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Daily Newsletter, Tuesday, 08/22/2000

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The Option Investor Newsletter                  Tuesday 08-22-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        08-22-2000        High      Low     Volume Advance/Decline
DJIA    11139.20 + 59.40 11189.70 11081.30  819 mln   1440/1327
NASDAQ   3958.22 +  5.07  4011.15  3957.85 1.41 bln   1988/2007
S&P 100   818.58 +  0.14   824.85   818.06   totals   3428/3334
S&P 500  1498.13 -  1.35  1508.45  1497.42           50.7%/49.3%
RUS 2000  517.46 +  1.01   518.98   516.48
DJ TRANS 2823.08 +  4.49  2824.88  2809.92
VIX        19.62 +  0.06    20.07    19.19
Put/Call Ratio       .55
******************************************************************

Buy the rumor, sell the news?

As expected the Feds left interest rates unchanged and they are
not now considered a threat until the Nov-15th meeting. The Fed
had some pretty encouraging words which should have catapulted
the indexes into the stratosphere. Saying that "demand is
moderating" and "closer to potential" sounded like less bias
toward raising rates in the future. Also they mentioned that the
ever increasing productivity was increasing the growth potential
going forward. Whoa !!! Did they actually say that? Yep! In
English this means that they may be coming to a realization that
the economy (GDP) can grow at a faster rate than previously
thought. That is a radical change in agreement among the Fed
members. This would be very positive for the market going
forward.







The Fed announcement was met with an immediate drop in the markets
as the statement was read that they were still biased toward
possible future inflation. Once the entire statement was analyzed
and the bullish sentiment was seen the major indexes soared to
recent highs. The Dow hit almost 11190, the Nasdaq broke 4000 for
the first time since July-26th and the Wilshire-5000 broke above
14000 again for only the second time since April. However, you
knew it was coming, the "buy the rumor, sell the news crowd" was
ready and waiting.

The Dow bounced off resistance yet again and dropped over -50
points from its high but still managed a respectable +59 point
gain. The Nasdaq however barely managed to remain positive with
a +5 gain after dropping -53 points from its intraday high. The
Wilshire-5000 dropped almost -100 points back to close almost
unchanged at 13969. The real test will come on Wednesday to see
if the selling trend from the last two years continues. The bullish
Fed comments will give investors a sleepless night as they try
to decide if they want to buy now with the Fed on hold for two
months or wait for confirming volume to return after Labor Day.

With the Fed on the sidelines investors and analysts will have
to focus on something else to provide market moving news. The
fall back is usually earnings. That might not be a good thing
to focus on right now. With earnings dropping due to past Fed
hikes investors are concerned that many stocks may already be
over valued. First quarter S&P earnings were up +23.6%, second
quarter came in at only +21.6% and the third quarter is now
forecasted at only +17.6%. The normally healthy fourth quarter
is expected to post only +15.7% gains and all of 2001 is now in
question. These earnings are still stellar since historically
the S&P is only expected to gain +8% or less than half of the
current quarter estimate. Still investors have been moving back
into more of a value mode and have been leaning away from stocks
with falling earnings. This earnings focus will now be more
important moving into the next earnings cycle. This cycle begins
on Sept-5th for the third quarter. Analysts are quietly lowering
estimates on big name companies. Microsoft estimates by some
analysts have dropped -7%, Lucent -33%, Federated -64% for example.
These stealth changes are based on guidance from the
companies themselves and reflect sales trends on a broad scale.
Add to that earnings warnings like we had after hours today from
VNWK and ABS and the target starts getting a little blurred.

Looking a the positive spin on the news today is very
encouraging. Even though the markets pulled back there were
some notable events. The NYSE composite hit an all time high
as well as the S&P Financial Index. The Nasdaq is sitting right
at the 4000 door and the Dow is right at upper resistance and
only 600 points from a new high. Financial stocks JPM, MER and
C all hit new 52 week highs and with the Fed sidelined there is
no reason the financial stocks should not continue their run.
Investors sitting on the sidelines are probably having serious
second thoughts. Fed watchers feel the Fed will not raise without
a serious jump in economic factors at the October meeting due to
the election. There is a contingent that thinks we could see
another hike at the Nov or Dec meeting. The main point, in my
opinion, is the almost three months before the November-15th
meeting. This gives the markets plenty of time to establish
a positive direction and make a major move. The bad news, the
month of October is right in the middle of the rally path. We
all remember previous Octobers. Most of us in our nightmares!

The main thing to keep in focus for the next several weeks is
to follow the market. Just because all the factors are lining
up for a huge rally, that rally does not have to happen when we
think or even happen at all. The key is simply trade what the
market gives us. As I stated in Sunday's commentary the next
two weeks in 1998 and 1999 were not good weeks to be in the
market. Two years does not make a trend but it should give us
cause for caution. The drop from the highs today into the close
could have just been profit taking from the pre-Fed rally during
the last several weeks. However, it could also be the start of a
repeat of the last two years pre-Labor Day drop. I know I could
build a very convincing case for a rally instead but the point
is we should not go into this period with a preconceived idea
of which way the market will go. Whenever you trade on the
direction you think or hope the market WILL go (short term)
those trades have higher risk. I know we all trade directionally
every day based on the best information we have at that time
but the market is known for going against conventional wisdom
when we least expect it. Now, with every market pundit seeing
the starters flag drop with the Fed decision today does that
mean we are at the extreme for bullishness? The VIX is still
flashing caution with another 52 week low of 19.19 intraday
today.

What about the sentiment indicators? Are you ready for
this one? I am the biggest contrairian sentiment indicator I
know. When I start getting the itch to really go long with
every dollar I have, then the market is at the top. Same with
my pain threshold. When I just positively cannot bear to hold
those long positions any longer and I sell for substantial
losses then I can look back later and point to the exact market
bottom. When all the smoke clears I am just an investor just
like everybody else. My urge to buy or sell is no different than
anyone else. I sit on the sidelines and watch stocks rocket that
I was going to buy on the next pull back. I watch all my stop
losses get hit on a spike and the options double in price the
next day. I tell you all this only to say, I really want to buy
something based on all the positive market factors. That ladies
and gentlemen may be the best indicator of market direction of
all. If I am itching to buy and it is not a bottom then it must
be the opposite, a top. I know you never thought that your
purchase was the signal for everybody else to sell, right?
Been there, done that, a lot! I have readers who email me and
say "buy puts on XXX because I just bought calls" so I know I
am not the Lone Ranger when it comes to that feeling.

While all the indexes appear poised to break out and run to
new highs they are also sitting right below resistance. The
opportunity is clear for them to either run or break but there
are no news events left to power them upward. News moves the
market and lack of news makes traders start to focus on the
negative events. Possible negative events remaining this week
include FOMC minutes of the last meeting which will be released
on Thursday as well as a Greenspan speech at the Kansas City Fed
Confab on the same day. Volume should continue to be low as
traders start leaving early for vacation before the Labor Day
weekend and this could make moves in either direction sharper.
I simply urge you to be fully aware of all the factors before
you go long during this Twilight Zone period for traders.
In short, if we rally go long above 4000, close positions if
we break back below 4000 again. If we get a pull back then go
long on any bounce from below 3800. Let the market tell you
when to buy.

We were bombarded with complaints for not scheduling a seminar
in San Diego in the fall. We are trying to get a room and will
update you as soon as we know something. Those not in San Diego
see the seminar schedule below.

Good luck and sell too soon.

Jim Brown
Editor


*********************
FALL SEMINAR SCHEDULE
*********************

Here we go again! Here is your chance to learn from the
pros. The three day Technical Analysis Stock and Option
Fall Seminar Series. Three days of indepth education.
Don't miss it!

Some comments from recent attenders:

Chris & Steve, I would like to thank both of you for a great
experience at the Atlanta Workshop. I learned more in the
three days of the workshop about investing and trading than
all of my undergraduate and graduate courses combined. It
was a lot of information in a short time and I hope to put
it to use very soon.  Mike

I attended the Atlanta seminar and wanted to forward my positive
comments. The seminar "really lit my fire". I have been a trader
for 20 years and often go to seminars and this was the first one
that really taught me the most. Dr Lloyd

Jim, I had the good fortune of attending the meeting in Orlando.
Like your newsletter, it was a CLASS ACT. Chris and the others did
a great job. Chris was by far the best performer but the gentlemen
beside me was an option trader with several seminars under his belt
and almost freaked out when Chris finished his Index Presentation.
JC

I am writing this note to compliment you and your staff on the
great job they did in Atlanta.  But more importantly I would like
to single out Steve Rhoades as one of the finest speaker/teacher
on technical analysis that I have ever had the pleasure of hearing.
I am doing my best to persuade other members of the two investment
clubs that I belong to, to attend the Detroit seminar.
Sincerely, ML


We guarantee you will not be disappointed. The class size
is small so you will get plenty of individual attention
from Chris Verhaegh, Steve Rhoads and staff.

At less than the cost of a bad trade you can learn how
to analyze stocks and trade options like the pros.
Don't wait, do it now.

Date   City

Aug 28-30 Detroit
Sep 14-16 Chicago
Sep 21-23 Austin Tx.
Sep 28-30 Boston
Oct 05-07 Portland
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
Nov 02-05 Phoenix
Nov 09-12 Miami FL
Dec 07-09 Philadelphia
Dec 14-16 San Antonio

Australia coming soon!

Has the market been beating you up? Did you give back
your gains from April? Would you like to understand
all the technical indicators our writers use? Does
the alphabet soup of technical terms like RSI, DMA,
MACD, ROC, Stochastics, Bollinger bands, sound like
Greek to you?

You can learn from the experts how to interpret all
these indicators, read charts, pick stocks and which
option strategies to use on those stocks for less than
the cost of one bad trade.

Reserve your seat now for one of our regional seminars.

Click here for more info:

http://www.OptionInvestor.com/seminar/seminar.asp


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****************
MARKET SENTIMENT
****************

The Fed's Dead - Where's Our Rally?
By Austin Passamonte

Alright major indexes, market bulls have waited for the 2:16
rally towards new highs for six weeks now. Go ahead & lay that
rally on us - we're ready now!

We get the feeling buyers will continue to offer an endless
procession of excuses not to buy until they're darned good &
ready. That may be awhile.

First it was fear of the Fed. Dead & gone. Now we hear about
earning warnings, slowing economy, European vacationers, low
market-volume continuation, etc. We haven't heard so many
lame excuses offered since, well, since we hung onto that last
big trade too long with disastrous results. You know the one.
We all do. Can you see similarities creeping in?

The markets could rally, should rally, might rally. The runway's
clear. All systems go. Fire up the engines and full throttle
forward.

At least financials and the oil sector have. Bulls love to see
financials taking off with such strength. This is a key component
for any sustained rally. By the way, why didn't we buy JPM @ 110
back in early July? Congrats if you did!

Speaking of excuses, we've heard dozens of reasons why the VIX
below 20 can return to mid-20s and higher while markets rally.
Hey, sounds good to us. Time will tell & we'd love to see it
happen for sake of market bulls.

There seems to be plenty of interest in candlestick patterns
so we'll note them in this section going forward as they develop.
All candle patterns here are based on DAILY charts, end of day
status.

The OEX, SPX and NDX all formed very clear "graveyard doji"
patterns to end the session. This is an upside-down hammer
shaped candle found near or at the top of a prominent uptrend.

It shows that the market opened, rallied up and fell back to
close at or near the open. This suggests buying interest may
have peaked as prices rose and fell in a stalemate after
bullish sentiment. The stalemate could portend a change in
sentiment from prevailing to the opposite direction.

We could elaborate countless points but let's sum things up
by saying the crossroad is upon us. Markets that can't go up
will go down. No more excuses, time to put up or pull back.
Prepare to buy calls or puts as new direction becomes clear.


MARKET SENTIMENT INDICATORS
---------------------------

VIX
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: 19.62


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            (8/22)      (8/24)       (8/26)
*************************************************************

CBOE Total P/C Ratio         .55
Equity P/C Ratio             .47


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       (8/22)        (8/24)      (8/26)
**************************************************************

All index options      1.47
OEX Put/Call Ratio     1.77


OEX Maximum Open Interest Strikes/Contracts:

Puts               800/4,291
Calls              810/4,796
Put/Call Ratio       .89


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:               (8/22)       (8/24)       (8/26)

Overhead Resistance:
(920-865)                1,483
(860/840)                   52.59
(835/820)                    5.13

OEX close:                 818

Underlying Support:
(815-800)                    1.06
(795-780)                    2.44


What the S/R measure indicates: Net open-interest ratios
are firm above 835 and ridiculous above 865 while very
light all the way to 780. A large index move has downside
clearance to 780 or below with relative ease.

We would consider a failed test near the 825 range an
excellent put entry.


30-yr Bond:          5.71%

Light, Sweet
Crude, Barrel:     $31.22


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. Updated Friday 8/25


                  Small Specs        Commercials
DOW futures
Net contracts;    +116 (long)        - 599 (short)
Total Open
Interest %          2% net-long       3% net-short

NASDAQ 100
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


BULLISH SIGNALS

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 in 2001, .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 Financial Sector, Many Dow Components
Financial leaders approach or exceed all-time highs as plenty
of old-economy stocks enjoy strong price leadership

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.

******

BEARISH SIGNALS

VIX
Tuesday’s close below 20 has us in EXTREME 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 $31.22 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.

Failure To Rally On Positive News
The early session rally's failure to hold after bullish news
from the Fed is bearish divergence on it's face.


**************
MARKET POSTURE
**************

As of Market Close - Tuesday, 08/22/2000

                                  Key Benchmarks
Broad Market           Last     Support/Resistance   Alert
****************************************************************

DOW   Industrials      11,139      10,600  11,200
SPX   S&P 500           1,498       1,475   1,520     **
COMPX NASD Composite    3,958       3,650   4,100     **
OEX   S&P 100             818         800     830     **
RUT   Russell 2000        517         485     540
NDX   NASD 100          3,828       3,500   3,900
MSH   High Tech         1,072         975   1,095

BTK   Biotech             691         570     700
XCI   Hardware          1,567       1,450   1,600     **
GSO.X Software            445         385     455
SOX   Semiconductor     1,124       1,000   1,160
NWX   Networking        1,314       1,210   1,400
INX   Internet            529         460     565

BIX   Banking             601         550     610
XBD   Brokerage           626         570     635
IUX   Insurance           712         680     725

RLX   Retail              835         805     860     **
DRG   Drug                393         365     415
HCX   Healthcare          807         795     855
XAL   Airline             160         156     172
OIX   Oil & Gas           308         280     320

"Sell the FOMC news" must have been the call, as many indexes and
sectors traded lower after the FOMC said it would hold rates at
current levels.  One group that bucked the trend after the
announcement was the BTK.  At 2:15 p.m. ET, the BTK were trading
at 685 and finished the session at 691.  Today we saw the SPX,
COMPX, OEX and XCI hit support levels, then close below those
levels by day’s end.  Yesterday the RLX hit our support level,
and bounced higher.  Observe your field position and be ready
to play offense or defense. Raising support (SPX, COMPX, OEX)
Raising resistance (SPX, COMPX, OEX, XCI) Lowering support (RLX)
Lowering Resistance (RLX).


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

Market Cycles and Psychology
By Mary Redmond

Some market analysts claim that the current bull market started
around 1982.  However, a case could be made that the current bull
market actually started around 1950, because every decade after
that except for the 1970s experienced a rise in the Dow and S & P
500 averages.




The 1970s were a particularly bad period in the market primarily
because the price of oil quadrupled from 1973 to 1974.  This
caused the inflation rate to increase to over 12% at one point.
Many market analysts have expressed concerns about the current
high price of oil, and how it may impact the market in the coming
months.  Some oil analysts have stated that oil could rise as high
as $50 per barrel by the winter.  However, in order for the price
of oil to impact the market to the same degree as in the 1970s
would require an increase in oil to approximately $120 per barrel.
Theoretically this could happen, but very few industry analysts
are projecting price increases this severe.

It is important to remember that every stock and index goes
through cycles.  Nothing in the market moves in a straight line.
If you are doing daily trades you can look at the minute by
minute charts of a stock as well as the minute by minute moves
of the market.  If you are taking positions and holding them
for a week or a month at a time you can put up weekly and
monthly charts for guidance.  Nowadays many options traders are
concerned that the VIX.X is at low levels.  Under this type of
circumstance, sometimes the best way to trade is to get in
and out the same day.  Sycamore has been a good day trading
candidate for the last couple of weeks because there have been
several days when the stock made wide variations out of the
Bollinger bands.  You can see below the very bearish red
candlestick pattern which brought the stock way out of the
normal trading range.




Now that summer is almost over traders will be looking toward
the months of September and October and deciding on positions.
Most market analysts are expecting a rally sometime this fall.
We don’t know if it will happen, or which month will be the
starting point.  But sometimes October is a scary month for us.
Many of the most severe market crashes in history have occurred
during the month of October, including October 1929, October 1932,
October 1987, and October 1998.  Historically October has been a
weak month for the stock market.  Although many market analysts
have proposed theories for this phenomenon there is no conclusive
or logical reason why October should be different from any other
month.  Maybe this year October will be different.  In fact, it
seems unlikely that we will experience a market crash this fall
because we had a major correction last spring, and the Fed seems
to have finished a cycle of interest rate hikes.  However, if
you consider the market psychology during different seasons you
can sometimes understand what might happen if a particular set of
circumstances were to arise.

The summer months are usually slow in the market for the simple
reason that many people take vacations.  If you think about what
happens in October you can think about how people are feeling and
what impact this might have on the stock market.  After all, the
stock market is nothing more than the collective psychology of
the millions of people buying and selling every day.

For most of us in the US and Continental Europe, October is the
beginning of a difficult season.  The long, cold, hard winter
months are ahead of us, and many people dread the winter as it
can mean hardship, even nowadays.  Winter means people get sick
more frequently.  Winter can mean days of being trapped by
snowy weather and high heating bills.  In addition, October is
the beginning of a very dark season for most of us.  The days
start to get shorter and the level of sunlight decreases.  The
sun has a dramatic effect on people's mood and behavior.  It is
a well known medical fact that many more people get depressed in
the winter, and many psychiatrists are treating depressed
patients with sun therapy and other forms of light therapy
nowadays.

In addition, October means the anticipation of the holiday
season.  Kids love the holidays, but if you are like most
adults you like the holidays but you dread them.  Holidays are
a very stressful time for most people.  Hospitals report the
highest levels of admissions for drug and alcohol overdose,
depression, and other forms of mental illness during the
holidays.  The holidays mean stress, travel, having to spend
money we don't necessarily have, hyper kids staying home and
driving their parents nuts, and visiting relatives we don't
necessarily want to visit.  And sometimes the anticipation of
all of this is far worse than the actual event.

The market is a great anticipator of events.  Stocks rally on
the anticipation of earnings.  The markets go down on the
anticipation that the Fed will raise rates.  The markets can
go up on the anticipation that the rate hikes are over.  So if
you think about it, the anticipation of the holidays and of the
long winter months is often worse than the actual event.  Once
November and December come along, people start to sense the
ending of an old year and the beginning of a new year and cycle.
People start spending money and companies start making more
money.  Once January and February come, the days start to get
longer, and people start to anticipate spring.  Does it sound
crazy or superstitious that any of this could impact the market?
Maybe so - but the markets aren't always logical or rational,
particularly in the short term.

Contact Support


******

My Favorite Strategies, Part II -- Examples
By Scott Martindale

As a follow-up to my article from last Tuesday in which I
described some of the strategies I focus on today, I'd like to
show you a few quantitative examples.

As I mentioned last time, I generally prefer to sell time to
someone else with the intention of letting the option expire
worthless, or at a greatly reduced price for buying back.  My
favorite plays are (1) naked puts and put credit spreads, and (2)
buying stocks or LEAPS on pullbacks within an uptrend and writing
covered calls or spreads against them on strength.  I only write
puts on stocks I would consider buying long term.  (This is not
really a constraint since there are many fine companies out there
sporting a variety of technical patterns.)

Although I occasionally play big cap naked puts, I really prefer
to sell puts at strikes under $50 so that I can sell more
contracts and diversify among several stocks.  I also like stocks
that have fallen, but show good prospects going forward (both
long term and until the next month's expiration).

Let's look at some examples:

I've been playing naked puts on old and current OIN favorite
Globalstar Telecom (GSTRF) at the 7.5 strike, as well as USIX as
it drops (I recently sold the September 10 puts) and RHAT at 22.5.
I also like Superconductor Technologies (SCON) at the 20 strike.
It's a volatile stock with little earnings and it just started
trading options, but it's a local company in my area and I play
beach volleyball with some of their employees, so I like to trade
their options so I can talk with them about it.

A particular naked put play I want to tell you about is on BMCS.
Let me say first off that this was almost a perfect example of
repairing a losing position, and it still may work out for me.
After BMCS cratered in early July, it seemed to find support at
$22.  I sold the July 22.5's for 1 3/4, expecting a little bit
of a near-term recovery, but instead the stock meandered down to
below $19 at expiration, so I bought them back at 3 5/8 for a
loss.  Many people will automatically rollout to the next month
on the same stock, but I feel that once you close out a position,
you are really starting over again from scratch, so you should
evaluate all possibilities rather than automatically rollout.

However, I still felt BMCS was too good a stock to stay down long,
so on July 21 I went ahead and rolled out all the way to the
November 22.5's for 5 1/2.  I kept in mind that I can break even
on the whole BMCS play by buying these back at 3 1/2 or lower.
When BMCS jumped above $26 early yesterday, I started planning out
my article for today on how I bought back below 2 and then sold
Septembers on weakness, but I missed the opportunity.  It dropped
to $24.50 and I'm still holding the Novembers (although I still
could buy them back for 2 1/2 and be well ahead).  But, you can
see how it almost worked to perfection if I had been more
aggressive.  Because the technical picture still looks good, I
think I'll have another chance below 2 soon.

Another way to play this is to buy the November 17.5 puts for 3/4
to create a $5 spread with a 4 3/4 credit - which makes for a low-
risk, low-margin play with a maximum downside of 1/4.

Oh and here's another one to tell you about.  Microstrategy (MSTR)
has been clobbered from a March high of $333, but it has great
products and it has held the $20 support level pretty well since
May.  I sold the August 20's and they were doing fine, and in fact
they expired worthless on Friday with the stock closing at $21.
But rather than selling Septembers before the close, I thought I'd
see if we got a bit of a dip on Monday.  Well as you probably
know, MSTR held at $21 for the first 90 minutes, and then it
soared to around $30!  Yikes!  There went my naked put play.  If I
had sold the September 20 puts on Monday morning for around 2, I
could have bought them back later in the day for around 1/2.  But
I was being cautious (or was it greedy?) waiting for weakness
before selling the puts.

Some of you have asked for more information on writing short-term
calls against long-term options or LEAPS.  As an example, in
January 2000 I bought the Jan '01 50 LEAP on Lucent (LU) for 15
after it got slammed and showed signs of technical recovery at
a price of $55.  Then on March 1, it gapped up to over $70, so
expecting a little pullback from there, I sold the March 70's
against my LEAPS position for 3 1/4.  You see, I expected the
stock to consolidate at the new level for a bit, so I locked in
the $70 level by selling the $70 call.  And in fact, at expiration
on March 17, I bought it back for 1/4.  However, rather than
holding the Jan '01 LEAP, I stopped out of it on the following
Monday when LU started to sell off a bit, which turned out to be
a good move seeing as LU hasn't approached $70 since.

As a final example, let's look at a kind of crazy but quite
interesting covered call play.  OIN regularly gives you
conservative deep ITM covered call ideas, but what about an ultra-
deep play on a volatile tech stock with good long-term prospects?
Let's look at a favorite of mine, Juniper Networks (JNPR).  Today,
JNPR closed around $187, up a nice $13 from yesterday.  You could
sell the Jan 97.5 calls for 94 3/4.  If you buy 1000 shares of the
stock on 50% margin, you put up $93,500, but when you sell the Jan
97.5 calls you take in $94,750, for a net CREDIT to your account
of $1,250, i.e., your buying power actually has gone up from
$187,000 to $189,500 just by doing the play!

Of course, if you use up that buying power on other things, you'll
pay margin interest of about $3100 for five months.  So when
you're called out in January at 97.5, you'll lose $89,500 on the
stock sale and pay $3100 margin interest, but you've taken in
$94,750 in call premium for a net gain of $2,150.  It sounds
small, but your return is infinite since you effectively tied up
no money.  Do this five times on the same day, and you've bought
$935,000 worth of stock with $93,500 cash, and you've earned
$10,500 while increasing your buying power for other "normal"
plays from $187,000 to $199,500 (assuming the other plays are
similar to the JNPR play - don't do it all on the same stock!).

Of course, this assumes that the stocks don't tank below the sold
strikes, but that's a long way to go down for a highly regarded
company.  [Even if it started to drop dramatically and the
technicals turned nightmarish, you could always close your
positions by buying back the calls and selling the stock.]

I've never actually done this kind of play myself, but isn't it
intriguing?  Nonetheless, for now I think I'll concentrate on
naked puts and put credit spreads in my aggressive account, and
sell ATM or slightly ITM covered calls on technical strength in
my retirement account.

Contact Support

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*************
SECTOR TRADER
*************

Will We Sell On The News?
By Austin Passamonte

."I'll return to this column for the Tuesday, August 29th update.
In the meantime Austin Passamonte will grace these pages.. Best
trading wishes to all of you this week!"

Kind words indeed from our leader here at Sector Trader.  Like
any backup QB coming off the bench, my first priority this week
is not to screw things up.  With a simplified game plan taped to
my wrist, let's huddle up and read the defense!

(Non-football fans are excused any confusion over those metaphors
with my apologies)


Index             Last    Mon    Tue    Wed    Thu    Fri    Week
QQQ NASDAQ-100    95.38   0.38  -0.13   0.00   0.00   0.00   0.25
HHH Internet     111.63   2.13   0.63   0.00   0.00   0.00   2.75
BBH Biotech      181.56   3.94   4.25   0.00   0.00   0.00   8.19
PPH Pharm.        96.31   1.38  -0.13   0.00   0.00   0.00   1.25
TTH Telecom.      63.94   0.06  -0.63   0.00   0.00   0.00  -0.56
IAH I-net Arch.   99.63   0.13   0.25   0.00   0.00   0.00   0.38
IIH I-net Infr.   55.50   0.31   0.50   0.00   0.00   0.00   0.81
BHH B2B           46.81  -0.19   0.50   0.00   0.00   0.00   0.31
BDH Broadband     94.81  -0.63   0.50   0.00   0.00   0.00  -0.13
SMH Semicon       95.94  -2.44   0.94   0.00   0.00   0.00  -1.50
RKH Reg. Banks   106.50   0.88   1.88   0.00   0.00   0.00   2.75
UTH Utilities    102.81  -0.44  -0.19   0.00   0.00   0.00  -0.63

**************
Updates
**************

QQQ - NASDAQ 100 $95.50 Today's action after the Fed meeting left
suspicion of near term strength. Big-cap stocks enjoyed strong
gains most of the session but pulled back late in the day.

Our personal charting signals issued a clear sell as prices
broke 95.5 in the final minutes of trading. 30 minute and hourly
charts show both stochastic and MACD signals clearly turned
negative while its daily chart is on the verge of following suit.

(Hourly Chart - QQQ)



In this example the hourly chart is used as a leading setup
indicator for the daily chart, the picture that truly shows a
potential large move in development.

Such strong convergence of technical signals on daily/hourly/30
minute charts suggests a downside move may begin from here.
Prudent traders may wish to see a breakdown proven below the
50 DMA at 94.25 and/or 200 DMA at 92.48

Aggressive traders may attempt long-put plays on weakness
tomorrow with a price break below today's low of 95.25. Possible
sell targets include daily chart (not shown) Bollinger Band
points of 92 "fair value" and 86 "lower extreme" if 92 fails
to hold support.

------

SMH - Semiconductor $95.94 Is this party over? Near-term
indications are it could be. No sector enjoyed better recent
gains than this one, which could be one reason why profit-taking
may be near

(SMH - Daily Chart)



This daily chart of SMH shows stochastic lines topped out above
80% overbought and turning. MACD histogram bars are on the decline
as well. Upper Bollinger Band was pierced over the past two
sessions and the three day candle pattern "doji-red-doji" signals
negative indecision at a price peak in the market.

There are four, clear technical signals suggesting a near-term
pullback may occur. The fifth one is price failure at the upper
trend line tracing a series of lower highs since mid-June.

Traders may opt to enter long-put plays on a break below 95 to
confirm further weakness. Support lies at 92 (50 DMA), 86 at
Bollinger Band "fair value" and the trendline tracing lower-lows
near 80 offering major support.

------

HHH - Internet
IAH - Internet Architecture
BDH - Internet Infrastructure

Each of these sectors exhibit the same sell confirmation setup
that the NDX/QQQ does on daily/hourly charts. We suppose these
are the issues causing such behavior in the broad index. Be aware
that downside bias exists and consider playing long puts or protect
bullish individual stock plays you may have open.

That's all we have to offer in relief of our leader here. For what
they're worth, my best suggestions are listed here in order of
preference. Both the Qs and SMH seem poised for a pullback and
that may begin near tomorrow's open.

Study your charts, choose your strategy and catch the rides up
or down. May your accounts swell equally either way! See you
Thursday.


**************
No Play
**************

PPH
BBH
BHH
IIH
TTH
RKH
UTH


*************
DAILY RESULTS
*************

Index      Last    Mon   Tue  Week
Dow    11139.15  33.33 59.34 92.67
Nasdaq  3958.21  22.81  5.06 27.87
$OEX     818.58   4.80  0.14  4.94
$SPX    1498.13   7.76 -1.35  6.41
$RUT     517.46   0.94  1.01  1.95
$TRAN   2823.08 -18.55  4.49-14.06
$VIX      19.62   0.14  0.06  0.20

Calls

JNPR     186.44   3.00 12.63 15.63  Put on those party hats!
SDLI     404.00  13.25 -4.50  8.75  Profit takers jump onboard
PLXS     139.00   4.38  4.00  8.38  Hang on for a 2-1 split ride!
QLGC      98.00   2.25  2.75  5.00  New, on the cusp of a breakout
EXDS      64.06   1.44  2.19  3.63  Aligned with two big players
MER      143.53   3.69 -0.97  2.72  Looks to surge into 9/1 split
COHR      70.94   3.63 -0.94  2.69  Dropped, whipsawed today
GSPN     132.56  -0.56  2.75  2.19  A nice scare or entry point?
EMC       94.31  -0.56  0.88  0.31  Maybe fourth times a charm!
DIGX      80.44  -0.38  0.25 -0.13  Let the games begin!
SUNW     122.19  -0.31  0.13 -0.19  Another new all-time high
IDTI      72.44  -3.31  2.88 -0.44  Managed to hold its gains
FDRY      90.44   2.31 -3.56 -1.25  Exhibiting a clear pattern
LSCC      65.19  -3.25  0.81 -2.44  No volume equals no action
ITWO     145.38  -5.13  0.50 -4.63  Dropped, support gave way
EPNY      93.31  -0.13 -5.56 -5.69  Dropped, never got going
CCU       76.88  -2.13 -4.81 -6.94  Dropped, it wasn't pretty
EXTR     168.25  -6.19 -3.69 -9.88  Dropped, splits on Thursday

Puts

VSTR     107.69  -9.75 -5.94-15.69  New, picking up some static
TLAB      54.94  -1.25 -3.00 -4.25  New, fell on massive volume
QCOM      56.63  -0.75 -2.38 -3.13  New, look what a year can do
TIBX      88.94  -4.75  4.69 -0.06  Late day selloff by the bears
YHOO     127.50   5.25 -2.94  2.31  Freight train losing steam
PWER     142.25  -1.63  7.19  5.56  Textbook technical trading
MLNM     115.13   2.88  3.19  6.06  Not going down without a fight
LVLT      67.31   4.50  2.81  7.31  Dropped, news halts selling


PICKS WE DROPPED
****************
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.


CALLS:
*****

COHR $70.94 -0.94 (+2.69) COHR staged one of its infamous light-
speed intraday rallies Monday to test resistance at $72.  There
was no news to spur the buying spree; possible carryover from
A's favorable report last week.  However, the advance was less-
than-convincing as was vindicated today.  COHR fell back below
support at $71 near the close of trading.  The stock traded a
mere 46K shares today, far below its ADV.  The lack of liquidity
in the stock might explain the wild intraday trading.  At any
rate, COHR whipsawed its way right off the OIN call list today.

ITWO $145.38 +0.50 (-4.63) The profit taking we witnessed in ITWO
last week returned during Monday's session to take the stock down
to support at $144.  The sell-off proved to be a good entry into
the play as the entire B-2-B sector received praise from Bear
Stearns Tuesday morning, which caused ITWO to gap over $3 higher.
The stock spent most of today bouncing off support at the $148
level.  But, in the final half-hour of trading, ITWO's support
gave way as the stock plunged to $145.  There was no news to spur
the selling, only broad profit taking in the Tech sector.  In
light of ITWO's relatively weak showing this afternoon, it's time
to bounce our way out of this B-2-B play.

EPNY $93.31 -5.56 (-5.69)  All the kings horses and all the
king's men, couldn't put EPNY back together again.  What looked
like a nice and slow recovery for EPNY has now turned for the
worst.  Yesterday seemed innocent enough, as it was a quiet day
of consolidation, with low volume and trading in a narrow range.
The stock attempted to break through psychological resistance at
$100 on weak volume.  Getting as high as $100.31 brought in the
sellers and EPNY closed down 13 cents or 0.13% on less than 50%
of ADV.  After an early morning attempt to rally above the
century mark today, EPNY spent the remainder of the day selling
off in stair-step fashion.  Former support at the 5-dma (at
$97.40) and the 10-dma (at $96.40) as well as support at $95
failed to hold.  While volume today was light (only 66% of ADV),
the break through key technical levels came through loud and
clear.  With the recent trend of recovery this month now broken,
we are no longer recommending this play.

EXTR $168.25 -3.69 (-9.88)  So long and thanks for all the
profits!  On Monday, EXTR started the week with a little
give-back.  Encountering resistance at $185 in the early morning,
the stock moved lower for the rest of the day until the last
couple of hours of trading when EXTR bounced off the 10-dma and
in doing so, successfully tested support at $165.  EXTR closed
down $6.19, or 3.47%, on 83% of ADV.  This put EXTR below its
5-dma, now at $174.75.  Today the selling continued, with the
5-dma serving as resistance along with former support level at
$175.  Closing down 2.14% on almost 130% of ADV, volume to the
downside has been increasing.  This is despite today's news of a
new customer in Homestead.com.  As well, today's close put EXTR
below $170 support and its 10-dma at $169.20.  This would suggest
a break in the recent uptrend.  With solid profits already
realized and a 2-for-1 split after Thursday's close, we are
closing this play for now, but we'll be back.

CCU $77.50 -4.19 (-6.31) You just can't ignore a 5.1% cut on
more than triple the normal volume levels.  That was the
scenario today and it wasn't pretty.  Selling pressure initially
brought CCU under the recent support of the 10-dma line ($82)
late in Monday's session.  Today, the stock opened in a weakened
state and fell through other technical lines rapidly.  After the
robust activity last week, upward confirmation never resurfaced.
CCU is no longer considered a viable breakout candidate and
we're exiting the play tonight.


PUTS:
*****

LVLT $67.31 +2.81 (+7.25) LVLT announced the winning of two
contracts over the past two days, which quickly halted the
institutional selling we had come to love.  The company said
Monday that it had signed an agreement with Avenue A (AVEA) for
use of its broadband network in Europe.  And today, LVLT said it
would sell bandwidth to Relera, a privately held Internet
services concern, for $30 mln a year.  The announcements of the
two contracts were followed by a heavy buying spree over the past
two days as LVLT burst above several resistance levels, including
its 20-dma at $65.  The recent buying has convinced us it's time
to end the play if your stops haven't already.


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The Option Investor Newsletter                  Tuesday 08-22-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

SDLI $404.00 -4.50 (+8.75)  Remember the rocket boosters?
Apparently they are in overdrive.  Continuing last week's rally,
SDLI has surpassed Friday’s highs yesterday and today, it screamed
to a high of $421.75.  Although profit takers jumped in early on,
driving the stock to $409, the buyers resurfaced, pushing SDLI to
the day high just after noon.  Capitalizing on the lunch break,
sellers rekindled their efforts, taking back some of the gains,
leveling the stock out around the $414 for most of the afternoon.
The last hour of trading proved to be rough for SDLI, with a
downward trend on a huge volume spike forcing the stock to violate
support offered by the morning low of $409, hitting a new day low
$403.63 just before the close.  This was a product of the broader
market selloff after the Fed announcement.  With the 5-dma sitting
at $393.18, SDLI is still well above all technical supports,
forcing us to find support at the day lows, which are getting
higher by the day.  Continue to look for entries to the play on
the profit takers’ dips, possibly below the $400 level.  Similarly,
a push through Monday's close of $408.50, could indicate a
revitalized uptrend.  Stop losses are well advised on this
volatile, yet potentially lucrative play.

SUNW $122.19 +0.13 (-0.19) We hate to be repetitive, but SUNW
traced another new all-time high today.  SUNW said Monday that it
had partnered with EXDS to develop an Internet storage service.
Also, HL Camp & Co issued a favorable report on SUNW yesterday
morning.  Today, SUNW announced that it had teamed with T to
provide Web hosting services for businesses.  The two
partnerships combined with the post-split announcement effect
have kept SUNW's momentum alive.  As long as the NASDAQ rolls
higher, our play should lead the charge.  Speaking of the NASDAQ,
SUNW slipped in the final half-hour of trading as the broader
Tech sector fell on profit taking.  The stock bounced off support
at $122 to finish the day slightly positive.  Aggressive traders
might look for a quick bounce off $122 Wednesday morning or a
rally back above resistance at $123.  Make sure to confirm
strength in the broader Tech sector before entering the play.
Conservative traders might look for an entry if SUNW's momentum
returns and carries the stock past $124.  An extended pullback on
light volume to support at $121 or near the 5-dma at $120 might
also provide an entry for the aggressive traders.

EXDS $64.06 +2.19 (+3.63) Sure enough, EXDS rebounded smartly
Monday after last Friday's wild trading.  Our play benefited from
two big announcements early this week.  EXDS announced Monday
that it had teamed with SUNW to develop a next generation storage
product.  And Tuesday, EXDS said it had formed a strategic
alliance with EMC to conjointly offer software and e-Business
services.  The two separate announcements helped to fuel EXDS's
momentum and boost our play into breakout territory.  Going
forward, EXDS faces congestion above its current levels, with $65
and $70, respectively, marking the next major hurdles.
Aggressive traders might target shoot for new entries early
Wednesday morning if EXDS's bounces off its current level at $64,
after confirming direction in the NASDAQ.  A more conservative
trader might wait for a strong move above resistance at $65
before entering the play.  Support is located at $63, again at
$62, and lower at the 5-dma, which has moved up to $60.81.  You
might watch for a bounce off the various support levels for an
aggressive entry if any light selling transpires.

IDTI $72.44 +2.88 (-0.44) Buying the IDTI dip Monday proved to be
a profitable endeavor today after the broader Semi sector carried
our play into positive territory.  The Chip bulls will turn their
attention to INTC for the remainder of the week, with the company
commencing its developer conference today.  Any good news from
INTC might extend the recent rally in the Chip sector, which in
turn, might carry our play along with it.  IDTI bounced off its
major support level at $70 this morning, and ran above the $74
level before falling under control of the profit takers late in
the day.  Aggressive traders might look for a quick bounce off
support at $72 Wednesday morning, or a rally back above the $73
level to gain entry into the play.  If the profit taking carries
IDTI lower, the stock's 5-dma has moved up to the $70 level to
give support.  A more conservative trader might confirm bullish
momentum in the broader Chip sector and look to enter IDTI if the
stock rallies above resistance at $74.

GSPN $132.56 +2.75 (-2.19)  Traders and investors of GSPN held
their collective breaths on Monday in anticipation of today's Fed
news, with the stock trading in a tight range and flirting all
day with the $130 level.  GSPN ended the day down 56 cents or
0.43% on only 54% of ADV.  Today, everyone breathed a sigh of
relief, but not without a shakeout first.  An early morning dip
to the $125 area gave investors and traders alike a nice scare,
or was that an entry point?  Bouncing well above its 10-dma at
$122, the stock took a slight pause to catch its breath before a
mid-day rally ensued.  Encountering resistance at $135, the stock
edged lower in the last couple of hours of trading.  Aggressive
traders looking to play this one may want to buy bounces off the
10-dma as well as the 5-dma at $129.12.  There is also support
for the stock at $130 and below that at $125.  Conservative
traders will want to see GSPN clear $135 with conviction before
entering.

FDRY $90.44 -3.56 (-1.25) FDRY is exhibiting a clear pattern of
higher-lows as it tests higher intraday peaks.  This week, $90
and $92 firmed up as near-term support levels with $95.75 now
offering the upper resistance.  Monday's volume was quite
respectable on the climb, but today it was a bit scarce at only
75% of the norm.  Therefore, watch for increasing trading
activity to signal upside action.  Look for entries on high-
volume moves off the current level or enter aggressively on
pullbacks above the rising 10-dma.  For new readers, this play is
purely a momentum run based on the company's solid outlook,
analysts' positive projections, and FDRY's technical breakout
above $80.  In recent news, Foundry Networks announced that it's
the first Web switch vendor to receive OPSEC (Open Platform for
Security) Certification from Check Point Software Technologies
(CHKP).  Bobby Johnson, president and CEO of Foundry Networks,
noted that "customers can now use the ServerIron family of high
performance Web switches along with Check Point's VPN-1/FireWall-1
to build networks that are not only secure, but also scale with
the exploding Internet traffic."

DIGX $80.44 +0.25 (-0.13) Let the games begin!  We're in the
midst of a battle as DIGX consolidates at its new price level.
Average volume is typically around 816 K shares, but this week
they reached 2.05 and 1.07 mln shares, respectively.  After DIGX
spiked through the overhead resistance ($81.81) during amateur
hour on Monday, traders were effectively offered an optimum
entry.  DIGX came off a low of $75.88 and made immediate headway
to the $80 support level, just above the former opposition at
the 200-dma.  Then again today, DIGX dipped under the $80 mark
to tag $77.63 offering another opportunity.  On this rebound,
however, the stock tested the ceiling three times before
settling at the close.  This is a bullish sign.  Although, if
you're considering entering on upside action, it would be wise
to wait for the upper resistance (now $82.88) to be shattered
before opening new momentum plays on DIGX.

PLXS $139.00 +4.00 (+8.38) Hang on for the ride!  Plexus is
geared up and ready to roll ahead of its 2-1 stock split.  PLXS
broke to the upside $8.38, or 6.4% this week.  And today, PLXS
set a new 52-week record at $142.63!  Volume was exceptional at
485 K compared to the ADV of 367 K, which is what we want to see
on a climb.  We're anticipating the excitement will continue to
generate more momentum as the split date of August 31st
approaches.  Of course, a thriving market will enhance the run!
Plan ahead.  There's only 8 days left to trade this split play.
If you're an aggressive player, then look for pullbacks to the
former resistance level, now marked by the 5-dma line at $132.43.
If we're not afforded such deep cuts, then definitive moves off
$135 and $138 are also inviting.

JNPR $186.44 +12.63 (+15.63) Put on your party hats and grab a
horn!  JNPR broke out with style today.  The 7.3% advance
validated our play on the momentum and cleared the path of
resistance.  There's no more teetering or tottering.  JNPR broke
the record book.  It set a new 52-week high towards the end of
the session.  Directly from the open there was promise.  The
share price climbed steadily and established a firm base at
$180.  Then, the real party began later in the afternoon.  JNPR
broke loose with a vengeance and raged upwards to peak at
$187.69 before settling for a strong close.  With nothing to
hold back the momentum now, we could see the upside of the $200
in a cooperating market.  Look for the volume levels to be
robust, like today's at 7.83 mln versus 5.93 ADV, to foreshadow
future moves.  As is always the case, watch for the money-
grubbers to take cash off the table at these levels.  Entries
off intraday support at $180 are reasonable, but a pullback to
$175, or $170 are more enterprising (and risky!).  This morning,
SG Cowen commented that Juniper gained a 6% market share for
Core routers from Cisco (CSCO).  They maintain a Strong Buy
rating for JNPR.

MER $143.53 -0.97 (+2.72) The Financial sector is continuing to
run to new highs and MER is leading the charge.  The stock has
managed to hit new all-time highs the past 2 days, but the
post-FOMC sentiment dragged it off its highs this afternoon.
Still well above its ascending trendline and continuing to use
the 5-dma ($141.38) as support, MER looks like it may continue
to surge into its 2-for-1 split scheduled for September 1st.
Volume the past 2 days has been robust, considering the weak
volume on the broader market, but we will need to see it
strengthen if our play is going to charge significantly higher.
Somewhat disconcerting was the heavy volume that accompanied
the stock’s late-day, $2+ decline.  Intraday support sits at
$143 and then $141, followed by stronger support at $140.  The
resistance level has been ratcheted up again and now sits at
$146.  As long as buying interest in MER and the Financial
sector remains unshaken, look to open new positions on a bounce
from support according to your risk tolerance.  If support at
$140 fails to hold, stand aside and wait for the dust to settle.
This would represent a decline through several support levels
as well as the 10-dma ($140.50), and could be an early indication
that the stock has run out of gas.

EMC $93.56 +0.13 (-0.38) Maybe the fourth time will be the
charm.  After breaking higher late last week, EMC is struggling
to push through resistance again, this time at $95.  Our play
first reached this level last Friday, then touched it again
early on Monday, and then again in the middle of today’s
trading session.  For a few minutes today, it looked like our
storage hero might actually manage a breakout.  It pushed
fractionally through $95 on a surge of volume only minutes
after the outcome of the Fed meeting became public.  But alas,
it wasn’t meant to be, and the stock gave back nearly all of the
day’s gains by the close.  Our play is giving us mixed signs at
this point.  Although it has managed to hold above the 5-dma
(currently $92.44) and is building support at the $92 level,
today’s bearish doji candlestick leaves us concerned that there
may not be enough buyers to push the stock higher in the near
term.  There is stronger support at $90, a prior resistance
level that held EMC back for nearly a week.  EMC could be
forming a similar pattern as it continues to hit its head on
resistance, and aggressive investors can use intraday dips to
support as buying opportunities.  With the current indecisive
market environment, however, a more conservative approach may be
the best strategy.  For those so inclined, wait for buying
volume to increase and push EMC solidly through its current
resistance before playing.

LSCC $65.19 +0.81 (-2.44) No volume equals no action - at
least it did in this case.  Friday’s big move up was completely
retraced yesterday, and, like many stocks in today’s
FOMC-obsessed market, LSCC traded in a relatively wide range,
only to close the day virtually unchanged.  This doji
candlestick formation, which came on very low volume (less than
half the ADV), points to investor indecision and lack of
conviction.  That combined with the weak performance of the
NASDAQ after the Fed announcement to leave us feeling a bit
more cautious about our play going into the rest of the week.
The stock is finding support near $63, which is just above the
30-dma, and fortunately it is still managing to close each day
above the 5-dma (now at $64.50).  In the absence of renewed
buying volume though, it looks like LSCC could be running out
of steam.  Aggressive investors can consider opening new
positions on an intraday bounce from the $63 level, but only if
strong volume accompanies the bounce.  Until LSCC shows us that
it wants to move higher, we are going to be cautious about
adding new positions without the confirmation of strong buying
volume.  At this point, conservative investors will want to
wait for LSCC to move up through resistance at $66.50, or even
$69 before opening any new positions.


*******************
PLAY UPDATES - PUTS
*******************

TIBX $88.94 +4.69 (-0.06) TIBX announced Monday that it had
launched a new advanced suite of e-Business software services.
Despite the news, TIBX fell further into the sell-off mire.  The
stock got a big boost today after Bear Stearns issued a host of
bullish reports in the B-2-B sector.  However, TIBX's sympathy
rally waned near the close of trading as the stock plunged in the
final half-hour in conjunction with a surge in volume.  The TIBX
bulls and bears have fought it out over the past two days as
nearly twice the ADV has traded during both battles.  Watch for
the bears to regain the upper-hand in TIBX, and consider entering
the play at current levels Wednesday morning in light of the late
day sell-off this afternoon.  A sharp drop below support at $88
might present a favorable entry into the play as there is little
support below that level until the $85 - 87 range.  Make sure to
confirm heavy volume with any sell-off as a sign the bears are
once again in control.

MLNM $115.13 +3.19 (+6.06)  Millennium is not going down without
a fight.  Yesterday, the stock made another attempt at rallying
above the 10-dma, moving up $2.88 or 2.64% on about 50% of ADV.
While the attempt was unsuccessful, MLNM managed to close above
its 5-dma (now at $111.96).  Today, with help from a strong
biotech sector, MLNM gained 2.85% on 65% of ADV.  In doing so,
MLNM closed above its 10-dma at $113.32 and just above resistance
at $115.  At the high of the day, MLNM was able to pierce its
50-dma at $116.73, but was not able to sustain the move as sellers
arrived in the last hour of trading.  Those looking to enter this
play aggressively may want to buy on a failure to move above
formidable resistance at $120 or its 50-dma.  The more
conservative will want to see MLNM break below $115 before making
a play.  As there has been little news lately for MLNM, sector
sympathy will play an important role in gauging sentiment for the
stock.  Confirm stock direction with the sector before entering.

PWER $142.25 +7.19 (+5.56)  Monday was a textbook day for fans of
support and resistance levels.  Encountering resistance at $140,
the stock moved lower.  Bouncing off support at $130, PWER closed
in the middle at $135.06, losing $1.63 or 1.19% on about 110% of
ADV.  Something gave PWER a spark today, as it rallied on
moderate volume during amateur hour.  The stock then moved
sideways until mid-day when it attempted another rally.
Encountering resistance at the $146 area, profit-takers took over
in the last hour of trading on heavy selling volume.  Despite
this, the stock gained 5.32% for the day on 95% of ADV, but still
below its 10-dma at $143.37.  With stock resistance at $146 as
well as $150 and $152, a failure to rally above these levels
could provide for an entry for aggressive traders.  Those who are
more risk-averse may want to see PWER break below $140 before
entering.  As volume on the sell side has been strong, make sure
volume is on your side as a confirmation signal before making a
play.

YHOO $127.50 -2.94 (+2.31) Just like clockwork, YHOO ran out
of steam today as it attempted to recover from Friday’s nearly $6
loss.  Moving as high as $130.56, shares of the leading Web portal
ran smack into the converged 30-dma ($130.56) and 50-dma ($130.19).
Although it managed to close at the high of the day yesterday, our
play opened lower and could never regain yesterday’s closing price
in today’s weak session.  Adding to the bearish technical picture,
yesterday’s recovery came on rather weak volume, while today’s
decline was accompanied by volume nearly 15% over the ADV.  While
that isn’t normally enough to be considered heavy volume, it came
in the midst of light volume on the broader markets and appears to
be indicating more weakness ahead.  Of course, it doesn’t help
that Merrill Lynch analyst Henry Blodget sees troubled waters
ahead for Internet firms as competition intensifies for reduced
online ad revenue as the dot.com shakeout continues.  Consider
nibbling on new positions on repeated failures to penetrate
resistance between $130-131, as long as selling volume remains
strong.  If you’d rather wait for this freight train to really get
moving, wait for YHOO to fall through the $125 support level
before taking a position.


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**************
NEW CALL PLAYS
**************

QLGC - QLogic Corporation $98.00 +2.75 (+5.00 this week)

Somebody has to make the equipment that lets your computer talk
to all its peripheral equipment, and QLGC does it well.  A
leading designer and supplier of semiconductor and board-level
input/output (I/O) management products, QLGC has been providing
SCSI-based connectivity solutions to this market sector for over
12 years.  QLGC’s I/O products provide a high performance
interface between computer systems and their attached data
storage peripherals, such as hard disk and tape drives,
removable disk drives and RAID (redundant array of independent
disks) subsystems.  The company is also the market share leader
in Fibre Channel host bus adapters, a market segment that is
receiving tremendous attention from investors.

Riding the wave of enthusiasm for Fibre Channel and other
Storage Area Network (SAN) product manufacturers, QLGC has been
marching higher since bottoming in late July.  The stock is
right on the cusp of a breakout over resistance at $99.
Particularly encouraging is the increasing volume that has
accompanied the stock’s gains over the past week.  Even the
light volume in the broader markets couldn’t hold QLGC back
over the past 2 days, as it saw 3.5 mln shares trade hands
yesterday and 2.8 mln today.  The 5-dma (currently at $91.44) is
supporting the rally, and once the share price clears current
resistance, the next upside target will be $107.  If the NASDAQ
wants to make a run at the 4000 resistance level, and if
it can clear it, strong stocks like QLGC are likely to ride the
wave higher.  Support at $82-84 looks firm as it is just below the
200-dma ($85.75), with milder support sitting at $90.  Although
the picture looks rosy now, the broader technology market will
likely determine QLGC’s direction in the near term.  As long as
the market stays healthy, consider new positions on a
volume-backed bounce from support.  A more conservative approach
is to wait for a breakout over resistance before jumping aboard.

The management at QLGC has been busy over the last week, building
an alliance with VERITAS Software (VRTS), and demonstrating new
cutting-edge products at the Intel Developer Forum (IDF).  The
partnership with VRTS is a co-marketing agreement where each will
bundle their products with the other’s, giving their customers a
more integrated approach to SAN management.  QLGC’s InfiniBand
switch for Server Clustering applications will be demonstrated
this week at the IDF in San Jose.

BUY CALL SEP- 95 QLC-IS OI=796 at $10.50 SL= 7.50
BUY CALL SEP-100 QLC-IT OI=446 at $ 8.00 SL= 5.75
BUY CALL SEP-105*QLC-IA OI=199 at $ 6.00 SL= 4.00
BUY CALL OCT-100 QLC-JT OI=776 at $13.75 SL=10.25
BUY CALL OCT-105 QLC-JA OI=198 at $11.75 SL= 8.75
BUY CALL JAN-105 QLC-AA OI=  7 at $22.13 SL=16.50

SELL PUT SEP- 85 QLC-UQ OI=109 at $ 2.75 SL= 4.50
(See risks of selling puts in play legend)

Picked on August 22nd at $98.00     P/E = 117
Change since picked       +0.00     52-week high=$203.25
Analysts Ratings      3-3-0-0-0     52-week low =$ 32.50
Last earnings 07/00   est= 0.24     actual= 0.27
Next earnings 10-18   est= 0.26     versus= 0.35
Average Daily Volume = 2.63 mln



*************
NEW PUT PLAYS
*************

VSTR - VoiceStream Wireless $107.69 -5.94 (-15.69 this week)

The mobile phone operator VoiceStream, which has agreed to be
acquired by Deutsche Telekom, provides digital PCS to more than
2.3 mln customers on its GSM networks.  VSTR has licenses in 23
of the top 25 US markets.  Customers can also access the Internet
with their phones using VSTR's portal.  The company is expanding
rapidly into new markets with the closing of its recent
acquisitions of Aerial Communications and Omnipoint.

VSTR has been picking up a lot of static lately.  In late July,
Deutsche Telekom (DT) said it would pay 3.2 shares plus $30
cash for each share of VSTR.  At the time of the announcement,
the deal was valued at $50 bln.  Immediately after the proposed
merger plans were finalized, the deal fell under heavy scrutiny
by investors.  Many on Wall Street agreed that DT had greatly
overpaid for VSTR.  Disapproval of the deal could be seen in the
myriad of VSTR downgrades that followed the formal announcement.
Not only have the equity analysts bestowed their disapproval on
the merger, but credit analysts have recently cast shadows of
doubt on DT and VSTR.  Both Standard & Poor's and Moody's
recently lowered their credit ratings on DT, which comes at a
time of a recent $14 bln bond offering to help pay for the
massive VSTR acquisition.  Needless to say, nobody on Wall Street
likes the deal, especially VSTR shareholders.  What's more, DT
recently had to pony up more cash to purchase cell phone licenses
in Europe, which has weighed heavily on the stock.  For arbitrage
reasons, what's bad for DT is worse for VSTR.  The pessimism
surrounding DT, and VSTR for that matter, is mounting and has
pushed both stocks below key support levels recently.  VSTR
plunged for the third consecutive day Tuesday, on increasingly
heavier volume.  VSTR's relatively weak showing might warrant
consideration for aggressive traders to enter the play at current
levels if the heavy selling continues Wednesday morning.  A more
conservative entry point might be found if VSTR's slide
accelerates and the stock falls past its intraday low at $106.
Make sure to confirm direction in DT because of the tandem
trading as a result of the proposed merger.

BUY PUT SEP-110*UVT-UB OI=669 at $7.75 SL=5.50
BUY PUT SEP-105 UVT-UA OI= 10 at $5.13 SL=3.00
BUY PUT SEP-100 UVT-UT OI=  0 at $3.13 SL=1.50

Average Daily Volume = 2.61 mln



QCOM - Qualcomm Inc. $56.63 -2.38 (-3.13 this week)

Qualcomm Incorporated is a leader in developing, delivering, and
enabling innovative digital wireless communications products and
services based on the Company's digital technologies.  As the
pioneer of Code Division Multiple Access (CDMA), the technology
of choice for next-generation wireless communications, Qualcomm
continues to lead the industry in the development of voice, data,
and wireless Internet products and solutions.  Qualcomm is also
transforming industries through its various satellite businesses
and technology partnerships.

What a difference a year can make.  Around this time last year,
with many stocks trading lower in a sideways to down market,
Qualcomm was one of the top high-relative strength stocks,
trading first place from time to time with JDSU.  Investors
looking for a repeat performance of last year's incredible gains
have surely been disappointed.  In fact, this has not been a good
year at all for QCOM.  Since hitting an intraday and all-time
high of $200 on the first trading day of the millennium, it's
been a rocky path downhill for the wireless giant.  A glimmer of
hope came in March from CDMA talks with China but gave way to
selling as China said, "Thanks, but no thanks."  Since then, it's
been month after month of selling, with July offering a bit of
relief and hope, but that hope now looks dashed as August looks
like it may be another down month for QCOM.  The stock has had
trouble with its 10-dma ($60.50) all month long.  With the break
below a key support level at $60 this past Friday, the stock is
now having trouble with its 5-dma ($59.32) as well.  This move
came despite Josephthal & Co. initiating coverage on QCOM with a
Buy rating.  Aggressive traders looking to play this one will
want to enter on a failed rally above $60 or its 5- and 10-dma.
QCOM also had some minor support in the $57 area which was
breached today, suggesting there may be more downside to come.  As
far as moving average support for the stock goes, there is pretty
much none as QCOM is well below its 50-, 100-, and 200-dma at
$64, $84, and $104 respectively.  There appears to be support at
the $55 level.  From there, it's down to $53.80 and then $51.50.
How low can QCOM go?  It's uncertain, but one item of interest was
a news article last Friday which suggested that tech fund managers,
who once saw QCOM as a darling in their portfolios, have sold and
are continuing to sell shares of QCOM in favor of other large cap
giants like CSCO, INTC and SUNW.  Further selling by the funds
could lead to significantly more downside.

BUY PUT SEP-65 AAO-UM OI=2525 at $9.25 SL= 6.50
BUY PUT SEP-60*AAO-UL OI=4449 at $5.63 SL= 3.50
BUY PUT SEP-55 AAO-UK OI=3110 at $2.75 SL= 1.50

Average Daily Volume = 19.43 mln



TLAB - Tellabs Inc $54.94 -3.00 (-4.25 this week)

Tellabs is an optical networking firm.  Its equipment is used
throughout the world to manage and transmit data, voice, and
voice signals.  Customers include telecommunication companies,
cable operators, corporations and government agencies.  Baby
Bells account for nearly one-third of sales with another third
generated outside the US.

While the management changes within Tellabs didn't precipitate
the stock's recent demise, it's ironic.  On Thursday, August
17th, Michael J. Birck was named Chairman of the Board and
Richard C. Notebaert to president and CEO.  That day too, all
the telecommunications-equipment makers were gleaming in the
rays of Ciena's fantastic earnings.  But by Friday afternoon, a
dark cloud moved in and a sell-off was in full swing.  Perhaps
the looming Fed Meeting originally played into the scenario, but
that can't be said now.  TLAB and others in its sector, like
Cisco and Alcatel, simply failed to benefit from the FOMC's
decision to leave interest rates alone.  As it stands, TLAB shed
$7.75, or 12.4%, since the decline began in Friday's session.
Essentially, the break under $60 was the nail in TLAB's technical
coffin.  Looking ahead there is some light support at $50, but
after that we're looking at $45 and $40 as potential targets.
Average volume is currently 4.25 mln.  Look for the strong volume
to confirm further declines before taking entries off the
resistance marks at $58 or $56.  Today's numbers were astronomical
with 19.86 mln shares exchanging hands.

BUY PUT SEP-65 TEQ-UM OI=2505 at $11.00 SL=8.25
BUY PUT SEP-60*TEQ-UL OI=1849 at $ 7.00 SL=5.00
BUY PUT SEP-55 TEQ-UK OI=3156 at $ 3.75 SL=2.00

Average Daily Volume = 4.25 mln



**********************
PLAY OF THE DAY - CALL
**********************

TIBX - TIBCO Software $88.94 +4.69 (-0.06 this week)

TIBCO's ActiveEnterprise enables businesses to connect resources
with customers and automatically deliver event-driven information
across networks and the Web in real-time.  The company also
offers e-commerce, consulting, and support services.  Customers
license the software to integrate, personalize, and distribute
content.  TIBCO is enhancing its business-to-business trading
capabilities.  Reuters owns more than 60% of the company, and
Cisco holds a minority stake of 7%.

Most Recent Write-Up

TIBX announced Monday that it had launched a new advanced suite
of e-Business software services.  Despite the news, TIBX fell
further into the sell-off mire.  The stock got a big boost today
after Bear Stearns issued a host of bullish reports in the B-2-B
sector.  However, TIBX's sympathy rally waned near the close of
trading as the stock plunged in the final half-hour in conjunction
with a surge in volume.  The TIBX bulls and bears have fought it
out over the past two days as nearly twice the ADV has traded
during both battles.  Watch for the bears to regain the upper-hand
in TIBX, and consider entering the play at current levels
Wednesday morning in light of the late day sell-off this afternoon.
A sharp drop below support at $88 might present a favorable entry
into the play as there is little support below that level until
the $85 - 87 range.  Make sure to confirm heavy volume with any
sell-off as a sign the bears are once again in control.

Comments

TIBX made some huge leaps today on the news mentioned above, but
$93-$94 stopped the buyers in their tracks.  The high volume
rollover into the close on Tuesday leads us to believe that TIBX's
recent pop is simply a dead cat bounce.  With the Fed announcement
today being nothing more than a non-event, a "sell the news"
scenario may be unfolding.  NASDAQ weakness grew as the session
wore on and the tech index closed on the low of the day, right at
the 200-dma.  Look for further weakness below this level as a clue
to entering this put play.

BUY PUT SEP-95 PIW-US OI= 42 at $12.38 SL=9.75
BUY PUT SEP-90*PIW-UR OI=135 at $ 9.13 SL=6.75
BUY PUT SEP-85 PIW-UQ OI=  0 at $ 6.25 SL=4.50  Wait for OI

Average Daily Volume = 1.47 mln



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************************
COMBOS/SPREADS/STRADDLES
************************

FOMC announcement turns out to be a "non-event."

Blue-chip stocks rallied today after the Federal Reserve's widely
expected decision to leave interest rates unchanged.

Monday, August 21

The market rose tentatively Monday as investors speculated on the
outcome of this week’s Federal Reserve policy meeting.  The Dow
Jones industrial average was up 33 points to 11,079 while the
Nasdaq closed up 22 points at 3,953.  The S&P 500 index ended 7
points higher at 1,499.  Trading volume was extremely light and
most issues remained in a narrow range on the NYSE where 729
million changed hands.  Broad market declines beat advances 1,473
to 1,329.  Activity in the Nasdaq Composite was relatively low at
1.26 billion shares traded.  Technology advances edged declines
2,034 to 2,002.  In the bond market, the 30-year Treasury fell
7/32, pushing its yield up to 5.70%.


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

Maxtor      MXTR   JAN10C/SEP10C   $1.00   debit   calendar
Read-Rite   RDRT   JAN5CC/JAN5NP   $3.62   debit   cov-combo
Leap Wire   LWIN   SEP60P/SEP65P   $0.75   credit  bull-put
Semtech     SMTC   SEP70P/SEP75P   $0.50   credit  bull-put

Both Maxtor and Read-Rite slumped during the session, offering
entries at (or near) the suggested prices.  Leap Wireless and
Semtech traded higher for most of the day, and neither of the
new positions were available at the target credits.  We will
monitor those spreads for more-favorable entries in the coming
sessions.

Portfolio Plays:

The market closed higher today but investors showed caution ahead
ahead of Tuesday’s FOMC meeting.  Although there is a widespread
consensus that the Fed will leave interest rates unchanged, many
traders have decided to wait until after the announcement before
adding to current positions.  Once the news becomes public, most
analysts will continue to focus on economic data going forward as
the full impact of the previous rate hikes is as yet unknown.  A
late session rally pulled the Dow to the positive side with Boeing
(BA) and United Technologies (UTX) leading the way.  Traders said
these stocks are now considered "defensive" plays and both issues
benefited from reports that Presidential candidates would increase
defense spending if elected.  On the Nasdaq, semiconductor stocks
declined after a week of upside activity and additional selling
pressure came in telecom stocks.  In contrast, the biotechnology
group was strong and shares of companies that produce anti-virus
software also rose after Barron's commented that the market for
computer security products is rising and many of these companies
are trading at an "untech-like" price/earnings multiple.  In the
broader market, hotels, defense and networking stocks advanced,
while long-term healthcare, retail and paper issues consolidated.

Our portfolio saw little activity during the session and because
I was on the floor of the CBOE, I did not have the opportunity
to monitor the intra-day fluctuations.  One of the issues that I
tracked from the pit was PMC Sierra (PMCS).  Our neutral credit
strangle was beginning to look precarious with the recent upside
activity but now the premium is starting to erode and without a
substantial bullish move in the next few sessions, the position
should easily expire at maximum profit.  One of big surprises of
the session was the drop in Voicestream (VSTR).  The issue slid
$10, not on news concerning the company but in sympathy over the
slump in European telecom shares.  The group tumbled to a new,
nine-month low today amid lingering worries about how the larger
companies will recoup the costs of developing high-speed mobile
phone networks.  Our cost basis in VSTR is just below $110 (at
September expiration) but with the negative outlook for its
potential merger partner, we are going to close the play or
transition to a bearish position.

Tuesday, August 22

Blue-chip stocks rallied today after the Federal Reserve's widely
expected decision to leave interest rates unchanged.  The Dow
Jones industrial average ended up 59 points at 11,139 while the
Nasdaq closed 5 points higher at 3,958. The S&P 500 index closed
relatively unchanged at 1,498.  Trading volume on the NYSE was a
light 819 million shares, with advances beating declines 1,448 to
1,331.  Trading activity on the Nasdaq reached 1.4 billion shares,
with advances beating declines 2,008 to 1,995.  In the bond market,
the 30-year Treasury fell 2/32, pushing its yield up to 5.71%.


Portfolio Plays:

After a solid morning rally, the major averages faded in the final
hour of trade amid lackluster enthusiasm over the FOMC’s interest
rate announcement.  The Federal Reserve voted to keep rates steady
at 6.50% today but said that economic risks remain weighted toward
conditions that could create inflationary pressures going forward.
The outcome of the meeting was widely expected and over the past
two weeks, stocks have rallied in anticipation of the news.  Today
the trend was somewhat subdued with most investors adopted a "sell
on the news" attitude.  On the blue-chip index, J.P. Morgan (JPM),
Hewlett-Packard (HWP) and Honeywell (HON) were the top preformers.
On the Nasdaq, business-to-business (B2B) shares rallied after an
analysts at Bear Stearns started coverage on a number of companies.
In addition, Internet stocks moved higher after key Merrill Lynch
analyst Henry Blodget American Online (AOL) appears to be having a
solid quarter, with a potential for better-than-expected results
in advertising and commerce revenue.  In the broad market, airline
stocks were mixed after Goldman Sachs adjusted its estimates for a
number of companies in the group.  Tobacco stocks were also mixed
after Salomon Smith Barney upgraded RJ Reynolds (RJR) with a new
price target of $50 per share.

Our portfolio experienced little activity worth mentioning during
the subdued session.  Echostar (DISH) was one of the few surprises,
closing up $3 at a recent high near $44.  There was little news to
explain the activity but one brokerage offered an upgrade on the
issue today: Donaldson Lufkin and Jenrette named Echostar to its
"Focus List," replacing Costco (COST).  The rally moved our debit
spread combination into positive territory at $1.38 profit for the
overall position.  This may be a good place to take profits but we
will wait for a test of the previous resistance level, just above
the current price.  Some other companies in the technology group
performed well including; Advanced Fibre (AFCI), International
Rectifier (IRF), and Qlogic (QLGC).  The bullish spreads on these
stocks had previously been rolled down to limit potential losses
but now it appears they will all finish profitably.  There are a
few positions that warrant daily observation.  Xilinx (XLNX) has
rebounded substantially in recent sessions, threatening our credit
spread at $95.  If the issue moves above the sold (short) strike
on increasing volume, we will attempt to roll-out of the spread,
buying the short option for a loss but with an intention to close
the overall position for a small profit.  PMC Sierra (PMCS) moved
in a relatively small range today and now the premium for the OTM
options is starting to decline significantly.  The overall profit
for the credit strangle has reached $1.00 and we will watch for a
favorable early-exit opportunity in the next few sessions.


Summary of Monthly Positions (as of August 18, 2000):

******************************************************************
			    - DIAGONAL SPREADS -
******************************************************************
Stock  Pick   Last     Position     Debit   Value    G/L   Status

ALL  $24.88  $28.75  OCT20C/AUG25C  $4.00   $4.88   $0.88  Closed
CCR  $39.00  $37.50  OCT30C/SEP40C  $6.25   $6.62   $0.38   Open
CSX  $24.56  $26.13  SEP22C/AUG25C  $2.00   $2.38   $0.38  Closed
FNV  $15.31   $7.50   JAN7C/AU12C   $4.38   $3.75  ($0.62) Closed
IBC  $15.25  $18.00  OCT12C/AUG15C  $1.38   $2.50   $1.12  Closed
LMT  $29.38  $27.94  SEP25C/AUG30C  $3.88   $4.12   $0.25  Closed
MAIL  $7.06   $7.06   NOV5C/SEP7C   $1.56   $1.88   $0.31   Open
PSFT $18.38  $24.50  SEP20C/AUG22C  $2.38   $3.12   $0.75  Closed
R    $21.43  $21.31  NOV20C/SEP22C  $1.12   $2.12   $1.00   Open
TMO  $21.56  $21.19  SEP20C/AUG22C  $1.12   $2.25   $1.12  Closed

Note: A number of these positions were closed early to protect
profits or prevent (limit) potential losses.

The diagonal spread is profitable if the value of the position
exceeds the initial debit (or cost-basis) at the expiration of
the long position.  However, because we track the plays based on
the current closing cost/value, the gains for diagonal spreads
will rarely be reflected until the play closes.  Each month, as
we sell a new option against the long position, the net cost
should decline or the position value should increase.
******************************************************************
			      - DEBIT SPREADS -
******************************************************************
Stock  Pick    Last     Position    Debit   Value    G/L   Status

AEOS  $16.12  $21.81   AUG12C/15C   $2.00   $2.38   $0.38  Closed
AOL   $62.06  $54.88   AUG50C/55C   $4.31   $4.31   $0.00  Closed
PAX   $10.50  $13.50   SEP7C/S10C   $2.00   $2.00   $0.00   Open
REGN  $33.50  $33.12   SEP25C/30C   $3.75    New     Play   Open
SCUR  $18.68  $23.56   AUG15C/20C   $2.69   $3.62   $0.93  Closed

Note: AEOS, AOL and SCUR were closed early to protect profits or
prevent (limit) potential losses.

A debit-spread is profitable if the value of the position exceeds
the initial cost of the spread when the play is closed.  However,
because we track plays based on the current cost/value, potential
gains may not be reflected until both positions are closed.
******************************************************************
			      - CREDIT SPREADS -
******************************************************************
Stock  Pick     Last     Position    Credit   Cost    G/L   Status

AFCI  $54.81  $40.00     SEP-35NP    $0.88   $1.75  ($0.88)  Open
AHP   $58.88  $54.28    AUG50P/55P   $1.00   $0.75   $0.25  Closed
ALTR  $60.00  $64.00     SEP-37NP    $0.50   $0.25   $0.25   Open
BBBY  $39.69  $35.75    AUG32P/35P   $0.43   $0.00   $0.43  Closed
BUD   $86.00  $82.13    SEP75P/80P   $0.75   $1.25  ($0.50)  Open
CIEN $150.31 $176.69   SEP195C/190C  $0.62   $0.50   $0.12  Closed
CSCO  $69.50  $63.50     SEP-50NP    $0.88   $0.25   $0.62   Open
HWP  $115.38 $112.00   AUG155C/150C  $0.00   $0.75   $0.75  Closed
INFS  $45.50  $46.59    SEP35P/40P   $0.69   $0.88   $0.19   Open
IRF   $64.50  $57.06     SEP-45NP    $0.88   $0.75   $0.12   Open
MIL   $62.58  $53.56    AUG75C/70C   $0.50   $0.00   $0.50  Closed
MO    $25.50  $32.00    AUG27C/30C   $0.43   $0.75  ($0.38) Closed
NTAP  $94.56  $93.94    SEP60P/65P   $0.43   $0.38   $0.06   Open
QLGC  $83.68  $93.00     OCT-45NP    $1.00   $0.25   $0.75   Open
VRTA  $82.00  $60.69     OCT-40NP    $0.75   $1.50  ($0.75)  Open
WLP   $90.06  $84.63    SEP75P/80P   $0.88   $1.62  ($0.75)  Open
XLNX  $76.75  $87.69   SEP100C/S95C  $0.69   $1.50  ($0.81)  Open

Note:  The majority of this month’s original positions finished at
maximum profit but with the late July slump, we chose to adjust
forward and down in many of the plays to limit potential losses.
Now we must wait until these long-term positions expire to achieve
a profit.

A credit spread is profitable if the cost to close the position
is less than the initial premium received for the spread.  However,
because we track the plays based on the current closing cost/value,
the gains for credit spreads will rarely be reflected until the
play is closed.
******************************************************************
			   - SYNTHETIC POSITIONS -
******************************************************************
Stock  Pick    Last      Position    Debit   Value    G/L   Status

HWP  $112.25  $112.00  SEP95P/S135C  $0.00   $1.00   $1.00  Closed
ITWO $129.12  $150.00  SEP170C/100P  $0.00   $7.75   $7.75  Closed
SCH   $38.50   $37.31   SEP42C/35P   $0.00   $1.00   $1.00  Closed
SUNW $104.00  $122.38  OCT125C/O85P  $0.12   $7.00   $6.88  Closed

Note: All of these positions were closed early to protect gains
and limit losses.

A synthetic position is profitable if the closing credit exceeds
the initial (combined) cost of both options.
******************************************************************
			    - CALENDAR SPREADS -
******************************************************************
Stock  Pick    Last     Position     Debit   Value    G/L   Status

CMX    $8.93   $8.31     DEC10C      $0.75   $0.75   $0.00   Open
GMGC   $6.50   $5.56   NOV7C/AUG7C   $0.50   $1.00   $0.50  Closed
K     $29.81  $25.56  SEP30C/AUG30C  $0.56   $0.31  ($0.25) Closed
LNY    $7.06   $7.75   OCT7C/AUG7C  ($0.06)  $0.12   $0.19   Open
NPNT  $12.68  $12.06  SEP15C/AUG15C  $0.88   $1.25   $0.38  Closed
PRD   $17.62  $17.94  OCT20C/SEP20C  $0.50   $0.38  ($0.12)  Open
PSSI  $10.31   $6.31  NOV12C/AUG12C  $0.50   $0.12  ($0.38) Closed

Note: The MSGI position (FEB-$7.50 Call) never offered a viable
front-month premium and it was closed for a $0.25 loss.  Those of
you that traded the NPNT spread at the target debit were rewarded
with an excellent, short-term return.

The calendar (or time spread) is profitable if the value of the
position exceeds the initial debit (or cost-basis) at the end of
the expiration period for the long position.  However, because we
track the plays based on the current closing cost/value, the gains
for time spreads will rarely be reflected until the play closes.
Each month, as we sell a new option against the long position, the
net cost should decline or the position value should increase.
******************************************************************
			  - COMBINATION POSITIONS -
******************************************************************
Stock  Pick    Last     Position     Debit   Value    G/L   Status

DISH  $42.25  $40.63    SEP42C/47C   $2.00   $1.50  ($0.50)  Open
RHAT  $24.00  $23.44    SEP22C/25C   $1.12    New     Play   Open
SIPX  $31.18  $37.50    AUG35C/40C   $1.25   $3.25   $2.00  Closed
VSTR $149.75 $123.38   AUG160C/165C  $2.00   $0.00  ($2.00) Closed

The costs of the above positions were offset from premiums in the
positions listed below:

Stock  Pick    Last     Position     Credit   Cost    G/L   Status

DISH  $42.25  $40.63    SEP-35NP     $2.00   $1.38   $0.62   Open
RHAT  $24.00  $23.44    SEP-20NP     $1.12    New     Play   Open
SIPX  $31.18  $37.50    AUG-25NP     $1.25   $0.38   $0.88  Closed
VSTR $149.75 $123.38    SEP-110NP    $2.00   $2.62  ($0.62)  Open

Recovery Play:

Stock  Pick    Last     Position     Debit   Value    G/L   Status

JNPR $119.00  $170.81   SEP-140CC   $132.50 $139.50  $7.00  Closed

A combination position is profitable if the closing credit exceeds
the initial (combined) cost of all options.
******************************************************************
			     - CREDIT STRANGLES -
******************************************************************
Stock   Pick     Last     Position    Credit  Cost   G/L   Status

PLL   $19.75   $21.56    AUG22C/17P   $1.62  $0.75  $0.88  Closed
PMCS $200.00  $220.50   SEP270C/150P  $5.00  $5.00  $0.00   Open
SDW   $62.43   $64.56    AUG65C/60P   $2.50  $0.38  $2.12  Closed

Note: Both the PLL and SDW positions expired at maximum profit.

Credit strangles are profitable if both positions remain OTM until
expiration.  The cost-to-close price can be used to compare the
initial opening credit to the current spread value.
******************************************************************
			      - DEBIT STRADDLES -
******************************************************************
Stock  Pick    Last     Position    Debit    M/V      C/V   Status

AGE   $45.25  $53.19   NOV45C/45P   $7.12   $12.50  $10.50  Closed
NITE  $29.69  $27.81   OCT30C/30P  $10.12   $11.12   $7.25   Open

Note: The bearish portion (OCT-$30P) of the NITE straddle has been
closed, leaving only the OCT-$30 Call at a cost basis of $5.12.

          M/V = Maximum Value  C/V = Current Value

A debit-straddle is profitable when the value of the position
exceeds the initial cost.
******************************************************************
Note: We trade the Spreads portfolio just as we would trade our
personal account and the ongoing narrative is a service we provide
to help novice traders understand how various positions might be
opened and closed.  It is not intended to substitute for your own
trading techniques nor does it replace your duty to manage the
positions in your portfolio.  We post a list of the current plays
after each expiration period and the summary is a reasonable
representation of the positions offered during the month.

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

This morning I returned from an exciting visit to the CBOE and
although I haven’t had time to take a good look at the market
results, these two issues attracted extensive attention in the
equity options pits during today’s session.

******************************************************************
AMTD - Ameritrade  $17.06  *** Merger Speculation! ***

Ameritrade Holding is a provider of online discount brokerage
services.  The company provides technology-based services to
retail investors through a variety of mediums, primarily through
the Internet.  Their services appeal to a broad market of retail
investors who are value conscious.  Ameritrade uses its low-cost
platform to offer brokerage services to investors at prices that
are significantly lower than prices offered by its competitors.
The company operates primarily through four principal operating
subsidiaries including Ameritrade, Accutrade, Advanced Clearing
and AmeriVest.

Ameritrade rallied again today, with its share value boosted by
ongoing takeover rumors.  The buyout speculation has been rampant
since Tom Lewis stepped down as CEO earlier this month and now
there is talk of a potential acquisition by American Express.  In
addition, Deutsche Banc Alex. Brown analyst Glenn Schorr recently
started coverage of Ameritrade with a "buy" rating, based mostly
on the merger potential.  In a research note he commented, "While
we anxiously await the conclusion of the CEO search, we can't help
but wonder whether this event could be the impetus for the sale of
the company."  Ameritrade recently announced a 91% increase in net
revenues for the quarter on a customer base that has doubled over
the past nine months.  The company now boasts more than 1 million
customers, whose assets with the firm total about $34.8 billion.
Salomon Smith Barney analyst Matthew Vetto reported earlier in the
week, "In my mind, if you were a financial institution or some sort
of company that wanted to add a brokerage capability, Ameritrade
would seem to make sense in a lot of ways because it's a very
clean organization. There's not a lot of extra baggage."

Those of you who agree with the bullish, short-term outlook can use
this position to profit from future upside activity, at the risk of
owning the issue at a favorable cost basis.


PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-20  TQA-ID  OI=30   A=$0.75
SELL PUT   SEP-15  TQA-UC  OI=292  B=$0.56
INITIAL NET DEBIT TARGET=$0.00  ROI TARGET=25%  B/E=$15.00

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $535 per contract.


 

******************************************************************
DFG - Delphi Financial Group  $39.31  *** Options Activity! ***

Delphi Financial Group is a holding company whose subsidiaries
provide integrated employee benefit services.  Delphi manages all
aspects of employee absence to enhance the productivity of its
clients and provides the related insurance coverage: long-term
and short-term disability , primary workers' compensation, group
life and travel accident.  Their asset accumulation business
emphasizes individual annuity products.  The company offers its
products and services in all fifty states and the District of
Columbia. Delphi Financial’s two segments are group employee
benefit products and asset accumulation products.  Their primary
operating subsidiaries are Reliance Standard Life Insurance,
Safety National Casualty Corporation, and Matrix Absence
Management.

Delphi is a leader in the small group of specialty insurance
companies and in July, the company reported outstanding quarterly
results.  Their second quarter operating earnings grew 17% to
$1.09 per share and the record achievement was attributable to
solid operating profits and excellent investment performance.
Their core businesses produced outstanding growth with profit
margins expanding and in insurance operations, assets increased
substantially.  In addition, Delphi continued an amazing record,
delivering over 30% growth in annual operating earnings for the
fifth consecutive year.  Based on its profitability record, DFG
appears to be fundamentally undervalued and with the favorable
disparities in option premiums, our position offers a unique
opportunity to speculate on its future share value.


PLAY (aggressive - bullish/credit spread):

BUY  PUT  SEP-30  DFG-UF  OI=163   A=$1.19
SELL PUT  SEP-35  DFG-UG  OI=1065  B=$2.31
INITIAL NET CREDIT TARGET=$1.25  ROI(max)=33%  B/E=$33.75

 



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