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Daily Newsletter, Wednesday, 07/19/2000

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The Option Investor Newsletter                Wednesday  07-19-2000
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MARKET WRAP  (view in courier font for table alignment)
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        07-19-2000        High      Low     Volume Advance/Decline
DJIA    10696.10 - 43.80 10790.50 10685.50  909 mln   1120/1679
NASDAQ   4055.63 -121.54  4159.39  4047.43 1.44 bln   1428/2551
S&P 100   802.95 -  4.24   809.08   801.59   totals   2548/4230   
S&P 500  1481.96 - 11.78  1495.63  1479.92           37.6%/62.4%
RUS 2000  527.86 -  8.42   536.28   527.79
DJ TRANS 2805.73 - 93.64  2899.97  2786.28
VIX        22.52 -  0.03    23.37    21.89
Put/Call Ratio       .61
******************************************************************

Investors Cautious Before Greenspan Testimony

It seems that investors woke up on the wrong side of the bed again
today.  I know I did.  Investors ignored a slew of earnings 
reports, good ones at that, and continued the selling from 
Tuesday.  It was a steady bleed for the NASDAQ today as tech 
stocks were dumped with a vengeance.  So what struck the fear?  
Good ol' Uncle Alan.  Scheduled to speak tomorrow at 10am EDT, Fed
Chairman Greenspan will be giving his semi-annual Humphrey-Hawkins
testimony before the Senate on Monetary Policy.  

After a dismal day yesterday for the NASDAQ on concerns over the 
CPI data, Wednesday proved to be even rougher.  The NASDAQ sold 
off 121 points today as the waiting game continues.  And as the
investment community awaits Greenspan's testimony, we wonder, 
will he really give us any hint to the Fed's next move in August?
Possibly a nervous grab for his glasses, or maybe a certain
inflection in his voice.  Certainly far-fetched, but as for him
revealing some subtle clue, I wouldn't bet on it.  In fact, he
probably doesn't even know what lies in store for the next 
FOMC meeting.  Nevertheless, all eyes will be glued to CNBC 
analyzing every move Greenspan makes.  In the meantime, profit
takers have been raking in their recent gains since the NASDAQ
made its move to 4100 last Wednesday.  The victims:  high-flying
tech issues.  

Looking at the 60-minute chart of the NASDAQ, we can see that 
we have had one heck of a run since July 12th.  Quite impressive.
The NASDAQ has now gone, within that week span, from in the red 
for the year to up 5.5% on the year to back below the starting
point for 2000, 4069.  Today's close of 4055 broke the 10-dma at 
4094, after a midday bounce from that level.  Sellers knocked 
down the market to close near the low of the day, yet the
NASDAQ did manage to stay above the 100-dma at 4046.  We will 
be watching closely tomorrow to see if a test of this level 
occurs.  A break and close below the 100-dma would indicate 
that the summer doldrums Jim has mentioned in his Wraps could
be arriving right near expiration.  To reiterate Jim's point, 
once July expiration passes, historically, the markets become
relatively inactive as traders packed up their trading tools
until late August and early September.  With a lack of 
numbers, buying power typically just doesn't hold in an illiquid
market.  Not to mention, markets get whippy due to the low 
volume.  We would be cautious with long positions, keeping 
tight stops, as a breakdown may be around the corner.


     

As for the INDU, the index continued rolling over, closing just 
below 10700 at 10696.  After trading in a tight range between 10750
and 10850 for most of the past week, the INDU began slipping 
yesterday and continued its descent today.  It is beginning to look
like 10800 resistance is winning this battle.  Today's close has
brought the INDU under its 10-dma, currently at 10711.  Note from 
the chart below how congested the 10800 level has become.  This 
type of trading pattern is only making that resistance stronger. 
If the INDU were to give up its gains since rallying on July 7th, 
like the NASDAQ, it wouldn't be out of the question to see 
10500 as the next stop.  Then what would we have to show for our
much hyped "summer rally?"  


 

Well, it's earnings season and earnings are what should be driving 
this market.  There was a handful of techs that reported last night
that gave up ground today.  MSFT, mentioned in last night's Wrap, 
reported better-than-expected earnings but lost $5.38 today, 
accounting for 30 points in the NASDAQ.  Investors were concerned 
about lower margins and future business with the Office suite of 
software.  Adding to the pain, SG Cowen downgraded the stock from
a Buy to a Neutral, and Prudential cut its rating to an Accumulate
from Strong Buy.  INTC shed $4.88 after better-than-expected 
earnings.  

Helping out the INDU minimize the losses today were IBM, KO, and 
C.  IBM ran up $4.44 in anticipation of its earnings after the bell.
Big Blue came in six cents ahead of estimates at $1.06 per share,
yet they reported that their revenue declined by 1%.  This is 
particularly alarming to analyst.  Traders are not afraid to let it 
be known that they have they eyes fixed on what the 3rd and 4th 
quarters will look like for major companies, rather than 
concentrating on the 2nd quarter headline numbers.  Dow component
KO also added nice gains of $2.31 today before beating the Street
estimates by three cents, $0.44 vs $0.41.  C announced earnings
this morning and topped analyst estimates with $0.87 per share.  
In addition to stellar earnings, the financial service company
decided to raise its quarterly cash dividends and declared a 
4-3 stock split.  C added $1.31 to close at $68, just off its
all-time high.

Today's earnings slate was chalked full of friendly tech issues.
On the NYSE side, EMC announced this morning with at 50% jump in
earnings from the year previous with $0.19 per share, surpassing 
estimates by two cents.  The news that really drove investors to 
rewarding the company was the revenue forecast, predicting that it 
would accelerate for the rest of the year.  EMC closed at $84, up
$5.44.  AMD also beat estimates as semi demand has outstripped 
supply in recent quarters.  They also announced a 2-1 stock split 
effective August 21st. 

At the NASDAQ, QCOM reported earnings of $0.27 per share, in line
with Street estimates.  The company cited record shipments of its
phone chips, yet concerns over weaker sales in South Korea and 
China have investors running.  QCOM closed NY trading at $63 and 
has shed $1.38 in after-hours.  Continuing the trend of beating
the estimates in the Networking sector, EXDS posted 
narrower-than-expected losses of $0.10 per share vs $0.12.  The
revenue news was very strong, with a year-over-year increase of
321% and an 34% increase from the first quarter.  After-hours
investors boosted the stock almost $5 from its NY close of $50.81.

In deal-making today, CNET agreed to acquire one of its top 
rivals, Ziff-Davis(ZD), in a $1.6 bln stock deal.  The deal unites
CNET with ZD's subsidiary ZDNet, which will give CNET a major
presence in 25 markets throughout Europe, Asia, North America, and
Latin America.  CNET not only knocked off one of its biggest 
competitors for users, but also for advertisers.  Dan Rosensweig,
CEO of ZDNet said, "marketers will be able to target the most 
active buyers through our powerful, trusted brands."  This 
Internet deal added $1.88 to ZD as arbitrageurs sold off CNET by 
$2.56.

Two pieces of news rolled in after the market close today that 
really moved some stocks in after-hours.  First, CNBC reported 
that Deutsche Telekom(DT), who has been scouring the wireless 
landscape for a takeover target, made a bid for Voicestream(VSTR)
in a $53 bln stock and cash deal.  The German telecom is 
prepared to pay $205 per share of VSTR, a 41% premium over today's
close of $145.  VSTR is trading up to $170 in after-hours.  The 
second piece of news that jolted some of our favorite fiber-optic
stocks was the announcement that JDSU will be added to the 
S&P 500 after the close on July 26th.  It will be replacing 
Rite-Aid, which is being removed for lack of representation.  
JDSU soared in after-hours on the news, trading up to $122.50 from
its NY close of $106.75.  SDLI, which trades in tandem with JDSU
due to their recently announced deal, traded to $410 a share in
after-hours, over $60 higher from its NY close.  SDLI will be 
reporting earnings after the bell on Thursday, so watch for some
fireworks in the fiber-optic sector tomorrow.

Looking forward, trading activity is being watched closely with
a short-term outlook, given the current market environment.  We 
have expiration on Friday, which typically is one of the last
active times during the summer.  After two huge days of selloff
for the NASDAQ, we will be looking to see if investors shift 
their focus from the Humphrey-Hawkins testimony to the real
catalyst, earnings.  There is a good chance for a rebound 
tomorrow, yet any move higher will mostly likely be short-lived.
We have reached a point in the year where the markets trading
behavior begins to change.  So keep your stops tight and take
your profits when they're in front of you, as this market 
sentiment can change on a dime.

Matt Russ
Asst. Editor



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***************
ASK THE ANALYST
***************

We've some great readers' requests today.
By Eric Utley

But first, more on the VIX.  Several readers sent in some
exquisite questions about the VIX discussion last week.  Let's
get right to them.  Gene requested, "Please explain why the VIX
does not move in the opposite direction of the market."  Gene,
the VIX is a sentiment indicator, it does not correlate with the
direction of the broader market in a relative way.  The value of
the index is determined by market participants and expresses
their consensus view about future volatility.  The VIX and the
market diverge all the time because sentiment can be bearish even
while the market direction is bullish, and vice versa.  Brian
requested, "Can you provide some insight in how to use the VIX as
a PREDICTIVE tool, rather than just a current conditions
indicator."  Brian, like so many indicators, I believe that
utilizing the VIX requires right-brained ability, which I greatly
lack.  Anyway, I'll pull a quote from last week's column to
fulfill your request.  I said, "The VIX did advance Wednesday in
light of the broad rally in the market.  That suggests traders
are expecting a sell-off in the coming days... [which] bodes well
for the health of the current rally."  Let me translate.  Last
Wednesday the market rallied quite nicely and the VIX rose.  That
meant investors were buying more puts expecting a sell-off.  The
crowd was wrong, and the market extended its rally into the
weekend.  Today, for example, the NASDAQ tanked and the VIX fell
as well.  That means investors met today's sell-off with
complacency and are expecting a quick rebound.  That's not good,
and could lead to further downside in the next two days.
Remember that the VIX is a contrary indicator, and we assume that
The crowd is wrong.  Regarding my statement last week, "If the
market declines and the demand for puts increases, the VIX will
rise."  Jon sent this rebuttal, "I think that this is not how you
read it."   Essentially, Jon asked why the VIX does not rise when
the demand for calls increases.  Jon, excellent question!  A rise
in the VIX translates into increased investor fear.  Increased
fear translates into higher expected future volatility.  Such
fears are reflected in stock prices.  So, if expected future
volatility increases, investors demand a higher return from
stocks, so prices fall, and the demand for puts increases.  Just
the reverse is true for calls and a decreasing VIX.  It's not a
perfect relationship, there are anomalies to this rule.  But for
the most part, when volatility increases stock prices fall.

I received a ton of great e-mails this past week, I only wish I
had more time to review more stocks.  Persistence pays off, so if
I have yet to review a request of yours, let me know and I'll
make an attempt to do so.  Keep those stocks coming and send your
requests to Contact Support.  Please put the
symbol in the subject line of the e-mail.

----------------------------
 
Sycamore Networks - SCMR

What is your short-term opinion on Sycamore Network?  Thank you.
- Jesse & Carla

To be quite frank, Jesse & Carla, I'm bullish on Sycamore in the
short-term.  The stock is after-all on the OIN call list.  The
primary driver of the stock in the short-term is earnings,
earnings, and earnings!   SCMR is one of those unique companies
that reports its second quarter results in August.  As it is,
a SCMR-specific earnings run is probably in its early stages.
However, the risk is that the prospects for better-than-expected
profits is already discounted into the stock noting its recent
rise.  Although here at OIN we believe there is more upside.  The
incredible profit report from Corning earlier in the week
definitely gave SCMR a boost.  And the upside surprises from the
fiber optic group will persist in the coming days from the likes
of JDSU and SDLI.  The positive reports from the aforementioned
optical equipment makers might carry SCMR to higher prices.  Of
course, the broader Tech sector needs to cooperate in the next
few weeks if SCMR is going to move substantially higher.  You
can see on the chart that SCMR is very sensitive to the movements
in the broader market, particularly those of the NASDAQ for
obvious reasons.

And what would be a discussion about a fiber optic stock without
mentioning the "C" word?  The proposed mega-merger between JDSU
and SDLI sent a consolidation wave through the sector two weeks
ago.  It was reported that Corning was also bidding for SDLI.
That may have left Corning searching for another acquisition.
Now, even though JDSU offered a hefty premium for SDLI, Sycamore
would be an awful large takeover target, making a deal unlikely.
Nonetheless, M&A activity is generally bullish for investors.
SCMR is expected to earn 6 cents per share when it reports in
August.  Jesse and Carla, I know you asked for the short-term
view of SCMR, but a glance over the company's balance sheet has
prompted me to delve into the fundamentals and its long-term
prospects.  SCMR has zero debt, over $1 bln in cash, and is
expected to grow earnings by more than 50% annually over the next
five years.  Now that's an impressive financial position!  Of
course, you have to pay up for that growth, but it might be worth
it five years from now.  Furthermore, the proposed merger with
Sirocco Systems is expected to be completed by year's end and
will greatly add to SCMR's product line.  Enough with the
fundamentals, let's get to the chart.


 

----------------------------

Juniper Networks - JNPR

Could you comment on CMRC, RFMD, NOK, FDRY, and JNPR?  Especially
JNPR because its PE is scary.  Thanks. - Liwei

Please review JNPR and SDLI please. - Victor

Victor and Liwei, I thank you both for the excellent requests.
Unfortunately, I'm constrained by the limits of time and space.
So I'll take on JNPR.  The company makes high-speed Internet
routers that convert optical bandwidth into scaleable Internet
protocol services.  The word 'routers' should bring another
company to mind, namely Cisco.  John Chambers and Co. are a
formidable force and fierce competitors.  JNPR's ability to grow
its market share will depend upon how well the company executes.
And lately, JNPR has been executing.  The company smashed
estimates last week by reporting 8 cents versus an estimate of 4
cents per share.  The blowout numbers were a result of a 77%
sequential increase in revenues.  And there are no signs of a
slowdown in JNPR's sales.  Revenues are expected to increase by
another 26% next quarter.  That's just quarter-to-quarter!  That
rapid rise in sales may justify the lofty P/E you mentioned
Liwei.  Another thing that JNPR has going its way is that the
market it targets is expanding at a rapid rate, and is expected
to grow to huge numbers in the next five years.  So, the
proverbial town may be big enough for the Cisco Kid and the
Juniper Juvenile.

While the long-term prospects for JNPR remain rosy, you'll have
to endure plenty of volatility over the years.  The stock was
nearly cut in half from the peak to trough of the bear market
last spring.  If those type of gut-wrenching drops don't bother
you, JNPR is a great way to play the build-out of the Internet.
On the other hand, if you can't stand the wide swings but still
want exposure to the Internet infrastructure arena you're better
off owning CSCO.  But for you adventurers out there, JNPR has
definitely established itself in the infrastructure space and has
a stellar roster of clients.  A few of the Internet service
providers that use JNPR's products include Cable&Wireless, Verio,
and MCI WorldCom.  After its 100% rise since late May and
subsequent new 52-week high traced after the blowout earnings
report last week, a little consolidation may be in order for JNPR
in the near-term.  Don't get me wrong though, the chart looks
very good, and I'm by no means bearish on JNPR.  But, I don't see
a major catalyst carrying JNPR higher in the short-term.  Of
course, if the NASDAQ extends its recent rally JNPR will lead the
way.  


 

----------------------------

Boeing - BA

Can you please give me your opinion and analysis on Boeing.
Thank you. - Glen

Jack Welch, the eternal CEO of General Electric recently stated,
"There is no such thing as the new economy.  Only new
technology."  With that said, I will refrain from using the
phrases "new economy" and "old economy" when discussing Boeing.
The stock seemed a likely target of the latter label.  Enough
with that, onto your request.  It has been a turbulent ride for
BA shareholders over the past three years.  It all began in 1997
when BA paid $16 bln to acquire its rival McDonnell Douglas.  The
acquisition proved to be hard to swallow and prompted a series of
restructurings.  While BA was attempting to integrate McDonnell
into its operations, the company was waging a price war with
rival Airbus.  The price wars cut BA's profits, which in turn,
grounded the stock.  As of late, it would appear that BA has put
most of its problems behind.  The streamlining efforts have
resulted in massive divestitures of low-margin operations and a
host of job cuts.  Essentially, BA has been cutting costs with
fervor in an attempt to boost its bottom-line.  As you probably
know Glen, BA reported its second-quarter results Wednesday
morning which sailed past estimates.  Although profits were lower
than the previous year, it would appear the cost-cutting is
working, and BA may be back on its way to the blue sky.

BA's management delivered a pretty upbeat message during the
company's conference call.  The CEO, Philip Condit, told analysts
that he was comfortable with estimates going forward and that the
company was close to earning double digit margins on a consistent
basis.  What's more, Condit said that BA was diversifying its
operations into less cyclical segments.  The recent acquisition
of Hughes Electronics (GMH) is a testament to his statement.  The
merger with GMH is expected to be completed during this quarter
and will greatly add to BA's revenue stream.  GMH will position
BA to meet the booming demand for the satellites necessary to
facilitate wireless communications.  The core of BA's operations
remains the manufacturing of planes.  Analysts expect the demand
for airlines to continue to increase over the next year.  Along
with the commercial airlines, BA has won recent contracts valued
up to $10 bln to provide the U.S. military with aircraft.  Also,
the company is a front runner for a $400 bln contract which is
part of a large upgrade of the military's aircraft.  Overall, I'd
say the outlook for BA is improving.  The continued cost-cutting
along with more contracts will boost profits and take the stock
higher.  The current valuation warrants a close look for an
investor with patience and a long time horizon.  


 

----------------------------

JDS Uniphase - JDSU

- Ben

By now, we all have heard about the proposed buyout of SDLI for
$41 bln.  Despite the selling pressure from the arbitrageurs, I
think JDSU presents a compelling opportunity for the long-term
investor, and possibly a little profit for the short-term trader
as well.  I'll begin with the latter.  The current Department of
Justice (DOJ) has proved to be the Trust Busters of the new
millennium.  I believe somewhere around 500 cases have been
reviewed by the DOJ.  They've been busy.  The reason I bring that
up is that many industry analysts believe the DOJ won't allow the
merger between JDSU and SDLI.  JDSU's recently completed merger
with ETEK squeaked by with regulatory approval and the DOJ
imposed several stipulations on the combined entity.  So the
first scenario is that the merger won't receive the DOJ's
blessing and JDSU pops higher as the arbitrageurs cover their
short positions, similar to what happened with WCOM after its
proposed merger with FON was blocked.

Now for the second scenario which pertains to the investors in it
for the long-haul.  Suppose the DOJ approves the proposed merger.
That would complete JDSU's sixth acquisition of a key competitor
in less than a year.  Of the competition, the most notable has
been ETEK, and SDLI would be even bigger.  JDSU is already one of
the leading manufacturers of optical equipment, and SDLI would
only strengthen the company's market position.  In fact, if the
SDLI merger were to go through some analysts have had the
audacity to mumble the "M" word.  While monopolies hurt consumers
they definitely help investors.  Just ask Microsoft shareholders
of ten years.  Whether or not JDSU, or MSFT for that matter, is
a monopoly is beyond my scope.  But I will say this, JDSU has
successfully merged with five of its key competitors in under a
year, and now possibly six with SDLI.  JDSU operates in one of
the fastest growing segments of the economy, which by the way,
shows no signs of slowing down.  The company will grow its
earnings at a break-neck speed over the next five years, and will
probably continue to surpass analysts' estimates for the
remainder of this year.  In fact, in conjunction with the merger
announcement, JDSU's CEO came right out and said that the company
will beat profit projections when it reports next week.  Also, as
a little sweetener, it's only a matter of time before JDSU is
added to the S&P 500.  The folks at Standard & Poor's were
planning on adding JDSU to their index after the completion of
the ETEK merger.  The proposed buyout of SDLI has delayed that,
but upon completion, JDSU should be added to the index.  The way
I see it, it's a win/win situation with JDSU right now.  If the
merger goes bust, the stock pops.  If the merger goes through,
you own a powerhouse in the fiber optic arena.  Obviously, JDSU
is subject to the fluctuations in the NASDAQ which presents some
risk in the near-term.


 

----------------------------

Northwest Airlines - NWAC

Would you consider reviewing the potential mega-merger deals in
the airline industry, specifically AMR's proposed buyout of NWAC?
NWAC Aug 40 or Sept 40 Calls look very attractive to me,
especially with the target price for NWAC in the $55-60 range.
What do you think?  A faithful reader. - Darrell

Darrell, I'd be happy to review NWAC for you, but I have to
reiterate that I cannot comment on which options to buy.  Now
with that out of the way, let's get to NWAC.  I also have to say
this Darrell, I'm constantly reminded that there is no free lunch
on Wall Street.  I hate using those types of cliches, but they're
true.  Every time I think that I've found a sure way to make
money it backfires!  Although a buyout of NWAC seems imminent,
there are just so many risks in buying a stock in hopes of a
takeover alone.  Instead, I suggest that the primary reason for
buying a stock should be good or improving fundamentals.  The
possibility of a takeover should be secondary, but a bonus
nonetheless.  Like I have said before, M&A activity is almost
always good for a sector.  And, the investment bankers have been
busy in the Airline sector recently.  US Airways recently agreed
to be acquired by United.  And, it's almost a foregone conclusion
that American Airlines (AMR) will buy NWAC.  But recently, it has
been rumored that AMR and NWAC can't agree upon a takeover price.
NWAC executives feel that the stock is worth $100 while AMR was
rumored to be willing to pay $56.  Of course, either price is a
significant premium over NWAC's current levels, with the former
an absolute landslide.  So, it's obvious why a speculator would
look into buying NWAC at its current levels.  But, let me
highlight the risks.

The deteriorating outlook for the Airline sector bodes poorly for
NWAC.  United Airlines said Wednesday that it would fall short of
Wall Street's current estimates for its third quarter and the
remainder of the year.  United blamed the shortfall on lower
passenger levels, flight cancellations, and higher wages.
Needless to say, the announcement sent the sector into a
tailspin.  Strike one, bad fundamentals.  There is the risk that
the omnipresent Justice Department wouldn't allow a merger
between NWAC and AMR.  It was reported earlier this week that
the DOJ extended its antitrust review of the proposed merger of
United and US Air.  Strike two, government intervention.  And
finally, some believe that the combination of NWAC and AMR would
create bad synergies.  Let me quote an industry analyst to make
it clear.  Helane Becker said, "I think it will be a disaster for
both companies.  In order to do a successful merger, the airlines
have to have reasonably good labor relations and both have
horrendous labor relations."  Strike three, bad karma.  I know
that the possibility of making 500 or 600% on some call options
is tempting to say the least.  But there are definitely some
risks to buying NWAC at its current levels.  Of course, a deal
could be announced tomorrow Darrell, and you could make a ton of
money.


 

----------------------------

DISCLAIMER:
This column 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 Ask the Analyst 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 its accuracy.



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

Become an Expert
By David Popper

When I first began to trade, I felt a bit like a person who goes 
through the cafeteria line for the first time - it is overwhelming.  
In a cafeteria, you can choose a balanced meal or find desserts, 
or mashed potatoes, or an all vegetable fare.  You must make 
the choice, you pay the price.  One person can enter the 
cafeteria every day and be healthy.  Another can enter the 
cafeteria every day and eat so poorly that he needs medical 
attention.  Most people would fall into the middle category and 
have mediocre results. 

So too, in the market, the freedom is overwhelming.  One person 
can turn $10,000 into a retirement, while another can lose it all
quickly.  It all depends on how we choose to play the game.  
Often beginning traders become intoxicated with the concept of 
easy money.  Beginning traders tend to measure their success 
against the very best traders and feel intimidated when they 
don’t measure up.  Traders often trade with no visible goal in 
mind and no strategic framework placed to achieve any goal.  To 
me, the most important concept in trading is to trade with your
goals in mind.  

What are reasonable goals?  For each person it is different.  As 
for me, I have two accounts with two different goals.  I have a 
cash account and an IRA account.  In the cash account, my goal is 
to achieve a 5% return per month.  This allows me to do "the 
extras," like a better vacation, painting the house, buying my 
daughter a car, etc.  The 5% can be achieved without extraordinary
risks.  Because it can be achieved, and the risk is small, I can 
count on it today, next week, and hopefully next year.  Greater
risks may yield better results, but I want the consistency.  In 
the IRA account, I can be aggressive.  Time can make up for 
errors.  Cash does not have to be produced today.  I have 20 years 
to achieve the results.  In this account, I shoot for 10% per 
month, knowing that some months I will fail.  I find sanctuary in 
the thought though that $10,000 compounded at 50% per year will 
easily bring a retirement in 20 years. 

Once goals are established, then groups of stocks must be 
selected that will most reasonably help you to achieve that goal.  
For me, there is no question that techs are still the place to be.
Again, I operate from the premise that the technology revolution 
is here to stay, and therefore, dips are buyable, and earnings 
are tradable.  I am cognizant that they are subject to major 
moves, therefore, I trade very conservatively, meaning I use no 
margin, buy no options and keep a comfortable amount of cash to 
buy the dips.

After a couple of years, I realized that OIN, Investors Business 
Daily, and other sites were constantly talking about the same 50
stocks.  I chose to really learn 20 of these stocks.  I review 
their charts, know their news, understand their sectors and learn 
their business.  I understand how these stocks typically react to
earnings and what price they generally split.  I learned their 
trading ranges.  The more I understand their subtleties, the better 
I trade them.  I can achieve all of my goals on these stocks. 
Occasionally, a stock will have a problem and will be dropped from 
my list, but not often.  They say that experts are people that 
know more and more about less and less.  That may be true, but
experts make money.  By knowing more and more about fewer and 
fewer stocks, my focus is sharpened.  By having my goals in mind 
and knowing my stocks, greater peace of mind is achieved and 
better results are obtained.

Contact Support  



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

Exiting Directional Trades
By Austin Passamonte

So we fine-tuned a trading model and covered proper entry
signals in depth.  Now what?  Why, harvesting profits and
protecting capital - the most important pieces of all!

First, let me say that there’s no perfect exit plan for each
situation or trader.  No hard & fast rules you can follow to
hit it right every time.  Never letting profits turn to loss
is probably rule #1.  It can’t always be helped but that’s our
primary goal.  Preserving capital comes mainly from proper 
trade entry which we exhausted and then careful stop usage. 
Here we go.

I like to enter trades with a potential profit target in 
mind.  Of course, I’m thrilled if the market races right 
through my expectations on the way to more but how often
does that happen for you?  Probably less for me.  The first
goal is to secure these gains before holding out for more.
Carefully moving our stops to capture gains without killing
the trade is important. 

Let’s say we’re trading a daily chart of the OEX.  Big shock
for you on my choice of market, isn’t it?


 

The OEX was trading near the 730 level end of May when the 
surprise rally began.  Shouldn’t have been a surprise to us if 
we used these charts back then, but by golly we’re ready for 
‘em next time!  Say we bought in at 740 after clear signals 
converged.  Four trading days later the index is over 790. 
That’s a 50-point run in less than one week. I don’t care which
call options you purchased they are now worth hundreds percent 
more than you paid.  I hope you bought a bunch of them.

We’ve already drawn lines near the 782 level and around 790 
where previous congestion is heavy. Expect prices to struggle 
near here, especially after the straight-up run from last week. 
Premium volatility soared while calls were in hot demand but
soon cools as buyers shift heavily to puts betting on an 
inevitable correction.  Time is very much our enemy on long,
front-month contracts.

Honestly, if I’m following a daily chart trade and watch this
play run to the moon I’d simply trail it with stops until a
intraday reversal kicked me out.  My first move would have been
to open the trade and set the protective stop.  Soon as the play
reached 50% profit on purchase price I’d move the stop from 
below entry up to entry plus 1 point.  This ensures that any 
quick breakdown won’t result in a debit, I’ll cover purchase
cost plus commissions with a tad left over.

This trade went beyond that real quick.  I start getting 
nervous when prices reach 100% profit and the index begins
to falter.  My trailing stop would continue moving up 2 points 
below current bid until the market pulled back enough to stop 
me out.  Beautiful, we milked that cow dry enough.  The only
time I’d consider moving from there is to tighten further and
harvest gains.  Our stops must only move one way - towards
the market.  NEVER move stops further from the action and
risk wider losses!  We placed those stops there for a purpose,
and markets moving against us are exactly that reason.

Trailing stops on large moves is discretionary.  How much time 
you bought and strongly you feel about the trade plays a part.
I’m as greedy as you are and more;  it pains me to close out at
50% profit and watch the play go to double but let’s keep
things in perspective here.  Taking chunks out of the middle
more often than not should be our ultimate goal.


 

Aggressive trend-followers might choose to stick with a trade
until the next reversal signal begins to emerge.  I think this
is fair to do when trading back-month options on stocks or
30 minute charts on the indexes.  Buying back-month index options
to swing-trade is tough.  Prices are high, volume is very thin 
and bid/ask spreads can move widely as bored floor-traders probe 
for wayward stops they can trigger to kick us out.  Doubt that 
ever occurs?  I’ve watched it happen to me many times.

Distant-month stock options usually have narrow price spreads 
and volatility relative to the underlying is more predictable. 
Stock options are more likely to increase 200 - 300% than index 
options are due to individual price fluctuation.  I still pick 
a stop price to protect when entering the play and move up to 
entry cost plus a little extra when the option increases 50% 
over purchase.  This time I’m in no hurry to set a price target 
or close out to save melting premiums.  Let’s ride it out until 
our moving stop gets hit or the next reversal signal looms.

The single caveat to this (and it’s a big one) is the danger 
of a market’s gap-move against you.  Holding out for bigger 
gains leaves you exposed to adverse news on your position.
Hate it when that happens, but it does.  Let your level of daring 
decide whether to sell at a target or hang on for the big one. 
Just remember the big one could either be forward or reverse.

Picking price targets and sticking to them is less fun but I 
feel the best way to earn maximum returns over time.  Can you 
get good enough to win 50% of the trades you take?  I think so.
Should that be the case, what if your losses were stopped out 
on average of 33% drawdown or less while the winners averaged
a 50% profit margin.  How would your balance fare over time?

Let’s flip coins and see;  heads I win and you pay me $33.  Tails
you win and I pay you $50.  Hey forget that, I prefer to do it
the other way around!  Seriously, can you visualize the accrued 
gains over time?  It’s infallible if your bankroll is large enough
and each position small enough to ride out the inevitable string 
of consecutive heads that comes your way.

Said easy, done hard.  Picking markets to use 25 - 30% of entry 
cost stops will average 33% loss with commissions and the
occasional gap against you added in.  By the same token, if you 
move stops wisely to snug up 25 - 30% gains, the frequent 50%
winner and occasional home run will keep your gains higher than
losses overall. 

That’s positive cash-flow, my friend.  Now work on patience & 
discipline for proper trade entry to hit 50% or better winning
trades.  The line to learning forms behind me, no butting 
ahead. 
  
Pulling things together, you can use trailing stops to carefully 
scale up potential gains while experiencing some slippage.  You 
might opt to stay with one trade until chart signals indicate a
reversal and take the other side, suffering some slippage.  Or 
you could simply target shoot profits and close out when hit,
suffering some slippage.  See a common theme here? 

There is no possible way I’m aware of to buy the bottom and
sell the top.  Except perhaps for the person on the other side
of a few of my plays.  Pick a strategy that suits your style,
personality and level of risk, but be sure to have one.  By far,
exiting trades successfully is tougher than most people think. 
Get good at it and your financial future is bright and rosy.

Next week I plan on kicking around the topic of position trading.
We’ll look at some long-term charts for indexes and VIX to see 
how trading less might earn us much, much more.  Looking forward 
to our time together then!

PS: May I ask a personal favor of you?  If you have or do follow
Skybox action or would be interested in a revised version to 
trade the OEX and possibly SPX, QQQ and other markets, please
enter the Skybox site and complete the three question survey
within.  I would consider it a great personal favor and thank
all those in advance who can do so today.

Best Trading Wishes,

austinp@OptionInvestor.com 



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

SCMR - Sycamore Networks $135.06 (-3.13 this week)

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

Most Recent Write-Up

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.

Comments

Succumbing to overall market weakness today, SCMR sold off with 
the rest of the tech sector.  Yet, the pullback of the last two
days hasn't been too terrible for the stock.  It traded as low
as $132.19 today and bounced from that level.  The 10-dma lies 
at $131.69 and has provided good entry points during the past 
couple of weeks.  We will be looking for a bit of a rebound 
after SCMR has come off its recent high of $150 on Monday.

BUY CALL AUG-130 QSM-HF OI=389 at $16.75 SL=12.75
BUY CALL AUG-135*QSM-HG OI=210 at $14.75 SL=11.50
BUY CALL AUG-140 QSM-HH OI=959 at $12.50 SL= 9.75
BUY CALL SEP-140 QSM-IH OI=337 at $16.88 SL=13.00
BUY CALL SEP-145 QSM-II OI= 98 at $14.88 SL=11.50

Picked on July 16th at  $138.19    P/E = 142
Change since picked       -3.13    52-week high=$199.50
Analysts Ratings      7-4-2-0-0    52-week low =$ 47.25
Last earnings 04/00   est= 0.02    actual= 0.05
Next earnings 08-18   est= 0.06    versus=  N/A
Average Daily Volume = 4.48 mln




*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Was it really "earnings" or "investment" income?
By Ray Cummins

Technology issues sustained heavy losses today as investors took
profits for a second consecutive session.  A number of bellwether
companies reported their quarterly results and traders failed to
respond positively to earnings news.  Disappointment in many of
the revenue forecasts caused a broad market sell-off that left
little optimism for a quick recovery.  The Dow Industrial Average
was hammered by a major drop in Microsoft (MSFT) shares, which
was slapped with downgrades following the release of its results.
In the technology arena, semiconductor and Internet issues led
the Nasdaq Composite lower.  Advanced Micro Devices (AMD) and
Rambus (RMBS) were the big losers in the chip group and Yahoo!
(YHOO) was the only well-known Internet issue that finished in
positive territory.  Strangely enough, a new E-business software
company, Support.com (SPRT) rocketed 130% in its debut, becoming
the first IPO in weeks with ".com" in its name to enjoy a strong
opening.  In S&P 500 issues, airline companies slumped following
an earnings warning from United Airlines (UAL).  The majority of
major drug, biotechnology and brokerage shares also moved lower
in the bearish activity.  Investors are likely to be conservative
in the next few sessions, based on the uncertainty about earnings
going forward and concern about the Fed's future economic policy.
With that attitude in mind, we will continue to look for plays
that offer conservative entry points into technically favorable
charts, with reasonable monthly returns.

Summary of Previous Picks:

Covered Calls: (Margin would double the listed Monthly Return)

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

ENZ     JUL    50    46.25   68.34   $3.75   6.7%
ABSC    JUL    55    50.75   79.50   $4.25   5.8%
SDLI    JUL   210   193.81  359.63  $16.19   5.8%
NEWP    JUL    65    60.87  100.47   $4.13   5.6%
IWOV    JUL    70    66.38   70.13   $3.62   5.5%
ISSX    JUL    80    76.81   88.00   $3.19   5.5%
HGSI    JUL    90    83.38  150.75   $6.62   5.5%
INCY    JUL    75    73.06   93.38   $1.94   5.0%
INSP    JUL    50    48.13   48.25   $0.12   0.5%
AETH    JUL   180   170.88  167.00  -$3.88   0.0% Close?

AWRE    AUG    50    47.00   54.13   $3.00   5.2%
VRTA    AUG    55    52.18   72.25   $2.82   4.4%
ARTG    AUG   100    95.25  110.44   $4.75   4.1%

Positions Closed: Echelon (ELON)

Naked Puts:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

ENZ     JUL    45    42.50   68.34   $2.50  14.0%
INSP    JUL    48    46.50   48.25   $1.00  13.4%
INCY    JUL    70    68.81   93.38   $1.19  11.2%
AKAM    JUL    95    93.75  121.00   $1.25   8.8%
TECH    JUL    95    92.94  123.00   $2.06   7.9%
MERQ    JUL    73    71.31  105.00   $1.19   7.8%
NEWP    JUL    55    53.31  100.47   $1.69   7.7%
IWOV    JUL    45    44.53   70.13   $0.47   7.3% Adj 2-1 Split
BRCM    JUL   145   142.87  237.13   $2.13   7.1%
AFFX    JUL   140   137.12  184.38   $2.88   7.0%
PDLI    JUL   105   102.12  162.50   $2.88   6.9%
ABSC    JUL    45    43.44   79.50   $1.56   6.9%
BRCD    JUL   105   101.75  192.50   $3.25   6.8%
PDLI    JUL   125   122.37  162.50   $2.63   6.8%
ISSX    JUL    70    69.00   88.00   $1.00   6.7%
CIEN    JUL   130   128.31  152.31   $1.69   6.5%
HGSI    JUL    75    72.62  150.75   $2.38   6.4%
TIBX    JUL    80    78.94  113.44   $1.06   6.4%
RBAK    JUL    78    75.12  141.69   $2.38   6.4%
IWOV    JUL    60    58.81   70.13   $1.19   6.3%
SDLI    JUL   170   164.87  359.63   $5.13   6.3%
AETH    JUL   150   147.25  167.00   $2.75   6.2%
MLNM    JUL    80    77.81  111.31   $2.19   6.0%
RBAK    JUL   115   113.50  141.69   $1.50   5.9%
IDPH    JUL    95    93.87  119.50   $1.13   5.6%
GLW     JUL   200   195.87  269.31   $4.13   5.5%
NVDA    JUL    55    54.03   67.00   $0.97   5.4% Adj 2-1 Split
CHKP    JUL   145   142.00  224.88   $3.00   5.3%
SDLI    JUL   215   213.50  359.63   $1.50   5.0%
ELON    JUL    50    47.75   44.31  -$3.44   0.0% Close?

VRTA    AUG    50    48.38   72.25   $1.62   8.4%
AWRE    AUG    45    43.75   54.13   $1.25   8.0%
TIBX    AUG    90    87.63  113.44   $2.37   7.5%
MACR    AUG    75    73.32  110.00   $1.68   6.2%
ARTG    AUG    88    85.62  110.44   $1.88   5.9%
MERQ    AUG    85    83.32  105.00   $1.68   5.8%


Naked Calls:

Stock  Strike Strike Cost   Current Profit  Monthly
Symbol Month  Price  Basis  Price   (Loss)  Return

AMD     JUL    95    96.19   90.25   $1.19  13.9%
SSTI    JUL   125   126.38   86.19   $1.38  10.7%
DITC    JUL   110   110.94   80.38   $0.94  10.1%
RFMD    JUL   150   151.75   83.50   $1.75   7.8%
AMCC    JUL   140   142.50  149.13  -$6.63   0.0% **
SDLI    JUL   350   351.63  359.63  -$8.00   0.0% **

** Covered with stock purchase when the underlying
   issue moved through the sold strike.

Positions Covered: Broadcom (BRCM)

New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.

***************

BULLISH PLAYS - Covered Calls & Naked Puts

***************

CLRN - Clarent Corporation  $82.00  *** Big Premiums! ***

Clarent provides Internet protocol or IP telephony systems.  IP
systems permit the simultaneous transmission of voice, fax and
data over the Internet and similar communications networks.  The
Clarent system consists of the Clarent Gateway, the Clarent
Command Center and a relational database.  The Clarent Gateway is
an integrated hardware and software product that converts voice,
fax and data into packets that are sent over Internet protocol
networks.  The Clarent Command Center is a centralized
cient/server software package that processes network management
functions, including the routing and pricing of calls, user
management, gateway monitoring and billing. This system requires
the installation of a third party relational database that stores
operational support data for a network of Clarent gateways.

China Telecom, China's leading international telecommunications
service provider, and Clarent recently announced that the two
companies have successfully completed the construction of their
IP telephony network.  This move allows China Telecom to migrate
off of its previous supplier's telephony backbone network onto
the Clarent-based system.  Network deployment began in May and
the coverage of the new system is countrywide.  This news comes
on the heels of a pact with Open Port Technology to help service
providers deploy enhanced messaging services on Clarent's Open
Network Environment products using Open Port's IP LaunchPad Fax
Suite and Voicemail Suite.  In the future, the companies plan to
combine marketing and business development experience to offer
service providers new IP fax and voice messaging services that
can be quickly and seamlessly deployed over their existing
network infrastructures.

Analysts are bullish on the company and the most recent rating
is a "buy" recommendation from Lehman Brothers with a $100 price
target.  We simply favor the opportunity to be paid for trying
to own the issue at a very low price.  Note: Earnings are due on
or about July 26.

CLRN - Clarent Corporation  $82.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  AUG 45   UKG TI  0         1.50    43.50     8.5% ***
Sell Put  AUG 50   UKG TJ  1500      2.38    47.62    12.9%

Chart =
 

******

GMST - Gemstar - TV Guide  $68.69  *** A New Company! ***

Gemstar International develops, markets and licenses proprietary
technologies and systems under the VCR Plus+ name, designed to
simplify and enhance consumers' interaction with electronics
products that deliver video, programming information and other
data.  In addition, they have acquired a large portfolio of
technologies and intellectual property necessary to implement
interactive program guides, called the Gemstar Guide Technology,
and designed and implemented the Gemstar Data Delivery System.
Gemstar's primary source of revenues to date has been license
fees paid by consumer electronics manufacturers and publications
for the licensing of the VCR Plus+ technology and the right to
print the PlusCode Numbers,as well as from the licensing of the
Gemstar Guide Technology.

The recent merger of TV Guide (TVGIA) and Gemstar ended months
of speculation and boosted the share value of the parent company
substantially.  Revenues for the combined entity, Gemstar-TV
Guide International, are reported to be around $1.5 billion with
an estimated cash flow of $350 million, and a market cap of $32
billion.  The new company has an impressive IPG portfolio with
over 200 patents for the technology that enables TV viewers to
interact, search and channel surf.  The interactive TV arena is
expected to explode over the next few years and the developments
in satellite television, along with the convergence of Internet,
television and telephones should create a multimillion-dollar
revenue stream for the company.

A number of analysts upgraded the issue after the merger news
and based on the fundamental outlook, the combined company may
be a great long-term portfolio holding.

GMST - Gemstar - TV Guide  $68.69

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call AUG 55   GST HK  7659     16.00    52.69     4.4%
Sell Call AUG 60   GST HL  7484     12.63    56.06     7.1% ***

Sell Put  AUG 50   GST TJ  137       1.13    48.87     7.7% ***
Sell Put  AUG 55   GST TK  1521      2.38    52.62    14.9%

Chart =
 

******

ITWO - I2 Technologies  $131.62  *** Solid Earnings! ***

i2 Technologies is a provider of intelligent eBusiness solutions
that help enterprises optimize business processes both internally
and among trading partners.  Its solutions enable enterprises to
operate more efficiently, more effectively collaborate with
suppliers and customers, and conduct business transactions over
the Internet.  They recently launched TradeMatrix, a robust
platform of business-to-business solutions, services and
marketplaces, which will allow customers, partners, suppliers and
service providers to do business together in real time.  Its
services include procurement, commerce, customer care, strategic
sourcing, product development, and more.

Yesterday, i2 reported the best quarter in its history, with
revenues of $242 million, up 84% compared with the prior-year
period.  i2 reported net income of $0.10 per share, well above
consensus estimates.  The acquisition of Aspect Development
added $11 million to the top line, but i2 would have exceeded
estimates even without those revenues.  The underlying reason
for i2's better-than-expected earnings were operating margins
that improved during the quarter and their new business model
helped boost revenues.  The company is starting to generate a
recurring stream of subscription revenue based on the various
e-marketplaces it helps create and we think there is a bullish
future in store for the company.

ITWO - I2 Technologies  $131.62

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call AUG 115  QYJ HC  56       22.63   109.00     5.6% ***
Sell Call AUG 120  QYJ HD  228      19.88   111.75     7.5%

Sell Put  AUG 92.5 QYJ TZ  5         1.44    91.06     5.3%
Sell Put  AUG 95   QYJ TS  77        1.69    93.31     6.1% ***
Sell Put  AUG 97.5 QYJ TU  1         2.19    95.31     7.8%
Sell Put  AUG 100  QYJ TT  248       2.69    97.31     9.4%

Chart =
 

******

MERQ - Mercury Interactive  $105.00  *** A New Entry Point! ***

Mercury Interactive is a provider of integrated performance
management solutions that enable businesses to test and
monitor their Internet applications.  Their software and hosted
services help e-businesses improve the user experience by
enhancing the performance, availability, and reliability
of their Web sites.  By using Mercury Interactive's solutions to
identify and assess performance problems, e-businesses can
increase their ability to attract and retain customers, and
improve their competitive advantage.  A wide range of businesses
use their products, including America Online, Jobs.com, Ariba,
Cisco Systems, Ford Motor Co. and Walmart.

Mercury Interactive began to rally after Standard & Poor's said
it would add the Internet software testing company to its closely
watched S&P 500 market index.  Mercury replaced Milacron (MZ),
which took its place on the S&P Small-Cap 600.  Then the company
enjoyed another bullish move in anticipation of earnings.  MERQ
reported that revenues for the second quarter of 2000 were $69.6
million, an increase of 64% over the $42.5 million reported in
the second quarter of 1999.  Net income was $12.4 million, an
increase of 85%, compared to the second quarter of last year.
The most important number, earnings per share, increased to $0.14,
up 75% from $0.08 for the second quarter of 1999.

Based on the recent trend, our outlook for the issue is neutral
to bullish and the current upward momentum should propel the
share value well clear of our target cost basis.  In the event
of further consolidation, this company would certainly be a
candidate for any long-term portfolio.

MERQ - Mercury Interactive  $105.00

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  AUG 80   RQB TP  15        1.13    78.87     5.2% ***
Sell Put  AUG 85   RQB TQ  59        2.06    82.94     8.7%
Sell Put  AUG 90   RQB TR  22        3.13    86.87    10.5%

Chart =
 

******

NTAP - Network Appliance  $100.44  *** Hot Networking Sector! ***

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

NTAP is one of the leading companies in the Networking group and
fundamentally, they are near the top of the heap.  Last quarter,
the data access services provider reported earnings that were well
ahead of market expectations.  The company said net income rose
128% in the first quarter to $24 million, up from $10 million a
year earlier.  Sales more than doubled to $200 million and based
on the positive report, a number of brokerages upgraded the issue.
Merrill Lynch, Needham, Solomon Smith Barney, SunTrust and A.G.
Edwards, all moved their future earnings estimates higher with
bullish price targets.
 
From our viewpoint, the sector outlook is excellent and the issue 
appears to have made a successful technical recovery, moving above
a recent resistance area near $80-$85.  The next earnings report
is due the day before August options expire and it appears there
is only a slim chance the stock will test our sold strike during
the next month in this bullish, low risk position.

NTAP - Network Appliance  $100.44

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call AUG 90   ULM HR  479      15.00    85.44     5.4% ***

Sell Put  AUG 75   NUL TO  168       1.13    73.87     5.4%
Sell Put  AUG 80   NUL TP  316       1.88    78.12     8.7% ***
Sell Put  AUG 85   NUL TQ  197       2.94    82.06    10.8%

Chart =
 

******

SAPE - Sapient  $120.31  *** A New Range? ***

Sapient is an e-services consultancy providing Internet strategy
consulting and sophisticated Internet-based solutions to Global
1000 companies and startup businesses.  They helps their clients
define Internet strategies to improve their competitive position.
Sapient designs, develops and implements solutions to execute
those strategies.  Their services include digital business
strategy development; experience modeling; creative design;
technology development and systems integration.

Analysts are bullish on Sapient and today coverage was initiated
on the company by Bear Stearns.  This positive review is the
latest of several recent analyst recommendations on Sapient.  In
April and May, both W.R. Hambrecht and Pacific Crest upgraded
their prior recommendations to “Strong Buy.”  These opinions
received some additional support at the end of June, with the
release of a Forrester Research study naming Sapient as the
top-ranked e-services firm in a comprehensive industry study.
Forrester said Sapient's skills put the firm ahead of its many
competitors for delivering differentiated user experiences across
the Web and traditional channels.  Sapient earned the top spot
based on Forrester's detailed analysis of the company, including
interviews with company executives and a Sapient client, United
Airlines.  Sapient came out on top compared to 40 other firms,
including IBM Global Services, KPMG Consulting, and Scient.

SAPE - Sapient  $120.31

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Put  AUG 85   SUJ TQ  0         1.44    83.56     5.7% ***
Sell Put  AUG 90   SUJ TR  332       2.25    87.75     8.7%
Sell Put  AUG 95   SUJ TS  20        3.13    91.87    11.7%

Chart =
  

******

VSTR - Voicestream Wireless $145.50  *** Merger Rumors! ***

VoiceStream Wireless provides personal communications services
(PCS) under the VoiceStream brand name in 11 urban markets,
including large cities such as Denver, Seattle, Salt Lake City
and Honolulu.  They hold 107 broadband PCS licenses covering
approximately 62.6 million persons.  VoiceStream Wireless'
services include rate plans, prepaid services, wireless e-Mail,
wireless data, and text messaging.

German telecommunications giant Deutsche Telekom AG has made a
bid for VoiceStream that values the company at over $50 billion.
Sources say the offer is over $200 per share of VSTR stock and
the two companies are reportedly holding serious talks about a
potential deal.  Deutsche Telekom plans to enter the U.S. market
and is expected to draw from an investment pool of $92 billion
to finance its most recent foray.  The Wall Street Journal said
Deutsche Telekom's offer could trigger a bidding war for VSTR
with NTT DoCoMo, the wireless affiliate of Japan's Nippon
Telegraph and Telephone.  Regardless of who buys the company,
the competition should hold the share value at or above its
current price, providing a relatively conservative position.
 
VSTR - Voicestream Wireless $145.50

Action    Month &  Option  Open     Closing  Cost     Monthly
Req'd     Strike   Symbol  Interest Price    Basis    Return

Sell Call AUG 130  BWU HF  154      20.75   124.75     4.3%
Sell Call AUG 135  BWU HG  130      18.25   127.25     6.2% ***

Sell Put  AUG 110  UVT TB  81        1.69   108.31     5.6% ***
Sell Put  AUG 115  UVT TC  150       2.38   112.62     7.7%
Sell Put  AUG 120  UVT TD  136       3.38   116.62     9.5%

Chart =
 



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