Option Investor

Daily Newsletter, Wednesday, 07/11/2001

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The Option Investor Newsletter                Wednesday 07-11-2001
Copyright 2001, All rights reserved.                        1 of 1
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MARKET WRAP  (view in courier font for table alignment)
        07-11-2001        High      Low     Volume Advance/Decline
DJIA    10241.02 + 65.38 10274.02 10120.89 1.38 bln   1341/1747	
NASDAQ   1972.04 +  9.25  1975.79  1934.67 1.73 bln   1550/2168
S&P 100   607.01 -  1.78   610.95   601.05   totals   2891/3915
S&P 500  1180.18 -  1.34  1184.93  1168.46           42.5%/57.5%
RUS 2000  475.83 -  2.31   478.14   471.36
DJ TRANS 2819.79 + 44.10  2825.04  2773.84
VIX        26.98 +  0.45    28.21    26367
Put/Call Ratio      0.74

Mr. Softee to Argentina: "Don't Cry for Me."

Amid continued earnings blow-ups, the major market averages
rebounded Wednesday.  What's more, volume picked up which may
have added credence to the advance.  About 1.4 billion shares
exchanged on the New York Stock Exchange (NYSE), while 1.7
billion shares traded on the Nasdaq.  To put Wednesday's trading
activity into perspective, the 30-day average volume for the NYSE
and Nasdaq is 1.09 and 1.57 billion, respectively.  Was
Wednesday's pick-up in volume due to short covering?  Or, was it
due to bulls taking the lead of bonds and buying the recent dip
across the broader market averages?  Or did Bill Gates whisper
sweet nothings into the ears of market participants?

Longer term Treasury (Notes and Bonds) yields rose across the
board Wednesday, which may have lent some of the bid that
equities caught.  But, the shorter-end of the yield curve in the
form of the 13-week Treasury Bill (IRX.X) continued to fall, which
means market participants were looking for a "safe" place to park
some capital in the short-term.  Might we conclude, however, that
some of the proceeds from the longer term Treasury sales were
moved into stocks?  I think yes.

However, the buying of 13-week bills (Read: Falling Yield), in
conjunction with the rise in Gold Futures and Gold Equities
(XAU.X), is a cause for concern.  Perhaps the flight to safety
that we witnessed Wednesday to short-term Treasuries and Gold
had something to do with the reports from Latin America.  It's
been suggested that Argentina might default on some $130 billion
of debt.  If that event is realized, it would come at a most
inopportune time for the global economy.  What's especially
disconcerting is that several U.S. money center banks have lent
billions to Argentina over the years.  Banks such as Citigroup
(NYSE:C) and J.P. Morgan Chase (NYSE:JPM).  And take a look at
the charts of these two stocks, keeping in mind that the Fed has
cut interest rates by 275 basis points this year.  Perhaps the
rumblings from South America partially explain the ultra tight
and conservative lending practices of domestic banks that have
contributed to the slowdown in capital expenditures...

Speaking of the Fed cutting interest rates amid foreign crises,
aren't the current concerns over Argentina and greater South
America eerily reminiscent of the Asian Flu back in 1997, which
spread to Russia and came to a head with the blow-up of Long-Term
Capital Management in the fall of 1998?  Is it possible that the
Fed drops the discount rate by another 25 basis points, in
inter-meeting fashion, if the Argentina problems escalate.  I
think yes.

In the meantime, I suggest that bullish and bearish traders alike
cast an eye to the bond market for clues.  The 30-year Treasury
Bond (TYX.X) will serve our purposes, but traders may want to
monitor the gamut of Treasuries, starting with the IRX.X.  In
Monday's Market Wrap, I opined that the TYX needed to get above
roughly 58.00 (5.80%) for the broader markets to substantially
advance.  Well, it didn't.  And I'm rather disappointed in myself
for not making more of the drop in yield on Monday, which
continued into Tuesday's session, all the while pressuring
stocks.  But the TYX did rebound in Wednesday's session which,
like I mentioned above, probably helped to prop stocks up.

The lack of demand due to the selling of bonds Tuesday allowed
for the bears to push the Nasdaq Composite (COMPX) below the
psychologically significant support level at 2000, followed by
a breach of our technically significant support level around
1975.  Well, not by surprise, 1975 now serves as resistance,
evidenced by Wednesday's intraday high in the COMPX at 1975.79.
But 1975 will most likely be a moot level Thursday in the
wake of Microsoft's (NASDAQ:MSFT) guidance after the bell, but
more on that later.

In terms of support, the COMPX bounced from the 1935 area
Wednesday, which was the site of its gap higher opening from
April 17.  Alright, gap filled.  Below that general area, I
think it's reasonable to expect support to materialize around the
1900 level should the COMPX continue falling over the short- to
intermediate-terms.  (The 1900 level should serve as psychological
support and technical for it's the site of the COMPX 61.8 percent
retracement level.  And Keep in mind the bearish price objective
of the COMPX from its head-and-shoulders lies around 1875.)

The S&P 500 (SPX.X) suffered a fate similar to that of the COMPX
by taking out support levels.  But as illustrated on the chart
below, it continues to trade fairly predictably around the key
technical levels we've determined using retracement brackets.  The
SPX bounced from the 1170 level Wednesday, which is the site of its
61.8 percent retracement.  Traders can reference this level going
forward.  And on the upside, keep a close watch on 1180 and 1190,
followed by 1200.

One point I'd like to emphasize is that the Bank Sector Index
(BKX.X), due to worries over Argentina, has traded quite poorly
and needs to at the very least establish a bottom before the
S&P can substantially advance.  Otherwise, continued weakness in
the BKX will lead the S&P lower.  That's because financials are
the largest component of the S&P 500, accounting for about 18
percent of the broad market index.

Although the S&P 500 has pulled back in recent sessions, it
remains neutral in terms of overbought versus oversold.  While
the Dow Jones Industrial Average (INDU) is fast approaching
oversold conditions.  That fact alone may allow for a short-term
pop in the Dow, but keep in mind that an weak market can always
grow more oversold.

In terms of technicals, the 10,235 level is acting like a price
magnet, as the Dow continues to churn around that level.  On the
upside, resistance lies around 10,300, while support is located
below current levels at 10,200 and around 10,150.

With earnings season upon us, a trifecta of positive reports
and guidance after the bell light the after hours markets a
blaze.  Most notably, Microsoft announced that its recorded
revenues within the range of $6.5 to $6.6 billion, as
previously guided.  It's worth noting that rumors have ran
rampant recently that Microsoft was going to warn, which had,
in retrospect, unfairly punished the stock.  Well, Microsoft's
announcement effectively smashed those rumors and its stock
exploded in after hours trading.  At time of writing, the stock
was up $4 in the after hours session, on top of its $2 gain
during the day.  Remember that Microsoft accounts for roughly
11 percent of the Nasdaq-100 and QQQs (AMEX:QQQ).

Motorola (NYSE:MOT), the beleaguered chip and handset maker,
reported a lost that was slightly better than Wall Street's
expectations.  However, the company's CEO said, "[We are]
already seeing signs of recovery."   He went on to forecast
a return of customer demand for handsets and double digit
growth in its chip business next year.  At time of writing,
shares of Motorola were up by about $1 in the after hours

Finally, Yahoo (NASDAQ:YHOO) reported numbers that bested
Wall Street's expectations on both the revenue and profit
front.  Its shares surged in the after hours session by $2.

The triple dose of positive tech earnings news Wednesday
evening may portend a second-quarter earnings season that is
better than anyone had expected.  Is it possible that the
Dells (NASDAQ:DELL), Intels (NASDAQ:INTC) and Ciscos
(NASDAQ:CSCO) of the market will surprise to the upside over
the coming month of reports?  Is it possible that Wednesday
evening's hint towards a recovery in corporate profits
ignites a summer rally and forecasts an economic recovery?
I think maybe.

But as traders, the aim is NOT to measure and manage reward.
Instead, we are risk managers.  That said, my suggestion is
to cast an eye towards the bond market, monitor the financial
complex and the Argentina issues and measure risk with the
levels we have set forth.

Eric Utley


Rock Paper Transports
By Jeffrey Canavan

Based on today's performance, sexy sectors like gold, paper
products, and transports were the only places to be long.
Rock beats transports, and nuggets of gold were the best
stocks, up 2.91%.  Gold looks like it has a little bit of upside
potential, but all of these groups are starting to look a little
overbought from a bullish percent standpoint.

Paper may cover rock, but Microsoft crushes all.  The software
behemoth announced that fourth quarter revenues will top
estimates, and most of techland should benefit tomorrow.  Adding
to the bullish ecstasy was Yahoo and Motorola, both of whom
posted better than expected earnings.  Internet and cell phone
stocks should prosper, but Motorola did warn about slowing
semiconductor sales, so that sector may be hurt slightly.  If the
triple Qs $2.00 gain in after hours trading is any gauge, we
should be in for a good day tomorrow.

How long the Microsoft euphoria will last remains to be seen.
Bounce, rally, or perhaps Nasdaq 6000?  Before we get ahead of
ourselves, we must first overcome the technical damage that has
been done in recent days.  Even closing on a strong note tomorrow
could be a challenge.  One day at a time.

*************************Sector Watch****************************

            Weekly   Daily      Overbought   Support  Resistance
            Trend    Trend      Oversold

DJIA        Bearish  Bearish    Neutral       10,200   10,500
NASD        Bearish  Bearish    Oversold       1,940    2,000
S&P 500     Bearish  Bearish    Neutral        1,170    1,200
Rus 2000    Neutral  Bearish    Oversold         465      485

Semis       Bearish  Bearish    Oversold         525      585
Biotech     Neutral  Bearish    Netural          510      550
Internet    Neutral  Bearish    Oversold         160      186
Networking  Bearish  Bearish    Oversold         300      365
Software    Neutral  Bearish    Neutral          188      210
Banking     Bullish  Neutral    Overbought       625      650
Retail      Bearish  Bearish    Neutral          815      850
Drugs       Bearish  Neutral    Oversold         375      400

                 Percent Change
            Last      Last       Last     Relative Strength
           5 Days    10 Days    30 Days      vs S&P 500
DJIA        (3.1%)    (2.2%)     (7.2%)       Negative
NASD        (7.9%)    (4.5%)     (9.4%)       Neutral
S&P 500     (4.4%)    (3.0%)     (6.9%)          N/A
Rus 2000    (4.2%)    (3.1%)     (5.3%)       Positive

Semis      (13.3%)    (8.6%)    (11.0%)       Negative
Biotech    (12.6%)    (8.8%)    (12.8%)       Negative
Internet   (12.1%)   (10.4%)    (24.1%)       Negative
Networking (14.0%)    (8.2%)    (29.2%)       Negative
Software   (11.4%)    (9.9%)    (12.9%)       Neutral
Banking     (3.7%)    (2.1%)     (3.1%)       Positive
Retail      (3.9%)    (3.7%)     (7.1%)       Negative
Drugs       (0.8%)    (2.7%)     (5.2%)       Positive


Fine Points of LEAPS Strike Selection
By Mark Phillips

As I mentioned over the weekend, I want to take the time to
comment on the different factors that should influence how we
pick the appropriate strike price when contemplating the
purchase of a LEAP.  Let's assume for the sake of argument that
you have already done all the fundamental research and technical
analysis to convince yourself that a given stock is poised to
deliver a sustained upward move over a period of several months
and is currently trading at $23.  What strike should we trade?
What expiration year?

Let's deal with the expiration issue first.  The simple fact is
that if we are targeting LEAPS for a long-term move, we want to
insulate ourselves from the effect of the passage of time, and
my preference is to buy as much time as possible.  For most
equities, that is now the 2004 strikes, although those LEAPS on
cycle 3 won't have their 2004 strikes released until the end of
July.  While there may be occasions where it makes sense to use
the shorter-term LEAP, it is hard to go wrong with buying as
much time as you can afford.  The simple math that underlies
this conclusion is the amount we end up paying for each month of
time we purchase with our LEAP.

For the sake of example, let's look at the EMC $30 LEAPS for
2003 and 2004 (I would have used the $25 LEAP as it is the
strike we would prefer to purchase, but there is no $25 strike
available for 2004).  Purchasing the 2003 LEAP for $4.00 gives
us 18 months of time at an average "time cost" of 22.2 cents
($4.00/18) per month.  But the 2004 LEAP at $6.20 only costs
20.6 cents per month, since it is good for a total of 30 months.
It may seem like a small amount, but in the trading game, we
need to stack as many factors in our favor as possible.  If we
are contemplating selling covered calls against our LEAP, then
that lowers our monthly carrying cost of the LEAP and makes it
easier to pay it off by taking in premium.  The intangible
effect of buying as much time as possible is that we give
ourselves an extra year to be right and for the underlying
stock to appreciate significantly.

The issue of which strike price to select is more dependent on
your intention for the trade.  If you are just looking to
purchase the LEAP and ride the equity higher, then the best
selection is typically one strike out of the money.  In the case
of EMC, with it trading in the $20-21 range, I would look to
target the $25 strike.  Knowing that LEAPS have a higher delta
than short-term options of the same strike, even though it is
one strike out of the money, the $25 strike likely has a delta
close to 50, meaning that we should see a nice appreciation in
our LEAP as the stock begins to move upward.

If however, we are intending to reduce our cost basis
(preferably to less than zero) by selling covered calls, it may
make more sense to buy the $20 strike, which is slightly in the
money.  The reason for this is our established policy of only
selling short-term calls with a higher strike price than our
LEAP, which keeps us from having to utilize margin on the
combined position.  Remember that most brokers will treat
covered calls on LEAPS as a spread trade, selling a higher
strike than the LEAP we own gives us a debit spread, and most
brokers will not require any margin to maintain that position.
So buying the $25 LEAP on EMC will allow us to sell the $25
front-month calls which will still have some decent premium for
us to sell as the next upward move runs out of steam.

For those of you unfamiliar with the term, delta refers to the
degree of movement we can expect to see in our option for a
given movement in the underlying stock.  If our option has a
delta of 50, that means that it will move $0.50 for each $1.00
the stock moves.  So obviously, when we are purchasing options,
higher deltas are good, as our option will more closely match
the movement of the stock as it appreciates.  We just don't want
to overdo it by buying an option with very high delta (i.e.
greater than 90), as the option costs so much, we give up the
advantage of leverage inherent to option trading.

Let's take a quick look at some actual data on EMC.  With a
current price of $20.30, let's look at some options and see what
I am referring to in terms of delta.  The AUG-25 Call is
currently trading for $0.75, and has a delta of only 26, meaning
that EMC would have to move nearly $4 to get a $1 movement in
the option.  That isn't too bad if we are trading for a
short-term move, as it would equate to a 133% gain.  But with
recent market developments, that seems more like a gamble don't
you think?  Instead, let's look at the JAN2003-25 LEAP,
currently trading for $4.00.  The delta of that option is 61
(greater than 50) and looks like a pretty good deal, provided
the stock quits falling.  The same $4 move in the price of EMC
will yield (theoretically) a $2.44 appreciation in our LEAP.
While the percentage movement in our option is smaller (61%),
the dollar movement is significantly larger, putting greater
profits in our account while giving us even more time to watch
our LEAP appreciate.

You can see how this equation really favors the holder of LEAPS
when selling covered calls.  Since the LEAP has a higher delta,
it will always appreciate faster (on a dollar basis) than a
shorter-term option of the same strike price.  Even if the stock
appreciates sharply, forcing us to buy back our covered call at
a "loss", the gain in the LEAP will far outdistance the "gain"
in the short-term call, leaving us with a net profit in the
overall position.

What is really important here is to know what our plan is before
initiating the position.  We need to know what our exit strategy
is for any trade we initiate, but with LEAPS we also need to
know how long we intend to hold the position and if it is
strictly a buy-and-hold approach or if we will use a spread
technique to try reducing our cost basis.  Hopefully this quick
discussion gives you an idea of how to factor expiration cycle
and strike selection into your decision process.

I'm just about out of time for this evening, but I know you're
dying of curiosity about what is happening with our AOL trade.
Remember last weekend, I said things were going fine, and we
should have nothing to report this week.  Well, boy was I wrong!
AOL actually dipped right to our $48 stop during the day today,
and I almost had to close out the whole position.  But fate was
kind to me, as buyers came to the rescue at the close.  So those
who are waiting for the real-world description of a LEAPS
covered call trade gone bad will have to wait just a little
longer.  I think it's a foregone conclusion that the JUL-$55
call will expire worthless, but now we have to hope that the
stock will hold above $48 so I can repeat the process for the
August expiration cycle.  Stay tuned, and I'll do a full update
to the AOL trade next week.

Happy Trading!

Contact Support


EFDS - eFunds Corp. $21.44 +1.25 (+2.99 this week)

Primarily involved in the electronic payments business, EFDS
provides electronic transaction processing, automated teller
machine outsourcing and risk management services to financial
institutions, retailers, electronic funds transfer networks,
e-commerce providers and government agencies.  Supplementing
its electronic payments business, the company also offers
information technology and business process outsourcing

You have to dig deep, but there are actually stocks bucking the
overall market's downtrend, providing profitable trading
opportunities for those with a bullish bias.  There are few with
a chart as favorable as EFDS, which just broke out of a
month-long basing pattern between $17-20.  The lows have been
getting higher, and the past 2 days saw increasing volume propel
the stock through the $20 resistance level.  Closing above the
50-dma (currently $21.07) was a nice touch, confirming the
bullish pattern on the Point and Figure chart.  There we see
that EFDS just completed a triple-top breakout by cresting the
$21 level.  The bullish support line on the Point and Figure
chart (currently at $19) has been providing support since
mid-June, giving us a nice level for controlling our risk.
Accordingly we are starting the play with our stop at $18.50.
The company has been growing earnings steadily over the past
year, and with its Q2 earnings set to be released July 27th
before the open, we could be looking at the beginnings of a nice
little earnings run.  Remember those?  The 16% move over the
past 2 days may require a bit of consolidation before continuing
higher, so use any near-term weakness to establish new positions
at more attractive levels.  A low-volume pullback to near-term
support, first at $20, and then $19 looks like a good level for
dip buyers.  The next serious resistance is sitting at $23, and
a volume-backed move through that level will provide good
entries for momentum traders.

***July contracts expire in less than two weeks***

BUY CALL JUL-20.0*EFU-GD OI=212 at $2.00 SL=1.00
BUY CALL JUL-22.5 EFU-GX OI= 85 at $0.70 SL=0.00
BUY CALL AUG-20.0 EFU-HD OI=306 at $2.80 SL=1.50
BUY CALL AUG-22.5 EFU-HX OI= 11 at $1.60 SL=0.75
BUY CALL AUG-25.0 EFU-HE OI=  0 at $0.75 SL=0.00

Average Daily Volume = 828 K


No new puts tonight


BSYS - call
Adjust from $57 up to $59

JCI  - call
Adjust from $73 up to $74
LLY  - call
Adjust from $73 up to $74

ANF  - put
Adjust from $42 down to $42

BEAS  - put
Adjust from $27 down to $25


DGX $69.35 -0.05 (-3.80) Although it managed to claw its way
back over our $68 stop at the close on Wednesday, DGX
effectively experienced the breakdown we warned about last
night, falling as low as $66 before finding any support from
buyers.  The rebound came on solid volume and did offer a
profitable day-trade to those nimble and brave enough to take
it, but when all was said and done, DGX closed below yesterday's
final price, adding to the developing bearish picture.  The
daily Stochastics are in full roll now, and even stronger stocks
in the sector like LH were heavily sold today.  We can take a
hint and are dropping the play tonight.

QCOM $56.45 -2.60 (-1.73) Bearish traders continued to punish
QCOM this morning, extending the slide that began yesterday
afternoon, as the stock fell to within a fraction of major
support at $55.  Although buyers did appear, helping the stock
to recover a bit, the end of the day saw QCOM trading well below
our $58 stop.  Adding insult to injury, the stock saw heavy
selling volume, 20% above the ADV, on a day where the NASDAQ
actually managed a positive close.  The rebound that we rode
on Monday has clearly run its course and it is time to step


No dropped puts tonight


BSYS - BISYS Group $62.20 +1.86 (+2.30 this 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.

Most Recent Write-Up

BSYS managed to shake off the broad market weakness Tuesday, en
route to advancing back above the $60 level.  While its relative
strength is certainly encouraging, without the cooperation of the
broader markets any rally attempt is likely to be capped.
Remember: Market, Sector, Stock.  Speaking of sector, BSYS'
cohorts also traded relatively well Tuesday, including First
Data (FDC) and Fiserv (FISV).  Again, the sector is moving in
our direction, but we need to see the Nasdaq Composite and S&P
500 trade higher for BSYS to substantially advance.  Also, keep
in mind that FDC announces earnings Thursday, which could impact
BSYS one way or the other.  As for new entries, bullish traders
can use an advance above $61 to enter new call positions if the
Nasdaq and S&P are advancing.  For those who prefer entering on
pullbacks, look for a bounce around support at $59.  Our stop
currently lies at the $59 level.


With relief across the broader markets, BSYS was able to break
above resistance to trace a new 52-week high.  With momentum in
the Nasdaq poised to roll higher, BSYS could continue working
to the upside.  But bullish traders should be aware the BSYS
competitor FDC announces earnings before the bell Thursday
morning.  That event could act as a catalyst, however, and
carry BSYS higher.  Watch for an advance above the $62.50 level
on healthy volume, or a pullback to $61.

***July contracts expire in two weeks***

BUY CALL JUL-55 BQY-GK OI= 89 at $7.60 SL=5.25
BUY CALL JUL-60*BQY-GL OI=245 at $3.00 SL=1.50
BUY CALL AUG-60 BQY-HL OI= 10 at $4.50 SL=2.75

Average Daily Volume = 602 K


Warnings Season Ends, Earnings Season Begins...Yahoo! for Mr. Softee!

The major averages traded in a range today as technology issues
rebounded from early lows and select blue-chip stocks saw renewed
buying pressure in the wake of the recent sell-off.  Most of the
popular sectors moved in a choppy fashion as investors weighed
the outcome of another series of revenue warnings in the hi-tech
group.  Analysts say that is likely to be a common theme over the
next few weeks as the quarterly earnings season comes to a climax.
Today's sporadic upside activity was bolstered by a report from
Salomon Smith Barney, which named 15 "exceptional" stocks based
on fundamental valuations and the compelling profit opportunity
they promise over the next 12 months.  The stocks cover a range
of diversified industrial sectors and some of the more well known
were America Online (NYSE:AOL), Ford (NYSE:F), Pfizer (NYSE:PFE),
Tyco International (NYSE:TYC) and Wal-Mart (NYSE:WMT).  Since the
list's inception in 1994, Salomon claims it has outperformed the
S&P 500 index with a compounded average investment return of 19%.
On the Dow Jones Industrial Average, General Motors (NYSE:GM) was
a big winner, up over $2 to a recent high near $65 even after a
report suggested that GM will announce a sharp drop in quarterly
earnings.  Industry experts say GM will earn $1.13 per share, or
about $645 million, well below the $1.75 billion earned last year.
Positive activity was also seen in Honeywell (NYSE:HON), Procter
& Gamble (NYSE:PG), SBC Communications (NYSE:SBC), Walt Disney
(NYSE:DIS) and Wal-Mart (NYSE:WMT).  The technology sector ended
mixed, with semiconductor and hardware stocks managing some gains
A warning from Comverse Technology (NASDAQ:CMVT) had far-reaching
effects on the NASDAQ as the company's shares slid over 30% after
officials announced that second-quarter earnings would come in at
only $0.28 per share, well short of the consensus $0.43 per share.
Comverse cited the capital spending recession and the economic
slowdown as reasons for the expected shortfall and noted that
customers have postponed discretionary purchases and are being
more selective.  Emerson Electric (NYSE:EMR) was another surprise,
announcing it expects to post its first earnings decline in over
40 years.  The company anticipates fiscal third-quarter earnings
to decline 11% due to the shortfall on customer demand issues of
"unprecedented" magnitude.  Stocks in the fiber-optic group made
little headway as they were still feeling the effects of Tuesday's
profit warning from Corning (NYSE:GLW) and Morgan Stanley buried
the wireless telecom sector with a reduced forecast for mobile
phone sales in 2001, amid recent concerns over weak demand in the
replacement market.  The one bright spot was the PC industry as
Compaq (NYSE:CPQ) led the segment higher after announcing that it
won't meet revenue targets in the second quarter but expects to
meet earnings-per-share targets.  The PC maker also said it would
eliminate 1,500 more jobs, due to slowing demand.  Among broader
market shares, major drug stocks retreated with Merck (NYSE:MRK)
and Pfizer (NYSE:PFE) leading the sector lower and biotechnology
issues also experienced sharp losses for a second consecutive day.
Oil service stocks were poor performers amid a bearish report on
the crude oil supply.  The American Petroleum Institute said late
Tuesday that crude supplies rose by 909,000 barrels over the past
week.  Natural gas and financial shares were also in the red, but
airline, retail, paper and gold issues generally moved higher.

Summary of Previous Candidates:

Naked Puts:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis  Price   (Loss) Mon. Yield

HON     JUL    32.5  31.50  35.50    $1.00   8.7% At support
EBAY    JUL    55    53.90  60.18    $1.10   7.4%
TARO    JUL    70    69.00  83.26    $1.00   6.6%
MVSN    JUL    55    54.15  62.64    $0.85   6.2% Worrisome
LXK     JUL    55    54.20  59.03    $0.80   5.7% Key Moment
CEPH    JUL    60    59.20  62.84    $0.80   5.6% Time to go?
PDLI    JUL    65    64.00  62.77   -$1.23   0.0% Closed
ADVS    JUL    55    53.80  51.50   -$2.30   0.0% Closed

Positions Closed:  HGSI, MANU

Sell Strangles:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis  Price   (Loss) Mon. Yield

MU      JUL   32.5p  31.75  39.50    $0.75   6.9%
MU      JUL   50c    50.70  39.50    $0.70   6.5%

Naked Calls:

Stock  Strike Strike Cost   Current  Gain  Potential
Symbol Month  Price  Basis  Price   (Loss) Mon. Yield

FCEL    JUL    42.5  43.30  20.84    $0.80   8.8% Adj 2-1 split
ENZN    JUL    75    75.80  54.24    $0.80   6.2%
DIGL    JUL    60    60.65  27.26    $0.65   5.9%

Credit Spreads:

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

LNCR  $32.70   $30.90 JUL25p/27.5p $0.30  $27.20  $0.30  Open *
THC   $48.50   $54.99  JUL40p/45P  $0.60  $44.40  $0.60  Open *
JPM   $46.84   $42.05  JUL55c/50c  $0.75  $50.75  $0.75  Open
RJR   $56.46   $52.58  JUL65c/60c  $0.65  $60.65  $0.65  Open
TM    $66.50   $69.56  JUL75c/70c  $0.65  $70.65  $0.65  ALERT!
ELN   $65.00   $62.85  JUL55p/60p  $0.65  $59.35  $0.65  ALERT! *
GE    $50.77   $44.61 JUL45p/47.5p $0.45  $47.05 ($2.44) Closed!*
LNCR  $33.38   $30.90 JUL27.5p/30p $0.38  $29.62  $0.38  Open *
RETK  $42.70   $35.74  JUL30p/35p  $0.60  $34.40  $0.60  Open
IBM  $113.09  $103.85 JUL130c/125c $0.70 $125.70  $0.70  Open *
MEDI  $45.17   $42.61  JUL35p/40p  $0.60  $39.40  $0.60  Open
APC   $55.39   $50.78  JUL65c/60c  $0.60  $60.60  $0.60  Open
HMC   $85.58   $87.82  JUL95c/90c  $1.00  $91.00  $1.00  ALERT!

* LNCR: Adjusted for a 2-1 split.
* GE: As noted June 27, a break below the 150-dma (July 6) should
  have signaled a reasonable exit, which was available on July 6,9.
* THC: Should have just bought calls!
* IBM: Should have just bought puts!

Debit Straddles:

Stock  Position   Debit  Target  Value   Status

IDPH  JUL70c/70p  $11.00 $13.75  $9.30    Open?

Are you still holding the IDEC Pharmaceuticals (NASDAQ:IDPH) debit
straddle?  Tomorrow, aggressive traders will be well rewarded as
the stock is trading down almost $14 (after-hours).  Sometimes you
just get lucky!

New Candidates:

This following group of plays is simply a list of 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
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).


BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

BRCM - Broadcom  $38.35  *** Low Risk Entry Point? ***

Broadcom (NASDAQ:BRCM) is a provider of highly integrated silicon
solutions that enable broadband communications and networking of
voice, video and data services.  Using proprietary technologies
and advanced design methodologies, Broadcom designs, develops and
supplies system-on-a-chip solutions for applications in digital
set-top boxes and cable modems, high-speed local, metropolitan
and wide area and optical networks, home networking, Voice over
Internet Protocol (VoIP), carrier access, residential broadband
gateways, direct broadcast satellite and also terrestrial digital
broadcast, digital subscriber line (xDSL), wireless communications,
server solutions, and network processing.  The company's quarterly
earnings are due on July 18.

Traders are always asking for our favorite companies in specific
sectors and when it comes to issues in the Integrated Semiconductor
group, Broadcom is a leading contender.  The company has solid
fundamentals and from a technical viewpoint, this may be a perfect
entry opportunity.  Broadcom continues to forge a Stage I base with
near-term support at $30 and today's high volume rally closed above
BRCM's 30-dma, suggesting an end to the brief downward trend.  Those
who want to speculate on the future movement of BRCM's share value
should consider these positions.

BRCM - Broadcom  $38.35

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

Sell Put  JUL 30   RCQ SF  2970      0.50    29.50    20.7% ***
Sell Put  JUL 35   RCQ SG  4088      1.40    33.60    35.3%
Sell Put  AUG 25   RCQ TE  11020     0.70    24.30     6.9%
Sell Put  AUG 30   RCQ TF  3178      1.70    28.30    14.9%



FISV - Fiserv  $61.61  *** Earnings Rally? ***

Fiserv (NASDAQ:FISV) is a technology resource for information
management systems used by the financial industry.  FISV provides
information management technology and related services to banks,
broker-dealers, credit unions, financial planners and investment
advisers, insurance companies, leasing companies, mortgage lenders
and savings institutions.  The company operates centers for full
service financial data processing, software system development,
item processing and check imaging, technology support and related
product businesses.  The company has two major business segments:
financial institution outsourcing, systems and services; and
securities processing and trust services.

FISV has been "on the move "in recent months and the stock paused
only for a brief consolidation, even as the majority of technology
issue were falling to yearly lows.  Now the issue is once again in
an upward trend and with earnings due just after the July options
expiration, this position offers a reasonable expectation of an
acceptable profit with limited downside risk.

FISV - Fiserv  $61.61

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-55  FQV-SK  OI=152  A=$0.25
SELL PUT  JUL-60  FQV-SL  OI=172  B=$0.75



IFIN - Investors Financial Services  $74.33  ** Big Earnings! ***

Investors Financial Services (NASDAQ:IFIN) is a holding company
that provides asset servicing for the financial services industry
through its wholly owned subsidiaries, Investors Bank & Trust
Company and Investors Capital Services.  The company provides a
broad range of services to financial asset managers, such as fund
complexes, investment advisors, banks and insurance companies.
The company organizes these services into two categories: core
services and value-added services.  Its core services include
global custody and multi-currency accounting.  Its value-added
services include mutual fund administration, securities lending,
foreign exchange and cash management.  The company provides
services from offices in Boston, New York, Toronto, Dublin and
the Cayman Islands.

Investors Financial Services reported outstanding second quarter
earnings this week with a per share amount of $0.36, an increase
of 38% from the $0.26 reported in the second quarter of 2000.  The
company's net income for the second quarter was $11.9 million, up
47% from the $8.1 million posted in the second quarter of 2000.
The CEO said he was extremely pleased with the second quarter
results as the company surpassed its original earnings target and
is now positioned to exceed the consensus expectations for the
remainder of the year.  Analysts from Dain Rauscher Wessels were
quick to upgrade the issue and it appears that investors are on
the "bullish" bandwagon as well.  Traders can speculate on the
future activity of the issue with this conservative position.

IFIN - Investors Financial Services  $74.33

PLAY (conservative - bullish/credit spread):

BUY  PUT  JUL-65  FLQ-SM  OI=227  A=$0.30
SELL PUT  JUL-70  FLQ-SN  OI=50   B=$0.85



MSCC - Microsemi  $59.00  *** Next Leg Up? ***

Microsemi (NASDAQ:MSCC) is a designer, manufacturer and marketer of
analog, mixed-signal and discrete semiconductors.  The company's
semiconductors manage and regulate power, protect against transient
voltage spikes and transmit, receive and amplify signals.  Their
products include individual components, as well as complete circuit
solutions that enhance its customers' end products by providing
battery optimization, reducing size or protecting circuits.  The
company's commercial products are utilized in dynamic high growth
mobile connectivity applications, including mobile phones and
handheld Internet devices, and also broadband communications
applications such as base stations, wireless LAN, cable and fiber
optic systems.  Microsemi's quarterly earnings are due on July 24.

Technology stocks came back to life after the close today with the
NASDAQ leaders rebounding from a test of recent lows amid strength
in shares of Microsoft (NASDAQ:MSFT) and Yahoo! (NASDAQ:YHOO).
Microsemi was one of the gainers, climbing higher on renewed buying
support and the issue now appears to have made a successful test of
its 50-dma as the four month up-trend continues to propel the stock
into "Blue Sky"  territory.  The 150-dma (and the JAN-FEB highs)
provide the next level of support near $45 and the big question is
whether the recovery rally will continue.  Traders who are bullish
on the technology sector can speculate on that outcome with these

MSCC - Microsemi  $59.00

PLAY (sell covered call or naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

Sell Call JUL 55   QMS GK  80        5.90    53.10    12.1%
Sell Call AUG 50   QMS HJ  30       13.00    46.00     7.1% ***

Sell Put  JUL 45   QMS SI  243       0.35    44.65     9.7% ***
Sell Put  JUL 50   QMS SJ  335       0.90    49.10    19.6%
Sell Put  JUL 55   QMS SK  72        2.10    52.90    32.7%
Sell Put  AUG 50   QMS TJ  12        4.10    45.90    18.0%



SEBL - Siebel Systems  $41.35  *** Software Sector! ***

Siebel Systems (NASDAQ:SEBL) is a worldwide provider of eBusiness
applications software.  Siebel Business Applications comprise a
family of Web-based applications software designed to meet the
sales, marketing and customer service information requirements of
even the largest multinational organizations.  Siebel eBusiness
Applications enable organizations to market to, and service their
customers across multiple channels, including the Web, call centers,
field, resellers, retail and dealer networks.  By employing their
unique eBusiness applications to better manage their customer
relationships, the company's customers achieve high satisfaction
and continue to be competitive in their markets.  Siebel's earnings
are due on July 18.

Analysts generally regard Siebel as a top-notch firm that will make
its quarterly numbers despite the recent economic woes, and the
lack of any profit warning appears to confirm that opinion.  One of
the reasons Siebel is a great company is that it has executed a
solid business plan in very tough market conditions.  In addition,
Seibel has a number of unique application products that help the
company maintain leadership in some key software segments and most
industry experts believe that trend will continue.  These positions
allow you to establish a relatively conservative cost basis in the

SEBL - Siebel Systems  $41.35

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

Sell Put  JUL 30   SGQ SF  6750      0.45    29.55    17.4% ***
Sell Put  JUL 32.5 SGQ SZ  1575      1.00    31.50    36.5%
Sell Put  JUL 35   SGW SG  8083      1.55    33.45    44.6%



THQI - THQ Incorporated  $58.00  *** Hot Sector! ***

THQ (NASDAQ:THQI) is a developer, publisher and distributor of
interactive entertainment software for hardware platforms in the
home video game market.  The company publishes titles for Sony's
PlayStation, Nintendo 64, Nintendo Game Boy Color and personal
computers in most interactive software genres, including children's,
action and adventure, driving, fighting, puzzle, role playing,
simulation, sports and strategy.  The company has released hundreds
of games, consisting of Nintendo titles, Game Boy/Game Boy Color
titles, Sega Game Gear titles, Sega Genesis titles, SNES titles,
Sega Saturn titles, Sony PlayStation titles, Nintendo 64 titles,
Sega Dreamcast titles, Sony PlayStation 2 titles and PC titles.
Its customers include Wal-Mart, Toys "R" Us, Electronics Boutique,
Target, Kmart Stores, Babbages Etc., Best Buy, other national and
regional retailers, discount store chains and specialty retailers.
The company's quarterly earnings are due on July 19.

The electronic gaming industry has been very popular in recent
months and it could enjoy more upside potential in the coming
year.  Analysts and company officials say the gaming software
industry is on the cusp of its strongest growth cycle in years
and most entertainment software stocks are trading at or near
record levels.  THQ Inc. is one of the leading companies in the
industry and investors who want to establish a low-risk basis in
the issue should consider the target position.

THQI - THQ Incorporated  $58.00

PLAY (sell naked put):

Action    Month &  Option  Open     Closing  Cost     Target
Req'd     Strike   Symbol  Int.     Price    Basis    Mon. Yield

Sell Put  JUL 50   QHI SJ  302       0.40    49.60     8.7% ***
Sell Put  JUL 55   QHI SK  260       1.35    53.65    21.2%
Sell Put  AUG 45   QHI TI  14        0.80    44.20     5.3%
Sell Put  AUG 50   QHI TJ  87        2.00    48.00     9.6%


Neutral Plays - Straddles & Strangles

DST - DST Systems  $54.66  *** Earnings Speculation! ***

DST Systems (NYSE:DST) is a global provider of information
processing and computer software services and products to the
financial services industry (mutual funds and investment
managers), video/broadband/satellite television industry,
communications industry and other service industries.  The
company's business units are classified into three operating
segments: Financial Services, Output Solutions and Customer
Management.  Certain investments and interests are grouped in
the Investments and Other Segment.  The company's quarterly
earnings are due on July 25.

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

DST - DST Systems  $54.66

PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-55  DST-HK  OI=195  A=$2.85
BUY  PUT   AUG-55  DST-TK  OI=15   A=$3.10



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