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Daily Newsletter, Thursday, 09/07/2000

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The Option Investor Newsletter                 Thursday 09-07-2000
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        09-07-2000        High      Low     Volume Advance/Decline
DJIA    11259.90 - 50.70 11323.90 11223.20  981 mln   1531/1268
NASDAQ   4098.35 + 85.01  4105.54  4035.12 1.63 bln   2262/1731
S&P 100   818.03 +  3.75   820.55   814.45   totals   3793/2999
S&P 500  1502.51 + 10.26  1505.34  1494.01           55.8%/44.2%
RUS 2000  542.82 +  6.50   542.82   536.32
DJ TRANS 2743.92 -  7.15  2757.20  2732.07
VIX        21.07 -  1.58    23.03    16.68
Put/Call Ratio       .47
******************************************************************

Is it starting?

The start of the earnings warning season is not until next week
but several companies have already jumped the gun. In what may
be an effort to announce early and hope to be forgotten quickly
once the rush starts, Dupont Chemical, Campbell Soups and TRW
warned today. The Dupont warning was the most visible and as
a Dow component was responsible for almost 30 points of the Dow
drop today. The other major Dow mover was JPM and the on again,
off again, merger/takeover rumors. Speculation that Deutsche
Bank was not interested caused JPM to drop -5 or almost -30 Dow
points. JPM and DD accounted for almost the entire Dow drop at
the close. The Nasdaq rebounded from a -221 point drop in the
last two days to post a +85 point gain. Is it real or is it an
oversold bounce?







The Dupont warning was the third in three quarters from the
company but it may be a prelude of things to come from the
market in general. Citing problems with higher raw materials
costs, higher energy prices, strong dollar, weak Euro and slowing
sales the only thing they did not blame was the election. The
factors given for their earnings woes are the same factors that
are going to be quoted again and again as the warnings season
begins in earnest next week. Oil costs are soaring with light
crude closing at a 10 year high of $35.39 a barrel even after
Saudi Arabia said they were going to increase output. No help
there. Raw materials are soaring with the CRB Index at a two
year high. Other examples include copper, up due to the strong
economy, cotton at a two year high and platinum at a ten year
high. The dollar is at an all time high against the Euro, a
7-yr high against the Pound and an 11-yr high against the
Frank. Get used to hearing the "standard excuses." Need proof?
TRW prewarned after the close and blamed the strong dollar,
weak Euro, high energy prices and Ford slowdown.

Another confessor that did not use the standard excuses was
Campbell's Soup. CPB said simply soup sales were weak and if
you take a look at the soup isle you will see dozens of new
competitors. CPB said it was going to energize soup sales by
ramping up its popular "Campbell's soup is Mmm-Mmm good" slogan
campaign and by adding pop tops to its cans. Investors liked
the approach and CPB closed up slightly for the day. Let's
see, could we start something like "Dupont chemicals are Mmm-
Mmm good" to prop the Dow back up?

The dot.com time bomb finally exploded on Wednesday, or did it?
Tim Koogle gave the keynote speech at the Robertson Stevens
Internet Conference on Wednesday and mentioned that "Internet
consolidation would limit the upside to companies that depend
on advertising revenues in the short term." Many analysts
mistook his comments for an admission that YHOO would have
earnings problems going forward and YHOO dropped to a low near
$103 in after hours trading. After the market closed Steve
Franks interviewed Koogle on CNBC and questioned him about
this apparent misconception. Koogle said that YHOO was not
changing any guidance they had issued to analysts and still
felt that YHOO prospects looked great. Consolidation in the
market place will actually help YHOO since they will be able
to dictate terms from a stronger position and use their strength
to offer advertisers more benefits due to scale that smaller
companies cannot. We made YHOO a call play on Wednesday night
because the misinterpretation had driven YHOO to the normal
pre-earnings run low. Each earnings season YHOO normally hits
a low in this time frame and then rallies the next three weeks.
We felt that the news event simply gave us a clearly defined
entry point with minimum downside risk. YHOO closed after hour
trading on Wednesday at $107.88 and only $107 today. Down from
$140 two weeks ago we could see the bounce begin on Friday.
Of course the Nasdaq must remain positive for this play to
succeed.

The chip sector looks like the current analyst battle ground.
Some noted analysts are calling for blanket selling across
the board and others are calling the recent drop a buying
opportunity. With still others downgrading individual stocks
like Intel or Micron. The divergence of opinion is huge and
the vocal war could become a self fulfilling prophecy for the
bears. The verbal war may confuse chip investors and cause
them to lighten up to avoid a fall. The difference in opinion
is based on the expected duration of the current chip cycle.
Some feel it is over while others are calling for another
16-24 months of growth. If you are invested in this sector
I would strongly advise stop losses to avoid missing the real
sell signal until it is too late.

Nasdaq +85, is it real or is it an oversold bounce? That right
answer to that question would buy Wendy Passomonte that Jag
she wants. Unfortunately no one knows for sure. The earnings
warning season begins for real next week as well as a huge
slate of economic reports including PPI, CPI, Industrial
Production and Import/Export Prices. All inflation sensitive
and likely to start another fire storm of Fed worry if they
are not market friendly. Will investors buy stocks ahead of
these reports AND a sure flurry of earnings warnings? I doubt
it but then the market is not called the great humiliator for
nothing. Money is still piled on the sidelines by the
billions waiting for a sure sign that the bottom has passed.
The Nasdaq needs to close above 4250 before many will take
the bait. Everyone was expecting a strong rally this week
and one downgrade (Intel) dropped the market -221 points.
Historically next week is a down week. Add another random
downgrade or two, mix with a flurry of earnings warnings
and the possibilities of a drop are stronger than a gain.
SFAM and ZOOX both warned late in after hours today. Is
that a clue?

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 in-depth education. Don't miss it!

Some comments from recent attendees:

I want to thank Chris, Steve and Scott for the excellent workshop
held in Detroit last week.  Having been to the Expo in Denver in
March (which was fabulous), I was ready for a smaller, hands-on
approach to hone my less-than-perfect skills.  I was not disappointed.
One can never get too much education in options investing, and Chris
and Steve offer terrific, unique approaches. Laurie

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


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Sep 21-23 Austin TX
Sep 28-30 Boston
Oct 12-14 Charlotte NC
Oct 19-21 San Francisco
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****************
MARKET SENTIMENT
****************

The Fun Has Begun!
By Austin Passamonte

Can 100+ point sessions on a regular basis be expected from
here? We think so, and love every minute of it!

For more than two weeks the only media mantra we've heard is
post-Labor day rally & new market highs. How many bears did
you see interviewed on CNBC during this time? We recall zero
ourselves.

But, we know how fickle sentiment-winds blow these days. Bias
rotation seems to beat sector rotation lately. Perfect time
in history to be a short-term trader, options preferred.

Numerous traders have told me they're waiting for a new bottom
to form before entering the markets. Why? What's wrong with
buying in at the top? Nothing if you play puts and watch them
swell your account to a state of euphoria.

Option experts have told us fewer than 10% of small traders
will ever buy index and equity puts. We find that very hard
to believe, but it's true. Who then buys the majority of puts?
Large speculators and institutions. Hmm, how sad.

While calls-only traders wait for their next entry, here's what
they missed:

SPX Sept 1500 put (SXMUT) Tuesday 10.00, Wednesday 22.00+  [100+%]
OEX Sept  820 put (OEXUD) Tuesday  7.00, Wednesday 13.00+  [ 95+%]
QQQ Sept  100 put (QVOUV) Tuesday  1.63, Wednesday  5.00   [200+%]

How many of these performing contracts would be too many for
you to have owned? As usual we didn't buy enough!

This point is raised because traders who refuse to play puts
will miss exactly half the major moves going forward. We can
expect massive volatility and wide market swings for a long
time to come.

Those who think we found bottom today and it's all straight
up from here could be greatly disappointed soon. Crude oil
prices will likely see $40 per barrel long before it reaches
$20. Today was just a glimmer of the impact this will have.
Back oil & food pricing out of government reports? Can we back
them out of our household budget as well?

Pre-warning season has unofficially begun. More surprises
certainly lie in wait.

Technical signals on major index daily charts point to more
downside ahead. The Dow is least weak and the rest are in big
trouble for bulls. Of course this is subjective study but we
find it more accurate than blind hope and teas leaves, for
sure.

The bulls saving grace is money flow. Piles of cash stand ready
to pour in wherever fund managers see a bargain. We can expect
that to be quite often as well.

Up down, up down. We must be prepared for equal measures of both.
Option trader's fantasy-land, right here upon us now!


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 9/05 close: 21.37     Thurs 9/07 close: 21.07


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            (9/05)      (9/07)       (9/09)
*************************************************************

CBOE Total P/C Ratio         .48         .47
Equity P/C Ratio             .41         .42


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            (9/05)        (9/07)      (9/09)
**************************************************************

All index options            1.46          .85
OEX Put/Call Ratio           1.53         1.77


OEX Maximum Open Interest Strikes/Contracts:

Puts                        790/6,137    820/6,598
Calls                       800/4,361    800/4,230
Put/Call Ratio                1.41         1.56


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:              (9/05)        (9/07)       (9/09)

Overhead Resistance:
(920-855)  (860-845)*    87.24         57.28
(850/830)  (840-820)*     4.02          1.27

index close:               823           818

Underlying Support:
(825-805)  (820-800)*     1.52          1.57
(800-780)  (795-780)*     2.30          6.14


What the S/R measure indicates: Net open-interest ratios
are firm above 840 and below 795 while very light in between.
A large index move has clearance from 800 to 835 with relative
ease. We could see either or both in a moment's notice.

We consider failed tests near the 830 range an excellent put
entry and a bounce near 805 a solid call entry.


30-yr Bond:              5.67%           5.72%

Light, Sweet
Crude, Barrel:          $33.80          $35.39


200 Day Moving Average (as of 9/05)
The 200 DMA is widely considered the major benchmark for
critical support in a market.

DOW:   10,821          11,260          11,259
NASDAQ: 3,998           4,143           4,098
NDX:    3,750           3,987           3,953
SPX:     1442            1507            1502
OEX:      780             823             818


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 (long)         +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
5.72% 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. Today's included

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. Very bullish behavior


******

BEARISH SIGNALS

VIX
Today's close above 21 is an improvement but still low.

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. DuPont
is the first of many.

Energy Prices
Prices are still too high. Ultimately this affects profit
margins and inflation. Light, Sweet Crude closed $35.39 today.
All petroleum expected to be extremely high this fall. Prices
in low $20s would be welcome relief but remain beyond reality.
Seasonal patterns are rising prices soon as well.

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 - Thursday, 09/07/2000

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

DOW   Industrials      11,259      11,050  11,450     **
SPX   S&P 500           1,502       1,485   1,535
COMPX NASD Composite    4,098       4,000   4,300
OEX   S&P 100             818         814     836
RUT   Russell 2000        542         520     575
NDX   NASD 100          3,953       3,700   4,150     **
MSH   High Tech         1,088       1,060   1,130     **

BTK   Biotech             743         690     790
XCI   Hardware          1,587       1,540   1,660
GSO.X Software            478         450     495
SOX   Semiconductor     1,094       1,040   1,180
NWX   Networking        1,337       1,320   1,400     **
INX   Internet            574         550     605

BIX   Banking             621         575     640     **
XBD   Brokerage           693         660     710     **
IUX   Insurance           714         695     730     **

RLX   Retail              824         780     840
DRG   Drug                377         365     410
HCX   Healthcare          784         760     815     **
XAL   Airline             156         152     168
OIX   Oil & Gas           317         284     320

Eight alarms were triggered over the past two sessions.  Four
were at resistance levels (DOW, BIX, XBD, IUX) and four at
support (NDX, MSH, NWX, HCX).  Yesterday's pullback gives
traders the opportunity to establish new support/resistance
levels.  Raising support (DOW, XCI, SOX, BIX, IUX, XAL, OIX)
Raising resistance (DOW, BIX, XBD, IUX) Lowering support
(NDX, MSH, NWX, HCX) Lowering resistance (SPX, OEX, NDX, MSH,
BTK, XCI, GSO, SOX, INX, HCX).


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

Tracking Option Volume As A Clue To The Moves
By Molly Evans

When you get right down to it, the world of trading is huge.
There's so much to learn about the markets, the economy, sectors,
companies, investing styles, technical analysis, trading rules,
and even yourself.  Go delve into the world of options trading
and you've opened a-whole-nother can of worms.  All you can do is
commit yourself to learning each little piece bit by bit until
the picture in the puzzle starts to take shape.  Tonight, I want
to talk a little bit about another one of those pieces of which
I've just taken note.

Being the dedicated mother and student of trading that I am,
"McMillan on Options" got to sit in my lap at my little one's
soccer game last evening.  It's funny how when I was in
anesthesia school, I'd take those books along hoping that I'd
learn by osmosis but I actually LIKE reading this stuff.  Anyway,
not knowing what I wanted to write about for my Traders Corner
article, I started thumbing through and found his chapter on
"Using Stock Option Volume As An Indicator."  How interesting!
What was even more interesting is that when I came home and
opened my emails there was some pretty engaging discussion
amongst some trader friends about QCOM's move on volume over
its 50dma (Wednesday).  Hmmm.

First, let me tell you what Larry McMillan, THE options textbook
author says about option volume as a clue to forthcoming news
events:

"A significant increase in the trading volume of a stock's options
often is a precursor of movement by the underlying stock.  Those
with inside knowledge will buy options because they can score
highly leveraged gains when that knowledge becomes fact."

Think about it.  What a perfect way to maximize your percentage
returns if you know you've got a sure thing.  While it may be
unethical and even illegal for those insiders to act upon their
inside information, it's perfectly fine for us to look for
their muddy (or is it bloody?) footprints by tracking surges
in option volumes.

In McMillan's experience, it is only worthwhile to investigate
situations in which today's total volume in traded options
is more than double the "average" of what is normally traded.
(Q charts gives this but I'm not sure what other sources would
have this information.)  Furthermore, "If almost all of the
option volume is concentrated in one series (that is, just one
call or just one put), then it is unlikely that anything special
is going on with that stock."  In fact, there are several caveats
as to the inclusion of pertinent clues in your investigation of
speculative buying by the smart money.  If an institution or
other big player is doing the buying, they're going to go for
the maximum leverage, out of the money options.  Throw out deep
in-the-money surges.  Throw out arbitrage situations too.  Those
would show up as volume increases in the puts and the calls of
the same terms.  And then there is this, "For reasons of leverage
once again, the speculators with inside information will buy the
near term options for these are cheaper in price and are generally
the most liquid contracts."  If they're longer out contracts,
you might assume that institutions are simply writing covered
calls or are buying midterm put protection for their holdings.

Now, what about that QCOM I mentioned?  I don't think there's
anything secret going on there.  News of the CDMA technology
being used in China is making the rounds again and the stock
was up yesterday on higher volume.  However, it was interesting
to review the time and sales tape for QCOM calls.  There were
17,215 contracts of the QCOM September 60s (AAOIL) traded on
Wednesday.  Average daily volume as of yesterday was 1309.  That's
a 13 to 1 ratio.  I then noted that the Sept 65s had an 8:1 ratio
and the October 75s had an 18:1 ratio!  Reviewing the tape revealed
one block of 350 contracts, one of 490, two of 500 and one of 1000.
Wow!  Now, you don't need a calculator to tell you that's big
money.  Take $4.625 x 50000 and $3.75 x 100,000.  Those were the
values of some of those trades.  I don't know if Jim was on a
shopping spree again or what but it sure smells like deep pockets
to me.

I watched again today and couldn't help but buy my lottery ticket
when QCOM went into the red this morning.  Sure enough, during the
midafternoon, there was another surge of volume on the buy side
though less dramatic than yesterday's.  Now don't everyone go buy
QCOM calls and say I told you so but you might watch it out of
interest.  QCOM has a mountain of overhead and it has robbed many
a trader of hard earned cash.  Trust me on this one.  It owes me
some money back for past transgressions in trading though the 23%
gain in my calls today is helping that a little bit.  Don't you
just love options when they go your way?  Today, there was still
heavy buying, this time in the Sept 65s AAOIM and Oct 65s AAOJM.
The September calls volume was 5837 against an average daily
volume of 1334.  The October 65 volume today was 5837 vs an
average of 344.  That's a 17:1 ratio yet again.  Consequently, all
this volume in the last couple of weeks is pushing up the average
daily volumes so this is pretty dramatic.  On the flip side,
there is, comparatively speaking, little put buying of the
same term contracts.  I have to wonder what's up.  Is the stock
price increasing as the market makers have to buy the stock
to hedge their risk?  Remember I talked about that in my CBOE
article?  The market maker has to trade stock just to throw
off his risk and time decay in the calls he sells and holds.

Really, I'm just talking out loud and wondering about it all
myself.  I'd love nothing more than to hear QCOM gets a big
upgrade or has something exotic and wonderful going on there.
That would suit me and a whole lot of other contract holders
right well.  Wouldn't that be a boost to the volume theory?
Here's another example:

Did you hear about Citigroup buying Associates First Capital
(AFS)?  Well, apparently the CBOE police are investigating
Citigroup's investment arm for some hanky panky call buying in
the last week or so.  I read that news and donned my cape and
round glasses and grabbed my magnifying glass.  Uh huh!  Someone's
tracks are there Watson!  Looking at AFSIY, the Sept $27.5 call,
I see 4000 contracts in two blocks traded respectively on 9/1/00
and 9/5/00 at $1.56.  Those contracts were sold at $12.00 on
Wednesday morning after the announcement.  Can you say "You're in
trouble?"  There were other huge blocks going through on other
strikes as well but they were further out so would not be suspect,
according to McMillan.  Still, the average daily volumes were
large and charts of the sales showed that the great majority of
the trades took place within the last couple of weeks.  Serious
money there.

McMillan does an exhaustive analysis of this topic in his book,
"McMillan on Options," the follow-up to his mega book, "Options
As A Strategic Investment."  The latter was my first scholarly
introduction to the world of options trading.  I was not led
astray and would recommend without reservation that one of these
volumes be a main resource for options information.

HEY! I hope to meet some of you in Chicago at the seminar next
week!

Contact Support


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

Down, But Not Out
By Buzz Lynn
Contact Support

We are impressed by the NASDAQ's ability to stage a nice bounce
just above its 200-dma today following yesterday's selloff.  It
was also gratifying to see that had JPM and DD not lost $5 each
today, the Dow would have closed in positive territory.  Still,
for the third day in a row the indices moved in opposite
directions.  Lest you think there's a return to normalcy and
traders will begin getting out their wallets tomorrow for more of
the gains we saw today on the NASDAQ, read on.

First, today's recovery volume of 1.6 bln shares on the NASDAQ is
less than yesterday's 1.75 bln share selloff.  Today's lower
volume was not a recovery that has historically signaled a
sustained rally.  We need to see volume surpass 1.8 bln shares and
preferably hit 2 bln shares before the green starting flag waves.
Today's action is more indicative of a lifeless furry housepet
(dead cat, for the less squeamish) bounce.

Second, tomorrow is Friday, which has investors and traders alike
usually taking some chips off the table.  Aside from a bounce at
tomorrow's open in response to today's finish, tomorrow may be
kind of flat.  That isn't a guarantee, but if you may want to
consider folding your weak plays on any opening strength.

Last, the daily charts on the NASDAQ and the OEX suggest there is
more downside to come as part of a regular trading oscillation on
the MACD and stochastic.  The OEX in fact had trouble today
breaking previous support at 820, while the NASDAQ couldn't hold
4100.  In short, there's enough overhead pressure to keep gains in
check until those oscillators reach "oversold" again.  The VIX
appears to have had some bad data and is mostly meaningless today.
However, it still appears to be on the rise and not likely to hit
resistance until the 24 level.  Stay cautious.

As we noted Tuesday, fund managers are going to wait for prices to
fall and stabilize (consolidation) before they commit more $$$ to
the market.  If they are smart (and they generally are), they
won't be buyers immediately following the gains of the previous
three weeks - they'll wait.  But that does not change the fact
that they have money.

In summary, as long as the market can dodge the earnings warning
minefield (TRW warned after the close), the markets are poised for
positive moves following this consolidative test.  The big picture
is for gains into the fall, but you'll be better off sitting on
your hands for this brief consolidation to run its course.

**************
QQQ
**************

QQQ - NASDAQ 100 $98.25 +2.25 (-4.38 this week) On the surface,
today's 85-point gain on the NASDAQ looks pretty good, but in our
opinion appears more like a dead cat bounce.  Yes, NASDAQ and QQQ
closed near its high of the day.  Yes, the gains were steady with
support working at $98, just above our anticipated support level
of $97.50.  Yes, brokerage analysts came to semiconductors'
defense today.  That didn't come without some pain as the $97.50
level failed into yesterday's close at $95.75 - not pretty.
Unfortunately, volume today was lower than yesterday.  Technicals
on a daily chart still don't look so good either as the MACD and
stochastic have turned down from their overbought position, and
may need time to get back to "oversold" and thus make a buying
opportunity for us.  Of course there will be opportunities to play
QQQ on a 60-min chart oscillators for small daily gains until the
daily chart shows us that reversal.  The fact is nobody with any
smarts wants to buy into the previous three weeks of gains.
They'd rather wait until a consolidated bottom forms.  So would
we.  This is not short-term doom and gloom - just the normal phase
of the market.  Fortunately support was found slightly above the
200-dma on the NASDAQ at 4005, which corresponds to about $95.50
for the QQQ, $97.50 comes shortly thereafter.  Resistance today at
$99.50, which had been a previous level of support is proving
tough right now.  A break over that level would be seen as
positive.  $101 is the next level.

Calendar Spread:

It's been difficult getting a trade entry for either the short or
long leg of this spread unless you took advantage of fear at
yesterday's close and bought the underlying long term leg of the
spread at $95.50.  A gutsy move unless you were also able to sell
the short leg on today's bounce to new-found resistance at $99.50
(old support).  If you made those entries, way to go!  There's an
analyst position available for you at OIN!  Anyway, the point here
is to buy the long-term position when the QQQ is at support and
sell the short-term position at resistance to let time value decay
decrease the net cost of your long-term option, hopefully giving
you a free trade after.  For you itchy trigger-fingered types, you
can buy back your short on a pullback from resistance and do the
same thing all over again a few times per month when the
conditions exist.  That just accelerates the rate at which the
underlying is paid for.  Careful, if you are wrong on your timing,
it also accelerates the burn rate in your trading account.  So
here it is.  Support is at $95.50, $97.50 and potentially $99.50
if it can break through that level convincingly (with volume)
first.  Otherwise, resistance is first at $99.50, then $101,
followed by $103.  We think you may be better served by waiting
for the 60-min MACD and stochastic chart to turn positive
following a bottoming of the daily chart on the same indicators
before you enter the long leg.  It appears to have some room to
fall still despite today's gain.  When it does, remember to close
out your short when the time value becomes negligible (say $0.50)
or a day or so before expiration, whichever occurs first.  Unlike
a covered call, you don't want to get called out of this one.

BUY  CALL JAN- 95 QVQ-AQ OI= 2872 at $12.88

SELL CALL OCT-100 QVO-JV OI= 3325 at $ 5.25, ND = 7.63 or less
SELL CALL OCT-105 QVO-JA OI= 1566 at $ 3.13, ND = 7.75 or less

Long Call:

Still exhibiting caution?  Unless you took the plunge at
yesterday's close when QQQ hit $95.50, we hope so.  That level
corresponds to roughly to the 200-dma of 4005 on the NASDAQ.
We've said it all week that nothing goes up or down in a straight
line.  We'll just have to wait for QQQ to reach an oversold
condition on the daily chart as indicated by the MACD and
stochastic before we feel comfortable that the negative trend has
reversed.  However, the 60-minute chart indicators are still
playable for swing trading.  In that case look for a sharp upturn
in stochastic and MACD from an oversold condition before entering
a trade.  Support is at $95.50, $97.50 and perhaps $99.50 if it
can break through that level with volume first.  Otherwise,
resistance is at $99.50, $101, then by $103.  Target shoot your
way in or wait for a technical reversal.

BUY CALL OCT- 95 QVQ-JQ OI= 2210 at $8.00 SL=5.75
BUY CALL OCT-100 QVO-JV OI= 3325 at $5.25 SL=3.25
BUY CALL OCT-105 QVO-JA OI= 1566 at $3.13 SL=1.50

Average Daily Volume = 18.4 mln


**************
OEX
**************

OEX - S&P 100 818.03 +3.75 (-11.80 this week) Our good buddy, VIX
was missing in action today.  Due to some bad data indicating a
range of 16.68 to 22.77, we'll have to disregard today's data as
inconclusive.  Even so, VIX resistance is at 24 and we aren't
there yet.  More pain to come?  Maybe - the OEX could also not get
through its former support level at 820 and the overall markets
today (JPM and DD aside) did not show any volume conviction to
indicate a new rally is at hand.  More like a dead cat bounce as
we noted above.  While support held at 814 (we expected 815) over
the last two days, the MACD and stochastic on a daily chart are
still indicating a selloff consolidation is at hand.  Only when
they reach an oversold condition on the daily chart will we
consider going long, but that doesn't mean it's time to go short.
In the fundamental picture though, there are some earnings warning
storm clouds for smokestack stocks - TRW and DD warned today.
There may be others to follow, especially in the retail sector.
Semiconductors are currently trapped in an analyst tug of war.
Support is at 807, then 815.  Resistance is at 820 followed by 825

Long Call:

As long as smokestack business, or what some call "old economy"
stocks issue earnings warnings and the price of oil is moving up,
fundamentals may keep a lid on the gains.  Similarly, from a
technical side, OEX has turned down from its previously
"overbought" condition as indicated on a daily chart.  However the
60-min chart would have shown us a swing trade entry during
amateur hour - nice, but that's a fundamentally lousy time to buy
calls.  If you jumped the gun anyway, this would still have made a
nice swing trade entry.   For those inclined to watch Bollinger
bands (we do), the same 60-min chart would have also shown us a
bounce off the lower band at yesterday's close - gutsy, but
tradable entry.  What now?  Probably not going to see an entry
tomorrow unless the technicals turn up from an oversold condition
that OEX still hasn't reached yet.  The point is to wait for a
reversal form the oversold position on the daily and 60-min
charts.  Support is at 807, then 815.  Resistance is at 820
followed by 825.  Open interests are heaviest at 810 and 820,
indicating support at those levels.

BUY CALL OEX-JB OCT-810 OI=3188 at 28.75 SL=20.00
BUY CALL OEX-JD OCT-820 OI=3181 at 24.38 SL=17.00
BUY CALL OEX-JF OCT-830 OI= 376 at 18.75 SL=14.00

Bullish Calendar Spread:

Once again, our job is collect monthly credits from selling near-
term calls against a long-term position in order that we may
ultimately reduce our cost to zero.  Based on volume, our thinking
is that today's gain across the board was a dead cat bounce.  The
technical indicators MACD and stochastic bare this out on a daily
chart - there appears to be more room to fall based on the fall
from overbought.  Until they get to "oversold" and the daily
candle touches the lower Bollinger band, you may want to wait to
buy the long leg.  However this same pattern is tradable on the
60-minute chart.  Buy at support of 807 and 815; sell short-term
calls at resistance of 820 and 825.  Cover when the time value
nears zero or expiration day approaches.

BUY  CALL DEC-840 OEX-LH OI=585 at $28.75

SELL CALL OCT-840 OEX-JH OI= 762 at $13.88, ND=14.88
SELL CALL OCT-850 OEX-JJ OI= 792 at $ 9.75, ND=19.00

Average Daily Volume = 1269



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

Index      Last  Mon   Tue     Wed    Thu    Week
Dow    11259.87 0.00 21.83   50.03 -50.77   21.09
Nasdaq  4098.35 0.00-91.15 -129.84  85.01 -135.98
$OEX     818.03 0.00 -6.34   -9.21   3.75  -11.80
$SPX    1502.51 0.00-13.69  -14.83  10.26  -18.26
$RUT     542.82 0.00 -2.89   -2.70   6.50    0.91
$TRAN   2743.92 0.00 14.48   23.67  -7.15   31.00
$VIX      21.07 0.00  1.92    1.28  -1.58    1.62

Calls

CHKP     153.19 0.00  5.06   -8.47   7.16    3.75  Still running
CFLO     113.00 0.00 -1.44   -0.63   5.56    3.50  New
MERQ     130.00 0.00  2.56   -6.06   7.00    3.50  Right on cue
VRTS     123.13 0.00  0.13   -3.38   4.63    1.38  Recovery
AZA       77.25 0.00 -0.50    0.06   1.13    0.69  New
IDTI      92.97 0.00 -3.38   -2.56   6.34    0.41  New highs
VERT      54.00 0.00  2.44   -4.44   1.25   -0.75  B2B slide
ORCL      91.19 0.00 -1.56   -1.81   1.94   -1.44  EPS soon!
AAPL      62.00 0.00 -1.00   -4.00   3.56   -1.44  Bullish Q3
AGIL      73.06 0.00 -0.69   -1.06   0.06   -1.69  Basing
NEON      35.75 0.00 -0.50   -2.75   1.25   -2.00  Dropped
SNDK      86.50 0.00  1.56   -7.94   4.38   -2.00  Volatile Chip
ISSX      80.94 0.00 -0.06   -5.00   1.88   -3.19  Dropped
LSCC      74.38 0.00 -2.41   -4.78   3.88   -3.31  Dropped
DISH      49.50 0.00 -1.19   -1.63  -0.75   -3.56  Dropped
BEAS      66.56 0.00 -2.25   -5.19   3.25   -4.19  Uptrend good
INKT     125.00 0.00  0.38   -7.34   1.22   -5.75  On the 10-dma
TIBX     102.06 0.00  2.06   -8.06   0.00   -6.00  OUCH, entry?
JNPR     214.88 0.00 -1.50  -10.44   5.19   -6.75  Jumping JNPR!
YHOO     107.00 0.00  3.19   -5.06  -5.06   -6.94  Stealth play
ITWO     169.81 0.00 -4.06  -15.19   9.81   -9.44  B2B blues
MRVC      67.38 0.00 -4.88   -6.94  -1.19  -13.00  Dropped
CIEN     215.00 0.00-13.81   -7.88   6.56  -15.13  Quick rebound

Puts

PCS       45.88 0.00 -1.13   -1.19  -2.38   -4.69  New
CREE     129.13 0.00 -6.56   -2.31   7.00   -1.88  Rollover???
AT        48.75 0.00 -0.88   -0.81   0.63   -1.06  Upped EPS
UK        38.66 0.00  1.31    0.88  -3.09   -0.91  Anarchy in UK
MMM       91.63 0.00 -0.25    1.88  -2.50   -0.88  Mkt Rotation


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:
*****

NEON $35.88 +1.38 (-1.87) If you missed Tuesday's morning
pullback to enter a trade, you were given a second opportunity
on Wednesday.  The NASDAQ was weak all day and NEON could not
buck the trend.  It pulled back to a low of $34.88, just above
the 10-dma at $34.20, by mid-morning.  From there, it channeled
between $35 and $36 for the balance of the day, finally closing
at $35.13.  On Wednesday, NEON announced the launch of a new
Internet-based solution to provide flexible and easy-to-use
connections for Net Market and Business-To-Business (B2B)
transactions.  By mid-day today, NEON was in positive territory
by just over $1 after having dropped below its 10-dma, at $34.80,
in early morning trading.  Positive momentum continued as the
buyers continued their accumulation of NEON shares.  It closed up
$1.38 today at $35.88 on volume of 1.11 mln shares (1.27 times
ADV).  This left NEON closing just above its 10-dma of $34.80 but
unable to cross the 5-dma.  All that being said, there does not
seem to be much "oomph" in NEON's price action to give it the
breakout we were looking for, so it is time to move to another
play.

DISH $49.44 -0.81 (-3.62) DISH was down $1.63 on Wednesday as
the NASDAQ peeled back substantially.  Volume was huge, logging in
at 15.1 mln shares (6.5 times ADV).  There appeared to be a large
block trade early Wednesday morning of 7 mln shares (at below
market) that skewed the volume for the day.  Today, the NASDAQ got
off to a great start, but DISH was still idling by mid-morning.
After hitting a low of $49.06 in early morning trading, DISH
continued to hover below the flat line, just below its 5-dma,
currently at $50.  Later in the day, DISH dipped as low as $47.44
before recovering for the balance of the day to settle down $0.81
at $49.44 just above its 200-dma (currently $47.20).  Volume was
light today and DISH struggled today remaining in negative
territory, even as the NASDAQ climbed.  DISH didn't act well with
the NASDAQ today.  Time to move on for now.

MRVC $67.38 -1.19 (-13.00) MRVC has had a hard time lately, and
for good reason.  With weakness in leaders such as CIEN, GLW and
JDSU, the stock has been taken along for the ride.  Yesterday in
a soft Tech market, MRVC gapped down at the open and spent the
rest of the day heading lower.  The gap down open was below
MRVC's 5- and 10-dma, now converged at $74.  By the close, MRVC
lost $6.94 or 9.19% on average volume.  Today the stock attempted
a recovery but encountering resistance at the $72 level, sold off
to close down 1.73% on 125% of ADV.  This put MRVC below it's
50-dma at $67.75. The high volume accompanied by a failure to
make any progress suggests that the stock may be stalling.  Add
to this the fact that peers CIEN, GLW and JDSU all ended the day
in the green is not a good sign.  If it can't move up on strong
volume, then lack of volume could crush this play.

LSCC $74.38 +3.88 (-3.31) Following the whims of the
Semiconductor sector, LSCC is looking like it has run out of
gas.  After running as high as $78.00 last Friday, the stock
has come under selling pressure this week, as the sector has
been subjected to repeated analyst attacks.  Our play was
looking pretty good on Tuesday, as it managed to hold the $75
support level in the face of the negative news on INTC, and
the Semiconductor sector as a whole.  That all fell apart
yesterday, as sellers pushed our play back to the $71 support
level before the stock saw any buying relief today.  Although
we saw a nice bounce, it was discouraging to see that our play
couldn't get back over the $75 level.  It looks like the
momentum players have moved away from LSCC, and we are
following their lead by moving LSCC onto the drop list tonight.

ISSX $80.94 +1.88 (-3.19) We caught a couple of days of trading
opportunity, but anymore waiting around and we'll fall asleep.
The strong momentum that took ISSX out of the gutter just weeks
ago and launched it back to a respectable support level appears
to have dissipated.  After ISSX flirted with $86.38 on Tuesday,
it experienced a $5.00, or 6% decline on Wednesday.  Perhaps
typical profit taking is to blame, but it's evident by today's
performance that ISSX may have difficulty recovering.  ISSX is
currently sitting on the intersecting 50, 100, & 200 DMAs.  This
is certainly not a promising factor - remember we added ISSX
only after it penetrated these technical lines.  The 10-dma at
$78.15 is holding up as support, but we'd rather not take a
wait-and-see attitude with ISSX.  It's time to move on to
stronger plays.


PUTS:
*****

No dropped puts today.


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The Option Investor Newsletter                 Thursday 09-07-2000
Copyright 2000, All rights reserved.                        2 of 2
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********************
PLAY UPDATES - CALLS
********************

YHOO $107.00 -5.06 (-6.94)  Some of you might be looking at this
and wondering, "When did they add this play?"  Well, the answer is
yesterday at the end of Matt Russ' Wrap.  Yes, we know it was an
out-of-cycle play, but given the news-related after-hours trading
yesterday, Jim decided to add YHOO as a call play.  This was done
on the basis that comments made by YHOO CEO Tim Koogle at the
Robbie Stephens Internet Conference were misinterpreted, sending
the stock as low as $103.25 in yesterday's after-hours.  Hasty
traders sold YHOO when they misunderstood Koogle's comments and
thought that he said advertising sales have decreased.  Then,
Koogle appeared on CNBC in an interview clarifying that Yahoo in
no way has changed their guidance.  YHOO closed after-hours
trading Wednesday at $107.88.  Today, YHOO offered a nice entry on
the open and spiked to $114.50 on strong volume early on.  After
that, the stock drifted lower into the close.  We would look for
entry on buying bounces from current levels.  The valuation of
YHOO is very low and due in part to the yesterday's misinformation.
A breakdown below $100 would be concerning and a sign to stay out.
Earnings are confirmed for October 10th, so with the stock at
current levels, a earnings run could be very profitable.

CHKP $153.19 +7.16 (+3.75) Forest tripped on the sidewalk
Wednesday, but regained his footing Thursday!  As the NASDAQ
slipped yesterday, so did CHKP.  The stock could not get any
traction as investors dropped it to $146.02, down $8.48 for the
session, but above the lows for the day.  Thursday morning the
sellers took CHKP down to $142, to barely touch its 10-dma at
$141.80, before it decided to join the NASDAQ party.  Buyers
lifted CHKP past its 5-dma at $147.70 later in the day, to $148.50
up over $2 by mid-day.  CHKP got stronger as the day went on, due
partly to the NASDAQ showing good stability.  The buyers showed up
this afternoon as trading volume logged in at 2.62 mln shares
versus ADV of 1.66 mln, en-route to a close at $153.19.  If
today's market strength continues, traders should look for a
reasonable intraday pullback to use as an entry point.  However, a
more conservative entry would be at the 5-dma or the 10-dma
(currently at $147.70 and $141.80, respectively) along with a
volume backed bounce.

TIBX $102.00 -0.06 (-8.13) Taken out behind the woodshed!
What can you say, TIBX got slammed yesterday to close down at
$102.06, just below its 10-dma.  If there was a positive for
TIBX Wednesday, it was that the down move occurred on lighter than
normal volume.  On Wednesday, TIBX announced that it had completed
its $100 mln acquisition of Extensibility, Inc., a leader in
Extensible Markup Language(XML) technology.  Also of note
Wednesday, Tibco announced support for the UDDI project, a cross-
industry initiative comprised of 29 technology leaders, designed
to accelerate and broaden B2B integration and commerce on the
Internet.  This morning the "behind the woodshed" beating
continued as the sellers took TIBX down to a low of $96.38.  By
mid-morning, buying volume picked up as it was off its lows to
$98.75, just below its 10-dma, which currently at $99.70.  Tibco
really picked up steam in the final moments as buyers brought it
back to  a closing price of $102, only down a teenie for the day.
Volume backed the move as TIBX traded 2.3 mln shares.  We are
solidly above the 10-dma of $99.70 and closing in on the 50-dma,
which is currently $105.10.  Look for continuing strong volume
with solid price action before entering a new trade.  Watch for a
pullback to the 10-dma along with a volume-backed bounce as an
ideal entry point.  Keep an eye out for profit taking and a
potential pullback in the NASDAQ.

CIEN $215.00 +6.56 (-15.13) DLJ and ABN-AMRO both came to CIEN's
defense yesterday after the company told analysts it would lose
six cents per share due to the bankruptcy of a major customer a
day earlier.  Despite the attempts from the two brokerages
yesterday morning, CIEN fell for the second consecutive day on
heavy trade due to other analyst actions in the Telecom sector.
Lehman Brothers cut their rating on WCOM, citing the slowdown in
capital spending, which could ultimately mean slower sales growth
for CIEN.  After the two days of heavy selling, CIEN was due for
a bounce higher, and that's exactly what happened today.  If the
NASDAQ's rally today has legs tomorrow morning, traders might
look to enter CIEN on a rally above $217, or wait for a momentum
based move through the $220 level.  Any weakness in the Telecom
sector tomorrow might take CIEN down to support near its 10-dma
at $212.  Aggressive traders might consider trading CIEN's range
and buying any dip near support at $212.

ITWO $169.75 +9.75 (-9.44) The late-day profit taking we
witnessed Tuesday afternoon continued early yesterday morning.
In fact, the selling in ITWO really didn't subside until late
yesterday afternoon, when the stock bounced off support near the
$160 level.  ITWO's two days of punishing profit taking might
have presented a favorable entry into the play, only if the Tech
sector can extend its rally into the weekend.  ITWO battled back
today to test resistance at the $170 level.  Given the stock's
big sell-off earlier this week, there is little resistance
preventing ITWO from rebounding substantially higher.  With that
said, watch for a strong rally above the $170 level, confirmed
with healthy volume.  More conservative traders might wait for
ITWO to build momentum and consider entering the play on a rally
above $175.  Make sure to confirm direction in the broader B-2-B
sector before entering the play.  If you haven't done so already,
consider setting stops on any existing positions to protect your
trading capital.

IDTI $92.97 +6.34 (+0.40) Our shining star, better know as IDTI,
delivered another record performance today.  Despite the
recently renewed controversy in the Semi sector, namely
downgrades of high-profile names such as MU and INTC, our play is
charging higher.  There was no specific news to spur the rally
today, but, the buying was convincing as traders exchanged well
over IDTI's ADV.  Aggressive traders might consider entering the
play at its current levels early tomorrow morning if the NASDAQ,
and especially the $SOX, show continued strength.  Watch for a
quick pop back above the $93 level, or wait for IDTI to build
momentum and move back above $94.  If the Chip bears return
tomorrow morning to sell IDTI, watch for the stock to find support
near the $92 level, or lower near $90.  Wait for any light selling
to subside and consider entering our IDTI play on a bounce off one
of the stock's aforementioned support levels.  The stock did
bolt higher on a burst of volume in the final moments of trading
today, be on your toes early Friday morning and watch for an
extension of IDTI's rally.

SNDK $86.50 +4.38 (-2.00) The past couple of days have been
volatile for SNDK indeed.  Wednesday saw the stock drop $7.94 or
on convincing volume.  SNDK's drop was in sympathy with a weak
NASDAQ and Semi sector.  Today SNDK tagged along for the recovery
ride as it reclaimed some of its losses.  In doing so, the stock
put itself back above its 5-dma near $86 and its 10-dma $84.25.
There is light resistance at the $88 level but the real
congestion is around $90, thereafter $95 will be a hurdle.
Support appears to be strong at around the $81 - 82 range.  A
bounce near that level might provide an aggressive entry point.
The more risk averse might want to wait for SNDK to clear $90
before making a play.  Yesterday SNDK announced that it would
expand its presence in retail outlets in Africa, Europe and the
Middle East.  According to SNDK, the expansion is necessary
because of increasing demand for the company's flash memory
products. Today SNDK announced that it would supply ERICY with
flash memory cards for the storage of MP3 audio in their new
mobile Internet appliance.

AGIL $73.06 +0.06 (-1.69) While many of the Tech issues have
been in sell-off mode for the first half of this week, AGIL
appears to be in consolidation mode.  After a strong breakout on
huge volume above resistance at $71 on Friday, the stock has been
drifting lower on declining volume.  Yesterday AGIL traded in a
narrow range of $1.50 to finish only fractionally lower in the
face of a strong down day for the NASDAQ.  Today the stock dipped
briefly in the early morning below its 5-dma at $72.88, but
bounced quickly.  So it was pretty much the same as yesterday,
trading in a narrow range of $1.25 on declining volume.  A
re-test of former resistance at $71 would be an ideal entry point
as this is also where the 10-dma happens to be right now.  But
make sure it bounces before entering.  Conservative traders will
look for a break through $75 resistance on high volume before
entering.  Yesterday AGIL announced an alliance with Andersen
Consulting to promote and deliver e-commerce solutions to
manufacturing firms around the world.

BEAS $66.56 +3.25 (-4.19) BEAS' up-trend is still intact.
Yesterday in sympathy with a down day on high volume on the
NASDAQ, the stock shed $5.19 on average volume.  In doing so,
the stock breached its 5-dma support level.  Despite the
failure at the 5-dma, BEAS managed to find support at the $62
level and bounced strongly, closing above it's 10-dma.  Today, the
10-dma, now at $64.05, continued to provide support for BEAS after
the stock gapped open and spent the rest of the day trading
sideways to higher, closing up 5.23% on meager volume.  After a
steep sell-off as we've seen recently, traders might be a little
shy on the trigger.  Those waiting for confirmation of upward
momentum will look for BEAS to clear its 5-dma, currently at
$67.40, before entering.  An aggressive trader will look for a
bounce off the 10-dma for an entry.   Breaking through the 5-dma
will see the next resistance level at $68.

MERQ $130.00 +7.00 (+3.50) Right on cue, the profit taking
yesterday set us up for a great entry point on MERQ this morning.
Remember our comments on Tuesday?  "Buying volume is keeping MERQ
at its upper Bollinger band and after the last four days strong
gains, profit taking in the near future would not be out of the
question."  The profit taking did indeed occur, bringing our play
down for a bounce right on the $120 support level before the
buyers began nibbling again late yesterday afternoon.  The
recovery continued throughout the day today as MERQ managed to
close right at its high of the day with volume on the rise.
Today's sharp recovery brings MERQ back above the 5-dma, which is
currently at $126.13, and market permitting, it should continue to
support the share price.  On any significant market correction,
the $120 level should continue to hold firm as support, especially
with the rapidly approaching 10-dma currently at $118.75.  Bounces
from the $120 level are still buyable, as long as they continue
to be confirmed by solid buying volume, but we may not get
another shot at this level.  Buying on strength is also a viable
entry strategy; wait for MERQ to push through resistance at $131
before playing.

ORCL $91.19 +1.94 (-1.44) Although it couldn't dodge the
weakness on the NASDAQ earlier in the week, ORCL put in a
respectable performance today.  After two days of selling, the
software company was resting right on historical support at $89.
Voting with their wallets this morning, investors pushed ORCL
back above the $90 level early in the day, where it spent the
rest of the session.  After the early morning pop, the stock
traded in narrow range of just over $1, owing partially to the
fact that volume was fairly light at only 14.2 million shares.
Recall that the company will be announcing earnings on September
14th, so now is the time to target shoot new entries for a
possible run into the announcement.  The $89-90 level is getting
stronger as a support level, with the 5-dma ($91) fractionally
below today's close and the 10-dma still on the rise at $88.69).
Another positive factor is that the bounce this morning came
right on the ascending trendline, which has been in place since
early August.  Target shoot to your level of risk tolerance or
buy the breakout as ORCL clears the $93 resistance level.

VERT $54.00 +1.25 (-0.77) Unable to hold its ground in the B2B
downdraft earlier this week, VERT managed to hang onto support
yesterday afternoon, bouncing from $52.50.  Although the
recovery continued today, it didn't have the conviction of
buying volume, as only 1.7 million shares traded hands vs. an
ADV of 2.7 million.  The company is still struggling to convince
the investment community that its vertical market strategy is a
winner, but the company's rate of revenue growth (over 1300%
year-to-year over the past 2 quarters) is starting to get
investors' attention.  With today's mild recovery, VERT is back
above the 10-dma ($53.38), but just barely.  Further weakness in
the B2B sector could provide an even better entry point by
pulling our play down to bounce near the $51 support level.
Target shooters should wait for a strong bounce at support
before opening new positions.  With Tuesday's failure to break
through the $60 level, we may be better served by waiting for
buying volume to penetrate this level before playing.

INKT $125.00 +1.22 (-5.38) INKT is currently perched at a
precarious level.  The downdraft, following Tuesday's strong
move toward the $135 mark, has left INKT sitting smack on the
10-dma line.  While this level may entice the more adventurous
traders to take entry on a strong rebound, be careful.  A more
prudent approach would be to wait for high-volume moves through
lighter support at $128, or even $130 before starting new
positions.  Earnings for this company aren't scheduled until
later next month, so don't bet on any anticipative excitement to
give INKT a boost.  INKT needs to create its own momentum if
we're to keep it on our call list.  On the bright side, the
stock did respond well in recent weeks to news events and
analyst coverage.  Therefore look for more of that kind of
matter to generate another breakout in the short-term. Our
target is for the share price to explode through upper
resistance at $135 and eventually move back towards the early
summer highs.

AAPL $62.00 +3.56 (-1.44) The profit taking pests blemished
Apple's share price yesterday.  AAPL led the pack with a 6.4%
loss and effectively influenced the Goldman Sachs Computer
Hardware Index ($GHA), which dropped 3.1%.  The deep dive below
the former resistance ($60) to $57.75, near the 10-dma line was
extremely bearish.  While AAPL managed well on Tuesday, this was
the second day computer hardware stocks lost ground.  Even the
more enterprising traders likely played "wait and see" before
taking additional entries into this recovery play.  As if we
wished upon a star, there was a crucial turnaround today.  The
research firm, IDC, came forward with encouraging words of
growing unit volume.  They estimated that the worldwide market
should climb to 33.4 mln in the 3Q, which is an 18.5% increase
for the year-ago period.  According to Bruce Stephen, IDC group
VP for Worldwide Personal Systems research, "consumer demand for
PCs is especially strong in Asian markets, and US home PC volume
is expected to improve based on back-to-school sales" and also
the upcoming holiday season is a plus for PC manufacturers.
Major players such as Compaq (CPQ), Hewlett-Packard (HWP), DELL,
and IBM all benefited from the report too.  APPL advanced a
hefty 6.1%, which brought it back to a respectable price level.
Near-term resistance still stands at Monday's intraday high of
$64.13.  Conservatively look for strong volume to push it
through $65, if you want better confirmation that AAPL's
momentum can take it higher.  Otherwise, use dips to the 5-dma
($61.45) as a launching point.

VRTS $123.13 +4.63 (+1.38) Monkey-see, monkey-do.  That's the
game VRTS played this week as it mimicked the NASDAQ sentiment.
For two days VRTS hovered at near-term support around $121 and
$122, then took a slide to the 10-dma (now at $118.92) before
coming back up for air.  In hindsight, the deep retrace proved
to be quite the entry, if your risk-portfolio could stand the
heat.  At present, this recovery play continues to show some
sparks of life with intraday spikes tapping at $125.
Nevertheless, be prudent and wait for the ceiling to crack
before entering into this pure momentum play.  The other option
is to take a very aggressive approach.  Some may choose to play
the intraday spread and bank on volatility to profit.  In the
news, Merrill Lynch will launch a new HOLDRs basket that will
contain 20 of the largest stocks in the software sector
including Veritas Software.

JNPR $214.94 +5.25 (+6.75) Juniper is jumping and we're loving
the volatility!  The recent sessions have provided a multitude
of entry opportunities off a lower support level at $212-$214
while rendering strong intraday spikes.  Of course our target is
for JNPR to take us into new territory once again.  A high-
volume move through $220 insinuates that a breakout above
Tuesday's all-time high of $228 isn't impossible.  The intraday
gyrations and healthy volume reinforce the position that the
momentum is building and geared for another run up.  If the
stock takes off, enter on intraday dips off the rising 5-dma
line.  Else you may want to be patient and keep your portfolio
in cash.  This is a HIGH-RISK momentum play and can get rather
dicey.


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

UK $38.66 -3.09 (-0.91) It was anarchy in UK today.  The bears
had their way with the Chemicals sector today after Dupont (DD)
warned analysts that higher energy costs would cut into earnings
estimates.  The news was enough to send UK to a new 52-week low.
What's more, UK bled from the flight of capital back into the
Tech sector, after the NASDAQ's three rounds of profit taking
ended today with a victory for the bulls.  Going forward,
concerns over earnings in the Chemicals sector might continue to
weigh on UK, along with any shift of capital back into the
NASDAQ if the Tech sector extends its recent rally.  UK's big
drop on heavy volume today pushed the stock well below its
critical support level at $40.  Aggressive traders might look to
enter the play early Friday morning if the UK bleeding continues.
Watch for a bump against resistance at $39 or wait for UK to fall
below $38.50.  More conservative traders might wait for UK to
fall below the $38 level, or below its day low at $37.38, before
entering the play.

CREE $129.13 +7.00 (-1.88) How do you spell overhead resistance?
C-R-E-E.  The convergence of the 5- and 100-dma at $130 was just
too strong for the stock to overcome yesterday.  Attempting to
buck the trend of a down market on Wednesday, the stock got as
high as $130 during amateur hour before succumbing to the weight
of the NASDAQ to close down $2.31 or 1.86% on 124% of ADV.  Today
the stock moved again in sympathy with the Tech index, gaining
5.63% on 73% of ADV.  While CREE spent most of the day drifting
up, it appears to have hit resistance right below the $130
number, at $129.63.  A failure to break through $130 would be an
ideal entry point tomorrow, but make sure the stock confirms the
rollover before entering.  Above, there is more strong
resistance at the $135 area in the form of the 10-dma.  Today's
close put CREE on the right side of the 5-dma at $128.85.
Breaching that point to the downside with

MMM $91.63 -2.50 (-0.88) Tuesday's quiet trading was shattered
yesterday as investors jumped into value stocks as they sought
refuge from the selling on the NASDAQ.  This enthusiasm drove
MMM as high as $95.94 before investors realized that they were
chasing a cyclical stock in a slowing economy.  After the noon
hour, investors came to their senses and began selling again.
Although the price didn't drop much yesterday, the increasing
volume as the afternoon progressed gave vigilant traders a good
entry point for the gap down this morning.  Opening sharply
lower this morning, it didn't take long for MMM to get back down
to the $91-92 support level.  So here we are back where we
started on Tuesday.  If you grabbed yesterday's entry point,
congratulations.  Going forward, another failed rally to the
$95 resistance level is still a good opportunity to buy puts.
With the economy slowing , companies like MMM will have a hard
time heading higher.  More conservative players will want to
wait for increased selling volume to push shares of the paper
company below the $90 support level, also the site of the
200-dma.

AT $49.50 +1.38 (-0.31) News of upped earnings projections for
2001 and 2002 prompted a rise of out AT earlier in today's
session.  The company said it expects earnings growth of 12 to 16
percent over the next two years on the strength of added wireless
subscribers; but nevertheless may miss the current estimates for
next year by as much as 8%.  A conference call with analysts
followed the announcement.  Scott Ford, Alltel's president and
CEO, said the company has implemented an aggressive growth
strategy that "will reduce cash earnings in the short term but
will create significant possibilities for sustainable growth over
the next several years".  AT's enthusiastic spike was hence,
short-lived.  Whether the immediate bottom-line sunk in with
investors or it was simply a matter of technical perspective, the
share price slammed into the force field at $52.  In a flash, it
boomeranged back under $50 and tumbled towards Wednesday's 52-
week low of $47.75.  Volume levels were quite active at over
twice the ADV.  Look for continued action to spur future
declines.  Keep the stops tight.  If you want an entry into this
Telecom play, then look for strong downward moves from the $50
mark.


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

CFLO - CacheFlow Inc. $113.00 +5.56 (+3.50 this week)

CacheFlow Inc. designs, manufactures, and markets Internet
caching appliances.  These easy-to-use appliances speed Web page
response times, while saving network bandwidth.  Because of these
key benefits, caching appliances are becoming an integral
component of the network infrastructure - much like routers and
switches.  Explosive growth is forecasted for the caching
appliance market, with revenues projected to exceed $3 billion by
2003.  Company partners include Akamai, Alcatel, CSC, EDS,
Hewlett-Packard, Lucent, Real Networks, Secure Computing Websense
and Westcon.  CacheFlow is a global organization with offices
throughout Asia, Europe, and North America.

Judging from the volume accompanying its ascent, the cash has
been flowing into CFLO.  Ever since the middle of August, volume
has picked up significantly in the stock.  Like many Tech stocks,
last month was a great one for CFLO.  Testing support at $55
early in the month, the stock moved up higher in anticipation of
its earnings report on August 16th.  Beating the Street with a
much narrower than expected loss, the stock moved higher post
earnings before encountering resistance at $105.  From there the
stock fell back to its previous breakout level at $88 before
bouncing.  Last Friday CFLO managed to clear resistance at $105.
Since then the stock has spent the week trading in a narrow range
between $105 and $112.  Considering the sell-off in the markets
during that time, CFLO has held up well.  Today however, CFLO
managed to break through resistance at $112 to close up 5.18%.
This move was backed by strong volume, clocking in at 137%.
There are a number of possible ways to enter this play.
Aggressive traders would look for a bounce off new support at
$112.  Below that there is stronger support at $105.  The even
more aggressive would look for a bounce off the 5-dma, currently
at $109.45 for an entry.  There is additional support from the
10-dma at $103.07 and the psychological $100.  Overhead
resistance levels can be found in increments of $5 at $115, $120
and $125.  Conservative traders may want to look for CFLO to
clear $115 with volume before making a play.

There has been little if any news so far this month until today,
as the company announced an alliance with Top Layer Networks Inc.
The partnership will see the two companies teaming up to provide
solutions to speed up delivery of Internet content to their
clients.

***September contracts expire next week***

BUY CALL SEP-105 FUJ-IA OI= 21 at $10.25 SL= 7.00
BUY CALL SEP-110*FUJ-IB OI= 47 at $ 7.00 SL= 5.00
BUY CALL SEP-115 FUJ-IC OI= 30 at $ 4.38 SL= 2.75
BUY CALL OCT-110 FUJ-JB OI=304 at $15.00 SL=11.00
BUY CALL OCT-115 FUJ-JC OI=  5 at $12.75 SL= 9.50
BUY CALL OCT-120 FUJ-JD OI= 33 at $10.38 SL= 7.50

SELL PUT SEP-110 FUJ-UB OI= 40 at $ 3.38 SL= 5.50
(See risks of selling puts in play legend)

Picked on September 7th at $113.00     P/E = N/A
Change since picked          +0.00     52-week high=$182.19
Analysts Ratings         3-4-0-0-0     52-week low =$ 27.00
Last earnings 08/16     est= -0.17     actual= -0.14
Next earnings 11-15     est= -0.11     versus= -0.22
Average Daily Volume    =    587 K



AZA - ALZA Corporation $77.25 +1.13 (+1.69 this week)

As a research-based pharmaceutical company, AZA applies its
leading drug delivery technologies to develop products with
enhanced therapeutic value for its own portfolio and many of
the world's leading drug companies.  The company commercializes
products it develops, as well as those it acquires from third
parties.  AZA is currently focusing its sales and marketing
efforts on products for urology and oncology disorders, as well
as products for the treatment of pediatric and central nervous
system disorders.

Sitting in the sweet spot between the big pharmaceutical
companies and the profitless Biotechs, AZA is what is known as
a specialty pharmaceutical company.  Unlike the Biotechs, these
companies are typically profitable and AZA is no exception.  In
contrast to the big drug companies, which can't afford to bring
a new product into production unless the market for the product
exceeds $1 billion, firms like AZA can profitably market a new
drug with a $200-300 million annual demand.  AZA has a strong
pipeline of new products and continues to receive positive
press and analyst coverage.  The Biotech sector is a better
measure of performance for stocks like AZA, and with the
continuing recovery in the sector, investors have been driving
the stock to new highs recently.  After spending much of the
month of July between $56-68, the positive news last week (see
below) was just what the doctor ordered, and investors have
steadily pushed AZA higher over the past 2 weeks.  The nearly
uninterrupted 30% move was in need of some consolidation though,
and this can be seen in the flattening of the price chart
earlier this week.  Although volume has been rather light (in
the neighborhood of two-thirds the ADV), buyers did come back
today to drive the stock to yet another all-time high.  Support
is hard to come by after such a strong run, but mild intraday
support is found at $75, followed by slightly stronger support
at $71.  For solid support, look all the way down to $68, the
level above which the stock broke 2 weeks ago.  Target shoot
new entries to your level of risk tolerance, but if the stock
continues to hit new highs, don't be afraid to buy into the
strength.

As if AZA needed any more help last week, the stock got a nice
boost last Thursday from the reported positive results from
clinical trials of the company's flagship incontinence drug,
Ditropan XL.  This followed positive analyst comments on August
29th and 30th.  First, SG Cowen issued a Strong Buy rating, and
then Banc of America Securities added the stock to its Fresh
Money List and issued a Buy rating.

***September contracts expire next week***

BUY CALL SEP-75*AZA-IN OI=985 at $7.75 SL=5.50
BUY CALL SEP-80 AZA-IO OI=242 at $3.63 SL=2.00
BUY CALL SEP-85 AZA-IP OI=124 at $1.06 SL=0.00
BUY CALL OCT-75 AZA-JO OI= 61 at $6.50 SL=4.50
BUY CALL OCT-80 AZA-JP OI= 68 at $3.75 SL=2.25
BUY CALL JAN-80 AZA-AP OI=122 at $7.88 SL=5.75

Picked on Sep 7th at     $77.25     P/E = 63
Change since picked       +0.00     52-week high=$77.63
Analysts Ratings      8-5-3-0-0     52-week low =$26.00
Last earnings 07/00   est= 0.35     actual= 0.44
Next earnings 10-19   est= 0.44     versus= 0.40
Average Daily Volume = 1.65 mln



************
NEW PUT PLAY
************

PCS - Sprint PCS Corp. $45.88 -2.38 (-4.70 this week)

Sprint PCS Group is a subsidiary of its parent company, the
Sprint Corporation.  The formation of the Personal Communication
Group was approved back in 1988, so that the performance of the
domestic wireless operations could be recognized separately.  They
currently operate a digital wireless network in the U.S. and at
the end of 1999 operated PCS systems in over 360 metropolitan
markets, including the 50 largest United States metropolitan
areas.  In short, Sprint PCS is engaged in the wireless mobile
telephone business.

Recently, PCS announced the availability of PCS phones in Target
Stores nationwide and furthermore announced an agreement with
Charles Schwab & Co. Inc., to provide customers with nationwide
Access to Schwab's PocketBroker mobile investing services via the
Sprint PCS Wireless Web.  Unfortunately, none of this news has
been influential enough to get investors interested.  To say this
chart is choppy may be an understatement.  It appears that a
potential triple top formation was formed and completed between
March 31st and July 17th.  On March 31st an intraday high was logged
in at $66.94, then on June 19th PCS made a failed attempt to clear
that high with a move to $65 intraday.  Finally, on July 17th PCS
tried again to move past the March high but failed, only reaching
$65.88.  If you are a skier you will recognize the look of this
chart from July 17th to today, as it is straight down for the most
part.  Both the 50-dma and the 200-dma, (currently $55.70 and
$54.20, respectively) have been violated to the downside, with the
violation of the 200-dma being most recent occurring on August
21st.  In addition, the current 5-dma at $49.30 and the 10-dma at
$48.90 have been breached to the downside.  A weak case could be
made that prayerful support could be found at the $44.06 level,
the site of an intraday low made on April 14th, but I think you
can see this might be a bit of a stretch.  Adding fuel to this
fire has been the continuing concern in the marketplace, that
handset sales are slowing.  Today PCS moved down $2.38 on volume
of 4.6 mln shares (1.26 times ADV).  A failure from here to
rally above its current 5-dma or 10-dma along with volume to
confirm may provide an aggressive entry point.  A conservative
option may be to wait for a failed rally attempt, with weak volume
up to the $49-$51 range before entering a new trade.  If PCS
overcomes the $51 level with strong volume step aside.

***September contracts expire next week***

BUY PUT SEP-45 PCS-UI OI= 246 at $1.13 SL=0.75
BUY PUT SEP-50 PCS-UJ OI=  32 at $4.50 SL=3.25
BUY PUT SEP-55 PCS-UK OI=2505 at $9.50 SL=7.00
BUY PUT OCT-50*PCS-VJ OI= 133 at $5.75 SL=4.25

Average Daily Volume = 3.66 mln



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

MERQ - Mercury Interactive $130.00 +7.00 (+3.50 this week)

As a provider of integrated performance management solutions
that enable businesses to test and monitor their Internet
applications, MERQ is looking for growing e-commerce demand to
continue to fuel its business.  The company's products perform
such tasks as analyzing and eliminating Web site performance
bottlenecks and automating quality assurance testing.  MERQ's
client base spans a wide range of industries including
Internet companies such as Amazon.com and America Online,
infrastructure companies Ariba and Oracle, as well as Apple
Computer, Cisco Systems and Ford Motor Company.

Most Recent Write-Up

Coming right on cue, the profit-taking yesterday set us up for a
great entry point on MERQ this morning.  Remember our comments on
Tuesday?  "Buying volume is keeping MERQ at its upper Bollinger
band and after the last four days' strong gains, profit taking in
the near future would not be out of the question."  The profit
taking did indeed occur, bringing our play down for a bounce right
on the $120 support level before the buyers began nibbling again
late yesterday afternoon.  The recovery continued throughout the
day today as MERQ managed to close right at its high of the day
with volume on the rise.  Today's sharp recovery brings MERQ back
above the 5-dma (currently $126.13), and market permitting, it
should continue to support the share price.  On any more
significant market correction, the $120 level should continue to
hold firm as support, especially with the 10-dma(currently $118.75)
rapidly approaching this level.  Bounces from the $120 level are
still buyable, as long as they continue to be confirmed by solid
buying volume, but we may not get another shot at this level.
Buying on strength is also a viable entry strategy; wait for MERQ
to push through resistance at $131 before playing.

Comments

The NASDAQ has been up and it has been down.  As a result, so has
MERQ.  Interestingly enough, if you look at a 10 minute intraday
chart of MERQ, Wednesday and Thursday are nearly mirror images.
On both days, the stock got a bounce at $120 support.  The
question is: was today a dead-cat bounce?  Solid volume surged
MERQ higher in the final moments of trading.  For entry on MERQ
tomorrow, jump on board on a strong volume move through $130 with
a positive NASDAQ.  If the stock pulls back, considering its huge
late-day gains, look for bounces from today's intraday support
around $126.50.

***September contracts expire next week***

BUY CALL SEP-125 RBF-IE OI=298 at $ 8.75 SL= 6.25
BUY CALL SEP-130*RBF-IF OI=252 at $ 5.88 SL= 4.00
BUY CALL OCT-130 RBF-JF OI=373 at $14.63 SL=10.75
BUY CALL OCT-135 RBF-JG OI= 63 at $12.50 SL= 9.00
BUY CALL OCT-140 RBF-JH OI= 74 at $10.38 SL= 7.25

SELL PUT SEP-120 RBF-UD OI=124 at $ 2.13 SL= 3.75
(See risks of selling puts in play legend)

Picked on Sep 5th at    $129.06     P/E = 43
Change since picked       +0.94     52-week high=$134.50
Analysts Ratings      9-3-1-0-0     52-week low =$ 26.25
Last earnings 07/00   est= 0.12     actual= 0.14
Next earnings 10-12   est= 0.16     versus= 0.11
Average Daily Volume = 1.81 mln



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

The Rotation Continues...

A blue-chip profit warning sent investors scurrying to recently
downtrodden technology stocks.


Wednesday, September 6

The Dow rallied today on rumors of a new merger in the financial
group while the Nasdaq slumped amid concerns over revenues in the
semiconductor sector.  The Dow closed up 50 points at 11,310 but
the technology index ended down 129 points at 4,013.  The S&P 500
Index fell 14 points to 1,492.  Trading volume on the NYSE edged
up to almost a billion shares, with advances outpacing declines
1,608 to 1,236.  Activity on the Nasdaq was heavy at 1.75 billion
shares exchanged, with declines beating advances 2,340 to 1,752.
In the bond market, the 30-year Treasury fell 18/32, pushing its
yield up to 5.70%.


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

Commerce One   CMRC   OCT45P/OCT50P   $1.00   credit   bull-put
Global Crsg.   GBLX   JAN40C/OCT40C   $2.62   debit    calendar
Ventro         VNTR   DEC15C/DEC17C   $1.25   debit    bull-call
Ventro         VNTR     DEC10-NP      $1.25   credit   naked-put

Our new positions slumped with the broad decline in technology
issues, allowing favorable entries in all three plays.  One note
of interest:  A subscriber commented that he was filled on two
contracts of the GBLX calendar spread at a debit of $1.50.  "Why
can't I ever get those?"

Portfolio Plays:

Stocks in the industrial group climbed to new highs for the summer
amid strength in blue-chip issues.  Speculation of a new merger in
the financial services sector drove investors to a buying frenzy
as the Dow rallied for a fourth straight day.  The move was based
primarily on a rally in J.P. Morgan (JPM), which surged almost $8
on rumors that Deutsche Bank AG is in the process of acquiring the
venerable investment bank.  Brokerage stocks also rose Wednesday,
with E*Trade (EGRP) and Ameritrade (AMTD) both moving higher after
CS First Boston upgraded the stocks and set 12-month price targets
of $35 on both issues.  Cyclical and retail stocks performed well
with United Technologies (UTX), Boeing (BA), 3M (MMM), and Proctor
& Gamble (PG) giving the blue-chip average a boost.  On the Nasdaq,
semiconductor stocks were weak for a second straight session after
Donaldson, Lufkin & Jenrette and Merrill Lynch issued downgrades
in the group amid concerns over lower DRAM prices.  Biotechnology
and telecom stocks also moved lower during the day.  In the broad
market, surging oil prices pushed the major oil stocks into a new
trading range.  The October crude futures soared to the highest
level in 10 years as the market awaited word on whether OPEC will
raise production levels.

Our portfolio enjoyed a number of positive moves in "old economy"
stocks.  Maytag (MYG) climbed $1.88 to close at $39 on continued
speculation that Swedish appliance maker AB Electrolux might buy
the company.  Last Friday, Electrolux reported it has acquired
garden and landscape equipment-maker Bluebird International, which
has annual sales of about $18 million.  Our synthetic position is
profitable with the issue above $35.  Mead Corporation (MEA) rose
to a session high near $28.25 on strength in the paper sector and
the move provided a great opportunity to roll to the October calls
in our bullish calendar spread.  The credit for the transition was
as high as $1.00 during the session.  Maxtor (MXTR) rallied to a
mid-day high near $8.50 and we used the upside activity to roll to
next month's options in the long-term position.  The cost basis in
the new spread (JAN10C/OCT10C) is $0.62.  Caremark RX (CMX), Ryder
Group (R) and Mail.com (MAIL) are the remaining spreads that must
be adjusted prior to the September options expiration.

Ameritrade (AMTD) was our big mover in the banks and brokerages
group.  The issue jumped over $2 to end near $21 after CS First
Boston analyst Jim Marks upgraded the company to a "buy," saying
the stock represents a very attractive opportunity at current
valuations.  The analyst placed a $35 price target on the stock
and also said that over Merrill Lynch's and American Express's
entrance into the online brokerage sector is not a concern.  CIBC
World Markets analyst Steven Eisman also upgraded his rating on
AMTD shares to a "buy," with a $25 price target on the company.
Our bullish synthetic position reached a $2.50 profit during the
session.  Unfortunately, as Murphy's Law would dictate, we took
the smaller gains earlier in the week.  Our recent recommendation
on Transkaryotic Therapies (TKTX) seems all to appropriate now.
The issue surged over $10 to a mid-day high near $56 as traders
speculated on the outcome of patent infringement trial between
Amgen (AMGN) and Transkaryotic over Amgen's Epogen anaemia drug.
As you know, we were unable to enter the bullish position at the
desired price.

Thursday, September 7

A blue-chip profit warning sent investors scurrying to recently
downtrodden chip and biotech stocks.  The Dow closed 50 points
lower at 11,259 while the Nasdaq ended up 85 points at 4,098.
The S&P 500 Index rose 10 points to 1,502.  Volume on the NYSE
reached 978 million shares, with advances beating declines 1,541
to 1,273.  Activity on the Nasdaq was moderate at 1.61 billion
shares traded, with advances beating declines 2,268 to 1,735.  In
the bond market, the U.S. 30-year Treasury fell 5/32, pushing its
yield up to 5.71%.

Portfolio Plays:

The market ended mixed today with a rebound in technology issues
helping the Nasdaq recover while a major earnings warning in the
industrial group weighed heavily on the Dow.  The semiconductor
sector rebounded after losses in three consecutive sessions and
networking and computer hardware shares also enjoyed impressive
gains.  At the same time, losses on the Dow were limited by solid
advances in its technology components and at the end of the day,
the blue-chip barometer was well off session lows.  In addition,
many of the popular big-cap stocks, which have come under selling
pressure in recent trading, rebounded significantly, indicating
that investors are still in favor of "buying the dips."  In the
broader market, oil and oil service shares consolidated as crude
oil futures dipped following Wednesday's rally.  Major drug and
financial stocks were mostly higher and retailers gained ground
while airline issues were generally weak.  Looking forward, most
analysts believe that the stock market will likely reside in the
current trading range after rallying over the past few weeks.

Our portfolio was relatively quiet and experienced few surprises
during the session.  In the technology group, a number of issues
recovered from yesterday's losses.  Network Appliances (NTAP) led
the way, up $14 to close at $115.  Our bullish credit spread is at
maximum profit above $65.  Commerce One (CMRC) rebounded $8 to end
near $70, International Rectifer (IRF) jumped $6 to $66, Semtech
(SMTC) added $6 to close near $111 and Protein Design Labs (PDLI)
topped the biotechnology group with a $7 rally to end near $88.
A few of our mid-cap issues participated in the bullish activity
including; Advanced Fibre (AFCI), Altera (ALTR), Cisco Systems
(CSCO), Infocus (INFS), and Vitria (VITR).  All of the positions
in these issues are expected to end profitably at expiration.

In the lower-priced stocks, Read-Rite (RDRT) was the big mover,
rising $2.75 to $10.56 after the magnetic-recording head maker
said it has formed a fiber-optic company called Scion Photonics.
Scion will manufacture high-performance optical components for
the fiber-optics communications market and Read-Rite said that
it launched the company with $25 million in initial funding from
Tyco Ventures, a unit of Tyco International and Integral Capital
Partners.  Based on the recent movement, we may be able to close
the bullish position for a favorable profit, far in advance of the
target date in January.  In the banks and brokerages group, there
was one issue worth noting.  Countrywide Credit (CCR) climbed to
$40 today on new merger speculation stemming from Citigroup's (C)
planned $31 billion stock buyout of Associates First Capital (AFS).
Analysts said Citigroup's willingness to pay a 52% premium for
Associate's stock underscores the current strategy of expanding
through mergers and obliges the market to reassess the value of
consumer finance companies.  Our bullish diagonal spread is now
at maximum profit.  Regrettably, we closed the position earlier
in the month to lock-in favorable gains.

Questions & comments on spreads/combos to Contact Support
******************************************************************
                       - READER'S REQUEST -

Today we are going to offer positions on candidates submitted by
our faithful subscribers.  Covad, Qualcomm and Crossroads were
all identified as potentially bullish stocks and we have listed
favorable combination positions on each issue for the benefit of
our generous readers.

******************************************************************
COVD - Covad Communications  $19.38  *** On The Rebound? ***

Covad Communications is a provider of broadband communications
services to Internet service provider, enterprise, telecom carrier
and other customers.  These services include a range of high-speed,
high capacity Internet and network access services using digital
subscriber line (DSL) technology, and related value-added services.
Internet service providers use the company's services to provide
high-speed web access to their business and consumer end-users.
Enterprise customers purchase Covad's broadband services to offer
employees high-speed remote access to the enterprise's local area
network, which improves employee productivity and reduces network
connection cost.  Telecommunications carrier customers purchase
the company's services for resale to their ISP affiliates, along
with Internet users and enterprise customers.

Broadband firms have been in the news recently, with several deals
and announcements attracting investor interest.  The ability to
provide bandwidth is the key to success for these companies and in
order to remain competitive, service providers require a new class
of infrastructure able to handle high volumes of data traffic and
voice with equal agility.  Covad is the leading national broadband
services provider of high-speed Internet and network access using
Digital Subscriber Line (DSL) technology and the company continues
to expand its reach in cities across the country.  Analysts have
noted the new potential in the stock and a number of upgrades have
been issued in the past few weeks.  Most recently, Goldman Sachs
analyst Matthew Janiga initiated coverage of the company with a
"Market Outperformer" rating.  In addition, Epoch Partners is now
tracking the issue, based on the fact that the company remains a
broadband-access leader and the DSL market represents significant
opportunity over the long term.

PLAY (aggressive - bullish/debit spread):

BUY  CALL  OCT-15.00  COU-JC  OI=196  A=$5.12
SELL CALL  OCT-17.50  COU-JW  OI=623  B=$3.38
INITIAL NET DEBIT TARGET=$1.50-$1.62  ROI(max)=66%


******************************************************************
QCOM - Qualcomm  $64.13  *** Bracing for a Rally? ***

Qualcomm is a major provider of digital wireless communications
products, technologies and services based on its Code Division
Multiple Access (CDMA) technology.  Qualcomm designs, develops,
manufactures and markets CDMA subscriber products and designs,
develops and markets CDMA chipsets and system software.  They
also license and receive royalty payments on its CDMA technology
from major domestic and international telecom equipment suppliers.
In addition, Qualcomm designs, manufactures and distributes other
products and provides services for its OmniTRACS system.  The
company also has contracts with Globalstar, a low-Earth-orbit
satellite system utilizing CDMA technology, to design, develop
and manufacture subscriber products and ground communications
systems and to provide contract development services.

Concerns over the future wireless standard in Asia have been the
source of negative forecasts for Qualcomm in recent months and
there has been relatively little news of late to suppress the
worries that investors have over the future of the company.  On
Wednesday morning, Qualcomm shares rallied on renewed optimism
about CDMA being employed by China Unicom in the near future.
Unicom chairman Yang Xianzu said earlier in the week that the
company was studying the adoption of CDMA, just three months
after calling off plans to use the current-generation wireless
technology.  The announcement raised analyst's expectations and
senior executives at other major telecom companies also said
they had received similar signals following a meeting last month
between Chinese telecom manufacturers and Unicom executives.
Chinese and foreign telecom manufacturers, who would stand to
earn billions of dollars selling CDMA equipment and handsets,
reported that China Unicom had signaled it may begin to build
narrow-band CDMA networks as early as January.  The news bodes
well for Qualcomm and traders who agree with the bullish outlook
can use this position to speculate on the future movement of the
issue in a conservative manner.

PLAY (conservative - bullish/credit spread):

BUY  PUT  OCT-50  AAO-VJ  OI=8838  A=$1.06
SELL PUT  OCT-55  AAO-VK  OI=7194  B=$1.88
INITIAL NET CREDIT TARGET=$0.88-$1.00  ROI(max)=25%


******************************************************************
CRDS - Crossroad Systems  $14.69  *** Speculation Only! ***

Crossroads Systems is the leading provider of storage routers for
Fibre Channel Storage Area Networks (SANs).  Crossroads' storage
routers enable key Intranet, Internet and e-commerce applications
by using storage routers and SANs, so customers can store, manage
and ensure the integrity and availability of data in the Internet
economy.  Crossroads supplies its customers with a SAN solution
guide to simplify SAN design and installation, accelerate SAN
adoption, and verify interoperability of SAN solutions.  The more
than 3,000 verified configurations in CV-SAN are available on the
Web using the Crossroads online configurator.  OEMs such as Bull,
Compaq, Dell, Hewlett-Packard, Hitachi, McDATA, Fujitsu-Siemens,
and StorageTek as well as top resellers and distributors including
Bell Microproducts, Datalink, nStor, Pinacor, Polaris Services,
TechData and Vangard have partnered with Crossroads to provide
these solutions to their customers.

Crossroads is a unique issue with a complex background plagued
by under-performance in earnings and a slew of class-action suits
concerning potentially false and misleading financial statements.
Specifically, most of the complaints suggest company officials
failed to disclose that some of their products were experiencing
significant interoperability problems which would require CRDS to
stop shipments, adversely affecting third quarter results.  The
complaints also allege that defendants misrepresented the demand
for the company's current products and the potential for future
growth.  The contention is that the failure to disclose material
information caused the company's stock to be artificially inflated
and additionally, that insiders took advantage of the situation,
selling $10 million worth of their own holdings to unsuspecting
investors.  While all of these claims may indeed be true, now it
appears that investors are happy to "load-up" on the issue at what
some traders suggest are "bargain" prices.  If you believe the
technical indications, there may be some truth to that notion.

We offer this position as a speculative endeavor for the reader
who requested another debit spread combination.  The strategy is
nothing more than a sold PUT and a "bull-call" debit spread.  In
most cases, this technique is used to replace a bullish synthetic
position where the premiums on the call options are simply too
expensive.  The premium from the sold PUT is used to finance the
purchase of the debit spread.  In this play, the collateral for
the PUT is approximately $500 per contract.

PLAY (aggressive - bullish/debit spread combination):

BUY   CALL  OCT-12.50  URY-JV  OI=431  A=$4.12
SELL  CALL  OCT-15.00  URY-JC  OI=210  B=$2.31
SELL  PUT   OCT-12.50  URY-VV  OI=15   B=$1.43

DEBIT SPREAD TARGET=$1.56  NAKED PUT TARGET=$1.56
OVERALL NET DEBIT TARGET=$0.00-$0.12  TARGET ROI=75%




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


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