Option Investor

Daily Newsletter, Sunday, 08/06/2000

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 The Option Investor Newsletter                  Sunday  08-06-2000
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        WE 8-4           WE 7-28          WE 7-21          WE 7-14
DOW    10767.75 +256.58 10511.17 -222.39 10733.56 - 79.19  +176.77
Nasdaq  3787.36 +124.36  3663.00 -430.86  4093.86 -152.32  +222.98
S&P-100  795.85 + 19.67   776.18 - 28.37   804.55 - 10.97  + 12.52
S&P-500 1462.93 + 43.04  1419.89 - 60.30  1480.19 - 29.79  + 31.08
RUT      503.63 + 13.41   490.22 - 32.48   522.70 - 19.93  + 14.41
TRAN    2886.81 +117.28  2769.53 - 38.89  2808.42 -110.62  +134.40
VIX       21.54 -  2.76    24.30 +  2.83    21.47 -  1.14  +   .79
Put/Call    .41              .59              .38              .48

I hate it when this happens!

It was a great open for the Nasdaq but it turned into a classic gap
and crap as the gains burned off before 11:00. Euphoria to boredom
in 60 minutes flat. The Dow turned a positive jobs report into a
negative result in less than 30 minutes. What happened to the trend
of the post announcement rally? Was there a component in the jobs
report that you needed a decoder ring to decipher? For whatever the
reason the markets traded flat to down all day until the Dow started
to sprint just before the close. After falling back below 3800 after
the open the Nasdaq made two attempts to get back to that level and
both failed. Still the positive momentum at the close had analysts
saying good things about the outlook for next week.

Just when you think everything is finally going right, the wildcard
pops up and ruins your entire day. Maybe I am just being too cautious.
Maybe I am trying to hope a rally into existence before its time.
I had supper Friday with Austin Passamonte and his wife Wendy.
We were comparing notes on the market, good trades, bad trades and
trading psychology in general. When the market closed I was ready to
write about an impending rally but the more we talked something kept
nagging me about the facts. We talked about trades we should not have
made. We talked about charts that said one thing and yet we believed
another. We talked about expectation and mindset getting in the way
of fact. One of the biggest things that ruins traders is ignoring the
facts and trading when we shouldn't. We laughed about these stupid
errors as though we would never commit them again. (Now that IS

While I wanted to believe that the markets are going to rally from
here the facts kept gnawing at my subconscious. Yes, the jobs report
was benign at -108,000 jobs. However after factoring out those
pesky 290,000 census workers the government laid off in July the
number of new jobs created soared to +182,000. Yes, the Fed is
probably on hold until after the elections. According to the bond
futures there is only an 18% chance of a rate increase at the August
FOMC meeting. Yes, the financials went into vertical mode on the
expectations of no more rate increases with the S&P Financial Index
hitting an all time high. Yes, the Dow Jones, rate sensitive, market
leading, Utility Average has broken out into a new all time high.
Yes, Elaine Garzarelli has proclaimed a bottom in tech stocks. Yes,
we retested support just above 3500 that we last saw on June 1st and
it generated a +265 point rebound. Yes, the Thursday rebound was on
huge volume of 1.8 billion shares. So why do I still feel like I am
the last bull in the trailer and I don't want to follow my buddies
down that narrow chute into that noisy building?

Why didn't advancers beat decliners on Thursday? (17:22) Why were
there 197 new 52 week lows compared to only 39 new 52 week highs?
That was a really good jobs report on Friday but why didn't the
markets celebrate? What are we missing? What important piece of
information are we overlooking? Maybe I am just making a mountain
out of a molehill when we just had a little profit taking on a
summer Friday. After all both the Nasdaq and the Dow closed up
nicely after trading in the negative column during the day. It
just bothers me when the markets don't react like they should at
significant events. They have rallied on recent jobs reports when
the data was much worse. Why not rally when you have good data and
the market is over sold? Maybe we are not done yet? I went back
yet again and looked at prior Augusts. In 1999 the August rally
began on the 10th, in 1998 Sept 1st, 1997 on August 18th. Now I
realize every year is different, every market move is punctuated
by news and earnings events specific to that year, but the trend
is definitely weighted toward a recovery later in the month. Maybe
I was jumping the gun in calling the 3521 bottom on Thursday a

Lets look at the hard facts and then decide. The VIX at 21.58 is
only .14 away from a five month low. Yes, I know the VIX is based
on the OEX and that is not a Nasdaq indicator but it is a broad
market indicator. It can also change in a heartbeat with the market
as well. It could be 25 by lunch on Monday but you would not want
to see that happen if you are long since it would mean the Dow/OEX
tanked pretty drastically. Another indicator is the put/call ratio
which at .41 is only .03 higher than it was on July 20th when the
Dow posted a two month intraday high of 10874. The Dow is less
than 75 points away from upper resistance at 10825. The Nasdaq
gapped open to break above 3800 but then fell back to trade in
a very narrow range all day Friday just slightly above previous
resistance at 3750. Am I being too optimistic in thinking that
it was just profit taking that held us back on Friday?

The good news is still a positive Nasdaq holding over 3750 with
no divergence on the Dow. Both indexes positive on a summer
Friday cannot be a bad thing. The broadest representation of the
market health is the Wilshire Total Market Index (TMW.X) which
rebounded nicely from the Thursday lows. A nice trend there since
the July 28th low and with the Friday move is now back over its
200 DMA at 13,428. The 200 DMA on the Dow and Nasdaq are not so
positive. The Dow closed only 6 points under its average but the
Nasdaq is still fighting to reach its average at 3901. Even the
Russell-2000 closed only .6 below its 200 DMA. Why is this
important? The 200 DMA normally provides significant support or
resistance for each average. Many institutions have rules that
require positions to be liquidated if a 200 DMA is breached.
Conversely they will buy again when the stock/index moves back
above the 200 DMA. I think the Dow and Nasdaq may have some
trouble getting over those moving averages but once over they
would provide good support.

I think the markets on Friday looked under the headline numbers
on the Jobs Report and even though the three month jobs average
showed the slowest rate of growth since 1992, there is still
strong growth. They remember the 5% GDP number and they may be
listening to rumors that there would be more jobs except there
are no qualified employees. They know within reason that the
Fed will not raise again in August but with the very high GDP
Greenspan will act strongly again after the elections. There
are persistent rumors that an entire new SERIES of rate increases
will begin in November. If this comes to pass then profit estimates
may be too high for companies going forward. I don't think this
will keep us from having a rally soon but with storm clouds
building on the long term horizon the rally may be subdued. The
term we have grown to hate worse than "correction" is "range
bound" and we may be headed for that until the long term Fed
policy is understood.

Our challenges on the economic front next week will be the
Productivity report on Tuesday, Wholesale Inventories on
Wednesday, Import/Export Prices on Thursday followed by super
Friday with Retail Sales and the Producer Price Index. CSCO
will announce earnings on Tuesday and Dell on Wednesday. There
will be lots of tech apprehension in advance of those
announcements. Rumors abound that Dell may not hit their
estimates but analysts feel they will post a good quarter.

I am going into this week cautiously optimistic. I want to
believe a rally is forth coming. The VIX and the put/call
ratios are saying otherwise but remember the VIX is weighted
toward the Dow not the Nasdaq. With the heavyweight economic
reports at the end of the week any up moves should be early but
the bounce on Thr/Fri has taken much of the oversold condition
out of the market. Traders will be watching to see if the 200
DMAs will hold and if volume holds as well. With 1.4 billion
shares on the Nasdaq on Friday it was decent but not great.
Remember the NDX.X and the QQQ holders both closed in negative
territory on Friday despite the Nasdaq gains. With the VIX/PC
ratios moving into extreme conditions the likely hood of another
dip is strong. If it comes and does not break the 3521 from last
week then it could be seen as a successful retest and a definite
bottom. Have I confused you yet? The key point here is let’s
don't let our "hope" for a rally cause us to trade when the
"facts" are warning us to wait and watch. Let’s obey the warning
signs and wait for confirmation of the Thursday rally.

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Jim Brown


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This week it was hard to find plays that had not spiked +$10-$20
in the Thr/Fri rally. Stocks that did not take part in the rally
you don't want to own and those that did participate have highly
inflated premiums.

The three current plays I picked are DNA, IVX and MERQ. Please do
not open call positions on these stocks unless the market, sector
and stock are moving up. There is too much risk of another retest
of the Thursday lows to just blindly buy calls.

DNA $164.12  Call Play

DNA was on the play list for Thursday night but did not make the
cut. Bad decision! The gap open on Friday held for a nice +5.50
gain. The daily chart shows a nice saucer shaped recovery formation
and the 60 min chart shows a very strong move since July-25th.
I think the next resistance is $177 and a breakout from there
could take IVX to the $200 range. I would look to play calls
on it until the $177 test and then take a profit. If it breaks
$177 on good volume then jump back in and hope for $200.

MERQ $100 Call Play

I like this chart formation. I call it a bullish wedge. I have
found that when a stock breaks out of this formation it can be
explosive. The key word here is "breakout." If it fails again
and it has five times now, then I would wait for the next run
or double up at the $90-95 level. A more conservative play would
be to wait for the breakout before starting the play. You will
pay a little more for the option but you already have confirmation
at that point. The next congestion/resistance is at $110 and I
would look to close the position and wait to see if it forms
another positive chart or stumbles again.

IVX - $45.75 Call Play

We added IVX as a momentum play on Tuesday and then they
announced an acquisition of Wakefield for an undisclosed
amount. Investors don't like the unknown and took lots of
profit off the table. The solid bottom at $42 on Friday
looks like an entry point and the risk could be minimal.
Still, confirm upward movement before starting a new play.


Try to maintain a market neutral outlook and react to what
the market gives us instead of trying to force plays to fit
your market view. Maintain stops on all long calls in case
we do get a retest of the 3521 Thursday low.

Jim Brown

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Not Without A Fight
By Austin Passamonte

If this market is destined to fall it won’t happen without a
fight. The last two sessions had market bulls prove such by
coming off the ropes an hour after Thursday’s open to buy all
their beaten-down favorites at scintillating prices. Our buy-
the-dip crowd remains alive & well.

One of the most volatile two-days we’ve seen in quite some time.
Just when inaction lulls you to sleep ZOOM! We can expect the
next session or two may offer a taste of the same. Who said
summer trading isn’t fun & exciting?

This market wants to rally in the worst way and very well might.
Just the same, be careful in directional trades. There is plenty
of room to roam in either direction.

All eyes look to next week’s action for directional strength. A
benign PPI report PPI Tuesday could be the rockets touching
off our next vertical sprint up the charts. Looks like there’s
cause for major indexes to move up or down.

I’m ready to buy calls or puts but can’t decide which. Technical
studies on my charts are mixed with long-term inklings of a
rally brewing. Why then isn’t this a wildly bullish report? Our
old, trusty friend the VIX has slumped to dangerous lows once
again. Equity put/call ratios are bottom of the barrel as well.

Two weeks ago it was summer rally time. Last week we were due
for new market lows. This week the party’s on again. Do you see
a pattern? We do - a pattern of extreme indecision. It’s our
opinion that the broad markets are very near a major breakout
of the trading range pattern for serious capitulation. Which
way is the question. Personally I expect the FOMC meeting to be
the catalyst. We could very well rally or tank from there.

Reports from both trading floors are that this new round of
buying has mostly been a "retail rally", small traders buying
from large traders. Hmm, we don’t like that. Also, large-block
short selling on NASDAQ shares has built as well. Another run
early next week could flush these shorts out of bed but big
traders going short while you & I get long is some cause for
concern. Also, seeing the NASDAQ 100 close in the red on Friday
after such a "bullish" payroll report leaves us wondering why
the divergence between good news and overall NDX behavior.

Sentiment changes faster than summer weather these days. Every
bit of new information is clung to for direction of the Fed and
trend. When profits show up in your account do not let them
slip away. Enjoy the ride, it promises to be wild!


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 8/3 close: 22.87      Sat 8/5 close: 21.54

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            (8/03)      (8/05)       (8/07)

CBOE Total P/C Ratio                                  .41
Equity P/C Ratio                                      .35

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                               1.26
OEX Put/Call Ratio                              1.29

OEX Maximum Open Interest Strikes/Contracts:

Puts                           790/6,631      790/6,515
Calls                          800/5,636      800/5,658
Put/Call Ratio                   1.18           1.15

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 "10" considered firm.
Divergence of numbers may indicate future market direction.

OEX                      Tues         Thurs      Sat
Benchmark:               (8/03)       (8/05)    (8/07)

Overhead Resistance:
(900 - 835)*                          531.82*  12,772.5*
(830 - 815)                            24.26       27.96
(810 - 790)                             1.75        1.49

OEX Close:                               791         795

Underlying Support:
(790 - 775)                             2.59        2.53
(770 - 750)                             7.64        8.00

What the S/R measure indicates: Net open-interest ratios
are off the scales above 835. 25,545 open calls vs 2 open
puts from 835 to 900 is what we label disparity. A large
index move now has clearance in either direction between
770 and 815. Market-makers would love to pin the OEX index
between it’s two largest strikes of 790 & 800 for maximum
expiration of worthless contracts. Too soon to predict.

30-yr Bond:                            5.74%       5.71%

Light, Sweet
Crude, Barrel:                       $28.66      $29.96

200 Day Moving Average (as of 8/05)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW;   10,769                                    10,767
NASDAQ; 3,901                                     3,787
NDX;    3,620                                     3,618
SPX      1428                                      1462
OEX       769                                       795

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
5.71% on the 30-year Treasury Bond may be signaling the rate
fears are nil. Fed-Fund futures are pricing a 15% chance of
one or more rate hikes, .25 basis at this time.

Benign Government Reports
Latest statistics hint the economy is cooling and no further
rate hikes may be needed.

Renewed Strength In Market Leadership
Two day’s broad rally after the rapid sell-off proves
firm buying interest remains near key levels of support.

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.



Friday’s close below 22 places us back in the danger zone.

Equity Put-Call Ratio
Friday’s reading of .35 is lowest in some time. Massive call-
option buying across all equities is skewed too bullish for
contrarian sentiment.

End Of Earnings Season
Lack of positive news will direct market focus on August
FOMC fears should future reports prove bearish.

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 IPOs this week could greatly dilute market
capital and pressure existing issues.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. September Crude closed $29.96 today.
Seasonal energy patterns typically bottom by late summer,
but all petroleum expected to be very high this fall. Prices
in low $20s would be welcome relief but may not arrive.

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. Broad market must sustain rally or
history may repeat.


As of Market Close - Sunday, 08/06/00

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,767      10,450  10,950
SPX   S&P 500           1,462       1,410   1,470
COMPX NASD Composite    3,787       3,400   4,000
OEX   S&P 100             795         770     810
RUT   Russell 2000        503         470     540
NDX   NASD 100          3,618       3,250   3,900
MSH   High Tech           987         935   1,025

BTK   Biotech             664         565     700
XCI   Hardware          1,468       1,360   1,530
GSO.X Software            428         385     445
SOX   Semiconductor       921         880   1,020
NWX   Networking        1,253       1,150   1,295     **
INX   Internet            501         440     580

BIX   Banking             592         550     610     **
XBD   Brokerage           610         570     655     **
IUX   Insurance           715         680     725     **

RLX   Retail              845         835     895
DRG   Drug                409         385     430
HCX   Healthcare          846         800     855
XAL   Airline             168         158     178
OIX   Oil & Gas           287         272     304

The Financials were talking, was anybody listening?  The past
couple of days were excellent examples of how the market views
risk/reward.  On Thursday bullish traders may have looked at the
NWX at 1150 and said "risk 5 to make 120?"  The bears were on
the other side risking 120 to make 5.  Today the NWX exceeded
our resistance to 1271.  Raising support (DOW,MSH,BTK,BIX,XBD,
IUX,OIX). Lowering resistance (XCI,SOX,RLX). Raising resistance

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Rally Fizzles on Low Volume
By Buzz Lynn

Though the NASDAQ closed higher on Friday, it’s hard for bulls to
get excited by the gap-up followed by the intraday descent.  That
the NASDAQ’s move over previous resistance at 3750 was
accompanied by volume of only 1.45 bln shares is strong evidence
that market sentiment hasn’t switched convincingly to the upside.
Don’t get us wrong, we’ll take any gain for the week that we can
get, especially on market friendly inflation-indicating numbers.
Nonetheless, tis the season NOT to rally now that earnings are
over and summer is here, not to mention that PPI and CPI could
throw cold water on the party, and the FOMC meeting is in just
over two weeks.  Anybody see a reason to rally to new highs?  Not
only that, in the bigger scheme of things, NASDAQ was not able to
get through it’s 50-dma of 3871 during the opening gap-up.  Even
if it did, it would quickly encounter resistance at 3900, its
200-dma, then again at 3960, its 30-dma.  Suffice it to say,
there’s a bunch of congestion overhead and a lack of motivating
forces to push it through.  On a shorter technical basis,
Friday’s amateur hour gap-up was met with selling into strength
followed by descent, then flat trading for the rest of the day
with half-hearted attempts to push back through 3800.  While it’s
hard for us sometimes to hide a bullish bias, I not convinced
that Thursday’s breakout was the real thing.  The one bullish
factor that impressed me was the willingness of investors to
support the 3750 level after lunch and into the final hour of
trading.  Yet the follow-through in the final few minutes before
the close did not come close to making an assault at intraday
resistance of 3800.  In short, this has been a weak rally.  And
it’s a good thing since more than a couple of us on the OIN staff
have been gritting our teeth.  Why?  A few of us (myself
included) own QQQ and OEX puts.  While we were tempted to sell
our puts and buy calls on those bounces at 3750, we opted to hold
the puts in anticipation of a rollover.  While our entries could
have been a bit better in retrospect, the rationale for buying
them remains intact: no follow-through Friday and events on the
immediate horizon coupled with resistance on the technical chart
point to the down-side, or still rangebound trading at best.  To
that end, we’re keeping our IAH, IIH, and BDH plays focused on
puts.  We’ve also added SMH to the put side.  What about QQQ?
Check out "the missing link" and more evidence of weakness in the
write-up below.  Also note, we’ve stayed away from shorting
anything this week.  That’s because volatility remains low (VIX
is 21.58, its lowest level since March 3rd) and any big price
swings will inflate volatility making it costly to buy back, or
cover.  We were wrong in our bias last week, but only slightly
so, and we could be again this week.  But nothing goes down (or
up) in a straight line.  Based on the above factors, we still
favor the downside, but are prepared to reverse course
immediately if we see some follow-through from Thursday.  Trade
smart and wait for your entry.

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    90.19   2.63  -1.38  -1.50   4.13  -0.25   3.63
HHH Internet     104.69   2.13  -1.31  -0.50   3.38   0.81   4.50
BBH Biotech      184.81   0.19   8.38   2.13   3.00   2.81  16.50
PPH Pharm.       101.63  -1.25   3.75   0.75   0.38   0.88   4.50
TTH Telecom.      68.38   0.75   0.50   0.06   0.19  -0.38   1.13
IAH I-net Arch.   93.54   2.56  -1.69  -1.88   3.44   1.31   3.75
IIH I-net Infr.   52.13   1.19  -2.44  -0.31   2.81   0.63   1.88
BHH B2B           45.25   2.13  -1.50   1.50   2.06   0.31   4.50
BDH Broadband     88.81   1.88  -1.25  -0.19   1.19   1.44   3.00
SMH Semicon       78.69   1.88  -1.25  -0.19   1.19  -2.19  -0.56
RKH Reg. Banks   105.00  -0.06   1.00   0.56   4.13   4.13   9.75
UTH Utilities     98.13  -1.50   2.38   2.13   1.19   0.63   4.81


QQQ - NASDAQ 100 $90.19 (+3.63 last week) How is it that the
NASDAQ can rise on Friday while the QQQ dropped?  The answer is
that the NASDAQ, as a whole, measures the value of all 4500-
5000+/- of the stocks on the index while the QQQ is comprised of
only the top 100 in market cap.  So if the NASDAQ moves up while
the QQQ moves down, that must mean that small-cap stocks are
showing some strength, but the big-caps are not keeping pace.  In
fact, MSFT, INTC, WCOM, JDSU and SUNW finished Friday with a
loss.  CSCO was a gainer, but has earnings on August 7th to help
explain that away.  The generals are not leading the charge in
the NASDAQ gain.  That is "the missing link" and the reason the
QQQ isn’t keeping up with the whole NASDAQ.  The divergence is
bad sign since the generals comprise roughly 40% of the Q’s.
Even with the ticks up on MSFT and INTC going into the close, the
Q’s did not follow.  Technically, the hard bounce south of the
50-dma, and its continued descent below the close under the 200-
dma of $90.75 is another bright red flag of weakness.  If that
was not enough, historical support that became resistance last
week is also at $90-$91.  Should there be a strong reason to
rally on Monday (we don’t know of one yet), the 30 and the 10-dma
of $93 and $91, respectively, are going to apply more downward
pressure.  Support is at $87, then again at $85.  While it looks
bad for playing calls, this is a strong case for puts.  No major
volume here either - it again signifies that the Thursday’s rally
lacked any follow-through conviction.  Now for the plays.

***August options expire in 2 weeks***

Long Straddle:

Still putting our feet to sleep, this low relative volatility has
got to end some day.  Someday can seem like a long time to an
option trader.  That’s why we have to give ourselves enough time
to be right.  If we are wrong, we need to still have enough time
value left in the premiums to sell back to the market.  That
generally means 30 days to be right and another 60 days to sell
back.  That’s why we suggest DEC strikes for this play.  Any
drastic move in price is going to inflate the volatility and we
will profit accordingly.  Remember, we are buying both a put and
a call so one position will protect the other from a move in
either direction.  It doesn’t matter which way it moves - just
that it moves big.  Our objective is to profit as the time value
portion of our options grow in proportion to the rise in
volatility, which will come from a big move.  $90-$91 is
resistance with support first at $87, then $85.  Target shoot for
an "or less" figure by placing a limit order at $0.25-$0.50 less
than the natural net debit figure.

***August options expire in 2 weeks***


BUY CALL DEC- 90 QVQ-LL OI=1875 at $11.75
BUY PUT  DEC- 90 QVQ-XL OI=2419 at $ 9.75
Net Debit = $21.50 or less


BUY CALL DEC- 94 QVQ-LP OI=1778 at $ 9.63
BUY PUT  DEC- 86 YQQ-XH OI=1411 at $ 7.75
Net Debit = $17.44 or less

Calendar Spread:

This play is almost like a covered call except instead of
actually owning the shares you may be required to deliver, you
own a long-term call option as a proxy.  But you don’t want to
get called out of the underlying long call because you’d have to
give up all that time value you paid so dearly for.  The
objective here is to have the sold near-term call expire
worthless by having the stock price close just under your sold
short strike price.  Then you are free to sell another one the
next month, and again the next - repeat until collected premiums
reduce the cost basis of your long underlying position under
zero.  At that point, your return is mathematically infinite!
It’s like getting a free option!  There are risks.  If the price
of the stock rises above the sold strike price, you will need to
have enough cash on hand to buy back the sold position just
before expiration or sooner if the stock price takes off, thereby
squeezing the time value out of the ever-increasing deep ITM
premium.  Remember, our job is to have time premium evaporate on
the short position.  If you are a good market timer, consider
legging in by selling the short-term call on strength and buying
the long-term call on weakness, whichever occurs first.  Otherwise,
initiate the play at will.

***August options expire in 2 weeks***

BUY  CALL DEC- 86 YQQ-LH OI= 1422 at $13.75

SELL CALL AUG- 90 QVQ-HR OI= 6243 at $ 3.50, ND = 10.25 or less
SELL CALL AUG- 92 QVQ-HR OI= 2427 at $ 2.63, ND = 11.13or less

Long Puts

"Until we see that the recovery is for real, we remain on the put
side.  $90-$91 remains resistance, which would make current
levels an excellent buying opportunity on a rollover after
amateur hour."  Remember that from Thursday night?  What a juicy
entry opportunity!  Unfortunately, we also coupled it with a
suggestion not to enter if the price went over $92, which was the
10-dma at the time.  Drat! - because it ran nearly into its 50-
dma to $92.75 during amateur hour then backed off.  In the
interest of keeping our suggestions safer for those new to
trading, we sometimes miss extremely profitable but riskier
entries.  A gunslinger would have gone for it at that level, but
we are still encouraged by the $90-$91 resistance to make this
put play.  An entry at this level still looks good to us,
especially if NASDAQ gets an opening pop to $91 and rolls over
after amateur hour.  Not much volume on the opening pop would
also mean lack of conviction.  Again, consider it an entry
opportunity.  Same with market weakness on Monday - feel free to
get in on a rollover under $90.  Support is at $87, then $85.

***August options expire in 2 weeks***

At Resistance:
BUY PUT  AUG-92 QVQ-TN OI= 3744 at $4.50 SL=2.75
BUY PUT  AUG-90 QVQ-TL OI=10419 at $3.25 SL=1.75
BUY PUT  AUG-86 YQQ-TH OI= 9490 at $1.75 SL=1.00
BUY PUT  SEP-92 QVQ-UN OI= 5794 at $6.88 SL=4.75
BUY PUT  SEP-90 QVQ-UL OI=14261 at $5.88 SL=4.00

Average Daily Volume = 22.01 mln


IAH - Internet Architecture $93.54 (+3.75 last week) This one is
a bit too close to call.  But by keeping it on the put side, we
will be ready to follow the action anticipated on the NASDAQ and
QQQ - down.  The fact is that IAH was decidedly up on Friday
thanks to strength in EMC, NTAP, SCMR, JNPR, CIEN and GTW.
However, SUNW, IBM, and HWP kept a lid on the euphoria.  Another
case of the generals not leading.  Volume was huge (over 650 K
shares) indicating lots of support at $92.50.  It now rest right
on its 30-dma of $93.55, which is also a level of historical
resistance and could go either way.  It looks like an entry point
to us if we are right in our assessment of the QQQ about to fail.
It really depends on the fate of SUNW, IBM, and HWP on Monday and
Tuesday.  There are two ways to enter.  First, consider buying a
weak opening market after amateur hour.  The 30-dma would not
have likely held.  Otherwise wait for a drop under the 50-dma of
$91.25.  That would give a clearer signal that the rollover is in
place.  Mild support is at $87.50 with stronger support at $86.

***August options expire in 2 weeks***

BUY PUT AUG-95 IAZ-TS OI= 20 at $3.13 SL=1.50
BUY PUT AUG-90 IAZ-TR OI= 80 at $1.25 SL=0.50
BUY PUT SEP-90 IAZ-R OI= 135 at $3.50 SL=1.75
BUY PUT SEP-85 IAH-UQ OI=300 at $2.44 SL=1.25

Average Daily Volume = 54 K


IIH - Internet Infrastructure $52.13 (+1.88 this week) IIH too
appears to be rolling over.  We can look at the candlestick
formation of a doji star on Friday as evidence.  It ended the day
about where it started, which shows indecision on part of
investors and an unwillingness to take it very far in either
direction.  While we suggested that buying any downward bounce
from $53 might make a good entry, IIH actually moved up to $53.44
before bouncing south.  There’s a lot of congestion above $54,
which IIH will have to move through to get a breakout to get a
breakout.  And with the tenuous condition of the NASDAQ, that
could be tough.  We would consider any weakness in the NASDAQ on
Monday or Tuesday to be a buying opportunity (after amateur hour
of course) or on any rollover from $54.  Mild support is at $48,
otherwise $46.  Confirm market direction before entering.

***August options expire in 2 weeks***

BUY PUT AUG-55 IIH-TK OI= 36 at $4.38 SL=2.75
BUY PUT AUG-50 IIH-TJ OI= 76 at $1.69 SL=0.75
BUY PUT SEP-55 IIH-UK OI=185 at $6.38 SL=4.25

Average Daily Volume = 199 K


BDH - Broadband $88.81 (+3.00 last week) Ouch!  Here’s a play
that looks technically painful.  BDH ran up and over its 50-dma
of $89.22, but could not hold the gain, and finished below that
level in Friday’s action.  So much for the big rally.  With all
the formerly hot stocks like LU (new low), JDSU, MOT, QCOM, and
AMCC all searching for a spark from just one match, this sector
may have trouble keeping its head above water until next earnings
season.  Make no mistake though, this is the fastest growing
business segment of the bandwidth explosion - they will be back,
just unlikely that it will be right now with the NASDAQ
technically weak too.  Resistance is really firm at $90, while
there is some support in the $85-$86 range.  After that, look for
$83 to the down side.  On any further market weakness, we would
consider this an entry point.  Otherwise, look for any bounce
down from $92 as an entry.  Let LU and NT be your guides on this
one as they make up just under 50% of the value of the BDH.

***August options expire in 2 weeks***

BUY PUT AUG-90 BDH-TR OI=31 at $4.38 SL=2.75
BUY PUT AUG-85 BDH-TQ OI=73 at $2.13 SL=1.00
BUY PUT SEP-90 BDH-UR OI= 3 at $6.88 SL=4.75

Average Daily Volume = 126 K

New Play

SMH - Semiconductor $78.69 (-0.56 last week) Well, if the
analysts say so and investors believe them, who are we to fight
the tape?  Seriously, the semis have been hammered lately as even
the mighty INTC, TXN, AMAT, and MU have been unable to escape the
selloff.  Selling volume has been increasing too.  The basic fear
is that semiconductor manufacturers may be engineering excess
capacity, which could hurt chip prices in the future.  OK, but
that doesn’t seem to concern fiber optic component makers who
will increase capacity dramatically (by 400% for SDLI!!) over the
next two years.  What gives?  We think there are two things at
work here.  First, it’s seasonal - this is a time in the trading
year where it’s tough to get stock prices moving up the chart
under their own power.  Second, semis were one of the few sectors
that weathered the selloff rather well in April and March.  Now
it’s the semis turn for a selloff.  So while this level may look
historically low for SMH, a good number of its major components
still have room to fall until they hit support.  Besides that, it
just doesn’t look good that SMH had a series of lower highs and
lower lows last week, when other sectors were moving up.  SMH
couldn’t even break back over its 5-dma.  Ideally we’d like to
see a move back to $81 resistance, then a failure at that level.
That would make a nice entry in our book.  Otherwise a generally
weak market right from Monday’s start would be our signal to take
a position.  Support isn’t available until $75.  After that it’s
brown dirt (as opposed to blue sky) since SMH would then be
setting new closing lows.  We look for the current trend to
continue, especially if we are right about the direction of the
QQQ (down).  If not, all bets are off since semis are one of the
first sectors to recover when things look rosy.  They generally
lead tech rallies but have been noticeably absent during the most
recent pop.

***August options expire in 2 weeks***

BUY PUT AUG-80 SMH-TP OI=121 at $4.25 SL=2.75
BUY PUT AUG-75 SMH-TO OI= 40 at $1.88 SL=1.00
BUY PUT SEP-80 SMH-UP OI=  4 at $6.50 SL=4.50, Low OI
BUY PUT SEP-75 SMH-UO OI=  0 at $4.00 SL=2.50, No OI

Average Daily Volume = 326 K

No Play



For the week of August 7, 2000


Consumer Credit        Jun   Forecast:  $8.0B    Previous: $11.8B


Productivity           Q2    Forecast:   4.5%    Previous:   2.4%


Wholesale Inventories  Jun   Forecast:   0.3%    Previous:   0.8%
Fed Beige Book         ---   Forecast:   ---     Previous:   ---


Initial Claims         08/05 Forecast:   285K    Previous:   276K
Export Prices ex-ag.   Jul   Forecast:     NA    Previous:  -0.1%
Import Prices ex-oil   Jul   Forecast:     NA    Previous:   0.0%


Retail Sales           Jul   Forecast:   0.4%    Previous:   0.5%
Retail Sales ex-auto   Jul   Forecast:   0.4%    Previous:   0.2%
PPI                    Jul   Forecast:   0.1%    Previous:   0.6%
Core PPI               Jul   Forecast:   0.1%    Previous:  -0.1%
Michigan Sentiment     Aug   Forecast:     NA    Previous:  108.3

Week of August 14th

08/14 Business Inventories
08/15 Industrial Production
08/15 Capacity Utilization
08/16 Housing Starts
08/16 CPI
08/16 Core CPI
08/16 Building Permits
08/17 Initial Claims
08/17 Philadelphia Fed
08/18 Trade Balance
08/18 Treasury Budget

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 The Option Investor Newsletter                   Sunday 08-06-2000
Sunday                                                      2 of 5

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


Liquidity Issues May Delay A Sustained Rally
By Mary Redmond

While there are opportunities to make quick profits on some days
in this market, most traders are wondering when the VIX and the
volatility of their individual stocks will change enough to
signal a possible sustained rally ahead.

The historical volatility of a stock can be measured using
different time periods.  On the CBOE's web site you can see
the 30 day historical volatility for optionable stocks.  This
can change dramatically for each 30 day period.

For example, the 30 day historical volatility for NT for June
is 41.323.  NT's 30 day historical volatility was 73.24 in May,
and 93.02 in April.  Using Cisco as an example, the 30 day
historical volatility was 45.377 in June, 76.479 in May, and
125.88 in April.  It is not surprising to see a huge spike in
volatility during the month of April because the Nasdaq made a
huge move of over 40% from March to April.  This had an effect
on the volatility of many stocks.  If you are using historical
volatility to help determine if options are overvalued, it is
best to average over a long period of time to gain perspective.

On an average trading day, the VIX.X will usually move from
about a half a point to one point range.  For example, on
Thursday of this week, the VIX.X was above 23.4 in the morning
and dropped to 22.89 by mid day.  Some people use the intra-day
swings in combination with other technical indicators to make
a quick day profit.  On a very volatile day in the market the
VIX may move 5 points or more.  For example, when the Nasdaq
dropped 500 points one day in April the VIX moved up over 5
points.  But generally we have seen major moves in the VIX from
an oversold to overbought condition and vice-versa take a month
or longer.  The VIX may move to a very high level of over 29
or 30 only a few times a year.

By using the VIX in combination with other technical and stock
fundamental indicators, you can sometimes make a quick profit.
For example, on Thursday morning the Nasdaq futures were down
over 90 points and the Nasdaq dropped over 120 points in the
morning primarily on concerns over Motorola's warning.  When
a major tech company warns of a slowdown, the entire sector will
usually take a hit.  In this case, many other key sectors like
the networking sector took a hit as well.  For example, you can
see the chart of Sycamore in the morning on Thursday.

At the market open the stock slipped way out of the Bollinger
bands, indicating that it was likely SCMR would rise into the
middle of the range.  The stochastic indicators also showed an
oversold position.  I bought the stock at 102 in the morning
and it rallied to over 124 by the end of the day, when the VIX
dropped below 23.  This type of wide deviation from the bands is
rare, and usually does not occur on a daily basis.

It is possible that the lower levels of liquidity in the market
may make it difficult to sustain a prolonged rally.  AMG data
reported that equity funds had a total net outflow last week
of $1.6 billion.  The four week moving average of cash to equity
funds is still a positive of $2.5 billion, but significantly
lower than in previous months.  During the months of last fall
and winter when the Nasdaq moved from 3000 to 5000 the average
weekly flow into equity funds was over $8 billion, and some weeks
the majority of the money went into technology funds.

Perhaps even more astonishing is the fact that retail money
market funds took in a whopping $8.75 billion in cash last week,
and institutional money market funds took in $6.59 billion.
That is over $15 billion in cash going into money market funds
and not the stock market.  The four week moving average of cash
to money market funds is in the range of $9.98 billion.  During
the sustained rallies of last fall, we saw this type of cash
going into the market.  The total amount of cash in money market
funds is over $1.71 trillion.  This may be indicative of public
sentiment.  This sentiment can change very rapidly as we know if
the market starts to rally, but we may need a higher level of
liquidity for the type of rallies we saw last fall.

At the same time, the investment banking community has increased
the number of ipos, and some of them have had significant gains.
27 new ipos came out this week, and in combination with the GS
secondary raised in the range of $6 billion.  This is alot of
stock to hit a weak market.  It is interesting to note that AOL
Latin America was expected to come out this week, and has been
postponed.  The success of this ipo may be a very strong
indicator of the short term public sentiment toward internet

Contact Support


How to Handle the Cup and Handle
By Lynda Schuepp

Most of you know about chart patterns, but do you really know
how to trade them?  One such formation is William O’Neil’s
"Cup and Handle" which you all have heard about, and if traded
correctly can reward you handsomely.  Stock patterns are very
powerful, and if you understand the sentiment behind them, they
will make a lot more sense.

See Daily chart below of Apollo for all references in this

First let’s look at the different stages within this trading
cycle.  There are four stages.  In the first stage, you have a
sell-off preferably with volume decreasing.  Eventually the stock
levels off as the shorts come in to cover and day-traders and
short-term players start selling on any upward movement.  This is
the second stage, where you will see the stock trade sideways in
a relatively narrow range.  This stage represents the bottom of
the cup.  As you know, consolidation can’t last forever.
Eventually the stock will breakout, either to the upside or
downside.  Once the buyers start coming in to bottom fish, the
stock starts to rise.  In the third stage, everyone wants to get
in on the action and volume should increase as more buyers find
this "depressed" stock suddenly attractive.  More buyers than
sellers equates to higher prices.  Prices should increase up to
the highest level of the left side of the cup.  At this point,
the stock will usually find resistance.  This may be the beginning
of a handle and would signify the beginning of stage 4.  Traders
who bought at the left side of the cup are selling now, looking to
break-even.  How many of us, have been there?  Bottom-fishers are
also selling, making a nice profit from the run up from the bottom
of the cup.  The stock should start to decrease in price as well
as in volume.  Once the handle is apparent you are clearly in the
final stage.

This final stage is a tricky one.  A lot of people identify the
pattern and jump the gun.  Sometimes this produces a false rally,
and then the stock tanks.  If you are patient, this formation can
lead to some very nice profits.  This is a powerful formation and
the moves are very big and fast.  Although you can take a lot of
liberties with shape of the cup, handles need to be treated more
strictly.  For instance, the cup could contain a double bottom,
and doesn’t need to be symmetrical.  However the criteria for
the handle is as follows:

-  Handle must be downward, this is a pullback.
-  Prices should not drop lower than 10% on a daily chart or 15%
on a weekly.
-  Volume MUST be decreasing along with price
-  Handle should have at least 3 bars with lower highs and
lower lows.

If prices drop lower than 10-15%, it is probably more likely that
this handle is a reversal.  And if volume is increasing as the
handle is being formed, it is more likely that the trend is no
longer in tact, and could also be a sign of a reversal.  This is
why you don’t want to jump the gun.  Cup and handle formations
are not that common.

Now for our buying criteria.  Once you identify the handle, put in
a mental "buy stop order" for the call when the stock is 1/8 point
above the high of the last two days on big volume (at least 30%
more than previous day if using end of day data or 100% if using
intra-day data.  Once filled put a mental "sell stop order" when
the stock is 1/8 below the low of the handle.

In the chart of Apollo Group, we see a classic cup and handle
formation.  Note that the volume at the beginning of the handle
was about 600,000 shares with a stock price of 33.  Volume
decreased to 300,000 at the bottom of the cup.  This is where
the momentum players and bottom-fishers usually come in.
Eventually, the bigger players notice the action and the price
and volume start to increase.  Funds own 38% of this stock, so
we can expect them to increase their positions here. I use the
5 and 13 day moving averages on prices and the 5-day moving
average on volume.  It is helpful to look at the 5 day moving
averages to help you see these patterns.  Notice how the 5-day
mimics the shape of the cup and is quite helpful in discerning
volume patterns.

Apollo is a good quality company with real earnings.  All of
Apollo’s IBD ratings like EPS, Accumulation, and Industry RS
are all extremely high.  Apollo, true to form, runs up to its
previous high of 33 and stalls.  This is the beginning of a
potential handle.  The stock then drops to a low of 30-3/8 on
July 13th with an 8% drop on lower volume, which meets our
criteria.  The following day, Apollo met our buy target but
there wasn’t a corresponding increase in volume.  We had to wait
5 more days until the 20th to get our buy signal with confirming
volume.  When the stock hit 33-1/8 on July 20th, the Aug 30 call
was trading at 3-3/4.  In the chart below you can see by 11 AM
the volume was giving us a clear signal to buy.  You end of day
traders would have bought at the opening on the following day
when the stock was about 33-3/4.  The stock dipped back down to
31-1/4 but never hit our stop loss.

Apollo closed Friday at 39 15/16 on incredible volume.  That
represents a 30%+ increase in 11 days.  It doesn’t look like
Apollo will drop for a while but it will run out of steam and
at least consolidate.  Now is the time to adopt good money
management, like implementing 8-10% trailing stop.


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Call Play of the Day:

HGSI - Human Genome Sciences $142.56 (+15.19 last week)

See details in sector list

Chart = 

Put Play of the Day:

TERN - Terayon Communications Systems $55.13 (+1.25 last week)

See details in sector list

Chart = 

American Express. Cardmembers are buying online
Find out more!



Index      Last   Week
Dow    10767.75 195.41
Nasdaq  3787.36 124.36
$OEX     795.85  19.67
$SPX    1462.93  43.05
$RUT     503.63   9.23
$TRAN   2886.81 117.58
$VIX      21.54  -1.51


ABSC      99.63  24.06  Not just hopes & promises of future profit
LEH      129.63  21.50  Now that's what we call a breakout!
IDPH     137.00  21.00  Breaking a number of resistance levels
HGSI     142.56  15.19  New, reasserting leadership in the market
DNA      164.13  15.13  New, Millionare?  What about Billionaire?
MERQ     100.00  14.88  New, growing interest at the century mark
MER      135.75  13.75  Looking to challenge most recent highs
PVN      112.72   9.09  Sights set on Halloween's high of $118.50
MVSN      86.22   8.78  New, poised to challenge all-time highs
GENZ      73.00   7.88  Setting another new intraday high
FRX      116.69   6.44  Michael Dell should be envious of this
HWP      111.75   4.44  Let the run begin!  Earnings are coming
AMGN      69.13   2.75  Who better to capitalize on the mania?
AFL       55.56   2.13  Running with the Financials on good data
COF       58.88   2.06  Financials leading the way at the NYSE
IVX       45.75  -2.75  Capitulation could be prime entry point


EFNT      51.88 -10.38  New, looking to slide through $50 support
AMD       62.75  -9.25  Chips diverging from the broader techs
MU        73.13  -5.50  New, Semi magic seems to be fading
AFFX     139.63  -4.88  Dropped, time to go after mild recovery
TERN      55.13   1.25  Still can't find any legs to keep running
MRVC      60.00   1.50  Watch for a breakdown back through $55
GTW       62.00   6.88  Dropped, two day pop and we're out


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.


No dropped calls today.


AFFX $139.63 (+3.00) Biotech revisited.  Affymetrix was a great
put play earlier in the week, continuing last week's post
earnings blues.  Sadly for our play, buyers are taking advantage
of the recent price weakness, pushing the stock to higher
territory.  Closing above the 5-dma of $138.01, and with
intraday highs continuing to inch towards the 10-dma of $149.08,
AFFX has failed to give us the convincing drop through $130 we
were wanting.  The heavier volume on the Friday morning spike up
was also concerning.  Hence, with its unsustainable downtrend and
what appears to be a short-term bottom, we are discontinuing the

GTW $59.00 (+3.87) The late-day buying we witnessed last Thursday
afternoon culminated into an upgrade Friday Morning.  Banc of
America Securities raised its rating from a Buy to a Strong Buy
and set an $80 price target on GTW.  The analyst, Kurt King, said
GTW's recent 20% haircut created a buying opportunity, and added
that he was comfortable with the company meeting its September
quarter revenue estimates.  GTW gapped over $2 higher on the
heels of the upgrade, which should have prevented entry into new
positions.  The stock actually traded $1.50 higher in after hours
Friday evening, which gave us a valid reason to drop the 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.


HGSI - Human Genome Sciences $142.56 (+15.19 last week)

HGSI licenses a proprietary database of gene sequences to such
pharmaceutical heavyweights as SmithKline Beecham and Merck.  The
company has eschewed the race to decode the entire human genome
in favor of focusing on patenting gene sequences involved in
disease.  HGSI is one of the few genome companies involved in
developing gene-based therapeutics, its four compounds in
clinical trials are intended to limit the toxic effects of
chemotherapy, promote repair of damaged cells, stimulate antibody
production, and spur re-growth of blood vessels.

The Biotech sector is where it's at.  Despite the rampant
volatility in the broader markets last week, the Biotech sector
managed to reassert its leadership role.  The Amex Biotech Index
($BTK) tacked on nearly 2% last Friday, in what was its fourth
consecutive session of gains.  The genomic-related issues led the
charge last week to bring momentum back to the group.  The late
July sell-off in the Biotech sector induced a spree of bottom-
buying in HGSI.  Earlier in the week, HGSI bounced off a critical
support level at $120, which brought out the bargain hunters.
The stock catapulted from its two-week inverse head-and-shoulders
bottom, which culminated with a breakout above the right shoulder
at $140 on Friday.  Along with its attractive price, HGSI
received a boost early last week after fellow-genomes PDLI and
CHIR reported bullish second-quarter results.  The better-than-
expected profit reports from the two companies stoked investors'
interests in anything-genomic.  The budding momentum in the
Biotech sector combined with last week's reversal has brought us
back to HGSI.  The stock's strong finish Friday and equally
strong technical position might warrant consideration for entry
into the play first thing Monday morning.  If the Biotech bulls
return early next week, look for an entry point if HGSI clears
resistance at $145.  If the profit takers return, HGSI has strong
support just below at $140, and again at its 50-dma around $136.
An aggressive trader might look for an intraday entry if HGSI
bounces off one of its support levels after any selling subsides.
Before entering the play, confirm direction in the Genome sector
using QLTI, MLNM, and CRA as reference.

A little over a week ago, HGSI reported a wider-than-expected
second quarter loss due to a one-time expense.  But, the CEO
reiterated, "HGSI is the first company to have four genomic
derived drugs in human clinical trials."  That fact has garnered
Wall Street's attention and capital.

***August contracts expire in two weeks***

BUY CALL AUG-140*HHA-HH OI=301 at $12.50 SL= 9.25
BUY CALL AUG-145 HHA-HK OI= 84 at $10.13 SL= 7.00
BUY CALL AUG-150 HHA-HL OI=319 at $ 7.88 SL= 5.75
BUY CALL SEP-145 HHA-IK OI= 55 at $17.50 SL=12.75
BUY CALL OCT-150 HHA-JL OI=225 at $18.63 SL=13.50

Picked on August 6th    $142.56    P/E = N/A
Change since picked       +0.00    52-week high=$232.75
Analysts Ratings      1-4-2-0-0    52-week low =$ 25.94
Last earnings 06/00  est= -0.22    actual= -0.16
Next earnings 10-25  est= -0.26    versus= -0.21
Average Daily Volume = 1.77 mln

MERQ - Mercury Interactive $100.00 (+14.88 last week)

Mercury makes testing software for enterprise resource planning
applications, client/server software, and e-business
applications.  The company's products perform such tasks as
analyzing and eliminating Web site performance bottlenecks, and
automating quality assurance testing.  Customers include AOL,
American Airlines, Citigroup, and ETrade.  Mercury is looking for
the growing demand for e-commerce to fuel its business.

Investors are returning to select Net stocks slowly but surely.
The boom-to-bust cycle in the Internet sector left its scars on
many investors' portfolios and many Web stocks alike.  Yet, even
the wounds from the Tech bear last spring were not enough to
hinder the exponential growth of the Internet.  It's that growth
that the seven-year old MERQ is capitalizing on in a big way.
The company reported its fourth consecutive quarter of estimate
beating profits in early July, which, of course, prompted the
typical post-earnings sell-off.  The post-announcement profit
taking has appeared to run its course in MERQ.  The company has
recently announced a host of new alliances with several Tech
heavyweights such as Oracle and I2, which have re-ignited MERQ's
momentum.  The rate at which MERQ is winning business prompted
DB Alex Brown to bestow its love on the stock recently with the
reiteration of its Strong Buy rating, which we'll expand upon
below.  MERQ's technical position strengthened last week after
the stock established a solid bottom around $90.  Last Friday's
attempt to clear $100 marked MERQ's third try at eclipsing the
psychologically and technically significant century mark in a
little over a week.  The built-up pressure at MERQ's triple top
at $100 might lead to an explosive rally if the stock can clear
that level.  With that said, consider entering the play if MERQ
moves above $100 Monday morning.  A more conservative trader
might wait for momentum to build and shoot for entry if MERQ
sails past resistance at $105.  If the Tech bears gain control
early next week, MERQ has strong support near its 10-dma, around
the $95 level.

At the beginning of each month the brokerage house DB Alex Brown
announces its Showcase of Best Ideas.  The monthly compilation
lists their analysts' most compelling stock recommendations.  The
firm announced its August list last Friday, which included CSCO,
EXDS, FDRY, and our beloved MERQ.

***August contracts expire in two weeks***

BUY CALL AUG- 95*RBF-HS OI=296 at $ 7.00 SL=5.00
BUY CALL AUG-100 RBF-HT OI=426 at $ 6.75 SL=4.75
BUY CALL AUG-105 RBF-HA OI=238 at $ 4.63 SL=2.75
BUY CALL SEP-100 RBF-IT OI=210 at $11.63 SL=8.50
BUY CALL OCT-105 UDA-JT OI=364 at $11.75 SL=8.75

Picked on August 6th    $100.00    P/E = 204
Change since picked       +0.00    52-week high=$134.50
Analysts Ratings      9-3-1-0-0    52-week low =$ 19.88
Last earnings 06/00   est= 0.12    actual= 0.14
Next earnings 10-16   est= 0.16    versus= 0.11
Average Daily Volume = 1.79 mln

MVSN - Macrovision Corporation $86.22 (+8.78 last week)

Macrovision Corporation was founded in 1983 to develop and market
innovative video and communications security technologies for
major motion picture studios and independent video producers.
During 1983-1984, Macrovision was granted several key patents
that laid the foundation for the company's future growth,
including a United States patent that described what is now
widely known as the Macrovision Copy Protection Process.  That
technology has now become the industry standard, and to date has
been used on over 2.5 billion videocassettes.

Since the dreaded tech sell-off this spring, MVSN has not only
made a strong recovery, but now looks poised to challenge its
previous all-time high.  Finding a bottom at $35 in April and
successfully bouncing off its 200-dma (now at a distant $53), the
stock has been making higher lows and higher highs.  Using its
100-dma (currently at $65) for support, the stock has made a
stellar comeback these past three months.  So where to from here?
The theme this week for MVSN has been earnings.  On Monday, the
company reported second quarter earnings with net revenues of
$13.5 mln versus $8.1 mln in the second quarter of 1999 for an
increase of 68%.  For the first six months of 2000, net revenues
increased to $26.2 mln from $15.2 mln for the first six months of
1999, an increase of 72%.  With earnings per share of 16 cents,
this was good enough to easily beat the Street consensus of 9 cents
per share.  Bucking the trend of a post-earnings sell-off, MVSN
has since moved higher on strong volume, a testament to the
strength in momentum and interest in the stock.  Aggressive
traders looking for an entry point may want to buy bounces off the
5- and 10-dma (at $82.50 and $78, respectively) with additional
support at $85 and $80.  The next level of resistance can be found
at the $90 level.  From there, the stock would look to challenge
its previous all-time high at $94.75.  As a trading note, the
bid/ask spread in the options are quite wide.  For example, for
the August 75 call the bid/ask is $10.50/$12.50, a $2 wide market!
Those looking to trade this play may not want to go with a market
order, but rather a limit order inside the market(i.e. $11.50 bid),
narrowing the market.  This wide spread just does not seem
justified considering the low price volatility of the stock,
which doesn't fluctuate like some of the true high-fliers.

Aside from earnings, the stock is being helped by bullish
comments from CEO Ian Halifax, who noted that, "Our revenues
benefited from continued strong demand for both our DVD and
digital pay-per-view copy protection products."

***August contracts expire in two weeks***

BUY CALL AUG-75 MVU-HO OI=  69 at $13.88 SL=10.75
BUY CALL AUG-80*MZM-HP OI=1000 at $ 9.75 SL= 6.75
BUY CALL SEP-80 MZM-IP OI=  83 at $14.00 SL=10.50
BUY CALL SEP-85 MZM-IQ OI=   6 at $11.50 SL= 8.50
BUY CALL OCT-90 MZM-JR OI= 121 at $13.50 SL=10.00

SELL PUT AUG-75 MVU-TO OI=  31 at $ 1.25 SL= 2.50
(See risks of selling puts in play legend)

Picked on August 6th at  $86.22     P/E = 211.88
Change since picked       +0.00     52-week high=$94.75
Analysts Ratings      4-0-0-0-0     52-week low =$13.31
Last earnings 07/31   est= 0.09     actual= 0.16
Next earnings   N/A   est= 0.12     versus= 0.06
Average Daily Volume   =  415 K

DNA - Genentech, Inc. $164.13 (+15.13 last week)

Using human genetic information to discover, develop,
manufacture and market human pharmaceuticals for significant
unmet medical needs is DNAs quest.  Thirteen of the currently
approved Biotechnology products came as a direct result of
the companys science.  DNA markets and manufactures 7 of
these with the eighth just getting ready to go into production.
The products include Rituxan, Activase, Nutropin, NutropinAQ,
Nutropin Depot, Protropin, Pulmozyme, and Actimmune.  The firm
is developing other cancer drugs with ImmunoGen and earns
royalties for hepatitis B vaccines, bovine growth hormones,
and Humulin (human insulin).

Who wants to be a Millionaire when you could be a Billionaire?
The Holy Grail of biotechnology companies is The Billion Dollar
Drug.  A yearly income stream of a billion dollars discounted is
the stuff that dreams are made of for scientists, accountants and
investors alike.  Many times we have seen some small unknown
biotechnology company bid up over 100% in a day on the slight
glimmer of hope that maybe, just maybe, that new treatment still
in Phase I could be The One.  Market cap leader Amgen has just
two of them.  Biogen has only one.  All it takes is just one
Billion Dollar Drug.  That's all that separates the leaders from
the unknowns.  With what is agreed by many analysts to be the
strongest pipeline of the biotech sector, Genentech is considered
a favorite in this elusive quest.  The early part of July was a
difficult one.  After a stellar month in June, the stock found
resistance at the $180 level before engaging in a pre-earnings
sell-off.  Finding support above the $140 level near its 50- and
100-dma (now $145 and $142, respectively), the stock has since
formed a 3-week base which it now appears to be breaking out of.
This past week has seen DNA move above its 5- and 10-dma ($157.75
and $153.89, respectively), turning resistance into support.  On
Friday, DNA gapped up at open to $160 and from there, moved
steadily up to close at its high of the day.  A move above $165
with conviction would be a comfortable entry for the conservative,
with bounces off its 5- and 10-dma as an entry for the more
aggressive.  Resistance ahead can be found in increments of $5 at
$165, $170 and $175.

Aside from a positive analyst report on Genentech about its
pipeline on Thursday, there has been little news of consequence.
Sector sympathy will be a driver of stock price movement so
confirm technicals with sector direction before initiating a

***August contracts expire in two weeks***

BUY CALL AUG-160 DNA-HL OI= 146 at $ 9.13 SL= 6.25
BUY CALL AUG-165*DNA-HM OI= 121 at $ 7.50 SL= 5.25
BUY CALL AUG-170 DNA-HZ OI=1090 at $ 4.13 SL= 2.50
BUY CALL SEP-170 DNA-IZ OI= 298 at $10.75 SL= 8.00
BUY CALL SEP-175 DWN-IO OI= 142 at $ 9.38 SL= 6.50

SELL PUT AUG-155 DNA-TK OI= 529 at $ 2.63 SL= 4.25
(See risks of selling puts in play legend)

Picked on August 6th at $164.13     P/E = N/A
Change since picked       +0.00     52-week high=$245.00
Analysts Ratings      6-8-3-0-0     52-week low =$ 66.88
Last earnings 07/17   est= 0.29     actual= 0.29
Next earnings N/A     est= 0.31     versus= 0.25
Average Daily Volume = 1.09 mln

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The Option Investor Newsletter                   Sunday 08-06-2000
Sunday                                                      3 of 5

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FRX - Forest Laboratories $116.81 (+9.81 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.

FRX is continuing to behave like a winner.  Closing the week well
above technical supports, the stock made a move to a 52-week
high of $118.50 in early trading Friday.  Although it was a bit
choppy early in the week, giving great entry points to the play
on lows of $105.75, FRX was really right in step with the overall
bumpy market.  The stock edged higher throughout the week, finding
support at the 10-dma of $111.48 in Friday's trading, hitting
a low of $112.75.  After briefly encountering resistance at the
previous 52-week high of $114.50, FRX made a break for higher
ground on a strong volume move, establishing yet another
52-week high!  Profit takers found an opportunity, pushing the
stock back to the $116 range, where it remained until a volume
surge in the last hour of trading pushed FRX to close $2.19 above
it's previous record.  FRX has had a banner year, trading up
39.3% for the last 13 weeks, and an impressive 120% for the
52-week period (Michael Dell should be envious!).  With
continued enthusiasm in Forest's antidepressant drug Celexa,
which captured 11.3% of last quarter's sales, analysts continue
a Buy & Strong Buy ratings on the stock, citing a repeat of last
quarter's above-estimate results is very attainable.  With this
in mind, the stock continues to appear in good shape to maintain
it's current uptrend.  Look for entry points to the play at the
$112-$113 levels, with support being offered by the 5-dma at
$112.43 and the 10-dma.  Beware of profit takers at prices near
the newly established highs, and keep your eyes open for
increasing volume on the stock which seems to favor upward surges
in price.

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 picks.  FRX has recently entered
into an agreement with Merz & Co. of Frankfurt, Germany for
development and marketing in the U.S. of their
neuropathic-distress inhibiting drug Memantine.  Memantine,
developed in the U.S. by Neurobiological, is used in the
treatment of diabetic neuropathy, AIDS-related dementia,
vascular dementia, and Alzheimer’s.  This partnership was
supported by a grant through the National Institute of Health.
Under the agreement, FRX has U.S. rights to develop and market
Memantine for all indications.

***August contracts expire in two weeks***

BUY CALL AUG-110 FRX-HB OI= 60 at $ 9.33 SL= 6.25
BUY CALL AUG-115*FRX-HC OI=347 at $ 6.13 SL= 4.50
BUY CALL SEP-105 FRX-IA OI=  0 at $13.50 SL=10.50  Wait for OI
BUY CALL SEP-110 FRX-IB OI=  9 at $10.63 SL= 8.25
BUY CALL SEP-115 FRX-IC OI=  4 at $ 8.13 SL= 6.50

SELL PUT SEP-105 FRX-UA OI= 10 at $ 3.13 SL= 1.50
(See risks of selling puts in play legend)

Picked on July 27th at  $113.50    P/E = 88.43
Change since picked       +3.31    52-week high=$118.50
Analysts Ratings      7-6-5-0-0    52-week low =$ 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

ABSC - Aurora Biosciences $99.63 (+23.56 last week)

ABSC develops and sells drug-discovery technologies and services.
Along with such collaborators as Bristol Myers, Eli Lilly, Merck,
and Pfizer, ABSC is developing a system using fluorescent assay
technologies to allow researchers to overcome many limitations of
traditional drug-discovery processes.  Many of ABSC's tests are
designed to be performed with living mammalian cells to better
model human disease processes.

Many Biotech stocks are built on the hopes and promises of future
profits.  Not ABSC!  Get this, the company is expected to
increase its bottom-line by an amazing 1800% this year over last
year's losses.  ABSC is benefiting from the explosion in gene
based research, which was ushered in with the completion of the
Human Genome earlier this year.  The company is one of the
proverbial pick and shovel providers in the race to deliver new
drugs to the market.  ABSC makes drug discovery systems and
technologies, which accelerate the development of new medicines.
The company has gained commercial acceptance for its products and
technologies through revenue generating agreements with 21 major
Pharmaceutical and Biotechnology companies.  The resurgence in
the Biotech sector recently has once again attracted investors to
anything genomic-related.  The fact that ABSC is one of the most
profitable players in the group bodes well for our play.  The
rebirth of the Biotech sector last week, signaled by the four-day
consecutive rally of the Amex Biotech Index ($BTK), has
positioned ABSC on the brink of a major breakout.  The stock has
traced an enormous cup-with-handle chart formation over the last
five months.  Trading activity picked up last week as ABSC edged
higher toward its pivot point at $100.  An extended rally in the
Biotech sector next week might boost ABSC into breakout mode.
Consider your risk level, and target shoot for entry points if
ABSC distances itself from the $100 level.  Minor resistance at
$105 and $110 might also be worthy entry points if ABSC rallies
above those respective levels.  Support at $95, and lower around
the 5-dma at $92, might provide an aggressive trader with entry
points during an intraday pullback.

With the kind of EPS growth ABSC has reported, it's no wonder the
stock boasts only Buy and Strong Buy ratings from the analysts
covering the company.  The number of brokerage houses following
the stock might increase after ABSC presents at the Drug
Discovery Technology 2000 Conference in Boston, which is
scheduled to commence in one week.

***August contracts expire in two weeks***

BUY CALL AUG- 90 UDA-HR OI= 54 at $12.00 SL= 9.00
BUY CALL AUG- 95*UDA-HS OI= 54 at $ 8.88 SL= 6.25
BUY CALL AUG-100 UDA-HT OI= 85 at $ 6.00 SL= 4.00
BUY CALL SEP- 95 UDA-IS OI=  1 at $14.25 SL=10.50
BUY CALL OCT-100 UDA-JT OI=148 at $16.50 SL=11.75

SELL PUT AUG- 95 UDA-TS OI=  2 at $ 3.63 SL= 5.50
(See risks of selling puts in play legend)

Picked on August 3rd    $99.44    P/E = 199
Change since picked      +0.19    52-week high=$140.00
Analysts Ratings     3-2-0-0-0    52-week low =$  7.63
Last earnings 06/00  est= 0.05    actual=  0.12
Next earnings 10-30  est= 0.05    versus= -0.10
Average Daily Volume  =  451 K

AMGN - Amgen $69.13 (+2.75 last 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.

The Internet mania was miniscule compared to what Wall Street
expects from the Biotech sector.  Many industry analysts expect
the Biotech sector to dwarf almost all major market sectors in
the next decade.  The revolutionary completion of the Human
Genome Project last spring opened the floodgates to new drug
discovery.  Who better to capitalize on the exciting developments
than the industry's largest independent Biotech company AMGN?
For the time being, AMGN derives the majority of its sales from
two products, Epogen and Neupogen.  But, the company's pipeline
is long and littered with a host of promising products.  In fact,
AMGN is expected to reveal the results of several new products
currently in clinical trials over the next few months.  The
anticipation of new revenue generating drugs entering AMGN's
portfolio of products has many on Wall Street expecting the stock
to rally into the Fall.  The same analysts don't expect much
consolidation within the Biotech sector for the time being.  But,
many believe the young genomic companies will continue to align
with major Biotech firms with marketing muscle.  AMGN has one of
the biggest sales forces in the business, which should lead to
further collaborations and strategic alliances with young and
upcoming companies in the coming months.  The rebirth of the
Amex Biotech Index ($BTK) last week combined with the daily
developments within the group bodes well for our bellwether play.
AMGN consolidated its gains from earlier in the week last Friday,
and looks poised to start its next leg up.  An aggressive trader
might look for an early entry into the play if AMGN moves above
the $70 level Monday morning.  A more conservative entry point
might be found if the stock clears $72.  Confirm direction in the
BTK and wait for the Biotech bulls to show up before entering the

Included in AMGN's pipeline are two drugs in Phase III clinical
trials.  The two products, known as ABARELIX and SD-01, are
intended to treat prostate and breast cancer, respectively.  The
company has seven other drugs in trials, ranging from treatments
for Lou Gehrig's disease to combating obesity with its highly
anticipated Leptin drug.

***August contracts expire in two weeks***

BUY CALL AUG-65 YAA-HM OI=3691 at $5.63 SL=3.75
BUY CALL AUG-70*YAA-HN OI=5023 at $2.50 SL=1.25
BUY CALL AUG-75 YAA-HO OI=8616 at $0.81 SL=0.00
BUY CALL SEP-70 YAA-IN OI=1007 at $5.00 SL=3.00
BUY CALL OCT-75 YAA-JO OI=5290 at $5.25 SL=3.25

Picked on August 1st at  $69.00    P/E = 65
Change since picked       +0.13    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= 0.27    versus= 0.25
Average Daily Volume = 7.07 mln

HWP - Hewlett-Packard $111.75 (+4.50 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).

Let the run begin!  We are a little less than two weeks away from
HWP's third-quarter earnings announcement.  HWP's CEO, Carly
Fiorina, shifted HWP's focus to capitalize on the Internet over a
year ago.  Proof of HWP's commitment to the Internet was
solidified last week when the company teamed with AT&T to
develop a boutique of e-business services and applications.  The
result of Fiorina's strategy shift has been quarter after quarter
of estimate beating EPS.  The company has surpassed analysts'
estimates by an average of a little over 5% in its last five
quarters.  While the upside surprises have not been monumental,
they have been enough to capture investors' interests.  It is
that expectation for better-than-expected profits that we will
attempt to capitalize upon.  The profit warning from printer
maker LXK and the news of slowing PC sales in late July plunged
HWP's stock well into oversold territory.  But, with the help
from several analysts and a strengthening Tech sector over the
last two weeks, HWP has been emerging from the sell-off mire.
The stock formed the early stages of an ascending channel last
week, with a series of higher lows and highs.  Furthermore, HWP's
5-dma and 10-dma are converging around the $111 mark.  A possible
entry might be found if HWP bounces off its moving averages and
rallies above resistance at $112.  A more conservative trader
might wait for momentum to build and look to enter the play if
HWP moves above its near-term high at $115.  A bounce off support
at $109 might provide an intraday entry if a weak Tech sector
delays HWP's earnings run.  Volume has been a good indicator of
higher prices as of late, make sure to confirm healthy trading
activity with a rally.

The announcement of HWP's third-quarter results is followed by
the company's much-hyped HP World 2000.  In a similar fashion to
Apple's Mac World, HWP will demonstrate new products and describe
new services to industry watchers and analysts.  Although the
event takes place after the earnings announcement, it might add a
little potential to a HWP earnings run.

***August contracts expire in two weeks***

BUY CALL AUG-105 HWP-HA OI= 479 at $ 9.50 SL=6.50
BUY CALL AUG-110*HWP-HB OI=3845 at $ 6.38 SL=4.50
BUY CALL AUG-115 HWP-HC OI=2293 at $ 4.00 SL=2.50
BUY CALL SEP-110 HWP-IB OI= 396 at $ 9.50 SL=6.50
BUY CALL NOV-115 HWP-KC OI= 220 at $12.38 SL=9.25

Picked on July 30th at  $107.25    P/E = 34
Change since picked       +4.50    52-week high=$156.00
Analysts Ratings     9-10-4-0-0    52-week low =$ 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 = 3.81 mln

IDPH - IDEC Pharmaceuticals Corp $137.00 (+21.00 last week)

Based in San Diego, IDEC Pharmaceuticals Corporation is a
biopharmaceutical company engaged primarily in the research,
development and commercialization of targeted therapies for the
treatment of cancer and autoimmune and inflammatory diseases. The
Company's first commercial product, Rituxan, and its most
advanced product candidate, Zevalin (ibritumomab tiuxetan,
formerly IDEC-Y2B8), are for use in the treatment of certain
B-cell non-Hodgkin's lymphomas (NHL). The Company is also
developing products for the treatment of various autoimmune
diseases (such as psoriasis, rheumatoid arthritis and lupus).

So far so good.  It's been a great week for IDPH, rallying for
the past 5 trading sessions with a few pauses intraday.  In
doing so, a number of resistance levels were broken.  On Monday,
finding support at $115, the stock spent the day moving up,
finding resistance at $125.  The next day the stock cleared that
area during amateur hour.  Encountering resistance at $130, IDPH
drifted lower for the rest of the day in a narrow trading range.
Wednesday on high volume, IDPH blasted through the $130 mark
closing not only about that level, but also resistance at $135.
On Friday morning IDPH made an attempt to break $140.  With
formidable resistance there, the stock moved down to support at
$130 and by the end of the day, edged its way back up above the
key $135 level.  Aggressive traders who bought the bounce off of
its 5-dma (currently at $131.95) were rewarded with a great entry
point and a profitable play.  If the current trend continues,
look for resistance at $140 to be surpassed early next week.  A
break through that level on high volume would serve as a
conservative entry point.  Support for the stock can be found at
the 5-dma and in increments of $5 at $135 and $130 as can
resistance which can be found at $140 and $145.  One point of
caution is that volume has been drying up the past three days
despite the move up. Make sure the volume confirms the direction
before entering.

As stated on Thursday, with little news of importance from the
company since reporting earnings, movement in IDPH's stock price
will largely depend on sentiment in the biotech and
pharmaceutical sectors.  As well, the stock's own technical
picture will play a key role in its movements so confirm the
technicals with sector strength before when planning your entries.

***August contracts expire in two weeks***

BUY CALL AUG-130 IDK-HF OI=785 at $13.38 SL= 9.75
BUY CALL AUG-135*IDK-HG OI=387 at $10.25 SL= 7.00
BUY CALL AUG-140 IDK-HH OI=300 at $ 7.88 SL= 5.50
BUY CALL SEP-140 IDK-IH OI= 44 at $15.50 SL=11.25
BUY CALL SEP-145 IDK-II OI= 24 at $13.25 SL= 9.75

SELL PUT AUG-125 IDK-TE OI= 66 at $ 3.63 SL= 5.50
(See risks of selling puts in play legend)

Picked on August 3rd at $135.88    P/E = 202.80
Change since picked       +1.13    52-week high=$173.00
Analysts Ratings      6-5-0-0-0    52-week low =$ 42.75
Last earnings 07/17   est= 0.18    actual= 0.26
Next earnings   N/A   est= 0.26    versus= 0.21
Average Daily Volume = 1.14 mln

IVX - IVAX Corporation $45.75 (-2.75 last 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.

It's been a tough week for IVX.  After months of moving steadily
up, with bounces off the 5-dma and the occasional rare visit to
the 10-dma, IVX has made an even rarer visit to its 50-dma.  The
week started off normal enough, with IVX making a new intraday
high on Monday on over twice the ADV.  On Tuesday, the stock
soared to a new all-time high and in doing so, cleared the
psychological hurdle of $50 with authority and conviction.
Wednesday saw some profit taking but the signs for a move lower
were there, despite the close above the $50 level as the move
down was on the same strong volume as the move up the previous
day.  On Thursday morning, after a delay due to a trading
imbalance, the stock opened late (at roughly 10:30 EST).  When it
did, it opened below its 10-dma but from there, after some
hesitation from traders, the stock moved higher and ended the day
down only fractionally.  While the day's action was still
consistent with IVX's uptrend, the trading imbalance and gap
down open was another note of caution.  On Friday, news of an
acquisition brought the stock tumbling.  Finding resistance at
the $50 level, the stock moved down on accelerating volume as
traders digested the news.  Finding a bottom at $40 near its
50-dma, buyers jumped into the stock in force to close it
strongly above support at $45.  While the selling to the
50-dma was a cause for concern, we were encouraged by the huge
buying volume that came in to support the stock after what looked
like capitulation selling.  Looking back at IVX's chart,
successful tests of the 50-dma have been the most ideal of entry
points which is why we are continuing this play.  Support now
lies at $45, $44.50 and $43.50 with resistance at $47, $48.25 and
the psychological $50.

The news that sent IVX lower was the announcement of the
acquisition of privately-held Wakefield Pharmaceuticals, as
seller and marketer of respiratory products, in a move to broaden
its product line.  While it is not uncommon for shares of an
acquiring company to trade lower on news of an acquisition, with
the stock lower in after-hours trading on Friday, the risk profile
of this play has increased so caution is advised when entering.

***August contracts expire in two weeks***

BUY CALL AUG-40 IVX-HH OI= 126 at $6.63 SL=4.50
BUY CALL AUG-45*IVX-HI OI= 204 at $2.88 SL=1.75
BUY CALL AUG-50 IVX-HJ OI=1255 at $1.06 SL=0.00
BUY CALL SEP-45 IVX-II OI= 158 at $5.38 SL=3.50
BUY CALL SEP-50 IVX-IJ OI= 433 at $3.63 SL=1.75

Picked on August 1st at  $52.00     P/E = 78.97
Change since picked       -6.25     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= 0.20     versus= 0.11
Average Daily Volume  =   981 K

COF - Capital One Financial $58.88 (+2.06 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.

Leading the DJIA higher, the Financials were one of the shining
beacons in the stock market this week.  All one has to do is
look at the current Call list, and the preponderance of
Financial stocks should be a clear signal of the strength in
this sector.  On Tuesday, First Union Securities decided to
pour some cold water on the sector (see news below), but
investors responded by putting on their swimsuits and having
a party.  After a bit of trepidation mid-week, the entire
sector launched higher as one economic report after another
came in favorably.  The move higher Thursday and Friday has
many of these stocks testing or setting new 52-week highs, and
COF is no exception.  The current high-water mark is $59.25,
and Friday’s close (at the high of the day) is just
fractionally below this level.  Sentiment in the market is
favoring a no-hike decision from the Fed on August 22nd, and
the result can be seen with only a cursory glance at the COF
chart.  The price is rising on increasing volume which topped
double the ADV on Friday.  The mid-week dip confirmed support
at $54 (just below the 10-dma), and the subsequent recovery
re-established intraday support at $56 and then $58.  Target
shoot intraday dips to support for new entries, or if you are
more cautious, wait for continuing strong buying volume to
push COF to new highs above $60 before jumping into the pool.

First Union Securities went on a tear on Tuesday, initiating
coverage of MER, MWD, and SCH with a Hold rating and downgrading
COF from Strong Buy to Buy.  So how did the market respond?
After a brief hiccup on Wednesday, all of these stocks responded
with a strong surge upwards to close out the week in fine
fashion.  As a matter of fact, MER and MWD set new 52-week
highs on Friday, and COF, which closed at the high of the day,
is only $0.38 below its 52-week high.

***August contracts expire in two weeks***

BUY CALL AUG-55*COF-HK OI=1534 at $4.63 SL=2.75
BUY CALL AUG-60 COF-HL OI=3706 at $1.69 SL=0.75
BUY CALL SEP-55 COF-IK OI= 684 at $6.25 SL=4.25
BUY CALL SEP-60 COF-IL OI= 499 at $3.75 SL=2.25
BUY CALL DEC-60 COF-LL OI= 693 at $7.00 SL=5.00

Picked on July 23rd at   $55.81     P/E = 29
Change since picked       +3.06     52-week high=$59.25
Analysts Ratings    12-11-1-0-0     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 = 1.00 mln

MER - Merrill Lynch & Co. $135.75 (+13.75 last week)

With its bull icon prominently displayed, many investors view
Merrill Lynch as the leader of herd.  The diversified Financial
powerhouse provides investment, financing, advisory, insurance
and related products and services on a global basis to both
individuals and institutions.  Its Corporate and Institutional
Client Group offers investment banking, brokerage and clearing
services to corporate and government clients.  MER has been
slow to move into the online world, entering the online trading
ring in 1999.

As the technology market continued to meander in its recent
trading range, Financial stocks helped to lift the DJIA off of
its recent lows.  MER was one of the leaders in this respect,
gaining more than $10 from its lows late on Tuesday.  Helping to
push MER and other stocks in the sector higher were positive
economic reports sprinkled throughout the week.  From the NAPM
to New Housing Starts to the Employment Report, everything
seemed to point to a slowing economy like Uncle Alan (Greenspan)
wants, strengthening the belief that he will leave interest
rates unchanged at the August FOMC meeting.  MER has been in the
sweet spot of the rise in the Financial sector as brokerage
stocks have done the best of all.  After finding it footing near
$126 Wednesday morning, shares of this Financial powerhouse
charged higher for the remainder of the week, with an
exceptional move on Friday after the favorable jobs data was
released.  Setting another 52-week high of $136.94, and closing
just fractionally below this level, MER is in breakout mode and
looks poised for more gains in the days ahead.  Sure, we still
have the PPI/CPI reports ahead of the FOMC meeting, but if they
come in favorably as well, it looks like MER could continue to
shine.  Consider initiating new positions if positive sentiment
can push the stock higher from current levels.  The 5-dma
($129.69) and the 10-dma ($128.56), along with historical
support near $130 should provide an attractive entry point
should the stock pull back before heading higher.

After First Union Securities initiated coverage of MER with a
HOLD rating on Tuesday, investors shook it off and started
pushing the stock higher with help from positive economic
reports throughout the week.  The market sentiment seems to
be indicating that the Fed will have a hard time raising
interest rates at its August 22nd FOMC meeting, and the
Financial and Brokerage stocks responded by continuing to move
higher right into the close on Friday.

***August contracts expire in two weeks***

BUY CALL AUG-130*MER-HF OI=2460 at $8.13 SL=5.75
BUY CALL AUG-135 MER-HZ OI=1284 at $4.88 SL=3.00
BUY CALL AUG-140 MER-HH OI=2012 at $2.63 SL=1.25
BUY CALL SEP-135 MER-IZ OI= 153 at $9.00 SL=6.25
BUY CALL SEP-140 MER-IH OI= 263 at $6.63 SL=4.50
BUY CALL OCT-140 MER-JH OI=1316 at $9.88 SL=7.00

SELL PUT SEP-125 MER-UE OI= 144 at $3.13 SL=5.00
(See risks of selling puts in play legend)

Picked on August 3rd at $130.81     P/E = 17
Change since picked       +4.94     52-week high=$136.94
Analysts Ratings      3-4-3-0-0     52-week low =$ 62.00
Last earnings 07/00   est= 1.71     actual= 2.01
Next earnings 10-17   est= 1.65     versus= 1.34
Average Daily Volume = 2.90 mln

AFL - AFLAC, Inc. $55.56 (+2.13 last week)

AFLAC, Inc. provides supplemental insurance to individuals in
the United States and Japan. The Company's products help fill
gaps in consumers' primary insurance coverage. AFLAC's products
include cancer expense insurance, care plans, supplemental
general medical expense plans, and living benefit plans.

AFL decided to give buyers an opportunity to get into the stock
on Friday as it fell down to its 10-dma at $53.44.  As a matter
of fact, it opened at this low, but then proceeded to gain
ground throughout the day.  The July Jobs Report was a positive
for financial stocks, as a cooling economy seems to be giving
traders an idea the Fed may be able to hold off on raising
interest rates further at the FOMC meeting later this month.
Volume on Friday was about average and though AFL reached a
new 52-week high, watch for the stock to break through this
high at $55.81 before adding to positions.  Although, another
fall and subsequent bounce from the stocks 10-dma could be
buyable.  Since this is a slow mover, option premiums are
quite reasonable.

Though this stock is light on news, the reason it fell out
of the gate on Friday is that DLJ lowered its rating on the
stock from Buy to Market Perform.  The news couldn't keep
the stock down though, as financial stocks in general rallied
on the jobs report.

***August contracts expire in two weeks***

BUY CALL AUG-50*AFL-HJ OI=656 at $6.13 SL=4.00
BUY CALL AUG-55 AFL-HK OI=231 at $2.25 SL=1.25
BUY CALL SEP-50 AFL-IJ OI= 90 at $6.88 SL=4.50
BUY CALL SEP-55 AFL-IK OI= 42 at $3.25 SL=1.75

SELL PUT AUG-55 AFL-TK OI= 10 at $1.38 SL=3.00
(See risks of selling puts in play legend)

Picked on August 3rd at  $55.31     P/E = 25
Changed since picked      +0.25     52-week high=$55.81
Analyst Ratings       7-3-5-0-0     52-week low =$33.56
Last Earnings 07/25    est=0.58     actual=0.59
Next Earnings 10/24    est=0.61     versus=0.52
Average daily volume   =   667K

GENZ - Genzyme Corp. $73.00 (+7.88 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.

Another new high for GENZ on Friday, although the stock did close
flat by the day's end.  The Biotechnology Index($BTK) was able to
tack on 1.82%, so GENZ wasn't up to par on Friday.  That being
said, a day of rest isn't so bad after a rise of $8 in four days.
Volume picked up a little from Thursday, but is still below the
stocks ADV of 1.18 mln.  The 10-dma at $69.84 continues to look
like a pretty good support line, and a bounce of this area near
$70 could be a good buying opportunity.  A more conservative
player may want to see the stock take out Friday's high at $75
before entering.  Friday's release of the July jobs report was
bullish overall for the markets, yet watch the $BTK and other
biotechs to have continued strength when looking to enter this
call play.

No new news for GENZ, though the company should continue to
benefit from positive comments about its technology advances.

***August contracts expire in two weeks***

BUY CALL AUG-70*GZQ-HN OI=237 at $5.00 SL=3.25
BUY CALL AUG-75 GZQ-HO OI=227 at $2.38 SL=1.25
BUY CALL SEP-70 GZQ-IN OI= 42 at $7.38 SL=4.75
BUY CALL SEP-75 GZQ-IO OI= 50 at $4.88 SL=3.00

SELL PUT AUG-70 GZQ-TN OI= 54 at $1.63 SL=3.00
(See risks of selling puts in play legend)

Picked on July 27th at    $71.31    P/E = 28
Change since picked        +1.69    52-week high=$75.00
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  = 1.18 mln

PVN - Providian Financial Bancorp $112.72 (+9.09 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.

PVN broke out of an ascending wedge on Friday with a vengeance.
The stock gapped up on the open after the market-friendly jobs
report up to $107.50 from Thursday's close of $105.06.  The stock
did not stop there though, continuing to climb in the first hour
of trading.  From there PVN was relatively flat, reaching an
intraday high of $113.75 just before the closing bell.  Credit
card companies are directly affected by interest rates, and the
jobs report has many economists and trader now believing the Fed
will leave rates alone at the August FOMC meeting.  Next
resistance for PVN is near $118.50, the sight of the stock's high
on Halloween day of last year.  Volume was nearly 50 percent
higher than normal, a confirmation of the strong breakout.  Watch
for PVN to possibly participate in some profit taking though.  If
this does occur, look for a possible bounce near $110 to gain
entry into this uptrending issue.  Otherwise, a continued rise
through Friday's high at $113.75 would offer a more conservative
entry point.

No news on PVN, but continued comments from market-watchers that
the Fed will leave rates alone should only help this stock going
forward.  This news could also have some brokers raising estimates
on the stock in the near term.

***August contracts expire in two weeks***

BUY CALL AUG-110*PVN-HB OI=2111 at $5.75 SL=3.25
BUY CALL AUG-115 PVN-HC OI=  26 at $3.13 SL=1.50
BUY CALL AUG-120 PVN-HD OI=  20 at $1.50 SL=0.75
BUY CALL SEP-115 PVN-IC OI=  21 at $6.63 SL=4.00
BUY CALL SEP-120 PVN-ID OI= 127 at $4.63 SL=2.75

Picked on July 23rd at    102.38    P/E = 28
Change since picked       +10.34    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  = 1.02 mln

LEH - Lehman Brothers Holdings $129.63 (+21.50 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.

Now that's what we call a breakout!  LEH certainly did it in a
brilliant fashion, skyrocketing almost 9% for a $10.38 gain.
The catalyst was Friday's July jobs report that investors and
traders interpreted as positive.  LEH gapped open above resistance
at $120 and never looked back.  There were a lot of positive signs
that the stock will continue higher next week.  First of all,
volume was nearly double the ADV.  Next, the stock closed on its
day and all-time high.  Thirdly, the feeling is interest rates will
be kept on hold at the August FOMC meeting, which should also help
financial stocks out.  Considering this huge gain on Friday, we
would expect to see some profit-taking to occur.  Yet, this
uptrend is intact and technically bullish.  Look for entries into
this call play on a pullback to the $125 area, accompanied with a
bounce on strong buying volume.  LEH spend much of Friday
afternoon at this intraday support level.  If this level does not
hold, there is a possibility that traders may want to test the
$120 level, previously resistance.  This would provide an
excellent entry.  Watch for resistance at $130.  A conservative
entry could be attained on a strong volume move through this level
as investors pile into this outstanding Financial.

LEH continues to be a beneficiary from the announcement last
week that they, along with three other brokers, are starting
their own online mortgage and asset-backed securities trading
exchange.  Since this deals with interest sensitive issues,
interest rates play a part in the exchanges success.

***August contracts expire in two weeks***

BUY CALL AUG-120 LEH-HD OI=735 at $10.13 SL= 7.25
BUY CALL AUG-125*LEH-HE OI=442 at $ 6.75 SL= 4.50
BUY CALL SEP-125 LEH-IE OI=377 at $10.88 SL= 7.50
BUY CALL OCT-130 LEH-JF OI=601 at $11.13 SL= 7.75
BUY CALL OCT-135 LEH-JG OI=258 at $ 8.88 SL= 6.75

Picked on July 25th at  $121.09    P/E = 10
Change since picked       +8.54    52-week high=$121.63
Analysts Ratings      3-6-1-0-0    52-week low =$ 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 = 1.20 mln

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The Option Investor Newsletter                   Sunday 08-06-2000
Sunday                                                      4 of 5

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EFNT - Efficient Networks $51.88 (-10.94 last week)

Efficient Networks, Inc. is a leading worldwide provider of
broadband access products that employ digital subscriber line
(DSL) technology. The company's SpeedStream family of DSL
solutions provides high-performance remote access for small and
medium businesses, branch offices, telecommuters, and consumers.
Working globally with central office vendors, incumbent local
exchange carriers, competitive local exchange carriers,
international carriers and Internet service providers,
Efficient's solutions enable next generation broadband
applications. Efficient Networks is based in Dallas, Texas,
with additional facilities in Asia and Europe.

Investors hoping to capitalize on EFNT's pre-earnings rally in
mid-July have been in for a landslide the past three weeks.
The stock gained about $50 in the 30 days prior to the stellar
earnings announcement on the 18th, rallying to a lofty $102 on
July 17th.  EFNT crushed earnings expectations, reporting a loss
of -$0.03 per share, versus the estimate of -$0.15.  Despite great
revenues from successful sales of their SpeedStream SDSL
router, which contributed 65% to their Q4 revenue, EFNT has
been unable to withstand recent downgrades, appearing to be on
a continued downtrend.  Jeffries downgraded the stock on August
3rd from Buy to Hold, citing recent weakness in the Customer
Premises Equipment (modems and routers) segment of the DSL
industry.  Touting SBC as it's biggest customer, EFNT has
had to transfer provisioning of DSL installation to an SBC
subsidiary due to regulatory issues related to the purchase of
Ameritech.  This resulted in a decreased installation rate
during June and July.  Now trading almost $135 under the 52-week
high set in March, EFNT has been ravaged by profit takers, as well
as overall sector and th NASDAQ.  Unable to conquer resistance of
$65.89 offered by the 10-dma, EFNT reached a high of $60 in the
first moments of trading on Friday, then immediately fell through
support of the 5-dma at $58.31.  The slide continued through noon,
where the stock bottomed out at $50.06.  It attempted a recovery,
struggling through intraday resistance at $52.50 in the last 90
minutes, giving up at the end to close at $51.88.  With no price
restoration in sight and overhead resistance at $58, any rollovers
at this level look like an attractive entry to the play.  If the
stock continues it's undeterred weakness, however, consider
opening positions as the stock falls through support of $50.

***August contracts expire in two weeks***

BUY PUT AUG-55*YTY-TK OI=  8 at $ 7.13 SL=10.00
BUY PUT AUG-50 YTY-TJ OI=  4 at $ 4.00 SL= 6.25
BUY PUT SEP-50 YTY-UJ OI= 45 at $ 8.00 SL=10.50

Average Daily Volume = 1.18 mln

MU - Micron Technology $73.44 (-5.50 last week)

Micron is one of the world’s leading makers of semiconductor
memory components.  Two-thirds of the companies revenues come
from dynamic random-access memory (DRAM), flash memory, and
other chips.  MU has added the newer Rambus DRAM and Synchronous
DRAM products to its line, and it is developing embedded memory
for the digital video and other markets.  The other third of
the company’s sales come from Micron Electronics (61% owned by
MU), which makes PCs and laptop computers and offers Internet
related business services.

After helping to lead the NASDAQ out of its late-May lows,
the Semiconductor stocks have run out of tricks in their magic
bag.  After Salomon Smith Barney analyst Jonathan Joseph
downgraded the whole sector, citing concerns about slowing demand,
it has been a steep and painful slide for even the strongest
stocks in the sector.  Unable to mount anything more than a
dead-cat bounce over the past 3 weeks, MU has followed the crowd
lower and is now in danger of breaking its 100-dma (currently at
$72.56) for the first time since February.  With earnings winding
down and the summer doldrums upon us, MU looks like it could be
headed lower before finding a bottom.  The company reports again
in mid-September, so even though it is expected to be a very
strong quarter, there will be no help from that area in the near
term.  Each attempted recovery is running into resistance at the
10-dma (currently at $80.13) and a rollover near this level would
make for a beautiful entry point.  Support sits below at $70 and
$65, with much stronger support at $58-60.  If you would prefer
to enter on continued weakness, look for selling pressure to push
the stock through the $70 support level before jumping into the
play.  Be careful though - the Semiconductors could still have
a couple tricks left in its magic bag - stop losses are a must.

***August contracts expire in two weeks***

BUY PUT AUG-75*MUY-TO OI=4334 at $6.00 SL=4.00
BUY PUT AUG-70 MU -TN OI=3408 at $3.75 SL=2.25
BUY PUT SEP-75 MUY-UO OI= 164 at $9.25 SL=6.50
BUY PUT SEP-70 MU -UN OI= 564 at $7.00 SL=5.00

Average Daily Volume = 6.37 mln


AMD - Advanced Micro Devices $62.63 (-8.38 last 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.

The divergence between the broader Tech sector and the Chip group
is leaving some investors in shambles.  Despite the modest gains
posted on the NASDAQ last Friday, the Semi sector suffered yet
another setback.  The Chip bears scoffed at the numerous comments
from analysts last Friday, who attempted to recoup some of the
recent losses suffered in the group.  The bullish comments from
analysts almost had a desperate ring.  Lehman Brothers released
a list of 10 reasons why the Semi sector is in good shape.  Those
10 reasons didn't prevent AMD from falling closer to major
support at $60.  Additionally, not even the news that the company
had sold its communications division for $375 mln in cash could
stabilize AMD's 4% drop Friday.  The future of the Semi sector is
at the forefront of debate on Wall Street, which has left AMD on
the brink of breakdown.  The macro uncertainty within the Chip
group is on top of AMD's micro problems with rival Intel and
concerns over the prospects of the flash memory market, add to
that slowing sales of PCs.  The box makers recently warned of
slowing sales of PCs, which might result in fewer orders for the
chips that power computers.  And, a high profile industry
representative warned last week of slowing demand in the flash
memory market, which AMD has a stronghold.  AMD's problems are
mounting, which has the stock precariously hovering above a key
support level at $60.  Volume was more than robust Friday as AMD
sank closer to that level.  Look for entry if AMD falls below $60
Monday on heavy volume.  If the Semi sector enjoys a relief
rally, an aggressive trader might target shoot for an entry if
AMD rolls over at resistance near its 5-dma around $66, which is
near the top of its descending channel.

***August contracts expire in two weeks***

BUY PUT AUG-65*AMD-TM OI=3406 at $5.88 SL=4.00
BUY PUT AUG-60 AMD-TL OI=1354 at $3.13 SL=1.50
BUY PUT AUG-55 AMD-TK OI=1664 at $1.63 SL=0.75

Average Daily Volume = 4.79 mln

MRVC - MRV Communications $60.00 (+1.50 last week)

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

After the breath-taking $30 post-earnings plunge from $82 to
$52, we jumped on the bandwagon and picked up MRVC as a new
Put candidate on Tuesday.  Well, Murphy is obviously alive and
well, as the stock responded with two days of gapping lower
only to recover throughout the day.  This kind of movement is
very difficult to trade unless you open a new position at the
close and exit the position on the next day’s gap down.  This
is a very risky strategy.  The move higher Thursday afternoon
came on increasing volume and Friday saw the stock gap up near
$60, and then flatline for the remainder of the session.
Normally, we would be thinking about dropping the play at this
point, but since the stock looked like it was weakening as the
day wore on, we decided to give it one more chance.  Add in
that the NASDAQ is looking a little top-heavy at this point,
and the downside still looks favorable.  We don’t advocate
initiating new positions at this point, although it looks like
MRVC is just about to roll over.  We need to see the conviction
of strong selling volume before jumping into the play, so wait
for the bears to go on a rampage before unlocking your bank
vault.  Support is sitting at $55, with the the 50-dma at $57.75.
If strong volume can push the price through support at $55,
consider buying puts, but with the understanding that there
appears to be strong support at $48-50.

***August contracts expire in two weeks***

BUY PUT AUG-60 RVY-TL OI=736 at $6.38 SL=4.25
BUY PUT AUG-55*VQX-TK OI=492 at $4.00 SL=2.50
BUY PUT SEP-60 RVY-UL OI= 39 at $9.50 SL=6.75
BUY PUT SEP-55 VQX-UK OI=  0 at $7.25 SL=5.00

Average Daily Volume = 2.40 mln

TERN - Terayon Communications Systems $55.13 (+1.25 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.

Alright, so TERN gained a little last week.  Not to worry, the
stock still can't seem to find its legs.  Case in point, the stock
gapped open on Friday after a market friendly jobs report was
released, but that was as good as it got for TERN.  From there,
it fell back down and closed with a loss of $0.69 on an otherwise
decent day for tech stocks.  TERN has formed a short-term bottom
in the $48.50 to $50 range, but this gives us some room to work
with.  TERN also could not maintain itself above its 10-dma
at $56.20.  Watch for a bump off this DMA as a possible entry
point.  We still feel some weakness in the market could send
this stock below short-term support to stronger support at $40.
Remember that last week TERN agreed to buy Mainsail.  Though
the deal was worth just $163.8 mln, the acquirer will often
struggle as shareholders and analysts digest the news and figure
out if it is beneficial for the company.

***August contracts expire in two weeks***

BUY PUT AUG-60*TUN-TL OI=250 at $7.25 SL=4.50
BUY PUT AUG-55 TUN-TK OI=185 at $4.38 SL=2.50
BUY PUT AUG-50 TUN-TJ OI=490 at $2.13 SL=1.00

Average Daily Volume = 2.03 mln

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Up, Down, or Sideways.  The Debate Rages On...
By Mark Phillips
Contact Support

Watch CNBC long enough and you can get really confused this time
of year.  One analyst says the markets are ready to crater, the
next says they are ready to soar, while the truth likely lies
with the next analyst that says we are going to stay
rangebound.  How do you separate the meaningful information from
the meaningless chatter?  If you know the answer, please email
me - I’ll take all the help I can get!  Seriously, we need to
pay attention to what the markets are telling us, not the
self-proclaimed experts.

If you are still wondering where the much-anticipated summer
rally is hiding, you must not be watching the Financials.  This
sector has been one of the few bright spots lately and you can
see the results in our playlist.  C and AXP are at new 52-week
highs, while WM fell shy by only $0.25 on Friday.  Conventional
wisdom says that the Financials have to cooperate to support a
sustained rally, so this is definitely a good sign.

Unfortunately there are many caution flags waving on Wall
Street, not the least of which is the VIX.  As it continues to
burrow lower and lower, the likelihood of a near-term market
top increases.  You’ll remember that we were encouraged last
week as this indicator had finally moved, actually getting up
above 24.  The market pessimism (remember the VIX is a
contrarian indicator) didn’t last and the VIX quickly reversed
course, closing out the week at a mere 21.58.  It’s 52-week low
is only over 2 points away at 19.46, so we are clearly in the
danger zone.

With earnings effectively over, the put/call ratio in the
basement, the summer doldrums upon us, weakness in key sectors
like the Semiconductors, and the major indices continuing to
be rangebound, there is definitely a cautionary tone to the
markets.  But don’t despair! This is what we want as LEAPS
buyers.  We live for downturns in the market so that we can
swoop in and grab LEAPS on our favorite stocks at a discount.
The usual pattern of the markets weakening during the summer
months looks like it will repeat again this year, which is
precisely why I’ve been encouraging you to lock in profits over
the past several weeks.  If you have heeded my advice, your
account is fat with cash, and if you are like me, you are
likely drooling over some of the apparent fire-sale prices on
some of our current plays like NSM, MOT and NOK.

There is another bright point in the markets that requires our
attention as well.  With the string of favorable economic
reports that came out last week and CPI/PPI coming up, market
sentiment seems to be favoring a no-hike decision on interest
rates from the August 22nd FOMC meeting.  If this in fact comes
to pass, investors could very well jump the gun and try to jump
start the markets after the meeting.  It will be very hard to
buck the historical trend without a strong catalyst however,
and it seems unlikely that a strong rally will be sustainable
until we pass through the spooky "Ides of October".  If we do
rally after the August FOMC meeting, the talking heads on CNBC
will likely be going overtime on the hazard of a mid-October
drop, which is likely to keep investor enthusiasm muted through
late September and early October.

With all that cautionary commentary, many of you may be
scratching your heads and wondering why we continue to add new
LEAP plays.  Remember that just because we list a play, it
doesn’t mean you should run right out and buy it.  This is the
time to pick your favorite plays and put them on your radar
screen.  Make a decision on what you want for an entry point.
If the markets look healthy and deliver to you exactly what you
asked for, then go for it.  We just want you to keep in mind
the hazards that are before us in the coming weeks.  Although
an entry point may look great today, it may get even better 3
weeks from now.  If you exercise discipline and patience, you
will likely sleep better and your account will prosper.

Remember that we don’t have to be right, we just have to listen
to the market, because it is always right.

Current Plays


EMC    11/07/99  JAN-2001 $ 40  EMB-AH   $ 7.69   $47.25   514.43%
                 JAN-2002 $ 45  WUE-AI   $ 9.50   $46.38   388.21%
                 JAN-2003 $ 90  VUE-AR   $35.50   $31.38    ------
CSCO   11/14/99  JAN-2001 $ 40  CYQ-AH   $ 9.56   $28.50   198.12%
                 JAN-2002 $ 45  WIV-AI   $11.00   $30.50   177.27%
                 JAN-2003 $ 70  VYC-AN   $25.13   $23.25    ------
NT     11/28/99  JAN-2001 $37.5 NT -AU   $11.13   $38.13   242.59%
                 JAN-2002 $37.5 WNT-AU   $15.13   $42.38   180.11%
                 JAN-2003 $ 80  ODT-AP   $28.63   $28.63    ------
SUNW   12/19/99  JAN-2001 $ 80  SUX-AP   $17.63   $33.50    90.00%
                 JAN-2002 $ 90  WJX-AR   $22.00   $39.25    78.41%
                 JAN-2003 $105  VSU-AA   $40.63   $42.63    ------
ERICY  01/30/00  JAN-2001 $16.3 RQC-AO   $ 4.94   $ 3.63   -26.52%
                 JAN-2002 $16.3 WRY-AO   $ 6.75   $ 6.00   -11.11%
       07/23/00  JAN-2003 $ 25  VYD-AE   $ 6.88   $ 4.88   -29.07%
NSM    02/27/00  JAN-2001 $ 70  NSM-AN   $18.50   $ 1.50   -91.89%
                 JAN-2002 $ 70  WUN-AN   $24.25   $ 6.25   -74.23%
                 JAN-2003 $ 40  VSN-AH   $16.50   $15.13    ------
AOL    03/12/00  JAN-2001 $ 60  AOO-AL   $14.00   $ 4.88   -65.14%
                 JAN-2002 $ 65  WAN-AM   $18.63   $10.00   -46.32%
                 JAN-2003 $ 65  VAN-AM   $18.25   $15.00    ------
AXP    03/12/00  JAN-2001 $43.3 AXP-AP   $ 7.25   $17.13   136.28%
                 JAN-2002 $46.6 WXP-AQ   $ 9.33   $21.38   129.15%
                 JAN-2003 $ 60  VAX-AL   $18.38   $18.63    ------
WM     03/19/00  JAN-2001 $ 25  WM -AE   $ 5.00   $11.63   132.60%
                 JAN-2002 $ 30  WWI-AF   $ 5.38   $10.38    92.94%
                 JAN-2003 $ 35  VWI-AG   $ 7.63   $ 9.88    ------
AMD    04/16/00  JAN-2001 $ 70  AMD-AN   $17.50   $11.63   -33.54%
                 JAN-2002 $ 70  WVV-AN   $26.00   $22.38   -13.92%
                 JAN-2003 $ 90  VVV-AR   $36.75   $25.50    ------
JDSU   04/16/00  JAN-2001 $ 80  XXZ-AP   $27.50   $44.25    60.91%
                 JAN-2002 $ 80  YJU-AP   $39.63   $58.25    46.98%
                 JAN-2003 $120  VEQ-AD   $52.38   $52.38    ------
VSTR   04/16/00  JAN-2001 $ 90  UVT-AR   $23.88   $41.88    75.38%
                 JAN-2002 $ 90  WWP-AR   $35.00   $52.25    49.29%
                 JAN-2003 $150  VLV-AJ   $59.13   $34.00    ------
MOT    05/14/00  JAN-2001 $33.3 MOT-AY   $ 6.58   $ 6.75     2.58%
                 JAN-2002 $36.6 WMA-AZ   $ 9.54   $10.13     6.18%
                 JAN-2003 $ 40  VMA-AH   $13.38   $12.13    ------
NOK    05/21/00  JAN-2001 $ 50  NZY-AJ   $10.25   $ 3.25   -68.29%
                 JAN-2002 $ 50  IWX-AJ   $17.25   $ 9.25   -46.38%
       07/30/00  JAN-2003 $ 50  VOK-AJ   $17.75   $13.00   -26.76%
HD     05/28/00  JAN-2001 $ 50  HD -AJ   $ 6.25   $ 8.75    40.00%
                 JAN-2002 $ 50  WHD-AJ   $11.38   $14.75    29.61%
       08/06/00  JAN-2003 $ 60  VHD-AL   $15.25   $15.25     0.00%
NXTL   06/11/00  JAN-2001 $ 60  FZC-AL   $12.25   $10.38   -15.27%
                 JAN-2002 $ 60  YFG-AL   $19.25   $17.25   -10.39%
                 JAN-2003 $ 60  VFU-AL   $21.88   $22.50    ------
C      06/18/00  JAN-2001 $ 65  C  -AM   $ 7.63   $13.38    75.36%
                 JAN-2002 $ 65  WRV-AM   $13.75   $20.25    47.27%
                 JAN-2003 $ 75  VRN-AO   $20.50   $20.50    ------
AMGN   07/02/00  JAN-2001 $ 75  YAA-AO   $10.75   $ 8.75   -18.60%
                 JAN-2002 $ 75  WQY-AO   $20.75   $18.88   - 9.01%
                 JAN-2003 $ 70  VAM-AN   $28.75   $27.38   - 4.77%
VRSN   07/02/00  JAN-2002 $190  YVS-AR   $66.25   $55.50   -16.23%
                 JAN-2003 $180  OVS-AP   $88.00   $73.63    ------
DELL   07/09/00  JAN-2002 $ 55  WDQ-AK   $12.63   $ 6.88   -45.53%
                 JAN-2003 $ 60  VDL-AL   $15.38   $ 9.13   -40.64%
GENZ   07/16/00  JAN-2002 $ 70  YGZ-AN   $17.13   $23.75    38.65%
                 JAN-2003 $ 70  OZG-AN   $23.13   $30.25    30.78%
LU     07/23/00  JAN-2002 $ 55  WEU-AK   $12.88   $ 7.38   -42.70%
                 JAN-2003 $ 55  VEU-AK   $17.50   $11.50   -34.29%
HWP    07/30/00  JAN-2002 $110  WPW-AB   $28.25   $31.00     9.73%
                 JAN-2003 $120  VHP-AD   $32.63   $36.13    10.73%
PCS    07/30/00  JAN-2002 $ 60  WVH-AL   $11.88   $13.38    12.63%
                 JAN-2003 $ 65  VVH-AM   $14.38   $15.63     8.69%

Spotlight Play

HD - Home Depot $54.00

It took a little while for our HD play to get going, but the
early July rally on the DJIA lifted the stock well off its lows
and got our play moving.  Up until a couple weeks ago, HD was
sitting back above its 200-dma and looked like it would be ready
to run after a little consolidation.  Then the market got
jittery again and HD plunged through the 200-dma, not finding
support until reaching its 50-dma (currently $51.81).  With
sentiment shifting towards a no-hike interest rate decision from
the Fed later this month, things are looking better again.  The
$2.25 gain on Friday looks like it could be a precursor to an
earnings run.  The company reports on August 15th before the
opening bell, and shorter-term players may want to consider
taking profits before the announcement (especially if you are
still holding 2001 options!).  Look for support to hold near the
50-dma and use bounces at this level for initiating new
positions.  With the proximity of earnings, it won’t pay to
chase this stock higher.  If you miss getting the entry you want
before the announcement, hold tight and wait for a better entry
as the markets drift through the summer doldrums.

BUY LEAP JAN-2002 $60.00 WHD-AL at $10.50
BUY LEAP JAN-2003 $60.00 VHD-AL at $15.25

New Plays

EXDS - Exodus Communications $51.13

When you think of server farms, the name Exodus Communications
(EXDS) should immediately come to mind.  The company is the
leader in providing complex Internet hosting for enterprises
with mission-critical Internet operations.  EXDS delivers its
services from geographically distributed, state-of-the-art
Internet Data Centers that are connected through a
high-performance dedicated and redundant backbone network.
The incredible demand for its services is reflected through
the consistent year-over-year revenue growth in excess of 300%.
Although not yet profitable, the company is rapidly zeroing in
on this goal and investors are hungry for the stock, even with
its high valuation.  After the company split its shares 2-for-1
in late June, the stock bottomed near $37 and then quickly shot
up to $60 with a little help from the NASDAQ rally in early
July.  The 50-dma (currently at $46.38) is providing support
and the daily chart shows a nice pattern of higher highs and
higher lows.  Since its most recent bounce last week, the stock
is moving nicely, and Friday’s move came on strong volume, 33%
above the ADV.  Consider new entries on a renewed bounce from
the vicinity of the 50-dma, and then ride the wave.

BUY LEAP JAN-2002 $55.00 WZZ-AK at $20.75
BUY LEAP JAN-2003 $60.00 VTQ-AL at $25.38

MFNX - Metromedia Fiber Network $37.06

Buying into the paradigm that bandwidth will cease to be the
most valuable commodity in the Internet space, MFNX takes a
different approach to creating revenue.  Laying thousands of
miles of fiber in virtually every major metropolitan area, the
company charges businesses a flat monthly rate depending on the
number of fibers leased.  Rather than paying by the volume of
data, MFNX’s customer’s are free to install their own
electronics and cram as much data down the itty-bitty glass pipe
as they want.  This flies in the face of the conventional
fee-for-data revenue model, but it allows MFNX to generate a
consistent revenue stream without having to constantly worry
about how to get more data through the fiber to its customers
to maintain its flow of cash.  Selling off with the rest of
the technology market this spring, MFNX has consistently found
support at the 200-dma (currently at $31.88), with its most
recent bounce occurring last Thursday.  The company is usually
tight-lipped about its earnings release date, but is tentatively
scheduled to release its quarterly results on Wednesday, August
9th.  Prudent investors will wait for the announcement and then
open new positions when the price dips and bounces again at the
200-dma.  Keep in mind that the NASDAQ is in a precarious
position, and patience could very likely provide a better entry
point (perhaps down at the $25 support level) as the summer
drags along.

BUY LEAP JAN-2002 $40.00 WOF-AH at $13.75
BUY LEAP JAN-2003 $45.00 VKW-AI at $15.63

GM - General Motors $59.38

After several requests for cheaper, blue-chip value plays, I
went out hunting.  GM looks like it could be just the ticket.
With the company’s revenue stream heavily influenced by the
cyclical nature of the automotive market, the stock typically
bottoms in the summer months, only to surge higher as the new
models come out in the fall.  The decline this year is almost
a carbon copy of the decline last year, as the stock plunged
in mid-May to put in a double-bottom by early August.  If the
pattern remains consistent, we will likely see a higher low
posted in the September/October timeframe before launching
higher for the remainder of the year.  The decline this year
was even more painful than it was last year, dropping GM’s PE
ratio below 7. With the company’s consistent earnings growth,
and the historical pattern in front of us, this looks like a
good long-term play.  Consider new entries on a renewed bounce
from the $57 support level, but don’t chase the stock higher at
this point.  If you miss your entry in the weeks ahead, keep in
mind that we will likely get another pullback in the early fall.
Although its low will likely be slightly higher, the
confirmation provided by the higher low at that time will
likely provide a lower risk entry point.

BUY LEAP JAN-2002 $65.00 WGM-AM at $ 9.88
BUY LEAP JAN-2003 $65.00 VGN-AM at $13.25


LU $42.44 Continuing to slide downhill for nearly the entire 2
weeks since we picked it as a new play, LU could be the poster
child for deteriorating investor sentiment.  Attempting to stem
the flow of red, the company announced on Thursday that it would
restructure its Optical business unit in an effort to boost
optical network revenues more quickly.  Like the little boy who
cried "Wolf!", LU has now disappointed the street 3 quarters in
a row and investors aren’t paying attention any more.  Recall
that our initial play instructions called for the stock to hold
support at $50.  After violating that only 3 days later, we
almost dropped it last weekend, but figured we’d give the stock
one more chance to straighten up and fly right.  We drew our
line in the sand at $43, deciding that if this long-term support
level couldn’t hold, then there was little hope for our play.
After a brief head-fake right at this level last Tuesday, LU
resumed its descent and plunged as low as $41.56 on Friday,
before recovering a bit at the close.  Needless to say, we
didn’t get anything approaching a convincing entry point as
the stock couldn’t even penetrate the 5-dma over the past 2
weeks, and we are dropping it this weekend.

VSTR $122.25 What an exciting run VSTR has given us, and the
Deutsche Telekom (DT) buyout offer of $205/share in the middle
of July was just icing on the cake.  When the rumors first
surfaced, our play shot from $125 to $140 overnight and then
when the rumors were confirmed, VSTR shot up again, tagging
$161 before the "sell the news" crowd showed up.  Since then
it has been a quick and painful slide as the stock has fallen
to bounce right on the $120 support level, right where it was
trading when we featured it as the Spotlight play a month ago.
So, if it bounced at support, why are we dropping it?  Given
the buyout by DT and the hefty premium being paid, this should
be helping to prop up the share price, but either it is not, or
if it is, the VSTR stock is actually weaker in and of itself
than the actual price would seem to indicate.  Add to this the
fact that DT is looking weak, having fallen all the way to major
support at $40, and the outlook for our play is less than
stellar.  This play is a perfect example of why we use trailing
stop losses to lock in our profits - even on LEAPS.  After the
run above $160, your stops should have taken you out long before
the stock plunged through support at $140 on July 24th.


Is It Safe To Come Out Yet?
By Ryan Nelson

Traders are wondering whether we have weathered the sell-off
or are simply sitting in the eye of the storm and the winds
are about to return.  With the Nasdaq posting a marginal gain
for the week, some traders have the impression that the worst
is over.  I can't say I believe that just yet and I don't
expect the momentum to return the split plays this week.
Instead, we are likely to see a few more announcements as
we search for entry points on the split runs.  With that said,
let's bide our time before buying too heavily.  Keep your eye
on the split calendar (the link is listed below) and begin
looking for splits that are payable in the next 4 to 6 weeks.
We will consider plays when those companies are within 3 weeks
to the ex-dividend date.

Current Split Run Plays

MER - 09/01 ex-date

Current Split Candidate Plays


Candidates That Are Not Current Plays


10 Most Recent Announcements We Predicted

SAPE - 08/01 (most recent announcement)
AMD - 07/19
PDLI - 07/11
TXN - 04/20
CMVT - 03/07
CHINA - 03/06
VRTS - 01/27
NT - 01/25
SEPR - 01/20
YHOO - 01/11

Major Announcements So Far This Month = 6


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

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The Option Investor Newsletter                   Sunday 08-06-2000
Sunday                                                      5 of 5

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


Covered-Call Basics: A Simple Approach...
By Mark Wnetrzak

With the recent market downturn, we have received a number of
requests for information on conservative trading techniques.
There are many types of investors and no single strategy can
work for all of them however, a position with moderate profit
potential and relatively low risk can be very appealing.  The
technique we use to achieve this outlook is the "in-the-money"

All covered-calls involve selling a call against stock that is
owned.  If the stock declines, the covered writer will offset
part of his loss by the amount of the option premium.  The two
most common approaches are the "out-of-the-money" covered-call
and the "in-the-money" covered-call.  Some investors prefer to
strive for higher potential returns with an aggressive outlook,
writing out-of-the-money calls on stocks in their portfolios.
These (OTM) positions offer greater rewards but also have less
downside protection.  The maximum potential profit of an OTM
position, while generally greater than that of an in-the-money
(ITM) position, will always require an increase in price by the
underlying stock.  Thus, by using an OTM option, the success of
the overall position depends more on the movement of the stock
price and less on the benefits of writing the call.  Since the
premium generated from the sale of the call is much smaller,
the overall position will be more susceptible to loss if the
stock's price declines.  ITM plays are more defensive, offering
less risk but also smaller reward potential.  These conservative
positions appeal to those investors who are attempting to earn a
relatively consistent return while striving for preservation of
capital.  In spite of having a smaller profit potential, the
in-the-money approach can be attractive on a percentage return
basis, especially when the stock is held in a margin account.
The cost basis in the underlying issue is substantially reduced
and even if the stock declines, the position can still return a
profit.  Traders who utilize this conservative approach consider
both downside protection and potential profit.  The combined
position (both stock and options) is viewed as a single entity
and the trader is not overly concerned with long-term ownership
of the underlying issue.  This "total return" concept represents
the true focus of most successful covered call writers.

The ideal investment offers limited risk and a good probability
of making a profit.  Our primary goal is to provide plays that
make acceptable returns while still receiving an above-average
amount of downside protection.  For investors who decide to use
OTM calls, concentrate on the "return not called."  This is the
return on investment that one would achieve even if the stock
price were unchanged when the sold option expires.  One can
compare potential positions more fairly using this approach
since no assumption is made about the price movement in the
underlying issue.  In our conservative option-writing strategy,
we search for plays that return a minimum of 3-5% per month with
downside protection of at least 10% (of the current stock price).
The overall position that is constructed using these guidelines
will be a relatively low risk play, regardless of the volatility
of the underlying stock, since the levels of protection will be
large and there is still the expectation of a reasonable return.

Since the primary objective of covered-call writing for most
investors is increased income though stock ownership, the amount
of downside protection and the return on investment are both
very important considerations in determining which position to
choose.  Of course the technical and fundamental outlook of the
underlying stock must also be favorable.  While a minimally
acceptable return is a matter of personal preference, it would
appear that with the current market volatility, the advantages
of the in-the-money position; consistent profits and lower risk,
are more attractive to the majority of investors.

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

GPX     5.81   5.25   AUG   5.00  1.25  *$  0.44  14.0%
TMWD   59.50  50.13   AUG  45.00 18.63  *$  4.13  11.0%
HLYW    8.94   8.00   AUG   7.50  2.06  *$  0.62   9.8%
ASKJ   17.44  17.94   AUG  15.00  3.25  *$  0.81   8.3%
ACOM   21.75  22.38   AUG  15.00  7.50  *$  0.75   7.6%
MAIL    9.44   7.78   AUG   7.50  2.50  *$  0.56   7.0%
DLK    16.75  18.56   AUG  12.50  5.25  *$  1.00   6.3%
CGO    42.13  44.13   AUG  35.00  8.38  *$  1.25   5.4%
PSFT   18.38  24.00   AUG  15.00  4.38  *$  1.00   5.2%
WFR    18.38  15.94   AUG  15.00  4.38  *$  1.00   5.2%
PMTC   12.69  11.25   AUG  10.00  3.25  *$  0.56   5.2%
MCRE   13.06  11.81   AUG  10.00  3.50  *$  0.44   5.0%
FRNT   18.44  17.81   AUG  17.50  1.50  *$  0.56   4.8%
IMNR   11.00   7.50   AUG   7.50  3.88   $  0.38   4.6%
EPTO   15.13  13.00   AUG  12.50  3.38  *$  0.75   4.6%
MCOM   33.00  34.03   AUG  25.00  9.25  *$  1.25   4.6%
OO     13.94  16.88   AUG  12.50  1.94  *$  0.50   4.5%
IGEN   20.69  18.50   AUG  17.50  3.88  *$  0.69   4.5%
CLTR   22.00  24.00   AUG  17.50  5.00  *$  0.50   4.3%
LOOK   23.00  18.19   AUG  17.50  6.25  *$  0.75   3.9%

NLCS   No Play

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


Pearson just had to announce their buyout of National Computer
Systems (NLCS) before Monday's opening bell.  Please announce
"good" news after we're in the issue!  Of course, the position
was unplayable.  Tumbleweed (TMWD) rebounded on some positive
news this week but the technicals still remain week.  Frontier
Airlines (FRNT) appears to be experiencing a post-earnings stall.
Consider exiting Immune Response (IMNR) on further weakness.
Oakley (OO) - I knew I should have just bought a call!  Some
follow-through next week would be encouraging for Looksmart
(LOOK) as it appears to have made a successful test of the
late June low.

Positions Closed:

Ivillage.com (IVIL), Electric Fuel (EFCX), Bluestone Software
(BLSW), and Itxc Corp. (ITXC).


Sequenced by Company

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

ANTC   45.50  AUG  40.00  AQC HH  6.63  2951 38.87   14     6.3%
NPNT   14.63  AUG  12.50  NUP HV  2.75  1129 11.88   14    11.3%
REGN   29.38  AUG  25.00  RQP HE  4.88  25   24.50   14     4.4%

ECLP   12.00  SEP  10.00  IQV IB  2.75  88    9.25   42     5.9%
NOVN   35.00  SEP  35.00  NPQ IG  2.88  20   32.12   42     6.5%
ORG    14.38  SEP  12.50  ORG IV  2.75  180  11.63   42     5.4%
ROS    15.75  SEP  15.00  ROS IC  1.88  75   13.87   42     5.9%

Sequenced by Return

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

ANTC   45.50  AUG  40.00  AQC HH  6.63  2951 38.87   14     6.3%
NPNT   14.63  AUG  12.50  NUP HV  2.75  1129 11.88   14    11.3%
REGN   29.38  AUG  25.00  RQP HE  4.88  25   24.50   14     4.4%

ECLP   12.00  SEP  10.00  IQV IB  2.75  88    9.25   42     5.9%
NOVN   35.00  SEP  35.00  NPQ IG  2.88  20   32.12   42     6.5%
ORG    14.38  SEP  12.50  ORG IV  2.75  180  11.63   42     5.4%
ROS    15.75  SEP  15.00  ROS IC  1.88  75   13.87   42     5.9%

Company Descriptions

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

ANTC - ANTEC Corp.  $45.50  *** Hybrid Fiber-Coax ***

ANTEC is a developer, manufacturer and supplier of optical and
radio frequency transmission equipment for the construction and
maintenance of broadband communications systems.  ANTEC supplies
equipment and services for these systems to broadband communication
providers.  They have developed a full line of technologically
advanced fiber optic products to capitalize on current and future
upgrades of HFC cable systems.  In July, ANTEC announced record
results for the 2Q with of sales of $276.1 million and net income
of $11.2 million.  Sales were up 40.6% over last year and 10.3%
sequentially.  ANTEC has been stuck in a trading range over the
last several months but has now shown that it is a fundamentally
strong and growing at a rate in excess of the industry average.
Can an upside breakout be far behind?  It appears the shorts
are worried, considering Friday's heavy volume.

AUG 40.00 AQC HH LB=6.63 OI=2951 CB=38.87 DE=14 MR=6.3%

Chart =


NPNT - NorthPoint Comm.  $14.63 *** Options Activity! ***

NorthPoint Communications is a national provider of high speed,
local data network services.  The company's networks use digital
subscriber line (DSL) technology to enable data transport over
telephone company copper lines at speeds up to 25 times faster
than common dial-up modems.  The company markets its network and
data services to Internet service providers, long-distance and
local telephone companies and network service providers.  Options
activity has been extremely heavy in this issue going into the
company's earnings announcement, scheduled for Tuesday of next
week.  The company has also been the subject of takeover rumors
in the past and at the current valuation, it may indeed be a
merger candidate.  We favor the appearance of a double-bottom
(June and July lows) and the increasing volume supporting the
recent rally.  Two week speculation on a volatile issue with
a reasonable cost basis.

AUG 12.50 NUP HV LB=2.75 OI=1129 CB=11.88 DE=14 MR=11.3%

Chart =


REGN - Regeneron  $29.38  *** P&G Likes This Company! ***

Regeneron Pharmaceuticals is a biopharmaceutical company that
discovers, develops, and intends to commercialize therapeutic
drugs for the treatment of serious medical conditions.  Expanding
from its initial focus on degenerative neurologic diseases, they
have recently broadened their product pipeline to include drug
candidates for the treatment of obesity, rheumatoid arthritis,
cancer, allergies, asthma, and other diseases.  Last week, REGN
report a revenue increase to $16.7 million for the 2Q from $7.2
million in the same period last year.  The increase was due
primarily to higher contract research and development revenue
from Procter & Gamble (PG) in connection with a collaboration
agreement and from Amgen-Regeneron Partners related to increased
clinical trial activity by Regeneron on brain-derived neurotrophic
factor (BDNF) and neurotrophin-3 (NT-3).  The revenue stream
will continue with the news this week that Procter & Gamble
agreed to extend P&G's obligation to fund Regeneron research
through year end 2005.  P&G now owns about 6.7 million shares
of REGN stock, equal to about 18% of total shares outstanding.

AUG 25.00 RQP HE LB=4.88 OI=25 CB=24.50 DE=14 MR=4.4%

Chart =


ECLP - Eclipsys Corp.  $12.00  *** Merger Woes Are Over! ***

Eclipsys is a healthcare information technology solutions
provider.  They provide clinical management, access management,
patient financial management, health information management,
strategic decision support, resource planning management and
enterprise application integration solutions to healthcare
organizations.  Eclipsys provides other information technology
solutions including outsourcing, remote hosting, networking
technologies and other related services.  Now that the merger
between Neoforma.com and Eclipsys and HEALTHvision has been
terminated agreeably, apparently by all parties, Eclipsys'
stock is moving higher.  Last week, after reporting earnings,
Eclipsys' Board of Directors adopted a "Shareholder Rights"
plan, which should bode well for the next merger attempt.  We
favor the bullish change of character in the stock and the
heavy volume supporting the recent rally.

SEP 10.00 IQV IB LB=2.75 OI=88 CB=9.25 DE=42 MR=5.9%

Chart =


NOVN - Noven Pharmaceuticals  $35.00  *** Earnings Run? ***

Noven Pharmaceuticals develops and manufactures transdermal
and transmucosal drug delivery products and technologies.  Its
principal commercialized products are transdermal drug delivery
systems for use in hormone replacement therapy.  Their products
marketed so far have been for the treatment of menopausal
symptoms, and pain relief for dental procedures.  Noven was
added to the Russell 3000. and Russell 2000. equity indexes
in July, which sparked the current rally.  With earnings due
next week, it appears traders can't get enough of this stock.
There hasn't been any recent news but it does appear the shorts
are getting squeezed.  For speculators only!  A conservative
investor might wait for an entry point after the earnings are
announced next week.

SEP 35.00 NPQ IG LB=2.88 OI=20 CB=32.12 DE=42 MR=6.5%

Chart =


ORG - Organogenesis  $14.38  *** Is Rally Mode Contagious? ***

Organogenesis, a tissue engineering firm, designs, develops and
manufactures medical products containing living cells and/or
natural connective tissue.  Organogenesis is the developer and
manufacturer of the only mass-manufactured medical product
containing living human cells marketed in the United States.
Their product development program includes living tissue
replacements, cell-based organ assist devices, and other tissue-
engineered products.  Currently, the company derives revenue
primarily from sales of its lead product Apligraf, marketed by
Novartis Pharmaceuticals.  In June, the FDA approved the use
of Apligraf for the treatment of diabetic foot ulcers, and
starting in August, Apligraf qualifies for Medicare reimbursement
when used in a hospital outpatient setting.  Investors have
cheered these recent developments and are looking forward to
Organogenesis' next pipeline product, the VITRIX living, soft
tissue replacement, a vascular graft and a liver assist device.

SEP 12.50 ORG IV LB=2.75 OI=180 CB=11.63 DE=42 MR=5.4%

Chart =


ROS - OAO Rostelecom  $15.75  *** Russian Telecom ***

OAO Rostelecom is the primary provider of international and
domestic long distance telecommunications services in the Russian
Federation.  Rostelecom holds equity interests in various
entities presently providing communications services, including
multimedia communications, Internet access and cellular and
mobile communications services in Russia.  Rostelecom owns the
majority of the Russian telecom market and has recently been
climbing on news that the company will launch a satellite system.
On August 3, Globalstar launched its satellite telephone service
in Russia in a joint venture with Rostelecom.  We simply favor
the improving technicals and a conservative entry point in this
speculative issue.

SEP 15.00 ROS IC LB=1.88 OI=75 CB=13.87 DE=42 MR=5.9%

Chart =

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

AKAM    77.69   75   RUG-TO   4.50   1942   23%     75
AVNX   136.00  130   UYN-TF   9.13   3400   27%    125
CHKP   119.44  115   YKE-TC   5.00   2986   17%    116
COF     58.78   60   COF-TL   4.38   1470   30%     58
DIGL    93.38   90   DGU-TR   6.63   2335   28%     90
DNA    164.13  160   DNA-TL   7.50   4103   18%    160
EXTR   141.81  140   EUT-TU   9.00   3545   25%    140
GSPN   104.00  100   GHY-TT   6.38   2600   25%    100
HGSI   142.56  135   HHA-TG   5.88   3564   16%    135
HWP    111.75  110   HWP-TB   4.00   2794   14%    110
ITWO   126.06  125   QYJ-TE   7.00   3152   22%    125
JNPR   144.38  140   JUY-TH   6.75   3610   19%    135
MUSE   151.25  145   UZQ-TI   7.63   3781   20%    144
NTAP    84.56   85   NUL-TQ   6.63   2114   31%     80
PHCM    78.75   75   UGE-TO   3.63   1969   18%     76
PWER   126.50  125   OGU-TE   7.50   3163   24%    125
QLGC    75.88   75   QLC-TO   5.13   1897   27%     70
RBAK   139.19  130   BKK-TF   5.63   3480   16%    130
RMBS    71.06   70   BYQ-TN   5.00   1777   28%     70
SDLI   353.81  340   OSL-TH  11.13   8845   13%    340
SEBL   163.63  160   SGW-TL   7.50   4091   18%    160
SEPR   124.63  120   ERU-TD   4.38   3116   14%    120
TIBX   104.69  100   PIW-TT   4.63   2617   18%    100
TLGD    97.25  100   TQK-TT  13.63   2431   56%     90
TSTN   125.00  120   TUA-TU   7.50   3125   24%    120
TUTS    85.00   85   QSS-TQ   6.63   2125   31%     80
VRSN   162.06  160   XVR-TL   9.75   4052   24%    158
VRTA    69.63   65   UFA-TM   3.50   1741   20%     65
VRTX   117.25  110   VQR-TB  11.25   2931   38%    110


Market Trends: Rallies and Corrections...
By Ray Cummins

One of the most important parts of being a successful trader is
understanding the cycles that occur as a natural part of market
growth.  The recent sell-off in technology stocks is just one of
the many examples of a historically repetitive rhythm in price
action and the necessary process of a "correction" is healthy for
stocks in the long-term.  To avoid major losses, you must be able
to discern the broader rhythms of the market and approach trading
in a counterintuitive manner.  In simple terms, you should be a
contrarian investor.  One who goes "long" in the closing stages
of a bearish movement, when everyone else is pessimistic on the
market's prospects, and takes profits after a bullish rally, when
the public is confident that the trend is will continue forever.

The first step in adopting this attitude is to learn the various
stages of the market.  Using the Nasdaq Composite as an example,
the first phase of significant bullish activity began back in
October of 1999.  That's when technology stocks started to become
popular and Wall Street established a premium valuation on the
most dominant companies in the best, long-term growth industries.
Many of the limiting factors of the previous "range-bound" trend
were still present and most investors were worried that the rally
would be short-lived.  As we moved through the Y2K scare and into
January, traders became gradually more bullish, even though some
were afraid to enter the market at those extreme levels, feeling
that they had already missed most of the rally.

At that point, a change in market sentiment occurs.  The majority
of investors had previously waited for small corrections to open
new positions but with the continuation rally in early February,
almost everyone becomes convinced that a bull market is underway.
Looking back, the technology group has been moving up for months
and the bears have been wrong time and again.  Investor optimism
is industry-wide and almost every sector enjoys bullish activity.
Even the mediocre issues are priced as if they are the dominant
companies in their respective market space.  During this period,
the media is full of positive stories and the major brokerages are
upgrading every stock in their portfolio, regardless of its price
or fundamental outlook.  The few remaining pessimists are still
chanting "correction" but nobody is listening any more.  In fact,
many of them succumb to the pressure of the masses and eventually
issue a bullish forecast for the market.  At this stage, the wise
trader must avoid the impulse to buy at the height of the rally,
just because the market is popular and everyone is talking about
their successes.  As the trend begins to reach its apex, trading
becomes choppy and even the leading stocks encounter weakness in
buying support.  The primary technical indicators start moving
sideways and the index fails to achieve new highs.  As concerns
over stock valuations begin to creep into the daily news, traders
with experience quietly distribute their holdings, placing the
profits in a conservative money market account until a new trend
is established.

In late March, the speculative bubble finally bursts.  Technology
stocks fall sharply and the decline continues much further than
even the most negative analysts had forecast.  The brutal collapse
is exacerbated by the fact that heavily leveraged portfolios are
being "called" and investors must liquidate to cover the losses.
As the first bottom is established in mid-April, the majority of
traders are afraid to participate in any of the recovery rallies
and the lack of conviction becomes apparent.  Everyone is fearful
of the dreaded "dead cat bounce."  Soon the downtrend is renewed
and a new low is achieved near the end of May.  Fear eventually
drives the public to capitulate near the technical bottom, at the
worst possible time.  When the selling pressure finally begins to
subside, nobody is left to buy at the bargain prices.  The market
activity becomes subdued and trading volumes are scant.  Some
investors go so far as to suggest that the downward momentum will
continue, ending with a repeat of the previous sell-off.

Strangely enough, the final stages of bearish activity are often
the most difficult to identify.  The challenge is to buy during
this hysteria, when it appears the market is at its worst.  Of
course, that is indeed the case, and it is the primary reason you
should be buying while everyone else is selling.  The basis for
this type of thinking is a fundamental element of the contrarian
viewpoint; one that opposes the views of the collective majority.
By approaching the stock market in this manner, you can avoid the
tendency to react emotionally in the heat of the moment and rely
instead on sound and sensible investment methods, based on proven
trading strategies and effective analysis.

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

DRMD    5.75   5.69   AUG   5.00  0.31  *$  0.31  24.1%
HLYW    8.94   8.00   AUG   7.50  0.50  *$  0.50  20.6%
GSTRF  10.56   7.56   AUG   7.50  0.56  *$  0.56  18.2%
R      21.25  21.13   AUG  20.00  0.88  *$  0.88  15.7%
ZIXI   55.00  40.69   AUG  40.00  1.63  *$  1.63  14.0%
NFLD   17.50  16.50   AUG  15.00  1.00  *$  1.00  13.2%
ATMS   11.44   9.75   AUG   7.50  0.31  *$  0.31  13.0%
SQST   14.00   9.88   AUG  10.00  0.50   $  0.38  10.0%
PSFT   21.88  24.00   AUG  17.50  0.44  *$  0.44   9.9%
THC    31.19  31.50   AUG  30.00  0.81  *$  0.81   9.7%
ICGE   39.94  32.63   AUG  30.00  0.75  *$  0.75   9.3%
ADPT   24.00  22.25   AUG  20.00  0.31  *$  0.31   7.6%
RHAT   25.31  19.38   AUG  17.50  0.38  *$  0.38   7.6%
JEF    26.56  27.94   AUG  25.00  0.50  *$  0.50   7.6%
MRVT   22.63  20.81   AUG  17.50  0.50  *$  0.50   7.2%
GELX   28.56  30.63   AUG  25.00  0.38  *$  0.38   6.7%
NXLK   39.69  36.88   AUG  30.00  0.75  *$  0.75   6.3%
INFS   37.00  36.94   AUG  30.00  0.50  *$  0.50   5.2%
RAZF   22.25  17.00   AUG  17.50  0.56   $  0.06   1.0%
PILT   17.81  11.94   AUG  12.50  0.50   $ -0.06   0.0%
BLSW   32.88  21.63   AUG  22.50  0.56   $ -0.31   0.0%
WSTL   25.19  17.03   AUG  20.00  0.81   $ -2.16   0.0%
WSTL   28.50  17.03   AUG  20.00  0.56   $ -2.41   0.0%

NLCS   No Play

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


Pearson just had to announce their buyout of National Computer
Systems (NLCS) before Monday's opening bell.  Please announce
"good" news after we're in the issue!  Of course, the position
was unplayable.  Westell (WSTL) suffered from a downgrade (to a
"hold") because a "possible" strike at Verizon could negatively
impact CPE modem shipments.  Next week we will show the position
closed.  Zixit (ZIXI) continues to act weak and an early exit
may still be prudent.  Northfield Labs (NFLD) still remains in
a precarious position.  A nice bounce off the 150 dma for Tidel
Tech (ATMS).  Sciquest.Com (SQST) remains within a stage I base
and Pilot Network (PILT) appears to be making a successful test
of support - monitor closely.  Bluestone Software (BLSW) may
continue its rally next week and offer a profitable early exit.
Keep a close eye on Tenet Healthcare (THC) as it appears to be
running out of steam.  Razorfish (RAZF) is testing support as it
continues to forge a stage I base.


Sequenced by Company

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

CLTR   24.00  AUG  20.00  QCE TD  0.56  72   19.44   14    19.8%
CMRC   46.25  AUG  35.00  RJC TG  0.56  724  34.44   14    12.4%
DRTE   30.38  AUG  25.00  DEQ TE  0.31  70   24.69   14     9.5%
LAMR   49.88  AUG  45.00  LJQ TI  0.50  190  44.50   14     7.0%
STLW   36.69  AUG  25.00  SZQ TE  0.50  92   24.50   14    13.9%
WAVX   18.06  AUG  15.00  AXU TC  0.38  199  14.62   14    18.2%

TLXN   19.88  SEP  15.00  TNQ UC  0.44  267  14.56   42     7.2%

Sequenced by Return

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

CLTR   24.00  AUG  20.00  QCE TD  0.56  72   19.44   14    19.8%
WAVX   18.06  AUG  15.00  AXU TC  0.38  199  14.62   14    18.2%
STLW   36.69  AUG  25.00  SZQ TE  0.50  92   24.50   14    13.9%
CMRC   46.25  AUG  35.00  RJC TG  0.56  724  34.44   14    12.4%
DRTE   30.38  AUG  25.00  DEQ TE  0.31  70   24.69   14     9.5%
LAMR   49.88  AUG  45.00  LJQ TI  0.50  190  44.50   14     7.0%

TLXN   19.88  SEP  15.00  TNQ UC  0.44  267  14.56   42     7.2%

Company Descriptions

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

CLTR - Coulter Pharmaceutical  $24.00  *** 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 recently 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.  Technically the issue is attempting to
move out of a stage I base and with the recent bullish activity,
this position offers a relatively conservative entry point.

AUG 20.00 QCE TD LB=0.56 OI=72 CB=19.44 DE=14 MR=19.8%

Chart =


CMRC - Commerce One  $46.25  *** Own This One! ***

Commerce One is a provider of global e-commerce solutions for
business.  Its solutions are designed to create a network of
interoperable marketplaces, trading communities and commerce
portals called the Global Trading Web.  CMRC has developed the
Commerce One Solution, comprised of enterprise e-procurement
applications, to automate the purchasing cycle between multiple
buyers and suppliers.  The recent quarterly results prove that
business-to-business e-commerce is real, and one need only look
at the dramatic revenue increases from B2B software providers
like Commerce One for validation of the concept: Corporations
are making B2B one of their top priorities and they are willing
to spend money to exploit its potential.  CMRC is one of the
top companies in the group and the acquisition of consulting
firm AppNet (APNT) should boost their position in the industry.
The cost basis for this play is below technical support and
the issue has excellent upside potential.

AUG 35.00 RJC TG LB=0.56 OI=724 CB=34.44 DE=14 MR=12.4%

Chart =


DRTE - Dendrite  $30.38  *** On The Move! ***

Dendrite International is a worldwide supplier of sales force
software products and support services to the pharmaceutical
industry.  They design, develop and sell comprehensive customer
relationship management solutions that enable customers to
manage the activities of large sales forces in complex selling
environments.  Dendrite is one of the leading companies in area
of healthcare information technology.  Dendrite has about a $1
billion market cap, generates over 20% operating margins with
huge cash flows, and maintains a very liquid balance sheet.  In
addition, Dendrite Japan has just completed its biggest quarter
in history; signing Wyeth-Lederle (An American Home Products
company) for licensing and services; adding Bristol-Myers Squibb
to a global agreement; signing Pfizer Japan (which is now one of
the largest sales forces in Japan) and expanding it's partnership
agreement with Hitachi.  The recent consolidation among drug
companies has left Dendrite very well positioned and our play
offers a favorable entry point of a long-term portfolio issue.

AUG 25.00 DEQ TE LB=0.31 OI=70 CB=24.69 DE=14 MR=9.5%

Chart =


LAMR - Lamar Advertising  $49.88  *** New Trading Range! ***

Lamar Advertising Company owns and operates outdoor advertising
structures in the United States.  The company also operates a logo
sign business.  Logo signs are located near highway exits which
deliver brand name information on available gas, food, lodging and
camping services.  The company also operates transit advertising
displays on bus shelters, bus benches and buses in several markets.
Lamar recently announced record quarterly results with revenues of
$173 million, a 77% increase over the previous period.  Operating
cash flow increased 80% to $84.1 million and after tax cash flow
was $58 million, a 111% increase for the quarter.  Investors were
pleased with the results and Friday's rally above resistance near
$48 suggests the issue is moving into a new trading-range.

AUG 45.00 LJQ TI LB=0.50 OI=190 CB=44.50 DE=14 MR=7.0%

Chart =


STLW - Stratos Lightwave  $36.69  *** A New Company! ***

Stratos Lightwave develops, manufactures and sells optical
subsystems and components for high data rate networking, data
storage and telecommunication applications.  Stratos' optical
subsystems are designed for use in local area networks, storage
area networks, metropolitan area networks, and wide area networks
and central office networking in telecommunication markets.  The
company's optical subsystems are compatible with the transmission
protocols used in these networks, including Gigabit Ethernet, Fast
Ethernet, Fibre Channel and asynchronous transfer mode.  Stratos
also designs and manufactures a range of optical components and
cable assemblies for use in these networks.  We simply favor the
outlook for this new issue in the optical networking group and the
opportunity to own it at a reasonable cost basis.

AUG 25.00 SZQ TE LB=0.50 OI=92 CB=24.50 DE=14 MR=13.9%

Chart =


WAVX - Wave Systems  $18.06  *** Low Risk Entry? ***

Wave Systems offers solutions for electronic commerce, making the
process easier and more secure for consumers as well as business-
to-business applications.  They are involved in the research,
development, and market testing of the Wave System, which
performs buying transactions in a range of consumer electronic
devices, including computers, personal digital assistants, and
interactive televisions.  Wave Systems rallied in mid-July after
announcing a private placement of $122 million, and a partnership
with Advanced Micro Devices.  Now the issue has consolidated from
those gains and appears to building a base near $15.  If you have
a bullish outlook for the issue, this position offers a favorable
entry point with relatively low downside risk.

AUG 15.00 AXU TC LB=0.38 OI=199 CB=14.62 DE=14 MR=18.2%

Chart =
TLXN - Telxon  $19.88  *** Merger Agreement! ***

Telxon designs, manufactures, and markets transaction-based
mobile information systems.  Telxon's mobile computing devices
and wireless local area network products are integrated with
its customers' host enterprise computer systems and third party
networks, enabling mobile workers to process information on a
real-time basis at the point of transaction.  They also serve
some areas of the mobile services market, such as field service,
insurance claims processing and work force automation.  Symbol
Technologies (SBL) has agreed to buy rival hand-held computer
maker Telxon for $465 million in stock.  Under the terms of the
deal, TLXN shareholders will receive 1/2 of a SBL share for each
Telxon share.  The stock swap is expected to be completed in the
fourth quarter of 2000 but it is subject to regulatory clearance
and other conditions.  Review the agreement thoroughly before
opening any positions.

SEP 15.00 TNQ UC LB=0.44 OI=267 CB=14.56 DE=42 MR=7.2%

Chart =

American Express. Cardmembers are buying online
Find out more!



Title:  Another Day Of Optimism...

Industrial stocks extended their weeklong rally with the Dow
enjoying modest gains following a favorable employment report.

Friday, August 4

Industrial stocks extended their weeklong rally with the Dow
enjoying modest gains following a favorable employment report.
The blue-chip average ended up 61 points at 10,767.  The Nasdaq
also finished in the green, closing 27 points higher at 3,787.
The S&P 500 index was up 10 points at 1,462.  Trading volume on
the NYSE hit 947 million shares, with advances beating declines
1,704 to 1,102.  Activity on the Nasdaq exchange reached 1.43
billion shares, with advances beating declines 2,244 to 1,696.
In the bond market, the 30-year Treasury was up 16/32, pushing
its yield down to 5.703%.

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

i2 Technologies  ITWO   SEP170C/100P   $0.00   debit   synthetic
Echostar         DISH   SEP42C/47C     $2.00   debit   bull-call
Echostar         DISH    SEP-35NP      $2.00   credit  naked-put
NorthPoint       NPNT   SEP15C/AUG15C  $0.88   debit   calendar

Echostar and i2 technologies both slumped during the subdued
session allowing entries at the target prices.  Northpoint was
much more exciting, opening $1.25 higher and closing near $15
amid speculation regarding an upcoming earnings report.  The
high option volume prevented an accurate assessment of spread
trades but it is unlikely that the target debit was available on
a simultaneous order basis.  However, we will track the play as
part of the regular portfolio, in the event there were traders
that achieved the suggested entry through separate transactions.

Portfolio Plays:

Stocks rallied today after favorable employment data reinforced
the view that the FOMC would leave interest rates unchanged at
its policy meeting later this month.  The Dow Industrial Average
continued its recent bullish activity, ending 250 points higher
for the week.  Rate-sensitive financial companies were largely
responsible for today's upswing with American Express (AXP), J.P.
Morgan (JPM) and Citigroup (C), leading the blue-chip rally.  On
the Nasdaq, biotechnology and Internet stocks gave the index a
boost but semiconductor stocks continued their downward trend.
In the broader market, defense, waste management and investment
banking stocks rose while telecommunications, major healthcare
and textile issues consolidated.  An independent market report
from AMG data showed that equity mutual funds lost $1.5 billion
during the week, with outflows of cash occurring for the first
time since late June.

Our portfolio enjoyed a number of favorable moves today and many
of the large-cap technology companies appear to be establishing
short-term technical bottoms.  The top performing issues were
Juniper Networks (JNPR), Network Appliances (NTAP), Qlogic (QLGC)
and Virata (VRTA).  Advanced Fibre (AFCI), Cisco Systems (CSCO),
and Sipex (SIPX) also participated in the bullish activity.  In
the small-cap category, Peoplesoft (PSFT) led the way, closing
at a recent high near $24 amid strength in the software group.
American Eagle Outfitters (AEOS) also continued its rally, up
another $1.12 to $20 and NYSE issues, Allstate (ALL), CSX Corp.
(CSX), and Ryder (R), all moved higher during the session.  The
only major disappointment in our portfolio is American Online
(AOL) and if the issue fails to rebound off technical support at
the current price, we will close the position to limit further

Questions & comments on spreads/combos to Contact Support
                         - NEW PLAYS -

This week we received a number of requests for candidates in the
financial sector.  Here are two positions for your review, based
on the bullish technical outlook and increased option interest.

SCH - Charles Schwab  $38.50  *** Stepping Up! ***

Charles Schwab is one of the nation's leading financial services
providers, serving 6 million active accounts with $725 billion
in client assets.  Of these accounts, more than 3 million are
active online accounts with $349 billion in assets.  Schwab’s
clients include domestic and international individual investors,
independent investment managers, institutions, broker-dealers and
retirement plan sponsors and third-party administrators.  About
30% of Schwab's client assets and 10% of its client accounts are
managed by the independent, fee-based investment advisors served
through Schwab Institutional, a division of Charles Schwab, which
is a registered broker dealer.  Schwab's offerings include access
via the Internet, hundreds of branch offices, speech recognition
and touch-tone telephone technologies, multilingual technologies,
and direct access to professional advisors.

The brokerage sector is finally beginning to recover from the
recent slump and one of the most popular investment choices in
the group is the securities firm of Charles Schwab.  In the last
quarter, Schwab reported strong earnings with sales improving by
25% compared with the year-earlier period.  The company brought
in $37 billion in new money from customers and also increased its
non-trading revenues by an impressive amount.  Analysts say that
Schwab should be able to build on these second-quarter trends in
the coming months and the company has shown that it can benefit
substantially from new, consumer-investment trends.

With Friday’s rally, the issue may be prone to a small correction
in the next few sessions and we plan to use any upcoming dip to
reduce our cost basis in the position.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-42.50  SCH-IV  OI=482  A=$1.50
SELL PUT   SEP-35.00  SCH-UG  OI=816  B=$1.12

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1,300 per contract.

Chart =

CCR - Countrywide Credit  $39.00  *** Bullish Activity! ***

Countrywide Credit Industries is a holding company which, through
its principal subsidiary, Countrywide Home Loans, originates and
services mortgage loans.  Countrywide originates and purchases
conventional mortgage loans, mortgage loans insured by the
Federal Administration, mortgage loans partially guaranteed by
the Department of Veterans Affairs, home equity loans and other
sub-prime loans.  Countrywide Securities Corporation (CSC) is a
registered broker-dealer and a member of both the National
Association of Securities Dealers, and the Securities Investor
Protection Corporation.  CSC primarily trades mortgage-related
and other securities, callable agency debt and collateralized
mortgage obligations.  The Countrywide Servicing Exchange is a
national mortgage servicing brokerage and consulting company.
Countrywide Financial Services is a fund manager and service
provider for unaffiliated mutual funds, broker-dealers,
investment advisors and fund managers.

Investors are bullish on the outlook for Countrywide Credit and
traders have noted that there's been a higher-than-normal amount
of action in the company's options as its stock has rallied over
the past few sessions.  There’s little public news to explain the
activity but some analysts say its related to the recent buyout
of PaineWebber (PWJ).  Countrywide has been the subject of merger
speculation in the past but there are currently no candidates in
the rumor mill.  We simply favor the positive fundamental outlook
for the company and with favorable disparities in the front-month
premiums, this position offers a reasonable speculation play for
traders who are bullish on the issue.

PLAY (conservative - bullish/diagonal spread):

BUY  CALL  OCT-30  CCR-JF  OI=643   A=$10.25
SELL CALL  AUG-40  CCR-HH  OI=1543  B=$1.75

Chart =

                   - INCREASED OPTIONS ACTIVITY -

This position is based on recent increased activity in the stock
and underlying options.  Although the play offers a favorable
risk/reward potential, it should also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.
AHP - American Home Products  $58.88  *** On The Move! ***

American Home Products is currently engaged in the discovery,
development, manufacture, distribution and sale of a diversified
line of products in three primary businesses, Pharmaceuticals,
Consumer Health Care and Agricultural Products.  The company's
Pharmaceuticals segment manufactures, distributes and markets
branded and generic human ethical pharmaceuticals, biologicals,
nutritionals and animal biologicals and pharmaceuticals.  The
company's Consumer Health Care segment manufactures, markets and
sells over-the-counter healthcare products.  In addition, AHP’s
Agricultural Products Group manufactures, distributes and sells
crop protection and pest control products.  Their products are
Triphasil, infant nutritionals, neuroscience therapies, Advil,
Robitussin and Dimetapp, Centrum and Centrum Silver vitamins,
and other herbal supplements.

American Home Products is another issue that has experienced
increased activity in its options over the past few sessions.
The new interest may be related to the recent bullish earnings
report from Protein Design Labs (PDLI).  PDLI officials said
earlier in the week that revenue for the first half of the 2000
fiscal year exceeded revenue for all of 1999.  More importantly,
they said that the record growth reflects increasing sales of
humanized monoclonal antibodies that use PDLI’s technology.  In
May, American Home Products launched a new, licensed antibody
product, Mylotarg, which is used to treat acute myelogenous
leukemia.  AHP also said that other humanized antibodies are in
late-stage clinical trials or pending regulatory approval.

Whatever the reason, this issue is "on the move" technically and
with continued momentum, it should remain well clear of our sold
position for the next two weeks.

PLAY (aggressive - bullish/credit spread):

BUY  PUT  OCT-50  AHP-TJ  OI=69  A=$0.31
SELL PUT  OCT-55  AHP-TK  OI=63  B=$1.25
INITIAL NET CREDIT TARGET=$0.88-$1.00  ROI(max)=25%

Chart =


These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.
MIL - Millipore  $62.63  *** Rolling Over? ***

Millipore develops, manufactures and sells products that are used
primarily for the analysis, identification and purification of
liquids and gases.  Millipore also sells products to monitor and
control critical aspects of the manufacturing process for major
integrated circuits (semiconductors).  Millipore's separations
products are applied primarily to biological and environmental
laboratory research and testing, to pharmaceutical and food and
beverage research, manufacturing and quality control operations
and to the purification and control of process liquids and gases
for integrated circuit manufacturing operations.  The company
operates in two business segments: Biopharmaceutical & Research
and Microelectronics.

Millipore recently announced that its second quarter revenues
were up 28% from the same period last year, a very respectable
number considering the industry.  Apparently, investors did not
like the performance or the outlook for the company.  Since the
beginning of July, MIL’s share value has fallen almost 20% and
the current technical outlook is very bearish.  Not only has the
issue broken the neckline of a "double top" formation but it has
also moved below the neckline of a broader "head-n-shoulders"
pattern.  Now, each of these necklines become resistance areas
and based on the current outlook, it appears the probability of
the share value reaching our sold position is relatively low.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-75  MIL-HO  OI=38  A=$0.50
SELL CALL  AUG-70  MIL-HN  OI=48  B=$1.00
INITIAL NET CREDIT TARGET=$0.62  ROI(max)=14% B/E=$70.62

Chart =

                   - STRADDLES AND STRANGLES -
SDW - Southdown  $62.44  *** Merger Speculation? ***

Southdown operates cement manufacturing plants located across the
United States, plus an extensive network of cement distribution
terminals.  Southdown also mines, processes, and sells various
construction aggregates and specialty mineral products in the
eastern half of the United States and in California.  The company
also installs highway safety systems such as guardrails, traffic
signals, highway signage and lighting.  In addition, Southdown
markets ready-mixed concrete products in two of its largest cement
markets, California and Florida.

The most recent activity in Southdown began in late July amid
hopes that an investment by France's Lafarge (LAF) in Portuguese
cement company Cimpor, would help to keep Cimpor independent and
free to make a takeover bid for Southdown.  Earlier in the year,
Cimpor had been preparing a takeover bid for Southdown with the
help of Brazil's Votorantim.  Unfortunately, Cimpor itself became
the target of a takeover bid from Portuguese rival Secil, owned by
Semapa, and Swiss giant Holderbank Financiere Glarus AG.  Cimpor
eventually suspended its talks with Southdown and now the company
faces a long battle in its effort to thwart Secil's recent bid.
In addition, analysts have said that Southdown has not attracted
interest from any other parties in recent weeks.

PLAY (aggressive - neutral/credit strangle):

SELL CALL  AUG-65  SDW-HM  OI=777  B=$1.43
SELL PUT   AUG-60  SDW-TL  OI=250  B=$1.50
UPSIDE B/E=$68.00 DOWNSIDE B/E=$57.00

Note: If you want to participate in the position but don’t have
the ability to sell naked calls, consider a call-credit spread for
the bearish portion of the play.  The long option (AUG-$70) will
limit the potential for loss on the upside and reduce the overall
collateral requirement for the position.

Chart =

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