Option Investor

Daily Newsletter, Sunday, 07/01/2001

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The Option Investor Newsletter                   Sunday 07-01-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 6-29          WE 6-22         WE 06-15          WE 6-08
DOW    10502.40 -102.19 10604.59 - 19.05 10623.64 -353.36  - 13.41
Nasdaq  2160.54 +125.72  2034.82 +  6.39  2028.43 -186.67  + 65.66
S&P-100  632.02 -  4.13   636.15 +  9.52   626.63 - 25.29  +  2.31
S&P-500 1224.38 -   .97  1225.35 + 10.99  1214.36 - 50.60  +  4.28
W5000  11407.15 + 94.70 11312.45 + 74.45 11238.00 -498.70  + 65.13
RUT      512.64 + 23.99   488.65 -  6.48   495.13 - 16.51  +  9.92
TRAN    2829.96 +153.47  2676.49 - 17.13  2693.62 -188.47  -  4.96
VIX       21.63 -   .87    22.50 -  3.83    26.33 +  4.92  -  2.55
Put/Call    .58              .69              .73    .54 

End of Week, Month, Quarter, Half and Bear Market?
by Jim Brown

Friday was the end of everything if you are a calendar watcher.
The end of the week, month, quarter, the first half of the year
and some analysts think it may have signaled the end of the bear
market as well. Whoa! What happened to the worsening economy? The
alignment of the calendar dates was too much for the Nasdaq and
their systems crashed in late afternoon due to human error and
Murphy's Law. One of the laws as we know it states that the worst
possible outcome will always occur at the worst possible moment.
The Russell shuffle, technical problems and calendar alignment
all converged at the same point in time and you know the rest.

Friday was a record day on the Nasdaq, a record for problems!
About 2:30 someone working on the Worldcom network over which
the Selectnet and SOES systems operate, started a diagnostic
program which took down the network and prevented it from coming
back up. In an astounding move based on this being the month
end, quarter end and Russell rebalancing day, the Nasdaq extended
trading one hour until 5:PM ET. With huge market on close orders
not able to be executed there were dozens of problems created.
There was no immediate closing number on the Dow since Dow components
MSFT and INTC were still trading. Futures markets at the Chicago
Mercantile were forced to remain open to allow institutions to
cover positions in case of a disaster. This unprecendented move
by the Nasdaq was not without problems. There were limitations
and ECNs got the bulk of the trades and market makers like
Merrill Lynch were shut out. Basically it was a scene out of
the three stooges or more like the keystone cops running in circles.
You can bet there will be some burning of the midnight oil for
weeks to come by the Nasdaq as well as the major dealers to
decide what changes should be made to prevent this from happening
in the future. With literally almost 500 million shares trading
in the last hour on both major exchanges some analysts
speculated that 250-300 million shares did not trade due to
failed systems, the impact was in the billions. Consider what
would have happened had the market been moving in a high rate
of speed in one direction! Fortunately it was range bound and
there was no major movement in individual stocks other than drugs.

Drugs bore the brunt of the market on close orders on the NYSE.
Pfizer had more than 6.5 million shares to sell and lost almost
$2 as the volume increased. Other drugs included AHP 2 mil to
sell, ABT 2.5 mil, FRX 1 mil and the winner JNJ with almost 8
million shares to be sold. Funds really wanted out of drugs at
the end of the quarter.

In the extended trading on the Nasdaq it also appeared that
there were some funds that wanted out of tech as well. CSCO
traded close to 10 million shares and fell from a 4:PM price
of $19.31 to a low of $18.05. Dell dropped about -$3 on volume
of almost 10 million shares but recovered about half before the
numbers finally settled. JDSU, ORCL and INTC all traded lower on
heavy volume, SUNW dropped slightly and MSFT bucked the trend
rising +1.50 to a high of $73.50 on only about 4 million shares.
Where it first looked like techs would be the winners as money
poured out of drugs, the heavy volume and drops in techs in the
hour of extended trading make a direct correlation less clear.

Part of the problem aggravating the Friday close was the absence
of the major players. Trading desks staffed by second and third
string traders were frantically trying to reach the decision
makers by cell phone for instructions when unable to execute
end of quarter trades. The vacations and long holiday weekends
had already begun and nobody was prepared for this type of

The annual Russell shuffle made the problem worse with extremely
high volumes of stocks to buy and sell by the index funds. Here
are the links of all the stocks added and deleted from the
Russell indexes.


Warning season is almost over. Friday provided us with several
but nothing market shaking. Parker Hanifin (Nyse:PH) said depressed
shipments in North American markets would miss estimates by about
ten cents. Agere, (Nyse:AGR.A), the semiconductor business recently
spun off from Lucent announced on Friday that it would slash an
additional 4000 jobs to cope with a downturn in the communications
market. They would take a charge of $900 million to cover the
cost of restructuring. They said the market is continuing to
deteriorate and they would close the Madrid Spain plant to reduce
costs. Dow Chemical also warned that demand was lower than expected
and even though they had cut 4500 jobs they would miss earnings

The GE/HON deal continues to make news but the divorce is all but
over. HON suggested in a letter to Jack Welch at GE that they would
take up to $2 billion less to get the deal done and Jack sent back
a tersely worded one sentence reply saying something like "you must
be kidding, thanks anyway, Jack." Sounds like there is no love left
in that engagement. HON lost -3.30 on the news and GE gained over
$1 until the close when massive sell on close orders took it back
to only fractionally positive for the day.

Cisco gained during the day on positive comments at a conference
in Europe which gave indications that inventory surpluses were
going away. The results of the excess inventory being sold would
likely be seen in the coming quarter as new equipment moves into
the sales cycle and cash received for the obsolete inventory shows
up on the balance sheets. Banc of America said this would be market
positive although the company and sector had a long road ahead
of it.

AMD received an upgrade from JPM on Friday. Analyst Chen said that
the company will continue to enjoy market share strength because of
the trend toward value PCs. However looking out 12 months he believed
that Intel has a fairly good chance of getting back market share
momentum. He also suggested several of the recently massacred chip
stocks, specifically ALTR and XLNX. He feels the programmable logic
chip products that these companies produce have a good chance of a
strong recovery. Intel lost fractionally on the day and AMD gained
+1.47. Almost all the chip stocks gained ground led by VTSS +2.13
or 11% and BRCM +3.83 or +10%. Even PMCS and AMCC which warned
this week continued to post strong gains. When semis gain on bad
news can the bottom be far away? Check almost any chip chart and
you will see strength building.

Several analysts feel that bullish sentiment is building due to
the massive cost cutting and restructuring plans underway at almost
all tech companies. When the economy returns they will return to
profits quickly and be leaner and meaner going forward. Many big
companies are trying to cut costs by forcing workers to take
vacations on a company wide basis (furloughs) instead of cutting
employees that are hard to replace when business returns. SUNW,
AMAT, CPQ, NTAP have all closed buildings for a week or more to
save money on salaries. Sending 1000's of employees home for a week
saves millions of dollars and is easier on morale than layoffs.
Carly Fiorina at HWP was told to take a 10% pay cut or 8 days of
forced vacation. Let's see, that's a tough one.... She already
turned down her $625,000 bonus for last year because her internal
targets were not met. I would bet on her taking the pay cut
instead of the 8 days because she is a strong leader who sets
the example. The company car is another story. All the executive
cars must be turned in, including hers, and they will be given
to salesmen only. Come on Carly, can't you make a case that you
are the best salesman HWP has? All HWP employees are being asked
to "voluntarily" give up accrued vacation days or cut their
pay -10%. I guess the ones who don't "volunteer" make the
involuntary permanent layoff list? (just kidding)

Holiday week trading is a definite wildcard. The big gains in the
Russell-2000 last week were due to speculators jumping in front
of the index funds and the mid-year rebalancing. The Russell is
only five points below resistance and once volume slows we could
see some profit taking.

The artificial support under the market from the rebalancing
should evaporate over the holiday week. Volume, assuming the
exchanges can keep their systems working, should be weak at
best. There could be some carry over on Monday from funds that
were not able to get trades off at the close or from those
which are a little less strict about timing. Nothing says they
have to buy exactly on the close but most try to comply since
there is no real management required of index funds.

What the rebalancing has done for us is create an artificial
bullish sentiment among retail investors. They have seen the
Nasdaq rally almost +150 points in the last five days and still
remember the upside curbs on the Dow on Thursday. Retail sentiment
is high and many feel all the bad news is already priced into
the market. With warning season over and real earnings ahead
it is actually possible that we could see more companies beat
the street than previously thought. We actually ended up with
less warnings this quarter than last even though we had a
really bad start. Many companies may have given a warning just
to be safe and then things did not turn out as bad as they
thought. Should a positive string of earnings announcements
actually occur this could continue to build a base under the

If funds were really dumping "defensive" drugs at the close to
take positions in a possible tech rally then that cash could
be put to work next week. I have to confess, I am not a fan of
possible summer rallies. They are normally short, shallow and
very hard to trade. I would love to see the markets continue
to move on the positive economic data, MSFT verdict, CSCO blue
light sale or even Mars aligning with Venus but I will continue
to be skeptical until the Nasdaq is over 2250 again. The Dow is
sick and after a rate cut series of incredible speed and intensity
it is not getting better. The relief rally on Thursday was wishful
thinking by many and it failed four times in the 10600 range on
Friday. The S&P has been drifting lower since mid-May and is
stuck in a trading range just above support at 1200.

I looked at charts on all 400 stocks on my watch list and there
were more stocks trending up than down. Semis, networkers, fiber,
communications, biotech, finance. This is a positive event except
that more than quite a few were approaching resistance. Many had
excellent short term trends but were about to run into moving
average resistance or down trend lines. Any rally will have to
overcome these resistance points eventually but a summer rally
has less chance of success than a fall rally.

I want to be bullish. I want to say load up the truck but I am
still skeptical. The conditions are ripe to see an explosive
rally but the timing is wrong. We have several major economic
reports next week that could help fuel the fire or extinguish it.
Personal Income/Spending and Construction Spending on Monday and
Nonfarm payrolls on Friday with a holiday in between. The following
week is end loaded with CPI, PPI, Retail Sales, Wholesale
Inventories, Import/Export Prices. With no Fed meeting until
late August investors will be watching these reports to see if
the Fed is on the right track or still behind the curve.

Is the bear market over? Probably so but that does not mean
Nasdaq 5000 is just around the corner. The bottom may be
behind us but there may still be potholes in the road ahead.
They say don't look a gift horse in the mouth so I will trade
the rally as long as it holds. I will keep my stop losses tight
until I am profitable and if the Dow falls under 10450 I will
close and move to the sidelines on any Nasdaq weakness. Simple
plan, now all I have to do is execute on it. I have found that
hindsight is always 20:20. We could have made $$$ if only we had
done X. Foresight is always colored by our bullish bias and is
better than 20:20 until we execute the trade. Once in the trade
we are blind. Emotion takes over and we are tossed about by the
zigs and zags of every conceivable piece of information we
overlooked before pulling the trigger. This is why we have to
have a simple plan for each week and learn how follow that plan
as long as it works and bail immediately when it turns against
us. Of course all the professional traders reading this never
have this problem. Your trades always go as planned for doubles
and triples. If either of you are ever in Denver you can stop
and buy me lunch and tell me other lies about fishing, hunting,
golf, racing or such. You probably have some Boone & Crocket
records, a string of unwitnessed hole in ones and could have
driven in the Indy-500 if you wanted. Us mere mortals will just
keep planning to trade a real rally when it appears and move to
the sidelines if it fails.

Enter passively, exit aggressively!

Jim Brown

Editors Plays

With the Nasdaq showing signs of positive sentiment and many
tech stocks showing a bottom it may be time to take some positions
in some of these wounded issues in hopes they are about to make a
miraculous recovery.

One of these would be Juniper. Cisco said on Friday that inventory
levels were falling and the surplus in Europe was nearing an end.
If that is true for CSCO it is also true for JNPR.

There are two ways to play JNPR. Straight calls and naked puts.

JNPR $31.05

Purchasing a long call on Juniper with the current low volatility
would allow you to profit on any move above $34.70 (strike price
plus premium). Your total risk in this trade would be $4.70 and I
would set a stop loss at $28.75 to prevent this. Why $28.75?
Personal preference. I do not like even numbers because stock prices
are attracted to even numbers. Market makers like to dip just under
those numbers as well to take out stops. If I am willing to enter
a trade I should be willing to risk $2 bucks. The low on the last
two days was just under $30 so if I give myself another dollar of
breathing room I pick $28.75.

Using the naked put strategy I would sell the Oct-$50 put for $20
and hope the stock appreciated over that level by then. With a
naked put I do not have the premium problem like I would with a
call. With a call the stock must gain almost as much as the premium
I spent before can be assured of a profit. If it moved up +$3 on
one day I would be profitable but if it took 30 days to make the
same move I could lose money. The premium decay works in the favor
of the option writer. By writing a naked put the premium decay
works in my favor and I am profitable at any number over the stock
price at where I sold the option. In this case it would be $31.05.
I do assume the added risk of any drop below $31 on the stock.

If I an willing to assume a $4.70 risk on a long call with a $2.50
stop loss then I should also be willing to buy a protective put on
the naked put position for $2.35 as a stop loss on the put. Buying
a July $30 put would accomplish this goal. Yes, I sold an October
but bought a July. The July is cheap and if the play is not profitable
and moving in my direction by July-20th then I don't want to be in
it anyway and I would close both sides and play something else.


NEWP $26.50

Newport is showing signs of a rebound and could be a candidate for
a long call play or a naked put as well. The only difference here
would be a profit stop at $45. Serious resistance at $46 could be
trouble and we would want to be out of the play before then.

The Aug-$25 call is the one I would choose. It is already $1.50
in the money and that makes the time premium only $3.40. I picked
the Aug-$50 put because there is no need to go longer since we
want out at $45 anyway and there was low open interest in the higher
strike prices.


RIMM $32.25

RIMM is showing a nice bounce and looks like a good candidate for
a long call. Because the resistance is so close to the current
stock price I would not use the naked put strategy on this stock.

I picked the $30 call because it was already 2.25 in the money
making the time premium only $3.55. The $35 call premium was $3.40
and it is still $2.75 out of the money. Set a profit stop just under
$40 and avoid the resistance problems.


Trade the rally if it continues but be ready to bail if the Dow
falls below 10450. Conservative traders should wait for the Nasdaq
to close above 2250 on good volume. Yes, it is 90 points away but
do you want to buy below resistance or above it? Food for thought.

Good Luck

Jim Brown

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Fireworks or Fizzle?
By Jeffrey Canavan

Now that the first half of the trading year has come to an end,
what will the second half bring?  Well, the first trading day of
July has been up 12 of the last 13 years, and the Dow has only
finished the month of July lower 3 of the last 12 years.  But we
are also entering what has historically been the worst four-month
stretch for the Nasdaq.  Since 1971, the Nasdaq has experienced
average gains of:

July       0.2%
August     0.1%
September  0.3%
November  (0.4%)

Not the most encouraging statistics I've ever seen, but keep in
mind they are just statistics.  Based on the charts, investors
look indecisive.  That trend may continue through next week, as
market participants focus on 4th of July festivities in the
Hamptons rather than trading on Wall Street.

Here are some more numbers for you to digest.  First Call is
estimating that second quarter profits for the S&P 500 may fall
by as much as 16%.  That compares to a drop of 6% in the first
quarter.  At least that will lower the earnings bar far enough so
that everybody can meet earnings in the coming quarters.

On the economic front, The Conference Board's Help-Wanted Index,
which measures help-wanted advertising in 51 major newspapers,
fell 5 points to a reading of 60 in May.  That compares to a
reading of 83 one year ago.  The hardest hit regions over the
past three months include the South Atlantic (-22.4%) and the
North East (-20.9%).  New England posted the only increase, with
a 5.7% rise in help-wanted ads.  Time to move to Vermont.


Market Volatility
VIX   21.63
VXN   45.49

Put/Call Ratio
Total            .58
Equity Only      .51
OEX              .93
QQQ              .60

Market volatility and put/call ratios slowly drifted lower
during the week.

             Bullish Percent Data
           Current   Change   Status
NYSE          42      (6)     Bear Confirmed
NASDAQ-100    34     +10      Bull Alert
DOW           58     (14)     Bear Confirmed
S&P 500       54       0      Bear Alert

Readings above 70 are considered overbought, and readings below
30 are considered oversold.

Bull Confirmed  - Aggressively long
Bull Alert      - Cautiously long
Bull Correction - pause or pullback in upward trend
Bear Alert      - Take defensive action if long
Bear Confirmed  - High risk if long, good conditions for shorting
Bear Correction - Pause or rebound in downtrend

10-Day Arms Index  1.25

Readings above 1.25 are bullish, and readings below .85 are
bearish.  These signals don't occur often and tend be early, but
when the do, they can signal significant market turning points.

        Advancers     Decliners
NYSE      1936           1140
NASDAQ    2367           1357

        New Highs      New Lows
NYSE       222            21
NASDAQ     263            59

Advisory Sentiment   Bullish   Bearish
                       51%      30.6%


Commitments Of Traders Report: 06/26/01
Weekly COT report discloses positions held by small specs
and commercial traders of index futures contracts at the
Chicago Mercantile Exchange and 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 tend
to be wrong.

S&P 500
No significant changes in the S&P 500.  Institutions remain net
bearish, and increased that stance only slightly last week. This
should translate into the S&P 500 bouncing between 1200 and 1240
until this number budges one way or another.

Commercials   Long      Short      Net     % Of OI
6/12/01      353,074   423,257   (70,183)   ( 9.04%)
6/19/01      301,376   371,121   (69,745)   (10.37%)
6/26/01      307,889   379,955   (72,066)   (10.48%)

Most bearish reading of the year: (111,956) - 3/6/01
Most bullish reading of the year: ( 41,144) - 5/1/01

Small Traders   Long      Short      Net      % of OI
6/12/01        167,720   100,610    67,110     25.01%
6/19/01        128,296    56,038    72,258     39.20%
6/26/01        130,914    56,269    74,645     39.88%

Most bearish reading of the year:  36,513 - 5/01/01
Most bullish reading of the year:  91,122 - 3/06/01

Institutions added more long positions last week than they did
short positions.  They remain net short, but are slowly getting
more bullish.

Commercials   Long      Short      Net     % of OI
6/12/01       33,586    44,234    (10,648)  (13.68%)
6/19/01       23,480    34,097    (10,617)  (18.44%)
6/26/01       26,263    35,690    ( 9,427)  (15.22%)

Most bearish reading of the year: (15,521) - 3/13/01
Most bullish reading of the year:  (1,825) - 1/02/01

Small Traders  Long      Short      Net      % of OI
6/12/01        18,374    16,264    2,110       6.09%
6/19/01        14,284     8,403    5,881      25.92%
6/26/01        10,519     6,064    4,455      26.86%

Most bearish reading of the year:  (1,028) - 1/02/01
Most bullish reading of the year:   8,460  - 3/13/01

This is probably the most surprising data of the week.
Institutions have actually turned net bearish on the Dow for the
first time since 3/20/01.  May that's why the Dow is having
trouble getting above 10,600.

Commercials   Long      Short      Net     % of OI  Open Interest
6/12/01       24,724    18,485    6,239     14.4%     37,886
6/19/01       12,346    10,470    1,876      8.2%     22,611
6/26/01       11,371    12,759   (1,388)    (5.8%)    23,163

Most bearish reading of the year: (8,322) - 1/16/01
Most bullish reading of the year:  8,925  - 5/22/01

Small Traders  Long      Short      Net      %Change
6/12/01        5,332     9,637    (4,305)    (28.76%)
6/19/01        3,844     7,555    (3,711)    (32.56%)
6/26/01        4,756     6,341    (1,585)    (14.28%)

Most bearish reading of the year:  (7,572) - 5/08/01
Most bullish reading of the year:   1,909  - 1/16/01


Bull Confirmed?
By Eric Utley

The Nasdaq has the potential to surprise a lot of people this
summer.  But will it follow-through?

The magnitude of the Nasdaq's recent rally has surprised many at
this point.  And I think it has the potential to keep working
higher judging by the Bullish Percent reading on the Nasdaq-100's
point & figure chart.  It's a mere 1 percent away from a Bull
Confirmed pattern, which may very well portend the Nasdaq trading
up to its relative highs, or perhaps breaking above.

I noticed last week that stocks, especially of the tech/telecom
variety, refuse to go lower.  Three communications chip makers
recently reported very bad things concerning the current state
of their respective businesses.  The roster includes: Applied
Micro (NASDAQ:AMCC), Vitesse (NASDAQ:VTSS) and PMC-Sierra
(NASDAQ:PMCS).  Each of the aforementioned issued terrible
warnings and each of their shares rallied on the news.  So, can
we conclude that this is as bad as it gets?  I don't know yet,
but I do know that the tech sector is full of scared shorts.
And that fact alone may allow for the Nasdaq to continue to
trade higher.

Combine the scared short complex with the Nasdaq-100 knockin'
on the door of Bull Confirmed, and we may witness a fine
summer rally indeed.  The chart below illustrates the Bullish
Percent of the Nasdaq-100.  As soon as it prints 52 (above
the last column of X's) the Nasdaq-100 will be in Bull Confirmed
status.  Keep an eye on this chart next week:

I tried to accommodate as many requests as time and space
permitted this weekend.  And I'm grateful for the many requests
I've been receiving recently and will give a solid effort to
fulfill as many as possible.  But in order to review more
requests, I must cut back on the depth and detail I give to
each stock review.  Forgive me if the reviews this weekend
seem shorter, but I think it may be more beneficial to my
readers if I cover more stocks, so keep the requests coming.

Finally, before we get to this weekend's reviews, I must
opine on the Nasdaq's "issues" last Friday.  In case you missed
it, the SelectNet and SOES trading systems went down late Friday,
which caused a complete mess of the Nasdaq.  Many of the stocks
I'm reviewing this weekend and many of OI's current plays were
adversely impacted by the Nasdaq's misstep last Friday.  As my
readers know, Friday marked the end of the second quarter and,
in light of the Nasdaq's problems, I believe many sinister
money managers were able to artificially inflate and deflate
stock prices.  And I hope the Feds take action!

My hope is that my good friend Mr. Clifton, who just passed the
series 55, can hop into the malaise known as the Nasdaq and
make a market the way it should be done.

Send your stock requests to Contact Support.
Please put the symbol of your requests in the subject line of
the e-mail.


StorageNetworks - STOR

Would like your analysis of STOR - looks like a call play soon to
me. - Thanks, Ed

Thanks for the question and suggestion, Ed!

StorageNetworks (NASDAQ:STOR) is a relatively smaller player ($1.6
billion market cap) in the data storage business.  The company is
growing its sales at a pretty healthy rate, but its losses from
operations have not yet showed a sign of improving.  That is, the
company remains unprofitable and appears it's going to stay that
way for the foreseeable future.  Its losses amounted to about $135
million during its latest fiscal year, but the company has about
$350 million in cash, so it has a few years to become cash-flow
positive.  The stock probably isn't the best of investment choices
in the data storage space due to its unprofitable nature, but it is
a good stock to trade because it tends to conform to its technical
price patterns.

The stock traced an inverse head-and-shoulders in March and
April, and subsequently broke above the neckline of its pattern
at $13.50, at which time Option Investor added the stock to the
call list.  Shares traded as high as $23.50 in May, before
pulling back on lighter volume in order to consolidate their

Using a retracement of the stock's relative low at $7 to its
relative high around $23.50, I found that the 38.2 percent
retracement lies around the $17.50 level (Also the site of a
strike price).  That level provided some support during the
stock's pullback and I suspect it will serve as resistance on
the way up.

In terms of support, shares don't have much help immediately
below current levels.  The first site I'd turn to is the
former neckline around $13.50.  Below that, you can see on the
chart below that shares developed a strong ascending support
line from their early March lows and bounced off that support
line two weeks ago.  Depending upon your trading style, Ed, you
can use these levels for determining entry points as well as
measuring risk.


ADC Telecom - ADCT

I don't remember you covering ADCT.  I'd like your opinion on their
current pricing and performance.  I really enjoy reading your
articles...keep up the good work. - Mike

Thank you for the kind comments, Mike.

I wish I had a positive slant for ADC Telecom (NASDAQ:ADCT) to
accompany your compliment, Mike.  The company is a manufacturer
of network equipment, and competes with the likes of Lucent
(NYSE:LU), Cisco (NASDAQ:CSCO), JDS Uniphase (NASDAQ:JDSU) and
Tellabs (NASDAQ:TLAB).  Obviously, this isn't the best of
sectors to be associated with.

The company has seen its sales drop drastically from
year-over-year comparisons and they've yet to show signs of
stabilization.  And the income statement looks terrible for the
quarter ended in April.

One thing to consider concerning the stock's performance,
especially over the last month, is the fact that it may have
suffered from the end-of-quarter phenomenon known as window
dressing.  But in the case of ADC Telecom, money managers could've
been "undressing" their portfolios of its shares.  Money managers
don't like to explain to their clients why they've held onto a
losing stock when it comes time to issue quarterly performance
reports and portfolio holdings.  This event could partially
explain why the stock has performed so poorly relative to the
Networking Sector Index (NWX.X).  The chart below depicts the
stock's performance relative to the NWX.  And the directional
analysis of the chart reveals that the stock is trading lower
relative to the NWX.

One other point I'd like to address is that the stock generated
a bearish price objective on its point & figure chart in late
January of $7, which is the current level it's bouncing around.
So if the end of quarter selling subsides, which I suspect
dragged the stock down, shares could rebound from current levels.
But, there's not much short interest in the stock, so it's going
to take some sort of catalyst to get it moving higher.

If the stock continues trading lower from current levels, traders
can use a retracement bracket to make an educated guess of how
low it may fall.  On the chart below, I've laid a retracement
from the stock's relative high around $10.85 to its most recent
relative low last Friday around $6.50.  I've included the 127.2
and 161.8 retracement levels, which essentially measure the
stock's decline from $10.85 to $6.50, and magnify that number
by 27.2 and 61.8 percent to forecast how low it may trade from
current levels.  Market makers use this method of forecasting
when a stock either breaks out above a relative high or below
a relative low.


TriQuint Semiconductor - TQNT

I would like your thoughts on TQNT if you have the time & space.
Thanks and keep up the good work! - Regards, MB

Thanks for the kind words of encouragement, MB!

TriQuint Semiconductor (NASDAQ:TQNT) is one of those companies
that belongs to the communications chip complex I mentioned in
the introduction of this weekend's column.  However, unlike the
companies I previously mentioned such as PMC-Sierra and Vitesse,
TriQuint didn't warn during the last week.  In fact, the company
reiterated its previously lowered guidance early last week,
which was enough to induce fear into the shorts, who in turn
covered on the news last week.  (According to the most recent
data, there are about 5 million shares short, which equates to
roughly 6.5 percent of the stock's float, which is large enough
to matter in my estimation.)

The stock staged an impressive run last week, but I think it
begs caution as it approaches the $25 level.  That's because
significant supply (resistance) exists on TQNT's point & figure
chart.  The chart below clearly depicts a meaningful resistance
level at $25, which has contained the stock since mid May.  Of
course a breakout above that level would be most bullish, but
I suspect that traders already in the stock will use that
level as an exit point and the remaining shorts in the stock
should "lean" on TQNT at that level.

The daily chart below reinforces the significance of the $25
level.  I've laid a retracement over the stock's recent
decline from $32.73 to $13.70.  The 50 percent retracement
level lies immediately above current levels around $23, while
the 50 percent retracement level reinforces our findings on
the point & figure chart.  But to reiterate, a breakout above
that level would be bullish indeed and could result in TQNT
revisiting its relative highs in the short-term.  That's
because the remaining shorts in the stock would cover in a
big way and the longs in the stock would be inspired to
add to their already lucrative positions.


Elantec - ELNT

I was hoping to get your impression on two stocks on my watch list
that appear ready to make a positive move, ELNT and CRUS.  Both
show positive directional moves in their stochastics as well as
the MACD and their trend has stabled if not moved to an ascending
pattern.  Any thoughts or impressions you may have would be most
appreciated. - Thanks, Martin

Thanks for the thoughtful question, Martin.  I think I'll take
on your request of Elantec (NASDAQ:ELNT).

The company is another high-end semiconductor manufacturer,
although it's not as closely tied to the telecom business as
some of the other companies I've mentioned this weekend (VTSS,
TQNT and PMCS).  Although some of its products are used in the
communications markets, it also tailors its products for
applications in video, storage and consumer electronics.

The company presented at the Thomas Weisel Growth Forum 3.0
early last week, at which time analysts at the investment
bank upgraded shares of Elantec from a buy rating to a strong
buy rating.  The company delivered guidance that induced some
optimism on the part of bulls, which most certainly was
reflected in the stock.

Despite the drastic reductions in estimates, Elantec is
still expected to turn a profit during the current quarter
and for the remaining part of 2001.  That out performance in
terms of profitability should lend to the stock's out
performance once demand returns for its products.  And if
Thomas Weisal's upgrade is of any indication, demand could
be returning currently.

To chase or not to chase, that is the question?  Following
the stock's big ramp last week in the wake of Thomas
Weisel's upgrade Tuesday, the stock is rather extended at
current levels judging by the stochastics readings that you
alluded to, Martin.  Of course in a trending market stochastics
don't mean much.  They are an oscillator, after all.  MACD, on
the other hand, crossed over last week and is turning up which
may portend the beginning of an extended advance.

The stock is well above most of its meaningful near-term
resistance levels, but does have a long-term descending trend
line that has contained since last November.  That line
currently sits at $35.  So I think it would make sense for
the stock to pullback next week and bounce underneath its
resistance line before eventually breaking out.  In terms of
pullbacks, I've once again deferred to the trusty retracement
bracket for some help.  I've simply laid a bracket over the
stock's advance last week, which in my estimation is meaningful
enough to measure.  Look for support around $30 to hold.


Emc - EMC

Very much appreciate your insights and your column.  Could you
please comment on both EMC and JNPR?  Would you take positions
at these levels? - Thanks, Larry

..Whats with EMC now, isn't there mid-term profit solid and
thus the stock price should rise over the next 3 months or so? -
Thanks, Skier

Thanks for the questions, fellas.

I think it would be prudent to revisit Emc (NYSE:EMC) since we
haven't covered the stock for quite some time since I expressed
my bullish views on the company.

Several months ago, we heard some good things concerning the
data storage business.  Emc, Network Appliance (NASDAQ:NTAP) and
Brocade (NASDAQ:BRCD) had all commented that business had
stabilized and was on the rebound.  But since that time, in one
form or another, the data storage business has deteriorated.

Beginning with Laura Conigliaro's reduction of estimates on
Sun Microsystems (NASDAQ:SUNW) and Emc on May 29th.  As you'll
note on the chart below, that was the day that EMC broke from
its trading range which I had opined was crucial to hold for it
to consolidate its gains and losses, and ultimately move higher.

Following Conigliaro's reduction in estimates, which proved
telling, the stock has worked lower as talk has spread that
EMC is having a terrible quarter.  But they haven't warned yet,
so just how bad the quarter actually is remains to be seen on
July 19th, when the company reports.

What I CANNOT understand concerning EMC is how its suppliers
such as QLogic (NASDAQ:QLGC) and Emulex (NASDAQ:EMLX) are trading
so well, while EMC languishes.  Is it because they're OTC issues
and EMC is listed?  Just kidding.  But even Brocade is trading
much better than EMC...

Aside from the fact that EMC broke below its consolidation range
in May and may be at risk for a disappointment on the earnings
front, I still think the stock is a good long-term holding.  Its
management is excellent and the company commands the majority
of the data storage market.  Perhaps investors will start to
put this current quarter behind the stock when the company reports
later this month and begin to look towards 2002 earnings, which
will begin being discounted in the stock price.  Provided the
guidance is somewhat encouraging when EMC reports this month, I
think once again that the stock can be bought at current levels
and sold higher six to nine months out.


Vertex Pharmaceuticals - VRTX

Vertex Pharmaceuticals has made a significant discovery this week
in the positive treatment of diabetes, this news made a positive
move in its price.  The trend line is ascending as well as the
stochastics and the MACD indicators.  If this stock breaks the
52 dollar level it should be able to climb well into the 60's. -
Thanks, Martin

Thanks for another good question, Martin!

I tend to agree with your view that if Vertex (NASDAQ:VRTX) breaks
above the $52 level it should stage an extended advance.  That's
why we included the stock on the Option Investor call list

The $52 level marked the stock's relative high, which in turn
created a supply level on the point & figure chart.  The chart
below depicts that much.

However, like the Elantec review above, the price action in
Vertex last week leaves a lot in the way of short-term risk.  So
is it better to chase the stock higher on a breakout or wait for
a pullback?  The answer to that question is most definitely a
function of specific trading style and risk tolerance, but we
can identify a few support levels to monitor in the event of a

The stock attracted buyers around the $43 during the early part
of June, which may continue to serve as support.  Reinforcing that
level is the ascending bullish support line of the stock's
point & figure chart above, which currently lies at $42.


This column is an information service only.  The information
provided herein is not to be construed as an offer to buy or
sell securities of any kind.  The Ask the Analyst picks are not
to be considered a recommendation of any stock or option but an
information resource to aid the investor in making an informed
decision regarding trading in options.  It is possible at this
or some subsequent date, the editor and staff of The Option
Investor Newsletter may own, buy or sell securities presented.
All investors should consult a qualified professional before
trading in any security.  The information provided has been
obtained from sources deemed reliable, but is not guaranteed
as to its accuracy.

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For the week of July 2, 2001

On the heels of this past week's tame 25 basis point
cut, the upcoming economic reports are expected to show
modest slowing of spending in spite of increased
unemployment and falling equity wealth.  Look for light
trading volume throughout the week due to the holiday on

Auto Sales             Jun  Forecast:  6.4M  Previous:  6.4M
Truck Sales            Jun  Forecast:  7.1M  Previous:  7.2M
Personal Income        May  Forecast:  0.3%  Previous:  0.3%
PCE                    May  Forecast:  0.4%  Previous:  0.4%
Construction Spending  May  Forecast:  0.0%  Previous:  0.3%
NAPM Index             Jun  Forecast: 42.0%  Previous: 42.1%

Factory Orders         May  Forecast:  1.5%  Previous: -3.0%

None scheduled

Initial Claims         May  Forecast:   N/A   Previous:  388K
NAPM Services          Jun  Forecast:  46.5%  Previous: 46.6%

Nonfarm Payrolls       Jun  Forecast:  -40K   Previous:  -19K
Unemployment Rate      Jun  Forecast:  4.6%   Previous:  4.4%
Hourly Earnings        Jun  Forecast:  0.3%   Previous:  0.3%
Average Workweek       Jun  Forecast:  34.3   Previous:  34.3

Week of July 9
Jul 09 Consumer Credit
Jul 10 Wholesale Inventories
Jul 12 Initial Claims
Jul 12 Export Prices ex-ag
Jul 12 Import Prices ex-oil
Jul 13 PPI
Jul 13 Core PPI
Jul 13 CPI
Jul 13 Core CPI
Jul 13 Retail Sales
Jul 13 Retail Sales ex-auto
Jul 13 Mich Sentiment-Prel.

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The Option Investor Newsletter                   Sunday 07-01-2001
Sunday                                                      2 of 5

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Call Play of the Day:

JNPR - Juniper Networks $31.10 (+2.11 last week)

See details in sector list

Put Play of the Day:

BA - Boeing $55.60 (-1.40 last week)

See details in sector list

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Anything else is too slow!



Remember that historically, when we drop a pick it will go up
10 to 15% the very next week. It is part of Murphy's Law.
Just because we drop a stock as a pick does not mean we are
advocating a "sell" on any position you have. We are simply
dropping our recommendation as a new play. Existing plays
can and do continue on and are usually profitable.


FRX $71.00 (-1.10) Continuing its stutter-step up the chart,
FRX was looking pretty stable in the $73 range, right up to the
final 90 minutes of trading on Friday.  That's when the
Pharmaceutical index (DRG.X) began to really fall apart, and the
carnage dragged FRX sharply lower on increasing volume right up
to the closing bell.  Whether it was due to end-of-quarter
window dressing, or some unknown news item, it is clear that FRX
is being pressured by sector weakness.  While our stop is still
intact, we don't like the unexplained weakness.  When in doubt,
get out.  That's exactly what we are doing, dropping FRX this


APWR $52.14 (+9.04) Shares of AstroPower received a buy rating
from Wedbush Morgan last Friday morning.  But the analyst
actions didn't have much impact on the stock.  In fact, the
stock sold off Friday morning and flat-lined around $48 for
the better part of the session.  That is, until the Nasdaq
announced its "extended" hours trading late Friday.  There
were several suspicious trades that went off in APWR in the
hour following the closing bell Friday, that may be viewed
as unscrupulous doings by fund managers.  The stock gained
$4 in the after hours session Friday, on no apparent news
whatsoever.  This may result in a sell-off early next week
as the inflated price in the after hours session appeared
artificial.  Nevertheless, we're dropping coverage on the
play this weekend for good measure.

NETE $30.00 (-0.14) Shares of Netegrity actually closed
above our $31 stop level Friday, at least using the 4:00
p.m. closing price.  In the after hours session, however,
the stock shed nearly $2, which was rather peculiar.  In
fact, many Nasdaq issues experienced wild fluctuations last
Friday afternoon in light of the issues on the Nasdaq.  But,
we're sticking with our stop and focusing on the fact that
NETE traded well above it last Friday.  If the stock does
open around the $30 early next week, use that weakness to
exit any open positions.

HGSI $60.25 (-2.25) Sure enough, the bulls did come out swinging
on Friday, quickly pushing HGSI up to dance around the $60 level
all day long.  With the monkey-business on the NASDAQ towards
the end of the day, closing prices were hard to gauge due to
light volume.  The abnormally-late closing price came in just
above $60, triggering our stop, and with good reason.  We did
well booking some gains early in the play, but the recent
strength makes the play far less attractive as the stock appears
to be preparing for an attempted push through that pivotal $61

NVDA $92.75 (+1.45) NVDA has stubbornly refused to break down
over the past week, as the bulls and bears have gradually fought
to a standstill building a neutral wedge that is likely to break
soon.  The problem is that it is difficult to discern which way
it should break, and we don't want to get on the wrong side of
such a move.  While our stop at $96 has not been broken, NVDA
does not look nearly as attractive as it did last week at this
time.  Rather than wait and hope, we'll close the play and
search for easier game.


SL  = Suggested stop loss. Sell if bid breaks this price.
OI  = Open Interest - the number of open contracts outstanding.
ITM = In the money
ATM = At the money
OTM = Out of the money
ADV = Average Daily Volume

The options with a "*" by the strike price are our choices from the
group. If the stock moves as expected we feel they have the best
chance to substantially increase or double in price with the best
risk/reward ratio compared to the other options for the same stock.
You must determine if they fit your risk profile for time and price.

Analysts ratings: 1-2-3-4-5
Analysts who follow each stock rate it and these rating are
accumulated and displayed as follows;

Position 1 = number of analysts recommending "strong buy"
Position 2 = number of analysts recommending "moderate buy"
Position 3 = number of analysts recommending "hold" or "neutral"
Position 4 = number of analysts recommending "moderate sell"
Position 5 = number of analysts recommending "strong sell"

Example rating 5-3-1-0-0 would be 5 "strong buys", 3 "moderate buys",
1 "hold" recommendation.

The risk of selling naked puts is always the possibility
of a catastrophic event that drops the stock below the
strike price and could result in the stock being PUT to you.
Always protect yourself with a "buy to cover" limit order
to take you out before this can happen.


BBY - Best Buy $63.52 (+1.70 last week)

With a powerful bricks and mortar foundation composed of over 400
retail stores throughout the U.S., Best Buy offers great products
at great prices - off-line.  The largest volume specialty retailer
of consumer electronics, personal computers, entertainment
software and appliances, Best Buy is headquartered in Eden Praine,
Minnesota.  Best Buy currently operates stores in 41 states and
is on track to have more than 550 stores nationwide by 2004.

There are two main fundamental themes behind our bullish play
on BBY.  The first is the drastic reduction in interest rates
by the Federal Reserve thus far in 2001.  The second item working
in BBY's favor is the soon-to-be-released "refund" checks by the
U.S. Treasury.  Many of those dollars that are going to be sent
back to taxpayers this summer will make their way into BBY's
coffers.  The two aforementioned fundamental drivers have
helped to carry shares of BBY higher recently, and should continue
to do so in the short-term.  In terms of technicals, BBY's
chart reflects the optimism over the company.  The stock has
been working its way higher over the last six weeks, en route
to tracing an ascending wedge, with the breakout point located
at $65.  That said, traders who prefer trading breakouts can
use an advance above the $65 level on heavy volume to gain
entry into this play.  But for those pursuing a breakout
strategy, make sure to confirm strength in the Retail Sector
Index (RLX.X).  In the short-term, we'd like to see the RLX
move above the 880 level, which may give confirmation to enter
new BBY call positions.  Conversely, for traders who prefer
to enter call positions on weakness, look for BBY to pullback
to support near $62 on light volume, and consider entering
on any subsequent bounce from that level.  But we'd like to
see the stock hold above $62 on any pullback, as our stop is
set just below that level at $61.  We'd drop coverage on BBY
if it closed below $61.  In addition to monitoring the RLX,
traders might also keep a close eye on other consumer
electronics retailers such as Radioshack (RSH) and Circuit
City (CC) when trading BBY.

BUY CALL JUL-60 BBY-GL OI=2498 at $4.90 SL=3.00
BUY CALL JUL-65*BBY-GM OI=3060 at $1.85 SL=1.00
BUY CALL JUL-70 BBY-GN OI= 922 at $0.55 SL=0.00  Aggressive!
BUY CALL AUG-65 BBY-HM OI= 268 at $3.90 SL=2.50
BUY CALL AUG-70 BBY-HN OI= 600 at $2.00 SL=1.00

SELL PUT JUL-60 BBY-SL OI= 810 at $1.00 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 2.66 mln

WB - Wachovia Corp. $71.15 (+2.05 last week)

Wachovia Corporation is an interstate financial holding company
which, through its many subsidiaries, offers a wide array of
credit and deposit services, insurance, investment and trust
products to consumers, as well as domestic and foreign
corporations.  In addition to the traditional network of
retail branches and ATMs, products and services are available
by phone and over the internet.

Outdistancing the overall Financial sector, WB has been on a
tear lately.  While the actual size of the move in the stock has
been rather tame, what attracts us to the play is the
consistency.  The past 3 weeks have seen WB trade consistently
along an ascending trendline, which currently rests at $70.
Breaking above the $69-70 resistance level was definitely
encouraging, and it looks like the bulls are setting their
sights on the formidable $75 resistance level.  We will likely
want to take profits near that level, but the bullish trend
presents the opportunity to milk some profits out of the play in
the meantime.  The Point and Figure chart currently points to a
bullish price target of $74, making it all the more prudent to
harvest those profits when they are offered.  In the meantime,
we want to use intraday pullbacks near $69 or $70 as entry
points, although momentum traders can consider taking a position
on continued strength above the $71 level.  In order to play the
momentum side, we'll need to see stronger volume support the
move.  The only wrinkle is that we have a holiday week in front
of us, so overall volume is likely to be light.  Place stops at
$68, as a close below that level will indicate the bulls have
been put out to pasture.

BUY CALL JUL-70*WB-GN OI=3793 at $2.10 SL=1.00
BUY CALL JUL-75 WB-GO OI= 668 at $0.25 SL=0.00
BUY CALL AUG-70 WB-HN OI= 124 at $3.10 SL=1.50
BUY CALL AUG-75 WB-HO OI=  15 at $0.90 SL=0.00
BUY CALL OCT-70 WB-JN OI=2037 at $4.60 SL=2.75
BUY CALL OCT-75 WB-JO OI=  32 at $2.55 SL=1.25

Average Daily Volume = 1.40 mln

TGH - Trigon Healthcare $64.85 (+4.73 last week)

Based in Virginia, TGH is a managed healthcare company, serving
over two million members primarily through statewide and
regional provider networks.  The company divides its business
into four segments, which include health insurance, government
programs, investments and all other.  The health insurance
segment provides a comprehensive spectrum of managed care
products primarily through three network systems with a range
of utilization and cost-containment controls.  The government
is TGH's largest customer, as the company services the Federal
Employee Program.  The 'all other' category includes disease
management programs, third-party administration for medical
and workers compensation, and health promotions.

After forming a base near $380, the Healthcare Payor index
(HMO.X) has started to strengthen, and TGH has been leading the
charge, vaulting higher by more than 11% in the past 6 trading
sessions.  After clearing the $61 resistance level (also the
site of the 200-dma) last week the stock really got moving and
volume has been increasing all along.  On Friday, trading volume
was running well over double the ADV, and it looks like there
could be more room to run.  Last week's rally gave us a bullish
triangle breakout on the Point and Figure chart, and by week's
end, TGH had cleared the bearish resistance line as well.
Support should now be firm at the $61 level, giving us a logical
level for placing our stop.  After last week's strong rally,
profit taking is now overdue, so we want to target a pullback to
the $61-62 area for initiating new positions.  If the bulls can
keep pushing higher from current levels, we would expect
resistance to materialize near $67 and then $70.  Monitor the
HMO index for continued strength and make sure buying volume
remains robust before initiating new positions.

BUY CALL JUL-60 TGH-GL OI= 75 at $6.00 SL=4.00
BUY CALL JUL-65*TGH-GM OI= 98 at $2.75 SL=1.25
BUY CALL JUL-70 TGH-GN OI=  8 at $0.95 SL=0.00
BUY CALL AUG-65 TGH-HM OI=849 at $4.30 SL=2.75
BUY CALL AUG-70 TGH-HN OI=155 at $2.15 SL=1.00

SELL PUT JUL-40 TGH-SL OI= 10 at $0.70 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 314 K

JNPR - Juniper Networks $31.10 (+2.11 last week)

As a provider of Internet infrastructure solutions, JNPR serves
Internet service providers and other telecommunications service
providers, helping them to meet the demands resulting from the
rapid growth of the Internet.  The company delivers next
generation Internet backbone routers that are specifically
designed for service provider networks.  JNPR's flagship product
is the M40 Internet backbone router, which complements the
recently-introduced M20, which is a router built specifically
for emerging service providers.  The routers provided by the
company combine the features of the JUNOS Internet Software,
high performance ASIC-based packet forwarding technology and
Internet-optimized architecture into a purpose-built solution
for service providers.

Although the Networking index (NWX.X) is still locked in a
long-term downtrend, signs of strength are starting to appear
in stocks such as JNPR, which appears to have found bottom near
$28.  This was the site of the March lows, and it appears there
is significant buying interest near that level.  While the
double-digit moves of last year are likely gone for good, the
stock is currently presenting us an attractive risk/reward
ratio.  We can limit our risk with a stop at $28, as a close
below that level would represent a very negative technical
development.  With price beginning to recover, an upward move
seems the more logical outcome in the near term, with the first
overhead obstacle being the $34 resistance level.  Moving
through $32 will provide for new entries, as would a renewed
bounce from intraday support at $29 or $30.  Once the bulls
manage to crest the $34 level, they will start to focus on
intraday resistance at $36 and $38 before setting their sights
on $41, the bottom of the gap down on June 8th.  Volume has
been downright anemic lately, coming in right around half the
ADV, and we will need to see it pick up if JNPR is going to
mount a sustained rally as its earnings date (July 12th)
approaches.  As long as the NWX index doesn't take a body blow
from some other major earnings warning, JNPR looks poised to
have a decent run into earnings this quarter.  Won't that be
a refreshing change of pace?

BUY CALL JUL-30*JUX-GF OI= 6610 at $3.50 SL=1.75
BUY CALL JUL-35 JUX-GG OI=17733 at $1.30 SL=0.75
BUY CALL AUG-30 JUX-HF OI= 1230 at $4.70 SL=2.75
BUY CALL AUG-35 JUX-HG OI= 3582 at $2.75 SL=1.25
BUY CALL AUG-40 JUX-HH OI= 1361 at $1.60 SL=0.75

SELL PUT JUL-30 JUX-SF OI= 352 at $1.85 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 27.6 mln

Why put all your risk into one stock when you can play the
index instead?

Learn how to invest in the OEX, QQQ, and SPX.  Get intraday
market updates, plays, education and daily commentaries by
those who know.

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The Option Investor Newsletter                   Sunday 07-01-2001
Sunday                                                      3 of 5

To view this email newsletter in HTML format with embedded
charts and graphs, click here:

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MEDI - MedImmune $47.20 (+1.90 last week)

MedImmune Incorporated is a fully integrated biotechnology
company focused on developing and marketing products that
address medical needs in areas such as infectious disease,
immune regulation and cancer.  Headquartered in Gaithersburg,
Maryland, MedImmune has manufacturing facilities in Maryland
and the Netherlands.

Since picking up coverage on MEDI, the stock has gyrated
around its ascending trend line, reinforced by the 10-dma that
currently sits at $44.88.  The stock remains technically strong
in its ascending trend, despite the challenges in the broader
biotech sector, as measured by the sideways trading in the
AMEX Biotechnology Sector Index (BTK.X).  Although, the BTK was
able to advance back above the 600 level late last week, which
is an encouraging sign for our play.  Nevertheless, MEDI is
most definitely finding near-term resistance at its 200-dma,
which currently lies at $48.05  MEDI's intraday highs last
Thursday and Friday were $48.00 and $48.05, respectively.  So
it's rather obvious that sellers, in one form or another, are
showing up at that level.  That leaves a fairly obvious entry
point for traders to monitor early next week.  But, we
obviously want to witness healthy volume accompany any
breakout attempt over the 200-dma.  Look for roughly 500 K
shares traded on an intraday, 30-minute interval to confirm
that any advance above the 200-dma is for real and actionable.
If MEDI doesn't break above its 200-dma early next week, it
is likely to pullback.  But that would be quite alright as
far as we're concerned.  The stock has a very strong ascending
support line on the point & figure chart, which should
induce buyers to step in at the $43 level, should MEDI fall
back that low.  If the buyers step in earlier on any pullback
next week, look for support to materialize near $45.  And
depending upon trading style and risk tolerance, a pullback
to either of the aforementioned support levels may offer a
profitable entry point.  For the time being, we're maintaining
our stop at the $43 level, but will raise it if MEDI breaks
above its 200-dma next week.

BUY CALL JUL-45*MEQ-GI OI=2168 at $4.00 SL=2.50
BUY CALL JUL-50 MEQ-GJ OI=1916 at $1.35 SL=0.75
BUY CALL AUG-45 MEQ-HI OI=2173 at $5.20 SL=3.25
BUY CALL AUG-50 MEQ-HJ OI=1730 at $2.75 SL=1.50

SELL PUT JUL-45 MEQ-SI OI=1001 at $1.40 SL=2.75
(See risks of selling puts in play legend)

Average Daily Volume = 3.23 mln

RATL - Rational Software $28.50 (+1.75 last week)

Rational Software provides a platform for software development
that speeds time-to-market while improving software quality.
This integrated full life-cycle solution combines software
engineering best practices, market-leading tools, and
professional services.  Ninety of the Fortune 100 build
software with the Rational solution.

RATL has stalled at the $30 level in the past two sessions.
And that fact is not by coincidence.  Jeff Bailey highlighted
RATL in one of his intraday updates late last week, which
touched upon the significance of the $30 level.  In essence,
demand is lacking for RATL's stock at, or slightly below the
$30 level, which is most likely a product of market makers
controlling risk and inventory levels.  The catalyst to shift
the supply and demand dynamic in RATL over the short-term is
the unknown factor we face.  The company is slated to announce
earnings on Wednesday, July 11th, which may be the event, or
perhaps the anticipation of that event, that breaks RATL above
the $30 level.  As we await the catalyst, however, the best
strategy is to defer to price action in the stock.  One
strategy to consider is entering on a breakout above the
pivotal $30 level if volume confirms the move, in conjunction
with strength in the Nasdaq and Software Sector Index (GSO.X).
The GSO has resumed its ascent recently and closed above the
225 level we've been monitoring.  If the GSO trades above the
230 level early next week, RATL will have a much better chance
of breaking above the $30 level, so keep a close eye on the
stock's sector.  RATL does have meaningful support at $28,
but in terms of extended pullbacks, traders might look for
support to materialize between the $26 and $27 levels, around
the 10-dma currently at $26.77.  Our stop still lies at the
$26 level.

BUY CALL JUL-25.0*RAQ-GE OI=1264 at $4.30 SL=2.75
BUY CALL JUL-30.0 RAQ-GF OI=1625 at $1.70 SL=0.75
BUY CALL AUG-25.0 RAQ-HE OI=  66 at $5.30 SL=3.25
BUY CALL AUG-30.0 RAQ-HF OI= 321 at $2.85 SL=1.50

SELL PUT JUL-25.0 RAQ-SR OI= 751 at $0.90 SL=1.75
(See risks of selling puts in play legend)

Average Daily Volume = 4.50 mln

CEPH - Cephalon $70.50 (+1.90 last week)

Cephalon seeks to discover, develop and market innovative products
to treat neurological disorders, sleep disorders and cancer.  The
company is committed to providing patients and the medical
community with novel therapies to treat unmet medial conditions
through its proprietary research programs and by acquiring
promising products for clinical development and commercial sale.

CEPH's lack of follow-through last Friday is cause for mild
concern.  Although the stock pulled back on lighter volume than
was witnessed during last Thursday's breakout, its price action
was not desirable in light of the favorable action in the Nasdaq
as well as the Biotechnology Sector Index (BTK.X).  The only
major news we could find last Friday was Cephalon's receiving of
marketing authorization in about a dozen European countries,
which was good news indeed.  Perhaps the news release may have
induced profit taking among those longs who've been in the
stock during its recent rise in typical "buy on the rumor, sell
on the news" fashion.  Also worth noting was the wild and wacky
trading late Friday on the Nasdaq, which may have caused
artificial weakness in the stock.  CEPH closed at 4:00 p.m. EST at
$71.50 a share, while the supposed extended session on the
Nasdaq late Friday saw the stock lose another $1.  Nevertheless,
for good measure, we've raised our protective stop up to the $69
level in an attempt to mitigate risk for those who have open
positions in the play.  If CEPH is going to continue higher along
its aggressive ascending support line, it should find support
right at the $69 level.  And for those who are looking to gain
new entries into the play, look for a light-volume pullback down to
$69.  While those who prefer to enter on strength (breakouts) may
wait for CEPH to advance above the $72.80 level.  Keep a close
watch on the Nasdaq and BTK, and confirm direction in both when
entering new CEPH plays on a breakout!

BUY CALL JUL-65 CQE-GM OI= 245 at $7.30 SL=5.25
BUY CALL JUL-70*CQE-GN OI=1475 at $4.10 SL=2.50
BUY CALL JUL-75 CQE-GO OI= 376 at $1.90 SL=1.00
BUY CALL AUG-70 CQE-HN OI=1421 at $6.80 SL=4.75
BUY CALL AUG-75 CQE-HO OI=1112 at $4.50 SL=2.75

SELL PUT JUL-65 CQE-SM OI= 765 at $1.35 SL=2.75
(See risks of selling puts in play legend)

Average Daily Volume = 1.91 mln

MWD - Morgan Stanley Dean Witter $64.23 (-0.82 last week)

Morgan Stanley & Co. is a preeminent global financial service
firm with well recognized brand names including Morgan Stanley
and Discover Card, among others.  Morgan Stanley combines the
strength of innovative financial products and services with
powerful distribution capability to individual and institutional
clients.  Morgan Stanley's products and services include
underwritten public offerings of securities, mergers and
acquisitions and other financial advisory services, securities
sales and trading, research and asset management services.

The Securities Broker/Dealer Index (XBD.X) is four points away
from giving a buy signal on the point & figure chart.  Meanwhile,
MWD is about $2 away from giving a buy signal.  We need to see
MWD trade $66 in order to give the buy signal on its point &
figure chart.  If that happens, we're likely to see our $70 price
target realized in the short-term.  So the entry strategy to
focus on early next week is for MWD to advance on relatively
strong volume above the $66 level, confirmed by the XBD advancing
above the 510 level.  The XBD closed back above the
psychologically significant 500 level last Friday which was a
most encouraging sign indeed!  And it needs only trade a few
ticks higher early next week to give the buy signal.  On the
other hand, if the XBD does decide to pullback next week, it has
strong support developing around the 488 level, which may
coincide with a low-risk entry into MWD positions on any
pullbacks in the stock.  MWD should continue to find support
near $62 as it has done over the past three trading sessions.
However, below $62 lies our protective stop at $61.  And for
good reason, too!  A trade at or below $61 would generate a sell
signal in MWD, which would give us good cause to drop the play,
hence our stop at that level.  While traders can play the trading
range between roughly $62 and $66, it may be prudent to be
patient for the ultimate breakout we're gaming.

BUY CALL JUL-60 MWD-GL OI= 5771 at $5.60 SL=3.50
BUY CALL JUL-65*MWD-GM OI=15422 at $2.40 SL=1.25
BUY CALL JUL-70 MWZ-GN OI=15849 at $0.75 SL=0.00
BUY CALL AUG-65 MWD-HM OI=  448 at $4.10 SL=2.50
BUY CALL AUG-70 MWZ-HN OI=  590 at $0.85 SL=0.00

SELL PUT JUL-60 MWD-SL OI=12151 at $1.25 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 5.85 mln

BSYS - BISYS Group $59.00 (+1.52 last week)

BISYS is a leading provider of outsourced business process
solutions, strategically positioned as the only single-source
integrator of banking, investment, and insurance solutions.  This
unique array of products and services integrates core processing
platforms with contemporary Internet- and browser-based solutions,
and currently supports more than 15,000 financial institutions
and corporate clients.

Following its breakout Thursday, BSYS pulled back Friday on
relatively lighter volume.  Part of the weakness in its shares
may have been attributable to the problems inflicting the
Nasdaq market near the tail end of Friday's session.  The
reason we bring this up is because BSYS shed $0.90 in the
after-hours session, or what the Nasdaq briefly labeled the
"extended" trading session.  There was no news to accompany the
pullback in the stock after hours, which makes it difficult to
give much credence to the price action during that period of
time.  Nonetheless, we raised our protective stop on BSYS to
$56, up from $55, in order to minimize any lingering impacts
over the weekend.  Earlier Friday, First Union reiterated its
strong buy rating on shares of BSYS, along with their $67 price
target.  The analyst actions didn't have much impact on the
stock throughout the day as it traded around the $60 level for
most of the day, within a very tight range.  The $60 level may
serve as a psychological level, where traders are taking
profits.  That said, a solid lift from that level may serve
as an entry point if the broader Nasdaq is advancing.  Traders
can use any advance above BSYS' relative high at $60.65 to
gain new entries into the play in conjunction with a strong
broader market.  Conversely, pullbacks down around $58, or
lower near $57 may offer traders opportunities to get long
this play on a pullback.  However, when gaming an entry on a
pullback, make sure light volume accompanies weak price

BUY CALL JUL-55 BQY-GK OI= 89 at $3.70 SL=1.75
BUY CALL JUL-60*BQY-GL OI=154 at $1.60 SL=0.75
BUY CALL JUL-65 BQY-GM OI=  0 at $0.25 SL=0.00  Aggressive!
BUY CALL AUG-60 BQY-HL OI=  0 at $2.75 SL=1.50  Wait for OI!

Average Daily Volume = 602 K

VRTX - Vertex Pharmaceuticals $49.50 (+4.47 last week)

Seeking to discover, develop and commercialize novel
small-molecule drugs that address significant markets with
major unmet medical needs, VRTX is a relatively small, but
potent biotechnology company.  Targeting the treatment of
viral diseases, cancer, auto-immune and inflammatory diseases
and neurological disorders, the company's drug design platform
integrates advanced biology, chemistry, biophysics and
information technology to make the drug discovery process
more efficient and productive.

Despite the selling frenzy that engulfed Drug stocks last week,
prompted by the weakness in MRK, Biotech stocks like VRTX
continued their advance.  After clearing the 30-dma (now at
$45.13), the stock broke through the $47 level on Friday, coming
to rest just below $50.  Although volume remains well below the
ADV, the fact that the stock could close right at its high of
the day is encouraging for the bulls.  The next upside challenge
will come at the $52 level, and if buyers continue to propel the
stock higher, that looks like a good area for initiating new
momentum-based positions.  Dip buyers who are waiting for
another pullback before jumping onboard will want to watch the
$47 level for a bounce.  The move above that level gave us a
quadruple top breakout on the Point and Figure chart, and that
is a strong bullish signal.  Below that, we have solid support
near $44, so that is the new location of our stop.  The
Biotechnology index (BTK.X) is trying to mount a recovery, and
if successful, it should help to propel VRTX even higher.  Watch
out for profit taking next week, but as long as it comes on
light volume, the dips should provide vigilant traders with
attractive entry points as earnings season gets underway in the
next couple weeks.

BUY CALL JUL-45 VQR-GI OI= 618 at $5.40 SL=3.50
BUY CALL JUL-50*VQR-GJ OI=1265 at $2.75 SL=1.25
BUY CALL JUL-55 VQR-GK OI= 428 at $1.05 SL=0.50
BUY CALL AUG-50 VQR-HJ OI=  31 at $5.30 SL=3.50
BUY CALL AUG-55 VQR-HK OI=  13 at $3.40 SL=1.75

SELL PUT JUL-45 VQR-SI OI= 615 at $1.45 SL=3.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.12 mln

MVSN - Macrovision Corp. $68.50 (+9.95 last week)

Helping to keep intellectual property rights intact, MVSN
designs, develops and licenses copy protection and rights
management technologies.  Integral to the entertainment
industry, the company provides copy protection for major
Hollywood studios, independent video producers, PC games,
digital set-top box manufacturers and digital pay-per-view
(PPV) network operators.  In addition to helping content
owners protect content such as videocassette, DVD and PPV
movies, and PC games, MVSN also provides the ability to
electronically market that content in a secure manner.

There's nothing like a successful breakout play to put a smile
on your face, and MVSN has delivered that in spades.  Almost as
soon as we began coverage of the stock last week, it got moving
upwards, quickly cresting the $62-63 resistance level.  That
success further emboldened the bulls, who spent the remainder
of the week pushing MVSN ever closer to the $71 level.  This is
a critical level, as it corresponds closely to the 50%
retracement (actually $70.88) of the stock's decline, which
began last September.  Those of you that entered the play are
happily counting your profits, but beware of profit taking in
the days ahead.  The price is solidly above the upper Bollinger
band, daily Stochastics are buried in overbought, and volume is
beginning to weaken.  The prudent move will be to lock in
profits as MVSN approaches the $70-71 level and then watch for
a pullback to initiate new positions, either near $66 or $64,
the new location of our stop.  This would provide an attractive
entry point for one more push higher, as the stock makes a run
at the $73 bullish price objective generated by the recent
breakout on the Point and Figure chart.

BUY CALL JUL-65 MVU-GM OI=247 at $6.50 SL=4.50
BUY CALL JUL-70*MVU-GN OI=752 at $3.50 SL=1.75
BUY CALL JUL-75 MVU-GO OI=430 at $1.05 SL=0.50
BUY CALL AUG-70 MVU-HN OI=  6 at $6.20 SL=4.25
BUY CALL AUG-75 MVU-HO OI=164 at $3.30 SL=1.75

SELL PUT JUL-60 MVU-SL OI=155 at $0.95 SL=2.00
(See risks of selling puts in play legend)

Average Daily Volume = 701 K

OPWV - Openwave Systems $34.70 (+6.03 last week)

Openwave Systems is a provider of Internet-based communication
infrastructure software and applications, serving over 150
communications service providers with over 500 million
subscribers.  Among OPWV's customers are wireless network
operators, wireline carriers, Internet Service Providers
(ISPs), portals, and broadband network providers.  OPWV has a
broad portfolio of products, including wireless Internet
infrastructure and browsers, unified messaging, mobile email,
directory services, voice processing and instant messaging.

Continuing to lead the Wireless sector higher, OPWV had a very
nice week, tacking on more than 16% since we picked it last
weekend.  After one final dip to the $28 support level, the
bulls took charge, driving through the $32 level and bringing
the price to rest at the lower end of the $34-38 gap we
mentioned last week.  Resistance on Friday came in at $35,
reinforced by the converged 30-dma ($35.80) and 50-dma ($35.59).
Additionally, the 50% retracement of the recent decline rests
at $35.49, further strengthening that resistance level.  The
bearish resistance line on the Point and Figure chart rests at
$38, near the top of the above-mentioned gap.  Traders that are
already in the play may want to consider taking profits near
that level.  The recent breakout on the Point and Figure chart
points to a final price target of $47, but there will likely be
some profit taking before the bulls take a serious run at that
level.  New positions can be considered either on an intraday
dip to the $32 level or $30, the new level of our stop.
Entering on continued strength is still a viable strategy, using
a move through $36 as the trigger point.

BUY CALL JUL-30 UGE-GF OI=2006 at $5.70 SL=3.75
BUY CALL JUL-35*UGE-GG OI=4281 at $3.00 SL=1.50
BUY CALL JUL-40 UGE-GH OI=4328 at $1.50 SL=0.75
BUY CALL AUG-35 UGE-HG OI= 111 at $5.10 SL=3.00
BUY CALL AUG-40 UGE-HH OI= 160 at $3.40 SL=1.75
BUY CALL AUG-45 UGE-HI OI= 363 at $2.00 SL=1.00

SELL PUT JUL-30 UGE-SF OI=3010 at $1.65 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 6.19 mln

ADBE - Adobe Systems $47.00 (+3.42 last week)

A long-time leader in desktop publishing software, ADBE
provides graphic design, publishing, and imaging software
for Web and print production.  Offering a line of application
software products for creating, distributing, and managing
information of all types, the company generates nearly 75% of
sales through publishing software products such as Photoshop,
Illustrator, and PageMaker.  Its Acrobat Reader, which uses
portable document format (PDF) is popping up all over the
Internet, as businesses shift from print to digital
communications.  In addition, ADBE licenses its industry
standard technologies to major hardware manufacturers,
software developers, and service providers, as well as
offering integrated software solutions to businesses of all

Will ADBE manage to break through the formidable $48 resistance
level next week?  That is the pivotal question we are faced with
this weekend, but it looks like the bulls just might pull it off
this time.  Thursday's rally saw our play trading just below
that level, marking the fourth test since mid-April.  It was
only natural to see a bit of a pullback on Friday, and it was
encouraging to see the stock consolidate above the $46 level on
solid volume.  If the bulls are going to crest $48 next week,
they will need to do so on strong volume, a tough proposition in
a holiday-shortened summer week.  The Software index (GSO.X) is
still advancing on a daily basis, and as long as it continues to
do so, ADBE should benefit from the positive sector movement.
On the heels of Thursday's strong rally, we are moving our stop
up to $44, locking in at least a portion of the gains seen so
far.  Target intraday dips in the $46 range for initiating new
positions, as the bulls position themselves for a solid push
through resistance.  Alternatively, we can wait for strength to
appear once again, initiating new positions as ADBE pushed
through $48 on strong volume.

BUY CALL JUL-45 AEQ-GI OI=5149 at $3.90 SL=2.50
BUY CALL JUL-50*AEQ-GJ OI=3675 at $1.40 SL=0.75
BUY CALL AUG-45 AEQ-HI OI= 311 at $5.30 SL=3.25
BUY CALL AUG-50 AEQ-HJ OI= 568 at $2.70 SL=1.25
BUY CALL AUG-55 AXX-HK OI= 183 at $1.40 SL=0.75

SELL PUT JUL-45 AEQ-SI OI=5075 at $1.20 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 4.23 mln

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The Option Investor Newsletter                   Sunday 07-01-2001
Sunday                                                      4 of 5

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BA - Boeing $55.60 (-1.40 last week)

The Boeing Company is the largest aerospace company in the
world, with its heritage mirroring the history of aviation. It
is the world's largest manufacturer of commercial jetliners
and military aircraft, and the nation's largest NASA contractor.
In terms of sales, Boeing is the largest U.S. exporter.  Total
company revenues for 2000 were $51 billion.

Growth in the airline sector is receding at an increasingly
faster rate.  High fuel prices, maintenance costs and slowing
demand from air travelers are causing the major carriers to
cutback on their spending.  That in turn is causing shares of
the world's largest aircraft maker to plummet.  In addition,
the extremely strong dollar is wreaking havoc on Boeing's
overseas sales as currencies around the globe continue to weaken.
After all, "Boeing is the largest U.S. exporter" as highlighted
in the company description above.  The slowdown in orders for
the company's planes combined with the strong dollar-effect
has shares of Boeing below its meaningful support levels as
long liquidation continues to pressure the stock.  We're looking
for the weakness to persist over the coming weeks.  Traders
can look for new entry points into weakness early next week
if BA declines below the $55 level on continued heavy volume.
Conversely, any relief rally on light volume up to either the
$57 or $58 levels may provide an entry point, provided the
advance comes on light volume.  We're initially setting our
stop at the $61 level to provide the play room to work in our
favor.  Keep an eye on other aerospace/defense contractors
such as Northrop Gruman (NOC) and Raytheon (RTN) we gaming
entries into BA put plays.

BUY PUT JUL-60 BA-SL OI=6524 at $4.60 SL=2.75
BUY PUT JUL-55*BA-SK OI=5173 at $1.50 SL=0.75
BUY PUT JUL-50 BA-SJ OI=1418 at $0.35 SL=0.00  Aggressive!

Average Daily Volume = 3.32 mln


VRSN - VeriSign, Inc. $60.01 (+1.48 last week)

VeriSign is the leading provider of Internet trust services
and digital certificate solutions needed by Web sites,
enterprises and individuals in order to conduct secure
electronic commerce and communications over IP networks.  VRSN
has used its secure online infrastructure to issue over 100,000
of its Website digital certificates and over 3.5 million of its
digital certificates for individuals.  The company also offers
the VeriSign Onsite service, which allows an organization to
leverage the company's trusted service infrastructure to develop
and deploy customized digital certificate services for use by an
organization's employees, customers and business partners.  To
date, over 300 enterprises have subscribed to the OnSite service
and VRSN has strategic relationships with industry leaders
including Cisco, Microsoft ,RSA, Security Dynamics, and VISA.

Although you won't see it on the intraday chart, VRSN is right
on the cusp of moving to the drop list and we need to be careful
going forward.  After Thursday's attempt to break through the
$60 level failed, it appeared the bears were gradually gaining
control.  Although VRSN recovered a bit on Friday, the $58
level was keeping buyers in check.  At least up until the last
"hour of trading."  Due to technical problems with the order
routing system on the NASDAQ, trading nearly ground to a halt
and due to end-of-month trading that needed to take place, the
exchange remained open for an extra hour after the system came
back online.  During that hour, VRSN moved up to the $60 level,
where we have our stop.  Normally, this would result in VRSN
moving to the drop list, but we are keeping it alive to see
where things go on Monday when trading returns to normal.  So
here is the plan.  If VRSN heads lower on Monday, it remains
alive.  If it holds the $60 level, it will be a drop Monday
night.  Within that framework, a rollover from current levels
can be used for initiating new positions, although the more
prudent approach will be to wait for a drop through the $58 or
even $56 support levels.

BUY PUT JUL-60*QVR-SL OI=1030 at $5.00 SL=3.00
BUY PUT JUL-55 QVR-SK OI=2596 at $2.80 SL=1.50
BUY PUT JUL-50 QVR-SJ OI=1366 at $1.40 SL=0.75

Average Daily Volume = 8.30 mln

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Pandora's Box is Open!
By Mark Phillips
Contact Support

Never in my wildest dreams did I expect the kind of overwhelming
response I received to my recent articles on the topic of
Covered Calls on LEAPS.  A hearty thank you goes out to all who
responded, both with requests for continuing coverage on the AOL
trade and with numerous insightful questions on the strategy.  I
apologize for not responding to all of those questions yet, but
will continue to work through the long list as time permits over
the next week.  As the emails flowed in last week, I was
reminded of something my Mother told me many times over the
years, "Be careful what you wish for.  You just might get it!"

Rest assured that I will continue to update the AOL trade as it
develops.  In response to your requests, I will take advantage
of my mid-week articles to further explore the nuances of this
Covered Call strategy.  Look for regular commentary, education
and trading ideas along these lines in the Wednesday edition of
the newsletter going forward.  Keep those questions coming, as
your requests will help me to focus my articles to provide the
knowledge you seek.

Due to the fact that the AOL trade has yet to provide an example
that I can use to demonstrate how to handle the downside of the
Covered Call strategy, I'll dig up a different example for this
week, one that will provide many answers, even if it has to be
hypothetical, rather than an actual trade I am involved in.

Speaking of the Covered Call strategy, I think it is worth
pointing out that I expect our two most recent Watchlist
additions, Oracle Corp. (NASDAQ:ORCL) and Cisco Systems
(NASDAQ:CSCO) to really shine.  Once we get filled on the LEAP
side of the position, they should provide ample opportunities
for us to profit from writing short-term calls while we wait for
them to enter a new uptrend.  I'll elaborate more on that in the
Wednesday articles as events unfold.

So what transpired in the markets and the LEAPS Portfolio this
week?  Fortunately, buyers emerged, and in some cases with
outstanding results.  The NASDAQ Composite finally made up its
mind to stay above the critical 2000 level, advancing smartly
over the past several days, and the DJIA decided not to fall
below the 10,400 level.  Earnings season is almost upon us, and
over the next few weeks, that process will set the tone for the
remainder of the summer.  Barring any unpleasant surprises, our
Portfolio should benefit nicely.

Two of our current plays that have been particularly impressive
over the past couple of weeks are Adobe Systems (NASDAQ:ADBE)
and Broadcom (NASDAQ:BRCM).  Both stocks halted their slides
right above their stops, $37 and $30 respectively, before taking
off on impressive rallies.  Our ADBE play had been underwater by
25%, while the BRCM play had a loss exceeding 30%.  Needless to
say, I was getting more than a little nervous and was gratified
to see buying interest materialize with gusto.  As of Friday's
close, both of these plays are showing nice gains, 18-24% on
ADBE and 30-36% on BRCM.  While neither play is out of the woods
yet (both need to clear some formidable overhead resistance),
they are looking like they may continue their winning ways as we
move into earnings season.

Two big-picture issues that are worth focusing on are the VIX
and the NASDAQ bullish percent reading from the Point and Figure
chart.  First the VIX.  Long-time readers know that the VIX
normally moves between extremes of 20 on the low side to 30 on
the high side.  Extreme moves are possible, as we have seen over
the course of the past 18 months, but the VIX tends to revert to
its historical range over time.  Well, not only has it returned
to the 20-30 range, it is testing the lower bound of that range,
closing out the week at only 21.63.  That is definitely a
concern for those looking to initiate new long-term positions,
as it indicates a relative absence of fear in the market.

On a more positive note, the bullish percent reading on the
NASDAQ-100 has recently reversed out of oversold territory and
is making a strong move upwards, reaching the 50% level on
Friday.  This indicates that the internals in the NASDAQ market
are improving, possibly pointing to a continuation of its
fledgling recovery.  Only time will tell, but my gut feeling is
that we could see a respectable rally as we move through
earnings season.

Keep in mind that this is still an overall bear market, so we
still need to be cautious in initiating new plays.  Buying
bounces from solid support is still the most prudent approach,
and we want to continue to avoid chasing these stocks higher.
But when market weakness serves to deliver the prices we want on
our featured Watch List plays, we are likely to be rewarded over
the long term.

While we got no new entries in the Portfolio this week, we got
very close on Merck (NYSE:MRK).  As the stock continued to
decline it passed through our entry target without so much as a
hint of a recovery, as selling volume remained heavy.  But this
looks like an attractive entry point, just about to materialize.
When the decline began back in mid-May, the Point and Figure
chart forecast a price target of $63.  Don't look now, but we
are amazingly close to that level.  I've moved the entry target
down to $63-64, and will look to add the stock to our Portfolio
on any bounce and recovery that posts a close over $64.  As
described in the Watch List play writeup 2 weeks ago, we will
initially place our stop at $61 and hold on for the expected

I know you may be looking with amazement at the entry targets
listed for International Business Machines (NYSE:IBM) and EMC
Corp. (NYSE:EMC).  While those entry targets may never be
reached, if events conspire to give us the big downward move I
am expecting in those stocks, we will get a great entry into a
couple of Technology stocks that will likely be stellar
performers over the next year.

I'm running out of time here, but there is one more important
issue to cover before I wrap this up.  Shortly after expiration
Friday in July, the 2004 LEAPS will have been released for the
Cycle 3 stocks, completing the release of the new 2004 LEAPS.
In addition, the 2002 LEAPS are starting to suffer the effects
of time decay, as can be seen in the Portfolio.  With very few
exceptions, the 2003 LEAPS are performing much better and it
will soon be time to bid farewell to the 2002 contracts, which
are no longer LEAPS in the true sense of the term.

At the end of July, we will remove the 2002 LEAPS from the
Portfolio and will track only the 2003 LEAPS for currently open
plays.  We have already made the transition to only 2003/2004
LEAPS in the Watch List, so we will not initiate any new
positions using 2002 LEAPS.  I would recommend using any
near-term market strength to take profits on open 2002 LEAPS and
then look to reinvest that money in the 2003/2004 strikes as
new entry points appear.

We are still hunting for a bottom in the market, so this is the
time for patience and discipline.  While some of our entry
targets may not be met, I expect that several of them will be,
providing great entry points for the market recovery when it
truly gets underway.

Have a safe and sane week!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  CLX-AG  $ 3.50  $ 3.00  -14.29%  $ 33
                 '03 $ 35  VUT-AG  $ 6.10  $ 5.40  -11.48%  $ 33
WM     03/22/01  '02 $33.8 BWT-AY  $ 4.00  $ 6.00   50.00%  $ 36
                 '03 $33.8 OBN-AY  $ 6.13  $ 8.50   38.66%  $ 36
JWN    03/30/01  '02 $ 20  JWN-AD  $ 1.65  $ 1.55  - 6.06%  $17.50
                 '03 $ 20  VNZ-AD  $ 3.30  $ 3.00  - 9.09%  $17.50
FON    04/09/01  '02 $ 25  FON-AE  $ 2.80  $ 1.35  -51.79%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 3.30  -25.00%  $ 19
DELL   04/27/01  '02 $ 25  DLQ-AE  $ 6.20  $ 4.70  -24.19%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 7.80  -13.33%  $ 23
ADBE   05/16/01  '02 $ 40  AEQ-AH  $11.00  $13.00   18.18%  $ 37
                 '03 $ 40  VAE-AH  $14.60  $18.20   24.66%  $ 37
AOL    05/16/01  '02 $ 55  AOO-AK  $ 9.60  $ 8.60  -10.42%  $ 48
                 '03 $ 55  VAN-AK  $14.60  $13.40  - 8.22%  $ 48
LRCX   06/01/01  '02 $ 30  WMJ-AF  $ 6.60  $ 6.60    0.00%  $ 25
                 '03 $ 30  VPC-AF  $10.30  $11.00    6.80%  $ 25
BRCD  06/05/01   '02 $ 45  UBF-AI  $10.70  $11.00    2.80%  $ 35
                 '03 $ 45  OMW-AI  $18.40  $17.80  - 3.26%  $ 35
BRCM  06/05/01   '02 $ 40  RCQ-AH  $ 9.70  $12.70   30.93%  $ 34
                 '03 $ 40  OGJ-AH  $14.00  $19.10   36.43%  $ 34
SEBL 06/12/01    '02 $ 45  SGW-AI  $13.00  $12.20  - 6.15%  $ 38
                 '03 $ 45  OIE-AI  $18.40  $18.00  - 2.17%  $ 38
VRSN 06/12/01    '02 $ 50  YXO-AJ  $17.10  $18.20    6.43%  $ 42
                 '03 $ 60  OVX-AL  $20.40  $22.90   12.25%  $ 42
GE   06/21/01    '02 $ 53  WGE-AX  $ 3.70  $ 2.60  -29.73%  $ 47
                 '03 $ 55  VGE-AK  $ 6.80  $ 5.90  -13.24%  $ 47

LEAPS Watchlist

Current Possibles


EMC    04/22/01  $21-22        JAN-2003 $ 25  VUE-AE
                               JAN-2004 $ 30  LUE-AF
IBM    06/17/01  $100-102      JAN-2003 $110  VIB-AB
                               JAN-2004 $110  LIB-AB
MRK    06/17/01  $63-64        JAN-2003 $ 70  VMK-AN
                               JAN-2004 $ 70  LMK-AN
BEAS   06/24/01  $27-28        JAN-2003 $ 30  VZP-AF
ORCL   06/24/01  $15-16        JAN-2003 $17.5 VOC-AW
CSCO   07/01/01  $16           JAN-2003 $ 20  VYC-AD
                               JAN-2004 $ 20  LCY-AD

New Portfolio Plays


New Watchlist Plays

CSCO - Cisco Systems $18.20

It has been a long painful slide for CSCO, once the king of
Technology stocks.  As the Telecom sector continued to melt
down, Networking stocks suffered mightily, but it looks like
most of the pain has been worked through.  With earnings season
almost upon us, the Networking index (NWX.X) appears to be
firming up.  While there could be some more pain in the
near-term, the risk in the sector appears to be limited.  CSCO
will likely perform well as life returns to the sector, and we
want to use any near-term weakness as an opportunity to initiate
new long-term positions for the eventual recovery.  Whether that
recovery gets underway later this year or early next year, CSCO
should continue to find strong support in the $15-16 range, and
we will target new entries on a pullback and bounce in the $16
area.  Provided that our stop at $13 is not violated, we can use
covered calls to finance the position until such time as both
the stock and the sector break decisively out of the current
$15-23 range.

BUY LEAP JAN-2003 $20.00 VYC-AD
BUY LEAP JAN-2003 $20.00 LCY-AD



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The Option Investor Newsletter                   Sunday 07-01-2001
Sunday                                                      5 of 5

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Option Pricing: Fundamentals Are Important!
By Mark Wnetrzak

The new seminar series has been a unique experience for students
and teachers alike and our recent presentation on Covered-calls
provided some insight into the needs of our readers.  One of the
primary things we learned is that novice traders need to be more
aware of the fundamentals of option pricing.  The mathematics of
option pricing is a complex and often misunderstood subject that
usually requires a great deal of study to understand completely.
The trader who perseveres will find there is a simple logic to
most of the concepts.  These knowledgeable traders earn the right
to have less money at risk and greater potential for profits.  As
one becomes familiar with the components of pricing theory, he
can then begin to formulate potentially profitable strategies.

One of the primary considerations for most traders is risk versus
reward.  In the derivatives market, buyers of options have limited
risk and unlimited reward while sellers of options have limited
reward and unlimited risk.  With this single perspective in mind,
it's obvious why most retail traders simply 'buy' options. Most
investors would never consider a position with unlimited risk and
yet few understand that almost any trade that isn't fully hedged
entails enormous speculation.  A violent adverse move, which does
not allow time for adjustments, can quickly reduce any position
to a fraction of its initial value.  With this in mind, it's hard
to understand why traders would take outright long or short
positions under any circumstances.  The only possible explanation
is they believe the probability of catastrophic loss is very small
and the potential for profit is worth the risk.

The most important issue successful option traders understand is
that risk-reward characteristics of a position are not the only
considerations.  Equally important is the probability of profit or
loss.  When one evaluates a prospective position, the likelihood
of each possible outcome must be factored into the assessment.  Is
the reward, even a limited one, sufficient to offset the risk?
A successful trader will always seek to improve the risk-reward
characteristics of his position by looking for the trade with the
greatest possible margin for error.  In order to achieve this goal,
a trader must be able to accurately assess an option's value.  One
of the most important components of option pricing is the concept
of time decay.

Time value and time decay are actually two of the easiest aspects
of option pricing to understand.  The time value of any option can
be simply understood as everything but the intrinsic value.  Time
costs money and more time equals more money.  The amount of time
value in an option's price decays each day it is in existence.
The closer the option gets to expiration, the faster it decays.
In a strictly mathematical sense, time value decays at its square
root and this rate of decay is known as Theta.  Time is a commodity
and there is one important concept that merchants of time (option
writers) must understand; the laws of option pricing dictate that
time value is highest in the at-the-money option and decreases as
the strike prices move in- and/or out-of-the-money.  Strike prices
that are deep in- and/or out-of-the-money have the lowest time
value of all options.

Option buyers (as well as sellers) need to have a firm grasp of
pricing theory.  Remember, the main attraction of options to most
traders is they provide the buyer with leverage; one can realize
a large percentage gain with only a modest change in the stock
price.  The concept of delta proves that OTM calls offer greater
reward potential if the stock moves substantially while ITM calls
will perform better if the stock only moves moderately.  Choosing
the correct time frame of a position requires another difficult
decision because the time closest to expiration costs the most
and yet the less time remaining in the option, the greater the
movement.  With options, more time does cost more money, but the
cheapest way to avoid time decay is to buy the most available.

All of these variables must be clearly understood for a trader to
profit on a consistent basis.  One of the best ways to understand
the geometric value of time is to study LEAPS.  LEAPS are simply
long-term options with expiration dates that are months or even
years in the future.  Time decay occurs very slowly for LEAPS, so
buying LEAPS is an effective way to benefit from a stock's price
movement without incurring the risk associated with an outright
stock purchase.  One of the easiest (and most popular) strategies
associated with LEAPS is the covered call (calendar spread) with
the LEAP position.  But, that's another subject altogether...

Good Luck!

Note:  Margin not used in calculations.

Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PCLN    7.68   9.05   JUL   7.50  0.85  *$  0.67  10.7%
BTX     8.50   7.70   JUL   7.50  1.90  *$  0.90   8.5%
ROS     5.49   5.24   JUL   5.00  1.05  *$  0.56   7.8%
DRMD   15.30  17.89   JUL  15.00  1.20  *$  0.90   6.9%
WEBX   20.31  26.66   JUL  17.50  4.00  *$  1.19   6.3%
LEXG   11.66  12.50   JUL  10.00  2.45  *$  0.79   6.2%
CCRD    8.60   9.00   JUL   7.50  1.60  *$  0.50   6.2%
FNSR   14.87  18.68   JUL  12.50  3.00  *$  0.63   5.8%
GNSL    5.40   4.85   JUL   5.00  0.90   $  0.35   5.6%
ORCH    5.65   7.65   JUL   5.00  0.95  *$  0.30   5.5%
MCAF   11.90  12.28   JUL  10.00  2.70  *$  0.80   5.4%
CWST   10.90  12.50   JUL  10.00  1.35  *$  0.45   5.1%
Z      15.54  15.30   JUL  15.00  1.30  *$  0.76   4.6%
SONE   13.85  14.00   JUL  12.50  1.85  *$  0.50   4.5%
CWST   10.92  12.50   JUL  10.00  1.40  *$  0.48   4.4%
TCNO    9.25   9.00   JUL   7.50  2.10  *$  0.35   4.3%
WCNX   31.50  36.00   JUL  30.00  2.90  *$  1.40   4.3%
MCAF   14.56  12.28   JUL  12.50  2.90   $  0.62   3.9%
AMLN   14.42  11.25   JUL  12.50  3.00   $ -0.17   0.0%
AMLN   14.12  11.25   JUL  12.50  2.65   $ -0.22   0.0%

*$ = Stock price is above the sold striking price.


Inhale Therapeutic Systems (NASDAQ:INHL) reported Monday morning
(before the open) on the results of a Phase III study on inhaled
insulin that uses Inhale's advanced inhaleable technologies.
The shares dropped at the open as investors worried about the
higher number of patients (4 times as many) who developed anti-
bodies against insulin.  The negative move at the open and mixed
drug results removed INHL from our candidate list.  Genomic
Solutions (NASDAQ:GNSL) appears (can we really trust any Nasdaq
prices this weekend?) to have made a successful test of support.
Drug maker Barr Laboratories (NYSE:BRL) is acquiring Duramed
Pharmaceuticals (NASDAQ:DRMD) in a stock swap valued at about
$589 million.  The Duramed chart looks great but Barr's chart
is a bit worrisome.  Amylin Pharmaceuticals (NASDAQ:AMLN) acted
horrid this week and should be closely monitored.  We will now
see how well the support area that starts around $11 will hold
up.  New coverage on Friday morning by Goldman Sachs may help.

Positions Closed: (The discipline of Money Management)

MRV Communications (NASDAQ:MRVC), TiVo (NASDAQ:TIVO), Optical
Communication (NASDAQ:OCPI), Valence Technology (NASDAQ:VLNC)


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ACTR   11.00  JUL 10.00   UWC GB  1.70 2426   9.30   21   10.9%
CYTO    5.40  AUG  5.00   UOR HA  0.95 1625   4.45   49    7.7%
NUAN   18.02  JUL 17.50   DUN GW  2.05 487   15.97   21   13.9%
PRSE   30.70  JUL 30.00   PUI GF  2.10 21    28.60   21    7.1%
SAGI   15.50  JUL 12.50   UEJ GV  3.50 258   12.00   21    6.0%
SCI    25.50  JUL 22.50   SCI GX  3.80 8054  21.70   21    5.3%
TERN    6.12  AUG  5.00   TUN HA  1.60 273    4.52   49    6.6%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NUAN   18.02  JUL 17.50   DUN GW  2.05 487   15.97   21   13.9%
ACTR   11.00  JUL 10.00   UWC GB  1.70 2426   9.30   21   10.9%
CYTO    5.40  AUG  5.00   UOR HA  0.95 1625   4.45   49    7.7%
PRSE   30.70  JUL 30.00   PUI GF  2.10 21    28.60   21    7.1%
TERN    6.12  AUG  5.00   TUN HA  1.60 273    4.52   49    6.6%
SAGI   15.50  JUL 12.50   UEJ GV  3.50 258   12.00   21    6.0%
SCI    25.50  JUL 22.50   SCI GX  3.80 8054  21.70   21    5.3%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

ACTR - Acterna  $11.00  *** Technicals Only! ***

Acterna (NASDAQ:ACTR) is a global communications equipment company
focused on network technology solutions.  The Company is managed
in two business segments: Communications Test which develops, manu-
factures and markets instruments, systems, software and services;
and Inflight Information Systems which provides passenger cabin
video information display systems and information services for the
general and commercial aviation markets.  In May, Merrill Lynch
initiated coverage on Acterna and in June, Salomon Smith Barney
started coverage with a "buy" rating and a 12-month price target
of $15.  We favor the strong support near $9.00 and the recent
bullish move which suggests further upside potential.

JUL 10.00 UWC GB LB=1.70 OI=2426 CB=9.30 DE=21 TY=10.9%

CYTO - Cytogen  $5.40  *** Cheap Speculation! ***

Cytogen (NASDAQ:CYTO) of Princeton, NJ, is a biopharmaceutical
company with an established and growing product line in prostate
cancer and other areas of oncology, and a leadership position in
proteomics research designed to accelerate drug discovery and
development.   Cytogen is the exclusive U.S. marketing partner
for BrachySeed, which the Company licenses from DRAXIS Health
(NASDAQ:DRAX).  This week, Draxis received FDA approval to market
its Palladium-103 brachytherapy implant (BrachySeed Pd-103) for
the treatment of prostate cancer and other localized tumors.
Cytogen has rallied on the news and this position offers a
conservative entry point to speculate on the company's future.

AUG 5.00 UOR HA LB=0.95 OI=1625 CB=4.45 DE=49 TY=7.7%

NUAN - Nuance  $18.02  *** Stage I Base? ***

Nuance (NASDAQ:NUAN) is a leader in Voice Web software; speech
recognition, voice authentication, text-to-speech and voice
browsing products that make information, services, and the
Internet accessible from any telephone.  Every day, millions of
people interact with Nuance systems at companies like BeVocal,
Merrill Lynch, Nomura Securities, Sprint PCS and Tellme Networks.
Nuance has been showing signs of strength after suffering from
an earnings warning in April.  The company recently unveiled a
comprehensive set of design and production services aimed at
helping businesses build world-class voice applications.  The
stock has been forming a Stage I base and the technicals suggest
a bullish outlook for the company's future.  Earnings are due
around July 19.

JUL 17.50 DUN GW LB=2.05 OI=487 CB=15.97 DE=21 TY=13.9%

PRSE - Precise Software Solutions  $30.70  *** Rally Mode! ***

Precise Software (NASDAQ:PRSE) is a provider of software that
assists organizations in monitoring and optimizing the perform-
ance of their Information Technology infrastructure. PRSE's
software allows an organization to continuously monitor its
infrastructure performance and be alerted when performance
parameters exceed user-established thresholds.  Back in April
Precise Software reported a 153% increase in 1st-Quarter
revenues and rallied up out of an all-time low.  Now it
appears investors are anticipating the next earnings report
which is due July 24.  The stock is on the verge of taking
out the February high and the bullish technicals suggest
further upside is forthcoming.  A reasonable entry point
with strong support near the cost basis.

JUL 30.00 PUI GF LB=2.10 OI=21 CB=28.60 DE=21 TY=7.1%

SAGI - Sage  $15.50  *** On The Move! ***

Sage (NASDAQ:SAGI) is a leading provider of digital display
processors, enabling superior picture quality for a variety
of consumer technology and PC-display products ranging from
web appliances to TVs and flat panel monitors.  Sage is
developing products that bring the home theater experience
to the mass consumer and PC-display market through digitally
enhanced television, projection displays, DVD players and
internet appliances.  NEC Corporation has recently selected
Sage's Jaguar TS display processor for their new Valuestar
monitors.  Sagi has made a powerful move over the last few
days on heavy volume but it may be a bit overextended in
the near-term.  We favor speculating on the issue with a
cost basis closer to support.

JUL 12.50 UEJ GV LB=3.50 OI=258 CB=12.00 DE=21 TY=6.0%

SCI - SCI Systems  $25.50  *** Bottom Fishing ***

SCI Systems (NYSE:SCI) is a world-class provider of Manufacturing
and Supply Chain Services.  The company continues to pioneer new
and innovative end-to-end services through its commitment to
being the leading e-enabled EMS services provider.  SCI Systems
recently announced plans to more than triple the size of its
Kunshan, China, manufacturing facility, as the demand for Asian
manufacturing increases.  We simply favor the recent bullish
technicals as SCI Systems continues to forge a Stage I base.
Earnings are due on July 30.

JUL 22.50 SCI GX LB=3.80 OI=8054 CB=21.70 DE=21 TY=5.3%

TERN - Terayon  $6.12  *** Not So Bad After All? ***

Terayon Communication Systems (NASDAQ:TERN) provides innovative
broadband systems and solutions for the delivery of advanced,
carrier-class voice, data and video services, which are deployed
by the world's leading cable television and telecommunications
carriers.  Terayon announced preliminary financial results for
the 2nd-quarter Thursday and said it will post a smaller-than-
expected loss.  The company said it would record a pro forma loss
of between 38 and 40 cents per share, before charges, while
analysts expected a loss of between 40 and 43 cents per share.
Was Friday's news a euphoric rally or just an aberration due to
the NASDAQ's trading-system failure?  Monday will surely tell!
Cheap speculation on an issue that appears to have all the bad
news "priced-in."

AUG 5.00 TUN HA LB=1.60 OI=273 CB=4.52 DE=49 TY=6.6%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

NFLD   16.39  JUL 15.00   DHQ GC  2.80 135   13.59   21   15.0%
SLAB   22.10  JUL 20.00   QFJ GD  3.80 1053  18.30   21   13.5%
ARIA    5.07  AUG  5.00   UAQ HA  0.85 692    4.22   49   11.5%
GNSS   36.15  JUL 35.00   QFE GG  3.10 400   33.05   21    8.5%
LSI    18.80  JUL 17.50   LSI GT  2.15 2895  16.65   21    7.4%
PENN   25.40  JUL 25.00   UQN GE  1.55 11    23.85   21    7.0%

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index instead?

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market updates, plays, education and daily commentaries by
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Success Basics: A Portfolio Building Strategy
By Ray Cummins

This week, we are honored to have a guest contributor for the
Naked-Puts section.  Robert John Ogilvie, an options broker and
ROP that trades on a regular basis, has offered to educate our
readers on popular trading strategies in the derivatives market.

The Tortoise and the Hare
Access this hyper link to receive a copy of the:

Characteristics and Risks of Standardized Options <http://www.cboe.com/resources/intro.asp>

My article http://www.OptionInvestor.com/brokerscorner/062401_1.asp,
in last Sunday's edition covered developing a risk tolerance and
investment objective profile.  I believe that some balance of naked
puts and covered calls fits most reader's profiles.  Those of you
that need more action may want to consider allocating some capital
for naked puts and covered calls as your lower risk money and set
aside your high risk capital for spreads, strangles, and/or long

I have written about the naked put strategy in much detail in
recent articles.  I believe that in some form, it is a strategy
that most option traders should understand.  Ray Cummins recently
had an online seminar on the subject.  There are various strategies
like in the money or out of the money naked puts.  Although there
are benefits of selling in the money puts, it isn't a strategy that
necessarily permits you to look away for very long as well as having
risks like early assignment, margin calls, extreme losses, exorbitant
time investment, etc.  Don't misunderstand me, I like in the money
naked puts.  However, for the purposes of this article, I want to
discuss using out of the money naked puts as a portfolio building
strategy.  If you didn't already know, selling naked puts deposits
premium in your account for agreeing to purchase the underlying stock
at the put's strike price if the security drops below the strike price
on or before expiration of the put.

I am going to illustrate this in detail with full examples using an
initial account balance of $100,000.  Because I want to buy the
securities I am selling the puts against, I want to be financially
capable I will have enough money to meet the initial margin requirement.
Assuming none of the stocks are on the increased margin requirement
(Internet Stock List), the most I can spend is about $200,000.  The
market's and sector's direction and volatility as well as the
securities' support levels determine the strike price, number of
securities, and amount of shares of each security.  After careful
consideration and research I have found three securities that meet
my parameters (sector strength, price, premium, growth, EPS, Relative
Strength, Accumulation Rating, trend, stochastics, proximity on the
bollinger bands, etc.).  If the markets are extremely volatile, I
won't commit all of my capital ($200,000 in buying power) to the
positions.  Assuming I believe the markets are neutral, I will spend
up to 150% of my cash balance if assigned ($150,000).  Weighting is
another tool one can use if the prospects are greater for some of the
securities than the others and vice versa if the prospects are less
for some of the securities.  However, in this example, we are going
to apply equal weighting to all three and assume the market is neutral
to weak.

I am going to spend about $50,000 per security if assigned.  The
first security is currently in an uptrend and priced at $68.70.
Support is strong at approximately $60 with a pivot (breakout) at
$55.  I would like to buy this stock at $60.  Considering the current
market conditions, it is possible that the stock will sell off and
retest support. Many people wonder why I don't wait to buy the stock
when it drops.  I don't wait because I am not sure it will drop in me
time horizon.  I just want to take advantage of the current premium if
it does.  I'm selling 9 contracts of the July 60 puts at $1.65 per
contract.  To understand naked put margin requirements, please read
my article http://www.OptionInvestor.com/brokerscorner/040801_1.asp.

Initial Premium = $1,485 (900 X $1.65)
Initial Margin    = $7,668 ((68.70 X 900 X 10%) + $1485)
Margin at $60   = $15,000 +/-
If Assigned   = $54,000 (900 X 60)

The second security trades at $55.  Support is good at $50 with pivot
at $45.50.  It recently bounced off $49.75 and is trading above its
trend-line.  I'm selling 10 July 50 puts at $1.25 per contract.

Initial Premium = $1,250 (1000 X $1.25)
Initial Margin    = $7,250 ((55.00 X 1000 X 10%) + $1250)
Margin at $50   = $13,000 +/-
If Assigned   = $50,000 (1000 X 50)

The third security trades at $53.40.  Support is good at 52.5 and
extremely good at $45 with another level around $40.  It has continually
bounced off the $45 level in a consolidating pattern.  In addition, it
is currently trading above its moving averages.  I'm selling 11 July 45
puts at $1.20 per contract.

Initial Premium = $1,320 (1100 X $1.20)
Initial Margin    = $7,194 ((53.40 X 1100 X 10%) + $1320)
Margin at $45   = $14,000 +/-
If Assigned   = $49,500 (1100 X 45)

The total initial premium is approximately $4,055.  If assigned on
all three stocks, the initial purchase amount will be about $154,000.
The amount of margin collateral required may not exceed $50,000 -
$60,000.  Of course if the stock prices drop significantly, the
margin requirement will increase a lot.  As a rule of thumb, I buy to
close the puts if the stock drops below the next support level and/or
fundamental changes to the security, sector or market change.  If the
most margin collateral required is around $50,000, that leaves another
$55,000 or so in the money market account.  I might trade some options,
stocks, spreads or strangles.  I may even do a covered call to possibly
boost my return.  The volatility of the market may help boost the
monthly returns.  In addition, selling more contract can also help
increase possible initial returns.

If any or all the stocks are assigned and I don't choose to wait for a
bounce and sell, I will sell the next months call to create a covered
call.  This will lower my cost basis even further.  Naked puts are so
flexible and have so many applications.  My cash allocation model allows
for a potentially steady return with the option to trade the market's
volatility without overextending one's trading account or ability.  I
understand many of you aren't impressed with the unrealized initial
return of about 4%.  However, the longer-term returns are increased
because of what you do with the extra cash as well as the consistent
returns.  If you recall the story of the Tortoise and the Hare, the
slow and steady tortoise won the race.

Because so many readers have asked for examples of this strategy, I
have an example of a portfolio that I actively manage.  In addition,
even if this isn't your strategy, I am an Options Broker and ROP that
trades and can educate investors on all strategies.
Please contact me toll free at 877-925-0880.
Robert John Ogilvie

Neither Cutter & Company, Inc. nor Robert J. Ogilvie makes any
representation as to the accuracy, reliability or completeness of
any charts, formulas, and /or research opinions presented herein.
This article is intended solely for educational purposes. Nothing
herein should be construed as an offer or solicitation to buy or sell
any securities. Cutter and Company is a Member of the NASD, MSRB, and
SIPC. Please read the OptionInvestor.com's Disclaimer:

                      *** WARNING!!! ***
Occasionally a company will experience catastrophic news causing
a severe drop in the stock price. This may cause a devastatingly
large loss which may wipe out all of your smaller gains. There is
one very important rule; Don't sell naked puts on stocks that you
don't want to own! It is also important that you consider using
trading STOPS on naked option positions to help limit losses when
the stock price drops. Many professional traders suggest closing
the position when the stock price falls below the sold strike or
using a buy-to-close STOP at a price that is no more than twice
the original premium from the sold option.


Stock  Price  Last   Call  Strike Price   Gain   Potential
Symbol Picked Price  Month Sold   Picked  /Loss  Mon. Yield

PPD    19.66  22.00   JUL  15.00  0.50  *$  0.50  12.3%
AMLN   12.60  11.25   JUL  10.00  0.40  *$  0.40  11.9%
CBST   34.50  38.00   JUL  30.00  1.35  *$  1.35  11.0%
MDCC   22.61  20.05   JUL  17.50  0.80  *$  0.80  10.9%
CTXS   31.00  34.90   JUL  27.50  0.85  *$  0.85   9.5%
ACTN   22.50  25.00   JUL  20.00  0.95  *$  0.95   9.2%
EXBD   38.57  42.00   JUL  35.00  1.05  *$  1.05   8.8%
DMRC   22.95  24.15   JUL  20.00  0.70  *$  0.70   8.8%
UIS    12.94  14.71   JUL  12.50  0.65  *$  0.65   8.7%
ALKS   34.65  35.10   JUL  30.00  1.00  *$  1.00   8.5%
DMRC   18.06  24.15   JUL  15.00  0.65  *$  0.65   8.4%
WEBX   26.30  26.66   JUL  17.50  0.40  *$  0.40   7.7%
SCIO   27.03  25.01   JUL  20.00  0.60  *$  0.60   7.2%
PXLW   30.66  35.74   JUL  22.50  0.65  *$  0.65   6.9%
NSM    26.91  29.12   JUL  22.50  0.55  *$  0.55   6.9%
SLVN   22.14  24.30   JUL  20.00  0.45  *$  0.45   6.8%
NKE    44.55  41.99   JUL  40.00  0.85  *$  0.85   6.5%
LPNT   39.70  44.28   JUL  35.00  0.70  *$  0.70   6.4%
HCR    27.20  31.75   JUL  25.00  0.65  *$  0.65   6.1%
GNSS   33.49  36.15   JUL  25.00  0.60  *$  0.60   6.0%
AVGN   21.25  21.50   JUL  15.00  0.45  *$  0.45   5.9%
PRHC   30.87  35.29   JUL  25.00  0.40  *$  0.40   5.1%

*$ = Stock price is above the sold striking price.


The market looked worrisome during the middle of the week but
the trend has improved, turning bullish in the near-term.  The
only excitement in our portfolio was the recent profit-taking in
Amylin (NASDAQ:AMLN) shares, but Friday's "hammer bottom" may be
a signal that the selling pressure is almost over.  Monitor the
issue for further downside movement and consider an exit if the
stock price drops much further.  Nike (NYSE:NKE) is back in a
consolidation mode and we will keep close tabs on its movement
for the next few days.  Some technicians would say it is at a
"key" moment; I prefer to think it is just marking time while
traders decide whether to stay with cyclical and consumer stocks
(safe-haven issues) or move back into the technology group.  Only
time will tell, but my guess is there will be at least one more
opportunity to buy into the NASDAQ recovery.

Positions Closed: (Murphy's Law Examples: We close - they rebound!)

Intermedia (NASDAQ:ICIX), MRV Communications (NASDAQ:MRVC)


Sequenced by Company
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

VION    8.82  JUL  7.50   UVP SU  0.50 60     7.00   21   26.7%
MONE   23.19  JUL 20.00   MOU SD  0.85 30    19.15   21   17.8%
MCHP   33.43  JUL 30.00   QMT SF  0.80 263   29.20   21   10.8%
ANAD   23.00  JUL 17.50   DQA SW  0.35 241   17.15   21   10.2%
ALXN   24.00  JUL 20.00   XQN SD  0.40 194   19.60   21    9.7%
ISIL   36.40  JUL 30.00   UFH SF  0.50 121   29.50   21    8.4%
CSTR   22.25  JUL 20.00   QLR SD  0.40 0     19.60   21    8.2%

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

ALXN   24.00  JUL 20.00   XQN SD  0.40 194   19.60   21    9.7%
ANAD   23.00  JUL 17.50   DQA SW  0.35 241   17.15   21   10.2%
CSTR   22.25  JUL 20.00   QLR SD  0.40 0     19.60   21    8.2%
ISIL   36.40  JUL 30.00   UFH SF  0.50 121   29.50   21    8.4%
MCHP   33.43  JUL 30.00   QMT SF  0.80 263   29.20   21   10.8%
MONE   23.19  JUL 20.00   MOU SD  0.85 30    19.15   21   17.8%
VION    8.82  JUL  7.50   UVP SU  0.50 60     7.00   21   26.7%

Company Descriptions

LB-Last Bid price, OI-Open Interest, CB-Cost Basis or break-even
point, DE-Days to Expiry, TY-Target Yield (monthly basis).

ALXN -Alexion Pharma  $24.00  *** Drug Sector Speculation! ***

Alexion Pharmaceuticals (NASDAQ:ALXN) develops products for the
treatment of heart disease, and inflammation, diseases of the
immune system and cancer in humans.  The company's lead product
candidates are genetically altered antibodies that target specific
diseases that arise when the human immune system induces undesired
inflammation in the human body.  Their lead product candidates are
designed to block components of the human immune system that cause
inflammation while allowing beneficial components of the immune
system to remain functional.  ALXN is a popular stock among "short
sellers" but the company is also "cash heavy" with a number of new
products that could generate significant upside activity in its
share value.  With the recent consolidation apparently at an end,
this may be the perfect opportunity to speculate on the future of
the issue.

JUL 20.00 XQN SD LB=0.40 OI=194 CB=19.60 DE=21 TY=9.7%

ANAD - Anadigics  $23.00  *** A Big Day! ***

Anadigics (NASDAQ:ANAD) is a supplier of radio frequency/microwave
integrated circuit solutions for the communications industry.  The
company's products are used to send and receive signals in a wide
variety of broadband and wireless communications applications.  In
the broadband markets, the focus is on applications for cable
subscriber products, cable infrastructure systems, and fiber optic
communications systems.  In the wireless market, their efforts are
focused on applications for cellular and personal communication
systems handsets.  There's no news to explain Friday's rally but
recent surveys suggest the reduced earnings outlook has already
been "priced-in" to the value of many semiconductor issues.  This
position offers a conservative method to speculate on a bullish
outlook for the group.

JUL 17.50 DQA SW LB=0.35 OI=241 CB=17.15 DE=21 TY=10.2%

CSTR - Coinstar  $22.25  *** New Trading Range? ***

Coinstar (NASDAQ:CTSR) owns and operates a nationwide automated
network of self-service coin-counting machines in thousands of
supermarkets across the United States.  With over 200 retail
partners, primarily supermarket chains, the company currently
operates more than 8,400 Coinstar units in approximately 121
regional markets across the United States.  Its unique network
of machines is available to over 137 million consumers in 46
states and the District of Columbia.  Coinstar International is
piloting 27 new units in the United Kingdom with Tesco Stores,
Sainsbury's Supermarkets and Asda Stores and is also piloting 58
units in Canada.  Coinstar is one of our favorite companies for
conservative stock portfolios because it has a unique product in
an industry that is relatively safe from the volatile activity
on the NASDAQ.  Investors who want to establish a discounted cost
basis in the issue should consider this low-risk position.

JUL 20.00 QLR SD LB=0.40 OI=0 CB=19.60 DE=21 TY=8.2%

ISIL - Intersil  $36.40  *** On The Move! ***

Intersil (NASDAQ:ISIL) is a systems-oriented manufacturer and
designer of analog and digital integrated circuits for wireless
access and communications analog markets.  Within communications,
the company is focused on several key markets, including high data
rate wireless connectivity; power management, and wireless and
wired software design to deliver chip sets, component software and
licensable applicable designs for communications customers.  Their
many products include components performing complex communications
functions, such as its PRISM chips for wireless data communications,
digital radios and high speed converters in cellular base stations,
and power management integrated circuits used in Internet servers
and computers.  ISIL was among the biggest percentage gainers in the
chip sector on Friday as the group benefited from several bullish
analysts' comments about future demand.  The recent consolidation
in the issue appears to be over and this play offers a reasonable
risk-reward outlook for short-term speculators.

JUL 30.00 UFH SF LB=0.50 OI=121 CB=29.50 DE=21 TY=8.4%

MCHP - Microchip  $33.43  *** Hot Sector! ***

Microchip Technology (NASDAQ"MCHP) develops and manufactures
specialized semiconductor products used by its customers for a
wide variety of embedded control applications.  The company's
product portfolio comprises micro-controllers and application
specific standard products along with related mixed-signal and
memory products.  The company markets its many products to the
consumer, automotive, office automation, communications and
industrial markets.  The company's embedded control products
offer small size, low voltage operation and ease of development,
enabling cost-effective product integration by its customers.
Microchip's ASSP products include a wide variety of specialized
integrated circuits, including its family of KEELOQ security
products for wireless communications.  MCHP is another issue that
rallied with the semiconductor group on Friday and traders who
want to establish a favorable cost basis in the company's stock
should consider this position.

JUL 30.00 QMT SF LB=0.80 OI=263 CB=29.20 DE=21 TY=10.8%

MONE - MatrixOne  $23.19  *** Gimme All Your MONE! ***

MatrixOne (NASDAQ:MONE) is a provider of unique Internet business
collaboration software, which with the release of eMatrix 9, the
latest version of the company's core software, is now referred to
as "Intelligent Collaborative Commerce solutions". The company's
suite of products serves as an Internet platform facilitating
collaboration among different departments and geographic locations
of global organizations.  eMatrix software products also serve as
a backbone for an enterprise to collaborate through the Internet
with its customers, suppliers and other business partners.  Many
enterprises use the eMatrix product line to integrate different
business processes and facilitate the exchange of information,
ideas and knowledge for collaborating on business activities.
MONE and Siemens Business Services, one of the world's leading
consulting companies and a product data management market leader
in Germany, have recently extended their business relationship.
SBS will actively support MONE's collaboration platform in its
catalogue of product-related information for partners, suppliers,
staff and customers.  Apparently investors were happy with the news
as they have pushed the issue to a recent high on extremely heavy

JUL 20.00 MOU SD LB=0.85 OI=30 CB=19.15 DE=21 TY=17.8%

VION - Vion Pharma  $8.82  *** Big Mover! ***

Vion Pharmaceuticals (NASDAQ:VION) is a biopharmaceutical company
engaged in research, development and commercialization of unique
therapeutics and technologies for the treatment of cancer.  The
company's product portfolio consists of one drug delivery platform
and two distinct small-molecule anticancer agents.  TAPET (Tumor
Amplified Protein Expression Therapy), the company's drug delivery
system using live bio-engineered, genetically altered Salmonella
bacteria, is designed to deliver cancer-fighting drugs to solid
tumors.  Triapine prevents the replication of cancer tumor cells
by blocking a critical step in the synthesis of DNA.  Sulfonyl
Hydrazine Prodrugs are potent alkylating agents that are being
evaluated in preclinical studies.  Vion is developing several
products for the treatment of cancer.  The core product candidates
are in various development statuses.  VION shares rallied Friday,
with no public news to explain the activity.  Regardless of the
reason, the support area at $7 makes this a reasonable speculation
play on a bullish issue.

JUL 7.50 UVP SU LB=0.50 OI=60 CB=7.00 DE=21 TY=26.7%



The following group of issues is a list of additional candidates
to supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
and positions are suitable for your experience level, risk-reward
tolerance and portfolio outlook.  They will not be included in
the weekly portfolio summary.

Sequenced by Target Yield (monthly basis)
Stock  Last  Call Strike  Option  Last Open  Cost   Days  Target
Symbol Price Mon. Price   Symbol  Bid  Int.  Basis  Exp.  Yield

AVGN   21.50  JUL 17.50   GKU SW  0.45 64    17.05   21   12.9%
SLI     8.25  JUL  7.50   SLI SU  0.25 20     7.25   21   12.9%
EXTR   29.50  JUL 22.50   EUT ST  0.55 120   21.95   21   12.4%
VSEA   42.00  JUL 35.00   UES SG  0.70 40    34.30   21    9.7%
NTIQ   31.29  JUL 22.50   CQT SX  0.40 95    22.10   21    8.7%


Stock       Stock Strike Option     Option  Margin Support
Symbol Price Price Symbol Price   At 25% Level

CEPH       70.5 70 CQE-SN 3.2 1762.5 65
CHKP 50.57 50 KEI-SJ 2.7 1264.25 47
CMVT 57.62 55 CQV-SK 2 1440.5 52
CVTX 57 55 UXC-SK 2.2 1425       55
EBAY 68.49 65 QXB-SM 2.6 1712.25 65
ESRX 55.03 55 XTQ-SK 1.85 1375.75 50
IDPH 67.69 65 IHD-SM 2.8 1692.25 63.5
IMCL 52.8 50 QCI-SJ 2.1 1320       45
KLAC 58.47 55 KCQ-SK 2 1461.75 55
MERQ 59.9 55 RQB-SK 2.3 1497.5 55
PDII 92 90 PKU-SR 3.25 2300       87.5
PDLI 86.76 85 RPV-SQ 6.1 2169       85
QCOM 58.48 55 AAO-SK 2 1462       56
QLGC 64.45 60 QLC-SL 2.5 1611.25 61.25
TARO 87.56 85 QTT-SQ 2.25 2189       81
TMPW 59.11 55 BSQ-SK 1.5 1477.75 56
VRTS 66.53 65 VIV-SM 3.7 1663.25 66

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Some Light At The End Of The Tunnel?

Friday, June 29, 2001

Technology stocks moved higher again today with networking issues
and chip stocks leading the rally.  The NASDAQ Composite finished
up 33 points at 2,159 in an unusual session that was extended one
hour due to a technical glitch in the exchange's SelectNet and
SOES trading systems.  The Dow industrials closed lower, weighed
down by shares of Honeywell (NYSE:HON), which slumped after hopes
for a revival of the merger with General Electric (NYSE:GE) faded.
The blue-chip average was down 63 points to 10,502 and the S&P 500
index slipped 2 points to 1,224.  Trading volume on the Big Board
reached 1.73 billion shares, with advances beating declines 19 to
11.  NASDAQ volume hit 2.02 billion, with winners beating losers
by a margin of 23 to 13.  In the bond market, the 30-year Treasury
fell 1 6/32, pushing its yield up to 5.75%.

Monthly Summary - as of June 30, 2001 (Positions prior to May are
not listed):

Stock  Pick     Last     Position    Credit   C/B     G/L   Status

COF   $60.25   $60.15   JUL70C/65C   $0.80   $65.80  $0.80   Open
GM    $59.05   $64.35   JUL50P/55P   $0.50   $54.50  $0.50   Open
ITG   $49.50   $50.29   JUL60C/55C   $0.75   $55.75  $0.75   Open
UHS   $44.50   $45.50   JUL37P/40P   $0.35   $39.65  $0.35   Open
TEVA  $65.88   $62.30   JUL55P/60P   $0.55   $59.45  $0.55   Open
WLL   $48.88   $49.50   JUL55C/50C   $1.05   $51.05  $1.05   Open

A credit spread is profitable if the underlying stock finishes the
expiration period beyond (below call/above put) the sold option
in the position.
Stock  Pick    Last     Position     Debit   Value    G/L   Status

CLCI  $10.00  $9.21   JAN10C/JUL10C  $1.10   $1.00  ($0.10)  Open
CSCO  $17.74  $18.20  OCT15P/JUL15P  $0.90   $1.00   $0.10   Open
HCA   $42.26  $45.19  AUG45C/JUL45C  $0.55   $0.65   $0.10   Open
JHF   $39.61  $40.26  SEP40C/JUL40C  $1.10   $1.40   $0.30   Open
NCC   $28.14  $30.78  OCT30C/JUL30C  $0.80   $1.10   $0.30   Open
SBGI  $9.00   $10.30  SEP10C/JUL10C  $0.45   $0.45   $0.00   Open

Note: Traders who have a bullish outlook for Cisco may consider
closing the long (put) option for a small profit or selling the
OCT-$17.50 put to create a bullish credit spread.

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

TSFG  $18.45  $18.88  AUG17C/JUL20C  $1.60   $1.60   $0.00   Open

The diagonal spread is profitable if the value of the position
exceeds the initial debit (or cost-basis) at the expiration of
the long option.
Stock  Pick    Last     Position    Debit   Value    G/L    Status

HYSQ  $16.66  $11.50   JUL12C/15C   $1.95   $1.00  ($0.95)  Closed
FMKT  $15.10  $20.00   OCT20C/12P   $15.40  $20.00  $4.60    Open
NXTV  $10.86  $6.75    SEP17C/7P    $10.75  $8.25  ($2.50)  Closed

A debit-spread is profitable if the value of the long option is
greater than the initial cost of the position when the play is
The covered-collar is profitable if the current stock price is
above initial cost basis in the position.
Stock   Pick     Last     Position    Credit   Cost   G/L   Status

EBAY   $64.99   $68.49   JUL85C/45P   $1.50   $0.50  $1.00   Open

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

AC    $48.90   $53.06   JUL50C/50P  $5.40   $3.90  ($1.50)   Open
AAS   $59.20   $55.35   JUL60C/60P  $3.85   $4.90   $1.05    Open
GD    $74.35   $77.81   AUG70C/70P  $6.40   $6.00  ($0.40)   Open
SNE   $81.75   $65.80   JUL80C/80P  $9.80   $15.00  $5.20   Closed
VOD   $22.95   $22.35   JUL22C/22P  $2.50   $2.20  ($0.30)  Closed
VOD   $22.95   $22.35    JUL-22C    $0.30   $0.90   $0.60    Open

          M/V = Maximum Value  G/L = Potential Gain or Loss

Note: The VOD straddle offered a viable exit opportunity for the
bearish portion of the play as the credit from the sale of the put
nearly paid for the entire position.

A debit-straddle is profitable when the closing credit in the
position exceeds the initial cost.
Stock  Pick     Last      Position    Credit  Value   G/L   Status

COST  $38.91   $41.08    JUL42C/35P  ($0.10)  $0.95  $0.85  Closed
HMA   $18.95   $21.04    JUL20C/17P   $0.10   $0.75  $0.65  Closed
PEP   $46.47   $44.20    JUL50C/42P   $0.10   $0.10  $0.20  Closed
SHPGY $51.70   $55.50    JUL60C/45P  ($0.10)  $0.70  $0.60  Closed

Note: The ITM LEAPS combination on Sycamore (a reader's request
for Jim's popular strategy) is currently below the strike price
of the long put.  However, there are three months remaining until
that option expires and plenty of time for a recovery to occur.

A synthetic position is profitable when both the short and long
options can be closed for an overall premium that is higher than
the initial cost basis in the play.
                           - NEW PLAYS -
YHOO - Yahoo!  $19.99  *** Reader's Request! ***

Yahoo! (NASDAQ:YHOO) is a global Internet communications, commerce
and media company that offers a comprehensive branded network of
services.  The company's principal offering, www.yahoo.com, is an
online navigational guide to the Web.  The company also provides
online business and enterprise services designed to enhance the
productivity and Web presence of Yahoo!'s clients.  These services
include corporate Yahoo!, a customized enterprise portal solution;
audio and video streaming; store hosting and management; and
Website tools and services.  Yahoo! has offices in Europe, Asia
Pacific, Latin America, Canada and the United States.  Under the
Yahoo! brand, the company provides broadcast media, communications,
business, enterprise and commerce services.

One of our readers identified YHOO as a potentially bullish stock,
based on the recent technical indications and the upside activity
that generally occurs when the company's earnings date approaches.
She also requested that we list some possible spread positions in
the issue and with the favorable option premium disparities in the
front-month calls, the best way to profit from any future bullish
movement may involve one of the most common forms of debit spreads.

PLAY (speculative - bullish/diagonal spread):

BUY  CALL  AUG-20.00  YHZ-HD  OI=7205   A=$2.20
SELL CALL  JUL-22.50  YHQ-GX  OI=10365  B=$0.60

PVN - Providian  $59.20  *** Cheap Speculation! ***

Providian Financial (NYSE:PVN) operating through its subsidiaries,
is a leading provider of lending and deposit products to customers
throughout the United States and offers credit cards in the United
Kingdom and Argentina.  The company serves a broad, diversified
market with its loan products, which include credit cards and many
other membership services products.  Providian also offers various
deposit products.  The company has more than $31 billion in assets
under management and over 14 million customers.

Providian shares have enjoyed bullish activity during the past few
sessions and analysts say it's because credit card companies are
expected to post a double-digit increase in profits for the second
quarter.  The leading credit card providers are benefiting from
tightened lending terms and increased late payment fees, and their
revenues have been boosted by falling interest rates.  Providian
benefits from that effect even more than other companies in the
industry because it serves less credit-worthy consumers, charging
higher interest rates and higher fees to offer these consumers
different forms of financing and credit.  The potential for an
earnings surprise is helping to support the upside momentum and
traders who want to speculate on a continued rally can use this
low cost position.

PLAY (speculative - bullish/calendar spread):

BUY  CALL  AUG-65  PVN-HM  OI=66    A=$1.50
SELL CALL  JUL-65  PVN-GM  OI=4760  B=$0.50

A less neutral and more bullish type of calendar spread is when
the underlying issue is some distance below the strike price of
the options.  This position is speculative with low initial cost
and large potential profits.  Two favorable outcomes can occur:
the stock rallies in the short-term and the position is closed
for a profit as time value erosion in the short option produces
a net gain or; the underlying stock consolidates, allowing the
sold option to expire and then eventually rallies above the long
option strike price.

AMGN - Amgen  $60.68  *** New Selling Pressure! ***

Amgen (NASDAQ:AMGN) is a worldwide biotechnology company that
discovers, develops, manufactures and markets human therapeutics
based on advances in cellular and molecular biology.  The company
manufactures and markets four human therapeutic products, EPOGEN
(Epoetin alfa), NEUPOGEN (Filgrastim), STEMGEN (Ancestim) and
INFERGEN (Interferon alfacon-1) and uses wholesale distributors
of pharmaceutical products as the principal means of distributing
the company's products to clinics, hospitals and pharmacies.

Amgen's shares continued to slump on Friday and one of the main
reasons for the retreat is the fact the company has not received
U.S. regulatory approval for Aranesp in the first half of 2001.
Amgen had previously established the timeframe for the expected
marketing approval of the planned successor to its blockbuster
anti-anemia drug Epogen.  Amgen said it continues to negotiate
over the wording of the label for Aranesp with the U.S. Food and
Drug Administration, but the agency has not asked for additional
clinical trial data on the new drug and investors are wondering
why the approval is taking so long.  While the delay is likely
part of the rationale for the recent selling pressure, additional
problems must be affecting the company's fundamental outlook
because the share value has failed to move above $75 in four
attempts during the past year.  The long-term bullish trend has
begun to fade and with the decline below the collection of moving
averages at $65, this position offers reasonable speculation for
traders who are bearish on the issue.

PLAY (moderately aggressive - bearish/credit spread):

BUY  CALL  JUL-70  YAA-GN  OI=20215  A=$0.25
SELL CALL  JUL-65  YAA-GM  OI=13295  B=$1.00

                        - TECHNICALS ONLY -

These plays are based on the current price or trading range of
the underlying issue and the recent technical history or trend.
The probability of profit from these positions is also higher
than other plays in the same strategy based on disparities in
option pricing.  Current news and market sentiment will have an
effect on these issues.  Review each play individually and make
your own decision about the future outcome of the position.

SEPR - Sepracor  $39.80  *** Bracing for A Rally? ***

Sepracor (NASDAQ:SEPR) is a specialty pharmaceutical company that
is focused on the cost-effective development of potentially safer,
purer and more effective drugs that are improved versions of
widely prescribed pharmaceutical compounds.  The company develops
and markets these drugs by leveraging its expertise in chiral
chemistry and pharmacology with its experience in conducting
clinical trials and seeking regulatory approvals for new drugs.
Sepracor's Improved Chemical Entities pharmaceutical development
program has yielded an extensive portfolio of drug candidates
intended to treat a broad range of indications in respiratory
care, urology, gastroenterology, psychiatry and neurology.

There is not much news to explain the recent upside momentum in
SEPR shares but it is obvious that someone believes the company
is under-priced at current levels.  The buying pressure late in
the week came on increased volume and now the issue is trading
above a recent consolidation area with little resistance below
$45.  Traders who believe the trend will continue can speculate
on that outcome in a conservative manner with this combination

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-30  ERQ-SF  OI=1170  A=$0.30
SELL PUT  JUL-35  ERQ-SG  OI=790   B=$0.85

                      - STRADDLES & STRANGLES -
JBL - Jabil Circuit  $30.86  *** Probability Play! ***

Jabil Circuit (NASDAQ:JBL) is a leading provider of electronic
manufacturing services.  The company designs and manufactures
electronic circuit board assemblies and systems for original
equipment manufacturers (OEMs) in the communications, computer
peripherals and personal computer, automotive and consumer
products industries.  The company serves its OEM customers with
dedicated work cell business units that combine high volume,
highly automated continuous flow manufacturing with advanced
electronic design and design for manufacturability technologies.
Its work cell business units are capable of providing integrated
design and engineering services, component selection, sourcing
and procurement, automated assembly, design and implementation
of product testing, parallel global production, systems assembly
and direct order fulfillment, repair and warranty services.

JBL was a profitable straddle last month and once again, the issue
has statistically undervalued options as well as the potential to
move high or low enough to make the play profitable.  In addition,
the stock has a history of multiple movements through a sufficient
range in the required amount of time to justify the overall risk
of the position.  As with any recommendation, the play should be
evaluated for portfolio suitability and reviewed with regard to
your strategic approach and trading style.  Also, current news
and market sentiment will have an effect on the stocks' movement,
so analyze the position thoroughly and make your own decision
about its future outcome.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  JUL-30  JBL-GF  OI=1852  A=$2.50
BUY  PUT   JUL-30  JBL-SF  OI=3312  A=$1.60


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