Option Investor

Daily Newsletter, Sunday, 08/05/2001

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The Option Investor Newsletter                   Sunday 08-05-2001
Copyright 2001, All rights reserved.                        1 of 5
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MARKET WRAP  (view in courier font for table alignment)
        WE 8-3           WE 7-27          WE 7-20          WE 7-13
DOW    10512.78 + 96.11 10416.67 -159.98 10576.65 + 37.59  +286.38
Nasdaq  2066.33 + 36.60  2029.73 +   .36  2029.37 - 55.42  + 80.63
S&P-100  623.65 +  3.39   620.26 -  5.33   625.59 -  1.26  + 13.90
S&P-500 1214.35 +  8.42  1205.93 -  4.92  1210.85 -  4.83  + 25.09
W5000  11242.94 + 76.94 11166.00 - 46.37 11212.37 - 59.55  +212.36
RUT      487.15 +  2.13   485.02 -  2.91   487.93 -  2.78  +  7.45
TRAN    2914.02 +  4.14  2909.88 - 55.78  2965.66 + 25.31  +191.43
VIX       22.39 -  2.34    24.73 -   .24    24.97 +  1.10  -  1.10
Put/Call    .76              .47              .82              .65

Rally Stumbles Over Jobs Report and Crash Rumors!
by Jim Brown

An August Friday with the lightest Nasdaq volume of the year saw
the markets trip over the Jobs Report as traders took profits from
the six day rally. So close but yet so far! Just when the stars
were aligning for a breakout the Jobs Report surprised everyone
with better than expected employment. Employment fell by 42,000
jobs in July which was less than half the decline in June. The
unemployment rate held at 4.5% instead of the 4.7% which analysts
expected. When is good news bad? When it throws doubt on future
Fed rate cuts. That doubt came roaring back on Friday morning and
traders decided to take profits and start over again next week.
Rumors of a pending crash kept bargain hunters from buying the dip.

So close but fate stepped in stomped the rally flat. With the
Nasdaq closing only 13 points away from breaking strong resistance
the bullish sentiment was running rampant. Clearly after being
up five of the last six days the market was ripe for some profit
taking and the Jobs Report was simply the first excuse.

Stocks that moved the market on Friday included Motorola which
was downgraded by Sanford Bernstein on valuation concerns. MOT
traded near $10 in March and had neared their profit target of
$23. They said they did not see the communication sector recovering
as fast as some other analysts and thought chips for cell phones
had gotten a little ahead of expectations. MOT dropped about
seventy-five cents on the news but the action also impacted QCOM,

Cisco dipped at the open after analysts said that maybe their
earnings and guidance due out on Tuesday were not going to be
as good as their recent +25% gains in the stock price would
indicate. CSCO did recover all but about twenty cents before
day's end but investors moved out of networkers in advance of
their actual earnings next week. While nobody expects CSCO to
say anything positive but there are some who still expect gloom
and doom. Based on results and guidance from other tech stocks
recently it is more likely that CSCO will announce inline with
lowered estimates and say the sector has stopped falling but
stop short of saying a recovery is underway. This is all that
will be needed to spur the sector onward in anticipation of a
future recovery. The worry here is Cisco's dependence on the
telecom sector which has yet to see daylight. Other networkers
like Juniper and Extreme are more network oriented and less
phone company dependent. This is the wildcard analysts are
worried about. Personally I think we could be surprised by
CSCO. Remember the last two quarters when John Chambers was
throwing out sound bites all over the world about how bad
business was? He has been very quiet this quarter. Actually
I watched an interview two weeks ago where he was borderline
optimistic. He is scheduled to be on CNBC after earnings on
Tuesday and I doubt he would make the appearance if they were
going to miss earnings or warn about the future. He would send
his CFO to be sacrificed instead. Just my opinion.

Chambers may want to steal some spotlight from Intel which
captured all the glory when Craig Barrett went public with
his bullish comments last week. Intel gained about +10%
from the weeks lows and powered the semiconductor sector to
a near two month high. After the Merrill comments and the
Intel comments the sector was on a roll and many analysts
warned that it was too far too fast. The Motorola downgrade
only succeeded in knocking -20 points off the SOX.X at midday
but it was rising at the close. Clearly there is a desire
to buy and nobody wants to be left at the station when the
train leaves.

One stock that disappointed traders on Friday was EMC. They
said they were going to be more aggressive on price cutting
in order to maintain share and when the 800LB gorilla speaks
the rest of the sector shivered. EMLX, QLGC, BRCD and NTAP
fell on worries that they would also have to aggressively
cut prices to avoid losing market share. EMC refused to give
guidance but said they were still feeling the effects of a
global slowdown. Thanks for that cheerful piece of news!

The stock news next week, other than Cisco, is probably not
going to be material. The economic calendar starts with the
Productivity Report on Tuesday. This report was the topic
of a rumor on Friday that could have kept the Dow from
rebounding at the open. The rumor said a German bank with
a brokerage arm (later identified as Dresdner Bank) was
expecting a -20% drop in the U.S. markets as a result of
a sharp decline in productivity rates in the Tuesday report.
This was a major factor in keeping traders from buying the
dip. Uncertainty is a powerful rally killer. What did they
know? Did some information leak out? Could this really happen?
Dresdner said in a note to clients that U.S. productivity
revisions on Tuesday would shatter the belief in the "new
paradigm" economy where strong growth could live with low
inflation. They theorized this could trigger a U.S. market
crash. They said "revisions to productivity next week will
undoubtedly leave Mr Greenspan looking very foolish". "Make
a date in your diary! The U.S. new paradigm will then be
officially revised away! The risks of an equity crash are
high". Lehman and Goldman both made comments to the contrary
but Goldman did say that their estimate of 2.25% productivity,
which is below consensus of 2.5%, may still be too high.
Other analysts dismissed the entire scenario as total bull
even if the revisions were greater than expected. Story link:


Wow! Just what we needed another bolt out of the blue to
knock the legs out from under our potential rally. Fortunately
after the close on Friday the IMF said it was prepared to
accelerate a fast track loan of $1.2 billion for Argentina
and from out of nowhere a $15 billion "emergency" loan for
Brazil. OOPS! Was Brazil in danger and nobody knew? Either
way the two bailout packages should take any pressure off
South America for the next several weeks. Investors may
actually have more to fear from the European markets which
are dropping fast and nearing April lows. Should those lows
fail the U.S. markets could suffer in sympathy.

Like I said, stock news may be the least of our worries next
week. After the Productivity report on Tuesday, which will
obviously be watched VERY closely, we get Wholesale Inventories
on Wednesday, Import/Export Prices on Thursday and CPI/PPI on
Friday. A very full week!

Since we never broke 2100 on Friday you should still be flat
if you are following my suggestions. The bullishness I expressed
on Thursday night is still there but remember the qualification
was "OVER 2100" which has been strong resistance for some time.
In spite of all the rumors and economic news above I was very
encouraged that the markets came back from a -118 decline for
the Dow and -40 on the Nasdaq. I will gladly take -40 points
of profit taking after a six day run right to resistance. It
simply gives us a better start for any gains next week. I do
admit the negative global news coupled with a flurry of economic
reports could blunt any positive sentiment. This is very
frustrating for traders. We suffered through earnings and low
volume and prospered. Now concerns suddenly rise from Germany
and Brazil where none existed before. A new entry point?

Could be another opportunity for good relative strength stocks
to stand out from the crowd regardless of what happens to the
broader market. I am still bullish, over 2100, and I think you
should be also. Aggressive traders that bought the dip on Friday
may be rethinking their trades on Monday. Play it safe and wait
for the breakout. Many bullish traders are becoming frustrated by
the constant positive/negative swings in the market. Don't give
up! Investing can be easy or hard. It is your choice!

Definitely, enter passively, exit aggressively!

Jim Brown

Editors Note:

We are interested in your comments about our newsletter.
Please email me at comments@OptionInvestor.com and tell
me what you like and what you dislike about our product.
Your input is very important and while we cannot answer
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trader. What can we do to help?


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Editor's Plays

One More Buying Opportunity Ahead?

The failure of the Nasdaq at 2100 is not serious yet but the
flurry of global news as well as the sell off in the European
markets could make the few investors still trading in August
to move to the sidelines. This may be our last buying opportunity
before October.

For those investors who have money burning a hole in their
pockets and want to be in the markets regardless of the facts
should look at an often overlooked option called leaps. Before
you hit the delete button hear me out.

At these market levels there are some very attractively priced
leaps that cost no more than a regular call option and have
the potential to return literally 1000% over the next two years.
Is 1000% worth your effort for a $4-$6 option? I hope so!

Not every stock has leaps and not every leap is worth the price.
Here are examples of both.


Corning - Current price $16.68

Corning has suffered a fall from grace as the largest fiber maker
in the world. However they are showing signs of a bottom and
once the market and economy starts to recover the demand for
their products will again soar. While they may not get back to
previous highs near $120 they could easily hit $40-$60 in the
next two years. The $20 2003 call leap at $4.40 is roughly 25%
of the stock price and half the margin requirement to buy the
stock. If the stock reached broke $40 again the leap would be
worth $20+ on a $4.40 investment. The 2004 leap is only $1.50
more and could see a $60 level in the stock price before


SunMicro - Current price $17.72

SUNW has put in a double bottom and is looking very promising.
Once it breaks $20 institutional investors will come back into
the stock and $40 could easily be hit by 2003. I would buy the
2004 leap for $6.10, cheaper on any pullback next week, and forget
about it for the next two years. You could easily expereience a
$25 profit on your $6 investment.


Cisco - Current price $20.05

Cicso quite possibly could make some optimistic statements with
earnings next Tuesday that could push them over the $20 barrier
for good. Even if they don't the downside risk is minimal. With
a 2004 leap you are insulated against any short term swings and
could ride out any August dips without any problems. My target
for CSCO is $50 by 2004 which would equate to a $24 profit on
a $6 leap.


JDSU - Current price $9.13


While the recent fall from highs in the $140 range may make
JDSU a bargain the leap is far from it. The 2004 $10 leap is
$4.40 or 48% of the stock price. It is only sisteen cents
more than normal margin to simply buy the stock. The advantage
of a leap is the lack of margin interest but it will expire
worthless if JDSU fails to break $10 by 2004. The advantage
to using margin on JDSU instead is the lack of expiration
and should JDSU only be $10 in 2004 you can sell it for a
profit (less interest). Your margin will not expire but your
option will. As JDSU increases in value to say $20 you can
then use the additional margin value to commit the mortal
sin of leveraging your profits into buying something else.
You can create more risk and more reward which you can't do
without selling the leap or writing covered calls against it.

Simply put, I would not recommend this type of leap. Buy the
stock instead.


Be very careful this week. The economic news as well as
global rumblings could give the bears one last selling
spree and the bulls one last buying opportunity. Choose
your entry points carefully!

Good Luck

Jim Brown


By Jeffrey Canavan

While the origins of the word oscillate are unsure, it most
likely can be traced backed to the Latin word oscillum.  One of
its first uses comes from a passage in Georgics, where Virgil
applies the word to a small mask of Bacchus hung from trees to
move back and forth in the breeze.  The verb has evolved to mean:
to swing back and forth with a steady, uninterrupted rhythm, or
to waver, as between conflicting opinions or courses of action;

Since May 22nd the markets have be vacillating, mostly to the
downside, and stochastics have done a good job of marking changes
in short-term opinion.  By rolling over on Friday, the oscillator
is saying that the short-term opinion has turned bearish.  Since
the downtrend started in late May, each time the S&P 500's
stochastic has rolled over from overbought territory an average
drop of 70 points over 5.5 days has ensued.  The Nasdaq has
similar statistics, losing an average of 238.5 points over 6.5

But past performance does not guarantee future results, and
stochastics do not always swing back and forth in a steady
uninterrupted motion.  They still tell us that the odds favor a
lower to neutral market next week, but the situation has improved
since we started our decline in May.

Nasdaq Composite Daily Chart

In the early part of the decline the Nasdaq was setting lower
lows, as was the oscillator.  But in the month of July the
oscillator set a higher low, and the Nasdaq was able to hold at
support.  This doesn't signal a raging bull market, but perhaps
the bleeding has stopped.

If we throw in some bullish percent data, the situation looks a
little better.  In May bullish percent data was overbought, and
suggesting the risk of going long was high.  Since then bullish
percent has fallen into oversold territory and reversed up into
bull alert status, which implies less risk of going long.

But there is still risk, especially with Cisco reporting earnings
on Tuesday.  The odds of testing recent lows and falling into a
trading range for the rest of the summer is just as good as
taking out recent highs.  We could still take out recent lows and
head even lower, but the market sentiment appears to be neutral
to higher.


Market Volatility

VIX   22.39
VXN   48.47


          Put/Call Ratio  Call Volume   Put Volume
Total           .76        405,072       308,963
Equity Only     .69        359,900       248,394
OEX            1.57          7,247        11,392
QQQ             .22         75,402        16,455


Bullish Percent Data

           Current   Change   Status
NYSE          34       -      Bear Confirmed
NASDAQ-100    50       -      Bull Alert
DOW           36       -      Bull Alert
S&P 500       54       -      Bull Confirmed

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  1.22

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      1456           1583
NASDAQ    1689           1979

        New Highs      New Lows
NYSE      121             21
NASDAQ    100             50


Advisory Sentiment

Bullish  Bearish  Correction   Net   Change
  52.6%    23.7%     23.7%    28.9%   -0.4%

A bearish reading of 25% to 30%, combined with a bullish reading
greater than 55% is typically considered bearish by contrairians.
A net percentage greater than 30% is also viewed as bearish.


Commitments Of Traders Report: 07/31/01
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. COT data
can be found at www.cftc.gov.

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
There were no significant changes in the bullish percent data this

Commercials   Long      Short      Net     % Of OI
7/17/01      336,836   403,561   (66,725)   ( 9.01%)
7/24/01      317,241   392,146   (74,905)   (10.56%)
7/31/01      335,532   409,352   (73,820)   ( 9.91%)

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
7/17/01      122,525     50,211   72,314     41.86%
7/24/01      141,372     61,665   79,717     39.26%
7/31/01      129,648     54,552   75,096     40.77%

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

There were no significant changes in the bullish percent data
this week.

Commercials   Long      Short      Net     % of OI
7/17/01       26,721     37,225   (10,504)  (16.43%)
7/24/01       27,396     39,198   (11,802)  (17.72%)
7/31/01       28,009     39,613   (11,604)  (17.16%)

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
7/17/01       11,680     8,183    3,497      17.61%
7/24/01       12,170     7,744    4,426      22.23%
7/31/01       11,216     8,938    2,278      11.30%

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

There were no significant changes in the bullish percent data this

Commercials   Long      Short      Net     % of OI
7/17/01       14,145    12,963    1,182      4.4%
7/24/01       16,080    12,812    3,268     11.3%
7/31/01       17,748    13,669    4,079     13.0%

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
7/17/01        5,255     9,144    (3,889)   (27.01%)
7/24/01        5,599     9,526    (3,927)   (25.96%)
7/31/01        5,049     9,079    (4,030)   (28.52%)

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


By Eric Utley

I was on the river last weekend for 13 hours.  Well, actually it
was more like 12 hours.  But I don't necessarily count my one
hour nap on the bank as being "off the river."  Anyway, I've found
that it's awful difficult to apply sunscreen to select parts of
my back; maybe I'll wear my shirt this weekend.  In the meantime,
please pass the aloe vera...Ouch!

As usual, I was in pursuit of oncorhychus mykiss and salmo trutta.
There's this dandy little river known as the South Platte that
winds its way through Colorado.  It's not too far from where I
live; consequently, it's not too far from where a lot of people
live.  Needless to say, it's crowded and damn difficult to fish.

Now, I'm no piker on the river.  I'm pre-River Runs Through It;
yea, old school.  Heck, I even spent one of my college years in
Montana (The fly fishing Mecca) to pursue and perfect my passion.
Ahh, but perfection is a myth in many worlds, including fly
fishing.  The dynamic of each river, including the South Platte's,
is something of a small wonder.  The bugs, barometric pressure,
water flows, moon phase, temperature, and innumerable other
variables all impact what is perceived to be success on the
river; namely, catching fish.  And I'll tell ya', when I'm not
hooking 'em, success is defined differently.

Unfortunately, I had been defining success in many ways.  But
that all ended last weekend, when a kind river colleague
passed along a few tips.  Now, I'm not one that normally relies
on others when making important decisions, such as which fly to
cast.  But sometimes it just makes sense to lay pride to the side,
and ask.  Of course I'd prefer to figure it out on my own, but
the insatiable desire to learn at any cost oftentimes causes me
to do crazy things, like ask for help.  Nevertheless, with that
little help, I was finally able to crack the code that had become
the South Platte.  And let me tell ya', there's nothing quite
like nailing a few 18 inchers at dusk after struggling the whole
damn day to see a fish, let alone catch one.  So I can safely
say that I have added another river to the resume with a little

And as I stood in the river last weekend, wader-less and waist
high in water, burnt and dehydrated by the sun, hungry, and tired
I thought to myself, "This is living."  For some weird reason, as
I made my way out of the water grinning ear to ear, I thought back
to a recent and successful trade.

Please send your questions and suggestions to:

Contact Support


eBay - EBAY

EBAY is technically going down, plus inside sell and momentum down
with high p/e.  Is short ok in breaking $60. - Anonymous

Thanks for the question.

eBay (NASDAQ:EBAY) has been somewhat of a mystery to me.  Any
way you slice, the stock is richly valued.  And I've been told
that this market is one that does not favor high multiples.

We've tried shorting the stock (Read: Calling The Top) a few
times.  Each attempt ended terribly.  And I was reminded by
one of my trading demigods that it's not wise to short a stock
that is in high demand.  And it's blatantly obvious on eBay's
point & figure chart that the stock has been in high demand since
early April.

The point & figure chart also reveals that the stock has done a
lot of sideways trading in the short-term.  What's more, it
tested the long standing bullish support line recently.  Another
of my trading demigods told me that the first test of the bullish
support line almost always results in a rebound.  Sure enough,
EBAY rebounded from its first test of the bullish support line
at $60.

The candlestick chart also reveals a toppy pattern in the stock.
It's obvious after looking at the point & figure chart and
referencing the findings to the daily chart that the $60 level is
pivotal.  Additionally, some might argue that EBAY has formed
a head-and-shoulders top.  By all means, the stock appears on the
surface to be a good short candidate currently.

But EBAY is a much-loved stock by the institutional crowd.  Almost
cult-like.  Janus is the largest holder of the stock, and I
wouldn't necessarily categorize that firm as a strong hand, more
like a weak sister.  At any rate, I could envision Janus absorbing
supply in the stock to keep the books pretty - they own $1 billion
worth of EBAY.

If I were going to short EBAY, I'd feel more comfortable putting
some stock out at higher prices as opposed to shorting the
breakdown below $60.  I'm sure there are a few hedge funds out
there who are watching for the big break below $60.  Call me crazy,
but I'm agoraphobic.


Genesis Microchip - GNSS

Perhaps you would consider GNSS as a subject to discuss.  It's at
levels that produced resistance in '99, but has been performing
well the past couple months compared with more volatile neighbors
in the group.  Can we get above 35-38 here? - Thanks, Scott

Thanks for the question, Scott.

I've seen the ticker a few times, but have not really ever
investigated Genesis Microchip (NASDAQ:GNSS).  From what I
gathered, the company makes chips used in high-end video displays,
such as flat panel displays, digital TVs, and other consumer
products.  Another stock in this group is Planar Systems
(NASDAQ:PLNR), which, like GNSS, has been trading rather well

A quick glance over Genesis' fundamentals revealed a good picture.
No debt, some cash, and solid earnings growth estimates.  It's
a bit expensive on a trailing twelve month basis, but its
multiple should come down over the next few quarters if the
company meets or exceeds its estimates.

In early 1999, shortly after the stock began trading, it had
trouble clearing the $35 level.  So it's not much of a surprise
that GNSS is stalling around $35 following its 200 percent
advance since April!  It's hard to justify buying the stock up
here in light of the current market and economic environments
and its recent run, but there's ALWAYS an exception to every
rule.  I think it would make sense to wait for the stock to
spend some time between maybe $25ish and $35ish before buying
it up here.  But if you must, I think it would be prudent to
enter on weakness, as opposed to chasing it higher.  That way,
you're in ahead of any impending move up to the $35 to $38
range, and risk and emotion are easier to manage.


Gemstar - GMST

Would you please give me your opinion on Gemstar (GMST) over the
next 6 to 9 month period.  I like writing naked puts on stock I
would like to own, and this looks attractive to me over that
period. - Thanks, Val

Good question, Val.

Shares of Gemstar (NASDAQ:GMST) had been trading relatively well
up through the early part of July.  It's worth writing about the
stock's peculiar price behavior during that time because I
think it demonstrated a good study of technical analysis.

GMST's V-bottom recovery was followed by a narrow trading range
earlier this summer.  The highs were traced lower, and the lows
kept getting higher.  The coiling of its price had to lead to
a break in one direction or another.  And an intelligent
speculation could've been made that GMST would breakout to the
upside because of the direction of its pennant.  Sure enough, the
stock surpassed $40 and traded as high as $50 before turning
lower.  Lesson over.

Perhaps some of Gemstar's recent weakness stems from the Justice
Department's probe.  The DOJ is investigating Gemstar for
possible violations of antitrust laws.  At the time of this
revelation, which was early June, Gemstar said that the
investigation did not pose a serious threat to its business.  It's
a shame that government regulators punish success.  At any rate,
the legal issues could resurface in the future, which is about
the only negative I can find concerning Gemstar over the next
six to nine months.  It's an extremely solid company.


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.

Tired of waiting on trades to execute?
Does your broker offer Stop Losses on Options?

Trade instantly with Stop Losses at PreferredTrade Inc.
Stop Losses based on the option price or the stock price.
Move your trading into the next millennium with PreferredTrade.

Anything else is too slow!



For the week of August 6, 2001


Productivity-Prel      Q2   Forecast:  1.7%   Previous:  -1.2%
Consumer Credit        Jun  Forecast: $8.4B   Previous:  $6.5B

Wholesale Inventories  Jun  Forecast:   N/A   Previous:   0.2%

Initial Claims        8/04  Forecast:   N/A   Previous:   346K
Export Prices ex-ag    Jul  Forecast:   N/A   Previous:  -0.2%
Import Prices ex-oil   Jul  Forecast:   N/A   Previous:  -0.4%

PPI                    Jul  Forecast:  -0.2%  Previous:  -0.4%
Core PPI               Jul  Forecast:   0.1%  Previous:   0.1%

Week of August 13
Aug 14 Retail Sales
Aug 14 Retail Sales ex-auto
Aug 15 Business Inventories
Aug 15 Industrial Production
Aug 15 Capacity Utilization
Aug 16 Initial Claims
Aug 16 CPI
Aug 16 Core CPI
Aug 16 Housing Starts
Aug 16 Building Permits
Aug 16 Philadelphia Fed
Aug 17 Trade Balance
Aug 17 Mich Sentiment-Prel

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The Option Investor Newsletter                   Sunday 08-05-2001
Sunday                                                      2 of 5

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Call Play of the Day:

Broadcom - BRCM $46.99 (+3.29 last week)

See details in sector list

Put Play of the Day:

Jacobs Engineering - JEC $54.89 (-3.16 last week)

See details in sector list

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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.


CSCO $20.05 (+0.99) In the end, our play on CSCO has been
pretty darn successful.  That much is certainly dependent on
individual execution, but our general premise of buying on
weakness and selling into strength proved to be a success.  The
company reports earnings next week, and instead of getting
involved in the media glitz, we're opting to drop coverage on
the play this weekend.  For traders with open positions,
consider any strength above current levels ($20) as a good
exit point.

JDAS $21.15 (+0.10) Getting the "boredom boot" this weekend,
JDAS has been unable to break out of its narrow $0.75 range.
After rocketing higher in the prior week, some consolidation
would be expected, but with volume remaining heavy during the
consolidation phase, we are becoming concerned that there could
be a breakdown in the stock's future.  Rather than wait for it
to happen, we'll exit the play this weekend and look for plays
with a greater willingness to move.

MERQ $39.15 (-1.07) MERQ has been stuck in neutral for the past
week after reaching the $40 level.  But the stock just can't
seem to attract any buyers to push it higher.  By Friday, volume
had withered to a mere one-third of the ADV as MERQ drifted back
under the $40 level.  With the stock unable to advance and the
daily stochastics are rolling over, setting the stage for a more
significant pullback.  It hasn't happened yet, but we'll take
our cue from the stock's lack of strength and close out the play
this weekend.

PHCC $24.65 (-0.13) Thursday's weak breakout over $25 was
promptly rejected on Friday as bullish conviction faded.
Symptomatic of the current rangebound markets, PHCC looks like
it has run into a brick wall and rather than wait for our stop
to be triggered, we'll drop coverage of the stock this weekend.


No dropped puts this weekend


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.


BRCM - Broadcom $46.99 (+3.29 last week)

Broadcom Corporation is a leading provider of highly integrated
silicon solutions that enable broadband digital transmission of
voice, video and data. For the 3 months ended 3/31/01, revenues
rose 62% to $310.5M. Net loss totaled $356.9M, vs. an income of
$38.6M. Revenues reflect increased volume shipments of
semiconductor products. Net losses reflect a $109.7M in-process
R&D charge and a $200.7M amortization of goodwill charge.

A mildly upward consolidation phase had taken shares of BRCM under
its wings for much of July, but the first few days of August have
seen a breakout above a triple top just above $45.00.  That level
was retested today and volume poured in to push shares back up.
Buying interest in the stock has been steadily increasing since it
bottomed out in mid June.  Today's volume was somewhat anomalous
in the sense that it was well under the average number of shares
that trade, however, today's overall exchange volume was much to
speak of either.  Psychological resistance at $50.00 could pose a
problem for BRCM so short-term traders might wish to look to this
level as an exit point.  However, if the news is good from CSCO
Tuesday night, NASDAQ may make a very nice run and BRCM will
likely follow suit.  If you prefer to hold for the longer term,
look to $54.00 as an area for your exit.  As always, protecting
your position with a stop that allows for some volatility in the
stock is a wise idea.  In this bullish trade we've selected $42.00
for ours.

***August contracts expire in two weeks***

BUY CALL AUG-45*RCQ-HI OI=7349 at $3.90 SL=2.50
BUY CALL AUG-50 RCQ-HJ OI=6638 at $1.50 SL=0.75
BUY CALL SEP-45 RCQ-II OI=3484 at $6.70 SL=4.50
BUY CALL SEP-50 RCQ-IJ OI=1138 at $4.00 SL=2.50

Average Daily Volume = 10.2 mln

PDLI - Protein Design Labs $57.75 (-1.18 last week)

Pursuing the prevention and treatment of disease through the
development of humanized monoclonal antibodies, PDLI has
fundamental patents that cover many such antibodies.  Eleven
companies have licenses under these patents for humanized
antibodies that they have developed.  PDLI has licensed certain
rights to its first humanized antibody product, Zenapax, to
Hoffman-La Roche and its affiliates, which market Zenapax for
the prevention of kidney transplant rejection.  In addition to
testing Zenapax for the treatment of autoimmune disease, the
company has several other humanized antibodies in clinical
development for autoimmune and inflammatory conditions, asthma
and cancer.

Following the broad Biotechnology sector lower over the past
month, PDLI fell as low as $52.50 on the heels of its
less-than-stellar earnings report Thursday evening.  In their
usual timely fashion, Lehman Brothers cut their 2002 earnings
estimates for the Biotechnology firm on Friday.  Investors seem
to have figured the game out because they took the bearish
comments as a buy signal, driving the stock $5.50 higher than
its intraday low on very heavy volume.  If the bulls can
maintain their enthusiasm, and the Biotechnology index (BTK.X)
can keep from breaking down again, PDLI seems poised for a solid
recovery.  By reclaiming the $56 support level on Friday, the
stock cleared its 61% retracement level (of the decline from the
April-May rally).  Look for support to hold in the $55-56 area,
as the bulls take aim on the $60 resistance level.  Target
entries on a bounce from $55, unless you like to live
dangerously.  In that case, you might consider a rebound from
the $52 level (the low from the recent decline and the level of
our stop) as an attractive entry target.  If the bulls keep the
stock moving up, wait for them to clear the $60 level before

***August contracts expire in two weeks***

BUY CALL AUG-55 PQI-HK OI= 254 at $5.50 SL=3.50
BUY CALL AUG-60*PQI-HL OI= 395 at $2.85 SL=1.50
BUY CALL AUG-65 PQI-HM OI= 542 at $1.40 SL=0.75
BUY CALL SEP-60 PQI-IL OI= 241 at $6.40 SL=4.50
BUY CALL SEP-65 PQI-IM OI=  30 at $4.50 SL=2.75
BUY CALL SEP-70 PQI-IN OI=1064 at $3.20 SL=1.50

SELL PUT AUG-55 PQI-TI OI= 196 at $2.40 SL=4.00
(See risks of selling puts in play legend)

Average Daily Volume = 1.83 mln

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The Option Investor Newsletter                   Sunday 08-05-2001
Sunday                                                      3 of 5

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SUNW - Sun Microsystems $17.72 (+1.43 last week)

Sun Microsystems is a worldwide provider of products, services
and support solutions for building and maintaining network
computing environments.  The company sells scalable computer
systems, high speed microprocessors and high performance
software for operating network computing equipment and storage

EMC's CEO's comments during the data storage giant's analyst
meeting weighed on shares of SUNW Friday.  EMC officials waxed
cautious on the global economy and information technology
spending.  Although SUNW gapped lower Friday morning, it did
stage a solid rebound into the close, which was a testament to
the stock's recent relative strength.  What's more, the pullback
Friday could turn out to be a routine day of profit taking, with
the EMC-related news the catalyst to book gains.  Going forward,
SUNW is likely to be impacted by the CSCO earnings report early
next week, so bullish traders will want to consider that much
before entering new plays in SUNW.  The $17.50 level held pretty
strongly Friday, so traders might gravitate towards that level
early next week when searching for entry points.  Conversely,
in an advancing market, momentum traders might look for an
advance above the $18.25 level to signal that SUNW has regained
its footing and its time to enter call plays.  Our stop remains
in place at the $16 level.

***August contracts expire in two weeks***

BUY CALL AUG-17.5 SUQ-HW OI=35941 at $1.00 SL=0.50
BUY CALL AUG-20.0 SUQ-HD OI=12498 at $0.15 SL=0.00
BUY CALL SEP-17.5*SUQ-IW OI=19719 at $1.75 SL=1.00
BUY CALL SEP-20.0 SUQ-ID OI= 7136 at $0.70 SL=0.25
BUY CALL OCT-20.0 SUQ-JD OI=19252 at $1.20 SL=0.50

Average Daily Volume = 39.9 mln

MSFT - Microsoft $66.89 (+1.42 last week)

Microsoft develops, manufactures, licenses and supports a wide
range of software products for a multitude of computing devices.
Microsoft software includes scalable operating systems for
servers, personal computers and intelligent devices, server
applications for client/server environments, knowledge worker
productivity applications, and software development tools.

MSFT's price action Friday mirrored that of the Nasdaq.  The
stock, for the most part, traded in a fairly narrow range before
staging a rally into the close.  We expect that the Nasdaq and
MSFT will pretty much trade in tandem over the short-term, so
it's paramount that bullish traders in MSFT keep close tabs on
the Nasdaq, perhaps both the COMPX and the NDX.  That means
watching support levels in the indexes and monitoring direction.
Also, it would be helpful to monitor the Software Index (GSO.X).
The GSO actually traded decently last Friday, only dipping down
to the 195 level.  Again, we'd like to see the GSO trade above
the 200 level, which would alleviate some of the supply that
has kept MSFT down lately.  In fact, an advance in the GSO above
the 200 level in conjunction with the COMPX breaking above the
2100 level would set up a nice situation for a bullish trader
looking to enter call positions into strength in MSFT.  For its
part, MSFT is creeping towards the upper end of its recent trading
range, so how you approach the stock is a matter of style.  As
previously mentioned, the momentum crowd can confirm strength in
the GSO and COMPX, and use an advance in MSFT above $67.50 or
$68 to get into some calls.  Otherwise, entering on weakness
has been working.  MSFT seems to continue attracting buyers at
the $65 and $66 area, so a dip down into that range may serve
as a solid entry point in terms of risk versus reward.

***August contracts expire in two weeks***

BUY CALL AUG-65*MSQ-HM OI=44684 at $3.00 SL=1.75
BUY CALL AUG-70 MSQ-HN OI=63524 at $0.55 SL=0.25
BUY CALL SEP-65 MSQ-IM OI= 3459 at $4.80 SL=3.25
BUY CALL SEP-70 MSQ-IN OI= 4598 at $2.20 SL=1.25
BUY CALL OCT-70 MSQ-JN OI=20378 at $3.40 SL=2.50

Average Daily Volume = 35.6 mln

BRCD - Brocade Communications $36.59 (+4.91 last week)

Brocade Communications Systems is a supplier of open Fibre Channel
Fabric solutions that provide the intelligent backbone for Storage
Area Networks. For the 6 months ended 4/28/01, revenues totaled
$280.2M, up from $104.8M. Net income totaled $44.5M, up from
$20.6M. Revenues reflect higher demand for the SAN switching
products and an increased customer base. Net income also reflects
lower component and manufacturing costs.

EMC's comments late last week didn't do much to further our
bullish cause in BRCD.  The stock stalled around the $38 level in
the latter part of last week, and spend Friday bouncing from the
$36.20 level.  While the stock is above most of its short-term
resistance levels, it still needs to clear the $40 level in order
to confirm that the momentum is still alive in the play.  We'll
need to see the Nasdaq continue climbing higher if BRCD is going
to get above $40.  If weakness becomes the Nasdaq early next week,
BRCD will most likely fall below the $36 level and trade down to
its pivot point at $34.  That level marks a breakout point from
just a few days ago, and should serve as support on the way back
down.  Therefore, bullish traders who fancy entering on weakness
may think about waiting for BRCD to bounce from $34 before
entering any new call plays on a pullback.  On the other hand, if
the market strengthens early next week bullish traders might look
for a strong advance, on healthy volume, above the $38 level.
But if that strategy is pursued, make sure to confirm strength
in others in BRCD's group, including EMC, NTAP, EMLX, QLGC, and
VRTS.  Our stop remains in place at the $33 level, which is rather
liberal so traders will want to take into account risk tolerance
when placing their own stops.

***August contracts expire in two weeks***

BUY CALL AUG-35 UBF-HG OI=6876 at $4.10 SL=2.50
BUY CALL AUG-40*UBF-HH OI=7599 at $1.80 SL=1.00
BUY CALL SEP-35 UBF-IG OI=4080 at $6.40 SL=4.50
BUY CALL SEP-40 UBF-IH OI= 988 at $4.30 SL=2.75

Average Daily Volume = 14.0 mln

JBL - Jabil Circuits $32.99 (+0.27 last week)

Jabil Circuit designs and manufactures electronic circuit board
assemblies and systems for original equipment manufacturers in
the communications, computer peripherals, personal computers,
and consumer product industries. For the 6 months ended 2/01,
revenues rose 53% to $2.34B. Net income rose 46% to $88.5M.
Results reflect increased production of communication and
personal computer products, partially offset by lower levels
of capacity utilization.

We were on alert of JBL's relative weakness last Thursday, but
its solid rebound Friday painted a slightly different picture.
The bounced from the $32 level and staged a $1 climb later in
the day, which actually out performed the Nasdaq Composite
(COMPX).  However, before we bust out the bubbly, there's still
some short-term resistance between the $33 and $34 levels that JBL
needs to clear before advancing above the $35 level.  Early next
week, bullish traders should continue to monitor JBL's group,
including CLS, SANM, and FLEX.  If we witness some solid
participation from its group, JBL should be able to clear its
overhead supply early next week.  Otherwise, on the downside,
we'll want to watch its price action closely around the $32
level early next week.  If the buyers lose their strength around
that level, JBL may be in danger of violating our stop at the
$31 level, resulting in a drop.  As such, bullish traders with
open positions should consider using a tighter stop to prevent
any erosion of premium in the options.

***August contracts expire in two weeks***

BUY CALL AUG-30*JBL-HF OI=3012 at $3.80 SL=2.75
BUY CALL AUG-35 JBL-HG OI=3436 at $1.00 SL=0.25
BUY CALL SEP-30 JBL-IF OI=3765 at $5.20 SL=3.75
BUY CALL SEP-35 JBL-IG OI=5460 at $2.65 SL=1.75

Average Daily Volume = 2.3 mln

AHAA - Alpha Industries $39.75 (+1.75 last week)

Alpha Industries designs, 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. The
primary applications for the company's products include
wireless handsets, wireless infrastructure and broadband
communications equipment. AHAA also produces integrated
circuits, discrete components, electrical ceramics and ferrites
used in wireless base station equipment, cable television, cable
modems and other broadband applications, wireless local loop,
wireless personal digital assistants and wireless local area

The bears extracted their pound of flesh from AHAA Friday
morning, driving the stock down to test our $38 stop, but
fortunately the bulls were able to stage a recovery.  Keeping
the uptrend alive into the weekend, the bulls were able to post
a close just a nickel below the open, and keeping the stock
within striking distance of the $40 level.  Despite very light
trading volume on the broad markets, AHAA saw nearly double its
daily average number of shares trade hands on Friday.  This is
actually a bit disconcerting, as the consolidation of the recent
rise is occurring on relatively heavy volume, possibly paving
the way for a price breakdown.  But until such an event
materializes, we'll continue to play the trend.  Target new
entries on either a bounce from the $38-39 level or a
volume-backed breakout over $40.50.

***August contracts expire in two weeks***

BUY CALL AUG-35 GAQ-HG OI=388 at $5.40 SL=3.50
BUY CALL AUG-40*GAQ-HH OI=510 at $2.10 SL=1.00
BUY CALL AUG-45 GAQ-HI OI=460 at $0.65 SL=0.00
BUY CALL SEP-40 GAQ-IH OI=630 at $4.00 SL=2.50
BUY CALL NOV-40 GAQ-KH OI=917 at $6.00 SL=4.00

Average Daily Volume = 1.19 mln

CDWC - CDW Computer Centers $47.62 (+5.08 last week)

Providing customized computing solutions to its customers, CDWC
is a direct marketer of over 80,000 computer products, including
hardware, software, peripherals, networking/communication and
accessories.  The company provides a nearly endless list of
products, from companies such as Apple, Canon, Epson,
Hewlett-Packard, IBM, Microsoft, Adobe, Cisco, and 3Com.
Using catalogs, telesales, and the Internet, the company has
over 630,000 customers and receives most of its business

Breaking out above resistance earlier this week on the heels of
positive news in the Semiconductor sector, CDWC vaulted through
the $45 resistance level.  Apparently investors expect an
improvement in chip sales to translate into increased demand for
computers and computer-related equipment.  Thursday's strong
move left a gap between $45.50-46.50, and this will likely need
to be filled before CDWC can extend it gains.  Adding credence
to this theory on Friday, the stock posted a bearish harami
candle pattern, which usually portends near-term weakness when
it follows an uptrend.  And in the face of weak volume in the
broad markets, CDWC traded nearly double its ADV -- not exactly
an encouraging consolidation pattern.  We still like the upside,
but we want to make the stock prove itself before we commit cash
to the trade.  A volume-backed rebound from the $45 level would
make for an attractive entry, although momentum traders should
be able to gain favorable entries on a rally through the $50
resistance level.  Keep stops in place at $44.

***August contracts expire in two weeks***

BUY CALL AUG-45*DWQ-HI OI= 338 at $3.90 SL=2.50
BUY CALL AUG-50 DWQ-HJ OI= 157 at $1.50 SL=0.75
BUY CALL OCT-45 DWQ-JI OI=4396 at $7.60 SL=5.25
BUY CALL OCT-50 DWQ-JJ OI= 737 at $5.00 SL=3.00

SELL PUT AUG-45 DWQ-TI OI= 171 at $1.30 SL=2.50
(See risks of selling puts in play legend)

Average Daily Volume = 618 K

MXIM - Maxim Integrated Products $50.34 (+5.82 last week)

MXIM designs, develops, manufactures and markets a broad range
of linear and mixed-signal integrated circuits, commonly
referred to as analog circuits.  The company also provides a
range of high-frequency design processes and capabilities that
can be used in custom design.  MXIM's objective is to develop
and market both proprietary and industry-standard analog
integrated circuits that meet the increasingly stringent
quality standards demanded by customers.

After the stellar move in chip stocks this past week, it came
as no surprise to see them retrace a bit on Friday.  Following
that trend, MXIM gave back a bit of its gains on Friday, but
managed to recapture most of its intraday losses by the closing
bell.  Ending just below the $51 resistance level, the stock is
poised to continue its rally next week, so long as the
Semiconductor index (SOX.X) can continue its recovery.  Daily
stochastics are flattening out in overbought, so we'll need
sector strength and buying volume to propel the stock higher.
While we can target intraday bounces from the $48-49 level, we
want to make sure volume accompanies the bounce.  Alternatively,
wait for buyers to push MXIM through the $51 resistance level
before getting your feet wet.  Just keep a watchful eye on
overhead resistance at the 200-dma ($52.65) and then $54.  Keep
stops set at $47.

***August contracts expire in two weeks***

BUY CALL AUG-50*XIQ-HJ OI=2716 at $3.10 SL=1.50
BUY CALL AUG-55 XIQ-HK OI=2968 at $1.05 SL=0.50
BUY CALL SEP-50 XIQ-IJ OI=1569 at $5.10 SL=3.00
BUY CALL SEP-55 XIQ-IK OI= 382 at $2.85 SL=1.50
BUY CALL SEP-60 XIQ-IL OI= 272 at $1.40 SL=0.75

SELL PUT AUG-45 XIQ-TI OI=4975 at $0.80 SL=1.50
(See risks of selling puts in play legend)

Average Daily Volume = 4.56 mln

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
those who know.

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


Please read our disclaimer at:


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Contact Support

The Option Investor Newsletter                   Sunday 08-05-2001
Sunday                                                      4 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
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market updates, plays, education and daily commentaries by
those who know.

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


JEC - Jacobs Engineering $54.89 (-3.16 last week)

Jacobs Engineering provides a broad range of project services;
process, scientific and systems consulting services; operations
and maintenance services; and construction services. For the 6
months ended 3/31/01, revenues rose 15% to $1.94B. Net income
totaled $41.7M, up from $12.3M. Revenues reflect the growth of
consulting services. Earnings also benefited from the absence of
a FY 1999 litigation settlement provision.

Shares of JEC fell about -13% back on July 24th after a downgrade
took the share price through the 100 DMA.  Today's declines came
on better than average volume, suggesting that conviction for
further declines might be in the mind of traders.  The dip under
the 200 DMA- a break in support not seen in nearly 2 years, tells
us that investors have decided to cash in after a long, very
impressive run by the stock.  The first level of support presents
itself at right about tonight's close, say $50.00.  The lack of
liquidity could come to haunt the stock should sellers step up to
the plate on Monday.  Downside resistance will present itself at
$50.00 and this short-term volatility could spell big gains for
those on the short side of the trade.  It is at this price that
short-term holders should look to exit the trade.  The exit price
for the longer-term trader is a bit less discernible, but another
level of minor downside resistance exists at $46.00 and that would
likely be the best area to exit.  As mentioned before JEC is not a
heavily traded stock and can be prone to volatility.  Make sure to
cover your trade with a stop at $58.00.

***August contracts expire in two weeks***

BUY PUT AUG-55*JEC-TK OI=  0 at $2.05 SL=1.00  Wait for OI!!
BUY PUT OCT-50 JEC-VJ OI=706 at $1.80 SL=1.00

Average Daily Volume = 314 K

LSS - Lone Star Technologies $19.35 (-3.65 last week)

A domestic manufacturer of premium welded "oil country tubular
goods", LSS makes steel tubular products used in the completion
and production of oil and natural gas wells.  The company is
also a major manufacturer of line pipe, which is used in the
gathering and transmission of oil and natural gas.
Additionally, LSS is a manufacturer of specialty tubing products
used in power technology, automotive, construction,
agricultural, and industrial applications.

It's said that there's no rest for the wicked, and if that's
true, then the Oil Services sector must have been very bad.  It
just can't seem to stop falling, but even the Oil Services index
(OSX.X) looks healthy compared to the chart of our new play,
LSS.  Shares of the piping manufacturer broke down again this
week, this time below the $22.50 level, and on extremely heavy
volume.  The stock is now resting on major support in the $19
area that dates back to fall of 1999.  Just because the stock
has major support and a PE ratio of only 11 doesn't mean the
stock can't continue to fall.  The stock will continue to drop
until the sellers and buyers reach equilibrium, and that hasn't
happened yet.  Target a drop under $19 for new momentum-based
entries, or wait for an intraday rally to provide a slightly
more attractive entry point.  Likely levels for a rollover are
intraday resistance at $20 and then $22, also the level of our
stop.  As long as demand for its products remains slow, LSS
should continue its descent towards the 1998 lows in the $8-9

***August contracts expire in two weeks***

BUY PUT AUG-25.0*LSS-TE OI=52 at $6.00 SL=4.00
BUY PUT AUG-20.0 LSS-TD OI= 0 at $1.60 SL=0.75
BUY PUT SEP-22.5 LSS-UX OI= 1 at $4.00 SL=2.50
BUY PUT SEP-20.0 LSS-UD OI= 0 at $0.70 SL=0.00

Average Daily Volume = 187 K

ADP - Automatic Data Processing $46.94 (-4.06 last week)

Through its many subsidiaries, ADP is a provider of computerized
transaction processing, data communication and information
services.  The company's operations are divided into Employer
Services, Brokerage Services, Dealer Services and Claims
Services.  Among the activities managed by the Employer
Services division are payroll, human resources, benefits
administration, tax filing and reporting and retirement plan

Everybody loves a good old-fashioned technical breakdown and
that is precisely what shares of ADP have given us over the past
week.  As price has continued to fall, puncturing the $50
support level, volume surged to well over double the ADV (nearly
triple on Thursday).  ADP fell to new all-time lows, and despite
stochastics that are well into the oversold region, the stock
looks like it has more pain to endure.  The Point and Figure
chart is lined up in with the bears too, as it just posted a
descending triple-bottom breakdown and is forecasting a bearish
price target of $42.  Another momentum play, we want to enter
ADP either on a failed intraday rally below our $50 stop or on
continued weakness that takes the stock below $46.50 on
continued heavy volume.

***August contracts expire in two weeks***

BUY PUT AUG-47.5*ADP-TW OI=333 at $1.85 SL=1.00
BUY PUT AUG-45.0 ADP-TI OI=188 at $0.80 SL=0.00
BUY PUT SEP-47.5 ADP-UW OI= 14 at $2.70 SL=1.25

Average Daily Volume = 1.39 mln


DIGL - Digital Lightwave $19.20 (-1.18 last week)

Digital Lightwave designs, develops and markets a portfolio
of portable and embedded products and technologies for
monitoring, maintaining and installing fiber optic circuits
and managing fiber optic networks.  Network operators and
other communications service providers use fiber optics to
provide increased network bandwidth.

We just knew that any market weakness would result in DIGL
dropping below the $20 level, which is exactly what happened
last Friday.  While the stock only fell $1, it's trading last
week provided an excellent case study of what it means when
a stock is trading heavily.  There was obviously a seller
present that week every time DIGL traded up to, or slightly
above, the $21 level.  That supply when combined with
additional supply in the form of a weak market almost results
in a breakdown in price.  To digress, DIGL's breakdown last
Friday may have offered bearish traders with open positions a
chance to exit with some gains.  After all, the stock did trade
as low as $18.78, which is just off its relative lows around
$18.50.  That being the case, any further weakness in the Nasdaq
next week should result in DIGL trading below the $18.50 and
searching for a new distribution.  That could take the stock
as low as $15 or $16.  Nevertheless, bearish traders with open
positions should be thinking exit point as this juncture, and
any weakness below $18.50 would offer a favorable out.  We're
keeping our stop in place at $21, because that's where the big
seller is.

***August contracts expire in two weeks***

BUY PUT AUG-22.5 DGW-TX OI= 61 at $3.90 SL=2.50
BUY PUT AUG-20.0*DGW-TD OI=406 at $2.00 SL=1.00

Average Daily Volume = 1.85 mln

CHKP - Check Point Software $44.24 +1.73 (-0.20 this week)

Check Point Software is the worldwide leader in securing the
Internet.  The company's Secure Virtual Network (SVN)
architecture provides the infrastructure that enables secure
and reliable Internet communications.

CHKP finally rolled over last Friday.  Its under performance
was certainly encouraging for those of us on the bearish side
of things.  The stock dropped more than 5%, while the Nasdaq
shed an even 1%.  We expect this under performance to continue
in CHKP, but it's still crucial that the Nasdaq pullback from
its current levels if our play in CHKP is going to be
successful.  At this point, we need to see the stock breakdown
below the $43.00 level, which is the current site of an old
ascending support line.  Although recently violated, these old
trend lines can be of use when gauging risk.  That said, a
breakdown below the $43 level in conjunction with further
weakness in the COMPX should allow traders to enter new positions
or add to existing positions.  On the upside, we'd like to see
resistance at the $44 level hold, which it did for the most
part last Friday.  Above that, our stop still rests at the $46
level.  As for targets to the downside, we could see CHKP fall
to the $40 level if it breaks below $43.  As such, traders can
use any decline down to $40 as a short-term exit point.

***August contracts expire in two weeks***

BUY PUT AUG-45*KEQ-TI OI=2549 at $3.50 SL=2.00
BUY PUT AUG-40 KEQ-TH OI=4082 at $1.25 SL=0.50

Average Daily Volume = 10.5 mln

ADBE - Adobe Systems $37.70 (-5.36 last week)

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

The bearish wedge continues to build for shares of ADBE.
Looking at a chart, one can see the bulls putting up a tough
fight at support near $37 but the intraday highs keep getting
lower and the technical bias is definitely pointing for a
decline.  Volume was less than normal but for a late summer
Friday we can't expect much.  We've mentioned before to keep
your eyes on the software index and the GSO.X is struggling
to breakout but the bulls can not push through resistance at
the 200 mark.  The MACD on ADBE continues to be bearish and
we reiterate out comments from Thursday.  More passive traders
could look to initiate put plays when the stock trades or closes
under $37.  Active aggressive traders can try targeting failed
rallies on intraday moves.  Remember, if the trade proceeds as
planned, we're looking for a downward price target of $29.
There has been no significant news on ADBE for Friday.  We will
keep our stop at $41.

***August contracts expire in two weeks***

BUY PUT AUG-40 AEQ-TH OI=2258 at $3.30 SL=1.75
BUY PUT AUG-35*AEQ-TG OI=1508 at $0.95 SL=0.00
BUY PUT SEP-40 AEQ-UH OI= 218 at $5.00 SL=3.25
BUY PUT SEP-35 AEQ-UG OI= 960 at $2.55 SL=1.25

Average Daily Volume = 3.85 mln

CHBS - Christopher & Banks Corp. $24.75 (-3.64 last week)

Formerly known as Braun's Fashions, Christopher & Banks is a
Minneapolis-based regional retailer of women's specialty
apparel.  CHBS sells sportswear, sweaters, dresses, and
accessories in nearly 250 stores, spread over 27 states, mostly
in the northern U.S.  The company is currently expanding its
offerings for larger women with a new store format - C.J.
Banks - which will carry plus-size apparel.  The C.J. Banks
concept is expected to launch with 20 stores by the end of 2001.

As expected the Retail Index (RLX.X) ticked downward on Friday
but kept its losses mild to -0.69%.  Surprisingly, shares of
CHBS were able to ring up a sale of 75 cents or +3.12%.  This
may be our signal to step in.  Shares gapped up at the open
and climbed to 25.21 before slipping through the rest of the
trading session.  The conflict between bulls and bears was
intense as 1.1 million shares traded compared to its normal
volume of 550K.  The candlestick formed on Friday might be
considered a doji which can typically indicate indecision on
the stock's future direction.  However, sellers were able to
keep the stock under new resistance of $25 and the downward
trend remains intact.  New put players should confirm direction
on Monday before choosing to initiate a play.  As long as the
price remains under $25 traders should be okay.  We'll keep
our stop at $27.

***August contracts expire in two weeks***

BUY PUT AUG-25*URH-TE OI=320 at $1.85 SL=1.00
BUY PUT SEP-25 URH-UE OI=159 at $2.90 SL=1.50
BUY PUT DEC-25 URH-XE OI=114 at $4.50 SL=3.00

Average Daily Volume = 554 K

MEDI - MedImmune Inc. $37.49 (-3.10 last week)

MedImmune is a biotech company focused on developing and
marketing products that address medical needs in areas such as
infectious disease, autoimmune disorders, cancer, and
transplantation medicine.  The company has six products on the
market and a diverse product development portfolio.  The
products currently on the market include Synagis, CytoGam,
RespiGam, Ethyol, Neutrexin, and Hexalen.

Many of our readers know that stocks move in cycles.  Nothing
moves in a straight line.  After four down days in a row, shares
of MEDI offered a small bounce to close out the week.  The
Biotech index (BTK.X) also bounced on Friday which was likely
due to news that GENZ and TKTX both received European approval
to sell their rival treatments for Fabry disease.  On Thursday
we lowered our stop to $38 but new readers may need to be
reminded that 1) these are on a closing basis and 2) our stops
are only suggestions.  We encourage each trader to pick their
own stops to suit their own level of risk.  MEDI remains in its
downtrend and even Friday's bounce showed that sellers pushed
the stock from its intraday highs.  Strangely, there was support
at $37.40 multiple times on Friday afternoon.  Confirm direction
on Monday before initiating any new plays.  Readers may want to
wait for a close under $37.

***August contracts expire in two weeks***

BUY PUT AUG-40*MEQ-TH OI= 615 at $3.40 SL=1.50
BUY PUT AUG-35 MEQ-TG OI=1025 at $0.95 SL=0.00

Average Daily Volume = 2.66 mln

PDII - Professional Detailing $57.65 (-7.05 last week)

As a provider of sales and marketing services to the
pharmaceutical industry, PDII is divided into three operating
segments; Contract Sales, Product Sales and Distribution and
Marketing Services.  The company provides dedicated contract
sales services, sales, marketing and distribution services for
companies facing portfolio optimization challenges, and
commercial launch services for emerging and biotechnology
companies to independently launch new brands.  PDII also
provides marketing research and consulting services, as well as
medical education and communication services, through which
clients can access continuing medical education and
peer-to-peer promotions.

We were not surprised when PDII managed a small bounce on Friday.
When shares crashed through support in Thursday's session odds
of an oversold bounce or some short covering where high.  To be
honest, we expected a bigger bounce.  This might be a clue that
the selling really isn't done yet.  PDII is already down almost
39% from its intraday high just a few weeks ago on June 29th.
The stock could rally several points and still remain in its
downward trend.  Unfortunately for the bulls, this doesn't seem
to be in the cards.  Despite the perilous drop both bulls and
bears will be keeping their eyes on the up coming earnings
report on August 13th.  That's only six trading sessions away.
Our play on PDII has been pretty successful and we would
probably only look to initiate new put plays on failed rallies
in the $60-$61 area (or a breakdown below support at $55).
We'll leave our stop at $61.

***August contracts expire in two weeks***

BUY PUT AUG-65 PKU-TM OI=48 at $9.70 SL=7.00
BUY PUT AUG-60*PKU-TL OI=55 at $5.60 SL=3.25
BUY PUT SEP-55 PKU-UK OI=15 at $5.70 SL=3.25
BUY PUT SEP-60 PKU-UL OI= 0 at $8.90 SL=6.50

Average Daily Volume = 232 K

AIG - American International Grp. $81.64 (-0.08 this week)

Engaged in a broad range of insurance and insurance-related
activities through its subsidiaries, AIG's primary focus is on
its general and life insurance businesses.  Additionally, the
company is growing its presence in financial services and asset
management.  Other operations include auto insurance, mortgage
guaranty, annuities, and aircraft leasing.  With operations in
130 countries, AIG generates more than half of its revenues
outside the United States.

It doesn't take a rocket scientist to see that the Insurance
index (IUX.X) is taking a beating lately, and the index's close
at $736 on Friday was the lowest settlement since late April.
Since it is so closely correlated with the IUX, AIG makes a
great proxy for the index, as we can see by its continued
decline on Friday.  Thursday's bounce quickly reversed, and the
subsequent selling spree quickly dragged the stock to its lowest
close in over 6 weeks.  The uptrend that had been building since
mid-March is clearly broken and the bears are starting to drool.
With the stochastics rolling over mid-stroke while the price is
testing a relative low, it looks like the bulls are in trouble.
We are lowering our stop to $83, and would consider any failed
rally near this level as an attractive entry point.  Of course,
we can also target a breakdown under $81 (near Friday's low) as
an acceptable sign of continued weakness and permission to enter
new positions.

***August contracts expire in two weeks***

BUY PUT AUG-85 AIG-TQ OI=9042 at $3.60 SL=1.75
BUY PUT AUG-80*AIG-TP OI=8177 at $0.65 SL=0.00
BUY PUT SEP-85 AIG-UQ OI=  48 at $4.30 SL=2.75
BUY PUT SEP-80 AIG-UP OI=2653 at $1.90 SL=1.00

Average Daily Volume = 4.54 mln

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Who's Afraid of the Big, Bad Bear?
By Mark Phillips
Contact Support

Not the bulls, it seems.  And why should they be after Merrill
Lynch's dubious upgrade of a basket of chip stocks, followed
closely by Goldman Sach's own Abby Joseph Cohen, reiterating her
year-end targets for the DJIA and S&P500, 12,500 and 1550
respectively.  C'mon Abby!  It's bad enough to call for a 27%
advance in the Big Index, but even more egregious a disservice
to individual investors when you consider that is the high
traced by the S&P500 in March of 2000.  I'd like nothing better
than to see that kind of an advance in a scant 5 months, but
even I don't have the gall to tell my faithful readers that it
has any bearing on reality.  We don't even have any hard
evidence that the economy has reached bottom yet.

Don't get me wrong.  Like the X-Files' Fox Mulder, I want to
believe, but I need more than smoke and mirrors to motivate me
to put my hard-earned cash at risk.  And right now, that is all
the Wall Street 'experts' are providing - a hope and a prayer
for the illusory second-half recovery.  Further distancing Ms.
Cohen's targets from reality is the fact that many of the
companies that helped to propel the market to its March 2000
highs are faint shadows of their former selves, and don't appear
likely to recover to those distant highs in anything less than
a year.  It is likely to take significantly longer.

It's not that I don't expect some solid gains from the likes of
Intel (NASDAQ:INTC), Cisco Systems (NASDAQ:CSCO) and Sun
Microsystems (NASDAQ:SUNW).  I just don't think it is realistic
to look for CSCO (currently near $20) to regain the $80 level in
the next 12 months, much less in the next 5.  INTC rocketing
from $30 to north of $70 or SUNW shooting from $18 to above $50
in short order are equally ridiculous fantasies.

And I actually like CSCO and SUNW, especially with the
performance these technology heavyweights are giving us in the
LEAPS Portfolio.  One of the key events to keep an eye on this
next week is the CSCO earnings report on Tuesday.  A part of the
recent strength in Technology stocks is due to the expectation
that the company will actually have something positive to say,
given its recent return to the acquisition trail.  If CSCO
actually impresses the street, it could strengthen this baby
bull's legs.  Otherwise, it could be the catalyst for the bears
to extend their claws again.

My apologies for the brief rant, but it really angers me to see
such silly and potentially damaging 'advice' given by those on
Wall Street that are supposed to be providing actionable
investment advice.  So let's move on to discuss something more
meaningful, like what happened in the markets this week and how
it affected our Portfolio.

As the markets responded to positive economic news and bullish
comments from analysts, they continued to rise in agony, testing
some important resistance levels.  The NASDAQ tried to breakout
over the 2100 level, the DJIA is once again flirted with 10,600
and the venerable bulls are snorting as though they are ready to
take on the 1240 level on the S&P500.  Of course with the
pullback on Friday, all of these resistance levels are still
firmly in place and each of the major indices are showing signs
of technical weakness.  The only saving grace is the fact that
Friday's decline came on very weak volume.  So maybe it is just
some needed consolidation.  Only time will tell.

The strength this week helped many of our Portfolio plays post
nice gains.  SUNW and CSCO were a couple of the standouts, but
I'd be remiss in not mentioning Philip Morris (NYSE:MO) and
Washington Mutual (NYSE:WM).  After handing us a picture perfect
entry, MO advanced solidly quickly before pulling back a bit.
And WM continued to defy the bears as it continued refusing to
take out our $40 stop.  I'm still daring the market to trigger
that stop as I think the stock may be getting a bit over

Coming back to the SUNW and CSCO plays, take notice of the fact
that our stops have now been raised above the break-even point.
No matter what happens, we should be assured of a profit on
these plays.  Making the picture even better is the fact that
we can target these two for Covered Calls plays. Tune in on
Wednesday, as these two stocks will figure prominently in the
second installment of my tutorial on entry points as they relate
to the covered call side of the trade.

While I'm on the subject of raised stops, you'll notice that we
have advanced our stop on BRCM to $40.  This may not be a strong
enough support level to hold on a severe pullback, but it should
serve to keep us from posting a loss on the play.  As you can
see, we have a 50% profit in the play and nervous bulls might
want to consider harvesting their gains near current levels,
waiting for a fresh entry so they can play again.

Now that we have moved into the month of August, you'll notice
that the 2002 strikes have been excised from our Portfolio.
These are too close to expiration for us to continue covering
here and as you can see from the performance figures in recent
weeks, they are rapidly losing ground on the 2003 LEAPS which
are not yet feeling the pinch of time decay.  Not only that, but
the last of the 2004 LEAPS have been issued by the CBOE, meaning
that we are able to list 2004 strikes for all of our Watch List

Despite my ranting above, I really am starting to see the light
at the end of the tunnel, as you can see by the fact that I bit
the bullet and added the Nasdaq-100 Trust (AMEX:QQQ) back onto
the Watch List.  I won't be chasing the QQQ higher, but if the
market gods cooperate, the $40-41 level could provide an
attractive entry for the eventual recovery.  And just to keep
things in balance, we're adding a second Drug stock, Eli Lilly
(NYSE:LLY) to the Watch List.  This should help us to maintain
some diversification, so that winning plays will be abundant,
regardless of the near-term market conditions.

The lone disappointment in the Portfolio this week was Adobe
Systems (NASDAQ:ADBE), which fell sharply following the
company's revenue warning Monday night.  Similar to Verisign
(NASDAQ:VRSN) a couple weeks ago, ADBE is skating along just
above our $37 stop.  We're not there yet, but keep your radar
on, if you are currently in the play.  Who knows, maybe the
bulls will pull a rabbit out of their collective hat and rescue
ADBE from the brink just like they did with VRSN.  Hey, I can
hope, can't I?

We are getting close to entries on our Barrick Gold (NYSE:ABX)
and Global Marine (NYSE:GLM) Watch List plays, due to continued
weakness in their respective sectors.  While I'm willing to take
entries on these plays, should our targets be hit, I am hesitant
to initiate new positions in several of our other mainstream
plays due to the action of the VIX.  The Volatility Index spent
the past week heading south.  After reaching a low of 22.39 by
Friday's closing bell, the VIX is pressuring its lower Bollinger
band and nearing the lower end of its historical range (20-30).
While we know that the VIX can remain in the lower end of its
range (even below 20) for months at a time, this isn't the
scenario that I think is the most likely.  Rather, I would
expect a reversal to push the VIX higher in the weeks ahead,
providing a more favorable environment for new long-term

For those of you just joining us, we prefer to enter new LEAPS
plays when the VIX is high, due to the fact that it typically
signals a near-term market bottom.  And LEAPS premiums fluctuate
far less with changing VIX readings than short-term options,
allowing us to use the VIX as a market-timing tool to confirm
the wisdom of our trading decisions.  So as the saying goes,
"When the VIX is high, it's time to buy.  When the VIX is low,
it's time to go."

Once again, I'm fresh out of time and space for this week.
Until our next visit, remember to plan your trade and by all
means, stick to the plan!

Mark Phillips
Contact Support

LEAPS Portfolio

Current Open Plays


CLX    03/13/01  '03 $ 35  VUT-AG  $ 6.10  $ 6.80   11.48%  $ 34
WM     03/22/01  '03 $33.8 OBN-AY  $ 6.13  $10.70   74.55%  $ 40
FON    04/09/01  '03 $ 25  VN -AE  $ 4.40  $ 4.00  - 9.09%  $ 19
DELL   04/27/01  '03 $ 25  VDL-AE  $ 9.00  $ 8.80  - 2.22%  $ 24
ADBE   05/16/01  '03 $ 40  VAE-AH  $14.60  $10.90  -25.34%  $ 37
BRCM   06/05/01  '03 $ 40  OGJ-AH  $14.00  $21.00   50.00%  $ 40
VRSN   06/12/01  '03 $ 60  OVX-AL  $20.40  $19.50  - 4.90%  $ 42
CSCO   07/11/01  '03 $ 20  VYC-AD  $ 3.90  $ 6.00   53.85%  $ 17
                 '04 $ 20  LCY-AD  $ 5.70  $ 7.90   38.60%  $ 13
IBM    07/11/01  '03 $110  VIB-AB  $17.70  $17.90    1.13%  $ 99
                 '04 $110  LIB-AB  $23.70  $25.30    6.75%  $ 99
MRK    07/09/01  '03 $ 70  VMK-AN  $ 7.40  $ 9.00   21.62%  $ 59
SUNW   07/24/01  '03 $ 15  VZX-AC  $ 4.80  $ 6.50   35.42%  $15.50
                 '04 $ 15  LSU-AC  $ 5.70  $ 8.00   40.35%  $15.50
MO     07/30/01  '03 $ 45  VPM-AH  $ 8.50  $ 9.60   12.94%  $ 40

LEAPS Watchlist

Current Possibles


ORCL   06/24/01  $15-16        JAN-2003 $17.5 VOC-AW
                            CC JAN-2003 $ 15  VOC-AC
                               JAN-2004 $ 20  LRO-AD
                            CC JAN-2004 $ 15  LRO-AC
CPN    07/08/01  $38-39        JAN-2003 $ 40  OLB-AI
                            CC JAN-2003 $ 35  OLB-AG
                               JAN-2004 $ 40  LZC-AJ
                            CC JAN-2004 $ 30  LZC-AF
ABX    07/22/01  $14           JAN-2003 $ 15  VBX-AC
                            CC JAN-2003 $ 10  VBX-AB
                               JAN-2004 $ 15  LBX-AC
                            CC JAN-2004 $ 10  LBX-AB
GLM    07/22/01  $15-16        JAN-2003 $ 20  OML-AD
                            CC JAN-2003 $ 15  OML-AC
                               JAN-2004 $ 20  KLW-AD
                            CC JAN-2004 $ 15  KLW-AC
ENE    07/29/01  $43           JAN-2003 $ 45  VEN-AI
                            CC JAN-2003 $ 40  VEN-AH
                               JAN-2004 $ 50  LYN-AJ
                            CC JAN-2004 $ 40  LYN-AH
LLY    08/05/01  $73-74        JAN-2003 $ 75  VIL-AO
                            CC JAN-2003 $ 70  VIL-AN
                               JAN-2004 $ 80  LZE-AP
                            CC JAN-2004 $ 70  LZE-AN
QQQ    08/05/01  $40-41        JAN-2003 $ 45  VZQ-AS
                            CC JAN-2003 $ 40  VZQ-AN
                               JAN-2004 $ 45  LRI-AS
                            CC JAN-2004 $ 40  LRI-AN

New Portfolio Plays

MO - Philip Morris $43.67

MO wasted no time putting on the "Big Mo" after we added it to
the Watch List last weekend.  As we mentioned last week, it
appeared the selling had been overdone, and apparently we were
right, as MO bounced from our $43 entry target (actually $43.19)
and posted a fractional gain for the day.  While the gain wasn't
stellar and volume was a bit under the ADV, we were willing to
take the chance, as we felt comfortable in both the fundamental
and technical picture.  Besides that, we were able to place a
nice tight stop at $40 to protect us in the event we were wrong.
If we hadn't taken the position on Monday, we certainly would
have on Tuesday, as MO really got moving, clearing the 200-dma
with style (and volume, too), tacking on more than 4%.  With
daily Stochastics entering overbought territory already, we will
most likely get another test of the $43 support level before the
real recovery begins.  So for those of you that missed it this
time, you just might get a second entry opportunity on the next
cycle of the stochastics oscillator.  The 2004 LEAPS finally got
listed this past week, but too late for us to list them in the
Watch List.  If another entry opportunity arises in the next
week or two, you may want to consider the 2004 $50 LEAP
(symbol:LMO-AJ) or the $40 LEAP (symbol:LMO-AH) for you covered
call players.

BUY LEAP JAN-2003 $45.00 VPM-AH $8.50

New Watchlist Plays

LLY - Eli Lilly and Company $79.30

I'm so happy with the performance of our MRK play and the
fledgling recovery in Drug stocks in general, that I thought it
might make sense to add another play in the sector.  LLY has
been performing fairly well lately, recovering once again from
the $74 level since posting solid earnings in mid-July.  The
stock is now testing the $80 resistance level, but I don't
really expect the bulls to prevail this time around.  But one
look at the weekly chart shows the strength of the support in
the mid-$70s.  The weekly chart of the Pharmaceutical index
(DRG.X) shows the same thing with stochastics on the rise out
of oversold territory.  I'm looking for the daily stochastics
to retrace one more time, dragging the stock down for a retest
of the $74 support level before it really gets moving.  Target
new positions on a bounce from $74-75, as this is right on the
long-term ascending trendline that began last September.  Make
sure the DRG index maintains its positive weekly trend and
volume on the bounce is solid.  Once filled, we'll place our
stop at $69, just below the intraday lows in March.  For you
technology die-hards out there, LLY should help to stabilize
your portfolio while the markets go through their bottoming

BUY LEAP JAN-2003 $75.00 VIL-AO
BUY LEAP JAN-2003 $70.00 VIL-AN  For Covered Call
BUY LEAP JAN-2004 $80.00 LZE-AP
BUY LEAP JAN-2004 $70.00 LZE-AN  For Covered Call

QQQ - Nasdaq-100 Trust $43.18

I've been holding my breath for what seemed an eternity, waiting
to see if the NASDAQ Composite was going to fall apart again and
breach the 1950 support level.  I'm pleased to report that the
tech index is actually holding up fairly nicely, thanks in large
part to the generals like INTC, DELL, CSCO, SUNW and MSFT, which
have all failed to break down over the past couple weeks.  The
net result is that bulls held off the bears during the most
dangerous time; namely July earnings season.  Underscoring the
bulls' case is the recent improvement in the Semiconductor
sector, helped along by Merrill Lynch's comments this past week,
stating that the worst is over.  While I doubt those comments
are enough to keep the chip stocks in ascent mode, the bullish
move in the Semiconductor index (SOX.X) this past week should
help to solidify the overall NASDAQ as we head through the
August/September timeframe.  The $40 support level on the QQQ
has held up nicely over the past month and a return to the
$40-41 level should provide for attractive long-term entries
for the eventual tech recovery.  We may miss out on getting an
entry by asking for the QQQ to come back to this level, but
remaining disciplined will keep us from getting into the play at
a less-than-desirable level, which would subject us to undue
downside risk.  After we get our entry, we'll start out with an
initial stop in the $37-38 area.

BUY LEAP JAN-2003 $45.00 VZQ-AS
BUY LEAP JAN-2003 $40.00 VZQ-AN  For Covered Call
BUY LEAP JAN-2004 $45.00 LRI-AS
BUY LEAP JAN-2004 $40.00 LRI-AN  For Covered Call



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The Option Investor Newsletter                   Sunday 08-05-2001
Sunday                                                      5 of 5

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Option Trading Basics: Terms And Definitions
By Mark Wnetrzak

One of our new readers asked for a simple explanation of entry
and exit transactions that occur in option trading, including
exercise and assignment.

As you know, ownership of an option provides the right, but not
the obligation, to buy or sell a stock for a specific price on
or before a given date.  A call option gives the owner the right
to buy a stock, while a put gives the owner the right to sell a
stock.  The trader who purchases the option, whether it is a put
or a call, is the option "buyer" and conversely, the person who
originally sells the put or call is the option "writer."  After
you have purchased the option, there are two methods (other than
simply allowing it to expire) that can be used to achieve a gain
or avoid a loss: exercise it, or offset it with another option.
A trader who exercises an option agrees to take delivery of (in
the case of call) or to sell (with ownership of a put) the asset
at the option's strike price.  Only option buyers have the choice
to exercise an option whereas option sellers have an obligation,
for which they have been paid a premium, and they may be assigned
the underlying issue at any time prior to the expiration date.

There are a number of unique terms that describe specific option
trading activities but the most important fact to remember is the
initial trade in any position is always an "opening" transaction
and the order to exit a play is called the "closing" transaction.
An opening trade occurs when a person establishes a new position
as either the holder (or writer) of an option and that position
can be closed only through the sale (or purchase) of an identical
option.  The word "offsetting" is sometimes used to describe the
trade that closes a position and that action is initiated when it
is necessary to remove an investor's previous obligation in the
underlying issue.  If an option has not been offset or exercised
before expiration, it will become worthless.  Fortunately, the
potential loss to the buyer of an option can be no greater than
the initial premium paid for the position.  If you are an option
writer, you benefit when it expires worthless because you retain
the credit received from the initial sale of the option with no
future obligation.

It is important to understand that most derivatives traded on U.S.
exchanges are "American" style options.  That means they can be
exercised at any time prior to the expiration date.  However,
holders of American-style options generally elect to realize any
profits or losses by making closing or offsetting trades because
the costs of these transactions are usually much lower than those
associated with exercising.  In addition, a closing transaction
may provide an opportunity for the option holder to profit from
any remaining time value (potential) in the option that would be
lost through exercise.  At expiration, all option exchanges will
automatically exercise an option if the underlying issue's last
trade in its primary market is at least $0.75 "in-the-money,"
unless the holder has issued instructions not to exercise.  Once
the exercise of an option has been assigned to an option writer,
even though he may not yet have been notified of the assignment,
the trader can no longer effect an offsetting transaction in that
option but must instead purchase (or sell) the underlying interest
at the exercise price.

The Options Industry Council, a non-profit association created
to educate the investing public and brokers about the benefits
and risks of exchange-traded options, provides some interesting
facts concerning the topic of assignment.  Surprisingly, only 10%
(on average) of options end up being exercised and the percentage
hasn't varied much over the years.  The data suggests that option
exercises are not that common and based on recent statistics, the
majority of option assignments occur when the option approaches
expiration.  That's a very important fact since one of the most
frequent questions we receive from novice traders concerns the
potential for early assignment of in-the-money" options.  In most
cases, the probability of being "exercised" prior to the option's
expiration is relatively low and only when you are "short" in a
position with little or no extrinsic value does the likelihood of
an unwanted assignment become a concern.

Next week, we'll talk more about option trading fundamentals and
the most common exit and adjustment strategies.

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

SEAC   18.06  26.80   AUG  17.50  2.15  *$  1.59   8.7%
SPCT   15.49  15.85   AUG  15.00  1.25  *$  0.76   7.7%
MCAF   14.31  15.90   AUG  12.50  2.70  *$  0.89   6.7%
TERN    6.12   6.44   AUG   5.00  1.60  *$  0.48   6.6%
HTCH   17.80  19.60   AUG  17.50  1.45  *$  1.15   6.1%
NBTY   15.45  15.66   AUG  15.00  1.05  *$  0.60   6.0%
RFMD   29.33  29.96   AUG  25.00  5.20  *$  0.87   5.2%
VNT    24.22  22.00   AUG  20.00  5.10  *$  0.88   5.0%
CLPA    6.08   6.28   AUG   5.00  1.40  *$  0.32   5.0%
AHAA   34.80  39.75   AUG  30.00  6.10  *$  1.30   4.9%
NPIX   11.15   9.93   AUG  10.00  1.65   $  0.43   4.9%
PHTN   38.17  39.97   AUG  35.00  4.30  *$  1.13   4.8%
DSPG   23.21  25.59   AUG  22.50  1.65  *$  0.94   4.7%
CY     26.16  27.25   AUG  25.00  1.95  *$  0.79   4.7%
POWI   22.22  25.46   AUG  20.00  2.85  *$  0.63   4.7%
GZMO   12.80  12.02   AUG  10.00  3.40  *$  0.60   4.6%
NFLD   17.51  16.69   AUG  15.00  3.10  *$  0.59   4.4%
ELNT   38.08  39.50   AUG  35.00  4.10  *$  1.02   4.3%
FFIV   16.90  14.27   AUG  15.00  3.10   $  0.47   2.5%
NFLD   18.45  16.69   AUG  17.50  2.20   $  0.44   2.4%
CFLO    5.20   4.30   AUG   5.00  0.90   $  0.00   0.0%
LU      7.61   6.60   AUG   7.50  0.75   $ -0.26   0.0%
RCGI   31.16  27.93   AUG  30.00  2.35   $ -0.88   0.0%

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


Are we at the top of a trading range looking down or getting
ready to step higher?  Base building is so much fun (...not).
I would really like to tell you I made a bundle when I called
the turn on Hutchison Tech (NASDAQ:HTCH) last week...ahhh the
pains of being a time merchant.  Compania Anonima Nacional
(NYSE:VNT) is testing near-term support (July low) and should
be monitored closely.  Network Peripherals (NASDAQ:NPIX) may
move back down to its old trading range around $8 and an early
exit may be prudent.  Northfield Laboratories (NASDAQ:NFLD) has
sold off into Friday's earnings report, which was rather dry
(what, no PolyHeme news?), and closed right on its 30-dma.  A
test of the 50-dma ($16) may be next; evaluate your long-
term outlook.  F5 Networks (NASDAQ:FFIV) continues to weaken
and an early exit may be wise.  Cacheflow (NASDAQ:CFLO) may
be offering a second chance exit - depending on your risk-
reward tolerance.  The Lucent Technologies (NYSE:LU) saga
continues!  Yes, dilution is a worry but there was huge
investor demand for the convertible security.  Technically,
I find it favorable that the July low held during the selling
frenzy.  Fun and games with a speculative position.  Some post-
earnings selling for Renal Care Group (NASDAQ:RCGI).  The stock
is testing long-term support at the 150-dma: a key moment!

Positions Closed: Boston Communications (NASDAQ:BCGI), Digimarc
Pacificare Health Systems (NASDAQ:PHSY).


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

ILUM   30.95  AUG 30.00   ILU HF  1.95 34    29.00   14    7.5%
ISSI   15.00  SEP 15.00   XUS IC  1.25 242   13.75   49    5.6%
NETA   16.36  SEP 15.00   CQM IC  2.45 1224  13.91   49    4.9%
NMTC   27.85  AUG 25.00   QEK HE  3.60 160   24.25   14    6.7%
NTIQ   38.60  SEP 35.00   CQT IG  6.50 36    32.10   49    5.6%
PHTN   39.97  SEP 35.00   PDU IG  7.70 26    32.27   49    5.3%
SPCT   15.85  SEP 15.00   QCS IC  2.05 30    13.80   49    5.4%

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

ILUM   30.95  AUG 30.00   ILU HF  1.95 34    29.00   14    7.5%
NMTC   27.85  AUG 25.00   QEK HE  3.60 160   24.25   14    6.7%
ISSI   15.00  SEP 15.00   XUS IC  1.25 242   13.75   49    5.6%
NTIQ   38.60  SEP 35.00   CQT IG  6.50 36    32.10   49    5.6%
SPCT   15.85  SEP 15.00   QCS IC  2.05 30    13.80   49    5.4%
PHTN   39.97  SEP 35.00   PDU IG  7.70 26    32.27   49    5.3%
NETA   16.36  SEP 15.00   CQM IC  2.45 1224  13.91   49    4.9%

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).

ILUM - Illuminet Holdings  $30.95  *** Solid Earnings! ***

Illuminet Holdings (NASDAQ:ILUM) operates an unaffiliated Signaling
System 7 network in the United States, and provides complementary
intelligent network and SS7 services to telecommunications carriers.
The majority of the company's products and services are directly
related to its SS7 network, as either part of the connectivity,
switching and transport function of the network or as intelligent
network services.  In addition, the company provides clearinghouse
services and licenses specially designed software for measuring
network usage.  On July 19, the network services provider reported
that second-quarter earnings more than doubled as core database and
wireless roaming services business remained strong.  Revenues rose
30% in the second quarter to $47 million up from $36 million a year
ago.  The company expects revenues to grow 23-25% year-over-year,
with operating income margins of about 30% and they are comfortable
with First Call's consensus estimate of $0.28 earnings per share in
the third quarter.  Short-term speculation on a long-term prospect.

AUG 30.00 ILU HF LB=1.95 OI=34 CB=29.00 DE=14 TY=7.5%

ISSI - Integrated Silicon Solution  $15.00  *** Bottom Fishing ***

Integrated Silicon Solution (NASDAQ:ISSI) designs, develops and
markets high performance memory semiconductors used in internet
access devices, networking equipment, telecom and mobile communi-
cations equipment, and computer peripherals.  Their high speed
and low power SRAMs and their low to medium density DRAMs enable
customers to design products that meet the demanding connectivity,
portability, and bandwidth requirements of the internet infra-
structure.  A substantial majority of ISSI's sales come from the
data communications and telecommunications markets.  On July 25,
ISSI reported revenues in the third quarter were $20.0 million
with a net loss of $0.14 per share.  The company believes that
the combination of new products, process technology expertise,
and tier one customer base will allow them to return to growth
as market conditions improve.  We simply favor the technical
support area near $14 as ISSI forges a Stage I base.

SEP 15.00 XUS IC LB=1.25 OI=242 CB=13.75 DE=49 TY=5.6%

NETA - Network Associates  $16.36  *** Software Security ***

Network Associates (NASDAQ:NETA) is a leading supplier of security
and availability solutions for e-businesses.  Network Associates is
comprised of four product groups: McAfee (NASDAQ:MCAF), delivering
world class anti-virus products; PGP, providing firewall, intrusion
detection and encryption products; Sniffer, a leader in network and
application management; and Magic, providing web-based service desk
solutions.  On July 19, NETA reported a smaller expected loss and
stated that it will be profitable next quarter by focusing on
overseas markets and tight cost controls.  With a bullish outlook,
Lehman Brothers raised its 12-month price target on NETA to $18
and issued a "strong buy" rating.  The recent virus scare has
boosted the software security stocks and this position offers a
reasonable entry point to speculate on the company's future.

SEP 15.00 CQM IC LB=2.45 OI=1224 CB=13.91 DE=49 TY=4.9%

NMTC - Numerical Technologies  $27.85  *** Rally Mode! ***

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.  The company has
recently announced new products and there has also been some
speculation on a possible major design win from Advanced Micro
(NYSE:AMD).  We simply favor the strong rally and the move above
the May and June highs, which now becomes technical support.

AUG 25.00 QEK HE LB=3.60 OI=160 CB=24.25 DE=14 TY=6.7%

NTIQ - NetIq  $38.60  *** A Record Fourth Quarter! ***

NetIQ (NASDAQ:NTIQ) NetIQ is a leading provider of e-business
infrastructure management and intelligence solutions for all the
components of an organizations' e-business infrastructure - from
back-end servers, networks and directories to front-end Web
servers and applications.   Their solutions cover Manageability,
Windows 2000 Migration, Exchange Migration, Security Management,
Network Performance Management, Storage Administration, Automated
Provisioning, Directory Management, Web Analytics and Visitor
Relationship Management.  NetIQ's more than 52,000 customers
include e-businesses, medium to large enterprises and xSPs.  The
company reported earnings on July 25, with revenues increasing
189% to $58.6 million and a net income of $7.5 million or $0.14
per diluted share.  The stock has broken-out of its base on high
volume and has moved above its 150-dma.  This position offers
a conservative entry point with a cost basis near technical

SEP 35.00 CQT IG LB=6.50 OI=36 CB=32.10 DE=49 TY=5.6%

PHTN - Photon Dynamics  $39.97  *** Growing Smarter! ***

Photon Dynamics (NASDAQ:PHTN) is a leading global supplier of
yield management solutions for the display, electronics and glass
markets.  Photon Dynamics' patented image acquisition and image
processing, electro-optical design, and systems engineering
expertise are currently used for test, repair and inspection of
flat panel displays; inspection of cathode ray tube displays and
automotive glass; and inspection of printed wiring assemblies and
advanced semiconductor packaging.  PHTN develops systems that help
manufacturers collect and analyze data from the production line,
and quickly diagnose and repair process-related defects, thereby
allowing manufacturers to decrease material costs and improve
throughput to gain an incremental yield edge critical to success.
The company also recently completed the acquisition of privately
held Intelligent Reasoning Systems, a business that develops and
manufactures advanced, automated optical inspection (AOI) systems
utilizing its patented adaptive knowledge-based software.  Photon
says the acquisition will provide increased growth opportunities
in yield management for printed wiring assembly and high-density
interconnect (technologies in the electronics market.  In PHTN's
latest earnings report, cash flow was positive and their balance
sheet remains strong with over $100 million in existing capital
and related investments.  The stock appears to be completing a
"saucer-bottom" formation with buying support near our cost basis.

SEP 35.00 PDU IG LB=7.70 OI=26 CB=32.27 DE=49 TY=5.3%

SPCT - Spectrian  $15.85  *** More Bottom Fishing! ***

Spectrian (NASDAQ:SPCT) is a leading designer and manufacturer
of single carrier and multicarrier high-power RF amplifiers for
the worldwide wireless communications industry, utilized in both
wireless data and voice applications.  Spectrian supports AMPS,
CDMA, TDMA, GSM and 3G technologies for mobile and fixed wireless
networks.  A familiar pattern now, Spectrian reported less than
spectacular earnings a few weeks ago but has rallied recently
as investors look to the future.  The stock is forging a Stage I
base and the improving technicals suggest an upside resolution.
We simply favor the support area near the cost basis and signs
of accumulation on this speculative issue.

SEP 15.00 QCS IC LB=2.05 OI=30 CB=13.80 DE=49 TY=5.4%



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

CCRD   10.73  SEP 10.00   UCD IB  1.75 54     8.98   49    7.1%
SONS   24.50  AUG 22.50   UJS HX  2.60 1226  21.90   14    6.0%
MRVL   33.32  SEP 30.00   UVM IF  5.80 1129  27.52   49    5.6%
ULCM   20.86  SEP 17.50   UUL IW  4.80 5     16.06   49    5.6%
LBRT   11.37  SEP 10.00   IEY IB  2.15 1661   9.22   49    5.3%
ICST   21.45  SEP 20.00   IUY ID  2.85 0     18.60   49    4.7%


Market Strategies: Bond Basics - Convertible Securities
By Ray Cummins

This week we continue our discussion of conservative investing
strategies with a review of convertible securities.  These unique
financial vehicles offer worthwhile opportunities for investors
who need current income, yet want to invest in companies that
will benefit from the bullish market trends.  Although this
category of investing is not well known, it can offer favorable
annual returns along with potentially high rewards for those that
choose to learn the fundamentals of the strategy.

Bonds and preferred stock that can be exchanged for common stock
are the most conventional types of convertible securities.  These
instruments provide the necessary means for companies to raise
capital for growth and ongoing operations.  Most corporations fund
their future activities through bank loans or the sale of bonds or
common stock.  Bondholders are reimbursed for their investment
with interest added but inflation will often erode their profits.
Shareholders can benefit from appreciation of a company's share
value but they have no guaranteed income from the investment.
Convertible bondholders enjoy the best of both worlds as they
receive a fixed rate of interest, are virtually assured a return
of their principal, and also have the right to exchange or convert
the bond into a fixed number of shares of common stock.

Convertible preferred stock is a similar financial instrument.  In
this case however, the investor receives a regular distribution or
dividend premium rather than a periodic interest payment.  Unlike
convertible bonds, the distribution is usually not guaranteed.
This type of issue can be exchanged or converted into a fixed
number of shares of common stock but it will not be redeemed at
the end of a specific term; it simply exists as preferred stock
until physically converted.

When a company's stock grows in value, the convertible bondholder
can exchange his holdings and participate in the appreciation of
the issue.  It the company fails to perform in the short-term, at
least the investor gets paid a good rate of interest for waiting.
It's a well-known fact that most of the technology companies pay
little or no dividend however, convertible instruments on the same
issues generally offer attractive yields, plus the opportunity for
future profit at a substantially lower risk.

Convertible instruments are ideal investments for IRA's and other
qualified plans.  The distribution income can often be deferred or
sheltered and the growth of the common stock will protect against
losses from inflation and higher interest rates in other vehicles.
Regular premium bonds have only a small yield advantage over most
convertibles and the risk-reward ratio favors the profit potential
inherent in the future growth of the underlying equity.  In most
cases, convertible instruments will provide a conservative and yet
competitive method to participate in the growth of the current
bull market.

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

HLIT   15.08  16.60   AUG  12.50  0.40  *$  0.40  15.0%
KOPN   15.01  16.38   AUG  12.50  0.35  *$  0.35  13.2%
SAGI   15.41  16.25   AUG  12.50  0.30  *$  0.30  12.2%
IDTI   36.14  37.92   AUG  30.00  0.70  *$  0.70  11.2%
NMTC   24.34  27.85   AUG  20.00  0.45  *$  0.45  11.1%
DTHK   14.21  14.00   AUG  10.00  0.30  *$  0.30  10.4%
NMTC   22.84  27.85   AUG  17.50  0.45  *$  0.45   9.7%
NMTC   23.00  27.85   AUG  17.50  0.55  *$  0.55   9.3%
APCS   16.93  17.05   AUG  15.00  0.55  *$  0.55   8.9%
SEAC   27.18  26.80   AUG  22.50  0.40  *$  0.40   8.8%
SEAC   22.00  26.80   AUG  17.50  0.35  *$  0.35   8.0%
NTIQ   34.14  38.60   AUG  25.00  0.65  *$  0.65   7.6%
ICST   18.54  21.45   AUG  15.00  0.35  *$  0.35   7.2%
AFCI   26.30  27.12   AUG  22.50  0.35  *$  0.35   7.2%
AHAA   33.47  39.75   AUG  25.00  0.55  *$  0.55   6.6%
PHTN   33.18  39.97   AUG  25.00  0.40  *$  0.40   6.2%
ZRAN   32.97  38.99   AUG  25.00  0.60  *$  0.60   6.0%
ILUM   30.30  30.95   AUG  25.00  0.40  *$  0.40   6.0%
CTXS   33.53  35.88   AUG  25.00  0.45  *$  0.45   5.5%
PCL    28.49  27.84   AUG  25.00  0.60  *$  0.60   5.1%
BRCM   41.00  46.99   AUG  25.00  0.40  *$  0.40   5.1%
AMZN   16.98  12.15   AUG  12.50  0.50   $  0.15   3.3%
AMZN   16.98  12.15   AUG  12.50  0.45   $  0.10   2.8%

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


The speculation over AremisSoft's (NASDAQ:AREM) recent volatile
activity came to an end last week when the company's shares were
halted on the NASDAQ.  The issue was placed in a "non-trading"
status until AremisSoft can fully satisfy the NASDAQ's request
for additional information concerning the amount of money the
company claimed it was paid by the Bulgarian Health Insurance
Fund.  BHI Fund officials said they paid AremisSoft $1.7 million
but AremisSoft said it received and recognized as revenue from
the fund more than $7 million.  The $5.3 million discrepancy is
now the source of an SEC investigation and according to a press
release, AremisSoft has engaged independent auditors in London
to conduct a special review of the payments.  In the meantime,
two of its top executives have resigned and the company also
said its earnings and revenues for the second quarter would fall
substantially short of analysts' expectations.  When I said that
traders who did not exit the short Put option in a timely manner
would likely own the stock in three weeks, I had no idea there
could be this much downside potential in the issue.  Of course,
that lends credence to the technician's motto: "The tape tells
all."  Another issue in which the chart pattern may be telling a
disappointing story is Amazon.com (NASDAQ:AMZN) and although our
positions are still positive, this may be the last opportunity
to avoid ownership of the stock for a relatively small price.
If you choose to remain in the original play, monitor the issue
for any move below the current support area near $11.

Positions Closed: Plug Power (NASDAQ:PLUG), AremisSoft (NASDAQ:AREM).


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

ESST   13.95  AUG 12.50   SEQ TV  0.25 247   12.25   14   12.4%
MRVL   33.32  AUG 27.50   UVM TY  0.50 6     27.00   14   13.6%
OEI    19.68  AUG 17.50   OEI TW  0.25 8667  17.25   14    9.1%
PMCS   36.57  AUG 30.00   SQL TF  0.55 5073  29.45   14   13.9%
PPD    20.16  AUG 17.50   PPD TW  0.70 3294  16.80   14   24.9%
SLAB   23.00  AUG 20.00   QFJ TD  0.45 252   19.55   14   14.7%
ZIGO   20.16  AUG 17.50   UZY TW  0.55 25    16.95   14   20.1%

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

PPD    20.16  AUG 17.50   PPD TW  0.70 3294  16.80   14   24.9%
ZIGO   20.16  AUG 17.50   UZY TW  0.55 25    16.95   14   20.1%
SLAB   23.00  AUG 20.00   QFJ TD  0.45 252   19.55   14   14.7%
PMCS   36.57  AUG 30.00   SQL TF  0.55 5073  29.45   14   13.9%
MRVL   33.32  AUG 27.50   UVM TY  0.50 6     27.00   14   13.6%
ESST   13.95  AUG 12.50   SEQ TV  0.25 247   12.25   14   12.4%
OEI    19.68  AUG 17.50   OEI TW  0.25 8667  17.25   14    9.1%

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).

ESST - ESS Technology  $13.95  *** Vialta Spin-off! ***

ESS Technology (NASDAQ:ESST) designs, markets and supports highly
integrated mixed-signal semiconductor solutions for multimedia
applications in the Internet, personal computer and consumer
marketplaces.  The company offers comprehensive solutions for
networking and Digital Versatile Disk (DVD), Internet-related
semiconductor, Communications, Video Compact Disk (VCD)/Super
Video Compact Disk (SVCD) and PC Audio applications.  ESST shares
have rallied in recent sessions amid speculation over the value
of Vialta (OTC:VDHS), which will be distributed by ESS on August
10, 2001.  Holders of ESS common stock on the record date (7/23)
will receive approximately 1.2 shares of Vialta common stock for
each share of ESS common stock they own.  The question is, "How
high will ESST rise before the distribution and where will it go
after the value of Vialta is deducted from its share value?"

AUG 12.50 SEQ TV LB=0.25 OI=247 CB=12.25 DE=14 TY=12.4%

MRVL - Marvell Technology  $33.32  *** Chip Sector Rally! ***

Marvell Technology Group (NASDAQ:MRVL) designs, develops and
markets integrated circuits utilizing proprietary communications
mixed-signal and digital signal processing technology for related
markets.  The company's products provide the critical interface
between analog signals and the digital information used in many
computing and communications systems and enables its customers to
store and transmit digital information reliably, at high speeds.
Marvell also develops high-performance communications networking
and switching products for the broadband communications market.
The semiconductor group is in "rally mode" and MRVL appears to be
bracing for a move out of its recent trading range near $25-28.
Our position allows for conservative speculation on the eventual
outcome of the bullish activity.

AUG 27.50 UVM TY LB=0.50 OI=6 CB=27.00 DE=14 TY=13.6%

OEI - Ocean Energy  $19.68  *** Disparity Play! ***

Ocean Energy (NYSE:OEI) is an independent energy company engaged
in the exploration, development, production, and acquisition of
crude oil and natural gas.  North American operations are focused
primarily in the shelf and deepwater areas of the Gulf of Mexico,
the Permian Basin, Mid-continent, and Rocky Mountain areas.  In
the international markets, OEI conducts oil and gas activities
in Equatorial Guinea, Ctte d'Ivoire, Angola, Egypt, Tatarstan,
Pakistan, and Indonesia.  This position emerged in a search for
over-priced options and with the relatively solid support area
near the cost basis, it offers a favorable risk-reward outlook.
The company has already reported earnings for the quarter with
22% growth in production and an 85% increase in year-over-year

AUG 17.50 OEI TW LB=0.25 OI=8667 CB=17.25 DE=14 TY=9.1%

PMCS - PMC-Sierra  $36.57  *** Own This One! ***

PMC-Sierra (NASDAQ:PMCS) designs, develops, sells and supports
high-performance semiconductor networking solutions.  Their
products are used in high-speed transmission and networking
systems, which are being used to restructure the global telecom
and data communications infrastructure.  The company's overall
strategy is to provide customers with networking semiconductor
solutions that address a range of products and applications.
PMC-Sierra shares rallied late in the week after an announcement
by Standard & Poor's that it will be added to the S&P 500 index.
The fact that Merrill Lynch upped 11 stocks in the chip sector
also boosted semiconductor stocks and we believe PMCS would be
a great addition to any long-term technology portfolio at the
discounted cost basis.

AUG 30.00 SQL TF LB=0.55 OI=5073 CB=29.45 DE=14 TY=13.9%

PPD - Pre-Paid Legal  $20.16  *** Speculation Only! ***

Pre-Paid Legal Services (NYSE:PPD) was one of the first companies
in the United States organized solely to design, underwrite and
market legal expense plans.  The company's legal expense plans
(referred to as Memberships) currently provide for a variety of
legal services in a manner similar to medical reimbursement plans.
Plan benefits are provided through a network of independent law
firms, typically one firm per state or province.  Members have
direct, toll-free access to their Provider law firm rather than
having to call for a referral.  The company has over a million
memberships in force with members in all 50 states, the District
of Columbia and the Canadian provinces of Ontario and B.C.  The
ongoing saga surrounding PPD's accounting practices came to an
end this week when PPD announced it will not pursue any further
appeals with the SEC related to the company's accounting policies
for commission advance receivables.  PPD will amend its previously
filed reports to reflect the SEC's decision and will immediately
begin the process of selecting new auditors to monitor all future
accounting.  Without the concerns of a negative earnings surprise,
the issue should remain comfortably in its current trading range.

AUG 17.50 PPD TW LB=0.70 OI=3294 CB=16.80 DE=14 TY=24.9%

SLAB - Silicon Laboratories  $23.00  *** Trading Range? ***

Silicon Laboratories (NASDAQ:SLAB) designs, manufactures and
markets proprietary high-performance mixed-signal integrated
circuits for the wireless, wireline and optical communications
industries.  The company has focused its efforts on developing
ICs for the personal computer modem market and is now applying
its mixed-signal and communications expertise to the development
of ICs for other high growth communications devices, such as
wireless telephones and optical network applications.  Their
mixed-signal design engineers use standard complementary metal
oxide semiconductor technology to create ICs that can reduce the
cost, size and system power requirements of devices that the
company's customers sell to their end user customers.  Since the
chip segment is performing better than most technology groups,
we decided to select some additional positions in the industry.
Based on the recent trading-range support near our cost basis,
SLAB offers an acceptable risk-reward outlook for traders who
are bullish on the chip sector.

AUG 20.00 QFJ TD LB=0.45 OI=252 CB=19.55 DE=14 TY=14.7%

ZIGO - Zygo Corporation  $20.16  *** Bottom Fishing! ***

Zygo (NASDAQ:ZIGO) delivers high performance metrology and
automation solutions for manufacturers of semiconductor equipment
and precision parts, and manufactures optical components, systems
and fiber optic modules for next generation optical networks.
Zygo makes unique non-contact metrology instruments and systems
and accessories, and optical components and systems to precise
tolerances both for sale and for use as key elements in its own
products.  Zigo's products are based on its core competencies:
interferometry, confocal scanning optical microscopy, systems
integration, automated piece parts handling, precision optics and
modules, and MEMS manufacturing.  There's not much news on this
issue but the technical indications suggest the support area near
$18-$20 is relatively solid and the company's earnings are not due
until after the sold options expire in mid-August.

AUG 17.50 UZY TW LB=0.55 OI=25 CB=16.95 DE=14 TY=20.1%



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

HLIT   16.60  AUG 15.00   LOQ TC  0.40 492   14.60   14   16.0%
ICST   21.45  AUG 20.00   IUY TD  0.50 170   19.50   14   14.2%
ULCM   20.86  AUG 17.50   UUL TW  0.30 38    17.20   14   12.3%
PHTN   39.97  AUG 35.00   PDU TG  0.60 35    34.40   14   11.2%
RCOT   19.01  AUG 17.50   ROQ TW  0.30 125   17.20   14   10.2%
GOTO   22.85  AUG 20.00   GUO TD  0.30 1114  19.70   14    9.9%



 Title: Optimism Prevails Despite Friday's Lackluster Session...

                         - MARKET RECAP -
Friday, August 3

The major equity averages retreated today as stocks consolidated
after a string of upbeat sessions.  A "better-than-expected" jobs
report failed to give the market a lift and semiconductor stocks
were among the worst performers after climbing for seven straight
days.  The Dow industrial average ended down 38 points at 10,512
and the NASDAQ Composite slipped 21 points to finish at 2,066.
The S&P 500 index closed 6 points lower at 1,214.  Trading volume
was light with just 935 million shares exchanged on the Big Board.
Broad market declines outpaced advances 15 to 14.  Activity on
the NASDAQ was also subdued with only 1.2 billion shares traded.
Technology losers edged past the winners 19 to 16.  In the bond
market, the U.S. 30-year Treasury fell 2/32, pushing its yield up
to 5.58%.

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

Compuware  (NASDAQ:CPWR)  SEP15C/12P  $0.10  credit  synthetic
Kohl's     (NTSE:KSS)     AUG65C/60C  $0.75  credit  bear-call
Bank N.Y.  (NYSE:BBK)     AUG45C/45P  $2.65  debit   straddle
EMC Inc.   (NYSE:EMC)     AUG20C/20P  $2.20  debit   straddle
Lowe's     (NYSE:LOW)     AUG40C/40P  $2.90  debit   straddle

Compuware was our best pick of the week, offering a favorable
entry opportunity on Monday and finishing Friday at a recent
high near $14.  The rally on Thursday produced an acceptable
"early-exit" credit (near $0.60) and the play should provide
additional gains in the coming weeks.  The Lowe's debit straddle
also offered a nice (short-term) gain when the issue dipped to
$36.40 on Friday.  The overall credit for the position was near
$3.70, an $0.80 profit on $2.70 invested for less than one week.

Portfolio Activity:

The Reader's Request position in Altera (NASDAQ:ALTR) became a
new winner on Thursday when it jumped above $33 amid the rally
in semiconductor issues.  The upside movement produced a profit
near $0.80 in the speculative synthetic position and with the
sold (short) Put at $25, there is little downside risk before
the August expiration.  Most of the positions in the Calendar
Spreads category are performing as expected and three of the
stocks are trading almost exactly at the sold strikes.  John
Hancock Financial (NYSE:JHF) is at $39.80, Cadiz (NASDAQ:CLCI)
closed at $9.90 and Sinclair Broadcasting (NASDAQ:SBGI) last
traded at $10.05.  Clarus (NASDAQ:CLRS) is the only issue in the
group that has yet to yield a profitable outcome.  There was
relatively little activity in the Straddles group but there is
hope for one of the older positions.  Verity (NASDAQ:VRTY) fell
over $2 to a recent low on Friday and the (AUG15C/15P) position
is now trading at a small profit.  Cable and Wireless (NYSE:CWP)
rebounded from a recent sell-off and traders who initiated the
risk-free exit (selling the bearish portion of the play for a
small overall credit) were rewarded with an excellent profit
when the issue rallied on Thursday.  The speculative strangle
enjoyed a profit potential of over 50% for just three weeks in
the play.  In the Credit Spreads section, Medtronics (NYSE:MDT)
slumped Wednesday on reports of a change in the rates Medicare
pays hospitals for certain procedures.  The new guidelines will
mean cuts in reimbursement for some key procedures for patients
enrolled in the federal insurance program for the elderly and
that will force hospitals to discontinue certain procedures that
are not profitable.  One analyst suggested that Medtronic would
benefit from the changes, due to their technology and breadth of
product line, but investors obviously disagree.  The move below
a recent support area and the 30-dma is indicative of a "failed"
rally and any further downside activity will be ample cause for
an exit in the bullish position.

Questions & comments on spreads/combos to Contact Support
                           - NEW PLAYS -
UTHR - United Therapeutics  $12.30  *** Speculation Only! ***

United Therapeutics (NASDAQ:UTHR) is a biotechnology firm focused
on combating cardiovascular, inflammatory and infectious diseases
with unique therapeutic products.  These products include unique
pharmaceuticals, arginine products and telemedicine services.
Pharmaceutical products include Remodulin, which the company is
developing for treating advanced pulmonary hypertension and late-
stage peripheral vascular disease and Beraprost, which is for the
treatment of peripheral vascular disease.  Pulmonary hypertension
patients require monitoring of certain bodily measurements such as
heart and lung function.  Much of this monitoring can be achieved
with less expense and inconvenience by using telemedicine devices
that enable physicians to monitor patients remotely.  United
Therapeutics intends to provide telemedicine services for a fee
to patients and physicians using and prescribing their products.

United Therapeutics recently reported that the Cardiovascular and
Renal Drugs Advisory Committee review of Remodulin for Pulmonary
Arterial Hypertension (PAH) will occur August 9, 2001, and the
Implied Volatility in its options has increased since the news
became public.  The outcome of the meeting could significantly
affect the value of UTHR shares and traders are speculating on the
near-term movement of the issue with "out-of-the-money" options.
With the large disparities in front-month option premiums, there
are a number of viable positions and we have chosen a speculative
calendar spread for traders who anticipate a favorable Advisory
Committee recommendation.

PLAY (very speculative - bullish/calendar spread):

BUY  CALL  SEP-15.00  FUH-IC  OI=303  A=$1.60
SELL CALL  AUG-15.00  FUH-HC  OI=851  B=$1.00

Note: This position is based on recent increased activity in the
stock and underlying options.  Although the play offers favorable
risk-reward potential, it should also be evaluated for portfolio
suitability and reviewed with regard to your strategic approach
and trading style.

GENZ - Genzyme  $58.75  *** Fabrazyme Approval! ***

Genzyme General (NASDAQ:GENZ) is a division of Genzyme, a unique
biotechnology and human healthcare company that develops products
and provides services for major unmet medical needs.  Genzyme
General develops and markets therapeutic and diagnostic products
and services with an emphasis on genetic disorders and chronic
debilitating diseases with well-defined patient populations.
Genzyme General consists of the Therapeutics and Diagnostics
business units and its wholly owned subsidiary GelTex, which the
company acquired in December 2000.

GENZ shares rallied last week after the company said it received
European Union approval to market Fabrazyme for long-term enzyme
replacement therapy in patients with a confirmed diagnosis of
Fabry disease.  The disease is a genetic disorder characterized
by a build-up of dead red blood cells in major organs such as the
heart.  The condition reduces blood flow to the organs and leads
to kidney failure, stroke, cardiovascular disease, severe pain
and numbness.  These complications typically lead to death near
the age of 40 and until now, there has been no treatment for the
condition.  Analysts say there are as many as 5,000 Fabry disease
patients worldwide, 3,000 of whom are in the United States, and
these few thousand patients constitute a global market that some
experts estimate could reach as much as $800 million by 2005.
Genzyme already has several products on the market, including
Cerezyme, a treatment for a rare disorder called Gaucher disease,
and the company is hoping to gain permission to market the Fabry
disease treatment in the United States.

Traders with a bullish outlook for the issue can speculate on
its future movement with this conservative position.

PLAY (conservative - bullish/credit spread):

BUY  PUT  AUG-50  GZQ-TJ  OI=818   A=$0.35
SELL PUT  AUG-55  GZQ-TK  OI=3257  B=$0.80

MSFT - Microsoft  $66.89  *** Reader's Request! ***

Microsoft (NASDAQ:MSFT) develops, manufactures, licenses and
supports a wide range of software products for a multitude of
computing devices.  Microsoft software includes a number of
scalable operating systems for servers, personal computers and
intelligent devices, server applications for client/server
environments, knowledge worker productivity applications, and
software development tools.  The company's online efforts
include the MSN network of Internet products and services and
alliances with companies involved with broadband access and
various forms of digital interactivity.  The company also
licenses consumer software programs, sells hardware devices,
provides consulting services, trains and certifies system
integrators and researches and develops advanced technologies
for future software products.  Microsoft is divided into three
main areas: the Business Divisions, the Sales, Marketing and
Support Group, and the Operations Group.

One of our readers commented on the recent slump in MSFT shares
and asked if it would be a good candidate for a bearish position.
Based on the current technical indications, the issue does have
downside potential but it may be easier to profit from a strategy
that allows for some upward movement in the underlying stock.  A
simple call-credit spread with the sold strike at $70 offers an
acceptable risk-reward outlook.

PLAY (conservative - bearish/credit spread):

BUY  CALL  AUG-75  MSQ-HO  OI=34330  A=$0.10
SELL CALL  AUG-70  MSQ-HN  OI=63524  B=$0.50

                   - STRADDLES AND STRANGLES -
DOX - Amdocs Limited  $45.37  *** Probability Play! ***

Amdocs (NYSE:DOX) is a provider of software products and services
to major communications companies in North America, Europe and
the rest of the world.  The company's Business Support Systems
products consist of families of customized software products and
services designed to meet the critical business needs of specific
communications market sectors.  The company provides primarily
Customer Care, Billing and Order Management Systems for major
communications and IP service providers.  Its systems support a
range of communications services including wireline, wireless,
broadband, electronic and mobile commerce and Internet services.
The company also supports companies that offer multiple service
packages.  In addition, Amdocs provides a full range of Directory
Sales and Publishing Systems to publishers of both traditional
printed yellow page and white page directories and electronic
Internet directories.

This position meets our criteria for a favorable straddle; cheap
option premiums, a history of volatile price activity and the
potential to move (high or low) enough to make the straddle
profitable.  This simple 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  SEP-45  DOX-II  OI=156  A=$4.00
BUY  PUT   SEP-45  DOX-UI  OI=39   A=$3.50

DL - Dial  $17.44  *** Cheap Speculation! ***

The Dial Corporation (NYSE:DL) manufactures and sells consumer
products.  The company markets its products primarily under the
Dial soaps, Purex detergents, Renuzit air fresheners and Armour
canned meats brand names.  The company also markets specialty
personal care products under the brand names Freeman and Sarah
Michaels.  For organizational, marketing and financial reporting
purposes, the company is organized into four segments: Domestic
Branded, Specialty Personal Care, International and Commercial
Markets and Other.

Dial announced last week its board has determined that the sale
of the company is in its best interest.  The announcement came
nearly a year after the company first suggested it was looking
for a buyer, in light of the fact that small consumer-products
makers are finding it increasingly difficult to survive in the
retail world.  Dial said as early as last September that it was
considering putting itself up for sale and the company has also
recently reported it is reviewing alternatives for its specialty
personal-care unit, which had declining sales in the quarter.
While pieces of the company have attracted some interest, Dial
says no serious discussions for the entire company have taken
place but officials confirmed that the board is committed to
reviewing all potential opportunities.  Prudential believes Dial
is worth $19 to $22 per share and if the recent activity is any
indication, the company's stock will continue to be active in
the coming sessions.

PLAY (speculative - neutral/debit straddle):

BUY  CALL  AUG-17.50  DL-HW  OI=150  A=$0.50
BUY  PUT   AUG-17.50  DL-TW  OI=3    A=$0.55

EDS - Electronic Data Systems  $62.96  *** Reader's Request! ***

Electronic Data Systems (NYSE:EDS) is a professional services
company that offers its clients a portfolio of related services
worldwide within the broad categories of systems and technology
services, business process management, management consulting and
electronic business.  The company's unique services include the
management of computers, networks, information systems as well
as information processing facilities, business operations and
related personnel.

Each week, we receive new requests for neutral Credit Strangles
but with the recent decline in the Implied Volatility in options,
the number of theoretically favorable candidates is quite low.
However, we have identified a few potential positions, based on
historical option pricing and the underlying issue's technical
background.  EDS is one of the best candidates, as it has a well
defined trading range and no (expected) upcoming events that will
substantially change its fundamental or technical character prior
to the August expiration.  Current news and market sentiment will
have an effect on the position, so review the play thoroughly and
make your own decision about its outcome.

PLAY (speculative - neutral/credit strangle):

SELL CALL  AUG-65  EDS-HM  OI=4876  B=$0.75
SELL PUT   AUG-60  EDS-TL  OI=4208  B=$0.60
UPSIDE B/E=$66.40 DOWNSIDE B/E=$58.60


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