Option Investor

Daily Newsletter, Sunday, 07/16/2000

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The Option Investor Newsletter                  Sunday  07-16-2000
Copyright 2000, All rights reserved.                        1 of 5
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        WE 7-14           WE 7-7           WE 6-30         WE 6-23
DOW    10812.75 +176.77 10635.98 +188.09 10447.89 + 43.14  - 44.55
Nasdaq  4246.18 +222.98  4023.20 + 57.09  3966.11 +120.77  - 15.22
S&P-100  815.52 + 12.52   803.00 + 12.75   790.25 +  9.18  -  7.67
S&P-500 1509.98 + 31.08  1478.90 + 24.30  1454.60 + 13.12  - 22.98
RUT      542.63 + 14.41   528.22 + 10.99   517.23 +  6.82  -  3.33
TRAN    2919.04 +134.40  2784.64 +139.27  2645.37 + 14.66  - 42.48
VIX       22.61 +   .79    21.82 -   .44    22.26 -  3.63  +  2.34
Put/Call    .38              .48              .48              .61

The rally gains steam as inflation news comes in tame.

Investors cheered when the economic results were announced Friday
morning. The PPI headline number came in only slightly stronger
than expected with a +.6% increase but the core rate actually
fell -.1% for June. No rampant inflation there! The Retail Sales
however did show a slight increase of +.5% for June showing that
consumers were still braving the heat and the market downdraft to
hit the shopping malls. Industrial Production was up +.2% and
Capacity Utilization steady at 82.1. All appears to be well in
the economy and the markets are responding positively. The Nasdaq
is streaking for the sky while the Dow is still suffering from
sector rotation back into techs.

The big news of course was the record $145 billion judgement
against the tobacco industry. The tobacco stocks reacted with
a yawn trading down only fractionally. Tobacco analysts and
investors had anticipated the event for some time. They called
the trial constitutionally flawed and a sure win on appeal. The
tempers and emotions ran high on the announcement with the
attorney for the smokers actually yelling a verbal challenge
to the Phillip Morris CEO to step up to the table and face the
music. Some analysts expect appeals could last a decade.

On the opposite side of the news ledger Salomon Smith Barney
issued a research note that said, "Clearly, we believe the
concerns over Amazon.com's bankruptcy are overstated." Contrary
to a Barrons article claiming they would run out of cash in
22 months or less, SSB said "Amazon won't run out of cash
within the next year or the next 10 years." AMZN soared +7.50
on the news. That along with the YHOO earnings on Tuesday
helped pump new life into the Internet sector. The Internet
incubators CMGI, ICGE, SFE all posted solid gains with ICGE
closing the week +30% off its lows.

The Nasdaq soared to close at 4246 the highest close since April
7th and clearly in breakout mode. The Nasdaq gained +5.5% for
the week and is now up +4.3% for the year. The Dow is the only
major index that is still below its Y2K level and down -6% YTD.
Drug stocks provided the major drag on the Dow on Friday with
MRK and JNJ falling to profit taking after the denial on their
over the counter cholesterol medication application.

The good news bad news story in the chip sector was Altera and
Vitesse. Altera (ALTR) beat earnings by $.05 and jumped +$8.38
and Vitesse only matched estimates and dropped -$11. Takes guts
to hold over earnings in my opinion. The 90/10 rule always
seems to impact my hold over plays. The 90/10 rule? There is
a 90% chance the company will miss estimates on any stock I
own. This also works inversely as well. There is a 90% chance
of a blowout on any stock I don't own. The 10%? That is the
profit I make on any stock I actually guess right on after the
premiums deflate before I can get my closing order executed.

I have people sending me emails with so much excitement they are
like kids in a candy store with a pocket full of new money. All
memories of the March/April market drop have been forgotten as
investors rejoice at double digit moves in their favorite stocks.
Bullishness abounds in every corner. Warning season is over although
there may be some stragglers yet to confess. The focus is entirely
on earnings. Blowouts abound, stock splits are like popcorn. There
is no negativity in the news other than the tobacco judgement.
Nasdaq 6000 is already being mentioned before year end. Scary!

Before we start targeting 6000 I think we need to focus a little
closer first. The market is totally focused on earnings with the
Fed a distant memory, at least until August. Earnings are incredible
with 14% of the S&P already announced with a +23% average growth in
earnings. Only two of the S&P companies that have announced actually
missed their estimates. Tech stocks are coming in at almost +35%
and analysts can't say enough good things. Next week should be
another love fest with over 200 S&P companies announcing. This
is the busiest week of the season. Fourteen Dow stocks announce
including GM, BA, KO, EK, MSFT, INTC. It is a party with guests
squeezed into every corner guzzling champagne and raking gourmet
portions off the buffet table. Tick tock, tick tock. As the
calendar quickly counts off the days, the week we have waited
for the last three months is finally upon us. The Cinderella
ball is in full swing. Enjoy the party! Join the fun!

Remember what happened to the last big party you hosted? As the
evening wore on the entertainment faded the revelers with too
much to eat and drink started slipping away. Home to baby sitters
and Alka Seltzer. Fickle friends making excuses to leave once
the drinks dried up and the food turned brown around the edges.
The Cinderella market may also find its carriage turned back into
a pumpkin and the horses into angry bears. Once the smorgasbord
of earnings turns into a trickle of crumbs after next Friday the
attention of traders will then focus on summer vacations, family
events, kids returning to school and staying out of the heat. That
is when the real strength of the rally will be tested. Investors
will start to focus on the August Fed meeting and July economic
data. Is it for real? We will find out week after expirations.
Meanwhile enjoy the party and don't forget the Alka Seltzer.
The hangover may not be fun.

Austin Passamonte makes an interesting point in the Market
Sentiment Section today. Institutional traders, the ones that
trade in mega-millions of dollars and are seldom wrong, are
shorting the S&P-500 and even added to their positions last
week. The short interest is at a five year high. Now this
can work two ways. If the market does a nose dive next week
as they expect then they will profit handsomely. However, if
there is enough retail sentiment to nudge the markets up
another couple hundred points then we could see the father
of all short squeezes. Record short interest could create
a record rally. It is a showdown at Wall and Main. A game
of chicken between the retail traders who are adding to
long positions with reckless abandon and the huge commercial
traders like hedge funds who are shorting like there is no
tomorrow. Either outcome is likely to produce some serious
financial fireworks. Money coming into funds slowed last week.
AMG Data claimed only $1.8 bln in new cash went into equity
funds and TrimTabs.com only reported $1.1 bln in the week
ended on Wednesday. This is a far cry from the almost $7.5
billion that TrimTab.com said flowed into equity funds the
week before. I would say that was a significant difference.
If you have been following Mary Redmond’s articles on "Follow
the Money" you know how important these numbers are. Also,
the put/call ratios are the lowest in five weeks and the VIX
is still stuck around 22. These are both bearish signals.

The economic calendar is light this week with the only major
release being the CPI report on Tuesday. This is not normally
a market mover. More important in my opinion is the testimony
by Greenspan on Thursday to the Senate Banking Committee.
He has been very tame recently in his public comments but
you never know when the tide will turn. Maybe the oncoming
election will keep him muted and on the sidelines but be

Don't forget the 3-day stock/option seminar in Seattle
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Trade smart, sell too soon.

Jim Brown

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Last week was a mixed bag with the Nasdaq negative on Monday
and Tuesday. Each play went a different direction and despite
the rally the four described here were lackluster at best.
I am adding two this week, YHOO and MUSE. Maybe the market
will be nice to us before options expiration. Patience is
still the key and you can't lose any money in cash.

MRVC - MRV Communications

MRVC finally broke out over $68 but not until suffering
another bought of selling. I don't like the Friday pattern
or the trouble it had getting over $68. I would drop this
play and close any positions. It looked good several times
but never worked.

JNPR - Juniper Networks

Operator error! I had been writing on this stock here for
two weeks and was focused strictly on the chart pattern.
While waiting for the breakout over $150 we ran smack into
earnings. Had I really been trying to trade this stock I
should have checked the earnings date beforehand. Fortunately
earnings were positive but we should not have been trying
to enter the play three days before. The chart is a really
good example of a technical entry but luck played a major

MSFT - Microsoft

I hate it when this happens. We just get setup with an
apparent breakout and the earnings rumors take fun right
out of the play. The gap down on Monday and lack of follow
through from the Friday spike should have been the signal
to move on to something else. The negative expectation is
building but with only three days from earnings on Tuesday
to expiration on Friday I would just close the play and
not hope for a blowout. This one is dead.

TIBX - Tibco Software

Can't say I did not warn you. The chart was just too pretty
and it was due for a serious pull back. For those waiting for
the rebound as suggested, you got a great entry point. The
writers jinx was in full bloom but the negative market on
Mon/Tue was the real key. Too much profit on the table from
the great runnup. New players shold wait for the next bounce
off the bottom of the channel.

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

MUSE - Micromuse

The dip on Friday for profit taking appeared to give us a
little safer entry point for Monday. That dip should have
taken out the nervous Nellies and the quick recovery was
a good sign. I would wait for at least two hours on Monday
before taking a position. It is possible we could get some
market instability on profit taking so we want to confirm
direction of both the market AND the stock. Ideally we
would like to see a sub $180 entry point but with a positive
market and positive stock I would be a buyer on Monday.

YHOO - Yahoo!  !! PUT PLAY !!

I am a firm believer in trends and the trend for YHOO is to
drop after earnings. The depressed Nasdaq and the negative
press before earnings had artifically depressed the stock.
The positive earnings helped by the Nasdaq rally injected
new hope into YHOO. However the new hope still has not been
able to break through resistance at $130. When/if the market
turns south for profit taking or a repeat of the last two
July sell offs YHOO, with a PE over 500, will suffer. This
is definitely not a blind play. WAIT FOR WEAKNESS before
buying puts on YHOO. No trend continues forever but with
the July trend AND the YHOO trend converging I think there
is a better than 50/50 chance YHOO will see $110 again. This
is a personal opinion but one I intend to play.

QQQ - Nasdaq Puts

This is strictly a play based on the July sell off trend.
The QQQ has broken out and is following the Nasdaq to three
month highs. Profit taking will occur soon and more than
likely before Tuesday July-25th. An aggressive trader could
follow this chart all week and look for the roll over. I
think you could safely buy puts on any break through $105
but I would want to see weakness first. This is a probable
play for Thr/Fri/Mon. Be patient. Wait for confirmation.


I have no current positions. I am in cash and looking for
a sell off after expiration Friday. I set stops on my NOK,
VOD and MSFT leaps and all were hit on the weak market early
in the week. I can now bask in the luxury of indecision. If
I do not see something that looks like free money then I can
just wait patiently on the sidelines. You read my market
wraps and you saw the charts from last week on the July
drops in 1998/1999. If the market rockets up from here and
never looks back then so be it. I will lose profit but not
capital. If the market does what I expect then I want to be
ready to capitalize on the first down trend and then be ready
for the next up trend. I have a lot of things on my plate
and I can't afford to be glued to a PC all week. Profits
come to those who wait. I am waiting!

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

Good Luck



Record Levels Predicted Soon
By Austin Passamonte

Everywhere I look market pundits are predicting record levels
for the major indices by mid-August. Music for bullish ears!
Heavy volume amid neck-breaking sector rotation is evidence
enough that momentum traders are back.

A mild PPI report was the green flag waving in front of
buyers seated with feet on both pedals. Looks to me like
most bulls dumped their clutch and floored the gas. Is this
the start of an Indy 500 or just a quarter-mile drag race?

Investors and traders are salubrious. The glory days are upon
us once again! You just know that unsold cases of "Irrational
Exuberance" hard-covers are being used to stoke barbecue grills
this weekend. All is well in lush, green bullish pastures under
the summer skies.

Lest we forget, this is a balanced report. Forgive me for
predicting possible showers amidst the bear roast. The VIX
stubbornly remains at the 22 range with no signs of budging.
A move up from here might signal tilted pressure is waning.
On the other hand, a sudden dip below 20 followed by release
to higher numbers may suggest you buy puts with abandon.

The biweekly COT report was issued at 3:00pm on Friday. Did
the S&P 500 commercials lose their nerve, throw in the towel
and cover shorts? Certainly not. As we guessed, they had the
audacity to add even more net-short positions to set another
5+ yearly extreme. Same goes for commercials in the NASDAQ
100 market as well.

Remember, these are the big boys (and girls). Financial
institutions. People who trade positions with more zeros
than a long Siberian winter. The broad market rallies and
they go even shorter? These pros are betting that the shorts
they sell today will cover eventually at lower prices. Much
lower prices. You can bet they are hedged with options and
made sure time is on their side. I wonder what they think
the market may do after earnings season draws to a close?

My guess for what it’s worth is further upside over the rest
of a stellar earnings season. Be sure to watch the VIX and
don’t be in a hurry to buy any major dips should they occur.
Some are betting the next bottom is a long ways off.

Enjoy the market moves while profiting in both directions.
Calls or puts as conditions dictate will facilitate early
retirement sooner than you think!


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

Thur 7/13 close: 22.75      Sat 7/15 close:22.61

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          .38
Equity P/C Ratio             .47         .37          .33

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        .81
OEX Put/Call Ratio     1.27         1.82       1.05

OEX Maximum Open Interest Strikes/Contracts:

Puts                  790/6,095    790/6,762   790/7,085
Calls                 800/5,632    825/9,423   825/9,340
Put/Call Ratio          1.08          .72         .76

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     58.87
(815 - 800)                2.8          1.87      1.75

OEX Close:                 801          808       815

Underlying Support:
(800 - 785)                 .86         1.10      1.21
(780 - 760)                2.59         2.84      3.15

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

200 Day Moving Average (as of 7/10)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW;   10,740          10,727     10,788    10,812
NASDAQ; 3,789           3,956      4,174     4,246
NDX;    3,505           3,744      3,956     4,041
SPX      1412            1480       1495      1510
OEX       758             801        808       815

CBOT Commitment Of Traders Report: Friday 7/14
Biweekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader’s direction.

                  Small Specs    Commercials
DOW futures
Net contracts;    +326 long        +59 long
Total Open
Interest %        2.3% net-short   .4% net-long

Net contracts;    +6,183 long      -10,731 short
Total Open
Interest %        4.9% net-long    11.9% net-short

S&P 500
Net contracts;    +36,908 long      -44,272 short
Total Open
Interest %        9.8% net-long    11.8% net-short


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

Interest rates
5.87% on the 30-year Treasury Bond may be signaling the rate
fears are over. Fed-Fund futures are pricing a less than 50%
chance of one more hike, .25 basis at this time.

Corporate Earnings
Last quarter earnings expected to be very strong, especially
for the tech sector. Major stalwarts in the Dow and NASDAQ
began the three-week session last week. Many issues beating
the street with a majority still to report.

Recent IPO’s have been met with positive enthusiasm.



Today’s close near 22.61 warns of impending market top danger.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. August Crude closed $31.40 today
amid rumors 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 traderss continue to
build five-year extreme short position. Widening divergence
in NASDAQ 100 futures market with commercials becoming heavily
net-short. Divergence suggests possible market turn in favor
of commercials soon.

Equity Put/Call Ratio
Equity option ratio has slipped into bearish zone, as did total
CBOE option ratio.


As of Market Close - Sunday, July 16, 2000

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

DOW Industrials   10,450  10,850  10,801    Neutral   7.07
SPX S&P 500        1,435   1,510   1,509    BULLISH   7.13
OEX S&P 100          775     816     815    BULLISH   7.13
RUT Russell 2000     470     545     542    BULLISH   7.13
NDX NASD 100       3,450   4,055   4,041    BULLISH   7.16  **
MSH High Tech        965   1,082   1,080    BULLISH   7.13

XCI Hardware       1,440   1,600   1,549    BULLISH   7.13
CWX Software       1,160   1,300   1,285    Neutral   6.06
SOX Semiconductor  1,060   1,281   1,238    BULLISH   7.16  **
NWX Networking     1,150   1,385   1,381    Neutral   7.13
INX Internet         470     637     593    Neutral   7.16  **

BIX Banking          520     565     558    Neutral   7.07
XBD Brokerage        480     590     587    BULLISH   7.11
IUX Insurance        610     660     649    Neutral   6.20

RLX Retail           860     960     932    Neutral   7.07
DRG Drug             380     430     394    BULLISH   7.11
HCX Healthcare       795     880     813    BULLISH   7.11
XAL Airline          152     180     176    BULLISH   5.25
OIX Oil & Gas        285     315     292    Neutral   7.13

Posture Alert
The NDX, SOX and INX took out further resistance warranting
upgrades.  Markets can get nervous when so many indicators are
bullish.  A few facts...The SPX is up 2.7% for the YEAR.  The
XBD is up 15.5% for the WEEK.  The DRG is down 7.7% in 3 days.
Snug up those stops


Runs, Hits, and Errors
By Buzz Lynn

We had some nice plays last week in the QQQ, BBH, PPH (that is if
you sold the latter two too soon), and the BDH.  We gaffed one as
well in our negative slant on HHH.  Investors were quite happy with
Yahoo’s results earlier in the week.  With Salomon Smith Barney
riding to the rescue of AMZN on Friday with a Buy rating based on
what they think will be a net gain cash position over the next 18
months, plus Lehman’s Buy rating on EBAY and price target of $72,
the B2C sector caught fire.  Oh well, if you can’t beat ‘em, join
‘em!  It rubbed off nicely on other Internet sectors too.  Note
that we’ve added IAH as a new play this weekend.  With all the
technology interest lately, you’d think the drug stocks would be
looking pretty ugly now and you’d be right - bye bye PPH.  So why
not drop biotech (BBH) from the lineup after an equally big slide?
Check out the technical analysis below.  While we could see some
pullback from last week’s strong gains, earnings season is in full
swing, and this week could shape up to be a good one for those
long.  The sentiment has shifted to the positive thanks to strong
earnings from those technology companies that have already
reported.  While the gravy train won’t last forever, an earnings
run has emerged in many sectors and we ought to play them for all
they are worth.  That said, let’s see how we might make some money
this week!

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100   100.56  -1.56   0.53   2.50   1.44   2.06   4.97
HHH Internet     120.00  -4.25  -1.13   9.38   2.63   8.13  14.75
BBH Biotech.     184.00  -0.88   0.31  -2.19 -11.88   1.44 -13.19
PPH Pharm.        97.38   2.50   1.00  -2.44  -4.25  -2.88  -6.06
TTH Telecom       77.44  -0.94  -1.25   0.75   1.75   0.31   0.63
IAH I-net Arch.   97.96  -0.38  -0.69   2.31   2.06   2.00   5.31
IIH I-net Infr.   66.63   0.06  -2.38   4.94   4.69   0.00   7.31
BHH B2B           52.50   0.38  -0.88   7.19   3.56   1.06  11.31
BDH Broadband    100.25  -1.75  -0.31   3.56   3.94   3.44   8.88
SMH Semicon.     101.38  -0.13  -1.50   2.32   2.44   3.00   6.13
RKH Reg. Banks    99.00  -0.56  -0.25   0.50  -1.88   2.25   0.06
UTH Utilities     93.00   1.81   1.19  -0.50  -0.13   0.00   2.38


QQQ - NASDAQ 100 $100.56 (+2.91 last week) The NASDAQ rally
continued on Friday as a new recent high of 4246 was reached.  The
strength continues to amaze us.  Actually the QQQ has lagged the
whole NASDAQ market ever so slightly telling us that on a relative
basis, it’s the smaller to medium cap issues that are gaining the
most ground relative to the giants like MSFT, INTC, CSCO, ORCL,
WCOM, and DELL.  Even the giants, except maybe MSFT are doing well.
Well enough so that the resistance we’d recently seen at $100 is
getting squeezed up with impressive volume, even for a Friday.  In
fact, QQQ closed at its highest level since the April selloff
began.  Given the strength of the tech issues during this earnings
season, it seems that this trend can continue.  Just remember too
that nothing goes up in straight line and there will be a day or
two of adjustment from time to time.  Assuming QQQ can continue its
climb over $100 from here, we might expect $100 to become new
support.  But until then, $99 and $97.50 should continue to make
excellent support.  The next level of resistance is $102.50, then
$105.  Any chance of a back slide into the $92-$97 range?  Remotely
possible, but unlikely in our opinion given the strong earnings
numbers from the tech stocks so far.  That also means more upside
potential as earnings get into full bloom.

Short Strangle:

Part of the appeal of a strangle is its ability to make us money in
a sideways market.  While is still works, it becomes less appealing
when the market gets a directional bias - up in this case.  It
means we keep having to adjust our short positions to remain out of
the money on both puts and calls.  Now that QQQ trades over $100,
if it doesn’t roll over from here, you may want to consider closing
the position entirely.  But at the very least, it’s probably a good
idea to roll up to a higher strike price on the short call.  This
can get expensive, so don’t try this unless you are a spread
wizard.  For example, that might mean buying back the 100C and
selling the 103C if QQQ doesn’t fall back from here.  So here’s the
plan.  Wait to see if QQQ holds $100 to show us support.  If it
does, consider closing the strangle and getting directional (see
long play below).  That would mean buying back the put and the call
simultaneously.  On the other hand, if negative sentiment gets a
foothold (and it could if MSFT earnings jitters prove true on July
18th, or some other big cap tech stock disappoints), or if you see
a substantial rollover from $102.50, or even a drop from here, you
can adjust your strangle or enter a new one.  $100 is a critical
mark.  Wait for a confirmation either way.

SELL CALL AUG-100 QVO-HV OI=4903 at $ 6.50
SELL PUT  AUG- 95 QVQ-TQ OI=1645 at $ 3.38

Net Credit = $ 9.88 or better
Stop Loss  = $13.00

SELL CALL AUG-103 QVO-HY OI=  63 at $ 5.00
SELL PUT  AUG- 98 QVQ-TT OI=1268 at $ 4.38

Net Credit = $ 9.38 or better
Stop Loss  = $12.50

Covered Call:

$100 held up as support on Friday and will become a critical number
to watch next week.  Like a strangle, covered calls do their best
work in a sideways market, while upside is capped at the amount of
the premium collected in a rising market.  Our inclination here is
to do a buy/write (simultaneously buy shares and sell calls) on a
dip and bounce off $100 or, even better, $97.50.  If you are a bit
more aggressive, you can consider buying any dip and selling calls
on the rebound to capture a bigger premium.  However you can lose
more too if the price of QQQ continues falling after you buy it.
Remember, you want to get called out at expiration (or at least
have QQQ close just under your sold strike so you can sell calls
again next month), not become a long term investor in QQQ waiting
for a recovery.

QQQ = $100.63

SELL CALL AUG-100 QVO-HV OI= 4903 at $ 6.13, ND = 94.50 or less
SELL CALL AUG-102 QVO-HX OI=  345 at $ 5.13, ND = 95.50 or less
SELL CALL AUG-105 QVO-HA OI=  866 at $ 3.75, ND = 96.88 or less

Calendar Spread:

Nearly the same as writing a covered call, except you DON’T want to
called out . . you’d have to give up the time value of the
underlying long term call you bought.  That’s expensive.  So to
cover your position here, you would buy back the sold near-term
strike.  While that is not our suggestion, you may nonetheless want
to consider that if QQQ keeps moving up.  However, we would look at
a rollover as a reason to stay in your current position or as an
opportunity to buy the underlying cheaper, while selling the call
on the recovery.  The idea here is to let time (theta) decay
eventually pay for the underlying purchase over time, in effect
giving you a "free" longer term option.

BUY  CALL DEC- 94 QVQ-LP OI= 1589 at $17.00

SELL CALL AUG-100 QVO-HV OI= 4903 at $ 6.13, ND = 10.88 or less
SELL CALL AUG-102 QVO-HX OI=  345 at $ 5.13, ND = 11.88 or less
SELL CALL AUG-105 QVO-HA OI=  866 at $ 3.75, ND = 13.25 or less

Long Calls

The new upward trend looks pretty darn good.  We’d expect it remain
intact throughout earnings season, give or take a bad day.  Careful
though, we’ve had a strong days in a row and could be due for a
dip.  How far?  Most likely, not much.  Perhaps this level at $100
can hold, which would then become new support.  If not, $97.50
would be the next level down to target shoot.

At Support:
BUY CALL AUG- 98 QVQ-HT OI=  844 at $7.63 SL=5.25
BUY CALL AUG-100 QVO-HV OI= 4903 at $6.50 SL=4.50

Naked Puts

While not quite free money from God, we couldn’t resist throwing a
naked put in this weekend.  With the strength of the market thanks
to excellent tech earnings so far, we think the risk of assignment
is slim for a 5-day hold.  Former resistance of $95 has now made
good support.  If your broker will let you do it, the margin
requirement is about $2000 per contract.  $50 may not seem like too
much of a reward, but the downside is pretty small too.

SELL PUT JUL- 95 QVQ-SQ OI=13844 at $0.50 SL=1.00

Average Daily Volume = 24.77 mln


BBH - Biotech $184.00 (-13.19 last week) We know, we said we’d drop
it this weekend if it didn’t get back over $188 by Friday.  It
didn’t so we’re dropping it, right?  Not yet.  Here’s why.  The
reason is purely technical.  BBH tested a previous level of support
at $181 and moved back up to finish over Thursday’s close.  The
candlestick pattern now shows two hard days of selling off with a
bounce at major support on day three.  That’s not unusual to see in
a group that has run so hard.  It’s a star reversal pattern
forming, and a classic sign of a bottom.  It’s by no means a sure
thing.  However, the expected candlestick for Monday has a good
probability of moving up.  Fundamentally, nothing has changed for
BBH that would keep it down.  We’ll wait for a move over Thursday
and Friday’s resistance at $187 before taking a position.  If you
don’t see that, it’s probably wiser to find another play.

Average Daily Volume = 605 K


HHH - Internet $120.00 (+14.75 last week) The funny thing about
technical analysis is that it makes no room for changes of
sentiment.  YHOO’s future revenue outlook was good enough that
investors for the first time in a long time didn’t make a rush for
the exits on the news.  That news alone stopped the shorts dead in
their tracks.  The final nail in the coffin came Friday when EBAY
and AMZN were both upped to Buy ratings.  Particularly noteworthy
was Salomon Smith Barney’s defense of AMZN, wherein they stated
that AMZN would be in a stronger cash position next year.  In other
words, things aren’t so bad and AMZN CEO Jeff Bezos was right all
along.  Rumors of AMZN’s death are greatly exaggerated.  But this
isn’t about just AMZN, YHOO and EBAY.  The bigger implication is
that this news has investors dancing in the streets rather than
wringing their hands.  The new crowd mentality isn’t likely to go
away tomorrow.  Investor sentiment has changed.  Is the market
wrong?  Maybe.  But you’ve heard the cliché. . .don’t fight the
tape.  Fact is that the market is never right or wrong; it just is.
J.D. Rockefeller noted that it is better to consider evidence than
defend a position.  Thus we play the hand we’re dealt.  In other
words, if you can’t beat ‘em, join ‘em.  To that end we’re
switching to a bullish position on HHH.  It has now smashed through
its 5,10, 30 and 50-dma in an extremely bullish move.  On a
historical basis, it also broke resistance at $113 and $116 without
a hiccup.  RSI, MACD, and the stochastic have all turned back up
thanks to Friday’s action.  the next logical level of support is in
the $126-$128 range, so it looks like there’s room to run.  Don’t
get complacent though.  With such a big move in a short period of
time, not to mention a decimated trail of DMA’s (the 30 and the 50)
back at $114, QQQ could correct with any market weakness.  We think
it’s smarter to wait for a pullback to the nearest support around
$116 before taking a position.  The current direction is good, but
wait for a better entry.

BUY CALL AUG-115 HHH-HC OI= 56 at $11.38 SL=8.50
BUY CALL AUG-120 HHH-HD OI= 65 at $ 8.63 SL=6.25
BUY CALL AUG-125 HHH-HE OI=202 at $ 6.50 SL=4.50

Average Daily Volume = 928 K


BDH - Broadband $100.25 (+8.88 last week) More stellar gains for
BDH last week with Friday no exception.  JDSU, SDLI, GLW, NT, SCMR,
and almost anything else optical was in the limelight.  Why?
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
ours], and you will learn of these results later in the month when
we announce results."  This sector is on fire.  BDH gave us the
breakout over $97 we were looking for and kept on moving.  There
isn’t any resistance to speak of since BDH broke into blue sky at
$99.25 without a whimper.  The closest support is at $95, then
$96.50.  While we think the current level is buyable, the
components with earnings coming may be susceptible to some profit
taking, especially the recent big movers, which would obviously
affect BBH.  Target shoot to your comfort level.

BUY CALL AUG- 95 BDH-HS OI= 40 at $ 8.75 SL=6.25
BUY CALL AUG-100 BDH-HT OI= 10 at $ 5.13 SL=3.25
BUY CALL AUG-105 BDH-HA OI=  0 at $ 2.69 SL=1.25

SELL PUT AUG- 95 BDH-TS OI=  4 at $ 4.38 SL=6.25

Average Daily Volume = 153 K

New Plays

IAH - Internet Architecture $97.94 (+5.31 last week) Similar to
BDH, this issue is a really a subsector of "Bandwidth".  With CSCO,
SUNW, EMC, SCMR, JNPR, FDRY, and COMS leading the gains in the
components of IAH, it’s easy to see that IAH will benefit from the
same trends as BDH.  That said, former resistance at $96 was
handily broken and acted as support on Friday, especially on the
heals of JNPR’s killer earnings.  Volume on IAH is moving up and
slightly exceeded the ADV on Friday.  Technical indicators, MACD,
RSI, and stochastic have turned up nicely over the last few days.
If support at $100 can hold, feel free to take a position at this
level.  Otherwise, dips to $94.50 and $96 are buyable.  Resistance
is up at $100.

BUY CALL AUG- 95 IAH-HS OI= 4 at $6.13 SL=4.25
BUY CALL AUG-100 IAH-HT OI= 3 at $3.25 SL=1.75
BUY CALL AUG-105 IAH-HA OI=23 at $1.63 SL=0.75

Average Daily Volume = 153 K


PPH - Pharmaceuticals $97.38 (-6.06 last week) Short leash gets
jerked!  Seriously, with all the sentiment funneling into
technology, drug stocks have been fed to the wolves.  Nothing in
particular wrong with these companies.  It’s just that they tend to
fall out of favor when tech stocks rally.  PPH will return, but we
have to drop it now that techs are in the spotlight.

No Play


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For the week of July 17, 2000


Business Inventories     May    Forecast:   0.3%    Previous:   0.4%


CPI                      Jun    Forecast:   0.4%    Previous:   0.1%
Core CPI                 Jun    Forecast:   0.2%    Previous:   0.2%


Trade Balance            May    Forecast:-$30.5B    Previous:-$30.4B


Initial Claims           07/15  Forecast:   315K    Previous:   319K
Housing Starts           Jun    Forecast: 1.570M    Previous: 1.592M
Building Permits         Jun    Forecast: 1.540M    Previous: 1.511M
Philadelphia Fed         Jul    Forecast:   7.0%    Previous:   1.7%


Treasury Budget          Jun    Forecast: $55.0B    Previous: $53.6B

Week of July 24th

07/25 Existing Home Sales
07/25 Consumer Confidence
07/27 Employment Cost Index
07/27 Durable Orders
07/27 Initial Claims
07/27 Help-Wanted Index
07/28 GDP
07/28 GDP Chain Deflator
07/28 Michigan Sentiment

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This newsletter is a publication dedicated to the education
of options traders. The newsletter is an information service
only. The information provided herein is not to be construed
as an offer to buy or sell securities of any kind. The
newsletter picks are not to be considered a recommendation
of any stock or option but an information resource to aid the
investor in making an informed decision regarding trading in
options. It is possible at this or some subsequent date, the
editor and staff of The Option Investor Newsletter may own,
buy or sell securities presented. All investors should consult
a qualified professional before trading in any security. The
information provided has been obtained from sources deemed
reliable but is not guaranteed as to accuracy or completeness.
The newsletter staff makes every effort to provide timely
information to its subscribers but cannot guarantee specific
delivery times due to factors beyond our control.
The Option Investor Newsletter                   Sunday 07-16-2000
Sunday                                                      2 of 5

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Watching Pivot Points
By Mary Redmond

After attending an excellent OIN technical analysis seminar in
NY this week I picked up several insightful ways to combine key
technical indicators.  One of them is a pivot point.  I used a
pivot point earlier in the week without even realizing it had a
formal name.

A pivot point can be described as a key turning point in a
stock's trading pattern.  It can be the start of a reversal of
a trend.  If it occurs after a downtrend, the pivot will tend
to look like a U.  If it occurs after an uptrend, the pivot
will tend to look like an upside down U.

The trading pattern of CMGI for the first few days of this
week was a classic example of a bottom pivot.  The stock had
been in a strong downtrend for several months.  From a high
of over $150 earlier in the year, the chart went down almost
in a straight line.

On Thursday July 6 the stock closed at $44.63.  On Friday July
7 CMGI closed at $41.25, down over 3 points for the day on
strong volume.  This was particularly bad considering the
fact that both the Dow and Nasdaq rallied strongly on Friday
on a benign employment report.  If the stock closed down on
a day like that, the technical support was about as weak as
you can get.

If you had purchased a CMGI put on July 10 you could have
sold it for a nice profit the next day, as the stock closed
at $36.50 on Tuesday.  However, the news media was abuzz about
Yahoo's earnings which were to be reported Tuesday after the
close.  Nowadays if you are trading options you should watch
the earnings of the other stocks in the sector you are trading.
Holding a CMGI option over Yahoo's earnings could have been
as risky as holding it over CMGI's earnings.  Certain sectors
are less sensitive to this risk.  However, the internet stocks
tend to move in tandem more than the stocks of other sectors.

The key turning point occurred on Wednesday.  Yahoo reported
much better than expected earnings, and the internet stocks
took off.  CMGI closed at $43.44 on Wednesday, up almost seven
points for the day.  This was an example of a bullish
engulfing candlestick pattern.  It may not have been strong
enough to completely erase the weakness in the stock over
the last few months, but it did break the down trend for the
week.  The key point was at about $41.  This was higher than
the previous close.

I had considered buying a leap on the stock when it was $36.5
but I didn't want to watch my premium bleed away.  Could it
have gone lower? You bet - if Yahoo's earnings had been a
disappointment a leap purchased at $10 could have gone to $5.
It is best to wait until a stock breaks the downtrend pattern
and starts a clearly defined new trend before committing

When the stock hit $41 On Wednesday I felt that the chances of
it hitting $45 in the next day or two were very high.  So I
bought a Jan 02 55 leap at $15 and a Jan 02 1000 leap at $9.
The 55 leap went up 4 points and the 100 leap is up 2.  However,
the stock is still way below both the 50 day and 200 day moving
averages, and the money flow has been weak for some time.  It
may take more time for true technical strength to return.

One of the best ways to detect pivot points is to use a five
day chart.  The first day is a down day, the second day opens
and closes even lower, and the third day reaches an even lower
level.  The fourth day is a strong upday, with an intra-day
high and close above the third day.  In these circumstances,
the fifth day will usually, but not always, be an up day.  You
have to consider other factors, for example if dramatic news
occurs which impacts your stock, or if a key economic indicator
is released which can impact the entire market.

There was an interesting pattern among ipo trading this week.
Approximately $6.1 billion worth of new issues started trading.
Tuesday's ipos traded at slight premiums from their offering
prices.  Tuesday included ACLS priced at $22 which traded to $25,
ENTG priced at $11, now at $14.18, ASH which traded from $10.5
to $12.3 and TKC which was priced at $17.60 and traded to $17.75.
On Wednesday and Thursday SOHU, DVIN, NENG, IMNY, TNSI,and SRTI
all started trading with moderate intra day price moves.
However, on Friday two ipos traded with dramatic increases, as
OVTI was up $ 22 13/16 from its offering price and FTIE was up
$11 5/16 from its offering price.  This may be indicative that
investors are showing renewed excitement over the ipo market.

This might be a short term bullish technical indicator.  However,
a very heavy ipo schedule can sometimes drain cash from the
market and lead to liquidity problems on a longer term basis.
According to Edgar Online, approximately $2.10 billion in new
issue stock was priced to begin trading next week.  However,
underwriters can cancel ipos at the last minute if the market
conditions are poor.  In addition to watching ipos and equity and
money market fund inflows, large cash corporate takeovers like
the UBS-Paine Webber deal can help to add liquidity to the market.
If you had shares of Paine Webber in your brokerage account and
you received cash for your shares, it would most likely go back
into the market.

According to AMG Data Services, $1.8 billion dollars in new
cash went into equity funds.  The majority was deposited to
growth funds.  According to the investment company institute
retail money market funds took in $2.68 billion in new cash,
and institutional money market funds took in $12.07 billion
in new cash.  The total cash deposited in money markets funds
as of July 13 totalled $1.695 trillion.  There is still plenty
of cash on the sidelines, which I think may indicate that many
investors are more prudent than they are believed to be.

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Diversification, the key to success!
By Jim Brown

As I have mentioned before the key to success is never put all
you eggs in one basket. If disaster strikes the resulting omelet
will not be very tasty.

If your risk capital is only $10,000 and you spend it all on SDLI
calls, your financial outlook on trading is best described as a
lottery ticket play. Sure, SDLI could gap up Monday another $20
but gaps go both ways. A $10 call option on Friday can be $1
by the time options open for trading on Monday. You know this to
be true. It happens every day to somebody. A critical downgrade
to the stock or sector before the market opens and your dreams
of riches became a nightmare of regret.

How do we dodge this minefield of market disasters waiting to

The first and easiest method is to never invest more than 25% of
your trading capital in any one stock or 50% in any one sector.
Safety is not defined as having 25% of your capital in four
different Internet stocks. I would define that as suicide.

If you spread your risk you increase your chances of reasonable
returns over time. Sure Merck or Delta are probably not going to
rise $50 in one week like SDLI but they are not going to drop
$50 either. I can hear you now. "But, I made 200% last week!!" Yes
but triple digit moves seldom occur in one direction more than once.
If you had a triple digit loss how much would that be? After a -100%
loss how much capital would you have left? -0- Several big moves
upward can be wiped out by only one big move downward.

This is why we try to offer many recommendations across several
sectors each week. Sure, Home Depot may not be as sexy as Yahoo but
it will put your kids through college safely. Don't get me wrong.
I strongly advise a portion of your "risk" capital to be used in
high risk plays. Check out the recommendations this week and you
will see we have more high risk plays than normal. The time to
play "higher risk" stocks is when the market is in rally mode.
When money is flowing fast and loose everything goes up. The more
exciting the stock the faster the rise. Let the market stop to
take a breath and consolidate and those same "exciting" stocks
will be the leaders on the down board.

The second way to spread your risk is with longer term plays.
Murphy's law states that the worst will always happen when you
are the most exposed and can least afford the loss. The key here
is don't expose yourself to unnecessary risk. If you can't
sleep at night because of some play at risk then you should
reevaluate your trading strategy. If you snap at your spouse when
they ask how your day went then it is time to change your tactics.

Alan Knuckman had a great article in the brokers corner about
"buying time". While you can't buy an extra Saturday every
week you can buy more sanity with every play. Instead of playing
the current "front" month (July) try going out a little farther.
August, September or even January. The delta is not as great as a
front month but the "time premium" will increase rapidly with a
strong multiple day move on options farther out. Remember this
"longer term" play only insulates you from the intraday drops or
an occasional bout of profit taking. It does not protect you from
a falling stock or market. You still cannot "buy and forget" but
need to monitor closely. Placing stop losses and sticking to them
is the best defense against total loss. If you are prepared to
spend $4.00 for a current month option then your immediate risk
on a sharp move is probably $3.00 on any given day. Why not spend
$5-8 for a month or two more time. The $3.00 risk is the same but
the options react more slowly giving you more time to react.

Try paper trading longer term options and compare the results
with shorter term options on the same stock. There are differences
and you need to decide which is best for you. Option trading
does not have to resemble gambling. Option investors sleep more
soundly than option traders. Because of the stigma attached to
options there are just fewer investors than traders. Before you
start firing off those emails about a change in my mindset to
longer term options let me through in the caveat. I always
recommend buying whatever time you need to make yourself comfortable.
I just recommend not using it. You can "trade" January options
just as frequently as July options. But if you get caught with
a gap down on a July position it could be much more financially
painful than the same position in a January option. You buy
insurance with time but that insurance does not protect you
from a falling stock or market. Both will cost you if you fail
to sell when the technicals change.

Trade smart, buy time. Just don't use it!

Jim Brown


Call Play of the Day:

MUSE - Micromuse $184.50 (+15.44 last week)

See details in sector list

Chart = 

Put Play of the Day:

LLY - Eli Lilly and Company $94.50 (-6.50 last week)

See details in sector list

Chart = 


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Index      Last    Week
Dow    10812.75  176.42
Nasdaq  4245.93  222.50
$OEX     815.52   12.47
$SPX    1509.95   31.00
$RUT     542.64   14.42
$TRAN   2919.04  134.40
$VIX      22.61    0.79


SDLI     369.50   74.19  The sweet smell of an entry point!
GSPN     146.00   26.44  Momentum is the name of the game
SEBL     193.88   22.94  Dropped, earnings on Tuesday after close
BRCD     205.94   20.38  Like the Energizer Bunny: keeps going...
CREE     149.19   16.25  Advice: Don't bet against the semis
MUSE     184.50   15.44  True to form with a minor pullback Friday
CFLO      83.00   15.38  New, turning cache into cash
TIBX     127.00   11.75  It's full steam ahead for the B2B sector
SCMR     138.19   11.25  New, two ways to play fiber optic boom
MRVC      72.63   10.69  It doesn't take a rocket scientist...
PRSF      70.38   10.63  Uptrend looks spectacular on the chart
AMSC      58.25    9.63  New, never of it?  That's no surprise
KANA      70.44    9.50  Slow and steady wins the race
NT        78.19    7.44  Broke out and is in full stride
ISSX     102.50    0.50  Dropped, earnings before the bell on Tues.
INCY      91.13   -4.75  Dropped, watch for earnings on Tuesday
CIEN     162.63   -9.25  Dropped, rumors bringing this one down
HGSI     153.25  -10.75  They call it the Genomic Gold Rush


LLY       94.50   -6.50  Downgrades and valuation concerns
MYGN     145.88   -4.75  New, protecting the world from mutants
ICIX      25.00   -3.44  Dropped, stabilized for the time being
LCOS      49.19   -0.06  Dropped, provided nice short term trade
RMBS     105.00    4.00  Dropped, no hiding this one
IP        35.81    4.38  New, looking for a "sell the news" play
YHOO     128.00   11.50  Playing the wait-and-see game still


Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


SEBL $192.69 (+21.75)  For the second consecutive day, the OIN
Play Of The Day shined brightly.  SEBL opened with a modest gap
higher Friday and steadily rose into the weekend to trace yet
another new 52-week high at $194.69.  The rally came on the heels
of the announcement that SEBL would acquire privately held MOHR
Development.  Investors applauded the deal and so did Robinson
Humphrey by initiating coverage with a Buy rating and a $225
price target.  SEBL is slated to announce its second quarter
results on Tuesday which has prompted us to step aside.  The play
has treated us very well over the past month and we'll anxiously
await the return of SEBL to the OIN call list.

CIEN $162.63 (-9.25)  The Telecom sector charged higher for the
third consecutive day last Friday, with particular strength in
the optical networking related issues.  Yet, despite the positive
group movement, CIEN fell for the second straight day.  The stock
slipped past support at $165 in the final hour of trading Friday
and accelerated to the downside on increasing volume.  There was
no news to spur the selling, but instead, continued investor
concern over the rumors of accounting irregularities spurred by
a report issued by CFRA last Wednesday.  The rumors of bad books
has proved to be the enemy to CIEN and our play as well.  In
light of the rumor mongers, we must regrettably leave CIEN.

INCY $91.13 (-5.78) We were looking for a nice quick earnings
run from INCY when we added it last Tuesday.  Unfortunately, our
play fell victim to poor timing.  The enthusiasm for Biotech
stocks seemed to fade as soon as we wrote the play and this
deteriorating sentiment kept us from getting a decent entry
point.  Rolling over at the 100-dma Wednesday morning, it was a
quick downhill slide for our play and we are now out of time.
Although it looks like support may hold at $90, the company
reports earnings on Tuesday after the close, and it is now
time to go.  Consider INCY dropped as we go looking for better

ISSX $102.50 (+0.50) With the rapid approach of the company’s
earnings announcement on Tuesday after the close, it is time to
close out our play on ISSX.  After the dramatic drop below $90
on Tuesday, our play gave us a nice run, hitting a high of
$108.75 by mid-day on Friday.  By the end of the day, the stock
had given back most of the day’s gains, bringing it right back
to the $102 support level.  Although there may be more upside
to the play, we want to make sure we are out of it before the
earnings release to avoid the typical post-announcement drop.


LCOS $49.19 (-0.06)  Back where we started.  When we picked this
put play on July 6th, the stock was at $49.25.  And as we drop it
today, LCOS finished the week almost exactly where we started.
Yet, it was a very good play considering the short time frame.
After hitting $51.38 on the 7th, LCOS quickly slipped to $40.69
within three sessions.  It certainly was a quick and profitable
put play, but after the YHOO earnings report, the Internet sector
recovered with the rest of the tech issues.  We are dropping LCOS
for technical reasons, in particular, the stock closed above its
10-dma at $48.11.  Yet, Friday's $4.31 gain was a 10% move, so
there is a good chance that LCOS may give back some of it, giving
an attractive exit point.  This strength is related to the recent
uptrend in AOL, whom Merrill Lynch analyst Henry Blodget considers
"the most solid of the big three," referring to YHOO and LCOS as
the other two internet players.

RMBS $105.00 (+4.00)  There's no hiding this one.  Our RMBS put
play went against us as the Semi stocks were very strong Friday
on the heels of the ALTR earnings/split announcement.  RMBS gapped
up and showed us exactly why it is considered a volatile issue.
The stock was up $10.50, or 11%, and closed above the 10-dma at
$99.08.  Apparently the news of a pending anti-trust suit against
RMBS was shaken off and investors shifted their focus to earnings
due out on Tuesday.  With a stock as volatile as RMBS, we do not
recommend holding this play over earnings, especially considering
the strong business in the Semis over the last six months.  We are
exiting this put play today, licking our wounds as we go.

ICIX $25.00 (-3.44)  Despite the announcement of an earnings
shortfall, the prospects of a possible sale of its Digex Web
hosting unit have appeared to stabilize ICIX, for the time being.
The stock opened the day near the $24 level Friday morning and
steadily rose into the weekend on relatively healthy volume.  The
renewed interest in the overall Tech sector also helped ICIX to
recoup some of its losses after announcing a profit problem.  In
light of the stabilized price action and pick-up in volume, it's
time to the leave the lowly ICIX.  Although, we have to admit,
it's been a nice ride down from the low $30's at which we first
greeted ICIX.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

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

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

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

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

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


SCMR - Sycamore Networks $138.19 (+11.25 last week)

Sycamore markets optical networking products that enable network
service providers to upgrade their existing fiber-optic networks
to offer more bandwidth.  Its SN 6000 transport node helps
companies provide high-speed services.  The company also designs
add/drop nodes, optical switches, and network management
software.  The company targets telecom service providers,
Internet service providers, and cable operators.

There are two ways to play the fiber optic boom.  You can buy the
optical component makers such as JDSU or SDLI.  Or, you can buy
the networking equipment makers.  For this play, we chose the
latter.  SCMR is a relatively young company when compared to the
likes of fiber optic giants such as GLW or NT.  Yet, despite its
rookie status, SCMR plays the game with an all-star status.  The
company recently won a contract to supply 360 Networks (TSIX)
with optical switches, optical transport products and network
management system.  The deal was worth $420 mln, SCMR's largest
contract to date.  Analysts said the deal would have an immediate
impact on revenues in the second half of the year and would
greatly increase SCMR's sales for the first half of 2001.  The
TSIX contract added credence to SCMR's roster of clients.  Along
with the freshly minted contract, SCMR benefited from the news
that JDSU would acquire SDLI for $41 bln.  The mammoth deal sent
a bullish wave through the Fiber Optic sector as bells of
consolidation rang on Wall Street.  With a market cap north of
$30 bln, SCMR is an unlikely takeover target.  However, the
prospects of continued M&A activity in the optical networking
arena may continue to carry the stock higher.  Since reversing
its course northward in late April, SCMR has been on a steady
climb.  Needless to say, SCMR's chart is looking pretty strong.
The stock faces resistance just above at $140.  Look for an
entry on a strong move through this level.  The stock has been
clustering around its 10-dma, currently at $133.75, during
intraday pullbacks which may provide an entry for active traders.
Below the 10-day, the stock has major support at the $130 level,
watch for a bounce upon any profit taking.

Speaking of support, SCMR has received plenty from Wall Street
after winning its largest contract ever.  Wit SoundView
reiterated its Strong Buy rating and set a $170 price target on
the heels of the announcement.  And, DLJ jumped in and raised its
price target to $150.  We'd happily accept either price target
for our play!

BUY CALL AUG-130 QSM-HF OI=443 at $18.13 SL=13.00
BUY CALL AUG-135 QSM-HG OI=180 at $15.63 SL=11.25
BUY CALL AUG-140*QSM-HH OI=589 at $13.13 SL= 9.75
BUY CALL SEP-140 QSM-IH OI=260 at $17.75 SL=12.75
BUY CALL SEP-145 QSM-II OI= 96 at $11.25 SL= 8.50

Picked on July 16th at  $138.19    P/E = 142
Change since picked       +0.00    52-week high=$199.50
Analysts Ratings      7-4-2-0-0    52-week low =$ 47.25
Last earnings 04/00   est= 0.02    actual= 0.05
Next earnings 08-18   est= 0.06    versus=  N/A
Average Daily Volume = 4.48 mln

CFLO - CacheFlow $83.00 (+15.38 last week)

CacheFlow makes network caching equipment and technology to keep
Internet pipelines flowing smoothly.  Its products store and
automatically update frequently requested Web sites so users can
access them quickly from a cache rather than from an originating
server.  Company intranets and Internet service providers use
CFLO's appliances to increase efficiency, and e-commerce
customers use them to speed response times.

CFLO is expected to turn profitable in four quarters.  You could
say the company is turning cache into cash.  Wall Street likes
that idea!  More businesses are moving to the Web to conduct
routine operations.  As more content makes its way onto the
Internet, the need to serve up data and complete transactions
smoothly has become vital.  CFLO sits between Net-users and
content.  CFLO makes the appliances that store previously
viewed content.  So when a user wants to view their favorite Web
site, say OIN, the previously viewed content is delivered much
more efficiently.  CFLO recently unveiled the Adaptive Content
Exchange (ACE), which is an architecture of caching appliances
and intelligent networks that will greatly increase the
performance of the Internet.  CFLO is collaborating on the
project with 15 other Net heavyweights including AKAM and FDRY.
AKAM will sell and market CFLO's products as part of the deal.
The joint effort with AKAM will provide yet another significant
distribution channel for CFLO's entire product line.  Since
announcing the deal, CFLO has steadily climbed higher.  The
stock broke out of a 14-week consolidation last Thursday by
rallying above the $80 level.  After gaining nearly 60% in the
last three weeks, the much despised profit-takers showed up last
Friday, and sold CFLO lower on extremely light volume.  The light
selling has provided the entry point we have been looking for.
Watch for momentum to return early next week and look for an
entry if CFLO moves above the $85 level.  A full-fledged return
of momentum may drive CFLO past $88 which may provide a more
conservative entry.  A bounce off major support just below at
$80 may provide an entry if the profit taking on weak volume

Although CFLO's next earnings announcement is a month away the
analysts have been busy recently giving their love to the stock.
Just last week, Dain Rauscher reiterated its Strong Buy -
Aggressive rating of CFLO.  Bear Stearns recently initiated
coverage on the stock with an Attractive rating preceded by
Morgan Stanley initiating an Outperform.

BUY CALL AUG-80*FUJ-HP OI=10 at $10.50 SL= 7.25
BUY CALL AUG-85 FUJ-HQ OI= 0 at $ 8.50 SL= 6.00  Wait for OI
BUY CALL AUG-90 FUJ-HR OI= 0 at $ 6.13 SL= 4.00  Wait for OI
BUY CALL OCT-85 FUJ-JQ OI= 0 at $15.50 SL=11.25  Wait for OI
BUY CALL OCT-90 FUJ-JR OI= 0 at $13.50 SL=10.00  Wait for OI

Picked on July 16th at   $83.00    P/E = N/A
Change since picked       +0.00    52-week high=$182.19
Analysts Ratings      2-4-0-0-0    52-week low =$ 27.00
Last earnings 04/00  est= -0.22    actual= -0.20
Next earnings 08-14  est= -0.17    versus=   N/A
Average Daily Volume  =   538 K

AMSC - American Superconductor $58.25 (+9.63 last week)

American Superconductor is looking to capitalize on the move to
increase the quality and reliability of the nation’s power
infrastructure. The company develops and commercializes high
temperature superconducting wire, wire products and systems,
electromagnetic coils, and electromagnets and subsystems
integrated with appropriate cooling systems.  The company’s
two business segments are High Temperature Superconducting (HTS)
and Superconducting Magnetic Energy Storage (SMES).  The focus
of the HTS segment is on power transmission cables, motors,
transformers, generators, and fault current limiters for
large-scale applications.

Never heard of AMSC?  That’s no surprise, unless you’ve been
following the buzz about the coming (or is it already here?)
shortage of high quality, high reliability power.  It’s not a
big deal for your refrigerator, but Semiconductor fabs can’t
afford the disturbance created by the hundreds of short-duration
(less than a second) power dips, commonly referred to as
brownouts.  As more and more power (and clean, reliable power,
at that) is required for making and using all the neat
electronic gadgets we all depend on, the national power grid
will have to be upgraded and enhanced to pick up the increasing
load.  AMSC is uniquely positioned to help improve and expand
the existing power distribution system.  Like everything else
technology-related, AMSC got caught in the downdraft that
engulfed the NASDAQ this past spring.  Yet, after one last bounce
at its 200-dma in late May, the stock has definitely found its
running shoes again.  Since conquering resistance at $40 and
turning it into support last month, AMSC is marching higher,
supported by the 10-dma (currently at $51.50).  Before last
week’s strong gains, the stock had solidified its support
between $48-50, and we would look at pullbacks to this area
(or the 10-dma) as excellent entry points.  Volume has been
slightly above the ADV and helped to push the stock through
resistance between $53-55 late last week.  A mild session of
profit taking could be just the ticket to provide an entry near
this milder level of support.  Even with the strong gains seen
to date, there is nothing to say the stock can’t continue up
from here.  Entering on strength is definitely a possibility,
but we would wait for the stock to move above $60 on continued
strong volume.

There has been little in the way of company specific news over
the past 6 weeks.  The most recent was on June 5th, when the
company announced its acquisition of Integrated Electronics, a
company that designs, develops and manufactures power electronic
converters that utilize state of the art power semiconductors.
When the deal was announced, AMSC was only trading at $30 per
share, so the recent price increase would seem to indicate that
investors really like the company’s prospects going forward and
feel this acquisition makes a lot of sense.

BUY CALL AUG-55*QAY-HK OI= 21 at $7.38 SL=5.25
BUY CALL AUG-60 QAY-HL OI= 30 at $4.75 SL=2.75
BUY CALL OCT-60 QAY-JL OI=317 at $7.75 SL=5.50
BUY CALL OCT-65 QAY-JM OI= 35 at $6.75 SL=4.75
BUY CALL OCT-70 QAY-JN OI=169 at $4.38 SL=2.75

Picked on July 16th at $58.25     P/E = N/A
Change since picked     +0.00     52-week high=$75.13
Analysts Ratings    9-5-2-0-0     52-week low =$11.81
Last earnings 04/00 est=-0.28     actual=-0.29
Next earnings 07-?? est=-0.22     versus= N/A
Average Daily Volume = 420 K

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The Option Investor Newsletter                   Sunday 07-16-2000
Sunday                                                      3 of 5

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KANA - Kana Communications $70.44 (+9.50 last week)

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

Slow and steady has been the trend for KANA since mid-April.
No matter, the stock has made a nice recovery from the mid-$20s.
This 180% relief rally for KANA has brought the stock to a key
technical test of the 100-dma, currently at $71.98.  Thursday's
stellar gains came on the heels of ARBA's better-than-expected
earnings report.  The B2B sector that has been beaten down as of
late is beginning to show some life.  Continuing Friday with that
same B2B euphoria, KANA gapped up and quickly traded to $74.63,
at which point the sellers stepped in to collect their profits.
The stock did find buyers at the $68 level which has proved to
be solid intraday support.  Like we mentioned, this is a slow
and steady play that is quickly approaching earnings scheduled
for Wednesday, July 26th.  Yet, we think that investors will
continue to drive this trending stock higher based on the overall
earnings euphoria we are currently seeing in the market.  In
order to make progress, KANA will have to move through resistance
at the 100-dma, mentioned above.  The $75 level may have some
mild resistance, but the 200-dma at $77.36 will most likely
provide a greater challenge.  As far as trading this play, ideal
entry would come on a pullback to $68 which held on both Thursday
and Friday.  It was encouraging to see KANA close over $70 after
late session weakness.  If this $70 level becomes support, look
to gain entry on bounces from there, confirmed with strong volume.
More conservatively, wait for a high volume move through $72.50.

There hasn't been any news lately for KANA.  The renewed interest
in the B2B sector following ARBA's earnings has caught investors'
eyes.  Remember that KANA is approaching earnings, so look for
increasing volume to help drive this stock higher.

BUY CALL AUG-65 URW-HM OI=1074 at $11.88 SL=9.50
BUY CALL AUG-70*URW-HN OI=  88 at $ 9.13 SL=6.75
BUY CALL AUG-75 URW-HO OI=  33 at $ 6.75 SL=5.00
BUY CALL SEP-80 URW-IP OI=1101 at $ 8.13 SL=6.00

SELL PUT AUG-65 URW-TM OI=  17 at $ 5.50 SL=7.25
(See risks of selling puts in play legend)

Picked on July 2nd  at   $61.88    P/E = N/A
Change since picked       +8.56    52-week high=$175.50
Analysts Ratings      4-3-0-0-0    52-week low =$ 22.78
Last earnings 03/00   est=-0.23    actual=-0.19
Next earnings 07-26   est=-0.27    versus=-0.18
Average Daily Volume = 1.76 mln

GSPN - GlobeSpan, Inc. $146.00 (+26.44 last week)

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

Momentum is the name of the game.  The current buying euphoria in
the markets brings back memories of the first quarter of the year.
This circuit-provider for DSL applications has been no stranger to
the twists and turns of the market.  GSPN had a incredible day on
Thursday, posting a $19.00 gain and lifting the stock to heights
not seen since early March.  The catalyst driving GSPN is the
massive tech buying and an early earnings run, which are due out
on July 31st.  Friday's trading was bit more subdued after we
got favorable economic data.  Investors and traders tested GSPN
on the downside, tanking the stock in the first half hour of the
day.  It was a fast and furious $15 drop before GSPN found support
at $131.13.  This pattern mirrors what the NASDAQ and other tech
issues did on the opening bell.  An entry at this point would have
been ideal as GSPN spread its wings and soared to a $1.38 gain on
the session.  Volume has been increasing throughout the week for
GSPN and we look to see a continuation of this trend as GSPN
approaches earnings.  Given the support test on Friday, GSPN looks
good going forward.  Yet, we would caution that with such stellar
gains in the past three sessions that profit-takers just might be
lurking.  Also, watch the NASDAQ sentiment next week as we near
Expiration Friday.  Resistance may be encountered at $150.  A
move through that level with heavy volume would establish a
formidable run at its 52-wk high of $167.  This would also provide
a conservative entry.  More aggressively, targetshoot off bounces
at support, currently $140 and then down $5 increments from there.
The trend is your friend and these kind of entries can provide
handsome profits.

Nothing really in the news as of late.  GSPN is on a pure momentum
run.  Earnings euphoria is high.  Given the recent semiconductor
earnings reports and the strength in last quarter's business, it
looks like the Semi sector will continue to run.  Watch for GSPN
to react to INTC and RMBS earnings, due out on Tuesday.

***July contracts expire on Friday***

BUY CALL AUG-140*GRX-HH OI=63 at $22.50 SL=17.50
BUY CALL AUG-145 GRX-HI OI= 0 at $20.00 SL=15.50  Wait for OI
BUY CALL AUG-150 GRX-HJ OI=84 at $17.75 SL=13.75
BUY CALL AUG-155 GRX-HK OI= 3 at $15.63 SL=12.00

SELL PUT JUL-135 GHY-SG OI= 0 at $ 3.00 SL= 4.00
(See risks of selling puts in play legend)

Picked on July 2nd at   $122.06     P/E = N/A
Change since picked      +23.94     52-week high=$167.00
Analysts Ratings      2-4-0-0-0     52-week low =$ 11.25
Last earnings 03/00   est= 0.01     actual= 0.03 surprise=200%
Next earnings 07-31   est= 0.04     versus=-0.14
Average Daily Volume = 1.14 mln

PRSF - Portal Software, Inc. $70.38 (+10.63 last week)

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

The uptrend that began at the end of May looks spectacular on a
chart.  We absolutely love it.  With little skips and hops off of
its 10-dma, PRSF has put together a nice recovery.  We mentioned
in the Thursday update that a break below $70 may take PRSF to
the $65 area of support.  Well, it broke $70, but got a bounce at
$67.13, higher than we anticipated.  By definition, the uptrend
continues.  However, we would proceed rather cautiously when
initiating new plays or exiting currents.  The reason is this:
if you look at a daily chart, PRSF tends to have five to seven
uptrending days, followed by a minor pullback to its 10-dma.
Notice how the stock did this on June 6th, after seven uptrending
days.  Friday was the sixth day of the most recent upmove, and
PRSF only managed a quarter point gain.  Sellers may test the
waters again soon, taking some nice profits with them.  Keep this
in mind because such a pullback would give you a fantastic entry
point.  Currently, the 10-dma is at $64.  If that happens, expect
a bounce and watch for a continuation of the trend.  If the
NASDAQ maintains its recent moves, PRSF may follow.  Intraday
entries in this case could be initiated on bounces from short
term support at $68.  Expect resistance at $75, the point of the
mid-March top just before the market selloff.  A move through
this $75 level could be sustained with strong volume, yet we
think that a 10-dma bounce will precede such a breakout.  After
that, PRSF will have its sights set on its 52-week high of $86.

Earnings are not until August 17th, yet we cannot deny a trend
like this.  One piece of non-essential news did come out on
Friday.  Louis Giglio, Senior Portfolio Manager at American
Express, highlighted PRSF in an interview with The Wall Street
Transcript on portfolio management strategies.  He simply stated
that PRSF is a research name that attracts him based on its
current price relative to its recent high of $86.  Like we said,
non-essential, yet news nonetheless.

BUY CALL AUG-60 PUS-HL OI= 120 at $14.25 SL=11.25
BUY CALL AUG-65*PUS-HM OI= 164 at $11.13 SL= 8.75
BUY CALL AUG-70 PUS-HN OI=  51 at $ 8.13 SL= 6.25
BUY CALL OCT-80 PUS-JP OI=1147 at $ 9.75 SL= 7.25

SELL PUT AUG-65 PUS-TM OI=   0 at $	4.50 SL= 5.75
(See risks of selling puts in play legend)

Picked on June 29th at   $61.00    P/E = 5894
Change since picked       +9.38    52-week high= $86.00
Analysts Ratings      7-5-0-0-0    52-week low = $17.13
Last earnings 05/00   est=-0.01    actual= 0.02
Next earnings 08-17   est= 0.01    versus= 0.00
Average Daily Volume = 1.77 mln

SDLI - SDL Inc. $369.50 (+74.19 this week)

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

Oh, the sweet smell of an entry point!  That is what we got
from SDLI this week as the stock moved down in sympathy with
JDSU, who announced they would be buying SDL, Inc. before the
open on Monday.  When we added SDLI as a play Tuesday evening,
we were cautioning that JDSU must bottom first.  Thankfully,
it did just that on Wednesday and began turning up.  That day
gave us a golden opportunity to jump aboard for some SDLI
calls.  Unfortunately, even we didn't know the move upwards
would be so swift.  Now, we have to re-evaluate the play and
decide if it is time to take some short-term profits.  Again,
we will base SDLI on the movement of JDSU, which traded right
up to the 10-dma at $111.15.  This is somewhat worrisome.  If
JDSU fails to rally above this mark, it may be time to take
some profits to the bank.  It is never healthy to see a call
play knocked down by the 10-dma.  With that said, JDSU could
just be looking for a few days of consolidation.  If so, that
is fine.  We will let it occur and wait for a move over the
10-dma to re-establish a position.  This will have to be
determined by the relative strength it is showing to the NASDAQ
and if the stock appears to be selling off with a vengeance.
A move below Friday's low of $106.81 would be disheartening
and likely set up JDSU for a retest of $100.  Of course, if
JDSU powers above the 10-dma Monday morning (after amateur hour)
then all this will be in vain as SDLI will continue to soar.
In all cases, remember, you are dealing with one of the more
volatile issues and need to give it your undivided attention.

In the news, some analysts are still talking about the regulatory
hurdles that might hinder this deal as a short-term negative
for the stocks.  Plus, the fact that some consider the purchase
price a little lofty.  At 3.8 shares of JDSU for each share of
SDLI, the deal was originally priced at $41 bln.  But, keep
in mind that 3.8 shares of JDSU put SDLI currently worth $423
a share.  The discount is based on the above fears and may
already be priced into SDLI's stock.

BUY CALL AUG-350 OSL-HJ OI=202 at $42.25 SL=32.00
BUY CALL AUG-360*OSL-HL OI=768 at $36.75 SL=27.50
BUY CALL AUG-370 OSL-HN OI= 54 at $32.50 SL=24.25
BUY CALL SEP-380 OSL-IP OI=  2 at $27.00 SL=20.25
BUY CALL SEP-400 OSL-IT OI=533 at $30.13 SL=22.50

SELL PUT AUG-310 QJV-TA OI= 98 at $10.13 SL=14.00
(See risks of selling puts in play legend)

Picked on July 11th at  $318.00    PE = 736
Change since picked      +51.50    52-week high=$370.50
Analysts Ratings     13-7-0-0-0    52-week low =$ 26.19
Last earnings 04/00   est=  N/A    actual= 0.22
Next earnings 07-20   est= 0.30    versus= 0.08
Average daily volume = 5.70 mln

TIBX - TIBCO Software $127.00 (+11.75 last week)

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

It's full steam ahead for the B-2-B sector.  Who thought the
summer rally would be ignited by the once dormant Internet
sector?  Judging by the action in our TIBX play early on, we
could have told Wall Street two weeks ago to watch out for the
B-2-Bs.  TIBX has been on a seamless rise since late May and has
received recent help from its B-2-B brethren.  The sentiment
shifted to bullishness last week after heavyweight ARBA wowed
investors with its second quarter results.  And the momentum
within the group might continue to build as CMRC reports results
Tuesday followed by ITWO on Thursday.  If the numbers from ARBA
are a sign of things to come, our TIBX play is positioned well for
further upside.  By now, we all know that profits matter, at
least to Wall Street.  The fact that TIBX is one of the few
profitable B-2-B players bodes well for our play going forward.
While the company's next earnings report is not until September,
the sheer force behind the rekindled momentum in the B-2-B sector
might be the ticket to build upon our profits.  Despite the profit
taking in the broader sector last Friday, TIBX marched higher
displaying its magnificent relative strength.  The stock reached
an intraday high of $129 Friday which is the next level to look
for an entry upon clearing.  The 5-dma continues to provide
unrelenting support for TIBX which is currently located $119.38.
The intraday pullbacks have proved to be good entry points into
the play.  Should the profit takers show up, TIBX has support just
below at $125, again at $120, and of course at the 5-day.  Target
shoot to your risk level on any pullback and consider entry if
TIBX bounces off support.  Use volume to decipher whether the
bulls are still buying actively or if the bears are taking profits
on light selling.

Along with building sector momentum there are two other issues
that might take our play higher.  First, Prudential initiated
coverage on TIBX with a Strong Buy rating Friday and set a $155
price target, which helped the stock buck the profit takers.
Second, TIBX is trading well into split territory and has plenty
of authorized shares for a 2-for-1.  More companies are declaring
stock splits which also boosts our play.

***July contracts expire this week***

BUY CALL AUG-120*PIW-HD OI=330 at $18.50 SL=13.25
BUY CALL AUG-125 PIW-HE OI=637 at $16.00 SL=11.50
BUY CALL AUG-130 PIW-HF OI=434 at $13.88 SL=10.50
BUY CALL NOV-125 PIW-KE OI= 27 at $28.63 SL=20.75
BUY CALL NOV-130 PIW-KD OI= 87 at $27.38 SL=19.75

SELL PUT JUL-120 PIW-SD OI= 33 at $ 3.38 SL= 5.25
(See risks of selling puts in play legend)

Picked on June 27th at   $98.94    P/E = 3175
Change since picked      +28.06    52-week high=$147.00
Analysts Ratings      4-1-1-0-0    52-week low =$  6.56
Last earnings 05/00   est= 0.01    actual=  0.04
Next earnings 09-21   est= 0.05    versus= -0.01
Average Daily Volume = 1.60 mln

CREE - Cree Research $149.19 (+18.69 last week)

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

Don't bet against the semis.  That's what the bulls were shouting
last week after Jonathan Joseph of Salomon downgraded the entire
sector a week prior.  The slightest hint of a slowdown in the
infamous chip cycle sent major semiconductor stocks into the
dumpster after the contrarian call from Joseph.  However, since
the downgrade, the Chip sector has moved nearly 13% higher.  CREE
has been one of the stocks that has lead the rebound.  The
Semiconductor Industry Association predicts that chips sales will
blossom by 31% this year and 25% next year.  What's more, the
Semicon West conference, an exclusive gathering of industry
leaders and analysts, concluded last week with an overwhelmingly
bullish bias coming from the meeting.  For CREE's part, the
company is linked to the overall performance and direction of
the Chip sector.  So, the positive reports from chip equipment
makers such as ALTR last week bodes well for our play.  Also
worth noting, Intel, the mother of all chip companies, is set to
report earnings Tuesday and should set the stage for the overall
performance of the Chip sector.  After showing off for our Play Of
The Day on Thursday, CREE shed some its gains Friday in what
appeared to be a natural reaction noting the light volume.  The
light sell-off late last week might prove to be a solid entry
point, figuring the stock clustered around support at $150.  Watch
for momentum to pick-up next week as the chips begin reporting
earnings.  Consider entry at current levels if the bulls show up
early next week.  A more conservative entry might be found if
CREE can clear congestion near the $155 area.  Make sure to
confirm the return of buyers with healthy volume in conjunction
with any CREE rally.

Two weeks and counting until CREE announces its second quarter
results.  As we have mentioned in the past, CREE has the
propensity to surpass analysts' estimates by a healthy margin.
The boom in the wireless handset market remains healthy from
which CREE directly benefits.  Investors will be looking for good
numbers this quarter and a swift run might begin next week.

BUY CALL AUG-145*RNC-HI OI= 58 at $20.13 SL=14.50
BUY CALL AUG-150 RNC-HJ OI= 62 at $17.75 SL=12.75
BUY CALL AUG-155 RNC-HK OI= 77 at $15.75 SL=11.25
BUY CALL SEP-150 RNC-IJ OI=128 at $23.63 SL=17.00
BUY CALL SEP-155 RNC-IK OI= 29 at $21.25 SL=15.50

Picked on July 11th at $140.75    P/E = 201
Change since picked      +8.44    52-week high=$202.00
Analysts Ratings     6-1-0-0-0    52-week low =$ 23.50
Last earnings 03/00  est= 0.21    actual= 0.26
Next earnings 07-27  est= 0.27    versus= 0.26
Average Daily Volume  =  819 K

HGSI - Human Genome Sciences $152.63 (-11.38 last 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.

They call it the Genome Gold Rush.  Just when you thought you
heard the last cliche related to the California Gold Rush, the
pundits revived the financial metaphor once again.  In keeping
with fashion, HGSI is right in the middle of the speculators and
miners providing the picks and shovels.  The road to riches for
those operating in the genome field seems as far-off as the gold
did to the brave few who ventured into the hills of California.
Although HGSI is also attempting to develop gene-based drugs,
the company is one of the premier providers of the tools
necessary to unearth profits from the completion of the human
genome.  Akin to CSCO and the Internet, HGSI is the proverbial
backbone of the genome arena.  The prospects of billions upon
billions of dollars being funneled into research and development
has caught Wall Street's attention this year and has been the
fuel behind HGSI's momentum.  HGSI has a competitive advantage by
being the first genomics company formed.  HGSI was also the first
company to have a copy of all the human genes which is one of the
reasons it's a leader in its respective field.  Although the
company is still unprofitable, HGSI has built its business on a
recurring revenue model of product sales and licensing
agreements which has garnered Wall Street's attention.  The
ongoing battle with the bears continues to provide good entry
points with HGSI's wide intra-day swings.  The $150 level has
proved to be a strong support level and may provide entry upon
bouncing from that level.  A move back above the 10-day at $155
is another possibility, with a rally above $160 providing a more
conservative entry.

The wires have been increasingly filled with announcements of
stock splits with the recent improvement in overall market
conditions.  HGSI might be a company considering a 2-for-1 given
its stock's current level and the fact the company has a plethora
of authorized shares to issue a split.  HGSI last split its stock
in January of this year when it was trading around $150.

BUY CALL AUG-150*HHA-HL OI=161 at $20.38 SL=14.75
BUY CALL AUG-155 HHA-HM OI=  0 at $18.25 SL=13.00  Wait for OI
BUY CALL AUG-160 HBW-HL OI=171 at $15.88 SL=11.50
BUY CALL OCT-155 HHA-JM OI=126 at $31.88 SL=23.00
BUY CALL OCT-160 HBW-JL OI=479 at $30.13 SL=21.75

Picked on July 13th at  $153.75    P/E = N/A
Change since picked       -1.13    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 = 1.70 mln

BRCD - Brocade Communications $205.94 (+20.38 last week)

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

Like the Energizer Bunny, BRCD is the stock that keeps going and
going.  After breaking above resistance at $170, the stock has
been moving ever upwards, aided over the past week by improving
strength in the Networking sector.  Of course, it doesn’t hurt
that the early earnings reports from technology related
companies is coming in strong, lifting the NASDAQ back into the
plus column for the year.  The stock continues to be pushed
upwards by its 5-dma (currently $198.81), occasionally coming
back to test the 10-dma (now at $189.50).  Setting new highs
is becoming something of a daily habit for BRCD, with Friday’s
high-water mark set at $207.50.  Of course, with all this good
news, there has to be a dark cloud somewhere, and that cloud is
the volume.  Gradually decreasing over the past week, we only
saw volume of approximately 60% of the daily average on Friday.
Although the intraday volume is still strong on the upward price
moves and significantly reduced on the retracements, the general
trend towards lower volume is a warning sign that BRCD is
running out of buying volume.  Up almost 50% from where we
picked the stock a little over a month ago, it could be getting
a little ahead of itself.  Accordingly, tighten up those stops
to protect the stellar gains you have accumulated.  The best
approach for new positions is to wait for a pullback to support,
now seen at $200 and then $194.  With earnings still a month
away for BRCD, there could yet be some significant gains ahead,
especially when we take into account that the stock is over
$200, which is historically the level where we can expect a
split announcement.

With BRCD, the fun never stops.  On Thursday, the company
announced yet another strategic alliance, this one with JNI
Corporation (JNIC).  As a part of the BRCD Fabric Aware and
JNI SANpartners interoperability programs, the two companies
will collaborate on product development, service and support,
and marketing and sales initiatives to advance the adoption
of open SANs in enterprise environments.

BUY CALL AUG-200*GUF-HT OI=4000 at $22.50 SL=17.00
BUY CALL AUG-210 GUF-HB OI=1213 at $18.13 SL=13.00
BUY CALL AUG-220 GUF-HD OI= 377 at $13.75 SL=10.50
BUY CALL OCT-220 GUF-JD OI=6428 at $24.13 SL=18.00
BUY CALL OCT-230 GUF-JF OI=  30 at $20.38 SL=15.25

SELL PUT AUG-190 GUF-TR OI=  21 at $10.63 SL=14.00
(See risks of selling puts in play legend)

Picked on June 6th at   $138.88     P/E = 943
Change since picked      +67.06     52-week high=$207.50
Analysts Ratings      9-5-2-0-0     52-week low =$ 21.75
Last earnings 05/00   est= 0.08     actual= 0.11
Next earnings 08-16   est= 0.13     versus= 0.01
Average Daily Volume = 3.05 mln

MRVC - MRV Communications $72.63 (+10.69 last 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.

It doesn’t take a rocket scientist to see that investors
insatiable demand for Optical stocks is showing no signs of
letting up.  Even JDSU has started moving nicely higher after
a brief panic ensued following the announcement that the company
would be acquiring SDLI.  It is widely anticipated that further
consolidation in the industry will follow, as the leading
companies jockey for a dominant position in this fast-changing
marketplace.  MRVC should benefit from this move towards
consolidation, whether any company-specific deals are announced
or not.  After the strong move upwards early last week, the
stock spent the balance of the week consolidating its gains in
advance of what we hope will be a nice earnings run.  With its
announcement set for July 27th after the close, there is just
enough time to get into a position ahead of the next move up.
Fortunately, the stock held much of its gains from Tuesday and
has stabilized at support (previous resistance) of $72.  Except
for the sharp dip early in the month, MRVC is finding support
at its 10-dma ($69.50) which just happens to correspond to the
resistance level the stock broke through on its stellar rise on
Tuesday.  Look to initiate new positions on a drop to support,
but make sure the bounce is confirmed by strong buying volume.
Weakening volume over the past 2 days would seem to indicate
that we are running out of sellers, and when MRVC does move
again, strong volume should be the beacon that lights our way.

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.

BUY CALL AUG-70*RVY-HN OI=353 at $12.25 SL= 9.00
BUY CALL AUG-75 RVY-HO OI=312 at $ 9.88 SL= 7.00
BUY CALL AUG-80 RVY-HP OI=535 at $ 8.13 SL= 5.75
BUY CALL OCT-80 RVY-JP OI=319 at $14.38 SL=10.75
BUY CALL OCT-85 RVY-JQ OI= 94 at $13.00 SL= 9.75

SELL PUT AUG-65 RVY-TM OI= 74 at $ 6.13 SL= 8.50
(See risks of selling puts in play legend)

Picked on July 13th at   $74.88     P/E = N/A
Change since picked       -2.25     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 = 2.14 mln

MUSE - Micromuse $184.50 (+15.44 last week)

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

True to form, MUSE pulled back a bit on Friday.  This keeps
alive its pattern over the past 3 weeks of moving up for 3 days
before a day of profit taking.  If you were watching for it,
you got a great entry point, as the stock dropped to bounce at
$176, right on the 5-dma.  After flattening out mid-day, the
stock moved up into the close as the investors just couldn’t
keep their finger off the "Buy" button.  There is one thing that
does concern us though, and that is the volume pattern.  Up
until this last 3 days up, 1 day down cycle, each of the up days
was coming on increasing volume with markedly reduced volume on
the correction day.  This time, volume was nearly flat for the
entire cycle, making us think that maybe the move is running out
of steam.  Of course, part of this behavior could be due to the
fact that MUSE ran into solid resistance at $187, but either way
it means we will need a resurgence of buying volume to move
higher from here.  July earnings are just around the corner,
scheduled for Wednesday after the closing bell.  Accordingly, we
will be dropping our play on Tuesday, and with all the profits
built up over the past week, it would be a good idea to tighten
up those stops.  At this point, we would be cautious about
initiating new positions, unless MUSE gives us another great
entry.  A dip to the $175-176 level, followed by a volume-backed
bounce would certainly qualify, although such a move would
present a deviation from the 3 days up, 1 day down pattern
mentioned above.

In an interview on Radio Wallstreet on Tuesday, MUSE’s CEO was
very upbeat on the future of the company, citing strong growth
and a high level of customer retention.  Over the past 3
quarters, the company has added over 100 customers per quarter
and is seeing 60% of its revenue being generated by repeat
customers.  The company is seeing increasing revenue per
customer and over the past 6 quarters, top-line revenue growth
has been in excess of 100% on a year-over-year basis.  And don’t
forget, with the price above $170, MUSE is in split territory
again and we could get an announcement with earnings next week.

BUY CALL AUG-185 UZQ-HQ OI=  0 at $20.50 SL=15.25  Wait for OI
BUY CALL AUG-190*UZQ-HR OI=  0 at $17.75 SL=12.75  Wait for OI
BUY CALL AUG-195 UZQ-HS OI=  0 at $16.50 SL=12.00  Wait for OI
BUY CALL OCT-190 UZQ-JR OI=  0 at $33.25 SL=25.00  Wait for OI
BUY CALL OCT-195 UZQ-JS OI=100 at $31.50 SL=23.50
BUY CALL OCT-200 UZQ-JT OI= 57 at $29.63 SL=22.25

SELL PUT AUG-170 UZQ-TN OI=  0 at $13.50 SL=18.75
(See risks of selling puts in play legend)

Picked on July 9th at $169.06     P/E = N/A
Change since picked    +15.44     52-week high=$206.00
Analysts Ratings    9-4-0-0-0     52-week low =$ 20.03
Last earnings 04/00 est= 0.07     actual= 0.08
Next earnings 07-19 est= 0.09     versus= 0.05
Average Daily Volume = 618 K

NT - Nortel Networks $78.19 (+7.44 last week)

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

After shifting its feet and trying to make up its mind, NT
has broken out and is at full stride in advance of its earnings
report, due out July 25th after the close.  The stock spent the
better part of a week trying to get through resistance at $72,
but once it did, the buyers were lining up with cash in hand.
NT took off like a shot in the last half hour of Tuesday’s
session, and didn’t slow its ascent until finding resistance
up at $78 on Thursday.  The positive PPI report, combined with
strength in Networkers in general and Optical stocks
specifically, pushed NT even higher on Friday, tagging a new
all-time high of $79.56 before investors took some profit off
the table ahead of the weekend.  The share price continues to
be supported by the 5-dma as it heads higher, but we are a
little concerned about the strong move towards the end of the
week.  Friday’s close at $78.19 is more than $3 above the
5-dma ($74.50) and above the upper Bollinger band, leading us
to suspect the stock will need to consolidate a bit before
heading higher.  Of course, with earnings so close at hand,
positive sentiment could continue to drive the price higher
from here, but prudence demands that we tighten up those stops
to protect our profits.  If you are looking to initiate new
positions, we would recommend waiting for a pullback to the
$76 intraday support level, or even the 5-dma before jumping

Adding to the positive sentiment surrounding NT this week was
their deal with CoreExpress, announced on Thursday.  The terms
of the deal call for NT to provide CoreExpress with $100 mln
of optical Internet products, including options and the
multi-year contract could be worth up to $300 mln.  With Friday’s
announcement of the latest enhancements to the NT Reunion
system, broadband wireless service providers will soon have
more options for increasing the revenue potential of their
most precious commodity, the radio spectrum.  Scheduled for
commercial availability by year end, the enhanced Reunion
broadband wireless access system will enable improved spectral
efficiency and flexibility in base station sector provisioning.

BUY CALL AUG-75*NTV-HO OI=2939 at $7.00 SL=5.00
BUY CALL AUG-80 NTV-HP OI=2435 at $4.38 SL=2.75
BUY CALL AUG-85 NTV-HQ OI=1183 at $2.56 SL=1.25
BUY CALL SEP-75 NTV-IO OI=3778 at $8.50 SL=6.00
BUY CALL SEP-80 NTV-IP OI=   0 at $5.88 SL=3.75  Wait for OI
BUY CALL SEP-85 NTV-IQ OI=  10 at $3.88 SL=2.25

SELL PUT AUG-75 NTV-TO OI= 227 at $3.13 SL=5.25
(See risks of selling puts in play legend)

Picked on June 15th at    $67.00     P/E = N/A
Change since picked       +11.19     52-week high=$79.56
Analysts Ratings     19-10-3-1-0     52-week low =$19.91
Last earnings 04/00    est= 0.19     actual= 0.23
Next earnings 07-25    est= 0.14     versus= 0.14
Average Daily Volume = 10.10 mln


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The Option Investor Newsletter                   Sunday 07-16-2000
Sunday                                                      4 of 5

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MYGN - Myriad Genetics $145.88 (-17.00 last week)

Myriad uses bioinformatic gene mapping, family history analysis,
and protein interaction identification to find inherited gene
mutations that increase the risk for cancer, heart attacks, and
other diseases.  The company has research alliances with several
pharmaceutical firms, including Bayer, Eli Lilly and Schering
Plough, which fund research in exchange for licenses.

Like the X-Men, MYGN is trying to protect the world from mutants.
However, the real-life mutant fighter lost some its super hero
powers last week.  The Biotechnology sector lost some of its
steam last week as a round of profit taking swept through the
group.  The genomic-related issues led the sector lower last week
with several stocks suffering serious technical harm.  MYGN was
one of the stocks that suffered disconcerting damage.  After
announcing a multi-year agreement with Harvard Pilgrim Health
Care (HPHC) to combat breast cancer last week, MYGN subsequently
sold-off, and accelerated its downward slide going into the
weekend.  The end-of-the-week debacle came on increasingly
heavier volume which is not necessarily indicative of normal
profit taking.  The genomic group tends to move fairly swiftly as
Wall Street attempts to determine the proper valuation of the
companies.  We could see MYGN's losses accelerate to the downside
in the coming week.  The long-term outlook for many genomic
companies is fairly bullish, but that doesn't mean we can't play
the downward momentum in the near-term.  MYGN fell beneath its
10-dma last Wednesday and has since to rebound above that level.
The 10-day, currently at $149.25, has subsequently turned into
a formidable resistance level.  A bump against the 10-dma might
provide a good entry after an intraday rally for the aggressive
traders.  For a more conservative entry wait for MYGN to fall
below the $140 level.  After that, the stock doesn't have major
support until $130.  Make sure to confirm a continued decline
with above average volume to insure that the sellers are strong.
Wait for options players to roll-over July contracts into August
issues with expiration week ahead, watch for OI to increase.

BUY PUT AUG-150 QGD-TJ OI=0 at $16.25 SL=11.75  Wait for OI
BUY PUT AUG-145*QGD-TI OI=0 at $13.63 SL=10.25  Wait for OI
BUY PUT AUG-140 QGD-TH OI=0 at $11.63 SL= 8.75  Wait for OI

Average Daily Volume = 308 K

IP - International Paper $35.81 (+4.38 last week)

International Paper is a global paper and forest products
company that is complemented by an extensive distribution
system.  The company produces printing and writing papers,
pulp, tissue, paperboard and packaging and wood products.
Additionally, the company makes specialty chemicals, panels,
and laminated products.  Its primary manufacturing and
distribution operations are in the United States, Europe
and the Pacific Rim

With positive sentiment returning to the technology sector,
this is a "sell the news" play.  IP reported earnings last
Tuesday, meeting the Street estimates, and posting strong
revenue growth.  Investors responded by bidding IP higher on
strong volume.  On Thursday afternoon, the move began to run
out of steam, and the stock started rolling over right at
resistance at $37, confirmed by the 100-dma ($36.44).  The
volume pattern shows strong volume early in the week, rapidly
declining, indicating that the upward move has likely run its
course.  With no additional positive news likely for cyclical
companies in the near term, we think IP could be on its
way back to support near $30.  Even the benign PPI report
couldn’t lift the share price on Friday, and this does not bode
well for IP investors.  Before getting there though, IP will
have to fall through the $33 support level.  There is mild
intraday support at $35.25, and we would view a drop through
this level as an ideal entry point for the decline.  Of course,
volume will be key to the stock heading lower, and the increase
in selling volume in the last hour of trading on Friday looks
like it could be the beginning of the formation of that pattern.

BUY PUT AUG-40 IP-TH OI= 19 at $5.13 SL=3.00
BUY PUT AUG-35*IP-TG OI=943 at $1.81 SL=1.00

Average Daily Volume = 3.45 mln

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YHOO - Yahoo! Inc $128.00 (+11.50 last week)

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

Well, despite finding the entry point we wanted on Wednesday
when YHOO spiked up after their earnings report, we have yet
to see the rollover.  Right now, Yahoo is range-bound between
$120 and $130.  A move out of this range will determine what
move we make next.  If YHOO trades above $130, we will call
on our stops to exit the play.  We expect the NASDAQ to come
under some profit-taking after we have a slew of earnings from
major companies early in the week, but if the momentum wants
to take YHOO higher, we will have to step aside.  The nice
thing about resistance at $130 is that it has been strong as
the chart suggests.  A penetration of this level should leave
no doubt the play has ended.  $120 is the other level to watch.
If it trades under this price, the play will be intact.  You
could even say $121.50 is the real support level it has been
bouncing on this week, but let's play it on the safe side.  No
new entries until YHOO breaks below $120.  The company specific
news on Yahoo was light in the second half of the week.  Mostly
investors are trying to decide which way the stock will move.
We will play the same wait-and-see game with our position for

BUY PUT AUG-125*YMM-TE OI= 760 at $8.63 SL=6.50
BUY PUT AUG-120 YMM-TD OI=1274 at $6.50 SL=4.75
BUY PUT AUG-115 YMM-TC OI= 778 at $4.63 SL=2.75

Average Daily Volume = 8.86 mln

LLY - Eli Lilly and Company $94.50 (-6.50 last 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.

If there was one group that didn't benefit from the broad rally
last week, it was the Drug sector.  For much of the year, drug
stocks enjoyed the shift to defensive positions by investors.
The debacle in the Tech sector earlier this year sent traders
seeking solace in the stable names such as LLY.  The overzealous
buying by investors pushed LLY to extreme valuations.  Because of
the frenzied bullishness, many analysts have been expecting a
downturn in the Drug sector due mainly to valuation concerns.
That was evident in LLY after the stock was downgraded by Banc of
America Securities to a Neutral rating.  Coupled with the renewed
interest in the Tech sector, valuation concerns were more than
enough last week to roll over the Drug sector.  Along with the
aforementioned issues, investors remain weary about the current
legislative initiatives under debate in Washington.  Some
politicians are pushing for a Medicare prescription benefit that
could ultimately lower U.S. drug prices and reduce profitability.
One brave analyst came to the defense of the group Friday.  Ken
Nover of AG Edwards said the selling in the sector last week was
overdone.  The bears didn't budge and took the sector lower
despite Nover's attempt.  The continued selling bodes well for
our play as there looks to be more downside in the group.  LLY
still has a lot of empty space below current levels.  After
gapping down Friday morning, LLY bounced off support at $92 only
to find resistance at $95.  Entry at current levels is possible,
but you might want to wait for the stock to roll over first.  A
more conservative entry might be found if LLY falls below support
at $92 as there is no help after that level until $87.50.  LLY is
slated to report earnings on Thursday so plan accordingly.

BUY PUT AUG-100*LLY-TT OI=852 at $8.00 SL=5.75
BUY PUT AUG- 95 LLY-TS OI=833 at $5.00 SL=3.00
BUY PUT AUG- 90 LLY-TR OI=237 at $2.81 SL=1.50

Average Daily Volume = 3.78 mln


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One Part Earnings, Two Parts Mergers - It’s a Summer Rally!
By Mark Phillips
Contact Support <Contact Support

With the first week of July earnings behind us, the results have
been decidedly positive.  Strong earnings reports from the
Internet and Semiconductor sectors have given the sentiment in
these sectors a big boost.  Add in some big name acquisitions
(JDSU buying SDLI, UBS buying Paine Webber (PWJ), and rumors of
DT making a bid for VSTR), and a split announcement from ALTR
with their earnings announcement on Thursday, and it feels like
old times.

On the heels of YHOO’s positive earnings report Tuesday evening,
the NASDAQ charged out of the gate, making mincemeat out of
resistance at 4100 and closing out the week at its highest point
since the first week of April.  On the heels of the UBS/PWJ
merger announcement, even the Financials participated, helping
to prop up the ailing DJIA, which is now back above its 200-dma
at 10750 and is making a convincing show of breaking out of its
6-month downtrend.

You don’t need X-Ray vision to see the effect this is having on
our LEAPS portfolio.  Many of our plays are moving up nicely,
with 6 of them showing triple digit gains (EMC is in a class by
itself with gains well over 400% in 7 months). Even some of our
newer plays like C, VRSN, and DELL are off to a great start.

So that’s the silver lining; where are the clouds, you ask?  The
same place they’ve been all along.  Taking the form of our old
friend, the VIX.  It is still lurking around in the low 20’s,
although it was nice to see it creep ever-so-slightly upwards
this week while the major indices broke out of their recent
trading ranges.  The VIX ended the week at 22.58, not in the
danger zone yet, but precariously close to the sub-21 level,
and a drop to that level should immediately send off warning

As long as earnings continue to come in strong, and Uncle Alan
(Greenspan) doesn’t decide to lob a live grenade (bearish
Greenspeak) at the markets, it looks like we are in for a modest
rally as the month progresses.  After the earnings start winding
down though, we will be in that dangerous no-man’s land where
there is little to move the markets upwards during the months of
August and September.  And don’t even get me started on October.
Historically, this is the toughest time of year to make money
in the markets, at least if you have a bullish bias.

This brings me to an important point.  How many of you are still
holding LEAPS (or options) with expiration in January, 2001?
Don’t look now, but by Friday, these will all have become
regular call options, and from here on out time decay will take
a larger bite out of those lofty premiums.  While the markets
are on an upswing, take advantage of it and consider locking in
some profits, either by liquidating the position ahead of the
summer doldrums or rolling out to the 2002 or 2003 LEAPS.

Remember, you’ll never go broke taking profits.

Current Plays


EMC    11/07/99  JAN-2001 $ 40  EMB-AH   $ 7.69   $43.00   459.17%
                 JAN-2002 $ 45  WUE-AI   $ 9.50   $49.50   421.05%
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $31.13   225.63%
                 JAN-2002 $ 45  WIV-AI   $11.00   $33.00   200.00%
NT     11/28/99  JAN-2001 $37.5 ZOO-AU   $11.13   $42.75   284.10%
                 JAN-2002 $37.5 WNT-AU   $15.13   $47.25   212.29%
TXN    12/12/99  JAN-2001 $ 55  TNZ-AK   $11.13   $22.88   105.57%
                 JAN-2002 $ 60  WGZ-AL   $14.25   $28.13    97.40%
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $25.00    41.80%
                 JAN-2002 $ 90  WJX-AR   $22.00   $31.63    43.77%
CY     01/16/00  JAN-2001 $ 40  ZSY-AH   $ 9.13   $18.88   106.79%
                 JAN-2002 $ 40  WSY-AH   $12.63   $25.50   101.90%
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 8.13    64.57%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $10.63    57.48%
NSM    02/27/00  JAN-2001 $ 70  NSM-AN   $18.50   $ 8.25   -55.41%
                 JAN-2002 $ 70  WUN-AN   $24.25   $17.00   -29.90%
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $10.75   -23.21%
                 JAN-2002 $ 65  WAN-AM   $18.63   $16.50   -11.43%
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $16.63   129.38%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $19.25   106.32%
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $ 7.88    57.60%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 7.50    39.41%
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $31.25    78.57%
                 JAN-2002 $ 70  WVV-AN   $26.00   $42.88    64.92%
JDSU   04/16/00  JAN-2001 $ 80  XJU-AP   $27.50   $41.88    52.29%
                 JAN-2002 $ 80  YJU-AP   $39.63   $55.88    41.00%
VSTR   04/16/00  JAN-2001 $ 90  UVT-AR   $23.88   $67.88   184.25%
                 JAN-2002 $ 90  WWP-AR   $35.00   $80.13   128.94%
MOT    05/14/00  JAN-2001 $33.3 MOT-AY   $ 6.58   $ 9.75    48.18%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $13.13    37.63%
NOK    05/21/00  JAN-2001 $ 50  NZY-AJ   $10.25   $12.63    23.22%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $19.75    14.49%
HD     05/28/00  JAN-2001 $ 50  HD -AJ   $ 6.25   $11.63    86.08%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $17.38    52.72%
XLNX   05/28/00  JAN-2001 $ 70  ZIZ-AN   $14.63   $32.88   124.74%
                 JAN-2002 $ 70  WXJ-AN   $23.38   $43.00    83.92%
NXTL   06/11/00  JAN-2001 $ 60  FZC-AL   $12.25   $21.13    72.49%
                 JAN-2002 $ 60  YFG-AL   $19.25   $28.50    48.05%
C      06/18/00  JAN-2001 $ 65  ZRV-AM   $ 7.63   $ 9.75    27.79%
                 JAN-2002 $ 65  WRV-AM   $13.75   $16.88    22.76%
AMGN   07/02/00  JAN-2001 $ 75  YAA-AO   $10.75   $10.38   - 3.44%
                 JAN-2002 $ 75  WQY-AO   $20.75   $20.13   - 2.99%
                 JAN-2003 $ 70  VAM-AN   $28.75   $29.00     0.87%
VRSN   07/02/00  JAN-2001 $180  JSV-AP   $56.88   $66.00    16.03%
                 JAN-2002 $190  YVS-AR   $66.25   $77.50    16.98%
DELL   07/09/00  JAN-2002 $ 55  WDQ-AK   $12.63   $13.75     8.87%
                 JAN-2003 $ 60  VDL-AL   $15.38   $16.50     7.28%

Spotlight Play

TXN - Texas Instruments $72.50

Do you notice a theme developing here?  Last week we spotlighted
NSM and this week TXN.  Remember Jonathan Joseph?  Well,
apparently nobody else does either.  He’s the SSB analyst that
downgraded the entire Semiconductor sector a week and a half
ago, and sent it tumbling.  That event gave us a nice drop in
the price of TXN, as the stock tagged the 200-dma (clear down
at $63.50), before recovering.  That’s right, the positive
earnings numbers coming in on Semiconductor companies is giving
the sentiment in the sector a boost, and earnings always take
precedence over analyst comments.  With its strong position in
the handset business through its DSP chip business, TXN is well
positioned, and should profit handsomely as more people embrace
the world of wireless communications.  Before moving up in the
second half of last week, TXN built some decent support at $68
and then headed higher off of the 5 and 10-dma’s as they turned
positive again.  Look to initiate new positions on a bounce from
support near $68 and then enjoy the ride.

BUY LEAP JAN-2002 $75.00 WGZ-AO at $21.63
BUY LEAP JAN-2003 $75.00 VXT-AO at $28.13

New Plays

GENZ - Genzyme General Division $63.00

We’ve been waiting for an opportunity to add a Biotech to the
LEAPS portfolio and the pullback in the sector over the past
week looks like just the ticket.  After leading the NASDAQ out
of its doldrums, they have passed the torch to other sectors,
giving us an opportunity to get on board for the next leg up.
GENZ is a division of Genzyme Corporation, and is primarily
involved in developing and marketing therapeutic products and
diagnostic products and services, with an emphasis on therapies
for genetic diseases.  With three therapeutic products on the
market and several others in varying stages of development, GENZ
is one of those rare Biotech companies with both profits and
4 consecutive quarters of revenue growth.  The decline last week
dropped GENZ from $70 to $63, where the stock appears to be
finding support.  The selling volume had really dried up by
Friday, as only about half the average daily number of shares
traded hands, strengthening the case that this could be a decent
support level.  If further declines do occur, look for the $60
level to be strong support, as the chart support is confirmed by
the rising 30-dma at $59.69.  Consider new positions as GENZ
bounces at support and moves higher, accompanied by a resurgence
in buying volume.

BUY LEAP JAN-2002 $70.00 YGZ-AN at $17.13
BUY LEAP JAN-2003 $70.00 OZG-AN at $23.13




The Flood Gates Open
By Ryan Nelson

Now that the warnings have ended, the good news has begun to
flow.  And flow it has with nine split announcements from major
companies announced this week alone.  The fun part is, this
number should be dwarfed next week when we get a barge of
earnings reports from the big boys.  The third week of April,
July, October, and January are always filled with splits just
due to the number of companies reporting numbers.  We all know
this is the number one catalyst for split announcements.  Now,
you shouldn't hold over earnings to get the announcement, but
knowing which ones are likely to announce can provide an extra
strong earnings run.

Current Split Run Plays


Current Split Candidate Plays


Candidates That Are Not Current Plays


10 Most Recent Announcements We Predicted

PDLI (most recent announcement)

Major Announcements So Far This Month

BMET     WAT      NMSS     PDLI
CDT      BBBY     RATL

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

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The Option Investor Newsletter                   Sunday 07-16-2000
Sunday                                                      5 of 5

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


Trading Mechanics: Execution is Everything!
By Mark Wnetrzak

In recent weeks, we have received a number of questions about
Level II quotes and electronic trading systems.  There are
numerous execution routes, including the classic exchanges and
electronic communication networks (ECNs), available to retail
traders and all of the various avenues work differently.  It is
not enough to simply know these mechanisms exist, you must also
understand exactly how they function to trade effectively.  In
today's discussion, we will review the Nasdaq Exchange and the
two order execution systems that are used to provide a fair and
timely market for issues traded in that domain.

The Nasdaq Exchange is unique in that it does not have a trading
floor where buyers and sellers participate face to face.  On the
Nasdaq, trades are executed over a network of computers, through
which authorized traders and market-makers can post bids and
offers.  SelectNet and SOES (Small Order Execution System) are
the trading systems the Nasdaq utilizes and depending on trading
conditions, both have specific advantages and drawbacks as
execution systems.

SelectNet and SOES...

SelectNet offers two primary execution avenues.  It can broadcast
orders to a wide range of market participants, including ECNs, or
route orders to a specific group of traders.  SelectNet is similar
to an instant messaging system but orders entered in this method
will not show up on the Level II quote display.  The system is
popular because it can preference orders, based on the price and
quantity of a market-maker's offer.  In this forum, participants
must provide firm quotes and they must honor the bids and offers
shown.  Market-makers are allowed a maximum of thirty seconds to
respond to a preference order at their offered price/size.  They
may trade beyond the original quantity but upon declining to offer
more shares at that specific price, the bid/offer must be changed
accordingly.  In contrast, a SelectNet order to an electronic
communication network results in an auto-execution, providing
another trade has not already occurred at the current price with
that particular market participant.  The Small Order Execution
System is somewhat different in that it provides retail traders
immediate fills on a limited number (generally 1000) of shares of
Nasdaq stocks; subject to regulations specific to the use of SOES.
The primary difference with SOES is that orders will automatically
execute with a market maker, regardless of his or her wishes, but
the system will not transact against ECNs.

Level II Quotes...

There are three categories of quotes available to Nasdaq market
participants.  Level I provides the best bid and offer currently
available in a particular issue.  Level II quotes contain the
bids and offers of all market participants, allowing you to view
the relative buying or selling pressure, based on the balance of
orders.  With this proprietary information, it is relatively easy
to determine the current supply/demand ratio.  Level III quotes
are simply what the market-makers use to transact business.  They
are basically the same as Level II, but with the Level III system
traders can adjust their bids directly, rather than transacting
through an ECN or intermediary.

Profitable trade execution is all about identifying the current
trading situation and knowing which tool is appropriate for a
given task.  In the upcoming narratives, we will discuss which
trade-routing methods work best and help you understand how the
type of trading systems utilized affect your ability to profit
in the market.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

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

EGAN   13.94  14.44   JUL  12.50  2.19  *$  0.75  13.9%
CYTO    9.69   8.63   JUL   7.50  2.94  *$  0.75  12.1%
FSII   18.25  21.75   JUL  17.50  2.63  *$  1.88  10.5%
ARQL   13.88  18.25   JUL  12.50  2.44  *$  1.06  10.1%
CCUR   13.13  14.19   JUL  12.50  1.38  *$  0.75   9.2%
TGEN   12.25  13.31   JUL  10.00  3.00  *$  0.75   8.8%
LYNX   47.56  44.00   JUL  40.00  9.63  *$  2.07   7.9%
FHS    13.13  14.31   JUL  12.50  1.63  *$  1.00   7.6%
ZD     11.38  12.19   JUL  10.00  2.25  *$  0.87   6.9%
MED     9.44   7.75   JUL   7.50  2.69  *$  0.75   6.9%
LYNX   32.63  44.00   JUL  25.00  9.75  *$  2.12   6.7%
SCUR   18.81  17.38   JUL  17.50  2.19   $  0.76   6.6%
TKTX   39.00  36.69   JUL  30.00  9.88  *$  0.88   6.6%
CYTO    7.97   8.63   JUL   5.00  3.38  *$  0.41   6.5%
RHAT   25.00  25.00   JUL  20.00  6.38  *$  1.38   6.4%
CEGE   25.56  28.88   JUL  20.00  6.88  *$  1.32   6.1%
BCGI   14.56  14.25   JUL  12.50  2.88  *$  0.82   6.1%
GENE   27.75  26.50   JUL  20.00  9.25  *$  1.50   5.9%
BCRX   27.00  29.94   JUL  22.50  5.63  *$  1.13   5.7%
CLTR   20.50  23.75   JUL  17.50  3.63  *$  0.63   5.4%
CAIR   25.50  25.69   JUL  20.00  6.63  *$  1.13   5.2%
TGEN   12.25  13.31   JUL   7.50  5.25  *$  0.50   5.2%
IBC    14.94  14.56   JUL  12.50  3.25  *$  0.81   5.0%
NERX   18.88  19.75   JUL  15.00  4.38  *$  0.50   5.0%
IFCI   23.13  25.25   JUL  20.00  4.00  *$  0.87   4.9%
LCCI   27.31  26.88   JUL  22.50  5.50  *$  0.69   4.6%
ALSC   26.88  26.50   JUL  22.50  5.88  *$  1.50   4.4%
BWEB   22.88  25.00   JUL  17.50  5.88  *$  0.50   4.3%
TSEM   30.69  30.63   JUL  25.00  6.50  *$  0.81   3.6%
GLGC   38.75  29.63   JUL  30.00 10.00   $  0.88   3.3%
PGO    19.00  17.25   JUL  17.50  2.25   $  0.50   2.6%

IVIL    8.94   7.81   AUG   7.50  2.13  *$  0.69   7.3%
DLK    16.75  18.00   AUG  12.50  5.25  *$  1.00   6.3%
PSFT   18.38  20.88   AUG  15.00  4.38  *$  1.00   5.2%
WFR    18.38  18.63   AUG  15.00  4.38  *$  1.00   5.2%
EPTO   15.13  13.50   AUG  12.50  3.38  *$  0.75   4.6%

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


E-Med Soft.Com (MED) continues to weaken though it remains above
its May low - monitor closely.  With one week until expiration,
and earnings due next Friday, it may be prudent to exit Secure
Computing (SCUR) early - unless your long-term outlook warrants
otherwise.  Gene Logic (GLGC) has weakened considerably and an
early exit from this position may also be sensible.  Petroleum
Geo's (PGO) action continues to be worrisome though the current
rebound is helping to stem the decline.


Sequenced by Company

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

BLSW   32.88  AUG  25.00  XPU HE  9.38  62   23.50   35     5.5%
EFCX   14.38  AUG  10.00  FUS HB  4.88  50    9.50   35     4.6%
IMNR   11.00  AUG   7.50  IMQ HU  3.88  735   7.12   35     4.6%
LOOK   23.00  AUG  17.50  UOO HW  6.25  10   16.75   35     3.9%
MAIL    9.44  AUG   7.50  UMA HU  2.50  1273  6.94   35     7.0%
MCOM   33.00  AUG  25.00  MQM HE  9.25  36   23.75   35     4.6%
PMTC   12.69  AUG  10.00  PMQ HB  3.25  2735  9.44   35     5.2%

Sequenced by Return

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

MAIL    9.44  AUG   7.50  UMA HU  2.50  1273  6.94   35     7.0%
BLSW   32.88  AUG  25.00  XPU HE  9.38  62   23.50   35     5.5%
PMTC   12.69  AUG  10.00  PMQ HB  3.25  2735  9.44   35     5.2%
EFCX   14.38  AUG  10.00  FUS HB  4.88  50    9.50   35     4.6%
IMNR   11.00  AUG   7.50  IMQ HU  3.88  735   7.12   35     4.6%
MCOM   33.00  AUG  25.00  MQM HE  9.25  36   23.75   35     4.6%
LOOK   23.00  AUG  17.50  UOO HW  6.25  10   16.75   35     3.9%

Company Descriptions

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

BLSW - Bluestone Software  $32.88  *** Earnings Rally? ***

Bluestone Software is a top provider of Enterprise Interaction
Management software.  Companies deploying e-business applications,
such as Avnet, CDNow, Food.com, MCI WorldCom, Reliance National,
Strategic Weather Services, and Time, rely on Total-e-Business,
Bluestone Sapphire/Web, and Bluestone XML Suite to provide a
comprehensive e-business platform, Internet-class fault tolerant
infrastructures, and robust integration services that e-business
success demands.  Earnings are driving the market and Bluestone's
recent technical break-out may be in anticipation of the company's
announcement later this month.  If you favor the possibility of a
positive announcement, this play offers an excellent risk/reward

AUG 25.00 XPU HE LB=9.38 OI=62 CB=23.50 DE=35 MR=5.5%

Chart =
EFCX - Electric Fuel  $14.38  *** New Palm Batteries! ***

EFCX is engaged in the design, development and commercialization
of its proprietary zinc-air battery technology for portable
consumer electronic devices such as cellular telephones, laptop
computers, personal digital assistants and camcorders, as well as
for electric vehicles and defense applications.  They offer their
products through several marketing partners as well as through
direct online sales.  A money manager quoted by "Inside Wall Street"
said Electric Fuel would be offering a new product that would sell
well among users of cell phones and Palm hand-held devices.  A
couple days later, EFCX announced the development of the ZincAir
"Instant Power" battery.  The stock rallied strongly off its May
low as investors look forward to an increased revenue stream.  The
recent correction appears to be finished and a run towards a new
high seems likely.

AUG 10.00 FUS HB LB=4.88 OI=50 CB=9.50 DE=35 MR=4.6%

Chart =
IMNR - Immune Response  $11.00  *** Positive Phase II Trials ***

Immune Response is a biopharmaceutical company that is developing
immune-based therapies to induce specific immune responses for
the treatment of HIV, autoimmune diseases and cancer.  They are
developing a targeted delivery technology for gene therapy, which
is designed to enable the delivery of genes directly to the liver
after intravenous injection.  Immune Response's gene therapy
program is in preclinical studies for the treatment of hemophilia
and hepatitis.  Immune Response started its move out of a stage I
base after preliminary data showed that its drug Remune stimulated
the activity of the immune system's killer T-cells against the HIV
virus.  This week, IMNR filed with the SEC to offer 2.4 million
shares and plans to use the proceeds to speed up the manufacturing
of its Remune vaccine.  We favor a conservative entry point in this
speculative issue with a cost basis near technical support.  Don't
forget your due diligence!

AUG 7.50 IMQ HU LB=3.88 OI=735 CB=7.12 DE=35 MR=4.6%

Chart =
LOOK - LookSmart  $23.00  *** Takeover? Merger? ***

LookSmart is a global Internet search infrastructure company.
They have built a suite of scaleable, customizable and high
quality search products and has distributed these products to
its network of approximately 100,000 partners and affiliates
worldwide.  They also maintain the www.looksmart.com Website,
primarily as a showcase for its search products and for users
who wish to search directly with LookSmart.  Two months ago,
LookSmart confirmed to the stock exchange it was in talks but
no agreement had been reached about a business relationship
with the 50.1 percent government-owned Telstra.  As speculators
have moved into the stock, a stage I base has been completed.
Until the news is released, we will remain very conservative
and take advantage of the recent volatility and positive
momentum in the Internet sector.

AUG 17.50 UOO HW LB=6.25 OI=10 CB=16.75 DE=35 MR=3.9%

Chart =
MAIL - Mail.com  $9.44  *** Are The "Shorts" Covering? ***

Mail.com is a global provider of e-mail and advanced Internet
messaging services to the business and consumer markets.  MAIL
provides the business market with outsourced mailbox hosting
and gateway services and has a corporate customer base with
over 8,500 corporations in all, including ADP, Continental
Airlines, Mercedes Benz and Yahoo!.  In the consumer market,
Mail.com has forged alliances with premier Web sites and ISPs
enabling members to access their e-mail from any location with
a web connection.  Mail.com's price has recently surged after
news of an increase in call buying activity.  Are traders
speculating on earnings (July 26) or is it just a short-covering
rally?  We simply favor the move above recent resistance (which
now becomes support) on heavy volume.

AUG 7.50 UMA HU LB=2.50 OI=1273 CB=6.94 DE=35 MR=7.0%

Chart =
MCOM - Metricom  $33.00  *** A Wireless Internet! ***

Metricom is a provider of mobile wireless data access to corporate
networks and the Internet.  For the past year, MCOM has focused
its efforts on designing and developing its new high speed service,
which is being marketed under the Ricochet brand name, and is being
planned for launch during the late summer of 2000.  Metricom has
designed its new service to meet the needs of the growing number of
professionals who require full access to their corporate networks
and the Internet when away from the office.  Metricom recently
announced that in late July, the Ricochet network will be live and
capable to take on subscribers in San Diego and Atlanta.  Now MCOM
has completed FCC certification for its GT model Ricochet 128 kbps
modem.  Many investors believe the move to wireless Internet will
surge once speeds approach those of the current DSL and cable
connections and Metricom will benefit from this next phase of
Internet mania!

AUG 25.00 MQM HE LB=9.25 OI=36 CB=23.75 DE=35 MR=4.6%

Chart =
PMTC - Parametric Tech  $12.69  *** Earnings Rebound? ***

Parametric Tech develops, markets, and supports collaborative
product commerce B2B solutions that help manufacturing companies
achieve innovation and sustainable competitive advantage.  Their
software solutions employ powerful Web-based collaboration and
flexible engineering technologies to speed product development
and delivery processes.  PMTC also provides training, consulting,
support, and e-commerce services to customers worldwide.  Last
quarter, Parametric reported disappointing revenue and announced
restructuring plans following a weak December report.  The stock
was punished severely recently and appears to be "on the mend."
Over the last several months, Parametric has announced many new
alliances and contracts that suggest next week's earnings could
show that the company is back on track.  We will use the recent
option volatility to gain a conservative entry point, favoring a
cost basis below recent support.

AUG 10.00 PMQ HB LB=3.25 OI=2735 CB=9.44 DE=35 MR=5.2%

Chart =

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By Ryan Nelson

***Remember, expiration is this coming Friday***

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

ADBE   136.19  135   AXX-SG   3.75   3405   11%    136
BRCD   205.94  200   GUF-ST   2.38   5149    5%    200
BRCM   250.06  240   RDU-SH   5.13   6252    8%    240
CDWC    67.81   65   DWQ-SM   1.75   1695   10%     61
CHKP   234.25  230   YKE-SV   7.38   5856   13%    230
DIGX    78.81   75   UOM-SO   1.69   1970    9%     75
DNA    161.50  160   DNA-SL   5.00   4038   12%    152
EXTR   143.81  130   EUT-SF   2.75   3595    8%    125
GLW    267.00  260   GRJ-SZ   3.75   6675    6%    260
GSPN   146.00  135   GHY-SG   3.00   3650    8%    130
ISSX   102.50  100   ISU-ST   4.00   2563   16%     95
ITWO   139.50  115   QYI-SG   5.88   3488   17%    135
MLNM   118.50  115   QMR-SC   3.75   2963   13%    118
MUSE   184.50  175   UZQ-SO   4.25   4613    9%    175
PHCM    82.06   80   UGE-SP   2.38   2052   12%     77
PWER   130.00  125   OGU-SE   4.25   3250   13%    120
QLGC    95.13   90   QLC-SR   2.63   2378   11%     90
RBAK   155.00  150   BKK-SJ   5.18   3875   13%    150
RIMM    62.50   60   RUL-SL   2.13   1563   14%     55
RMBS   105.00  100   BWR-ST   4.63   2625   18%    100
SEBL   192.69  180   EZG-SP   3.88   4817    8%    180
SEPR   133.75  130   ERU-SF   3.25   3344   10%    125
TER     77.75   70   TER-SN   2.00   1944   10%     70
TIBX   127.00  120   PIW-SD   3.38   3175   11%    115
TLGD   148.06  140   TQK-SH   4.00   3702   11%    140
TQNT    55.63   55   TNN-SK   2.81   1391   20%     52
VRSN   192.00  180   QVZ-SP   2.44   4800    5%    180
VRTS   137.13  130   VUQ-SF   2.56   3428    7%    130
VRTX   115.00  115   VQR-SB   2.75   2875   10%    110


Technical Analysis Basics: Trends and Averages
By Ray Cummins

To be successful in the stock market, it's important to understand
how to evaluate historic trends.  In any exchange system based on
supply and demand, there are three primary stages or phases of
movement.  These three phases consist of a basing or range-bound
condition; an upward slope or growth stage and finally, a segment
where buying interest becomes exhausted.  Some experts refer to
these conditions as the accumulation, markup and distribution

The first step in any analysis is look beyond the daily gyrations
to identify the overall trend.  The changes in the rate of upward
and forward movement can be approximated with the smoothing effect
of a moving average.  The basic definition of a moving average is:
the mean price of a security or financial instrument at a specific
point in time.  With this type of analysis tool, a shorter time
span produces a more sensitive indication while a longer time
span reflects a smoother history.  There are a number of ways to
determine a primary trend but very few technical analysis tools
are as versatile as moving average.  The moving average offers
an objective method for defining support and resistance and it
can also help isolate cycles and identify overbought or oversold
conditions.  Traders often use moving averages to render buy and
sell signals based on multiple histories plotted on one chart.
The crossing of moving average lines, a major topic in the study
of "Stochastics," is a very popular method of recognizing trend

Unfortunately, for a trader to depend solely on a moving average
is comparable to using the hour hand of a watch to check the time
of day.  It provides a good approximation of the time but offers
little guidance for specific appointments.  In market terms, a
moving average will help you discern whether the primary trend is
up or down but it does little to help you with timing entry and
exit points with regard to a particular issue.  To be profitable
on a consistent basis, you need to know where the instrument is
in its current cycle.  Is it in the accumulation phase, markup
phase or distribution phase?  The movement of a specific issue
is generally determined by the intensity with which the shares
are bought or sold.  One method of measuring this effect in a
prolonged trend is to use a moving average on transaction or
trading volume.

Trading volume, or the number of shares traded, is an important
indicator in interpreting market direction and stock price.  The
change in stock price is the result of supply and demand; those
who want to buy versus those who want to sell.  The key point is
that a rise or fall in price on a small volume of shares traded
is far less important than a move supported by heavy volume.  If
there is heavy trading on an upward movement, buyers control the
market, and their enthusiasm for the stock often pushes it far
beyond a reasonable value.  Experienced traders know that rising
volume generally accompanies any substantial change in a stock's
price and that is an important characteristic to be aware of when
when reviewing market trends.

When combined with a moving average of trading volume, a simple
moving average can help confirm that the market is transitioning
into a condition of accumulation or in the case of a failed rally,
a new distribution stage.  Of course there are often chaotic and
choppy transition phases between each cycle or trend and those
can be very difficult to evaluate.  The type of indicators that
work best during transition periods include the Moving Average
Convergence-Divergence system (MACD), or exponential (weighted)
averages that are designed to be more sensitive to quick changes
in market direction.

Investors who develop a background in various technical analysis
tools can use intricate moving average combinations to formulate
different timing methods for entering and exiting the market.  One
popular entry technique is based on signals from a short-term MACD
and confirmation from the moving average of the volume indicator.
A number of exit strategies use the convergence between the price
action and the volume average or diversions among different moving
averages.  Blending diverse combinations of indicators is one way
to discover the best system for your style of trading and for new
investors, this can create a unique set of tools and intuitive
techniques to help you profit in the market on a regular basis.

Good Luck!

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


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

SIRI   44.31  49.25   JUL  35.00  1.88  *$  1.88  25.4%
DLK    16.75  18.00   JUL  12.50  0.38  *$  0.38  22.1%
ANCC   30.22  31.88   JUL  22.50  0.44  *$  0.44  14.8%
TGEN   14.88  13.31   JUL  12.50  0.38  *$  0.38  13.9%
FSII   18.25  21.75   JUL  15.00  0.75  *$  0.75  13.6%
IMG    18.31  19.13   JUL  15.00  0.56  *$  0.56  13.3%
EFCX   10.56  14.38   JUL   7.50  0.44  *$  0.44  12.5%
CEGE   31.50  28.88   JUL  25.00  0.38  *$  0.38  12.4%
SCUR   15.88  17.38   JUL  12.50  0.38  *$  0.38  11.6%
MRVT   19.50  24.13   JUL  15.00  0.44  *$  0.44  11.0%
GENE   30.44  26.50   JUL  22.50  0.50  *$  0.50  11.0%
CAMP   29.00  42.94   JUL  22.50  0.81  *$  0.81  10.6%
TSEM   30.69  30.63   JUL  25.00  0.69  *$  0.69  10.3%
YRK    28.94  28.25   JUL  25.00  0.38  *$  0.38  10.3%
TLCM   40.06  32.94   JUL  30.00  0.56  *$  0.56   9.5%
GENE   26.13  26.50   JUL  17.50  0.63  *$  0.63   9.3%
OAKT   20.94  26.25   JUL  17.50  0.44  *$  0.44   8.9%
LBRT   29.31  34.13   JUL  20.00  0.38  *$  0.38   8.8%
NSS    20.13  19.75   JUL  15.00  0.44  *$  0.44   8.6%
FSII   16.00  21.75   JUL  12.50  0.50  *$  0.50   8.4%
PILT   15.31  17.81   JUL  10.00  0.38  *$  0.38   8.0%
CBST   49.25  54.56   JUL  35.00  0.50  *$  0.50   7.0%
CAIR   25.50  25.69   JUL  17.50  0.44  *$  0.44   6.9%
MPPP   19.19  13.50   JUL  10.00  0.38  *$  0.38   6.5%
SYMM   20.00  21.13   JUL  15.00  0.38  *$  0.38   6.3%
VITR   48.13  74.13   JUL  30.00  0.56  *$  0.56   6.0%
SIPX   27.25  26.25   JUL  20.00  0.31  *$  0.31   5.8%
CLRS   38.88  43.50   JUL  30.00  0.69  *$  0.69   5.8%
CEGE   27.25  28.88   JUL  17.50  0.44  *$  0.44   5.4%
IMNX   44.69  55.19   JUL  30.00  0.56  *$  0.56   5.1%
CREAF  28.00  21.75   JUL  22.50  0.69   $ -0.06   0.0% Closed
OMKT   19.00   9.44   JUL  12.50  0.38   $ -2.68   0.0% Closed

NFLD   17.50  16.63   AUG  15.00  1.00  *$  1.00  13.2%
MRVT   22.63  24.13   AUG  17.50  0.50  *$  0.50   7.2%
NXLK   39.69  44.06   AUG  30.00  0.75  *$  0.75   6.3%

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


Open Market (OMKT) was closed earlier this week after warning that
its second-quarter loss will be twice as large as most analysts
expected.  Creative Tech (CREAF) did not have any follow through
this week, after last Friday's rally and continues to move below
its 150 dma.  Cell Genesys (CEGE) & Genome Therapeutics (GENE) are
both under selling pressure as money rotates into the Tech sector.
Monitor Telcom Semiconductor (TLCM) as the technicals remain weak.
Friday's horrid move by Sipex (SIPX) is disconcerting and exiting
this position on any strength might be prudent.

Positions Closed: Us Lec Corp. (CLEC)


Sequenced by Company

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

BLSW   32.88  AUG  22.50  XPU TX  0.56  21   21.94   35     6.8%
GSTRF  10.56  AUG   7.50  YVQ TU  0.56  388   6.94   35    18.2%
INFS   37.00  AUG  30.00  IQL TF  0.50  2    29.50   35     5.2%
PILT   17.81  AUG  12.50  PTU TV  0.50  10   12.00   35    10.7%
RAZF   22.25  AUG  17.50  RVZ TW  0.56  170  16.94   35     9.7%
SQST   14.00  AUG  10.00  QWQ TB  0.50  69    9.50   35    13.2%
WSTL   25.19  AUG  20.00  QLW TD  0.81  137  19.19   35    12.0%

Sequenced by Return

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

GSTRF  10.56  AUG   7.50  YVQ TU  0.56  388   6.94   35    18.2%
SQST   14.00  AUG  10.00  QWQ TB  0.50  69    9.50   35    13.2%
WSTL   25.19  AUG  20.00  QLW TD  0.81  137  19.19   35    12.0%
PILT   17.81  AUG  12.50  PTU TV  0.50  10   12.00   35    10.7%
RAZF   22.25  AUG  17.50  RVZ TW  0.56  170  16.94   35     9.7%
BLSW   32.88  AUG  22.50  XPU TX  0.56  21   21.94   35     6.8%
INFS   37.00  AUG  30.00  IQL TF  0.50  2    29.50   35     5.2%

Company Descriptions

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

BLSW - Bluestone Software  $32.88  *** Earnings Rally? ***

Bluestone Software is a top provider of Enterprise Interaction
Management software.  Companies deploying e-business applications,
such as Avnet, CDNow, Food.com, MCI WorldCom, Reliance National,
Strategic Weather Services, and Time, rely on Total-e-Business,
Bluestone Sapphire/Web, and Bluestone XML Suite to provide a
comprehensive e-business platform, Internet-class fault tolerant
infrastructures, and robust integration services that e-business
success demands.  Earnings are driving the market and Bluestone's
recent technical break-out may be in anticipation of the company's
announcement later this month.  If you favor the possibility of a
positive report, this play offers an excellent risk/reward ratio.

AUG 22.50 XPU TX LB=0.56 OI=21 CB=21.94 DE=35 MR=6.8%

Chart =
GSTRF - Globalstar Telecom  $10.56  *** On The Rebound! ***

Globalstar Telecommunications provides global mobile telephone
service.  Their satellites form a global telecommunications
network which can reach virtually every populated area of the
world.  Globalstar uses Qualcomm's patented CDMA technology, and
Qualcomm has agreed that they will be the only provider of mobile
satellite services to which it will license this technology.
Funding has been a problem for satellite communications companies
but earlier this month, Globalstar exercised an option giving the
company access to $250 million in corporate loans.  Now they can
pursue their business plans, working to establish themselves as
a potential competitor in the difficult communications market.
The company also recently launched its commercial service in Peru
and expects to provide coverage to most of South America within
the next month.

AUG 7.50 YVQ TU LB=0.56 OI=388 CB=6.94 DE=35 MR=18.2%

Chart =
INFS - Infocus  $37.00  *** Big Earnings! ***

InFocus is a worldwide leader in data and video projection.
InFocus was the first to market such breakthroughs as the flat
panel overhead display and the data/video projector.  Infocus'
suite of projectors let users project from a variety of sources
including DVD's, S-video, PC's, VCR's, and laser disc players.
On Thursday, Infocus reported that second quarter revenues were up
35% over the same period last year.  They also reported 72% unit
growth for the quarter and in addition, product demand was strong
sequentially when compared to the first three months of 2000.  The
the Worldwide Data Group, a consortium of leading display research
companies, increased their projections for unit growth rates in
the video projection market to 40% next year.  Investors are happy
with the results and the technical outlook is very favorable.

AUG 30.00 IQL TF LB=0.50 OI=2 CB=29.50 DE=35 MR=5.2%

Chart =
PILT - Pilot Network Services  $17.81  *** An Old Favorite! ***

Pilot Network Services provides a wide range of secure Internet
services that incorporate high-bandwidth connectivity and enable
secure electronic business over the Internet.  Pilot's services
include secure access and gateway services, secure hosting and
electronic commerce services, and secure extranet and virtual
private networking services.  These services enable remote users
and wide-area networks to securely communicate enterprise-wide
and over the Internet.  Pilot provides these services through its
geographically dispersed Network Security Centers to financial,
professional, technology, consumer, entertainment, education,
mass media, industrial, and manufacturing customers around the
world.  Earnings are due next week and based on the technical
trend, investors believe the report will be favorable.

AUG 12.50 PTU TV LB=0.50 OI=10 CB=12.00 DE=35 MR=10.7%

Chart =
RAZF - Razorfish  $22.25  *** Hot Sector! ***

Razorfish is a provider of global digital solutions.  Razorfish
provides an integrated, end-to-end information solution.  Some
examples of RAZF's solutions include a user-interface Wireless
Application Protocol technology for Nokia; an open collaborative
business environment delivering SAP AG's personalized ERP software
solutions; and a multiple channel strategy for NatWest Bank.  The
company's digital solutions utilize a wide variety of platforms,
including the World Wide Web, wireless, broadband and satellite
communications and a variety of digital devices and information
appliances, including desktop PCs, mobile phones, pagers and
personal digital assistants.  This industry is undergoing rapid
evolution as clients move from employing technology simply as a
cost-cutting tool to deploying leading edge solutions on all
levels.  We favor the recent technical trend but "let the buyer
beware," earnings have yet to be announced for this popular issue.

AUG 17.50 RVZ TW LB=0.56 OI=170 CB=16.94 DE=35 MR=9.7%

Chart =
SQST - Sciquest.com  $14.00  *** Bottom Fishing! ***

SciQuest.com is an Internet-based, interactive marketplace for
scientific and laboratory products used by pharmaceutical,
clinical, biotechnology, chemical, industrial and educational
organizations worldwide.  Sciquest has made use of its extensive
industry expertise to design a marketplace that streamlines the
traditionally inefficient scientific products supply chain.  The
company's marketplace solutions allow buyers of various scientific
products to cross-search content and purchase these products from
multiple suppliers with a single order.  The company's marketplace
benefits some distinct customers including scientists, purchasing
professionals and suppliers.  Sciquest wants to become an online
information resource that ties E-commerce into the activities of
researchers and their labs.  That's a favorable outlook as most
successful Net Markets will be the ones that provide services or
content that reduces costs and boost efficiencies.  We like the
low risk entry point.

AUG 10.00 QWQ TB LB=0.50 OI=69 CB=9.50 DE=35 MR=13.2%

Chart =
WSTL - Westell Technology  $25.19  *** Trend Reversal! ***

Westell Technologies provides telecommunications products and
services.  Westell Inc., their products business, supplies DSL
Equipment, Telephone Access Systems and equipment to monitor
and maintain telecommunications networks.  Conference Plus Inc.,
their service business, is an Application Service Provider,
hosting and providing audio, video, IP conferencing and support
services.  Telecom issues are becoming popular again and with
a recent "buy" rating from Jeffries & Co., it appears investors
are now bullish on this company.  Analysts expect Westell's first
profitable quarter in the company's public history to be reported
on July 20 and their new 12-month target is $50.  Our conservative
cost basis allows favorable speculation on the new trend.

AUG 20.00 QLW TD LB=0.81 OI=137 CB=19.19 DE=35 MR=12.0%

Chart =


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Another Big Day!

Friday, July 14

Technology stocks posted impressive gains today with Internet and
Semiconductor issues leading the way.  The Nasdaq finished up 71
points at 4246.  The Dow industrials rallied for a sixth straight
session amid strength in financial stocks.  The blue-chip average
closed up 24 points at 10,812.  The S&P 500 Index ended 14 points
higher at 1509.  Trading volume on the NYSE reached 950 million
shares, with advances beating declines 1,587 to 1,281.  Activity
on the Nasdaq Exchange was moderate at 1.67 billion shares traded.
Technology advances beat declines 2,189 to 1,792.  In the bond
market, the 30-year Treasury fell 29/32, pushing its yield up to

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

Advanced Fibre   AFCI   AUG42P/AUG45P   $0.38   credit   bull put
Network Appl.    NTAP   AUG70P/AUG75P   $0.68   credit   bull-put
Finova Group     FNV    JAN7C/AUG12C    $4.38   debit    diagonal

Advanced Fibre traded almost $4 higher in the opening minutes and
never retreated.  The best observed credit was well below our
target price.  Network Appliance was also bullish during the
session but did fall into negative territory near mid-day.  The
entry price was based on a large order near 10:00 A.M.  Finova
moved in a relatively small range, and the lowest observed debit
was slightly higher than our target entry.

Portfolio Plays:

The market moved higher today ending a second consecutive week
of bullish activity.  Favorable quarterly earnings continued to
be the driving force behind industry leaders and technically the
broad market is poised for a Summer rally.  Internet companies
led the technology group and on the Dow, financial stocks were
robust.  On the S&P 500, electronics and computer networking
stocks moved higher, while industrial power, healthcare and
building materials issues consolidated.  The rotation out of
drug and biotech companies pulled those sectors lower but a
recovery in the telecom group and brokerages kept market breadth

The Spreads/Combos portfolio enjoyed another bullish session with
big-cap stocks dominating the leader-board.  The top performers
included Active Software (ASWX), Exodus (EXDS), Juniper Networks
(JNPR), and Vitria (VITR).  Strangely enough, 3Com Corp. (COMS)
was again one of the big movers, up $8 in anticipation of the
$23 billion spin-off of hand-held computing device maker Palm
(PALM).  The company is distributing 532 million shares of Palm
stock on or about July 27 and each shareholder will receive 1.484
shares of Palm stock for each share of 3Com stock owned.  Our
bullish calendar spread benefited from the movement earlier in
the week but the rally above $65 pushed the spread into negative
territory.  Fortunately, with the upside activity, the original
premium disparity provided a small, one week profit ($0.43/$2.31)
before the position had to be closed.  Those of you that bought
back the (short) $60 call when the bullish stock rallied through
technical resistance last Wednesday were aptly rewarded later in
the week.  Another issue that has broken-out of a recent trading
range is Cabletron (CS).  The stock rallied another $2 on Friday
and now it appears a major bullish move is underway.  Our long
term diagonal position (JAN15C/AUG25C) has been adjusted upward
to reflect the positive outlook.  In the Straddles section, Knight
Trading (NITE) jumped $3 to a recent high near $35 on strength
in the E-brokerage group.  Our neutral debit straddle is now in
profitable territory and based on the new upward momentum, the
rally should result in a favorable return for the position.

One the downside, Johnson & Johnson (JNJ) suffered a setback
after the FDA halted phase III trials of its drug Resolor for
irritable bowel syndrome.  Analysts at J.P. Morgan didn't help
matters, reducing their revenue estimates on the company after
the news.  Our bullish diagonal spread has returned more than a
50% profit and those of you with concerns about the short-term
technical outlook should close the play to lock in gains.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
AOL - American Online  $62.06  *** Hot Sector! ***

America Online is the world's leader in interactive services,
Web brands, Internet technologies and e-commerce services.  AOL
operates two worldwide Internet services, America Online, with
more than 22 million members, and CompuServe, with more than 2.2
million members, several leading Internet brands including ICQ,
AOL Instant Messenger and Digital City, the Netscape Netcenter
and AOL.COM portals, the Netscape Navigator and Communicator
browsers, AOL MovieFone, the nation's leading movie listing
guide and ticketing service, and Spinner Networks and NullSoft,
leaders in Internet music.  Through its strategic alliance with
Sun Microsystems, the Company develops and offers easy-to-deploy,
end-to-end e-commerce and enterprise solutions for companies
operating in the Net Economy.

Earnings are driving the market and AOL, the leading Internet
services provider, is expected to post strong quarterly results
next week.  Analysts say their report will reflect one of the
stronger performances of the Internet sector during what would
be a tough quarter.  The consensus estimate for the Internet
giant is $0.11 a share for its fiscal fourth quarter, $0.07 a
share higher than the same quarter a year earlier.  Revenues are
expected to climb 35%-40% to $2 billion.  AOL is also expected
to address their plans for delivering high-speed Internet access
via cable and digital subscriber lines, a business that the
company will develop after its impending merger with Time Warner.

Friday's trading-range breakout near $58 defines this position
as a relatively safe play in the volatile Internet sector.  Our
spread offers a low risk cost basis with a reasonable expectation
of profit.  After the $4 rally on Friday, a brief consolidation
may occur in the next few sessions.  With hope to decrease the
debit for the spread to a favorable amount.  Our initial target
will be $4.25 and we will make an adjustment based on Monday's
opening prices.

PLAY (conservative - bullish/debit spread):

BUY  CALL  AUG-50  AOO-HJ  OI=1589  A=$12.62
SELL CALL  AUG-55  AOO-HK  OI=3612  B=$8.12
INITIAL NET DEBIT TARGET=$4.25-$4.38  ROI(max)=14% B/E=$54.38

Chart =

ALL - Allstate  $24.88  *** Merger Rumors Again! ***

The Allstate Corporation serves as the holding company for
Allstate Insurance Company.  The company's business is conducted
principally through Allstate Insurance Company, Allstate Life
Insurance Company and their subsidiaries (including the parent,
Allstate).  Allstate is engaged, principally in the U.S. and
Canada, in the personal property and casualty insurance business
and the life insurance and savings business.  All's business
segments include personal property and casualty; life and
savings; and discontinued lines and coverages.

The recent consolidation in Allstate's share value appears to be
coming to an end and the buyout rumors that caused speculation
earlier in the year are active again.  One well-known analyst
noted that Allstate has seen a fair amount of volume in its
options lately and the implied volatility for front-month options
is at historically high levels.  ALL was the subject of takeover
rumors back in May, and its expected suitor was American
International Group (AIG).  Speculation of a buyout in the $30
range was common and the bullish optimism is once again rampant.

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  OCT-20  ALL-JD  OI=1627  A=$5.50
SELL CALL  AUG-25  ALL-HE  OI=1674  B=$1.31

Chart =

ALTR - Altera  $119.44  *** Awesome Earnings! ***

Altera designs, manufactures and markets programmable logic
devices and associated development tools.  Programmable logic
devices are semiconductor integrated circuits that offer on-site
programmability to customers using the company's proprietary
software, which operates on personal computers and engineering
workstations.  Altera was the first supplier of Complementary
Metal Oxide Semiconductor (CMOS) programmable logic devices.
The company offers a broad line of CMOS programmable logic
devices that address high-speed, high-density and low-power
applications.  Altera's products serve a wide range of markets,
including telecommunications, data communications, electronic
data processing and industrial applications.

Altera jumped almost $10 Friday after company officials said that
earnings per share were $0.49, up from $0.25 per share earned in
the year-ago second quarter.  Analysts polled by First Call had
expected Altera to earn $0.44 per share.  The maker of logic
devices reported that surging sales propelled second-quarter
earnings growth 93%, and industry analysts gave rave reviews to
the news.  One analyst called it a "blowout quarter," raising his
projections on future earnings and the company's target price.
Christopher Danley, an analyst with Merrill Lynch, said Altera
had turned in an impressive performance in terms of revenue growth
and he expects the company to show continued strong earnings and
sales growth in the remaining two quarters of the year.  Altera
also announced it is planning a two-for-one stock split, effective
on or about August 10, for shareholders of record on July 26.

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-90  LTQ-TR  OI=176  A=$1.38
SELL PUT  AUG-95  LTQ-TS  OI=209  B=$2.00

Chart =

VRTA - Virata  $71.06  *** On The Move! ***

Virata sells communications processors combined with integrated
software modules to manufacturers of equipment utilizing digital
subscriber line (DSL) technologies.  These integrated product
solutions enable its customers to develop a diverse range of DSL
equipment, including modems, gateways and routers targeted at the
voice and high-speed data network access market.  Virata focuses
its resources on the development and marketing of its products,
while outsourcing the actual manufacturing of its semiconductors.

Last week, Virata announced that its new Helium communications
processor has been selected by ARESCOM for use in four of the
company's new NetDSL products.  In addition, Arescom has selected
Virata's Magnesium voice processor incorporating their vCore
software to be used in conjunction with Helium in the next
generation of Arescom's DSL equipment.  Arescom is a leading
provider of DSL router and modem solutions for telecommunication
carriers, ISPs and SOHO markets.  Their selection of Virata's
primary products suggests the company is designing components
that meets the needs of today's fast paced communications

Virata has been "on the move," climbing $30 in just over one
week.  With that type of upside activity, there is always some
potential for consolidation.  Our position has a cost basis
near technical support and we will "target shoot" a pull-back
to increase the overall credit in the spread.

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-55  UFA-TK  OI=18  A=$1.31
SELL PUT  AUG-60  UFA-TL  OI=14  B=$1.88
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=15%

Chart =

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