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Daily Newsletter, Wednesday, 07/25/2001

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The Option Investor Newsletter                Wednesday 07-25-2001
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******************************************************************
MARKET WRAP  (view in courier font for table alignment)
******************************************************************
        07-25-2001        High      Low     Volume Advance/Decline
DJIA    10405.67 +164.55 10405.67 10241.19 1.25 bln   1896/1167 
NASDAQ   1984.32 + 25.08  1984.98  1942.58 1.68 bln   1912/1758
S&P 100   613.95 +  9.79   613.99   603.79   totals   3808/2925
S&P 500  1190.49 + 18.84  1190.52  1171.28
RUS 2000  476.99 +  2.73   476.99   471.52
DJ TRANS 2865.00 +  1.55  2866.27  2841.88
VIX        26.70 -  0.93    28.49    26.46
Put/Call Ratio      0.64
******************************************************************

The Theory And Its Application

The S&P 500 (SPX.X) continues to out perform the Nasdaq,
relatively speaking.  If that much holds true, "easier" profits
may be found in the SPX over the short- and intermediate-terms.
Of course, when I say "easier" profits, I'm referring to moves
of the advancing nature.

Wednesday's price action across the broad market averages
reinforced the fact that the S&P 500 is leading.  For the day,
the SPX finished 1.60 percent higher, while the Nasdaq-100
finished 1.42 percent higher.  Meanwhile, the Nasdaq Composite
(COMPX) finished with a 1.25 percent gain, while the Dow Jones
Industrial Average finished 1.59 percent higher.

The following chart depicts the relative strength of the S&P
500 versus the Nasdaq-100.  (I like to compare and contrast the
SPX versus the NDX because those two cash indexes are also
liquid futures contracts.)  By employing simple direction
analysis on the chart, we can determine that the SPX's
out performance since early June is accelerating.  Therefore, can
we conclude: SPX = Profits * Relative Strength^2?  Alright,
that's stretching it; the point is, the path of least resistance
to the upside is in the S&P 500.




Because the SPX is out performing the NDX, that probably means
the Nasdaq market is oversold, relatively speaking.  The bullish
percent figures for the two indicate that much.  Through
Tuesday's session, about 52 percent of the S&P 500's components
were on sell signals, while 75 percent of the Nasdaq-100's
components were on sell signals.  Furthermore, daily stochastic
readings for the NDX are more oversold than those for the SPX.
Therefore, a short-term, strong market advance would probably
allow for the NDX to outpace the SPX, due to the former's
oversold condition.  We must take into account, however, that the
NDX is a higher beta index, thus greater risk.  So we arrive at
a question of preferences.  Which is better, higher probabilities
with less risk, or greater risk with potentially greater profits?
The answer to that question depends upon individual preferences,
and should dictate which index is the "better" to trade.

To digress from my theorizing, there are three observations I'd
like to point out concerning the price action of the S&P 500.
The first is that the SPX bounced from its aggressive, ascending
support line Tuesday around the 1165 level.  That bounce marked
the third observation, with the other two traced in late March
and early April.  Second, the SPX CLOSED on its 61.8 percent
retracement level Tuesday at 1170.  Although it dipped below that
level Tuesday, its settlement around 1170 was more important.
The third observation I'd like to make is of the voodoo black
magic variety, and brought to my attention by Jeff Bailey.  But
it's compelling enough to write about, so bare with me.

The SPX traced its year low at 1081 on March 22.  Exactly nine
days later, it bounced from 1091 before going on to stage an
advance of historic proportions.  Here's where it gets
interesting.  The SPX traced a relative low at 1168 on July 11.
Exactly nine days later (Tuesday), it bounced from 1165.  I'll
let readers draw their own conclusions.



The National Association of Realtors reported Wednesday that
previously owned single family home sales fell by 0.6 percent
during June, which was a smaller drop than expected.  The
housing market remains one of the strongest in the U.S.
economy, as Greenspan reminded the Senate Tuesday.  And one
sector of the stock market that may be benefiting from the
healthy housing business is the Forest & Paper Products Index
(FPP.X).  In fact, the FPP has been trading relatively strong
versus the S&P 500, which may, in part, stem from the strong
housing market.  Components of the FPP that are especially
leveraged to the housing market include Weyerhauser (NYSE:WY),
Temple Inland (NYSE:TIN), Boise Cascade (NYSE:BCC), Georgia
Pacific (NYSE:GP) and International Paper (NYSE:IP).  It's
worth noting, however, that any spike in energy prices does not
serve this group of stocks well.




But the natural gas stocks would most certainly be well served
by a spike in energy prices.  The Natural Gas Index (XNG.X), in
contrast to the Forest & Paper Products Index, has traded
extremely poorly relative to the S&P 500 recently.  But OPEC's
actions Wednesday could reverse that trend over the short-term.
Oil Producing & Exporting Countries' (OPEC) ministers agreed
Wednesday to cut production by 4 percent in an attempt to lift
sagging crude prices.  As a result, crude futures (CL01U) rose
to $26.80 per barrel Wednesday - their highest level in two
weeks.  In addition, the American Gas Association (AGA) reported
midday that inventories recently rose less than expected.
(It's all about supply and demand, baby!)  Following the AGA
report, with the momentum of OPEC's actions, the Natural Gas
Index and its components skyrocketed to a 5 percent gain for the
day, far outpacing the broader market averages.  This group of
stocks and indeed the broader energy sector is deeply oversold,
more so than the Nasdaq-100.  As such, a sustainable advance is
possible if crude prices continue working higher.  Stocks in
the Natural Gas Index worth investigating include Anadarko
Petroleum (NYSE:APC), Burlington Resources (NYSE:BR), EOG
Resources (NYSE:EOG), El Paso (NYSE:EPG) and Noble Affiliates
(NYSE:NBL).  There may be a compelling trade setting up in
the XNG relative to the FPP if energy prices continue higher.




One earnings report in the after hours session that may
perpetuate the momentum in the Natural Gas Index was that from
Haliburton (NYSE:HAL).  The world's largest oil service company
and former child of Vice President Dick Cheney reported earnings
that beat estimates by 3 cents per share.  Shares rose by a
little more than $1 in after hours.  Like the XNG and its
components, shares of Haliburton have performed extremely
poorly recently.  (Haliburton is a component of the Oil Service
Index (OSX.X).)

In other after hours earnings news, Homestore.com (NASDAQ:HOMS),
which is a rather unique dot com, reported earnings of 13 cents
per share.  Its numbers handily beat estimates, which had the
company pegged to earn 11 cents per share.  What's even better
is that Homestore projected full year earnings of 55 cents per
share, while previous estimates had called for 53 cents for the
year.  Yes, Homestore raised guidance.  It makes sense business
should be good for Homestore because it is, after all, a real
estate company.  Its earnings report was well received in the
after hours session as shares rose roughly $3.

Elsewhere, the reports from the tech sector were mixed, with a
slightly negative tone.  Compaq Computer (NYSE:CPQ) matched
estimates for its second quarter, but guided lower for its
fiscal third quarter.  Analysts had been expecting Compaq to
earn revenue around the $9.3 billion mark during its next
quarter, but officials from the box maker guided expectations
lower to between $8 and $8.4 billion.  That's obviously a
significant revision lower and is a testament to the ongoing
price wars between PC makers.  Judging by the recent price action
in the box makers, Dell (NASDAQ:DELL) is winning the war in a big
way over Compaq and Gateway (NYSE:GTW).

The optical cable maker Corning (NYSE:GLW) reported quarterly
earnings that were slightly better than what estimates had
been predicting.  But get this: During the same quarter in 2000,
Corning reported a profit of 17 cents per share; it reported a
loss of $5.13 this quarter.  Granted, the company took a $4.8
billion charge this quarter, but it's still very ugly.  Corning
officials recently decided to NOT give guidance, so no financial
targets were given during the conference call.  But one official
was quoted as saying that the telecom business remains
"turbulent."  Nevertheless, shares of Corning rose modestly in
the after hours session.

Wednesday's earnings reports may serve as a microcosm for the
market.  Homestore.com, a company highly leveraged to the U.S.
consumer and housing market, reported numbers that were pretty
darn good on the surface.  And the same goes for Haliburton -
officials issued guidance that was most bullish during the
conference call.  But the comments from the likes of Compaq
and Corning reflected how difficult of a place tech remains,
whether you're trading or investing in that sector.  Officials
from Corning used words such as "turbulent."  And Compaq's
CEO said, "It's an understatement to say that we're in the
midst of an extremely challenging global market."  So which
group of stocks are probably "easier" to trade?  I may not
have the answer to that question, but I do not which group of
stocks is the most "difficult" to trade: Technology.

Sure, by foregoing tech you're missing the opportunity of
short, sharp, large rallies, which was the premise behind
my Market Wrap Monday.  But with that comes added risk.  So
it comes down to one question:  Relatively speaking, is the
risk worth the potential reward?  (The operative word is
potential.)

"When you sit with a nice girl for two hours, it seems like two
minutes.  When you sit on a hot stove for two minutes, it seems
like two hours.  That's relativity."

- Albert Einstein


Eric Utley
Option Investor


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

Relatively Speaking
By Jeffrey Canavan

On a relative strength basis the Russell 2000 has been
outperforming the Dow, S&P 500, and Nasdaq, but could small caps
be losing their appeal?  Yesterday the Russell 2000 fell 1.6%
more than any other major index.  Today the Russell 2000 gained a
measly 0.57%, while everybody else gained well over 1.2%.


Relative Strength Charts of Russell 2000 to S&P 500 and Nasdaq


Looking at the first chart, we can see that the Russell 2000 has
been gaining relative strength against the S&P 500 since December
of 2000.  That means that small caps stocks have been gaining
more, or falling less, than the S&P 500.  But that trend spiked
in June, and has been falling since.  Now the long-term up trend
is in jeopardy.  If that trend is broken, the S&P 500 might be a
better place to look for bullish stocks, and the Russell 2000
better for shorting.

The Russell 2000 has also been smoking the Nasdaq Composite, but
that trend has flattened out a little since early April.  If
technology is starting to outperform, small caps must be in
trouble.  Small caps will continue to go as the rest of the
market goes, but their period of outperforming may be coming to
an end if these trends are broken.

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

            Weekly   Daily     Overbought    Support  Resistance
            Trend    Trend      Oversold

DJIA        Bearish  Bearish    Oversold      10,200   10,600
NASD        Bearish  Bearish    Oversold       1,940    2,125
S&P 500     Bearish  Bearish    Oversold       1,170    1,205
Rus 2000    Bearish  Bearish    Oversold         465      485

Semis       Bearish  Bearish    Neutral          525      585
Biotech     Bearish  Bearish    Neutral          490      550
Internet    Bearish  Bearish    Oversold         140      170
Networking  Bearish  Neutral    Neutral          300      365
Software    Bearish  Bearish    Oversold         180      200
Banking     Neutral  Neutral    Neutral          625      670
Retail      Neutral  Bullish    Neutral          875      920
Drugs       Bearish  Neutral    Neutral          380      410


                 Percent Change
            Last      Last       Last     Relative Strength
           5 Days    10 Days    30 Days      vs S&P 500
DJIA        (3.4%)     0.6%      (6.2%)       Positive
NASD        (1.6%)     0.6%      (8.6%)       Neutral
S&P 500     (1.4%)     0.8%      (5.2%)       N/A
Rus 2000    (3.3%)    (0.8%)     (6.4%)       Neutral

Semis       (1.8%)    (0.9%)    (15.5%)       Negative
Biotech     (2.3%)    (3.4%)    (14.2%)       Negative
Internet   (10.0%)    (9.7%)    (30.4%)       Negative
Networking  (1.2%)     1.5%     (23.0%)       Neutral
Software    (1.7%)    (3.2%)    (17.3%)       Negative
Banking     (1.8%)     2.4%       0.4%        Positive
Retail       0.4%      8.1%       0.5%        Positive
Drugs       (2.2%)     1.5%      (4.1%)       Neutral

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


***********
OPTIONS 101
***********

News Flash!  LEAPS Editor Bitten by Gold Bug
By Mark Phillips

The men in the white coats haven't shown up to haul me away in
the wake of Sunday's new LEAPS Watchlist Plays, so perhaps the
idea of buying into a Gold stock isn't so crazy after all.  The
basic premise is that the Gold and Silver index (XAU.X) has been
on a steady recovery path since tracing a solid double-bottom in
November/December of last year near the $42 level.  As the
economy has continued to worsen, more investors are apparently
taking a liking to the defensive nature of this sector.

After the sharp rally in April and May, helped along by a spike
in the price of the yellow metal, the XAU retraced right to its
gently ascending trendline near $51 in early July before
beginning another upward leg.  Confirming the fledgling rally
is the weekly Stochastics oscillator, which is just emerging
from oversold territory with a brand new bullish crossover of
the fast (blue) line over the slow (red).




Contrary to the adrenaline-spiked and irregular moves in the
Technology sector, this looked to me like a solid trend that
could provide some steady, if sedate profits.  Of course, we
don't have any LEAPS available on the XAU, so I went hunting for
LEAP-able mining stocks that seemed to have a good correlation
with the XAU.

The first of the many charts that I pulled up was Barrick
Gold (NYSE:ABX) and the resemblance to the XAU was uncanny.  To
top it all off, the stock had LEAPS available with cheap
premiums and some decent open interest.  Look at the ABX chart
below, and you can see the strong correlation.  This allows us
to play a major market trend, without having to incur either
the expense or the lack of liquidity of trading the index.




The weekly Stochastics indicates that we are catching this move
near its beginning, and the fact that ABX is continuing to
follow the ascending trendline will give us a good measure of
the health of the stock as times marches by.

Drilling down to the daily chart, we can see that the current
rally is getting close to running out of steam.  What we will
want to see is the stock retrace back near the $14.25 level
before we initiate our LEAP position.  Ideally, that will
coincide with the daily Stochastics oscillator dipping into
oversold and then beginning to emerge; similar to the picture
we now see on the weekly chart.  What that means is that we
aren't even close to an entry as of this writing.  But we have
a clear idea of what to target and will be able to recognize it
when it materializes in the weeks ahead.




That is only stage one of our trade setup.  Now that we have our
targeted security and a defined entry point, we need to decide
how we will manage the play after we take a position.  We can
play it nice and easy, buying our LEAP and sitting on the
position, but that's not the focus of our discussions here on
Wednesdays.  We're here to learn about writing Covered Calls
against our LEAP, right?

If we were just going to buy the LEAP and hold it, then the $15
strike would probably be more than sufficient to allow us a good
mix of high delta and high leverage (a big advantage of LEAPS).
But if we are going to write front-month calls against the LEAP,
then there is a distinct advantage to buying a lower strike
LEAP.  That gives us more flexibility in the selection of the
short-term call to sell, especially early in the play, before
our LEAP has begun to appreciate very much.

Recall from my article Fine Points of LEAPS Strike Selection
that I prefer to buy as much time as is available when I intend
to write covered calls.  This minimizes my monthly carrying cost
on the LEAP and allows me more time to profit from the play
after I have reduced my cost basis to zero.  So I'll be
targeting the 2004 $10 LEAP (Symbol:LBX-AB) for the long leg of
the trade.  I estimate the actual cost of this LEAP when our
entry target is achieved will be in the $6.00-6.25 range.  That
means that we only have to take in $6 in premium before we have
the LEAP for free.  And we have up to 29 months in which to take
in that premium.  After that, any additional premium we receive
from selling calls is pure profit, added to the appreciation of
our LEAP.

Judging by current front-month call premiums, each time we sell
a call, the premium we take in will likely be less than $1 as we
need to be careful to prevent our sold call from expiring in the
money.  As I have covered before, that is how LEAPS covered
calls differ from equity covered calls -- we never want to have
our sold call expire in the money.

Of course with such cheap option premiums, we need to pay
attention to commission costs, and this trade will clearly
become more favorable if we are trading more than one contract.
Multiple contracts will reduce the commission costs per contract
to a level where that becomes a less significant factor.  Just
make sure when deciding on the size of your own trades to abide
by good money management rules, keeping the size of your trade
in that zone where you are not exposed to undue amounts of risk
in a single trade.

My intention in profiling this trade in detail is primarily to
give you another real-world example of how the LEAPS Covered
Call example works.  The primary goal is education, and nothing
would make me happier than to hear success stories from you
after you have found your own trades employing this strategy
and brought them to successful conclusions.  But for now, I'm
hoping I can provide a clear roadmap allowing each of you to see
the trade develop in detail, removing the mystery of the many
potential "what if" scenarios.  Follow along as you see fit,
either watching from afar or following my lead on paper or with
real money.  Just remember that the education you receive should
be far more valuable in the long run than any real profits
achieved in this one trade.

Stay Tuned!

Mark

Contact Support


*************
NEW CALL PLAY
*************

No new call plays


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

No new put plays


*****************
STOP-LOSS UPDATES
*****************

DO   - call
Adjust from $28 up to $29

DIGL - put
Adjust from $22 down to $21

CIMA - put
Adjust from $60 down to $57


*************
DROPPED CALLS
*************

BEAS $19.90 -1.28 (-3.11) Despite strength in the Nasdaq Wednesday,
shares of The Beazer headed south.  Unfortunately, the stock
settled below the pivotal $20 level, which is also the site of
our stop.  There was isolated weakness in the software sector
Wednesday, despite what the GSO.X revealed on the surface.  Part
of the blame may be cast towards I2 and its 16 percent drop.  If
BEAS' violation of the stop didn't allow for traders to cut
loose open positions, any strength above that level Thursday
should offer exit points.


************
DROPPED PUTS
************

GILD $50.83 +0.85 (-3.20) GILD dipped ever-so-slightly below the
$50 level again Thursday, which hopefully allowed for traders to
book gains and exit positions ahead of the company's earnings
report Thursday.  The stock staged a substantial advance early
Thursday, but actually rolled over during midday trading to a
rather large degree.  As such, further weakness may be in the
offing Thursday.

SGR $33.75 +4.10 (+0.90) Jefferies & Co. upgraded shares of Shaw
Group Wednesday morning from an accumulate to a buy rating.
Perhaps Jeffries had some inventory to get rid of.  But
whatever the motives, SGR opened near its day low and closed
right on its day high, en route to trading through and subsequently
closing above our recently lowered stop at $32.  Its bullish
price action Wednesday is obviously a cause for concern, and
bearish traders who didn't get out on the move above $32 could
use any weakness early Thursday to exit open positions.

VRSN $47.24 +2.98 (+4.29) VRSN's trading over the past four days
represents an excellent case study in supply and demand.  In the
four trading days prior to Wednesday, VRSN had garnered demand at
the $42.25 level - the site of its 61.8 percent retracement level.
Once supply dried up - in the form of the Nasdaq advancing
Thursday - VRSN was free to trade higher.  Obviously, we had
been gaming a breakdown below $42.50, which never transpired.  The
stock's settlement above $47 could've allowed for traders to exit
any open positions.  If not, use any weakness below that level
early Thursday to exit any open positions.


*********************
PLAY OF THE DAY - PUT
*********************

CIMA - Cima Laboratories $54.00 -1.25 (-7.20 this 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.

Most Recent Write-Up

Besieged by sellers on Monday, CIMA fell sharply, shattering the
$60 support level and coming to rest on Tuesday at the upper
edge of the $53-55 support level.  This breakdown allows us to
move our stop down to the $60 level, as this prior support
should now act as resistance.  Our Point and Figure chart is
still predicting a $43 price target, so we can use any weak
intraday rallies as attractive entry points.  Target rollovers
first at $57 and then $59, as these are the sites of intraday
resistance from the past 2 days.  If you'd like to see more
weakness before taking the plunge, then wait for CIMA to fall
through the $53 level before taking a position.  Watch for
renewed weakness in the Pharmaceutical index (DRG.X) as
confirmation that our play still has legs, as we buckle up to
ride the stock lower into the company's earnings announcement on
August 2nd.

Comments

CIMA took out several near-term support levels Wednesday, despite
the favorable price action in the Biotechnology Index (BTK.X).
The stock is technically weak and may be susceptible to further
downside Thursday with any weakness in the BTK.  Look for new
entries on a breakdown below Thursday's intraday low around
$53, or on rollovers near $56.

BUY PUT AUG-60 UVK-TL OI=100 at $7.80 SL=5.50
BUY PUT AUG-55*UVK-TK OI= 24 at $4.30 SL=2.75

Average Daily Volume = 330 K



*****************************************
BIG CAP COVERED CALLS & NAKED PUT SECTION
*****************************************

Oversold Conditions Lead To A Rally; But Will It Last?

Industrial stocks led the recovery rally today as traders moved to
cover short positions after a string of bearish sessions.  Among
the blue-chip leaders were popular "old-economy" issues such as
Alcoa (NYSE:AA), Home Depot (NYSE:HD), McDonald's (NYSE:MCD),
International Paper (NYSE:IP), Minnesota Mining (NYSE:MMM) and
Wal-Mart (NYSE:WMT).  Dow stock SBC Communications (NYSE:SBC) was
a big winner, up over 5% after posting second-quarter earnings of
$0.61 a share, well ahead of the $0.57 that analysts had expected.
The telecom giant said it remains cautious on the balance of 2001
due to the U.S. economy and said it expects future results to be
marked by continued modest revenue growth.  Chemical maker Dupont
(NYSE:DD) also announced second-quarter profits that topped First
Call estimates by a penny but reported that it doesn't believe the
second quarter marked the bottom of the economic downturn and that
it expects conditions to continue to deteriorate into the third
quarter.  In addition, company officials said any modest upturn in
the U.S. economy is likely to be offset by further declines around
the globe.  Dupont says the third quarter will be "substantially"
more challenging than the second quarter and projects revenues to
show a sequential decline.  The blue-chip laggards included Philip
Morris (NYSE:MO), General Electric (NYSE:GE), Kodak (NYSE:EK) and
United Technologies (NYSE:UTX).  In the technology group, software
shares were popular after PeopleSoft (NASADAQ:PSFT) posted better
than expected earnings and the hi-tech index eventually managed a
small advance after slumping earlier in the session.  PeopleSoft
lifted the segment in the wake of a second-quarter profit of $0.15
a share, well above the consensus estimate on revenue that jumped
27% from the year-ago period.  Salomon Smith Barney upped its view
on the company, based on the perception that Peoplesoft can easily
"outperform" in the current environment.  Computer hardware stocks
were less impressive but Dell (NASDAQ:DELL) enjoyed some bullish
activity after the recent slump and the issue appears poised for a
test of the yearly highs.  Storage stocks did not fare well after
QLogic (NASDAQ:QLGC) plunged on news of a $0.23 per share profit
and forecasts of zero profit growth in the third quarter.  Salomon
lowered its rating on QLogic as it expects the stock to come under
pressure due to the economic downturn and expected delays in new
adoption cycles.  The broker also downgraded storage outfit Emulex
(NASDAQ:EMLX), based on recent data that indicates the economic
downturn is starting to impact vendors.  In the telecom segment,
Lucent Technologies (NYSE:LU) recovered from Tuesday's sell-off as
Lehman Brothers upped the troubled company to a "strong buy" amid
optimism of continued improvement in Lucent's balance sheet.  The
brokerage said the company should produce a significant operating
margin in fiscal year 2003.  In the broader market, oil service,
utility, natural gas, biotechnology and cyclical shares improved
while gold and airline issues retreated.  The insurance group also
slumped in sympathy with the decline in Aflac (NYSE:AFL) shares.
The company posted late third-quarter earnings of $0.33 per share,
barely meeting consensus expectations and Merrill Lynch lowered
its near-term view on AFL, due to weak sales in Japan.

Analysts noted that the market is oversold on a short-term basis
and with the Dow and NASDAQ having retraced almost half of the
gains from the April lows, the potential for a brief rally is
very high.  At the same time, the fact that the S&P 500 index
dropped below a recent support area on Tuesday suggests there
will likely be a test of levels not seen since April.  Lets hope
that forecast doesn't come true...


Summary of Previous Candidates:

NOTE:  JULY prices as of Friday's Expiration


Covered Calls: (Margin not used in calculations)

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

MSCC    AUG    50    46.00  56.54    $4.00   7.1%  Monitor Closely

Naked Puts:

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

BRCM    JUL    30    29.50  41.00    $0.50  20.7%
SEBL    JUL    30    29.55  33.12    $0.45  17.4%
MSCC    JUL    45    44.65  68.93    $0.35   9.7%
HON     JUL    33    31.50  36.90    $1.00   8.7%
THQI    JUL    50    49.60  53.86    $0.40   8.7%
EBAY    JUL    55    53.90  66.80    $1.10   7.4%
TARO    JUL    70    69.00  92.50    $1.00   6.6%
MVSN    JUL    55    54.15  67.44    $0.85   6.2%
LXK     JUL    55    54.20  58.65    $0.80   5.7%
CEPH    JUL    60    59.20  61.88    $0.80   5.6%

GMST    AUG    35    34.40  41.02    $0.60   6.2% Testing 150-dma
PLMD    AUG    30    29.40  36.90    $0.60   5.9% At Support
BRL     AUG    65    64.10  85.78    $0.90   5.0%

Positions Closed: HGSI, MANU, PDLI, and ADVS, which is
the lone Murphy's Law play this month!

Sell Strangles:

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

MU      JUL    33    31.75  39.09    $0.75   6.9%
MU      JUL    50    50.70  39.09    $0.70   6.5%

IMCL    AUG    35    33.85  44.49    $1.15  11.5%
IMCL    AUG    60    60.80  44.49    $0.80   8.3%

Naked Calls:

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

FCEL    JUL    43    43.30  20.08    $0.80   8.8% Adj 2-1 split
ENZN    JUL    75    75.80  58.68    $0.80   6.2%
DIGL    JUL    60    60.65  22.30    $0.65   5.9%

BBOX    AUG    70    70.60  59.18    $0.60   5.3% Monitor Closely
NVDA    AUG   100   100.80  71.69    $0.80   5.1%

Credit Spreads:

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

LNCR  $32.70   $30.87 JUL25p/27.5p $0.30  $27.20  $0.30  Expired *
THC   $48.50   $54.85  JUL40p/45P  $0.60  $44.40  $0.60  Expired
JPM   $46.84   $43.40  JUL55c/50c  $0.75  $50.75  $0.75  Expired
RJR   $56.46   $50.65  JUL65c/60c  $0.65  $60.65  $0.65  Expired
TM    $66.50   $68.44  JUL75c/70c  $0.65  $70.65  $0.65  Expired
ELN   $65.00   $60.09  JUL55p/60p  $0.65  $59.35  $0.65  Expired
LNCR  $33.38   $30.87 JUL27.5p/30p $0.38  $29.62  $0.38  Expired *
IBM  $113.09  $105.70 JUL130c/125c $0.70 $125.70  $0.70  Expired
MEDI  $45.17   $43.31  JUL35p/40p  $0.60  $39.40  $0.60  Expired
APC   $55.39   $51.51  JUL65c/60c  $0.60  $60.60  $0.60  Expired
HMC   $85.58   $85.16  JUL95c/90c  $1.00  $91.00  $1.00  Expired
FISV  $61.61   $61.25  JUL55p/60p  $0.65  $59.35  $0.65  Expired
IFIN  $74.33   $79.50  JUL65p/70p  $0.70  $69.30  $0.70  Expired

STJ   $69.94   $69.96  AUG60p/65p  $0.60  $64.40  $0.60  Open

* LNCR: Adjusted for a 2-1 split

Positions Closed: GE, RETK

Debit Straddles:

Stock  Position   Debit  Target   Value    Gain    Status

IDPH  JUL70c/70p  $11.00 $13.75  $13.75+  $3.75+   Closed

DST   AUG55c/55p   $5.75  $7.19   $6.15   $0.70    Open *

*  The DST debit straddle traded as high as $6.55 this week.


New Candidates:

This following group of plays is simply a list of candidates to
supplement your search for profitable trading positions.  As
with any investment, you must decide if the selections meet your
criteria for potential plays.  Only you can know what strategies
are suitable for your skill level, risk-reward tolerance and
portfolio outlook.  In addition, we recommend that you avoid any
strategy or technique in which you are not completely comfortable
with the potential loss, the necessary adjustments and the common
entry-exit strategies.  (We monitor the positions marked with ***).

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

BULLISH PLAYS - Covered Calls, Naked Puts, & Combinations

***************
MU - Micron Technology  $38.38  *** Own This One! ***

Micron Technology (NYSE:MU) and its subsidiaries manufacture and
market DRAMs, very fast SRAMs, Flash Memory, other semiconductor
components and memory modules.  The company is organized into two
primary operating segments pursuant to its principal product
categories, semiconductor operations and PC operations.  Sales to
external customers for semiconductor operations and PC operations
constituted 86% and 14%, respectively, of the company's total net
sales for 2000.

Analysts are always commenting that the chip companies will lead
the technology recovery, when it occurs, and one of our favorite
companies in the sector is Micron.  Today, MU's shares rebounded
from a recent sell-off and speculation on the company's upcoming
earnings should help the issue remain in its current trading range
near $40.  In addition, Bear Stearns upped its rating on the stock
to a "buy" after analyst Charles Boucher said that Micron should
benefit from a slight upturn in the PC market during the second
half of the year.  Boucher has a 12-month target price of $55 on
shares of Micron and investors who are interested in owning the
issue at a discounted price should consider these positions.

MU - Micron Technology  $38.38

PLAY (sell naked put):

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

Sell Put  AUG 32.5 MU TS   1074      0.55    31.95     7.3% ***
Sell Put  AUG 35   MU TG   8510      1.10    33.90    11.1%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=MU

*****

SZA - Suiza Foods  $57.49  *** Break-Out! ***

Suiza Foods (NYSE:SZA) is a manufacturer and distributor of dairy
products in the United States.  Since the acquisition of Suiza
Dairy in 1993, the company has completed 43 dairy acquisitions,
including seven during 2000.  The company sells primarily fresh
dairy products through Suiza Dairy Group, with the product mix
weighted heavily toward fluid milk, including flavored milks and
buttermilk.  Other products that the company sells through Suiza
Dairy Group include ice cream and novelties, half-and-half and
whipping cream, condensed milk, cottage cheese, sour cream,
yogurt, dips, coffee creamers, juice and juice drinks and water.
Morningstar Foods sells primarily extended shelf life (ESL) fluid,
aerosol and other dairy and non-dairy products.  Its many product
offerings include dairy and non-dairy coffee creamers, flavored
and unflavored ESL milks, lactose-free milks and soymilk, aerosol
whipped topping, dairy and non-dairy frozen whipped topping, egg
substitute and cultured dairy products

The Food and Beverage group has performed very well over the past
few sessions and based on the improving technical outlook for the
sector, we decided to look for a conservative position to hedge
our bearish outlook for the broader market.  The search uncovered
some excellent candidates but most of the option premiums in the
segment are relatively small.  However, this position offers a
reasonable reward with limited downside risk and today's activity
in SZA's shares suggest the bullish trend will continue.

SZA - Suiza Foods  $57.49

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-50  SZA-TJ  OI=45  A=$0.30
SELL PUT  AUG-55  SZA-TK  OI=0   B=$0.90
INITIAL NET CREDIT TARGET=$0.65-$0.70  PROFIT(max)15%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=SZA

*****

TARO - Taro Pharmaceutical  $95.13  *** Pre-Split Rally! ***

Taro Pharmaceutical Industries (NASDAQ:TARO) commenced operations
as a manufacturer of solid dosage form products, but an agreement
with American Home Products in 1954 allowed the company to expand
operations to include sterile products.  The company entered the
steroid market following an agreement with the Schering in 1955.
In 1957, an agreement with Endo Laboratories provided Taro with
products such as Percodan and Coumadin, which Taro continues to
manufacture and sell in Israel today.

Shares of Taro Pharmaceutical Industries have continued to rally,
despite the slump in broader market stocks, due to the upcoming
stock split and some favorable announcements concerning their many
drug products.  In early June, the stock price renewed its bullish
trend after the company said the U.S. Food and Drug Administration
had approved its anti-fungal skin cream.  Taro says its unique
cream (Clotrimazole/Betamethasone Dipropionate) can now be used to
treat a variety of skin diseases and conditions.  The FDA approval
of the skin drug was the second Taro had received in recent months
from the U.S. regulatory body and in April, the company announced
the FDA had approved the firm's 200 milligram generic version of a
drug for life-threatening irregular heartbeats.  Both of these new
product approvals will benefit the company's bottom line and most
analysts expect Taro's profits to double this year.  Taro's recent
earnings report was stellar and based on the solid performance of
the company's shares and the upcoming stock split (7/27/01), the
issue should continue its current bullish activity.

TARO - Taro Pharmaceutical  $95.13

PLAY (sell naked put):

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

Sell Put  AUG 70   QTT TN  150       0.70    69.30     4.7%
Sell Put  AUG 75   QTT TO  219       1.25    73.75     8.2% ***
Sell Put  AUG 80   QTT TP  342       2.00    78.00    10.6%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=TARO

*****

TEVA - Teva Pharmaceutical  $68.79  *** Solid Earnings! ***

Teva Pharmaceutical (NASDAQ:TEVA) is a fully integrated global
pharmaceutical company producing drugs in all major therapeutic
categories.  In the area of proprietary drugs, Teva has focused
on products for central nervous system disorders, primarily the
development of Teva's first globally marketed branded drug,
Copaxone, a treatment for relapsing-remitting multiple sclerosis.
Teva also has significant manufacturing operations for active
pharmaceutical ingredients.  Teva Pharmaceuticals USA, Teva's
principal United States subsidiary, is a generic drug company in
the United States.  Teva manufactures over 100 generic products
in a number of generic forms, which are distributed and sold in
the United States together with additional generic products in
specific dosage forms manufactured by third parties.  Teva also
manufactures other generic products in multiple dosage forms,
which are sold primarily in the Netherlands, the United Kingdom
and Hungary.

Generic drug-makers rallied today after several sector leaders
posted strong quarterly profits, due to an increase in the number
of generic products.  Teva Pharmaceutical Industries was among
the group, posting a 41% jump in second quarter net profit amid
rising sales of its blockbuster multiple sclerosis drug Copaxone.
Teva posted a net profit of $65 million, or $0.47 per American
Depositary Receipt (ADR), in the second quarter, compared with
a net of $10 million, or $0.08 per ADR, in the same period a year
ago.  The results beat consensus estimates of $0.42 per ADR and
Teva also said it expects to meet or exceed preliminary consensus
expectations of a net profit of $0.46 in the third quarter.

With today's rally, the stock has moved out of a recent trading
range on heavy volume and the potential for continued upside
activity is excellent.  Traders who agree with a bullish outlook
for the issue can speculate on its future movement with this
conservative, credit spread.

TEVA - Teva Pharmaceutical  $68.79

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-60  TVQ-TL  OI=420  A=$0.30
SELL PUT  AUG-65  TVQ-TM  OI=339  B=$0.95
INITIAL NET CREDIT TARGET=$0.75-$0.80  PROFIT(max)=17%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=TEVA
***************

Neutral Plays - Straddles & Strangles

***************
Traders have been asking for more "earnings" volatility plays,
where the underlying issues have discounted option premiums and
the potential to move significantly upon announcement of their
quarterly profit results.  Here are two favorable candidates,
based on analysis of the historical option pricing and technical
background.  In addition, both stocks have a history of multiple
movements through a sufficient range in the required amount of
time to justify the overall risk of the positions.  As always,
review each play individually and make your own decision about
the future outcome of the position.

*****

CVS - CVS Corporation  $40.05  *** Cheap Speculation! ***

CVS Corporation (NYSE:CVS) is principally engaged in the retail
drugstore business.  The company operates over 4,000 retail and
specialty pharmacy drugstores and various mail-order facilities
located in 31 states and the District of Columbia.  During the
previous 12 months, CVS dispensed over 300 million prescriptions.
The company's operations are grouped into four businesses, Retail
Pharmacy, Pharmacy Benefit Management, Specialty Pharmacy and
Internet Pharmacy.  The company's quarterly earnings are due on
July 31, 2001.

CVS - CVS Corporation  $40.05

PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-40  CVS-HH  OI=3788  A=$1.65
BUY  PUT   AUG-40  CVS-TH  OI=3566  A=$1.60
INITIAL NET DEBIT TARGET=$3.15-$3.25 TARGET PROFIT=25%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=CVS

*****

EMR - Emerson  $55.24  *** Probability Play! ***

Emerson (NYSE:EMR) is engaged principally in the worldwide design,
manufacture and sale of a range of electrical, electromechanical
and electronic products and systems.  The divisions of the company
are organized into unique business segments based on the nature of
the products and services provided: Process Control, Industrial
Automation, Electronics/Telecommunications, Heating, Ventilating
and Air Conditioning and Appliance and Tools.  Emerson's quarterly
earnings are due on August 7, 2001.

EMR - Emerson  $55.24

PLAY (conservative - neutral/debit straddle):

BUY  CALL  AUG-55  EMR-HK  OI=612  A=$2.20
BUY  PUT   AUG-55  EMR-TK  OI=611  A=$2.15
INITIAL NET DEBIT TARGET=$4.25-$4.35 TARGET PROFIT=25%

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=EMR
***************

BEARISH PLAYS - Naked Calls & Combinations

***************
ENZN - Enzon  $54.98  *** Trading Range? ***

Enzon (NASDAQ:ENZN) is a biopharmaceutical company that develops
and commercializes enhanced therapeutics for life-threatening
diseases through the application of its two proprietary platform
technologies: polyethylene glycol (PEG) and single-chain antibody
(SCA).  The company applies its PEG technology to improve the
delivery, safety and efficacy of proteins and small molecules
with known therapeutic efficacy.  The company also applies its
single-chain antibody technology to produce antibody molecules
that offer many of the unique therapeutic benefits of monoclonal
antibodies, while addressing some of their limitations.

Shares of Enzon have retreated in recent weeks after testing its
all-time highs near $80 in early June.  The stock has declined
even as the biotechnology sector has enjoyed mild gains and to
make matters worse, US Bancorp Piper Jaffray lowered its outlook
on the issue to "neutral," saying the company's staying power is
greatly exaggerated and that Schering-Plough's manufacturing woes
pose timing risks for the company's future sales.  Technically,
Enzon appears to be forming a significant Stage III "top" and the
recent violations of its 150-dma are especially worrisome.  The
stock has failed to rebound above the resistance at $60 and has
historically failed near $75 over the last two years.  The drop
in June came on rising volume and a major support level near $65
was violated.  That area will become a new resistance level and
it appears the share value has little chance of reaching our sold
positions in one month.

ENZN - Enzon  $54.98

PLAY (aggressive - sell naked call):

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

Sell Call AUG 60   QYZ HL  6103      4.30    64.30    26.7%
Sell Call AUG 65   QYZ HM  1735      2.85    67.85    25.4%
Sell Call AUG 70   QYZ HN  1721      1.80    71.80    18.6%
Sell Call AUG 75   QYZ HO  1218      0.90    75.90    10.0% ***

http://www.OptionInvestor.com/charts/jul01/charts.asp?symbol=ENZN


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