5.50

SELL CALL JUL-97 QVQ-GS OI= 3990 at $ 1.31
SELL PUT  JUL-92 QVQ-SN OI= 8243 at $ 2.19

Net Credit = $ 3.50 or greater
Stop Loss  = $ 5.50

SELL CALL AUG-98 QVQ-HT OI=  657 at $ 3.88
SELL PUT  AUG-90 QVQ-TL OI= 1581 at $ 4.00

Net Credit = $ 7.88 or better
Stop Loss  = $10.50

Covered Call:

Same thing applies here.  $96 provided resistance yesterday while
$93.50 provided intraday support today.  We're still rangebound
after all these weeks.  If you already own QQQ, consider selling
your favorite strike price on continued weakness or a bounce down
from resistance.  If you don't already own QQQ, a "buy/write"
order, where you simultaneously buy the stock and write the call
will likely give you the best entry.  If you like to play with
fire, you can try getting in one leg at a time, or "legging in".
But you're safer not trying that if you're trying to play it
conservatively.

QQQ = $93.25
SELL CALL JUL-93 QVQ-GO OI= 7796 at $ 3.00
SELL CALL JUL-94 QVQ-GP OI= 7860 at $ 2.56
SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06
SELL CALL JUL-96 QVQ-GR OI= 4592 at $ 1.75
SELL CALL AUG-95 QVQ-HQ OI=  760 at $ 5.00
SELL CALL AUG-96 QVQ-HR OI= 1672 at $ 4.50

Calendar Spread:

This play is almost identical to the covered call play except that
we substitute a long-term call (or LEAPS if they are offered) for
the underlying stock position.  The difference in strategy here is
that you DON'T want to get called out and have to prematurely give
up all the time value you purchased.  So if the price moves up on
the stock and you face getting called out, you can cover by buying
back the sold strike, and/or reselling a higher one if it suits
your style.  Resistance is $96 with support at $93.50 so far this
week.

BUY  CALL DEC-90 QVQ-LL OI= 1489 at $14.75

SELL CALL JUL-93 QVQ-GO OI= 7796 at $ 3.00
SELL CALL JUL-94 QVQ-GP OI= 7860 at $ 2.56
SELL CALL JUL-95 QVQ-GQ OI= 7682 at $ 2.06
SELL CALL JUL-96 QVQ-GR OI= 4592 at $ 1.75
SELL CALL AUG-95 QVQ-HQ OI=  760 at $ 5.00
SELL CALL AUG-96 QVQ-HR OI= 1672 at $ 4.50

Long Calls and Puts

It's not as easy to profit when buying time in a rangebound
market, but it's still possible to make small daily profits that
way.  Watch support and resistance and consider an entry on calls
from bounces off levels of support at $90, $91, $92.50, and $94.
Or you can buy puts at resistance currently at $97.50, $96, and
$95.

At Support:
BUY CALL JUL-90 QVQ-GL OI= 7688 at $5.25 SL=3.25
BUY CALL JUL-95 QVQ-GQ OI= 7682 at $2.25 SL=1.00
BUY CALL AUG-95 QVQ-HQ OI=  760 at $5.25 SL=3.25

At Resistance:
BUY PUT JUL-100 QVO-SV OI= 1767 at $7.50 SL=5.25
BUY PUT JUL- 95 QVQ-SP OI= 7359 at $3.63 SL=2.00
BUY PUT AUG-100 QVO-TV OI= 1529 at $9.63 SL=6.25

Average Daily Volume = 25.3 mln


-----

PPH - Pharmaceuticals $107.00 +1.00 (+3.50 this week) There's
nothing like a new all time high to make a stock look good.
That's just what we got with PPH today as it built on yesterday's
advance.  In short, we got the bounce over $103.50 (then its 10-
dma), which keeps it on the list.  Pharmaceuticals typically do
well and are perceived as a safe haven when technology gets rough.
Turbulent semiconductors and Internets are seeing to that.
Technically, you probably won't see a prettier two days on the
chart beginning with that bounce at support (actually $103.94) on
Monday's open.  From there, PPH took out resistance at $105, $106,
and $106.50, with a final breakthrough to $107 in the final 20
minutes prior to today's close.  That level is now nicely above
its 5-dma of 105.50 and 10-dma of $104.43.  Either of those could
act as support during any profit taking.  However, we'd expect the
bigger trend to remain intact as long as technology issues
continue stubbing their collective toes.  Wait for a dip to your
comfort level (we think the dma's noted above could work well) and
hop in the water.

BUY CALL JUL-100 PPH-GT OI= 24 at $7.50 SL=5.25
BUY CALL JUL-105 PPH-GA OI=118 at $3.25 SL=1.75
BUY CALL AUG-105 PPH-HA OI= 62 at $5.13 SL=3.25
BUY CALL AUG-110 PPH-HB OI=  1 at $2.31 SL=1.25

Average Daily Volume = 118 K


-----

BBH - Biotech $196.63 +0.31 (-0.56 this week) As we noted Sunday,
nothing goes up in a straight line, and BBH was due for a break.
While we haven't seen any major bouts of profit taking, BBH has
traded flat over the last two days.  Nonetheless, after gapping
down and finding support just under $194 yesterday and another
move up to test $200, intraday support could be found at $195.38.
If everything remains the same, it might hold at this level.
However, even the 5-dma is way back at $193.93 with the 10-dma
trailing further back at $185.89.  That leaves plenty of room to
fall if things get ugly.  For that reason, as with Sunday, we
suggest you tighten up the stops from here so you don't have to
give up your profits.  If you are looking for an entry, target
your favorite level of support, but be sure you see a bounce and
avoid the temptation to catch the falling knife.  BGEN is
currently the component to watch as they narrowly dodged a bullet
today in reporting earnings one penny above estimate.  Their
revenues were OK, which could provide a small relief rally
tomorrow morning.  Though the nail biting may be over for now,
squeaking by expectations probably won't provide lasting relief.
This could have an effect on the entire sector.  Remember, protect
profits.  Genetic treatment can't help your trading account.

BUY CALL JUL-190 BBH-GR OI= 198 at $12.25 SL= 9.25
BUY CALL JUL-195 BBH-GS OI= 139 at $ 9.25 SL= 6.50
BUY CALL AUG-195 BBH-HS OI=  36 at $17.63 SL=13.00
BUY CALL AUG-200 BBH-HT OI= 112 at $15.38 SL=11.25

SELL PUT JUL-185 BBH-SQ OI=  37 at $ 2.25 SL=4.00

Average Daily Volume = 605 K

-----

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

HHH - Internet $97.06 -3.94 (-8.19 this week) We have radar lock
on HHH. . .clear to fire!  Thanks to investors' fear that YHOO may
not report good revenues, or worse, have a bad outlook for the
future, this HOLDR should have been on your radar screen for a
potential play as noted in Sunday's newsletter.  We bring you this
play tonight on the short or put side.  While YHOO may have
investors breathing a sigh of relief after tonight passable
earnings report (YHOO was up to $121 after hours), we expect the
sector to remain weak as YHOO did little to assuage fears that the
sector wasn't still in deep trouble.  That said, look for a relief
rally tomorrow morning followed by another selloff, which might
make an excellent entry for a short or a put position.  Consider
the opening pop on HHH a gift, but wait for HHH to roll over
before initiating a position.  How can we think that if YHOO is up
huge right now?  Simple.  HHH set a new low today on heavy volume
and failed to close above its old low of $101, even in the latter
day rebound of the sector.  Additionally, even with a strong
close, HHH is way under every dma known to man and womankind.  The
5-dma is still up at $105.  Look at a rollover from $101 as an
opportunity to enter as we expect the recovery to be short-lived.

BUY PUT JUL-105 HHH-SA OI=259 at $10.00 SL=7.00
BUY PUT JUL-100 HHH-ST OI=155 at $ 6.50 SL=4.50
BUY PUT AUG-100 HHH-TT OI=285 at $ 9.63 SL=6.75
BUY PUT AUG- 95 HHH-TU OI= 17 at $ 7.00 SL=5.00


Average Daily Volume = 951 K


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

IAH
IIH
BHH
SMH
BDH
TTH
RKH
UTH



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

Index      Last      Mon      Tue    Week
Dow    10727.19    10.60    80.61   91.21
Nasdaq  3956.42   -42.91   -23.87  -66.78
$OEX     801.05    -3.41     1.46   -1.95
$SPX    1480.88    -3.28     5.26    1.98
$RUT     529.74     2.61    -1.09    1.52
$TRAN   2817.10    24.38     8.08   32.46
$VIX      22.39     1.06    -0.49    0.57

Calls

SDLI     318.00    25.38    -2.69   22.69  New, our favorite's back
CREE     140.75     7.25     3.75   11.00  New, upsides surprises?
INCY     106.00     5.06     5.06   10.13  New, earnings time!
BRCD     195.56     7.56     2.44   10.00  Breath of fresh air
PRSF      63.56     2.50     1.31    3.81  Managed to hold on
JNPR     148.75     0.25     1.19    1.44  Dropped, earnings Thurs.
RSAS      73.13     1.38    -0.75    0.63  Dropped, earnings Thurs.
NT        71.75    -0.25     0.75    0.50  Waiting for the breakout
JPM      117.94    -0.88     0.94    0.06  Dropped, earnings Thurs.
DNA      172.88     1.44    -1.56   -0.13  Looking for an entry
GSPN     119.38    -4.31     4.13   -0.19  Forget Monday
KANA      60.63    -0.81     0.50   -0.31  Practice patience
MUSE     168.50    -4.06     3.50   -0.56  Lack of conviction
AGIL      72.25    -0.63    -0.63   -1.25  Pattern hasn't changed
TIBX     112.50    -1.19    -1.56   -2.75  It finally happened
MSFT      79.13    -2.56    -0.31   -2.88  Dropped, sub-$80s
CIEN     167.38     1.88    -6.38   -4.50  Still ascending
SEBL     165.50    -1.81    -3.63   -5.44  Entry at support
COHR      79.56    -5.13    -4.19   -9.31  Dropped, broke down
GLW      250.50   -11.69     2.25   -9.44  Dropped, did well for us
ISSX      91.50    -2.63    -7.88  -10.50  Got caught in selloff

Puts

RMBS      87.25    -3.75   -10.00  -13.75  New, bad news coming
YHOO     105.50    -6.50    -4.50  -11.00  New, you know the drill
LCOS      41.63    -2.75    -4.88   -7.63  Bleeding continues
ICIX      23.38    -1.88    -3.19   -5.06  Investors not buying it
CMGI      36.50    -2.25    -2.50   -4.75  Woeful ways continue
DD        47.25     1.00     2.31    3.31  Dropped, cyclicals
PHCM      66.13     5.75    -2.00    3.75  A resurrection?



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


CALLS:
*****

RSAS $73.13 -0.75 (+0.63) Our good news play on RSAS has come
to an end.  The good news hasn’t ended, but as you will recall,
the company will announce earnings on Thursday after the close,
and we want to be out of the play by then to avoid the usual
post-earnings depression.  The stock held up fairly well today,
but didn’t have enough momentum to stay above the $74 level.
There may still be some upside left in this play, but at this
point we are content to take our profits and move on to the
next play.

GLW $250.50 (-6.19) The announcement that JDSU would acquire SDLI
for $41 bln sent a tremor through the fiber optic group early
this week.  After the announcement Monday morning, it was
reported that GLW was also bidding for SDLI.  As the news of
consolidation spread, speculation mounted that GLW would be the
next acquirer in the fiber optic arena.  And speculation was all
the arbitrageurs needed to step in and take GLW lower Monday.
The stock plunged in the first hour of trading, and showed little
signs of recovery.  While GLW did recover some lost ground
Tuesday, the speculation of continued consolidation presents
risk.  GLW has treated us well for the duration of our play and
now is a good time to step aside and take the profits you might
have earned.

COHR $79.56 -4.19 (-9.31)  It's been a tough two days for COHR.
Things really started to get ugly late Monday afternoon with about
an hour to go in the session when the stock slipped by $4.
Today's choppy trading was no better, as the weakening NASDAQ
brought down tech stocks.  There was no news today for COHR and
these recent declines appear to be sheer profit-taking.
Technically, our biggest concern was that COHR could not hold
support at its 10-dma, currently $82.77.  After managing a bounce
from that technical on Monday, sellers came out strong and sent
the stock just south of $80.  As a result, we will be exiting this
call play tonight.

JNPR $148.75 +1.19 (+1.44) The good, the bad, and the ugly.
JNPR rose to the occasion in early trading yesterday and today.
The share price cracked the resistance at $151 and broke into
the $154 and $155 range.  This is good news for those that
jumped into positions early on and we're able to rake in some
immediate profits.  Even entries off the 5-dma at near-term
support of $144 and $145 yesterday proved lucrative if you got
out in this morning's upswing.  Another piece of good news was
the new Buy coverage and $200 price target from analyst B. Alex
Henderson at SSB on Monday.  The bad news is that the play on
JNPR is coming to a quick close.  The company is reporting
earnings this Thursday, July 13th, after the market.  Have all
positions closed out before that announcement.  If you choose to
hold over the announcement, which OIN never recommends, then
you're at risk for some really ugly consequences.  The odds are
typically stacked in favor of a post-earnings sell-off.  We're
dropping JNPR tonight to provide ample time for successful
exits.  And here's a tidbit from the rumor mill for those that
like to keep up-to-date on the company news.  Whispers are that
Juniper Networks may purchase Extreme Networks, a maker of data-
traffic switches for computer networks, for approximately $10
bln.  Many analysts have mixed opinions on the prospect.

JPM $117.94 +0.94 (+0.06) JPM did a fine job leading the
financial sector upwards in recent sessions, but now's the time
to exit on strength.  The topsy-turvy waves in trading are
certainly a contention, but specifically it's JPM's earnings'
report on Thursday that is of the most significance.  JPM is
announcing its 2Q numbers BEFORE the opening bell.  Therefore,
please close out any open positions prior to Wednesday's close.
You don't want to be the victim in a post-earnings decline
whether caused by poor earnings, a negative market sentiment or
simple profit taking.

MSFT $79.13 -0.31 (-2.88) We're letting go of our play on MSFT
tonight for the following reasons:  First there's the prejudice
of earnings' woes surrounding the techs, which doesn't appear
will evaporate before the end of the week.  Then there's this
week's annual Microsoft Professional Developers Conference
(PDC).  The outcome of this event will be crucial to the
company's overall future (and share price!).  Microsoft's goal
is to impress the financial analysts and convince the developers
that their recently outlined .Net platform is the wave of the
next-generation.  If it fails to do so, MSFT could fall flat on
its face - and whether this would ever be a reality is
irrelevant since trades are generally made on perception.  All
and all, this recovery play offered us a multitude of profitable
trading opportunities since mid-June and may indeed provide more
in the short-term.  However, we don't want to risk the progress
we've made with MSFT.  This reasoning and the company's own
earnings' release slated for next Tuesday, July 18th, after the
close prompts us to exit tonight.


PUTS:
*****

DD $47.31 (+3.38) The down-and-out cyclicals enjoyed their second
consecutive day of higher prices Tuesday.  Paper giant IP added
momentum to the group after issuing a better-than-expected profit
report earlier in the morning.  DD was carried higher by the
broad rally across the Chemicals sector as UK and Dow also posted
respectable gains on healthy volume.  The strong rally in DD
Thursday boosted the stock well above its 10-dma which had been
formidable resistance for the past month.  In light of the
reversal of momentum early this week in the cyclicals, its time
to sell too soon, and put our capital to work elsewhere.


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DISCLAIMER
**********
This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in
options. It is possible at this or some subsequent date, the
editor and staff of The Option Investor Newsletter may own,
buy or sell securities presented. All investors should consult
a qualified professional before trading in any security. The
information provided has been obtained from sources deemed
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely
information to its subscribers but cannot guarantee specific
delivery times due to factors beyond our control.

The Option Investor Newsletter Tuesday 07-11-2000
Copyright 2000, All rights reserved. 2 of 2
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********************
PLAY UPDATES - CALLS
********************

BRCD $195.56 +2.44 (+10.00) With the NASDAQ unable to break out
of its trading range, BRCD is like a breath of fresh air.
After posting new highs for the past 3 days, the stock was due
for a little weakness. After briefly moving above $200 this
morning, the broad market weakness dragged it down to bounce
at $192. Networking stocks are continuing to shine and with all
the positive press BRCD has seen lately, our play is still looking
great as we launch into the July earnings season. BRCD doesn't
report until mid-August, but here's a little nugget to chew on.
BRCD becomes a split candidate over $200, and if the current
move continues, the stock could be well above that prior to
the company's earnings announcement. That would seem like a
logical time to make the announcement. Intraday support is
building at $192 with stronger support at $185 and then $180.
After the tremendous gains seen on our play since initiating
coverage below $140, tightening up those stops would be a good
idea.

DNA $172.88 -1.56 (-0.13) We're getting a little concerned about
DNA as its earnings date approaches. The company is set to
report earnings on July 17th, and it is somewhat disconcerting
to see the stocks inability to move upwards with the rest of
the Biotech sector. Biogen reported earnings a penny over
the consensus estimates today after the close and was trading
slightly higher in after-hours. Hopefully, this is a sign of
what we can expect to see in the Biotech sector as earnings
continue to roll in. Volume has been falling off steadily for
the past few days, with less than half the ADV trading hands
today. Support at $169 is still holding up and bounces from
this level can be considered for new entry points as long as it
comes on increasing volume. With the strong Biotech gains
recently, a pullback in the sector would not be out of the
question and could cause DNA to drop to the next level of
support at $162 before heading higher. Another point to keep
in mind is that DNA historically is a split candidate above
$150. With the stock trading north of $170, and plenty of
shares authorized, we could be rewarded with a split
announcement along with earnings next week.

ISSX $91.50 -7.88 (-10.50) A mixed day in the markets made it
rough on Internet stocks ahead of YHOO's earnings, which
fortunately came in better-than-expected. ISSX traded lower
yesterday and continued its decline for much of the day today.
Volume picked up into the close and the last 5 minutes saw a
sharp selloff as the stock traded as low as $89 before bouncing
a bit and closing at $91.50. Support at $95 failed to hold
today, and with the strong selling that took place all day, we
would be hesitant to open new positions until ISSX can show us
some strength by moving back above this level. Earnings for
the Internet security firm are just around the corner on July
18th before the markets open. Although the late-day drop to
the $89 support level could be providing us with a great entry
point, we want to make sure the bounce is confirmed tomorrow
by strong buying volume before opening new positions. If this
support level fails to hold, stand aside and wait for the dust
to settle.

MUSE $168.50 +3.50 (-0.56) Virtually unchanged for the week,
MUSE is reflecting the lack of conviction that is so prevalent
in the broader markets. After running as high as $175
yesterday, shares of MUSE gave back some ground into the close.
The stock opened stronger this morning, with buyers pushing
the price back to $170, but the bears weren't done yet. The
sellers took over as the noon hour arrived and pushed the price
down for another test of support at $165. Triumphant again, the
buyers stepped in and helped lift the price as the closing bell
approached. The 5-dma (now at $164) is continuing to be
supportive, but we are concerned with the fact that volume has
been rather weak this week. Stronger support is seen between
$158-$160, supported by the 10-dma at $157. Earnings are set
for July 19th, so time is running out for an earnings run.
Consider new entries as the price bounces at support but keep
a watchful eye on the volume.

NT $71.25 +0.25 (-0.38) Still waiting for the breakout. A
quick look at an intraday chart of NT shows the indecision that
is pervading the broader markets. The last 2 days, the stock
has run up to test Friday's high of $72.50 before running out
of steam and falling back. The lows this week have gotten
progressively lower, and we would like to see NT start posting
higher highs and lows again. After moving as low as the $69
support level this afternoon, NT was rescued by the bulls as
they re-emerged and helped to push the price sharply higher
on increasing volume prior to the end of the session. Consider
new entries on a renewed bounce from support, but don't try to
catch a falling knife. Earnings are two weeks away on July
25th, so there is still time to get positioned for an earnings
run. More conservative traders may want to wait for NT to make
a show of strength by trading through resistance at $72.50
before opening new positions.

SEBL $165.50 -3.63 (-5.44) SEBL was busy Monday lining up more
strategic alliances and more partnerships. SEBL said it had
teamed with Quest Software (QSFT) to provide performance
solutions. The company also signed an agreement with Grand
Adventures Tour & Traveling (GATT) to provide CRM software, and
finally, Meriwest Credit Union said it had selected SEBL's
software to personalize its financial offerings. The host of
announcements enabled SEBL to edge higher Monday, despite the
weakness in the overall Tech sector. The selling in the sector
caught up with SEBL Tuesday when the stock bumped into resistance
at $175 and followed the NASDAQ lower. Despite the sell-off, the
stock stopped at its major support level at $165 late Tuesday,
which might warrant consideration for an entry if SEBL bounces
from that level early Wednesday morning. Also, consider waiting
for momentum to build and look for entry if SEBL moves back above
its old support level at $170. A more conservative entry point
might be found if SEBL charges above $175 with healthy volume.

CIEN $167.31 -6.44 (-4.56) The news that JDSU would acquire SDLI
for a hefty premium Monday left investors asking, who's next?
The speculation of further consolidation helped CIEN to buck the
overall weak market Monday, and edge higher. Despite a favorable
mention in Investor's Business Daily Tuesday morning, CIEN fell
along with the Tech sector as a round of profit taking and
nervousness ahead of earnings hit the street. However,
despite the late day selling, CIEN's ascending channel held
strong Tuesday, with the stock tracing a higher low. An
aggressive trader might look for a quick entry Wednesday if CIEN
bounces from its current levels, and resumes it climb. Given
that the stock fell below support at $170 Tuesday afternoon you
might look for entry if CIEN moves back above that level. With
second-quarter earnings season moving into full-swing, and
telecom equipment competitors such as LU scheduled to report
profits in less than a week, you might wait for the momentum to
return to CIEN, and look for a more conservative entry if the
stock rallies above $175.

TIBX $112.50 -1.56 (-2.75) Well, it finally happened. The profit
takers we love to hate finally showed up this week and sold TIBX
lower. The company said Monday that Novopoint, a food industry
B-2-B marketplace, had selected TIBX's software to launch its
Web site this summer. Despite the new contract, TIBX fell along
with the Tech sector, and continued to slide into Tuesday's
trading. However, there is a silver lining to this cloud. The
volume early this week has been indicative of profit taking.
Furthermore, TIBX found support at its 10-dma, currently at
$108.63, and actually rallied into the close Tuesday. Also worth
noting, TIBX was added to the prestigious USA Today e-Business 50
Tuesday, due to its impressive stock performance and the increase
in demand for its products. And finally, the positive report
from Yahoo after the close could set the tone for leading Net
stocks Wednesday morning. With that said, look for an entry if
TIBX clears resistance at $115 and make sure to check the volume
to confirm the buyers have returned. A more conservative entry
might be found if TIBX moves above its near-term high at $118.

GSPN $119.38 +4.13 (-0.19) Well, we'll just forget that
yesterday ever happened. If you look at an intraday chart, you
can see that Monday's trading session doesn't seem to fit in with
the rest of the trend. At any rate, GSPN put in a very nice
performance today as the NASDAQ gave up midday. GSPN just about
made up for yesterday's losses. After today's early spike above
the $120 level, the stock settled into a narrow range around $119.
While GSPN is still maintaining its uptrend, $120 continues to
be a point of resistance. If you are looking to initiate a
position, any pullbacks to the $115 area would look good. The
10-dma lies at $114.73. More aggressively, entries may be
obtained on any intraday pullbacks. A sustained move through
$120 is what we're looking for. If this move occurs, the next
level of resistance is $125, near its most recent highs posted at
the end of June.

PRSF $63.56 +1.31 (+3.81) Even with an unconvincing NASDAQ, PRSF
managed to hang on to its gains. Besides, its uptrend is fully
intact. Early in today's session, PRSF spiked up to the $63 level
and then traded in a $1 range. It is clear that $64 is the
resistance level with which we will have to battle. Keep this
level in mind. There is solid support near the $60 level, also
where the 10-dma lies at $60.72. This technical has provided
reliable support and entry during this current uptrend. A more
aggressive entry could be obtained by targetshooting at $62 on
intraday pullbacks. Confirm that it is holding that support,
otherwise the next stop could be $60. Helping the stock break
away from $60 yesterday was the announcement by PRSF and HWP that
Portal's leading real-time customer management and billing
solution, Infranet, is now certified with HP MC/ServiceGuard.
This reinforces Portal's failsafe capabilities in the Internet
systems arena.

KANA $60.63 +0.50 (+0.31) At the moment, we simply must practice
patience. KANA is towing the line near its support at $61 and
$62 despite the market fluctuations, which is, of course, a
positive aspect. However, while KANA is managing well during
this consolidation period, it wouldn't be judicious to open new
momentum plays until an uptrend resumes. KANA finished today's
session just a fraction from the 10-dma ($60.86) - anything
lower should send us into warning mode. Volume's been lagging a
bit too, so look for renewed interest in the stock to spark a
breakout. The share price needs to at least move through the 5-
dma ($62.23) in the near-term. If the general market doesn't
give KANA a boost, then perhaps the company's upcoming earnings
can ignite another run. Kana Communications is expected to
report sometime between July 19th and July 26th. We'll provide
a confirmed date ASAP.

AGIL $72.25 -0.63 (-1.25) The dissenting sentiment of the
Internets is of course weighing heavy on AGIL, but honestly
there really hasn't been of a change in AGIL's recent trading
pattern. The share price is channeling between $72 and $74 with
overhead resistance firmly situated at the $75 mark.
Confirmation would be for moves through resistance on better
volume. Since this is a pure momentum play, we really need to
see some upside action soon. Otherwise we'll have no choice but
to kick it to the curb. So you're aggressive and willing to
take the risk on future potential? Then target shoot at the low
end of the range near the 5-dma ($72.48), but be careful and
keep stops tight. In the news on Monday, Compaq Computers (CPQ)
announced it entered into a multi-year, multi-million dollar
contract with Agile Software for subscriptions to its Agile
Anywhere and Agile Buyer, both Web-based manufacturing commerce
solutions.


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

CMGI $36.50 -2.50 (-4.75) CMGI's woeful ways continued early this
week when Prudential Securities lowered its optimistic price
target to $155 from $216 Tuesday afternoon. That was following
the bearish news Monday that Divine InterVentures, an Internet
holding company, said it was delaying its initial public offering
for the third time, citing weak demand in the capital markets.
The continued expectation of slowing revenue growth from online
advertising and a weak IPO market are weighing heavily on CMGI.
Money managers are beginning to question CMGI's ability to
deliver consistent revenues and ultimately earnings. The surge
in volume over the past week might suggest the professionals are
leaving the stock. A word of caution though, the positive news
from Yahoo Tuesday evening will most likely spread optimism
through the Internet sector. If CMGI rallies, the stock will
face congestion around $38 and resistance at $40. Wait for the
sellers to return before entering the play if CMGI advances. If
the downward momentum returns, look for an entry if CMGI falls
below $36.

ICIX $23.38 -3.19 (-5.06) PaineWebber reiterated its Attractive
rating on shares of ICIX Tuesday morning. But, investor's
weren't buying it, literally. For the second consecutive day,
ICIX fell sharply on increasingly heavier volume. Investor's
concerns over slowing revenue growth have plagued ICIX for the
past month, and that pessimism seems to be building. It appears
institutions are still selling their positions in ICIX, noting
the huge surge in volume in the past two days. ICIX has fallen
well past its near-term support levels so far this week, and
won't find any major help until the $20 level. The stock has
fallen fairly swiftly so far this week, and may be due for a
relief rally. Although noting the heavy selling Tuesday, ICIX
may be headed lower from here. If ICIX does bounce, it will face
resistance at $24 which may provide a good entry if the selling
resumes. Otherwise, if ICIX continues falling, look for entry
if the stock slips below its intra-day low Tuesday of $22.75.

LCOS $41.63 -4.88 (-7.63) The bleeding continues. Internets
have been extremely weak lately. Even YHOO couldn't manage
a earnings rally. And although many of the Internet issues
are trading up after hours on the YHOO earning, we are skeptical
about the lasting power of this news. LCOS has continued to
slide and is rapidly approaching the $40 level. Given that
many of these internet issues will see an early morning pop
tomorrow, an attractive entry point may be obtained after the
market settles in. Watch for LCOS to roll over after the
euphoria wanes. Remember, YHOO didn't blow away earnings.
There are still margin concerns. Technically, LCOS did have
stronger volume today, which may indicate that we may be finding
a bottom near $40. We will be watching this development very
closely. Look to $40 for support, and possible exits. On the
upside, LCOS could recover to $44-$45 level before encountering
resistance. This would be a nice entry point, given that the
Internets rollover after a morning spike.

PHCM $66.13 -2.00 (+3.75) Could a resurrection be in our midst?
Yesterday PHCM bobbed primarily between $66 and $67 before
successfully treading above the water line ($68) during the
late-day market surge. While today the share price saw a spike
to $70.38 and solid trading in at the $68 mark, it couldn't hold
the gains and is now perched just above the 5-dma (65.55). The
Internets as a whole are poised to lose more ground and our play
on PHCM would certainly benefit from such an event. But recall,
PHCM hit our target area of $60 on Friday. Any moves below this
bottom mark would be a gift. Therefore you can understand that
without the potential of more Internet weakness coupled with
YHOO's current post-earnings' decline in our midst, we'd have
likely exited this lucrative play. Consider the following
aspect as well. Volume was about 50% above the norm on the
ascending and descending fluctuations, which indicates a buyer-
seller battle is transpiring. Therefore it can't be ignored
that there's definite interest for PHCM at this price level.
You see the company is either going to make it to the big-time
(another QCOM perhaps) or get ousted by the likes of Nokia
(NOK). And we've got to watch out for the ever-increasing band
of analysts who keep tacking on the positive recommendations.
Today USB Piper Jaffrey started PHCM with a Strong Buy and a
$120 price target. So here's the plan. For the next day or two
we're keeping PHCM, but it's red-flagged - the share price must
resume a conclusive downtrend or it'll be a drop on Thursday
evening.


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

CREE - Cree Research $140.75 +3.75 (+11.00 this week)

Cree makes silicon carbide (SiC) diodes and wafers. Its blue and
green light-emitting diodes (LEDs), which account for about half
of sales, are used by companies such as Siemens to make dashboard
lights, market tickers, and other products. Cree also provides
SiC wafers, which work at higher temperatures and voltages than
standard silicon wafers, primarily to research labs. U.S.
government research contracts account for 10% of Cree's sales.

CREE's second-quarter earnings announcement is just around the
corner. Noting the company's propensity to beat estimates,
investors will be expecting a surprise. The anticipation of
better-than-expected profits may already be building, noting
CREE's impressive relative strength Tuesday in light of an
overall weak Semiconductor sector. The semis have come under
pressure recently after the downgrade of the entire sector from
the now-famous Jonathan Joseph of Salomon Smith Barney. CREE has
smartly rebounded in the past four trading days, returning to its
levels prior to the group downgrade a week ago. While several
semis are still languishing in the wake of the Salomon call, CREE
has positioned itself for an earnings run. And it's no wonder,
CREE has carved out a lucrative niche in the Semi sector with its
proprietary SiC technology. The company has a stronghold of the
market for blue and green LEDs and is expected to increase its
earnings by nearly 100% this year in part from selling those
little light emitting chips. CREE has surpassed analysts'
profit predictions by an average of about 11% in its last four
quarters and could eclipse estimates again noting the surge in
demand for its products this year. CREE's technical picture is
shaping up nicely for an earnings run. A glance over CREE's
daily chart reveals a loosely-formed inverse head-and-shoulders
which might provide the base to propel our play higher. The
stock has been on a steady uptrend since last week and will need
to clear resistance at $145 before moving higher. CREE moved
back above its 10-dma Tuesday, located at $136.31, which may
provide support during an intra-day pullback going forward. Look
for an entry Wednesday morning if CREE can breakout above $145
and confirm a rally with volume.

To add a little spice to our play, CREE is trading well into
split territory. The company hasn't split its shares since July
of 1999, when the stock was trading around $78. CREE has enough
shares to authorize a 2-for-1 and may do so given the improving
market conditions and warm reception by investors for companies
announcing splits.

***July contracts expire next week***

BUY CALL JUL-135*RNC-GG OI= 38 at $12.88 SL= 9.75
BUY CALL JUL-140 RNC-GH OI=259 at $ 9.88 SL= 7.00
BUY CALL JUL-145 RNC-GI OI= 73 at $ 7.75 SL= 5.75
BUY CALL AUG-140 RNC-HH OI= 87 at $19.13 SL=13.75
BUY CALL SEP-145 RNC-II OI= 58 at $22.13 SL=16.00

SELL PUT JUL-130 RNC-SF OI=207 at $ 3.63 SL= 5.50
(See risks of selling puts in play legend)

Picked on July 11th at $140.75 P/E = 185
Change since picked 0.00 52-week high=$202.00
Analysts Ratings 6-2-0-0-0 52-week low =$ 23.50
Last earnings 03/00 est= 0.21 actual= 0.26
Next earnings 07-27 est= 0.27 versus= 0.26
Average Daily Volume = 832 K



INCY - Incyte Genomics $106.00 +5.06 (+9.09 this week)

Formerly known as Incyte Pharmaceuticals, INCY is a provider
of that hot commodity known as genomic information-based
products and services. The company focuses on providing an
integrated platform of information technologies designed to
assist pharmaceutical and biotechnology companies in the
understanding of disease and the discovery and development of
new drugs. The company's products include database products,
genomic data management software tools, microarray-based gene
expression services, and genomic reagents.

It's hard to go wrong with a Biotech company involved in
genomics research these days. The broad-based Biotech
recovery, triggered last month by the announcement of the
completion of the human genome mapping is finally starting to
breathe signs of life into shares of INCY. After building
support near the $85 level, shares of the recently renamed firm
began moving higher last week. Volume picked up today, topping
the ADV by 50% as the stock tacked on more than $5. This was
in the midst of another mixed day in the broader markets as well
as the Biotech sector. So aside from a strong day, what gets our
attention about INCY? It's earnings time again! The company
reports next Tuesday after the close, giving us just one short
week for our play. With the positive earnings reports from BGEN
and YHOO today after the close, things are looking positive as
we head into the heart of the earnings season. As mentioned
above, INCY has good support at $85, with near-term support
found at $102 and then $96. As long as the sector can stay
healthy, INCY looks like it may be poised for a nice quick run.
Consider new entries on a bounce from support, confirmed by
strong volume. The only concern we have is today's pullback
from resistance near $110. Above this level there is more
resistance at $120, and the stock will likely need the support
of the Biotech sector to push through these levels. A more
conservative strategy would be to wait for buying volume to
push the share price through the $110 resistance level before
playing.

After the stunning announcement that the human genome had
been fully mapped, the entire Biotech sector began moving
higher, taking INCY along for the ride. Since then, there
has been little in the way of news on the company. The most
recent news on INCY is from late June when the company expanded
their agreement with Eli Lilly in which the two companies will
collaborate on accelerating the development of therapeutic
proteins.

***July contracts expire next week***

BUY CALL JUL-105 IPQ-GA OI=156 at $ 9.25 SL= 6.25
BUY CALL JUL-110*IPQ-GB OI=132 at $ 7.25 SL= 5.00
BUY CALL AUG-105 IPQ-HA OI= 3 at $17.13 SL=12.25
BUY CALL AUG-115 NGQ-HC OI=245 at $13.00 SL= 9.75
BUY CALL SEP-115 NGQ-IC OI= 51 at $18.13 SL=13.00

SELL PUT JUL- 95 IPQ-SS OI= 41 at $ 3.38 SL= 5.50
(See risks of selling puts in play legend)

Picked on July 11th at $102.00 P/E = N/A
Change since picked +0.00 52-week high=$289.06
Analysts Ratings 1-2-4-0-1 52-week low =$ 16.44
Last earnings 04/00 est=-0.59 actual=-0.27
Next earnings 07-18 est=-0.40 versus=-0.26
Average Daily Volume = 1.02 mln



SDLI - SDL Inc. $318.00 -2.69 (+22.69 this week)

SDL's products power the transmission of data, voice, video
and Internet information over fiber optic networks to meet
the needs of telecommunications, dense wavelength division
multiplexing, cable television and satellite communications
applications. They enable customers to meet the bandwidth
needs of increasing Internet, data, video and voice traffic by
expanding their fiber optic communications networks much more
quickly and efficiently than would be possible using conventional
electronic and optical technologies. SDL's optical products
also serve a variety of non-communications applications,
including materials processing and printing.

We don't have much time left to play SDLI, but fortunately
JDSU's recent five day, 30-point dip allows for an entry point
on SDLI. After all, SDLI is an OI favorite and we will look
for any chance to play it one more time before the pending
merger with JDSU. Yep, you heard correctly. JDSU is buying
SDLI in what is a $41 bln dollar deal based on Friday's
close. That would price value SDLI at $440 per share. Now,
since it is an all stock deal, SDLI is subject to fluctuate
with JDSU shares. That is why SDLI is trading at only $318 as
JDSU has been sinking on the news. Some analysts and investors
feel the purchase price was a little steep. Nevertheless, the
sentiment on the Street is mixed as some look for a rebound in
JDSU in the near future once the news is fully digested. We
have to side with this opinion and expect JDSU to bounce back.
It is hard to keep this stock down for long, historically
speaking. JDSU spent Tuesday trying to put in a bottom at $95.
If this doesn't hold, we would expect the decline to continue
to $88, where it has solid support at the 200-dma. In either
case, wait for a bounce first. Resistance on the journey back
up is tougher to call. We will let the bounce occur and watch
for signs of resistance to report in the next update. Remember,
this is a fast mover and not for everyone. Take the necessary
safety precautions in the form of stop loss orders.

Paine Webber didn't seem to have a problem with the proposed
merger and set a $220 price target for JDSU. That would value
SDLI at nearly $750. Although such numbers are nice to hear,
it may not be realistic. But, here are some comments straight
from JDSU CFO, Tony Muller, during the conference call Monday,
"The pro forma consensus estimates for the recently completed
June quarter for JDSU, E-TEK and SDL add up to sales at a $2.7
billion annual run rate. Further, the preliminary results for
the quarter for each of these three companies is for sales and
income to be higher than investment community estimates, and you
will learn of these results later in the month when we announce
results." Higher than analysts expectations, huh? This may
help translate into an earnings run for JDSU. SDLI will report
on July 20th and JDSU on the 26th of July (both dates confirmed).

***July contracts expire next week***

BUY CALL JUL-310*QJV-GB OI= 397 at $18.50 SL=13.75
BUY CALL JUL-320 QJV-GD OI= 620 at $13.25 SL=10.00
BUY CALL JUL-330 QJV-GA OI=1604 at $ 9.13 SL= 6.75 High Risk!
BUY CALL AUG-320 QJV-HD OI= 186 at $29.38 SL=22.00
BUY CALL AUG-330 QJV-HA OI= 211 at $24.63 SL=18.50

SELL PUT JUL-310 QJV-SB OI= 453 at $ 7.63 SL=10.00
(See risks of selling puts in play legend)

Picked on Jul 11th at $318.00 PE = 611
Change since picked +0.00 52-week high=$330.50
Analysts Ratings 12-7-0-0-0 52-week low =$ 26.19
Last earnings 04/00 est= N/A actual= 0.22
Next earnings 07-20 est= 0.30 versus= 0.08
Average daily volume = 5.70 mln




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

YHOO - Yahoo! Inc 105.50 -4.50 (-5.50 this week)

Yahoo! Inc is a global Internet media company that offers
an online guide to web navigation, a branded network of
comprehensive information, communication services, and
shopping access to millions of users daily. Yahoo! can lay
claim to the top spot among Internet portals. The Web site
gets nearly 31 million hits each month. It's also one of
the few Internet players operating in the black. The bulk
of Yahoo!'s revenue comes from its 3800 advertisers and
their banners.

The more experienced know the drill - YHOO historically
experiences some degree of a post-earnings' decline no matter
what the numbers reveal. The pattern is tried and true. This
time around the downdraft started a bit early after a handful of
Wall Street analysts questioned growth potential. The company's
financials have received considerable attention because of the
tightening advertising budgets of the cash-strapped dot-coms.
YHOO dove under the $120 support level on Friday and has
proceeded to step down in $5 increments since. So you may be
thinking easy money here, but there's no such thing (not without
peril anyway). Today Yahoo! surprised the Street and posted a
profit of $73.9 mln, or $0.12 p/s. The numbers surpassed the
posted estimates by $0.02 and met the so-called whisper number.
In a comparison to the year-ago period, the revenues were up
175%! The immediate result was for shares of YHOO to surge
upwards of $120 in after-hours trading on Instinet. Our play is
for YHOO to resume its downtrend pattern during regular trading
hours tomorrow. Many analysts agree that the sour market and
the ultimate loss of venture capital will have a negative impact
on the share price overall. Plus, this Friday we have some
important economic data coming out, which may produce a profit
taking party in and of itself. We want to stress the following:
we only recommend entering this YHOO put play on any weakness
over $120(rollover), or a failure to hit $120 on Wednesday.

***July contracts expire next week***

NOTE: Prices will vary greatly due to after hours trading.

BUY PUT JUL-120*YMM-SD OI=10003 at $17.50 SL=13.50
BUY PUT JUL-115 YMM-SC OI= 3573 at $13.88 SL=10.75
BUY PUT JUL-110 YMM-SB OI= 4760 at $10.38 SL= 7.25
BUY PUT JUL-105 YMM-SA OI= 5730 at $ 7.75 SL= 5.50

Average Daily Volume = 8.86 mln



RMBS - Rambus Inc $87.25 -10.00 (-13.75 this week)

Rambus, Inc. develops high-performance, chip-to-chip interface
technology which in turn enables semiconductor memory devices to
keep pace with todays faster generation of processors and
controllers. The company's technology is incorporated onto
dynamic-random-access-memory (DRAM) chips to deliver faster and
more efficient performance than conventional DRAM's. Rambus
technology is licensed to over 30 semiconductor companies
including 8 of the top ten semiconductor companies.

Knock-knock who's there? If your holding RMBS, you may not want
to answer. It's the "dag nabbit" anti-trust guys preparing for
a rumble. The news that computer memory chipmakers are planning
to file an anti-trust complaint against the company gripped RMBS
by the throat today. Yes! This is the same company that saw an
astonishing 511% improvement of its share price during the first
half of this year. No matter, legal action may be sought to
prevent RMBS from enforcing patents it holds on some chip
technology. The aggressive move would not only thwart Rambus
from bringing suits against these companies, but also prevent
"forced" royalty payment pacts like it has with Toshiba and
Hitachi. The memory chipmakers will decide over the next two
weeks whether or not to take their complaint to the FTC. As a
result of the impending legal action, RMBS promptly shed $10.00,
or 10.3% in today's session. Volume was exceptionally strong at
10.8 mln shares changing hands. Technically, the closest DMA is
at the 5-day line, which is high above at $97.43 and parallels
yesterday's closing price. Before taking a position in this
potentially powerful momentum play, look some additional
confirmation. For instance, downward moves off the current
level and through today's intraday low ($86.50) would provide
reasonable collaboration. Enter only when it appears to be
profitable and make sure the market sentiment is in your favor.

***July contracts expire next week***

BUY PUT JUL-95 BWR-SS OI=1803 at $12.00 SL=9.00
BUY PUT JUL-90*BWR-SR OI=2656 at $ 9.00 SL=6.25
BUY PUT JUL-85 BWR-SQ OI= 926 at $ 6.00 SL=4.00
BUY PUT-JUL-80 BWR-SP OI=1511 at $ 4.13 SL=2.50

Average Daily Volume = 7.53 mln




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

PRSF - Portal Software, Inc. $63.56 (+3.81 this week)

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

Most Recent Write-Up

Even with an unconvincing NASDAQ, PRSF managed to hang on to its
gains. Besides, its uptrend is fully intact. Early in today's
session, PRSF spiked up to the $63 level and then traded in a $1
range. It is clear that $64 is the resistance level with which
we will have to battle. Keep this level in mind. There is solid
support near the $60 level, also where the 10-dma lies at $60.72.
This technical has provided reliable support and entry during
this current uptrend. A more aggressive entry could be obtained
by targetshooting at $62 on intraday pullbacks. Confirm that
it is holding that support, otherwise the next stop could be
$60. Helping the stock break away from $60 yesterday was the
announcement by PRSF and HWP that Portal's leading real-time
customer management and billing solution, Infranet, is now
certified with HP MC/ServiceGuard. This reinforces Portal's
failsafe capabilities in the Internet systems arena.

Comments

Just like our Play of the Day from yesterday, PRSF is also in
the pattern of building an ascending bullish wedge and is
nearing a breakout. $64 is the resistance level and one good
day on the Nasdaq should do the trick. Remember, in a tight
pattern, a breakout is likely, but not always in the right
direction. Therefore, confirm the move is up first.

(Editor's note: Tuesday's Play of the Day, GSPN, is another
stock right at a breakout point. Keep your eye on this one
as well.)

***July contracts expire next week***

BUY CALL JUL-55 PUS-GK OI= 234 at $9.50 SL=7.00
BUY CALL JUL-60*PUS-GL OI=1349 at $5.63 SL=3.25
BUY CALL JUL-65 PUS-GM OI=1105 at $2.88 SL=1.25
BUY CALL AUG-65 PUS-HM OI= 114 at $6.88 SL=3.50

SELL PUT JUL-60 PUS-SL OI= 102 at $1.94 SL=3.75
(See risks of selling puts in play legend)

Picked on June 29th at $61.00 P/E = 5894
Change since picked +2.56 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



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

Greenspan's Comments Boost Old Economy Issues...

Industrial stocks continued to rally today amid strength in
cyclical issues.



******************************************************************
- MARKET RECAP -
******************************************************************
Monday, July 10

Technology stocks declined today amid concerns about quarterly
earnings shortfalls. The Nasdaq slid 42 points to 3980 while
the Dow managed a small rally, ending 10 points higher at 10,646.
The S&P 500 Index finished relatively unchanged at 1475. Trading
volume on the Nasdaq hit 1.39 billion shares with losers beating
winners 2,111 to 1,949. Activity on the NYSE was mediocre at 819
million shares with advances beating declines 1,605 to 1,247. In
the bond market, the 30-year Treasury fell 6/32, pushing its
yield up to 5.87%.


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

SPX Corp. SPW JUL110P/JUL115P $0.25 credit bull-put
Yahoo! YHOO JUL145C/JUL140C $0.25 credit bull-call
Sangstat SANG JUL35C/JUL30C $0.62 credit bear-call
TV Guide TVGIA JUL45C/JUL25P $0.75 credit strangle
Peoplesoft PSFT SEP20C/JUL20C $2.38 debit calendar


SPX gapped up $4 at the open, preventing any entry in the bullish
credit spread. Yahoo! was also uncooperative, falling $5 ahead
of its earnings Tuesday. Merrill Lynch's Henry Blodget said he
expects a strong but slightly less robust second quarter for the
company. Sangstat also dropped at the open, reducing the credit
substantially. However, based on the bearish move, the smaller
credit offered a reasonably favorable risk/reward. TV Guide did
not provide the target entry but the issue's movement offered a
favorable premium in both positions. Peoplesoft was our best
play of the session, slumping in early trading before rallying
$1.12 at the close of trading.


Portfolio plays:

Industrial stocks closed higher amid a rotation to defensive
and interest-rate-sensitive companies on renewed hopes the Fed
will not raise rates again this year. Blue-chip stocks moved
up on momentum from last Friday's benign employment report and
investors continued to adjust to the impact of the slowing
economy, transitioning to stocks which will benefit from the
changing trends in business. On the Dow, shares of Alcoa (AA),
Honeywell International (HON,) and International Paper (IP) all
rallied and cyclicals were among the best performers of the
session. Some experts suggest the stabilization in the euro
has helped many of these companies post favorable profits. At
the same time, the Nasdaq slumped as technology companies fell
victim to profit-taking after the recent rally. Traders were
nervous ahead of second-quarter earnings as several bellwether
issues are expected to report quarterly results this week. A
mega-merger announcement from JDS Uniphase also weighed on the
sector. The company said it would acquire its rival SDLI in a
deal that would create one of the world's most dominant forces
in the fiber-optics sector. In the broader market, the retail
sector advanced after Prudential Securities upgraded a number
of stocks in the group. Aluminum and electronics stocks were
also strong, while broadcast media, advertising and computer
networking issues consolidated.

There were a number of bullish moves in our Spreads portfolio.
The most notable position was Paine Webber (PWJ) which rallied
$1.25 amid strength in financial services issues. Our debit
spread at $45 is approaching a break-even cost basis and with
today's positive movement, we have renewed hope the position
will yield a positive outcome. Another recently struggling
issue, Emulex (EMLX) also continued to recover, climbing back
above $60 after last week's unexpected downgrade. Our bullish
diagonal spread remains slightly negative but we have another
six weeks for the issue to achieve profit (above $63). Thermo
Electron TMO) moved up to a recent high near $24, providing a
favorable, early-exit opportunity in our new calendar spread.
The overall credit for the position is $2.62. On the downside,
Cytogen slid almost $2 after the company said it will acquire
Advanced Magnetics (AVM) in an all-stock transaction valued at
$60 million. The position had previously achieved our target
profit but those of you that remained in the long-term options
may want to consider locking-in the current gains. The other
issue of concern is AM/FM (AFM). The trend turned downward
again today and the bullish position will close with a loss if
the stock is below $64.50 at option expiration. A favorable
early-exit opportunity was available ($1.00 debit) during the
session.


Tuesday, July 12

Industrial stocks continued to rally today amid strength in
cyclical issues. The Dow closed up 80 points at 10,727. The
Nasdaq posted a loss of 23 points as Internet stocks weakened
ahead of Yahoo!'s earnings. The S&P 500 Index finished up 5
points at 1480. Trading volume on the NYSE was 981 million
shares with advances beating declines 1,619 to 1,297. Trading
on the Nasdaq Composite Index was heavy at 1.7 billion shares
exchanged. Technology losers beat winners 2,170 to 1,854. In
the bond market, the 30-year Treasury rose 1/32, pushing its
yield down to 5.88%.


Portfolio positions:

Industrial stocks continued to rally today amid buying interest
in cyclical and financial issues. Investors remained optimistic
after recent economic data suggested a soft landing is in store
for the U.S. economy and corporate profits should remain on an
upward course for the next 12 to 18 months. New comments from
Federal Reserve Chair Alan Greenspan that productivity growth is
keeping inflation at bay, boosted traditional manufacturing and
retail stocks. The Fed Chief spoke this morning on the economy
before the National Governors Association and his comments were
interpreted by some experts as indicating the Fed is against
raising rates again in August. The FOMC Chairman was upbeat on
developments in the technology industry, its impact on future
productivity and the benefits it has for the American economy.
Regrettably, the morning rally in hi-tech issues was short-lived.
The Nasdaq slid lower on analyst's concerns about valuations in
the Internet sector. That group drove the composite index down
amid heavy losses in bellwether companies Yahoo, Amazon and EBay.
Semiconductor stocks also moved lower ahead of earnings releases
this week from Motorola and a number of other industry leaders.
The broader market enjoyed advances in the paper sector after
Morgan Stanley Dean Witter said that the sector, after sliding
in May and June, appears poised for a rally. Morgan Stanley also
had positive remarks on metals. The brokerage said investors are
bullish on the group, which hit a five-year low last week. Oil
service stocks also moved higher while transportation and utility
issues slumped.

Our portfolio experienced a number of positive moves but we were
most impressed with the recently slumping issues; Aetna (AET),
Nucor Electronics (NUHC), Paine Webber (PWJ) and Texaco (TX).
Aetna moved $2 higher after Monday's news that Health insurance
companies are expected to report strong earnings gains in the
second quarter, that will be mostly in line with estimates, as
the industry continues to benefit from recent price increases.
Our bullish, long-term position (JAN-$65C/JUL-$70C) offered a
$2 credit for the transition to August options. The diagonal
spread is now profitable and we expect further upside activity
in the next few months. Nucor rallied $4 amid speculation of
upcoming earnings results and although we did not officially
have a position in the issue, we agreed to track it for those
of you that played the calendar spread at a higher cost basis.
The bullish spread is now profitable and traders should remain
alert for early-exit opportunities. Paine Webber continued its
recent recovery, adding almost $4 to close at $50. Our July
bull-call spread is expected to close at maximum profit. Texaco
and the oil service sector gained on expectations that results
in second-quarter earnings will be about 50% above those posted
just three months ago. Both of our bullish plays have provided
favorable returns and we will use the current rally to roll out
to August options. Peoplesoft (PSFT) deserves mention, up over
$3 since we picked the position this past weekend. Today the
stock rallied through our sold strike at $20 and the key to our
next move will be how well the issue performs at the current
resistance level (near $22-$23).


Questions & comments on spreads/combos to Contact Support
******************************************************************
- NEW PLAYS -

These positions are based on recent increased activity in the
stock and underlying options. Although these spread plays offer
favorable risk/reward potential, they must also be evaluated for
portfolio suitability and reviewed with regard to your strategic
approach and trading style.

******************************************************************
MAIL - Mail.com $7.06 *** On The Rebound! ***

Mail.com is a global provider of e-mail and advanced Internet
messaging services to the business and consumer markets. The
company generates revenue through business outsourcing fees,
advertising, e-commerce and subscription services. Mail.com
provides the business market with outsourced mailbox hosting
and gateway services and has a corporate customer base with
over 8,500 corporations in all. Their corporate accounts
include ADP, Continental Airlines, Mercedes Benz and Yahoo!.
In the consumer market, Mail.com has forged alliances with
premier Web sites and ISPs such as NBC, iWon.com, Snap, CBS
SportsLine, Prodigy, EarthLink and Juno, enabling members to
access their e-mail from any location with a web connection.
The company also serves the consumer market through its
flagship site at www.mail.com.

Mail.com is on the move and this week's brisk call trading kept
implied volatility in the company's options at a recent high.
Options volume, which rose on Monday to about 4,200 contracts,
increased further today. Some traders speculated the movement
is based on the upcoming earnings announcement. The company is
expected to report second quarter earnings during the week of
July 26. The First Call/Thomson Financial consensus estimate
is a loss of $0.51 a share. Other buyers suggested there is
impending coverage by a major brokerage and short-covering is
likely the cause of the run-up. In any case, our conservative
position allows plenty of time to profit from future upside
activity.


PLAY (conservative - bullish/diagonal spread):

BUY CALL NOV-5.00 UMA-KA OI=483 A=$3.38
SELL CALL AUG-7.50 UMA-HU OI=487 B=$1.06
INITIAL NET DEBIT TARGET=$2.12 INITIAL TARGET ROI(max)=17%

Chart =

******************************************************************
CIT - The CIT Group $20.00 *** Cheap Speculation! ***

The CIT Group is a diversified commercial finance company with
over $50 billion of managed assets and another $5 billion of
stockholder's equity. Its subsidiary, Newcourt Credit Group, is
a non-bank financial services enterprise, which originates,
invests in and sells asset-based financing. Their origination
activities focus on the commercial and corporate finance segments
of the asset-based financing market through a global network of
offices in 26 countries.

Trading activity and implied volatility remained strong this week
in options on CIT as the share value of the financing company
gained ground before its addition to Standard & Poor's 500 Index.
Standard & Poor's has added CIT Group to the widely followed
index and the company will replace Union Pacific Resources (UPR)
after the close of trading this Friday, July 14. Lehman Brothers
said it expects CIT Group to rise toward its $24 price target
before this week's end. Analysts said they expected portfolio
managers to buy about 21 million shares of the stock as a result
of the S&P 500 change.

We are going to speculate on the final outcome of this week's
institutional buying with a short-term disparity play. The
low cost entry price makes this a favorable position for those
who are bullish on the outlook for the issue.


PLAY (aggressive - bullish/calendar spread):

BUY CALL AUG-22.50 CIT-HX OI=20 A=$1.12
SELL CALL JUL-22.50 CIT-GX OI=454 B=$0.50
INITIAL NET DEBIT TARGET=$0.50-$0.56 TARGET ROI=15%

Chart =

******************************************************************
- READER'S REQUEST -
******************************************************************
AEOS - American Eagle Outfitters $16.12 *** On The Rebound? ***

American Eagle Outfitters is a specialty retailer of all-American
casual apparel, accessories and footwear for young adults between
the ages of 16 and 34. The company sources, designs and markets
a versatile line of timeless and relaxed clothing classics like
jeans, khakis and T-shirts under the American Eagle Outfitters
and AE brand names for sale in the company's stores. American
Eagle Outfitters operates almost 500 stores in 45 states and the
District of Columbia. The company also operates an Internet site
from which it sells its clothing, ae.com, and offers a catalog,
AE Magazine.

Retail stocks have slumped in recent months thanks to slowing
sales and fears that the trend will continue. Share values have
fallen amid concerns from investors who believe that the Federal
Reserve will be successful in slowing down the excellent growth
experienced over the past few years. The slide in valuations
has been broad-based, hitting well-known department stores and
discount chains in virtually all segments of the industry. The
drop in AEOS shares has been precipitous, with the company losing
over 50% of its value in the last six months. Now it appears the
stock may be rebounding and with the recent recovery in other
industry leaders, the rally should continue well into the Summer.

One of our subscribers noticed the bullish reversal pattern in
this stock and the Retail Apparel group. He also requested that
we identify a favorable spread position in the underlying options.
Based on the new technical outlook and increased option interest,
the easiest way to profit from future upside movement may involve
one of the most common forms of debit spreads. With a favorable
premium disparity in the (ITM) August options, this play offers a
low risk speculation play for those who are bullish on the issue.


PLAY (conservative - bullish/debit spread):

BUY CALL AUG-12.50 AQU-HV OI=120 A=$4.25
SELL CALL AUG-15.00 AQU-HC OI=475 B=$2.25
INITIAL NET DEBIT TARGET=$1.88 ROI(max)=32% B/E=$14.38

Chart =




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