Option Investor

Daily Newsletter, Sunday, 07/30/2000

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The Option Investor Newsletter                  Sunday  07-30-2000
Copyright 2000, All rights reserved.                        1 of 5
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        WE 7-28          WE 7-21          WE 7-14           WE 7-7
DOW    10511.17 -222.39 10733.56 - 79.19 10812.75 +176.77  +188.09
Nasdaq  3663.00 -430.86  4093.86 -152.32  4246.18 +222.98  + 57.09
S&P-100  776.18 - 28.37   804.55 - 10.97   815.52 + 12.52  + 12.75
S&P-500 1419.89 - 60.30  1480.19 - 29.79  1509.98 + 31.08  + 24.30
RUT      490.22 - 32.48   522.70 - 19.93   542.63 + 14.41  + 10.99
TRAN    2769.53 - 38.89  2808.42 -110.62  2919.04 +134.40  +139.27
VIX       24.30 +  2.83    21.47 -  1.14    22.61 +   .79  -   .44
Put/Call    .59              .38

What an ugly week!

Friday was a fitting end to a really ugly week. The economic news
on Friday morning was bad, very bad. The GDP jumped to +5.2% from
a June adjusted growth rate of +4.8%, a +8% jump. Soft landing?
Slow down? What slow down? The economy is alive and well and
thumbing its nose at Greenspan and company. Existing home sales
are up, durable goods orders up, retail sales up, unemployment
dropping with wages and benefits rising at the fastest rate in
a decade. Just guess what the number one topic on trading desks
will be next week? You will hear it on every media outlet and
from every talking head. You are absolutely right, another
interest rate hike at the August 22nd FOMC meeting. The markets
saw the writing on the wall with the GDP report and traders not
on vacation ran to the sidelines. Money market funds swelled by
over $8 bln last week and that was before the GDP report.

Before you read the rest of this remember "it is always darkest
before the dawn." All the market news was bad. Support points
were evaporating as though they were written in disappearing ink.
The Dow dropped to support at 10500 at the open and was never
able to mount any serious rebound for the entire day. Closing
only slightly off the days lows at 10511. The critical support
at the 200 DMA of 10760 failed on Monday and the technical
outlook is grim.

Tech traders on the Nasdaq ran for cover early and bargain hunters
were obviously on vacation. After the opening drop of -150 points,
-430 points for the week on top of several hundred from the prior
week, you would have expected the bargain hunters to be out in
force. There was not a buyer to be found with the low for the day
occurring only ten minutes before the close. The 200 DMA for the
Nasdaq is only a distant memory at 3862 over -200 points away.
The Nasdaq has now fallen -15% as expected since the 4287 intraday
high last week.

Technical traders looking at the broader market and the S&P-500
saw that index close below the critical 1421 level which is the
200 DMA as well. The selling was not limited to tech stocks with
the SPX breaking a long term up trend in place since last February.

The Wilshire Total Market Index (TMW.X) of 5000 stocks broke
through strong support at 13500 with a strong -298 point drop.
This index is the broadest measure of market strength and direction
and the drop confirms that the sell off is not just Nasdaq tech
stocks or old economy Dow stocks. The only sectors that appear
to be holding their ground are the defensive areas of insurance,
food, beverage and drugs, traditionally pockets of strength when
the market outlook is negative.

Other pressures on the market that have nothing to do with the
economic reports include the money flow and the IPO calendar.
Over $8 billion moved into money market funds last week as
investors sought the safety of the sidelines during the summer
doldrums. In addition to the withdrawal of cash by investors,
there was a strong group of new offerings which took over $3.5
billion in cash out of the existing market. With the success of
the recent IPO surge, there are no less than 33 scheduled to make
their debut next week. The total cash expected to pour into
these new offerings is over $5 billion. Add to this the huge
secondary offering by Goldman Sachs of $4 billion and you can
see a huge drain on the market for next week. Take $10 billion
more or less out of the market and a lot ho hum, mediocre stocks
are going to see investors leave and never come back. Investors
who have been hanging on to losers as they continued to drift
lower will eventually decide to close those positions, take
the loss and try to find something more exciting like a sexy
new IPO.

Ugly, ugly, ugly. Maybe that is the bright side of the analysis.
If things are always darkest before the dawn and traders wait
for the leaders to capitulate before moving back into the market,
then look out for the stampede. CSCO held firm all week when
the rest of the market was heading south. On Friday, CSCO dropped
-5.19 to a low of $62.81. Dell concluded a -17% slide from
$54 to $43 with a -1.81 drop. Intel which had resisted the
drop finally capitulated with a -7.88 loss on Friday and closed
at the low of the day. WCOM slid from $50 to $36 last week and
optical powerhouse JDSU traded as low as $115.50, a number not
seen since the announcement about the S&P 500 inclusion. JDSU
closed the day with a -12.38 loss which equated to a whopping
-$54 loss for SDLI when taking into account the upcoming buyout.
If leader capitulation is required for re-entry into the market,
then look out for the stampede!

As if we did not have enough to worry about, the Asian markets
are silently dropping and the economic recovery in Asia may
not be as hot as we thought. Some of the drop is related to
the Nasdaq and the tech weakness. Since much of the Asian
economy is built on the assembly of tech products for world
consumption, any slow down in cell phones and personal computers
could hit them hard. If the Nasdaq weakness is a leading
indicator for Asia, then they have a tough week ahead. The
Nasdaq lost -431 points for the week, the second largest drop
ever, and did it on strong volume. Friday's volume was 1.77 bln
shares and almost 1 bln on the NYSE. Ironically, put contract
volume is up only slightly but call volume is up as well. In
spite of the big sell off, investors still appear to be
complacent and not afraid of any further drops.

If we need further reason to worry, we need only look to the
economic calendar for next week. Every report will be examined
microscopically for evidence of growth and inflation beginning
with the Chicago PMI on Monday, Personal Income/Spending and
Construction Spending on Tuesday. New Home Sales on Wednesday,
Factory Orders on Thursday and, drum roll please, Nonfarm
Payrolls for July on Friday. With the market on Fed watch, the
nonfarm payrolls will be a big stumbling block. We do not have
the census workers to blame things on any more. We will have
to live and die by the number, good or bad.

Rising interest rates, economic reports, earnings warnings,
money flow, IPO flood or just summer doldrums. What ever
reason you want to apply to the drop last week at least that
week is over. Now, where do we go from here? I would not
touch that with a ten foot pole, as they say. Emotionally, I
would expect to see a relief rally on Monday. Nothing goes
up or down in a straight line and a -15% drop on the Nasdaq
should be a huge buying opportunity. However, if you bought
at -15% back in March or April you would have lost a lot
of money. With those drops in recent memory, traders are being
a lot more careful about buying the dips. So, where emotionally
you would expect a relief rally there may not be one. Analysts
are now pointing to levels I mentioned last week of 3500 and
some even lower. Just remember those same analysts were looking
at 4500 just last week.

The problem as I see it is simply the season and investor
psychology. Many investors got burned severely last spring.
Many have yet to re-enter the market. Every summer we get a
lot of subscriber cancellations with notations, "going on
vacation, back in September." When September comes, these
readers come back ready to whip the markets and ride the
fourth quarter wave. This summer has been worse after the
beating investors took in March/April. Actually, I have
spoken with other site owners who claim their site traffic
has dropped -25% to -35%. Carry this on through to brokers
that have seen order volume from retail traders drop as much
as 50% and you can see why the dip was not met with bargain
hunters. Look back at the Nasdaq rally in June. Compared to
the 1999 Nasdaq excitement, this was a yawner. Slow, steady, no
excitement. The pre-earnings jump for a week in July actually
created some interest but when the first signs of trouble
appeared investors sold into the rally and moved to the
sidelines again. Investors who are not on vacation are simply
much more cautious and are protecting their capital.

Technically the Nasdaq is oversold. Emotionally, traders want
to buy but are scared. The farther the market drops the more
likely a bounce will occur and the more confident traders will
become. They will feel the possibility of a further loss is
minimal. If the market bounces at the open on Monday, I would
not be a buyer. That would be an emotional bounce. If the
market opens down and we get a decent downward spike, I would
be a buyer on any rebound, BUT ONLY AS A TRADING BUY, not as
a buy and hold. If we get a drop to 3500-3550, I think that
would be a buy signal. The close at 3663 on Friday is exactly
a -50% retracement of the gains since May. Technically, this
is a make or break point. The next technical signal would be a
61.8% Fibonacci retracement to 3518. This fits in well with
targets of 3500-3550 and would be a convergence of technical
and sentiment indicators. Just remember any early week rally
is likely to meet serious selling and another pull back before
the Friday nonfarm payrolls. As I mentioned above, get used
to hearing about the Fed meeting on Aug-22nd. It will be the
topic of conversation in every analyst interview. I heard on
a weekend talk show that several analysts are already expecting
a hike at the following meeting as well, despite the election.
The fall back was another +.50% hike in August to avoid raising
again before the election. Either scenario will not be well
received by the markets this week.

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Just like clockwork, the QQQs tanked after the earnings season
and brought life back to the VIX.  It's just too bad not all
trades are this successful.  I jumped out of puts mid-week and
missed the final downward surge, but I'm not complaining.  I
am already looking forward to third Friday in July next year!

But with such a pronounced downside move in the Nasdaq, second
largest one week decline to be exact, it wouldn't surprise me
to see a modest rebound.  Don't get me wrong, this isn't the
time to load up on bullish positions, but a quick downward move
in the first hour of trading on Monday could provide some entry
points for a couple day rebound.  It's hard to say how long that
might last, but I will probably be thinking puts again later
in the week.

Here is the VIX chart we looked at last week for comparison to
this week's chart.

Last week's VIX chart

This week's VIX chart

And there you have it!  Complacency is officially over.  The
question on everyone's mind now is, how long until we hit 30?
I don't expect it soon, but historical patterns tell us we it
is on its way.  This is the time of year that poor volume and
poor momentum eat away at the stock market.


Some blame the QQQs for being too slow to trade, and while that
can be true at times, it wasn't the case this week.  Under the
right circumstances, it becomes my favorite trade.  I only had
one round trip play this week, which was a swing play of a
couple days and it treated me well, but when the QQQs are moving
you can daytrade them too.  Matt Russ (Asst. Editor) had eight
round trip plays of which six were good winners and the two
losers were only of an 1/8 and 1/4 respectively.  You can see
from the charts how this "balloon letting out air" decided to
pop and plummet to the ground.

Last week's QQQ chart

This week's QQQ chart

I am not planning on playing the bounce, but if the dip Monday
morning is strong enough, I will jump in.  I am more inclined
to play some individual stocks that look good.  And I will be
waiting patiently for the rollover after the bounce to re-open
some put plays.  Wow, I sound fairly bearish for a naturally
bullish guy, but it's all about learning to take what the market
gives.  Remember, market neutral at all times!


You may recall our analysis of PVN last week...

"The play here is easy.  We want to see $100 hold and the volume
continue to increase as the stock moves up."

Last week's PVN chart

Well, we got the pullback to $98 on Monday, followed by a higher
low on Tuesday at $99, then the pop back over $100 was the green
light.  The volume was good, not great, but you can really start
to see a trend emerging here.  And in the face of a market
sell-off is even more convincing.  Follow the trendline for
entries, but a breakout above last week's high is also buyable
for aggressive investors.

This week's PVN chart

New Plays

There are too many stocks to list that are in an over-sold
condition.  For a more comprehensive list of bullish plays,
check out the calls section.  But for this week's new play, I
wanted to show you a direct relative of PVN known as Capitol One
Financial.  It has a similar pattern and looks like it is about
to hit breakout mode.  You can see the ascending wedge pattern
in the chart.  In fact, it looks like the move above resistance
began Friday afternoon.  A confirmation Monday morning would
do the trick for me.  I am always encouraged when I can find
the sector participating, instead of one lone runner.


I have no front month options right now, but I anticipate more
volatility this week.  With that said, you should be able to
find lots of short-term trades, but use caution.  If you can't
watch them closely, I would stay out all together.  Many analysts
are now expecting a retest of the May lows for the Nasdaq, down
near 3100.  I would agree with that statement too.  Therefore,
don't get caught in bullish positions by holding out for more
than a few days.  Money is more likely to be made to the downside
in the coming weeks.

Good luck!

Ryan Nelson

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COT & VIX One, Bulls Less Than Zero
By Austin Passamonte

Look on the bright side - the VIX has left it's danger zone!
Sorry, poor attempt at humor considering how much pain was
inflicted on unsuspecting bulls this Friday.

That being said, we readers at OIN have no excuse to be part
of this crowd. All the warning signs signaling an eminent
decline have been expounded for weeks. Blindly ignoring them
couldn't change the inevitable which began over the past few
sessions. In the end, truth is always clear.

It came as no surprise that S&P 500 commercial traders added
to their historical 10-year net short position. Latest data
was recorded Tuesday, July 25th and released at 3:00pm Friday
the 27th. Fearless forecast of the month: The SP00S commercials
began covering their shorts at significant profits later this
week while bullish small specs liquidated for huge losses. No
surprise here, the giants win almost 90% of these contests.
Who did you place your money on to win?

Going forward, we feel the bottom may lie considerably lower
in the distance. It might not take long to find it although
a relief rally is due. Current market sentiment favors a bounce
in the OEX to retest the 790 area this week, possibly from
Monday. We expect further selling to ensue at the open but
daring bulls will soon be tempted to buy "cheap".

Rally attempts may be tradable events but expect them to fail
as new waves of selling pressure emerge. Be very cautious
playing the long side, near term. We consider the next few
rallies to be excellent put-buying opportunities.

Commercial traders in the NASDAQ 100 have switched from net
short to net long, although barely. Small specs in the NDX
have done the reverse. This could be a setup for strength in
the intermediate future we will monitor closely.

We would like to see the S&P 500 commercials build a net-long
position while small specs grow short but that may or may not
develop. If it does while the VIX returns near the 30 level
we will feel confident a solid bottom is in progress.

Overall public & media sentiment has switched 180 degrees in
less than two weeks. Expect that to intensify. We at OIN will
carefully watch contrarian indicators to signal the next
bullish entries. They are ahead of us, but it's impossible to
say where or how far. Continue to favor the downside. In my
opinion we are much more likely to first test April lows than
July highs going forward. This trend is a bearish-wave until
the markets can prove otherwise.

Don't like buying puts? We personally watched OEX 790 puts
trade from 8.5 to 21, QQQ 93 puts from 2.5 to 8 and PDLI
120 puts from 2 to 6 5/8. What amount would have been too
many for you to own? Countless examples abound this week
past and likely await your decision in the days ahead as
well. Choose your trades wisely and prosper!


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.

Thurs 7/27 close: 22.21    Sat 7/29 close: 24.30

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            (7/25)      (7/27)       (7/29)

CBOE Total P/C Ratio         .53         .59          .56
Equity P/C Ratio             .46         .54          .46

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     (7/25)        (7/27)      (7/29)

All index options     2.75          1.15        1.51
OEX Put/Call Ratio    1.69           .97        1.38

OEX Maximum Open Interest Strikes/Contracts:

Puts                  790/6,646   790/7,043  790/7,848
Calls                 805/4,059   810/4,191  800/4,806
Put/Call Ratio          1.64         1.68      1.63

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. Numeral
listed for resistance is the ratio of calls to puts. Support
is ratio of puts to calls. Values above "5" considered firm.
Divergence of numbers may indicate future market direction.

OEX                      Tues         Thurs      Sat
Benchmark:               (7/25)       (7/27)    (7/29)

Overhead Resistance:
(900 - 825)*                    N/A             223.80*
(820 - 805)                NEW BENCHMARK          1.78
(800 - 780)                    DATA                .46

OEX Close:                 802          793       776

Underlying Support:
(780 - 765)                                      18.49
(760 - 740)                                       9.83

What the S/R measure indicates: Net open-interest ratios
are firm directly below 780 and very light above. A large
move in either direction now favors the upside. Net open
interest above 820 is astronomical, suggesting further
return of that level prior to expiration is unlikely. We
expect to see a relief rally this week to test the 790
range on the OEX.

30-yr Bond:               5.80%       5.77%       5.78%

Light, Sweet
Crude, Barrel:         $27.93        $28.10      $28.18

200 Day Moving Average (as of 7/25)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW;   10,760          10,699*       10,586*     10,511*
NASDAQ; 3,862           4,029         3,842*      3,663*
NDX;    3,585           3,865         3,681       3,477*
SPX      1421            1474          1449        1419*
OEX       765             802           793         766

CBOT Commitment Of Traders Report: Friday 7/28
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;    +445 (long)        - 345 (short)
Total Open
Interest %        6.2% net-long       2% net-short

Net contracts;    - 16,052 (short)      + 445 (long)
Total Open
Interest %          22% net-short      3.5% net-long

S&P 500
Net contracts;     + 40,665 (long)     -53,521 (short)
Total Open
Interest %           24% net-long       9.5% net-short


Interest rates
5.78% on the 30-year Treasury Bond may be signaling the rate
fears are mixed. Fed-Fund futures are pricing a 50% chance of
one or more rate hikes, .25 basis at this time.

COT Report - NASDAQ 100
Sentiment reversal with small speculators growing net-short
while commercials begin accumulation may suggest expected
strength in the sector over the next weeks or months.



Major Indexes Faltering
Most major indexes are trading below 200 DMAs with numerous
big-cap market leaders weakening or suffering.

End Of Earnings Season
Lack of positive news will direct market focus on August
FOMC fears.

Third-Quarter Earnings Warnings
A number of companies pre-warning slowed earnings later in
the year are being met with extreme selling pressure.

IPO Glut
Large numbers of nearby IPOs if executed could greatly dilute
thinning market capital and pressure existing issues.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. August Crude closed $28.18 today.
Seasonal energy patterns typically bottom by late summer,
but heating & fuel oil expected to be very high this fall.
Prices in the low $20s would be welcome relief.

COT Report - S&P 500
Latest updated figures show small spec traders were heavily
long S&P 500 contracts while commercial traders continued
to build ten-year extreme short position. Widened divergence
strongly implored market turn in favor of commercials. The
bottom is likely still ahead.

Seasonal Tendency The last two years have seen weeks following
expiration Friday result in market decline through fall. Broad
market failure is confirming history may repeat.


As of Market Close - Friday, July 28, 2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,511      10,400  10,950
SPX   S&P 500           1,419       1,395   1,520    **
COMPX NASD Composite    3,663       3,400   4,300    **
OEX   S&P 100             776         764     822    **
RUT   Russell 2000        490         470     550    **
NDX   NASD 100          3,447       3,400   4,100    **
MSH   High Tech           959         890   1,075    **

BTK   Biotech             605         560     730    **
XCI   Hardware          1,440       1,360   1,600    **
GSO.X Software            395         370     455
SOX   Semiconductor       957         880   1,200
NWX   Networking        1,218       1,150   1,400    **
INX   Internet            485         470     605

BIX   Banking             536         525     575    **
XBD   Brokerage           559         500     590
IUX   Insurance           687         630     705

RLX   Retail              882         860     910
DRG   Drug                398         385     430
HCX   Healthcare          817         800     855
XAL   Airline             162         156     178
OIX   Oil & Gas           284         264     308

Several support levels were taken out on Friday and shorts
will be looking to cover some positions near-term.  We are
starting to see some of the favorite tech stocks start breaking
down and this is expected in a good washout.  Lowering support
resistance (MSH,RLX).


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Time to Catch a Piece of the Trend
By Buzz Lynn
Contact Support

When we said Thursday that we were another day closer to a
volatility change, we had no idea it would come Friday.  Whoa
Momma!  Finishing the day at 24.32, the VIX closed at its highest
level since June 27th.  What that means is that some pessimism is
beginning to form, which became readily apparent in the NASDAQ's
big decline under its 200-dma of 3867 and its historical support
level of 3750.  We could chalk it up to just another soft Friday
in the markets, however, nearly 1.8 bln shares traded tells us
this decline may have some legs.  Conversely, since lightning
rarely strikes the same place twice, we are unlikely to see
another 150-200 point drop on Monday.  In fact, it wouldn't be
unusual to see a dead cat bounce early this week.  We still need
to be on the lookout around 3725-3750 to see if that level will
provide resistance.  Should the market make an attempt at
recovery and roll over at that point, it would confirm the
negative trend.  In other words, consider it a great entry for
put buying.  With that line of thinking, we have no sectors to
trade long this week.

Now, let's turn to a few HOLDRS we didn't pick this weekend that
may still become good plays.  You may remember from Thursday we
had PPH on our radar for calls if the market tanked (it did), or
TTH should the market rally (it didn't).  PPH cleared the
congestion and looked good on Friday with two exceptions.  First,
it still didn't clear its 50-dma.  Second, the move came on
decreased volume.  There was simply no conviction from investors
to tell us that the drug stocks are taking off again.  Thus, no
play.  TTH was a different animal.  Continued weakness in T and
WCOM made the TTH chart look ugly, sending this issue to a new
low.  It looks like a great short candidate.  But if you look at
the largest components, SBC, T, and WCOM, they all have good
support at their current levels.  If these three find support,
then TTH won't move much lower, despite the appearance of a nice
down trend.  It too may have found a bottom.  Again, no play.

Some sectors got hit so hard on Friday, we reversed our stance
from long to short.  Check out the IAH play to see why.  Other
new plays include shorting or put buying on HHH, IIH, and BDH.
Careful though.  Lots of stochastic readings are flashing
"oversold".  Once the selling is over, the dog days of Summer are
likely to give us another rangebound market where our play
structure will change again.  For now, we have to play the hand
we're dealt.  Check 'em out below!

On the radar: PPH-long, TTH-spread.

Still have questions?  Send them in!  Though we can't respond to
questions seeking advice on a specific play, we'll always address
those universal issues that are important to you, our readers.


Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    86.81  -2.50   1.25  -0.25  -3.44  -5.00  -9.94
HHH Internet     101.19  -5.63   1.44  -2.56  -4.63  -4.94 -16.31
BBH Biotech.     168.31  -6.00  -8.50   1.63   0.56  -7.75 -20.06
PPH Pharm.        98.88   3.69  -3.38  -0.81   2.06   0.56   2.13
TTH Telecom.      67.25  -1.56   0.31  -1.38  -2.81  -1.44  -6.88
IAH I-net Arch.   90.06  -4.38   2.38  -0.19  -2.88  -3.47  -8.53
IIH I-net Infr.   50.25  -2.38  -0.44  -1.81  -4.94  -3.88 -13.44
BHH B2B           40.75  -2.50   0.44  -1.25  -2.63  -2.31  -8.25
BDH Broadband     85.75  -2.75   1.81   0.25  -5.63  -5.63 -11.94
SMH Semicon.      81.63  -0.38   3.56  -4.06  -6.06  -1.06  -8.00
RKH Reg. Banks    95.25   0.25  -0.19  -2.44   0.13  -1.13  -3.38
UTH Utilities     93.50   0.00  -0.06  -1.00   1.00  -0.19  -0.25


QQQ - NASDAQ 100 $86.81 (-9.94 last week) "A fall under $90
could set up a near-term trend for further downside action."
Wow!  We had no idea that downside would come that quickly when
we penned those words on Thursday.  Like the NASDAQ, QQQ fell
well below its 200-dma of $90.  While the news pundits kept
talking about "the lack of buyers" rather than a preponderance of
sellers, the nearly 1.8 bln shares traded on the NASDAQ should
have caused them to change their thinking.  That's pretty big
volume for a Summer Friday.  QQQ also saw a large volume increase
telling us that sentiment is changing to the negative.  If there
is any good news, it's that QQQ has finally fallen far enough to
fill the gap it created on June 2nd, which could lend some
support if only temporarily.  The next area of support is $84,
while new resistance is back up at $90 from where it fell.  How
does that work?  In technical analysis, old support frequently
becomes new resistance in a down trending market, while old
resistance can become new support on the way up.  In the latter
situation, that's what the term "breakout" is all about.  Suffice
it to say, QQQ is in a downtrend now.  But with the stochastic
registering oversold, we could get a dead cat bounce, possibly
followed by further decline over the next few weeks.  Either way,
count on a rangebound market after the dust settles or enjoy
getting dirty in the process.

Long Straddle:

Finally, a big volatility move on the VIX, which also rubbed off
on the QQQ.  We are now beginning to see some small inflation in
the time value of our premiums.  As volatility increases, that
trend should continue.  We mentioned this Thursday, but it bares
repeating, "We may begin to see the volatility increase if NASDAQ
makes a break to the downside.  Though our call would be losing
intrinsic value, our put would be gaining, and volatility would
be increasing the remaining time value of both.  In essence, this
becomes a race against the clock where we seek to have a big
market move to increase volatility before all the time value
component of our position evaporates.  That's why we buy enough
time to be right and still have enough to sell back if we are
wrong.  You know Jim's saying - buy time if you want, just don't
use it."  While this play was looking good when the VIX was at
21-22, as VIX approaches 28-30, you don't want to be buying this
position only to have volatility decrease and thus decrease the
premiums too.  The fact is that QQQ has its own volatility
considerably higher than the OEX, so we are paying more for time
value than with an OEX contract to enter a position.  That means
it evaporates faster when volatility falls.  But the same concept
applies - volatility increases the value of the time premium in
the short run.  In the long run though, we still need a big move
to get the intrinsic value working more in our favor too.  If you
are already in this play, you may want to stick with it - it's
working.  If you aren't, as the premiums become more expensive to
buy, this play becomes less profitable, or worse, becomes a loser
when volatility retreats.  Understand the concept before getting


BUY CALL DEC- 86 QVQ-LH OI=1343 at $12.00
BUY PUT  DEC- 86 YQQ-XH OI=1397 at $ 9.25
Net Debit = $21.25 or less

BUY CALL DEC- 90 QVQ-LL OI=1563 at $10.00
BUY PUT  DEC- 90 QVQ-XL OI=2229 at $11.25
Net Debit = $21.25 or less


BUY CALL DEC- 90 QVO-LL OI=1563 at $10.00
BUY PUT  DEC- 86 YQQ-XH OI=1397 at $ 9.25
Net Debit = $19.25 or less

Calendar Spread:

Despite an immediate downward trend, we anticipate it to
eventually flatten out and become rangebound.  That's a perfect
time to initiate a spread.  For those of you brave soles, you can
consider shorting a current month call now (maybe on a dead cat
bounce?) with the intent to buy a longer-term call at a later
date for a cheaper price.  That's called "legging in".  You just
need to be right about the market direction at the time you
execute your trades.  Otherwise, if QQQ has already found a
bottom, you could leg in by purchasing the long term call now and
selling the near term call when it hits resistance at say $90 -
again, maybe on a dead cat bounce.  QQQ is at mild support
(around $86-$87) from filling the gap-up island created on June
2nd, which could make a good entry.  Either way, the objective is
to have time decay from selling short term options pay the cost
of the long term option.  Confirm the bottom before getting into
the long-term position.  Remember to set reasonable stops perhaps
at a value of 10-20% below your net debit in case the market
sinks again like a stone.

BUY  CALL DEC- 86 YQQ-LH OI= 1343 at $12.00

SELL CALL AUG- 86 YQQ-HH OI=   58 at $ 5.13, ND =  6.88 or less
SELL CALL AUG- 90 QVQ-HR OI=  995 at $ 3.13, ND =  8.88 or less

Long Puts

Despite finding mild support in the $86-$87 range from which QQQ
gapped up on June 2nd, the overall trend points down, thus we
switch to the put side this weekend.  As we noted Thursday, the
gutsy and experienced can simultaneously sell calls and buy puts.
But that's a strategy best saved for the trigger-happy expert
market timers.  For the rest of us, heavy volume on Friday's
decline makes the downward trend look sustainable, save a dead
cat bounce or two.  Consider any decline under $86, or a rollover
from resistance at $90, heck even $89, as a put buying
opportunity in expectation of continued weakness.  Otherwise $85,
and $81 would be the next areas of support.  Remember to watch
the big guys INTC, MSFT, WCOM, ORCL, JDSU, DELL, and CSCO for
clues to direction.  CSCO reports earnings on August 8th and may
display some strength after Friday's $5 fall to $63.

At Resistance:

BUY PUT  AUG-90 QVQ-TL OI= 6647 at $6.00 SL=4.00
BUY PUT  AUG-86 YQQ-TH OI= 8500 at $4.00 SL=2.50
BUY PUT  AUG-80 YQQ-TB OI= 7142 at $1.81 SL=0.75

Average Daily Volume = 22.01 mln


IAH - Internet Architecture $90.06 (-8.53 last week) Ready, set,
SWITCH!  IAH was so ugly on Friday, it merits playing in the down
direction.  Recall that we noted to walk away if IAH fell under
its 30-dma.  Not only did IAH gap down under its 30-dma, it fell
far enough to close under its 50-dma (barely) on a 42% increase
in volume over its ADV.  If that weren't enough, technical
indicators like MACD, RSI, and stochastic all fell over as if
pierced through the heart.  Nonetheless, while sellers had the
upper hand most of the day, IAH managed to find support at a
historically strong level of $88.75.  So this put play comes with
a contingency.  If the market recovers, better to stand aside.
However, if it continues to fall, look for IAH to fall under
$88.50 before taking a position.  At that point $85 would be the
next level of support.  The fact is that IAH could just as easily
bounce up or trade sideways at this level.  So make sure to nail
the entry.

BUY PUT AUG-95 IAZ-TS OI= 0 at $5.50 SL=3.50
BUY PUT AUG-90 IAZ-TR OI= 0 at $2.81 SL=1.50
BUY PUT AUG-85 IAZ-TQ OI= 0 at $1.19 SL=0.50

Average Daily Volume = 45 K

New Plays

IIH - Internet Infrastructure $50.25 (-13.44 last week) Like IAH,
IIH comes with a contingency before you get into the play.
Here's the deal.  IIH fell below all support, including the 50-
dma (currently at $57.13), Wednesday and Thursday.  Technically,
MACD and RSI, have rolled over.  The immediate trading future
doesn't look great for its components EXDS, BVSN, INKT, INSP, and
VRSN.  The stochastic is already flat on its back in the basement
at 4.81, which means buyers might now be interested.  Doubt it.
The double-edged sword on the stochastic is that it can stay
oversold for a long time if there aren't any buyers.  From those
aspects, IIH looks "put-able".  The catch is that the selloff
wasn't accompanied by much volume making investors intentions
unclear with IIH - no conviction.  The other thing to watch is
the price level at $50.  That's the point from which IIH gapped
up on June 2nd and to which it has retraced back in the last 2
days.  In short the gap is now filled and $50 could remain as
support.  The entry on this play could be made on any move under
$49, or any move back down from a dead cat bounce to $53.  Wait
for the entry.

BUY PUT AUG-55 IIH-TK OI= 46 at $6.38 SL=4.25
BUY PUT AUG-50 IIH-TJ OI= 10 at $3.13 SL=1.75
BUY PUT SEP-55 IIH-UK OI=180 at $8.88 SL=6.25

Average Daily Volume = 210 K


BDH - Broadband $85.75 (-11.94) Yet another contingency play!
BDH has been taking in the shorts (short sellers?) for the last
two days, which just happen to coincide with JDSU's earnings date
and addition to the S&P 500 on Wednesday.  Even the mighty JDSU
isn't immune to a post earnings selloff.  Neither is NT for that
matter.  Of course NT also announced its intent to buy ATON.  The
Street was unimpressed and handed NT a loss of nearly $5 on twice
the ADV.  Why focus on NT and JDSU?  NT makes up about half the
value of BDH, along with LU.  JDSU had a big jump over the last
two weeks and is thus subject to a big fall.  The fact is we may
be late to the party on this one.  BDH stopped dead on historic
support of $85 with volume below the ADV.  No conviction here
from investors to take it any lower.  At least not yet.  With
earnings season now ending, the bloom is coming off these former
roses, GLW, SCMR, AMCC, and SDLI, who all suffered double-digit
losses on Friday.  Only RFMD was in the green.  Anyway, the point
is that BDH is at support.  We need to see which direction it
goes from here, but the bigger trend says "down", give or take a
dead cat bounce.  That said, look to enter on a drop under $84.50
or on a bounce down from previous support at $88.  Confirm that
the market is weak before jumping in, as BDH will likely lead any
recovery in the tech markets.

BUY PUT AUG-90 BDH-TR OI=41 at $6.75 SL=4.50
BUY PUT AUG-85 BDH-TQ OI=20 at $3.88 SL=2.25
BUY PUT SEP-90 BDH-UR OI= 3 at $8.75 SL=6.25

Average Daily Volume = 210 K

No Play



For the week of July 31, 2000


Chicago PMI            Jul   Forecast:  55.8%    Previous:  56.8%


Personal Income        Jun   Forecast:   0.5%    Previous:   0.4%
PCE                    Jun   Forecast:   0.4%    Previous:   0.2%
Auto Sales             Jul   Forecast:   6.8M    Previous:   6.8M
Truck Sales            Jul   Forecast:   7.5M    Previous:   7.2M
NAPM Index             Jul   Forecast:  52.5%    Previous:  51.8%
Construction Spending  Jun   Forecast:   0.3%    Previous:   0.1%


New Home Sales         Jun   Forecast:   868K    Previous:   875K
Leading Indicators     Jun   Forecast:  -0.1%    Previous:  -0.1%


Initial Claims         07/29 Forecast:   280K    Previous:   272K
NAPM Index             Jul   Forecast:  61.5%    Previous:  64.0%
Factory Orders         Jun   Forecast:   5.0%    Previous:   4.6%


Nonfarm Payrolls       Jul   Forecast:    70K    Previous:    11K
Unemployment Rate      Jul   Forecast:   4.0%    Previous:   4.0%
Hourly Earnings        Jul   Forecast:   0.3%    Previous:   0.4%
Average Workweek       Jul   Forecast:  34.5H    Previous:  34.5H

Week of August 7th

08/07 Consumer Credit
08/08 Productivity
08/09 Wholesale Inventories
08/09 Fed Beige Book
08/10 Initial Claims
08/10 Export Prices ex-ag.
08/10 Import Prices ex-oil
08/11 Retail Sales
08/11 Retail Sales ex-auto
08/11 PPI
08/11 Core PPI
08/11 Michigan Sentiment

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The Option Investor Newsletter                   Sunday 07-30-2000
Sunday                                                      2 of 5

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More on Volatility
By Mary Redmond

If you look at options prices on the stocks you follow you may
sometimes be surprised to see that some stocks which have
recently made price declines have high priced call options.
For example, Broadcom has recently declined from $245 to $220,
yet the Jan 01 220 ATM call options were still priced at $46
when the stock was trading at $220, which is a premium of over
20% to the stock price.  You can compare this to Nortel, which
has Jan at the money call options priced at $11, a 15% premium
when the stock was priced at $73.  The reason for this type of
option price disparity is volatility.

An option's volatility will increase if the stock makes a big
move in either direction.  If a stock has a pattern of slow,
steady gradual increases then the volatility will tend to be
lower.  For the last several months, NT has usually made one
or two point moves on the up days and one or two point moves
on the down days.  Broadcom, on the other hand, frequently moves
up or down as much as twenty points in a day.  This is the main
reason Broadcom's volatility is higher and it's options are more
expensive than Nortel's.

The ideal time to buy an option is when the stock has been flat
for a long period of time and you have reason to believe that
it will make a large unanticipated move.  Under these conditions,
the implied volatility of the options will usually be less than
the historical volatility of the stock.  When a stock is due to
report earnings the volatility usually rises.  Now we are in a
period when many companies have reported earnings, and the
volatility of the options is still high from their earnings runs.
It is generally considered a poor time to buy call options.

Using the two stocks mentioned above as examples, you can compare
the historical and implied volatility numbers.  On Thursday,
Broadcom's historical volatility in June was 69.03.  The implied
volatility of the Jan $225 calls was 72.5.  This means that the
Jan calls are high priced using the implied and historical
volatility.  Nortel's historical volatility was 41.3 in June.
As of Thursday, the implied volatility of the at the money August
calls was 53.3.  This seems logical, as the stock has recently
reported earnings and made a strong earnings run.

If the stock has moved at all this will show up in the volatility
number.  For example, the implied volatility of Lucent is
relatively high partly because of the wide price swings which
occurred earlier this year.  On the first week of January Lucent
was $77.  By Jan 6 it had dropped to $52.  By March Lucent moved
up to $73, and has since that point lost nearly 35% of its value.
This type of historical movement increases option volatility and
price.  This is the main reason the Lucent Jan at the money calls
were $7 when the stock was $47, a 15% premium over the stock
price.  That is the same percentage premium given to the Nortel
Jan at the money calls although the two companies have just
reported wide differences in their recent earnings reports, and
NT made a large move up while LU made a large move down.  The
volatility numbers don't know which direction the stocks move -
just the movement.

The volatility in today's stock market is unprecedented.  If you
compare the daily price changes and percentage moves in stocks
and the indexes today from a few years ago you can see a dramatic
difference.  This volatility raises the price of options, and
makes it difficult to profit from straddles.

For example, on Wednesday afternoon this week the QQQ August at
the money call options were $4 7/8 and the puts were $4 1/2.
An Aug QQQ straddle would cost over $9.00.  For this straddle to
be profitable the Nasdaq 100 would have to move more than 10% by
the third week of August.  Since the market knew that two key
economic reports were due out this week, the volatility of the
options increased.  On Friday morning after the GDP was reported
the calls moved to $1.75 and the puts moved to $7.75, for a
profit of only half a point on the straddle.

June was one of the best months on record for the Nasdaq.  It is
worth noting that in June the moving average of cash out of
money market funds and into equity funds was high.  In addition,
the ipo market had not yet recuperated from the April drop, so
few ipos were priced and brought to market.  Around the second
week in June the moving average of cash into equity funds was
approximately $5 billion, and the moving average of cash out of
money market funds was approximately $7 billion.

Last week the investment company institute reported that retail
money market funds increased by $385.2 million and institutional
money market funds increased by $1.44 billion.  The total amount
of cash in money market funds has increased by approximately $23
billion to $1.7 trillion during July.  The weekly moving average
of cash into money market funds is currently approximately $8
billion.  This very likely represents retail and professional
traders moving to the sidelines.

AMG Data reported that $5 billion in new cash went into equity
funds for the week ending July 27, slightly higher than the last
couple of weeks. The weekly moving average of cash into equity
funds is currently in the range of $3.5 billion.  This is lower
than the levels seen earlier this year, which has been a seasonal
trend for the last several years.

It is also important to note that the ipo calendar has increased
while the fund flows have slowed.  Over $6.8 billion in new stock
was issued this week.  Three of the larger issues included TCM,
which raised over $1.9 billion, BLUE, which raised over $1.5
billion, and CORV, which raised over $1.1 billion.  On Friday
alone over $1.8 billion in new stock was issued, with 10 ipos
trading.  Since numerous ipos in the last couple of weeks have
traded at a strong premium in the aftermarket underwriters are
attempting to price as many new issues as possible.  Most premier
ipos tend to be reserved for institutional buyers.  If the
institutions are not taking in as much cash, they will be forced
to sell current holdings to buy ipos which puts downward pressure
on stock prices. This was obviously too much stock for the system
to handle this week considering the slower fund flows and end of
earnings season.  It is important to keep a close eye on this
trend, as a heavy ipo market can act like a sponge and soak up
market liquidity.

Contact Support


Using ROC and RSI to Tame the OEX
By Lynda Schuepp

When Trading the OEX, you need all the help you can get.  This
week was no exception.  Most traders are familiar with, and use
MACD and stochastics, but fewer traders use ROC and RSI.  ROC
and RSI are also momentum indicators, and are particularly useful
in trending markets.

ROC or "Rate of Change" compares the price this period with the
price some number of periods ago.  I am using 14 on the daily chart
(seen below) for some longer-term plays, part of my summer vacation
strategy.  Therefore, the ROC rating today is some percentage above
or below the bar from 14 days ago.  Therefore, it is quite useful
in determining if a trend is changing.  The overbought and oversold
bands are subjective.  I go back in time and look at the past
fluctuations and pick levels that generate signals about every
3-4 weeks because these are more significant signals.

RSI, commonly known as the "Relative Strength Indicator" which is
a momentum indication that is a front-weighted ratio for a security
relative to itself and its past performance.  It plots as an
oscillator with a value from 0 to 100.  I use 40 and 70 as
overbought and oversold levels.  The narrower the bands the more
signals, the wider the band, the fewer the signals.

See daily chart for OEX from August to November 1999:

In the chart, you can see 3 trades, roughly 4-6 weeks apart.  I
am looking for bigger moves with bigger gains.  The trades are
entered when there is confirmation in price, RSI and ROC.  The
green numbers indicate a buy and the red numbers indicate a sell.
Note that trend-lines can be drawn on RSI and ROC to further
confirm the trade.

Trade #1:
The signals on July 20th indicate a sell (red #1) so you could buy
a put, or short the call.  I personally have not shorted any calls
on the OEX, but it clearly makes more sense, since theta or time
decay will work for you instead of against you.  Since this is a
long-term play, I would be buying the September 700 put which is
slightly out of the money.

Candlesticks revealed a dark cloud cover followed by a very large
down candle (black).  The candlesticks were saying down.  RSI
reached an extreme reading (over 70) and crossed back down below
the overbought line, indicating a change in direction.  ROC had
crossed up above the overbought level and also turned back down.
Three strong signals indicating a sell. The Red #1's shown on the
chart indicates a "sell".  The OEX was trading at 710 at the close
on July 20th.  No buy signals were generated until August 11th
(see green #1).  The price was showing a bullish engulfing candle
at the bottom of a steep decline.  This is a VERY strong buy
signal.  The candle also broke above the trend line.  I probably
wouldn't have needed further confirmation but RSI also confirmed
the buy by dropping back under the oversold line.  ROC was extremely
stretched and turned back to the oversold line as well.  The OEX
closed at 676 for a 34 point move!

Trade #2:
The signals on August 27th indicate a sell (red #2) so I would buy
an October 700 put.  Candlesticks again reveal a dark cloud cover
followed by a large down candle.  Candlesticks were saying down.
RSI rose up to an extreme high reading, and turned down.  Although
it did not reach the overbought line, it crossed back below the
green trend-line shown on the chart.  Trend-lines on RSI and ROC
are very meaningful.  ROC crossed up above the overbought level
and also turned back down.  Note that ROC also broke the green
trend-line drawn, further confirming the signal to sell.  Four strong
signals to sell.  The OEX was trading at 708 at the close on August
27th. A buy signal was generated on October 4th (see green #2).
The price was showing a bullish hammer candle at the bottom of a
steep decline followed by a tall white (up) candle.  Additionally,
the previous 4 or 5 days bounced off the 200 DMA! This too is a
very strong buy signal.  RSI also confirmed the buy by rising back
above the oversold line and closed above the red trend-line.  ROC
was extremely stretched and turned back above the oversold line
and closed above the red trend-line as well.  You don't get much
stronger signals than these.  The OEX closed at 682 for a 26 point

Trade #3:
This time the entry signal on October 20th is for a buy (green #3)
so I would buy the December 690 calls which would be slightly out
of the money.

Candlesticks revealed a long white (up) candle, which closed above the
200 DMA, a very strong signal for upward movement.  The candlesticks
were saying up this time.  Both RSI and ROC reached extreme readings
and crossed back up above the oversold lines.  Again, three strong
signals indicating to buy. The Green #3's shown on the chart indicates
a "buy".  The OEX was trading at 679 at the close on October 20th.
No sell signals were generated until November 23rd (see red #3).
The price was showing a bearish engulfing candle at the top of a
steep rise.  This is a VERY strong sell signal.  RSI also confirmed
the sell by dropping back under the overbought line and breaking
thru the green trend-line.  ROC was extremely stretched, trending
down and turned back under the overbought line as well.  The OEX
closed at 746 for an incredible 67 point move!

Now let's look at what the OEX charts look like currently, after
these past couple of months and see where we are after Friday's

See chart of OEX up until Friday:

Trade #4:
This time the entry was a buy signal on May11th (green #4) so I
would buy the July 760 calls. (The OEX closed at 754.)

Candlesticks revealed a long white (up) candle, which closed above
the 200 DMA, indicating upward movement Both RSI and ROC reached
extreme readings and crossed back up above the oversold lines.
Again, three strong signals indicating a buy. The Green #4's shown
on the chart indicates a "buy".  No sell signals were generated
and with expiration coming up on July 21st, it would be prudent
to close out prior to the close and take the money and run.  On
July 17th a doji type candle was formed followed by a very bearish
down candle on the 18th.  The position would have been closed at
the end of the day on the 18th with the OEX at 807 giving up a
whopping 53 point gain.  The calls would have had 47 point of
intrinsic value and some nominal time value left!

And now, let's look at Friday.  It sure looks like we're headed
down to the 200 DMA again.  The RSI and the ROC are both almost
in a buy position.  Don't jump the gun.  WAIT for confirmations
in all three indicators before considering an entry but it's
starting to look like a nice set up to me.



Walking In The Middle Of The Road
By Molly Evans

What do you say after a week like this?  To be flippant and say,
"Here we go again" is not in my heart.  I know people got hurt
over this decline.  The warning sirens were sounded but until
they've been burned, the newer ones don't hear it very well.
We never know just exactly when or even how deep the cut is going
to be but the signals are there and we must take cover when the
alarms go off.  I could be very positive and congratulate all of
those who were prudent enough to buy puts.  I have to admit that
I gulped big one day when the equity put/call ratio took a jump.
I'll assume it was all OIN readers buying those puts.  For a
moment there I thought we might get a rally as put/call ratios
are a contrarian indicator.  When the put/call ratio is low, it
says that investors are too bullish and we're due to pull back.
It did take a small jump one of those days and I thought "Oh no!
My puts and my shorts!  I've been counting on them!"  I thought
maybe we were suddenly going to reverse and go back up again.
Nothing would surprise me anymore.

There's nothing like a tornado to blow things around and that's
what we got.  The charts are now all mixed up and we do get to
start again.  Depending how your portfolio is holding up through
this cycle will be a large determinant in how you want to proceed
with your investing and trading.  OIN is in the business to bring
you momentum plays.  OIN rocks but you've GOT to be astute to
the overall market sentiment and cultivate the discipline to
wait for the perfect entry into it.  When the market is rolling,
these plays are rewarded very nicely.  Yet, if you're buying a
ticket onto the momentum plane looking to rise into the clouds
quickly, you must accept the risks inherent that.  OIN will
continue to find you the plays but it's up to you to determine
your risk profile and patience to wait for that right entry or
let it go if the risk outweighs the potential.  When the market
decides to take it back, it does so with a vengeance.   Rotation
and profit taking do occur and if you're on the wrong side of
the trade, the pain is immediate.  Anyone who has been trading
for awhile knows all of this.  All traders have taken their hits,
have learned from them and adjusted or they quit when they
were broke.

Yes, the market does swoon and the Nasdaq is going to be very
volatile as the arguments over valuations, the Fed and the
economy are fought out.  Some people tend to get a little shy
about venturing back into the momentum stocks as they're
astounded at how quick and violent the shakeouts are.  I think
that many of you must be just like me.  You want to learn about
options trading, how leverage can work for you and how to
control risk.  You want the great returns but are finding it
a very difficult task indeed with the market whipsawing.  At
this point, you'd be content to sacrifice 200% gains for a bit
of safety and stability.  There is a reason that good money
managers advocate portfolio allocation.  You don't have to be
100% options in highflying stocks all the time.  You don't even
have to be in the market all the time.

There is a time and a place for everything.  Moderation and
common sense is tantamount to success.  There are a lot of solid
plays out there right now.  No, they're not all the techs that
have gone through 10 and 15% pullbacks either.  They're pokier
plays and are in the energy, pharmaceutical, utilities and
insurance indices.  Do you ever look at charts in those sectors?
Maybe it was an experiment and you may call me insane but I
bought Dupont LEAPs the other day.  Talk about an ugly chart!
There are LOTS of these.  They've broken all the rules by
undergoing steady downtrends, collapsing through moving averages
and have a mountain of overhead facing them.  I certainly don't
advocate you buying the biggest dogs you can find but sure enough,
rotation does occur and pokey stocks can make you money too.
Broaden your horizons.  Be a smart trader.  I'm up 20% on those
LEAPs.  Isn't entry point everything?  When our favorites are out
of favor, it could pay to do as the big boys do and that is to
look for the safe havens that they're flocking towards.

This down cycle may not be over yet either.  We all now know that
the summer provides a tricky environment for trading with the
thinner volume and corporate slowdowns.  Did you realize that
almost 900 points were gained in the week following the May 24th
intraday lows?  We came up nearly 1300 points from that day to the
peak of the July 17th high.  Was that just a drawn out bear trap
rally?  That's what bear traps do.  They rise huge amounts in a
short time frame only to run out of buyers and then everyone
rushes in to protect their profits.  In this case nearly 70% of
the run occurred in that first seven trading days and the other
400 or so points was an attempt to get the eager back to the
table.  It's not that the bull pundits didn't try.  Listen to
what Al Goldman, Chief Market Strategist at AG Edwards writes to
his clients, "Rising corporate earnings are the main fuel for a
bull market.  Due to the slowdown in the economy, corporate
earnings will not be up as much as some had projected but will
still be up some 12% or better for the full year.  It is the
durability of earnings growth that is most critical, not the
intensity.  We continue to believe the Fed will not raise rates
at its next meeting (August 22) and inflationary pressures
will stay benign."  Yes, the ducks are lined up to restart the
secular bull market.  But, what will spark the buyers who have
been more than willing to sit on their hands?  Fortunately,
their hands are full of money and a good economy with rising
earnings will prove irresistible.  Investor jitters will turn
to joy in July, and then we will have fun in the sun for the
rest of the summer."  You think he might have a vested interest
in coaxing those money fisted hands to come to the table?  I had
to laugh at this.  The only people having fun in the sun right
now are the ones on vacation not knowing their portfolios have
just taken a nosedive.

Quite honestly, I'm not a pessimist in life.  Yet, the wounds
that I got from the tech wreck in the spring made me seek out
a different perspective to learn.  I've been hanging out in the
bear's den and pretty much missed this latest run at higher
ground.  I've had to do some soul searching and realize that the
truth does lie somewhere in the middle.  Vacillating between
extremes of sentiment is paralyzing and quite frankly, costly in
terms of dollars lost on mistaken "reads" and money not gained
from being a contrarian.  Yes, my portfolio has gone up in the
past couple of days but not like it should have had I been
walking the rope of moderation and neutrality.  For example,
I sold my bullish positions on AMCC right before earnings.
Then, it gapped up on the stronger than expected earnings and
I thought that gap would quickly close as we'd get downward
pressure on the Nasdaq in August.  Days turn very long when
you're on the wrong side of the trade!

My puts became profitable just yesterday. I held through the
losses but didn't add more.  They had lost 75% of their value
at one point.  I held shaming myself for a misentry even though
I thought the call was the right one (yeah, yeah, yeah, I hear
you!).  Maybe at the next big seminar Jim will give me an hour
in the spotlight at the very end so I can present "My Stoopadist
Masteaks in de Mahket."  You'll all go away feeling so good about
yourselves, guaranteed!  Maybe better not, I'd probably be
fired if he knew.

Anyway, the highflying stocks need time to cool off now and then.
If you're brave enough to play puts on them, more power to you.
I want to be there too but as I have shown you and have learned,
you don't just say, "Well that's ridiculous!  I'm going to buy
puts on that right now!"  Confirmation of a move is important.
When it's to the downside the rewards come quickly but not until
it's ready!   As Austin Passamonte told me the other day, "as
traders we don't care which way the market moves, just so it
does!"  That's the mark of a flexible directional trader.  He'll
win on both the downside and the upside if he reads the market
and positions himself to capitalize on those issues that are the
most promising for making a dramatic move.

But even this isn't the key to winning in the trading game.  The
real work to trading is controlling the impulses coming from
between your ears.  You must continually monitor yourself for
employing emotional trading rather than developed plan trading.
You can pick any stock (and you should know a basket of stocks
like your own kids) but it's the mental and emotional aspects of
yourself that determine the outcome to your position.  Being an
options trader is about leveraging yourself and hedging for
superior gains and risk control.  Picking the stock to play is
the easiest part of the whole scenario.  There are so many
opportunities with options.  Buying calls and waiting for them
to appreciate is not the only game in town.  Lynda and Chris are
our market neutral players.  They can make money no matter which
way the stock moves.  Being "market neutral" does not mean that
you realize the market swings both ways.  Market neutral trading
is positioning oneself so there is a gain no matter what happens
directionally through advanced trading tactics.  That's a
completely different level of trading.  It doesn't give as
glamorous returns as picking BRCD calls at $140 and riding it
to $200 but it's a steady ringing of the cash register and you
should be open to learn from them.

In wrapping this up, I want to say that it's been a tough week
for bullish believers and players.  We would all do well to
give serious thought and commitment to analyzing what it is
we're doing in the market.  Ask yourself the tough questions.
Is it worth it to chase a stock that's had a huge run already?
Where is the support?  Where's the resistance?  How much does
the stock need to go up (or drop) further for your position to be
profitable?  How much is enough profit?  ("Just a little more"
is not an acceptable answer)  Are you cutting your losses quickly?
Have you considered researching other stocks or sectors?  Are you
the one selling option premium or buying option premium?  Is it
time to rethink that one?  Is it time to rethink your whole plan?
Now more than ever is the time to sober up and be mindful that
perhaps not every dip should be bought.  Be extra cautious and
extra disciplined.  It's a very competitive sport to trade.  The
risk in owning stock and options is on us as the public.  Be ever
mindful of that risk and cut yourself off to sit it out awhile if
you're drowning.  You're subscribing to this newsletter to learn
how to trade options and seek counsel from those who have walked
the path.  No one knows all the answers but collectively we're
trying to better enable you to stay in the game and get ahead of
the pack.  100% options 100% of the time on highflying stocks
could knock you out.  Please be smart.  We want you to be around
to subscribe for a long, long time.


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Call Play of the Day:

COF - Capital One Financial $56.81 (+1.00 last week)

See details in sector list

Chart = 

Put Play of the Day:

VRTS - Veritas Software Corp. $87.69 (-21.63 last week)

See details in sector list

Chart = 

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Index      Last    Week
Dow    10511.17 -222.74
Nasdaq  3663.00 -431.90
$OEX     776.18  -28.37
$SPX    1419.89  -60.30
$RUT     490.22  -32.48
$TRAN   2769.53  -38.89
$VIX      24.30    2.91


FRX      110.25    2.78  Hit a nice entry point for intrday trade
PVN      103.63    1.25  Good news momentum play still in the money
COF       56.81    1.00  Bucking the overall market trend
GENZ      65.13   -3.08  Pristine position as sector leader
LEH      108.13   -8.69  On the short list as a possible takeover
ATON     129.00  -14.75  A normal call play now an arbitrage play
HWP      107.75  -16.25  New, finished Friday with an amazing gain
SCMR     115.00  -23.75  Insatiable demand for anything-optical
NTAP      85.00  -24.36  Use caution with a falling knife, and SLs
AMCC     133.56  -26.19  Dropped, a slew of bad Semi news killed it
HGSI     127.38  -35.13  Dropped, sleight of hand with earnings
BRCD     163.94  -35.94  New, anybody for a reversal play?


AFFX     144.50  -49.06  New, revisiting a "bioflux"?
VRTS      87.69  -21.63  Watch for entry on bounces to $95 and $100
ARBA     107.63  -17.19  New, fair is foul and foul is fair
EMLX      49.38  -11.13  Caution flags raised with support at $44
CMRC      42.88  -10.50  Has gone from point A to point B in style
FON       34.81   -8.63  Dropped, 5 days of new all-time lows
TERN      53.88   -8.13  New, wicked combo of dissenting variables
GTW       55.13   -7.75  Box-maker summer-slowdown validated
ELON      32.63   -6.38  Couldn't even make an earnings run
CMOS      42.00   -4.69  Lukewarm reception at RS Semi Conference
IP        33.00   -1.75  Dropped, it's time to throw in the towel


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


HGSI $127.38 (-35.13) HGSI reported its second quarter results
Friday morning with a sleight of hand.  We had called the
investor relations department earlier in the week and they told
us HGSI's second quarter results were scheduled to be released in
the second week of August.  Unfortunately for us and our play,
the wider-than-expected loss reported by HGSI was met by an
unforgiving Biotech sector to begin with.  The early, and
unexpected, profit report issued by HGSI Friday morning should
have prevented entry into the play, especially given the gap down
by $4.  Needless to say, we're dropping our play with a bad taste
in our mouth.

AMCC $133.56 (-26.19) Well, that didn't last long!  Although
AMCC is the proverbial helium-filled balloon, the elevator in
which it was trapped was propelled downwards on a string of
negative events.  LSI warned about future revenues and INTC
picked a fight with RMBS, and the whole Semiconductor sector
felt the pain.  Then on Thursday, NOK warned about 3rd quarter
revenues, keeping the decline moving.  AMCC managed to halt its
slide at this point right at the $147 support level.  Friday's
carnage on the NASDAQ was too much for our hero as it stood
there clutching a bag full of Kryptonite, and it plunged
through support, giving up an additional $12.63.  Fortunately,
we never got a decent entry point, and we will take this
opportunity bid our play farewell while wishing it a speedy


FON $34.81 (-8.63) Last Friday marked the fifth consecutive day
FON fell to a new 52-week low.  The stock gapped slightly higher
in the morning only to rollover later in the day and fall below
its only remaining support level, Thursday's intra-day low of
$35.25.  The entire Telecom Services sector was bleeding red
Friday.  After WCOM warned of lower revenue growth Thursday,
traders disconnected with the group.  A glance across the sector
reveals the likes of T, WCOM, PCS, and FON all trading near
yearly lows.  Although FON fell on heavy volume Friday and looked
weak going into the close, we feel it would be a good time to
take our quick profits.

IP $33.00 (-1.75) It's time to throw in the towel on our IP play.
The stock continues to trace lower lows and lower highs, but it
is moving so slowly, that time decay is offsetting the gains from
the decline in the stock price.  Volume remains anemic, indicating
there is still a dearth of sellers at these levels.  Confirmation
of the strength of the $32.50 support level came in the last 90
minutes on Friday, as buying volume increased into the close.  In
light of the prevailing market weakness and IP's unwillingness to
break down any further, we think we've wrung out all we can from
this play.


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

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

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

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

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

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


HWP - Hewlett-Packard $107.25 (-16.75 last week)

HP is a top provider of computers, imaging and printing
peripherals, software, and computer-related services.  More than
half of HP's sales come from outside the US.  To further fuel its
growth, HP is restructuring itself as an Internet specialist
providing Web hardware, software, and support to corporate
customers.  To that end the company has spun off its test and
measurement equipment and medical electronics businesses as
Agilent Technologies (A).

To finish Friday with a gain was next to amazing, especially for
a Tech stock.  Despite the tumbling action in the Tech sector
HWP managed to buck the overwhelmingly negative trend.  But, it
hasn't been a pleasant time for HWP stockholders recently.  Just
two short weeks ago, HWP was trading at an all-time high on the
heels of the resurgence in the Tech sector.  Since that time, HWP
suffered from the profit warning from fellow printer maker
Lexmark and the news that PC sales had fallen lower-than-expected
during the second-quarter.  The two aforementioned events
combined to shave nearly 20% off HWP's stock.  However, many
analysts have come to HWP's defense recently.  Most notably,
Salomon Smith Barney reiterated its Buy rating last week and set
a $155 price target on the stock.  Salomon also said that they
were quite comfortable with HWP's third quarter estimates despite
the warning from LXK.  And Kurt King, a PC analyst with Banc of
America, said the news of slowing sales of PCs had been fully
factored into HWP's stock price.  In light of the positive
comments from Wall Street last week and HWP's impressive relative
strength displayed Friday, we thought the stock might be setting
up for an earnings run.  HWP has a history of exceeding analysts'
estimates which has typically carried the stock higher into the
actual announcement.  The company is scheduled to release its
third-quarter results on August 18th, which has been confirmed.
HWP established a solid bottom in the latter-half of last week
near the $105 level.  Look for an entry if Friday's strong
finish carries over to Monday's trading and lifts HWP past
resistance at $110.  A more conservative entry point might be
found if HWP can muster enough momentum to move back above its
100-dma, which is currently located at $112.

According to Zack's, HWP's consensus estimate for its third
quarter is 85 cents per share.  That number has crept up from a
low of 83 cents over the past few months.  Rising estimates can
be an indication of an upside surprise.  Furthermore, HWP has
not split its stock since 1996, when it was trading near $105.
The company has more than enough authorized shares to declare a
2-for-1 split.

BUY CALL AUG-105 HWP-HA OI= 243 at $ 7.63 SL=5.25
BUY CALL AUG-110*HWP-HB OI=5626 at $ 5.13 SL=3.00
BUY CALL AUG-115 HWP-HC OI=1511 at $ 3.50 SL=1.75
BUY CALL SEP-110 HWP-IB OI= 109 at $ 7.63 SL=5.25
BUY CALL NOV-115 HWP-KC OI= 190 at $10.88 SL=8.25

Picked on July 30th at  $105.25    P/E = 33
Change since picked       +0.00    52-week high=$156.00
Analysts Ratings     9-11-4-0-0    52-week low =$ 67.00
Last earnings 04/00   est= 0.82    actual= 0.87
Next earnings 08-16   est= 0.85    versus= 0.85
Average Daily Volume = 3.71 mln

BRCD - Brocade Communications $163.94 (-35.94 last week)

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

Anybody for a reversal play?  After riding BRCD for a $70+ gain,
the stock was looking a little top-heavy and we dropped the
successful play last weekend.  Expecting a slow decline, we
were a bit surprised to see the magnitude of the decline
experienced over the past 2 days.  BRCD is in a hot sector,
with earnings approaching on August 16th, and the $40 drop looks
like it was overdone.  The stock is now sitting at the top of
the congestion zone between $158-163, where it should find
support.  Technically, the stock still looks negative as the
RSI, Stochastics, and MACD are heading south on the back of
strong volume (double the ADV on Friday).  The long red candle
from Friday pushed through the lower Bollinger band and the
stock ended the week just above the 50-dma ($159.25).  BRCD
looks like it could reverse and bounce higher, but it will have
a hard time doing so if the market and sector continue their
rapid descent into the basement.  Needless to say, this is a
HIGH RISK play and is not for the faint of heart.  Consider new
entries on a bounce from the congestion zone mentioned above,
but don't try to catch the falling knife.  Wait for the
confirmation of strong buying volume to arrest the stock's slide
before jumping into the fray.  If the $155 support level can't
hold back the selling, stand aside and look for a different
play.  Once again, this is an aggressive play that should be
actively watched and traded, taking quick profits when they're
there and utilizing stop losses.

On Tuesday, Morgan Stanley Dean Witter initiated coverage of
BRCD with a Strong Buy rating, which gave the stock a temporary
boost.  The market downdraft was more weight than the buyers
could shoulder, and the impact of this upgrade was muted by
the marauding bears.

BUY CALL AUG-160 GUF-HL OI=  82 at $17.88 SL=13.00
BUY CALL AUG-165 GUF-HM OI=  81 at $15.38 SL=11.25
BUY CALL AUG-170*GUF-HN OI=2314 at $13.00 SL= 9.75
BUY CALL AUG-175 GUF-HO OI=  44 at $11.00 SL= 8.25
BUY CALL OCT-175 GUF-JO OI=  66 at $23.25 SL=17.50

SELL PUT AUG-155 UBZ-TK OI=  72 at $ 9.00 SL=12.00
(See risks of selling puts in play legend)

Picked on July 30th at  $163.94     P/E = 856
Change since picked       +0.00     52-week high=$211.25
Analysts Ratings      9-5-2-0-0     52-week low =$ 21.75
Last earnings 05/00   est= 0.08     actual= 0.11
Next earnings 08-16   est= 0.13     versus= 0.01
Average Daily Volume = 2.97 mln


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The Option Investor Newsletter                   Sunday 07-30-2000
Sunday                                                      3 of 5

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FRX - Forest Laboratories $110.25 (+2.75 last week)

Forest Laboratories develops, manufactures and sells both branded
and generic forms of ethical products which require a physician's
prescription, as well as non-prescription pharmaceutical products
sold over-the-counter, which are used for the treatment of a wide
range of illnesses. Forest products are marketed principally in
the United States and western and eastern Europe. Marketing is
conducted by Forest and through independent distributors.

As predicted in Thursday's newsletter, Forest Labs hit a nice
entry point in early trading Friday, bouncing off a day low of
$110.13, just below the 5-dma of $110.25. The stock then rallied
to a day high of $113.63, but ended up stalling the rest of the
day around $111.00, closing at $110.25 just off the low of the
day.  Closing down only $3.22 was actually conservative
considering the overall market sell-off.  Forest Labs has been on
the fast track this year, reaching a 52-week high of $114.50 on
July 27th, a whopping 131.3% rise.  Add to that the fact that
the stock is up 11.8% in the last 4 weeks, and it looks like
we've got a winner.  Can the company maintain this superhero
performance in the upcoming weeks?  Charging through its 10-dma
of $107.18 and closing at $110.25, it appears that it could do
just that.  The stock still appears to be in good shape to rally
if it can maintain this uptrend.  Continue to look for an entry
level on the play on a bounce near the $109 - $110 area.  This is
just slightly above the 10-dma, which should also offer support in
the $108 area.  The stock trades with an ADV of 695K, so watch for
heavy volume to confirm any moves.

The company reported first quarter revenues on July 19th of $0.31.
That figure included a one time charge of $14 mln from the
termination of a co-promotion agreement with Warner Lambert.
Booming sales of their very popular antidepressant drug Celexa
put the bottom line $0.04 ahead of estimate, with sales of the
drug up $150 mln in the quarter, almost two times the amount
in the first quarter of 1999. Standard and Poor's calls the
Healthcare and Biotech sectors "best bets" in their midyear
review of top performing sectors, naming FRX as one of their top

BUY CALL AUG-105*FRX-HA OI= 51 at $ 9.13 SL=6.25
BUY CALL AUG-110 FRX-HB OI= 47 at $ 6.38 SL=4.50
BUY CALL AUG-115 FRX-HC OI=115 at $ 4.00 SL=2.50
BUY CALL SEP-105 FRX-IA OI=  0 at $12.25 SL=9.25  Wait for OI
BUY CALL SEP-110 FRX-IB OI= 10 at $ 9.50 SL=6.50

SELL PUT AUG-105 FRX-TA OI= 28 at $ 3.13 SL=1.50
(See risks of selling puts in play legend)

Picked on July 27th at  $113.50    P/E = 84.30
Change since picked       -3.25    52-week high=$114.25
Analysts Ratings      7-7-5-0-0    52-week low =$ 41.75
Last earnings 07/19   est= 0.27    actual= 0.31
Next earnings 10-19   est= 0.50    versus= 0.32
Average Daily Volume   =  695 K

SCMR - Sycamore Networks $115.00 (-23.75 last week)

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

The Tech sector snuffed SCMR's momentum last week.  The sharp
sell-off last Friday carried SCMR down to oversold territory,
evident in the current stochastics reading.  SCMR has fallen into
oversold territory three times in as many months.  Historically,
SCMR has managed to regain its footing after each sell-off, and
stage rallies to new highs in its ascending channel.  So, what
will it take to get SCMR back on track?  First off, investors'
insatiable demand for anything-optical is alive and well.  Corvis
(CORV), an optical networking concern, debuted last Friday with a
first-day pop of over 100%.  The CORV IPO suggests that investors
are still willing to pay up for the hot optical-related stocks.
Secondly, the bulk of second-quarter earnings were reported over
the past two weeks, with a few Tech heavyweights yet to announce
quarterly results, including SCMR.  The hoopla surrounding
earnings season is fading, which, in a contrarian fashion, might
finally allow for a SCMR specific earnings run to commence.  The
company is slated to report in four weeks.  Finally, the ongoing
consolidation in the optical group bodes well for SCMR.  We'll be
looking for SCMR to reverse its course next week and rebound from
its recent sell-off.  The Fiber Optic sector has the potential to
lead a Tech rally if the broader market reverses.  A sign of a
possible reversal next week came when SCMR's support at its 50-
dma held strong Friday.  The stock bounced right off its 50-day
at $111 to recoup some of its losses.  If the Tech sector
rebounds early Monday, an aggressive trader might look for entry
off a quick bounce off the $115 level.  If you're looking to
minimize directional risk wait for SCMR's momentum to build and
look for entry if the stock clears resistance at $120.

SCMR will be presenting at an analyst-filled Opticon 2000
conference, which commences Monday morning in California.  SCMR
CEO, Dan Smith, will be one of the keynote presenters at the
gathering.  Smith will deliver a speech on leveraging the
current opportunities in the optical business.  Kind words from
the CEO might spark the reversal we'll be looking for.

BUY CALL AUG-110 QSM-HB OI= 79 at $13.13 SL= 9.75
BUY CALL AUG-115 QSM-HC OI= 62 at $10.63 SL= 7.50
BUY CALL AUG-120*QSM-HD OI=367 at $ 8.13 SL= 5.75
BUY CALL SEP-115 QSM-IC OI=640 at $15.88 SL=11.50
BUY CALL SEP-120 QSM-ID OI=281 at $13.63 SL=10.00

SELL PUT AUG-110 QSM-TB OI=120 at $ 7.00 SL= 9.00
(See risks of selling puts in play legend)

Picked on July 16th at  $138.19    P/E = 129
Change since picked      -23.19    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 08-24   est= 0.06    versus=  N/A
Average Daily Volume = 4.42 mln

ATON - Alteon Websystems $129.00 (-14.56 last week)

In the race for faster communication, Alteon makes products to
speed up the servers that feed data into networks and Web sites.
The company offers Gigabit Ethernet server switches, and the
controlling operating system to manage server "farms", or servers
that handle large amounts of data.  Alteon sells it gear to
manufacturers, service providers, and content publishers.

What began as an innocent call play has now turned into arbitrage
opportunity.  Just one day after ending merger discussions with
GLW, NT said Friday morning that it would acquire ATON.  Under
the terms of the takeover, NT said it would exchange 1.83 shares
for each ATON share, which valued the deal at $7.8 bln based on
the previous day's closing prices.  Unfortunately, the deal was
announced in conjunction with an unforgiving Tech sector, which
pressured shares of the acquirer NT.  Many analysts said that
both NT and ATON would have traded much higher were it not for
the weakness in the broader Tech sector.  What was interesting
about the deal is that NT didn't pay a premium for ATON.  The
$7.8 bln price tag amounted to only $1 over ATON's closing price
Thursday.  Several analysts spoke on the deal Friday morning,
saying the acquisition provided a tremendous boost to NT. By
acquiring ATON, NT gains a stronghold in the rapidly growing
Ethernet switches market, which are used for data storage and
routing.  What's more, NT's purchase takes the optical giant one
step closer to being an end-to-end provider of Internet equipment
and services.  After having the weekend to mull over the deal,
Wall Street might bestow its praise and approval upon NT for its
acquisition.  For our purposes, what's good for NT is good for
us.  Since the proposed merger is an all-stock deal ATON and NT
will trade in unison with one another.  Accordingly, we must pay
close attention to how NT trades from here out.  ATON fell as low
as $124.75 Friday before stabilizing around the $129 level.  The
gap down by nearly $15 Friday morning leaves very little
resistance, if any, above current levels.  Look for an entry if
ATON begins to fill its massive gap and moves above its intra-day
high Friday of $131.  And, remember to confirm direction in NT!

During a conference call Friday morning, ATON and NT executives
defended their merger agreement and said the sell-off was not
related to the deal.  Both companies blamed the overall weakness
in the Tech sector as the culprit for the haircut given to their
respective stock prices.  If the message from NT and ATON
officials is heard by the market, next week we might be rewarded.

BUY CALL AUG-125*UAO-HE OI=60 at $10.88 SL=8.25
BUY CALL AUG-130 UAO-HF OI=16 at $ 8.38 SL=6.00
BUY CALL AUG-135 UAO-HG OI= 2 at $ 6.38 SL=4.25
BUY CALL SEP-130 UAO-IF OI=33 at $12.63 SL=9.50
BUY CALL SEP-135 UAO-IG OI= 1 at $10.50 SL=7.25

SELL PUT AUG-120 UAO-TD OI=41 at $ 4.25 SL=5.75
(See risks of selling puts in play legend)

Picked on July 25th at  $155.38    P/E = N/A
Change since picked      -26.38    52-week high=$160.56
Analysts Ratings      5-3-0-0-0    52-week low =$ 41.00
Last earnings 06/00   est= 0.03    actual=  0.16
Next earnings 10-20   est= 0.07    versus= -0.45
Average Daily Volume   =  946 K

PVN - Providian Financial Bancorp $103.63 (+1.25 last week)

Providian Financial Corporation provides consumer lending
products such as home loans, credit cards, and other fee-based
products. The Company mainly issues secured credit cards to
customers with not-so-perfect credit histories and charges a
high fee and high interest rates. With the use of direct-mail,
phone solicitations and online advertising, Providian has been
able to attract more than 12 mln customers.  The company has
operations in the US and the UK.

Our good-news momentum play on PVN is still in the money.
Granted there haven't been huge gains, nevertheless, it's in the
black.  The sector rotation out of techs and into defensive issues
is without a doubt buoying PVN in this market.  Near-term support
for this split-candidate is currently established at $103 and
$104;  however, firmer support is in the proximity of the 5- and
10-dma at $100.  If PVN is demonstrates a clear direction, then
you could enter off the current level, but take your profits
quickly.  Overhead resistance is strengthening at $106 and $107.
Look for overall confirmation of the momentum on strong moves
through these levels.  Again watch the volume, it's been somewhat
lagging this week.  Please consider using stop losses as a safety
net!  Long positions in this market are risky.

Of the 24 analysts following PVN, 22 maintain a Strong Buy or
Buy recommendation.  And just last week First Union Securities
and Lehman Brothers issued a $125 price target.  The company's
earnings report on July 20th was also favorable.  They reported
a record 2Q net income of 187.6 mln or $1.29 p/s beating the
Street's estimates by $0.04.  Its net income was increased by
48% over 126.5 mln or $0.87 p/s in relation to same quarter

BUY CALL AUG-100*PVN-HT OI= 392 at $7.13 SL=5.00
BUY CALL AUG-105 PVN-HA OI=2730 at $4.50 SL=2.75
BUY CALL AUG-110 PVN-HB OI=2099 at $2.56 SL=1.25
BUY CALL SEP-105 PVN-IA OI= 167 at $7.50 SL=5.25
BUY CALL SEP-110 PVN-IB OI= 393 at $5.25 SL=3.25

Picked on July 23rd at  $102.38    P/E = 28
Change since picked       +1.25    52-week high=$118.50
Analysts Ratings     16-6-2-0-0    52-week low =$ 58.13
Last earnings 06/00   est= 1.25    actual= 1.29
Next earnings 10-19   est= 1.34    versus= 1.04
Average Daily Volume = 1.09 mln

LEH - Lehman Brothers Holdings $108.13 (-8.69 last week)

Lehman Brothers is a global investment firm that services high-
net-worth institutional investors.  They provide a vast array of
trading and financing services and are the lead underwriter of
global equity and fixed-income securities.  The firm is also
leading the charge into online bond offerings in the US.
They're regionally headquartered in New York, London, and Tokyo.

LEH is another defensive play.  The investors are once again
quickly rotating out of the techs and into Drugs, Oils, and yes,
even some financials.  Another component of this momentum play
was the scuttlebutt earlier in the week concerning mergers and
acquisitions within the banking and investment industry.  As it
is, Lehman Brothers and Bear Stearns are primary takeover
targets.  The coupled events propelled LEH through its
resistance at $115 and upward to a new all-time high of $121.75
on Tuesday.  However, the technical advances were sidetracked by
weakening markets and of course, typical profit taking towards
the end of the week.  Nonetheless, $106 and $107 are holding up
as support.  Before you open new positions, a strong show of
momentum and a cooperating market should be demonstrated.  Be
patient until the uptrend resumes.  In mid-September, Lehman
Brothers is expected to report its earnings.  In the meantime,
LEH is considered a split-candidate above $100, which is always
a nice touch!

Company-specific news was scarce last week, however, Riddell
Sports announced that it hired Lehman Brothers to provide advice
on strategic business options, which may include a merger or
sale of the company.

BUY CALL AUG-105 LEH-HA OI= 316 at $ 7.13 SL= 5.00
BUY CALL AUG-110*LEH-HB OI=1488 at $ 4.75 SL= 2.75
BUY CALL AUG-115 LEH-HC OI= 643 at $ 2.69 SL= 1.25
BUY CALL AUG-120 LEH-HD OI= 638 at $ 1.50 SL= 0.75
BUY CALL SEP-110 LEH-IB OI=  57 at $ 7.50 SL= 5.25
BUY CALL OCT-115 LEH-JC OI=1236 at $ 7.88 SL= 5.75

Picked on July 25th at  $121.09    P/E = 10
Change since picked      -12.96    52-week high=$121.75
Analysts Ratings      3-6-1-0-0    52-week low =$ 47.56
Last earnings 06/00   est= 2.43    actual= 2.78
Next earnings 09-25   est= 2.14    versus= 2.20
Average Daily Volume = 1.24 mln

GENZ - Genzyme Corp $65.13 (-3.06 last week)

Genzyme is a biotechnology company that specializes in
developing drugs for rare genetic diseases.  And they actually
make money!  Their business strategy is to buy companies
that can contribute to its in-house development of niche
biopharmaceutical products.  They are also product diversified
with development, manufacturing and marketing capabilities in
therapeutic and diagnostic products, pharmaceuticals and
diagnostic services.

GENZ maintained its pristine position as the sector leader until
it finally succumbed to some profit taking on Friday.  This
event wasn't too atypical considering the NASDAQ was in
correction mode and GENZ just set a new all-time high at $72.50
during Thursday's session.  Despite the mild sell-off, GENZ is
holding up relatively well in comparison to some of the
high-flying biotechs that have been feeling the selling heat.
This "tech rotation" scenario may be short-lived, but our goal
is to play the current trend.  Another catalyst that helped the
share price rise to new heights was the positive analyst coverage
mid-week.  Robertson Stephens and PaineWebber reiterated Buy
ratings for GENZ and the latter firm also upgraded its price
target on GENZ to $80 from $75.  Initially though, the momentum
run was stoked by the company's stellar earnings' report.  On July
20th, Genzyme announced a 64% net income increase at $66.1 mln, or
$0.72 p/s, compare with same quarter last year of $40.2 mln, or
$0.46 p/s.  The blowout numbers easily beat the much lower
estimates of $0.53 p/s.  From a technical standpoint, light support
was forming at $68 and $70.  Although Friday's pullback found the
$65 mark as a stronger launching point for entries.  You could
enter on dips to this level, but the more conservative (and who
isn't in this market environment!) would be better to wait for
more definitive moves through upper resistance.  The first line
of opposition is at $70.  Ultimately, GENZ needs to shatter the
$72.50 record high.  You'll want to pay attention to the volume
levels as well.  GENZ made its recent advances on more than double
the normal trading activity, so look for high-volume moves to hint
at another breakout.

The war on patents is alive and well.  Genzyme recently filed a
lawsuit against Transkaryotic Therapies for allegedly infringing
on its patent for Replagal, a drug that treats Fabry disease.
The suit claims Transkaryotic is already trying to market the
drug in the U.S. and Europe.  Both companies are in a heated race
to be the first to win FDA approval to treat this rare and fatal
metabolic disorder, which affects on in 40,000 men.

BUY CALL AUG-60*GZQ-HL OI=2212 at $6.75 SL=4.75
BUY CALL AUG-65 GZQ-HM OI=1566 at $3.75 SL=2.00
BUY CALL AUG-70 GZQ-HN OI= 242 at $1.81 SL=1.00
BUY CALL SEP-70 GZQ-IN OI=  10 at $3.63 SL=2.00
BUY CALL OCT-70 GZQ-JN OI= 509 at $8.75 SL=6.25

Picked on July 27th at   $71.31    P/E = 28
Change since picked       -6.18    52-week high=$72.50
Analysts Ratings      4-8-2-0-0    52-week low =$30.75
Last earnings 06/00   est= 0.53    actual= 0.72
Next earnings 10-19   est= 0.55    versus= 0.49
Average Daily Volume = 1.19 mln

COF - Capital One Financial $56.81 (+1.00 last week)

As one of the top 10 credit card issuers in the U.S., Capital
One's secret weapon is its vast databases.  The company uses
this data to match a potential Visa or MasterCard customer to
any one of its thousands of cards, varying in annual percentage
rates, credit limits, finance charges and fees.  Ranging from
platinum and gold cards for preferred customers to secured and
unsecured cards for customers with poor credit histories, the
company has a credit card for just about anyone.  The company
also sells wireless phone services, mortgage services, and
consumer lending products.

Bucking the trend in the broader markets as well as the
Financial sector, COF bounced nicely on Thursday and actually
held onto those gains during Friday's wild ride.  The current
run, which began in early July, looks like it still has legs.
After pulling back early in the week to consolidate its recent
gains, the stock got moving again Thursday morning on the back
of increasing volume.  This bulls remained in control on Friday
as well.  Even though the stock sold off a bit early in the day,
the bulls re-sharpened their horns and came back near the $55.50
level and drove the stock up to close at the high of the day.
This equated to the stocks highest close in over a year, and it
is looking like buyers want to take a shot at driving the stock
higher still, with the all-time high of $60.25 being the target
to shoot for.  Resistance is looming ahead at $58, and then the
all-time high, so it will take a concerted effort to scale these
obstacles.  The profit taking early last week confirmed support
at $53, right on the 10-dma at the time.  Since then the 10-dma
has moved up to $54.19, and we are looking for COF to continue
to be supported by this moving average.  Market uncertainty
could produce yet another nice entry point;  consider a pullback
and bounce at the 10-dma to be just such an opportunity.  For
those of you wanting confirmation first, wait for buying volume
to propel COF through the $58 resistance level before playing.
As always, pay attention to where the markets are headed.  Even
though COF bucked this trend on Thursday and Friday, it is hard
for any stock to do this for a sustained period of time.

On Wednesday, Capital One launched OneRamp Free Internet
Access for consumers nationwide.  Offered in conjunction with
Spinway, Inc., a leading provider of co-branded, free dial-up
Internet access and online advertising technology solutions,
the service will be immediately available to COF's U.S.
customers.  COF expects this alliance to enable the company to
introduce their products to more consumers, and in a departure
from the free-ISP pattern, will not require customers to
periodically click on banner ads in order to stay connected to
the Internet.

BUY CALL AUG-50 COF-HJ OI= 185 at $7.25 SL=5.00
BUY CALL AUG-55*COF-HK OI=1460 at $4.00 SL=2.50
BUY CALL AUG-60 COF-HL OI=2825 at $1.50 SL=0.75
BUY CALL SEP-55 COF-IK OI= 732 at $5.50 SL=3.50
BUY CALL DEC-60 COF-LL OI= 256 at $6.25 SL=4.25

Picked on July 23rd at $55.81     P/E = 29
Change since picked     +1.00     52-week high=$57.13
Analysts Ratings  13-10-1-0-0     52-week low =$32.06
Last earnings 07/00 est= 0.54     actual= 0.54
Next earnings 10-11 est= 0.58     versus= 0.45
Average Daily Volume  = 945 K

NTAP - Network Appliance $85.00 (-24.38 last week)

As indicated by its name, NTAP pioneered the concept of the
network appliance, an extension of the industry trend toward
specialized devices that perform a specific function in the
network.  NTAP designs, manufactures, markets and supports
high performance network-attached data storage and access
devices.  These products, including the company's NetApp file
servers provide fast, simple, reliable and cost-effective file
service for data-intensive network environments.  The company
is also embracing online business through its NetCache Web
caching appliances, which are designed to ease Internet
bandwidth demands by storing information physically closer to

Jumping on the selloff bandwagon that pulled into town last
week, NTAP had a rough ride.  With earnings season effectively
over, there is very little to hold up the tech sector as
investors and fund managers alike head off for their summer
vacations.  Throw in a few revenue warnings and bearish analyst
comments and you have all the ingredients for an ugly day in
the markets.  NTAP had just run up nearly 40% in the prior 2
weeks and was primed for some profit taking anyways, but the
magnitude of the selloff looks like it was overdone.  With the
decline on Friday, NTAP is within spitting distance of its
50-dma (currently at $82.47) and just above the June
consolidation between $76-83.  Unless things are about to get
really ugly, this looks like a prime candidate to bounce in the
days ahead.  On the other side of the argument, it does concern
us that NTAP closed right on the low of the day on heavy volume
on Friday, so play this one with caution.  Trying to catch an
oversold bounce is a higher risk play than jumping into an
established trend, so wait for an indication from the market
before jumping in.  Trying to catch this knife before it hits
the ground could leave your hand fingerless, and that will make
it much tougher to type in that next order on your computer.
A bounce from support (preferably the 50-dma) will make for your
best entry, but make sure that volume is confirming the
reversal.  Although NTAP has earnings scheduled for the middle
of August, this play may turn out to be short-lived.  Accordingly,
if you get a good entry and have a profit, don't hold on for the
home run.  This will be a good candidate for taking profits
quickly, so you don't get caught in the next decline.  This play
is a prime example of how stop losses can save a trade.

In an interview with IT Radio Network on Wednesday, NTAP
president, Tom Mendoza, put the storage market and his
company's position within it into perspective.  Citing a
storage market growth rate of 30%, he pointed out that Network
Attached Storage (NAS) is growing at a 70% annual rate.  NTAP
currently has a 61% share of this $900 million market.

BUY CALL AUG- 85 NUL-HQ OI=234 at $10.13 SL= 7.00
BUY CALL AUG- 90*ULM-HR OI=506 at $ 7.63 SL= 5.25
BUY CALL AUG- 95 ULM-HS OI=542 at $ 6.00 SL= 4.00
BUY CALL SEP- 90 ULM-IR OI=487 at $ 9.75 SL= 6.75
BUY CALL DEC-100 ULM-LT OI=830 at $13.75 SL=10.50

SELL PUT AUG- 80 NUL-TP OI=472 at $ 4.88 SL= 7.00
(See risks of selling puts in play legend)

Picked on July 25th at  $106.19     P/E = 447
Change since picked      -21.19     52-week high=$124.00
Analysts Ratings     16-4-0-0-0     52-week low =$ 12.44
Last earnings 05/00   est= 0.06     actual= 0.07
Next earnings 08-17   est= 0.07     versus= 0.04
Average Daily Volume = 5.09 mln

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The Option Investor Newsletter                   Sunday 07-30-2000
Sunday                                                      4 of 5

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AFFX - Affymetrix, Inc. $144.50 (-49.00 last week)

Affymetrix is a leader in developing and commercializing systems
to acquire, analyze and manage complex genetic information in order
to improve the quality of life.  The Company's GeneChip(R) system
consists of disposable DNA probe arrays containing gene sequences
on a chip, reagents for use with probe arrays, a scanner, and other
instruments to process the probe arrays and software to analyze
and manage genetic information.  The Company's spotted array
system enables individual researchers to create and analyze
custom microarrays on an easy-to-use, cost-efficient platform.

Revisiting a "bioflux"?  That was the terminology used to describe
the plunge in the biotech and genomic sectors in April, but with
choppy markets and earnings disappointments this week, it might
be better termed as a reflux.  After hitting an astronomical high
of $327 in February, AFFX has been trending downward, save a few
jumps along the way during the recent summer NASDAQ rallies.
Lower-than-expected earnings posted on Monday evening by this
sector leader triggered a massive sell-off in biotech stocks on
Tuesday, with the high-flying genomics sector taking the hardest
hit.  AFFX lead the slide, trading down $28.00 at $166.50 in late
trading, swiftly cutting through all near term support.  The
stock closed on Friday at $144.50, well below even the 5- and
10-dmas of $162.01 and $176.80.  Opening the day at $152.00,
$1.13 above Thursday's close, AFFX was unable to find support all
day Friday, as all technical DMA's lie above the current stock
price.  Although the stock did attempt a midday recovery on a
strong volume move, a break above the day high resistance of
$152.33 never materialized.  Trading in such low territory in
conjunction with increasing interest rate fears after Friday's
GDP release is surely a bad sign, especially with the close well
below the aforementioned DMA's.  Entry points to this play should
be focused around bounces off $150 on any upward spikes, which
provided Friday's intraday resistance.  Conservative traders might
wait until it moves through support at $140 with high volume
selling.  AFFX is a driver in the biotech sector, so make sure the
sector is on your side with accelerating downside volume before
opening a position.

BUY PUT AUG-140 FIQ-TH OI= 1 at $ 8.63 SL= 6.00
BUY PUT AUG-145*FIQ-TI OI= 5 at $11.13 SL= 8.25
BUY PUT AUG-150 FIQ-TZ OI=10 at $14.00 SL=10.50

Average Daily Volume =  1.05 mln

ARBA - Ariba Inc. $107.63 (-17.19 last week)

As a leading provider of B2B solutions and services to leading
companies around the world, including more than 20 of the FORTUNE
100, Ariba helps companies cut through the complexity of
opportunities presented by the new economy.  Ariba provides the
most comprehensive and open commerce platform to build B2B
marketplaces, manage corporate purchasing, and electronically
enable suppliers and commerce service providers on the Internet.
Made up of a complete set of integrated commerce solutions and
open network-based commerce services, the Ariba B2B Commerce
PlatformT offers a single system for managing buying, selling,
and marketplace eCommerce processes.

Fair is foul and foul is fair.  After having just closed this
call play on Thursday, we now welcome ARBA back to the fold, as
our latest put play.  The same reasons for closing this call play
are the same reasons we are now opening this put play.  This past
week has seen ARBA consistently fail to close above its 5-dma,
now at $117.  What once looked like consolidation has now
revealed itself to more resemble a rollover.  After breaking
through strong support at $120, the stock continued down,
breaking the critical support level of $110.  The beginnings of
the downward regression channel we mentioned in the drop is now
becoming more developed and volume to the downside, while still
light, is steadily increasing.  The on-again off-again love
affair with B2B stocks appears to have waned.  The honeymoon of
stellar earnings, validation of the B2B business model, and
momentum in the B2B sector seems now but a memory.  Concerns over
valuation for ARBA also appears to be in question.  With
investors pondering whether ARBA is worth 3 times the value of
CMRC, Friday's action was a mirror image of much of the action
this past week, failure to rally above the downward regression
channel followed by a sell-off.  Support for the stock can be
found just below at $105 and at the psychological level of $100.
Those looking for an entry point can find a number of resistance
levels overhead.  With strong resistance at $110, the 5-dma at
$117, and the 10-dma at $121.78, there is also resistance at the
$115 mark.  Failure to break through these levels on strong volume
may serve as target entries.  As there has been little news from
the company, watch for ARBA to move in sympathy the NASDAQ.  Make
sure that market sentiment is in your favor before entering.

BUY PUT AUG-110 IUR-TB OI= 608 at $10.00 SL=7.00
BUY PUT AUG-105*IUR-TA OI= 245 at $ 7.38 SL=5.25
BUY PUT AUG-100 IUR-TT OI=2604 at $ 5.13 SL=3.00

Average Daily Volume = 6.08 mln

TERN - Terayon Communications Systems $53.88 (-8.13 last week)

Terayon Communication Systems is a leading provider of broadband
access systems for delivering advanced voice, data and video
services over cable and DSL lines.  The company's TeraComm
system is designed to enable cable operators to maximize the
capacity and reliability of broadband access services over any
cable plant, minimize time-consuming and costly network
infrastructure upgrades, and provide a range of service levels
to residential and commercial end users.  The Santa Clara, CA
based company sells its products to cable operators throughout
North America, Latin America and Europe.  International sales
account for almost 85% of Terayon's revenues.

So what's to blame for TERN's recent decline?  Is it a typical
post-earnings sell-off, a sector rotation out of techs, poor
market conditions?  Most likely it's a wicked combination and
quite honestly, the more dissenting variables the better!  On
July 18th, the company reported solid earnings at $0.07 p/s
versus the consensus estimates of $0.03.  Revenues for the 2Q of
2000 grew 382% to $92 mln from $19.1 mln in the 2Q of 1999.  And
despite CEO Zaki Rakib's statement that his company is entering
"the third quarter with strong customer demand and a solid base
for the accelerating broadband revolution ahead," TERN dove after
the announcement.  The pattern was typical.  A quick run-up ahead
of the report - "buying the rumor" - followed by a decline -
"selling the news."  The difference here is that TERN is not
recovering.  The stock's conclusive moves below the 50-dma ($63.92)
in Wednesday's session followed by a slip under the 200-dma ($59.48)
lends itself to the possibility of a further technical decline.
TERN's lack of response to Lehman Brothers Buy reiteration and
$165 price target as well as Deutsche Banc's new Strong Buy
coverage is also a good indication that buyers aren't yet lined up
to get their hands on this tech stock.  Currently, there is some
light support at $50, but $40 marks a firmer bottom.  Take a look
at a three to six month chart for visual confirmation.  All in all
the scene looks good for a put play, but we've got to watch our
backs!  Confirm the stock's direction and a cooperative market
before starting new plays.  Entries on spikes near the 200-dma or
more likely, off Friday's intraday resistance near the $55 mark
are practical.  But enter only when its profitable to do so.
Patience and prudence will be the key until the markets find a
conclusive trend.

BUY PUT AUG-60 TUN-TL OI=242 at $8.75 SL=6.00
BUY PUT AUG-55*TUN-TK OI=178 at $6.13 SL=4.00
BUY PUT AUG-50 TUN-TJ OI=503 at $3.63 SL=2.00

Average Daily Volume = 2.32 mln

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CMOS - Credence Systems $42.00 (-4.69 last week)

Credence makes test equipment and testing software that is used
in the high-volume production of semiconductors.  The company's
products test digital logic, mixed-signal, and nonvolatile memory
circuits used in such products as televisions, PCs, cameras, and
telephones.  CMOS sells its products primarily to chip
manufacturers, assembly houses, and test services companies.

The Philly Semiconductor Index ($SOX) moved fractionally higher
Friday, in what appeared to be a relief rally.  But, CMOS didn't
participate.  And, there appears to be little relief from the
stock's current slide.  The Robertson Stephens Semiconductor
Conference wrapped up Friday with an appearance by none other
than CMOS.  Officials from CMOS presenting to analysts at the
meeting said the company was positioned well for the second
half of the year and continues to capture market share from rival
capital equipment firms.  However, traders were less than
impressed with CMOS's presentation noting the stock's divergence
from the broader Chip sector Friday.  Despite the stream of
positive guidance flowing from the much heralded RS Chip
conference, the SOX shed a disheartening 12% over the course of
last week's trading.  The seasonal summer-slowdown in the Semi
sector had been expected, but the warnings from high-profile
chip makers such as LSI, and chip-users such as NOK, were not.
Slower sales for the aforementioned companies translates into
fewer orders for the chip equipment that companies like CMOS
manufacture.  The carryover from the warnings from LSI and NOK,
combined with the lukewarm reception at the RS conference,
pushed CMOS below support at $43 Friday.  Trading activity
remained near the ADV, suggesting the sellers are still stronger
than the buyers.  The stock bounced higher after establishing
support at the $41 level early Friday.  If the Chip sector shows
signs of weakness early Monday morning, consider entry if CMOS
falls below support at $41.  Thereafter, the stock has major
support at $41, and minor help at $38.  After those various
levels CMOS doesn't have major support until $35.

BUY PUT AUG-45*CQS-TI OI=268 at $6.38 SL=4.50
BUY PUT AUG-40 CQS-TH OI= 79 at $3.25 SL=1.50
BUY PUT AUG-35 CQS-TG OI=145 at $1.31 SL=0.50

Average Daily Volume = 1.17 mln

GTW - Gateway $55.13 (-7.75 last 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.

The highly anticipated summer-slowdown for the box makers was
validated last week.  However, it was reported that PC sales
slowed more than anticipated.  According to Dataquest, an
industry research firm, sales of PCs rose 11.7% in the second
quarter of the year, which was the smallest quarterly gain in
over two years.  Dataquest also reported that GTW lagged others
with a 3.7% market share.  Many analysts believe sales of PCs
will rise in the fall with the return of back-to-school shopping
and the lucrative holiday season, which might start to stabilize
the precipitous drop of the box makers' stocks.  While sales of
PCs might start to pick-up, the computer manufacturers will face
another problem in the form of higher component prices.  Micron,
a leading memory manufacturer, said last week that the prices for
its widely used DRAM memory chips will continue to rise in the
second-half of the year.  While the news of lower sales have
been discounted into GTW's stock price, the prospects of rising
memory prices might lead to further downside.  Additionally, the
weakening Tech sector bodes well for our play on the short side.
Speaking of downside, GTW sank right at the opening Friday,
subsequently falling through support at $56.  After the morning
slide, the stock stabilized near the $55 level.  A breakdown
below that level might provide a good entry for new positions.
The support we had mentioned last Thursday broke down without
hesitation Thursday.  Additionally, GTW's 4% slide came with the
return of volume, which might suggest even lower prices are
ahead.  After the $55 level GTW has some help around $52.50, but
no major support until $50.  Confirm direction in the PC sector
Monday morning, and watch for the sellers to return with volume
before entering the play.

BUY PUT AUG-60*GTW-TL OI= 799 at $6.25 SL=4.25
BUY PUT AUG-55 GTW-TK OI=1361 at $3.25 SL=1.75
BUY PUT AUG-50 GTW-TJ OI= 430 at $1.25 SL=0.50

Average Daily Volume = 1.62 mln

VRTS - Veritas Software Corp. $87.69 (-21.63 last week)

Veritas Software is the de-facto standard for application storage
management, with over 60 of the world's leading servers and
operating systems integrating its software.  As the leading
provider of enterprise-class application storage management
software, Veritas Software ensures the continuous availability of
business-critical information by delivering integrated,
cross-platform storage management software solutions.  Founded in
1982, the Mountain View, Calif.-based Company has grown to more
than 3,700 employees residing in 24 countries worldwide.

When we started this play on Thursday, we cited a number of
overhead resistance levels to watch for in entering this put
play.  Friday saw the sell-off continue, but not without trying
to rally in spite of market weakness.  Early in the day, the stock
attempted to break through the psychological $100 level.
Stopping just short at $99.88, the stock sold off on massive
volume as sellers piled in during amateur hour.  Finding support
just above $87, the stock bounced and attempted to rally.  But by
mid day, VRTS encountered resistance near the $95 level and sold
off to close near its lows for the day on almost twice the ADV.
In doing so, VRTS closed just below $90 support.  With VRTS now
deep below its 200-dma at $102, the next levels of support can be
found in $5 increments at $85 and $80.  Overhead resistance
remains strong with resistance at $90, $95, the psychological
$100 and its 5- and 200-dma near $102.  Look for failure to rally
above these levels as entry points.  As VRTS continues to move in
step with the NASDAQ, make sure market conditions are on your side
before entering and make sure that volume confirms the move.  News
this week for the company was good but was largely ignored as the
stock was dragged down by a sagging NASDAQ.  On Monday, VRTS
announced a worldwide partner program, Veritas Vplus, that enables
partners to differentiate themselves based on type, level and
specialty, and offers added benefits for continued growth.  On
Thursday VRTS was selected by SUNW as a recommended vendor of data
availability solutions and announced its participation in its
online marketplace, the Sun iForce Startup Community.

BUY PUT AUG-90*VUQ-TV OI=2554 at $8.75 SL=6.25
BUY PUT AUG-85 VUQ-TU OI=2167 at $6.13 SL=4.00
BUY PUT AUG-80 VUQ-TZ OI= 201 at $4.00 SL=2.50

Average Daily Volume = 5.70 mln

CMRC - Commerce One Inc $42.88 (-10.50 last week)

Commerce One has become one of the signature names in the
emerging B2B environment.  They provide e-commerce solutions
that enable buyers and suppliers of goods and services direct
access to trading communities over the Internet.  Founded in
1994 as DistriVision, the company was renamed Commerce One in
1997 and is based in Walnut Creek, CA.

CMRC has gone from point A to B in style!  We started coverage
on this put play last weekend as its post-earnings sell-off
went into overdrive.  On Monday, we were quickly rewarded with
optimal entries into the decline.  Downward moves from $54, then
off the $53 and $52 range confirmed the trend was intact.  As
the week progressed, we saw near-term support dwindle and CMRC
break through opposition at the $45 level!  The technical bonus
came with Friday's move towards historical support at $40, which
is our Point B!  The 5.6% cut in share price on respectable
volume didn't exactly bring CMRC to $40, but it was close at
$41.38.  If you still have open positions, play it safe despite
the negative market environment.  Keep the stops tight.  Entries
into this play are rather risky at this time considering the
precarious price level.  Wait for further devastation to
transpire before jumping back in for more.  The next goal to set
your sights on in the event CMRC doesn't experience a "buyer's
revival" is for it to tumble to $35, then $30.  These levels
haven't been seen since April and May.  A renewed interest in
the stock is mentioned because for one, the share price is
attractive and two, there was some positive news surrounding
Commerce One this week.  On Tuesday, DLJ Securities reiterated its
Buy rating in response to the company's new partnership with
General Electric (GE) to create a formidable B2B exchange to
compete with the IBM and Ariba (ARBA) alliance.  Commerce One
and seven Hong Kong companies also formed an alliance to start
six B2B Web sites with the objective of handling as much as 1%
of Hong Kong's GDP within three to four years.  With that in
mind, watch the downtrend line and be careful of a directionless

BUY PUT AUG-50 RJC-TJ OI=659 at $9.25 SL=6.25
BUY PUT AUG-45*RJC-TI OI=910 at $5.75 SL=3.75
BUY PUT AUG-40 RJC-TH OI=567 at $3.00 SL=1.50

Average Daily Volume = 6.75 mln

ELON - Echelon Corp $32.63 (-6.38 last week)

Echelon designs systems and software that control automated
networks for buildings, industrial equipment, and transportation
industries. Its products include transceivers, routers, network
interfaces can sense, monitor, and direct such equipment as
automatic doors, lighting, security systems, industrial
conveyors, and rail cars.  Customers include well known
companies like Honeywell and Raytheon.  CEO Kenneth Oshman
maintains a 16% controlling stake in Echelon.

ELON couldn't even make a run into its earnings this month,
which for our purposes is a good thing!  The existing downtrend
acted as a strong stimulus for ELON to continue its downward
spiral following the announcement on July 20th.  Plus, there's
the current consensus that investors are less concerned about
the actual earnings numbers - Echelon's were pretty darn good.
Instead, many investors are focusing on the forward-looking
statements about revenue for the remainder of the year, which
haven't been all that great.  Remember Jim's Market Wrap from
Thursday regarding SEASONS?  Well there you go...ELON is a prime
example.  What we had at the beginning of the week was a stock
trying to find a bottom.  Now, we've got a stock teetering on the
brink of total destruction.  The $30 level does mark strong
support, but hitting $25 isn't out of the picture yet.  Volume
has been waning this week, but the consistent losses are a
bearish sign that there are still plenty of investors looking to
move on to greener pastures.  Entries into this play can be had
off downward bounces at the 5-dma (now at $35.44), but take
heed.  Friday's strong intraday bottom at $32 warns that we
should be on guard.  If you have open positions, keep the stops
tight to protect existing gains and capital.

BUY PUT AUG-40 EUL-TH OI=200 at $9.25 SL=6.25
BUY PUT AUG-35*EUL-TG OI=386 at $5.63 SL=3.50
BUY PUT AUG-30 EUL-TF OI=170 at $2.75 SL=1.25

Average Daily Volume = 1.43 mln

EMLX - Emulex Corporation $49.38 (-11.13 last week)

A leading networking company, EMLX designs, builds and
distributes three types of connectivity products: network
access servers, printer servers, and high-speed fibre channel
products.  It's fibre channel products, which are based on
internally developed ASIC technology, are deployable across
a variety of network configurations and operating systems to
support increasing volumes of stored data.  EMLX sells its
products directly throughout the world to OEMs and end users,
as well as through system integrators and industrial

Not a screaming decline, but EMLX's action on Friday looked
like an entry point.  The early morning rise brought the stock
right up to resistance at $52, before it began rolling over
again.  At any rate, the action was hard to call on Friday,
with volume just over half of the ADV and the intraday volume
pattern being mixed.  Given the pain being felt on the NASDAQ,
we would have expected EMLX to head further south, and this
lack of weakness raises a caution flag.  Even at its high on
Friday, EMLX was still nearly $2 below its 5-dma, but the stock
did manage to stay above the $47 support level at the close.
Both the open and close were below the lower Bollinger band, and
this combined with the oversold condition on the Stochastics
oscillator could be supportive.  If it sounds like we talking
out of both sides of our mouth, it's because EMLX is giving us
mixed signals.  It could be finding support near current levels
or preparing for a further decline.  So how do we play it?
Ideally, we wait for buying volume to push the price up near
the $53 resistance level, also the site of the 5-dma (currently
at $53.88), and enter new positions as the price rolls over.
If weakness resumes on Monday, the $47 level still looks good
for new positions as the price continues south, but keep your
stops in place, as buyers stepped in at $44 on Friday.  Earnings
are scheduled for Thursday, August 3rd.

BUY PUT AUG-50*UML-TJ OI=83 at $5.50 SL=3.50
BUY PUT AUG-45 UML-TI OI=55 at $3.88 SL=2.25

Average Daily Volume = 2.12 mln

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History Repeats and the Techs Take a Beating
By Mark Phillips
Contact Support

I hope you heeded my advice and have been using the July
earnings cycle as an opportunity to lock in profits and close
out any remaining 2001 positions.  This earnings cycle is
effectively over, with the remaining stragglers reporting over
the next 3 weeks.  There have been some stellar reports from
the likes of JDSU, NT, and EMC, but all of these stocks are now
trading significantly off their recent highs.  Stocks that have
failed to impress the street have really been abused, and a
perfect example is this week's Spotlight Play, NOK.

Speaking of our playlist, take a look at the return column this
weekend and compare it to the playlist from a week ago.  Notice
the significant declines in many of our plays, with plays such
as JDSU, VSTR, and XLNX seeing their returns slashed in half.
Another interesting point is that on plays that are showing a
loss, the loss is consistently worse on the 2001 options now.
This is the beginning of the accelerating time decay effect on
these near-term options that we've been warning about over the
past several weeks.

As Jim mentioned in the Market Wrap on Thursday, the declines we
are seeing are less about specific stocks and the economy and
more closely related to the season.  Jim, Ryan, Austin and Molly
have done an excellent job of highlighting the historical
pattern, so I won't belabor the point here.  If you really want
to understand this cycle, refer back to the Market Wrap, Market
Sentiment and Traders Corner over the past 2 weeks.

Speaking of historical patterns, how do you like the VIX?  The
historical comparison of this volatility indicator between last
year and this year is uncanny - thanks for putting it so clearly
Ryan (Editor's Plays - July 23rd, 2000).  Go back and review the
charts in that article and send me nasty emails if you don't see
the amazing predictive nature of the VIX.  After continuing to
decline to new lows, the excitement in the markets this week
finally sent the VIX up towards the middle of its range, ending
the week at 24.32 - just like what happened during this past
week, a year ago.  Granted, this is still a little on the low
side, but keep in mind we haven't seen the VIX close this high
in over a month.  This gives us license to at least begin to
nibble on attractive plays, but in a cautious manner.  Don't
forget we are in that most perilous time of the year for bullish

One housekeeping note about the playlist this weekend.  Notice
that the 2001 option has been deleted for the VRSN play.  The
option is no longer listed at the CBOE, and this likely means
there is no open interest in the issue.  It seems kind of silly
to continue to list a non-existent option in our playlist (it
really makes it tough to update the returns), so the 2001
option has been deleted.  Note that both the 2002 and 2003 LEAPS
are both listed, so you should have plenty of options (pun
intended) for this play.

So the markets are in their normal seasonal downtrend with
earnings essentially over and economic fears looming again.  So
why are we continuing to list new plays, you ask?  Entry points!
Not everything will suffer at the same time, so now we go
searching for those bargains that appear when great stocks have
been excessively beaten down.  Given the current market
sentiment, we need to be more discriminating about our plays,
but if you locked in profits over the past few weeks, you should
be sitting pretty with lots of cash that you'd like to put to

I can't emphasize this enough - Don't chase plays in this
market!  Decide what your entry criteria is while the markets
are closed.  Then if you get the conditions you want then enter
the play.  If it doesn't materialize, keep in mind that it may
come back to you next week or next month, or more likely at the
end of October.  At any rate, keep your cash safe until you are
satisfied that your entry strategy is well thought out and the
market delivers exactly what you are waiting for.  Remember it
is always easier to find another play after missing one than it
is to find more money after throwing it into a losing play.

Trade Smart! Or even better, enjoy your vacation!

Current Plays


EMC    11/07/99  JAN-2001 $ 40  EMB-AH   $ 7.69   $42.13   447.85%
                 JAN-2002 $ 45  WUE-AI   $ 9.50   $48.88   414.53%
                 JAN-2003 $ 90  VUE-AR   $35.50   $33.38    ------
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $26.00   171.97%
                 JAN-2002 $ 45  WIV-AI   $11.00   $28.38   158.00%
                 JAN-2003 $ 70  VYC-AN   $25.13   $21.50    ------
NT     11/28/99  JAN-2001 $37.5 NT -AU   $11.13   $37.25   234.68%
                 JAN-2002 $37.5 WNT-AU   $15.13   $42.25   179.25%
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $30.50    73.00%
                 JAN-2002 $ 90  WJX-AR   $22.00   $36.25    64.77%
                 JAN-2003 $105  VSU-AA   $40.63   $39.75    ------
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 4.13   -16.40%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $ 6.63   - 1.78%
       07/23/00  JAN-2003 $ 25  VYD-AE   $ 6.88   $ 5.63   -18.17%
NSM    02/27/00  JAN-2001 $ 70  NSM-AN   $18.50   $ 1.88   -89.84%
                 JAN-2002 $ 70  WUN-AN   $24.25   $ 7.00   -71.13%
                 JAN-2003 $ 40  VSN-AH   $16.50   $16.50    ------
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $ 5.00   -64.29%
                 JAN-2002 $ 65  WAN-AM   $18.63   $10.13   -45.63%
                 JAN-2003 $ 65  VAN-AM   $18.25   $15.25    ------
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $15.25   110.34%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $18.25    95.61%
                 JAN-2003 $ 60  VAX-AL   $18.38   $16.25    ------
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $ 8.50    70.00%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $ 7.88    46.47%
                 JAN-2003 $ 35  VWI-AG   $ 7.63   $ 7.88    ------
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $16.13   - 7.83%
                 JAN-2002 $ 70  WVV-AN   $26.00   $27.38     5.31%
                 JAN-2003 $ 90  VVV-AR   $36.75   $28.50    ------
JDSU   04/16/00  JAN-2001 $ 80  XXZ-AP   $27.50   $45.13    64.11%
                 JAN-2002 $ 80  YJU-AP   $39.63   $58.25    46.98%
VSTR   04/16/00  JAN-2001 $ 90  UVT-AR   $23.88   $44.88    87.94%
                 JAN-2002 $ 90  WWP-AR   $35.00   $55.38    58.23%
                 JAN-2003 $150  VLV-AJ   $59.13   $36.25    ------
MOT    05/14/00  JAN-2001 $33.3 MOT-AY   $ 6.58   $ 5.38   -18.24%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $ 9.13   - 4.30%
                 JAN-2003 $ 40  VMA-AH   $13.38   $10.88    ------
NOK    05/21/00  JAN-2001 $ 50  NZY-AJ   $10.25   $ 5.75   -43.90%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $12.75   -26.09%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $17.75     0.00%
HD     05/28/00  JAN-2001 $ 50  HD -AJ   $ 6.25   $ 8.50    36.00%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $14.50    27.42%
                 JAN-2003 $ 60  VHD-AL   $17.88   $14.75    ------
NXTL   06/11/00  JAN-2001 $ 60  FZC-AL   $12.25   $ 9.75   -20.41%
                 JAN-2002 $ 60  YFG-AL   $19.25   $16.50   -14.29%
                 JAN-2003 $ 60  VFU-AL   $21.88   $21.88    ------
C      06/18/00  JAN-2001 $ 65  C  -AM   $ 7.63   $ 9.63    26.21%
                 JAN-2002 $ 65  WRV-AM   $13.75   $17.00    23.64%
AMGN   07/02/00  JAN-2001 $ 75  YAA-AO   $10.75   $ 7.88   -26.70%
                 JAN-2002 $ 75  WQY-AO   $20.75   $17.50   -15.66%
                 JAN-2003 $ 70  VAM-AN   $28.75   $26.13   - 9.11%
VRSN   07/02/00  JAN-2002 $190  YVS-AR   $66.25   $55.13   -16.78%
                 JAN-2003 $180  OVS-AP   $88.00   $73.38    ------
DELL   07/09/00  JAN-2002 $ 55  WDQ-AK   $12.63   $ 8.00   -36.66%
                 JAN-2003 $ 60  VDL-AL   $15.38   $10.63   -30.88%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $18.75     9.46%
                 JAN-2003 $ 70  OZG-AN   $23.13   $24.38     5.40%
LU     07/23/00  JAN-2002 $ 55  WEU-AK   $12.88   $ 9.13   -29.11%
                 JAN-2003 $ 55  VEU-AK   $17.50   $13.00   -25.71%

Spotlight Play

NOK - Nokia $43.75

It's not often you get a bargain like this.  NOK, arguably the
premier wireless handset manufacturer, reported earnings
Thursday morning and promptly received a 25% haircut.  The stock
had not had a phenomenal runup into earnings and they didn't
miss estimates, so you are probably wondering what the problem
is.  The company warned (cardinal sin) that 3rd quarter profits
would be lower than expected due to seasonal declines and
problematic timing of new product releases.  Notice that they
did not mention problems like supply-chain shortages or
declining demand for their products.  Instead, they cited two
short-term problems that are unlikely to affect the company long
term and it looks like the decline is giving us a great entry
point.  After falling as low as $40.16 on Thursday, the price
recovered somewhat on Friday, and this came in the midst of
carnage on the NASDAQ.  The stock looks like it may be finding
resistance near $45, so look for a pullback to initiate new
positions.  Any bounce higher from the zone between $40-42
looks buyable, but if $40 fails to hold, stand aside and let
the dust settle.

BUY LEAP JAN-2002 $45.00 IWX-AI at $13.63
BUY LEAP JAN-2003 $50.00 VOK-AJ at $17.75

New Plays

HWP - Hewlett-Packard $107.75

Guilty by association, HWP fell hard this past week after the
printer company, Lexmark (LXK) missed its earnings target and
forecast 10-15% revenue growth for the year as opposed to the
long-term target of 20%.  The current market environment is not
forgiving of this type of admission, and with concerns of
slowing PC sales added into the mix, HWP spent the week falling
in sympathy due to their exposure in both of these markets.  By
Friday, the decline appeared to be losing steam, and HWP
actually gained $1.25 on a day when the NASDAQ saw huge losses
across virtually every sector.  HWP has strong support at $100,
which is just above the rising 200-dma ($96.75), and this looks
like an ideal point to look for attractive entries.  The company
will announce its earnings on August 16th, an event which should
help to support the share price in the near term.  Even though
HWP looks great for the long-term under the capable leadership
of Carly Fiorina, we will be better served by listening to the
market, than trying to argue with it.  Along those lines, look
for new entries as the stock bounces betwen $100-102 and heads
higher.  A violation of the 200-dma would be a bad sign though,
and would be our signal to stand aside and wait for the overall
market to improve.

BUY LEAP JAN-2002 $110.00 WPW-AB at $28.25
BUY LEAP JAN-2003 $120.00 VHP-AD at $32.63

PCS - Sprint PCS Group $54.25

Looking for another wireless play?  Now that we've had our fun
with VSTR, we've been looking for another stock to play in this
sector and PCS looks like our next playmate.  The Telecom stocks
have been having a rough time lately, and PCS has felt the pain
as well, dipping back to kiss the 200-dma (currently $52.63) the
past 2 days.  Since going public at the end of 1998, PCS has
only approached its 200-dma once, and that was when the NASDAQ
was in free fall this past April.  Even in that market
environment, PCS refused to penetrate that level and quickly
recovered.  In addition to the 200-dma, PCS has strong
historical support between $50-53, and the bounce on Friday came
on strong volume, helping to make a strong case for a near term
bottom.  We would like to see the stock firm up support near
current levels before heading higher, but any recovery off of
current levels looks buyable.  More conservative players may
want to wait for the Telecom sector to regain some health
before playing, giving PCS time to solidify its support.  If the
decline continues from current levels and penetrates the $50
level, keep your cash safe and wait.  The best play in the world
can't overcome negative market sentiment and we don't want to
chase this play lower if the markets head further south,
dragging our play with them.

BUY LEAP JAN-2002 $60.00 WVH-AL at $11.88
BUY LEAP JAN-2003 $65.00 VVH-AM at $14.38 **Wait for OI**




And The Final Tally Is...
By Ryan Nelson

With July ending, it is time to take a look at the monthly
total to see if splits were as abundant as forecasted.  I said
I was looking for 30 splits due to the vast amount of annual
shareholder meetings this spring where additional shares were
authorized.  Not to mention, that the stock market rebound
had many companies positioned to split.  Well, the final tally
was 33 major, optionable companies that announced.  Not bad
by any measure for a one month total.  Now the question is,
how many CEOs still want to enact those splits with with the
market shredding their stock prices?  Too late guys!  The splits
will still happen.  Fortunately for us, this recent decline will
allow for some entry points to the split runs next month.  We
will talk about this more soon as the payable dates near.  Until
then, don't buy too soon as the market is still looking weak.

Current Split Run Plays


Current Split Candidate Plays


Candidates That Are Not Current Plays


10 Most Recent Announcements We Predicted

AMD (most recent announcement)

Major Announcements So Far This Month = 33

BMET     WAT      NMSS     PDLI     UVN
VRTX     ALTR     ACTU     CORR     INCY
CDT      BBBY     RATL     EXTR     PROX
MPWR     ATML     AMD      MNMD     MER
AFFX     TXCC     TSTN     C        INHL
IMPH     DYN      RFMD     BUD      RARE

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The Option Investor Newsletter                   Sunday 07-30-2000
Sunday                                                      5 of 5

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The Future of Online Trading Continues to Evolve...
By Mark Wnetrzak

E*trade, Fidelity, DLJ Direct and Datek are the companies most
investors associate with the words "online trading."  These
popular discount brokerages provide self-reliant investors the
means to buy and sell securities and other instruments over the
Internet for low transaction fees.  Savvy traders have saved
millions of dollars using these e-brokerages instead of paying
the higher commissions that the traditional brokers charge.  But,
the real power of the Internet to affect the way individuals
invest lies in the creation of automated, centralized trading
exchanges.  Such exchanges can save investors even more money by
eliminating the professional intermediaries (for example, Knight
Trading Group) and the transaction premiums they charge for
providing liquidity.  Of course, this in turn would attract more
frugal investors and further decrease trading costs.

Institutional investors have had access to online trading with
Instinet since 1969 but until recently, individual traders have
been left out.  With the evolution of the Internet brokerages and
now the Electronic Communication Networks (ECN), that is no longer
the case.  Today there are nine networks that handle stock trades
outside the traditional exchange system and they account for more
than one-fourth of all trades in Nasdaq stocks.  Instinet, which
is owned by Reuters Holdings, is the largest ECN, handling over
one-half of all electronic "third-market" transactions.  Other
major players include Island ECN, owned by Datek, which is now
handling orders worth hundreds of billions of dollars; Tradebook,
owned by Bloomberg; and Archipeligo, in which Goldman Sachs and
E*trade recently purchased a major stake.

The most advanced, "active" ECNs are gaining support from traders
because they use sophisticated algorithms to "read" the inside
market and choose the most advantageous way to route a trade,
attempting to achieve the best price.  These systems will take
market and limit orders, with several of them offering advanced
order-entry capabilities previously unavailable to individuals.
These networks are also able to route large numbers of orders
and execute them in a short time interval with no additional
guidance or human intervention.  For example, Archipelago will
check a limit order for a match, and if there is no match, it
will post the order to the Level II screen.  If the order is
priced more favorably than the current inside market, the system
will check to see who is on the inside bid and dynamically decide
the quickest way to route the order.  These are auto-executions
at electronic speeds that allow enormous orders to get filled
(through SelectNet) by executing against multiple market-makers
and ECNs at the same time.  The most well-known active ECNs are
Archipelago - easily the largest in terms of volume, NexTrade
and Attain.

One of the current drawbacks is that while SelectNet routing to
ECNs will auto-execute in most exchanges, that isn't necessarily
true with a market-maker.  If a SelectNet preference is routed to
a market-maker, by regulation, he has up to 30 seconds to respond.
Obviously, in a fast moving market, this could be quite costly as
the market-maker can simply wait for the period to elapse and then
decline the offer.  Fortunately, the active ECN quickly restarts
the algorithmic search for another market-maker.  Understanding
the different execution routes is of utmost importance as it is
necessary for an investor to be able to utilize the new systems

Currently, with the appropriate software packages, many different
kinds of orders are available to retail traders.  These include
STOP orders on Nasdaq stocks and RESERVE orders that allow you to
post one size order on the level II screen and actually transact
a different size order.  In the future, the addition of logical or
conditional (if - then) orders will further decrease the need for
traditional brokers.  As the equity and option markets continue to
evolve, it is paramount that every investor understand the trading
system's dynamics that can affect his or her portfolio success.

Good Luck!

NOTE: Using Margin doubles the listed Monthly Return!

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

HLYW    8.94   7.94   AUG   7.50  2.06  *$  0.62   9.8%
MAIL    9.44   8.00   AUG   7.50  2.50  *$  0.56   7.0%
DLK    16.75  19.25   AUG  12.50  5.25  *$  1.00   6.3%
PSFT   18.38  20.88   AUG  15.00  4.38  *$  1.00   5.2%
WFR    18.38  15.50   AUG  15.00  4.38  *$  1.00   5.2%
PMTC   12.69  10.09   AUG  10.00  3.25  *$  0.56   5.2%
MCRE   13.06  10.75   AUG  10.00  3.50  *$  0.44   5.0%
TMWD   59.50  42.63   AUG  45.00 18.63   $  1.76   4.7%
IMNR   11.00   8.41   AUG   7.50  3.88  *$  0.38   4.6%
EPTO   15.13  12.50   AUG  12.50  3.38   $  0.75   4.6%
MCOM   33.00  37.00   AUG  25.00  9.25  *$  1.25   4.6%
OO     13.94  14.50   AUG  12.50  1.94  *$  0.50   4.5%
IGEN   20.69  18.25   AUG  17.50  3.88  *$  0.69   4.5%
LOOK   23.00  17.88   AUG  17.50  6.25  *$  0.75   3.9%
IVIL    8.94   6.25   AUG   7.50  2.13   $ -0.56   0.0%
EFCX   14.38   8.75   AUG  10.00  4.88   $ -0.75   0.0%
BLSW   32.88  20.88   AUG  25.00  9.38   $ -2.62   0.0%
ITXC   34.50  19.63   AUG  30.00  7.00   $ -7.87   0.0%

LE - Not Playable

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


It was nice of Lands' End (LE) to warn about slower than expected
sales "before" Monday's open.  Even though the tape continues to
act peculiar and is again showing strength, Monday's gap-down at
the open, on high volume, marks this candidate as one to avoid.
Many of the portfolio issues are correcting and testing recent
support areas.  Evaluate your individual long-term outlook and
identify logical exit points.  With the recent weakening market,
stemming losses quickly may be the most prudent money management
technique.  Next week, we will list Ivillage.com (IVIL), Electric
Fuel (EFCX), Bluestone Software (BLSW), and Itxc Corp. (ITXC) as
closed.  Looksmart (LOOK) and Tumbleweed Comm. (TMWD) may also be
candidates for an early exit.


Sequenced by Company

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

ACOM   21.75  AUG  15.00  AUY HC  7.50  26   14.25   21     7.6%
ASKJ   17.44  AUG  15.00  AKU HC  3.25  118  14.19   21     8.3%
CGO    42.13  AUG  35.00  CGO HG  8.38  83   33.75   21     5.4%
CLTR   22.00  AUG  17.50  QCE HW  5.00  10   17.00   21     4.3%
FRNT   18.44  AUG  17.50  FUO HW  1.50  164  16.94   21     4.8%
GPX     5.81  AUG   5.00  GPX HA  1.25  485   4.56   21    14.0%
NLCS   58.13  AUG  50.00  QEZ HJ 11.00  466  47.13   21     8.8%

Sequenced by Return

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

GPX     5.81  AUG   5.00  GPX HA  1.25  485   4.56   21    14.0%
NLCS   58.13  AUG  50.00  QEZ HJ 11.00  466  47.13   21     8.8%
ASKJ   17.44  AUG  15.00  AKU HC  3.25  118  14.19   21     8.3%
ACOM   21.75  AUG  15.00  AUY HC  7.50  26   14.25   21     7.6%
CGO    42.13  AUG  35.00  CGO HG  8.38  83   33.75   21     5.4%
FRNT   18.44  AUG  17.50  FUO HW  1.50  164  16.94   21     4.8%
CLTR   22.00  AUG  17.50  QCE HW  5.00  10   17.00   21     4.3%

Company Descriptions

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

ACOM - Agency.COM  $21.75 *** Welcome to the Russell 2000 ***

Agency.COM is an international Internet professional services
firm. They provide clients with an integrated set of strategy,
creative and technology services that take them from concept to
launch and operation of their Internet businesses.  They provide
planning, designing, programming and implementation for a range
of online activities, from marketing strategies to the creation
of online commerce platforms.  Agency.Com reported higher than
expected cash earnings on Thursday due primarily to their clients
increased spending on its Internet consulting services.  Revenue
increased 30% from last quarter and 95% from last year.  Add
several new contracts, partnerships, upgrades, and membership
in the Russell 2000 index, and you have a reasonable risk-
reward scenario.  We favor the support near the lower end of
the stage I base though the technicals suggest an upside
resolution may be forthcoming.

AUG 15.00 AUY HC LB=7.50 OI=26 CB=14.25 DE=21 MR=7.6%

Chart =
ASKJ - Ask Jeeves $17.44 *** What Cash Burn Rate? ***

Ask Jeeves provides online personal service infrastructure for
companies seeking to target, acquire, and retain customers
online.  The online personal service infrastructure allows
companies to connect users to information through automated
search, decision advisory support and interaction with live
customer care representatives.  Ask Jeeves' answer to the
Internet cash-burn rate worries was an excellent earnings report,
beating the Street by 5 cents.  Revenues for the 2Q were $25.9
million, an 817% increase over last year and their cash position
totaled $141.6 million, which the company believes will preclude
the need for future financing.  First Union Securities liked
what they heard and quickly upgraded Ask Jeeves to a Strong Buy.
Ask Jeeves has been forming a Stage I base for several months
and recent signs of accumulation have increase the probabilities
for a favorable outcome.  The positive earnings and increasingly
bullish technicals makes this a reasonable speculation position.

AUG 15.00 AKU HC LB=3.25 OI=118 CB=14.19 DE=21 MR=8.3%

Chart =
CGO - Atlas Air $42.13 *** Record 2nd Quarter Results! ***

Atlas Air is an air cargo outsourcer, with an all Stage 3
FAA noise regulation compliant fleet of Boeing 747 freighter
aircraft.   They provide reliable air cargo transportation
services throughout the world to major international air carriers
generally under three- to five-year fixed-rate contracts which
typically require that the Company supply aircraft, crew,
maintenance and insurance contracts. Their customers include
Alitalia, British Airways, China Airlines Ltd., Korean Airlines
and Malaysian Airlines.  Atlas Air not only reported stellar
earnings, they were added to the S&P MidCap 400 Index.  The
company reported net income rose by 43% to a record $19.0 million
or $0.53 per fully diluted share for the quarter ended June 30,
2000, versus $13.3 million or $0.38 per fully diluted share for
the year-earlier period, on 4% greater shares.  Atlas Air reached
a new intra-day high on Friday on heavy volume and is just $0.06
from being in blue sky territory.  We favor a more conservative
entry point near the May and Junes highs.

AUG 35.00 CGO HG LB=8.38 OI=83 CB=33.75 DE=21 MR=5.4%

Chart =
CLTR - Coulter Pharmaceutical   $22.00 *** Stage I Speculation ***

Coulter Pharmaceutical is engaged in the development of novel drugs
and therapies for the treatment of cancer and autoimmune diseases.
The company currently is developing a family of therapeutics based
upon two drug development programs: therapeutic antibodies and
targeted oncologics. The company's most advanced product candidate
is Bexxar(TM), a monoclonal antibody conjugated to a radioisotope.
The company's therapeutic antibodies program also includes an
interferon receptor antagonist. Initial efforts in the targeted
oncologics program are based on tumor activated prodrug and tumor-
specific targeting technologies. Coulter intends to seek expedited
Biologics License Application ("BLA") review and marketing
approval for Bexxar while simultaneously pursuing clinical trials
to expand the potential use of Bexxar to other indications.  CLTR
and SmithKline Beecham announced this week the start of Phase II
multicenter investigational trial of Bexxar in combination with
CHOP chemotherapy as a first-line treatment of patients with
intermediate-grade non-Hodgkin's lymphoma.  The U.S. Patent office
also issued another patent relating to CD20 antibody therapy for
the treatment of lymphoma.  Coulter continues to form a stage I
base with support above the sold strike.  A conservative but
speculative entry point - do your research.

AUG 17.50 QCE HW LB=5.00 OI=10 CB=17.00 DE=21 MR=4.3%

Chart =
FRNT - Frontier Airlines $18.44 *** Blue Sky Territory? ***

Frontier Airlines is a scheduled airline that currently operates
routes linking its Denver hub to 22 cities, spanning the nation
from coast to coast.  Frontier has a fleet of 24 leased jets,
including seven Boeing 737-200s and 17 larger Boeing 737-300s.
Frontier's June traffic results showed promising gains in both
Revenue passenger miles (up 31.9%) and Available seat miles (up
20.5%), and was the first month Frontier carried in excess of
250,000 customers.  Investors have shown their support by
lifting Frontier to the very brink of Blue Sky Territory as
they speculate on next Months earnings report.  Frontier is
maneuvering to take advantage of next summer's heavy travel
period by taking early delivery of two Airbus aircraft.  We simply
favor the stage II bullish chart that is defying the current
Market conditions.  Regardless, a failure to "fly" higher in the
next few days may warrant a test of support - which is just
below our cost basis.

AUG 17.50 FUO HW LB=1.50 OI=164 CB=16.94 DE=21 MR=4.8%

Chart =
GPX - GP Strategies $5.81 *** Cheap Speculation ***

GP Strategies is a performance improvement company that assists
productivity driven organizations to maximize workforce
performance by integrating people, processes and technology.
Their wholly owned subsidiary, General Physics Corp., is a
total solution provider for strategic training, engineering,
consulting and technical support services to Fortune 500
companies, government entities, utilities and other commercial
customers.  No recent news but GP Strategies is rallying on
heavy volume and possibly forming a double bottom?  Does the
name Millenium Cell (MCEL) mean anything?  In December 1998,
GPX contributed a battery technology group (four employees and
the rights to its license) to Millenium in exchange for an
equity ownership, a note payable and certain royalty payments.
Guess when Millenium is expected to price?  Next week!  Cheap
speculation with a reasonable cost basis with an underlying
IPO angle!

AUG 5.00 GPX HA LB=1.25 OI=485 CB=4.56 DE=21 MR=14.0%

Chart =
NLCS - National Computer $58.13  *** New Trading Range ***

National Computer Systems (NCS) is a global information services
company providing software, services, systems and Internet-based
technologies for data collection, management and interpretation.
NCS was recently awarded a renewal of the Public Inquiry Contract
by the Student Financial Assistance (SFA) office of the U.S. Dept.
of Education.  The contract value is expected to exceed $100
million over 5-1/2 years.  NCS is positioned to take advantage
of the Internet and recently designed and implemented the Free
Application for Federal Student Aid web site that facilitates
the application process for Title IV student financial aid.  The
SFA estimates that more than 30 percent of the 10 million
financial aid applications it will receive in 2001 will be filed
electronically.  The technicals remain bullish though the stock is
a bit over-bought, and a news blurb about errant test results in
Minnesota may pressure the stock early next week.

AUG 50.00 QEZ HJ LB=11.00 OI=466 CB=47.13 DE=21 MR=8.8%

Chart =

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Find out more!



Naked Put Percentage List
By Ryan Nelson

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

AKAM    77.94   75   RUG-TO   5.50   1949   28%     75
AVNX   112.19  100   UYN-TT   6.38   2805   23%    103
BRCD   163.94  160   GUF-TL  11.00   4099   27%    160
CHKP   107.38  105   YKE-TA   7.00   2685   26%    100
CMTN    75.50   80   KUA-TP   9.00   1888   48%     75
DNA    149.00  145   DNA-TI   4.50   3725   12%    145
EXTR   129.94  125   EUT-TE   9.63   3249   30%    130
GLW    232.75  230   GRJ-TF  11.75   5819   20%    220
GSPN   110.69  110   GHY-TB  10.38   2767   38%    100
HWP    107.25  110   HWP-TB   7.25   2681   27%    104
INTC   129.13  130   INQ-TF   6.00   3228   19%    129
ITWO   121.38  120   QYJ-TD   8.63   3035   28%    120
JNPR   134.50  130   JUY-TF   8.25   3363   25%    127
MUSE   120.63  120   UZQ-TD  10.88   3016   36%    103
NTAP    85.00   85   NUL-TQ   7.25   2125   34%     80
PHCM    75.75   75   UGE-TO   6.13   1894   32%     70
PVN    103.63  100   PVN-TT   3.00   2591   12%    100
PWER   128.25  125   OGU-TE   9.50   3206   30%    120
QLGC    74.13   75   QLC-TO   7.13   1853   38%     70
RBAK   121.50  120   BKK-TD   9.75   3038   32%    118
RMBS    70.91   65   BYQ-TL   4.00   1773   23%     65
SDLI   321.06  320   QJV-TD  21.50   8027   27%    300
SEBL   136.44  135   SGW-TG  10.88   3411   32%    138
SEPR   108.69  110   ERU-TB   8.38   2717   31%    102
TIBX    94.69   95   PIW-TS   7.38   2367   31%     90
TLGD   111.94  110   TQK-TB  12.38   2799   44%    110
VRSN   160.75  160   XVR-Tl  11.88   4019   30%    158
VRTX    98.88  100   VQR-TT   6.50   2472   26%     97


Trading Plans: Rules for success...
By Ray Cummins

One of the most difficult skills new traders must develop is the
ability to follow a trading plan.  At first glance, it seems like
a relatively uncomplicated proposal.  The initial stage is easy,
outline a trading system; a specific approach that requires you
to make decisions based on a particular mechanism or strategy for
managing positions.  The next phase, executing the plan, is where
the trouble begins.  In fact, many experts believe that this step
can be one of the biggest obstacles to overcome when learning how
to trade profitably.  Almost everyone agrees that precision and
consistency are absolutely necessary in any successful system but
few people realize how difficult it is to follow a pre-determined
plan when the elements of fear, hope and greed enter the equation.
We all begin with the best intentions, knowing that a mechanical
and disciplined method is the easiest way to achieve profits on
regular basis.  Somewhere along the way, we become sidetracked.
News and outside events conspire to derail our scheme at almost
every opportunity.  Of course we know that allowing the market to
make the trading decision is much more precise than relying on
our complex human intuition.  Unfortunately, the pressure of the
moment is often too great and we find ourselves changing designs
prematurely, usually eliminating any opportunity for a profitable

The problem is a common one.  New investors generally begin with
a great work ethic and most have a relatively worthy idea of how
they expect to manage a particular issue.  Then they get diverted
by an unexpected event such as an analyst upgrade or a news story
about the outlook for the company or its products.  At that point,
a change occurs.  But it's generally not in the company or its
fundamental condition.  In reality, the change takes place in the
mind of the trader; an adjustment in perception as opposed to a
physical alteration.  Anyone who has participated in the stock
market will recognize this unwanted transformation as a universal
weakness that occasionally overwhelms all traders.  The primary
reason for this occurrence is lack of discipline.  The need for
instant gratification prevents the majority of investors from
exercising the patience necessary to be successful.  We all know
that surviving the "learning curve" to eventually profit in the
market is not easy, but too many people quit after a few losing
plays, long before they have time to develop the various skills
required for profitable trading.

Obviously, while it is important to execute the plan precisely,
it is also essential to remain flexible and be ready to change
one's direction or strategy when the need arises.  This concept
may appear contradictory but it makes perfect sense when the
change in tactics or attitude is based on a revised outlook,
either technical or fundamental, for the underlying issue.  In
any type of financial market, the conditions are constantly
changing and to be successful, a trader must adapt accordingly.
New trends and unexpected economic events must be interpreted
with an open mind and adjustments should be initiated only after
considering all the facts at hand.

Once the rules are understood and a personal strategy is defined
and tested, the mechanics of the game become relatively simple.
The key is to remember that the primary goal of every system is
to limit losses and maximize profits.  Next week we will discuss
one the most popular ways to improve consistency with entry and
exit decisions: the trading stop.

Good Luck!

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


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

HLYW    8.94   7.94   AUG   7.50  0.50  *$  0.50  20.6%
GSTRF  10.56   8.25   AUG   7.50  0.56  *$  0.56  18.2%
ZIXI   55.00  40.13   AUG  40.00  1.63  *$  1.63  14.0%
NFLD   17.50  15.38   AUG  15.00  1.00  *$  1.00  13.2%
ATMS   11.44   8.75   AUG   7.50  0.31  *$  0.31  13.0%
WSTL   25.19  23.50   AUG  20.00  0.81  *$  0.81  12.0%
PSFT   21.88  20.88   AUG  17.50  0.44  *$  0.44   9.9%
WSTL   28.50  23.50   AUG  20.00  0.56  *$  0.56   9.7%
RAZF   22.25  17.78   AUG  17.50  0.56  *$  0.56   9.7%
ICGE   39.94  32.06   AUG  30.00  0.75  *$  0.75   9.3%
RHAT   25.31  18.19   AUG  17.50  0.38  *$  0.38   7.6%
MRVT   22.63  21.25   AUG  17.50  0.50  *$  0.50   7.2%
NXLK   39.69  33.00   AUG  30.00  0.75  *$  0.75   6.3%
INFS   37.00  34.75   AUG  30.00  0.50  *$  0.50   5.2%
SQST   14.00   9.63   AUG  10.00  0.50   $  0.13   3.4%
PILT   17.81  12.00   AUG  12.50  0.50   $  0.00   0.0%
BLSW   32.88  20.88   AUG  22.50  0.56   $ -1.06   0.0%

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


The overall "Market" continues to act worrisome and all current
positions should be monitored closely in this horrid environment.
With many of the portfolio issues entering a correction phase,
choosing to own them will depend on your risk-reward tolerance
and long-term outlook.  Consider closing the following issues if
they continue to weaken and/or violate technical support areas:
Zixit (ZIXI), Northfield Labs (NFLD), Tidel Tech (ATMS), Pilot
Network (PILT), Sciquest.Com (SQST), and Bluestone Software (BLSW).


Sequenced by Company

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

ADPT   24.00  AUG  20.00  APQ TD  0.31  596  19.69   21     7.6%
DRMD    5.75  AUG   5.00  DUQ TA  0.31  35    4.69   21    24.1%
GELX   28.56  AUG  25.00  GQX TE  0.38  45   24.62   21     6.7%
JEF    26.56  AUG  25.00  JEF TE  0.50  0    24.50   21     7.6%
NLCS   58.13  AUG  40.00  QEZ TH  0.88  40   39.12   21    10.2%
R      21.25  AUG  20.00    R TD  0.88  316  19.12   21    15.7%
THC    31.19  AUG  30.00  THC TF  0.81  65   29.19   21     9.7%

Sequenced by Return

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

DRMD    5.75  AUG   5.00  DUQ TA  0.31  35    4.69   21    24.1%
R      21.25  AUG  20.00    R TD  0.88  316  19.12   21    15.7%
NLCS   58.13  AUG  40.00  QEZ TH  0.88  40   39.12   21    10.2%
THC    31.19  AUG  30.00  THC TF  0.81  65   29.19   21     9.7%
ADPT   24.00  AUG  20.00  APQ TD  0.31  596  19.69   21     7.6%
JEF    26.56  AUG  25.00  JEF TE  0.50  0    24.50   21     7.6%
GELX   28.56  AUG  25.00  GQX TE  0.38  45   24.62   21     6.7%

Company Descriptions

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

ADPT - Adaptec  $24.00  *** On The Rebound! ***

Adaptec supplies bandwidth management solutions designed to
enhance total system performance by increasing the data transfer
rates between personal computers, servers, peripherals, and
networks.  They produce bus adapter boards and chips toward this
end, and also market optical media software for CD-R and CD-RW.
Adaptec has been edging higher since the California maker of CD
recording software offered an improved business outlook in a
recent presentation at a conference in San Francisco.  The demand
for their products is strong and company officials anticipate
favorable revenue growth through the second half of the year.
Bullish comments from an analyst with Robertson Stephens have
also helped spur interest in the issue and we favor the improving
technicals and low risk entry point.

AUG 20.00 APQ TD LB=0.31 OI=596 CB=19.69 DE=21 MR=7.6%

Chart =
DRMD - Duramed  $5.75  *** Cheap Speculation! ***

Duramed Pharmaceuticals develops, manufactures, and markets a
line of prescription drug products in tablet, capsule and liquid
forms throughout the United States.  Their products are sold to
a wide variety of organizations, including drug store chains,
hospitals, nursing homes, and governmental agencies.  Duramed
recently reported favorable results for the past quarter with
record sales, up 25% from the first quarter of 2000, and gross
profits that increased 63% from the previous quarter.  The
company cited a strong, balanced performance with contributions
from the family of Cenestin (R) products, the flagship drug of
Duramed's long-term commitment to hormone problems.  The company
is also continuing to monitor a number of business activities
that may improve its working capital position and expects to
place heavy emphasis on partnering high-profile projects.  The
issue appears to rebounding technically and the recent support
near $5 makes this a reasonable speculation position.

AUG 5.00 DUQ TA LB=0.31 OI=35 CB=4.69 DE=21 MR=24.1%

Chart =
GELX - GelTex  $28.56  *** Excellent Earnings! ***

GelTex Pharmaceuticals is focused on the development of non-
absorbed, polymer-based pharmaceuticals that selectively bind to
and eliminate target substances from the intestinal tract.
Their leading products include Renagel Capsules and Cholestagel.
Shares of GelTex rallied earlier in the month after the company
reported better-than-expected earnings and announced it had won
government clearance to start patient testing of a potential
treatment for colitis.  The drug developer reported quarterly net
income of $16 million, or $0.79 a share, well above the analysts'
consensus of $0.41 a share.  Total retail prescriptions for the
quarter increased 18%, while new prescriptions rose 19% and sales
of the company's Renagel product hit $10.2 million, a 27% gain
over the first-quarter total.  With a bullish fundamental outlook
and favorable technicals, this appears to be a good candidate
for any speculative portfolio.

AUG 25.00 GQX TE LB=0.38 OI=45 CB=24.62 DE=21 MR=6.7%

Chart =
JEF - Jefferies Group  $26.56  *** On The Move! ***

Jefferies Group together with its affiliated companies, is an
institutional brokerage firm and investment bank focusing
on research and capital raising services for small to medium
sized companies. They trade in equity, high yield and convertible
securities, options and international securities for institutional
clients.  The majority of U.S. brokerages have reported strong
profit gains in the second quarter despite a recent downturn in
the market.  The results, driven by increases in profits from
managing money and investment banking fees, marked the second-best
quarterly results ever for industry.  In addition, the recent
consolidation in the group, led by the buyout of PaineWebber (PWJ),
has spurred new interest in many of the potential merger targets.
If you favor the bullish technical activity in this issue and like
to participate in speculative plays, we suggest a "target-shooting"
order to open this position.  A reasonable cost basis would be
near $24.

AUG 25.00 JEF TE LB=0.50 OI=0 CB=24.50 DE=21 MR=7.6%

Chart =
NLCS - National Computer $58.13  *** New Trading Range ***

National Computer Systems (NCS) is a global information services
company providing software, services, systems and Internet-based
technologies for data collection, management and interpretation.
NCS was recently awarded a renewal of the Public Inquiry Contract
by the Student Financial Assistance (SFA) office of the U.S. Dept.
of Education.  The contract value is expected to exceed $100
million over 5-1/2 years.  NCS is positioned to take advantage
of the Internet and recently designed and implemented the Free
Application for Federal Student Aid web site that facilitates
the application process for Title IV student financial aid.  The
SFA estimates that more than 30 percent of the 10 million
financial aid applications it will receive in 2001 will be filed
electronically.  The technicals remain bullish though the stock is
a bit over-bought, and a news blurb about errant test results in
Minnesota may pressure the stock early next week.

AUG 40.00 QEZ TH LB=0.88 OI=40 CB=39.12 DE=21 MR=10.2%

Chart =
R - Ryder System  $21.25  *** Options Activity! ***

Ryder primarily is engaged in the logistics and transportation
business with focus on integrated logistics, including dedicated
contract carriage, the management of carriers, and inventory
deployment; and transportation services, including full service
leasing, maintenance and short-term rental of trucks, tractors
and trailers.  Ryder shares have rebounded since the transport
and logistics company reported second-quarter net income of $29
million, a 44% increase, driven by gains in the logistics units.
Options prices and volume have also moved higher on "takeover"
rumors and implied volatility for front-month options is at a
recent high.  Ryder is an old favorite in the rumor mill and one
analyst commented that it was no secret that the company would be
a highly valuable asset to a number of other corporations.

AUG 20.00 R TD LB=0.88 OI=316 CB=19.12 DE=21 MR=15.7%

Chart =
THC - Tenet Healthcare $31.19  *** Break-Out! ***

Tenet Healthcare is a healthcare services company that owns or
operates general hospitals and related healthcare facilities
serving urban and rural communities in 18 states.  THC has 130
general hospitals, and often has associated healthcare facilities,
such as medical office buildings and psychiatric facilities,
located in their general vicinity, thus providing many communities
with a full range of healthcare services in one convenient location.
Tenet Healthcare recently reported higher fiscal fourth-quarter
earnings as robust revenue and pricing trends offset a smaller
revenue base created by the sale of non-strategic facilities.
The company was quickly upgraded to a "buy" rating, based on the
out-performance of expectations in past quarters and momentum in
confidence for fiscal 2001.  THC is consistently making headway
toward becoming a higher-margin, better cash-flow generating
investment than in the past and the move above resistance at $28
suggests this issue is poised for further upside activity.

AUG 30.00 THC TF LB=0.81 OI=65 CB=29.19 DE=21 MR=9.7%

Chart =

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Option Trading Basics...
By Ray Cummins

There are many types of investors and no single strategy can work
for all of them.  With the recent volatility and indecision in the
market, we have another great opportunity to take a break from
trading and discuss some of the strategies that work best in
uncertain times.

There are many types of investors and no single strategy can work
for all of them.  By definition, trading is a risky venture but
you know there are people who profit regularly in this business.
What do these profitable traders have in common?  As a group, they
all conform to the same fundamental plan.  They develop sound and
sensible methods for participating in the market, using strategies
that work best for each particular situation.  They also acquire
the proper tools for accurate analysis of their candidates and
potential plays, and they construct positions with regard to the
appropriate risk/reward attitude of their financial situation.

There are a number of ways to be successful in the options market.
The primary uses of options are speculating and portfolio hedging.
Both of these practices involve the management of risk, with each
strategy approaching the potential for loss in a different manner.
Fund managers and institutional traders reduce risk by offsetting
a portion of their holdings with option positions.  Many of them
purchase Puts to insure their equity portfolios while others use
option writing strategies, selling both Puts and Calls to improve
returns from their long-term investments.  Speculative strategies
include buying and selling options and in most cases, traders use
these techniques to generate additional leverage in directional
positions.  Ownership of an option can produce large profits when
the underlying instrument moves as expected and on those occasions
when the forecast is incorrect, the loss is limited to the initial
cost of the position.

Another popular approach, spread (or combination) trading, seeks
to produce option positions with less risk than the speculative
strategies.  The majority of spread techniques involve buying and
selling simultaneous but opposing positions in different option
series.  Common spread strategies include Calendar Spreads, Price
(or vertical) spreads, and various combinations of the two.  The
Calendar spread (also known as a horizontal spread) involves the
purchase of an option with one expiration date and the sale of
another option at the same price but a different expiration date.
The philosophy for using calendar spreads is that time will erode
the value of the short term option at a faster rate than it will
the long term option.  Traders who attempt to forecast the future
direction of specific issues generally use price spreads.  These
positions consist of a long (purchased) option and a short (sold)
option, where both options are of the same type (calls or puts)
and expire at the same time.  Vertical spreads are commonly used
by investors who want to use options to take advantage of an
expected market move.  The benefit of this technique is that it
is aptly suited to situations where the underlying issue's trend
is relatively well established and option pricing concerns are of
secondary importance.  One of the most widely utilized "neutral"
strategies is the Straddle.  Debit straddles involve the purchase
of both call and put options and the position benefits from a
large movement in the underlying issue.  Based on the size and
timeliness of the move, the technique can generate large profits.
In most spread and combination strategies, the returns are far
smaller than those generated by speculative positions in exchange
for reduced risk.

The are two well-known benefits of derivatives.  They can be used
to generate exponential profits on correctly forecast movements
and alter the risk of a portfolio.  A trader who purchases calls
can profit from an increase in the price of the underlying asset,
while the maximum loss from buying the option is limited to the
cost of the option.  The potential gains in this type of position
are limited only by the price change in the underlying instrument.
Since the asset's price is the most important factor affecting an
option's value, the success of directional strategies is based on
the appropriate assessment of future market movement.  Technical
and fundamental analysis are typical procedures used to identify
the direction and magnitude of movement in the underlying issue.

Additional considerations with regard to option buying are time
and leverage.  Obviously, the major drawback for options is that
they are a wasting asset; the intrinsic value of the option falls
as the expiration date approaches.  Timing is a critical concern
with derivatives because the initial premium for time value can
be larger than any profit resulting from favorable movements in
the underlying instrument.  In addition, the future potential or
"implied volatility" of an option can be difficult to assess and
that particular concept can be overwhelming for novice investors.
The most common result is that a trader will correctly forecast
the movement of the underlying issue but, having paid an excessive
premium for the option, will eventually experience a loss in the
position.  Leverage is also a very important component of option
trading as it allows an investor to achieve substantial profits
with a relatively small cash investment.

The most common failure among new traders is the inability to
assess the suitability of a specific position in terms of its
risk and profitability characteristics, and the basic lack of
theoretical option-pricing knowledge.  In addition, many novice
option traders base their selection of plays on the potential
for return rather than the appropriate position or strategy for
each combination of market direction and volatility.  Retail
option buyers are a great example!  They consistently purchase
options that are slightly out-of-the-money with a relatively
short time remaining before expiration.  They generally avoid
option pricing models due to their confidence concerning the
future movement of the underlying issue and their distorted
assumptions about profit potential.  Most investors partake in
the options market without paying much attention to Fair Value
and Implied Volatility.  As a result, they select overpriced
options, often failing to profit even when they are correct
about the change in the price of the underlying instrument.

Options possess characteristics that differ from other financial
instruments.  These unique attributes provide option traders with
advantages unavailable to the majority of market participants.
Although the initial learning curve can be difficult to overcome,
the evidence concerning spread trading suggests that a structured
plan with strategies for limiting losses and maximizing gains can
produce favorable portfolio growth in the long-term.  The majority
of experienced traders utilize spreads to reduce the cost and the
risk of option ownership.  They construct combination plays with
partially offsetting option positions to reduce the potential for
capital loss.  Spreads can be also be designed to generate return
diagrams of almost any character.

For the investor who is not familiar with spread and combination
strategies, this type of trading also offers a great opportunity
to learn the basics in a low risk environment.  The fundamental
concepts are relatively easy to understand and once established,
most positions can usually be managed with little difficulty.  The
occasional adjustments also provide the necessary background for
more advanced techniques.  Those who enjoy aggressive, directional
trading can construct combination positions to fit their style as
well.  Although the potential for upside profit is reduced, the
limited downside exposure provides a favorable risk/reward ratio
for the majority of investors.

The options market offers a number of tools and techniques that
can help the astute trader construct a powerful portfolio; one
which possesses a high degree of safety with consistent returns.
Through the use of combinations, the trader has a vehicle to
pursue a wide variety of strategies.  The complete option player
can profit with both bullish and bearish plays, in situations
that dictate either aggressive or conservative positions.  With
an understanding of the risk/reward relationships between long
and short options at different prices in varying time periods, he
can benefit from the most advanced techniques available in the

Good Luck!


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Please read our disclaimer at:


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.

Readers are urged to consult with their own independent financial advisors with respect to any investment. All information contained in this report and website should be independently verified.

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