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Daily Newsletter, Wednesday, 08/09/2000

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The Option Investor Newsletter               Wednesday  08-09-2000
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MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        08-09-2000        High      Low     Volume Advance/Decline
DJIA    10905.80 - 71.10 10978.30 10892.60 1.06 bln   1440/1402
NASDAQ   3853.50 +  4.95  3936.46  3849.77 1.52 bln   1844/2111
S&P 100   807.06 +  1.10   811.87   805.00   totals   3284/3513
S&P 500  1472.87 -  9.94  1490.37  1471.32           48.3%/51.7%
RUS 2000  507.50 -  1.22   512.45   507.24
DJ TRANS 2847.91 - 44.28  2893.69  2838.04
VIX        21.33 +  0.50    21.91    20.99
Put/Call Ratio       .57
******************************************************************

Are You A Believer Yet? 

Since my last wrap a week ago, the NASDAQ has made many of us ask
ourselves, is this rally for real?  Last Thursday, the NASDAQ
gapped down to 3521 and staged a 240 point turnaround to close at
the highs of the day.  No rollover, no looking back.  So today,
with the NASDAQ closing at 3853, the tech index has made an almost
10% recovery in just five sessions.  It has been a little
surprising for market-watchers considering the seasonal factors,
myself included.  I have to say it though, I'm not a believer...yet.

On the euphoria of CSCO's earnings last night, there was no doubt
that the NASDAQ was going to gap up.  Being the bellwether that
it is, CSCO's report boosted many of the other major networking
issues yesterday in after-hours, including JNPR and SCMR.  Yet,
after the open at 3915, that buying euphoria didn't seem to be
overly convincing as investors took the opportunity to sell into
the rally.  Trader Talk on CNBC was that some fund managers were
unloading long positions into the strength.  The talk on the
Street once again is whether or not investors have the conviction
to keep this market moving ahead like it has done so impressively
the past week.  For the second day in a row, market internals show
that NASDAQ Decliners narrowly beat Advancers by a 7-6 margin.
So in a true battle between the bulls and the bears, the NASDAQ
has slowed and settled into another narrow range between 3800 and
3900.  In fact, today's intraday chart shows that the NASDAQ traded
between 3875 and 3900 for most of the day, lacking any real
excitement.  It wasn't until the finally half hour of the day that
sellers unloaded on the market to bring the NASDAQ to the recent
intraday support of 3850.

Notice on the chart below that the NASDAQ trading has been choppy
at best, minus the August 3rd launch.  With exception of the first
hour of trading today above 3900, the NASDAQ has had problems
bumping up into this resistance.  Also posing as a resistance
point are the converging 50-dma and the 100-dma, 3905 and 3904
respectively.  Not too far above that is the 200-dma at 3917.
Jim pointed out yesterday that all of these technicals are coming
together, along with the 15-dma, to either spoil this recent rally
or facilitate a breakout beyond belief.  Are you a believer?




All in all, it was a boring day on the NASDAQ.  There was some
individual stock news that did, however, spark some buying interest.
In addition to CSCO boost, Raymond James analyst Todd Koffman,
coincidentally, upgraded JNPR from a Market Perform to a Strong Buy
after a Tuesday evening meeting with company management.  He
stated that the competitive environment is "very favorable" for
JNPR.  JNPR, you can thank CSCO for that upgrade!  JNPR finished
up $6.69 to close at $165.63.

And yet another CSCO-related story that sent two stocks
skyrocketing was the announced merger of Phone.com(PHCM) and
Software.com(SWCM), which will be headed up by former CSCO
Executive VP Donald Listwin.  The agreed merger, worth $6.4 bln,
had investors scrambling to buy whatever they could.  Terms of
the deal have PHCM issuing 1.6015 shares for each SWCM.  With
this union and the expertise of CSCO's Listwin, who will be the
President and Chief Executive, the merged entity will look to
grow as one of the chief providers of software to both wireless
and landline phone carriers, portals, and ISPs.  Both stocks were
handsomely rewarded today with PHCM gaining $13.06, or 17%, and
SWCM soaring 32%, or $34.69, to close at $142.44.  Man, I wish I
owned some calls on that one!

Well, as the NASDAQ drains the boredom from me, the INDU is
finally looking interesting again.  Challenging key resistance of
11000 for the first time since April 26th has brought some
excitement back to the NYSE.  After a seven session rally from the
depths of 10500, investors were due to take some profits today as
the INDU traded 85 in a point range.  On the upside, buyers haven't
officially run the INDU into 11000 yet, as an earnings warning from
WMT dragged the index down.  Today, the world's largest retailer
urged analysts to cut estimates by two cents from an expectation
of $0.33 per share, citing an accounting shift announced last
quarter that books their layaway sales differently now.  Rather
than booking the layaway sale at the time of "laying away," if you
will, now WMT is booking those sales when they are paid for.
While a creative reason, some analysts are looking to
lower-than-expected sales in Germany, which has resulted in the
retailer pushing back its estimated time of profitability to 2002.
During the past quarter, WMT says they have experienced slowing
consumer traffic, but this was countered by the average price
remaining high.  WMT attempted to lighten the brunt of warning by
stating that they expect consumer spending to increase in the 3rd
quarter with back-to-school shopping.  WMT lost 7% today,
finishing off $4 at $53.63.  All eyes will be on the Retail Sales
numbers and the PPI due out on Friday for more clues to the trend
of the economy.

Even with this bad news, the INDU has managed to maintain
short-term support 10900, closing 10905.  This recent rally has
broken the trend of lower highs and has many investors breathing a
sigh of relief.  Looking at the chart below, the trend is
beautiful.  After launching from 10500, the INDU put in a few days
at the 10700 area, where there is a bit of congestion.  Tomorrow
will be a critical day for the INDU ahead of the economic data on
Friday.  Financials have pulled back today with the broader profit
taking, and further buying of these issues could be the necessary
catalyst to move the INDU to 11000.  GE, considered as a good
barometer for the INDU, traded to a 52-week high today on some
heavy buying burst in the final hour of the session.  There was no
news that drove the activity.  GE closed at $55.94.




The disaster du jour was a court ruling against LLY regarding their
Prozac patents.  Trading in LLY was halted today at 1pm EDT due to
a news release.  When that news hit, the sellers didn't hesitate
to punish LLY.  Previously trading at $107, once reopened,
investors ran for the exits at $75.  The root of this evil selloff
was the judgement from a U.S. Appeals Court, reversing a lower
court decision that gave Lilly's blockbuster anti-depressant drug
Prozac patent protection through 2003.  The drug does, however,
have patent protection through 2001.  Well, when there's a loser,
there's a winner, and that would be Barr Laboratories(BRL).  This
is a victory for BRL and other generic drug manufacturers, who will
most certainly capitalize on the huge market for this popular drug.
Prozac represents a quarter of Lilly's bottomline.  They might
need a little more than just Prozac to relieve this depressing
stock performance.  LLY plunged $32.54 while BRL jumped $30.25,
both closing at $76.

Today's hot IPO stole the show, and attracted much of the limited
summer capital.  McData(MCDT), the EMC spinoff, opened the day at
$73, well above the pre-market price of $28, which was upped from
the initial range of $19 to $21.  MCDT successfully priced
12.5 mln shares at $28 and shareholders saw an incredible
first-day pop, reminiscent of those remarkable 1999 IPOs.  In
somewhat of a one-up to AOLA's IPO yesterday, MCDT tacked on a
healthy $57.56 from the initial offering price, closing at $85.56.
McData, headquartered in Broomfield, CO, is a provider of
enterprise switches and software for connecting Web servers.  EMC
plans to spinoff remaining MCDT shares to its shareholders in
6 to 12 months.

Looking forward to tomorrow, the question is, will investors
sell into strength on AMAT earnings, like they did with CSCO's
today.  AMAT surprised the Street by two cents, posting profits
of $0.70 per share.  Revenues jumped by 83% from a year ago.
This may help ease the concerns over the semiconductor cycle that
has been the center of debate since Jonathan Joseph's comments
last month.  After tomorrow's close, DELL will report earnings
and investors will be eagerly watching to gauge the outlook for
the box makers.  With overhead resistance very near on both the
NASDAQ and the INDU, it is going to take a strong volume effort
to push the markets to the next level.  If we continue to sell
into strength, a rollover could be imminent.  Keep tight stops
on your existing positions.  The VIX.X (is it still broken?)
inched up 0.48 to 21.31, so it is still in the red alert area.
PPI and Retail Sales on Friday are lurking.  August expiration is
just a week away, so use caution in initiating new positions in
August contracts.  With the market in a moment of flux, it really
could go either way.  I'm not a believer that we have the catalysts
and the conviction to go to new highs.  So when you get ready
tomorrow to trade, ask yourself, am I a believer?  Good luck and
when in doubt stay out.

Matt Russ
Asst. Editor


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

Only Trade The Good Ones
By David Popper

Once upon a time, while leaving an Orlando Magic basketball game,
I noticed people handing out books.  I was handed what turned out
to be an investment book by a then current "guru."  The book
touted "secret" investment techniques "that only the rich know."
These "secret" techniques were none other than simple option
strategies such as writing covered calls, selling puts, buying
calls, etc.  I read over the book one Thanksgiving and became
intrigued with the notion of writing covered calls.  In this book,
the "guru" made it sound so easy.  He claimed that you could make
between 14% and 40% per month employing this strategy.  All that
you had to do was buy stock that had a call premium of 10%, buy
all of the stock that you possibly could including using most of
your margin, and sell the calls.  Why in a few short years you
too could be a millionaire.

I was given a web site which listed stocks that had the highest
call premiums but had no real fundamental or technical analysis.
I found Rastergraphics.  The stock sold for $5 at the time.  The
$5 call for the current month was $0.50.  Ah, the color of money.
That was all I needed to know.  Who cares about what product or
service Rastergraphics makes?  Who cares who its competitors are?
Who cares if it makes money?  Who cares what the chart looks like,
I made 10%.  I felt great until 2 weeks later when the company's
share price was cut in half.  Two months later it was delisted.

I made the same mistake that a na´ve teenager would make on the
dating scene.  She is beautiful-I'm in love, even though I don't
know her name, background, family or anything else.  It didn't
take more than one error in dating to gain some discretion.  So
too, the Rastergraphics experience taught me to realize that
premiums were not everything.  Earnings matter.  Long term
prospects matter.  The chart matters.  In short, you should only
trade quality stocks that you wouldn't mind holding long term.
If you only trade stocks that are worth holding for the long term,
you are never worse off than a long term holder of a quality
stock.  You, in fact, are in a much better position because as a
call writer, you are always collecting premium.  The past few
years have demonstrated that quality stocks, particularly in the
high tech area, will have violent down times followed by violent
upward moves.  Purchasing quality stocks and continually writing
calls should keep you profitable over the long run.

In short, the "guru" was right, writing calls is an effective cash
flow technique.  The "guru," however, didn't tell me the rest of
the story.  Rastergraphics episodes are the other half of the
story.  Margin can make it worse.  Short-term covered calls are
effective, by itself or in combination with other strategies, if
and only if used in light of basic fundamental analysis (earnings)
and technical analysis (relative strength and chart analysis).  I
wish that I could say otherwise, but nothing substitutes for
homework and nothing substitutes for quality.

So how do you do your homework?  An easy way is to use the system
that I discussed two weeks ago.  I began to use one fundamental
measure and one technical measure.  The fundamental measure is
EPS (earnings per share).  As I explained, in Investors Business
Daily (IBD), each company's EPS is listed.  IBD measures the EPS
by comparing a company's earnings in the two most recent quarters
and comparing them to the same two quarters from the year earlier.
Then, the earnings growth rate for the past 5, 4, and 3 years are
evaluated.  The results are compared to all other stocks and are
rated on a scale of 1 to 99, with 99 being the best.  For example,
if a stock is rated with a 90 EPS rating, it outperformed 90% of
all other companies in earnings growth.  I insist that a stock
have at least an 80 EPS.  The technical measure that I use is
relative strength (RS).  IBD measures the stock's price change
over the past 12 months and once again compares it with the
universe of stocks.  If a stock has a 90% RS, then it has
outperformed 90% of the stocks over the last year.

Once again, I insist that a stock have an RS rating of 80%.  Once
a stock is selected, I then try to make my trade based on the
chart.  Is the stock trading above its 10 day, 20 day, 50 day, or
200 day moving average?  Is the stock basing or is it topping?
Is the volume greater on up days than it is on down days?  This
is not heavy duty technical analysis, this is the basics.  The
point is, a Rastergraphics situation can be avoided with a
minimum of effort.  That is, simply picking good stocks at
technically reasonable times.  If you are not day trading,
precision with entry points is not near as critical.  The bottom
line is, you should insist on only trading the good ones.

Contact Support


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

Rolling Options Continued
By Austin Passamonte

It's official; traders exist who still believe there is money
to be made on stocks other than NASDAQ issues.  Perish the
thought?  I even saw one noted giant fund manager on CNBC
Monday profess that SOX.X issues are for the most part mature,
save a couple.  Not only that, he predicted traders again will
turn their attention on some NYSE stocks that offer an unexciting
but steady growth potential to us from here.

I realize the RMBS & PDLI fans just clicked the "back" button
on their browser toolbars, but for those of us who remain, I do
love such symbols too.  I enjoy the good fortune of having a
life designed with available time to watch market action 25/8,
which comes in very handy when trading such stocks.

I'm willing to bet a majority of readers here mirror the
population in general; you have jobs, careers, families and
favored hobbies all vying for your precious time.  Is that a
fair assumption?  The volume of email we received since Monday's
article seems to back that up.

To summarize the feedback, numerous traders here would love to
play methodical trades that evolve within parameters that limited
time can handle.  Let's cover more details to the rolling strategy
and we'll move on from there.

Rolling stocks (and options) is not a new concept invented by
well-known, self-professed gurus.  This is the backbone of equity
trading almost since market inception.  Hard as it is for us to
believe, broad markets moved across daily and weekly historical
ranges that we now enjoy within minutes or less.  Other than the
past couple of years and few exceptions beyond, current day
volatility was incomprehensible to generations of traders that
made or lost fortunes anyway.

Lest it seem like a fool-proof way to get rich in the equity
world, alas it is not.  Fact is I'm still searching for just such
a thing and if you discover one first please drop me a note.  There
are caveats and parameters within this system just as any other.

The first challenge is finding stocks entering or trading within
a defined roll to begin with.  It does take time to screen charts
and sift out potential candidates to trade.

A number of readers requested OIN offer a feature section on these
low volatility plays.  Of course, I have no control over that but
do know it would take massive manpower to sort, sift & orchestrate
such a feature.  Having spent the past few days out at OIN
headquarters, frankly, I'm in awe of what the staff accomplishes
already wearing several hats, each provided for such a paltry
monthly subscription.

To be honest, competing online services charge much more for a
mere fraction of the content.  That being said, let's rely on
ourselves for now to find our own fish rather than being fed by
OIN.  We'll leave that thought for another time.

Probably the trickiest part in trading such plays is to find one
near the beginning of a new roll.  By the time they become
apparent to all the support/resistance zone is likely to be broken.
It takes a while scrolling through daily charts before the ability
to pick them out becomes clear.  Our first step should be spent
learning this simple skill.

Over time you will notice rolling stocks predictably behave the
same way: they roll up & down for weeks or months and break that
range before methodically forming a new one. A few rules of thumb
help us spot the next move trying to form.

First of all, rolling stocks strongly tend to hug a 10% moving
range for some inexplicable reason.  After looking at enough
charts to require reading glasses, I've noticed this tendency to
be true.  From stocks under $5 to over $200, the habit of rolling
within 10% of its share price is very apparent.

The second point to keep in mind is that rolling stocks attempting
to form new channels after moving up or down will likely bounce
above & below the inevitable 10% zone.  This initial erratic
"volatility" can be accounted for when deciding on new call or put
entries as the trades develop.

There is always the strong possibility for us to enter a trade
when the stock decides to break containment of the roll.  Terrific
if it favors our direction but how many times does that happen
for you?  Trust me, these gift trades occur for me even less.

A solid stop-loss management system is imperative even while
trading such equity tortoises.  Failing to do so will still result
in pain albeit over a longer period of time than high-volatility
options.

Some traders choose to play rolling stocks by simply going long
at support and short at resistance.  That's about as basic an
approach as we could imagine and wouldn't be my first choice.
Picking out issues within a roll and buying calls or puts is best
done with the usual screening one normally uses for any trade.
Just because our target nears a possible entry doesn't mean it's
time to pull the trigger.

Personally, I do best on any trade when screening it through my
chart setup.  Failure for me to adhere such discipline normally
results in busted plays and stopped-out trades at best.  This is no
different for rolling stocks as well.  The very same chart signals
we covered over the past several weeks work very well at confirming
solid trade reversals while warning of breakouts from the range.

In my opinion, the purpose of singling out stocks in a roll is not
merely buying at expected turning points, but to keep an eye on
them as they near these marks.  The process is almost always slow
enough to allow patient entries with limit orders placed before
the market open and managed over the course of time.

Wouldn't it be nice to place trades that methodically yield
25% - 50% returns or greater over the course of time that don't
need constant monitoring?  Creeping rallies in a stock that
gradually edges up or down 10% are not like watching paint dry,
it's more akin to watching grass grow out here in rural New York
state this year.  Needs mowing every little while regardless what
takes place around it.

A very good book on the subject is available in the OIN
"Bookstore" section for much less than I paid a couple years ago.
"Rolling Stocks...Making Money On Ups & Downs" by Gregory Witt is
a must-read on the subject.  It is the only one on the topic I
would personally recommend.  You will find it in the title search
box at the bottom of current listed selections.  A most informative
book.

Due to my time spent away from home I've been unable to chart
further examples of stocks currently rolling right now.  We'll
wrap this topic up next Monday and proceed with some graphics and
final details that will help you on your way.  Another idea shall
follow of interest to limited-time position traders of any option
able equities under the sun.  As always, looking forward to our time
spent together then!

Best Trading Wishes,

Contact Support


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**********************
PLAY OF THE DAY - PUT
**********************

VRSN - VeriSign, Inc. $145.75 -2.25 (-16.31 this week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 mln of its
digital certificates for individuals.  To date, over 300
enterprises have subscribed to the OnSite service and VRSN has
strategic relationships with industry leaders including Cisco,
Microsoft, RSA, Security Dynamics, and VISA.

Most Recent Write-Up

Even good news can't move this stock up.  Considering the
post-earnings depression since VeriSign reported on July 26th, one
would think that the company must have disappointed or had a nice
healthy pre-earnings run-up.  Closer examination would reveal
that this is not the case.  For the quarter, VRSN posted revenues
of $70.3 mln, a 275% increase over last year's revenues of
$18.7 mln.  This was good enough to earn 7 cents per share
for the company, easily blowing away Street expectations of a one
penny loss.  Along with that were bullish words from President
and CEO Stratton Sclavos.  According to Sclavos, "Our second
quarter results underscore the momentum we are seeing across all
of our lines of business and the leverage that is inherent in our
business model as we continue to drive more and more services
through our infrastructure."  It appears that this was not enough
as the stock has moved sharply lower since then, despite the waves
of good news.  An upgrade by Sands Brothers, new business from
CIBC, an alliance with INKT, even a dismissal of a $1.7 bln
class action lawsuit against the company cannot seem to break
VRSN out of its downward spiral.  Since the news can't explain
the recent activity, let's examine the technicals.  The stock has
had difficulty with the 10-dma (now at $160) since earnings and
has been riding it down.  Bouncing sharply last Thursday, the
stock found resistance in the $165 area and since then has moved
lower, violating not only its 100-dma but it's 200-dma as well,
both in the $155 area.  Today, VRSN closed below the key support
level of $150, putting it also below its 5-dma.  Failure to rally
above resistance at $150, its 5-dma at $153.80, $155 and $160 may
be an opportunity to enter this play.  The next levels of support
appear to be at $145, $142 and from there it's a short trip to
$135.

Comments

With the 10-dma, currently $156.50, presenting downward pressure
on the stock, VRSN doesn't appear to have the buying force to
push it higher.  Closing at the lows of the day, along with a
weakening NASDAQ, VRSN's downtrend is nicely intact.  Look for
entries into this put play on any spikes to the 10-dma, followed
by a rollover.  A strong volume move through $145 would confirm
the current trend and offer a more conservative trading
opportunity.  Look to the NASDAQ for overall market sentiment,
especially after the tech index got tired going into the close
today.

***August contracts expire next week***

BUY PUT AUG-150 XVR-TJ OI= 667 at $10.88 SL= 8.75
BUY PUT AUG-145*XVR-TI OI= 563 at $ 8.25 SL= 6.25
BUY PUT AUG-140 XVR-TH OI= 632 at $ 6.00 SL= 4.25
BUY PUT SEP-150 XVR-UJ OI= 469 at $18.88 SL=13.25

Average Daily Volume = 4.02 mln



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

Cisco throws a party...

The market ended mixed today with technology issues edging higher
after news of Cisco Systems' earnings while blue-chips struggled
amid a sell-off in retail stocks.  After the close Tuesday, Cisco
posted better-than-expected quarterly earnings, surpassing the
consensus estimates as revenue rose 61%.  The announcement was
cause for new optimism in the group and a number of technology
sectors moved higher during the session.  Semiconductor stocks
were among the top performers and networking issues also enjoyed
substantial gains.  In the broad market, Oil service segments
rallied in the wake of another decline in inventories, which
boosted crude oil futures.  The American Petroleum Institute
reported that the most recent drop in crude supplies has brought
the sum of U.S. inventories to 24-year lows.  On the downside,
the retail sector slumped after a slew of companies unleashed
their quarterly results and sellers invaded the group to take
profits.  Among other industries experiencing noticeable losses
were transportation, banks and utilities.  Looking forward, the
short-term market outlook is mixed with the week's remaining big
news; the retail sales report and the producer price index, due
out on Friday.  With any luck, the data will be bullish and the
recent recovery in the technology group will continue.


Summary of Previous Picks:

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

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

GMST    AUG    60    56.06   64.75   $3.94   7.1% Rally off support
CALP    AUG    50    47.84   58.25   $2.16   6.0%
CALP    AUG    50    48.50   58.25   $1.50   5.9%
ITWO    AUG   115   109.00  139.25   $6.00   5.6%
ENE     AUG    75    72.88   82.28   $2.12   5.5%
NTAP    AUG    90    85.44   90.56   $4.56   5.4% Bounce off 150 dma
IDPH    AUG   120   116.94  135.00   $3.06   5.0%
VRTA    AUG    55    52.18   73.50   $2.82   4.4% Nice Bounce
VSTR    AUG   135   127.25  124.63  -$2.62   0.0% Buyout candidate

ARTG    Closed
AWRE    Closed
AETH    Closed

Naked Puts:

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

SAPE    AUG    95    93.12  137.50   $1.88  13.7%
ENE     AUG    75    73.12   82.28   $1.88  11.8%
TUTS    AUG    70    68.81  101.25   $1.19  11.8%
CALP    AUG    45    43.88   58.25   $1.13  10.9%
CALP    AUG    45    44.31   58.25   $0.69  10.4%
VRTA    AUG    55    53.81   73.50   $1.19   9.6%
IDPH    AUG   110   108.50  135.00   $1.50   9.2%
NTAP    AUG    80    78.12   90.56   $1.88   8.7% Bounced off 150 dma
VRTA    AUG    50    48.38   73.50   $1.62   8.4%
GMST    AUG    50    48.87   64.75   $1.13   7.7%
TIBX    AUG    90    87.63  116.38   $2.37   7.5%
AMCC    AUG   120   118.31  151.44   $1.69   6.5%
SEBL    AUG   115   113.94  165.31   $1.06   6.5% 2 -1 split 9/11
AETH    AUG   135   133.19  136.00   $1.81   6.3% Time to go?
MACR    AUG    75    73.32   84.38   $1.68   6.2% Still Weak!
ITWO    AUG    95    93.31  139.25   $1.69   6.1%
MERQ    AUG    85    83.32  106.44   $1.68   5.8%
SAPE    AUG    85    83.56  137.50   $1.44   5.7%
VSTR    AUG   110   108.31  124.63   $1.69   5.6% Buyout Candidate
MERQ    AUG    80    78.87  106.44   $1.13   5.2%

ARTG    Closed
AWRE    Closed
CLRN    Closed


Naked Calls:

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

MRVC    AUG   100   102.44   62.63   $2.44  19.4%
RBAK    AUG   155   156.13  151.06   $1.13   8.7% Ready to Cover?
MUSE    AUG   195   196.31  142.13   $1.31   5.9%
HWP     AUG   150   151.00  113.75   $1.00   5.7%


New Candidates:

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

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

BULLISH PLAYS - Covered Calls & Naked Puts

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

EXTR - Extreme Networks  $156.56  *** Split Rally? ***

Extreme Networks is engaged in the design, manufacture and sale
of high performance networking products based on Gigabit Ethernet
technology.  They provide end-to-end switching solutions that
meet the requirements of enterprise LANs, ISPs and content
providers. Their Summit and BlackDiamond switches share a common
ASIC, software and management architecture that facilitates a
relatively short product design and development cycle, thereby
reducing the time-to-market for new products and features.

Earnings continue to dominate the market and in the current year,
Extreme's net revenues totaled $262 million, up from last year's
$98 million.  The increase reflects increased sales of the Summit
and BlackDiamond products and the outstanding performance did not
escape analysts' notice.  Since the posting of these results,
Extreme has received a number of bullish ratings from several
analysts, including Morgan Stanley Dean Witter and Lehman Brothers.
With this proliferation of positive analyst's opinions, the stock
has climbed impressively through resistance, culminating in a new
52-week high (near $160) on Tuesday.  In addition, EXTR's stock
will split 2-for-1 on August 25, 2000.

The current technical outlook is favorable and our conservative
position offers a way to participate in the volatile issue with
relatively low risk.

EXTR - Extreme Networks  $156.56

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

Sell Call AUG 140  EUT HU  443      19.25   137.31     6.6% ***

Sell Put  AUG 130  EUT TF  194       0.88   129.12     8.1% ***
Sell Put  AUG 135  EUT TG  139       1.50   133.50    11.9%
Sell Put  AUG 140  EUT TU  298       2.38   137.62    16.6%

Chart =
 

******

PHCM - Phone.com  $91.13  *** Big Merger! ***

Phone.com is a leading provider of software that enables the
delivery of Internet-based services to mass-market wireless
telephones.  The company's products enable the delivery of
Internet-based services to the wireless market.  Products
include: UP.Link Server Suite, which allows network operators
to connect their subscribers' wireless telephones to Internet
services; UP.Browser, which is embedded in wireless telephones
and enables subscribers to access Internet services; UP.Smart,
a suite of software applications that delivers personal digital
assistant features to smartphones; and UP.SDK, a kit that many
Internet content providers and third-party developers use to
create WML-compliant applications.

Phone.com and Software.com (SWCM) announced today they would
merge in an $8 billion stock deal to create the top provider
of the technology that delivers Internet access over cellular
phones, handheld computers and other wireless devices.  The
idea of a merger between the two had been discussed recently
and analysts lauded the formation of this giant player in a
market seen booming for years to come.  One expert noted that
the deal creates a powerhouse in the wireless community with
enormous market potential.  The companies also hired a Cisco
veteran, Don Listwin, to lead the new venture.  The terms of
the deal, in which ownership of the combined company will be
divided evenly between both PHCM and SWCM stockholders, calls
for each Software.com share to be traded for 1.61 Phone.com
shares.

Based on the favorable reaction to the announcement and the
positive fundamental outlook for the new company, this play
provides an excellent opportunity to speculate on the success
of the venture.

PHCM - Phone.com  $91.13

NOTE: September Expiration

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

Sell Call SEP 85   UMN IQ  15       12.88    78.25     7.1% ***

Sell Put  SEP 65   UGE UM  219       1.50    63.50     6.3% ***
Sell Put  SEP 70   UGE UN  54        2.38    67.62     9.5%
Sell Put  SEP 75   UGE UO  18        3.75    71.25    12.8%
Sell Put  SEP 80   UGE UP  105       5.50    74.50    14.7%

Chart =
 

******

PROX - Proxim  $85.81  *** A Big Day! ***

Proxim designs, manufactures and markets high performance
wireless local area networking (LAN) and building-to-building
network products based on radio frequency technology.  Their
highly integrated wireless client adapters and network
infrastructure systems seamlessly extend existing enterprise LANs
to enable mobile applications in a variety of in-building, campus
area and building-to-building network environments. Proxim's
RangeLAN2 2.4 GHz wireless LAN technology has been adopted by
a number of major mobile computer system and handheld data
terminal manufacturers and many leading wireless solution
providers for real-time data collection applications in
manufacturing, transportation and retailing.

Proxim has been expanding and this year the company acquired two
enterprises, Micrilor and Farallon Communications.  The Farallon
purchase gives Proxim a new market angle: Macintosh connectivity.
Proxim's CEO David C. King recently explained that the company
achieved faster growth in the second quarter of 2000, based on
increasing momentum in their emerging home networking products
combined with continuing strength in the company's commercial
wireless networking business.  In home networking, they began
volume shipments of their new HomeRF products to Intel and other
key strategic partners who are working with Proxim to lead the
way in this rapidly emerging market.  Proxim has also announced
a 2-for-1 split, effective on August 18, 2000 and investors have
reacted positively to the news.

With favorable disparities in the front-month premiums, this
position offers an excellent speculation play for traders who
are bullish on the issue.

PROX - Proxim  $85.81

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

Sell Call AUG 75   WQG HO  3        12.38    73.43     7.2% ***
Sell Call AUG 80   WQG HP  53        8.75    77.06    12.9%

Sell Put  AUG 75   WQG TO  6         1.25    73.75    17.1% ***
Sell Put  AUG 80   WQG TP  45        2.88    77.12    31.0%

Chart =
 

******

TUTS - Tuts Systems  $101.25  *** New, All-Time High! ***

Tut Systems develops and markets advanced communications products
that enable high-speed data access over the copper infrastructure
of telephone companies, as well as the copper telephone wires in
homes and businesses. Their products incorporate high-bandwidth
access multiplexers, associated modems and routers, Ethernet
extension products and integrated network management software.

This company is one of our favorites for long-term portfolios
and the recent demand for Communications Equipment Providers
has boosted this bullish issue out of a previous trading range.
In addition, Tuesday's bullish comments by John Hughes of Shields
& Co. on CNNfn.com helped boost the issue to a new, all-time high.
The analyst said that TUTS has performed extremely well for a
technology stock in the short term, and because the outlook is
very positive (revenues are expected to grow 100% year over year),
the issue should see higher prices in the future.  The current
trend is favorable and we offer this position as a "second chance"
entry, based on the bullish technical indicators.  The stock is
slightly over-extended but a reasonable, short-term cost basis
exists near the previous resistance area at $85.

TUTS - Tuts Systems  $101.25

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

Sell Call AUG 90   QSS HR  108      12.75    88.50     5.7% ***
Sell Call AUG 95   QSS HS  66        9.38    91.87    11.5%

Sell Put  AUG 85   QSS TQ  229       0.88    84.12    11.8% ***
Sell Put  AUG 90   QSS TR  157       1.81    88.19    19.7%
Sell Put  AUG 95   QSS TS  20        3.25    91.75    29.3%

Chart =
 

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

BEARISH PLAYS - Naked Calls

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

ADBE - Adobe Systems  $116.31  *** Trading Range ***

Adobe Systems is a provider of graphic design, publishing, and
imaging software for Web and print production.  They offer a
line of application software products for creating, distributing,
and managing information of all types. Adobe licenses its
industry-standard technologies to major hardware manufacturers,
software developers, and service providers, and offer integrated
software solutions to businesses of all sizes.

The performance of the Computer Software group has slumped
substantially since earlier in the year and now it appears the
leading issues in the industry are again mired in a bearish
trend.  Obviously, Adobe is a great company but the short-term
technical picture is less than outstanding.  With today's big
drop, the issue has failed to successfully recover after the
recent technical rally and for now it appears the stock has
little chance of reaching our sold positions.

ADBE - Adobe Systems  $116.31

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

Sell Call AUG 125  AXX HE  880       2.63   127.63    22.0%
Sell Call AUG 130  AXX HF  1007      1.50   131.50    14.8%
Sell Call AUG 135  AXX HG  1144      0.69   135.69     8.2% ***

Chart =
 

******

IMCL - Imclone Systems  $70.50  *** Big Premiums! ***

Imclone Systems is engaged in the research and development of
novel cancer treatments.  They focus on growth factor inhibitors,
therapeutic cancer vaccines and angio-genesis inhibitors.  Their
lead product candidate, IMC-C225, is a therapeutic monoclonal
antibody that inhibits stimulation of a receptor for growth
factors upon which certain solid tumors depend in order to grow.
IMC-C225 has been shown in several Phase I/II trials to have an
acceptable safety profile, to be well tolerated and, when
administered with either radiation therapy or chemotherapy, to
enhance tumor reduction. Imclone is also developing inhibitors of
angio-genesis, which could be used to treat various kinds of
cancer and other diseases.

This play is simply based on the current price or trading range
of the underlying issue and its recent technical history.  We
will use the current consolidation period to benefit from
overpriced option premiums with these relatively conservative,
bearish positions.  The probability of the share value reaching
our sold strikes appears rather low but there is always the
possibility of a recovery rally so monitor the issue daily for
changes in technical character.

IMCL - Imclone Systems  $70.50

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

Sell Call AUG 80   QCI HP  826       2.38    82.38    38.2%
Sell Call AUG 85   QCI HQ  362       1.31    86.31    28.7%
Sell Call AUG 90   QCI HR  889       0.69    90.69    15.8% ***

Chart =
 

******

VRSN - Verisign  $145.75  *** Rolling Over! ***

Verisign is a global provider of Internet-based trust services,
including authentication, validation and payment, needed by
web sites, enterprises, electronic commerce service providers
and individuals to conduct trusted and secure electronic commerce
and communications over wired and wireless Internet protocol (IP)
networks.  The company has established strategic relationships
with industry leaders, including BT, Cisco, Microsoft, Netscape,
RSA Security and VISA, to enable widespread utilization of its
digital certificate services and to assure their interoperability
with a wide variety of applications and network equipment.  The
company has used its secure online infrastructure to issue over
200,000 of its web site digital certificates and millions of its
digital certificates for individuals.

Sellers took charge of the Internet sector today and companies
in the Software and Services group continued to suffer from
widespread profit-taking.  Verisign has experienced a major
sell-off in recent sessions (on higher-than-average volume) and
with the issue now trading below an intermediate-term moving
average, it appears the new trend has further downside potential.
The volatile activity in the stock has produced some excellent
premiums in the (OTM) call options and we will use the current
speculative interest to open a conservative, short-term position
with a bearish outlook.

VRSN - Verisign  $145.75

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

Sell Call AUG 165  XVR HM  471       2.06   167.06    16.9%
Sell Call AUG 170  QVZ HN  593       1.50   171.50    14.3%
Sell Call AUG 175  QVZ HO  609       1.00   176.00    11.2% ***

Chart =
 


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