Option Investor

Daily Newsletter, Sunday, 07/15/2001

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The Option Investor Newsletter                   Sunday 07-15-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
WE 7-13          WE 7-06          WE 6-29          WE 6-22
DOW    10539.06 +286.38 10252.68 -249.72 10502.40 -102.19  - 19.05
Nasdaq  2084.79 + 80.63  2004.16 -156.38  2160.54 +125.72  +  6.39
S&P-100  626.85 + 13.90   612.95 - 19.07   632.02 -  4.13  +  9.52
S&P-500 1215.68 + 25.09  1190.59 - 33.79  1224.38 -   .97  + 10.99
W5000  11271.92 +212.36 11059.56 -347.59 11407.15 + 94.70  + 74.45
RUT      490.71 +  7.45   483.26 - 29.38   512.64 + 23.99  -  6.48
TRAN    2940.35 +191.43  2748.92 - 81.04  2829.96 +153.47  - 17.13
VIX       23.87 -  1.10    24.97 +  3.34    21.63 -   .87  -  3.83
Put/Call    .65              .90              .58              .69

Was It Really Friday The Thirteenth?
by Jim Brown

No black cats in the form of monster earnings warnings crossed our
path on Friday but the major markets jumped with every news story.
Still there were no surprises and the summer Friday passed into the
history books without incident. Argentina is still there, Bejing's
got games and there is still no inflation in sight. Yawn! Throw
a couple steaks on the barbecue and grab a cold drink to ward off
the summer heat.

In case you can't tell Friday was a slow news day. Traders held
their breath all day as the Nasdaq traded on both sides of positive
several times and the Dow bumped against resistance at 10550 all
afternoon. Other than a strong dip slightly after the open the
feared sell off never came. Large blocks of puts were being bought
all afternoon but the drop never came. The Dow closed out its first
winning week in two months with a +286 point gain, about one third
of the prior four weeks losses. Apparently the gains from Thursday
are going to stick. The bulls only gave passing notice to the Latin
American problem and instead focused on positive statements from

Surprise! The economy in the second quarter was bad. Surely that
is no longer a surprise to anyone and the glimmer of hope in the
guidance from AMD, JNPR and GE is energizing investors again. If
you liked last weeks trickle of earnings then the coming week will
really light your fire. There are almost 850 companies actually
reporting earnings next week and 181 of those are S&P-500 companies.
We should get a very good picture of what business for the 3Q will
look like. There will be no shortage of good news and of course
bad news. We all know about the 2Q bad news so investors will be
looking for the silver lining in each announcement.

Economic reports on Friday were mixed and showed that the economy
was still inflation free but also growth free. The ECRI Weekly
Leading Index declined for the third week in a row and the recent
skid is accelerating. Since it is a leading indicator it tends to
point to conditions six months in our future. This would indicate
that the 4Q recovery everyone is hoping for is not yet a sure thing.
Retail Sales grew slower than expected at .2% and stretched the slide
to three months. Excluding vehicle sales, retail sales actually fell
-.2% during the last month. Analysts hope the tax rebate in the mail
shortly will help inject some cash into the retail sector as well
as lower interest rates. The Fed is banking on this to prevent them
from having to cut rates again.

The biggest report on Friday was the fall in the PPI for June of
-0.4%, substantially more than the consensus estimate of -0.1%.
This was largely a result of lower energy prices and without
energy the core rate actually grew +0.1%. Inflation is virtually
zero and falling energy prices will take the pressure off profits
for heavy energy dependent manufacturers. With zero inflation the
Fed is free to continue to cut rates if needed without fear of
stagflation. Currently the Fed fund futures are pricing in a 100%
chance of another 25 point rate cut in August. There is only a
6% chance of a 50 point cut at this time.

Next week we have a light week of economic reports highlighted
by CPI on Wednesday. More importantly we get to listen to several
hours of what used to be called Humphrey Hawkins testimony by
Alan Greenspan on Wednesday. Our elected officials get to grill
him on anything they want related to the economy and his plans
to deal with it. Greenspan on the other hand gets to practice
his careful control of the English language and say "I don't
know" or "you would not understand" in as many ways possible
in the time allowed. Still fireworks have been known to occur
and the markets will be watching carefully.

Get used to hearing the up to the minute Microsoft/DOJ results
as reporters strain to sift every possible story from any mention
by the parties. With the settlement by New Mexico the pressure
is on the DOJ to settle before the coalition self destructs.
On Friday the DOJ requested "fast track" status for the case
and MSFT sold off slightly on the news and profit taking. MSFT
reports earnings on Thursday.

So, with over 850 companies reporting earnings next week we should
be off to the races with positive guidance pouring from every tech
stock. If you feel that way I hope you are right. I was very
encouraged by the lack of a sell off on Friday with Argentina a
weekend wildcard. Historically the latter part of July has not
been kind to investors as shown by the graphic below. This is
a snapshot of July for the last four years. Ugly!

Granted this July is starting from an entirely different basis
than any of the last four years. There has not been a rise into
earnings and we are nearly -800 points below the May highs on
the Dow. There is a feeling that the bad news is priced in and
the worst of the selling is behind us. This is our only saving
grace. Cash has piled up on the sidelines for months while
institutions waited for the dog days of summer to make their
purchases. Are those days in front of us or behind us? Even if
they are still in front of us does that mean we will retest
10,000 again. I doubt that scares anybody at this point. The
greater risk is not being in the market if the dip last week
was the successful retest of the April lows.

With investors seizing the very small scraps of hope from each
companies guidance there will be the possibility to positively
"pig out" from the smorgasbord of earnings next week. Traders
will be able to ignore those that are negative as "not relative"
and hype those that are positive as previews of things to come.
Everybody, well almost everybody, wants to be bullish. Even shorts
like to play the long side in a bull market. That chance will
come next week. If ever we had a chance of NOT REPEATING the
July sell off from the last four years, it would be next week.
We have already sold off! The news would have to be so bad that
Bill Fleckenstein would cringe before the bulls would move to
the sidelines again. They want to buy! They want to bet on the
4Q recovery even if it comes a couple quarters later.

This creates the problem we have all seen in the past. Excessive
bullishness. Most market declines occur when market sentiment is
at its highest. Note that each July decline in the graphic above
occurred ot a high point. We want to believe that the worst is
over even if it is wrong. Investors want to hit play with the
Nasdaq 5000 history tape in the VCR and feel the thrill of
victory all over again. All we need is a little help from
earnings and we are good to go. IBM will be the key for the
week on Wednesday. ANY positive guidance from them and the lid
could come off. Microsoft has already announced a positive
surprise on the revenue side to set the tone for the market.
INTC does have a chance to kill the whole thing on Tuesday if they
say something negative but with AMD saying positive things about
the future Intel would be shooting itself in the foot by giving
negative guidance even if they need to. With 850 earnings
announcements we are sure to have our share of winners and
losers. Hopefully the winners will swamp the losers and worries
about a repeat of the summer slump will evaporate into thin air.
Nasdaq 2140 is the next resistance point and Dow 10550 was pretty
convincing as a ceiling on Friday. A breakout above either of those
numbers on Monday would be buyable but you should close the positions
if the indexes fall back below those levels. The markets could be
very volatile with news popping like firecrackers on the fourth.

Definitely, enter passively, exit aggressively!

Jim Brown

PS. I was talking with Preferred Trade last week about their
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Investors will have five skilled option desk traders on their team
to work orders and monitor positions. This level of support is not
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talk to you about this service. They are going to limit it to about
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Editor's Plays

A Blowout, A Profit And A False Start

The plays from last week cover the entire range of emotions. The
DGX call play has not taken off yet but we got a really good entry
this week. No complaints there. The QQQ play is looking good and we
also got a better entry than we planned.

The highlight of course was the Wellpoint Health Oct-$90 call play.
The stock was at $94.26 last Sunday and looking like a breakout over
$95 was in the cards. The call option was the OCT-$90 @ $10.00.
This week Wellpoint did breakout and ran to $105.27 on Friday. I
recommended closing the play at $105 due to resistance and the Friday
high would have taken us out with a quarter to spare. The option on
Friday was $18.00 for an 80% return in five days. Take the money
and run!

New Plays

This week I was thinking about Abbey Joseph Cohen and her price
targets for the major indexes for year end. If she is even close
to right then there are some really cheap lottery plays available.

Her target for the Dow is 12,500 and 1550 on the S&P. Using the
DJX options on the Dow we have several ways to play this.

You can be as aggresive as you want or as passive as your budget
dictates. Using the December options limits your play to one week
before the technical year end and prevents a Santa Claus rally from
helping out any lingering positions. Still the December positions are
cheap. The DJX is a numerical subset of the Dow. 12500 on the Dow
equates to 125 on the DJX. The December strikes to consider would be:

Dec $116 - DJW-LL @ $1.75
Dec $120 - DJW-LP @ $0.95

The $116 strike would be $9 (900 points) in the money if the 12500
prediction came true. Obviously a $9 option price would return about
+414% profit and any trader would be thrilled at the outcome.

The $120 strike would be $5 (500 points) in the money if the 12500
was met. That would represent a +426% gain on a lesser investment
but have slightly higher risk.

The $116 option would need the Dow to hit 11750 by expiration Friday
to breakeven where the $120 option would need the Dow to hit 12100 to
avoid a loss. In every trade you make you should calculate this data
to help you determine which strike you should use.

The March strikes allow for a three month safety factor. What if she
was off by a month or two? Your December options could be toast and
the March options tremendously successful. The March strikes are:

Mar $116 - DJW-CL @ $3.00
Mar $124 - DJW-CT @ $1.15

My favorite is the $116 for obvious reasons. It is only 1.25 more
than the December $116 and there is three more months for success.
It is entirely possible that the recovery could not show until the
first quarter and the biggest part of the move occur in Jan/Feb.

The Dow only need to hit 11900 to breakeven and 12500 in early
January would still imply time premium in the option as well.
It could trade over $10 at that time for almost a 300% gain with
much more safety.


S&P-500 Year end target $1550

Using the same logic on the S&P-500 the possibilities are endless.
The strikes I would look at are these:

Dec 1450 - SXZ-LJ @ $5.00
Dec 1550 - SXM-LJ @ $1.15

Mar 1500 - SXM-CT @ $6.50
Mar 1550 - SXM-CJ @ $3.30

Because of the big price swings on the S&P the profit potential
on these strikes is huge. You can also lose 100% if she is wrong.
It is entirely possible for the SPX to be 50-100 points over any
of these strikes if we get a really good bull market on recovery
news. I would probably split this play and not put all my money
in one strike. Possibly 1/3 of the Dec-1450, 1/3 Dec-1550 and
1/3 Mar 1500. I don't like the difference in the risk reward between
the two March strikes. (personally) The $3.20 difference in price
is nothing compared to the $50 difference in worth if the SPX hits
1550. At 1506 you break even on the 1500 strike and everything
between there and 1550 is profit. 1549 is a loser for the 1550
strike. Spend the extra $3.20 for the Mar-1500 option.


Now Abbey did not predict a target for the Nasdaq but using the
Dow/S&P as a guide it is probably safe to assume 3000 or higher.
3000 on the Nasdaq equates to 75 on the QQQ. That gives us many

Because of the liquidity of the QQQ you can pick any strike between
here ($43) and $75 and let your budget be your guide.

I like the Jan-$60 for $1.10 (you could probably buy it for $1.00)
It is cheap and should the Nasdaq actually hit 3000 it would return
you around $15 for every $1 spent. (just an estimate!!)


There is something here for everybody and these options are not
something you need to watch every day. You should assume that
any money you put into a lottery play like this could be lost
and you should only use a small portion of your risk capital.
This does assume Abbey Joseph Cohen is right about the direction
and distance of the market and as a woman analyst she can change
her mind and numbers at any time. You know how they do that. They
had the targets right but the timing was off by a year. OOPS!

Good Luck

Jim Brown


Capre Diem, Quam Minimum Credula Postero
By Jeffrey Canavan

The baby bull that was born Thursday managed to avoid the
matador's sword Friday.  It lost some of its verve, but left the
door open for next week.  The door is only open a crack as long
as we have more resistance to overcome that support bolster it.

Bullish percent data is also telling bullish traders to proceed
with caution.  Three of the four major indices remain in bear
confirmed status, and the gains over the past two days have done
little to repair the situation.

PPI and consumer sentiment data are suggesting the economic
situation is improving, but softening retails sales say
otherwise.  The Economic Cycle Research Institute's Weekly
Leading Index also hints that an economic recovery isn't a sure
bet.  The index is a composite of seven leading business cycle
indicators - money supply, industrial material prices, mortgage
applications, stock prices, bond yields, bond quality spread, and
initial claims for unemployment.  The index provides insight into
the state of the economy six months into the future, and was
suggesting that a recovery should occur by the end of the year.
But the index has declined for the past three weeks, raising some
doubts about the certainty of a recovery.

Sentiment indicators aren't giving any directional clues for the
stock market.  The VIX has halted its steep climb, but has only
dropped to 23.87.  Put/Call ratios are mixed.  The OEX is
approaching a bullish signal, but QQQ remains dangerously low.
COT data has improved, but not enough to signal any meaningful

So what will Monday bring?  In 2001, the Nasdaq Composite has
lost an average of 4.5 points on Mondays.  There have been 11
positive Mondays with an average gain of 38 points, and 13
negative Mondays with an average loss of 41 points.  The best
Monday was on 5/21/00 when the Nasdaq gained 106 points.  The
worst Monday was four weeks earlier when the Nasdaq lost 104
points.  My best guess is that resistance will be too much for
the market on Monday, and we will revert back to the mean,
gaining or losing only minimal points.


Market Volatility
VIX   23.87
VXN   53.47


          Put/Call Ratio  Call Volume   Put Volume
Total           .65        633,553       412,720
Equity Only     .59        537,910       315,119
OEX            1.56         15,318        23,860
QQQ             .27         48,102        12,859


Bullish Percent Data

           Current   Change   Status
NYSE          36       -      Bear Confirmed
NASDAQ-100    26       -      Bear Confirmed
DOW           32      -2      Bear Confirmed
S&P 500       50       -      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  1.18

Extreme readings above 1.5 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


        Advancers     Decliners
NYSE      1755           1279
NASDAQ    1949           1689

        New Highs      New Lows
NYSE       116            41
NASDAQ     112            65


Advisory Sentiment   Bullish   Bearish  Correction
                       50%      25.5%      24.5%


Commitments Of Traders Report: 07/03/01
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
Commercial traders have stopped their bearish trend, but not
enough to signal any meaningful reversals.

Commercials   Long      Short      Net     % Of OI
6/26/01      307,889   379,955   (72,066)   (10.48%)
7/03/01      316,543   395,410   (78,867)   (11.08%)
7/10/01      309,374   385,178   (75,804)   (10.91%)

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
6/26/01      130,914     56,269   74,645     39.88%
7/03/01      133,098     54,865   78,233     41.62%
7/10/01      135,587     59,889   75,698     38.72%

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

Institutions have decreased their net bearish position for seven
straight weeks, and small traders are about to turn net bearish.
The overall picture is still net bearish, but things are looking

Commercials   Long      Short      Net     % of OI
6/26/01       26,263     35,690   ( 9,427)  (15.22%)
7/03/01       26,544     34,880   ( 8,336)  (13.57%)
7/10/01       26,688     34,640   ( 7,952)  (12.97%)

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
6/26/01       10,519     6,064    4,455      26.86%
7/03/01       10,443     7,063    3,380      19.31%
7/10/01        9,073     7,486    1,587       9.58%

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

Institutions have quickly reversed their position back to net
bullish.  I would like to see this trend persist for a few more
weeks before I buy it.

Commercials   Long      Short      Net     % of OI
6/26/01       11,371    12,759   (1,388)    (5.8%)
7/03/01       12,761    14,623   (1,862)    (6.8%)
7/10/01       13,743    12,999      744      2.8%

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     % of OI
6/26/01        4,756     6,341    (1,585)   (14.28%)
7/03/01        4,708     5,715    (1,007)   ( 9.66%)
7/10/01        5,048     7,835    (2,787)   (21.63%)

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


Round Mound of Rebound
By Eric Utley

I don't really care if Barkley returns to the NBA.  The same
goes for Jordan.  But I do care about the market and this
column.  Hopefully last weekend's reviews helped to partially
offset the blunder I made the weekend prior, especially the
Calpine (NYSE:CPN) comments, which was a request from a most
astute reader.

I've decided to try to answer commonly asked questions through
this column, in an open format, so that more readers will
benefit.  I've started this weekend with a simple question
concerning short sellers.  So if readers have questions that
have not yet been answered either through a personal e-mail or
this column, please feel free to drop me a line via the link
below and I'll do my best to answer.

Please send your questions and suggestions to:

Contact Support


Short Sales

Thanks again for your insight and normally reliable opinions!
You often make reference to the amount of "shorts" on a stock
and I'd sure like to know how I can find that same info. -
Thanks, Mike

"Normally reliable" is the operative idea, Mike, after my recent
errors.  I'll make it up to my readers, though, just you watch.

Alright, enough with the poor attempt at redeeming whatever
credibility I might have.  Oftentimes in this column I do
mention the amount of shorts in a stock or particular sector.
I generally start my search for short interest on a financial
portal, such as Yahoo! Finance, for example.  The link below
takes me to the 'Profile' section of Yahoo's site that lists,
among various other metrics, the short interest in the a
particular stock.  In this case, I've provided a link to
Texas Instruments (NYSE:TXN):


The problem, however, is that this information is rather
dated and rear looking, as is most data that is published
on short interest.  Indeed, the Nasdaq and NYSE publish
various short interest data sets on their respective Web sites.
And there are several Web sites that are dedicated to reporting
just on short activity.  But because the data dated, I like to
keep track of the month-to-month changes in short interest to
discern whether or not a trend is developing.  I do this for
the stocks that I watch and trade rather closely.

In addition to monitoring the figures attained from the
aforementioned sources, I also closely monitor the put/call
ratios in the stocks that I'm following.  That's because shorts,
that is professional shorts, tend to be more sophisticated than
other market participants - they have to be.  And these traders
often employ the use of puts to establish their short positions.
I've found that monitoring put/call ratios is a much better
indicator for short-term applications because it's real-time.

I'm sure that there are Web sites devoted to monitoring put/call
ratios, but a simple Excel program can be used by those who
have a data feed.  Or, it's quite quick and easy to attain
put/call ratios from an options quote service, such as that
from the CBOE, Dreyfus or even Yahoo! Finance.  There are two
ratios to monitor: put/call volume and open interest ratios.
The former gives you the day's activity while the latter
reveals a 'bigger picture.'

For example, using rudimentary observations, I found that
Texas Instruments put/call volume ratio last Friday was around
0.30, while its put/call open interest ratio is around 0.70.
I don't follow this stock, per se, so I don't know where these
figures lie in the greater scheme of things.  But by tracking
these figures on a fairly regular basis, a trader can get a
good feel for how many shorts are in a particular stock.

Finally, some readers might begin to wonder what exactly the
open interest is comprised of when monitoring put/call ratios.
Are the options sold short, bought or covered?  To be quite
frank, I don't concern myself with these details.  Call me
ignorant, but complicating the matter defeats the purpose.
Keep it simple and whatever you do, don't call me after 10:00
p.m. MST.


Texas Instruments - TXN

Also, how would you evaluate TXN at this stage of the game? -
Thanks, Mike

And now onto your request, Mike.

Texas Instruments is a diversified semiconductor company that
offers myriad products and services.  The company's chips
are used in a host of applications, from cell phones to PCs.

The semiconductor business as a whole is still battling with
the excess inventory that was created during the boom.  While
the demand for the chips has yet to substantially resurface.
But it will.  The growth in the chip sector will return to its
long-term rate of around 15%, it's only a question of time.

Because Texas Instruments is one of the time tested greats in
the business, I think that investors who need exposure to
the group can selectively enter positions in the stock at
current levels for the long-term.  It may take another nine to
twelve months before demand substantially returns and orders
pick-up.  In the meantime, it looks like Texas Instruments
has built a pretty solid base and offers limited downside risk.

If demand returns sooner, however, investors won't have to chase
the stock higher.  But keep in mind that my observations are
not intended for trader types.  Those who are under invested in
technology (If that's possible?) and looking for exposure to
the semi sector can consider Texas Instruments at current levels.

In the very short-term, I think that if the stock clears $35, it
could pop for a quick $2 up to $37.  Also worth noting are the
two aggressive trend lines on the daily chart.  The stock rolled
over near its descending resistance line last Friday, which
currently lies in the neighborhood of $35.  The ascending support
line that has three observations, currently sits around $29 and


Exodus - EXDS

Do you think this company will be in business a couple of years
from now?  If they can make it through this slump it may be a
good company to write deep in the money puts on. - Thanks, Brandon

Thanks for the question, Brandon.

The Jan '03 5 puts were bid at $3.80 last week - that's only $10
worth of time premium per contract, taking into account Exodus'
(NASDAQ:EXDS) closing price last Friday.  The 10 strike had about
$20 in time premium.  Further, the cost to carry those options
is so low because of the underlying price and that fact also
deflates the options premium.  Is it worth the risk?

So what's the risk?  The stock goes to zero.  In all honesty,
I don't know if Exodus will survive.  There have been issues
concerning the company's liquidity and its bonds are reflecting

Of course there's the possibility that the company makes it and
the stock rebounds, which could result in a home run for a
trade.  Hell, Priceline.com (NASDAQ:PCLN) bounced from $1 late
last year and now trades north of $8.  On the other side, 360
Networks fell below $1 in early June and doesn't trade any

In my estimation, Brandon, the game is about supply versus
demand and probabilities.  And in Exodus' case, I think it's
on the wrong side of both equations.  At this point, selling
naked puts on Exodus is blind speculation, at least from where
I sit.  And I sure as hell wouldn't want to own the stock
should the puts be exercised early.  But that's just my
opinion, so take it for what it's worth.


Tosco - TOS

The oil industry is going down the dunny and I have played a TOS
short (but covered...) for the past few days.  I am thinking
that after [Thursday's] weakness, combined with a large gap that
there still is significant reward/risk here.  And wouldn't mind
entering a short again. - Cheers, Rob

Thanks for the question, Rob.

Before we address Tosco (NYSE:TOS), let me remind readers that
the company entered into a merger agreement with Phillips
(NYSE:P) back in February.  That was the reason for the gap,
and for that reason, the gap doesn't mean anything.  Shares of
Tosco trade in accordance with shares of Phillips.  So any
past gaps or trends on Tosco's chart are now irrelevant.

Back to the request.  The energy sector, as measured by the
bullish percent of the S&P Energy Sector, is currently the
most oversold it's been since early 1999.  While the S&P Energy
Sector is comprised of drillers, refiners and the integrated
companies, I think it's worth monitoring to get a grasp of the
bigger picture.

Myself and several colleagues have been watching these stocks
trade lower and lower in amazement.  And have to remind
ourselves that an oversold market can always grow more
oversold.  That said, shorting Tosco around its current levels
is in sync with the trend of the sector.  But, I'm wary of
shorting stocks that are so deeply oversold because the risk
is weighted to the upside in most cases.  Furthermore, I
see two key support levels in Phillips that bring the notion
of risk/reward into question.  The daily chart reveals an
ascending support line just below current levels, which is
reinforced by support on the point & figure chart at $55.


Rightchoice Managed Care - RIT

Can you please give your comments on RIT.  Appears to be a good
stock for going long.  Please advise the entry point. - Thanks,

WHOA, Sunil, this is quite the request.

Shares of Rightchoice (NYSE:RIT) went parabolic late last
week.  The company guided earnings growth higher last Wednesday
which ignited a buying spree in its shares.

In cases such as these, I don't think it's prudent to chase the
stock at current levels.  Again, it's risk versus reward and
that much is rather difficult to quantify at current levels.  I
think the best approach would be to enter the stock on a
pullback to a support level.  But even that strategy is
difficult because support is hard to find around current levels.

On the daily chart, I've laid a retracement bracket over the
stock's relative low and its near-term high, prior to last
Wednesday's advance, around $46.50.  This retracement bracket
also includes the forecasts at the 127% and 161% levels, of
which RIT blasted through the former last week.  That 127%
level lies around the $50 level, which is the logical place
to look for support due to its psychological and technical


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 16, 2001

With 181 S&P earnings reports due out next week, that's obviously
where the market's drive will be.  Several economic reports due out
will garner some attention though, possibly hinting at a definitive
sign of economic direction. Among others, watch for the CPI report
on Wednesday and the Philadelphia Fed Survey slated for Thursday.

Business Inventories   May  Forecast:  -0.1% Previous:   0.0%

Industrial Production  Jun  Forecast:  -0.5% Previous:  -0.8%
Capacity Utilization   Jun  Forecast:  76.9% Previous:  77.4%

CPI                    Jun  Forecast:  0.1%  Previous:   0.4%
Core CPI               Jun  Forecast:  0.2%  Previous:   0.1%
Housing Starts         Jun  Forecast:  1.6M  Previous: 1.622M
Building Permits       Jun  Forecast:    NA  Previous: 1.621M

Initial Claims         7/14 Forecast:  430K  Previous:   445K
Trade Balance          May  Forecast:-32.0B  Previous: -32.2B
Leading Indicators     Jun  Forecast:  0.3%  Previous:   0.5%
Philadelphia Fed       Jul  Forecast:  -1.0  Previous:   -3.7

Treasury Budget        Jun  Forecast: 34.0B  Previous:  55.9B

Week of July 23
Jul 25 Existing Home Sales
Jul 26 Initial Claims
Jul 26 Employment Cost Index
Jul 26 Durable Orders
Jul 26 Help-Wanted Index
Jul 27 GDP-Adv.
Jul 27 Chain Deflator-Adv.
Jul 27 Mich Sentiment-Rev.
Jul 27 New Home Sales

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The Option Investor Newsletter                   Sunday 07-15-2001
Sunday                                                      2 of 5

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By Robert Ogilvie

Have you ever heard the adage KISS?  So that I don't offend
anyone, it stands for Keep It Simple Silly.  I am referring to
the use of too many technical indicators and research tools.
Many technical indicators display the same information in
different formats.  An investor using too many indicators can
often find at least one to agree with their emotional opinion.
Too much information can over complicate the process.

Because the market's, sector's, and individual stock's
fundamentals influence, respectively, many stocks' trends most,
it is important to gauge the conditions of each starting with
the broadest.  Starting with the market, determine the health
of the various indexes by observing the internals and the price
level relative to the trend lines.  Market sentiment is a popular
indicator. Whether you are either a contrarian or not, market
psychology can be a powerful tool when determining the market's
direction.  If your analysis has determined that the security
markets are not a favorable location for your investments, then
you just stop here.  However, if the weather report says there is
clear sailing ahead, then pack up your sandwiches and life
jackets and go to the next test.

Before sailing into big water, make sure there aren't any isolated
storms or undertows on the horizon.  Determining the condition of
the different sectors can be done in a few ways.  There are
various chart services that do a lot of the work for you.
Investor's Business Daily (IBD), TC 2000, and StockCharts'
CandleGlance page are among the many available.  OptionInvestor's
market sentiment section beautifully displays the various sectors
strength or weakness.  Whether you are a bull and looking for the
best performing sectors or a bear looking for the weakest sectors,
it is important to find the broader strength or weakness before
finding the best or worst stocks, respectively.

The next step is to determine the best candidates in the sector
for your strategy.  As option traders, it is assumed that the
stocks we are tracking trade options.  Start with the
fundamentals.  Charts are a visual reference to the market's
perception of the fundamentals of a security.  Determine the
Relative Strength, EPS, EPS and Revenue Growth, Return on Equity,
and the Accumulation rating to name a few.

After you have done the above analysis, you should have a short
defined list of candidates.  Now it is time to look at the
charts.  This is where it is important not to over complicate
the process by using a lot of technical indicators.  So many
people think that there is a secret to making money in the
market.  Whether it is a trading program or every technical
indicator available.  An investor could have so many technical
indicators overlapping the chart that one could barely make out
the price pattern of the security.  Cluttering your mind with
too much information is the biggest reason investors fail.  I
use a few indicators to display pending strength or weakness
as well as a couple of moving averages.

The process I have outlined may seem hypocritical to the title,
but it really isn't very time consuming.  Because you are only
watching a few broad market indicators, the market analysis
takes a few minutes a day.  A few examples include
advance/decline lines, new highs/lows, VIX (Volatility Index)
and VXN (Volatility Index NASDAQ), Investor Sentiment Readings,
CBOT Commitment Of Traders Report, Bullish Percentage Charts,
and the market bar charts.  To identify the strong sectors
quickly, read the IBD or view OIN's market sentiment section.
The stock selection is up to you.  You may choose to do scans
through your charting service or start with scanning the stock
lists for strong fundamentals.  There is no one right way.
There is no secret combination.  You may want to spend some
time initially to make a standard checklist of the steps I
have outlined so that there is always a standard format to
your analysis.  I can help those of you that need some
additional guidance to construct a checklist that fits your
investment style and goals.

I am an Options Broker and ROP that trades and educates
investors on many strategies.  Please contact me at:


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 Disclaimer:


Call Play of the Day:

AT - Alltel $64.28 (+3.50 last week)

See details in sector list

Put Play of the Day:

AES - AES Corp. $38.42 (-4.03 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.


No dropped calls this weekend


ANN $34.02 (+2.22) The fears of continued strength in our put
play on ANN were realized last Friday.  The stock took the lead
of the Retail Sector Index (RLX.X) and traded past our upside
stop at the $33 level.  As such, we're dropping the play this
weekend.  Traders with open positions might use any dip back
down to the $33 level, near the 10-dma, to close out positions
and cut losses.  Also, watch the 50-dma just above around $34.70.

BA $55.07 (+0.77) The Dow Jones Industrial Average dragged BA
higher last Friday on volume that was weak, at best.  The
possibility of a rollover from current levels is good, noting
the lack of conviction of the buyers last week and the fact that
BA stopped right at its 10-dma last Friday.  Nevertheless, the
stock just barely closed above our stop and for that reason
we're dropping coverage this weekend.

ANF $42.09 (+1.23 last week) After following our script of
breaking below the $40 level on Wednesday, ANF did the
unexpected, reversing on a dime and bouncing vigorously from the
$38 level on Thursday.  For an encore, the stock reacted
positively to a mixed Retail Sales report on Friday, regaining
the $42 level and clearly violating our $41 stop.  Although
nimble day-traders could have made a respectable profit earlier
in the week, the past two days have clearly belonged to the
bulls.  With the change in sentiment and a violated stop, it is
time to close the book on ANF.


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.


SLVN - Sylvan Learning Systems $26.39 (+2.99 last week)

Sylvan Learning Systems is the world's leading provider of
educational services to families, schools, and industry.  In
the year 2000, Sylvan Learning Systems embarked on a new
strategy to optimize operations, focus on new emerging markets
and further build on its strong brand identity.

The learning services sector has been on fire for the last
year.  A quick glance over the charts of Education Management
(EDMC), Career Education Corp (CECO), Corinthian Colleges
(COCO) and Sylvan Learning Systems reveals that much.  Each
of the aforementioned stocks are trading at or very near new
all-time highs.  This comes despite the sever economic
downturn, which has yet to adversely impact the earnings of
each company.  And with several among the group already
reporting outstanding quarterly numbers, Sylvan is positioned
to stage a solid earnings run.  The company reports its
quarterly results in about two weeks, on Thursday, July 26.  But
that should give us plenty of time to capitalize on any run.  The
stock broke out in a big way last Friday, on very big volume.
Over 1.3 million shares traded, while the stock's 30-day
average volume is 393 thousand shares.  So make no mistake
about it, currently the play on Sylvan is of the momentum
type and predicated upon the catalyst of an earnings run.  Its
breakout last Friday makes gaining entry into the play more
of a challenge.  So bullish traders will most definitely want
to consider risk preferences and time frames before considering
trading this stock.  That said, the momentum crowd can confirm
strength in the Nasdaq early next week, watch for sector
confirmation and consider entering new positions at current
levels.  Those who prefer entries of the pullback variety can
wait for SLVN to decline on light volume to support.  In terms
of support, the stock's platform around $25.50 may attract
buyers and traders can look for a bounce from that level.  Below,
the $23 level should also provide support, hence our reason to
choose that level as the initial site of our stop.

BUY CALL AUG-25*NQV-HE OI=374 at $2.15 SL=1.00
BUY CALL AUG-30 NQV-HF OI=  0 at $0.45 SL=0.00  Wait for OI!!
BUY CALL NOV-25 NQV-KE OI= 60 at $3.70 SL=2.25
BUY CALL NOV-30 NQV-KF OI=  0 at $1.55 SL=0.75  Wait for OI!!

Average Daily Volume = 393 K

LEA - Lear Corp $39.70  (+3.39 last week)

Lear Corporation is an automotive supplier that serves the
global automotive interior, seat systems and automotive
electrical distribution systems markets.  Lear supplies
every major automotive manufacturer in the world, including
General Motors, Ford, Daimler Chrysler, Fiat, BMW,
Volkswagen, Peugeot, Toyota, Subaru and Renault.

We've been having success trading the auto parts sector
(See: JCI call play) recently, and for good reason.  The
sector has been out performing the broader markets recently,
led higher by the General: General Motors (GM).  Obviously
GM is not an auto parts supplier, per se, rather quite a
large customer to the likes of Lear.  That being the case,
the price action in GM has been most impressive recently
and suggests that business is improving for the auto giant.
So follows the logic that if business is good for GM, it
is also good for Lear, since the latter is a large supplier
to the former.  In Lear's case, it's shares have certainly
reflected the prospects for improving business, noting the
big breakout above resistance late last week.  The stock
advanced past triple top resistance last Friday on volume
that most certainly confirmed the move.  Over 600 thousand
shares traded last Friday, while the stock's average daily
volume is more like 400 thousand shares.  Therefore, it
should be rather obvious that this play is a momentum/breakout
trade at this point.  So bullish traders can enter new call
positions at current levels early next week, or wait for
a strong advance past the $40 level.  While those who'd
rather wait for a pullback can use any light volume related
weakness down to $38 for entries.  The company is scheduled
to report earnings on Tuesday, July 24, which gives us a
decent amount of time to stay in the play.  Initially, we're
setting stops at the $37 level.

BUY CALL AUG-35 LEA-HG OI=169 at $5.30 SL=3.25
BUY CALL AUG-40*LEA-HH OI= 14 at $1.80 SL=1.00
BUY CALL SEP-35 LEA-IG OI=603 at $5.40 SL=3.25
BUY CALL SEP-40 LEA-IH OI=158 at $1.90 SL=1.00

Average Daily Volume = 428 K

KOPN - Kopin Corp. $12.41 (+1.46 last week)

Kopin uses its proprietary technology to design, manufacture
and market advanced semiconductor products used in wireless
communications and miniature flat panel displays used in
high-resolution consumer electronics applications.  KOPN
produces two types of high-performance components; its
heterojunction bipolar transistor (HBT) wafers, and its
CyberDisplay products.  The HBT wafer product consists of a
customer-specific array of vertically oriented transistors
that its customers use primarily to produce integrated
circuits for wireless communications products.  Current
applications of the company's CyberDisplay products are
currently limited to viewing images in camcorders and digital
cameras, but KOPN is targeting new applications such as
reading email and browsing the Internet using digital
wireless handsets, pagers and other consumer electronics

Shares of KOPN have endured a long and painful slide since
early 2000, but it appears that a new base is in place from
which the stock can stage a new bullish move.  The stock found
support near $5 in early April and since then has been gradually
advancing, most recently finding solid support near $10.  Solid
buying volume emerged the past two days, propelling the stock
through the 200-dma (currently $11.15) and bringing it within
striking distance of breaking through the $13 resistance level.
Earnings are set to be released on July 26th after the close,
and it looks like the stock could be setting up to make a decent
earnings run.  The Point and Figure chart is forecasting a
bullish price target of $24, and trading $13 will give us
another double top breakout, adding to the bullish sentiment.
We are setting our stop at $10 and will target new entries on
a pullback and bounce above that level.  Waiting for the
breakout before playing may be the most prudent course of
action, and a volume-backed move through $13 will be our
trigger in that case.

BUY CALL AUG-10.0 KQO-HS OI=233 at $2.65 SL=1.25
BUY CALL AUG-12.5*KQO-HB OI=380 at $1.10 SL=0.50
BUY CALL SEP-10.0 KQO-IS OI=366 at $3.00 SL=1.50
BUY CALL SEP-12.5 KQO-IB OI=831 at $1.60 SL=0.75
BUY CALL SEP-15.0 KQO-IC OI=286 at $0.80 SL=0.00

Average Daily Volume = 1.09 mln

LH - Laboratory Corp. of America $83.98 (+6.48 last week)

Laboratory Corporation of America Holdings (LabCorp) is the #2
clinical laboratory service in the world, behind Quest
Diagnostics.  LH performs 2000 types of tests for more than
100,000 clients, including health care providers, pharmaceutical
firms, physicians, government agencies and employers.  With 25
major laboratories and some 1200 service sites nationwide, the
company emphasizes specialty and niche testing such as allergy
tests, HIV tests, blood analyses, and substance abuse

It took some time to build a new base after the sharp decline
in shares of LH that commenced in early January, but the price
action over the past 4 months has done a good job of
establishing a new uptrend.  The ascending trendline is now
resting near $79, giving us a reasonable location for our stop.
Breaking above the top of the long-term bullish wedge at $82 on
strong volume Friday is what really got our attention though,
as it opens the door for LH to move up and retest its January
highs near $90.  Chiming in with an ascending triple-top
breakout on Friday, the Point and Figure chart casts its vote
in favor of the bulls as well.  CS First Boston helped to get
the stock moving up last week by reiterating their Strong Buy
rating and with earnings scheduled for the afternoon of July
23rd, it looks like a momentum run is in the making.  We'll
target intraday pullbacks to the $82 or $80 level for new
entries, although a volume-backed move through $84 looks
attractive as well.

BUY CALL AUG-80 LH-HP OI=732 at $7.10 SL=5.00
BUY CALL AUG-85*LH-HQ OI=403 at $4.30 SL=2.75
BUY CALL AUG-90 LH-HR OI=121 at $2.25 SL=1.25
BUY CALL NOV-85 LH-KQ OI= 32 at $8.60 SL=6.00

SELL PUT AUG-80 LH-TP OI= 45 at $2.50 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 486 K

CSC - Computer Sciences Corp. $36.28 (+2.92 last week)

As a world leader in the information technology (IT) services
industry, CSC helps its clients use IT more efficiently to
improve their operations and profitability.  The company offers
a broad array of professional services to clients in the
commercial and government markets.  Its service offerings
include outsourcing, systems integration, IT and management
consulting, and other professional services, including
e-business solutions.

Positive press has helped to put a floor under shares of CSC in
recent weeks, as the stock traced a double bottom near $33,
before attracting buyers again towards the end of last week.
With that bottom solidly above the $29-30 floor posted in March
and April, CSC looks to be on the mend.  While there is lots
of overhead resistance, the recovery that is beginning in the
broader markets combined with earnings approaching on July 30th
have bullish traders voting with their wallets.  Volume is still
rather light (less than half the ADV last week), but the push
through the near-term resistance at $36 is encouraging.
Ideally, we'll get one more mild pullback to the $34-35 area
before the rally really gets underway, affording us an
attractive entry into the play.  If you'd rather wait to enter
on strength, look for CSC to clear the $37 level on increasing
volume before playing.  Additional resistance will be
encountered at $38, $39 and then $40.  We are starting the play
with our stop at $34, as a drop below that level on a closing
basis would raise the concern that the bulls lack conviction.

BUY CALL AUG-35*CSC-HG OI=   66 at $3.60 SL=1.75
BUY CALL AUG-40 CSC-HH OI=  125 at $1.35 SL=0.75
BUY CALL SEP-35 CSC-IG OI=11921 at $4.40 SL=2.75
BUY CALL SEP-40 CSC-IH OI= 1491 at $2.25 SL=1.25
BUY CALL SEP-45 CSC-II OI= 2294 at $1.15 SL=0.50

SELL PUT AUG-35 LLY-SO OI=   40 at $1.85 SL=3.50
(See risks of selling puts in play legend)

Average Daily Volume = 1.28 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.

Sign up for a two week free trial and see for yourself at


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Contact Support

The Option Investor Newsletter                   Sunday 07-15-2001
Sunday                                                      3 of 5

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

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.

Sign up for a two week free trial and see for yourself at


AT - Alltel $64.28 (+3.50 last week)

ALLTEL, with more than 10 million communications customers and
more than $7 billion in annual revenues, is a leader in the
communications and information services industries.  ALLTEL has
communications customers in 24 states and provides information
services to telecommunications, financial and mortgage clients
in 55 countries and territories.

AT confirmed our bullish stance last Friday with its out
performance to the upside.  Granted, the Dow and S&P finished
solidly higher, but the Nasdaq only posted a modest gain.  And
telecom stocks such as AT are perhaps more closely tied to the
price action of the tech and telecom heavy Nasdaq.  What's more,
AT's competitors in XOXO, Q, SBC and VZ all finished slightly
lower.  To be paranoid is prudent in the current market
environment, hence the red flags we're monitoring in that the
play's sector has yet to give confirmation.  Nevertheless, AT
did generate the buy signal we're looking for with its advance
above $64 last Friday, on volume that was twice its average
daily trade.  We might conclude that the buyers are for real
in the stock currently and as long as the Nasdaq and its
components confirm, AT could work up to the $68 level in the
short-term.  Keep in mind that the stock, with its advance and
close above $64, is currently in unfilled gap territory and
faces little, if any resistance above current levels.  As for
new entry points, bullish traders can enter calls in an
advancing market (Sector and Nasdaq) if AT breaks above the
$65 level.  In a weak market, those traders who prefer to enter
bullish trades on weakness may watch for a light volume pullback
to the $61 level, which is the site of our new stop.  Those
traders who've already entered positions might start thinking
about scaling out of calls if/when AT approaches the $66.50 to
$67 range in the short-term in an attempt to better manage
capital and instill discipline.

BUY CALL AUG-60 AT-HL OI= 62 at $5.90 SL=4.00
BUY CALL AUG-65*AT-HM OI=103 at $2.55 SL=1.25
BUY CALL AUG-70 AT-HO OI=  5 at $0.80 SL=0.00
BUY CALL OCT-65 AT-JM OI=587 at $4.20 SL=2.50
BUY CALL OCT-70 AT-JN OI=552 at $2.25 SL=1.00

Average Daily Volume = 683 K

BBY - Best Buy $68.17 (+3.33 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.

BBY appears to forming somewhat of a trading range between the $65
and $69 levels.  At least judging by last week's price action.
There are two points to address if this type of price action
persists.  First, a trading range can be very profitable for
disciplined traders who enter near support and exit positions
near resistance.  For those who choose to pursue this strategy by
entering positions on weakness, keep in mind that our stop
currently lies at $64, which means risk can be mitigated with an
entry near support at $65.  The second point to address is that
a trading range near a 52-week high can be indicative of a
near- to intermediate-term top in a stock.  Whether this is the
case with BBY remains to be seen, but it's important to note
that the stock has staged a significant run recently so a bit
of consolidation is not unreasonable to expect.  That's not to
say that the stock won't work higher, instead bullish traders
should simply be aware of this notion.  There's still the tax
rebate checks to be delivered later this summer, and that much
may not be fully discounted into the stock quite yet.  Bullish
traders can look for new entries if BBY advances above its
near-term at $69.22, only after confirming strength in the
Retail Sector Index (RLX.X).  Followers of the RLX will note
that the index stopped just short of its 50-dma last Friday,
which currently sits at 887 - the RLX closed at 884 last
Friday.  Failure to trade above that level may cause BBY to
pullback to its support around $65.

BUY CALL AUG-65 BBY-HM OI= 513 at $6.00 SL=4.00
BUY CALL AUG-70*BBY-HN OI= 900 at $3.10 SL=1.50
BUY CALL AUG-75 BBY-HO OI= 429 at $1.60 SL=0.75
BUY CALL SEP-70 BBY-IN OI=2812 at $5.40 SL=3.50
BUY CALL DEC-75 BBY-LO OI= 288 at $7.10 SL=5.00

Average Daily Volume = 2.66 mln

BSYS - BISYS Group $63.29 (+4.47 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.

BSYS continues to trade well relative to the broader markets
because its sector cohorts are delivering exceptional earnings
this quarter.  Remember that the company competes directly or
indirectly with the likes of FDC, CEFT and another OI call play
in EFDS.  Astute observers will notice that each of the
aforementioned stocks are trading at or near their 52-week
highs, which is confirmation of our bullish stance on BSYS.
After all, buying the strongest stocks in the strongest sectors
only makes sense.  However, no matter how strong a sector is,
it's imperative that the broader markets continue to advance
for BSYS to work higher.  We still believe that the play will
out perform the broader market if, in fact, the broader market
continues to advance.  Bullish traders looking to gain entry
into new call plays might wait for an advancing market and
watch for BSYS to clear the $64 level on heavy volume.  The
$64 area has proved to be resistance during last Thursday's
and Friday's sessions.  As such, traders should keep a close
watch on that site early next week.  In terms of support,
buyers seem to be defending the $62 level, and below that
level lies support around $61, which is the current site of
our stop.  For traders with open positions, keep in mind that
the stock posted a decent gain last week.  Therefore, depending
upon specific entry points and risk preferences, traders could
use any strength early next week to book some profits.

BUY CALL AUG-60 BQY-HL OI= 18 at $5.30 SL=3.50
BUY CALL AUG-65*BQY-HM OI=130 at $2.15 SL=1.00
BUY CALL SEP-60 BQY-IL OI=680 at $6.60 SL=4.50
BUY CALL SEP-65 BQY-IM OI=516 at $3.70 SL=1.75

Average Daily Volume = 602 K

JCI - Johnson Controls $78.75 (+5.21 last week)

Johnson Controls is a global market leader in automotive
systems and facility management and control.  In the automotive
market, it is a major supplier of seating and interior systems,
and batteries.  For nonresidential facilities, Johnson Controls
provides building control systems and services, energy management
and integrated facility management.  Johnson Controls, founded in
1885, has headquarters in Wisconsin.  Its sales for 2000 totaled
$17.2 billion.

Shares of Johnson Controls are trading rather well, which stems
from the out performance of its sector.  As we mentioned last
week, the company's competitors in Dana (DCN), Visteon (VC),
Delphi (DPH) and Lear (LEA) are all trading at are near their
52-week highs - the latter of which was added to the OI call
list this weekend.  Our play edged ever higher last Friday on
continued heavy volume, which indicates the buyers are out in
the strength.  However, JCI has yet to break above the $79
resistance level.  In fact, the stock has topped out around
that level in the last three trading sessions, which is
somewhat discouraging.  But, bullish traders looking to gain
entry into the play can use a solid advance above that level
to enter new calls ahead of the company's earnings report
next Wednesday.  The company is slated to release its quarterly
report on Wednesday, July 18, so that gives us only two
trading days before we exit the play - we'll be dropping
coverage on the stock Tuesday.  But the company's upcoming
earnings report may provide the anticipatory catalyst that
we need to see JCI break above its $79 resistance level.
Because we only have two days remaining, bullish traders might
only consider entering on a breakout above $79 on strong
volume, after confirming strength in JCI's aforementioned
competitors, then using any strength past the $80 level to
exit those positions before the company's report Wednesday.  We
have moved stops up to the $76 level.

BUY CALL AUG-75*JCI-HO OI= 10 at $5.10 SL=3.00
BUY CALL AUG-80 JCI-HP OI= 23 at $2.00 SL=1.00
BUY CALL OCT-75 JCI-JO OI=123 at $7.00 SL=5.00
BUY CALL OCT-80 JCI-JP OI= 62 at $4.40 SL=2.75

Average Daily Volume = 360 K

LLY - Eli Lilly $75.78 (+0.67 last week)

LLY discovers, develops, manufactures and sells Pharmaceutical
products targeted at the diagnosis, prevention and treatment of
human diseases.  The company's best known commercial product is
the anti-depressant Prozac, although there are numerous other
lesser-known drugs that treat conditions such as Parkinson's
disease, diabetes, osteoporosis along with a broad range of
antibiotics.  The company also conducts research to find
products to treat diseases in animals and to increase the
efficiency of animal food production.

The see-saw battle between the bulls and bears continues as LLY
is pulled between support near $74 and resistance near $76.
This lack of direction is a direct result of the uncertain
direction of the broad Pharmaceutical index (DRG.X), which is
trying valiantly to reclaim and hold the $378-380 support level.
Slowing FDA approvals and earnings warnings have rocked the
sector in recent weeks, but it is starting to look like a bottom
is forming due to stocks like MRK reaching their bearish price
objectives and beginning to slowly recover.  Earnings are now
center stage though, and LLY is set to report its numbers on
Thursday morning, before the market.  That puts a short fuse on
our play as we will want to have all positions closed before
the announcement.  Intraday bounces near $74 appear attractive
for new positions, although waiting for a breakout over $76 may
be the better move as it will indicate the stock is ready to
move.  Either way, keep steps set at $74 and keep an eye on the
DRG index.  It will need to recover further in order for LLY to
really get moving.

BUY CALL AUG-75*LLY-HO OI=5293 at $3.50 SL=1.75
BUY CALL AUG-80 LLY-HP OI= 526 at $1.40 SL=0.75
BUY CALL OCT-75 LLY-JO OI= 537 at $5.80 SL=3.75
BUY CALL OCT-80 LLY-JP OI=3026 at $3.40 SL=1.75
BUY CALL OCT-85 LLY-JQ OI=2072 at $1.80 SL=1.00

SELL PUT AUG-75 LLY-TO OI=6976 at $2.40 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 2.77 mln

TGH - Trigon Healthcare $68.11 (+2.51 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.

Like a snowball rolling downhill, (although this one is
rolling uphill), TGH seems to be garnering more enthusiasm
from investors the higher it goes.  After several days of
consolidation between $65-66, the bulls decided to cooperate,
pushing the stock higher on heavy volume and bringing it right
to major resistance at $68 by the close of trading on Friday.
The real hero in this story is the underlying sector, as the
Healthcare Payor index (HMO.X) has advanced a solid 6% in the
past 3 days.  While it isn't a home run, it is a far sight
better than the performance of Drug or Biotech stocks over the
past week.  Having daily Stochastics and RSI buried deep in
overbought territory has us a bit nervous, as profit taking
could occur at any time, especially now that the $68 resistance
level has been reached.  So we are raising our stop to $66 to
make sure we keep our hard-won gains.  Target intraday dips near
this level for new entries, but only if the rebound comes on
strong volume.  There is a fair amount of congestion between
$68-70, but a breakout above $70 looks attractive for new
entries as well.

BUY CALL AUG-65 TGH-HM OI=431 at $5.20 SL=3.25
BUY CALL AUG-70*TGH-HN OI=200 at $2.60 SL=1.25
BUY CALL AUG-75 TGH-HO OI=  8 at $1.05 SL=0.00
BUY CALL OCT-70 TGH-JN OI= 26 at $5.50 SL=3.50
BUY CALL OCT-75 TGH-JO OI=123 at $3.50 SL=1.75

Average Daily Volume = 316 K

CD - Cendant Corporation $20.81 (+0.31 last week)

Cendant is a diversified provider of business services,
especially in the real estate and travel industry.  Cendant's
Real Estate Division is the leader in the world's largest
industry, with affiliates responsible for more than one out of
every four homes sold or purchased in the U.S., the leading
relocation services company, and a leading home-related Internet
portal.  As one of the world's leading franchisers of mid-economy
market lodging brands and a leading car rental company, and the
world's largest timeshare exchange company, Cendant's Travel
Division is one of the largest providers of travel services
around the globe.

Still meandering between $20-21, CD has failed to provide what
we could call a tradable move since we added it.  The chart
pattern looks great with the lows getting higher and pressure
building for a breakout over the $21 level, but we are quickly
running out of time.  Earnings are set for release after the
market close on Wednesday, so CD is officially a short-term
play.  Continue to target new entries near $20.50 (mild support)
or $20 (stronger support) and keep stops in place at $19.  Since
CD has had such a hard time getting moving, the better entry
strategy may be to wait for a breakout above the $21 level
accompanied by strong volume.  We should be able to ride that
move right up to earnings before stepping aside.

BUY CALL AUG-20.0*CD-HD OI=28442 at $1.55 SL=0.75
BUY CALL AUG-22.5 CD-HX OI= 1333 at $0.45 SL=0.00
BUY CALL NOV-20.0 CD-KD OI= 9361 at $2.45 SL=1.25
BUY CALL NOV-22.5 CD-KX OI= 1342 at $1.30 SL=0.50

Average Daily Volume = 7.04 mln

EFDS - eFunds Corp. $22.71 (+4.26 last 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

EFDS investors took a pass on Friday's trading session, giving
new meaning to anemic volume.  Barely 25% of the average daily
volume of shares traded hands, so it was encouraging that the
stock didn't give up more ground.  This is actually the kind of
pattern we like to see; consolidation on light volume, so that
the bulls can charge forward with renewed vigor.  There is a
significant resistance at $23, so it is no wonder the bulls had
to stop to rest, especially after those stellar gains (+24% in 3
days) on heavy volume.  Recall from our initial writeup that by
trading over $21 (also the site of the 50-dma), EFDS completed a
triple-top breakout on the Point and Figure chart.  That
breakout gives us a tentative bullish price target of $28,
although we'll need to contend with the $24 and $26 resistance
levels first.  Look for new entries to appear on a low-volume
dip into the $20-21 range, or if you are so inclined, wait for
volume to return, propelling our play through the $23 level
before initiating new positions.  Either way, keep stops in
place at $19, and remember that earnings are set to be released
on July 27th.

BUY CALL AUG-20.0 EFU-HD OI=307 at $3.80 SL=2.50
BUY CALL AUG-22.5*EFU-HX OI= 56 at $2.20 SL=1.00
BUY CALL AUG-22.5 EFU-IX OI=431 at $2.80 SL=1.50
BUY CALL AUG-25.0 EFU-IE OI=597 at $1.55 SL=0.75

Average Daily Volume = 814 K

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The Option Investor Newsletter                   Sunday 07-15-2001
Sunday                                                      4 of 5

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MYGN - Myriad Genetics $48.59 (-6.21 last week)

Myriad Genetics is creating safer, more effective therapeutics
on the discovery of drug targets in important human diseases.  The
company employs two primary technology resources in this process.
First, Myriad uses its high throughput, automated protein
interaction technology, ProNet, to discover drug targets and
entire disease pathways, which are essential in determination of
the optimal point of therapeutic development.

Option Investor has had success recently with playing puts on
biotech stocks, which is the reason we've added MYGN to the put
list this weekend.  The stock has been working lower in steady
fashion since early June, without much pause.  In fact, the
biotech sector has followed a fairly similar pattern, which may
be a function of seasonality or earnings and sales shortfalls
within the group, including those from Affymetrix (AFFX) and
IDEC Pharmaceuticals (IDPH).  Or perhaps the weakness can be
attributed to the recent rejections from the Federal Drug
Administration (FDA) for drug approvals.  It's most likely a
combination of these events, and could continue in the short
term.  Bearish traders will note the rollover in MYGN last
Friday, which may portend weakness early next week.  Traders
can use any high volume drop below the $48 support level to
gain new entries into put positions.  Additionally, a rollover
from the $51 level, or lower near $50 may also provide entry
opportunities on strength.  Also, bearish traders will want to
keep a close watch on the AMEX Biotechnology Index (BTK.X).  The
BTK has bounced from around the 515 level in the past few
sessions, so bearish traders will want to witness the BTK trade
below that level before entering positions in MYGN on weakness.
We're initially setting our upside, protective stop at the $53
level in an attempt to prevent any whipsaws.

BUY PUT AUG-50 GSQ-TJ OI=338 at $5.90 SL=4.00
BUY PUT AUG-45*GSQ-TI OI= 55 at $3.40 SL=1.75
BUY PUT AUG-40 GSQ-TH OI= 16 at $1.65 SL=0.75

Average Daily Volume = 677 K

CIMA - Cima Laboratories $62.89 (-17.36 last week)

Cima Labs develops and manufactures pharmaceutical products
based on its proprietary OraSolv and DuraSolv fast-dissolve
technologies.  The company manufactures five pharmaceutical
brands utilizing these technologies, three prescription and
two over-the-counter.  The products include Triaminic
Softchews for Novartis; Tempra FirsTabs for a Canadian
affiliate of Bristol-Myers Squibb; Zomig-ZMT for AstraZenica;
Remeron SolTab for Organon, and NuLev for Schwarz Pharma.  In
addition to its established technologies, CIMA is developing
transmucosal drug delivery technologies, which will allow for
drug delivery under the tongue, or between the cheek and gum.

After finally posting a close over the $80 resistance level on
Monday, it seems that CIMA buyers had a change of heart and
swiftly moved to the bear camp.  In 4 short days the bottom
fell out and the stock gave up a whopping 22%, coming to rest
just above the 200-dma ($61.99).  The decline seemed to step
from concerns of disappointing conversion rates by users of the
Remeron anti-depressant to a tablet using the CIMA
fast-dissolve technology.  Earnings for the company are still
a little over 2 weeks away on August 2nd, but the negative news
seems to be the dominant factor right now.  Given the drastic
decline in price, a rebound in the near term could be in the
cards, but the technical violation seems to be pointing to
more weakness ahead.  The precipitous decline generated a
double-bottom breakdown on the Point and Figure chart that
points to a bearish price target of $43, although the bears
will first have to overcome support in the $53-55 area.  The
high-odds entry strategy will be to wait for CIMA to fall
through the $62 level before taking a position, although you
may be able to gain a more favorable entry on an intraday
bounce that fails to penetrate the $66 resistance level, also
the location of our stop.

BUY PUT AUG-65 UVK-TM OI= 0 at $6.90 SL=5.00  Wait for OI!!
BUY PUT SEP-65*UVK-TM OI=24 at $8.90 SL=6.25

Average Daily Volume = 314 K


HGSI - Human Genome Sciences $48.49 (-0.36 last week)

Possessing one of the largest human and microbial genetic
databases, HGSI licenses its database of knowledge to
pharmaceutical heavyweights like GlaxoSmithKline and Merck.
Management has chosen to forgo the race to decode the entire
human genome, and has instead focused on finding and patenting
genes involved in developing gene-based therapeutics.  Its
four compounds currently in clinical trials are intended to
limit the toxic effects of chemotherapy, promote the repair of
damaged cells, stimulate antibody production, and spur regrowth
of blood vessels.

Early in the day on Friday, it seemed clear that our HGSI put
play was done for, having moved above our $49 stop as the
Biotech index (BTK.X) was one of the biggest gainers in the
market.  But that was before the afternoon rollover that pushed
our play back below our stop, and had us thinking "Entry Point".
After the early morning rally, volume waned throughout the day
until the selling picked up steam in the final hour, making us
think this could be a hint of what is to come on Monday.  But we
are definitely on our guard after a 7% rally on above-average
volume.  Daily Stochastics are waving a bullish flag too, as the
fast line has now crossed over the slow line and is threatening
to emerge from oversold territory.  We are keeping our stop in
place at $49, and a close above that level will spell the end of
the play.  If however, price continues back down, we are looking
at fresh entries, either on a retreat lower from the vicinity of
$49 or a drop through the $47 intraday support level.  A drop
through $45 should open the door for the stock to continue its
descent to the next major support at $40.  Keep an eye on the
calendar, as HGSI reports earnings on July 27th.

BUY PUT AUG-50*HHA-TJ OI= 331 at $5.80 SL=3.75
BUY PUT AUG-45 HHA-TI OI=1286 at $3.30 SL=1.75

Average Daily Volume = 3.16 mln

AES - AES Corp. $38.42 (-4.03 last week)

As a global power company, AES participates in two primary lines
of business, electricity generation and distribution.  The
company's electricity generation business consists of sales from
its power plants to non-affiliated wholesale customers (electric
utilities, regional electric companies, electricity marketers
and wholesale commodity markets known as "power pools") for
resale to end users.  AES' distribution business is
characterized by sales of electricity directly to end users
such as commercial, industrial, governmental and residential

As expected, AES continued its precipitous decline on Friday
as selling volume remained solidly above the ADV.  None of the
power-generator stocks have been in favor lately, but AES is
particularly distasteful to investors for a couple of key
reasons.  First there is the currency crisis in Argentina
which threatens to spill over into neighboring South American
countries.  AES derives a fair amount of their revenue from that
market and that isn't setting well with investors.  Secondly,
the company is under scrutiny by the Department of Justice for
allegedly violating anti-trust laws by agreeing (along with WMB)
to limit expansion of some AES plants.  It doesn't take a
rocket scientist to connect the dots and see that there is
likely more pain in store, and we are more than happy to go
along for the ride.  Rolling over right at the long-term
trendline (near $44) earlier this week gave early birds a great
entry into the play.  We got another entry opportunity on Friday
as the stock failed to crest the $40 resistance level (previous
long-term support) and fell back to set another yearly low.
Earnings are set for July 26th, but that seems to only be making
investors more nervous right now.  Target new entries as the
stock once again fails to crest the $41 level or falls through
$38 on its way to testing the next major support level at $36.
Move stops down to $42.

BUY PUT AUG-40*AES-TH OI=9673 at $3.90 SL=2.50
BUY PUT AUG-35 AES-TG OI=1279 at $1.50 SL=0.75
BUY PUT AUG-30 AES-TF OI= 272 at $0.60 SL=0.00

Average Daily Volume = 2.58 mln

AMGN - Amgen, Inc. $55.64 (-1.52 last week)

The biggest of the Biotech big guns, AMGN makes and markets
therapeutic products for hematology, oncology, bone and
inflammatory disorders, as well as neuroendocrine and
neurodegenerative diseases.  Anti-anemia drug Epogen and immune
system stimulator Neupogen account for about 95% of sales.  Its
Infergen has been commercialized as a treatment for hepatitis C,
and Stemgen is approved for stem cell therapy in Australia,
Canada, and New Zealand.  The company has a strong pipeline of
new drugs in various stages of development as well as research
and marketing alliances with Hoffman-La-Roche and
Johnson & Johnson.

Well, what do you know?  Those bearish price objectives from
Point and Figure charts really do work.  AMGN flashed a bearish
price objective of $55 when it traded down to $63 in June, and
look where it stopped on Thursday and Friday, right at $55.  So
you may be wondering why we are still keeping it on the put
list.  Simply put, the recovery had no staying power and the
stock still looks vulnerable here.  After rebounding as high as
$57 early in the day, AMGN fell back through the remainder of
the day, giving back the majority of its intraday gains, with
selling volume picking up near the close.  Since AMGN is a
principal component of the Biotechnology index (BTK.X), it gives
the BTK even greater utility in trying to determine the
direction for our play.  With intraday resistance holding back
the bulls at $57 on Friday, we can lower our stop to that level
and consider new entries on any rally that fails to move through
that level.  Alternatively, new entries will materialize as AMGN
falls through the $54 level on its way to testing major support
near $52.  Earnings are set for July 26th, so that event will
start to factor into investors thinking over the next week.

BUY PUT AUG-60 YAA-TL OI= 721 at $6.00 SL=4.00
BUY PUT AUG-55*YAA-TK OI=3290 at $3.20 SL=1.50
BUY PUT AUG-50 AMQ-TJ OI= 874 at $1.50 SL=0.75

Average Daily Volume = 7.92 mln

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Is That The Beginning Of The Summer Rally?
By Mark Phillips
Contact Support

I'll be the first to admit that I'd like to think so.  As I
expected, all the major indices broke substantial support levels
at some point last week, with the S&P500 falling through 1180,
the DJIA breaking 10,200 and the NASDAQ Composite breaching the
venerable 2000 level.  But like a Phoenix rising from the ashes,
all three staged impressive comebacks over the past couple days,
closing well above those violated support levels.  But was it
buying, or short-covering.  As of right now, I think I'd have to
say short-covering, but that doesn't mean that we don't have
fresh cash ready to enter the market next week.  Only time will

A major cloud that is hanging over the market (even if the
trading action over the past 2 days refuses to acknowledge it)
is the looming currency crisis in Argentina.  Just what the
stock market needs is another global financial crisis
threatening to spread to surrounding nations and further delay
the much-ballyhooed "second-half" recovery.  Speaking of which,
have you noticed that there isn't nearly as much inane chatter
about said recovery appearing like magic during the second
half?  Investors seem to be adapting to the reality that a
serious recovery will have to wait until the calendar rolls
over to January again.

Despite the negative economic climate investors are currently
faced with, they do appear to have received some benefit (even
if it is only psychological at this point) from the series of
Fed interest rate inoculations over the past six months.  The
first of these rate cuts is just starting to be felt by the
economy, while it will take until the end of this year for the
recent June 25 basis point cut to work its way into the economy.
There are other factors at work here as well, such as the
absolute dearth of Telecom spending that has yet to show any
sign of picking up.

And as we all know, it just isn't possible to have a sustained
market advance without the participation of Financial stocks -
an event that seems unlikely until we see how the Argentine
currency problems are resolved.  Needless to say, I'll be
keeping my eyes peeled for attractive opportunities in the
Financial sector so that we can benefit from their ascent during
the eventual market recovery.  But in the meantime, I've got a
different concept to keep you entertained.

Have you noticed that the Big-Cap Techs are starting to creep
back into the LEAPS column?  While we were early on DELL, CSCO
and EMC look to have been timed just about right.  With the
addition of ORCL two weeks ago and SUNW this week to the Watch
List, the Portfolio is poised to take advantage of a unique
property of many of these former high-flying stocks.  What we're
referring to is solid support that allows us to pick attractive
entry points and place tight stops.  But the crowning glory of
these plays is the fact that nobody has wanted to own the stocks
for awhile now and volatility has collapsed, bringing LEAP
premiums to ridiculously low levels.  Look at the CSCO play,
which we entered on Wednesday.  The premium for the 2003 LEAP
was a paltry $3.90, and the miniscule $2 move in the stock over
the past 2 days has netted us a 38% return!

Speaking of volatility, did you notice the recent gyrations in
the VIX?  Seven sessions to rocket from 20.95 to 28.21 and then
back to 23.87.  Now that's what I call volatility!  There's no
trend to follow on the VIX, except that it does appear to have
dropped back into the historical 20-30 range, giving us another
indicator to guide our entries.  Remember the old wisdom, "When
the VIX is high, it is time to buy.  When the VIX is low, it is
time to go."  Old advice, but it still works today, especially
when the VIX behaves itself and stays within the boundaries we
have laid out.

Wait until we start writing covered calls on these Big-Cap plays
and you'll really start to see the payoff.  Recoup that original
investment in the first 6 months and then the gains over the
next 12 effectively deliver infinite returns as we let other
people's money work for us, while we take our money and put it
to work elsewhere.  What could be better than that?  If you're
new to the concept of Covered Calls combined with LEAPS, hop on
over to the Options 101 section of the website and read through
the recent series of articles I've written on the topic.

While it has been a rocky road over the past 6 weeks, with a
series of frustrating drops from the Portfolio, I think our
Portfolio is well-positioned to profit throughout the remainder
of the year.  All we need to do now is avoid another earnings
disaster like we experienced in April, and we could see the
markets starting to firm nicely by the time we send the kids
back to school.

Continue to make the stocks you want to play give you the entry
points you specify and keep those stops in place.  While there
is likely more turbulence ahead, I'm of the mind that the worst
truly is behind us.  Now is the time to be positioning your
portfolio for the recovery when it comes.  But we don't want to
be suckered into chasing entries by the drivel from analysts
and commentators on CNBC.  We'll do our own thinking, thank you
very much.

One final note before I wrap this up for the week.  Remember
that we will be discontinuing coverage of all 2002 LEAPS at the
end of July.  A quick glance at the relative performance of the
2002s vs. the 2003s should be all you need do in order to
understand why.  Time decay is beginning to rear its ugly head,
and with the notable exception of the WM play, it is hard to
make a case for continuing to initiate or hold long-term
positions with the 2002 strikes.  Use any near-term rallies as
an opportunity to exit the 2002 LEAPS, either waiting for a new
entry (using 2003 or 2004 strikes) or immediately moving out to
the later expiration.  You'll be glad that you did!

Have a Safe and Profitable week!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '02 $ 35  CLX-AG  $ 3.50  $ 3.20  - 8.57%  $ 33
                 '03 $ 35  VUT-AG  $ 6.10  $ 6.10    0.00%  $ 33
WM     03/22/01  '02 $33.8 BWT-AY  $ 4.00  $ 7.50   87.50%  $ 36
                 '03 $33.8 OBN-AY  $ 6.13  $ 9.80   59.87%  $ 36
FON    04/09/01  '02 $ 25  FON-AE  $ 2.80  $ 1.55  -44.64%  $ 19
                 '03 $ 25  VN -AE  $ 4.40  $ 3.60  -18.18%  $ 19
DELL   04/27/01  '02 $ 25  DLQ-AE  $ 6.20  $ 5.80  - 6.45%  $ 23
                 '03 $ 25  VDL-AE  $ 9.00  $ 9.00    0.00%  $ 23
ADBE   05/16/01  '02 $ 40  AEQ-AH  $11.00  $ 8.00  -27.27%  $ 37
                 '03 $ 40  VAE-AH  $14.60  $13.20  - 9.59%  $ 37
AOL    05/16/01  '02 $ 55  AOO-AK  $ 9.60  $ 6.20  -35.42%  $ 48
                 '03 $ 55  VAN-AK  $14.60  $11.20  -23.29%  $ 48
BRCM   06/05/01  '02 $ 40  RCQ-AH  $ 9.70  $12.60   29.90%  $ 34
                 '03 $ 40  OGJ-AH  $14.00  $19.30   37.86%  $ 34
SEBL   06/12/01  '02 $ 45  SGW-AI  $13.00  $11.00  -15.38%  $ 38
                 '03 $ 45  OIE-AI  $18.40  $17.30  - 5.98%  $ 38
VRSN   06/12/01  '02 $ 50  YXO-AJ  $17.10  $15.60  - 8.77%  $ 42
                 '03 $ 60  OVX-AL  $20.40  $20.00  - 1.96%  $ 42
CSCO   07/11/01  '03 $ 20  VYC-AD  $ 3.90  $ 5.40   38.46%  $ 13
                 '04 $ 20  LCY-AD  $ 5.70  $ 7.00   22.81%  $ 13
EMC    07/12/01  '03 $ 25  VUE-AE  $ 5.50  $ 6.20   12.73%  $ 19
                 '04 $ 30  LUE-AF  $ 6.30  $ 6.90    9.52%  $ 19
IBM    07/11/01  '03 $110  VIB-AB  $17.70  $20.50   15.82%  $ 99
                 '04 $110  LIB-AB  $23.70  $28.30   19.41%  $ 99
MRK    07/09/01  '03 $ 70  VMK-AN  $ 7.40  $ 6.10  -17.57%  $ 59

LEAPS Watchlist

Current Possibles


BEAS   06/24/01  $24-25        JAN-2003 $ 30  VZP-AF
ORCL   06/24/01  $15-16        JAN-2003 $17.5 VOC-AW
CPN    07/08/01  $40-41        JAN-2003 $ 45  OLB-AI
                               JAN-2004 $ 50  LZC-AJ
SUNW   07/15/01  $14           JAN-2003 $17.5 VZX-AW
                               JAN-2004 $ 20  LSU-AD

New Portfolio Plays

CSCO - Cisco Systems $16.70

As if catering to my whims, CSCO dropped to $16.01 before
buyers stepped forward in sufficient numbers to halt the stock's
slide.  That served our purposes quite nicely, considering our
$16 price target allowed us to take a position in the Portfolio
at almost the exact bottom of this cycle.  Any trepidation I
felt about the new position quickly vanished on Thursday as CSCO
gapped higher and held onto its gains in anticipation of
earnings from JNPR.  Those earnings didn't light anybody's
imagination on fire, coming in at the drastically reduced 8
cents per share estimate, but it was enough to give bullish
traders in the Networking sector hope that the worst is behind.
CSCO led the Networking index (NWX.X) higher again on Friday,
posting a 5% gain and starting the play out in the green.  While
there are some definite bullish indications in both the sector
and the broader market, I would be hesitant to chase this one
higher if you missed your shot last week.  Instead, wait for the
daily Stochastics to cycle up into overbought and then back down
into oversold.  So long as the price holds above $16 on the next
cycle, new entries will probably be a good bet.  Our stop is
starting out at $13, just below April's closing low.  Clearly a
drop below that level would be a very bad development and would
have us moving to the sidelines in a hurry.

BUY LEAP JAN-2003 $20.00 VYC-AD $3.90
BUY LEAP JAN-2004 $20.00 LCY-AD $5.70

EMC - EMC Corporation $21.51

Falling victim to the earnings warning syndrome just over a week
ago, EMC took a serious tumble on the news, and I gave serious
thought to removing it from the Watch List last weekend.  But
then calmer thoughts prevailed and I remembered why it was there
in the first place - dominance in the Enterprise Storage sector
and a well-run business.  The problems the company is currently
facing are a direct result of the softening economy, and with
tenuous signs of an improvement on that front, we could be
looking at the best entry point we are likely to see for some
time to come.  As the recent decline got underway, the Point and
Figure chart predicted a price target of $20, and sellers were
kind enough to deliver a low price on Wednesday of $20.10!
You've got to love those Point and Figure Chartologists!  The
bounce and entry didn't come until Thursday when EMC crested the
$21 level, and we took our entry accordingly.  The technicals
are just starting to point skywards, and hopefully there will be
no more bad news when the company releases its earnings on
Wednesday morning.  Just in case, we are starting the play with
a tight stop at $19.

BUY LEAP JAN-2003 $25.00 VUE-AE $5.50
BUY LEAP JAN-2004 $30.00 LUE-AF $6.30

IBM - International Business Machines $103.85

Vindication is a wonderful thing.  I know you were thinking I
was a bit off my rocker when I added IBM with a $100-102 price
target, but the market handed exactly that to patient traders
this week.  While it didn't quite get to $100, I was more than
pleased to take that bounce from the $101.50 level on Wednesday.
Since then, IBM has been on a tear, charging back up the chart
and threatening to crest $110 again.  IBM's rebound helped to
lead the broader market higher as the bears seem to have given
up on the notion that IBM will fail to deliver when it issues
its earnings next Wednesday.  Solid earnings results will likely
propel the stock back into its familiar trading range between
$112-120 in preparation for a breakout to the upside later this
year.  We need to protect ourselves against the possibility that
the earnings will not please the street though, so we are
placing our stop at $99, just below the solid $100 support

BUY LEAP JAN-2003 $110.00 VIB-AB $17.70
BUY LEAP JAN-2004 $110.00 LIB-AB $23.70

MRK - Merck & Co. $64.60

After achieving our bearish price target of $63 and change a
little over a week ago, we were lying in wait for signs of
strength to guide us into taking a position in shares of MRK.
The beleaguered drug maker had led the decline in
Pharmaceutical stocks after issuing an earnings warning.  Sure
enough, Monday gave us all the signs we were looking for, with
MRK trading up on strong volume, the Pharmaceutical index
(DRG.X) posting a strong rebound from the $378 support level
and we took our entry with the stock resting just above the $64
level.  Alas, it turned out there was more weakness in store,
with the stock declining throughout most of the week, just
kissing the $61 level on Thursday.  Strength in the DRG index
on Friday along with a mild bounce in shares of MRK has us
hopeful that our bottom-fishing technique will prove fruitful.
We are placing our stop at $59 to give the play a bit of room to
move, but if that level should fail, we'll have no choice but to
cut the play loose.  If you were lucky enough to miss the entry
on Monday, it looks like you'll get another chance.  A renewed
bounce from the $61 level is still buyable, but make sure it is
accompanied by strong volume.

BUY LEAP JAN-2003 $70 VMK-AN $7.40

New Watchlist Plays

SUNW - Sun Microsystems $15.64

As noted above, we're making a deliberate move back into the
Large-Cap Technology stocks and this week SUNW gets the nod.
This is clearly a bottom-fishing expedition, but with a solid
double-bottom near the $13 level and early signs of a bottoming
in the domestic economy, this could be a good time to start
nibbling at new long-term positions.  The company fundamentals
do not appear to have turned yet, and we don't expect any great
news when SUNW announces its earnings Thursday evening.  But
barring another major unexpected confession, SUNW looks poised
to recover nicely from near its current level as the global
economy begins to mend.  An aggressive entry (we are targeting
a dip near $14) combined with a tight stop ($12.50) just below
the April lows gives us an attractive risk/reward ratio.

BUY LEAP JAN-2003 $17.50 VZX-AW
BUY LEAP JAN-2004 $20.00 LSU-AD


LRCX $24.50 Bringing another frustrating play to a
less-than-inspiring close, we had no choice but to throw in the
towel on LRCX on Wednesday when it plunged through our $25 stop
to close at $24.50.  Adding insult to injury, the stock
rebounded the past 2 days just to spite me.  Try as I might, I
couldn't find the error of my ways in selecting the $25 stop
level.  It was more than a dollar below the lowest level for the
stock since mid-April, and even the long-term ascending
trendline said that a severe decline should have halted above
$25.  I'll have to chalk this one up to being a bad play rather
than a mismanaged one.  I do take consolation in the fact that
LRCX is once again posting lower highs, with the 2-month
descending trendline forecasting a rollover near $29 this time.
If that comes to pass, LRCX will likely take out this week's
lows and we'll look back on our exit as a wise decision.  If
you ignored the exit signal this week, I would use the current
recovery as an opportunity to exit the play before the stock
rolls over again.

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

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market updates, plays, education and daily commentaries by
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The Option Investor Newsletter                   Sunday 07-15-2001
Sunday                                                      5 of 5

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Option Trading Basics: Covered-Call Strategies and Adjustments
By Mark Wnetrzak

We recently received some great questions regarding potential
adjustments for covered-calls and selling LEAPS for larger

One reader asked about an unusual technique for closing losing
covered-call positions:

Dear OIN,

I've enjoyed your articles on Covered Calls.  I've not used them
to date but intend to in the near future.  I'd like your opinion
on the following strategy to avoid a loss.

Assume you're in one of the plays in your list and the stock price
starts heading down to the cost basis.  Instead of closing the
entire position for a loss, what if you sell the stock just above
the cost basis (I have option writing authority) and then repurchase
it if it reaches the sold strike price?  Would this be a reasonable
method to avoid a loss, or would it be an execution nightmare?  I
can monitor the markets all day if desired.

Any help would be appreciated.


Regarding "covered-call" exit strategies:

There are a couple things to consider.  First, getting approval
to sell cash-secured (naked) calls usually requires a substantial
account size ($100,000 at Preferred) and the highest experience
level.  Many brokerages, E*trade for example, do not even offer
the option to sell naked calls because of the high risk involved.
Once you sell the stock and the calls become uncovered (naked),
your risk becomes unlimited as the stock can climb to infinity
(think QCOM back in 1999).  The main purpose of an exit strategy
is to reduce risk, not increase it.  Also, because the cost basis
is generally within or just below a technical support area (in a
perfect world, an area where you would expect the stock price to
stop falling and resume climbing), there is a high probability of
being whipsawed, possibly more than once.  Finally, if the stock
declines to the cost basis and the calls are now out-of-the-money,
they will be relatively inexpensive to buy back and close.  In most
cases, if you become bearish on an issue, it is usually better to
simply exit the position and devote your capital to more deserving

However, there are other strategies you can use to adjust a losing
position or take protective action besides an all-out exit.  Buying
puts can protect for downside movement depending on how badly you
want to hold on to the stock and how much insurance (cost of the
puts) you're willing to pay.  Rolling down (buying back the short
calls and selling lower strike calls) and/or forward (moving to a
future month) may lower your cost basis in an issue for the current
correction but could "lock-in" a loss if the issue rebounds before
expiration.  Again, these are personal choices and only you can
decide what is best for your portfolio.

Another reader asked about a strategy where you buy stock and
sell "in-the-money" LEAPS, using the premium received from the
written calls to satisfy the margin requirement (initially 50%
with most brokers).  The reader noted, "It would appear that
some plays could be entered with no cash outlay as the premium
from the sold call would satisfy the entire margin requirement."

While it is true that this approach can generate a large amount
of premium, sometimes as much as the entire margin requirement,
there is still substantial risk in the position and the margin
interest charges must be factored in to the overall return on
investment.  In addition, the margin rules are not the same for
ITM positions.  The initial collateral requirement for a covered
write in a margin account when the option is "out-of-the-money"
is 50% of the stock price less the premium from the call.  But,
the collateral requirement for a position in which the option is
"in-the-money" is less favorable with regard to this strategy.
In most cases, a broker will only allow one-half of the value of
the underlying stock, or the strike price of the sold option,
whichever is less, in calculating the collateral requirements of
an ITM covered-write.  In other words, if you have a stock that
is trading at $30, and the JAN(03)-$15 Call is bid at $15, there
would still be a margin requirement of $7.50.  Here's the math:

Current stock price  = $30.00
JAN(03) - $15 Call   = $15.00
Less 50% of $15 Call = $7.50
Initial Collateral   = $7.50

Of course, even with the relatively small collateral requirement,
the strategy involves tremendous leverage and that's why novice
traders are more likely to get into trouble with this technique.
The lack of committed funds (due to the extremely large option
premiums) often produces a false sense of security and insinuates
there is virtually an unlimited amount of downside protection.  In
addition, margin calls will be issued if the share value declines
substantially and interest must be paid on the borrowed portion of
portfolio balance while the position in place.

Traders who are considering this unique strategy should weigh the
advantages of increased leverage against the costs of maintaining
the position and in all cases, utilize proper money management to
maintain an acceptable level of risk in their portfolios.

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

NUAN   18.02  18.35   JUL  17.50  2.05  *$  1.53  13.9%
BCGI   15.01  15.90   JUL  15.00  0.85  *$  0.84  12.9%
PCLN    7.68   8.70   JUL   7.50  0.85  *$  0.67  10.7%
AKSY   10.31   9.87   JUL  10.00  0.80   $  0.36   8.2%
DRMD   15.30  18.63   JUL  15.00  1.20  *$  0.90   6.9%
WEBX   20.31  22.47   JUL  17.50  4.00  *$  1.19   6.3%
LEXG   11.66  11.70   JUL  10.00  2.45  *$  0.79   6.2%
CCRD    8.60   9.11   JUL   7.50  1.60  *$  0.50   6.2%
SAGI   15.50  13.05   JUL  12.50  3.50  *$  0.50   6.0%
FNSR   14.87  15.38   JUL  12.50  3.00  *$  0.63   5.8%
ORCH    5.65   5.90   JUL   5.00  0.95  *$  0.30   5.5%
MCAF   11.90  14.31   JUL  10.00  2.70  *$  0.80   5.4%
SCI    25.50  25.17   JUL  22.50  3.80  *$  0.80   5.3%
MCAF   14.56  14.31   JUL  12.50  2.90  *$  0.84   5.2%
CWST   10.90  13.45   JUL  10.00  1.35  *$  0.45   5.1%
BTX     8.50   7.11   JUL   7.50  1.90   $  0.51   4.8%
Z      15.54  15.58   JUL  15.00  1.30  *$  0.76   4.6%
SONE   13.85  13.00   JUL  12.50  1.85  *$  0.50   4.5%
CWST   10.92  13.45   JUL  10.00  1.40  *$  0.48   4.4%
TCNO    9.25   9.04   JUL   7.50  2.10  *$  0.35   4.3%
WCNX   31.50  33.22   JUL  30.00  2.90  *$  1.40   4.3%
ROS     5.49   4.43   JUL   5.00  1.05   $ -0.01   0.0%
ACTR   11.00   8.80   JUL  10.00  1.70   $ -0.50   0.0%

TERN    6.12   5.01   AUG   5.00  1.60  *$  0.48   6.6%
FFIV   16.90  16.25   AUG  15.00  3.10  *$  1.20   6.3%
CYTO    5.40   4.87   AUG   5.00  0.95   $  0.42   5.9%
CLPA    6.08   5.99   AUG   5.00  1.40  *$  0.32   5.0%
DMRC   22.88  26.59   AUG  20.00  4.10  *$  1.22   4.7%
GZMO   12.80  12.70   AUG  10.00  3.40  *$  0.60   4.6%
CVAS   11.80  10.43   AUG  10.00  2.35  *$  0.55   4.2%

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


Ah, thank you Mr. Softee!  That was like a breath of fresh air
after being locked in a dungeon for the last year or so.  Now,
if the positive "MoJo" will continue into next week's earnings
salvo!  Nuance Communications (NASDAQ:NUAN) did not violate
its recent trend-line and has now edged out the June high.  Keep
an eye on Aksys (NASDAQ:AKSY) as it moves towards its 50-dma.
Biotime (AMEX:BTX) is testing a key trend-line (MAR - JUN lows)
and should be monitored closely during the current biotechnology
weakness.  S1 Corp. (NASDAQ:SONE) is looking a little "toppy" and
may test its 150-dma near $11.  Rostelecom (NYSE:ROS) is testing
its support area - a key moment!  Remember, there is only one week
left until July options expire, so reconfirm the long-term outlook
on any issue you choose to own.  Oh, and thanks TIVO (NASDAQ:TIVO),
for waiting until this week to confirm 2Q and fiscal 2002 earnings!

Positions Closed: MRV Communications (NASDAQ:MRVC), TiVo (NASDAQ:
TIVO), Optical Communication (NASDAQ:OCPI), Valence Technology
(NASDAQ:VLNC), Precise Software Solutions (NASDAQ:PRSE), Genomic
Solutions (NASDAQ:GNSL), Amylin Pharmaceuticals (NASDAQ:AMLN).


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

BCGI   15.90  AUG 15.00   QGB HC  2.05 29    13.85   35    7.2%
CFLO    5.20  AUG  5.00   JSD HA  0.90 5      4.30   35   14.1%
HTCH   17.80  AUG 17.50   UTQ HW  1.45 505   16.35   35    6.1%
MCAF   14.31  AUG 12.50   CFU HV  2.70 10    11.61   35    6.7%
NFLD   18.45  AUG 17.50   DHQ HW  2.20 403   16.25   35    6.7%
PHSY   20.98  AUG 17.50   HYQ HW  4.50 432   16.48   35    5.4%
SEAC   18.06  AUG 17.50   UEG HW  2.15 0     15.91   35    8.7%

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

CFLO    5.20  AUG  5.00   JSD HA  0.90 5      4.30   35   14.1%
SEAC   18.06  AUG 17.50   UEG HW  2.15 0     15.91   35    8.7%
BCGI   15.90  AUG 15.00   QGB HC  2.05 29    13.85   35    7.2%
MCAF   14.31  AUG 12.50   CFU HV  2.70 10    11.61   35    6.7%
NFLD   18.45  AUG 17.50   DHQ HW  2.20 403   16.25   35    6.7%
HTCH   17.80  AUG 17.50   UTQ HW  1.45 505   16.35   35    6.1%
PHSY   20.98  AUG 17.50   HYQ HW  4.50 432   16.48   35    5.4%

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).

BCGI - Boston Communications Group  $15.90  *** Rally Mode! ***

Boston Communications Group (NASDAQ:BCGI), an S&P Small Cap 600
Index company, is a leader in real-time transaction processing
for services including prepaid wireless, enhanced voice, and m-
commerce.  BCGI provides real-time transaction processing and
payment services to wireless carriers through its Intelligent
Voice Services Network (IVSN) and its proprietary, highly scalable
transaction processing platform.  Through this nationwide real-
time infrastructure, BCGI provides one or more of its services
to approximately 70 wireless carriers and resellers, including
seven of the ten largest domestic carriers.  The IVSN and trans-
action processing platform support BCGI's Prepaid Wireless and
Prepaid Connection services, market leaders in one of the highest
growth segments of the wireless communications industry.  BCGI
handles approximately 1.5 billion minutes of service a year.
BCGI continues to rally off its April low and has recently
moved above its 150-dma.  The company is due to report earnings
on Wednesday, July 18.

AUG 15.00 QGB HC LB=2.05 OI=29 CB=13.85 DE=35 TY=7.2%

CFLO - CacheFlow  $5.20  *** Cheap Speculation ***

CacheFlow (NASDAQ:CFLO) is focused on building a new layer of
content intelligent infrastructure that makes the Internet
content-smart.  CacheFlow's market-leading appliances and
innovative content delivery technologies enable enterprises,
service providers and content providers to deliver the right
content to the right place at the right time.  CacheFlow beat
estimates last quarter but warned about the future.  The stock
has formed a Stage I base as investors await signs of improve-
ment.  The question is, did they lower the bar far enough for
this quarter and will they warn again on the future?  This
play offers a reasonable cost basis from which to speculate on
the company's future.

AUG 5.00 JSD HA LB=0.90 OI=5 CB=4.30 DE=35 TY=14.1%

HTCH - Hutchinson Technology  $17.80  *** Earnings Rally? ***

Hutchinson Technology (NASDAQ:HTCH) is a leading supplier of
suspension assemblies for hard disk drives.  During 2000, HTCH
shipped approximately 488 million suspension assemblies of all
types.  The company is a supplier to nearly all domestic and
many foreign-based users of suspension assemblies, including
Alps, IBM and its affiliates, Maxtor, Quantum, Read-Rite, SAE
Magnetics/TDK and its affiliates, Samsung, Seagate Technology,
Toshiba and Western Digital.  No recent news to explain the
end-of-June rally, yet somebody seems interested in Hutchinson.
We favor the bullish move above its 6-month consolidation area
and simply desire a cost basis closer to support.  Earnings
are due Tuesday, July 17.

AUG 17.50 UTQ HW LB=1.45 OI=505 CB=16.35 DE=35 TY=6.1%

MCAF - McAfee.com  $14.31  *** Beat the Street! ***

McAfee.com (NASDAQ:MCAF), a majority-owned subsidiary of Network
Associates (NASDAQ:NETA), is a consumer security Application
Service Provider (ASP).  The company delivers software benefits
through an Internet browser, virtually eliminating the need to
install, configure and manage the technology on a local PC or
network.  McAfee.com hosts software application services on its
vast technology infrastructure and provides these services to
users online.  On Wednesday, McAfee posted a pro forma 2Q profit,
excluding acquisition costs, that solidly beat Wall Street's
expectations, due to strong growth in its Internet subscriber
revenues.  The company also surprised analysts by boosting their
earnings outlook for the third quarter and full year.  McAfee
now boasts 1.2 million users, up from 920,000 subscribers last
quarter.  One of the few bullish companies that actually increased
revenues (up $14.4 million from $11.9 million) and did NOT warn
about the future.  We simply favor a conservative entry point.

AUG 12.50 CFU HV LB=2.70 OI=10 CB=11.61 DE=35 TY=6.7%

NFLD - Northfield Laboratories  $18.45  *** Break-out!***

Northfield (NASDAQ:NFLD) is engaged in the development of a
safe and effective alternative to transfused blood for use in
the treatment of acute blood loss.  Its PolyHeme blood substitute
product is a solution of chemically modified hemoglobin derived
from human blood.  Clinical studies, to date, indicate that
PolyHeme carries as much oxygen, and loads and unloads oxygen
in the same manner, as transfused blood.  Clinical studies also
indicate that PolyHeme is universally compatible (should not
require blood typing prior to infusion) and has an extended
shelf life compared to blood.  In early May, Northfield's
management told investors that it was confident and optimistic
about bringing its blood substitute product, PolyHeme(TM),
through the regulatory review process, once its application is
filed.  Northfield is currently in the final stages of preparing
a biologic license application for FDA review.  Investors have
bid the stock up ever since and Friday's explosive move on
heavy volume signaled a break-out above a year-long base.
New drug speculation on a bullish chart!

AUG 17.50 DHQ HW LB=2.20 OI=403 CB=16.25 DE=35 TY=6.7%

PHSY - PacifiCare Health  $20.98 *** Change Of Character? ***

PacifiCare Health Systems (NASDAQ:PHSY) is one of the nation's
largest health care services companies.  Primary operations
include health insurance products for employer groups and
Medicare beneficiaries in eight states and Guam, serving
approximately 3.7 million members.  Other specialty products
and operations include behavioral health services, life and
health insurance, dental and vision services and pharmacy
benefit management.  PacifiCare fell from grace in May after
warning that they did not expect to meet earnings guidance
for the full year 2001.  Now the shorts are scrambling as
rumors fly that PacifiCare will preannounce to the upside!
In any case, the tape doesn't lie and PacifiCare is breaking
out of a short-term base.  We still favor a cost basis closer
to recent support.

AUG 17.50 HYQ HW LB=4.50 OI=432 CB=16.48 DE=35 TY=5.4%

SEAC - SeaChange  $18.06  *** Bottom Fishing In The Sea ***

SeaChange (NASDAQ:SEAC) develops, manufactures and sells systems
that automate the management and distribution of both short-form
video streams (advertisements) and long-form video streams (movies),
and related services and movie content to television operators,
telecommunications companies and broadcast television companies.
In May, SeaChange reported record revenues of $30.2 million, up
up 35%, and net income of $182,000 or $0.01 per share.  SeaChange
believes it has established itself as the leader in Video-on-
Demand as it recorded a record $11.0 million in revenue.  The
company continues to improve its product, recently shipping its
new IMC 4000 video server configurations.  On Friday, Adams
Harkness initiated coverage with a buy rating.  We simply favor
the bullish technicals as SeaChange forges a Stage I base.

AUG 17.50 UEG HW LB=2.15 OI=0 CB=15.91 DE=35 TY=8.7%



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

FIBR    8.50  AUG  7.50   QFW HU  2.00 970    6.50   35   13.4%
ACTU    8.01  AUG  7.50   UHQ HU  1.15 76     6.86   35    8.1%
SPWX   14.15  AUG 12.50   USP HV  2.70 5     11.45   35    8.0%
GOTO   22.14  AUG 20.00   GUO HD  3.60 359   18.54   35    6.8%
BRCM   43.04  AUG 35.00   RCQ HG  9.90 5691  33.14   35    4.9%
PMCS   30.05  AUG 22.50   SQL HX  8.70 107   21.35   35    4.7%


Market Psychology: Overcoming The Herd Mentality
By Ray Cummins

There are a number of ingredients that must be present in any
successful investment portfolio.  The inventory of resources
that one needs to stay ahead of the market can be daunting to
new traders.  Most novice participants become overwhelmed with
the vast amount of information and ideas that must be absorbed
before consistent profits can occur.  The best way to begin is
to focus on those strategies and techniques that have a proven
history of generating a prosperous outcome.  Today we will
discuss the effects of public sentiment in the stock market.

The first thing that new investors must learn when they enter
the market is the importance of human psychology in the buying
and selling of stocks.  This emotional component has absolutely
nothing to do with the fundamentals of the company, but it does
have an overwhelming affect on the share value.  Of course, the
idea that emotion determines stock prices may contradict the
opinions of many valuation investors but when you understand the
changes produced by public sentiment, it becomes much easier to
discern the broader, more technical movements in the market.

The primary unwritten rule is that rumors are one of the prime
movers of stock prices.  It's amazing how quickly speculation of
upcoming events can change the character of the current trend.
The market anticipates the movement of the economy and shows us
in advance what we can expect with regard to corporate health,
unemployment, interest rates and other financial trends.  When
investors and analysts begin to discuss bearish trends, the
market generally reacts negatively because the public believes
it is destined for a downturn.  In contrast, when an upcoming
financial report is rumored as favorable, the market erupts far
in advance of the actual announcement.  Understanding the many
subtleties of the media's affect on the stock prices is one of
the basic prerequisites for long-term success.

As strange as it may seem, the common trait among professional
traders is they rarely go along with the crowd.  That is the
primary reason institutional investors are so successful when
stock values are ruled by emotion.  History suggests the first
indication of a potential bull-market correction is a period of
euphoria.  That occurs when risk is no longer discussed and
previous losses are forgotten.  As the bullish trend becomes
prominent and well-defined, the investing public grows more
comfortable with higher price-earnings ratios and historically
low yields.  The idea that "this time it will be different"
becomes an accepted theme.  Monetary greed drives undisciplined
buyers to purchase stocks near the market top and when the
inevitable correction finally occurs, they are unable to accept
the truth.  Fear eventually pushes the same investors to sell
near the market bottom, at the worst possible time.  The key is
to avoid the impulse to buy near the height of the rally just
because the market is up and everyone is talking about their
successes.  You must fight the fear that would draw you into
the stampede.

Unfortunately, resisting the impulse to sell amid panic is only
half the battle; the even tougher challenge is to buy during
this hysteria, when it appears the market is at its worst.  Of
course, that is indeed the case, and it is the one reason you
should be buying while everyone else is selling.  When large
numbers of traders act the same way at once, a classic climax
ensues, bringing opportunities for those who are adept enough
to recognize the activity.  The central basis for this type of
thinking is the requirement to approach the stock market from
a contrarian viewpoint; one that opposes the views of the
collective majority.  Only in this manner can you avoid the
tendency to react emotionally in the heat of the moment rather
than using a sound and sensible investment method based on
proven strategies.

Good Luck!

                      *** 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

ARBA    5.82   5.64   JUL   5.00  0.25  *$  0.25  30.9%
VION    8.82   7.58   JUL   7.50  0.50  *$  0.50  26.7%
AMZN   15.27  16.98   JUL  12.50  0.25  *$  0.25  15.1%
DLTR   31.27  31.90   JUL  30.00  0.75  *$  0.75  13.6%
PPD    19.66  18.30   JUL  15.00  0.50  *$  0.50  12.3%
CBST   34.50  36.03   JUL  30.00  1.35  *$  1.35  11.0%
MDCC   22.61  20.50   JUL  17.50  0.80  *$  0.80  10.9%
MCHP   33.43  33.49   JUL  30.00  0.80  *$  0.80  10.8%
ANAD   23.00  20.94   JUL  17.50  0.35  *$  0.35  10.2%
ALXN   24.00  21.20   JUL  20.00  0.40  *$  0.40   9.7%
CTXS   31.00  33.53   JUL  27.50  0.85  *$  0.85   9.5%
ACTN   22.50  22.54   JUL  20.00  0.95  *$  0.95   9.2%
KSWS   26.10  28.32   JUL  25.00  0.40  *$  0.40   8.9%
EXBD   38.57  37.80   JUL  35.00  1.05  *$  1.05   8.8%
DMRC   22.95  26.59   JUL  20.00  0.70  *$  0.70   8.8%
UIS    12.94  13.73   JUL  12.50  0.65  *$  0.65   8.7%
ALKS   34.65  30.34   JUL  30.00  1.00  *$  1.00   8.5%
DMRC   18.06  26.59   JUL  15.00  0.65  *$  0.65   8.4%
ISIL   36.40  32.00   JUL  30.00  0.50  *$  0.50   8.4%
CSTR   22.25  23.36   JUL  20.00  0.40  *$  0.40   8.2%
WEBX   26.30  22.47   JUL  17.50  0.40  *$  0.40   7.7%
SCIO   27.03  20.47   JUL  20.00  0.60  *$  0.60   7.2%
PXLW   30.66  24.68   JUL  22.50  0.65  *$  0.65   6.9%
NSM    26.91  28.01   JUL  22.50  0.55  *$  0.55   6.9%
SLVN   22.14  26.39   JUL  20.00  0.45  *$  0.45   6.8%
NKE    44.55  45.13   JUL  40.00  0.85  *$  0.85   6.5%
LPNT   39.70  42.89   JUL  35.00  0.70  *$  0.70   6.4%
HCR    27.20  31.90   JUL  25.00  0.65  *$  0.65   6.1%
GNSS   33.49  32.50   JUL  25.00  0.60  *$  0.60   6.0%
AVGN   21.25  18.15   JUL  15.00  0.45  *$  0.45   5.9%
PRHC   30.87  36.58   JUL  25.00  0.40  *$  0.40   5.1%

PLUG   20.25  18.55   AUG  15.00  0.70  *$  0.70  10.7%
ZRAN   32.97  33.59   AUG  25.00  0.60  *$  0.60   6.0%
PCL    28.49  28.55   AUG  25.00  0.60  *$  0.60   5.1%

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


Thursday's surprise rally provided a much-needed boost in a number
of technology issues but the pharmaceutical group did not benefit
from the renewed buying pressure.  Most of the current stocks on
our watch-list are in that market segment and only a few of them
are performing well.  Amylin Pharma (NASDAQ:AMLN) dropped below
our cost basis on Wednesday and since we listed it as an early exit
candidate last week, it will now be officially closed in the play
summary.  Alkermes (NASDAQ:ALKS) and Scios (NASDAQ:SCIO) are also
treading water and any failure to recover from the recent selling
pressure should be seen as a potential exit signal.  Pixelworks
(NASDAQ:PXLW) was hammered in the recent technology sell-off, but
it rebounded on Friday after a string of losing sessions.  With a
cost basis near $22.00, it may be best to close the position on any
future rally.  The company reports earnings next week and although
they have a history of beating revenue estimates by 10%, the market
environment may limit any potential for bullish activity.  Intersil
Holding (NASDAQ:ISIL) traded in a range over the past few days and
remains at a key moment.  We will watch the issue closely for signs
of further selling pressure.

Positions Closed: MRV Communications (NASDAQ:MRVC), Intermedia
Communications (NASDAQ:ICIX); which are both currently positive,
Maxitrone (NASDAQ:MONE) and Amylin Pharmaceuticals (NASDAQ:AMLN).


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

AHAA   33.47  AUG 25.00   GAQ TE  0.55 207   24.45   35    6.6%
AMZN   16.98  AUG 12.50   ZQN TQ  0.50 2799  12.00   35   11.2%
APCS   16.93  AUG 15.00   CUT TC  0.55 0     14.45   35    8.9%
AREM   17.75  AUG 12.50   UKM TV  0.70 266   11.80   35   14.3%
CTXS   33.53  AUG 25.00   XSQ TE  0.45 88    24.55   35    5.5%
ICST   18.54  AUG 15.00   IUY TC  0.35 24    14.65   35    7.2%
NMTC   23.00  AUG 17.50   QEK TW  0.55 15    16.95   35    9.3%
NTIQ   34.14  AUG 25.00   CQT TE  0.65 115   24.35   35    7.6%

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

AREM   17.75  AUG 12.50   UKM TV  0.70 266   11.80   35   14.3%
AMZN   16.98  AUG 12.50   ZQN TQ  0.50 2799  12.00   35   11.2%
NMTC   23.00  AUG 17.50   QEK TW  0.55 15    16.95   35    9.3%
APCS   16.93  AUG 15.00   CUT TC  0.55 0     14.45   35    8.9%
NTIQ   34.14  AUG 25.00   CQT TE  0.65 115   24.35   35    7.6%
ICST   18.54  AUG 15.00   IUY TC  0.35 24    14.65   35    7.2%
AHAA   33.47  AUG 25.00   GAQ TE  0.55 207   24.45   35    6.6%
CTXS   33.53  AUG 25.00   XSQ TE  0.45 88    24.55   35    5.5%

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).

AHAA - Alpha Industries  $33.47  *** Breakout! ***

Alpha Industries (NASDAQ:AHAA) designs, develops, manufactures
and markets proprietary radio frequency, microwave frequency
and millimeter wave frequency integrated circuits and discrete
semiconductors for wireless voice and data and broadband
communications.  Their Wireless Semiconductor Products Group
supplies gallium arsenide integrated circuits and discrete
semiconductors in high volume for wireless telephone handsets
and wireless data applications.  The Ceramic Products Group
uses electrical ceramic and ferrite technologies to supply
resonators and filters.  The Application Specific Products
Group supplies radio frequency, microwave and millimeter wave
frequency GaAs integrated circuits, and discrete semiconductors
and components for the broadband and satellite communications
markets.  Alpha recently announced a partnership with SAW filter
and passive component supplier Epcos and the companies intend to
develop and market Switch & Filter modules for handsets.  The
agreement could help AHAA increase its market share in European
countries and should positively affect the company's bottom line
in the coming quarters.  Earnings are due July 18.

AUG 25.00 GAQ TE LB=0.55 OI=207 CB=24.45 DE=35 TY=6.6%

AMZN - Amazon.com  $16.98  *** Own This One! ***

Amazon.com (NASDAQ:AMZN) is a web-site where customers can find
and discover anything they may want to buy online.  The web-site
lists millions of unique items in categories such as books, music,
DVDs, videos, consumer electronics, toys, camera and photo items,
software, computer and video games, tools and hardware, lawn and
patio items, kitchen products, and wireless products.  Through its
Amazon Marketplace, Auctions and zShops services, any business or
individual can sell virtually anything to 30 million cumulative
customers, and with Amazon.com Payments, sellers can accept credit
card transactions.  The company also operates four internationally
focused web-sites and the Internet Movie Database, a comprehensive
source of information on movies and entertainment titles, and cast
and crewmembers.  Shares of rallied in late June after an analyst
said the online retail giant's recent streamlining would help it
exceed revenue and per-share loss estimates for its second quarter.
A popular Bear Stearns analyst said he expected Amazon to announce
revenues of more than $700 million, well ahead of the $678 million
that Wall Street expects.  This position offers a low-risk entry
point in the issue.

AUG 12.50 ZQN TQ LB=0.50 OI=2799 CB=12.00 DE=35 TY=11.2%

APCS - Alamosa Holdings  $16.93  *** On The Move! ***

Alamosa Holdings (NASDAQ:APCS) is a holding company, and through
its many subsidiaries, provides wireless personal communication
services (PCS) in the Southwestern, Northwestern and Midwestern
United States.  The company is a network partner of Sprint PCS,
and through affiliates, provides wireless services in more than
4,000 cities and communities across the United States.  Alamosa
offers products and services throughout its territories under the
Sprint and Sprint PCS brand names, and its services are designed
to mirror the service offerings of Sprint and to integrate with
the Sprint PCS network.  First Union Securities recently issued a
"buy" rating on the company's shares, indicating that the second
quarter looks to be in good shape.  Analysts are comfortable with
the current Q2 2001 estimates and traders who want to own a solid
company in the wireless communications group should consider this
position.  Alamosa is scheduled to report Q2 results on August 8.

AUG 15.00 CUT TC LB=0.55 OI=0 CB=14.45 DE=35 TY=8.9%

AREM - Aremissoft  $17.75  *** Revenge Play? ***

Aremissoft (NASDAQ:AREM) develops, sells, implements and supports
enterprise-wide software applications, primarily for organizations
in the manufacturing, hospitality, healthcare and construction
industries.  The company's suite of Internet-enabled products is
designed to allow customers to manage and execute mission-critical
functions within their organization such as accounting, purchasing,
manufacturing, customer service, sales and marketing.  The design
of its products enables the company to provide customers with a
cost-effective scalable solution that can be easily implemented.
Those of you who are familiar with AREM may remember that we listed
the company as a bullish candidate back in May, only to watch the
issue tumble on rumors they had misreported some software contract
specifications.  Now the company has filed a major lawsuit against
online financial news site TheStreet.com and several hedge-fund
management firms it said had conspired to drive down AREM's stock
price.  The legal action follows a series of articles by TheStreet
that called into question the value of contracts AremisSoft had
signed to supply its software to various government and health-care
agencies in Bulgaria.  This position is for "speculators only" and
due diligence is mandatory.

AUG 12.50 UKM TV LB=0.70 OI=266 CB=11.80 DE=35 TY=14.3%

CTXS - Citrix Systems  $33.53  *** Bracing For A Rally? ***

Citrix Systems (NASDAQ:CTXS) develops, markets, sells and supports
comprehensive application delivery and management software that
enables the effective and efficient enterprise-wide deployment and
management of applications, including those designed for Microsoft
Windows operating systems and UNIX Operating Systems.  Their unique
products operate by executing the applications on a multi-user
Windows NT, Windows 2000 or UNIX server and provide users access
to the server from a variety of client platforms through the ICA
protocol.  The company's primary market for its products is large
and medium-sized enterprises that require the ability to securely
deploy, manage and access business applications across the extended
enterprise.  Credit Suisse First Boston recently raised its rating
on the software maker to a "buy" and lifted its profit estimate
for fiscal year 2002 to $0.92 a share.  Separately, Merrill Lynch
also started coverage on the company with an intermediate and long
term "accumulate" rating and the renewed buying pressure in hi-tech
stocks has helped the issue move to the top of a 6-month trading
range.  Investors who are interested in owning the issue can use
this position to establish a favorable cost basis in the stock.
Target a higher premium initially to allow for any consolidation.

AUG 25.00 XSQ TE LB=0.45 OI=88 CB=24.55 DE=35 TY=5.5%

ICST - Integrated Circuit Systems  $18.54  *** Technicals Only! ***

Integrated Circuit Systems (NASDAQ:ICST) was initially engaged in
designing and marketing custom application specific integrated
circuits (ASICs) for various industrial customers.  In particular,
the company focused on designing ASICs, which combined both analog
and digital, or mixed-signal, technology.  By 1988, the company had
adopted a strategy of developing proprietary integrated circuits
to capitalize on its complex mixed-signal design technology and
pioneered the market for frequency timing generators or silicon
timing devices which provide the signals or "clocks" necessary to
synchronize high performance electronic systems.  More recently,
the company has extended into communications, which develops high
performance clocking solutions supporting networking, telecom,
workstation and server applications.  The long-term basing pattern
in this issue provides a favorable situation in which to speculate
on the company's future.  Quarterly earnings are due August 6.

AUG 15.00 IUY TC LB=0.35 OI=24 CB=14.65 DE=35 TY=7.2%

NMTC - Numerical Technologies  $23.00  *** Solid Earnings! ***

Numerical Technologies (NASDAQ:NMTC) is a commercial provider of
proprietary technologies and software products that enable the
design and manufacture of sub-wavelength semiconductors.  The
company offers a comprehensive solution that enables the basic
production of smaller, faster and cheaper semiconductors using
existing equipment.  This solution enables its customers and
industry partners to realize increased return-on-investment, and
deliver new high-performance semiconductors more quickly.  The
company's patented phase-shifting technology, combined with its
proprietary optical proximity correction and process modeling
technologies form the foundation of its sub-wavelength solution.
NMTC recently announced record revenues and profitability for the
second quarter of 2001.  Revenues were amazing at $11 million, an
increase of 147% compared with the second quarter of last year and
an increase of 13% over the previous quarter.  This is the sixth
consecutive quarter that NMTC has exceeded revenue and earnings
expectations and they see strong growth in the demand for their
core phase-shifting technology in the future.

AUG 17.50 QEK TW LB=0.55 OI=15 CB=16.95 DE=35 TY=9.3%

NTIQ - NetIq  $34.14  *** New Trading Range? ***

NetIQ (NASDAQ:NTIQ) is a provider of eBusiness infrastructures
management software that enables organizations to optimize the
performance and availability of Windows NT and Windows 2000-based
systems and applications.  NetIQ's Administration, Operations and
Network Performance Management product lines reduce the cost of
operations and increase the security, performance and general
availability of eBusiness applications, directories, servers and
networks.  NetIQ recently announced that it has combined security
products from NetIQ and WebTrends to provide a unique management
solution covering real-time security incident management, security
event correlation, host-based intrusion detection, security policy
management, vulnerability assessment, firewall security reporting,
user security administration and file security administration.
The company's strategy is to provide an end-to-end solution that
enables organizations to effectively administer, assess, enforce
and protect all aspects of security in their enterprise.  Based on
the recent activity in the stock, investors are happy with the
outlook for the company.  Quarterly earnings are due on July 25.

AUG 25.00 CQT TE LB=0.65 OI=115 CB=24.35 DE=35 TY=7.6%



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

SLAB   22.34  AUG 17.50   QFJ TW  0.6 0      16.90   35   10.3%
BRCM   43.04  AUG 30.00   RCQ TF  0.95 3367  29.05   35    8.6%
PMCS   30.05  AUG 20.00   SQL TD  0.60 1941  19.40   35    7.9%
CRUS   26.06  AUG 20.00   CUQ TD  0.50 213   19.50   35    7.6%
INTC   30.19  AUG 27.50   INQ TY  0.90 17299 26.60   35    7.6%
AVX    21.15  AUG 20.00   AVX TD  0.65 149   19.35   35    7.1%
PLMD   47.65  AUG 30.00    PM TF  0.85 833   29.15   35    7.1%
ARNA   33.00  AUG 25.00   UGG TE  0.55 10    24.45   35    6.7%
TA     26.95  AUG 22.50    TA TX  0.50 0     22.00   35    6.4%


                         - MARKET RECAP -

Friday, July 13, 2001

Bullish momentum from the recent rally carried the major averages
higher today as investors began to search for downtrodden issues
that will recover in the coming months.  Industrial stocks led the
upside movement with the Dow Jones industrial average closing 60
points higher at 10,539.  The NASDAQ Composite index finished 10
points higher at 2,084.  The S&P 500 index closed 7 points higher
at 1,215.  Trading volume on the NYSE reached 1.10 billion shares,
with winners beating losers 17 to 12.  Activity on the NASDAQ was
relatively light with 1.55 billion shares exchanged, and advances
outpacing declines 19 to 16.  In the bond market, the U.S. 30-year
Treasury rose 12/32, pushing its yield down to 5.62%.

Portfolio Activity:

Stocks were active this week as broader-market issues plummeted on
Tuesday in the wake of numerous profit warnings and then rallied
Thursday after positive announcements from Microsoft (NASDAQ:MSFT)
and Yahoo! (NASDAQ:YHOO).  The bullish activity helped many of our
positions in the Spreads Portfolio and only one play suffered from
the upside movement.  Capital One Financial (NYSE:COF) jumped $5
on Thursday and the abrupt change in character signaled an early
exit in the bearish credit-spread position.  A profitable closing
trade was available on Thursday morning and if you chose to "leg"
out of the position, you reaped some significant rewards as the
issue continued to rally through Friday's session.  One other
alternative was a transition to the JUL-$70 Calls (short), but the
current momentum will likely propel the issue to a test of that
range in the next few weeks.  In the calendar spreads section, all
of our plays are performing very well and only a significant move
in the market will prevent the current positions from profiting.
Traders who are participating in the bearish Cisco (NASDAQ:CSCO)
time spread enjoyed a great exit opportunity on Tuesday when the
technology sell-off occurred, and those who remain bullish on the
issue also had a chance to roll into a put-credit position with a
small premium.  The big winner among this week's new candidates
was the Homestore.com (NASDAQ:HOMS) debit straddle.  The position
offered on Sunday (JUL-$35C/35P) yielded a 100% gain in less than
one week.  Nokia (NYSE:NOK) was also an active issue and the drop
to $17.30 on Tuesday provided a small but favorable, short-term
profit in the neutral position.  Symantec (NASDAQ:SYMC) and Philip
Morris (NYSE:MO) were volatile as well, however they both finished
the week near their respective opening prices.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
ALTR - Altera  $31.16  *** Reader's Request! ***

Altera (NASDAQ:ALTR) designs, manufactures and sells programmable
logic devices (PLDs) and associated development tools.  PLDs are
semiconductor integrated circuits that customers program using a
proprietary software, which operate on personal computers and
engineering workstations.  Altera was one of the first suppliers
of complementary metal oxide semiconductor programmable logic
devices.  Altera offers a broad line of CMOS programmable logic
devices that specifically address high-speed, high-density, low-
power applications.  Its products serve a wide range of markets,
including telecommunications, data communications, electronic
data processing and industrial applications.

One of our readers identified ALTR as a potentially bullish stock,
based on the recent technical indications and the upside activity
that may occur as the company's earnings date approaches.  Here is
a simple strategy that can profit from future upward movement in
the underlying issue.  Altera's quarterly earnings are due July 23.

PLAY (conservative - bullish/synthetic position):

BUY  CALL  SEP-40  LTQ-IH  OI=16043  A=$1.45
SELL PUT   SEP-25  LTQ-UE  OI=960    B=$1.25

Note:  Using options, the position is similar to being long the
stock.  The collateral requirement for the sold (short) put is
approximately $750 per contract.

FDC - First Data  $69.35  *** New Trading Range? ***

First Data (NYSE:FDC) is a diversified financial services entity
that operates in the four business segments of payment services,
merchant services, card issuing services and emerging payments.
The payment services segment includes Western Union, Integrated
Payment Systems and Orlandi Valuta, and is a provider of non-bank
money transfer and payment services to consumers and commercial
entities.  The merchant services group is comprised of First Data
Merchant Services, TeleCheck and First Data Financial Services.
The segment provides merchants with credit/debit card transaction
processing services.  The card issuing services segment, which is
represented by First Data Resources, provides a comprehensive line
of products and processing and other related services to financial
institutions, issuing Visa and MasterCard credit cards and other
debit cards.  The emerging payments segment is comprised solely
of eONE Global.

First Data surprised investors last week, reported outstanding
revenue and earnings numbers in the second quarter as the company
experienced growth opportunities in its core markets.  Earnings
per share were $0.61, an increase of 17% over second quarter 2000
and the results mark the company's ninth consecutive quarter of
double-digit EPS growth.  Revenue grew 11% to $1.6 billion and
First Data continued to produce strong free cash flow during the
quarter, generating almost $300 million after capital expenditures.
The CEO noted, "We are extremely pleased with our strong financial
performance and continued consistency in the business.  We have
sustained our profitable growth through persistent international
expansion efforts, entry into new adjacent markets, and through
sound execution in our core businesses."  First Data expects to
continue to capitalize effectively on market dynamics, including
the shift to electronic payments, growth in outsourcing of payment
processing, and rising demand for money transfers.  Apparently,
investors believe the future is bright for the company as they
pushed the issue to an all-time high last week and this position
offers a conservative way to profit from the new upward momentum.

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-60  FDC-TL  OI=720  A=$0.35
SELL PUT  AUG-65  FDC-TM  OI=486  B=$0.95

MHP - McGraw-Hill  $65.96  *** Technicals Only! ***

McGraw-Hill (NYSE:MHP) serves business, professional and numerous
educational markets around the world with information products
and services.  Key markets include finance, business, education,
construction, medical and health, aerospace and defense.  As a
multimedia publishing and information company, it employs a broad
range of media, including books, magazines, newsletters, software,
on-line services, CD-ROMs, facsimile and television broadcasting.
The company is focused on three markets: Financial Services,
Education and Business Information.  The company's earnings are
due July 24.

The media publishing (books) segment has performed very well over
the past few months but there are signs the sector is beginning
to lose some of its upside momentum.  McGraw-Hill is one of the
top companies in the industry and it has also benefited from the
recent bullish trend but with technology issues beginning to show
indications of a recovery, the buying pressure in the industrial
stocks may decline in the coming weeks.  The current technical
trend is "neutral" and with the well-defined resistance at our
sold strike price, this position offers reasonable speculation
for traders who are bearish on the issue.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-75  MHP-HO  OI=54   A=$0.25
SELL CALL  AUG-70  MHP-HN  OI=308  B=$0.80

This position was discovered with one of our primary scan/sort
techniques; identifying potentially failed rallies on issues
with bullish options activity.  In this case, the premiums for
the (OTM) call options are slightly inflated and the potential
for a successful (technical) recovery is significantly affected
by the resistance at the sold strike price; a perfect condition
for a bearish credit spread.

                   - STRADDLES & STRANGLES -
VRTY - Verity  $17.65  *** Probability Play! ***

Verity (NASDAQ:VRTY) is involved in powering business portals.
These include corporate portals used for sharing information in
an enterprise, e-commerce portals for on-line selling, and market
exchange portals for business-to-business activities.  Verity
develops, markets and supports products for corporate Intranets,
extranets, corporate portals, online publishers and e-commerce
providers, original equipment manufacturers and other independent
software vendors.  The company's comprehensive and integrated
products enable enterprise-wide document indexing, classification,
search and retrieval, organization and navigation, personalized
dissemination and hybrid online and CD publishing all from the
same underlying Verity information index.  The company's software
has been licensed directly to over 1,200 corporations, government
agencies, software developers, information publishers and other
e-commerce vendors.

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

PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-17.50  YVQ-HW  OI=64  A=$1.95
BUY  PUT   AUG-17.50  YVQ-TW  OI=69  A=$1.75

CWP - Cable & Wireless  $16.22  *** Cheap Speculation! ***

Cable & Wireless (NYSE:CWP) is a major global telecommunications
business focused on the provision of high performance global
Internet protocol (IP) and data services to business customers.
CWP specializes in providing services to business customers in
eight market segments, in 70 countries throughout the world.
These segments include Internet service providers; online content
providers; smaller businesses; corporates and governments; dot
com companies; global enterprises; carriers; and mobile operators.
The company's services span traditional voice to the more complex
data and IP services, such as web hosting, e-commerce solutions
and integrated communications services.

One of our readers asked for some speculative debit-strangles on
low cost issues and this position appears to fit that description
perfectly.  CWP has undervalued options as well as the potential
to move (high or low) enough to make the play profitable and 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.  In addition, the company's quarterly earnings
are due in mid-August and there is speculation that CWP may soon
announce a major acquisition.  Traders who believe the stock will
experience volatility in the coming weeks should consider this
speculative play.

PLAY (speculative - neutral/debit strangle):

BUY  CALL  AUG-17.50  CWP-HW  OI=61  A=$0.40
BUY  PUT   AUG-15.00  CWP-TC  OI=33  A=$0.60


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