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Daily Newsletter, Thursday, 07/13/2000

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The Option Investor Newsletter                 Thursday 07-13-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        07-13-2000        High      Low     Volume Advance/Decline
DJIA    10788.70 +  5.30 10829.70 10754.40 1.03 bln   1459/1415
NASDAQ   4174.86 + 75.27  4193.24  4111.16 1.87 bln   2124/1911
S&P 100   808.03 +  2.12   810.90   804.09   totals   3583/3326
S&P 500  1495.84 +  2.92  1501.39  1489.56           51.8%/48.2%
RUS 2000  542.76 +  2.51   542.76   540.11
DJ TRANS 2888.60 +  6.58  2891.00  2865.86
VIX        22.75 -  0.33    23.29    22.27
Put/Call Ratio       .42
******************************************************************

Never look a gift horse in the mouth!

If you are long it was a good day. Yesterday was even better.
The positive earnings reports have proved to be a healing tonic
for the weak market. The positive surprises have energized investors
with hopes of "me too" results for companies that have not yet
announced. The many earnings warnings had depressed expectations
for tech earnings but these expectations are being beaten in
almost every case. The Nasdaq is reacting with a standing
ovation. The Dow is suffering from a tech deficiency as money
previously resting in defensive drug and cyclical stocks has
started moving into the Nasdaq. The Nasdaq has broken out of
the recent trading range and has twice closed above the previous
high from June of 4073 and is now actually up +2.5% for the year.

 





The good news bad news story for the day was the sprint to new
highs for the Nasdaq on strong volume of almost 1.9 billion
shares. The bad news was the laggard Dow which has stalled for
the last three days at 10800 on very strong volume of over
one billion shares. The advance/decline line on the NYSE had
been positive for the last seven days and was in danger of
breaking that trend today. A last minute spurt pushed it to a
positive 1459 advances to 1419 declines. Nothing to write home
about but on the score board it is still a win.

You would think the analysts were asleep with major companies
not only beating estimates but blowing them away severely.
For example JP Morgan raked in $2.90 per share when analysts
were only expecting $2.45. Add in record earnings by companies
like PMCS, AMCC, ARBA, GE, JNPR, GTW, etc and worries about
a hard landing and slower profits were pushed onto the back
burner. Positive statements like those from the AMCC CEO,
"these profits will continue as far as the eye can see. We have
much more business than we can handle" have built a fire under
these stocks. Talk about a positive conference call!

Before you start throwing money at everything with a four letter
symbol you should take note that the Nasdaq big cap leaders were
only "just positive" and are not taking part in the rally. Dell
is maintaining momentum at $52.88 but is slowing. CSCO was the
most actively traded Nasdaq stock but only managed a +1.38 for
the day. Microsoft has lost momentum and appears stuck in a
trading range around $80 and was negative -.38 for the day.
Intel managed to gain +2 on good earnings from fellow chip
stocks but closed almost -$2 off the high of the day. ORCL
barely managed to close positive and SUNW only managed a +.56
on slowing gains. It is clearly a stock pickers market. Those
that guess right are rewarded with stellar gains. AMCC +28,
ARBA +27, but guess wrong and you are toast. PMCS announced great
earnings but dropped -$14 in after hours. Same with SONS and
a -$8 drop on top of -$10 for the day. XTND announced preliminary
results after the close and investors did not like the outcome.
After closing at $86.69 XTND traded as low as $57 in after
hours for a -$30 drop. If you like living dangerously holding
over an earnings report is equivalent to Russian roulette with
your investment capital. If you do it, make sure it is money
you can afford to lose.

John Murphy got some face time today on the local stock channel
with a forecast of 4450-4475 in the next two weeks but warned
that Late July and August could be a little rocky. I am on
your side John. With earnings coming in close to +20% it makes
investors wonder what all the racket was last month. Interest
rate hikes are over(?) and investors have put the slowing
economy out of their mind. Sure profits will slow but still
be outstanding. Now, don't let visions of sugar plums cloud
your vision. Easy come, easy go. With the Nasdaq churning up
a good head of frothy expectations it will only take one or
two high profile disasters to burst the bubbles. Also, don't
forget we have the PPI report on Friday which could put Fed
dread right back on top of investor concerns. The PPI is
expected to come in at a strong +.6% on the surface but
only +.1% for the core rate. I don't think a stronger number
will seriously dent the investor optimism immediately but
just bring the storm clouds back closer to the picnic.
On the positive side, if the number comes in weaker than
expected the market will not only grow legs but those legs
will be wearing track shoes with a swoosh on them. As
evidenced by the +143 gain on Wednesday there is money on
the sidelines and closing over important technical levels
is all that is needed to trigger those funds.

Not all was rosy on the floor today. Money came pouring
out of drugs and biotechs as the formerly "safe haven" for
defensive players was seen as suddenly out of vogue. Retail
was also a wasteland the day before the Retail Sales Report.
Bank of America helped my prediction for the sector from
last week come true today with a warnings that the retail
sector rally was unsustainable and cautioned investors.

The stock splitters were active with ALTR announcing a 2:1
after the close. Also CDT 3:2, WAT 2:1, NMSS 2:1 and not
to be left out was BBBY with a 2:1. Strangely BBBY is only
trading at $42. That is only -$3 from an all time high but
not normally a range known for stock splits.

The ARBA earnings set fire to the B2B sector with gains
not seen since March. OOPS! Hope I did not jinx that!
ITWO +18, AKAM +13, CMRC +8, FMKT +9 and almost tieing the
sector winner was EPNY +26.50. Of course the +27 for ARBA
was not the leader! Now, would you expect a +46 two day
gain to be sustainable on a $100 stock? (EPNY) Each of
these with the exception of ARBA had been trading listlessly
for some time.

As traders we need to be profiting from this rally but with
an eye on the eventual roll over possibility. With the Nasdaq
up +1150 points since late May and the summer doldrums still
ahead of us there is a great chance of some rocky days ahead.
I am still focused on the end of next week and options
expirations along with slowing earnings announcements. Once
earnings lose their bloom and options expire there is nothing
to keep investor attention. August, September and (shudder)
October are not known as stellar investing months. I am not
saying pull back into your shell and hibernate for the rest
of the summer, just keep your eyes open for the next dip.
Don't try to ride it out but consider it a buying opportunity
for the next leg up. Just wait for the "up."

We have some serious economic reports ahead and profit taking
can occur at any time. Mr. Greenspan gets to entertain us
with the July version of his Humphrey Hawkins Testimony next
week and you never know what will happen when Alan goes to bat.
The VIX is still hovering in the warning zone and the put/call
ratios are moving decidedly into over bought and bearish.

Trade smart and sell too soon.

Jim Brown
Editor


Current long positions include: none



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

They're Dancing On Wall Street
By Austin Passamonte

At least that's what Maria B. reported on "Squawkbox" just
before the opening bell rang today. Gee, I'd have loved to
see all those suits & ties cutting the rug - coverage of
that next time would be an interesting report indeed.

PPI report, Fed fear, post-earnings sell off - forget about
it. Someone turned on the sideline money-spigot and the
shopping spree began. Reminds me of Wendy's Christmas trip
to NYC, anything with a price tag is fair game. Thank heavens
we live six hours away.

Name the sector and it saw action over the past two sessions.
Anyone bold enough to hold over earnings were handsomely
rewarded on certain stocks for their panache'. Word on the
street says the rally is on and the buying has just begun.
Sounds good to the bulls, this has been a long time coming.

All major markets and most sector leaders are showing clear
strength to date. Anything other than a stunning PPI will
likely be met with news waves of cash. Of interest might
Be how the market closes into the weekend. Will massive
gains be left on the table as everyone heads off to tee
times? My guess is the last half-hour's direction tomorrow
should continue on Monday.

Not that I'm scanning distant skies for a cloud but two
things bother me. First, the VIX just won't release from the
low 20 range. Then again, if it were to dip further and release
from there I'm not sure the bulls would be pleased at the
result.

Second, two market bell weathers are considered to be the
leaders of all. Microsoft is one but their current state
does not offer clear indication. The other is GE. The largest
company in the world has led this historical rally from day
one. They forecast record earnings for this quarter and the
rest of the year (yawn) and are rewarded by selling off 7/8?
Hmm. Let's chase ARBA and the ilk with four-letter symbols
seems to be the mindset once again.

Experts are calling for NASDAQ to hit 4,500 soon and they
may be quite right. What happens after that and the end of
earnings remains to be seen. The bi-weekly COT report is
released tomorrow and I'm guessing commercial traders have
increased their net-shorts while small specs are even net-
longer. Will be interesting to see.

The summer rally is in full blossom and I hope you've been
up to your neck in the right call options. Enjoy the action
to it's fullest and make hay while the sun shines!


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.

Tues 7/11 close: 22.39      Thur 7/13 close: 22.75


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         .42
Equity P/C Ratio             .47         .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        Sat
Strike/Contracts     (7/11)        (7/13)      (7/15)
**************************************************************

All index options      1.16         1.16
OEX Put/Call Ratio     1.27         1.82


OEX Maximum Open Interest Strikes/Contracts:

Puts                  790/6,095    790/6,762
Calls                 800/5,632    825/9,423
Put/Call Ratio          1.08          .72


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        74.99
(815 - 800)                2.8          1.87

OEX Close:                 801          808

Underlying Support:
(800 - 785)                 .86         1.10
(780 - 760)                2.59         2.84


What the S/R measure indicates: Net open-interest ratios
are soaring 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 very 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     10,788
NASDAQ; 3,789                     3,956      4,174
NDX;    3,505                     3,744      3,956
SPX      1412                      1480       1495
OEX       758                       801        808



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

Broad Market Strength:
All major indices are showing strength on rally with high
volume.

Interest rates
5.82% 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. Technical
charts indicate possible strong rally for the bonds.

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. Many issues beating
the street!

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

Improving Dow
The Dow remains above it's 200 DMA and 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 22.75 warns of impending market top danger.

Energy Prices
Prices are still too high. It will be difficult to curb
inflation with gas and oil prices remaining high. Ultimately,
this affects profit margins. August Crude closed $30.39 today
amid mixed 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

Equity Put/Call Ratio
Equity option ratio has slipped into bearish zone



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

As of Market Close - Thursday, July 13, 2000

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

DOW Industrials   10,450  10,850  10,788    Neutral   7.09
SPX S&P 500        1,435   1,500   1,495    Bullish   7.13  **
OEX S&P 100          775     812     808    Bullish   7.13  **
RUT Russell 2000     470     545     542    Bullish   7.13  **
NDX NASD 100       3,450   4,000   3,956    Neutral   5.30
MSH High Tech        965   1,060   1,050    Bullish   7.13  **

XCI Hardware       1,440   1,600   1,555    Bullish   7.13  **
CWX Software       1,160   1,300   1,263    Neutral   6.06
SOX Semiconductor  1,060   1,200   1,189    Neutral   6.29
NWX Networking     1,150   1,340   1,331    Neutral   7.13  **
INX Internet         470     560     547    BEARISH   5.30

BIX Banking          520     565     545    Neutral   7.09
XBD Brokerage        480     590     577    BULLISH   7.11
IUX Insurance        610     660     643    Neutral   6.20

RLX Retail           860     960     925    Neutral   7.09
DRG Drug             380     430     402    BULLISH   7.11
HCX Healthcare       795     880     827    BULLISH   7.11
XAL Airline          152     176     173    BULLISH   5.25
OIX Oil & Gas        280     320     293    Neutral   7.13  **

Posture Alert
Many indicators turned positive Wednesday, breaking horizontal
resistance.  Look for pullbacks on profit taking in the lower
end of trading ranges.  Drugs and Healthcare are recent examples
of profit taking.  Snug up stops on stocks which have made big
moves.  Posture Changes: Neutral to Bullish (SPX,OEX,RUT,MSH,XCI)
Bullish to Neutral (NWX,OIX)



***********
OPTIONS 101
***********

How about a review?
By Lee Lowell

After being away from the market for awhile, it's always good to
review some basics.  If any of you out there have a newborn and
work from home like I do, then you have to know how hard it is to
do anything, let alone sit in front of the computer during market
hours watching your real-time quote vendor.  It's almost
impossible!  If you've read Marty Schwartz's book, "Pit Bull",
he sums it up pretty well:  ". don't trade too heavily the month
before and two months after your wife gives birth."  It's so true!

What should you have in your arsenal before you actually put on a
trade?  First off, you should definitely have some kind of options
calculator that will compute fair value.  The CBOE has a useful
calculator on their website that you can use for free.  You should
also have access to either delayed or real-time quotes.  If you
are a more active investor/trader, you might want to pay up for a
streaming datafeed.  When deciding on a data vendor, make sure
they have good volatility data in their option chains.  The next
step is to find a good options broker with decent commissions.
This may take some time and you might want to open a few small
accounts to see which one you like the best.  Many traders will
argue for their favorite, but I look for a brokerage that allows
option spread trading online.

Now that you've got your datafeed, software, and brokerage account
set up, what's next?  Do some research and find an option to
trade.  Start with the well-researched picks within this
newsletter.  There is definitely a potential trade for all types
of strategies and scenarios.  Once you've keyed on a trade, you
can do further research if you like.

I want to expand on a few subjects which are the most vital to me
before I place any trade.  My number one criteria is to check the
historical and implied volatilites of the underlying stock and
options.  If any of you have read some of my previous articles,
you know that I view volatility as a key ingredient to option
trading success.  Check the archives of this site under the
"options 101" section.  To re-cap, there are a few types of
volatilities.  "Historical volatility" is a number that measures
the magnitude of the underlying stock's movement over some
period in the past.  The movement can be in both directions.
The standard time periods that are widely measured by the trading
community are 20-day, 50 or 60-day, 90 or 100-day,etc. You can
measure any period you want.  Some believe that you should measure
a time frame that coincides with the amount of time to expiration
of your option.  The more erratic the underlying stock has been,
the higher the volatility reading will be.

"Implied volatility" is a number that is derived from the option
itself.  You can solve for this number by working backwards thru
the Black-Scholes model by inputting the option's current price
instead of a volatility guess.  Implied volatility is a guess by
the market participants of what the future range of the stock will
be before expiration of the option.  The market players are in a
sense telling you what the historical volatility is going to be
before it becomes history.  Get it?  The higher the IV, the fatter
the option premiums will be.  An erratic stock will have bigger
premiums and a stable "Old Economy" stock will have paltry option
premiums.

In most cases, HV and IV will be different.  Since everyone has a
different idea of what the stock's volatility should be and
because everyone's time frame may be different, this is what can
lead to trading opportunities.  The way to use HV and IV to your
advantage is to look at its past behavior.  Looking at historical
HV and IV charts is a good way to tell whether your stock's option
premiums are at the high or low end of its range.  The historical
HV and IV charts will usually move in tandem with each other but
either one can be higher or lower than the other at any point in
time.  You'll want to stick with option buying strategies when
the volatility is at its low end and look for option selling
strategies when volatility is at its high end.  This is extremely
important.  If you buy options when volatility is high, the odds
are greatly against you.  Not only will your directional bias
have to be correct, but the timing and magnitude of the move will
have to be even more precise.

The other concepts that play an integral part in determining which
option trades to make are the option's "delta" and its
"probability of profit".  These two items can really give you a
heads up on the chances of you making some money on your trade.
The delta of an option tells you how much the premium will go up
or down in response to a $1 move in the underlying.  An at-the-
money option typically has a delta of .50.  This means that if the
underlying stock moves up or down $1 in price, your call or put
option will gain or lose approximately $.50 (all other factors
being equal).  The delta can also be looked at the "chance of your
option being in-the-money at expiration."  An option with a .50
delta tells you that you have approximately a 50% chance of your
option finishing ITM (in-the-money).  Now that doesn't mean you'll
automatically have a profit if your option is ITM.  If you bought
a $40 call option for $5, and the stock closes at $41 on
expiration day, you'll still lose money even though the $40 call
closed ITM.

That brings me to my next concept - probability of profit.  This
little number is a better way of knowing your chances of success
before you put on a trade.  But in order to know your chances,
you'll need to run the numbers through a simple probability
calculator.  It's a simple tool that can tell you the chances of
the underlying security being below, at, or above a certain
threshold by a specified date.  The threshold levels that you use
are going to be your breakeven points.  This will tell you exactly
your chances of finishing at breakeven or for a profit.  Just
remember, based on statistical theory, your chances of finishing
with a profit if you buy options, will never be higher than 50%.
That's because on any given expiration day, the stock could close
higher or lower than the strike price.  Most likely, your option
buying success will fall in the range of 20-35%.  Try to aim for
the higher probability number if you're going to buy options.
This is why the sellers of options are usually the winners,
because their probability of profit is the opposite of the buyers.
Always subtract from 100% and you'll get the sellers probability.
Example: If you are buying a call option with a 15% probability of
profit, the seller's probability of winning will be 85%.  Yes,
buying options can lead to unlimited profits, but the odds are not
always that great.  Yes, the seller has unlimited risk (unless
doing spreads), but the odds are totally in his/her favor.

I hope this article has given you a few ideas of how to get your-
self up and running with your options trading business.  Remember,
always do a little volatility analysis and probability
calculations, and you'll increase your chances of success.

Contact Support



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

Yahoo!  Take the Money and Run
By Molly Evans

Our favorite bull has found his vigor eh?  On the backs of stellar
corporate earnings, a rally has been sparked giving investors
and traders alike something to cheer about.  Well good.  It
feels a bit like the old days.  Buy a sexy one and ride the
train to a higher ground.  We're even seeing the rotations like
before; they're moving that money around.  Internuts and the
other techs are back into vogue and biotechs and pharmas are
tossed away.  However!  There's got to be a "however."  Take
your profits regularly and go.  I like a rally as well as the
next guy, but I would be reluctant to fancy settling into any
"positions."  The market has been looking for an excuse to
rally and we're there baby.  There's no telling how long it
will last.  I'm not trying to rain on anyone's parade here.
You all know the game.  You make the money dollar by dollar
and when the market wants it back it takes it out in tens.

Let's do it better this time around.  Let's think in terms of
defensive posturing and risk control.  I'll take notes on what
I write here so that I might do better at this too!  It's one
thing to know what you're supposed to do and another to actually
do what you're supposed to do.  Controlling losses is the
cornerstone for staying in the game.  There's just no other way.
You are going to have winners AND losers.  No one can predict
analyst downgrades, when bad news is going to hit or the market
is just simply turning on you.  Controlling your losses is one
of the ONLY things that you CAN personally control.

The first rule in this is to limit your position size.  Do not
bet a sizable portion of your portfolio in any one sector and
certainly not in any one stock.  This is hard to do when you
just know that XYZ is a sure thing.  It's never a sure thing.
It's not!  Don't fall in that trap.  Taking a 30 - 50% portfolio
position is not trading, it's gambling.  Go to Vegas.  You'll
have a lot more fun losing your money there than here in the
market.  When you have a big position in any one trade, you
don't think with your head anymore.  You're playing on your gut
and with your heart.  It hurts to be wrong and you're bound to
be a lot more emotional about it when you've got so much at stake.
If you happen to have a winner on your hands, you'll be inclined
to do the opposite and take the profits too soon because you know
you're risking a lot.  You don't cut your winners short and let
your losses run.  It's the opposite.  Home run trades on huge
positions are for the most part a fantasy.  We should all be
allowed one in our lives but then again we should all be young
and beautiful forever too.  Yes?  Bottom line: a smaller size
is a lot easier to be objective about.  Build up your portfolio
in baby steps, not giant leaps.  It's bound to stay with you
longer.

How much is it acceptable to lose?  I don't want to lose any.  I
tend to take it personally and beat myself up for being such a
doof to let it happen in the first place.  I blame myself for a
stupid entry or not checking out the news first before initiating
the trade or trying to be a contrarian again.  Sometimes that's
the case and shame on us for not following the proper discipline
in opening the trade.  Do look at the chart and identify the
entry point.  Don't chase.  Wait.  So hard to do when you want it,
I know.  At the very least, check out the news before you open
also.  There may be a very big reason that your shiny star is
falling.  It works both ways though.  The other thing is trying to
be a contrarian.  That's me.  Ugh.  I see a stock running yahoo-ish
and I think, "Well, that's just ridiculous.  That stock has a PE
of 10,000 now.  And look, there's a doji.  I'm going to buy puts
on that crazy thing."  Oh please!  Don't do this.  I've done this,
I continue to do this and I rarely win.  It's a constant battle.
The left hand has to smack the right one to keep its fingers off
the keyboard.  The market is a psychological study of the masses
and when the masses are running, don't throw yourself up in their
way.

So, the original question was: how much is it acceptable to
lose?  The pros say it's two percent.  No more than two percent
of your portfolio should be lost on any one trade.  Do the math.
That's your limit and it includes commission and slippage.  If
you'd follow the rule of position size, the two percent doesn't
seem so restricting.  The two percent rule is excellent for
novice traders as it allows them to stay in the market longer to
learn from their mistakes.  The mistakes will occur.  You have to
learn from them and do better in the next round.  Even the pros
make mistakes all the time.  I've read where up to 80% of their
trades may be losers - that's only one trade in five being a
winner!  What keeps them in the game is that the other four are
cut off but the one left is a running winner.  I wonder if that's
true.  80%?  Anyway, that's the way to stay in the game.  When
you've cut the garbage out, it allows your mind to focus upon,
add to and protect your winners.  There should be no time for
nursing a crippled stock.  Move on.

Another thing you'd better never let me catch you doing is maxing
out your margin!  Seriously, margin calls can wipe you out.
You've undoubtedly heard some of the horror stories of margin
tragedies this spring.  Of course, if your sole game is options,
you're not on margin but some of us here do own stock and like
to leverage it a bit.  When the market turns and Mr. Broker comes
calling, he looks rather big, bad and mean and makes you sell at
the worst possible moment.  I've had a margin call.  Hey, I've
made every mistake...it is not a pleasant visiting.  I'd be
very reluctant to go on margin to help finance my path for this
sweet little rally.  I hope you'll feel the same way.

I hope all of you are putting some padding back into your
portfolios.  We've all been wishing and hoping for some fireworks
yet this may be all we get.  Anything above and beyond is a gift,
keep that in mind, trade defensively and protect what it gave you.
The VIX is still in low territory and tomorrow is Friday.  Hmmm,
that smells a little bit like a profit-taking setup to me.  July
is historically the best of the summer months and the following
three are sacred BEARial grounds.  I'll have to tell you all about
that in my next article.  I've been a busy girl studying that
very thing.  I'll be back to tell you about it soon.

Contact Support



*************
READERS WRITE
*************

Sector Trader Update

Hello, I'm a pretty new invester, at least with options.  I
signed up for two option newsletters at the same time to try
and hurry along the learning process, planning to keep only
one.  It was a really hard choice deciding which to keep, when
you came along with the Sector Trader that made the choice easy
for us to keep the OIN.  I've learned a lot (that's not saying
I know a lot) from reading OIN and we look forward to it each
night.

Thank you,
Mike T.

Also, I appreciate your writing in a manner easy for the novice
to understand.

------

Hi Mike,

Thanks so much for your e-mail.  I appreciate you taking the
time to write us with your thoughts.  We strive daily to bring
you, the reader, the best, most fresh, most timely information
we can lay our hands on.  But without the ability to use it,
it's practically useless.  That's why it is our aim first and
foremost to provide you with the concepts and education on
trading, as well as the timely information to go with it.  The
ability to use that information is critical.

It would be easy to simply write instructions on what to do
tomorrow, but that's as good as a ticket to the poor house.
Besides that, it's so much more rewarding to trade when you
recognize that you are the one who pulls the trigger, takes the
risk and makes the profits, thanks to your own efforts to learn
the skills of trading.

You've heard it before...give a man a fish, feed him for a day.
Teach him how to fish, feed him for a lifetime.

Thanks again for writing and for choosing OIN!

Buzz Lynn


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

New QQQ and Broadband (BDH) Plays!
By Buzz Lynn
sectortrader@OptionInvestor.com

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    98.69  -1.56   0.53   2.50   1.44   0.00   2.91
HHH Internet     111.88  -4.25  -1.13   9.38   2.63   0.00   6.63
BBH Biotech.     182.56  -0.88   0.31  -2.19 -11.88   0.00 -14.63
PPH Pharm.       100.25   2.50   1.00  -2.44  -4.25   0.00  -3.19
TTH Telecom       77.13  -0.94  -1.25   0.75   1.75   0.00   0.31
IAH I-net Arch.   95.94  -0.38  -0.69   2.31   2.06   0.00   3.31
IIH I-net Infr.   66.63   0.06  -2.38   4.94   4.69   0.00   7.31
BHH B2B           50.44   0.38  -0.88   7.19   3.56   0.00  10.25
BDH Broadband     96.81  -1.75  -0.31   3.56   3.94   0.00   5.44
SMH Semicon.      98.38  -0.13  -1.50   2.32   2.44   0.00   3.13
RKH Reg. Banks    96.75  -0.56  -0.25   0.50  -1.88   0.00  -2.19
UTH Utilities     93.00   1.81   1.19  -0.50  -0.13   0.00   2.38

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

QQQ - NASDAQ 100 $98.69 +1.44 (+2.91 this week) The NASDAQ rally
was confirmed today as yesterday's gains (stemming from YHOO
earnings) were confirmed thanks to stellar earnings from AMCC.
Let's see, Internet and semiconductors lead a tech rally.  Where
does that leave pharmaceuticals?  More on that in the PPH section.
As for QQQ, it looked strong yesterday and today as NASDAQ traded
over 4100 and held up into today's close.   While the whole NASDAQ
market got its breakout, QQQ nonetheless encountered resistance at
$100 in much the same way it did on June 21-22, while $97.50 to
$98 provided nice intraday support.  It looks like QQQ is
establishing a new ascending channel.  On the negative side, with
the PPI and retail sales out tomorrow, tomorrow being Friday, and
a nice run-up in prices this week, that $100 resistance may send
the QQQ to the showers while washing profits down the drain.  Be
on your guard for profit taking weakness.  How to play it?  Read
on.

Short Strangle:

It no longer looks like our calls will expire out of the money.
This may be a good time to roll out of our current strangle
position(s) into a new one.  That means we would buy back our sold
positions of 90P/95C and/or 92P/97C.  If you are not averse to the
risk of a possible reversal, you can consider buying back just the
calls with the expectation that the puts will expires worthless.
Of course, that leaves you really vulnerable if you sell more puts
at a higher strike price and the market heads south again.  Even
though QQQ has moved up considerably making it more expensive to
buy back the call portions of our strangle, it should cost us less
to repurchase our sold puts too.  Be sure to specify a "net debit"
maximum on your closing position purchase, or "limit order" amount
if you intend to "leg out".  Otherwise, you'll pay top dollar for
a market order that will substantially eat into your theta-derived
(time decay) profit, maybe even for a loss.  Using the theory that
"old resistance equals new support", we should find mild support
at $97.50, and strong support at $95.  Because most of the time
value has been shaken out of July strikes, you may want to sell
August strikes now to capture more premium.  Which strikes to
sell?  With resistance at $100 and support at $95 (on the low
end), we'd consider the sale of the $100 or higher AUG calls and
the $95 or lower AUG puts.  That seams reasonable given the
rollover of the stochastic, MACD, and RSI on the 30-min chart.

SELL CALL AUG-100 QVO-HV OI=4233 at $ 5.13
SELL PUT  AUG- 95 QVQ-TQ OI=1473 at $ 3.63

Net Credit = $ 8.75 or better
Stop Loss  = $11.50

Covered Call:

Again, with $100 providing current resistance and support coming
at $97.50 and $95, you may want to try "legging in" to the
position wherein you can buy the underlying shares at support and
sell the call at resistance.  Ideally, that would mean purchasing
the QQQ at $97.50 or $95, then selling the $100 or higher strike
price once QQQ has bounced back up near $100 resistance again.
The risk is that QQQ continues to fall after you buy it, which by
definition lessens the amount you'll take in from selling the
call.  That can turn unprofitable very quickly.  If that's a
concern, you may be better served by doing a "buy/write" order
that simultaneously buys the shares and sells the calls.  Be sure
to specify a net debit amount not to exceed.  Ideally, your net
debit would be less than support of $95.

QQQ = $98.69

SELL CALL AUG-100 QVO-HV OI= 4233 at $ 5.63, ND = 93.06 or less
SELL CALL AUG-102 QVO-HX OI=  320 at $ 4.38, ND = 94.31 or less
SELL CALL AUG-105 QVO-HA OI=  556 at $ 3.13, ND = 95.56 or less

Calendar Spread:

Nearly identical to writing covered calls, we substitute a long-
term call (or LEAPS if you like) 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 in the underlying long call.  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.  With resistance at $96 being handily
broken yesterday, our idea is to roll out of our sold JUL strike
by repurchasing it and selling an AUG higher strike value of say
$100 or better.  Resistance has now moved up to $100.  Remember to
keep rolling up if the QQQ advances well into the money.  Like
covered calls, legging in can earn you more profit, but you run
the risk of the play going against you if you are wrong in your
judgement of a good entry.  If that risk is not for you, specify a
maximum net debit in your buy/write order.


BUY  CALL DEC- 94 QVQ-LP OI= 1580 at $16.13

SELL CALL AUG-100 QVO-HV OI= 4233 at $ 5.63, ND = 10.50 or less
SELL CALL AUG-102 QVO-HX OI=  320 at $ 4.38, ND = 11.75 or less
SELL CALL AUG-105 QVO-HA OI=  556 at $ 3.13, ND = 13.00 or less

Long Calls

After yesterday's and today's rally, it looks like a new upward
trend is emerging thanks to some stellar earnings reports from
YHOO and AMCC.  Yet given the propensity for the market to take
profits on a Friday following a strong weekly gain, we'd wait for
a pullback to support, now nicely established at $97.50 intraday
or $95 (derived from the theory that old resistance equals new
support) before establishing a position.

At Support:
BUY CALL AUG- 95 QVQ-HQ OI=  916 at $8.25 SL=6.00
BUY CALL AUG- 98 QVQ-HT OI=  650 at $6.75 SL=4.75
BUY CALL AUG-100 QVO-HV OI= 4233 at $5.63 SL=3.50

Average Daily Volume = 24.77 mln


-----

PPH - Pharmaceuticals $100.25 -4.25 (-3.19 this week) This play
may be over - short leash time!!  Remember this sector provides a
safe haven when all others around it are crumbling in weakness.
Conversely, now that tech issues are showing strong signs of life,
investors are ditching PPH in favor of momentum issues again.  Not
even a stop loss would have saved us from the gap down.  So why
keep PPH here tonight?  If investors decide to get "safe" again,
PHH should get a nice bounce.  Not only that, but PPH found nice
support today at its 30-dma of $99.44 and isn't far from its 50-
dma of $98.82.  Also, if "old resistance equals new support" holds
true, then $97.50 to $99.50 is the magic range of support.  You
can enter on a bounce from that range, but we're more inclined to
believe that sentiment for the techs has turned positive and will
remain through earnings season.  We keep PPH here tonight as
strictly a defensive play in case of a tech blow up tomorrow.  But
don't count on it.  We'll likely be giving PPH the boot this
weekend unless it can get back over $103 with some conviction.

BUY CALL AUG- 95 PPH-HS OI=  0 at $7.25 SL=5.25
BUY CALL AUG-100 PPH-HT OI= 15 at $3.88 SL=2.25
BUY CALL AUG-105 PPH-HA OI= 62 at $1.75 SL=0.75

Average Daily Volume = 118 K


-----

BBH - Biotech $182.56 -11.88 (-14.63 this week) This sector has
had a great run, but all good things must come to an end.  Recall
we'd cautioned Tuesday night that it would be a good idea to
tighten up your stops since nothing goes up in a straight line.
(BBH was way over its 10-dma of $185 then and looked ready to roll
over.)  Good thing you did (we hope!) since not a single component
of BBH showed any green at all today - everything bled red ink.
DNA, MEDI, IDPH, QLTI, AFFX and HGSI all lost more than $10 today.
Now having fallen to former resistance of $183 with its 10-dma
(now $188.29) clearly violated, we need to see BBH hold and
recover from here back over $188 or it will get the boot this
weekend.  Lately BBH has been able to spring back rather quickly.
But this looks tough.  It's pretty simple for BBH from here -
perform tomorrow or get dropped.  Any further descent is the cue
to pass this one up and move on.

BUY CALL JUL-175 BBH-GO OI= 130 at $11.63 SL= 8.75
BUY CALL JUL-180 BBH-GP OI= 482 at $ 8.50 SL= 6.50
BUY CALL AUG-185 BBH-HQ OI= 133 at $ 5.75 SL= 3.75

Average Daily Volume = 605 K


-----

HHH - Internet $111.88 +2.63 (+6.63 this week) Uh oh!  We may have
had radar lock, but we were dead wrong in our assessment of
yesterday's probable outcome of HHH following YHOO earnings.  Even
so, nobody should have entered this play, as the yesterday's gap
up was way too huge and far exceeded the $101 rollover we were
looking for.  Since the Internet stocks have left the launch pad,
what now?  We still stand by the idea that YHOO earnings weren't
as great as the Street analysts want us to believe and still
expect weakness to follow YHOO earnings as it almost always does.
Witness that YHOO actually lost ground today and ran smack into
resistance at its 50-dma of $127.30 while the NASDAQ market built
on yesterday's impressive gain.  Similarly the HHH rolled over at
$113.25, a level very close to former support on June 13th, and
also its gap-down price at $114.50 on June 22.  Apparently, some
investors would rather jump ship at that level just to get whole
on their purchases made prior to June's downdraft.  Technically,
MACD, stochastic and RSI are all rolling over from their
overbought highs.  Our prognosis hasn't changed, but our entry
has.  We would look to go short or buy puts on a bounce down from
the $112 to $114 range, or on a breakdown under $110.  If that can
happen, the next level of support would then be about $104 to
$105.

BUY PUT AUG-115 HHH-TC OI=  75 at $10.13 SL=7.25
BUY PUT AUG-110 HHH-TB OI= 931 at $ 7.38 SL=5.25
BUY PUT AUG-105 HHH-TA OI= 274 at $ 5.25 SL=3.25

Average Daily Volume = 928 K


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

BDH - Broadband $96.81 +3.94 (+5.44 this week) With the whacking
JDSU and GLW took on news that JDSU would acquire SDLI, we thought
it might be some time before JDSU recovered.  Not so once the
Street figured out this meant the entire sector was growing like a
weed.  Here's s direct quote from JDSU's CFO Tony Muller in an SEC
filing: "Further, the preliminary results for the quarter for each
of these three companies [JDSU, SDLI, ETEK] is for SALES AND
INCOME TO BE HIGHER THAN INVESTMENT COMMUNITY ESTIMATES [emphasis
ours], and you will learn of these results later in the month when
we announce results."  How much better than that can it get?
Couple that with AMCC's stellar earnings last night, MOT's
increasing handset margins and PMCS's stellar earnings announced
after the close today, and we have a broadband sector with a great
outlook.  Technically, BDH had been rangebound with a ceiling of
$92.50 since mid-June.  Yesterday's close gave us the hint of a
breakout.  Today, thanks to the above, it happened in a big way.
Support is now at $95 (old resistance), with today's intraday
support at roughly $96.  We would look to target shoot an entry at
either of these levels or wait for a clear break over $97.
Careful though.  With old resistance at $92 and the nearest dma
(the 5-dma) at $92 as well.  Any round of profit taking tomorrow
could suck BDH back down to that level, which could then leave us
rangebound again.  For that reason, we would look for another play
if $95 can't hold.

BUY CALL AUG- 90 BDH-HR OI= 14 at $ 9.50 SL=6.50
BUY CALL AUG- 95 BDH-HS OI= 40 at $ 6.50 SL=4.50
BUY CALL AUG-100 BDH-HT OI=  0 at $ 3.38 SL=1.50

SELL PUT AUG- 95 BDH-TS OI=  3 at $ 5.75 SL=3.75

Average Daily Volume = 153 K


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

IAH
IIH
BHH
SMH
TTH
RKH
UTH



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

Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10788.71   10.60   80.61   56.57    5.30  153.08
Nasdaq  4174.86  -42.91  -23.87  143.17   75.27  151.66
$OEX     808.03   -3.41    1.46    4.86    2.12    5.03
$SPX    1495.84   -3.28    5.26   12.04    2.92   16.94
$RUT     542.76    2.61   -1.09   10.51    2.51   14.54
$TRAN   2888.60   24.38    8.08   64.92    6.58  103.96
$VIX      22.75    1.06   -0.49    0.69   -0.33    0.93

Calls

SDLI     343.50   25.38   -2.69   10.00   15.50   48.19  Perfect
GSPN     144.63   -4.31    4.13    6.25   19.00   25.06  Momentum
BRCD     205.50    7.56    2.44   -1.69   11.63   19.94  Leading
CREE     152.50    4.06    3.75    6.56    5.19   19.56  Shot up
MUSE     187.00   -4.06    3.50   11.13    7.38   17.94  Great chart
MRVC      74.88    7.25   -4.00    1.69    8.00   12.94  New
KANA      72.25   -0.81    0.50    4.69    6.94   11.31  10% gain
SEBL     182.00   -1.81   -3.63   12.06    4.44   11.06  All-time hi
TIBX     125.94   -1.19   -1.56    4.81    8.63   10.69  B2B mover
PRSF      69.88    2.50    1.31    3.81    2.50   10.13  Running
NT        76.63   -0.25    0.75    3.25    1.50    5.25  52-wk high
ISSX     101.06   -2.63   -7.88    7.50    2.06   -0.94  7/18 ern.
AGIL      72.06   -0.63   -0.63    2.75   -2.94   -1.44  Dropped
INCY      93.50    5.06    5.06   -2.38  -10.13   -2.38  At support
CIEN     166.00    1.88   -6.38   -6.00    4.63   -5.88  Rumors
HGSI     153.75    5.63    6.75   -7.94  -14.69  -10.25  New
DNA      153.94    1.44   -1.56   -8.75  -10.19  -19.06  Dropped

Puts

RMBS      94.50   -3.75  -10.00    4.25    3.00   -6.50  Underwater
LLY       95.75    3.00   -1.00   -3.25   -4.00   -5.25  New
LCOS      44.88   -2.75   -4.88    2.63    0.63   -4.38  Entry?
ICIX      24.25   -1.88   -3.19    1.19   -0.31   -4.19  Wild ride
CMGI      45.69   -2.25   -2.50    6.94    2.25    4.44  Dropped
YHOO     122.56   -6.50   -4.50   19.44   -2.38    6.06  Roll over
PHCM      84.94    5.75   -2.00   10.44    8.38   22.56  Dropped



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:
*****

AGIL $72.06 -2.94 (-1.44) Agile's midday weakness today left us
scratching our heads.  The stock has been range-bound for a week
now and even a NASDAQ breakout couldn't push the stock higher.
Not what we want to see for our call plays.  AGIL did rebound
from Thursday's 30-minute, $6 drop, but it is finding resistance
at $72.  Surprisingly, there was no news out, just a technical
move.  Needless to say, there are too many good plays available
to have our capital sitting in this one any longer.  Besides,
AGIL doesn't report earnings until mid-August so we won't likely
miss out on an earnings run.  We will let it get these little
"hiccups" out of its system and check the stock again after it
moves above resistance at $75.

DNA $153.94 -10.19 (-19.06) Well that was quick - we didn't even
get an entry point on our play.  After the strong gains seen
in the Biotech sector over the past month, profit taking hit
fast and furious over the past 2 days.  DNA had been finding
resistance near $175, and the sector weakness drove shares of
the company sharply lower on increasing volume.  Once support
at $169 gave way, the selling accelerated all the way down to
$155.  Although the stock may be finding support near this
level, earnings are only 2 trading days away and we would have
had to drop it this weekend anyways.  There just isn't enough
time to play this Biotech prior to its earnings release on
Monday.  Rather than hope for the sector health to improve
tomorrow, we're dropping DNA tonight in favor of better plays.



PUTS:
*****

PHCM $84.94 +8.38 (+22.56) There you have it, one dead put play.
In fact, this play was close to death on Monday as it just
refused to breakdown.  We wanted to give it as much opportunity
as possible with the rest of the Internet sector so weak.  But,
apparently YHOO's earnings on Tuesday evening ended that
downtrend and Internet issues have been going crazy for the
past two sessions, with PHCM leading the way.  You were able
to profit in the first half of this play, but stops were crucial
to make sure those profits were preserved.  There were a few
minor news articles to help the stock, but the real catalyst
was the return of the sector. We will part ways with PHCM
before any more potential earnings run kicks in.  Earnings are
set for July 20th.

CMGI $45.69 (+4.44) The once-dormant Internet bulls came out in
herds in the last two days.  The Yahoo-effect lifted the entire
Net sector Wednesday, carrying CMGI past resistance at $40
without much hesitation which raised a cautionary flag for our
put play.  The better-than-expected profits posted by Yahoo
infused hope back into the ailing Internet incubator arena.  The
rediscovered bullishness carried CMGI back above its 10-dma
Thursday as traders bought the stock with reckless abandon.
Investor may soon remember, however, that CMGI is far off from
earning consistent profits like its Internet portal peer.  Until
that happens though, we must leave our play.


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DISCLAIMER
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This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
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The Option Investor Newsletter                 Thursday 07-13-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

GSPN $144.63 +19.00 (+25.06)  No news, just sheer momentum.  The
tech enthusiasm lifted many stocks today as the NASDAQ finally
follow-through on its triple digit gain yesterday.  GSPN broke
out from resistance near $125 and soared past $140, which it
hasn't seen since March 23rd.  These are the type of 15% one-day
gains that we search for everyday.  Volume was consistent and
heavy throughout this breakout move, indicating conviction.
Intraday, GSPN build minor short-term support at $140.  A pullback
to this level, along with a bounce on strong volume, would allow a
decent entry.  Tomorrow's trading will be dependent on the Retail
Sales and PPI numbers, so look to the NASDAQ's behavior for
direction.  If positive, GSPN would have no problem achieving $150.
On a profit-taking pullback below $140, look to $133 for support
and entry opportunities.

PRSF $69.88 +2.50 (+10.13)  Well, PRSF started the day exactly
where it finished yesterday.  Continuing its uptrend, the stock
smoothly surpassed resistance at $70.  After venturing into the
$73 territory, GSPN slid into the close, right near support.  In
after-hours trading, PRSF is trading above $70, so we will look
for the stock to hold this new level.  If PRSF comes out of the
gates strong tomorrow, entry on the uptrend would be prudent.
Any weakness below $70 could bring the stock down to $65 support
that was established on Wednesday.  Bounces from here would
provide excellent entries.  Watch the economic numbers tomorrow
and the NASDAQ reaction.  Volume was good today in PRSF, which
leads us to believe that this uptrend truly has some legs.  No
news to report as pure momentum seems to be driving this issue.

SDLI $343.50 +15.50 (+48.19)  Perfect, absolutely perfect.  Our
rebound theory worked as planned and JDSU recovered from the
overdone selling after the takeover announcement.  Fiber optic
stocks continue to be hot as consolidation seems to be the theme.
On Thursday, SDLI trended up from $330 to the high for the day at
$355 at 2pm EDT.  At that point, the sellers stepped in to take
some profits off the table.  The stock did manage a slight bounce
from $340 in the final 20 minutes of trading.  As we mentioned
in the Tuesday write-up when we initiated coverage, SDLI will
trade in step with JDSU since it is an all-stock deal.  So watch
JDSU's trading behavior to determine SDLI's fate.  JDSU closed
today at $105.50, just above its 50-dma at $104.  This is a
positive sign.  There is support at $100 on a pullback.  On the
upside for JDSU, the 100-dma at $110 may provide resistance, yet
considering the gap from $120, euphoric investors may move the
stock higher.  Watch though for skeptical sellers in the wings.

KANA $72.25 +6.94 (+11.31)  B-2-B's are back on the heels of
ARBA's better-than-expected earnings.  The sector which has been
beaten day of late looks like it is making a recovery.  After
closing Wednesday near $65, KANA powered ahead and spent most of
the day teetering at the $68 level.  Yet, late in the session,
strong volume came in and drove the stock to close at the high
of the day.  This close is fractionally below the 100-dma which
lies at $72.58.  Today's 10% advance was rather significant and
a little profit-taking is not out of the question for tomorrow.
Keep this in mind, along with stop orders, to protect profits.
Technically, KANA could pullback to the $68 area, and then $65
from there.  Any high volume bounces from either of these support
levels would offer very nice entries.  Resistance may be
encountered at the 100-dma, mentioned above, and then at the
200-dma at $77.  Earnings are July 26th, so this momentum run
may very well add on some hefty gains.

BRCD $205.50 +11.63 (+19.94) Leading the tech sector higher,
BRCD has barely paused at all on its impressive run.  After a
couple failed attempts earlier this week, the buyers finally
had their way and shattered the $200 resistance level.  Moving
as high as $206.69 in another strongly positive day in the tech
sector, BRCD only pulled back slightly at the close today,
closing at $205.50.  Volume is the only factor that concerns us,
as it has dropped over the past couple days to only about
two-thirds of the ADV.  The 5-dma ($194.75) has been supporting
the stock's run over the past month and this level provided a
great entry point as buyers threw money at the stock this
morning.  July earnings season is off to a great start, and
although it doesn't report until mid-August, BRCD is benefiting
from the improving sentiment.  Intraday dips to the $200 level
or stronger support near $194 will provide the best entry point.
More conservative investors may want to wait for volume to pick
up again, driving the price up through resistance, now at $206.

ISSX $101.06 +2.06 (-0.94) If you were willing to take the risk,
ISSX gave us a great entry point at the close on Tuesday.  On
a burst of selling volume in the last 5 minutes, the share
price plummeted as low as $88.78, just above the 30-dma (then
at $87.31).  The slight bounce in the final minutes of trading
was confirmed with a decent move as the stock recovered back
above the $100 level over the past 2 days.  Volume has been on
the light side though, and this causes us some concern in light
of the strong volume seen on the NASDAQ.  Earnings for the
company are just around the corner, next Tuesday before the
open, so we are running out of time on our play.  At this point,
we would be hesitant to enter new positions unless ISSX can
demonstrate its intention to move higher by breaking through
resistance at $104 on increasing volume.  One way or the other,
we'll be dropping ISSX this weekend ahead of earnings.

INCY $93.50 -10.13 (-3.41) Is that an entry point?  The
Biotechs were due for a correction, and the pullback seen over
the past 2 days hit INCY along with the rest of the sector.  On
average volume, shares of the company have now pulled back right
to support at $93.  With the 10-dma at $94.13, look for INCY to
bounce near current levels and head higher as earnings approach.
The company's release date is set for next Tuesday after the
close, so time is running out for a run to develop.  New entries
can be considered if the stock bounces from current levels, but
make sure that the sector is positive and volume is on the rise.
Stronger support exists near $88-89.  A bounce here could
provide a better entry point, but if it doesn't hold as support,
you are better off standing aside from the play.  With so many
strong stocks out there, you are better off waiting for one that
is seeing strong buying volume in a strong sector - don't try to
force the play just because you like the Biotechs.

MUSE $187.00 +7.38 (+17.94) Even if you know nothing about MUSE,
you have to love the chart over the past 3 weeks.  Moving up
steadily since confirming support at $124 in mid-June, the stock
has been moving up for 3 days and correcting for 1 day before
repeating the process.  The last 3 days have been up, and with
the strong gains seen in MUSE as well as the NASDAQ this week,
a pullback would not be unexpected.  The upward move today came
on light volume (about two-thirds of the ADV), adding evidence
that profit taking could be just around the corner.  The 5-dma
(currently at $173.81) has been providing support throughout
the stock's recent move, and a pullback to this level, would
make for a good entry as buying volume returns to support the
price.  The stock consolidated between $172-174 yesterday before
moving strongly higher into the close, making this level look
attractive for new entries.  The fuse is getting short on our
play though.  Earnings will be released next Wednesday after the
close, giving us less than a week to get in, make our profits,
and get out.

NT $76.63 +1.63 (+5.00) Let the earnings run begin.  NT has
been gradually moving higher for the past month and started
running into resistance at $72 a little over a week ago.
Then, supported by the strong move on the NASDAQ, NT shot
higher yesterday, setting a new 52-week high of $76.  Excited
by the prospects of a strong summer rally and in anticipation
of the company's earnings announcement (due out July 25th after
the close), the bulls drove the price even higher today,
tagging another new high of $78.25 before the inevitable profit
taking set in.  The tech sector had another good day on strong
volume, and the late day pullback in shares of NT looks like
another entry point forming.  Mild intraday support is forming
just below $76, with better support at $74.  The 5-dma
(currently at $73) has been supporting the stock's move, and a
bounce between $73-74 would make for a great entry point, as
long as it is confirmed by continuing strong volume.

CREE $152.50 +5.19 (+22.00) The play of the day came through for
us Thursday.  CREE shot past resistance at $150 at the opening
bell.  The stock subsequently settled into a range between
$151.50 and $155 for the remainder of the day.  The slew of
positive profit reports from the Tech related issues have
littered Wall Street over the past two days with many market
participants looking for more upside earnings surprises.  If
there is one group of stocks that is sure to please Wall Street
this quarter, it's the Semi sector.  The chip companies will begin
rolling out earnings in the coming days which could fuel the
group's momentum.  CREE is among the leaders in the Semi sector
and could benefit from positive profit reports from others.
CREE's range bound trading Thursday could lead to an explosive
breakout Friday if the chips fall in place (pun intended).  Look
for an entry if CREE rallies above resistance at $155 on healthy
volume.  The path is pretty clear above that level until $160.
Support is now located at the bottom of its range, and just
below at $150.

CIEN $166.00 +4.63 (-5.88) CIEN plunged on unusually heavy volume
Wednesday due to rumors of accounting irregularities.  The rumors
were linked to a private research firm known as CFRA who
apparently issued a report detailing problems with CIEN's books.
Wall Street came out with its rebuttal to the CFRA report
Thursday and defended CIEN.  JP Morgan and PaineWebber both said
that the report had no new information and said that Wednesday's
sell-off was unwarranted.  DLJ reiterated CIEN as one of its top
picks and set a price target of $190.  It's good to have friends
on Wall Street!  CIEN recouped some its losses Thursday but fell
short of returning to its post-rumor level of $170.  However,
the "misunderstanding" might have provided us with a good entry.
Look for CIEN to regain its footing Friday on a positive PPI
report.  Look for an entry if the stock moves back above the $170
level, or wait for a more conservative entry above resistance at
$175.  A bounce off support at $165 might provide an additional
entry.

TIBX $125.94 +8.63 (+10.69) The B-2-B sector was the place to be
in the last two days.  Morgan Stanley DW said Wednesday that it
had initiated coverage on TIBX with an Outperform rating and set
a $130 price target.  The support from MSDW added fuel to TIBX's
momentum and helped to propel the stock past resistance at $115.
The B-2-B group was given another boost Thursday after Ariba
provided a positive outlook the night before.  While TIBX's
earnings announcement is several months off, the return of
momentum to the B-2-Bs might be the catalyst to take our play
higher.  After the brief bout of profit taking earlier this week,
TIBX has bolted right back into its ascending channel.  The stock
still faces congestion above current levels, near its March
highs.  TIBX's momentum might continue to plow the stock past
resistance.  Consider entry at current levels if TIBX continues
its advance into the weekend.  For a more conservative entry,
wait for the stock to clear the $130 level.  TIBX has strong
support just below at $125 and again at $120 which may be levels
to look for entry on any intraday profit taking.

SEBL $182.00 +4.44 (+11.06) SEBL shot out of the gates Wednesday
morning, the stock eclipsed resistance at $175 with ease mid-way
through trading to finish the day at an all-time high.  SEBL
continued higher Thursday and rewarded the bulls with yet another
new 52-week high on the heels of a positive release from Ariba.
The Goldman Sachs Computer Software Index ($GSO) has been set a
blaze this week, and it would appear momentum is building in the
sector.  SEBL's two consecutive days of rallies have bolted the
stock into breakout mode.  The company will release its results
after the bell on Tuesday which we confirmed.  The anticipation
for better-than-expected profits may continue to carry SEBL into
uncharted territory.  The only resistance SEBL faces is at its
intraday high of $182.38.  With that said, consider entry at
current levels if SEBL rallies Friday morning.  A tame inflation
report may fuel the Software sector's momentum and carry our play
into the weekend.  An intraday pullback to support at $175 may
provide an additional entry if the stock bounces from that level.



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

LCOS $44.88 +0.63 (-4.38)  LCOS got some relief on Wednesday as
the NASDAQ rallied behind YHOO's earnings report.  It appears
that intraday support has developed at $44.  We are sticking with
this put play for another day to see if LCOS is giving us an
entry point.  With no news out on LCOS, we do not believe that
a reversal is imminent.  Yet, we would like to point out the
newfound momentum and enthusiasm in the NASDAQ.  Watch to see if
the NASDAQ and LCOS move in tandem or diverge tomorrow.  Any
continued upmoves in LCOS and we would NOT recommend initiating
new positions until LCOS rolls over at its 10-dma of $48.63.  A
slide through $44 on decent volume and LCOS may be heading for a
retest of $40.  This break through $44 would provide a good entry
point.  This YHOO euphoria may be wearing off for the Internet
sector, as YHOO rolled over a bit late on Thursday.

RMBS $94.50 +3.00 (-6.50) Yes, Rambus gained $3.00 today, but
it is still underwater on the week and far from showing us
anything that constitutes frenzy buying.  In fact, the action
we've seen reflects more of a relief rally than anything and
RMBS has underperformed many other high-tech stocks.  Maybe
more encouraging for our put play is the levels of resistance
sitting just above the stock.  It has been unable to hold
above $95 in the past two sessions, plus it will run into the
10-dma at $98.50, and more formidable resistance at $100.  The
downside, however, does look more appealing.  On market weakness,
RMBS could trade back down to the $86 support from Tuesday.
You may recall this recent bout of profit-taking occurred due
to some comments made from Intel (the major proponent of Rambus)
about Rambus memory showing less advantage than some lower
priced chips.  This obviously is not what investors want to here.
All in all, you may want to cut your plays short as RMBS is
set to report earnings this Tuesday, after the bell.  We don't
recommend you hold over earnings.

YHOO $122.56 -2.38 (+6.06) Entry point?  Yahoo traded right up
to resistance today before rolling over.  You will note on the
chart that YHOO has struggled breaking out over the mid-$120s
level since late June.  This is the entry point we were waiting
for.  The volume dried up somewhat on Thursday too, possibly
signaling the end of the buying frenzy.  You may recall that
earnings and revenues were strong in the second quarter, but
some analysts are still concerned about a slowing advertising
environment and slowing growth in the their page views.  For
cautious investors, you may want to wait for a break back below
$120, something YHOO didn't do today.  On the flip side, a
move over $130 would signal the end of searching for entry
points to buy puts.  In other words, if momentum wants to take
the stock higher, we will revisit this play another day.

ICIX $24.25 -0.31 (-4.19) Profit warnings can be a good thing, if
you're a put holder.  Our ICIX play took a wild ride over the
past two days.  Late Tuesday night, ICIX warned that its revenues
would fall 10 to 15% short of Wall Street's forecasts.  The
company also said it expected to record a larger loss in cash
flow than previously expected.  The earnings warning was met with
a host of analyst downgrades Wednesday morning which subsequently
caused ICIX to gap down by over $3.  But then, with an intraday
sleight of hand, ICIX swiftly rebounded after the company said
it had hired an investment bank to explore options for selling
its Web hosting unit DIGX.  The announcement may have provided a
profitable entry point for our play as the news of ICIX's profit
warning returned Thursday and weighed heavily on the stock.
Watch for the sellers to return Friday morning and consider
entering the play if ICIX falls below support at $24.  A more
conservative entry might be found if ICIX falls beneath $23.50.


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

MRVC - MRV Communications $74.88 +8.00 (+12.94 this week)

MRV Communications is in the business of creating and managing
growth companies in optical technology and Internet
infrastructure.  The company has created several start-up
companies and independent business units in these areas.
MRVC's core operations include the design, manufacture, and
sale of products in these areas, primarily Network Element
Management, and physical layer, switching and routing
management systems in fiber optic metropolitan networks.
The company also produces fiber optic components for the
transmission of voice, video and data across enterprise,
telecommunications and cable TV networks.

Unless you've been asleep for the past month, you already know
that the Optical sector has been glowing brightly.  Led higher
by the likes of SDLI, GLW, and CIEN, stocks in this space are
continuing to shine.  MRVC split 2-for-1 at the end of May, and
without so much as a hint of a post-split depression,
immediately began marching higher.  Supported by the 5-dma, the
stock didn't really slow its ascent until running into
resistance at $67 three weeks ago.  Taking some time to
consolidate its gains, MRVC has now built up good support near
$60.  With gains continuing in the sector and earnings season
now in full swing, MRVC decided to put on its running shoes and
start heading higher again today.  Heading higher right from
the opening bell, the stock saw strong buying all day today,
with more than 1.5 times the average number of shares traded
hands.  Today's high of $75.31 is the highest level for the
stock since mid-March, and represents near term resistance.
Speaking of earnings, MRVC is set to report its numbers on
July 27th after the close, and today's action looks like it
could be the beginning of an impressive run.  The Networking
sector is showing some nice strength as it moves back into the
plus column for the year, and this improving sentiment should
add to MRVC's upward bias as the earnings cycle continues.
Support for the stock can be found at $69 and then $65, and
with the proximity of the 5-dma ($67.63) and the 10-dma ($66.31)
any bounce north from this area looks attractive for new
entries.

There has been no recent company-specific news on MRVC, but
the recent announcement that JDSU will be buying rival SDLI,
is fueling speculation of more deals in the Optical sector.
While MRVC may or may not be directly involved in this move
towards greater consolidation, the general sentiment will
likely continue to create an upwards bias for the stock.

***July contracts expire next week***

BUY CALL JUL-70*RVY-GN OI=1341 at $ 7.00 SL= 5.00
BUY CALL JUL-75 RVY-GO OI= 172 at $ 4.38 SL= 2.50
BUY CALL JUL-80 RVY-GP OI= 496 at $ 2.25 SL= 1.00
BUY CALL AUG-75 RVY-HO OI= 242 at $11.38 SL= 8.50
BUY CALL AUG-80 RVY-HP OI= 468 at $ 9.25 SL= 6.50
BUY CALL OCT-80 RVY-JP OI= 296 at $15.63 SL=11.25

SELL PUT AUG-65 RVY-TM OI=  72 at $ 5.63 SL= 7.75
(See risks of selling puts in play legend)

Picked on July 13th at   $74.88     P/E = N/A
Change since picked       +0.00     52-week high=$97.44
Analysts Ratings      1-1-0-0-0     52-week low =$ 6.50
Last earnings 04/00   est=-0.01     actual= 0.03
Next earnings 07-27   est= 0.03     versus= 0.01
Average Daily Volume = 2.11 mln



HGSI - Human Genome Sciences $153.75 -14.69 (-10.25 this week)

HGSI licenses a proprietary database of gene sequences to such
pharmaceutical heavyweights as SmithKline Beecham and Merck.  The
company has eschewed the race to decode the entire human genome
in favor of focusing on patenting gene sequences involved in
disease.  HGSI is one of the few genome companies involved in
developing gene-based therapeutics, its four compounds in
clinical trials are intended to limit the toxic effects of
chemotherapy, promote repair of damaged cells, stimulate antibody
production, and spur re-growth of blood vessels.

Been looking for an entry into the genomic related issues?  The
Biotechnology sector fell for the second consecutive session
Thursday as traders shifted capital into the Tech sector.  Along
with the negative money flow, part of the selling can be
attributed to the arch nemesis traders known as profit takers.
HGSI made a nice run over the last two weeks and Thursday's
Tech rally prompted investors to lock in profits.  Despite two
straight days of selling, there are several factors that could
rekindle HGSI's momentum and take it higher.  First and foremost,
investors' anticipation of earnings and new products has been the
catalyst that carried HGSI higher and may continue to do so.
Secondly, HGSI is a uniquely positioned company because of its
gene-based therapeutics.  The company said Wednesday that it had
licensed two such genes to Transgene (TRGNY) to collaborate in
developing treatments for severe cardiovascular conditions.
After the announcement, U.S. Banc Piper Jaffray reiterated its
Strong Buy rating on HGSI and said more agreements could follow.
What's more, HGSI is trading around historical split levels.  The
company has plenty of shares to authorize a 2-for-1.  Despite the
two recent days of selling, HGSI's technical picture remains
attractive.  The stock clustered around its 10-dma Thursday which
is currently at $155.  HGSI has major support just below at $150
which may provide a good entry if the stock bounces off that
level upon further profit taking.  A rally back above $155 may
provide a more conservative entry point.  If you want to wait for
momentum to return to HGSI, look for an entry as the stock
hurdles resistance at $160, thereafter is a pretty clear chart to
the $170 level.

Think the genomic craze is another Wall Street fad?  Don't tell
that to Steve Newby.  Newby is the portfolio manager of the
world's first and only genomic specific mutual fund.  According
to Morningstar, Newby's genomic portfolio was the best performing
mutual fund for the second quarter, earning an very profitable
39%.  Among the fund's top five holdings is none other than HGSI.

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

BUY CALL JUL-150*HHA-GL OI=786 at $10.63 SL= 7.25
BUY CALL JUL-155 HHA-GM OI=393 at $ 8.13 SL= 5.75
BUY CALL JUL-160 HBW-GL OI=260 at $ 5.75 SL= 3.75
BUY CALL AUG-155 HHA-HM OI=114 at $19.38 SL=14.00
BUY CALL OCT-160 HBW-JL OI=475 at $31.63 SL=23.00

SELL PUT JUL-145 HHA-SK OI=200 at $ 3.50 SL= 5.50
(See risks of selling puts in play legend)

Picked on July 13th at  $153.75    P/E = N/A
Change since picked       +0.00    52-week high=$232.75
Analysts Ratings      1-5-3-0-0    52-week low =$ 23.00
Last earnings 03/00  est= -0.33    actual= -0.35
Next earnings 08-08  est= -0.20    versus= -0.05
Average Daily Volume = 1.68 mln




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

LLY - Eli Lilly and Company $95.75 -4.00 (-5.25 this week)

Eli Lilly makes Prozac, the world's best-selling antidepressant.
It also makes Gemzar to treat pancreatic cancer, Evista for
osteoporosis, and Zyprexa which is used to tread schizophrenia.
Other products include antibiotics, growth hormones, anti-ulcer
agents, and cardiovascular therapy medications.  The company is
looking to produce a replacement for bestseller Prozac, which is
set to begin losing its US patent protection in 2003.

Feeling a little depressed?  LLY shareholders might, after the
stock's meteoric rise two weeks ago and now subsequent slide
lower.  In late June, LLY announced that its sepsis drug
currently under development may actually work.  The new drug, if
successful, is to be called Zovant which would treat sepsis, a
major threat in emergency rooms.  The announcement caused LLY to
gap nearly $13 higher.  However, upon further examination of the
news, a few brave analysts called LLY's rally overdone, and
actually downgraded the stock.  One such analyst was Adam Greene
of Wasserstein Perella.  Greene shifted his rating on LLY to a
Hold citing valuation concerns.  He added that, if approved,
Zovant would add between $300 to $600 mln to LLY's market cap at
the drug's peak, a far cry from the $16 bln created by the $13
gap higher.  Along with the concerns over its valuation, LLY may
continue to suffer from the flight of capital to the Tech sector.
The ebb and flow of the market has been good to the
Pharmaceutical sector recently while the Tech sector churned.
However, the resurgence of tech related issues is attracting
investors' money, consequently, away from the defensive drug
stocks.  The current divergence between tech and drug stocks,
coupled with a weak chart, may lead to further downside for LLY.
With Thursday's decline, LLY slipped back down into its void
created by the huge gap two weeks ago.  The stock has virtually
no support below current levels which warrants consideration for
entry Friday morning.  Before entering the play, confirm
divergence in the market and look for LLY to continue falling.
The stock has resistance just above at $96 which may provide
entry upon failure to move above that level.

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

BUY PUT JUL-100*LLY-ST OI=4131 at $5.50 SL=3.50
BUY PUT JUL- 95 LLY-SS OI=1623 at $2.00 SL=1.00
BUY PUT JUL- 90 LLY-SR OI=8517 at $0.50 SL=0.00

Average Daily Volume = 3.76 mln




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

SEBL - Siebel Systems $182.00 +4.44 (+11.06 this 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.

Most Recent Write-Up

SEBL shot out of the gates Wednesday morning, the stock eclipsed
resistance at $175 with ease mid-way through trading to finish the
day at an all-time high.  SEBL continued higher Thursday and
rewarded the bulls with yet another new 52-week high on the heels
of a positive release from Ariba.  The Goldman Sachs Computer
Software Index ($GSO) has been set a blaze this week, and it
would appear momentum is building in the sector.  SEBL's two
consecutive days of rallies have bolted the stock into breakout
mode.  The company will release its results after the bell on
Tuesday which we confirmed.  The anticipation for
better-than-expected profits may continue to carry SEBL into
uncharted territory.  The only resistance SEBL faces is at its
intraday high of $182.38.  With that said, consider entry at
current levels if SEBL rallies Friday morning.  A tame inflation
report may fuel the Software sector's momentum and carry our play
into the weekend.  An intra-day pullback to support at $175 may
provide an additional entry if the stock bounces from that level.

Comments

Strong volume drove SEBL to close just off its high for the day.
The uptrend is sound and a renewed enthusiasm in the B2B sector
could help the stock.  Be cautious of profit-taking tomorrow
after two days of incredible gains for the NASDAQ.  It's also
Friday, when traders lock in a little profit.  Watch how the
NASDAQ digests the economic data tomorrow and look for any
entries off bounces between $170 and $175.  Protect your
profits with stops.

BUY CALL JUL-175*EZG-GO OI=2355 at $11.25 SL= 8.50
BUY CALL JUL-180 EZG-GP OI= 558 at $ 8.63 SL= 6.50
BUY CALL JUL-185 EZG-GQ OI= 579 at $ 5.63 SL= 3.75
BUY CALL AUG-180 EZG-HP OI= 636 at $17.13 SL=13.25
BUY CALL NOV-190 EZG-KR OI= 149 at $28.63 SL=22.25

SELL PUT JUL-175 EZG-SO OI=  59 at $ 3.75 SL= 5.00
(See risks of selling puts in play legend)

Picked on July 6th at   $164.38    P/E = 271
Change since picked      +17.63    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



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

The Summer Rally Begins!

Technology stocks moved higher again today as traders celebrated
a slew of positive earnings reports.


******************************************************************
- MARKET RECAP -
******************************************************************
Tuesday, July 12

Technology stocks rallied today, with the Nasdaq closing at its
highest level in more than three months.  Industrial issues also
advanced on strength in financial stocks.  The Dow closed up 56
points at 10,783 and the Nasdaq was up 143 points at 4099.  The
S&P 500 Index was up 12 points at 1492.  Trading volume on the
Nasdaq reached 1.77 billion shares, with winners beating losers
2,493 to 1,533.  Trading activity on the NYSE was moderate at
999 million shares, with advances outpacing declines 1,756 to
1,153.  In the bond market, the U.S. 30-year Treasury rose 1/32,
pushing its yield down to 5.88%.


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

American Eagle   AEOS   AUG12C/AUG15C   $2.00   debit   bull-call
CIT Group        CITI   AUG22C/JUL22C   $0.56   debit   calendar
Mail.com         MAIL   NOV5C/AUG7C     $2.18   debit   diagonal

All of our new spread positions offered relatively favorable
prices during the session.  MAIL and AEOS provided entries in
the morning session and the CITI target was available in the
afternoon.


Portfolio plays:

Stocks ended higher for the fourth consecutive day amid optimism
over recent earnings reports.  Strong performances in technology
issues led the Nasdaq to its highest close since mid-April.  The
rally began last week after a tame employment report and today
the Internet group surged after Yahoo! reported a second-quarter
profit that beat the estimates by 20%.  Analysts raised their
ratings and forecasts for the stock, noting that page views also
exceeded estimates.  Solid gains by IBM, Disney, and 3M led the
blue chips higher and bank and brokerage stocks received a boost
from news that UBS AG would acquire PaineWebber (PWJ) for $10.8
billion in cash and stock.  Our bullish position in PWJ moved to
maximum profit on the news.  In the broad market, communication
equipment and airline issues rallied while oil service, textiles
and metals & mining stocks consolidated.

The recent bullish activity has given investors reason to believe
that the FOMC may not raise interest rates at its August meeting.
A less aggressive Fed will allow stock prices to climb higher and
that's the primary reason for the current upward movement.  Our
portfolio enjoyed a number of big gains in the technology sector
after Yahoo! delivered a better-than-expected earnings report.
Almost every large-cap technology position in the portfolio is
is profitable and our recent YHOO call-credit spread offered a
favorable entry for those who believe YHOO may have difficulty
reaching $140 in the next week.  Another big gainer was 3com
(COMS).  The stock jumped $8 and now the issue is well above our
sold strike in the bullish calendar spread.  The play offered a
$0.43 profit as the issue moved through the strike and even at
the current price, the position offers a small positive return.

Merger news dominated the market and our recent position in TV
Guide experienced some exciting activity.  The stock moved up
$9 after Gemstar International (GMST), a maker of television
guides, announced the completion of its purchase of TV Guide
following notification that U.S. antitrust regulators would not
oppose the deal.  Last year, Gemstar announced plans to acquire
the company in a stock-for-stock transaction.  The exchange
ratio (TV Guide share holders will receive .6573 shares of GMST
for every TVGIA share) values TVGIA's stock at approximately $45
and that's the price of our sold option in the current credit
strangle.  Officially, the stock closed at $45.62, roughly at
break-even for the play.  During the session, we purchased the
the stock at $44.25 to cover the sold position.  The cost basis
for the play is $43.50, based on today's stock purchase and the
previous position credit of $0.75.  Another bullish issue that
will likely require the same treatment is Juniper Networks (JNPR).
The short position in our neutral, credit strangle is at $170.
When the share value crosses that strike price, we will purchase
the underlying issue to cover the sold option.  In this manner
we can remain profitable (although at a much lower ROI) in the
overall position.


Thursday, July 13

Technology stocks rallied again today as investors celebrated a
slew of positive earnings reports.  The Nasdaq ended up 75 points
at 4174.  Slumping biotech and retail issues weighed heavily on
the Dow with the industrial average closing relatively unchanged
after a number of bullish sessions.  The S&P 500 Index also made
little movement, closing at 1495.  Trading activity on the Nasdaq
was heavy with 1.87 billion shares changing hands.  Advances beat
declines 2,129 to 1,915.  Volume on the NYSE reached 1.0 billion
shares, with advances beating declines 1,472 to 1,418.  In the
bond market, the 30-year Treasury rose 29/32, pushing its yield
down to 5.815%.

Portfolio plays:

Technology stocks were bullish again today and the Nasdaq posted
big gains for the second consecutive session.  Industrial issues
also enjoyed favorable gains even as profit-taking in major drug
and financial issues limited the upside movement.  Semiconductor
and Internet stocks drove the tech sector higher while the broad
market saw positive activity gains in paper and chemical stocks.
Retail and biotech shares were the only major slumping sectors.
The recent consolidation has produced a solid base from which to
rally and investors are reacting positively to a lengthy list of
better-than-expected earnings releases this week.  The question
now is how will the Fed react to the new bullish activity.  In
economic news, the Labor Department reported that the strong U.S.
jobs market retreated slightly in the last few weeks, taking some
pressure off the Federal Reserve to raise interest rates.  More
important data is due Friday, including the Producer Price Index
and June retail sales.  The monthly PPI will provide a reading on
inflation at the wholesale level while retail sales figures will
indicate whether consumer demand is flagging in the face of higher
interest rates.  The central bank's rate-setting body, the Federal
Open Market Committee, next meets on August 22 to consider whether
to raise interest rates to further limit inflation.

Natural Microsystems (NMSS) was the big mover in the Spreads
portfolio today.  The issue jumped $25 after the communications
software company reported a better-than-expected profit and also
announced plans for a two-for-one stock split.  NMSS reported
second-quarter net income of $5 million, compared with a net loss
of $3.6 million in last year's period.  Our bullish credit spread
at $85 is at maximum profit.  Juniper Networks (JNPR) was also at
the top of the leader board.  The stock rallied $17 to close just
short of $170 amid speculation on the company's earnings, due out
after the bell today.  Strong rumors suggest that the announcement
is going to be near $0.09 a share, slightly higher than consensus
estimates.  Emulex (EMLX) was the most surprising issue in our
section.  The recently downgraded stock vaulted $5 to close just
above $67 and our bullish, diagonal spread moved into profitable
territory.  With the recent technology run-up and resistance near
$70, it may be prudent to lock in the current gains.  Small-cap
stocks also participated in the rally.  Cabletron (CS) moved up
$2.50 to a recent high near $28 on strength in telecommunications
and networking companies.  Our long-term diagonal position is at
maximum profit above $22.50 and we will use the current rally to
roll up and forward to the August $25 options.

Only two candidates remain on our current "watch-list."  Secure
Computing (SCUR) appears to have made a successful test of the
30 dma and the issue has renewed its previous up-trend.  However,
the company's earnings are due out later this month and that will
determine the final outcome of our position.  Obviously, we will
look for any profitable early-exit opportunities.  International
Business Machines (IBM) is holding steady above $100 and remains
inside of our sold strike in the neutral, credit spread strangle.
Their earnings are also due in the next week and that report will
likely affect the profitability of the position.

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

Today I received a new request for bullish, credit spreads.  With
the recent upside activity, it may not be the most opportune time
to initiate plays in this strategy however, I have provided two
candidates that offer relatively low risk positions.  These plays
are based on the current price or trading range of the underlying
issue and the recent technical history or trend.  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.

******************************************************************
AFCI - Advanced Fibre Comm.  $54.81  *** Earnings Rally! ***

Advanced Fibre Communications designs and manufactures end-to-end
distributed multi-service access solutions for the portion of the
telecommunications network between the carrier's central office
and its subscribers, often referred to as the "local loop."  The
company's Universal Modular Carrier 1000 is a global product
family consisting of a variety of multi-service access platforms
with integrated optics and other intelligent customer premises
equipment.  The platform utilizes a hybrid asynchronous transfer
mode/time division multiplexing architecture, which provides a
variety of loop interfaces for narrow-band analog and digital
services including telephone service, integrated services digital
network), point-to-point dedicated digital circuit (T-1), high
bit rate digital subscriber, and asymmetric digital subscriber
line services.

Revenues and split announcements are driving the market and this
position is an earnings-related play.  Companies in this group
have outstanding future growth potential and AFCI's June quarter
is rumored to be progressing better than previously expected.
Product visibility continues to improve and the company's service
relationships with all its major customers remain strong.  The
company is slated to release quarterly results July 17 and the
average estimate of analysts polled is $0.10 per share.  If you
favor the potential for positive results after the announcement,
this position offers a great way to speculate on the outcome of
the report.


PLAY (aggressive - bullish/credit spread):

BUY  PUT  AUG-42.50  OI=13   A=$1.56
SELL PUT  AUG-45.00  OI=355  B=$2.12
INITIAL NET CREDIT TARGET=$0.62-$0.68  ROI(max)=32% B/E=$44.38

Chart =

******************************************************************
NTAP - Network Appliance  $85.31  *** Hot Networking Sector! ***

Network Appliance and its subsidiaries are engaged in the design,
manufacturing, marketing and support of high performance network
data storage and access devices, which provide fast, reliable and
cost effective services for data-intensive network environments.
The company is a supplier of network attached data storage and
access devices called "filers."  Network Appliance's first filer
product was specifically designed to improve the storage and
accessibility of data stored on a network.  Their products include
entry-level filers targeted for workgroups and smaller application
environments along with systems for larger departments; and a new
enterprise class filer.  The company also has an Internet caching
appliance, NetCache, which achieves Internet bandwidth savings and
improves performance by moving data closer to end-users.

NTAP is one of the leading companies in the Networking group and
fundamentally, they are near the top of the heap.  Last quarter,
the data access services provider reported earnings that were well
ahead of market expectations.  The company said net income rose
128% in the first quarter to $24 million, up from $10 million a
year earlier.  Sales more than doubled to $200 million and based
on the positive report, a number of brokerages upgraded the issue.
Merrill Lynch, Needham, Solomon Smith Barney, SunTrust and A.G.
Edwards, all moved their future earnings estimates higher with
bullish price targets.

From our viewpoint, the sector outlook is excellent and the issue
appears to have made a successful technical recovery, moving above
a recent resistance area near $80-$85.  The next earnings report
is due the day before August options expire and it appears there
is little chance the stock will test our sold strike during the
next month in this bullish, low risk position.


PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-70  NUL-TN  OI=187  A=$1.62
SELL PUT  AUG-75  NUL-TO  OI=118  B=$2.25
INITIAL NET CREDIT TARGET=$0.75  ROI(max)=17% B/E=$74.25

Chart =

******************************************************************
FNV - Finova Group  $15.31  *** Options Activity! ***

The Finova Group is a financial services holding company.  Through
its principal subsidiary, Finova Capital, the company provides a
broad range of financing and capital market products.  Finova
extends revolving credit facilities, term loans and equipment and
real estate financing primarily to middle-market businesses with
financing needs generally between $100,000 and $35 million.  FNV
operates in 20 specific industry or market niches under three
market groups.  These are Commercial Finance; Specialty Finance;
and Capital Markets.

Implied volatility in options on Finova rose again today amid
speculation over upcoming earnings and potential consolidation
in the industry.  One source noted active buying in August calls,
where open interest rose substantially.  Some say the activity
is based on next week's earnings announcement.  FNV is expected
to report on July 20 that it earned $0.69 a share, according to
a consensus estimate.  Of course the Paine Webber buyout, among
other recent mergers, has generated new speculation about the
future of many smaller financial companies.

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


PLAY (conservative - bullish/diagonal spread):

BUY  CALL  JAN-7.50   FNV-AU  OI=27   A=$8.38
SELL CALL  AUG-12.50  FNV-HV  OI=385  B=$4.00
INITIAL NET DEBIT TARGET=$4.25  INITIAL TARGET ROI=17%

Chart =




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