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Daily Newsletter, Tuesday, 07/18/2000

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The Option Investor Newsletter                  Tuesday 07-18-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        07-18-2000        High      Low     Volume Advance/Decline
DJIA    10739.90 - 64.40 10799.20 10703.10  912 mln   1164/1679
NASDAQ   4177.17 - 97.50  4237.85  4161.89 1.50 bln   1550/2481
S&P 100   807.19 - 10.56   815.66   806.13   totals   3878/4160   
S&P 500  1493.74 - 16.75  1507.64  1491.35           48.2%/51.8%
RUS 2000  536.28 -  8.90   545.18   535.91
DJ TRANS 2899.37 -  0.90  2912.54  2892.79
VIX        22.55 +  0.49    23.29    22.29
Put/Call Ratio       .51
******************************************************************

After a four day stampede did the bull stumble?

OOPS! Was that a slightly higher CPI number on top of a higher
than expected Retail Sales number last week? Yep, you guessed
it. That interest rate hike nightmare just keeps coming back 
like the Freddy Kruger movies.  It was not a strong surprise 
for the CPI but when everyone wants to see a drop, a rise is 
not a welcome surprise. The Nasdaq rested today with a -97 point
drop after four days of strong gains. Even without external
reasons the index was due for a rest. The Dow finally gave up
the battle to pass 10,800 and traders becoming nervous with
the lack of progress started moving to the sidelines.


 


 

The CPI report only came in with the headline number at +.06% 
with expectations of +.05% and the core rate at +.2% as expected
but it was the change in direction from expectations that sent
a chill through the markets. With the markets just starting to
recover from the previous six rate hikes investors are gun shy
about the Fed over reacting and making that one hike too many 
that crashes the economy instead of the soft landing.

The earnings were out in force. Almost every big name in the
market announces this week. Today was a list too long to publish
with MSFT, INTC, AAPL, CMRC, ITWO, RMBS, VRTS, GM, MER, SCH
being just a few. This week is the culmination of the earnings
cycle for this quarter. Sure there will be more reports over
the next several weeks but the headliners are mostly this week.

Microsoft announced $.44 vs estimates of $.42 and beat the
lowered expectations for revenue. Because of the earnings
weakness rumors MSFT had been moving lower all week and the
stock rallied +1.50 on the news. Intel announced $.50 vs
estimates of $.49 and after trading down -3.31 during regular
trading actually rose about +$3 in after hours. The news that
powered the after hours trade was a comment from Intel that
the 3rd quarter would be higher with a continuing strong demand
and margins were expected to be in the 63% range. News to 
investors ears and coupled with the coming stock split there
was a little buying enthusiasm. Don't look now but there might
be a backlash on Intel however. In the conference call it
was disclosed that the numbers contained over $2 billion in
profits from sales of stock from their portfolio. Without the
sales of stock the numbers would have come in at only $.36
instead of the $.50 reported. Analysts don't normally react
positively about gains not from continuing operations. The
positive conference call with glowing words about the third
quarter may blunt this impact but be aware.

Not all the earnings news was good with Aetna issuing an earnings
warning. Citing higher HMO costs and medical expenses they 
dropped -$7 on the news. Boston Scientific also announced 
earnings today but warned that future quarters could be flat.
BSX was held in after hours trading. YUM, Tricon Global also
warned that sales would be weak in their Taco Bell business.

A TV commentator said today that the market was acting strange. 
We have record earnings announcements from dozens of high 
profile companies and the stocks are selling off. I should 
email them a complementary subscription. We preach constantly 
that stocks go down after earnings more often than not. The 
best analogy still remains "buy on rumor, sell on news." The
pre-earnings run up is based on speculation and once the news
is out there is nothing left to provide momentum to the stock.
Professional traders sell half or more of their holdings before
the announcement and the rest the day after to capture any 
bounce from retail traders buying on the news. To give you an 
idea of the number of announcements this week, today alone over
90 companies announced earnings after the bell. Now if all
of those investors sold on the news..... 

The selling on the news was prevalent today. Big companies with
record earnings much higher than expected sold off after the
announcements. Merrill Lynch beat estimates of $1.70 with a
blowout of $2.01 and announced a 2:1 stock split. MER dropped
-3.50 on the news. Not even the split announcement could hold
back the sellers. Why? Because the news is out and the split 
is over six weeks away. No speculation is left to buoy the
stock. The post split announce depression can last two to three 
weeks until traders start coming back into the stock 2-3 weeks 
before the actual split. GM announced $2.93 vs estimates of 
$2.82 on stronger sales but closed up only fractionally.

The big loser was Veritas Software, VRTS. They beat estiamtes 
of $.12 by a penny with $.13 but dropped -$24 in after hours.
The results appeared good on the surface but included a huge
$253 million entry for the Seagate purchase. Rambus also 
announced results that only matched Wall Street estimates of
$.04 per share and lost -$4 in after hours after losing -6.63
in regular trading. Apple Computer beat the street by a penny
but traded down -$3.88 in after hours. VRTS and RMBS had big
gains last week which added to the profit taking intensity.

Internet stocks got hit again today after a cartoon ran in
the Wall Street Journal depicting a dot.com balloon as the
Hindenburg in flames with the caption, "what were we thinking."
Internet analyst Mary Meeker continues to proclaim the strong
shall survive but that leaves investors searching through the
maze of business plans and results to see who the strong are.
Of course the sector leaders YHOO, AOL are profitable but with
slowing growth. YHOO traded down slightly today -$1.69 but
traded up after the close. AOL continued to lose ground after
an almost +$10 run in the last week and posted -2.25 today
in advance of their earnings. DCLK beat the street today but
had to fight news of lower advertising spending system wide.

Even the Senate passage of a $245 billion tax cut over the
next ten years by eliminating the marriage penalty could not
provide any lift to the markets. Of course it will probably
end up in the same dead file as the death tax repeal that
was passed last week. Clinton has vowed to veto that one.
He said he will sign the marriage penalty cut only if they 
Will approve prescription drugs for Medicare. Ahhh the old 
hostage tactic that both parties do so well.

The event Clinton cannot veto is the semi-annual Humphrey
Hawkins testimony by Alan Greenspan on Thursday. Even the
great earnings news will be pushed to the back burner by
interest in the Greenspan testimony. This is the busiest
week in the earnings cycle and with the expectation balloon
deflating the focus will be on Alan. Will he or won't he
pull another "irrational exuberance" comment out of his
lexicon of market attack phrases? Or will he be calm and
non-confrontational this close to an election that may 
change the ruling party. My guess is it will be a "don't
rock the boat" speech peppered with qualifications about 
productivity and the ever vigilant Fed. Still, investors
have learned to watch, listen and prepare for the worst.

If you have been reading my wraps for the last two weeks
you know I have been warning about a possible dip in mid July.
Historically it comes after expiration Friday but the day
falls very late this month on the 21st. Will we make it
to Monday? I looked at a lot of charts today and there
were a lot of them looking very toppy and quite a few 
looked like they were already rolling over. Because of 
the nice rally last week normal profit taking and rolling
over look the same on the first day so that is no help. 
Whether we get a sell off soon or not, the concept I am 
trying to get across is be prepared. Remember Austin 
Passamonte reported a five year record high in short 
interest by large commercial traders last Sunday. If the 
market rallies into next week instead of selling off, these 
traders will be forced to cover and the short squeeze could 
be huge. Whether I am right or wrong about the next eight 
days is immaterial. What is material is that you the trader 
be ready to react to a move in either direction. 

Don't fight the tape. Trade the trend!

Good luck and sell too soon.

Jim Brown
Editor
  

Current long positions include: none



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

On The Seventh Day We Rested 
By Austin Passamonte

Today’s pullback shouldn’t have been a surprise. Many issues
have enjoyed incredible gains over the past few sessions of
trading. Pretty tough for investors and traders to leave such
piles of profit on the table without blinking.

The twitch came this morning with a slightly raised CPI. We 
think any viable excuse to sell would have been met with equal
aplomb. The remaining week’s action through Friday should give
strong indication of the summer rally’s endurance.

Tonight’s earnings reports were among some of the heavyweights
as you probably read in “Market Wrap”. MSFT remains unchanged 
in late trading as GE, CSCO and others lost ground earlier
today. Any hope for a sustained rally will rest or wither on
their shoulders. INTC remains the warhorse, adding 3+ to it’s 
regular session close in post-market activity.

For the bulls this is it, the big week, the main game. Time
to dig deep and give another push towards the goal line. 
Media reports hail the return of momentum and day-traders,
adding high volume and soaring margin levels to the action.
Hmm, we haven’t seen those masses since, well never mind 
what happened then.

I had several exchanges with option traders recently who wanted
to know why Commercial traders in the S&P 500 are still going
short as the market rallies. Simple, they are scale-trading or
dollar-cost averaging their entry. Expecting to sell high and
then buy low later on. I realize that concept of short-selling
can confuse many traders, just think of it as buy low/sell 
high in reverse.

One trader mentioned such figures were ominous, scary as he 
stated. I ask why? We’re options traders, able to “LEAP” :>) 
market rallies or crashes with equal profit potential. We can’t 
affect market direction but it sure can affect us. Calls or puts
as conditions dictate is our advantage over all. Use each wisely!

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

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

Sat 7/15 close: 22.61    Tues 7/18 close: 22.55
                       

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            (7/17)      (7/19)       (7/21)
*************************************************************

CBOE Total P/C Ratio         .51
Equity P/C Ratio             .45


Peak Volume (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     (7/17)        (7/19)      (7/21)
**************************************************************

All index options     1.46
OEX Put/Call Ratio    1.39 


OEX Maximum Open Interest Strikes/Contracts:

Puts                  800/6,839
Calls                 825/16,857
Put/Call Ratio          .41 


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:               (7/17)       (7/19)    (7/21)

Overhead Resistance:
(840 - 820)               25.27
(815 - 800)                 .93

OEX Close:                 807 

Underlying Support:
(800 - 785)                1.75 
(780 - 760)                5.18


What the S/R measure indicates: Net open-interest ratios 
are high above 815 OEX level while underlying support 
is very light until 780. The OEX has downside pressure from 
820 with growing upward support from 780. A large move 
in either direction seems unlikely until option expiration. 

The OEX appears to remain between 780 and 820 near-term
for discretionary spread or directional play consideration 
if the index nears these benchmarks of support/resistance. 


200 Day Moving Average (as of 7/17)
The 200 DMA is widely considered the major benchmark for
critical support in a market.       

DOW;   10,750          10,739*  
NASDAQ; 3,831           4,177
NDX;    3,551           3,960
SPX      1417            1493 
OEX       762             807



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

NASDAQ 100       
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


BULLISH SIGNALS 

Broad Market Strength:
Major indices showed strength on rally with high volume.

Interest rates
5.91% on the 30-year Treasury Bond may be signaling the rate 
fears are over. Fed-Fund futures are pricing a 50% chance of
one or more rate hikes, .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.

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


******

BEARISH SIGNALS

VIX
Today’s close near 22.55 still warns of impending market top 
danger.

Energy Prices
Prices are still too high. Ultimately this affects profit 
margins and inflation. August Crude closed $30.64 today.
Seasonal energy patterns typically bottom by late summer,
but heating & fuel oil expected to be very high this fall. 

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. 

Weakness In Market Leadership 
Market bell-weathers GE, MSFT, CSCO continue to struggle.



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

As of Market Close - Tuesday, July 18, 2000 

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert
****************************************************************

DOW Industrials      10,739      10,450  10,850         
SPX S&P 500           1,493       1,435   1,520           
OEX S&P 100             807         775     822           
RUT Russell 2000        536         500     550           
NDX NASD 100          3,960       3,450   4,100         
MSH High Tech         1,060         965   1,100           

XCI Hardware          1,556       1,440   1,600           
CWX Software          1,244       1,160   1,360         
SOX Semiconductor     1,207       1,060   1,281         
NWX Networking        1,338       1,150   1,400         
INX Internet            528         470     637           

BIX Banking             545         520     565            
XBD Brokerage           564         480     590             
IUX Insurance           638         610     660           

RLX Retail              926         860     960            
DRG Drug                398         385     430             
HCX Healthcare          826         800     880             
XAL Airline             176         154     180           
OIX Oil & Gas           288         285     315             
 


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

Watching the VIX
By Mary Redmond

Nowadays most options traders watch the VIX.X.  The saying goes
when the VIX is high it's time to buy, when the VIX is low its
time to go.  There are some people who trade indexes using the 
VIX as their primary indicator.  Most of the time it has given
us an accurate buy or sell signal for the OEX.  However, when you
use the VIX for the Dow or Nasdaq it can ocassionally give a
signal which needs to be read more carefully in conjunction with
other market technicals.

On October 28 of last year the VIX was 25.35, right in the 
middle of the range from 20 to 30.  At this point the Nasdaq
was 3102 and the Dow was near 10600.  From November to the 
middle of January both the Dow and Nasdaq rallied strongly.  
By January 15, the Nasdaq was above 4200 and the Dow was above 
11700.

At that point the VIX did give a clear sell signal.  On 
January 16 the VIX was 22, the Nasdaq was 4235 and the Dow
was 11,750.  By Jan 24 the Nasdaq had dropped 348 points and
the Dow had dropped nearly 500 points.  On January 29 the 
VIX gave a reading of 29.  This was a good buy signal for
the Nasdaq, as it rose 150 points in the following two weeks.
However, it would have been a poor buy signal for the Dow, as
the Dow dropped 500 points in the first two weeks of February.

If you recall, this was right in the middle of the rotation
from "old economy" stocks to "new economy" stocks.  This was
the period when we had to constantly listen to high tech and
internet gurus telling us that this was a new paradigm, and 
value fund managers vowing revenge.  This rotation was partly
driven by the flood of cash into the market directed to high
tech stocks and funds.  During January and February, over $50
billion went into high technology funds, and almost no cash
went into "value" funds.  

On February 15, the VIX was 24.61, right in the middle.  It 
would have been a decent time to buy high tech stocks, as
the Nasdaq rallied from 4590 to over 5000 by the first week
in March.  However, if you had purchased Dow stocks then 
you would have fared poorly, as the Dow went from 10,500 to
below 10,000 by the last week in February.  During this 
period of extreme divergence, the VIX alone could not have
predicted the movement of either of the two averages.  

On April 10 the VIX read 28, and the Nasdaq was 3321.  But
the VIX stayed above 28 until May 22, when the Nasdaq was
still 3205.  Either of these points would have been buy
signals if you were able to hold during the month of June,
which was one of the best months on record for the Nasdaq.

One of our most important jobs as traders is to use as many
technical indicators as possible, and time your trades
accordingly.  Before you buy an option, decide if you are
planning to sell it the same day, a few days later or a year 
later in the case of a leap.  It is almost always a good idea 
to sell options if they have a 20% profit or higher.  If you 
have a leap and you think the stock is going to continue to 
rise one way to take a profit and continue to participate is 
to sell the leap and buy one with a higher strike price.

For example, in the middle of May I bought NT Jan 01 60 calls 
at $9.25.  I sold those the first week in June for $13.38 and 
bought Jan 02 70 leaps for $17.25.  Those were sold at $21.75, 
and I bought Jan 02 80 leaps for $18.38.  Those were sold at 
$20, and I bought 85 leaps at $18.  Each time I took a profit, 
and kept some of the profit in cash, and bought cheaper leaps.  
Some people hold onto leaps for six months or longer, but it 
can be very depressing to watch a leap premium melt away during 
a market correction.

Sometimes when you look at a point gain in a stock you can get 
a realistic perspective when you think about how much market 
value is gained or lossed with each point gain.  For example, 
NT has a market capitalization of approximately $217 billion 
and has 2.75 billion shares outstanding.  Each point that NT 
increases the market capitalization increases approximately 
$2 billion.  This isn't necessarily unrealistic for a company 
has sales of over $24 billion a year.  However, most stocks 
nowadays experience growth in a spurts followed by leveling 
off stages.

It is interesting to note the pattern of ipos today.  Two 
biotech ipos started trading today with substantial moves.  
TBIO was priced at $15 and traded up $9 and DCGN was priced 
at $18 and traded up $7.43.  This may be indicative of a 
short-term bullish outlook among certain institutional 
investors.  However, many more ipos are being priced than are 
brought to market.  It seems that the days of investors 
throwing money at any stock with a dot com behind its name 
may be over for awhile.   

Contact Support    


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

Looking for an Entry?
By Buzz Lynn
sectortrader@OptionInvestor.com

Feast your eyeballs on QQQ, IAH, and BDH.

*************
Results
*************

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    99.06   1.06  -2.69   0.00   0.00   0.00  -1.63
HHH Internet     118.31   0.44  -1.88   0.00   0.00   0.00  -1.44
BBH Biotech.     189.00   4.06   1.13   0.00   0.00   0.00   5.19
PPH Pharm.        98.88   2.75  -1.25   0.00   0.00   0.00   1.50
TTH Telecom       75.44  -1.94   0.06   0.00   0.00   0.00  -1.88
IAH I-net Arch.   96.94   1.38  -2.38   0.00   0.00   0.00  -1.00
IIH I-net Infr.   65.31   0.06  -1.19   0.00   0.00   0.00  -1.13
BHH B2B           53.13  -0.19   1.00   0.00   0.00   0.00   0.81
BDH Broadband     99.50   3.06  -3.63   0.00   0.00   0.00  -0.56
SMH Semicon.      98.38   1.63  -4.56   0.00   0.00   0.00  -2.94
RKH Reg. Banks    96.13  -1.69  -1.38   0.00   0.00   0.00  -3.06
UTH Utilities     93.13   0.06   0.06   0.00   0.00   0.00   0.13


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

QQQ - NASDAQ 100 $99.06 -2.69 (-1.63 this week) Yesterday's reach 
to $102.06 was nice to see, however we could have lived without 
today's retracement under $100.  Be that as it may, the 5-dma 
($99.53) still held up as did our noted support level at $99 where 
we saw a bounce.  As we noted Sunday, nothing goes up forever in a 
straight line and there will some profit taking along the way.  
That's to be expected from time to time.  That said, is this an 
entry point?  We'd say yes, but on one condition: INTC and MSFT 
must survive a post-earnings depression beginning tomorrow.  If 
tonight's after hours trading is any indication (both were up over 
$1 from their close), INTC and MSFT should hold up well tomorrow 
morning and may possibly embolden investors to take the NASDAQ up 
again.  On that condition, we think this is an entry point if you 
want to get directional.  Read on for each of the QQQ plays.

Short Strangle:

No longer a sideways market, but with time decay still working in 
our favor (notice the 98P/103C is already showing a $0.50 profit 
from the passage of time since Friday's close), this may be a good 
opportunity to buy back the short call position and turn your 
strangle into a naked put position (if $99 can hold), or roll out 
of the position altogether.  Thanks to support at this level and 
what appear to be decent numbers from INTC and MSFT, we are looking 
a bounce from here.  Our opinion is that it's time to be 
directional during this earnings season.  You can still open new 
strangle positions for nice profits if you are comfortable legging 
in (selling the put, waiting for a move to resistance, say $102, 
then selling the call).  The risk is that QQQ continues to break 
over $102 and march further up the chart, which should cause you 
cover when you reach a threshold of pain.  Technically, that might 
occur on a move over $103, a level of former support, and 
confirmation of the breakout over $102.  If it does that, you can 
also consider buying back the short put and selling a strike price 
closer to ATM (for instance, buying back the $95 strike put and 
selling the $100 strike put) to collect a higher time value 
premium.  As you can see, there are a gillion ways to play the 
strangle, so make sure you understand the strategy, especially 
legging and covering techniques before you try it.  Lack of 
diligence can wipe out your account faster than you can say "uh oh, 
what now?"

SELL CALL AUG-103 QVO-HY OI=  88 at $ 3.50
SELL PUT  AUG- 98 QVQ-TT OI=1301 at $ 4.38

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

Covered Call:

After a tidy selloff today following last week's gain, we consider 
this level a buying opportunity for the QQQ so long as $99 support 
(technically $98.53, the 5-dma) holds.  That will be largely 
determined by how well MSFT and INTC hold up tomorrow following 
tonight's earnings releases.  After hours action looked good for 
both.  If $99 fails to hold, look next for support at $97.50.  You 
can enter the order as a buy/write, which will simultaneously buy 
QQQ and sell your favorite strike price call.  Or if you are 
willing to assume a bit more risk and understand how to do it, 
legging in might produce a higher profit if the price of QQQ 
continues to move north.  However, be sure to use stops to take you 
out if the value of the position falls to your DIScomfort level of 
pain under your net debit (ND) price.

QQQ = $99.06

SELL CALL AUG- 98 QVQ-HT OI=  885 at $ 6.00, ND = 93.06 or less
SELL CALL AUG-100 QVO-HV OI= 5174 at $ 5.00, ND = 94.06 or less
SELL CALL AUG-103 QVO-HX OI=   88 at $ 3.50, ND = 95.56 or less

Calendar Spread:

We think today's pullback gave us a great opportunity to buy the 
underlying long-term option for our spread.  Like the covered call 
or naked strangle, legging into the short near-term call to 
complete the position could yield the greatest profit.  The point 
here is to buy the underlying position "low" and wait for a price 
move up to sell the short position "high".  This is a lot like a 
covered call except you don't want to get called out of your long-
term option and have to give up all the time value you bought.  At 
some point you'll need to buy the short position back if the QQQ 
exceeds the short strike price at or near expiration, or if the 
value of the short call gets far enough into the money such that a 
big chunk of time value turns to intrinsic value.  At that point 
there isn't much time value decay left.

BUY  CALL DEC- 94 QVQ-LP OI= 1589 at $15.75

SELL CALL AUG- 98 QVQ-HT OI=  885 at $ 6.00, ND =  9.75 or less
SELL CALL AUG-100 QVO-HV OI= 5174 at $ 5.00, ND = 10.75 or less
SELL CALL AUG-103 QVO-HX OI=   88 at $ 3.50, ND = 12.25 or less

Long Calls

We consider the pullback to $99 to be a buying opportunity to go 
long on calls.  The major trend is still intact as long as earnings 
remain strong.  INTC and MSFT didn't disappoint, which could act as 
a strong support anchor.  That is unless investors change their 
mind tomorrow.  Consider your entry here or at any dip to previous 
support at $97.50.  Under $97.50 and it will be time to walk away.  
We normally wouldn't suggest buying during amateur hour, but any 
weakness during the first half-hour might present an opportunity 
for the aggressive and greedy.  Otherwise, it's usually best to 
wait.

At Support:
BUY CALL AUG- 98 QVQ-HT OI=  885 at $6.38 SL=4.50
BUY CALL AUG-100 QVO-HV OI= 4903 at $5.38 SL=3.25

Naked Puts

We're thinking that while this is a buying opportunity for calls, 
it may also be a selling opportunity for puts.  $95 is excellent 
support as is $97.50 during this earnings season rally.  If you are 
patient and have to stomach to endure gyrations (a.k.a. risk 
tolerant) while you allow time value to shake out of AUG strikes, 
you might even consider selling AUG-100 strikes (ITM).

SELL PUT JUL- 95 QVQ-SQ OI=13844 at $0.50 SL=1.00
SELL PUT JUL- 97 QVQ-SS OI= 1803 at $0.81 SL=1.50
SELL PUT AUG-100 QVO-TV OI= 2046 at $5.38 SL=7.50

Average Daily Volume = 24.77 mln


-----

BBH - Biotech $189.00 +1.13 (+5.19 this week) The doji we referred 
to in Sunday's write-up at $184 did, in fact, prove to be a 
reversal star pattern and a buying opportunity once BBH cleared 
$187.  Sentiment is still strong in the biotechs.  AMGN, IMNX, and 
DNA carried the load today.  Technically, it has recovered back 
over its 5-dma of $187.56, but fell short of its 10-dma of $190.75.  
No matter, today's gain in this issue in the face of market 
weakness was a good showing in our book.  Nonetheless, despite our 
thinking that BBH should move up, DNA reported earnings yesterday 
and has yet to sell off.  IMNX reports tomorrow and could suffer a 
post earnings depression.  Technically, it looks great, but we'd be 
a bit cautious going forward if you intend to play this sector.  
Any one of the component companies could deliver bad earnings news, 
which might yet bring some depression to the whole group.   Good 
support is at $184; resistance at $195.  

BUY CALL AUG-185 BBH-HQ OI= 62 at $16.13 SL=11.75
BUY CALL AUG-190 BBH-HR OI= 72 at $13.75 SL=10.25
BUY CALL AUG-195 BBH-HS OI= 34 at $11.50 SL= 8.50

Average Daily Volume = 605 K


-----

HHH - Internet $118.31 -1.88 (-1.44 this week) Yes, this could be 
an entry point.  We hit our target shooting level of $116.  
However, you have to be confident that the Internet sector is 
looking up and that today's action was just profit taking from the 
previous week's gain.  As evidence, Yahoo! does not appear to be 
suffering from any post earnings depression.  Technically, we like 
this as an entry point because the loss today was minimal and HHH 
was met with support at $116 from which it bounced up.  That's a 
level of previous support and, not coincidentally, the 5-dma 
(actually $115.81).  If it can hold here (we think it will with the 
30 and 50-dma now in the $114.25 range level) and the if NASDAQ 
resumes its upward earnings season trend, HHH could make advances 
back up to the next resistance at $120, then $122.  If the market 
continues to sell off in the wake of INTC and MSFT earnings 
(unlikely as of this writing following decent earnings), better to 
step aside.

BUY CALL AUG-110 HHH-HB OI= 58 at $12.88 SL=9.75
BUY CALL AUG-115 HHH-HC OI= 46 at $ 9.25 SL=6.50
BUY CALL AUG-120 HHH-HD OI=178 at $ 7.38 SL=6.25
BUY CALL AUG-125 HHH-HE OI=119 at $ 5.25 SL=3.25

Average Daily Volume = 928 K


-----

BDH - Broadband $99.50 -3.63 (-0.56 this week) Not a single shred 
of green showed up in any of the components comprising this issue 
today.  However, yesterday BDH went temporarily to $104.19 before 
pulling back into the close.  Despite how ugly this looks in a 
candlestick formation, it managed a small bounce at the close 
today, which, even at that point was nicely above its 5-dma of 
$98.56.  We are at a support level that proved to be previous 
resistance and we think this is an entry level.  Though LU, one of 
the largest components of BDH reports earnings tomorrow (potential 
selloff there given the $8 move in the last 5 days), any hiccup 
will likely be a LU challenge, not an indictment of the rest of the 
sector.  Remember JDSU is expected to report next week "SALES AND 
INCOME TO BE HIGHER THAN INVESTMENT COMMUNITY ESTIMATES" according 
to their CFO [emphasis ours].  That should go a long way toward 
maintaining sector momentum.  If there is one sector to be a bit 
more aggressive in, this is it.  A word of caution though, should 
BDH violate the 5-dma, the next level of support (10-dma) is way 
down at $94.13, and LU could temporarily lead a charge there.  

BUY CALL AUG- 95 BDH-HS OI= 41 at $ 8.25 SL=6.00
BUY CALL AUG-100 BDH-HT OI= 24 at $ 5.38 SL=3.25
BUY CALL AUG-105 BDH-HA OI= 40 at $ 3.13 SL=1.50

SELL PUT AUG- 95 BDH-TS OI= 29 at $ 3.75 SL=5.75

Average Daily Volume = 153 K


-----

IAH - Internet Architecture $96.94 -2.38 (-1.00 this week) Have we 
mentioned yet that this could be an entry point?  Just like BDH, 
after blasting off yesterday, today's profit taking pullback to the 
5-dma of $96.75, which also happens to be right at previous 
historical support looks like an entry to us.  Of course, we'll 
want to watch it tomorrow to make sure, but few of the companies in 
this issue have yet to report earnings, including SUNW, who reports 
on Friday.  That should keep the sector moving.  Dips to $94 are 
buyable, but we think this level makes a good entry as long as 
NASDAQ holds up.  As a contrarian indicator, 18 of the 20 
components in this issue were in the red today.  If the market is 
doing well, probability tells us that all 20 won't likely stay red 
for long and should move back into the green, thus taking up the 
index.  Feel free to target shoot or get in now, but watch out for 
more profit taking.

BUY CALL AUG- 95 IAH-HS OI=15 at $4.75 SL=3.00
BUY CALL AUG-100 IAH-HT OI=16 at $2.63 SL=1.25
BUY CALL AUG-105 IAH-HA OI=36 at $0.81 SL=0.00

Average Daily Volume = 153 K


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

PPH
IIH
BHH
SMH
TTH
RKH
UTH



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

Index      Last     Mon     Tue    Week
Dow    10739.92   -8.48  -64.35  -72.83
Nasdaq  4177.17   28.49  -97.50  -69.01
$OEX     807.19    2.23  -10.56   -8.33
$SPX    1493.74    0.52  -16.75  -16.23
$RUT     536.28    2.55   -8.90   -6.35
$TRAN   2899.37  -18.77   -0.90  -19.67
$VIX      22.55   -0.55    0.49   -0.06

Calls

HGSI     161.81    6.13    2.44    8.56  Bucking the overall trend
SDLI     377.75   24.50  -16.25    8.25  Dropped, Thursday earnings
VRTX     122.63    5.31    2.31    7.63  New, split set for 8/23
SCMR     142.13   11.88   -7.94    3.94  Watch for sector sentiment
PRSF      70.81    1.13   -0.69    0.44  Upward channel intact
NT        78.06    0.75   -2.13   -1.38  Second chance at entry
CREE     147.13    1.66   -3.72   -2.06  Semis under nervousness
MRVC      70.00    2.19   -4.81   -2.63  Slid with broader market
BRCD     202.88    3.75   -6.81   -3.06  Did you grab that entry?
AMSC      54.47    1.44   -5.22   -3.78  Looking for a bounce
CFLO      79.19    1.00   -4.81   -3.81  Light volume selling
GSPN     139.13   -0.25   -6.63   -6.88  In sympathy with NASDAQ
KANA      62.81   -2.25   -5.38   -7.63  B2B euphoria faded alittle
TIBX     116.56   -2.00   -8.44  -10.44  A new week, more contracts
MUSE     167.44    2.38  -19.44  -17.06  Dropped, earnings tomorrow

Puts

AETH     165.06   -2.94  -13.38  -16.31  New, like a rolling stone
GTW       63.19   -1.31   -1.88   -3.19  New, watch the box makers
CHV       81.44   -1.06   -1.22   -2.28  New, a leak in the gas tank
IP        35.31    0.44   -0.72   -0.28  Following the script
YHOO     129.94    3.63   -1.69    1.94  Dropped, climbed over $130
LLY      100.50    4.00    2.03    6.03  Dropped, earnings Thursday
MYGN     164.88   13.13    5.88   19.00  Dropped, gapped up & away



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



CALLS:
*****

SDLI $377.75 -16.25 (+8.25)  That surely was a nice quick play
that worked exactly as planned.  The kind that you don't see all
that much.  Picked at $318 after the JDSU merger announcement, 
we were banking on a JDSU recovery from oversold conditions.  
What we got in SDLI was a $60 gain in one week.  We are dropping 
this steamroller call play due to SDLI earnings due out on Thurday
after the bell.  Therefore, we recommend exiting this play prior
to Thursday's close.  With two days left until then, keep tight
stops to protect your profits.  We look forward to having this 
play back on our play list in the future.

YHOO $129.94 -1.69 (+1.94)  The decision was made early on in 
Monday's session.  YHOO broke out to the upside of $130 and we 
called on our stops to exit the play.  The market momentum 
certainly aided YHOO's move out of its tight range ($120-$130), 
however, the penetration through the formidable resistance left 
no doubt in our minds that the play was over.  And sure enough, 
YHOO's powerful momentum sustained the higher price level today 
despite the profit taking on the NASDAQ.  We'll keep a close 
watch on YHOO for future trading opportunities.

MUSE $167.44 -19.44 (-17.06) Running into resistance at $190
again yesterday, MUSE succumbed to some serious profit taking
this morning.  Investor nervousness increased in the wake of
slightly stronger than expected CPI numbers and the broader
markets pulled back sharply right from the open.  The magnitude
of the correction in MUSE is a bit concerting as it gave back
all of its gains over the past week, and is now sitting right
on major support at $167.  Earnings will be released tomorrow
after the close and it looks like the usual post-earnings
selloff may have gotten an early start today. Open positions
should have been stopped out on today’s decline, and with the
looming release of earnings, it is time to drop MUSE and move
on to other plays.



PUTS:
*****

MYGN $164.88 (+19.00) The broad Biotech sector bounce-back
shortened the life of our young play.  The $3 gap higher Monday
morning and subsequent surge back above the 10-dma should have
prevented entry into MYGN.  The stock's rally was prompted by the
renewed interest in the Biotech sector, with emphasis in the
genomic related issues.  The bullish debut of two biotech IPOs
added to the group's momentum Tuesday.  Along with the overall
bullishness in its sector, MYGN said Tuesday that the company was
seeking shareholder approval to increase authorized shares which
generally precludes a split.  Needless to say, MYGN's return of
momentum has prompted us to split.

LLY $100.50 (+6.00) The Amex Pharmaceutical Index ($DRG)
rebounded early this week which lifted LLY from its gap.  SG
Cowen helped to spur the rally in the Drug sector Monday by
reiterating its Buy ratings on several stocks including LLY.
ING Barings did its part Tuesday by initiating coverage on
several Drug stocks including LLY with a Hold rating.  Along with
the analyst noise, the FDA said that it may reject approval for
PFE's schizophrenia drug known as Zeldox, which would compete
directly with LLY's Zyprexa.  The news added to LLY's momentum
and boosted the stock back above $100.  With earnings a few days
away, and the shift back into the Drug sector, it's a good time
to leave LLY.



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

KANA $62.81 -5.38 (-7.63)  The B2B euphoria we saw at the end of 
last week faded a bit on Monday.  In today's session, intraday 
support at $68 didn't hold and KANA trended lower to firmer 
support near $60-$61. The downdraft is likely a result of the 
higher-than-expected CPI numbers and typical profit taking. 
Nevertheless, the decline violated the 10-dma technical line 
($65.01), which wasn't encouraging.  As far as trading this 
play, wait for KANA to resume an upward climb and look for the 
price level to at least hold above the 5-dma ($67.74).  Ideally, 
KANA should demonstrate high volume moves as it quickly 
approaches earnings slated for Wednesday, July 26th after the 
market.  Kana Communications announced it's entering a global 
partnership with eLoyalty (ELOY), the industry's first pure-play 
eCRM services company.  Under the agreement, they will integrate 
technology and business skills to provide a comprehensive 
solution that enables clients to build lifetime relationships 
with their customers.

GSPN $139.13 -6.63 (-6.87)  Giveback.  After a stellar run last 
week, GSPN experienced around of profit-taking today, shedding a 
little over 4.5% in sympathy with a weak NASDAQ.  The move down, 
however, did cause to stock to close below the $140 mark, which 
had held up as a support for the past couple of days, though it
did so on anemic volume.  This level also happens to be the 
5-dma, which had held up as support throughout last week's rally.
Breaks from the 5-dma for GSPN have found the stock bouncing off 
the 10-dma, currently at $127.50.  This also happens to be a 
strong horizontal support level for the stock.  Those looking to 
enter will find an ideal entry on a bounce off that level.  
Breaking that support level could find the next support level at 
$120.  Overhead there is strong resistance at $150.  Prior to 
today's break the stock had been trading nicely in a 10 point 
range from $140 to $150 of which aggressive traders were able to 
take advantage.  Today's late-day break of that trading range to 
the downside, albeit on low volume, should be noted with caution.
Conservative traders looking for an entry will want GSPN to clear
$140 again with conviction before entering.  Note that while GSPN
does display high relative strength, it does move closely with
the NASDAQ so make sure the market is in your favor before
entering new positions.

PRSF $70.81 +0.69 (+0.43)  Channeling.  It's not just for psychics 
in velvet rooms wearing funny hats, it's also for stocks in 
trends.  True to form, despite the low-volume, sideways movement 
for PRSF today, it's upward channel remains strongly intact.  With 
the bottom of the channel currently at $67.50 which also happens 
to be a strong horizontal support level, PRSF is continuing its 
steady ascent.  Intraday, traders have found bounces off the 5-dma 
to be effective entry points.  The 10-dma, currently just above 
$65, is moving up fast and has also provided support.  Looking 
ahead, there is resistance at $73.50, but $75 is the next 
formidable resistance level.  On the news front, another week, 
another customer.  Yesterday, PRSF announced yet another new 
customer as SaskTel, a leading full-service communications company 
in Saskatchewan, Canada, licensed Portal's Infranet customer 
management and billing software.  With volume drying up and the 
stock holding up Portal looks likely to break out but it could 
test the 10-dma before doing so.  Those who want to be safe will 
wait for a bounce there or a break above $75 on strong volume 
before entering.

AMSC $54.47 -5.22 (-3.78)  Due for a pullback with the rest of
the tech sector, AMSC could be setting up to give us a nice
entry point.  The stock continued its run yesterday, hitting a
new high at $61.88 before giving some of it back towards the
close.  With the stronger-than-expected CPI report this morning,
the broader markets sold off, and dragged AMSC lower all day.
The profit taking came on volume 20% above the daily average and
the stock declined all the way to the closing bell, closing
right at the low of the day.  Today’s decline has dropped our
play close to support at $54, backed up by the 10-dma ($53.38).
The 10-dma has provided reliable support over the course of the
past three weeks, and we would like to see a bounce at this
level to indicate the run is still intact.  Further weakness
could produce a drop to stronger support between $50-52, and a
bounce at this level would make for a very attractive entry
point.  Don’t jump in blindly trying to catch a falling knife
though.  We will need to see volume confirming the bounce as
well as better health in the technology markets before
initiating new positions.

BRCD $202.88 -6.81 (-3.06) Did you grab that entry point this
morning?  BRCD spent all day yesterday extending its gains from
last Friday, and actually staked out a new all-time high of
$211.25.  The stock was due for some profit taking and the
strong CPI numbers this morning were the trigger event.  The
broad markets headed lower shortly after the open and never
really recovered.  Likewise, BRCD dropped early in the day, but
gave us a nice solid bounce at $199 before creeping higher for
the balance of the trading session.  Volume was rather light
today, coming in at only about half the ADV.  This lends support
to the theory that today’s drop is just normal profit taking.
Renewed bounces near the $200 support level look buyable, but
we would like to see strong volume confirm the move before
adding new positions.  Earnings in the technology sector are
continuing to come in strong, so watch for market strength to
confirm any move higher from here.  BRCD still has three weeks
until its earnings announcement on August 16th, and if the
markets can stay healthy, our play could still have a
substantial run in store.

MRVC $70.00 -4.81 (-2.63) Still unable to break out to the
upside, MRVC suffered from the negative market sentiment today.
Triggered by the stronger-than-expected CPI numbers this
morning, the broad markets headed lower right from the open and
never recovered.  Although the stock managed to creep higher
yesterday and trade briefly above $77, MRVC investors felt the
pain as the stock declined into the close and continued its
losses today.  The selling accelerated in the final hour,
dropping our play back to the $68-70 support level, and the
session ended with the stock trading very near the low of the
day.  Volume was slightly below the daily average, so the
decline could be just normal profit taking.  Our concern is that
the stock is having a hard time moving higher and hanging on to
its gains.  A bounce from current levels is buyable, but confirm
that volume is picking up before adding new positions.  Earnings
are just around the corner on July 27th, and if we are going to
get a run in our play, it will have to start soon.

NT $78.06 -2.13 (+0.31) If you have been kicking yourself over
missing the entry point on NT back when it was bouncing at $68
and have been waiting for another pullback, this could be your
second chance.  The broad markets fell back today on the
stronger-than-expected CPI numbers, which were really just an
excuse to take profits.  Not to be left out of the party, NT
investors joined in the selling, dropping the stock from 
yesterday’s $80 level down to mild support near $78.  Stronger 
support exists near $76, but we may not see that level if the 
markets can recover tomorrow.  NT has earnings coming up next 
Tuesday after the close, and barring any negative surprises in 
the market, NT may still have one more surge in store prior to
its announcement.  The increasing volume on the bounce in the
last hour of today’s trading makes it look like NT is preparing
to recover from current levels.  Of course, it doesn’t hurt that
the company continues to secure lucrative networking contracts.
Today, the company announced an extension of its contract with
Williams Communications, increasing the value of the contract
to $1.5 bln.  Consider new entries as buying volume confirms
today’s late-day bounce, and then ride this consistent networker
higher.
 
CFLO $79.19 -4.81 (-3.81) CFLO extended its gains Monday on the
back of the broad rally in the Tech sector.  The profit takers
finally returned from their summer vacation Tuesday and sold
CFLO lower.  Worth noting, the stock fell on incredibly light
volume, 180K vs ADV of 524K.  CFLO fell below its support level
at $80 in early trading and traced an intra-day low of $77.  The
stock managed to regain some of its lost ground and stabilize
near the $79 level.  A move back above the $80 level might
provide an entry point for the more aggressive traders.  However,
shortly thereafter, CFLO might again face resistance at its 5-dma
which is currently at $81.  A more conservative trader might wait
for CFLO to eclipse its 5-day before entering the play.  A
positive earnings report from the likes of FDRY may bring the
momentum back and propel CFLO past $85 which may provide a good
entry, but make sure to confirm a return of buyers with volume.
If the profit takers continue their ruthless ways, CFLO has help
below at $77 and major support at $75.

SCMR $142.13 -7.94 (+3.94) The fiber optic group started the week
with a bang on the heels of the blowout earnings report from
GLW Monday morning.  SCMR launched from the $140 level early
Monday and steadily rose to meet resistance at $150.  However,
what the market gives you one day it can take back the next
just as swiftly.  A questionable CPI report combined with heavy
profit taking plagued SCMR all day long Tuesday.  The stock
battled with the bears near support at $140 and finally bounced
from that level near the close of trading.  The late-day rally
off support may provide an entry early Wednesday morning if the
bulls return to their old favorites in the fiber optic group.
If the buyers show up, wait for SCMR to move past the $143 level
before considering entry.  A more conservative entry point might
be found if SCMR can muster enough steam to clear the $145 level.
Below $140, SCMR has support at $135 and again at the $130 level,
near its 10-dma.  If you're looking for an entry after a bounce
off support, make sure to confirm sector direction.

HGSI $161.81 +2.44 (+9.19) The Biotech sector reasserted its
leadership role early this week with genomic stocks leading the
way.  Wall Street's enthusiasm for growing profits fueled the
group's rally after several leading firms guided analysts to
better-than-expected profits.  HGSI bolted out of the gates
Monday morning on the heels of the positive profit news and sped
past resistance at its 10-dma.  Despite the carnage in the
broader market Tuesday, HGSI was able to clear resistance at
$160 and tack on a modest gain.  The stock stumbled in the final
half-hour of trading Tuesday as the broader market weakened.
However, HGSI bounced off the $160 level and rallied into the
close of trading.  The bullish bounce warrants consideration for
entry at current levels if HGSI's rally extends into Wednesday.
The stock is forming a new ascending channel and the bounce off
support at $160 confirms a higher low.  A more conservative
entry might be found on an extended move above congestion at
$165, or a rally above the channel high at $167.50.

TIBX $116.56 -8.44 (+10.44) The beginning of a new week means
only one thing for TIBX, more contracts.  The University of
Maryland said Monday that it had selected TIBX's software to help
companies streamline their supply chain management.  And, TIBX
announced that it had formed a strategic alliance with Contivo.
Yet, despite the new contracts, TIBX lost ground early this week.
The culprits were none other than the evil profit takers.  TIBX's
decline has come on relatively weak volume and may have provided
a good entry into our momentum play.  TIBX found support Tuesday
near its 10-dma which has provided relentless support during the
stock's two-month rally.  In fact, every time TIBX has fallen to
the bottom of its channel, the stock has subsequently rebounded
to trace higher highs.  But, before pulling the trigger early
Wednesday, you might want to watch how traders react to the
earnings report from B-2-B peer CMRC.  If the stampede of bulls
comes in to lift TIBX, consider entry at current levels.  A more
conservative trader might wait for the return of momentum and
look for an entry if TIBX can climb back above $120.

CREE $147.13 -3.69 (+2.06) The action in the Semi sector early
this week reflected investors' nervousness ahead of Intel's
earnings report, noting the extremely light volume in CREE.  Much
to the bear's chagrin, INTC edged past estimates.  With the
positive report from the king semi, traders may now be ready to
take the other leading chip stocks higher for the last leg of an
earnings run.  CREE is scheduled to report its second quarter
results in the latter part of next week and may be ready to
rally.  The stock has been building a base near the $150 level
so far this week.  CREE dipped below that level in the final hour
of trading Tuesday but didn't suffer any major technical damage.
Watch the overall action in the Semi sector early Wednesday
morning.  If CREE rallies, confirm the return of bulls with above
average volume.  Consider entering the play if the stock works
its way through congestion and back above the $150 level.  A more
conservative entry might be found on a rally above $152.50.


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You may also fax the information to: 303-797-1333


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

The Option Investor Newsletter                  Tuesday 07-18-2000
Copyright 2000, All rights reserved.                        2 of 2
Redistribution in any form strictly prohibited.

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

KANA $62.81 -5.38 (-7.63)  The B2B euphoria we saw at the end of 
last week faded a bit on Monday.  In today's session, intraday 
support at $68 didn't hold and KANA trended lower to firmer 
support near $60-$61. The downdraft is likely a result of the 
higher-than-expected CPI numbers and typical profit taking. 
Nevertheless, the decline violated the 10-dma technical line 
($65.01), which wasn't encouraging.  As far as trading this 
play, wait for KANA to resume an upward climb and look for the 
price level to at least hold above the 5-dma ($67.74).  Ideally, 
KANA should demonstrate high volume moves as it quickly 
approaches earnings slated for Wednesday, July 26th after the 
market.  Kana Communications announced it's entering a global 
partnership with eLoyalty (ELOY), the industry's first pure-play 
eCRM services company.  Under the agreement, they will integrate 
technology and business skills to provide a comprehensive 
solution that enables clients to build lifetime relationships 
with their customers.

GSPN $139.13 -6.63 (-6.87)  Giveback.  After a stellar run last 
week, GSPN experienced around of profit-taking today, shedding a 
little over 4.5% in sympathy with a weak NASDAQ.  The move down, 
however, did cause to stock to close below the $140 mark, which 
had held up as a support for the past couple of days, though it
did so on anemic volume.  This level also happens to be the 
5-dma, which had held up as support throughout last week's rally.
Breaks from the 5-dma for GSPN have found the stock bouncing off 
the 10-dma, currently at $127.50.  This also happens to be a 
strong horizontal support level for the stock.  Those looking to 
enter will find an ideal entry on a bounce off that level.  
Breaking that support level could find the next support level at 
$120.  Overhead there is strong resistance at $150.  Prior to 
today's break the stock had been trading nicely in a 10 point 
range from $140 to $150 of which aggressive traders were able to 
take advantage.  Today's late-day break of that trading range to 
the downside, albeit on low volume, should be noted with caution.
Conservative traders looking for an entry will want GSPN to clear
$140 again with conviction before entering.  Note that while GSPN
does display high relative strength, it does move closely with
the NASDAQ so make sure the market is in your favor before
entering new positions.

PRSF $70.81 +0.69 (+0.43)  Channeling.  It's not just for psychics 
in velvet rooms wearing funny hats, it's also for stocks in 
trends.  True to form, despite the low-volume, sideways movement 
for PRSF today, it's upward channel remains strongly intact.  With 
the bottom of the channel currently at $67.50 which also happens 
to be a strong horizontal support level, PRSF is continuing its 
steady ascent.  Intraday, traders have found bounces off the 5-dma 
to be effective entry points.  The 10-dma, currently just above 
$65, is moving up fast and has also provided support.  Looking 
ahead, there is resistance at $73.50, but $75 is the next 
formidable resistance level.  On the news front, another week, 
another customer.  Yesterday, PRSF announced yet another new 
customer as SaskTel, a leading full-service communications company 
in Saskatchewan, Canada, licensed Portal's Infranet customer 
management and billing software.  With volume drying up and the 
stock holding up Portal looks likely to break out but it could 
test the 10-dma before doing so.  Those who want to be safe will 
wait for a bounce there or a break above $75 on strong volume 
before entering.

AMSC $54.47 -5.22 (-3.78)  Due for a pullback with the rest of
the tech sector, AMSC could be setting up to give us a nice
entry point.  The stock continued its run yesterday, hitting a
new high at $61.88 before giving some of it back towards the
close.  With the stronger-than-expected CPI report this morning,
the broader markets sold off, and dragged AMSC lower all day.
The profit taking came on volume 20% above the daily average and
the stock declined all the way to the closing bell, closing
right at the low of the day.  Today’s decline has dropped our
play close to support at $54, backed up by the 10-dma ($53.38).
The 10-dma has provided reliable support over the course of the
past three weeks, and we would like to see a bounce at this
level to indicate the run is still intact.  Further weakness
could produce a drop to stronger support between $50-52, and a
bounce at this level would make for a very attractive entry
point.  Don’t jump in blindly trying to catch a falling knife
though.  We will need to see volume confirming the bounce as
well as better health in the technology markets before
initiating new positions.

BRCD $202.88 -6.81 (-3.06) Did you grab that entry point this
morning?  BRCD spent all day yesterday extending its gains from
last Friday, and actually staked out a new all-time high of
$211.25.  The stock was due for some profit taking and the
strong CPI numbers this morning were the trigger event.  The
broad markets headed lower shortly after the open and never
really recovered.  Likewise, BRCD dropped early in the day, but
gave us a nice solid bounce at $199 before creeping higher for
the balance of the trading session.  Volume was rather light
today, coming in at only about half the ADV.  This lends support
to the theory that today’s drop is just normal profit taking.
Renewed bounces near the $200 support level look buyable, but
we would like to see strong volume confirm the move before
adding new positions.  Earnings in the technology sector are
continuing to come in strong, so watch for market strength to
confirm any move higher from here.  BRCD still has three weeks
until its earnings announcement on August 16th, and if the
markets can stay healthy, our play could still have a
substantial run in store.

MRVC $70.00 -4.81 (-2.63) Still unable to break out to the
upside, MRVC suffered from the negative market sentiment today.
Triggered by the stronger-than-expected CPI numbers this
morning, the broad markets headed lower right from the open and
never recovered.  Although the stock managed to creep higher
yesterday and trade briefly above $77, MRVC investors felt the
pain as the stock declined into the close and continued its
losses today.  The selling accelerated in the final hour,
dropping our play back to the $68-70 support level, and the
session ended with the stock trading very near the low of the
day.  Volume was slightly below the daily average, so the
decline could be just normal profit taking.  Our concern is that
the stock is having a hard time moving higher and hanging on to
its gains.  A bounce from current levels is buyable, but confirm
that volume is picking up before adding new positions.  Earnings
are just around the corner on July 27th, and if we are going to
get a run in our play, it will have to start soon.

NT $78.06 -2.13 (+0.31) If you have been kicking yourself over
missing the entry point on NT back when it was bouncing at $68
and have been waiting for another pullback, this could be your
second chance.  The broad markets fell back today on the
stronger-than-expected CPI numbers, which were really just an
excuse to take profits.  Not to be left out of the party, NT
investors joined in the selling, dropping the stock from 
yesterday’s $80 level down to mild support near $78.  Stronger 
support exists near $76, but we may not see that level if the 
markets can recover tomorrow.  NT has earnings coming up next 
Tuesday after the close, and barring any negative surprises in 
the market, NT may still have one more surge in store prior to
its announcement.  The increasing volume on the bounce in the
last hour of today’s trading makes it look like NT is preparing
to recover from current levels.  Of course, it doesn’t hurt that
the company continues to secure lucrative networking contracts.
Today, the company announced an extension of its contract with
Williams Communications, increasing the value of the contract
to $1.5 bln.  Consider new entries as buying volume confirms
today’s late-day bounce, and then ride this consistent networker
higher.
 
CFLO $79.19 -4.81 (-3.81) CFLO extended its gains Monday on the
back of the broad rally in the Tech sector.  The profit takers
finally returned from their summer vacation Tuesday and sold
CFLO lower.  Worth noting, the stock fell on incredibly light
volume, 180K vs ADV of 524K.  CFLO fell below its support level
at $80 in early trading and traced an intra-day low of $77.  The
stock managed to regain some of its lost ground and stabilize
near the $79 level.  A move back above the $80 level might
provide an entry point for the more aggressive traders.  However,
shortly thereafter, CFLO might again face resistance at its 5-dma
which is currently at $81.  A more conservative trader might wait
for CFLO to eclipse its 5-day before entering the play.  A
positive earnings report from the likes of FDRY may bring the
momentum back and propel CFLO past $85 which may provide a good
entry, but make sure to confirm a return of buyers with volume.
If the profit takers continue their ruthless ways, CFLO has help
below at $77 and major support at $75.

SCMR $142.13 -7.94 (+3.94) The fiber optic group started the week
with a bang on the heels of the blowout earnings report from
GLW Monday morning.  SCMR launched from the $140 level early
Monday and steadily rose to meet resistance at $150.  However,
what the market gives you one day it can take back the next
just as swiftly.  A questionable CPI report combined with heavy
profit taking plagued SCMR all day long Tuesday.  The stock
battled with the bears near support at $140 and finally bounced
from that level near the close of trading.  The late-day rally
off support may provide an entry early Wednesday morning if the
bulls return to their old favorites in the fiber optic group.
If the buyers show up, wait for SCMR to move past the $143 level
before considering entry.  A more conservative entry point might
be found if SCMR can muster enough steam to clear the $145 level.
Below $140, SCMR has support at $135 and again at the $130 level,
near its 10-dma.  If you're looking for an entry after a bounce
off support, make sure to confirm sector direction.

HGSI $161.81 +2.44 (+9.19) The Biotech sector reasserted its
leadership role early this week with genomic stocks leading the
way.  Wall Street's enthusiasm for growing profits fueled the
group's rally after several leading firms guided analysts to
better-than-expected profits.  HGSI bolted out of the gates
Monday morning on the heels of the positive profit news and sped
past resistance at its 10-dma.  Despite the carnage in the
broader market Tuesday, HGSI was able to clear resistance at
$160 and tack on a modest gain.  The stock stumbled in the final
half-hour of trading Tuesday as the broader market weakened.
However, HGSI bounced off the $160 level and rallied into the
close of trading.  The bullish bounce warrants consideration for
entry at current levels if HGSI's rally extends into Wednesday.
The stock is forming a new ascending channel and the bounce off
support at $160 confirms a higher low.  A more conservative
entry might be found on an extended move above congestion at
$165, or a rally above the channel high at $167.50.

TIBX $116.56 -8.44 (+10.44) The beginning of a new week means
only one thing for TIBX, more contracts.  The University of
Maryland said Monday that it had selected TIBX's software to help
companies streamline their supply chain management.  And, TIBX
announced that it had formed a strategic alliance with Contivo.
Yet, despite the new contracts, TIBX lost ground early this week.
The culprits were none other than the evil profit takers.  TIBX's
decline has come on relatively weak volume and may have provided
a good entry into our momentum play.  TIBX found support Tuesday
near its 10-dma which has provided relentless support during the
stock's two-month rally.  In fact, every time TIBX has fallen to
the bottom of its channel, the stock has subsequently rebounded
to trace higher highs.  But, before pulling the trigger early
Wednesday, you might want to watch how traders react to the
earnings report from B-2-B peer CMRC.  If the stampede of bulls
comes in to lift TIBX, consider entry at current levels.  A more
conservative trader might wait for the return of momentum and
look for an entry if TIBX can climb back above $120.

CREE $147.13 -3.69 (+2.06) The action in the Semi sector early
this week reflected investors' nervousness ahead of Intel's
earnings report, noting the extremely light volume in CREE.  Much
to the bear's chagrin, INTC edged past estimates.  With the
positive report from the king semi, traders may now be ready to
take the other leading chip stocks higher for the last leg of an
earnings run.  CREE is scheduled to report its second quarter
results in the latter part of next week and may be ready to
rally.  The stock has been building a base near the $150 level
so far this week.  CREE dipped below that level in the final hour
of trading Tuesday but didn't suffer any major technical damage.
Watch the overall action in the Semi sector early Wednesday
morning.  If CREE rallies, confirm the return of bulls with above
average volume.  Consider entering the play if the stock works
its way through congestion and back above the $150 level.  A more
conservative entry might be found on a rally above $152.50.


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

IP $35.31 -0.72 (-0.50) Almost as though it is deliberately
following our script, our play on IP is off to a good start.
As expected, the 100-dma (currently at $36.31) is pressuring
shares of the stock even lower.  Although the company posted
solid earnings last week, the stock is suffering from the
typical "sell the news" syndrome and there is now nothing to
lift the stock.  The selling in the broad markets, which was
triggered by the stronger-than-expected CPI numbers this
morning, added to the downward bias today as IP gave up just
under $1 on volume of about 60% of the ADV.  We don’t expect
to see a rush for the exits on our play, just a continuing
deterioration as investors lose their appetite for cyclical
stocks.  As the earnings season progresses, look for the
downward pressure on IP to continue.  Support is seen at $33,
also the site of the 30-dma, and then at the stocks 52-week
low, $29.56.  Look to enter new positions as the price rolls
over at resistance, still sitting at $36-37 and confirmed by
the declining 100-dma.


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

VRTX - Vertex Pharmaceuticals Inc $122.63 +2.31 (+7.63 this week)

Vertex Pharmaceuticals discovers, develops and markets small 
molecule drugs that address unmet medical needs. Vertex has nine 
drug candidates in clinical development to treat viral diseases, 
inflammation, cancer, autoimmune diseases and neurological 
disorders. Vertex has created its pipeline using a proprietary, 
information-intensive approach to drug design that integrates 
multiple technologies - biology, chemistry, biophysics, and 
computer-based modeling - aimed at increasing the speed and 
success rate of drug discovery.  Vertex Pharmaceuticals has 
collaborative agreements with major drug companies like 
Novartis, Eli Lilly, Kissei Pharmaceuticals, and Schering AG.

VRTX has made a nice recovery from the underside of $40 it saw 
during the March/April correction.  The 233% relief rally for 
VRTX has brought the stock to another key technical challenge. 
Can it resume the strong momentum trend and penetrate the 
recent 52-week high at $132.75?  The 2:1 split announcement on 
Thursday provided the catalyst and it appears that VRTX is 
poised to meet such a challenge.  Coming off a firm intraday 
support of $112.31, the share price has trended upward 14.6%, 
peaking at $126.88 today.  While the BoD doesn't have an ex-date 
nailed down, the 2:1 stock dividend is payable on August 23rd.  
In the meantime, we have an earnings release on the immediate 
horizon.  Vertex Pharmaceuticals is set to report next Tuesday, 
July 25th after the closing bell.  Therefore, we're expecting the 
flurry of excitement to propel VRTX upwards in the next few 
sessions.  As far as trading the play, an ideal entry would be 
on dips to the converged 5- and 10-dmas at $120.58 and $120.94, 
respectively.  Strength in trading volume and a positive market 
sentiment would, of course, provide excellent collaboration.

On July 11th, Vertex Pharmaceuticals announced it expects to 
report a profitable 2Q with earnings coming in between $0.40 and 
$0.50 p/s.  This outlook beats the $0.23 projection by First 
Call and should further entice investors ahead of the release on 
July 25th.

BUY CALL AUG-115 VQR-HC OI=10 at $16.38 SL=11.75
BUY CALL AUG-120*VQR-HD OI=54 at $15.25 SL=11.00
BUY CALL AUG-125 VQZ-HE OI=14 at $12.88 SL= 9.75
BUY CALL AUG-130 VQZ-HF OI= 5 at $11.13 SL= 8.25
BUY CALL OCT-130 VQZ-JF OI= 0 at $19.63 SL=15.25  Wait for OI

Picked on July 18th at $122.63     P/E = N/A
Change since picked      +0.00     52-week high=$132.75
Analysts Ratings     4-5-1-0-0     52-week low =$ 22.13
Last earnings 03/00  est=-0.58     actual=-0.62
Next earnings 07-25  est= 0.23     versus=-0.43
Average Daily Volume =   622 K



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

AETH - Aether Systems, Inc. $165.06 (-16.31 last week)

Aether Systems, Inc., is a leading provider of wireless and
mobile data services allowing real-time communications and
transactions across a full range of devices and networks. Using
its engineering expertise, its Aether Intelligent Messaging (AIM)
software platform, its ScoutWare family of products and its
customer service and network operations center, Aether Systems is
a one-stop source for corporations seeking comprehensive,
technology-independent wireless and mobile computing solutions.
Aether's wireless and mobile data services can increase
efficiency and productivity for companies in a wide variety of
industries, including: financial services; transportation
logistics; health care and field sales.

It's been said that a rolling stone gathers no moss.  Maybe that's 
the reason why AETH isn't looking very green right now.  Rolling 
down the hill and losing $13.38 or 7.5% today, the stock closed 
below its 5- and 10-dma, both currently at the $170 level.  This 
is a continuation of what has so far been a weak month for the 
stock.  While enjoying a short respite last week from the heavy 
selling, the stock found resistance at the $185 level last Friday.
Since then the stock has gone back to its downtrending ways, after
unsuccessfully trying to build a base at $175.  While the down 
volume so far has been light, it is increasing.  Today's break 
of the $170 level is an ill omen indeed, especially with the 
close below the 100-dma, currently at the $180 level.  AETH sold
off on strong volume in the early going, attempting to get back 
on its feet midday, only to be sold off even further at the close 
on accelerating volume.  AETH closed at the low of the day.  This
happened despite the good news today of that its European venture 
SILA Communications(which AETH has a 60% stake in) signed a 
worldwide licensing agreement with Schlumberger, a major 
manufacturer and designer of smart-card-based solutions.  Those 
looking for entry points to this play should find bounces off the
5- and 10-dma at the $170 level as a target.  There is overhead
resistance at $175 and $180 as well.  Below that, the stock could
find support at $165, which it did today.  A break through $165
could find the stock at $158 in no time.  There is also light
support at $153, but the next level of strong support is at $148
for a double bottom.  Look for volume to accelerate on the
downside to confirm before entering and as AETH moves closely
with the NASDAQ, make sure market conditions are on your side
before making a move.

BUY PUT AUG-170 HEX-TN OI= 49 at $26.38 SL=20.50
BUY PUT AUG-165*HEX-TM OI= 30 at $23.38 SL=17.50
BUY PUT AUG-160 HEX-TL OI= 44 at $20.63 SL=14.50

Average Daily Volume = 1.38 mln



CHV - Chevron Corp $81.44 -1.22 (-2.31 this week)

Chevron Corporation is among the largest integrated petroleum 
companies in the global market and #3 in the US.  It is involved 
in every aspect of the industry: exploration, production, 
transportation, refining and retail marketing, and chemicals 
manufacturing and sales.  Chevron is active in over 90 countries 
with approximately 33,000 employees worldwide.  They have a 28% 
stake in natural gas marketer Dynegy and a 50% holding in 
Caltex, a global refiner and marketer jointly owned by Texaco.  

Could CHV have a leak in its tank and be heading back to 
February's lows of $70?  Since driving up to a recent high of 
$94.75 this summer, CHV has since gone downhill.  Being that 
Chevron is one of the world’s largest integrated petroleum 
companies, it wasn't too unusual to see the share price begin to 
slip last Wednesday with the rest of the sector.  The higher 
values for crude oil and oil products obviously couldn't hold up 
any of the major oil companies.  Texaco (TX) and Exxon Mobil 
(XOM) also lost ground.  Today's technical fall through the 
first line of support at $85 and the intersecting 5- and 10-dma, 
$83.49 and $83.84 respectively, foretells the potential of a 
profitable put play.  There is some light support at $80 to 
challenge before CHV can push lower towards $70;  however, 
falling oil prices this week should help the downtrend line 
stay intact.  As earnings approach, you'll want to be even more 
vigilant and watch for signs of a breakout - Chevron is expected 
to report around July 26th.  According to ABN Ambro analyst Gene 
Nowak, the so-called integrated oil companies are expected to 
post 2Q earnings double from a year ago.  This is interesting 
when you consider the S&P's index of international oil companies 
has in fact fallen over 5% in the last year.  But make no 
mistake and heed the warning.  Those kind of blow-away numbers 
could ignite a short-term rally and we don’t to get caught in 
the updraft.  In general, some good indications that CHV is 
refueling would be bounces off the support levels on heavy 
volume, positive sentiment, or upward sector direction.  For an 
entry look for downward moves off $82, which served as intraday 
resistance today.

BUY PUT AUG-90 CHV-TR OI=134 at $9.25 SL=6.75
BUY PUT AUG-85*CHV-TQ OI=233 at $5.13 SL=3.25
BUY PUT AUG-80 CHV-TP OI= 63 at $2.19 SL=1.00

Average Daily Volume = 1.46 mln



GTW - Gateway $63.50 -1.56 (-2.88 this week)

Gateway is the #2 direct marketer of PCs in the U.S. behind the
leader Dell.  The company sells products directly to computer
users ordering by phone or Web site, which helps to cut markup
costs.  Gateway makes desktop and portable PCs and network
servers.  The company also sells component add-ons such as CD-ROM
drives and offers services such as Internet access, Web hosting,
and e-commerce solutions.  About half of its products are sold
to consumers.

Don't let those post-earnings sell-offs get you down.  We can buy
puts!  GTW enjoyed a near meteoric rise into its second quarter
earnings announcement last week.  But then, you guessed it, the
stock sold-off.  Unlike the normal post-report decline, GTW's was
fueled by a downgrade and it appears to be accelerating.  Banc of
America Securities analyst Kurt King lowered his rating to a Buy
from a Strong Buy.  King cited valuation concerns noting the
stock's 25% advance ahead of the earnings report, but more
importantly, he added that the box maker's lowered sales growth
forecast also influenced the downgrade.  Further evidence of a
slowdown in sales of computers was confirmed late Tuesday night
when Apple reported revenue figures that fell a little short of
analysts' estimates.  The news from AAPL could have an effect on
our play Wednesday morning depending upon how investors view the
sales shortfall.  Although we are entering into the busy time of
the year for box makers, the prospects of slowing sales in the
near-term could have a bearish impact on GTW.  Another earnings
report which might sway our play is that from Big Blue.  IBM is
scheduled to report earnings Wednesday afternoon which could
reveal more signs of a slowdown.  GTW's technical picture isn't
very pretty after the stock's sharp rise last week.  In fact, the
stock has traced a head-and-shoulders top over the past week and
broke through its right shoulder after Tuesday's losses.  GTW has
a little help just below at $62, but not any major support until
$56.  Feel free to enter at current levels if GTW's slide
continues Wednesday morning.  For our more conservative traders
wait for the stock to fall below $62 before entering the play.
Monitor the level of trading activity and confirm continued
declines with heavy volume.

BUY PUT AUG-65*GTW-TM OI= 234 at $5.00 SL=3.00 
BUY PUT AUG-60 GTW-TL OI= 308 at $2.81 SL=1.50
BUY PUT AUG-55 GTW-TK OI=1048 at $1.38 SL=0.75

Average Daily Volume = 1.49 mln



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

NT - Nortel Networks $78.06 (+0.31 this 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
utilities.

Most Recent Write-Up

If you have been kicking yourself over missing the entry point 
on NT back when it was bouncing at $68 and have been waiting 
for another pullback, this could be your second chance.  The 
broad markets fell back today on the stronger-than-expected 
CPI numbers, which were really just an excuse to take profits.  
Not to be left out of the party, NT investors joined in the 
selling, dropping the stock from yesterday’s $80 level down to 
mild support near $78.  Stronger support exists near $76, but 
we may not see that level if the markets can recover tomorrow.  
NT has earnings coming up next Tuesday after the close, and 
barring any negative surprises in the market, NT may still have 
one more surge in store prior to its announcement.  The increasing 
volume on the bounce in the last hour of today’s trading makes 
it look like NT is preparing to recover from current levels.  
Of course, it doesn’t hurt that the company continues to secure 
lucrative networking contracts.  Today, the company announced 
an extension of its contract with Williams Communications, 
increasing the value of the contract to $1.5 bln.  Consider new 
entries as buying volume confirms today’s late-day bounce, and 
then ride this consistent networker higher.

Comments

Nortel gave us an entry point today when it pulled back with 
the overall tech weakness.  Now we need to see the rebound to 
jump into some new plays.  Also, the networking sector remains 
the hot spot on Wall Street.  The question now is, will the 
market have a typical post-earnings dip with most major tech 
companies reporting today.  If not, NT should be in good shape 
to rally into their earnings report on the 25th of July.

BUY CALL AUG-75*NTV-HO OI=5690 at $6.75 SL=4.75
BUY CALL AUG-80 NTV-HP OI=2882 at $4.00 SL=2.50
BUY CALL AUG-85 NTV-HQ OI=1653 at $2.25 SL=1.25
BUY CALL SEP-75 NTV-IO OI=3813 at $8.25 SL=6.00
BUY CALL SEP-80 NTV-IP OI= 738 at $5.75 SL=3.75  Wait for OI
BUY CALL SEP-85 NTV-IQ OI= 243 at $3.88 SL=2.25

Picked on June 15th at    $67.00     P/E = N/A
Change since picked       +11.06     52-week high=$80.25
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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************************
COMBOS/SPREADS/STRADDLES
************************

Stocks Fall After Disturbing CPI Report...

The market ended lower today amid concerns over new inflation
data.


******************************************************************
- MARKET RECAP -
******************************************************************
Monday, July 17

The markets closed mixed Monday as investors remained concerned
over upcoming economic reports.  The Dow Industrial Average fell
8 points to 10,804 ahead of earnings reports from six blue-chip
components.  The Nasdaq was up 28 points at 4274 on strength in
technology issues.  The S&P 500 Index finished unchanged at 1510.
Trading volume on the NYSE hit 904 million shares with declines
beating advances 1,524 to 1,321.  Trading activity on the Nasdaq
was moderate at 1.58 billion shares exchanged, with advances
beating declines 2,196 to 1,883.  In the bond market, the U.S.
30-year Treasury fell 17/32, pushing its yield up to 5.91%.


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

Altera       ALTR   AUG90P/AUG95P   $0.62   credit   bull-put
Virata       VRTA   AUG60P/AUG65P   $0.75   credit   bull-put
Am. Online   AOL    AUG50C/AUG55C   $4.50   debit    bull-call
Allstate     ALL    OCT20C/AUG25C   $4.00   debit    diagonal

Our new plays offered mixed opportunities in today's session.
Allstate and Virata both slumped in early trading, allowing
entries at the target prices.  Altera and American Online both
moved higher and the target spread prices were unavailable (on
a simultaneous order basis) in those positions.  The AOL spread
was already at the minimum acceptable ROI and thus we did not
enter the play.  However, we will monitor the position for a
lower cost basis ($4.25-$4.38) in the next few sessions.


Portfolio Plays:

The Nasdaq edged higher today as positive earnings news boosted
technology issues.  Investors overlooked concerns about rising
interest rates but traders said activity was lackluster ahead of
economic data due out later this week.  Analysts were concerned
about Tuesday's CPI report and Alan Greenspan's upcoming Humphrey
Hawkins testimony.   On the Dow, Blue chip issues slumped despite
a rebound in major drug shares and big gains in J.P. Morgan (JPM).
The issue rallied $3.50 to $132 after a Barron's article said the
company was undervalued, spurring additional takeover speculation.
Bullish activity in a small group of semiconductor and biotech
stocks pushed the technology index higher and fiber-optic issues
were also among leaders.  Oil service stocks slid lower after oil
prices declined on expectations that OPEC will increase supply if
crude prices remain inflated.  In the broader market, industrial
power and healthcare stocks rallied, while investment banking,
tobacco and agricultural products consolidated.  In the tobacco
industry, Philip Morris (MO) and RJ Reynolds (RJR) led the group
lower on weakness from Friday's $145 billion punitive damage award
in the Engle class action lawsuit.

Earnings continued to dominate the market and one of our recent
concerns, International Business machines (IBM) enjoyed solid
gains after SG Cowen said it is optimistic that the company can
generate 20% EPS growth this year and favorable results in 2001.
IBM rose to $105.50, comfortably above our sold strike for the
July, credit-spread strangle.  Blue-chip drug components closed
higher after sliding last week.  Johnson & Johnson (JNJ) ended
up $2.56 at $94, helping our long-term bullish position remain
in positive territory.  3Com Corp (COMS) began a descent from
its recent highs and once again the bullish disparity position
offered a small profit.  As the PALM spin-off comes to an end,
the issue will likely fall to technical support.  When the share
value approaches the sold (short) strike, the spread will gain
in value.  Our personal position was previously closed but those
of you remaining in the play may yet achieve a favorable return.

There are a number of adjustments to be made as we approach the 
July options expiration.  The calendar and diagonal spreads that
have yet to be rolled to August options will be receive priority
attention in the coming sessions.  Plays that are negative or
failing technically will be closed.  The majority of LEAPS/CCs
positions are very old recommendations and since all but one of
them (Texaco) are profitable, we will purge that portfolio and
focus on new candidates for the section.  As far as performance,
our top category this month was again the Credit Spreads section
and only one position, AM/FM (AFM) is in danger of a loss.  The
Debit Spreads category also performed well and all of the July
plays are expected to finish positive.  There are only two open
positions remaining in the Straddles section and of the closed
plays, 75% were profitable.  The recent market rally and a slew
of unexpected announcements hammered our Credit Strangles.  TV
Guide (TVGIA) and Juniper Networks (JNPR) offered profitable
"short covering" opportunities but the Unisys (UIS) position
endured an unavoidable loss.
    

Tuesday, July 19

The market ended lower today amid concerns over new inflation
data.  The Dow Industrial Average finished 64 points lower at
10,739 while the Nasdaq slid 97 points to 4,177.  The S&P 500
Index ended down 16 points at 1493.  Trading volume on the NYSE
reached 909 million shares with declines beating advances 1,679
to 1,171.  Activity on the Nasdaq was average at 1.49 billion
shares exchanged.  Technology declines outpaced advances 2,485
to 1,555.  In the bond market, the 30-year Treasury rose 3/32,
pushing its yield down to 5.91%.


Portfolio plays:

The broad market slumped today after news of an unfavorable CPI
report weighed heavily on the outlook for economy.  The data
suggested that while inflation is not widespread, it is starting
to rise in many of the fundamental components of industry.  All
of the major indices exhibited selling pressure and bursts of
bullish activity were brief and ineffective.  Technology stocks
were pummeled by profit-taking with semiconductor and networking
issues leading the Nasdaq lower.  The industrial segment slipped
amid weakness in retail, drug, financial and paper issues while
oil service, airline and biotechnology stocks opposed the bearish
trend.

Our portfolio had mixed results with earnings reports affecting a
number of issues.  Johnson & Johnson (JNJ) posted second quarter
earnings of $0.94 per share, beating the consensus estimate of
$0.92.  The company's earnings grew over 10% during the year and
based on the report, the stock closed up for the session at $95.
Our bullish diagonal position was recently closed for a favorable
return.  On the downside, Aetna shares slid to $60 after warning
that its earnings per share will fall well below Wall Street's
estimates due to rising medical costs in its HMO business.  Aetna
expects earnings per share between $0.85 and $0.95 in the second
quarter, far short of the consensus estimate of $1.20 per share.
Our long-term position in the issue is now slightly negative and
if you have any doubt about the future performance of the stock,
the spread should be closed to limit losses.

Today we continued to transition to August options in the calendar
and diagonal spreads.  Kellogg (K) was the first candidate as the
issue rallied $1.00 amid merger/takeover speculation in the food
and beverage industry.  Food companies are discarding unpopular
brands and strengthening key product lines in deals similar to the
General Mills-Pillsbury agreement announced Monday.  The challenge
of boosting revenues in the slow-growth industry is prompting a
housecleaning and analysts say they expect additional mergers or
divestitures in the group.  Our new position is SEP-30C/AUG-30C
at a cost basis of $0.56.  Another issue in need of adjustment is
General Magic (GMGC).  GMGC has consolidated in recent sessions
and with the issue starting to establish a range near $6.50-$7.50,
we decided roll forward in the neutral calendar spread.  The new
position is NOV-7.50C/AUG-7.50C at a cost basis of $0.50.  Our
new Peoplesoft (PSFT) position has been quite interesting and the
volatile activity in the underlying issue has offered a number of
opportunities to adjust the bullish spread.  We expect to move up
to a diagonal position (SEP20C/AUG22C) before Friday’s expiration
but the industry group is beginning to shows signs of a retreat
and we don’t want to make the transition before a clear direction
is established.

One of our recent debit straddles, Noven Pharmaceuticals (NOVN)
reached a profit target today as the issue bottomed at $23.75.
The overall credit for the neutral position was observed at $6.62,
a $1.38 profit on $5.25 invested for just three weeks.  One other
play is worth noting.  3Com (COMS) slid to $62 during the session,
providing a $3.62 credit to exit the bullish calendar spread.  The
aggressive position provided a 50% profit in just over one week
but unfortunately, we were too conservative (scared!) to ride out
the movement.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                         - NEW PLAYS -
******************************************************************
FLO - Flowers Industries  $19.25  *** Reader’s Request! ***

Flowers Industries is a holding company that owns all of the
outstanding common stock of Flowers Bakeries and Mrs. Smith's
Bakeries, and owns a majority of the outstanding common stock
of Keebler Foods Company.  Flowers Industries is one of the
largest nationally branded producers and marketers of a full
line of baked foods in the United States.  The products of the
company's three segments include Flowers’ fresh breads and
rolls, Mrs. Smith's Bakeries' fresh and frozen baked desserts,
snacks, breads and rolls, as well as Keebler's cookies and
crackers.

Keebler Foods (KBL) and its main shareholder, Flowers Industries
reported their respective boards have authorized them to explore
strategic alternatives for each of the companies in an effort to
maximize shareholder value.  Flowers said it has retained Morgan
Stanley Dean Witter and UBS Warburg LLC as financial advisers to
assist in the review of such alternatives.  Flowers' board also
said it plans to spin-off its other, non-Keebler assets to FLO
shareholders, which would include the Flowers Bakeries and Mrs.
Smith's Bakeries businesses.  The spin-off is expected to be
completed simultaneously with any transaction involving Flowers
and Keebler.

One of our subscribers pointed out the increased option activity
in this issue and requested that we identify a favorable spread
position for a future bullish movement.  Based on the technical
outlook (neutral to bullish - slightly overbought) and premium
disparities in the August options, we believe a conservative
diagonal spread may offer the best balance between downside risk
and potential reward.  This position is based on recent activity
in the stock and underlying options due to merger/takeover and
acquisition speculation.  As with any aggressive play, it should
be evaluated for portfolio suitability and reviewed with regard
to your strategic approach and trading style.


PLAY (conservative - bullish/diagonal spread):

BUY  CALL  OCT-17.50  FLO-JW  OI=126  A=$3.50
SELL CALL  AUG-20.00  FLO-HD  OI=175  B=$1.38
INITIAL NET DEBIT TARGET=$1.88-$2.00 INITIAL TARGET ROI=25%

Chart =

******************************************************************
CMX - Caremark RX  $8.94  *** Cheap Speculation! ***

Caremark Rx is a pharmaceutical services company that provides
pharmacy benefit management and other therapeutic pharmaceutical
services.  Caremark provides therapeutic pharmaceutical services
for patients with high cost chronic illnesses, genetic disorders
and other conditions in an effort to improve potential outcomes
for patients and to reduce costs of care.  The company designs,
develops and manages comprehensive programs including drug
therapy, physician support and patient education.  Caremark also
provides drug therapies and services to patients with conditions
such as hemophilia, growth disorders, immune deficiencies, cystic
fibrosis, multiple sclerosis, and respiratory difficulties.

The Caremark chart has one of the better technical histories we
have seen in the past few weeks and based on the fundamental
outlook for the company, the bullish issue should increase in
value in the coming months.  Most recently, Caremark RX was rated
a new “buy” by analyst Steven Valiquette at UBS Warburg.  His
12-month target price for the issue is $11.00 per share.  This
upgrade follows a positive “accumulate” recommendation from A.G.
Edwards and Andrew Abrams, portfolio manager with CWH Associates,
also selected the company for a primary position in his long-term
equity holdings.

With the rapid run-up in early July, the issue may be due for a
technical consolidation.  Fortunately, the time frame of this
position allows plenty of opportunity for profit, as long as the
stock moves higher in a relatively stable manner.


PLAY (conservative - bullish/calendar spread):

BUY  CALL  DEC-10.00  CMX-LB  OI=2342  A=$1.25
SELL CALL  AUG-10.00  CMX-HB  OI=1364  B=$0.38
INITIAL NET DEBIT TARGET=$0.75  TARGET ROI=50%

Chart =

******************************************************************
AGE - A.G. Edwards  $45.25  *** On The Move! ***

A.G. Edwards provides securities and commodities brokerage, asset
management, insurance, trust, banking and other related financial
services to individual, corporate, governmental and institutional
clients.  The operation of A.G. Edwards, through its principal
subsidiary A.G. Edwards & Sons and its directly and indirectly
owned subsidiaries, is conducted with one of the largest retail
branch offices in the United States.  A significant portion of
the company's revenue is derived from commissions generated on
securities transactions executed by the company.  Edwards also
underwrites corporate and municipal securities, certificates of
deposit, as well as corporate and municipal investment trusts
and closed-end mutual funds.  Asset management and service fees
consist primarily of revenues earned for providing support and
services in connection with assets under third-party management,
including mutual funds, and assets under management by Edwards.

The recent rally began in June as A.G. Edwards posted record
earnings per share for the first-quarter.  The company reported
a net income of $107 million, or $1.24 a share, for the quarter.
Analysts had expected profits of $1.08 but AGE enjoyed gains in
sales from increased trading activity in the stock market.  The
company said the months of March and April were the best in its
113-year history.  Now the stock is “on the move” and activity in
options picked up after the UBS-PaineWebber merger was announced.
Strangely enough, the implied volatility has held to relatively
low levels and although the issue is bullish in the short-term,
the chart suggests this straddle can achieve a profitable outcome
in either direction, long before the November expiration.

Based on analysis of the historical option pricing and technical
background, this position meets the fundamental criteria for a
favorable straddle.  As you have come to expect, the position is
based on the current price or trading range of the underlying
issue and the recent technical history or trend.  The probability
of profit from this position is slightly higher than other plays
in the same strategy based on theoretical option pricing.  News
and market sentiment will have an effect on this issue so review
it thoroughly and make your own decision about the future outcome
of the position.


PLAY (conservative - neutral/debit straddle):

BUY  CALL  NOV-45  AGE-KI  OI=1068  A=$4.00
BUY  PUT   NOV-45  AGE-WI  OI=117   A=$3.38
INITIAL NET DEBIT TARGET=$7.12-$7.25

Chart =



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

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