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Daily Newsletter, Tuesday, 08/29/2000

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The Option Investor Newsletter                  Tuesday 08-29-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        08-29-2000        High      Low     Volume Advance/Decline
DJIA    11215.10 - 37.70 11256.20 11196.60  788 mln   1324/1468
NASDAQ   4082.17 + 11.58  4093.88  4056.26 1.49 bln   2111/1916
S&P 100   827.30 -  1.89   830.44   825.49   totals   3435/3384
S&P 500  1509.84 -  4.25  1514.89  1505.48           50.4%/49.6%
RUS 2000  529.63 +  3.15   529.69   526.48
DJ TRANS 2760.44 - 26.24  2788.77  2757.62
VIX        18.92 +  0.69    19.43    18.75
Put/Call Ratio       .55
******************************************************************

New home sales soar to highest rate in seven years! - THUMP !!!

Just when everybody thought the highway was clear and there
were no problems ahead, an unforeseen pothole appeared directly
in our path. Sure the Fed is on hold until October or November,
or is it? All of a sudden economic conditions turned full circle
in just one report or so it seemed. Not only was the +14.7%
jump in new home sales way over estimates but the jump went
against seasonal trends and rising mortgage rates. Consumer
confidence remains at near historic levels. Is the Fed really
dead?










The Dow took today's economic news personally and traders took
profits from the brief run over 11300 on Monday. The financials
dropped at the open on the negative economic news but low and
behold before the day was out a new picture appeared. The
analyst spin doctors decided that the soaring home sales and
high consumer confidence was actually evidence of a successful
soft landing. Talk about selective hearing, wow! If you don't
like the information then spin it to fit your investing model.
We are not complaining. After the initial gap down at the open
the Dow traded in a very narrow 50 point range again with a
definite bottom at 11200. (A prime example of my selective
chart reading. Heck, if they can spin so can I.) The Dow held
its ground and after the recovery by the financials it looks
pretty healthy. Part of the financial recovery was due to the
DLJ rumors not market health but I will cover that later.

The Nasdaq barely moved on the news and reacted more to the
Rambus/Micron suit than the economic news. The Nasdaq traded
in only a 37 point range and had it not been for the suit we
could have seen a 25 point range. The vote is in and it appears
techs are the place to put your money for the next couple weeks.
(was there ever any doubt?) While the Nasdaq did finish positive
by +11 points, it has stopped dead on decent volume, 1.45 bil,
at just under 4100. The brief stall has some bears coming out
of hibernation to claim things like triple top, failed rally,
over bought and several other adjectives. Another prime example
of selective vision and proves there are as many ways to look
at charts as there are investors.

The suit I mentioned above between Rambus and Micron is going
to be a company killer for one of them. Micron (MU) is suing
Rambus (RMBS) over patents RMBS is claiming on SDRAM memory.
RMBS claims a significant amount of their value in royalties
from memory makers for this type of memory which is the
industry standard today. RMBS had fought in the past with
Toshiba and Hitachi over this same issue and those firms
ended up agreeing to pay these royalties. Micron claims the
SDRAM interface was developed jointly by the semiconductor
industry and Rambus patent claims are not enforceable. Now,
I am not a patent attorney and I am just reporting the news
so I can't speak to the technical facts. Micron claims the
high speed interface in question was around and in use before
Rambus even existed. I heard one analyst say that "Rambus
claims to have invented the SDRAM interface were similar to
Gore claiming to have invented the Internet." The bottom line
is there are billions of dollars at stake and the very life
blood of Rambus. Should Micron lose they will have to pay
huge royalties on all future memory products as well as
past deliveries. A major disaster. Should Rambus lose then
others would not agree to pay the royalties and a multi-
billion dollar income stream for Rambus would disappear.
Since the possibility of this being settled anytime soon
is extremely remote this could play out in the price of
both stocks for years to come. Rambus has the most to lose
and would be the most likely candidate to suffer.

The other major market moving news today was the news that
DLJ was in talks to be acquired by Credit Suisse First Boston.
The news drove DLJ shares up +16.44 and powered many of the
other financial and brokerage stocks to positive gains. The
jump by DLJ gave them a market cap of around $11 billion. The
move points out the direction many companies are moving. The
need to offer customers 24 hour access to markets around the
world is seen as a must have in the next 3-5 years. I can see
it now. You set your price alerts on the DAX, CAC, Nikkei and
put your PC speakers next to your pillow. 3:34 AM BONG! Your
STOP HAS BEEN HIT, YOUR STOP HAS BEEN HIT! Thud! The thud
was your wife hitting you in the head with the alarm clock
for being awakened for the fifth time that night with a
trading alert.

So what was it? A pothole in the rally highway that knocked
our front end out of alignment and will cause us to pull off
for corrective measures or evidence of a soft landing? Does
it matter? I don't think it matters. The vote has been cast.
Huge amounts of cash have been flowing into stock funds in
the last few weeks and traders are lining up for the starters
pistol. The intraday bottoms we have been seeing are the
under market limit orders as funds nibble at the market before
Labor Day. They are not quite ready to commit 100% but they
are picking up the leaders on intraday dips. Of course this
can change on a moments notice and after the New Home number
today we could see a little more fear and trepidation before
the Employment Report on Friday. Wednesday and Thursday are
neutral days on the economic report calendar but Friday is
the big one. Recently we have been seeing buying going into
Thursday afternoon before the report in anticipation of a
rally on good news. This week could be a toss up. The main
traders will not be on the floor and the second string will
be at bat in most firms. There could be some excessive caution
OR if they are seeing the same impending rally I am expecting
there could be more aggressive buying. The spoils sometimes
go to the aggressive and guessing right could move some of these
second stringers up on the office totem pole. The profit taking
today put the OEX right back down on support at 827 and held.
The Dow held 11200 and the Nasdaq is still looking good. My
suggestion would be to buy any dips aggressively. I do not
expect a negative reaction to the Employment Report. Even if
the number is negative, unless it is a blowout, the Fed is
still on hold until November because of the election. The
caution flag is out but once that pace car we have been
following clears the track, the race is on!

Many have asked if we are going to have a field trip to the
CBOE during our Chicago seminar Sept 14-16th. We are working
on it. We can't promise anything today but hopefully by
this weekend we can let you know the details. We still have
a few seats left but the one day Chicago seminar is this
Thursday and there are no guarantees after that.

Did I mention the VIX hit 18.06 on Monday?

Good luck and sell too soon.

Jim Brown
Editor


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

Chicago is our next stop. September 14-16th. 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 attendees:

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

Sep 14-16 Chicago
Sep 21-23 Austin Tx.
Sep 28-30 Boston
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
Nov 02-04 Phoenix
Nov 09-11 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?

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

Plodding Along
By Austin Passamonte

We realize this is normal market action; would action be the
right word? The last two years have really spoiled us. If we
don't see 100+ point moves two sessions out five it's pacing
the floor time.

After last Friday's coiling action in the major indexes we
expected movement this week. Three-fourths of Monday did
qualify before the late-day slide began. This stealth rally
proceeds with three steps forward & two back every session.

There seems to be a ceiling and floor in place each day.
Rallies are sold and dips bought with equal vigor. How long
can this last?

Expectations are that volume will return early as next week.
We sure hope so. By the same token, Trim Tabs reports record
cash inflow to the market accounts this month. Where is it?
If all these people are positioning cash on the sidelines,
what's the ding-dang hold up?

All markets are showing excellent strength in many sectors.
The Fed is done. When will the traders positioning this cash
decide to jump in?

We wonder what the return of professional investors from
vacation shall provide. Will they suit up, stroll into the
office and buy everything in sight? We wonder.

Countless issues are near, at or above all-time highs. Market
leaders, old economy stocks and major indexes have piled on
considerable gains. Will the vacationers return with panic
buying? Might they be detached from current market behavior?
We shall see.

From a bullish standpoint, everything looks terrific. From a
bearish standpoint, the same considerable fears exist. This
market can still go either direction big-time, fast. Trade
each leg with equal aplomb!


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 8/29 close: 19.11


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            (8/29)      (8/31)       (9/02)
*************************************************************

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       (8/29)        (8/31)      (9/02)
**************************************************************

All index options      1.88 *Bullish contrarian
OEX Put/Call Ratio     2.32 *Bullish contrarian


OEX Maximum Open Interest Strikes/Contracts:

Puts               800/5,906
Calls              800/4,873
Put/Call Ratio       1.21


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:              (8/29)        (8/31)       (9/02)

Overhead Resistance:
(920-855)               203.77
(850/830)                 3.76

index close:             827

Underlying Support:
(825-805)                 1.66
(800-780)                 2.21


What the S/R measure indicates: Net open-interest ratios
are firm above 840 and impenetrable above 850 while very
light all the way to 780. A large index move has downside
clearance to 780 or below with relative ease. We could see
805 in a heartbeat.

We still consider another failed test near the 840 range an
excellent put entry.


30-yr Bond:          5.75%

Light, Sweet
Crude, Barrel:     $32.72


200 Day Moving Average (as of 8/29)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW:   10,816          11,216
NASDAQ: 3,980           4,082
NDX:    3,728           3,952
SPX:     1440            1510
OEX:      778             827


CBOT Commitment Of Traders Report: Friday 8/25
Biweekly COT report discloses positions held by small specs
and commercial traders of index futures contracts on the
Chicago Board Of Trade. Small specs are the general trading
public with commercials being financial institutions.
Commercials are historically on the correct side of future
trend changes while small specs are not. Extreme divergence
between each signals a possible market turn in favor of the
commercial trader's direction.


                  Small Specs        Commercials
DOW futures
Net contracts;    +7,165 (long)        - 10,913 (short)
Total Open
Interest %        17.43% net-long       24.29% net-short

NASDAQ 100
Net contracts;    - 1613 (short)         +38 (long)
Total Open
Interest %         11.85% net-long       .098% net-long
                                              (flat)
S&P 500
Net contracts;     + 44,989 (long)     -47,946 (short)
Total Open
Interest %         25.24% net-long       8.5% net-short

What COT Data Tells Us: Commercial positions in S&P 500 and
DJIA remain at or above five-year extreme short levels. Small
specs continue to build net-long extremes.

NDX commercials went from net-long to flat while small specs
went from net-short to net-long the past two weeks.

(Not Shown) Commercial positions in 10-Year Note and 30-Year
Bond markets at or near five-year extreme net-short levels.
Small specs build net-long.

Summary: "Smart money" insiders expect stock market to decline
and interest rates to rise. Small traders directly opposite,
creating diverse set up favoring commercial sentiment for
near-term market direction.


BULLISH SIGNALS

Interest rates
5.75% on the 30-year Treasury Bond make equity markets the only
game in town. Fed-Fund futures are pricing slight chance of
further rate hikes and dwindling.

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

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

Broad Market Strength
All major indexes are well above 200 DMAs and enjoying solid
gains almost every day. Very bullish behavior

Index and OEX Put/Call Volume
Traders bought index options skewed heavily to puts instead of
calls today. Contrarian bullish behavior

******

BEARISH SIGNALS

VIX
Tuesday's close near 19 has us in EXTREME danger zone.

End Of Earnings Season
Earnings season has all but ended with pre-warning cycle
to begin in two weeks. It may not be pretty this time, due
to..

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 $32.72 today.
All petroleum expected to be extremely high this fall. Prices
in low $20s would be welcome relief but remain beyond reality.

COT Report - S&P 500 & DJIA
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.

COT Report - NASDAQ 100
Sentiment reversal with small speculators switching to net-
long while commercials go flat may suggest near-term weakness.


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

As of Market Close - Tuesday, 08/29/2000

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

DOW   Industrials      11,215      10,950  11,400
SPX   S&P 500           1,509       1,485   1,550     **
COMPX NASD Composite    4,082       3,650   4,100
OEX   S&P 100             827         814     845     **
RUT   Russell 2000        529         485     540
NDX   NASD 100          3,951       3,500   4,050
MSH   High Tech         1,102         975   1,110

BTK   Biotech             735         640     770
XCI   Hardware          1,617       1,500   1,680     **
GSO.X Software            463         405     470
SOX   Semiconductor     1,132       1,000   1,200
NWX   Networking        1,339       1,290   1,350
INX   Internet            552         495     600

BIX   Banking             582         550     610
XBD   Brokerage           662         610     675     **
IUX   Insurance           697         680     725

RLX   Retail              815         805     860
DRG   Drug                389         380     415
HCX   Healthcare          805         795     855
XAL   Airline             157         148     168
OIX   Oil & Gas           310         280     320

The SPX, OEX and XCI hit our resistance levels yesterday.  Today
the XBD took out resistance at 635 and closed 4% above that level.
The past couple of weeks we've seen multiple resistance levels
taken out, indicating momentum in the market.  Continue to snug up
those stops and let your winners run!  Raising support (SPX, XCI,
XBD, DRG). Raising resistance (SPX, OEX, XCI, XBD).


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

How Much Money Does It Take To Rally The Markets?
By Mary Redmond

It is impressive that the markets have been able to rally this
summer with a relatively light flow of cash into equity funds,
and comparatively low volume on the exchanges.  The Investment
Company Institute reported that $22 billion went into equity
funds in June.  The average estimates for the months of July and
August are in the range of $15 to $20 billion in cash flows to
equity funds, about half the levels of last January and February.
The total market capitalization of equity funds in the U.S. is
approximately $4.3 trillion, and the total amount of cash in money
market funds is approximately $1.75 trillion, nearly 50% of the
amount in stock funds.  This may be indicative that the cash on
the sidelines could easily fuel even stronger rallies.

Many market analysts have stated that one of the causes of the
correction in the NASDAQ, S & P 500 and Dow this Spring was
insufficient liquidity in the overall markets to absorb the huge
number of new issues which had been brought to the marketplace.
From June 1999 to June , there were approximately $285 billion
in new issues and secondaries brought to the market.  During this
twelve month period, the Investment Company Institute reported
only $196 billion net new cash went into equity mutual funds.
Since the large majority of IPOs are placed with institutional
buyers, this would leave a deficit in the range of $90 billion
which would force fund managers to liquidate current holdings in
order to buy IPOs.  This may have contributed to overall market
volatility and volume during the year, and a lack of liquidity
this Spring, particularly when the lock-up periods for many of the
1999 IPOs began to expire.

However, there is theoretically enough cash in money market
funds to support a hefty IPO schedule as well as a strong rally
in the markets.  It is informative to examine the following
statistics from the Investment Company Institute.  At year end
1996, the total market capitalization in U.S. equity funds was
$1.75 trillion, and money market funds had $901.85 billion, or
about 25% of the total held in stock funds.  By April of 1998,
the equity funds had grown to $2.795 trillion, and money market
fund assets had grown to $1.138 trillion, or 23%.  By January of
2000, the market capitalization in stock funds had grown to
$3.949 trillion, and the money market fund assets had grown to
$1.659 trillion.  As of last Friday, the assets of money market
funds had grown to $1.747 trillion.  In the last twelve months,
money market funds have taken in approximately $350 billion in
cash, or approximately $28 billion per month, which is higher
than the level of cash which went into equity funds.  This summer
alone over $70 billion was deposited in to money market funds.
This seems indicative that American and foreign investors have
become increasingly prudent and cautious.  That is, unless people
are getting excited about earning about 5.5% a year in returns.

If investors continue the trend of depositing a higher level of
cash to money market funds than equity funds, we may need to pay
close attention to the IPO schedule and the lock up schedule of
previously issued IPOs, since this can drain cash from the market
and stall or delay a rally.

Last May, for example, insiders at 63 companies were free to sell
2.7 billion shares.  This was a lot of stock for the markets to
absorb, particularly after crashing in April.  In June, only 1.3
billion shares were unlocked.  In September, 1.8 billion shares
in 45 companies will be available to be sold by insiders for the
first time, according to ipolockup.com.  When you add up the amount
of stock which will be unlocked in September, it totals over $50
billion.  However, insiders usually do not sell 100% of the amount
unlocked.  In October, there will only be about half as many
shares unlocked by 32 companies, and by November there are only
about 17 companies which will have their shares unlocked.  This
makes sense, as the last heavy month for IPOs was April.  May's
IPO schedule was very light, which means that IPO lockups will be
light six months later, around November.

According to Thomson Financial Securities Data, there are about
280 companies waiting in the wings to be taken public this fall.
However, it is not possible to completely gauge the demand of the
retail and institutional investors for these issues.  It is
possible that far fewer IPOs will be brought public than in 1999.
In addition, it is important to track the cash flows to equity
funds on a monthly and weekly basis to determine if sufficient
liquidity is coming into the equity markets to absorb new issues.

A high weekly moving average of cash to money market funds may
be a near term (one to two week) indicator of a rally likely
to stall.  However, this phenomenon may be a longer term (four
to six month) indicator of a possible sustained strong rally,
as this excess cash seems likely to burn a hole in investors'
pockets eventually.

Contact Support


******

Reader Comments & Questions on My Favorite Strategies
By Scott Martindale

Wow, you folks can really come up with good comments, questions,
and creative tweaks to my strategies.  Rather than publish my
planned topic today, I thought your comments and questions
warranted a little more discussion for everyone to read (not just
the question writer), particularly writing calls against LEAPS to
create debit spreads and those intriguing ultra-deep ITM covered
calls.

Some of you expressed some confusion about writing short calls
against your long call positions.  One reader wondered why it is
so critical to never be called out of a vertical or calendar
spread when it's okay to be called out of a stock.  First of all,
check with your broker to be sure you understand how they handle a
situation in which you are called out of the short leg of a
spread.  Make sure that they will automatically exercise your long
position.  But beyond that, the main reason you don't want to be
called out is that you leave a lot of money on the table. The
short call on expiration day has no more time premium, so its
price equals the intrinsic value only (if any). However, your long
position still has plenty of time value, so if you have to
exercise it at the strike price to cover being called out of the
short position, you forfeit all of the remaining time premium.

Therefore, if the stock is going to close above the sold strike
on expiration day, you must buy back to close the short call, and
then decide whether to sell the long call or continue to hold it.
This is called "unwinding" a spread.  In fact, unless you are
absolutely positive that it won't be exercised on Saturday (and
remember, the price might change in after-hours trading on
Friday), you should buy back any short position by expiration
Friday just to be sure it's not exercised. [To be really safe,
you might consider buying back on Thursday to be sure it isn't
exercised early.]  Many traders make a point of always buying back
the short call whenever the ask gets down to some nominal amount.
Be sure you understand all this before you enter into a spread or
you might get an unwelcome surprise.

By far, most of my mail came from readers intrigued with the
ultra-deep ITM covered call play.  So although I wrote about it
more as an interesting curiosity, let me explore the objectives
and risks a bit more.

Again let's look at Juniper Networks (JNPR).  Today, JNPR closed
around $195.  You could sell the Jan 97.5 calls for 102 3/8.  If
you buy 1000 shares of the stock on 50% margin, you put up
$97,500, but when you sell the Jan 97.5 calls you take in
$102,375, for a net CREDIT to your account of $4,875.  Of course,
if you use up that increased buying power, you'll pay margin
interest of about $3,250 for five months.  So when you're called
out in January at 97.5, you'll lose $97,500 on the stock sale on
top of paying the $3,250 margin interest, but you've taken in
$102,375 in call premium for a small net gain of $1,625, but your
rate of return is infinite and you've increased your buying power
from $195,000 to $204,750.

But some readers wondered about selling other calls, such as Jan
70's, or even 2003 LEAPS for bigger premiums.  Regarding the 2003
LEAPS, no LEAPS are offered on JNPR.  Be even if they were, I
couldn't imagine tying myself to a trade like this that long.  I'd
be fairly comfortable betting on this company to stay above 97.5
over the next five months, but not clear til 2003 - who knows
what could happen?

Regarding the Jan 70's, if your intention is only to build your
buying power with a margin loan at 8% interest and you don't care
about making any money on this play itself, then even deeper ITM
might be a good route.  You could sell 10 Jan 70 calls for 127 5/8
and have an extra $30,125 in your account (extra $60,250 buying
power), but end up losing $625 dollars upon expiration.  With so
much extra cash, you could choose to employ only part of the extra
margin and leave yourself a cushion.  If you sell the Jan 80's,
you'll nearly breakeven upon January expiration, but you've
increased your available cash by $20,625.  The Jan 97.5's in the
example give the most profit while still increasing buying power.
Another strategy is to sell deep ITM calls on only a portion of
your shares - say, enough to cancel out the margin loan - and then
sell more calls at a higher strike after the stock rises.

Of course, the deeper ITM's have the advantage of giving you more
breathing room for a major stock correction, along with a greater
increase in buying power.  But remember, you will still get a
margin call if you use up all your buying power, the stock drops,
and your account equity is below the maintenance level!

On a related subject, some of you seem to be under the mistaken
impression that margin loan goes down as the purchased stock value
goes up.  If you spend $50 and borrow $50 (margin) to buy $100
worth of stock and the stock goes up to $200, you still have
borrowed $50 that you owe margin interest on.  What has changed is
your account equity and available margin, each of which has gone
up by $50.  You may or may not choose to employ the extra margin.
The only way for that margin balance (loan) to go down is to put
more cash in your account either by sending in a check, writing
calls against the stock, or by selling some shares.  Thus, the
increasing value of the shares increases the margin available to
you but has no impact on your outstanding margin balance.

However, in the case of naked puts, you have no outstanding loan.
The margin used is really only "on hold," i.e., it's a reduction
in available margin, in anticipation of your possibly being put
the stock.  No interest is owed, and an increase in the underlying
stock value reduces the amount of margin on hold.

I also want to mention that I got a special kick out of the reader
who is averaging 20% per month writing covered calls based on a
combination of fundamental and technical analysis, and yet he's
asking me for advice on better methods for picking good covered
call stocks.  I told him, "I should be asking you, buddy!"

Thanks for your emails - keep them coming!

Contact Support


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

Put Me In, Coach!
By Buzz Lynn
Contact Support

Just back from a summer vacation, I'm dressed and ready to play!
Too bad the real game hasn't started yet, and probably won't until
the rest of the players and the opposing team show up.  In other
words, it looks like we're going to have to wait until after Labor
Day for volume and meaningful price moves.  Don't get me wrong.
I'm glad to see the markets advancing in my absence and there will
always be a fast mover to play in the course of any given day.
But for a strong marketwide advance, we need to see more volume
and real investor commitment to move forward.

Nonetheless, it is hard to argue with two weeks of small, albeit
steady gains on the NASDAQ.  Despite the poo-pooing that some are
giving to the rise based on what they perceive is low volume,
volume is up about 10% over this same time period last year.  What
this means is that buyers are alive and well while sellers are not
materializing in great numbers.  What we can take from that is
that investors are content to hold at these levels, while dips are
again gaining a reputation as a buying opportunity.  The low VIX
(now under 19) confirms the bullishness.  The good news is that
enough people are scared of the low VIX and that has created
enough of a "wall of worry" for investors to scale.  That is not a
full blown bullish recommendation to buy everything in site.  Some
of us are concerned enough about the low VIX that we are sitting
out even when an otherwise great entry point presents itself.  As
we noted last week, the VIX is low, but it can go lower, and
doesn't necessarily portend a selloff if the VIX spikes.
Volatility does not predict direction.  Drastic moves in either
direction however will spike the volatility.

For those of us buying cheap options, isn't that what we want?
Keep your eye on the VIX, but don't let it occupy your total
thought process when evaluating a trade.  The market appears
stable right now (I've even seen the word "boring" pop up a few
times) which means the VIX can go lower.  Go with the flow until
the market tells us otherwise.

I can't wait to play ball again!

Index             Last    Mon    Tue    Wed    Thu    Fri    Week

QQQ NASDAQ-100    99.13   0.47   0.63   0.00   0.00   0.00   1.09
HHH Internet     113.50  -4.19  -0.13   0.00   0.00   0.00  -4.31
BBH Biotech.     192.50  -2.44  -1.50   0.00   0.00   0.00  -3.94
PPH Pharm.        94.63  -0.88  -1.38   0.00   0.00   0.00  -2.25
TTH Telecom.      65.56   0.56  -0.69   0.00   0.00   0.00  -0.13
IAH I-net Arch.  104.19   2.19   0.06   0.00   0.00   0.00   2.25
IIH I-net Infr.   57.88   0.25   1.13   0.00   0.00   0.00   1.38
BHH B2B           48.13  -0.44   0.13   0.00   0.00   0.00  -0.31
BDH Broadband     94.50   0.13  -0.25   0.00   0.00   0.00  -0.13
SMH Semicon.      97.75   0.50  -0.75   0.00   0.00   0.00  -0.25
RKH Reg. Banks   103.75   0.31  -1.56   0.00   0.00   0.00  -1.25
UTH Utilities    103.00   1.56  -1.06   0.00   0.00   0.00   0.50

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

QQQ - NASDAQ 100 $99.13 +0.63 (+1.09 this week) Can't you just
picture a beer commercial where a few "guys" are sitting around
saying, "Wow, it just doesn't get any flatter than this"?  That
commercial should be made for the NASDAQ!  Today's trading range
was just 37 points.  That translates to about $1.50 range on the
QQQ.  It's tough to make money on moves like that unless you are
selling time instead of buying it.  Trouble is, time values of
options are already low and the most likely outcome is for those
premiums to inflate on a volatility spike.  We don't want that so
we are steering clear of selling options at this time.  The fact
is that QQQ is nearing a point of resistance at $100 to $101.  It
could break through with enough volume and investor commitment
behind it.  Without investor commitment, it could also break down
for a short period to consolidate back at the $95 level before
making another attempt at a breakout.  In short, there isn't a
directional trend for us to play right now, so we'll wait for one
to materialize.  Perhaps by Thursday.  After two weeks of
virtually uninterrupted gains (though small), it may be time for
some giveback.

Calendar Spread:

With support at $95 and resistance at $100, this may be a good
time to sell a short-term call against a long-term position.
However, we encourage you to wait for a rollover first.  Unlike a
covered call, you don't want to get called out of the long-term
position if the market continues north uninterrupted.  Instead,
buy back the short position when the time value approaches zero or
just before expiration, whichever happens first.

BUY  CALL DEC- 95 QVQ-LQ OI=   85 at $11.63

SELL CALL SEP-100 QVO-IV OI=11524 at $ 2.31, ND = 9.31 or less
SELL CALL SEP-102 QVO-IX OI=10820 at $ 1.63, ND =10.00 or less

Average Daily Volume = 19.56 mln


-----

SMH - Semiconductor $97.75 -0.75 (-0.25 this week) After a stellar
move last Wednesday up to resistance at $100, SMH has been putting
in a series of lower daily highs while putting in lows at current
support of $97.50.  While it's only been a few days, SMH has the
makings of a descending wedge telling us that it may be setting up
for a breakdown.  Given the incredible run over the last three
weeks, that wouldn't be a surprise.  MACD and stochastic too are
deep in the overbought zone and have flattened out.  The next step
could be rollover rather than a continued ascent.  A bounce off
$95 might be a buying opportunity, as would a move over $100
backed by volume.  Otherwise a move under $95 would be our cue to
drop the play and move on.  Not much action here lately - not even
with MU suing RMBS for patent infringement.  It's not a big deal
since RMBS would likely have filed against MU anyway.  MU just
beat RMBS to the punch.

BUY CALL SEP- 95 SMH-IS OI=119 at $ 5.63 SL=3.50
BUY CALL SEP-100 SMH-IT OI=677 at $ 2.88 SL=1.50
BUY CALL OCT-100 SMH-JT OI=371 at $ 6.88 SL=4.75

Average Daily Volume = 405K K


-----

BDH - Broadband $94.50 -0.25 (-0.13 this week) Hit the snooze
button for another day.  BDH barely budged and appears locked in a
narrow trading range between $94 and $95.  Resistance has proven
strong at $95 while the MACD and stochastic has flattened out in
the oversold territory, and show every sign of rolling over.
While we'd likely drop it on any move under $92.50, it isn't weak
enough yet and can easily penetrate $95.  That could be considered
a buying opportunity.  Otherwise look for a bounce from $93 before
making an entry.  LU and AMCC held up well and were the only
saving grace for this HOLDR today.  BE careful and confirm the
direction of NT, JDSU, SDLI, and GLW too before going forward.

BUY CALL SEP- 90 BDH-IR OI= 22 at $6.38 SL=4.25
BUY CALL SEP- 95 BDH-IS OI=294 at $3.25 SL=1.75
BUY CALL SEP-100 BDH-JS OI= 74 at $6.38 SL=4.25

Average Daily Volume = 114 K


-----

BBH - Biotech $192.50 -1.50 (-3.94 this week) Like altitude
testing of jet aircraft in the 1950's when the air got so thin
that engines flamed out and wings stalled from lack of lift-
producing atmosphere, BBH is testing the edge of space.  After
testing resistance at $197, it has fallen back and can't hold
altitude any more.  A break under $190 would indicate that it has
further to fall as that would then put it under previous
resistance where it would again likely stay for a period of
consolidation.  MACD and fast stochastic have just rolled over
indicating that further upside is unlikely.  However, just in case
that's a headfake, look to enter on a bounce up from $190 or a
volume backed move over $197.  If we can't get that, we'll toss
this sector out with the Petrie dish.

BUY CALL SEP-190 BBH-IR OI= 182 at $ 9.38 SL= 6.50
BUY CALL SEP-195 BBH-IS OI= 203 at $ 6.75 SL= 4.75
BUY CALL OCT-195 BBH-JS OI=  75 at $13.75 SL=10.25

Average Daily Volume = 632 K


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


HHH
PPH
BHH
IIH
IAH
TTH
RKH
UTH


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

Index      Last    Mon    Tue   Week
Dow    11215.10  60.21 -37.74  22.47
Nasdaq  4082.17  27.91  11.58  39.49
$OEX     827.30   5.64  -1.89   3.75
$SPX    1509.84   7.63  -4.25   3.38
$RUT     529.63   1.37   3.15   4.52
$TRAN   2760.44  -3.49 -26.24 -29.73
$VIX      18.92  -0.82   0.69  -0.13

Calls

CIEN     211.94  11.50   2.50  14.00  Continuing to new highs
VRSN     187.50   5.00   6.13  11.13  What a way to start the week
NTAP     109.25   3.06   5.38   8.44  Has been on a tear lately
IWOV      90.25   2.50   2.75   5.25  New, finally brokeout
JNPR     196.13   8.13  -2.94   5.19  Reason to celebrate on Mon.
PLXS     146.50   8.25  -4.25   4.00  Dropped, splits Thursday PM
NEON      36.44   2.13   1.75   3.88  New, improving smoothly
ORCL      87.75   2.13   1.00   3.13  New, ready for earnings run
VTSS      92.13   4.81  -1.94   2.88  A little giveback after Mon.
SUNW     127.13   3.06  -0.69   2.38  Leading the NASDAQ higher
BEAS      61.88   0.00   2.25   2.25  Battling with $62 level
VRTS     118.63   1.81  -0.13   1.69  Poised to make that next move
QLGC     102.75  -3.50   2.38  -1.13  EMLX aftershocks subsiding
IDTI      76.94  -1.13  -0.19  -1.31  It's been a quiet two days
DIGX      84.50   0.63  -2.13  -1.50  Dropped, not enough "oomph"
TIBX      94.75   2.19  -3.69  -1.50  B2B alliances over and over
IMCL      98.00  -1.56  -0.31  -1.88  Managed only a weak bounce
EXDS      62.75   0.44  -2.88  -2.44  Dropped, lock and load
LSCC      71.38  -2.75  -0.13  -2.88  Mirroring market apathy
GSPN     129.13  -0.19  -3.69  -3.88  Dropped, broke below key level
INKT     119.19  -5.94   1.19  -4.75  Let's practice patience
NEWP     148.00  -5.50  -0.50  -6.00  Sold off but made a recovery
ITWO     157.63  -7.75  -1.13  -8.88  Rumor-based report hurt stock
SDLI     387.31  -4.13 -10.69 -14.81  Dropped, violated 10-dma
BRCM     251.94  -3.00 -13.19 -16.19  Is that an entry point!?

Puts

NTLI      39.69  -3.00  -2.38  -5.38  New, taking a beating
UK        41.00   0.50  -0.56  -0.06  Turned southward today
KO        56.31   1.00  -0.69   0.31  Be cautious with low volume
AT        51.44  -0.44   1.06   0.63  Relief on heels of LU move
QCOM      60.25   0.50   0.88   1.38  Dropped, proved persistent


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:
*****

SDLI $387.31 -10.69 (-14.81) Still behaving like its volatile
self, SDLI has continued to trade in a wide range both Monday
and today.  Reversing last week's uptrend, the stock has lost
some of its luster, but continues to give the volatility which
makes it attractive to option traders.  Considering the action in
the NASDAQ Monday, SDLI was about as unenthusiastic as it could
have been.  Squeaking to a high of $406, and hitting a low of $395
on Monday, the stock logged a fairly humdrum day.  Although the
range was larger today, trading in a $15 range, the stock has
dropped through technical support levels.  Starting the day near
the high of $400.25, SDLI fell off a cliff, violating both the 5-
and 10-dmas of $398.79 and $386.48, hitting a low of $385.31 just
before 3:00pm EDT.  Trading just off the day low throughout the
last hour of trading, SDLI was unable to find its feet, although
it did close above the 5-dma.  With the nearest support level
offered near $375-380, SDLI may have further to fall before
rekindling its flame.  Due to the downside risk, we are dropping
the play for now, in search of something with greater upside
momentum.

DIGX $84.50 -2.13 (-1.50) DIGX just isn't performing with enough
"oomph" to keep it on the call list.  The light support at $84
appears to be establishing itself with overhead resistance
firming around $87.  The lack of volume is also disappointing
this week.  There was one bright spot in Monday's session, but
you had to have fast fingers to the keyboard and a high-risk
nature to take a quick-shot.  The stock dipped deep to $81.50 and
then made a gallant charge back to the vicinity of its comfort
zone before the close.  This isn't the once in a while type of
activity we want to play.  We're moving on to catch the bigger
fish.

PLXS $146.50 -4.25 (+4.00) Yes indeed, the time to exit has now
arrived.  PLXS splits 2:1 after the market close on Thursday.
PLXS provided us with a multitude of lucrative opportunities to
profit.  Its exciting momentum took us from the low $130s to the
topside of $150 in less than two weeks.  Some strategies were
perhaps a bit aggressive and designed more for the high rollers,
but nevertheless, there shouldn't be any complaints.  Even
yesterday, PLXS pumped up the volume another notch and powered
to $152.88, setting its latest in a series of all-time highs.
Certainly a nice touch to end our split play!  Please consider
closing out open positions before the stock trades ex-div on
Friday.  It's too risky to expose trades to the possibility of a
post-split depression.

GSPN $129.13 -3.69 (-3.88)  On Monday morning, GSPN gapped up to
open at $134.  From there, the stock got as high as $138 before
the amateur hour euphoria wore off.   With little volume to
support the up-move, GSPN headed lower, closing down 18 cents on
35% of ADV.  Today, the stock continued lower right from the
morning bell, after encountering resistance at $135.  While GSPN
did find some support at the $126 level, the stock closed below
the $130 mark and in the process, closed below its 5- and 10-dma
(at $133.35 and $131.20).  This was despite news of Frost
Securities initiating coverage of GSPN with a Strong Buy rating.
With accelerating volume to the downside and a break below a key
level despite good news, this does not bode well in the short
term.  With negative momentum now rearing its head, we are
no longer recommending this play.

EXDS $62.69 -2.94 (-2.50) Lock and load, it's time to take our
profits and run.  The news that EXDS would acquire Grenville
Consulting, a privately held United Kingdom consulting firm,
caused the stock to gap down by over $1.50 this morning, thus
ending the run of our two-week play.  EXDS clustered around its
10-dma near $62.75 after the 5-dma at $64.75 failed to fend off
the sellers this morning.  If the stock bounces off its 10-dma
tomorrow, EXDS will most likely find resistance at $64.  Although
volume was less than convincing during EXDS's sell-off today, we
feel it's time to sell too soon and take profits off the table.


PUTS:
*****

QCOM $60.25 +0.88 (+1.38)  Qualcomm has been persistent.  With
the $60 mark being a key level for the stock, QCOM has been
trying to definitively close above this level for the past 4
trading sessions.  On Monday morning, the stock came storming out
of the gates.  It got as high as $61.06 before falling under its
own weight to close below the $60 mark at $59.38 on half of ADV.
In doing so, however, it managed to find support at its 5-dma and
close above its 10-dma.  Today, the stock dipped early on to the
$58.50 level where it appears to have found some support.  From
there the stock moved higher, closing just above the $60 mark.
Though the volume was light, at only 42% of ADV, the tenaciousness
of the stock in closing above $60 has to be admired.  Considering
that QCOM has been drifting in the $60 area with little material
news, any decent news could act as a catalyst and drive this
stock higher.  As a result, we are closing this play in search of
better opportunities.


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The Option Investor Newsletter                  Tuesday 08-29-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

TIBX $94.88 -3.56 (-1.50) Yesterday's action brought TIBX near the
psychological resistance level of $100, but backed off before the
close.  Today was a test of support at the 10-dma of $93.09, from
which buyers resurrected the stock several times throughout the
day.  The dip occurred within a ten minute period around 11:00am
EDT on about 50K shares and the damage was done.  From there, the
selling subsided and the buyers began their repairs.  With the
10-dma holding as support, we are especially encouraged as the
upside volume outpaced the downside as the session wore on.  The
stock actually popped a dollar in the final moments on 65K shares.
While the action wasn't news related today, there was some news
out.  IWOV and TIBX announced a strategic alliance to provide
comprehensive solutions in the B2B marketplace.  Not to leave
anyone out, TIBX also inked a multi-year agreement with ARBA to
bundle its infrastructure software with ARBA's buy-side
application, Ariba Buyer 7.0.  Entry into the play can be obtained
on further high volume bounces from the 10-dma.  Below that, a
dip to $90 could provide entry if met with a bounce.  Overhead,
a strong move through $95 could take the stock to intraday
resistance at $97.  Look to the NASDAQ behavior for direction in
this issue.

BRCM $251.94 -13.19 (-16.19) Is that an entry point forming?
After the strong run shares of BRCM had enjoyed over the prior 2
weeks, a pullback seemed likely, and it looks like a near-term
bottom may have formed this afternoon near $250.  Although the
broad market has been in a holding pattern so far this week,
shares of BRCM have given up over 8% from Friday's high.  The
$13+ decline today was a bit disconcerting, given that it came
on volume nearly double the ADV.  There was some chatter on the
newswires this morning that the decline was just a technical
rollover while others point to a research report out from SG
Cowen.  The report indicates that Microtune (TUNE) is planning
to leverage its strengths in the RF market to pursue
opportunities in the wireless/broadband and RF/analog markets.
While this could present competition to BRCM, the company is
going to be hard to unseat from its dominant position.  Consider
new entry points as BRCM bounces from support, either at $250,
or from the $245 or $240 levels.  More conservative players may
want to wait for renewed buying interest to help BRCM scale
resistance near $260 before playing.  Wait for the selling to
abate and buying volume to return in either case.

LSCC $71.38 -0.13 (-2.88) Mirroring the apathy of traders in the
broader markets, LSCC has had a rough go of it so far this week.
The Semiconductors are having a hard time pushing higher after
the past 2 weeks of solid gains, and volume on the major indices
has been positively anemic.  This is the kind of behavior we
expected to see this week.  If the post-Labor Day rally comes to
fruition, the remainder of this week will best be used by
looking for attractive entry points.  Accordingly, LSCC fell to
the $71.50 support level by yesterday afternoon, and spent the
bulk of today's session in a very tight trading range.  It was
looking like today would end on a quiet note, until the final
half-hour.  A surge of selling volume (nearly a million shares)
drove the price of LSCC down by $1.50, fractionally penetrating
the $71.50 support level.  The next level of support sits at
$68, with overhead resistance close by at $76.  Consider new
entries if LSCC can move back above the $71.50 level or drops
and bounces near $68.  Volume is still the key, and could be
hard to come by as the week winds down in advance of the holiday
weekend.  At any rate, don't force the play - wait for buying
activity to give you an early indication that the Semiconductors
and our play are ready to run higher before jumping on board.

IMCL $98.00 -0.31 (-1.88) Lacking the conviction of strong
volume.  IMCL, nonetheless, put in a weak bounce this afternoon,
right at the $97 support level.  Unless you really like to live
dangerously though, you have yet to enter the play.  After
rolling over near $101.50 in the middle of yesterday's session,
IMCL continued to drop this morning until it came to rest on
support 90 minutes into the trading session.  Although it was
encouraging to see the stock hold its own for the remainder of
the day, the late-day bounce was weak and came with little in
the way of confirming volume.  Indicative of the indecision in
the broad market and the Biotech sector ahead of the long
weekend, investors seem unwilling to place any strong bets until
they see what the rest of the week has to offer.  If volume
returns later this week, aggressive traders can consider entries
on a bounce from current levels, but waiting for a breakout
above yesterday's high may be the more prudent move.  Additional
selling pressure could drop IMCL to the next support level near
$92, and a bounce near this level could provide a nice entry for
the much anticipated post-Labor Day rally.

QLGC $102.75 +2.38 (-1.13) The aftershocks from last week's
EMLX hoax seem to be subsiding and it looks like QLGC is ready
to trade on its own merits again.  After the huge intraday move
on Friday, it has actually been nice to see both the price range
and trading volume drop back into a more normal range.  That's
the good news, though.  It appears that many investors may still
be a bit shell-shocked from last week's excitement, as there has
been very little strength to moves in either direction this week.
Rallies are being sold and declines are being bought, keeping
QLGC in a fairly narrow range between support at $97 and
resistance at $106.  While money can normally be made in a $9
range, it is tough to do when volume is anemic.  Below current
levels, support sits at $92, and although a bounce from support
is still buyable, taking a more conservative approach may be the
best course of action this week.  If that sounds like it fits
your risk profile, wait for a resurgence of buying volume to
push QLGC through resistance near $1067 before playing.

BEAS $61.88 +2.25 (+2.25)  Yesterday, BEAS made a strong effort to
close above the elusive $60 mark.  Early morning buying on strong
volume broke through $60, but the rest of the day the stock
drifted down to close unchanged despite volume clocking in at
115% of ADV.  Today, BEAS gapped up to open above the $60 level.
Sellers came in attempting to bring BEAS below $60 and were
successful for a short period of time.  Finding support at its
5-dma ($59.50), BEAS came back at the end of the day, thanks to
some end of day buying to close above the $60 mark.   At this
point, those looking to enter aggressively could look for a bounce
off the $60 level as well as the 5-dma but confirm with volume.
The next levels of resistance can be found at $62.50 and then
$65.  There has been much news for BEAS as yesterday the company
unveiled a new web site for the e-generation, as well as a new
partner in dynamic commerce solutions provider Moai Technologies
Inc.  Today's move up was most likely helped by British
Telecommunications selecting BEAS as its Global E-Commerce
Platform.

NTAP $109.25 +5.38 (+7.56)  Astute traders who watched NTAP
closely on Monday were rewarded with an excellent entry point as
the stock dipped near its psychological level of $100.  From
there, the stock rebounded strongly before encountering resistance
at $105 to close up $3.06 on about 65% of ADV.  Today, the stock
easily cleared the $105 hurdle as it gapped to open at $105.56,
thanks to news of an alliance with Zack Network.  Moving up on
strong volume, NTAP encountered resistance at $110 and headed
lower.  Finding some support at the $107.50 area, the stock
rallied to close up 5.17% on an impressive 120% of ADV.  Traders
looking to buy a bounce off of a support level will look for
support at $107.50, $105, the 5-dma at $103, and the
psychological $100.  A more conservative entry would be to buy a
break above the $110 on strong volume.  Today's alliance with
Zack Networks involves the two companies co-developing an
Internet content delivery product by combining information
applications from Zack with caching hardware from NTAP.

VRSN $187.50 +6.13 (+9.06)  What a way to start the week.  A
bounce off the 5-dma in early Monday morning trading provided an
aggressive entry as the stock moved higher by $5, or 2.83%.  In
doing so, VRSN managed to close above resistance at $180, though
volume was light at 65% of ADV.  Today, VRSN successfully tested
its newfound support level early in the day and from there, the
stock moved steadily up to close up another 3.88%.  Volume for
the day came in stronger, this time at about 80% of ADV.  The
strengthening volume on the up moves so far this week bodes well
for our play.  Those looking for an aggressive entry point may
want to buy a bounce off VRSN's 5-dma, now at $179.68.  There
also is support at $180 and $185.  Conservative traders will
want to wait until VRSN clears $190 with conviction before
entering.  In the news today, the theme is partnerships.  The
company announced two partnerships, first with B2B portal
eConstructors, and then with online reverse auction service
NetgenShopper.

VTSS $92.13 -1.94 (+2.88)  The week started with a bang for VTSS
and the semiconductors as VTSS moved higher, up $4.81 on almost
130% of ADV.  In doing so, VTSS cleared the $90 resistance level
with authority.  Today saw VTSS succumb to a bit of profit
taking, as it encountered resistance at the $95 level.  Despite
closing down 2.06%, volume came in light at 80% of ADV.
Considering the strong advance on Monday, we'll take a little
giveback on low volume.  Those that want to target-shoot for a
lower entry may want to look for a successful test of the $90
support level where the 5-dma also resides.  Below that, there is
additional support at $88.30 and $87.  Overhead the next level of
resistance at $95 and then the psychological $100.  A break
through $95 on strong volume would serve as a conservative entry
point.  Monday saw news in the announcement of a laser diode
driver for optical telecom and datacom equipment manufacturers.

CIEN $211.94 +2.50 (+14.00) The profit takers we had cautioned of
never showed up Monday.  CIEN burst to a new 52-week high
yesterday on the news the company would add an Ethernet
Technology to its suite of optical services.  The company
announced the new product addition at the much heralded National
Fiber Optic Engineers Conference, which commenced Monday morning.
As the conference rolls on throughout the week, additional news
might find its way into the markets, which could carry our CIEN
to higher highs if the broader Tech sector cooperates.  CIEN's
momentum carried over into today's trading, which carried the
stock above the $210 level to yet another all-time high.  If
CIEN's momentum spills over into Wednesday's trading, aggressive
traders might look for a quick entry on a bounce off support at
$212, while a more conservative trader might wait for a strong
move to new highs above $214.  Aggressive traders might also look
to enter the play on profit taking to support at $210, lower at
$205, or near the 5-dma at $203.  Watch for the selling to
subside and wait for a bounce before entering on a pullback.

IDTI $76.94 -0.19 (-1.31) It's been a quiet two days for the Chip
sector so far this week.  The Philly Semi Index ($SOX) pulled
back for the third consecutive session today as profit taking
settled into the sector.  IDTI edged into negative territory
today on bleak volume, at best.  Less than a third of IDTI's ADV
changed hands Tuesday.  In spite of the light selling today, IDTI
traced a higher low than was witnessed during Monday's session of
profit taking.  Our play's relative strength might be the key to
higher prices once the Semi sector starts rolling again.  The
fact that the Chip sector, including IDTI, is in consolidation
mode requires patience on our part.  Aggressive traders might
consider entering the play on a pullback to support at $76 in
IDTI's new found trading range.  Below $76, IDTI has major
support again at its 10-dma at $74.  A more conservative entry
might be found once the Semi sector resumes its rally and IDTI
clears resistance at $78 or higher at $79.  Make sure to confirm
any rally with the return of volume, and watch the direction in
the overall Semi sector, before entering the play.

ITWO $158.00 -0.75 (-8.50) A Josephthal analyst issued a rumor-
based report Monday morning that said Manugistics (MANU) had won
a $40 mln contract over ITWO to supply CSCO with software.  The
news was enough to bring out the profit takers, who've called the
tune in ITWO over the past two days.  However, Wall Street came
to the defense of our play today with fervor.  Gruntal & Co.
reiterated its Buy rating and short-term price target of $170,
Robertson Stephens reiterated its Buy rating based on ITWO's
solid third quarter outlook, and finally, USB Piper Jaffray
initiated coverage with a Buy rating after setting a $192 target
price.  The support from Wall Street helped to tame the ITWO
profit takers today.  If ITWO's bounce off support today at $155
extends into Wednesday's trading, look for an entry if the stock
moves back above its breakout point at $160.  A more conservative
trader might wait for a momentum-based rally above resistance at
$162.  If ITWO slips lower tomorrow, the stock has support just
below at $155 and again at its 10-dma near $153.75.

NEWP $148.00 -0.50 (-6.00) What was a simple case of profit
taking Monday turned into a full-fledged sell-off Tuesday after
NEWP said it would terminate its stock repurchase program.
Although the company hasn't repurchased a single share of stock
since last August, traders initially viewed the news with bearish
colored glasses.  NEWP's losses accumulated quickly after the
announcement, which ultimately presented a favorable entry into
the play.  If your stops weren't triggered, our play quickly
rebounded on a surge in volume during the latter half of trading
to finish the day only slightly lower.  If today's late-day
buying is a sign of things to come, NEWP might be headed for a
quick rebound Wednesday.  Aggressive traders might look for a
quick entry tomorrow morning if NEWP rallies off the $148 level,
while conservative traders might wait for momentum to gather and
consider entry on a strong rally above resistance at $150.
Support is now located at $145 and again at the 10-dma at
$143.38.

SUNW $ 127.13 -0.69 (+2.38) The Computer Hardware sector got a
lift yesterday with the favorable report issued on IBM.  The
broad sector rally lifted SUNW, which set the stock to test its
52-week high.  Although SUNW fell just short of its all-time
high Monday, and slipped lower on profit taking today, the
stock's ascending channel continues to carry our play further
into profit territory.  SUNW traced a higher low and bounced off
support at $126 today to close the session on a burst of buying.
If the Tech sector shows signs of rallying early Wednesday, an
aggressive trader might consider entering the play on a bounce
off current levels at $127.  A more conservative entry into the
play might be found if SUNW climbs back above resistance at the
$128 level.  If any light selling continues over the coming days,
aggressive traders might consider buying a pullback to support at
$126, near $125, or lower near $124 on any extended profit
taking.  Consider setting stops to protect the profits in SUNW
we've worked hard for.

JNPR $196.25 -2.94 (+5.20) Get the party decorations back out!
JNPR broke free from its consolidation on Monday and shattered
the $200 level by mid-session.  Despite some pullbacks in the
market today, JNPR's price level held its ground.  Continual
bounces off $195 set the stage for this mark to develop as a
launching pad in the short-term.  Again, volume levels were the
master key.  On both days, strong volume at 2+ mln shares
intraday forecasted the advances.  An entry for this aggressive
Internet play can still be attained on another high volume
breakout over $195 as it surges towards $200.  Otherwise, look
for those attractive dips to $190 as more enterprising entry.

VRTS $118.63 -0.13 (+1.69) VRTS has yet to have an earth-
shattering breakout since we added it a few days ago, but it's
not standing still either.  Each day it's adding to its share
price and importantly, the volume is healthy.  From a technical
viewpoint too, the stock is maintaining a posture above its
staunch adversary, the 50-dma ($113.60), which is very bullish.
Pullbacks to light support at $115 offer an entry point into
this momentum play, however, it may be wise to wait for a
definitive move through $120 to confirm a stronger trend before
entering.  After the momentum becomes clear, then we would expect
VRTS to make a strong challenge at $120.  In recent news, Mark
Leslie, Chairman and CEO of VERITAS, was recognized as
Entrepreneur of the Year in the technology category by local
Silicon Valley business professionals.

INKT $119.19 +1.19 (-4.75) Last week, INKT was propelled through
upper resistance on news of a powerful alliance with AOL, ISLD,
and EXDS.  However, this week news hit the press that Cisco
(CSCO) may be entering its market, which put a damper on INKT's
trading momentum.  The recent highs also drew out some profit
takers and this too brought INKT down a notch.  From a
conservative viewpoint though, the pullback confirms that old
resistance at $118 and $120 is now a solid landing platform to
take entries.  However, let's practice patience.  Look for moves,
backed by respectable volume, to first take INKT through the
100-dma ($122.50).  And better confirmation should come over the
short-term - we're anticipating a break to the upside of $125 to
really get the momentum into full-throttle.


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

KO $56.31 -0.69 (+0.31) After the downgrade-related pummeling
that KO shares took last Friday, a bounce from its lows seemed
inevitable.  The price jumped up at the open yesterday, but the
inability of the bulls to push back above the 5-dma (then at
$57.56) gave a strong indication that it wouldn't last.
Entering new positions as KO rolled over provided a nice start
to the play as KO deteriorated for the remainder of the day and
continued to be weak this morning.  Support appears to be
forming near $56, the bottom of yesterday's gap up, and there
is more support at $55, which is the low from Friday.  The
200-dma (currently $55.56) may provide significant support
going forward.  Although volume on yesterday's decline was 50%
above the ADV, today's fractional decline came on less than
two-thirds of the ADV, indicating that the selling volume may
be drying up.  Although new entries can still be considered on
a rollover from the 5-dma (currently $57.19), a more prudent
strategy would be to wait for selling volume to increase,
penetrating support.  Conservative entries can be considered as
selling picks up again, pushing shares of KO below $55.

UK $41.00 -0.56 (-0.06) After enjoying a two-day reprieve of light
buying, UK turned southward today.  In an informal report Monday
morning, PaineWebber said the merger with DOW will most likely
be completed in October.  And, although the deal has not yet
received regulatory approval, PaineWebber went on to say that UK
is "sorely" undervalued at its current levels and is a Buy.
Traders rallied UK on extremely light volume on the heels of the
comments.  But, sure enough, the stock ran into resistance at its
10-dma at $42, and slid lower as Monday's trading wore on.
Volume picked up today as the Chemicals sector resumed its slide
into the sludge.  The greater volume on down days versus days
when UK rallies has convinced us to hang onto the play.  The
stock finished Tuesday's trading near its lows of the day, which
might prompt an aggressive trader to enter the play early
Wednesday if the heavy selling returns.  More conservative
traders might wait for UK's losses to accelerate and look to
enter the play if the stock falls to a new 52-week low at $40.50.

AT $51.44 +1.06 (+0.63) The negative earnings pressure kept a
tight lid on AT's trading.  AT saw the fractional underside of
$50 in Monday's session and without an army of buyers backing up
their trucks.  Today AT rose slightly, however, it was likely the
solid 4% gain by heavyweight, Lucent Technologies (LU), that
prompted the minute gains.  Overhead resistance remains firm at
$52, which is in-line with the 5-dma ($51.95).  Use this mark as
a potential entry point after confirming a negative sentiment
within the sector and downward bounces.  Currently, AT is firming
at a $50 bottom, so the more cautious will wait for a high-
volume move to the underside to better substantiate a continued
breakdown.


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

NEON - New Era Networks, Inc. $36.44 +1.75 ($3.88 this week)

NEON, otherwise known as New Era of Networks Inc., supplies over
2500 customers worldwide with Internet infrastructure software and
services.  Their products and services enable the integration of
Internet-facing appliances and core operational systems for goods
and services providers.  Through the use of these products,
businesses can automate their end-to-end processes such as
fulfilling an order at the speed and volume their respective
e-business environment requires. Established reseller and joint
marketing relationships with complementary e-business entities
such as a BEA, BroadVision, Commerce One, IBM, Microsoft and Sun
Microsystems, further strengthen and fuel NEON's business.

Technically, NEON is beginning to show improvement.  Since hitting
an intraday high of $95.25 on March 14th, NEON plummeted straight
down to an intraday low of $17.88 on April 17th.  As the stock
struggled from those lowly levels, trading has remained choppy and
rangebound between $20 and $45.  Most encouraging of late has been
NEON's ability to crossover and close above its 50-dma, currently
at $32.37, for the last four days on good volume.  Provided that
the NASDAQ environment remains healthy, NEON should be able
continue its ascent.  The move in the stock may meet some minor
resistance at the $40 level.  However, if NEON surpasses that
level with strong volume, it should be clear sailing to $45, the
site of the most recent top, and the 200-dma at $44.75.  The stock
price has been up for the last 3 days, so a pullback could be in
order.  Ideally, a low volume pullback to intraday support at $34
or the 50-dma, along with a bounce, would offer a nice entry point.
As always, watch the NASDAQ direction and sentiment for
confirmation of NEON's bias.

Fundamentally, NEON's business appears to be robust.  Their
customer list is impressive with the likes of IBM, Citibank, GTE,
JP Morgan and Monsanto Company.  On August 14th, IBM and NEON
further strengthened their alliance with major customer wins.
Analysts expect that the continued public proclamations of this
alliance confirm the health of their relationship.  Today,
Webvertising selected NEON as their strategic partner for their
XML and Internet-Based Solutions.

BUY CALL SEP-30*QNO-IF OI=763 at $7.00 SL=5.25
BUY CALL SEP-35 QNO-IG OI=872 at $3.38 SL=2.50
BUY CALL SEP-40 QNO-IH OI=242 at $1.13 SL=0.00
BUY CALL OCT-35 QNO-JG OI=941 at $5.63 SL=4.25
BUY CALL JAN-40 QNO-AH OI=363 at $7.88 SL=6.00	

Picked on August 29th at $36.44     P/E = N/A
Change since picked       +0.00     52-week high=$96.25
Analysts Ratings      3-6-0-0-0     52-week low =$12.13
Last earnings 06/00    est=0.04     actual= 0.06
Next earnings 10-18    est=0.07     versus=-0.17
Average Daily Volume   =  867 K



IWOV - Interwoven, Inc. $90.25 +2.75 (+5.25 this week)

Interwoven is a leading provider of software products and
services that help businesses and other organizations manage the
information that makes up the content of their Web sites.  In the
Internet industry, this is often referred to as "Web content
management."  Interwoven designs software products to help
companies rapidly and efficiently develop, maintain and extend
large Web sites that are essential to their businesses.
Interwoven's principal product, TeamSite, incorporates widely
accepted Internet industry standards and is designed with an open
architecture that allows it to support a wide variety of Internet
software products, including Web authoring tools and Web
application servers.

It's been a crazy and volatile year for shareholders of IWOV.
Hitting an all-time high of $100 in early March, the stock
proceeded to dramatically sell off to a low of $21 by mid-April.
To say that stock has made a miracle recovery since then would be
an understatement.  Looking back at that dark period, it appears
that the stock sold off in sympathy with the downdraft in the
tech sector, with little company-specific news to explain the loss
in investor confidence.  That confidence came back as a recovery
began in June with a gap up above the 50-dma and resistance at $35.
Encountering resistance at $80, the stock sold off after its run
into earnings and 2-1 split.  Despite the sell-off, earnings for
the second quarter were nothing short of spectacular.  The company
posted revenues of $24.3 mln, an increase of 738% over last year's
revenues of $2.9 mln.  Quarter-over-quarter, this was an increase
of 75% over revenues of $13.9 mln.  IWOV has been challenging
formidable resistance at $80, which was finally overcome last week.
The past couple of weeks has seen the 5- and 10-dma (at $85.67 and
$81) serve as support during IWOV's recent run.  The former
resistance level of $80 should also provide support, and a
pullback to that level would be ideal for aggressive traders
looking to get in on a bounce.  But, intraday support can be found
at $85.  Up ahead, resistance may be encountered at $95.  From
there, the stock would be poised to challenge its all-time high at
the psychological $100.

News this week for IWOV has been good and plentiful.  Monday was
a busy the company announced that Taiwan Semiconductor selected
IWOV's products to manage its web content.  This came on the heels
of news that ChipCenter had successfully integrated IWOV's
TeamSite solution.  Along with this came an announcement of a
partnership with leading broadband media company Chuckwalla.
Today, IWOV announced a strategic alliance with TIBCO software to
supply products and services to the B2B market.

BUY CALL SEP- 85*IQG-IQ OI=254 at $8.13 SL=5.75
BUY CALL SEP- 90 IQG-IR OI= 77 at $5.13 SL=3.00
BUY CALL SEP- 95 IQG-IS OI= 70 at $3.13 SL=1.50
BUY CALL OCT- 95 IQG-JS OI=  0 at $9.88 SL=7.00
BUY CALL OCT-100 IQG-JT OI= 40 at $8.00 SL=5.75

Picked on August 29th at  $90.25    P/E = N/A
Change since picked        +0.00    52-week high=$100.00
Analysts Ratings       4-2-0-0-0    52-week low =$ 18.38
Last earnings 07/18    est=-0.09    actual=-0.02
Next earnings 10-17    est=-0.02    versus=  N/A
Average Daily Volume     = 743 K



ORCL - Oracle Corporation $87.75 +1.00 (+3.13 this week)

According to the company's ads, "Software powers the Internet".
ORCL is a supplier of software for information management,
servicing two broad product categories - systems software and
business applications software.  Systems software is a complete
Internet platform to develop and deploy applications for
computing on the Internet and corporate Intranets.  Business
applications software automates the performance of specific
business data processing functions for customer relationship
management (CRM), supply chain management, financial management,
procurement, project management, and human resources management.

Ready for an earnings run?  That's right, ORCL is out of sync
with the rest of the market, and is tentatively scheduled to
release its latest batch of numbers on September 12th.  The
stock has been rangebound since hitting a high of $90 in late
March and is once again approaching that level.  Given the
rate at which the company continues to innovate (see news below)
and its consistent financial performance, it looks like the
approach of earnings in two weeks could be just the catalyst to
propel the stock to new highs.  Would you like another bullish
factor to whet your appetite?  ORCL typically becomes a split
candidate above $80, and the company currently has 11 bln shares
authorized with only 2.8 bln outstanding.  Late last week,
buyers propelled shares through the $84 level, which has been
acting as solid resistance since early August.  The next level
of resistance sits at $88, and buying volume hasn't yet been
strong enough to push through to new highs yet.  Given the
directionless nature of the broad market so far this week
though, ORCL's gains definitely look promising.  Since beginning
its latest up move a little over a week ago, the 5-dma
(currently at $85.31) has been providing support, and today saw
volume back up near the ADV, confirming that the bulls are alive
and well.  Look to initiate new positions on a volume-backed
bounce from the 5-dma or the $84 support level.  More
conservative players will want to wait for continued strong
buying interest to propel shares through $88 on the way to new
highs above the $90 level.

Continuing to innovate, ORCL turned the Sales Automation market
upside down yesterday by offering free online sales software.
The new product, OracleSalesOnline.com, delivers the core
sales application of the Oracle E-Business Suite as a free,
online service.  This radically changes the sales force
automation (SFA) market by offering basic SFA services free to
medium and large-size enterprises.

BUY CALL SEP-85 ORY-IQ OI=23288 at $5.75 SL=3.75
BUY CALL SEP-90*ORY-IR OI=26453 at $2.81 SL=1.50
BUY CALL SEP-95 ORY-IS OI=15217 at $1.13 SL=0.00
BUY CALL OCT-90 ORY-JR OI= 2999 at $5.75 SL=3.75
BUY CALL OCT-95 ORY-JS OI= 1498 at $3.50 SL=1.75
BUY CALL DEC-90 ORY-LR OI= 7320 at $9.38 SL=6.50

SELL PUT SEP-85 ORY-UQ OI= 5004 at $2.44 SL=4.00
(See risks of selling puts in play legend)

Picked on August 29th at  $87.75     P/E = 41
Change since picked        +0.00     52-week high=$90.00
Analysts Ratings     12-15-4-0-0     52-week low =$17.72
Last earnings 06/00    est= 0.26     actual= 0.31
Next earnings 09-12    est= 0.13     versus= 0.04
Average Daily Volume = 18.70 mln



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

NTLI - NTL Incorporated $39.69 -2.38 (-4.56 this week)

NTL is the UK's biggest cable TV operator.  They provide
extensive communication networks to homes, businesses, and
wholesalers.  Television, radio, Internet, wireless, and a
variety of telecommunications services are provided to more than
two million subscribers.  NTL is presently extending its reach
in Europe through the purchase of Cablecom, the #1 Swiss cable
operator, and France Telcom has agreed to take a 25% stake in
the company in a deal worth approximately $5.5 bln.

Cable operators in the UK have aggressively been acquiring
rivals in their quest to build scale.  Recently, NTL bought the
UK cable assets of Cable & Wireless Communications and a major
competitor, Telewest, merged with content provider, Flextech.
There's another contender in the ring too.  It's the European
giant, UPC.  And so the saga of who's going to be the reigning
champion rages on in the UK cable world.  The companies are
tight-lipped, but it appears Telewest, whose share price has
lost two-thirds of its value in the past six months, is now an
attractive take-over target.  As a result of the resurfaced
scuttlebutt this week, NTLI was effectively knocked against the
ropes.  The one-two punches cut the share price down 10.3% in
just two rounds.  Bottom support at $44 was tested throughout
August, but now there is no safety net to catch the falling
share price!  Volume is robust too and topped the ADV in today's
session.  Enter on downward moves off intraday resistance at $41
and $40.  Otherwise, err on the side of caution and wait for a
break to the underside of $38 for better confirmation that NTLI
is truly out for the count.

BUY PUT SEP-45 IQS-UI OI=125 at $4.50 SL=2.75
BUY PUT SEP-40*IQS-UH OI=300 at $2.81 SL=1.50

Average Daily Volume = 2.07 mln



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

VRTS - VERITAS Software $118.63 -0.13 (+1.69 this week)

VERITAS Software is the industry's leading enterprise-class
application storage management software provider.  They
furnish storage management software for protection against
data loss and file corruption, efficient file processing
and networks back-up.  VERITAS (Latin for "truth") has made
its name by partnering with such technological heavyweights
as Hewlett-Packard, Microsoft, and Sun Microsystems, all of
which have licensed and embedded VERITAS products in their
operating systems.  Its purchase of the network and storage
management software group of disk drive maker, Seagate
Technology, doubled VERITAS's size and gave Seagate an
approximate 33% stake in the company.

Most Recent Write-Up

VRTS has yet to have an earth-shattering breakout since we added
it a few days ago, but it's not standing still either.  Each day
it is adding to its share price and importantly, the volume is
healthy.  From a technical viewpoint too, the stock is maintaining
a posture above its staunch adversary, the 50-dma ($113.60), which
is very bullish.  Pullbacks to light support at $115 offer an
entry point into this momentum play, however, it may be wise to
wait for a definitive move through $120 to confirm a stronger
trend before entering.  After the momentum makes itself clear, we
would expect VRTS to make a challenge at $120.  In recent news,
Mark Leslie, Chairman and CEO of VERITAS, was recognized as
Entrepreneur of the Year in the technology category by local
Silicon Valley business professionals.

Comments

VRTS is right there.  It is getting ready to take on the $120
level of resistance.  Trading in a $4 range today, VRTS flirted
with $120 again for the second day but couldn't maintain that
level.  Volume on the upside was heavier than the downside action
and this could indicate that VRTS is readying itself to conquer
$120.  A quick dip to $118 with a bounce would provide an entry
point.  If profit takers bring the stock lower, look for bounces
from $117, $116, and $115.  A break of $115 would be concerning.
Ideally, buyers would drive the stock through $120 on strong
volume and give a nice confirming entry to the play.

BUY CALL SEP-115 VUQ-IC OI=12563 at $ 9.00 SL= 6.75
BUY CALL SEP-120*VUQ-ID OI= 1357 at $ 6.38 SL= 4.50
BUY CALL SEP-125 VUQ-IE OI= 3103 at $ 4.25 SL= 2.50
BUY CALL OCT-115 VUQ-JC OI=  926 at $16.38 SL=12.75
BUY CALL OCT-120 VUQ-JD OI=  237 at $13.25 SL=10.50

Picked on August 24th at $115.69    P/E = N/A
Change since picked        +2.94    52-week high=$174.00
Analysts Ratings     10-12-1-0-0    52-week low =$ 24.92
Last earnings 06/00    est= 0.12    actual= 0.13
Next earnings 10-12    est= 0.14    versus= 0.09
Average Daily Volume  = 5.52 mln



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

New concerns over third-quarter earnings emerge...

Industrial stocks slumped today as selling pressure abruptly
ended the recent rally.


Monday, August 28

The most popular industrial average ended at a recent high today
as traders shopped for financial and blue-chip technology issues.
The Dow was up 60 points to 11,252 while the Nasdaq closed up 27
points at 4,070.  The S&P 500 index finished up 7 points 1,514.
Trading volume on the NYSE was a light 726 million shares, with
declines beating advances 1,434 to 1,377.  Activity on the Nasdaq
was thin at 1.3 billion shares with technology advances outpacing
declines 2,130 to 1,895.  The 30-year bond was down 26/32, bid at
107 14/32, yielding 5.72%.


Sunday's New Plays (positions/opening prices/strategy):

Loral Space   LOR     JAN10C/JAN7P    $0.12   credit   synthetic
Phone.com     PHCM    SEP70P/SEP75P   $0.68   credit   bull-put
Polycom       PLCM    OCT115C/120C    $2.75   debit    bull-call
Polycom       PLCM      OCT-80P       $1.50   credit   naked-put
Mead          MEA     JAN30C/SEP30C   $1.75   debit    calendar

Loral Space corrected today, providing a great entry opportunity
near the target credit.  Phone.com also slumped early in the day
and the suggested credit was available.  Polycom opened higher
and never retreated, preventing any favorable entry in the debit
spread combination.  Mead traded in a relatively small range but
the premium in the September options drifted lower and the spread
disparity was less than expected.  The lowest debit offered (on a
simultaneous order basis) was slightly above our target but we
will track the position based on the higher entry price.


Portfolio Plays:

The broad market rallied today amid investor confidence in the
economy and a favorable interest rate outlook.  The past month
has seen one of the most well balanced market rallies in recent
history, much better than the bullish activity last fall, which
was led by such a narrow group of stocks.  Traders say the trend
is likely to continue going into the Labor Day weekend but they
also caution that late Summer is one of the worst periods for
negative earnings warnings and stocks will likely consolidate
from current levels before moving higher.  On the Dow, American
Express (AXP), General Motors (GM), and Hewlett-Packard (HWP) led
the gainers.  International Business Machines (IBM) also rallied
after CS First Boston said the firm is on track to meet or beat
its third-quarter earnings estimates.  The research firm raised
its price target on the issue to $150.  On the Nasdaq, Internet
stocks were affected by the slump in Yahoo! (YHOO), which fell to
$122 after Lehman Brothers said the outlook remains worrisome for
the company.  Shares of Emulex (EMLX) continued to slide, ending
below $100 in the wake of last week's bogus press release that
claimed the company would restate earnings and that its chief
executive was resigning.  In the broader market, energy shares
also contributed to the rally early in the day amid rising crude
and oil products prices.  One other item of interest: The New
York Stock Exchange started its decimal pricing program with
seven stocks today.  The move was greeted with little enthusiasm
but there were no major problems reported with trading in the
trial issues.

Ameritrade (AMTD) rose with the financial group, climbing to a
mid-day high near $19 as investors continued to speculate on the
potential buyout candidate.  Our new synthetic position offered
a $0.50 profit at one point during the day.  Countrywide Credit
(CCR) also rebounded from previous losses.  The bullish diagonal
spread provided a $1 return on $6.25 invested and it may be wise
to use the current strength to achieve a favorable early exit in
the position.  Some of our big-cap technology issues moved higher
during the session.  Virata (VRTA) rallied $5 after new coverage
was initiated on the chip-equipment maker by Frost Securities with
a "buy" rating.  Our long-term position is relatively safe at a
cost basis near $40.  International Rectifier (IRF) and Network
Appliances (NTAP) also participated in the bullish activity and
our adjusted positions in those issues should expire at maximum
profit.  One issue that moved lower (in our favor) was Xilinx
(XLNX) and it appears that the technical resistance near $95 may
again prove too much to overcome.  We will monitor the issue for
signs of a bearish reversal to confirm the short-term movement.

Our new position in Maytag (MYG) suffered today in sympathy with
a drop in Whirlpool (WHR) shares.  Prudential Securities came out
with a notably bearish stance on the appliance firm, cutting its
rating on the stock to "sell" due to concerns about market share
loss and pricing pressures.  Whirlpool dropped $5 after analysts
said there is significant downside risk in the company due to a
series of massive changes rapidly altering the historic ways the
appliance business is conducted in North America.  One of their
concerns is that Whirlpool is being squeezed out of value-added
alliances in the industry.  According to Prudential, Maytag and
Electrolux (MYG's potential buyout suitor) will begin outsourcing
their fulfillment services to GE but Whirlpool isn't likely to be
offered this option.  Hopefully investors will realize that MYG
will not suffer in the long-term from Whirlpool's bearish outlook.

Just when it appeared we were out of the woods on VoiceStream
Wireless (VSTR), the stock slumped again today after the company
said it would buy Powertel (PTEL), a wireless service provider
that fills a gap in their plan for a US cellular system based on
global system for mobile communications (GSM) technology.  Now
the question is whether analysts will focus on VoiceStream's
growth in the industry or the outcome of its potential merger
with Deutsche Telekom.  The key technical level for the stock
appears to be near $115 and that's the area we will focus on when
making any future adjustments in our current position in the
unpredictable issue.


Tuesday, August 29

Industrial stocks slumped today as selling pressure abruptly
ended the recent rally.  The Dow closed down 37 points at 11,215
but the Nasdaq Composite inched 11 points higher, in a session of
listless trading and light volume.  The S&P 500 index was down 4
points to 1,509.  Trading volume on the NYSE reached 787 million
shares, with declines beating advances 1,472 to 1,330.  On the
Nasdaq, activity was average at 1.48 billion shares traded, with
advances beating declines 2,115 to 1,920.  The 30-year Treasury
fell 12/32, pushing its yield up to 5.74%.


Portfolio Plays:

The market ended mixed today as weakness in the finance and oil
sectors weighed on the broader market while traders gambled on
select technology shares.  Merger speculation in the brokerage
group couldn't prevent profit-taking in major bank shares and
airline, paper and utility stocks also consolidated.  Issues in
the technology group witnessed buying interest in the computer
hardware and networking sectors, which helped the Nasdaq remain
in positive territory but overall, it was a listless session.
Many analysts believe the market still has upside potential but
worries over earnings "pre-announcements" combined with a weak
follow-through after the previous positive quarters have raised
concerns over upcoming reports.  Volume is expected to remain
light throughout the month with little in the way of significant
news to spur participation.  The Fed is expected to remain on
the sidelines in the coming weeks and the only economic data of
importance is the employment report for August.  Many analysts
have commented that trading activity will increase after Labor
Day but most don't expect the market rally to broaden.  Instead
they suggest that the recent sector rotation will continue, and
that most investors will favor big-cap technology stocks in the
near future.

A small group of technology issues dominated the Spreads/Combos
portfolio in today's session.  Network Appliances (NTAP) led the
way, up over $5 to $109 on strength in the networking sector and
Advanced Fibre (AFCI) was also on the move, closing almost $5
higher as investors speculated on a near-term rally in the group.
Leap Wireless (LWIN) and Qlogic (QLGC) were the top performers
in the telecom and semiconductor sectors, respectively and both
of the bullish positions on those issues are expected to finish
at maximum profit.  In the brokerage group, Knight Trading (NITE)
rallied $2 to close at a recent technical resistance level near
$30 and it appears the merger activity in the sector may provide
enough optimism to boost the issue to a new trading range.  Our
new position in Ameritrade (AMTD) also continued higher as the
online broker's share value edged to a 4-month closing peak near
$19.  In the broader market positions, Anheuser Busch (BUD) and
Wellpoint Health (WLP) have experienced technical recoveries from
recent slumps and there is a fair probability that these slumping
issues will consolidate near the current prices.  The new debit
spread combination in Polycom (PLCM) may yet become available as
the issue dropped $4 today in anticipation of the upcoming stock
split.  The new shares will be distributed on August 31 and it is
our intention to enter the play during the anticipated sell-off.
We will not however, initiate the position at a debit as it has a
speculative outlook and is favorable only because the cost of the
"bull-call" spread is borne by portfolio collateral.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                     - READER'S REQUEST -
******************************************************************
LU - Lucent Technologies  $44.56  *** Bottom Fishing! ***

Lucent designs, develops and manufactures communications systems,
software and products.  Lucent is engaged in the sale of public
and private communications systems, supplying telecom systems
and software to most of the world's largest network operators
and service providers.  Lucent is also engaged in the sale of
business communications systems and the sale of microelectronic
components for communications applications to manufacturers of
communications systems and computers.  Lucent Technologies was
formed from the systems and technology units that were formerly
a part of AT&T (T), including the research and development
capabilities of Bell Laboratories.  Currently, Lucent's research
and development activities are conducted through Bell Labs, an
industrial research and development organization.

One of our subscribers commented on the current bullish activity
in the Networking Group and in some of the networking equipment
issues that have benefited from the recent sector optimism.  He
also requested that we identify some favorable spread positions
in the issue.  Based on the technical outlook and extreme open
interest, the easiest way to profit from future upside movement
may involve one of the most common forms of bullish option plays;
the synthetic position.

For investors that anticipate upside activity in the underlying
stock, this is a relatively safe method in which to speculate on
the future movement of the share value, as long as you wouldn't
mind adding it to your portfolio.  Traders who support a positive
near-term outlook for Lucent can use this synthetic position to
profit from bullish activity, at the risk of owning the issue at
a favorable cost basis.


PLAY (conservative - bullish/synthetic position):

BUY  CALL  OCT-50  LU-JJ  OI=17559  A=$1.31
SELL PUT   OCT-40  LU-VH  OI=12831  B=$1.19
INITIAL NET CREDIT TARGET=$0.00-$0.25  ROI TARGET=25%

Note:  Using options, the position is equivalent to being long
on the stock.  The collateral requirement for the naked put is
approximately $1450 per contract.



******************************************************************
                      - TECHNICALS ONLY -
******************************************************************
VITR - Vitria Technology  $47.00  *** On The Rebound? ***

Vitria is a leading provider of eBusiness infrastructure software.
The company's flagship product, BusinessWare, provides the means
to enable incompatible information technology systems to exchange
information over corporate networks and the web.  BusinessWare
enables this exchange to take place automatically, without human
intervention.  This eliminates manual entry of information into
multiple IT systems, and eliminates the need to manually exchange
information with customers and business partners using telephone,
facsimile or mail.  BusinessWare is designed to provide business
managers with a software infrastructure that gives them complete
control and visibility of their business operations, enabling them
to reduce time to market, rapidly respond to change, and manage
the growing complexity of business interactions with partners and
customers.

After two months of declines, Vitria is finally rebounding from
its recent post earnings sell-off.  While second-quarter revenues
increased 400% from the year-earlier period, investors did not
favor the rise in the company's "days-sales outstanding," a basic
measure of how long it takes to get paid by customers.  However,
that's not the only reason for the slumping share price.  Vitria's
value soared earlier in the year when it was grouped with primary
business-to-business stocks but analysts soon began to downgrade
the company, based on different business models within the B2B
sector.  Now the same analysts have recently been commenting on
how important it is for the internal systems at businesses to
coordinate with one another, as well as with the systems of the
online marketplaces where they conduct their daily business.  In
short, Vitria's technology is now seen as a necessary component
for the B2B industry and investors have followed suit, showing
new interest in the discounted issue.

With a small disparity in the (OTM) Put option premiums, this
position offers a favorable speculation play for traders who are
bullish on the issue.


PLAY (conservative - bullish/credit spread):

BUY  PUT  SEP-35  TKU-UG  OI=191  A=$0.88
SELL PUT  SEP-40  TKU-UH  OI=26   B=$1.62
INITIAL NET CREDIT TARGET=$0.88  ROI(max)=17%



******************************************************************
                   - STRADDLES AND STRANGLES -
******************************************************************
TD - Toronto Dominion  $27.88  *** Probability Play! ***

The Toronto-Dominion Bank, with its many offices around the world,
offers a broad array of services.  TD provides a full range of
financial products and serves millions of customers worldwide,
through a number of key businesses: Canada Trust (retail banking),
TD Waterhouse (discount brokerage), TD Securities (corporate and
investment banking), TD Asset Management (investment management)
and TD Commercial Banking.  TD has more than $260 (cdn$) billion
in assets and is also the largest shareholder in TD Waterhouse
Group, one of the largest discount brokerage firms in the world.
TD Waterhouse serves more than 3 million customers worldwide,
including those in Canada, the United Kingdom, Hong Kong, India
and Australia, as well as the United States.

One comment heard almost daily in the pits is how cheap option
premiums have become.  More than a few experts now expect the
market to make a significant move, considering how low Implied
Volatility, the mathematical measure of an issue's potential
movement and a key ingredient of an option's price, has fallen.
One way investors can attempt to profit from periods of low
Implied Volatility in the market is to buy option "premium" on
the expectation that the underlying stock might move up or down
substantially in the near future.  In a debit-strangle, a trader
buys an "out-of-the-money" call and an "out-of-the-money" put
with the same expiration date.  The strangle is initiated with
the hopes of a significant move in the underlying issue, where
either position, the put or call, rises in value enough to offset
the premium originally paid for both options.

This position meets our criteria for favorable debit-strangles;
cheap option premiums, a history of adequate price movement and
future events or activities that may generate volatility in the
issue or its industry.  This selection process provides the best
combination of low risk and potentially high reward.  As with
any position, it should be evaluated for portfolio suitability
and reviewed with regard to your strategic approach and trading
style.

PLAY (aggressive - neutral/debit strangle):

BUY  CALL  JAN-30  TD-AF  OI=92  A=$1.06
BUY  PUT   JAN-25  TD-ME  OI=45  A=$0.62
MAXIMUM INITIAL NET DEBIT=$1.50  TARGET ROI=25%





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