Option Investor

Daily Newsletter, Tuesday, 08/01/2000

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The Option Investor Newsletter                  Tuesday 08-01-2000
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MARKET WRAP  (view in courier font for table alignment)
        08-01-2000        High      Low     Volume Advance/Decline
DJIA    10607.00 + 85.00 10626.90 10516.80  921 mln   1675/1179
NASDAQ   3685.52 - 81.47  3766.92  3682.45 1.33 bln   1677/2317
S&P 100   784.01 +  1.37   788.08   780.74   totals   3352/3496
S&P 500  1438.10 +  7.27  1443.54  1428.96           49.0%/51.0%
RUS 2000  497.77 -  2.87   500.68   497.71
DJ TRANS 2875.44 + 17.35  2875.44  2843.72
VIX        22.87 -  0.57    23.90    22.63
Put/Call Ratio       .56

Rocky markets confuse analysts?

Just another fun day in the markets as investors moved out of
tech stocks and into defensive issues. With stocks like CSCO,
INTC, DELL, SUNW and ORCL all losing over -$2 it is surprising
the Nasdaq was not farther down than it was. Clearly investors
are moving into a defensive posture with big names like KO +1.69,
EK +2.69, PG +2.25, DIS +1.44, MRK +2.44 posting decent gains
at the expense of tech stocks. KO? EK? My trading software
would not accept those symbols. It would probably lock up and
refuse to execute until I had written permission from my doctor.

The economic reports out today were mixed and leaned slightly
toward the economic slowdown scenario. Personal Income gained
+.4% and Personal Spending +.5%. Married readers will have no
problem understanding those ratios. Spending always increases
faster than income. The NAPM index came in at 51.8 and basically
flat. The prices paid component however moved up again to 61.9
but analysts felt the rise was based on the high oil prices.

Earnings are drawing to a close and there were only a few
companies announcing. Most reported as expected and the excitement
is quickly fading. Only a few big name companies are still left
to report. One of those, CSCO, saw a huge attack on its stock
today when someone (according to CNBC) purchased almost 56000
put contracts for a total of almost $6,000,000 in premium.
Although this was reported by David Faber on CNBC the total
volume for all CSCO put contracts today was only about 25,000
contracts. We may never know if it actually happened or not
but the impact of the rumor and an announced purchase of IPmobile
for $425 million in stock contributed to the -2.25 for the day.

We all know this does not mean that everyone is expecting CSCO
to drop. There could be a large crowd that is selling covered
puts expecting CSCO to go up after earnings. Volume alone does
not mean anything. The 56000 contracts could have been part of
a spread transaction as well. Still, when the transaction was
made public there was a ripple through the tech sector with
speculation of a possible problem with the coming CSCO earnings.
After some of the earnings warnings for this quarter and missed
earnings by some techs recently, any rumor can be detrimental
to the market. We are definitely not seeing a pre-earnings run
on CSCO.

Dell is another company that announces in mid August. With the
recent news of possible soft computer sales Dell has fallen
from almost $55 to a six month low of $41.56 today. There is
no good news in the wings it appears or the stock would have
shown more strength in the face of these rumors. Has the Michael
Dell magic charm worn off or is it just a reality check by
investors? More than likely it is final acceptance that a 50%
annual growth rate cannot last forever. The Internet bloom is
fading and people are learning they can live with their existing
computer model for more than one year. I know many people who
surfed daily in the past and now don't even turn on their
computers for weeks. Hard for them to justify that new 1000mhz

The bright spot in the market today in my opinion was the biotech
sector. Riding the PDLI earnings wave today the gains for many
were impressive. ONYX Pharmaceuticals (ONXX) also helped the
sector with news of successful tests on their anti-cancer drug.
HGSI +8.88, INCY +8.63, PEB +7.01, CRA +5.38, IMCL +4.50, DNA
+4.25. Those stocks represented half of the total stocks that
finished in the green on my watch list of over 100 stocks. Yes,
the NYSE advance/declines were positive with 88 new highs and
only 40 new lows but the Nasdaq story was much different. The
bottom of my watch list included the semiconductor stocks with
the SOX resting on its 200 DMA and threatening to fall off the
chart. RMBS -4.25, AMCC -13.19, GSPN, -9.12, BRCM -9.69, PMCS
-3.81. The next group was split between Internet networking
stocks, Ecommerce and software stocks. The major losers were
CMTN -$7, EXTR -6.88, AKAM -7.50, SCMR -6, MUSE -7.50, VIGN
-4.50, JNPR -4.01, BRCD -4. It was ugly, very ugly.

I must have looked at over 100 charts and only saw 3 or 4 that
were moving up. Most were losing ground at a high rate of speed.
The major fear is the last year of rate hikes may be starting
to impact earnings for tech companies. The old economy stocks
are seen as buying opportunities after being hammered for big
losses in the spring. The old economy stocks are also viewed as
being less impacted by the rate hikes going forward. Personally
I think it is just smoke and when the August correction is
over the tables will turn again. Remember when the Nasdaq was
up over +100 on Monday? The Dow barely broke even. It is simple
rotation and once techs take off again investors will drop
those +10% annual growth stocks for hot tech stocks with growth
of 50% or better before you can say rally.

All the market activity today was noise with the moves coming
on very light volume. The Nasdaq only posted 1.3 billion
shares and the NYSE 920 million shares. The lack of follow
through on the tech rally on Monday was expected. Actually if
you followed my suggestion on Sunday you profited from the
early morning spike down to 3615 and the ensuing +150 point
rebound to the 3765 close. Remember I said don't buy on the
gap open but wait for a decent downward spike before taking
a position on the expected relief rally. The trading rally
we got was just like we scripted it. The next challenge is
the new home sales report on Wednesday and then the nonfarm
payrolls on Friday. There is a good possibility we could get
another entry point before the Friday payroll report. Recently
the market has rallied on the report regardless of the numbers.
To trade this event you have to take a position on Thursday
afternoon. We view this as a high risk play and should only
be attempted with extreme risk capital. A strongly negative
number in this interest rate wary environment could be very

Whatever your outlook on the markets going forward we urge
you to be very careful until a new trend is established. The
cash drain on the markets is still alive and well with 46 of
the 52 scheduled IPO or secondary offerings for this week
still not in the market. As these are priced, and only three
days are left, investors will be faced with too many targets
and not enough cash. This is sure to cause continued volatility
in the current market. Without a trend investors tend to jump
in and out of stocks if it appears they guessed wrong and they
do not want to buy and hold. Until this trading trend changes
we will continue to see the market move lower. Many analysts
are now calling for numbers as low as 3200 with the next
support point being 3515. (right between my 3500-3550 from
last Sunday)

My informal sentiment poll consists of the dozens of traders
in the office. When they are all in cash and are churning
charts trying to find something to play when the market
turns I think we are close to a bottom. If I multiply this
"money burning a whole in their pocket" syndrome by the
millions of investors I believe are in the same position
then I can forecast a rally. We are not there yet but the
cash is building on the sidelines in the office. It is a
clear sign of a future rally. Now, hold that thought and
your money!

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Good luck and sell too soon.

Jim Brown


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Home, Home In The Range
By Austin Passamonte

Here we are again, stuck within the old familiar zone. It
would be nice to break up or down from the pattern in place
for many weeks now and that may happen soon.

The relief rally everyone expected has appeared, of sorts.
A lot of names we saw reaching towards recent or all-time
highs are again looking like discounted bargains to itchy

Seems like every pundit I hear or read believes the next
downturn lies days away or less. We wouldn't be surprised
with techs showing such weakness with rotation to defensive
stocks verifying these fears. On a bright note, the daily
Dow chart formed a decent "Morning Star" three-day pattern
that usually a rally in prices. Again, we'll know shortly.

We still hold the opinion that Friday's lows or deeper will
be tested before a firm bottom in place. The VIX refusing to
claim middle ground amplifies this belief. Friday's report
should be the next of several potential market movers.

Beyond that, we wouldn't be surprised to see a pre-FOMC
rally as witnessed prior to the last three meetings, and
still expect a sustained rally later in the year that will
have us all enjoying profitable long plays. Until then
trade with caution and keep an eye on those puts - they can
turn lead to gold in a hurry!


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

Sat 7/29 close: 24.30            Tues 8/1 close: 22.87

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            (8/01)      (8/03)       (8/05)

CBOE Total P/C Ratio         .56
Equity P/C Ratio             .52

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     (8/01)        (8/03)      (8/05)

All index options     1.18
OEX Put/Call Ratio    1.13

OEX Maximum Open Interest Strikes/Contracts:

Puts                      790/6,451
Calls                 800&810/5,253
Put/Call Ratio              1.23

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:               (8/01)       (8/03)    (8/05)

Overhead Resistance:
(900 - 825)*             214.49*
(820 - 805)                2.29
(800 - 780)                 .65

OEX Close:                  784

Underlying Support:
(780 - 765)                3.88
(760 - 740)               11.96

What the S/R measure indicates: Net open-interest ratios
are firm directly below 760 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 the OEX remain between 760 and 820 unless
extreme market movement breaks either barrier. Consider
discretionary reversal trades near either benchmark if

30-yr Bond:               5.73%

Light, Sweet
Crude, Barrel:           $27.79

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

DOW;   10,665          10,606
NASDAQ; 3,886           3,685
NDX;    3,613           3,521
SPX      1425            1438
OEX       767             784

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
5.73% 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.

Numerous IPO's have been met with positive enthusiasm.

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
Several major indexes are trading below 200 DMAs with
big-cap market leaders suffering.

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

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. August Crude closed $27.79 today.
Seasonal energy patterns typically bottom by late summer,
with recent technical & fundamental signs pointing to a
market decline. Prices in the low $20s would be welcome

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 - Tuesday, August 1, 2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,606      10,400  10,950
SPX   S&P 500           1,438       1,395   1,500
COMPX NASD Composite    3,685       3,400   4,150
OEX   S&P 100             784         764     810
RUT   Russell 2000        500         470     540
NDX   NASD 100          3,609       3,400   4,000
MSH   High Tech           966         890   1,075

BTK   Biotech             623         560     700
XCI   Hardware          1,445       1,360   1,580
GSO.X Software            398         370     455
SOX   Semiconductor       955         880   1,140
NWX   Networking        1,231       1,150   1,330
INX   Internet            481         470     605

BIX   Banking             547         525     575
XBD   Brokerage           570         550     590
IUX   Insurance           699         660     705

RLX   Retail              855         835     910    **
DRG   Drug                407         385     430
HCX   Healthcare          840         800     855
XAL   Airline             168         158     178
OIX   Oil & Gas           282         264     304

Retail broke support and short covering provided a bounce on
Monday for the broader market.  XBD, IUX, DRG, HCX, XAL are
those that haven't broken our support levels in the past three
weeks.  Raising support (XBD, IUX, XAL). Lowering Resistance (SPX,


Why Is The Summer Slower?
By Mary Redmond

As OIN readers and writers we had ample warnings about the
expected summer slump we are now experiencing.  For the last
three years the Nasdaq has dropped significantly during the
month of August.  While the reasons may have seemed different
each time, the statistical and psychological events which occur
in the late summer generally follow a pattern.

The gross tax revenues from businesses have been consistently
slower during the summer quarter for the last several years.
You can view tax statistics on the Treasury's web site at
irs.gov, and the numbers can sometimes be give insight to the
market.  For example, the gross tax collections have nearly
doubled from 1990.  In 1990 total tax collected from individuals
and corporations was $1,066,600 million.  Last year the total tax
revenue collected was $1,917,642 million.  When you consider the
increase in the amount of money earned by individuals and by
businesses during the last decade, it is easier to understand why
the stock markets have made such spectacular gains in the last

Last year the gross corporate income taxes increased by 7.8%
in the fourth quarter of the year from slowing down in the summer
quarter.  The prior year they increased by 18%.  Since alot of
401K money comes directly into the market as a percentage of
payroll tax, the slower tax revenues can lead to slower fund

At times the psychology of the market seems to be as important
as technical and fundamental factors.  For example, some market
analysts have cited statistics showing the market hasn't gone
down in any election year.  Every election year so far has seen
a market which rallied although the economic fundamentals were
widely different in each decade.  It seems likely that the reason
for this phenomenon is largely psychological.  Election years can
stimulate feelings of patriotism, competitiveness and excitement
about the future, all of which can stimulate the market.  The
market hates malaise, lack of news and a general sense of boredom
sometimes even more than it hates outright bad news.

In addition, when you understand the psychology behind certain
technical chart patterns, they can become easier to recognize and
more useful as tools.  One of the most widely recognized chart
patterns is a head and shoulders, which usually is a warning sign
of what can be a precipitous drop.  When you think about how you
might act if a stock followed that pattern, you can understand
why it can be a useful tool.

For example, suppose you buy a stock at $10 and sell it at $12.
If it went back to $10.5 you might buy back in and be happy to
sell it if it went to $15.  Then suppose you bought back in at $10
and watched it go up to $11 and then start to fall back below $10.
How would you start to feel? Probably panicky, and anxious to get
out.  If you multiply that over millions of investors you can see
what usually happens when this pattern occurs.

An opposite of a head and shoulders top can be a double bottom.
Many analysts have indicated that if we were to see a double
bottom in the Nasdaq this summer it could precipitate a major
fall rally.  Think about how you would feel if the Nasdaq went
near the previous low levels and then started to rise.  Many
investors might feel as if the rock solid bottom was around 3400
and that almost nothing could crash it below this level.

We had a deluge of ipos hit the market today.  Five new issues
traded, SPWX, CVGP, VIRL, WMUX, and TRPH, raising over $200
million in total.  However, the issues which have been priced to
hit the market tomorrow and later this week are even bigger.
AOLA plans to raise over $2.5 billion, and GS plans to raise
nearly $4 billion.  This is alot of stock to hit a weak market.
The ipo market tends to be self correcting.  For example, today
only one of the issues traded at a premium of over 100%.  The
other four traded at or near the ipo price.  If more ipos trade
at a price near the offering, it is likely that the demand will

It is often possible to profit from buying a put option on a
stock which plans a major secondary.  Secondary issues of stock
will dilute the number of shares outstanding, which decreases
the price in many cases.  Of course, the overall trends of the
market can impact your profit.  In addition, underwriters are
generally required to support the shares of the stocks they
underwrite for a period of time.  However, if you look at some
of the stocks which have had large secondaries in the last few
years, buying a put on these stocks shortly after the secondaries
would have been profitable in many cases.

Contact Support


So, What's the Market Trend?
By Scott Martindale

Waddaya do now, you ask?  Watching this market is like watching
Shaquille O'Neal dribble a basketball.  Truly amazing.  As options
traders, we know we can make money whether the market goes up or
down, and we also know that "the trend is your friend."  So,
what's the trend? Jim, Ryan, Buzz, Eric, and the gang take a crack
at it each day, but who else can give us a clue?  Allow me to
share views (anonymously) from some of my favorite newsletter
writers (a.k.a., gurus).  Perhaps we can fit a least squares
regression line to them.

One analyst says this quarter has been the hardest stock market
in most peoples' living memory.  All the typical tools to project
short-term price movements, including charting, earnings,
momentum, & news, are proving totally inadequate.  Every piece of
economic data seems to be a surprise to the Street, such as GDP,
earnings, and so on.  He calls this a traders market, i.e., you
should use stops to protect yourself.

According to another, the Fed has finished raising interest rates
and monetary policy is not tightening, helping our and overseas
economies to grow.  This should help push the value of the Euro
and the yen back to par with the dollar.  He says the market has
bottomed and the "smart money" is flowing back into tech stocks.
He expects a classic rising market during the first four days of
the month, and believes August is a good month for the Nasdaq
stocks.  The big rally this fall will eventually leading to a Dow
of 15,000 and a Nasdaq of 10,000 within a few years (with extreme
volatility throughout).  However, while many "e-stocks" will fall
and never recover, the best "e-enabling" stocks will prosper.

And yet another predicted a sharp pullback and sees further 40-50%
downside here and "dead money" for 90-120 days.  The last stocks
to move down will be the optical networking and broadband
understructure chips, which will have to give up 30-50% of their
recent gains to complete the "capitulation selling."  Last year,
this occurred on August 15.  By year-end, he says, the best "e-
enabling" stocks will be up big time.

Similarly, another analyst feels that business is good, but
investor psychology is bad.  He has been predicting a summer
selloff of a modest extent, but not a bear market. He sees a small
upturn this week because of the cash inflows from mutual funds,
but then a likely sag in the weeks leading up to Labor Day,
followed by the big fall rally.

Finally, one believes that the lack of investor fear indicates
that the market will wait for a spike in pessimism before
sustaining a rally.  Overhead technical resistance (such as heavy
call open interest) remains, as does not-so-fearful market
sentiment in the put/call ratio, Index of Bullish Market Opinion,
and short interest activity.  This must change prior to a
sustained rally.

My favorite charting service has reflected the technical confusion
this year.  Their views on the market keep changing as technicals
move from good to bad.  Overall, they believe this is still a
market of individual stocks with good and bad chart patterns, not
a bear market.  They see a good chance the Dow's March low will be
tested, possibly declining to the 1998 high (9244).  However, the
Nasdaq has shaken out and is probably in for a test of the May low
only, with a worst-case return to last year's tops (2800), before
starting the next cyclical bull.

On the other hand, there are bearish analysts that worry P/E's are
too high, interest rates are getting ready to surge, bank stocks
will plunge 50%, and e-stocks will fail miserably.  He expects a
wave of bank failures due to high-risk real estate loans, excessive
investment in derivatives, and too many internet venture capital
deals.  He recommends buying U.S. Treasuries, gold & silver, gold
stocks, and medium-term puts on the Nasdaq and Financial Services

Not to be outdone, Bear B takes it even further.  He predicts a
collapse of the dollar and panic in the streets due to the heavy
leveraging in all funds, including money markets.  He recommends
holding gold bullion and cash in your mattress, and buying futures
contracts on gold, silver, yen and Deutsche mark, and selling
contracts on the Nasdaq, S&P 500, and Dow indices.  Like the first,
he thinks good companies will be available for pennies on the
dollar once the smoke clears.

Wow - fear and greed sells.  But if you look closely, my favorite
bulls & bears are not that different in what they are predicting
for short-term scenarios - just the magnitude is different.  They
all predicted a significant summer pullback, and some expect
further declines (or worse).  And they all believe we have a
market of individual stocks, some of which will not survive, and
others that will thrive, although they vary greatly on the
eventual level of the market indices.

As Jim says, what we have is "serious volatility and a
directionless market.  Without a trend in place it would be foolish
to try and trade unless you are an accomplished day trader."  And
my recent experience says he's right, not to mention the fact that
I hate having to baby-sit my positions all day in the first place.

So, how do we play stock options in this environment?  I've been
trying to play both directions by holding medium-term puts on the
indices as a hedge, while buying calls & puts for short-term plays
on the technical bounces.  I can't say I've been very successful
on the few trades I've entered lately.  Either I get whip-sawed
out or the premiums erode away as the market flails around,
although a few of the OIN plays I've watched without entering have
done quite nicely without me, thank you.

I hold no front-month calls at the moment, and I think I'll use
the rally this week to buy August or September puts on some of the
ugly charts when they rally and bounce off resistance.  I'm
waiting patiently for that "final capitulation" so I can sell
naked puts on my favorites in a big way.


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Resistance Encountered, Look for Decline

By Buzz Lynn

Poor NASDAQ. . .one good day and one bad, but neither gave it a
shove back over its 50 or 200-dma.  Can you say "resistance"?
Sure, we knew you could!  Volume was weak on both days making
investors hopes of a meaningful rebound short-lived.  It simply
means investors are not willing to commit to new positions as
evidenced by their lack of buying interest.  In front of more
economic data, at the end of earnings season, not a mention the
next FOMC meeting later in the month where the Fed could decide
to raise rates again, who could blame them?  There is a ton of
uncertainty.  Know someone who fits that mindset?  Maybe you?
Maybe all of us traders looking for a direction?  Does this sound
like a profitable time to trade?  Some days, it just pays to go
to the beach.  That's what Jim means when he notes, "only trade
when it is profitable to do so".  You are likely better off
sitting on your cash waiting for a profitable entry than trying
to force a trade in an unprofitable environment.  Success in
option trading is all about good money management practices, not
necessarily about picking the right company, though that
certainly helps if you were in QCOM or JDSU last year.  To that
end, this may be a good time to study up on some basic
strategies.  Two excellent and easy reads can greatly enhance
your likelihood of success if applied.  So put McMillan On
Options (by Larry McMillan) and Trading for a Living (by Dr.
Alexander Elder) on your summer reading list.  Both of these can
be easily obtained through the OIN Bookstore.  In the meantime,
we still favor a flat to down sentiment on the OEX and QQQ over
the next couple of weeks and plenty of plays to go with it.  For
those of you with PPH still on the radar, keep it there.  The
chart is moving up, but the underlying issues are pretty flat on
volume - no commitment yet.  Check out the continuing plays


Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    88.03   2.63  -1.38   0.00   0.00   0.00   1.25
HHH Internet     102.00   2.13  -1.31   0.00   0.00   0.00   0.81
BBH Biotech.     176.88   0.19   8.38   0.00   0.00   0.00   8.56
PPH Pharm.       101.38  -1.25   3.75   0.00   0.00   0.00   2.50
TTH Telecom.      68.50   0.75   0.50   0.00   0.00   0.00   1.25
IAH I-net Arch.   90.69   2.56  -1.69   0.00   0.00   0.00   0.88
IIH I-net Infr.   49.00   1.19  -2.44   0.00   0.00   0.00  -1.25
BHH B2B           41.38   2.13  -1.50   0.00   0.00   0.00   0.63
BDH Broadband     86.38   1.88  -1.25   0.00   0.00   0.00   0.63
SMH Semicon.      81.81   2.69  -2.81   0.00   0.00   0.00  -0.13
RKH Reg. Banks    96.19  -0.06   1.00   0.00   0.00   0.00   0.94
UTH Utilities     94.38  -1.50   2.38   0.00   0.00   0.00   0.88


QQQ - NASDAQ 100 $88.03 -1.38 (+1.25 this week) Poor NASDAQ.  As
mentioned above, it hasn't been able to snap back over its 50 or
200-dma ($92.40 and $90.30, respectively for the QQQ).  Volume
too has been weak.  There was simply no strength in the recovery
attempt yesterday, which has yours truly scrambling to buy puts
at the close on the last minute strength.  Too bad I didn't get
my order in fast enough.  For those that did when QQQ smacked
against resistance two minutes before the close, congratulations
on a good entry.  It simply did not make sense for the NASDAQ to
be moving up on the strength of a few leaders while the OEX and
DOW were falling across the board.  QQQ ran predictably into $90
resistance both days making for good entries on the down side if
you happen to playing straight puts.  We wish we could say that
it should move up form here.  But the FOMC meeting in three weeks
coupled with the end of earnings season, and peppered with
economic reports in between should keep a lid on any upward
movement and a strong arm on the downward side.  If $87 can't
hold, the next likely stop would $84.  As the bollinger band
expands, it's showing an increase in volatility too, which is a
good thing for our long straddle play.

Long Straddle:

This play is all about waiting for volatility to expand the time
premium value of our purchased options.  The increasing Bollinger
band tells us that volatility is on the rise.  While the VIX
helped confirm that on Friday, a small decrease back to 22.87
isn't doing much for it now.  The good news is that the VIX as a
measure of OEX volatility is not the same as NASDAQ-100
volatility.  While there may be some relationship, they are not
joined at the hip.  We would look for the VIX to resume its
upward course anyway.  This play is predicated on three things
though.  First, we must be expecting a big move in QQQ over the
next 30 days.  Second, we must be buying cheap (relative to
historic volatility) time premium in our options.  Third, we must
still have some time value left to sell back to the market if we
are wrong in our assessment or condition #1.  Thus we need to buy
at least 90 days or preferably 120 days of time, which by
definition means December strikes.


BUY CALL DEC- 86 QVQ-LH OI=1403 at $12.75
BUY PUT  DEC- 86 YQQ-XH OI=1411 at $ 8.50
Net Debit = $21.25 or less

BUY CALL DEC- 90 QVQ-LL OI=1870 at $10.75
BUY PUT  DEC- 90 QVQ-XL OI=2301 at $10.38
Net Debit = $21.13 or less


BUY CALL DEC- 90 QVO-LL OI=1870 at $10.75
BUY PUT  DEC- 86 YQQ-XH OI=1411 at $ 8.50
Net Debit = $19.25 or less

Calendar Spread:

Here's another one for a sideways to down market.  In a calendar
spread, we sell short-term calls against and underlying longer-
term call, which is a substitute for owning the security.  It
ties up less capital, but we in this case, we don't want to get
called out of the underlying position should the underlying
security (QQQ in this case) rise above our short-term sold call
strike price.  So we cover by repurchasing the short position
when a good part of the time value is shaken out of it.
Ultimately, we would have the sold call expire worthless every
month for three successive months thereby creating a "free" owned
option.  With the NASDAQ now cast sideways to down, you may want
to wait for another dip to enter this position.  If your stomach
can handle it and you possess some good timing skills, you can
leg in by purchasing the underlying option on a dip at or near
support in a downward trading day, or sell the near term call at
or near resistance on an upward trending day.  Consider $84 as
the next level of support; $90 as current resistance.  Should $87
fail to hold, it would then become the next level of resistance.

BUY  CALL DEC- 86 YQQ-LH OI= 1403 at $12.75

SELL CALL AUG- 86 YQQ-HH OI=  217 at $ 5.13, ND =  7.63 or less
SELL CALL AUG- 90 QVQ-HR OI= 6622 at $ 3.13, ND =  9.63 or less

Long Puts

Short and simple, we're still looking for continued weakness here
given that the QQQ was unable to break back over its 50 and 200-
dma ($92.40 and $90.30, respectively).  Look for a bounce south
of $90, or a move under $87 as place to target shoot your entry.
The next support is at $84.  Nothing right now that we can see on
the horizon that would move QQQ above $90.  This could be pretty
short-term play, but in the meantime, enjoy the ride.

At Resistance:

BUY PUT  AUG-90 QVQ-TL OI= 8262 at $4.88 SL=3.00
BUY PUT  AUG-86 YQQ-TH OI= 9221 at $3.00 SL=1.50
BUY PUT  AUG-80 YQQ-TB OI=10319 at $1.19 SL=0.50

Average Daily Volume = 22.01 mln


IAH - Internet Architecture $90.69 -1.69 (+0.88 this week)
Hopefully, you have not entered this play yet as we in fact got a
recovery yesterday and we have not yet broken under our entry
level of $88.50, which was the 50-dma at the time.  The 50-dma
has since moved up to $90.46 and is still providing support
(barely).  That said, a breakdown under the 50-dma would quickly
encounter support at $89.  That is why it might be a good idea to
still wait for a break under $88.50 to confirm the direction.
Though their respective volumes were generally under their ADVs,
CSCO, HWP, IBM, SUNW, and especially DELL applied most of the
downward pressure.  This may largely have been related to Bear
Sterns announcement that they expected DELL to fall short of
revenue estimates when they report on August 10th.  Yet, CSCO may
balance that out when they report on August 8th.  We'll have to
wait and see.  But we don't expect tech stocks to "feel the love"
from investors with Fed fears rearing up again.  Technical
indicators are still pointed down too.

BUY PUT AUG-95 IAZ-TS OI= 40 at $4.75 SL=3.00
BUY PUT AUG-90 IAZ-TR OI= 68 at $2.38 SL=1.25
BUY PUT AUG-85 IAZ-TQ OI=110 at $0.88 SL=0.00

Average Daily Volume = 45 K


IIH - Internet Infrastructure $49.00 -2.44 (-1.25 this week)
Well, the cat bounced to $51.50, but didn't make it to $53 and
roll over.  Yet, the sector is still displaying weakness.  IIH
was trapped for the last two days between $51.50 and $49.  How
about the dip to nearly $47 on Monday's open?  Wasn't that a
great entry?  Unfortunately not.  Remember, we never want to take
a position during amateur hour since it can very often get us
filled at the extreme high or low of the day.  That's when market
orders are still shuffling through the open and can cause wild
gyration.  Just look at the 10-min chart to see what we mean.
IIH bounce off $47 back to $50 within 25 minutes.  As Austin
Passamonte has mentioned before, we really want to be looking at
a 30-min chart.  Some of us use a 10 or 15-min chart too and
that's OK if you are trying to nail a short-term entry.
Technically, $49 is pretty solid support and that's where IIH
needs to break down in order for us to be happy with the entry.
A bounce back down from $51.50 would also make a good entry.
Many of the components, AKAM and VRSN, though crest-fallen from
their highs, can still fall further.  Only EXDS escaped red ink
today on rumors only that it might be acquired.  If IIH breaks
under $49, the next stop is likely around $45.  Wait for
confirmation after amateur hour before getting in.

BUY PUT AUG-55 IIH-TK OI= 56 at $6.75 SL=4.75
BUY PUT AUG-50 IIH-TJ OI= 31 at $3.38 SL=1.75
BUY PUT SEP-55 IIH-UK OI=185 at $8.25 SL=6.25

Average Daily Volume = 207 K


BDH - Broadband $86.38 -1.25 (+0.63 this week) this sector
constantly undergoes the battle of the heavyweights.  LU and NT
make up nearly half the weighting of this sector.  LU was the
winner today, up $1 to $44.75 on strong volume.  NT suffered a
$2+ loss.  QCOM, JDSU, AMCC, and SDLI also contributed to the
downside.  Technically, we are glad to see BDH continue to bump
its head on resistance at the 50-dma of $88.09.  Nonetheless,
Support is strong at $85 and we have had good entry opportunities
on a couple of bounced down from $88 as suggested on Sunday.
That is can't get back over $88 is a good sign for this put play.
Should the overall tech market continue down, thanks to the end
of earnings season for many optical high flyers, we should see an
eventual move down.  Confirm the general market direction first.

BUY PUT AUG-90 BDH-TR OI=31 at $6.00 SL=4.00
BUY PUT AUG-85 BDH-TQ OI=70 at $3.75 SL=2.25
BUY PUT SEP-90 BDH-UR OI= 3 at $8.25 SL=6.00

Average Daily Volume = 130 K

No Play



Index      Last      Mon      Tue    Week
Dow    10606.95    10.81    84.97   95.78
Nasdaq  3685.52   103.99   -81.47   22.52
$OEX     784.01     6.46     1.37    7.83
$SPX    1438.10    10.95     7.27   18.22
$RUT     497.77    10.42    -2.87    7.55
$TRAN   2875.44    88.56    17.35  105.91
$VIX      22.87    -0.86    -0.57   -1.43


BRCD     174.44    14.69    -4.19   10.50  Dropped, quick profit
GENZ      69.75     4.31     0.31    4.63  A win's a win, right?
LEH      112.75     3.88     0.75    4.63  Lower volume move today
IVX       52.00     0.81     2.69    3.50  New, unhindered moves
AMGN      69.00    -1.44     4.06    2.63  New,
SCMR     117.31     8.31    -6.00    2.31  Dropped, lazy run
FRX      112.19    -3.25     5.19    1.94  Bucked the trend today
COF       57.56     1.78    -1.03    0.75  Attractive entries
HWP      107.88     1.94    -1.38    0.56  Could exceed estimates
PVN      103.81    -1.69     1.88    0.19
ATON     127.13     2.94    -4.81   -1.88  Dropped, takeover lull
NTAP      82.63     1.19    -3.56   -2.38  Dropped, broke 50-dma


AFFX     134.94    -7.97    -1.59   -9.56  Great entry opportunity
MRVC      52.13    -0.63    -5.75   -6.38  New, fell below 50-dma
AMD       66.88     1.50    -5.38   -3.88  New, a dip for this Chip
TERN      51.19    -2.88     0.19   -2.69  Still in a funk
CMRC      40.69    -0.81    -1.38   -2.19  Eight straight downdays
EMLX      48.00     0.63    -2.00   -1.38  Earnings on Thursday
GTW       54.19     0.06    -1.00   -0.94  Meager gains erased
CMOS      41.25     0.75    -1.50   -0.75  Chip bears returned
ELON      36.00     4.50    -1.13    3.38  Good bounce for entry
ARBA     113.00     8.31    -2.94    5.38  How do you spell relief?
VRTS     100.00    14.25    -1.94   12.31  Watch for profit takers

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


ATON $127.13 -4.81 (-1.87) The analyst praise we were looking for
as a result of the proposed NT - ATON merger never transpired
Monday.  Several brokerages reiterated their respective Buy
ratings on NT, but none of the analysts upgraded the stock nor
did they raise earnings estimates.  Many analysts said the buyout
of ATON was necessary for NT to keep its competitive edge in
the cutthroat fiber optic business.  NT edged higher Monday along
with the Tech sector, which lifted our ATON play.  But, the lack
of support from Wall Street combined with a weak Tech sector
Tuesday has prematurely terminated our play.

SCMR $117.31 -6.00 (+2.31) The bounce we had been looking for in
SCMR came to light Monday morning with a little help from the
Wall Street crowd.  Dresdner Benson initiated coverage on SCMR
with a Buy rating and set a $170 price target, which boosted the
stock as high as $125.  But the analyst praise was soon forgotten
Tuesday as the Tech sector headed southward.  For the most part,
the Fiber Optic sector held up relatively well Tuesday, with
modest losses in JDSU and GLW.  However, the bids dried up for
SCMR, which resulted in nearly a 5% drop.  SCMR's losses
accelerated into the close of trading in conjunction with a pick
up in volume.  The prospect of an earnings run is fading, which
has prompted us to sell too soon.

BRCD $174.44 -4.19 (-10.50) Did you take a ride on the pogo
stick yesterday?  As we had expected, BRCD got a nice oversold
bounce from the $163 level yesterday morning.  After the opening
spike, the stock pulled back to give us another shot at an
entry near $164 before embarking on a very pleasing $15 run.
By the time the noon hour rolled around in New York, the buyers
had bid the price as high as $179.88 and had exhausted
themselves.  After the stock drifted lower into the close
yesterday, investor apathy (low volume) took its toll today
and the price drifted lower all day today as well.  The $3
recovery at the close isn't enough to keep our attention, so
we'll call this one a quick success and take our money and run.

NTAP $82.63 -3.56 (-2.38) After the beating that NTAP took last
week, it barely stayed on our playlist this past weekend.  The
selloff looked overdone, and we kept the play for the bounce we
expected to see in the stock this week.  Rather than bouncing
near the 50-dma ($83.19), NTAP continued south at the open
yesterday, tagged $76.50 before heading higher.  This provided
a nice entry point for a quick bounce trade, but the stock
couldn't hold up and fell back through the 50-dma today, closing
at $82.63.  The tone in the technology market is deteriorating
and it looks like our play is getting ready to head further
south.  We don't want to tilt at windmills, and will put on our
running shoes to head off in search of better plays.


No dropped puts today.

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The Option Investor Newsletter                  Tuesday 08-01-2000
Copyright 2000, All rights reserved.                        2 of 2
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FRX $112.19 +5.19 (-1.31) FRX has been somewhat of a roller
coaster ride yesterday and today, setting a low of $105.75.  With
that said, the stock still has its sights set on Thursday's
intraday high of $114.50, breaking through resistance at the
10-dma of $108.16 and the 5-dma, currently $110.58.  FRX found
its feet and rallied to $111 on a strong volume move shortly after
the open.  The stock encountered intraday resistance at this level
until a break through later in the afternoon.  With a $2.00 rally
in the last 40 minutes today that pushed FRX to its day high, the
play is still intact as FRX continues to show bullish signs.  For
conservative traders, look for a move that convincingly drives the
stock through today's high of $112.94.  For those who are feeling
more aggressive, look for bounces off of the 5-dma of $110.  With
three key economic indicators coming out at the end of the week
which could re-ignite interest rate fears, make sure the buyers
are present to continue this uptrend with strong volume.

HWP $107.88 -1.38 (+0.63) In a continued push to be a premier
Internet host, HWP said Monday that it had signed a multi-year
deal to provide Genuity (GENU) with e-services and applications.
Traders applauded the announcement, which carried HWP up to its
100-dma at $112.  The stock fell victim to Tech sector weakness
Tuesday, which sent HWP to support around the $108 level.
Despite the on-again off-again Tech sector, HWP is positioned
well for an earnings run in the coming weeks.  In fact, several
analysts recently suggested the possibility of HWP exceeding
estimates when it reports on August 16th (inaccurately reported
August 18th in Sunday's write-up).  Richard Chu of SG Cowen
recently had this to say about HWP, "The company is in solid
shape to meet or beat investor expectations for the July
quarter."  The prospects for better-than-expected profits might
begin to build and carry HWP higher.  A bullish Tech sector might
provide entry at current levels if HWP bounces off support at
$108.  For a more conservative entry wait for HWP to clear
resistance at the pesky 100-dma, still at $112.

COF $57.56 -1.03 (+0.75) It's having a rough time in these
turbulent markets, but COF is continuing to trace higher highs.
Not only that, the market indecision continues to deliver
attractive entry points each time the stock touches the 10-dma
(currently $55.56).  After bouncing from the 10-dma last week,
COF ran to a new 52-week high of $59.25 yesterday.  Today's
market weakness served up another entry point as profit taking
set in for much of the day.  This dropped the price to bounce
at $55.75 (just above the 10-dma) before the stock moved up
strongly into the close.  Trading volume has been on a steady
rise for the past week, and today's 2.2 mln shares more
than doubles the stock's ADV.  We are getting very close to
COF's all time high of $60.25, and as long as buying volume
remain strong, this level looks attainable.  New entries
should continue to materialize on bounces at the 10-dma, but
make sure bulls keep the buying volume strong.

LEH $112.75 +0.75 (+4.62) LEH shares were able to pick up some
points even as the Dow was not able to hold its intraday gains
on Monday.  On Tuesday, the brokers shares were held in check,
gaining just $0.75 on the day.  The stock made a move through
its 10-dma at $113.81, but was not able to hold it.  This is a
point to watch for adding to or taking new positions.  Monday
also saw the stock once again test support near $106, which
held up nicely.  Any future bounces off this support area may
also be good entry points.  TheStreet.com has an article written
today talking about the beefed up research department put in
place since the beginning of the year.  The article also
mentions in a subtle way that LEH is a takeover candidate.
Today's neutral move was on lower volume at just 729K compared
to an average of over 1 mln shares.

PVN $103.81 +1.88 (+0.18) Shares of PVN took part in some profit
taking last Friday and yesterday, but the stock has been able to
maintain its upward trend line, which is near a 45 degree angle.
The stock actually dropped below this trend line and below its
10-dma at $101.25 to open trading, but was able to start a nice
intraday rally around 12:30 EDT.  The move took the stock from
support to resistance and closed near the high of the day near
$104.  Volume dropped off a bit, the third straight day of
falling volume and something to take note of.  On Monday, the
stock's 12-month price target was raised  at PaineWebber to $125
from $110, though they maintained there Attractive rating.  A
bounce off support near $100 would be a good possible entry
point.  Look for stronger volume as a sign of continued interest
in the stock.

GENZ 69.75 +0.31 (+4.69) GENZ shares took a bit of a dive early
on Monday, reaching a low near $63 before finding its legs and
rising by day's end to a price of $69.44.  The overall volume on
Monday was lagging a bit, not the greatest confirmation of a
new trend, but a win's a win right?  Today, the stock was pretty
quiet, trading in range from $68.25-$71.25, and closing with a
modest gain, but it was on increased volume over Monday.  The
$70 mark seems to be strong resistance as the stock has tried
to close above this mark seven days during July and succeeding
just once, which was last Thursday.  This brief stay in the
$70's resulted in a drastic dive on Friday.  Look for volume to
continue to rise and a break through $72.50 as a sign this stock
is ready to roll upward.


ARBA $113.00 -2.94 (+5.38)  How do you spell relief?  For
investors of B2B stocks, the answer is A-R-B-A.  After last
week's deep sell-off in all things tech, ARBA has found some
strength so far this week.  On Monday, ARBA moved lower during
amateur hour, testing the psychological $100 level.  Finding a
bottom at $102.38, buyers spent the rest of the day bidding the
stock up to close at $8.31 on higher-than-average volume.  Today,
with news of an 18-month licensing agreement with Lucent
Technologies, one would expect ARBA to rally strong.  Instead
ARBA chose to move lower with the NASDAQ on only 63% of ADV.
Looking at the technicals, ARBA has still not closed above its
5-dma ($114.85).  In addition, ARBA is having difficulty with a
light resistance level at $117.  Combine that with a lack of
follow-through despite good news and the picture looks intact for
our put play.  Look for failure to rally above its 5-dma or $117
to provide for an entry point with additional resistance at its
10-dma at $120.  Below that support can be found at $110, $107,
and $100.  As ARBA continues to move in step with the NASDAQ,
make sure the market forces are in your favor before entering.

VRTS $100.00 -1.94 (+12.31)  After losing almost 20% of its value
last week, the bargain hunters just couldn't resist and on Monday
they came in force, bidding the stock up $14.25 on
higher-than-average volume.  In doing so, VRTS closed above its
5-dma for the first time in almost two weeks.  Today, VRTS took a
moment to pause, trading on low volume to close right on the
psychological century mark.  News of an alliance with Data General,
a division of storage leader EMC, failed to excite investors to
rally above its 200-dma, currently at $102.41.  It is interesting
to note that aside from the first two hours of Monday's trading,
VRTS has traded in a narrow range between $97 and $102 on low
volume.  There seems to be a lack of conviction on the buy side
despite good news and it appears that the bargain hunters have had
their fill.  This is just what us put players want to hear.
Rallies that fail to break resistance at $103, its 10-dma at $105,
and $110 are targets to shoot for entry into this put play.  These
past couple of days have seen the 5-dma ($98.50) provide support.
A break through that level could send the stock to $95 and from
there to $90.  This would provide a more conservative entry.  VRTS
continues to move in sympathy with the NASDAQ so confirm entry
points with index movement before making a play.

AFFX $134.94 -1.64 (-9.56) Did anyone capitalize on the great
entry points on this play yesterday and today?  Although AFFX
seemed to be regaining ground during the session, it has hit lows
throughout yesterday and today, giving us some great opportunities.
AFFX has fallen through all technical support levels both yesterday
and today.  The stock opened Monday at $145, which was already
below the 5-dma of $150.425.  It then proceeded to lose ground,
hitting a low of $133.38 on the day.  After hitting a high of
about $143 on Monday, the stock settled in between $136 and $138.
Hopefully, some were able to capitalize on that spike as a good
entry point to the play.  Today, AFFX was trading in positive
territory on news concerning their first launch of a Genechip
that can be used in agricultural research.  The stock spiked up
to $144.88 right after the open, giving a beautiful entry point.
After teetering at $140 all day, the stock accelerated to the
downside on heavier volume, closing just an eighth off the low.
The stock is still well below all technical support levels.  Look
for an entry on bounces up to $140, with a strong volume rollover.
If the stock moves through $140, the 5-dma at $144.85 may offer
resistance and entry.  As always, with a stock like AFFX, keep
your eye on both the Biotech sector and the NASDAQ for overall

CMOS $41.06 -1.69 (-0.94) The Philly Semi Index ($SOX) ended its
two days of recovery Tuesday, which placed undue pressure on
shares of CMOS.  The stock bounced off support at the $42 level
Monday morning with help from the strength in the broader Chip
sector.  But, the Chip bears returned early Tuesday to sell CMOS
below support at $42.  The stock bounced off the $40 level, which
has proven to be strong support.  The continued rotation out of
the Semi sector might weigh heavily enough on CMOS to take the
stock below support at $40.  Volume continues to remain at
healthy levels, which might suggest the Semi-sellers are not
quite finished with their work in CMOS.  If the Chip sector
falls under selling pressure again Wednesday morning, look for an
entry into the play if CMOS falls below $40.  An aggressive
trader might consider entry if CMOS rallies, then subsequently
rolls over after hitting resistance at $42, or near its 5-dma at

GTW $54.19 -1.00 (-0.94) GTW floated higher off support at $55
Monday along with the return of the Tech bulls.  But, the bears
returned Tuesday to erase GTW's meager gains from the day prior.
The company said Tuesday that it was launching a $100 mln
program to help consumers unlock the power of their PCs.  The
news was overshadowed by a research note released by Bear Sterns
later in the day, warning clients that DELL might fall short of
second-quarter revenue estimates.  The bearish comments on DELL
spread throughout the PC sector, which ultimately prompted a
rollover in GTW.  The warnings of even slower growth was the last
thing the beleaguered box makers needed Tuesday.  GTW traced a
lower low in its descending channel and fell below its crucial
support level at $55.  In light of the bearish comments on DELL,
you might consider entering the GTW play at current levels.  The
stock has help around the $52.50 level, but no major support
until $50.  Confirm direction in the sector before entering the

EMLX $48.00 -2.00 (-1.38) Still refusing to make up its mind
whether it wants to go up or down, EMLX has barely moved this
week.  Volume is continuing to fall off as prices meander in a
$4 range.  The 5-dma (currently at $50.25) is continuing to
exert downward pressure as the stock is finding tenuous support
at $46 in advance of the company's earnings announcement set
for Thursday after the close.  Investors have stayed on the
sidelines the past 2 days, not knowing which way to go, and we
can see the effect in the trading volume.  Only 30% of the ADV
on yesterday's slight recovery and 40% of the ADV today.  It's
hard to stay awake watching this sort of chart, much less make
money.  Although the lack of price action makes the options
relatively cheap, wait for some definitive action to initiate
new positions.  Your best entry will come from a rollover near
the 5-dma, which is backed up by historical resistance at $51.
If the bears come out of hibernation and crank up the selling
volume, consider opening new positions as the price falls
through support at $46.

CMRC $40.69 -1.38 (-2.19) Not even another business deal, this
time with CACI, could help move this falling Internet stock to the
upside.  The agreement with CACI will have CMRC providing its
Buysite enterprise software to help CACI provide a E-commerce
solution for the public sector and federal market.  Nonetheless,
CMRC shares fell for the eighth straight session.  This alone
should be a caution sign for new put buyers and current holders.
Nothing moves in a straight line forever and on top of this, CMRC
is now sitting right above strong support at $40.  Along with
support, the stock technically looks extremely oversold and we
could see the stock experience a bounce of some sort.  To enter a
play at this point, watch for CMRC to fall through its support
line with increasing volume.  The stock's volume has been declining
for the last week, another sign that sellers are becoming harder to

TERN $51.19 +0.19 (-2.69) This fast growing tech stock continues
to be in a funk, dropping nearly $3 on Monday before closing
pretty flat on Tuesday.  Volume on Tuesday was extremely light
at just 893K shares traded.  This is peculiar considering TERN
announced plans to buy Mainsail Networks for an estimated
$164 million.  Stochastics and MACD still are showing bearish
signs, so watch for either a break of support near $50 or a
bounce back from short-term resistance at $55 as possible
entry points.  Stronger resistance sits near $59, the site of
the stocks 5- and 10-dmas.

ELON $36.00 -1.13 (+3.32) ELON went on a bit of a run on Monday
and early Tuesday, not what we want to see for a put play.  The
reason for the move was an announcement by ELON that they would
be partnering with NTT Data to provide LonWorks training in
Japan.  The move took ELON to a high of $40.50 today before
cooler heads prevailed and it started a decline at 2:30 EDT that
took the stock to its low and close for the day at $36.  The
fact the stock could not hold its gains and also could not
stay above its 10-dma at $37.89, tells us it may have more
room to fall.  Yesterday's bounce was a good entry point
for puts.  Volume was about equal to Monday's, negating the
stocks strength from yesterday.  Watch for a possible bounce
back from the 10-dma as an entry point though taking positions
at current level could be profitable, considering support
isn't until $32.

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IVX - IVAX Corporation $52.00 +2.69 (+3.50 this week)

IVAX Corporation, headquartered in Miami, Florida, is a holding
company with subsidiaries engaged in the research, development,
manufacture, and marketing of branded and generic pharmaceuticals
in the U.S. and international markets.  IVAX also has
subsidiaries specializing in veterinary products, diagnostic
products, and nutraceuticals.  The company and its subsidiaries
employ approximately 3,700 in 13 countries throughout the world.
IVAX and its subsidiaries focus primarily on branded and generic
pharmaceutical products.

Someone forgot to tell IVX that the market has been trendless at
best lately.  Someone also forgot to tell IVX that even after
topping the highest of analyst expectations, that stocks are
supposed to sell off.  Or perhaps IVX has something to say and
investors are listening and liking what they hear.  After
reporting earnings last Thursday on July 27th, the stock has
continued higher, its steady progress unhindered and oblivious to
the broader market.  Pharmaceuticals have been strong in light of
the recent weakness in tech stocks, but even amongst its peers,
IVX stands out as a tower of strength.  With net revenues of
$184.7 mln compared to $154.3 mln from a year ago and an increase
in income from continuing operations of 145.7% from last year,
IVX posted earnings of 19 cents per share, easily crushing
both the Street consensus of 13 cents per share and the whisper
number of 14 cents.  This marks the seventh quarter in a row that
IVX has beaten the Street consensus and in doing so, has come in
at least 35% ahead of expectations.  Add to that recent
announcements of dismissed lawsuits against the company and a
revenue-generating licensing agreement, and it's been a nice
steady ride up for investors.  Technically, the chart looks
beautiful.  Rarely touching even its 10-dma at $47.80, entry
points have been abundant on bounces off the 5-dma, now at
$49.50.  Today saw the stock break through the psychological $50
mark on higher than average volume and making a new all-time
high.  This leaves nothing but blue sky to the upside for IVX
with support at its 5- and 10-dma.  After today's strong move,
look for a bounce off the moving averages or $50 as a target for

Aside from its Street-beating earnings report last week,
shareholders were greeted with more good news yesterday as the
FDA gave the company tentative approval for doxazosin mesylate, a
drug for benign prostatic hyperplasia and hypertension.  Along
with this were bullish comments from president and CEO of IVAX
subsidiary Zenith Goldline Pharmaceuticals who remarked that,
"With the tentative approval of doxazosin mesylate, Zenith
Goldline has received five final and three tentative approvals so
far this year, with 24 additional ANDAs pending at the FDA. As
previously indicated, we expect to file 24 additional ANDAs
during the remainder of the year."

BUY CALL AUG-45 IVX-HI OI=205 at $8.00 SL=5.75
BUY CALL AUG-50*IVX-HJ OI=380 at $3.75 SL=2.00
BUY CALL AUG-55 IVX-HK OI=  1 at $1.38 SL=0.75
BUY CALL SEP-50 IVX-IJ OI=348 at $5.63 SL=3.50
BUY CALL SEP-55 IVX-IK OI= 36 at $2.94 SL=1.50

Picked on August 1st at $52.00     P/E = 78.27
Change since picked      +0.00     52-week high=$52.88
Analysts Ratings     5-4-0-0-0     52-week low =$ 9.63
Last earnings 07/27  est= 0.13     actual= 0.19
Next earnings  N/A   est= 0.24     versus= 0.19
Average Daily Volume   = 942 K

AMGN - Amgen $69.00 +4.06 (+2.63 this week)

Amgen makes and markets therapeutic products for hematology,
oncology, bone and inflammatory disorders, and neuroendocrine
diseases.  Anti-anemia drug Epogen and immune system stimulator
Neupogen account for about 95% of sales.  The company has a
pipeline of promising drugs in various stages of development.
Amgen has research and marketing alliances with several
companies, including Hoffman-La Rouche and Johnson and Johnson.

Been looking for a bounce back in the Biotech sector?  AMGN is
poised to lead the way.  The Biotech sector has recently been
consolidating its massive gains from earlier in the year, but
many on Wall Street are expecting the group to move
substantially higher into the fall.  That's because many
companies, including AMGN, are expected to report developments
on major drugs in the proverbial pipeline.  For its part, AMGN
is expected to report progress on an arthritis drug it has been
developing known as Interlukin.  What's more, AMGN just reported
impressive second-quarter earnings that surpassed estimates by
a penny.  During its conference call, AMGN told analysts that
sales of its flagship product Neupogen would improve into the
end of the year.  The news of improved sales prompted a host of
analyst praise.  CIBC World Markets reiterated its Buy rating
and set a $77 price target, and CS First Boston reiterated its
Buy rating and added a $105 target price.  It would appear the
typical post-earnings sell-off has run its course, which might
set AMGN to retest its recent highs in light of the bullish
outlook for the Biotech sector.  The stock has fallen from its
52-week high in the last two weeks, in part from profit taking,
and the earnings sell-off.  AMGN stabilized at support near $65
in the last two days, and bounced from that level Tuesday.
Volume came in over 2 mln shares more than the ADV, which was
convincing given AMGN's 6% gain.  Look for an extended bounce
Wednesday morning, and consider entry if AMGN clears resistance
at $70 on increased volume.  A more conservative entry might be
found if AMGN can rally back above $72.

It was announced Monday that the three-year trial between AMGN
and Transkaryotic Therapies (TKTX) would recess until later in
September.  AMGN brought about the lawsuit to defend its patents
on Epogen.  The case is considered crucial for future Biotech
patent law and for the control of the $4 bln market for Epogen.
Although the trial is watched closely, it should move to the
back burner for the time being and relieve AMGN of undue

BUY CALL AUG-65*YAA-HM OI=3534 at $5.88 SL=4.00
BUY CALL AUG-70 YAA-HN OI=3399 at $2.75 SL=1.50
BUY CALL AUG-75 YAA-HO OI=6772 at $1.13 SL=0.00
BUY CALL SEP-70 YAA-IN OI= 845 at $5.00 SL=3.00
BUY CALL OCT-75 YAA-JO OI=5185 at $5.25 SL=3.25

Picked on August 1st at  $69.00    P/E = 65
Change since picked        0.00    52-week high=$80.44
Analysts Ratings    11-11-5-0-0    52-week low =$37.00
Last earnings 06/00   est= 0.27    actual= 0.28
Next earnings 10-20   est= 0.28    versus= 0.25
Average Daily Volume = 7.03 mln


MRVC - MRV Communications $52.13 -5.75 (-6.38 this week)

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

We hope you didn't hold this one over earnings!  After running
up over 200% between the end of May and mid-July, MRVC ran out
of steam in the week before earnings and began to roll over
ahead of the company's results, announced on July 27th.
Confirming the pattern of selling off after earnings, MRVC's
decline has been exacerbated by missing estimates by a penny.
Although the number is small (2 cents reported vs. 3 cents
estimated), that is a 33% disappointment and the stock has
been declining ever since.  Last Friday, it looked like the
50-dma might provide some support, but the higher opening
yesterday had no staying power, and the remainder of amateur
hour was truly ugly.  MRVC touched $53.38 before finding
support.  The recovering NASDAQ provided some help yesterday
and the stock managed to recover all the way to the close.
That was as good as it was going to get though, and the bears
went on the offensive this morning, pushing the price below the
50-dma (currently $55.31), and producing a close just barely
above the low of the day.  Although the day ended on average
volume, the selling volume was very heavy in the final 2 hours
as the stock gave up nearly $4.  Mild support may materialize
near $45, but after that we have to go all the way down to $40
to find significant support.  Look for MRVC to roll over at the
50-dma, and then open new positions as the selling volume picks
up again.  Continued selling from current levels will be
confirmation of the stock's weakness and more conservative
investors can use this as an entry trigger as well.

BUY PUT AUG-55*VQX-TK OI=390 at $8.13 SL=5.75
BUY PUT AUG-50 VQX-TJ OI=312 at $5.25 SL=3.25

Average Daily Volume = 2.36 mln

AMD - Advanced Micro Devices $66.88 -5.13 (-4.13 this week)

AMD ranks #2 in the microprocessor market, after Intel.  The
company has grabbed a substantial share of the sub-$1000 PC
market.  AMD's microprocessors include the K6 and the super-fast
Athlon (K7).  The company also makes embedded chips and
nonvolatile memories.  AMD's major markets are computers,
networking, and communications.  About 60% of sales are outside
the United States.

It comes with no surprise that this Chip has taken a dip
recently.  Intel, AMD's arch nemesis, announced Monday that it
had successfully developed a 1.13 gigahertz microprocessor.  The
new chip, which is the fastest to date, will be sold to computer
manufacturers such as Dell and Gateway.  Not to be completely
outdone, AMD will reveal its 1.1 gigahertz chip later this
month.  The increased competition from Intel comes at a crucial
time for AMD, and the rest of the Semiconductor sector for that
matter.  The mumblings of a market peak in the infamously
cyclical Chip sector have filled the ears of investors recently.
Although demand for chips and chip equipment appears to be
healthy as ever, it is widely known that the Semi stocks peak
well before the market becomes saturated.  The possibility of
slowing demand, in conjunction with several high-profile
earnings warnings from the likes of LSI, have combined to carry
AMD below several key support levels recently.  The stock
crashed through its critical support at $70 Tuesday on increased
volume.  Tuesday's drubbing in the Semi sector marks the end of
the group's two day attempt at a recovery rally.  It was
obvious that the analysts were pulling for a rally in the
sector.  Needham & Co upgraded AMD to a Strong Buy rating
Monday, which helped stabilize the stock.  But, it was apparent
Tuesday that the bears have more pull than the analysts.  The
failure of support Tuesday warrants consideration for entry at
current levels if the Semi sector continues to fall Wednesday.
AMD has minor support remaining at $65, where a trader might find
a more conservative entry point if stock's recent losses mount.

BUY PUT AUG-70*AMD-TN OI=8582 at $6.63 SL=4.50
BUY PUT AUG-65 AMD-TM OI=2600 at $4.00 SL=2.50
BUY PUT AUG-65 AMD-TL OI= 969 at $2.25 SL=1.00

Average Daily Volume = 4.62 mln


VRTS - Veritas Software Corp. $100.00 -1.94 (+12.31 this 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.

Most Recent Write-Up

After losing almost 20% of its value last week, the bargain
hunters just couldn't resist and on Monday they came in force,
bidding the stock up $14.25 on higher-than-average volume.  In
doing so, VRTS closed above its 5-dma for the first time in almost
two weeks.  Today, VRTS took a moment to pause, trading on low
volume to close right on the psychological century mark.  News of
an alliance with Data General, a division of storage leader EMC,
failed to excite investors to rally above its 200-dma, currently
at $102.41.  It is interesting to note that aside from the first
two hours of Monday's trading, VRTS has traded in a narrow range
between $97 and $102 on low volume.  There seems to be a lack of
conviction on the buy side despite good news and it appears that
the bargain hunters have had their fill.  This is just what us
put players want to hear.  Rallies that fail to break resistance
at $103, its 10-dma at $105, and $110 are targets to shoot for
entry into this put play.  These past couple of days have seen the
5-dma ($98.50) provide support.  A break through that level could
send the stock to $95 and from there to $90.  This would provide
a more conservative entry.  VRTS continues to move in sympathy
with the NASDAQ so confirm entry points with index movement before
making a play.


Having benefited from Monday's tech relief rally, VRTS ran right
up into its 200-dma at $102.41 yesterday.  Today, the stock made
a similar attempt and backed off just slightly to close the day
with a 2% loss.  Look for bounces to the 200-dma accompanied by a
rollover for entry into this put.  Given the 15% move of the past
two days on lower volume, we are looking for the sellers to take
short term advantage of this run-up.  A more conservative entry
can be attained on a sustained move through the 5-dma at $98.40.

BUY PUT AUG-105 VUQ-TA OI=2060 at $10.25 SL=8.00
BUY PUT AUG-100*VUQ-TX OI=3412 at $ 7.88 SL=6.00
BUY PUT AUG- 95 VUQ-TW OI=2318 at $ 5.50 SL=4.25

Average Daily Volume = 5.70 mln

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Investors flock to safety issues...

Industrial stocks rallied today as traders rotated into defensive
issues amid fears of a slowdown in the economy.

Friday, July 28

Technology stocks plunged today sending the Nasdaq Composite into
a confirmed downward trend.  The Index fell 179 points to 3,663.
The slide in the hi-tech issues also dragged the broader market
lower.  The Dow closed down 74 points at 10,511 and the S&P 500
Index was down 29 points to 1,419.  Trading volume on the Nasdaq
reached 1.76 billion shares with declines pounding advances 2,853
to 1,139.  Activity on the NYSE was average at 979 million shares
with declines doubling advances 1,852 to 933.  In the bond market,
the 30-year Treasury fell 5/32, pushing its yield up to 5.78%.

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

Paxson        PAX   SEP7C/SEP10C    $2.00   debit   bull-call
CSX Corp.     CSX   SEP22C/AUG25C   $2.00   debit   diagonal
Ryder Group   R     NOV20C/AUG22C   $2.12   debit   diagonal

The prices listed are based on Time & Sales data for the session.
We did not monitor the market's activity on Friday and therefore
cannot verify the actual entries in each position.

Portfolio Plays:

The stock market retreated on Friday, following the release of
unfavorable economic data.  U.S. economic growth rose 5.2% in
the second quarter, well above expectations of 3.5% and revised
first-quarter growth of 4.8%.  The weakness in technology stocks
weighed heavily on other groups as investors unloaded companies
with high valuations amid concerns about future earnings growth.
Internet and biotech issues endured a massive sell-off and many
of the leading computer hardware and software stocks were drawn
into the bearish activity.  A poor performance in financial and
retail stocks pulled the Dow lower with American Express (AXP)
and Home Depot (HD) leading the way down.  In the broad market,
defense, beverage and healthcare companies moved higher while
networking, broadcast media and retail issues consolidated.

The number of earnings and revenue shortfalls in the technology
industry continues to worry investors and our portfolio has been
substantially affected by the recent downtrend.  Fortunately,
the losses have been minimal and with the usually conservative
manner in which we approach option trading, many of the plays
have been able to absorb the recent sell-off, maintaining
profitability.  One of the surprise winners was A.G. Edwards
(AGE), which rallied another $4 today on speculation of a new
merger in the sector.  Our recent debit straddle returned an
80% profit in just under one month.  Allstate (ALL), Interstate
Bakeries (IBC) and Secure Computing (SCUR) have also produced
favorable "early exit" returns.  However, there were also a few
positions that required timely exit and adjustment decisions,
both for limiting losses and protecting profits.  With Friday's
bearish activity, a number of moves were initiated.  To lock-in
position gains, we have closed the General Magic (GMGC) calendar
spread at a $1.00 credit.  To protect against future downside
movement, the Virata (VRTA) put-credit spread has been rolled
down and forward to an OCT-$40 Put, retaining the initial credit
of $0.75 with only a relatively small increase in collateral.
The current (profitable) positions on our watch-list include:
Thermo Electron (TMO) at $1.88 credit and Peoplesoft (PSFT) at
$2.88 credit.  Both plays are bullish diagonal spreads and may
need to be closed to protect current gains.  Issues that we are
monitoring in the technology group include American Online (AOL),
Cisco (CSCO), International Rectifier (IRF), Qlogic (QLGC),
Network Appliances (NTAP), and Voicestream (VSTR).

Monday, July 31

The Nasdaq rallied today as technology stocks rebounded from the
recent sell-off.  The composite index was up 103 points at 3,767.
The Dow industrials also enjoyed small gains, closing 10 points
higher at 10,521.  The S&P 500 Index was up 10 points at 1,430.
Trading volume on the NYSE hit 934 million shares, with advances
beating declines 1,711 to 1,161.  Activity on the Nasdaq reached
1.5 billion shares with advances beating declines 2,318 to 1,751.
In the bond market, the 30-year Treasury was unchanged, yielding

Portfolio Plays:

The stock market rebounded today as bargain-hunting investors
shrugged off fears of higher interest rates and poor earnings
growth in the second half of the year.  Questions about future
profits of many high-tech companies, as well as the possibility
of another rate hike, have conspired to create a bearish market
environment.  Technology equities were Monday's market leaders,
bouncing back from a brutal sell-off last week after a string of
profit warnings.  Chip and telecom issues led the recovery after
being pummeled in recent sessions.  On the Dow blue-chip average,
financial issues helped bolster the rebound in major technology
components.  Remarkably, drug and biotechnology shares suffered
despite the buying spree.  In the broad market, broadcast media,
defense and airline issues rallied while household non-durables,
retail and generic healthcare stocks languished.

Networking giant Cisco Systems (CSCO) was one of the technology
group's most heavily traded stocks, bought up along with other
leading companies, which appear to be less vulnerable to recent
volatility.  Our bullish position in the issue has a cost basis
near $60 and with some new speculation in the sector, it could
finish at maximum profit.  Traders who are concerned with the
current bearish sentiment might consider transitioning to the
SEP-$45 (naked) Put for a small credit.  That's the method we
will use to increase the downside profit margin.  Altera (ALTR)
rallied $5 on strength in the semiconductor group after a string
of negative performances.  Our recent downward adjustment in the
ALTR position may have been premature but as always, the goal in
this portfolio is to limit losses before they become significant.
With that idea in mind, we are going to use today's rally to roll
down and forward in the remaining big-cap technology plays.  Our
recent position in Qlogic (QLGC) will be rolled to an OCT-$45 Put
at $0.25 credit.  The new position has a cost basis of $44.00.

The Network Appliance (NTAP) spread should have been closed weeks
ago when the issue was trading in the $100 range.  Now we are
faced with rescuing a losing play.  Since the cost of the stock
(and the collateral for a naked position) is substantially higher,
we will transition to a put-credit spread; SEP60P/SEP65P, for a
small debit.  The cost basis for the new position is $64.56 with
a return of approximately 5% per month if the play is profitable.
International Rectifier (IRF) is the only credit spread we have
yet to adjust and our target for that position will be a move to
the SEP-$45 put with little or no additional debit.

Tuesday, August 1

Industrial stocks rallied today as traders rotated into defensive
issues amid fears of a slowdown in the economy.  The Dow average
closed up 84 points at 10,606 but the Nasdaq ended down 81 points
at 3,685.  The S&P 500 Index was up 7 points at 1,438.  Activity
on the NYSE was below average at 921 million shares traded, with
advances beating declines 1,679 to 1,182.  Trading volume on the
Nasdaq hit 1.33 billion shares, with advances beating declines
2,320 to 1,684.  In the bond market, the 30-year Treasury was up
27/32 pushing its yield down to 5.72%.

Portfolio Plays:

The technology sell-off continued Tuesday as downward pressure
emerged in the semiconductor and Internet sectors.  Both groups
faltered, increasing the fallout from two weeks of heavy losses.
Luckily, a small recovery in the biotechnology group checked the
descent.  The Dow Industrials saved the day with solid advances
on buying interest in the consumer-durable and major drug stocks.
New strength was also seen in the oil service, paper and utility
industries.  Leading the blue-chip rally were shares of Eastman
Kodak, Walt Disney, AT&T, Procter & Gamble, Coca-Cola and Merck.
Within the broad market, traders moved out of companies with
big multiples and into more defensive positions in conservative
groups that are known for dependable earnings.  In the near-term,
most analysts see additional downside potential but they expect
the stock market to gain positive momentum as we approach the
Presidential election season later in the year.

Our portfolio was once again the victim of rampant selling in the
technology group.  Share values in all the major electronic and
computer groups fell substantially during the session and there
are few signs of any upcoming recovery in the current technical
pattern.  Remarkably, we did enjoy a few positive moves in the
section today.  CSX Corporation (CSX) edged above recent trading
range resistance near $25 on strength in the transportation group.
Our new diagonal spread is at maximum profit above the current
price.  Kellogg Company (K) rallied $1.06 to finish at $27 as new
interest seeped into the Food and Beverage industry.  We noticed
a few traders using the bullish activity to write call options
and that may be the strategy to follow in our bullish calendar
spread at $30.  Thermo Electron (TMO) and Secure Computing (SCUR)
also moved against the trend, rallying in small increments while
the majority of technology stocks slipped amid profit-taking.

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -
LMT - Lockheed Martin  $29.12  *** On The Move! ***

Lockheed Martin is a highly diversified global enterprise that
principally researches, designs, develops, manufactures and
integrates advanced technology systems, products and services.
The company operates through four principal business segments:
Systems Integration, which includes missiles and fire control,
naval electronics and surveillance systems, platform integration,
aerospace electronics, control systems, and command, control,
communications, computers and intelligence lines of business;
Space Systems, which includes space launch, satellites, and
strategic missiles lines of business; Aeronautical Systems,
which includes tactical aircraft, airlift, and aeronautical
research and development lines of business; and Technology
Services, which includes federal technology services line of

The Aerospace industry has been in the news over the past few
months with the majority of interest focused on Boeing's (BA)
fundamental recovery.  Lockheed Martin has also been quietly on
the move and based on the current price of the issue and the
recent rally above a resistance area near $27, this company
appears to be poised for higher share values.  From a technical
viewpoint, the stock now has favorable support just below our
cost basis and a small disparity in option premiums will allow
us to initiate this bullish position at a reasonable entry point.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  SEP-25  LMT-IE  OI=3705  A=$4.75
SELL CALL  AUG-30  LMT-HF  OI=409   B=$0.75

MSGI - Marketing Services Group  *** Cheap Speculation! ***

Marketing Services Group is a vertically integrated provider of
direct and Internet marketing services to large and medium sized
companies.  The company provides marketing services including
database management, data processing, list processing, database
product development, research, direct mail support services,
media planning and buying, Internet services and automated
Internet marketing, as well as telemarketing and fundraising
services.  Marketing Services Group currently has over 2,000
clients who utilize its various marketing services.

After a major slump earlier in the year, Marketing Services Group
appears to be back on track with a bullish outlook for future
revenues and earnings.  Company officials recently announced an
extensive list of new clients for one of its subsidiaries and
excellent growth in revenues from another core company.  The
Grizzard Agency is one of the nation's largest full-service
direct marketing providers and now bolsters the MSGI portfolio.
Grizzard's sales were a record-breaking $55 million for the year
and more notably, revenues for its Internet-related applications
jumped by an impressive 400%, as a result of their emphasis on
the development of leading-edge services.

With favorable premiums in the OTM options, this position offers
a reasonably conservative, low cost speculation play for traders
who are bullish on the long-term outlook for the issue.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  NOV-7.50  UMS-BU  OI=104 A=$1.31
SELL CALL  SEP-7.50  UMS-IU  OI=0   B=$0.25

A less neutral and more bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options.  This position is speculative with low initial cost
and large potential profits.  Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.

It is generally best to establish this type of spread at least
2 - 3 months before the long option expires, capitalizing on the
ability to sell another option against the longer-term position.
That is the basic idea in this spread play; selling time value
in the options when they are overpriced (high implied volatility)
and buying it back (if necessary) when they return to intrinsic
value.  Ideally, the spreader would like to have the stock finish
just below the sold strike when the near-term option expires.  If
the short options are in-the-money at expiration, he will have
to buy them back to preserve the long-term position.

                       - READER'S REQUEST ***
PRD - Polaroid  $18.00  *** Bottom Fishing! ***

Polaroid is the leading instant imaging company in the world and
is the only manufacturer of traditional, chemical-based, instant
cameras and film in the United States.  The company's principal
products are instant film, instant and digital cameras, digital
peripherals, secure identification systems, software and system
solutions.  Polaroid has also participated in non-core businesses
such as graphics, sunglasses, and polarizers and holography.  The
company primarily designs, develops, manufactures and markets
hardware accessories for the instant imaging market, conventional
35mm cameras and film and videotapes.  With annual sales of over
$2 billion, the company remains the worldwide leader in instant
Polaroid has fallen to historic lows in the past few months but
based on the recent interest in digital imaging products, the
company may be on the verge of a recovery.  The company posted
net earnings of $8.7 million in 1999, ending a string of annual
losses that began in 1994.  Polaroid also has four of the top 10
selling digital cameras on the market and has already surpassed
last year's digital sales of 500,000 cameras.  In addition, the
company said it sold 65% more instant cameras during the second
quarter than in the year-ago period.

Today, the company announced the appointment of Ian J. Shiers as
senior vice president for worldwide sales and marketing.  Shiers
has responsibility for the company's sales and marketing in North
America and based on comments from others in the industry, he has
a solid track record for delivering strong top-line growth and
solid financial performance.  That's exactly what Polaroid needs
to change investor's future outlook for the company.

One of our subscribers was kind enough to point out the increased
option activity in this issue and he requested that we identify a
favorable spread position.  Here is one potential position, based
on a neutral-to-bullish outlook and a favorable disparity in the
front-month option premiums.

PLAY (conservative - bullish/calendar spread):

BUY  CALL  OCT-20  PRD-JD  OI=272   A=$1.43
SELL CALL  AUG-20  PRD-HD  OI=1015  B=$0.43

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