Option Investor

Daily Newsletter, Tuesday, 08/15/2000

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The Option Investor Newsletter                  Tuesday 08-15-2000
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MARKET WRAP  (view in courier font for table alignment)
        08-15-2000        High      Low     Volume Advance/Decline
DJIA    11067.00 -109.10 11175.00 11046.10  900 mln   1164/1690
NASDAQ   3851.66 +  1.97  3888.92  3831.96 1.35 bln   1890/2136
S&P 100   811.81 -  4.53   816.47   810.31   totals   3054/3826
S&P 500  1484.43 -  7.13  1493.12  1482.74           44.4%/55.6%
RUS 2000  509.93 -  4.55   514.75   509.93
DJ TRANS 2884.41 - 36.80  2920.32  2884.41
VIX        20.97 +  0.62    21.33    20.63
Put/Call Ratio       .55

Profit taking slows Dow string of ten gains in eleven days!

No problem here! We will gladly take ten up days for every two
days down. Please keep it up! Nothing goes up in a straight line
although the Dow has been testing that rule recently. Most of the
loss was on the heels of a downgrade on Home Depot which announced
earnings inline with estimates. HD lost -5.38 in regular trading.
The Nasdaq struggled in light of the very negative Dow but tried
valiantly to break out twice with runs into the mid 3880s. Each
time it slipped back but the trend was still up. Dell recovered
some lost ground with a +1.38 gain.

The Home Depot downgrade was joined by problems with other
retail stocks as well. DLJ downgraded HD, WalMart and Costco.
Target announced earnings inline with estimates and then warned
that next quarter could be less than expected. JCPenny announced
earnings inline with estimates but substantially less than last
year. The retail sector, which had been enjoying a bounce since
the Retail Sales numbers last week came in stronger than expected,
now appears down for the count.

Chips Ahoy! The rising tide in the chip sector floated all the
chip stocks after Morgan Stanley restated their outlook that the
death of the chip rally was premature. The analyst there said
he felt there was at least 18-24 months of growth remaining.
Add to that the blowout ADI earnings after the bell of $.43
vs estimates of $.37 and the three day rally may still have
room to run.

The drug patent problem reared its ugly head again and IVX
dropped another -12.88 after news of another possible patent
problem made headlines. Bristol Myers Squibb announced a new
patent possibility on Taxol that may delay the generic drug
from Ivax. BMY gained +2.25 on the news. The IVX CEO claimed
this was hocus pocus legal maneuvering and predicted a quick
resolution of the conflict.

The Dow losers, led by HD at -5.38, included Boeing -2.25,
which may have been influenced by the grounding of all the
Concordes. The second largest loser was Hewlett Packard which
announces earnings on Wednesday. HWP lost -4.50 as worries of
another Dell like report sent traders to the sidelines. Down
from $136 last month analysts are mixed as to their success
against IBM, SUNW and LXK. SunMicro announced today that their
demand was running ahead of estimates and they saw continued
strong demand ahead. If this is not at the expense of HWP
Unix servers and HWP can take market share from Lexmark then
the HWP revival may only just be beginning. If the news after
the close tomorrow is negative then expect them to lose
supporters quickly.

In the long running antitrust case against Microsoft the Justice
Dept today urged the Supreme Court to hear the case quickly
instead of sending it back down to the lower appeal courts.
MSFT has had favorable rulings in the appeals court in the past
and the eventual penalty phase will undoubtedly be handled in
a lower court. By urging the high court to hear the case the
Justice Dept is showing their cards that they are afraid the
case will be overturned if heard by the lower court. MSFT only
dropped $.56 on the news. Should the Supreme Court send it back
down we are likely to see a pretty good pop in the stock price
in anticipation of a favorable outcome.

The Dow profit taking was expected and the sectors that had
been doing the best recently were the ones suffering the most
today. One only needs to look at the bank and brokerage sectors
for confirmation. LEH -6.63, MER -2.69, JPM -1.25, GS -2.56,
MWD -2.56. Other than Lehman Brothers the other stocks only
lost a token amount of their strong August gains.

We will gladly take five up days for every one down day and
that is the recent trend. The Dow broke the late May intraday
high of 11140 late Monday and then retreated. I spoke about
this level (11150) as a resistance point on Sunday and I was
very pleased to see the Monday close. Nothing has changed
economically although the Industrial Production numbers this
morning caused a little ripple of uneasiness. The next big
report is on Wednesday with the CPI expected to post only a
+0.1% headline number and a +0.2% core rate. The core rate
has been stable for the last 12 months and short of a
very bad blowout the Fed will be on hold next Tuesday. The
productivity is soaring and costs are not rising. The high
tech output is up +50% year over year and this will keep the
productivity/price model intact. The drop in the Dow today
was on light volume and strictly profit taking in front of
the CPI report.

The Nasdaq is looking good and the 3888 high today was +200
points from Friday's low. The three day up trend is still
intact and more importantly it was positive (barely) when
the Dow was down triple digits. The ADI earnings tonight
should help as well as the stock split by CIEN. Just give
us a benign CPI and we should be ready to rock. The VIX
rebounded only slightly, from the low of almost 20 on Monday,
to close at 21 today. Still very low volatility which could
signify significant complacency in the market. This is a
negative indicator but about the only one we can find.

With a +650 point 11 day Dow gain we can't complain about a
-109 drop especially when the Nasdaq held its ground. Hopefully
we will get a good CPI number and move up again from here.
Any gains we can manage between now and Labor Day or even
between now and the Fed meeting next Tuesday will be
icing on the cake since most portfolio managers are on
vacation. We still have the dog days of summer ahead of us
for two more weeks. The bright side this week is the options
expiration on Friday. Expiration week is normally a bullish
week and options for the aggressive speculator are cheap. For
example, BRCD has earnings this Wednesday and a good earnings
report and a good demand forecast could power the related
sectors. Brocade is involved in Internet Infrastructure and
manufactures switches to support the masses of storage required
by the Internet. Exodus (EXDS), is not directly related but as
a major Internet hosting service it tends to react with the
Infrastructure sector. A strong demand forecast by BRCD could
be seen as good continued business for Exodus. EXDS $60 calls
were trading at the close for $.94 with the stock at $57.25
after dropping from a high of $60.50 with the Nasdaq just
before the close. I picked up some of these as a lottery play
on Brocade earnings. If nothing happens I lose $.94 but with
any positive news at all or a Nasdaq rally on a good CPI then
EXDS could easily be $65 for a windfall profit. I love
expiration week!

Good luck and sell too soon.

Jim Brown

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Tomorrow's Another Day
By Austin Passamonte

Did Home Depot really slide the Dow today? Nah, just a token
excuse for nervous traders who bought in the recent rally early
to cash in some winning chips.

A surprising number from the CPI tomorrow will send a bunch
more scurrying to secure gains. Think a strong CPI will just
get shrugged off? It would if we just ended a several-hundred
point move to the downside, not the upside.

Happily, no one expects strong numbers this time around and
we could very well take back today's 109 point decline and
then some tomorrow. Markets at a crossroads are volatile

We'd be thrilled to have these 100-point daily swings for a
while and then some. Plenty of tradable plays in both directions
if we're careful. And I mean careful each way!

Bulls want to rally new market highs but we heard the same song
just a few weeks ago during earnings season. Lest we forget that
little "dip" in the market shortly after. In the background we
see the Dow drop 100+ points today without budging the VIX. All
sentiment is bullish to an extreme and it may be right but
contrarians do warn otherwise.

Next week's Fed meeting with no further rate hike as the consensus
could be just the final catalyst for these markets to run. We feel
further reports will be weak and the Fed is all done raising rates
but would love to see the VIX at or above 24. Whatever it takes
to make that happen would have us buying calls with reckless

Trade carefully until then.


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 8/15 close: 20.97

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            (8/15)      (8/17)       (8/19)

CBOE Total P/C Ratio         .55
Equity P/C Ratio             .46

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

                        Tues         Thurs        Sat
Strike/Contracts       (8/15)        (8/17)      (8/19)

All index options       .80
OEX Put/Call Ratio     1.50

OEX Maximum Open Interest Strikes/Contracts:

Puts               800/6,942
Calls              810/6,564
Put/Call Ratio       1.06

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:               (8/15)       (8/17)       (8/19)

Overhead Resistance:
(900-835)                1,064.88
(830/810)                    5.12

OEX close:                 811

Underlying Support:
(805-785)                    1.56
(780-760)                   10.21

What the S/R measure indicates: Net open-interest ratios
are firm above 810 and ridiculous above 830. A large index
move prior to expiration has clearance to the downside at
780 Market-makers would love to pin the OEX index between
810 & 800 for maximum expiration of worthless contracts.
Too soon to predict but highly possible.

We would consider a move testing the 780 range good call entry
prior to Friday's option expiration. A failed test of 816
could be an excellent short-term put entry.

30-yr Bond:          5.71%

Light, Sweet
Crude, Barrel:     $31.65

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

DOW:   10,792          11,067
NASDAQ: 3,936           3,851
NDX:    3,672           3,722
SPX:     1434            1484
OEX:      773             811

CBOT Commitment Of Traders Report: Friday 8/11
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;    +116 (long)        - 599 (short)
Total Open
Interest %          2% net-long       3% net-short

Net contracts;    - 1,854 (short)      + 1455 (long)
Total Open
Interest %          18% net-short       4% net-long

S&P 500
Net contracts;     + 44,924 (long)     -51,720 (short)
Total Open
Interest %           24% net-long       9.5% net-short


Interest rates
5.71% 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. CPI is next

Strength In GE, Dow Components
GE has long been considered a market bell weather and recent
all-time highs are encouraging signs.

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



Tuesday’s close below 21 sees us in the high danger zone.

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

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. Light, Sweet Crude closed $31.65 today.
All petroleum expected to be very high this fall. Prices
in low $20s would be welcome relief but may not arrive.

COT Report - S&P 500 & DJX
Latest updated figures show small spec traders remain heavily
long S&P 500 contracts while commercial traders continue
to hold ten-year extreme short position. DJX commercials added
to net short while small specs added to net long holdings.
Widened divergence strongly implores market turn in favor of
commercials. The market's bottom may still lie ahead.


As of Market Close - Tuesday, 08/15/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert

DOW   Industrials      11,068      10,600  11,425
SPX   S&P 500           1,484       1,450   1,505
COMPX NASD Composite    3,851       3,500   4,000
OEX   S&P 100             811         790     822     **
RUT   Russell 2000        509         485     540
NDX   NASD 100          3,722       3,400   3,800
MSH   High Tech         1,038         975   1,075     **

BTK   Biotech             660         570     700
XCI   Hardware          1,523       1,450   1,550
GSO.X Software            432         385     455
SOX   Semiconductor     1,060         880   1,120     **
NWX   Networking        1,274       1,190   1,310
INX   Internet            510         460     530

BIX   Banking             598         550     610
XBD   Brokerage           614         570     635
IUX   Insurance           710         680     725

RLX   Retail              841         835     910
DRG   Drug                390         365     415
HCX   Healthcare          807         795     855
XAL   Airline             166         162     178
OIX   Oil & Gas           300         272     304

Yesterday and today we witnessed the OEX, MSH and SOX break our
resistance levels, but only the SOX was able to hold above.
Over the past couple of months we have seen resistance levels
(even though they were broken) become levels where pullbacks occur.
This is a symptom of a range-bound market.  Until this "pattern"
is broken, momentum investors should be cautious. Raising support
(DOW, SPX, OEX, NDX, MSH, XCI, NWX, HCX, XAL) Raising Resistance
(OEX, MSH, SOX) Lowering Resistance (NWX, XBD).


My Favorite Strategies
By Scott Martindale

As a follow-up to my article from last Tuesday, I will
describe a little of my trading history and some lessons I’ve
learned.  I’d like to describe some of the strategies I focus
on today, as well as interesting variations on the basic plays.

By the way, thanks to those of you who wrote after my last
article.  It’s clear that many of us have similar stories to tell
as we navigate our way in this strange, exciting, and dangerous
game of options trading.  And no matter how much success a self-
proclaimed guru has attained, no one can transfer his own success
to another by describing a few simple strategies (Step 1).  It
still takes a shrewd entry point and an emotionless exit strategy
(Step 2).  Step 1 puts you at risk; Step 2 (the hard part) gives
you long-term success.

I mentioned last time that I generally prefer to sell time to
someone else, and that I try to adhere to a predetermined loss-cut
whereby I buy back the sold option.  Also, I have learned to only
write puts on stocks I really believe in and want to own, not just
those that have high options premiums and nice-looking charts.

My favorite plays, particularly when the market is swinging widely
but still within a trading range, are naked puts and put credit
spreads.  I also like buying stocks or LEAPS on pullbacks within
an uptrend and writing covered calls or spreads against them on
strength.  Whether to buy the LEAP or the underlying stock depends
upon whether the underlying price is under about $60.  That way I
can buy more shares or contracts, which allows me to either write
more call contracts or write calls on only part of my position.

I still occasionally will buy a call or put when I feel strongly
about an impending move, but for the most part I try to shy away
from buying short-term options.  Keep in mind that when you buy an
option the underlying stock must move strongly in your direction
to make money, but when you sell an OTM option you make money if
it goes in your direction, stays at the same level, or even goes
slightly in the wrong direction.  So my focus in on selling.

Compile a watch list of your favorite stocks and find a good
support price for each based on technicals and option open
interest.  It’s best to catch a stock bouncing firmly off support,
and then sell a front-month strike at or below that support price
(unless you really want to own the stock at a nice discount, in
which case you might sell ITM or slightly above support).

But even if the stock moves up as you hoped, be prepared to buy it
back, especially if it moves up quickly.  I have made the mistake
of thinking, "Hey, it moved up so much, and my margin requirement
is so small, I can just let it expire worthless and keep all the
money!"  However, volatile stocks can drop back down just as
quickly as they move up (as I have experienced).  So unless you’re
close to expiration with no scheduled news events, I think it’s
better to close out the position when you can lock in a good
profit and free up your margin for another play.  I usually will
place a GTC buy-to-close order at a low price shortly after
entering the play, although I will often raise the price and get
out if I feel that the technical picture is looking overbought or
otherwise rolling over.

A variation on the buy-back strategy is to turn the naked put into
a put credit spread by legging into the spread as the stock moves
up.  This provides: a larger credit than if you entered both legs
at the same time, a larger target profit than simply buying back
the sold put, better downside protection than a naked put
position, and it frees up margin.  This strategy is particularly
attractive if you have little time to closely monitor your

What happens if you sell an OTM put below support, but the stock
moves against you?  OIN has described a strategy whereby if the
stock drops to the strike price sold, you cover the position by
shorting the stock instead of buying back the put for a loss.
This creates a covered put play.  The only problem for me with
this strategy is that you might end up buying back and reselling
the underlying stock in whipsaw action if the stock becomes
volatile in the range of the sold strike.

A variation on the naked put strategy is to sell a deep ITM naked
put as opposed to buying a call on a stock you think is poised to
move up.  The price erosion is roughly equivalent to the price
increase of a deep ITM call, but you are taking in the big premium
rather than paying it.  Even if the stock doesn’t go up quickly,
you will still profit on any increase when you buy it back without
worrying about losing value due to time erosion.  In addition,
depending upon the circumstances, you might consider selling more
than one month out in order to give the stock enough time to move

With covered calls, it’s safer to sell deep ITM front-month calls
for small but reliable returns - but only against stocks, not
LEAPS (you want to avoid being called out of your LEAPS, so sell
ATM or OTM).  And don’t be shy about buying it back on a dip.  If
it’s a normal technical retracement (33-66% of the recent upleg)
that finds support, you can buy it back as it bounces from
support.  Now you are positioned to sell another call on renewed
strength.  On the other hand, if the stock wants to continue a
downward spiral, you might want to close the whole play by buying
back the call and selling the stock at the same time.

A variation on the covered call strategy is to sell ultra-deep ITM
calls, after buying the stock on margin.  With certain volatile
stocks, the call premium a few months out may even exceed the 50%
margin requirement of the purchased stock such that you end up
with more buying power after entering the play than you had going
in!  In this case, the margin purchase is relatively safe, given
the very low sold strike, compared with selling ATM calls.

Next time, I’ll show some quantitative examples of these plays.



Double Tops and Bottoms
By Mary Redmond

A double bottom or double top chart is usually used by technical
analysts for analysis of a stock or index over a comparatively
long period of time.  This can mean that it can be indicative of
what a stock or index may do in the coming quarter based on the
pattern of the last several months.  It is generally not used
on a short term daily or weekly trading basis.

A double bottom is usually formed when a stock or index forms a
solid bottom pattern, rises, and forms the same bottom pattern
again.  This is often used to indicate that a prolonged rally
may ensue.  You can see the double bottom the Dow average formed
in 1998 in the following chart.

The psychology of this type of pattern is easy to understand.
During the months of 1998 we had serious deterioration in the
averages for many reasons.  A bottom in the market can be formed
when people stop selling.  Many traders and fund managers test
the markets to see if bottoms have been formed by selling stocks
and seeing if they can go lower.  At some point a stock or an
average will stop going down and form a bottom.  If a stock or
an average forms a bottom, rises and forms another bottom then
the market often assumes that it simply isn't going any lower.

Some analysts have suggested that an ideal scenario might be if
the Nasdaq were to form a double bottom around 3500 and then
start to rally.  This could convince investors that further
selling might not knock the Nasdaq any lower at any point in
the near future.

We saw many double top chart patterns this spring.  A double top
pattern can be a warning of a serious drop to follow.  If a stock
starts to rally, fails and tries to rally again and fails then
panic can ensue.  You can see the chart below of Qualcomm as an
example of a double top chart.

The chart of the Nasdaq looks like a double top chart as well.
There is another important factor to consider with this chart.
The filled bars below the Nasdaq represent the approximate
moving averages of cash flows to technology funds during each
month starting in November of 1999.

In November of last year the approximate monthly average of cash
to technology funds was $1 billion.  In December the moving
average went up to over $1.5 billion.  In January and February
the moving average of cash to technology funds was over $2
billion monthly.  In March of 2000 the cash flows to technology
funds reached a peak of over $2.85 billion monthly.  By April
the flows dropped to under $1 billion, and for the last few
months they have averaged $500 million.

This lower level of cash flows to technology sector funds may
have made it harder for the Nasdaq to rally.  Although the Dow
has moved up over 500 points in the last few weeks, the Nasdaq
seems stuck in a trading range.  Traders are wondering why the
financials and old economy stocks are rallying while JDSU and
CSCO are staying about the same.

It is interesting to note that the ipo schedule for this week
and next week are much lighter than they have been for the last
few weeks.  Only about 18 ipos have been priced to start trading
this week.  Today three relatively small issues traded, raising
$145 million.  It is possible that the investment bankers are
anticipating that the next two weeks may be difficult for the
markets.  The last two weeks in August usually have very light
ipo shcedules.

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Questions concerning the Big-cap Covered-Calls and Naked-Puts

1.  Regarding the Naked Puts section: What's the formula for
determining monthly returns for naked puts? (ie...how did you
arrive at the 13.7% monthly return for the recent play on SAPE?).

2.  Regarding the naked-calls section:  What's the formula for
determining monthly returns for naked calls? (ie...how did you
arrive at the 19.4% monthly return for the MRVC play?)

3.  Regarding the "Bullish Plays" section:  ie..EXTR,   When
providing possible calls and  puts to sell, you will occasionally
have three asterisks following a particular line item.   What do
these asterisks signify?  For example, you include asterisks
following symbols EUTHU and EUTTF.


1)  We use standard formulas to calculate the return on investment
(ROI) which is based on the equity required to be in your account
to start the play.  It equals the premium received divided by the
put investment required.  The equity required would be the greater
of the following (based on E*trade):

  (0.40 * Price Picked + Premium - (Price Picked - Strike Price))
  (0.20 * Price Picked + Premium) which will take precedence as
you go deeper out of the money.

Example (per share basis):

SAPE = $120.81
Strike = $95
Premium received = $1.88
days to expiration = 16 (As of Aug. 2)
20% equity requirement = 120.81*0.20 + 1.88 =  26.04
40% equity requirement = 120.81*0.40 + 1.88 - (120.81 - 95)= 24.39
ROI = 1.88/26.04 = 7.22% (after multiplying by 100)
I then extrapolate the ROI to a monthly basis by dividing by the
days left to expiration, times 365, and divide by 12.
MROI = 7.22 / 16 * 365 / 12 = 13.7%

2)  MRVC - $71
Strike - $100
Premium received - $2.44
Days to expiration - 23 (As of July 26)
Equity requirement - using the same test as above - 16.64
ROI =  2.44/16.64 = 14.66%
MROI - 14.66 / 23 * 365 / 12 = 19.4%

Remember, the equity requirement is actually dynamic and changes as
the stock value rises of falls.  For ease of record keeping and time
constraints - we keep the requirement static.

3)  The asterisks represent the positions that we have chosen from
the group as the best combination of risk and reward, compared to the
other options for the same stock.  At times, we will use software to
determine the best statistical option, but in most cases, these plays
are simply our personal selections, based on a conservative outlook.
Obviously, you must determine if they fit your risk/reward profile.  In
addition, the asterisks also represent the positions that we will track
and list in the summary each week until expiration.




CPI Caution Keeps Gains In Check
By Buzz Lynn

Following Friday's steady comeback, Monday afternoon proved to be
equally impressive as the NASDAQ steadfastly climbed the stairs to
close back over 3850, a historical level of resistance and
support.  Despite the bulls' attempts to push it higher and bears'
attempts to push it lower, Today's NASDAQ closed essentially flat,
but still at support at 3850.  That in itself is slightly bullish
in our book on the day before the release of critical economic
news, the CPI, estimated to come in at 0.1% overall, and 0.2% at
the core rate.  Investors were naturally skittish.  But strength
in the semiconductor sector kept tech stocks afloat on the NASDAQ.

The same cannot be said for the NYSE issues which, measured by the
Dow, finished down 109 points today.  After 11 positive days out
of the last 12, a day of profit taking shouldn't be unexpected,
especially in front of CPI number tomorrow.  That it happened on
volume of just 900 mln shares indicates there is no shift from the
bullish sentiment.  If there was a shift in sentiment, volume
would be much higher indicating most investors' expectation of a
market decline.  No volume equals no conviction.

When all is said and done, today's action seems like a typical bit
of fear for those wanting to take money off the table "just in
case".  Just be careful since if the CPI numbers are not well
received, some investors and traders alike will be converted back
into thinking that next week will bring rate hikes.  We think
that's noise, but we don't want to fight the tape.  Instead, look
at as a buying opportunity when the dust settles.

Remember too that in the bigger picture the market is generally
well-supported during option expiration week.  Plus the FOMC
meeting next week is unlikely to produce any more interest rate
increases this year.  That could spur investors into thinking that
the next meeting in 2001 might actually produce a DECREASE in
rates.  Couple that idea with traders returning from Summer
vacation and the Labor day weekend who will want to put that cash
back to work as long as interest rates remain on hold, and we have
the makings of a stronger market.  That's not to say it won't come
without dips.  Good entries will still be the key to profits as
will cutting losses fast.

Index             Last    Mon    Tue    Wed    Thu    Fri    Week
QQQ NASDAQ-100    93.19   1.94   0.19   0.00   0.00   0.00   2.13
HHH Internet     108.75   2.94   1.75   0.00   0.00   0.00   4.69
BBH Biiotech     178.31  -1.00  -3.44   0.00   0.00   0.00  -4.44
PPH Pharm.        96.06  -0.81   0.00   0.00   0.00   0.00  -0.81
TTH Telecom.      65.63   0.81  -0.19   0.00   0.00   0.00   0.63
IAH I-net Arch.   96.25   0.94  -0.25   0.00   0.00   0.00   0.69
IIH I-net Infr.   52.63   1.00   0.13   0.00   0.00   0.00   1.13
BHH B2B           46.50   0.69   0.25   0.00   0.00   0.00   0.94
BDH Broadband     91.81   2.63   0.69   0.00   0.00   0.00   3.31
SMH Semicon       90.63   5.06   2.88   0.00   0.00   0.00   7.94
RKH Reg. Banks   106.44   1.13  -0.69   0.00   0.00   0.00   0.44
UTH Utilities    103.25   1.69   0.81   0.00   0.00   0.00   2.50


QQQ - NASDAQ 100 $93.19 (+2.13 this week) On the heels of Friday's
gains came more gains on Monday.  While volume hasn't been
exceptionally strong, it's dangerous to short a dull market.
Besides that, if there was ever a time for low volume, the end of
summer into the Labor Day weekend is it.  While there was profit
taking on the NYSE that kept a lid on last weeks winners like
consumer goods, some retailers, and financials, biotechs too kept
a lid on QQQ action.  The counterbalance was semiconductors, which
have benefited from numerous sector upgrades this week.
Technically, a nice entry was available yesterday morning around
$90.50, which we could have ridden to almost $94 this afternoon.
Support is still pretty good at $90 with mild support at $91.
Mild resistance is at $94, and a bit more solid at $95.  As long
as there is no catalyst to change the market, it would remain
range-bound as it has for the last three months.  Yet despite
today's lack of conviction, the 200-dma of $91.78 held up as did
resistance at the 30-dma of $93.94.  However, with the FOMC
meeting unlikely to produce a rate increase, and the return of
traders from vacation to their heavy cash positions, we figure the
combination will get prices moving upward again with renewed
volume.  Play the range for now, but look for renewed strength as
the week closes out.

Calendar Spread:

This play has been working out pretty well, especially if you've
legged in.  Today's top near $94 would have made an excellent
entry on the sold position.  But we still out hope for $95.
Remember that this is just like a covered call, except we don't
want to get called out of this one.  That would mean giving up all
the time value we paid for on the long term underlying position.
The objective here is to buy the long at support and sell the
short at resistance.  If tomorrow's numbers are market friendly,
we may have another chance to sell the short position for a higher
price.  Support is at $90 and $91, while resistance is at $94 and
$95.Despite the low volatility, time value still evaporates on
current month positions, so enjoy making money while you sleep.
Just remember to cover if the time portion of the premium gets
really low.  That would likely happen only on price spikes up, or
when the option is about to expire.

BUY  CALL DEC- 90 YQQ-LL OI= 2467 at $12.50

SELL CALL SEP- 90 QVQ-IL OI=16534 at $ 7.13, ND = 5.37 or less
SELL CALL SEP- 94 QVQ-IP OI= 1775 at $ 4.88, ND = 7.63 or less
SELL CALL SEP- 99 QVQ-IU OI= 2355 at $ 2 75, ND = 9.75 or less

Long Puts

Unless we see a market wide rollover on strong volume tomorrow
borne of a lousy CPI number, we suggest not taking any QQQ puts
right now.  If it does roll over, look for resistance at $95 or
$94.  A violation of support at $91 or $90 would also make for a
confirmed entry point for puts.

Long Calls

We've been well rewarded so far this week even though today was a
dud for the QQQ.  After all it's option expiration week and one
week before an FOMC meeting.  Support has moved up to $91, $90 on
a bad day.  Target shoot to your level of comfort.  Intraday
support, if you are quicker on the trigger, can be found at $92.25
and might also make a good entry.  Resistance is at $94 and $95.
If you can stand the turbulence, you might try to hang on for a
breakout up to the next resistance level at $99.  But conservative
types may want to "sell too soon" and exit with a smaller profit
in case regular market buffeting (not the Warren type) turns into
an unforeseen downdraft.

BUY CALL SEP-85 YQQ-IG OI= 1572 at $10.63 SL=7.75
BUY CALL SEP-90 QVQ-IL OI=16534 at $ 7.13 SL=5.00
BUY CALL SEP-95 QVQ-IQ OI=12018 at $ 4.25 SL=2.75

Average Daily Volume = 21.75 mln


SMH - Semiconductor $90.63 (+7.94 this week) Are you glad you
switched to playing calls this week?  We sure are.  Thanks to some
rethinking of the sector on part of many analysts.  Almost all
have changed their tune in the last three days.  Today, Morgan
Stanley Dean Witter's Mark Edelstone stepped to the microphone to
explain that semiconductors had an estimated 18-24 months left in
the cycle.  The fact is the selling had been overdone and that's
all investors needed (in addition to similar comments from DLJ,
Merrill Lynch and B of A Montgomery Securities) to blast SMH and
SOX.X into orbit and support an otherwise lackluster NASDAQ.  We
think the sentiment has changed for the better and expect the
trend to continue.  Technically all indicators are pointing up,
including a strong RSI confirmation.  Support is around $88.50 and
then again at $85.  Aggressive traders can consider getting in at
$90, but run the risk of a daily pullback given the strong
performance so far this week.  The congestion from the past three
months is thick starting at the 50-dma of $92.27, then again at
$93.50, and $94.50.  Those could fall with one more strong day on
the NASDAQ.  After that, there should be smoother sailing.  Remain
vigilant for a good entry though.

BUY CALL SEP-85 SMH-IQ OI=43 at $8.88 SL=6.25
BUY CALL SEP-90 SMH-IR OI=78 at $6.00 SL=4.00
BUY CALL SEP-95 SMH-IS OI= 5 at $3.88 SL=2.25
BUY CALL NOV-95 SMH-KS OI=32 at $8.25 SL=6.00

SELL PUT SEP-85 SMH-UQ OI= 5 at $2.88 SL4.50

Average Daily Volume = 333K K


BBH - Biotech $178.31 (-4.44 this week) This sector has been weak
so far but not weak enough to drop.  Based on volume of the
underlying issues like BGEN, ANGN, and DNA, we think the sector is
just suffering a bit of profit taking in front of the economic
reports due tomorrow.  We got close to an entry at $175, but the
50-dma of $177.67 provided support.  To the upside, BBH never
crossed our breakout entry point of $184.  So here we wait
patiently for an entry.  We will stick our current support level
of $175 for an entry, or for those a little itchier to get in the
game the 50-dma ($177.76) could also make a good target at which
to shoot.  We think the mood will improve in this sector on any
good day for the NASDAQ.  Confirm market direction before

BUY CALL SEP-175 BBH-IO OI= 12 at $14.00 SL=10.50
BUY CALL SEP-180 BBH-IP OI=577 at $11.50 SL= 8.75
BUY CALL SEP-185 BBH-IQ OI= 83 at $ 9.13 SL= 6.50

Average Daily Volume = 638 K


IAH - Internet Architecture $96.25 (+0.69 this week) IAH has been
working hard to eke out a small gain this week.  But without
participation from CSCO, HWP, and SUNW, IAH will have a tough
time.  Unfortunately, we haven't been given an entry yet, but the
10-dma and the 30-dma, both just under $95, have acted as support
over the last two days.  Our plan from Sunday hasn't changed: "The
next level of resistance is $97, then $99.  If the tech issues
take off in front of the FOMC meeting, IAH could deliver us nice
profits this week.  Target shoot to $93.50 for the best entry.  Or
if there is no decline during amateur hour, feel free to buy minor
intraday dips, or even at the current level."

BUY CALL SEP- 90 IAZ-IR OI= 5 at $9.88 SL=7.00
BUY CALL SEP- 95 IAZ-IS OI=15 at $6.50 SL=4.50
BUY CALL SEP-100 IAZ-IZ OI= 0 at $4.00 SL=2.50

Average Daily Volume = 54 K

No Play



Index      Last    Mon     Tue  Week
Dow    11067.00 148.34 -109.14 39.20
Nasdaq  3851.66  60.22    1.97 62.19
$OEX     811.81  11.59   -4.53  7.06
$SPX    1484.43  19.72   -7.13 12.59
$RUT     509.93   4.21   -4.55 -0.34
$TRAN   2884.41  -6.29  -36.80-43.09
$VIX      21.01  -0.84    0.62 -0.22


EXTR     173.38   8.50    5.13 13.63  Another day, another high
JNPR     169.75  10.06   -0.25  9.81  New, watch it explode!
DIGL     108.75   2.13    6.88  9.00  New, tripping the light
LSCC      62.44   3.38    2.44  5.81  New, sector coming to life
TQNT      44.63   3.08    2.66  5.75  New, "times are a-changin'"
SUNW     117.38   1.88    3.31  5.19  Don't forget your sunscreen
JPM      146.69   4.06   -1.25  2.81  Trying to make another high
IDTI      66.88   0.44    1.00  1.44  New, what Semi correction?
AFL       57.69   2.50   -1.13  1.38  Held well with downgrade
DNA      165.25   3.06   -1.81  1.25  Where has the volume gone?
EXDS      57.13   2.00   -1.13  0.88  New, pattern of higher lows
ITWO     147.75   7.69   -6.88  0.81  Finding a bounce at the 5-dma
MER      140.00   3.38   -2.69  0.69  Not immune to profit-taking
CCU       83.69  -0.88    1.50  0.63  Media giant over $79 support
EMC       88.69   0.19   -0.88 -0.69  Fairly quiet start this week
COHR      68.06  -0.16   -0.72 -0.88  Two days of consolidation
MERQ      98.81   0.69   -1.63 -0.94  Dropped, going nowhere fast
PVN      110.13   0.81   -3.88 -3.06  Dropped, getting out good
PEB       90.13  -2.13   -1.75 -3.88  Dropped, no signs of survival
TIBX      98.25  -4.56   -0.13 -4.69  Dropped, unable to resume
IDPH     129.16  -3.19   -3.66 -6.84  Dropped, beginning to break


MLNM     109.00  -3.19   -2.31 -5.50  New, what goes up, must
SYMC      43.94  -3.13   -1.31 -4.44  New, needs a new enemy
INCY      71.28  -0.31   -3.22 -3.53  Some perfect entry points
AAPL      46.69  -0.63   -0.38 -1.00  Dropped, hasn't moved enough
SGP       40.50  -0.81    0.31 -0.50  Patent worries still looming
CRA       85.50   0.75   -0.25  0.50  Dropped, flatlining
LVLT      61.81   2.19   -0.13  2.06  Bounced just like a dead cat
AMD       63.75   5.50    0.75  6.25  Dropped, analyst boosts Semis
MU        86.25   4.63    5.75 10.38  Dropped, Joseph spoke again
VRSN     154.19   6.69    7.19 13.88  Dropped, found a bottom

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.


IDPH $129.17 -3.64 (-6.83)  What looked like consolidation now
appears to be the beginning of a downtrend.  On Monday, IDPH
attempted to rally in the early going.  Finding resistance at the
$139-140 area, the stock sold off and spent the rest of the day
moving lower.  The last three hours of the day saw volume to the
downside increase but the key support level of $130 held strong.
Today was a continuation of that downtrend.  At mid-day, with IDPH
bouncing off the $130 support level, the stock attempted to stage
a late day rally.  This was not to be, however, as the sellers
came in once again, driving the stock below its key support level
of $130.  The past three trading sessions have seen IDPH close
well below the 5-dma.  Although volume so far has been light, the
early signs of rolling over are there.  The down to flat
performance of the biotech and pharmaceutical sectors aren't
helping the stock either.  As a result, we are exiting this play
and putting that money toward a more promising sector.

PVN $110.13 -3.88 (-3.06)  Having picked this play at $102.38 and
seeing a plethora of trading opportunities, we are going to take
our profits tonight before everyone else does.  Now, PVN very well
could be consolidating near support at $109, but today's close was
below the 10-dma at $110.67.  The past eight days looks like a
basing period, but we are a little weary of holding this much
longer considering it tried twice to break over $115 to no avail.
It was a successful play so we're keeping it that way, along with
our profits.  Thanks PVN!

PEB $90.13 -1.75 (-3.87) On Monday, PE Biosystems announced
it was expanding its real estate to include a campus in the Bay
Area community of Pleasanton, CA.  It's too bad PEB's share
price couldn't expand as well.  After snowballing earlier last
week and peaking at $104.75, it appears the momentum has
fizzled.  The stock is once again sitting on firm support at $90
and is not showing any signs of a revival.  Therefore, we're
taking our cash and moving on to greener pastures tonight.

TIBX $98.25 -0.13 (-4.69) Even a Buy reiteration and a $150
price target from Stephen Dube at Wasserstein Perella Securities
couldn't generate any excitement for TIBX today.  The share
price actually lost more ground after yielding to another dismal
day of trading on Monday.  Earlier last week, TIBX saw powerful
moves above resistance at $110 as it made a charge for the $120
level.  Unfortunately, the market pressure and profit taking got
the best of TIBX and it hasn't been able to resume an uptrend.
While this is disappointing, there's no reason to keep waiting
for TIBX to generate another wave of momentum.  It's time to
exit and look for other lucrative call plays.

MERQ $98.81 -1.63 (-0.94) Yawn, MERQ is going nowhere fast.  For
the past three trading sessions, MERQ has churned around the
century mark on declining volume.  The stock has been dipping
below, and rising above $100, which has provided several intraday
opportunities to trade.  But, the momentum we had been gaming has
appeared to left MERQ.  The company announced a new partnership
Monday, which set the stock to attempt to bounce off $100 this
morning.  But, MERQ slipped back below $100 and weakened as the
day wore on.  As such, we too must slip away to another trade.


VRSN $154.19 +7.19 (+13.88)  It appears that VeriSign has finally
found bottom.  Since bouncing above the $135 support level on
Friday, VRSN has moved higher all this week.  On Monday, VRSN
shareholders got their first taste of relief as the stock rallied
$6.69 on 89% of ADV.  It was not enough to break resistance at
the 10-dma but did allow the stock to close above its 5-dma for
the first time in a week.  Today, buyers continued to drive the
stock higher and on greater volume, bidding the stock up 5% in
the face of a flat NASDAQ.  In doing so, VRSN has finally broken
its formidable resistance at its 10-dma, now at $149.75.  The
break signals to us that perhaps this downtrend is over.  This is
confirmed by increasing volume to the upside over the past couple
of trading sessions.  As there has been no news to drive the
stock, the move up has been technically driven.  With improving
technicals for VRSN and a possible break from its downtrend, we
are closing this play.

AAPL $46.69 -0.38 (-1.00) If it doesn't move, we can't make
money.  That's the name of the options game and AAPL just isn't
cooperating lately.  This week AAPL's been range bound between
$46.50 and $47.50.  This narrow channel doesn't provide much
room for short-term momentum trading.  Plus, today's lackluster
volume at nearly half of the daily average further implies that
AAPL be quite comfortable at its current price level.  We're
exiting this slow mover tonight before it gets the best of us.

CRA $84.63 -1.13 (-0.37) You get all pepped up about a
potentially good put play and then whamo, nothing exciting
happens!  This pretty much sums up what transpired with CRA.
There was the technical breakdown coupled with a negative
sentiment within the sector and great downside volume to boot.
But despite the rosy outlook, CRA flatlined.  We weren't offered a
decent entry never mind the chance to profit.  It's likely
this week's scuttlebutt about the revival of biotechs may have
had some effect on our put play.  Whatever the underlying cause
may be for the somber trading activity, it's evident that CRA
makes the drop list tonight.

AMD $63.75 +0.75 (+6.75) Jonathan Joseph, the one-time "chip ax,"
turned a page for the bulls Monday by boosting his ratings on MU.
Morgan Stanley jumped on board the bull bandwagon today by
issuing a positive report on the entire Semi sector, calling the
concerns of slowing demand overdone.  For its part, AMD helped
its cause by announcing that it had begun shipping its 1.1 ghz
processor.  AMD steadily rose into the close of trading Monday,
and edged higher today after falling into a trading range between
$62 and $64.  The return of the Chip sector bulls has ended our
play.  It's time to sell too soon, and lock in our gains.

MU $86.56 +6.06 (+10.94) The amazing power of analyst comments
came to bear on MU again as Jonathan Joseph upped his estimates
on the stock.  The downtrend that began in mid-July was triggered
by bearish analyst comments on the Semiconductor sector, and lo
and behold, the surge in the sector over the past 2 days has been
accompanied by bullish comments about the chip stocks.  Numerous
analysts are calling for more gains from the Semiconductors,
citing continued strong growth.  The mixed signals we were getting
on Friday (bounce at the 100-dma, but no push to the upside) were
resolved yesterday as MU gapped up over $2 at the open and pushed
higher all day to close at its high.  That was just a warm-up for
today’s $6+ gain, which came on very strong volume and solidly
kicks MU off the Put list tonight.

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The Option Investor Newsletter                  Tuesday 08-15-2000
Copyright 2000, All rights reserved.                        2 of 2
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JPM $146.69 -1.25 (+2.81) Starting off on a volume burst this
morning, JPM tried in earnest to top yesterday's 52-week high of
$147.94, reaching a day high today of $147.19.  The stock then
traded between $146 and $147 for the remainder of the day, making
a late day comeback above the $147 level, but JPM failed to sustain
the drive.  Still trading well above all technical supports, JPM
is still looking great for our call play.  Support lies just
below today's intraday low of $145.75 at the 5-dma of $144.50.
If you are feeling bullish, continue to look for entry points to
the play on bounces off the lows.  Otherwise, a strong volume move
to the upside, breaking though resistance of Monday's established
52-week high would also give a solidly convincing entry point to
the play.  A few indicators to watch for direction on this stock
are interest rate sentiment, the Dow, and the Banking Index, BKX.X.
Financials have had quite a run lately, so look to see if they get
tired with the Fed meeting a week away.  Use stop losses.

DNA $165.25 -1.81 (+1.25)  Where has all the volume gone?  So far
this week DNA has been quietly drifting in a narrow range on low
volume.  On Monday, morning sellers attempted to drive the stock
down but buyers rushed in quickly for support, bouncing well
above support at $160.  It was a battle between buyers and
sellers all day, albeit a low volume one.  But, in end the good
guys won.   As a result, the stock advanced $3.06, or 1.87%, on an
anemic 35% of ADV.  Today, it was the buyers' turn to take the
first shot.  Attempting to rally in the early morning, DNA hit
resistance just below $170 bringing the sellers in.  Attempting
to drop the stock to $160 to no avail, the buyers came back
to keep the stock well above that level.  At this point,
aggressive traders may consider entering on a bounce from the $164
area.  Below that, another entry could be found in the $160 - $161
area, confirming with a bounce off support.  Conservative traders
may want to see DNA clear resistance and the 5-dma at $168 before
entering.  With volume so low, make sure volume confirms a bounce
or move upward before making a play.

EXTR $173.38 +5.13 (+13.63)  Another day, another new all-time
high for EXTR.  Traders who got up early on Monday were treated
with a quick dip to its $160 support level during amateur hour.
This turned out to be a beautiful entry point as the stock spent
the rest of the day moving higher.  Making a new all-time high,
EXTR closed up $8.50, or 5.32%, on 113% of ADV.  Today was more of
the same.  After a quick dip to its 5-dma, EXTR rose higher and
in doing so, took out resistance at $170 to make yet another new
all-time high.  This time the volume was a little lighter,
clocking in at 92% of ADV but we'll take it.  The only level of
resistance for the stock right now is at $175.  A break over that
on good volume could provide for a conservative entry.
Aggressive traders have found that buying bounces off the 5-dma
($163.60) can be quite profitable.  In the news, yesterday EXTR
announced that it has added Layer 7 dial tone to its broadband
networking solutions with a new product called ServiceWatch.  The
company claims that this will allow Internet data centers to
maintain 100% uptime.

AFL $57.69 -1.13 (+1.38)  After making an all-time high on Monday
at $58.94, AFL pulled back a bit today on higher volume than
Monday.  This was partly due to the CSFB downgrade from a Buy to
a Hold.  There were no further details available on the coverage
change.  In today's trading, AFL dipped below $58 within the first
hour and buyers just couldn't break back through this intraday
resistance level.  Even with this news, we are not giving up on
this call play making new highs.  We would look to enter this play
on any pullbacks to the $56 level, accompanied by a bounce.  This
is the site of the current 10-dma at $55.96, and where AFL found
intraday support on Friday.  A conservative trader may wait for
the stock to break above $59 on strong volume.  If sellers take
AFL down to break the 10-dma, we would be cautious.

CCU $83.69 +1.50 (+0.63) This media giant continued to
established its presence above former resistance of $79.  The
development of a pattern of higher-lows is currently driving
near-term support just above the $81 level.  The bounce off
$81.38 to an intraday high of $85.06 this afternoon cleared away
any short-term opposition.  The next price barrier to contend is
at $88 and $90, which CCU hasn't seen the upside of since
January and February.  If the strong volume perseveres, then it's
likely that CCU's momentum can bring it over the top.  Today's
volume levels, for instance, were very robust at 3.95 mln, almost
double the ADV.  Also keep an eye on the Dow's movements for
some hint of this stock's ultimate direction.  Play it safe and
keep stops in place over the next couple of sessions.  CCU may
experience some profit taking considering today's convincing
performance.  The $80 level at the 10-dma should hold as firm
support on a pullback.  If it doesn't, put up the radar and keep
your cash on the sidelines until a trend resumes.  On the other
hand, if CCU breakouts again, enter on positive moves off $82
but watch for resistance at the $85 mark.

SUNW $117.38 +3.31 (+5.19) Don't forget your sunscreen, our play
is shining brightly.  SUNW held its mid-quarter analyst meeting
Tuesday, which was filled with bullish tones.  The company guided
analysts to higher revenue growth and appeased Wall Street's
concerns over component shortages.  The upbeat tone beaming from
the mid-day conference call boosted SUNW into rally mode and to
a new all-time high.  The stock is plowing higher in spite of the
waning in the broader Tech sector, with few signs of slowing.
Furthermore, the buyers were more than convincing Tuesday as
trading activity spiked above the ADV.  The fact that SUNW is
trading near its 52-week high leaves little resistance above.
Watch for the return of buyers early Wednesday morning and
consider entering the play if SUNW bursts above its intraday high
of $119.  An aggressive trader might target shoot for an entry
upon an intraday pullback to support near the $115 - 116 range,
or down to the 5-dma at $113.25.

COHR $68.06 -0.75 (-0.88) COHR spent the past two days
consolidating its gains from last week.  The tepid volume has
confirmed our suspicions of profit taking.  Despite the second
day of light selling pressure, COHR did, however, stop at its
5-dma this morning, and bounced off that level in the latter half
of trading.  Over the past two weeks, COHR has exhibited a
similar pattern to its current trading.  The stock has the
tendency to consolidate its gains for several days, followed by a
burst of buying.  The stock's intraday rallies can be quick and
furious, which requires a close watch.  With that said, an
aggressive trader might watch for the beginnings of a big
intraday rally, and consider entering the play on a bounce off
current levels.  For the more conservative traders, wait for
COHR's momentum to build and consider entering the play near
resistance at $69, or on a rally above the technically
significant $70 level.  Another bounce off support at the 5-dma,
currently at $67, might provide an additional entry upon further
profit taking.

ITWO $147.75 -6.88 (+0.81) ITWO said Monday that its TradeMatrix
eBusiness solutions software had helped the company gain over 30
new customers.  The news, combined with a healthy Tech sector,
helped ITWO's stock to a near-term high in its ascending channel,
which we noted in Monday's Play of The Day.  But, the enthusiasm
was short-lived as ITWO fell under control of the profit takers
today and slipped lower on light volume.  Although ITWO gave back
much of Monday's gains, the stock's technical picture remains
strong, which bodes well for the health of our play.  The buyers
stepped in this afternoon near the 5-dma, currently at $146.56,
to stabilize ITWO's sell-off.  An aggressive trader might
consider entering the play at current levels given the fact that
ITWO bounced off its 5-dma late today.  But, before entering the
play, make sure to confirm strength in the broader Tech sector
and the return of ITWO buyers with robust volume.  A more
conservative entry might be found if ITWO builds steam and
rallies back above the $150 level.

EMC $88.69 -0.88 (-0.88) It’s been a fairly quiet start to the
week for our EMC play.  Entry points are dancing just out of
reach as the stock has spent its time trading between $88 and
$90.  Sure there have been brief forays fractionally outside of
this range, but they have been small and short-lived.  The fact
that EMC has managed to hold its ground is a good sign for
future gains, once all the major indices decide to march in the
same direction.  Yesterday, the stock gained $0.88 to close
fractionally above the $90 resistance level as the NASDAQ
rallied.  Today’s action saw the stock give up twice that amount
as investors showed their nervousness ahead of tomorrow’s CPI
numbers.  Volume was on the light side, clocking in at only
about 80% of the ADV, but picked up near the close as the stock
dropped to the bottom of its recent range.  Our entry strategy
remains unchanged; target shoot entries on dips to support at
$88, and then $86.50.  More conservative traders will wait for
the buying volume to pick up and launch EMC through the $90
resistance level.

MER $140.00 -2.69 (+0.69) Financial stocks were due for some
profit taking and although MER’s gains have been steady and
consistent, it wasn’t immune to the decline.  After tagging yet
another all-time high of $143 yesterday, nervousness about the
economy dragged our favorite bull back to earth today.  In
retrospect, yesterday’s action gave us warning signs that
weakness could be ahead as the run to new highs came on only
two-thirds of the ADV.  It was encouraging to see the profit
taking today come on similarly light volume, and on top of
that, the stock held support at $140.  Below current levels, we
still have intraday support at $139, and $137.50.  Then
stronger support exists at $136, just below the 10-dma
(currently at $136.75).  Consider target shooting intraday
dips to support for better entries, or for a more conservative
entry wait for a resurgence of buying volume to push MER to new
highs above $143.  Need another catalyst for our play?  How
about a split run?  That’s right, MER will split 2-for-1 on
September first, so now is the time to get positioned to run
with the bull.


INCY $71.28 -3.22 (-3.53) INCY has proven to give us some perfect
entry points to this put play, rising up in the early morning
both Monday and today.  Threatening to break through 10-dma
resistance of $78.09, the stock only managed to hit a high of
$77.88 yesterday, and $75.88 today.  Profit takers then took
their gains, driving the stock to violate support of the 5-dma
at $74.15, hitting a low today of $71.25.  INCY is still trading
well below all other technical levels, still making the play
attractive, especially on the volatility.  Look for peaks in the
morning, with strong volume rollovers to the downside, which
appears to be standard behavior for the sell-offs of late.
With the stock closing only $0.03 above the day low, we could
be in some downside acceleration and profit taking tomorrow, so
keep your eyes open for the morning spike.

LVLT $61.81 -0.13 (+2.06) LVLT bounced like a dead cat off the
$60 level Monday with help from a stabilizing Telecom sector and
some positive press.  The company announced it had launched a new
networking service, which could lower the cost of bandwidth
across the Internet.  The momentum from the announcement caused
LVLT to gap nearly $2 higher this morning.  But, the Telecom
bears returned to sell into strength and carry LVLT lower.  The
stock fell into a trading range between $60 and $62 for the
better part of Tuesday.  If LVLT continues to bounce within its
newfound range, an aggressive trader might target shoot for entry
points upon a bump against $62.  A failure of support at $60
might provide a solid entry for the more conservative traders.
If LVLT does fall back below $60, make sure to confirm the return
of institutional sellers with heavy volume before entering the
play.  Also of note, the stock did close right on its 5-dma
today, which might provide support on an attempted rally.

SGP $40.50 +0.31 (-0.50) After the fateful court decision relating
to LLY’s flagship drug Prozac, interest in Pharmaceutical stocks
has been more sedate.  These stocks had been moving strongly with
the DJIA, but the LLY news really took the shine off the sector.
Any stock with patent expiration concerns has had a hard time over
the past week and SGP is one of those.  The issue for the company
is expiration of its patent protection on its Claritin product.
A vigilant reader corrected an error we made in the weekend
write-up.  We had pointed out that this patent expired at the end
of this year, which would make the risk for the company near at
hand.  The patent actually expires at the end of 2002.  The
near-term issue is the development of a replacement for Claritin,
and the company’s candidate for this role is currently awaiting
FDA approval, which should be forthcoming by the end of this year.
The downward slide in shares of SGP is continuing this week and
an interesting pattern is starting to develop; the last two days,
SGP has gapped up, only to decay throughout the day.  The 10-dma,
at $42, is still well above the current price, and will likely
continue to create downward pressure on SGP.  Look to enter new
positions as the price rolls over, either at the 10-dma or after
the strength of the morning gap up loses momentum.  Support sits
at $39-40, and more conservative players will want to wait for
selling pressure to penetrate this level before playing.

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EXDS - Exodus Communications $57.13 -1.13 (+0.88 this week)

Exodus provides Internet system and network management
solutions for companies with mission-critical Internet
operations.  The company offers sophisticated systems along
with technology professional services to provide optimal
performance for customers’ Web sites.  Exodus has a long
list of customers, including:  EBAY, YHOO, SUNW, and AMAT.
The company continues to expand its business through
acquisitions and expansion overseas.

It has been a volatile year for EXDS.  But, the simple fact is
the company operates in a high-growth business.  And, with that
high-growth comes high volatility.  The company has been
aggressively expanding its operations overseas in areas including
Europe and Asia.  EXDS's push into international markets,
combined with the still-explosive growth in domestic markets,
helped the company win over 500 new customers last quarter alone.
Furthermore, EXDS announced last week that it had opened its
fifth Internet Data Center in the high-demand locale of Silicon
Valley.  The company continues to attract new business, with the
signing of one contract after another.  Just last week, the
company announced Elite Systems had chosen EXDS to host its
financial information services Web site.  Although the company
has yet to turn a profit, investors are once again warming up to
the Web hosting giant.  The Internet shakeout left many dot coms
to the bears, but not EXDS.  The stock is once again reasserting
itself as a Tech champion.  EXDS has been rolling higher over the
past two months, and attempted to breakout to a near-term high
Tuesday.  Volume has begun to pick up over the past three
sessions as EXDS encroached upon the $60 level.  Consider
entering the play Wednesday morning if EXDS breaks above $60 on
relatively strong volume.  An aggressive trader might look to
enter the play on a bounce off support at $56, or lower near the
5-dma around $55.  Confirm strength in the broader Tech sector
before entering the play.

EXDS has won over the attention of Wall Street recently.  The
stock has been the target of several upbeat analyst reports
in the past week.  Last week, Robertson Stephens reiterated its
Strong Buy rating and Legg Mason also reiterated its Strong Buy
rating and established a $95 price target.  And yesterday,  DLJ
reiterated its Buy rating based on EXDS's strong business trends,
and raised its price target to $88.

BUY CALL SEP-55 DUB-IK OI=5050 at $ 6.63 SL=4.75
BUY CALL SEP-60*QED-IL OI=5413 at $ 4.25 SL=2.75
BUY CALL SEP-65 QED-IM OI=4076 at $ 2.75 SL=1.50
BUY CALL DEC-60 QED-LL OI=2521 at $10.13 SL=7.00
BUY CALL DEC-65 QED-LM OI=1527 at $ 8.50 SL=6.00

Picked on August 15th at $57.13    P/E = N/A
Change since picked        0.00    52-week high=$89.81
Analysts Ratings     26-5-1-0-0    52-week low =$15.06
Last earnings 06/00  est= -0.12    actual= -0.10
Next earnings 10-23  est= -0.17    versus= -0.07
Average Daily Volume = 8.30 mln

DIGL - Digital Lightwave Inc. $108.75 +6.88 (+9.00 this week)

Digital Lightwave was founded in 1991 on the premise that
high-speed optics would play an increasingly important role in
network development, due to light's superior capacity and speed
as a communication transport medium.  Digital Lightwave provides
the fiber-optic networking industry with products and technology
that monitor, maintain and facilitate the management of
fiber-based high-speed communications networks.  The company's
products are used to cost-effectively verify and qualify service
during network installation and to proactively monitor deployed
networks to ensure their optimal performance.

Tripping the light fantastic!  It's been a great month so far for
DIGL.  But, it's also been a long road traveled.  The chart on
this stock clearly tells classic tale of earnings-driven
momentum.  A pre-earnings run-up in early July gave way to a
post-earnings sell-off, with help from strong resistance at $120.
Revenues for the second quarter were $22.1 mln.  This was
more than double the $10.7 mln reported the year before.  Net
income came in at $6.2 mln, or 20 cents per share, compared
$0.1 mln, or close to break-even from a year ago.  This
easily blew through Street estimates of 14 cents per share.
Despite this, DIGL was treated to a severe earnings sell-off.
Since finding a solid bottom at the $80 level in early August,
however, the stock has propelled itself upwards.  News of a
$1.3 mln order from Fujitsu for DIGL's high-speed optical
analyzers certainly helped in the cause.  In the past five
trading sessions, DIGL took some time to consolidate, trading in
a narrow range between support at $95 and resistance at $105.
Today, the stock broke out of that range, gaining 6.75% on almost
150% of ADV.  Looking ahead, the next level of resistance appears
to be at $115.  Breaking through that level will bring DIGL face
to face with formidable resistance at $120.  A break through that
area will likely see DIGL reach for a new all-time high.
Aggressive traders will notice that bounces off the 5-dma ($102.37)
have been ideal entry points with support at $105, the
psychological $100, and $95.

So far the few pieces of news for DIGL in the month of August
have been positive.  Aside from the Fujitsu order, DIGL
established a distribution partnership with Conformance Standards
Ltd., which would see CSL distribute its products.

BUY CALL SEP-105 DGU-IA OI= 45 at $14.38 SL=10.75
BUY CALL SEP-110*DGU-IB OI=138 at $12.13 SL= 9.00
BUY CALL SEP-115 DGU-IC OI=  1 at $ 9.88 SL= 7.00
BUY CALL OCT-110 DGU-JB OI= 62 at $18.25 SL=13.00
BUY CALL OCT-115 DGU-JC OI= 27 at $16.38 SL=11.75

SELL PUT SEP-100 DGU-UT OI= 20 at $ 7.00 SL=10.00
(See risks of selling puts in play legend)

Picked on August 15th at $108.75    P/E = 167
Change since picked        +0.00    52-week high=$150.00
Analysts Ratings       4-3-0-0-0    52-week low =$  5.81
Last earnings 07/18    est= 0.14    actual= 0.20
Next earnings 10-17    est= 0.21    versus= 0.09
Average Daily Volume   =   818 K

JNPR - Juniper Networks Inc $169.75 -0.25 (+9.81 this week)

Juniper Networks develops and provides next-generation Internet
infrastructure systems that are designed to meet the
scalability, performance, density, and compatibility
requirements of IP networking systems.  The company's M40 and
M20 Internet backbone router use JUNOS network traffic
management software, ASICs.  Its clients include some of the
world's leading service providers such as Ericsson and

Give JNPR a good market environment and watch it explode!  Juniper
Networks is once again on the move and we want a piece of the
action.  As the NASDAQ made its way above the 3800 level this
week, JNPR shot upwards with a fervor.  There's a momentum run in
our midst or so it seems.  Let's retrace for a moment.  Last week
JNPR traded above the former resistance of $160, but didn't
demonstrate any strength at the higher price level.  This week
JNPR is not only holding the lofty gains, but also shot through
technical resistance at the 5-dma ($165.51) without a backslide.
Entries off the current level may be somewhat aggressive in this
topsy-turvy market.  If you are looking for more confirmation,
then wait for high-volume moves through the first line of
opposition at $175.  Upper resistance is at $180 and $181.25, the
52-week high.  We're anticipating the respectable volume to
sustain the upward momentum in the short-term.  However, you will
want to monitor the market's direction.  Remember, the NASDAQ is
currently at a precarious level and could pullback with profit
taking.  Stop losses may be useful, but remember, this is an
Internet play and is subject to wide intraday swings.

Earlier this month, JNPR was reiterated a Buy at Lehman Brothers
and was raised to a Strong Buy from a Market Perform at Raymond
James Financial.  More positive comments like that would
certainly spice up this momentum play.

BUY CALL SEP-160 JUD-IL OI=3828 at $20.88 SL=14.50
BUY CALL SEP-170*JUD-IN OI=3324 at $16.00 SL=11.50
BUY CALL SEP-180 JUD-IP OI= 327 at $11.75 SL= 8.75
BUY CALL OCT-170 JUD-JN OI= 349 at $24.63 SL=19.25
BUY CALL OCT-180 JUD-JP OI= 956 at $20.38 SL=14.50

Picked on August 15th at  $169.75    P/E = 1882
Change since picked         +0.00    52-week high=$181.25
Analysts Ratings       15-3-0-0-0    52-week low =$ 28.25
Last earnings 06/00     est= 0.04    actual= 0.08
Next earnings 10-12     est= 0.08    versus=-0.01
Average Daily Volume  =  6.21 mln

IDTI - Integrated Device Technology $66.88 +1.00 (1.44 this week)

The company's high-performance semiconductor products and modules
are found in computers, peripherals, and communications and
networking devices.  About 70% of sales are from communications
and high-performance logic components, specialty memory, clock
management circuits, and networking devices. IDTI also makes
static random-access memories (SRAMs).

What Semi sector correction?  IDTI has held its ground remarkably
well during the recent drubbing in the Chip sector.  IDTI's
impressive relative strength lends itself to the company's
blowout earnings report and stable sales.  Speaking on the
former, IDTI blew past analysts' estimates by a whopping 23%,
reporting a more than 200% year-over-year increase in earnings.
But, more importantly, IDTI's recent rally stems from the fact
that the company manufactures a type of semiconductor that is far
less of a commodity than other chips.  IDTI's communications
chips are not as sensitive to the seasonality or cyclical nature
of the Semi sector.  The prospects of stable sales going forward,
despite the turmoil in the broader Chip sector, combined with
IDTI's relatively low valuation, have combined to position the
stock on the brink of a breakout to new highs.  The stock has
been on an unimpeded march higher since reporting second-quarter
earnings in late July, using its 5-dma, currently at $64, as
support along the way.  IDTI attempted to hurdle the $70 level
Tuesday, but was hindered as a round of profit taking swept
through the broader Semi sector.  However, once the light selling
subsides, watch for IDTI to make another attempt at $70, which
might position the stock to take on its all-time high at $77.  An
aggressive trader might look for a quicker entry into the play
upon a rally back above resistance at $68.  However, if the
profit taking persists, look for IDTI to find support near its
5-dma, and consider entering the play if the stock reverses
course and heads north.  And, of course, watch for a strong rally
above the technically significant $70 level, and confirm a
breakout attempt with healthy volume.

One possible event which might boost our play into breakout mode
is the potential for a split announcement.  IDTI last split its
stock in 1995, when it was trading around $51.  The company is
holding its Annual Shareholder Meeting in a little over a month,
with a proposal to increase its number of authorized shares.

BUY CALL SEP-60 ITQ-IL OI= 320 at $10.50 SL=7.25
BUY CALL SEP-65*ITQ-IM OI= 309 at $ 7.75 SL=5.50
BUY CALL SEP-70 ITQ-IN OI= 544 at $ 5.38 SL=3.25
BUY CALL NOV-65 ITQ-KM OI=1003 at $12.38 SL=9.25
BUY CALL NOV-70 ITQ-KN OI= 443 at $10.13 SL=7.00

Picked on August 15th at $66.88    P/E = 37
Change since picked       +0.00    52-week high=$77.44
Analysts Ratings      6-1-1-0-0    52-week low =$15.06
Last earnings 06/00   est= 0.47    actual= 0.58
Next earnings 10-16   est= 0.70    versus= 0.18
Average Daily Volume = 3.14 mln

TQNT - TriQuint Semiconductor, Inc. $44.63 +2.66 (+5.75 this week)

Triquint is the prevalent global supplier and creator of high
performance analog and mixed signal circuits. Its technology is
used in wireless communications, telecommunications, data
communications, and aerospace systems. TriQuint offers its
customers both standard and specialty products as well as
foundry services. TriQuint’s operations satisfy the
international quality standard. Customers include Nokia, Nortel
Networks, Alcatel, Ericsson,and Lucent.

An oversold sector?  That's just what analysts and investors
feel is the case for the semiconductors.  Last month, the sector
was besieged with bearish comments, but "times are a-changin'."
On Monday, respected analyst Jonathan Joseph of Salomon Smith
Barney joined the bulls in the semiconductor arena.  As a
result, the SOX.X jumped 7.7% and many stocks were propelled off
their recent lows.  Today, the gains extended as many investors
took advantage of what is now considered a prime buying
opportunity.  In particular, TQNT was launched from its
comfortable zone at $36-$38.  It's rise above upper resistance
at $40 and strong close today confirms there's momentum
building.  TQNT does have a couple of technical hurdles to
overcome, however, the sector momentum should prevail and carry
TQNT to back towards its former price level.  Currently, TQNT is
perched just below the 100-dma at $46.09 and will face the
formidable 50-dma around the $49 level.  Entries would be on dips
off the $40 level, assuming the trend is intact.  If there's a
pullback to this area, the 200-dma at $41.17 is there for support.
More conservatively, a push through the 100-dma with good volume
would be a nice entry.  Since this is a sector-based momentum run,
watch others like MU, KLAC, NVLS, and AMAT for broad direction.

All wasn't bad for this semiconductor during the month of July.
Van Kasper, Pacific Crest, Bear Stearns and CIBC World Markets
all put out Buy or Strong Buy recommendations for TQNT.

BUY CALL SEP-40 TNN-IH OI= 351 at $8.25 SL=5.75
BUY CALL SEP-45*TNN-II OI= 410 at $5.75 SL=3.75
BUY CALL SEP-50 TNN-IJ OI= 233 at $3.88 SL=2.50
BUY CALL NOV-45 TNN-KI OI= 194 at $9.88 SL=7.00
BUY CALL NOV-50 TNN-KJ OI=1160 at $8.00 SL=5.75

Picked on August 15th at $44.63    P/E = 76
Change since picked       +0.00    52-week high=$67.75
Analysts Ratings      8-1-2-0-0    52-week low =$11.44
Last earnings 06/00   est= 0.13    actual= 0.19
Next earnings 10-19   est= 0.19    versus= 0.09
Average Daily Volume = 2.53 mln

LSCC - Lattice Semiconductor $62.44 +2.44 (+5.81 last week)

Customization is the name of the game for LSCC.  The company
makes programmable logic devices (PLDs), logic integrated
circuits that manufacturers can program to perform specific
functions.  The company is one of the world’s top suppliers of
in-system PLDs, which can be configured and reconfigured even
after being attached to a circuit board.  LSCC also sells the
software needed to customize its chips, which are used in
computing, communications, industrial, and military
applications.  The company focuses its efforts on design and
testing, outsourcing its manufacturing to factories in Asia.

You can’t keep a good stock (or sector) down!  The selloff in
Semiconductor stocks that followed the bearish comments from
Jonathan Joseph at Solomon Smith Barney a month ago, dragged
everything in the sector lower.  LSCC was not immune and by
the time it found support at $46 nearly 2 weeks ago, the stock
had dropped more than 40% from its July high of $80.  The
bounce on August 3rd came on strong volume of more than double
the ADV, and naturally the stock needed to consolidate that
bounce before heading higher.  After confirming support near
$55 late last week, the stock has launched higher this week,
increasing by more than 10% in the past 2 days.  Aiding LSCC
and other stocks in the Semiconductor sector with their strong
moves this week have been positive comments from analysts.
Today, Mark Edelstone with Morgan Stanley Dean Witter said,
"We remain positive on the sector.  We believe the cycle has
another 18-24 months to run.  Investor sentiment has been too
negative, and stock price valuations have reached levels that
have been too low."  Now that’s what I call a glowing
endorsement!  Today’s move ran into resistance at $64, and as
LSCC continues to head higher, it will find more resistance at
$67.  Support (old resistance) is found at $58,  and it is
backed up by the 10-dma (currently at $56.69).  An intraday
dip to support will likely provide the best entry into the play,
although more cautious investors will want to wait for a
breakthrough of resistance at $64.

There has been little in the way of company specific news since
early August.  On August 3rd, First Security Van Kasper released
their Select List, where they list LSCC as a Strong Buy.  For
now, we are focused on the positive commentary coming from
analysts about the Semiconductor sector.

BUY CALL SEP-60*LQT-IL OI= 176 at $ 7.88 SL=5.50
BUY CALL SEP-70 LQT-IM OI=1267 at $ 5.38 SL=3.25
BUY CALL SEP-75 LQT-IN OI= 123 at $ 3.50 SL=1.75
BUY CALL DEC-65 LQT-LM OI=  32 at $11.25 SL=8.50
BUY CALL DEC-70 LQT-LN OI=  53 at $ 9.00 SL=6.25

SELL PUT SEP-55 LQT-UK OI= 719 at $ 2.63 SL=4.25
(See risks of selling puts in play legend)

Picked on August 15th at $62.44     P/E = 27
Change since picked       +0.00     52-week high=$83.38
Analysts Ratings     10-3-3-1-0     52-week low =$14.19
Last earnings 07/00   est= 0.55     actual= 0.61
Next earnings 10-16   est= 0.64     versus= 0.23
Average Daily Volume = 1.02 mln


MLNM - Millennium Pharmaceuticals $109.00 -2.31 (-5.50 this week)

Millennium Pharmaceuticals, Inc. is a leading biopharmaceutical
company, focusing on the discovery and development of small
molecule, biotherapeutic and predictive medicine products.  With
the vision of providing personalized and precise medicine by
integrating breakthrough therapeutic products and predictive
medicine, the Company strives to deliver precisely the right
medicine to precisely the right patient at the right time.  The
Company does this by incorporating large-scale genetics,
genomics, high-throughput screening and informatics in an
integrated science and technology platform.

The law of gravity states that what goes up must eventually come
down.  After a great run in the early part of this month for
MLNM, it appears that gravity may finally be taking effect.  The
first week of August saw the stock blasting off from the $95
level, moving up almost 30% in a span five days.  MLNM was
obviously helped by a strong biotech sector, which clearly
illustrates the importance of confirming sector sympathy with a
play before entering.  Encountering resistance at $125, the stock
has since moved lower.  The first signs of a rollover appear to
already be in place.  In the past four trading sessions, MLNM has
had difficulty closing above its 5-dma, now at the $115 area.
This also happens to be where the 10-dma currently resides as
well as the 50-dma.  The convergence of moving averages should
provide for strong resistance and a failed rally at that level
could provide for an entry point.  The next level of support for
the stock appears at to be at $105 and from there the
psychological century mark.  Could this stock make a
double-bottom at $95?  Quite possibly as that is where the strong
support really is, thanks to its 100-dma.  A break through that
level could be ugly for the stock (and profitable for us).
With the lack of news and low trading volume lately in MLNM's
shares the technicals take on an even more important role. Sector
sympathy will also play a key role.  As mentioned earlier, make
sure sector sentiment confirms direction before entering.

BUY PUT SEP-115 QMR-UC OI= 12 at $14.25 SL=10.75
BUY PUT SEP-110*QMR-UB OI= 16 at $11.25 SL= 8.50
BUY PUT SEP-105 QMR-UA OI= 17 at $ 8.63 SL= 6.25

Average Daily Volume = 2.03 mln

SYMC - Symantec Corp. $43.94 -1.31 (-4.44 this week)

A world leader in Internet security technology, SYMC provides
a broad range of content and network security solutions to
individuals and enterprises.  The company is a leading provider
of virus protection, risk management, Internet content and
e-mail filtering, remote management and mobile code detection
technologies.  The desktop battleground is where SYMC derives
nearly 60% of its sales.  Duking it out with Network Associates
in this arena, the company is best known for its security
software (Norton AntiVirus), desktop efficiency (Norton
CleanSweep), and PC utility (Norton Ghost) products.

What SYMC needs is a new enemy to battle.  Whenever there is a
computer virus scare, shares of computer security firms tend to
surge, but the excitement quickly fades from investors’ minds.
It has been a while since the latest scare, and investors have
lost interest in shares of SYMC.  The stock has been posting
lower highs since hitting a high of $81.63 in the middle of
March.  After failing to hold above the 200-dma (then at $56.69)
in late June, the price drifted lower into the company’s July
earnings report.  The strong report (the company posted $0.67
vs. the expected $0.62) got investors’ attention and enthusiasm
returned, pushing the stock back over the 200-dma.  Unfortunately,
it couldn’t hold and a week later the stock was back below the
200-dma and hasn’t been back since.  Over the past week, SYMC has
been headed lower again, and the volume is accelerating as the
stock is falling through long-term support levels.  Although $47
had held up well since the beginning of the year, the increasing
volume dropped the share price through this level on nearly double
the ADV yesterday.  The pain continued today as SYMC dropped still
further, with volume hitting more than 2.5 times the ADV today.
The stock should have had support at $44, but it fell to selling
pressure today as well.  All of the moving averages are overhead,
with the 5-dma (currently at $47.75) providing downside pressure.
Mild support may exist near $40, followed by stronger support at
$36.  Look for the stock to move up to resistance at the prior
support levels of $44 or $47 and roll over.  As the selling
volume picks up again, go ahead and jump on for the slide into
the basement.

BUY PUT SEP-50 SYQ-UJ OI=26 at $7.00 SL=5.25
BUY PUT SEP-45*SYQ-UI OI=58 at $4.63 SL=2.75
BUY PUT SEP-40 SYQ-UH OI= 0 at $1.13 SL=0.00  Wait for OI

Average Daily Volume = 1.04 mln


CCU - Clear Channel Communications $83.69 +1.50 (+0.63 this week)

Clear Channel Communications is a diversified media company with
extensive holdings in over 510 radio stations, 22 television
stations, and more than 550,000 outdoor billboards.  After the
acquisition of the #1 radio station owner, AMFM, is completed
this year, CCU will have a presence in 47 of the top 50 radio
markets in the US. Additionally they are the largest Spanish
language broadcaster in the US.  The company is also a leader in
the live entertainment industry through its subsidiary SFX

Most Recent Write-Up

This media giant continued to established its presence above
former resistance of $79.  The development of a pattern of
higher-lows is currently driving near-term support just above the
$81 level.  The bounce off $81.38 to an intraday high of $85.06
this afternoon cleared away any short-term opposition.  The next
price barrier to contend is at $88 and $90, which CCU hasn't seen
the upside of since January and February.  If the strong volume
perseveres, then it's likely that CCU's momentum can bring it over
the top.  Today's volume levels, for instance, were very robust at
3.95 mln, almost double the ADV.  Also keep an eye on the Dow's
movements for some hint of this stock's ultimate direction.  Play
it safe and keep stops in place over the next couple of sessions.
CCU may experience some profit taking considering today's
convincing performance.  The $80 level at the 10-dma should hold
as firm support on a pullback.  If it doesn't, put up the radar
and keep your cash on the sidelines until a trend resumes.  On
the other hand, if CCU breakouts again, enter on positive moves
off $82 but watch for resistance at the $85 mark.


While holding the line today at $82, CCU appeared to be drifting.
Then at 2:10pm EDT, boom, huge buying volume came in and drove
CCU to a high of $85.06.  Entry into this call play can be
attained on a pullback and bounce from the $82 base.  If $82
doesn't hold, $81.50 has been support also.  Any strong volume
move over the $85 level, feel free to jump on board as CCU trades
into levels not seen since February.  Wait until after amateur
hour and confirm market direction.

BUY CALL SEP-80 CCU-IP OI=3866 at $7.38 SL=5.50
BUY CALL SEP-85*CCU-IQ OI= 914 at $4.75 SL=2.75
BUY CALL SEP-90 CCU-IR OI=  99 at $2.88 SL=1.50
BUY CALL OCT-85 CCU-JQ OI= 441 at $7.00 SL=5.25
BUY CALL OCT-90 CCU-JR OI=3949 at $4.63 SL=2.75

Picked on August 13th at $83.06    P/E = N/A
Change since picked       +0.63    52-week high=$95.50
Analysts Ratings     12-3-1-0-0    52-week low =$57.88
Last earnings 06/00   est= 0.06    actual= 0.09
Next earnings 10-25   est= 0.05    versus= 0.00
Average Daily Volume = 2.28 mln

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Into any rally, a little profit-taking must come...

Blue-chip stocks slumped today as selling pressure overcame the
bullish outlook amid a slew disappointing earnings in the retail

Monday, August 14

Industrial stocks extended their recent rally amid optimism over
a slew of mergers in the media, semiconductor and biotech arenas.
The Dow finished up 148 points at 11,176.  The bullish activity
pulled technology stocks higher and the Nasdaq ended up 60 points
at 3,849.  The S&P 500 index edged up 19 points to 1,491.  Volume
on the NYSE hit 785 million shares with advances beating declines
1,846 to 1,038.  Trading activity on the Nasdaq exchange reached
1.22 billion shares with advances edging declines 2,109 to 1,930.
In the bond market, the 30-year Treasury rose 6/32, pushing its
yield down to 5.693%.

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

Anheuser     BUD    SEP75P/SEP80P   $0.56   credit   bull-put
Infocus      INFS   SEP35P/SEP40P   $0.68   credit   bull-put
WellPoint    WLP    SEP75P/SEP80P   $0.68   credit   bull-put
PMC Sierra   PMCS   SEP270C/150P    $5.00   credit   strangle

The market moved higher today, limiting the premiums available in
the new bullish positions.  Traders who entered the spreads with
individual transactions may have reached the position targets but
the observed (simultaneous) credits were all less than expected.
We will attempt to achieve the target prices in coming sessions.
PMC Sierra rallied late in the day, providing the suggested entry
price (and more) for those who were willing to wait for the move.
If the rally is sustained, our first technical review will occur
at $225, near the most recent resistance level.

Portfolio Plays:

After a brief period of caution, stocks rallied Monday amid
optimism over the outlook for interest rates.  Early buying
activity in financial issues fueled investor speculation that
the Federal Reserve is not going to raise interest rates next
week.  On the Dow, J.P. Morgan (JPM), Hewlett-Packard (HWP),
Intel (INTC) and Home Depot (HD) helped the blue-chip index
close at a recent high, well above technical resistance levels.
Traders said that much of the bullish interest was focused on
issues with upcoming earnings.  A slew of S&P 500 companies
will release quarterly results this week, including a number
of retailers.  Along with banking stocks, semiconductor issues
also rallied, leading the Nasdaq to favorable gains.  Sipex
(SIPX) was our big winner in the chip sector, climbing almost
$3 to $32.12 on speculation that the industry has reached an
interim bottom.  We will target a 25% overall return to exit
the bullish combination early.  i2 Technologies was another
big mover, up $7 to $156 amid strength in the Application
Software group.  Our synthetic position is now trading at a
$7.75 profit and conservative traders should consider closing
the spread to lock-in gains.  Other leaders in the technology
industry included Altera (ALTR), International Rectifier (IRF),
Network Appliances (NTAP), Sun Microsystems (SUNW) and the
beleaguered merger issue, Voicestream (VSTR).

In the finance group, Charles Schwab (SCH) moved up $1.00 to a
recent high near $40 and our new synthetic position offered a
$1.00 profit to close the position.  That’s a very favorable
(10%) return for a 10-day play and one we simply can’t pass up!
Allstate (ALL) recovered from a short-term slump to the $29
range, and Countrywide Credit (CCR) also edged higher during
the session.  We will use the current upside movement in the
stock to transition the diagonal spread forward to September
options.  A number of other, lower-priced stocks performed well.
American Eagle Outfitters (AEOS) moved to a recent high near $21
and the bullish, debit-spread remains at maximum profit.  CSX
Corporation (CSX) ended near $27, over $2 "in-the-money," and
the position can be closed for a favorable return.  Mail.com
(MAIL) and PSS World Medical (PSSI) also participated in the
optimistic activity.

A few other issues deserve mention.  American Online (AOL) may
have finally turned the corner, up $1.38 to $53, and it will be
interesting to see if we can rescue any premium from the bullish
position.  Our first target will be a "break-even" exit.  In the
Straddles section, Knight Trading group (NITE) appears to have
made a technical reversal and rather than watch the PUT premium
erode, we decided to close the bearish portion of the position.
Aggressive traders might consider using the existing PUT credit
to buy additional calls in the hopes of a near-term rally.  One
of our recent offerings, Hewlett Packard (HWP) rallied $4 to a
short-term resistance area near $115.  The move provided a good
opportunity to enter the new bearish, synthetic position at the
target price.

Tuesday, August 15

Blue-chip stocks slumped today as selling pressure overcame the
bullish outlook amid a slew disappointing earnings in the retail
group.  The Dow Jones industrial average ended down 109 points
at 11,067.  The Nasdaq Composite remained relatively unchanged at
3,851 as chip stocks continued to recover from a recent slump.
The S&P 500 index was down 7 points at 1,484.  Trading volume on
the NYSE reached 895 million shares with broad market declines
beating advances 1,696 to 1,168.  Activity on the Nasdaq exchange
was average at 1.34 billion shares traded.  Technology declines
beat advances 2,144 to 1,895.  In the bond market, the 30-year
Treasury fell 12/32, pushing its yield up to 5.71%.

Portfolio Plays:

In the technology group, chip stocks powered forward for a second
consecutive session after Morgan Stanley analyst David Edelstone
said that he believes the cycle is intact and has at least another
year to run.  Virata (VRTA) led the rally in our portfolio, up $8
to a recent high near $77.  The original bullish, credit-spread
appears to be safely "out-of-the-money" but unfortunately, we
chose the conservative alternative, rolling down and forward to
October Puts.  Our break-even basis in the issue is near $39.25
but we will have to wait two months to earn any profit from the
play.  Altera (ALTR), International Rectifier (IRF), and Sun
Microsystems (SUNW) continued their winning ways while Advanced
Fibre (AFCI) and Qlogic (QLGC) recovered from recent slumps.  CNBC
reported that Merrill Lynch expects SUNW to beat its revenue growth
estimates by 2% to 5% and that bodes well for our bullish position
in the issue.

We had a number of favorable surprises today.  American Online
(AOL) moved up another $1.68 to $54.68 after ING Barings analyst
Youssef Squali reiterated his buy on America Online with a price
target of $90.  At the same time, SG Cowen analyst Scott Reamer
said he recommended Internet investors build positions in AOL.
Our bullish, debit spread traded as high as $4.00, just short of
the target exit.  Sipex (SIPX) continued its recent rally, up to
a mid-day high near $35.75, and offering a $1.00 profit in our
conservative, debit-spread/naked-put combination.  Ciena (CIEN)
continued its recent rally, up $6 to $170 in anticipation of the
upcoming earnings report.  As we noted in last week’s narrative,
the issue has moved up in the sessions preceding the report and
if the share value rises through the current resistance level at
$175, we will plan to roll into a bullish stance.  At that price,
a new technical trading-range will have been defined and we can
use the expected upside activity to close the original bearish
position for a profit.

With today’s slump in blue-chip issues, a period of profit-taking
may begin.  One of our top priorities will be to lock-in positive
gains rather than risk a losing outcome at the August expiration.
In addition, positions that need to be rolled to September should
be adjusted if they are showing signs of technical weakness or if
they are in danger of a near-term correction.  Countrywide Credit
(CCR), Lockheed Martin (LMT), Polaroid (PRD), and Ryder (R) are
some of the issues that appear to fit that description.

Questions & comments on spreads/combos to Contact Support

                         - NEW PLAYS -

REGN - Regeneron Pharmaceutical  $33.50  *** Big Move Today! ***

Regeneron Pharmaceuticals is a biopharmaceutical company that
discovers, develops, and intends to commercialize therapeutic
drugs for the treatment of serious medical conditions.  They are
currently expanding from an initial focus on complex degenerative
neurologic diseases, and the company has recently broadened its
product pipeline to include drug candidates for the treatment of
obesity, rheumatoid arthritis, cancer, allergies, ischemia, and
other diseases and disorders.

Regeneron jumped over $3 today after John Burnham of the Burnham
funds promoted the company as his "double your money" pick on a
CNBC report this morning.  Investors apparently agree with the
optimistic outlook and a number of traders made positive comments
about the company.  One bullish individual noted that, "Regeneron
Pharmaceutical is definitely a must buy’ - they have a tremendous
pipeline of drugs that will be coming out each year for trials."
He also commented that their most promising drug is Axokine, which
has exhibited excellent phase I trials.  This drug is expected to
target the multibillion-dollar weight loss industry.  Another
promising drug is VEGF-Trap molecule, for the anti-angiogenesis of
tumor inhibition, which will be in trials next Spring.

Regardless of the outlook for the company’s drugs, the technical
indications reflect a trading-range breakout with high volume and
based on the favorable disparities in option premiums, this is a
great speculation play for those who are bullish on the issue.

PLAY (aggressive - bullish/debit spread):

BUY  CALL  SEP-25  RQP-IE  OI=0   A=$9.50
SELL CALL  SEP-30  RQP-IF  OI=14  B=$5.62
INITIAL NET DEBIT TARGET=$3.75  ROI(max)=33% B/E=$28.75

Chart =

RHAT - Red Hat  $24.00  *** On The Rebound! ***

Red Hat is a worldwide developer and provider of open source
software products and services.  Their product offerings include
Red Hat Linux and other related tools, open source software
applications, documentation, manuals and general merchandise.
Professional services offerings include technical support and
maintenance, custom development, consulting, training and basic
education, developer support and hardware certification.  The
company has also built a comprehensive web site dedicated to the
open source software community.

Red Hat is a leader in the Linux software industry.  Among Web
sites running Linux, it commands almost 75% of the market.  In a
bid to increase its dominance, Red Hat recently disclosed plans
to buy C2Net Software, its fifth major acquisition this year.
C2Net has developed software that enables the running of Internet
sites with tight security.  By purchasing C2Net, Red Hat will be
able to offer clients a bundled package of products and services
from one source.  In addition, with this acquisition, they are
buying the #1 company in the secure Web server market with a 30%
share of the industry.

In other news, International Business Machines (IBM) recently
said it would sell computers packaged with Red Hat's Linux system.
Almost at the same time, Motorola (MOT) said it will package and
market Red Hat's Linux products with Motorola products.  These
agreements demonstrate a new acceptance of the Linux operating
system and based on the recent technical trend and forecasts for
growth in the company, this position offers a unique speculative
opportunity for traders who agree with the outlook.

PLAY (aggressive - bullish/debit spread combination):

BUY   CALL  SEP-22.50  RCV-IX  OI=1041  A=$3.88
SELL  CALL  SEP-25.00  RCV-IE  OI=1595  B=$2.50
SELL  PUT   SEP-20.00  UAB-UD  OI=821   B=$1.18

OVERALL NET DEBIT TARGET=$0.00  ROI=18% (based on collateral)

We have received many positive comments about this debit-spread
combination strategy.  In simple terms, the position is nothing
more than a sold (short) PUT and a bullish, debit spread.  The
play is actually somewhat aggressive, based on a bullish outlook
for both components, but we use out-of-the-money options to lower
the potential risk.  The premium from the sold PUT is used to
finance the purchase of the debit spread.  In this position, the
collateral requirement for the naked put is approximately $675
per contract.

Chart =


Covered Strangles

A particularly effective strategy that has worked very well in
this sideways market has been the Covered Strangle.  We have
written about this strategy in the past using various examples
and have had tremendous enthusiasm about it.  It is definitely
worth mentioning again.

A Covered Strangle is a strategy whereby you utilize Naked Calls
and Naked Puts together.  For example, Phone.com (PHCM) announced
last week that it would merge with Software.com and that Don
Listwin, former V.P at Cisco will head the newly formed company.
This was announced on the 9th of August.  The stock went on a
two-day run up and then fell back after hitting resistance.
Currently PHCM is trading at about 89 per share.

If you were to look at the daily chart on PHCM, you’ll notice
that after a large decline in the spring of this year, the stock
has begun a new trading pattern.  Trending up, but basically
hitting support at $65-70 per share and hitting resistance at
$100-105 per share.

Now take a look at the Calls and the Puts of PHCM.  The September
$70 Puts can be sold for $2.  The September $110 Calls can be
sold for $3 (12:00 pm cdt 8-15-00).  With 10 Contracts each,
this is a net credit before commissions of $5,000.00.  The Margin
Requirement is figured only on the higher priced option (the
call).  In this case it would be roughly a 13% return on your
money in 1 month.

What if the stock rises or falls and I’m naked?  You cover that
particular side of the strategy at your strike price.  For example,
we have alerts set at $72 on the downside and $105 on the upside.
If PHCM falls and goes below $72 we prepare ourselves to short
PHCM at $70, thus "covering" our Naked Put position and we let
the Naked call ride.  On the other hand if the stock rises and
gets above $105, we prepare ourselves to go long the stock at
$110, thus "covering" our Naked Call position and we let the
Naked Put ride.  Either way you win.  It takes a little bit of
management when the stock gets near your strike prices.  Of
course you could get more aggressive and use other strike prices
like the September $75 Puts and the September $100 Calls, but
that is a decision that only you can make.  You do bring in even
more premium but certainly take more risk.

Robert L. Norman
Vice President-Investments

J. Michael-Patrick L.L.C.
St. Louis, Mo.

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