Option Investor

Daily Newsletter, Thursday, 08/10/2000

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The Option Investor Newsletter                 Thursday 08-10-2000
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MARKET WRAP  (view in courier font for table alignment)
        08-10-2000        High      Low     Volume Advance/Decline
DJIA    10908.80 +  3.00 10946.50 10886.80  944 mln   1350/1473
NASDAQ   3759.99 - 93.51  3847.29  3759.99 1.35 bln   1585/2377
S&P 100   799.04 -  8.02   807.48   798.82   totals   2935/3850
S&P 500  1460.25 - 12.62  1475.19  1459.85           43.3%/56.7%
RUS 2000  501.65 -  5.85   507.73   501.61
DJ TRANS 2856.59 +  8.68  2864.97  2845.22
VIX        21.57 +  0.24    22.01    21.28
Put/Call Ratio       .62

Be careful what you ask for, you might get it!

Investors have been hoping for a soft landing from the interest
rate attack. Now that it appears the landing may be in front of
us, stocks are weak because earnings are now being called into
question. At least that is the excuse of the day. Our view is
slightly different. Still the Nasdaq has been in a nose dive for
two days an the Dow has been unable to make any progress and is
languishing just under the magic 11000 level.

Just another fun day in the summer markets! The casualties are
littering the roadside as we navigate toward Labor Day. To start
the parade The Gap Stores (GPS) issued its second earnings warning
in the last two weeks and said Q3 results would be below analysts
estimates of $.41 to as low as $.35. Also Q4 results "might" be
in danger of slippage as well. Investors began a giant clearance
sale on GPS stock which dropped another -4.31 and is trading at
only $27 instead of last weeks $38.

Other retailers took a hit as well after Lands End missed the
reduced estimates with a loss of -.06 instead of a +.07 gain.
The stock price has been cut by more than -50% from $61 to $28
in the last several months. Walmart, who announced earnings
inline with estimates on Wednesday lost another -2.19 on top
of a big loss yesterday. WMT closed at $51.44 which is a three
month low. WalMart also announced an accounting change which
would impact profits.

With Retail Sales due out on Friday it appears from the flood
of bad news from the retail sector that the report may be
favorable. Kmart also announced dismal earnings again today
with only a +.05 gain compared to +.26 in the same quarter last

The losses were not limited to the retail sector with Adaptive
Broadband posting a larger than expected loss of -$.17 and
dropped -$2.50 in after hours. ICGE also announced earnings
after the close and posted a loss of -$.70 vs a -$.06 for the
same quarter last year. Sales surges +600% to $453 million but
the stock dropped in after hours after analysts expressed concern
that ICGE only had about six months of cash left.

The 800LB gorilla however was DELL which announced earnings of
$.22 after the close and beating official estimates of $.21. DELL
did not beat the whisper number of $.23 and revenue, although
up from last year, came in on the low side of the high estimates.
Dell said it was on track to post 30% growth for the remainder
of the year. While 30% is good it is not stellar and far from
the much higher numbers from quarters past. While analysts and
investors know in their hearts that +50% growth cannot go on
forever it is always painful to actually see the deterioration.
Dell desktop sales declined to 51% from 60% in the same quarter
last year but higher margin server sales increased. Dell said
the results included income from investments but declined to
say how much. Many analysts were worried that Dell's $8 billion
in investments would provide income to offset falling sales and
when the actual numbers are made available Dell stock could take
another hit if the ratios show margin weakness. Dell dropped in
after hours trading after the earnings announcement.

Drug users cheered the court ruling on Wednesday that caused
many investors to undergo withdrawal. The ruling caused many
to grab for their Prozac while selling Lilly. The ripples may
continue for some time until the real results of the ruling
are known. Still the drop in drugs and biotechs across the board
had real and immediate impact to the markets. Biotechs like PEB
and DNA got hammered along with Forrest Labs and company. The
rush is on to see who has patent problems and who might be the
next loser in this space. Some of the bigger possibilities are:

MRK - Vasotec, Pepcid, Prinivil, Mevacor
GLX - Ceftin, Augmentin, Flovent
PFE - Neurontin, Procardia
AZN - Prilosec, Zestril
BMY - Glucophage, Buspar
LLY - Humunlin, Prozac
SGP - Claritin, Intron

The biggest drug above is Prilosec which has almost $6 billion
in annual sales and accounts for one third of AstraZeneca
sales of $15 billion per year.

Mrs. Bezos, can Jeff come out and play? ToysRus scored a real
win today when Jeff Bezos agreed to start selling their products.
The second place toy website behind Etoys signed a ten year deal
to allow Amazon.com to run their website in conjunction with the
Amazon.com distribution centers. Amazon will market and ToysRus
will ship the product to Amazon warehouses. ToysRus will continue
to OWN the products and take the risks of inventory. Amazon will
market and ship, something they are really good at doing. It
looks like a win/win to me and Etoys worst nightmare just came
to pass. With the tens of millions of Amazon customers being
exposed to ToysRus products the odds are good Etoys sales will
suffer. ETYS sank to a new 52 week low of $3.94 on the news.
With a market cap of only $490 million maybe Amazon should have
bought the industry leader, ETYS, instead? They have the cash as
well as the stock. Oh well..surely they at least thought about
it! Amazon has a market cap north of $11 billion.

Friday is economic report rich with both Retail Sales and the
PPI report. The Retail Sales estimate is for a gain of +0.4%.
Are consumers curtailing their spending habits or are gasoline
prices gouging a hole in their budgets? Tomorrow we will know
for sure. Anything less than the 0.4% will be viewed as more
confirmation that the economy is slowing. The PPI is expected
to come in unchanged and short of a blowout it is not expected
to be a market mover. Most analysts already have the Fed on hold
and bond yields significantly under 6% across the yield curve
show the next interest move may likely be a rate cut. Incredible
isn't it. Two weeks ago it was rate hike worries and now the
market is discounting a possible cut (not in August) as the next
move in the future. The current challenge for Alan and company
is oil prices again. With crude up over +$2 in the last two
days to over $31 again, we are far from out of the oil price

So when is the market going to get the picture? When is the
fall rally going to explode on to the scene? Now that is a
question for Regis on the Millionaire show. My answer, my final
answer, ... any day now. As a news and event sentiment player
I feel the Dow pull back from 11000 was just profit taking
after seven days and +500 points of gains. The Nasdaq pull back
from 3950 was also on profit taking AND fear of earnings. The
CSCO earnings were not supposed to be a problem but cautious
traders have learned to take profits ahead of unknowns. Same
with today. DELL was scheduled to announce earnings that were
not expected to ring any bells on the upside and had lots of
possibilities to cause ripples on the downside. Add the Retail
Sales and PPI before the open on Friday and you have the top
three reasons to step to the sidelines over night. Now that
all the high profile earnings are history and the PPI/RS on
Friday will give us the last major economic news before the
Fed meeting on the 22nd, then my final answer is "any day now."
Friday could, reports permitting, be D-day. It is however a
summer Friday which would put Monday high on the probability
list. Did anybody notice that the Nasdaq came to rest exactly
on previous support at 3750?

The convergence of all the moving averages this week along
with the strong earnings news was just too much for the Nasdaq.
Once we do power over the 3950-4000 level this same convergence
will provide a huge support level and platform for the Fall rally.

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Good luck and sell too soon.

Jim Brown


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No Mention Of The "V" Word Tonight!
By Austin Passamonte

Just to prove we aren't a one-pony show, let's examine current
market sentiment without this popular tool.

It's apparent to all that bulls are sick & tired of sitting
on piles of cash. The fervor to buy is truly palpable but
propping prices up isn't easy for individual traders when fund
managers all too eagerly sell into each fledgling rally.

For candlestick pattern fans, take a look at daily charts for
the OEX and NDX. Each are exhibiting pretty clear versions of
"Evening Star" patterns that don't bode well for near-term
rallies in these broad indexes. The Dow and Comp don't look
much better.

Hey, don't shoot the messenger here - we don't paint the
candles, just read 'em & report.

Media pundits are perplexed over big-cap issues selling off
after stellar earnings are reported. Where've they been? I
hope no one expected the rally to grow legs based solely
on earnings alone.

Rally we may if PPI results are favorably benign. There
will come a point when the market truly believes rate hike
fears have ended. Will we sail straight up the charts from
there or is another wall of worry waiting beyond?

Eventually this market will soar and the chance to buy calls
and sleep at night shall return. Some believe that time has
come and we may be near. Market Sentiment isn't convinced
tomorrow is kickoff day.

We wouldn't be surprised to see more volatility and further
tests to recent support levels or beyond. In our opinion this
is a time of extreme market turmoil akin to March & April.
We feel months-long trading ranges will soon break in a
big way and each passing day favors the upside, long-term.

Meanwhile the chance to buy puts and profit greatly may
very well revisit us before then. Isn't that why we trade
options? The ability to play both directions and prosper
is the tradeoff to time decay in my opinion.

What we wouldn't pay to relive the wild days from March &
April one more time. Certainly that's not out of the question
in either direction. Go with the flow and profit wildly!


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.

Tues 8/8 close: 20.83    Thurs 8/10 close: 21.57

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            (8/08)      (8/10)       (8/12)

CBOE Total P/C Ratio         .50         .62
Equity P/C Ratio             .42         .56

Peak Volume (OEX)
CBOE index put/call ratio is a contrarian-sentiment indicator.
Numbers above 1.5 are considered bullish, 1.5 to .75 neutral
and bearish if below .75

                        Tues         Thurs        Sat
Strike/Contracts       (8/08)        (8/10)      (8/12)

All index options       1.69          1.73
OEX Put/Call Ratio      1.84          2.09

OEX Maximum Open Interest Strikes/Contracts:

Puts               790/7,360      800/7,655
Calls              800/5,824      800/6,521
Put/Call Ratio       1.26           1.17

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:               (8/08)       (8/10)       (8/12)

Overhead Resistance:
(850-825) (840-820)*     303.75        41.58
(820-805) (815/800)*       2.52         1.25

OEX close:                  805          799

Underlying Support:
(805-785) (800-785)*       1.66         2.09
(780-760)                  5.32         7.63

What the S/R measure indicates: Net open-interest ratios
are huge above 820. A large index move prior to expiration
has clearance in either direction between 780 and 820.
Market-makers would love to pin the OEX index near it's
largest strike of 800 for maximum expiration of worthless
contracts. Too soon to predict.

30-yr Bond:          5.73%          5.68%

Light, Sweet
Crude, Barrel:     $29.15         $31.20

200 Day Moving Average (as of 8/08)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW:   10,778          10,976     10,908
NASDAQ: 3,911           3,848      3,759
NDX:    3,648           3,686      3,595
SPX:     1430            1482       1460
OEX:      770             805        799

CBOT Commitment Of Traders Report: Friday 7/28 * Updated 8/12
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
5.68% on the 30-year Treasury Bond may be signaling rate
fears are nil. Fed-Fund futures are pricing a slight 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. PPI is next

OEX & Index Option Sentiment
CBOE Put/Call ratios of index option volume is skewed heavily
to the put side. This contrarian-indicator favors bullish

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.



Thursday's close below 22 sees us in the danger zone.

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
Record 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. Light, Sweet Crude closed $31.20 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.
Today's Big-Cap Tech Selloff
Most NASDAQ tech leaders were sharply lower today. This
leadership will be vital to a sustained or renewed rally.

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.


As of Market Close - Thursday, 08/10/00

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      10,908      10,450  11,000
SPX   S&P 500           1,460       1,425   1,505     **
COMPX NASD Composite    3,760       3,500   4,000
OEX   S&P 100             799         770     812
RUT   Russell 2000        501         485     540
NDX   NASD 100          3,595       3,300   3,800
MSH   High Tech           996         935   1,040     **

BTK   Biotech             651         570     700
XCI   Hardware          1,485       1,380   1,550     **
GSO.X Software            427         385     455
SOX   Semiconductor       942         880   1,020
NWX   Networking        1,245       1,150   1,325     **
INX   Internet            491         460     530

BIX   Banking             595         550     610
XBD   Brokerage           604         570     655
IUX   Insurance           702         680     725

RLX   Retail              841         835     910     **
DRG   Drug                387         365     415     **
HCX   Healthcare          805         760     855     **
XAL   Airline             167         160     178
OIX   Oil & Gas           297         272     304

DRG and HCX barely broke our support levels yesterday, but managed
to close back above those levels.  We have moved support levels
lower to help you assess potential downside.  OEX, MSH, XCI and NWX
hit resistance levels, then saw selling.  RLX broke and closed
below support levels.  Lowering support (RLX,DRG,HCX) Lowering
resistance (NDX, GSO.X, INX, RLX, DRG) Raising resistance
(OEX,MSH,XCI,NWX).  The bears are on their hind legs (see Tuesday)
and they look hungry.


A Glimpse Into the World of Real Trading
By Molly Evans

If you're ever in Chicago, make it a point to visit the market
exchanges.  It was my pleasure to visit the Chicago Mercantile
Exchange (CME), Chicago Board of Trade (CBOT) and the Chicago
Board of Options Exchange (CBOE) this morning.

The CME is the home of S & P, Nasdaq, Russell 2000 and Nikkei
futures, currencies, interest rates, and agricultural options
trading.  Floor traders in the pits are aggressive and act
quickly as orders stream in from customers all over the world.
Competition can be fierce as traders must vie for attention from
others. The quickest response at the most competitive price can
be the extra edge needed for a successful trade.  Banks,
corporations and individual traders constantly submit orders for
hedge positions and speculative trades.  It was so interesting to
watch the very active pit of the S & P 100 futures.  The visitors
gallery puts you right above the pit while peripheral traders
have their backs to us with their notebooks open showing tick
charts of the index.  As the decibel level increases, the chart
tells the tale - breakout or breakdown of the trend.  The traders'
hand signals go up to buy or sell their contracts but it's
impossible to tell whether they're buying to go long, covering
shorts, selling into the rally, or shorting the rally.  No one
knows another's position.

At the CBOT, futures on bonds and agricultural commodities
are traded.  The thirty-year and ten year bond pits were most
active and populated this morning.  The high populous of
traders in these pits points to the liquidity of the vehicle.
Where there is potential, there are traders.  In contrast
to this, the Dow futures pit seemed to be a bit quieter.

The CBOE is a must see.  Opened in April of 1973, the CBOE is
where hundreds of equity, index and interest rate options are
traded each day.  On its first day, 911 options were traded.
Now, 1.2 million contracts are turned over in a single day,
accounting for over 47 percent of trading in equity options,
over 95 percent of index options and over 65 percent of all
options trading.  The CBOE is a state of the art facility with
over 50,000 miles of electrical wiring underneath the trading
floor.  It takes as much electrical power to run the CBOE as it
does the nearby Sears Tower. There are hundreds of computers,
boards, and yes, of course, televisions tuned in to none other
than CNBC.  In fact, there are more computer screens under
one roof at the CBOE than any other building in the world.

I got to spend some quality time with a market maker this morning.
His market is one of the year's fallen stars but on Monday, he's
very excited to begin the Mini Nasdaq option, the MNX, which is
an option 1/10th the size of the NDX contract.  He talked about
how the American Exchange (AMEX) offers the only market for
the QQQ stock and options.  CBOE will be the only market maker for
the mini.  As a market maker and trader, he said he'd be sleeping
out on the floor Sunday night to be able to secure a special
position within the pit.  New traders to the pits apparently are
not welcomed in an established market but when an opportunity such
as this comes along, it's fair game to enter the pit.  He likened
this to the early days when some market makers camped out on the
Pacific Exchange in San Francisco to establish a position in the
Dell trading pit.  There is a big buzz on the floor to begin the
market on Monday for the MNX.

The S & P 100 index options used to be the busiest pit but a
quick glance over there showed what we've been saying all along.
Traders are thinned out for the summer and not only that, there
is competition from electronic trading vehicles such as the E
mini S & P futures contract.  According to the gentleman I talked
with, the ability for market makers to make money has become more
difficult in the last several years.  There is so much competition
from the other exchanges resulting in tighter spreads between the
bid and the ask on contracts.  They do have an advantage over
off-floor traders though, obviously.  They see all the order flow
and know the fair value at all times on contracts.  Where we
off-floor traders are in the hole immediately upon purchase of an
option, the market maker is not.  He's already up because of the
spread but he also has to take the other side of our trade and
manage his risk.  One way he might manage that risk is to go
either long or short the stock to hedge the position.  Just as
it is always about risk control in our own portfolios it is risk
control for them.  He spoke of how the floor is buying premium
right now as the volatility is low on a number of options.  For
example, he indicated that he  had been building a long position
in premium because of the low volatility in his markets.  It is
costing him in excess of $6000 per day in option decay to hold
these positions.  He has to find a way to make at least $6000
each day to make up that loss and does so in part by trading the

It was an interesting day and worthy of the time as a trader to
glimpse into the inside world of real trading.  What I came away
with today is that the way to play this market is stock and index
specific.  Because we are in an identifiable trading range,
happiness is found in buying weakness and selling strength.  Trade
patterns until there is confirmation of a move to the up or
downside.  So many things determine that and no one really knows
which trend is going to take hold.  If you want to trade, many
stocks and indices ARE moving and waiting for the sky to fall or
a runaway breakout to develop may only serve to keep you on the

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NASDAQ Hits Resistance
By Buzz Lynn
Contact Support

You'd think that with great conference call outlooks from both
CSCO and AMAT that the tech market would have led the NASDAQ
through resistance at 3950 - nope!  As we noted on Tuesday, CSCO
might have given us a pop yesterday morning only to be followed by
a decline in the afternoon as "sell the news" took effect.  In
fact, that's what happened and AMAT didn't have a prayer today.
Post earnings selloff is alive and well even if the stock doesn't
have a run before the announcement.  The whole NASDAQ followed
suit since it is made of a high percentage of tech stocks.  With
retail sales weak too (Wal-Mart met estimates but expressed
caution going forward; GPS posted a 6% sales decline from last
quarter; ditto for KM and LE), the Dow was also held back.
Overall, it was not a good day in the markets.  The only blessing
is that volume was low on the 98 point NASDAQ decline, indicating
probably just more of a breather than a new downward trend to

The wildcard for the NASDAQ is the DELL earnings conference call.
DELL beat estimates by a penny, maintained margins and defended
30% sales growth rate.  If the outlook doesn't show any storm
clouds on the horizon, DELL may survive a selloff tomorrow.  As it
stands now, DELL is treading water at $41, fractionally off
today's lows.  Any gotchas could keep pressure on the entire
sector and thus the index.  With NASDAQ support of 3850 unable to
hold today, and closing at 3759 (its low of the day), the 3750
level again comes back into focus as a pivot point.  Remember that
old resistance usually becomes new support.  If that doesn't work,
it remains as resistance on any breakdown under that level.  Let
the on the NASDAQ be your guide tomorrow, influenced by DELL's
behavior and the PPI reception.  A break under 3750 sets up the
test of 3650; a bounce sets us up for 3850, then 3950 again on the

As we've noted before, we don't see any reason to rally, but a
friendly PPI could do wonders.  On the other hand, friendly PPI
numbers would convince many traders that rate hikes are over
(heck, most are convinced of that already) and that earnings and
growth can resume their old course until after the November

Don't get caught flat-footed.  Be prepared to move either way, and
watch volume for a clue to underlying strength of any market move.
In the meantime, without direction, we ride the range.

Index             Last    Mon    Tue    Wed    Thu    Fri    Week
QQQ NASDAQ-100    89.88   2.38   0.50  -2.50  -1.75   0.00  -1.38
HHH Internet     103.50   3.56  -0.94  -2.94  -1.88   0.00  -2.19
BBH Biotech      177.56   7.31  -3.88  -1.25  -9.44   0.00  -7.25
PPH Pharm.        95.56  -1.13   0.25  -6.00   0.81   0.00  -6.06
TTH Telecom.      65.31   0.69  -2.69  -1.31   0.25   0.00  -3.06
IAH I-net Arch.   95.31   2.44   0.69   0.44  -1.81   0.00   1.75
IIH I-net Infr.   52.19   2.31  -1.00  -0.63  -0.63   0.00   0.06
BHH B2B           46.81   2.00   1.00  -2.19   0.75   0.00   1.56
BDH Broadband     88.81   2.94  -1.06  -0.13  -1.75   0.00   0.00
SMH Semicon.      81.44   2.31   0.06   2.38  -2.00   0.00   2.75
RKH Reg. Bank    105.81  -0.38   0.75  -0.50   0.94   0.00   0.81
UTH Utilities    100.25   2.50   1.00  -1.13  -0.25   0.00   2.13


QQQ - NASDAQ 100 $89.88 -1.75 (-1.38 this week) Much as we hate to
see a market without volume (it indicates lack of conviction), it
is telling us that we are likely to remain rangebound for the next
two weeks at least until the FOMC meeting.  Today's 98-point
decline may not look good, but only 1.35 bln shares traded on the
NASDAQ.  It's not a "run for the hills" sign.  The NASDAQ is
capped above by the convergence of the 50 and 200-dma at roughly
3915, while support remains at 3750, roughly the current level,
followed by the next level at 3650, then 3550.  The QQQ is in a
similar situation in that it too has fallen below its 50-dma of
$93.90 yesterday and under its 200-dma of $91.34 today.  As we
noted Tuesday, $94 appears pretty solid at resistance given the
convergence of all the averages, while $91 would be near-term
support.  While CSCO's earnings true to form gave the QQQ a spike
in the morning, the afternoon provided our call selling
opportunity and put entry, as the gains could not hold and QQQ
began a breakdown that lasted through today's close.  QQQ closed
at its low, and under $90 support, which doesn't bode well for
tomorrow unless sentiment is positively affected by tomorrow's
PPI.  Otherwise the next stop to the downside is $85-$86.  With
earnings largely out of the way though and the FOMC meeting
coming, we think there is continued opportunity to the downside
for now.  The idea for the next two weeks is to trade the
oscillating range.  Our job as traders will be to buy calls at
support and puts at resistance.  Watch the candlesticks more and
emphasize the moving averages less.

Long Straddle:

This is becoming a troublesome trade because waiting for a
volatility spike is a slow process.  It seems the VIX has remained
forever hovering in the 22 range.  Fortunately, we have until mid-
October to be right about an anticipated spike.  That's when time
decay really begins to take its toll on our December premiums.
Also, the longer we hold on, the closer we are to that eventual
date when the VIX nears 30 again and thus inflates the time
portion of our premiums.  Patience will likely pay off here if you
are already in the play, but we aren't recommending opening any
new plays at this time.  We think traders will likely be better
served by playing long puts and calls at the extremes of the
range.  That means $85-$94 currently.  No new plays are listed
tonight.  Still feel free to leg in to complete a position or leg
out if you want to close it out.  That's a timing skill that will
ultimately improve your returns

Calendar Spread:

While we may be winding down our attachment to the long
straddle/strangle position, we still favor this play as long as
QQQ keeps riding the range.  Our job is to sell time premium for a
small monthly credit against our long underlying option position.
Unlike a cover call, you don't want to get called out of this one.
So it's important to buy back the short-term short call position
at or very near expiration if the stock price exceeds the strike
price or whenever the time value has evaporated from the sold
premium.  All that said, were you able to get a $94 call sold at
yesterday's open.  If so, congratulations on an excellent entry.
Even better if you are legging in since now you can buy the
underlying at a cheaper price and reduce your net debit.  With
near-term support at $90-$91 broken in today's decline, aggressive
traders might even try to wait for a further decline under $86
before buying the long-term leg.

***August options expire next week***

BUY  CALL DEC- 86 YQQ-LH OI= 1710 at $13.75

SELL CALL AUG- 90 QVQ-HL OI=13148 at $ 2.50, ND =11.25 or less
SELL CALL AUG- 92 QVQ-HN OI=10012 at $ 1.56, ND =12.13 or less
SELL CALL SEP- 90 QVQ-IL OI=15717 at $ 5.88, ND = 7.88 or less
SELL CALL SEP- 92 QVQ-IN OI= 1427 at $ 4.88, ND = 8.88 or less

Long Puts

Wow!  Congratulations if you got those puts at the projected
rollover point at roughly $94 on Wednesday morning following the
CSCO earnings release on Tuesday night.  It's been downhill ever
since, as the QQQ took out previous support at $90-$91 on the way
down.  It's looking good, as the next level of support comes in at
$85 to $86.  That would then be a good time to sell your
profitable puts and buy calls for an assumed ride back up.  The
idea is to trade the ends of support and resistance and the mild
levels in between.  While we may see the QQQ fall back to $86, we
also don't think it will remain there long as the market makes
what has become a familiar move back up into the FOMC meeting.

***August options expire next week***

At Resistance:
BUY PUT  AUG-92 QVQ-TN OI= 7993 at $3.50 SL=2.00
BUY PUT  AUG-90 QVQ-TL OI=21026 at $2.31 SL=1.00
BUY PUT  SEP-92 QVQ-UN OI= 7320 at $6.25 SL=4.00
BUY PUT  SEP-90 QVQ-UL OI=16137 at $5.38 SL=3.50

Average Daily Volume = 22.01 mln


IIH - Internet Infrastructure $52.19 -0.63 (+0.06 this week) Like
everything else that gapped up yesterday on CSCO earnings news,
IIH did too reaching up to $56 - substantially above our rollover
entry point of $54.  But after the euphoria, IIH fell with the
rest of the market and couldn't get back over $54.  When it rolled
over again from there late yesterday, that would have made an
excellent entry.  While its 5-dma of $53 didn't hold either, IIH
is still finding support at the 10-dma of $51.59.  That's almost
identical to historical support of $51.50.  If the NASDAQ
continues downhill tomorrow, we think IIH puts are buyable at this
level or any rollover after the open.  For the more conservative,
wait for the fall under $51.50 to confirm the downward trend.
Support comes up at $48 and $45.

***August options expire next week***

BUY PUT AUG-55 IIH-TK OI= 57 at $4.00 SL=2.25
BUY PUT AUG-50 IIH-TJ OI=121 at $1.25 SL=0.50
BUY PUT SEP-55 IIH-UK OI=122 at $5.88 SL=3.75

Average Daily Volume = 199 K


BDH - Broadband $88.81 -1.75 (+0.00 this week) Sure enough,
yesterday's move up on CSCO's coattails proved to be a great put
buying opportunity as BDH fell with the overall market.  We think
BDH still has more room to the downside so long as DELL or the PPI
numbers don't inspire the market to new highs.  Why?  Today's
candlestick chart is decidedly negative with BDH finishing the day
back below its 50-dma and at its low of the day.  That doesn't
look good for tomorrow's opening.  That said, it stopped dead at
previous support too, from which it could easily bounce.  Let the
NASDAQ be your guide, but feel free to get into the put play on
any further decline.

***August options expire next week***

BUY PUT AUG-90 BDH-TR OI=91 at $3.25 SL=1.75
BUY PUT AUG-85 BDH-TQ OI=73 at $1.19 SL=0.50
BUY PUT SEP-90 BDH-UR OI= 5 at $6.00 SL=4.00

Average Daily Volume = 126 K


SMH - Semiconductor $81.44 -2.00 (+2.75 this week) Wow!  WE were
not expecting such a huge gapping move up to $85 at the open
yesterday in response to CSCO new.  But it became apparent that
the gain would not hold especially since the top was at heavy
resistance at $85.  It fell like a stone from there, which would
have made a great entry for a put play.  As it is now, SMH is back
at support of $81.  Great AMAT numbers unfortunately didn't help.
Watch the overall market for guidance on an entry.  A weak market
tomorrow and a decline for SMH under $80.50 would constitute an
entry by violating current support and further set up a test of
support at $78, then $75.  Otherwise, we'd stand aside and look to
play puts again at $85.  Once it hits $75 and takes a bounce,
we'll have to rethink the position.  Again, confirm market
direction before entering.

***August options expire next week***

BUY PUT AUG-85 SMH-TQ OI= 94 at $5.00 SL=3.00
BUY PUT AUG-80 SMH-TP OI= 88 at $2.19 SL=1.00
BUY PUT AUG-75 SMH-TO OI= 44 at $0.75 SL=0.00
BUY PUT SEP-80 SMH-UP OI=  5 at $4.75 SL=3.00, Low OI
BUY PUT SEP-75 SMH-UO OI= 17 at $2.81 SL=1.50, No OI

Average Daily Volume = 326 K

No Play



Index      Last     Mon     Tue     Wed     Thu    Week
Dow    10908.76   99.26  109.88  -71.06    2.93  141.01
Nasdaq  3759.99   75.63  -14.44    4.95  -93.51  -27.37
$OEX     799.04    7.87    2.24    1.10   -8.02    3.19
$SPX    1460.25   16.39    3.49   -9.94  -12.62   -2.68
$RUT     501.65    6.24   -1.15   -1.22   -5.85   -1.98
$TRAN   2856.59    7.40   -2.02  -44.28    8.68  -30.22
$VIX      21.57    0.01   -0.72    0.50    0.24    0.03


IDPH     140.38    5.75   -6.63   -1.13    5.38    3.38  Bucking
TIBX     108.00    9.81   -1.00    2.88   -8.38    3.31  New
MER      137.50    1.41    1.69    0.78   -0.88    3.00  A breather
MVSN      87.00    4.78   -4.19    0.75   -0.56    0.78  Side-step
HWP      112.25    3.56    0.50   -2.06   -1.50    0.50  Good entry
MERQ     100.38    4.31    4.31   -2.19   -6.06    0.38  Wild ride
DNA      164.44    1.63    6.50    4.63  -12.44    0.31  Booked
AFL       54.44    0.94   -1.00   -0.44   -0.63   -1.13  Slight drop
PVN      110.13   -0.09    1.63   -1.28   -2.84   -2.59  Assaulted
COF       55.88   -0.50   -0.63   -1.31   -0.56   -3.00  Dropped
PEB       91.97    6.81   -2.72   -5.50   -3.63   -5.03  Entry point
HGSI     137.50    5.88   -5.94    5.63  -10.63   -5.06  Dropped
ABSC      83.38    1.13   -0.75  -13.50   -3.13  -16.25  Dropped
FRX       93.00   -2.19   -0.03  -24.47    3.50  -23.19  Dropped


VRSN     142.50   -7.75   -6.31   -2.25   -3.25  -19.56  Breakdown
AETH     141.19   -2.50   -8.00  -10.00    5.19  -15.31  Bounced
IMCL      66.19   -0.19   -6.00    3.50   -4.31   -7.00  Damaged
LVLT      62.19   -1.88   -2.00   -0.25   -1.31   -5.44  New
AMD       57.00    3.13   -3.50   -0.25   -4.75   -5.38  Collapsed
SGP       39.50   -0.44    0.28   -1.53   -1.94   -3.63  New
TERN      54.50    2.84   -1.50   -0.22   -1.75   -0.63  Rollover
AAPL      47.56    0.56   -1.19    0.75    0.06    0.19  Narrowing
MU        75.00    3.00    0.75    5.13   -6.75    2.13  Sliced

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


FRX $93.13 +3.63 (-23.56) Ouch!  Will someone pass me the bottle
of Prozac?  This call play turned unlucky on us.  Pure and simple.
With news that LLY's patent protection of its blockbuster anti-
depressant Prozac would end in February, not 2003, generic drug
manufacturers got a boost, but FRX lost out.  On Wednesday, FRX
dropped over $24 on concerns that generic versions of Prozac will
increase competition with FRX's own antidepressant Celexa.
Hopefully, positions were protected with stop loss orders prior to
trading being halted on Wednesday at 2:10pm EDT.  Today, the stock
managed to tack on a small gain after the sellers over-did it
yesterday.  Analysts with Chase H&Q and Prudential came to FRX's
defense today and upgraded the stock to a Strong Buy from a Buy
and Accumulate, respectively.  We are using today's bump to exit
this play.

ABSC $83.38 -3.13 (-16.25) ABSC slumped in sympathy with LLY
yesterday, after the pharmaceutical giant suffered a legal setback.
ABSC slipped below the critical $100 level early Wednesday morning,
ultimately falling into the abyss after the LLY ruling was
announced near the close of trading.  The losses mounted Thursday
after the bulls decided to step back from the Biotech sector, and
hand over control to the bears.  A quick bounce back for our play
seems unlikely at this time given the mounting pessimism within
the Biotech group.  We'll step out of the Biotech bears' way for
the time being, and conserve our capital for another play.

HGSI $137.50 -10.63 (-5.06) HGSI held its own Wednesday in spite
of the detrimental ruling against Pharmaceutical behemoth LLY.
However, the Biotech bears caught up with the patent-dependent
HGSI Thursday.  Our play was cut short today after the LLY-related
selling spilled over into the broader Biotech sector and a host
of downgrades were spread across the group.  HGSI fell well
below its 50-dma early this morning on increased volume.  The
failure of several major support levels does not bode very well
for our play and has prompted us to step aside.  Although HGSI's
ascending channel is still somewhat intact, the accelerating
losses are more than enough reason to sell too soon.

COF $55.88 -0.56 (-3.00) It's been a fun ride while it lasted,
but COF is looking like it has run out of gas.  Although tracing
a new 52-week high 2 weeks in a row, it hasn't been able to
build on its success and has once again pulled back to support
near $55.  There may still be more upside in the play, but it
has used up the momentum that propelled it higher over recent
weeks.  The decline today came on anemic volume, leading us to
believe a bounce could be in the cards, but it looks unlikely
that COF will be able to break resistance at $59 in the near
future.  Rather than try to squeeze every last drop of profit
from the play, we'll take our profits and move on.


No dropped puts today.

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The Option Investor Newsletter                 Thursday 08-10-2000
Copyright 2000, All rights reserved.                        2 of 2
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PVN $110.13 -2.84 (-2.59) PVN has come under some selling pressure
during the last two days as profit takers have lead an assault on
the broader markets.  After bumping up into resistance at $115 on
Tuesday, PVN has been very choppy, trading in a wider range.  On
Wednesday, the stock hit a low of $109 where a large volume spike
lifted the price to $111.  Today was a steady bleed as PVN just
managed to keep its head above the $110 level.  Technical support
lies at the 10-dma at $107.88.  If the stock drops below $110,
look for a bounce from the 10-dma to enter the play.  Only enter
if PVN bounces with a volume surge.  Overhead, $112 may provide
minor resistance, with $115 being stronger.  On Wednesday, the
company declared a quarterly cash dividend for its common stock of
5 cent per share, to be payable September 15th.  This was not a
trade-related news event.

AFL $54.44 -0.63 (-1.13) AFL has had two days of volatile trading,
for a relatively steady stock.  Right now, defensive plays like
this insurance issue look to hold some hope as techs have been
hammered the last two days.  Today's slight decline reflects a
broad market profit taking effort by the sellers.  With no news
out on AFL, this play is pure technical defensive play.  We are
looking for the stock to hold the $54 level.  Bounces from there
with renewed buying volume would be a good entry.  However, we
do caution entries if AFL trades through that support level,
especially considering the today's close is just below its 10-dma
at $54.70.  Any strong move through $55 - $55.50 area on good
volume could provide a more conservative entry on this relatively
conservative play.

MERQ $100.31 -6.13 (+0.31) The wild gyrations in the Tech sector
have taken their toll on our play over the last two days.  MERQ
bumped against resistance at $110 early Wednesday, only to roll
over and follow the broader Tech sector lower into Thursday's
session.  The stock had run nearly 20% from its lows last week,
so a little profit taking is not out of the ordinary.  We'll look
for MERQ's impressive relative strength to lift our play higher
once the selling in the broader Tech sector subsides.  The stock
briefly dipped below the century mark late Thursday as the NASDAQ
fell to its lows of the day.  However, MERQ bolted back above the
$100 level in the final half hour of trading in conjunction with
an explosion in volume.  Watch closely Friday morning to see if
the late-day buyers return to carry the stock higher.  An
aggressive trader might look for a quick entry into the play
after a bounce off $100.  For a more conservative entry, wait for
MERQ to regain its footing and move back above $105.  Confirm
direction in the Tech sector before entering the play, and don't
forget to set your stops.

HWP $112.25 -1.50 (+0.50) The bad news is HWP fell for the second
straight day Thursday.  But, the good news is the stock's
ascending channel is in good shape.  HWP dipped below its 5-dma
today, however, the selling was light, to say the least.  Our
play slid lower on volume that was less than half the ADV.
Furthermore, HWP's intraday low Thursday was ever-so slightly
higher than Wednesday's low.  The brief pullbacks during the
duration of our play have provided good entry points as HWP has
gone on to trace higher highs, which might warrant consideration
for entry at current levels.  We are now less than a week away
from HWP's profit report, which has been confirmed to be released
next Wednesday.  The last leg of an earnings run might begin
Friday if the Tech sector cooperates.  Watch to see how traders
react to DELL's earnings report, and consider entering our HWP
play if the stock bounces from its current levels.  A more
conservative entry point might be found if HWP rallies back above
its 5-dma, which is currently at $113.75.  A rally with good
volume above resistance at $114 might also provide an additional
entry point.

DNA $164.44 -12.44 (+0.31)  Traders who followed Jim Brown's
suggestion on Sunday to take some profit at $177 managed to book
a nice profit and sell at a local top yesterday.  DNA rallied
just above the $177 resistance point to an intra-day high of
$177.44.  This proved to be a great opportunity to take some money
off the table with the stock closing $176.88.  Today, DNA
succumbed to weakness in the biotech sector and sold off, losing
7% on above average volume.  Today's close brought DNA below its
5-dma at $168.60, but support at the 10-dma (now at $161.50) is
still holding.  Volume has been light over the past couple of
weeks so today's move is actually stronger than the advances last
week.  Those looking for an entry point into this play may
targetshoot on a bounce from $160, but make sure volume is
confirming the strength.  A conservative trader may want to wait
for DNA to move through its 5-dma with good volume before entering.
Overhead, there is resistance at the $167-168 area, $170 and of
course, $177.

MVSN $87.00 -0.56 (+0.77)  The past couple of trading sessions
have seen more "one step forward, one step back" movement from
Macrovision.  Whereas the sideways movement earlier in the week
was on high volume, we now find the trading range tighter and the
volume substantially lower.  After a run like last week's on
strong volume, we'll take a little consolidation.  On Wednesday,
the stock gained $0.75 on about 77% of ADV, trading in a narrow
range of less than 4 points.  Today was more of the same with MVSN
giving back about $0.56 on only 51% of ADV.  One item of concern,
however, is that today's close puts MVSN's price just below its
5-dma at $87.65.  Conservative traders looking to enter this play
will want to make sure MVSN clears this moving average before
entering.  Support can be found at $85, $82.50, and $81.25 with
resistance at $90.  A break through $90 would likely drive the
stock to a new all-time high.  In the news today, MVSN announced
that its SafeDisc PC CD-ROM copy protection solution has been
licensed to over 100 mastering and replication facilities.  This
makes it the most widely supported technology and the standard for
CD-ROM copy protection for consumer software and information
publishers worldwide.

IDPH $140.38 +5.38 (+3.38)  Those who watched IDPH yesterday were
treated to a low volume trading day as the stock inched down
$1.13, or 0.83%, on less than 30% of ADV.  Today provided for a
little more excitement, but only a little more.  Starting the
morning weak during amateur hour, IDPH found a bottom at $129.
From there, the stock spent the rest of the day moving higher on
increasing volume to close up 3.98%.  Today's rally was on about
56% of ADV to close right above resistance at $140.  Considering
the weakness of the drug sector yesterday thanks to LLY's
bombshell, and today's sell-off in many biotechnology issues,
we'll take the last two days of IDPH's action as a positive sign,
despite the low volume.  Tuesday and Wednesday's action did cause
us some concern as IDPH finished below its 5-dma at $138.15, but
today's move puts IDPH back above that level.  Support for the
stock can be found at $140, its 5-dma, and $135.  Looking ahead
the next resistance levels are at $143, and then $148.

PEB $92.00 -3.59 (-5.00) Investors took a slice out of PEB's
recent gains and brought the share price down into a better
entry range.  At first it appeared $95 was going to hold up as
light support, but $90 turned out to be the true safety net.
The strong rebound off this level in the last hour of trading
today hints that PEB will resume its uptrend in a cooperating
market.  The next few days may be tough if the DOW remains range
bound, but that doesn't mean it's not tradable.  Watch for
bullish moves and enter on intraday dips at the 10-dma ($94.77),
an aggressive entry before there's another break through the 5-dma
($97.90).  If you play more cautious, then wait for more
conclusive evidence that PEB's momentum is intact.  Earnings for
this genomic issue aren't until early November so don't look for
an upcoming release to generate excitement.  This is purely a
stock-specific run.  The added plus is that PEB is considered a
split-candidate above $110 and does have plenty of authorized
shares to render a stock dividend.  In the news yesterday, the
company announced that Gene Tec Corp. granted them a non-
exclusive license to its patented method of amplifying nucleic
acid targets directly in cells and viruses.  This method of
direct amplification immobilizes biological specimens by drying
them onto solid or porous supports, such as microscope slides or

MER $137.50 -0.88 (+1.75) The law of gravity is alive and
well.  Although it looked like the Financials might have
another stellar day today, they ran out of buyers right at the
highs from yesterday and declined for the remainder of the
day.  Overdue for some profit taking after 5 straight days
of gains, MER followed the lead of the broader sector and
rolled over at $141 yesterday and $140 today.  After declining
for the remainder of the day, MER closed right at the low of
the day today.  Keep an eye on the market reaction to the PPI
report due out tomorrow morning.  This will be one of the last
pieces of economic information before the FOMC meeting on
August 22nd.  A negative number could re-ignite fears about
rising interest rates.  Wait for the market reaction, and
investor attitude towards the Financial sector before
initiating new positions.  The stock is continuing to find
support at the 5-dma ($137.50), which happens to be the closing
price today.  Below this level, MER has chart support at $135,
so more downside is possible before heading higher again.  Look
for a bounce from support to trigger new entries, but make sure
that increasing volume is accompanying the move.


TERN $54.50 -1.75 (-0.63) Looking at an intraday chart for the
last three days, you can see that TERN gaps up from the previous
day's close, and then bleeds throughout the day.  There is no
buying conviction as bears take control of the stock as the day
trades on.  These morning spikes have been providing nice entry
points.  On Wednesday morning, TERN spiked up to the 200-dma at
$60.84 and almost immediately rolled over, losing $4 from there.
The stock is coming under increased selling pressure as the
NASDAQ continues to wane.  Today, the trading pattern was the
same, except that TERN spent most of the day wavering around
$54.50, its closing price.  A continued slide through $54 with
strong volume would represent a conservative opportunity to
gain entry into this put.  If the trading pattern mentioned above
continues, early morning entries with a weakening NASDAQ could
be lucrative.  Below, look to $50 for support and exits.  If that
doesn't hold, last Wednesday's low of $48.50 had buyers showing

AMD $56.75 -5.00 (-5.75) The Chip debate intensified yet again
Wednesday after Josephthal reiterated its Buy rating on AMD based
upon the positive remarks from CSCO about the flash memory
market.  Despite the encouraging words, AMD's range bound trading
abruptly ended Thursday after the stock collapsed below its
critical support level at $60 on heavy volume, providing the
entry point we had been looking for.  Ashok Kumar of Piper
Jaffray, who downgraded AMD earlier in the week, disputed the
positive outlook for the flash memory market Thursday, which
added to AMD's demise.  Given the fact that AMD plummeted below
its critical support Thursday, an aggressive trader might
consider entering the play at current levels.  AMD does not have
much in the way of support until the $50 level.  Before entering
the play, make sure to confirm weakness in the Semi sector by
monitoring the SOX.X, and watch for heavy volume to return.  A
conservative trader might wait for AMD to fall below $56 before
entering the play.

VRSN $142.50 +3.25 (-19.56)  Wednesday saw the stock move lower,
losing $2.25 or 1.52% on above average volume.  Today, VRSN
slipped even lower, shedding 2.23%, though this time only on 64%
of ADV, as the technical picture for VRSN continues to fade.  A
cursory glance at the chart reveals that VRSN is having trouble
with a number of moving averages.  For the past couple of weeks
VRSN has been moving down with the 10-dma (now at $152.87) acting
as formidable resistance.  Tuesday saw the stock close below it's
100-dma (at $153) and its 200-dma (at $156.40).  Now the stock is
closing below its 5-dma as well.  With so many moving averages
lurking overhead as resistance and good news failing to shake the
stock out of its downward spiral, what's a trader to do?  One
answer is to go with the trend.  This trend appears likely to
continue as long as VRSN fails to rally above its 10-dma, serving
as an ideal entry target.  There is some support at $140, but
breaking through that level will see the next levels of support
at $135 and $130.  Conservative traders may want to see the stock
break through $140 before entering.

AETH $141.19 +5.19 (-15.31) Yesterday we couldn't have asked for
a better session to trade AETH puts!  The share price gapped up
to $151.84 at the open and then settled in around $145-$147.  As
the day proceeded, intraday support at $140 started to break
down.  Ultimately, AETH fell apart and hit a bottom at $135.
Today, AETH did slide farther to $130, but quickly rose after
amateur hour slamming into upper resistance at $141.  A last
minute surge on volume brought the share price up to $145.50,
but it couldn't hold.  With just two days into the play, AETH
achieved two important objectives.  For one, it has sunk below
the 200-dma (now at $145.71) and second, the share price cracked
an earlier support level at the $140 mark.  With those technical
hurdles surpassed, AETH is now without restrictions.  However,
don't throw caution to the wind.  Look for the downward momentum
to resume before you add new positions.  And as always, it's
good practice to keep stops tight for protection.

AAPL $47.75 +0.25 (+0.38) An upgrade from PaineWebber on
Wednesday may have influenced AAPL's trading.  The firm raised
Apple Computer to an Attractive rating.  Yet, despite the
positive recommendation, AAPL hit a ceiling at $48.50, which is
lower than the $50 resistance experienced earlier in the week.
The range, however, is becoming very narrow.  AAPL's been
consistently bouncing off intraday lows in the vicinity of
$47.25 in the past two sessions.  This particular aspect isn't
encouraging, but we can still keep a watch on AAPL.  If the
NASDAQ continues to rollover and the PPI numbers shake up the
broad markets tomorrow, then we may still have an opportunity to
make gains.  Wait until after amateur hour and enter only if it's
profitable to do so.  Keep in mind that this play is risky and
is best considered as a quick in-and-out.  Keep stops tight.

IMCL $66.19 -4.31 (-7.00) There was lots of collateral damage
from the news on LLY yesterday, and although it does not have
drug patents in danger of expiration, IMCL couldn't buck the
negative sentiment today.  After a head fake back above the
200-dma (currently $71.06) yesterday, IMCL resumed its downward
move today and spent the entire day below this important level.
The 10-dma (currently $71.38) continues to pressure the stock
to the downside, and this moving average is about to cross below
the 200-dma.  This is typically a bearish occurrence, making it
more difficult for the stock to reverse and head higher.  Add in
the fact that historical support at $69-70 failed to hold, and
our put play is looking like it is cleared to dive even further.
Look for this prior support level to transform itself into
resistance as IMCL continues to decline.  One wrinkle to watch
out for is volume.  Although the decline today came on nearly
double the ADV, volume picked up sharply at the close as the
stock bounced to recover over $1 of the days losses.  Consider
a recovery and subsequent rollover at resistance as a good
opportunity to initiate new positions.  More conservative
players will want to wait for the stock to fall through today's
low near $64 on increasing volume before jumping into the play.

MU $75.00 -6.75 (+1.56) Bearish sentiment in the Semiconductor
sector couldn't be overcome by the strong earnings report from
AMAT yesterday.  After a timid move above its 200-dma, the SOX.X
index fell back through this level and the weakness carried over
into many of the chip stocks today.  MU investors joined in the
selling, slicing nearly $7 from the share price on strong volume
(30% above the ADV).  There is very little left to propel these
stocks upwards in the near future (earnings are over), and
investors are likely to start focusing on economic reports as
the FOMC meeting approaches on August 22nd.  Any negative news
from tomorrow's PPI report could be the catalyst for further
losses.  Although the stock is sitting right above the 100-dma
($73.25), the next level of discernable support looks to be near
$70.  Above current levels, $81-82 should continue to create
resistance.  Consider new entries as the stock rolls over near
resistance and then tighten up your stops as it approaches
support.  As always, pay attention to the sentiment of both the
sector and the overall market, and trade with the trend.


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TIBX - TIBCO Software Inc $108.00 -8.38 (+3.31 this week)

TIBCO Software is a leading provider of real-time infrastructure
software for the Internet and enterprise that enables business
to dynamically link internal operations, business partners and
customer channels. The company's flagship solution,
ActiveEnterprise, facilitates this business process integration
by connecting applications, web sites, databases and other
content sources using patented technology called The Information
Bus (TIB).  This technology revolutionized trading on Wall
Street in the mid 1980's and has since been adopted in a wide
range of industries from high-technology manufacturing and
telecommunications to retail and e-business.  TIBCO's global
client base includes 3Com, Netscape, NEC Electronics, Yahoo!,
Bechtel, PageNet and Glaxo Wellcome.

Trading in TIBX was very active last Thursday and Friday in light
of two meaningful announcements.  Of course, there was the market
rally on Thursday, but much of the volume was due to the company's
$100 mln stock acquisition of XML software maker, Extensibility.
The merger will give TIBX an excellent resource to the computer
languages used in developing their real-time software.  It's
nice to bring a supplier into your fold.  The liveliness
extended into Friday morning's session with volume once again
above the average. TIBX exploded to a daily high of 107.88,
which brought last week's total gains to $10, or 10.6%.
Friday's action was fueled by the announcement that TIBCO and
Meractor Software entered a marketing alliance.  Basically, the
two companies will benefit from selling the others products
through a larger customer base.  While all this is fine and
dandy, TIBX didn't make our cut until it successfully traded
above strong resistance at $110.  Monday was the first real
proof that momentum could power the stock higher.  TIBX closed
almost on the high of the day and proceeded to test the next
level of opposition near $120 on Wednesday.  The downdraft that
followed is clearly related to the stock's market sensitivity,
and of course, some typical profit taking that was in the works.
What we now have, however, is a stock holding ground at a higher
price level.  The positive bounces off the intraday low of
$105.50 and the 10-dma ($105.67) are bullish signs.  Positions
can be taken on advancements off those short-term support levels.
More conservatively, a high volume move through $110 could
provide an entry point.

There's not been any hot news coming off the press this week, so
traders should expect TIBX to be influenced by the general
market direction.  Watch the NASDAQ and other software stocks
for sentiment.

***August contracts expire next week***

BUY CALL AUG-105 PIW-HA OI=218 at $ 8.25 SL= 5.75
BUY CALL AUG-110 PIW-HB OI=547 at $ 5.50 SL= 3.50
BUY CALL AUG-115 PIW-HC OI=178 at $ 3.63 SL= 2.00
BUY CALL SEP-110*PIW-IB OI=121 at $11.63 SL= 8.75
BUY CALL SEP-115 PIW-IC OI=  8 at $10.00 SL= 7.00
BUY CALL SEP-120 PIW-ID OI=177 at $ 8.38 SL= 6.00

Picked on August 10th at $108.00    P/E = N/A
Change since picked        +0.00    52-week high=$147.00
Analysts Ratings       5-2-1-0-0    52-week low =$  6.58
Last earnings 06/00    est= 0.01    actual= 0.04
Next earnings 09-21    est= 0.05    versus=-0.01
Average Daily Volume  = 1.55 mln


LVLT - Level 3 Communications $62.25 -1.25 (-5.38 this week)

LVLT is building more than 20,000 miles of fiber-optic networks
in the U.S. and Europe in an attempt to become a leading
bandwidth provider.  The company's networks also include undersea
capacity across the Atlantic and Pacific.  LVLT serves such
data-intensive customers as Internet service providers (ISPs) and
telecom carriers.  Services include Internet access, network
equipment, and fiber optic leasing.

Not too long ago LVLT was for the bulls.  But, recently, the
service provider has fallen out of favor on the heels of a myriad
of high-profile warnings within its peer group.  Trouble began
brewing when equipment giant LU warned of slower growth in the
second-half of the year.  At the time, many dismissed the warning
from LU, calling it a company specific problem.  However, earlier
this week, the local telecom service giant Verizon (VZ) reported
disappointing profits and warned Wall Street of lower growth
going into the end of the year.  What's more, the recent merger
announcement by PHCM and SWCM is expected to create a formidable
next generation telecom provider, which some analysts suggest
might encroach upon LVLT's market share.  The increasingly
bearish outlook for the Telecom sector has put many leading
stocks at or near 52-week lows, including none other than T and
WCOM.  In the wake of the fallen leaders, LVLT has slid lower
over the past month on increasingly heavier volume.  Many
analysts have attempted to halt LVLT's sell-off, which was
evident in JP Morgan's plea to the bears yesterday with the
reiteration of their Buy rating.  It was apparent today that the
words of encouragement fell upon deaf ears as LVLT fell below a
critical support level on convincing volume.  LVLT's close below
$63 might warrant entry at current levels.  But, before doing so,
confirm direction in the sector using the above mentioned stocks
as reference.  A more conservative entry might be found if LVLT
drops below $60.  The 5-dma, currently at $64.50, has been
staunch resistance for the past month.  A bump against the 5-day
followed by a rollover might provide a solid intraday entry.

***August contracts expire next week***

BUY PUT AUG-65*QHN-TM OI=715 at $4.50 SL=2.75
BUY PUT AUG-60 QHN-TL OI=522 at $1.94 SL=1.00
BUY PUT SEP-65 QHN-UM OI=346 at $7.38 SL=5.75

Average Daily Volume = 2.04 mln

SGP - Schering-Plough Corp. $39.50 -1.94 (-3.63 this week)

Schering-Plough is a holding company that, through its
subsidiaries, is engaged in the discovery, development,
manufacturing and marketing of pharmaceutical products
worldwide.  The company has three principal product lines;
prescription products, animal health products, and over the
counter (OTC) health care products.  At the head of SGP's
prescription drug roster is Claritin, the world's top
antihistamine.  The company's OTC brand names include Afrin
(nasal sprays), Dr. Scholl's (foot care), and Coppertone and
Bain de Soleil (sun care).

In the wake of yesterday's court decision relating to Eli
Lilly's (LLY) patent protection for its flagship drug Prozac,
Pharmaceutical companies have come under renewed scrutiny.  If
a large portion of a company's revenue comes from patented drug
sales, it is now clear that the expiration of this patent
protection can severely impact the company's share price.
Unless the company can find a way to extend its patent
protection (either by modifying the drug or creating a new
blockbuster drug to replace its revenue), generic drug-makers
will swoop in with cheaper versions of the drug, taking a big
bite of the revenue stream.  SGP has its own patent expiration
issue to deal with, as its patent on Claritin will expire later
this year.  The company is currently awaiting FDA approval on
a replacement for its flagship product, and in light of what
happened to LLY yesterday, investors have become more nervous
of companies whose revenue stream is too closely tied to just
one or two patented drugs.  Although SGP initially got a boost
on the LLY news yesterday, the stock very quickly gave up all
those gains, falling to close the day with a gain of less than
$1.  The decline picked up steam again this morning and the
stock fell deeper into the support zone between $39-42 on volume
nearly twice the ADV.  There is a bit more support near $38, and
then $35.  If these levels are insufficient to stem the selling,
SGP could be headed for a retest of its 52-week low at $30.50.
The stock is now below all its moving averages, and will likely
run into resistance near the 5-dma (currently at $41.94), which
is right in the middle of the support/resistance zone mentioned
above.  Consider new entries on a rollover from resistance or if
continued selling pressure can push the price below the $38
support level.

***August contracts expire next week***

BUY PUT AUG-45 SGP-TI OI=1619 at $5.63 SL=3.50
BUY PUT AUG-40 SGP-TH OI=2383 at $1.63 SL=0.75
BUY PUT SEP-45 SGP-UI OI=  80 at $6.13 SL=4.00
BUY PUT SEP-40*SGP-UH OI= 455 at $2.63 SL=1.25

Average Daily Volume = 4.36 mln


MERQ - Mercury Interactive $100.31 -6.13 (+0.31 this 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.

Most Recent Write-Up

The wild gyrations in the Tech sector have taken their toll on our
play over the last two days.  MERQ bumped against resistance at
$110 early Wednesday, only to roll over and follow the broader
Tech sector lower into Thursday's session.  The stock had run
nearly 20% from its lows last week, so a little profit taking is
not out of the ordinary.  We'll look for MERQ's impressive
relative strength to lift our play higher once the selling in the
broader Tech sector subsides.  The stock briefly dipped below the
century mark late Thursday as the NASDAQ fell to its lows of the
day.  However, MERQ bolted back above the $100 level in the final
half hour of trading in conjunction with an explosion in volume.
Watch closely Friday morning to see if the late-day buyers return
to carry the stock higher.  An aggressive trader might look for a
quick entry into the play after a bounce off $100.  For a more
conservative entry, wait for MERQ to regain its footing and move
back above $105.  Confirm direction in the Tech sector before
entering the play, and don't forget to set your stops.


MERQ was all over the map today.  Yet, as the NASDAQ closed on the
lows of the day, MERQ attracted some huge buying volume in the
final 20 minutes of the session.  That buying burst sent the stock
to close over the key $100 level.  In today's trading, MERQ traded
down to its 10-dma at 98.50 and managed a nice bounce.  Look for
entry into this call play on any strong volume bounces from either
$100 or the 10-dma.  There may be some mild resistance at $102.50
so watch that level for either exits, or a conservative entry if
strong buying volume pushes through.  Remember, August time
premium is decaying fast with one week until expiration.

***August contracts expire next week***

BUY CALL AUG- 95 RBF-HS OI=344 at $ 8.50 SL=6.50
BUY CALL AUG-100*RBF-HT OI=400 at $ 5.63 SL=3.75
BUY CALL AUG-105 RBF-HA OI=301 at $ 3.38 SL=1.75
BUY CALL SEP-100 RBF-IT OI=244 at $11.13 SL=8.75
BUY CALL SEP-105 RBF-IA OI= 64 at $ 8.75 SL=6.50

Picked on August 6th    $100.00    P/E = 204
Change since picked       +0.31    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

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The Endless Rotation Continues...

Technology stocks slumped today amid concerns over revenues but
cyclical issues edged higher as investors flocked to safety.

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

American Home   AHP    AUG50P/AUG55P   $1.00   credit   bull-put
Millipore       MIL    AUG75C/AUG70C   $0.50   credit   bear-call
Countrywide     CCR    OCT30C/AUG40C   $8.00   debit    diagonal
Southdown       SDW    AUG65C/AUG60P   $2.50   credit   strangle
Schwab          SCH    SEP42C/SEP35P   $0.00   debit    synthetic

Finance issues opened lower on Monday, allowing favorable entries
in the Countrywide and Schwab positions.  American Home Products
also slumped during the session, providing the target credit for
our bullish spread.  Millipore and Southdown both traded in small
ranges, offering lower than suggested entry credits in each play.

Portfolio Plays (Through Wednesday):

It seems that every time we take a (much needed) break from the
market, something good happens.  That was certainly the case
this week as our brief hiatus saw a number of favorable events
in the Spreads/Combos portfolio.

On Monday, the broad market rallied amid optimism the Federal
Reserve would not boost interest rates at its meeting later
this month.  The Nasdaq closed up 75 points at 3,862 and the Dow
Jones industrial average was up 99 points to 10,867.01.  The S&P
500 index was up 16 points to 1,479.  Our portfolio was led by
gains in the technology group.  i2 Technologies (ITWO) was our
big winner, up $17 after the company announced that they were a
major part of a new venture, FinancialSettlementMatrix.com.  The
company will connect buyers and sellers in e-marketplaces with
payment processing, credit and other services through multiple
participating banks and financial services companies.  Our new
synthetic position returned a $5.50 profit in just under one
week.  Juniper Networks (JNPR), Network Appliances (NTAP), Sun
Microsystems (SUNW) and Qlogic (QLGC) also enjoyed substantial

In the small-cap group, Bed, Bath and Beyond led the way, closing
up $2 near a recent high at $38.68.  Our bullish credit spread is
at maximum return above $35.  American Eagle Outfitters (AEOS)
and Secure Computing (SCUR) also participated in the optimistic
activity and both positions have achieved favorable returns.  One
of the biggest surprises was Philip Morris (MO) which moved up
$1.38 rally to close at $28.  Our bearish credit spread is short
at $27.50 and the position is now in danger of a loss.  Those of
you who trade conservatively should have covered the sold option
as the stock began to rally (from $27-$28) early in the session.
We noticed a 30 contract spread-closing trade near 10:30 A.M. at
$0.43, thus a break-even exit (on a simultaneous order basis) was
certainly available.  Traders who favor an aggressive style could
hold the original position and plan to roll out to the long ($30)
option if the issue breaches the May high on heavy volume.

Tuesday was a banner day as the Dow recorded a triple-digit gain
amid optimism over the interest rate outlook.  The blue-chip
average was up 109 points at 10,976.  Meanwhile, the Nasdaq slid
14 points as investors awaited earnings from Cisco Systems (CSCO).
The S&P 500 ended relatively unchanged at 1,482.  Our portfolio
experienced very little excitement during the rally in "classic"
issues but a number of small cap stocks enjoyed favorable moves.
Northpoint (NPNT) climbed to a midday high $16, providing a great
exit opportunity in our new calendar spread.  The spread credit
traded as high as $1.38 and those of you that managed to open the
position last Friday were happily rewarded with a 50% return after
just three sessions.  Another issue that made an unexpected move
was Ryder Systems (R).  The stock jumped to a high of $23 during
the session, providing an excellent opportunity to roll to the
September options in the bullish position.  A cost basis of $1.12
was available on the transition to a NOV-$20C/SEP-$22C diagonal
spread.  As we said last week, one of the major disappointments
in our portfolio is the "bull-call" position in American Online
(AOL).  Fortunately, the issue rebounded off technical support at
$52 and closed at a recent high near $54.  Those of you with a
conservative outlook should plan to close the position when and
if it becomes profitable as the original bullish optimism has
temporarily departed.  Obviously, you should also protect the
current recovery with Stop-loss limits in the event of another

On Wednesday, the stock market ended mixed with technology issues
edging higher following strong earnings from Cisco Systems (CSCO).
The broader market declined, however, with drug stocks taking a
beating after a negative court ruling for one of Eli Lilly's (LLY)
major products.  The Nasdaq closed up 4 points at 3,853 while the
Dow finished down 71 points at 10,905.  The S&P 500 index slipped
9 points to end at 1,472.  Cisco's earnings news gave our section
a boost, not only in that position but in other technology stocks
as well.  The top performer was Juniper Networks (JNPR) with a $7
rally to end near $165.  Our bullish, covered-call at $132.50 is
over $30 "in-the-money" and it can be closed for a small profit.
In the small-cap group, Polaroid (PRD) made a nice move, up $0.50
to a recent high near $18.38.  Our bullish calendar spread will
need to be adjusted prior to next week's expiration and we will
watch for a spike in PRD's daily movement to make the transition.
On the downside, American Home Products (AHP) fell $2 in sympathy
with the precipitous drop in Eli Lilly (LLY).  Our credit spread
at $55 remains intact but the underlying issue should be monitored
for further downside movement.  Pall Corporation (PLL) is moving
ever closer to our sold position at $22.50 and if you have any
concerns about a loss in the (neutral) credit strangle, close the
play now and take the current profit.

Thursday, August 10

Technology stocks slumped today amid concerns over revenues but
cyclical issues edged higher as investors flocked to safety.  The
Nasdaq slid 93 points to 3,759 while the Dow industrial average
climbed 4 points to 10,908.  The S&P 500 index ended 12 points
lower at 1,460.  Activity on the Nasdaq was light at 1.34 billion
shares traded, with declines outpacing advances 2,381 to 1,592.
Trading volume on the NYSE hit 941 million shares with declines
beating advances 1,477 to 1,355.  In the bond market, the 30-year
Treasury rose 22/32, pushing its yield down to 5.68%.

Portfolio Plays:

The stock market ended mixed again today as concerns over revenue
growth continued to plague technology issues while the industrial
group rebounded from a recent sell-off.  Favorable earnings from
both Cisco and Applied Materials failed to energize technology
investors and weakness in chip and networking shares pulled the
Nasdaq lower.  A slump in retail issues limited the Dow's gains
with Home Depot and Walmart leading the sell-off.  In the broader
market, drug stocks recovered following Wednesday's pummeling but
biotechnology stocks continued to suffer from profit-taking.

Our portfolio benefited from the recovery in major pharmaceutical
issues with American Home Products (AHP) closing over $3 higher
after the company said it plans to reduce its stake in Immunex
(IMNX) to lock-in capital gains.  American Home said it plans to
sell up to 50 million Immunex shares in a secondary offering that
could raise up to $2.7 billion.  The unexpected announcement was
greeted with enthusiasm and the stock rallied to a recent high
near $59.  Surprisingly, a technology issue, Voicestream (VSTR)
was the top performer in today's session, up over $6 to $130 after
Deutsche Telekom (DT) announced its near $50 billion bid for the
compamny was prompting them to delay the offering of its wireless
unit; T-Mobile.  Investors saw the move as a new commitment to
complete the Voicestream merger and bought up additional shares
of the personal communications services provider.  Our (short)
Naked Put position at $120 is expected to expire profitably but
there is little chance we will achieve any gains from the bullish
debit spread at $165.

In the small-cap category, Kellogg Company (K) rebounded to a
midday high above $27 amid renewed strength in the food group.
On Tuesday, private label cookie and cereal maker Ralcorp (RAH)
agreed to merge with feed company Agribrands (AGX), reuniting
former pieces of Ralston Purina (RAL) in a deal aimed at giving
Ralcorp funding to make additional acquisition.  The announcement
sparked investor enthusiasm for mergers in the sector and boosted
shares in a number of issues in the group.  Our long position in
Kellogs (SEP-$30C) traded higher during the session and we hope
the underlying issue continues to recover from the recent slump.
Mail.com (MAIL) has edged lower in the past few weeks and with
the stock price falling below the 30 DMA, we decided to move to
September options in the bullish diagonal spread.  The current
position is NOV5C/SEP7C at a cost basis of $1.56 and our margin
for downside movement is much improved.  Philip Morris (MO) was
back in the news after rallying to a new high for the year near
$29.  The stock has risen over $3 since the end of July, helped
by an announcement that it is raising the price it charges its
resellers and by speculation that a Republican government will
be more lenient on big tobacco.  Our short position is over $1
in the money and those of you still in the bearish spread should
be planning your exit strategy.

Questions & comments on spreads/combos to Contact Support

                         - NEW PLAYS -

HWP - Hewlett Packard  $112.25  *** Bearish Technicals! ***

Hewlett-Packard Company is a global provider of computing and
imaging solutions and services for business and the home.  HWP's
major businesses include Imaging and Printing Systems, Computing
Systems and Information Technology Services.  Their Imaging and
Printing Systems provides laser and inkjet printers, copiers,
scanners, all-in-one devices, personal color copiers and faxes,
digital senders, wide- and large-format printers, print servers,
network-management software, networking solutions, digital
photography products, imaging and printing supplies, imaging and
software solutions, and related professional and other consulting
services.  Computing Systems provides computing systems for the
enterprise, commercial and consumer markets.  HWP's IT Services
provides consulting, education, design and installation services,
ongoing support and maintenance, proactive services like mission
critical support, outsourcing and utility computing capabilities.

The recent slump in retail personal computer sales has hurt a
number of the industry's top companies including Hewlett Packard.
Growth in shipments of personal computers in the second quarter
has slowed to half what it was in the same period a year ago,
which could signal a cooling off of sales growth in both U.S. and
European markets.  In addition, the U.S. market growth was well
below the worldwide rate, with unit shipments expanding only 7.2%
over the year-ago quarter.  Hewlett-Packard has generally enjoyed
strong sales of retail desktops in the United States and posted a
34% growth rate over the last year.  However, one analyst noted
that sales will decline unless the company offers consumers and
businesses next-generation computers that are even more powerful
and stylish than the systems that are currently on the market.

Dell Computer's earnings may give the sector a short-term boost
but there is no reason to believe the outlook for the industry
will change substantially.  Today Dell Computer topped analysts'
estimates by a penny a share in its second quarter, earning $603
million, or $0.22 a share, on sales of $7.7 billion.  Although
the results were favorable, they failed to offset concerns that
weakness in consumer and commercial desktops will affect the
group in the coming quarters.  Since the news of slowing demand
became public, Hewlett Packard's stock has fallen substantially
and based on the negative short-term outlook, we will continue
to pursue conservative positions with a bearish perspective.

PLAY (conservative - bearish/synthetic position):

BUY  PUT   SEP-95   HWP-US  OI=278  A=$1.68
SELL CALL  SEP-135  HWP-IG  OI=431  B=$1.31

Note:  Using options, the position is equivalent to being short
on the stock.  The collateral requirement for the naked call is
approximately $2,375 per contract.

Chart =

CIEN - Ciena  $150.31  ** Post-Earnings Slump? ***

Ciena is engaged in the optical networking equipment market.  The
company offers products for telecommunications and data service
providers worldwide.  Their customers include major long-distance
carriers, competitive local exchange carriers, Internet service
providers and wholesale carriers.  The company offers optical
transport, intelligent switching and multi-service delivery
systems that enable service providers to provision, manage and
deliver high-bandwidth services to their customers.  They have
pursued a strategy to develop and leverage the power of unique,
disruptive technologies to change the fundamental economics of
building carrier-class communications networks, thereby providing
its customers with a competitive advantage.

We discovered this position using one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, speculation over
Ciena's upcoming earnings report has inflated the premiums for
the (OTM) call options.  As we near the reporting date, there
will certainly be optimism for a bullish announcement however,
we feel that technically, the outcome has already been decided.
In addition, the potential for a renewed rally is significantly
affected by the resistance near $175, well below the sold strike
price.  The report is due on August 17 and if the share value
experiences a near-term rally on rumors of an upside surprise,
consider using the activity to increase the premium (and the ROI)
in the position.

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-195  UEE-IS  OI=226  A=$3.88
SELL CALL  SEP-190  UEE-IR  OI=314  B=$4.38
INITIAL NET CREDIT TARGET=$0.62-$0.75  ROI(max)=14%

Chart =

XLNX - Xilinx  $76.75  *** Sector Slump! ***

Xilinx designs, develops and markets complete programmable logic
solutions, including advanced integrated circuits, software
design tools, predefined system functions delivered as cores of
logic and field engineering support.  The company's programmable
logic devices (PLDs) include field programmable gate arrays and
complex programmable logic devices.  These devices are standard
products that customers program to perform logic functions.  The
company's products are designed to provide high integration and
quick time-to-market for electronic equipment manufacturers,
primarily in the telecommunications, networking, computing,
industrial and consumer markets.  Xilinx also offers complete
software design tool solutions, which enable their customers to
implement specific design specifications into its PLDs.

The semiconductor industry has been in a slump recently and
regardless of how many positive forecasts analysts offer, the
group just can't seem to recover from the bearish sentiment.  A
number of brokerages have said that semiconductor production is
still growing and Lehman Brothers recited a list of 10 reasons
why the chip equipment cycle is in good shape, including the
existence of huge demand for electronics products and continuing
capacity shortages in the industry.  Lehman believes the chip
sector is fundamentally healthy and they continue to suggest the
slump is a buying opportunity.  While the future may indeed be
potentially bullish, the current technical picture is less than
outstanding and we believe this position offers a favorable
risk/reward ratio for those who are bearish on the underlying

PLAY (conservative - bearish/credit spread):

BUY  CALL  SEP-100  XLW-IT  OI=1797  A=$2.06
SELL CALL  SEP-95   XLW-IS  OI=786   B=$2.62
INITIAL NET CREDIT TARGET=$0.68-$0.75  ROI(max)=15%

Chart =

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